MBA Report: Strategic Analysis of CLASSIC Airlines' Business Strategy

This report provides a comprehensive analysis of CLASSIC Airlines' business and corporate strategies, focusing on how various management theories and frameworks, drawn from an MBA toolkit, were applied to achieve organizational goals. The report examines the use of Porter's Generic Strategy, specifically cost leadership, and its impact on the airline's financial performance, as evidenced by income statements. Furthermore, it delves into the application of Ansoff's Matrix for corporate strategy, illustrating how market penetration strategies were employed to increase passenger loads. The report also touches upon the VRIN framework for identifying core competencies, marketing strategies, change management, and performance management. The analysis highlights how these strategic choices contributed to CLASSIC Airlines' success in a competitive market, emphasizing the importance of strategic planning and effective implementation for sustainable competitive advantage and profitability.

Individual Written Report on CLASSIC Airlines
EXECUTIVE SUMMARY
The aim of the report is to find out the use of various theories used by airline industry and
also to find out how the theories will help in making decision for managing the organisation
understood from the MBA toolkit.
Performance management, marketing, finance, organizational culture, change and strategic
management are diversified theories provided by MBA toolkit will help in finding out how
decisions were made in fly high airlines depending upon theory and how this theories helped
fly high in successful decision making and how this theories are helping organisation from
converting themselves from loss to profit making .
There are two input available to know the current position of the company in the market are
Strategy framework and structuring tools. Effective strategic planning is need to be expanded
for gaining the market leader and market shares.

To gain sustainable competitive advantage evaluated theories showed the feasibility and
acceptability. For successful business, implementation of right strategy in right direction is
required.
For gaining sustainable competitive advantage in competitive market theories are essential.
The theories applied by CLASSIC airlines resulted in profit.

Tables of Contents
SR
NO
INDEX PAGE NO.
1 Executive Summary...................... 1
2 Introduction……………… 3
3 Business Strategy by CLASSIC……………. 4
4 Corporate Strategy by CLASSIC………….. 7
5 VRIN Framework………………… 9
6 Operational Level Strategy…………………. 10
7 Marketing Strategy…………………………. 12
8 Change management……………………….. 14
9 Performance Management…………………. 16
10 Conclusion…………………………………. 18
11 Recommendation…………………………… 18
12 References………………………………….. 19

INTRODUCTION
CLASSIC is a regional airline operated in USA in Great Lake Region which provide services
to small towns and cities which are less attracted to large aircraft. It was established as“ Mom
and pop” business and it grew to 2700 passengers from 319 passengers. (Simulation,2018)
The aim of the report is to analyse the framework and theories and how this theories helped a
business (de Wit and Zuidberg, 2012) . During the initiation period performance of
CLASSIC was assessed and this theories helped in increasing the growth of the business.
Strategy, business model, product portfolio and their implementation are key elements for
success of any business. (Stroh, 2014)
Strategic choice of the company is built by strategic planning. For achieving the required
targets better policies are required. For making better policies company should use
systematic, logical and rational approach. (David Ilori, 2015)
To select the cost leadership CLASSIC choose Porter’s generic strategy model that resulted
into remarkable performance by CLASSIC.To grow the market of CLASSIC in competitive
market it was necessary for company to apply Ansoff's Matrix Model to apply corporate
strategy in this company applied market penetration and market development.
CLASSIC found out the core competencies by applying Barney’s VRIN framework and it
also helped in gaining competitive advantage to the company (Lopes, 2016).For introducing
any new product or service in the market implementation of marketing strategy is mandatory
and for that company choose 4P’s of marketing mix. In report the emphasis is also given to
key performance and change management of CLASSIC (Slack, 2015).
Business Strategy by CLASSIC Airline:
Company have established long term goals for successful business and to accomplish it
Business strategy is designed. Business Strategy play a vital role so right business strategy is
required. Right business strategy includes setting up of desired goals, plans and execution.
(Teece, 2010).
For the long term success of business it is mandatory to accomplish the strategic choices
given by business strategy. (Charles Hill & Schilling, 2014)

Porter’s Generic strategy-Cost leadership:
It helps in creating competitive advantage in the market and target on reducing the cost.
(Porter, 1979) Its main purpose is to minimise the operation cost as compared to other
competitors in the market. (Gerry Johnson & Scholes, 2014)
Porter’s Generic strategy
For minimizing the operation cost and to gain long term profit airline selected the cost
leadership strategy and it was successful which resulted into reduction in fare which helped in
attracting the new passengers (Morgan, Katsikeas, and Vorhies, 2012).
Income statement is a proof of success of cost leadership strategy. The results is show in statement as there is minimize in cost
as compared to 2nd quarter as well as less cost as compared to competitors.

