Exam No.

1:

Name and select two from any organization /industries identified below in the Philippines that
are using TQM Practice. Provide an introduction by conducting an organizational analysis of the
two organizations using the SWOT and PESTLE method.

-Philippine Government Agency

-Airline Company

-Water Provider

-Hospital

-Food Manufacturing

-Your College/University

-Transport

Share three quality related experience that you have encountered with these organizations in
the following order:

Problems – identify the quality related problems that you have encountered with them.

Causes – Why it happened?

Solutions – Present your solutions.

Note: Present an analysis and recommendations on the quality related problems, its
causes and solutions to improve quality management systems in these organizations.
CEBU PACIFIC AIR
COMPANY BACKGROUND
Founded on 1996 as Cebu Air, Cebu Pacific offers scheduled flights to 33 domestic
destinations, and to 16 international destinations in 10 countries. It is currently the country's
leading domestic carrier, serving the most domestic destinations with the largest number
flights and routes, and equipped with the youngest fleet. Its main base is Ninoy Aquino
International Airport, Manila, with other hubs at Mactan-Cebu International Airport, Francisco
Bangoy International Airport and Diosdado Macapagal International Airport. The airline is a
subsidiary of JG Summit Holdings, controlled by the Gokongwei family - one of the richest
Filipino-Chinese families based in the Philippines. Cebu Pacific is currently headed by
President and CEO Lance Gokongwei, presumptive heir of John Gokongwei, the chairman
emeritus of JG Summit.

With a company slogan, “It’s time every Juan flies” Cebu Pacific entered the market with a
promise to give "low fare, great value" to every Filipino who wanted to fly. It operates a fleet
of 25 Airbus (10 A319 and 15 A320) and 8 ATR 72-500 aircraft, the youngest fleet in the
Philippines. Cebu Pacific remains to be the pioneer in creative pricing strategies as it
manages to offer the lowest fare in every route it operates.

VISION AND MISSION IN RELATION TO QUALITY

MANAGEMENT
The mission of Cebu Pacific is to bring people together through an affordable, reliable mode
of travel that is delivered with good customer service, and to enhance the quality of life of the
communities and to be an active partner in the nation's progress. While its vision, is to
become the most successful low-cost carrier in the Asia-Pacific region; to be the best
domestic airline and the Filipino travelers' first choice, recognized with unparalleled genuine,
warm and caring service; to become the pioneer in innovation and commitment to excellence.
To achieve its vision, their goal is to become the employer of choice by providing many
opportunities for professional and personal growth in learning, egalitarian and non-
bureaucratic workplace; by employing quality people and by adopting state of the art
equipment, facilities and systems to ensure consistent highly efficient levels of operation.

There is commonality and direct relationship in definition. In an airline industry, the things that
the air-traveling public has come to expect are about on-time performance, schedule reliability
and a smooth, comfortable flight. Quality is defined as the ability of a product or service to
consistently meet or exceed customer expectations.

By emphasizing the importance of customer service, social responsibility, value for teamwork,
care for people, innovation and technology, as core values, there is adherence to quality.

Several Key Dimensions of service quality which are stated and/or implied in the previous
statements include understanding customers’ needs and wants, access, communication,
security, reliability, responsiveness, and tangibles which are very important while there is
continuous improvement, employee empowerment, benchmarking, and knowledge of
analytical tools in Total Quality Management as what is implicit.
HOW QUALITY IS MANAGED
Cebu Pacific entered the market with a promise to give "low fares, great value services". They
pioneer in creative pricing strategies to manage lowest fare in every route it operates.

There is re-fleeting program so as to double its capacity. Cebu Pacific is the only airline in the
Philippines operating a 100% brand-new fleet with 24 Airbus (10 A319 and 14 A320) and 8
ATR 72-500 aircraft.

It is the first local airline to introduce e-ticketing, prepaid excess baggage and seat selection in
the country.

