Airlines And The Federal Minimum Wage
In an earlier article we talked about the issues surrounding a federal wage hike and its potential impact on the food industry, which has the lowest paid employees in comparison to all the other sectors. In this article, we will focus on the impact of a wage hike on the aviation industry, more specifically airlines.
As discussed in the previous article, the wages in the U.S. have remain unaltered since 2009, due to a slowing labor market and a lack in consumer demand, post the recession of 2007. The hike of 2009 was the last of three wage hikes approved by The Fair Minimum Wage Act of 2007. In the recently concluded U.S. elections, the topic of minimum wage hikes was hotly debated, with both the Republican presidential candidate Donald Trump (to $10 per hour) and Democratic nominee Hillary Clinton (to $12 per hour) supporting the move. However, the path towards an increase in wages is still somewhat unclear. The resultant discontentment after years of low wages, which have lagged inflation, has led to the rise of groups such as Fight For $15.
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Recent Development In The Aviation Sector
After a delay of many years, cuts in the workforce, and a number of consolidations, the fortunes of airlines finally started turning in late 2013, when oil prices gradually dropped from its peak of over $100 per barrel to approximately $50 per barrel at present. The record profits allowed the airlines to recoup past losses, upgrade, expand and replace their decades old fleet, and more recently even offer cheap fares to attract traffic. However, one thing that didn’t happen with these profits was wage hikes. Only after numerous strikes and demands from the unions and labor lobbies did some of the larger airlines, like American, United, Delta, and Southwest raise the wages of a few groups, mainly limited to pilots and flight attendants. Following are the amounts shared by the legacy carriers under the profit sharing program of 2015.
However, these tremendous gains may be short-lived if the oil prices go up and another recession takes roots. In such a scenario, the huge operating costs will turn out to be unsustainable, and the workforce will be the first point to experience the effect.
Impact On Airlines
According to Savanthi Syth, a Raymond James Financial analyst, the already executed labor contracts, in the year so far, have already added at least $1.35 billion to the operating costs of the four biggest U.S. carriers this year, and are expected to add $1.9 billion more in 2017. Further, since 2011, airlines have increased their workforce by more than 30,500. Although the raises at all the carriers, which have implemented a wage hike, have been in double digits, this is limited to pilots and flight attendants, and is far below those seen by veteran employees in late 1990s or early 2000s.
Moreover, the ground staff, mechanics and such, continue to suffer under the minimum wage of $7.25 per hour. Under such a scenario, the planning of the Chicago O’Hare Thanksgiving strike by its airport workers, including janitors, baggage handlers, cabin cleaners, and wheelchair attendants, who are not unionized, comes as no surprise. The Service Employees International Union (SEIU), which represents over 1.9 million workers from over 100 occupations in the U.S. and Canada, want to organize more airplane support staff who work for vendors to the airlines in order to make a point. Further, it is likely that we will see demonstrations and protests at 18 other large U.S. airports including Los Angeles, Atlanta, New Orleans, and Seattle. O’Hare is one of the biggest and busiest hubs for the legacy carriers, United and American Airlines, and Thanksgiving the busiest period, seeing more traffic than the rest of the year. An estimated 27 million passengers were expected to travel to and from the U.S. over the period, and as such, the strike may cause major disruptions in services.
However, it would be unfair to say that the aviation sector is the one which has suffered the most from stagnant salaries. The minimum wages of workers employed as ground and cleaning staff, post 2006, has been much higher than those employed as personal care and fast food workers.
Further, post 2006, these workers were not even a part of the list of lowest paid sectors in 2009.
This, goes on to show that the aviation sector isn’t the worst impacted due to the presence of strong unions and their bargiaing power. Although a hike in minimum wages would be a welcome step, it won’t affect the sector much as it already pays a salary higher than that stipulated by the minimum wage law.
Have more questions about Alaska Air (NYSE:ALK)? See the following links:
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- How Will The Expected Return On The Alaska Air-Virgin America Merger Compare With The Previous Deals In The Sector?
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Notes:
1) The purpose of these analyses is to help readers focus on a few important things. We hope such lean communication sparks thinking, and encourages readers to comment and ask questions on the comment section, or email content@trefis.com
2) Figures mentioned are approximate values to help our readers remember the key concepts more intuitively. For precise figures, please refer to our complete analysis for Alaska Air Group
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