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JMoore Wk6 Classic Airlines Problem Solution
JMoore Wk6 Classic Airlines Problem Solution
Jim Moore
University of Phoenix
Group MBAA0EO7A0
Milton Peters
December 8, 2008
Problem Solution: Classic Airlines 2
Classic Airlines, the world’s fifth largest airline, has been in business for 25 years and
employs over 32,000 people. Classic Airlines has a fleet of 375 jets, serving 240 cities and
operating over 2,300 flights per day (University of Phoenix, 2002). A decline in sales, market
share, profitability and membership in the rewards program has resulted in the airline facing a
restrictive climate in the industry based on airline consolidation and extreme competition. Based
upon the declining metrics and the latest customer loyalty report, Chief Executive Officer
Amanda Miller has tasked members of the leadership team with making sweeping improvements
to the frequent flier program. By using methods that will promote a measurable return on any
investment while still meeting the cost reduction goal and without discounting fares, reaching the
end-state vision is within reach. In addition, the Board of Directors recently mandated a 15%
across-the-board cost reduction over the next 18 months. Classic Airlines desires to boost
consumer and employee confidence by keeping costs down while increasing customer and
employee satisfaction in the company. To accomplish this, Classic Airlines will need to analyze
customer feedback to understand long-term forecasting and marketing objectives. The objective
of this paper is to present Classic Airlines’ issues and opportunities, stakeholder perspectives,
ethical dilemmas, definition of the problem, the end-state vision and propose the optimal
solution.
Classic Airlines has several diverse factors influencing their marketing activities which
are largely uncontrolled. The company is faced with rising fuel and labor costs. These large
increases have forced cost-cutting through high passenger load ratios and better efficiency,
Problem Solution: Classic Airlines 3
however, these costs remain an obstacle to high profitability. The airline industry is still
recovering from the effects of 9/11 after over-expansion following the downturn. Consumers
have also shown less willingness to travel on lower discretionary income in light of recent fuel
prices. Each company in the industry is facing similar issues, yet competition has increased.
Classic Airlines must identify where to cut costs yet continue to provide a positive return on
Classic Airlines is facing declining consumer confidence in the airlines with a 19%
decrease in rewards members and of those members there has been a 21% decrease in activity.
Some members of the executive team appear to be more concerned with financial numbers rather
than improving customer service. Classic Airlines needs to maximize customer needs and
increase brand loyalty to regain customer and investor confidence. Marketing has become
increasingly important because it puts the customer first to achieve the company’s goals; Classic
Airlines’ marketing needs to know as much as they can about current and potential customers.
Classic already collects data on key customer comments which should continuously used to
Classic Airlines has a solid base to start from to rebuild customer relations. The customer
should be at the core of the business to help determine consumer requirements. The company
already possesses an advanced Customer Relationship Management (CRM) system and they
have the opportunity to restructure a more integrated and valuable system using the existing tool
to its full advantage. The company could integrate the system across the phone and web portals
so they could extract more information from their customers to help improve the customer
experience. “CRM systems are tailored mainly for interactive marketing rather than large-scale
batch operations, and to work well as outbound channels they need real-time methods to - as the
Problem Solution: Classic Airlines 4
saying goes - reach out and touch someone: e-mail and telemarketing” (Fowler, 2003, ¶ 6).
position the product for more than just leisure and business travelers. Classic Airlines needs to
focus on head-to-head positioning by competing directly with the other major airlines. Classic
Airlines should also seek to differentiate through service and quality (Kerin, Hartley, Berkowitz,
& Rudelius, 2006). Classic Airlines must understand why each consumer books and why they
are traveling. Classic Airlines has already identified that the segmentation strategy is outdated
and does not match what customer values. The CRM system could help to create and automate
personalized marketing to communicate with customers and increase loyalty. The software needs
to build profiles on its customers to help serve each individual customer. This, in turn, will
Classic Airlines’ loyalty rewards program needs to be revamped and once the program is
restructured, it needs to be properly marketed to the target customers. The company was over-
concerned with prices and not as concerned with the loyalty program so it has not grown with the
customers and the company. The loyalty program should be fully integrated with the CRM
system to produce best results. Customer feedback has already indicated that most business
passengers do not put price at the top of their list when choosing an airline. These travelers desire
Classic Airlines has the opportunity of building a new alliance with Skyway Airlines
which many stakeholders would see as a strength-builder in the eyes of the industry. The alliance
would afford the customer added value by offering a more extensive set of rewards. Weber
(2005) states a number of benefits to airline alliance partners, obviously from the airlines’
perspective, “increased revenue and passenger numbers, greater reach, access to slots/gates and
Problem Solution: Classic Airlines 5
marketing, service costs, and the eradication of duplication of operational efforts” (p. 257).
