Marketing Applied to Aviation - Coursework Example

Running head: MARKETING APPLIED TO AVIATION Marketing Applied to Aviation Gp Capt (Ret’d) NA Moitra VM Defence Aviation Consultant Marketing Applied to Aviation Abstract The Aviation Industry is witnessing a boom, a natural fallout of a stronger global economy and the increasing desire of larger numbers of people to see the world. Tourism is also part of many incentive schemes that are in vogue. The increase in number of airliners and passengers has placed a premium on infrastructure, even more so when the aircraft in question are mega-carriers that are using higher seat occupancy to combat rising fuel costs as well as losses brought about by delays caused by choked air routes. Yet, luxury airlines continue to prosper; so do some airlines at the other end of the spectrum, the low cost no-frills airlines. Apart from increased sales of airliners, the competition to lure passengers into their fold has seen unique strategies being employed, some of which rely on uniquely innovative schemes which are not available even in manuals on seat marketing. While high net worth individuals own their own corporate jets, the fractional aircraft market has also witnessed a strong demand. Marketing Applied to Aviation The most common and frequent mode of long distance transportation is traveling by air. The Aviation Industry provides service for both human beings and urgently needed commodities. Thus one might be tempted to opine that the Airline Aviation Industry is a highly rewarding and lucrative business. This is a debatable point with detractors saying that nothing could be farther from the truth but others supporting the assertion wholeheartedly. Opinions aside, the fact remains that the Aviation Industry is increasing at a frightening pace, with virtually all existing routes almost choked to capacity, requiring the establishment of new routes. One positive point that has emerged after the Cold War ended was the opening up of immense airspace over the erstwhile USSR and, to a lesser extent, China and Mongolia. In spite of more airspace, choked trunk lines, e.g. between the U.S.A. and the U.K. may enforce delay, for reasons of safety, either on the ground for an available slot, or in the air in the form of a deviation from the planned route, change in altitude to a more fuel-guzzling lower level or a hold up at destination. Everybody suffers-the passengers, the cockpit crew, the cabin staff, the air traffic controllers and even the airline operators, in terms of expensive fuel and aircraft life lost. An interesting solution is to simply use very much larger aircraft to reduce the loss per seat, while trying to mitigate the suffering. Despite these travails, air travel has not suffered in terms of numbers of aircraft bought or ordered by airlines and the seat occupancy factor. The Big Boys in aircraft manufacture-Boeing from the U.S.A. and EADS, the European consortium that makes the Airbus-have gone full speed ahead in manufacturing new models of aircraft, cold logic dictating that these be high-capacity fuel-efficient aerodynamically advanced hi-tech airliners. Aircraft in general aviation include business jets, turbo-props and pistons (which can be ignored). There are over 3,20,000 general aviation aircraft flying today worldwide, ranging from two-seat training airplanes to intercontinental business jets; 2,21,000 of those planes are based in the U.S. General Aviation billings reached an all-time global high of $21.9 billion in 2007, a 16.5 per cent increase from 2006. Worldwide shipments of general aviation aircraft totaled 4,272 units in 2007. This is a 5.4 per cent increase over the previous years total of 4,053 units and the strongest since 1981. General Aviation Manufacturers Association, Mar 21, 2008, http://www.gama.aero also http://www. ibef.org. In November 2005, the UN Tourism Agency (Aviation) forecast that world airline passenger traffic would show robust growth over the next three years starting 2006 - by more than 8%. The Agency reported preliminary results for the first four months of 2006 showing 10 million more international tourist arrivals worldwide than in than in the same period last year, totaling 236 million, or a 5.0 per cent growth rate. The UN International Civil Aviation Organization (CAO) was slightly cautious while opining that with the anticipated good performance of the world economy, airline traffic was projected to rise by 6.1 per cent in 2006, 6.8 per cent in 2007, and 7.6 per cent in 2008. This was before the U.S. led sub-prime recession, which saw a marked drop in aviation in the U.S. but not as bad elsewhere. Figures for 2007 dropped to 5.6 per cent globally. http://www.generalaviation.org also http:// www.centreforaviation.com. 2008 has begun