September 1, 1998
Pilots for Northwest Airlines went on strike Saturday, forcing the company to cancel all of its 1700 daily flights through Thursday. Tom Bearden explores the issues surrounding the strike.
TOM BEARDEN: Detroit Metro is a textbook example of what's called a fortress hub, an airport that's overwhelmingly dominated by one airline. Like most big airlines today, Northwest's entire route structure is built around flights that go from outlying cities to the hub and back, forcing most passengers to change planes in order to reach their destination. Northwest has about 75 percent of the traffic at Detroit Metro. It has 80 percent of the traffic at its second big hub in Minneapolis and 79 percent of the traffic at its third hub in Memphis, and studies show that hub domination by all the big carriers has grown in the past decade. It's one big reason that people in the Midwest were so worried as they watched relations between Northwest and its work force deteriorate in a flurry of job actions and slowdowns. An actual strike was seen as the worst case scenario that could damage the economies of regions that are so dependent on one big airline.
SPOKESMAN: We know you did not want to strike, and we know-
TOM BEARDEN: On Saturday that scenario came true. Northwest's 6200 pilots made good on a threat to walk off the job after two years of talks that had gone nowhere. Airports in all three hub cities were eerily quiet as the airline virtually shut down operations, canceling 1700 daily flights. Because of the long looming strike threat, the travel situation wasn't as bad as it might have been. Many people had long since canceled their trips or made other travel plans.
PASSENGER: When the strike notice came out, or the possibility, I decided to go to Continental or some other airline.
TOM BEARDEN: But the few who simply had to travel found themselves competing for a limited number of seats on the few flights flown by other airlines into Northwest's hubs. The arguments between Northwest and its pilots center on money and job security. A key issue is 365 million dollars in concessions the pilots made to help save the airline from bankruptcy in 1993. Now the carrier has had four years of record profits, and the pilots want to make up for their losses. They're asking for a 14 percent pay raise over three years. Northwest says it can't afford to pay its pilots more than their peers at other airlines.
JIM LEHRER: Phil Ponce takes it from there.
PHIL PONCE: And with me now, Aaron Gellman, director of Northwest University's transportation center, an education and research institute, and Julius Maldutis, managing director and airline analyst for the investment firm CIBC Oppenheimer. Mr. Maldutis, tell us a little bit more about the lines in the sand, what the pilots want and what the airline is saying.
JULIUS MALDUTIS, CIBC Oppenheimer: Well, unfortunately, this dispute has a long history and a long background. If you go back to the 1970's, when the industry was regulated, this company had a history of very serious disputes and strikes. So basically nothing has changed. It's very regrettable that this strike had to take place, because management and labor, rather than talking to each other, have taken very hard positions and it may take a presidential emergency board to resolve this. Today Secretary of Transportation Slater had both parties in there. Hopefully, he can prevail for them to resume negotiations.
PHIL PONCE: Haven't heard yet what the results of that meeting might have been, but, Mr. Maldutis, the airline has been taking out ads in some of the major papers saying that what the pilots want is an industry leading contract. What's your reaction to that characterization?
JULIUS MALDUTIS: Well, I think we can have a great debate on the numbers. If we had an arbitrator that sat down and carefully examined the statistics, we could come to that conclusion. But the fact remains that the company has been quite profitable over the last several years, and obviously, labor would like to share in those rewards. So we'll just have to have very careful and very good negotiations among both parties.
PHIL PONCE: Mr. Gellman, right now the airline is also in negotiations with five other of its unions, so there's a concern about spillover, one can imagine?
AARON GELLMAN, Northwestern University Transportation Center: Oh, I think there's a great concern of that, but I think while Julius is absolutely accurate about the history, there's a little different twist to this one. It's not just tied to the days of Knirop in the 70's and before. He didn't personally gain from it. But the-
PHIL PONCE: Knirop being?
AARON GELLMAN: The former head of the airline during that period, the 70's and somewhat before, Don Knirop. Today the labor is-and, indeed, the non-organized personnel are rather bitter at the enrichment that two individuals have gotten for themselves out of this. And I think they feel very much that they're entitled to get their share. I think it's a very different kind of job action that we've seen and would see if the other unions joined in any way than you'd find at most of the other airlines. I think that the personal feelings of the employees of Northwest are rather bitter at the moment.
PHIL PONCE: So, Mr. Gellman, you're saying that there's some pretty bad blood right now?
AARON GELLMAN: I think there's very bad blood. In fact, it runs deeper than it did during the days of yore, before deregulation came in 1980.
PHIL PONCE: Mr. Maldutis, last year, the president invoked a 60-day cooling off period when the American Airline pilots were talking about going out on strike. Why hasn't that happened this time?
JULIUS MALDUTIS: Well, first of all, there was a different union. That was the Allied Pilots Association. What we have today is the Airline Pilots Association. There's two different unions involved. Second of all, the American Airlines strike last February lasted about, I think, three minutes when President Clinton invoked the emergency board and before the emergency board came out with their findings, both management and labor were able to come to an agreement. The issue here is a very sensitive political issue, and that is that the President was severely criticized for intervening in that action by organized labor. So I think the situation here is quite different, and it's also very sensitive.
