MINNEAPOLIS -- To avoid layoffs, some 12,000 employees of Republic Airlines have agreed to take a 10 percent pay cut and to defer scheduled wage increases.
After 1,000 managers agreed to the wage reduction, Republic's ground employees agreed to accept the pay cut in exchange for a guarantee that few, if any, of them would be laid off in the next six months. If any are laid off, they will be reimbursed the 10 percent in lost salary, said Hal Carr, Republic chairman of the board.
The Airline Employees Association said 55 percent of its nearly 8,000 Republic members voted to accept the pay cut and defer all scheduled wage increases for six months.
Among 4,400 other employees, separate unions representing pilots, maintenance supervisors and flight dispatchers subsequently voted to accept the cuts. Flight attendants' ballots were still being counted.
Republic said it needs wage and work rule concessions to offset $38.5 million in losses in the first nine months of this year. Without the pay cut, Republic said it would recover losses by laying off up to 40 percent of its employees.
'We've lost a pile of money this year,' said Redmond Tyler, Republic public relations director. 'We're not making apologies for that.'
Despite its recent financial problems, Republic has never missed a payroll or loan payment, Tyler said.
'This company has a long history of making money,' he said, 'and we're going to do it again just as soon as we get the ox cart out of the ditch. But it's going to take some pulling.'
The ALEA wage concession came after 200 managers were cut from the payroll through early retirement, transfer back to union jobs and a 'handfull' of layoffs, Tyler said. The remaining 1,000 managers 'volunteered' to take a 10 percent paycut Nov. 6.
'They said anyone not wanting to take the paycut could take one giant step backward and out the door,' one said, ruefully.
'Oh well,' a second said, 'another day, another 90 cents.'
Some union employees also are resigned to their fate. A 57-year-old flight captain stopped into Tyler's office last week to pick up posters of the DC-9's and Boeing 727's he will soon quit flying. He plans to accept an offer to retire early at 70 percent of his salary.
'I was here 30 years ago when they built this place,' he said. 'I don't want to be here when they tear it down.'
Republic's predicament is largely the result of high interest rates and reduced travel due to the depressed economy, Tyler said. It cannot continue to insulate its employees from the effects of those ills, he added.
'Let's face it. The airline industry is a high paying industry,' he said. 'Our employees cannot go out on the street and get as good a job as they have.'
Republic is committed to cutting at least $50 million in expenses in the next year. Besides the pay cut, deferment and early retirements, Republic is encouraging unpaid leaves of absence, increasing workloads 5-8 percent, cutting expenses 'to the bone' and bargaining for relaxed work rules.
The last would allow Republic the flexibility to insert employees in any job they are qualified for. Reservations clerks, for example, could be used to fill in for sick secretaries.
'A ticket agent could write the ticket, load a bag, porter the bags if necessary and put ice on the airplane,' Tyler said. 'That would save us from hiring three people.
'Rather than put employees into overtime, there is no reason management guys can't go there and load bags on airplanes,' he said. 'Hell, I've done it.'
Tyler came to the Twin Cities from Atlanta in 1979 along with Southern Airways, which merged into North Central Airlines to form Republic. Republic earned $13.1 million in its first year and bought Hughes Airwest Oct. 1, 1980 for $38.5 million.
Tyler ballyhoos everything from the company cafeteria to Minnesota winters.
His public relations material says Republic is the nation's 11th largest airline, just behind Continental and ahead of USAir (formerly Allegheny). With more than 1,400 departures daily, it flies to more cities than any other airline -- 179.
However, that figure is dropping. Quadrupled fuel costs have made it uneconomical to fly 30 to 60 passenger jets to small cities such as Mankato, Fairmont and Worthington, Minn., even with $1.4 million annually in federal subsidies.
Republic has incurred the wrath of small city mayors from South Dakota to Alabama for leaving them.
Federal regulations prohibit it from pulling out unless there is at least one approved airline left in its wake. Republic has generally left service to such cities to smaller, commuter lines.
In the trio of southern Minnesota cities, it was replaced by a commuter service, Mesaba Airlines. Mesaba flies 15-passenger, fuel efficient jet prop planes between those cities and Minneapolis-St. Paul.
Republic arranges dual fares and dual ticketing with the commuter airlines to keep the passengers it had. It avoids the losses of flying to small cities and maintains the profits from flying small city passengers between major cities.
'We will continue to cut small cities,' Tyler said. 'The commuters can do it more efficiently than we can.'
Republic has $450 million in debt left over from the three airlines before the mergers and from the purchase of airplanes when the economy looked rosy. Those loans fluctuate with the prime rate, which was in the 9-10 percent range when they were made but has risen as high as 22 percent this year.
Republic paid $64.6 million in interest in the first nine months of this year, compared to $24.6 million in the same period last year. Before interest payments, Republic had an operating profit of $24.5 million for the first nine months of this year.
Debt may be killing Republic, but competition is bleeding it. This 'error' of deregulation, Tyler said, 'is spawning all sorts of airlines.'
Upstart Midway Airlines, for instance, recently entered the competitive route between Minneapolis and Chicago. Unencumbered by union pay scales, it initiated service with a fare of $59 one way, undercutting Republic's special 'K' fare by $30.
'Many of the new airlines are paying their pilots what we pay our ticket agents,' Tyler said.
But he said the real competition is coming from 'crazies' such as Northwest Orient Airlines, which soon matched Midway's $59 fare, despite taking a loss on every Chicago-Minneapolis passenger it carried at that price.
Republic has not matched them, Tyler said, because Northwest and Midway fly to Chicago's Midway Airport, which does not handle nearly as many connecting flights as O'Hare International, where Republic flies.
Now, Tyler said, 'We are starting to see some sanity being restored to the market.
'United came out with a press release the other day saying it was considering fare increases. Because of antitrust laws we can't all sit around a table and decide whether to raise fares, so this is how it's done. Now Eastern might come out with a press release saying that if United raises fares, they'll probably raise fares. Then Republic would come out with a press release saying that if United and Eastern raise fares, we'll raise our fares too.'
The affect of the air traffic controllers strike also is diminishing. Some people are still hesitant to fly, Tyler said, because they think planes are behind schedule, but 85 percent of Republic's flights are arriving within 15 minutes of schedule and 92 percent are arriving within 25 minutes of schedule.
Also, Republic is adding flights. It started 19 new nonstops Oct. 25, utilizing airports other than the 23 international airports regulated by the Federal Aviation Administration since the controllers strike.
By adding Hughes AirWest, Republic's system spanned the nation. It serves 49 of the 50 largest domestic cities, yet it has the most fuel efficient jet fleet of any major airlines. It is replacing its few three-engine, three-pilot Boeing 727's with DC-9 80 series, which are similar in size but require only two engines and two pilots.
'We fly coast to coast, but we go from here to here to here to get there,' said Tyler, his finger hopping across the desktop.
Republic feels it is in position to emerge as a growth leader in the airline industry, Tyler said.
But he said it would have to become 'lean and mean' to eliminate waste and deal with the effects of deregulation and high interest rates.
Tyler said Republic will need at least a static national economy to turn itself around. And if the predictions of recession for the next six months come true?
'Our aim is to survive and maintain what we've built, not retrench,' he said. 'But if we have to retrench to survive, we will.'
