Clients’ Last Name Goes Here 1
Executive summary
A great deal of external pressure present challenges for Australian airline industry.
Airline deregulation, sky-rocketing oil prices, the Gulf War, mergers and acquisitions, the
government policy of privatization, increased international competition, strategic alliances with
routes and between the regions, economic recession have put a pressure upon the airlines in
Australia. To deal with these issues, carriers must turn to downsizing and wage cutting. This was
also the case with Qantas, the major Australian airlines which faced much of disputes from the
employees, unions, and the government. The role of government intervention in managing
industrial relations in the airline industry is significant. The state policy of deregulation had a
great influence on Qantas. However, deregulation was not the only factor to influence the labor
relations in Australian airline industry. Part privatization of Qantas and initiating public offering
of the Qantas’ stocks were other two important steps. The role of management in industrial
relations at Qantas has been intensifying after inactment of the 1996 enterprise bargaining
agreement. Qantas has recently tried to integrate collective bargaining, organisational
development and the human resource elements. In doing so, the company utilised a productivity
oriented approach, thereby reorganizing business process according to its strategic goals.
Employees have a substantial impact on airlines’ performance. Employees can achieve higher
wages and employment security through collective bargaining. Qantas employees are
represented in FAAA, ASU, and TWU. For non-unionized employees Qantas maintains "works
councils" to facilitate consultation. Recent Qantas Fair Work dispute uncovered the need to
progress industry-wide industrial agreements to protect employees, standards of work, and levels
of safety. Such an agreement would ensure fair basic standards for all workers performing the
same work at different sites. Companies would remain able to use different work strategies, but
Clients’ Last Name Goes Here 2
the incentive to deliberately lower costs and service standards by outsourcing existing and future
jobs would be diminished.
Clients’ Last Name Goes Here 3
Table of Contents
External Pressures for Change at Qantas ........................................................................................ 4
The Role of the State in Dealing with Pressures......................................................................... 5
The Strengthening of the Safety under the Fair Work Act ......................................................... 6
The Role of Management in Industrial Relations ....................................................................... 7
The Role of Employee Representation (Union and Non-union) ................................................ 8
The Broad Implications of the 2011 Qantas Fair Work Dispute .............................................. 10
Recommendations ......................................................................................................................... 11
References ..................................................................................................................................... 13
Clients’ Last Name Goes Here 4
Industrial Relation Report
The airlines industry labor relations have witnessed a great deal of change in Australia.
The major Australian airline, Qantas, is not an exception. Airline deregulation, sky-rocketing oil
prices, the Gulf War, mergers and acquisitions, the government policy of privatization, increased
international competition, strategic alliances with routes and between the regions, economic
recession have put a pressure upon the airlines in Australia. While dealing with these challenges,
airlines have to deal with seasonal market fluctuations and longer cycles of the economy. To
address these issues, the airlines have had to cut costs, mainly through wage cutting, and found
more effective and efficient ways of utilizing human resources. Of course, these measures could
not avoid attention of labor unions.
The purpose of this paper is to analyse the industrial relations pressures evident in the
airline nindustry, Qantas airlines in particular, and suggest options for addressing these
pressures. The report will consider the role of the various relevant parties, the government,
management, and both union and non-union employee representation.
External Pressures for Change at Qantas
In terms of the airline industry, Australia is represented by about a dozen key cities, most
of which are near the cost of the continent and some are inland and remote. Qantas has faced a
full range of external pressures identified in the introduction. In 1947 Qantas was acquired by the
Australian government and became the major wholly state owned carrier on international routes.
From the late 1980s, Qantas faced significant and complex transformations. In 1993, they took
over Australian Airlines. Thus, in the early 1990s, when many companies faced the challenges of
global competition, Qantas had a great experience on a global arena. Until the 80ths, the
Australian airline market was a duopoly. It was shared between Qantas and Ansett. After some
Clients’ Last Name Goes Here 5
unsuccessful attempts to establish the third national carrier, Virgin Blue and Impulse were
launched in 2000. Their entrance forced Qantas and Ansett to reduce their fares to historically
lowest levels. However, being unable to maintain low overheads like Virgin Blue and Impulse,
Qantas acquired Impulse, which was later repositioned as Jetstar, and Ansett went bankrupt.
The Role of the State in Dealing with Pressures
The role of government intervention in managing industrial relations in the airline
industry is significant. The state policy of deregulation had a great influence on Qantas’ domestic
operations after merger. In order to encourage increased competition and pricing flexibility, the
Australian Government initiated deregulation of the airline industry in 1900 with a single stage
termination of the two airline agreement after a two year period of notice (Australia, House of
Representatives, 1990, p. 650).
