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Speed of Light 299,792,458 m/s 671 million mph 1,079 million km/s Sound 343.2 m/s 768 mph.

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Presentation on theme: "Speed of Light 299,792,458 m/s 671 million mph 1,079 million km/s Sound 343.2 m/s 768 mph."— Presentation transcript:

1 Speed of Light 299,792,458 m/s 671 million mph 1,079 million km/s Sound m/s 768 mph

2 Chapter 4: Passenger Marketing & Airline Costs To more effectively determine customer potential and to increase revenue, transport enterprises need to target potential customers.To more effectively determine customer potential and to increase revenue, transport enterprises need to target potential customers.

3 Key points: The Marketing MixThe Marketing Mix The consumer-oriented marketing conceptThe consumer-oriented marketing concept Other Marketing strategiesOther Marketing strategies Passenger Marketing

4 One of the most important activities in air transportation One of the most important activities in air transportation Most of carriers employees engaged in marketing activities: Most of carriers employees engaged in marketing activities: Reservations personnel Reservations personnel Ticket and customer service agents Ticket and customer service agents Baggage handlers Baggage handlers Flight attendance Flight attendance Food service representatives Food service representatives

5 Passenger and cargo representatives Passenger and cargo representatives Pricing and market research analysts Pricing and market research analysts The concept of Airline Marketing approach The concept of Airline Marketing approach Production-oriented approach Production-oriented approach Sales-oriented approach Sales-oriented approach Consumer-oriented approach Consumer-oriented approach Passenger Marketing

6 Production-oriented approach The era where emphasis was given on carriage/airline then passenger-why? 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 A time when services were so scarce that customers accepted whatever was available People still do not have confidence on the air carrier 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 But, as time flies, the airline begin to realize the importance to gain passenger confidence on its services and products

7 Sales-oriented approach As airlines capacity increase, much more efforts were put to convince the consumers As airlines 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 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 It was basically a shotgun approach: Convincing people to fly rather than drive or take the railroad

8 Consumer-oriented approach Centered to satisfy the consumers (the passengers) Centered to satisfy the consumers (the passengers) Moved from shotgun approach to target market approach (riffle approach) 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 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 The aim is to identify specific group of customers to appeal with its services

9 Then, the airline may opt to strategize the kind and amount of activities necessary to reach the target market- How? Then, the airline may opt to strategize the kind and amount of activities necessary to reach the target market- How? Consumer-oriented approach

10 The marketing mix Def: The types and amounts of controllable marketing-decision factors that an airline uses over a particular period of time 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: Commonly referred as four Ps: Product Product Price Price Promotion Promotion Place Place

11 Product Product The right product must be developed to the target market The right product must be developed to the target market Price Price The right price for the customer and adequate for the airline revenue The right price for the customer and adequate for the airline revenue Promotion Promotion Use selling and advertising to communicate information to the consumer and to facilitate sales Use selling and advertising to communicate information to the consumer and to facilitate sales The marketing mix

12 Place Place Determine the right channels of distributions to ensure the product reaches the target market at the right time and place Determine the right channels of distributions to ensure the product reaches the target market at the right time and place The marketing mix

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14 There are also uncontrollable factors such as: There are also uncontrollable factors such as: Cultural and social differences Cultural and social differences Differences in values and traditions among customers like eating habit and food preferences Differences in values and traditions among customers like eating habit and food preferences Political and regulatory environment Political and regulatory environment Constant change of political climate may affect airline marketing strategy (i.e, gov. tax, landing quotas at certain airports) Constant change of political climate may affect airline marketing strategy (i.e, gov. tax, landing quotas at certain airports) The marketing mix

15 Economic environment Economic environment Recession would affect airline marketing operation Recession would affect airline marketing operation Existing competitive structure Existing competitive structure Numbers and types of competitors the marketing team must face in its target markets may vary considerably Numbers and types of competitors the marketing team must face in its target markets may vary considerably Resources and objectives of the company Resources and objectives of the company Marketing must develop a strategy consistent with the companys goal Marketing must develop a strategy consistent with the companys goal The marketing mix

