Transcript Passenger Marketing & Airline Costs

Speed of
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299,792,458 m/s
671 million mph
1,079 million km/s
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Sound
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343.2 m/s
768 mph
Chapter 4:
Passenger Marketing &
Airline Costs
“To more effectively determine
customer potential and to increase
revenue, transport enterprises need to
target potential customers.”
Passenger Marketing
Key points:
• The Marketing Mix
• The consumer-oriented marketing concept
• Other Marketing strategies
Passenger Marketing
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One of the most important activities in air
transportation
Most of carrier’s employees engaged in
marketing activities:
• Reservations personnel
• Ticket and customer service agents
• Baggage handlers
• Flight attendance
• Food service representatives
Passenger Marketing
• Passenger and cargo representatives
• Pricing and market research analysts
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The concept of Airline Marketing approach
• Production-oriented approach
• Sales-oriented approach
• Consumer-oriented approach
Production-oriented approach
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The era where emphasis was given on
carriage/airline then passenger-why?
A time when services were so scarce that
customers accepted whatever was
available
People still do not have confidence on
the air carrier
But, as time flies, the airline begin to realize
the importance to gain passenger
confidence on its services and products
Sales-oriented approach
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As airline’s capacity increase, much more
efforts were put to convince the consumers
The strategy was produced services that
reflected the operations and selling talents
of the airline, not the needs of the public
It was basically a shotgun approach:
Convincing people to fly rather than drive or
take the railroad
Consumer-oriented approach
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Centered to satisfy the consumers (the
passengers)
Moved from shotgun approach to target
market approach (riffle approach)
More surveys and tests were carried out to
find out what the consumers really want
The aim is to identify specific group of
customers to appeal with its services
Consumer-oriented approac
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Then, the airline may opt to strategize the
kind and amount of activities necessary to
reach the target market- How?
The marketing mix
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Def: The types and amounts of controllable
marketing-decision factors that an airline
uses over a particular period of time
Commonly referred as ‘four Ps’:
• Product
• Price
• Promotion
• Place
The marketing mix
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Product
• The right product must be developed to the target
market
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Price
• The right price for the customer and adequate for
the airline revenue
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Promotion
• Use selling and advertising to communicate
information to the consumer and to
facilitate sales
The marketing mix
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Place
• Determine the right channels of distributions to
ensure the product reaches the target market at
the right time and place
The marketing mix
The marketing mix
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There are also uncontrollable factors such
as:
• Cultural and social differences
• Differences in values and traditions among customers
like eating habit and food preferences
• Political and regulatory environment
• Constant change of political climate may affect airline
marketing strategy (i.e, gov. tax, landing quotas at
certain airports)
The marketing mix
• Economic environment
• Recession would affect airline marketing operation
• Existing competitive structure
• Numbers and types of competitors the marketing team
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must face in its target markets may vary considerably
Resources and objectives of the company
• Marketing must develop a strategy consistent with the
company’s goal
The marketing mix
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Apparently, marketing team can do little or
nothing about these uncontrollable factors
But, these factor must be certainly
recognized and responded to so as it could
alter marketing strategy
The consumer oriented
marketing concept
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Excess capacity and a shortage of
customers changed the marketing concept
to a consumer-oriented approach
The purpose was to design services to
meet changing customer requirements as
they arose/ preferably before they arose
Also to develop services that’d be
responsive to particular customer needs
The consumer oriented
marketing concept
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Hence, these are among the essential
information:
• Who was flying?
• Why they were flying?
• What Income group they belonged to?
• What they wanted and liked?
• Where they wanted to go?
• What they could afford? (First class or coach)
The consumer oriented
marketing concept
• What are their personal status? (single, married)
• What newspapers and magazines they read?
• What TV shows they watched, and radio they
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listened to?
Whether they pay cash/ credit card?
