CASE STUDY 1: AMERICAN AIRLINES HR PROBLEMS

CASE NOTES
FLYING LOW

AMERICAN Airlines (IA) Indias national carrier is a perfect example of a

monopoly gone berserk with the absolute power it had over the market.

Continual losses over the years, frequent human resource problems

and gross mismanagement were just some of the few problems plagued the
company.

Frequent strikes by IA pilots reflected the adamant attitude of the pilots

resulting in increased public resentment towards the airline.

Recurring human resource problems were attributed to its lack of

proper manpower planning and underutilization of existing manpower.

The recruitment and creation of posts in IA was done without proper

scientific analysis of the manpower requirements of the organization.

Employee unions were rather infamous for resorting to industrial action

on the slightest pretext.

The Government took various steps to turn around IA and initiated

talks for its disinvestment.

Amidst strong opposition by the employees, the disinvestment plans

dragged on endlessly well into mid 2001.

This shows how poor management, especially in the human resources

area, could spell doom even for a 40 billion monopoly.

BACKGROUND NOTE

IA was formed in May 1953 with the nationalization of the airlines

industry through the Air Corporations Act.

IA and its subsidiary, Alliance Air, provided domestic air services.

IAs network ranged from Kuwait in the west to Singapore in the east,
covering 75 destinations (59 within India, 16 abroad).

In 1999, the company

In 1999, it had a fleet strength of 55 aircraft - 11 Airbus A300s, 30

Airbus A320s, 11 Boeing B737s and 3 Dorniers D0228.


In 1994, the Air Corporation Act was repealed and air transport was
thrown open to private players.

Corporate houses entered the fray and IA saw a mass exodus of its
pilots to private airlines.

To counter increasing competition IA launched a new image building

advertisement campaign.

Improved its services by strictly adhering to flight schedules and

providing better in-flight and ground services.

Launched several other new aircraft, with a new, younger, and more
dynamic in flight crew.

These initiatives were soon rewarded in form of 17% increase in

passenger revenues during the year 1994.

Competitors like Sahara and Jet Airways (Jet) provided better services
and network.

Unable to match the performance of these airlines IA faced severe

criticism for its inefficiency and excessive expenditure human resources.

Staff cost increased alarmingly during 1994-98.

These costs were responsible to a great extent for the companys

frequent losses.

By 1999 the losses touched Rs 7.5 bn.

In the next few years, IAs market share, however continued to drop.

In 1999, while IAs market share was 47%, the share of private airlines
reached 53%.

Unnecessary interference by the Ministry of Civil Aviation was a major

cause of concern for IA.

Interference ranged from deciding on the crews quality to major

technical decisions in which the ministry did not even have the necessary
expertise.

IA had to operate flights in the North-East at highly subsidized fares to

fulfil its social objectives of connecting these regions with the rest of the
country. These flights contributed to the IAs losses over the years.


The carriers balance sheet heavily skewed towards debt with an equity
base of Rs 1.05 bn in 1999 as against long term loans of Rs 28 bn, heavy
interest outflows of Rs 1.99 bn further increased the losses.

IA was found grossly deficient in realistic assessment of the manpower

needs, need-based recruitment, optimum personnel utilization and abolition
of surplus and redundant posts.

FIGHTER PILOTS?

IAs eight unions were notorious for their defiant attitude and their use
of unscrupulous methods to force the management to agree to all their
demands.

Strikes, go-slow agitations and wage negotiations were common.

Each had a different reason, but every strike was about pressurizing IA
for more money.

From November 1989 to June 1992, there were 13 agitations by

different unions.

The strategies adopted by IA to overcome these problems were

severely criticized by analysts over the years.

Analysts noted that the people heading the airline were more
interested in making peace with the unions than looking at the companys
long-term benefits.

Russy Mody (Mody), who joined IA as chairman in November 1994,

made efforts to appease the unions by proposing to bring their salaries on
par with those of Air India employees.

This was strongly opposed by the board of directors, in view of the

mounting losses.

Mody also proposed to increase the age of retirement from 58 to 60 to

control the exodus of pilots.

Government however rejected his plans.

When Probir Sen (Sen) took over as chairman and managing director,
he bought the pilot emoluments on par with emoluments other airlines,
thereby successfully controlling the exodus.

