An Effective Response: Smoldering Crisis and Capacity Cost Management

• In Event: Management Accounting 1

Abstract

When risk mitigation fails, a company is often faced with one or more crisis events. Crisis can take many forms. A type of crisis, a smoldering crisis, can continue gaining momentum over time, slowly eroding the future success of an organization. This paper uses archival case analysis to look at how two airlines—Southwest Airlines and US Airways—responded to the smoldering crisis of loss of profitability and ridership in their short-haul markets over the period from the early 1990s to mid-2000s. These two companies made very different responses to the smoldering crisis, with US Airways choosing a structural response, triggering a cascade of smoldering and acute crisis, while Southwest emphasized executional strategic adjustments that allowed it to maintain profitability as it transitioned to new operating conditions.

Authors

• Charles R Thomas, Ecole hoteliere de Lausanne

• C J Connolly, US Coast Guard Academy