Business Ethics - GRP 16
Business Ethics - GRP 16
The Indian airline industry is growing at an exponential rate. This provides opportunities for
airline companies to expand. At the same time, the industry is also witnessing stiff
competition. Compounding the woes of these companies is the fact that the industry goes
through cycles of boom and bust every five to ten years. This puts tremendous pressure on
the top management of these companies to cut costs, remain profitable and serve customers
better. There are various choices that need to be made the CEOs. We intend to look at some
of the aspects of the airline industry, how some of the airline companies have taken various
decisions in these aspects and the ethical dilemmas involved. We will primarily be looking at
three factors.
1. Employee relations - Pilots, co-pilots and cabin crew form the interface between the
customer and the airline company. These employees directly influence the way a flyer would
view a company. As such the airline companies use various recruiting policies geared at
enhancing the so called “customer experience”. In January 2009, Air India sacked 10 female
flight attendants for being overweight. Unlike male flight attendants who retired at 58, female
flight attendants were forced to retire at 45 until 2001 when the Supreme Court ruled it
unconstitutional. Recently, a scam on pilot licenses has come to the fore. We would be
2. Passenger safety - Passenger safety is one the foremost issues dogging the airline industry.
Reports of overshooting the runway and near misses are a regular feature in the newspapers
these days. Safety comes with a cost. How much is the airline industry spending to enhance
passenger safety? Is there a mismatch between the passengers expectations and the industry
performance on the safety issue? How does a low-cost airline deal with passenger safety? Do
they compromise on safety to remain low-cost? These are some of the issues we deal with in
this segment
3. Airfares - There have been instances when airfares have gone through the roof during
festival times. We analyse the various pricing policies used by the airline industry and
whether they are ethical. Apart from this, we will scan through the annual reports of various
of airline companies in India to understand their business model, the expenditures on the
above mentioned factors, profit margins and how these affect the various stakeholders.
Employee Relations
(Source: McKinsey
Quarterly)
One of the most important wing of the Organizational Structure of the Airline Industry is the
The Service Business Units are broadly classified into the following:
1. Catering
2. Ground handling
4. Shared Services
The service unit is one of the foremost profit earning centers of the Airlines. This
As such this unit commands respect and should be treated ethically not just
employees.
Jet Airways sacked more than 1000 employees in the middle of October 2008. Riding on the
strength of an alliance that it forged with Kingfisher Airlines Jet Airways took the step of
economic slowdown.
B. The discontinuation of a number of flights meant that the staff required was lesser
D. The alliance with Kingfisher aimed to work together on seven fronts, including route
and code sharing as also sharing of crew, a move that would help them cut exorbitant
cost that had been putting enormous pressures for the last 4-6 years.
Air India fired its employee Ms Neepa Dhar in 2001 after she was repeatedly reminded of
being overweight. This case a classical example of ethics in business raised several questions.
Air India has said clauses in the contract that stipulate that they must meet a set weight and
In Ms Dhar‟s case, she claimed that she became overweight as a side effect of taking a
medication to treat high altitude anxiety syndrome, which implied that her weight gain was a
medical problem as opposed to a lifestyle choice. Mr. Dhar, had originally joined Air India
in 1987 and then she worked for 10 years before she was grounded due to her weight. She
was given a number of warnings before the final step was taken and was only dismissed four
Ethical Questions pertaining here are Should the fat airhostesses be allowed to carry on their
work in the crammed spaces between aisles in a flight? Can they push the trolley through the
crammed space when they can hardly move in that space? Being overweight means that they
compromise efficiency and safety as well as give a pretty poor impression overall of the
airline.
Delhi High Court had earlier upheld Air India's right to reassign overweight attendants. They
cited clauses in the contracts that barred stewardesses from flight duties if they put on too
much weight.
The court had also pointed out that the state-run airline needed slim attendants to compete
Fake License issue came into light when pilots were caught with faked marksheets early this
year. More or less all major low cost airlines and a few big airlines were caught in this scam.
