Classic Airlines Marketing Solution-Mkt 571

Abstract

Presently Classic Airlines is one of the largest airline carriers in the world. Last year the company had a net income of $10 million dollars on operating revenues of $8. 7 billion. The year before the company had a net income of $71 million on 8. 5 billion of operating revenues (Classic Airline Scenario, 2010). The net income has decreased $61 million in one year. One of the reasons for the huge decrease in net profit is because of marketing strategies.

The company needs to take three stepsto turn the company around. First it needs to analyze the internal and external pressures that has created the present crisis. Second it needs to formulate a problem-solving method, and third it needs to apply the problem-solving method to the current crisis.

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Analyze current situation

Rising costs, particularly of fuel and labor, have limited Classic Airlines to compete for the valued frequent fliers (Classic Airline Scenario, 2010). To protect the company from possible bankruptcy, a 15% cost reduction has been implementedover the next 18 months.

Each department will have cuts, with marketing hardest hit at 21. 5% reduction versus sales and operations at 11. 5% (Classic Airline Scenario, 2010). The following shows the cost reduction goals by department (Classic Airline Scenario, 2010). To make sure Classic Airlines does not go into bankruptcy, the marking department needs to focus on three issues. First, the internal and external pressures causing the decrease in net income needs to be identified. A plan to decrease or eliminate the identified internal and external pressures needs to be formulated.

Second, the challenges of the marketing department needs to be solved. The third and final step is to formulate financial strategies by examining possible available resources and other airline's marketing solutions. Internal and external pressures Classic Airlines is faced with many external and internal pressures. External pressures include the present consumer uncertainty about flying. After the September 11, 2001 terrorist high jacking of anAmerican commercial aircraft, every airline has suffered the worse consumer's crisis the country has ever experienced.

Since the terrorist attack on airplanes, consumers have an unpleasant feeling about air safety. The travel downturn after September 11 has subsided, Classic Airlines overestimated the reversal,and expanded too quickly. That caused Classic to face a restrictive cost structure (Classic Airline Scenario, 2010). Shortly after the terrorist attack, the county entered its worse economic downturn since the Great Depression,which severely crippled the economic stability of world markets. The rising costs of fuel and labor has affected Classic Airlines ability to compete for the frequent flier.

Because of increased uncertainty about flying, the economic downturn, and increased labor and fuel costs, Classic Airlines has seen a 10% decrease in share prices in the past year. Other external pressures include: fierce price cutting from competitors, negative effects of the public created low employee morale, and declining confidence of the consumers. The internal pressures includean increasingly volatile union climate and the lowest employee morale in the company's history. The financial statements including the balance sheet, income statement, and cash flow statements shows a company headed for financial disaster.

Last year the net income of the company was $10 million, however;the year before the net income was $71 million, for a decrease of $61 million in one year. To counter further financial crisis the company has mandated a 15% cost reduction over the next 18 months. If the company can't meet the 15% reduction, the company faces bankruptcy (Classic Airlines Scenario, 2010). Other internal pressures include: increasing cost of labor, low margins, poor employee morale, decrease in customer satisfaction, poor customer service management, and expensive marketing budgets.

Objectives, obstacles, and resources available in the marketing department

The main obstacle in achieving the marketing objectives are that Classic Airlines can't cut prices further. The profit margins can't decreased to lower levels. The company's Customer Relationship Management (CRM) is not focused on consumer satisfaction. The Customer Relationship Management department has caused faithful customers to turn to the Internet for their travel needs. Another problem is that the company is trying to avoid bankruptcy by mandating a 15% cost reduction over the next 18 months.

This is marketing's biggest obstacle, to reduce costs by 15% when they need to increase marketing efforts.

