Employee relations analysis of a UK legacy national airline
2.2.1 An overview of employee relations
Employee relations is a term which is now frequently used but very ambiguously defined. It is usually regarded as the substitution of ‘industrial relations’. Although many professional bodies such as CIPD (Chartered Institute of Personnel and Development), and many of the recent textbook authors such as Blyton and Turnbull (1998), Farnham (2000), Gennard and Judge (1999), and Hollinshead et al. (2003) considered that there are still some differences between employee relations and industrial relations in context and emphasis, it seems that the term employee relations is still indistinguishable from industrial relations in their articles and books (Rose, 2008).
Industrial relations issues actually turned up since the Industrial Revolution in the UK. However, it did not emerge as a recognized field of study and area of vocational practice in industry until approximately 1920, appearing first in the United States (Kaufman, 2004). In the United Kingdom, where the birthplace of industrial relations, it did not became a academic research subject until a decade later and did not get a mainstream position until after the Second World War. This disparate pattern of the term in the US and UK was caused by several factors, such as their different university systems, different management and labour market status, etc (Kaufman, 2004).
Kaufman (2004) defined the post – war period until the end of 1970s as the “golden age” of industrial relations, when the term gained rising academic visibility and enhance its influence on national labour policy. After the “golden age”, a “cold climate” period emerged, which can also be recognized as the beginning of the shift from industrial relations to employee relations.
The shift was resulted in by several influences. Since the early 1980s, an obvious decline in trade union recognition arose at workplace (Salamon, 2000).Kessler and Bayliss (1998) summarized three major factors that resulted in these new departures.
The first factor was the political environment of this period. During the period of the Conservative government (from 1979 to 1997), a series of steps were taken to limit the scope of trade union action, set new rules for trade union operations and enhance the role of management, because the government treated trade unions as “an institutional impediment, which are harmful or at least unnecessary, to the operation of free markets” (Legge, 1995). The marginalization of trade unions enhance the power of employers and gave them more flexibility to deal with employees more directly, so that they could achieve the business goals based on their own value systems without the hindrance of powerful collective bargaining from unions (Hollinshead et al., 2003).
The second factor was economic changes. With the development of economic globalization, competition became fiercer in both the product market and the labour market. The decrease in manufacturing industry leaded to the high levels of unemployment. In addition, the great post – war recessions were another reason, which raised unemployment dramatically.
The third was change in management policies. As a result of fiercer product market competition, organizations began to realize that only hold the technology advantage is no long enough to maintain their competitive advantage. Employers sought to achieve higher level of employees’ productivity than the past to improve the organizational performance. In addition, non-unionism not only changed the balance of bargaining power between employees and employers, but also individualistic issue within employee relations, although this result is not the object of Conservative legislation.
Besides these factors mentioned above, Hollinshead et al. (2003) additionally insisted the social-demographic factors, which refer to higher education levels, woke – life balance, and the increase number of women and part timer in labour market, and technological factors, which refer to flexible working time, knowledge workers and computerisation of routine jobs.
Because of those different situations, the professional party and textbook authors mentioned above tried to define the new boundary for the term ’employee relations’ so that it can be distinguished from the traditional ‘industrial relations’.
Based on a series of interviews and surveys with human resource practitioners and employee relations managers, CIPD defined employee relations to be a more comprehensive employment relationship than the traditional industrial relations. As CIPD indicated, employee relations emphasizes more particularly on direct communication, managing organisational change and involving and motivating staff, while industrial relations is a narrower conception which just refer to the relationship between employers and collective employees (CIPD, 2005).
However, the definition made by CIPD just reflected the perspective of employers. Gennard and Judge (1999) argued that comparing with the CIPD’s perspective, the academic discussions require the plurality of perspective on issues and themes. Therefore, they defined employee relations as:
” a study of managing employees both as individuals and as a collective group, with the priority given to the individual as opposed to the collective relationship varying between companies depending on the values of their management.” (Gennard and Judge, 1999)
They emphasized the importance of acquiring employee relations knowledge and skills in unionised environments as well as non-union environment. In addition, they also treaded the relative balance of bargaining power between the buyers and sellers of labour services as one of the most important employee relations concepts. Similarly, Farnham (2000) also insisted that “the essence of employee relations is paid employment or the pay – work bargain between employers and employees”.
