11.11.2011 « “An Unpleasant Situation That Continually Repeats” »
Remember the movie “Groundhog Day?” Well, Qantas is starring in the current airline version with Air Canada in the supporting cast. The basic plotline has unions pretending to know how to run companies while portraying management teams as the dastardly villains whose only aim is to run carriers into the ground, milk their pay and destroy organized labor.
If you’re thinking you’ve seen this one before, that’s because you have. Outside of Hollywood, there is no better industry at recycling the same old material than U.S. airlines and their workers. Like any movie fan, I love a good sequel, but the all-knowing unions versus incompetent management is the same story run more times than a 1950s B Western.
Still, the version from Down Under is quite possibly the most intriguing adaptation in recent years. At the crux of the Qantas story is CEO Alan Joyce. During the past several months, Joyce has faced numerous intermittent strikes by employees; received alleged death threats as he seeks to change the course of Qantas; threw his hands up, shut down the airline and locked out employees for a weekend (the same weekend the Australian government was hosting a major conference); took a lashing for doing so from the Prime Minister and other Australian lawmakers; and, in a move reminiscent of U.S. airline stories, tried to explain the business to a dysfunctional government lacking a complete understanding of air transportation.
Joyce recognizes very clearly that Qantas must change, otherwise the Flying Kangaroo will land in a gravesite alongside Pan Am and TWA and not on a runway in Sydney. Joyce wants/needs to establish a low-cost presence in Asia. It already has a low-cost alternative called JetStar in Australia.
Qantas is a geographically disadvantaged airline – its home market is an end point on the global airline map. Airlines in the Middle East have targeted Qantas’ traffic base using their geographic advantage to route traffic to points in Europe, North America, Africa and the Middle East. Because of their lower costs, Emirates, Etihad and Qatar can offer much lower fares. Singapore, Malaysia and Air Asia can do the same thing for the same reasons. Imagine what will happen if (or when) the Chinese carriers become formidable competitors.
The union response? Rolling, intermittent strikes by the Transport Workers Union, the Australian Licensed Engineers Union and the Australian and International Pilots Union. This destructive industrial action forced Qantas to cancel more than 600 flights affecting 70,000 passengers, creating uncertainty for businesses and damaging the tourism industry.
I know some regular readers will say I’m once again bashing unions and sticking-up for management, but that isn’t the case. I think labor has some legitimate beefs with Qantas, but the reaction by the unions simply isn’t rational. When an airline is struggling, you don’t plunge it further into economic turmoil, especially when the heart of the dispute is job security. All the Australian unions have to do is look at past versions of this story to see how that works out. It just makes no sense.
What makes this round of bargaining different than past rounds in the U.S. is there are major, structural claims that management cannot accept without putting the enterprise at risk. It is one of the reasons I write so often about scope.
Joyce very eloquently outlined Qantas’ position: “No responsible company would let a small number of unions dictate how the business is run. What the unions are actually trying to do is secure a veto on change. They demand the retention of outdated work practices that do not reflect the realities of modern aviation. They want Jetstar pilots to be paid at the same rates as Qantas pilots, a move that would drive up ticket prices for leisure travellers. These are major, structural claims that we cannot accept.”
I applaud Joyce for standing up and saying enough is enough. Some very smart people have said Joyce’s major error was not informing the government of his intended actions, thus embarrassing the current administration. Truth is, whatever decision Joyce made to combat the union’s actions, he was damned. If he did nothing, he was left in charge of an airline that had no idea if it could deliver service to customers because the unions could strike at any time. He was damned if he shut the airline down, inconveniencing those same customers as well as humiliating the government. And if he gave the unions even half of what they wanted, he’d forever be known as the man who doomed Australia’s national airline.
Like it or not, decisions made in management suites and board rooms are all about preserving the enterprise - - even if it means making unpopular choices. That’s what makes the airline business different today than in the past. The irony is both management and the unions really want the same thing; to keep the airline a viable enterprise into the future, thus securing jobs. It’s about building the best job protector that can be built – a healthy company.
