Classic Airlines

Running head: SITUATION ANALYSIS AND PROBLEM STATEMENT: CLASSIC AIRLINES

Abstract

"Marketing is an organizational function and a set of processes for creating, communicating,

and delivering value to customers and for managing customer relationships in ways that benefit the organization and its stakeholders" (Kerin, 2005). Marketing is a fundamental key to any businesses success and involves determining the needs, wants and desires of consumers and satisfying them to the best ability.

The context of the paper will examine the case study of Classic Airlines and provide an in-depth situation analysis starting with a brief background of the scenario, identify the issues and opportunities, explore stakeholder perspectives and ethical dilemmas. Continuing through the problem definition guidelines, a problem statement will be developed and end state goals will be identified which will provide the foundation for proposed solutions and analysis of the solutions. A risk assessment and mitigation will help to identify the optimal solution which will lead to the development of an implementation plan and finalize with a gap analysis.

Situation Background

The terrorist attacks that rocked the United States on September 11, 2001 and others which have occurred around the world have heightened international awareness to the dangers of terrorist activity and had serious repercussions on the economy and business (Johnston, 2005). Sharply rising and declining stock prices, uncertainty about flying, and increased prices have left investors skeptical of the viability of investing and concerned about higher risks due to an uncertain future. Despite this, the airline industry has been fighting back and many companies are undergoing dramatic changes to find their competitive advantage as competition on a global scale within the industry is increasing with each passing year. As the economy picks up and technology continues to be a prominent driver of business, the consumer base is becoming more demanding for full circle travel providers.

Classic Airlines, the world's fifth largest airline, has been in business for 25 years and employs over 32,000 people. Currently Classic Airlines has a fleet of 375 jets, serving 240 cities and operating over 2,300 flights per day (Anonymous, 2007a). Declining sales, market share, profitability and membership in their rewards program has Classic Airlines facing an industry of consolidation and extreme competitiveness. According to their financials for the past year, Classic Airlines would have been losing money if it were not for the $15 billion aid package passed by Congress for the airline industry (Kaye, 2002) which is resulting in a $22 million Income Tax Provision credit for the company. Based upon this and the latest Customer Loyalty Report, Chief Executive Officer, Amanda Miller, has tasked members of the leadership team with improving their frequent flier program with methods that will demonstrate a measurable return on any investment while still meeting the cost reduction goal and without discounting fares. In addition, the Board of Directors recently mandated a 15% across-the-board cost reduction over the next 18 months (Anonymous, 2007a).

Issue Identification

There are a number of issues Classic Airlines needs to address and the primary issues the senior leadership team needs to address in turning the Classic Rewards program around are: declining Classic Rewards membership as a result of low customer satisfaction, inefficient use of the Customer Relationship Management system and not having an alliance agreement in place. Classic Airlines has faced a number of challenges between the terrorist attacks, rising fuel prices and higher labor costs to increased security measures and declining membership in the Classic Rewards program. They have tried discounting fares in order to remain competitive and recruit new customers, but these attempts have been to no avail. In addition there has been a severe decline in customer satisfaction as evidenced by Kevin Boyle's conversation with existing customers and the recently released Customer Loyalty report. Customers are unhappy with a number of items including the service they receive when calling the help desk and the rewards they receive as part of the Classic Rewards program.

The second issue is inefficient use of the CRM system. Classic Airlines' CRM tool is one of the most powerful in the industry but has been ineffectively implemented. Classic Airlines has failed to totally integrate the CRM tool thereby compromising the level of customer service representative are able to provide to customers. In addition, the data being collected by the system is not a true representation of their customer base. Classic Airlines needs to update their segmentation strategy in order to realign with customers.

The third issue impacting Classic Airlines ability to meet customer need is the fact Classic Airlines is the only airline without an alliance agreement. The lack of an alliance agreement is limiting the flight options available to customers and thereby restricts their ability to earn and redeem reward miles. This also has the indirect effect of creating more work for customers when shopping for flights; in so far as, the customer has to visit multiple website and conduct multiple searches to obtain flight information versus having a single point of access.

Opportunity Identification

Despite the issues Classic Airlines faces, there are a number of opportunities to focus on in resurrecting their rewards program. The first opportunity is to redefine their segmentation strategy by leveraging and fully integrating the existing CRM tool. By fully integrating the CRM tool across phone and web portals, Classic Airlines will be able to obtain more accurate data about their customers. In addition this information will enable the customer service representatives to provide better service to customers regardless of the media used to make reservations.

This data will help Classic Airlines better identify with the customer's perspective creates another opportunity which is to redefine the reward program parameters to better meet the need of customers.

The third opportunity is to further explore an alliance with other carriers. Forces in the global marketplace increasingly require companies to collaborate with local and overseas partners for market efficiency and responsiveness (Ohmae, 1989). This trend is echoed in the development of alliance activities within the airline industry.