As Farnham, Gennard and Judge all emphasized upon individual aspects of the employment relationship more than collective aspects, Blyton and Turnbull (1999) considered that industrial relations was included in employee relations. They summarized that the particular industrial relations is only about trade unions and strikes. On the other hand, they viewed that employee relations is not only about the collective relationships, but also about the relationship between individual employees and employers. However, the collective aspects of relationship between employees and employers are still their focus point in the field.
No matter how many differences these party and authors summarized between industrial relations and employee relations, there is still no significant distinction between these two terms. As Rose summarized (2008), employee relations become more mainstream than industrial relations may be just because it is considered as a more “acceptable” term than industrial relations – as it averts the negative undermeaning associated with industrial relations. Like Edwards argued in 1995:
“In order to survive, industrial relations needs to change its focus to ’employment relations’, examining not just institutions but how the employment relationship operates in practice, and exploring the outcomes for efficiency and equity”.
To sum up, employee relations is the outcome of changing contemporary industrial relations influenced by many external factors such as economic environment, development of technology, political steps, etc. It refers to not only the collective aspects of relations between workforce and management, but also the individual aspects of the relationship.
2.2.2 The importance of employee relations to airline industry
Belobaba et al. (2009) indicate that the employee relations is particularly important in the airline industry.
First of all, the fundamental reason for the significant position of employee relations in the airline industry is its “service-intensive nature”. Airline industry is labour intensive industry; therefore its proportion of labour costs to total costs is very high.
Figure 2.1 European airline labour and fuel cost shares (%) of total operation costs: 2001 to 2008
Source: ITAT (Centre for Asia Pacific Aviation, 2010)
Although the research made by ITAT indicates a slight decrease of labour cost from 2003 to 2008, it still in a large share of total operating costs. According to Rodrigue et al (2009), the percentage of labour cost in the operating costs of the airline industry in the world was approximately 35%, which illuminated about 75% of all non-fixed costs.
Figure 2.2 Operating Expenses of the Airline Industry (2004)
Source: ATA Annual Report 2005 (Rodrigue et al, 2009)
Second, with the high level of union representation in this industry, employees can affect the performance level of airlines significantly. Those effects can be positive and also negative. For example, in adversarial employee relations environment, no matter achieve agreement or not in collective bargaining, it will result in “higher costs and less operating flexibility” (Gittell et al., 2004) for companies. If collective agreement can be achieved, higher wages should be paid for employees and companies’ layoff plan may be restricted to improve employment security of employees. If collective agreement cannot be achieved, additional costs might be leaved to companies through collective dispute such as strikes, go-slows, etc. On the other hand, employees also play important roles in adding values for companies. They can reduce companies’ unit costs through their “coordinated and committed efforts and their productivity-enhancing ideas” (Gittell et al., 2004). In addition, they can provide high – quality service to customers which can be seen as a competitive advantage in contemporary airline industry.
Therefore, the status of employee relations within airlines can significantly affect their costs, their financial performance, and the achievement of their business goals.
2.2.3 New perspective of employee relations within contemporary airlines in the UK
In the UK, airline industry has a tradition of “adversarial employment relations” (Marchington et al., 2004). Most airlines within UK accept the existence of trade unions; however, generally have bad relationships with them. Layoffs and wages cut are usually the first strategy used to improving financial performance and avoiding crisis during an economic recession (Rodrigue et al, 2009).
However, reducing labour costs is not the only way to get competitive advantage and achieve better financial performance.
According to Legge (1995), employee relations actually do not need to be so adversarial even in labour – intensive industries. She argued that even companies choose to be more competitive on costs, they can still achieve this aim by “increasing the productivity of their capital assets rather than by reducing labour costs”. Similarity, Batt (2000) considered that comparing with reducing labour costs, investing in better employee relations could gain a greater return.
Hence, like Gittell and Bamber (2010) summarized, although reducing labour costs are the focus of an service – sector company’s competitive strategy, their costs can be cut down not only by “cutting wages and benefits”, but also by “increasing labour productivity”.
Management style in employee relations
Different authors summarized different types of management styles in employee relations under different systematization.
2.3.1 The unitary theory and the pluralist theory
Fox (1966) identified unitary perspective and pluralist perspective based on different general control and direction of labour.
There are three main differences between these two perspectives:
1. Management acceptance and recognition of trade unions
2. Views about managerial prerogatives and employee participation
3. The perceived legitimacy of, and reactions to, conflict at work. (Blyton and Turnbull, 1998)
Hollinshead et al (2003) indicated that unitary perspective of employee relations essentially treats employee relations as a harmonious relationship between employers and employees. The unitary perspective emphasize that there is a common goal between employees and employer. This common goal can avoid the potential source of conflict and hold employees and employer together to strive for their common objectives.
