Negotiating in Life, Negotiation Strategies April 12, 2010

To settle or not to settle? That is the question!

Peter Foster, a reader of the Karrass Facebook Fan Page (if you are on Facebook, be sure to fan us!) asked the following question:

I have been following the breakdown in negotiations between British Airways and the cabin crew union, Unite. BA has lost about $70 million in revenue because of the subsequent strikes. Apparently the union and BA were about $10 million apart in reaching a negotiated settlement on pay and conditions. The strikes may ultimately put the airline out of business. How do you assess when to settle a negotiation, when the cost of not settling is so large? Anybody else been following this saga and have any further insight?

First, let's get to up to date on the strike:

BusinessWeek reports the following in a March 31st article:

"British Airways Plc plans to get about 90 percent of its flights off the ground today at London Heathrow airport as the carrier recovers from a second walkout by cabin crew that ended at midnight.

... British Airways scrapped hundreds of trips when flight attendants followed a three-day strike with a four-day stoppage. The carrier faces the threat of more walkouts in April if it can't resolve pay and staffing differences with 12,000 workers."

The same article makes the point that BA stock actually has gained value since the strike:

"British Airways has gained 18 percent in London trading since Feb 22 when the Unite union said flight attendants had voted to strike, suggesting investors may be dismissing losses and supporting Chief Executive Office Willie Walsh in has attempt to reduce expenses and improve efficiency. The carrier's stock fell 0.9 percent to 242.9 pence as of 12:57 today."

Read the BusinessWeek article here.

Both parties have indicated that they want to continue negotiating.

Now let's discuss settlements. According to Dr. Chester L. Karrass, the settlement range is defined as "the difference between British Airway's estimate of union's minimum and the Unite union's estimate of British Airways's maximum." The important point is this: the settlement range is based on each sides estimate of the situation, not the real situation itself."

We are talking about reaching a point where both sides feel they have gained (or lost) enough. When that happens you have reached a settlement point. This point is based upon estimates and perspectives. Clearly in this situation, British Airways has estimated that it can actually afford to operate in spite of the strike. It does not see itself as being put out of business. The Unite union has decided that it is worth trying to bring BA closer to its salary goals. Organizational pressures influence these estimates and perspectives. BA will experience pressures from its stockholders and Unite will experience pressures from its union members.

Many negotiations that fail to reach settlement (deadlock) end up using a third-party arbitrator, who is most likely not subjected to the same perceptions and false estimates. It remains to be seen if the British Airways- Unite union situation goes this route.

What is your take on this negotiation? Should the sides have settled already?