European Media is writing daily articles about the situation of the European airline business. The European airline market is, at the moment, with all the important changes and actual turbulences, the most dynamic industry sector. Some of these changes are:
The creation of new low-cost airlines in Europe, like Germanwings (Germany), Volareweb (Italy), and Sky Europe (Slovakia);
The disappearance and bankruptcy of airlines, such as V-Bird (Netherlands) and Swissair;
Air France merges with KLM to become the worlds biggest airline group;
A significant increase of purchases of airplanes by Arabic airlines.
This thesis focuses on the low-cost airlines, which arrived in Europe during the last 10 years and changed micro and macro environment of the airline business. Low-cost airlines like Ryanair and EasyJet make big profits while Alitalia, British Airways, Air France, and Lufthansa are having enormous problems.
The general opinion is that low-cost airlines are successful because of its lower cost in production, and therefore of its lower price they can offer to the customers. The thesis will show that the cost factor is not the only reason for the success of low-cost airlines:
"Being cheap is not enough"
The objective of the thesis is to find other reasons which explain the success of low-cost airlines by analysing the marketing development of European low-cost airlines with its strategies, positioning, customer satisfaction etc. Of special interest: The question how the low-cost trend changes the marketing and the behaviour of the traditional airlines and how do the customers react.
As reaction to this trend the traditional airlines are reducing at the moment costs in salary, distribution, maintenance etc. to survive. This is not enough. The thesis mentions marketing ideas and possibilities of how to compete against low-cost airlines, either by copying successful marketing methods of these airlines or by finding new innovative methods, fresh ideas and a new positioning.
The main objectives for my thesis are:
Is the success of low-cost airlines only a short term event or is it a successful business marketing concept? Are the traditional airlines in danger?
Is the Low Cost concept the better concept? What can traditional airlines learn from the marketing methods of low-cost airlines?
Inhalt
1. Introduction
2. Aviation History
2.1. The beginning of aviation
2.2. Air traffic regulations
2.3. Airline market before 1993 and National carriers
2.4. From monopoly to Air Transportation Liberalisation
2.5. Airline business today: New competitors
2.6. Change to customer oriented Marketing concept
3. Low-cost airlines versus traditional airlines
3.1. Situation of traditional airlines in Europe
3.1.1. Airline Alliances and hub- and spoke system
3.1.2. Example of a traditional airline: Air France
3.2. Low-cost airlines
3.2.1. A fascinating example: EasyJet
3.2.2. The European low-cost market and development
4. Marketing Analysis
4.1. Scanning the marketing environment
4.1.1 Market
4.1.2. Segmentation of the airline industry
4.1.3. Target market
4.1.4. Motivation and Buyer behavior
4.1.5. Needs, wants and demands
4.2. The Marketing Mix
4.2.1. Product
4.2.2. Place
4.2.3. Promotion
4.2.4. Price
4.3. High performance business
4.3.1. The service character of Airline marketing
4.3.2. Total Quality Management
4.3.3. Internal Marketing
4.3.4. Total Customer satisfaction
4.3.4. Customer Relationship Management
4.3.5. Frequent Flyer Program
4.4. Market-oriented strategic planning
4.4.1. Positioning for competitive advantage
4.4.2. Meaningful Differentation
4.4.3. Brand Management
4.4.4 SWOT analysis
4.4.5. Dealing with the competition
5. Conclusison and future developpement
Bibliography
APPENDIX
1. Introduction
European Media is writing daily articles about the situation of the European airline business. The European airline market is, at the moment, with all the important changes and actual turbulences, the most dynamic industry sector. Some of these changes are:
Abbildung in dieser Leseprobe nicht enthalten
This thesis focuses on the low-cost airlines, which arrived in Europe during the last 10 years and changed micro and macro environment of the airline business. Low-cost airlines like Ryanair and EasyJet make big profits while Alitalia, British Airways, Air France, and Lufthansa are having enormous problems.
The general opinion is that low-cost airlines are successful because of its lower cost in production, and therefore of its lower price they can offer to the customers. The thesis will show that the cost factor is not the only reason for the success of low-cost airlines:
"Being cheap is not enough"
The objective of the thesis is to find other reasons which explain the success of low-cost airlines by analysing the marketing development of European low-cost airlines with its strategies, positioning, customer satisfaction etc. Of special interest: The question how the low-cost trend changes the marketing and the behaviour of the traditional airlines and how do the customers react.