16 Apparently, marketing team can do little or nothing about these uncontrollable factors 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 But, these factor must be certainly recognized and responded to so as it could alter marketing strategy The marketing mix

17 The consumer oriented marketing concept Excess capacity and a shortage of customers changed the marketing concept to a consumer-oriented approach 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 The purpose was to design services to meet changing customer requirements as they arose/ preferably before they arose Also to develop services thatd be responsive to particular customer needs Also to develop services thatd be responsive to particular customer needs

18 Hence, these are among the essential information: Hence, these are among the essential information: Who was flying? Who was flying? Why they were flying? Why they were flying? What Income group they belonged to? What Income group they belonged to? What they wanted and liked? What they wanted and liked? Where they wanted to go? Where they wanted to go? What they could afford? (First class or coach) What they could afford? (First class or coach) The consumer oriented marketing concept

19 What are their personal status? (single, married) What are their personal status? (single, married) What newspapers and magazines they read? What newspapers and magazines they read? What TV shows they watched, and radio they listened to? What TV shows they watched, and radio they listened to? Whether they pay cash/ credit card? Whether they pay cash/ credit card? What times of the year they traveled 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 With all these inquiries, the airliners have begun to focus on increased market segmentation and intensive growth strategies The consumer oriented marketing concept

20 Market Segmentation Def: The process of dividing potential customers for a service into meaningful groups Def: The process of dividing potential customers for a service into meaningful groups That is, to identify your target market That is, to identify your target market Involves 3 steps: 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) Finding relevant characteristics that categorize the customers into meaningful groups like trip purpose (business, pleasure, personal), traveler demographic characteristics (age, sex, occupation etc)

21 Use these characteristics to identify all significant market segments and to relate them systematically to the services each segment might buy Use these characteristics to identify all 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 companys objectives and capabilities. Select target markets- collection of market segments most consistent with companys objectives and capabilities. Market Segmentation

22 Intensive Growth Strategies Involves three essential steps Involves three essential steps Penetrate existing target markets Penetrate existing target markets Increase product development Increase product development Develop new target markets Develop new target markets

23 Penetrate existing target markets Done via Done via Promotional fares Promotional fares Provide promotional fare to leisure travelers who travel during off-peak and off-season period Provide promotional fare to leisure travelers who travel during off-peak and off-season period An effective way to fill in empty seats An effective way to fill in empty seats Varying the classes of service Varying the classes of service First class, business class, economy class, coach-fare, conditional reservation, jump-seat fare First class, business class, economy class, coach-fare, conditional reservation, jump-seat fare

24 Other market penetrating strategies Other market penetrating strategies Frequent-flier bonus awards mileage accumulated Frequent-flier bonus awards mileage accumulated Buy one ticket get one free certificates to selected cities Buy one ticket get one free certificates to selected cities Weekenders clubs Weekenders clubs Membership that provide exclusive notice of vacation packages Membership that provide exclusive notice of vacation packages Upgrading of coach-fare passengers to first class for a small charge Upgrading of coach-fare passengers to first class for a small charge Penetrate existing target markets

25 Increase product development Provide products that could accommodate the passengers needs Provide products that could accommodate the passengers needs Greater emphasis on product improvement Greater emphasis on product improvement Some added services in airline: Some added services in airline: In flight telephone and fax, with internet access In flight telephone and fax, with internet access In flight reservations for hotel and car rentals In flight reservations for hotel and car rentals Comfortable seats with increased width and pitch Comfortable seats with increased width and pitch Gourmet meals and complimentary beverages Gourmet meals and complimentary beverages

26 Enhanced entertainment systems, direct TV, video games etc Enhanced entertainment systems, direct TV, video games etc Reading and writing materials Reading and writing materials Larger lavatories with amenities Larger lavatories with amenities Impressive duty-free services Impressive duty-free services Special on ground service like lounges Special on ground service like lounges and meeting rooms for business travelers Special baggage service Special baggage service * Some airline even shown the rerun of football game! Increase product development

27 Develop new target markets Def: Process of selling new products or services to new target groups Def: Process of selling new products or services to new target groups Who are this these new target groups? Who are this these new target groups? Determine by Determine by Demographic segmentation Demographic segmentation Categorize by age, sex, race, nationality etc Categorize by age, sex, race, nationality etc Psychographic segmentation Psychographic segmentation Categorize by life-style and personality lines Categorize by life-style and personality lines So, NO MORE single market! So, NO MORE single market!

