A Thin Line between Project Success and Failure - Case Study Example

A thin line between project success and failure s Submitted by s: Introduction People Express Airlines was a low costairline with its head offices in the North Terminal of Newark International Airport that remained in operation between 1981 and 1987, when it decided to enter a merger with Continental Airlines (Ulrich, Zenger and Smallwood, 1999, p. 112). The founder of the company was Don Burr and several other people who had resigned from their previous jobs (Hackman, 2002, p. 67). The launch of People Express entailed the use of 737s that flew from Newark to Buffalo, Columbus and Norfolk with other destinations being added a month after the airline was launched. The airline charged a reasonable amount for the people who wanted food or beverages during their travel with sodas being provided for fifty cents per can and honey-roasted peanuts going for the same price (Heskett, 1986, p. 93). On the other hand, the Southwest Airline company is a key company in the US airline industry and the biggest low cost carrier in the world with its head offices in Dallas (Gross and Bjelicic, 2007, p. 78). The carrier began operations in 1967 under a different title and embraced its present tag in 1971. The airline’s workforce included more than forty four thousand people by the end of 2013 while operating almost three thousand flights every day. The airline has been using Boeing 737s since inception with the exception of a few years in the seventies and eighties when it used leased 727s (Roth, 2008, p. 108). Analysis of People Express Airline using the Shenhar and Dvir model of project success People Express Airlines stakeholder analysis Low power/Low interest Low power/ High interest Investors Communities served Financial institutions Environmental issues High power/Low interest Government Oil industry Suppliers Unions High power/ High Interest Employees Customers Competitors Airports Project Efficiency The airline acquired Frontier Airline, which was based in Denver in 1985 making the combined company the fifth biggest airline in the US with main operations in most of the big cities of the country as well as transatlantic routes such as flights to Brussels (Silvia, 2011, p. 259). Throughout this time, People Express also bought out Britt Airways and Provincetown-Boston Airlines, whose operations were limited to the region and had established systems in several areas including Florida. This aggressive acquisition spree placed a huge debt burden on the airline while at the same time; the key legacy airlines improved their yield management systems that allowed them to be more competitive in comparison to People Express in terms of fares (Griffith, 1997, p. 261). Moreover, the integration of the operations associated with Frontier led to struggles in relation to labour with the newly acquired airline and changing to low-fare and no-frills approach isolated the passengers who were already associated with Frontier. Impact on the Customer The airline industry is associated with stiff competition and relatively low returns and in the early years after the industry was deregulated, discount carriers such as People Express came up but after some time they went out of business (OConnell and Williams, 2011, p. 49). When People Express was launched in the beginning of 1981, it served Newark, Buffalo, Columbus and Norfolk, and consequently experienced rapid growth, which allowed it to add flights to Florida by the end of its first year (Sheth, 2007, p. 47). Two years later, the airline started direct flights from Newark to Gatwick airport in London using a Boeing 747 that had been leased. In the beginning, the flights cost one hundred and forty nine dollars each way making the airline an instant success with flights being over subscribed for several months within twenty-four hours of making this announcement. Afterwards, the airline included Montreal-Mirabel and Brussels to its global network. The airline employed a fare system that was simplified where all the seats offered on a particular route cost the same price with very small differences between the peak and off peak fares. Except the premium class seats that were in the overseas flights only, the rest of the seats were all in economy class with the fares being paid when the passengers were already in the aircraft. Direct and Business Failures Pressure from debts forced the airline to make changes to its philosophy as People Express was determined to attract business travellers who did not mind paying relatively higher fares. The aircraft cabins were restructured and restyled to include a first class cabin and a frequent flyer initiative was also instigated. Additionally, the airline abandoned the simplified fare structure and adopted revenue management, which is a more typical pricing scheme for the airline industry. The unsuccessful integration and the huge debts associated with People Express became uncontrollable and in 1986, the company made an announcement regarding its collaboration with an investment bank in seeking buyers for part or the entire airline. A deal that was to see Frontier sold off to United Airlines was not successful since United Airlines was not able to agree to terms with the unions on the ways of integrating staff that previous worked for Frontier and this forced the board of People Express to stop operating Frontier and file for bankruptcy (Fridson, 1996, p. 17). Preparing the Future Ultimately, People Express had no other option but to sell