Coffee, Tea, or Bile?

Resentful airline workers could hobble turnaround plans

The airline industry has pulled off the near-impossible. By using the cudgel of bankruptcy, three of the nation's largest carriers have won labor concessions that will yank down their costs by a total of $5.5 billion a year. The givebacks should allow American, United, and US Airways to pull through the industry's worst downturn. The concessions also give them a fighting chance against the low-cost carriers that have been stealing away today's tightfisted travelers.

But the airlines may have swapped one problem for another. Now, management must reach out to rank-and-file workers, who have been demoralized by their immense sacrifices. The resentment is likely to grow as employees adjust to the cold fact that many won't return to last year's pay scales until at least 2008. In a service business like air travel, surly ticket agents or foot-dragging mechanics who delay a flight can send customers fleeing. "If they lose enough people like that, they're not going to [be able to] operate profitably," warns Hanan B. Kolko, a New York labor lawyer who was involved in the 1990 bankruptcy of Eastern Air Lines Inc., which shut down after a disastrous labor war.

To get a deeper sense of the mood on the front lines, BusinessWeek visited three families of airline employees: a pilot at American Airlines (AMR ) a United Airlines (UALAQ ) machinist; and husband-and-wife flight attendants for US Airways. Resentful? Yes, one and all. Some are worried, too, that they will be forced to swallow even more wage cuts. "We're concerned, because employee engagement is essential to our success," says Sara A. Fields, United's senior vice-president for people service. Unless management can find a way to motivate these employees and their colleagues, the carriers' woes could drag on even longer.

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