Income Statement –Quarter 4
Gross Revenue $3,383,641 100.0%
− Commissions $277,293 8.2%
− Refunds $219,936 6.5%
+ Interest Income $0 0.0%
Net Revenue $2,886,412 85.3%
Flight Operations $534,249 15.8%
Fuel $437,089 12.9%
Maintenance $472,782 14.0%
Passenger Service $358,005 10.6%
Cabin/Food Service $321,190 9.5%
Insurance $19,800 0.6%
Marketing Expenses $128,000 3.8%
Add. Employee Compensation $66,000 2.0%
Quality and Training $7,000 0.2%
Hiring/On-Job-Training Costs $24,000 0.7%
Social Performance Budget $3,000 0.1%
Market Research Cost $9,000 0.3%
Interest Expense $131,102 3.9%
Lease Payment $164,000 4.8%
Administrative Exp $200,000 5.9%
Depreciation $108,250 3.2%
Other Expense $0 0.0%
Total Operating Expense $2,983,467 88.2%
Operating Profit/Loss -$97,055 -2.9%
Net Cargo Profit $3,545 0.1%
Other Income $0 0.0%
Profit Before Tax -$93,510 -2.8%
Less Income Tax (40%) $0 0.0%
Net Profit -$93,510 -2.8%
Dividends Paid $0 0.00/sh
Current Quarter
Year To-Date
(Simulation, 2018)

(Simulation, 2018)
As per the above income statement of 4th quarter maximum cost incurred in flight operations.
The gross revenue is $3,383,641 and the total operating expense is $2,983,467. In 2nd quarter
gross revenue was $2,731,634 and total operating expense was $2,731,634. In this quarter the
company had high operating expenses as compare to the gross revenue and then company
moved to the cost leadership theory and it resulted in successful reduction of operating cost.
(Simulation, 2018)
By adopting this theory CLASSIC was able to stand with its competitors and because of this
company was able to manage operating expenses in initial period of 5th quarter. In 5th quarter
gross revenue was $3,881,928 and total operating expenses were $3,015,096 which resulted
in profit of $420,736.
Selection of Cost leadership strategy proved right as it helped the company in reducing cost
and as a result the fare decreased and reliability increased.
Corporate Strategy by CLASSIC:

Corporate strategy keep an eye on decisions which are taken by the organization on the basis
of product and services which are offered and it provides an overview of market to be
concentrated on (Kerzner and Kerzner, 2017).
(Ansoff’s Matrix 1957)
For deciding corporate strategy CLASSIC preferred Ansoff's Matrix which was introduced by
Igor Ansoff in 1957.Market development, Market penetration, Diversification and product
development are 4 strategic choices of matrix (Mathur, Jugdev and Shing Fung, 2013).
In deciding the corporate strategy scope and purpose play a vital role and this strategy is
concerned about scope and purpose and their impact in value addition to the company
(Larson and Gray, 2013).
CLASSIC selected market penetration strategy of ansoff matrix that shows that company is
targeting its current market using current products and services to achieve long term profit.

Serving new market using current product or service is market development strategy. In 5th
quarter of simulation period CLASSIC made highest passenger load in 24D with regular fare
by using market penetration strategies and with the penetration strategy passenger load in 9A
and 11C was 90.9% (Slack Brandon-Jones and Johnston, 2013).
Sales Report –Quarter 5
Market Flights Seats Avail. Seats Sold Passenger Load Fare Sale
9A 3 55 50 90.9% Regular fare
10B 4 72 60 83.3% Regular fare
11C 3 55 50 90.9% Regular fare
12D 5 93 84 90.3% Regular fare
15E 5 93 77 82.8% Regular fare
24D 5 90 82 91.1% Regular fare
(Simulation, 2018)
In the 10th quarter of the simulation period company had Market development strategy
Sales Report –Quarter 10
Market
Flights Seats
Avail. Seats Sold Passenger
Load Fare Sale
9A 2 37 34 91.9% Regular fare
10B 3 54 50 92.6% Regular fare
11C 1 19 18 94.7% Regular fare
12D 4 75 63 84.0% Regular fare
15E 3 57 52 91.2% Regular fare
20R 2 100 91 91.0% One-month fare sale
24D 5 90 82 91.1% One-month fare sale
26F 2 100 83 83.0% One-month fare sale
(Simulation, 2018)
High competition leads to regular fare in 10th quarter to compete with competitors. Airline
decided to come up with two new market routes and market development theory due to high
competition in market so that company can beat the competition and stand out in market.
In 10th quarter company adopted development strategy and it had 20R and 26F as a new
market and company attained 91.1% and 83% respectively. Passenger load was highest in 10th
quarter i.e.92.6% which is higher than 5th quarter i.e. 83.3% so development strategy helped in
increasing passengers load (Brewster, 2017).