Problem- solving method

By implementing the 9-Step problem -Solving Model, Classic Airlines can solve their challenges and at the same time uncover numerous opportunities. It serves as a valuable tool for all businesses, both large and small. It identifies the problem, plans the solutions, display ethical dilemmas, and defines ensuing issues. The 9 Step problem solving model includes the following steps:

• Step 1) Define the problem-Knowing exactly what the problem is.
• Step 2) Measure the problem- Measurement of the current level of performance, to be measured against future performance,
• Step 3) Set the goals-Goals provide direction and must be stated in terms that are measurable.
• Step 4) Determine root causes-determine why the process is working the way it presently does.
• Step 5) Select best strategy- Select a strategy that will best solve the problem.
• Step 6) Implement strategy- Develop and action plan to implement the solution.
• Step 7) Evaluate results- Evaluate the effect of the chosen solution.
• Step 8) Implement appropriate changes in the process- Improves and perfects the process.
• Step 9) Continuous improvement- Improve the process continuously (Problem-Solving Model, 2010).

To be successful in solving Classic Airline challenges, goals will be set and achieved.

The goals must address the main challenges of the company including lack of sales, decrease in net income, low employee morale, downturn in the Classic Rewards program, and required budget cuts. Goals will meet the SMART standard of beingspecific, measureable, agreed upon, realistic and time-based.

The goal, must be specific which means it iswell defined. Who is involved, what is to be accomplished, location, requirements and constraints should be identified and the reason the goal should be accomplished. The goal should be clear to everyone associated with the program. There must be an exact way for measuring the progress toward the goal. The goal should be agreed upon by all stakeholders and attainable, achievable, and action-oriented. The goal is realistic when people are willing and able to work for its achievement. A goal is realistic when people believe it can be accomplished in the set timeframe.

The goal should be set within a certain time frame (Haughey, 2010). Classic Airlines has formulated a table of SMART questions that address the challenges of lack of sales, decrease in net income, low employee morale, downturn in the Classic Rewards program, and required budget cuts (Haughey, 2010).

Marketing recommendations

Classic airlines needs to cut expenses to produce a net income and avoid bankruptcy. The following are some methods of cutting costs: direct booking through the internet or call center with no sales commissions.

Use uniform aircraft such as just the 737-300 airplanes, use a simple system of pricing, on the aircrafts use high seating density and load factors to be efficient, no frills such as free food or drinks, and use of secondary airports to cut charges and turnaround times. One of the ways Classic Airlines can make the airline more attractive to existing customers and new customers is to restructure the company's frequent flier program. Reforming the Classic Rewards program will be a challenge, however; the returns could turn the company around.

Rewarding frequent fliers with new rewards that include various redemption options could improve consumer moral and loyalty. Classic Airlines must provide better service to all their customers, especially the frequent fliers. The goal of the company should be to retain and win back customers, provide exceptional customer service, and offer attractive alternatives to redeeming their frequent flier miles. Providing exceptional service to their frequent fliers and meeting the need of each customer is a duty and obligation of Classic Airlines.

Classic Airlines should increase the number of miles Basic, Silver, and Gold members can use in a year by 10%. Classic Airlines should also decrease the number of black-out days. Without improving the frequent flier program, the company will continue to losecustomers, market share, and see net profit continue to decline. Alliance with other carriers would expand available routes and provide more options for frequent flyers to use their loyalty rewards. Alliance with other carriers could decrease its operating costs and increase net income. The company would benefit by becoming a larger company with more services.

References

1. Classic Airline Scenario, 2010. University of Phoenix materials-Classic Airlines Exhibit B. (2010). Retrieved on March 22, 2010 from University of Phoenix, Resource, MKT/571- Marketing Web site: https://ecampus. phoenix. edu/classroom/ic/classroom. aspx.
2. Classic Airline Scenario, 2010. _University of Phoenix materials-Classic Scenario: Classic  Airlines. (2010).  Retrieved on March 22, 2010 from University of Phoenix, Resource, MKT/571- Marketing Web site: https://ecampus. hoenix. edu/classroom/ic/classroom. aspx.
3. Haughey, D. (2010). Smart Goals. Projectsmart. Retrieved March 23, 2010, from: http://www. projectsmart. co. uk/smart-goals. html
4. Kotler, P. Keller, K. A framework for marketing management, 3rde. (2007). Prentice Hall. Retrieved on March 23,2010 from University of Phoenix, Resource, MKT/571-Marketing Web site: https://ecampus. phoenix. edu/classroom/ic/classroom. aspx.
5. Problem-Solving Model, 2010. BPI consulting. Retrieved on March 24, 2010 from: http://www. spcforexcel. com/problem-solving-model

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