Asia
Qantas
Ground fighting
Oct 31st 2011, 6:10 by R.M. | SYDNEY
LIKE many thousands of other travellers, your correspondent had been planning a journey this week with the Australian airline, Qantas. Then, out of the blue, came an announcement at 2pm on October 29th from Alan Joyce, the airline’s chief executive: Qantas was grounding its entire fleet, in Australia and around the world, immediately. It also planned to lock out employees who were members of the unions covering international pilots, ground engineers and baggage handlers. More than 600 flights were cancelled and about 70,000 passengers were left stranded in cities as far afield as Los Angeles, London and Bangkok.
As Mr Joyce spoke Julia Gillard, Australia’s prime minister, was playing host to leaders from 54 countries at the Commonwealth Heads of Government Meeting in Perth. At least 17 of them had been booked on Qantas flights home. Thousands of racegoers were preparing to descend on Melbourne for the Victorian spring racing carnival, one of Australia’s biggest social outings. It was the curtain-raiser for the Melbourne Cup, the country’s most famous horse race, set to start on November 1st. Often described as “the race that stops a nation”, the cup’s sobriquet was now being applied to Qantas.
The airline known as the “flying kangaroo”, from its iconic tail-fin emblem, is Australia’s oldest and biggest commercial carrier. Its decision to ground its entire fleet was unprecedented. For several months, Qantas’s management has been fighting a high-stakes battle with unions representing international pilots, engineers and ground staff, whose strikes have disrupted schedules and caused flights to be cancelled. Qantas says the industrial disputes have cost the company A$68m ($71m).
Lives in normally smooth-running Australia were suddenly thrown into chaos. On a ticket booked in July, I had been due to fly from Sydney to Hong Kong on October 31st, and then on to London two days later. After 30 hours of tension following Mr Joyce’s announcement, I received a text message from Qantas shortly before midnight saying the first flight was cancelled. A friend who was about to fly to Beijing on business, and another who was due to take a Qantas “red-eye” from Perth in Western Australia to Melbourne, were also marooned. In the wider scheme of the announcement’s extraordinary timing, though, we were small fry.
The language of war between management and labour has grown ever more bitter. When he announced the shutdown, Mr Joyce accused the unions of “trashing our strategy and our brand”. He said: “They are deliberately destabilising the company, and there is no end in sight.” In turn Richard Woodward, vice-president of the Australian and International Pilots Association, said Mr Joyce had gone “completely mad”: “Alan Joyce is holding a knife to the nation’s throat. This is a stunning over-reaction.”
The disputes have sprung largely from Qantas’s bid to reinvent itself for survival in a globalised world. Australia’s great land mass and the distances between its main cities make it depend on air transport more than most comparable countries. Qantas has cornered about two-thirds of Australia’s domestic market. But its high operating costs, and growing competition from airlines based in Asia and the Middle East, have cut its share of international traffic out of Australia from about one-third 15 years ago to one-fifth.
Last August, Mr Joyce announced one of the airline’s biggest restructures in its 90-year history. It involved cutting about 1,000 jobs, dropping some international routes and launching new operations in Asia, where costs are lower, including a budget airline in Japan. A week later, Qantas announced an underlying profit before tax of A$552m for the 2010-11 financial year. At the same time airline’s international arm reported a loss of more than A$200m, a figure Mr Joyce described as “unsustainable”.
In their campaign since then, the unions have called for wage rises, guarantees on workforce numbers and for Qantas to keep the maintenance headquarters for its growing fleet of A380 Airbus planes in Australia. Some union figures demonstrated outside Qantas’s annual meeting in Sydney on October 28th, the day before Mr Joyce shut the airline down. That meeting captured more headlines for a vote by shareholders to approve Mr Joyce a 71% pay rise, which took his salary to A$5m a year. Mr Joyce later argued his salary was still below that in his former job as head of Jetstar, a no-frills subsidiary of Qantas, and that some of the increase comprised shares “I may never get”. Nonetheless, critics declared his windfall to be provocative and a questionable tactic on the part of the shareholders, to say the least, just when Mr Joyce was preaching wage restraint for others.
