Classic Airline: Problem Identification
Classic Airlines is the world’s fifth largest airline with a fleet of 375 planes that operate in 240 countries around the world. The airline firm posted earnings of more than $10 million on $ 8.7 billion of its total trading in the preceding year. The profitability has however not been enough to save the company from the global challenges that affect the airline industry.
The company’s stock prices have been affected by increasing uncertainty in the airline industry especially with increasing fuel, labor costs and the 9/11 terrorist attacks in New York. The uncertainty in the airline industry has also seen the airline face a 10% decrease in its share prices in the previous year. This has led the employees and customers to have low a confidence in Classic Airlines.
January 2005 saw Classic’s airline reward program having a 19 percent decrease in the number of members in the reward scheme when compared to 2004. The year 2005 also saw the airline experiencing a 21 percent decrease in the number of flights per members in the reward program.
According to the airlines customer loyalty report, 20% of customers who were once loyal Classic airline flyers were now flying with other airlines; the number of customers who used the airline frequently had also gone down. According to the report, the average number of frequent flier customers had also gone down by 20 percent (University of Phoenix, 2010).
The rising fuel and labor costs around the world also compounded the problem making it difficult for the airline to remain competitive. To prevent the company from facing a situation of possible bankruptcy, the Board of Director’s came up with a plan that would see the implementation of a 15 percent cost reduction in the company’s operations and activities in the coming eighteen months. Each business unit within the airline had to face budget cuts so as to create a financial turnaround.
The board also had to find a way to increase the number of members in its frequent flier program by incorporating techniques that would yield a return on investing in the program. The company is faced with the aspect of bankruptcy or complete financial losses if the cost reduction plan fails. The purpose of the paper will therefore be to look at the internal and external factors that affect the airline as well as look at the marketing department’s ability to create a solution that will see the Airline increase its customer base.
Internal and External problems affecting Classic Airlines
Classic Airlines faces some internal pressures and external pressures that affect its performance and cost reduction activities. Internal pressures faced by Classic Airlines include struggles to meet the 15% cost reduction targets in the next 18 months that will see a 15 percent reduction in the marketing department’s expenditure.
This would see some marketing activities being eliminated to ensure that money for the marketing activities is enough. Another internal pressure faced by the airline was the need to meet the contract guidelines set out by the airline union as it reinvents its classic rewards scheme (Boyle, 2005).
The airline lacks the proper customer service programs to deal with customers and their complaints. It lacks structures such as service elements to act on customer feedback on how to improve the airlines operations. The current customer relations management system (CRM) is mostly focused on decreasing the amount of time sales representatives spend on the phone talking to customers, thereby forcing the customers to turn to the internet to answer their questions.
This would create a situation that would lead to the downsizing of the representatives who have more knowledge about the airline’s customers than the top executives. The Classic Rewards scheme program has also presented an internal challenge to the success of the company in terms of retaining and gaining more fliers to its airline.
Members earn miles when they purchase a domestic or international ticket for one of the many flights Classic operates. The miles allow members to earn flier points which have been set to one point per flight mile. The minimum number of miles a member can fly in a roundtrip is 500 miles while the maximum miles are 2,500 for a roundtrip (University of Phoenix, 2010).
According to customer review results based on the rewards programs most of the customers in the flier program did not see the importance of redeeming their flier points as they were mainly focused on getting to their destinations regardless of the price.
The results also showed that 38 percent of the customers were dissatisfied with the number of miles they earned after flying with Classic Air. 56% were dissatisfied by the reward scheme set by the airline for redeeming their flier points. When asked if they would recommend the rewards program to their friends, 68 % said that they would not, which shows how bad the Classic Rewards Program is performing (UOP, 2010).
The airline also faces high maintenance costs for its planes as they have to undergo maintenance checks and repairs after every ten flights. In the event the planes need extensive repairs, new spare parts have to be purchased which come at an expensive price.
The company is also unable to carryout any expansion plans to its fleet because the cost of buying new jets is very expensive; purchasing a new fleet of planes would be in contradiction to its cost reduction program. Its inability to expand puts an added pressure to its already existing fleet to meet the changing flying demands of its customers (UOP, 2010).
Externally, Classic Airlines faces competition from three airlines which are British Airways, United Airlines and Northwest Airlines. These three airlines have a strong customer base that is loyal and their frequent flier programs are more successful and strong when compared to the Classic Airlines flier program.
The three airlines are also the major predominant players in the airline industry having a longer history than Classic Airlines. They also have a more worldwide recognition, meaning that they have a constant flow of frequent customers booking their flights despite the high fuel costs.
The company also faces external threats from the international oil industry because of the increasing global fuel prices. These increases have seen the airline being forced to increase its ticket fares to remain in business. High government taxes have also been an impediment for the airline to be able to record any profits.
The company faces taxes on ticket sales as well as purchases on plane spare parts. Another challenge that is posed to the airline from the external environment is the seasonality of customer flying. The Christmas holidays in December and January record the highest number of flyers while the months of June to September have the lowest number of recorded fliers (University of Phoenix, 2010).
Objectives and Obstacles of the Marketing Department
The main objective of Classic’s Airline Marketing department is to lure back its customers to the Airline’s reward program as well as get them to fly with Classic Air again. The other objective is to improve the stock prices of the company and improve shareholder, customer and employee confidence in the company.
These objectives can only be achieved if the marketing campaign successfully lures back its frequent fliers. The resources available to the department are in monetary terms. The department will need money to carryout advertising campaigns that are meant to draw customers back to the airline without having to discount ticket prices as the airline cannot afford to have any reductions in its margins (Boyle, 2005).
