Classic Airlines Scenario

Based on Classic Airlines scenario(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).

What is the situation? What challenges and opportunities exist? What is the problem and is it worth solving?