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Classic Airlines Marketing Solution Complete Scenario and Attached Documents Betsy Vazquez Valentin University of Phoenix Marketing – MKT/571 Saturday, June 19, 2010 Dr. Deniss Arroyo Audiffred
Classic Airlines Marketing Solution
SCENARIO: CLASSIC AIRLINES Company Overview The world’s fifth largest airline, Classic Airlines, commands a fleet of more than 375 jets that serve 240 cities with over 2,300 daily flights. In the 25 years since its inception, Classic has grown to an organization of 32,000 employees, and last year, it earned $10 million on $8.7 billion in sales. Though profitable, Classic is no stranger to the challenges that plague today‘s airlines. Increased uncertainty about flying has affected industry stock prices, and Classic has seen a 10% decrease in share prices in the past year. With a concerned investment community on the watch, the airline industry operates under a microscope, subject to scrutiny from all sectors. Not surprisingly, the negativity from Wall Street, the media, and the public has affected employee morale, which is the lowest it has ever been. Consumer confidence also appeared to be waning. By January 2005, Classic’s declining Classic Rewards program measured a 19 percent decrease in the number of Classic Rewards members, and a 21 percent decrease in flights per remaining member. Loyal customers were jumping ship and the ones still aboard seemed to be flying less frequently -- or at least less frequently with Classic Airlines. Rising costs, particularly of fuel and labor, have limited Classic‘s ability to compete for the valued frequent flier. Although the travel downturn that followed September 11, 2001 has subsided, Classic and many of its rivals overestimated the reversal and expanded too quickly. Now, these companies face a restrictive cost structure that younger airlines do not. To counter any further financial crisis, Classic’s Board of Directors recently mandated a 15 percent across-the-board cost reduction over the next 18 months. Within that mandate, Classic must still find a way to beef up its frequent flier program with methods that will demonstrate a measurable return on any investment (ROI). While the board is playing their cards close to the vest, the rumor mill is churning with word that if Classic cannot meet the reduction, the company faces bankruptcy. Attachments: A: Financial statements (past two years) B: Chart of stock prices (past two years) C: Cost reduction plan by department
Classic Airlines Marketing Solution
Attachment A(1): Financial Statement 2004
Classic Airlines 2004 Monthly Financial Results
(in millions) Operating Revenues: Passenger Cargo Total Operating Revenues Operating Expenses Salaries and related costs Aircraft fuel Depreciation and amortization Contracted services Landing fees and other rents Aircraft maintenance Aircraft rent Passenger commissions Passenger service Other selling expenses Total Operating Expenses Operating Income (loss) Other income, net Interest expense Interest income Total Other Income (expense) Income (Loss) Before Taxes Income Tax Provision (Benefit) Net Income (Loss) ($22) $5 ($17) ($94) $22 ($72) ($22) $5 ($17) ($153) $22 ($131) ($22) $5 ($17) ($42) $22 ($20) ($22) $5 ($17) ($176) $22 ($154) ($22) $5 ($17) $68 $22 $90 ($22) $5 ($17) $138 $22 $160 ($22) $5 ($17) $88 $22 $110 ($22) $5 ($17) ($18) $22 $4 ($22) $5 ($17) ($4) $22 $18 ($22) $5 ($17) ($65) $22 ($43) ($22) $5 ($17) ($11) $22 $11 ($22) $5 ($17) $16 $22 $38 ($264) $60 ($204) ($254) $264 $10 $347 $81 $61 $35 $34 $25 $37 $8 $13 $19 $660 ($77) $347 $76 $61 $32 $31 $28 $37 $8 $12 $26 $658 ($136) $347 $99 $61 $43 $42 $36 $37 $10 $16 $32 $723 ($25) $347 $70 $61 $30 $29 $26 $37 $7 $11 $24 $641 ($159) $347 $123 $61 $54 $52 $43 $37 $13 $20 $36 $785 $85 $348 $140 $61 $62 $60 $49 $37 $15 $23 $39 $833 $155 $348 $128 $61 $56 $55 $45 $37 $13 $21 $36 $800 $105 $348 $105 $61 $46 $44 $36 $37 $11 $17 $29 $733 ($1) $348 $105 $61 $46 $44 $36 $37 $11 $17 $29 $733 $13 $348 $93 $60 $40 $39 $33 $36 $10 $15 $27 $701 ($48) $348 $105 $60 $46 $44 $36 $36 $11 $17 $30 $732 $6 $348 $111 $60 $48 $47 $39 $36 $12 $18 $32 $750 $33 $4,171 $1,236 $729 $537 $520 $432 $441 $128 $197 $359 $8,750 ($50) $543 $40 $583 $501 $21 $522 $668 $30 $698 $459 $22 $482 $835 $35 $870 $960 $28 $988 $877 $28 $905 $710 $23 $733 $710 $37 $746 $626 $26 $653 $710 $28 $738 $752 $31 $783 $8,352 $348 $8,700 Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total
262 $330 $8.Classic Airlines Marketing Solution 4 Attachment A(2): Financial Statement 2003 Classic Airlines 2003 Monthly Financial Results (in millions) Operating Revenues: Passenger Cargo Total Operating Revenues Operating Expenses Salaries and related costs Aircraft fuel Depreciation and amortization Contracted services Landing fees and other rents Aircraft maintenance Aircraft rent Passenger commissions Passenger service Other selling expenses Total Operating Expenses Operating Income (loss) Other income.051 $1.592 Jan Feb Mar April May June July Aug Sept Oct Nov Dec Total .119 $729 $556 $538 $398 $441 $160 $208 $393 $8. net Interest expense Interest income Total Other Income (expense) Income (Loss) Before Taxes Income Tax Provision (Benefit) Net Income (Loss) ($22) $6 ($16) ($93) $22 ($71) ($22) $6 ($16) ($136) $22 ($114) ($22) $6 ($16) ($29) $22 ($7) ($22) $6 ($16) ($159) $22 ($137) ($22) $6 ($16) $75 $22 $97 ($22) $6 ($16) $141 $22 $163 ($22) $6 ($16) $92 $22 $114 ($22) $6 ($16) ($11) $22 $11 ($22) $6 ($16) ($3) $22 $19 ($22) $6 ($16) ($69) $22 ($47) ($22) $6 ($16) ($14) $22 $8 ($22) $6 ($16) $13 $22 $35 ($264) $72 ($192) ($193) $264 $71 $337 $73 $61 $36 $35 $26 $37 $10 $14 $23 $652 ($77) $337 $67 $61 $33 $32 $24 $37 $10 $12 $21 $635 ($120) $337 $90 $61 $44 $43 $32 $37 $13 $17 $28 $702 ($13) $337 $62 $61 $31 $30 $22 $37 $9 $11 $20 $618 ($143) $337 $112 $61 $56 $54 $40 $37 $16 $21 $36 $768 $91 $338 $129 $61 $64 $62 $46 $37 $18 $24 $41 $819 $157 $338 $117 $61 $58 $56 $42 $37 $17 $22 $37 $786 $108 $338 $95 $61 $47 $46 $34 $37 $14 $18 $30 $719 $5 $338 $95 $61 $47 $46 $34 $37 $14 $18 $35 $724 $13 $338 $84 $60 $42 $40 $30 $36 $12 $16 $40 $697 ($53) $338 $95 $60 $47 $46 $34 $36 $14 $18 $40 $727 $2 $338 $101 $60 $50 $48 $36 $36 $14 $19 $42 $744 $29 $4.593 ($1) $537 $38 $575 $496 $20 $516 $661 $28 $689 $454 $21 $476 $826 $33 $859 $950 $26 $977 $868 $26 $894 $702 $21 $724 $702 $35 $737 $620 $25 $644 $702 $27 $729 $744 $30 $773 $8.
00 Mar $35.25 Feb $36.87 Apr $26.50 May $28.01 Oct $32.2003 Jan Stock Price $36.08 Jul $36.86 Dec $28.85 Jul $36.Classic Airlines Marketing Solution Attachment B(1): Chart of Stock Prices 2004 Classic Airlines' Stock Price .77 Oct $34.11 Sep $30.20 .40 Sep $34.90 Jun $30.80 Apr $34.68 Dec $33.15 Feb $35.75 Aug $31.2004 Jan Stock Price $32.22 Nov $27.90 May $35.20 Aug $35.36 Mar $29.25 Nov $33.35 Jun $36.93 5 Attachment B(2): Chart of Stock Price 2003 Classic Airlines' Stock Price .
