MNO3313A Project: Qantas Leaping Out From 911

1. A Brief History of Qantas The company was founded on 16 November 1920 as "Queensland and Northern Territory Aerial Services Limited", but soon became officially known as Qantas. It was nationalized in 1947 by the federal government and remained in public ownership for over 40 years until the 1990s, when it got listed on the Australian Stock Exchange. Qantas then merged with Australian Airlines in 1993 and has had a near monopoly of the Australian domestic air travel market following the collapse of Ansett Airlines. It had also forayed into budget airline with a low cost subsidiary airline Jetstar in 2004. Qantas is currently 17% owned by British Airways, and has a reputation for being an aggressive competitor in the Australian aviation market. Over the years, several domestic Australian airlines have been forced out by Qantas anti-competitive pricing.

2. Impact of Certain Events on Airline Industry and Qantas

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The airline, however, had to undertake a series of cost cutting measures and modifications to working practices to, in CEO Dixons words, move quickly to protect [its] position in a very difficult and competitive industry1 following a series of devastating global events that had hit the developed nations and its aviation industry hard. Since the exacerbation of terrorist threat by civilian aircraft after 11 September 2001, international travels have plummeted due to heightened anxieties and fears of terrorism. With the Bali bombing that seemed to have been specifically targeted at Australia, Qantas suffered even more. The recovery of global aviation was subsequently hampered following a period of international tension building up to the war in Iraq as a there had been a considerable slowdown in bookings to the countries that had been involved with the War. In 2003, SARS epidemic broke out, and Qantas had to get rid of 1,400 staff as a response to a slowdown in Asian travel, as up to thirty percent of tourist bookings to countries in the region had been cancelled due to fears of contracting the virus.

3. Analysis of Change Management Evaluation of Qantas Response As seen from above, it is already clear that the airline industry had been one of the hardest hit industries in the world since September 2001. Geoff Dixon, who assumed the role as chief executive officer on 5 March 2001, thus had a huge task in his hands. How was Qantas going to remain profitable and competitive when the entire industry plunged into the doldrums and how was Qantas going to maintain that position when the future was uncertain and bleak? He knew that tough measures and changes would be called

Qantas hit by SARS Slump [online: web], cited 9 Apr 2003, para 7. URL: http://news.bbc.co.uk/2/hi/business/2930965.stm

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upon and from the onset. He realized that Qantas could not afford to try and recreate the recent past of cutthroat competition; nor can the firm afford to retreat to some distant past of heavy regulation, limited discount fares and costly government intervention. Neither approach will deliver confidence in the industry. Dixon therefore realized that one of the key ingredients for a successful Qantas was to win the investors and customers confidence. However, cost cutting measures were still inevitable if Qantas were to survive. In addition, the airline industry in Australia was hit with another blow with the collapse of Ansett, one of Qantas competitors, who was unable to overcome the repercussions of 911 and collapsed. Ironically, this was good for Qantas as the company was able to take over Ansetts market share, thus increasing its own from 55% to 75%.2 In order to remain competitive, Qantas tried to cut $1billion a year in costs through several means; one of which was to retrench 600 staff, and subsequently another 1,400 jobs from its 35,000 workforce through attrition and 1,000 through redundancies.3 Through downsizing, relocating planes from the international to the expanding domestic Australian market, outsourcing catering operations and some maintenance functions and the sale and leaseback of terminals, retiring of some aircrafts while delaying the deliveries on new planes. Through these mixed strategies, Qantas achieved the cost reductions it needed. Qantas also lobbied the government for protection and helped to block the purchase of Ansett by Singapore International Airlines (SIA), arguing that it would face severe competition if a foreign competitor was allowed access to the domestic market.4 To bring things further, Qantas also developed a strategic alliance (One-world) with
2 3

Bruce Watt. Business Date, May2003, Vol. 11 Issue 2, p8, Ibid. 4 Ibid.

