The chief executive officer of American Airlines stood before thousands of managers at a Dallas hotel last year and delivered a crucial message: The world’s largest carrier had to improve caustic labor relations or risk falling behind industry rivals.
Almost 12 months later, Doug Parker still has his work cut out for him. The pilots union complains that pay rates have fallen behind those at other major airlines. Some flight attendants say new uniforms are making them sick, and a union representing 30,000 ground workers is pressing for quicker contract talks.
The grumbling is a sign Parker is struggling to improve morale and use it as a tool to beat Delta Air Lines Inc. and United Continental Holdings Inc. It also marks a reversal from the 2013 triumph that gave him his current job, when as CEO of US Airways he relied on support from those same labor groups to engineer a merger with American.
“The honeymoon is over,” said Michael Schwarz, a captain at American. “They had the opportunity and they don’t seem to be doing anything to really effect the change they said they were going to do. It was a great opportunity for us to be the largest and be the best. Right now, we’re just the largest.”
A transformed culture at the Fort Worth, Texas-based carrier would have enormous value, according to Parker. He cites Southwest Airlines Co. co-founder Herb Kelleher’s message that happy employees take care of customers and happy passengers take care of shareholders by choosing to fly on the airline again. Delta already has this advantage, and new CEO Oscar Munoz is gaining it at United, Parker says.
“I wish we were further along, but we’re also realistic about what we’re trying to do here,” Parker said in an interview. “It’s an enormous effort at a really big airline with a history so different than what we’re trying to build.”
Parker, 55, inherited a legacy of corrosive labor-management relations. In 2003, workers agreed to $1.8 billion in concessions to save the carrier from bankruptcy. At the same time, it was revealed that top executives had received bonuses and pension protection. After the company filed for Chapter 11 in 2011, unions accepted a second round of givebacks. Parker acknowledges that workers still don’t trust managers.
The push for a culture change is part of a broader effort that Parker calls a “leap of faith.” He contends that consolidation in the airline industry has ended the boom-and-bust cycle that saw combined losses of $53 billion from 2001 through 2011. While there will be ups and downs, carriers will no longer see the huge earnings swings, bankruptcies, mergers and employee layoffs of the past, he says.
One component of Parker’s program is compensation. American has promised workers that in each new contract negotiation, it will provide pay 3 percent above that at rivals. This year it will begin profit sharing, over Parker’s initial objections, although at a rate below major competitors. In November, the airline provided average 22 percent increases to mechanics, bag handlers and other airport ground workers because talks on a new accord were taking longer than expected. And flight attendants in March received a wage bump sooner than planned.
Parker’s plan has been hobbled by the absence of programs to help middle managers implement changes, according to the Allied Pilots Association. The CEO acknowledged the need for manager training and said more will occur this year.
“I’m reminded of the lyrics from a Who song: ‘Meet the new boss, same as the old boss,”‘ said Gary Santos, an aircraft maintenance crew chief at New York’s John F. Kennedy International Airport. “There has been no concerted effort on management’s behalf to reach out to workers in a positive way.”
It’s unrealistic to expect much shift in corporate culture after only a year, said Rob Britton of aviation consultancy AirLearn and Hunter Keay, a Wolfe Research analyst. Frontline supervisors and mid-level managers play a particularly crucial role in accepting and spreading Parker’s vision, said Britton, a former American executive.
“These things take five, 10 years or longer,” said Keay, who noted that several other airlines have faced similar labor strife. “Just because you change the CEO doesn’t mean you change culture overnight.”
Andrew Davis, an analyst at T. Rowe Price Group Inc., American’s largest shareholder, said he’s seen progress in Parker’s effort to “eliminate the stink” of repeated layoffs and wage cuts and convince employees that those days are gone.
“That’s important to investors,” he said. “If you look at the operating performance and profit of the company, there are signs that have been contributed by a culture that’s looking more optimistically toward the future than gnashing its teeth.”
American, which is set to release fourth-quarter results on Friday, reported an adjusted $6.3 billion profit in 2015. The airline’s shares rose 19 percent in the 12 months ending Jan. 25, compared with a 23 percent increase for the Bloomberg U.S. Airlines Index.
Pilots are angry because Parker has declined to reopen their 2015 contract to bring pay in line with new rates at Delta, United and Southwest. He said their pay will remain fourth-highest until the next negotiation in 2019, when the airline will offer more than rivals. Aviators since have twisted American’s “going for great” slogan to “going for fourth,” and union leaders have urged members not to volunteer for extra work.
The pilots’ union says it’s seen an unprecedented quadrupling of fatigue reports because of a new scheduling system that puts pilots at the edge of federal flying limits. An effort to improve on-time performance by closing jetway boarding doors 10 minutes before a scheduled departure time also has riled some pilots.
“We are losing the race for the best employee relations, which is what Doug said we must win,” said Dennis Tajer, a captain and spokesman for the Allied Pilots Association. “Instead of seeing a restorative culture of excellence, we’re unfortunately experiencing a culture of toxicity.”
The airline hasn’t yet combined operations for flight attendants, blocking it from reaping full benefits of the merger. American’s been at odds with the Association of Professional Flight Attendants over allergic reactions that the union says may be linked to new uniforms distributed in September.
Parker concedes that employees haven’t fully bought into his belief that the airline industry has been transformed. He points to how far carriers have come since 2005, when crude oil was $55 a barrel, the economy was humming along and the industry still lost $28 billion. In 2015, with a similar oil price and about the same growth, airlines earned $19 billion.
“But by no means are we done,” Parker said, “or anything close to it.”