The Australian Airline Industry - Qantas Airways - Assignment Example

Option one: Fair Work Act- a Case of Qantas Airways Name Institution Course Date Table of Contents Table of Contents 2 Introduction 3 Qantas Airways Background 3 Legal Governance, Management & Relationship Issues Affecting Qantas 4 Fair Work Act 5 Areas of High Risk for Qantas 7 Analysis of Areas of Legal Risk for Qantas: Compensation and Fines 7 Reasons and Implications of the Legal Risks for Qantas 9 Strategic Options for Management of the Legal Risk 10 Recommendations for the Best Option 11 Conclusion 12 References 13 Fair Work Act: A Case of Qantas Airways Introduction Every business is affected by macro-environmental factors. Management gurus argue that, before a company starts operating in an industry, Spedding and Rose (2008) suggest that it is important that it understands the environmental factors that would affect the operation of the business. This is important as it enables a company to prepare and put in place appropriate strategies to respond to the external factors. In any industry, there are a number of external environmental factors that affect the operation of a business. External/macro-environmental factors are factors that affect the operation of a business but which management has little or no control over. Legal factors are among the environmental factors that affect the operations of companies in any industry. Legal factors are the laws that restricts or dictates be behaviours of business in an industry (Power, 2004). The legal factors that may affect the current and impending legislations that impact the operations of an industry in areas to do with competition, employment, health and safety, advertising, import and export, consumer and taxation (CCH Australia Limited, 2010). The Australian airline industry is an example of a business industry that is affected by the existing and impending legislations. The airline industry is among the most regulated industry for purposes of ensuring that businesses are conducted in a legal and in a manner that safeguards the interest of the stakeholders. The aim of this report is to analyse the legal environment that Australian airlines operate. In so doing, the report begins by providing a brief background of Qantas Airways Limited and its area of business. The second part of the report describes the legal governance, management and relationship issues that affect Qantas. The third part of the report describes how the operation of Qantas and the airline industry as a whole is affected by the Fair Work Act. The fourth part of the report describes the high legal risk areas for Qantas and proceeds to explore the implications of this legal risk for Qantas in the short and long-term. Lastly, the report will describe the strategic options for Qantas management in light of this legal risk and analyse the options in terms of cost and benefit to the airline and offer recommendations to Qantas with regards to the most appropriate option. Qantas Airways Background Qantas Airways Limited is Australia’s leading domestic and international airline the airline was founded in 1920 in Winton, Queensland and has grown to become a global brand. Qantas currently connects passengers to more than 81 destinations in more than 40 nations across the globe (IBISWorld, 2015). The airline operates both passenger and cargo transport services and operates domestic flights both in Australia and New Zealand. Qantas together with its regional subsidiaries reportedly transport more than 30 million passengers to different destinations every year. The airline is loved by many passengers because of its strong commitment to safety, innovation, operational reliability and customer service. Currently, Qantas operate a fleet of 131 airplanes that makes it the largest Australian airline in terms of fleet size (Qantas, 2016). Light all the other airlines, Qantas has gone through a number of turbulent times in the past, especially during the financial crisis and following the terrorism fears that resulted in significant decline in the number of passengers. Additionally, the airline has also come under growing pressure from domestic and foreign competitors, such as Virgin Australia, British Airways and Singapore Airways among others (IBISWorld, 2015). Despite these challenges, Qantas Airways has been posting positive performance as the airline reported revenue of A$15.8 billion and operating profit of A$975 million in 2015 (Centre for Aviation, 2016). Qantas is also one of the leading employers in the airline industry having about 30,000 employees, 93% of which are based in Australia. Legal Governance, Management & Relationship Issues Affecting Qantas Qantas has been one of the most successful airlines in Australia having grown in about the last century to become a leader in Australia’s airline market (IBISWorld, 2015). However, the airline has faced a number of legal governance, management and relationship issues that have threatened the performance of the airline in Australia and internationally. The first issue has to do with weak corporate governance on its