Classic Airlines Marketing Strategy and Competitive Analysis

Introduction: Classic Airlines in a Competitive Market

Classic Airlines (CA) must compete in a dynamic 21st-century global economy with a limited budget and the prospects of limited capital resources. Therefore, profit maximization becomes a function of performance management across fiscal, customer, and facility operations. Streamlining operations will not only reduce internal operating costs — it will also remove processes that add no value and that customers may not wish to experience in the first place. As one customer noted, "I know you may need to automate customer service to control costs, but there should always be the option to talk to a real person" (Boyle, 2004).

The frequent flier program membership is composed of 80% business travelers and 20% leisure travelers. Core operations and customer service practices should therefore be centered on the expectations of this dominant customer class. The travel experience a business traveler expects should be mapped and all unnecessary processes removed. As one traveler put it, "I don't need the perks, just get me there on time" (Boyle, 2004). Customer feedback is critical to reinventing the airline and facilitating a new travel experience. If on-time performance and expeditious travel are the key drivers of passenger satisfaction, the goal should be to improve gate access and reduce wait times. If these gates cost more to rent or purchase, then expenditures on perks and additional benefits may be redirected to fund this expedited travel experience.

The pressure on Classic Airlines to move forward and gain market share is increasing exponentially as competitors are poised to proceed with revitalized marketing and growth strategies. The top competitor, British Airways, is a global organization operating on all major continents and in all major cities. Additionally, brand recognition strongly favors British Airways (BA), as most travelers are familiar with the airline's brand.

Competitive Landscape and Brand Loyalty Challenges

Customers demonstrate strong loyalty to BA and consider its frequent flier programs to be highly competitive in the marketplace. The critical question is how competitive CA's frequent flier program is by comparison. Brand loyalty among CA's clientele does not appear to be as strong as that enjoyed by BA — a concern that has direct implications for CA's competitive position and represents, in game theory terms, a competitive disadvantage that could cost the airline market share.

Northwest Airlines presents an established marketing program with a dominant presence in the branding arena. This means Northwest Airlines can spend less on marketing to retain each loyal customer and bears a lower marginal cost when attracting new customers or retaining current ones. Classic Airlines is struggling to retain its current customer base and has a significantly lower percentage of loyal clients compared with both British Airways and Northwest Airlines.

United Airlines (UA) is also a highly recognizable brand with substantial consumer confidence and a strong track record. The high degree of loyalty its customers demonstrate creates further competition for Classic, as UA's heavy penetration of the North American market threatens Classic's current and future market share.

Labor Relations and Cost Pressures

Marketing efforts from companies in other industries suggest that "marketers need to think through five levels of the product, each of which adds value: the core benefit, basic product, expected product, augmented product, and potential product. Products can be classified in terms of durability and reliability. Consumer goods can be convenience goods, specialty goods, or unsought goods. Industrial goods can be materials and parts, capital items, or supplies and business services" (Kotler & Keller, 2007).

Classic's General Counsel Ben Sutcliffe offered a cautionary note: "Classic has one of the highest labor costs per seat-mile. Customers are price-sensitive, and if Classic continues to carry the highest labor cost of any airline in the industry, it will jeopardize Classic's future" (Boyle, 2004). While the current union relationship remains stable, the implication from the General Counsel is that management must begin planning for labor cost reductions — whether through cuts or by reducing salary as a percentage of total cost — as the current rate is unsustainable. When management is forced to reduce salary expenditures, the union may refuse to renegotiate an unfavorable contract, potentially leading to a strike. This area presents a potential conflict of interest and a significant operational constraint for CA.

At present, labor union contracts are in good standing and workers are well compensated for their contributions. To commemorate this successful relationship, Classic awarded the Wright Stuff® Trophy to several unions, including the Aircraft Mechanics Fraternal Association (AMFA), the Air Line Pilots Association (ALPA), and the Association of Professional Flight Attendants (APFA).

The unions were vocal in their support of Classic Airlines and of management's ability to avoid labor cuts despite rising fuel costs and mounting industry challenges. Flight paths were expanded, and Classic successfully outbid other airlines to give flight attendants improved work/life balance options. As Boyle notes, "The Flight Attendants (APFA) explained how Classic had expanded the choices of routes available to flight attendants by implementing new route-bidding practices advocated by APFA" (Boyle, 2004).