AFR Mar 16th - Qantas warns pilots of a hard landing
For Qantas chief executive Geoff Dixon, it is a simple problem: he pays every pilot flying from Sydney to Brisbane about $80,000 a year more than Virgin Blue's Brett Godfrey gives his pilots for the same job.
As the companies compete for a market increasingly dominated by customers loyal only to their wallets, it is a difference Qantas says it must address to compete better with its younger, leaner rival.
It is here, rather than in the sacking of maintenance staff announced last week, that the long-serving Qantas boss faces possibly his most bruising industrial relations battle.
That is why Mr Dixon yesterday wrote to 2600 Qantas pilots and told them the airline was assuming a cost base with oil prices of $US60 a barrel. He told them they must accept change, and accept it now.
He also told them he was cutting off the $500,000 a year Qantas has traditionally paid the Australian & International Pilots Association (AIPA), the pilots' union, to cover the salaries of its president and vice-presidents.
"I don't regard it as just an issue about Virgin," Mr Dixon said.
"It's about productivity and overall efficiency, not just rates of pay. Given our investment profile and the competitive nature of our business, we have no other option."
Mr Dixon, who is chasing cost cuts of $3billion by 2008 under his "sustainable future" program, said Qantas had lost fewer than four days to industrial action in the decade since privatisation.
"That has to continue at a time when the company has to set the price of its operating base at levels that had never before been imagined," he said. "And that means we have to drive new efficiencies into the business."
Yesterday's letter made it clear nothing was sacred.
"Flight crew so far have been unaffected by these changes but when just two line items - manpower and fuel - now account for almost 60 per cent of our cost base, there is no option but to accelerate the rate of change," it read.
Ian Woods, a captain on Qantas 747-400 long-haul aircraft who took control of AIPA last September, is the man whose vocal criticism of Qantas's plans prompted yesterday's letter.
He said Mr Dixon risked an unprecedented fight with all its unions - including the Australian Manufacturing Workers Union and Australian Workers Union that represent engineers - if it continued with its aggressive tactics.
"We have never had a day's work lost to a strike," Mr Woods said. Qantas pilots kept out of the strike in 1989 of pilots from Australian Airlines (then not owned by Qantas) and Ansett.
"Pilots are generally very committed people," he said. "Because their commitment relies on their personal integrity, they're normally very pro-company, but their patience is being worn thin."
Mr Woods said that if Qantas could afford to benchmark its executives' salaries against executives in New York and London, then pilots' salaries should not be benchmarked against Asian competitors such as Singapore Airlines and Emirates, who earn closer to the $140,000 a year Virgin Blue pays its pilots than the standard $220,000-plus earned by a Qantas domestic captain.
¢¢¢ Mr Woods also said that as Qantas charged more than Virgin Blue, particularly by offering a business-class service, it should be able to share those higher margins with its pilots.
The problem is that Qantas is increasingly struggling to justify charging more for its services on domestic routes as customers embrace "lowest fare of the day" purchasing.
And if people are less willing to pay a premium for the hops of one and a bit hours between Sydney and Brisbane or Melbourne, it is harder for Qantas to maintain its higher cost base. That is why Jetstar is so important to Qantas: it has established the group as the lowest-cost operator in Australia and hopes to do the same when it starts flying internationally later this year.
It will result in Jetstar captains earning $158,500 a year if they fly internationally, compared with about $135,000 domestically, considerably less than Qantas counterparts.
AIPA's fear is that as Qantas services are transferred to Jetstar, the airline will reduce the standard pay and conditions in the Australian airline industry by stealth.
For a captain, Jetstar represents a sharp dip in wages, but going from a non-command position at Qantas (on a salary about 60 per cent of a captain's) to a captain's role at Jetstar can be appealing and AIPA is concerned this will be encouraged as the main area of career moves.
That is why AIPA is trying to block a new enterprise bargaining agreement enabling Jetstar's 249 pilots (who negotiate separately to the union) to fly wide-body long-haul aircraft.
This blocking movement application was rejected by the Australian Industrial Relations Commission last week, but AIPA is expected to appeal.
"Jetstar is likely to be an area of strong growth for Qantas so AIPA would argue that Qantas pilots have a vested interest," MrWoods said.
"AIPA is concerned that if there is that kind of wage differential, that it becomes standard. It is the classic pincer movement because Qantas pilots become cost uncompetitive."
And while Qantas says some senior pilots earning as much as $375,000 fly only 65 hours a month (and some even have second jobs), AIPA claims Qantas pilots' higher wages are based on the fact they work harder and smarter than their Virgin counterparts.
"Virgin Blue pilots are lucky to average 650 hours a year in the air ... That's where the difference [in salary] comes from," MrWoods said.
"They [Qantas pilots] are being paid more because they are one of the Western world's most productive and efficient pilot groups. And they are now aggrieved."
Ohhh the pain.........the pain 