CLIFF

LIN

Marketing Professional


Performance Management for Air Canada

December 31, 2013Cliff Lin

LAPTOP CONSULTING GROUP
3758 – 282 Street • Vancouver, B.C., Canada • V3L 8R6
Tel: 604-253-3904 • Fax: 604-253-3900

August 10, 2010

Calin Rovinescu
President and Chief Executive Officer
Air Canada Inc.
7373 Cote-Vertu Boulevard West
Saint-Laurent, Quebec
Canada

Dear Mr. Rovinescu:

SUBJECT: REPORT ON AIR CANADA INC. PERFORMANCE MANAGEMENT

Here is the report you requested May 18, 2010 concerning Air Canada’s organizational capabilities and performance issues. The report, “Analysis of Air Canada Inc. Performance Management,” uses a number of academic, business and popular secondary sources to analyze the subject.

Although Air Canada Inc. currently maintains the leading position as the largest airline in Canada, the evidence gathered indicates that the issues concerning the organization’s compensation do not honour their company’s values of all employees. Furthermore, scheduling and job design has been a continuous concern for not only the employee’s work-life balance, but affects the company’s overall service quality. In light of growing employee dissatisfaction and financial difficulties regarding this issue, a new pay-for-performance evaluation, flexible work schedule, and top management involvement is recommended. These recommendations can help improve employee performance by providing them with direct feedback from their client’s experience from the point of check-in to baggage claim at the destination. As well, encouraging top management involvement in the implementation process is vital, particularly in terms of following up with immediate supervisor’s evaluation of employees and ensuring clients are provided with the best customer service through direct observation.

If you have any questions or require additional information, please contact me at 604-253-3090 or ckl@ltcg.com. I would be happy, at your request, to help implement any of the recommendations in the report by developing a compensatory transition plan.

Sincerely,

Cliff Lin
Senior Partner

Enclosure

Executive Summary

Many issues had surrounded Air Canada Inc.’s employee compensation system, and financial difficulties for the past 20 years. The organization that is constantly withstanding shock from the recession and unions, is concerned about the potential impact of employee dissatisfaction on its performance quality. As such, the purposes of this report are to (1) provide positive aspects of the organization’s performance management, (2) analyze the reasons for employee performance discrepancies, and (3) determine if making changes to the performance evaluation and involving top management involvement is in your best interest.

Although Air Canada Inc. currently maintains the leading position as the largest airline in Canada, the evidence gathered indicates that the issues concerning the organization’s compensation do not honour their company’s values of all employees. Moreover, poor scheduling and job design has resulted in higher demands for employee’s work-life balance and thus, motivation and performance suffers when these concerns are not heard.

In light of growing employee dissatisfaction and financial difficulties regarding this issue, a new pay-for-performance evaluation, flexible work schedule, and top management involvement is recommended. These incremental changes can help the organization realistically meet their core values by obtaining top management support and their commitment to uphold these recommendations. The transformation will enhance your company’s public image as truly ‘an employer of choice,’ and in turn, motivate your employee’s to perform at their potential and boost the organization’s service quality.

Introduction

For many years Air Canada Inc. has tried to defend their reputation as being one of the worst airlines in terms of customer service. They have made many attempts in implementing better compensation, benefit, and training programs to enhance their service quality. However, they have not made the efforts to better improve their employees’ motivation and performance.

Through an in-depth analysis of Air Canada Inc.’s human resources management practices, the goal of this paper is to provide recommendations for the organization to better improve its performance management system, particularly employee’s job satisfaction, performance, and ultimately recover organization’s reputation.

