COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

Teaching Notes
CASA Clips Tiger’s Wings

Case Summary Tiger Airways Australia was grounded for five weeks due to a series of unsafe landings between May and June 2011. This happened despite a warning from Australia’s regulatory authority, Civil Aviation Safety Authority (CASA), on 24 May regarding Tiger’s safety issues. To make matters worse, the media’s investigation into this matter slowly revealed that Tiger had been experiencing a slew of customer complaints regarding frequent cancellations and delays, which hinted at a poor communications and corporate strategy. Now that Tiger’s flights have fully resumed, the new CEO, Chin Yau Seng, faces the difficult task of convincing the public that Tiger Airways can be trusted again. Main Problem Tiger Airways was never really in the good books of their stakeholders. Share prices were falling consistently since its inception, employees did not receive their wages on occasion and despite their low budget fares, consumers were dissatisfied with their service and lack of two-way communication. The grounding of its flights only aggravated matters— share prices were taking a plunge, some employees were redeployed to other bases or put out of a job in an instant and consumers were left in the lurch when Tiger’s customer hotlines were left ringing with their burning questions unanswered. In a nutshell, there was already a lot of unspoken tension between Tiger and its stakeholders, and the grounding saga only served to bring stakeholder dissatisfaction and grievances to the fore. While most cases have a clear-cut reputational risk in terms of reputation-reality gap, weak internal coordination or changing beliefs and expectations, this case is more than just one-dimensional in its problem definition. The problem presented at the end of this case shows Tiger’s weak internal coordination as well as their ineffective corporate strategy. While the grounding of the planes was due to a failure in corporate strategy, the unhappiness experienced by their stakeholders was no doubt due to weak internal coordination. Similar to the Wal-Mart case study, Tiger failed in their corporate strategy because the budget carrier was too focused on its cost-cutting measures that it neglected the welfare of their employees and their flights’ safety. The company’s weak internal communication was also highly apparent in the way they handled communications with their stakeholders. Tiger had a seemingly non-existent communication strategy, much like that of Sherman McCoy in Bonfire of the Vanities. On the rare occasions that the company deigned to communicate, their communication strategy proved to be weak. Therefore, the main reason for Tiger’s five-week grounding can be attributed to a failure of corporate strategy but the fact that the company’s communication strategy

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

was flimsy served to worsen their reputation with stakeholders. The failure of these two strategies has led to a dip in public confidence. With a two-dimensional problem such as this, a two-pronged approach would be required by the company to deal with the crisis effectively and ensure results in the long term. Key Stakeholders Various stakeholders have a vested interest in Tiger Airways grounding as well as the aftermath. From most affected to the least: 1. Consumers Due to the grounding, many consumers were affected as their flights were cancelled and they had to search for alternative flights on other airlines. The safety concerns leading to the grounding also raised consumer doubts about Tiger Airway’s reputation as a safe budget airline. Both events have caused consumers to lose confidence in Tiger Airways as a trusted airline that provides safe and cheap flights. Australian consumers now prefer to fly on higher-priced airlines like RyanAir, favouring safety over price. 2. Employees of Tiger Airways Australia Employees greatly affected by the grounding were the crew based at the Avalon Airport and the Adelaide airport as they lost their jobs due to the closure. Tiger Airways was also inefficient in compensating them for the losses, which intensified the media spotlight on Tiger. With all the negative publicity surrounding Tiger Airways, the morale of the remaining employees might be affected and doubts about job security may arise due to Tiger Airways Australia’s bleak-looking prospects. 3. Investors The stockholders are also obviously very affected by Tiger Airways’ grounding and the aftermath with shares dropping immensely on the Stock Exchange. Suffering a huge loss from the grounding and lower flight occupancy due to consumer’s lack of confidence, earnings have slowed down and losses are being incurred instead. However, they do continue to hold some power as they are able to sell their stocks. As SIA holds majority of the shares, it would be unlikely that the company would sell off their shares as it would mean incurring a huge loss for them. 4. CASA CASA has the responsibility of making sure that Australia’s airline industry operates under safe conditions. Hence, they played a huge role in the grounding of Tiger Airways Australia as they identified safety concerns and conducted investigations regarding Tiger’s operations. Other than working closely with Tiger to ensure the safety of their flights, CASA was not really affected by the grounding. 5. Competitors Jetstar, Ryanair and Virgin Australia were affected by the grounding in a positive way as they jumped on the bandwagon when Tiger’s flights got by providing seats on their flights at a discounted fare. Coupled with the fact that Tiger’s reputation was not promising during that period, consumers switched to these other airlines for a safer budget flight alternatives, which in turn increased their sales. However, the grounding has put the entire Australian airline industry under scrutiny for possible unsafe flight operations, forcing them to maintain the best safety operations for consumers.

