Magic carpet airlines case analysis

#12239 - 3 Pages Within 12 Hrs

Work type: Case study

Format: APA

Pages: 3 pages ( 825 words, Double spaced)

Number of sources: 3

Academic level: Undergrad. (yrs 3-4)

Subject or discipline: Human Resources Management (HRM)

Prepare responses to the questions below after viewing Case Study 3: Collective Bargaining at Magic Carpet Airlines: A Union Perspective (A). In drafting your answers to the questions, make sure that you apply course concepts in your answers.

· Prepare and write a negotiation strategy for LFA

· What should LFA be expecting from MCA?

The paper should be a minimum of 4 pages.

Case 3

Collective Bargaining at Magic Carpet Airlines: A Union Perspective (A)

History of Magic Carpet Air

Magic Carpet Air (MCA) began operations in 1961, serving 2 cities, and grew to serve 18 cities by 1987. River City Airlines (RCA) began in 1969 with service to 4 cities and grew to serve 12 cities by 1987. In January 1987, Magic Carpet Air purchased River City Airlines and merged the two operations. The joining of these two regional airlines created a small “national” airline (defined as a carrier with sales between $100 million and $1 billion) with sales of $140,265,000 in 1987. Even so, the firm competed primarily in only one region of the country, and managers constantly compared it to other large regional airlines.

In May 1988, Magic Carpet Air entered into a marketing agreement with a major national carrier and became a “feeder” airline for that carrier (e.g., American Eagle is a feeder airline for American Airlines, United Express is a feeder for United Airlines). That is, MCA delivered passengers from small airports to larger ones, where passengers could make connections using that airline. Subsequently, no more reservations were given to the public as Magic Carpet Air; passengers believed that they bought tickets for the major carrier. The company also repainted all aircraft to make the public believe Magic Carpet Air was part of the major carrier.

Prior to 1989, the flight attendants at neither company were unionized. However, both MCA and RCA flight attendants worried about what they perceived as the arbitrary way that MCA management resolved personnel issues such as merging seniority lists. Such fears led several workers to contact the League of Flight Attendants (LFA), a union whose membership consisted solely of flight attendants. Despite opposition to unionization from MCA, the LFA won a union certification election with 82 percent of the vote.

Previous Contract Negotiations

Negotiations for the first MCA–LFA contract began in November 1989, and negotiators from both sides cooperated effectively. The committee borrowed language from other airline contracts (e.g., Piedmont Airlines). The committee also incorporated the past practices and working conditions that were used at River City Airlines. These rules had not been written down but had been mutually acceptable past practices. Negotiators signed the final contract in August 1990. The contract was effective until August 1994.

Negotiations for the second contract also went smoothly. In terms of contract provisions, the second contract was basically an extension of the first, with a modest pay increase and one additional paid holiday. The agreement was effective until August 31, 1997.

What follows is a synopsis of the 1997 contract negotiations from a union negotiator’s perspective.

League of Flight Attendants (LFA) Negotiating Team

Whenever an LFA carrier began negotiations, the National Office of LFA sent a national bargaining representative (NBR) to the scene. Dixie Lee, the NBR assigned to the MCA negotiations, met with the flight attendants’ Master Executive Council (MEC) to select a negotiating team. The negotiating team prepared for negotiations and conducted the actual bargaining sessions. Once at the table, Dixie spoke for the committee. Using an NBR as the spokesperson lessened the likelihood that a flight attendant who was emotionally involved with an issue might say something inappropriate while trying to negotiate. Dixie had 14 years’ experience and had also assisted with the 1994 MCA contract negotiations. Although Dixie was the spokesperson, the negotiating team was formally chaired by Ruth Boaz, LFA MEC president at Magic Carpet Air. Other members of the team included local LFA union presidents Peggy Hardy, Marie Phillips, and Jody Rogers.

