Airline Marketing 3rd Edition IATA

Airline Marketing
Edition 3
Course textbook
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Airline Marketing Course Textbook, 3rd Edition

Material No.: 400004
ISBN 978-92-9264-167-2
© 2020 International Air Transport Association. All rights reserved.
Montreal—Geneva
AIRLINE MARKETING COURSE
TABLE OF CONTENTS
Airline Marketing Course....................................................................................................... 1

Introduction.................................................................................................................................... 3
Module 1: What is Marketing?............................................................................................... 9

Module Introduction..................................................................................................................... 11
1.1 The Role of Marketing ................................................................................................................. 13
Unit Overview .............................................................................................................. 13
1.1.1 The Role of Marketing in the Modern Airline................................................................13
1.1.2 The Role of Marketing and the Airline Customer .........................................................16
1.1.3 The Marketing Concept and Its Application .................................................................17
1.1.4 Unit Summary ............................................................................................................ 20
1.2 Customer and Consumer Behavior .............................................................................................21
Unit Overview .............................................................................................................. 21
1.2.1 Consumer Motivation and Preferences .......................................................................21
1.2.2 Purchase Decisions: Roles and Processes .................................................................25
1.2.3 Unit Summary ............................................................................................................ 27
1.3 Marketing Mix .............................................................................................................................. 28
Unit Overview .............................................................................................................. 28
1.3.1 The Classical Marketing Mix........................................................................................28
1.3.2 Service Industry Marketing ..........................................................................................32
1.3.3 The Marketing Planning Process.................................................................................33
1.3.4 Unit Summary ............................................................................................................ 36
Module Summary ........................................................................................................................ 37
Other Resources and References ............................................................................................... 38
Answer Key ................................................................................................................................. 39
Module 2: The Airline Marketing Environment ..................................................................41

2.1 Overview of the Marketing Environment......................................................................................45
Unit Overview .............................................................................................................. 45
2.1.1 Scanning the Marketing Environment..........................................................................45
2.1.2 The Travel Market Overview........................................................................................ 47
2.1.3 The Marketing Environment.........................................................................................48
2.1.4 Unit Summary ............................................................................................................ 50
2.2 The Macro Environment .............................................................................................................. 51
Unit Overview .............................................................................................................. 51
2.2.1 The Political Environment ............................................................................................ 51
2.2.2 The Economic Environment.........................................................................................55
2.2.3 The Social and Cultural Environment ..........................................................................57
2.2.4 The Technological Environment ..................................................................................58
2.2.5 The Legal Environment................................................................................................ 59
2.2.6 The Ecological Environment ........................................................................................ 59
2.2.7 Drivers of Future Change ............................................................................................ 60
2.2.8 Unit Summary ............................................................................................................ 62
2.3 Microeconomic Factors and the Internal Environment ................................................................63
Unit Overview .............................................................................................................. 63
2.3.1 Microeconomic Factors ............................................................................................... 63
2.3.2 Internal Environment ................................................................................................... 66
2.3.3 Unit Summary ............................................................................................................ 69
Module Summary ........................................................................................................................ 70
Other Resources and References ............................................................................................... 71
Answer Key ................................................................................................................................. 72
Module 3: Airline Marketing Research ...............................................................................73

3.1 The Marketing Research Program .............................................................................................. 77
3.1.1 Purpose of Market Research ....................................................................................... 77
3.1.2 The Marketing Research Program...............................................................................79
3.1.3 Unit Summary ............................................................................................................ 83
3.2 The Market Research Process .................................................................................................... 84
Unit Overview .............................................................................................................. 84
3.2.1 Overview of Market Research Process........................................................................84
3.2.2 Defining Objectives...................................................................................................... 85
3.2.3 Research Methods ...................................................................................................... 87
3.2.4 Unit Summary ............................................................................................................ 92
3.3 Research Design......................................................................................................................... 93
Unit Overview .............................................................................................................. 93
3.3.1 Designing Qualitative Research ..................................................................................93
3.3.2 Designing Quantitative Research ................................................................................94
3.3.3 Quantitative Research Techniques..............................................................................96
3.3.4 Questionnaire Design .................................................................................................. 98
3.3.5 The Research Plan Design........................................................................................ 100
3.3.6 Unit Summary .......................................................................................................... 101
3.4 Analyzing and Presenting Research Results.............................................................................102
Unit Overview ............................................................................................................ 102
3.4.1 Characteristics of Effective Market Research Analysis..............................................102
3.4.2 Presenting Research Findings...................................................................................103
3.4.3 Trends in Market Research ....................................................................................... 104
3.4.4 Unit Summary .......................................................................................................... 105
Module Summary ...................................................................................................................... 106
Other Resources and References .............................................................................................107
Answer Key ............................................................................................................................... 108
Module 4: The Airline Marketing Strategy........................................................................109

Module Introduction................................................................................................................... 111
4.1 Marketing Strategy & Planning .................................................................................................. 113
Unit Overview ............................................................................................................ 113
4.1.1 The Purpose of Marketing Strategy and Planning .....................................................113
4.1.2 An Overview of the Strategic Marketing Planning Process........................................115
4.1.3 Overview of the Marketing Process ...........................................................................116
4.1.4 The Airline's Business Mission and Marketing Goals ................................................118
4.1.5 Unit Summary .......................................................................................................... 121
4.2 The Marketing Audit .................................................................................................................. 122
Unit Overview ............................................................................................................ 122
4.2.1 The Market Audit Framework ....................................................................................122
4.2.2 Marketing Audit of the Airline's Internal Environment ................................................123
4.2.3 Marketing Audit of the Competition............................................................................127
4.2.4 Marketing Audit of Customers ...................................................................................129
4.2.5 Environmental Scanning–Understanding the Wider Business Environment .............131
4.2.6 Unit Summary .......................................................................................................... 133
4.3 Introducing Market Segmentation.............................................................................................. 134
Unit Overview ............................................................................................................ 134
4.3.1 Defining Segmentation .............................................................................................. 134
4.3.2 Basic Segmentation by Purpose of Travel.................................................................135
4.3.3 Limitations of Segmentation by Purpose of Travel.....................................................137
4.3.4 Market Segmentation and Social Media ....................................................................138
4.3.5 Unit Summary .......................................................................................................... 142
Module Summary ...................................................................................................................... 143
Answer Key ............................................................................................................................... 145
Module 5: The Airline Marketing Plan ..............................................................................147

5.1 Market Segmentation Process .................................................................................................. 151
Unit Overview ............................................................................................................ 151
5.1.1 Overview of the Market Segmentation Process.........................................................151
5.1.2 Market Segmentation Criteria ....................................................................................153
5.1.3 The Benefits of Segmentation ...................................................................................155
5.1.4 Unit Summary .......................................................................................................... 156
5.2 Market Target Segmentation ..................................................................................................... 157
Unit Overview ............................................................................................................ 157
5.2.1 The Purpose of Market Target Segmentation ............................................................157
5.2.2 Ranking Product Portfolios ........................................................................................ 158
5.2.3 SWOT Analysis ......................................................................................................... 161
5.2.4 Unit Summary .......................................................................................................... 165
5.3 Marketing Objectives................................................................................................................. 166
Unit Overview ............................................................................................................ 166
5.3.1 Marketing Objectives and KPIs..................................................................................166
5.3.2 Setting Marketing Objectives .....................................................................................169
5.3.3 Unit Summary .......................................................................................................... 171
5.4 Marketing Strategies and Competetive Advantage ...................................................................172
Unit Overview ............................................................................................................ 172
5.4.1 Marketing Strategies.................................................................................................. 172
5.4.2 Selecting a Marketing Strategy..................................................................................177
5.4.3 Unit Summary .......................................................................................................... 179
Module Summary ...................................................................................................................... 180
Answer Key ............................................................................................................................... 182
Module 6: The Airline Product .........................................................................................183

6.1 Airline Products and Services.................................................................................................... 187
Unit Overview ............................................................................................................ 187
6.1.1 Defining the Airline Product ....................................................................................... 187
6.1.2 Product Hardware...................................................................................................... 188
6.1.3 The ‘Soft’ Side of Airline Products .............................................................................189
6.1.4 Unit Summary .......................................................................................................... 193
6.2 Managing the Product Life Cycle............................................................................................... 194
Unit Overview ............................................................................................................ 194
6.2.1 Overview of the Product Life Cycle............................................................................194
6.2.2 Product Design .......................................................................................................... 196
6.2.3 Competitor Product Analysis .....................................................................................198
6.2.4 The Quality Service Index (QSI) ................................................................................199
6.2.5 Unit Summary .......................................................................................................... 201
6.3 Airline Brands and Branding...................................................................................................... 202
Unit Overview ............................................................................................................ 202
6.3.1 Defining Branding and its Role in Marketing ..............................................................202
6.3.2 Brands and Brand Value............................................................................................ 204
6.3.3 Brand Management ................................................................................................... 208
6.3.4 Unit Summary .......................................................................................................... 210
6.4 Frequent Flyer Programs and the Airline Schedule ...................................................................211
Unit Overview ............................................................................................................ 211
6.4.1 The Purpose of Frequent Flyer Programs .................................................................211
6.4.2 Benefits of Frequent Flyer Programs .........................................................................212
6.4.3 What Makes an Effective FFP? .................................................................................213
6.4.4 The Airline Schedule.................................................................................................. 216
6.4.5 Unit Summary .......................................................................................................... 220
Module Summary ...................................................................................................................... 221
Answer Key ............................................................................................................................... 223
Module 7: Airline Pricing ................................................................................................... 225

7.1 Price and Demand Elasticity...................................................................................................... 229
Unit Overview ............................................................................................................ 229
7.1.1 Impact of Internal and External Factors on Pricing ....................................................229
7.1.2 Demand Elasticity...................................................................................................... 230
7.1.3 Perfect, Monopoly and Oligopoly Markets .................................................................233
7.1.4 Unit Summary .......................................................................................................... 235
7.2 Pricing Strategies, Demand and Revenue Management...........................................................236
Unit Overview ............................................................................................................ 236
7.2.1 Pricing Strategies ...................................................................................................... 236
7.2.2 Low Cost Carriers and Traditional Carriers Pricing....................................................240
7.2.3 Conditions of Sale...................................................................................................... 242
7.2.4 Revenue Management .............................................................................................. 242
7.2.5 Unit Summary .......................................................................................................... 247
Module Summary ...................................................................................................................... 248
Answer Key ............................................................................................................................... 250
Module 8: Promoting Airline Products and Services ......................................................251

8.1 The Role of Promotions and Promotional Objectives ................................................................255
Unit Overview ............................................................................................................ 255
8.1.1 The Role of Promotions .............................................................................................255
8.1.2 Promotional Objectives.............................................................................................. 256
8.1.3 The ‘AIDAS’ Concept................................................................................................. 257
8.1.4 The Seven Stages of Customer Engagement ...........................................................258
8.1.5 Unit Summary .......................................................................................................... 261
8.2 The Promotional Mix.................................................................................................................. 262
Unit Overview ............................................................................................................ 262
8.2.1 The Purpose of Promotional Mix................................................................................262
8.2.2 Personal Sales .......................................................................................................... 263
8.2.3 Advertising................................................................................................................. 264
8.2.4 Public Relations......................................................................................................... 278
8.2.5 Sales Promotions ...................................................................................................... 282
8.2.6 Sport Team and Event Sponsorships ........................................................................283
8.2.7 Comparing the Promotional Tools .............................................................................284
8.2.8 Unit Summary .......................................................................................................... 285
8.3 Social Media and Interactive Marketing.....................................................................................286
Unit Overview ............................................................................................................ 286
8.3.1 The Internet as a Communication Channel ...............................................................287
8.3.2 The Internet as an Advertising Medium .....................................................................287
8.3.3 The Impact of Social Media Applications on Marketing & Marketing
Communications........................................................................................................ 288
8.3.4 Social Media Marketing .............................................................................................290
8.3.5 Social Media and Key Opinion Leaders (KOLs).........................................................298
8.3.6 Designing a Promotional Mix .....................................................................................299
8.3.7 Evaluating the Promotional Campaign Tools.............................................................300
8.3.8 Integrated Marketing Communications ......................................................................302
8.3.9 Unit Summary .......................................................................................................... 305
Module Summary ...................................................................................................................... 306
Answer Key ............................................................................................................................... 308
Module 9: Distributing Airline Products and Services....................................................309

9.1 Airline Distribution–An Overview ............................................................................................... 313
Unit Overview ............................................................................................................ 313
9.1.1 Defining Airline Distribution........................................................................................313
9.1.2 Defining Distribution Channels and Intermediaries....................................................314
9.1.3 Indirect Airline Channels............................................................................................ 315
9.1.4 Electronic Channel Intermediaries: The GDS ............................................................316
9.1.5 Online Travel Agents (OTAs).....................................................................................318
9.1.6 Unit Summary .......................................................................................................... 323
9.2 Direct Airline Channels .............................................................................................................. 324
9.2.1 Direct Channels: Roles and Trends ...........................................................................324
9.2.2 Airline Direct Channel Strategies...............................................................................325
9.2.3 Managing Direct Airline Channel Costs .....................................................................327
9.2.4 Airline Direct Channels and the Future ......................................................................329
9.2.5 Unit Summary .......................................................................................................... 333
9.3 Choosing a Distribution Strategy ............................................................................................... 334
Unit Overview ............................................................................................................ 334
9.3.1 The Distribution Strategy: Factors to Consider ..........................................................334
9.3.2 Unit Summary .......................................................................................................... 336
Module Summary ...................................................................................................................... 337
Answer Key ............................................................................................................................... 339
Module 10: Airline Alliances ............................................................................................. 341

10.1 Alliances–An Overview.............................................................................................................. 345
Unit Overview ............................................................................................................ 345
10.1.1 Defining Airline Alliances ........................................................................................... 345
10.1.2 Historical Development of Airline Alliances................................................................346
10.1.3 Unit Summary .......................................................................................................... 348
10.2 Objectives and Benefits of Alliances..........................................................................................349
Unit Overview ............................................................................................................ 349
10.2.1 Objectives of Airline Alliances....................................................................................349
10.2.2 Benefits of Airline Alliances ....................................................................................... 351
10.2.3 Phases in Airline Alliance Development ....................................................................352
10.2.4 Alliances–Pros and Cons........................................................................................... 353
10.2.5 Alliance Threats to Stand-Alone Airlines....................................................................354
10.2.6 Do Alliances Benefit Customers? ..............................................................................355
10.2.7 Joining an Alliance: What to Consider .......................................................................356
10.2.8 Unit Summary .......................................................................................................... 358
Module Summary ...................................................................................................................... 359
Answer Key ............................................................................................................................... 361
Module 11: Airline Marketing Management in Practice ..................................................363

11.1 The Role and Development of the Marketing Plan ....................................................................367
Unit Overview ............................................................................................................ 367
11.1.1 Significance of the Marketing Plan for an Airline........................................................367
11.1.2 The Elements of a Marketing Plan.............................................................................369
11.1.3 Format of the Marketing Plan.....................................................................................370
11.1.4 Unit Summary .......................................................................................................... 373
11.2 Controlling the Marketing Effort ................................................................................................. 374
Unit Overview ............................................................................................................ 374
11.2.1 Executing the Marketing Plan ....................................................................................374
11.2.2 The Strategic Marketing Review................................................................................376
11.2.3 Creating a Marketing-Oriented Organization .............................................................377
11.2.4 Applying Your Learning at Work ................................................................................378
11.2.5 Unit Summary .......................................................................................................... 380
Module Summary ...................................................................................................................... 381
Answer Key ............................................................................................................................... 382
Conclusion ......................................................................................................................... 383
Glossary.............................................................................................................................. 387
Airline Marketing Course
Aviation Training Program
Introduction
During the last decade, the landscape of airline marketing has gone through
significant transformation. New developments in technology have allowed
airlines to develop an unprecedented level of engagement with their
customers. These changes have an impact not only on the communication
channels that marketers employ, but on the role of marketing within airline
companies. Therefore, in this course, we explain marketing through several
key aspects.
First, is the role of marketing in creating a customer-oriented organizational
culture. We have dedicated a whole lesson to this topic in Module 1.
Throughout the course, we emphasize strategies and processes that are
intended to involve the whole organization in developing products and services
that meet the needs of the customer.
The second aspect emphasized in this course is the forces and events that
have shaped the airline industry as it is today. For example, we describe the
impacts of technology, aviation deregulation and the developing role of airline
alliances. This background will help you better understand developments in the
airline industry and the different types of airline business models that exist
today, ranging from no frills airlines like Air Asia through to full service airlines
like Emirates.
The third aspect that is accentuated in this course is the impact of technology
on distribution and communication channels. For instance, you will learn to
appreciate both the benefits and limitations of the Internet for promoting and
distributing airline tickets. Furthermore, we will share with you some of the
lessons learned and best practices in utilizing social media to engage your
customers.
The bulk of the course, however, describes in detail the set of activities
employed by marketers to help the airline reach its goals. This set of activities
can be structured in several clusters. One is the need to understand the market
environment in which the company operates. Whereas Modules 1 and 2 will
give you a good knowledge base of what scanning the marketing environment
is, Module 3 will cover in detail how to conduct market research. The main
concepts discussed in these modules form the foundation for Modules 4 and 5
in which we discuss each step of the process of developing a marketing plan
and strategy.
In order to help you see how these processes and concepts are applied in real
life we use a case study approach. These case studies will help explain how
separate pieces of data are used to create a comprehensive picture that helps
marketers best invest their efforts and resources.
The next major set of activities in this course is called the marketing mix. The
topic is introduced in Module 1, but its four components are discussed in detail
in Modules 6 to 9. These modules deal with the “four Ps”: Product, Price,
Promotion and Place. By studying the 4 Ps of the marketing mix, you will gain a
good understanding of how to create value for, and communicate value to, your
customers.
Module 10 explains the global perspective of many major airlines. This module
describes the topic of airline alliances, their benefits and drawbacks.
Finally, Module 11 will cover some practical strategies for more effectively
managing your marketing plan.
We welcome you to the exciting world of airline marketing and wish you
success in your journey through this course!
Introduction 3
About IATA
The International Air Transport Association (IATA) is the trade association for
the world's airlines, representing some 280 airlines or 83% of total air traffic.
Learn more: www.iata.org
About IATA Training

• More than 1,000,000 students have chosen us!
• Each year, we train 100,000+ aviation professionals with a commitment to
developing careers and a workforce that makes our industry safe, secure,
and sustainable.
• Our 350+ courses are developed around IATA's areas of expertise and
commitment to promoting industry standards worldwide.
• We offer flexible training solutions in a classroom, self-study or in-house
format to meet all budgets and needs.
• Graduates receive IATA qualifications that are recognized and respected
worldwide!
Career Development with IATA Training

Aviation is big business! Not only does it span the globe, generating more than
$800 billion in revenues but also it covers a wide spectrum of careers.
Whether you already have your foot on the ladder or are just starting out, IATA
Training offers a course that will turn an opportunity into a successful career.
IATA Training Partners

If you are studying on your own and need tutoring support, you are welcome to
take advantage of professional and qualified tutoring services offered by the
IATA Authorized Training Centre closest to you. Please see our website for a
list for these centers. Visit www.iata.org/training-atc
Get on the right career path with us!
Learn more: www.iata.org/training
Contact us at: www.iata.org/training-contact
Follow us online!
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4 Airline Marketing Course

Course Structure
Your IATA course contains all materials necessary for your learning. The
course is designed using a building block approach to facilitate your learning
and improve your skills. The structure and features are explained here to assist
your navigation through the course.
Module Prerequisites
Indicate the level of knowledge and skills you should have before studying the
Module.
Module Learning Objectives

Outline what you will be able to do after studying the Module.
Module Introduction
Explains the Module's subject matter, summarizing topics and the benefits or
rationale for studying it.
Unit Learning Objectives

Each module is divided into Units and each unit defines learning objectives that
state what you will be able to do after studying the Unit.
Unit Overview
Introduces the Unit topic, explaining why it is important for you to know and
understand the topic.
Key Learning Point

Highlights the most important skills and knowledge from the unit in order to
meet the learning objectives.
Case Study
Represents a fictional or real situation that exemplifies a principle, best practice
or theory taught in the Unit.
Did You Know?

Identifies optional but interesting facts related to the Unit topic.
Introduction 5
Important Note
Points out an essential and significant remark or mention.
Try Activity
Practice theory and skills through synchronized workbook activities. When
there is a related activity to practice what is learned, you will be directed to the
activity number.
Study Check
Assess whether you have fully grasped and understood the Unit content. If you
cannot confidently answer these learning assessment questions, study the Unit
again more carefully.
Apply Your Learning

Practical, but optional, projects and assignments illustrating how to apply the
Unit knowledge gained.
Module Summary
Summarizes overall knowledge, skills and competencies learned per Unit.
Unit Summary
Summarizes key knowledge, skills or competencies learned by the end of the
unit.
Review Questions
Assess your comprehension of the material presented in the Module. If you
cannot confidently answer these learning assessment questions, study the
Module again more carefully.
Glossary
Defines industry terms and acronyms.
Other Resources and References

Provide a list of resources and external references that may be helpful to
further expand your knowledge on the topic.
Answer Key
Answers to all learning assessment questions.

Accessing your IATA Training LMS User Account
Minimum PC System Requirements:

• Internet connection
• Google Chrome™ browser
• Minimum screen resolution of 1024 x 768
Instructions
Always use the latest version of Google Chrome™ browser to access the IATA
LMS User Account.
1. From your Google Chrome™ browser, go to
https://training.iata.org/signinup
2. Enter your username and password to access your User Account
Examinations
Please visit our online general information page for all exam related questions:
www.iata.org/training-exam-info
Introduction 7

Module 1:
What is Marketing?
• Describe the role of marketing in an airline organization

• Identify customer behavior at various stages of the airline purchasing
process
• Explain the main components of the service-oriented airline Marketing Mix
Module Learning • Define the key steps in the airline marketing process
Objectives
By completing this Module,
you will be able to:
Module Introduction
Whether you are an experienced marketing professional or a newcomer, you
will soon discover the benefits of returning periodically to the fundamentals of
marketing. The tools and strategies of this business discipline are undergoing
constant change. Yet, the basic function and mission of marketing remains the
same: to connect an organization with its customers. This is because
marketing has a unique role in any organization, from retail stores to airlines.
An organization's success or failure depends to a great extent on whether or
not marketing fulfills its main role.
In this module, we will lay the groundwork for the course by considering the
fundamentals. We will start by defining the role of marketing in an airline. Next,
we will take a look at how marketing structures its approach to better
understand and respond to the needs of the airline customer. A good
understanding of the customer offers a clear set of criteria for developing the
main building blocks of a marketing approach. Finally, we will see that
successful marketing is not a one-time event, but a process of improvement
and development.
Module Introduction 11
12 Module 1: What is Marketing?

