Low Fares Airlines - EESC European Economic and Social Committee

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European Economic and Social Committee
PUBLIC HEARING ON
Social Dumping
in the Civil Aviation Sector
Professor Peter Turnbull
16 April 2015
Social Dumping in the
Civil Aviation Sector
oThe low cost business model (and
its variants)
oEmployment at low fares airlines
oQuestions and considerations for
the EESC
Airline Business Models
Low Fares Airlines (LFAs)
Legacy Airlines
Point-to-point
Network (hub-and-spoke)
Secondary/regional airports
Primary airports
Multi-European bases
Home country hub
No interlining
Interlining and code sharing
High aircraft utilisation/quick turnaround
Lower aircraft utilisation on short-haul
flights
Mixed fleet
Single aircraft type (e.g. B737-800 or
A319)
High seat density
Mixed class cabin
Pay for service items (e.g. checked
baggage)
One-way fares
Inclusive service/price
Direct selling (telesales/internet)
Travel agents (increasingly online)
Round trip price discrimination
Cost advantage: 30-50%
Ryanair: 60%
Labour Costs as % Revenues, 2011-12
European Airlines Operating Profit
(EUR) per employee 2011 or 2012
Variants of the Low Cost Model
oTraditional model (e.g. Southwest
Airlines, easyJet)
oUltra-low cost carriers (e.g.
Ryanair, Wizz Air)
oFoC and CoC low cost carriers (e.g.
NAI)
Growing the Market
Passenger Traffic – London-Barcelona
Note: Ryanair flights from Stansted (STN) and Luton (LTN) to Girona (GRO) and Reus (REU)
(Tarragona). easyJet flights from London Gatwick (LGW), LTN and STN to Barcelona (BCN).
Iberia and British Airways (BA) flights from London Heathrow (LHR) to BCN.
Source: Civil Aviation Authority, UK
Airline Presence in Europe’s
top 100 Market Pairs
easyJet’s Corporate Culture –
“Shades of Orange”
Growing the Market
(and Market Share)
Market Share of Low Fares Airlines
Searching for New Markets
Abandoning Unprofitable Routes
Unit Costs (cost per ASK) and
Average Stage Length, 2011-12
Ryanair’s Absolute and Year-onYear (yoy) Passenger Growth
Ryanair’s Quarterly Operating
Profit (EUR, mill)
€
%age
Contractual Relationships
with the Airline
100
90
80
70
60
50
40
30
20
10
0
Self employed
Agency
Direct
%age
(Un)Satisfactory Contracts
of Employment
100
90
80
70
60
50
40
30
20
10
0
Unsatisfactory
Satisfactory
Why Contracts are Satisfactory: Job
Security, Work-Life Balance and Status
%age
Why Contracts are Unsatisfactory:
Pay and Benefits
100
90
80
70
60
50
40
30
20
10
0
Current lifestyle
Future life plans
Why Contracts are Unsatisfactory:
Optional (or “Personal”) Flexibility
Why Contracts are Unsatisfactory:
Requisite Flexibility
Contractual Arrangements for
Ryanair Flight Crew
Source: RPG Press Conference, Berlin (22 May 2014)
A Self-Employed Person in Ireland
o
o
o
o
o
o
o
o
o
o
o
o
o
owns his or her own business;
is exposed to financial risk by having to bear the cost of making good faulty or substandard work
carried out under the contract;
assumes responsibility for investment and management in the enterprise;
has the opportunity to profit from sound management in the scheduling and performance of
engagements and tasks;
has control over what is done, how it is done, when and where it is done and whether he or she does it
personally;
is free to hire other people, on his or her terms, to do the work which has been agreed to be
undertaken;
can provide the same services to more than one person or business at the same time;
provides the materials for the job;
provides equipment and machinery necessary for the job, other than the small tools of the trade or
equipment, which in an overall context would be an indicator of a person in business on their own
account;
has a fixed place of business where materials, equipment etc. can be stored;
costs and agrees a price for the job;
provides his or her own insurance cover (e.g. public liability cover); and
controls the hours of work in fulfilling the job obligations
http://www.welfare.ie/en/Pages/Code-of-Practice-for-determining-Employment-or-SelfEmployme.aspx
“Bogus” Self-Employment
Code of Practice
Brookfield Contract
“can provide the same services to more than
one person or business at the same time”
contracted directly to work exclusively for
Ryanair
“provide materials for the job”
uniform and ID card
“provide their own insurance cover (e.g.