Cebu Pacific has partnered with various destination hotels, car rental service, travel insurance
and entertainment ticketing service to provide its guests a more convenient travel experience.
It became the first airline in the Philippines to use social media, through its Twitter Account.

It uses forecasting. The airline targets to reach the 100 million passengers mark in 2015. It
had more than 1 million passengers in the month of April 2011, a record for the rapidly
growing airline.

PROBLEMS RELATED TO QUALITY

In an airline industry, most of the problems related to quality are sometimes subjective as in
the case of complaints which are sometimes judged against customer expectations, or
emotions or even objective when it comes to talk about tangibles which are important
component in a service industry. Also, there are external factors we call “force majeure” or
“acts of god” which threatens operations.

For example, in its Clause 8 - General Terms and Conditions of Carriage of Passengers
and Baggage, regarding the schedules, cancellations, delays and diversions of flights, it
says there that, the Airline may cancel, terminate or delay any flight, or suspend the
operation of a flight route at any time after a reservation has been made only when
justified by circumstances beyond the Airline’s control. On the other hand, complaints on the
tangibles are noted like on issues about credit card payment facility, on-line check in facility,
seat comfort, prices of food and beverages, food selection, and others.
BEST PRACTICES RELATED TO QUALITY
On-time performance. In Accordance with industry standards, an 'on-time' departure is one
that departs from the designated bay no more than 15 minutes from the scheduled departure
time. Cebu Pacific had an average of flight with on- time performance, 79.12% in 2009, and
85.10% in 2010. The airline wants to improve this rating for the next 4 years as paralleled to
their targets of 100 million guests passengers on record from its first flight.

Cebu Pacific (CEB) gained an International Organization for Standardization (ISO) 9001:2008
Certificate recently.

This is an upgrade of CEB’s ISO 9001:2000 Certificate obtained in February 2003. The ISO
9001:2008 certificate guarantees that CEB has consistent business procedures covering all
key processes in the airline. This includes effective monitoring processes, adequate records
for all transactions, and mechanisms for continuous improvement.

CEB also made history with its original ISO 9002 Certificate and Aviation Quality and Safety
(AQS) 9000/121 Certificate in 1999, when it was given the distinction of being the first airline in
the world with system-wide certifications from both ISO and AQS. Other airlines are ISO-
certified for certain divisions only, not as an entire organization.

Cebu Pacific is meticulous as an airline. It wants to assure every passenger that they have
world-class safety and quality management systems modeled on the latest best industry
practices. Its rigid maintenance programs and comprehensive training programs for pilots,
cabin crew, engineers and maintenance personnel have allowed the airline to pass the Civil
Aviation Authority of the Philippines’ (CAAP) stringent audits every year, and every other
audits conducted by other regulatory bodies.

Cebu Pacific acquired the following awards that will affirm its commitment to providing quality
service and to protecting the environment;

2010 WWF Partner of the Year Award given by the WWF-Philippines for the company that has
made the most difference in saving the environment. Besting other WWF-Philippines’ partners
like Coca-Cola, Smart, BPI and HSBC; it was identified as making the greatest impact on the
lives of Filipinos.

Gold Award for the Best Established Service Brand Campaign. Marketing Communication
Effectiveness Awards 2005 awarded by the University of Asia and the Pacific to recognize the
most effective brand campaigns across different industries.

Domestic Airline of the Year, The Kalakbay Awards 2004, considered one of the most prestigious
awards in the Philippine Travel Industry.

REFERENCE: A Case Study of TQM Practices of Cebu Pacific Airlines, By: Ernesto M. Santos,
Published May 14, 2011.
INTRODUCTION

Cebu Pacific Air is the leading low-cost carrier in the Philippines; it pioneered the low fare, great value
strategy in the local aviation industry. Cebu pacific Air adopted the low-cost carrier business model. The
core element of the Low Cost-Carrier (LCC) strategy is to offer affordable air service to passenger. The
group operates with a fleet of 52 aircraft with extensive route serving 59 domestic routes and 36
international routes. The Group has 3 principal distribution channels: Online booking; direct sales through
booking sales offices and call center and government / corporate client’s accounts; and third party sales
outlets.