That’s why so many U.S. aviation workers really should be tuning in to what’s happening at Qantas and, to a lesser extent, at Air Canada. Pilots and flight attendants at United/Continental, the pilots and all other groups in negotiations at American as well as the pilots and flight attendants at US Airways don’t have to produce their version of “Groundhog Day.” They can recognize reality and start a new script that guarantees good paying jobs for their members and helps keep their respective airlines competitive. Think of it as an adaptation of the UAW play.
To be stuck in the same place, with the same unproductive mindset and doing the same things over and over isn’t going to be any more effective in the Qantas story – or any other version – than we’ve seen in the past.
Bill Murray’s character in “Groundhog Day” has a telling line I don’t want to see as airline unions’ epitaph. After trying to break the repetitive cycle he’s stuck in, Murray’s Phil Connors says, “I’ve killed myself so many times, I don’t even exist anymore.” If management and unions don’t change the script soon, that’s exactly what will happen.
Reader Comments (6)
I agree that both labor (union & non-union) and management should want the same, "to keep the airline a viable enterprise into the future, thus securing jobs." With such a simple concept, why would there be any divergence from this unifying theory by any group? Simply stated: Inappropriate or mismatched incentives.
The financial and financial services industries in the US have demonstrated and continue to demonstrate this so well with outrageous compensation packages that reward short-term or even false performance at the cost of sound, long-term business decisions, their own firms' long-term success and the stability of the global economy (i.e. the subprime mortgage financial crisis). These compensation packages are set by the compensation committee of the board of directors typically. These groups continue to display hubris as they reward their peers with incentives that are not matched with the very goal you claim...long-term viability and profitability. When the executive/management teams' commit to compensation reform that is reflective of the new, "...realities of modern aviation," maybe you will find labor that is more open to discussion of change as well.
Both sides are contributing to the continued problems in the industry, but management continues to be compensated as usual. Additionally, executives have a corporate lifespan of 2-7 years while the employees have one that is 15-30 years if not longer. Executives are incentivized to inflate, grab and go while employees are incentivized to perform steadily and advance since all seniority is lost if they move to another enterprise. The concept that tying executive or employee compensation to company performance via equity ownership (i.e. stock) has a serious fallacy. Many believe that those who don't have an equity stake in their company aren't appropriately motivated to do what's right for the enterprise. I disagree. Every person has an extremely valuable commodity that only they own and only they can invest. This commodity is finite, unknown in its actual quantity and can never be multiplied or recovered...their time. The ultimate incentive is to feel good and happy about spending one's time at an endeavor. Even the best investment of time will never yield more time being added to that person's life. The ultimate ROI on one's time is feeling that one's time is "well spent." A person who only invests 5 years in a company is not nearly as invested as one who has spent 30 years.
Another action that might yield change is If executive compensation was tied directly to the compensation of their employees. Imagine, executives that can't be rewarded/compensated until their employees are. This would mirror the leadership model that rewards leaders only when their subordinates are successful. It's the ultimate measure of leadership. I submit that employees who feel undervalued, are paid at the bottom of the industry scale and don't feel that their time is well spent are not successful. Therefore, the leaders who are paid to lead those employees to a successful outcome are also not successful and should not be compensated as if they were.
Yes, William. We all remember the movie “Groundhog Day.” Each and every time an airline employee reads your blog, it’s like “Groundhog Day” over and over. This supposed, “hard look, no sacred cows” (sorry, I still always giggle a little when I see that on Google) blog is the same theme, over and over. Airline employees/unions: bad. Airline management: good. I think we’ve got it, William.
Oh, if only those recalcitrant pilots and flight attendants at United, Continental, and US Air would stop being so difficult! If they would only be more like the UAW and give up wages, pensions, health care, and work rules like the UAW did…….wait a minute. Didn’t the employees of ALL those airlines do just that just a few short years ago? Weren’t pensions thrown by the wayside? Weren’t significant (40% +) pay cuts taken? Weren’t work rules reduced down to FAR’s? Wasn’t their quality of life destroyed? Weren’t health care benefits greatly reduced? Didn’t they already spend most of the past decade “giving back” while watching their respective management teams richly reward themselves with compensation packages that still don’t reflect market realities?