Determining the Union’s Bargaining Objectives

The LFA negotiating committee members first identified their bargaining objectives. For the 1997 contract, the LFA negotiating committee devised an opening offer based on the average working conditions and wage rates for flight attendants offered by other, similarly sized carriers. They looked at wage, unemployment, and cost-of-living data from government sources such as the Monthly Labor Review. The committee members knew the financial history of MCA and kept their proposals within financial reach of the company. They also used other employee groups (e.g., pilots, mechanics) within MCA as a guide—many of the LFA proposals were items that these other unions already had in their contracts. The LFA negotiating committee hoped to bring wages and work rules in line with the company’s financial performance and industry standards (see Table 1). Finally, they looked at past grievances and arbitration cases to determine if contract wording needed changes.

TABLE 1 | 1996–97 Regional Airline Industry Comparisons

Airline

Starting Wage/Hour

Days off per Month

Duty Rig* as Airline (percentage of time)

A

$17.00

11

60%

B

$15.00

12

62%

C

$15.00

12

none

D

$14.00

13

none

E

$14.00

10

none

F

$13.50

10

33%

Magic Carpet

$13.00

10

none

*Duty rig is a pay calculation that is a certain percentage of the period of time which a flight attendant is on duty with the company. Duty time normally begins 45 minutes prior to first scheduled trip departure time and ends 15 minutes after final arrival time at the end of the day.

Committee members also considered the wishes of the rank-and-file members. To do this, the committee mailed a survey to the 115 LFA members asking questions regarding wages, working conditions, and issues of concern to flight attendants. They received a 75 percent response rate; results are shown in Table 2.

TABLE 2 | Results of the Flight Attendant Survey

Questionnaires mailed: 115

Questionnaires returned: 86

Question: What was the flight attendant’s top priority for the new contract?

Direct wages

40%

Job security

31%

Working conditions

26%

Other

3%

Question: How did the flight attendant want to receive her/his direct wages?

Duty rigs

47%

Hourly rate

34%

Holiday pay

15%

Other

4%

Question: How did the flight attendant want her/his job security?

Seniority protection

60%

Protection from layoffs

28%

Protection of contract

12%

After tallying the responses, negotiating team members discovered that the flight attendants’ major concern was wage determination. MCA currently paid flight attendants for the time they were in the aircraft with it moving under its own power—they were not paid for the time spent sitting in airports waiting for flights. Union members wanted MCA to implement duty rigs. A duty rig paid the attendant a fixed percentage of the period of time he or she was on duty with the company.

For example, suppose an attendant worked a 15-hour day, but worked in moving aircraft for only six hours. Under the current system, MCA paid wages for six hours, plus one hour for preparation time (duty time) at the beginning of the day. However, if the duty rig pay rate was 67 percent, MCA would pay the attendant for 10 hours of work, plus 1 hour for duty time. Thus duty rigs would require the airline to pay a percentage of the wage for all time at work, whether flying or sitting.

Flight attendants also voiced concern over job security and working conditions. When they analyzed the job security issue, team members found that in the event of any merger or buyout of MCA, the flight attendants wanted their seniority with the carrier to be continued by any new company. Second, flight attendants sought protection from layoffs in the event of a merger or acquisition.

The survey also had a section for employee comments. The area that members most frequently relayed as a concern was their current sick leave program. Many flight attendants complained that they were not allowed to use their accrued sick time when they were sick. Others complained that they had to give management a five-day notice whenever they wanted to swap routes with other MCA attendants.

From this information, union negotiating committee members identified two broad objectives: increased wages via a duty rig provision, and increased job security. They also decided that their initial package would be very close to their final objectives. The committee members proposed a duty rig clause with the same standards as the pilots, although the dollar amount was less important than just obtaining the provision itself. They also devised a “successorship clause” allowing attendants to arbitrate their seniority rights in the event someone bought MCA. In order to obtain these clauses, the union also proposed two throwaway clauses: an expensive health care package and double-time wages for working holidays.

Strategies of the Union

During planning sessions, the negotiating committee identified four strategies for achieving its objectives through bargaining:

1. Keeping union members informed of negotiation progress.

2. Getting union members involved.

3. Convincing the company that the union’s demands were serious.

4. Settling an issue only with the unanimous consent of the negotiating committee.

Informing Union Members

The first strategy attempted to keep the union members informed. The negotiating committee mailed a short letter after each bargaining session, explaining the issues discussed and the general content of any agreed-upon sections. Members were also sent Negotiation Update newsletters every two weeks, telling flight attendants of their progress. These newsletters did not reveal any initial proposals because committee members knew that union members would be disappointed if the union did not receive what was initially requested.

