Principles of Management and Organization

Case Study in Management Problems:

Cebu Pacific Airlines

Ellenmae Magalona

Sir. Melvin Moraga

April 11, 2015

I. Cebu Pacific Profile

A. History

The airline was established on August 26, 1988, and started operations on March 8, 1996.

Republic Act No. 7151, which grants franchise to Cebu Air, Inc. was approved on August 30,

1991. Cebu Air, Inc. was subsequently acquired by JG Summit Holdings (owned by John

Gokongwei). Domestic services commenced following market deregulation by the Philippine

government. It temporarily ceased operations in February 1998 after being grounded by the

government due to an accident, but resumed services later the next month following re-

certification of its aircraft. It initially started with 24 domestic flights daily among Metro Manila,

Metro Cebu and Metro Davao.

By the end of 2001, its operations had grown to about 80 daily flights to 18 domestic

destinations. In the 2000s, Cebu Pacific was granted rights to operate international flights to the

region, including Malaysia, Indonesia, Singapore, Thailand, South Korea, Hong Kong, and

Guam. International flights were launched on November 22, 2001, with a twice-daily service to

Hong Kong. Until then it was successfully launched flights internationally and Domestic until

the present time.

B. Background

1. Board of Directors

• Ricardo J. Romulo (80 yrs old), Chairman •Robina Gokongwei (52), Director• John L. Gokongwei, Jr (87), Director •Frederick D. Go (45), Director•Lance Y. Gokongwei (47), Director,CEO •James L. Go (74), Director• Jose Buenaventura (79), Director •Antonio L. Go (73), Independent Director

2. Services & Facilities

Choice Seat - passengers may now have the option to buy a Choice Seat assignment at least

48 hours before departure

Medical Equipment – for special medical requirements, Cebu Pacific Airlines offers a

wheelchair service at the airport, as well as oxygen or stretcher equipment during flight. For

passengers that need special medical attention, we have the Medical Information Form

(MEDIF) available for download

Medical Cards - Incapacitated passengers may avail of the FREMEC or Special Care card to

facilitate the processing of their flight requirements

Check in - Express check-in counters are now available for all - Cebu Pacific Airlines flights

from Manila (NAIA2) and Mactan airports. Open to passengers without check-in baggage and

to senior citizens with up to two travelling companions.

Web Check-In- Cebu Pacific was the first airline in the Philippines to provide guests the

option to check-in for their flights online. This is available from 72 hours up to four hours

before international flight departure, and up to two hours before domestic flight departure.

Cabin Interior - Cebu Pacific Airlines added two new B777-300ERs in its fleet. Highlights

include the installation of state-of-the-art in-flight entertainment systems, new business-class

and economy-class seats, and the infusion of a modern look that emulates the beautiful coastal

areas of the Philippines

3. Fleet

Cebu Pacific Airlines ended 2013 with 48 aircraft comprised of 28 Airbus A320, two Airbus

A330, ten Airbus A319, and eight ATR 72-500 turboprop planes.

II. Body

A. Introduction

Air travelers know the frustration of waiting endlessly for their plane to arrive or depart.

Delayed flights are inevitable instance that maybe caused by a couple of factors i.e., technical

problems, bad weather and air traffic. Cebu Pacific, the Philippine’s number 1 and one of the

fastest growing airlines in Asia, is known for having the lowest flight fares with its “low fare

everyday promo”, but even with a strong foothold as a budget airline, it could not escape the

trouble caused by delayed flights or even cancellations.

The unforeseen flight delays will eventually bring financial loss and damage to its

reputation. Just over three months after the Christmas fiasco that disrupted the travel plans of

countless passengers, the public remains furious with Cebu Pacific with some even calling for

the airline to be penalized and even have its franchise revoked. Between December 24 and 26,

Cebu Pacific left thousands stranded at Ninoy Aquino International Airport due to cancelled and

delayed flights.

