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Grounding Did Corporate Governance Fail at Swissair Case Solution

Solution Id Length Case Author Case Publisher
1312 934 Words (4 Pages) Ulrich Steger, Helga Krapf IMD : IMD214
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Swissair was one of the legendary symbols of the Swiss economy and in 2001, the airline suspended all flights leaving thousands of passengers stranded across the globe. The primary reason for this suspension was liquidity issues the airline was facing and could no longer control. In addition to this, a blame game erupted with the corporate governance structure being questioned and pointed fingers at. The problem was that the cause of the issue was not being identified, rather strategic alliances, poor financial controls and national politics were looked into and the CEO’s ambitious plans were also being questioned.

Following questions are answered in this case study solution

  1. Problem Identification

  2. Analysis 

  3. Strategic Alternatives

  4. Recommended Action Plan

Case Analysis for Grounding Did Corporate Governance Fail at Swissair

Analysis

The aviation industry was facing several changes in lieu with the increasing demand. New low-cost airlines were entering the market and several mergers and acquisitions were taking place. Global airline alliances were also springing up. Swissair ran the risk of becoming a regional airline if it did not manage to remain globally competitive. The management then decided to enter into an aggressive acquisition strategy. The airline then also restructured to what was called SAirGroup. The board structure was also relatively weak with newly appointed board members advised not to ask questions in the first two years. Moreover, the board members were the who's who of Switzerland that was another drawback as the elite industrialists and bankers were running an airline without prior knowledge or experience in the aviation industry. The international management strategy with the induction of the new CEO of American Airlines was also questionable where he controlled the flow of information to the board. The hunter strategy was also widely unpopular with many investments being made into poor performing airlines. Cost controls were another issue that had to be taken into consideration given the rise in fuel prices. Coupled together, this resulted in many stakes that resulted in failures such as LTU, Sabena, etc. This eventually translated into losses for the SAirGroup.

Strategic Alternatives

Board of Directors Selection

One strategic alternative for Swissair was to re-elect its board members and focus on aviation industry specialists rather than the elite group from the Swiss economy. This was necessary as the decisions would have been made based on the market situation and trends that were apparent in the industry at that time.

  • Pros: The pros of this alternative would be that the decision making with regards to cost control, strategic alliances and mergers or acquisitions would be made based on extensive market research and experience. The chances of strategies succeeding would be higher in this case.

  • Cons: The airline had been highly interconnected with the national politics and the economy of Switzerland since its inception and a restructuring of the board would have led to the fall of these important relationships that had been developed in the past.

Alliance Strategy

The airline’s alliance strategy was a major disaster with investments being made in several airlines that had shown issues regarding losses, poor management, etc. The focus should have been on joining an airline alliance where big players such as Delta and Air France were present.

  • Pros: This would have resulted in increased traffic and revenue per mile for the airline, cost savings, increased brand equity and an improved image of the airline in the European region.

  • Cons: The negative aspect of joining a larger alliance would have been that the airline would have to give up on several routes and instead run those on code sharing terms.

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