00% 2.50% 2. Chief Marketing Officer (CMO): The new kid on the block. listening.50% 2. Human Resources: A bright. following a 10-year stint as senior counsel for UK petroleum giant KP. the leading utility provider to the Southeastern United States.50% 2. Kevin came aboard just six months ago as part of the restructuring of the global marketing organization.00% 18. where she spent 12 years in myriad management positions before coming to Classic. Renee implemented a customer relationship management (CRM) program.00% 21. Amanda had a private law practice before going corporate.00% 2.50% 2. As the top management’s view of customer service becomes more operations-based.00% 2. customers and shareholders. ultimately working her way up to CFO.00% 11.50% Marketing 3.00% 11. Kevin Boyle. John firmly believes that frontline employees represent the organization’s face to the customer.50% IT 2. Lately.10% Operations 2. Doug Sheflin.50% 3. and advocates action over the status quo in the coming months.50% Sales 2. Senior Vice President of Customer Service: Four years after joining the company in 1989.00% 2. A fair but firm negotiator. Chief Financial Officer (CFO): More than 20 years ago. Catherine graduated business school and immediately began work as Classic‘s financial analyst. Senior Vice President. Amanda was CEO of Jackson Energy.50% 2. He has worked to educate and train all customer service employees on their . A well-educated and seasoned professional. and the past 15 years marketing for one of Classic’s competitors. Kevin is an airline industry veteran who spent the early years of his career in operations.00% 1.00% 5. Now. John has been with Classic for three years. A graduate of a leading business school with an Ivy League JD.50% Key Players 6 Amanda Miller.00% 2.00% 3. Renee has frequently found herself battling for the customer.00% 2.50% 1.00% 5. Ben Sutcliffe. Catherine Simpson. Her pragmatic approach to operational excellence often leaves her little patience for “soft” business disciplines such as marketing. Ben has a long history of conservative outcomes in Classic’s major legal decisions. he has invested many years in building relationships with the union organization. and speaking with Classic’s employees.00% 4. He believes that marketing is critical to the company’s ability to move forward profitably. he has been suggesting potential compromises with the union in order to pave the way for Classic’s continued success.00% 5. Senior Vice President and General Counsel: Ben has been with Classic for more than twenty years.50% 4. and are critical to customer service and marketing effectiveness.00% 2. Renee’s background is in retail. Kevin has spent his first six months observing.50% 3. young MBA graduate on the fast track to senior management. Recognized as possibly the leading mind in airline marketing.00% 6.00% 2. he is concerned that Classic will be unable to meet its current and future obligations to its employees.” and her practical philosophies about business are frequently in line with Amanda’s.50% 14. Catherine is “driven by numbers. Senior Vice President and Union Representative: Doug is a labor relations expert and has steered Classic’s relatively clear of major obstacles in an increasingly volatile union climate.Classic Airlines Marketing Solution Attachment C: Cost Reduction Plan by Department Classic Airlines Cost Reduction Goals By Department Quarterly Reduction Required To Meet 15% Goal Department Q1 Q2 Q3 Q4 Q5 Q6 Total Administrative 3.50% 2. Renee Epson. Chief Executive Officer (CEO): Amanda was hired as Senior Vice President of Operations in 2000 and groomed to take over as CEO following the retirement of former CEO Jack Broadway in 2002. Prior to that. John Hartman.
000 819. Period Attachments: D: Customer Loyalty Report E: Pricing structure report (average fare.000 ) 823. and is recognized as a thought leader on the subject of melding the human resource and marketing functions.000 852.000 791.000 (59.000 Q1 2003 45.000 746.000 Q4 2004 9.000 809. We have absolutely no room to cut our margins any further.000 (45.a battle that has every indication of becoming a full-blown war.000 (20.000 (21.000) 696.000 789. That translates to more than 160.000 Q3 2002 41.000 Q1 2004 11.000 Q4 2002 30.000 Q3 2004 9.000 (35.000 857.000 allegedly loyal customers who are now flying airlines other than Classic.Classic Airlines Marketing Solution importance to the organization. Those of you who were here a year ago may remember that I was virtually assured by the former head of marketing that if I agreed to the price cuts he proposed.000 ) 746. And that‘s not the worst of it.000 Q2 2002 37. membership in Classic Rewards is down nearly 20% from this time last year.000 ) 789.000 Q3 2003 48.000 ) 809. I hate to admit it.000 823.000 (35.000 (25.000 (18.000 750.000 ) 791. but I got sucked into that strategy and where did it get me? Where did it get Classic.000 (49. I don’t know who will win but I know who won’t: Classic.000 ) 770. JANUARY 7.000 ) 819.000 ) 839.000 ) 852.000 770.000 (54. 2005 MEETING WITH CEO AMANDA MILLER AND LEADERSHIP TEAM Excerpt of meeting dialogue 7 Amanda: As the Customer Loyalty Report clearly shows. or our shareholders? Right in the middle of a battle over price .000 Q4 2003 42. The average number of flights per member is down more than 20% as well.000 (50.000 865. we’d be able to lure our customers back from the competition.000 Q2 2003 48.000 .000 ) 865. past two years) F: Frequent Flier Program Overview Attachment D: Customer Loyalty Report Customer Loyalty Report Classic Rewards Program Membership New Members Current Members Inactive Members Total Members Q1 2002 35. It seems we can’t even get the frequent flier customers we’ve retained to choose Classic over our competition.000 Q2 2004 17.000 839.000 (15.000 ) 857.
30 0 8 Q3 2004 3.992.80 0 Q3 2003 4.800 Attachment E: Pricing Structure Report Average Roundtrip Fare 2002 2003 2004 $298 $305 $235 $571 $582 $471 2005 $238 $475 Domestic Worldwide .80 0 Q1 2004 3.961.95 0 Q3 2002 3.401.621.30 0 Q2 2003 3.770.207.20 0 Q2 2004 3.589.80 0 Q4 2004 2.40 0 Q4 2002 3.808.943.721.108.00 0 Q2 2002 3.75 0 Q4 2003 3.Classic Airlines Marketing Solution Customer Loyalty Report Total Flights By Classic Rewards Members Total Flights Q1 2002 3.35 0 Q1 2003 3.465.
000 miles in one calendar year over 100.e. At present. Tier-status has a one-year expiration period.001 to 100.000 miles in one calendar year 40. a business traveler may accumulate miles traveling on business and redeem miles for leisure travel). The following is a summary of Classic Rewards’ redemption options: • • • Round-trip domestic flight Round-trip international flight One night stay at partner hotels: o Partner A: o Partner B: o Partner C: 40. and may redeem miles for an annual “pre-board” pass which allows them to board flights prior to normal boarding.. but historically follow the 80/20 split.000 miles in one calendar year Current program membership is 80% business travelers. Members are allowed to redeem for one companion ticket every two years. Members can also earn miles by using their Classic Rewards co-branded credit card. Members earn one point per flight-mile. monthly newsletter.000 miles 60. with a minimum of 500 miles per roundtrip. or for car rentals at one of Classic’s three car rental partner companies.Classic Airlines Marketing Solution Attachment F: Fequent Flyer Program Overview 9 Classic Rewards Frequent Flier Program Overview (Taken from Classic’s New Employee Training and Orientation Manual – Confidential Internal Information) Classic Rewards members earn miles when they purchase eligible tickets on qualifying domestic or international Classic Airline’s flights. and special promotions from Classic Rewards’ partners. 20% leisure travelers. Gold members receive a monthly statement. Classic Rewards is a tiered program.000 miles . and a maximum of 2500 miles per roundtrip. Current program membership by tiers is consistent with historic averages for the program: • • • Basic Rewards Silver Rewards Gold Rewards 60% 25% 15% Membership tier overview: • • • Basic member Silver member Gold member up to 40. Members “move” between these segments (i.000 miles 40. Classic Rewards members may redeem miles for stays at one of Classic’s six partner hotel chains. and has blackout periods surrounding all major US and European holidays.000 miles 80. Members can earn miles for staying with one of Classic’s six hotel partners or renting cars from one of their three car rental partner companies. over 95% of Classic’s routes are classified as qualifying. Classic Rewards non-qualifying flights include ten direct flights from the US to Europe and ten direct flights from Europe to the US. Members may also redeem miles for upgrades to first-class. and members may only redeem one ticket per flight. Frequent flier redemption tickets are non-transferable. Classic Airlines allocates ten seats per flight for frequent flier redemption. with customer’s achieving Silver and Gold level status based on their annual mileage accumulation.000 miles 80. Miles earned in Classic Rewards will not expire as long as members travel once in a two-year period.
000) Inactive Members 696. Your challenge is going to be rising above our competition without discounting airfare.000 New Members 746. I have a meeting with our board on April 7.000 .000 (8. Because this deadline is just three months away.000 733.000 37. Renee Epson.000 miles 10 JANUARY 7.000 28.000 19. our chances of restoring stock prices to last year’s levels are slim.000 695.000) (15. Good luck! Sincerely. Amanda Miller.000) (20.000 695.000 708. If we don’t.Classic Airlines Marketing Solution • One-day car rental at partner companies 40.000 Current Members (59.000) 767.000 733. thank you for spearheading this project. they’ll be expecting a progress report that demonstrates a measurable.000 696. it’s the three of you.000 708. so that I can be sure we’re headed in the right direction. positive trend. I expect frequent updates on your plans. At that meeting. CEO Attachment: G: Loyalty Program Expected Results Report Attachment G: Loyalty Program Expected Results Report These two graphs reflect the results CEO Amanda Miller expects from Kevin Boyle’s (and the leading team) Expected Results Classic Rewards Program Membership Q4 Q1 Q2 Q3 2004 2005 2005 2005 9. Renee.000 Total Members Q4 2005 42. That’s going to take some real creativity but the simple truth is that we are not in a position to cut our margins any further and still survive. and John: I think we had a productive meeting this afternoon and I‘m happy that the three of you are eager for the opportunity to turn around our Classic Rewards program. and John Hartman CC: Catherine Simpson FROM: Amanda Miller RE: Today’s meeting Kevin. 2005 E-MAIL TO: Kevin Boyle. If anybody can do this. Kevin. I don’t need to tell you how important it is that we lure back our frequent fliers.000) (12.
