Photographer: Chris Ratcliffe/Bloomberg

Budget Airlines Shop the World for Cheaper Pilots

Ryanair and Norwegian Air Shuttle are turning to the cockpit for ways to trim costs

Travelers have demonstrated a willingness to sacrifice comfort and convenience for cheap airfares. Now this low-cost ethos is extending into the cockpit, with budget airlines chasing the lowest pay and most relaxed work rules for pilots.

Discount carriers in Europe are using creative hiring arrangements to slash labor costs. Some of these practices, such as hiring pilots through outside employment agencies, are fairly common in the industry. But the cost-cutting envelope has been pushed furthest by Norwegian Air Shuttle and Ireland's Ryanair, among others, with measures designed to dodge labor regulations and taxes in countries where their pilots are based.

More than half of pilots working at Norwegian, Ryanair, and four other smaller European discount carriers have been hired under "atypical" arrangements, according to a study released Thursday by researchers at Ghent University in Belgium. The airlines cited in the report use labor practices that are markedly different than those of traditional airlines, as might be expected. But they also stand apart from rival discounters in Europe such as EasyJet and Germanwings, which hire most pilots under traditional contracts. The findings are based on a survey of more than 6,600 European airline pilots.

Ryanair is known to operate one of the most unusual hiring schemes. It refers many of its new hires to a company called Brookfield Aviation International, which according to its corporate registration is based in the British town of Epsom, within a building that houses a storefront cafe and betting parlor. Brookfield sends the pilots to accountants who set up small companies and then appoint groups of pilots as directors. These companies then "enter into a contract with [Brookfield] whereby the service company would provide the services of the pilot" and Brookfield "would, in turn, provide these services to Ryanair," according to a 2013 British court ruling in favor of a pilot based in Belgium who successfully challenged part of the arrangement. Ryanair, the court found, avoided responsibility for "taxation or pay-related social insurance contributions" on behalf of pilots hired under the arrangement.

The building housing Brookfield Aviation in Epsom, Surrey, U.K.
The building housing Brookfield Aviation in Epsom, Surrey, U.K.
Photographer: Tom Hall/Bloomberg

Ryanair spokesman Robin Kiely says the company doesn't comment on contractual arrangements yet it uses "a mix of direct employee and contractor pilots in exactly the same way as many other airlines do." Brookfield didn't respond to phone and e-mail messages.

Ryanair also has drawn criticism for employing pilots under Irish contracts even when they are based in countries that have higher taxes and tougher labor rules. A French court last year ordered Ryanair to pay some 9 million euros ($10.2 million) in fines and back social charges for Marseille-based crew members hired on Irish contracts. Ryanair says it plans to appeal. The use of Irish contracts is facing court challenges from labor unions in Denmark and from Belgium's air transport association, which contends the practice gives Ryanair an unfair advantage over local competitors.

Norwegian Air Shuttle, a low-cost airline based in suburban Oslo, also has some unusual hiring practices. It has formed a long-haul subsidiary, Norwegian Air International, that hires pilots and flight attendants through an employment agency based in Singapore and then bases the pilots in Bangkok. Norwegian Air is opening another long-haul pilot base at London's Gatwick Airport. The airline began its long-haul flying two years ago with new Boeing 787s and has been granted an exemption from Norwegian officials.

The Norwegian business model has drawn heated objections from European pilots and the largest U.S. pilots union, the Air Line Pilots Association, which argues that Norwegian is “Walmarting” the airline industry in its effort to “scour the globe for low labor standards and lax rules and regulations.” These hiring schemes don't always depress wages. In most cases, pilots receive the same hourly pay but see lower total compensation in pension and other benefits. Regulators, meanwhile, face complex questions about labor conditions, tax avoidance, and safety oversight.

In the Norwegian example, for instance, its long-haul operation is based in Dublin but does not fly planes to Dublin Airport. Norwegian says it chose Ireland because Norway is not a member of the European Union. The airline claims an operating certificate in an EU nation is necessary to have regulatory approval to open new routes to Asia, South America, and Africa. As with many other companies, part of the appeal is undoubtedly Ireland's low corporate taxes.

