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.
What is labor’s take on Asian competition to/from Australia?
Labor hates Asian competition because it gives management a reason to try to cut their wages to become competitive. But there doesn’t seem to be much interest in trying to become competitive from the labor groups that I can tell.
I’m not an expert on Australian labor laws or practices. But there does seem to be a brilliance behind “forcing the issue” instead of letting the unions control the negotiations though sporatic service disruptions.
Just another example of the harm that labor unionization seems to have in the airline industry. I truly believe that almost all airline employees would be happier without unions. As best I can see, airline unions just amplify unhappiness, and don’t actually result in better wages or working conditions for the employees. They certainly limit advancement, as their employers inevitably suffer in the competitive landscape, as new entrants with lower wage costs take business that would otherwise go to the established carriers.
Southwest airlines is unionized, and they have happy employees. It does not matter if a company is unionized or not. A good workplace culture is dependent on the trust between management and employees.
Germany has one of the most unionized workforce, earns a decent living wage and high quality of life, and yet it can compete globally with high quality products.
I’ve flown on QANTAS several times. They have good dedicated employees with service in par with the best airlines. It’s no accident that QANTAS has never crashed. A lot has to do with its employees.
WN also never had to deal with Deregulation, as they did not compete intrastate until after deregulation–let’s revisit WN’s labor relations in about five-ten years, after the merger and mostly less-unionized carriers such as B6/NK/VX/AS have eaten their lunch.
It does seem like Southwest, as a business, has peaked in terms of its relative profitability compared to its peers. Delta, for example, was much more profitable than Southwest in the last quarter on a percent of revenue percentage. I believe that much of this decline is due to labor cost, and the decline will extend when Southwest has to pay Airtran employees Southwest wages. This will undoubtedly result in curtailed opportunities for all Southwest employees in the future.
The issue is always the same, in this case the pilots, mechanics, and baggage handlers aren’t happy so they make the other workers of the airline suffer hardships. Union workers at airlines always want more, but they never think if they get more it comes from the airlines non-union workers getting less.
That actually happened a few years ago at Boeing when a group of engineers in Seattle unionized. They took money/benefits away from engineers in other areas (Huntington Beach, St. Louis, etc.) to pay for the increased cost which affected cross site relationships between engineering teams.
I just got around to watching the CNBC Dreamliner special earlier today. There was a segment with the Seattle union people complaining about the Charleston facility and fearing that they might move more work out there. Funny how the Seattle-area unions had no problem with giving the finger to their Long Beach counterparts after the McDonnell Douglas merger.
Union workers want more???……seriously? Just how many UNION WORKERS gave up pensions, pay and benefits during the beginning of this decade during the multiple bankruptcies in this industry? I’m HARDLY making what I used to make in the mid 90’s. That’s, count em, 15 years ago. Management doesnt BARGAIN in good faith either. They delay, delay and delay, knowing the process can take years and years to play out. Then, there’s the NMB, who can “recess” the two parties indefinitely, also delaying the process into years.
Reading this post about the strange labor relations of Quantas makes me think of a late 20-something who works for JetStar managing pilots schedules from there office in Melborne I just met at the youth hostel in Seattle, both of us were just on vacation. He told me he now has to go to Manila, Phillipeans 4 times a year to train employees in jobs that were exported their after half of their Aussie based staff was laid off.
What surprised me most was how he had gotten to Seattle where I met him on holiday by basically just paying internation taxes. First he flew on JetStar to Honolulu and then on Alaska Airlines (via American Airlines and OneWorld I guess) to the mainland. One benefit employees of Quantas subsidiaries still get is employee travel even on international alliance airlines.
One strategy Australian unions may want to consider is to help organize Southeast Asian workers. This may mitigate the incentive of Australian companies from outsourcing jobs.
It sometimes seems like labor wants the companies they work for to be liquidated. I don’t know enough detail to comment further about Qantas. But looking at it from afar (from the U.S.), it almoost seems as if labor wants to be blind.
The U.S. legacies had to cut payroll to compete with Southwest, who cherry picked their most profitable routes, and left them with the basic service they inherited (and can’t easily get rid of, politically speaking). It’s not unlike FedEx, UPS and the Post Office. FedEx and UPS skimmed off the profitable business that subsidized the basic services the Postal Service is mandated to provide, so the Post Office loses money.
Yet labor apparently wants to ignore the realities of the marketplace. Airline workers, on average (and I know of “lies, damned lies and statistics”) earn good wages; better than most workers in this country. Yet they want more and more while their employers make returns that can be best described as dismal. If airline employees don’t like their jobs or think they can make more elsewhere, they should quit their jobs and stop whining. No one is forcing a senior airline pilot to keep his job. I have little sympathy for a pilot who complains about being underpaid while making six figures. And from what I’ve seen, 90% of the whiners are the high income, high seniority folks. I’ve had decent jobs over the years and own a small business, but haven’t come close to making six figures in any year so far.
