MGMT 5712 - NEGOTIATION SKILLS

Collective Bargaining at Southern Express

General Background
[Note: Some general background description is true, but with changes to make certain
issues more salient. Speedy Airlines and Southern Express are both fictional companies.]
For employees and managers in the airline industry, deregulation was a cataclysmic
shock. Until 1982, when government supervision of the fares and routes was lifted, it was
a comfortable business in which to work: wages were relatively high, employment was
secure, rapid change was discouraged, and service quality was the main focus of
competition. Unions, with almost total coverage of the major carriers, had achieved
steady wage gains. Then abruptly with a minimum of transition or preparation the
protective barriers which had sustained this climate were removed. Severe price
competition from new entrants required massive organisational changes, the lowering of
labour costs and increases in productivity. An explosion of innovation transformed every
aspect of airline operations; the aftershocks continued for years.
Speedy airlines, one of the major carriers before the deregulation, took several steps to
respond to the new climate. First, it acquired a number of regional airlines, using them to
feed traffic to its longer routes. Second, it expanded its operations into travel-related
fields, trying to reduce the risks inherent in staying with a pure focus on air travel.
Speedy acquired a chain of hotels and a rental car agency, trying to link them together
into a complete travel services package. There was also talk about acquiring a network of
travel agencies.
Southern Airlines was the largest of the regional companies acquired by Speedy, with
1,000 unionised employees out of a total of 1,200. Based in the regional city of AlburyWodonga (or Albury as an abbreviation), Southern had been a stable and successful niche
operator for many years, offering flights to regional centres in eastern Australia. Southern
was based in the only regional centre which straddles the Murray River, placing its home
partly in Victoria and partly in New South Wales the two main states that it serviced
(see map).
Speedy, demanded more from its new subsidiary: it put in new management which
moved Southern Express aggressively into a more competitive orientation. Rates were
raised sharply in some of the less used routes, to cover actual costs; some small towns
were dropped from the network; and, mirroring the parent company, they began to
acquire some small local motel chains to tie their travel services together. The strategy
was very successful: by 1988 they were making $13 million in profits, and their rate of
profit had risen from 5% before deregulation to about 13%. Meanwhile, many of their
competitors were close to bankruptcy, and some had actually fallen over the edge.

Albury-Wodonga

But there were some concerns as well. First, Federal regulators were still involved in
complex and changing ways in making sure that deregulation did not produce major
inequities. They were particularly concerned with two issues: first that small towns
continue to be served at reasonable rates; and second that the industry not become so
concentrated as to reduce competition. The Federal Civil Aviation Authority had
expressed concern to Speedys management that the wave of acquisitions might be
moving toward monopoly control of part of the market; and they were taking a look at
Southerns route changes to make sure they were not unfairly denying service to
communities which needed it. Second, labour relations were increasingly tense. Each
subsidiary of Speedy negotiated its own contracts. Southern dealt with two major unions:
the Pilots Association and Airline Workers Union (AWU). The AWU, the largest union
in the industry, covered most categories besides pilots, including baggage handlers,
mechanics and reservations clerks. Southern had left the pilots alone demand for their
services was high but increasingly sought to cut costs among the other groups.
In 1986 the real shake-up began. As many airlines fell into the red, they began
scrambling to reorient their strategies. Southern, for the first time in their history, laid off
120 employees, mostly baggage handlers and reservation clerks. In addition, in order to
route more traffic through the Albury hub, they required 200 workers to move from
smaller airports to Albury. And they threatened to begin subcontracting work to outside
lower-wage providers; in fact, Speedy, the parent company, had already contracted the
maintenance of its gates at Albury airport to a local, non-unionised company. The union
had never faced that threat before deregulation, so the labour contract protections
regarding subcontracting were weak. The company demanded major concessions in the
1986 contract, including a total freeze for the life of the contract. There was a strike for
over three weeks before agreement could be reached. The company for the first time
continued some flights during the strike, using pilots and maintenance workers laid off
from other airlines. The major outcome was that wages were frozen for the first two years
of the contract (except for Cost of Living Adjustments COLA), with a 3% increase in
the third year.

