Partnering to Help a Changing Industry: The Airline Industry Council

Abstract

The rise of the low-cost sector in the airline industry has reached a turning point and is causing the rest of the industry to change in more fundamental ways than ever. This sector has existed since the early 1970s, when Southwest Airlines was formed, and grew initially in the early 1980s after U.S. airline industry deregulation. However, recent growth has been unprecedented. New entrants like JetBlue Airways are capturing the attention of the flying public with innovative marketing as well as a reliable product. Investors have become increasingly eager to supply capital to this sector, thus enabling start-ups to be better funded than in the past; the number of flights offered by this sector worldwide has increased by 48 percent between August 2001 and August 2003. Low-cost airlines now account for just over 20 percent of U.S. domestic market shares, and some believe they could reach 40 percent by 2005. Whether or not they reach that level, the industry is clearly approaching the point where its pricing and other dynamics are now driven by this sector.The mainstream airlines have been experimenting with low-cost innovations since the mid-1990s, often in the form of “airlines within an airline” such as Continental Lite, Metro Jet (USAirways), Shuttle by United, Delta Express, and, more recently, Ted (by United) and Song (by Delta). They have also been working to lower the costs of their primary product lines to better compete with the low-cost sector. American Airlines, for example, has decided to forgo the “airline within an airline” concept and instead focus on reducing operating costs in its primary product line. Delta Airlines is hoping to import lessons from its Song experiment into its primary product line.What are the implications of this transformation for employees of the industry? Often cost competition focuses on labor costs and results in reduced wages, benefits, and job security. The airline industry has been no exception. How can labor– management relations help this industry transformation occur in a way that is beneficial not only for consumers and stockholders but also for pilots, flight attendants, mechanics, ramp agents, and customer-service agents?