Cebu Pacific A Time For Change Management Essay

The airline Cebu Pacific Air (CEB) has been flying since March 1996 (Cebu Pacific Air 2010). It has experienced ups and downs when two of its fleets crashed, killing hundreds of people (Balatucan c. 2010). Yet despite the tragic incidents, CEB was able to rise and salvage its reputation, bringing it in as one of Southeast Asia’s most dominant airlines (Krinks 2002). Its status grew, giving it the license to have international flights through in the world. Cebu Pacific Air is especially well-known in Singapore, as one of the leading airlines who has flights nearly everyday in Singapore. Yet due to the economic crisis that is felt globally, CEB is letting go a portion of its loyal employees. Though it is painful for the company to do so, such measures are out of the management’s hands as the wave of financial turmoil crash stronger and stronger daily. This is the perfect time for the company to regroup, so that Cebu Pacific Air could emerge as a stronger, better, and a safer airline which will be known throughout the world in the years to come. If the company will be able to rethink its management style, in particularly, people management, then more profit would be generated for the airline, and the company will be able to afford its lavish number of employees as well.

1 – Introduction

According to Manila Bulletin Publishing Corp. (2008), Cebu Pacific Air contributed 45% of the total domestic passenger traffic by carrying 2.57 million passengers in a span of six months in 2008 (from January to June). This means that in 2008, the company was able to generate lots of income and was a great donor to the Philippines’ annual revenue.

Yet despite this, the economic crisis has not been kind to the company. Some employees had to be let go in order to adapt and give way for a better regrouping that will give Cebu Pacific Air a better leverage in the airline industry.

Main competitor Philippine Airlines already bowed out of the race by having to retrench a lot of it people. Yet Air Philippines, a Philippine Airlines affiliate, was rumored to be headhunting the market for a Quality Assurance Director.

Right now Cebu Pacific Air is also in need of a Quality Assurance Director to oversea the whole production and process of Cebu Pacific. What the company has now is Mr. Jose F. Buenaventura who directly reports to the Director, President and CEO of Cebu Pacific, Lance Gokongwei. Having a Quality Assurance Director will have its many advantages, therefore bringing the Cebu Pacific revenue higher than it has ever been.

With the February 2, 1998 crash of Flight 387 which took 104 lives, and the May 3, 2006, Flight 393 crash which delayed flights in a local airport because of a failed aircraft part, Quality Assurance is not a question of want, but a necessity. It is important that the company changes its management style and employ a superbly qualified Quality Assurance director to ensure that future flights of Cebu Pacific will not suffer the same fate as the two flights mentioned above.

2010 has been a good year so far, by enabling the company to meet its 40 million passengers in the 999 pesos ‘Go Lite’ Seat. Having met this milestone, the company will be able to proceed with more important and valuable projects which will increase the income of the airline.

Despite the obvious growth of Cebu Pacific Air in the current years, expenses are mounting up, and these turbulent times globally should be taken advantage of. Cebu Pacific should sit back and regroup, taking its biggest and best thinkers into a room to determine the best course of action that will propel the company even higher than its standing today. The author believes that once Cebu Pacific changed its management style and employed the right Quality Assurance Director, more revenue will enter the company’s portfolio. With proper planning, and correct execution of plans, Cebu Pacific could well be a household name in terms of flying, abolishing all traces of competitor’s greatness forever.

2 – Background of the Company

Cebu Pacific Air would cease to exist as it is known today without the efforts of John Gokongwei, who is the founder of this noble airline. He stared selling textiles and corn, created textile miles and explored food manufacturing before directly competing with San Miguel, one of the premier brands in the Philippines. Gokongwei continued to amass wealth by building shopping malls, hotels, compounds, real estate, among many others. His major companies include Digitel Corporation, Apo Cement, and Cebu Pacific Air (Krinks 2002).

Cebu Pacific Air first graced the skies on March 1996. The company calls its clients as “Juans”, which is a typical Filipino name with affiliations to the poor. Because the company aims to give “low fare, great value” (Cebu Pacific Air 2010), the word Juan is very symbolic in terms of giving the medium and average families the chance to fly and visit places. This dream is made possible by Cebu Pacific as it offers the lowest prices on the market.

