The Alamo or Gunfight at the OK Corral? Air France and Lufthansa/Austrian Pilots’ Strikes

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In the copycat world of European passenger aviation, Executives at both LH Group and Air France-KLM have embraced the ‘inevitable’ need for a LCC to compete with Ryanair, easyJet, Vueling, Wizzair and Norwegian Shuttle. As mentioned in an earlier blog this month, AF-KLM are seeking to ramp up their LCC subsidiary – Transavia – to copy Germanwings – Lufthansa’s LCC experiment.

Air France pilots went out on strike and remain so accusing Air France management of refusing to negotiate in good faith. As Jean-Louis Barber, representative of the pilots stated: “As long as management does not change its philosophy and as long as Air France management will not conduct real talks in a cooperative spirit to counter low-cost (airlines), Air France pilots will be on strike.”

This is despite the company’s decision to delay the expansion of Transavia until December. CEO Alexandre de Juniac responded to the pilots arguing that: “This arrangement must not call into question our ambition to develop Transavia, which is one of the key sources of growth for the Air France-KLM group.”

For their part the German pilots’ union Vereinigung Cockpit (VC) took industrial action against changes to the pilots’  contract that would allow Lufthansa to end an early retirement scheme that allows pilots to retire at 55 and still receive up to 60 percent of their pay until state pension payments kick in. A three-day strike by VC pilots at Lufthansa earlier in 2014 over the same issue grounded the airline and wiped 60 million euros off LH Passenger Airlines’ H1 profits.

Things got worse for LH Group executives. When LH acquired the permanently failing Austrian Airlines in 2009, they terminated labour contracts held with Austrian Airlines as the company was transferred into ownership of Tyrolean Airlines – a former subsidiary of Austrian through a ‘hive down’. On September 11, 2014, the European Court of Justice (ECJ) ruled that collective wage agreements also apply to labour contracts even after a transfer of operations of the kind undertaken at Austrian Airlines in what appeared to be a setback to the management’s cost-cutting plans. The transfer of about 2,000 pilots and flight attendants to Tyrolean, where contracts are less generous, was a key element in the restructuring plans the loss-making Austrian Airlines. The airline’s works council wants negotiations to be based on the old Austrian Airlines collective agreement. The company wants to negotiate on the basis of the less-generous Tyrolean contracts.

In the light of the ECJ ruling, the works council called emergency meetings to discuss the decision leading to the cancellation of 15 flights on September 18.

Despite the fight back by organised labour at LH Group, as with AF’s CEO, Lufthansa’s CEO, Carsten Spohr, doubled-down on the company’s strategy: “The combination of our core brands’ focus on quality and the premium sector, and the development of new platforms for the leisure travel sector, which is experiencing dynamic growth but is also price-sensitive, is our way of working towards a successful future for the Lufthansa Group airlines.”

So is this a last stand before the ‘inevitable logic’ of de-regulation forces airlines to take drastic action against their pilots or are the pilots equally powerful players in the negotiation? In a European context, the pilots have much going for them. They are much harder to dismiss than in other countries because of the strong social and labour protections afforded them. By refusing to fly, they can ruin an airline executive’s unimaginative plan to copy their competitors i.e. eroding benefits to employees and value to customers. The airlines can’t just replace them as they could in other countries by using insolvency or bankruptcy laws that allow for ‘restructuring’ as the ECJ ruling against LH Group shows.

Is the Air France pilots’ strike ultimately self-destructive since it will push a financially vulnerable company over the edge? France’s Transport Minister Alain Vidalies claimed that the fate of Air France was “at stake” in the strike: “there must be a positive approach in this situation, otherwise I think that it’s the fate of the company that could be at stake.” He went on to say: “The low-cost [sector] is not a choice, it’s an obligatory move, that’s reality. I think pilots are fully aware of this.”

The pilots are not listening – the strike is now in its second week, effectively grounding 60 percent of flights – including the lucrative long-haul market that garnered 800m Euros for Air France-KLM in 2013/14. Apparently the pilots’ union has said that the strike is of “unlimited duration”.

AF-KLM and LH Group’s industrial relations strategy is likely to get uglier before it gets prettier.

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