the entire company to Texas Air Corporation for approximately one hundred and twenty five million dollars in cash, notes as well as assumed debts (Hanlon, 2007, p. 82). As a result of the concerns regarding regulatory approval for the buyout, Texas Air bought Frontier’s assets from People Express in a different transaction that was worth one hundred and seventy six million dollars. Consequently, the airline stopped existing as a carrier in February 1987 when all its operations were integrated into the operations of Continental Airlines which was a subsidiary of Texas air under a joint marketing contract. Challenges faced by People Express Airline Inability to achieve cost parity with the other players in the industry resulting from high costs of aviation and infrastructural bottlenecks Imbalance between the demand and supply Lack of a proper differentiation strategy that led to intense competition Price wars in the industry with various airlines including Southwest Airlines Increased levels of leverage costs for the airline Analysis of Southwest Airlines using the Shenhar and Dvir model of project success Southwest Airlines stakeholder analysis Low power/Low interest Low power/ High interest Investors Communities served High power/Low interest Government Oil industry Boeing Suppliers High power/ High Interest Employees Customers Competitors Airports Board of directors Project Efficiency The wide-ranging expansion methodology associated with Southwest Airlines has remained of an organic nature and in 2011, the airline bought out AirTran Holdings, which is the parent company of AirTran Airways, which was among the biggest low-cost planned carriers in the US (Ireland, Hoskisson and Hitt, 2012, p. 123). The acquisition was worth around one and a half billion dollars and it provided Southwest Airlines with a chance to increase its presence in core markets were it had not expanded its operations to yet. The increase in its operations also entailed including newer destinations to its route and providing access to the international leisure markets that were not far from the United States such as the Caribbean and Mexico. A unique feature of Southwest Airlines is the fact that its pilots are not unionized like other pilots in most of the airlines and this does not limit the flying hours of the pilot so a specific period (Pride, Hughes and Kapoor, 2012, p. 308). Impact on the Customer Southwest Airlines is a carrier whose focus is on the provision of point-to-point services, instead of the hub and spoke approach that is associated with the main airlines in the United States (Havel, 2009, p. 333). Point-to-point services provide direct routings through decreasing the number of connections, delays and the overall time of an entire trip. Consequently, almost seventy-one percent of the customers associated with Southwest Airlines took nonstop flights in 2011. During this time, the average trip length for each of the company’s aircrafts was six hundred and sixty four miles in an average time of 1.8 hours. This form of services have also allowed the airline to offer its market regular and appropriately arranged flights with relatively low charges (Verweire and Berghe, 2004). The management of the airline is perceived as the most vibrant in history and numerous analysts in the airline industry consider the policies that are created by the top management in the company as being instinctive and efficient. Direct and Business Success Numerous other unique characteristics are associated with Southwest Airlines that make it stand out from most of the other airlines in the industry. To start with, the airline operates one type of aircraft, the Boeing 737, and this decreases the cost of maintaining its fleet, training as well as costs associated with the inventory to a considerable degree. The company also hedged aggressively on fuel, which enabled it to maximize on profits when other airlines were experiencing losses with the company maintaining a cost per seat mile of 0.12 dollars that is almost twenty-five percent cheaper than what is charged by its competitors. The benefits the airline’s workers are entitled to include profit sharing as well as employee-empowerment that give them a chance to take part in the company’s decision-making (Hill and Jones, 2013, p. 156). The work set-up at the airline is fun and casual and carrier has become famous for asking its candidates at one time to change for wearing suits to Bermuda shorts and those who did so quick enough were hired. Additionally, the company does not enforce a formal hierarchy and it is commonplace to find the pilots helping the flight stewards in checking the passengers in to the plane of cleaning the planes. This form of structure has assisted the airline to achieve the fastest turnaround while being the only airline that does not charge nominal fees if a customer changes the date of their flight. The management of Southwest Airlines at one point emphasized on maintaining the lower cost structure through having a standardized fleet and decreasing the inflight meals as well as entertainment amenities. Nevertheless, the management equally focused on winning the satisfaction of customers, which was demonstrated by its remarkable retention of customers. Preparing the Future Each Southwest aircraft has an average of ninety-four workers at its disposal as compared to the number of workers per aircraft in most of its competitors cases which approximately one hundred and thirty. Regardless of this relatively low number of workers per