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 carriers 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 nonmanagerial 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 orde 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 companys management, employees, unions, and the state. Therefore, it is important to analyse it from the each partys stand point. Employers reasoning is quite plain and fair. They highly welcomed the governments 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 IntraRegionalTraffic 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. 5875. 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)