Breakthrough in Airline Industry: Best CRM Practice Keeps Airlines Afloat - Thesis Example

Proposal for a Masters Thesis Breakthrough in Airline Industry: Best CRM Practice KeepsAirlines Afloat Against a Turbulent Business Environment Abstract The proposed thesis shall examine the increasing use of customer relationship management (CRM) in the airline industry, which is currently beleaguered by soaring oil prices, rising global inflation and interest rates, instability in currency exchange rates and the overall slowdown of the global economy. The primary objective of the thesis is to determine if CRM practice is really the breakthrough management technique that can help solidify the financial position of an airline, which is considered one of the hardest businesses to manage. This shall be done through the case study approach, by conducting a relevant survey and interviews with airlines that have successfully weathered the ongoing fuel crisis and global uncertainties. Two successful companies are proposed as case study samples for the survey and extensive person-to-person interviews, namely, Southwest Airlines and American Airlines. In addition, two other profit-taking companies, Singapore Airlines and Cathay Pacific, shall serve as subjects of secondary interest as the thesis looks into their CRM practice by requesting them through e-mail or fax to fill up a questionnaire on the topic. If feasible, the proposed research shall locate any remaining office or persons that can speak for the failed Oasis Airlines, which is currently undergoing bankruptcy proceedings. Learning about the CRM techniques of both a successful and a collapsed airline is valuable to the proposed thesis since it will enable us to evaluate which process is more effective and useful. 1. Introduction Whilst one airline after another goes out of business or on the edge of bankruptcy, a handful of airlines continue to operate profitably as if no crisis assails the industry at all. The most prominent of these successful airlines are Southwest Airlines, Cathay Pacific, Singapore Airlines, American Airlines and EasyJet. These airlines are deemed successful not only in terms of revenues and passengers enplaned but also in terms of ratings for customer satisfaction. Southwest Airlines, for example, was recently honored by the US Department of Transportation for having the least number of complaints received from customers. It is interesting to see what management and operational strategies do these airlines employ to insulate their companies against the current economic crisis as well as the instabilities common to the industry, which can be highly instructive to both practitioners and students of management and marketing. 1.1 Main question: How do the fairly successful airlines handle their contacts with customers as compared to the customer relationship management applications used by failed airlines 1.2 Sub-questions: (1) Can adoption of CRM in the airline industry make a difference between long-term and short-term profitability (2) Which is more beneficial to an airline: online selling of plane tickets or through travel agents (3) Are loyalty schemes that reward frequent flyers part of good CRM practice that should be offered by troubled airlines (4) What tangible benefits have successful airlines derived from CRM for this to be considered a breakthrough system of management for the highly vulnerable airline industry 2. Literature Review Research for the proposed thesis shall focus on the actual results and benefits of CRM applications in airlines in light of the inherent difficulty in managing an airline and the turbulence experienced by the industry in the past few years. In effect, it will measure the impact of CRM applications on the bottom line of airlines based on the experience of Southwest Airlines and American Airlines. Studies of airline CRM in the existing literature, on the other hand, mostly discuss the rationale and mechanics of this process whilst the others describe the usefulness of CRM with no particular industry in mind. Hill (2000) and Grossman (2005), for example, only look into efforts of airlines to reduce their transaction costs by selling tickets online, and to build profitable relationships with customers by improving their service and seating systems and serving quality on-board meals. The other papers related to airlines, such as Doganis (2001, 2002), Beard (2008) and Business Week (2008), will be included in the list of references for the way they highlighted the crisis that is causing many airlines to fall by the wayside. This serves as an important backdrop for the proposed thesis. Airlines all over the world are in dire straits because of the upswing of oil prices to record levels and the resulting slowdown in the global economy. In the first half of 2008 alone, 26 airlines around the world either went out of business or gone into bankruptcy protection, a rate of failures that even overshadowed the situation in the aftermath of 9/11 (Beard, 2008). The International Air Transport Association (IATA) reported at the time that more airlines would be going down, with another dozen on the edge of bankruptcy. Among the more notable cases of airline failures in recent times were those of the Italian flag carrier Alitalia, the UK domestic carrier