VIRGIN ATLANTIC

AIRWAYS

SUBMITTED BY
AzimAkhtarKhan(82046)
Deepak Sharma(82059)
Mansuav Arora(82062)
Neha Nagpal(82068)
PriyankaSuredha(82070)
SaurabhSingh(82076)
TanayaWalia(82091)
Case Objective
The case is about the different management strategies in which SAS
was handled when there was financial crisis and stagnant market in
1970-80’s. One approach was technical/production and focused on
technical expertise however the other approach was restructuring
business as market/ service oriented.
It explains how a corporate philosophy can change the way in which
an organization functions operationally, financially, its impact on
human resources and its image.

The main actors or players are the 3 CEO’s of SAS

 Knut Hangrup
 Carl – OlovMunkberg
 Jan Carlzon.

Events
The SAS was consortium of Danish Airlines, Norwegian Airlines,
Swedish Airlines it was started in 1946 and till 1970’s it had technical
/ production orientation in which ability to produce with least cost
and with best technology was seen as key to success.
However the recession of 1970’s changed the perspective of Airlines
Travel, with lesser people travelling, made it difficult for Airlines
companies to remain profitable, since SAS had technical orientation it
started cutting on its service and reduced the service being provided
to customers produced frustration in consumer as well as staff.
Then came Jan Carlzon who introduced corporate philosophy which
was market / service oriented. He introduced the thought that it’s not
airplane industry it’s actually the service industry, which has to be
promoted and sold.
The organization was decentralized to in order to become more
responsive to the market. Emphasis was given to the business class
or full paying passenger. Rather than operating on unprofitable lines,
cooperation was sought with other airlines at other junctions.This
turned SAS into profitable organization and it also earned the
reputation of top Airline and was named “Airline of The year” in
1983.
BUSINESS ENVIRONMENT ANALYSIS
Political
>Government policy-degree of
intervention in the economy.
(treaties and agreement between
countries & airline companies)
>pressure upon European
government for further
deregulation & liberalization in
airline industry from the U.S .
>concession from scandinavian
government.
Social
>Linked to the cost saving
measures by airlines.
>issue of consumer expectation
should be given attention [ For
airlines, the two most important
issues are: the reason for travel
(business or leisure); and the
class of preferred travel (first,
business, or economy)]
>Safety; punctuality.
>service quality major concern
among U.K passengers.
SWOT ANALYSIS
Economical
>Increased fuel prices.
> 1979-1980 Financial crises .
>Stagnant airline industry
growth
Technological
>New technology creates new
product and services.
>Organization must have to
concern about new upcoming
technology,(SAS productivity
suite for the benefit of its
business passengers who
continue to work after boarding
the plane)
>SAS smaller carriers DC-9
>technological innovations in
safety are important in the
airlines industry
Strength
-Operation punctuality
-Service & product innovation
-Expertise in management
&training programs
-Competitive edge –improved
services without surcharge.
Opportunities
-First choice right on domestic -Treaties & agreement
routes & exclusive rights to
flights outside of Scandinavian airlines companies.
government,
-Concession from
Scandinavian government.
Weakness
-Problem with self finance the
replacement fleet.
- Unsatisfaction among
employees (one day strike by
cabin attendant)
-Little concentration on
middle management.
Threat
between countries & between
-For few new routes, another
carrier from smaller airlines
were considered.
-Further liberalization & de-
regulation.
-Competition from smaller
airlines companies challenging
shorter routes.
-Competition increase from 20
biggerEuropean airlines ( as
airlines would be able to
operate more freely)
Q1. What were the changes in consumer expectations from
airlines service over the years (Post World War-II to 1980s)?