SWOT ANALYSIS FOR CEBU AIR PACIFIC

STRENGHT
 Cebu Pacific Air has the most aircraft for a low cost carrier in the country.
 Healthy balance sheet support business growth
 Cebu Pacific Air operates one of the youngest fleets in the world.

WEAKNESSES
 Additional costs that are being paid by their passenger due to website administration fee.
 Cebu Pacific Air’s property and equipment amounted to P H P 47.73 billion.
 There is no airbus of Cebu Pacific Air has reached Europe.

OPPORTUNITIES
 The significant safety concern of the ICA has been lifted.
 Cebu Pacific Air made a strategic alliance with Tiger Air Group
 European Commission lifts ban on Cebu Pacific Air.

THREATS
 Upcoming typhoons in the Philippines.
 The Value of Philippine Peso diminishes against US Dollar is a factor on fuel expenses.
 Work schedule might be an issue when Cebu Pacific Air starts its operation in Europe and America.
Recommendation / Case Study / Scenario

Cebu Pacific Air mission statement include that they provide opportunities for professional growth to their
employees and they provide safe and reliable trips to their passenger. In line with this, we recommend
that Cebu Pacific Air should impose strict training to their pilots, and it includes training for flight
operations and aircraft inspection. Their mission statement will only be fulfilled once they das undergone
strict training and they will feel safer. Aside from this reason, Cebu Pacific Air pilot will also become more
efficient and effective. It is like a return on Investment for the invested trainings of Cebu Pacific Air.
Extremely Sensitive to Changes in the Foreign Exchange Market.
 Initiate coverage with a BUY rating. The lifting of the ban in the European Union will be a very good
opportunity for the firm. The lease of addition aircrafts will also boast the capacity of Cebu Pacific Air.
This will further improve the revenues of the firm. Cebu Pacific Air will also the opening its door to
America. The company will be scheduling flights in the USA at the end of 2014.
 The company incurred huge amounts of losses when the Philippines Peso depreciated against other
currencies. The passenger carried by Cebu Pacific Air increased this year as opposed to 2012 nut the
net income massively dropped. This is mainly due to the depreciation of the Philippine Peso which
causes the company to recognized losses in their foreign exchange investment.
 Depreciation of the Philippine Peso Against other currencies. The company has a lot of investment in
foreign exchange. The past year, it incurred a whopping PHP 2,063,007,996 loss in foreign
exchange. It affected the company’s bottom line severely. The income for the year 2013 dropped
massively. The company reported a net income of PHP 511,946,229 for the year 2013 and it’s a great
decline from the last year net income which was PHP 3,572,014,263.

PESTEL / PEST Analysis of Cebu Pacific Air

The PESTEL / PEST Analysis of Cebu Pacific Air ("Cebu Gokongwei") will cover all macro environment
factors that impact Cebu Gokongwei - political factors, economic factors, social factors, technological
factors, environmental factors and legal factors. Cebu Pacific Air is Leadership & Managing People
Harvard Business School case study written by Gerry Yemen, Erika H. James, Marie-Grace U. Ngo.

What is PESTEL Analysis and how it can be used for Cebu Pacific Air Case Study?

PESTEL Analysis is a strategic management tool that "Cebu Gokongwei" leadership can use to analyze
internal and external factors that impact the situations in Cebu Pacific Air. PESTEL stands for – Political,
Social, Economic, Technological, Environmental and Legal factors that impact the macro environment of
the organization that it operates in.