Because of the harmonious relationship within a unitary employee relations environment, there is no need for a third party on behalf of either employees or employers to participate in bargaining process (Hollinshead et al, 2003). Therefore, trade unions are not necessary for both employers and employees. In other words, the labour market is depicted as a natural structure composed of an omnipotent management backed up by the state and of labour dependent on those two parties for its well-being (Gospel, 1992).
However, the high level of consensus between employees and employers not always exists, even it does, it is hard to be maintained. The assumption is not reasonable in most application. Employees may accept a series of organizational objectives at the very beginning, but it is unlikely to maintain the long-term cooperation of a workforce (Hollinshead et al, 2003).
The failure of the assumption reflects some weaknesses of the unitary theory that is summarized by Hollinshead et al (2003). First, it ignores the existence of differing interests between employees and employers. Second, conflict between employees and employer were considered as ‘deviance’ (Palmer, 1983). The only way to deal with the conflict is dismissal or the law. Third, with more developed management techniques, many practitioners indicate that ignoring employees’ interests could result in more intense conflict.
Although the unitary perspective can be seen as the earliest theory used to describe employee relations, it refers to many contemporary management ideas related to corporate culture and human resource management (Farnham and Pimlott, 1995). Hence, many employers nowadays still adopt this perspective as good business sense.
Comparing with unitary theory, pluralist theory is a perspective that can more accurately reflect the employee relations within larger and more complex employment environment. The pluralist theory acknowledged that there is a limited level of conflicting interests between employees and employers, so that all parties within organization need to work together to achieve a consensus (Hollinshead et al, 2003).
Like Trades Union Congress (TUC, the umbrella organisation of the trade union movement) described in a policy document published in 1997:
The theme of this statement is partnership, a recognition that trade unions must not be seen as part of Britain’s problems. At the workplace social partnership means employers and trade unions working together to achieve common goals such as fairness and competitiveness; it is recognition that, although they have different constituencies; it is a recognition that although they have different interests, they can serve these best by making common cause wherever possible. (TUC, 1997)
The implication of using this analysis was, unlike unitary theory, which it drew from accounts based upon a political heritage in democratic theory that portrayed decision – making as a process of reconciling the different claims made by a variety of competing groups. In other words, it acknowledged the existence of a variety of competing interest groups, but in addition it accepted this variety as legitimated and normal. The existence of conflict was allowed for, and to an extent encouraged.
What the theory appears to offer is an account of the nature of industrial relations which achieves greater realism by reflecting the political realities of the situation at that time. This is hardly surprising when the details of that historical period are considered, along with the level of trade union activity and the incidence of industrial disputes in evidence at that time. Conflict was very much the norm (Bassett, 1987).
Once again, the theory also established based on a series of assumptions that are hardly recognized in practice.
2.3.2 The individualism and the collectivism
Purcell (1987) considered that although Fox’s unitary and pluralist theory had a major influence in the beginning of management style issue, the conceptions actually had a lot of limitations in practice.
First, both unitary frame and pluralist frame have a number of variations. For example, both organizations those are essentially exploitive of labour and organizations those value the loyalty and commitment of employees are contained within the unitary frame, however, their management style are almost extremes. Similarly, organizations within pluralist frame also need to be sub – divided through different kinds of variations.
In addition, because of their mutually exclusive feature, these two perspectives seem do not useful as a framework of management style in employee relations.
Third, it is often unclear in the way the terms have been used subsequently whether they related to management’s beliefs and policies toward trade unions or, in addition, cover direct relations with employees.
Therefore, he identified individualism and collectivism as two dimensions of management style of employee relations.
Individualism dimension refers to the extent to which the firm gives credence to the feelings and sentiments of each employee and seeks to develop and encourage each employee’s capacity and role at work. Firms which have individualistically centred policies are thus expected to emphasize employees as a resource and be concerned with developing and nurturing each person’s talents and worth.
Payment systems might emphasize merit elements and make use of appraisal and assessment techniques designed to distinguish the contribution of each employee in anything from ‘attitudes to attributes’, as one firm puts it, The line manager’s role in managing people is likely to be emphasized, irrespective of whether the manager is in a production, sales, finance or a personnel position. Attitude surveys may well be used regularly since such organizations are keen to assess the efficacy of their policies. Communication systems are likely to be extensive and developed through a variety of media from newspapers and videos to the personal contact between the managers, the individual and small groups of employees.
