Classic Airlines Marketing Solution

University of Phoenix

MKT 571

Introduction
 Classic Airlines is the fifth largest airline carrier in the world. The company has

375 airplanes that service 240 cities and with more than 2,300 flights each day. Since the

company’s inception 25 years ago, the company has more than 32,000 employees. Last

year, the company had a net income of $10 million dollars on 8.7 billion in operating

revenue (Classic Airline Scenario, 2010). The net income has decreased $61 million in

one year. The previous year, the company shares decrease by 10%. The destructive

publicity from the media, Wall Street, and public has affected employee morale that has

hit an all-time low. Sequentially, Classic must implement a nine-step problem-solving

process to achieve the recommended marketing solution, evaluate all alternatives, and

select the optimal solution that will conquer major challenges. The problem-solving

model includes the following steps: 1) Define the situation or problem. Describe problem

in detail. 2) Redefine the problem and measure. Measure all levels of current

performance. 3) Set the goals. Goals provide direction and vision to help management

make the appropriate choices. 4) Determine root causes. Determine the reasons the

process is working or not working appropriately. 5) Select best strategy. Select the best

strategy to solve the problem. 6) Develop and implement the action plan: Clearly identify

the tasks and who will perform each task by when. 7) Evaluate results: Determine if the

action plan improved the process. Step 8) Implement appropriate changes in the process:

Create a process to ensure the improvements stay in place long term. 9) Constant

improvement by staying committed to improve the process.

Describe the current situation

Problem and Opportunities

 Classic Airlines has to identify potential opportunities to address the challenges that

affect the company’s bottom-line. Loyal customers were flying less frequent with Classic

Airlines. Customer loyalty is on the decline by 19% of the number of rewards members

and 21% decrease in flights for each member. The company attempted to reduce the price

of air fares to attract new customers and win-back old customers. Customers are

discontent with the level of customer service and the rewards offered by the existing

program. As a solution, Classic Airlines must enhance the frequent flyer program to

attract new customers, offer redemption options, and increase the rewards of annual

membership by 30%.

The board of directors recently mandated a 15% cost reduction over the next 18

months (Classic Airline Scenario, 2010). All five departments must participate in the

budget reduction exercise. The department reduction goals were as follows: marketing

(21.5%), sales and operations (11.5%), IT (14.10%), and administrative (18.5%).

Marketing’s goal can be achieved by reducing level two management (senior

management below director) salary by 0.5%, suspend tuition reimbursement program,

and executing 10% reduction in force. Finally, the rising costs of fuel and labor have

affected the company’s ability to compete with other airlines. Implementing a system to

save on fuel consumption and enhance fuel efficiency will reduce costs to a minimum.

The major problems of low employee morale, department cost reduction pressure, and

increase expenses can be accomplished through identifying root-cause and implementing

alternative measures of resolution.

Frame the “Right” Problem

 Classic Airlines will maintain strategic position in the airline industry. The company

will rebuild the customer’s confidence and establish customer loyalty, which will

increase their profitability. Classic Airlines will also improve employee morale, customer

service, and customer loyalty. These accomplishments will enable the company to

become a premier airline, increase profitability, and align with the marketing strategy to

achieve the needs of current and future customers.

Describe the “End-State” Vision and goals

Classic Airlines will strive to maintain the current standing as the fifth largest

airline in the industry. Several competitors will continue to measure success with Classic

Airlines as the industry leader. Classic will increase customer satisfaction by 20% for

consumers and small business owners. Classic will successfully create alliance with

other small airlines. The company will ensure profit maximization as well as overcome

Wall Street analyst projects on market share and stock performance. The stock value will

increase by 10% in three months. The frequent flyer participants will increase 20% in the

first six months. Employee morale will significant improve. Classic will reduce

operational costs by 25% in the first 12 months.

Identify Alternatives

American Airlines is the world’s second largest airline after Delta Airlines.

