Classic Airlines Marketing Strategy: A 9-Step Problem-Solving Case

Introduction: Aviation History and Classic Airlines' Challenge

In the early 20th century, two young men named Orville and Wilbur Wright made what some argue is the greatest transportation invention ever discovered outside of the automobile. Their 50-pound glider, with a wingspan of approximately 17 feet, would revolutionize the manner in which humans across the world would travel. That 12-second flight by the Wright brothers was so instrumental that the brothers will be forever remembered for their contributions to both aviation and society. Fast-forward 100 years, and a very different era has risen in the aviation industry — one marred by excessive bankruptcies, mass consolidation, and national security concerns.

Recently, the issue of airport security has risen to the forefront. In the aftermath of the September 11th attacks, and amid constant concern regarding threats to national security, many contentious policies have emerged. One such policy involves airport security and the extent to which it is implemented. Due primarily to these security concerns, airlines required an extensive overhaul of their business practices. Reward programs were restructured, customer incentives heightened, costs lowered, and entire companies merged.

Within this context of strategic inflection, Classic Airlines underwent fundamental change. Many of the policies and procedures regarding the airline are warranted given the immense threat to national security. These new conditions have also created a new operating environment to which Classic Airlines must adapt. The nine-step process described below outlines how Classic Airlines should navigate this tumultuous company reorganization with respect to marketing.

Describing the Situation: Industry Context and Market Decline

Since the Wright Brothers first flew at Kitty Hawk, the airline industry has ballooned. The industry currently includes about 600 companies which, in aggregate, earn $170 billion dollars annually. As these statistics suggest, a great many individuals use aviation as their primary means of travel. How customers choose their airline, however, is the fundamental focus of Classic Airlines. Passenger traffic over the last ten years has risen in a linear fashion, yet customer traffic for Classic Airlines has declined substantially. More individuals are electing to fly than ever before, whether due to a change in preference or a reduction in airline fees to popular destinations. Regardless of why more individuals choose air travel over other forms of transportation, companies must now defend against a larger number of competitive threats both from within and outside the company.

Classic Airlines has seen its market share decline over consecutive years while the industry overall has realized modest growth. As the number of air travelers increases, so too does the need to properly market and position Classic Airlines as a viable travel solution. It is therefore imperative that airline companies go to extreme lengths to differentiate themselves relative to competitors within the industry. This challenge is compounded further by the global nature of American business.

Airlines today are more global in nature and competition is everywhere. Classic Airlines must position itself in a manner that attracts and retains loyal, established customers. The company must revamp its overall marketing efforts to reflect a more cohesive and service-oriented approach.

Amid rising demand for commodities such as fuel, the airline industry must contend with lower margins and more intense competition. In many instances, airlines use financial instruments called derivatives to combat rising commodity prices — effectively "locking in" a particular price for fuel for a set period of time, thereby guarding against price fluctuations. However, margins are still on the decline. When margins are slim and consumers have many options, they tend to benefit at the expense of the business. What was once a very lucrative and growing industry has become a commodity sector. Many companies compete simply on price and on-time service, which ultimately harms the overall profitability of the industry. Unfortunately, Classic Airlines does not have the resources to compete in a meaningful way on price alone, and must therefore differentiate relative to its peers.

The business component of airline profitability is highly correlated with safety and service. In a commodity industry competing on price, consumer sentiment plays an integral role in determining overall profitability. Much like the stock market, negative sentiment can have an adverse effect on the business operations of aviation firms. Nothing is more detrimental to consumer sentiment than customer service issues related to flight or passenger safety. When sentiment turns negative, the industry suffers. Classic Airlines must therefore create a differentiation strategy that generates larger margins while also commanding premium prices.

Framing the Problem and Defining the End State

The core problem facing Classic Airlines is cost and cost containment as it relates to marketing. The company must make a relatively quick decision about how it will cut costs while also marketing to an increasingly fickle consumer. Next, the airline must determine how it intends to differentiate itself if it decides not to compete on cost alone.