By voting against a new contract,
flight attendants may have set themselves up for only greater sacrifices in the future.
The 7,570 Continental flight attendants represented by the International Association of Machinists and Aerospace Workers, or IAM, now find themselves isolated after leaders of three other unions -- representing pilots, mechanics, dispatchers and flight simulator technicians -- decided to move forward with concessions.
With all of its other major labor groups on board, Continental says it will have no choice but to ask flight attendants for even larger cuts.
"The current levels of pay and benefits for flight attendants are not sustainable," the airline said. "The company will promptly re-engage in discussions with the flight attendants to reach a revised agreement on pay and benefit reductions. Unfortunately, the needed pay and benefit reductions under that agreement will be larger. The longer this process takes, the deeper the pay and benefit reductions will be in order to achieve the needed cost savings."
Continental also made clear on Thursday the rewards for employees willing to accept concessions when it announced it would issue options on 8.7 million shares of common stock to all domestic employees except flight attendants.
It's unclear what steps the flight attendants will now take. An IAM spokesman said the union wasn't commenting beyond a statement posted on its Web site announcing members' rejection of their agreement.
Flight attendants at other airlines -- notably
and United Airlines parent
-- weren't shy about threatening work disruptions late last year. However, it may be tough for Continental's flight attendants to take drastic measures, now that the other unions have agreed to concessions with management.
Continental says it's now on track to save $418 million a year in annual pay and benefits. In addition to concessions approved Wednesday by Continental's pilots, mechanics, dispatchers and simulator technicians, the savings includes earlier agreements reached with management, clerical workers, and customer service agents.
Continental's savings fails to meet the $500 million annual target it had set for itself. But analysts said it's more than a step in the right direction for the airline.
"This should ... solidify Continental's place as one of the leanest legacy airlines," wrote Susan Donofrio, an analyst at Fulcrum Global Partners. We also think this will be a catalyst for wage concessions at other airlines." Fulcrum neither does investment-banking business with Continental nor makes a market in its securities.
On Wednesday, it wasn't clear whether one union's rejection of its new contract would scuttle all of the union agreements that were up for ratification. Continental had warned in regulatory filings that each agreement could be contingent upon the others.
And the Air Line Pilots Association, which represents about 4,125 Continental pilots, had warned in firm language Wednesday that even though its members had approved their agreement, it had the right to pull out of the contract.
"This pilot group has a record of leadership at Continental and again has stepped up to help the company survive by accepting concessions of $213 million annually," ALPA said in a news release. "However, any concessions from this pilot group have always been based on the condition that all employee groups share in the cost cuts."
Later, however, ALPA decided to go ahead with its concessions, even though it had received word the flight attendants had likely voted against their agreement. An ALPA spokesman declined to say why union leaders had not insisted on all groups agreeing to savings.
But ALPA leaders may have decided it wasn't worth risking even greater concessions down the road. Continental had warned that if unions didn't approve the current round of concessions, it would be forced to resort to even harsher cost-cutting, including raising its overall labor savings target from $500 million to $800 million.
A spokesman for the International Brotherhood of Teamsters, which represents Continental's 3,475 mechanics, said the union went ahead with concessions to help save the company and protect mechanics' jobs. "It's a tough choice and a difficult situation," he said, adding that the union hoped Continental would in the future reward workers for showing faith in the company.
The airline had also threatened to cancel or defer airplane orders, but now says a key order with
-- to lease eight 757-300 jets and take early delivery of six Boeing 737-800s -- is on track. Continental also expects to follow through with the acquisition of 10 next-generation 787 Dreamliners from Boeing in 2009.
Donofrio at Fulcrum Partners said the three unions' decision to go ahead with concessions are a "positive testament" to employee relations at the airline and shows the unions' realization that labor savings are necessary for the airline in the industry's tough environment.