Ans.
Consumer’s expectations had evolved drastically in the time period of
post WW-II to 1980’s
The evolution in the expectations was the level of service that the
consumer’s expected from an airline i.e from being just a mere
transportation medium to ferry them from one place to another, the
consumers started to feel the need of better quality of service and to
make this travel an experience for them.
The evolution in thechanges in consumer expectations from airlines
services can be seen here
Post W W-II
 All customers’ needs were perceived to be same.
 Technical/Production orientation.
 Airplanes received more attention than passengers

Customer desired expectations -

Safety: That the passenger’s reach the destination safely and there is
no accident occurrence in the flight.
Reliability: The airlines has to be reliable in its services and its reach
to destinations which it promises
Efficiency: The consumer require an efficient airlines which is able
to reduce their travel time without adding too much cost into their
travel budget.
Punctuality: The time the airline promises should be delivered ie the
customer should be able to reach its destination on the time
promised by the airlines and there shouldn’t be any delays
Source for Personal needs
 Essential for physical and psychological well being.( Safety,
reliability, efficiency ,punctuality )
 Adequate service expectation varied within passengers paying
for business class or for discounted seat.
 Zone of tolerance fluctuates with in a passenger aswell.

Sources for adequate service expectation.

 Customer ‘s self-perceived service & predicted service
expectation flight attendant denying for newspaper &lemons
 Passengers expect to get newspaper & lemons onboard.
 Passengers complained and were often aggressive to flight
attendant.
 Passengers became less tolerant.

But due to lesser flight options were available to the consumers

therefore the zones of tolerance was large between the desired level
of service and what they were receiving from the airlines.
Consumer expectations in 1980
 Deregulation & liberalization in airline industry.
 Perceived service alternatives (airlines to choose from)
increased raising the level of adequate service and narrowing
the zone of tolerance.
 Temporary service intensifiers –based on urgency increasing
level of responsiveness.
 Predictive service expectation for different target market.
 Significant difference among passengers who travel for
purposes such as business, holiday, visting friends& relatives.
 Narrow zone of tolerance usually,depending on the situational
factors
 Differences in passengers’ expectations of the desired airline
service quality in terms of the dimensions of reliability;
 assurance; facilities; employees; flight patterns; customization
and responsivenes

Q2.What were the operating styles of different CEOs of SAS?

Knut Hagrup Aeronautical Mid -1970 , -Technical

Engineer increased /production
oil price, orientation .
recessionar -Got rid of
y unnecessary
environme elements & in
nt, stagnant business & products.
travel -assumed luxury first
market, classtravelling must
Deregulatio end .
n& -on board services
liberalizatio had to be gradually
n, Increased simplified.
competition -will not be able to
. delight passengers in
Customers’ this era when
need were passengers got
perceived spoiled in many
to be the respects.
same.
Carl- Business Degree, Further -Profit oriented
OlovMunkbe Many Years’ deregulatio management style.
rg experience with n& -Delegated
in SAS group. liberalizatio responsibility
n of travel &authority.
industry. -options for
Slow rate of alternative
change of organization design
technology , considerations.
easily -13000 jobs
accessible eliminated , many
to posts closest to
competitors passengers.
- Lack of visibility
creating frustration
&uncertainty.
- Munkberg strove
for consensus &
evolution.

Jan Carlzon � Successful Financial  Market/service

experience crisis, orientation.
within the Entry of  Decentralized
travel new
decision
industry & entrant.
SAS making, all
organizati business is
on. show business.
 Distributing
responsibilities
as heads of the
business to
each employee
 Got in new
blood which
was more
enthusiastic to
perform
 It helped in
creating a
 better service
experience for
the passengers
as each
employee
worked as an
owner of the
company.
 He was a good
listener and
had very good
communication
skills which
helped in
motivating the
SAS’s
employees to
create better
service
experience.
 Stressed on a
Satisfied
customer as an
asset rather
than an aircraft
 Emphasis was
layed on Full
Paying
Passengers
 Marginal
Capacity as
filled by cargo
and tourists
passengers,
with a clear
differentiation
 in prices.
 Cooperation in
unprofitable
lines.
 Organization
was
decentralized n
order to be
more
responsive.
 New door to
door concept
was used for
freight.