As reaction to this trend the traditional airlines are reducing at the moment costs in salary, distribution, maintenance etc. to survive. This is not enough. The thesis mentions marketing ideas and possibilities of how to compete against low-cost airlines, either by copying successful marketing methods of these airlines or by finding new innovative methods, fresh ideas and a new positioning.
The creation of these low-cost airlines was provoked by the liberalisation of the European airline market. That is why the thesis will start with the development and history of the European airline business, followed by the analysis of the micro and macro environment and the different marketing concepts between traditional airlines and low-cost airlines.
Afterwards a detailed study of the marketing mix, the internal marketing, customer satisfaction, and different strategies (positioning, differentiation etc.) is given.
The thesis closes with an overview of the future development, a conclusion and marketing propositions for traditional airlines and low-cost airlines.
To conclude this introduction, the main objectives for my thesis are:
Abbildung in dieser Leseprobe nicht enthalten
2. Aviation History
2.1. The beginning of aviation
In the beginning, aviation began as an “adventurer’s sport”, in which pilots were more famous than their planes, (i.e., Wright Brothers, Lindberg, etc.). Each fare was considered as an exploit, and aviators were highly romantic and heroic figures. The first “real” flights took place in 1909 with the crossing of the “channel” by Louis Bleriot and the crossing of the Mediterranean Sea in 1913 by Roland Garros.
Aviation was first used as a means of transport for goods and mostly mail. It rapidly gained in speed and autonomy. Aircraft flew faster, higher and further every day. Air traffic was totally free of any constraints and control. The first commercial flights in Europe took place in 1919, and linked Berlin-Leipzig-Weimar.[1]
2.2. Air traffic regulations
In the 1930’s, governments of different countries regulated the air traffic mostly for airmail concerns. The fear was that the airmail carriers would merge with each other and form monopolies. For example, in 1938, the U.S. Congress created, for regulation reasons, a new authority, called the “Civil Aeronautics Authority” (CAA). The CAA regulated fares and decided how many and which airlines could fly between cities. Air traffic regulation grew tighter with the development of passenger transportation. Indeed, the CAA regulated the number of flights during a given time period and the airline capacity, or the number of seats available.[2]
In the year 1944, the “Chicago convention” decided that every national carrier would benefit from a monopoly in its home country. That was a comfortable situation for the airlines in their home market but it gave them no chance to install in another country.[3] Such regulations where established and controlled through airline organisations like IATA (International Air Transport Association) which became very important and had a high influence on the airline business.
2.3. Airline market before 1993 and National carriers
After the second-world war, an airline company was a symbol for modernism. The existence of a national carrier was important for a country's image.
As a matter of fact, most international airlines were public companies, owned by the government: Air France in France, Deutsche Lufthansa in Germany, Swiss Air in Switzerland, etc. Airlines were important for economic and social development and trade. Governments wanted to have at least one stable, strong and well-run airline, which could be used as the country’s national flagship airline.[4]
Even today it is still important for a country to have its own airline. The best example is to observe what happens when new countries arise: each new country quickly sets up its own airline. After the fall of communism, the Baltic States created their own airlines (Air Baltic, Estonian Air and Lituanian Airlines) just after having decided on a flag and a national hymn.[5]
However, even if airlines were already rather numerous, as each country had at least its own airline, this means of transportation were after the second-world war, a luxury reserved for wealthy people and remained so for a long time. Travelling by plane was, indeed, not common and rather expensive. The consequence was that airlines did not have any need to advertise or market their services: their customers, from the upper classes, did not need any inducement to use their services.
Destinations were also clearly partitioned between the different airline companies, which did not have to compete for the same markets and customers, therefore not needing any publicity or marketing of any sort. Even when fares became more affordable to the average customer, the partition of destinations remained, resulting in the absence of real competition between various airline companies.
Indeed, regulation and national monopolies resulted in large, lazy and ineffective airlines, where the costs and the prices for the customers were too high.
However, with the slow development of air traffic in the 1980’s, companies began advertising and marketing their products and services toward the average customer, which clearly became their new target. Airplanes still remained an exceptional means of transportation, used only in exceptional circumstances (e.g. illness of a family member, etc.), or for holidays, whereas the train or the car were the usual day-to-day transportation means.