B. Reported Problems Incurred by Cebu Pacific Airlines during Christmas Break ‘14

•Delayed Flights •Lack of Ground Crew

•Crisis Response •Bad Weather

•Communication Behavior •Overbooking

•Framing in Organizations Theory •Air Traffic Congestion

•Consistency •Sunset Limitations Cited

C. Cebu Pacific Management Official Statements via TV Patrol (Interview)

“Marami po sa mga regular counter agents natin and di nakapasok on time or nakapasok

at all kasi, over the last couple of days, medyo nag-overtime at nag-stretch. Christmas Day was

really a big, big deluge that we experienced, but we experienced a lot of consequential flight

delays because of the air traffic congestion. There was inclement weather in some regions and

this resulted in a lot of flights being cancelled." - Juan Lorenzo Tanada, VP for Corporate

Affairs, Cebu Pacific.

“I’m humbled by the trust that so many Filipinos & Foreign tourist place on Cebu Pacific

to them safely home to their destination. Last Christmas we let them down and I’m profoundly

sorry that we failed them” - Lance Gokongwei, Pres.& CEO, Cebu Pacific.

D. Recommendation

a. Delayed Flights - Given that Cebu Pacific is the nation's largest low-cost carrier

flying to more domestic destinations than any other carrier, it is highly unlikely that a revocation

would proceed. In the context of Air Transport Industry, different kinds of crises can arise. Crisis

is a non-routine event that risk undesired visibility that in turn threatens significant reputational

damage.

There are three common characteristics in which crisis in the air transport industry are

mutually evident. [1] There is no prior notice or warning signs, [2] the need to inform large

numbers of people in a very short time and [3] a large number of (increasingly digital)

angry/distressed people.

b. Crisis Response - This involves communicating with Cebu Pacific. This is due to the

late and unclear responses. The top two communication problems encountered by the frequent

fliers are (1) Late replies and (2) Ignored Questions. People expect feedback to be faster on the

internet. Consumers get annoyed when companies have a slow response time on the social

media.

c. Communication Behavior - The rapport between the airline and the clients is essential

in times of crisis. Customer positive experience is still a plus for the clients in times of crisis.

Cebu Pacific delivers (1) updates and (2) sufficient information during and after the crisis thus

making the page reliable for clients. This is the age of real-time marketing. It’s all about

responding and reacting to events as quickly as possible.

d. Framing in Organizations Theory - Framing in Organizations theory is used to

support this study where in the communication source, such as a news organization, defines and

constructs an issue or controversy. In the case of Cebu Pacific, they have been framing these

issues by trying to define delayed flights as something that is beyond their control referring to the

unanswered queries on their Facebook page as something that they do in order to protect their

clients’ privacy and diverting their clients’ attention through the Low Flight Fares which have

been constantly advertised on their page as observed by the researchers.

Despite all the complaints regarding delayed and cancellation of flights, they are still the

number one airline when it comes to low flight fare promos.

e. Consistency - Being consistent means achieving a level of performance that does not

vary over time. The customers’ satisfaction is in line with consistency of the brand. Therefore, it

can be said that if Cebu Pacific has managed to reach that level of great performance on social

media, they should maintain it. The researchers cogitate that if these four factors are achieved

and maintained, then Cebu Pacific can increase their number of likes and further sustain their

overall positive image and client support.

f. Lack of Ground Crew - Cebu Pacific experienced a lacking of ground crews. They

have 28 check in counters and 20 check in counters was reported open. A Multistream

Management is important in this aspect of problem because in Multistream, different forms of

well-being are maintained, such as employees, crew and staffs. Cebu Pacific was eventually able

to secure additional staff and to tap manpower service companies for additional workers. Some

of the carrier's international crew members were also assigned to domestic flights to alleviate the

employee shortage.

g. Sunset Limitation - It's when planes can't take off or land after dark because the

airport has no ILS installed. ILS Instrument Landing System (lighting arrays and radio signals

that help a plane land.) Sunset limitation means that an airport is incapable of night operations

due to lack of runway light.

h. Air Traffic Congestion - Air Traffic is the day-to-day problems faced by the air

traffic control system are primarily related to the volume of air traffic demand placed on the

system and weather. Several factors dictate the amount of traffic that can land at an airport in a

given amount of time. Each landing aircraft must touch down, slow, and exit the runway before

the next crosses the approach end of the runway. This process requires at least one and up to four

minutes for each aircraft.