I understand that pilots have tremendous skills and earn what they make. I also am aware that Southwest pays some of the highest wages in the country. Yet their costs are low. Some of this is attributable to their cherry picking. But Southwest’s low costs are also a function of productivity, at least based on my observations. There has to be a win-win solution for legacy airlines and their work groups. But it seems labor wants no part of a solution where the company and its owners win anything.
Yet, it also seems management is less than cooperative at times too. AMR’s executives have no business “earning” bonuses while the company loses vast amounts of money. Even the appearance is bad. I understand that, in Japan, the first person to take a pay cut when times are bad is the CEO. But many of our business executives feel their exalted status gives them a right to performance bonuses even when the company isn’t performing.
Again, I don’t know all of the particulars about Qantas, but if its labor situation is anything like what’s happening here, both sides need to look in a mirror.
The lack of realism apparent in the airline industry is and has been a recipe for financial ruin. If you want evidence, look at the fabulous rates of return and long history of wealth production the airline industry has produced over the years of its existence (I hope you catch the dripping sarcasm).
There’s plenty of blame to go around, at least as I see it. It’s time for labor, management and shareholders to get a reality check. The railroad industry went through a lot of this 20 to 30 years ago. It reformed itself. It’s become a profitable enterprise. Warren Buffett lost a bunch of money on US Airways stock some years ago (well before the HP merger). He recently took BNSF private. Buffett learns from his mistakes. That’s why he owns a railroad, not an airline.
Agreed. Australia has a very high standard of living and globalization puts them at a cost disadvantage. However this doesn’t mean everyone should reduce to the lowest denominator. ANZ manages to have wonderful relations with its people while maintaining decent and profitable wages. This is not the right way for QF to deal with its people.
@DesertGhost I think the Japan example is true, but American corporate culture is top heavy (and I guess Aussie corporate culture is the same)
People are too connected to Qantas to drastically move off to Virgin, but some shift will occur esp. with VA’s aggressive partnerships with Etihad and SQ. Qantas needs to aggressively use Malaysia Airlines to fill gaps the same way VA uses Etihad and soon SQ.
AA, BA, and now QF (notice these are all oneworld airlines and all countries with very similar cultures). Whose next?
Yet labor apparently wants to ignore the realities of the marketplace. Airline workers, on average (and I know of “lies, damned lies and statistics”) earn good wages; better than most workers in this country. Yet they want more and more while their employers make returns that can be best described as dismal.
that’s interesting, because I know co-workers who are applying for FOOD STAMPS and qualifying for them!!!!!!!
FRANK, With all due respect, you obviously didn’t read the whole passage you copied. You conveniently ignored the word “average” and my Mark Twain reference.
I was referring to overall pay and benefit levels. If I’m wrong about the overall situation, I would appreciate some solid evidence to that effect. I’m more than happy to stand corrected. But the US Airways pilots and flight attendants I know here in PHX make good money, and they’re not at the top of the pay scale. So on average, my acquaintances balance out yours. That’s the “lie” of statistics (a la Mark Twain).
That doesn’t mean there can’t be better contracts negotiated. But it takes two to tango.
Given the financial violence that was done to Qantas by industrial action prior to the grounding, I don’t see that Mr. Joyce had many – or any – other options.
I think Australia needs to decide if Qantas is an independent company functioning in a free market – or if it is to be a subsidized national icon and attendant job stability program.
Either is fine by me, I don’t see that it can be both.
Faults on both sides, here, but the unions must have been pretty pissed by Joyce getting a 70% pay rise just a few days prior to these shenanigans.
Getting a pay raise while asking for employee concessions is not smart thing to do. Especially given the popular anti-corporate sentiments we are seeking around the globe.
If it was about wages only, Qantas would have given into the demands already. The wage requests are very mild.
The real issues is that Qantas announced recently the creation of two new subsidiaries; Jetstar Japan and Qantas X an as yet un named new Asian based premium airline. These moves translate into an outsourcing of jobs from Australia to Asia. This will bring a reduction in labour costs for the airline. This is what the unions are all united against and for which they have had a rolling campaign of industrial action since August. The unions are actually asking that all new Qantas employees will have reciprocal conditions as Qantas Australia employees. This defeats the whole idea of the new subsidiaries. The unions have also asked for job security guarantees for employees of any Qantas subsidiary.
There is no way Qantas will give in on those hence the stalemate.
Why is it unions are the first to be demonized? How about calling out management on their featherbedding, ie, perks, performance rewards, last to be pink slipped? Why did unions form in the first place? Hmm, let’s see, could that be some exploitation by management? Is it any wonder both sides revile each other at many legacy airlines (AA, UA, BA, QF)?
It comes down to company culture. Treat people fairly and with respect (exhibit A: Southwest, Jetblue), you have productive employees with or without unions.