What times of the year they traveled
With all these inquiries, the airliners have
begun to focus on increased market
segmentation and intensive growth
strategies
Market Segmentation
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Def: The process of dividing potential
customers for a service into meaningful
groups
That is, to identify your target market
Involves 3 steps:
• Finding relevant characteristics that categorize
the customers into meaningful groups like trip
purpose (business, pleasure, personal), traveler
demographic characteristics (age, sex,
occupation etc)
Market Segmentation
• Use these characteristics to identify all
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significant market segments and to relate
them systematically to the services each
segment might buy
Select target markets- collection of market
segments most consistent with company’s
objectives and capabilities.
Intensive Growth Strategies
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Involves three essential steps
• Penetrate existing target markets
• Increase product development
• Develop new target markets
Penetrate existing target markets
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Done via
• Promotional fares
• Provide promotional fare to leisure travelers who travel
during off-peak and off-season period
• An effective way to fill in empty seats
• Varying the classes of service
• First class, business class, economy class, coach-fare,
conditional reservation, jump-seat fare
Penetrate existing target
markets
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Other market penetrating strategies
• Frequent-flier bonus awards mileage
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accumulated
Buy one ticket get one free certificates to selected
cities
Weekenders clubs
Membership that provide exclusive notice of
vacation packages
Upgrading of coach-fare passengers to first class
for a small charge
Increase product development
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Provide products that could accommodate
the passenger’s needs
Greater emphasis on product improvement
Some added services in airline:
• In flight telephone and fax, with internet access
• In flight reservations for hotel and car rentals
• Comfortable seats with increased width and pitch
• Gourmet meals and complimentary beverages
Increase product development
• Enhanced entertainment systems, direct TV,
video games etc
• Reading and writing materials
• Larger lavatories with amenities
• Impressive duty-free services
• Special on ground service like lounges
and meeting rooms for business travelers
• Special baggage service
* Some airline even shown the rerun of football
game!
Develop new target markets
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Def: Process of selling new products or
services to new target groups
Who are this these new target groups?
Determine by
• Demographic segmentation
• Categorize by age, sex, race, nationality etc
• Psychographic segmentation
• Categorize by
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life-style and personality lines
So, NO MORE single market!
Other marketing strategies
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Computerized Reservation Systems (CRSs)
Travel Agents
Business-Class Service
Code Sharing
Hub-and-Spoke Service
Advertising and Sales Promotion
Other marketing
strategies
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Where do marketing lead the airline
business? – sustainable marketing
Subsequent to sufficient marketing the
issue is
• Determining the Passenger Airfares
• The trend
• Types of Passenger Airfares
• Pricing process
• Passenger airfares and airline cost
Group Discussion
Briefly explain what do you understand
about the consumer oriented marketing
concept and what are the strategies to utilize
the concept. (Create 5 new strategies nonexistance strategies)
Airline Pricing
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Trend in Passenger Airfares
No-Frills Airfare
Types of Passenger Fares
The Pricing Process
Pricing & Output Determination
The trend in passenger airfares
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The trend of airfares illustrate the importance
relationship between demand.
As they have been implemented over time, they
illustrate the importance of the relationship
economics, business, managerial judgment and
governmental regulatory policy.
During the pioneer days of airline development,
the airfares were based on the responsiveness
of demand for passenger service combined with
mail revenues, that would produce the maximum
net return.
The trend in passenger airfares
The trend in passenger airfares
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Historically the trend fluctuate, measured by
RPM
From 1929-1941: Introduction of Pullman
charges- It was downward trend
1942: Stable (post WW1) as federal
transportation tax was introduced
1943: All discounts & fares were eliminated as
WW2 took place- upward trend
Post WW2: Reduction of airfares and return of
discounts
The trend in passenger airfares
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1950s: Increase as there are more
passenger demand as well as demand for
military airlift capacity
1962-1968: Decline due to tremendous
growth in airline traffic and productivity
1970s: Doubled due to great increase in
fuel prices
1980s: Price decrease, people enjoy
marvelous fares and discounts- Technology
turnover
The trend in passenger airfares
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1990s to 2003: On average price
decrease as competition increase
between new-entrant low-cost carriers
and increased competition between
airliners
No-Frills Airfare
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No-frills airlines are airlines offer low fares
but eliminate all unnecessary services, such
as complimentary drinks and businessclass seating.
