The Case of Eagle Air Eagle Air is a UK-based airline that used to specialise in long haul flights to a wide range of destinations across the world. Originally a publicly-owned state enterprise, Eagle Air (EA) was privatised & floated on the stock market eight years ago. This event drew a lot of attention from large companies & individuals alike who rushed to buy shares. Other important changes also happened in the wake of EAT’s privatisation & floatation, including a revision of the terms & conditions of employment for all staff. The salaries of pilots & cabin crew were substantially increased – where they benefitted from a hefty 30% rise in pay & could respectively earn up to £180, 000 & £60 000 per annum. As for ground crew & other support & frontline staff, their terms & conditions were unrivalled across the industry as they were paid 25% more than their counterparts in other airlines alongside a reduction in working hours. An Alarming Financial Situation However, this rosy picture has been exacerbated by changes in the tourism industry brought on by the recent pandemic, which inevitably has had adverse effects on all airline operators, with a sharp fall in demand for travel. Last financial year during the height of the pandemic, the airline reported a £200 million loss. The loss for the last three months of the current year was over £90 million & the figures for the rest of the year look like being just as bad, with losses running at over £120, 000 a day. Several other factors also served to bring about this alarming situation. These include continued uncertainty with respect to the travel situation & continuing low passenger numbers, an escalation in fuel prices, a substantial rise in airport tax, & a general increase in the prices of commodities related to passenger travel (such as food & beverages, toiletries & other passenger comfort items) – resulting in a persistent fall in revenues & profit margins. The situation is compounded by increasing competition with other airlines offering less generous terms & conditions of employment, & the pressure to invest in ‘green technologies’ to reduce carbon emissions & become more eco-friendly, whilst sustaining service modernisation. A Twofold Strategy to Deliver Competitive Advantage In response to the financial crisis facing the company, top management called for an urgent board meeting to carry out a fundamental review of the current situation & develop a new business model that can deliver unique value & long-lasting competitive advantage. After careful deliberation, top management voted in favour of a twofold strategy: (i) a merger with Air Fast which operates short haul flights within the UK & across Europe & (ii) joining the Proxima Alliance, a huge global partnership that brings together some of the most reputed airlines in the world. Top management believed that their twofold strategy would bring about the following benefits: The newly formed venture would retain the company name, Eagle Air, which already carries considerable ‘brand power’ & would become one of the largest airlines in the world in terms of both fleet size &route network. EA would enlarge its service portfolio by targeting both long-haul & short-haul markets; & with offices in desirable locations such as Edinburgh, London, Paris, New York, Singapore, Sydney & Johannesburg, the new company would be able to carry passengers to any of its destinations in less than two days. The merger would enable a major restructuring exercise & the implementation of significant cost-cutting measures. The number of staff would need to be reduced by about 10%. Moreover, the salary structure of Air Fast would be applied across the new organisation. As a result, the existing terms & conditions of employment would be brought closer to those applied across the wider airline industry – enabling the company to achieve massive cost savings & make up for the severe losses it has incurred over the past two years. The union questioned the unilateral decision of management to change the existing terms and conditions of employment without any room for negotiation. They also invited top management to go back to the drawing board and reflect on how a strike action could cripple the implementation of their new strategy. Top Management were quite ‘shaken’ by the union’s reactions and felt that they had reached a deadlock. They realised that expert opinion was urgently needed and decided to hire the services of a top consulting firm to conduct a review of the proposed strategy and advise on the best course of action to ensure its successful implementation. 1. What are some recommendations that should be provided to advise management on how to plan and execute the proposed change so as to ensure its successful implementation using key theories?
The Case of Eagle Air
Eagle Air is a UK-based airline that used to specialise in long haul flights to a wide range of destinations across the world. Originally a publicly-owned state enterprise, Eagle Air (EA) was privatised & floated on the stock market eight years ago. This event drew a lot of attention from large companies & individuals alike who rushed to buy shares. Other important changes also happened in the wake of EAT’s privatisation & floatation, including a revision of the terms & conditions of employment for all staff. The salaries of pilots & cabin crew were substantially increased – where they benefitted from a hefty 30% rise in pay & could respectively earn up to £180, 000 & £60 000 per annum. As for ground crew & other support & frontline staff, their terms & conditions were unrivalled across the industry as they were paid 25% more than their counterparts in other airlines alongside a reduction in working hours.
An Alarming Financial Situation
However, this rosy picture has been exacerbated by changes in the tourism industry brought on by the recent pandemic, which inevitably has had adverse effects on all airline operators, with a sharp fall in demand for travel. Last financial year during the height of the pandemic, the airline reported a £200 million loss. The loss for the last three months of the current year was over £90 million & the figures for the rest of the year look like being just as bad, with losses running at over £120, 000 a day. Several other factors also served to bring about this alarming situation.
These include continued uncertainty with respect to the travel situation & continuing low passenger numbers, an escalation in fuel prices, a substantial rise in airport tax, & a general increase in the prices of commodities related to passenger travel (such as food & beverages, toiletries & other passenger comfort items) – resulting in a persistent fall in revenues & profit margins. The situation is compounded by increasing competition with other airlines offering less generous terms & conditions of employment, & the pressure to invest in ‘green technologies’ to reduce carbon emissions & become more eco-friendly, whilst sustaining service modernisation.
A Twofold Strategy to Deliver Competitive Advantage
In response to the financial crisis facing the company, top management called for an urgent board meeting to carry out a fundamental review of the current situation & develop a new business model that can deliver unique value & long-lasting competitive advantage. After careful deliberation, top management voted in favour of a twofold strategy: (i) a merger with Air Fast which operates short haul flights within the UK & across Europe & (ii) joining the Proxima Alliance, a huge global
Top management believed that their twofold strategy would bring about the following benefits:
The newly formed venture would retain the company name, Eagle Air, which already carries considerable ‘brand power’ & would become one of the largest airlines in the world in terms of both fleet size &route network.
EA would enlarge its service portfolio by targeting both long-haul & short-haul markets; & with offices in desirable locations such as Edinburgh, London, Paris, New York, Singapore, Sydney & Johannesburg, the new company would be able to carry passengers to any of its destinations in less than two days.
The merger would enable a major restructuring exercise & the implementation of significant cost-cutting measures. The number of staff would need to be reduced by about 10%. Moreover, the salary structure of Air Fast would be applied across the new organisation. As a result, the existing terms & conditions of employment would be brought closer to those applied across the wider airline industry – enabling the company to achieve massive cost savings & make up for the severe losses it has incurred over the past two years.
The union questioned the unilateral decision of management to change the existing terms and conditions of employment without any room for negotiation. They also invited top management to go back to the drawing board and reflect on how a strike action could cripple the implementation of their new strategy.
Top Management were quite ‘shaken’ by the union’s reactions and felt that they had reached a deadlock. They realised that expert opinion was urgently needed and decided to hire the services of a top consulting firm to conduct a review of the proposed strategy and advise on the best course of action to ensure its successful implementation.
1. What are some recommendations that should be provided to advise management on how to plan and execute the proposed change so as to ensure its successful implementation using key theories?
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