Airline companies may be the businesses everyone fantasizes the most about trying to fix. So many issues pose fresh challenges: new rounds of mergers, rising costs, waves of customer dissatisfaction. It’s an industry in which wages have plummeted by $15 billion since 2001, and one that possesses an overstressed air traffic infrastructure. Repairing the overall industry seems, at points, impossible.
Or is it? Thomas A. Kochan, a management professor at MIT, took the time to speak with us about airline industry models and the future of the industry. Below are excerpts.
Why are employee relations and culture so important in the airline industry in particular? Because, as our airline research over a decade has shown, a high level of engagement and a good labor relations system are the keys to increasing productivity and service quality. And productivity leads to profitability. In the airline industry, productivity requires two things from the work force. First, it requires that workers use their discretionary effort to solve problems for us as passengers, which means they must be motivated and authorized to do so on the front lines. Second, it requires labor peace -- no prolonged conflict over new contracts, no slowdowns, sickouts or stoppages. In so cost-driven an industry, productivity is all. With employees, there’s a virtuous cycle and a disastrous cycle that airlines can follow, and the only question is, which one are they going to choose?
Are there airlines that have figured out employee relations issues? There are several airlines that do it well. The premier example -- the one that people always turn to -- is Southwest Airlines Co. Southwest is the most highly unionized airline in the industry. It has had 25 years of successful financial performance and good labor relations. It does so because it has been very clear in building a partnership with its employees and its unions around its strategic objective of turning planes around quickly in airports. It designs its operating system to achieve that objective. It designs its employee relations system to achieve that objective. It gets everyone working together; it avoids complicated work rules. So Southwest is the most visible example.
Where do you think the airline industry is headed? I think there are three potential scenarios. The first one is the most negative and maybe the most likely, and that’s that the status quo continues. If the status quo of highly adversarial relationships continues, then in the current environment I think we’re headed toward what might be called a perfect storm. The contracts in this industry start to come due in 2010, and many of them for the first time in the history of the industry come due at the same time because concessions were made at the same time (by pilots, baggage handlers, flight attendants, etc.) during bankruptcy. When that happens, you’re going to see all the pent-up pressures of this highly demoralized work force just explode. And that’s when we’ll also be facing an overstressed air traffic control system; we’re not currently able to hire enough air traffic controllers to replace retirees fast enough. And so I worry that we’ve built ourselves a potential disaster situation where all these pressures come together and we have a meltdown of the system. That’s the most likely scenario because you have a very demoralized work force in the industry right now.
What’s the second scenario? The second, more positive scenario is that company by company we start to work on these workplace relations issues. These mergers that are being discussed are the natural opportunity to do that. If Northwest and Delta said, “We’re going to have a different approach here. As we go through this merger, we’re going to build a business plan for engaging employees, we’re going to figure out who’s representing whom in our merged organization and we’re going to insist that our managers and our union leaders work with us to build a single, positive workplace culture to negotiate contracts over a period of time that help employees step by step regain some of the losses they’ve incurred as we begin to rebuild our profitability,” then I think one could see a much more positive scenario. And if one or two of the companies do this and are successful, then it will put pressure on the others.
A third possibility is that we get a sensible transportation policy and that we have the government begin to say, “Look, this is a disaster. This industry is very important to the security of our country and to the overall economy and certainly to the economies of many of our communities around the country.” We have a stake in making sure that the industry starts to deal with these issues and starts to take the kind of leadership that I think is possible and that is absolutely necessary in order to deal with them.
This article is adapted from “The Management Lessons of a Beleaguered Industry,” by Michael S. Hopkins, which appeared in the Fall 2008 issue of MIT Sloan Management Review. The complete article is available at http://sloanreview.mit.edu/smr/.