Marketing Strategies of Low-Cost Airline in Japan - Essay Example

?Marketing strategies of low cost airline in Japan - Skymark Airline Executive summary Skymark Airline is the third largest domestic carrier in Japan. The low cost airline is switching its first A380 destination to New York from London in order to improve its profitability in an atmosphere of economic uncertainty in the UK showing no relenting signs (British Airways 2006). Skymark Airline faces significant obstacles and hurdles in areas such as partnerships, network and aircraft configuration. This paper seeks to discuss the marketing strategies of Skymark Airline. Skymark Airline expects to continue with its profitable run throughout its fiscal year. The airline has continually reported upward profits with a year to year increase in operating profits (Banfe, 2002). The year 2011 was a busy operational year for Skymark. Earlier in the year, Skymarks placed a massive order for 6 A380s as one of its determined growth plans, getting away from the small domestic quasi LCC model to an international carrier long haul. Skymark Airline has a unique strategy of expansion as it operates two distinct models. The marketing strategy of Skymark seeks to ensure that the services of international Long haul utilize configured A380 equipment in a low density configuration seat. The marketing strategies will also ensure that short haul and domestic services continue to operate with no frills service and economic B737 aircraft. In addition, the marketing strategies will also ensure domestic expansion of the carrier (Beardwell and Holden, 2003). The Skymark Airlines was established back in 1996. It is headquartered in Tokyo, Japan. The airline operates flights to Kobe, Fukuoka, Okinawa, and Sapporo from Tokyo. Skymark serves about 3 million customers with 12 aircrafts per year. Skymark Airlines accounts for about 5 percent of domestic Japanese seats; this limits the feed opportunities (Griffin, 2004). The domestic carrier particular has no partnerships of its own in spite of the bigger Japan Airlines having ventures jointly across the Europe and Pacific delivering larger customer pool and far greater traffic opportunities. Skymark Airlines intends to have intense A380 with 394 seats in all premium business and economy configuration and aims to have approximate load factor of 60 percent. The marketing strategies require that tickets be sold to yield high profits. The Skymark Airline offers services of passenger transport in Japan (Handy, 2003). A380 operators seat configurations Airline First A380 delivery Total seats First Business Premium Economy Economy Singapore Airlines Oct-2007 409 12 86   311 471 12 60   399 Emirates Jul-2008 489 14 76   399 517 14 76   427 Korean Air Jun-2011 407 12 94   301 Lufthansa May-2009 526 8 98   420 Qantas Sep-2008 450 14 72 32 332 Air France Oct-2009 516 9 80 38 389 538 9 80   449 China Southern Oct-2011 506 8 70   428 Malaysia Airlines 2Q2012* 508 8 54   420 Thai Airways Sep-2012 507 12 60   435 Skymark Airlines 2014* 394  0 114 280   Source: CAPA – Centre for Aviation & airline reports Scheduled delivery Marketing strategies of Skymark Airline Skymark Airline is one of the major low cost airlines in Japan. Just like the Air Do, the biggest problem of Skymark is trying to engage competitively in price wars with the Big 3 airlines in Japan: All Nippon Airways, Japan Airline, and Japan Air System (Virgin Atlantic Airways 2007). Skymark Airline has chosen a low cost density of 304 seat configurations, a split between 114 business class seats and 280 premium economies. This is one of the least intense configuration operators can manage. The products of Skymark consist of angled flat lie seats on the upper deck in business class (Horovitz and Panak, 2007). Although Japanese carriers are slow to catch up in updating their cabin to peers, angled lie flat is falling globally out of favor. The premium economy of Skymark Airlines consists of a fixed back shell seats reportedly. This tends to receive pessimism in the feedback on long haul flights (De Pommes, 2005). If the marketing strategies of the Skymark are implemented, its premium economy will fill with 280 seats the lower deck, and Lufthansa fills the 420 regular economy seats of its A380 on the lower deck. The A380 proposed configuration by the Skymarks is short of others by Singapore Airlines and Korean Air, but very much below the trend of configuration of 500 seats globally. With a nonexistent freight network, Skymark Airline depends entirely on making its services profitable from the yields of the passenger. This will need to be high in order to recoup the low density seating (Jefkins, 2005). Skymark Airlines top 10 hubs/bases/stations by seats: 12-Nov-2012 to 18-Nov-2012 Source: CAPA – Centre for Aviation & Innovata The marketing of Skymark Airline economy is much difficult because