Human resource strategy in the airline industry

To understand human resource strategy in the airline industry in the 21st Century one must look to the roots of commercial aviation beginning in 1944. In 1944 the International Air Transport Association (IATA) held a conference of fifty two nations known as The Chicago Convention of 1944. The Chicago Convention formed the basis of governmental accords that are used today to regulate the airline industry through complex bilateral and multilateral agreements (OECD, 1988). The agreements reached at the Chicago Convention were of great significance to the future of the airline industry for a number of reasons.

Of particular importance was the establishment of the principle of “air space” rights. The principle established that each country had sovereignty over the skies of their own country (OECD, 1988). This was of great importance to commercial aviation because it gave each country the ability to dictate which airlines could operate within its own geographical territory. This ability gave each country the right to establish state-owned airlines, or in some cases privately-owned airlines, to serve the domestic market.

Because each nation had the right to enforce their sovereign rights to air space, competition in commercial aviation was regulated by each of the respective governments that signed up to the Chicago Convention. Often these regulations gave each nation the ability to establish state-owned commercial aviation duopolies or oligopolies (Doganis, 2001). The purpose of this assignment will be to demonstrate that deregulation has created serious competitive issues throughout the airline industry. The issue of competition is the single most challenging aspect of the human resource strategies facing the airline industry.

By means of a political, economical, social, technological, environmental and legal (PESTEL) analysis, our team will analyze the typical HR strategies pursued by leading firms within the airline industry. Our PESTEL analysis will also examine the means by which the traditional airlines are reducing labour costs in order to gain competitive advantage. We will then compare the business strategies adopted by a high cost airline with one that offers ‘low fare – no frill’ services in order to establish how the human resource strategies change in accordance with the type of business strategy pursued.

Finally we will explore the future of the airline industry and forecast the direction of human resource strategies in the days to come. 1. The work team should conduct an industry analysis Political Factors Deregulation and Normalization Despite deregulation and liberalization of the regulatory environment of the airline industry, the skies above us are still not as “open” as they could be. Although the United States as the forerunner of deregulation in the 70’s was first to enter into agreements to open its skies, the current state of deregulation in the United States reflects the general reluctance to fully open up markets to competition.

(Chang) Since the late 70’s the United States has entered into a series of bilateral open skies agreements succeeding in opening its air transport market, however the bilaterals still contain many restrictions aimed at protecting the US commercial air transport market, including cabotage, what are known as ‘seventh freedom rights’ and the continued restriction on foreign ownership of airlines. (Doganis: 70) Many of these as well as further restrictions are still the norm abroad.

(Article that Tyler gave me: 601) Despite deregulation most air travel is still regulated through a series of bilateral agreements negotiated between two respective countries. (Doganis: 69) The situation in Europe however is slightly different. While the European Union has entered into multilateral open skies agreements which have effectively opened the skies in respect to intra-European Union air transport, air travel beyond the European Union is still regulated through traditional bilaterals in which each individual state negotiates directly with third countries.

(Daniel Chan: 491) “On many international air routes a traditional and highly regulated market environment persists. Elsewhere the economic regulation of air transport has been progressively relaxed as a result of pressure from the United States, the European Union and several other states. Thus regulated and so-called ‘open skies’ markets exist side by side. ” (Dognis:2) Although steps have been taken to deregulate local markets the idea of a truly open global air transport market is still somewhat a dream.

“Even governments of the USA and EU, strong proponents of deregulation and international market forces, have taken positions contrary to their avowed free market beliefs whenever these were deemed to be against their national interests (O`Connor, 1995 in :Daniel Chan The Development of the Airline Industry from 1978 – 1998: 491) The future of deregulation and globalization of markets still hinges upon governments protectionist attitudes.

(Eaton: 18) “Although there has been a tendency of states to reduce their stakes in airlines, national governments still defend their flag carrier for both strategic and symbolic reasons. ” (Hi?? tty/Hollmeier 2003) Thus government regulation plays and will continue to play a large role in the development of the airline industry. Labor Unions Deregulation and Liberalization of the airline industry has left its mark not only upon the industry itself but also upon the people who keep it running.

Prior to deregulation most airlines were state owned “flagship” a carrier who’s bottom-line was not or did not have to be keeping costs down. The airline industry was not a profit maker and didn’t have to be because of its nationalized status and the common practice of government subsidies. (Doganis) However, deregulation, the subsequent trend toward privatization changed not only the regulatory environment, but the employment situation as well.

As airlines worldwide inched towards privatization during the 80’s and 90’s the focus turned toward competition, more specifically toward the cost efficiency and productivity of its work force. (Chang) The subsequent restructuring in order to prepare for privatization meant that redundancies and layoffs were inevitable. Today, in lieu of fierce competition and the excess of airline capacity induced by the current economic downturn, the role unions play within the traditionally unionized airline industry in dealing with the pressure to cut costs at the personnel level will continue to be a pivotal issue. (Eaton 82-83)