well, auguring better figures, though at higher seat costs (between 3.5-4.2%) due the oil price hike, according to the Centre for Asia Pacific Aviation (CAPA). It had forecast that the Middle East would show the highest average annual growth rate of about 10.7 per cent (12 per cent for 2006, 10.5 per cent for 2007 and 9.5 per cent for 2008). http://www.indiadaily.com/editorial/10595, 16 July 2006. The Asia/Pacific region experienced fairly strong traffic growth rates, well above the world average, at 7.8 per cent for 2006. The markets for European as well as African airlines are also projected to grow at rates higher than the world average. http://www.tamil.sify.com. Passenger load factors for March averaged 76.48 per cent with carriers in the Middle East seeing continued double-digit passenger growth driven by rapid route and capacity expansion and strong economic growth. Middle Eastern carriers also led growth in cargo traffic, according to CAPA. Heightened short-term economic headwinds facing the airline industry could defer attention away from the most serious longer-term challenge for the industry – climate change. In a report on April 21 ‘08, ‘The Danger Zone Of Climate Change Risks’, KPMG, the Swiss Cooperate, claims tourism and aviation are the main industries among a total of six economic sectors that are in particular danger from climate change risks. Good engine efficiency, burning fuel at the optimal fuel-air ratio and minimally toxic exhaust is the desired solution. High bye-pass ratio engines are providing some solace by outputting close to desired levels of combustion generated CO². Encyclopedia Brittanica Online, Byepass Ratio. Leaving the gloomy side behind and focusing on passenger traffic in growth areas, we could look closely at Singapore Airlines (SIA), one of the world’s five 5-Star Airlines, as our model airline at the luxury end. Report by Skytrax Research, 01-01-2008, http://www.airlinequality.com /Airlines. They have done very well by all accounts. For instance, SIA and its subsidiary, Silk Air, have 70 flights per week out of India. “SIA is seeing phenomenal growth in Meetings, Incentives, Conferences and Exhibitions (MICE) traffic with Incentives and Exhibitions forming the bulk of the MICE. A lot of companies find it cost effective and rewarding to incentivise their dealers with overseas trips. Leisure traffic is on the upswing, gradually seeing a shift in travel patterns to new destinations such as Singapore, Bali, Vietnam, China, Australia and New Zealand. Although competition in the market has intensified, we have been able to hold yields, as emphasis is on targeting better traffic mix. An important aspect that plays a key role in facilitating this growth is network – local and global. In terms of outbound traffic, the shift has predominantly been to the business traveler, from the information technology, finance and manufacturing sectors. This is in addition to the student traffic, as well as VFR traffic (Visiting Friends and Relatives based overseas), mostly to the US and Australia.” Bharath Mahadevan, Manager Southern India, SIA in http:// www.hindu.com. Singapore Airlines adopts a disciplined approach in pricing, their premium product attracting the high end, luxury customers. They also come up with attractive promotional fares that customers can avail throughout the year. Special fares are worked out for agents and select travel agents/tour operators for their travel packages. Corporate demand has also shown an upward trend, which has led to a healthy business class loads. The Hindu, News Update Service, March 31, 2008. They study the menu, in-flight entertainment and even the aircraft meticulously. KrisWorld, a state-of-the-art in-flight entertainment and communications system is available to all three classes, with high quality theatre-style “surround sound” to in-flight movie viewing with Dolby Technology. They also involved a comprehensive panel of world-renowned chefs, the International Culinary Panel, in developing in-flight meals, taking a cue from Gulf Air’s award winning ‘sky restaurant’. http://www.gulfair.com/history. SIA were the first to operate the world’s longest non-stop commercial flight between Singapore and Los Angeles in February 2004 on the A340-500 and then surpassing it with the non-stop service to New York in June 2004. Its customers traveling on their even longer range B777-300ER services, between Singapore and Paris, and Zurich, will be able to experience all its new products. Also, SIA was the launch customers of the gigantic Airbus A380, which changed the definition of travel with the launch of ‘Suites’ – a class beyond first, according to Chew Choon Seng, CEO, SIA. It is configured for 525 all-class passengers on two decks. In the all economy version, it