Q3 In particular what was Jan Carlzon’s leadership style?

Ans.
Jan Carlzon’s leadership style can be classified as an outgoing &
bold leader who had the will and effort to raise the productivity
and the brand image of the company in the market.
Carlzon transformed the company's culture from a technical to a
marketing force through

 His ability to communicate important problem in a very simple

way.
 Personal leadership
 Internal corporate communications training
 Human resource policies and procedures
 Other organizational tools.
 Declaring “all business is show business”
 Product & service innovation
  Responding to the needs of market and employees in a positive
& productive way.
 Stressed real assets are satisfied customers and employees.
 Decentralized organization.
 “From the outside - in approach”.
 Major steps taken to improve customers’ perception.
 Brought new blood into the company’s top management who
could adapt more easilyto new policies.
 Understanding customers’ needs and thereby developing new
products and services.
 Worked on integrating its complementary business providing
business people with a comprehensive services packages.
 Understanding the importance of and the challenge in
motivating middle-level managers.

Q4 Carlzon’s main strategy was to become the preferred

airline of the frequent –flying business traveler. How did he
transform SAS to match the consumer perceptions with their
expectation?

Ans.
Carlzon’s main strategy was to become the preferred airline of
the frequent- flying business traveler.
Stagnant airline industry, many competitors, deregulated
&liberalized airline industry, entry of low cost smaller carriers,
passengers’ zone tolerance was getting narrow. Changing people’s
sense of responsibility and authority.
Carlzon chose frequent-flying business travelers because
- Relatively stable segment.
- High yield market
 - Business travelers could afford to pay the real cost of providing
an airline seat.
- Business people might prefer to pay higher price for better
tailored service to the specific needs and

Past practices
- Full –fare yet , business people mixed in with discount
passengers
- Business people didn’t receive any additional services.

Change in practices
- Segregating business travelers from discount passengers.
- Evaluating every resource with the criterion “ would the
businessperson be willing to pay for it?” if not, then it should be
eliminated, otherwise should be kept and perfected and made
efficient as possible.

How did Carlzon transform SAS to match the customer

perception with their expectations?
 Customer perception has two components-customer
satisfaction &service quality.
 Carlzon main aim was to improve the service quality to sustain
in competitive environment and admitting that customer
satisfaction was the SAS’s real asset.
 Passengers’ expectations of the desired airline service quality
in terms of the dimensions of reliability; assurance; facilities;
employees; flight patterns; empathy; tangibles; customization
and responsiveness.

Airline Reliability Responsiven Assuranc Empathy Tangibl

custom Flights to ess e Understan es
er promised Prompt & Trusted ds special Aircraft
 destinatio speed name individual s;
ns depart system for ;goods needs; ticketin
&arrive ticketing .in – safely anticipates g
on flight records; customer counter
schedule . baggage compete needs s;
handling. nt baggage
employe areas;
es. uniform
s

 Carlzon focused and worked on the improving the moment of

truth when customer made a contact with a SAS employee.
 For the same what was going on, what had to be done, and,
why, were communicated clearly and simply through out the
company.
 Carlzonseeked the opportunity that every service encounters
was an opportunity to build perception of quality &
satisfaction.
 Hence Carlzon concentrated on improving the customer’s
perception of services to match up to their desired expectation
level by adding on amenities –business lounge, operation
punctuality, non stop flights.

Carlzon tried to close the gap between customer expectation &

customer perception by
 Adoption of service encounter cascade theme.
 Recovery-employee response to service delivery.
 Adaptability- response to customer needs
 Spontaneity-unprompted & unsolicited employee actions.
 Copying-employee response to problem customers.
 The aim was to be better in every aspect of services by 1%
rather than to be 100% in one service than its competitors
  As aresult SAS was named “ airline of the year” in the year
1983

Q 5 Do you think this positioning will be sustainable in the

future? What changes do you expect? How will SAS hope to
retain customer loyalty?