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British Airways, American Airlines and several others to share terminal facilities and coordinate scheduling, sales and marketing and customer service.5 It also developed joint operations with British Airways for fuel purchasing, maintenance and catering.6 Qantas also commenced a budget airline to take advantage of cheap aircraft that were available after September 11. Other measures that Qantas did was to include a freeze on capital and discretionary expenditure, expansion of the leave without pay programme, significant restructuring of work practices and activities and a reduction of capital expenditure, including retirement of some aircraft and deferral of delivery of new aircraft.7 Overall, it would seem that Qantas had successfully managed its series of planned organizational changes as the airline not only stayed afloat, but also emerged from all the turmoil to become a key global competitor. In this success, Qantas had firstly set for itself clear objectives and goals through its change methods, and had communicated its change efforts clearly even to its lower level employees. Secondly, through strategies such as blocking the purchase of Ansett from SIA, and the developing of strategic alliance with British Airways, Qantas achieved and was able to celebrate short-term wins throughout its change process, thus increasing the morale of the company. Thirdly, Qantas through its change process has instilled a sense of urgency among the workers in the organization. Through acts like massive retrenchment, it sends a signal to the other workers that the company is in a crisis, and that drastic change measures are needed in to survive. Lastly, Qantas recognize that it has entered a different global business environment, and that it needed to be flexible and act fast in order to survive. For example outsourcing catering

5 6

Ibid. Ibid. 7 Ibid.

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operations and maintenance functions helped the firm cut costs and thus remain competitive in the airline industry.

4. Analysis of Change Management Challenges and Criticisms Faced Nonetheless, we have decided not to romanticize the success of the change effort that had been premised on a singular goal of survival. Rather, we will look at the change processes and show that it was a far from ideal organizational change. The most glaring flaw in the change effort was manifested in the strong opposition by the unions to the changes, in particular, the retrenchment of employees. With half the cost cuts to come from labour8, the Australian Manufacturing Workers Union (AMWU) lambasted Qantas as using the excuse of financial difficulties as a smokescreen to slash staff and impose changes, even as Qantas was still churning out profits.9 In fact, this was not the first time the unions and Qantas had clashed. In August 2002, Qantas was criticized by the Australian Services Union (ASU) for failing to guarantee the job security of its workers. 10 In February 2002, AMWU took out an injunction against Qantas for using bullying tactics towards its employees when it sacked 200 workers because they refused to work overtime.11 Strikes and work bans by the employees also proved to be an immense challenge to Qantas, as was what followed the aftermath of Qantas failure to ensure job security and the sackings due to the refusal to work overtime.

David Knibb, Qantas Announces Cost-cutting Plans, Airline Business, 19.10, (2003): 24. More Redundancies at Qantas [online: web], cited 7 May 2003, para 7. URL: http://www.hrmguide.net/australia/relations/qantas_proposal.htm 10 Qantas Dispute Drags On [online: web], cited 16 August 2002, para12. URL: http://www.hrmguide.net/australia/relations/qantas_proposal.htm 11 Qantas Dispute Drags On [online: web], cited 22 February 2002, para 8. URL: http://www.hrmguide.net/australia/relations/qantas_proposal.htm
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Moreover, Qantas had also received flak for breaching the psychological contract with its employees by laying them off. This is because the employees had supported the company when it announced a wage freeze scheme after 9/11 in 2001 and they expected the company to reciprocate the commitment by providing job security. Instead, about 2000 lay-offs were made in the course of a year. This portrayed Qantas as an unfeeling company although Qantas CEO Geoff Dixon claimed that they were conscious of the effect these decisions have on the individuals involved and their families. 12 Qantas treatment of its employees also contradicted the stance of its Chairman, Margaret Jackson, who saw Qantas greatest strength as coming from their outstanding people.13

5. Analysis of Change Management Recommendations All in all, the challenges to the change process highlighted some areas where improvements could have been made. A recommendation could be to follow a more collaborative approach. It would be difficult to reconcile how Qantas could rely on its outstanding people if they were to treat them as outsiders in the first place. To follow a collaborative approach, the management could, for example, involve the employees most affected by the change in the discussion of plans and not just implement them without employees participation. The concept of procedural justice could be aptly applied in this context. Procedural justice refers to justice of the processes that lead to a decision outcome.14 By enabling greater participation by employees in the decision-making process, which allows employees greater input into the procedures, perceptions of the
12

More Redundancies at Qantas [online: web], cited 9 April 2003, para 7. URL: http://www.hrmguide.net/australia/relations/qantas_proposal.htm 13 Geoff Thomas, Interview: Qantas Chairman Margaret Jackson, ATW, Nov 2001, 62. 14 Muhammad H Ali, Procedural Justice as Mediator between Participant in Decision-making and Organisational Citizenship Behaviour, International Journal of Commerce and Management 14.3, 14.4, (2004): 58-68.