The instances of faking involved two IndiGo commanders and one MDLR commander who
had allegedly tampered with their ATPL mark sheets earlier. The arrests show that a well-
oiled "racket" works within the Directorate General of Civil Aviation (DGCA) that helps co-
pilots, who have failed to clear exams, reach the position of commanders.
This is a case of falsification and violation of contractual rights principle. A point into
The airline industry is in the business of flying people from one place to another. As such, the
safety and comfort of the flyers is one of the prime concerns of operators of commercial
aircrafts. In this section, we analyse some of the issues concerning the safety of passengers.
The twin objectives of passenger safety and their comfortable journey are sometimes
regulations regarding safety, airline operators have to put some restrictions. These
restrictions affect the comfort level of the passengers. Some of the regulations are
a. Asking passengers to check-in an hour before the departure – Most airlines ask
their passengers to check-in at least an hour before the scheduled departure. In this
way, the security staff at the airport gets ample time to scrutinize the passenger
and his/her belongings. Many a time, passengers are not allowed to board a flight
even if he arrives before the departure time with the reason being given that there
is not enough time for security check. But it is often left to the discretion of the
staff to decide whether to allow a person to check-in late or not. This creates some
ethical dilemmas. Is asking the passengers to arrive at the airport an hour before
the departure ethically right? In borderline cases, how does the staff decide whom
to allow for check-in and whom not to? In the analysis section, we use the ethical
b. Not allowing objects to be carried into the aircraft – There are a lot of restrictions
on carrying objects onto an aircraft. Some of the examples include sharp objects,
inflammable objects and even anything emitting an „offensive‟ odour. This leaves
a lot of room for interpretation. What constitutes an offensive odour? What if the
c. Full body pat down - Full body pat down is one of the most controversial security
measures in the airline industry. Here a passenger is frisked for any sort of
dangerous material attached to the body. Even children are not exempted.
Recently, the industry is debating a modified version of the full body pat down for
children under the age of 14. The latest technology is full body scanners in which
2. Selective screening
There are two ways in which passengers can be screened: uniform screening and
selective screening. Uniform passenger screening was started in the 70s. The basic
idea behind it was that all passengers are equally likely to pose a security threat and
therefore should go through the same security procedure. This started changing in the
late 90s when people started advocating that all passengers are not equally likely to be
a security threat and that it was expensive to apply the security measures to every
passenger. In the selective screening procedure, the passengers are first profiled based
on the language they speak, the country they belong to, their religion and even the
way their name is spelt. Computer algorithms are created to select a list of passengers
whose profiles are considered to be risky. The passengers who are part of this list
undergo more rigorous security checks than others. The main ethical issue behind
ethical issue is whether it is just and fair to select a few persons for extra security
checks when they all are customers of the airline? The other question that needs to be
answered is that if it is ethical, what are the parameters on which such a list should be
created?
3. Pilot fatigue
In order to cut costs, pilots are being offered incentives to fly more hours. There are
two benefits that the pilot gains by working overtime. First, he earns a huge bonus
over and above his monthly salary. Second, his flying hours increase and he is
considered more experienced and can command a premium in the airline industry. But
this has serious repercussions for the safety of passengers. Working overtime for a
long period of time creates a lot of health problems. The pilot loses focus and this
affects his judgement. The decisions that he takes in the skies are sometimes not the
best ones. The question then becomes : Should airline pilots be allowed to work
The airline industry operates on a leased aircraft model. Most airline operators lease
aircrafts from other companies. The leasing companies on their part try to maximize
their profits by leasing older aircrafts at a lesser rental. This is a win-win situation for
both the companies. But where does it leave passenger safety? Do these airlines spend
the extra effort that is required to maintain older aircrafts? Although there are no legal
fly passengers on an old aircraft? Should passengers be made aware of the age of an
Low cost airlines are under tremendous pressure to cut costs. The websites of these
companies are one of the prime targets of cost cutting. Most passengers have to agree
to terms and conditions available on a website before booking a ticket. There are a lot
of obscure clauses in these terms and conditions that they are not aware of. The
pricing itself is unclear. The price indicated on the front page is often a base fare. As
the user goes for payment, extra duties and levies are applied which jack up the fare
substantially. Some of the fee based services are opt-out programs instead of being
opt-in. As such, a user in a hurry may unknowingly opt for services which he/she may
not have opted for otherwise. Sometimes it is very difficult to understand whom to
contact for a particular query. The contact us page is often confusing. Reporting
The Indian Airlines industry has several players including the expensive airlines and the low cost
airlines. The airline industry is mostly dominated by the private players with the presence of
government is only in the form of Air India that operates in both domestic and international flights.
