Airline Marketing and Management

Stephen Shaw, Stephen Shaw

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317183037
• Edition: 7
• Topic: Negocios y empresa
• Subtopic: Estrategia empresarial

Through six previous editions, Airline Marketing and Management has established itself as the leading textbook for students of marketing and its application to today's airline industry, as well as a reference work for those with a professional interest in the area. Carefully revised, the seventh edition of this internationally successful book examines an exceptionally turbulent period for the industry. It features new material on: *Changes in customer needs, particularly regarding more business travellers choosing - or being forced - to travel economy, and analysis of the bankruptcy of 'All Business Class' airlines. * An explanation of the US/EU 'Open Skies' agreement and analysis of its impact. *The increase in alliance activity and completion of several recent mergers, and the marketing advantages and disadvantages that have resulted. * Product adjustments that airlines must make to adapt to changes in the marketing environment, such as schedule re-adjustments and the reconfiguration of aircraft cabins. *Changes in pricing philosophies, with, for example, airlines moving to 'A La Carte' pricing, whereby baggage, catering and priority boarding are paid for as extras. *Airline websites and their role as both a selling and distributing tool. *The future of airline marketing. A review of the structure of the air transport market and the marketing environment is followed by detailed chapters examining business and marketing strategies, product design and management, pricing and revenue management, current and future distribution channels, and selling, advertising and promotional policies. The reader will benefit from greater understanding of both marketing and airline industry jargon and from knowledge obtained regarding the extraordinary strategic challenges now facing aviation. Written in a straightforward, easy-to-read style and combining up-to-date and relevant examples drawn from the worldwide aviation industry, this new edition will further enhance the book's reputation for providing the ideal introduction to the subject.

1 The Fundamentals

1.1 What is Marketing?

1.1.1 Definition

There is a popular misconception when the term ‘Marketing’ is defined – that it is not a very edifying activity. According to its critics, the marketing concept is about producing things that people don’t really need and then tricking customers into buying them through deceitful advertising. Such views will be totally rejected in this book. Marketing describes a complete philosophy for running a business, based on the meeting of well-researched, well-understood and genuine customer requirements.1

We will use the following definition of the subject:

Marketing is the management process responsible for identifying, anticipating and satisfying customer requirements profitably.

This definition, used by the UK Chartered Institute of Marketing, provides a valuable initial framework for the study of the subject. In particular, its use of the word ‘anticipating’ emphasises the fact that marketing is a dynamic discipline, where customer requirements are in a constant state of evolution and change. This is especially the case in the airline industry, where successful airlines are likely to be those which anticipate change and are ready for it when it occurs. Unsuccessful carriers tend to be those which wait for change to happen and then try to catch up with it. This is a theme which will recur frequently in the book, and one which is well illustrated by the difficulties which many so-called ‘Legacy’ airlines have had in recent years in responding to the challenges which the rapid growth of low-cost carriers have brought to them.

Though the definition is useful, it is not sufficient to fully describe all the facets of marketing, or to give a framework for this book. We need to break it down further.

A common initial way of doing so is to distinguish between ‘Consumer’ and ‘Industrial’ marketing. Consumer marketing is marketing activity targeted at the individual or the family. It is sometimes known as ‘B to C’ (business-to-consumer) marketing. Industrial marketing is the term used to describe (business-to-business) ‘B to B’ or (firm-to-firm) marketing.

There are many differences between the two. One of the most important is that in consumer marketing, identifying the ‘Customer’ for a particular product is usually a straightforward process. Market research studies can, for example, easily identify the demographic characteristics of the individuals who buy chocolate bars or ice-cream. With admittedly more difficulty, it would also be possible to carry out the attitude surveys that would highlight the factors taken into account by these people in choosing between the different products on offer.

Industrial marketing gives no such clear-cut opportunities. When firms need to make purchasing decisions for major capital items, they will normally do so using a complex decision-making process. As we shall see in Section 2.2.3, this will often involve large numbers of people, all of whom will be working, at least partly, to their own agenda. Understanding this process is one of the central skills required in industrial marketing and considerable space will be given to it in this book.