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fairness of those procedures are likely to increase.15 This would help smooth out the change process. Breaking the news of the restructuring programmes should also be carried out in a more sympathetic manner. Before deciding to reduce the number of employees, Qantas should have set up a Transition Management Team (TMT) to handle the issues and problems faced after employees had received the hard news. For example, aside from coming up with a reasonable severance package, this unit could also help in arranging for outplacement services to assist laid off employees in sourcing for other positions in the airline or any relevant industry, thus easing the process of transition. This would not only have helped to reduce employees grievances in losing their jobs but would also show Qantas as a caring employer which ensures that all its employees are well taken care of even if they are not working at Qantas any longer. In addition, Qantas also needs to emphasize that the laying off decision is purely a business strategy to stay competitive and not because the people are inefficient in their work. Another recommendation is to accord retrenched employees with increased buffer time to accept the shock of retrenchment. Employees should have been provided with enough notices and mental preparation for the imminent news. For example, the department heads of employees who would be affected should have held frequent meetings with them to provide updates, attempt to understand employees circumstances and think of ways to alleviate their losses in the midst of organizational changes.

15

Lind, E Kanfer, R & Earley, P, Voice, Control, and Procedural Justice: Instrumental and Non instrumental Concems in Faimess Judgement, Journal of Personality and Social Psychology, (1990): 59, 952-959.

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Conclusion In this analysis, we have shown that Qantas had successfully undertaken changes to adapt to a changing global economy. However, we have also argued that while the changes were successful in terms of having achieved its goals to stay afloat, the processes involved in the changes left much to be desired. Although the Qantas management was open in its communication of the change, it stopped short of considering the whole range of long-term emotional and psychological impacts of the retrenchments on not just the affected employees, but also on those who were spared. Lastly, while our recommendations are by no means conclusive and absolute alternatives to the actual scenario, we do hope to show that successful organizational changes can still be flawed. More importantly, capitalistic profit and cost oriented change processes tend to have a propensity to neglect a softer and more humane side to a change effort.

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Selected References
Ali , Muhammad H (2004) Procedural Justice as Mediator between Participant in Decision-making and Organisational Citizenship Behaviour, International Journal of Commerce and Management 14.3, 14.4, 58-68. Knibb, David. (2003) Qantas Announces Cost-cutting Plans, Airline Business, 19.10: 24. Lind, E Kanfer, R & Earley, P (1990) Voice, Control, and Procedural Justice: Instrumental and Non instrumental Concems in Faimess Judgement, Journal of Personality and Social Psychology, 59, 952-959. Thomas Geoff (2001) Interview: Qantas Chairman Margaret Jackson, ATW, Nov, 62. Watt, Bruce. (2003) Business Date, May 2003, Vol. 11 Issue 2, p8, History of Qantas http://www.masterliness.com/a/Qantas.htm Effect of Iraq War on Qantas http://edition.cnn.com/2003/BUSINESS/asia/02/19/australia.qantas/index.html Qantas: Gearing for success, Address by Margaret Jackson, Chairman of Qantas http://66.102.7.104/search? q=cache:gN2HGvwZSGwJ:www.monash.edu.au/alumni/events/gearing-forsuccess/margaretjackson-address.pdf+qantas+and+bali+bombing&hl=en http://www.qantas.com.au/info/about/history/index Qantas hit by SARS Slump http://news.bbc.co.uk/2/hi/business/2930965.stm

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More Redundancies at Qantas http://www.hrmguide.net/australia/relations/qantas_proposal.htm Qantas Dispute Drags On http://www.hrmguide.net/australia/relations/qantas_proposal.htm

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