HAS Lufthansa made a fundamental error in its treatment of its pilots? Does that question mark apply to the entire airline industry?
Flight-deck employees of the leading German airline, including its cargo arm, plan to go on strike for the 14th time since 2014, after pay talks between its pilots’ union Vereinigung Cockpit (VC) and management broke down again, writes Thelma Etim.
The unimpressed union is reportedly seeking an average annual pay rise of 3.66 per cent – in line with Lufthansa’s profits of US$5.4bn over that period.
It all sounds familiar. Just like legacy cargo carriers Cargolux and Air France-KLM, Lufthansa is struggling to competeagainst the powerful new wave of carriers fashioning a new economic and business model, whilst experiencing extraordinary growth, innovation and profitability.
They include Qatar Airways, AirBridgeCargo, Volga-Dnepr, Turkish Airlines, Etihad and Emirates – plus a raft of regional low-cost passenger carriers.
Acute shortage of pilots
Forced to downsize, Lufthansa’s approach to its pilots’ demands does not appear to be any better than counterparts Cargolux and Air France-KLM. Lufthansa’s only achievement in the negotiations thus far appears to have been the successful curtailment of the ‘negative’ press coverage of its surreptitious discussions with VC. In the face of dwindling profits, surely avoiding embarrassment (by hiding from the media) is the least of its problems.
Whether they like it or not, pilots remain the nucleus of any airline. Put simply, until the advent of pilotless commercial aircraft, no pilots, no airline.
Some airlines are already suffering from acute pilot shortages. Cargolux, for example, is currently struggling to find pilots, having revised its terms and conditions for flight-deck contracts, sources say. The Luxembourg all-cargo carrier is so short of co-pilots that flights are being delayed for several hours “or even possibly cancelled,” insiders reveal.
Former Cargolux chief executive Dirk Reich was apparently advised that the new contracts will become a major barrier to recruiting the same numbers of quality pilots as in the past. Unsurprisingly, the mood among Cargolux’s pilots is now “at an all-time low,” according to close observers.
Why else has Southwest Airlines of the USA acquiesced to a new contract which will see its pilots’ pay rise by almost 30 per cent over four years? And pilots working for Delta Air Lines are also in the process of voting on a contract offering 30 per cent pay increases. If Delta pilots approve the deal, United Airlines’ pilots will also see an augmentation in their salaries, under a clause that ties their pay rates to Delta’s, reports say.
Global, political, economic and market challenges
Pilot pay is not the only concern casting a pall over the operations of Lufthansa and other legacy carriers engaged in crucial restructuring processes to weather the constant onslaught of global, political, economic and market challenges. In July, Boeing released its seventh pilot and technician report, which forecasts that between 2016 and 2035, the world’s commercial aviation industry will require approximately 617,000 new commercial airline pilots.
Asia-Pacific is the region expected to require the greatest number of pilots (248,000) over this period due mainly to expected growth in the single-aisle low-cost carrier market, while North America’s increased pilots demand (112,000) will be the result of new markets opening up in Cuba and Mexico. Demand in Europe has increased responding to a strong intra-European Union market, the Boeing study also reveals.
The projections indicate that airline pilots will find themselves in a very strong position in the very near future – even sparking bidding wars for their services. Sources suggest this is already happening, with some pilots switching from one airline to another, lured by more attractive packages and prospects.
It is a situation that will become a major stumbling block for all-cargo airline Cargolux as it comes under pressure to recruit talented new people for its proposed Henan-based offshoot Cargolux China whose launch date has already been put back. How many pilots are there who would happily uproot their family lives to live in the middle of China? How would such a change work for schooling, language, social life etc?
“..growing lack of suitable candidates”
The critical shortage of pilots amidst growing demand across the entire aviation industry is the next major headache for some carriers, especially amongst those desperately looking to cut costs. Another report warns they should be doing the opposite.
“Due to the increasing demand for pilots and a growing lack of suitable candidates, airlines need to develop strategies to ensure they attract and retain, the right crew,” asserts global risk management company Marsh, which has suggested a number of vital alternative strategies for carriers. These include conducting regular pay reviews.
“Given that the cost of flight training is considered to be a deterrent for young talented [people], they are more likely to be attracted to airlines who offer generous packages covering these costs,” the company explains. “Having then borne the pilot training costs, the airline must seek to protect its investment by taking proactive care to retain its staff.”
The Marsh report cites improving work conditions as a significant factor that carriers should consider by “taking steps to ensure their corporate culture promotes a better work/life balance” for employees.
“For example, longer rest periods, more regular schedules and revisions in the number of hours they are required to fly annually could all have positive effects,” it suggests. The truth is that most pilots try to maximise the number of hours they fly to earn lucrative bonuses worth as much as 30 to 40 per cent of their salaries.
But there remains a big gap in expectations between airline managements and their pilots. From the airlines’ current management perspective – and even though there is a shortage of pilots – airlines are unlikely to want to encourage their pilots to spend less time in the air, the report insists.
Offering enhanced employee benefits is another tactic carriers can employ to distinguish themselves from the competition. “Given the unique challenges faced by pilots, most airlines recognise they need to provide specialised aviation employee benefits coverage, as opposed to some of the more generic employee benefit packages available,” the report says.
Such niche insurance coverage typically falls into four key areas: personal accident, term-life, emergency medical expense, and loss of licence.
The report concludes that as this race for the best flight-deck talent intensifies, airlines will be forced into re-thinking their people strategies. “Given [carriers] operate within an often harsh and volatile economic environment, airlines will need to explore a variety of creative approaches to attract and retain crew, beyond simply raising salaries – certainly one approach is to put in place an aviation employee benefits programme that distinguishes one airline from its competitors.”