Southwest labor acrimony threatens fun-loving family culture

Southwest Airlines pilots and representatives walk along a road during a demonstration sponsored by the Southwest Airlines Pilots' Association (SWAPA) outside Chicago Midway International Airport in Chicago, on Wednesday, May 18, 2016. CREDIT: Bloomberg photo by Daniel Acker.

Southwest Airlines Co., proud owner of a storied corporate culture that values fun, hard work and a maverick mindset, is contending with an unaccustomed challenge: hostile public disputes with its labor unions.

Employees are showing up for picketing like never before and waving anti-Southwest placards. Unions representing more than two-thirds of the workforce called on Chief Executive Officer Gary Kelly to step down this month, and the carrier’s head of labor relations announced his retirement late Tuesday. Contract talks have dragged on for years even as Southwest posted record profits.

The acrimony is fueling concerns about higher expenses as many employees fight for their first pay raises in years. The airline says it needs productivity gains and new work rules after losing much of its advantage in operating costs over American Airlines Group Inc., Delta Air Lines Inc. and other larger rivals. Southwest is also fending off ultra-discounters like Spirit Airlines Inc.

“Investors care about this stuff,” Hunter Keay, a Wolfe Research analyst, said of labor-management strife. They want to know if it’s “going to impact the numbers and start to impact operational statistics.”

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Amid the tension, Southwest’s labor chief, Randy Babbitt, announced his retirement on Tuesday. Babbitt, 70, a former head of the Federal Aviation Administration who had been with Southwest since 2012, declined a request to be interviewed. Pilots union head Jon Weaks said the executive’s presence had hindered progress in contract talks and Audrey Stone, head of the flight attendants’ labor group, said she was “thrilled” with Babbitt’s departure.

While Southwest is no stranger to tough contract negotiations — more of its employees belong to unions than at any other U.S. carrier — what’s new is the degree to which those labor groups are going public with details of the talks on social media. Workers have been picketing at major airports and the 8,300-member pilots union has spotlighted its message on a three-story electronic billboard in New York’s Times Square. As many as 1,000 pilots, joined by other Southwest workers, protested inside and outside Dallas Love Field terminal Wednesday, their labor group said.

The unions also say Southwest failed to adequately address a series of technical faults that grounded flights and stranded passengers. The disruptions provided the extra impetus for the no-confidence vote against Kelly and operations chief Mike Van de Ven.

“Employees feel like somewhere along the way, the emphasis at Southwest became no longer about the people,” Stone said. “Our people are what made Southwest Airlines successful. Herb founded our company on that motto — take care of your employees and they are going to take care of the customers, with emphasis on the employees first.”

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Herb Kelleher, the colorful and popular co-founder of Southwest, stepped down as chairman in 2008, seven years after giving up the CEO’s title. He still serves as chairman emeritus and is in his office most days. His name is invoked often by employees, who still rush to speak to him at various functions.

The airline has never laid off workers and its profit-sharing program paid out $620 million last year, or the equivalent of eight weeks’ pay for each employee. The voluntary turnover rate has never topped 3 percent, said Jeff Lamb, executive vice president of corporate services. On Aug. 11, Southwest received 6,500 applications for flight attendant jobs in less than four hours.

“I don’t think what I’d consider to be an isolated group calling for a change or management to leave to be any indictment on our culture,” Lamb said. “The core is still extremely solid.”

Southwest has dropped 15 percent this year through Tuesday, ranking near the middle of the Bloomberg U.S. Airlines Index.

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The carrier began operations in 1971, flying to three Texas cities with three planes. Now it carries more passengers on domestic routes than any other, operates 719 aircraft and has 53,200 employees. That much change requires an evolving culture, said Susan Divers, a senior adviser at ethics and leadership consultant LRN.

“It’s no longer ‘us against the world’ and the hungry upstart,” she said. “You have to replace that insurgency with other ways of interacting that still really inspire people and keep that dialog going with employees.”

The airline has been in contract negotiations with pilots and mechanics for more than four years and flight attendants for three years. Pilots and flight attendants both rejected tentative agreements last year, while baggage handlers and other airport ground workers approved a new contract in February by 50.4 percent of the vote.

Billions spent to buy back company stock, poor decisions about upgrading on-board products and missteps tied to the 2010 acquisition of AirTran are among other management shortfalls that have hurt the carrier, said Weaks, president of the Southwest Airlines Pilots Association.

“What we’re trying to do is make everybody, from the institutional people to the Southwest board of directors to the general officers themselves look in the mirror at the way we do things,” said Weaks, whose union has sued the carrier over flying Boeing’s newest 737. “This place could really, really just kick butt, but we keep getting in our own way.”

A no-confidence vote by unions against a CEO isn’t uncommon in the airline industry. Kelly and Van de Ven said in messages to workers that they had no plans to leave, and were backed by the carrier’s board in an Aug. 5 letter.

Southwest lost much of its operating-cost advantage when larger rivals used bankruptcy to eliminate debt, reset compensation and freeze pension contributions. The airline has to swap higher pay for productivity gains to make money with lower fares, Van de Ven said.

“We have very competitive contract offers in front of every union, so it’s not a question of whether or not we want to provide our employees with significantly more compensation,” he said. “But we need to make sure we have changes in our processes and work rules.”

The airline also is investing $500 million over three years to replace its aging technology systems.

“Gary is a very astute businessman, very smart, very good financially,” said Jerry McCrummen, 61, a Southwest ramp worker and former Transport Workers Union official. “But he doesn’t know his work groups like Herb did. We built something together and we struggled, and through that fire we bonded with that management. We don’t see that anymore.”