Cue the music from Jaws...
DJ Frank Lorenzo:Airline Execs Finally Face Labor Cost Cuts
Dow Jones News Service via Dow Jones
By Elizabeth Souder
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Frank Lorenzo feels more optimistic than most airline
veterans about the future of the industry, now that major carriers are
addressing their labor costs.
"There may be more sunshine through these dark clouds than people realize,"
said Lorenzo, former chief executive of Continental Airlines Inc. (CAL), in an
interview with Dow Jones Newswires.
Lorenzo, whose efforts to cut Continental labor costs in the 1980s turned into
a battle with unions, said the stiff competition with low-cost carriers these
days is finally forcing executives with major airlines to address their central
problem: labor-cost structures that are too expensive for the airlines to
compete with low-cost carriers.
He said mergers like those he negotiated in the 1980s won't save airlines
these days.
"Managements haven't wanted to face up to the fight," said Lorenzo, who is
currently chairman of Houston venture capital company Savoy Capital Inc.
"Employee attitude is not No. 1. The main event is the basic survivability of
the company."
Lorenzo didn't shrink from the fight when he ran Continental. In the late
1970s and 1980s, just after the industry was deregulated, he began buying
airlines, merging several low-cost carriers, as well as Eastern, with
Continental, creating a national network carrier. But as rival Texas start-up
Southwest Airlines Co. (LUV) began to grow, Lorenzo decided that in order to
compete in the deregulated world, he would have to cut labor costs.
His cost-cutting drive turned into a battle with unions, prompting strikes.
Lorenzo filed for bankruptcy in 1983 - the first pre-emptive bankruptcy filing
in the industry, pilots say - and the judge allowed him to tear up union
contracts. After the filing, Lorenzo shut down Continental, then reopened as a
low-cost carrier, hiring fresh employees at half the salaries Continental
formerly paid.
Lorenzo said he had little choice because the union strikes could have
destroyed the airline.
A spokesman with the Air Line Pilots Association said Lorenzo's then-novel
idea to file for bankruptcy pre-emptively, and call on the judge to abrogate
union contracts, was a cunning trick that employees still can't forgive.
After Lorenzo's bankruptcy move and lobbying by unions, the U.S. Congress
changed bankruptcy laws, making it more difficult to abrogate union contracts in
bankruptcy. Still, experts say the airlines currently operating in bankruptcy
will likely be allowed to cut labor costs without union consent. On Friday, US
Airways Group Inc. (UAIRQ) asked the bankruptcy judge to reject its contracts
with flight attendants, customer service agents and mechanics.
Lorenzo pointed out that one element is missing in the fights unions are
currently having with US Airways, UAL Corp. (UALAQ) and others: strikes.
"They know that a strike would kill the company," Lorenzo said.
At US Airways, customer service agents have voted to authorize a strike, if
the bankruptcy judge abrogates its contract. But union leaders say they're still
working on a consensual contract.
Lorenzo said that back in the '80s, he was targeted by unions, in particular
pilots, because union members were worried his cost-cutting ideas would spread
to other carriers.
"One of the reasons they took me on is to make sure nobody talked about
cost-cutting," he said. "We were small. They saw that this was a disease and
they wanted to confine it to Texas. But it wasn't a disease. It was the
marketplace."
Still, he said, going through the painful cost-cutting 20 years before other
airlines have faced the problem was good for Continental's finances and balance
sheet.
"In many ways that was a blessing for us," he said.
Lorenzo resigned from Continental in 1990. A few years later, he attempted to
start up a new carrier, but the Department of Transportation rejected his
application, declaring him unfit to run an airline. Lorenzo at the time
complained that union members had unfairly influenced the decision.
Gordon Bethune, Continental's current chief executive who took over a few
years after Lorenzo left, wrote in his memoirs that the executive offices at
Houston headquarters were full of security equipment when Bethune showed up.
"The paranoid security may have been a leftover from the days when the
conflicts between Frank Lorenzo and the unions made Lorenzo fear for his
personal safety," Bethune wrote. "There were little emergency alarm buttons,
panic buttons in case somebody came in to beat somebody up."
Bethune has spent much of his time as chief executive improving relations with
unions, culminating in an agreement signed by both sides in September to a
partnership relationship, assuring each party a "fair share" of financial
rewards.
Still, Bethune, who retires in December, has warned employees that wage cuts
and concessions may be necessary, particularly if rival major airlines strip out
labor costs in bankruptcy.
