Mexicana Circles the Drain, Blames All Its Problems on Labor

Mexicana appears to be on life support this week and it’s quickly moved to blaming the unions for its predicament. We’ve seen airlines blame labor time after time here in the US, but I don’t believe I’ve ever seen an airline say that the unions are the only problem it has. I can tell you from first-hand experience that the airline has a lot more problems than that, but why confront those if you can just blame labor? It’s so much easier, right? Yeah, right.

The airline, now owned by conglomerate Grupo Posadas, has come out firing. Mexicana filed for bankruptcy in the US and Mexico after having given the unions an ultimatum and failing. The pilots and flight attendants had two bad choices. If you are booked on Mexicana, good luck. Your flight is likely still going for now, but their customer service is non-existent. And the chance of the airline shutting down goes up each day. If you’re booked on Mexicana, make sure your flight is still there. A good chunk have been permanently canceled going forward, though the airline does continue to operate what’s left.

Mexicana Shell Game

As I said, Mexicana is putting the blame squarely on labor at this point:

Although the airline’s operating costs excluding crew labor costs are 30% lower than the average of legacy airlines in the United States, these non competitive labor costs are the main reason why the company has continued to suffer losses, to the extent that it is now financially non-viable.

There’s no question that the pilots and flight attendants make a pretty penny at the airline. One local report says the average pilot salary is $228,000 (that’s US Dollars), and that seems crazy. But I also hate the “average salary” measure because it doesn’t give you a true representation of the contract. Still, it seems quite obvious that concessions are going to be necessary. The flight attendants make an average of $53,000. Mexicana is looking to slash everyone’s salary dramatically while also laying off a bunch of people. But we’ll come back to that in a second. First, let’s talk about Mexicana’s structure to get a better understanding of where this is going.

Mexicana is really three airlines these days. The main airline is the one in trouble here, and the owners are trying to play a shell game. Mexicana itself is the international airline that has around 60 airplanes. Mexicana Click is the low cost/domestic carrier that took the old Midwest 717s to fly mostly within Mexico. It has about half the number of planes that the main airline has. Then there’s Mexicana Link which flies 15 regional jets as well. Those two airlines have much lower crew costs, and it’s clear that Mexicana is now trying to use them to replace Mexicana flying.

The company had given the pilots and flight attendants two options. Neither option was good, and the spin in the press release would impress even a Fox News analyst. I’ve received further background on these offers, and I see it as a no-win situation.

The first offer was to slash wages by 39 to 41 percent and lay off 40 percent of the crews. In exchange, Mexicana would offer profit sharing (no percentage is given) when the airline makes at least a 5 percent margin. Those are pretty drastic cuts and were highly unlikely to gain acceptance. Even if some of the crew members agreed to take such drastic cuts, why would 40 percent of them vote to lose their jobs?

The second offer was just shady. Mexicana wants to sell the airline to the flight attendants and pilots for 1 peso. Sounds great, right? Um, no. This sale includes, of course, mountains of debt that Mexicana has added over the years. In general, I like this idea. I say that, because I don’t like Mexicana and the airline will be bankrupt within a year. When labor runs an airline, things don’t work out well. But the plan is so much more diabolical than that.

The press release does note that the union would only be able to use the Mexicana name for six months, at which time it would have to become something else. What the release fails to note is that Mexicana would also require that the pilots union resign from representing pilots at Mexicana Click because of the conflict of interest. Ah, now it becomes clear.

Mexicana spins off the garbage – the old airline and its debt – to labor. Meanwhile, Click goes union-less. In six months, the old Mexicana becomes some other airline until it limps right into the grave. Then Click becomes Mexicana, without unions and with much lower costs.

If you’re a union, what do you do? Turn it down, and that’s what they did. If you lose more than a third of your pay and nearly half your colleagues, would you vote for option #1? Would anyone in their right mind vote for option #2? Maybe this is Mexicana’s way of bargaining, but it seems to be an ultimatum more than anything else. If Mexicana is willing to negotiate, then maybe something can be salvaged. If not, I fully expect to see the airline go under, with Click eventually rising from the ashes to take over the Mexicana name.

Bottom line: If you’re a passenger, I would not book on Mexicana right now because of the volatility. If you work for Mexicana, I’d start sending my resume out right now. Those stellar customer service skills can be put to good use at, oh, say a cell phone company. Or maybe the cable guys need more help angering their customers.

[Original Photo via Flickr user vaticanus]

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