Delta Air Lines, Inc. (NYSE: DAL) has a long history as a commercial passenger airline, dating back to 1928. The company has gone through many machinations and mergers and acquisitions (M&As) to arrive at where it is today: a partly unionized airline that is unique in the industry. Its pilots and dispatchers are unionized, but the majority of the workforce, including flight attendants and baggage handlers, are not.
Recent Past of Delta’s Workforce
The largest challenge to Delta’s non-unionized culture came in 2008 during the merger of Northwest Airlines and Delta just after both emerged from bankruptcy protection. The union culture of Northwest was heavily entrenched next to Delta’s higher wages, superior benefits and profit-sharing arrangements. Delta’s qualities in 2008 swayed the unionization vote to decertify the Northwest flight attendants in a close race, and the rest of Delta’s workers failed to create a union in 2002 and 2008. An attempt in 2015 fell apart as the organizing union, the International Association of Machinists and Aerospace Workers (IAM), admitted a fair number of authorization cards were submitted with insufficient information, although it has further unionizing attempts scheduled for 2016.
On the pilots' side, 2015's contract talks failed to lead to an agreement over the contentious issue regarding the company's desire to lower the profit-sharing side of the contract and increase pay raises. The current plan pays out 10% of all pretax income up to $2.5 billion and 20% of any profit over that amount. It equated to a 16.6% boost to pilots' compensation in 2015 because of a record revenue year. The deal that was rejected would have lifted the 20% profit-sharing plan level from the $2.5 billion to the $6 billion level but also increased pilots’ base pay by 22% over three years.
Delta maintains that it is keeping a conscientious eye on its future by trying to level out compensation levels and that the 2015 pilots’ contract was a way to do so. In an industry that has seen a consistent boom-bust cycle, Delta feels it needs to invest in its employees with better base pay in order to avoid possible unionization while at the same time lowering expenditures for profit-sharing in huge boom years.
On the employees’ side of the equation, the record-breaking profit now being enjoyed by the company because of record low fuel prices and surging demands by American businesses is also in part because of employee sacrifices in years when they took large pay cuts. These pay cuts took place in 2001 and 2004 when employees forfeited up to 32.5% of their wages.
Profit Sharing vs. Pay Raises
Delta has always prided itself on its strong labor relations with its employees and the ability to quickly respond to market challenges with either pay cuts or large pay increases, as the market demands. This has enabled Delta to become the largest airline in the world by passenger count and post an almost $6 billion pretax income in 2015, a 29% increase over 2014.
With its non-unionized employees, Delta instituted large pay increases in December 2015 of about 14.5%, while at the same time lowering its profit-sharing commitment by about $500 million in the first year after the change, 2016. Under the new profit-sharing rules for non-unionized employees, they would still receive 10% of the company's pretax profit but only receive the higher 20% on profit above the previous year’s total. This is a significant change, resulting in payouts of 20% profit sharing only in growth years for non-unionized employees.
Delta’s non-unionized employees have to decide whether they are happy with pay raises and lower profit-sharing bonuses and avoid another unionization drive expected in 2016. While Delta needs to negotiate a new contract with unionized pilots in 2016 to further reduce its profit-sharing obligations, it was this profit-sharing formula that has kept its employees from unionizing for this long.