Presentation on theme: "Speed of Light Sound 299,792,458 m/s 671 million mph"— Presentation transcript:
1Speed of Light Sound 299,792,458 m/s 671 million mph 1,079 million km/sSound343.2 m/s768 mph
2Chapter 4: Passenger Marketing & Airline Costs “To more effectively determine customer potential and to increase revenue, transport enterprises need to target potential customers.”
3Passenger Marketing Key points: The Marketing Mix The consumer-oriented marketing conceptOther Marketing strategies
4Passenger MarketingOne of the most important activities in air transportationMost of carrier’s employees engaged in marketing activities:Reservations personnelTicket and customer service agentsBaggage handlersFlight attendanceFood service representatives
5Passenger Marketing The concept of Airline Marketing approach Passenger and cargo representativesPricing and market research analystsThe concept of Airline Marketing approachProduction-oriented approachSales-oriented approachConsumer-oriented approach
6Production-oriented approach The era where emphasis was given on carriage/airline then passenger-why?A time when services were so scarce that customers accepted whatever was availablePeople still do not have confidence on the air carrierBut, as time flies, the airline begin to realize the importance to gain passenger confidence on its services and products
7Sales-oriented approach As airline’s capacity increase, much more efforts were put to convince the consumersThe strategy was produced services that reflected the operations and selling talents of the airline, not the needs of the publicIt was basically a shotgun approach: Convincing people to fly rather than drive or take the railroad
8Consumer-oriented approach 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 wantThe aim is to identify specific group of customers to appeal with its services
9Consumer-oriented approach Then, the airline may opt to strategize the kind and amount of activities necessary to reach the target market- How?
10The marketing mixDef: The types and amounts of controllable marketing-decision factors that an airline uses over a particular period of timeCommonly referred as ‘four Ps’:ProductPricePromotionPlace
11The marketing mix Product Price Promotion The right product must be developed to the target marketPriceThe right price for the customer and adequate for the airline revenuePromotionUse selling and advertising to communicate information to the consumer and to facilitate sales
12The marketing mix Place Determine the right channels of distributions to ensure the product reaches the target market at the right time and place
14The marketing mix There are also uncontrollable factors such as: Cultural and social differencesDifferences in values and traditions among customers like eating habit and food preferencesPolitical and regulatory environmentConstant change of political climate may affect airline marketing strategy (i.e, gov. tax, landing quotas at certain airports)
15The marketing mix Economic environment Existing competitive structure Recession would affect airline marketing operationExisting competitive structureNumbers and types of competitors the marketing team must face in its target markets may vary considerablyResources and objectives of the companyMarketing must develop a strategy consistent with the company’s goal
16The marketing mixApparently, marketing team can do little or nothing about these uncontrollable factorsBut, these factor must be certainly recognized and responded to so as it could alter marketing strategy
17The consumer oriented marketing concept Excess capacity and a shortage of customers changed the marketing concept to a consumer-oriented approachThe purpose was to design services to meet changing customer requirements as they arose/ preferably before they aroseAlso to develop services that’d be responsive to particular customer needs
18The consumer oriented marketing concept 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)
19The 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 listened to?Whether they pay cash/ credit card?What times of the year they traveledWith all these inquiries, the airliners have begun to focus on increased market segmentation and intensive growth strategies
20Market SegmentationDef: The process of dividing potential customers for a service into meaningful groupsThat is, to identify your target marketInvolves 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)
21Market SegmentationUse these characteristics to identify all significant market segments and to relate them systematically to the services each segment might buySelect target markets- collection of market segments most consistent with company’s objectives and capabilities.
22Intensive Growth Strategies Involves three essential stepsPenetrate existing target marketsIncrease product developmentDevelop new target markets
23Penetrate existing target markets Done viaPromotional faresProvide promotional fare to leisure travelers who travel during off-peak and off-season periodAn effective way to fill in empty seatsVarying the classes of serviceFirst class, business class, economy class, coach-fare, conditional reservation, jump-seat fare
24Penetrate existing target markets Other market penetrating strategiesFrequent-flier bonus awards mileage accumulatedBuy one ticket get one free certificates to selected citiesWeekenders clubsMembership that provide exclusive notice of vacation packagesUpgrading of coach-fare passengers to first class for a small charge
25Increase product development Provide products that could accommodate the passenger’s needsGreater emphasis on product improvementSome added services in airline:In flight telephone and fax, with internet accessIn flight reservations for hotel and car rentalsComfortable seats with increased width and pitchGourmet meals and complimentary beverages
26Increase product development Enhanced entertainment systems, direct TV, video games etcReading and writing materialsLarger lavatories with amenitiesImpressive duty-free servicesSpecial on ground service like loungesand meeting rooms for business travelersSpecial baggage service* Some airline even shown the rerun of football game!
27Develop new target markets Def: Process of selling new products or services to new target groupsWho are this these new target groups?Determine byDemographic segmentationCategorize by age, sex, race, nationality etcPsychographic segmentationCategorize by life-style and personality linesSo, NO MORE single market!
