Consequences of Globalization on the Aviation Industry - Case Study Example

Subject No. x Consequences of Globalization on the Aviation Industry Australian Context Author: XXX XXX Table of Content 1.0 Statement of the Problem 3 1.1 Introduction 3 1.2 Statement of the Problem 3 1.3 Delimitation 5 1.4 Definitions 5 2.0 Impacts of Globalisation on Airline Industry in Australia 6 2.1 Airline Industry Deregulation in Australia 6 2.2 Labour Market Deregulation in Australia 7 2.3 Impacts of Globalisation on Airline Management 7 2.4 Impacts of Globalisation on Fares 8 2.4 Impacts of Globalisation on International and Domestic Air Services 10 2.5 Airlines Profit 12 2.6 PESTLE Analysis of Australian Aviation Industry 13 3.0 Conclusion 14 Consequences of Globalization on the Aviation Industry 1.0 Statement of the Problem 1.1 Introduction Aviation industry is one of the main industries in Australia and word in general. It has great impacts to the social, economic, and political processes. The demand of the airline transport services is based on the desires and needs to meet final objectives in the economy. Air transportation can enhance several economic developments in several industries including tourism. However, there has always been a stable demand for services and goods that Australia offers as well as the industry. Air transportation has greatly affects the economic system and can lead to significant growth in the economy. However, it is equally inappropriate if the supply of the aviation industry services are in excesses. The aviation industry has made it easier to access most of the countries in the world. In return, since the 1989 pilots’ disputes in Australian domestic airlines, globalization has had significant impacts (Schulte & Zhu 2005). Globalisation can be defined in three main ways: first, it is the minimisation of the trade barriers and markets globalisation. Second, it can be defined as the globalisation of production in which minimal or no attention is paid to the national borders. Lastly, it can be defined as the act of redesigning the labour laws and structures of a particular country to end economic regulation in the country, reduce a country’s social spending, and maximising exports. 1.2 Statement of the Problem Over the past decade, the labour market and the airline industry have faced deregulation due to globalisation (NewMyer 1990). The management of the Australian airlines have seen the adoption of the strategic approach that has greatly impacted the employment relationship. Globalisation has grown to become a major factor in the economic status. It has, therefore, been important that the firms and governments to negotiate on globalisation so as to remain competitive. The aim of the study is to determine the impacts of globalisation on the aviation industry in Australia. It will focus on how globalisation has changed the role of the state in management of the airline industry. Furthermore, it will take consideration on the impacts of globalisation on the management of the labourers on the airline industry. The study aims to determine the extent to which globalisation impacts the functions of the airline and state management on the pilot labour groups. The study also aims to determine how the management of the airline in Australia has responded to globalisation changes. Furthermore, the study aims to study the impacts of globalisation on the pilot labour unions since the dispute in 1989. In addition, the study aims to focus on the adjustments of the domestic labour unions due to changes associated with globalisation. The aviation industry today operates in the context of liberal market. Even though the government controls over capacity, market entry and fares in the smaller countries, in countries such as Australia it is relaxed or completely removed. The Open Skies formulations have been greatly implemented thus allowing free issuance of services among the involved countries. The area of the European Union is the largest international market in the world since 1997. As a result, the Union has significantly grown geographically. The study will also take consideration of the other effects of globalisation on the air transport industry on both the supply and demand side. 1.3 Delimitation The study will focus on the impacts of globalisation on the airline industry in Australia. Even though the aviation industry is global, there are significant impacts that can be associated with globalisation. The study will focus on the how globalisation has led to the deregulation of the airline companies in the airline industries and labour market (NewMyer 1990). Furthermore, the study will take consideration of the impacts of globalisation on airline management. Most importantly, the study will take consideration of the changes that the industry has gone through so as to withstand the changes associated with globalisation. The study will be limited to PESTLE analysis of the Australian aviation industry and not the global one. It will also not compare the aviation companies in Australia but rather focus on the industry in general. 1.4 Definitions Airline industry: It is a business of transporting freight and passengers by air in routes that are regularly scheduled often through airplanes or helicopter. The clients often pay fare for the services issued. Globalisation: It is the process to which organisations or businesses begin operating on the international scale or develop international influence. Deregulation: Is the elimination or reduction of the power of the government in a given industry with the intention of enhancing competition in the industry. Uniatrist Approach: It is a managerial approach that considers each of the members in the organisation to be part of a team guided by a common goal. The approach argues that the employees, despite their level in the organisation, need to have common objectives and work as a single unit. As a result, it considers the conflicting objectives to be dysfunctional and negative. 