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Individual Written Report on CLASSIC Airlines - The Imperial Hotel London - CBC College - BTECH Level 5

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)

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.

 

 

 

 

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

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.

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