stakeholders. In the recent past, Qantas has found itself in dispute with its employees that have resulted in legal action being brought against the airline. The disputes have consistently arisen between the airline and its pilots, TWU and ALAEA. The dispute between the employees and the airline has been triggered by a number of issues, which includes wage increase dispute, guaranteed job security issues, improved working conditions and the need to preserve Australian jobs. The dispute resulted in the Labour Union bringing an industrial action against Qantas that has seen the airline loss of more than $200 million (Qantas, 2016). The dispute that Qantas has had with its employees in the past has also resulted in the company having poor relationship with its workforce that threatens the success of the airline. The dispute has not only resulted in loss of money to the company but also resulted in high turnover as the airline continues to lose its skilled workforce including experienced pilots that the airline has relied upon for many years as its key resource. Qantas has also been rocked by management issue in the recent past after it was accused of rewarding its executive unreasonably high payment. Industry analysts argue that the top-level management of Qantas is rocked with corporate greed after it emerged that the airline awarded executives an increment of $5 million a year (Qantas, 2016). This saw the former company CEO, Dixon become the highest paid executive in the world’s aviation industry. The company also reportedly increased the pay for its CEO Alan Joyce by 71% with the executives of the company being granted $8.5 million without meeting their performance target in 2010 (Centre for Aviation, 2016). Fair Work Act The airline industry is one of the industries that are highly regulated to protect the interest of the people in the society and the businesses. Employees are among the key stakeholders for any firm because of the input they put to ensure the success of a company. However, for purposes of protecting the interest of employees in a company, Australian legislators passed the Fair Work Act in 2009. The Fair Work Act of 2009 has since been amended a number of times and was enacted to govern the relationship between the employer and the employee (CCH Australia Staff, 2012). This law affects the Australian airline industry and Qantas in particular in the sense that it dictates the relationship between Qantas and its workforce. The law define the relationship by setting the minimum entitlements, promoting fairness at work, requiring employers to provide workers with flexible working arrangements, working hours and preventing employers from discriminating against an employee (Forsyth & Stewart, 2009). The Fair Work Act is an important piece of legislation that affects Qantas in the sense that it defines the terms and conditions of employment. First, the law sets the maximum weekly working hours for any company. According to the Act, the maximum working hours for any company for full-time employees is set at 38 hours (Butterworths, 2009). This affects the operations of Qantas as the law bars the company from making it employees work for more than 38 hours unless a part-time arrangement is agreed with the employees. This implies that Qantas cannot force its employee to work for more than the National Employment Standards as this would amount to a contravention of the law. The Fair Work Act also affects the operations of Qantas and the airline industry as a whole because the law sets the minimum wages that employer can award its employees. The law sets the minimum wages for the employers for purposes of protecting the employees from exploitation by employers that might be tempted to underpay their workers (CCH Australia Staff, 2012). Other than the minimum wages set by the law, the Act requires employers to provide fair wages for employees based on their contributions to the company. Flexible working arrangement has become an important working arrangement for the employees in all industries. Most employees demand flexible working arrangement as this allows them to balance between work and personal life. However, because some employers may not provide employees with flexible working arrangements, the Fair Work Act came into effect as a law that promotes flexible working arrangements by providing with the right to request flexible working arrangement (Butterworths, 2009). Accordingly, this law affects Qantas as it requires that the airline provide flexible working arrangement, such as part-time work and leaves among others upon requires. Because of this, Qantas has been forced to introduce flexible working arrangements for its employees in line with the law. This has included introducing part-time working arrangements, teleworking and providing maternity leaves for the expectant mothers among others. The Fair Work Act also affects the operation of Qantas and the Australian airline industry by setting terms and conditions for termination of an employee’ service and redundancy pay. According to the law, an employer including those in the