Current Issues in Management

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Executive Summary

Aim of this study

This study is to analysis the selected airline business environment and Corporate Social Responsibility (CSR) program implementations of some airline and compare with the selected airline.

What is CSR

CSR is an approach to business that takes account of issues associated with society and the environment in addition to more traditional business concerns of shareholders and profits.

The low-fare airline “Ryanair” doing about CSR

We can see the result of Ryanair CSR performance from the interviewee in this section.

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Analysis and discuss how the airline performance Corporate Social Responsibility.

1. INTRODUCTION

In the last few decades, Corporate Social Responsibility (CSR) has grown in importance, which is reflected by an increasing demand from consumers, employees, legislative systems, and the society for inclusive evaluations about how corporations are meeting acceptable standards. CSR plays an important role in the formation of airlines’ strategies due to the unique characteristics of the airline industry. Nevertheless, CSR in the airline industry has received relatively little attention from academics.

The purpose of this study are to understand and analysis how the selected airline communicates to the outside world by implementing CSR programs. This research is exploratory by nature and is based on CSR reports published by the selected airline and related CSR information on the company websites.

This topic has been chose because of the importance of CSR in business, more specifically in airline industry. What makes the application CSR programs in airline industry a particularly interesting topic to research is the highly competitive and pollutive nature of the industry.

This competitive market has been caused by the price sensitivity of customers, and their desire to get good service at a decent price, as well as by the saturated nature of supply market due to multiple operators. In order to compete in the market, companies have to be cost efficient while providing best possible service. This, however, is difficult due to high operating costs that influence the whole industry.

CSR is considered to be a vital part of any contemporary business strategy. In our mind focusing on CSR can provide airlines with both operational efficiency, as well as image benefits. People are becoming more aware of the social and environmental effects of their consuming habits, hence it be projected that innovative and responsible companies will continue to do well in the future, as their actions affect the purchasing behavior of customers. The purpose of this study is to provide overview of CSR, discuss and analysis the performance of selected airline in corporate social responsibility.

2. LITERATURE REVIEW ON CORPORATE SOCIAL RESPONSIBILITY IN AIRLINE INDUSTRY

Corporate are inseparable from society. Nowadays, the responsibility of corporations is not solely providing products and services, it must also take care of the welfare of the various stakeholders in society (Robin, 1987). Corporate nowadays do not primarily focus on profits but being society responsible which generates more intangible value. Consumers prefer to be associated with socially responsible cooperates and as a result of this, corporate will allocate response to this area and play a private role.

First, the flying of airplanes will adversely affect the global environment (Miyoshi, 2009). Favorable public image can be created if the airline “greening” the environment. Secondly, promoting CSR is an attractive differentiation strategy, it gains competitive advantages and growing competition between airlines when airlines are offering increasingly similar products and service in marketplace. For meeting the expectations of various stakeholders and customers, airlines can fulfill their responsibilities as a corporate citizen especially for international airlines operates in multiple countries.

There seems to be no universally agreed definition of CSR (Frankental, 2001). He even argues that “CRS is a vague and intangible term which can mean anything to anybody, and therefore is effectively without meaning”. The continuing commitment by business to behave ethically and contribute to economic development while improving the quality of life of the community and society at large(Holmes and Watts, 2000). It is generally agreed that CSR refers to the obligations of the firm to society (Smith, 2003).

2.1 CORPORATE SOCIAL RESPONSIBILITY THEORIES AND STRATEGIES

CSR includes four kinds of responsibilities: economic, legal, ethical and philanthropic. The economic responsibility refers to the firm’s obligations to be productive, profitable, and to maintain wealth. Firm’s legal responsibility refers to carrying out their activities within the confines of legal requirements. For ethical responsibility refers to having ethical codes, norms going beyond mere legal frameworks, and being honest in their relationships with their customers and their own employees. Finally, the discretionary component includes voluntary or philanthropic activities aiming to raise the well-being and development of society as a whole (Carrol, 1911). CSR issues under a variety of headings: Marketplace, workplace, community and environment will be used as CSR components.