Oh you silly employees! How dare you demand a raise! Don’t you know that only those in the executive suites are entitled to such lavishness? I mean, let’s look at a recent of example. Let’s take a look at Keith R. Halbert at United (Google it). He leaves United last April and the company acknowledged promising him MORE money and benefits than they CONTRACTUALLY HAD TO PAY HIM. And let’s not forget those free flights for the rest of Keith’s and his wife’s life. I mean, we wouldn’t want the poor guy to have to buy a ticket or anything. But guys- rest assured. Zane Rowe, UAL CFO told analysts that, “teams are all working aggressively at managing expenses.” Of course, as we all know, this Halbert deal is just one example of many.
It’s funny that such a “hard hitting, no apologies” blog never spends even ONE entire blog talking about the excesses in the airline executive management suites. The flight benefits for life. The cars for life. The office space for life. The country club memberships paid for. The private school tuition covered for executive’s kids. Because we all know that corporations should be responsible for such expenses! An airlines, of all corporate entities, are best able to afford such luxuries.
But wait……I digress. Back to those crazy airline employees demanding wage increases after years of concessions. American, Continental, United, US Air guys, listen. You have to get real. The people in the executive suites who have seen their compensation increase over the years while yours has gone down are very special people. You’re not. Please, listen to William. It’s for your own good. Management knows what is best for you.
Don’t ask for your wages to be BROUGHT UP TO more “competitive” airlines like Southwest. Don’t ask for their scope, either. I mean right there……that’s just crazy talk. And don’t even THINK ABOUT asking for inflationary wage increases that some of you Continental and United pilots haven’t received over the past several years. That is just over the top, and you all know that. And back pay while airline management abuses the Railway Labor Act with drawn out contract negotiations while enjoying 100’s of millions of dollars of profit at each of your airlines? C’mon, be reasonable! Recognize reality and start a new script!
Man, this blog would be really, really bad except for the comments section.
Mr. Swelllbar I used to enjoy reading your blog because I felt you had some credibility but the more I read it the more I believe that you really are just a shill for corporate management. I wholeheartedly agree with global express above.
What's wrong with Jetstar pilots being paid the same as Qantas pilots ? Why shouldn't they be paid the same ? Furthermore what's wrong with leisure travelers having to pay more for their ticket ? Is there a universal right to a cheap air ticket ? Would you go to a cheap surgeon Mr. Swellbar ? Given the complexities of commercial airliners I would rather have well paid mechanics and pilots than a cheap ticket.
Unlike most executives you seem to shill for the workers are stuck with those decisions for better or worse. In many cases the concessions management strives for wouldn't make a hill of beans difference in the company's survival or success. They are often the result of poor management consulting they outsource to Kinsey or others because they are basically incompetent in that industry. I know many of them and speak as an MBA, business owner(s) and employee at one of the largest firms. We are fortunately relatively well run and that shift was the result of looking at the workers as an asset instead of a liability resulting in a cooperative attitude with labor. You overlook the most profitable airline in the history of aviation and the largest US carrier- Southwest Airlines being the best compensated and highest unionized one. Details and trifles to most who swallow the drivel of the O'Leary's and Lorenzo's management by incompetence that in the long run will fail as it is unsustainable.
An amusing blog by an amateur. The comments are more telling.
"Like it or not, decisions made in management suites and board rooms are all about preserving the enterprise - - even if it means making unpopular choices."
Mr. Swellbar, you sir should come to Hollywood, they need comedy writers. This is hilarious!
Senior management has shown repeatedly that their decisions are all about preserving the enterprise of... stuffing their pockets--even if it means making...income 275% greater than the 99% of us not in the suites and boardrooms over the last three decades.
Is the broader context that "one man one vote" organizations - whether unions or countries - will always be resistant to change and first seek to blame external bogeymen for their real or perceived woes until there is no alternative remaining but the change they have been resisting?
We see similar tub thumping and finger pointing in our country on medicare, social security, the defence budget, immigration, etc.
I think Churchill is attributed with saying "you can always count on Americans to do the right thing--after they've tried everything else."
If this hypothesis has merit - then are there two ways forward for airline unions (and countries):
1. Continue to resist change until there is no alternative - and then live with the outcome (eg, Greece)
2. Find (or hope) for a leader who demonstrates to the majority of the need for change while withstanding the howling, emotional fringe.
It remains to be seen whether our country can find a leader like that from the pool of our entire populace; hence lower probability that such a leader emerges from less populated unions.