6- Labor Relations

8/10/2019 6- Labor Relations

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AVIATION LABOUR

(Human Resources)

The important input


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Largest Single Cost

element

World Averages over Total Costs

While Fuel ranges 10 to 15 %

Labour 15 to 40 %

1. USA range 3540 %

2. Europe range 2035 %3. Far East range 1520 % of TOTAL Cost


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Why Labor Relations are

MORE important in Service

industries ?

Unlike Products;.. Services can not bestocked !


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2 Crucial Groups of

FACTORs

COST of Labour

PRODUCTIVITY of Labour


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Controlability Aspect

All other costs are outside the control of theairline

Aircraft prices / maintenanceFuel

Handling / Catering / Airport / Over-flight

Advertising-Sales Costs

Labor can be kept under control


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PRE POST Deregulation

PRE : Cost +

POST : Transparent


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Cost of Labour:

Unit cost of Labor as an input required

to produce a defined unit of output


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Variables affecting Labour

Cost

Wage structures in the Home-Country /

Home-Base Region.


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Absolute Cost

Labour costs may be equalbutpercentagesover total may differ ..

Due to varying OTHER INPUT Costs

Currency devaluations may push %age

down (employees getting poorer) Otherinputs still in $ or Euros


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Factors affecting

Union Strength

State ownership of airline (political)

Shortage ( foreign pilots of CX )

Employee pension plans and otherrelated social costs at the home base


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Comparatively low Social

charges in the UK

The reason for the emergence of the lowcost no frills airlines from this region


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ABSOLUTE Level But

Relative importance of other input cost (i.e : low fuel costs in the US ) push L up.

&

Fluctuations of home base countrycurrency


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PRODUCTIVITY of Labour

FIRST Yardstick for a productivity

evaluation:Available Tonne-kilometres / Employee

(ATK/emp.)


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Asia Pacific Airlines better

Between 1.5 TO 3.0 times than the European& US counterparts

BUT also are to consider

Hours worked in a day

Working days of the week

Length of annual holidays Sector lengths ( same input for a 3 hr. flight

and a 12 hr. flight. Local EU vs. QF flights )


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Short sectors can be turned

into Advantage by HIGH

Frequency

This improves productivity in 2 Ways:

1. Staff numbers are the same for only 1or several flights(economy of scale)

2. Higher a/c and crew utilisation


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Another factor affecting L

productivity: OUTSOURCING

and CONTRACTING OUT

Use extra laborcapacity to serveother airlines

CONTRACTING OUT

OUTSOURCING handling catering

technics

Core


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New Yorker issue

outsource


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COST of the employee

Not necessarily the total number ofemployees and the ATK/emp., BUT also

ATK / X number of units of currency costitem

i.e: ATK/ 1000 USD of Labor Cost


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Pressures Growing to

Reduce Further the Cost of

L

Part Time Staff helpful;

At Peaks helps adjust to demand

At Troughs (off peak) minimizes cost orcan be phased out seasonally (studentsetc)


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BENCHMARKING

A concept to approach with caution

with regard to salaries{ Absolute vs. Relative [to other sectors]}


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Fringe Benefits

Benefits bring job satisfaction

Do not escalate hard cash spending

Increases Productivity

(taxed in some countries)


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Restructuring / One Time

State Aids in the EU

Debt payments

Staff reductions { retirement compensations}


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Re-negotiate Terms

Conditions of Contract


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Set up low-cost

subsidiaries

( or buy into OR franchise smaller

independent airlines )


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Outsourcing

and/or

Contracting out

some activities


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Move Some Activities

to other regions/parts

of the world


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Profit Related Bonuses

E

mployee

S

tock

O

ption

P

lans (ESOP)


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Another Possibility (?)

Go out of Business & RE-Start

Continental in 1983: (within 54 hours)78 points to 25

16000 employees to 4000

83 K to 43 K for pilots

Frank Lorenzos salary 267K to 43K (pilots pay)


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Strikes

THY Strikes in the 80s & 90s

Chaos Strikes One day walk outs

One isolated flight walkouts


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PBGC

Pension

B

enefit

G

uarantee

C

orporation

3.2 Billion $ ( 5 year obligation) United

Airlines Pension Plan bail out of June2005 saved UA from bankruptcy


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Compare

US

vs.EU {strong social aspect}


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Taxes

Language barriers

Social security plans Labor Unions

Traditions


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Job Security

Alliances ?


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I AM CONVINCED THAT COMPANIESSHOULD PUT THEIR STAFF FIRST,

CUSTOMERS SECOND ANDSHAREHOLDERS THIRD

Sir Richard BRANSON

CEO Virgin Atlantic Airways


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