The second sphere of government intervention was part privatization of Qantas. Soon
after, 25 percent of Qantas was sold to British Airways in March 1993. This was followed by a
$1.35 billion capital injection from the Government. Subsequently, Qantas took over Australian
Airlines that provided the carrier with access to domestic routes and competitive advantage over
Ansett on Australian routes due to increased aircraft equipment capacity.
Finally, in 1995 government initiated public offering of the Qantas’ stocks. In order to
meet shareholders’ expectations of return on investment, the carrier’s shares were offered to
institutional and private investors.
However, deregulation was not the only factor to influence the labor relations in
Australian airline industry. Downsizing, wage cutting, the weakening of the industrial strengths
of the pilots’ union, the Gulf War, and economic turmoil had a significant impact on industrial
relations in the airlines. Therefore, it is important to place a great deal of emphasize that external
Clients’ Last Name Goes Here 6
pressures on the industrial relation stem from different sources which of themselves had little to
do with airline deregulation.
Thus, the Structural Efficiency Principle from 1988-9 and the Enterprise Bargaining
decision October 1991 issued by the Australian Industrial Relations Commission had a greater
imact on labor costs than post-deregulation pressures.
The Strengthening of the Safety under the Fair Work Act
An expansion of legislated National Employment Standards and the reach of unfair
dismissal protection and the establishment of a comprehensive network of modern awards and a
special arbitration stream for “low paid” employees strengthened the safety of employees. In
addition, legislation governing occupational health and safety, anti-discrimination,
superannuation and potentially paid maternity leave was adopted subsequently.
However, there is no consensus among scholars and business practitioners on a plethora
of issues. Firstly, such benefits as annual leave and personal leave were removed from the scope
of bargaining under Work Choices and the Fair Work Act. Secondly, the legislation triggered
bluring and expanding entitlements based on social and employment policy such as paid
maternity leave.
Thirdly, it is uncertain whether the Fair Work Act provides employees with a sufficient
array of conditions. Finally, the line between individual and collective agreement is also blurring.
Therefore, the vulnerability of the individual when bargaining directly with an employer is
increased.
Fair Work is widely blamed for being the repeal of WorkChoices. However, it played an
important role in consolidation of a national system. Furthermore, the Fair Work Act facilitated
Clients’ Last Name Goes Here 7
extension of the employee safety. In the long term, it is important to ensure that enterprise
bargaining is pivotal in the industrial relations.
The Role of Management in Industrial Relations
The role of management in industrial relations at Qantas has been intensifying after
inactment of the 1996 enterprise bargaining agreement (EBA). It triggered development of new
management tactics and bargaining structures as companies pursue more aggressive demands in
collective bargaining (McDonald & Millet, 1999). The EBA committed the parties to a
recognition that ‘good management practice carries with it the responsibility to effectively
manage and implement change at the workplace’.
It is also important to place a great deal of emphasize on the fact that a profitability
oriented approach to management may be detrimental. Cost minimisation approaches may
reinforce “traditional confrontationist industrial relations of managers who see the only way to
improve their productivity is to lower their costs, and unions who seek to defend their status quo
through craft-type job controls” (Curtain and Mathews 1990, p. 73).
This might apply to the measures in the Qantas EBA. Cost minimisation takes 'a narrow
approach to labour flexibility that focuses on such matters as spread of working hours, use of
part-time, casual or contract labour, and lifting of penalty rates, at the expense of the deeper
flexibility that derives from a highly skilled and adaptable workforce' (Curtain and Mathews
1990, p. 69).
However, it is worth of noticing that Qantas has recently tried to integrate collective
bargaining, organisational development and the human resource elements. In doing so, the
company utilised a productivity oriented approach, thereby reorganizing business process
according to its strategic goals. McDonald and Mittel (1999) argue that the successful
Clients’ Last Name Goes Here 8
implementation of productivity oriented approach requires matching wages with “skills
formation, job classification structures and work re-organisation”. In this regard, the
restructuring of the labor processes allows concentrating on productive capacity, market share
and productivity through maintaining high wages; attracting, and training high skilled employees
engaged in value added production. This is exactly the formula for success in the airlin industry
where highly skilled and aircrew is complemented by professional workforce on the ground.
The Role of Employee Representation (Union and Non-union)
The airline industry is characterized by its service-intensive nature, comparatively high
percentage of labor costs in total costs and the high level of union representation. In Qantas labor
costs constitute approximately 30% of the overall employees and over 60% of the non-
managerial employees. Therefore, employees have a substantial impact on airlines’ performance.
