Airlines

Introduction

The report will be assessing and evaluating how deregulation and the growth of low cost carriers have affected global competition and market trends in the types of products offered to customers in air travel. The report will identify the key roles of the low cost carriers and how they are affecting the global competition and the market trends by introducing their means and methods over the bigger airline industry. It will also be witnessed in the report how the airlines have come a long way from the past till now and how the industry is on a constant change due to needs and demands put up by the customers which currently is being handled by the low cost carriers in some ways.

While air travel was once a luxury only the rich could afford, the entry of more airlines serving the busiest and most profitable routes has caused airfares to plummet. Some of the airlines that will be looked at are Buzz, Go, Ryan Air, and Easy Jet. These are well known low cost airlines. This report will look sequentially at the marketing environments of the airline industry and will analyze the main forces shaping its future. It will concentrate on the impact of low-cost airlines on this industry.

Main

The airlines are relatively new as a market driven industry. In 1938, the airlines faced steep competition that was vigorous and unstable. The industry asked the government for a regulatory body to control competition. The newly formed CAB froze the industry structure and blocking out new firms, which ended up creating monopolies. The industry continued in this state despite growth in traffic, increased profits, and changing conditions. The turning point for the airline industry began in the late 1970’s when the industry needed to break free from its regulated environment. New technology and ample profits made competition a viable option. The result was the passing of the Airline Deregulation Act in 1978.

One of the large effects of deregulation was the increase in the number of carriers and increased competition. In 1978, there were 43 carriers certified for scheduled service with large aircraft. By 1983, there were over 60 new carriers since the act was passed. With the slew of new airlines, the airline industry was able to reach new markets and grow tremendously. United with the price drops, air travel became a more favorable way to travel. Today there are no close substitutes for travel over 150 miles. However the trend of an invasion of airlines eventually turned into many mergers, acquisitions, and bankruptcies in the late-1980s to early-1990s.

Still seen today, another effect of deregulation is the development of the “hub-and-spoke” network. The major airlines developed this network to efficiently manage and serve more markets with the same fleet of planes. Another advantage of the “hub-and-spoke” network is that airlines will carry the traveler from departure city to arrival city and not have to hand over customers to competing carriers. Travelers enjoyed traveling with one airline though an extra stop was required.

A marketing innovation that airlines initiated after deregulation was the frequent flyer program. Repeat customers earned points toward free tickets or upgrades. This program generated loyalty beyond service and satisfaction with travelers. Recently, the frequent flyer program extends beyond receiving points for flying. The most popular is the use of credit cards (points per pounds/dollars) and using points to purchase things other than airline tickets.

A technological advance in the industry came with the introduction of computer-reservation systems (CRS). This allowed airlines to keep track of fare and service changes. The systems allow agents to process millions of reservations a day. Today these transactions have significantly increased and with the introduction of the Internet redefined how travelers shop, purchase, and receive tickets.

According to Geneva News article low-cost carriers found not just tourism to help it establish it self in travel. They found out that what could begin as a tourist route may be quickly adopted by businesspeople. This meaning that the low cost airlines also are used by business. So the companies also get some business even during the off-seasons. These airlines help offer a cheap way to be able to get to the business places, historical area, and Interesting cities. We see in Belobaba (2003) report that Easy Jet, Europe’s leading low-cost airline. Now what helped it become such a big name in low cost air travel in EuropeGoing to Easy Jets website, they attempt to explain how they work. It can be seen that they broke it down into three things to make them a low cost airlines; The first thing is it is a ticket less airline, this cuts cost of paper and printing. The next thing they do is efficient use of airports; this means Easy Jet can make the most of its time. Easy Jet also made a few deals with airports cutting landing fees. The last thing Easy Jet has done to make its airline so low cost is there’s no such thing as a free lunch. This helps as it cut costs of food, and may help the airlines earn money on the food they sell.

In Belobaba (2003) report we see the U.S. situation with airlines. The report starts off talking about the 11/09/01 incident. Were after the attacks on the twin tower, the whole thing had negatively affected the volume of business travel and 12.5% lower than in the preceding year. The report goes on talking about the growth of low cost airlines. Reduced willingness on the part of business travelers and tourist to pay the higher airfares charged by network carriers. Also some interesting points in the report are.

“In the US, low-fare airlines have exhibited slow but steady growth since deregulation, but low-fare carriers as a group accounted for less than 7% of US domestic air passengers in 1991, compared to 81% by Major network carriers [The remaining 12% was carried by smaller regional and local carriers]. Low-fare carriers grew more rapidly in the US through the 1990s, to the point that the carried 20% of all US domestic passengers as a group in 2002.”

To look at a more world aspect of tourism we see in Christianto (2003) article that in 2000, there were 7.58 million passengers, but the number increased to 8.27 million in 2001 and to 8.96 million in 2002. Also according to the article the figures are expected to reach 10.34 million in the coming years. It goes on talking about the price war. A war between the more high class big Airlines, and many of the airlines that offer cheaper tickets. In this war they are trying to set a floor price were airlines may not go under this price. This is due to the high numbers of passengers going to low cost airlines to travel.

We are starting to see that with these low cost airlines the bigger airlines are having problems holding on to their customers. Now there are airline companies that are forced to lower their price to compete with these low cost airlines. We see British airways as one of those companies. British airways have recently launched a series of cheap flights.

In the future there is a big possibility that all these big airlines will have to lower their prices considerably. As theses low cost airlines seem to be taking all the possible clients away from these big airlines. There is also too say that these big airlines are holding on to their passengers for long distance travels. As these airlines are more comfortable and more advanced the travelers like them more. As if you have to spend a long time in an airplane you would choose the best situation.There are only a few low cost airlines that are set up. The number of airlines in general isn’t too high. We see in the U.S. for low cost airlines you have only two or three. As it’s about the same for Europe as we see airlines like Easy Jet, Ryan Air, Go, Buzz and only a few others. As for other areas it was hard to find information on cheap airlines.

