Sector analysis: Airlines

The airline sector may not be thriving, but staff are still attracted by its image and the prospect of free or discounted travel, says Victoria Furness

Case studies: EasyJet, Flybe

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The attraction of working in the airline sector from a perks perspective can be summed up in two small words: free travel. The allure of visiting exotic foreign destinations has a significant role to play in recruitment and retention in the industry.

But it is not just glamour that lingers around the airline sector; also dogging the industry is increasing costs. Ian McQuade, head of pensions consulting at consultancy Dunnett Shaw, explains: “Oil prices are rising, there is a significant amount of competition in the market and also the effect of 9/11.” Other competitive pressures for the traditional airlines have also emerged, chiefly in the arrival of the low-cost carriers led by EasyJet and Ryanair in the UK. These issues are influencing the airlines’ strategies on reward and not without consequences.

When Air France pilots went on strike in 1998 over management’s plans to cut pay by 15% in favour of a free distribution of shares, for example, they brought 75% of flights to a standstill over ten days and cost the airline an estimated £10 million a day.

Wesley McClendon, European partner at Mercer Human Resource Consulting, says: “There is so much restructuring in the industry that innovation is key to the practices taking place.”

Low-cost airlines have an advantage over established carriers in being able to build their business models from scratch. David Pyper, associate director at the Hay Group, says: “Low-cost airlines have been able to do things old-timers haven’t been able to do. For example, Ryanair staff pay for their training. [The company] also would not offer the same kind of pension scheme that established operators provide.”

The airline industry is unusual in catering for many diverse employee populations, and pay and benefits packages tend to vary accordingly. Firstly, there are differences between flying and non-flying staff. The latter group can be subdivided further into those working in the airport, such as check-in or baggage crew, and those working in management or administration.

Pilots are a niche group in the airline sector as they can only be recruited from a small pool of applicants. Bob Preston, executive officer at the British Air Transport Association, explains: “Retention is an issue as it costs a lot to train a pilot. If an airline has sponsored a pilot it has a large investment in that person and it doesn’t want to see the employee poached, which does happen.”

Other jobs, such as cabin crew and management, attract applicants not only from within the airline sector, but also from other industries. However, this can also work the other way. Peter Morrell, director of research within the department of air transport at Cranfield University, says: “Airlines were losing engineers to the IT industry coming up to 2000. But it has settled down again now.”

Recruiting temporary and full-time labour is complicated further by sector-specific requirements. For example, it can take up to three months to complete security checks on staff who need to drive on the airport tarmac.

All of these elements muddle the benefits package and how it is managed. Few airlines have implemented a flexible benefits scheme due to these difficulties in managing the disparate populations in the workforce.

Pilots generally receive the best packages, and senior pilots can earn up to £150,000 gross salary. Both pilots and cabin crew on long-haul flights also benefit from being able to top up their salary with flying allowances.

Civil Aviation Authority rules stipulate that flight crews must stay on the ground for a certain period of time. To compensate staff for the inconvenience, airlines generally pay crews meal and staying-over allowances on top of their paid-for accommodation. These are considered to be very attractive to employees. Tony Clare, a partner at Deloitte, says: “These allowances can double an employee’s pay on generous airlines.”

For flying and non-flying staff, there are many standard features in the benefits package, such as a company car (generally for senior management only) private medical insurance, life assurance, childcare vouchers, home computing plans and share schemes. Employees will receive these depending on their role and length of service.

Some airlines offer a number of additional benefits. Shopping discounts are popular and Virgin offers a ‘Tribe’ card that can be used in various outlets to obtain a discount on goods and services. Another obvious additional benefit is cheap flights for friends and family, such as British Airways’ (BA) Hotline tickets. With staff travelling so much, many airlines also offer free currency and some, such as BA, offer buyback as well, although Virgin does not. Share schemes are another option. For instance, EasyJet offers a discount of up to 20% on shares through its sharesave scheme.

