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United Airlines Halts Outsourcing Until 2017

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United Airlines Halts Outsourcing Until 2017

United Airlines Halts Outsourcing Until 2017
November 04
09:19 2015

MIAMI —United Airlines pledges “friendly skies” to its customers in its company slogan. The airline also recently made a pledge to its own employees: no more outsourcing until 2017.

United plans to halt the practice of job outsourcing until at least 2017, the Wall Street Journal reports. The airline announced the decision in an internal memo, sent to employees by Jon Roitman, the company’s senior vice president for airport affairs. The freeze serves to hopefully quell uncertainty for workers in the face of rampant outsourcing in the near past.

United has readily resorted to outsourcing over the past few years, turning approximately 2,300 jobs (of which 1,150 were axed in February, says Reuters) over to the hands of contracted companies since 2013. But the company will bring that trend to a pause, preferring to keep its workforce united in-house.

The move reflects a more serious attention to employee concerns in the Oscar Munoz era. Munoz took over as United’s CEO in September, filling the place of Jeff Smisek, who resigned after allegations bubbled up over the airline’s dealings with the Port Authority of New York and New Jersey. Munoz, currently on medical leave after suffering a heart attack, had previously solicited employee feedback and prioritized improving a lagging sense of employee morale at United.

United commits to avoid outsourcing front-line positions until 2017, when the Machinist union contracts will open for renewal. The airline probably wants to foster some employee goodwill that will lead to smoother negotiations down the road. Additionally, pegging its commitment with the contracts may lend United some leverage when labor negotiations ultimately commence.

Outsourcing represents a very typical practice industry-wide. Many airlines like United outsource front-line jobs to some extent, especially at smaller stations. Non-hub airports handle relatively few daily flights, spreading labor costs more thickly and making it more expensive for an airline to staff the daily schedule with its own employees.

Contract companies often pay workers lower wages than do the mainline airlines. Also, the airline is not responsible for doling out employee benefits, including medical, retirement, and travel benefits. The Machinists union estimates that each of its workers might cost the airline $35,000 more than an outsourced employee, highlight the sharp cost incentive to trim the number of in-house jobs where possible. As a result, outsourcing represents a common way of cutting costs for airlines, and United has shown no reluctance to do so in recent times.

But outsourcing carries a price tag for the airlines as well. Releasing control of positions to outside companies may threaten customer service, with employees less tied to the company and less well compensated. An airline risks reputation damage when entrusting its front-line services externally, with the contracted employees still bearing the mainline carrier’s name. Also, outsourcing may impose an operational toll. For example, when United contracted out its baggage-handling services for regional flights in Denver, the airline quickly experienced operational clogs, with passengers frequently waiting excessive times at the carousel to retrieve their luggage, according to the Denver Post.

Opponents of outsourcing argue you get what you pay for, and low wages combined with weak benefit packages often manifest clearly in operational quality. Airlines always engage in somewhat of a balancing act, trying to maximize profits while minimize customer service shortfalls and operational missteps. With the industry flush with profits, United probably decided the cost advantages of outsourcing no longer clearly outweighed the associated downsides.

The airline’s decision to cease outsourcing for the immediate future marks an investment in its own employees and in the passenger experience. The move seems consistent with actions taken by other airlines to deploy profits in ways that similarly reward employees and improve customer satisfaction. Generally, the discussion of returning value to employees involves potential pay hikes, but a promise to retain jobs internally qualifies just as equally.

Furthermore, the entrance of a new CEO makes the timing ripe to initiate a re-balancing of profits with customer satisfaction, one area in which many fliers find United trailing behind other carriers.

United’s employees at smaller airports will certainly breathe a sigh of relief with the announcement. The decision adds a bit of substance to Munoz’s words, and demonstrate that United is actually taking some concrete steps to bring itself up to par with the other major U.S. airlines.

For the airline’s employees – certainly those naturally on the outsourcing cliff in smaller cities – their personal skies would definitely appear smoother in light of the decision. At United, outsourcing is on the way out.

 

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About Author

Alex McIntyre

Alex McIntyre

Texan. Airways Business Analyst. Emory University student, and lifelong AvGeek. Favorite airport and aircraft are: Dallas/Fort Worth International Airport and the Boeing 787. Passionate about all things commercial in the airline business, including route networks and hub operations. I love the window seat.

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