Human Resources Management

Case study on Environment of HRM Frank Lorenzo & Texas Air

Division:B
Submitted to : Ms.Rajul Mistry Submitted by : Jayshree Parmar (06)
Ronik Passwala Abhay Patel Achal Patel Ankita Patel (07) (08) (09) (10)

DEPARTMENT OF BUSINESS & INDUSTRIAL MANAGEMENT,VNSGU,SURAT

Contents:-

Overview of the case Questions & Answers

Summary

Overview
Frank Lorenzo battled to keep his airline safe in the air and financially viable. Lorenzo faced intense competition on most route systems severe problems with Easterns strong unions and poor image. Texas Air typified the upheaval and change that can occur in a firm as it battles to meet new challenge. The now defunct Texas Air formed as a result of Frank Lorenzo taking a fairly small airline, Texas international, to the big time through a series of aggressive mergers and acquisitions during the mid- 198Os. Lorenzo acquired Continental, People Express, Eastern, and Jet Capital Corporation as a result of deregulated environment for air transport. Fares and routes were deregulated and thrown open to competition. The result was drastic cuts in air fares, increases in air-passenger traffic and routes, intense competition among carriers, and the creation of many new airlines.

 In addition, large airlines have attempted to become larger in the market place in order to have the power to acquire turning gates, agreements with travel agents, and stronger promotion. Aggressive promotion techniques, such as frequent flyer programs, have proliferated throughout the industry. Effect on Human Resources The environmental changes have had a profound effect on HRM in the industry. The key to survival has been to cut costs, and HR costs were primary targets for cutting. Unions were busted where possible. In 1983, Lorenzo placed Continental his flagship carrier at the time, into bankruptcy, thus abrogating union contracts he also adopted a two-tire wage system when employees hired after a specified date were paid significantly less on a job than those already holding the job. Flexible assignments of employees to jobs, which was pioneered by Peoples Express, was adopted by Texas Air. Baggage handlers collected tickets and vice versa. Finally Texas Air, like all other airlines, tried to increase the productivity of its human resources by attempting to get more work and more hours of work out of each employee at little increase, if any, in salary. Pilots and flight attendants flew dangerously close to or exceeded maximum flight-time standards. Maintenance employees rushed job and cut corners to save time, raising questions of safety.

A New Ball Game Deregulation and the resultant intense competition completely changed the legal and competitive environment for air carriers. This provided a tremendous opportunity for aggressive companies such as Texas Air. It also caused massive changes in the way human resources were treated in the industry. Delta and Piedmont, carrier with no unions, adjusted easily. Texas Air, with unions a Continental and Eastern, had a more difficult time. Established work patterns and employment relationships change slowly. The environment changes faster than a firms ability to change human resource policy and practice. Sometimes it takes an aggressive CEO such as Lorenzo to be a catalyst for changes in strategy, even though such changes are likely to cause uncertainty and bitterness lifelong some employees.

1. What part of external environment changes the most for Texas Air? How did they change?
External environment which has changed the most for Texas Air is political environment. Implementation of Airlines Deregulation Act of 1978. Fares and routes were deregulated and thrown open to competition. There was drastic cut in air fares, increase in air passenger traffic and route. Increase in competition among carriers and creation of many new airlines.

With the implementation of this act:

These changes in the external environment has made it mandatory for the airlines
To cut costs and HR costs were primary targets for cutting. Unions were busted wherever possible. Flexible assignments of employees to job. To increase productivity of it human resources by attempting to get more work and more hours of work out of each.

2. Lorenzo had a reputation at Texas Air for being ruthless with employees in order to cut costs. When is such harsh treatment justified? Do you feel it was justified in the Texas Air case, given the change in the external environment for air transport? Discuss our answer.
Harsh treatment to employee is never justified. Instead the management can follow some other solutions to survive. It may be reiterated that in new economic environment, only those companies which follow human resource development and welfare-oriented policies will have healthy relations.

 HRM APPROACH TO EMPLOYEE RELATIONS-

Where cost advantage is the goal, unions and industry relations systems appear to incur higher cost.

3. How would you judge whether Texas Airs new HR policies under deregulation were effective? What criteria would you use and why?
Effectiveness of HR activity can be measured with following indicators viz.
Customer Reactions

HR Impact
Dollar Value of HR Programs

Regarding present case we can say that Texass new HR policy was not that effective as it was not satisfying to the customers i.e. employees.

4. Do you agree that it takes an aggressive CEO such as Lorenzo to bring about real change in a firms HR or could this be done by the firms HR unit? Explain.
From the present context, it is clear that the war between aggressive CEO and union is never good for the health of the firm.

Such wars ultimately take the firm to death as in case of Eastern Air.
Lorenzos experiment proved profitable for some period but ultimately proved to be a disaster.

Summary Frank Lorenzo is most famous for his leadership of Texas International Airlines and its successor holding company Texas Air Corporation between 1972 and 1990, through which he acquired a number of major U.S. airlines including Continental Airlines, Eastern Air Lines, Frontier Airlines. In order to reorganize the corporation as a more viable enterprise, Lorenzo took Continental into bankruptcy. Bankruptcy of Continental Airlines enabled the company to void its union contracts. This process caused a walkout by many union workers, so Lorenzo replaced strikers with non-union workers at much lower wages. The bankruptcy laws no longer allow a company to unilaterally impose new wage and work rules on unionized workers. Low-cost operator and cut-rate prices was Lorenzo's way to manage the company.

After the corporation emerged out of bankruptcy, Lorenzo bought Eastern Airlines. In an environment of heavy losses, he instituted a severe downsizing program. At first Lorenzo's move appeared to be successfully, but he was wrong and Eastern went out of business.

 As a result of the strike, weakened airline structure, high fuel prices, inability to compete after deregulation and other financial problems, Eastern filed for bankruptcy. This allowed Lorenzo to continue operating the airline with non-union employees.

Eastern air stopped flying in 1991. On the previous evening company agents, unaware of the decision, continued to take reservations and told callers that airline was not closing. Following the announcement, 5,000 of the 18,000 employees immediately lost their jobs. The Eastern shutdown eliminated many airline industry jobs in the Miami and New York City areas.
Lorenzo manipulate bankruptcy laws to attain his objective cancel union contracts with his employee groups. Lorenzo never valued his employees and treated them shabbily. Reducing labour costs could have been one way of dealing with the situation. But doing this in an adversarial fashion made no sense.