airline industry is barred from arbitrary termination of an employee’s services (Butterworths, 2009; CCH Australia, Limited, 2011). In this regard, the employer is required to give an employee notice of termination and the reasons why the employer deems it fit to terminate the services. Accordingly, the Fair Work Act regulates Qantas and the Australian airline industry as it requires Qantas to ensure that employees are notified of any intention to terminate their services that must be supported by law failure to which an employee can file a case against the company for illegal termination of services. Workplace discrimination has been a thorny issue in Australian airline industry. Issues of discrimination, hiring, remuneration and promotion have been an issue in the airline industry for many years. However, this has been having adverse effect on many employees that are being discriminated in the workplace because of reasons, such as gender, sex, race, ethnicity, religion and disability among others (CCH Australia Staff, 2012). Therefore, the Fair Work Act was enacted partly to protect employees from workplace discrimination. The law prohibits any form of discrimination in the workplace and requires that employers treat their employees equally and fairly in hiring, promotion, remuneration and termination just to name but a few. Areas of High Risk for Qantas The Fair Work Act has a number of high risk provisions that that Qantas is exposed to that the management must understand. The first high risk areas has to do with the legal suits that the employees and the Labour Union might bring against the company as a result of dispute over compensation resulting fine by the government resulting from these disputes (Forsyth & Stewart, 2009). The other high risk area for Qantas has to do with the breach of director’s duties that are required by the law that might requite in action being taken by the ASIC (Butterworths, 2009; CCH Australia Limited, 2009). In the event that the company directors violate their duties, ASIC might impose fines that might prove costly to the company. Analysis of Areas of Legal Risk for Qantas: Compensation and Fines Compensation resulting from legal suits filed by employees and the Labour Union is one of the major high risk areas that Qantas is exposed to for contravening the Fair Work Act. As indicated earlier, the Fair Work Act of 2009 was enacted to regulate the relationship between the employer and the employee (Forsyth & Stewart, 2009). The law defines the terms and conditions on which the employer and the employee relationship exist, the breach of which result in fines to either or the parties in breach. Beginning July 31 2015, the Fair Work Act has established a maximum penalty for breach of the Act at $54,000 up from $51,000 for companies and $10,800 for individuals up from $10,200. The increase came into effect following an amendment made recently to the Crimes Act of 1914 (CCH Australia Staff, 2012). The fines imposed for breach of the act can has adverse implications on a company like Qantas considering that the fines are huge, which can put a company into financial difficulties. In fact, labour analysts argue that the implications for the breach of the Fair Work Act is wide considering that other than the company itself, there has been an increased trend in individuals breaching the Act, including human resource managers, general counsel, line managers and directors among others. Qantas is one of the companies that are at high risk of being fined for breaching the Fair Work Act considering that the company has been in dispute with its employees for some time now. As a way of promoting good working relationship between the employer and the employee, the Fair Work Act prohibits an employer from mistreating an employee (Butterworths, 2009). As such, any employer that is found guilty of mistreating an employee is liable to a fine that can be costly to a company. Qantas has been at risk of such legal suits and fines that have proved costly to the airline. The 2009 legal suit fined by the company’s engineer and the labour Union that resulted in the company being fined $15,500 is a good example that indicates the compensation and fine risks that the airline is exposed to whenever it violates the provisions of the Fair Work Act (Guest 2012). In this dispute, the company engineer who had been sent on an overseas assignment reported to have made a claim for entitlements that arose from the overseas assignment. Unfortunately, Qantas refused to award the employee the entitlements that resulted in email altercations between Qantas HR manager and the aircraft engineer. The issue prompted the employee to instigate the dispute resolution mechanism in the EBA, a move that prompted Qantas to suspend all overseas postings. The company also coerced the engineer to withdraw his complains. However, the court hearing the case found that Qantas had subjected the employee to unlawful coercion to withdraw the complaints under the Fair Work Act. Because of this, Qantas as a company was fined by the court $13,200 and the manager $2,200 under the