Safety is the most important social responsibility for the aviation industry. From All Nippon Airways CSR report 2009, the company reports the preventive measures for two incidents occurred in 2008 that influenced stakeholder trust in the airline. In order to improve workplace relationship and employee morale, Korean Air has created an Employee Counseling Center to resolve complaints and receive suggestions from employees. For community, “I Can Fly” Program from Cathay Pacific, program is designed to encourage young people to fly high and to reach for their dreams. Being an international airline, Cathay pacific’s community investments also extend to communities outside of Hong Kong. Singapore Airline participates “the Asia and Pacific Initiative to Reduce Emission (ASPIRE)” Program in 2010, demonstrated green flight, which operated from Los Angeles to Singapore via Tokyo. As a result, it was able to use around 6% less fuel than normally required for a similar flight.

Nowadays, customers are more aware of ethical consumption so that the airlines act in positive role in society by implementing some corporate social responsibilities’ programs. At the same times, consumers are also vulnerable to the problems and crises they are facing to, such as crisis in values and climate change, huge differences among people and also economic crisis in developed countries. Therefore, company can gain customer satisfaction and market value when they are applying the above CSR components.

Corporate social responsibility means that organizations take on responsibility towards others in society, not merely on their shareholders and customers (Holloway, 2004). On the other hand, corporate social responsibility also can improve our quality of life in the local community to solving environmental or socio-cultural problems locally or globally. CSR has found a positive relationship in both the short and long terms (Lee and Park, 2009). (Kang et al, 2010) examined the effects of positive effects of positive (proactive) and negative (reactive) CSR activities.

2.2 CORPORATE SOCIAL RESPONSIBILITY CHALLENEGES AND ISSUES

Despite the potential of a Value Chain approach, the following issues need to be considered if the airline is planning to adopt or develop further more comprehensive CSR activities.

Financial implications

The Low-Fares Airlines business model relies on cost-reduction (Grob and Schroder, 2007). There are costs associated with implementing a CSR strategy but many are already accounted for within existing budget lines such as: Charitable giving, environmental management programs, corporate sponsorship and etc.

Staffing

Monitoring, evaluation and management of CSR objectives and related actions do require a staffing commitment in order to facilitate accurate reporting of costs and benefits. The size of the staffing commitment depends on the size and commitment of an organization. British Airways at the time of writing employed 30 staff working on CSR related initiatives (GreenAir 2008)

Time

Implement on CSR is a medium to long-term commitment that can only be fully achieved with realistic timescales built in from the start. However, there are some objectives, or “quick wins”, that can be realized in the short-term.

2.3 SUMMARY OF KEY CORPORATE SOCIAL RESPONSIBILITY ELEMENTS

Review of the corporate social responsibility theories, strategies, challenges and issue has shown that most of the international airlines (for example, Cathay Pacific Airline, Air France-KML, British Airways and etc) are very proactive in some of CSR components, for example, climate change and environment; customer relations by proving a level of customer service and comfort that ensure customer loyalty by focusing safety and security; staff personal development of the airline’s staff by offering personalized career advice, training and encouraging job mobility within the group. However, some of budget airlines, they are not really focus on CSR as a business strategy, the reason are airlines didn’t want to spend too much money on CSR because they need to control expenses for other resources to ensure tickets are low prices. Therefore, those budget airlines only focus on environment and community only.

3.1 COMPANY BACKGROUND

Ryanair was established in 1985 by the Ryan family with £1 share capital and 25 staff. Operation started with daily flights from Waterford in the southeast of Ireland to London on 15 Bandeirante aircraft (Ryanair, 2010). In 1987, the company acquired their first jet aircraft and as a result increased their network with 15 scheduled routes from Dublin to Liverpool, Glasgow, Manchester, Cardiff and opened new routes from Luton to West of Ireland. Consequently the number of passengers increased to over 600,000, but the company soon faced intense price competition with Aer Lingus and British Airways resulting to £20m loss. During the 1990s, Ryanair decided to restructure the company by copying Southwest Airline low fares model (Ryanair, 2010).

