Classic Airlines Problem Solution Paper

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 375 jets serving 240 cities with more than 2,300 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 share 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’ 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 optimistic expansion plans based on anticipated rebound of post September 11 travel. Classic’s Board of Directors recently mandated a 15% across-the-board cost reduction over the next 18 months. 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.

Describe the Situation

Issue and Opportunity Identification

Customer confidence is declining as well as Classic’s Rewards Program, which measured a 19% decrease in the number of Classic Rewards members and a 21% decrease in flights per remaining members. Rising fuel and labor cost have hindered Classic’s ability to compete for the valued frequent flier miles. The September 11 repercussions have caused Classic to face a restrictive cost structure unlike younger airline companies. And if that is not enough, Classic is facing a 15% across-the-board cost reduction over the next 18 months.

Some of the best opportunities often originate from problems. Classic Airlines could turn its problems into opportunities through carefully defining the situation so that the statement reflects the reality of the situation. Classic should target frequent business travelers who expect a higher level of individualized service than they might receive on competing airlines. Catering to these customers would help Classic Airlines increase customer confidence, reduce negative press, and increase profitability. This could be done without incurring additional cost, keeping in line with cost reduction and the challenge to do more with less (Kerin, 2006).

Classic Airlines should revamp its Classic Rewards Program by partnering with another airline to improve the customers’ flight experience. This would increase the frequent flyer mile purchase and partnership opportunities, which in turn would make Classic’s frequent flyer program more rewarding for the customer creating value. Since Classic Airlines cannot keep the cost of fuel from increasing, it must develop a way to enhance its fuel efficiency. Installing winglets on Classic Airlines’ carriers can do this. A winglet is a small extension on the end of an aircraft wing designed to reduce drag and thereby increase fuel efficiency.

Stakeholder Perspectives/Ethical Dilemmas

Anyone familiar with Classic Airlines can easily see ethical dilemmas within the organization. These ethical dilemmas have created some tension and have played a part in the inconsistent vision for Classic Airlines. CEO Amanda Miller and CFO Catherine Simpson see the industry as a numbers driven industry. CMO Kevin Boyle, VP customer service Renee Epson, and VP human resources John Hartman see the industry as a people driven industry. It seems that Classic Airlines has suffered a lack of customer service due to the vision of Miller and Simpson. It will be Kevin Boyle’s duty as the leader of the Classic Reward’s team to shed light on this issue in a manner that can convince Miller and Simpson to change strategy for the organization to be more customer service oriented. Although a CRM system was implemented at Classic Airlines, it has not been used properly and is not serving the customer. Epson has made this apparent to Miller and Simpson, but the issue has still not been addressed. Epson has a limited budget for customer service projects, and many of the customer service representatives have been under developed.

Other ethical dilemmas to note are the ethical dilemmas with the customers, other employees of Classic Airlines, and the shareholders for Classic Airlines. Due to the negative publicity brought on by the declining stock price, Classic Airlines has discovered a low morale with its employees and a low confidence with its shareholders. Classic Airlines’ customers also see this negative publicity, and it can be assumed that the negative publicity has been one of the contributing factors for the 19% decline in Classic Reward customers. This negative publicity, low employee morale, and low shareholder confidence can be addressed as soon as the root problem is corrected.

Frame the “Right” Problem

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 to become financially secure through growth opportunities, the revamping of its marketing strategy, and meeting the needs of its customers.

Describe the “End-State” Vision

Classic Airlines will maintain its position of being the fifth largest airline in the industry. Classic will increase profitability and customer satisfaction, which will improve Classic’s market share. Classic’s reward program will be reinvented to re-establish customer loyalty by partnering with another airline. Classic will tackle the problem of rising fuel cost by incorporating a system that will save on fuel consumption and reduce costs to a minimum.