Airline deregulation leads to brutal struggles over union wage rates
To be big in the U.S. airline business was once a strength. Now it is a weakness. That is the conclusion many airline executives have reached after five years of bitter fare wars. Largely as a result of airline deregulation, which started in 1978, a two-tiered industry has come into existence. On the one hand are the old, giant, heavily unionized trunk carriers with high, fixed labor costs. Examples: Continental, Eastern and TWA. On the other hand are the new, small, nonunionized carriers. Examples: People Express, Muse Air and New York Air.
Vast wage differences exist between old and new carriers. Pay for a pilot on a unionized airline is roughly twice that on a nonunionized one ($85,000 vs. $45,000). The old carriers did not worry excessively about labor costs in the days of regulation because they could always pass along the higher union salaries in higher fares. But now, in an era of deregulation, an airline can set any price it wants, and the nonunionized carriers are offering inexpensive flights that are stealing business away from the unionized ones. Lately though, the older lines have been trying some unorthodox ways to cut wages.
On Sept. 24, Continental Air Lines Chairman Frank Lorenzo, 43, attempted to reduce wage costs by temporarily going out of business. Lorenzo's plan was to close down the ninth largest U.S. airline and reopen a smaller carrier with lower labor costs, along the lines of the newcomers. Lorenzo claimed that Continental had been unable to win enough voluntary wage concessions from its unions.
True to Lorenzo's aim, Continental was again flying last week. Within 54 hours of filing petitions for reorganization under bankruptcy laws in Houston, it had re-established service to 25 of the 78 cities it had served. It fired all 12,000 employees and then invited 4,000 back at barely half their former wages. Senior Continental pilots who used to average $83,000 a year could return, but at salaries of $43,000. Flight attendants who had worked their way up to $35,700 were cut back to $15,000. Senior mechanics saw their wages shrink from $33,280 to $20,800. Lorenzo also reduced his own salary from $267,000 to that of a senior captain, $43,000.
Continental employees were livid at the bankruptcy and pay offers. Said one worker, recalling the airline's past brushes with economic disaster: "A lot of people gave their hearts and souls here for years. Now there is nothing but broken hearts." Complained Senior Flight Attendant Pearl Kelly: "Lorenzo is pulling us around like puppets."
Some employees accepted the pay cuts because they felt there was no real choice. Said Flight Engineer Joseph Glavin: "They've got us between a rock and a hard place. You can quit and save your pride, or you can continue to work and hope for the best." Flight Attendant Jacki Vanderhock, 29, agreed to a 50% cut, from about $2,200 a month to $1,000. Said she: "I think we'll make it. At least if we agreed to work, we had a job and a future."