Case Study 1

Eastern States Air Environment

Gloria Rooney assumed the presidency of Eastern States Air in the

later 1990s, after proving her ability as executive vice president

with two other major airlines. Like most other surviving airlines,

Eastern States Air weathered rough times during the early 1990s.

But as the year 2000 neared, Rooney took over an airline that was

doing well. Naturally, Rooney couldn't be satisfied with simply

staying the course; she wanted to do better. And she thought she

knew how.

Rooney saw that service in the airline industry had been in a state

of steady decline for several years. More and more passengers were

flying than ever before, but their level of satisfaction went down

as their numbers went up. Crowded airports, flight delays,

overbooking, the occasional disastrous accident, and other factors

had all combined to raise industry complaints to all-time-high

levels just when passenger flight miles were also at an all-time

high.

In that atmosphere, Rooney finally had an opportunity to put into

practice one of her most deeply held beliefs about running an

airline: "It's not what you do; it's how you do it." She told her

staff time after time: "The What is the easy part. What we do is

take passengers from here to there. The way we can distinguish

ourselves favorably from our competitors is in The How."

Eastern States Air became known as "the airline that put the Frills

back into Flying." A small lounge was added to all planes that

could accommodate one. For people not wanting to leave their seats,

two complimentary drinks per passenger per flight, delivered to the

seat, became the standard. An internationally known chef was hired

to supervise a food-service system that produced meals as close to

the gourmet level as was possible given the state of technology.

Just before passengers exited each Eastern States flight, they were

surveyed to see how satisfied they had been with the basics of the

flight and with the frills which Eastern States had put back into

flying. Early results of Rooney's campaign showed that passenger

satisfaction levels were off the chart at the top. In one

astonishing month, the airline received no complaints about

anything. Rooney was overjoyed. "They said zero defects was an

impossible standard in airline service. We proved them wrong." The

passengers who raved about Eastern States Air and flew the airline

as often as they could, sometimes simply for sheer pleasure,

understood that there is no free lunch. Eastern States had to raise

its fares considerably to provide outstanding service, but some

people paid the higher prices happily.

Unfortunately, the number of passengers flying Eastern States Air

took a disastrous drop. The ones who stayed loved the airline. They

became evangelists for Eastern States, but there were not enough of

them. Rooney realized that she had been somewhat deceived by the

excellent survey results. She had been surveying only those who

stayed, not those who left.

Surveying a broader cross section of passengers, former passengers,

and passengers of other airlines led Rooney to change her strategy.

"When you get right down to it," she said, "this is really a very

simple business. Steamships used to be a mode of transportation;

now they provide luxury cruises that end up where they started. But

in our business, what people want is to get from here to there as

inexpensively as possible. In the current market, cheap airfares

are what people expect, and that's what we need to give them. But

we won't forget the loyal customers who have stayed with us. If we

do this right, we can appeal to both groups."

To implement the new strategy, Eastern States cut back on the

number of seats in first class but increased their size, along with

first-class appointments and level of service, to retain the

airline guests who had been satisfied to have the frills put back

into flying and were willing to pay for them. Throughout the rest

of the plane, however, economy became the watchword. More seats

were stuffed into each plane, the number of flight attendants was

reduced, and "meals" consisted of dry finger food, mainly pretzels.

Eastern States began to make a financial comeback, but the number

of complaints skyrocketed to record levels. The following comments

were typical:

"You are putting all your service into the front of the plane. What

about those of us stuck in the back?"

"I've seen the animals in cattle cars treated better than this."

"I used to be able to get by a window or on the aisle; now I always

seem to get stuck in the middle seat. Why is that?"

"I see that your industry is enjoying record profits. How about

using some of that dough to give us a better ride?"

"I'm a little over six feet tall, and I have to twist my legs to

fit in that cramped space you give me."

"Seats too narrow, too close together. Flight attendant handed me

pretzels just as we were landing."

"I've had better seats and better service on the crosstown bus."

Some of these disappointed and angry passengers took out their

resentment on the flight crews. Morale among the pilots and flight

attendants began to drop. Rooney was baffled and disappointed. "You

can't win in this business. You give people what they want, and the

complaints go through the roof." She was quite concerned about the

next board of directors meeting and what the board would have to

say about her management of the airline.

1. What is the service product of the airline industry?

2. What were Rooney's mistakes?

3. How could they have been avoided?

4. What now?