Company Overview

Originally established in 1937 as Trans-Canada Air Lines, Air Canada Inc. has a simple mission: “Connecting Canada and the World”. It has successfully accomplished their mission statement so far as Air Canada Inc. has emerged to become Canada’s largest full-service airline and the largest provider of scheduled passenger service in the Canadian market. Air Canada Inc. has an extensive global network, providing services directly to 59 Canadian cities, 58 cities in United States, and 60 cities in Europe, Asia, Australia, Middle East, Caribbean, Mexico and South America (Air Canada Inc., 2010). In order to provide a memorable experience for its passengers, Air Canada Inc. has helped to pioneer and develop key technologies and innovative enhancement to the flying experience in the industry. This includes its development of the “black box” in 1958. Furthermore, Air Canada Inc. became the first airline in the world to introduce a system-wide non-smoking policy in 1987 (Air Canada Inc., 2010). In addition to enhancing passengers’ flying experience, in 2002, Air Canada Inc. launched Jazz, a discount airline that focuses on the Canadian domestic market, to offer a more economical option for customers to travel within Canada.
Although Air Canada Inc. is currently the largest airline in Canada, it suffered from severe financial crisis in the past decade. In 2003 Air Canada posted a 428 million annual loss that resulted in several layoffs and an eventual bankruptcy protection (CBC News, 2005). Air Canada Inc. eventually emerged from its bankruptcy protection in 2004, but the company still suffered from major losses. In the first quarter of 2010, Air Canada Inc. endured an operating loss of 126 million; however, it is still an improvement from the same period in 2009 in which Air Canada Inc. suffered 188 million in losses (Air Canada, 2010). Despite the company’s effort to reduce costs, the company is still not in a decent financial situation. Although the loss is reflected from the recent economic crisis, it can be inferred that the main reason for Air Canada Inc.’s losses is due to its poor reputation in customer service and the company’s relationship with its employees.

Capabilities of Air Canada

Despite the volatile nature of the airline industry, Air Canada Inc. is still able to secure its competitive position as the 15th largest commercial airline in the world (Air Canada Inc., 2010). The company survives on providing extensive service destinations, retention of long tenure employees, and consistency in researching technological advancements to improve the overall success of the organization. One of the most prominent strengths that Air Canada Inc. encompass is its human resources department and how it has played a strategic role in managing their employee’s performance.

Air Canada Inc. occupies several aspects of good performance management processes in attaining organizational success through decentralized compensation systems, performance improvement, and performance assessment.
The linkage between performance and rewards are likely to be much stronger in a decentralized system since pay decisions are delegated to the lowest supervisors. Air Canada Inc. facilitates the decentralization of compensation decisions in order to respond to local market conditions (Das, 2003, p. 105). In a decentralized system, immediate supervisors are best qualified to evaluate the employee’s performance since they work closely with the job incumbent and can better evaluate them. Although Air Canada Inc. is currently using the merit pay system, it has the tools and supervisor empowerment to link performance to their compensatory pay systems.

Performance improvement is an ongoing process that helps identify areas of enhancement. The airline industry requires constant monitoring and external evaluation to foresee such uncertainties. In 1996, Air Canada teamed up with IBM to develop and pilot stimulation models of airport processes that travelers encounter on their journeys. This new process investigates new ways to eliminate bottlenecks, improve service, handle more customers, and reduce costs using advance technologies (International Business Machines, 1998). In this aspect, Air Canada Inc. is able to identify areas that require further training, job re-design, and evaluate the employee’s performance.

Management counseling can also improve the employee’s performance since it provides more in-depth knowledge and feedback through regular one-on-one sessions. Air Canada Inc. offers counseling from the senior management through coaching and mentoring initiative to resolve conflicts, obtain wisdom from the senior employees, and help the job incumbent cope with change (Das, 2003, p. 245). The employee will be provided with more support in their career development and improve not only their motivation, but morale as well.

Performance assessment generates valid information about the job incumbent, the work, or the future potential of the individual involved (Das, 2003, p. 190). Air Canada Inc.’s Rater Training Program uses videotapes and role-playing evaluation session to give raters both experience and insight into the evaluation process (Das, 2003, p. 105). The program focuses more so on the cognitive aspects of the rating process than rating errors, which will give the rater a better idea of how to deal with complex situations that they would likely encounter. Offering training assessment training can build a sense of commitment and ownership among the raters, and in turn, offer the job incumbent with valid feedback.

Performance Issues

Over the years, Air Canada has established a poor reputation for themselves as one of the worst airlines in its customer services. Despite of their great decentralized compensation, counselling, and training programs, there are still many issues Air Canada will need to take into account. Matters relating to the poor performance of the employees are based on Air Canada’s lack of well-implemented compensation plans and benefits and its lack of concern for employees (Shalla, 2004). Discussed below are the issues that may have contributed to the poor customer service provided by Air Canada: ineffective compensation system, extended working hours, backlash of flexible working schedules, and the impact of unions.

Ineffective Compensation

Air Canada, following the Canadian pension plan guidelines, is responsible for ensuring that the employees will be offered an adequate pension plan. As the economy was experiencing a downturn, Air Canada was faced with the task to cut down on costs. Costs were cut from the employee benefit program, leaving Air Canada employees to choose between a cut in benefit or unemployment. In addition, Air Canada’s benefit plan was changed from a defined benefit program to a defined compensation program which requires employees to take on more investment risk as the company will no longer be absorbing the possible losses from the returns on investment. This abrupt change in pension plan suggests that Air Canada is no longer interested in the well-being of its employees. Finally, Air Canada’s retirement policy states that there is a penalty fee for retiring prior to the age of 65, unless the employee has at least 25 years of service with the company.

