Since 2001, the main focus of the airline industry is to reduce expenditures. This is because of the increased amounts of competition from low cost carriers. What has been happening is these firms are placing pressure on the profit margins of the traditional airlines. This means that carriers such as United and Continental have been forced to dramatically reduce costs. At the heart of these efforts was the focus on labor related issues. This is because the union contracts that were in place, gave them very small amounts of latitude when: setting pay, benefits or determining who will be laid off. Over the course of time, this exposed these businesses to consistently lower prices and their inability to compete.
Continental and United Differ
In the case of Continental, they were able to adapt with these issues and receive substantial concessions from their unions. This helped them to quickly evolve with the changing environment. Over the course of time, this allowed the company to avoid bankruptcy and remain a viable carrier.
While United, was forced to seek out these reductions by going into bankruptcy. During the restructuring process is when they were able to reduce the union contracts to an acceptable level. Once they emerged, is when the airline was able to compete and they began to post consistent profits.
The Need for Mergers
One of the basic models for ensuring continuing success in the sector is: to form various alliances with other airlines or to find another carrier to merge with. The basic idea behind these approaches is: they will reduce costs, improve competition and help to balance out their revenues. In 2008, the Delta and Northwest merger was seen as a possible blue print for a host of unions that can occur in the future. This is because they experienced very little integration issues. Once this occurred, it meant that everyone was working together under one combined organization.
In the case of United Continental, they merged together in 2010. At the time, this was seen as a way to reduce costs and improve their strategic advantages. However, a major issue that continues to remain unresolved is the collective bargaining agreements with labor.
The Collective Bargaining Agreements
The current labor agreements were signed in 2005. Since the merger, there have been discussions between management and the unions. The problem is that there have been some disagreements, as employees want to see an increase in pay and benefits. While management wants to take the current contracts and extend them to everyone. The reason why there is such contention is because, the firm made $1.4 billion in profits since the merger. This is troubling, because employees feel that they should receive more compensation. However, executives want to keep these costs as low as possible in order to realize the benefits of the transaction. This has been a major stumbling block in negotiations and has resulted in delays in combining the two companies into one entity.
At the heart of these issues, is the fact that management is not communicating with staff members about the merger. This is challenging, because it makes it more difficult for everyone to have a clear understanding of the different policies and procedures. Once this happens, it means that labor issues will continue to be a problem in the future. As a result, executives at the new company need to focus on how to quickly resolve them before this leads to other challenges down the road (i.e. strikes and work slowdowns). Otherwise, the odds increase that this merger will not help the two carriers receive the full benefits. Instead, it will create a difficult environment for them to compete with other airlines.