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SCANDINAVIAN AIRLINES : THE GREEN ENGINE DECISION

Q1-Analyze the Factors that are emerging from the external


environment of SAS
Sol- 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?
Sol: 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?
Sol- 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.

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