III. General Conclusion

Cebu Pacific Managers must strive to work together with stakeholders in order to

enhance multiple forms of well-being for multiple stakeholders. They should make use of the

social media platforms such as Facebook, Youtube, Instagram or Twitter. Since these forms of

media are widely used, it will help on promoting and advertising the company. Cebu Pacific

understands its customers’ needs and adds more customer value.

Customers of Cebu Pacific get their value through online reservations, which are very

convenient to make, on-time departures and arrivals, and low promo fares. Value pricing is not

just about lowering prices of your product, but also about the customer value that the product

could offer/give that could satisfy your customer’s needs and wants. Customers measure the

value or benefit they will receive against the price they will pay for the product or service.

In terms of Multistream Management, they should always value their employees’ well-

being & dignity. They should value their suppliers all over the world. They should always give

the very best offers to their customers, who are their success. They must be sensitive to the

different types of well-being in the Company.

In terms of Mainstream Management, they have a marketing and financing department to

handle the profitability & competitiveness of Cebu Pacific Airlines. Money & materialism are

their best assets, they make sure that the standards, goals, & plans are met & even higher than

expected. I think the main reason of the Problems on Christmas Break was neglect and

carelessness of the management.

They shoukd have their staffs in attention in full time & responded quickly to the

thousands of customers with a hundredths of problems. I think that the given problem of Cebu

Pacific Airlines which is air traffic congestion, that caused hundredth of flights to delay, was just

a little portion of the main problem which I think is carelessness. Because if Airs traffic

congestion caused many flights to be delayed then the other airline, specifically Philippine

Airlines (PAL), had 16 delayed flights due to air traffic congestion.

Despite of all this happening, passengers of Cebu Pacific Airline, was still furious about

what happen. On December 27, right after many passenger had their Christmas in the airport,

Cebu Pacific Airline improved their situation with less delayed flights and less angry customers.

On the other side, the majority of the passengers of Cebu Pacific are very satisfied with

the preferred strategies of Cebu Pacific. On one hand, the good communication behavior aspects

that Cebu Pacific has attained are transparency, honesty, helpful, and good communication

relationship. In contrast, the aspects that Cebu Pacific has to improve on are efficiency,

dissemination of information, updates, quick responses, clarity, and timeliness.

Therefore, it can be said that if Cebu Pacific has successfully fulfilled their part in

replying to customers as quickly as possible, there would be an efficient rapport built connecting

them and their clients. Thus, this affirms that quick and concrete responses to queries on

Facebook help in building an efficient rapport between Cebu Pacific Air and their clients.

IV. ADDITIONAL INFORMATION

1. Strengths

Cebu Pacific was the biggest domestic carrier with more than 45% market share.

In 2014, Cebu Pacific ranked fifth in Asia in terms of an increase in total passengers

carried.

Cebu Pacific offers a truly Filipino culture of hospitality by ensuring its passengers

enjoy their flight.

Cebu Pacific offers low-cost air travel both in domestic and international flights.

Pioneered Low Fare

Provides new air crafts, technologies, and equipment

Partnership with different organizations

User friendly web sites

Increasing number of investors

2. Weaknesses

Cebu Pacific has implemented a counteroffensive only now, when confronted with

problems and loss of its position in the air travel market.

Cebu Pacific has established international destination only in Asia.

Cebu Pacific’s air travel cost is increasing.

3. Opportunities

There are an increasing number of passengers in both domestic and international flights

that can be beneficial to the company.

Customers measure the value or benefit they will receive against the price they will pay

for the product or service.

Airlines are already accepted in the market.

Improvement of Tourist Destinations

Increasing number of internet users

Rising number of foreign students and visitors

Business Globalization

4. Threats

Their competitors are already established and known in the market.

Their competitor follows their low pricing strategy, especially in vacation period.

Economic Instability

Terrorism

Oil Price Instability

Competition within key Destination

EU Blacklist

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Case Outline

I. Cebu Pacific ProfileA. History B. Background

1. Board of Directors

2. Services & Facilities

3. Fleet

II. BodyA. Introduction B. Reported Problems during Christmas Break ‘14C. Cebu Pacific Management Official Statements (Interview)

D. Recommendation

III. General Conclusion

IV. ADDITIONAL INFORMATION1. Strengths2. Weaknesses3. Opportunities4. Threats