Direct monetary compensation is also extremely important in the emphasis of high performance and more critically in the tourism industry. Due to the airline industry’s unpredictable market and low job security, monetary rewards are integral in the maintenance of staff satisfaction and retention. Nonetheless, there has been a lack of pay raise for Air Canada employees in the past decade. In addition, the pay program does not effectively remunerate employees’ working hours. For the in-flight staff, spending days of layover is a norm. However, the calculation of working hours exclude the layover period, even though the period consists of the physical presence in a foreign country.

Theoretically, the time frame in between flights is the break period for staffs. However, the lack of activities in a foreign airport puts staff in the psychological state of work. Therefore, employees often “feel” that they worked for longer hours than they actually have. In regards to non-monetary rewards, Air Canada employs a staff recognition program which involves exemplary service awards and service time awards. However, staff morale continues to be at a low; employees do not feel valued.

Extended Working Hours

Air Canada is almost synonymous with bad quality services. This problem is caused by ineffective job design and inappropriate compensation system. Due to the cost-cutting strategy, Air Canada operates under hiring freeze. Therefore, Air Canada tries to maximize and even exceed the limit of possible work, which includes increased monthly flight-time, greater number of flights, and longer duty period. According to Vivian Shalla (2004), Air Canada staff “works for long hours in an intensive, often unhealthy, potentially dangerous, and stressful environment.” In addition to longer on duty time per shift, the resting period in between the shifts is reduced. This system prevents employee to recover from the fatigue. Thus, the vicious cycle is created. Fatigue accumulates due to the lack of rest, which leads to degradation of service quality.

Another reason for the infamous bad quality is that worker’s job satisfaction has drastically decreased in the recent years. Due to extremely long working hours, employees incur even greater costs such as health and family concerns, but Air Canada does not provide better social benefits to its employees (Shalla, 2004). The ultimate sacrifice to achieve reduced expenditure is the service quality. However, Air Canada is too oblivious to the down side of this strategy.

Backlash of Flexible Schedule

Flexibility of scheduling supposedly gives employees autonomy. However, the time-slot bidding system created almost the opposite effect. The original concept is that employees are free to choose their own working hours based on seniority. Because the system is based on seniority, new employees tend to get the worst time-slots (Shalla, 2004). Over 6,000 of Air Canada’s front line employees, the flight attendants, are part of a union which enforces the seniority system. The seniority system is where the length of service in the company is the determinant of the employees’ benefits, working hours, promotions, and potential layoffs. In addition, this system guarantees the employees of high seniority full hours despite the number of employees in the company, leading to job security (2004). However, due to the advantages guaranteed to those of the union, these flight attendants may be less motivated to work and may place less effort in their work (2004). With the presence of a union, seniors tend to stay for Air Canada for longer periods of time. Therefore, senior staff continues to benefit while newer employees continue to suffer.

A way for Air Canada to combat vagaries of the industry is the usage of reserved flight attendants. Employees are required to be highly flexible for a period of time. In that particular time frame, employees are assigned to dates in which they must be available. These flight attendants receive notices regarding their destination and flight shortly before the plane departs. It is difficult for these reserved flight attendants have a balanced work-personal life and virtually no employees enjoy being reserved on regular basis. Empirical evident has shown that most employees of Air Canada despise the element of surprise and the rushes that it produces.

Recommendations

Dealing with performance problems and taking disciplinary actions are two frustrating and stressful issues management will need to be concerned about. Based on the poor implementations of job designs and compensation plans, Air Canada will need to re-assess its systems in improving employee performance and job satisfaction. They can achieve this by improving employees’ working schedules, linking performance to rewards, and changing its leadership styles. These recommendations may help Air Canada to achieve more effective HR practices, increase worker’s motivation and enhance job performance and satisfaction.

Linking Performance to Rewards

Air Canada’s working schedule is based on seniority, resulting new employees to receive the worst time-slots for their working schedule. This decreases employee motivation, satisfaction and increases work fatigue. Based on Air Canada’s lack of customer service, one recommendation is to implement a system which links employee’s performance to working schedules. Air Canada could implement an evaluation system by determining the most competent employees. For example, they could do this by implement (word choice) an evaluation survey to its passengers during their flights to evaluate their overall flying experience with Air Canada, from check-in to in-flight services. The employees will be joint into groups based on their shifts. After determining and differentiating the high performing groups, the employees will be rewarded by granting first priority on bidding for their working time-slots. Implementing this system can help increase productivity and service, improve customer and employee satisfaction, company reputation and employee performance. Non-monetary bonuses should also be rewarded to top performing groups which will also increase motivation and performance.

