Industrial action played havoc with operations at Air France and Lufthansa over recent weeks as pilots revolted against legacy carriers' cost-cutting plans.

But the battle between management and their best-paid employees is about more than wages and working terms: it is about control and staff influence on the carrier's future direction.

Airlines carefully select flightcrew to ensure that passengers and aircraft are in the hands of high-calibre individuals who remain cool-headed, stick to the book and, crucially, do not give up in critical situations. But as that determination naturally extends beyond the cockpit, executives have a fight on their hands when pilots perceive their working environment to be under threat.

Pilots and management at Air France and at Lufthansa and its wholly owned subsidiaries Austrian Airlines and Swiss International Air Lines are deeply entrenched about the future flightpath of their respective carriers.

For management, the aim is to please investors and shareholders, and improve balance sheets, amid the threat from younger, leaner competitors in both the short- and long-haul arena. Executives are trying to circumnavigate pilots' long-standing working terms by transferring operations to lower-cost subsidiaries, and thus force the employees to change.

Meanwhile, pilots are retaliating with strikes and legal action to avoid fragmentation of their workforce and loss of privileges, much of which date back to the pre-liberalisation era of state-owned flag carriers.

Air France pilots began industrial action in mid-September over the parent's expansion plans for low-cost subsidiary Transavia. Air France-KLM was seeking to build up Transavia as a pan-European budget airline with bases outside France and the Netherlands to compete with thoroughbred low-cost carriers such as EasyJet and Ryanair. But the group adjusted the plan soon after the start of the crippling strike – which, it said, was causing daily operating losses of up to €20 million ($25 million), with "catastrophic consequences" for the company and its financial position.

Air France pilots strike (c) Rex Features 640

Rex Features

Air France pilots protesting outside the French Parliament in September

Now, Air France-KLM wants to build up the French Transavia division instead, under what it terms a "made-in-France solution" rather than developing the unit outside France and the Netherlands. But pilot unions remain opposed to that move, because it would mean wider employment of flightcrews on terms outside the mainline labour agreements.

Air France-KLM argues that Transavia France "can only develop under economic conditions that are compatible with the low-cost model". Any single labour agreement for pilots would "totally oppose the principle of this [low-cost] model", particularly if such a deal were "under Air France conditions", the group says.

After two weeks of industrial action, French pilot union SNPL halted the strike at the end of September. But no agreement had been reached with Air France-KLM, and another pilot union, SPAF, said it would continue the walkouts.

Meanwhile in Germany, Lufthansa has decided to use external pilots for its planned low-cost, long-haul sub-fleet of Airbus A340-300s under the mainline brand. Up to 14 aircraft of the widebody type are to be employed with a denser cabin configuration – with no first class and a smaller business class – on low-yield routes aimed at leisure travellers. While management was able to agree cost cuts with its flight attendants, catering arm, maintenance division and other stakeholders, it claims that no such deal was possible with flightcrew. So, while the cabin crew will comprise Lufthansa employees, the aircraft are set to be flown by pilots from outside the airline.

When the plans were revealed in July, Lufthansa Group chief executive Carsten Spohr said management would consider wet-lease options if targeted savings could not be agreed within the airline. Sources familiar with the plans have meanwhile confirmed that Lufthansa is evaluating a wet-lease arrangement with Swiss charter operator PrivatAir for the A340s.

The decision is the latest episode in a dispute which has been simmering for years between management and German union Vereinigung Cockpit. The last collective labour agreement for the pilots expired in 2012, and has since remained in place as no follow-up deal could be agreed. But the conflict escalated in December 2013 when Lufthansa terminated a transitional pay agreement covering wages if pilots retired early due to medical reasons. This led to a three-day strike in early April and multiple walkouts in August and September.

Lufthansa wants to move from the traditional company-funded system to an employee-financed scheme, and raise the age threshold – at which pilots become eligible for early retirement – from 55 to 60 years. The airline says it is willing to negotiate a compromise and has proposed a stepped approach for the existing workforce. But pilots taken on since January 2014 are to be excluded from the deal.

While the union briefly returned to the negotiating table after the stepped-approach offer, the conflict goes deeper than a disagreement about benefit levels and retirement-age thresholds. The absence of a single arrangement for the entire cockpit workforce was a key reason for the union to reject the deal. "Lufthansa management continues to refuse a unified transitional pay agreement and demands a division of the pilots into three classes," says Vereinigung Cockpit. Apart from differentiating between existing and new staff members, the stepped approach would, argues the union, penalise employees who have worked part time, such as female pilots who reduced their working hours to support their families.

Pilots and flight attendants at Austrian Airlines gained a legal advantage in September when the European Court of Justice ruled in their favour over management's unilateral cancellation of a collective bargaining agreement two years ago. When the Lufthansa subsidiary failed to reach a labour deal with its crew members in 2012, management transferred all the relevant aircraft and employees to lower-cost regional arm Tyrolean Airways.

While the controversial move did not lead to a reduction in pay levels, it was especially aimed at slowing statutory wage increases under the previous agreement, Austrian said at the time. But the transfer also covered productivity rises and pension cuts.

