Classic Airlines Scenario

University of Phoenix Material

SCENARIO: CLASSIC AIRLINES

Company Overview

The world's fifth largest airline, Classic Airlines, commands a fleet of more than 375 jets that

serve 240 cities with over 2,300 daily flights. In the 25 years since its inception, Classic has grown

to an organization of 32,000 employees, and last year, it earned $10 million on $8.7 billion in

sales.

Though profitable, Classic is no stranger to the challenges that plague today‘s airlines. Increased

uncertainty about flying has affected industry stock prices, 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, the media, and the public has affected employee morale, which is the

lowest it has ever been.

Consumer confidence also appeared 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 a 21 percent decrease in flights per remaining member. 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.

To counter any further financial crisis, Classic's Board of Directors recently mandated a 15

percent across-the-board cost reduction over the next 18 months. Within that mandate, Classic

must still find a way to beef up its frequent flier program with methods that will demonstrate a

measurable return on any investment (ROI). While the board is playing their cards close to the

vest, the rumor mill is churning with word that if Classic cannot meet the reduction, the company

faces bankruptcy.

Attachments:

A: Financial statements (past two years)

B: Chart of stock prices (past two years)

C: Cost reduction plan by department

Key Players

Amanda Miller, Chief Executive Officer (CEO): Amanda was hired as Senior Vice President of

Operations in 2000 and groomed to take over as CEO following the retirement of former CEO

Jack Broadway in 2002. Prior to that, Amanda was CEO of Jackson Energy, the leading utility

provider to the Southeastern United States. A graduate of a leading business school with an Ivy

League JD, Amanda had a private law practice before going corporate. Her pragmatic approach

to operational excellence often leaves her little patience for "soft" business disciplines such as

marketing.

Catherine Simpson, Chief Financial Officer (CFO): More than 20 years ago, Catherine

graduated business school and immediately began work as Classic‘s financial analyst, ultimately

working her way up to CFO. Catherine is "driven by numbers," and her practical philosophies

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about business are frequently in line with Amanda's.

Kevin Boyle,