Case Study: Qantas Crisis

The Qantas group aviation industry was established in 1920 in Queensland outback of Australia. It also known in another name is Queensland and Northern Territory Aerial Services Limited. Red Kangaroo is the logo of the firm, Qantas group are well known its own two brand airlines such as Qantas brand and Jetstar Brand. The headquarters of the company are located in Mascot, Sydney, Australia with a vision of “World Best Premium and Low Fare Airlines.” By the end of June 2011, Qantas was flying to 208 destinations in 46 countries, operating more than 5,700 flights a week across all its brands domestically and more than 970 international flights. It moved 44.5 million passengers.

Qantas Crisis

The crisis which faced Qantas during 2011, is said have commenced in 1990 when the airline industry started going through a deregulation by the Australian government. During 1993 Qantas and Australian Airlines were merged and Qantas partly privatized with the sale of a 25 per cent interest to British Airways. During 1995 the remaining 75 per cent of Qantas was sold to the public through a float on the Australian Stock Exchange. As a result of previously being a government owned organisation the company’s cost base wasn’t competitive compared to other global airlines and its high wage base was masked by the growth still available. The company used to have a monopoly on flight paths to the US and UK which resulted in big profits and it has built a reputation for being innovative, with introducing business class during 1979. Ansett, also an Australian airline at that stage was the only other airline with a higher cost base and it collapsed in 2001. This collapse paved the way for Virgin Blue — now known as Virgin Airways that become a competitor of Qantas. Qantas responded with low-cost Jetstar and just like Virgin Airways, the latter also moved into international flight paths to provide an alternative to passengers. Since then Qantas set out on a modernization path whilst adapting to the global environment. However its cost base continued to climb. In particular its labor structures and wage costs which date back to being a government owned organisation.

The Crisis

Nearing the end of 2011, three unions, representing engineers, baggage and catering staff and long-haul pilots in Qantas went on strike over pay and conditions, for several months. According to Qantas this action has resulted in at least 80,000 passengers being affected, more than 600 flights cancelled and seven aircraft grounded. The impact has been felt at 22 airports, both domestically and internationally involving 108 planes. On 29 November 2011, Qantas chief executive Alan Joyce, made the decision to ground the airline’s entire fleet. This action stranded 68,000 passengers around the world and locked out Qantas employees in response to the protracted industrial dispute. Nevertheless his decision paid off when the industrial umpire, Fair Work Australia, ordered disputing parties back to the negotiation table and planes back into the sky.

After this order, the parties were given 21 days to resolve the dispute. However the warring parting failed to reach a solution during this time and Fair Work (FWA) Australia brought the dispute between Qantas and three unions to a close through binding arbitration. FWA is the national workplace-relations tribunal. It is impartial and is also sometimes called the industrial-relations umpire. Even though binding arbitration could have taken months it would have led to an agreement that would be in place for up to four years and it would ban industrial action by the unions or the airline during that time.

Opposing Views and Reactions

The response from unions representing pilots and baggage handlers argued that Qantas has failed to display good faith in the negotiations, and that binding arbitration is something the airline had in mind all along. They argue that the reaction from Alana Joyce was totally out of proportion to the issues. On the one hand, their concern was for job security and outsourcing — rather than pay. The engineers, felt vulnerable for fear their work would be sent overseas and they want only limited outsourcing. The pilots union wants to ensure Qantas flights are operated by pilots paid at Qantas rates, not the lower Jetstar rates. However it was said that Qantas pilots didn’t have any specific plans for strike action. “The only action Qantas pilots had been taking was inflight announcements about the industrial dispute, as well as the donning of red ties that carry the message ‘Qantas flight, Qantas pilots’. The Transport Workers Union, which represents baggage handlers and catering staff, wants to restrict work being sent outside Qantas. Nevertheless, engineers did express their satisfaction with the move to arbitration, describing it as the appropriate outcome for the appropriate time.

On the other hand, Qantas, which has been seeking to cut costs and shift its focus to Asia, argues its survival is at risk and it needs to be able to manage its business in response to competitive pressures. Joyce argued that the stakes were high for Qantas which made it easier for him to ground his planes. He felt that prolonged industrial action would have threatened the long term survival of Qantas. “This was the only solution we had,” Joyce said. “All I’m concerned about is Qantas. This was not anti-union, this was pro-Qantas … I’ll make whatever tough decisions are needed in order to ensure the survival of this great company.” According to Joyce he has been fighting for what sounds like a simple principle: a profitable group with a growing international division at Qantas. “This was an amazing decision for us to have to make and it wasn’t made lightly. It was only made when every single alternative was exhausted to us and there was nowhere for management to go.”