But by far the biggest perk in some employees’ eyes, and one that is unique to the industry, is free or discounted travel. Monarch, for example, provides staff with a standby travel card for its scheduled flights after six months’ service. After one year’s service, staff are offered an annual 85% discount for themselves and a 55% discount for a spouse or partner, and dependants on Monarch’s scheduled flights and some charter flights. This rises again after eight years’ service, when staff are offered a concessionary free flight for themselves and their spouse or partner, and dependants on either Monarch’s scheduled services or charter flights. Some airlines, such as BA, also reward management with additional travel bonuses and former workers can even claim their travel allowances once they start drawing their company pension.

The different rules and conditions surrounding discounted travel arrangements make it a complicated part of the benefits package. “Established airlines have a very complicated hierarchical structure about how many flights employees receive, whether they are interlined tickets (whereby an employee can use another airline) or what class they fly. It is unbelievably bureaucratic but it is very entrenched in the industry,” says Deloitte’s Clare.

Another entrenched issue for many carriers is the company’s pension plan. Most airlines have closed their final salary scheme to new members and offer new employees a defined contribution (DC) plan instead. At the time of going to press, BA had put forward plans to tackle the £1bn black hole in its pension scheme, including a proposal to raise the retirement age from 55 years to 60. But in response, the pilot’s union, the British Airline Pilot’s Association, voiced concern that there was little room for individuals to make a choice on when to retire on a full pension.

Aon Consulting’s chief actuary, Donald Duval, has suggested that BA declare itself bankrupt. BA has dismissed this idea and Dunnett Shaw’s McQuade agrees that it was not a helpful suggestion. “In the majority of cases, it is not in the interest of the trustees to drive the company into administration because while the company is a going concern and profits are being made, they will continue to fill the deficit,” he says.

Pensions are unlikely to be such an emotive issue in the private operator end of the airline sector. “If many pilots are semi-retired, potentially their pension is less important to them as they are of an age where they probably have got a healthy pension coming from one of the larger airlines,” explains McQuade.

Private operators tend to be smaller, so it follows that the same is true of employees’ benefits packages. Paula Downe, HR director at Twinjet, which offers aircraft charter services, says: “We have three aircraft so we do not have the fleet size of the EasyJets and Monarchs of the world.”

However, she adds: “Everybody from the most junior member in accounts upwards receives a percentage of their salary in a pension scheme after they have been with us for three months. We also offer membership to a gym. Pilots have insurance overseas and we pick up the tab for their hotel, bed and breakfast, and transport to hotel.” Unlike the rest of the industry, however, private operators tend not to offer discounted or free air travel as planes are chartered for private use only.

Free travel may be a perk of working at one of the commercial airlines, but it doesn’t always represent good value. Hay Group’s Pyper says the benefit is being eroded as load factors increase because “airlines cannot guarantee staff can go to the destinations they want”. A free one-way ticket to Rio might sound great, but the appeal fades fast when you have no way of returning home.

Case study: EasyJet

A home computing scheme is the latest addition to EasyJet’s benefits package.

This comes on top of a range of other perks such as a defined contribution pension scheme, life assurance, discounted flights and share plans. According to Ken Lawrie, group remuneration manager, the latter were introduced “to increase share ownership”.

The low-cost airline offers two share plans: a share incentive plan and a sharesave scheme. “We offer a discount of up to 20% with the latter and do a one-for-one share match with the former,” explains Lawrie.

From this month, EasyJet plans to offer a salary sacrifice arrangement for its pension, so that staff can benefit from further tax and National Insurance savings. The company does not offer a flexible benefits scheme but offers standalone salary sacrifice options such as its home computing initiative.

Case study: Flybe

Flybe’s personnel director, Steve Parrott, does not believe there are many differences between the airline industry and other sectors.

“The big thing we offer is flights. After 12 months, employees can receive discounts, after two years they receive two free standby tickets and after four years, two free confirmed tickets, although they can also get discounted tickets for family and friends,” he says.

In addition, Flybe offers staff standard benefits such as life assurance, private medical insurance (for pilots, management and certified engineers) and childcare vouchers. The airline is currently looking at the possibility of introducing a flexible benefits scheme. “The only difficulty is that one of the elements that most flex packages include is holidays. We cannot offer that for flying staff as they do not take their holidays in week blocks, so it would be very difficult for them to trade holidays,” explains Parrott.