Classic Airlines Marketing Solution 11 Expected Results Total Flights By Classic Rewards Members Q4 2004 Q1 2005 Q2 2005 Q3 2005 Total Flights 3. but as a follow-up to Amanda’s message yesterday.895 3. and John Hartman FROM: Catherine Simpson RE: Today’s meeting Kevin. Renee Epson.000 Q4 2005 4.920.000 3. 2005 E-MAIL TO: Kevin Boyle.000 JANUARY 8.100. That means that even as you . and John: Call me redundant.000 3.200. Renee.575. I must explicitly remind you of our corporate-wide cost reduction target of 15 percent over the next 18 months.790.
82 $1.Classic Airlines Marketing Solution 12 identify alternatives to retool Classic Rewards.82 $294 $68 2004 Total 1.01 $363 359 $0. We already know the program works. Esq. Attachment: I: Press release outlining Classic’s position with labor unions Attachment I: Press release outlining Classic’s position with labor union Press Release Outlining Classic’s Position with Labor Unions . Every dollar that we spend on marketing (Classic Rewards included) is a dollar that won‘t go to fuel-hedging.90 $0.82 $0. Best regards. Benjamin Sutcliffe.335 1. Our commitment to the current contract is an investment in Classic’s future. you must engineer this turnaround with 15 percent less in marketing expenses. we’ve been able to reduce our overall fuel costs by 12 percent. Best of luck. so continuing to contribute to it will enable us to reach our 15 percent cost reduction target. I assure you that any ground you anticipate to gain by such an action would be immediately surrendered. please remember the conversation we had a few months back regarding Classic’s union contract.82 $0. Do you remember that fuel-hedging program I implemented last year? By locking in our fuel prices for the next year.82 Total Hedged Fuel Cost (in millions) $241 $318 $323 TOTAL SAVINGS (in millions) $0 $31 $59 Q4 2004 359 $1.435 $0.82 $0.93 $1.176 $158 JANUARY 9. At no time should your creative efforts on the reward program’s behalf include any revisions to the current union agreements in an attempt to reallocate funds to your marketing programs. Doug Sheflin RE: Today’s meeting Kevin: As you lead the Classic Rewards project team.97 Total Fuel Cost (in millions) $241 $349 $382 Fuel Gallons Consumed (in millions) 294 388 394 Hedged Price Per Gallon $0. Catherine Simpson.435 $0. Catherine Attachment: H: Report reflecting results of fuel-hedging program Attachment H: Report reflecting results of fuel-hedging program Fuel Hedging Program Cost Savings Q1 Q2 Q3 2004 2004 2004 Fuel Gallons Consumed (in millions) 294 388 394 Market Price Per Gallon $0. 2005 E-MAIL TO: Kevin Boyle FROM: Ben Sutcliffe CC: Amanda Miller.
noted one AMFA spokesperson. Excerpts from meeting dialogue Renee: I can’t help being a little upset that it’s come to this. I hear customers tell us what they want. Sutcliffe observed that customers are price-sensitive.Classic Airlines Marketing Solution Alexandria VA (UP) 13 Today. and that if Classic continues to carry the highest labor cost of any airline in the industry. unions representing employees of Classic Airlines awarded Classic the Wright Stuff® Trophy for this year. We have to show them that we understand their needs and we understand what’s important to them. but they haven’t listened at all. “With our ‘Thirty and Out’ retirement program. but it’s not a systems . but we don’t have the service elements. Employees unions represented included the Aircraft Mechanics Fraternal Association (AMFA). General Counsel. including the airline’s insistence on paying top salaries to pilots and other employees. even while competitors are cutting pay in those professions. we’ve got the data. If they had. we just need to put it to work. SVP Customer Service. “Classic has set a new standard for route bidding that will enable a flight attendant to balance the needs of home and work more easily. Every day. The question now is what do we do about it? Renee: We’ve got to reconnect with our customers. or marketing programs in place to deliver. the platform itself is one of the best on the market. and the Association of Professional Flight Attendants (APFA). I hear what you’re saying. operations procedures. I heard your story over a handshake the first day we met. Kevin: But what about the CRM system? Renee: Our CRM system is no more about customer relationships than the system we use to order office supplies! Don’t get me wrong. The aircraft mechanics union (AMFA) described Classic’s union-management relationship as “professional and mutually-supportive”. “Both the company and the union benefit when employees can know that thirty years of work pays off for everyone. SVP of Human Resources. and I’ve seen companies like ours get burned before. ALPA cited several examples of Classic’s integrity. We’ve got the research. 2005 FIRST PROJECT TEAM MEETING – KEVIN. CEO and Ben Sutcliffe. JANUARY 9. CMO. Representatives from ALPA were most vocal in their praise for Classic. Classic’s General Counsel. I’ve been saying we’ve lost touch with our customers. 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. For the past two years. Just kidding! Trust me. the Air Line Pilots Association (ALPA). Noting that Classic has one of the highest labor costs per seat-mile. and shared some examples of fruit borne by that relationship. Kevin: I know.” The only somber note of the festive occasion was sounded by Ben Sutcliffe. and it will become the gold standard of the industry” one unidentified APFA officer noted. they wouldn’t be surprised that we’ve suffered a 20 percent loss in Classic Rewards. RENEE. and I should know. The higher-ups think they know what makes our customers tick. JOHN. Present from Classic Airlines for the ceremony were Amanda Miller. noting that Classic had withstood the challenges of a more competitive industry that is faced with rising fuel costs. it will jeopardize Classic’s future. Renee. I monitor the customer service calls. a mechanic can start at age 20 and be retired by age 50’”.
Classic Airlines Marketing Solution 14 issue. Because then we could reduce headcount and deliver cost savings by getting rid of the only people in the company who actually listened to our customers! And what’s worse is that we configured the system in a way that doesn’t integrate the phone channel with the Web channel. and John. her report. John: I agree. one that was in tune to the wants and needs of our customers. Kevin: John’s right. you could pull together any secondary reports that you can get your hands on. but I think they’re wrong. I put together this “picture of the customer” that sheds a lot of light in this direction. Renee: Wow. and spoke to the customer in a unified voice as a result. Kevin: Sounds like a plan. I also know that when it comes to marketing campaign execution. we had no system. if you know what I mean. and I’ve spent the past six months talking to Classic’s top-level frequent fliers. it could do everything we want it to. that‘s the problem. or really the lack of philosophy. with all due humility. It’s a strong platform. The system has the capability to integrate channels seamlessly. When we began our CRM implementation. I was candid. I’ll also tell you this: I’ve spent the past 10 years talking to frequent fliers of all levels. But the system might be our answer in this case. She grins from ear-toear at the sheer fact that she can get data on our rep call time in real time. I can tell you this much – I’ve seen it done before. ever since I’ve been here. We have the marketing know-how to make this work. Renee. we don’t even use the information from the CRM system. John: Definitely. my department. But we did have a strong loyalty program. maybe more. Like you said. But I think we need even more research before we get started. I know a lot of my former colleagues who would love to have the experience and market knowledge that we have in this room. In fact. And you know what? They don’t always put price at the top of their decision-making criteria when choosing an airline. So much for making the most of every customer interaction. SVP Customer Service FROM: Kevin Boyle CMO. we would succeed. I’ve heard it in exit interviews. I’ve even seen her confront my reps on the floor if she sees their call times start to increase – my reps. it’s not the system. all we were concerned with was decreasing the amount of time our reps spent on the phone with customers or. there will be plenty to steer clear of! TO: John Hartman. we don’t know they’re the same person. She and Amanda both live and die by the numbers. Marketing can deliver on this challenge. better yet. the CRM cloud could turn out to have a silver lining. and told him that if the system took the philosophies and practices of our current customer retention efforts. I’ve talked to Amanda about it as well. Both Amanda and Catherine seem to think we can’t win this game without playing the price cut card. We’ve got to champion the concept that CRM is far more than a system. but the philosophy. but I think she’s got too much political capital invested in the CRM implementation to take any corrective action. and the CRM system can play a starring role. my friends. but it would have required more time than we were prepared to invest. the CEO came to me and asked me what I thought it would take to make CRM work from marketing’s perspective. we’ll at least have that part of the battled covered. SVP Human Resources. much stronger than that of our competitors. Kevin: Well. it’s a top-down philosophy that puts the customer at the center of our business. Why don’t I head up a quick customer survey with the inbound group. It will keep us on course and defend the flanks. When I first took the marketing VP job at the last airline I was at. check it out. Renee: I know one thing: Catherine sure loves the reports we get out of the CRM. and integrated them with our reservations and customer service functions. Renee. If our customers choose to interact with us over both channels. and with a little recalibration of our strategy. including the loyalty program. If we can use the CRM system to deliver the same kind of metrics and reporting for the loyalty program that we do for our operations functions. When we set it up. . that’s slick. driving these customers to the Internet so we didn’t have to talk to them at all.