Europe seems to big the biggest point of low cost airlines. In Christianto (2003) report its shown that travel between Europe has been seeing some serious growth. This alone shows that with low cost airline, there comes more tourism. There is also to say that in Europe it is convenient for people to move around for business and travel.

The first successful low-cost carrier is generally acknowledged to be Southwest Airlines in the United States, which pioneered the concept when founded in 1971 and has been profitable every year since 1973. With the advent of aviation deregulation the model spread to Europe as well, the most notable successes being Ireland’s Ryan air, which began low-fares operations in 1991, and easy Jet, formed in 1995. As of 2004, low cost carriers are now edging into Asia, led by operators such as Malaysia‘s Air Asia. Many carriers have opted to launch their own no-grills airlines, such as KLM’s Buzz and British Airways Go, but have found it difficult to avoid cannibalizing their core business.

The European airline industry is being shaken up by the presence of low-cost airlines. It is estimated that existing low-cost airlines has expanded their European market share from 5% in 2000 to 25% by 2010, as illustrated in figure 7, establishing themselves on a long-term basis which will have major effects on the European airline industry as a whole

The low cost carrier’s airline industry is having a huge impact on the global airline industry. The table below highlights how the market is migrating to a new business model:

customer behavior is changing> Customers expect internet to provide lowest possible price offer> Price becomes decisive factor:– Destination is not!

1.  low cost carrier’s develop routes according to costs
2. low cost Carriers have generated growth of aviation in this segment
3. People fly who would not have otherwise flown

Market structure is changing> Erosion of traditional “national” markets:> Segmentation of market into:

• low cost on local markets
•  Regional niche markets
• International/alliance markets

Greater flexibility and simplicity of traditional model> Established airlines are questioning their models.> Some have moved into the no-frills segment.
Flexible adaptation of traditional pricing models> Many full-service carriers offer simple and low prices.
Marketing focus on the actual product offered> Some carriers are marketing frills aggressively.

The SWOT analysis is used to analyse the internal and external view of the low-cost airline industry with a view to analyse the situation of the no-frills model upon today’s world wide global industry.

Strengthes

1. Simple fare structureRelative low unit costs
2. Multi-base network offering point-to-point service
3. Strong corporate culture i.e. Easy Jet
4. High commitment to safety and customer services
5. Efficient use of airports with rapid turnaround times
6. Highly profitable with rising demand

Weaknesses

1. Customer expectations of service are increasingHigh aircraft utilisation means more vulnerable to delays
2. Prices are low, but they are not as low as they could be.
3. Weak brand loyalty between low-cost airlines and passengers
4. Growth in size means complexity
5. Seasonal variations and cyclical demand
6. Affected by economic downturns

Opportunities

1. Europe is a land of opportunity for low-cost airlinesSignificant growth of internet bookings expected – 17% annual compound growth rate of Internet user population
2. Increase in Britons buying second homes abroad
3. Outsourcing of IT functions such as call centres in India
4. Airport expansion

Threats

1. Flag carriers imitate low-cost business model offering ‘cheaper flights to people booking well in advance’BA, as well as other airlines has redesigned its website to make online booking easier
2. New EU legislation travel compensation laws
3. Air passenger duty to rise ?5-?15 on economy tickets
4. Some customers prefer to book through a travel agent
5. The development of rail network within the EU
6. Video conferencing may take an increasing share of the business clientele
7. Threat of terrorism e.g. bombings in Madrid
8. Lack of take-off and landing slots

Conclusion

Since deregulation arrived, budget carriers such as Easy Jet and Ryan air have grown to account for around a fifth of European air travel, thriving after the events of September 11th; their market share has grown rapidly. Observers of the European airline industry have long believed that the flag-carrier system has created too many airlines and led to inefficient excess capacity. The suggested remedy is consolidation of the European industry via cross-border mergers, an avenue that is now open as a result of EU deregulation. The first major consolidation event is currently with the proposed Air France-KLM merger recently approved by EU regulators.

It is likely too that the low-cost sector will experience consolidation leaving Easy Jet and Ryan air as the two main players. While the big airlines consolidate, trying to win more premium business traffic, the cheap fares airlines will fight ruthlessly for leisure traffic. British Airways has already withdrawn from European routes where it makes a loss.

In the longer term, airlines are looking to join forces in the context of the prospects of the liberalization of air traffic between the United Statesand Europe, which is expected to lead to fierce competition on both sides of the Atlantic.

Two things matter to airlines – the amount of empty seats on their planes and the cost of getting those planes into the air. Reducing those two factors leads to profits, and in recent years, the European industry has been struggling.

The fear of terrorism and disruption in the world’s aviation system has simply made things much worse. And looking to the future of European aviation, it seems that the issues associated with the environment will be addressed severely, possibly leading to taxation on the one thing supporting airline growth; Kerosene. Furthermore, the matter of over-capacity, which has lead to a lack of taking-off and landing slots, could hinder further growth and drive up prices for the low-cost airlines.

While the full-service carriers are struggling to get back to the traffic levels they enjoyed in 2000, the budget airlines are growing by more than 10 per cent a year. The expansion of the EU provided vast opportunities for the low-cost sector but for the budget airline industry to thrive; low-cost really does have to mean low-cost.