CEB started its operations by offering clients to fly domestically in cheap prices. After the initial success, the company was able to fly internationally on November 2001. Now, nine years later, Cebu Pacific is given the license to land in Bangkok, Kota Kinabalu, Kuala Lumpur, Jakarta, Macau, Seoul, Shanghai, Taipei, Singapore, Bangkok and other hot spots across Asia (ibid). It enables every Juan who boards its planes to explore the countries near the Philippines, and to enjoy their stay with the affordable prices.

Cebu Pacific Air also boasts to be very safe and reliable, considering its recent re-fleeting program which brought about twenty-nine new planes. These 10 A319 and 11 A320 Airbus planes and 8 ATR 72-500 aircrafts (ibid) gives Cebu Pacific the right to say that it has the youngest fleet in Southeast Asia. Having younger planes gave the airline passengers a sense of security that since the planes are never overhauled, repaired, and manipulated in any way, and the maintenance of the fleet is routine, then their safety will not be compromised despite the low fare.

Not only is Cebu Pacific the leader when it comes to low fares, it is also the torchbearer of technology in terms of aviation in the Philippines. It is the first local airline to use e-ticketing (made popular by the American Airlines), ‘prepaid excess baggage and seat selection in the Philippines’ (ibid). Unlike other domestic airlines, Cebu Pacific not only provides magazines in flight (the magazine is called Smile), but also provides board games and other forms of entertainment, otherwise known as Fun Flights (ibid).

Lastly, not only does Cebu Pacific provide low fares that will give peace of mind and assurance to consumers, but it also provides the travelers with a from plane-to bed service after having tied up with destination hotels, travel insurance, entertainment ticketing, travel agencies, travel insurance, and other travel necessities. The Juans could simply board the plane, and upon arrival, ride the rental car arranged for them by the company. Last February 2010, the on-time performance of Cebu Pacific reached 92.5% (ibid), and the company is aiming to raise this to a hundred. With the smooth travels, reliability, and enjoyable flights, it is no wonder that Cebu Pacific is the best choice for air transport in Southeast Asia.

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3 – Literature Review

Though there are many management styles, Cebu Pacific employs ‘people-friendly but firm in the discipline and order area’ (Manila Bulletin Publishing Corp. 2010). Before the author discusses this particular style, a literature review of workplace related concept would be given to establish the importance of the author’s proposed management method to be given later on.

3.1 Air transport in the Philippines

Krinks (2002) points out that the air transport was only accessible to citizens with a high social standing, the elites, the famous, tourists, and businesspeople whose travel expenses are being shouldered by their companies. Majority of Filipinos can only dream of flying and visiting foreign places, since to ride an airplane before is synonymous to having a lavish lifestyle. This was before Cebu Pacific came in.

Philippine Airlines, the first airline in the Philippines, has dominated the air transport industry in the Philippines for more than five decades. It was first obtained by the Philippine government in 1948, was bought by a private institution in 1965, and was re-taken by the government in 1977. This was when the former President Ferdinand Marcos issued a decree saying that PAL should be the sole domestic carrier (Krinks 2002) in the Philippines. When former President Marcos was ousted, President Corazon Aquino then started turning Philippine Airlines as a private company. By 1993, Lucio Tan was the major stockholder, and from then on, Philippine Airlines enjoyed the privilege of dominating the Philippine skies without competitors.

By 1995, former President Ramos re-build two airports in the Philippines and made their sizes to be globally competitive. The Manila and Mactan (in Cebu) airports were the major airstrips in the country, and Ramos urged competitors to take advantage of the five new airports with international flights.

By 1996, Cebu Pacific entered the picture by giving the lowest rates possible without incurring loses for the company. PAL’s maket share fell a whooping 65%, and it continued to decline by losing billions of pesos from that year onwards. By 2000, PAL was indebt to an amount totaling to $2.2 billion, and Cebu Pacific was being embraced by the Filipinos.

The air transport industry is currently being shared by Cebu Pacific Air, Grand Air, Air Philippines, Philippine Airlines, Asia Spirit, and Corporate Air (ibid).

Along with the opening of NAIA 3 came the opportunity for Cebu Pacific to display to its counterparts that it is a force to be reckoned with. When the third Ninoy Aquino International Airport was opened in Villamor, Pasay City, Cebu Pacific was the one who first launched a flight in the airport (Manila Bulletin Publishing Corp. 2010). Airport General Manager Alfonso Cusi for NAIA 3 said that the airport had an agreement with CEB that the airline will fully utilized the terminal for their regional flights (ibid).

