Executive summary

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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


the incentive to deliberately lower costs and service standards by outsourcing existing and future

jobs would be diminished.


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


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


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


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


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


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


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.


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


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.


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.


References

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