Download - 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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