Classic Airlines would be able to market this new alliance to maintain and attract new customers
Classic Airlines’ internal stakeholders, specifically its employees, are suffering low
morale due to the public’s negative outlook, fear of job cuts and insecurities. The employees
listed the following on the consulting survey: “They want to feel valued, have career
are the cornerstone to a successful company therefore Classic Airlines needs to treat their
employees as internal customers, understand what the employees want, need and how the
In addition to examining the issues, the company must consider the the stakeholders and
the associated ethical dilemmas. Classic Airlines has four main stakeholders in this scenario: the
employees, company management, shareholders and the customers. The employees in this case
have several interests that do not appear to be addressed by the company. The Vice President of
Human Resources has worked to educate employees on their importance to the organization. The
employees desire better compensation, job security, benefits, growth and advancement
opportunities. At times, management’s interest in company productivity may interfere with the
need to provide incentives and motivation for employees. If customer service employees are
satisfied with their jobs, they will be able to tend effectively foster good consumer relationships
Shareholders desire a return on their investment and to feel secure that the company is
Problem Solution: Classic Airlines 6
working in the shareholder’s best interest. The investors have chosen to invest in Classic Airlines
and have a right to be informed when the company is experiencing difficult times and what any
strategies or tactics will be employed to turn a profit. The stockholders want to know the trends
and the sales forecasts; management needs to give them the most informed answers, even if those
The Executive management and CEO, Amanda Miller, identified the necessity of
positioning Classic Airlines for success by revamping the customer rewards program.
Management realizes that the the airline must improve the relationships with customers and
establish credibility with employees. Customers’ needs for better service may come in conflict
with cost restructuring. The customers want better service, amenities, flexibility, maximum
frequent flyer miles,and easy access to all the locations that they want to go, with the least
amount of layovers. They want to do this safely, on-time and with no problems with luggage
handling. Customer service can be a costly expenditure that management mistakenly sees as an
easy target. Classic will need to tailor their services with what customers truly value at heart – a
reality that management needs to face when considering how to restructure the rewards program.
After analyzing and understanding the issues, opportunities, and stakeholder perspectives,
Classic Airlines must formulate a problem statement that will help the company make the best
decision. The problem statement is - Classic Airlines will maintain its strategic position in the
airline industry by creating customer confidence and loyalty, improving profitability and aligning
with its stakeholders. This will enable Classic Airlines to become financially secure through
growth opportunities, formation of strategic alliances, the revamping of its marketing strategy
Classic Airlines will maintain its position of being the fifth largest airline in the industry.
Classic Airlines will increase profitability and customer satisfaction, which will collaterally
improve the airline’s market share. The one-year goals attached to increasing market share
include a 15% increase in new customer base, a 20% increase in customer loyalty and a 30%
increase in customer satisfaction, measured by surveys and feedback. Classic Airlines’ reward
program will be revamped to reestablish customer loyalty through forming new alliances with
other airlines. In addition, the airline will address the problem of rising fuel cost by incorporating
a system that will save on fuel consumption and reduce costs without sacrificing quality service.
After a thorough review of the problems, actions, and results for Classic Airlines and
other companies, the analysis revealed three key concepts that each corporation either did well or
failed to accomplish. These concepts involve integrating and enabling different channels with
existing CRM, performing customer segmentation analysis, revamping the rewards program,
Hawaiian Airlines (HA) was successful in concentrating on enabling its current CRM
methodologies by enabling the web channel. This effort resulted in HA’s price responsiveness to
be more agile and responsive to market forces and competition. Aloha Airlines, unfortunately,
wasn’t so adept at this process and ended up filing for bankruptcy after 60 years of doing
business. Aloha Airlines, having not taken risk into consideration or doing a thorough scanning
of the competitive landscape, failed in sustaining business and booking rates. Classic Airlines is
losing their competitive edge in the airline industry and must focus on creating a quality product
Problem Solution: Classic Airlines 8
that will strengthen the bond between the company and its customers, resulting in a long-term
customer loyalty. The key objective for Classic Airlines is to determine what their customers
need in order to increase sales and booking rates without regard to channel. This can be
exemplified by JetBlue’s success in market research of customer’s desires. The research revealed
that customers want low fares, exceptional loyalty program benefits, more comfortable seats,
more on-board entertainment options and world-class customer service. JetBlue leveraged an
effective CRM system to improve its service offerings and become a carrier of choice in a
competitive landscape. Classic Airlines should follow JetBlue’s discovery and enable its CRM to
take advantage of customer needs and implement them. Classic Airlines does not have an
effective CRM and does not focus on customer relationships (University of Phoenix, 2002).
Classic Airlines could build a new alliance with Skyway Airlines which would help
Classic become the industry leader in this arena. Classic Airlines should look at other rewards
programs and understand that many successful programs use alliances to create synergy and
create growth through offering additional travel destinations. Ohmae (1989) raises the
importance of growth and reduction of fixed costs by forming partnerships, “To compete in the
global arena, you have to incur – and defray – immense fixed costs. You need partners” (p. 144).
