Organisational Issues at Lufthansa Airlines

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Introduction and Background

With increased oil prices, airlines all over the world have found themselves in a position where reducing their operation costs seem the only viable way of remaining profitable. The situation in the industry is so bad that British entrepreneur Richard Branson, in his characteristic jest, once said that becoming a millionaire is easy if one was to start as a billionaire and venture into the airline industry.

Branson was referring to the loss-making potential that airlines are exposed to in current operating environment different factors are seemingly conspiring to reduce the profit-making potential of airlines. Such include rising oil prices and increased pressure from competitors (most especially low-cost airlines).

Deutsche Lufthansa AG (Lufthansa Airlines), like other airlines across the world has opted to cut its costs in a bid to remain profitable. Unlike some of its competitors however, Lufthansa is also facing extra challenges brought about by its workers. Represented by their labour unions, Lufthansa workers have been on and off strike action since 2008.

As recently as March 2013, the airline was insistent that it would continue with its austerity plans, which seeks to cut 3,500 employees and ‘force’ its employees to take longer work days (an extra hour per week), in addition to having no pay rise within a two-year period (Redl 2013).

Lufthansa’s Chief Financial Officer (CFO) Simone Menne has been quoted saying that the company is “ready for new strikes, if necessary also by the pilots” as it pursues its long-term goals of cutting costs and enhancing its profit-making (Redl 2013, para. 6).

Adamant that the cost-cutting measures were necessary to protect the company’s long-term growth, Menne stated that the management would not address employees because by so doing, the company would be compromising the airline’s future for the sake of short-term harmony. But what long-term growth was Menne referring to one may ask. Well, according to Redl (2013, para.4), “Lufthansa is trying to bolster its finances so it can avoid jeopardizing a planned multibillion-euro investment in new, more fuel efficient aircraft”.

The main employees’ issues that Lufthansa is grappling with include a 5.2 percent wage increase demand, enhanced job security demands, and improved trainee conditions demands (The Hindu Business Line 2013). The employees are represented by two unions, namely Ver.di, and Unabhangige Flugbegleiter Organisation (UFO). The former is a large union representing a large number of employees at Lufthansa, while the latter is a niche union representing two-third of the flight attendants in the company (Lindsey 2012).

Statement of the problem

Considering that Lufthansa Airline employees may have an inkling of the financial status of their employer, this research paper seeks to find out some of the reasons why employees still demand wage increments. Additionally, the paper seeks to find out if the management at Lufthansa has behaved in a manner that has prompted employees to feels as if the organisation does not value their input into the company.

Drawing from organisational behaviour theories, the paper will also find out if the behaviours exhibited by the employees should be interpreted as an indication of their dissatisfaction with the management. The paper will also investigate some of the viable solutions that Lufthansa can use to end the labour relations stalemate.

Methodology

This paper uses a review of literature as the main research method. Primarily, the researcher has used academic articles as the basis of theory, but has also used online newspapers articles and commentaries to understand the situation in Lufthansa. The researcher used keywords such as ‘managing labour disputes’, ‘managing strikes’, ‘labour disputes and organisational behaviour’ among others when searching various databases for academic articles for use in the literature review.

The writer further obtained information about Lufthansa’s strike from online sources, but had to pay particular attention to the use of credible websites such as BBC, the Telegraph among others. The methodology was intentionally meant to help the researcher find, evaluate and synthesise information that would correspond with the task of statement of the problem as described above.

Literature review

According to Darlington (2012), employees do not always strike because their employers fail to grant them promotions, improved wages, or improved work environments. In some cases, the indifferent attitude displayed by the employer is enough to make workers down their tools. In an age where disagreements are bound to occur, Darlington (2012) observes it is how the organisation deals with employees who go on strike that really matters.

For starters, Darlington (2012) argues that organisations must be willing to find out what caused the strike, take measures to resolve the strike, and control the consequences of the strike. Most notably, lean organisations are becoming an everyday occurrence in the workplace, and so are changing employee expectations and loyalties.

Competition on the other hand, is forcing organisation to rethink and design strategies to improve productivity. According to Darlington (2012), the aforementioned factors present challenges and opportunities, which modern organisations must confront and/or gain meaningful insights from.

Writing specifically about the airline industry, Hirsch and Macpherson (2000) observe that though unlikely, labour strikes in the airlines industry can occur, especially if negotiations between airlines and labour unions stall. The labour unions in the airlines industry have substantial bargaining powers (Hirsch & Macpherson 2000).