Signs have since emerged that Qantas had harboured contingency plans for some time to ground its entire fleet in a final bid to defeat the unions. As the shock of the grounding reverberated around Australia over the weekend, Ms Gillard’s Labor government intervened. It referred the crisis to Fair Work Australia, an industrial tribunal with the power to rule on disputes. After sitting into the early hours of Sunday and Monday mornings, the tribunal ordered an immediate end of industrial action by both the unions and the airline, and for both sides to reach a negotiated agreement over the next 21 days.
In some ways, the result was a victory for Qantas. The company had called for just such a ruling. The unions had wanted instead one that would have merely suspended further industrial action for 90 days. If that had happened, Mr Joyce said, the fleet would have stayed grounded. In the event, he ordered flights to start taking to the skies again from October 31st.
It has been one of the most acrimonious industrial showdowns in Australia in decades. Months of strikes, and the paralysis from the Qantas fleet’s 48-hour grounding, have cost Australia’s tourism industry dearly. The industry was already suffering from a flight of Australians to holiday destinations overseas, encouraged by a highly-valued Australian currency.
But the Australian economy as a whole, to say nothing of Australia’s reputation as a dependable travel destination, has suffered as well. Questions are being asked not just about the heavy-handedness of Qantas’s strategy, but also over whether the government should have intervened earlier to stop the crisis reaching such a damaging point. After the tribunal’s ruling, Mr Joyce defended the company’s action. Qantas, he said, had been suffering “death by a thousand cuts”: “We had to bring it to a close”.
The prime minister seemed less approving. Ms Gillard is a former industrial lawyer who drew up the Labor government’s workplace relations laws. The outcome of the Qantas ruling will be their first big test. She described Qantas’s action as “extreme”. The airline, she said, had reassured the government it was negotiating its way through the dispute only 24 hours before it grounded its fleet.
The long-term impact on the company brand over which Mr Joyce has done battle is yet to play out. Qantas’s competitors cannot believe their luck. Although Qantas is expected to be back into full operation after only one day, clearing the backlog of passengers is likely to take longer. At the time of writing, your correspondent was told only that my bookings were still “on schedule”. Hardly reassuring.
(Picture credit: AFP)
In this blog, our Asia correspondents and our Banyan columnist provide comment and analysis on Asia's political and cultural landscape. The blog takes its name from the Banyan tree, under which Buddha attained enlightenment and Gujarati merchants used to conduct business.
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This can't be great for the economy especially with it being 71% of Australia's market. Although, the blame can't just be on the unions although it is primarily their fault for pushing too hard.
Qantas is spelled Q A N T A S - drop the U...
Well done to Alan Joyce for taking this to the next level. Unions today are preachers of mediocrity and should be careful what they wish for – in this case, an early grave if supply chain and cost base efficiencies can not be found.
Totally agree with a previous comment here about the cause of strikes – Julia and her enabling legislation are all to blame.
For balance I disagree with Alan Joyce’s pay rise, credibility in these times is a rare commodity.
Looking fwd to seeing the next round of fireworks….
It takes guts to ground the entire fleet, I gotta salute the CEO for so doing
I don't understand why would anyone find it damaging to Aussies rep, such a strong action is a big contrast to the usual impression that Aussies are laid back, I will say it is a plus, especially so when you compare to the shuffling of the EU decision makings.
The problem with minimum wages and unions become increasingly apparent if you are competing globally, basically its a paradox of market economy and free trade.
I'm not going to weigh in on the emotive debates about who's to blame but would like to share my personal response.
I was stranded in Melbourne. Fortunately I had a rental car and was able to extend the rental and drive back to Sydney. Mr Joyce's actions have cost me an entire day of work, my wife a day of work and my daughter a day of school.
Unlike many that were stranded I can, and will, respond. My company will no longer fly with Qantas ($250k per annum). I personally will no longer fly with Qantas (another $60k per annum). I've switched my personal and all my company credit cards that were linked to the Qantas frequent flyer program ($1.5m per annum) to Velocity domestically and Star Alliance internationally.
My disatisfaction with Qantas had been building over some time. This action was my tipping point. This should be a lesson to any manager. Understand 2 things, the staff are your brand and customers are not a vague concept but real people. Be cavalier with your customers at your peril.
Many of the comments define the outcome of this arm-wrestling between unions and airline management a victory for the latter, but in my eyes it looks more like a Pyrrhic victory.
Qantas' CEO shoot himself in both feet by stranding tens of thousands of its own customers just to teach union reps a lesso, and the aftereffects of his actions will be long-lasting and cause many more costs to the airline than the losses brought forward by the strikes.
Appointing a CEO who took part in running Ansett Airlines into the ground, and even awarding him a pay raise up to A$ 5 millions was not the best decision Qantas' board has ever made, and the future will tell how another airline will follow the fate of TWA, Pan Am, Swissair, Sabena, etc.
This fiasco has blowup into a National debacle. The theme song of the Flying Kangaroo "..we still call Australia home etc " has brought 80,000 stranded aussies wishing it wasn't true. Joyce should be immolated and given Oz's highest civil honor the AO ( Order of Aust )He brought Aust to it's knees in one foul scoop.The Gillard Govt ignored his threats of taking the case to Fair Work Arbitration, ignoring Joyce's phone calls all together, and belatedly accusing him of treachery, pig-headiness, and Union contempt ?? Julia put her self interest before the Nation. Lacked the intellectual capacity to iron out National interest; failed to see the World wide damaging effects on the Economy, tourism, people's welfare; growth, and long time goals. All together, lacked empathy, prime ministerial material, and but for 3 amigo ( opportunistic )Independents & greenies would be out mowing the lawns of Govt House.
Shameless display of arrogance. Shame.
This is an unsolvable equation at present. The unions want Australian pay (indexed unreasonably at a much faster rate than average wages mind you) whilst Qantas want to compete with Asian carriers with lower pay rates. Although the airline industry is capital intensive, personnel costs are not insignificant. Either Qantas relocates some aspects of its workforce offshore, cancels its international operations, or the government subsidises the airline to allow it to compete (though I'm not sure this complies with current trade treaties). Regardless of the outcome, unfortunately the unions are soon going to need to work out that they cannot claim pay increases above average Australian wage increases for perpetuity.
I wonder if the Union buys Australian paper for its copiers or uses Australian pens etc or does it buy the cheapest available like the Labor Government sources Uniforms and defence spending contacts for stationery from China
Unfortunately we have Union officials who have migrated from the UK as well as a Prime Minister and Labor party funded by Union funds. The union attended Qantas' AGM to encourage shareholders to vote against management. Hopefully Aussies will see who is really their friend and who is really their pocket lining enemy and vote out the Union management and get Australian Industry rolling. Under this government and its "Fair to workers and Unfair to Employers Act" the country is becoming a sunbakers paradise. It is just too expensive to employ anyone here at the moment. We used to Employ University students between lectures as we are near to a campus. It paid many to get degrees. We cannot employ them under 4 hours stints now. Gillard has ruined productivity. We employ anyone under duress now
Hopping mad ?? Upside down thinking ?? so many possible jokes to work with...
I'm not sure who's the dimmest bulb in this row, but I think Quantas just had its first fatal crash...good going mates.
Three classic comments in a row.
First from konker, who, quite simply, nails it. QF has to cut cost.
Second, from guest_iwmneis who promises never to fly QF again, though apparently he's happy to have uncertainty for the next year from the unions. Just like he never drove again after gas went over $1/gal., I bet.
Third from Cloud-Warrior, who points out this is a storm in a teacup. The airline was shut for 45hrs. BFD.
And on the next page a comment from Manuel who compares QF, rightly, with Aerolineas Argentinas. With all the rhetoric flying about, this is a nice little piece of reality.
The days of our fathers' generation are gone. Today, we all know that (to our employers) we are all just a tool set which can be easily discarded. The employer has no loyalty to the "worker bee" employees. Is it any shock, then, that the employees should have not loyalty to the employer? Or care whether it survives?
If Quantas goes down another airline will rise up. The current Quantas employees can get jobs elsewhere (or doing something else). Labor negotiations are merely economic negotiations, not ideological struggles. If the union holds the firm's feet to the fire, so be it.
Also, a CEO who takes such a pay raise at such a time is a moron. Blimey.
Congratulations to Mr. Joyce, who evidently deserves every penny of his pay.