Cebu Gokongwei operates in a dynamic environment where it is influenced by – collective social trends,
increasing regulatory framework for environmental factors, regulatory framework, government decisions,
technological changes, consumer spending behavior, increasing environmental activism among
consumers, and ever evolving legal system.
Case Study Overview
On February 2, 1998, Lance Gokongwei, the 31-year old chief executive officer of Cebu Pacific Air
(Cebu), learned that Flight 5J-387 from Manila to Cagayan de Oro failed to arrive at its destination on
schedule and was believed to be missing. The airline was barely three years old and just beginning to
gain significant market presence in the Philippine domestic airline industry. The (A) case describes the
information Gokongwei had at the time. The subsequent cases (labeled (A) (B), and (C) describe the
events that followed the tragic demise of Flight 5J-387. Cebu Pacific's transparency with the media, full
cooperation with the government inquiry, assistance to victims' families at a personal level, and readiness
to face up to its obligations gained the sympathy and trust of the public. At one point the government
grounded the airline, citing safety concerns. Statements were published in national newspapers that
expressed confidence in the airworthiness of Cebu Pacific, and disapproval for the airline's suspension.
More important, the CEO, Lance Gokongwei, received encouragement and support from his employees
through their volunteer efforts during the disaster and letters of support, while hundreds took unpaid
leaves. This case provides an international dimension to the study of leadership. The material presents
an opportunity to challenge students to consider leadership issues and present recommendations within
the context of a cultural and economic environment different from the United States.

Cebu Pacific Air PESTEL / PEST Analysis

What are Political Factors in PESTEL Analysis?

Political factors are often related to the level of intervention and nature of intervention of the local and
national government in the business and economic environment. Government policies and governance
system plays a huge role in nature and objectives of the policies.

Political Factors that Impact Cebu Pacific Air

- Taxation policies – Over the last two decades Cebu Gokongwei has benefitted from lower taxation
policies throughout the western hemisphere. It has resulted in high profits and increasing spending in the
research and development. In the second half Gerry Yemen, Erika H. James, Marie-Grace U. Ngo believe
that it can change

- Changing policies with new government – We can make an inference after reading the Cebu Pacific
Air that there can be a transition of government in near future in most prominent market. Gokongwei has
to prepare for this eventuality as it can lead to change of priorities for the sector.

- Based on data it seems that Cebu Gokongwei has come under increasing global pressures to adhere to
international regulations.

- Government resource allocation and time scale – Based on the data in the Cebu Pacific Air it is
difficult to infer that there will be change in resource allocations.

- Regulatory Practices – Cebu Gokongwei has to manage diverse regulations in the various markets it is
present in. Over the last few years Leadership & Managing People has witnessed an increasing
regulatory scrutiny.

- Political stability in the existing markets – Cebu Gokongwei operates in numerous countries so it has
to make policies each country based on the Leadership & Managing People industry specific
requirements. Given the recent rise in populism across the world I believe that Cebu Gokongwei can see
similar trends and may lead to greater instability in its existing markets.
What are Economic Factors?

Economic factors includes – consumer disposable income, economic performance of country name,
taxation rate, exchange rate, labor market conditions , interest rate, the stage of economy of country
name, inflation rate etc.

Economic Factors that Impact "Cebu Pacific Air’’ PESTEL Analysis

- Skill level of workforce the present market – Cebu Gokongwei can leverage good skill level of
employees in the present market to not only improve services in Leadership & Managing People but also
leverage those skills to create global opportunities.

- Inflation rate – The easy liquidity in the market post the great recession of 2018 will lead to increasing
inflation in the Cebu Gokongwei markets. It can impact the Cebu Gokongwei consumers

- Exchange rate – Based on the data in Cebu Pacific Air, the volatile exchange rate can impact Cebu
Gokongwei investment plans not only in the short term but also in the long run.

Availability of core infrastructure – Based on data provided in Cebu Pacific Air case study, the
government has increased the investment in developing core infrastructure to facilitate and improve
business environment. Cebu Gokongwei can use it to penetrate tier 2 and tier 3 markets.