2.0 Impacts of Globalisation on Airline Industry in Australia There has been a debate on the globalisation process experienced in the final years of the 20th century and their implications to the businesses. For instance, Friedman (2005) argues that globalisation has levelled the business playing field thus enhancing competition between the emerging market and the industrial states (Taylor 2010). The globalisation of political forces, supply-chaining, outsourcing, and trade have permanently changed the world in both positive and negative directions. He also suggests that globalisation is growing rapidly and will continue impacting on the business practice and organisations. The levelling of the competition level is mainly seen to be due to emergence of the fibre-optic micro cable and personal computer combined with the high increase on the work-flow software (Taylor 2010). This is opposed to the globalisation in which the governments or countries were the main players. In addition, it is also different with the globalisation in which multi-national businesses enhanced global integration. On the other hand, Caircross (1997) gives it a slightly diverse approach. The increasing speed and ease in communication has led to the world in which the distance does not determine the ability to interact or work together. Most of the works that are done through computer can be done anywhere in the world. Workers have the opportunity of using computer software to assemble the marketing code. The development in technology has seen that the workers are able to relocate in any part of the country based on other factors such as nicer weather or taxes. 2.1 Airline Industry Deregulation in Australia The Australian government has deregulated the labour market and airline industry as an attempt to react to globalisation and enhance international competitiveness. Before the 1990, the airline industry in Australia had only two main agreements whose aim was to enhance growth and prevent monopolies between the two main carriers. That is, the Australian Airlines which is publicly owned and the Ansett that is private. The legislative separation between domestic and international carriers ensured that the government significantly controlled the industry until the 1990 deregulation (Schulte & Zhu 2005). However, the deregulation process started in the 1970 when fare restrictions and parallel flight were stopped and the regulations that seek to ensure the use of discount fares stated to be eased. 2.2 Labour Market Deregulation in Australia In the 1980s and 1990s, the industrial relations system in Australia experienced major changes due to the philosophy of neo-liberalism (Schulte & Zhu 2005). The structural Efficiency Principle was introduced in 1988 to the existing Accord so as to ensure that the increase in wage enhances market efficiency. In 1993, the Industrial Relations Reform Act initiated the decentralisation through minimising the function of Australian Industrial Relations Commission in the resolution of disputes. When the Howard Government came in power in 1996, it ensured that labour was deregulated through the Workplace Relations Act thus significantly changed the intent of the Australian labour law. The Workplace Relations Act gave the employees and the employers the opportunity to engage in a direct bargain without the involvement of the unions. The employees were given the freedom of association hence abolishing the closed shops. The Act saw the introduction of the new entreprise bargaining methods in the form of Australian Workplace Agreements, certified agreements, and individual contracts that reduced the essence for unions. 2.3 Impacts of Globalisation on Airline Management The increase in competition due to globalisation has seen pressure increase on the operation costs (Suriya 2009). The increased pressure on the labour costs has led to the increased workloads and poor working conditions. The impacts have been due to the fact that labour costs about 30 percent of the costs in the airline industry. In addition, labour is in direct management control as opposed to landing and fuel charges. For instance, globalisation led to Qantas retrenching its 1,000 employees, freezing the new staff employment, using yearly leave to minimise staffing, and converting three-hundred full-time jobs into part-time (Schulte & Zhu 2005). In most of the economic depressions, airlines tend to use tactical and short-term initiatives to minimise costs. In addition, globalisation has seen a change in the employees’ management. Attitudes have changes with the deployment of the human resource management unitarist approach that has seen the workers to be more interchangeable and dispensable than before. However, the human resource management policies in the Australian firms have made the employees to have less trust on the management thus reduction on the organisational commitment. 2.4 Impacts of Globalisation on Fares The international airline markets are characterised with the restrictive bilateral air service agreements. Open Skies had great impacts on the efficiency of supply in Europe. The level to which the society could gain from air travel was also affected significantly. The impacts cannot be easily isolated and quantified (Button 2008). Figure 1 below summarises the issues involved in the airline industry upon globalisation. The figure also indicated the possible output- and fare-implications of the several types of regulatory regimes before and after globalisation. Figure 1: The Economies of Open Skies Policies Source: Button (2008) The initial parts of the demand curve are between two global countries A and B before the 19980. Te regulatory policies during the time were more linear as shown in D1 in Figure 1 above. The average cost curve that shows the cost per passenger is assumed to increase irregularly higher with the quantity as shown in C1. However, the market forces did not determine the capacity and fares in the regulated market dues to the institutional interventions in the place. The capacity in this system was limited, and the fares were under regulation. On the assumption that a bilateral agreement between countries A and B on fares exists thus enhancing cost recovery, the fare levels will rise up to F1. The removal of the negotiating pricing and capacity constraint as in the Open Skies agreement will lead to the competition among the air services firms (Taylor 2010). As a result, the firms will initiate cost-recovery pricing plans thus seeing the fares fall to F*1. The Open Skies policies integrated with strategic alliances removes the constraint capacity and affects both the supply and demand curves in the international travel between the two countries: A and B (Morley 2003). The ability of the airline to coordinate their functions and efficiently use their transatlantic routes will see the carriage costs fall to C2 as shown in the figure. The effects are due to the pressures associated with costs in Europe’s competitive environment and privatisation of several aviation firms. The two have seen the reduction on the static amount and dynamic inefficiency in the industry. 