Airline marketing provides a particularly interesting illustration of the application of marketing principles because it includes examples of both industrial and consumer marketing. Marketing to the business air traveller, and of air freight services, both illustrate well the concept of industrial marketing. Leisure air travel marketing, on the other hand, if carried out correctly, increasingly exhibits the principles of consumer marketing. This is particularly when the Internet is used as a channel of distribution to target the individuals or families who make leisure travel decisions.

1.1.2 The ‘Marketing Mix’

Though the distinction between ‘Industrial’ and ‘Consumer’ marketing is a useful one, it does not describe any of the activities which must be undertaken in order to apply marketing principles to a business. The concept which does do so is known as the ‘Marketing Mix’.

It is useful to describe marketing activity as encompassing the following ‘4Ps’:

Product

Price

Promotion

Place

The word ‘Place’ is somewhat confusing. In our study of airline marketing we will use this word to describe the distribution channels employed by airlines.

The ‘4Ps’ model tells us that the application of marketing principles will require decisions to be made about the products which will be offered. For airlines, this will encompass an almost endless list of decision areas. Decisions will be needed on such aspects as route network, type of aircraft, frequencies and timings and all aspects of both the ground and in-flight products that will be offered to passengers. At the same time, pricing decisions will relate to the level and variety of prices on offer, the conditions that will be attached to each fare, and the ways in which capacity will be allocated between the different fare classes in an airline’s reservations system. Firms must also decide on the methods of marketing communication they will employ in order to persuade people to buy, and the distribution channels which will be used to provide the link between the customer and the product.

The concept is also valuable for another reason. It emphasises that marketing decisions cannot be made in isolation. Instead, all decisions are linked, with the ability to make trade-offs between them in order to optimise the overall result for the firm an absolutely crucial skill.

Such trade-offs are at their most obvious in the relationship between product and price. Clearly, no firm should invest money in product enhancement unless it expects to obtain a return in the form of a higher selling price or an improved share of better yielding markets. They are though, equally significant in other areas. For example, in making decisions about their distribution channels, firms must often decide whether or not they are to be a wholesaler or a retailer. As we shall see in the airline industry, so-called charter carriers have traditionally sold mostly on a wholesale basis (indeed, in some cases, notably so in Europe, they were restricted to such a role by government regulation). They produced plane-loads of capacity in response to orders placed with them by tour operators. The tour operators in turn combined the aircraft seats with hotel or other accommodation to make up packaged holidays. In such a situation, the airline was merely the supplier of capacity. The tour operator took responsibility for reservations and retail selling. The airline’s promotional spending needed only to encompass the costs of a field sales force which carried out sales negotiations.

In strong contrast, airlines focusing on the business travel market have tended to adopt a retailing philosophy. This has required them to keep in contact with travel agents, and to maintain a high promotional profile through such activities as media advertising, database marketing and the offer of an attractive frequent flyer programme (see Section 9.3). All these tasks are costly ones, and need to be traded off against the undoubted advantages in terms of market control and better yields that retailing can bring.

1.1.3 Stages in the Application of Marketing Principles to Airline Management

The ‘4Ps’ model is a powerful one, and describes much of what an airline must do if it is to apply the principles of marketing in order to achieve business success. It does not, though, give a complete description. In this book, it will be suggested that the application of marketing should consist of seven interlinked stages.

1. The customer

The cornerstone of successful marketing activity is that firms should obtain full knowledge of their current and potential customers. This knowledge needs to encompass information about market size, demographics, customer requirements and attitudes. There also needs to be an ability to forecast the future size of the market, and any possible future changes in customer needs so that preparations can be made to meet these changes in advance of them actually occurring. The processes whereby airlines seek this information will be those of market research and market analysis.

2. The marketing environment

The nature of sound marketing policies will clearly vary according to the constraints and opportunities provided by the external environment.

In analysing a firm’s marketing environment it is usual to use the model known as PESTE analysis. This model categorises the factors in the marketing environment under the five headings of Political, Economic, Social, Technological and Environmental. The analyst’s task is to isolate those factors in the external environment which ought to have a significant impact on the formulation of sound marketing policies and to assess their implications. In this book, such an exercise will be carried out for the airline industry in Chapter 3.

3. Strategy formulation

Clearly, it will not be possible to define marketing policies without the marketing input being a crucial one in the definition of a firm’s overall strategic direction. This strategic direction must identify the firm’s goals and objectives, the markets in which it will participate and the methods it will employ to ensure successful exploitation of market potential.