Since it is not in the interest of labour unions and the employees they represent to bankrupt their employers, Hirsch and Macpherson (2000) observe that the airline industry (especially in the United States) has developed a compensation plan that enable unionised workers to earn more as the profits increase, and moderate pay increases when airlines are experiencing tight profit margins.

For the aforementioned to happen, unions must be able to appropriate company profits, but the company must also embrace innovation in order to develop products and services that generate profits. Innovation often comes from the human resource, and this means that increased profits (and the consequent improvement in wages) are a product of good management that encourages good organisational behaviour. The appropriation of company profits by unions also requires good sharing of information between the two parties.

Information sharing between union and employers on the other hand requires a good working relationship between the two. According to Bryson (2001), the nature of relationships that exist between unions and employers depends on the efforts and motivation that each side applies towards creating a good working arrangement.

According to Bryson (2001) persistent work stoppages through strike actions are a manifestation of the collective distrust and resentment that labour unions (and the employees they represent) have towards the employers.

The main prerogative of creating a good relationship between the two parties however appear to remain with the employer; Bryson (2001, p. 91) for example observes, management can “foster a high trust relationship with employees by ensuring that unions have sufficient power to make a positive contribution to the running of the workplace”.

Bryson (2001) further observes that adversarial relationships are also an indicator of the bad faith motives and questionable endgames between employers and employees (represented by labour unions). In some cases for example, disrespect of unions by employers motivate strike actions.

Bryson (2001) however indicates that unions also (sometimes) play a part in creating bad relationships with employers. An example is when union’s bargaining is informed by politicised values, without paying particular attention to the employer’s ability to meet their demands.

In a different study, Bryson (2005) observe that unions can also approach bargaining with doctrinaire views with the intention of establishing or enhancing their reputations among workers. In some cases, unions might even have the intention of solidifying their ranks as negotiators by assuming hard-line positions.

Considering that strike actions (and the subsequent work stoppages) have greater negative consequences on the employer, Bryson (2005) argues that they (employers) should focus more on interest-based and integrative bargaining as a way of reducing the risks of work stoppages.

Specifically, Bryson (2005) observes that negotiations should ideally emphasize commonalities between workers and their employers in order to attain goals and objectives that cater for the interests of both parties. By so doing, the parties would facilitate decision-making that is based on well thought-out assessments of the situation.

The decision about work stoppages usually involves both parties making specific considerations. The employees for example judge the costs versus the benefits of such a strike by considering the anticipated price in lost wages, lost goodwill and a loss of concessions that the employer may have pledged against the predicted work stoppage outcome (Gunderson 2001).

If the latter is more than the former, employees would no doubt opt to go on strike. The employers on the other hand contrast costs incurred during work stoppages against expected cost of increasing wages, and if the former is greater than the latter, Gunderson (2001) observes that employers usually agree to increase the wages.

Through wage increment, the management of a company facing strike threats saves the company from absorbing work stoppage-related costs. Gunderson (2001, p. 444) further notes that unionised employees are “relatively protected from layoffs, and hence have little incentive to engage in concession bargaining unless a credible threat of a plant closing is imminent”.

In some cases, employees may even want to extract high wages from firms that are near bankruptcy. Gunderson (2001) argues that while the intention of employees is to bankrupt a business, the management has a prerogative to protect the interests of the investors.

Gunderson (2001) further observes that work stoppages/strikes occur as a result of erroneous outcome assessments by either the employer or the employees and their representative unions. This line of thinking suggests that strikes are mistakes, which result from imperfect information about the economic flexibility of either the employer or the unions.

Gunderson (2001) further argues that if union members are well informed about their employer’s ability to tolerate production losses, and if employers are well informed about the union members’ capacity to go without remuneration, strikes would not occur.

Drawing information form asymmetric information theories, Tracy (1987) supports the foregoing argument by observing that strikes are sometimes motivated by the union member’s attempt to extract information about the economic condition of the organisation from the employer. In other words, the limited information leads employees to distrust their employers, making strikes the only viable way of extracting information from them.

The probability of strikes increases if either parties base their perceptions, demands and/or offers on the opponent’s current position (Darlington 2012). Relying on prevailing indicators (e.g. increased short-term profits and higher costs of living), may lead employees to ask for wage increments.

However, if they would consider other leading indicators such as security of contracts, the threat of business failures, and the competitive environment, perhaps employees would be more considerate when placing their wage increment and other demands. Again, Darlington (2012) indicates that conflicting expectations can be corrected through effective information sharing, which would ideally enable parties to assess the cost and benefits of strike actions from a knowledge-based angle.

