Boeing 737 MAX 8

MIAMI — Pilots for Southwest Airlines, the nation’s fourth largest airline, are using the carrier’s order for the Boeing 737 MAX as a bargaining chip in negotiations over a new contract with the company’s management. 

The union states that the 737 MAX 8, a re-engined derivative of the Boeing 737-800 that Southwest already operates, is technically not listed in the current labor agreement as an aircraft that they can fly. Meanwhile Southwest Airlines management maintains that the 737 MAX 8 is effectively the 737-800 (with more or less the same payload/capacity) with new engines stapled on.

The tactical move highlights the increasingly tense relations between Southwest executive and its pilots, who rejected a proposed labor agreement back in November. The two sides are set to start a new round of meetings on March 22nd, and the impending arrival of the MAX (potentially less than a year and a half away) will add new urgency to the negotiations.

A deteriorating relationship

Once again, the spotlight is shined on Southwest and the frankly contentious relationship between and within its front line team and management. Southwest’s management team is in the unenviable position of being pressured for costs by ultra-low cost carriers like Spirit Airlines and even network airlines like Alaska Airlines (which now has lower costs than Southwest thanks to magnificent cost discipline) while being pressured to increase its labor compensation back to market leadership by the legacy carriers, who are signing new, lucrative contracts with their work groups.

Between these two difficult bounds, Southwest management has been pushing for increased compensation figures that are offset by productivity improvements (resulting in similar overall costs). The labor groups, for their part are looking for a return to their historical position as the best compensated in the US airline industry.

This new salvo shifts some leverage over to the pilots, but is partially contingent on how the FAA treats the 737 MAX 8. There is a chance that the FAA simply throws up its hands and says that any pilot certified for the 737NG can fly the MAX. In that case, this little gambit doesn’t win very much. Conversely if the FAA requires additional training, then the pilots will have a much stronger tool to wring concessions out of management with.

Southwest Airlines pilots won’t be allowed to strike

There is an upwards constraint on just how much leverage Southwest’s pilots have, which is the notion that there’s a very real chance that Southwest’s pilots won’t be allowed to strike. The intuition that underlies this is that Southwest is a huge domestic airline (+/- 20% market share) in a consolidated, oligopoly era that millions of travelers rely on for their flying needs. If Southwest is taken out of the skies for just a couple of days, the reverberations and shockwaves throughout the US air travel system would be enormous, even bigger than those of the most powerful weather events (think Hurricane Sandy-level).

At this point, Southwest is in some senses too big to fail, and there’s a very real chance that the National Mediation Board (NMB) will rule against Southwest’s pilots if they ask to strike. Southwest’s network is driven by towns like Austin, Sacramento, Nashville, and St. Louis that have very real political power and interest in maintaining air service from Southwest. Ultimately, that reduces the pilots’ leverage (imagine 80% of Nashville’s flights grounded for days – the outcry would be enormous) and the PR story for pilots making more than $150,000 annually would not be friendly.

On the whole, this will probably force the Southwest pilots to end up with a deal that is worse than what they would get left to their own devices. Regardless of one’s view of unions, the fact remains that the very institution of a union may not work in the way it is legally supposed to (and the law was written). And that creates a very different airline industry labor dynamic.