When you think about airline labor disputes, you probably think about strikes. After years and years of negotiating, the unions gain the right to walk out and that shuts the airline down, or it at least hampers its operations significantly. This weekend, we were faced with something else. Fans of the National Basketball Assocation (if there are any left) certainly know this tactic well: lockout. Qantas management decided to shut down the airline and lock out labor to force an agreement. Unlike the NBA, this required a quick resolution, so the government stepped in and made the airline fly. It’s exactly what CEO Alan Joyce wanted, but he’s going to get a lot more than he bargained for.

In Alan’s mind, he’s saving the airline from ruin.

There has been an ongoing dispute with labor for years at Qantas. This issue in particular centered around the pilots, mechanics, and baggage handlers. Most of the problems stem from a couple things. Qantas employees believe they deserve all the compensation in the world while Qantas management disagrees. Qantas is actively trying to go around them by setting up subsidiaries elsewhere, most notably with low cost carrier Jetstar which has employees with different work rules and pay rates.

This move has had the Qantas employees steaming for years, and it only got worse when Qantas announced it would set up a new premium airline in Asia as well. The assumption is that Qantas employees are not going to be a part of that enterprise because the pay and work rules for the Australian airline just don’t work in the world today.

Labor likes to point to the continued profitability of Qantas and how the airline can’t just push them aside in favor of cheap labor just to goose profits further. But Qantas is quick to respond that profits don’t come from the core international airline operation. That has been a money-loser and there needs to be changes in pay/work rules to get closer to what other airlines pay. That point is certainly up for debate in my mind.

The reality is that like in everything else, a compromise is necessary, but just as we see in the US political scene these days, none is at hand. There has been increasing industrial action from the labor groups with little strikes here and there. The mechanics have been working to rule and Qantas has seen performance suffer significantly.

Alan Joyce is Crazy … Like a Fox?
So what can Qantas do? It could keep negotiating in a situation where no deal will ever be made, or it could do something drastic. Alan chose Option B; he went scorched earth and shut down the airline.

Now why the heck would someone do that? It’s actually a clever move. (Don’t read that as me supporting it, but it is clever.) First, it shows the labor groups that Qantas is not screwing around. Alan is willing to shut the place down if the unions won’t come to the table and get serious about an agreement that works. Note that Jetstar, Qantaslink and JetConnect subsidiaries all kept running – it’s just Qantas itself that shut down. Qantas wants the unions to think that this will be a permanent solution if things don’t get resolved.

But more importantly, it pushes the government to get involved. The expectation had to be that by doing this on Saturday, the government would have acted swiftly and had the airline up and running again by the end of the weekend. That’s exactly what’s happening, though cancellations are likely to persist into the week as operations ramp back up. I think it probably took a little longer for the government to act than Qantas thought.

Qantas spent the weekend shut down but now, with the government’s urging, Fair Work Australia made the airline start flying again. The airline was deemed to be too vital to the economy to let it stay shut down, and that’s exactly what Alan was banking on. The airline was forced to re-start operations and labor has to stop all industrial action. Labor and management will enter into intensive negotiations over a 21 day period. if that doesn’t work, they go to binding arbitration.

And that’s probably what needs to happen here, because both sides seem completely loony to me with their thoughts about what’s right. If someone rational gets in the middle and strikes something fair, both sides will be unhappy but at least this will all be over.

So does that make this a smart move? It’s certainly a creative way to force the government into action, but it is also highly destructive of the relationship with every single employee as well as with the traveling public. Sure, it will end the industrial action but at what cost?

Some employees may have supported Qantas management before; not the unions, perhaps, but others. Now with this reckless grounding, employees have to be livid and somewhat nervous. I would start looking for a new job if this is how my senior management behaved. I certainly would have lost a great deal of respect for management.

If you pull a stunt like this and inconvenience thousands of travelers, you run the risk of pushing them off permanently. In the past, Qantas really didn’t have much competition within Australia or even to and from the country, but that has changed dramatically. Internationally, there are more flights every day from Asian/Middle Eastern carriers, and Qantas management isn’t shy to talk about it. That’s why it wants concessions from the union.

Virgin Australia Must Be Smiling
The biggest winner, however, is Virgin Australia. Even though Qantas wasn’t putting people on other airlines, Virgin responded quickly by offering discounted fares to Qantas fliers, lounge access for Qantas elites, and a bulked up schedule to accommodate the stranded folks. It also saw partners step in to help. Etihad offered to start flying routes on the airline’s behalf to pick up the slack.