There have been issues related to the increase in airfares over the time by the individual airlines with
increase in the fuel prices. The increase in fuel prices is decided by the central government and
forwarded by the aviation ministry to the airlines operating in India. The issues related to the airfares
in Indian airlines industry that are considered as ethical issues are as follows:
Different routes, different fares: The fares are related to the routes we travel. If we travel
between two metropolitan cities, the fare are higher that if we travel between non-
metropolitan/cosmopolitan cities. The idea is that the fares are related to the busyness of the
Different time, different fares: The airfares increase during the occasion or any important dates.
The airlines targets the holiday periods to increase their fares and get the extra revenue.
Refund of airfare: The refund of airfares is a problem to the passengers. In case of cancellation,
the cancellation charges are deducted and the airlines ask us to avail the flight at some other time
within a time period without returning the airfare. Hence the money is blocked with the airline
Frequent flier offers: There are frequent fliers offers given by the airlines in which we get point
for each flight that we take with the airlines. The accumulated points give some free trips or other
exciting prizes. This is one method of making the passengers travel by that airlines only. Due to
this, some of the unnecessary business travels are made by the corporate people, which could
by the same. The stakeholders involved in the issues and their motives are listed below:
Airlines Company: The airlines company is responsible for setting the fares for different routes,
during different time and giving any offers. The motive of the airline companies is to increase
Passengers: The passengers traveling by the airlines are the most important of the stakeholders
involved in the issues as they are the people who are paying for any decisions taken. The motive
of the passengers is to reach the destination on time, comfortable journey and the value for their
money.
Government: The government acts only as a regulator in the airlines industry. The government
decides the price of the fuel but has no hand in deciding the fares but it handles the issues related
Competitors: The competitors are responsible in deciding the airfares and the service level of the
airlines industry. The competitors include the other airlines as well as the other transport medium
Should the different routes have different fares irrespective of the distance traveled?
Should the airfares be increased during occasions and other important dates?
Should the airlines not refund the money and ask you to avail flight at some other time?
In this section we would be highlighting some of the financial ethical issues and the
operational ethical issues that the Indian Airlines Industry is plagued with and what could be
the alternate ways through which these issues can be ethically handled. For this we have
taken specific examples from the four major players in the Indian airlines industry namely Jet
Airways, NACIL (Air India), Kingfisher Airlines and Spicejet Airlines. Together these four
players capture almost 70-80% of the Indian Aviation sector. An special addition has been
the Spicejet Airlines which is actually not in the top four as per the business volume, the
fourth position is held by Indigo Airlines. Indigo Airlines is held by the parent company
named Interglobe Aviation which is not the publically listed company and hence does not
make financial and other information public. So, we selected the next in line Spicejet Airlines
All the observations about the issues have been made on the public information available
about these airlines particularly in the Annual reports, websites and in various analyst reports
In the following section , we would enlist all the issues and then later on make an analysis of
these issues in order to find out the appropriate ethical principle that should guide the
decision making authority while making decisions about that particular issue.
Issues with Jetairways
Ethical Issue: Was Jet Airways justified in sudden sacking of more than a 1000 employees
in October 2008.
Stakeholders Involved:
with the revenue generated and profitability of the airlines. Carrying extra staff will
2. Pilots and Co Pilots -- Their duty is to provide a safe flight to the customers. They
are not directly concerned with the headcount of support staffs in the company.
3. Stewards and Stewardesses- Their duty is to provide a safe flight and enjoyabl
decision.
4. Passengers – They are revenue source for the company. A customer looks for value
for money and is ok if the lesser number of staffs provide the same level of service.