Collectivism is the second dimension of management style that concerns the extent to which the organization recognizes the right of employees to have a say in those aspects of management decision-making which concern them.
There are a number of ways to distinguish it from the first one. One possibility is to use a test of trade union recognition for the determination of pay and conditions through collective bargaining. However, this is not of itself sufficient since in so doing we make assumptions about the nature of the relationship between the firm and the union and exclude organizations where employees participate in decision-making through non-union structures. A focus on industrial democracy might be more helpful since it would allow for a variety of methods by which managers become to a greater or lesser extent accountable for their actions to employees, and where staff have some say in decision – making. The only problem is that there is no agreed definition of industrial democracy.
Purcell and Gray’s category of management style
The category developed by Purcell and Gray in 1986 is one of the most popular typologies of management style (Torrington et al, 2008). Comparing with the typologies mentioned above, it is more comprehensive.
Purcell and Gray (1986) defined five types of management styles in employee relations, which are “traditional” style, “Sophisticated human relations” style, “consultative” style, “constitutional” style, and “standard modern” style.
The “traditional” style considers labour as a factor of production and employee subordination is assumed to be part of the “natural order” of the employment relationship. Usually, trade unions are not accepted in this style. This style is mainly adopted by small owner – managed companies. In addition, the product market often highly competitive, emphasis on cost control. Grunwick processing laboratories Ltd, Port of Tilbury are typical case adopting this management style.
The “sophisticated human relations” style view employees as the company’s most valuable resource. Comparing with the other companies in the same industry, this kind of company usually par employees more – above average pay. The aim is to inculcate employee loyalty, commitment and dependency. Companies choose this management style seek to make it unnecessary or unattractive for staff to unionise. This style is usually adopted by large, American – owned, single industry, financially successful organizations with a high market share in growth industries. IBM and Marks & Spencer are typical cases adopting this management style.
The “consultative” style is similar to the sophisticated human relations companies except that unions are recognised. An attempt is made to build “constructive” relationships with the trade unions and incorporate them into the organizational fabric. Emphasis is also placed on techniques designed to enhance individual employee commitment to the firm and the need to change. This style is often adopted by British or Japanese – owned single industry companies that are large and economically successful, often with a high market share. Companies with relatively low labour costs often adopt this style. Esso and Cadbury – Schweppes are typical cases adopting this management style.
The “Constitutional” style have been recognised for some time and accepted as inevitable. Employee relations policies centre on the need for stability, control and the institutionalisation of conflict. Management prerogatives are defended through highly specific collective agreements. The importance of management control is emphasised with the aim of minimising or neutralising union constraints on both operational (line) and strategic (corporate) management. This style is often adopted by single industry companies with mass production or large batch production requiring a large unit size of operation. Labour costs form in these companies indicates a significant proportion of total costs. The product market conditions are often highly competitive. Ford is a typical case adopting this management style.
The “standard modern” style refers to pragmatic employee relations and trade unions are recognised within organizations. Employee relations are viewed as the responsibility of operational management. The importance attached to employee relation policies changes in the light of circumstances. There can be marked differences of approach between establishments or divisions and between various levels of the hierarchy. This style is often adopted by conglomerate, multiproduct companies that have grown through acquisition and diversification, especially in the engineering and heavy manufacturing industries with long traditions of unionisation. General Electrical Co., and British airways are typical cases adopting this management style.
2.4 Employee involvement
2.4.1 The importance and necessity of employee involvement
It is quite possible to run a successful business without involving employees in management activities to any meaningful extent, but the chances of sustained success are higher when employees are involved (Torrington et al, 2008). Objectives are more effectively and efficiently achieved if employees have some say in decision – making, especially as it affects their own areas of work.
Torrington and his colleagues summarized two main reasons for this phenomenon.
On one hand, managers may be paid more than their staff, but that does not mean that they always know best. There is no fount of wisdom exclusive only to managers. Ultimately it is for managers to make decisions and to be held accountable, and these can be tough to make. But the chances that they will make the right decision are enhanced if they listen to the views of others and allow their own ideas to be subjected to a degree of scrutiny and constructive criticism. Moreover, involvement allows managers to tap into the ideas and suggestions of staff. The best new ideas often originate from people lower down organizational hierarchies, because they are closest to the operational coalface and often to customers.