For Virgin, it’s exactly what it needs. The airline has changed itself to focus on business travelers over the last year or so, and this is the perfect way to show Qantas loyalists what it can do. Those who have been burned by Qantas may not go back, or so Virgin Australia hopes. But Alan Joyce thinks that he’s found the way to success and he’s making that gamble.

Will people, employees and travelers alike, leave Qantas over this and look for better options? Qantas is betting that won’t happen, but I wouldn’t be so sure. Qantas has probably done serious harm to itself here. I would expect calls for Alan Joyce’s head to get louder and louder. But maybe that’s what the airline wants? Maybe, as the unions think, Qantas wants to shut down the old airline and start anew with cheaper labor and lower costs.

Now there’s a scary tale that you can tell at your Halloween party tonight.

So I thought that Qantas was going to roll out its big plans to transform itself on August 24. There’s apparently still something in the works that day, but CEO Alan Joyce jumped the gun with a wide-ranging speech this week that gave us a look at the high level architecture of how Qantas will try to right the ship. I found it confusing to say the least, and really contradictory. I like half the plan, but I fear the other half will doom the airline.

Qantas has said that its biggest problems are on long haul international flying. Domestic is doing well (even if it is under attack from Virgin Australia) and Jetstar is theoretically doing well too. The problem according to Qantas is competition – there’s a lot of it. And Qantas is having trouble competing with the Middle Eastern and Asian airlines that are picking up traffic at an alarming rate. It also doesn’t help that the airline’s costs are quite high (20 percent higher than the competition, according to Qantas), and labor is a big part of that.

So, here’s what Qantas is going to do to fix things:

• Focusing on a “gateway” strategy which means Qantas will bring passengers to a gateway and then send people on partner airlines beyond that gateway.
  • Flight to DFW took the place of San Francisco because it’s an American Airlines gateway. (Forget that Qantas can’t always make that flight nonstop)
  • Looking at Kuala Lumpur as a good spot to transfer to soon-to-be oneworld airline Malaysia
  • Switch Buenos Aires flight to Santiago and feed oneworld partner LAN
  • End Bangkok and Hong Kong to London flights and let British Airways carry those passengers. Focus London flying via Singapore only
  • Continue to use Jo’burg as a gateway to Africa and connect with South African
• Turn focus to building up Asia
  • Start Jetstar Japan working with Japan Air Lines and Mitsubishi for domestic Japan first and then international
  • Will “invest” in new premium airline to be based somewhere in Asia (location tbd)
• Improve the onboard experience
  • Refit nine 747s with the A380 seats
  • Bigger, better lounges in Singapore, LA, and Hong Kong
  • Improved premium cabins and check-in for Trans Tasman flights
  • Order 110 new Airbus narrowbodies, including Airbus A320neos
  • Defer six A380s until the 747 fleet is retired (instead of growth, will become replacements)
• Cut 1,000 jobs

That’s a fairly comprehensive plan, but there’s one problem. Two of these things are complete opposites. I mean, Qantas says it wants to have this gateway strategy, so then why the heck is it opening hubs in Asia? Shouldn’t that be done by the gateway partners?

The upshot here is that Qantas thinks it can rest on its laurels for domestic flying. Forget about the fact that Virgin Australia is gunning for Qantas passengers and that airline is being run by a former Qantas exec who knows all the airline’s secrets. You would think this would be the best time to keep your eye on the part of your business that works since that’s really the lifeblood, right?

Of course, that doesn’t mean the international operation should be ignored. I like the gateway strategy. Stick to your strengths and then have your partners connect people into your system from elsewhere. It makes a lot of sense, and it’s why close alliance ties can pay real dividends. So why mess around with all this Asian stuff, Qantas?

At the end of his speech, Alan talked about how Qantas is “an Australian company, owned by Australians, with the vast majority of our operations based in Australia . . . we’ll always call Australia home.” So then why aren’t you focusing on Australia?

In Japan, it might simply be that JAL doesn’t have the resources to do something like this. Ok, fine. So lend your expertise to “JALstar” if you want, but this is much deeper with Qantas really running the show and providing the aircraft. I’m just struggling to understand how the Qantas expertise in Australia lends itself to a very different culture in Japan. And for that matter, how does a premium Asian airline fit into the mix as well?

This seems like an airline that’s trying to spread itself too thin. I would focus on the strengths, and those lie in Australia. I say that in particular because its position there is under attack by Virgin Australia. It’s not like it has a monopoly and can just forget about what’s happening.

Cut the unprofitable flying, align with your partners, but stop pretending like Asia is somehow your territory just because it’s the closest thing to Australia. I fear that this focus could push Qantas to lose ground in its home market. And then what? Not good.