A no-frills airline will typically cut overheads
by flying from more remote airports (with
lower access charges) and by using one
type of aircraft.
No-Frills Airfare
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Aircraft cabin interiors may be fitted out with
minimum comforts, dispensing with luxuries
such as seat-back video screens, reclining
seats and blinds; some airlines choose to
carry advertising inside the cabin to
increase revenue.
Types of Passenger Airfares
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Normal Fares
• A.k.a standard or basic fares, basis of all fares
• Apply to all passengers
• Separate normal fares are provided for each
class of service: First, business and economy
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Common Fares
• Specific fare to destination other than the
destinations between which the
fare is determined
Types of Passenger Airfare
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Joint fares
• Single fares that apply to transportation over the
routes of two or more airliners and that are
determined by an agreement between them.
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Promotional fares
• Discounted fares that supplement the
normal fare structure. Usually offered
with some restriction, such as minimum
length of stay, day of the week,
or season
Pricing Process
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Involve several steps:
• Pricing strategies and objectives
• Pricing tactics
• Pricing analysis
• Inventory Management
Pricing strategies
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Charges by airline services include:
• The predictable seasonal pattern of demand,
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especially leisure travel
The influence of override commissions that many
airlines pay to travel agencies
The dynamic nature of airline schedules (the
strong r/ship between schedule frequency and
passenger demand)
Varied pattern by market over time
Pricing tactics
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Can be categorized as:
1) Fare actions
• Changes (Increase/ reduce) to actual fares level
• Changes can be market specific, regional or mass
market in scope
• Among the tactics are
• Introductory fares
• System-excursion-fare sales
• System business-fare sales
• Connect market sales
* Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of
year, minimum/maximum stay, etc.
Pricing tactics
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Target segment pricing
Flight-time-specific-terms
Mileage-based pricing
Zone pricing
Value-added pricing
2) Adjustments to fare rules and/or restrictions
• Periodic adjustment of rules and restrictions, that inludes
• Advance purchase requirements
• One-way vs. round trip purchase requirements
• Fare penalties
• Directional pricing
• Peak and off-peak pricing
Pricing analysis
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The airline may use any one, or a
combination of the tactics described earlier
to raise or lower a fare
The proper economic analysis supporting
the decision to change fares will differ,
depending on whether it involves a fare
reduction or an increase. Steps in analyzing
fare decrease
Analyzing fair decrease
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Subtract refunds, advertising, and additional passenger
costs
Role of Inventory Management
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Aim to maximize individual flight revenue
Simply sell as many seats as possible at
the highest possible fares
Making an adequate of lower fare seats far
in advance of the departure date
Overbook the flights just enough to make
up for the number of passengers who can
be expected not to show up for the flight
Airline Costs
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Cost is a major determinant in pricing the
airline product
4 types
• Direct operating costs
• Indirect operating costs
• Nonoperating costs
• Fixed vs. Variable Costs
Direct operating costs
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Expenses associated with and dependent
on the type of aircraft being operated,
including all flying expenses such as
1. Flying operations costs
• Flight crew expenses
• Fuel and oil
• Airport and en route charges
• Aircraft insurance costs
• Other flight-operations expenses
2. MRO costs
Direct operating costs
Direct operating costs
Indirect operating costs
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Those costs that will remain unaffected
by a change of aircraft type because
they are not directly dependent on
aircraft operations such as
• Station and ground expenses
• Reservations, sales and promotional cost
• General and administrative cost
• Depreciation cost
Indirect operating costs
Nonoperating costs
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Those expenses and revenues not directly
related to the operation of an airlines’ own
air transportation services like
• Gains or losses raising from the retirement of
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property or equipment
Interest paid on loans, banks or deposits
Gains or losses raising from an airline’s affiliated
companies
Direct gov. subsidies and payments
Fixed vs. Variable Costs
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Variable costs are those costs that increase
or decrease with the level of output, or
available seat-miles (ASM), that an airline
produces.