Involving Union Members

The second strategy sought to get the union members involved. The negotiating committee printed the slogan, “We make the difference and they make the money” on pens, buttons, and T-shirts. These were distributed to all members and to all passengers on selected flights. This program was loosely modeled after the United Airlines’ 1996–97 Create Havoc Around Our System (CHAOS) program, where the union sought to enlist the aid of the public and employed creative tactics (e.g., intermittent strikes, informational picketing) to pressure management to resolve their contract dispute. The union also invited any member in good standing to attend any negotiation session.

Convincing the Company

The third strategy attempted to convince the company to take the LFA seriously. In a widely publicized move, negotiation team members did extensive research on both economic picketing and informational picketing, inquiring at all of their domicile cities as to what permits would be needed to picket. The union mailed their Negotiation Update newsletters to each manager’s home address, informing managers of the LFA’s preparations in the event of a future strike. Committee members hoped these actions would convince management that the LFA made serious proposals—and would strike if those proposals were not met.

Settling Issues

The fourth strategy was that the team would not proceed with an item without the entire team being in total agreement. All planning meetings and caucuses (meetings without the company team member present) during negotiations would involve every committee member.

Company Negotiating Team

The company negotiating team consisted of the following people:

· Bill Orleans, director of labor relations.

· Ross Irving, director of human resources.

· Kristine Lamb, director of in-flight services.

· Christian Andrew, executive vice president.

· Willie Sanders, senior vice president of operations.

· Tom Windham, chief executive officer (CEO) and president.

The company team was in a state of transition, and consequently seemed to suffer from much confusion. Bill Orleans had recently been demoted from director of human resources to director of labor relations—a move he resented. Ross Irving, the new director of human resources, hired from another firm, avoided the sessions; he seemed uncomfortable sitting next to his predecessor, particularly since Orleans had negotiated most of the union contracts at MCA. Finally, Lamb, who was used to giving orders to flight attendants, acted as if the negotiations reflected a lack of loyalty on the part of the workers and interference with her job on the part of management. Tom Windham was grooming Willie Sanders to take over upon Windham’s retirement.

The Negotiating Process: Initial Positions

Airlines are governed under the Railway Labor Act of 1926, as amended. This act states that labor contracts never expire, but may be amended on their amendable dates. When the amendable date comes near, a letter is mailed by the party requesting changes in the contract to the counterparty in the contract. This letter allows contract talks to begin. Dixie mailed MCA such a letter on March 31, giving a full 60 days notice of the flight attendants’ intent to open talks for amending their current contract before September 1.

Inasmuch as the company would not meet in a neutral city, LFA negotiators agreed to an MCA proposal to meet at a hotel located near corporate headquarters. MCA paid for the meeting room. The first negotiation session was scheduled for May 29, 1997.

Everyone on the LFA committee had the jitters. It was the first time in negotiations for Marie, Jody, and Peggy. Dixie gave them some last-minute instructions:

I don’t want y’all to speak or use any facial expressions at the table. Instead, I want all of y’all to silently take notes. Draw a vertical line down the middle of each note page. Write whatever the managers say on the left side of the page and write whatever I say on the right-hand side of the page. Is it OK with y’all if I do the negotiating? I’ve found things go best if only one person talks at the bargaining table.

As the LFA negotiators filed into the conference room, they saw it was empty. Each of the managers arrived late. Twenty minutes later, Orleans still had not come. As everyone waited, CEO Tom Windham arrived. Small talk began as Windham glanced over his notes and spoke:

You know that as a feeder airline we do not have full control over our own destiny; the marketing agreement with the major carrier restricts our flexibility. Even so, I am willing to give your flight attendant group a modest increase. I am not looking for any concessions. Also, my philosophy is that all the groups (pilots, agents, office personnel) should be treated equally. However, your union does have a good agreement right now—say, why don’t we just agree to continue the present contract for another six years? It could save a lot of time!