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

6. Media The media has fed off Tiger’s mishaps by delivering every single piece of news to the public sphere. They revealed different perspectives on the grounding, creating more tension and generating greater media spotlight on Tiger in the process. Tiger’s grounding was a perfect opportunity for creating news value. Given that the media has a lot of power in influencing the public’s opinions, Tiger should capitalize on the media coverage by updating the media about their future plans in light of the grounding. 7. SIA Being a world-class airline linked to Tiger’s currently bad reputation, SIA faced criticism as to why their good reputation did not rub off on Tiger Airways. However in this case, they are not largely affected by the situation and should not be paid much attention to. Critical Issues and Possible Solutions 1. Improving Tiger’s Communication Strategy i. Relationship with Consumers Tiger Airways did not seem to have a very good relationship with their consumers. For one, despite attempts to connect with them through social media sites like Facebook and Twitter, consumers were regularly complaining about the company on these sites. Instead of clarifying matters and executing a good customer relations strategy, Tiger deleted negative comments off their official Facebook page and remained silent for 72 hours after the grounding took place. Tiger also allowed an Australian television channel to air a program documenting all the negative and dismal areas of Tiger’s operations. All these actions (and more) only served to reduce consumer confidence and trust. With consumers being the driving force behind Tiger’s profitability, the company should focus on building goodwill and trust, and in light of the grounding, to also reassure them of their values of low cost and safety. Possible Solutions: A. Offer complimentary flights to affected consumers and make use of this opportunity to build good relations with them. Tiger can also turn this into an opportunity for positive media coverage showing the company’s sincerity in righting their wrongs. (Mortification) B. Encourage two-way communication between Tiger and its stakeholders. Start being more proactive in communicating with consumers and anticipate their grievances. Come up with a contingent communication strategy and how to deal with consumers to build goodwill and trust. C. Improve the customer hotline and reassure customers about their safety by hiring a third party to vouch for them (ingratiation strategy). ii. Relationship with Investors As soon as the grounding took place, Tiger’s SGX stock price plunged, showing a lack of confidence on the part of investors. Interesting to note was that share prices

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

continued to plummet even after Tiger resumed its flights. This would most probably be because airline capacity was still low due to consumer doubts about the airline’s safety. The only way investor’s confidence can be improved is by first gaining the support of consumers because they are the ones fuelling Tiger’s profitability. With a lack of consumer support, investor confidence will be equally weak as they would not see any growth prospects or returns from their investment. Hence, this problem can only be fixed over time and is dependent on Tiger’s ability to convince consumers of safety of their flights. It has to work on building strategic credibility in the long run. In the meantime, Tiger should provide a short-term solution to calm investors and convince them their investments will be worthwhile. Possible Solutions: A. Communicate to all shareholders about what exactly Tiger Airways is trying to do to gain consumer’s confidence and increase transparency, whether regarding Tiger’s financial losses or the real reason behind the grounding. Assure investors that Australia is a profitable region worth investing in and thank them for their loyalty to the company. B. Capitalize on SIA’s reputation to gain investor confidence. Inform investors that SIA holds majority of the shares in Tiger Airways and they still have confidence that Tiger Airways will be able to get back on its feet soon. As CYS is taking over as CEO, Tiger can capitalise on his reputation by mentioning that the company will be in good hands given that CYS is from SIA and has experience leading a world class airline. C. Focus on building consumer confidence and assume investor confidence will improve from there. In other words, maintain status quo and remain silent. iii. Relationship with Employees Being a budget carrier, low fares are of priority to Tiger. Just like Wal-Mart, this drive to attain lower and lower costs results in employee neglect. Pilots became overworked and underpaid, and employees were either offered redeployment to other bases or given redundancy packages during the period of the grounding. Some employees even threatened legal action against the company when Tiger did not make the payments required of them. Employees are no doubt an important group of stakeholders in any company, as can be seen from recent cases of worker strikes causing huge airlines such as Qantas to halt operations and experience significant losses. As a company already in the red, anymore losses resulting from employee mistakes or strikes will not bode well for the future prospects of Tiger, especially with it being a budget carrier. There is no other option for Tiger but to build up their relationship with their employees, and fast. Possible Solutions: A. Provide greater benefits to employees such as off-days for a flight lasting x number of days, to prevent employees form being overworked and making unnecessary and costly mistakes.

