Union drama heats up at Southwest Airlines


Looking for some quality airline union drama? This week’s show is focused on Dallas, Texas where Southwest Airlines’ four largest unions have teamed up to call for CEO Gary Kelly to resign. The network outage suffered last month, with an expected cost to the company north of $10mm and which saw crews sleeping in airports, was the catalyst for the demands, though it is far from the only driving factor.

Three of these unions are amidst long-stalled contract negotiations, suggesting ulterior motives in pushing this agenda, but the network meltdown and impact on customer-facing employees was a significant challenge. Pushing the negotiations issue aside the joint statement from the four unions specifically calls out that fact:

These are the same employees who worked directly with customers to help minimize the trauma when the operation failed on a grand scale last month. They are frustrated with the operational failures that are impacting customers and jeopardizing the long-term success of the company.  While three of these unions are several years into contract negotiations, this collective includes a union who is not in negotiations, and speaks to the fact that this issue transcends contracts.

For his part Kelly says he’s not going anywhere. He’s calling the push uninformed and sees it as a negotiating ploy for the unions and a distraction from the real business of satisfying passengers. Still, it is not hard to see the frustration in the unions’ position given stalled contract negotiations in the face of a multi-year run of record profits and billions of dollars being put into share buy-backs – supporting Wall Street – rather than seeing some of that money committed to payroll or other benefits. And that challenge for Kelly is likely to get harder. During the most recent earnings call analysts continued to beat the company up on this front.

Gary, the impression that investors have is that your priorities at the moment might be somewhat out of order. The impression is that passengers come first, then labor unions, and then shareholders. And that’s certainly fine when all is right with the world, and it certainly worked well under Herb. But during a time of industry crisis, and I would suggest that’s what current revenue trends imply, most companies would consider revisiting their sort of priority order, at least in the short run. So my question, as awkward as it may sound, is this. Are you prepared to suspend all labor negotiations until we solve for the industry’s revenue crisis?

Kelly didn’t take the bait, pushing back against the question. But it does show the level to which investors are working to change the dynamics of the business.

But the notion that we put one over the other is an unfair characterization. We must have good employees, we must take good care of the employees, we have a very intensive business and we truly care about people. We care about our people and then in turn we care about our customers. And it is a virtuous cycle, and to think that you can simply ignore that and say, we’re only going to focus on the shareholders, doesn’t work, it’s not sustainable. But we’re famous for telling everyone, and admitting, that’s who we are and we’re just not – we’re not going to apologize for that. It’s worked; this is the most successful airline in history, that is now turning out record earnings. And so we want to sustain that. We want to sustain the returns for our shareholders and the best way to do that is to continue to take very good care of our people

The call for his removal also focuses on recent technical failures, suggesting that the company is not moving quickly enough to migrate to new solutions and support the growth and future state the company needs. This is slightly ironic given that the most recent outage specifically affected older systems more than the newer ones and that the roadmap to replace the older reservations platform is in place and cannot really be accelerated at this point. It has been slow since the AirTran merger and that has limited some expansion opportunities. More importantly, it has limited ancillary revenue opportunities. But it is also doubtful that another CEO would have approached the migration/upgrade plan differently.

In the meantime, this is an excellent bit of union drama as we wait to next Friday for results of United’s flight attendant contract ratification vote.

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Seth Miller

I'm Seth, also known as the Wandering Aramean. I was bit by the travel bug 30 years ago and there's no sign of a cure. I fly ~200,000 miles annually; these are my stories. You can connect with me on Twitter, Facebook, and LinkedIn.

4 Comments

  1. If Gary Kelly gets outsed I am 99% confident employees will regret this 2-3 years down the road.

    There is no CEO in the US airline industry that has the employee equation of the scales weighted that much vs shareholders. Oscar at UA is probably the next closest.

    Also I am sure WN wished they had IROPs agreement in place with other airlines when their systems melted down.

    1. If the systems were down I’m not sure they’d have been able to push the passengers elsewhere. And it wouldn’t have solved things like crew sleeping at the airports. But, yeah, it likely didn’t help them that they’re on the outside looking in.

  2. What ancillary revenue is there to collect? The booking engine has some shortcoming but a major differentiation for Southwest and what so many people like about them is that there are no gotcha fees after you buy the ticket. Not sure they want to be so quick to change that, despite pressures from Wall Street.

  3. I have several pilot buddies at SWA…according to them, the “Kumbaya” songs around the fireplace days are totally over. No contract since 2012 and the natives are restless. Those who were around when the feel good days of Herb Kelleher and others have retired or in the minority. Showtime boys and girls!

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