In a different approach from Darlington (2012), Godard (1992, p. 162) argues that “strikes should be viewed primarily as expressions of worker discontent rather than a result of imperfect or asymmetrical information”. In a different article (Godard 1998, p.3) observes that the conventional employment relation places workers at a subordinate position to their employers, because, it is generally accepted that “capital hires labour”.

Authority in the workplaces is hence exercised in a manner that places the interests of the owners above those of workers. Consequently, workers encounter difficulties related with trust, legitimacy and fairness.

Godard (1998, p.3) therefore argues that strikes are largely a manifestation of the aforementioned difficulties, and should therefore be perceived as a “primary means through which workers are able to collectively voice discontent and distrust, either with the exercise of managerial authority in general, or with management’s position on a particular issue”.

Apart from the economic consequences, Godard (1998) observes that strikes can also remodel how parties perceive themselves and each other. The changes in perceptions have implications on employees’ orientations towards work, unions, and their employer. Godard (1998) however observes that strikes are a reflection of the interactions between employers and employees, and the choices they make.

Both the interactions and choices are shaped by variables in convention industrial relations, which may include among other things, social variables (trust, job satisfaction and effective communication), economic variables (profitability vs. Employee wages), and law variables (the consistency or lack thereof of labour laws with economic models) (Godard 1998).

The literature sources reviewed herein reveal that employees chose to go on strike for different reasons. Key among such reasons is distrust in their employers. Such distrust can be triggered by ineffective flow of information between the employees and their employers among other things.

The emergent theme from the literature review segment is that strikes are a medium through which employees communicate their dissatisfaction and distrust towards the management. From an organisational behaviour perspective, factors such as fear, moral concerns, affective concerns, and distrust among employees, and the management’s/employer’s inability to array such factors appear to be the underlying causes of strikes.

Findings

The first major strike in Lufthansa was in September 2012 involving flight attendants. The strike occasioned some estimated €5-10 million losses to the company (BBC News 2012). The strike did not come as a surprise to analysts, who argued that it (the strike) was the culmination of negotiations which had taken more than a year and eventually stalled.

Additionally, the management had deployed temporary workers on some routes despite resistance from unions representing the permanent employees. The deployment of such workers was interpreted to mean that the organisation did not mind what the employees (and their unions) thought.

More exasperation on the employee’s side was triggered by a threat by Lufthansa Chief Executive Officer (CEO) Carsten Spohr, who prior to the September 2012 flight attendants strike, had said that the company would hire temporary workers to replace anyone who went on strike.

Lindsey (2012) observes that the threat by Spohr triggered even more resistance from workers who were daring him to make good his threat. Welt (cited by Lindsey 2012) observes that even if such a threat would have worked to discourage employees from going on strike, it would have compromised the service provision by the same employees to customers.

Welt (cited by Lindsey 2012) noted that in addition to Lufthansa being a transportation provider, it is the in-flight services that attract customers (especially considering that ticket prices is no longer a point of competition); as such, grumbling workers would likely offer poor in-flight services to customers and this would have inevitably reduce the airline’s ability to attract customers.

Problem Analysis

From a sociological approach, there are four interrelated issues that the management at Lufthansa failed to address, and which can be said to have led to increased dissatisfaction by the employees represented by the labour union. The first was the question of hiring temporary workers. At the time, every indication from the management showed that they were being hired to take up the jobs of permanent employees who chose to go on strike.

Smith et al. (1993) observes that fear is an emotional result of a perceived threat or danger. It occurs in sudden or unexpected situations where it is believed that rewards or punishment are present (Smith et al. 1993). Fear also occurs when one perceive their control or ability to cope with a situation as being low.

Ideally, people respond to fear by seeking support, confronting the situation, avoiding the situation, or practising self-control. In Lufthansa’s case, it would appear that employees responded to fear by confronting the situation and seeking support from the unions. Yet, the continued disregard of conditions set up by the union (e.g. the condition requiring Lufthansa to stop further recruitment of temporarily staff) was not headed by the airline. This could thus mean that the distrust between the two parties worsened.

The second issue that the management at Lufthansa failed to address appears to be affective; specifically, it would appear that a significant number of employees represented by both the UFO and Ver.di unions were demoralised by the management’s decision not to increase wages within a two-year period, while increasing the work periods by an hour.

