United to Outsource Jobs at 12 U.S. Airports

United to Outsource Jobs at 12 U.S. Airports
Move Is Part of Carrier's Effort to Lift Its Flagging Fortunes Through Cost-Cutting
http://online.wsj.com/articles/united-to-outsource-jobs-at-12-u-s-airpor...
By SUSAN CAREY CONNECT
July 7, 2014 4:37 p.m. ET
Airline representatives at U.S. airports increasingly aren't employees of the carriers they represent.

United Continental Holdings Inc. UAL -3.16% said Monday it will outsource jobs at 12 U.S. airports in cities including Buffalo, N.Y., Charlotte, N.C., and Detroit on Oct. 1 to vendors who will perform the duties at lower cost. The jobs currently employ about 635 workers in areas including check-in, baggage-handling, and customer service.

The move, part of a broader effort by United to lift its flagging fortunes through cost-cutting, reflects how big U.S. airlines are using vendors to handle key jobs at most domestic airports, a trend that can reduce expenses but also risks hurting customer service. American Airlines Group Inc., AAL -3.65% Delta Air Lines Inc., DAL -4.40%and Alaska Air Group Inc. ALK -2.22% 's Alaska Airlines are among the carriers that already outsource a large share of this work—although in some cases the carriers use their own contractors.

Passengers often don't realize the check-in agents they deal with at U.S. airports don't work for the airline they are flying. Often, at smaller airports, the same workers may represent multiple competing carriers at different times on different flights.

United declined to comment on the expected savings. airline pays such workers from $12 to $24 an hour, while some vendors start workers at $9 an hour—$1.75 more than the federal minimum wage—and don't offer health coverage or travel benefits.

According to Rich Delaney, president of the International Association of Machinists union district that represents the United airport agents and baggage handlers, outsourcing the work at the dozen airports will save United $1.6 million to $3.5 million per airport a year, depending on the size and the worker population.

"It does make economic sense," said Michael Boyd, a consultant at Boyd Group International. "It's not a $40,000 job to load bags. Cleaning planes is not a $20-an-hour job." But the outsourced work offers "no career path, no loyalty. By its nature, it's temporary, until the next bid comes up," he said. "When you replace employees with Air Fred, you'll see the bottom line improve, but you'll get more lost bags."

Indeed, the transition can be bumpy. When Alaska Airlines decided to use Menzies Aviation, a unit of John Menzies MNZS.LN -1.43% PLC of Scotland, to handle ramp jobs at its Seattle hub in 2005, the shift was marked by misplaced luggage, late flights and an incident in which a damaged aircraft had to make an emergency landing. But the problems eventually were corrected.

In some cases, airlines are outsourcing airport work to their competitors. United last year turned to vendors at six U.S. airports and three in Canada, affecting nearly 500 jobs. The U.S. airport work was given to Envoy Air Inc., a wholly owned unit of American Airlines. Envoy, formerly called American Eagle, is a regional airline subsidiary of American that also has a thriving, nonunion business in servicing airports, working for American and about 20 other airline customers at 125 airports.

United, the nation's No. 2 airline by traffic, has no such unit of its own. It said the six airports that switched to Envoy staffing last October are performing "on par" with other airports in United's system, and that one received a prize for punctuality and service. Despite the "learning curve" of the new workers, only one aircraft was damaged in the aftermath of the change, the company said.

Delta also has a nonunion subsidiary called Delta Global Services that provides airport handling work at about 100 airports, doing work for Delta and about 10 other carriers. There are plenty of other vendors in the field, including Air Serv, a unit of ABM Industries Inc., as well as regional airlines such as US Airways's Piedmont unit and SkyWest Inc.

Delta Global Services employees receive medical benefits, a 401(k) plan and travel privileges. Pay starts at about $8 an hour but tops out at $18. Envoy workers receive medical coverage and travel privileges. Starting pay is $9.20 an hour, higher in more expensive cities, and can top out at nearly double that amount.

American said the vast majority of its domestic airports already are staffed by Envoy or other contractors. Delta said only 42 of its 230 domestic airports employ Delta employees exclusively. Thirty-three airports have Delta workers as customer-service agents and Delta Global Services workers employed as ramp workers. In 80 airports, Delta Global Services workers perform both functions. Another 75 airports use other outside vendors.

United said it employs its own workers at 47 of 227 domestic airports and 27 airports use a mix of United and vendor employees. Fully 153 airports use outside handlers.

United has said that as many as 30 more airports may be targeted for outsourcing, based on their higher expenses when benchmarked against competitor airport costs. The company said it hasn't finished selecting the vendors for the latest dozen airports. The workers who are being displaced will be able to apply for openings elsewhere, or if they have enough seniority, bump someone else out of a job. Or they will receive severance packages, United said.

The company said it also is "in-sourcing" jobs for its own employees in Denver, Phoenix, Honolulu and Washington's Dulles International Airport, creating 400 new positions.

United, as part of its 2013 labor agreement with the Machinists union, agreed to protect jobs at 30 of its busiest airports, including its hubs. Those airports are where 92% of the Machinists-represented agents and ramp workers are employed. In the new contract, United also agreed that if smaller airports are targeted for outsourcing, the union and company would negotiate to see if changes in wages and benefits could be negotiated to let the work be retained.

On Monday, United said workers at three smaller Hawaiian airports tentatively agreed to make wage and work-rule concessions to keep their jobs, and will vote on the changes this week. Two-thirds of the total 236 employees must approve the new terms as well as two-thirds at each of the three airports.

Mr. Delaney of the Machinists union said because United doesn't have its own vendor operation, the labor group was hoping to do something similar at individual airports by letting workers agree to concessions without affecting the compensation for the entire group. But he estimated with medical benefits, a pension plan, 401(k) and travel benefits, his members might cost $35,000 a year more than an outsourced worker.

"The hurdle we have to get over at every station is sizable," he said.

Write to Susan Carey at susan.carey@wsj.com

•