1.1 The Role of Marketing
• Understand the role of marketing in the modern airline

• Explain the role of marketing in building value for the airline customer
• Understand the Marketing Concept
Unit Learning
Objectives Unit Overview
By completing this Unit, Starbucks opened its first coffee shop in 1971. Today, the company offers its
you will be able to: beverages in more than 31,000 stores in over 80 countries. Though you have
likely seen its stores in many airports around the world, you have probably not
seen many Starbucks commercials. So, the question is, how did the company
achieve such phenomenal growth?
Unfortunately, the common view still persists that marketing is a series of tricks
that entice the customer to buy a product or service that they may not
otherwise buy. We hope you do not share this misconception. In this unit, we
will describe the role that marketing has in an airline and how it can impact the
success of that organization. By studying this unit, you should be able to
develop a wider perspective for marketing and its application to the airline
industry. This should enable you to see new opportunities for your department
and discover new ways to bring value to your airline and its customers.
Key Learning Point

The role of marketing in an organization is to create products or services that
satisfy consumer needs and wants at a profit.
1.1.1 The Role of Marketing in the Modern Airline

For the modern airline organization, marketing has a fundamental role: it
connects the organization with its customers. In more concrete terms, the
central role of marketing in an organization is to create products and services
that satisfy consumer needs and wants at a profit. These products (and
services) must meet the demands of the customer and be delivered at the right
price, in the right place and at the right time in a manner that maximizes profit.
Good marketing does not dwell only on the current needs of customers, but it
also anticipates changes in consumer demands. Since consumer demands are
constantly in flux, suppliers are eager to anticipate these changes and deliver
products that respond to the consumer's evolving demands. Consider the
success of Apple's retail stores. In the past, Apple products were only available
through online merchants and a limited number of retail resellers. However, in
response to evolving customer needs and through the use of new
technologies, Apple invented an entirely new and unique in-store retail
experience at a time when other brick-and-mortar retailers were closing down.
With stores that lack lines, provide shelf models for customers to try, and a free
customer support desk called a Genius Bar, Apple stores have become very
successful, with more than 500 stores in 26 countries, and have one of the
highest sales per-square-foot ratios in the world of retailing. How did Apple
achieve this success? By anticipating and responding to the ever-changing
needs of their customers.
Unit 1.1: The Role of Marketing 13

In a highly competitive environment where other companies try to achieve the

same success, marketing also needs to take into consideration the external
factors that shape the landscape of the business environment. These factors
can be organized in a diagram, called the Triangle of Marketing, as noted in
Figure 1.1.1 below.
Figure 1.1.1—The Triangle of Marketing
Airlines, like any business, have to be constantly aware of the interaction

between the customer, the company and their competition. This interaction is
shaped by the impacts of economic, social, technical, environmental and
regulatory developments in the airline's business environment. Each one of
these factors can offer either an opportunity for development or be a threat that
can seriously affect the company's share of the market. Let's take a look at how
some of these factors have affected the airline industry.
Socio-Economic Changes
An excellent example of socio-economic change is the rise of Asia as an
economic center of activity and its impact on travel, both outbound from the
area and inbound from other parts of the world. According to IATA's 20-Year
Passenger Demand Forecast, Asia Pacific will be the biggest driver of demand
through 2035, with more than half of the new passenger traffic coming from the
region. China will replace the United States as the world's largest aviation
market (defined by traffic to, from and within the country) in 2024. India will
displace the UK for third place, while Indonesia and Japan will be ranked 5th
and 7th, respectively.

By 2035, an additional 1.8 billion annual passengers will be transported to,

from and within the Asia Pacific region for an overall market size of 3.1 billion.
The region will also grow by 4.7% annually, according to the IATA study. A
number of factors will help fuel this growth, including an increase in overall
economic activity, increases in discretionary income, and improved airport
infrastructure, coupled with new discount (low cost or LCC) carriers offering low
fares, which stimulate demand.
Regulatory Changes
Before any of these changes can take place, however, continuing changes in
the regulatory environment, such as liberalized bilateral aviation agreements
and countries joining the World Trade Organization (WTO) will need to remain
in place. For example, one of the consequences of China joining the WTO was
that it was then obligated to open its air transportation markets to foreign
airlines. This meant that the Chinese airlines would have to face much greater
competition. In anticipation of this change in the air transportation market, the
Civil Aviation Administration of China allowed the merger of nine airlines under
its direct administration into three airline giants known as China Southern
Airlines Group, China Eastern Airlines Group and Air China Group. This shows
how regulatory changes can impact the air transportation market.
Did You Know?

The longest non-stop flight in the world is from New York to Sydney. The
19-hour, 16,200 kilometer flight is operated by a Qantas Boeing 787-9
Dreamliner.
Technological Changes
Technological changes such as the recent introduction of higher-capacity
aircraft like the Airbus A380 and longer-range aircraft like the A350-500 and
Boeing B787 are having a big impact on routes which may bypass existing
major hub airports. We will see how secondary cities will be increasingly served
directly, without airlines needing to fly through these airports. The introduction
of higher capacity and longer-range aircraft will impact not only hub airports,
but will also require upgrades to the infrastructure of secondary airports in
order to process more passengers.
Successful companies are externally focused. That is, they highlight the
importance of delivering customer value as a focal point of their operations
rather than focusing on the operations themselves. Recently, KLM announced
its “Meet & Seat” program, which allows passengers to pick seatmates based
on their social media profile. Thus, passengers can find interesting people to sit
next to on a long flight. One of the flights on which this feature is available is
between Amsterdam and Sao Paolo. This flight takes at least 12 hours.
Imagine being able to find someone with whom you have common interests to
spend some of that time having a pleasant conversation. This feature does not
place a great burden on the airline but it can significantly improve the
experience of the customer.
To view the KLM Meet and Seat program please refer to this link.
http://www.klm.com/travel/nl_en/prepare_for_travel/on_board/Your_seat_on_
board/meet_and_seat.htm

1.1.2 The Role of Marketing and the Airline

Customer
Taking into consideration the airline business environment in which marketing
has to operate, how can we further define the role of marketing in an
organization as it relates to the airline customer? Consider this quotation that
develops our understanding of marketing, “Because the role of marketing is to
create and keep customers, it has only two functions–marketing and
innovation. The basic function of marketing is to attract and retain customers at
a profit” (Drucker, 2007). Steve Jobs, the founder of Apple, said this about
marketing: “Marketing is about values….Values and core values, those
things shouldn't change.” By this interpretation, we can conclude that
marketing is not about products created, or about advertising, or even about
sales. Ultimately, marketing is about developing relationships with customers.
Peter Drucker (2007), one of the world's leading marketing thinkers, elaborates
further on the implications of this approach to marketing. His contribution to the
discussion is highlighted in the following six key points:
1. Value is created by meeting customer needs. A company has to have a
clear understanding of what are the customer's needs. This requires good
market research that can be used to provide insights into customer needs
and customer behavior. For example, market research is a crucial tool for
airlines to use in order to stay ahead of changing customer use of social
media.
2. A company defines itself not by the product it sells but by the customer
benefit provided. Simply describing the product's features is not enough.
What is being offered must have a benefit to the customer–be it enabling
easier booking processes, easier tracking of benefits accrued by being a
member of a frequent flyer program, being able to eat in an executive
lounge prior to the flight or giving the customer the option of more sleep on
board the aircraft during the flight.
3. Marketing is not just about capturing customers. It also plays a key role in
retaining customers and ensuring their future loyalty and future revenue.
For example, designing and delivering consistent excellence in customer
service helps to develop loyalty to a particular product and company brand.
4. Marketing is about the present, but it is also increasingly about the future.
Innovation and development of products are keys to enabling the business
to adapt to changing market conditions. Market offerings are subject to
continuous change and development and failure to invest to compete with
new market entrants or upgraded competitor offerings will have a negative
effect.
5. Marketing is about delivering a profit to the business by designing the
correct marketing processes and strategies. Marketing should ensure that
the business optimizes the use of its cash by ensuring it is not wasted on
ineffective or inappropriate products, processes or strategies.
6. Marketing is a basic building block upon which the company builds its
products, pricing, distribution and advertising in order to meet the needs
and wants of customers.
The processes outlined above by Peter Drucker have their starting point at
customers and their needs. Good marketing can identify not only the
customer's needs but also how to build value for the customer. As stated, a
company defines itself not by the product it sells but by the customer benefits
provided.

Did You Know?

Since 1998, Hartsfield-Jackson Atlanta International Airport has been the
busiest passenger airport in the world, with more than 110 million passengers
flying through it each year.
Marketing is also about creating strong relationships in order to improve
retention of customers. As Phillip Kotler (2009) aptly put it, “Marketing can be
defined as the process by which companies create value for customers and
build strong customer relationships in order to capture value from customers in
return.”
As we shall see, the ability of airlines to effectively build strong relationships
with customers is becoming increasingly important to building effective
marketing programs and processes.
This highlights not just the need for customer focus and meeting customer
needs, but also emphasizes the need to develop a unique offer which can give
an airline an advantage over its competitors.
1.1.3 The Marketing Concept and Its Application

Both the concept and role of marketing in an airline organization have evolved
over the years, and their importance have grown, especially in the latter half of
the 20th century through to the present day. It is safe to assume that this
process will continue and we will see new models of marketing gaining ground
in organizations. Philip Kotler (2009) offers this definition of the marketing
concept: “The achievement of corporate goals through meeting and exceeding
customer needs and expectations better than the competition.”
The process shown in Figure 1.1.3 below develops this perspective further and
shows the main elements of the marketing concept, from conducting research
to ultimately satisfying the customer.
Figure 1.1.3—Marketing Concept (Kotler 2014)
In order to achieve the goal of exceeding customer needs and expectations,

the company needs to:
• Conduct Research
• Understand the needs and wants of the customer
• Break the market into segments and targets
• Respond to these needs and wants through an integrated marketing
campaign
• Effectively execute the plan
• Satisfy that customer
The key element here is for companies to realize that delivering customer
satisfaction is key to commercial success.

Key Learning Point

Good marketing ensures that the airline customer's viewpoint is not only heard
but is acted upon in moving the airline forward in the marketplace.
The Marketing Concept: Focused on the Customer

The main point here is the objective of ensuring customer focus. This is the
prime ingredient in successful marketing strategies and processes. Good
marketing ensures that the customer's viewpoint is not only heard but is acted
upon in moving the business forward. The role of marketing within a business
is very wide-ranging and has an impact across the whole company.
To be successful, the marketing function has to effectively be able to maintain
the following roles:
1. Be the part of the business that is tuned into their customers, their
competition as well as social and technical trends and other issues that are
likely to impact the business in the future. One problem facing large
companies is that they have a tendency to be inward looking rather than
outward facing and truly customer and competitor aware.
One only has to see the rapid impact of Low Cost Carriers such as EasyJet in
Europe, Air Asia in Asia and Southwest Airlines in the U.S. as examples of how
the traditional or “legacy” airlines were caught unaware by the potential for
creating new market segments for price conscious customers. Even when the
threat of new entrants had become a reality, existing airlines found it hard to
innovate and respond to change.
1. Be the catalyst for change and for what needs to be done to meet customer
needs. Examples include the introduction of new onboard products such as
lie flat beds in business and first class. The continued development of
airline e-channels that use the latest technologies are additional examples.
2. Be able to drive the creation and delivery of the ‘image’ and ‘voice’ of the
company–its brand and values–by a coordinated approach to advertising
and promotion using all available channels of communication. One
example is Qatar Airways’ coordinated communication effort through social
media regarding its 5 Star image and service. The Qatar Airways
Facebook page went from zero to almost 150,000 fans in just over one
month.

Study Check (Unit 1.1)
1. Which of the following describes the final step in the marketing process?
(a) To develop products that appeal to the widest possible audience
(b) To identify new services that are easy for the organization to
implement
(c) To create products that satisfy consumer demand at a profit
(d) To satisfy customers by meeting and satisfying exceeding
expectations
2. The best reference point for a company to define itself is .

(a) the market segment it targets
(b) the product and/or service it delivers
(c) the customer benefit it provides
(d) the profits it generates
3. The Triangle of Marketing refers to the following three components:

(a) Company, Customer and Competition
(b) Product, Pricing and Distribution
(c) Consumer awareness, Value creation and generating Revenues
(d) Social, Technical and Regulatory changes
4. If an airline is to be successful, it should be internally focused. TRUE or

FALSE?
(a) True
(b) False
5. China's obligation to open its air transportation market to foreign carriers

when it joined the WTO was an example of which kind of change to the
business environment?
(a) Social
(b) Political
(c) Regulatory
(d) International
6. According to the Marketing Concept, which of the following is NOT an

element of satisfying the needs of the customer?
(a) Conducting Research
(b) Designing Products
(c) Developing a marketing mix to satisfy needs and wants
(d) Satisfying the customer

1.1.4 Unit Summary

In this unit we have discussed the role of marketing with respect to three key
areas of activity: the airline's business environment, the customer and the
airline company itself. The primary role of marketing is to serve a customer
need in such a way that value is generated both for the customer and for the
company. However, this objective can only be achieved by gaining a good
understanding of the customer's need and the business environment that may
or may not be conducive to meeting that need. It is possible that marketing
identifies a valid customer need, but the regulatory or technological
environments do not allow a company to meet that need at a profit.
The main point of this unit is to show the breadth of perspective that needs to
be adopted by every airline marketer. Effective marketing plays a significant
role in shaping an organizational culture that is customer-focused.

1.2 Customer and Consumer Behavior
• Understand customer motivations

• Distinguish between a customer's needs, wants and demands
• Define different roles in the purchasing process
• Describe the customer decision-making process
Unit Learning
Objectives
By completing this Unit, Unit Overview
you will be able to: In the previous unit you read about the importance of understanding the
customer's needs in order to create value for them as well as to be able to meet
and exceed expectations. In this unit we will take a closer look at the airline
customer and the purchasing process. You will learn to distinguish between an
airline business customer and leisure consumer, and between the needs,
wants and demands of these different customers. In addition, you will become
familiar with various roles and stages of the buying decision process. This
knowledge will help you better understand how to build a more effective
communication channel with your customer.
Key Learning Point

Marketing is primarily about satisfying customers' needs and wants.
1.2.1 Consumer Motivation and Preferences

Needs of Customers
Marketing is primarily about satisfying customers' needs and wants. A need
can be described as a person's conscious feeling of deprivation. For example,
this could include basic physical needs such as food, clothing or safety. A need
could also be social. For example, the need to belong to a group, to give and
receive affection, and the need to express oneself freely or to acquire
knowledge. According to the theory of famed psychologist Abraham Maslow
(Theory of Motivation. 1943), these needs are organized on a five-level
hierarchy which forms the basis for understanding human motivation. Among
these, the most fundamental needs are physiological; that is, the needs that we
must satisfy in order to simply survive. Once those needs are satisfied, humans
can focus on satisfying the next level, which is a need for safety. Once that
need is satisfied, only then can we strive to satisfy the needs for love, esteem
and self-actualization.
Why is this important for marketers to understand? Because marketing is
ultimately about satisfying the customer's needs. An understanding and
application of Maslow's Hierarchy can improve the effectiveness of our
marketing efforts by:
1. Being sure that our product is satisfying a customer need. If not, we will
simply not have any customers. For example, a free teddy bear to every
customer, while cute, will not be a competitive differentiator. On the other
hand, as we will learn, seat comfort and fast, convenient flights meet very
specific needs of many travelers.
Unit 1.2: Customer and Consumer Behavior 21

2. Developing promotional messages and product offers that convince

customers that their needs will be met. For example, the concept of
“esteem” will be different for a Chinese businessman versus a female
university professor from Italy, so the messages must be tailored
accordingly.
3. Communicating our offer based on the level of need that requires
satisfaction. For example, the novice American traveler might be
concerned about safety, so promotional ad copy about crew experience,
airline maintenance and use of the most modern aircraft will appeal to
those needs. On the other hand, a well-traveled Chinese honeymoon
couple who is no longer nervous about flying might have an esteem-based
need met by being offered the opportunity to pose for an Instagram photo
with the 787 captain.
Figure 1.2.1a below illustrates Maslow's Hierarchy and shows how the airline
product and brand might be “positioned” (this will be discussed in Module 5) on
the basis of the different levels of needs among customers. The ad slogans are
each focused on different customers' needs by communicating the airline's
value propositions.
Figure 1.2.1a—Maslow's Hierarchy of Needs and Airline Positioning Statements
Wants of Customers
Wants, on the other hand, are human needs that are influenced by culture,
knowledge and individual personality. For example, Ms. Chang has the need
for safe transportation from Geneva to Zurich. To satisfy this need, she wants
to fly, as this is the fastest mode of travel. Mr. Jones, on the other hand, also
needs a safe mode of transportation to Zurich, but one that lets him see the
scenery along the way. While the need (i.e. safe transportation from Geneva to
Zurich) is the same for both Ms. Chang and Mr. Jones, their wants are different:
Ms. Chang wants to take an airline. By contrast, Mr. Jones wants to take a train
to enjoy the scenery.
While basic needs are fairly limited in number, the number of wants is only
limited by the actual buying power of the potential customer and the creativity
of marketers. For airline customers, wants can be tangible–for example,
specific meal choices–or they can be intangible, such as the cabin crew's
ability to speak different languages, or the status of flying an airline in first
class.

Demands of Customers
Demand is created when a person can afford to satisfy their wants (and needs,
indirectly) with a specific product offer. In the above example, Ms. Chang
needs to travel safely and quickly to Zurich, so she wants to fly. However, what
if air fares are prohibitively expensive and she can't afford to travel by air? In
that case, she has no real demand for air travel. Instead, she might only be
able to demand (afford) bus travel, so she takes a bus. Meanwhile, Mr. Jones
has the need (travel safely from Geneva to Zurich), the want (to see the
scenery) and the demand for a train ticket because he has both the ability and
willingness to pay for it, so he takes the train.
Figure 1.2.1b—Needs, Wants and Demands
Needs, Wants and Demands of Customers Will Vary

Customer needs and wants will vary on the basis of time, geography, buying
power, attitudes, behaviors and demographics. These differences and the
need to understand them underscore the original point–and the key theme
throughout this book–that ultimately marketing is about identifying and
satisfying the needs of customers in order for an airline to be successful.
Figure 1.2.1c below illustrates the different needs and wants for different types
of airline travelers. Note that the top need among all segments of travelers is
safety. As we discussed in the previous section, the need for safety is
fundamental for survival. Unless an airline can satisfy this need, they will never
be considered as a competitive alternative regardless of how cheap,
convenient or comfortable it might be.
How airlines understand the needs, wants and demands of customers, and
react to changes in these customers' attitudes and behaviors is vital to
business success.

Did You Know?

Delta Airlines is working on self-service airport check-in kiosks that will
incorporate facial recognition technology which will verify customer identity by
matching customer faces to passport photos. An article about this can be found
at this link: https://emerj.com/ai-sector-overviews/facial-recognition-
applications/
Figure 1.2.1c—Needs and Wants Ranking for Different Travelers
Think of routes operated in your own geography and try to split travelers into
different groups and rank their preferences. You will soon realize that your
knowledge of travelers' needs must be based not just on personal ‘feel’ for the
market but also on some proper research. We will cover this topic in Module 3.
Did You Know?

More than 52% of airlines across the world have planned to install AI-based
tools in the next five years to improve their customer service functions. You can
read more about these plans in an article titled “What can Artificial Intelligence
do for the Aviation Industry” found here at the PACKT website at this link:
https://hub.packtpub.com/what-can-artificial-intelligence-do-for-the-aviation-
industry/

1.2.2 Purchase Decisions: Roles and Processes

In the previous unit we saw very clearly the significance of ‘customer focus’. It
is important, though, to realize that there is a difference between a customer
and a consumer. Consumers are those who, in the case of airlines, actually
make the journey. As such, they can be easily identified and can be a source of
much marketing information by using questionnaires or data collected from
Frequent Flyer Membership programs.
To understand customer purchase behavior, a number of key questions need
to be understood and answered:
1. Who is actually making the airline ticket purchase decision?
2. Who influences this decision?
3. What criteria/measures do they use to make their purchase decisions?
4. Where and how do they purchase their tickets?
5. When do they purchase their tickets?
The answers to these questions might reveal that the person who influences
the purchase decision (e.g. the travel agent) is different from the one who pays
for the ticket (e.g. the company) and different still from the person who
consumes it (i.e. the passenger), with each party having their own needs and
motivations.
The actual purchaser of the ticket can be an individual traveler or a company.
The types of traveler and organizations are many. However, we can better
understand the answer to the first question above by thinking about the
different roles in the buying decision process, as shown in Figure 1.2.2a below.
These can be described as:
• The initiator–the person who begins the process of considering a
purchase. This could be the CEO or department head who needs to send
some employees to a meeting
• The influencer–the person or group that influences the purchase. This
could be the travel agent who has knowledge about schedules and fares
• The decider–the person who decides to pick a particular airline to deliver a
product or service. This could be the corporate travel manager who
negotiates airline contracts
• The buyer–the person who actually conducts the transaction. This could be
the travel procurement department
• The user–the person who actually travels
Figure 1.2.2a—Different Roles in the Airline Purchase Decision Process

For some travel decisions, one person may fulfill most, if not all, of the roles
mentioned above. For example, an individual deciding that he or she needs to
have a holiday. In other cases, it can be more complex, involving a small or
large company with relationships with travel agents, the involvement of finance
departments and company travel policies. For the airline, an understanding of
those involved and how different people interact in the buying decision is of
critical importance to the successful marketing of their products.
Using the framework in 1.2.2b, we can put a typical airline customer decision
into context. For a customer planning a short holiday, the process could be as
follows:
Figure 1.2.2b—Customer Decision Process
For the airline trying to sell the product, knowledge of buyer behavior at each
stage of the process and the timing at each stage are very important facts to
understand. It will have an effect on how to price the product, where to display
prices, how to place prices in the market and what the actual product should
be. These issues will be discussed later in detail.
Key Learning Point

The customer decision-making process includes the following steps: (1) Need
recognition, (2) Information search, (3) Comparison of competing offers,
(4) Purchase decision, (5) Post-purchase evaluation and sharing of the
experience

1. The buyer and the traveler can be two different people in the air travel
purchase process. TRUE or FALSE?
1. True
2. False
2. Knowledge of buyer behavior at each stage of the purchasing process has

an effect on product pricing, but it has no effect on product distribution.
TRUE or FALSE?
1. True
2. False
3. How does the consumer decision-making process begin?

1. Person or group recognizes a need for a product or service
2. Person or group researches possible service providers
3. Person or group evaluates and compares possible service providers
4. Person or group decides to select a service provider
4. What does the customer do in the final stage of the customer decision-
making process?
1. Decides on the service to be purchased
2. Uses the purchased service
3. Shares their experience with others
4. Appreciates the value of their purchase
1.2.3 Unit Summary

A good understanding of the airline customer starts, as you have seen in this
unit, with a clear distinction between customer needs and wants. The main
benefit of this distinction is the ability to prioritize customer needs and wants in
order to develop an offer that would generate interest. As we will describe in
later modules, airlines have been successful in meeting a variety of needs and
wants that were important for different market segments.
We have also described in this unit the difference between customer and
consumer. This distinction is important when you decide how to package your
offer. Your consumer should be satisfied with the services you offer but the
decision to purchase travel services from your company may rest with
somebody else. Moreover, your knowledge of the decision-making process will
help you develop a more targeted message.