which is what I am.” “You should have your executives listen in on customer service calls sometime.” “You know. your competition just put in leather seats with DirectTV in the back of every one. Those ladies would call my cell phone and let me know if my flight was late. don’t lose my bags. you need to let me reserve them at least six months in advance. but there should always be the option to talk to a real person. And if you do. a paying customer. when I flew in and out of New York and you still had a Classic Club at Newark Airport. within reason Considers his frequent flier points to be the airlines’ investment in him . and employee satisfaction. Attachments: J: Boyle’s customer profile and feedback from his discussions with customers K: Transcripts from call monitoring L: Excerpts from exit interviews M: Customer service call reports Attachment J: Boyle’s customer profile and feedback from his discussion with customers Kevin Boyle .” “Stick to the schedules.” “Treat me like a person. not me”.” “Let top-level frequent fliers board early. book hotel rooms for me when my flight was cancelled. and always gave me little trinkets to take home to my kids.” “I remember the good old days. delays Wants frequent flights to a variety of destinations Wants quality service Will pay a premium for these benefits. easily and effectively as possible Doesn’t like connections.” “In the unlikely event that you overbook a flight (which has happened to me) please do not infer that it is something I have done to cause (which has also happened to me). I’m with you.” “Whatever you do. just get me there on time.Notes From Customer Conversations Key Customer Comments: • • • • • • • • • • • • • • “I don’t need the perks. “My friend can use frequent flier miles to make her mortgage payment or save for retirement.” My Picture of the Customer: Business Traveler – • • • • • • Wants to get from point A to point B as quickly. I would never have dreamed of flying on anything but Classic. if you can assure me I’ll arrive on time and be treated like a human being. Please tell me you’re not going to do that.” “I don’t care if it costs a couple of bucks more.” “One of your competitors just got rid of pillows on board to save almost a half-million dollars a year.” “I’ve heard you only allow two seats per flight for me to redeem my frequent flier miles.” “I know you may need to automate customer service to control costs. don’t treat me like a criminal – you lost them. If that’s true.Classic Airlines Marketing Solution Subject: Please Review 15 I have attached documents that outline our picture of the customer as well a few documents that present clues related to Classic’s current level of customer service.
etc.Classic Airlines Marketing Solution Leisure Traveler – • • • • • • Much more price sensitive – will schedule trips around discount fares More tolerable of connections if it saves them money Doesn’t care as much about the frequency of flights or the variety of destinations Doesn’t care as much about the quality of service if they save money Doesn’t make as many trips as the business traveler.e.) 16 Attachment K: Transcripts from call monitoring . but outnumbers the business traveler in sheer volume One trip decision involves multiple tickets (i. a family of four or more.
nothing direct. but I'm not kidding. Klinnger. Mr. Classic has a two-week blackout period around most major US holidays. you do have enough miles in your account for international travel.Q3 2004 Call #1 Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Thank you for calling Classic Rewards. Mr. if I have to leave on the 14th. Louis and Paris. Can I have your Classic Rewards number? It's 876-999-00854 Alright. I guess I'll take what you've got. Okay. Great. and then after a short lay over.Classic Airlines Marketing Solution Classic Rewards' Customer Service Call Monitoring Transcripts . how may I help you? Hi. let's see. we're talking more than two weeks right? This is ridiculous! Again. but two weeks.but lets' see. this is Jolene. Classic Rewards. Alabach. I hope so. but those are the rules. you've got to be kidding me! No. Louis. Like I said. it says here that you are "proud to offer non-stop flights daily from New York. I could extend my stay…. from where will you be flying? Well. You'll have to fly to New York from St. this is Jack. as far as frequent flier seats are concerned. I've been saving these for six years. Mr. Klinnger. Okay. I've been saving them for six years! Okay. we do offer a flight with only one connection between St. Is there anyway you could extend your stay? Yeah. I live in St. my name is Joe Klinnger and I'd like to redeem some frequent flier miles for a flight to Paris. Well. and they are stated clearly on our website. we do. can I get your name and Classic Rewards number for starters. Hmm. I'm sorry. now where will you be traveling to and from? Tampa to Seattle. correct? What? Two weeks? I expected a couple of days right around the 25th. and my account number is 779-220-29837. my name is Dan Alabach. great . I'm sorry Mr. Sure. you'll be on your way to Paris. Alabach. Louis and Atlanta"? Well. St. Mr. and you mentioned Christmas. Whatever! 17 Customer Service Rep: Customer: Call #2 Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: . Chicago. however. Alabach. and back.I wanted to stay for a week. but I could stay for ten days or even two week . those are only available to Paris on our connecting flights through New York. I'd like to redeem some frequent flier miles for a flight home for Christmas. Now you are aware that there is a blackout period from December 15th through January 1st. how can I help you? Hi Jolene. That's good news. Louis and I'd like to leave from there.that sure is a comfort! Glad to know it's clear.
is that correct? Well. you're only allowed to redeem for one companion ticket every two years. this is Lisa. Mr. how can I help you? Hi Lisa. Now Mr. Gratz. I just don't have a lot of options! Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Attachment L: Excerpts from exit interviews . Mr. I believe so. even when I've flown nearly twice a month with Classic for the past ten years? That doesn't really sound "equal" to me. as a member of our Silver Rewards program. I wish there was something I could do. it's a surprise and I have to be there when I have to be there. Okay. But could you let someone know they really should look at what they're doing here? I sure will. Gratz. Gratz. you can either redeem for the one ticket. Oh. but we have to abide by the terms and conditions for all customers equally. You mentioned a couple of roundtrip tickets. But unfortunately. for now. But for now. we are hoping that change will come through soon. or wait four months to redeem for the two. Gratz. Alright. I thought you were going to change that? They told me when I got my last one that this shouldn't be an issue going forward. and thank you for understanding. does that make a difference. my name's Keith Gratz. it says here that you redeemed for a companion ticket last July. Sure. Mr. don't get me wrong. it was over a year and a half ago? Actually. I don't understand. Equally. I can certainly help you. or two tickets for the same trip? That would be two tickets for the same trip. I'm sorry. were these for two separate trips. I can't wait. I've been a loyal customer for over ten years. but I'll need to get your Classic Rewards account number. Is there anyway you could make an exception since it is only four months out? I'm sorry Mr. and I'd like to redeem some frequent flier miles for a couple of roundtrip tickets. this is for my father-in-law's 60th birthday party.Classic Airlines Marketing Solution 18 Call #3 Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Customer Service Rep: Customer: Thank you for calling Classic Rewards. Gratz. I've got your account information here in front of me. What's the deal? Well. Again. I fly Classic every chance I get. Lisa. we've got some great new ideas in our marketing department. it does make a difference. you'd have to wait four months to redeem for a companion ticket on one flight. Go ahead and give me the one. it's 537-000-53691.
5. what would that be?: Listen to your customers. 5. Would you recommend Classic Airlines as an employer?: Yes 4. Employee: Customer Service Rep #2 1. People would call one day. If you could deliver a final message/comment to the CEO. 6. If you could change one thing at Classic Airlines. Do you feel you were compensated fairly for your skills and talents?: Yes 3.Excerpts From Exit Interviews Employee: Customer Service Rep #1 1. then call back to place a final reservation and we would have to make them go through everything all over again. Not the phones themselves. what would that be?: I never could understand why the CEO cared so much about how long our calls were. which is my personality. 19 Employee: Vice-President of Marketing . what would that be?: Fix the phone system. Were you treated with respect and dignity as an employee of Classic Airlines?: Yes 2. If you could change one thing at Classic Airlines.Classic Airlines Marketing Solution Classic Airlines . Would you recommend Classic Airlines as an employer?: Yes 4. Everytime I said something like that to my supervisor. If you could deliver a final message/comment to the CEO. Do you feel you were compensated fairly for your skills and talents?: Yes 3. maybe go to the website another. What was your reason for leaving Classic Airlines: Found better opportunity in another industry. Getting off the phone fast doesn't always mean the best thing for the customer. I thought I was supposed to be in "customer service". but the computer program we had to use to log customer calls. Were you treated with respect and dignity as an employee of Classic Airlines?: Yes 2. and it seemed like I was judged by how fast I could get rid of customers. because I didn't want my call time to stand out. What was your reason for leaving Classic Airlines: Spouse relocated to a different city. People didn't seem to be as happy with us my last couple of years as they were in the beginning. I was afraid to "chat up" my callers. he always blamed me for not being "friendly" enough on the phone. 6. what would that be?: Don't focus so much on how long the customer is kept on the phone.