Ans.
“Satisfied customer’s are its biggest asset“
It was apt, considering that SAS was not into buying and selling
aircrafts rather was in into service business.
Service orientation positioning could help SAS to sustain in Future as
well.
What changes to you expect?
Changes /options for retain customer.
SAS should have launched loyalty programmes for frequent fliers;
Point-based schemes tend to influence the behaviour of customers.
The key to good customer service was being able to recognize the
type of customer SAS was dealing with.
Concentrate on Improving on service behavior based on service
encounter themes.
Recovery,Adaptability, Spontaneity & Coping.
Improving on service quality dimensions - Reliability,
Responsiveness, Assurance, Empathy, Tangibles
Kotlersuggests the following steps to customer retention, the
company must:
1. 1st measure its retention rate

2. Then distinguish the causes of customer attrition and identify

those that can be managed better

3. Estimate how much profit is lost when customers are lost by

calculating their lifetime value

4. Calculate the cost to reduce the defection rate, if it less than the
lost profit the company should spend the money to reduce the
defection rate.

How did SAS hope to retain customer loyalty?

“Second Wave”>> deregulation & need for creative responses to
a new environment,
SAS developed a new corporate identity creating communication tool
to catch phrase in the business world to say what SAS was going to
do and then did what SAS said played a crucial role in retaining
customer loyalty. In lieu of that they introduced new brochure
highlighting their fundamental changes.
New SAS services were appreciated along with its complementary
services.
Importantly SAS also tried to satisfy its employees by emphasizing
social &humanistic value. Attention to support functions as well.
Nurturing innovative & entrepreneurial attitudes avoiding a box
mentality to deal with customer’s problems and issues.
Visible and consistent management levels.
Improving On-board amenities, more leg room for customers,
improved food & free drinks.
- Evaluated what customer desired & what was his acceptable
expectation level.
- 1% better in all services rather than having expertise in 1 than
competitors. Better Than alternatives.
- Solved on intensified need- catering safety needs, aircraft
functions well.
- Aim was to reduce the gap between customer expectation &
customer perception.
- Anyhow, SAS gave importance to service& product line
innovation.

Q 6 What would be the “Service Encounter Cascade” for

an airline traveler?

A serviceencounter is a dyadic interaction between a customer

and a service provider.  
Service encounters are also labelled “moments of truth.”  Jan
Carlzon, the CEO of Scandinavian Airline System, brought this
term to the fore in his efforts to provide a more customer
oriented service.
It highlights the importance of customer contact staff in the
organisation’s success.   
Shostakdefines the serviceencounter more broadly as “a period
of time when a customer directly interacts with a service.” 
In interacting with the service the customer comes in to contact
with the contact personnel but also the physical facilities, the
other customers and other visible elements. 
This paper focuses on the interaction between the contact
personnel and the customer however the authors do
acknowledge the other types of communication which take place
during service encounters.

ServiceEncounterCascade

The serviceencountercascade is a framework that outline

various significant events as they happen in the
serviceencounter.  The below illustrates a
serviceencountercascade for an encounter with an airline
company. 

The following actions were taken to come out of the

crisis:
1. The organization was decentralized to in order to become
more responsive to the market.
2. Resources were concentrated and organization was redesigned
to meet the needs of these segments.
3. Emphasis was given to the business class or full paying
passenger.
4. Cargo and tourist class passenger filled marginal capacity, and
a clear differentiation in prices and services were offered to
tourist and business class segments.
5. Rather than operating on unprofitable lines, cooperation was
sought with other airlines at other junctions.
 6. Freight was marketed through a new concept of door-to-door
transport with flexible pricing.

Actions to be taken are:

1. Act professionally, competently and uncompromisingly in all
matters concerning safety and quality.
2. Providing individually oriented service to both customers and
employees.
3. Ensure task of every colleague is meaningful.
4. Keep promises.
5. Always be leaders in product development and make future
secure by staying profitable
6. Have a visible consistent management at all levels.