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Page context: Home > Transport International Magazine > Issue 20 July 2005 > Value for money
Labour costs in aviation are not so great, when you consider the value of the investment, says Ingo Marowsky
Labour is one of the biggest operating costs in an industry providing jobs for up to 3.5 million people. Depending on the region, economists agree it accounts for up to 25 or 30 per cent of expenditure, even surpassing fuel at the top of the list.
But a glance beyond the figures to consider other crucial factors – including risk assessment and the role of labour as an asset for aviation – sheds a different light on the labour cost issue.
Aviation is one of the traditional service industries, and all such industries are more labour intensive than say, the manufacturing sectors. Building a plane is highly mechanised today, but filling, flying and operating it remain tasks for a human workforce. As is the case with the use of heavy machinery, the potential of the investment can only be realised by paying a sensible price to acquire and maintain it.
Time and again, ill-informed analysts and managers attempt to blame industry misfortunes on the trade unions. Yet trade unions do not dictate labour costs.
Collective agreements carry two signatures, one of which is from the chief financial officer of the company. After evaluating the situation, the social partners – management and trade unions – agree on a document designed to guarantee fair pay for good work.
If trade unions were at the root of airlines’ problems, the widely non-union US carrier Delta Air Lines for example, would be much better off, when in fact it is no further away from bankruptcy than other large US carriers.
Labour a low risk
Should a labour organisation decide to take industrial action, the newspapers are quick to comment on the losses that will be sustained. Often they are slower to recognise the joint responsibility for this action, which is shared by management and unions. Both will be weighing up the costs of any possible strike – lost pay or bookings, bad press, angry passengers – and balancing them against other considerations during the relevant round of negotiations.
With regard to a proper risk assessment, a study recently published by the management consulting and research group Mercer Mercer on Travel and Transport: “Is Airline Industry Risk Unmanageable?” by Michael Zea, London, 2004, presents interesting findings. Among the main areas of risk threatening airline businesses, labour only accounts for around 18 per cent, which is comparatively low considering the figures for strategic risk factors – almost 50 per cent, and financial risk – 22 per cent.
Research by the Massachusetts Institute of Technology confirms this point by demonstrating that airlines in the US have only experienced two full strikes in over a decade. (MIT Global Airline Industry Program: “Out of the Ashes, Options for Rebuilding Airline Labor Relations”, by Tom Kochan, Andrew von Nordenflycht, Robert Mc Kersie and Jody Hoffer Gittell, Cambridge, 2003.)
The fact that these strikes occurred during a series of unprecedented pay-cuts and concession agreements, outsourcing and lay-offs reiterates the low-risk nature of labour.
Meanwhile IATA figures show that during the time span 1993 to 2003, aviation labour’s productivity has increased by 55 per cent. What piece of heavy machinery can mirror this achievement?
Returns on investment
The human workforce fulfils the fantasy of machine operation: a constantly learning means of production, adaptable, flexible and ever more skilled. By contrast, let’s take the example of the mechanised check-in kiosk now used all over the industrialised world, which fulfils no task other than checking in passengers. It needs constant overhaul and replacement to keep up with changing functionality demands and is dead capital in periods of low passenger traffic. Check-in agents use the time in between high passenger traffic streams to sort ticket stubs, work on filing and solve problematic cases, which may have arisen during the phase of high traffic.
The workforce provides a constant resource in the field of process optimising and production streamlining. It is no secret that endless workshops, which were originally named “quality circles”, have maintained the core idea of benefiting from the on-site knowledge and experience of workers. In this way, billions of dollars have been saved.
Once labour is recognised as more than just a cost, it remains to be asked whether a new joint approach could be achieved, incorporating economic, regulatory and industrial relations considerations. Would this contribute towards a healthier aviation industry, and make a “win/win” situation attainable?
Though the high priests of free market religion refuse to admit it, the unleashing of market forces and unlimited deregulation have failed. After each deregulation drive, losses to the industry have been more serious than in the preceding downturn. The well-known and broadly accepted business cycle of the industry clearly shows this.
It takes only a little common sense to move from a position of deregulation to what has become known among aviation academics and labour activists as “smart” regulation. This means regulation that is:
- Sustainable and thereby compatible with the long term social, economic and environmental needs of the industry;
- Measured, to the extent that any regulation should not over-burden the industry in red tape, but at the same time should provide adequate protection for employees, passengers and other interested parties;
- Accessible to the input of all stakeholders;
- Helpful in establishing clear lines of responsibility for various activities or the provision of different services;
- Targeted towards key areas of activity such as training, safety, security.
The aviation business cycle is very predictable, with ups and downs every eight to 10 years. Like clockwork, stakeholders encounter a rich, booming phase, followed by devastating gloom a few years later. During the times of an upswing, crisis preparations must be made for the coming downswing. As the business cycle cannot be broken, it must be better managed – by both social partners together.
It is no coincidence that the US low cost carrier Southwest Airlines has never lost a single day of work through industrial action. Management accepts trade unions as the true representative collective voice of its employees, while the unions accept the company’s need to survive in a highly competitive market and make profits – from which not only shareholders benefit, but employees as well. The atmosphere of trust that results has been built up by both sides over time. It is not something that can be called upon by management in times of crisis, and abolished once concessions are made.
In this spirit any pact for recovery – which might include painful concessions on the part of labour – must include a mechanism for returning these concessions, at least in part, when a better economic situation allows. The alternative is to destroy trust during the creation of short-term financial gain, and in that case the damage done to the industrial relationship will have an adverse long-term impact on the airline.
The Ireland-based carrier Ryanair, has followed the low cost approach of Southwest, but rejected its labour relations example. Ryanair is currently being confronted with industrial relations and legal challenges in several European countries. These challenges concern fundamental employment and trade union rights (more details at www.ryan-be-fair.org), which unionised workers at other airlines have fought so hard to improve. A number have already resulted in landmark victories for the rights of workers.
It remains to be seen whether Ryanair’s aggressive union-busting and cost-cutting approach will ultimately prevail and secure long-term profitability for the airline. Should this happen it will be one in the eye for social partnership. But my guess is, it will only be a matter of time before Ryanair reforms its labour relations approach or faces severe financial consequences.
Like any good investment, the value of labour increases over time if it is properly looked after. Labour costs in aviation may be high, but they are not as high as the cost of failure to recognise the essential worth of the workforce. Aviation unions must continue to argue that by nurturing their investment in labour through a partnership approach, airlines can expect to reap benefits through the good times and the bad.
Ingo Marowsky is secretary of the ITF civil aviation section.
Issue 20 July 2005
Other pages for Issue 20 July 2005:
Comment: Fighting Back and Winning | ITF launches new global website | Protecting our waterfront | The fight for true democracy | Enter the hit squads | This is why we joined a union | Transport goes transnational | From wellhead to wheel | Competition gone mad | Putting the seafarer first | Driving change in Kurdistan | End this railway nightmare | We can help to defeat poverty | Readers’ thoughts on poverty | Working life
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