Airline labour cost reduction: post-liberalisation experience in the USA and Europe

US and European carriers have been developing strategies to reduce costs in response to the growing competition in their markets following airline deregulation in the USA since 1978, and liberalisation in Europe since 1988. The most obvious area of costs for airlines to tackle has been labour. This paper analyses trends in labour unit costs (labour expenses per available tonne kilometre) of major US and European carriers from 1978 and 1985 respectively. The results indicate that both US and European airlines have been successful in reducing labour unit costs. This was achieved in the US by some reduction in real wages (labour costs per employee) and periods of increased productivity (ATKs per employee). European airlines reduced unit labour costs by productivity increases, offset by increases in real wage levels. In Europe, some reduction in real wage levels might be expected, following the US experience and in order that they might achieve globally competitive unit labour costs. These might be accompanied by the more widespread use of profit sharing and stock options.