Soaring capacity growth, especially in China, India and the Middle East, has brought the problem of personnel poaching sharply into focus
The luring away of the management and flightcrew of another carrier is not a new phenomenon for the airline industry, but it has been hurting the smaller, weaker airlines particularly hard over the past couple of years. And at the high end of the cycle, where airlines in areas like the Middle East, China and India are adding aircraft faster than pilots can be trained to fly them, aircrew and other qualified staff have been leaving for better offers in larger numbers than ever.
The issue took centre stage at the 2006 IATA Annual General Meeting, when some of the "little guys" from Africa joined forces to criticise publicly the bigger players. The topic was supposed to have been IATA's move to make certification under its operational safety audit programme (IOSA) a qualification for membership. But it quickly turned to one of personnel poaching - a subject often kept behind closed doors.
"There is a downside to IOSA," says Air Seychelles chairman David Savy. "Whereas African airlines have a dismal safety record and we have to meet IOSA, to do so we have to have trained specialists to deliver it. What a number of African airlines have been finding is we have been spending time and money training all these people and bigger airlines around the world are poaching those people, paying them higher salaries to move over to them so that they meet their requirements. This is not only a problem for IOSA, it is also a question of pilots and engineers."
Smaller African carriers are not the only ones to have suffered as a result of poaching by the more aggressive large players, with many pointing the finger at the fast-growing Middle Eastern operators. Carriers in some Asian and South American countries have also been losing staff as new-starts and the expanding established players have thrown attractive salaries at qualified staff.
Is there a universal solution? Most think not, and when it was suggested at the IATA meeting that there be a "code of conduct" to prevent poaching of staff from African carriers, the idea was effectively shot down as naïve.
Poaching code of conduct
As long-serving KLM chief executive Leo van Wijk puts it, in an ideal world that might work, but in the cut-throat airline business implementing it will be a practical impossibility. In his carrier's case, he says poaching is not a problem as "we are in the luxury position of paying our pilots so much that they don't leave us". The same is true with large airlines elsewhere in Europe, although many smaller carriers are facing poaching woes in the same way as those in other parts of the world.
Aer Arann is one such carrier. Director of operations John Halpin says the Irish regional has a "huge" pilot poaching problem, but is trying to mitigate the number of pilots leaving by offering a better lifestyle than larger carriers can provide and faster career progression, including quick promotion from first officer to captain. "That should mitigate the drain. But we can't eliminate it because a lot of pilots aspire to fly jets. We can't stop it," he says.
"In the past 18 months we turned over 50 pilots. It's a serious problem. There are just so many jobs." Aer Arann only has 75 permanent pilots and 25 contract pilots in its workforce.
Portugalia general manager of operations Luiz Placido Lapa says fast-growing low-cost carriers in Spain have all been "robbing" Portugalia of its pilots and as a result it has seen 35% pilot turnover in less than two years. "All regionals have problems with pilots because they leave for bigger carriers," he says.
But those that have been accused of poaching protest that it is not the right word to use, and in reality is about supply and demand. "We are not finding it at all difficult to recruit good people. Our product is appealing for applicants," says Etihad Airways regional general manager for Europe and the Americas Kirk Albrow. "We certainly don't poach - it's a question of people approaching us."
He adds that the fast-growing Abu Dhabi-based airline has robust processes in recruiting and benchmarking against its competitors. "Our salaries are very competitive, but not outrageous - we won't line your pockets," he says.
Some governments in the worst affected countries have stepped in to try to prevent poaching. In India it became such a problem in 2005 as a result of a severe pilot shortage that some cockpit crew were moving to new airlines without even informing their employer they had quit. For example, cargo operator Blue Dart says it lost 80 pilots from June 2004 to April 2005 although it has less than 50 pilots in its entire workforce.
The Indian government tried to make airlines draw up with a code of conduct to prevent poaching, but when no agreement was reached it acted unilaterally. Pilots in India must now give their employers six months' notice if they join other airlines - regardless of the terms of their employment.
In China the government has also introduced measures to ease the pilot shortage problem, in part by making it easier for foreign pilots to work. At the same time it has introduced rules that block cargo start-up airlines from hiring staff from existing carriers. But the situation is far from ideal. Larger passenger airlines that have lost staff to other carriers have at times turned to the courts in a bid to keep staff on their payroll, creating a tense environment between employers and employees.
Poaching has hurt some airlines in countries that pay lower wages in comparison particularly hard. In Indonesia, Malaysia and the Philippines, for example, pilot salaries have had to be increased substantially to keep them at home rather than see them take up higher-paying offers in the Middle East.
Malaysia Airlines, while hurting financially and trying to slash costs, was forced to give its pilots a more than 20% pay rise in 2005. Similar increases were given to aircrew in Indonesia and the Philippines. That has hurt these airlines financially but has slowed the exodus.
