Labor relations are one factor that can make or break an airline. Sometimes, management and labor can work together and push an airline to new heights of profitability and other times the two sides disagree resulting in tough times all around.
Recently, four major airlines got a first-hand experience in labor relations with some succeeding and others leaving an uncertain future.
A surprise contract
Air Canada's (TSX: AC) last headline making experience with labor was a perfect example of how disputes between management and labor can turn ugly. After wildcat strikes at Toronto Pearson International Airport, the dispute was moved to arbitration was a settlement was finally reached.
But this year, things are looking up for both labor and shareholders. News emerged last month that Air Canada had a tentative agreement with its pilot's union for a 10-year contract. By the end of October, it was reported that the contract was ratified by 84% of the vote and would cover the airline until September 2024.
According to The Globe and Mail, pilots gain a signing bonus of $10,000, a 2% increase in pay per year over the course of the contract, and an improved profit sharing formula. In turn, Air Canada gains 10 years of labor peace and pilots give up their right to strike with disputes sent to mediation or arbitration instead provided the airline can meet the goals laid out in the contract. Union president Capt. Craig Blandford sees these goals as realistic: "If they follow through on their vision and their plan for growth, which is not outrageous, then we've given 10 years of labour peace."
This is certainly a positive development as it provides more certainty to an airline that has not reached such an agreement without arbitration or a strike since 1996. Next, Air Canada will look to develop a contract with the union representing its reservations and check-in staff as well as its flight attendants union.
As American Airlines Group (NASDAQ:AAL) is stitched together from the combination of American Airlines and US Airways, the new airline is looking to develop contracts that cover employees from all parts of the company.
Early this month, flight attendants rejected a contract negotiated by the Association of Professional Flight Attendants by a margin of only 16 votes out of over 16,000 votes cast. In this narrow defeat, the union now expects arbitration to decide what its members get.
But according to the union, arbitration will result in a contract worth about $82 million less than what they would gain from the negotiated contract. Among the issues that caused flight attendants to vote against the contract was that it did not include profit sharing; something that may be part of the decision reached in arbitration. Despite this, the union may push for a shorter contract during arbitration to give it a better chance at reaching an improved contract outside of arbitration sooner.
Trouble for European airlines
Flag carrier airlines Air France-KLM (NASDAQOTH:AFRAF) and Deutsche Lufthansa (NASDAQOTH:DLAKY) have had their fair share of difficulties in the past few years and labor issues are now among them.
Both airlines have experienced strikes that shut down parts of their networks. In the case of Air France, the airline expects the financial damage to total around 500 million euros. To reach a temporary peace, the airline agreed to scrap some of its plans to expand its low-cost carrier, Transavia Europe, while moving ahead with expansion of Transavia France.
Due to a dispute over retirement ages, Deutsche Lufthansa has seen significant labor unrest with a walkout in October cancelling hundreds of flights through the airline's network. No solution has been reached so there may be more troubles ahead for the German flag carrier.
The bottom line
Maintaining good relations with labor can be difficult but it's essential to succeed in the airline industry. The turnaround in Air Canada's labor relations is remarkable as the airline went from wildcat strikes to a surprise long-term contract in the course of just a couple years.
At American Airlines Group, flight attendants have likely pushed their contract to arbitration, but there are still contracts to be worked out with other employees of American Airlines and US Airways to fully integrate the carriers.
And, right now at least, the situation for Air France-KLM and Deutsche Lufthansa remains difficult as these two flag carriers try to compete against low-cost carriers while managing their own legacy cost structures.
As always, labor relations in the airline industry are an ongoing factor is determining company performance and are definitely worth the attention of airline investors.
Alexander MacLennan owns shares of Air Canada and AMERICAN AIRLINES GROUP INC. Alexander MacLennan has the following options: long January 2015 $17 calls on AMERICAN AIRLINES GROUP INC, long January 2015 $32 calls on AMERICAN AIRLINES GROUP INC, long January 2017 $25 calls on AMERICAN AIRLINES GROUP INC, and long January 2016 $60 calls on AMERICAN AIRLINES GROUP INC. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.