The company also won the right to introduce individual performance bonuses of up to 1%
additional each year.
In the period after this negotiation both sides began rethinking their strategies. Many in
management leadership argued that continuing confrontation would weaken the
companys long-term competitive position; service had already deteriorated after the
strike, and the public was rumbling. The AWU began talks with a number of airlines,
including Speedy and Southern, to explore the possibility of joint committees to examine
business strategy and technological change. Southern, after a management change which
led to the replacement of its CEO and its Director of Labour Relations, expressed strong
interest in these initiatives. But these initial meetings sparked a good deal of controversy
among the rank-and-file and local officers, who felt that the company could not be trusted.
THE KEY PLAYERS
Management
1. The head of the management team is K. Lewis, Head of Labour Relations. At Southern,
Lewis reports directly to the Director of Human Resources, and for the first time will lead
the Southern bargaining team.
2. The second member of the team is R. Gentry, Head of Remuneration and Benefits.
Gentry has been at Southern for 15 years, and has been involved in several negotiations
before.
3. The third member of the management negotiation team is J. Evans, a line manager
from Operations in charge of the Albury hub. Evans had been at Speedy for 20 years and
is a widely respected manager, though this is Evans first time on the negotiating team.
Union
1. The head of the Union negotiating team is L. Rigley, a representative of the national
union, based in Sydney. Rigley has been involved in collective bargaining for more than
two decades, but was not directly involved in the last round at Southern. Rigley is in
charge of bargaining for all of Speedys contracts.
2. The second member of the union team is A. Jones, also a representative of the national
union, based in Albury. Jones is the top union person for Southerns operations, handling
their arbitrations between contracts. Jones has had considerable negotiating experience,
but was behind the scenes in 1983.
3. The third member of the union team is M. Bemis, President of the AWU Albury
branch. Bemis is 30 years old and has a reputation as a militant. Bemis was a member of
both the 1983 and 1986 negotiating teams.

The Issues
There are three issues likely to be on the table in the 1989 negotiations: wages,
employment security and superannuation.
1. Wages: The union wants more money in base wages preferably specified in dollars
per hour rather than in percentage increases. Management prefers a performance-based
wage structure.
2. Employment security: This covers 6 separate concerns: guaranteed employment,
training, non-unionised subsidiaries, non-unionised / non-management workers and
subcontracting.
3. Superannuation: Presently, workers superannuation contributions consist of the
statutory minimum of 9% plus 3% - all contributed by the employer. Under the terms of
the new 1989 contract, management are proposing that any contributions above the
statutory 9% be co-paid the employer will pay up to an additional 3%, provided that the
employee contributes the same amount via salary sacrifice. If employees elect to not
sacrifice any salary to pay for additional contributions, then the company would not make
any additional contributions over the statutory minimum of 9%.
The Negotiations
There will be three parts to the negotiation. The first will involve internal team
bargaining. The union team and the management team must meet separately to sort out
their priorities, discuss negotiating strategy and prepare their opening statements.
The second part of the negotiations will involve initial exchange of information during
which each side will be encouraged to make an opening statement and to ask questions of
the other side.
The third part of the negotiations will involve a collaborative effort to structure a
package that meets the needs of both sides.
Team members will receive Confidential Instructions prior to each of the three parts of
the negotiation. Time limits will be announced for each part of the negotiation.
Facts About the Union
The AWU has 800 members at Southern Express. They fall into four wage grades:
Grade 1 makes a base wage of $18 per hour: these are mostly baggage handlers and
cleaning crews.
Grade 2 makes a base wage of $22 per hour: these are mostly reservation clerks.
Grade 3 makes a base wage of $26 per hour: these are skilled mechanics.
Grade 4 makes a base wage of $30 per hour: these are the highest level of skilled
mechanics.
40% of the work force is in Grade 1, 30% are in Grade 2, 20% are in Grade 3 and 10%
are in Grade 4.The average base wage is therefore $22 per hour.
All employees work for 35 hours per week.