Nov. 1--Not long after he was hired as lead labor negotiator last year for Southwest Airlines, Joe Harris was pulled aside by Herb Kelleher in a hallway at the company's Dallas headquarters.
The airline's legendary chairman and co-founder had one directive regarding negotiations for the airline's new pilots contract. "Herb cornered me and said, 'Don't screw this up, Harris,'" he recounted.
Not long after, he was recognized at an airport by a Southwest pilot. "And [the pilot] came up to me and said, 'Don't let them screw this up.'"
Harris got the message. "Both sides want to come out of this with something they'll be happy with," he said. "That's never easy, but that's what we're working toward."
Contentious labor negotiations at American Airlines, based in Fort Worth , have garnered much public attention in recent months. But the quieter talks going on at Southwest in Dallas are equally challenging, and could have just as much impact on the airline industry, analysts say.
Southwest's negotiations have lacked the drama of the American talks, where pilots have accused management of collecting "blood money" and threatened to see them "on the picket line."
But much is at stake for Southwest's pilots and the airline. The discount carrier is struggling to adapt its business model to higher fuel costs and a more competitive environment, which creates new issues for negotiators on both sides.
The contract will affect how Southwest competes, where it can fly and whether it can keep its costs low enough to continue to offer low fares and stay profitable.
Probably the biggest challenge is the fact that Southwest's pilots are the industry's highest paid and most productive. That means there's little opportunity to trade efficiency gains for higher pay.
Yet Southwest remains the most consistently profitable airline since 2001, a status that gives employees an expectation of superior compensation and job security.
Southwest pilots earn an average of $166,000 annually, by far the most in the industry. And wages at the airline have increased sharply in recent years: Since 2000, pilot pay has jumped nearly 50 percent, compared with an increase of 4 percent at rival American, where pilots and other union workers took pay cuts in 2003 to keep the airline out of bankruptcy.
"Southwest is in a tough position right now, tougher in some ways than what's going on at American," said William Swelbar, who researches airline economics at the Massachusetts Institute of Technology. "This is a very important contract for the entire industry."
Swelbar, a former flight attendant and industry consultant who sits on the board of Hawaiian Airlines, said that Southwest's negotiations haven't attracted much publicity "because both sides are very disciplined about not negotiating in public. They keep their issues at the bargaining table."
The contract is the airline's first with pilots since 1994, when the union agreed to an unusually long 12-year agreement. It also kicks off a wave of bargaining that will intensify next year, when five more contracts with flight attendants, customer-service agents and other workers open for changes.
Both sides began a year ago with high hopes that a negotiating style dubbed "interest-based bargaining," in which issues are discussed separately, would mean quick progress.
But after a few months, it became clear that the method wasn't working, said Carl Kuwitzky, president of the Southwest Airlines Pilots Association.
"As soon as we would look at economic issues, it kind of fell apart," he said.
Both sides reverted to traditional negotiations but didn't exchange contract proposals until April. "It's been very slow going," Kuwitzky said.
Progress has been made on defining the scope of pilots' work and how it could be affected by mergers or partnerships with other airlines.
That's an increasingly important topic for Southwest pilots, because the airline is planning to enter into partnerships with other carriers to offer international service. Kuwitzky said the agreement improves job security for pilots, "and that's a very important issue for us."
But key issues like scheduling and pay haven't been settled. Those will be among the toughest items at the bargaining table, Harris said.
"Our pilots are the best-compensated group in the industry, and we don't want to take anything away from them," he said. "But unfortunately we don't have a blank check we can just fill out."
Still, Harris added, "to say that this is going to be very difficult implies that our pilots are greedy, and that's just not true. We're proud of the fact that they're the best-paid pilots out there, and we want to maintain that."
Southwest has long been a model for good labor relations, something that Kuwitzky stressed is still the case.
"We have a unique relationship, and it's one that the union and the company both value," he said. "Even in a difficult bargaining situation, I don't think that's going to change."
Harris agreed. "There's a mutual trust that neither side is going to try to screw the other."
But there have been flare-ups. Talks with flight attendants got bogged down for years over compensation issues, and union members picketed at airports and criticized then-CEO Jim Parker for the stalled talks.
A deal that made attendants the highest paid in the industry was finally reached in 2004 after Parker resigned and Kelleher took over the negotiations. "We had a rough time with the flight attendants last time around," Harris said. "I'm hoping that was an aberration."
Attendants have also battled with the airline recently over a practice of assigning supervisors to join flight crews, a practice that created what the union dubbed "fake flight attendants." Southwest halted the practice after attendants mocked it with an online music video. Talks with attendants for a new contract will begin next year.
Neither airline nor union leaders would predict when an agreement might be reached with pilots. Harris said he was hopeful it would be completed "sooner than later," but said it could take as much as two more years.
Until then, the industry's eyes will be on Southwest, said Swelbar, the analyst.
"This isn't as exciting as what's going on at American, but it's a big deal," he said. "Everyone's watching."
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