Lufthansa strikes suspended.No cause for celebration. The legacy shackels remain.

There will be a  German sight of relief or even celebration at the news that the Lufthansa cabin crew strikes for a higher than offered (5% instead of 3.5%) pay rise and the ending of the employment of temporary contract has been suspended while the remaining issues (primarily pay ) go to non binding arbitration.

There shouldn't be. Not anyway  for those who value the continued wellbeing of the national icon Lufthansa .

Lufthansa , like all legacy airlines , is saddled with outdated high cost wage structures, terms and conditions, working practices and productivity. Unions have stood by (they had no option) while new airlines with lower cost bases have entered and in some areas, swept , the markets leaving the old and usually heavily unionised lags struggling and gasping for air. This is particularly true in North America and Europe, the home of most of the remaining big names of the past.

The low cost newcomers,the Air Berlins,Easyjets, RyanAirs, Air Asias, Virgin Australias, JetBlue ,and similar unconstrained by history, have started with clean sheets of paper and come up with lean, mean, organisations with few people and uncomplicated structures. Decision making has been simple and swift. The time lag between decisions and implimentation, rapid and often almost instant. Few committees,over lengthy reports and report-backs. Much more "Just do it".

Legacy carriers, having vigorously opposed any competition from the 1950s onwards ,have mainly given up on trying to hold back the tides of the inevitable,. The more enlightened have instead  fought back by trying to edge down from their old, often civil service model cost structures, towards where the new LoCos are. Included have been attempts, still in many cases ongoing, to reduce and get rid of agonisingly slow decision making pr0cesses, endless internal debates , committees, sub comittees, and report backs so beloved of the state sector. Those were bad enough but then they were followed by followed by the long slog to try to get union approval to anything not paid for in gold. It's a long hard haul requiring determination, patience, stamina, humour and endless hours. The need is simple and clear enough  .Old structures, pay systems, working practices ,productivity and numbers from top to bottom have to be taken apart and redesigned and rebuilt as if from scratch.

The unions, who could and should have been part of a comprehensive redesign process, have largely given a flat "No" and retreated to their favoured position behind the barricades trying to defend the undefendable and indefensible. Long wars of attrition have followed and are ongoing. On the way a good number of old household names have disappeared. Remember Pan Am, TWA, the old Swissair? In any business , industry or organisation ,immortality is not assured , however big and once all powerful the name. Darwin was right. The developers and adaptors will survive and prosper. The others will die out or just become irrelevant.

Lufthansa work in a European environment of heavily constraining and high cost labour laws which amongst other things make it difficult to flex work forces to match the ebbs and flows of business cycles. The presumpation  is "once in , always in" for any employee so there is little incentive to take them on in the first place. Even management of poor performance is slow and difficult.

The airline looks to have been trying to to achieve two things.

Firstly to narrow the gap between themselves and the new competition by a pay freeze followed by a modest three and a half per cent rise.

 Secondly and more important structurally, they have taken on temporary and lower paid staff through a contractor. These are a red rag to a bull to any union as they are less likely to belong to one (=no membership fees and no obedience to union diktats). They are also, embarrassingly , quite likely to show up the laggardly and expensive ways of the main, better paid and more secure workforce.

What has now happened in the Lufthansa dispute is that the company appears to have bought a six week standoff and suspension of strikes at the expense of giving way on the contract staff . It has agreed to take them onto the main company payroll with the same job for life deal as the rest. In doing so, the company has not even killed off the 5% pay claim as a tradeoff. On the face of it this is a very bad deal indeed.

Why has it done it?

Firstly the German public is not very tolerant of disruption. It goes against the national psyche. If the trains aren't running or the planes aren't flying it must be fixed. The underlying issues are the management's not theirs. If that's a cost issue, again it's the management's problem, not theirs... But it is. Long term Lufthansa's existence is threatened if it can not shift its cost base, become more productive and at the same time offer a truly high quality product cheerfully delivered.

Secondly there is enormous pressure managements of companies in the perishables business not to have strikes. A day's lost car or widget production can be recovered later. A day's lost flying can't. The cash which would have been earned for that day largely disappears.  Forward bookings are also lost as customers vote for the certainty and once having made a booking with a competitor probably can't change it again even if they want to.  That is all bad news, short term for vital cashflow and longer term for profits, dividends , share price and,- no small factor where they - management bonuses. In the case of state owned businesses most of this terrifies governments. In private companies Boards are short term obsessed with the Stock Market, share prices and vulnerability to takeovers if these should drop.

 CEOs and managements have a major struggles on their hands in facing out any strikes . Unions of course are well aware of these and exploit them to the full .

The first task is to convince Governments and/or Boards that investing tens of millions a day in lost revenue is strategically essential and worth it in the long term . Then the CEO has to maintain that support once the action is under way. This isn't easy especially when the media start howling for blood. Previously supportive knees start wobbling and tend to start turning into denial. "Me? No I never really agreed it was a good idea". Futher down the food chain it is essential that the CEO is  in turn resolute and unflinching in supporting the managers delegated to run and manage the strike. They have to have unfailing top level support whatever the outcome or they will start to back of too. Often when the stuff has hit the fan ,Chairmen and Chief Executives have stood aside and fired the senior operatives for having "mismanaged the situation". It's all very well saying "The world favours the brave" but not if the brave then get shot in the back when things get gory. Sadly it has happened elsewhere.

For whatever reason, Lufthansa has already backpeddled on the major issue. Separately contracting even a small  more flexible and cheaper workforce would have improved rather than undermined the long term job security of the main workforce. Temporary ,short term and ad hoc staff are a very useful addition to the mix. Not everybody wants a full time permanent job in the first place so the existence of some of these contracting ones adds to the diversity of choice people have.  Lufthansa was on a good track with the contractors  Abandoning the scheme is a backwards step away from where they should be going.

 That's why Germany shouldn't be even sighing with relief, and much less celebrating .