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Classic Airlines has the reputation of being the world's fifth largest airline, which commands a fleet of more than 375 jets that serve 240 cities with over 2,300 daily flights. Classic, around for more than 25 years, employs more than 23,000 employees and the year before this report earned $10 million on $8.7 billion in sales.
Classic also has a glorious reputation for its integrity with Labor Unions due to the fact that it accords fair wages to employees and pilots -- ranging on the high-end of the spectrum -- and catering to comfort of employees.
Unfortunately, whilst employees are content, consumers are not. The disaster of the recession coupled with terrorist scares has caused reduction in consumers flying the airlines with increasingly more of their former passengers selecting other flights.
Their top competitors are airlines such as United Airlines, Northwest Airlines, and British Airways who, although facing general threats of rising costs of fuel and labor as well as continuing unpredictability of energy prices and airline anxiety due to terrorism, as well as complex pricing exacerbated by regulations and restrictions on reservation changes have caused customers to prefer driving or purchasing planes. Increased regulation and rules also make flying more off-putting and complex for consumers. The common points of the successful companies contributing to their success is that consumers seems to trust hem, they have an international reputation, and succeed in maintaining their loyalty of their customers. Competition from these topmost 3 is a big source of threat to Classic.
Moreover, Classic suffers from media scrutiny too with adverse publicity recently accorded it.
The airline seems to think that it can woo customers through its Classics Rewards program, but repeated surveys and customers complaints show that more than 68% of their clients consider the frequent fliers benefits ineffective and peripheral to their requirements. More than 56% want it done away with.
Although customer satisfaction still ranks at 62%, only 23% are very satisfied, with more than 11% being dissatisfied and 4% being very dissatisfied. More significantly still, between 12-15% of Classic's passengers prefer other airlines at least 12 times a year.
The airline's executives note that more attention is given to Classic Rewards Management (CRM) system than to passengers. With the airline losing in other areas too -- drastic changes have to be made. Classic's Board of Directors mandated a 15% across-the-board cost reduction for the next 18 months with Classic having to demonstrate measurable return on investment with radical rise in usage of its frequent flier program. But that is insufficient. If radical changes are not made soon, the airline will slide into bankruptcy. And changes may involve relinquishment of the CRM.
The key problem
The airline is slowly sliding into bankruptcy. Problems are seven-fold:
1. Consumer confidence is waning with the airline is loosing customers daily. By January 2005, Classic's CTM program showed a 19% decrease in the number of Classic Reward members and a 21% decrease in fights taken amongst remaining members
2. Economic difficulties has in turn effected the industry's stock prices, and Classic has, consequently, seen a 10% decrease in share prices in the past year
3. Economic downturn has effected employee morale
4. Negative media exposure exacerbates the situation
5. Rising costs of fuel and labor amongst other expenses have limited their ability to compete
6. Competition from older and younger airlines; the latter remaining unimpacted by the post-September 11 fiasco.
7. Classic bounced back too quickly after the September 11 scare.
The company's objective
The company's objective may be delineated as three-fold:
1. To reverse its fortunes; namely to make a profit
2. To maintain its customers and staunch the flood of dropouts
3. To attract new ones.
It intends to do this by putting focus on its Classic Rewards Management system.
In short, the company wishes to regain its former competitive stance and place itself on a par with other successful airlines. To do so, however, it may need to step back, assume a self-reflective stance, surrender some of it's most deeply held beliefs, such as adherence to the program, and begin to restructure itself anew. Classic may need to conduct research into the why's and wherefores of successful airlines and, possibly, attempt to copy the strategies that made them successful.
Proposed solution and Risks with proposed solution
The world's most famous successful airlines may be Southwest, and Jet Blue as well as Air Tran Airways, another successful carrier that has a reputation for cutting costs (affordability) second only to Southwest.
The commonalities of all are that they are focused on consumer interests and cut down to the necessities that clients want simultaneously eradicating frills.
Southwest set its prices very low, competing with the cost of auto travel rather than other airplanes' fares doing this by sacrificing on meals (it provides its customers only with peanuts) and cutting down on passenger comfort. They also use less fuel by cutting down on the number of their seats, filling all these seats, and providing frequent point-to-point service between secondary airports that were on average only 515 miles apart.
They also differentiate. Both Southwest and Jet blue focus on serving underserved markets or those not served at all. The latter attracts price-sensitive business professionals and leisure-seeking students due to its innovative frequent flyer programs. It also has a loyal following amongst corporate and community services which serve as a cushion against the early losses of expanding into a new city and invariable backlash from larger competitors.
Jet Blue, too, sustained a cheap image with its niche deliberately carved out on a specific market: the bankers, brokers, fashion models, and finance officers.
Meanwhile, because of recession, AirTrans, the third of these Super youngsters, has also found its own niche amongst price sensitive business professionals who would not want to fly Southwest.
Classic can do the same by deciding to focus on one of its classes of typical passenger as opposed to the other.
Classic has two passenger categories: (a) the Business traveler. Who wants to reach his destination as quickly and effortless as possible in a timely manner; wants frequent flights to a variety of destinations; seeks quality service; values the frequent flier points; and is prepared to pay a premium for these services.
The other category is the leisure traveler who is far more price sensitive therefore more tolerable with delays and other flight hassles as well as quality of service if it saves them money; makes fewer trips than the business men; but will invest more tickets into the rare trips that they do make.
Classic will have the problem of, by pleasing one simultaneously displeasing the other. Classic will, therefore, have to select its niche population, but by doing so they may well lose the other. This is a risk that they will have to take.
Cutting down on frills is one solution. Differencing themselves as per Jet Blue and Trans Air another.
Any organization considering change, however, has to go through the following steps. The first is an objective appraisal of its situation. Self-reflection.
Assessment of Classic's errors, reveal it to be centered primarily on pleasing its employees and secondly on consumer satisfaction. More so, the airline seems to think that it, rather than the client, knows best.
We see this in various ways with, in the first situation, the airline winning praise for itself from labor unions for its integrity to and high prices to its employees. On the other hand, consumers regularly complain about lack of care on the part of the airline's employees, the increasing expense, and inability in getting the passengers to their destination on time, as well as procrastination with boarding the plane.
Regarding the second aspect, we see Classic executives insisting upon allegiance to their CRM system. In the meanwhile, consumer reports indicate that consumers would rather that these programs be eliminated and that their basic needs be met first. Doing so, would necessitate that Classic make a careful recording an prioritization of these needs and set about fulfilling them even at the cost of employee satisfaction and their reputation in that area.
Classic can take a lesson from George Kelly, manager of Southwest airlines, on this point.
50-year-old Kelly, CEO of Southwest, often flies unnoticed in the back of the plane and speaks to customers unobtrusively elicit their opinion regarding the airline. His emphasis is on treating customers as 'kings and queens' and, respecting employers, though long work hours and conscientious work is expected of them.
Avowedly, as enthusiastic and optimist about the company as the day he started, Kelly's hedging on fuel saved the company millions. He is optimistic about the continuous upswing of the company and about its ability to continue in its successful competition.
Classic, imitating Kelly, may also decide to put the reversal on their client rather than their employees (without disrespecting the employees), even at the cost of reducing their employee's wages and cutting down on comforts. The client's primary concerns and needs should be focused on, and…[continue]
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