The department has to undertake its activities with a 15% reduction on its spending budget which has been necessitated by the need to meet the cost reduction efforts employed by the company’s Board of Directors. This will present an obstacle to the department’s marketing activities. Another obstacle that the department will face is stiff competition from competitors such as British Airways, Global Air and Northwest airlines who have a stronger client base than Classic Air.
Global air presents an eminent threat to the Classic’s rewards program because of the recent changes Global undertook to its frequent flier programs. The changes saw the company adding value added features to its loyalty programs.
These features are pre-boarding and handling services for Global Air’s top level frequent fliers as well as access to concierge services in any one of the hotels operated by Global Air. The Global Air frequent flier program has also undergone modifications to make it simpler to use and easier to understand by its members (Rodgers, 2004).
The department also has to face the obstacle of having a defective customer relations management system which is mostly system oriented instead of people oriented. The department has to fix in its limited budget, a plan that will see this system undergoing some modifications to ensure that it has a more customer service focus. This will involve hiring and retaining customer representatives to deal with customer’s who have complaints or who need assistance in redeeming flier points (UOP, 2010).
Problem Solving Model
The marketing solution that will be used to increase the number of customers in the rewards program will involve using the nine step marketing problem solving model. This model will be useful for the airline as it identifies the problems being experienced by the company, plans solutions for the problem and monitors the implementation of the solutions and records if there are changes that need to be made.
The first step of the model involves identifying the problem which in this case is the low stock price of the company’s shares which has been as a result of the low number of customers using the airline as well as customers in the rewards flier programs. The other problems that the airline faces are high labor costs as well as fuel costs which are affecting the airline industry as a whole.
The airline also has an ineffective customer relations management system. After identifying the problem the next step will involve problem definition where the identified problems are analyzed according to the weight and impact they have to the company.
The loss of customers to other airlines has had an adverse effect on the company’s stock prices which have recorded a 10 percent decrease. The number of frequent fliers has also decreased by a 20 percent margin. This reduction in stock prices and customers can mostly be attributed to the loyalty program which has proved to be ineffective and unsuccessful given that a majority of its members, both past and present, do not see its importance.
The loss of customers can also be attributed to the ineffective customer relations management system being used by Classic Airlines which has shifted from providing excellent customer service in the form of human interaction to customers interacting with the airlines website (University of Phoenix, 2010).
The high fuel costs have also made it difficult for the company to meet its expenditures without having to resort to drastic measures such as the cost reduction program. After defining the problems, the next stage will involve developing goals and objectives that will be used to deal with the problems.
The marketing department has been charged with the overall responsibility of winning back Classic’s customers to the airline and to the airlines customer rewards loyalty program. The department has come up with a goal of winning its customers through the use of intensive advertising and awareness campaigns that are meant to also restore customer and employee confidence in Classic Air (University of Phoenix, 2010).
The next stage of the nine step model will involve identifying alternative solutions to the problems. The airline needs to develop new priorities that will see current consumer needs being highlighted and met. Global Air changed its rewards scheme to meet its customer demands after the top level fliers protested in the media about its flier customer loyalty rewards program.
Classic Air needs to adopt a new change to its rewards system so as to attract more members to the program. The CRM system should be more focused on addressing customer needs as well as retaining the.
The airline needs to explore solutions that will see it identifying new market segments in the airline industry as well as develop customer retention strategies.
The airline also needs to leverage the feedback it gets from its stakeholders to address the issue of its stocks. To deal with the high fuel costs, the company can incorporate a fuel hedging program that will see a reduction of fuel expenses spent by the airline. After identifying alternative solutions, the most feasible of these solutions should be selected to address the problems (University of Phoenix, 2010).
Other alternative cost saving solutions to fuel hedging and cost reduction include reducing the number of reservations made in operation centers; developing an employee buyout program and eliminating the amount of commission’s travel agents receive (Boyle, 2005). Step five will involve selecting the most feasible solution.
The fuel hedging program will be a feasible solution to deal with the high costs of fuel that are affecting Classic Air and the other airlines in the industry. The hedging program is meant to reduce the amount of money the airline spends on fuel by 12 percent (Simpson, 2005).
The most feasible solution to making the CRM system to be more effective will involve using the customer retention strategies that will be used to retain customers to the loyalty program. The CRM should not be viewed as system but as a philosophy that puts the customer at the centre.
To increase its customer base without having to offer discounts to its airfare, the airline should enter into an alliance with another airline so as to ensure that there is an integration of customers into the reward program as well as code level sharing features (Boyle, 2005).
After choosing the most feasible alternative to deal with the problem, a risk assessment needs to be performed to determine what risks the solutions will have to the operations of the company. Such assessments will be carried out in the form of follow up interviews and test marketing.
Step seven will entail selecting the best options from the solutions to address the problems identified in the problem identification stage. The solution will then be implemented and undergo evaluation, monitoring exercises to ensure that it functions properly.
References
Boyle, K. (2005) Marketing project team meetings. University of Phoenix: Marketing Department 571
Rodgers, E. (2004) Global Air finally implements changes to frequent flier program. Springfield Business. Springfield, Missouri
Simpson, C. (2005) Report reflecting results of fuel hedging program, Company Email. University of Phoenix: Marketing Department 571
University of Phoenix (2010) Scenario: Classic Airlines. University of Phoenix Material: Marketing Department 571