The Impact of Youth Travels on Travel Industry - Essay Example

Management Project Contents Contents 2 Literature Review 3 Study of Youth Travellers 3 Youth Travellers 3 Decision Making Process of Youth Travellers4 Impact of Social Media Communication on Youth Travellers 5 Pricing Strategy for Airliner 6 Impact of pricing strategies on Youth travellers 7 Pricing strategies influencing the decision making of youth travellers 9 References 11 Literature Review According to the authors Richards, and Wilson (2004), the international travels have witnessed an uptrend from 2010. Growth rate for youth travel has significantly risen owing to tourism and educational purposes. Travel industry is experiencing a transformation with youth travels fuelling the growth. It was an untapped segment that came to surface with increased educational travels across the globe. They are known as the early adopters who drive the change. They are the key to new resources for creating the new value chain in the travel industry. Adopting new cultural values have also attributed to the surge in youth travels. Generation Y are engaged in extensive internet and new technology usage. They are innovators in the social media platforms. The youth segment accounts for high mobile and broadband internet for accessing information and online purchasing. With increased demand from this market segment, the airline industry went on to introduce more flights at cheaper rates. The impact of youth travels is not only limited to the travel industry but to the technology and telecommunication industry as well (Richards, and Wilson, 2004) Study of Youth Travellers Youth Travellers The author Moutinho (2011) in his book explains the impact of youth travellers on the global tourism sector. More than 20% of the total international travels were the youth. The total international travels accounted for 940 million in 2010. The global tourism industry received $165 billion in 2010 from young travellers and also expects this number to grow in the coming years. The young population has driven the change in the communication technology and has forced the tourism industry to build new communication system to interact with them. The tourism industry has benefitted from the new market segment of not only through increased revenue but also allowed them to integrate their strategy with sustainability. The youth travel industry accounts for 190 million travels a year and its rate of growth has exceeded the growth rate of travel industry. The annual international youth trips are expected to reach 300 million trips by 2020 (Moutinho, 2011). The author Loudon (2001) explains that youth travel contributes to the development of local communities and the economies. It is seen that young travellers spend as much as 60% of their travel budget in the destination place. Small economies are solely dependent on the tourism sector for their revenue and the travel receipts from the young travellers contribute to the earnings of the local community. Local communities benefit from the longer stays. The youth travellers spend more than other tourists and enjoy longer period of stay at the destination. They spend as much as $2600 compared to adult tourists who spend $950 on their visits. Youth travellers who visited Australia in 2009 spent $21,228 compared to other tourist who spent $3313 for a period of six months stay (Loudon, 2001). Decision Making Process of Youth Travellers The authors Woodside and Martin (2008) says that the buying behaviour or the decision making process of the young travellers is mostly influenced by the nature of travel, but the budgetary constraint is another key factor in selecting the travel destination. Comparative study shows how earning of various economies vis-a-vis Australia, US and UK have benefitted from young travellers who visited such countries. The major young travellers are international students who have spent $15.5 billion, $15.4 billion and $15 billion for university studies in Australia, US and UK respectively. The high purchasing power of young travellers is backed by the income of their parents. More than 36% of the educational expense of the young travellers is funded by their parents and the rest were through scholarships and bank loans (Woodside and Martin 2008). The author Mooij, (2010) in his book states that their lifestyle has an important bearing on their travel reason. Though there are many factors that influence their travel decision like career progression, cross cultural interaction, self development, meeting family and friends, jobs, etc still educational programmes and jobs are the primary determinants for such high frequency of travels (Mooij, 2010). According to World Tourism Organization (2008) the demand for learning foreign language has also contributed to the growth of the tourism sector. Spain witnessed 700,000 international visits in 2010 for study purpose. The international visits saw an annual growth of 18% in 2011 along with an increase in their spending of 49%. Cross cultural influence led the growth in young travellers’ visits. Young travellers want to experience the various cultures and enhance their learning and knowledge. They are highly motivated and are least influenced by the dominant members of their family. They share their interest in adopting new cultural values through cross cultural interaction. Musical gatherings, concerts and sports are other factors that influence their decision making (World Tourism Organization, 2008). Impact of Social Media Communication on Youth Travellers The authors Bowen and Clarke (2009) opine that with the advent of technological innovation, the youth segment of the population have become the heavy users of internet and modern day gadgets like smart phones and tablet computers. Social interaction has also paved the way for new communication platforms like Facebook, twitter, Google plus, WhatsApp and many more. They use social media platforms to interact with friends and family to share events, thoughts and ideas. They access the internet to find information relating to educational institute, products, travel, etc. Surveys have