[Original photo via Flickr user planegeezer/CC 2.0]

Tucked down in the corner of the world, Australia is usually not the first place to come to mind for, well, just about anything. But right now, it’s by far the most interesting aviation market in the world.

I’m not just talking about the Chilean ash cloud that has wreaked havoc on the Continent but rather airline shut downs, shifting strategies, and unlikely partnerships. It is incredibly exciting for airline industry dorks like me.

For years, the Australian market has survived as a duopoly. On one side, we had Trans Australia, which became Australian Airlines before being merged into Qantas in the 1990s to form the domestic and international powerhouse we know today. On the other side, Ansett was the counterbalance until its collapse in September 2001. Ansett’s collapse created an opening for upstart Virgin Blue, and the hole was quickly filled.

Plenty of airlines have tried to form a third challenger over the years. Most recently, it’s been a subsidiary of Singapore-based Tiger Airways that has tried to squeeze in with an ultra low cost service. That service is now in serious trouble.

Tiger was just shut down for a week by the Australian authorities because the regulatory agency “believes permitting the airline to continue to fly poses a serious and imminent risk to air safety.” This only impacts the Tiger subsidiary in Australia; the other Tiger operations in Asia continue to fly but the damage could be widespread.

Tiger is fighting this, but such terrible press is bound to put a serious dent in bookings regardless of whether it flies again or not. It’s going to be very hard to recover from something along these lines.

But that’s not the only blow to low cost flying in Australia. After years of acting like a low cost carrier, Virgin Blue has decided to go upscale. It’s combining its Virgin Blue, Pacific Blue, and V Australia brands into the new Virgin Australia.

Virgin Australia is focusing on competing with Qantas. It’s introducing new onboard products to compete with what Qantas offers and it’s trying to form partnerships in order to expand its reach for its customers.

One of those partners is Air New Zealand, which actually owns 15 percent. This may seem eerily similar to Air New Zealand’s last venture across the Tasman when Ansett collapsed under its ownership, but this is a very different Air New Zealand. Instead, the two airlines can come together to compete against Qantas instead of each other.

Internationally, it’s a different story. Virgin has hitched its wagon to Delta in the US with a joint venture between the two over the ocean. Since they both currently fly between the US and Australia, this will allow them to cut capacity and share traffic. But this is where it gets weird.

Over in Asia, Virgin Australia has joined up with Singapore Airlines in a broad alliance partnership that includes codesharing, frequent flier benefits, and more. Why is this weird? Because Singapore Airlines owns roughly a third of currently-grounded Virgin competitor Tiger Airways.

Will all these changes, Virgin Australia loyalists can get just about anywhere in the world on the airline and its partners. They can also get the same level of service on domestic flights as they’ve come to expect from Qantas. Qantas can’t be happy about this, but in a way, Qantas did this to itself.

Who’s running the show at Virgin these days? It’s John Borghetti, a 30+ year veteran of Qantas. Why did John leave Qantas? Well, he was in line to take the top job but he was passed over for Alan Joyce. Now he’s got Qantas in the crosshairs.

What is Qantas doing about all this? Well, as it has in the past, it’s complaining a lot about its business being under attack. Recently, its international business has been suffering the most with big losses while its domestic operation actually makes money. Makes sense that Virgin Australia would focus on taking Qantas’s profitable domestic business, huh?

While Virgin Australia chips away domestically, international is about to become a bloodbath. The airline is losing millions, and CEO Alan Joyce said in a speech last month that a major restructuring would be announced on August 24.

You can expect to see some cuts and some strengthened partnerships with other airlines. I imagine that as usual, much of the focus will go on to its low cost subsidiary Jetstar. Jetstar is one of the few “carrier within a carrier” experiments that has been called a success, though not everyone is convinced that the numbers are telling the whole story.

Jetstar has taken over more and more of the airline’s business, and now there is word that a joint low cost carrier will be started with Japan Air Lines in Japan. This is on top of the Jetstar Asia brand that already flies within Asia. There has also been interest in starting a full service airline division based in Singapore. This all seems strange since Asia is so hotly contested right now. You would think Qantas would prefer to focus on its home turf and doing that right, but the only thing on the menu for that region seems to be cuts.

As you can see, this market is truly fascinating and it’s changing quickly. I imagine that what we see next summer will look very different than what it looked like last year.

[Original tiger photo via Wikimedia Commons user Monika Betley/CC 3.0]
[Original Virgin Australia photo via Wikimedia Commons user YSSYguy/CC 3.0]

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