Comment - Internal Obstruction Ruining Legacy Carriers

What’s going wrong with the once proud and successful European legacy carriers? Walkouts of pilots and other staff, mounting conflicts between management and employees, growing distrust between the top-level guys and the “rest”, confrontation instead of consensus. It’s a dramatic climate change taking place within the airlines from formerly normal to meanwhile ice cold, when looking particularly at AF-KL, Lufthansa or – to a lesser degree – Cargolux.

No growth perspective
Fact is, the opposition inside the carriers has grown dramatically with well-organized minority groups fighting for maintaining their privileges and trying to block structural changes their managers decided to implement. Why? Because without radical measures to increase profitability and enhance services the traditional European legacy carriers have no chance to grow any longer. On the contrary.
The aviation world has changed dramatically during – say – the last decade. Low cost airlines popped up like mushrooms, highly state aided carriers from the Arabian Peninsula or the Bosporus are snatching away market shares from their European rivals at unprecedented speed. This, because the business model of these challengers in cargo and passenger carriage is not primarily based on commercial terms, leading to profits at the end of the day but on clear political guidelines to contribute to the well-being in their country of origin.

Diverging cost structures
It is anything but a new finding that the European legacy carriers have come increasingly under pressure by the fast growing Gulf airlines, Turkish Airlines and some other subsidized contenders. Besides mobilizing public sources as required, they enjoy a cost base at their national hubs, which is remarkably lower than that of their European competitors. This is evidenced by the armada of low paid ground personnel coming from Sri Lanka, India or Pakistan and working at gateways like Doha, Abu Dhabi or Dubai. This goes hand in hand with tax benefits and other amenities granted home carriers by their governments.
Are they to blame for taking advantage of these favorable operational and financial conditions? Rather not, with the distinct exception of the way workers are often treated, who are denied of any rights of collective articulation. This, because unions are strictly forbidden in each of the monarchy-led Gulf States.
The unprecedented growth of Etihad, Emirates et alia has meanwhile changed traffic flows considerably, mostly to the detriment of their European competitors. These are fighting their downfall but will lose the battle at the end of the day if they should not manage to reduce their high cost basis in comparison to their Gulf challengers, Turkish Airlines Cargo and some other subsidized competitors.

Preserving privileges
The key question is if the European carrier’s own staff help to secure the future of their companies? Many do, however, some well-organized smaller pressure groups obviously are selfishly resisting major changes. At Lufthansa, pilots went on strike thirteen times within the last two years meanwhile attempting to preserve their many privileges, causing financial losses in the region of 500 million euros. Even worse is the fact that they badly damaged the carrier’s reputation as one of the most reliable airlines worldwide. The result of unsolved internal conflicts: Lufthansa doesn’t grow anymore, but shrinks. This way the pilots’ union VC, hand in hand with UFO, who represents the carrier’s cabin crews that organized a week-long walkout in November, have so far successfully blocked the top management’s plans to restructure the airline in order to regain international competitiveness and achieve growth.

Stagnation is regression
Next door at Luxembourg it is the small union LCGB (Letzebuerger Chreschtleche Gewerkschafts-Bond) that refuses the signing of a new collective work agreement for securing jobs at lower costs. Without the LCGB’s consent, it will be difficult for Cargolux’s management to achieve the growth objectives in 2016 and after. Even worse is the damaged working atmosphere within CV, resulting in distrust and mutual recrimination.
And AF-KL? Not much left to say to their situation. Most of the pressing structural and financial problems remain unsolved with unions fighting tooth and nail to maintain the status quo. But stagnation is regression, at AF-KL, CV or LH. Too bad, that influential and well-organized groups of the carrier’s own staff still don’t seem to have comprehended the signs of the times.

Heiner Siegmund  /  John Mc Donagh