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JetBlue Pilots Vote to Unionize – Operating Costs Set to Rise Further: Analysis

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JetBlue Pilots Vote to Unionize – Operating Costs Set to Rise Further: Analysis

JetBlue Pilots Vote to Unionize – Operating Costs Set to Rise Further: Analysis
April 22
17:57 2014

MIAMI — Pilots at JetBlue Airways voted to unionize today, with more than 71.3% of pilots voting for representation by the Air Line Pilots Association (ALPA). According to Airchive’s sources, the final vote tally was 1734 – 638 in favor of unionization, with 57 abstentions.

JetBlue issued the following statement announcing the vote:


JetBlue Airways Corp. (NASDAQ: JBLU) today issued the following statement from CEO Dave Barger responding to the unionization vote among JetBlue’s 2,529 pilots, in which a majority of JetBlue pilots who cast a vote elected ALPAas their representative.

The National Mediation Board will authorize ALPA as the representative body for JetBlue pilots, and then both JetBlue and ALPA will organize negotiating committees.

Meanwhile, ALPA issue the following statement:


WASHINGTON – Today, the National Mediation Board (NMB) announced that the 2,600+ pilots at JetBlue Airways voted overwhelmingly to join the Air Line Pilots Association, International (ALPA).

Of the votes cast, 71% of JetBlue pilots voted for ALPA. The win shows the strong desire of JetBlue pilots to gain a meaningful voice in their future, the certainty of a collective bargaining agreement, and the resources needed to be relevant. These objectives motivated the overwhelming grass roots effort by JetBlue pilots which led to today’s vote.

“ALPA welcomes the JetBlue pilots,” said Capt. Lee Moak, ALPA president. “The Association is ready to work with JetBlue pilots to achieve their goals. They make our union stronger by adding their unified voices to the Association’s strong bargaining and advocacy efforts. ”

“Today, JetBlue pilots have voted for ALPA representation so that we have the ability to improve our professional careers,” said Captains Gustavo Rivera and Rocky Durham, co-chairs of the JetBlue Organizing Committee. “As committed as we are to our objectives, we also want to work with management to ensure we continue to contribute positively to JetBlue’s success. We believe in JetBlue and look forward to helping make this company one of the best in the industry.”

The focus for JetBlue pilots now shifts to establishing pilot representatives, setting up pilot committees in key areas, and starting the work to negotiate the first collective bargaining agreement.

“JetBlue pilot members immediately have available ALPA’s aeromedical advisors and insurance benefits. The Association’s world-class safety structure is also ready to go,” said Moak. “We’ll now start working hand-in-hand with JetBlue pilot representatives to set up the structure for them to make democratic decisions about their future and help negotiate their first contract.”

Interestingly, the pilots voted overwhelmingly to unionize even though JetBlue had already agreed to give its pilots a pay raise of 20% over the next three years, at an annual cost of nearly $30 million. Still, for JetBlue the pilot vote represents a major challenge.

Even as the airline industry piles up record profits, JetBlue has under-performed in the industry, to some degree thanks to its cost structure. In particular, JetBlue has had to grapple with many of the same challenges that affect maturing startups, namely an aging workforce and fleet. It’s maintenance costs have risen sharply thanks to the aging of its Airbus A320 and Embraer E190 fleets, while labor costs have also skyrocketed thanks to an aging workforce (the combined effect of several consecutive raises for employees and increased benefit costs for older workers). Since 2006, JetBlue’s labor cost per available seat mile (LCASM) has grown 32.5%.

It is unclear what exactly the trigger was for the pilot vote. JetBlue’s pilots did reach out to ALPA, so it is interesting to consider the reasons why. Pay is a common driver behind these types of unionization battles.

But, relative to their peers, JetBlue’s pilots do not appear to be underpaid. The chart below compares Airbus A320 captain pay rates for several US Carriers. The letter A corresponds to year-12 while the letter L corresponds to year-1. As per the chart, JetBlue’s pilots are paid above-average wages, higher than those of LCC peers like Virgin America, Spirit, and Frontier, and even those of legacy carrier US Airways. And this chart does not even include the impact of the 20% raise over three years. Moreover, JetBlue’s pilots are amongst the industry’s least productive.

At $139,687, average annual pilot wages and compensation for JetBlue were more than in line with peers in 2012 (industry median was $139,687), and the 20% raise would have pushed JetBlue pay above the industry median. But regardless of the justification, JetBlue’s pilots are now unionized, which means increased costs and potential for labor unrest amongst non-pilot employee groups. Now that the pilots have unionized, the spigots will likely open and unions such as the APFA will attempt to unionize flight attendants and other employee groups.

This is where the real challenge emerges from this unionization vote. In the long run, JetBlue’s pilots would likely receive similar increases in pay, benefits, and work rule improvements to what they will under ALPA representation thanks to the emerging pilot shortage. But increased union penetration will push up costs across the board for employees that would otherwise have not gotten significant compensation increases.

Our analysis models the impact of unionization in the long run at between $10-14 million annually, which represents between 6% and 8.3% of JetBlue’s annual net profit in 2013. While this will not financially decimate the company, it will have a significant impact on operating margin for JetBlue and may cause the company to look more aggressively at driving down CASM by speeding the implementation of the larger A321 and growing its revenues by more aggressively courting business travelers.

 

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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. vinay@airwaysmag.com @TheABVinay

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