- By Elizabeth Souder, Dow Jones Newswires; 201-938-4148;
[email protected]
(END) Dow Jones Newswires
DJ Frank Lorenzo:Airline Execs Finally Face Labor Cost Cuts
Dow Jones News Service via Dow Jones
By Elizabeth Souder
Of DOW JONES NEWSWIRES
NEW YORK (Dow Jones)--Frank Lorenzo feels more optimistic than most airline
veterans about the future of the industry, now that major carriers are
addressing their labor costs.
"There may be more sunshine through these dark clouds than people realize,"
said Lorenzo, former chief executive of Continental Airlines Inc. (CAL), in an
interview with Dow Jones Newswires.
Lorenzo, whose efforts to cut Continental labor costs in the 1980s turned into
a battle with unions, said the stiff competition with low-cost carriers these
days is finally forcing executives with major airlines to address their central
problem: labor-cost structures that are too expensive for the airlines to
compete with low-cost carriers.
He said mergers like those he negotiated in the 1980s won't save airlines
these days.
"Managements haven't wanted to face up to the fight," said Lorenzo, who is
currently chairman of Houston venture capital company Savoy Capital Inc.
"Employee attitude is not No. 1. The main event is the basic survivability of
the company."
Lorenzo didn't shrink from the fight when he ran Continental. In the late
1970s and 1980s, just after the industry was deregulated, he began buying
airlines, merging several low-cost carriers, as well as Eastern, with
Continental, creating a national network carrier. But as rival Texas start-up
Southwest Airlines Co. (LUV) began to grow, Lorenzo decided that in order to
compete in the deregulated world, he would have to cut labor costs.
His cost-cutting drive turned into a battle with unions, prompting strikes.
Lorenzo filed for bankruptcy in 1983 - the first pre-emptive bankruptcy filing
in the industry, pilots say - and the judge allowed him to tear up union
contracts. After the filing, Lorenzo shut down Continental, then reopened as a
low-cost carrier, hiring fresh employees at half the salaries Continental
formerly paid.
Lorenzo said he had little choice because the union strikes could have
destroyed the airline.
A spokesman with the Air Line Pilots Association said Lorenzo's then-novel
idea to file for bankruptcy pre-emptively, and call on the judge to abrogate
union contracts, was a cunning trick that employees still can't forgive.
After Lorenzo's bankruptcy move and lobbying by unions, the U.S. Congress
changed bankruptcy laws, making it more difficult to abrogate union contracts in
bankruptcy. Still, experts say the airlines currently operating in bankruptcy
will likely be allowed to cut labor costs without union consent. On Friday, US
Airways Group Inc. (UAIRQ) asked the bankruptcy judge to reject its contracts
with flight attendants, customer service agents and mechanics.
Lorenzo pointed out that one element is missing in the fights unions are
currently having with US Airways, UAL Corp. (UALAQ) and others: strikes.
"They know that a strike would kill the company," Lorenzo said.
At US Airways, customer service agents have voted to authorize a strike, if
the bankruptcy judge abrogates its contract. But union leaders say they're still
working on a consensual contract.
Lorenzo said that back in the '80s, he was targeted by unions, in particular
pilots, because union members were worried his cost-cutting ideas would spread
to other carriers.
"One of the reasons they took me on is to make sure nobody talked about
cost-cutting," he said. "We were small. They saw that this was a disease and
they wanted to confine it to Texas. But it wasn't a disease. It was the
marketplace."
Still, he said, going through the painful cost-cutting 20 years before other
airlines have faced the problem was good for Continental's finances and balance
sheet.
"In many ways that was a blessing for us," he said.
Lorenzo resigned from Continental in 1990. A few years later, he attempted to
start up a new carrier, but the Department of Transportation rejected his
application, declaring him unfit to run an airline. Lorenzo at the time
complained that union members had unfairly influenced the decision.
Gordon Bethune, Continental's current chief executive who took over a few
years after Lorenzo left, wrote in his memoirs that the executive offices at
Houston headquarters were full of security equipment when Bethune showed up.
"The paranoid security may have been a leftover from the days when the
conflicts between Frank Lorenzo and the unions made Lorenzo fear for his
personal safety," Bethune wrote. "There were little emergency alarm buttons,
panic buttons in case somebody came in to beat somebody up."
Bethune has spent much of his time as chief executive improving relations with
unions, culminating in an agreement signed by both sides in September to a
partnership relationship, assuring each party a "fair share" of financial
rewards.
Still, Bethune, who retires in December, has warned employees that wage cuts
and concessions may be necessary, particularly if rival major airlines strip out
labor costs in bankruptcy.
- By Elizabeth Souder, Dow Jones Newswires; 201-938-4148;
[email protected]
(END) Dow Jones Newswires