Something Stinky in the Air – Part 3

In the last two posts, we’ve talked about Pinnacle in general, some of the things going on with their labor negotiations, and how that has affected the business at large. We’ve heard from a member from the ALPA (Air Line Pilots Association), and gained some insight about the negotiations and some business practices at the airline. Today, we’re wrapping it up and putting a bow on it.

There are a whole lot of ways to manage a business and achieve financial success. Management styles run the gambit from adversarial, to a true partnership with the workforce. It’s not a requirement that management gets along with the workforce, but it would seem to make the experience for both groups, and most importantly, the consumer, more pleasant.

The airline business has a long history of an adversarial relationship between the workforce, their consumers, and management. One part of this relationship was discussed at a recent hearing of the House Judiciary Antitrust Task Force. Video of that event can be found here(Real Player only). The real topic of discussion was the NWA/Delta merger, but there are some pearls in there that apply to this discussion.

You can watch the whole 3 hour affair, if you want to, or you can start at 2:14:50 and hear Clifford Winston from Brookings speak (from a decidedly business standpoint) about the relationship problems between management and workers, and how this adversarial relationship ultimately hurts everyone.

…I can understand that the, what we call legacy carriers, Delta and Northwest are among them but certainly United, American, others are included, have this rent-sharing mentality that leads to this bitterness, but it’s ultimately self-destructive…unless you can find ways to productively work out your relationships, lead to efficiencies but also have a contented workforce, the legacy carriers will just to lose more marketshare.

So, what is Pinnacle doing to avoid that self-destructive relationship that Mr. Winston laid out? Apparently nothing.

We are told, with incessant frequency from Republicans and executive “smart guys”, that the workforce is disconnected from the financial success of the company. This lie has been told so many times that many in the workforce have begun to believe it. As a result, workers, particularly in the airline industry, have been willing to make concessions to protect their jobs. Disturbingly, few executives have taken on the responsibility to decrease their impact on the bottom line of a company. If anything they move on to greener pastures, leaving the problem to some other poor sap, golden parachute in hand.

The truth of the matter is that the financial success of the company is vitally important to the employees regardless of the adversarial relationship they may or may not have with management. As Veda Shook, International Vice President, Association of Flight Attendants – CWA said in the same video mentioned above (2:09:50)

…Sometimes what we see with these carriers, these CEO’s and these executives is they’re short timers. They’ll come in. They’ll come out. They’ll hop from carrier to carrier, and I personally don’t stand to gain anything here, but the flight attendants, this is their chosen career, it’s not just a job, it’s their chosen career, and they’re in it for the long haul….

So, it’s not as if these workers have divested themselves from the success of the company, the company has divested THEMSELVES from the success (financial security) of their workers.

On the Pinnacle web site there’s a whole section on how much they value their people. If that’s the case, then why are Pinnacle pilots paid less than pilots at other airlines flying similar planes? Why would the airline not voluntarily improve working conditions, one of the few things they and ALPA agree on in the current negotiations? Why not just do it to increase good will? The morale gains alone could be the difference in rectifying some of the other issues on which they differ.

Unfortunately, Pinnacle has chosen to do none of these things. The reward for this inaction is a very high pilot turnover rate, in an industry that is growing more competitive for young talent. Last year Pinnacle had to discontinue service to three locations for a time, and was penalized $2.4M in the first half of the year by Northwest for failing to meet contractual benchmarks (Source, Source) as the result of staffing shortages. Pilot shortages lead to fatigue which was the topic of an article in USAToday about fatigue and regional pilots.

As these realities illustrate, by continuing to stall the process, management at Pinnacle is only hurting the company. Since 2005, total revenue at Pinnacle has dropped some $50M(Source). The purchase of Colgan Air, which flies 19, 34, and 74 seat turboprop planes out of Houston, Newark, Washington Dulles, and New York LaGuardia under the banner of 3 different carriers (Continental Express, United Express and U.S. Airways Express) seems to have had no positive effect on the company’s bottom line. The continued loss of planes in the NWA system, reported up to 17, brought on by the lack of a contract with ALPA will only bleed more money away from the company.

Despite losing business from NWA, Pinnacle is still making money, $34M last year. That profit hasn’t translated to added value to investors. The lack of an ALPA contract could have institutional money spooked. Pinnacle can expect more contraction from NWA until they sign a contract with ALPA and stabilize their resulting turnover situation. So why don’t they just pull the trigger? Because they don’t have to.

As mentioned in yesterday’s post, the National Mediation Board has been stacked with Bush appointees. This has further stalled the process. But most important for top managers at Pinnacle, as long as they post a profit, why should they care? They’re making their money,according to the AFL-CIO Executive Paywatch CEO Phillip Trenary made $1.2M last year, despite declining top line revenue for the airline.

So, how will this story end? It seems that, eventually, it has to end in a contract, lest Pinnacle suffer more concessions from NWA. Republicans won’t be in charge of the NMB forever, and we’re in the last 8 months of the GWB experience. Barring a McCain win in November, pressure to resolve this situation may come before 1.20.09. Further, with the potential merger of NWA and Delta, two airlines where Pinnacle provides RJ service, Pinnacle would do well to make sure they don’t run afoul of their current situation and possibly lose more routes to their wholly owned regional subsidiaries, MESABA, and Comair. Ultimately, the ball is in Pinnacle’s court. They can choose to do the same thing they’ve been doing, blocking agreement, playing hardball with employees, but it can on
ly last so long. Here’s to hoping it’s not too much longer.

Part 1
Part 2
Part 3

Leave a Reply