Employees can achieve higher wages and employment security through collective bargaining. In
such a way employees can impose additional costs for the company and disrupt the service by
strikes. Therefore, employee gains in bargaining power and wages can be seen as detrimental to
both service quality and the bottom line of the airlines.
The other side of a coin is that employees can have a positive impact on airline
performance. On the one hand, the high level of union representation and the wage premiums
that they achieve force management to find the most effective and efficient ways to use human
resources. On the other hand, employees with enhanced job security and bargaining power are
more willing to provide exceptional services. There is an overwhelming consensus among
scholars and business practitioners that employees’ job satisfaction is positively correlated with
the customers’ satisfaction. In other words, the more employees are treated as costs to be
Clients’ Last Name Goes Here 9
minimized, the more likely the service quality and productivity will be well below the
customers’ expectations as well (Gittell, J.H., Nordenflycht, A. & Kochan, T.A., 2004).
One more interesting phenomenon in labor relations in the airline industry is shared
governance. Owing an equity stake and being represented in the board of directors, employees
can also achieve higher wages and greater employment security, leaving the company with
higher costs and less profits. However, it may be seen only at first sight. In fact, participating in
corporate governance increases the employee motivation and thus leads to higher service quality
and productivity (Gittell, J.H., Nordenflycht, A. & Kochan, T.A., 2004).
As a result of deregulation, carriers are now free to compete for markets on the basis of
fares and schedules. Comons (1909) argued that unions are able to raise wages above the market
level only if they manage to take wages “out of competition” by enforcing uniform contracts
across the entire product market in such a way that no competitor will have a labor cost
advantage that can be turned into a competitive, price advantage. Where unions managed to do
this, the wages were protected no matter how competitive the product was. In the airline
industry, unions never “enforced uniform contracts across the product market and therefore
never took wages out of competition through collective bargaining” (Bamber, 2005). Instead,
the unions pursued other goals – meeting the varying needs of different carriers. In doing so, they
provided locals with almost complete authority, especially in collective bargaining.
Consequently, the bargaining structure in airlines has always been single craft-single employer.
Sometimes unions are able to secure improvements in some aspects of employment
relations in return for granting concessions. With consideration to the fact that unions still have
considerable bargaining power, it is not surprising that they secured a plethora of improvements.
Clients’ Last Name Goes Here 10
Although Qantas is considered to have a high level of unionisation, it has unionized and
non-unionized occupational groups. The only unionized employees are cabin crew, 85 percent of
whom are members of the the Flight Attendants' Association of AustraliaDomestic/Regional
Division (FAAA), and ground staff, who are represented by the Australian Services Union
(ASU). Ramp and baggage handling workers are covered by the Transport Workers Union
(TWU). For non-unionized employees Qantas maintains "works councils" partly inherited from
Impulse to facilitate consultation. For example, for engineers there is an Engineering
Consultative Committee, which comprises elected employee representatives and management
representatives.
The Broad Implications of the 2011 Qantas Fair Work Dispute
In August 2001, Qantas management announced restructuring which implied more than
1000 jobs cut, as a part of the new strategy. They decided to place a deal of emphasize on Asia,
abandoning North Pacific region. Such a decision aroused massive negative reactions from
employees, resulting in strikes which left more than 80,000 passengers of 600 flights on the
ground. Such a move faced an intensive criticism from unions. Furthermore, government
intervention forced Qantas resume its flights with an ordeк for the parties to attend arbitration to
resolve the conflict. In response to this conflict, TWU claimed to reduce the number of
oursourced workers Qantas can employ to 20%. However FWA declined such a claim judguing
it as unfair.
This dispute is a good example of the conflict which involved all the parties at the same
time: the company’s management, employees, unions, and the state. Therefore, it is important to
analyse it from the each party’s stand point. Employers’ reasoning is quite plain and fair. They
highly welcomed the government’s decision, since it is important that the carrier, as any other
Clients’ Last Name Goes Here 11
company, has a right to make business as best suited to its needs. However, from the employees’
point of view, such a decision undermines their rights and job security. In terms of the state
interests, Qantas’ downsizing may lead to significant economic harm, therefore the government
also could not afford to pass this decision.
As a corollary, it is important to reiterate that government decision was a strong
endorsement of the right of a company to determine its own strategies and business goals.
However, it has to be taken into account that the airline is an important industry. Thus, failure to
resolve such disputes may lead to unforeseen consequences for the national economy.
Recommendations
Qantas always recognized unions and never avoided their commitments. Thanks to this
fact and activity of work councils for consultation with employees, they managed to avoid large
industrial conflicts that are often the case with the airline industry. However, with consideration
to the changes in labor market legislation adopted by Australian government in 2006, Qantas
may take advantage of opportunities that stem from replacing collective labor contracts with
more individual ones. Apparently, such an initiative would face some negative reactions from
unions.