References and Bibliography

1. Graham, A. (2009) 3RD edition Managing airports: an international perspective
2. Definitions of deregulation from http://www.free-definition.com/Deregulation.html
3. Wensveen, J. and Leick, R. (2009) the long-haul low-cost carrier: A unique business model, Journal of Air Transport Management Volume 15, Issue 3,
4. Hanlon, J.P. (2007) 3RD edition Global Airline: competition in transnational industry
5. Morrison, S. and Winston, C (1986). The Economic Effects of Airline Deregulation
6. Belobaba, P. (2003) The Airline Industry and Current Challenges.
7. British Airways. (2003). Can be obtained at; http://www.britishairways.co.uk
8. Burghouwt, G. and Huys, M. (2003). Deregulation and the Consequences for Airport Planning ORL website: http://www.orl.arch.ethz.ch/dis.PDF
9. Christianto, I. (2003). Airlines earn their wings in increasingly crowded skies
10. Easy-jet. Company website. Accessed May 10, 2004 from http://www.easyjet.com
11. Easy-Jet. (2003). How We Offer Such Low Fares. Can be obtained at; http://www.easyjet.com/EN/about/aboutourfares.html
12. Ryan air.. Progress Report. Can be obtained at; http://www.ryanair.co.uk
13. http://www.guardian.co.uk
14. http://www.timesonline.co.uk
15. Two UK low-cost air lines open up new direct links between North-East England and Geneva. – Geneva News

Advertising brief – Bill Abdul Hak

Client: Etihad Airlines Background to the product and Ad campaign

Introduction of the brand

Etihad Airline is one of the leading international aircrafts, and in just five years they have flown more than 17 million guests to more than 50 destinations across the Middle East, Africa, Australia, Europe, North America and Asia. With their multi national campaigns , Etihad is ranked as the number one airline. Etihad Airways has received over 30 awards since its inauguration in 2003.It has a four star rating by Skytrax and a five star rating for its first and business class product.

It is currently voted the number 1 airline for having the best business class in the world. It has also dominated awards for having the best first class in the world, winning it for the second time in the last two years; which were awarded by the WTA – ‘World Travel Awards’ association.

History Etihad Airways which means (unity) was established as the national airline of the United Arab Emirates in July 2003 by Royal (Amir) Decree issued by Shikh Khalifa Bin Zaid Alnahyan.It started with an initial paid-up capital of AUD 160 million. Services were launched with a ceremonial flight to Al Ain which is a state in UAE on 5 November 2003. On 12 November 2003, Etihad commenced commercial operations with the launch of services to Beirut, and has gone on to become the fastest growing airline in the history of commercial aviation. ?In June 2004, the airline made an AUD2.

6-billion order for new aircraft in 2004, which included five Boeing 777-300ERs and 24 Airbus aircraft, including four A380-800s.The airline announced the largest aircraft order in commercial aviation history at Farnborough International Air show in 2008, for up to 205 aircraft – 100 firm orders, 55 options and 50 purchase rights. As of May 2010, the airline operates services to 61 destinations around the world from its home base in Abu Dhabi. In 2008 Etihad carried more than 6 million passengers, compared to 4. 6 million in 2007. In 2009, seat factor was 74 per cent, holding steady on the 2008 level. Etihad Airlines , also sponsors multi sports events , locally and internationally.

In the year 2000 , Etihad sponsored the Melbourne premiere and multi purpose sports venue ( Etihad Stadium). Etihad Stadium branding features on giant landmark signs on the outside of the building and on all directional, scoreboard and perimeter advertising signage throughout the interior of the Stadium. In 2008 , it also sponsored the Ferrari F1 Team , formula 1 world championship holders. Also, in December 2007 it became the title sponsor of the Formula One Abu Dhabi Grand Prix .The deal was the F1 race in the UAE’s capital city named the Formula One Etihad Airways Abu Dhabi Grand Prix until 2011. -Australian Service History. Etihad Airways, has increased the destinations available for passengers traveling to Australia by expanding its code share agreement with Qantas.

As part of the agreement, the Etihad two-letter ‘EY’ code is now placed on flights from Sydney to Ayers Rock (Uluru), Alice Springs, Canberra, Hobart and Melbourne and flights from Brisbane to Cairns.The expansion of this codeshare agreement with Qantas reaffirms the commitment to passengers around the world who are flying to Australia and want to visit towns and cities outside the key gateways. The new routes are in addition to the services that were part of the initial codeshare agreement, which commenced in March 2009 and include flights between Sydney and Brisbane, Sydney and Cairns, Sydney and Adelaide, and Melbourne and Adelaide, as well as Sydney to Auckland in New Zealand.More over , recently, Etihad Airways has received interim authorization from the Australian Competition and Consumer Commission (ACCC) for its proposed strategic alliance with the Virgin Blue Group. The ACCC approval means Etihad Airways and Virgin Blue will offer customers a new combined global flight network, connecting passengers between Europe, the Middle East, Asia, Australia and North America. The approval allows Etihad and Virgin Blue to sell, market and distribute the “joint product” to customers as well as publish aligned flight schedules, which will cover more than 100 global destinations. Positioning in Australia. With these agreements , Etihad Airlines ensures that it is the best airline that covers the entire middle east and the rest of the globe , making sure that it is the best carrier to take , especially if flying from Australia.

Marketing objectives.

To increase sales of airline tickets by 25% by the end of August 2011

Communication objective.

To increase awareness by 20 % by the end of January 2011

Target Audience. Demographics.

M/F 16 and up working or supported by a working family with a medium to high income

Psychographics.

The target market are those who love to experience different cultures and different locations. Concerned about safety and security , and don’t mind paying for leisure services, and don’t like to waste time till they get to their destination

Behavioral and Usage.

It’s for those who like to travel around , work to save money , and engage in different activities.

Current Advertising activities.

The current advertising shows different passengers boarding the aircraft , and each of these passengers is treated very personally depending on their personal favorite lifestyle and preference. With a voice over stating that this passenger likes it private space , and the other likes it dreamy , where another prefers it laid back and some like to dream on their own.

Finalizing the ad with an open question to suit you preference saying ( how would you like to fly with the best? ) and ending it with the slogan Etihad Airways, the world’s leading airline. Also, the Formula One Campaigns that is being held in Abu Dhabi sponsored by Etihad Airlines , with F1 Logos on airplanes , tickets and website.

Competition.

In general , every airline is a competitor for Etihad Airlines since they cover all destinations , but specifically a fierce competitor for Etihad is Emirates Airlines that covers almost same destinations , but an advantage for Etihad is that it home city is the capitol which is Abu Dhabi , unlike Emirates that flies from Dubai , and Etihad has slightly better ticket prices.