2.4. From monopoly to Air Transportation Liberalisation
The deregulation started first in the United States when the United States Congress decided in 1970 to open and deregulate the airline market. The “Deregulation Act” was signed in Chicago in 1978. The basement of this act was “open sky, open market”, that means that airlines were allowed to do business in countries other than their home country.[6]
In Europe, deregulation was implemented much later and caused many problems because of national interests of all European countries and the situation of its national airlines. Therefore regulation took place in three steps (1987, 1990 and 1992).[7]
Today for the European commission it is one of its fundamental goals to create one single market and to create competition. Transport helps to bring Europe's citizen closer, and the Common Transport policy becomes one of the European cornerstones of the Single market.[8] When air space was liberalised, airlines became real competitors, as they had the right to serve some destinations, which were before reserved to national airlines. Air France can fly today from Paris to Hamburg (Germany) and from Hamburg to Berlin. Airline companies began to be a little bit more marketed oriented, advertising their services more aggressively.
However, such competition did not really have a tremendous effect on prices, which remained quite high because of high costs. Flying was still the exceptional transportation means for the average customer.
In fact, airlines met one of the first real competitors in the fast trains (such as the French TGV or the European THALYS), which would take customers very quickly to a destination, for a far better price, and deposit passengers in the heart of the city (train stations are, most of the time, located in the middle of the cities, contrary to airports). However, such trains do not offer a lot of European destinations and therefore remain a mild threat for airline companies, which offer, on the contrary, hundreds of different destinations in Europe.
2.5. Airline business today: New competitors
Air travel has been growing and will still be growing in the next years because of the parallel growth in the tourism industry and world trade through globalisation. The recent events such as 9/11 in New York, SARS, the actual oil crisis and the Iraq war are important for all airlines but have not affected the increase in traffic.
After a stagnation of two years, the worldwide airline traffic increased in 2004 by 6,2% and will increase in the next years in Europe by 4%-6%.[9] The year before, traditional airlines carried 1.5 billion passengers. The airlines are preparing themselves for the increase of travel. Soon, the Airbus A380 with a capacity of 800 passengers will be launched on the market.
The increase in traffic is the good news for the traditional airlines. But there is a big threat: A new phenomenon in the place of new competitors.
Recently, air travel has undergone tremendous changes over a very short period of time. Moreover these changes are clearly only the beginning of what appears to be a real revolution and trend. Traditional airlines are cutting commissions of the travel agencies, cancelling routes where possible, downsizing employees while low-cost airlines are buying hundreds of new planes, opening new routes every month, reaching 95% of its bookings through internet, and making high profit.
When low-cost airlines appeared on the market, they entirely changed the airline landscape, shaking the traditional airlines to the core. Such low cost airlines were efficient, incredibly cheaper (even cheaper than the train), and offered more and more destinations, with surprisingly little inconvenience (e.g. slightly further located airports). Their swift appearance and unbelievably quick and easy growth took everybody and especially traditional airlines, by surprise. Not only were they winning over the customers of these national airlines, but they were “discovering” a new clientele in the people that usually never or very rarely took the plane.
In the course of merely ten years, low-cost airlines have transformed planes into a casual and common means of transportation, such as the car and the train.
2.6. Change to customer oriented Marketing concept
In the 1980’s the traditional airlines were using the selling Marketing concept. The routes of national airlines in or from its home country were the product, which has to be sold. The problem was that consumers did not buy enough airline products unless the airline undertook a large selling and promotions campaign. The aim of a selling Marketing concept is to get every possible sale. Airlines started to promote when sales dropped, without first analyzing why sales were dropping. They did not try to change their product to fit the changing market. They sold harder, pushing their products on the customer through increased advertising. Eventually they disappeared from the market because their products no longer satisfied the customers needs or were subsidised by the government like Alitalia at the moment.[10]
Moreover the airlines were focused on technological innovation because they were very often managed by engineers. With every innovation (e.g. new aircraft) the airlines had a little advantage over their competitors. Marketing was at that time a secondary issue.[11] The customers were not important. The airlines looked for efficiency with disregard for the customer.
The motto was:
“Let the customer fly when it is convenient for us”[12]
The problem for traditional airlines is today that they still create services first, and sell these services through advertising without knowing if there is a need.
