European Economic and Social Committee

PUBLIC HEARING ON

Social Dumpingin the Civil Aviation Sector

Professor Peter Turnbull16 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 ModelsLow 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

Single aircraft type (e.g. B737-800 or A319)

Mixed fleet

High seat density Mixed class cabin

Pay for service items (e.g. checked baggage)

Inclusive service/price

One-way fares Round trip price discrimination

Direct selling (telesales/internet) Travel agents (increasingly online)

Cost advantage: 30-50%Ryanair: 60%

Labour Costs as % Revenues, 2011-12

European Airlines Operating Profit (EUR) per employee 2011

or 2012

o

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-on-Year (yoy) Passenger

Growth

Ryanair’s Quarterly Operating Profit (EUR, mill)

€

Contractual Relationshipswith the Airline

(Un)Satisfactory Contracts of Employment

Why Contracts are Satisfactory: Job Security, Work-Life Balance and

Status

Why Contracts are Unsatisfactory: Pay and

Benefits

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 owns his or her own business;o is exposed to financial risk by having to bear the cost of making good faulty or

substandard work carried out under the contract;o assumes responsibility for investment and management in the enterprise;o has the opportunity to profit from sound management in the scheduling and

performance of engagements and tasks;o has control over what is done, how it is done, when and where it is done and whether he

or she does it personally;o is free to hire other people, on his or her terms, to do the work which has been agreed to

be undertaken;o can provide the same services to more than one person or business at the same time;o provides the materials for the job;o 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;

o has a fixed place of business where materials, equipment etc. can be stored;o costs and agrees a price for the job;o provides his or her own insurance cover (e.g. public liability cover); ando controls the hours of work in fulfilling the job obligations

http://www.welfare.ie/en/Pages/Code-of-Practice-for-determining-Employment-or-Self-Employme.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 noticeo 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 cover

all of Europe – a bit like a

social disease”**

“We cover all of

Europe – a bit like a

social disease”**

* Michael O’Leary, http://www.cnbc.com/id/100839583** Michael O’Leary, New Economic Leaders Forum, Dublin 19 April 2013

“We’re the Southwest Airlines of Europe”*

“We’re the Southwest Airlines of Europe”*

Southwest Airlines RyanairEmployment security Precarious employment

Direct workforce Agency labour

Concerted training Training con

Functional flexibility Numerical, temporal and geographical flexibility

Social protection 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

Employment Models Compared

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/Michael-OLearys-most-memorable-quotes.html

Questions and Considerations for the

EESCo 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 of national employment law)