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Introduction
Strategic reorientation is a managerial response to eroding market competitiveness. As a discipline, strategic management has offered a variety of theoretical routes to meet the challenge of organizational turnaround ([66] Mahoney and Pandian, 1992). Turnaround scholars define reorientation as the ability of firms to adapt to the changing environment, representing a fundamental adjustment in a firm's value proposition ([57] Hoskinsson and Johnson, 1992; [68] McKinley, 1993; [11] Barker and Duhaime, 1997; [13] Barker and Barr, 2002). However, reorientation from a turnaround perspective requires more attention and further research ([10] Barker and Mone, 1994). One of the more intriguing and unsolved puzzles in turnaround theory is this: how do legacy airlines reorientate themselves in the turnaround process? In aggregate, this paper contributes to the literature on strategic turnaround by developing a better understanding of how turnaround can be managed effectively in the context of sharp recoveries in company performance within the legacy airline sector. We will draw on organizational decline, strategic reorientation and strategic change literatures to build a conceptual model to understand how legacy airlines manage their turnaround process when faced with declining profits.
In focusing only on legacy airlines we are emphasizing those companies that emerged in the pre-deregulation era and that traditionally offered a higher level of service and had more extensive cost commitments than low fare airlines (LFAs). These include companies like American Airlines, Air France, Alitalia and United Airlines. Most legacy airlines on both sides of the Atlantic have had to seek new market positions as markets deregulated in Europe and the USA over the past three decades. Many of these companies began as state-owned enterprises with entrenched monopolistic route rights. Today the industry looks radically different. Prominent legacy carriers such as PanAm, Swissair and TWA no longer exist, Alitalia and Olympic teeter on the verge of collapse, and Air France has merged with KLM. Some, such as Aer Lingus, re-invented themselves as a quasi low cost carrier. Market deregulation, the privatization of state-owned carriers and the onslaught of new competitors, especially in the form of LFAs, have caused the former flag carriers to rethink their business models.
Most recent airline industry success stories have tended to involve start-up LFAs rather than legacy carriers. The nimble, ultra-lean business models of...