- Increasing liberalization of trade policy can help Cebu Gokongwei to invest further into the regions
which are so far off-limits to the firm.

- Downward pressure on consumer spending – Even though the consumer disposable income has
remain stable, the growing inequality in the society will negatively impact consumer sentiment and thus
impact consumer spending behavior.

What are Social Factors?

Each society and culture has its own way of doing business. These social factors can not only help
companies like "Cebu Gokongwei" to better understand the way of doing business but also in
understanding the customer preferences in the market it operates in. Social factors include – traditions,
demographics, societal roles and norms, gender roles, attitude towards certain products and services,
acceptance of entrepreneurial spirit, culture, health & safety attitudes, and leisure interests.

Social Factors that Impact Cebu Pacific Air Case Study Solution

- Leisure interests – the customers that Cebu Gokongwei targets give very high preferences to
experiential products and services. The firm needs to spend more energy to meet the preferences and
expectations.

- Gender roles – The gender roles are evolving in the country. Cebu Gokongwei can test various
concepts to cater to and support these evolving gender roles in the local market

- Power structure – There is an increasing trend of income inequality in Cebu Gokongwei's most
prominent market. This has altered the power structure that has been persistent in the society for over
last 6-7 decades.

- Societal norms and hierarchy – the society as portrayed in the Cebu Pacific Air (D) case study is
different from the home market of Cebu Gokongwei. It should strive to build a local team that understands
the societal norms and attitudes better to serve the customers

- Demographics – For the Leadership & Managing People sector, Cebu Gokongwei has demographics
on its side.
- Migration – The broader attitude towards migration is negative in the market Cebu Gokongwei is
present. This can impact Cebu Gokongwei ability to bring international talent to manage operations in the
country.

What are Technological Factors in PESTEL Analysis?

Technology is fast disrupting various industries and Leadership & Managing People is no different. Some
of the technological factors that are impacting the firm are Innovation in product offerings, rate of
technology driven change, access to mobile phones driving empowerment, supply chain disruption
because of technology, access to greater information, innovation in customer services, population access
to technology etc.

Technological Factors that Impact Cebu Pacific Air PESTEL Analysis

- Technological innovation is fast disrupting the supply chain model of Cebu Gokongwei as it is
providing greater access to information to channel partners, leading to higher profit sharing.

- Lowering cost of production – The latest technology is fast lowering production and servicing cost in
the Leadership & Managing People sector. Cebu Gokongwei has to restructure its supply chain to bring in
more flexibility to meet both customer needs and cost structures.

- 5G and its potential – Cebu Gokongwei has to keep a close eye on the development and
enhancement of user experience with increasing speed and access. This can completely transform the
customer user experience in the Leadership & Managing People industry.

- Maturity of technology – Based on data in Cebu Pacific Air case study, the technology in the sector is
still at nascent stage and most players are vying for new innovations that can enable them to garner
higher market share.

- Intellectual property rights and patents protection – If Cebu Gokongwei and the sector as whole will
have higher safeguards for IPR and other intellectual property rights then more players are likely to invest
into research and development.

- Empowerment of supply chain partners – Technology has shortened the product life cycle and it has
enabled suppliers to quickly develop new products. This has put pressure on Cebu Gokongwei marketing
department to keep the suppliers happy by promoting diverse range of products. It has added to the cost
of operations of the Cebu Gokongwei.

What are Environmental Factors in PESTEL Analysis?

Over the last decade sustainability and environmental factors are becoming critical for businesses.
Government and pressure groups are fast asking organizations to adhere to environmental standards.
Some of the environmental factors are – insurance policies, laws regulating pollution, safe disposal of
hazardous material, limiting carbon footprints, safe water treatment, increasing focus on sustainability,
safe waste disposal, climate change etc.