1.3 Marketing Mix
• Explain how the Classical Marketing Mix is applied in airline marketing

• Identify various components in the Marketing Mix and activities that
comprise them
• Understand how marketing is applied to the service industry
Unit Learning • List the eleven steps in the airline marketing planning process
Objectives
By completing this Unit,
you will be able to: Unit Overview
Since you have a good understanding of your customer's needs and buying
decision process, it is time to look at what your company can offer and how
best to present that offer to the customer. In this unit we will examine a set of
tactical marketing tools that can be used in order to produce the desired
response from the target market. This set of tools is generally known as the
Marketing Mix. We will discuss in detail every tool in this set and will share
some examples of how successful airlines use them. Furthermore, you will
learn some tools that are applicable in the service industry of which passenger
transportation is a part. In the last part of this unit we will share an overview of
the marketing planning process. It will help identify the process structure that
incorporates the different activities undertaken by marketing.
Key Learning Point

The Marketing Mix is a set of tools used to create value and communicate that
value to the customer.
1.3.1 The Classical Marketing Mix

Marketing is directed at satisfying the needs and wants of its customers. Truly
market orientated companies will be trying to create customer value to both
attract new customers and retain current ones. For customers, value is defined
as the difference between the perceived benefits and the perceived cost to
obtain that value. For example, a customer may attach high perceived value to
owning a pair of expensive designer jeans and be willing to pay a high price to
obtain them.
In order to create value and communicate that value to the airline customer,
marketers use a set of tools generally known as the Marketing Mix. The
Marketing Mix is a term used to describe the various activities that contribute to
effective marketing by a company. These activities are traditionally split into
four different categories, often referred to as “the 4 Ps”, as described in Figure
1.3.1 below:

Figure 1.3.1—The Classical Marketing Mix for Airlines
Product
An area of huge change in the last decade, product is defined as a ‘bundle of
attributes’ that satisfies customers' needs. Some examples were mentioned
above and airlines need to make decisions as to what their own overall airline
product offering will look like.
Historically, the price of a flight normally included not just the actual flight from,
say Paris to Dublin, but also such product items as seat assignments, check-in,
baggage, a choice of in-flight meals and drinks, and each varied by different
classes of travel from First to Economy. However, the subsequent arrival of “No
Frills” service such as single class travel and airlines like Southwest and
Ryanair, where only the core product was included in the initial fare-price with
cost savings passed onto customers in the form of low prices, transformed the
airline industry and created a whole new segment of passengers attracted by
very low fares for travel.
Today, a whole range of product offerings are in place from low cost airlines
where the base price paid is for the basic product only and everything in excess
of that is potentially charged extra for, through to full-service airlines where the
price paid covers all potential product features.
The role of Product Managers or Brand Managers in airlines is an important
one: to make decisions as to the product specifications for the airline, the
delivery of the product, measurement and monitoring of the service and how it
should be developed going forward based on customer feedback as well as
Unit 1.3: Marketing Mix 29

competitive changes in the market and the impact of things such as new
technologies.
Did You Know?

Every day, the U.S. FAA's Air Traffic Organization (ATO) provides service to
more than 44,000 flights and 2.7 million airline passengers across more than
29 million square miles of airspace. At peak operational times, there are 5,000
aircraft over the U.S. at one time!
An interesting example of product management was a response by Virgin
Atlantic to the economic downturn in 2008 that saw a major drop in the number
of business class passengers. This change had very negative effects on the
earnings of many airlines. However, Virgin Atlantic reported a significant
increase in its earnings and attributed the result to a rise in the number of
passengers travelling in premium class. Besides the comfortable beds that
Virgin offers, it also gives its Upper Class passengers a chance to sleep-in.
Instead of being woken up an hour and a half prior to landing, passengers can
sleep longer and have a hot breakfast and a shower in the company's Revivals
lounge at London Heathrow airport. This is an example of how excellent
product management offers value to the customer and revenues to the airline.
Price
Pricing has a unique role in the Marketing Mix, as it is the only “P” that drives
and delivers the revenue of the airline, whereas the other Ps only generate
costs. Prices need to be determined for each product or service that the airline
sells. Some examples of pricing decisions are:
• What premiums to charge for higher quality of service
• What introductory discounts to offer for new services or routes
• What fares to use in different distributions channels, i.e. airline website,
online travel agent websites, global distribution systems, and airline
ticketing offices
• Whether to offer seasonal fare prices to generate demand during off-peak
seasons
• Whether to include product features such as luggage and meals, or to
charge extra
Promotion
Promotional activities are designed to deliver communications to the intended
customer showing that their needs will be met by the services offered. There
are many different activities that can be used such as advertising, direct
mailing, social media, public relations and personal selling.
Some examples might be:
• How to promote new schedules to Beijing and Shanghai
• How to promote our new airport terminal
• How to steer queries on metadata sites such as Kayak to our website
• How to promote the new Frequent Flyer Program
• Whether to sponsor a local sports team
• How to use social media to communicate to our customers

Increasingly, marketing is now able to be much more targeted, by using new

technologies and software applications. Historic mass marketing campaigns on
television and large-scale newspaper advertising are being enhanced and, in
some cases, replaced by more targeted promotion, down to an individual level.
Did You Know?

When Singapore Airlines launched its inaugural non-stop flight from Changi
airport to Seattle in 2019, it used an unconventional, creative new marketing
campaign by creating a music video using the sounds of the Airbus A350-900.
Complete details about the promotion can be found at this link:
https://simpleflying.com/singapore-airlines-a350-music/
Place
More easily understood as ‘distribution’ in terms of the airline industry, “place”
is the activity by which products and services are made available to the
customer to purchase and consume at the right place and the right time. This
part of the Marketing Mix has undergone fundamental changes in recent years
as the Internet has given airlines opportunities to distribute their products and
services directly to the customer, without having to go through an intermediate
channel of distribution such as a travel agent to reach a customer. This has
implications for the costs that airlines incur, as they try to reduce the amount of
money paid to travel agents to distribute the airlines' products. Many
challenges remain for airlines:
• How to develop and use the most cost-effective distribution
• How to promote direct sales through the web and mobile apps
• Whether to use travel agents and Global Distribution Systems
• How much to compensate intermediaries like travel agents
In recent years, Brazil has experienced amazing economic growth. Brazil's civil
aviation agency estimates that demand for air travel rose 194 percent in 10
years. In order to meet this demand two major Brazilian airlines, TAM and
GOL, have implemented a new distribution channel. They opened a number of
kiosks in the busiest subway stations. These kiosks are staffed with trained
personnel that can guide the customer through the purchasing process and
provide additional information as required. This is a very original approach but
its success lies in the fact that the distribution channel takes into consideration
the specific needs of the market segment that it targets. Can you think of some
original distribution channels for your favorite airline?
Key Learning Point

One of the major challenges for airlines is the delivery of consistent levels of
customer service across their business.

1.3.2 Service Industry Marketing

When it comes to the marketing of airline services and products, the 4Ps
outlined above do not necessarily cover all the attributes that need to be
considered in terms of the ‘Marketing Mix’. In order to better understand the
use of the Marketing Mix in the context of airline marketing, we need to keep in
mind several features that distinguish the services offered by airlines from most
regular products. Here are the key distinctive features:
• Products are tangible (can be seen and felt) whereas services are
intangible (cannot be seen, and lack physical substance)
• Products are homogeneous or stable (always the same).Services vary, by
contrast
• Most products have a very long shelf-life (imperishable) whereas services
are highly perishable.
Airlines sell services that are intangible, perishable, variable and critically
dependent on the people who deliver them. Indeed, one of the major
challenges for airlines is the delivery of consistent levels of customer service
across their business.
To take account of these factors, two additional ‘Ps’ are often added to the
Marketing Mix of categories to be considered, and these are shown in Figure
1.3.2 below.
Figure 1.3.2—Additional Ps for the Airline Marketing Mix
The quality of staff and processes is a major source of competitive advantage

between different companies. Think of companies you have dealt with and
compare your experiences in terms of customer service, sales and handling of
problems.
In managing the Marketing Mix for the airline, marketing managers need to put
together all the different elements in such a way as to create a customer
proposition. In developing this proposition there will be a number of Marketing
Mix decisions that need to be made in order to deliver the right balance of
Marketing Mix to support the airlines overall mission and purpose. An airline
can't necessarily meet every need and demand of every passenger type so the
decisions on the Marketing Mix are very challenging. We will study this topic in
detail later in the course.

Key Learning Point

The marketing department of a company must involve different parts of the
business in order to develop a viable marketing planning process.
1.3.3 The Marketing Planning Process

The development of a marketing plan brings together all different aspects of
research, analysis and actions required to successfully develop and deliver a
product to market. When designing a successful marketing plan, a number of
questions need to be asked at the start:
1. Where are we now?
2. How did we get here?
3. Is our current competitive position satisfactory?
4. If not, how and where should we compete?
5. How do we get there?
6. How will we measure our progress?
7. Are we on course?
These questions provide a starting point in terms of developing ideas and
beginning to get a grip on developing actions for going forward. In a large
airline, the process can be very complex and involve not just objective business
measures, but also a lot of internal political issues to do with management and
staff. The marketing department will usually initiate the process to push for
change and innovation. However, once the process starts, it is important that
all departments get involved. The most important preliminary objectives are the
following:
• An effective understanding of the airline market and its needs and
opportunities
• A cross-functional analysis of information–the marketing department of a
company must involve different parts of the business, not just the
commercial departments
• A shared understanding of what needs to be done and coordinated actions
across the company to deliver the changes and innovations required
• Consistent delivery of superior value in the eyes of the customer in terms of
the product offered.
In developing an actual marketing plan, you have to follow a certain process.
Provided below in Figure 1.3.3 is a summary of an 11-step process to follow.
We shall develop and explore each of these stages in the following modules,
but it is important that you have a general overview of the process now.

Figure 1.3.3—Process for Developing the Airline Marketing Plan
Deciding the business vision and mission of the airline is the starting point for
developing the marketing plan. It provides a description of the particular
position in the overall market the company wishes to occupy, and its vision of
an ideal future state. One should note, however, that the marketing process is
a continuous process, therefore the development and implementation of plans
needs to be constantly reviewed and the knowledge gained needs to be fed
back into the business. This can result in the actual business mission being
varied or changed altogether.
If we look at the Low-Cost Carrier EasyJet, it started out as a No-Frills carrier,
but has now developed into a carrier that targets not just leisure travelers but
also business travelers of small and medium-sized businesses. This has
occurred due to the company's focus on the changing needs of customers and
changes in the commercial and economic environment in which it operates.
Carrying out a marketing audit–the gathering of market information in its
broadest sense–is the next critical step in ensuring that a full view is developed
of current and potential marketing and selling opportunities.
Segmenting the marketing information into different market segments enables
a company to begin to focus on specific opportunities, which are then further
analyzed in terms of Strengths, Weaknesses, Opportunities and Threats -
SWOT.
The results of a SWOT analysis become the basis for developing specific
objectives and strategies, leading to a number of plans to implement them.
Finally, experience of how the plans work out in practice is collated and the
results are fed back into the business for review.
Window on the Aviation World:
Southwest Airlines: Our Purpose and Vision
Watch this video about the purpose and vision of Southwest Airlines, one of the
most successful airlines in the world. Video Link: Southwest Airlines
https://www.youtube.com/watch?v=eGxMf88I5g4&t=98s

1. Which of “the 4 Ps” is concerned with advertising, trade fairs, and PR

activities?
(a) Product
(b) Price
(c) Place
(d) Promotion
2. Which of “the 4 Ps” is concerned with bookings through the airline website?
(a) Product
(b) Price
(c) Place
(d) Promotion
3. What airline industry development in the last decade has revolutionized the
concept of Product?
(a) The development of more extensive frequent flyer programs and
partnerships
(b) The arrival of No-Frills airlines such as Ryanair and Southwest
(c) The use of the Internet for customers to research and purchase
services
(d) The introduction of lie-flat beds in First and Business Classes
4. Virgin Atlantic allows its Upper Class passengers to sleep later than
passengers in economy class. Which of “the 4 Ps” does this improvement
belong to?
1. Place
2. Process
3. People
4. Product
5. How are services different from products?

1. Products are always variable, whereas services are always the same
2. Products are tangible, whereas services are intangible
3. Products are dependent on how people deliver them, whereas
services are not
4. Products are inexpensive, whereas services are expensive

6. After watching the video on Southwest Airlines, how would you describe
their “purpose”?
(a) the globe: efficiently and safely
(b) Connecting people with what is important in their lives
(c) Being a responsible member of the local community
(d) Making profits for shareholders
1.3.4 Unit Summary

In this unit we have introduced two sets of activities that comprise the bulk
of work performed by marketing: developing the marketing plan and the
Marketing Mix. The marketing plan is a process made up of eleven basic steps.
The data and conclusions from each step are the basis for the next one. The
final goal of the process is the development of an airline marketing plan and
strategy. Modules 4 and 5 will describe in detail each step of the process.
However, at this stage it is important that you have a general picture of this
process.
The Marketing Mix is a set of tools used by marketing to create and
communicate value to the customer. As you have seen, airline travelling has
certain features that distinguish it from a traditional product. Therefore, we
have included two key aspects: people and processes. In this unit we have
provided only an overview of the Marketing Mix and will discuss in detail each
component of this mix in Modules 6 to 9.

Module Summary
The only way to succeed in any business, and especially in the airline
business, is to be customer oriented. The marketing department's role is to be
attuned to the customer's needs and expectations in order to provide a product
and a service that answers the customer's need better than the competition.
Moreover, the marketing department scans the larger environment in order to
anticipate change in the market conditions.
Marketing uses a set of tools or activities that is generally described as the
Marketing Mix. However, the service industry needs to adopt a more
comprehensive approach in order to account for the nature of the product it
offers. The quality of the personnel and processes employed by an airline
company may be the competitive advantage that helps the company not only
survive but prosper in the present turbulent market.
Marketing is not an event; it is a process. The quality of this process will
determine to a great extent whether all staff members in the organization are
involved and share the belief that by serving the customer they ensure the
future success of the company.
This module has laid the groundwork for the rest of the course, where many of
these concepts will be considered in more detail.
Module Summary 37

Maslow, Abraham. (1943). A Theory of Motivation. Psychological Review
Drucker, P. (2007). The essential Drucker: In one volume the best of sixty
years of Peter Drucker's essential writings on management. New York: Harper
Business.
Kotler, P. (2009). Marketing Management (13th ed.). Upper Saddle River, NJ:
Prentice Hall.
Starbucks.com. (2019).
IATA (2016). The 2016 Year Passenger Forecast. Retrieved from
https://www.iata.org/about/worldwide/asia_pacific/Pages/Asia-Pacific-20-Year-
Forecast.aspx
Packt Research. (2017). AI and the Airline Industry. Retrieved from
https://hub.packtpub.com/what-can-artificial-intelligence-do-for-the-aviation-
industry/
Blackwell, R. D. Miniard, P. W. Engel, J. F. (2005). Consumer Behavior (10th
ed.). Independence, KY: South-Western College Publishing.

Answer Key
1. d
2. c
3. a
4. a
5. c
6. c

1. a
2. b
3. a
4. c

1. d
2. c
3. b
4. d
5. b
6. c
Answer Key 39

Module 2:
The Airline Marketing Environment
• Describe the structure and elements of the airline marketing environment

• Understand the key factors of both the macro and micro marketing
environments for the development of an airline's marketing strategy
• Explain the main components of the environmental scanning system
Module Learning within a framework
Objectives • Describe the impact of each factor in the macro and microenvironments on
By completing this Module, the company's marketing strategy
Module Introduction
In the previous module, we reviewed the outward orientation of marketing in a
company. In this module, we will discuss in more detail exactly how this
outward orientation needs to be structured and what the main factors are that
marketing needs to consider.
The goal of this module is to introduce the general framework for analyzing the
airline marketing environment and consider in detail how the factors in the
environment affect marketing strategy. Your ability to understand and apply the
concepts covered in this module will help you to anticipate changes in the
marketing environment and take advantage of opportunities that develop.
44 Module 2: The Airline Marketing Environment

2.1 Overview of the Marketing Environment
• Describe the process of scanning the airline marketing environment

• Explain the role of the travel market overview
• Identify all components of the airline marketing environment by using a
PESTLE analysis
Unit Learning
Objectives
Unit Overview
you will be able to: A successful airline marketing strategy cannot be developed without a
thorough analysis of the airline's marketing environment. An understanding of
the different components that make up the marketing environment will enable
an airline to deal with changes and opportunities as well as reduce threats. In
this unit, we will look at the main elements of the marketing environment and
the approach an airline should develop for analyzing it.
To help develop a more focused approach in analyzing the marketing
environment, two important activities should be undertaken beforehand. The
first is the process of scanning the marketing environment. This process helps
identify trends and develop forecasts of how those trends will affect a company.
The second activity in the process, a market overview, gives your effort even
more focus. In this step we evaluate the total size of a market and identify
those market segments that can be targeted by a company.
Key Learning Point

The role of environmental scanning is to enable an airline to anticipate and
understand the changes occurring in the marketing environment.
2.1.1 Scanning the Marketing Environment

A marketing environment is continually dynamic because it is constantly
changing. For instance, the increase in environmental awareness in recent
decades has led to greater significance placed on environmental issues when
marketing airline services. Also, a change in the political or economic
landscape can lead to changes in regulations. Therefore, marketing
professionals should regularly scan the marketing environment in order to
identify significant changes and trends. The role of environmental scanning is
to enable an airline to anticipate and understand the changes occurring in the
marketing environment. Thus, the airline can interpret what these changes
mean and adjust its marketing strategy.
Since the marketing environment is in constant change, it is not possible to
track and analyze every single change that occurs. Therefore, marketing
professionals need to focus on issues of greater significance. Here are some
examples of factors that you need to pay attention to:
• What is the economic performance of your key markets? Even such
general parameters as Gross Domestic Product (GPD) growth or decline,
inflation rates or foreign direct investment can serve as indicators of
whether the economy is growing or is shrinking. A growing economy can
be a sign of opportunity for air transportation development. On the other
hand, a shrinking economy needs to be taken as a serious warning sign.
Unit 2.1: Overview of the Marketing Environment 45

• Are regulatory changes going to provide opportunities for you or

advantages to your competitors? For example, the conclusion of an Open
Skies Agreement may facilitate the entry of potential new competitors and
possibly increase the number of flights offered.
• What is the expected trend in fuel prices? Fuel prices are very volatile and
this has implications for the price of airline products. Upward trends in fuel
prices is an indication that the airline may need to consider surcharges for
its products. On the other hand, downward trends may force the airline to
justify its surcharges.
• How are airlines changing their product and marketing offers to
customers? An interesting example is the decision by European carriers to
offer pot noodles as snacks between meals on their flights from Asia. This
new development was welcomed not only by Asian passengers but by
Europeans as well. Another interesting innovation made by some airlines is
to offer limousine pick-up or valet parking in business class.
• How is mobile technology being used to develop sales and increase
market penetration? The increasing use of mobile technology to purchase
travel and other products will impact consumer behavior and needs,
requiring airlines to make their own processes and products mobile
‘friendly’ and accessible.
Did You Know?

According to the World Tourism Organization, international tourist arrivals grew
6 percent in 2018, faster than overall economic growth. The World Travel and
Tourism Council expects an additional 700 million international tourist arrivals
in 2029 over 2018 totals. This will fuel a direct tourism and travel contribution to
global GDP growing at 3.6 percent per year in real terms over the next 10
years.
Gathering answers to these questions will help you develop opportunities and
respond to change. But in order to be successful you will need to take a
systemic approach to this process. You will need to identify how and when data
is collected, who analyzes the data and what deliverables are expected from
the analysis. A properly developed airline environmental scanning system
forms part of the department that should provide the following:
• Monitor trends, issues and events and study their implications. Examples
range from potential pandemics, consumer buying trends, fuel
efficiency/biofuels and major events such as the Olympic Games and
World Cup
• Develop forecasts and scenarios to produce an analysis for strategic
decision-making. This can include forecasts of market growth in particular
geographies and the development of different forecasts depending on
alternative scenarios of events that could affect different markets.
• Provide a focal point within the airline for interpretation and analysis. This
is generally a group of dedicated professionals whose main responsibility
is market research and analysis.
• Develop a database of marketing environment information. The structure of
such a database depends on your specific business environment, but it
generally includes the main elements of the marketing environment.
• Create a group of internal experts on environmental affairs. The natural
environment has become a more important component of the marketing
environment in the last decade as airlines develop strategies to deal with
increasing regulation and taxes related to environmental issues.

• Implement a strategy for the application of new tools and techniques for
performing adequate market analysis.
• Distribute information on the business environment through reports,
lectures and newsletters.
Scanning the marketing environment is one of the key activities that your
marketing department will perform. The significance of this activity lies in the
fact that market scanning identifies major trends. Your company will need to
take these trends into consideration as it seeks to understand how it is going to
be affected by them. Obviously, some trends affect the whole airline industry
while others impact only some parts of the industry. For this reason, you need
to identify your market and how these trends will affect it.
Key Learning Point

A market overview allows you to know the total travel market, its growth, mix of
types of travelers and its different segments of travel.
2.1.2 The Travel Market Overview

When looking specifically at the travel market, we need to be able to identify
current and potential customers in our various markets. The data will contribute
to understanding what groups of travelers use our services. These are referred
to as market segments. Examples of questions that need to be answered are:
• Estimating the total size of the markets involved
• Actual and forecast market growth
• Market size and growth: domestic vs. international
• Market size and growth: by mode of travel, e.g. air, road, rail, cruises, etc.
• Market size and growth: by destination
• Market size and growth: by major market segments, e.g. reason for travel,
etc.
• Traffic mix: first class, business, economy, etc.
Did You Know?