3.2 CORPORATE SOCIAL RESPONSIBILITY AUDIT OF RYANAIR

From the above audit, it showed that community projects, local skill training, advertising, disability access and ethical policies are not good from interviewee’s view. CO2 emissions, charity giving, pricing, training investment and safety are just fair. However, Ryanair are good in environmental responsibility for example: paper usage, water usage and waste. To understand why the interview gave this result, it will be discussed by using the following evidences.

4. ANALYSIS AND DISCUSS OF RYANAIR CORPORATE SOCIAL RESPONSIBILITY PERFORMANCE

Ryanair Corporate Social Responsibility activities report in 2011, it showed environment, emissions trading, ethical codes and staff benefits will be implemented in coming year. For instance, Ryanair released two press releases about its 2008 Cabin Crew Charity Calendar, seven press releases for its 2009 Cabin Crew Calendar, and one press release for its 2012 Cabin Crew Calendar. Also, they even created a website for greening the environment. However, the charity calendar and other philanthropic efforts were not mentioned since 2008 annual report. In 2011 annual report, it also didn’t mention what kind of activities they did for the environment and how much fuel consumption they used. The following are the Corporate Social Responsibility performance of Ryanair between 2009 and 2012.

For community, Fredrick (1986) developed the CSR analysis to include an ethical base to managerial decision taking in the form of corporate social rectitude and terms this CSR3. The theory claims that the study of business and community needs an ethical anchor to allow a systematic critique of business's impact upon human consciousness and human continuity. When consumers book tickets at their website, charged price at the purchased stage is higher than the showed price at book tickets page. Real price has been hidden, it also counted as unethical. If the company's action can have either a positive or a negative impact on the quality of a group or individual's life, then the group or individual is a stakeholder of that company (Lepineux, 2005).

On the other hand, Ryanair was not willing to provide services to those people who are disabled and older passengers has resulted in court ruling and got fines from court. After that, the airline increased the fare to all passengers and started lobbing airport and airlines, not to provide free services to disabled passengers. In 2010, The central London Country Court found it had acted unlawfully due to there was a passenger who I suffering from cerebral palsy and arthritis and be charged GBP18. Eventually, the one claimed GBP1136.

Another important example of Ryanair's unethical practices is their advert in 2012. Two UK newspaper adverted for Ryanair have been banned after complaints from readers that they were sexist and treated women as objects (BCC News, 2012). The advertising Standards Authority (ASA) received 17 complaints of this advertising, and said they were likely to cause offence. However, the airline said the adverts promoted its cabin crew charity calendar and used images taken directly from it (BBC news, 2012).

The company faced probe by the Office of Fair Trading (OFT) after a string of complaints and the rules have been breached seven times in two years (BBC News, 2009).

Corporate Social Responsibility as the purpose of business and the knowledge and abilities of those that run the business (Worthington and Britton, 1997). Of course, every company is making profit, even Ryanair. Therefore, their operation and the impact on the environment have to be administrated. Ryanair is not very good in marketplace of the CSR components. They got a lot of complaints of cancellations, missing bags and denied boarding. In 2011, the aviation watchdog revealed that Ryanair and EasyJet were subject to the most complaints from British airline passengers in 2010.

From Ryanair website, it shows that baggage complaints per 1,000 passengers have increased from 1.18 to 1.88 from 2010 to 2011 respectively. EasyJet had the most complaints with 719 and Ryanair following with 673. It was also noted that Ryanair complaints have risen by 70% since 2005 and the Liberal Democrats said that the numbers proved service standards is a casualty of lower fares (Guardian, 2010). As explained earlier safety is the most important social responsibility for the aviation industry. However, the flight to East Midlands Airport was forced to make an emergency landing and oxygen masks were deployed (The Sun, 2012).

