Fasten Your Seatbelts

By MICHAEL RILEY/ATLANTA

Don't tell Emmett Koen about the chaos theory of air travel. He and thousands of other flyers lived it last week when American Airlines flight attendants staged the largest U.S. airline strike in nearly five years, a walkout that threatened to paralyze the nation's largest airline and ruin many a traveler's Thanksgiving holiday.

While other angry passengers watched helplessly as ghost planes -- no flight attendants, no passengers, just baggage -- pulled away from the jammed gates at Dallas-Fort Worth International Airport, Koen fumed as he watched his $5,000 Hawaiian cruise slip away too. First his flight was delayed, then canceled. His proposed punishment for the strikers: that they "all be taken to the nearest tree and hung up by their thumbs and beaten with a two-by- four."

Thousands of furious travelers were forced to scramble for flights on other airlines in hopes of finding an empty seat during the year's busiest week of travel. At Chicago's O'Hare Airport, a woman clutching a wedding dress in a plastic bag sobbed as she learned her flight to Antigua was disrupted. Elsewhere, many of American's 200,000 daily passengers camped out on concourses, their luggage serving as makeshift pillows. In Dallas one harried American ticket agent was at the end of her rope: "I just called my husband and told him that when I get home tonight, I'm going to need a back rub and a drink. Badly."

The 11-day walkout, scheduled to end next Sunday, signals the latest problem for an industry struggling to pull out of a three-year nose dive (total losses: $10 billion). Just as some big carriers -- American, Delta Air Lines and Continental Airlines among them -- have begun to post modest earnings, the long-quiescent airline unions have started voicing their demands. Workers who feel underpaid and overworked are asking for their share of the emerging profits. Management's response: continued cost cutting. "No question about it," says Morgan Stanley airline analyst Kevin Murphy, "1994 will be the year of labor turmoil in the U.S. airline industry."

The opening skirmish in this battle could have been uglier. The Allied Pilots Association last week voted at first to see if they should join the strike. They decided later not to count the votes because the flight attendants were so successful at interrupting American's flight operations. American chairman Robert Crandall, however, made no friends among his pilots after telling industry analysts, "If the pilots were in charge, Columbus would still be in port." The turbulence is almost certain to get worse. United Airlines machinists are angry that an employee bid to buy the airline two weeks ago crashed and burned. Delta's pilots are in a tailspin, with many refusing to accept the 5% pay cut that management has proposed.

The major airlines find themselves wedged between newly intractable unions and a group of low-cost, no-frills competitors, like Southwest Airlines, which have slashed both costs and ticket prices. For example, Southwest's round-trip fare from Baltimore, Maryland, to Los Angeles is $209; an American ticket is $418. So profitable is Southwest ($73 million in 1992) that last week it ordered 63 new Boeing 737 airplanes, a rare event for the industry. A new entry called Eastwind, for example, will offer rock-bottom fares in January to specific cities and last week announced it will serve Atlanta ($71) and Boston ($46) from Philadelphia. These low prices are now the benchmarks: the major airlines' profitability will be determined by their ability to match them. "You can only get into the black by increasing revenues or lowering costs," says Tim Neale of the Air Transport Association of America.

That's just what Crandall and others plan to do, with or without the union's help, since labor is the industry's largest and most controllable expense. "This isn't union busting," says analyst Murphy. "It's just plain economics." If airlines don't cut costs, they don't survive.

In fact, one main reason airlines have made money at all is the concessions they have wrung from their workers. Thanks to a three-year agreement to reduce employees' pay 12%, the once deeply troubled Northwest Airlines has saved $886 million. American, United and Delta are all turning profits, thanks to layoffs and other cost-cutting measures, like the sale of nonessential assets, such as flight kitchens. These carriers all registered millions in third-quarter profits, with labor concessions playing a significant role. Says an impatient Denise Hedges, the head of American's 21,000-member flight attendants' union: "We have made sacrifices for 10 years now."

Still, weak airlines, like USAir, will continue to rely on union concessions and cutbacks for their survival. No one needs to be reminded of what happened to Eastern Airlines, whose demise began with a machinists' strike in 1989.

While they fight the union onslaught, the major airlines are moving to stop the likes of Southwest from stealing their core business. Continental Airlines, which emerged from bankruptcy last April, has launched CALite, a back-to-basics "cheapie service" based in Houston. Even though it uses union workers, CALite pulled in $1 million more than expected in October, its first month. Delta is also studying the feasibility of starting a low-cost airline.

American Airlines' hardball response to last week's strike shows just how seriously the airlines are taking the new union threat. The strike could eat up all of the airline's $143 million in profits so far this year. American is recruiting replacement workers and has told striking flight attendants -- who make an average of $25,000 a year -- that they may not have a job when the walkout ends. Says American spokesman John Raymond: "All we are asking is that these people come into the '90s. Give us the concessions other airline employees have." The major issues: salary, work rules and medical benefits. Attendants want more money than American is willing to give them, and they don't want to help pay their medical costs. "American is poised to be a major profitmaker in the next couple of years," says union president Hedges. "It's time the employees start getting treated like the valuable resources they are."

Just how these seemingly irreconcilable differences are finally worked out will set the financial course for the nation's airline industry. Until then, other travelers may well agree with Houston passenger Barbara Galentin, who got stuck in Dallas. "I finally told them I felt perfectly qualified to pour soft drinks over ice, pass out peanuts and show the other passengers how to fasten their seatbelt," she quipped. If you need a job, Ms. Galentin, American may have some openings.

With reporting by Scott Norvell/Atlanta, Carlton Stowers/Dallas , and Leslie Whitaker/Chicago