public liability cover)”
“The Hirer [Ryanair] will have in place at all
times and in full force professional errors and
liability insurance which will cover the
company representative [pilot] in relation to
the services provided for the Hirer”.
“have control over what is done, how it is
done, when are where it is done and whether
he or she does it personally”
“The Hirer reserves the right to change the
scheduling subject to operational
requirements. They do not form any part of
the agreement between the Contractor
[Brookfield] and the Employment Company
[pilot]”.
“Contractual Boilerplate”
and “Bogus Contracts”
o “This is a Contract for Services” (emphasis added)
o “If the company representative [pilot] cannot
perform the Work the Employment Company [the
pilot’s company] shall provide a substitute to
perform the Work provided that the substitute shall
have the necessary expertise and qualifications to
perform the Work and is acceptable to the
Contractor [Brookfield] and the Hirer [Ryanair]”
(Section 1(c)).
Can Pilots Provide a Substitute?
o Roster – one week’s notice
o Rating – limited to existing “pool”
o Working time – compliance with FTL
“Practically speaking it becomes a non runner, particularly
when Ryanair retain the right to have the final say in who
they will or won’t accept as a substitute. The final choice rests
with Ryanair, NOT with the pilot! I’m not aware of any
substitutes having been made or accepted in the past. In my
view it’s a fig leaf provision to give Brookfield/Ryanair an
arguable position in a court but in practice it’s a non-starter”
(IALPA rep).
The Ultra-Low Cost Model
“We’re the
Southwest
Airlines of
Europe”*
* Michael O’Leary, http://www.cnbc.com/id/100839583
** Michael O’Leary, New Economic Leaders Forum, Dublin 19 April 2013
“We cover all
of Europe – a
bit like a
social
disease”**
Employment Models Compared
Southwest Airlines
Ryanair
Employment security
Precarious employment
Direct workforce
Agency labour
Concerted training
Training con
Functional flexibility
Social protection
Numerical, temporal and geographical
flexibility
Social dumping
Competitive wages/high labour costs
‘Expedition wages’/low labour costs
Work-life balance
Worker burnout
High quality communication
Top-down commands
Union partnership
Union suppression
Efficient collective bargaining
Employee Representative Committees
easyJet (not Ryanair) is the Southwest
Airlines of Europe
“When I started out, business school professors liked to pose a
conundrum: Which do you put first, your employees, your customers, or
your shareholders? As if that were an unanswerable question. My answer
was very easy: You put your employees first. If you truly treat your
employees that way, they will treat your customers well, your customers
will come back, and that’s what makes your shareholders happy” (Herb
Kelleher, co-founder and Chairman of Southwest Airlines).
http://www.strategy-business.com/media/file/sb35_04212.pdf
“MBA students come out with: ‘My staff is my most important asset.’
Bull****. Staff is usually your biggest cost. We all employ some lazy
******* who needs a kick up the backside, but no one can bring
themselves to admit it” (Michael O’Leary, CEO Ryanair).
http://www.telegraph.co.uk/travel/travelnews/9522319/MichaelOLearys-most-memorable-quotes.html
Questions and Considerations
for the EESC
o Is rule shopping …
- socially acceptable?
- sustainable?
- safe?
o Employment regulation
- macro (Europe’s “competitive
social market economy”)
- meso (sector-specific regulations)
- micro (propriety and
enforcement
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