shown that more than 93% of the young population have access to internet and 95% of them spend time online. Smart phone penetration has also witnessed a significant growth from 23% in 2011 to 37% in 2013 (Bowen and Clarke, 2009). According to the authors Mills and Law (2013) the extensive use of various media platforms serves as an opportunity for marketers to promote various offers and services to the younger population. It is a cost effective distribution channel for travel and tourism sector, which can be leveraged to reach a larger population segment with less resource and time. Large number of the young population spends time online, thus creating a larger exposure to various information, learning and knowledge. It is seen that more than 78% of the young population in US have their own cell phone. The share of Facebook users among the youth stood at 94% in 2012, compared to Twitter and Instagram which accounts for 26% and 11% respectively. The digital influence index shows that more than 80% of Chinese travellers search online content for their own learning. Digital influence is seen as the most effective medium of communication than other forms of media like print media, television, etc (Mills and Law, 2013). Pricing Strategy for Airliner According to the authors Morrison and Winston (2006) normal airline and budget airline targets different consumer segments. The airline industry provides flight services to its customers. It loses out revenue for every vacant seat. It will incur the same cost in carrying one passenger and when it is booked to full capacity. Normal airlines offer various ancillary services like food and beverages, better flight attendant services, etc. Air fares are also more for normal airlines, which is the primary deterrent why young travellers do not prefer normal airlines in their travel plan. Youth travellers have a budget constraint that influences their decision to avail low cost airlines. The growing demand from such segment of the population which accounts for more than 20% of the total international travels gave major airline companies to introduce low cost carriers like Easyjet, Ryanair and Monarch (Morrison, and Winston, 2006). Impact of pricing strategies on Youth travellers The author Schmidt (2008) in his book states that budget airlines enjoy high occupancy compared to legacy airlines. It offers cheaper flight rates and ply on local routes i.e. between cities. It offers more flights than legacy airlines and is targeted to middle income group. The youth travellers find it beneficial as they have to fly to and fro to their home town during vacations. It provides various offers and discounts to young travellers to stimulate the demand. Price cuts and special rates are offered to them based on their merit. It does not provide in flight services like complimentary food and beverage, thus it fails to attract the affluent market segment. Many budget airlines company like Ryan air and Easy jet have introduced schemes like ‘standing room only’ and ‘pay per pee’. Offering standing room facilities are offered to short trips between cities and are targeted to frequent travellers. Some low cost airlines are also looking to charge passengers for using the toilet. Introducing various price points will allow such carriers to reduce its ticket price. Owing to a large segment of revenue, the young travellers are also pushed with various promotional offers. Budget airlines use referral programmes i.e. if a traveller refers at least five other people he/she will be eligible for annual rate cutters which will reduce the ticket price of future travel. It offers young travellers seasonal discounts like reduced rates for vacation travels, advanced booking options, discounts for accompanied travel, etc. Such offers aim to stimulate the demand for increased travel among the young travellers (Schmidt, 2008). The author Cento (2008) explains that airlines always do not always want to book to full capacity. It generally follows dynamic pricing strategy. In order to push their revenue line they price tickets based on the capacity. Passengers boarding a flight may end up paying different price for their journey. Customers who book their journey in advance enjoy a low fare compared to the ones who book prior to the date of their journey. Flight companies want to pre book their capacity on a year round basis, thus stimulating demand even in the slack season. Flexible pricing strategy allows airliners to protect their revenue margin. It is even observed that at times flight companies do not want a full capacity, because customers who have made advanced bookings pay low fares and this extra cost needs to adjust with other variable heads. In legacy airlines Pareto principle plays a key role in the capacity utilization. More than 80% of the revenue comes from 20% bookings. Airliners, thus always do not want to book in excess when they have covered its 70% of overheads. It also uses a pricing strategy that is called ‘protecting the seat’. Airlines enjoy high capacity which they utilize to carry passengers and cargo. They at times prefer high value transport than carrying passengers. Legacy or normal airlines’ pricing strategy differs with low cost carriers primarily in respect to pricing of its differentiated capacity. Normal airlines have various capacity classes and charge their customers accordingly. It offers business, first class and second class tickets. They usually target a niche market, which has high disposability and prefer comfort while travelling, unlike the young travellers who consider the flight service as a medium of travel and are not interested to enjoy the luxury of travel. According to the author low cost carriers on the other hand cater to a totally different segment that have limited travel budget and are not interested to enjoy the luxury of travel. Budget airlines pricing strategy mainly differs with legacy on the basis of marketing activities, flight routes and in flight services. Owing to the above differentiating factors their pricing also varies accordingly with the normal airlines. They operate on shorter routes and secondary or