Both the theories that is development and penetration proved fruitful for the airline as in 5th
quarter ,10B passenger load was 83.3% by using penetration theory it increased to 92.6% for
10B.
By using development theory, company came up with introduction of new markets and
attained 91.0% and 83.0% passenger load in 20R and 26F respectively even though there was
high competition in market.
VRIN Framework for CLASSIC:
VRIN framework was introduced by Barney in 1991.
“Can determine if the resource is a source of sustainable competitive advantage and it serves
as a basis for sustainable competitive advantage.” (Barney, 1991).
VRIN framework help in finding out core competencies and help in achieving sustainable
competitive advantage. For attaining the growth it is necessary to find out the core
competencies of company (Johnson, 2016).
Value (V): to gain long term competitive advantage, how will the existing resources will help
Rarity (R): How the available resources deliver unique strategy and capabilities of
CLASSIC as compare to other competitors in the market.
Inimitability (I): Resources are important and can be source of sustainable competitive
advantage. Resources and capabilities are limited?
Non-Substitutability (N): It shows that resources should not be replaced by the existing
available resources.
VRIN Framework for CLASSIC:
Core
Competencies
Value Rarity Inimitability Non-
Substitutability
Expert Staff and
management
Yes
Expert staff
helped in
increasing
quality and
reliability.
No
Other firms are
not able to attain
the same goals
as CLASSIC
Yes
This could be
easily simulated
No
Substituting the
expert staff will
not be an easy
achievement.
Reliability Yes
attracted the
No
It can be gained
Yes No

passengers by
creating
reliability
by other
competitors in
the market
Marketing Yes
High marketing
budget helped
CLASSIC in
attracting large
number of
customers.
Yes
Opponent firms
are able to
invest in
marketing and
achieve the set
goals.
Yes No
Marketing
budget cannot be
replaced.
Fare Structure Yes
Discounted fare
attracted the
more customers
which increased
the passenger
load.
Yes
Able to reduce
the fair price.
Yes
Other firms can
attain the low
price but it will
take more time.
No
Operational level strategy by CLASSIC:
Operational level strategy refers to using an efficient and effective system for managing
resources, processes and people. It helps in finding how to use resources for obtaining
maximum output from resources which help in attaining long term goals. It has an strategic
measurement (Berthon and et.al., 2012).
CLASSIC airline started with 3 Bechcrafts having capacity of 57 passengers.
Sales Report –Quarter 5
Operations –Quarter 9
Total Aircraft / Seats 5 / 124
Total Revenue Passengers 73,988
Total Miles Flown – Daily 9,220
Maximum Mileage – Daily 9,600
Available Seat Miles (a) 18,756,800
Revenue Passenger Miles (b) 16,386,280
Passenger Load Factor (b ÷ a) 87.4%
Yield per Revenue Passenger Mile 0.282
Yield per Available Seat Mile (c) $0.247
Cost per Avail Seat Mile (d) $0.222
Profit per Available Seat Mile (c − d) $0.024
Reliability 99.0%
Quality Rating 93
Salespersons 4

Total Employees 139
Employee Resignations 4
Fuel Spot Price this quarter $1.16
Fuel Contract next quarter $1.12
Line of Credit $6,600,000
Short-term Interest Rate 12.0%
Long-term Interest Rate 9.0%
Stock Price per Share $46.12
Shares of Stock Outstanding 198,194
Earnings per Share $2.39
In 9th quarter of the simulation the company decided to realising fleets from 3 to 5 aircrafts
with availability of 124 seats. In 9th quarter company invited large amount in quality and
reliability which 93% and 99.0% respectively which is higher than the 1st quarter. Because of
this company achieved reliability and it also increased the quality rating. Passenger load was
87.6% and stock price was $46.12 in this quarter.
Loss was suffered in 8th quarter but by proper operations net profit increased in next quarter.
Net Profit-CLASSIC (Simulation, 2018)
Marketing Strategy by CLASSIC:
For introducing new products or services in market, marketing strategy is very essential. And
for attaining competitive advantage it is necessary to apply feasible marketing strategy.