Worldwide demand for airline tickets doubles every fifteen years on average.
By analyzing the above areas, the airline marketing manager will get a view of
the total travel market, its growth, its mix of types of travelers and its different
segments of travel. Assessing the potential total number of travelers, and
thereby give a best estimate of the total travel market, has to have data inputs
from a wide variety of sources. Examples of data sources are the following:
• Government statistics on arrivals and departures
• Airport surveys
• Tourist offices, including the World Tourism Organization (WTO) and
National Tourism Organizations (NTOs), such as the Singapore Tourism
Board (STB)
• IATA industry forecast. Available here:
https://www.iata.org/publications/economics/Pages/index.aspx?menu=
Outlook
• Internet and e-commerce market data

• Airbus annual global market forecast. Available here:

https://www.airbus.com/aircraft/market/global-market-forecast.html
• Boeing annual global market forecast. Available here:
http://www.boeing.com/commercial/cmo/
When combined with an airline's own commercial statistics, these sources can
help produce measures such as overall market share and market share by
route, market, destination or by customer segment. Put together, this
information helps an airline to forecast future demand for air travel.
2.1.3 The Marketing Environment

As we have seen in the first part of this unit, scanning the marketing
environment is a critical task in marketing. It helps to better understand the
opportunities and the threats that a company is facing. While scanning the
marketing environment may seem daunting, this task may become much
easier if a structured approach is adopted. Moreover, a structured approach
will ensure that no important elements are missing. The diagram below
represents the key components of the marketing environment in which an
airline operates. These are organized into a framework knows as PESTLE, an
acronym for each of the components that will be examined, namely: Political,
Economic, Social, Technical, Legal and Environmental.
This framework will be used in Module 4 when we “scan” the environment in
the context of a marketing plan.
Figure 2.1.3—The Airline PESTLE Framework
Key Learning Point

Whereas forces in the macro environment affect society as a whole and
companies indirectly, the microeconomic environment has a direct impact on
companies.
The structure depicted in the diagram above contains three main elements:
The macroenvironment, the microenvironment and the company. The macro
and microenvironments are generally considered as parts of the overall
external environment. The company, on the other hand, is often described as
the internal environment. The reason for this is that the company has its own
forces which affect its external relationships in the market. These are factors

such as the company mission, existing assets and advantages, core skills,
capital structure and access to funds, remuneration levels and productivity.
It is important to be aware of the structure presented in the diagram above
because any company, large or small, is influenced by the environment in
which it operates. Large international corporations may be able to exercise
great influence on the environment. Small companies may have very little
impact or not be able to influence the environment at all. In such cases, a small
company may be left only with the option of adapting to the environment by
anticipating change and positioning itself in advance to benefit from changes.
It is helpful to distinguish between the micro and macro environments. The
microenvironment, as can be seen from its components, affects the company
directly because it consists of competitors, customers, distributors and
suppliers. But the forces of the macro environment affect the society as a
whole and only indirectly have an impact on the company. However, this does
not mean that the macro environment can be neglected since its influence is
pervasive.
Study Checks (Unit 2.1)
1. What is the overall goal of conducting a marketing environment scan?

(a) To identify how consumer behavior alone can affect the airline in order
to modify the marketing strategy
(b) To identify new competitors and assess their potential impact on the
airline
(c) To identify how environmental issues can be addressed in future
marketing campaigns
(d) To identify and interpret trends and changes that can affect the airline
and adjust the marketing strategy accordingly
2. A properly developed market overview enables an airline to forecast future

demand for air travel. TRUE of FALSE.
(a) True
(b) False
3. When conducting marketing environment scans, what are some of the

factors you need to consider? (Select the most accurate answer.)
(a) The economy, fuel prices, regulatory changes, how other airlines are
changing their products and developments in mobile technology
(b) Consumer feedback on social media, housing prices, climate change,
technological developments
(c) Fuel prices, housing prices, climate change, developments in mobile
technology and developments in local public transportation
(d) Social changes, political changes, climate change, customer feedback
on social media and developments in local transportation

4. What is a market segment?

(a) An area of a market defined by location
(b) A class of travel offered on an airline
(c) A group of travelers with a common defining characteristic
(d) A high-traffic season
5. In the acronym PESTLE, the “s” stands for what?

(a) Social
(b) Segment
(c) Satisfaction
(d) Survey
2.1.4 Unit Summary

As we have explored in this unit, scanning the marketing environment is a key
activity because it helps identify any emerging threats or opportunities.
Because scanning the marketing environment can be an overwhelming
exercise, we have shared the key aspects requiring focus.
Moreover, in this unit we described a structured approach that will help you
gain an overview of the market as a whole and how your company can work in
it. It is important that you dedicate enough attention both to the external and
internal market environments.

2.2 The Macro Environment
• Describe the impacts of the political, economic, social, technological and

ecological environments on the airline industry
• Understand the drivers that will continue to have an impact on the
evolution of the airline industry
Unit Learning
By completing this Unit, As we discussed in the previous unit, the macro environment affects the airline
you will be able to: indirectly as its forces have an impact on the society as a whole. Some of the
impacts of the macro environment may be more direct while others may be
indirect. Some factors of the macro environment may have a greater impact on
some airlines than others. However, this should not suggest that the macro
environment is not important for marketing. The airline industry is more
integrated and interdependent today than ever before. An airline may be at a
greater distance from the epicenter of change. This may give it more time to
adjust to the new realities, but the airline cannot completely avoid the impacts
of the macro environment.
In this unit, we will discuss some impacts that the macro environment has on
the airline industry as a whole. You are encouraged to draw your own
conclusions of how some of these factors affect your airline and your
geographical region. Remember, your ability to notice changes and trends in
the macro environment and evaluate their impact on the industry as a whole
and on your airline specifically will help you adjust your marketing strategy
appropriately.
Did You Know?

The Malaysian Immigration Department was the first to introduce on-board
immigration checks to ease queues at the Immigration counters in the airport
terminal.
2.2.1 The Political Environment

Within the political environment there are laws and policies that affect aviation.
These can vary greatly in scope from one jurisdiction to another. Examples of
factors affecting the airline industry include:
• Government policies such as travel taxes and ticket taxes
• Regulatory legislation that can affect ticket pricing and credit
• Government tourist policies than can stimulate travel
• Political stability or instability can impact destination demand
• Security policies (significantly enhanced after the 9–11 incident)
• National politics that can influence travel restrictions
Political changes can develop over a period of time–for example, the
introduction of legislation regarding the environment–or they can be immediate
due to political unrest or civil disturbance. If an airline has a particular exposure
in those areas affected, then it can have a major effect on profitability.
Unit 2.2: The Macro Environment 51

Key Learning Point

The political environment affects the regulatory changes that directly influence
the operations of airlines.
Moreover, the political environment affects the regulatory changes that directly
influence the operations of airlines. Ever since airlines began operations a
number of questions needed to be answered, both for domestic operations and
increasingly for international operations. Such questions include:
• Where can scheduled or charter airlines fly?
• How much and what type of seat capacity is allowed?
• What prices can they charge?
• What actions must they take to ensure safety?
• To what extent can they cooperate with other airlines?
• What laws apply when an airline can't pay its bills?
• Who can own and control an airline?
• How are airlines taxed?
• What labor laws affect airlines?
• Are airlines required to meet certain customer service standards (i.e.
mandatory in-flight meals)?
At a conference held in Chicago in 1944, officials attempted to reach
agreement on the questions asked above. They classified these into two sets
of problems. The first was technological and the second involved regulation of
economic aspects of international aviation. The first needed to set standards
for safety and, if possible, standard means of communication. The second
needed agreements to regulate routes flown, fares charged and frequency of
flights.
The result was the formation of the International Civil Aviation Organization
(ICAO) which deals primarily with technical issues and, on the economic side,
the establishment of some commercial principles governing bilateral aviation
relationships between countries. Domestically, governments at that time and
well into the 1970s practiced a high degree of commercial regulation and
placed severe restrictions on airlines' freedom to make basic choices on where
to fly and what prices to charge.
ICAO's main aims are to develop the principles and techniques of international
air navigation and to foster the planning and development of international air
transport so as to:
• Ensure the safe and orderly growth of international civil aviation throughout
the world
• Encourage the art of aircraft design and operation for peaceful purposes
• Encourage the development of airways, airports and air navigation facilities
for international civil aviation
• Prevent economic waste caused by unreasonable competition
• Meet the needs of the peoples of the world for safe, regular, efficient and
economic air transport
• Ensure that the rights of Contracting States are fully respected and that
every Contracting State has a fair opportunity to operate international
airlines

• Avoid discrimination between Contracting States

• Promote safety of flight in international air navigation
• Promote generally the development of all aspects of international civil
aeronautics
In terms of scheduled airline service regulation, any international routes will
involve at least two governments. These will require bilateral agreements,
otherwise known as Air Service Agreements (ASAs), which cover every aspect
of air service between the countries concerned. One of the primary functions of
ASAs is to regulate traffic rights in terms of what traffic can be carried and what
cannot. These traffic rights are referred to as Freedoms of the Air and are
described below.
Figure 2.2.1—Freedoms of the Air

In addition to the granting of traffic rights, ASAs define designation and

gateways. Designation covers aspects of both the number and characteristics
of the airlines that can use the traffic rights that have been granted.
Governments then decide which airlines can utilize those rights.
ASAs are usually specific in terms of the nationality of the owners of the airlines
which may use the traffic rights. Generally, ASAs state that designated airlines
must be ‘owned and controlled’ by nationals of the country signing the
agreement. As a result, the scope for true multinational airline companies to
develop in the aviation industry has been limited. ASAs can also dictate which
gateways (airports) can be served by which airlines from each country and will
often cover the frequency and capacity of the service.
Key Learning Point

Air Service Agreements (ASAs) are treaties between countries that regulate
traffic rights in terms of what traffic can be carried and what cannot. These
traffic rights are referred to as Freedoms of the Air.
Prior to 1978, the industry operated in a way in which fares and routes were
regulated by governments, with airlines competing heavily on service in a
generally high cost, high fare environment. Air travel was largely inaccessible
to the general public and only wealthy consumers and business travelers could
afford to fly.
The late 1970s was a bad time economically for the U.S., which faced
economic stagnation and rising energy prices. Policymakers were looking to
stimulate the economy by deregulating industries. To enable this, the U.S.
domestic air travel market was deregulated in 1978 and airlines were allowed
to set their own prices and schedules. Also, new entrants were given the right
to compete.
Fares fell dramatically, but not without major competitive turmoil. Famous
airlines like Pan Am, Braniff and Eastern eventually went bankrupt, but
domestic air travel grew massively and attracted new sectors of consumers to
air travel.
In Europe, the Maastricht treaty created the European Union, the culmination
of post-WWII efforts to unify Europe politically. Aviation policy in Europe
followed the deregulation policy of the U.S. and by 1997, any European carrier
could fly anywhere within Europe. A U.K. carrier, for example, could even fly
between two points in France or Spain. This change in regulation gave rise to
the formation of Low-Cost Carriers (LCCs) in Europe which followed the
example of Southwest airlines in the U.S.
Did You Know?

Hong Kong to Taipei is the busiest international airline route in the world, with
6.7 million passengers flying the 802 km journey. The busiest domestic route is
from Jeju to Seoul, South Korea, with 13.4 million passengers per year.
The early 1990s was also a time when the Cold War came to an end and
markets were opening worldwide. The U.S., hoping to encourage this, began to
adopt an Open Skies policy, bilaterally removing all price and schedule controls
between the U.S. and some other countries.
But European carriers, suddenly under pressure from LCCs, generally didn't
want this. One, however, did–this was KLM. KLM, fearing that its home market
was too small to compete in the long-term, forged an alliance with Northwest
airlines in the U.S. The U.S. granted it antitrust immunity in exchange for
supporting an open skies pact between the U.S. and The Netherlands. The

immunity granted enabled the two airlines to legally discuss issues such as
pricing and scheduling which would otherwise have not been possible as they
would have been seen to be anti-competitive practices and therefore illegal.
The KLM-Northwest transatlantic alliance, developing into a full joint venture,
was enormously successful. Others gradually followed, with Lufthansa and
United teaming up as well as Air France and Delta doing the same. These
initial alliances, and others, developed into what we now know as the three
main alliances today–namely Star, SkyTeam and Oneworld. Full transatlantic
open skies pacts took effect in March 2008, removing nationality clauses.
Iberia, for example, was now a “European” airline, not a Spanish one, and
could fly from anywhere in Europe to anywhere in the U.S.
However, cross border foreign ownership liberalization has not yet been
realized. Phase two negotiations of E.U.- U.S. open skies are ongoing and
problems still exist in reaching agreement going forward.
As different U.S. and European airline options multiplied and fares dropped,
other countries began to take notice. Many tourism companies and consumers
were pressuring their governments to allow new airline competition. Just in the
last decade, we've seen the creation of new influential airlines, often adopting a
low-cost type model like GOL in Brazil, AirAsia in Malaysia and FlyDubai in the
UAE. That process continues today.
Key Learning Point

The amount and type of airline travel is directly related to economic activity and
the buying power of customers in the markets being served.
2.2.2 The Economic Environment

The amount and type of airline travel is directly related to economic activity and
the buying power of customers in the markets being served. It is therefore
important for there to be a clear understanding of the overall economic
environment and the forecast trends of activity.
The macro–economic environment refers to the market's overall economy and
includes the following factors:
• Inflation
• Economic growth (i.e. Gross National Income, or GNI)
• Foreign trade and investment levels
• Foreign currency trends and interest rates
• The performance of local stock exchanges
• The national balance of trade
A scanning of the economic environment should cover economic issues of an
international dimension (such as currency exchange rates), economic
conditions of an airline's home market (such as inflation and economic growth)
and specific data regarding consumer spending and incomes.
Today we live in a globalized world where economies are increasingly inter-
dependent. International factors need to be taken into account when
developing a marketing plan. One of the key decisions to be made is trying to
forecast economic cycles to ensure that investments in products, aircraft and
staff, for example, can withstand economic downturns. To highlight a few of the
key factors:

• Economic growth and unemployment. Economies tend to go through

business cycles of growth and contraction and, as in the case of the credit
crunch of 2009, there can also be sudden economic shocks.
Economic downturns also lead to higher unemployment and this leads to
reduced consumer demand. This can lead to the need to implement
specific marketing strategies to cope with these challenges.
• Interest and currency exchange rates. Governments use interest rates to
help the economy in times of difficulty–that is, they lower the rate to make
the price at which money can be borrowed cheaper to try and encourage
consumer demand and investment by firms in new equipment and staff.
Exchange rates are the price of one currency in terms of another (e.g. an
exchange rate of GBP1 = USD1.6 means that 1 GBP buys 1.6 USD).
Fluctuations in exchange rates mean that the price a customer pays in one
country for a product and/or the money that an airline in an overseas
country receives for selling that product can change. This has obvious
implications in terms of where an airline would try and sell tickets to
maximize revenue–sell as much as possible in strong currency markets vs.
weaker currency markets. Exchange rates also have implications for
consumers who, depending on the exchange rate, may decide to go to
certain countries and not others.
• The rise of the ‘BRICS’. There has been a significant shift in economic
growth in the world. The ‘BRICS’, namely Brazil, Russia, India, China and
South Africa, have experienced significant growth, particularly in the last
decade. In addition to the BRICS countries, the investment banking firm,
Goldman Sachs, noted in a study that there are similar patterns of socio-
economic growth and changing demographics in a group of countries that
have been coined as the Next 11 or N-11, which include Bangladesh,
Egypt, Indonesia, Iran, Mexico, Nigeria, Pakistan, Philippines, Turkey,
South Korea and Vietnam. These patterns of growth are resulting in major
shifts in terms of aviation activity and growth to these countries. The
historic dominance of the European and U.S. markets is now weakening.
This is also coupled with a growth in urbanization, particularly in Asia. This
has profound implications in terms of investment and development of
products to meet the needs of a growing middle class of consumers in
these markets, consumers who now have significant discretionary incomes
and potential for travel.
Besides macro-and microeconomic environments, the income and spending
practices of the target populations also need to be taken into consideration. In
both international and domestic markets, it is important to look at how income
is distributed. There are a number of measures available:
• Per capita income. The average amount of money a consumer earns
during a year. This indicator gives a good idea of overall and relative
economic wealth but does not give a clear idea of how much money a
consumer has to spend on travel or how income is distributed among the
population as a whole.
• Gross income. The total amount of money a person makes during the
calendar year. Again, while a good indicator of relative wealth, it does not
provide a good indication of the money left over for travel.
• Disposable income. The amount of money left over after paying taxes.

• Discretionary income. The amount of money that remains after a person

has paid taxes and covered basic expenses such as food, clothing and
accommodation. Of all the measures, this one is the most useful to the
airline industry as it gives an idea of the amount of money consumers
potentially have to spend on items such as leisure travel. But this also
needs to be coupled with a country's population size in order to gauge
gross market demand for air services.
2.2.3 The Social and Cultural Environment

The social and cultural forces in a market can affect both the amount of
travelling that will be required as well as the behaviors and expectations of
potential travelers.
Examples include the following:
• Urban versus rural lifestyles
• Emigration and immigration impact seasonal traffic or could be a sign of a
fundamental shift in population, such as Polish emigration to other
countries within the European Union to seek employment opportunities
• Number of average vacation days per year and school vacation periods
that affect leisure traffic
• Size, ethnic mix, age and income of the population
• Decision-making roles within the family
• The move from group to individual travel in large markets like China
• Attitudes towards use of credit and mobile payments
Another way to look at a company's market is through demographic factors.
Demographic factors include indicators such as age, sex, race and income of a
population. An example of demographic shifts is a slowing birth rate which
might have short term benefits of higher discretionary incomes leading to a
higher possibility of travel, but longer-term problems of fewer people available
to travel. Another example is increased life expectancy, where an increasing
number of people in the upper age bracket travel on leisure holidays.
Key Learning Point

The airlines need to be able to respond with clear product offerings that can
meet the needs of different consumers with varying behaviors and awareness
of travel.
Besides demographics, we need to take into account psychographic factors.
Psychographic factors deal with attitudes and behaviors of customers.
Psychographic shifts can be a function of the maturity of a market and also
reflect the impact of new technologies and lifestyles. As a travelling population
gains experience in international travel their behaviors begin to change.
Examples include a switch from traditional destinations like London to more
adventure destinations like New Zealand or a move from standard package
holidays to more tailored itineraries. Chinese consumers have begun to travel
widely in the last decade, initially to nearby Asia destinations but now to
Europe, the U.S. and Australasia. In addition to package group tours there are
an increasing number of specific higher cost tailored holiday itineraries, such
as to the wine producing areas of France.
With the increase in the use of the Internet by consumers to construct their own
travel itineraries, the reliance on travel agents to provide all elements of a travel
package has also diminished. Consumers are much more aware of the airline

products on offer with comparison websites giving transparency to prices.

Therefore, the airlines need to be able to respond with clear product offerings
that can meet the needs of different consumers with varying behaviors and
awareness of travel.
Monitoring market trends is therefore very important to airlines, as it will impact
the way products are developed and may also affect how airlines distribute
their products to consumers.
Key Learning Point

The greatest impact of the Internet has been in the area of distribution of airline
products.
2.2.4 The Technological Environment

The airline business has experienced significant technological impacts in a
variety of areas. Some examples are given below:
• The Internet. The greatest impact of the Internet has been in the area of
distribution of an airline's product. In the 1990s, airlines became
increasingly aware of the high cost of commissions being paid to travel
agents and other marketing intermediaries. There were also increasing
costs for booking fees being paid to Global Distribution Systems (GDSs)
such as Sabre and Amadeus to host an airline's schedules and prices. The
arrival of the Internet has enabled airlines to sell direct to consumers and
reduce the amount of money paid to these types of intermediaries in the
distribution of airline products.
• Ticketless travel: In the past, airline passengers required a paper ticket that
was presented in exchange for a boarding pass. These tickets cost, on
average, $5 to print, distribute, store and account. Thanks to new
technologies and initiatives by IATA, passengers are now issued e-
tickets–a process that has saved the industry millions of dollars and has
allowed for greater passenger convenience.
• High speed rail. This can be both an opportunity and a threat. A number of
countries are investing heavily in high speed rail. Over a distance of up to
400-500 km, this mode of transport is very competitive vis-à-vis air travel in
terms of convenience and price. This has reduced the possible total
demand on some routes for air travel - such as London-Paris or a more
recent example Guangzhou–Wuhan in China. However, if rail is part of a
coordinated travel strategy, trains can provide regional feeders into major
airport hubs, thus freeing up valuable airport slots for use by long-haul
flights which might previously have been used for shorter distance routes.
New aircraft manufacturing developments. There are now a wide variety of
aircraft types on offer enabling airlines to develop different route networks. The
A380 is designed for high density routes between major global city airport
hubs, with passengers connecting onto regional feeder routes. The Boeing
787, however, is designed to offer an aircraft with fewer seats, but with the
ability to fly long distances directly between cities, cutting out the need to
connect at large hubs. These types of aircraft can be marketed to different
customer segments with different needs and wants. It is also quite possible that
the dominance of current hub airports will be weakened as passengers have
the ability to fly direct and overfly current hub airports. Finally, there are an
increasing number of regional jets offering the ability to serve smaller city pairs
as well as being able to feed passengers into airport hubs. Another
technological development is in the area of In-Flight Entertainment where

consumer expectations continue to increase and where what constitutes a

standard offering is becoming ever more sophisticated.
Speeding Up Airline Lines through the Use of Biometrics
Watch this video about airlines' use of biometric information to help improve the
efficiency of passenger processing: https://www.cnbc.com/2018/12/14/airlines-
experiment-with-biometric-scanning-to-speed-up-airport-lines.html
2.2.5 The Legal Environment

Airlines are subject to the laws of the countries they serve so they must also
take these into account when entering a new market. Investment laws, for
example, will dictate the extent to which a foreign interest can invest in a local
airline. Anti-trust laws prevent price collusion among airlines in some countries,
while labor laws will have an impact on local hiring conditions, wages and work
rules.
The list of regulations and laws that regulate the airline industry is long,
complex and exhaustive, and these have a major bearing on airline operations,
marketing and overall business strategy. As such, these must be taken into
account when conducting market analysis similar to the PESTLE framework
introduced earlier.
2.2.6 The Ecological Environment

Airlines are increasingly under pressure to do more to combat the
environmental impacts of their operations. Increasingly, governments are
imposing taxes related to air travel, be they an Airport Departure Tax or specific
taxes linked to various types of Emissions Trading Schemes. All are designed
to add an environmental tax on airline services.
Key Learning Point

Airlines are increasingly under pressure to do more to combat the
environmental impacts of their operations.
Through IATA, airlines are developing a response to these challenges. It
involves demonstrating good environmental governance to its stakeholders
(passengers, employees, partners and investors).
This can be achieved through:
• Regulatory compliance (emissions trading, airport by-laws, etc.)
• Supporting aviation's global environmental goals
• Showing financial benefit though improved resource use, lower compliance
costs (improved scrutiny) and a reduction in fines
• Ensuring national and local laws are adhered to (hazardous waste, night jet
bans, etc.)
Targets have been agreed to at IATA to reduce carbon emissions by 50% by
2050. In addition, an IATA carbon reporting mechanism is being developed as
well as an IATA Environmental Audit program that is similar in principle to the
IATA IOSA safety program.