smaller airports. Smaller airports enjoy greater frequency of trips that reduces delay in flights, resulting in lower cost which is passed on to the consumers. In flight services like complimentary food and beverages are not provided and are available for extra charge. It has clustered seating and very less corridors and galleries which increases the total flight capacity. Budget airlines are now even considering, reducing the number of seats allowing passengers to stand during their travel. Low employee and promotional costs allow low cost carriers to price their tickets accordingly. Its profitability depends more on its cost minimization than profit maximization (Cento, 2008). The author Peoples (2012) argues that though low cost carriers enjoy high profitability it is subject to market volatility like increased fuel price and inflation. Budget airlines have adjusted their flight fare owing to global oil price rise (Peoples, 2012). Pricing strategies influencing the decision making of youth travellers The author Gross and Schröder (2007) in his book say that the youth travellers’ motivation behind their travel plans is quite different to that of the other target segments. They are technologically savvy and are influenced by factors like career aspiration, learning and knowledge, culture, education, etc. The younger segment is driven by high degree of passion, but has low level of disposability. The youth travels have increased over the years, owing to rising demand of foreign education, employment, learning foreign languages, NGO activities, etc. Non profit organizations are looking for young, ambitious and proactive individuals who can serve the society with their learning and knowledge. The global integration of societal activities has increased the youth travels apart from education and jobs. Data has revealed that owing to a low budget constraint, this segment has become highly attractive for various industries like tourism and travel. Low cost carriers have come up with various pricing strategies that are targeted at the young travellers. Mostly young travellers budget are funded by their parents which results in short term disposability. They prefer to travel places with diversified culture and learn and share values. During summer, early winter and spring the airline industry reaches a peak in its bookings. Such is witnessed due to vacation travels. Students coming from different countries usually spend time with their friends and family and at least visit them twice a year. The low cost pricing strategies adopted by various budget airliners have proved to be highly attractive for the youth travellers (Gross and Schröder, 2007). The author Doganis (2006) adds that owing to the lifestyle and behavioural patterns of young travellers, budget airlines should consider introducing various offers to attract the young travellers. Though major share of revenue is attributed to the business travellers, still young travellers segment show immense potential and growth prospect. The low cost carriers pricing strategies precipitates impulse buying behaviour of young travellers. The pre booking discounts also add to the effective utilization of the capacity of the budget airlines. The Generation Y travellers look out for travel discounts on the web, thus providing leverage to the flight companies to market their offers through the electronic media which reduces their promotional cost. Such avenues offer the budget airlines to introduce more competitive pricing strategies to attract the young mass (Doganis, 2006). The author Ryans (2009) concludes that, the behavioural patterns observed in case of young travellers serve as an opportunity for the tourism and travel companies to streamline their offers for this segment. They interact mostly through social media that has given the low cost carrier companies a leverage to build apps. These apps will assist its customers with real time data on booking availability and various offers on flight fares. With the rising cross cultural programmes, the young travellers segment has also witnessed a surge in numbers. Budget airlines companies are continuously trying to adapt to the changing influence of the demography and devise strategies that will help them to rise above the competition. With most economies facing the issue of ageing population, airline companies have shifted their focus on new emerging economies that have high growth in young population (Ryans, 2009). References Bowen, D., and Clarke, J., 2009. Contemporary Tourist Behaviour: Yourself and Others and Tourists. UK: CABI. Cento, A., 2008. The Airline Industry: Challenges in the 21st Century. Italy: Springer Science & Business Media. Doganis, R., 2006. The Airline Business. New York: Psychology Press. Gross, S., and Schröder, A., 2007. Handbook of Low Cost Airlines: Strategies, Business Processes and Market Environment. Gottingen: Erich Schmidt Verlag GmbH & Co. Loudon, 2001. Consumer Behavior: Concepts And Applications. Felhi: Tata McGraw-Hill Education. Mills, J., and Law, R., 2013. Handbook of Consumer Behavior, Tourism, and the Internet. USA: Routledge. Mooij, D., M., 2010. Consumer Behavior and Culture: Consequences for Global Marketing and Advertising. USA: SAGE. Morrison, S., and Winston, C., 2006. The Evolution of the Airline Industry. Virginia: Brookings Institution Press. Moutinho, L., 2011. Strategic Management in Tourism. UK: CABI. Peoples, J., 2012. Pricing Behaviour and Non-Price Characteristics in the Airline Industry. UK: Emerald Group Publishing. Richards, G., and Wilson, J., 2004. Festivals, Tourism and Social Change: Remaking Worlds. UK: Channel View Publications. Ryans, A., 2009. Beating Low Cost Competition: How Premium Brands can respond to Cut-Price Rivals. UK: John Wiley & Sons. Schmidt, K., S., 2008. Strategic Group Model of the European Airline Industry. Germany: Books on Demand. Woodside, G., A., and Martin, D., 2008. Tourism Management: Analysis, Behaviour and Strategy. UK: CABI. World Tourism Organization, 2008. Youth Travel Matters: Understanding the Global Phenomenon of Youth Travel. Pennsylvania: World Tourism Organization. Read More