If our top management does not recognize that the customer signs our paycheck. Information Services 1. all you've really got is an expensive reservations system. The two of them played such a strong role in the direction of the company that I viewed it as an insurmountable hurdle. Often decisions made at the top did not incorporate the direction and perspective of those closest to the day-to-day operations. with your CEO is the main reason I'm choosing to move on. Leverage the expertise of the IT veterans and let them provide directional guidance to the management/user group. Would you recommend Classic Airlines as an employer?: Marketing. what would that be?: Either get rid of the supposed CRM system. Would you recommend Classic Airlines as an employer?: No 4. the career path did not look as promising at Classic as it did outside the company. 2. If you could change one thing at Classic Airlines. Do you feel you were compensated fairly for your skills and talents?: No 3. What was your reason for leaving Classic Airlines: Growth opportunities at my level were limited. Customer Service . I have nearly twenty years of marketing experience. what would that be?: I really don't think you want me to answer that question. Were you treated with respect and dignity as an employee of Classic Airlines?: By most colleagues. What was your reason for leaving Classic Airlines: It was clear to me that my style and talents clashed with the CEO and CFO. no. With one senior level IT position. my successor will face the same challenges. and by the time my input could have changed the way things came out. what would that be?: Re-define the role of the IT department as it relates to the software implementation function. 6. We spent an unbelievable sum of money to implement one of the best platforms available. For starters. and that marketing and sales can help keep them (the customer) coming back. Were you treated with respect and dignity as an employee of Classic Airlines?: Yes 2. and probably the same ultimate fate that I did. what would that be?: Listen to your lieutenants. If you could deliver a final message/comment to the CEO. 6.Excerpts From Exit Interviews Employee: Director of Applications. and not even a good one at that. Classic Airlines . Until that is addressed. you've got to capture customer contact at all points of interaction with the company to provide the proverbial "360-degreee view of the customer". If you could change one thing at Classic Airlines. 4. the software was too far along to be changed.Classic Airlines Marketing Solution 1. I actively pursued a position at a company where marketing played a more dominant role in driving the strategy of the company. and that is apparently of no value to the organization at all. 5. I was in the dark in the early stages of the implementation. and no CIO. or get it straightened out fast. My relationship. If you could deliver a final message/comment to the CEO. yes. other departments. 20 Employee: Supervisor. 5. and we couldn't (or wouldn't) spend the extra little bit to fit the system around the needs of our customers. or rather the lack of one. Do you feel you were compensated fairly for your skills and talents?: Yes 3.
I did not necessarily want to leave Classic. I guess I'd have to say something related to the frequent-flier program. and she was the one who recognized my talents and pushed for my promotion. Would you recommend Classic Airlines as an employer?: Yes 4. The whole customer service group really turned around since she arrived. that's a tough one. 5. I really felt the company was moving in the right direction. but the opportunity that came along (I was not actively looking) was too promising to pass up. Attachment M: Customer service call reports Classic Airlines Customer Service Report Average Call Time By Rep . what would that be?: Keep up the good work.March (Call times are in seconds) Week Week Week Week 1 2 3 4 Employee 1 330 360 388 410 Employee 2 334 554 279 368 Employee 3 227 296 339 577 Employee 4 188 195 210 295 Employee 5 777 854 901 683 Employee 6 320 340 328 507 Employee 7 305 298 842 199 Employee 8 757 685 673 886 Employee 9 443 563 501 488 Employee 10 278 299 224 300 (in seconds) 21 Total 372 384 360 222 804 374 411 750 499 275 445 Total 396 444 469 471 Classic Airlines Customer Service Report Number of Calls Per Week By Rep . 6.Classic Airlines Marketing Solution 1.March . I don't think the company had the time or money to respond. If you could deliver a final message/comment to the CEO. and take care of my boss' boss (Epson). It seemed that my reps received pretty consistent negative feedback from customers. What was your reason for leaving Classic Airlines: I was recruited by a national retailer for a manager-level position with great opportunities for advancement. Were you treated with respect and dignity as an employee of Classic Airlines?: Yes 2. Do you feel you were compensated fairly for your skills and talents?: Yes 3. If you could change one thing at Classic Airlines. and with the rising cost issues we were dealing with company-wide. what would that be?: Boy.
2005 TO: Kevin Boyle. handles customer complaints. These reports are taken from the main call center. and processes frequent flier program inquiries/redemptions. JANUARY 11. P: John Hartman’s informal evaluation of the direction of Classic’s top three competitors Attachment N: Data monitor Report “Airlines in the United States”/ Attachment P: John Hartman’s informal evaluation of the direction of Classic’s top three competitors . SVP Customer Service From: John Hartman SVP Human Resources Subject: Secondary research reports Here's what I've come up with so far regarding secondary research reports.5 hours and actual phone time per hour of 50 minutes. Please click the following to access the reports: Attachments: N: Data monitor Report “Airlines in the United States” O: Plunkett report on the travel industry. CMO. which processes reservations.Classic Airlines Marketing Solution Week 1 341 337 496 598 145 352 369 149 254 405 344 Week 2 313 203 380 577 132 331 378 164 200 376 305 Week 3 290 403 332 536 125 343 134 167 225 502 306 Week 4 274 306 195 381 165 222 565 127 231 375 284 22 Employee 1 Employee 2 Employee 3 Employee 4 Employee 5 Employee 6 Employee 7 Employee 8 Employee 9 Employee 10 Total Total 304 312 351 523 142 312 361 152 227 415 310 NOTE: The above reports are based on a full-time work week of 37. Renee Epson.
Classic Airlines Marketing Solution 23 John Hartman’s Informal Summary of Classic’s Top Three Competitors Competitor A – derived from Data-monitor assessment of British Airways Strengths • • • • • Weaknesses Large company – economies of scale Existing global network Brand recognized worldwide Cost reduction has been effective Customers are loyal. currency exchange rates Fuel and equipment costs Concerns from environmental organizations Competitor B – derived from Data-monitor assessment of Northwest Airlines Strengths • • • • Weaknesses Dominant. fed by regional carriers Available cash balance • • • • Pension plans not adequately funded Workforce is over 90% union High-risk receivables Operating at a loss for three years in a row Opportunities • • • • Industry recovery Re-structuring at major competitor Customer’s needs are changing Additional alliances Threats • • • • Competition is fierce and strong Fuel and equipment costs Government regulations and taxes Seasonality – Q2/3 outperform Q1/4 . long-time player in industry Multiple successful loyalty programs Established network. frequent flier programs are strong • • • • Reputation may have been slightly tarnished by recent strikes Heavily leveraged Ineffective negotiations with unions Relies on narrow revenue streams for much cash flow Opportunities • • • • Expansion at existing hubs Customer’s needs are changing Additional alliances Industry is on the rebound Threats • • • • Competition is fierce and strong Financial – interest rates.
largely due to fewer . Southwest again topped the list with 92. Southwest Airlines jumped to the number one spot of the top 10 U.S. For years. wooing customers based on price.plunkettresearch. according to the U. not perks.6 million. Hedging involves buying and selling commodity contracts on futures markets.Classic Airlines Marketing Solution John Hartman’s Informal Summary of Classic’s Top Three Competitors (continued) Competitor C – derived from Datamonitor assessment of United Airlines Strengths • • • Weaknesses Global presence.1 million. In mid-2008.9 passengers flown (both domestically and internationally). There are no guarantees that hedges will work. Meanwhile. Southwest announced a profit for the 71st straight quarter (excluding special items) while the other major airlines collectively lost money.com Discount Airlines Set the Standard But Face Economic Challenges Thu. carriers in 2004 based on domestic enplanements (more than 81 million). strong existing network Successful loyalty program Worldwide brand recognition • • • • Operating at a loss for two years in a row Current and future lawsuits Heavily dependent on North American revenue base Highest costs and lowest productivity in the industry 24 Opportunities • • • Industry recovery Customer’s needs are changing Additional alliances Threats • • • • Competition is fierce and strong Fuel and equipment costs Government regulations and taxes Seasonality – Q2/3 outperform Q1/4 Attachment O: Plunkett report on the travel industry Plunkett Research Ltd. while its point-to-point flying system has helped to give it a solid reputation in on-time performance. Bureau of Transportation Statistics. Copyright (C) All Rights Reserved www. Its single-plane platform (Boeing’s 737) keeps maintenance costs low.S.9 million enplanements. their success has caused important changes in the industry. Southwest and its no-frills business model have enjoyed tremendous success. For the period of January through November 2009. followed by American with 78. and they can lead to large losses. Southwest has led the industry in intricate hedging techniques that help to shield it from rising fuel costs. and regained the lead from American Airlines in 2007 with 101. 03-25-2010 As discount airlines have set the standard for air travel for the past decade or so. compared to American’s 98.