The end game here folks, thanks to globalization, is to drive wages down to those of the cheapest competitor, anywhere. So for workers in the developed world, wages will have to be driven down and living standards reduced to those in the developing world. But not everyone will suffer. Senior management will reward themselves handsomely for reducing costs.
It is all well and good to see a flurry of comments from Americans against unionism in the workforce, but the pay disputes were minor and were only keeping up with inflation. QANTAS made a huge post tax profit of over 550 million AUD, which is much more than most airlines its size.
Alan Joyce has treated a classic Australian airline with contempt, and undermined the working culture of the airline, while other airlines within the region are flourishing (see even Virgin Australia). Fleet choices and planning had been lacklustre, and now with the ‘rationalisation’ of QF routes internationally, people have even less choice to fly the red kangaroo overseas (Our only choice to London will soon codeshare with BA, or QF service only through SIN).
I and many other Australians have have long mode our international flying to other airlines, and for over 2 years now I have just used Virgin Australia (which has been quick to show it is committed to treated staff AND customers with respect) Don’t masquerade to be the Australian flag carrier if you are going to abuse cheap labour from Thailand on separate contracts and slave them for 20 hour shifts. THe public has seen it, Alan Joyce would be happier if Qantas was disintegrated and all assets were moved across to JQ.
Virgin Australia’s international routes have only very recently become profitable – reported August 2011 – and only by cutting routes, JNB, for example, and within NZ.
Yet if Qantas wants to cut routes to restore the international arm to profit, there is hell to pay.
Just a little consistency would be nice.
I think Australians are hungry for more non-stop flights without dealing with connections and stop-overs. The 787 would have been an ideal solution for Australia’s tyranny of distance.
Many in the OZ community here in San Francisco are lamenting the loss of QANTAS SFO-SYD flight. They dread the connections at LAX which is not ideal between terminals. They’re hoping for V-Australia to fly into SFO to connect with Virgin Atlantic and Virgin America networks.
Cranky, some missing context for your post that you might find useful is that Joyce has to maintain majority Australian ownership in Qantas (see http://www.comlaw.gov.au/Details/C2010C00854), and is not allowed to set-up overseas airlines to avoid this.
To try and get around this, Joyce has tried been pursuing a two-headed strategy: a) set-up the new low-cost off-shores as joint ventures, and b) make Qantas international look as unprofitable as possible. (You commented in a previous post that elements of strategy a) didn’t make much sense to you, and I can see why without this context!)
On strategy a), it is likely that the Independent and Green senators will move an amendment to the act to prevent this — and after the lock-out this is more likely to get the political support to be passed. The government feels Qantas acted in bad faith, and worse, embarrassed them by pulling this on the last day of the Commonwealth Heads of Government Meeting in Perth, affecting quite a few Heads of Government and seriously embarrassing the government.
On strategy b), the parliament saw in July that there are: “detailed allegations of cost-shifting that I have sourced from within the Qantas Group, and when you know the facts you quickly see a pattern. When there is a cost to be paid, Qantas pays it, and when there is a profit to be made, Jetstar makes it.”, see http://ozhouse.org/2011/10/30/qantas-finally-the-truth-is-coming-out/#.Tq5_wwSO1NQ.facebook ).
So it may be that Joyce has won the battle via the lock-out, but has put himself in a good position to lose the war.
It was a brave brave move, The idea was to take the power out of the unions sails as now really they have nowhere to go, at least now Qantas can fly and the unions can’t keep doing rolling stoppages, For Joyce he was just tired of the constant threats and the unreliability of his workforce, but this is just like Ansett MkII or is it III, anyway it puts Qantas in a very hard place, for its workers an even more worse place, to a point there will be no Qantas as such in a few years and just a management umbrella for other companies, and those unions, gone, fired….nothing left to fight for except poor contracts for Asian Airlines, They are already overpaid even by Australian Standards never mind world standards, they say they are fighting for their jobs, well they have done a great job of that, brought their company to its knees, trashed its brand, and killed their own jobs….”keep going fellas your doing a great job”.
Joyce can’t be seen in good light either, Qantas product is awful, except to the Business folk now jumping on to the Virgin Australia planes to be greeted with open arms by John Borgehtti, so much for a loyal customer base, but routes are average as Qantas just ran the cash cows of the “Kangaroo and LAX Routes, then as they both fell to Emirates (Etihad) and Virgin Australia, (ANZ) and others then Qantas was left holding the baby with no bath water, no wonder they are losing millions on the International routes.
What about Rome, a great route and dropped 4 years ago in a christmas present to Cathay Pacific, and guess who’s in Rome right now running up the business….Emirates, Joyce won’t be there in 12 months, maybe 6 (with his 20 million bonus), Qantas will be gone in 3 years….sadly it is Ansett all over again, and yes i am crying…