Some changes started with the hub- and spoke strategy because now foreign customers were attracted to use the hub- and spoke to travel in another country. The attraction was mostly done by interesting prices.
In fact, the real customer oriented marketing started in Europe with the arrival of the low-cost airlines in the mid 1990’s. It was the change from “selling and production oriented marketing” to the "modern and customer oriented marketing concept", which three pillars are:
Abbildung in dieser Leseprobe nicht enthalten
The key point is that low-cost airlines exanimate through market research what the customers really need. If, and only if, the research shows that there are potential customers for a service (e.g. flight route between two cities) or product, it is planned and produced. Moreover, all marketing activities will be focused on these customers.[13] The low-cost airlines are therefore balancing customer orientation with operating efficiency:
“Providing the best alternative for the customer we want, while making sure we retain operating efficiency”[14]
The result of this new marketing concept is that low-cost airlines have a competitive advantage not only in lowest cost and prices but also in:
Abbildung in dieser Leseprobe nicht enthalten
The airline business is today highly competitive. That is the reason for the increase of airline marketing. Another point is that nowadays the customers are smarter and better informed. Through internet a customer can find within 10 minutes the cheapest flight between two destinations. He is not very loyal to an airline and uses technology such as internet. He does not need a travel agency to book his flight. That is the reason why the modern marketing is today so essential for all airlines.
As competition becomes more intense, airlines will be forced to focus on satisfying customers. The future will be short for those companies that do not. It is true that today every activity of the airline should be aimed at satisfying the needs and desires of the consumer. All departments of the airline are becoming involved in satisfying him. All employees should be concerned about the customer's well-being.[16]
3. Low-cost airlines versus traditional airlines
3.1. Situation of traditional airlines in Europe
In the last years, many traditional airlines have experienced a serious setback in their market shares as well as financial difficulties. They implemented drastic cost saving programs resulting in significant job losses and a slow down in aircraft orders.[17] They also lowered some of their prices or set up low-cost divisions (for example Lufthansa with Eurowings and Germanwings) in order to strengthen their position in the market, especially in the home market.
During the recent years traditional airlines did not find an efficient answer to counter the danger of low-cost airlines. Traditional airlines are dealing with constant crisis management. They look at the bottom line, downsize employees as necessary, cut every route they can, and continuously respond to the board of directors, rather than to their customers. That is the reason why traditional airlines cannot concentrate on customer oriented marketing.
Another major problem with the traditional airline business is the overcapacity. When the airlines face overcapacity, the tendency is to keep on selling. The reasons why airlines face continuous overcapacity are:
Abbildung in dieser Leseprobe nicht enthalten
In order to react to overcapacity and to defend themselves against low-cost airlines, the traditional ones implemented the hub- and spoke strategy. The creation of global alliances and customer programs were the consequence of the hub- and spoke system in order to become more efficient.
3.1.1. Airline Alliances and hub- and spoke system
The hub- and spoke system is the concentration of traffic to one airport. The passengers are grouped together at the hub from other national airports through a shuttle transport. The transport between two hubs is done with big airplanes.
Abbildung in dieser Leseprobe nicht enthalten
Fig. 1. <http://www.centennialofflight.gov/essay/Government_Role/Econ_Reg/POL16G2.htm>
The idea of the hub- and spoke system was born in Chicago with the airlines American Airlines and United Airlines. In Europe the following hub- and spokes networks exist:
Abbildung in dieser Leseprobe nicht enthalten
The problem is that one national airline is not having enough traffic to serve the hub- and spoke system in both directions, for example between France and the United States. That was the reason why the airlines created global alliance. The aim of global alliances is to link airlines in a different geographical area to provide world-wide network coverage and the benefits of the hub- and spoke system.
Over the years a wide range of complex agreements between airlines have grown to meet specific airline needs. Many agreements pre-date the period of alliances and were primararily aimed to facilitate the marketing operation of international service.[19]
For example one of the agreements were about "code sharing" the route of Air France and Delta between Paris and Cincinnati in the United States. Air France and Delta are founder members of the alliance Skyteam. Other airlines of this alliance are Continental Airlines, Korean Air, Czech Airlines, Aeromexico, Northwest Airlines, and Aeroflot (for 2005).