Now, management is aiming for an out-of-court settlement after the ECJ ruled that conditions in Austrian's former labour agreement should be honoured until a new contract had been reached with the employees. The final ruling has yet to be made by Austria's supreme court, but is likely to follow the ECJ judgement as the national court had asked the European institution for advice. Separately, a Vienna court is assessing the legality of the transfer to Tyrolean in 2012.

Meanwhile, Austrian is preparing what it terms "alternative scenarios" in case it cannot reach a settlement with employees that is satisfactory to the airline. Chief executive Jaan Albrecht says that "ultimately, the judgment handed down [by the ECJ] in Luxembourg makes it difficult for us to defend our position as a quality airline against the competition".

Nevertheless, that ruling has encouraged Swiss's mainline pilots to start legal action. After the Lufthansa Group carrier was unable to negotiate agreement on future working terms with the mainline pilots, management decided to assign its on-order Boeing 777s – due to join the fleet in early 2016 – to the airline's regional arm.

Pilots at the two divisions are represented by separate unions: Aeropers for the mainline, and IPG for the regional operations. All three parties had aimed to reach a deal whereby the two pilot corps would be merged into a single unit, but the airline signed a labour contract only with IPG. Aeropers says the trilateral agreement failed because management tried to use the settlement to introduce additional cost cuts.

Now, Aeropers has resorted to litigation because, it says, Swiss's "German management" has breached several contractual obligations in the existing mainline labour agreement, including duties to continue negotiations and permit employee participation in matters such as the 777 introduction. The union argues that "outsourcing" of parts of the long-haul operation is not permissible under the current contract.

Swiss has decided to terminate that deal at its earliest possible expiry date in November 2016 because, it says, the differences with Aeropers "on the key issues" are "irreconcilable".

Perhaps the airline's management eventually decided that having separate pilot workforces with differing terms and conditions might be conducive to cutting costs. Oliver Sleath, European airlines analyst at Barclays, suggests the operators are aiming to undermine the unions' power and influence by building up internal competition: "Lower cost units within a legacy [airline] can help to incentivise savings at the mainline carrier. If employees are not willing to adapt, investment and growth opportunities will be directed elsewhere. But it is always a power struggle between management and unions."

Sleath expects that Air France-KLM and Lufthansa Group will eventually succeed in changing their business models against union resistance. But he foresees that "they will shrink in the process" as their loss-making businesses are gradually eroded away by market forces. Thus the network airlines will change regardless of whether employees accept cutbacks in terms and conditions, because passengers favour carriers with the lowest operating cost base. "It's like evolution," says Sleath. "You have to adapt or die."

Management at Air France-KLM and Lufthansa could be forgiven for looking enviously at IAG and its progress at Iberia. A long-running dispute over job cuts and efficiency plans at the Spanish carrier finally ended early this year when a series of productivity deals were struck with unions. Iberia secured not only step-change double-digit percentage salary cuts but also industrial breathing space until 2017, when the deals expire.

Perhaps a difference here and also in Italy, where Alitalia has secured cost-saving labour deals with several of its unions to facilitate Etihad's investment has been the spur of the very obviously difficult economic backdrop. For example, the union and staff outlook is probably very different in a country with Spain's high unemployment rate.


While Air France and Lufthansa have dominated the industrial-strife headlines, they are far from the only European airlines to have faced strikes this year, whether from pilots or other labour groups:

Aer Lingus: The Irish airline scaled back its full-year profits outlook though it was later restored, on stronger sales after strikes were called by cabin crew in a row over working conditions. Aer Lingus also remains embroiled in a long-running dispute with cabin crew over tackling its pension deficit. These talks have now entered what chief executive Christoph Mueller describes as a critical stage after recent labour-court recommendations.

British Airways: The IAG-owned UK carrier has enjoyed a relatively pain-free industrial relations since ending lengthy dispute with cabin crew in 2011 and securing cost savings through introduction of a mixed-fleet cabin crew who fly to a combination of short and long-haul destinations. But members of the latter group indicated in June a willingness to consider industrial action, in a consultative ballot prompted by a dispute over pay and working conditions. About one-third of the 2,600-strong mixed-fleet staff are members of Unite, and 95% said they would support future strike action if formally balloted by the union.

Czech Airlines: The SkyTeam carrier has faced disruption from cabin crew after detailing plans to cut around 280 staff around a third of the total as a result of phasing out its Airbus A320 operations this winter.

Finnair: The Oneworld airline began outsourcing cabin crew for some flights after failing to secure concessions from the union representing its own flight attendants. It did, however, in September reach a tentative cost-saving deal with pilots.

Icelandair: The Icelandic carrier faced strike threats from pilots, cabin crew and maintenance personnel during May and cited industrial action as having hit its second-quarter financial performance.

Meridiana: After facing industrial action in June over restructuring plans, the Italian airline last month initiated procedures to cut over 1,600 jobs as it presses ahead with a restructuring plan under which it is to move to an all-Boeing fleet by the end of next year.

Norwegian: Cabin crew at the Scandinavian low-cost carrier called strike action in May in a dispute over pay and conditions before a new collective deal was reached later that month.

Source: Cirium Dashboard