Aviation workers are hoping 2004 will be a better year for their sector than last. Shane Enright considers the key issues to be confronted by unions as they work to bring stability back to a troubled industry...

In 2002 international airlines collectively lost more money than they had made in total profits over all the years since the end of the second world war. Results for 2003 were not much better. Many carriers are at the edge of bankruptcy and some famous names have disappeared altogether. Nor is the misery limited to the airlines. Air traffic control agencies are in deep trouble, while catering and other service providers have made swingeing cuts to jobs and conditions.

The events of 9/11 in the US, the outbreak of severe acute respiratory syndrome (SARS) in Asia and Canada, and a war in the Gulf have all contributed to an unprecedented crisis affecting the air transport industry. But these external shocks, far from causing the crisis, have instead magnified the underlying problem, which is the continuing inability of the industry to manage the swings in demand for air travel caused by the cyclical nature of the industry.

Economic historians have long recognised that the global economy is cyclical in nature, with periods of growth followed by recession on an approximately 10-year cycle. For example, the late 1980’s and late 1990’s were periods of rapid growth in the global economy, each followed by significant downturns in the early 1990’s and in the first years of this new century.

The air transport industry is more sensitive to these economic swings than most other commercial sectors. In hard times, air travel is one of the first items that businesses cut back on, while a climate of economic insecurity also impacts very quickly on personal or leisure trips. As a result, demand for air travel tends to mirror very rapidly and sensitively the boom and bust swings in the local or global economy.

The problem for the airlines and air transport companies is that an airline flight is a perishable product. Every time a flight takes off with an empty seat, that potential sale is lost forever. It isn’t possible to stockpile airline ticket sales to meet future demand in the way that, for instance, a car maker or luxury goods manufacturer could continue production to meet a later recovery in the market.

As a result, when the bad times hit, air transport companies, including service suppliers such as handling and catering agencies, move very quickly to cut supply to match falling demand and to control their costs. As Peter Turnbull and his colleagues at Cardiff University have shown in their report Contesting the Crisis (featured in TI no. 10) the result is that airline workers are used as the primary shock absorbers to manage this cycle.

Cutting supply means cutting flights, which in turn means cutting jobs. Working conditions suffer, too, as employers focus on costs. Aviation workers are expected to make ever-greater uncompensated improvements in productivity and to agree concessions on pay and contracted working conditions.

Workers face up to reality
Aviation workers and their unions have responded to the red ink in company accounts by doing everything necessary to preserve jobs and, in a growing number of cases, to avoid the bankruptcy of their airline or service company.

Many billions of US dollars have been given away in the form of wage cuts, unrewarded productivity increases or concessions on working conditions to keep companies afloat. Carriers such as Aer Lingus or SAS in Europe, Varig and Aerolineas Argentinas in South America, United Airlines, American Airlines and Air Canada in North America, as well as a number of flag-carriers in Asia and Africa, are only flying today because of the willingness of aviation workers to make sacrifices and find constructive solutions to the immediate crisis affecting their companies.

In some cases, the best efforts of aviation workers have not been enough, as was the case with Air Afrique, Sabena and Ansett, whose disappearance has not only resulted in job losses, but left communities without essential air links, impoverished the essential economic infrastructure of their countries, or increased the monopoly power of surviving competitors.

Similar challenges have faced unions in ground-based handling, maintenance, support and traffic management agencies. One of the most widespread cost-cutting measures introduced by airlines in the early days of the crisis was swingeing cuts to on-board catering. As a consequence, the major multinationals providing airline catering, LSG Skychefs and Gate Gourmet, have axed thousands of jobs and closed down kitchens. In some countries up to 50 per cent of airline catering jobs have gone.

Where these jobs have been retained, there is an increasing move towards a logistics rather than food production role, with companies managing supply and delivery to airlines of products that have been brought in from subcontract suppliers. Ground handling and airport services have also been affected by productivity and organisational change. The wildcat strikes at London’s Heathrow airport in July and August last year indicate what the consequences can be when such change is imposed without adequate involvement from workers and their unions.

Air traffic services represent a special case. Unlike the airlines, and ground service providers, it is not possible for ATS agencies to cut capacity in times of reduced demand. Switching off radars or closing down sectors of airspace is not an option if safety coverage is to be universal. If the number of aircraft flying is reduced, but the costs of providing ATS remain constant, then each flight must be charged more in order to keep the service going.

Traditionally, ATS providers were considered part of the national economic and safety infrastructure. As in the case of road traffic lights and rail signalling, governments have maintained and upgraded the ATS infrastructure through public funds.

The commercialised and privatised agencies, such as NAVCAN in Canada and NATS in the UK, have faced major financial difficulties. They have not been able to generate sufficient income from fees either to meet their obligations to commercial banks or to meet the expectations of shareholders for a share of profits. In the case of NATS of the UK, an additional injection of public funds was necessary to keep the agency afloat.

Thankfully, there are signs that civil aviation is turning the corner. This year airlines are expected to carry the same number of passengers as in 2000, and the air transport industry is expected to return to positive growth within two years. The road ahead is bumpy, and aviation unions remain focused on jobs and conditions, but without losing sight of the longer-term picture.

Three themes are now emerging in debates about the future economic and commercial direction of the industry. In the first place, unions are asking serious questions about the management of the business cycle and the commercial practices of companies. Secondly, they are tracking and influencing the profound structural changes taking place in air transport. Finally, an increasing amount of energy is being devoted to the future economic regulation of the sector. In all of these domains, there is reason for optimism, notwithstanding some serious challenges.

