XAVIER INSTITUTE OF MANAGEMENT

BHUBANESWAR

ASSIGNMENT SUBMISSION FOR - Organization Structure &

Design

SUBMITTED BY: MOHAN KUMAR PANDA

ROLL NO : U409018
 SCANDINAVIAN AIRLINES : THE GREEN ENGINE DECISION

Q1-Analyze the Factors that are emerging from the external

environment of SAS
Solution - What a kind of Company is it. Compare SAS with other
Airlines.

SAS is a commercial Airline serving almost 32 million people per year. This
Airline had a reputation in the commercial aviation industry for being forward
looking and had pioneered such steps as being the first major Western
Airline to have a female Pilot, to offer business class on board its flights and
to have its environmental report audited and verified by a third party. The
management realized the current issue involved in developing policies,
strategies and decision making were cost reduction, the company’s image as
well as the ability to anticipate the market and regulatory changes and be
able to plan ahead of time. SAS operates predominantly at the Scandinavian,
a domain that has given much importance to environmental issues. The
decision making process and outcomes of Scandinavian Airline’s (SAS’s)
decision to improve its environmental management practices through the
procurement of green engine technology, thus better committing itself to
environmental and economic sustainability.

Although the Airline industry is part of service industry, it posses several

characteristics, including intense regulation, high entry barriers, high capital
costs with tendencies towards the market. Air travel is one the fastest
growing sectors in tourism carrying with it some of the most significant
environmental impacts (i.e., High level of fuel consumption, noise, air
pollution and waste production). Because of the increased use of air travel
the demand on the environment has grown significantly. Unfortunately it is
difficult to manage in traditional, regulatory, fashion given the complex
international setting in which many air lines operate. Thus the air line
industry has been heavily regulated through traditional methods, there has
been an emergence of voluntary, market based mechanism seeking to
encourage the green management practices in the airline industry, which
was ultimately initiated by the SAS and after some time into the whole
industry.
Q2-What are the internal Influences at SAS?
Solution: What are the internal influences? Go through the
company internal part.

The Attitude, Values and beliefs generated internally have a critical impact
on the SAS’s Policy making. There are several factors influencing:
Corporate Culture
• SAS has a feeling of both the serenity and efficiency in their work
environment. Equality of employees was visibly present.
• The management realized the issues involved in developing policies,
strategies and decision making were cost reducing.
Scandinavian Culture and Ethics
• Associated with deep set of values and beliefs regarding the
importance of caring for the environment.
• Strong role in reacting to environmental challenges faced within the
Airline industry.
• Scandinavian countries are exceeding their commitment to the
environment.
Eco Political Vision
• Achieving profitability by minimizing the environmental impact.
• Increasing environmental awareness throughout by conducting several
activities at all levels and in all decisions.
• Utilization of those methods that will result in lowest possible impact.
Leadership

The leadership role that the CEO, Jen Stenberg took in making the
environment a strategic priority had strong impacts on how SAS managed
environmental issues because he was aware of the importance of this. This
was based on Customer satisfaction index.
Over the years SAS’s environmental image helped in boosting the image of
the company, improving the brand of SAS and living up to the spirit of
Scandinavian people. Hence the cost of having an environmental department
is justified.
Q3-Based on External and internal influences what is SAS’s
motivation for being Green?

The environmental policy of SAS can be described along a continuum

ranging from internal to external factors. The environment had become part
of the overall policy making structure for SAS.

Individual companies participate in the environmental initiatives to

o Reduce costs and increase efficiency by cutting resources use

and waste generation.

o Gain a competitive advantage

o Enhance a positive image in the market place as a good

corporate citizen.

o Avoid or deregulatory action

o Comply with pressures imposed by banks, insurers, clients,

suppliers that do not wish to inherit environmental liabilities.

o Conform to pressures from community groups, environmental

organizations and community members

o Encourage employee pride and productivity through enhancing

corporate culture.