Improve Working Schedules

Air Canada needs to re-assess the working hours of flight attendants. The long-working hours and the lack of resting periods has led to employee fatigue and prevented employees from performing at their fullest potential. Moreover, this has resulted to poor customer service, productivity and decrease in job satisfaction. Therefore, Air Canada should reconsider the maximum flying time an employee should work. By decreasing the working hours, employees can work more efficiently, effectively and prevent from being drained from the job. In addition, Air Canada may be able to make use of more employees in shorter time spans, decreasing the competition for hours. Air Canada also needs to avoid constantly assigning last-minute schedules to its cabin crews and pilots. Last-minute assignments cause further employee grievance which also lead to poor performance. Another alternative to consider is to balance out the long flying hours to the time off employees could reasonably take. This way, employees flying long hours could grasp a time-off to recover and recharge from fatigue and stress.

Top Management Involvement

Air Canada lacked the involvement and support of its top-management with the front line employees. The top management must be knowledgeable about managerial techniques and the daily operations of the business if they or their employees are to perform effectively. Most importantly, top management must realize that their effectiveness is determined by the performance of their employees and that training, support, information, and involvement will enable employees to perform more effectively.

For example, Airlines such as WestJet CEO, Clive Beddoe, would be involved with the business by helping the cabin crews to clean the aircraft. In addition, Herbert Kelleher of Southwest Airlines would assist and serve snacks if an aircraft is short-staffed (Canadian Business, 2004). Both of these airlines are well-recognized for their customer services. However, with Air Canada, there has not been of any recognition of their CEO’s to be involved in the airlines (Canadian Business, 2004). Therefore, by changing their senior management style in operations; being more hands-on and involved with their front line employees, Air Canada can achieve better productivity from their employees, and could improve job satisfaction from valid performance feedbacks by working with top-management. In addition to having top-management involvement, employees can have a better understanding of the organizational goals, better role clarity and performance standards. Air Canada can only succeed if its employees believe in top-management and the organizational goal and what it stands for (Canadian Business, 2004).

Conclusion

Air Canada’s business volumes and brand equity are currently at stake due to internal problems with their human resources management approaches. Overall employee dissatisfaction and the lack of motivation within the company is hurting the company both image-wise and financially. Problems outlined include incompatible compensation systems, overworked employees, and favoured and unequal scheduling. All these issues are at fault mostly because they do not align with the corporate value that “all employees are valued”.

These issues may be resolved through creating a compensation plan based on performance, utilizing more employees while cutting down on shift hours, and ensuring top management involvement and presence to provide support towards its employees.
It is imperative that Air Canada administers an audit of its performance management strategy in order to resolve its internal issues.

References

Air Canada. (2010). About Air Canada.
Retrieved from http://www.aircanada.com/en/about/

Air Canada. (2010). Air Canada Corporate Profile.
Retrieved from http://www.aircanada.com/en/about/acfamily/index.html

Alexander, M. (2000). Employee Performance and Discipline Problems: A New Approach.
Retrieved on August 5, 2010 from Business Source Complete Database.

Canadian Business. (2004) A Brand new Air Canada? It’s harder than it looks, 77(12), 34.
Retrieved from Business Source Complete Database.

CBC News. (2009). Air Canada Timeline. Retrieved on August 5, 2010 from http://www.cbc.ca/news/background/aircanada/timeline.html

Das, H. (2003). Performance Management. Toronto, ON: Pearson Education Canada Inc.

International Business Machines. (1998). IBM research: Journey management Library. Retrieved Aug 03, 2010, from http://www.research.ibm.com/math/OpResearch/jml.html

Shalla, V. (2004). Time warped: The flexibilization and maximization of flight attendant working time. University of Guelph. Retrieved on July 17, 2010 from Business Sources Complete Database.

Cliff Lin

Cliff Lin

Internet Marketer

Cliff is an Internet Marketing guru with extensive experience in ecommerce and internet marketing roles. He has solid small business background, successful ecommerce experience, and internet marketing expertise. He is capable of implementing the latest interactive marketing tools for company, as well as backend information systems to maximize efficiency.

Cliff Lin

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