There are differences between Ryanair and its competitors in terms of services and how they are delivered. Ryanair pledges simply to get passengers from point A to B safely and at lowest price. Some seats are sold as little as £1 or € 1, however, if flights are delayed, passengers should not expect free refreshments (Emerald, 2007). At the same time, the airline treats their employees are different with other airlines e.g. Southwest airline. Southwest airline believes that customers deserve respect, fun and dignity but that their employees come first. This is because employees would treat customers the way they are been treated (Emerald, 2007). Employees from Ryanair are disregard. Also the company is in major dispute with its operation being socially irresponsible.

5. STRATEGIC CORPORATE SOCIAL RESPONSIBILITY RECOMMENDATIONS FOR RYANAIR

Corporate Social responsibility is very important for growth of the business so that the airline should be more social responsible by addressing the demands of the stakeholders. Building the sense in the organization being socially responsible will improve corporate image to create value.

In my opinion, environmental issues should be considered the most important. Despite the airline can only contribute few percent to global CO2 emissions, there still are so many people will consider flying to be much more harmful. Therefore airlines are pressured into contributing to the environment and reducing their environment impact. Moreover, focusing on environmental issues airline can gain competitive edge through improved image and operational efficiency. Fuel efficiency, waste and recycling should be the most important to be addressed.

CO2 emissions nowadays can be considered. To tackle the issue of emissions, most of the airlines have implemented programs that aim to reduce overall emissions within a certain time period. For example, Air France aims to reduce CO2 emissions 1-2 % annually. This is also important in order to achieve emissions target set by IATA. Most of the airlines focus on improving fuel efficiency, as it is by far the biggest source of emissions. Ryanair should reduce fuel consumption immediately, improved maintenance and engine washing, improved route planning and navigation.

Waste and recycling are the second important environmental topic. Waste produced by in-flight operations comprises of aluminum, plastic, mixed paper and organic waste. Chemical waste includes deicing and antifreeze products, paint and detergents used in washing airplanes and engines. Other waste sources are normal business operations where paper is the predominant material. Most airlines reviewed are trying to reduce waste and focus on recycling. Airlines should move towards recycling and reduction of waste production in all operational areas. In my opinion this can be achieved by favoring longer lasting, recyclable or biodegradable materials i.e. in catering operations.

Airlines have a high impact on neighborhoods and communities surrounding their major hubs. The airline should support communities by recruiting and training staff, offering educational support and etc. i.e mentioned previously “I Can Fly” Program from Cathay Pacific.

Creating the organizational culture of shared values where employees are willing and enjoy to work. Empower employees to do their job, support and encourage them in their decisions. When employees are empowers to do their job and be respected at work place, they will feel that they are part of the organization and their decision are appreciated, then they will work wholeheartedly at the airline. It can improve customer servicing, reduce complaints and improve airline performance.

Safety measures also to be one of the most important areas of airline business, concerning customers as well as employees. Therefore various systems should be implemented to support safe business operations. In order to ensure work safety, trainings supported by risk management systems should be implemented. Key performances should be regularly measured and improved according to the legal requirements.

6. CONCLUSION

In the recent years the importance of CSR has been increasing immensely in the airline industry. Although in many aspects airlines are still behind in comparison to other industries, it has been made apparent that environmentalism and social responsibility issues will only increase in importance in the coming years and decades. Having a business strategy is as essential as never before due to a high need in business life for forecasting, measuring and developing business actions further. There will always be competitors that are potentially doing better business regarding overall revenue which consequently leads to a need of efficient and structured operations to ensure long lasting business success.

Businesses that are going to last and also be profitable in the future are the ones with CSR incorporated into their business strategy. We therefore believe that implementing it is inevitable. Like many other business aspects a clear vision on how to implement CSR is crucial. Therefore a “road map” needs to be developed in order to ensure a successful outcome. It allows the firm to be successful whilst using its resources within its unique environment to meet market needs as well as meet stakeholder expectations (Industry Canada 2006, pp. 32-33).

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