4 – Proposed Workplace Relations Approach

Cebu Pacific’s laidback friendly approach to its employees are working and motivating people, but the lax in discipline and respect could be further improved. A domineering or autocratic style of management could work as well, but according to Thomas (1997), this type of leadership could fail at one point or another. But since Cebu Pacific needs to regroup and to change its system in order to earn more revenue, it is time for the airline to think about its workplace relations approach.

An organization requires the utilization of a complex array of resources to grow, survive and achieve the ultimate mission or objectives that informed its existence or creation. The mobilization and deployment of these resources – human, financial and material – in the right resource-mix, gives the organization leverage toward the desired end. Of these resources, the human resource is the most potent and central, contributing significantly to corporate bottom line and competitiveness.

The organization therefore gains sustained competitive advantage through people, the organization workforce. Competitive advantage is simply defined as anything that gives an organization an edge over the competitors in its market.

According to Porter (1985), the unique talents among employees, including flexibility, innovation, superior performance, high productivity and personal customer service are ways employees provide a critical ingredient in developing a firm’s competitive position. Similarly, Chiavenato (2001) notes that employees are purveyors of activities and knowledge whose most important contributions in the organization are their intelligence and individual talents.

There is agrowing consensus that effective management of human capital is critical to an organization’s success (Barney & Wright, 1998; Jackson, Hitt & DeNisi, 2003; Akhtar, Ding & Ge, 2008).

Managing the human resources in the organization is the traditional responsibility of the personnel manager, a precursor to human resource management (HRM). Some scholars however equate HRM with personnel management, concerned with providing staff support in the organization (e.g. Guest, 1989).

Other scholars consider HRM as a natural development of personnel management practices in the face of changing economic and business environment (Armstrong, 1989 & 2004; and Fajana, 2002). The people-management discipline is undergoing continuous metamorphosis, with the recent emergence of strategic human resource management (SHRM) in organization and management literature.

In a recent review covering 30 years, Lengnick-Hall, Lengnick-Hall, Andrade & Drake (2009) present an evolutionary and chronological perspective on the development of SHRM. The authors identify the following seven themes which influenced the development of the field of SHRM: (1) explaining contingency perspective and fit, (2) shifting from a focus on managing people to creating strategic contributions, (3) elaborating HR system components and structure, (4) expanding the scope of SHRM, (5) achieving HR implementation and execution, (6) measuring outcomes of SHRM, and (7) evaluating methodological issues. SHRM is evolving as a new approach to the management of people, and specifically focusing on integrating the human capital to business strategy to enhance organizational competitiveness.

According to Aswathappa (2004:39), “the advent of SHRM has brought forward the issues of linkages between the employer-employee relationships and wider organizational strategies and corporate objectives”.

4.1 Outsourcing

How would one be able to increase revenue yet save money at the same time? Rival Philippine Airlines has already resorted to outsourcing. Yet Somani (2005) argues that there are many problems in outsourcing, in terms of ‘miscommunication-misunderstandings that are the result of misinterpreted content, tone or word choice-as it relates to people management’. This is a problem since by outsourcing, the company is obliged to employ people who speak different languages with no upbringing of the Cebu Pacific culture. They will not be the fun, committed individuals who have served the Juans of Cebu Pacific through the years.

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Somani (2005) gives a portrait of outsourcing which could easily happen should the company decide to outsource its services: an outsourced project team member mistook a debt of £95 million as credit, and created a report saying as such. The company then included the £95 million to the already overextended credit line. Needless to say, instead of saving money by outsourcing, it only made them lose £95 million more.

Cebu Pacific aims to bring people together to have an enjoyable flight through affordable means and the staff’s willingness and eagerness to serve with a true heart (Cebu Pacific 2010). If the backbone of the operation (i.e., the ground operation, the ticketing staff, the check in counter people) were being outsourced to other nations, then this soul for service that Cebu Pacific is known for would be changed. The airline would only be another airline who wishes to increase money.

4.2 Solution

Berman, E.M, West, J.P., and Richter, M. Jr. (2002) says that the workplace friendships and relations encouraged by a company derives from ‘mutual trust, commitment, reciprocal liking and shared interests or values’. These behaviors are present in CEB employees as they mingle and explore new challenges as led to them by team leaders.

QM has been adopted widely by most organizations. Previous research has suggested that successful quality management requires a series of people management practices such as training, development, and empowerment. Despite ample findings on the impact of QM on organizational and individual performance, less attention has been paid to employee’s actual behavior during the implementation of people management practices. The present study, therefore, contributes to the literature by going beyond the employee’s perception and reaction toward QM implementation and identifying employee’s potential behavior when implementing QM.