it had 151 planes to Southwest’s 547). adjust flight schedules ahead of bad weather reports and publish a “Customer Bill of Rights” outlining provisions for passenger compensation when flights are delayed or cancelled. hedging practices cost major airlines hundreds of millions. but implemented a numbered boarding system instead. its first losses in 17 years. in rapid expansion mode. According to founder David Neeleman. down from $645 million in 2007. JetBlue also offers assigned seating. Southwest managed to report a profit of $99 million.” However. Both are offering fully refundable fares which can be changed without penalty when business travelers’ . Meanwhile. Outraged passengers and some legislators called for regulatory changes that would guarantee certain passenger rights during times of severe service delays. the airline’s lack of communication between its ground crews and flight crews resulted in delays of up to 11 hours with passengers trapped on board while planes sat on frozen tarmacs. By late 2008 when oil prices entered a freefall. it was. In general terms.Classic Airlines Marketing Solution 25 passengers. fuel hedging had a major impact on Southwest’s market dominance. and the cost of skimping on investment in logistics. Up until mid-2008. Even Southwest took a hit. The airline was not immune to rising costs. United’s overall loss exceeded $5. which has great appeal for those tired of rushing to line up at Southwest’s gates for its cattle-call seating (it must be noted that Southwest was considering switching to assigned seating in 2008. JetBlue aims to “bring humanity back to air travel. which was extremely advantageous). adding new planes and new markets. Full-year 2008 profits for Southwest fell to $178 million. JetBlue offers soft leather seats and satellite TV. as its fuel expenses rose by 35% in the second quarter of 2008 despite its hedges. despite the fact that passenger traffic in the year declined from 2008. For fiscal 2008. losing $120 million in the third quarter and $56 million in the fourth quarter. JetBlue is learning a tough lesson when it comes to the challenges of rapid growth. Plagued by ice storms in early 2007. In October 2008. Southwest is facing tough competition in the form of newer discount airlines such as JetBlue. letting passengers board by groups based on the order in which passengers check in). more than 70% of its fuel was purchased at a price equivalent to $51 a barrel for crude oil. Southwest redecorated its fleet in response. up until recently. Southwest was by far the best prepared airline when it comes to weathering high fuel costs. United Airlines reported losses of $779 million in the third quarter because of a noncash charge reflecting the losses of its hedging contracts for fuel. Although JetBlue has only a fraction of the fleet that Southwest boasts (at the end of 2009.3 billion (the carrier lost a further $651 million in 2009). Its fuel hedges covered 80% of its fuel purchases (in 2008. JetBlue responded by announcing plans to upgrade its communications systems. However. For 2009. the fact that JetBlue’s fleet is relatively new means that its maintenance costs are low. which heretofore have not made up the bulk of their passengers. Both JetBlue and Southwest are making attempts to attract more business travelers.
both were testing inflight Internet access as of early 2010. discount carriers have largely confined their operations to domestic travel. Costa Rica. Additional perks included in Business Select are a complimentary beverage. some legacy airlines have been adding seats to new Boeing 737800 aircraft by squeezing more rows of seats into coach sections where galleys used to be (galleys are superfluous on many domestic U. partly owned by U.K. seat-back entertainment screens. Also. losing $227 million in its first year of operation.S. Aruba and the Dominican Republic. banning checked baggage altogether. modern look. Their ability to lure business travelers with first or business class seats. Seating areas include mood lighting. It has hung on. and a clean. However. U. For full-service carriers. However. and may eventually fly even further afield. and selling 98% of its tickets via its web site. based on the Southwest and JetBlue model. Southwest offers “business select” fares which afford business travelers to board Southwest aircraft first for priority seating for an additional charge. additional frequent flyer credits and expedited security lines at participating airports. Meanwhile. . especially on flights of under three hours). South America. electric power plugs at each seat. Southwest hopes to earn an additional $100 million per year through the added revenue from Business Select fares. Virgin America offers low-cost seats. RyanAir is being especially aggressive in its cost-cutting efforts and increasing revenue by eliminating seat back pockets to lower weight and cleaning costs. leaving international flights to the full-service airlines. Nonetheless. airline clubs and destination lounges that offer showers and changing rooms give them significant competitive advantage. Legacy airlines are earning a significant portion of their net profits off international routes.S. American. eliminating airport check-in. earning $3. Jamaica. On the domestic side.-based Virgin Group. dozens of discount airlines. Massachusetts and Orange County. Virgin America.5 billion in 2008 revenues and adding routes between Boston. which has powerful appeal to business travelers because they can work while flying. JetBlue. Delta and Continental are all increasing the total number of seats in coach cabins by 10 to 160 seats total. have sprung up worldwide. RyanAir and EasyJet are setting the standard for discount operations in much of Europe. Europe and beyond offers an opportunity for airlines like American and Continental to truly differentiate themselves. began service from San Francisco and Los Angeles to New York in 2007. Thus far. flights since meal service is no longer offered. Spirit and AirTran are offering tourist destinations like the Bahamas. international travel affords them an added boost.Classic Airlines Marketing Solution 26 schedules shift. especially given the fact that their full-service domestic flights can connect smoothly with their international flights at major hubs. plus a first class section. the fact that major “legacy” airlines offer extensive global flight schedules to Asia/Pacific. Virgin America had a rocky start. California in 2009.
most of the fastest growing airlines in the world are discount airlines operating in places like China. flights to 66. Aloha. cut back their schedules. the tragedy of 9/11. The International Air Transport Association or IATA (which represents 230 airlines or 93% of scheduled air traffic) estimated losses among global airlines for 2008 of about $16. carriers. In years past.8 billion. Plunkett Research Ltd. opening up the Mexican market to competition for the first time. At AirTran. while delivery of 18 Boeing aircraft was deferred.2% in 2009.S. 03-25-2010 The commercial airline industry has always been particularly vulnerable to economic and political changes. which sometimes leaves liquidation as the only alternative. By early 2008. airline industry in 1978 was a watershed event that led to intense price competition. Southwest cut about 6% of its flight schedule in late 2008 and another 196 flights in early 2009. The stock market crash of 2000. JetBlue’s American founder. competitive fares may be blossoming as a result. In 2008. and another $11 billion in losses for 2009. Delta scaled back its foreign capacity by 15% by the end of 2009 (compared to 2008). capacity was reduced by 5% by the end of 2008 and another 2. among other problems. new discount airlines have formed by the dozen. JetBlue also deferred delivery of 21 Airbus planes and suspended existing and planned service to a number of cities including Columbus. bringing its .S. India. Vietnam.5 million. Poorly financed discount airlines were forced into bankruptcy in 2008. including Southwest. Aloha Airlines and ExpressJet. global airlines were awash in losses. In fact. and several factors conspired in recent years to make the goal of profitability ever more difficult for major airlines to achieve. including ATA. Copyright (C) All Rights Reserved www. Nashville and Tucson.Classic Airlines Marketing Solution 27 In India. the slowing global economy brought about severe reversals in many airlines’ growth plans. Faced with fluctuating fuel costs and dwindling passenger numbers.plunkettresearch. In the current market. Meanwhile. has launched a very successful discount airline in Brazil called Azul Airlines. resulting in acquiring only 14 new 737s in 2009. Zoom and Skybus. down from the industry’s peak of 84 million in 2001. Southeast Asia and elsewhere. The deregulation of the U. David Neeleman. It also cut its fleet expansion in half. Frontier. lenders are less likely to finance ailing airlines.S. By late 2008 when the global economic crisis hit in earnest. the Mexican Government has privatized its two national airlines. Capacity cuts taking effect in September 2009 dropped domestic seat capacity on U.com Global Airlines Face Daunting Challenges/Partnerships Proliferate Thu. bankrupted several airlines and threatened many more with similar fates. a number of carriers ceased operations including ATA. rapidly rising fuel costs and intense competition. Meanwhile. Indonesia and Brazil. airlines such as United. many U. Delta and Northwest were awarded bankruptcy protection during which they were able to reorganize and cut costs.
Meanwhile. among others. not perks. rather than the other way around. connect to gate power sources when parked and rely on expert market analysts for advice on when and how to purchase fuel. all new aircraft purchased by most airlines feature special upswept wing tips that are designed to reduce fuel consumption by 3% to 4%. five airlines began charging $25 to check a second piece of luggage and still more for a third. US Airways. American and United began to charge $15 to check one piece of luggage. Total employment at American carriers. announced that it would begin charging for meals served to coach passengers. With the rolling hub model. United hopes to accrue as much as $1 billion per year from the so-called “ancillary” charges. capacity was down by 7.372 and down 24% from the all time high in May 2001. down from 2007’s 624. Most airlines now taxi on only one engine. as of April 2009. are charging passengers for many services that were previously provided free of charge. passengers are paying for drinks. Delta and US Airways. design more efficient routing. A 2010 World Economic forum report found that global air traffic rose 300% between 1980 and 2005. full-service airlines an important model from which to learn when it comes to cutting costs: use fewer types of aircraft to keep maintenance and repair costs low. Rather than having clusters of planes wait around at airports for passengers. while increasing the number of hours their aircraft fly per day and using staff more efficiently. meals and even pillows and blankets. while aircraft and . More and more. Results from fuel efficiency initiatives have been impressive. United. and many have made big changes in order to improve efficiency and financial results. In March 2010. airlines had many flights arriving and taking off within about 45 minutes of each other. However. was 583. Southwest has given traditional. fewer gate personnel are kept on hand and passengers often wait up to two hours for their connecting flights. airlines are increasingly spacing flights at longer intervals. a long time hold out in charging for extras. but jet fuel consumption rose only 150%.5% by the end of 2009. On board.030. At American Airlines. this system required large numbers of gate and baggage personnel who often were idle for long periods between groups of flights. This model has allowed Southwest to boast some of the industry’s cheapest costs per passenger mile. Airlines have made tremendous improvements in operating methods. forcing passengers to wait for planes. airlines are forced to manage their fuel costs aggressively.to mediumsized markets). The rolling-hub concept allows airlines to maximize passenger loads. travelers had minimal waits when they changed aircraft at hubs to fly on to their final destinations. Previously. While the hub-and-spoke system that is the defining characteristic of full-service airlines is unlikely to go away anytime soon (it still may be the most efficient way to service some small. For example. Continental Airlines. purchase oil futures to hedge fuel costs and keep customers coming back with low prices. In that manner. more airlines are moving toward a “rolling-hub” concept. The low-fare model has given major airlines food for thought. control labor costs while making the workforce as flexible as possible.Classic Airlines Marketing Solution 28 total network capacity down by 10% overall. As of April 2008.