One of the biggest challenges Qantas is now facing is sending confusing messaging to its
employees. On the one hand, the Executive General Manager Staffing and Customer Services
stress team building, training, and communications focused on the productivity oriented
approach and customer-focused culture. On the other hand, downsizing, outsourcing, and
competitive tendering compromise the effects of management teambuilding.
Clients’ Last Name Goes Here 12
Taking into account the recent Qantas dispute, the carrier is now facing two important
problems. Firstly, notwithstanding successful restoring flights, gaining support from the
government, and achieving consensus on disputes with labor unions, Qantas is still facing
challenges in restoring investors’ confidence (Kelly, Krichlow, 2011). The value of the Qantas
brand has declined by about US$100 million, or 9% (Transport Workers Union of Australia,
January 2012).
Secondly, in addition to weakening investors’ confidence, consumers confidence’ is
diminishing as well. The results of the recent survey indicate increasing public concern over
aviation safety standards (Transport Workers Union of Australia, January 2012).
Therefore, it is recommended that Qantas develop effective strategies to restore consumer
confidence, investor confidence and build a strong brand.
It is also important to progress industry-wide industrial agreements to protect employees,
standards of work, and levels of safety. Such an agreement would ensure fair basic standards for
all workers performing the same work at different sites. Companies would remain able to use
different work strategies, as is currently the case, but the incentive to deliberately lower costs and
service standards by outsourcing existing and future jobs would be diminished.
Clients’ Last Name Goes Here 13
References
Bamber, G. J., Lansbury, R.D., and N. Wailes (eds). 2004. International and Comparative
Employment Relations: Globalisation and the Developed MarketEconomies, 4th ed.
Thousand Oaks, CA: Sage.
Bamber, G.J., Lansbury, R.D., Rainthorpe, K., & Yazbeck, C., 2005. Low-Cost Airlines' Product
and Labor Market Strategic Choices: Australian Perspectives.
Campelli, P., 1985 February. The Changing System of Airline Industrial Relations. Industrial
Relations Research Association.
CAPA. 2002. Low Cost Airlines in the Asian Pacific Region: An Exceptional Intra-
RegionalTraffic Growth Opportunity. Report, Centre for Asia Pacific Aviation, Sydney.
CCH, 2009. Australian Master Human Resource Guide 2009, CCH Australia Ltd, Sydney.
Creedy, S. 2004. "Union Agreement Gives Jetstar Flexibility." The Australian, January
31February 1.
Curtain, R. & Mathews, J. 1990, 'Two Models of Award Restructuring in Australia', Labour and
Industry, 3(1), March, pp. 58–75.
Gittell, J.H., Cameron., K., & Lim, S.G.P. September, 16, 2005. Relationships, Layoffs, and
Organizational Resilience: Airline Industry Responses to September 11th
Gittell, J.H., Nordenflycht, A. & Kochan, T.A., 2004. Mutual Gains or Zero Sum? Labor
Relations and Firm Performance in the Airline Industry. ILR Review, 57 (2).
Harcourt, Tansy. 2004. "Qantas in Radical Plan for Jetstar." Australian Financial Review,
February 25, p. 1.
Highfield, Bruce. 2005. "Retaining the Competitive Edge." Australian Human Resources
Institute. Available at http://www.ahri.com.au.
Clients’ Last Name Goes Here 14
Jetstar. 2004. "Queenslanders Celebrate New Careers with Jetstar." Media Release, August27.
Available at http://www.jetstar.com.au/pdf/news/20040830.pdf.
Joyce, Alan. 2004. "Address to National Aviation Press Club." Media Release, July 22.
Available at http://www.jetstar.com.au/pdf/news/20040722PCA.pdf.
Kelly, R. and Critchlow, A., 2011. For Qantas, Challenges Still Loom. The Wall Street Journal.
Available at
http://online.wsj.com/article/SB10001424052970204528204577009140437863980.html
(Accessed September 5, 2012)
Lansbury, R.D., July 2000. Workplace Change and Employment Relations Reform in Australia:
Prospects for a New Social Partnership? The Drawing Board: An Australian Review of
Public Affairs, 1(1).
McDonald, J. and Millett, B. A., 1999. Case Study of the Role of Collective Bargaining in
Corporate Change - Qantas Airways Limited. USQ Australia.
Transport Workers Union of Australia, January 2012. Secure Jobs: The Flight of Decent
Australian Jobs. Available online
http://securejobs.org.au/submissions/06_feb_2012/Transport%20Workers%20Union%20
National.pdf (Accessed September 5, 2012)
Top Related