CB Airways, and the long-haul Oasis Airlines based in Hong Kong. These companies followed the route earlier taken by United Airlines, US Airways, Delta Airlines and Northwest Airlines, many of which collapsed in the aftermath of 9/11. Industry analysts like Doganis (2002) and those from the International Air Travel Association (IATA) believe the situation today is as difficult if not more difficult for airlines than the post-9/11 crisis because of the upswing of oil prices to unprecedented levels. In the case of Oasis, the airline filed for bankruptcy in April 2008 only 18 months after its maiden flight in 2005. It was one of four airlines grounded during that week in April because of high fuel costs. Only a year before, Oasis was voted as the "World's Leading New Airline 2007" at the annual World Travel Awards because service excellence and low fares. According to Martin & Curry (1999), airlines have been at the forefront of CRM and were in fact among the earliest users of e-commerce, a CRM-related technique that brings ticket selling to the Internet and brings more benefits to airlines than to any other industry. The real-world implications of CRM are tangible. For example, an airline sales representative can see whether a passenger with a complaint is a frequent flier worth keeping, and offers a $100 voucher to keep the customer happy. The sales representative can also find out, though, that another person with the same problem flies just twice a year and offer only a $25 coupon. Both customers remain happy, and the company saves money. The carrier loses neither customer and also keeps $75 in credits. In addition, the airline can cater to individual preferences automatically, based on information from a passenger's previous flights, perhaps offering a window seat or a vegetarian dinner. This can work as well for relationships with business customers. 3. Proposed Methodology Research for the proposed thesis will adopt a holistic, two-pronged approach that seeks to uncover the similarities as well as differences in the CRM strategies practiced by the successful and failed airlines. Berry (1999) used the same methodology to facilitate the identification of the success factors in the CRM-based development of new hospitality services with high customer focus. The methodology consisted of the following protocol: 1) A critical review of the existing literature on CRM practices in the airline industry and other sectors that require customer facing. 2) Evaluation of the case studies from the existing literature on the effects of CRM on managers, employees and customers. 3) Synthesizing of the materials to pinpoint the issues, identify the barriers and conceptualize the model of the core capabilities of the best CRM practices. 4) Developing an individual case study report using the cross-case analysis technique. 5) Development of a set of questionnaire addressing a range of related topic areas, to be sent to sample subjects located overseas and thus difficult to access for a person-to-person interview. Protocols 1, 2 and 3 aim to generate the secondary data of research, which usually come from the observation method. For the study, we shall collect both the primary and secondary data of research through the observation and direct communication methods. The observation method refers to our review of the literature, which gave special attention to CRM strategies that place a premium on customer satisfaction and developing long-term relationships with customers. As for the direct communication method designed to generate the primary data, we shall conduct a Web-based survey of airlines with online marketing and sales capabilities for the purpose of selecting those engaged in CRM practice that provides convenience and satisfaction to customers. In effect, we want the primary data to validate the secondary data set in the literature. Two separate research activities will be undertaken to obtain this type of data. First, we will request an appointment for an interview with the managers of Southwest Airlines and American Airlines. The main interview will be limited to these two companies so we could have better control of the research. Second, a set of questionnaire will be sent by e-mail to the Oasis headquarters in Hong Kong if it still exists. The objective of the questionnaire is to find out how the failed airline applied CRM in its customer-facing activities. Some of the questions for both the successful and failed airlines will require a simple "yes" or "no" answer. 