On the subject of labor relations, recently ousted United Continental (NASDAQ:UAL) CEO Jeff Smisek talked a great game back when United Airlines and Continental Airlines merged.
The merger officially took effect on Oct. 1, 2010. Smisek set an ambitious goal of concluding joint collective bargaining agreements (unifying former United and former Continental employees under the same contract) with all of United's work groups by the end of 2011.
By the middle of 2011, Smisek started to backtrack on that goal. And when he left the company in September 2015, United still hadn't reached joint contracts for two major work groups: flight attendants and mechanics. The slow progress contributed to labor tensions and poor employee morale. However, under its recently installed leadership team, United is moving quickly to improve its labor relations.
Making labor a priority
United Continental CEO Oscar Munoz made it clear when he took up his post two months ago that improving the company's labor relations was a key priority. He stated that it was important to complete the remaining joint collective bargaining agreements as soon as possible. Munoz also announced plans to travel around the country in order to meet employees and hear their concerns firsthand.
Not surprisingly, several of United's major labor unions put out supportive statements following Munoz's hiring. Unfortunately, a little more than a month after he joined United, Munoz suffered a heart attack, forcing him to take a leave of absence for several months.
In the meantime, United's former general counsel, Brett Hart, has taken over the role of acting CEO. While many people were worried that United would lose momentum with Munoz on the sidelines, the rest of the management team has stepped in admirably.
Considering the slow progress of labor negotiations during Smisek's tenure, it's amazing how far United has come in the past two months.
The biggest accomplishment was reaching a tentative contract agreement for United's mechanics: one of the two groups that still doesn't have a joint collective bargaining agreement in place. It's still possible that the contract won't be ratified by the membership. (This has become increasingly common in the airline industry recently.) However, just getting to a tentative agreement with the union is a big step.
United is also taking steps toward resolving its other long-standing contract dispute, covering the flight attendants. Last month, the company announced that it had reached an agreement with the Association of Flight Attendants to allow former Continental flight attendants to participate in United's profit-sharing plan. The outdated contract that still covers those flight attendants didn't entitle them to profit-sharing.
United's management has also started to work proactively to avoid future labor squabbles. Early last month, the company proposed holding an expedited bargaining process to extend its pilots' contract, currently scheduled to expire at the end of 2016. United has offered to introduce a fleet of 100-seat jets to add more pilot jobs if the talks are successful.
In a similar move, United reached an agreement last week to open negotiations more than a year early with the IAM union, which represents a variety of work groups including United's ramp workers and passenger service agents. To smooth that process, United agreed not to outsource any work currently performed by IAM employees through January 2019.
Will customer service improve?
Management-labor disputes have clearly affected customer service at United Airlines since the merger. For example, in each of the past three years, United has received the worst score of any mainline carrier in the annual Airline Quality Rating report. That's probably damaging the company's profitability by chasing away some of United's most valuable customers.
If United succeeds with its efforts to address key employee concerns and to get most or all of its labor groups signed to long-term contracts, it will be in a much better position to rebuild its customer service reputation in the coming years. Having happy employees is half the battle.