Fair Work Act for mistreating the employee (Guest 2012). This is because the law prohibits any employer from mistreating or subjecting an employee to unfair treatment. As such, this case indicates the extent to which compensation and fines resulting from the breach of the Fair Work Act are a high risk area for the company. The risk of compensation and fines that Qantas is exposed to because of the operations of the Fair Work Act also came into play in 2011 when six of its former employees filed a lawsuit against the airline for unlawful dismissal. According to Flatley (2011) report, six aircraft maintenance engineers took Qantas to court for unlawfully dismissing them for pointing out a safety defect in some of the company’s aircrafts cockpit locks. The maintenance engineers noted that, in some of the aircrafts of the company, the cockpits could easily be opened by ice-cream sticks while others could be opened easily by merely leaning against the toilet walls that are placed adjacent the cockpits. However, the move by the airline engineers angered the management of the company that dismissed them citing misconduct. However, in a quick rejoinder, the six men filed a suit in court citing that the actions taken by their employer was in violation of the Far work Act (Flatley, 2011). The case that is yet to be determined put the company at risk of being fined and forced to compensate the employees in case Qantas is found in breach of the Fair Work Act that prohibits employers from malicious or unlawful dismissal. Considering that the airline suffered huge monetary losses in the previous cases brought against it for breach of the Act, the fines and compensation that is likely to be awarded by the courts and the Federal Government could be very high in this case considering that the legal suit has been filed by six employees with the help of the Labour Union. Additionally, Qantas face the risk of lawsuits resulting from lawsuits being filed against the company for discriminating against some employees, which contravenes the Fair Work Act. The Fair Work Act prohibits any employer from discriminating against an employee on an account of race, religion, sexual orientation, age, disability, nationality, race or ethnicity. Unfortunately, Qantas has been rocked by many claims discrimination against some employees and this puts the company at risk of incurring monetary losses in terms of fines and compensation for violating the Act (Mishkin, 2011). Just recently in 2010, Qantas was sued by fourteen women that claimed that the company discriminated against by sacking then on account of their gender (News Limited, 2010). In a case filed on behalf of the women by the Transport Workers Union, the plaintiffs claimed that the fourteen women had been discriminated against by Qantas as the company had barred them from applying for the 47 new vacant positions that Qantas reserved for male (Dabbagh, 2015). In another case, Qantas was accused by a former employee for placing a ban on cruicifixes and allowing women from the Muslim community to wear head scarfs. Georgina Sarikoudis who is the claimant in the case argued that the company has been discriminating against Christians by forcing Christians to abandon their religious insignia (Thompson 2014). The involvement in discrimination puts Qantas at legal risk in the sense that the company risk being fined under the Fair Work Act that prohibits discrimination against employees on the basis of race, religion, sex, ethnicity, gender, and disability. As such, in the event that Qantas is found guilty of discrimination in the two lawsuits that it faces, the airline could be fined heavily for breaching the Fair Work Act that might put the firm at financial difficulties. Reasons and Implications of the Legal Risks for Qantas The Fair Work Act was enacted to promote the relationship between the employer and the employees and to protect the employees from exploitation, discrimination and unfair treatments. However, the violation of the law by Qantas can have a number of implications on Qantas. The first implication of the violation of the law is that it can attract fine from the Federal Government while the court might also require Qantas to compensate the aggrieved employees (CCH Australia, Limited, 2011). Following the amendment to the Fair Work Act, any employer that violates the Act is liable to a fine of up to $54,000 while an individual is liable for a fine of up to $10,800 for violating the act (Guest, 2011). Such fines and compensations that results from violating the act is costly to Qantas as it affects the liquidity position of the company. For instance, in 2010, Qantas was fined $15,500 for violating the Fair Work Act after it emerged that the airline has mistreated one of its engineers that had been sent on an overseas assignment. The $15,500 fine that the company paid affected Qantas’ liquidity position, which in term had implications on the company’s bottom line. The fines and compensations that Qantas are compelled to pay could force the company into bankruptcy if not controlled. The analysis of Qantas financial