The Case Study “Astro Airlines”

Astro Airlines
Part 1
Arthur Burton established Astro Airlines in 1980, two years after the airlines were deregu-
lated. Burton’s vision for the new airline has two key elements. First, the airline would provide
low‐cost, no‐frills service to people who formerly could not afford to travel by air. Second, the
airline would have a novel type of organization that provided a better way for people to work
together, thereby unleashing their creativity and improving productivity. Burton was a dynamic,
emotionally stirring speaker with a kind of evangelical fervor, and he took advantage of every
opportunity to teach and affirm his vision. He was regarded by many employees as an inspira-
tional leader who made you believe that you could do anything. The climate at Astro Airlines in
the initial years was one of enthusiasm, excitement, and optimism.
Instead of the typical bureaucratic organization, the new company had only three levels of
management and few support staff. The emphasis was on equality, informality, participative lead-
ership, and self‐management. Employees were organized into teams with shared responsibility for determining how to do their work. The teams elected members to represent them in advi-
sory and coordinating councils that met with top management, thereby enabling them to par-
ticipate in making important decisions. Managers were expected to provide direction but not to
dictate methods or police efforts. Employees were expected to perform multiple jobs and to learn
new skills. Even the managers were expected to spend some time doing regular line jobs to keep
informed about problems and customer needs. The “status perks” found in most large organiza-
tions were eliminated. For example, executives answered their own telephones and typed their
own letters. New employees were carefully screened, because Burton sought to hire young, enthu-
siastic employees who were willing to learn new jobs and who could function as part of a coopera-
tive team. All permanent employees were required to share in the ownership of the company, and
they could purchase shares of stock at a reduced price.
Burton believed that a strategy of discount fares and convenient schedules with frequent
flights would attract new passengers who would normally travel by car, train, or bus, or who
would otherwise not travel. By keeping operating costs low, Astro Airlines was able to offer fares
that were much lower than those of competitors. The salaries of managers and employees were
lower than normal for the airline industry, although employees also received generous fringe
benefits, profit sharing, and stock dividends. Costs were also reduced by purchasing surplus air-
craft at bargain rates, by reconfiguring aircraft to carry more passengers (e.g., converting first
class into coach seats), and by innovative scheduling that allowed the planes to fly more hours
each day. Customers were charged for some frills such as meals and baggage handling that other
airlines included in the price of the ticket. To reduce space normally needed for ticket counters
at terminals, the ticketing for flights was done either in advance by travel agents or on the plane
itself with innovative ticketing machines.
The new company was an immediate success, and passenger volume expanded rapidly. In
less than three years the company grew from a few hundred employees with three planes to more
than 3,000 employees with 22 planes servicing 20 cities. This success occurred despite dismal conditions that caused widespread operating losses in the airline industry, including a severe eco-
nomic recession, a crippling national strike of air traffic controllers, and brutal price wars. The
flexibility of the company and the commitment and creativity of its employees aided its early
growth and facilitated rapid adaptation to crises such as the strike of air traffic controllers.
Copyright © 1993 by Gary Yukl
1.  Describe Burton’s leadership behavior.
2.  Was Burton a charismatic leader in the company at this time? Explain your answer.

Part 2
Despite the early successes, the rapid growth of the company was also creating some seri-
ous organizational problems. Employees believed that after the initial chaos of starting up the
company, things would settle down and the intensely heavy workload would be alleviated. They
were wrong; communication problems increased, the workload remained overwhelming, deci-
sions were taking too long to be made, and too many decisions had to be resolved by top man-
agement. These problems were due in part to the informality and absence of structure. As the
number of routes, facilities, and flights increased, operational problems became more com-
plex, but formal structures were not developed to deal with them effectively. The number of managers did not increase nearly as fast as the number of nonsupervisory employees. Burton
refused to recruit experienced managers from outside the company, preferring to promote cur-
rent employees into positions for which they initially lacked sufficient expertise. Overburdened
managers lacked adequate support personnel to which they could delegate routine responsibili-
ties. Managers complained about the pressure and stress. They spent too much time in meet-
ings, they could not get issues resolved and implemented, and they could not provide adequate
training for the rapidly increasing number of new service employees. The new employees were
not getting the extensive training and socialization necessary to prepare them to provide qual-
ity service, rotate among different service jobs, and use team management practices. Operating
problems (e.g., canceled flights) and declining customer service (e.g., rude attendants) alienated
customers and eroded the company’s reputation.
Adding to the confusion was the worsening conflict between Burton, who as CEO was
responsible for strategic planning, and the company president who was responsible for opera-
tional management. In 1982, the president resigned, and Burton assumed his responsibilities
rather than finding an immediate replacement. At this time Burton finally decided to appoint
a task force composed of executives to develop ideas for improving the organization. The task
force presented some initial proposals for new managerial roles and structures. Employees were
subsequently promoted to these roles, and management training activities were initiated for
them. Burton was heavily involved in this training; he conducted some of it himself, and he
faithfully attended sessions taught by others, thereby indicating the importance he placed on
it. However, other necessary changes in management processes were not implemented, and the
position of president was still not filled. In short, Burton seemed unwilling to take the steps nec-
essary to transform Astro Airlines from an entrepreneurial start‐up to an established organiza-
tion. Indeed, his remedy for the firm’s problems was to set out on a new growth path rather than
to concentrate on consolidation. He believed that what the company needed was an even bigger
vision to get people excited again. Thus, he began yet another period of rapid expansion. The
airline added new routes, purchased new and larger aircraft, and hired more new employees.
By 1984, Burton no longer seemed content to run a successful regional airline. He con-
tinued to make changes designed to transform Astro into an international airline that would
compete with the major carriers. He decided to acquire some other regional and commuter air-lines that were financially weak. His strategy of rapid expansion was overly optimistic, and it
ignored some important changes that were occurring in the external environment. Burton failed
to anticipate the likely reactions of major airlines that were stronger financially and prepared to
conduct a long price‐cutting war to protect their market position. New passenger traffic did not
increase enough to justify the cost of the added flights, and Astro was unsuccessful in attracting
many business travelers accustomed to frills and better service. The company began to experi-
ence losses instead of profits.
Internal problems also worsened in 1985. There was an attempt to unionize the pilots, and
a substantial number of pilots quit, complaining that they were exploited and mistreated. Other
employees began questioning Burton’s sincerity and accused him of being a manipulator. The
perception among many employees was that he was now acting like a dictator, and no one dared
to cross him. When asked about the absence of independent outsiders on the board of directors,
Burton replied that he was the founder and largest shareholder, and he could determine what was
best for the company. He fired a key managing officer who had been with the company since
it was formed, presumably for challenging him and asking questions he no longer wanted to
hear. Another founding executive whom Burton had appointed as president resigned and took
several other employees with him to establish a new airline. In 1986, as financial performance continued to deteriorate, Burton abruptly abandoned
the distinctive strategy of discount fares and no‐frills service and began offering full service with
higher fares to lure business travelers. However, operating losses continued to mount, and in a
last desperate move, Burton changed back to his original strategy. It was all to no avail. By the
summer of 1986, the losses increased and the company entered bankruptcy proceedings.
1.  What dysfunctional aspects of charismatic leadership were displayed by Burton?


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