counterparts.19 billion in 2007 (however.2 billion in 2006 and $1. Consumers’ budgets are tight.Classic Airlines Marketing Solution engine manufacturers have greatly enhanced their technologies. and many employees are looking at monthly retirement pay that is one-half or less of what was expected in better times.547 according to PayScale. When the middle class does take a vacation. In late 2009. partly due to fuel costs). 29 Airlines have also been shaving salaries when possible. and they are cutting down on unnecessary expenses. . down from approximately $250. Visit the Aviation Consumer Protection Division at airconsumer. through extensive negotiations with labor unions. flights and destinations.. frequent flyer programs and airport lounge facilities.S. Sharp drops in passenger traffic resulted in a fiscal 2009 loss of $1. Continental made news by leaving Oneworld and joining the Star Alliance. information technology. 09-18-2009 The 2009-2010 period finds the travel industry continuing to face challenging times.S.atwonline. consumer satisfaction ratings and much more. their on-time ratings. Pension benefits have been cut. Global airlines are increasing their reliance on partnerships such as the Star Alliance and Oneworld Alliance. while Oneworld has 8.387 daily departures to 727 destinations in 142 countries. The partnerships share flight codes. The move to the larger Star Alliance afforded Continental more partner airlines. management. partly by removing older. fuel-guzzling aircraft from service. safety regulation and more: www.534 daily flights to 1. helping long distance travelers to cover thousands of miles as seamlessly as possible.dot. it is on a reduced budget. Internet Research Tip: The U. Their efforts paid off to some extent. airlines. The Star Alliance network offers 19. many global carriers have slashed costs and undertaken massive restructurings in the face of the losses at the end of 2001 and the SARS crisis in 2003.com Introduction to the Travel Industry Fri. corporate and business travel budgets are tight as well.S. Inc. The median salary for commercial jet pilots as of March 2009 was $78. profits fell to $996 million in 2008.1 billion. Japan Airlines (JAL) went into bankruptcy protection in January 2010. The result is a significant savings in fuel. Travel providers of nearly all types are competing fiercely on price or are offering their customers special inducements and packages. Like their U. The travel industry is acutely aware of this problem.ost.gov ATWOnline offers extensive information regarding air operations. For example. Department of Transportation operates a web site with complete information regarding U. Meanwhile.000 in 2003. Most airlines have cut routes and reduced the total number of seats available. the merged Air France-KLM Group posted relatively steady profits of $1.071 airports in 171 countries.
projected a global airline industry net loss at $11 billion for 2009. However.47 trillion or 9. In the WTTC’s figures.39 trillion. Hotels throughout the world enjoyed a major boom through mid 2007. Travel Association (USTA) estimated total U.9% decline from 2008). multiple levels of photos and descriptions.S. and some. The cruise line business has held up relatively well in the onset of the financial crisis.6% between 2009 and 2019. the U. with high occupancy levels. However.8 in 2006. Today. According to the World Travel & Tourism Council (WTTC). and an amount representing about 3. took bankruptcy in August 2008. after a net loss of $16. making booking convenient for consumers and more cost-effective for travel providers. followed by Japan at $551 billion and China at $526 billion. online travel booking sites like Orbitz and Expedia face tough competition.S. with 100 million Chinese expected to travel to foreign lands in 2018. E-commerce continues to play an extremely important role in the travel sector. the global financial crisis put a damper on hotel occupancy that continued into 2008 and 2009. $739. airlines and hotel chains are offering their own powerful online reservation systems. were forced to discontinue operations altogether.64 trillion in direct plus indirect travel expenditures in 2009.9 billion for 2008. once major airlines in Hawaii and elsewhere. generating $1. Eos and Skybus. rising room rates and strong levels of both business and leisure travelers.2% of total global GDP).8 billion in 2008 and a net profit of $12. On that basis.5% decline from 2008. IATA. Many major hotel construction projects have been cancelled or put on hold. Many airlines took bankruptcy protection in 2008. boosting the 2019 total to $3. Consumers often find the lowest prices on sites operated directly by airlines and hotels. and the ability to earn and manage frequent flyer awards. The WTTC forecasts real annual revenue growth averaging 3. China is the market to watch. including MAXjet.9 billion in 2007.Classic Airlines Marketing Solution 30 The U. in Italy. the international association that represents most of the world’s major airlines. including both direct and indirect revenues. The 2008-2009 period was an ugly time for airlines. Government-controlled Alitalia.87 trillion in direct global revenues (a 3. The WTTC also prepares an estimate of the total effect of travel and tourism on GDP (gross domestic product).4 billion in 2007 and $699.4% of global GDP for 2009.S. with rich features. accounted for $1. Several specialty and business-classonly airlines ceased operations. the group estimates the total impact of the industry on global GDP at $5. However. such as Aloha Airlines and ATA. including Frontier. particularly at the largest cruise lines. these companies often offer deep . the global travel and tourism industry supported 77.2 million jobs on a direct basis in 2009 (a 1. travel expenditures at $772.
Less than one year – 23% b. How well do you feel Classic’s advertising campaigns convey an accurate and meaningful picture of the airline? a. Very dissatisfied – 19% b. Very satisfied – 17% 7. How satisfied are you with the service upgrades you receive as a Classic Rewards member? a. How many flights do you take per year with Classic Airlines? a. Very accurate and meaningful – 38% 4. Satisfied – 62% d. More than 5 years – 8% 6. Dissatisfied – 38% c. Somewhat accurate and meaningful – 48% c. How satisfied are you with the umber of miles you earn for your Classic flights? a.Classic Airlines Marketing Solution discounts today in order to fill cabins. 3 to 7 – 33% c. More than 12 – 14% 2. 1 to 3 – 22% b. More than 12 – 15% 3. 1 to 3 years – 42% c. Very satisfied – 23% 5. and cruise ships are nearly full. How many flights do you take per year with airlines other than Classic? a. How long have you been a member of Classic Rewards? a. 3 to 5 years – 27% d. 2005 Renee conducts phone interviews with current and former top-level frequent fliers Attachment: Q: Summary of Renee’s customer interviews 31 Attachment Q: Summary of Renee’s Customer interviews Summary of Renee Epson’s Customer Interviews (Audience – 500 Gold and Platinum level Classic Rewards members) 1. Dissatisfied – 51% . 3 to 7 – 42% c. Very dissatisfied – 18% b. JANUARY 13. 1 to 3 – 29% b. 7 to 12 – 31% d. Very dissatisfied – 4% b. How satisfied are you with the customer service you receive from Classic Airlines? a. Dissatisfied – 11% c. Satisfied – 27% d. Consumers see cruises as high-value package deals. Not accurate and meaningful – 14% b. 7 to 12 – 14% d.
How satisfied are you with the reward redemption options available through Classic Rewards? a.” There hasn’t been a marketing alliance here in the history of the company. your boss has been pretty clear in the media that costs will be controlled. Josef: Understood. Satisfied – 22% d. and we’ve got to reconnect with our customers. Kevin: Speak with you soon. I’m in the midst of a project with unbelievable expectations. Kevin: That’s nothing compared to what we hear. I’m working against a CEO who doesn’t believe in alliances. 2005 PHONE CONVERSATION BETWEEN KEVIN BOYLE AND JOSEF WYMANN. Kevin: Josef.the top marketing man! 32 Josef: I’m still there. Our customer loyalty is the pits. MARKETING EXECUTIVE OF SKYWAY AIRLINES Josef: Kevin Boyle. And on top of that. It does sound like you have your hands full. We need the third leg to the stool. I’ve been finalizing talks with a top Latin American airline to enter into a marketing alliance. Very satisfied – 8% 9. Kevin: Speaking. and I think you and Classic may be it. Josef Wymann here. and deliver a seamless program. Not to mention that if I can’t clean up our customer loyalty situation. and I’m going to float it by my team and see if we can’t figure out a way to sell this upstairs. the board has mandated a universal 15 percent cost reduction by next fall. I’m confident we’ll deliver. but this is as bad as it was in the early ‘90s when we worked at Transit Worldwide Air. Josef: Kevin. The plan is to take it to a code-sharing level. No – 68% JANUARY 16. I don’t have a lot to bring to the table. Kevin: My goodness. please. cheers. Josef. so who knows? Josef: Very well. that’s actually part of the reason for my call. Josef.Classic Airlines Marketing Solution c. you have impeccable timing as usual. We’ve already built one of the most extensive and strategic selection of rewards options in the industry. 2005 . understood. Kevin. Very satisfied – 8% 8. Yes – 32% b. I love your idea. and we’ve got a couple of automated service features that could eventually change the baseline customer experience. it’s been a long time! How are things in Switzerland? The last I heard you were back at Skyway -. I know our CS person will love it. Satisfied – 22% d. JANUARY 17. To cut to the point as we like to do in Zurich. She thinks “no one can satisfy our customers better than we can. Very dissatisfied – 14% b. But. Dissatisfied – 56% c. integrate all customer-facing elements. Kevin. Would you recommend the Classic Rewards program to a friend or colleague? a.