Brand Character.

Etihad image is that of a luxury and convenience. The brand is known for being reliable , luxurious, affordable, and personalized service is offered.

Desired brand image.

The desired brand image for Etihad will be a combination of luxury and comfort and relaxing . A vacation starts from departure , ensuring safety luxury and comfort till you get back home.

Positioning.

The Etihad service brings quality service into your holiday. Positioned in the meduim high end of the market, the Service is unique pesronilezed with different variations from economy to business to first class.

Look and Feel

The tone and manner of Etihad will highlight the brands personality and values. The tone will be smooth and elegant:

SWOT AnalysisStrengths :

1. Strong name known to public
2. Strong market position
3. Great historical background with no accidents
4. It’s head quarters ( Abu Dhabi) is in the middle of all Mideast destinations.
5. Flies to more than 60 destination.
6. Best business class in the world.
7. Direct flights to destinations

Weakness:

1. Ticket prices are expensive.
2. Economy class seats are small
3. Baggage allowance is only 20 kg.
4. Flights can book out quickly

Opportunities:

1. Airline could become number one.
2. Create new seating spaces.
3. Affiliate a full service air and land like car and hotel. link with other airlines to destinations they don’t reach

Threats:

1. Emirates airline is it’s fierce competitor .
2. Natural aircraft disasters can make people fly less.
3. Economical crises like oil prices going up can increase ticket prices.

Creative Brief

Role of Advertising.

Etihad Airline is one of the leading international aircrafts, and in just five years they have flown more than 17 million Guests to more than 50 destinations across the Middle East, Africa, Australia, Europe, North America and Asia. With their multi national campaigns, Etihad is ranked as the number one airline.

Target Audience:

•  Demographics: M/F 16 and up working or supported by a working family with a medium to high income.
• Psychographics. The target market are those who love to experience different cultures and different locations. Concerned about safety and security , and don’t mind paying for leisure services, and don’t like to waste time till they get to their destination.
• Behavior and Usage. It’s for those who like to travel around , work to save money , and engage in different activities.
• Key Consumer Insight.I want a good price for an air ticket , and a direct flight without having to change flights and waste time to get to my destination, without compromising on safety and luxury 3. USP. vacation starts from point of departure , our service is personalized to suit your preference and luxury is generously offered.

Desired positioning :

The Etihad service brings quality service into your holiday. Positioned in the medium high end of the market, the Service is unique personalized with different variations from economy to business to first class.

Tone and manner:

The tone and manner of Etihad will highlight the brands personality and values. The tone will be smooth and elegant.

Creative strategy:

Beginning of summer season , when people have free time to travel and explore different nations.

Media strategy :

our media strategy should cover all mediums in terms of T. V.

Radio , Print Ads , Bill Boards and specifically social Net working.

Timing:

The timing must be mid December 2011 till end of February 2012.

Mandatory’s :

Logo , and trademarks of Etihad’s like uniform and friendliness and hospitality

Which trends and developments can be identified in the current airline industry that 5 APPENDIX Appendix I Appendix II Appendix Ill Appendix IV 1 Introduction 19 I en Lorene Ministry Is a large Ana growing Industry wanly Is, Decease AT ten great overcharging environment it operates in, forced to constantly adapt and enhance equines models in order to survive, compete and to generate profits. In this context this report will investigate the developments and trends and their importance in the airline industry that influence its future the most.

In accordance with this aim the Problem Statement reads as followed: Which trends and developments in the airline industry will have the most impact on its future? To clarify the context of the widespread and complex airline industry and to provide an overview, firstly the most relevant characteristics of the airline industry will be discussed, so it will be clarified in what environment it operates in and what factors it s influenced by. Moreover, due to the fact that the whole airline industry is in constant and often protracted development, also the past of the industry has to be considered.

Therefore past trends and developments and how they influence the industry will be examined. Under consideration of past developments and trends that shaped the current situation of the airline industry, present trends and developments will be discussed. This facilitates an outlook on the future, which will be given on the basis and resulting from the current trends and developments discussed. To clarify these matters of concern the research questions have been formulated as follows: 1. What are the characteristics of the global airline industry? 2.

Which were the most important trends and developments in the airline industries’ past shaping the current situation? 3. Which trends and developments can be identified in the current airline industry that will shape its future? Finally the problem statement will be answered on the basis of each research questions’ outcome. This report solely comprises secondary research. The most relevant information will selectively be drawn from Arias Dogging’ “The Airline Business”, the airline news source as well as from topic related articles. 2 What are the characteristics of the airline industry? What are the characteristics of the airline industry?

In order to understand the complexity and the contradictory as well as widespread nature of the airline industry and therefore its trends and developments, this section wall glee an Instant Into ten most relevant Theatres Tanat contractible tens Industry, with a short outline of influencing and most significant factors will be given. Dynamic growth industry – Due to the constant development towards a globalizes oral, the innovation and the fast progress with new technologies as well as the increased income and greater leisure time of people, the travel demand increased especially vast in the post 1945 (DATA, AAA).

Still the further development of the industry environment facilitates growth in demand. Even though the demand for air traffic seems to follow the development of the gross domestic product (GAP), fluctuations which can be associated with factors such as an economic crisis are the exception on the overall rising demand and therefore growth of the airline industry (Diagnosis, 2006). Closely linked to economy – The airline industry can be described as highly cyclical since it has a high sensitivity to the economic cycle (Diagnosis, 2006).

The profit margins of the airline industry are rising and falling in accordance with the World’s economic growth which again is impacted by unforeseen factors like a crisis (see appendix l). So demand for air traffic decreases during times of economic distress or simply when the growth slows down. This causes overcapacity and therefore lower fares and yields. The effects of the change in the industry, however, might show lagged in time. Also the factor causing the industry downturn can intensify or lengthen it (Diagnosis, 2006).