“If allowed to continue, the Norwegian business model will force other airlines in Europe and the U.S. to adapt,” says Martin Lindgren, president of the Swedish Airline Pilots Association, which has members who fly for Norwegian Air. “The cost-driven approach by Norwegian will cause harm to the working conditions for all airline employees in Europe and the U.S.”

Controversial or not, the Ryanair and Norwegian staffing arrangements seem to give the carriers a competitive boost. In a presentation to investors in November, Ryanair said its unit labor cost was only 6 euros per available seat-mile, compared with 19 euros at U.S.-based discounter Spirit Airlines and 35 euros at Southwest Airlines.

Norwegian’s fares to Europe are typically hundreds of dollars lower than rival carriers, although the company tends to credit the 787’s fuel efficiency as the foundation of its ability to fly such long distances and still offer cheap tickets. A round-trip flight on Norwegian from Los Angeles to Copenhagen, for example, sold for $561 in April.

Of course, the company’s labor costs on the long-haul operation also play an important factor in those fares; it isn’t clear that Norwegian’s low-fare model could work if its 787 crews were compensated the same as employees at rivals such as SAS Scandinavian, Air France-KLM, and Lufthansa. “You can’t jeopardize your business model,” Norwegian Chief Executive Bjørn Kjos told Bloomberg Businessweek last year. “You have to take a stand.”

Norwegian Air spokesman Lasse Sandaker-Nielsen says that pilot salaries are set by the global market: “It doesn’t matter where you are based.” The company has gone to Singapore and other major urban centers to hire crews because of the large population centers in that region, he says, with Nordic countries unable to supply enough workers.

Norwegian Air tends to see criticism of its business model as part of a campaign to keep current fares high on trans-Atlantic routes. “The only thing they’re afraid of is competition,” Sandaker-Nielsen says of rival airlines and the unions. But these employment changes are slowly beginning to generate discussion outside of organized labor, too. Norwegian government officials are studying the airline's long-haul business model, and the U.S. Department of Transportation heard from fierce opponents to the airline’s request for permission to fly to the U.S. (Norwegian Air International’s current flights to California, Florida, and New York City are covered by the Norwegian Air Shuttle operating rights.)

The Ghent University study on "atypical" employment arrangements is being presented in Paris this week at a conference of the European Cockpit Association, which represents 38,000 pilots in 37 EU member states. For months, the group has been working to call public attention to what it calls “market-distorting business practices” in aviation, specifically calling out Norwegian Air and Ryanair.

In December, meanwhile, the pilots group called for tighter regulation from the European Union to prevent “fake self-employment and social dumping practices” by carriers seeking to lower their operating costs. “They are importing working conditions from Southeast Asia to Europe and the U.S.,” says Lindgren of the Swedish Airline Pilots Association. “The salaries are lower, the work hours are longer, the pilots' rights to unionize are infringed, and they lack the same social security as pilots in other European and U.S. airlines.”

The use of contract pilots is far more widespread in Europe than in the U.S., where large airlines have traditionally hired the lowest-bidding regional carrier to fly their shorter routes. Allegiant Travel, an ultralow-cost carrier based in Las Vegas, considered whether it could use contract pilots as part of its business model but concluded that the hurdles posed by organized labor and regulatory rules would be too high, according to Andrew Levy, a former Allegiant president. “It’s just one of these things that pilots go ballistic about,” he says. “In their view, you’re outsourcing your flying and over time you’re outsourcing all of your flying.”

The creative approaches to hiring pilots come as some rapidly expanding airlines in China and the Middle East are paying enormous salaries to attract qualified expats to fly for them. Beijing Capital Airlines is paying more than $24,000 per month to captains who can fly Airbus narrowbody planes and are willing to move to China, Aviation Week reported this week.

Bill McGee, the author of Attention All Passengers, a 2012 book that explored cost-cutting by U.S. airlines, believes some carriers have begun to “comparison shop for nations with favorable oversight rules” as part of their low-cost business models. That shopping makes it fair to ask whether “a race to the bottom,” on labor costs, as McGee puts it, will ultimately benefit passengers, even if the business model innovations yield cheap fares.

Correction: This story originally stated that Norwegian Air goes to Singapore to hire flight crews. The company hires from Singapore and other major urban centers, and the story has been corrected to reflect this.

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