Astro Airlines

Part 1

Arthur Burton established Astro Airlines in 1980, two years after the airlines were deregulated.

Burtons vision for the new airline has two key elements. First, the airline would provide

lowcost, nofrills service to people who formerly could not afford to travel by air. Second, the

airline would have a novel type of organization that provided a better way for people to work

together, thereby unleashing their creativity and improving productivity. Burton was a dynamic,

emotionally stirring speaker with a kind of evangelical fervor, and he took advantage of every

opportunity to teach and affirm his vision. He was regarded by many employees as an inspirational

leader who made you believe that you could do anything. The climate at Astro Airlines in

the initial years was one of enthusiasm, excitement, and optimism.

Instead of the typical bureaucratic organization, the new company had only three levels of

management and few support staff. The emphasis was on equality, informality, participative leadership,

and selfmanagement. Employees were organized into teams with shared responsibility

for determining how to do their work. The teams elected members to represent them in advisory

and coordinating councils that met with top management, thereby enabling them to participate

in making important decisions. Managers were expected to provide direction but not to

dictate methods or police efforts. Employees were expected to perform multiple jobs and to learn

new skills. Even the managers were expected to spend some time doing regular line jobs to keep

informed about problems and customer needs. The status perks found in most large organizations

were eliminated. For example, executives answered their own telephones and typed their

own letters. New employees were carefully screened, because Burton sought to hire young, enthusiastic

employees who were willing to learn new jobs and who could function as part of a cooperative

team. All permanent employees were required to share in the ownership of the company, and

they could purchase shares of stock at a reduced price.

Burton believed that a strategy of discount fares and convenient schedules with frequent

flights would attract new passengers who would normally travel by car, train, or bus, or who

would otherwise not travel. By keeping operating costs low, Astro Airlines was able to offer fares

that were much lower than those of competitors. The salaries of managers and employees were

lower than normal for the airline industry, although employees also received generous fringe

benefits, profit sharing, and stock dividends. Costs were also reduced by purchasing surplus aircraft

at bargain rates, by reconfiguring aircraft to carry more passengers (e.g., converting first

class into coach seats), and by innovative scheduling that allowed the planes to fly more hours

each day. Customers were charged for some frills such as meals and baggage handling that other

airlines included in the price of the ticket. To reduce space normally needed for ticket counters

at terminals, the ticketing for flights was done either in advance by travel agents or on the plane

itself with innovative ticketing machines.

The new company was an immediate success, and passenger volume expanded rapidly. In

less than three years the company grew from a few hundred employees with three planes to more

than 3,000 employees with 22 planes servicing 20 cities. This success occurred despite dismal

conditions that caused widespread operating losses in the airline industry, including a severe economic

recession, a crippling national strike of air traffic controllers, and brutal price wars. The

flexibility of the company and the commitment and creativity of its employees aided its early

growth and facilitated rapid adaptation to crises such as the strike of air traffic controllers.

Questions

1. Describe Burtons leadership behavior.

2. Was Burton a charismatic leader in the company at this time? Explain your answer.

Part 2

Despite the early successes, the rapid growth of the company was also creating some serious

organizational problems. Employees believed that after the initial chaos of starting up the

company, things would settle down and the intensely heavy workload would be alleviated. They

were wrong; communication problems increased, the workload remained overwhelming, decisions

were taking too long to be made, and too many decisions had to be resolved by top management.

These problems were due in part to the informality and absence of structure. As the

number of routes, facilities, and flights increased, operational problems became more complex,

but formal structures were not developed to deal with them effectively. The number of

managers did not increase nearly as fast as the number of nonsupervisory employees. Burton

refused to recruit experienced managers from outside the company, preferring to promote current

employees into positions for which they initially lacked sufficient expertise. Overburdened

managers lacked adequate support personnel to which they could delegate routine responsibilities.

Managers complained about the pressure and stress. They spent too much time in meetings,

they could not get issues resolved and implemented, and they could not provide adequate

training for the rapidly increasing number of new service employees. The new employees were

not getting the extensive training and socialization necessary to prepare them to provide quality

service, rotate among different service jobs, and use team management practices. Operating

problems (e.g., canceled flights) and declining customer service (e.g., rude attendants) alienated

customers and eroded the companys reputation.

Adding to the confusion was the worsening conflict between Burton, who as CEO was

responsible for strategic planning, and the company president who was responsible for operational

management. In 1982, the president resigned, and Burton assumed his responsibilities

rather than finding an immediate replacement. At this time Burton finally decided to appoint

a task force composed of executives to develop ideas for improving the organization. The task

force presented some initial proposals for new managerial roles and structures. Employees were

subsequently promoted to these roles, and management training activities were initiated for

them. Burton was heavily involved in this training; he conducted some of it himself, and he

faithfully attended sessions taught by others, thereby indicating the importance he placed on

it. However, other necessary changes in management processes were not implemented, and the

position of president was still not filled. In short, Burton seemed unwilling to take the steps necessary

to transform Astro Airlines from an entrepreneurial startup to an established organization.

Indeed, his remedy for the firms problems was to set out on a new growth path rather than

to concentrate on consolidation. He believed that what the company needed was an even bigger

vision to get people excited again. Thus, he began yet another period of rapid expansion. The

airline added new routes, purchased new and larger aircraft, and hired more new employees.

By 1984, Burton no longer seemed content to run a successful regional airline. He continued

to make changes designed to transform Astro into an international airline that would

compete with the major carriers. He decided to acquire some other regional and commuter airlines

that were financially weak. His strategy of rapid expansion was overly optimistic, and it

ignored some important changes that were occurring in the external environment. Burton failed

to anticipate the likely reactions of major airlines that were stronger financially and prepared to

conduct a long pricecutting war to protect their market position. New passenger traffic did not

increase enough to justify the cost of the added flights, and Astro was unsuccessful in attracting

many business travelers accustomed to frills and better service. The company began to experience

losses instead of profits.

Internal problems also worsened in 1985. There was an attempt to unionize the pilots, and

a substantial number of pilots quit, complaining that they were exploited and mistreated. Other

employees began questioning Burtons sincerity and accused him of being a manipulator. The

perception among many employees was that he was now acting like a dictator, and no one dared

to cross him. When asked about the absence of independent outsiders on the board of directors,

Burton replied that he was the founder and largest shareholder, and he could determine what was

best for the company. He fired a key managing officer who had been with the company since

it was formed, presumably for challenging him and asking questions he no longer wanted to

hear. Another founding executive whom Burton had appointed as president resigned and took

several other employees with him to establish a new airline.

In 1986, as financial performance continued to deteriorate, Burton abruptly abandoned

the distinctive strategy of discount fares and nofrills service and began offering full service with

higher fares to lure business travelers. However, operating losses continued to mount, and in a

last desperate move, Burton changed back to his original strategy. It was all to no avail. By the

summer of 1986, the losses increased and the company entered bankruptcy proceedings.

Questions

1. What dysfunctional aspects of charismatic leadership were displayed by Burton?