The Leader

When Joyce was chosen as CEO for Qantas Airways, he pledged to lift staff engagement and boost morale. This is in stark contrast to what occurred in reality during 2011. Furthermore, his extraordinary action to call to ground the entire airline forced the federal government’s hand which brought about a situation which has never been seen in decades of industrial showdowns. Nevertheless Alan Joyce is adamant that this was a war he had no choice but to wage. In a tactical sense it seems to have been a winner despite the disruption caused to customers worldwide. The three warring unions were forced into mediation and when that failed into mandatory arbitration. On the surface it seems that Joyce has won the battle against the industrial action that was undercutting the confidence in the Qantas brand, however the usually genial Irishman has complex issues to lead. He has the challenge of winning back the hearts and minds of the Australian public and 35,000 employees who were collateral damage during the dispute.

Qantas’ chairman, Leigh Clifford argues that Joyce was the preferred candidate over other internal and external candidates in selecting a new because Joyce had a track record of getting a tough job done. He describes Joyce as a leader who doesn’t sit on his hands. “I like the way he leads. I saw that at Jetstar. I particularly liked the way he could express a vision. He’s not a pompous person, he’s a got a degree of humility. But when he acts, he’s very decisive.”

On a more personal level, it has been said that the young CEO Joyce, has an unremarkable energy. He commenced his job as CEO three years ago at the age of 42 and he radiates enthusiasm for his work. The Irishman grew up in the rough outer-Dublin suburb of Tallaght. He studied physics and mathematics and ­graduated with honors from Dublin’s Trinity College — Ireland’s equivalent of Oxford. He has been described as someone who likes to laugh, and isn’t afraid to poke fun at his own hobby, collecting old airline timetables and reading about the lives of famous mathematicians. His background operations research affords him a unique view of the world by allowing him to see a series of maths models at work in everything from queuing systems to the number of spare parts needed in maintenance shops. He tend to start with a hypothesis and seeking to prove or disprove it, once again a legacy of his training in the basic discipline of science. Joyce argues that this is always his starting point and his decisions are always based on facts and although the information is never perfect the pulling together of the process is his strength.

The Way Forward?

According to Joyce, Qantas international needs to go back into its shell to recover before it can grow again. He wants to cull unprofitable international routes, strip back investment in new international aircraft, and rely more on alliances with competitors. His vision is for the pared back division to return to profit within the next three years and return its cost of capital within five.

The immediate cost has been severe. One thousand jobs out of a total of 35,000, including pilots, cabin crew, engineers and management, however almost all of these have been voluntary redundancies.

Qantas is testing the name “Red Q, a new Asia-based, premium subsidiary, which Joyce is hoping will drive expansion in the region and into secondary ports in Australia from a lower cost base. The vision also includes the continuation of low-cost subsidiary Jetstar into the international arena with a strong push into Asia through a new joint venture in Japan and a greater push into China and Vietnam. It is anticipated that there won’t be any growth in the short term.

Further adding to the pressure on Qantas is the severe competition from Virgin Australia in the domestic market.

Some outsiders interpreted Qantas’ action to ground all flights as an airline that refuses to be blackmailed into submission and an airline that locked out passengers to square off with its employees. Professor Ian Williamson from the Melbourne business school speculates that even though the decision to ground the Qantas fleet achieved its desired short term result, the challenge has only just begun for the airline. Looking at the facts of the case, it seems evident throughout the dispute that Qantas management didn’t demonstrate the ability to engage its workers at a time when the airline wants to achieve major transformation to remain competitive. The airline seems to be losing the productivity challenge which is core to any long term success the company aspires to. Unlike the company’s shareholders, who have seen the share price plummet and have not received a dividend since early 2009, the airline’s staff have been mainly protected from competition forcing the airline to adapt. Williamson argues: “It’s not clear to me that Qantas management has the expertise to develop a more motivated and engaged workforce committed to enhancing productivity. That’s not something Fair Work Australia can do for Qantas.”

The industrial dispute has had a profound effect on customers, suppliers and other third parties. Qantas failed to provide adequate notice of anticipated interruptions to normal operations. A well-developed communications strategy seems to have lacked in keeping these important stakeholders on side once industrial action started to escalate. Communication lines with Qantas workforce also seemed lacking particularly since Qantas was trying to achieve significant changes to work practices or employment conditions in the new agreement. In the case of Qantas, a well-developed communication strategy would have gone a long way in keeping the trust of its stakeholders. The main challenge for all the parties seems to be the rebuilding of trust, restoring good working relationships and rescuing Qantas’ reputation with its staff, customers, the government and other stakeholders.

Case Discussions:

  1. Critically discuss the power issues evident from the case.
  2. Critically discuss the conflict issues evident from the case and how the respective parties have dealt with the conflict.
  3. Critically discuss the leadership style of Qantas CEO, Alan Joyce as evident from the case and the change management strategies that he has used in dealing with the strike.
  4. The survival of Qantas may be at stake if the issues aren’t resolved in the future. In you view, is a culture change required in Qantas? Justify your answer by critically discussing the current culture of Qantas and evaluating whether a culture change is necessary.

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