America West Airlines laid off 500 machinists in December following a 736-person cutback last March. As part of its dramatic cost-cutting campaign began, Delta Air Lines let go of more than 3,000 workers. In 1995 alone, Continental Airlines dropped 5,000 jobs from its roster. What is happening?

Long attributed to manufacturers, job displacement has hit hard in such service industries as air transport. According to US government statistics, between 1990 and 1995 major US passenger carriers let go of 51,000 jobs - a reduction of more than 11 per cent from the 452,000 level in 1990 (this figure does not distinguish between full and part-time employment, with the latter on the rise). Labour costs have risen during this period, but only minimally.

While salary and benefit expenses still account for the lion's share of industry costs, wage stagnation and reduction has been the rule: in 1987, the average industry salary was $43,000; at the beginning of 1995 it was $47,000. This is less than 1 per cent salary growth a year, an amount which disproportionately goes to workers in the highest skill levels.

The penultimate result for airlines is that productivity has blossomed by 21 per cent in five years, with worker efficiency being measured by the number of revenue passenger miles produced per employee. The ultimate result is that the hard-fought battle waged by airline executives to return to a profitability absent since 1989 was finally won last year, and shareholder value was solidified.

Unlike the communities that have been impacted by the cuts - America West's new moniker in Phoenix is 'Air Scrooge' for the holiday season layoffs - few industry executives have been upset about the wage and benefit concessions and furloughs they have implemented, though some have noted they had a few sleepless nights. Ron Allen, chairman of Delta Air Lines, told the Atlanta Journal that he 'agonised' over the breakup of the Delta family. But, he added: 'What do you do if you don't make these cuts? You're hurting more people. You're hurting the shareholder in the long run because you're not building a Delta that can be a winner.'

But perhaps there should be a codicil to that statement. That's just the way it is in the US, where 'shareholder value' is a religion that simply is never questioned. Though cost-cutting does come from all parts of the corporate structure, there is an unrelenting habit among US CEOs to begin slashing wages and jobs. Daily the counts rise, both in terms of layoffs and share price increases: AT&T - 40,000 jobs, a $2.62 jump in stock value; Kimberly Clark - 6,000 jobs after merging with Scott Paper (which had previously laid off 11,000), a share increase of $1.37. At Boeing, after thousands of layoffs over the past year and a half, investors encouraged management to act tough in the face of a machinists' strike by driving the stock price up each time Boeing rebuffed the union. The stinging irony for workers is that these companies have all been profitable.

There is a lot of old news here: median incomes in the US have been falling in real terms by 2 per cent annually for years, with median family incomes falling by 7 per cent since 1987. But what is new is that these figures have been dropping while the US has turned into an efficiency giant, now seeing a 4.8 per cent annual productivity growth rate, the best in the industrialised world. This, US Labour Department secretary Robert Reich has been warning for the past year, means that a traditional link between productivity gains and wages has been broken. Cost savings from efficiency gains have gone almost to the corporate bottom line.

In the short term, this may be good for companies like America West, which has the second lowest cost structure of any US major, and wants to keep it there. But whether the airline actually gets the $35 million benefit that it talks of finding in its hip pocket after its C- and D-checks are moved to Seattle, where BF Goodrich subsidiary Tramco will take over for the 500 sacked mechanics, has been questioned. But if Teamsters union allegations are true that the company was trying to bust a fledgling organising effort - circumstantial evidence provided against America West in court dockets as part of a lawsuit against the company suggest there was an atmosphere of 'intimidation and harassment' - then America West will benefit from one less union.

But what of the long-term? Already, record bankruptcies of companies large and small is being partially blamed on the downsizing trend and wage degradation. This is because workers are consumers, and 'at some point American workers won't have enough money in their pockets to buy the goods and services they are producing,' Reich says.

More directly for America West and company, a trend of corporate profitability along with job cuts is scaring employees into accepting lower wages for the stability of a job: the 'don't make waves' approach to careerism. Though this might appear to bode well for the airline industry managers who will be negotiating new contracts with their labour groups this year, Steven Roche, senior economist at Morgan Stanley, believes that the growing disparity between the true middle class and the extremely well off is at a critical juncture. He told the Washington Post: 'I think we face the real risk of dramatically increased social tension and political upheaval if wages don't catch up with the productivity curve.'

Mead Jennings

Source: Airline Business