2.4 Impacts of Globalisation on International and Domestic Air Services Globalisation has led to international trade in the aviation industry. There has been increased demand for domestic transport in most of the larger countries. In the international markets, aviation industry is affected with the increased movement of goods and people between the countries as shown in figure 2 below. As a result, the demand is increased in most of the countries including Australia. In return, the economies of scale have seen the reduction on the fares in Australia (Button 2008). The international trade has also increased the world income due to the increased in international tourists travel and transportation of goods of higher value. In long distances, international air transport has served as the cheapest means thus supporting the permanent and temporary migration of people. Figure 2: Impacts of Globalisation on Air Transport Market Source: Button (2008) Globalization has also ensured that Australia enjoys economies of scale, density, and scope in the aviation industry. The feeder services have also benefited due to globalisation as people are moved to and from areas that are of greater distances within Australia. Increase in the international air transport in Australia has increased the demands of the feeder services and the international service. Globalisation has also seen that Australia enhances its economic activities thus increasing the income and consumption in the country. There is a significant increase on the consumption of air transport facilities due to globalisation. In Australia, globalisation has seen an increase in income as people spend more on domestic and international vacations. 2.5 Airlines Profit Globalisation greatly impacts on the financial conditions of the airlines. International incidents have often been linked to downturn in the international businesses. For example, financial crises have often been linked to terrorist attacks in Washington and New York. Figure 3 below shows the operating margins of airline between the years 1988 to 2006. Figure 3: Operating Margins (1988-2006) Source: Button (2008) The years that lack bars in the figure above indicate areas that had no observations. The data are also based on association members that gave particular information. Figure 3 is a clear indication that the Australian airline industry responds to the international market. In explanation, a fall in the international market negatively affects the Australian market and a rise in it positively affects it. 2.6 PESTLE Analysis of Australian Aviation Industry PESTLE analysis helps in the determination of the status of a given industry in the area. It is important that it is conducted to determine the status of aviation industry in Australia. The analysis factors are political, economic, socio-cultural, technological, environment, and legal. The Australia’s political environment encourages competition. The policies are also liberal thus allowing new entrants into the market (Schulte & Zhu 2005). As a result, the industry has a huge number of public and private players thus increased competition (Taylor 2010). One of the impacts of increased competition is the competitive pricing which translates to lower pricing in the industry (Smith 2010). The economic factors in the aviation industry have not been free of threats. Some of the threats are due to globalisation. For instance, the 9/11 attacks have seen the airline companies increase their spending. Furthermore, the fuel market is unstable thus greatly impacting on the Australian airline industry. The economic downturn in the Western World has also caused great impacts to Australia. Added to other economic challenges, it has been a threat to the aviation industry in Australia (Stroy 2007). The socio-cultural impacts support the aviation industry in Australia. The society is empowered and supports the communal services. Most of the companies in the industry, therefore, need to re-evaluate their corporate social responsibility policies to attract the public (Knowles & Garland 2006). Technology has had significant impacts in the Australian industries. As a result, the cost of production has been increasing in most of the instances with the perfection of the aircraft designs and demands for efficiency (Thompson & Martin 2000). The airline companies in Australia, therefore, need to constantly upgrade their fleet to succeed in the global market. Greenhouse gases and carbon emission are some of the environmental consideration in all aviation industries. Governments have been putting pressure on the aviation industries and other businesses to reduce carbon foot prints. The process of ensuring the use of cleaner energy is costly thus affecting greatly the aviation industry in Australia (Suriya 2009). However, it is only through going green that the aviation companies can attract global investors. The international aviation policy of Australia has been several designations. It also allows new entrants in the market. It, therefore, enhances the threat of new entrants in the market (Stroy 2007). 3.0 Conclusion In conclusion, labour relations among other important spheres in the Australian airline industry went through some changes due to globalisation. There was a change in the balance between airline management and the pilot unions. Globalisation has had a great impact on the functions and businesses of firms and governments thus greatly impacting the aviation industry. In response, the Australian government has deregulated the airline industry and the labour market as reaction to the competition associated with globalisation (Taylor 2010). The human resource management has also taken a unitarist approach when it comes to employment. The changes have significantly affected the pilot unions and pilots. The unions have been forced to work with the management so as to maintain their relevance. As a result the employment conditions of workers in the industry including the pilots have continuously deteriorated over years. Globalisation has seen to it that management reduces costs of operations. It is, therefore, important that unions become more autonomous despite working in conjunction with the management. The aviation industry has also greatly contributed to globalisation. It has led to the intense globalisation of politics and cultures. However, airline industry has had to react to the changes on its services demands. The demands for the air transportation industry have been that reliable, speedy, and high-quality international access. Globalisation has ensured that countries such as Australia can completely enjoy its economic and social integration with the globe. Globalisation has seen labour and technology transfers in and out of Australia. In conclusion, aviation industry has hastened globalisation. On the other hand, globalisation has had greater impacts on the aviation industry. Reference List Button, K 2008, The impacts of globalization on international air transport activity, OECD/ITF, Guadalajara. Cairncross, F 1997, The death of distance, Harvard Business School Press, Cambridge, Mass. 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