can carry 853 passengers. The massive infrastructure required is available at very few airfields. Imagine 3 Boeing 747s landing together- an airport manager’s nightmare! Though behind schedule, it has sold like hot cakes. Customers on SIA are assured of the same high standard of service and efficiency on the ground as in the air, with the latest in technology enhancing personalised customer service, right from the moment the traveler makes a booking until he boards the flight. A range of mobile services offer passengers the most current flight status alerts along with different check-in options to suit their needs. Moreover, their Silver Kris lounges around the world offers a soothing respite for all First, Business and Club Class customers to relax or continue working in comfort before they continue on their journey. Thus, an upper class ticket holder is the guest of most airlines, the moment he books his ticket with them. From that moment on, his wish becomes that Airline’s command. He is picked up and escorted in style through all formalities and seated just short of door closing time. The cabin crew knows his name and preferences and pamper him with sybaritic pleasures. The crockery, cutlery and table linen are impeccable. His seat becomes a bed whenever he desires. His suit is pressed and he is once again escorted to his destination, with minimum fuss at Immigration or Customs. He gets Birthday/ Wedding Anniversary Cards on the due date. That airline hopes to hook him for life. Lower profile airlines indulge in cut-throat ticketing wars. Freddie Laker started a no-frills low cost airline back in 1976. Today, there are over 100 low cost airlines in Europe, like Easyjets, Virgin, Ryanair, etc. and a similar amount in the far East. In Hong Kong, a study by Rob Law and Mike Chang in ------2007, investigated the online pricing practice to find the lowest publicly available price for international, regional, and local online travel. Using four most popular outbound travel destinations for Hong Kong travelers, viz. Shanghai, Bangkok, London, and Vancouver, empirical findings indicated that Hong Kong online travel agencies consistently offered the lowest air fares for all destinations. Online Pricing Practice of Air Tickets: The Case of Hong Kong, Information & Communication Technologies in Tourism, 16 April 2007, Publisher Springer Vienna, pages 513-522. But the ‘Mother’ of all ticketing wars is taking place right now in India. It started with the Owner CEO of Deccan Airlines, Captain CD Gopinath offering seats on his no-frills jets at prices lower than rail fare, bringing Air Travel within reach of the proletariat. Other Indian airlines had to follow suit, with Jet, Sahara, Spicejet, Go Air, Indigo and other airlines in South India bringing prices to rock bottom levels, requiring full occupancy to make a small profit. Today, these airlines offer tickets at 05 U.S. cents, if the ticket is booked 90 days in advance, with the price rising to about US$ 40 on the day of the journey, if seats are available, which is rare. Their highest fare hovers around US$ 80, for a 200 minute flight, Chennai-Delhi. For airlines, the Internet has provided an opportunity to sell tickets directly to consumers, i.e. e-tickets. In fact, no-frills budget airlines like Air Deccan the world over sell directly to consumers online and save on commissions paid to agents. Some of them auction up to 25 per cent of tickets, from 5 cents to 25 cents to $2.5 to $25 and so on. But there is a rider- there is no refund on tickets once bought, even if cancelled. http://www.cross-tab.com. One has to pay a price for no-frills travel. Only one can of a cola and a cookie is served in-flight, though passengers are permitted to bring eatables on board. Seating is totally economy class in every sense of the word. Advertisement is by word of mouth, TV slots ushering in the 5 cent schemes, Frequent Flyer benefits, in-flight raffles, etc. Obviously, code-sharing is low and only at the uppermost cost range, where marginal differences even out over time. In-flight airline magazines have been dispensed with. The two ends of the spectrum have been covered. What about marketing strategies in a normal country that has a reasonable number of different airlines? There are three aspects to be covered. The passenger comes first, followed by aircraft and associated bodies, with infrastructure completing the picture. How does one woo a customer. Here, the thought process must revolve snaring a passenger for life. The phases involved are seats and ticketing, pre check-in procedures, the check-in, baggage handling, the security check, the transit to the aircraft, boarding, reception and seating assistance, mandatory pre-takeoff procedures, in-flight care in terms of refreshments/meals