On the other hand, employees like being involved. They appreciate having their opinions listened to and acted upon, particularly in matters that directly concern their day – to – day activities. The chances of their being positively satisfied with their work are thus greatly improved if they are genuinely able to be involved. The knock – on effects include lower staff turnover, lower levels of absence, the ability to attract more recruits and higher levels of performance. The effective management of change is especially enhanced by employee involvement because people are always happier to support what they helped to create.
Types of employee involvement practices
Hyman and Mason (1995) identify four categories of employee involvement:
Downward communication to individual employees
Downward communication to groups of employees
Upward communication to individual employees
Upward communication to groups of employees
Downward communication from managers to employees is used to inform and ‘educate’ employees so that they are more likely to endorse management initiatives and plans.
Chapter three RESEARCH METHODOLOGY
Based on Morse and Field’s (1995) framework from the health sciences, Creswell et al (2007) summarized five main approaches used in qualitative research, which are narrative research, case study research, grounded theory, phenomenology research and participatory action research.
In this dissertation, case study research methodology is used to explain how employee relations can affect the business performance of legacy airlines.
background and definition
Although some (Stake, 2005) stated that case study research is not a methodology but only a choice of the object of study, more experts considered it as a methodology, a comprehensive research strategy, and a type of design in qualitative research (Merrian,1998; Yin, 2003; Creswell et al, 2007).
According to Yin (2003), a case study is “an empirical inquiry that investigates a contemporary phenomenon within its real-life context, especially when the boundaries between phenomenon and context are not clearly evident”. Therefore, he (2003) indicated that the case study inquiry is mainly used to deal with the technically characteristic situation in which “there will be many more variables of interest than data points, and as one result relies on multiple sources of evidence, with data needing to converge in a triangulating fashion, and as another result benefits from the prior development of theoretical propositions to guide data collection and analysis”. Likewise, Creswell et al (2007) summarized that case study research is:
“a qualitative approach in which the investigator explores a bounded system (a case) or multiple bounded systems (cases) over time through detailed, in-depth data collection involving multiple sources of information (e.g., observations, interviews, audiovisual material, and documents and reports) and reports a case description and case-based themes.”
3.3 Variants of case study research
Qualitative case studies may be distinguished by the intent of case analysis. Three variations that exist in terms of the intent- the single instrumental case study, the collective or multiple-case study and the intrinsic case study (Creswell et al, 2007). In a single case-study the focus is on one issue or concern and a bounded case is selected to illustrate this issue (Stake, 1995). In a collective or multiple-case study, the focus is one issue but multiple cases are selected to illustrate this issue. Multiple case design uses the logic of replication as the procedures a re replicated for each case (Yin, 2003). Qualitative researchers are reluctant to generalize from one case to another as the contexts of the cases differ. However, to generalize, representative cases should be selected (Creswell et al, 2007). In an intrinsic case study, the focus is on the case itself e.g. studying a student having a difficulty (Stake, 1995).
This paper examines the nature of employee relations (issue or concern) taking the example of an organization- British Airways PLC (case). Therefore it is a single instrumental case study. It explains how theories of employee relations have been applied in practice.
3.4 Case study techniques
Many researchers such as Simons (1980), Yin (1984) and Stake (1995) have written about case study research and suggested techniques for conducting this research. They proposed the following steps- determine the research question, select the case and determine data gathering and analysis techniques, preparation and collection of data in the field, evaluate and analyze the data and prepare the report. I have followed these steps during my research.
3.3.1 Determining the research question
To arrive at the research question a research focus has to be established along with a research object. In this research, the main focus is on managing employee relations in organizations. The research object can be a program, entity, a person or a group of person (Soy, 1997). Here, the research object is an organization (entity).
In this study, I am primarily interested in determining how employee relations is dealt with in organizations. First, I have conducted a literature review that provides information on employee relations and helps to define the following questions:
The employee relations status in British Airways, and
How to deal with poor employee relations?
3.3.2 Select the case and determine data gathering and analysis techniques
There are a number of organizations in the UK suffering from poor employee relations. One of these is the British Airways PLC (Grugulis and Wilkinson, 2002). British Airways is now getting bogged down in collective disputes from its employees.
Foreman (1948) suggested three broad categories of data gathering techniques.
First, “personal documents” includes all record yielding information concerning the pattern or functioning of the researcher’s own personal or social life. It may reflect a social situation to which the author is responsive to or his/her own behaviour (Foreman, 1948).
Second, “participation observation records” includes all chronicles prepared by the analysts following assumption for purpose of investigation of member roles in the unit studied (Foreman, 1948).
