Classic Airlines - Assignment Example

Download file to see previous pages Classic Airlines has enjoyed the benefits of participating in an oligopoly marketplace. In an oligopoly there are few companies that control the entire market. The purpose of this paper is to find a solution to solve the problems at Classic Airline using a nine step problem solving process. Step 1) Describe the Situation Classic Airlines is operating in an industry that has seen a long term reduction in business as a consequence of the catastrophic events of 9/11. Since that terrorist attack the industry has seen a steep rise in operating costs associated with security measures. The volatile petroleum marketplace has made fuel cost the highest cost factor in the airline closely followed by employee costs. As a consequence of external and internal factors Classic Airlines had seen its profitability declined tremendously. Last year the net profit margin of the company was a diminutive 0.11%. The net margin of the company is 2.29% below the industry standard (Dun & Bradsteet, 2011). The marketing department at Classic Airlines is in a complete disaster. One of the largest indicators of failure in 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 business comes from 20% of a company’s 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 may incur into operating losses soon if the firm is not able to turn things around. The company’s ability to pay its short term obligations can be measured by its current ratio (Kennon, 2011). Step 2) Define the Problem   Classic Airlines faces some serious problems that require immediate attention since the future of the company is at stake. Due to the decreasing profitability of the company and the fact the company cannot reduce prices any lower to spur demand the company’s Board of Directors has mandated a 15% cost reduction across all departments within a timeframe of 18 months. The situation is so delicate that if the company does not meet the cost reduction mandate the firm faces the possibility of bankruptcy. The most recent indicator that clearly demonstrates the firm’s declining performance is the 20% reduction in the customer rewards programs in terms of both number of participants and frequency of purchases by the remaining customers. Step 3) End State Goals The company has several end state goals the firm must achieve. One of those goals is to increase the profitability of the company to reach the industry standard of 2.4% net margin within 18 months. A second end state goal of Classic ...Download file to see next pagesRead More