ORGANIZATIONAL ANALYSISU S AIRWAYS GROUP INC Student consulting group
EXECUTIVE SUMMARY This organizational analysis proposes to reorganize the basic business model of U.S. Airways to mimic the successful models of low cost airlines such as Southwest Airlines, Air Tran, and Jet Blue. ... This organizational analysis presents a comprehensive SWOT evaluation and benchmarking data to support its recommendations. ... MEMORANDUM From: On Point Consulting To: Mr. ... S. Airways Group Date: November 2, 2004 Re: Proposal to Reorganize US Airways Airlines into a Competitive Low-Cost Carrier PURPOSE The purpose of this organizational analysis to present a plan to reorganize US Airways (company) to compete with low cost carriers such as Southwest Airlines, Air Tran, and Jet Blue. ... Lastly, in our expert’s view, these recommendations must be immediately implemented or the company will be forced to liquidate its assets in January 2005. ... The legacy airlines are Alaska, American, Continental, Delta, Northwest, United, and US Airways. ... US Airways is the smallest of the legacy airlines and the most vulnerable to competitive attack by the LCCs. ... (Reuter’s Report) • The company’s stock price performance over the last year decreased over 86%. ... 654% respectively) show US Airways at the bottom of the industry. ... As you are aware, US Airways’ entered bankruptcy a second time in September 2004. ... S. Airways’ current state in the form of a SWOT analysis. ... 8 cent gap at the end o f2003 GAO) Figure 1 shows US Airways’ Cost per Available Seat Mile (CASM) are higher than the other Legacy Airlines. As a group, the legacy airlines have higher costs than the LCCs. ... Unexpected High Fuel Costs RECOMMENDATION On Point Consulting has researched the financial, traffic, and human relations benchmarking data for 56 domestic airlines and subsidiaries to find the best practices of the airline industry. ... Based upon On Point Consulting’s two month review of US Airways current organizational issues, our research of expert opinion, and analysis of the benchmarking data, we recommend US Airways’ reorganization focus on: • Moving to the Low-Cost Carrier (LCC) Model that is successfully utilized by Air Tran, JetBlue, and Southwest by: o Reducing labor costs o Simplifying flight operations o Offering more transparent pricing o Lowering fuel costs • Adopting appropriate Human Resources best practices to create a more inclusive, performance-based, and financially sound culture for the future. RATIONALE & DISCUSSION US Airways costs are similar to the other legacy airlines because the business models are similar. In the following analysis, it is useful to compare the legacy airlines as a group as well as U.S. Airways individually to the Low Cost Carriers because the business model differences can be shown to be the major root cause of the cost differences. ... At the end of 2003, the LCC’s costs are 3.8 cents less than the legacy airline’s. ... S. Airway’s total costs. ... S. Airways has high labor costs overall compared to the Legacy airlines and the LCC’s. ... S. Airways has imposed a 21% cut, dropping the average salary from $59,509 to $ 47,012 putting the company below the other five major traditional carriers as well as Southwest Airlines, but higher than JetBlue and America West. ... S. Airway’s costs, what ails the company and other legacy carriers more than anything else is the disproportionately high cost of their operations. (Foss) As shown in figure 3, US Airways’ non-labor costs are 70 - 90% higher than Southwest’s and JetBlue’s. ... S. Airways operates 14 models of airplanes, uses a hub and spoke business model, has a large investment in a Sabre Systems reservation system, and flies into major airports. ... While domestic routes have decreased due to competition w/ LCC’s, international fares rose about an average of 4. ... (GAO) The large increase in price has made a large impact in their costs because US Airway’s fuel costs are 10% of CASM. ... JetBlue puts great emphasis on hiring people who are a good organizational fit to the company, those who will espouse it values and have a high commitment to the organization. ... Benefits to employers: • Higher retention rates/lower employee turnover (Sadowski) • Improved profit margins (Bates) • Improved productivity/reduced operating costs (Bates) o incentive based compensation benefits allows both employer and employee to share in the company’s success (SW/JB AR) o training/educational opportunities provide the “right people” with the skills to better do their job (JB AR) • Less susceptible to threat of unionization o 77% of the Fortune 100 Best Companies to Work for are non-unionized (Bartulski) o Non-unionized work forces generally receive ~27. ... (Bates) Key Best Practices/Employee Benefits: Overall, the focus is on the employees as a key resource in the firm’s performance -Valuing their happiness, not just the bottom line. • Employee ownership - (stock options-Republic Bancorp and Whole Foods, profit-sharing bonuses – Synovus, REI up to 10% of salary) • Extraordinary healthcare benefits (free healthcare benefits – Wegman’s Food markets, Stew Leonard’s; No deductible healthcare benefits-Microsoft) • Time related policies – Flexible scheduling (ARUP labs), Telecommuting (IBM-40% on any given day) • Family-related benefits - Childcare facilities, maternity/paternity leave (Goldman Sachs-16 week paid maternity leave, Alston&Bird-up to 3 month paid leave, on-site childcare at reasonable rate) • Employee development and training – 100% tuition reimbursement, “University” training (JetBlue, Milliken, HomeBanc U.