Yet when it comes to disciplining, this friendly approach could prove to be fatal. Managers might make wrong decisions because their view is not objective and forming personal friendships with the people they are in charge of could cause complications and conflict of interests in the future.

A way to avoid such is to get the assistance of an outstanding Quality Assurance Director. There would be three organizational heads which will help the company: a Quality Assurance Director, an Operations Director, and a Management Director. The most promising would rise to the title of Overall Director, and would report directly to the current heads Mr. Jose Buenaventura, and CEO of Cebu Pacific Lance Gokongwei.

Having this additional structure in place would give the directors more focus on their tasks in their department: for human resource management, operations, and quality assurance. Once these three aspects are strengthened and formed, then the rest of the organization would follow.

This is the proposed structure for Cebu Pacific:

Director, CEO and President

Board of

Directors

Overall

Director

Senior

Consultants

Executive

Officers

Figure 1.1 Proposed Structure for Cebu Pacific

The current structure of Cebu Pacific is as follows:

Figure 1.2 Current structure of Cebu Pacific

As one can see, having the Board of directors in the same level as the senior consultants, executive officers, and the overall director would prove to be beneficial since the company’s top people are closely working together. There would be no discrepancy in positions, as there would be different functions for each person.

4.3 Management Approach

After implementing the proposed structure for Cebu Pacific (Figure 1.1), then the company’s management approach should be changed as well. The informal, friendly atmosphere must be changed. The managers must be more diligent in imposing the rules, yet be flexible enough to the changes. The managers will cease to be lenient with their teams, and push each team member to produce more results and more revenue for the company. Watching movies while working in their desktop computers, having four break-times in an eight-hour work day, and games in desktop computers would all be removed. There would only be three break times in an eight-hour work day: at 10:00 to10:15 in the morning, 12:00 to 1:00 PM for the lunch break, and a 3:00 to 3:15 PM break. This will maximize the potential of employees and remove those who are skiving off work.

While people management practices involve extensive communication, employee participation, and teamwork, it is expected those practices would facilitate individual’s pro-social values motive. In addition, Nair (2006) suggests that QM is now most widely accepted organizational goal and is believed to be essential for effective management and competitive survival of organizations. This organizational-wide consensus with respect to QM as organizational goal and QM as a means of competitive survival may lead to the increasing in individual’s desire to help the organization even when they need to do more than their job descriptions stated. In sum, if people management practices are heavily emphasized in QM implementation, it is expected to motivate both organizational concern and pro-social values motives of organizational citizenship behavior.

There are employees who were caught watching movies while working, with their Windows Media Player minimized. There are also those who are spending the office hours by playing Solitaire and other games that were initially installed in all desktops. It would then be implemented that all computer programs and softwares that are not work related would be uninstalled, and employees will no longer have the access to install programs. Each program from an anti-virus to Auto CAD for the engineering department and Adobe softwares for the marketing team would need to be installed by the IT department. Instant messaging systems such as Yahoo! Messenger, Skype, and others would be removed as well. In its place would be the intranet which would have the same function, the only difference is that only colleagues and co-workers would be able to talk to the employees, and there would be no distraction and other impediments that are hindering the productivity of a team to flourish.

5 – Basis for critical success factors

The author strongly believes that changing the organizational structure of Cebu Pacific and installing powerful and over-qualified people in the positions of Overall Director, Quality Assurance Director, Managing Director, and Managing Director could prove to be beneficial for the company. There would be a clear distinction of tasks and responsibilities. Unlike to what the company has now wherein there are different vice presidents per sector under the Executive Officers, there are areas that are forgone and are ignored, such as Quality Assurance, which is a crucial part of an airline.

Having no Quality Assurance director in place means that Cebu Pacific is compromising the lives of its millions of passengers since there are no routinely assured processes that would indicate that a plane is safe for flying. Though Cebu Pacific Air’s fleet is young and robust, this will not be the same in five to ten years time. A fleet would have to be maintained rigorously and each decision should conform to the manuals of FAA and other aviation regulators.

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Changing the management habits of higher ups would also prove to be of valuable contribution to the company. The employees look up to their division managers, section managers, and team leaders to set an example. If the manager is always leaving his or her place to smoke, or is caught doing things that are not work related, then the morale of the team would fall and all efforts would be ineffective. It is important that the management be able to invoke respect and awe in the members to make the most out of their potential and to maximize their talents. If a leader is lenient with no concern for the company, then the team it is managing as well would feel the same way.

