Integrative Case Study
Riding the Waves of Change in the Context of the Global Financial Crisis: The Case of Planet Air Travel
Author: Allan Ramdhony (2013)
Planet Air Travel 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, Planet Air Travel (PAT) was privatised and floated on the stock market five years ago. This event drew a lot of attention from large companies and individuals alike who rushed to buy shares. Other important changes also happened in the wake of PAT’s privatisation and floatation, including a revision of the terms and conditions of employment for all staff. The salaries of pilots and cabin crew were substantially increased — where they benefited from a hefty 30% rise in pay and could respectively earn up to £140 000 and £55 000 per annum. As for ground crew and other support and frontline staff, their terms and 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 was marred by the recent global financial crisis, which inevitably had adverse effects on all airline operators, with a sharp fall in demand for first and business class travel. Last financial year, the airline reported a £30 million loss. The loss for the last three months of the current year was over £10 million and the figures for the rest of the year look like being just as bad, with losses running at over £50 000 a day. Several other factors served to bring about this alarming situation.
These include an escalation in fuel prices, a substantial rise in airport tax, and a general increase in the prices of commodities to passenger travel (such as food and beverages, toiletries and other passenger comfort items) — resulting in a persistent fall in revenues and profit margins. The situation was compounded by increasing competition with other airlines offering less generous terms and conditions of employment, the pressure to invest in ‘green technologies’ to reduce carbon emissions, and 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 and develop a new business model that can deliver unique value and long-lasting competitive advantage. After careful deliberation, top management voted in favour of a twofold strategy: (i) a merger with Air Nimble which operates short haul flights within the UK and across Europe and (ii) joining the Proxima Alliance, a huge global partnership that brings together some of the most reputed airlines in the world.
Top management believe that their twofold strategy would bring about the following benefits:
• The newly formed venture would retain the company name, Planet Air Travel (PAT), which already carries considerable ‘brand power’ and would become one of the largest airlines in the world in terms of both fleet size and route network. • PAT would enlarge its service portfolio by targeting both long-haul and short-haul markets; and with offices in desirable locations such as Edinburgh, London, Paris, New York, Singapore, Sydney and Johannesburg, the new company would be able to carry passengers to any of its destinations in less than two days.
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