5. Board of Governors of the Airline - Decision making body for the airline.
6. Director General of Civil Aviation - Watchdog Agency of the government. They are
concerned with safety issue in flight mostly. Not perturbed if the level of service
1. Scarce revenue resources (passengers) and rising oil prices. The revenue resource ie
2. Priorities of investors and shareholders are revenue and employees is job and income.
A. Give 2-3 month notice to employees. If the employees had been given this chance
they would have definitely looked for greener pastures. But they were suddenly sacked and
B. Train them for different jobs before sacking: A steward or stewardess incurs a lot of
money during their training for stewards. If the airlines had helped them develop alternate
skills it could have helped them find them jobs a little easily.
C. Give them unpaid holiday of 3 months till situation improves. Examples: Air India
and Jumeirah group of hotels. Air India had asked 15000 employees to go on unpaid leave.
Though they were not paid they were assured of a job waiting for them to be back.
Cost Benefit Analysis of Alternatives: In the given situation, there was no definite
timeframe of crisis mitigation. Alternative C could have deferred the action and saved the
face of Jet plus giving the employees optimism. Alternative B could have been seen as
employee welfare but costing Jet some money. D could have mitigated the furore caused by
Information: The information required here is the cost of retaining employee. Alternative
„A‟ would incur Jet the cost for 3 months extra. For „B‟ we need to get the cost of retraining
which would have punched a hole in Jet‟s budget. For „C‟, the uncertainty over crisis
timeframe is impediment. Alternative „D‟ would incur carrying cost to Jet of retaining some
employees.
Conclusion: Assuming that India is rising economy, hence the crisis‟ impact on India is not
huge and hence the crisis would ebb away in 6-7 months in India, we can say that Alternative
C seems to be the best recourse that could have been taken by Jet Airways.
We can see that in the times of Economic crisis of 2008-09, many companies in the Indian IT
sector took similar recourse of sending employees on mandatory unpaid leave thus saving a
lot of money as well as sending out positive signal to the employees that they are still a part
of the company. Closer to it, in the Airline industry Air India had taken similar recourse.
Hence by using utilitarianism theory we can conclude that sending employees on Mandatory
unpaid leave would have been the best alternative for both the company and its employees.
Passenger Safety
Here we analyse the various issues with respect the various theories, find out which
one fits the issue and recommend solutions which conform to the theories.
For this issue, we have chosen to apply Utilitarianism theory. The use of this theory is
as possible, the priority of the airline is to earn revenues while the priority of the
c. None of the choices available fulfil the needs of all the stakeholders. If we were to
remove all safety measures, the passengers would be happy and the airline would
save some money but the government‟s aim would not be fulfilled. On the other
hand, in order to satisfy the government‟s need for security measures were to be
satisfied, the passengers would not feel comfortable and the airline would have to
d. Gain for some corresponds to loss for others – As explained earlier, any gain for
Check-in
c. Ask passengers to check-in early if they have more luggage. Passengers travelling
Objects to be carried
on medical need
Pat-down
2. Selective screening
For the selective screening issue, we will be using the Justice as equality
(egalitarianism) theory for analysis. The egalitarianism theory states that every
person should be given exactly equal share of society‟s benefits and burdens.
Selective screening goes against the basic tenet of egalitarianism as it does not
treat all passengers as equal. Some passengers are considered risky based on
passengers depend on the airline to fly them safely from one place to another.
They do not understand the nitty-gritty of the business or how pilot fatigue affects
their safety. They are vulnerable in this sense. From the ethics of care perspective,
the airline must ensure that their flight is safe by using pilots who are healthy and
not overworked. Similarly, the airline must also ensure that the aircrafts used are
capable of safe flying. As far as opaque web practises are concerned, the airline
must ensure all the required information is available to all the passengers easily.
Airfare
In this section we will establish why the issues chosen are unethical. We will also give reasons for
choosing a theory to explain the ethical issues, the different alternatives available and the
We will apply utilitarianism theory to analyze the above issues. The choice of the theory is
Scarce resource: The resource that is in debate here is the passenger and the time. The time
required to travel by airlines is much less than the other medium of transport. The passengers can
avail other medium of transport if they don‟t find airlines suitable for travel due to airfare issues.