4. Product design and development

5. Pricing and revenue management

6. Distribution channel selection and control

Once an overall strategy has been selected, these next three stages should follow on logically. As we shall discuss in Chapter 4, today’s aviation industry offers airlines a number of possible routes to success (and, interestingly, a significantly greater number of different ways in which they can fail). What matters is that a clear strategy is selected and pursued steadily over the long term. Each possible strategic option will result in a requirement for a linked set of product, pricing and distribution decisions. These subjects will be examined in Chapters 5, 6 and 7.

7. Selling, advertising and promotional policies

A common mistake is to assume that the words ‘Marketing’ and ‘Selling’ are synonymous. They are not. The term ‘Marketing’, as we have seen, describes a total philosophy for running an entire business. ‘Selling’ is the concluding stage of a correctly applied marketing process, whereby customers are persuaded to buy the firm’s products.

‘Marketing’ ought to make ‘Selling’ easier. It is likely to be a great deal easier to sell something to someone which is offered in response to a well-researched and well-understood customer need. Indeed, one of the traditional faults of industry in the past has been a so-called ‘Production Orientation’ whereby firms made what they liked making, or found it easiest to make, and then tried to persuade reluctant customers through high-pressure selling to buy these less than ideal products. It should not be thought, though, that ‘Marketing’ will make the skills of selling obsolete. In today’s competitive markets, customers will usually have a great deal of choice open to them. Persuading them to exercise this choice in a particular way will require the use of professional skills of a high order. We will be discussing these skills in the context of the airline industry in Chapters 8, 9 and 10.

1.2 Benefits of a Marketing-Based Approach

In this book we will see that applying marketing principles to the airline industry is certainly not easy and will require a great deal of effort and expenditure over a long period of time. However, when correctly applied, it will result in the right products being offered to well-researched market segments. It should also mean that competitors’ actions are better understood, and that the policies needed to counter such actions will be easier to put into place. Finally, it should ensure that very necessary ‘What if?’ questions are asked and answered, of particular value given the unstable and ever changing nature of the challenges that participation in the airline industry will provide for its leading players.

This chapter should have given the reader a feel for the power and the complexity of the discipline of marketing and its importance to airlines today. We will now begin our detailed study with the question of the market for air transport services.

SUCCESSFUL AIRLINES …

Are those that accept that the principles of marketing should provide a framework for all they do, and set out to apply these principles as widely and as rigorously as possible.

1 A selection of recently published textbooks on marketing is as follows: K. Moore, N. Pareek, Marketing – the Basics, Routledge, 2006; I. Doole, R. Lowe, International Marketing Strategy, Thomson, 2004; P. Kotler, G. Armstrong, Principles of Marketing, 10th Edition, Pearson, 2002; D. Jobber, Principles and Practice of Marketing, McGraw-Hill, 2001; J. Growcutt, P. Forsyth, P. Leadley, Marketing, Kogan Page, 2004; P. Kotler, Marketing 3.0 – From Products to Customers and the Human Spirit, John Wiley, 2010; J. Blythe, Essentials of Marketing, 4th Edition, Prentice Hall, 2008.

2 The Market for Air Transport Services

An airline which is to apply the principles of marketing successfully needs a thorough knowledge of current and potential markets for its services. This knowledge should encompass an understanding of the businesses in which they participate, and of the market research techniques they must apply in order to gain the knowledge they need about the marketplace. They must be able to identify ‘Customers’ and distinguish them from ‘Consumers’. They must segment their markets. Once they have done so, they need to identify and prioritise the requirements of customers in each of the segments. Finally, and most importantly, they must examine their markets in a dynamic rather than a static sense and anticipate future changes in customer needs.1

2.1 What Business Are We In?

To begin this work, any airline first has to deal with the question as to which market or markets are to be studied. To do so, it must answer the fundamental question about the business or businesses in which it participates.

In doing so, there are two possibilities. The first and obvious way is to define business participation in terms of what the firm does. Thus it would be easy for an airline to say that it was a player in the aviation business.

There is a significant problem in doing so. It will result in a serious underestimation of both the extent and the nature of the competition that the airline faces. As a consequenc...