08 August 2008

Labour troubles at Lufthansa spreading

Lufthansa has been on a roll lately - they are definitely one of the survivors as identified by Michael O'Leary but they seem to have courted a number of problems that are now comping back to bite them.

They are in a dominant market position in the German and German speaking market. With no real indigenous challengers (they own part of EuroWings/GermanWings the largest local German LCC) they are able to dominate their market. The labour unions obviously would like a part of that by getting better working conditions and/or higher wages.

2 Weeks ago it was the ground staff. This week it is the German pilot's union "Cockpit" . The first demand is for parity from the LH Regional subsidiary Cityline and the mainline pilots. Why would someone flying a RJ get parity? Well actually its a little more complicated. As LH replaces its AVROs with newer Embraer E-Jets it will use these aircraft too to replace the older Boeing 737-500s and -300s. Currently Cockpit has a restriction in its contract for letting the Cityline pilots only fly less than 70 seaters. As the E-Jets go to over 100 - then this is a problem. Hence the strike.

But the current strike is but a skirmish for the main event where the mainline pilots want bigger raises and better benefits. So far LH has seen a little disruption from this current spate of strikes. But if this continues then we can see further strife affecting the airline's bottom line. Thus puts LH and its fellow network carriers in a difficult position. If LH caves in and pays the new wages then you can be sure that AF/KL and BA or rather their unions will join suit.

At just the time when restraint is needed we may have strong upward pressures on airline labour costs. One lesson they have learned is that when oil prices rose so spectaculalry how easy it was for the airlines to absorb such rises. So clearly that makes them easily capable of absorbing more wages costs.

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