Example: Flight cancellation, engineering
and maintenance costs.
Fixed vs. Variable Costs
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Fixed Costs. Fixed costs are those direct
operating costs that, they are costs that
are unavoidable in the short term.
Example: Fleet planning, labour and
maintenance requirement (handling
aircraft).
Question 1
Passenger marketing is one of the most important
activities in air transportation which include a broad are
of business activity that directs the flow of services
provided by the carrier to the customer.
a) Briefly explain in your own words the concept of airline
marketing approach.(6 marks)
b) Discuss the difference between shotgun approach and riffle
approach. State examples for each approaches.
(5 marks)
c) From your opinion, which is the best concept of airline
marketing approach would you adopt for your airline
company and state your reasons. (4 marks)
Question 2
Effective airline marketing depends upon effective
marketing system employed by an airliner that carried
out in a variety of contexts. Marketing strategies include
a wide variety of techniques aimed to deliver customer
satisfaction and safety.
a) Describe how can you strategies your techniques in aviation
industry using the controllable marketing mix factors.(8 marks)
b) Discuss in your own words the uncontrollable factors in airline
marketing mix and provide example to support your answer.
(4 marks)
c) From your opinion, what are the essential information you
required from your passenger for effective marketing?
(3 marks)
Question 3
Excess capacity and a shortage of customers changed the
marketing concept to a consumer-oriented approach
which design services to meet changing customer
requirements as they arose.
a) Describe your understanding on airline market
segmentation. (4 marks)
b) Discuss in your own words the airline market penetrating
strategies. (6 marks)
c) From your opinion, how can you improve the airline services
that could accommodate the passenger’s needs (5 marks)
Question 4
AMC airline is a new established Malaysian Airliner that
plans for a new corporate image which deliver the best
services in comparison to MAS and Airasia.
a) Guide AMC airline the essential steps in intensive growth
marketing strategies (9 marks)
b) Briefly explain what do you understand about the consumer
oriented marketing concept and how AMC airline could
practise new strategies to utilize the concept. (3 marks)
c) From your opinion, what is the best sustainable marketing
strategies AMC airline could implement for continuous
improvement and customer satisfaction. (3 marks)
Question 5
During the pioneer days of airline development, the
airfares were based on the responsiveness of demand for
passenger service that would produce the maximum net
return.
a) Explain in your own words the trend in passenger airfares
from 1929 and what was the primary reason for the changes
in average air passengers fares. (9 marks)
b) From the passenger airfares since 1929, how can you
summarize the price trend and the determinants of the
demand that you have already described. (3 marks)
c) From your opinion, how is the price trend in 10 years time
and elaborate your forecasting reasons (3 marks)
Question 6
With airline tickets every person on a flight may have
paid a different price to fly. The airlines have a seemingly
secretive formula to constructing various types of
passenger airfares.
a) Explain in your own words the types of passenger airfares
that can be implemented by airliners (8 marks)
b) Briefly discuss your understanding on no-frills airfare
(4 marks)
c) From your opinion, what type of passenger airfares would
you implement for your new established airliner and state
your reason. (3 marks)
Question 7
Expectations of airline passengers have gone up over the
years where airliners are required to design, control, and
improve their pricing processes to achieve target results.
a) Explain in your own words the four steps of airline pricing
process. (8 marks)
b) Briefly discuss the four types of airline costs that could
determine the pricing the airline product (6 marks)
c) From your opinion, which pricing tactics would you
implement for your MAS and state your reasons. (2 marks)