Classic Airlines

Running head: PROBLEM SOLUTION: CLASSIC AIRLINES

Problem Solution: Classic Airlines

University of Phoenix

Problem Solution: Classic Airlines

Classic Airlines is the world's fifth largest airline with a fleet of more 375 jets and serving 240 cities with more than 2300 flights daily. Classic Airlines has grown to an organization of 32,000 employees since starting operations. Last year the company recorded $10 million profit on $8.7 billion in sales. Although the airline is profitable, its stock prices have decreased by 10% in the past year and employee morale has been at its lowest due to increase scrutiny on the airline industry from all sectors of the economy. (Classic Airlines, 2007)

Classic Airline's customer loyalty is on the decline as evidenced by the 19% decrease in the number of Classic rewards members and 21% decrease in flights per remaining member as of January of 2005. The company is also facing a restrictive cost restructure due to overly optimistic expansion plans based on anticipated rebound of post 09/11 travel. Classic's Board of Directors recently mandated a 15% across-the-board cost reduction over the next 18 months (Classic Airlines, 2007).

Within the constraints of the mandate, Classic also needs to improve its frequent flier program with methods that will demonstrate a measurable return on any investment while still meeting the cost reduction goal. Classic is the only carrier which does not have a partnership alliance agreements, under the assumption that no one else can understand or meet the needs of its customers better than itself. In addition, the carrier implemented a pricing strategy that put it in direct competition with younger airlines, which do not have the same cost structure as Classic, resulting an advantage for the competition.

The ability of Classic to accurately predict changing market and consumer trends will enable the carrier to augment marketing campaigns, adjust budgets, and reallocate resources to take advantage of prevailing trends or conduct informational and promotional marketing during the off peak seasons. The more data that Classic can collect from all sources, but especially existing customer, the more accurately the carrier can predict and meet changing or unmet needs. Therefore the methodology used and the operational philosophy of Classic needs to be aligned with such a strategy.

Describe the Situation

Issue and Opportunity 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.

The company has 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.

Another 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 and creates an opportunity to redefine the reward program parameters to better meet the need of customers..

Another 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 (Kay, 2002). This trend is echoed in the development of alliance activities within the airline industry. "Alliances in the airline industry allow carriers to enter markets indirectly where cost and regulatory barriers would foreclose direct entry. They are a means to link multiple markets together, such as North America, Europe and Asia" (Ghobrial, 2007). By entering into an alliance with Skyway Airlines, Classic Airlines will further expand their ability to meet the needs of their customers and position themselves as an industry leader.

Stakeholder Perspectives/Ethical Dilemmas

This paper has identified four major stakeholders involved in Classic Airlines issues. These stakeholders all play a role in decisions made either directly or indirectly within the company.

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