aircraft, the Southwest staffs serve more than two thousand five hundred passengers every year as compared to the one thousand for its competitors. In maintaining a lean workforce, the company has been able to eliminate a huge percentage of the costs of labour that are incurred by other airlines, while not allowing any inadequacies to affect the smooth operating of its business activities. Pilot unions prescribe limited working hours for specific periods, which affect the pilots of other airlines who affiliated to these unions. This does not affect the pilots who work for Southwest Airlines as they are not affiliated to any Union and this allows them to work without any hindrances. In the application of its point-to-point system, it is commendable how Southwest Airlines has circumvented the airports which are congested therefore not requiring the numerous gates or thousands workers to deal with the myriad of flights that come in and disperse and this has resulted in a decreased proportion in terms of the costs operation of the company. Southwest Airline Strategy analysis Arenas Short-haul, point-to-point service Midsize cities and secondary airports in large cities Frequent departures on these routes Price and convenience sensitive travellers Boeing exclusivity Vehicles Internal development to maintain the airlines culture Differentiators Extremely low ticket prices Convenience Reliability Fun, friendly experiences Economic logic Low cost through high aircraft utilization Limited use of travel agents Lean and highly productive staff Limited passenger service Staging Incremental origin-destination pair expansion from original stronghold in Southwest US Build out existing airports instead of spreading too thin and too fast Risk analysis of Southwest Airline and People Express Both airlines are affected by the same risks as they main operation and strategy is almost the same. Strategy Anticipated benefit Downside Reducing fares and yields Increased demand Price reduction might result in a disproportional increase in the total demand creating an elastic demand Increasing fares and yields More revenue Increase in prices results in positive revenues if demand remains inelastic Increasing number of flights Increased demand Escalates the costs of operation Decreasing number of flights Reduction in operational costs Less frequencies may result in markets losses and lost demand Enhance passenger service quality Increased demand Increases costs of operation Decrease quality of passenger service Decrease in the cost of operation Excess cuts reduce market share and demand Conclusion Critical chain project management provides a chance to initiate the planning of projects well for the first time and companies should make sure they break with their typical traditions of have they have been doing things previously and re-design their projects from the beginning. However, planning is merely half of the story as the real power of Critical Chain Project Management can be demonstrated from the controls that are afforded in the process of the execution in the manner in which Southwest Airlines did it. Very few carriers were better placed to operate in the 80s than People Express which had a cheerful customer service and devoted customers in a period when the Southwest Airlines could not pose significant competition in the industry. A number of the veterans of this airline have the belief that passengers who have fond memories of flight travel during the period when the airline was in operation will return to using the airline in the event that it is re-launched. Initially, the airline had be embraced by travellers as it was charging fares that were inexpensive while at the same time having exceptional customer service which had developed a passion and respect for the people who used the services of the airline. At the time when the airline was still in operation, it only got a chance to expand its services to other destinations where its competitors had been in operation for decades and had already had found newer ways of cutting costs and the customers had already realized that air travel could be inexpensive. Bibliography Fridson, M. 1996, Investment illusions, Wiley, Chichester. Griffith, K. 1997, Industrial forecast, 1998-2000, Fairmont Press, Liburn, GA. Gross, S. and Bjelicic, B. 2007, Handbook of low cost airlines, Erich Schmidt, Berlin. Hackman, J. 2002, Leading teams, Harvard Business School Press, Boston, Mass. Hanlon, J. 2007, Global airlines, Butterworth-Heinemann, Amsterdam. Havel, B. 2009, Beyond open skies, Wolters Kluwer Law & Business, Austin. Heskett, J. 1986, Managing in the service economy, Harvard Business School Press, Boston, Mass. Hill, C. and Jones, G. 2013, Strategic management, South-Western, Cengage Learning, Mason, OH. Ireland, R., Hoskisson, R. and Hitt, M. 2012, Understanding business strategy, South- Western Cengage Learning, Mason, OH. OConnell, J. and Williams, G. 2011, Air transport in the 21st century, Ashgate, Farnham, Surrey, England. Pride, W., Hughes, R. and Kapoor, J. 2012, Business, South-Western Cengage Learning, Mason, OH. Roth, B. 2008, Aircraft family design using enhanced collaborative optimization. Sheth, J. 2007, Deregulation and competition, Response Books, New Delhi. Silvia, J. 2011, Dynamic economic decision making, Wiley, Hoboken, N.J. Ulrich, D., Zenger, J. and Smallwood, W. 1999, Results-based leadership, Harvard Business School Press, Boston. Verweire, K. and Berghe, L. 2004, Integrated performance management, Sage, London. Read More