Skymark expects a premium yield and require explaining the components of its premium economy (Advertising Works 2007). Skymark Airline needs to carry out a significant marketing in order to explain what its premium cabin economy is and why it should be considered worth spending more on the cabin. It is important to note that this was only for the channels of direct sales: an online travel agency (McDonald, 2005). Skymark Airlines may not be able to explain to its clients its products and services. This works further against the carrier because it possesses a growing recognition in Japan and none overseas (Phillips, Doole and Lowe, 2004). It is a fact that Skymark Airlines actually has a lower cost of operation. The strategy of marketing used by Skymark Airlines aims to modest an international expansion with 777s or A330s. However, the A380 is a much bigger risk to Skymark Airlines. Skymark Airlines reported in 2012 November that its CASK fell below JPY 7.69, this was flattered by a matching short haul for short haul; a much more efficient long haul operations (Segal-Horn, 2007). Skymark Airlines however has a bigger marketing advantage, though some disadvantages such as partners and networks that cannot be fixed by cheap tickets. The marketing strategies of Japanese carriers are ineffective and inefficient and can do with a bit of external threat to deliver a shakeup, on the same note, the long haul fares to Japan tend towards high end due to the limited competition (Smith, 2007). Although more players are welcome to the Japanese market, it may not seem the right place for Skymark Airlines. However, the Skymark carrier has greater advantages through strengthening its position at home like with a recurrent flyer program in order to ensure loyalty or seeking partnerships. On the other hand, if Skymark Airline wishes to have its A380 services profitable, it will have to establish marketing initiatives. With this, the A380 operations of Skymark Airlines will ensure the carrier adopts the right marketing initiatives to face competition even more stiff (Sterne, 2005). The A380 operations of the Skymark Airlines will be configured for premium economy and business class with around 450 and 400 seats. This would make Skymark Airlines one of the lowest A380 operator’s densities. The marketing strategy of Skymark Airlines intends A380 services for long haul international routes to operate initially on the routes of Japan Europe in 2014. The marketing strategy introduces services to North America (Thompson, 2005). The Skymarks Airlines through its marketing strategy expects to charge half those charged by All Nippon Airways and Japan Airlines. The airline aims to expand its services if it succeeds in its international business, with more aircraft, to the cities like Sydney, Los Angeles, Singapore, and Melbourne. In the marketing strategy, expansion of flights has been made to include Vancouver, Honolulu, Rome, and Bangkok. Through this marketing strategy, Skymark expects that A380 remain profitable during its operation years (Wilmshurts, 2008). The marketing strategy of Skymark Airlines seeks to create competitive environment in the Japanese market. Achieving the lower unit costs in Skymark’s domestic operations is one of its major objectives in order to ensure it maintains a low fare and a low cost structure of operation (Brummer, 2007). The airline actually stated that its major objective in getting into the domestic market was to dissolve the oligopoly in the Japanese domestic market. Since the industry of aviation in Japan resumed all its operations after the war, there have been numerous mergers consolidating the carriers into two different structures (Woodruffe, 2005). This resulted into a lack of adequate oligopoly and competition in the domestic flight market. The marketing strategies used by the Skymark Airlines seek to slash prices remarkably in the international flight market. This is particularly locked by the stiff competition in the Japanese market, and the customers have been the benefactors. On the other hand, Skymark Airlines takes advantage of the high level fares in the domestic market and the decreasing customer satisfaction. Skymark Airlines uses its marketing strategies to enter into the domestic flight market, contribute to promoting customer satisfaction, and create a competitive environment (British Airways 2004). Japan domestic seats per week by carrier: 12-Nov-2012 to 18-Nov-2012 Source: CAPA – Centre for Aviation & Innovata Although the marketing strategies would be effective, Skymark Airlines faces stiff competition from the low cost subsidiaries of the All Nippon Airways, Japan Airlines, and Peach Aviation. The agreement of All Nippon Airways is specifically painful for Skymark because Air Asia was previously intending to link up with Skymark Airlines rather than All Nippon Airways (British