While the aforementioned measures were meant to be the employees’ contribution to the airline during the hard economic times, it seems the decision to implement them was not discussed and agreed upon by a majority of the employees. As such, a significant percentage of them felt that the management decision was imposed on them.

The strikes, which the Chief Personnel Officer (CPO) at Lufthansa Stefan Lauer says are occurring at a three-months frequency, can thus be interpreted to be an indication that the management have been unsuccessful in convincing employees why the austerity measures are beneficial for both the airline and its employees in the long-term.

The third factor which Lufthansa failed to address is related the morality of the strikes. According to CPO Stefan Lauer (cited by the Associated Press 2013), the union (ver.di and UFO) that have been pushing for increased wages for their members are motivated by a desire to improve their positions in the fragmented union landscape.

In other words, Lauer is arguing that the unions understand quite clearly the reasons why wage increments and other demands placed on the airline cannot be met in the short-term, but their desire to gain credence among the employees they represent is blinding them. While Lufthansa may argue about the morality or lack thereof of the strike organised by unions, it would appear that the management has been adamant in its non-recognition that employees may have genuine issues that need to be addressed.

The fourth and perhaps the most important factor that Lufthansa failed to deal with is distrust. Media is awash with news about the tough times faced by airlines. This means that Lufthansa workers had an understanding of the economic pressures that their employer was facing. The fact that some employees are still clamouring for wage increments is an indicator that perhaps they do not believe that their employer’s financial situation is dire.

As indicated elsewhere in this paper, it is not the intention of the employee to bankrupt their employers; after all, most employees understand that their job security is related to continued profitability of the firm. Notably, Lufthansa has indicated that wage increments would jeopardise its future plans to invest more fuel efficient aircrafts (Redl 2013).

The question therefore begs, do the employees understand that fuel efficient aircrafts would benefit them, or do they perceive the short-term austerity measures as strategies to benefit their employer in future at their short-term expense? Clearly, such is a question that would clear the air of distrust that exists between Lufthansa and its employees.

Possible solutions/ discussion

The first possible solution involves Lufthansa compromising its current position and agreeing to the wage increment and working conditions improvements as demanded by the unions.

Such an action would correspond to Gunderson’s (2001) views that in some cases, employers cannot concede to wage concessions, and even prefer layoffs, because they have information regarding their ability to pay, that the unions and the employees may not have. Again, such an argument refers to the asymmetric information argument, which Gunderson (2001) observes is a product of the principle-agent framework.

The second possible solution involves Lufthansa upholding its stance and using legal means (as it has already indicated) to resolve the dispute. In the meantime, the airline would have to brace itself for occasional disruption to operations and consequent losses whenever the unions call for a strike.

As indicated by Gunderson (2001), pleading inability to pay is one way that employers can refuse to meet the high wage demands, and justify layoffs. Considering how costly strikes are, it would be generally understandable that employers would meet the pay demands (and other conditions) if its finances were in good shape; However, the fact that the organisation is absorbing costs occasioned by frequently strikes could arguably mean that the firm is honest in its inability to pay.

The third solution would be negotiating for a new deal, which meets the employees in the middle (i.e. agree to some wage increments (ideally the amount should be less than the 5.2% demand by the unions). Already, Lufthansa has offered a 1.2 % wage increase offer with no job guarantees, but it would appear that the Ver.di union is not content with the offer’s contents. If negotiations fail, Lufthansa can table its final offer or state its final conditions, in which case the unions would either have to take or refuse the same.

The fourth solution would probably follow British Airways (BA) response to the cabin crew strike led by the Unite Union. BA had responded by removing travel concessions from its cabin crew members who had participated in the strike, and subjecting some of them to disciplinary action.

Additionally, the airline used volunteer crew, borrowed some from other airlines and chartered jets (BBC News 2011). During the 7-day strike in 2011, BA reportedly operated 58 percent of its short-haul flights and 79% of its long-haul flights (BBC News 2011).

Although it operated below capacity during the seven days, it managed to send a clear message that no one is indispensable. As a result, some workers chose to work during the strike and by so doing, BA succeeded (albeit to a minor degree) in weakening the support that the union enjoyed from employees.

Solution and implementation

Considering the tough stance taken by both Lufthansa and Ver.di, it would appear that the third solution above (i.e. negotiating) a new deal is the most viable way of resolving the dispute. Before commencing the negotiations however, it would be advisable for Lufthansa to verify whether the strike by workers is as a result of information asymmetry or just a frantic measure by the employees to communicate their discontent and distrust towards the management.

