Alan Joyce, You Magnificent Bastard!

So over the weekend, Qantas Airlines grounded all of its planes, without any warning. This of course stranded thousands of passengers, and did massive damage to the Qantas brand. The Associated Press has a reasonable summary.*

This story all unfolded very fast, and it wasn't quite clear what the hell was going on. After reading around, here is what I've managed to piece together as the underlying explanation:

Firstly, to make any sense of this, you need to know that a lot of Australia's industrial relations disputes are governed by statute. In other words, there are courts to decide what strike actions are acceptable, and what wage and conditions are reasonable in various contracts. Sounds monstrously stupid? That's because it is! Apparently people need the government to intervene in private disputes, because of ... well, who the hell knows? The point though is that when unions get into a stoush, it will end up being settled by a quasi-court body like 'Fair Work Australia'. That's point #1.

Secondly, the Qantas unions (baggage handlers, pilots etc.) have been engaging in rolling strikes for several months now, causing huge damage to the company. It's workers are already paid pretty damn well - baggage handlers make between $70,000 and $85,000 including penalty rates but not overtime, an amount over 20% above the industry rate. For lifting suitcases. And they were demanding even more money, based on the impeccable logic of 'Hmm, the company seems to be turning a profit - why don't we try to expropriate all of that to ourselves, even though we're not actually adding any more value?'.

Thirdly, Alan Joyce, the CEO of Qantas, decided that if he gave into the union's demands, Qantas was going to go broke. This has actually happened in the last decade, with Ansett Australia, one of the previous major airlines, being liquidated in part to ridiculous union demands making it unprofitable.

So here's where it gets interesting. With the unions engaging in industrial action, Alan Joyce took the radical step of a lockout of union employees, grounding the airline in the process.

Now, on face of it this seems odd. Usually, union lockouts are designed where the company hires a bunch of non-unionised strike-breakers and plans to engage in a long-term plan to replace the union workforce. At a minimum, lockouts are meant to harm the workers by depriving them of wages for an extended period, thereby hoping to make them concede.

But that clearly wasn't the case here. Qantas couldn't possibly replace its workforce in a hurry, and if they didn't get flying again soon, the company would be finished. So what the hell was the point?

The point, which I was slow to realise, is that the lockout was actually designed to force the hand of the government and Fair Work Australia. In other words, Alan Joyce was doubling down by making the union's industrial action implicitly not just a problem for Qantas management, but for the entire travelling public, for Australia's reputation as a safe place to do business, and for the whole Australian tourism industry.

He was wagering, in other words, that the grounding of planes would cause such a holy sh*tstorm that the government and Fair Work Australia would do just about anything to get the planes back in the air. And they did - they declared the lockout over, but much more importantly, they declared that future union strike action was illegal. Bingo - game over unions, victory to Qantas.

In addition, the government was complaining that Joyce didn't give them enough notice. As it turns out, this claim looks to be bogus. But on the other hand, Joyce was also in a game of chicken with the government too. The Labor Party is beholden to the unions. If Joyce had tipped them his plans early, they would likely have taken the opportunity to figure out how to make him into the bad guy and try to get him to back down. When he presented them with the lockout as a fait accompli, there was nothing they could do. He'd already committed to shutting down the airline if needs be, and the only Nash Equilibrium was for the courts and government to back down.

It's far too early to tell what the longer-term damage to the Qantas brand will be from all of this. But screw it, even if this is the end of Qantas, what a way to go out! You can either give in to the unions and slowly die of unprofitability, or you can give them a big middle finger, knowing that either you'll win the dispute, or you'll go out like Francisco D'Anconia.

Alan Joyce, in other words, had both a very clever strategic and political insight, and the huge brass balls to pull it off.

The grounding of Australia's major airline over industrial action is something to regret greatly, not least because of the huge disruption to lots of innocent bystander travellers.

But Alan Joyce deserves serious props in my book for staring down the unions instead of giving them the airline. Very nicely played, Mr Joyce. Very nicely played, indeed.


*(My newspaper of choice, The Australian, has decided to put all their content behind a paywall, also known as the 'I really felt we had too many readers anyway' strategy, so you get the AP instead. This also goes to show that companies are more than capable of destroying their brands without any union interference).