Wednesday, October 10, 2012

AA Pilots Up the Ante

Sheila Heen, from Harvard Law School, discussed a possible slow down by American Airlines pilots as a negotiating tool on Marketplace this morning.
...the pilots' tactics may be working, "the pilots are actually doing a reasonably good job of bringing other players into the negotiation by saying, 'look, other people here are on our side, and those other people also have decision making power because they can choose to fly with someone else.'"

Toward the end she points out that each side is testing the other's BATNA (Best Alternative To A Negotiated Agreement). Our Managerial Economics students will recognize this as their 'disagreement value.' If you know what this is, you know how much you can expect to take away from the negotiations.

1 comment:

  1. The pilots’ best alternative to a negotiated agreement, or outside option, is their salary and contract with the airline which won’t change or decrease in value. However, for AA the outside option of upset passengers that can complain about the delays and who can easily switch carriers not only damages the airline’s image but also its bottom line. “To improve you bargaining position, improve your outside option, or decrease that of your opponent (Froeb 2014:190).” The pilots have been able to fittingly apply the second part of this statement to the negotiations because the airline has much more to lose from a long drawn out disagreement. The opportunity cost for the airline is immense as compared to the status quo of the pilots’ contracts. “By changing the alternatives to agreement for Management […], the Union can increase Management’s willingness to reach agreement (Froeb, 2014:191).” Hence, prolonged negotiations may only serve the pilots because when seasonal peaks in air travel draw closer the airline will have even more to lose.

    Froeb, McCann, Ward, Shor: (2014) Managerial Economics. A Problem Solving Approach,
    Ohio: South Western Cengage Learning