ANALYSIS: Will Qantas union gamble pay off?

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Qantas Airways chief executive Alan Joyce and his management team appear to have won the first hand of a highly risky bet, little more than a day after grounding their entire fleet and suspending all operations in response to increasingly aggressive industrial action by their unions.

Fair Work Australia, the country's industrial tribunal, ordered Qantas and the unions last night to trash out a deal within 21 days. If they fail, they will be bound by the tribunal's arbitration. This ends several months of anguish for Qantas and its unions, which failed to reach an agreement despite several rounds of talks.

Yet, analysts say that the reverberations on the Qantas business could continue for some time.

Ratings agency Moody's has placed Qantas on a review for a possible downgrade, saying that the losses from the grounding and cancellations by customers could have an impact going forward. "While the current decision to terminate industrial relations actions by Fair Work Australia will potentially lead to enhanced certainty of industrial outcomes between Qantas and the three unions concerned, incremental earnings loss and impact on Qantas forward bookings, are likely to exert additional pressure on the ratings," said Moody's senior credit officer Ian Lewis.

Standard & Poor's revised its outlook on Qantas to negative from stable citing the "severity of the negative impact" of the grounding and protracted labour dispute.

"The industrial relations dispute presents possible downside risk to the rating, given the potential for on-going negative reputational damage to the airline, and more importantly, the potential impact on the airline's market position as a result of customer reaction or competitor response. Further, Qantas' relationship with employees or unions, if not improved, we believe raises uncertainty over Qantas' cost structure over time," said S&P analyst Danielle Kremzer.

Some applauded Alan Joyce's tough stance, comparing it to Margaret Thatcher's moves to "break" the unions in the UK in the 1980s. AirAsia chief executive Tony Fernandes also weighed in on twitter, saying: "You have to salute Alan Joyce for doing what he's doing. This is not about workers vs management. It's about survival in the modern world."

He has a point. Some Qantas union members rail against the "Asianisation" of the airline's operations, which includes plans to set up more subsidiaries in Asia and move some of the maintenance outside Australia for both lower costs and expediency. But the airline has to revamp in order to survive as a viable carrier in the 21st century.

Others, however, are a bit more sanguine. The chief executive of a leading Asia Pacific airline, who did not want to be identified, said: "This was a high-stakes poker game. The Qantas management threw in all they had to get the government to step in and the unions in line. The tribunal gave them what they wanted, but at what cost? This has soured the relationship with the employees, it has damaged the brand, and it has made the government angry. I'm not sure if Qantas needed to go to the brink."

The timing of the move was also criticised, coming just a day after the company's annual general meeting. Australia's transport minister Anthony Albanese said that Joyce told him that the decision was made only on the morning of 29 October at a board meeting.

"He has told me that the decision was taken at a board meeting this morning [29 October] and that it was a fait accompli," said an angry Albanese on 29 October. "I find it extraordinary that a board meeting should have suddenly decided on this course of action this morning less than a day after it held an annual general meeting. There has to be planning involved in this. I leave it to those who know how aviation operates to ponder the timing of this."

It also rankled some that the grounding - and the management's hard stance over the new collective agreement, which included salary increases - came after shareholders voted to increase Joyce's salary by 71% from Australian dollar (A$)2.92 million ($3.1 million) in 2009-10 to A$5.01 million this year.

While that was mainly because Qantas more than doubled net profits to A$250 million for the 12 months to June 30, the timing could not have been worse for Joyce and Australia's national carrier.

Ultimately, however, winning this battle with the unions is just the first step for Joyce and Qantas.

The bigger challenge is to revamp its loss-making international business, and increase its focus on Asia via its upcoming premium carrier that will be based in either Singapore or Kuala Lumpur and a Japanese low-cost joint venture with Japan Airlines.

Qantas also needs to deal with a resurgent Virgin Australia on the domestic front, especially as its rival makes a play for its lucrative business market and ties up with international carriers such as Singapore Airlines, Air New Zealand, Delta Air Lines and Etihad for feeder traffic.

S&P cited these very reasons for a possible lower ratings, saying that this would happen if the Qantas' business profile "weakens over a prolonged period" or if there were "any major missteps in executing the new international strategies, in particular the new Asian premium airline".

Qantas and Joyce may have won a major battle over the weekend, but the war that decides that their fate still lies ahead.