Republic Airways has been an excellent case when studying the importance of labor relations. The scenario we see today has been more than 8 years in the making and provides some valuable insight for other executive teams around the world and industry.
Some of these insights include
- The importance of finding common ground leading to timely agreements between employee groups and management.
- The importance of allowing the Railway Labor Act to fully function when there is an impasse between groups.
Before we delve into any of these points we need to first identify one important principle often overlooked in today’s world by executive teams. Attitude and culture at a company are a reflection of leadership. Whenever an executive at a company points to a labor group as the source of the problem, or that the group has gone bad or funky they usually forget “When a man points a finger at someone else, he should remember that four of his fingers are pointing at himself.” Louis Nizer
The attachment of blame and the rationalization of reality usually results in executive teams who are unwilling to accept or look at the difficult and authentic roots of the problem. Usually this compounds the difficulties. While it is not the intent of this article to study all the various roots, some include being out of touch with the employee group, or the industry, misaligned priorities and many others. This article studies the effect of this breakdown.
The two insights are interrelated. The case study with Republic demonstrates the reality of another bank account not reflected in the Quarterly or Annual reports. In relationships this may be called the emotional bank account, or between the company and the public it may actually be reflected in SEC statements as good will. Unfortunately their is no “metric” to measure that good will between an executive team and a labor group, but it is nonetheless real and has the potential to greatly influence the bottom line for any company for better or worse.
Usually, when a contract expires before a new one has been agreed to and signed a running total of something intangible begins between the labor group and the company. The greater the expectations and the longer the time the larger that total gets. It is difficult to fully quantify this total, but it does begin to make sense when trying to understand why one labor group would agree to one contract while another would refuse a better one.
Incorporating this unmeasured good will between the company and the labor group does allow an outsider to make some sense in the relationship. Usually this translates into more expensive contracts. The longer the company and the employee group go without an agreement typically the higher the expectations and the more expensive the contract. In some cases a small majority may pass a contract that doesn’t quite meet group expectations, but make no mistake the unpaid “balance” on the good will account between the employee group and company management still remain.
This “good will” can be seen in the culture at the company, and will come through in poor performance and higher operating costs.
The irony with some management teams strategies today is that they delay coming to an agreement, feeling that it is cheaper to operate with the old expired contract than agree to a more expensive one, so as in Republic’s case they continue to make new flying contracts at the old employee price while still touting the same adage that they simply can’t afford to agree to a more expensive employee contract. What they often overlook is that they are just transferring a balance and never truly avoiding it, and eventually the math simply catches up.
When a management team decides to delay a contract usually an impasse occurs. The Railway Labor Act has a defined process of how that is suppose to play out when this develops. For political or other reasons unknown to the writer of this article that process was not allowed to fully play out in Republic’s case, further allowing this wound and impasse to fester. The fester accelerates the accumulation of bad will, since there is no other organized outlet for an employee group to channel their frustration. What many in the corporate world forget is that a labor Strike, similar to a divorce is very damaging to both sides but that unless their is an appropriate outlet to allow for some type of “self help” the relationship simply turns abusive with no incentive for a resolution from the abuser or the one who maintains the control (the executive team).
The analogy of a marriage relationship is used since in the aviation industry the ability for pilots to transfer laterally to other companies simply doesn’t exist, and for better or worse a pilot will be tied to an airline. Similar to a marriage if they leave they will have to start out all over again. Even though the Railway labor act “self help” process appears destructive it can actually provide a cathartic outlet for an embattled group before a full dissolution occurs.
So what happens when the Railway labor act is stymied and the full process of negotiations is not allowed to play out?
Republic is the perfect example. When we had a large number of pilots looking for employment it was hard to see the effects of the breakdown in this relationship between Republic and their pilots, since many pilots were willing to pay or work for almost nothing to gain experience to have a shot of one day applying to the Major airlines. However, now that pilots have a choice of where they would like to go we can see the affects more perfectly.
- Individual pilots leave in larger numbers (attrition increases)
- Reliability goes down as employees are unmotivated to assist the company outside of their contractual obligations and costs rise. This is more pronounced when a company doesn’t have access to as many employees.
- The ability to attract new pilots diminishes further compounding the problem.
The challenge now for Republic is that they have played this game for so long, and incurred such a high cost that they may not be able to catchup with there partners and their employees.
Republic management has painted their team and airline partners into a very precarious corner. The only options that remain aren’t really good options, and it is doubtful that Chapter 11 will improve their ability to attract pilots.
The only way out that I can foresee would be a a restructuring of their partner contracts to allow them to pay for the large cost they have accumulated with their pilot group over the last 8 years. To maintain trust and ownership it will be crucial for them to develop this pilot contract closely with the pilot representative group.