"We are now quite lucky in that for the last six months we have been able to retain our pilots," says Philippine Airlines (PAL) president Jaime Bautista. "But we had to implement a pilot- retention programme where if they stay with us for a certain number of years we will give them a bonus - basically it is a retention bonus. On top of that we have given them increases in compensation by way of productivity pay, so the more they fly the higher their compensation will be. It has helped, but the amount is really substantial. The pilots' net pay now is more or less close to rates given by foreign airlines."
In a similar position is Garuda Indonesia, which unlike PAL is in severe financial trouble and having difficulty paying bills. While trying to negotiate a massive debt restructuring with creditors and promising to cut costs internally, its pilot wage bill has gone up. "We have increased the compensation for pilots, which has increased our costs, but also improved productivity. There is no way to beat the offers from carriers in the Middle East, but we have managed to slow things down in terms of pilots leaving," says chief executive Emirsyah Satar.
SriLankan Airlines also lost pilots in early 2006 but the departures stopped after a new collective agreement increased salaries by an average 30%.
"We were a number one target because there was dissatisfaction in the ranks," says chief executive Peter Hill, who adds that Etihad, Jet Airways and Qatar Airways were some of the carriers trying to lure over some of them away. "They were definitely targeting our pilots, no question about it," he says.
But Hill is sanguine about the market's dynamics: "It's the market, it's supply and demand," he says. "We have to make sure our staff, wherever they are working, are offered a competitive salary, and as long as we are making money we are able to do that."
Outside Asia, Ethiopian Airlines has also been affected by other airlines giving its staff better wage offers. It has lost 14 of its 250 pilots to Emirates and Singapore Airlines, together with accountants, technicians and legal staff, says chief executive Girma Wake.
While trying to grapple with the problem, he recognises that "even if we pay the same salary, with a 30% tax [in Ethiopia] we cannot compete with the tax-free conditions being offered elsewhere. Free housing also allows people to rent out their houses in Ethiopia and earn extra income."
Wake adds: "What we have to do is train more, try to increase their benefits within our means, and create good working conditions for those who want to stay. But in the end, we cannot stop people from leaving."
It is an issue for many. Sanjay Bhuckory, chairman of Air Mauritius and president of the African Airlines Association, says: "We need to close ranks within Africa and make sure we have a certain code of conduct and interaction in training. We need to establish where we can make a difference in the quality of life being offered."
Air Botswana chief executive Lance Brogden says: "We have a very serious issue here," giving an example of a two-month period over which he lost four senior captains. "For a small airline this is quite a powerful effect," he says. However, he believes individual solutions must be found, and not by adopting a more simple code of conduct fix. One is to identify staff early who are less likely to move, he says, and focusing on their career development.
While most believe codes of conduct will not work as they simply will not be adhered to when staff shortages are at their worst, there have been some success stories in terms of co-operation. Although airlines like to keep quiet about it, many of the large players have informal no-poaching agreements between themselves. For example, many members of the 17-carrier trade group the Association of Asia Pacific Airlines (AAPA) have "gentlemen's agreements" not to steal each other's qualified personnel. At least one AAPA member, Garuda, also occasionally allows its pilots to work abroad for set periods of time before coming home, in part as a way to keep them loyal over the long term. Satar says some of Garuda's pilots are flying temporarily for fellow AAPA member Korean Air as well as "a couple of airlines in the Middle East".
Many also believe that the poaching issue will only be a relatively short-lived problem, however, as it is not a universal one. Ultimately, these people believe, conditions will balance out across the regions and there are already signs that it is becoming less of a problem. PAL's Bautista says: "We have had feelers from some of the pilots who left who want to come back." Ethiopian Airlines' Wake also says he is encouraged by the recent return of some staff.
AAPA director general Andrew Herdman asks: "Is the world short of pilots? I don't think so. Does the world need a lot of pilots and other skilled personnel trained up? Yes. Is the training market capable? I think so. In the short term it is a price effect in terms of salary pressure, but I am not too concerned about it. I see the training market responding pretty actively in terms of stepping up numbers and I think the growth rates are entirely manageable."
He adds: "You will hear stories about shortages in particular places, but you will see internationalisation - expatriate pilots flying in some places where you wouldn't have expected them. So the market in a sense is responding."
And as the famed founder of private equity group Texas Pacific and current Ryanair chairman David Bonderman says: "I guess one can be concerned for someone like Air Botswana, but in the scheme of things, in every other business I ever heard of, to get somebody to go to Botswana you have got to pay them more, not less."
Right or wrong, that is probably the harsh reality of the current situation: the smaller players will just have to accept that losing staff to better-paying employers is the way it has to be in a time of excessive demand and cope as best they can. But a cyclical downturn will no doubt come at some point in future as it always does and a surplus of qualified personnel will again be seen in many parts of the world.
President of Venezuela's Aeropostal Nelson Ramiz has this to say: "The issue of losing employees to other companies is something that is going on every place in the world. The business is growing so people are leaving, but this is a cyclical business and eventually those employees will have to come back home. The way it works for us is I just tell them the same thing I tell my wife: 'If you leave you're not coming back'."
Additional reporting by Günter Endres in Kuwait and Cairo, Mark Pilling in London and Brendan Sobie in Barcelona
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Source: Airline Business