Priorities are in conflict: The airline‟s motive is to increase revenue, the passenger‟s motive is to
value for the time and comfort, the government‟s motive is to see that the operations are free from
issues and competitors are trying to get the passengers from the airlines.
Gain for some, loss for others: The increase or disparity in the airfares are providing gains for
the airlines companies but it is affecting the passengers who are paying a higher fares for different
Now we will try to establish why the issues are unethical with the help of the utilitarianism theory.
As per the Utilitarianism theory, the action should produce most utility to all persons affected by
the action. In this case of the airfare disparity, the benefit is only going to the airline company
charging the fare. The sufferer are the passengers who has to pay the higher fares just to reach
their destination at a lesser time than it takes in the other medium of transport.
The motives of the passenger are not addressed who wants value for time and the comfort. Due to
the airfare disparity the time taken is less but the value is not justified because of the high fares.
The government‟s role as a regulator is questionable in the airfare issues. The government is
responsible only for setting the prices of the fuel but the base fares are fixed by the airlines
company as per their considerations. This is only benefiting the airlines companies neglecting the
Fare based on distance traveled: The airfares should be based on the distance traveled than the
routes it takes or the time of the travel. This will bring all the airlines to the same platform and
diminish any disparities in fares. This alternative will benefit the passengers in terms of the
savings in the airfares but it will hamper the low cost airlines competitiveness on airfares. Also
the revenue from the airfares will be reduced. This alternative will improve the transparency in
the airfares and customer satisfaction related to the value for time and comfort.
Full refund of airfares in case of cancellation: The airlines should refund the entire fare
deducting the cancellation charges to the passengers. The alternative will improve the customer
satisfaction related to the service of the airlines but for the airlines, they will loose a passenger
No credit point scheme: The credit point scheme should be closed. This will save the passengers
from unnecessary taking the same airline when they can easily take the others or take avoid taking
the air travel. This will save passenger‟s money and will result in less revenue for the airlines.
Finance and Operations
In this section we would take all the issues mentioned above with each of the airlines and try
to find out the ethical principles which can best describe them and can be applied to reach out
1. Freezing and reducing the salaries of the employees on account of improving the
correct in some sense as they might argue that in case of limited resources namely the
„Money or the Revenue‟; we need to look for the actions that generate maximum
benefit for the maximum number of people. So, a decreased spending on the salaries
of the employees may improve the bottom line of the firms generating more benefit
for the other stakeholders like the shareholders, top management and even for the
passengers in form of lower fares. But if we analyze this from the Kant‟s second
formulation, we observe that in this situation the employees are being used by the top
Consequently this becomes ethically wrong to reduce or freeze the salaries of the
employees even when they continue to perform their duties with the same dedication.
Furthermore, this can been seen as the failure on the part of the Executive
management to plan various risk management and operational issues and still they
continue to receive higher returns while the common employees who have been
2. Reduction in the effort on the maintenance and using of aircrafts beyond the
prescribed industry average usage time: This has been practiced by airlines again with
the intent of bringing down the overhead costs but this is going seriously against the
safety of the travel. It can be described as going against the moral duties that the
airlines have towards their passengers, according to which they have to take care of
the wellbeing of everyone that is affected by their actions. A relaxed attitude towards
maintenance activities can put the lives of passengers and crew in danger. Aging
3. Acts of benefitting other related firms through activities of Sale and lease back and
interest free loans being extended to them: In these cases, money is taken out of the
parent firm in a legal manner, as the board decides to forward an interest free loan to
the related firm or in other case when the companies aircrafts are sold to promoter
related firms and leased back to the parent firm at high lease rentals. This is breach of
trust of the investors in any public firm have put in their money basing on the
fiduciary capabilities of the top management to use that funds in best possible way to
generate wealth and value for all stakeholders. Though legally the related firms may
not be hold responsible but this is morally wrong and goes against the principle of
utilitarianism which professes that actions should bring maximum benefit to all
stakeholders but here these actions are positively favoring the minority stakeholders
4. Poor foreign exchange management and risk management activities: The revenues of
airlines comes in different currencies and with various contingencies which need to be
actively handled by the specialist in the management team. All but few airlines in
India lack this type of management attention towards this issue. The ethical problem
in this can best be described by the concept of Rights and Duties, it is the moral duty
of the management and the board and the independent directors to put forth measures
to tackle the issue of financial risk management in order to protect the firm from any
contingent liabilities becoming big enough to erode the entire firm. This is the duty of
the management only and this is what they are paid for. Also viewing from the
utilitarianism theory, it is in the best interest of all the stakeholders to ensure that the
business continues and for this the „Going Concern‟ should be kept in mind.
