Just how friendly are the skies…?

1. Just how friendly are the skies…? Matt Sinnott Jimmy Miller

2. Chapter 14 Summary Intangible vs. Tangible people resources • Its much easier for retailers to mimic tangible resources of their competitors. • Having employees that feel empowered in their jobs. If they really feel important they can enhance the entire workplace. • Intangible people resources are a competitive advantage and employers should view employee costs as an investment. • Roughly 20% of the customers or employees generate 80% of the retailer’s profit. Recruiting the right employees and customers • In order to acquire the right employees and customers, employers much recruit the best, which requires significant effort. • In today’s working environment, employers are becoming much more systematic in their recruiting practices. • Customer Relationship Management (CRM) is now becoming the standard in the retail industry.

3. Summary Cont’d Managing employees and customers Methods for compensating • Employee compensation -Fixed component -Variable component -Fringe benefit package • Sales force compensation -Straight salary -Salary plus commission -Straight commission • Supplemental Benefits -Employee discounts -Insurance and Retirement Benefits -Child Care -Push Money • In all methods of compensating, the employee must meet the following requirements: fairness, adequacy, prompt and regular payments, customer interest, simplicity, balance, security, cost effectiveness. • Also important is Job Enrichment which involves increasing the skill variety, task identity, task significance, and job feedback. Basically, if you want your employees to constantly push the performance bar higher, you must provide incentives for them to do so.

4. United Airlines: Difficulties in the friendly skies • Our case covers two articles, both pertaining to difficulties United Airlines is having in regards to their human resources. • The exact Human Resource issue that United is having problems with is employee compensation. • United has been operating in bankruptcy protection since December 2002, and has very recently decided to cut its employee pension plans. • Aside from Southwest Airlines, the entire industry is suffering major financial losses. • With the high prices of jet fuel and the recent limits placed on the prices of coach and first-class tickets, the airline industry has really taken some serious hits. • Other major airlines such as Delta, are now pursuing bankruptcy protection, as losses are becoming much larger with airlines expecting significant loss for 2005. • Because of this “uncharted” area, many airlines are looking for ways to eliminate unnecessary costs, and in the case of United Airlines, its coming at the expense of their employees.

5. United Airlines: Difficulties in the friendly skies • United, the second-largest U.S. airline, is seeking annual wage and benefit cuts totaling $176 million from machinists and $96 million from mechanics as part of their targeted $700 million yearly in labor savings. • All this considered, United still needs the second round of cutbacks in two years to persuade the banks to lend them the necessary $2 billion in order to escape the Chapter 11 bankruptcy its currently operating under. • Initially, United attempted to simply acquire a loan package to compensate for the losses, but once they lost their federal loan package bid, they have been forced to internally deal with the financial crisis.

6. The Situation • Currently, United is in litigation over contract agreements with the employee unions from nearly every aspect of their operations. • As of very recently, the courts awarded United the right to default on its employee pension plans. • Many analysts felt that if this situation played out, many other major airlines could be forced to seek the bankruptcy protection in order to bring down their pension costs to meet United. • What United plans to do now that they have won the court hearing is to switch its current employees from the traditional retirement programs, which are called, “defined-benefit plans”, to defined contribution plans which are much like the 401K programs. • The federal pension agency will assume responsibility for the 134,000 workers that United employees • The last of the unions to workout a tentative agreement is the mechanics. They have really had a hard time making ends meet with the executives from United. • After both sides making and denying proposals, they seem to have finally found common ground. • In the latest proposal, the tentative deal between United and AMFA gives the carrier the $96 million in annual wage and benefit cuts it was seeking. Along with this, mechanics would take a 3.9% pay cut on top of the 14% reduction in wages that the union took two years ago. • AMFA spokesman Richard Turk said, “reduced benefits, such as sick days, holidays and vacation, would account for the rest of the labor savings.” • Sources from United describe the situation as, “It’s not something to celebrate. We are under the coercion of the bankruptcy court process, and we made the best of bad choices.”

7. Final Points • Employees that feel important can enhance the workplace, which results in empowerment. Cutting employee pension plans will most likely lower employee performance and motivation. • Employee compensation – lower wages • Supplemental Benefits – reduced benefits • Insurance and Retirement Benefits – some retirees could see sharply lower pension payments • UNITED AIRLINES MUST DEFAULT ON ITS EMPLOYEE PENSION PLANS TO STAY IN BUSINESS, HOWEVER, THEY MUST ALSO DEAL WITH THE UNSATISFIED EMPLOYEES AND RETIREES

8. Sources • www.washingtonpost.com • www.nytimes.com • www.truthout.org/issues_05/ • www.united.com