Knowledge, competence, and related intangibles have emerged as the key drivers of competitive advantage in developed nations. This is not just because of the importance of knowledge itself, but because of the rapid expansion of goods and factor markets, leaving intangible assets as the main basis of competitive differentiation in many sectors.

There is implicit recognition of this in both management theory and practice with the growing emphasis being placed on the importance of intangible assets, reputation, customer loyalty, and technological know-how. By using a good structure like learning organization we will have organizational structure that have the ability to support the Intellectual capital in today’s market. So today’s organizations should try to use this paradigm (learning organizations) to be competitive.

Also because our contemporary organizations may differ from the traditional organizations and so we should implement new skills to be learning organization so that our staff can adjust themselves with new technologies. Also can sense the weak signals in the environment and can reply the prosper answer to them. In this situation our managers and executives and CEOs can effectively manage the Intellectual Capital in the organization.

Successful managers as well as businesses have been overseeing intellectual capital one way or another right from the start, whether deliberately or intuitively. This though, does not denote that they have an Intellectual Capital Model (ICM) program or strategy. Overseeing intellectual capital as a topic of common business sense is not adequate for the expansion of intellectual capital model like an organizational capability.

It is simply when a management style shifts from being instinctively applied to a planned and systemized development that it can be completed. Only then can it be significantly altered from being an art developing into a science. Once it evolves into a science, it turn out to be testable, measurable, more predictable, furthermore, most importantly, repeatable. Even if organizations that pertain intellectual capital model progress this goal, there is, nonetheless, a long road of experimentation along with applied research ahead for the up-and-coming area of intellectual capital model to develop into more of a “science.” (ICM, 2009)

6 – Conclusion

The Cebu Pacific legacy as the country’s low-fare pioneer when it comes to air transport continues to this very day. Two years ago Cebu Pacific contributed 45% of the air traffic in the Philippines by carrying 2.57 million passengers in six months time (Manila Bulletin Corp. 2010). This legacy should be protected, so that it would continue to transcend for future generations to come.

Given that Cebu Pacific’s management style is people-friendly, there are those employees who are taking advantage of the lenient management of their team leaders, section managers, and division managers. It is time to put a stop to that. Personal relationships should between higher ups and employees should be avoided in order to ensure that the manager’s decisions for the team’s welfare would not be compromised because of personal reasons. It is also important that the managers learn how to be firm and demanding, to push their team members to produce more output rather than letting them go at the pace that they want. A team without a clear direction is eating at the funds set by the company for development. It is important that managers be able to adapt and learn how to be rigorous in leading their people.

The author proposed that at least initially, the following changes should be made in the staff-manager ratio: lesser breaks, removal of not work related computer programs, and removal of instant messaging systems which would be replaced by an intranet for the company. These changes are small and gradual, yet they would have a positive effect on employees. If the staff members logs in to their computer and there is nothing there but work related stuff, then there would be less distraction and the employees would be able to function to the best of their abilities. Having lesser breaks removes the chances of employees asking for overtime pay for leaving their cubicles during working hours to do personal chores and to return after the 5:30 end of shift to file for overtime to compensate for the hours they lost.

The author also suggested that the organizational structure of Cebu Pacific be changed in order to meet the demands of this technologically advancing world. Outsourcing is not an option since this could only mean more money spent because of miscommunication. The best way is to restructure the management in terms of putting emphasis in Quality. Having an emphasis on quality will ensure that future plane crashes would be avoided, equipment malfunction would be minimized, and the Juans would have peace of mind when flying with Cebu Pacific.

The goal of Cebu Pacific as Southeast Asia’s cheapest fare provider is to give every Juan a chance to fly and explore new worlds by traveling. Having directors in place with specific functions would be vital for the company since Cebu Pacific would be able to focus on having good quality without compromising safety.

With proper management, a good structure, and more dedicated people, Cebu Pacific Air would go miles it has never been to before. There would be savings in terms of not having to pay more overtime fees for those who are not deserving, and savings for big replacements which would be avoided by routine checks. With all these changes, Cebu Pacific would be able to give every Juan the chance to relieve a dream: to fly in the skies without worrying for their safety, and the bills they are leaving behind. Now they can fly cheaply, safely, and with no worries – since the management has dedicated its time to ensuring their safety in terms of Quality Assurance.

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