5. Superfluous CSR activities which do not bring much benefit to society: The instances
like “Magic Box” onboard of Jetairways, free travel to members of Indian world cup
winning team and buying the auctioned items of M.K Gandhi et. al. fail to bring any
concrete benefit to the society at large. These are marketing gimmicks and are the
cares sates that these big firms with lot of resources have the capability to serve the
society and it is their moral duty to be doing so but the reality is very different from
this. There is no concern for the less privileged and all efforts are aimed at getting the
marketing points.
6. Default on Payment obligations to other agencies and less than optimal use of the
resources like pilot flying hours by state run airlines : This aspect can also be
analyzed by the Rights and Duties fundamental of the ethical standards. Management
and the top executives are failing in their duties towards their job of planning and
running the operations of the airlines. They have the fiduciary duty to ensure smooth
agencies for preferential treatment, poaching the employees of rival firms, pledging
shares by promoters for undisclosed reasons et.al. These all issues fall under the
stakeholders involved with this industry. On these fronts the firms and their
After analyzing the ethical issues, we have come up with a set of recommendations which the
1. Ask all passengers to arrive one hour before the check-in but allow people travelling
2. Allow persons with emergencies to carry some of the objects in the list provided there
3. Whole body pat-down must be done for adults as done currently. But a specific code
must be evolved for searching children and infants. These must be done by taking into
passengers must be stopped as well. Whatever security measures are created must be
5. It is the government‟s responsibility to come out with norms regarding usage of old
aircrafts. Just like there are norms for the acceptable lifetime of fourwheelers,
6. The airline industry must find out ways of dealing with pilot crisis. The industry must
itself create a code of conduct for pilots and airlines wherein pilots would not be
allowed to fly for more than a specific number of hours every week.
7. The web practises of low cost carriers must be monitored by the regulatory
8. The government should get actively involved in setting the upper limits of the base fares of
criteria for the airfare should be the distance traveled like in the case of the Indian Railways.
The government should interfere and actively formulate the policies regarding the same.
10. The full refund of airfares should be given to the passengers deducting only the cancellation
chares. The passengers should not be made bind to the airline after canceling the trip.
11. The credit point schemes should be abolished and government should monitor all such actions
that can lead to violation of competition. The credit point schemes also bind the passenger to
take the same flights attracting with gifts and free trips.
We observe that the various Financial and the operational ethical issues that the Indian
airlines are plagued have one thing in common – which is the knowledge of the people on the
top. That is, whatever be the issue it is being carried out or done in consultation with the top
management with an intent to benefit a subset of the stakeholder namely either the promoter
group or the shareholders with little care about other stakeholders. The Directors and the
Executive heads have been bestowed with the Fiduciary powers so that they can exercise fair
judgement and take decisions that are in the best interest of all and does not cause un due
problem to anyone else. So the one ethical principle that binds together all the financial and
the operational irregularities on part of the airlines firms is the concept of Moral Rights and
Duties. The people controlling the firm have the right to take decisions for the operations of
the firms but at the same time they have a moral duty towards all the stakeholders and hence
they have to behave in the best interest of all. Following all the public information disclosure
norms not merely for the purpose of compliance but to attain a higher state of Corporate
Governance with full transparency is what is required. This along with a shift of focus from
treating firm as a cash machine to treating the firm with the „Going Concern‟ in mind and
taking decisions accordingly is expected of these firms. Finally, having a soft corner for the
under privileged people and carrying out true CSR activities to benefit society at large instead
of pure marketing gimmicks can bring out tremendous positive change in the outlook of these
aviation firms.
References