and blankets/pillows, etc., the landing drill, the exit and transit to the departure terminal, baggage handling again and final departure. With so many phases to be looked after, there has to be coordinating staff which is in telephonic touch with each other. It takes a concerted effort on the part of many people to ensure a good flight! Total cost of a flight has so many ingredients that it could take a book to list them- right down to the bus cleaner’s salary. Every flight has a defined occupancy percentage to break even. The aim is first to target this factor and all extras contribute to airline profit. This implies that the targeted number of passengers would be on that route, which is generally the case. Jets are not cost-effective on short hops, hence there are smaller aircraft-mainly turboprops-in the fleet for short flights, anywhere between 20-45 minutes. If distances are broken up into segments, like 50-200 km, 200-500 km, 500-1000 km, etc., then the type of aircraft to be bought can be decided with greater freedom of choice. Passengers have to be attracted by catchy themes-Lufthansa and BAC pride themselves on their punctuality. Others offer more leg room, necessary in North Europe. Some offer complementary tickets-buy a First Class ticket and get one Business Class at 50 per cent discount or buy one Business Class ticket and get one economy class ticket free. Some offer wider seats and not more than two seats per row, in a 2-2-2 seating system. Others provide a dedicated TV set per seat, with multiple option multi-lingual viewing. Music is passé, so headsets are offered as a takeaway. The best offer pure class, synonymous with the ultimate in luxury. Most airlines offer a courteous service, starting from check-in. This is the weakest area for many airlines, particularly after 9/11 forced a slew of security reforms, limiting what you can carry as hand baggage, like simple sprays and bottles. On the other hand, e-ticketing has brought in a revolution of sorts, replacing conventional tickets with a sheet the passenger prints himself and which is converted into a boarding pass, valid up to the destination. According to Sachin Bhatia, Co-Founder & Chief Marketing Officer, Makemytrip.com, India, approximately 20,000 air tickets for domestic travel are being sold online every day! So what features must a web site selling air tickets have to attract custom? It must have a mix of usability, ease of navigation, multiple search criteria, user-friendly display of results, refreshing design that makes reading pleasant and defined sections for specific information/ messages. It Is important to have as many options as possible, covering all domestic carriers, so that consumers choose whichever airline they find convenient. The results should be easily sortable by price, airline and time. Most importantly, it should show only available flights, since people visit the site not to see flight schedules but to actually transact. http:// www.cross-tab.com. Some offer a free bus trip into town, particularly when the distance involved is small. Advanced airlines offer magnetic-strip coated boarding passes that obviate checking staff, as a gate will not open till that pass is inserted. In fact, whenever there is a change of aircraft required, i.e. a connecting flight, the boarding pass gets the passenger a cookie and a cup of coffee/tea gratis. Few airlines can offer all these services together. The type of enticement on offer varies with the length of the flight, the country/countries involved and demography, among others. Passenger miles and Frequent Flyer programs are offered by all, some with code sharing arrangements. Here two airlines allow adding distances flown on carriers from both fleets and look after each other’s aircraft at their own hubs, reducing ground staff to the barest minimum. Each type of aircraft has its plus and negative points. The trick is to market the strengths, while relegating the weak areas to the background. One could best say it as: ’To each, his own’. “The Swiss-based SITA is owned by 600+ members in the air transport and related industries and are specialists in air transport communications and IT solutions and networking in a dynamic marketplace on a not-for-profit cooperative basis . SITA offers certain products called Common Use Terminal Equipment (CUTE) and Common Use Self Service (CUSS) kiosks installed within the passenger check-in areas in the passenger terminals as well as separately. This facility enables passengers to get their boarding passes without going to check-in counters and finish the process.” G.V. Sanjay Reddy, MD, Mumbai International Airport Limited. Many high net worth individuals (HNI) have their own aircraft. Owners include hoteliers, sportsmen, CEOs of mega-companies, Royalty, landed