The Scandinavian Airlines and the Green Engine decisions highlights how the
internal and external factors influence internal policy decision making. SAS
was presented with an option to “green their fleet”. The feasibility of the
project was determined by the internal financial structure and management
of SAS. Both Nas and the CEO knew that the environment had made its way
upto a strategic level in the company. Utilizing the environment issue, Nas
was able to convince the senior management that the project was financially
feasible.
External factors such as fees associated with breaching emission caps,
market turbulence, jet fuel cost, could be mitigated by this decision. By
meeting the external factors head on and designing a unique proposal that
met the external pressures and placed at internally. Thus Nas was able to
convince senior management to purchase the DAC engine.
Q4-What are potential outcomes (positive and negative) of
purchasing the DAC engine for SAS?
Solution - Some federal court ruling for purchasing

The purchase and utilization of DAC engines, SAS had to weigh several
factors that would directly impact their business. The DAC engines
represented one of the many options the company had for outfitting their
new fleet.
Positive
(i) a reduction in fuel costs through increased fuel efficiency,
(ii) a minimization of risk associated with future operational limitations,
(iii) an enhanced national and international corporate image,
(iv) increased productivity by employees who could take pride in their
corporate culture,
(v) an enhanced ability to meet the rise in flight demand by an increasing
customer base, and
(vi) A decrease in the likelihood of having regulatory action taken against
them for not complying with CO2 and NOx emission caps. Any internal
or external drivers that may cause senior management to balk on the
decision to purchase green engines. The costs associated with the
procurement of jet fuel have risen sharply over the past two decades.
These costs have the potential to be greatly reduced with the use of
DAC engines. By reducing fuel costs, money can be recovered from
the initially high green engine implementation costs. Also, the
potential, future operational limitations manifested through financial
constraints and probable regulatory action can be ameliorated by
implementing the DAC engines. For example, by offsetting the cost of
DAC engines with fuel costs and a viable, green public image that
increases the customer base, SAS secures their place in the market.
Furthermore, the implementation of the DAC engines allows SAS to
run more flights before hitting the CO2 and NOx emission caps,
thereby increasing their service abilities.

Another benefit of the airline implementing DAC engines is derived from the
secondary, social effects. Increasing productivity of employees by creating a
corporate culture of which employees can be proud, has the ability to impact
financial losses associated with a lack of productivity. Furthermore, given
that Sweden is a nation that takes great responsibility for the environment,
by implementing DAC engines, citizens of Sweden will take pride in their
national airline, and possibly begin to prefer their services over those of
competitors that offer cheaper flights but with harmful environmental
impacts. Though the Green Image of SAS is important to the long-term
sustainability of the company, it remains difficult to quantify. This is best
achieved through the potential increase in national business and customer
base.

Negative
The prominent reason for voting against DAC engines is the cost associated
with the initial DAC engine procurement. The cost added to each Boeing-737
is initially shocking; however, in the light of positive outcomes and offsets,
the cost can be justified. Also, if SAS decided against implementing the DAC
engines based on cost, they could potentially lose their green image. In the
early 1990s, SAS established itself as a leader in environmental
commitment. They developed an environmental policy stating that they were
committed to using the best available environmental technology. If they
failed to live up to their commitment, their work on branding their airline as
environmentally responsible would be significantly negated
Q5-What Should SAS do?
As the global demand for a green tourism industry grows, increasing
numbers of airlines are proactively altering internal policies to reflect their
commitment to the environment. These policy decisions are generated
through the analysis of the financial cost-benefit, the understanding of the
regulatory setting, and through the desire to enhance corporate citizenship
and public image. Scandinavian Airlines, a Green Leader in the airline
industry, has invested corporate resources in technology and practices
aimed at reducing their impact on the environment. The management of SAS
is allowing for the reduction of emissions and waste generated through their
daily operation to procure green technology. As the largest airline in
Scandinavia at the time, SAS desired to meet the rise of global travelers with
service, and in order to do so, they would have to alter their environmental
approach to dealing with the cap on NOx and CO2 emissions. Since the
1980s, the airline industry experienced a period of growth until the 1990s
when the industry began to deregulate. In mid-2001 the industry
experienced an economic downturn as a result of Terrorist Attacks and the
SARS outbreak in Asia. The companies that were able to maintain their
market share during those times have been those that were able to adapt to
those challenges. The current turn toward sustainability coupled with
governmental regulations limiting in-flight and ground emissions could result
in another period of turbulence for the airline industry. It is therefore, in the
long term, beneficial for a company to utilize resources efficiently, and
market a green image to maintain a footing in the highly competitive airline
industry.