The agreement implies that Air France sells some tickets for Cincinnati as its own tickets, even if the route is, in fact, performed by Delta and reversely. The creation of a hub- and spoke system has a lot of advantages for Air France and its customers:
For Air France:
Abbildung in dieser Leseprobe nicht enthalten
For Air France customers:
Abbildung in dieser Leseprobe nicht enthalten
However, we must point out that due to the new security measures in the airline business, some of their advantages are seriously reduced.
Furthermore customers are often disappointed because they expect the aircrafts and services of “their” carrier and not of the partner airline.[23] The quality differences between the airline partners are big and the service not always the same, for example between Air France and other Skyteam members like Aeromexico or Aeroflot. Another disadvantage is that Air France cancelled direct flights from other French cities (e.g. Lyon or Nice) to the United States. Now the customers have to fly to Paris first. As a result, 82% of all long distance flights go over the hub Paris Charles-de-Gaulle.[24]
Moreover the alliance members do not always behave like partners, for example they do not have one common call centre but one for every member. The situation between them is still competitive. This is shown by a current situation:
[...]
[1] Pierre Merlin, Le transport aerien (Paris: Les etudes de la documentation francaise, 2000) 9.
[2] “Economic regulation of airlines,” U.S. centennial of flight commission, 02 Juin 2004 <http://www.centennialofflight.gov/essay/Government_Role/Econ_Reg/POL16.htm>.
[3] Philippe Malaval, Christophe Benearoya, Marketing aeronautique et spatial (Paris: Pearson Education, 2001) 9.
[4] Rigas Doganis, The Airline business in the 21st century (London: Routledge, 2001) 184.
[5] Philippe Malaval, Christophe Benearoya, Marketing aeronautique et spatial (Paris: Pearson Education, 2001) 9.
[6] “Economic regulation of airlines,” U.S. centennial of flight commission, 02 Juin 2004 <http://www.centennialofflight.gov/essay/Government_Role/Econ_Reg/POL16.htm>.
[7] Pierre Merlin, Le transport aerien (Paris: Les etudes de la documentation francaise, 2000) 18.
[8] Geoff Riley, "The European Airline Market," Tutor2u, 2003, 15 september 2004 <http://www.tutor2u.net>.
[9] “Airline industry,” Standford University, 2004, Standford, 15 Juin 2004 <http://adg.stanford.edu/aa241/intro/airlineindustry.html>.
[10] Philip Kotler, John Bowen, James Makens, Marketing for hospitality and tourism 2nd edition (New Jersey: Prentice Hall, 1999) 25.
[11] Philippe Malaval, Christophe Benearoya, Marketing aeronautique et spatial (Paris: Pearson Education, 2001) 21.
[12] “The low cost operator,” Lagarhus Aviation Consulting, 2004, 01 July 2004 <http://www.lac.no/lowcostpage.html>.
[13] Walter Freyer, Tourismus 5th edition (Munchen: Oldenbourg Verlag, 1995) 228
[14] “The low cost operator,” Lagarhus Aviation Consulting, 2004, 01 July 2004 <http://www.lac.no/lowcostpage.html>.
[15] Geoff Riley, "The European Airline Market," Tutor2u, 2003, 15 september 2004 <http://www.tutor2u.net>.
[16] Philip Kotler, John Bowen, James Makens, Marketing for hospitality and tourism 2nd edition (New Jersey: Prentice Hall, 1999) 45.
[17] Laurence Colomb de Daunant, Ita, studies & reports, (Paris: Institute of Air transport, 2002) 3-4.
[18] Philip Kotler, John Bowen, James Makens, Marketing for hospitality and tourism 2nd edition (New Jersey: Prentice Hall, 1999) 23.
[19] Rigas Doganis, The Airline business in the 21st century (London: Routledge, 2001) 62.
[20] Rigas Doganis, The Airline business in the 21st century (London: Routledge, 2001) 62.
[21] "Marketing et Reseau," Air France, 2004, 16 August 2004 <http://marketingreseau.airfrance.fr/fr/MRReperes/g_pageStandard/caracteristiques1.html>.
[22] Rigas Doganis, The Airline business in the 21st century (London: Routledge, 2001) 70.
[23] Philippe Malaval, Christophe Benearoya, Marketing aeronautique et spatial (Paris: Pearson Education, 2001) 523.
[24] "Marketing et Reseau," Air France, 2004, 16 August 2004 <http://marketingreseau.airfrance.fr/fr/MRReperes/g_pageStandard/caracteristiques1.html>.
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