High fixed costs and marginal profitability – Also characterizing features of the airline industry are the generally low profit margins and high fixed costs. The fixed costs manly results from personnel and fuel. The low profit margins arise from the circumstance that there is no significant variation between the expenses of an aircraft flight and the number of carried passengers. Therefore already a small change in passenger numbers can negatively impact the financial result (Diagnosis, 006).

Dependence on oil prices – As already mentioned the fuel prices are one of the two greatest fixed costs in the airline industry. As the aviation fuel price is closely linked to the oil price, the airline industry is highly dependent on it. An increase of oil prices would mean almost immediate price increase on fuel, what again could negatively impact the financial results of the industry. As fuel is crucial to the aviation business and the oil price is outside of direct control, this dependence on an uncertain factor creates a major challenge for the industry (Diagnosis, 2006).

Restricted by regulations – Besides technical and safety regulations with are enforced by different instances, like for example the Federal Aviation Administration (FAA) that restricts the industry operations, also the economic benefit is reduced by poorly designed regulations and high taxation’s that hinder the airlines to connect. Also governmental policies discourage crossbred consolidation (DATA, AAA). Due to the fact that the airline industry is the most international industry in terms of operations, but quite national in terms of control and ownership, makes it a paradox (Diagnosis,

Highly competitive – As stated by Diagnosis (2006) the airline industry is highly competitive and influenced by several factors. Besides the necessity to adapt pricing and keeping track of competitions actions, airlines also must consider the customers demand, the routes that are flown and the brand awareness and brand identity to remain competitive. Moreover airlines might become part of alliances to gain advantages, also in terms of bypassing regulation (mentioned above) that inhibit competitiveness (Diagnosis, 2006).

Summing up it becomes clear that the airline industry is a growing industry that is hardhearted by high fixed costs and marginal profitability as well as a financial outcome closely linked to the economic cycle. Those features combined with the dependence on oil prices, make the airline industry instable and constantly threatened by uncertainty. High competitiveness demands constant adoption and development in accordance with competitions operations and the changing environment within the highly regulated mostly nationally controlled industry framework. Which were the most important trends and developments in the airline industry Which were the most important trends and developments in the airline industry In order to be able to understand the current situation of the airline industry and to further gain insight into future trends and developments it needs to be understood, that the whole airline industry is in constant and often protracted development. Therefore this section will deal with those developments and trends, which were the most important in the past years.

Deregulation ; Liberation’s – As already mentioned the airline industry is a paradox since even though it is the most international industry in operational terms, it is quite national in terms of ownership and control. However, it can be stated that the growing realization that politically controlled economy did not longer served public interest was triggering deregulation. It describes the process of removing the governmental restrictions on market entry, exit as well as pricing of airline services, mergers and customer issues (Smith Jar. Cox, n. D. ). The deregulation being a part of the bigger global liberalizing trend started 1978 in the US with the Airline Deregulation Act granting foreign states airline traffic rights. The aim was to provide highest customer benefits by preserving and extending competition amongst airlines in a fair market (Diagnosis, 2006). The global liberation’s trend was shaped by the call for more liberal rules and regulations of international air transport (Diagnosis, 2006).

In order to facilitate an effective liberalized airline industry Air Transport Agreements had to be made Detente two or more matrons (Deliberate or multilateral agreements) breakthrough in this matter was the open sky agreement between the Netherlands and the US, granting greater freedom in air traffic. For example now the Netherlands were allowed to carry revenue traffic between the US and third countries if the revive was starting and ending in their home country. Also Europe took liberation’s measured with the Third package approaching differently than the US.

Instead of focusing on bilateral agreements the EX. allowed open route access to foreign counties without price controls or restrictions when determining fares and cargo tariffs for a whole region. Also cross-border ownership was allowed, which for example enabled KILL to take over and operate a British airline (Diagnosis, 2006). Over the years the open sky agreements evolved further in terms of freedom from many rotational forms of economic regulations and quantity (Smith Jar. & Cox, n. D. ).

According to the U. S. Department of State (2013) the US achieved Open Skies with over 100 partners, amongst which since 2007 also the EX. numbers (DATA, Bibb). Up to this day deregulation and liberation’s in combination with intense competition caused a change in management strategies and therefore a change in the airline industry. Market exit, diversification into new products, expanding into new markets or specializing in niche markets were the reactions to this new development (DATA, 2007).

Due to the fact that the industry be- amen safer, more accessible and more efficient than before and the circumstance that other industries also already demonstrate the benefits of liberation’s (such as lower prices, increased output and choice, improved quality of customer service, greater commercial freedom, that allows to increase productivity and efficiency for providers etc. ), the DATA (2007) argues that further and full liberation’s is required in order to maximize the potential benefits.

Prevarication of state owned airlines and airports – Because the liberation’s and deregulation forced the airlines to adapt ewe market practices in order to become more competitive and customer-oriented the trend towards prevarication of state-owned airlines emerged. Stationed airlines were suffering from the so called Distress State Airline Syndrome, which is characterized by financial difficulties and therefore substantial losses, bureaucratic, indecisive management and over-plasticization slowing down the reaction for example to the crisis in 2000 – 2004.

Moreover decision influencing strong unions, over-staffing and low labor costs resulting from unrealistic or uncompetitive terms and conditions or inefficient HER management are negative influences. Also poor service quality and organizational culture, poor marketing and distribution, outdated processes, made the state-owned airlines an obstacle regarding economic growth, through increased productivity and efficiency. The solution prevarication however, has financial reconstruction, cost reduction and network and fleet rationalization as precondition (Diagnosis, 2006).

Since a whole recovery strategy and its implementation needs time, the process of prevarication is a protracted development, there are still many state-owned alertness today (Dossals, 2 ) Because even thong tense also as a program to privatized airports since 1997, in which no one participated, the airport sector has not structurally transformed as the airline sector (DATA, Bibb). Therefore only few airports are privatized today. In the EX. for example the number of privatized airports amounts only 9%.