Airways 2006). This move could have assisted the pretensions of Skymarks to become a force in the Japanese market. Meanwhile, the Skymark Airlines is aiming to enter the long haul international market which has determined international expansion. The carrier itself acknowledges that the international market is bold and ambitious. Although it is its intended market strategy to configure its A380 with 394 seats entailing 280 class of premium economy and 114 seats of business class, it is a risky move because of the potential issues drawing close to its ability to get enough revenues in order to cover the high unit costs, particularly given the plan of the carrier to provide fares at low levels than the existing market competitors (Evening Standard 2006). This is also beneficial in a way to the Skymark because the price is one of the best ways to please and appeal to clients. The Skymark is therefore targeting potential market in which to offer reduced fares compared to its competitors and still make profits (Financial Times Survey 2006). SWOT Analysis of Skymark Airline The low cost airlines have their cost base lower compared to the other airlines in the market. Skymark found a niche in providing a cheaper initiative to Japan Airlines and All Nippon Airways, whose yields of domestic markets are the highest in the world. This made Skymark benefit from the affirmative action by the government that gave out slots at a highly prized airport to much smaller carriers in order to elevate competition (Financial Times Survey 2007). The price competition is actually strength of Skymark and is considered in its SWOT analysis as its opportunity to compete in the market with the market giants. In fact, the viability of Skymark offering low cost base fares was questioned in 2012. Although the 3 new LCCs: Jestar Japan, Air Asia Japan, and Peach, is half of what Skymark has, the 3 are rapidly growing and could overtake collectively Skymark based on their growth by 2014 or later. This is a threat to Skymark (Key Note Report 2008). This is because unlike Skymark Airlines, the 3 (Jestar Japan, Air Asia Japan, and Peach) have access to Tokyo’s Haneda airport which is very convenient. However, their barrage of unprecedented fares make some customers turn up at midnight in central Tokyo for an overnight ride by bus to Narita to catch flights. Such scenes were for example seen about a year ago, let alone after the A380s order by Skymark when it practically had more confident base of operation (Mintel Reports 2007). Skymark top 10 domestic routes based on frequency (to/from): 12-Nov-2012 to 18-Nov-2012 Source: CAPA – Centre for Aviation & Innovata The fear of the Japanese market is that with no change, Skymark Airlines may get caught in the middle of the 3 LCCS (Jestar Japan, Air Asia Japan, and Peach) and a full service of Japan Airlines and all Nippon Airways, which are much more expensive than the 3 LCCs with no competitor legacy perks. Although this may not be seen now in the market, the pressure is growing (The Daily Telegraph 2007). It would be accurate to assert that due to the marketing strategy of Skymark Airlines, its future hinges partially on how fast the Airbus can manufacture the A320s that are operated the 3 LCCs, of which two are, Jetstar Japan and Air Asia Japan, part of the cross boarder airline groups with the subsidiaries of foreign fighting for the new aircraft (What to buy for Business 2003). The third LCC, Peach expresses interest in merging with Jetstar, Tiger, and Air Asia groups in getting their own foreign subsidiaries. Skymark however seeks to counteract this by charging for drinks onboard which is in contrary to Japan Airlines and All Nippon Airways that do not offer any opportunities of the global travel. Therefore A380s bring few solutions to Skymark Airlines but with some challenges associated with more charges (Virgin Atlantic 2005). Conclusion In summary, Skymark Airline implements various marketing strategies in order to address the significant obstacles and hurdles in areas such as partnerships, network and aircraft configuration that it faces in the Japanese market. Skymark Airline has a unique strategy of expansion as it operates two distinct models. The marketing strategies will also ensure that short haul and domestic services continue to operate with no frills service and economic B737 aircraft (Endres, 2005). The marketing strategy of Skymark seeks to ensure that the services of international Long haul utilize configured A380 equipment in a low density configuration seat. In addition, the marketing strategies will also ensure domestic expansion of the carrier. This paper has hence discussed the marketing strategies of Skymark Airline. Bibliography Advertising Works 2007. 10 Years of the World’s Favorite Advertising. NTC, Volume 8 Banfe C.F. 2002. 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