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

B. Improve employee welfare by providing channels for them to air their grievances and implement a two-way communication system where their problems or difficulties can be sorted out. C. Apologise for the inconvenience and mistakes made in the handling of the situation and assure the employees of the steps the company is taking to clean up the crisis. Engage employees’ help to build up the reputation and trust of the company by first treating them better and allowing them more channels to communicate with management. D. Thank remaining employees for their service to the company and ask for their help to get through the crisis together. Take the stand that the company is not financially strong and this is therefore their rationale for providing redundancy packages during the period of the grounding. 2. Improving Tiger’s Corporate Strategy Tiger Airways is a low-cost airline whose corporate strategy is centred on cost-cutting measures. The grounding, however, serves as a reminder of the importance of the airline’s safety. Tiger’s flawed corporate strategy could also be seen when they failed to take CASA’s show cause notice in May seriously, leading to the eventual grounding of their entire fleet. Although it can be said that Tiger’s reputation is derived from their low fares, it is the basic prerequisite for airlines to ensure safe operations. This is where they differ from Wal-mart, which has a similar ‘Everyday Low Price’ strategy. Improving their strategy would serve to improve Tiger’s reputation in the long run. Possible Solutions: A. Increased transparency of Tiger’s operations. Update stakeholders regularly with a list of actions that Tiger Airways will undertake in the following months to improve safety. B. Prepare a crisis communication plan that is updated regularly. C. Work with CASA to come up with safety regulation guidelines that complement Tiger’s low-cost strategy. Recommended Solutions and Actions Relationship with Consumers: It is in the best interest of the company to choose option B. Tiger should understand that two-way communication and dialogue is pertinent in establishing mutual trust and loyalty amongst consumers. Neglecting their social media feeds in their time of crisis resulted in a missed social media opportunity for the company. Tiger should have taken advantage of the instant communication provided by these social media outlets to convey important messages to consumers during the crisis, answer all their queries and allay concerns immediately. This would definitely reduce the frustrations felt by consumers arising from the silent approach employed by the company. A two-way communication strategy can also help the company gain understanding from the consumers, when the cause of the grounding and the steps taken to rectify the solution are clearly conveyed to the consumers. It would make Tiger seem more