However the DATA (Bibb) argues that airports can benefit from prevarication the same way the airline industry does, since more competition and customer orientation can be facilitated. Approach of alliances – In times of the crisis alliances were forged most actively, since they were driven by worsening financial performances (Dogging, 2006). Alliances are a logical response to uncertainty focusing on the key driver being to generate more revenue.

Also they proved their worth, as simply buying in second-tier carriers have shown to be difficult due to incompatibility of cultures or management style or Just the dominance of one carrier. There are two types of alliances – the commercial alliance, in which airlines operate with independent assets and the strategic alliance, which is characterized by greater integration and co-mingling of assets (see appendix II). In the beginning most alliances were of bilateral nature that made agreements to serve specific needs mainly for marketing, so commercially motivated benefits. However, since British Airlines and American Airlines Joined in the narrowed alliance in 1998 this kind of alliances approached until they became global. By 2004 it was normal to abandon bilateral alliances for global ones, which became most important, because of the interlinked networks of more airlines operation in different countries or even continents (Dogging, 2006). Today the tree biggest global alliances are Star Alliance, narrowed and Steam (Travel Industry Wire, AAA) and they generated about 56% of the world’s passenger-SMS in 2003 (Diagnosis, 2006).

Besides the boost of revenue, benefits for the members include expanded networks and frequencies, which customers appreciate and greater value and service for the same or lower prices. With this approach of alliances also competition amongst airlines turned into competition amongst alliances. Also the strategic importance of alliances emerged since growing airlines like those from the East can become a valuable asset for them (narrowed, 2013). Approach of Low-cost airlines – While in 1994 less than 3 million passengers traveled with low-cost airlines, the passenger numbers in 1999 already amounted about 17. Lion and even 100 million in 2004. This example illustrates the success of the low-cost carriers and therefore their importance for changes and developments in the industry. The most remarkable fact was that even during the crisis the low-cost carries not only grew but also were they profitable. No frills low- cost airlines like for ex. Ryan have changed the nature of competition to a great extent in the short haul flight. High frequencies and punctuality as well as low fares, facilitated by cost cuttings and savings where it is possible, make low-cost carriers attractive to customers.

Costs are saved for example by flying to secondary airports with lower fares, operation of only one type of fleet to lower maintenance costs, canapé lealer Docking Day sloping travel agents, snorted average sector length, easier cost management because of point-to point flights only, or less seating space facilitating more seats per flight. Due to this intense competition of low-cost carriers legacy carriers flying the same short-haul routes were forced to respond or fail.

Overcapacity in 2004 resulting from legacy carriers switching to low-cost or new entries in the low-cost market posed a new challenge as well as the maturing of the owe-cost industry (Diagnosis, 2006). The gap between low-cost and legacy carriers is due to the premium service. However, the legacy carriers were working towards more cost efficiency as well to remain competitive with the low-cost carriers on short haul routes (DATA, 2006). Rise of Middle East / Asian Pacific airlines – While most of the airline industry was busy with responding to changed environments with consolidations, alliances, reductions of capacity etc. The three big airlines of gulf aviation (Emirates, Edited Airways and Qatar Airways) started a new course. In a memorably short period passengers, aircrafts and destinations were added pursuing a new vision for air transportation. This was supported by the friendlier regulatory environment, the states’ spending in increasing infrastructure (f. Ex. Expansion or building of new airports) as well as bigger reliable long-haul aircrafts and integrated strategies between 7 airports, airlines, the financial community and some government agencies.

In September 2012 Qatar Airways announced to Join narrowed while Saudi and Middle East Airlines were Joining Steam and Emirates and Quanta’s announced global partnership. Other agreements for code sharing were made as well, for example between Edited and the Maldives, Bangladesh, Australia the Seychelles and Pakistan (Airline leader, n. D. A). Besides the factors mentioned above excellent services and highly competitive pricing for non-stop long-haul flights provide a positive branding and increase demand (Ashtray, AAA).

According to DATA the Middle East are currently still “growing market share with particularly strong traffic growth on routes to Europe and Asia” (DATA, 2009). Also the Asian Pacific airlines have shown market growth despite of political, economic, natural or other uncertainties. With airlines offering low fares and additional services (hybrid model) leading the way, the airline market of this region was the fastest growing in the world in 2012 (Travel Industry Wire, AAA). The greatest contribution to this comes from China and India.

The increase in traveler numbers mostly derives from the countries’ growing middle class that travels domestically as well as internationally. Since the region has become a large market it has become crucial for airlines to be part of this growth (abacus, 2012). Importance of controlling costs – During the crisis of 1990 – 1993 when the airline industry was impacted by the negative changes, the airlines realized that controlling labor costs, being a large single cost category, is the key to cost control.

Moreover it is a critical factor since it is also the main differentiator between airlines. A direct way of controlling labor costs is simply to reduce staff numbers. New terms Ana controls can Nell to adopt new practices to Increase Delightedly Ana proactively to compensate stuff cut backs. Another option is to launch low-cost subsidiaries like for ex. Delta Airlines did in response to the greater competition of low-cost carriers. Also outsourcing is commonly used practice.

Besides cost cuttings mentioned above a second strategy, namely reconstructing the whole labor costs to a lower base could ensure long term cost reduction by operating with performance-related bonuses like a lot of low-cost airlines do (Diagnosis, 2006). Apart from the labor costs, savings or reductions can also be facilitated in other categories like for instance maintenance. Here costs can be saved by operating one aircraft type only, like Southwest Airlines who operate Boeing 747 (Diagnosis, 2006).

