(Updates with costs of severance programs in 10th paragraph.)
Jan. 16 (Bloomberg) -- United Continental Holdings Inc.’s plan to furlough 685 flight attendants shows how the world’s second-largest carrier still struggles with multiple labor contracts more than three years after its creation in a merger.
The furloughs, effective April 1, involve employees from the former stand-alone United Airlines, Megan McCarthy, a spokeswoman, said in an interview today. At the same time, new attendants are being hired to work on planes from the former Continental Airlines, the other half of the combined company.
The disparity stems from the lack of a single labor agreement covering all attendants at the Chicago-based airline, hampering efforts to boost efficiency and cut $2 billion from annual operating costs. Some other union workers also remain on separate contracts following the 2010 merger between UAL Corp., the parent of the old United, and Continental Airlines Inc.
“The $2 billion savings target is not a foregone, easy solution,” said Savanthi Syth, a Raymond James Financial Inc. analyst in St. Petersburg, Florida. “Having those two groups separate does complicate things.”
While United Airlines is the surviving brand, having dual contracts means the company can’t put Continental attendants on so-called legacy United jets and vice versa. The airline offered United attendants a “cross-over program” to work with former Continental employees, said Christen David, a spokeswoman.
United and the AFA meet one week each month for talks on a joint contract, the airline said, and have been in negotiations for about a year.
United Continental has struggled to curb expenses growing faster than revenue for each seat flown a mile. Chief Executive Officer Jeff Smisek promised investors in November the company would reach the cost-reduction target by 2017, with half the savings from lowered fuel expense.
Labor spending probably isn’t a “big part” of Smisek’s goal, Syth said by telephone. She rates the stock as market perform.
A 62 percent gain in the shares in 2013 still trailed the 78 percent advance for the nine-carrier Bloomberg U.S. Airlines Index. United rose 1.5 percent to $47.21 at the close in New York.
United’s fourth-quarter financial results will include costs of $12 million related to flight attendants who took voluntary leaves, $64 million for 1,200 other workers who accepted early retirement offers and $15 million for involuntary furloughs, the carrier said in a statement today.
The company will have total one-time charges of $158 million for the quarter ended Dec. 31, United said.
Negotiations between the airline and the Association of Flight Attendants on ways to mitigate furloughs are still under way, and the current furlough total may fall, David, the spokeswoman, said yesterday in a telephone interview.
Last year, 485 attendants were hired for the Continental side, and that part of the company is now seeking to add foreign-language speakers, spokeswoman McCarthy said. On the United side, the last attendants were added in 2008.
“We continue to meet with management and offer creative solutions to an involuntary furlough, while also addressing the company’s needs to mitigate an overage in manpower,” Greg Davidowitch, president of United’s AFA chapter, told members in a letter on the union’s website.
Davidowitch told members in December that the airline sought to eliminate 1,950 positions. In yesterday’s message, he said United accepted voluntary-leave bids from 1,113 attendants and will let others fly part-time. About 140 workers agreed to move into the job-share program, United said.
In 2012, United sought to reduce flight-attendant head count by 2,100 through voluntary furloughs, attritions or partnerships, a type job sharing, said Christopher Clarke, a spokesman for the United AFA chapter. The number was 1,550 last year.
In December, United cut 200 jobs in its airport operations and cargo divisions after 900 voluntary buyouts earlier in 2013.
United was familiar with job cuts before the merger, too, as it shrank employment to 47,000 at the end of 2009 from 55,000 two years earlier, regulatory filings show. Those moves were driven in part by reductions in flying in 2009, when the U.S. industry underwent its biggest retrenchment since World War II.
--Editors: Ed Dufner, Stephen West