Sen created Alliance Air, a subsidiary airline company where the

re-employed people were utilized.


He was also instrumental in effecting substantial wage hikes for the
employees.

The extra financial burden on the airline caused by these measures

was met by resorting to a 10% annual hike in fares.

Sen.s efforts seemed to have positive effects with an improvement in

aircraft utilization figures.

IA also managed to cut losses and reported a Rs 140 million profit in

1997-98.

But recessionary trends in the economy and its mounting wage bill
pushed IA back into losses by 1999.

Sen and the entire board of directors were sacked by the government.

In 1990s, in yet another effort to appease its employees, IA introduced

the productivity-linked scheme.

Eventually, the PLI schemes raised an additional annual wage bill of Rs

1.8 bn for IA.

It was alleged that IA employees did not work during normal office
hours; this way they could not work overtime and earn more money.

Though experts agreed that IA had to cut its operation costs. To survive
the airline continued to add to its costs, by paying more money to its
employees.

In 1998, IA tried to persuade employees to cut down on PLI and

overtime to help the airline weather a difficult period; however efforts failed.

Over the years, the number of employees at IA increased steadily.

IA had the maximum number of employees per aircraft.

It was reported that the airlines monthly wage bill was as high as of Rs
680 million, which doubled in the next three years

The Brar committee attributed this abnormal increase in staff costs to

inefficient manpower planning, unproductive deployment of manpower and
unwarranted increase in salaries and wages of the employees.

Analysts criticized the way posts were created in IA.


In 1999, Six new posts of directors were created of which three were
created by dividing functions of existing directors.

Thus, in place of 6 directors in departments prior April 1998, there

were 9 directors by 1999 overseeing the same functions.

Analysts pointed that in the case of cabin crew, 40 posts were

introduced in the Southern Region on an ad-hoc basis, pending the
assessment of their requirement by the Staff Assessment Committee.

Another problem was that no basic educational qualifications

prescribed for senior executive posts.

Even a matriculate could become a manager, by acquiring the

necessary job-related qualifications & experience.

Illiterate IA employees drew salaries that were on par with senior civil
servants.

After retirement, several employees were re-employed by the airline in

an advisory capacity.

With each strike/go-slow and subsequent wage negotiations, IAs

financial woes kept increasing.

Though at times the airline did put its foot down, by and large, it
always acceded to the demands for wage hikes and other perquisites.

TROUBLED SKIES

Frequent agitations were not the only problem that IA faced in the area
of human resources.

There were issues that had been either neglected or mismanaged.

Various allowances such as out-of-pocket expenses, experience

allowance, simulator allowances etc. were paid to those who were not strictly
eligible.

Excessive expenditure was incurred on benefits given to senior

executives such as retention of company car, and room air-conditioners even
after retirement. All these problems had a negative impact on divestment
procedure.

Privatization was expected to give the IA management an opportunity

to make the venture a commercially viable one.


Freed from its political and social obligations, the carrier was expected
to be in a much better position to handle its labour problems.

The biggest beneficiaries would be perhaps the passengers, who would

get better services from the airline.

QUESTION:
Q1. Analyze the developments in the AMERICAN civil aviation industry after
the sector was opened up for the private players. Evaluate IAs performance.
Why do you think IA failed to retain its market share against competitors like
Jet Airways?
Answer

The Air Corporation Act was repealed in the year 1994, thus throwing
the aviation market open to private players.

Corporate houses entered the fray to milk the large opportunity

available.

As a result, AMERICAN Airlines witnessed mass exodus of its pilots to

private airlines.

AMERICAN Airlines had to face the heat of the open market

competitors and consumer expectations.

To gain competitive edge AMERICAN Airlines launched a new image

building advertisement campaign.

Emphasis was put upon the improvement in services both in-flight and
on-ground and flights strictly adhering to schedules.

New flights with younger and dynamic crew were also launched to
attract consumers.

As a result of the above effort AMERICAN Airlines could garner 17%

increase in passenger revenues during the same year.


Meanwhile the other competitive player provided better services and
networks on offer for consumers.

AMERICAN Airlines Performance.

The airlines response to the emerging competitiveness in the open

market in 1999 was eminent with the decision to undertake various
initiatives to rebuild its image.

It was successful in its initiative and was even rewarded with increase
in revenues.