Also hedging fuel is a common practice to avoid having higher costs when oil prices sis (Airline Leader, n. D. B). Moreover higher efficiency can facilitate cost savings. For ex. Ryan increased the seating density in their aircrafts by reducing space between seats (Diagnosis, 2006). Technology also plays an important role as it could facilitate cost savings in the industry. An example for cost saving possibilities with technology is booking without printed tickets. Since 2008 the industry completely moved to electronic ticketing (DATA, 2008). The trend of cost control that is caused by intensive competition still is and will be a major influence the airline industry and needed to achieve high yields, the airlines reparability and competitiveness in the ever-changing environment (Diagnosis, 2006). Integration of technology – Since IT is underpinning every operation in the airline industry it can serve as powerful management tool that helps to efficiently integrate functions, reduce costs and increases revenue generation (Diagnosis, 2006). The introduction of IP to the industry enabled many new applications like online reservation systems (TIPTOP, 2006).

Therefore and because of the need to cut distribution costs, e-commerce also gained importance with the progressing of technology. E-commerce is not only about ticketing but it also fundamentally changes he whole airlines operations, the relationship amongst airlines as well as to their suppliers and customers (Diagnosis, 2006). 2005 for example the Star alliances asked Amadeus, an airline IT system provider to build a common IT platform for the members of the alliance, which provides customer management solutions, so offers full reservations, departure and inventory control capabilities.

Moreover it facilitates faster and enhanced integration with alliance partners (Amadeus, 2014). Besides the benefits of interactive communication and distribution e-commerce also allowed more dynamic pricing (making it easier to respond to changing market notations) as well as to bypass travel agents, who are decreasingly able to influence the customers’ choice, due the shift in culture approaching with technology and the cheaper availability of computers and internet.

The market power of the customers is constantly growing because of all the information they can access. Therefore enhanced customer service is of great importance. This is why today most of the alertness’ Docking pages also offer toner products Ana services Desires Talents hotel booking or car rental, so do cross selling for ancillary revenues and customer loyalty (Diagnosis, 2006). Also the practice of frequent flyer programs is used by many airlines, like for example United Airlines, to retain customer loyalty (United, 2014).

Considering all the above mentioned trends and developments it can be concluded that today’s airline industry worldwide is shaped by increased competition and greater importance of customer orientation in a more liberal industry with greater freedom in air traffic, what challenges old business models. Considering the high uncertainty and vulnerability of the industry to global or local shocks, cost control, increasing efficiency and constant integration of commerce and technology in general have a major part in this.

To achieve profitability and efficient operation airlines worldwide need to constantly rethink and enhance their business model. Carriers are forced to adapt to the changed conditions coming up with innovative business plans or vanish from the industry. New types of carriers with more flexible business plans have advantage over the carriers with operations based on legacy. Enhanced infrastructure and increasing demand in a friendlier regulatory environment facilitate the continuous increase of 9 rake share of the Middle East and Asia Pacific airlines.

The offering of high value for relatively low fares with extending networks on domestic as well as international flights influences the industry as it starts to excel simple low-cost carriers operation that revolutionized the industry before and could essentially impact alliances stability. 4 Which trends and developments can be identified in the current airline industry will shape its future? Having an understanding of the past trends and developments shaping the current situation of the airline industry, this section will now deal with the current politeness and trends in the industry.

This will facilitate an outlook on the future of the airline industry, its operations and what it could look like. The outlook will be given on the basis and resulting from the current trends and developments Cost control / efficiency – Since the price of airlines’ offers remains a key competitive Tactic wanly Is major eternal Day non-controllable Doctors Like ten Duel price, slow economic growth or labor costs – not only for low-cost carriers but for every airline controlling costs is a major driver that needs to be further integrated in the equines strategy.

The focus on cost reduction and savings in order to facilitate profitability is also still pushing more efficient operations. Especially for Europe with its stuttering economy and the US struggling for traction risk reductions in terms of higher efficiency and cost control has a high priority (CAP, AAA). Fuel hedging to avoiding uncertainty on short-term or reducing capacity on even marginal profitable routes and higher load factors commonly in combination with higher yields are able to make operations profitable.

However, these measures taken seem to have almost cached their peak, as it is not able to compensate another rise in fuel (CAP, AAA). To nevertheless control costs as far as possible now one focus lies on increasing fuel efficiency. An example here is Alaska Airlines that used new technologies to increase their fuel performance with the acquisition of the most fuel efficient aircrafts Boeing 737 and Bombardier QUA. Even though it is an investment, it will benefit the company on the long run (Travel Industry Wire, Bibb).

As the first airline United Airlines Just recently invested into fuel-efficient split-scimitar winglets (Travel Wire Industry, AAA). A private Indian airline called go air even plans to only hire female stews because they weigh less it will reduce the flight weight, and as a consequence lower fuel costs on the long haul (Hotel News Resource, 2013). How strange this action might appear, it derives from the condition that in proportion the fuel costs are so high for airlines that it is barely worth the effort to focus on not fuel related cost cutting measures (CAP, AAA).

Due to these developments and since single fuel efficiency measures are not enough to maintain or improve profitability, airlines eave to draw on additional sources to boost revenue such as raised fares and ancillary services (Travel Industry Wire, coca). Importance of Customer Relationship Management (CRM) / technology changing travel experience – As the ever- approaching technology changed the game of the airline industry by creating a customer who is socially as’. . Y, the focus on the customer is of growing importance. Search engines, travel websites or also online travel agents make it easy for the price- sensitive 11 customer to find the best flight, which endangers customer loyalty and therewith the airlines revenues (Travel Industry Wire, 20th). Moreover studies have shown that the travelers’ choice is not only driven by prices but also by attributes of the product, schedule, individualistic and customer service.

Also are customers that made an unsatisfying experience less likely to choose again for the same airline. Therefore Customer Relationship Management (CRM) aims on creating and/or increasing customer satisfaction and customer loyalty (Saber, 2009). As already mentioned the frequent flyer program, awarding customers for using a certain airlines and collecting their data, is a commonly used approach to gain customer information.

Company Background AirAsia Berhad as know as AirAsia is a Malaysian low-cost airline. It operates scheduled domestic and international uflights and is Asia’s largest low fare, no frills airline. AirAsia pioneered low cost travelling in Asia. The airline was established in 1993 and started operations on 18 November 1996. A government-owned conglomerate DRB-Hicom originally founded it. On 2 December 2001, the heavily-indebted airline was purchased by former Time Warner executive Tony Fernandes’s company Tune Air Sdn Bhd.

