Northwest Airlines (NWAC) has been able to operate despite a strike by 4,300 members of the Aircraft Mechanics Fraternal Association. AMFA went on strike rather than accept NWAC’s demand for $176 million in concessions that would have involved firing 2,000 and cutting wages 26% for those remaining. Northwest insisted on the $176 million as part of $1.1 billion in concessions it previously said it needed from employees.

Now that NWAC has achieved the $176 million in cost cuts does anyone really think NWAC will now be satisfied with only $1.1 in labor cost savings? Not likely. NWAC has come up with a solution to the basic problem facing the legacy airlines. Air traffic is a commodity and only airlines that pay wages no higher than what new entrants pay can compete. NWAC’s ultimate strategy is to reduce wages and benefits to levels enabling it to compete with and possibly undercut the low-cost carriers such as Jet Blue.

The obstacle to legacy airline survival has been union contracts. Previously, only very credible threats to file for bankruptcy have enabled airlines to obtain wage and benefit concessions. Union contracts are not the only obstacle to reducing wages. Delta Airlines (DAL) is mostly non-union. Legally, DAL could reduce the wages for its flight attendants to the minimum wage tomorrow. However, in a service industry surly disgruntled employees are a definite problem. The New York Times has already reported instances of hostile flight attendants throwing pillows at passengers who requested them.

Lowering the wages of current employees to what new entrants pay is problematic. NWAC has avoided the problem by replacing the union members entirely. NWAC spent 18 months lining up workers to replace AMFA and making outsourcing arrangements. NWAC also has trained flight attendants waiting in the wings to replace the unionized ones when the time comes.

NWAC has actually turned unionization into an asset rather than a liability. Via the “self-help” provisions of the Railway Labor Act which governs labor relations in the airline industry NWAC can impose wage and benefit reductions guaranteed to provoke a strike. Once the strike begins, all of the union members can be replaced at once. The “strike” never actually ends. In this way the replacement workers are “temporary” at-will employees, whose compensation levels can be changed by NWAC at any time. Savvy employees like Microsoft have thousands of “temporary” workers on the payroll for years at a time.

High oil prices are a catalyst for the elimination of airlines that attempt to pay wages above new entrant levels. There is no logical reason why higher fuel prices can not be passed along, as has happened in the trucking industry. The difference is that trucking firms do not have widely divergent labor costs.

The future of the airline industry lies in the equalization of labor costs across carriers. This “Walmartization”, reducing wages to match the lowest cost competitor is unstoppable. The paternalistic attitude of DAL of attempting to maintain wages in excess of new entrant levels, even if it means bankruptcy, ultimately, will not stop the tide.

The patience of airline creditors is growing thin. UAL’s policy of attempting to maintain wage and benefit levels at near legacy levels, at the expense of creditors, appears to be tolerated less and less. In bankruptcy it is likely that DAL’s assets would end up in the hands of NWAC or possibly other legacy carriers that adopt NWAC’s new labor strategy.