As everyone chuckled at Windham’s joke, Orleans arrived. The union negotiators could tell by the expression on his face that he was surprised and embarrassed to see Tom Windham there. Windham stood up, wished everyone good luck, and left.

The Union’s Initial Position

Dixie spent the first day describing problems with the current contract. At 4:15 p.m., the union presented the company with its neatly typed contract proposal. Dixie had written “change,” “new,” “clarification,” and so on in the margin next to each paragraph that had been changed in any way from the 1994 contract.

ORLEANS: This is a “wish book”! Do I look like Santa Claus?

LEE: Stop fidgeting, Mr. Orleans. Let me explain why we are insisting on these changes.

Dixie read only about one-third of the provisions in the union’s contract proposal. Two additional sessions were necessary to read through the entire proposal. The major changes are summarized in Table 3.

TABLE 3 | Changes in the Magic Carpet Air–League of Flight Attendants Contract

Contract Provision

1994–97 Contract

Union Proposal

Compensation

Base wage

$13.00

$15.45

Wage after five years

$20.20

$25.55

Duty rig pay

None

1 hour pay per 2 hour duty (50%)

Daily guarantee

3.25 hours

4.5 hours

Holiday pay

None

8 holidays at double-time rate

Job security

Successorship

None

Contract will still be binding

Protection of seniority rights in the event of a merger

None

Arbitrator combines MCA seniority list with that of the other airline

Working conditions

Trip trading lead time

5 days

24 hours

Shoe allowance

None

$100/year

Winter coat

None

Total cost

Uniform maintenance

$16/month

$20/month

Management’s Initial Position

On the fourth day, company representatives presented their initial offer to the union. Orleans handed each of the LFA committee members a book in a binder. As they leafed through the book, members were puzzled. They did not see any notations indicating changes from the current contract. Orleans talked quickly, summarizing the provisions in the contract; most of the proposed provisions included some type of union concessions, but he did not highlight these.

LEE: Is this a serious proposal? The union presented a realistic proposal using industry standards, and your opener (opening offer) is totally unreasonable.

ORLEANS: Don’t get your panties in a wad. The party has just begun and there is lots of time to dance. Why, we didn’t even list any wages in our proposal—we were hoping you would work for free, ha ha.

Orleans then gave a long, patronizing sermon regarding MCA’s poor financial health and how the company could be bankrupt at any time. However, in the history of Magic Carpet Air, the company had never shown a loss on its financial statement.

A recess was called for lunch. As the union members caucused, Peggy looked depressed. Marie sat with fists clenched.

MARIE: I can’t eat anything! I am furious at Mr. Orleans—he has some nerve!

JODY: The others were not much better. Did you hear their snide remarks about us when they went to lunch?

PEGGY: What are we going to do? They have asked for concessions on everything! And Mr. Windham promised us just the opposite.

DIXIE: Now girls, just relax. It is still the first week of negotiations. I suggest that we just work from our initial contract proposal and ignore theirs. It can’t be taken seriously anyway, in my opinion.

MARIE: Well, you’ll have to carry on without me tomorrow; I have to work. Management won’t let me rearrange my schedule to negotiate. At least I won’t have to watch Mr. Orleans chain smoke!

Talks resumed after lunch break. Dixie summarized each section of the LFA proposal. Orleans fidgeted and kept saying “No.” Nothing was settled that day.

By noon the next day, it became obvious that not much was getting accomplished. Finally, the union moved to sections where it did not propose any changes and the managers tentatively agreed to keep those intact. It seemed like a mountain had been climbed just to get the company to agree to those “no changes.” Negotiations were adjourned for the day.

LEE: When can we meet? Monday, at 8:30?

SANDERS: No good for me. I have important meetings that day.

LEE: How about Tuesday?

ANDREW: I can’t make it. Every day next week is bad.

ORLEANS: The following week I will be out of town. Sorry!

LEE: OK, y’all tell us when y’all’s schedules are free.