Another area subject to increasing environmental concerns and challenges is

the construction of infrastructure to support aviation growth. Airlines will have to
engage earlier with various regulatory authorities and communities to enable
the building of extra airport capacity to meet the continuing growing demand.
SAS and Sustainability
Watch this video about how SAS focuses on sustainability and connectivity to
stay ahead or customer expectations:
https://apex.aero/2019/09/27/video-sas-sustainability-technology
2.2.7 Drivers of Future Change

Wayne Gretzky, one of the greatest hockey players of all time, said that the key
to winning is not skating to where the hockey puck is now, but rather where it is
going. To help airlines understand the direction of the industry and the key
drivers of change, it published a report called the Future of the Airline Industry
to 2035, in which it organized these forces using a framework called STEEP
that assesses the Social, Technical, Economic, Environmental and Political
drivers of change as outlined in Figure 2.2.7 below. Any airline marketer must
take these drivers of change into account when developing marketing plans
and strategies, and an analytical framework like STEEP would be an excellent
source of information. The full report can be accessed here:
https://www.iata.org/policy/Documents/iata-future-airline-industry.pdf
Figure 2.2.7—Airline Industry Drivers of Change (IATA 2018)

From https://www.iata.org/policy/Documents/iata-future-airline-industry.pdf

1. Which statement about the aims of the International Civil Aviation

Organization (ICAO) is FALSE?
(a) To ensure the safe and orderly growth of international civil aviation
throughout the world
(b) To encourage the art of aircraft design and operation for peaceful
purposes
(c) To encourage the development of airways, airports and air navigation
facilities for international civil aviation
(d) To increase competition in the airline industry through the development
of Low-Cost Carriers
2. One of the outcomes of deregulation in the U.S. domestic air travel market
in 1978 was a significant fall in the cost of fares. TRUE or FALSE?
(a) True
(b) False
3. Which of the following is an example of a demographic shift?

(a) Growth in the gross domestic product (GDP)
(b) Slowing birth rates
(c) Growth of the Internet
(d) Falling interest rates
4. What part of the marketing macro environment do Air Service Agreements

fall into?
(a) Technological
(b) Social
(c) Political
(d) Economic
5. Which of the income measures listed below is the most important indicator
of potential spending on leisure travel.
(a) Per capita income
(b) Gross income
(c) Disposable income
(d) Discretionary income

6. Which of the following factors does the IATA STEEP Framework not
assess
(a) Economic
(b) Political
(c) Legal
(d) They are all included
2.2.8 Unit Summary

In this unit, we explored in detail the impact of the macro environment on the
airline industry. The airline industry takes a proactive stance on most of these
issues in order to achieve sustainable development. Good examples of this
position are the IATA initiatives on the environment and carbon emissions. On
the other hand, there are political factors that an airline cannot influence. It can
only adjust to the new realities and limit exposure to risks.
The topics discussed in this unit form what is generally referred to as an
analysis of the PESTLE environment in which an airline does business:
Political, Economic, Social, Technological, Legal and Environmental. In order
to benefit most from such an analysis, you need to look in detail at how each of
these factors affects your geographical area and your specific airline. The key
idea to take away from this unit is that the forces of the macro environment are
pervasive and although your airline may be farther away from the epicenter of
some of these changes, it is inevitable that you will need to adjust. It is best if
you anticipate change and take appropriate measures to be prepared.

2.3 Microeconomic Factors and the Internal

Environment
• Describe the elements of the microenvironment and their impact on the

marketing effort
• Define how the elements of the internal environment impact the marketing
effort
Unit Learning • Explain the importance of understanding the internal environment of the
Objectives airline
In the previous unit, we discussed in detail how the forces of the macro
environment affect the performance of the airline industry. In this unit, the focus
of attention will be on the forces that have a more direct impact on an airline.
We have combined in this unit the microenvironment and the internal
environment because there is a great interaction between them. In fact, some
of the best marketing specialists scan not only the internal environment of their
own company, but also that of their competitors and compare the results.
It is important that you begin to see the interaction between various factors in
the company's environment so that you can identify the issues that affect your
airline and your market most. By mastering this unit, you will be able to identify
the factors that affect your airline's strengths, weaknesses, opportunities and
threats.
2.3.1 Microeconomic Factors

Distribution
The term distribution channel refers to the different ways by which an airline
distributes its product to the marketplace. The most basic distinction that can
be made between different distribution channels are direct and indirect
channels. If the company is selling travel services to its customer on its web
site, this is a direct transaction between the company and the customer.
However, if the company sells its tickets through a travel agent, the agent
serves as an intermediary between the company and its customer. However,
things are often more complicated than this because travel agents generally
use a Global Distribution System (GDS) to access airline seats. GDSs act as a
collator of airlines schedules and capacity. The most popular GDSs are
AMADEUS, SABRE and Travelport.
Unit 2.3: Microeconomic Factors and the Internal Environment 63

Figure 2.3.1a—Direct and Indirect Distribution Channels
Obviously, the travel agent (both traditional and online) and the GDS channels
impose additional costs such as commissions and fees that are passed on to
the customer in the form of more expensive products. At the same time, the
more distribution channels an airline employs, the larger the number of
potential customers. The main challenge for airlines is to minimize costs
associated with distribution channels while maximizing the impact of various
channels. With the increasing consumer use of direct distribution channels, the
role of intermediaries is undergoing significant change. As testimony, Thomas
Cook, the 178-year-old British travel agency, declared bankruptcy in 2019 as a
result of their “Debt and failing to Keep Up with the Times” (The Times 2019)
One of the latest developments is the use of social media as a distribution
channel. Some airlines are offering their customers the opportunity to buy
tickets through their Facebook page and are beginning to use social media as
another type of distribution channel. We will discuss these issues in more detail
in Module 10.
Did You Know?

Etihad Airways is the first airline to supply fresh organic produce for its in-flight
First-Class dining menus.
Suppliers
An airline works with a number of suppliers such as aircraft manufacturers,
ground handling agencies, onboard catering, in-flight entertainment and more.
Some of these services are provided by contracting companies. Others may be
performed by an airline's business unit. The key issue is generally the fine
balance between cost and quality.
One way of evaluating the contribution of suppliers to the business process is
by conducting value chain analysis. Value chain analysis can be used to
identify which activities are best performed by the airline and which activities
can be outsourced to suppliers. In addition, value chain analysis can help
identify which are the key activities that would give the airline an advantage
over its competitors. The focus on individual steps can help you see where in
the process you need to minimize cost and maximize value and quality. This
process is depicted in the following diagram.

Figure 2.3.1b—The Airline Value Chain
The airline value chain as shown in Figure 2.3.1b reflects a sequence of

activities that can go from buying an aircraft, marketing flights, selling seats and
ensuring that the service promised is actually delivered. At each stage
companies seek to minimize cost and maximize value and quality. Another
example would be how airline alliances increasingly attempt to negotiate better
deals for ground handling at airports by using the alliances joint buying power,
reducing costs of service and either maintaining or improving customer service
levels. Airlines are in constant search of new business models that would give
them a competitive advantage.
Key Learning Point

The airline is similar to any other industry. It starts with the procurement of
goods and services and ends with the sale and satisfaction of the final
customer.
Competitors
Competitive pressures on airlines are constantly high, both from other airlines
and from other modes of travel such as high-speed trains. Even contemporary
communication technologies such as video Internet conferencing can lead to
less travelling. In addition, the market entry of low-cost airlines in the last
decade has had profound effects on the structure of the industry.
When looking at a competitor analysis, the initial stage is to complete the same
form of analysis of your competitors as you do for your own airline. You can
develop an initial matrix overview of information such as in the diagram below.
Figure 2.3.1c—Competitive Analysis Framework

This kind of matrix shown in Figure 2.3.1c can help to give insights into the
competitive situation, enabling relative strengths and weaknesses of your own
airline vis-à-vis others to be highlighted. It can also provide a starting point for a
more detailed competitive analysis as we shall describe in the following
modules, which is part of the marketing process to develop a detailed
marketing plan for an airline.
2.3.2 Internal Environment

The internal environment of the company is a crucial factor to consider when
seeking to develop a marketing strategy. After all, we are marketing not only
the product and services of a company but also its core values. The company's
position in the market and its ability to deliver a product with a certain level of
quality depends on the following factors:
• The company's mission
• Access to funds and capital structure
• Existing advantages and assets
• Workforce skills and pay levels
• Workforce rules and unionization
Moreover, by analyzing these aspects you will be able to identify the
company's strengths, weaknesses, opportunities and threats. In the following
pages we will look at these issues and how they affect your marketing strategy
in more detail.
Forces in the Internal Environment

Company's Mission. A Mission Statement is a statement of the purpose of the
company or organization. It helps to guide the actions of the company, its
overall goal and serves as a guide to decision making. It helps to answer such
questions as:
• What is your company in business for?
• Who is it intended to serve?
• What are the expectations of your target market?
Answers to these questions will help to develop a marketing strategy. Because
the mission statement identifies what distinguishes a business from others of
its type, it is the basis for developing a marketing strategy.
Access to Funds and Capital Structure. How easy is it for an airline to fund
investments? Is innovation and change restricted to areas that can be financed
by revenue or can you choose strategies without such constraints? In other
words, how risk averse is the airline? Airlines are subject to the rules of
economics like every other business and over ambitious investment and
growth needs to be carefully balanced when making strategic proposals. When
Boeing designed and built the first B747 it took a risk on the aircraft selling
successfully. One could argue it was a very high-risk strategy, but it was hugely
successful and delivered substantial profits for the firm. On the other hand,
Airbus has announced its plans to discontinue the manufacturing of its A380
aircraft due to smaller orders than anticipated. The aircraft cost USD 25 billion
to develop (BBC Feb 2019).

Existing Advantages/Assets. What is the age of the aircraft fleet? Airlines

often use the average age of their fleet to show how up to date the airline is
with its latest aircraft types, offering the best in flight comfort and serviceability.
Airlines currently operating the A380 and B787 use the aircraft prominently in
their marketing.
What is the potential of existing routes or new routes that have been identified
as possible areas of growth? Marketing will help to identify possible areas of
growth in the current network and potential new routes to serve. Marketing then
needs to develop strategies to position the airline in these markets and develop
its business.
Did You Know?

IATA's Fast Travel self-service program could save up to $2.1 billion annually
across the industry.
Do other assets exist, particularly slots, traffic rights, established partnerships,
terminal buildings/access at airports, supplier investments or relationships?
These will affect the potential mix of items and attributes that can be developed
to produce particular customer offerings for different segments of customers.
What performance statistics does the airline have that could have marketing
significance–e.g. punctuality, reliability, other measures of performance?
Workforce Skills/Pay Levels. How well trained is your workforce and those of
any partners/agencies that deliver service for you? What levels of service
delivery are provided by your cabin crew, reservations staff, lost & found
baggage service? How is the sales force viewed in the market–as account
managers and business partners or as just messengers of product and price?
Does the airline have the workforce required to change its existing strategy or
will it need to hire new staff?
Once you have completed the internal scan of your airline, your responsibility is
not over yet. It is important to review it on a regular basis so that it reflects
changes that take place. This becomes important as you begin to consider
competitors in the same way in order to build a succinct picture of activity that
is actually taking place in the market.
Internal Relationships. The aspects of the company's internal environment
that we considered above affect the company's external relationships in the
market. External relationships a company has–with agents, suppliers, partners,
customers–are affected by how good the company's internal relationships are.
The importance of internal relationships has been highlighted many times in
the history of successful companies. In the early 1980s, British Airways was on
the verge of bankruptcy. Among the steps to recover the airline from such a
desperate state were two programs. The first, entitled ‘Putting People First,’
was intended to ensure that airline staff put the customer at the heart of its
business. The second program, ‘A Day in the Life,’ was an initiative which
brought together staff from all the different departments of the airline in a series
of workshops to improve internal communication as a means of further
enhancing service delivery. When British Airways was privatized in February
1987 the initial share offering was nine times oversubscribed.

Key Learning Point

Internal marketing is the process the company uses to ensure employees are
well informed about the company's mission, brand and priorities, particularly
relating to delivery of customer service.
Another success story is Southwest Airlines. This is an airline that has been
profitable every year except the year in which it was established. Many have
tried to copy its processes but have not achieved the same level of success. It
is widely recognized today that its success is only partly due to its processes.
The other key factor is the relationships between employees of the company
that set it apart from all the rest. The five-star airline Cathay Pacific captures
the same spirit with the slogan “Move Beyond.”
The history of successful airlines highlights the need for the marketing
manager to pay attention to internal as well as external marketing. Internal
marketing is the process the company uses to ensure that employees are well
informed about the company's mission, brand and priorities, particularly
relating to delivery of customer service. The key task is to ensure that not only
do companies convey the correct messages to employees, but that these
messages affect employees' behavior with both external customers and
amongst each other. Companies should ensure that:
• All customer-contact staff fully understand the airline's existing and new
products and services and are fully involved in the company's strategy and
its delivery
• Senior management act as role models for all staff, for example by
frequently experiencing what it's like to serve the customer and listen to
what customers are saying
• Service delivery/customer service processes are constantly reviewed from
the customer's point of view and improved where possible
• People in the airline are encouraged to treat suppliers and agents as
business partners
Thus, there are a number of forces in the company's internal environment that
affect its performance. Some of these forces are more tangible such as the
company's capital structure and access to funds. Others are less tangible such
as the internal relationships in the company. The effectiveness of a marketing
effort depends on all these factors. Therefore, it is imperative that when you
develop a marketing strategy you focus not only on your external marketing
efforts but that you engage the employees of your company with an internal
marketing strategy.

1. From the list provided below, which is one of the most popular Global
Distribution Systems?
(a) SABRE
(b) Galileo
(c) ReserVec
(d) Apollo
2. Which of the following distribution channels is a direct channel?

(a) Travel agent
(b) Tour operator
(c) Airline website
(d) Consolidator
3. Select the best words to complete this sentence: “At each stage of the
value chain companies seek to minimize and maximize and ”.
(a) Expenditures, sales, turnover
(b) Taxes, value, sales
(c) Cost, growth, quantity
(d) Cost, value, quality
4. Why is a company's mission statement important?

(a) It helps establish customer expectations about the airline
(b) It tells competitors which markets you are going to target
(c) It acts as a guide for company decision making
(d) It sets revenue targets for the upcoming year
2.3.3 Unit Summary

In this unit, we discussed two aspects of the company's environment that have
a direct impact on its performance: the microenvironment and the internal
environment. By analyzing the key factors in the microenvironment such as
distribution channels, suppliers, and competitors you can identify the
company's competitive advantage and what the company can focus on to
deliver value to the customer.
At the same time, a close look at the company's mission, access to funds,
assets, advantages, skills, pay, and internal relations will help you identify its
strengths, weaknesses, opportunities and threats. These aspects are the
foundation for developing a marketing strategy for your company. Furthermore,
you should know that when we talk about a marketing strategy, we mean both
an internal and an external marketing strategy.

Module Summary
The focus of attention in this module has been the marketing environment. The
main purpose of considering the marketing environment in detail is to anticipate
the impacts of various forces and position your airline for advantage. We have
seen that different forces in the environment can impact an airline. Some of
these forces impact the whole airline industry while others may impact just a
few airlines in a geographical area. In order for you to better assess the impact
of these forces we shared with you a structured approach to the marketing
environment: macro, micro and internal environments.
Obviously, the marketing environment is a large area and you may feel
overwhelmed. We have shared with you in this module two strategies that will
help you focus on the most important factors: market scanning and market
overview. Market scanning helps you focus on trends rather than on episodic
factors. Market overview helps you target specifically the segments of the
market that are served by your airline.
In the next module, we will look at market research but rest assured that the
knowledge you have acquired in this module will help you develop a solid
strategy for conducting market research.


Boeing. (2019). Current Market Outlook 2019 to 2038. Retrieved from
http://www.boeing.com/commercial/cmo/
Airbus. (2019). Global Market Forecast. Retrieved from
https://www.airbus.com/aircraft/market/global-market-forecast.html
IATA. (2019). Industry Outlook. Retrieved from
https://www.iata.org/publications/economics/Pages/index.aspx?menu=Outlook
The World Tourism Organization. (2018). Travel Growth
The WTTC. (2018). International Tourism Database
Jobber, D. (2010). Principles and practice of marketing (6th ed.). Columbus,
OH: McGraw-Hill Education.
Goldman Sachs. (2007). The Next 11
The Times. (2019). The Demise of Thomas Cook
BBC. (2019). Airbus to Stop Making the A380
Cathay Pacific Airways. (2019).
IATA. (2018). Future of the Airline Industry 2035. Retrieved from
https://www.iata.org/publications/economics/Pages/index.aspx?menu=Outlook
Other Resources and References 71

Answer Key
1. d
2. a
3. a
4. c
5. a

1. d
2. a
3. b
4. c
5. d
6. d

1. a
2. c
3. d
4. c

Module 3:
Airline Marketing Research
• List the steps of a market research project for an airline

• Describe the strategy for developing focused research project objectives
• Explain the use of the qualitative data collection approach
• Describe the best practices for conducting focus groups and in-depth
Module Learning interviews
Objectives
• Explain the use of the quantitative data collection approach
you will be able to: • Describe the best practices for developing effective and engaging
questionnaires
• List the characteristics of an effective research analysis and presentation
of results
Module Introduction
Environmental scanning, as we have seen in the previous module, provides a
comprehensive picture of the context in which an airline operates. However,
the data from environmental scans does not provide information on how
effective specific products or strategies are. In order to evaluate such projects,
you need to conduct marketing research. In this module, we will look at the
market research process from the first step, developing objectives, to the last
step, presenting findings.
There are two basic approaches for analyzing market research data: qualitative
and quantitative. These approaches will help an airline better understand why
its customers have certain preferences and what percentage of its customers
share the same preferences. In this module, we will share insights as to when
and how to use these approaches, the best practices for market research and
some of the challenges and limitations of each approach.
By mastering the basic concepts presented in this module you will be able to
design, conduct and evaluate market research projects that will inform your
airline's course of action.
76 Module 3: Airline Marketing Research

3.1 The Marketing Research Program
• Describe the purpose of marketing research within the overall marketing

information system of a company
• Explain the difference between continuous and ad hoc market research
projects
Unit Learning • Identify various methods of data collection in market research projects
Objectives • Describe marketing information flow as a context for research projects
By completing this Unit, Marketing research is intended to answer very specific questions. For this
you will be able to: reason, it is project-based and its methodology depends on the questions it is
intended to answer. In this unit, we will describe a number of purposes for
which marketing research is used. It is important that you familiarize yourself
with the whole spectrum of issues that are addressed by marketing research.
Another important aspect of marketing research is that it is an integral part of
the company's marketing information system. Although marketing research is
intended to answer specific questions and evaluate specific projects, the airline
will be able to develop an adequate strategy only by taking into consideration
the larger context. In this unit, we will discuss the distinction between
continuous and ad hoc market research projects as well as some
methodologies that are applied in each case.
Key Learning Point

Market research can be defined as the systematic design, collection, analysis
and reporting of data and findings relevant to a specific marketing situation
facing the company.
3.1.1 Purpose of Market Research

The core purpose of marketing research is to provide a basis for informed
decisions. The market information is most often the reaction of markets to
various product, price, distribution and promotion decisions. As we have seen
in the previous module, environmental scanning provides an understanding of
overall prevailing conditions and their impacts.
Market research is more project-based, as opposed to an ongoing process,
and can be defined as the systematic design, collection, analysis and reporting
of data and findings relevant to a specific marketing situation facing the
company.
Two points to note in the above definition are ‘data and findings’ and ‘specific
marketing situation’. Data is the most basic form of knowledge, e.g. fares
charged by a competitor on a specific route. By itself this data is not necessarily
of use, but when combined with other data it can become more meaningful.
‘Findings’ in the above definition refers to information that is the combination of
various data that delivers knowledge relevant to the marketing decision-maker,
e.g. cabin preferences in a particular geographic market for a certain age band
or particular market segment.
Market research must address specific issues–it is not feasible to obtain ‘all the
right answers to all the right questions.”
Unit 3.1: The Marketing Research Program 77

The purpose of market research can cover a number of business requirements.

Examples include the following:
• Size of the airline market: When deciding whether to commence a new
route, we need to know the potential size of the market.
• Market segmentation: We need to identify different segments, or types of
potential customers, within the overall market. This is necessary in order to
refine the product we want to offer. We shall cover this in more detail in
subsequent modules.
• Customer and consumer needs: Building a detailed understanding of
airline customer needs helps in designing such things as future products,
sales processes and even route development.
• Market trends: We engage in research when we need to determine
whether the market is expanding or contracting. We may need to identify
whether there are new trends developing in terms of customer
requirements, technology applications, etc. In Module 2, we discussed
frameworks such as the IATA STEEP analysis that provides an excellent
source of information for the research process.
• Forecasting: Research is undertaken in order to lessen the risk of forecasts
and make them more accurate. This is especially important for revenue
management systems. The Boeing Commercial Market Outlook (CMO) is a
free annual publication that presents aviation demand forecasts for every
global market. (Please see Module 1 for the web link to this publication.)
• Identifying opportunities: Researching where foreign direct investment is
coming from in a particular geography and seeing if the airline route
network can link into the origin and estimating these flows of investment.
• Evaluation of strategy: Research helps identify if an airline's strategy is
meeting its goals, objectives and targets.
• Planning and market mix design: Research provides input data into the
marketing planning process. We will cover this in the next three modules.
• Competitor analysis: Research can answer the need for current and up-to-
date knowledge of competitors' products and their future plans, as well as
any changes to market capacity or pricing.
Did You Know?

According to the Economist (2019), data has replaced oil as the world's most
valuable commodity.
As you can see, marketing research can have various specific purposes. It is
important that you develop a keen awareness of all these purposes because
the specifics of your marketing research project will depend to a great degree
on the purpose of your research. We will discuss in more detail how to set
objectives for your research projects in the next unit. However, at this stage
you need to see how the purpose of a marketing research project depends on
the specific business need that is addressed by the research.
Key Learning Point

Marketing research primarily focuses on assessing the near-term marketing
environment.

3.1.2 The Marketing Research Program

Marketing research has to form part of an effective marketing information
system within the airline that gives managers the right information, in the right
form and at the right time. This information allows managers to make more
effective marketing decisions.
Airlines have huge–and growing–amounts of financial and marketing data held
internally which can be used on a continuous basis to provide information for
marketing decision-making as well as provide information that can be used to
monitor and manage sales force effectiveness. Ad hoc internal data can be
used to measure the effectiveness of specific sales campaigns or price offers.
Environmental scanning, described in the previous module, of PESTLE forces
and STEEP drivers within the overall marketing environment can indicate
trends that could impact the airline in the future. It is a long-term perspective
which can provide inputs for strategy development. Information from
environmental scanning can help provide context and inputs to marketing
research.
Marketing research, on the other hand, primarily considers the near term of the
marketing situation of usually no more than 2-6 months ahead. Otherwise, the
information can become quickly outdated.
Marketing research generally deals with two types of projects:
• Continuous projects, such as regular surveys of customer profiles or
satisfaction levels that deliver regular updates on key trends.
• Special projects, such as assessing customer requirements for a new
product or service that provide input to a specific decision or situation.
Continuous Data Projects

Any market research program should contain a number of continuous projects,
designed to provide regular and actionable updates on specific trends relevant
to the airline. Companies employ a variety of approaches to collect data for
continuous projects. One of the most widely used approaches is the use of
surveys. The benefit of using surveys is that the company receives valuable
performance feedback from its customers. Based on this feedback, a company
can identify the level of customer satisfaction with a service or product. At the
same time, surveys make an implicit statement to the customer that the
company is interested in them and their experience. In addition, surveys often
include open-ended questions that allow customers to share their ideas on how
the company can improve its service.
Surveys have different designs depending on the research issue and the
participants that are targeted by the survey. Data for some projects can be
collected by conducting online or in-flight surveys. Examples of the questions
that can be clarified this way include whether the customers are satisfied with
the food served onboard or whether the seats are comfortable. The customers'
input on these questions can help management make appropriate adjustments.
In other situations, the survey may target members of Frequent Flyer
programs. In this case, the research project focuses on a specific customer
segment. Members of the airline's Frequent Flyer program are the airline's
most important customers because they are the prime revenue generators.
Furthermore, these are generally experienced customers that can provide
valuable feedback which can identify trends. The earlier trends can be
identified the better because it gives the company a chance to act before it's
too late.

