Must-know: Why JetBlue’s employee costs will rise in 2014

Market Realist

A key overview of JetBlue Airways (Part 9 of 12)

(Continued from Part 8)

Unionization of employees

JetBlue Airways’ (JBLU) employees didn’t belong to any union groups until April 2014 when 70% of its pilots—95% of 2,600 pilots were eligible to vote—voted to join the Air Line Pilots Association (or ALPA). With a union, JetBlue might lose its advantage of having the lowest salary cost per available seat mile of $2.65 among its peers. Operating costs will also increase, as unionized employees generally have greater bargaining power to demand higher pay and employee benefits such as healthcare and pension benefits.

Salary, wages, and benefits are the second largest costs after fuel costs. These costs account for 23% of JetBlue’s total operating costs. Salary, wages, and benefits have increased by 2% to $1,135 million in 2013 due to an increase in the number of full-time employees and average tenure of crew members, retirement contributions, and profit sharing expenses.

In 2014, these costs will rise when pilots join the union, as JetBlue will need more pilots to adhere to the latest amendments to the Federal Aviation Administration’s pilot rule, which states a ten-hour minimum rest period and limitations on pilot flight times and duty times. Also, JetBlue expects to add $30 million to costs in 2014 because of its agreement to increase pilots’ base pay rates by 20%.

Employee unions in the transportation sector

According to Unionstats.com, the transportation and warehousing sector has the highest percentage of unionized employees. In 2013, 38.6% of U.S. air transportation employees were covered under unions, compared to only 7.5% of all U.S. private sector employees.

In 2013, 80% of United Continental Holdings’ (UAL) 87,000 employees belonged to unions. Of the 44,831 employees at Southwest Airlines (LUV), 83% were unionized, and 73% of the 110,400 employees at American Airlines Group (AAL) belonged to unions. Delta Air Lines (DAL), however, has a small portion of employees, 18%, belonging to unions.

Continue to Part 10

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