AVIATION LABOUR

(Human Resources)
The important input

Largest Single Cost

element
World Averages over Total Costs
While Fuel ranges 10 to 15 %
Labour 15 to 40 %
1. USA range 35 40 %
2. Europe range 20 35 %
3. Far East range 15 20 % of TOTAL Cost

Why Labor Relations are

MORE important in Service
industries ?
Unlike Products;.. Services can not be
stocked !

2 Crucial Groups of
FACTORs
COST of Labour
PRODUCTIVITY of Labour

Controlability Aspect
All other costs are outside the control of the
airline
Aircraft prices / maintenance
Fuel
Handling / Catering / Airport / Over-flight
Advertising-Sales Costs

Labor can be kept under control

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PRE & POST Deregulation

PRE

POST

Cost +
Transparent

Cost of Labour:
Unit cost of Labor as an input required
to produce a defined unit of output

Variables affecting Labour

Cost
Wage structures in the Home-Country /
Home-Base Region.

Absolute Cost
Labour costs may be equal but
percentages over total may differ ..
Due to varying OTHER INPUT Costs
Currency devaluations may push %age
down (employees getting poorer) Other
inputs still in $ or Euros
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Factors affecting

Union Strength
State ownership of airline (political)
Shortage ( foreign pilots of CX )
Employee pension plans and other
related social costs at the home base

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Comparatively low Social

charges in the UK

The reason for the emergence of the low

cost no frills airlines from this region

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ABSOLUTE Level.. But

Relative importance of other input cost (
i.e : low fuel costs in the US ) push L up.
&

Fluctuations of home base country

currency
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PRODUCTIVITY of Labour
FIRST Yardstick for a productivity
evaluation:
Available Tonne-kilometres / Employee
(ATK/emp.)

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Asia Pacific Airlines better

Between 1.5 TO 3.0 times than the European
& US counterparts
BUT also are to consider
Hours worked in a day
Working days of the week
Length of annual holidays
Sector lengths ( same input for a 3 hr. flight
and a 12 hr. flight. Local EU vs. QF flights )
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Short sectors can be turned

into Advantage by HIGH
Frequency

This improves productivity in 2 Ways:

1. Staff numbers are the same for only 1

or several flights(economy of scale)
2. Higher a/c and crew utilisation

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Another factor affecting L

productivity: OUTSOURCING
and CONTRACTING OUT
Use extra labor
capacity to serve
other airlines
CONTRACTING OUT

technics

Core

OUTSOURCING

handling

catering

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New Yorker issue

outsource

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COST of the employee

Not necessarily the total number of
employees and the ATK/emp., BUT also
ATK / X number of units of currency cost
item
i.e: ATK/ 1000 USD of Labor Cost

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Pressures Growing to
Reduce Further the Cost of
L
Part Time Staff helpful;
At Peaks helps adjust to demand
At Troughs (off peak) minimizes cost or
can be phased out seasonally (students
etc)

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BENCHMARKING
A concept to approach with caution
with regard to salaries
{ Absolute vs. Relative [to other sectors] }
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Fringe Benefits

Benefits bring job satisfaction

Do not escalate hard cash spending
Increases Productivity
(taxed in some countries)

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Restructuring / One Time

State Aids in the EU
Debt payments
Staff reductions

{ retirement compensations}

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Re-negotiate Terms &

Conditions of Contract

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Set up low-cost
subsidiaries
( or buy into OR franchise smaller
independent airlines )

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Outsourcing
and/or
Contracting out
some activities
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Move Some Activities

to other regions/parts
of the world

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-Profit Related Bonuses

-Employee Stock Option
Plans (ESOP)

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Another Possibility (?)

Go out of Business & RE-Start
Continental in 1983: (within 54 hours)
78 points to 25
16000 employees to 4000
83 K to 43 K for pilots
Frank Lorenzos salary 267K to 43K (pilots pay)
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Strikes
THY Strikes in the 80s & 90s
Chaos Strikes
One day walk outs
One isolated flight walkouts

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PBGC Pension Benefit

Guarantee Corporation
3.2 Billion $ ( 5 year obligation) United
Airlines Pension Plan bail out of June
2005 saved UA from bankruptcy

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Compare
US
vs.
EU {strong social aspect}

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Taxes
Language barriers
Social security plans
Labor Unions
Traditions

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Job Security
Alliances ?

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 I AM CONVINCED THAT COMPANIES

SHOULD PUT THEIR STAFF FIRST,
CUSTOMERS SECOND AND
SHAREHOLDERS THIRD

Sir Richard BRANSON

CEO Virgin Atlantic Airways
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