Product, price, place and promotion are 4P'S of marketing mix and it affect every person in a
different way (Baker, 2014).There should be right product or services to target right market
with the correct prices.
4P’S Of Marketing Mix
Product: CLASSIC is a regional cost airline operated in US. Airline adopted different theories
i.e. penetration and development which helped in attaining high reliability and quality.
Price: In 1st quarter company charged per mile 38% with free snacks and soft drinks because
of this company suffered financial losses in early stage after this company reduced to 30%
which helped company in earning profits.
Marketing Decisions–Quarter1
Promotion Budget $3,500
Advertising Budget $3,000
In-Flight Magazine No
Current Salespersons 1
Salespersons Hired 4
Estimated Salesperson Cost $60,000
Cargo Marketing Budget $10,000

(Simulation, 2018)
Promotion: IN 1st quarter investment was less and company invested more in promotion
which resulted in loss. In 9th quarter promotion budget was $46000 it helped company in
becoming profit making company and it increased quality and reliability (Armstrong and
et.al, 2015).
Marketing Decision - Quarter 10
Promotion Budget $46,000
Advertising Budget $23,000
In-Flight Magazine No
Current Salespersons 4
Salespersons Hired 0
Estimated Salesperson Cost $48,000
Cargo Marketing Budget $15,000
Place: As airline was only operating in US due to this distance was short so short distance and
less fare policy worked out positively.
Change Management:
Change management helped in attaining the goals and targets desired by the business. Airline
was suffering the loss so it did some changes in management and this changes gave the
positive results. Airline decided to use Lewin's change management model and the
performance is outstanding.IT has 3 steps which are unfreeze, change and freeze and because
of this step process company can forecast and plan accordingly (Solomon and et.al.,
2014).
Marketing Decisions–Quarter9

Unfreezing: Unfreezing means to change. Airline find out that change is mandatory to
achieve goals and earn profit. For that company hired salesperson for bringing change in
operation field.
Change: It is the stage where we can find where the change is required and where the
company will face the change. Airline completely changed the management which resulted
into change of goals.
Freezing: It is the last stage where company is aware about the change and it is called an
implementation stage. In 1st quarter airline suffered losses due to that company go through the
changes which increased reliability and profits.
As results the company had revenue of $5,241,777 and the stock price was $39.59 for the 12th
quarter of simulation. (Simulation, 2018)
Operating statistics –Quarter12
Operating Statistics - Quarter 12
Ratios Company 4 Industry
Current Ratio 0.426 1.806
Return on Sales 0.074 -0.013
Return on Equity 0.117 0.048
Return on Assets 0.029 -0.010
Debt to Equity 2.720 0.588
Daily Seat Productivity 8.507 5.810
Yield per Available Seat Mile 0.241 0.211
Company Aircraft / Seats Revenue Net Profit Stock Price
1 INTER-PACIFIC 4 12 / 225 $7,129,092 $105,795 $29.22
2 Aurum Air 4 / 174 $6,450,109 $115,250 $29.42
3 Cloud Storm Airline 3 / 57 $1,285,563 -$250,473 $0.50
4 Classic 5 / 124 $5,241,777 $389,922 $39.59
5 KAIZEN AIRLINES 5 / 151 $5,165,946 -$219,748 $5.40
6 Falcon Air 15 / 297 $11,840,443 $903,978 $54.59
7 Butterflies airline 4 / 91 $2,824,269 $152,452 $31.17
8 h 3 / 57 $1,333,409 -$134,525 $11.06
Industry Average 6 / 147 $5,158,826 $132,831 $25.12
(Simulation, 2018)

Performance Management :
Airline started its operation when their was competition in market. In starting stage
company faced losses and due to that different theories were applied and it provided
good result in form of profit, good quality and increased reliability (Andjelkovic
Pesic, Jankovic Milic and Stankovic, 2013).
(Simulation, 2018)
Study of above graph shows that loss was faced by company in initiation period and after
applying penetration and development theories result was remarkable as it resulted in quality
and reliability. In the 1st quarter of simulation period company had loss of $122,276 while in
the 12th quarter of simulation period the company had profit of $389,922 (Lin and et.al.,
2012).

(Simulation, 2018)
The stock price was $15.10 in 1st quarter of simulation period the stock price was $39.59 in
12th quarter it proves that applying various theories was successful which resulted in gaining
profits.
Conclusion:
Application of various theories and change in management helped in gaining profits. Airline
was able to convert initial stage loss into profits. Right strategy helped in profits. Cost
leadership strategy resulted in improved passengers load. High competition leads to change in
corporate startegy.Any business required marketing strategies to introduce new products or
services in the market. So company selected 4P'S of marketing mix to attract new passengers.
Recommendation:
At early stage company suffered losses to overcome that company adopted various theories to
make profits. Then company used cost leadership strategy which was successful as it reduced
operation cost. In corporate strategy firstly company applied penetration but competition
increased and to compete in market and to stand out company switched development strategy
and came up with two new routes and decided to go for long distance flights. And strategies
was successful.
After that company had done some changes in management and changes were also done in
operation of airlines and for this Lewin's change management model was used.

As airline is operating in competitive market so it is necessary to have budget for marketing.
For marketing company can go for promotion offers.

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