Third, “person reports” includes all forms written by persons not directly participating in or identified with, but seeking to organize or to interpret the experiences or history of some personal, group, class, ecological, or cultural unit (Foreman, 1948)
3.3.3 Preparation and collection of Data
A case study research requires large amount of data from multiple sources. Systematic organization of data is important to prevent the researcher from becoming overwhelmed by the amount of data and to prevent the researcher from losing sight of the original research purpose and questions (Soy, 1997). Databases have to be prepared to assist with categorizing, sorting, storing, and retrieving data for analysis.
It is essential to note down key problems and events, identify key people and revise the research design to address and add to the original set of research questions (Soy, 1997). The data used in this case study is more of secondary data. Most of the data is collected through books, documents and archival documents. Documents include letters, memoranda, agendas, administrative documents, newspaper articles, or any document that is germane to the investigation (Tellis, 1997). Documents are also helpful in making inferences about the events. Archival documents can be service records, organizational records, lists of names, survey data, and other such records (Tellis, 1997). Most of the data was collected from newspaper articles published in the Financial Times, Economist, BBC etc to ensure the validity and truthfulness of the data.
3.3.4 Analysis of the data
After the collection of data from multiple sources of evidence it has to be evaluated and analyzed. During the analysis of data, it is necessary to be open to new opportunities and insights. Chandy (2004) has outlined various steps that help evaluating and analyzing the data.
Analyzing the firm – this part includes the company’s history, development and growth. The critical incidents in history are outlined with its initial products and how it developed and chose functional competencies to pursue.
Analyzing the history of British Airways – British Airways has a long complex history, which makes its employee relations status complex.
Organizational analysis – Organizational analysis is done by describing British Airways’s structure, people (how they are motivated and rewarded), culture and technology.
SWOT analysis- British Airways’ resources, distinctive competencies, strengths, weaknesses, opportunities and threats are identified. This helps in determining how the current resources are a product of its past decisions and how it might form a basis for the future. It is also useful in knowing the overall competitive position in the industry and how it can pursue its corporate and business level strategies profitably (Chandy, 2004).
Identifying key reasons of collective disputes – the main reason leading to employee strikes are identified and analysed.
Making recommendations- The last part of the case analysis process is making recommendations. These help in solving the strategic problem the company is facing and increasing its future profitability. The possible strategic options that in response to the problems that are identified are outlined to help British Airways achieve sustainable competitive advantage.
3.3.5 Preparing the report
The report is prepared in such a way that it gives the reader the confidence that all avenues are explored, clearly communicating the boundaries of the case and giving special attention to conflicting propositions. The case study report is made up by two sections – the Finding and Analysis section, and the Discussion section. Findings and Analysis concentrates on the firm’s history, development, growth and its current employee relations policies. The Discussion and recommendation section try to evaluate the employee relations within British Airways and give some recommendations for its problems.
While analysing the case, the main factors like analysing the environment, the firm, identifying the reasons of collective disputes, key change drivers have to be examined in detail. These factors form a base for discussion and conclusion and are elaborated upon in the findings and analysis section.
Chapter Four Findings and Analysis
This part of the dissertation first gives a brief outlook on the history of British Airways and its formation. The history of B.A. relates to the competition it faced in the initial years, its move towards privatization, impact of industrial relations and deregulation of the airline industry. Most of the change initiatives were taken keeping in mind the events of the past at B.A. In fact, the reason why BA embarked on the cultural change initiative, they were trying to move away from being a state run airline to one that could operate in a very competitive global business and trying to convince sceptical staff to cooperate while simultaneously trying to reduce pay and conditions, break the influence of the unions and make large scale redundancies. This chapter also throws light on the major organizational changes that took place in British Airways over the years. The changes have been broadly classified into cultural changes, technological changes and power and political changes.
Company profile and background
4.2.1 History of British Airways
Aircraft Transport and Travel Limited (AT&T), which is the earliest predecessor of British Airways, was founded in 1616. It launched the world’s first international scheduled air service between London and Paris on 25 August 1919 based at Hounslow Airport – the predecessor of Heathrow Airport (British Airways, 2010).
After the birth of civil aviation, commercial passenger services developed rapidly. A number of airline companies established so that the competition became fiercer. In order to sustain the British companies in the fierce competitive environment, the government merged four main airline companies, the British Marine Air Navigation, the Daimler Airway, the Handley Page, and the Instone Air Line, to establish the Imperial Airway that can be subsidized by government (British Airways, 2010). Because of the financial support from government, although the new airline is privately owned, it can be seen as representing the British government. Therefore its main route structure is focus on colonies of the British Empire, such as India, South Africa and Australia (Stonehouse, 2001).