Corporate strategies
The business strategies of airlines and aviation companies have come under intense scrutiny. Aviation unions are insisting that the revenue side of the cost equation be given due consideration by airline management. The chronic marginal profitability of the airlines, in particular, needs to be addressed. Just as important, there needs to be a better stewardship of the business cycle.

During the last economic boom, airlines piled on capacity in their efforts to gain market share. But they did so with little regard for yield. And then when the downturn hit, they laid off massively, only to have to start to re-hire, in some cases within months. Air transport is very capital-intensive – aircraft and infrastructure are very expensive – and the industry relies on professional skills that are in short supply across a range of occupations. Surely the sector should be managed on the basis of long-term sustainable models rather than being driven by short-lived commercial advantage, short-term shareholder returns or the gung-ho mentality of some airline barons?

Such questions are opening up debate, among other issues, on the wage and contract bargaining strategies in the sector. Temporary concessions made during the early 90s’ downturn sometimes became permanent give-aways. When airlines, and their support infrastructure companies, had record profits in the late 90s, workers often had to struggle to get a share of the results of their labour and restitution for their sacrifices over the years. The outcome was a wave of disputes and industrial action. No wonder that aviation union negotiators have been wary of management strategies in the current downturn. Notions of partnership can only work when all stakeholders share the profits as well as the pain.

Yet at the same time, it is becoming ever clearer that the committed involvement of aviation workers is critical to future adaptability and in some cases survival. A number of airlines, service companies and ATS providers are only operating today because trade unions have acted as partners in managing the process of change.

Unions have an opportunity to seize the moment to demand better recognition of workers’ concerns and a deeper involvement in decision-making. International co-operation through the ITF is also spurring this demand, for example in the airline alliances and multinational handling companies.

Structural change
The 1990s saw global multinational companies emerge to offer subcontract functions shed by the airlines, such as catering and passenger handling. The first years of the 21st century are likely to lead to a further change in the structures of airlines themselves. The emergence of low cost carriers, and the continuing competitive strength of regional operators, is forcing the former flag-carriers to review their network models. In some cases network carriers are seeking to establish low-cost subsidiaries, often on the basis of inferior working conditions.

Airline alliance coordination is likely to grow in influence as carriers integrate their networks more and more to gain competitive advantage. Feeder routes may be discarded or franchised. The alliances in turn may prove to be a transitory stage if international takeovers become possible through changes in the national ownership rules. This is happening already in Europe. If the aim of such consolidation is to strip out excess capacity, then it is important that carriers consult with their employees.

Air traffic services providers are now facing the same pressures to commercialise that has been experienced by the airlines and ground handling agencies. Support functions are being outsourced, and in some countries, notably the US, some politicians are pressing for ATS services to be privatised. Unions will need to be vigilant to ensure that the public interest dimension of any privatised service is defended.

These changes are challenging traditional bargaining and representation structures. In a number of cases, enterprise-based trade unions have broadened their scope in order to retain representation for outsourced workers and to ensure that they can follow the workers irrespective of changes in their employer.

Smart regulation
The continuing inability of the industry to manage fluctuations in demand, together with the chronic marginal profitability of airlines in even the best of years, is leading unions to question whether market forces alone are enough to deliver a healthy and vibrant air transport industry, able to meet public interest concerns as well as commercial objectives. There is a growing recognition by academics and governments that one of the consequences of greater liberalisation of flying rights is that, although growth may increase, downturns become more severe in the absence of a regulated market.

Fortunately, governments meeting at the International Civil Aviation Organization (ICAO) air transport conference in March 2003 rejected further universal deregulation and liberalisation, insisting instead: “Each state will determine its own path and own pace of change”. In practice, this means that the focus of the neo-liberalisers will shift from global fora such as ICAO and the World Trade Organisation, to regional bodies such as Asia Pacific Economic Cooperation (APEC) and the European Union.

This will require an increasing engagement of unions at the regional level. For example, European and North American unions have begun a dialogue on the proposed Open Aviation Area that would span the Atlantic. Latin American unions have developed an innovative proposal for a common aviation area for the Mercosur countries.

Unions will continue to challenge changes in ownership and control rules, and the liberalisation of flying rights. However where such rules have been relaxed, competition authorities, rather than transport ministries, are likely to take an increasingly important role. Unions are responding to these shifts by engaging more actively in competition referrals and by insisting on participation in the national negotiating teams that agree bilateral or multilateral air service agreements.

In some cases, the interventions will be very specific. There is no doubt, for example, that the charging formula for air traffic services that has been agreed by ICAO, will need to be revisited to take account of the change in aircraft fleets and volume of flights operating today. In particular, ATS unions are arguing that the cost formulas used to charge airlines for such services need to be balanced out over an entire business cycle.

There is no point rebating excess payments in good times, if this will leave inadequate funds to maintain the service and infrastructure when demand is lower. One solution being put forward by unions is for the establishment of reserve funds. These would be dedicated to financing operational and investment costs at those points in the business cycle where income from charges declines but costs remain fixed or are rising.

A common asset
At the heart of the trade union approach to these debates is the recognition that while the air transport industry operates in a commercial environment, there is a public interest dimension that needs to be defended. Air transport brings communities together. It has social and economic functions that cannot be determined solely by commercial criteria. Aviation is a part of the essential economic infrastructure of nations and an important vehicle for the expression of national sovereignty. In this context, unions will continue to argue against the privatisation of key functions and services. At the same time, however, they will seek ways of securing the economic efficiency and commercial success of all components of an industry in which the workers are key stakeholders.

Shane Enright is Aviation Secretary of the ITF, based in London.