ORLEANS: We’ll have to caucus. We’ll get back to you.

Instead of caucusing and deciding when they could next meet, the managers simply went home, leaving the union negotiating team to wonder when—or if—bargaining would continue.

Round 2

On Wednesday, July 16, Ruth Boaz got a letter from management asking for a meeting two days later. Ruth quickly scheduled a planning session for Thursday night, where the LFA team members reviewed their objectives and the progress to date. Negotiations with MCA resumed Friday.

July 18: Grievances and Uniforms

Irving proposed using the same language for a revised grievance procedure as that printed in the pilot’s contract. The union caucused. Ruth telephoned the pilot’s union and, once she was satisfied that the pilots were happy with their grievance procedure, convinced the union negotiating team to agree.

The discussion moved to the section on uniforms. After some countering back and forth on various issues, a winter coat was added as an optional item; however, who would pay the cost was still an issue. The union wanted MCA to pay the total cost.

ORLEANS: Unacceptable. You’ll have to buy your own coats. We already give $16 per month for uniform cleaning.

LEE: But a winter coat is expensive. Surely y’all recognize that a poor little ol’ flight attendant couldn’t be expected to shoulder the entire cost of a new coat. Mr. Orleans, have a heart.

ORLEANS: I do have a heart; fortunately, it is not attached to my wallet, ha ha. OK, we will allow $40 every five years to buy a coat.

LEE: According to my research, a new coat costs $120. And it costs $10 per month to clean.

ORLEANS: How often does someone dry-clean a coat she only wears three months of the year? She doesn’t clean it 12 times! (Pause.) OK, if you drop this silly request for free shoes, then we’ll raise the combined uniform and coat maintenance allowance to $16.50 per month.

LEE: But, Mr. Orleans, shoes are a part of our uniform, too. You expect us to all wear the same type of shoes, don’t you? You pay for the other parts of our uniforms, so it is only reasonable that MCA should also pay for shoes. Our research shows that two pairs of standard shoes cost, on average, $100.

ORLEANS: However, you can wear the shoes when you are not on duty, too. You probably wouldn’t do that with other parts of your uniforms. So we’re not paying for shoes you can wear other places.

BOAZ: Mr. Orleans, I can assure you that we don’t wear our uniform shoes when we go dancing on the weekends. (Everyone laughed.)

ORLEANS: If we pay $25 for shoes and $45 for a coat, then we will pay $17.50 per month for uniform maintenance.

LEE: Good, but not good enough.

(Both sides sat in silence for nearly four minutes. Mr. Orleans was obviously uncomfortable with this period of silence.)

ORLEANS: Let’s see . . . (fumbling with a pen and paper) we’ll split the cost of the new coat, so that is $60 and we’ll pay $25 for shoes. Good enough now?

LEE: Raise the combined uniform and coat maintenance to $18 per month and you have a deal.

LEE: (As they were writing the agreed-upon section.) Why don’t we make it one new coat for the life of the three-year contract, instead of one new coat every five years? That makes it so much easier for everyone to keep track of.

Orleans rolled his eyes and nodded in acquiescence. The meeting then adjourned for the weekend. At last the union team felt that some progress was being made.

Source: This case was prepared by Peggy Briggs and William Ross of the University of Wisconsin–LaCrosse and is intended to be used as a basis for class discussion rather than to illustrate either effective or ineffective handling of the situation. The names of the firms, individuals, and locations; dates; conversation quotations; and financial information have all been disguised to preserve the firm’s and union’s desire for anonymity.

An earlier version of this case was presented and accepted by the refereed Midwest Society for Case Research and appeared in Annual Advances in Case Research, 1991. All rights reserved to the authors and the MSCR.

Copyright ©1991, 1997 by Peggy Briggs and William Ross.

(Lewicki 653-661)

Lewicki, Roy, Bruce Barry, David Saunders. Negotiation: Readings, Exercises, and Cases, 7th Edition. McGraw-Hill Learning Solutions, 09/2014. Vital Book file.

The citation provided is a guideline. Please check each citation for accuracy before use.