On Classic Airlines - Research Paper Example

ic Airlines is a corporation that faces many challenges. One of the inherent problems the firm is facing is that the company is currently barely obtaining a profit from its operation. The net margin of the company last year was a very thin 0.11%. The company was able to stay profitable, but the operating results of the company are below the industry average. The industry standard net margin in the airline industry is 2.4% which means that the results achieved by Classic Airlines are 2.29% below the industry standard (Dun & Bradstreet, 2011).

Two factors that are driving costs up for the company are raising labor and fuel costs. Fuel cost represents the largest cost driver in the airline industry. In 2011 the average price of jet fuel was $126.7/b (Iata, 2011). The marketing department at Classic Airlines is in a complete disaster. One of the biggest indicators of the failure of the department is reflected in the results of its customer rewards program. The customer rewards program at Classic Airlines experience a 19% reduction in its total members and a 21% reduction in the frequency of purchases by those customers.

Customer retention is imperative for the success of a business enterprise. The 80/20 rule states that 80% of your business comes from 20% of your customers. The loyalty of the customer has declined significantly which will hurt the ability of the company to stay profitable in the long term. There are internal problems occurring within the human resources of the company. Employee morale is at the lowest point it has ever been in the history of the company. Employee morale is important because when morale goes down so does the productivity of the workers.

The worries from the staff are justified and legitimate. One of the vice-presidents, Doug Sheffin who is also a union member, is concerned about the company’s ability to meet its current and future obligations with the employees in the future months. He realizes that the firm might incur into operating losses soon if the firm is not able to turn things around. The company’s ability to pay its short term can be measured by its current ratio (Kennon, 2011). An indicator that is bad for the company is the fact that consumer confidence in the airline is down.

The customers of any firm represent the most important stakeholder because customers are the ones that provide the revenues that companies generate. The strategic decisions made by Classic Airlines in the past is coming back to haunt them. After the debacle that occurred in the airline industry due to the terrorist attacks of 9/11 Classic Airlines and other players overestimated the market turnaround and as a consequence the firm expanded too quickly. The firm now is at disadvantage in comparison with younger airlines because the firm has a prohibitive cost structure.

Another mistake committed by the managerial staff of the company was an aggressive lowering of price which made the competition react and led to a price war. Classic Airlines must remember that the firm is participating in an oligopoly market structure. Oligopolies market structures are characterized by few competitors that pay close attention to each other’s pricing policies. A problem that hurt Classic Airlines and the other players in the industry was that the price of airline common stocks plummeted last year and as a result the equity position of the company suffered.

A constraint that all departmental heads face is that the company has implemented a plan to achieve a cost reduction of 15% across the board. The reduction plan includes the marketing department, which is major challenge due to the fact that the company expects the marketing department to increase the revenues of the company despite the department having fewer resources for marketing programs. The corporate culture of the company does not value the importance of the marketing function. The CEO of the company considers marketing a soft discipline.

He also does not believe in formulating marketing alliances which is limiting the options of the marketing director. The union is putting pressure on the managers to keep intact the current terms of the labor contract. The CRM of the company is currently not being utilized in an effective manner. References Dun & Bradstreet (2011). Key Business Ratios: Transportation by Air. Retrieved July 15, 2011 from http://kbr.dnb.com.ezproxy.apollolibrary.com/KBR_Main.asp Iata.org (2011). Fuel Jet Price Monitor.

Retrieved July 15, 2011 from http://www.iata.org/whatwedo/economics/fuel_monitor/Pages/index.aspx Kennon, J. (2011). The Current Ratio. Retrieved July 15, 2011 from http://beginnersinvest.about.com/od/analyzingabalancesheet/a/current-ratio.htm