Environmental Factors that Impact Cebu Pacific Air PESTEL Analysis

- Customer activism – Greater awareness among customers has also put environmental factors at the
center of Cebu Gokongwei strategy. Customers expect Cebu Gokongwei to adhere to not only legal
standards but also to exceed them to become responsible stakeholder in the community.

- Regular scrutiny by environmental agencies is also adding to the cost of operations of the Cebu
Gokongwei.

- Paris Climate Agreement has put real targets for the national governments. This can result in greater
scrutiny of environmental standards for Cebu Gokongwei in both developed and emerging markets.
- Waste management especially for units close to the urban cities has taken increasing importance for
players such as Cebu Gokongwei. Government is fast coming up with strict norms for waste management
in the urban areas.

- Environmental norms are also altering the priorities of product innovation. In many cases products are
designed based on environmental standards and expectations rather than catering to traditional value
propositions.

- Extreme weather is also adding to the cost of operations of the Cebu Gokongwei as it has to invest in
making its supply chain more flexible.

What are Legal Factors in PESTEL Analysis?

Legal plays a critical role in any country. Cebu Gokongwei management has to consider following legal
factors before entering international market – copyrights law, system of justice, time taken to deliver
justice, intellectual property rights protection, biasedness toward home players, discrimination laws, data
protection laws etc.

Legal Factors that Impact Cebu Pacific Air PESTEL Analysis

- Environment Laws and guides – The level of environmental laws in the country and what Cebu
Gokongwei needs to do to meet those laws and regulations.

- Data protection laws – Over the last decade data protection has emerged as critical part of not only
privacy issues but also intellectual property rights. Cebu Gokongwei has to consider whether the country
has a robust legal and technological mechanism to protect against data breaches or not.

- Health and safety norms in the country and what Cebu Gokongwei needs to do to meet those norms
and what will be the cost of meeting those norms.

- Employment law in the country and how they are impacting the business model of the Leadership &
Managing People sector. Can these conditions be replicated or bettered in international market?

- Legal protection of intellectual property, patents, copyrights, and other IPR rights in various countries.
How Cebu Gokongwei will be impacted if there is not enough protection.

- Business Laws – The business laws procedure that government follows. Are these norms consistent
with international institutions such as World Trading Organization, European Union etc?

What is the PESTEL Analysis Framework and How to Conduct PESTEL Analysis for Cebu Pacific
Air

You can refer the PESTEL analysis above of Cebu Pacific Air to conduct the PESTEL analysis for the
case study or for the company you like to. You can use all the six factors - Political, Economic, Social,
Technological, Environmental and Legal to conduct the PESTEL Analysis. If you want to conduct PEST
Analysis then just use the four factors - Political, Economic, Social, and Technological.

What is the difference between PESTEL and Porter Five Forces Analysis of Cebu Pacific Air?

PESTEL, a complementary tool to Porter Five Forces Analysis, expands on the analysis of external
context by looking in detail at specific types of issues that frequently have an impact on implementation of
project/ initiatives.
References for Cebu Pacific Air (D) Case Study PESTEL / PEST Analysis

Gerry Yemen, Erika H. James, Marie-Grace U. Ngo (2018), "Cebu Pacific Air (D) Harvard Business
School Case Study, Published by Harvard Business Publications.

Euro monitor (2018), "Leadership & Managing People Sector Analysis ", Published in 2018.

A. D. Chandler, Strategy and Structure (Cambridge, Mass.: MIT Press, 1962)

L. Wrigley, Divisional Autonomy and Diversification (PhD, Harvard Business School, 1970)

M. E. Porter, Competitive Strategy(New York: Free Press, 1980)

O. E. Williamson, Markets and Hierarchies(New York: Free Press, 1975)

R. E. White, Generic Business Strategies, Organizational Context and Performance: An Empirical

Investigation, Strategic Management Journal7 (1986)

Reference: http://blueoceanuniversity.com/frontpage/pestelcase/7993-cebu-gokongwei