Australia: Learning From A Competitive Aviation Industry

Last Updated: 19 August 2015
Article by Ben Dudley and Rachel Bernasconi

There were many important take-aways for employers in the aviation industry from the CAPA Asia-Pacific Aviation Summit that we recently attended. A couple are worth highlighting, as they also apply more broadly to Australian employers managing a rapidly changing competitive landscape within the current industrial relations framework.

1. Global competition and the need to benchmark against international competitors

Australian organisations face increasing pressure from companies operating from foreign locations, including from China and South East Asia. While the Chinese and Indian economies have slowed slightly, they are still expanding and will be the drivers of significant growth in the future. The development of significant domestic productive capacity in those locations continues apace.

In the Australian aviation industry this is evidenced by a sharp increase in capacity (number of available airline seats available) being put into the international market by Asian and Gulf carriers and the entrance of low cost carriers to the market. This is no different to the entrance of international competitors in other industries, such as manufacturing.

Given foreign competitors do not face the same rules and regulations (particularly in relation to industrial relations or employment law) as Australian firms, the cost and operating benchmark for Australia needs to be the global benchmark. It is no longer enough for a company to measure its operations against only its competitors based in Australia.

It is critical from a labour perspective that employees and unions appreciate the realities of the situation, particularly in enterprise bargaining claims.

2. Innovation and the need to maximise flexibility in deploying assets (including labour)

The pace of technological change in the airline industry, and most other industries, also continues unabated. The pursuit of innovative offerings is important, especially as expanded capacity and automation are increasing features. Companies who do not innovate and adapt are quickly left behind.

To paraphrase and expand on comments from one of the speakers at the Summit: innovation is going to happen; it's just a question of who is going to lead the way and how well you are positioned to adapt quickly.

This is especially important for cross-sector businesses. For example, some areas of the economy are slowing (mining) while others are picking up (tourism). To survive and prosper, employers need the ability to react quickly to those changes by redeploying assets. Ensuring you have flexibility, particularly in relation to labour, is critical to being able to harness the benefits of rapid technical change and meet the effects of globalisation.

This means that businesses should work to minimise impediments to the speedy redeployment of labour wherever possible such as:

  • restrictive enterprise agreement conditions
  • onerous consultation obligations in relation to change
  • limits on managerial discretion
  • a "money for nothin'" approach to enterprise bargaining – that is, guaranteed standard wage increases plus more for buying productivity gains.

3. Talent retention and employee engagement is critical

Despite technological changes, people still play a significant role in how a company is perceived by the market and how services are delivered. Retaining and engaging with your workforce remains critical.

Successful organisations are now adopting a more sophisticated approach, which involves ensuring that employees are not just another 'input' to the business, but are aligned with the business's strategic direction. This involves a number of elements, one of the most important is to move beyond the narrow focus of traditional 'enterprise bargaining' (which can often involve costly and time-consuming adversarial confrontation) and think more broadly about the 'whole relationship' with employees. This means considering how to manage and incentivise employees outside the frame of enterprise bargaining.

4. Productivity and the importance of planning

In terms of productivity measures (for example, labour costs as a percentage of revenue), the Summit highlighted that the most productive airlines were low cost carriers.

It is clear that legacy airlines and many other participants in the industry face barriers to rapid change. This is much the same for manufacturers, service providers and a range of other employers who have a long history of enterprise bargaining enshrining terms and conditions out of line with current market conditions and imposing restrictions on flexibility.

The Productivity Commission's recent draft report has proposed that the current system, which is squarely aimed at promoting collective bargaining, should give way to greater opportunities for individual bargaining arrangements. Related to this is a hybrid proposal which enables an employer to make individual agreements across entire classes of employees amounting to a "collective individual flexibility arrangement". As our colleague Chris Gardner stated in his opinion piece in Fairfax recently, these changes alone will be profound.

For the moment, the current system remains. While change can be achieved, the current system makes it all the more important for businesses to plan carefully for bargaining in the future.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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