statements indicate that the company has been struggling in the recent past in meeting some of its obligations because of liquidity problems. As such, the compensations that it is still being forced to pay its employees for violating the Fair Work Act is only compounding the problems that will make it difficult for the company to meet its short and long-term obligations in the near future if the company continues to violate the Fair Work Act. Strategic Options for Management of the Legal Risk Power (2004) argues that the management of legal risk is important for the success of any business and the same applies to Qantas whose success in the airline industry depends on how well it manages the legal risks that it faces in the industry. As indicated above, Qantas has suffered monetary losses resulting from violation of the Fair Work Act and this has impacted negatively on the company’s liquidity. As such, Qantas must take appropriate steps to ensure that the legal risks resulting from the violation of the Fair Work Act are effective managed. Fortunately, there are a number of strategic options that Qantas management can adopt to manage its legal risk exposure. The first strategic option that Qantas should adopt in managing the legal risk exposure has to do with avoiding the risks. Risk avoidance is one of the strategies adopted by companies in legal risk management. Risk avoidance has to do with ensuring that the risk does not occur in the first place (Power, 2004). Qantas can avoid its legal risk exposure resulting from the violation of the Fair Work Act by ensuing strong compliance to the law. Qantas can ensure strong compliance to the law by training its executives, directors, senior managers and line managers to ensure that they comply with the law. The benefit adopting risk avoidance through compliance arise from the fact that it will ensure that Qantas does not violate the Fair Work Act, thus avoiding compensation and fines that it has had to pay for violating the Fair Work Act. However, avoiding legal is costly considering that it requires thorough training of the managers and the board to ensure strong compliance. The other strategic management option for the legal risk associated with Fair Work Act has to do with the development of a strong legal risk management culture (Banks, 2012). Culture plays a major role in legal risk management (Kleffner, Lee, & McGannon, 2003). In this regard, Qantas should consider promoting the culture of legal risk management by making legal risk management part of business culture. By making legal risk management part of the corporate culture of Qantas, all the managers and the board will understand that legal risk management is a value that the company stand for and promotes, thus ensuring the adoption of behaviours that complies with the legal requirements. The benefit of developing a strong legal risk management culture is that it instils the values that ensure that there is strong compliance with the legal requirements. Promoting a legal risk management culture is also advantageous in the sense that it is the most cost effective way of ensuring compliance with the legal requirements (Steinberg, 2011). However, this option is disadvantageous for it requires the strong commitment of the management to implement, which is not easy. Recommendations for the Best Option Although the two strategic options described above are effective in managing the legal risk that Qantas is exposed to with regards to the Fair Work Act, risk avoidance through strong compliance is the better option of the two for Qantas to adopt. This is because the best way that Qantas can ensure that the managers and the board are in total compliance with the Fair Work Act is to train them and ensure that they comply with the law to the latter. Besides, studies show that there is no best way of managing risk that avoidance as risk avoidance ensures that the incidents, such as workplace discrimination, employee mistreatments and other issues that amounts to violation of the Fair Work Act is not witnessed in the company. Moreover, Fair Work Ombudsman high encourages risk avoidance citing as the best way of ensuring that there is strong compliance with the legal requirements. Conclusion The Australian airline industry is highly regulated as there a number of laws that have been enacted that restricts the behaviours of businesses in the industry. Fair Work Act is one of the legislations that regulate the behaviours of businesses in the industry. The law was passed in 2009 to regulate the relationship between the employers and the employees. The law defines the relationship by setting the minimum entitlements, promoting fairness at work, requiring employers to provide workers with flexible working arrangements, working hours and preventing employers from discriminating against an employee. Abiding by this law is important because any violation can attract a heavy fine on a company as has been the case with Qantas that has been fines for violating the Fair Work Act which impacted adversely on Qantas. 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