I really thought this was going to die down eventually, but it hasn’t. The topic of profit-sharing at the new American (or lack thereof) has really angered a lot of people, and the noise is getting louder. There isn’t a simple answer as to whether profit-sharing is good or bad, so let’s talk about it.
Why am I talking about this now? Holly Hegeman had a great column about it in PlaneBusiness Banter (subscription required) this week, but it’s never the columns I agree with that get me fired up. It was this Huffington Post piece titled “More Labor Troubles at American Airlines” that really got me going. This piece quickly turns into an angry hate letter for American’s flight attendant union leader Laura Glading, and it’s full of accusations and bile. But I’m not going to waste anyone’s time picking this apart line by line. Instead, I thought it would be more productive to get to the most contentious issue out there now: profit-sharing.
Why American Doesn’t Like It
It is absolutely true that the leadership team at American doesn’t like profit-sharing. Why? The Huffington Post piece correctly notes that CEO Doug Parker said “It’s just
not the right way to pay 100,000 employees that don’t have that much impact on the daily profits.” But this is really just “gotcha journalism.” The piece leaves out the context for this remark. What came after that statement?
I know every one of you makes a huge difference. I’m not suggesting you don’t… But so much of it (our profitability) is tied to things like fuel prices, Ebola, and a bunch of things we can’t control.
And that is the gist of management’s argument. If people work harder, it may not lead to more profit. If there’s a war, or oil prices spike, or something else happens, profits can be wiped away and employee effort will not have resulted in any additional payment. That’s why American opted in the last proposal to just increase annual flight attendant pay by $50 million to account for profit-sharing. That would pay in good times or bad.
American believes profit-sharing was something created by airlines who had a lot of bad times. It gave them a reason to be able to pay less with the promise of higher pay when times were rosy. And in a highly cyclical industry like the airlines, that’s been a carrot used for years. The problem is that labor is only happy with profit-sharing when the airline is profitable.
Remember Eastern Airlines? After deregulation, it turned to profit-sharing in order to save money when times were tough. Times got better and it paid out. All of a sudden, an airline not known for having good labor relations had happy people. But then guess what? Red ink returned and there was no profit to be shared. Employees got angry and steamed that they were working harder to save the airline and weren’t being rewarded for it.
And so it goes, round and round. And that’s why it’s going to seem strange that I say this…
Why American Should Have Offered Profit-Sharing Anyway
I know, I know. If the argument makes sense to not offer profit-sharing, then why do I think the airline should have done it? It sounds like a bad reason, but it’s because every else is doing it.
American is a victim of the current point in the economic cycle. Right now, Delta is busy posting record profits and sharing it with employees. You’d think Delta CEO Richard Anderson was a god among men the way people talk about him. Of course Delta employees love the extra cash, but it’s the front line at American that you hear drooling over the guy. After all, Delta is making a silly amount of money and paying it out. The front line at American wants that money too.
But we all know the next chapter in this story. Bad times will return. For those who think the airline industry in the US is now going to be permanently profitable and times will always be good, you’ve been spending too much time in Colorado and Washington (or wherever the heck else weed is now legal). How many times have we heard that before? In the late 1990s, airlines were busy crowing about how profitable they were and how they’ve solved the cyclical nature of the industry. Bullcrap.
All we need is an oil-price spike, a big war, some pandemic, a recession, or really anything else to significantly impact air travel and the airlines will plunge back into the red. It’s just a matter of time. When that happens, Delta employees will be angry that profit-sharing doesn’t pay out. It’s just human nature to want it all. American flight attendants would then be able to laugh and say, “hey, we still got our $50 million.” But memories are short, and we are in a good time right now.
You can’t know for sure what profits will look like going forward, but the will of the American front line seems to be that they want to take a chance that things will stay good for a long time. It’s short-term thinking but it’s what they want. And that’s why American management should have gone for it. Who knows, it might even have ended up saving the airline money in the long run.
Why American Can’t Do It Now
With all this being said, the idea of profit-sharing has sailed in this round of negotiations. There were protocols set up to make sure the merger would push along at a decent pace, and American stuck to its no profit-sharing mantra with the flight attendants. Now that’s heading to arbitration and profit sharing isn’t going to come out of that. With that done, there’s no way that American could turn around and offer it to the pilots or to any other group. That would be very bad.
American’s decision to stick to its guns on profit-sharing means it can’t back off at this point. It would create more ill will with the rest of the workgroups than it would create goodwill with the pilots. This management team wants to be consistent in its dealings, and that means it has backed itself into a no profit-sharing corner. That may prove to be a good thing in the long run, but for now, that stance is just making the front line groups mad.