RENEE EPSON. enough with the daggers…. Renee: And how well do you know this Wymann guy? 33 Kevin: Josef and I go back quite a way. probably number one or two in Europe. 2005 . that’s an understatement.are you two on board with this or what? John: On board that we should move in the alliance direction? Kevin: One step at a time. If I could take back any decision I’ve made in the past ten years. there’s been something about him that irked me. you? Amanda: Nothing. Renee: Oh. I don’t think he’s all he thinks he is. all I want to know is if you think the idea deserves consideration. that’s your call… JANUARY 23. Since the day that guy walked in this place. okay. JOHN HARTMAN Excerpts from conversation: Kevin: So that’s the deal in a nutshell. John: Sometimes I don‘t think Amanda and Catherine see the forest for the trees. JANUARY 19. At least I can’t see the point in gambling on another spin of the marketing wheel. Catherine: Well. John: Call it unanimous. Renee: Because that would be too customer-focused! Kevin: Okay. Nothing against Kevin. He’d better not come in here talking about dropping the prices even one more dime. He’s one of the sharpest marketers in the industry. Right now. when we can put the money to good use hedging against fuel prices. it definitely warrants attention. I know there are a couple of our competitors who would be thrilled to just listen to Josef’s presentation. I’ve never understood why all of our competitors have formed alliances and we haven’t. but in all my years I’ve yet to see the marketing department drive anything but budgets through the roof. it would be letting them talk me into that last time.Classic Airlines Marketing Solution IMPROMPTU MEETING WITH KEVIN BOYLE. 2005 OFFICE CONVERSATION WITH AMANDA MILLER AND CATHERINE SIMPSON Amanda: Have you heard anything from Boyle and friends? Catherine: Not a word. put it that way. But. We worked side by side to turn around Transit Worldwide Air’s marketing in the early ‘90s.
Heavy to medium user of air Light user of air travel. you start to see that what customers value may. Renee: Kevin. But can you get Amanda and Catherine to start singing? That’s not going to be easy. It’s really nothing more than a little perceptual mapping. it’s all a matter of how the story gets told or. you’d never get the kind of budget you need to do it right. 18-70 years old. Renee. medium loyalty to a no loyalty to a single single brand/carrier. can you drill down a bit into what you feel needs to be done differently in the CRM area? Renee: Where do I start? I actually think you made a good point at our first meeting about our having a fundamentally solid and robust system that’s globally accessible. Segment Name Primary Benefit Sought Demographics Behaviors Personality Lifestyle . Attachment: R: Segmentation Strategy Attachment R: Segmentation Strategy Classic Airlines Segmentation Strategy Business Traveler Leisure Traveler Low price fares to many Low price fares to select destinations. customers don’t think the way we think they do anymore. tells itself. The problem is our segmentation strategy. predominantly Male/female. Professional. demanding. better yet. little or travel. Here’s the segmentation strategy. We need to listen to them. 23-60 years old. Value and price are not the same thing. agreeable. passive. demanding. brand/carrier. To: Kevin Boyle From: Renee Epson Subject: Segmentation Strategy Kevin. destinations. That’s more than most companies can hope for. families income above $50. Confident. and recalibrate the buckets we put them in. Thanks. If we can make people feel good about the money they spend to fly with Classic. successful. active seniors. they’ll be less concerned about every penny. experience mapping. Upwardly mobile or New-age families and mature. Carefree. male. with children of all ages. and the way we talk to them. in fact. Kevin: Don’t be so sure. not only would you never get anybody to agree with me. you’re preaching to the choir. usually egotistical. you are far less likely to question the price.000. When you have a good experience. established achievers. But those are foreign concepts around here. be value. all levels of income. If you step back.Classic Airlines Marketing Solution OFFICE CONVERSATION WITH KEVIN BOYLE AND RENEE EPSON Excerpts from conversation: 34 Kevin: Renee. It’s outdated.
2005 MEETING WITH KEVIN BOYLE AND JOSEF WYMANN Excerpts from tail end of meeting: Kevin: Josef. the United States is a different market. Well. but the idea makes the most sense from a European perspective. Kevin.Classic Airlines Marketing Solution JANUARY 24. we can’t thank you enough for making the trip over to discuss this opportunity. Attachment: S: Wymann’s presentation slides Attachment S: Wymann’s presentation slides Wymann’s Presentation Slides Tri-Star . 35 Josef: I did give you a lot to consider. it’s up to you and your team to weigh them and make the best decision for Classic. I think the team and I have a lot to think about over the next few days. you know the pros and cons. Frankly. My alliance presents some advantages. I think you could just as easily go it alone and succeed.
Classic Airlines Marketing Solution 36 Tri-Star Tri-Star Single .
Classic Airlines Marketing Solution 37 Tri-Star Once t .
and eliminating a variety of perks. Springfield-based GlobalAir announced long-awaited changes to its frequent-flier customer loyalty program. . The level of frustration and disappointment reached epic proportions over the past eighteen months. pre-boarding and more. such as low-threshold upgrades. raising the number of miles required for redemption tickets. You’ll see that our friends at GlobalAir have made some significant changes to their frequent flier program recently. The movement received significant media attention nationwide. such as pre-boarding and concierge baggage handling for top-level frequent fliers. in an ill-fated attempt to control skyrocketing costs. 2004] The Springfield Business News Journal (Springfield. and promised not to let up until their “voice of the customer” was heard. In the tough and uncertain times following the terrorist attacks of September 11. formalized as a limited-liability corporation (LLC) in the state of Missouri. It seems the changes they made two years ago resulted in quite a few angry customers. the customers were so unhappy that they created their own Web site as part of a formal protest. would ever do anything like that to you! Regards. The group developed a website. placed ads in local and national newspapers. These changes include the addition of value-added features. 2001. GlobalAir hopes these changes will help them win back frequent flier customers who have been frustrated with the prior program for some time. a grassroots group of angry top-level frequent fliers organized a partnership. Missouri) Byline: Eric Rodgers Last Friday.Classic Airlines Marketing Solution JANUARY 25. The group solicited GlobalAir’s executives with an onslaught of email and postal mail communications. and simplifications to the program for members at all levels. In response to these changes. and received airtime on at least ten local and regional consumer advocacy news features. In fact. These changes included reducing the number of miles awarded for domestic and global flights. at least the ones we have left. That’s not to say that our customers. reducing the number of frequent-flier seats available per flight. Amanda T: GlobalAir Article Attachment T: GlobalAir Article GlobalAir Finally Implements Changes To Frequent Flier Program [December 4. GlobalAir made several changes to their frequent flier program in early 2002. as a group of customers formally organized a movement against GlobalAir. 2005 E-MAIL TO: Kevin Boyle FROM: Amanda Miller RE: Magazine article Kevin: 38 Please take a look at the article I’ve linked below.
“this is an unforeseen and commendable example of customers demanding that their position be acknowledged. a local University professor of marketing stated. I expect that Amanda and Catherine will be evaluating any potential solution our team proposes against the concept of taking the same amount of money and applying it to the fuel hedging program. The only thing that is unfortunate is that it took the company over two years to respond. Thanks. and their customers called them on it. JANUARY 25. Esq. I know we can count on you to avoid a similar misstep. it’s best that we all are aware of the specifics. and have several alternative cost savings suggestions that could a) be offered as alternatives to fund fuel-hedging or b) subsidize a portion of our marketing budget.” JANUARY 25. and the company may never recover from the damage they created for themselves. The ideas include: • Reduce the number of reservations operations centers • Eliminate travel agent commissions • Develop an employee buyout or attrition program We may or may not need to bring them into the conversation. Benjamin Sutcliffe. RE: GlobalAir Dear Kevin: I’m sure you’ve seen this article by now. What took place at GlobalAir was not customer-focused. 2005 E-MAIL TO: Kevin Boyle FROM: Benjamin Sutcliffe. Kevin . but if we do. GlobalAir made a critical misstep. I’ve spoken with some old contacts. Best regards.Classic Airlines Marketing Solution 39 In commenting on the matter. Esq. in that interest. in case we need them. 2005 E-MAIL TO: Renee Epson. I’ve put together some thoughts on cost-savings recommendations. John Hartman FROM: Kevin Boyle RE: FYI on potential cost-saving recommendations Renee and John: It is always important to anticipate the other side’s next move and. and keep the union contract unaltered. and I do hope you are reminded about the significance of the decisions you are about to make.
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