28Other marketing strategies Computerized Reservation Systems (CRSs)Travel AgentsBusiness-Class ServiceCode SharingHub-and-Spoke ServiceAdvertising and Sales Promotion
29Other marketing strategies Where do marketing lead the airline business? – sustainable marketingSubsequent to sufficient marketing the issue isDetermining the Passenger AirfaresThe trendTypes of Passenger AirfaresPricing processPassenger airfares and airline cost
30Group Discussion Briefly explain what do you understand about the consumer oriented marketingconcept and what are the strategies to utilizethe concept. (Create 5 new strategies non-existance strategies)
31Airline Pricing Trend in Passenger Airfares No-Frills Airfare Types of Passenger FaresThe Pricing ProcessPricing & Output Determination
32The trend in passenger airfares 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.
34The trend in passenger airfares Historically the trend fluctuate, measured by RPMFrom : Introduction of Pullman charges- It was downward trend1942: Stable (post WW1) as federal transportation tax was introduced1943: All discounts & fares were eliminated as WW2 took place- upward trendPost WW2: Reduction of airfares and return of discounts
35The trend in passenger airfares 1950s: Increase as there are more passenger demand as well as demand for military airlift capacity: Decline due to tremendous growth in airline traffic and productivity1970s: Doubled due to great increase in fuel prices1980s: Price decrease, people enjoy marvelous fares and discounts- Technology turnover
36The trend in passenger airfares 1990s to 2003: On average price decrease as competition increase between new-entrant low-cost carriers and increased competition between airliners
37No-Frills AirfareNo-frills airlines are airlines offer low fares but eliminate all unnecessary services, such as complimentary drinks and business-class 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.
38No-Frills AirfareAircraft 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.
39Types of Passenger Airfares Normal FaresA.k.a standard or basic fares, basis of all faresApply to all passengersSeparate normal fares are provided for each class of service: First, business and economyCommon FaresSpecific fare to destination other than the destinations between which thefare is determined
40Types of Passenger Airfares Joint faresSingle fares that apply to transportation over the routes of two or more airliners and that are determined by an agreement between them.Promotional faresDiscounted fares that supplement thenormal fare structure. Usually offeredwith some restriction, such as minimumlength of stay, day of the week,or season
41Pricing Process Involve several steps: Pricing strategies and objectivesPricing tacticsPricing analysisInventory Management
42Pricing strategies Charges by airline services include: The predictable seasonal pattern of demand, especially leisure travelThe influence of override commissions that many airlines pay to travel agenciesThe dynamic nature of airline schedules (the strong r/ship between schedule frequency and passenger demand)Varied pattern by market over time
43Pricing tactics Introductory fares System-excursion-fare sales Can be categorized as:1) Fare actionsChanges (Increase/ reduce) to actual fares levelChanges can be market specific, regional or mass market in scopeAmong the tactics areIntroductory faresSystem-excursion-fare salesSystem business-fare salesConnect market sales* Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of year, minimum/maximum stay, etc.
44Pricing tactics Target segment pricing Flight-time-specific-terms Mileage-based pricingZone pricingValue-added pricing2) Adjustments to fare rules and/or restrictionsPeriodic adjustment of rules and restrictions, that inludesAdvance purchase requirementsOne-way vs. round trip purchase requirementsFare penaltiesDirectional pricingPeak and off-peak pricing
45Pricing analysisThe airline may use any one, or a combination of the tactics described earlier to raise or lower a fareThe 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 decreaseAnalyzing fair decreaseSubtract refunds, advertising, and additional passenger costs
46Role of Inventory Management Aim to maximize individual flight revenueSimply sell as many seats as possible at the highest possible faresMaking an adequate of lower fare seats far in advance of the departure dateOverbook the flights just enough to make up for the number of passengers who can be expected not to show up for the flight
47Airline CostsCost is a major determinant in pricing the airline product4 typesDirect operating costsIndirect operating costsNonoperating costsFixed vs. Variable Costs
48Direct operating costs Expenses associated with and dependent on the type of aircraft being operated, including all flying expenses such as1. Flying operations costsFlight crew expensesFuel and oilAirport and en route chargesAircraft insurance costsOther flight-operations expenses2. MRO costs
51Indirect operating costs Those costs that will remain unaffected by a change of aircraft type because they are not directly dependent on aircraft operations such asStation and ground expensesReservations, sales and promotional costGeneral and administrative costDepreciation cost
53Nonoperating costsThose expenses and revenues not directly related to the operation of an airlines’ own air transportation services likeGains or losses raising from the retirement of property or equipmentInterest paid on loans, banks or depositsGains or losses raising from an airline’s affiliated companiesDirect gov. subsidies and payments
54Fixed vs. Variable Costs 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.
55Fixed vs. Variable Costs 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).
56Question 1Passenger 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.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)
57Question 2Effective 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.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)
58Question 3Excess 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.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)
59Question 4AMC 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.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)
60Question 5During 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.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)
61Question 6With 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.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)
62Question 7Expectations 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.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)