Lufthansa must also look into the possibility that Ver.di (and other unions) is using the strikes to remain relevant in a fragmented labour union environment. Whatever the case, Lufthansa must be willing to improve its communication with employees in order to make them willing to support the firm in its long-term strategies.

For example, the firm must be willing to explain why the freezes on wage increments were necessary during the two-year period, and must also engage employees the decision to either scrap or uphold the one-hour-per-week work extension. Additionally, the management must specifically pay attention to work councils, because as Europa (2011, p. 8) indicates, they “are the main form of employee representation at the establishment level”.

Engagement with the councils would thus provide a platform from where Lufthansa can address employee concerns in a manner that improves information sharing and trust levels. Through the councils, the management can attempt to appeal to personalities, while reiterating the need to develop citizenship behaviours.

According to Ilies et al. (2009), employees who feel valued by the employer are more likely to exhibit good citizenship behaviours, and are even more likely to be satisfied in their jobs even when wages increments are not forthcoming. Ilies et al. (2009) observe that agreeableness and conscientiousness is more evident in organisations with high rates of job satisfaction.

Notably, however, job satisfaction is the result of careful development of a deliberate organisational culture, which in addition to enhancing satisfaction, improves other employee dimensions such as performance, commitment, strategy implementation and cohesion (Lund 2003).

Justification

It is widely agreeable among scholars that there are no final or definitive solution to the challenges and problems that organisations face. However, Lund (2003) indicates that the dynamics of organisational behaviour requires managers to recognise and separate the bad ideas from the good.

Additionally, Lund (2003) observes that managers need to know when to be artful and when to be scientific. In Lufthansa, it would appear that the scientific approach to handling and appealing to employees to support the firm during the tough economic times is not working. Threats do not seem to be working.

As such, perhaps it is time that Lufthansa tried to be artful. Effective communication and convincing employees that their future in the company depends on the short-term austerity measures is an ideal way to start. Adopting a cooperative approach towards resolving disputes would also be a wise idea for adoption by the Lufthansa management.

Notably, Lufthansa is not lacking lessons from its past, which it can learn from. In 1999 for example, the airline signed a pay agreement with its employees, which indicated the commencement of wage increments after years of stagnation following its 1991/1992 operational crisis.

The years between 1992 and 1999 were termed as “years of sacrifice” since the firm had to restructure for purposes of enhancing its profit-making potential (EuroFound 2002, p. 13). The eight-year period portrayed that successful labour relations are possible if both parties (employees and employers) understand each other, and share similar goals (at least in helping the organisation to regain its footing in the market).

Of special interest to the current management at Lufthansa would probably be the combined use of labour relations, personnel policy and management strategy in the restructuring years as indicated by EuroFound (2002). The smooth relations between the management and the employees (despite heavy union presence at the time) was according to EuroFound (2002, p. 13), a product of the “traditionally co-operative, consensual and relatively peaceful labour relations at Lufthansa”.

The use of the word ‘traditionally’ in the foregoing quote creates the impression that labour relations at Lufthansa have not always been confrontational as witnessed since 2008. Ideally, such information should provide the current management with thought-provoking lesson.

Ideally, the management should find out when and why labour relations changed from being “cooperative, consensual and relatively peaceful” as indicated by EuroFound (2002, p.13), to the current approach where work stoppages have become a regular occurrence.

Conclusion

From the literature review, and the findings of this research, it is clear that both Lufthansa and employees have valid reasons to their divergent views and positions. On one hand, the management at Lufthansa has the right to protect the investors’ interests by upholding a wage bill that is within its ability to pay.

Employees on the other hand have a right to petition their employer for wage increments and improved working conditions. Both parties are aware of the tough operating environment that airlines face, but it would appear that the employees do not believe their employer’s claim about inability to pay.

As indicated herein, it could also be that employees are out to bankrupt the employer, or the unions are just using the strikes to remain relevant. Whatever the case, it would appear that the relationship between Lufthansa and its employees is fraught with distrust. Notably and as indicated in the discussion section, Lufthansa has several approaches with which it can resolve the labour relations problems it is currently facing.

The approach Lufthansa takes must be based on the recognition of the important role that its human resource function plays. However, it must also balance the needs and wants of its human resource with the business objectives of the company. In other words, the company needs to embrace a solution that will guarantee its sustainability. One such approach is negotiating a new deal, whose main premise will be founded on trust and transparent sharing of information.

References

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