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American Airlines Group Inc. gave in to pressure from employees and adopted a profit-sharing program, acknowledging the issue was thwarting efforts to improve labor relations and the carrier’s performance.
American joins the other large U.S. carriers — Delta Air Lines Inc., United Continental Holdings and Southwest Airlines Co. — in splitting some earnings with employees. Starting this year, 5 percent of pretax income, excluding one-time items, will go into the profit-sharing fund, Chief Executive Officer Doug Parker and President Scott Kirby told workers in a message Wednesday. The first payout will be in early 2017.
The program is an abrupt reversal for Parker, who as recently as January defended the company’s decision to pay higher base rates instead of offering profit sharing. Such programs, he has said, are subject to changes in travel demand and should not be a basis for compensating employees. Executives since have realized that division over the issue was derailing their push for a cultural change at American.
“We are taking this step because we have heard from many of you that a profit-sharing plan is important to our success as a team,” the letter to workers said. By excluding profit sharing, “we inadvertently have eliminated some of our shared sense of teamwork — and that was never our intent.”
Separately, the airline announced plans Wednesday to raise flight attendants’ pay by 6 percent, effective April 1 and subject to union approval. The hourly wage for the most highly paid flight attendants would climb to $60.13 from $56.69, the carrier said in a letter to employees.
The decision to add profit sharing grew out of frequent discussions with employees who seemed to accept the “rational, analytical” argument for definite higher base pay in place of variable profit sharing, but later concluded “that it doesn’t quite feel right,” Parker said in an interview.
“People would nod their heads and say ‘I understand’ but in their guts they never got there,” he said. “Our answers were all formulaic, but we were missing the feeling component. It’s really important in today’s world that we have our employees excited and engaged and feeling like they are valued. This helps do that.”
American’s 5 percent rate is below that at peers but will be augmented by the higher pay rates the carrier committed to in contracts, Parker said. As a result, total labor spending should be in line with other carriers.
Delta, which contributes at least 10 percent of pretax earnings to its fund, paid $1.5 billion in profit sharing for 2015, an amount it said was the largest ever for a corporate program. Southwest, which devotes 15 percent of pretax income, paid $620 million, and United was at $698 million. Both were record amounts for those airlines.
American had a profit-sharing plan before its bankruptcy in 2011, although it never paid out to employees. US Airways also had a program before it merged with American in 2013. American, US Airways and unions at both carriers agreed to the higher base rates over sharing profit in contracts negotiated to complete the combination.
Creating a profit-sharing plan outside of contract negotiations is unprecedented in the industry, American said.
“Things have been difficult for flight attendants since the merger,” said Marcus Gluth, president of the Association of Professional Flight Attendants. “There have been lots of changes and hang-ups, and flight attendants have been extremely patient. I am pleased to see our company reward our hard work.”
The Allied Pilots Association, which recently wrote Parker about concerns that “toxic” labor relations were returning at the carrier, didn’t immediately respond to requests for comment.
Investors may be unhappy with dedicating part of profits to the program, Parker acknowledged, a view he said would be “short-sighted.” American has about 100,000 employees.
This article was written by Mary Schlangenstein from Bloomberg and was legally licensed through the NewsCred publisher network.