Carty struggling to improve America's labor relations

Since taking the top job at American Airlines Inc. almost two years ago, Mr. Carty has pushed the carrier's top managers to embrace the idea that employee satisfaction is closely linked to customer and shareholder satisfaction.

But to end two costly work disruptions last year, the airline sued to obtain restraining orders against two of its largest labor unions. Today, Mr. Carty acknowledges that American has yet to convince most of its workers that employee satisfaction is a top priority for the airline at a time when the carrier faces labor talks with three of its four unions.

"We've moved the dial pretty significantly in the management ranks," American's chairman and chief executive said in a recent interview. "Now, have we moved the dial in terms of the perception of our people? There I think we are nowhere near a seven or eight" on a scale of one to 10.

"We've still got a long ways to go."

For American, the focus on raising employee morale is tied to a larger goal: improved customer service. At a time when rivals can quickly match its routes, fares or amenities, Mr. Carty holds up customer service as the airline's only lasting competitive advantage.

"The only way you can have more customers is to do a better job of customer service," he said.

Union leaders such as Jim Little of the Transport Workers Union applaud Mr. Carty for reaching out to them, but they say he has little to show for it.

"I respect Mr. Carty for what he's trying to do," said Mr. Little, a top executive at the Transport Workers Union, which represents 27,000 maintenance workers, mechanics and dispatchers, among others, and which is the target of one of the two lawsuits. "However, I don't see employees seeing the fruits of what he is saying."

Despite labor's misgivings, industry analyst Sam Buttrick said, Mr. Carty's attempts to boost employee and customer satisfaction will pay off for shareholders and workers in the end.

"Don is extremely sincere in his desire to foster greater trust between management and labor and improve employee morale," said Mr. Buttrick, who works at PaineWebber Inc. in New York. "These things take time."

"The unions have tested him," he added. "There is a difference in sincerely desiring better employee relations and writing big checks to your pilots."

Since Mr. Carty became American's chairman and CEO in May 1998, shares of Fort Worth-based AMR Corp., the airline's parent company, have dropped 32 percent, closing Wednesday at $49.81. Compare that drop with a 20 percent decline for the Standard & Poor's transportation (airlines) index, which measures the performance of airline stocks.

Work philosophy

Trying to boost employee morale while suing labor unions reflects Mr. Carty's management philosophy. The airline won't accommodate its workers' demands if it doesn't make sense for shareholders and customers, he said.

"From a management perspective, we are going to try to make sure that the employees of American are extremely well-treated compared to the rest of the airline industry," Mr. Carty said. "But we are going to do it in the context of recognizing that we also want our customers and our shareholders to be reasonably well-treated economically."

Mr. Carty's approach to improving employee relations undergoes its biggest test yet this year as the airline faces negotiations with three of its largest labor unions.

American is currently in talks to extend its pilots' contract by two years and to win a new labor agreement with its more than 20,000 flight attendants, who last year rejected a tentative proposal.

In October, the carrier will begin discussions for a new contract with the Transport Workers Union.

The current union negotiations come after a year of labor turmoil at the airline. Last February, American sued the Allied Pilots Association, trying to end what turned into an 11-day pilots' sickout that canceled nearly 6,700 flights and cost the company $225 million.

The union, which represents about 10,000 American pilots, launched the sickout to protest the use of non-American pilots on planes operated by newly acquired Reno Air Inc. During the sickout, a Dallas federal judge slapped a $45.5 million fine on the union. The fine, which has been appealed, is still pending.

Then in December, American again turned to the courts to stop some maintenance workers in the Transport Workers Union from staging work slowdowns that were delaying or canceling hundreds of flights at its hub airports in Dallas and Chicago. The workers were protesting the company's decision to award New Year's Eve and New Year's Day bonuses in a way that mostly benefited flight attendants and pilots.

"I still will hope that things are going to change," said John Ward, the newly elected president of the Association of Professional Flight Attendants, which represents American flight attendants. "But they haven't seemed to change thus far. You have two unions who have been in court with this company last year."

American's approach to labor relations comes as more companies choose to avoid confrontations with their unions, said Dennis Nolan, a professor of labor law at the University of South Carolina's School of Law. Dallas-based Southwest Airlines Co., which has seen one strike in nearly 29 years, is one example of a corporation practicing this type of thinking, he said.

"It is a very difficult line," he said. "{ellipsis} if you look weak, {ellipsis} sometimes the hotter heads on the union side might push to see how much they can get."

Employee satisfaction

To increase employee satisfaction, American is now spending more on training programs and other benefits; getting pickier about who it hires for entry-level positions; and rethinking new products and service improvements so they don't burden employees.

For example, Mr. Carty said, the airline rejected the idea of matching a move by United Airlines Inc. that gave extra legroom to only full-fare coach passengers. This would have complicated the flight attendants' duties, he said. Instead, American is giving all coach customers added space.

"We want employees to feel they are valued," said Thomas Kiernan, American's senior vice president of human resources. "We recognize the business value in having an effective workforce that loves coming to work."

Since becoming American's chairman, Mr. Carty has touted the importance of employee satisfaction to the company's managers. .

"I don't know that it's a new culture," said A. Jaynne Allison, American's vice president of human resources. "It's an improvement. We sure hope it's going to make the people who work here want to stay."

One key figure in American's recent labor drama, New York-based labor mediator George Nicolau, said recently that he also sees progress. Mr. Nicolau, who declined to elaborate, is still helping to mediate disputes between the airline and its union.

Building protocol

One sign of this change: A year after the pilots' sickout, American and its pilots' union are working together to help prevent future Reno-like labor disruptions.

They are developing a mergers-and-acquisition protocol that would provide a process to discuss labor concerns when American buys a company. But critical issues continue to divide American and its pilots, say leaders of the Allied Pilots Association.

In current contract extension negotiations, the union wants American to agree to let its members fly new, large regional jets that the airline will begin operating next year.

Currently, smaller versions of the jets are flown only by pilots at regional airline American Eagle.

But as the number of regional jets grows, the pilots' union sees more new jobs being added at American Eagle than at the mainline carrier.

"{ellipsis} [The regional jet proposal] would go a long ways toward de-escalating tensions between us and the company on job security issues," said Rich LaVoy, president of the pilots' union. "There is going to be grave disappointment if we don't get that."

Mr. Carty is willing to negotiate. But the proposal must make business sense for American if it is to win his support, he said.

"I have no problem with them bringing forth any recommendation, but it doesn't mean we are going to be able to do them," Mr. Carty said. "We'll see how these negotiations go. But if we can't agree on a series of changes that will make both us as management of the company and they as the leadership of the pilots feel comfortable with that extension, we are better off to not try to force it."