AirAsia is the first airline in the region to implement fully ticketless travel and unassigned seats. However, as of 5 February 2009, AirAsia has implemented allocated seatings across all AirAsia flights, including in their sister airlines, Indonesia AirAsia and Thai AirAsia. In 2003, AirAsia opened a second hub at Senai International Airport in Johor Bahru near Singapore and launched its first international flight to Bangkok. AirAsia has since started a Thai subsidiary, added Singapore itself to the destination list, and commenced flights to Indonesia.

Flights to Macau started in June 2004, while flights to Mainland China (Xiamen) and the Philippines (Manila) started in April 2005. Flights to Vietnam and Cambodia followed later in 2005 and to Brunei and Myanmar in 2006, the latter by Thai AirAsia. Its main base is the Low Cost Carrier Terminal (LCCT) at Kuala Lumpur International Airport (KLIA). LCCT will initially handle 10 million passengers a year. Its affiliate airlines Thai AirAsia and Indonesia AirAsia have hubs at Suvarnabhumi Airport, Thailand and Soekarno-Hatta International Airport, Indonesia, respectively.

The airline is also considering founding Hong Kong AirAsia in the future. AirAsia’s registered office is in Petaling Jaya, Selangor while its head office is on the grounds of Kuala Lumpur International Airport in Sepang, Selangor. AirAsia operates with the world’s lowest unit cost of US$0. 023/ASK and a passenger break-even load factor of 52%. It has hedged 100% of its fuel requirements for the next three years, achieves an aircraft turnaround time of 25 minutes, has a crew productivity level that is triple that of Malaysia

Airlines and achieves an average aircraft utilisation rate of 13 hours a day. AirAsia is currently the largest single customer of the Airbus A320. AirAsia “Rock India” Campaign This new development is subsequent to AirAsia’s huge success of Tiruchirapplalli (Trichy) followed-by Kolkata, Kochi and Thiruvananthapuram (Trivandrum) recording an average of 80% load factor on all four existing routes. Thus, these new services will not only complement AirAsia’s aggressive growth in India, but is also feeding more traffic into the country.

The reason why AirAsia is choosing India market is because India market is second only to China in growth, as the India market is booming AirAsia has decided extending its footprint with the launch of its direct flights to 6 new routes in the first quarter of 2010. This new services to key metro cities include Chennai, Bangalore, Hyderabad, Mumbai and New Delhi from Kuala Lumpur and from Penang to Chennai. It is also noteworthy to highlight that AirAsia is the only airline from Malaysia which will be flying to Bangalore and Hyderabad from Kuala Lumpur and from Penang to Chennai.

The Chennai, Bangalore and Hyderabad sectors will be serviced by AirAsia’s A320 aircrafts, Mumbai and Delhi will be served by its long-haul affiliate, AirAsia X via its new Airbus A330 fleet. AirAsia is the only airline which connects to the most points in India from Malaysia with a total of 148 flights weekly. Segmentation To promote India tourism sport and stimulate new travel demands and further tap markets AirAsia is focus on working adult, families and backpackers.

Especially to young working adults and families, to travel to Malaysia and thereafter use Kuala Lumpur as a gateway to over 130 routes in Asia, that includes regional ASEAN cities or long-haul sectors serviced by AirAsia X. And to achieve AirAsia objective “Now everyone can fly” AirAsia will support this by liberalizing the air travel with undisputed low-fares, opening-up the India market to the world and support businesses and more. Database Marketing Approximately 60% of overall bookings are made online through AirAsia website.

The remaining 40% of bookings are done through Nationwide Call Centre, Preferred Travel Agents, AirAsia’s Airport Stations and Sales Offices. Consumers who choose online purchase ticket have to fill up name, gender, occupation and others information and for consumers who wish to get latest news or promotion from AirAsia they can create an account and become a member of AirAsia. With all database that collect from online booking and sales office, AirAsia able to track their customer and segment them by Demographic segmentation. With these databases AirAsia able to retain consumer by sending E-gift voucher for them. The E-Gift Voucher is an innovative gift for all occasions as well as being a much-appreciated corporate gift for its high perceived value. ) Direct Marketing Offer Planning While everyone is focusing on China market, AirAsia develop and create a wonderful strategy and come out with special offering to their customer to successfully in their business by taken a first move advantage extends their business to India and have the advantage of being the first low cost airline in India with using Price Leadership Strategy to attract consumer form Malaysia or India.

This allow it to establish itself before competition increases in this low cost segment, apart from competition that already exists across segments (low cost vs full service carriers). This is a major strength, as AirAsia will be laying down the rules and frameworks for the industry in a manner that suits its business and operational model. This also bring cross selling to AirAsia. To add value, AirAsia, under GoHoliday at www. airasiago. com, also offers some great online hotel deals to stretch the dollar where guests can choose their holiday lodgings from over 50,000 hotels, tour packages and ground transfers.

Guests are also encouraged to purchase food, supersize their baggage, hot seats online to enjoy more discounts and savings through www. airasia. com. AirAsia’s low-cost model, with its ultra low fares and modern fleet of comfortable and spacious aircraft, is undoubtedly an attractive consumer proposition, strong enough to compete with premium airlines. At any time after a booking has been made AirAsia may change their schedules or cancel, terminate, divert, postpone reschedule or delay any flight where they reasonably consider this to be justified by circumstances beyond their control or for reasons of safety or commercial reasons.

Unfortunately the Terms and Conditions of AirAsia don’t allow for a refund but to protect consumers in the event of such flight cancellation, AirAsia shall at their option, either carry consumer’s at the earliest opportunity on another of AirAsia scheduled services on which space is available without additional charge and, where necessary, extend the validity of consumer’s booking or choose to travel at another time, retain the value of consumer’s fare in a credit account for future travel provided that consumers must re-book within three month.