Key Learning Point

The early identification of trends is crucial if the airline is going to be proactive
in its marketing efforts.
Another important target for survey research is travel agents. One crucial issue
is their views of the airline. Since the relationship of the airline with the travel
agents is very important, the survey can clarify if it is easy for the travel agents
to do business with the airline. The travel agents work with various airlines and
they can easily identify areas where an airline needs to improve. Another
important issue is disruptions in service. Unfortunately, service disruptions
cannot be completely eliminated. Therefore, the focus is on how an airline
handles disruptions when they occur. The best sources of information on this
aspect of your business are travel agents. In addition, the travel agents are
often in more direct contact with the airline's customers and can offer valuable
insights into the customers' perception of your airline.
Another important source of information for marketing research is the airline's
website. Customers using the website can be asked to participate in a quick
survey. These surveys can focus specifically on the ease of use of the airline's
website. On the other hand, web analytics allows the airline not only to
measure web traffic and the use of the website, but also customer behavior.
The data collected allows an airline to better understand its customers and how
to best communicate its offerings.
Did You Know?

When it comes to data mining, the market research firm Dunnhumby has been
called “the most ingenious of all date wizards” according to Omnibus, a retail
consulting firm.
Other forms of continuous research include the use of consumer panels. In this
form of research, a large number of individual households are recruited, who
provide a regular flow of data as to the type and amount of purchases made.
Their purchasing habits and trends can then be identified over an extended
period of time. Similar ‘panels’ are used for TV viewership, with different forms
of electronic capture of data. The information is used to provide consolidated
audience figures for various programs as well providing ratings for commercial
breaks. Lastly, we cannot ignore social media such as Facebook and
Instagram, and crowd-sourced business review sites such as Yelp! and Trip
Advisor as extremely important sources of customer feedback. Not only can
airlines gather real-time customer sentiments from social media channels, but
they can also respond to customer inputs, questions or complaints on an
almost instantaneous basis.

Many airlines have now invested in sophisticated Customer Relationship

Management (CRM) systems which allow collation of data from all points at
which a customer has interaction with the airline. Most importantly, it aims to
ensure that different departments within the airline do not duplicate analysis by
bringing all data collection into one central ‘bucket’ where it can then be
properly analyzed for the whole business.
Finally, within the company itself there is a wealth of management information,
particularly financial and company performance related. A lot of routine,
continuous market research data is thus produced internally in the form of
internal continuous information.
The forms of research outlined above provide information that has a direct
impact on marketing. The outcomes of marketing research can be classified
into three main categories:
• Market profile data focuses on issues such as reason for travel,
destination, socio-demographic profiles (e.g. age, sex, income, residence
and nationality), previous travel experience and future travel plans. Market
profile data helps an airline to segment its market and identify new trends
in demand. It can also assist in selecting media advertising channels that
could be most effective.
• Buying and usage behaviors such as planning and booking lead times,
Internet usage, length of stay and travel companions. Researching buying
and usage behavior can help in designing fare structures, airline website
design and processes and optimizing which channels of sales distribution
to use in different markets.
• Customer satisfaction ratings for key aspects of the airline product and
service delivery, such as check-in, web booking, in-flight service and
punctuality. Customer satisfaction ratings are important in highlighting
areas of weakness which need improvement. They are also a source of
comments and ideas which can be used in the development of new
products.
Special Ad Hoc Data Projects

• Special projects can be of two types: Pre-planned special ad hoc projects.
For example, the launch of a new product requiring specific research or a
new route opportunity that arises unexpectedly that requires research. The
findings are then fed into the overall marketing process.
• Unplanned special ad hoc projects. There can also be unforeseen events
that may require specific market research. This could be the unexpected
entry onto a route by a competitor or an area of the business that has a
sudden fall in revenue performance. Such unplanned special projects have
to be allowed when putting together the market research budget.

Figure 3.1.2 below summarizes the types of market research described above
and sets it in the context of a company's overall marketing information system.
Figure 3.1.2—The Marketing Information System
As can be seen from the flow of information and knowledge developed from
marketing research, it is of critical importance to a company in making informed
decisions in areas such as product development and marketing strategy. One
of the prime reasons why companies fail is because they did not spend enough
time, effort and resources on good market research.
1. Marketing research primarily considers the long term rather than the long
term. TRUE or FALSE?
(a) True
(b) False
2. What is the difference between “continuous” and “ad hoc” market research
projects?
(a) Ad hoc projects provide regular updates on specific trends, whereas
continuous projects measure the effectiveness of specific campaigns.
(b) Ad hoc projects measure the effectiveness of specific campaigns,
whereas continuous projects provide regular updates on specific
trends.
(c) Ad hoc projects are conducted informally, whereas continuous projects
require extensive planning and funding.
(d) Ad hoc projects require extensive planning and funding, whereas
continuous projects are conducted informally on an ongoing basis.

3. Which of the following statements about surveys is FALSE?

(a) Surveys let customers know that the company is interested in them
and their experience.
(b) Surveys from Frequent Flyers can provide valuable feedback.
(c) Surveys should not include open-ended questions.
(d) Surveys can help the company identify a trend before it becomes a
problem
4. Members of the airline's Frequent Flyer program are not important for
market research because they are not the prime revenue generators.
TRUE or FALSE?
(a) True
(b) False
5. If you wanted to gather feedback on how your airline handles service

disruptions, what would be the best group to survey?
(a) Travel agents
(b) Business travelers
(c) Leisure travelers
(d) Visitors to your website
3.1.3 Unit Summary

In this unit, we described the context for market research projects. We learned
to differentiate between environmental scanning and market research. The
basic distinction is that market research is intended to address specific issues.
For this reason, market research is a project-based approach. This aspect was
emphasized by the description of the purposes of market research. The
methodology for research projects will differ based on the questions that they
address.
Another important aspect that was described in this unit was the larger context
of the company's market information system. Although marketing research
answers specific questions, it is important that these projects be viewed from
the overall perspective of the company's market information system. This will
allow you to use the internal data that your company has more effectively. It will
also provide for a more adequate evaluation for your projects.

3.2 The Market Research Process
• List all the steps in a market research project

• Explain the best strategy for defining the research objectives
• Identify the characteristics of market research that uses existing
secondary data sources
Unit Learning • Explain the difference between the qualitative and the quantitative
Objectives approaches in market research
Unit Overview
In the previous unit, we looked at the context in which market research is
conducted. We briefly mentioned a few research strategies such as surveys
and interviews. In this unit, we will discuss the market research process in
more detail. The approach discussed here implies a structured process that is
intended to lend rigor and validity to the results. We will start with a general
overview of the process and then discuss each step in detail. The process
presented in this module has six steps. In this unit, only the first two
steps–defining objectives and research method–will be presented. The rest of
the steps will be discussed in the next unit.
3.2.1 Overview of Market Research Process

The best way to look at the market research process is by discussing each
stage in this process. Outlined below are the six steps involved in any market
research project. Firstly, research objectives must be specified and agreed to
with those who will be using the research findings. Next, the methods to be
used should be selected. Then, the design stage can look in detail at how the
methods will be used and how the research materials will be produced.
Research is then implemented; results are analyzed and a report is produced.
Figure 3.2.1—Market Research Process

Key Learning Point

The effectiveness and value of marketing research depends on the clarity of
the objectives.
3.2.2 Defining Objectives

One the most difficult parts of the research process is defining the objectives.
The effectiveness and value of the research depends on the clarity of the
objectives. Moreover, the scope of the objectives is another crucial factor. On
one extreme, for example, one could try to collect every piece of information
about economy class passengers travelling from Manila to Bangkok. Such a
project would produce a mass of information, much of which would not be of
any help to actual needs. In addition, the amount of data collected may well
confuse the objective of the research.
Did You Know?

Nielsen is the largest market research company in the world, with revenues
exceeding $6.7 billion in 2018.
Another extreme would be to ask whether enough passengers would be willing
to pay for in-flight movies on, for example, Air X (a fictitious airline) on the
Manila - Bangkok route. This question is too narrow because it excludes a
number of factors that may be crucial for a decision.
The best strategy in defining the objectives of the research would be to ask
what decisions management would have to face in implementing paying for in-
flight movies. The questions could be:
• Should Air X offer pay-per-view as part of its services?
• If so, should this be offered just in economy or in all classes of travel?
• What prices could be charged?
• On what type of planes should this feature be offered to customers?
Based on these questions, specific research objectives could then be defined:
• How many economy class passengers are likely to use this service?
• How important is this offering to customers?
• How will this offer affect customers' perception of the airline?
The important thing is to know is where you are as a business and where you
want to get to by completing the research project.
Key Learning Point

The important thing in identifying your research objectives is to know where
you are as a business and where you want to get to by completing the research
project.
Unit 3.2: The Market Research Process 85

Objectives for Continuous Data Projects

With continuous research projects, such as in-flight surveys, it is important to
recognize that there is a limit to the length and detail of the questionnaire and
to the customers' desire to complete it. This makes it important to be clear
about what we are trying to achieve. The following steps should help achieve
this:
• List all the potential objectives of the project and discuss them with each
potential user of the information that would be collected
• Get them to think through what they will be able to do with the new
information provided that they cannot do now with current research
projects
• Then ask them to demonstrate the real value created for the business by
the use of this new information
• You should then be able to rank the objectives in order of importance and
make some judgments about which objectives to include
Example of objectives that could result from such a process are:
1. Establish and rank key customer segments using ways that can be used to
Insert our general approach to promotion & advertising with a more
targeted marketing approach by segment.
2. Monitor trends in growth, repeat travel and customer satisfaction within
these segments.
3. Indicate the impact of targeted promotional campaigns on buying behavior
within each of these segments
The above can lead to continuous data which over time can produce trend
information and enable a company to identify changes as they occur.
Objectives for Special Ad Hoc Projects

First, the research project needs to be put in proper context. This can be done
by taking the output of the Environmental Scanning work as an input into the
Marketing Research project at an early stage. Or, it could be a change in
performance identified by outputs from a continuous data project.
For example, take a situation where an airline's Economy class traffic is falling
and there is an urgent need to research why this is happening and what could
be done to reverse the trend.
The context can be built up from all of the following sources:
• Your own airline's traffic and revenue statistics–this will highlight the routes
and markets involved. They may offer insights as to why the trend may be
occurring.
• Airport statistics–this can give an overview of competitor performance and
could show whether the decline in Economy class traffic is particular to
your own airline or to all airlines or to a subset.
• Are there economic, social, cultural or political developments affecting
business?
Other areas to take note of would be:
• The airline's competitive environment. Is pricing competitive? Have new
aircraft been put on the route by competitors? Assess feedback from your
sales force as well as information from other airlines' websites.

• Destination market. Has its attractiveness lessened for any reason? Are
there neighboring markets that are developing and moving business away
from the route?
• Customer satisfaction. Is there a systematic collation and review of
customer complaints and compliments which can give clear indications of
product shortfalls, omissions or strengths to build on and market?
The next step is to write down the context and objectives of the research brief.
Any brief needs to include the relevant market context, clear objectives and
specific timescales. Using the example above, the brief could read:
“Economy class traffic is down 20% on the Mumbai to Dubai route compared to
last year. The Mumbai market is the main contributor to this decline. Economic
conditions in Mumbai are healthy and do not seem to be causing this
downward trend. Our market share in Mumbai is normally about 50%, but there
is some evidence that this is also now falling. Therefore, it seems likely that we
are losing traffic to our competitors rather than experiencing a total market
decline. There has been no change in capacity (the number of seats on offer on
the route) and the following competitor activities reported by our sales force are
possible explanations for the drop:
• Air Beta has introduced a new Frequent Flyer Program with benefits for
economy class passengers. They are also linking this to an improved
website offering easier access and use by customers
• Air Beta is offering 4 tickets for the price of 3 to all economy passengers.
This is being linked to a travel agency promotion
Because both competitor airlines are targeting frequent rather than infrequent
travelers, a special research project is required to meet the following
objectives:
1. Establish what changes in choice of carrier are being made by frequent
economy travelers on the Mumbai to Dubai route
2. Explain these changes. Are they due to competitor activity and if so which
ones[s]? If not, what are the real reasons for the downturn?
3. Indicate the desirability and urgency of taking action
4. Evaluate the impact on future customer behavior of several different
options for action that will be provided as input to the project
A full presentation of research findings must take place within the next six
weeks.”
If the research is to be carried out by an external agency and not using the
airlines own resources, a proposed budget can be added to the brief as well as
standard procurement requests such as examples of the proposed agency's
previous work.
3.2.3 Research Methods

Establishing what can be learned from existing Environmental Scanning
information is a first step in any research project. This is often referred to as
desk research and uses primarily what are described as existing secondary
data sources. These can be either internal sources such as company accounts,
reservations data, online retail data (loyalty cards) or external sources such as
government or IATA/ICAO statistics, trade association data, trade publications
or another company's research data (e.g. airlines, airports, manufacturers,
suppliers, etc.). For example, IATA produces a very comprehensive passenger
satisfaction benchmarking survey, enabling airlines to compare their
performance with that of their competitors in several different customer

interaction areas. It currently covers 30 different airlines, getting information

from 34 airports, feedback from over 62,000 passengers per year and
producing feedback on more than 70 measured attributes. The program is
called Airs@t -You can learn more about it by referring to this link at
https://www.iata.org/services/statistics/intelligence/pages/air-satisfaction.aspx
When applying this type of research, it is important to be:
• Thorough: Cover all data sources that are available. In addition, make sure
that feedback from customer contact staff, sales force, airport customer
services and cabin crew is also included.
• Speedy: Desk research should be able to give a rapid response to
whatever marketing issue is raised.
• Precise: It is important to ensure that you describe what the information
tells you and, just as importantly, what it does not tell you. Sometimes there
is a tendency to try and ‘read too much’ into the data and make false
assumptions.
Key Learning Point

Desk research should be thorough, speedy and precise using primarily existing
secondary data sources.
When desk research is not adequate to make an informed decision on a
particular marketing issue, a new continuous or special research project must
be undertaken. These would use ‘primary’ new sources of data such as
questionnaires, focus groups, postal surveys, customer interviews or internet
feedback. The results required could be either:
• A wide-ranging compilation of customer opinions and perceptions that are
usually reported in written form, including verbatim quotes from different
customers
• Definite factual information about specific issues that can be presented in
statistical reports
These two types of information come from two main methods of market
research–the former from Qualitative Research and the latter from Quantitative
Research.
Qualitative Research
The main form of qualitative research comes from group discussions and in
depth interviews. Its primary aim is to understand customers' attitudes, values,
behaviors and beliefs. It is usually carried out with a small number of people,
known as the sample of the population to be researched. Qualitative research
seeks to understand the why, when and how of customer behavior.
As this type of research is relatively small scale, it can be done more quickly
and less expensively. It can provide real insights and expose key issues
important to the customer. However, it is important to remember that, due to
the small sample sizes, it is not statistically reliable. Therefore, some caution
needs to be exercised regarding the results of this type of research.
The diagram below identifies typical secondary research data sources, types of
Qualitative research, as well as examples of ‘expert’ inputs that are sometimes
available from university and banking sector analysts.

Figure 3.2.3a—Sources for Qualitative Research
Quantitative Research
Quantitative research is the collection and analysis of quantifiable data that
involves information from current and potential customers. Methods for
collecting this data includes online surveys, online polls, questionnaires and the
like. Once data is collected, it can help predict the future of a product or service
in order to support changes to or execution of marketing programs.
An example of quantitative research is, the survey conducted to understand the
amount of time an airline check-in counter takes to tend to check-in a business
class customer. A customer satisfaction survey template can be administered
to ask questions like how much time did they wait in line, how often does the
patient walk from the drop-off point and other such questions.
Quantitative research templates are objective and detailed, with the results
being stated in a very logical, statistical and unbiased manner.
Statements such as “10% of the target population believe that” or “20% of
customers would choose us more often if we provided x” require statistical
analysis. Such research implies a much more representative sample size and
carefully designed questionnaires.
Quantitative research can include such techniques as:
• Personal interviews
• Telephone interviews
• Self-completion questionnaires (emailed or distributed)
• Web-based, social media or emailed surveys
Selecting the right method for a research project will depend on the trade-off
between the cost per interview and the value for money that each method is
expected to deliver. Careful analysis is needed.
Qualitative Versus Research Qualitative Research

Approaches
In some cases, the objectives will dictate your choice. Continuous projects like
in-flight surveys and special projects that require statistical results require the
quantitative approach.

Leveraging Customer Analytics.
Watch this video about the evolving use and role of airline customer analytics.
https://knowledge.wharton.upenn.edu/article/leveraging-customer-analytics-
the-airline-industry/

Key Learning Point

Many marketing research projects use a qualitative phase followed by a
quantitative phase.
However, how do we know the quantitative survey is asking the right questions
and in the right way? Only qualitative research can help you be sure about this.
This is why the two methods are often used in ways that complement one
another. Many marketing research projects use a qualitative phase followed by
a quantitative phase. Using our economy class research example from before,
we can see how both approaches are needed. The objectives of the research
were:
1. Establish what changes in choice of airline are being made by frequent
economy travelers on a route from Doha to Istanbul, for example
2. Explain these changes. Are they due to competitor activity and, if so, which
ones[s]? If not, what are the real reasons for the downturn?
3. Indicate the desirability and urgency of taking action
4. Evaluate the impact on future customer behavior of several different
options for action that will be provided as input to the project
The objectives require some qualitative research to be completed before
undertaking quantitative analysis. Firstly, small focus groups of economy
travelers or in depth interviews with a small sample of them will provide
detailed and authentic examples of how carriers have been selected and what
changes in the travelers' buying behavior have been made recently. From this
information initial findings can indicate the reasons behind any changes in
customer travel choices, whether competitor activity is responsible as well as
which particular competitor is achieving success and why.
Therefore, the qualitative phase sets the scene and allows the researcher to
focus during the quantitative phase on key issues that have been raised
through initial customer qualitative research. In other words, qualitative
research enables the researcher to ask the right questions when moving to the
quantitative phase. It is important not to rush into a full quantitative phase too
quickly because this can lead to the research not actually targeting the correct
areas of investigation that would yield the best insights and the best chance of
informing correct marketing action going forward. The chart below summarizes
the main differences between qualitative and quantitative research.
Table 3.2.3b—Comparison of Qualitative and Quantitative Research Approaches

1. What stage of a market research report is completed immediately before

you write the report?
(a) Analysis
(b) Implementation
(c) Design
(d) Methods
2. What is the purpose of setting research project objectives?

(a) To establish the purpose of the research project
(b) To establish the purpose and scope of the project
(c) To identify who will use the research information
(d) To justify the need for the research to management
3. What is desk research?

(a) Initial step in a research project that involves reviewing the existing
data sources
(b) Collating all of the data collected through the research project prior to
analyzing it
(c) Calling people to conduct telephone interviews
(d) Using the Internet to gather data about the airline industry
4. A focus group is an example of what type of research?

(a) Desk research
(b) Qualitative research
(c) Quantitative research
(d) Secondary research
5. Your airline's economy class traffic is declining on route X. You want to

understand what choices customers are making on route X and why they
are making them. What kind of research would you recommend for this
project?
(a) Start by setting up a consumer panel, then conduct some conjoint
research to understand why customers are making different choices
(b) Start with a broad survey to gather statistical data about the problem,
then conduct telephone interviews with previous customers
(c) Start with qualitative research to understand the context, then focus on
the key issues with quantitative research
(d) Start with a quantitative survey to understand the scope of the issue,
then conduct qualitative research to identify the core problem

3.2.4 Unit Summary

This unit focused on the first two steps in the market research process: defining
the research objectives and research method. As we have learned, defining
objectives is of key significance because it has a direct impact on what type of
data is collected and how it is used. We have shared an important strategy
about how to define your objectives in a way that will make a difference for the
bottom line. For many research projects, you may be able to use existing data
either within the airline or in a related organization. However, for most market
research projects, you will need to collect the relevant data. In this unit, we
described the difference between qualitative and quantitative data. It is
important that you think of these types of data not as mutually exclusive, but
rather as complementary.

3.3 Research Design
• Describe the best practices for conducting focus groups and in-depth
interviews
• Explain the main principles for selecting a sample of the population or
market segment
Unit Learning • Identify the techniques for communicating with the participants in a
Objectives quantitative research project
By completing this Unit, • Describe the main features of an effective and engaging questionnaire
Unit Overview
In the previous unit, we outlined the main features of the qualitative and
quantitative approaches to data collection and analysis and the contexts in
which these two approaches are applied. In this unit, we will discuss in detail
how these two approaches can be used most effectively. Because these two
approaches focus on the same task of collecting information from the
customer, you will discover that the same emphasis on engaging and
communicating clearly with the customer is important for both approaches.
At the same time, because these two approaches have different purposes and
applications, they engage the customer using somewhat different techniques.
In this unit, we will share with you the best practices for conducting focus
groups and in-depth interviews for qualitative research. We will also describe
the best practices in developing effective questionnaires that will yield the
quantitative data necessary for generalizing about the behaviors and
preferences of larger populations.
Key Learning Point

The main options in qualitative research are focus groups and individual in-
depth interviews.
3.3.1 Designing Qualitative Research

Focus groups involve up to 12 people discussing the topics needed to be
explored over a period of about one to two hours. The discussion can be totally
unstructured or partly structured. Often, the ‘moderator’ or leader of the
discussion is a trained psychologist. It is important to ensure that each group
contains people from a particular segment of the total population to be
researched. A series of groups is then researched to reach a consensus of
views that can represent each segment. Remember, qualitative research is
about establishing customers' attitudes, values, behaviors and beliefs–we're
trying to find out the “why and how” of consumer behavior.
Focus groups can be useful in surfacing specific topics of relevance that can be
researched in more depth using follow up questionnaires. The wording and
design of the questionnaire can also be better targeted using information
gained through focus groups.
Often during a focus group interaction, people ‘feed off’ each other and this can
help other members in the group to raise issues/ideas/attitudes which they
might not have felt comfortable raising in a one-on-one session.
Unit 3.3: Research Design 93

As a research method, focus groups do have some weaknesses. First, the

results can be very subjective and possibly superficial compared to what can
be gained from in depth one-on-one interviews. Also, given the small sample
sizes, it is hard to draw any general conclusions. One other potential drawback
is the presence of people who attend many focus groups and almost make a
‘career’ out of it! This can skew results and steps should be taken to avoid it.
Focus groups today can be conducted online. This can enable worldwide
coverage and can be very effective. One drawback is that it is not possible for
the researcher to see the body language of respondents or interaction between
members of the group that would be possible in a normal physical setting.
However, online focus groups are increasingly being used as a method.
In Europe in 2005, qualitative research accounted for 12% of all European
expenditure on marketing research, of which about 77% was spent on group
discussions, 19% on in-depth interviews and 4% on other qualitative
techniques. By 2018, the figure for qualitative research had increased to 22%
of total expenditures.
There is always a trade-off between the level of cost and the depth and quality
of the research output. In general:
• If a project includes a quantitative stage, qualitative focus groups will
normally deliver enough information to guide design and implementation of
this second phase of research
• If a project does not include a quantitative stage, then using both focus
groups and individual one-on-one in-depth interviews is probably better
than just focus groups
• If the airline has a good database of frequent customers, either through its
Frequent Flyer Program or other Customer Relationship data, this can be a
segment worth researching using the techniques described in this manual.
Defining the ‘profile’ of the respondents you wish to research is important.
Active recruitment of these respondents early on in the research program is
also critical as not having sufficient respondents can be a delaying factor in the
research.
Lastly, a ‘Topic Guide’ needs to be designed to act as a prompt for the
researcher. Such a guide requires a decision on what sort of material can be
used as prompts in the forums or in one-on-one discussions. For example, this
can be existing promotional material from the researcher's own company or
that of its competitors.
Key Learning Point

The quality of data will be impacted by the size and composition of the sample,
the thoroughness of the questionnaire content and the accuracy of completion.
3.3.2 Designing Quantitative Research

For this type of research, a balance has to be struck between ‘cost’ and ‘quality’
of data. The cost per response that each technique can deliver needs to be
evaluated, i.e. the relative cost of face-to-face interviews, telephone interviews,
self-completion questionnaires and online surveys. The reliability and quality of
data that will be obtained by using each of the techniques mentioned above
must also be determined. The quality of data will be impacted by the size and
composition of the sample, the thoroughness of the questionnaire content and
the accuracy of completion.