1) How long have your firm been in operation 2) Does your company make a socio-economic profile of your target market 3) How do you gear your sales and marketing effort to this target market 4) What made your management decide to take up a CRM program 5) Is your CRM program the holistic or single-element approach 6) If your CRM strategy uses only 1 element, to which particular aspect of the business is your CRM strategy addressed 7) What benefits have your company derived from CRM 8) How long have you implemented CRM before it yielded any benefits 10) Do you think CRM was worth your company's time and effort 4. Reflections During the interviews, the respondents will be assured that the views expressed during the sessions are absolutely confidential and their names will not be mentioned in any way. Managers especially of successful firms like Southwest and American airlines are likely to speak less freely about their management practices if the possibility exists that this information would leak to competitors. Therefore, assurances need to be given to the respondents that their identities and the opinions they volunteered would be treated in utmost confidentiality as part of ethical conduct in research. The greater problem, however, could be the matter of logistics and access in reference to the geographic distance between the headquarters of Southwest Airlines and American Airlines in the US. If the problem proves insurmountable, the interviews for the research will just be conducted through the questionnaire approach for both the successful firms and the collapsed airline. The data to be gathered from the research will be extremely valuable and interesting to future studies of the airline industry and its continuous search for management and operational concepts that could give an airline the much-desired competitive edge and profitability. According to Hill (2008), airlines with the highest ratings in customer satisfaction tend to have the highest customer loyalty and highest market capitalisation. Customer satisfaction can only come from a good application of CRM, which appears to be tailor-made for the airline industry where there is a fixed amount of available resources for sale; the resources being sold are perishable that they lose their value after a certain time; and different customers are willing to pay a different price for using the same amount of resources (Doganis, 2001). CRM in general is defined as "an integrated effort to identify, maintain and build a network with individual customers and continually strengthen the network for the mutual benefit of both sides through interactive, individualized and value-added contacts over a long period of time (Peppers & Rogers, 2004)." In the effort to establish a long-term relationship with customers, CRM emphasizes the reduction of transaction costs, which becomes possible if information on customers' previous interactions with the company is on hand. The unique characteristics of the airline industry make it unsuitable for applying new management precepts until customer relationship management came along, which appears to have been conceptualized precisely to meet the management challenges unique to this type of service industry. All the management concepts that essentially strive to handle people and processes systematically to ensure customer satisfaction and give companies the much-needed competitive edge have worked well for many industries such as manufacturing, automotive, banking and services, but their applicability is doubted for the airline industry. The reason is that the airline industry is more people-centered and labor-intensive than any other industries such that it requires a high level of contact between firm and customer. To enhance this firm-customer contact, loyalty schemes have become an integral part of CRM in airlines. American Airlines introduced the first Frequent Flyers Programme (FFP) in the 1980s to reward frequent flyers for loyalty (Hill, 1008). Customers are awarded points for every flight flown, which are then redeemed for more discounted flights, VIP bookings, check-in, fast-track security and airport lounge access. These benefits have been found to be of real value to frequent flyers as to greatly influence their choice of airlines. As a result, almost every airline in the world now offers such rewards through a frequent flyers programme. 5. Conclusion Once the content of this proposed thesis is approved in principle, the researcher will immediately develop the sets of questionnaire for both the successful and failing airlines regarding their CRM applications and their possible influence on their customer-handling function. At the same time, a list of e-mail and fax addresses will be prepared on the sample interviewees, namely, Southwest Airlines, American Airlines, Singapore Airlines, Cathay Pacific, EasyJet and Oasis Airlines. As previously noted, the questions will be worded so as to elicit information on the relationships between CRM practice, customer satisfaction, number of passengers and profitability. At this point, we cannot be sure of the response rate but if four of the six companies respond for an 80 percent response rate, this can serve the purpose of the research. What is important is that Southwest Airlines and American Airlines accede to our request for a person-to-person interview. As for the whole process of data collection, it is expected to take 45 days, starting from the approval of the thesis proposal. In this proposal, we have shown that the research aims to uncover from the CRM perspective how airlines succeed in delivering superior and convenient travel experience to forge a long-term relationship with customers. Proposed Bibliography 1 Aldhizer III, C. & Cashell, W. (2004). "Customer Relationship Management: Risks and Controls." Internal Auditor, Dec. 2004. 2 Bannan, K.J. (2001). "Customer Relationship Management." PC Magazine, July 2001. 3 Beard, S. (2008). "More Airlines Going Down this Year." Marketplace, London. 4 Berry, R.S.Y. (1999). 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