gentry and so on. Owning and operating corporate jets is a status symbol. The hassles involved in their procurement, operations and maintenance requires a team dedicated to that aircraft. One glance at the number of Certifications needed-FAA clearance, Standard/ Special Airworthiness Certificate, Flight Authorization, Engines and Propellers Certificate, Field Approval, Production Certificate, Air Carrier Certification, Airmen Certification, English Proficiency Endorsement, Medical Certificate, The Cape Town Treaty which stipulates certain minima, the list is endless. U.S. Department of Transportation, Federal Aviation Administration, extracted from http://www.faa.gov/ licenses_certificates/aircraft_certification/aircraft_registry/. But the HNI only steps into and out of the aircraft, his staff does the legwork. The types of bizjets, as corporate jets are called, are many and manufactured in many companies, with U.S.A. the clear leaders and France a distant second. A case study by Ernst & Young in June 2007 on the concept, ‘Indian Aviation Sector Competition — Consolidation — Efficiency’ revealed that the demand for private or business jets in India is expected to grow at 50 per cent on an annual basis over the next few years. North America has been the key market for charter aviation traditionally; but recent slowdown in the US economy and growing business opportunities in the Asia-Pacific region has led to a transition of the market towards the latter. http://www.thehindubusinessline.com. The fractional aircraft market has also witnessed a strong demand in recent years, as customers have the option of buying a fractional ownership of the aircraft, which ensures cost-effectiveness as well as convenience of a private jet. As per the Ernst & Young report, owners have a guaranteed access to 50-400 aircraft hours annually, depending on their share size. “If you need to fly once a week or so, it makes no sense to own an aircraft, as visible and hidden charges are enormous. It is far simpler to buy a fractional share of a fleet, which will guarantee you a flight whenever desired. The once a week flyer needs only a 5 per cent share in Club One Air. This gives him a choice of Cessna aircraft, from 8-24 seaters and also Augusta Helicopters for a destination that may not have a runway. Just pick up the phone and give us details. Our staff will handle it.” Senior Captain PM Mathai, Club One Air, Delhi, India, 04 May 2008. Talking to Business Line, 12 October 2006, Edward T. Smith, Senior Vice-President, International Affairs of U.S.-based General Aviation Manufacturers Association, said, “Aviation Charter is the next big idea in the air. Business leaders are realizing that a business aircraft is not a luxury but contributes directly to the bottom line by enabling them to use their time more productively and respond to opportunities with agility, whether within the country or across the world.” 32 aircraft charter companies operating in the country, most of them having less than two aircraft each, says the E&Y study. Icarus may have done us a favor by introducing aviation, with the Wright brothers symbolizing it. But Commercial Aviation is a huge and cash-intensive industry. Aspirants need deep pockets to dip into frequently if they want to set up an airline, in a crowded field where the infrastructure is already bulging at the seams. The ticketing war is a no-holds barred game, with the smaller players being squeezed out. Innovation is the lane to success, helped along the way by the marketing of aviation. References Cited General Aviation Manufacturers Association, Mar 21, 2008, http://www.gama.aero also http://www. ibef.org. http://www.generalaviation.org also http:// www.centreforaviation.com. Centre for Asia Pacific Aviation (CAPA) http://www.tamil.sify.com. http://www.indiadaily.com/editorial/10595, 16 July 2006. http://www.tamil.sify.com. KPMG, ‘The Danger Zone Of Climate Change Risks’. Encyclopedia Brittanica Online, Byepass Ratio. Skytrax Research, 01-01-2008, http://www.airlinequality.com /Airlines. Bharath Mahadevan, Manager Southern India, SIA in http:// www.hindu.com. Hindu, News Update Service, March 31, 2008. http://www.gulfair.com/history. Online Pricing Practice of Air Tickets: The Case of Hong Kong, Information & Communication Technologies in Tourism, 16 April 2007, Publisher Springer Vienna, pages 513-522. http://www.cross-tab.com. G.V. Sanjay Reddy, MD, Mumbai International Airport Limited. U.S. Department of Transportation, Federal Aviation Administration, extracted from http://www.faa.gov/ licenses_certificates/aircraft_certification/aircraft_registry/. http://www.thehindubusinessline.com. Business Line, 12 October 2006, Senior Captain PM Mathai, Club One Air, Delhi, India, 04 May 2008. Read More