Classic Airlines could rely purely on cost-cutting in order to turn the company’s profit-
margins problem around while waiting for the market to improve. Aloha Airlines, as previously
mentioned, attempted this strategy and was unsuccessful. The competitive landscape, at the time,
did not afford Aloha’s return to higher rates – without making other cuts in service routes or
Classic Airlines will need to create value and establish new systems and procedures to
Problem Solution: Classic Airlines 9
optimize productivity. With the help of other successful companies that are in line with their own
goals, Classic Airlines can begin to establish diversification in the airlines forum and show
stakeholders the benefits of a new venture. To be an industry leader, Classic Airlines will need to
embrace innovation facilitated by close interaction with consumers and other vital stakeholders.
The first goal, increase revenue, will be directly affected by having a sound CRM. A
properly managed CRM will guarantee future obligations are met, which in turn will increase
revenues and cash flow. Increasing profitability can be achieved by streamlining operations
across the organization. By analyzing the problems Classic Airlines can identify issues should
Increasing customer loyalty participants and expansion of the customer base, the second
and third goals, can be achieved by revamped marketing techniques. A restructured rewards
system with the new alliance will help in meeting this goal. Although the process of expansion
increases capital expenditures in the near term, long-term effects of this program eventually help
the growth of the organization. By having an unyielding marketing management system the cash
implementing a solid CRM and instituting a viable restructuring plan. The restructuring plan
needs to be presented to the board of directors, management and employees. Classic Airlines
should also share the plan with its contractors, vendors and third-parties to glean professional
feedback. Classic Airlines should replace weak members of top executives and the board of
directors. Then reduce management layers because often unprofitable companies are bloated
with middle managers. Above all, communication of all changes to the main stakeholders
Classic Airlines needs to choose the most viable solutions and perform further evaluation
of risks and benefits. Based on an analysis of alternative solutions and how these solutions meet
goals established by stakeholders’ needs, the secondary alternative was a clear winner. However,
Classic leaders have to bear in mind the risks and benefits associated with each available
alternative and the leaders must consider all these before choosing and implementing a specific
solution.
The major risks involved with seeking out and entering into alliances and partnerships
with other carriers include loss of customer base due to discontent with partner, alliance
members not adhering to agreements and lack of leadership buy-in. These are all low-probability
risks, however the consequences can be devastating to Classic Airlines’ profitability including
decreased revenue and customer inconvenience. Mitigation strategies for these risks include clear
communication to customer base before negotiating an alliance, foster strong relationships with
alliance members and draft a clear project plan for leadership buy-in.
With expanding the CRM component, there are risks of high-cost overruns, loss of
control with project scope, misalignment of goals, lack of change management and analysis does
not bring useful information. Budget-related risks are medium to high probability, however they
oversee the project and all aspects, conduct thorough research of contractors and vendors and
ensure that proper market segments are identified. The consequences of the risks include CRM
system would fail before implementation, heavy and unplanned financial outlays and resistance
An overhaul of the current rewards program does not carry heavy risks, however, the
Problem Solution: Classic Airlines 11
risks still need to be considered. Risks may include no membership increase, high costs of
analyzing and developing and lack of internal stakeholder buy-in. Budget considerations are high
probability, however the other risks are medium to low. The consequences include resistance to
change, cost overruns and implementation failure, all carrying high severity. The mitigation
techniques would again include clear communication, strong key-player emplacement for project
management and clearly documented project scope with necessary change management controls
in place.
Any recommended solution should be made only after Classic Airlines has assessed and
analyzed existing marketing strategies and identified the various opportunities available for
solution had an optimal individual strength that best satisfied one of the end-state goals. The
optimal solution for Classic Airlines will be a combination of the alternative solutions that
provide for integrating CRM, restructuring the awards program, and joining the marketing
alliance.
The optimal solution will allow Classic Airlines to meet their end state goals. Using the
above systems will allow them to build their brand image and profits, reduce operational costs,
and meet all customer demands. Analyzing and responding to ethical issues will give them the
ability to maintain a positive relationship with all vendors and stakeholders, while avoiding any
conflicts of interest.
In proceeding with the secondary alternative and most optimal solution, overhaul rewards
program and enter into additional alliances with other carriers, Classic Airlines first begin to
Problem Solution: Classic Airlines 12
improve on the customer’s satisfaction through CRM. After finding the correct company to sub-
contract to and agreeing on price, the system will be upgraded. Along with the changes, a
representative of the new CRM software will take several weeks to train key players in
management.