This however couldnt be sustained by the airline and its revenues

started sliding downwards.

Unable to match the services and sustain improvements the airline

was criticised for its inefficiencies and excessive expenditure on human
resource.

The organisation started to face frequent losses which amounted to Rs

7.5 billion in 1999.
Failures in Competition

The airline failed in its image rebuilding initiatives where in the

contributing cost of the human resource spiralled out of tolerance levels.

The inefficiencies and expenditures were attributed to the

organisations growing losses.

Staff cost increased alarmingly to Rs 5.9 bn during 1994-98 period.

Although many private companies were vanquished, those which went

on to eat up IAs market share.

This was evident by the fact that in 1999 IAs share was 47% where as
that of private airlines was of 53 %.

These failures could also be attributed to the unnecessary interference

by the civil aviation ministry which neither had the necessary competence or
expertise to take intricate decisions.

The decision making interference ranged from deciding on the crews

quality to major technical decisions.

More than required beaurcratic involvement in the organisational

affairs was responsible for the failures.


The fulfilment of social objective by the organisation of connecting the
north-eastern regions with the rest of the country also contributed to the
already heaping losses.

Heavy interest outflows and large debts can be attributed as a major

contributor to the huge losses.

Unorganised and unplanned human resource were also responsible for

the ever increasing costs and inefficiencies.

Basic human resource management concepts were not followed that

led to unplanned manpower.

Inefficient Manpower planning can mainly be attributed as the prime

reason for the presence of surplus and redundant posts.

Inefficient in manpower planning, rocketing cost of human resource,

social obligations, too much beaurocrat and political interference, huge
interest flows and incapability of maintaining the improvements in
combination fuelled the failure of the airline in the open competitive market.

CASE STUDY 2: NEW SKILLS FOR MATRIX

A case study on Learning, Training and Development
Industry: Retail
Alok shook his head when he saw the client getting restless as Prakash
bungled again trying to complete a sales transaction on the new MATRIX
software system. Alok Dhir is the manager of the Men'sWear store of Fortune
Group well known known for their world class retail store chains. Alok was
selected as a management trainee by Fortune at the MBA campus three
years ago and is now one of the younger group managers having over 25
full-time and part-time employees including two supervisors for the two units
- Leisure wear and Formal wear. Prakash a commerce graduate is 5 years
older than Alok with about that many years more experience than Alok in
retail trade. After years of hard work as a sales representative Prakash was
rewarded for his excellent people skills and promoted as the supervisor of
Leisure wear unit a year ago.
Six months ago Fortune began a systems migration program to replace the
existing decentralized store based computer and information software with
MATRIX, an enterprise wide integrated system. As a result of this migration
there were major changes required in each employee's work, especially
those in sales. They had to learn operating the new system and complete all
transactions at point of sale while the customer waited across the counter. As

the implementation date of MATRIX approached an extensive 3 days training

program was organized; first for managers and supervisors and then for the
other sales representatives. Alok and Prakash attended the training together.
The trainers demonstrated and explained every process and transaction in
detail, each participant was given time to practice and a basic user manual
provided to each participant. Alok was happy as Prakash who had not worked
much with computers approached the training with enthusiasm.
It is now over a month since MATRIX was introduced. Alok is disappointed
because in spite of the training and time spent on demo terminals, Prakash
has not mastered the new system and it is affecting his performance as well
as the store's customer service. Initially Prakash sought his assistance many
times to complete the same set of transactions. When Alok asked Prakash to
refer to the user manual, Prakash said it was not very useful and he had
misplaced it. Alok frequently observed Prakash getting stuck and using a trial
and error process or seeking help from other sales associates.
Alok is now sensing that Prakash is feeling uncomfortable and stressed. He is
not seeking Alok's help anymore. Prakash's discomfort with the system has
added additional burden on other employees besides affecting customer
service. Alok knows he has to take action quickly. He wants to help but thinks
that Prakash also has to take some initiative and show progress or he may be
forced to take some drastic action.

Case Study Questions

Is this a training or learning problem? What do you think?
What can Alok do to help Prakash?
What should be Alok's line of action for the next few weeks?

CASE STUDY
ON
HUMAN RESOURCE MANAGEMENT

Submitted by:
Emmanuel Pascua