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Submitted By pragadeesh2493
Words 279
Pages 2
Pragadeeshwaran Selvaraju(SMBA14075)

Myth 1: Labor rates are the same as labor costs. * According to Lorenzo, an airline seat was a commodity and major cost component in the industry is payroll. Labor rate is total salary paid to the labor force divided by total time worked by them. But, labor costs take productivity into account, besides the total amount paid to the labor force. As a result he cut employees’ wages in half and forced them to work longer hours with shorter breaks and no guaranteed time off and fired the union employees.
Myth 2: Cutting labor rates will lower labor costs.

Myth 3: Labor costs represent a large portion of a company’s total costs. * In this case labor costs was not a major component to be considered. Lorenzo believed that airlines with lowest cost will be the leader of deregulated era and there by decided to cut off major portion of cost by cutting down the payroll. He tried negotiating with the labor union but they didn’t heed to him therefore he declared bankruptcy and fired the union. Later he restarted the airline without the union workforce.

Mythve homes. arily for the money. * Gordon Bethune believed that incentive (financial) alone cannot change the attitude of people. He understood that a more comprehensive system should be put in place to achieve result of which participative management was put in place. Corporate executive adopted an open door policy and began phoning employees to directly respond to their individual concerns. A one page newsletter is also daily issued to update employees about previous day on time performance baggage handling, customer complaints and share

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