As mentioned earlier, the ability for a company such as SAS to make

decisions that do not have immediate- or medium-term payback is
determined by both internal and external factors. Scandinavian Airline had
access to the capital needed (internal driver), environmentally- oriented
management (internal driver), and the social and regulatory drive (external
drivers) to implement the DAC engine program. Without these factors
coming together, the decision to implement the DAC engines would not have
been positive. Though the decision would not see
benefits within the short- or medium-term, it was wise for SAS to utilize
green technology. The benefits to the corporate image, establishment of a
competitive advantage through anticipation of social and regulatory
requirements, and the establishment of eco-efficiencies in the form of water
and fuel saving make this decision positive in the long term.
Table 1: The external systems influencing corporate environmental
policy commitments (Renn, 2001)
System Components

Social Discussion, knowledge sharing,

resource building

Scientific Scientific knowledge and expertise of

cause and consequence

Political-institutional Political culture, government, and

regulatory setting

Market Cost-benefit analysis and

marketability

Table 2: The environmental impacts generated by airlines. Adapted

from Somerville (1999) and Lynes and Dredge (2006)
Environmental Issue Summary of Impact Factors affecting
management

Air Emissions Carbon dioxide, Carbon Airline's choice of

aircraft,
Air transport accounts monoxide,
for 3% Hydrocarbons, International standards,

of global CO2 Nitrogen oxides, Sulphur Individual country-

emissions, and imposed
oxides, contrails
12% of transportation taxes and emissions-
CO2 related

emissions charges, Emissions of

flights

do not fall under Kyoto

protocol

Noise Emissions Prominent under landing Airline's choice of

and aircraft,
Exacerbated by the
increased take off, affects International standards,
residential development residents and landing charges for
near noise
wildlife
airports and under flight emissions
paths

Congestion Increased fuel use and Regional/National

Up to 10% of aircraft emissions caused by governments and their

fuel use circling NGOs

could be reduced busy airports and taxiing develop more effective

through more air

efficient traffic traffic management

management systems,

partly caused by
national

airspace rules that

sometimes

prevent using most

direct

routes

Waste Solid waste from inflight Local rules developed

by each
Solid and hazardous services and aircraft
wastes grooming, municipality or airport

waste generated from authority for waste

airline
disposal/treatment of
administration offices, tarmac

Hazardous was from run-off

aircraft

maintenance and de-

icing of

aircraft
Figure 1: Growth index of World Passenger Traffic (RPK) from 1970 to 2007.
RPK (revenue passenger kilometers) assess the distance traveled by aircraft
around the world. As the number of kilometers increases, so do the number
of passengers. The airline industry must be able to meet the continuing rise
in global air travel demand in the presence of increasing regulations aimed
at reducing the environmental impacts derived my air travel. Scandinavian
airlines, by implementing DAC engines, is able to increase the number of
flights, and thus passengers, by reducing CO2 and NOx emissions associated
with traditional combustor engines.

Figure 2: The percent changes in Net Profit Margins of World Scheduled

Airlines. As a result of deregulation, competition in the aviation industry has
increased leading to the loss of revenues for airlines. It is important to not
that the airline industry is highly turbulent and succumbs too many social
setbacks. Scandinavian airlines, by enhancing their green fleet, reducing
operational costs over the long-term, and by increasing internal productivity,
is able to circumvent any turbulence due to environmental regulation.
Figure 3: The average international jet fuel costs per gallon. As the global
costs for jet fuel increase so do the operational costs of Scandinavian
Airlines. By reducing fuel waste and increasing fuel efficiency, SAS is able to
offset the initial cost of DAC implementation and restore earnings in the
long-term.
Figure 4: The historical and projected CO2 emission generated through
transportation (in Gigatons of CO2). With the projected increase in CO2
emissions generated by air travel, it is expected that the future of air travel
will be increasingly regulated. To anticipate the effects of regulation on
operations, Scandinavian Airlines implemented DAC engines that will bring
fuel emissions to level below nationally-imposed CO2 caps/flight. (Source:
IPCC Fourth Assessment Report, Working Group III, page 36).