The next phase will be to build strategic business alliances with business to improve the
rewards program. This will require several weeks of benchmarking and research to find the right
company and products. The marketing department will then begin its campaign to introduce the
Classic Airlines has several options it can use to measure the results of the decisions it
made regarding its customer relationship management. When evaluating results, importance
must be taken to examine both quantitative and qualitative results. The first measurements will
be quantitative, where as the success will come from improved revenue as will be evident on the
monthly/quarterly financial reports and daily stock prices. A second measurement will be
qualitative which will be derived from questioning the passengers and employees through
surveys and the results provided by reports generated through the use of the CRM system.
By developing strategic alliances with other companies, Classic Airlines will be able to
provide its customers with destinations that are not presently available. Within the strategic
alliances, Classic Airlines may be able to better use or even prevent having to lay up it resources
aircraft during winter months. However, senior management and the workforce need to
understand that the loyalty program is not just points and gifts, the program is a true reflection of
Classic Airlines.
Problem Solution: Classic Airlines 13
Conclusion
Classic Airlines is faced with the need to make a definite, strategic shift within its
operating structure. The goal is to evaluate all options available with regards to the updating
Classic Airlines’ rewards programs, value-added consumer packages and CRM solutions to
optimize key elements of the company’s overall business plans. For Classic Airlines to reach its
end-state, effective customer relationship management will be essential. This includes effective
forward looking environmental scanning, improved forecasting, and organizing for current and
future CRM initiatives. To manage its recovery and future growth, Classic Airlines must ensure
it maintains adequate customer levels and have plans in place to handle fluctuations in buying
patterns by its consumers. By fully marketing the benefits of expanding into new market areas
through strategic alliances combined with better customer service, Classic Airlines will one
.
Problem Solution: Classic Airlines 14
References
Fowler, J. (2003, October 1). CRM is a four-letter word. Direct, 15(13). Retrieved December 4,
Ohmae, K. (1989, March/April). The global logic of strategic alliances. Harvard Business
Kerin, R. A., Hartley, S. W., Berkowitz, E. N., & Rudelius, W. (2006). Marketing (8th ed.). New
University of Phoenix. (2002). Scenario Two: Classic Airlines. Retrieved November 19, 2008,
Weber, K. (2005, February). Travelers’ perceptions of airline alliance benefits and performance.
Journal of Travel Research, 43, 257-265. Retrieved November 22, 2008 from SAGE full-
text collections.
Problem Solution: Classic Airlines 15
Table 1
Table 2
Stakeholder Groups
with Competing Values The Interests, Rights, and Course Concept
Values of Each Group
List: Group X
versus Group Y
Chief Executive Officer The CEO, Amanda Miller, is a “Meaningful customer
vs. Senior Management center of accountability as the relationships are achieved by
leader of the organization her the firm’s identifying creative
decisions will determine the future ways to connect closely to its
of the company. Presently customers through specific
Amanda’s decisions are opposite marketing mix actions
her staff’s where alliances are implemented in its marketing
concerned. program” (Kerin et al., 2006,
p. 16).
Employees vs. Classic Interests: career progression plan, Uncertainty is plaguing the
Airlines on the job training, incentive plans, employees who are worrying
motivation about their job security during
Values: ability to support family, an industry downturn and
productivity, accountability amid cost-reductions. The
employees feel under-valued,
insecure; want to have career
opportunities and information
available, and a challenging
and motivating work
environment. When
employees are not motivated,
their customer service tends to
suffer and will conflict with
the customers’ desire for good
service.
Customers vs. Classic Interests/Rights: customer care, fair Classic Airlines’ executives
Airlines price, convenience, timeliness, need to properly identify key
quality, incentives, options, drivers of customer value and
innovations understand their customer.
Values: honesty, integrity, Currently they are not
accountability, trust effectively using the
marketing research from
Problem Solution: Classic Airlines 19
customer surveys which
leverage customer feedback
and indicate what business and
leisure travelers’ desire from
Classic Airlines.
Stockholders vs. Classic Interests/Rights: increased Classic Airlines must
Airlines confidence, return on investments, restructure and differentiate to
receive high dividends, optimize beat out the competition which
revenue, early notification and will increase shareholder
involvement value. Classic Airlines must
Values: integrity, loyalty bring back the dissatisfied
frequent flier. The company
must analyze
industry/competitive trends to
benchmark best practices to
make the shareholders happy.
Problem Solution: Classic Airlines 20
Table 3
Increasecustomer satisfaction
Expand customer base
programmembership
IncreaseRevenue
(A)Seekoutandenter into
allianceagreements with 4 4 5 4 3
othercarriers
(B)ExpandCRMand
0 3 5 4 5
implementnewtechnology
(C)Overhaul current
5 4 4 5 4
rewards program
Secondary Alternative Solutions
Overhaul rewards programandenter
intoadditional alliances withother 5 4 5 5 4
carriers
Problem Solution: Classic Airlines 21
Table 4
Table 5
Table 6
Table 7
Evaluation of Results