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Analysis: American Pilots Issue Vote of No Confidence in CEO Doug Parker

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Analysis: American Pilots Issue Vote of No Confidence in CEO Doug Parker

Analysis: American Pilots Issue Vote of No Confidence in CEO Doug Parker
February 15
18:28 2017

MIAMI — Pilots at the union representing American Airlines have issued a symbolic vote of no-confidence in Doug Parker, the airline’s CEO, citing concerns over pay and Parker missing a meeting last week with US President Donald Trump that was attended by the chief executives of rival carriers such as Delta’s Ed Bastian and United’s Oscar Munoz.

In a unanimous vote, the 22 board members of the Allied Pilots Association (APA), which represents more than 15,000 American pilots, sent an aggressive signal to the carrier’s management on the same day that nearly 100 flight attendants picketed the company’s headquarters in Fort Worth.

In a statement on the union’s website, APA President Captain Dan Carey laid out a series of claims about the failures of American’s management team.

“Since the merger closed over three years ago, we have witnessed questionable economic and strategic decisions that have created gaps in the areas of customer satisfaction, operational performance, and revenue when compared to industry leader Delta,” said Carey.

“These gaps may have a lasting negative impact on the future profitability and success of American Airlines…They can’t even pay our pilots for the work they’ve performed. When the world’s largest airline can’t figure out how to cut paychecks, you have to question how American Airlines can even consider that it’s on a path to ‘Going for Great’ (…) His decision to disrespectfully not accept an invitation to meet with the President of the United States has left the APA leadership and many of our pilots amazed at the lack of judgment and leadership exhibited.”

In a letter sent to American Airlines employees, Parker stated that he was unable to attend the meeting with President Trump as it “was scheduled on the same day we have 1,600 American Airlines team members from around the world in Dallas/Fort Worth for our Annual Leadership Conference (ALC).”

“Since we had a conflict, we made sure that American’s agenda was well-communicated at the White House. I am the Chairman of Airlines for America (A4A) and worked with my CEO colleagues to ensure we were delivering a consistent and cohesive message around our industry’s need for ATC reform, lower taxes and less regulation. We ensured the White House was aware of our conflict and they fully understand our commitment to our team.” Parker said.

There’s at least a kernel of truth to the concerns of the APA


American’s management team has certainly been far from perfect in its relationship with the airline’s various labor groups, and there have been a few missteps with the company’s merger integration even as the overall process has been relatively smooth by US airline standards. The unhappiness with payroll issues and crew scheduling, which have plagued American throughout the year and will likely continue until American rolls out its new payroll and human resources (HR) system, is more than justified.

An airline with more than $40 billion in revenue shouldn’t have trouble cutting paychecks to its frontline employees.

They’re also probably right that Parker shouldn’t have skipped the meeting with President Trump. Even though the meeting was unlikely to generate any tangible payoff for American in the form of competition restrictions on Middle Eastern rivals (which American has been notably lukewarm about anyway), President Trump has shown signs of engaging with companies on an individual level to a degree unprecedented in recent American history.

This interventionist bent, which Trump’s critics claim is little more than vindictiveness and kleptocracy, has already ensnared several companies including (famously) Carrier and Nordstrom amongst others. Regardless of your personal opinion of the President’s management of the economy, it can be argued that it was a bad idea to tweak or insult the current President of the United States by not showing up for a meeting with him.

For his part, Parker maintains that he missed the meeting because he prioritized speaking with more than 1,600 of American’s employees at the company’s Annual Leadership Conference. “Unfortunately, in our divided political climate, some assume my not being there was a political statement. Nothing could be further from the truth – I would have happily attended the meeting and would like to have been able to do so,” Parker said in a letter to American’s employees explaining the decision, adding that “we made the right decision for the people of American Airlines.”

We give less weight to the claims of broader management incompetence. Airline unions’ view of management throughout the post-deregulation history of the US airline industry has almost always hinged on matters related to their own compensation to the exclusion of any other. Airline management has a fundamental responsibility to multiple stakeholders including shareholders, passengers, non-front line employees, airports/communities, and even the federal and local government(s).

Too often, however, unionized labor groups excoriate management teams for not exclusively or primarily focusing on the interests of those labor groups.

The theory of airline labor relativity


But ultimately, as with most public facing actions by US airline unions, this is about issues of compensation. And this is where American’s pilots run into a fundamental difference in perspective between management/shareholders, passengers, and employees. As a management team (and implicitly as passengers), American’s executives are concerned primarily with the absolute level of compensation (and thus the absolute costs imposed on the airline).

This is fundamentally the concern of shareholders (declining profits), and passengers (in so far as high labor costs drive up fares) as well.

Along those lines, it is inarguable that the absolute compensation of American’s pilots has jumped substantially in the last five years. Between 2012 and 2015, average total compensation (wages, salaries, benefits, and payroll tax) for pre-merger American pilots jumped from $191,000 to nearly $300,000 per figures from the US DOT’s Form 41 and the Airline Data Project.

The jump for pre-merger US Airways pilots was even more drastic, from $157,139 in 2012 to the $297,588 figure in 2015. And both numbers undoubtedly jumped in 2016 as well given American’s overall rise in labor expenditures last year.

Now some of that jump in total compensation is a natural growth due to increased health care costs as employees age and a shifting seniority mix. But even accounting for that, the absolute pay rate for American pilots has jumped. In both the left (captain) and right (first officer) seat, hourly compensation across different seniority levels (i.e. whether the pilot has 2 years of experience or 12) is up somewhere around 40-45% between 2013 and the present.

The problem is that American’s pilots, like most employees, don’t think just about their absolute compensation. They also care very deeply about their relative compensation (i.e. how much their counterparts at peer airlines are getting paid). And the problem for American in this avenue is two fold.

First and foremost, American was the first of the four major airlines (American, Southwest, United, and Delta) to give its pilots a new contract and as naturally, it arises in an industry that’s unionized, concentrated, transparent about pay rates and where pilots at rival carriers got pay raises that took them to base pay rates roughly 5-10% higher than American’s across the board.

When you add in the fact that American’s pilots only received about a third as much in profit sharing as Delta’s pilots did (admittedly that is at least partially the fault of the APA, who rejected a deal with richer profit sharing) despite a much narrower gap in profitability, there is a reasonably substantial pay gap between American’s pilots and those at Delta and United. So fundamentally, the views of pilots and management are hard to align.

Which group is right depends on your priorities. If you care fundamentally about the share of income of front line laborers (a priority for much of the country as illustrated the election of President Trump) then the pilots’ argument has some merit. If you instead care more about balancing an airline’s delivery of value to all of its stakeholders and avoiding some of the larger labor largesses that have driven airlines into bankruptcy in the past, then the management point of view likely has more validity. Regardless, it appears that the fragile labor peace at American Airlines has yet again been punctured.

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About Author

Vinay Bhaskara

Vinay Bhaskara

Senior Business Analyst, Big Airline Enthusiast, Avid Airport Connoisseur, Frequent Flyer, Globetrotter. I Miss Northwest Airlines Every Day.

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