PHIL PONCE: So, Mr. Maldutis, what you're saying is that organized labor does not want the President to intervene. They want this, what, to play out, not to lose their leverage?
JULIUS MALDUTIS: Well, I think there is some of that, because the states in which Northwest operates, a highly democratic state, labor obviously does not want the presidential emergency board convened. Management does want it convened. So we have the both sides are very far apart. I think it's going to take a great deal of statesmanship, both on the part of the administration, on the part of labor and management, so that we have a resolution. I think economically the states are being hurt. I think the shareholders have been hurt. You had some 3 ½ billion dollars of market value on Northwest's stock eliminated since March 16th. And I think the employees are being hurt. So I think there's enough hurt going around, and I think what we need is some good statesmanship here.
PHIL PONCE: Mr. Gellman, how much hurt is going on in some of those hub communities?
AARON GELLMAN: Well, quite a lot. The mobility-the dependence on mobility is very great in the hubs that were mentioned, and mobility is important not only in our personal lives, but in the lives of our enterprises. By the way, I do want to make one point about the American strike, in contrast to the current Northwest strike. In the American strike you had a very serious foreign policy issue, which doesn't exist here. That is, American had control or has control of a large part of the Caribbean traffic and very large segments of traffic to South America to and from the United States. The governments down there put a lot of pressure on the Clinton administration not to allow that strike to proceed. There is no foreign policy relationship in this strike. There's plenty of capacity over the Pacific at the moment due, in large measure, to Asia's problems, and Northwest does not occupy dominating positions in any markets to Europe. So I think that the foreign policy thing is very important, the difference between the two. I also would point out that politically on Northwest's board you have people like Walter Mondale and others, Mr. Checci, himself, who are very much powers in the Democratic Party, and I think this makes it more difficult for the administration, because the company wants the strike to go to the board, and the AFL-CIO expresses itself as not wanting that to happen. So I don't envy the administration trying to deal with this. I submit that the administration, though I would certainly commend Rodney Slater, Secretary Slater, for trying to get jawboning to be effective, I think the administration has very little leverage in bringing about a result of any kind.
PHIL PONCE: Mr. Maldutis, let's talk a little bit more about the impact that's being felt, not internationally but within the United States. There have been some reports that communities all the way from Arkansas up to the Canadian border are being affected by this in the very center of the country. How big of an impact is it having?
JULIUS MALDUTIS: Well, I think for the smaller communities, in particular, it's having a very substantial impact, because in many cases they have no alternative air transportation services. At some of the major hubs, the other carriers have put in additional flights. I think American Airlines has put in additional flights into Minneapolis and Detroit to try to alleviate the problems on passengers getting seats on airplanes. So this is going to hurt quite a large segment of the U.S. economy.
PHIL PONCE: So, Mr. Gellman, maybe not devastating impacts in places like Minneapolis, Memphis, or Detroit, but pretty heavy impacts and pretty significant impact in communities like Grand Forks or Duluth?
AARON GELLMAN: Absolutely. The poor folks up there-and I don't mean financially poor, but I feel sorry for them, because the mobility provided by air transportation is so critical to them, and we've not even considered the impact on freight movement. A great deal of freight is moving by air. It happens that Northwest is the only carrier that also carries passengers that operates large freighters, with the exception of the DC-10 small fleet of United. But Northwest operates 747's, seven of them, I believe, in all freight configuration, and they carry a lot of freight from the smaller towns. It's brought into where the freighters are, the large freighters are, by the passenger aircraft. But there's a great deal of economic activity that's being threatened, being jeopardized by the strike, and it is worse at the outlying stations like Duluth, Grand Forks. But I think it's also important that the pilots of other airlines, particularly those organized by the Airline Pilots Association, which includes Northwest, pilots of these other airlines are not quietly going into serving, providing additional capacity to undermine the pilots' pressure at Northwest, and not providing additional capacity so much at places like Detroit and Memphis and Twin Cities. There's also another point to be made in this regard, and that is that the airlines of the United States are carrying more passengers than ever before. The load factors are very high. There is not a lot-to put it mildly-not a lot of slack in the system, where they could redeploy assets profitably into those markets. So I think that the relief is not going to come very much, if at all, from other carriers serving routes that Northwest normally dominates.
PHIL PONCE: So, Mr. Maldutis, what does that mean for other hub-dependent areas? Can one just assume that whenever there's an airline strike that hubs are going to be affected and outlying communities are going to be hurt?
JULIUS MALDUTIS: Absolutely. And I think this is one of the big issues that the administration is very carefully investigating, taking a look at the dominance at the major hubs. Secretary Slater discussed the issue of predatory behavior, so obviously when a carrier begins to have an 80 or 85 percent market share and it goes on strike, it has a very far reaching impact on the system.
PHIL PONCE: Mr. Maldutis, Mr. Gellman, I thank you both very much.
JULIUS MALDUTIS: Thank you.