You don't believe me? Look at Aerolineas Argentinas, torn to pieces by multiple unions wanting their "fair share" with no consideration for public nor shareholders. Now it is owned by the state, still has the odd wild-strike, and loses USD 700 MM a year, which the taxpayers have no say in funding.
Somehow, when the unions strike it is fair, but a lockout is deemed as madness. Now how is that for coherence?
it's just the beginning....
We were in Brisbane over the weekend, with a Quantas ticket to get us back to Sydney on Sunday for our return flight to the US on United on Monday. We heard the news about the grounding late Saturday night, and by then all open seats on Vrigin Australia etc were booked. So we rented a car and drove the 12 hours from Brisbane to Sydney to ensure we made it back. We counted ourselves lucky compared to the fellow next to us at the retanl car counter who was planning on driving 48 hours from Brisbane to Adelaide. It felt very much like those first few days after 9/11, when people who were stranded far from home scrambled for other transport. It will probably take about as long for the flying public to forget this incident and resume booking Quantas.
the big thing being overlooked in this whole debate is that this mess was entirely caused by Gillard's Fair Work Act.
Under Howard's Work Choices, the unions weren't able to bargain on issues around contracting-out, so this means that they couldn't take industrial action in support of such claims. Gillard's laws enabled this to occur and the only way for Joyce to break their back was to take the drastic action that he is.
The Fair Work Act remains the biggest single piece of economic vandalism to have been wreaked on the Australian economy in decades. Forget the carbon tax: FWA is already doing far worse.
Amazingly I find myself agreeing with Cloudwarrior. Compared to disputes between BA and seemingly every part of its staff and supply chain, this was sorted out breezily.
@ the good soldier svejk
Don't be silly. There's a huge difference between an airline outsourcing part of its supply chain and a nation outsourcing its police and I'm sure the author of the post and every commenter here knows it.
"The main treason Australia is losing jobs to Asia is the greed of fat cats"
The main reason that labour-intensive parts of developed economies are relocating to Asia is because of, well, cheaper labour there (and the demographic dividend, and China joining the WTO etc etc but ultimately that just leads to cheap labour). Like the rest of the world, Australia has adapted, partly by investing in mining, and has created new jobs to replace old ones. In fact, compared to most other developed countries, Australia has been doing amazingly well. See TE's special report on Australia from a couple months ago.
"a company does not necessarily need a 15% profit, it can easily survive with a 7% profit"
Did you mean 7% margin? Either way, 7% seems like an arbitrary number, and there's no telling whether it's good or bad or indeed enough to survive.
@Konker
“The logic of globalisation suggests it makes sense to locate labour intensive parts of your business in lower cost locations and to shift your business towards regions with bigger markets.”
This is a ridiculous preposition. With this logic we may end up outsourcing the police to some South Korean security firm, the hospitals to a Taiwanese health service provider and the ATO to an Indian outfit.
If surviving in the new world require to transfer all labour intensive jobs to Asia then the only jobs left in Australia might be for politicians and (maybe) CEOs. In fact we can easily outsource Joyce’s job to a less costly and at least as smart Singapore executive.
The main treason Australia is losing jobs to Asia is the greed of fat cats like Joyce and his Pitt street cronies; a company does not necessarily need a 15% profit, it can easily survive with a 7% profit.
I'd still prefer Qantas to any other airline. This is minor hitch of an otherwise well run and extremely safe airline. Banyan as per usual hypes up a small issue into a major incident.... " the Australian economy as a whole, to say nothing of Australia’s reputation as a dependable travel destination, has suffered as well"
Really?
Forgive my language, but that is pure bullshit... pure and unadulterated.
What this has shown the world is that companies whose business model is unprofitable will attempt to restructure. It shows that the government is not as interventionist as many others. It shows that union power is not absolute. It shows how little industrial action actually takes place in Australia.
So far all of these factors, if anything, have bolstered Australia's economy and reputation.
A grounding of the fleet for two days is much more preferable to bankruptcy or planes falling out of the sky.
Banyan stop being a drama queen... that's my job!
As an international flyer of Qantas, I can't trust the airline. If the CEO is just going to shut the thing down without warning its passengers, the group who really needs to be the priority, there is no way in hell I can ever fly this airline as long as he is running it no matter what the union is doing. My international business has now gone elsewhere where I can find more dependability.