On the other hand, another airline, which is named British Airways Ltd, was founded in 1935 by merging three smaller British airline companies. Differing from the Imperial Airways, British Airways Ltd was focus on the destinations in northern Europe (Stonehouse, 2001).
In 1939, in order to form a new single airline that could serve government interests better and be stronger in more competitive airline industry, the British Government merged the Imperial Airways and the British Airways Ltd together to create a new nationalized airline, which was known as the British Overseas Airways Corporation (BOAC) (Lowery, 2006). However, this company soon became a part of the Royal Air Force because of the advent of Second World War.
Post-war, BOAC continued to operate long haul services, apart from routes to South America which were flown by British South American Airways (BSAA). This company was eventually merged back into BOAC in 1949. Continental European and domestic flights were flown by a new airline, British European Airways (BEA). In 1947, the British Overseas Airways Corporation (BOAC) and the British European Airways (BEA) were merged to form British Airways (BA).
The changes of the early 1980s were driven by the conservative government led by Prime Minister Margaret Thatcher. Unlike the previous Labour governments, Thatcher was ideologically opposed to state – owned monopolies and accordingly, her government encouraged greater competition from the private sector. Thatcher also sought to sell off state – owned companies to the private sector, partly to raise capital but also because she believed that these companies would be better managed in a normal commercial environment. However, British Airways in the late 1970s was not an attractive candidate for privatization so Thatcher brought in Air John King, and experienced and tough industrialist, as chairman in 1980. King carried out a major rationalization of the company’s operations which resulted in over 20,000 job losses.
In 1983 Colin Marshall was appointed chief executive and one of his major strategic thrusts was to redefine the brand name whilst also focusing on customer service. Marshall is credited with implementing the major cultural change within the company which was required to meet the company’s new goals. By the time that British Airways was privatized in early 1987, it was well on the road to becoming the world’s most profitable airline with high liquidity and an enviable international route structure.
External economic environment
Employment Relations at British Airways
In the early 1980s, as a company located within the public sector, BA had many of the characteristics of public sector employee relations more generally. It was highly unionised, at one point recognising 16 separate trade unions, among which was BALPA (British Airlines Pilots Association), a union with particular strategic influence within the industry. There was also a well-established industry-wide collective bargaining framework with BA as a key player on the employers’ side of the negotiating body, the National Joint Council for Civil Air Transport (NJCCAT), together with consultative forum at company level.
In many respects collective bargaining was complex, sectional and fragmented, and management’s approach to employee relations, ‘pragmatic and opportunistic’ (Blyton and Turnbull 1998). By the 1980s the new strategic focus of the company meant this approach had to change but BA was careful to maintain relations with the unions alongside an approach to culture change that was more individualistic. In effect the company operated dual-arrangements for the period – communicating and consulting with staff and unions – an approach that largely continues today. The period provided evidence of the company trying to ‘by-pass’ long established union-based communication channels, and in the 1990s much of British Airways’s employment relations strategy focused on the reorganisation of collective bargaining. The NJCCAT was abolished in 1996 but national level bargaining through five separate National Sector Panels for pilots, cabin crew, clerical grades, ground/support crew and management remained, although was redefined and reinforced (Blyton and Turnbull 2004: 97). Following a dispute with pilots in 1996, British Airways and BALPA negotiated a new ‘partnership’ agreement, and although the company sought a new more co-operative approach with other unions, unlike with the pilots, no formal agreement was signed. However, throughout the period employment relations difficulties never remained far from the surface. There was, and continues to be, a tension between exhortations to improved customer service on the one hand and cost cutting through contracting out and enforced bouts of redundancies on the other (see below), and the climate engendered by the latter has made it increasingly difficult to deliver the real benefits to customers that British Airways claims it is in business to provide.
To illustrate this point, in 1996, British Airways replaced Singapore Airlines as the World’s most profitable airline, but this was accompanied by further planned workforce reductions under its Business Efficiency Programme (BEP). This initiative created considerable disquiet within the airline, and the ‘market-led’ approach of BEP led to outsourcing of a number of activities as well as job cuts (Blyton and Turnbull 2004). The loss of 5,000 jobs in the company’s ‘backroom’ operations led to a strike by cabin crew staff in August 1997. The latter were aware of their potentially precarious position; average spending on cabin crew at British Airways at this time was 48% higher than at British Midland and 90% higher than at Virgin.