American Airlines is a subsidiary of AMR Corporation that has headquarters in Forth

Worth, Texas. The airline ranked 120 on the Fortune 500 list. American Airlines

increased shareholder value by building alliances with more than 21 airline partners. In

addition, the partnership increased customer miles and points with each purchase of

eligible flight tickets. Alliances were created with partners such as British Airlines, Jet
Airways, Gulf Air, and Hawaiian Airlines. The airline operates 1500 flights per day with

more than 160 destinations in Unites States of America, Mexico, The Bahamas, and

North America. The corporation earnings growth rate is 81.600. American Airlines has

been successful over years as the company understands the importance of improving

customer experience.

Like American Airlines, one alternative for Classic will be to focus more on

improving customer experience. Classic Airlines will increase the customer base through

improved customer experiences. Successful businesses tend to increase shareholder

value and constantly strive to improve employee morale. By soliciting employees for

input in critical business decisions, will ultimately add value in the company’s growth

potential.

Similar to American Airlines, a second alternative for Classic is to consider

partnership with other airlines to improve the frequent flyer rewards program. The

partnership will allow the company to be successful.

Third alternate is for Classic to revamp essentially the rewards program and focus on

the customer. To regain and grow the customer base, Classic’s management team should

mimic American Airlines and lead by example when interfacing with the customers.

Finally, by forming alliances with other airlines will assist Classic in meeting the 25%

reduction in operational cost. Similar to American Airlines, Classic is major airline with

both domestic and international flights. However, Classic Airlines has very limited

international access with limited flights to Europe. To expand the international

presences, Classic should create strategic partnerships with other international airlines.

With the international expansion and alliances, Classic will offer customers a 10%
increase in flight destinations.

A valuable tool used by many corporations to ascertain potential solutions is

benchmarking. Benchmarking allows a corporation the ability to evaluate challenges and

best practices in an effort to improve processes. Classic will benchmark the alternatives

against the airline competitors to evaluate challenges and process improvements.

Conducting quarterly surveys will assist in validating the benchmarks. In addition,

performing internal and extern audits is another form of validating Classics benchmarks.

A quality assurance team will perform the internal audits on a monthly basis whereas

third-party vendor will conduct external audits quarterly.

Evaluate the Alternatives

Exceeding customer expectations is one of the most important objectives in retaining

existing customers and acquiring new customers. The following alternatives will ensure

Classic Airlines succeed:

• Meet the 25% cost reduction goals ranks first. Classic will have an advantage in

competing in the rewards program.

• Improve customer relations ranks second. Retaining existing customer is cost-

efficient as opposed to acquiring new customers. Unsatisfied customers who leave

Classic may potential sway other customers to a try another airline.

• Increase customer confidence and loyalty ranks third. Improving the flight arrival and

departure times will add value in regaining customer confidence.

• Winning back customers and acquiring new customers rank fourth. The synergy of

partnering with other airlines will increase the frequent flyer membership.

• Building alliances with other airlines ranks fifth. Alliance agreements will improve
customer relations by providing points and rewards to the loyal customers. In addition,

the alliance will assist Classic in reducing operational cost through shared booking and

marketing operations.

There are four alternatives will ensure Classic much success in meeting the companies

end vision and goals. The key to finding optimal success is evaluating the alternatives by

reviewing the pros and cons of each alternative. By evaluating the alternatives, risk may

be involved and will require assessment in determining the best managerial decisions for

Classic Airlines. The optimal solution for Classic is to remain profitable in a competitive

market.

