Unions play an important role in many businesses, such as airlines, and often aid in decision-making. Such is the case in the article “United Machinists’ Union Approves Pay Concessions”, by Edward Wong from the May 1, 2003 New York Times. Since the airline is in danger of bankruptcy, the union “members are providing United Airlines with the means and opportunity to successfully restructure and avoid liquidation.” In order to do so, the machinists’ union voted to give the company a total of $794 million a year in wage and benefit concessions over the next six years. As a result, wage cuts range from nine percent for flight attendants, thirteen percent for machinists, and thirty percent for pilots.
Airlines are an oligopoly in the United States. Oligopolies are market structures where a few firms distribute a product, either standardized or differentiated. Entry into this market is often difficult, and a firm has limited control over product price because of mutual interdependence, and there is typically non-price competition. There are a few large airlines that get most of the traveling business, and differentiation is limited. Since September 11 however, business has been slow, with most people opting not to travel by airplane. As a result, many airlines, including United Airlines, have been close to bankruptcy.
Airlines have tried lowering prices to get business. Price leadership, one firm announcing a change in price, resulting in other firms announcing similar changes, is prominent however, and it was difficult to get business. As a result, United Airlines and United Machinists’ Union has decided to cut wages. As the article explains, other airlines such as Delta, recently proposed cost cuts. This move is similar to price leadership, except dealing with wages.
United Airlines recently had the highest unit-labor costs of all airlines. Since United won concessions from workers however, Delta Air Lines, who now has the highest unit-labor costs, topped them. Unit-labor cost or the cost per unit of output effects how much the business spends and as a result, the amount of revenue they bring in. United Airlines is not presently in the position to spend a lot, and as a result, needed to bring down their unit-labor costs.
United Machinists’ Union is a craft union, organized on the basis of occupations and skills. A union’s main goal is to increase wages for union members, however United Machinists’ Union’s goals do not end there. For example, they want to raise the standards of and increase recognition of all their members. Also, they work for better benefits, working conditions, and respect for all members. While voting for the concessions, 70% supported them. Although the union members do not want wage cuts, etc, they know that they must help out the business for job security.
Many of the union members also voted for the concessions because of the present threat of a representation takeover by the Aircraft Mechanics Fraternal Organization. This union is similar to the United Machinists’ Union, and there will be a vote for all union members at United to choose which union they would like to be in.
The United Machinists’ Union has greatly aided United Airlines by agreeing to wage concessions. As Glenn F. Tilton, chief executive of United said in a written statement following the voting, he “appreciates the tough choices and sacrifices all” the “employees are making to help ensure United emerges from bankruptcy and succeeds for the long term.” Unions do not only seek benefits for themselves, but also consider what is best for the business.
