- - Thursday, May 24, 2012

ANALYSIS/OPINION:

As any traveler knows, the U.S. air- line industry has undergone rapid transformations in re- cent years because of a number of market forces. Increased competition, fuel price fluctuations, reduced travel demands, and the fact that many companies were overleveraged left the industry reeling and pushed some of the biggest airlines into bankruptcy restructuring. All the while, passengers shouldered the repercussions in the forms of fare increases, flight cancellations and delays, and fewer travel options.

Today, as the industry begins to stabilize, a new threat is emerging. Union labor forces focused on securing short-term membership contracts are jeopardizing the long-term recovery of the travel sector. Specifically, three major labor unions have colluded to strong-arm American Airlines into merger negotiations at a time when the airline is attempting to reorganize as a once-again-profitable market leader. Last year, American Airlines filed for Chapter 11. Ironically, high labor costs, which represented 28 percent of its revenue, was one of the chief factors driving it into restructuring. Despite the filing, the company did, and still does, remain optimistic it can re-emerge as one of the country’s top domestic carriers. To do so, it will likely need to renegotiate its outdated labor contracts.

Recognizing the potential labor conflict, US Airways seized on the opportunity to pressure American Airlines into merger, disregarding that doing so while the company reconciled itself would leave the industry with an even larger ailment. Luring them with lucrative settlements, US Airways encouraged the unions to bypass American Airlines and pre-emptively engage in a collective bargaining agreement.

The move amounts to a coordinated attempt to circumvent the restructuring process.

Sadly, the unions’ shortsighted maneuvering reflects the same myopic disregard that initially drove American Airlines into bankruptcy. Their eagerness to renew contracts that are not viable in the long term threatens to curtail the reorganization process needed to correct the problems that face the airline. If US Airways were to acquire the company now through back-channel negotiations, it essentially would be incorporating a distressed company whose problems later could spread even broader.

US Airways‘ own history is a tumultuous one. In 2005, it announced a merger with America West. During the negotiations, the company claimed the deal would generate $600 million in revenues and integrate both airlines’ workforces. Instead, seven years later, the company’s operational labor groups remain divided along former lines and it has been unable to resolve disputes. According to US Airlines Pilots Association President Gary Hummel, “there have been very few tangible benefits for US Airways pilots as a result of the 2005 merger.”

Nor have customers benefitted from the previous US Airways merger. In fact, in the two years following the merger, US Airways finished last among the largest carriers in the number of customer complaints and reports of mishandled bags. Last year, almost a third of US Airways‘ flights arrived late, according to the Department of Transportation’s standards.

It may be a tough pill to swallow, but the only true remedy to American Airlines‘ problems is allowing the company to proceed through the restructuring process under bankruptcy protections. The carrier has not ruled out merger options after it has done so, but trying to coerce it into one now would be caustic not just for the airlines involved, but for the entire industry. And in that case, travelers across the United States are the ones who stomach the true costs.

Timothy H. Lee is vice president of legal and public affairs at the Center for Individual Freedom.

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