Identify and Assess Risks

The risk associated with implementing the new strategic solution is pivotal to the

success of Classic Airlines. Employee retention could become a dilemma because of low

morale that will result in an increase in cost to hire and train new employees. The union

workers could form a strike and protest against Classic for months that will result in lack

of productivity. Continued lost of customer would result in decrease in revenue which

will force Classic into bankruptcy. Refusal to partner with other airlines will result

increase in operational cost as well as fuel cost. Company shares could continue to

decrease 10% if preventive measures are not implemented in timely manner. The rewards

program could continue to decrease above 20%. Finally, the customer relations

management system is at risk of not reaching the full potential in which satisfied

customers will elude to other airlines. In summary, the company can mitigate risks by

implementing a solution that achieves the long term objectives and meet the needs of the

customers.
 Make the Decision

Classic Airline executives have to make a decision. The company has several major

issues though no one solution can resolve all the issues. Classic executives must evaluate

all the alternative solutions for solving the major issues. The first priority will be meeting

the 25% cost reduction objective. Next, Classic should focus on improving customer

relations by meeting the customer’s expectations in an effort to retaining the customer

base. Next, improving customer experience will add value to customer loyalty. Loyal

customers will fly more frequent with the airline. An increase in flights will definite will

increase sales and revenue. Reducing operational costs such as fuel expenses will be the

next obstacle to embark upon. Partnering with other smaller airlines will present

synergies for Classic such as increase in the rewards program, reducing operational costs,

improving customer relations, and improve purchase opportunities. Expanding the

rewards program will increase employee value as well as improve morale. Like

customers, the employees desire to take advantages of amenities and points in an effort to

improve the work experience.

Develop and implement the solution

Amanda Miller, Chief Executive Officer of Classic Airlines, must implement the

proposed marketing solution that involves the Nine-step problem-solving model. The

implementation will occur within 12 months. A project plan will be created to reflect the

specific tasks and expected delivery dates. Several companies have had success using the

problem-solving model to identify issues, devise a solution, evaluate the alternatives, and

resolve challenges. Renee Epson, Senior Vice-President of Customer Service will

collaborate with her peers over the next six months to revamp the CRM system to meet
the needs of the customers. Catherin Simpson, Chief Financial Officer, will present the

forecast budget cuts that will ensure the departments meet the cost reduction objectives.

Simpson will have 30 days to present the new budget to senior management.

Evaluate results

Classic has several opportunities that can be leveraged for measuring the results

of the decisions agreed upon regarding the customer relationship management. Classic’s

management team must examine the quantitative and qualitative results. Monthly and

quarter financial reports as well as stock analysis will measure the quantitative results.

Qualitative measurements can be obtained by reviewing the survey results taken by the

customers and employees. The survey results will be available through the CRM system.

The metrics will measure the end-state goal of improving customer satisfaction by 20%.

Once sales increase by 20% within the first year of implementing the solution,

management will have sufficient prove that Classic is meeting the end-state goals.

Redesigning the rewards frequent flyer program will increase customer satisfaction.

Classic stock performance indicators, P/E, return on equity, and dividend yield will give

an indication of how well the rewards program is progressing. By implementing the new

marketing solution, Classic will succeed in keeping the current standing of fifth largest

airline carrier in the world.

Conclusion

Classic management team has many challenges to resolve and make intelligent

decisions to make a strategic shift in operations. In order for Classic to obtain the end-

state goals, creating a functional customer relationship management system will be

essential. Classic must maintain adequate customer experiences that will increase sales
and revenue. In addition, happy customers and employee will assist Classic in meeting

the end-state goals. The new marketing solution presented several alternatives to resolve

each problem. The solution will ensure the company meets the customer needs without

exceeding the budget. Classic will gain much success by expanding in new international

markets and forming strategic alliances combined with improved customer service.

References

Classic Airline Scenario: Classic Airlines (2010). Retrieved July 11, 2010 from the

University of Phoenix MKT/571 Management Web site

https://myresource.phoenix.edusecure/resource
Kotler, P. & Keller, K. (2006). A Framework for Marketing Management (3th edition).

Pearson Prentice Hall, Upper Saddle River, New Jersey

Haughey, D. (2010). Smart Goals. Projectsmart. Retrieved March 23, 2010, from

http://www.projectsmart.co.uk/smart-goals.html