28 Other marketing strategies Computerized Reservation Systems (CRSs) Computerized Reservation Systems (CRSs) Travel Agents Travel Agents Business-Class Service Business-Class Service Code Sharing Code Sharing Hub-and-Spoke Service Hub-and-Spoke Service Advertising and Sales Promotion Advertising and Sales Promotion

29 Where do marketing lead the airline business? – sustainable marketing Where do marketing lead the airline business? – sustainable marketing Subsequent to sufficient marketing the issue is Subsequent to sufficient marketing the issue is Determining the Passenger Airfares Determining the Passenger Airfares The trend The trend Types of Passenger Airfares Types of Passenger Airfares Pricing process Pricing process Passenger airfares and airline cost Passenger airfares and airline cost Other marketing strategies

30 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 non- existance strategies)

31 Airline Pricing Trend in Passenger Airfares Trend in Passenger Airfares No-Frills Airfare No-Frills Airfare Types of Passenger Fares Types of Passenger Fares The Pricing Process The Pricing Process Pricing & Output Determination Pricing & Output Determination

32 The trend in passenger airfares The trend of airfares illustrate the importance relationship between demand. 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. 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. 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.

33 The trend in passenger airfares

34 Historically the trend fluctuate, measured by RPM Historically the trend fluctuate, measured by RPM From : Introduction of Pullman charges- It was downward trend From : Introduction of Pullman charges- It was downward trend 1942: Stable (post WW1) as federal transportation tax was introduced 1942: Stable (post WW1) as federal transportation tax was introduced 1943: All discounts & fares were eliminated as WW2 took place- upward trend 1943: All discounts & fares were eliminated as WW2 took place- upward trend Post WW2: Reduction of airfares and return of discounts Post WW2: Reduction of airfares and return of discounts

35 1950s: Increase as there are more passenger demand as well as demand for military airlift capacity 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 productivity : Decline due to tremendous growth in airline traffic and productivity 1970s: Doubled due to great increase in fuel prices 1970s: Doubled due to great increase in fuel prices 1980s: Price decrease, people enjoy marvelous fares and discounts- Technology turnover 1980s: Price decrease, people enjoy marvelous fares and discounts- Technology turnover The trend in passenger airfares

36 1990s to 2003: On average price decrease as competition increase between new-entrant low-cost carriers and increased competition between airliners 1990s to 2003: On average price decrease as competition increase between new-entrant low-cost carriers and increased competition between airliners The trend in passenger airfares

37 No-frills airlines are airlines offer low fares but eliminate all unnecessary services, such as complimentary drinks and business- class seating. No-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. 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

38 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. 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.

39 Types of Passenger Airfares Normal Fares Normal Fares A.k.a standard or basic fares, basis of all fares A.k.a standard or basic fares, basis of all fares Apply to all passengers Apply to all passengers Separate normal fares are provided for each class of service: First, business and economy Separate normal fares are provided for each class of service: First, business and economy Common Fares Common Fares Specific fare to destination other than the destinations between which the Specific fare to destination other than the destinations between which the fare is determined fare is determined

40 Joint fares 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. Single fares that apply to transportation over the routes of two or more airliners and that are determined by an agreement between them. Promotional fares Promotional fares Discounted fares that supplement the Discounted fares that supplement the normal fare structure. Usually offered normal fare structure. Usually offered with some restriction, such as minimum with some restriction, such as minimum length of stay, day of the week, length of stay, day of the week, or season or season Types of Passenger Airfares