Sampling is one of the major tools of market research. It involves the study, in
considerable detail, of a relatively small number of informants who have been
selected from a larger group. A ‘sample’ can be referred to as a segment of the
population selected for market research to represent the population as a whole.
When designing a sample, there are three important decisions to make:
• Who is to be surveyed?
• How many people should be surveyed?
• How should the people in the sample be chosen?
(1) Who is to be surveyed?

The project objectives will influence the answer to this question. For example:
• Projects A's objective is to establish the top five destinations visited by
people taking overseas holidays in the last three years
• Project B's objective is to estimate the proportion of the total population
that travelled overseas in the last three years
In the case of Project A, people who have not travelled overseas on holiday do
not need to be included in the sample. In the case of Project B, it is necessary
to talk to a sample of the total population to meet the objective of finding out
what proportion of that population has in fact travelled overseas.
You may need to talk to samples taken from several different groups in order to
complete the project. In this case, definitions of each group need to be made
clear and distinctly different from other groups.
(2) How many should be surveyed?

The larger the survey, the greater its possible precision and reliability–but also
the greater the cost of carrying out the work. Estimating how much precision
and reliability is needed can be determined with the help two formulae. These
are:
Level of confidence: This measures the probability that research results are
accurate because the sample size was representative. The 95% level of
confidence is often cited as the norm for each quantitative research project to
achieve. This means there is only a 5%, or 1 in 20, chance that the research
results are inaccurate. A trained researcher will be able to estimate the sample
size to reach this and other levels of confidence. Sample sizes of around 1,000
can usually provide measurements that have acceptable confidence levels
when referring to actual populations in the millions.
Limit of accuracy: This is also something that researchers can calculate in
advance. For example, a sample size of 500 people from the target population
is suggested. A limit of accuracy calculation may show that this sample is only
accurate within a certain range. If this is estimated to be within +10% to -10%
then this would normally be acceptable. However, if the range is not deemed
accurate enough, then the sample size may have to be revisited.
In any sample taken, there will also be a number of non-respondents and this
also has to be taken into account.

(3) How should the sample be chosen?

There are two basic methods: Random and non-random sampling.
Random sampling is when respondents are selected at random–for example,
using every 15th seat on the aircraft. This method is used to ensure that every
member of the target population has an equal chance of being contacted. The
method can eliminate possible bias, but it does have some disadvantages:
• Recruitment of contacts for the research may be difficult and take more
time
• You need to ensure that non-response does not introduce bias
• Ensuring a truly random sampling method may involve an unacceptably
high cost.
Non-random sampling is where the researcher deliberately selects whom to
contact. It counters the disadvantages of the random method, i.e. recruitment is
easier, non-response is reduced and less time and money is involved. The
negative side of non-random sampling though is that it can introduce significant
bias.
To counter this potential bias, a structure is often introduced in the form of
‘stratification’ and ‘quotas’. In stratified sampling, the research sample is
broken down into particular groups that are important for the project and each
stratum is given a quota for the number of interviews to be completed.
Using the example at the beginning of this section, Project A, the objective was
to establish the top five destinations visited by people taking overseas holidays
in the last three years. If the objective was changed to feature a direct
comparison of the top five destinations for frequent holiday travelers (travelling
at least once a year) and infrequent travelers, stratification and quotas could be
used as follows:
Stratum Qualification Quota
1 Must have taken at least one overseas holiday during the 500
last three years
2 Must have taken at least one overseas holiday, but less 500
than one per year
The bias of non-random sampling is being controlled in ways that support the
projects objectives and because non-random sampling is cheaper the cost of
achieving any sample size should be significantly lower.
3.3.3 Quantitative Research Techniques

There are four basic techniques that can be used for quantitative research
surveys:
• Personal face-to-face interviews
• Telephone interviews
• Questionnaires that consumers complete on their own
• Online market research

Key Learning Point

Deciding which technique and method of sampling to use will determine the
cost and time frame required for the research.
The above are ranked in order of cost, with the most expensive–personal
interviews–first. The decision on which technique and method of sampling to
use will determine the cost and time frame required for the research.
Increasingly, market research companies are collecting their primary data
through the use of the Internet. Such companies are estimated to be spending
in excess of 30% of their market research budget online.
For each of the four survey techniques that can be used there are a variety of
possibilities in the way they can be conducted. For example:
• Consumer panels: A representative sample of consumers is surveyed
regularly to measure changes in their attitudes and behavior over time.
Market research companies increasingly use this method online to interact
with existing or potential customers.
• Online consumer research communities: Similar to consumer panels but
allow particular branded companies' consumers to interact with each other.
• Syndicated research: In this case, several airlines can jointly sponsor one
research project. Each airline receives its own version of results. In this
way, it enables the airlines to share costs.
• Test or trial marketing: This option is used when a company wants to test
and predict customer reaction to a new product or service. A sample from
the target market is selected to try the new product or service and research
findings are obtained. For example, one airline may conduct trials of
different products on specific classes of travel and on specific routings to
gauge consumer views and reaction.
• Conjoint research: This method enables a researcher to measure how
customers value different features or aspects of a product or service in
relation to one another. This can be expensive and time consuming but has
been used by airlines in choosing new cabin configurations as well as
helping decide whether to invest in enhanced services for customers. A
good example of this would be deciding the priorities of whether to offer
Executive Card members more Miles, better lounge facilities or enhanced
online services.
All these strategies require some form of contact with the customer. There are
a number of methods of how to contact consumers, but not all of them are
equally effective. In the table below, we offer a grid of the relative effectiveness
of each of these methods.

Table 3.3.3—Relative Effectiveness of Consumer Contact Methods
In summary, there is no set of firm rules to decide which techniques to use.

However, the following guidelines will assist in making a decision:
• What are the project's objectives? A complex set of objectives may require
a more expensive technique, whereas a simple questionnaire will be easier
for customers to complete. An urgent project might necessitate a technique
on the basis of speed.
• What is the likely customer viewpoint that applies to your research project?
What method of contact are the customers involved used to? What do they
prefer? What will be appealing to them?
• Is there time to test one set of techniques against another? This enables
the choice of the most cost and quality effective option.
Key Learning Point

To ensure that a valid response to a question is likely, it is important for
respondents to be able to understand the actual question, provide the
information requested of them and be willing to provide the information.
3.3.4 Questionnaire Design

A questionnaire allows the researcher to gather information with considerable
accuracy using any of the four basic techniques: face-to-face, telephone,
personal and online. To ensure that a valid response to a question is likely, it is
important for respondents to be able to understand the actual question, provide
the information requested of them and be actually willing to provide the
information.
Developing a questionnaire that is easily understood by the participants and
motivate them to complete it is not an easy task. There are several guidelines
that will help achieve this goal.
1. Create and maintain involvement: Involvement can be created by
explaining the benefits of completing the questionnaire and by rewarding
the participant's effort with bonus FFP miles or a small gift. Tell the
respondent what to expect–how long it will take and what are the main
topics. Make the process of answering as simple and appealing as
possible. The layout of the questionnaire should be crisp and clear and not
cluttered.

2. Adopt a logical sequence: A good questionnaire flows well, moving on from

the more general or contextual issues, probably starting with easier to
answer questions, then to cover key areas of the research project itself.
3. Achieve maximum clarity: You must ensure that questions are clear. It is
also important to avoid jargon and bias. The following question contains
both: We find that our best customers prefer A380s because they offer
slightly better seat pitch. How do you feel about this?
4. Employ relevant questioning methods: There are different questioning
methods available such as simple yes/no (e.g. Are you aged under 30?),
multiple choice (e.g. I am [male] [female] please tick appropriate box), and
open ended questions (e.g. Describe why you chose to fly with us today?)
When asking for customer opinions, there are many ways to ask a question.
Here are three ways of asking a customer's opinion about seating:
(a) Please tell us how many marks out of a maximum of 10 you would give for
the comfort of your seat today?
(b) Please tell us how you would describe the comfort of your seat by ticking
one of the boxes below:
• very comfortable
• quite comfortable
• acceptable
• rather uncomfortable
• very uncomfortable
(c) Please tell us your opinion of the comfort of your seat by ticking one of the
boxes below:
• it met my expectations
• it did not meet my expectations
• it exceeded my expectations
When looking at the three examples above, the first is the only one that will
give a numeric score, but this will be potentially hard to interpret. If a passenger
scores you 8 out of 10, what does it mean? The second example is intended to
gauge the level of comfort. But it does not tell you whether this level of comfort
was expected or not. It would be possible to rate a seat comfortable, but it also
may not have met expectations. The third example does tell you whether the
seat met expectations but does not tell you anything more about actual
comfort. It could have met expectations, but left the passenger still feeling
uncomfortable.
The main issue with questioning methods is to ensure the best method of the
best version is used to obtain the most accurate and useful answers. From the
above examples, one can appreciate the expertise required to make sure the
questionnaire is properly written.
In addition, we need to consider whether the questionnaire answers all of our
questions and, in doing so, will it enable us to meet the objectives of the
project? Furthermore, we need to work closely with the person responsible for
capturing the data to ensure that the process runs smoothly.

3.3.5 The Research Plan Design

The research plan starts by agreeing on the work to be done, including
objectives, costs and timeframe both internally and with the research agency, if
one is going to be used. It then establishes the responsibility and procedures
for project control.
Next are key decisions such as deciding the exact method to be used, the
composition and size of the sample, recruitment of respondents or if a
particular profile is being targeted. At the same time, work will be progressing
on the research elements required, such as a topic guide and questionnaire
materials.
When all is ready, these can be piloted/tested and any problems rectified.
For the implementation phase of the research plan, several most common
challenges need to be considered in advance:
• Lower than expected response rates
• New issues and findings that may change the context and requirements of
the project
• Logistical problems–data can be lost, venues can be overbooked,
researchers can fall ill, etc.
These challenges have to be managed by good project control/management.
As in any good project, management issues of expenditure control, quality
control and time management will be fundamental to the success or failure of
the research project.
1. What is sampling?
(a) Selecting a segment of the survey data to analyze in-depth
(b) Studying the responses from a specific focus group and comparing it
with the results of a survey
(c) Selecting specific issues raised during focus groups to study through
surveys
(d) Studying a segment of the population that is selected for market
research to represent the population as a whole
2. In the context of survey research, what are “level of confidence” and “limit
of accuracy”?
(a) Formulae that reveal the representativeness of the sample size and
the accuracy of the results
(b) Threats to the validity of data because of imprecise survey questions
or unreliable delivery methods
(c) Terms for the bias researchers can introduce when they are looking for
data to justify a specific point of view
(d) Measures that indicate the representativeness of the sample group

3. Online market research is an example of what type of research?

(a) Desk research
(b) Quantitative research
(c) Qualitative research
(d) Secondary research
4. The strength of focus groups as a market research method is the ability to

make general conclusions. TRUE or FALSE?
(a) True
(b) False
5. Conjoint research is when a representative sample of consumers is

surveyed regularly to measure changes in their attitudes and behavior over
time. TRUE or FALSE?
(a) True
(b) False
3.3.6 Unit Summary

In this unit, we discussed in detail the best strategies for an effective use of the
qualitative and quantitative approaches for data collection. We learned that
focus groups and in-depth interviews are the two main options in qualitative
research. We discussed the key factors to be considered when working with
focus groups or conducting in-depth interviews.
The key aspect of quantitative research is the ability of the researcher to
generalize findings to a population. However, the best sampling strategies may
not always be feasible because of budget limitations. This is a chronic issue
that cannot be ignored in designing a research project. In this unit, we
introduced the four basic techniques for engaging the participants in a research
project. The development of new technologies is changing how each of these
techniques is applied. However, the basic tenet remains the same. The
researcher develops a questionnaire for collecting quantifiable data that can
indicate consumer behavior and trends. We have shared some techniques for
creating a questionnaire that will keep the participant engaged and ensure the
questionnaire is completed.
Market research can be a serious project management challenge. Some of the
challenges cannot be avoided. Others can be mitigated by advance careful
planning.

3.4 Analyzing and Presenting Research Results
• Describe the characteristics of an effective research project analysis

• List the main elements of a written project report
• List the main elements of a verbal project report
• Understand key trends in market research
Unit Learning
Objectives
you will be able to: The analysis phase of a market research plan brings together the efforts of
various participants of the research project. Specialized companies and
agencies may be contracted for some parts of the project or for the whole
project. The main purpose of this phase is to emphasize findings and
conclusions that can be a basis for developing a course of action. In this unit,
we will share the key characteristics that will lend value to a project's findings.
In addition, the communication of these findings to the wider organization is
important for mobilizing the internal capacity of the company and developing a
truly customer-oriented organizational culture.
3.4.1 Characteristics of Effective Market

Research Analysis
Market research is valuable only to the extent that it informs that company's
decisions about a product or a service. From this perspective, the analysis
section of a market research project reflects several key characteristics:
The value of the research agency's input: There are benefits of using a
professional agency for research. Agencies can conduct unbiased interviews
and use their skills in designing and implementing the project. In terms of
analysis, an agency can interpret results at a very sophisticated level.
Obviously, the agency must have a thorough briefing that includes the
objectives of the analysis.
The application of statistical and other tests: Take care to ensure that there is
no selective use of statistical outputs to justify a particular point of view or
preferred option. An agency involvement can mitigate this possibility. Also, the
involvement of internal skilled statisticians can help in this regard.
In some contexts, statistical tests and outputs may not be relevant and simple
logic can be used to see if conclusions expressed have merit. For example,
consider the two statements below:
• ‘All of the business travelers in my focus group flew First or Business
Class, so there cannot be any business travelers who fly Economy’
• ‘All of the business travelers in my group flew First Class, so their views
can only be used to indicate what the First Class market requires’
The first statement has no logic behind it and only the second statement has
meaning.
The need to relate results to other known factors: It is important to understand
how results relate to the wider context in which the research is carried out and
that the results meet the objectives of the project. Two questions address this
point: ‘So what?’ and ‘Which means that?’ to each major finding. In other
words, ensuring the output of the research can be construed to answer a
question or provide an insight.

For example, consider these two findings:

• ‘50% of our market want higher quality and 50% want lower fares’
• ‘Those seeking higher quality travel twice as frequently as the rest; we
have identified three key features that would meet their requirements’
The first statement does not answer either ‘So what?’ or ‘Which means that?’
The second statement answers both of these questions. It shows that the 50%
of respondents seeking higher quality are more valuable (higher frequency
travel). It also indicates that there are further findings that can help in
determining further actions to meet customer requirements.
The importance of testing established and new hypotheses: In any form of
research, established hypotheses are tested and investigated. Marketing
research is no different. In this way, initially held views regarding the marketing
situation can be tested and either validated or refuted based on new findings.
The potential for building models: Market research findings can be used to
develop predictive models that can be applied to different marketing situations.
In particular, conjoint research enables a package of customer benefits to be
evaluated in terms of the various tradeoffs that can be made in terms of the
final offering made to customers.
3.4.2 Presenting Research Findings

Verbal Reports
Making presentations is a skill that requires specific training. The outline below
is an overview of the topic only. It is also assumed here that the research
project is suitable for a full presentation, including specific recommendations.
Step 1: Decide what you want the audience to learn from your presentation.
What are the key points you want them to understand? Which areas might you
wish feedback on?
Step 2: The basic structure of the presentation should follow this type of format:
(a) Introduction (5–10 minutes)
• Content summary: Which market[s] have been researched? What is
happening in the markets? Why was the research project undertaken?
• Project objectives: What are they and who decided and approved
them?
• Summary of methods employed: When and how was the research
done? How will the results be used?
(b) Key findings (15–20mins)
• Best introduced with a theme, for example ‘These findings will show
how much improvement we have made in market X for three years
ago’
• Research findings–remember to make it relevant
• Links to facts from the company's context and/or other key findings
Unit 3.4: Analyzing and Presenting Research Results 103

(c) Conclusions and Recommendations (20 minutes)

• Recommendations should follow logically from the previous section
and for each recommendation there should be:
○ What should we be doing about this?
○ When should we be doing it?
○ How should we be doing it?
○ Why is it important?
At this stage, questions will most probably be asked and discussions will
ensue. It is important to keep the meeting as action focused as possible and to
clearly identify who will be responsible for specific actions. If an outside agency
has been involved then a representative of that company should normally be
involved.
Written Reports
A draft can be produced after a verbal report where conclusions and actions
can be included. Alternatively, a written report can be issued with a follow up
meeting to discuss and agree upon actions. The written report should contain
the following elements:
• Title page: Lists the theme, client, research agency, date, etc.
• Table of contents
• Preface: Defines the context of the project, outlines the agreed upon
research brief, a statement of objectives, the scope and methods of
research
• Summary of conclusions and recommendations: Support these with the
main findings of the research (and add anything important arising from a
verbal report/presentation if this has happened)
• Previously related research: Make sure to show how previous knowledge
may have informed the current research
• Research method: Procedures used to collect information–where, how and
from whom. The techniques used and the characteristics and size of
samples.
• Results: Include a clear, logical presentation of results. Graphics and
tables/visuals are a powerful means of effective communication
• Conclusions and recommendations
• Appendices: Provide detailed evidence from which conclusions and
recommendations are drawn.
3.4.3 Trends in Market Research

Advances in technology and increasing digital penetration are bringing about a
number of changes in the area of market research tools and methodologies.
Some key trends, according to research experts include:
• Increased use of passively collected biomarkers (face, voice, eyes,
posture, skin, heart, brainwaves) to gauge consumer response instead of
direct questioning, and increased use of social media analytics to detect
sentiment, passion, and thematic content (Pincus 2017)
• Human Filtering Combined with Automated Market Research: The best
and most reliable research products will put a layer of human filtering and

analysis on top of algorithm-driven data, in order to weed out bad results,

deliver value-added analysis, and convey the meaning of data points that
seem to be outliers or anomalies.” (Plunkett 2017)
• Growth of Automation and Artificial Intelligence: Research that is faster,
cheaper, and more standardized, with artificial intelligence driving the
analysis (Poynter 2016)
1. An agency involvement in the airline research can lead to selective use of

statistical outputs to justify a particular point of view. TRUE or FALSE?
(a) True
(b) False
2. Why is it important to ask the questions “So what?” and “Which means
that?” when reviewing market research?
(a) To establish new hypotheses that can be tested and either validated or
refuted
(b) To develop predictive models that can be applied to different marketing
situations
(c) To ensure there is no selective use of statistical outputs to justify a
particular point of view
(d) To understand how results relate to the wider context in which the
research is carried out and meet the objectives of the project
3. What are the two main ways to present the findings of your research
project?
(a) A verbal report or written report
(b) Focus groups or one-on-one meetings
(c) PowerPoint or Word
(d) Newsletter or interview
3.4.4 Unit Summary

In this unit, we discussed the final step in the market research process. The
value of the analysis is in its clarity. It must indicate the course of action the
company should take. We have shared several characteristics of an effective
research analysis. The main point of conducting a market research project is to
provide guidance for the company's course of action based on changes in the
market situation. We have provided a detailed outline of a verbal and a written
report that would disseminate the findings of the research project. The
importance of engaging the whole company with the marketing strategy that is
developed cannot be overemphasized. Finally, thanks to technological
advancements, there are more tools and data available to the airline marketer
that can provide even more insights into the airline customer.
Unit 3.4: Analyzing and Presenting Research Results 105

Module Summary
In this module, we looked at market research as a focused project that answers
specific questions about a product or a market segment. Although market
research projects can and should be enriched with findings from environmental
scans, these projects tend to focus on more immediate and pressing issues.
We distinguished between continuous and ad hoc market research projects.
This means that while some market research projects will be more integrated
and be part of the environmental scan, others may be more focused on short
term issues.
We have covered the whole process from setting the objectives to
communicating the results of the project. The objectives represent a critical
stage because they bring focus to the project to deliver actionable conclusions.
Next, we presented in some detail the two basic approaches for data collection:
qualitative and quantitative. Both approaches have their strengths and
weaknesses. The best strategy, therefore, is not to think in terms of one
approach or the other, but on a combined approach to yield the best results.
We have described the financial implications of using any of these approaches
and various techniques to support them. In designing the market research, we
must always balance the cost of the research with results.
Finally, we reviewed analyzing and communicating the results of the research.
Your report can motivate and encourage your company to develop a
successful course of action or it can leave your stakeholders puzzled. Apply the
techniques that are described in the last unit of this module to ensure your
efforts bring value to the organization.