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

transparent, and consumers would appreciate the honesty and openness as they are more assured, thereby increasing public confidence. Anticipating customer grievances and coming up with a contingent communication strategy will further allow the company to be quick and responsive in times of such PR crises, preventing the company’s reputation from falling in the eyes of consumers. Relationship with Investors: Our group decided that the best solution for Tiger is A. What investors want is transparency and this can only be achieved if Tiger communicates with all its shareholders regarding the reality of Tiger’s financial situation. This will allow them to reevaluate their investment decisions on a fair basis. At the same time, Tiger should pay special mention to what they are doing to help gain consumer confidence, so as to convince their investors that Tiger is making constructive efforts to either improve their profitability or mitigate their losses. By assuring investors that Australia is a profitable region, probably through statistics or market findings, investors can feel more at ease about the long term prospects of Tiger instead of just focusing on the short term losses they are currently making due to the grounding. By thanking them for their loyalty to the company, investors will feel appreciated for standing by Tiger through the hard times. What they can also do is to capitalize on the CEO credibility of Chin Yau Seng. As we know, CEOs have a demanding role of balancing national interests, regulatory regimes, environmental concerns, political, social, technological and commercial pressures – some of which are often in conflict with each other. As he is from SIA, a very reputable airline, Tiger can leverage on his reputation and reassure investors that Tiger will be in safe hands if they choose to stay. By taking the two actions above, Tiger can improve strategic credibility by increasing CEO credibility as well as encouraging a more open way of communication to investors (refer to IR model). This will make shareholders happoer and improve relations with them. Thus, such actions will attract the right kind of investors to will help to stabilize Tiger’s share price. Relationship with Employees: Option C is the best choice as it recognises the importance of employees as a resource in building up the company’s reputation in this crisis period. To do so, however, Tiger has to first ensure that they have a good and open relationship with their employees, built around trust. As mentioned, relationships with employeees can be improved by taking steps to apologise for the mistakes made and the inconvenience the company’s actions have brought upon the employees. The company can further show their sincerity in making amends by putting in place certain channels to allow two-way communication with the management. Similar to building up relationship with consumers, a two-way dialogue is important in this case as it allows employees to feel valued and derive a greater sense of job satisfaction when they given a ‘voice’ and are allowed to air their grievances. Fewer costly mistakes will be made as the employees will now feel like they are part of a team, and it would be easier to engage the help of this stakeholder group when crisis hits.

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

Certain examples of two-way channels include weekly or bi-monthly meetings where employees meet with their superiors to talk about frustrations or problems they may be facing in their job, and the possible solutions to the problem. Basically, it would be a channel to allow employees to express themselves, and to give them a chance to be heard. These channels would not prove to be very costly (it may even come at no expense!) and it would help build up loyalty and satisfaction among employees, who would be more willing to help the company when crisis hits. In the long run, Tiger will eventually gain a reputation for treating its employees well, gaining an important ally for difficult times. Building up Tiger’s Corporate Strategy Tiger Airways should choose Option C. By involving CASA in formulating its safety guidelines, Tiger will be able to leverage on CASA’s favourable reputation while also displaying their willingness in taking action to improve the safety of their operations. Consumers will hence be able to place more trust in Tiger because of their commitment to the consumers’ safety. As mentioned earlier, Tiger is faced with a situation where their business model is centred on low costs but they face the need to improve safety of their operations. If they were to ensure safe operations, these efforts might increase costs and eventually their fare prices, thereby affecting their core competency as a budget airline. By working with CASA, Tiger will be able to have a set of guidelines that is specifically catered to such a business model, with the assurance that their costs will not increase significantly. Additionally, Tiger can also consider cooperating with CASA to ensure that all their competitors in the industry are subject to the same requirements in order to prevent the loss of this competitive edge. This strategic move will eventually gain a reputation for Tiger as an airline that has set a new golden standard for budget airlines’ safety, increasing Tiger’s reliability and credibility.

COMM340: Managing Corporate Reputation

Prepared for Professor Michael Netzley

Additional Teaching Materials  Timeline of events
1 July 2011 4 July 2011 6 July 2011 - CASA suspends Tiger Airways domestic services until 9 July due to safety concerns - Appointment of Mr Chin Yau Seng as Acting Executive Director - Appointment of Mr J Y Pillay as Independent Director - CASA seeks to extend suspension of flights till 1 August - Tiger Airways refund fares to passengers holding reservations between 6 August to 31 August - Announced that CEO of Tiger Airways Australia, Crawford Rix, will leave airline on 31 July and Tony Davis will take over. - CASA appeals to extend suspension till 1 August. Hearing of application has been fixed on 22 July - Appointment of Captain Chris Manning as Safety Advisor - Adjournment of hearing from 22 July to 28 July - Adjournment of hearing from 28 July to 1 August - Refund of passengers travelling between 1-4 August - Adjournment of hearing from 1 July to 3 August - Adjournment of hearing from 3 August to 5 August - Adjournment of hearing from 5 August to 11 August - Reinstatement of Tiger Airways Australia - Ticket sales will commence on 12 August

8 July 2011 19 July 2011 22 July 2011 28 July 2011 1 Aug 2011 3 Aug 2011 5 Aug 2011 10 Aug 2011

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