41 Pricing Process Involve several steps: Involve several steps: Pricing strategies and objectives Pricing strategies and objectives Pricing tactics Pricing tactics Pricing analysis Pricing analysis Inventory Management Inventory Management

42 Pricing strategies Charges by airline services include: Charges by airline services include: The predictable seasonal pattern of demand, especially leisure travel The predictable seasonal pattern of demand, especially leisure travel The influence of override commissions that many airlines pay to travel agencies 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) The dynamic nature of airline schedules (the strong r/ship between schedule frequency and passenger demand) Varied pattern by market over time Varied pattern by market over time

43 Pricing tactics Can be categorized as: Can be categorized as: 1) Fare actions Changes (Increase/ reduce) to actual fares level Changes (Increase/ reduce) to actual fares level Changes can be market specific, regional or mass market in scope Changes can be market specific, regional or mass market in scope Among the tactics are Among the tactics are Introductory fares Introductory fares System-excursion-fare sales System-excursion-fare sales System business-fare sales System business-fare sales Connect market sales Connect market sales * Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of year, minimum/maximum stay, etc.

44 Target segment pricing Target segment pricing Flight-time-specific-terms Flight-time-specific-terms Mileage-based pricing Mileage-based pricing Zone pricing Zone pricing Value-added pricing Value-added pricing 2) Adjustments to fare rules and/or restrictions Periodic adjustment of rules and restrictions, that inludes Periodic adjustment of rules and restrictions, that inludes Advance purchase requirements Advance purchase requirements One-way vs. round trip purchase requirements One-way vs. round trip purchase requirements Fare penalties Fare penalties Directional pricing Directional pricing Peak and off-peak pricing Peak and off-peak pricing Pricing tactics

45 Pricing analysis The airline may use any one, or a combination of the tactics described earlier to raise or lower a fare 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 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 Analyzing fair decrease Subtract refunds, advertising, and additional passenger costs Subtract refunds, advertising, and additional passenger costs

46 Role of Inventory Management Aim to maximize individual flight revenue Aim to maximize individual flight revenue Simply sell as many seats as possible at the highest possible fares 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 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 Overbook the flights just enough to make up for the number of passengers who can be expected not to show up for the flight

47 Airline Costs Cost is a major determinant in pricing the airline product Cost is a major determinant in pricing the airline product 4 types 4 types Direct operating costs Direct operating costs Indirect operating costs Indirect operating costs Nonoperating costs Nonoperating costs Fixed vs. Variable Costs Fixed vs. Variable Costs

48 Direct operating costs Expenses associated with and dependent on the type of aircraft being operated, including all flying expenses such as 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 Flight crew expenses Fuel and oil Fuel and oil Airport and en route charges Airport and en route charges Aircraft insurance costs Aircraft insurance costs Other flight-operations expenses Other flight-operations expenses 2. MRO costs

49 Direct operating costs

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51 Indirect operating costs Those costs that will remain unaffected by a change of aircraft type because they are not directly dependent on aircraft operations such as 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 Station and ground expenses Reservations, sales and promotional cost Reservations, sales and promotional cost General and administrative cost General and administrative cost Depreciation cost Depreciation cost

52 Indirect operating costs

53 Nonoperating costs Those expenses and revenues not directly related to the operation of an airlines own air transportation services like 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 property or equipment Gains or losses raising from the retirement of property or equipment Interest paid on loans, banks or deposits Interest paid on loans, banks or deposits Gains or losses raising from an airlines affiliated companies Gains or losses raising from an airlines affiliated companies Direct gov. subsidies and payments Direct gov. subsidies and payments

54 Fixed 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. 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. Example: Flight cancellation, engineering and maintenance costs.

55 Fixed vs. Variable Costs Fixed Costs. Fixed costs are those direct operating costs that, they are costs that are unavoidable in the short term. 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). Example: Fleet planning, labour and maintenance requirement (handling aircraft).

56 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)

57 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)

58 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 passengers needs (5 marks)

59 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)

60 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)

61 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)

62 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)


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