The Logic Behind Delta's Employee Structure (DAL)

Delta Air Lines, Inc. (NYSE: DAL) has a long history as a commercial passenger airline, dating back to 1928. The company has gone through many machinations and mergers and acquisitions (M&As) to arrive at where it is today: a partly unionized airline that is unique in the industry. Its pilots and dispatchers are unionized, but the majority of the workforce, including flight attendants and baggage handlers, are not.

Recent Past of Delta’s Workforce

Unionization of Flight Attendants and Cabin Crew

The largest challenge to Delta’s non-unionized culture came in 2008 during the merger of Northwest Airlines and Delta just after both emerged from bankruptcy protection. The union culture of Northwest was heavily entrenched next to Delta’s higher wages, superior benefits, and profit-sharing arrangements.

Delta’s qualities in 2008 swayed the unionization vote to decertify the Northwest flight attendants in a close race, and the rest of Delta’s workers failed to create a union in 2002, 2008, and 2010.

As of 2019, the Association of Flight Attendants was making another attempt to unionize the 25,000 Delta flight attendants, due to changing times and new hires. Delta is the largest U.S. airline with non-union cabin crew employees; others like United, Southwest, and American all have unionized cabins.

Unionization of Delta's Pilots

On the pilots' side, 2015's contract talks failed to lead to an agreement over the contentious issue regarding the company's desire to lower the profit-sharing side of the contract and increase pay raises. The current plan pays out 10% of all pretax income up to $2.5 billion and 20% of any profit over that amount. It equated to a 16.6% boost to pilots' compensation in 2015 because of a record revenue year. The deal that was rejected would have lifted the 20% profit-sharing plan level from the $2.5 billion to the $6 billion levels but also increased pilots’ base pay by 22% over three years.

In 2016, Delta and its pilot union announced that it reached an agreement that offered an 8% pay hike, including other amendments made to pilots' sick leave and other work rules. In 2020, with airline travel down because of the pandemic, Delta pilots once again made headlines as they began talks with the airline to avoid furloughs after 1,806 pilots agreed to early retirement programs.

Boom-Bust Cycles

Delta maintains that it is keeping a conscientious eye on its future by trying to level out compensation levels. In an industry that has seen a consistent boom-bust cycle, Delta feels it needs to invest in its employees with better base pay in order to avoid possible unionization while at the same time lowering expenditures for profit-sharing in huge boom years.

On the employees’ side of the equation, the record-breaking profit now being enjoyed by the company because of record low fuel prices and surging demands by American businesses is also in part because of employee sacrifices in years when they took large pay cuts. These pay cuts took place in 2001 and 2004 when employees forfeited up to 32.5% of their wages.

Profit-Sharing vs. Pay Raises

Delta has always prided itself on its strong labor relations with its employees and the ability to quickly respond to market challenges with either pay cuts or large pay increases, as the market demands. This has enabled Delta to become the largest airline in the world by revenue and market capitalization, recording $47 billion in revenue in 2019 for a $4.8 billion profit.

With its non-unionized employees, Delta instituted large pay increases in December 2015 of about 14.5%, while at the same time lowering its profit-sharing commitment by about $500 million in the first year after the change, 2016.

Under the new profit-sharing rules for non-unionized employees, they would still receive 10% of the company's pretax profit but only receive the higher 20% on profit above the previous year’s total. This is a significant change, resulting in payouts of 20% profit sharing only in growth years for non-unionized employees. From 2015-2019, Delta offered $1 billion per year in profit-sharing with employees.

The Bottom Line

With the massive size of Delta's airforce, Delta’s non-unionized cabin crew and employees will have to decide whether they want to join the pilots and if they are happy with pay raises and lower profit-sharing bonuses and avoid the current unionization drive.

Delta's profit-sharing formula has kept its employees from unionizing for this long, but that may not hold true for much longer. With air travel down in 2020, now may be the moment.