Problems have also surfaced in recent years over other staff issues. In the 1990s, disputes occurred involving baggage handlers, cabin crews, engineers and pilots, and more recently problems over the introduction of a new ‘swipe card clocking-in’ system (in 2003), estimated to have cost the company tens of millions of pounds. 2004 witnessed a strike over pay and long-standing concerns over staffing levels and in 2005 a dispute took place involving sympathy strike action by British Airways workers over the sacking of 670 workers at British Airways’s catering suppliers – Gate Gourmet, estimated to have cost the company £45 millions (www.guardianunlimited.co.uk). In 2005, the company introduced new regulations to cut absence levels, which at the time were estimated to be averaging 22 days per staff member a year, a measure that did not lead directly to strike action but substantially worsened an already tense employment relations climate. Threatened strike action took place in 2006, over changes to the pensions system, a threat repeated again in February of 2007 by members of the GMB who represent around 8,000 British Airways ground staff over proposed changes to pay and conditions and to policies on sick leave. In March 2008, BALPA announced strike action over British Airways’s decision to establish a new subsidiary airline Open Skies, to take advantage of the new regulatory framework between the EU and the US (see above and below). This action was called off but a court case, planned for mid May, is due to consider aspects of the dispute.
The position of the unions within British Airways has meant that the company has continued to try and secure major changes through negotiation. These have often been difficult and protracted but have ultimately led in a number of cases to far-reaching changes in employment practices. For example, in the late 1990s negotiated changes with cabin crew involved agreement on a two-tier wage structure (lower rates for newer staff), a pay freeze and moves to greater functional flexibility. This agreement was significant for a number of reasons, first, it effectively created a two-tier workforce among cabin crew, those recruited before 1997, whose maximum pay at the time could rise to £26,600 per year, and those post-1997 whose pay operated with a ceiling of £15,748 per year. The agreement also included important concessions on flexibility, that staff would now be trained to work on four aircraft types rather than three, and an agreement on temporal flexibility, essentially to work on new shift systems.
It should be noted that at Heathrow unions and management have also negotiated two agreements, one for long-haul, and the other for short-haul operation. Significantly separate unions were involved; BASSA (British Airline Stewards and Stewardesses Association) a part of the TGWU, is the main union representing cabin crew on short-haul operations, while Cabin Crew ’89, (a breakaway union from the TGWU) represents those on long-haul1.
Despite its efforts, or perhaps in some cases, because of them, employee relations at British Airways retain the potential for serious disruption. Management style has toughened somewhat in recent years in the context of a more competitive operating environment. Even before the problems that followed the events of 9/11, the company’s renewed focus on cost cutting and route rationalisation were evident. Recent allegations surrounding excessive drinking (October 2000, and again of a drunk pilot in 2004), alongside continuing threats of (and actual) industrial action, remain symptomatic of low morale in the organisation.
It is important to stress that many of these problems are not unique to British Airways. In many airlines, employee relations remain tense, particularly in Europe, and particularly among national ‘flag carriers’ where proposed changes have been most marked. Those with the most fractious industrial relations – Air France, Aer Lingus, TAP, Olympic, and Alitalia – are those with some of the biggest financial problems in the wake of the deregulation of the industry in Europe and the rise of the low cost operators. These remain state, part-state-owned, or newly privatised and retain a legacy of public sector employment relations – highly unionised, strongly procedural and often with a sense of public service – qualities that sit less easily in a context of a competitive de-regulated industry. For example, Air France experienced particular problems in the late 1990s as management initiatives within a highly complex public sector institutional framework met with significant organised resistance. One common problem for these and other airlines is the fact that service is delivered through people, and this ’emotional labour’ is highly prized in delivering ‘added value’ for many airlines, but these same people are also the most vulnerable in the face of heightened competitive pressures and represent not only the largest component of cost but also the easiest cost to take out of an airline’s operations. In British Airways’s case employee costs made up almost 30% of total costs in 2006/7 (British Airways Annual Report and Accounts 2007), the next largest costs were fuel, accounting for 24% of total costs. There is therefore an ongoing tension between service delivery quality and efficiency for airlines such as these that by the nature of their business cannot compete solely on cost terms. Furthermore, wholesale contracting out of cabin crews (as with some low cost operators) is not really an option where high levels of in-house training and employee loyalty are integral parts of the ‘customer service’ experience.