Market Research.com. (2017). Trends in Market Research
Pincus. (2017). Biomarkers and Research
Plunkett. (2017). Human Filtering
Poytner. (2016). Growth of Automation and Artificial Intelligence
Wharton. (2018). Leveraging Customer Analytics

Answer Key
1. b
2. b
3. c
4. b
5. a

1. a
2. b
3. a
4. b
5. c

1. d
2. a
3. b
4. b
5. b

1. b
2. d
3. a

Module 4:
The Airline Marketing Strategy
• Explain the purpose of marketing strategy and planning

• List the characteristics of an effective marketing strategy
• Understand the roles of the business mission and marketing goals
• Explain the main elements of a market audit
Module Learning
Objectives • Describe the purpose of market segmentation
Module Introduction
In the previous module, we looked at market research projects that are
intended to answer immediate questions such as the customer's attitude to a
product or service or a decline in sales in a particular segment. Marketing
strategy, on the other hand, assumes a long-term perspective and is built on a
thorough understanding of the airline's internal and external environments. The
basic role of the marketing strategy is to provide a foundation for developing a
marketing plan. These two activities are interrelated.
Because marketing strategy and marketing planning deal with the long-term
development of the airline, we will not be able to cover the whole range of
activities in just one module. We will look only at the first three steps in the
process of developing a marketing plan in this module:
1. developing a business mission.
2. conducting a market audit and
3. performing market segmentation.
The next steps in the development of a marketing plan will be covered in
Module 5.

112 Module 4: The Airline Marketing Strategy

4.1 Marketing Strategy & Planning
• Define the purpose of the airline marketing strategy and the marketing plan
• Describe the benefits of effective marketing strategy and marketing
planning
• List the characteristics of an effective airline marketing strategy
Unit Learning • Explain the role of the airline's business mission in the development of a
Objectives marketing plan
Unit Overview
In order to gain a clear understanding of how a marketing strategy is developed
and used in an airline, it is important to start by defining its purpose and
relationship to other activities. In this unit, we will discuss the relationship
between a marketing strategy and a marketing plan. These two activities are
closely related because the marketing strategy serves as the fundamental
underpinning of the marketing plan. However, each of these activities has a
different focus. Therefore, in the first part of this unit, we will describe the
boundaries between these two activities. In addition, we will share the
characteristics of an effective marketing strategy and the benefits that it gives.
The marketing plan also needs to be considered in the context of the marketing
process. We will provide an overview of the marketing process that will help
you better understand the significance of the marketing plan and the resources
required to develop it. In this unit, we will also cover the first step in the
development of a marketing plan. The rest of the steps in this process will be
covered in subsequent units and modules.
Key Learning Point

The purpose of marketing strategy and planning is to provide an airline with a
clear path to an outcome that optimizes profitability.
4.1.1 The Purpose of Marketing Strategy and

Planning
The purpose of marketing strategy and planning is to provide an airline with a
clear sense of direction for the future development of the airline. The plan
needs to support the delivery of four business objectives which companies
generally set for themselves, namely:
• Maximize revenue
• Minimize costs
• Maximize profits
• Maximize return on investment
In many ways, the objectives above are in ‘conflict’ and managers need to be
able to reach a rational set of business decisions to move the business
forward, balancing the different objectives of the business.
Unit 4.1: Marketing Strategy & Planning 113

Often what is delivered is the ‘optimum compromise’ between these different

objectives. Some initiatives will not be undertaken, others will. An efficient and
well-planned marketing strategy will help an airline reach a point where
decisions are made that deliver on those business objectives. It will also
answer the following key questions, which in turn help guide the development
of the business itself:
1. Where are we now and where are we going?
2. What is the best way to get there?
3. What is required to make this journey, when is it required and from whom?
4. How will we measure progress and how often?
5. What action will we take if progress is too slow?
Key Learning Point

Whereas the marketing strategy is truly ‘strategic’ and not tactical, the
marketing plan spells out which specific actions need to be taken to implement
the marketing strategy.
The marketing strategy is to establish a coherent and clear direction for the
airline and it answers the first two questions. It highlights opportunities and
threats and helps determine how an airline should approach its markets in
order to maximize efficiency and effectiveness. One key point is that the
marketing strategy needs to be truly ‘strategic’ and not tactical or short-term in
concept. The development of truly strategic marketing objectives requires
greater focus on scanning the external environment, the early identification of
PESTLE forces and threats/opportunities coming from that scanning as well as
developing a strategic response. The plan should ideally cover a period of
between three and five years.
The marketing plan, on the other hand, is a written and organized description of
which specific actions need to be taken to implement the strategy, when they
should be made and who is responsible for taking them. This will provide
answers to the remaining three questions listed above.
There are a number of clear benefits that result from effective strategy and
planning:
• It enables the systematic identification of emerging opportunities and
threats through a SWOT analysis (covered in Module 5). For example, one
of the weaknesses exposed in the so called ‘Legacy’ airlines such as
British Airways and Air France in Europe during the late 1990s and early
2000s was their lack of awareness of the realities of the emerging threat
from Low Cost Carriers (LCCs). It could be argued with hindsight that a
more rigorous marketing strategy and planning could have reduced the
negative impact of LCCs on their businesses. It would have enabled the
businesses to better prepare for change–particularly changes to processes
and systems as well as cost reduction.
• Provides a disciplined review and analysis of the business environment will
help to improve performance and lead to better results. The key here is to
be able to create sustainable competitive advantage for the airline in order
to keep the business profitable.
• Updates the Vision, Mission and Goals that provide a clear direction to the
airline's marketing efforts. The process itself also leads to improved
communication among different managers in the business and, hopefully,
to a reduction in conflict between individuals and departments.

• Promotes cohesiveness of efforts. All staff can understand and identify with
the airline's plans for the future. This should also lead to more consistency
of approach across the organization.
• Provides ongoing monitoring and adaptation of the business. Reviewing
performance also develops a more market-focused view of the
environment by all areas of the airline.
Figure 4.1.1—The Benefits of Strategic Planning
4.1.2 An Overview of the Strategic Marketing

Planning Process
It is fair to say that a clear link exists between organizational success and
marketing strategies that exhibit superior quality in their formulation. According
to a doctoral dissertation by Smith (as in McDonald and Wilson, 2011), the
qualities attributed to such marketing strategies are as follows:
1. Homogenous market segment definition. This is obviously heavily
dependent on the quality of market research and analysis.
2. Segment specific propositions. The airline must design and deliver
products that match segment criteria.
3. Strategy uniqueness. The first LCCs in Europe exhibited a degree of
uniqueness in the market which gave them a competitive advantage.
However, a decade later that uniqueness has been diluted by the rise in
the number of LCCs.
4. Strength leverage and weakness minimization. ‘Network’ carriers can
maximize advantages in their main airport hubs in terms of increased
connectivity and spread the risk by flying to a number of different regions.
Weaknesses such as costs can be partly offset by the potential for
premium pricing, although this differential is increasingly difficult to deliver.
5. Creation of internal and external synergies. Internal synergies can be
delivered by different divisions sharing back office resources and external
synergies can be delivered through membership in airline alliances which
can deliver joint aircraft handling synergies/cost reductions.
6. Provision of tactical guidance. The marketing plan can give a framework
and context to the development of tactical marketing campaigns so that
they align with strategic marketing objectives.

7. Alignment to objectives. The marketing plan needs to align with the overall
corporate plan of the airline as well as other parts of the business that help
in delivering the products to market. For example, the airline may have
specific requirements in terms of profitability measures such as operating
margin, etc. This will affect the financial resources available for marketing.
8. Alignment to market trends. This assumes that the airline is fully aware of
market trends–not always the case! This is an important factor and
requires the airline to be customer aware and have good environmental
and market scanning capabilities.
9. Appropriate resources. For example, the development of airline websites
requires adequate resources for web design, technical inputs and
development costs. Under-resourcing can fatally undermine even the best
developed marketing strategies and plans.
10. Clear basis of competition. The competitive product offering of the airline
must have clear identifiable features which make it stand out from the
competition.
4.1.3 Overview of the Marketing Process

Successful companies are customer-focused. Marketing planning is part of the
overall marketing process within the airline which aims to:
• Define markets
• Identify customer segments within them
• Deliver a value proposition to meet their needs and wants
• Communicate and then deliver that value proposition
• Monitor and further develop the products and the value of the products
delivered.

The following diagram illustrates the marketing process:
Figure 4.1.3a—The Airline Marketing Process in a Strategic Context
In the marketing process shown above, the strategic marketing planning

process can be said to take place in the first four stages. The fifth stage relates
to the actual delivery of product to the market.
Marketing departments of airlines are reliant on inputs from other parts of the
airline, such as finance departments, to deliver their role effectively. Likewise,
depending on the structure of an airline, the marketing department can be
involved in the design and delivery of processes for the delivery of product. For
example, marketing can assist in the development of new channels of
distribution of passenger ticket sales via the airline's websites or online travel
agents or provide input into cabin configurations.
Strategic market planning is a cyclical process with the feedback of actual
value achieved by the airline informing and enabling refinement by the airline of
its marketing strategies. This enables the airline to respond to changes to
markets and their potential value as the airline moves forward.
The strategic marketing planning process is usually undertaken every year.
Annual marketing plan documents are produced for defining markets/potential
value and determining the value proposition areas shown above.

Key Learning Point

Strategic marketing planning is a cyclical process with the feedback of actual
value achieved by the airline informing and enabling refinement by the airline of
its marketing strategies.
The following diagram, introduced in Module One, gives an overview of how a
properly organized process for developing a marketing strategy and plan
works.
Figure 4.1.3b—Process for Developing the Airline Marketing Plan
4.1.4 The Airline's Business Mission and

Marketing Goals
The Business Mission
As the diagram above clearly indicates, the starting point in the strategic
planning process is to develop the airline's business mission and marketing
goals. The business mission of an airline is a formal description of the mission
of the airline. It is often quite hard to formulate because it can be seen more in
terms of a philosophy of business rather than containing sufficient measures
that can be quantified. Ideally, the mission should be described in terms that
are:
• Brief–easy to understand and remember
• Flexible–it should accommodate changes in the competitive environment
and developments within the airline
• Distinctive–it should make the business stand out

In essence, the mission of the airline should be both enduring and specific to
the individual organization. Examples of effective mission statements are:
Figure 4.1.4—Examples of Mission Statements
You can see from the above examples there is variety in how an airline's
mission is described. Generally, good mission statements include references
to:
• A specific role or contribution–be it profit or service
• A clear business definition–usually including benefits provided that satisfy
certain needs
• A distinctive airline feature/competence–ideally these should be unique to
the airline
• Some indication of future directions–what the airline might or will do, and
what it will never do

The Marketing Goals

Once the business mission is developed, the next step will be to formulate a
brief set of marketing goals which provide the company with strategic direction.
Unlike specific and quantifiable marketing objectives (that will be discussed
later), marketing goals are timeless and not quantified. For example:
• Establish Air X as the airline of preference among business travelers in
Windhoek
• Establish and aggressively build presence in the China market
• Develop the airline's direct digital channels
• Position Air X as the first low-cost airline in Nigeria
Notice how the above goals are not quantifiable and lack time frames. That is
the role of marketing objectives that will be discussed later. Rather, the
marketing goals provide the airline with a strategic direction to its efforts.
Without them, the company could be aimless in its direction and focus.

IATA: The Vision and Mission
Watch this video about the vision and mission of IATA.
1. What is the purpose of a marketing strategy?

(a) To explain the airline's business mission
(b) To provide a clear sense of direction for the future development of the
airline
(c) To provide a clear picture of the marketing environment, highlighting
opportunities and threats
(d) To provide a detailed plan of the marketing activities that will be
undertaken in the months ahead
2. The questions “Where are we now? Where are we going?” and “What is
the best way to get there?” should be addressed by the .
(a) Business mission and goals
(b) Business objectives
(c) Marketing audit
(d) Marketing strategy

3. Which of the following, if any, is not a benefit of strategic planning?

(a) Systematic SWOT analysis
(b) Disciplined review
(c) Review of company vision, mission and goals
(d) They are all benefits of strategic planning
4. The marketing strategy spells out which specific actions need to be taken
to implement the marketing plan. TRUE or FALSE?
(a) True
(b) False
5. The statement “To grow a profitable airline, where people love to fly, and
where people love to work” is an example of:
(a) Business mission
(b) Objective
(c) Marketing strategy
(d) Principle
4.1.5 Unit Summary

This unit described the general context for marketing strategy and marketing
planning. The benefit of this is to give a sense of the role and purpose of these
two sets of activities in the overall marketing efforts of the airline. We have
shared the characteristics of effective marketing strategy and the benefits that
it gives. The list is an important resource for developing and evaluating a
marketing strategy. The marketing plan was also described in the context of the
marketing process.
As we have seen, the marketing plan is developed as the result of a series of
steps. In this unit, we have looked at the first steps: developing a business
mission and marketing goals. The next step, the market audit, is the subject of
the next unit.

4.2 The Marketing Audit
• Identify the key areas that provide data for a comprehensive market audit
• Describe the basic elements of analyzing the airline's internal environment
• Explain the significance of competition analysis for developing a marketing
plan
Unit Learning • List the key aspects of customer analysis
Objectives
• Explain the relevance of the wider business environment for developing a
By completing this Unit, marketing plan
• Apply the PESTLE framework to the environmental scanning concept
Unit Overview
Once the airline's mission and goals have a clear customer focus, the next step
in developing a marketing plan is the market audit. The significance of this step
is emphasized by the fact that an airline's marketing plan is only as good as the
quality and the depth of information on which it is built. The marketing audit
provides a systematic way in which to collect data in order to analyze all the
internal and external forces that will affect an airline's potential performance.
In its most general sense, the market audit includes a thorough scan of the
airline's internal and external environments. Therefore, in this unit, we will start
with the internal environment. Next, we will look at the competition. Our third
step will be to do a customer analysis. And finally, we will examine the impact
of PESTLE forces in the wider business environment.
In order to bring to life the strategic marketing planning process, we will take a
case study approach using an imaginary airline, Air Ribernia. This will allow us
to follow a structured process. Each step will build on the previous, leading to a
point where the marketing objectives and strategies can be sensibly agreed to.
Then, a marketing plan which describes the actions to deliver these strategies
and objectives can be described. In addition, because the case study is based
on real-world variables (albeit for a fictional airline), you will be able to relate
these processes more easily to your own airline or business.
4.2.1 The Market Audit Framework

The basic framework for conducting a marketing audit is the Triangle of
Marketing that was introduced in Module One. The starting point for the
marketing audit should always be an airline's internal environment since it will
lend focus to the analysis. The main point of a marketing audit is to identify
competitive advantages and opportunities for development. When we start with
an overview of the internal environment, it is easier to see where our attention
needs to focus. The customer and the competition are the two elements of
immediate interaction. An audit of these two elements will show the areas
where improvement is required and highlight customer needs that should be
addressed. An audit of the wider business environment will indicate if the
general economic, social, technological and regulatory outlook will foster
development.

Figure 4.2.1—The Triangle of Marketing
We will conduct our marketing audit by following this sequence:

1. Description of the airline's internal environment
2. Competitor analysis
3. Customer information
4. The wider business environment
By pulling together this information, we will better understand the opportunities
and possibilities that exist now and in the future for Air Ribernia's successful
growth and profitability.
4.2.2 Marketing Audit of the Airline's Internal

Environment
Air Ribernia is the main carrier of Ribernia, a country that is rapidly growing and
has ambitions to be a major player in the global economy. Originally 100%
owned by the national government, Air Ribernia is now partially privatized, with
75% owned by private investors. The airline has new management and access
to investment funds. The final stage of privatization of the airline is due to take
place in the next 12 months with the sale of the remaining 25% of the airline to
the public.
The diagram below gives a summary of Air Ribernia's main routes. The airline
has four non-stop routes that connect its home market with the overseas
destinations of Nova and Newland to the north as well as Supra and Southland
to the south. It also operates a one-stop service to Sandi via Southland. It has
5th freedom rights between these two countries, which means it can carry
passengers that originate in each country to the other and back.
Unit 4.2: The Marketing Audit 123

Figure 4.2.2a—Air Ribernia's Route Network
The diagram above shows that Air Ribernia's network is extensive, but does
not serve one major market, Eastland. The reasons for this need to be
addressed. In addition, we need to identify the opportunities and the threats of
the current route structure.
A helpful entry point into the analysis of an airline's internal environment is the
airline's organizational structure. The organizational structure is often a reliable
indication of how decisions are made and how various parts of the airline
interact with each other. Air Ribernia's organizational structure is shown in the
diagram below:
Figure 4.2.2b—Air Ribernia's Organizational Structure

The new Air Ribernia Board has made significant changes to the management
structure since it began its road to privatization a year ago. The structure has
been simplified and accountabilities clarified. There are three main
departments:
• Commercial: Responsible for the profitability of the airlines' markets and
routes and includes the marketing and sales function. As described in the
marketing process earlier in this module, the first two stages of the process
of strategic marketing planning are delivered by the marketing function.
The sales function in the commercial department of this airline will be
involved in delivery of product to customers, as will customer service and
operations.
• Customer Service & Operations: Responsible for product service delivery
in the air and on the ground, including maintenance.
• Finance: Responsible for all financial matters including the financing of
aircraft purchases.
Did You Know?

According to (IATA), consumers spent an estimated $871 billion, or roughly 1%
of the global GDP, on air travel in 2018.
The Board has also put in place a plan to upgrade Air Ribernia's aircraft fleet.
Next year, four new generation B787 aircraft will arrive to replace older aircraft
as will six new B737-800 aircraft. This will result in an all-Boeing fleet that is
modern and fuel efficient. This will also improve maintenance efficiencies. The
new aircraft will increase available capacity of the Air Ribernia fleet by about
30%. With new aircraft, the number of technical delays currently experienced
should reduce. The increase in capacity will put pressure on the marketing and
sales functions of the commercial department to increase sales and improve
the ‘value proposition’ to customers. This will have to be done to protect the
airline's position in the market and to ensure that any competitor activity is met
with an effective response.
A final part of the new board's approach to managing the airline has been to
introduce a major program for all staff–‘Caring for Customers’–aimed not just at
customer contact staff departments, but across the whole airline. This is part of
a drive to improve customer service standards throughout the airline and to
improve cooperation among Air Ribernia staff.
The commercial department is adopting a new marketing planning approach to
develop its forward thinking and improve its development of a marketing
strategy for the airline.
Within the commercial department, Air Ribernia has two route
groups–Southern and Northern, each of which has sales areas that are
responsible for the overseas markets that Air Ribernia serves. It also has a
home market area in Ribernia, the country where it is based. The reason for the
split of markets is to divide business activity into manageable sizes that can
provide focus and accountability for the manager of that particular group of
routes. The home market is treated as a separate area to be managed by virtue
of its relative size and importance.

Key Learning Point

The ‘bottom-up approach’ has the advantage of being developed by teams
close to the markets they serve and, in theory, more aware of customer needs
in their own areas.
The planning approach outlined below is often called a ‘bottom-up approach’. It
has the advantage of being developed by teams close to the markets they
serve and, in theory, more aware of customer needs in their own areas. By
engaging the full sales and marketing team, it can generate more involvement
in decision-making and more commitment to the final marketing plan of the
airline. As such, it is often the preferred method of production of marketing
plans.
Planning can also be done ‘top-down’–whereby the corporate team in the
center decides all the targets and then disseminates them to the group and
area teams. In practice, it is often a mix of both forms of plan development, i.e.
a combination of ‘top-down’ and ‘bottom-up’. However, success of a plan is
usually a function of good dialogue and structured discussion between the
center and the route and area departments, enabling the best course of action
to be developed.
Using the Southern Route Group as an example, the new marketing approach
will work as follows:
First stage: All area managers (Supra, Southland & Sandi) prepare initial
marketing plans for each year. They look three years ahead and describe the
potential revenue that each area can deliver and how it can be achieved. It
would also include their ideal requirements to enable their forecasts to be
delivered such as flights, seat capacity, timings, product changes and any
other resources including staffing. Their ideal requirements will be driven by
their own perception of the needs of their own area of responsibility in terms of
what they feel can be achieved in terms of revenue and the resources required
to make it happen.
Areas are encouraged to be innovative and challenging in preparation of their
plans. Top level assumptions are given such as inflation forecasts, economic
growth rates, exchange rates, etc. But the areas are specifically pushed to look
for new marketing opportunities such as the development of new distribution
channels, possible new market segments in their areas that have previously
not been targeted and a description of how they can be exploited. It is very
much about teams looking at possibilities and finding creative solutions to
customer needs, ideally in a way that delivers competitive advantage to the
airline.
Second stage: The area plans are then fed into the route group management
level who assess how well the different area plans can be fitted into a route
group plan that positively contributes to Air Ribernia's meeting or exceeding its
route profitability targets. From this, a first overall route plan can be developed.
Third stage: Finally, the route group plans are fed into a Commercial Director's
strategic group to produce a corporate marketing plan. Members of the
Commercial Director's strategic group would include the managers of both
route groups, the home market area manager and other commercial
department managers such as the brand manager. A first review of the plan
would then take place and decisions made on next steps.

To achieve the best balance between short-term and long-term and different
area and route group requirements, a great deal of two-way dialogue will take
place. Various refinements and trade-offs will take place involving other
departments within the airline. The process will be as open and transparent as
possible to ensure that all opportunities are fully explored. The downsides and
upsides of each initiative will be put forward.
Finally, a corporate marketing plan will be agreed upon by all concerned and
this will be fed into the overall Air Ribernia Corporate Business Plan.
Key Learning Point

A marketing audit of the competition provides a basis for the marketing plan
that will seek to strengthen an airline's competitive advantage and avoid
threats.
4.2.3 Marketing Audit of the Competition

Once you have analyzed the internal environment, it is time to take a close look
at your competitors. An analysis of the competition will indicate areas of
competitive advantage and disadvantage. This analysis will provide a basis for
the marketing plan that will seek to strengthen the airline's competitive
advantage and avoid threats. Ideally, this would lead to the development of
new products and services or new distribution channels. This analysis may
also lead to certain routes being abandoned. In addition, competitor analysis
will help develop more reliable forecasts. The map below shows Air Ribernia's
major competitors and the routes that they fly.
Figure 4.2.3—Air Ribernia's Routes and Competitive Set
Northern Airways is a major competitor and serves Nova, a large destination

that has potential for onward international points. It also serves Newland, a
growing destination with increasing potential as a tourist destination.

Northern has been privately owned since its formation. It operates a modern
fleet of aircraft with excellent customer service in all areas and maximizes the
use of Internet and mobile technology in its sales and customer processes.
Like Air Ribernia, it can be viewed as a full-service airline offering a pricing
structure that includes meals, baggage allowance and cabin differentiation in
the published fare charged. Its Frequent Flyer Program is ranked top in the
region.
South Air is the government-owned carrier of Southland and Supra, with each
country having a 50% stake. Both governments are keen to privatize this airline
but cannot agree on the timeframe or the approach to be adopted.
South Air has old aircraft and is viewed as bureaucratic and slow to react to
market needs. There are government moves to try and force Air Ribernia off
the Southland-Sandi route and allow South Air to operate as a monopoly
carrier instead.
Air East is a privately-owned carrier that was forced to give up routes to the
then government-controlled Air Ribernia when it was formed. In return for
giving up most of its network, Air East was granted a monopoly on the
Ribernia-Eastland market.
Air East has developed an operating model that combines low cost of operation
with high quality delivery, offering business and economy cabins. