Problem Solution Paper: Classic Airlines

Problem Solution: Classic Airlines

Introduction

This paper will cover an in-depth look and analysis of Classic Airlines, a twenty five-year-old passenger airline. Classic Airlines commands a fleet of more 375 jets that serve 240 cities with more than 2300 daily flights making it the fifth largest airline in the world (University of Phoenix, 2007). Classic has grown to an organization of 32,000 employees, and last year, it earned $10 million on $8.7 billion in sales (University of Phoenix, 2007).

The paper will give the reader background information concerning the current situation the company faces, determine the key issues in the situation, opportunities the company has to address, who this will affect, and the desired end-state goals of the company.

Situation Background

“Increased uncertainty about flying has affected industry stock prices across the board, and Classic has seen a 10% decrease in share prices in the past year. With a concerned investment community on the watch, the airline industry operates under a microscope, subject to scrutiny from all sectors. Not surprisingly, the negativity from Wall Street to the media to the public has affected employee morale, which is the lowest its ever been.

Consumer confidence also appears to be waning. By January 2005, Classic’s declining Classic Rewards program measured a 19 percent decrease in the number of Classic Rewards members, and 21 percent decrease in flights per remaining member. Clearly, loyal customers were jumping ship and the ones still aboard seemed to be flying less frequently -- or at least less frequently with Classic Airlines.

Rising costs, particularly of fuel and labor, have limited Classic‘s ability to compete for the valued frequent flier. Although the travel downturn that followed September 11, 2001 has subsided, Classic and many of its rivals overestimated the reversal and expanded too quickly. Now, these companies face a restrictive cost structure that younger airlines do not” (University of Phoenix, 2007).

Classic is now facing a mandated 15 percent cost reduction to take place over the next 18 months. The Board of Directors has not released much information on the current state of the company and this may be lending fuel to rumors that Classic may have to file bankruptcy if they are not able to control costs (University of Phoenix, 2007).

Issue Identification

There are many different issues facing Classic Airlines in the scenario. These issues are part of the reason for decisions the company is planning to make, and also results of the plans the company is enacting.

The first issue facing Classic Airlines is the reduction of customers who are flying on the airline. This member base is down by 20 percent, or 160,000 customers. The company is facing a crisis with losing their customers to competitor airlines.

In addition to the reduction in customer base, the airline cut flight prices over the past year. This price cut placed them right above their acceptable margins. The company is now facing a price war with other airlines, but they have no ability to lower their prices any further.

Classic seems to be facing a lack of trust in their image and brand. The company has realized a continuous drop in their stock prices over the past year. The rumors about bankruptcy are not helping to bolster their image to shareholders, which in turn gives them less ability to maneuver funds to needed projects.

Lastly, Classic Airlines is also mandating a cost reduction of 15 percent over the next 18 months. This cost reduction will hinder the ability of the company to effectively market their company to the public. Each section of the company is working with reduced assets while trying to grow the business.

Opportunity Identification

Classic Airlines has many opportunities to move itself forward towards a positive resolution. The CEO and the CFO of the company are focused on using available funds to use hedging the fuel prices for the upcoming year. They seem to be unsure about trusting marketing to pay off on the dollars they use to grow business.

One of the first opportunities facing Classic Airlines is the using CRM to gather data about the customer rewards program. With this information, the company can see what they need to focus on in order to bring customers back to the airline. This project holds the full support of the Chief Marketing Officer (CMO), but has others nervous. Many have not seen how this process can benefit the marketing department.

In addition, the company has an opportunity to enter into a marketing alliance with European and Latin American airlines. This alliance could cost the company more