Air National's (AN) 1986 Annual Report glowed with optimism. Bradley Smith, CEO, stated in his letter to shareholders, 'As a newly privatized company we face the future with enthusiasm, confident that we can compete in a deregulated industry.' By April 1988, however, the tone had changed with a reported pre-tax loss of $93 million. The newly appointed CEO, Clive Warren, announced a major change in the company's business strategy that would lead to a transformation of business operations and HR practices in Europe's largest airline company.

Background During the early 1980s, civil aviation was a highly regulated market and competition was managed through close, if not always harmonious, relationships between airlines, their competitors and governments. National flag carriers dominated the markets and market shares were determined, not by competition, but by the skill of their governments in negotiating bilateral 'air service agreement'. These agreements established the volume and distribution of air traffic and thereby revenue. Within these markets AN dominated other carriers. Despite the emergence of new entrants, in 1983 AN's share of the domestic market, for instance, increased by 60 per cent.

The competition In the middle of the 1980s, Air National's (AN) external environment was subjected to two sets of significant changes. First, in 1986, AN was privatized by Britain's Conservative government. This potentially reduced the political influence of the old corporation and exposed the new company to competitive forces. Preparation for privatization required painful restructuring and 'downsizing' of assets and the workforce, driven largely by the need to make the company attractive to initially sceptical investors.

After studying this chapter, you should be able to: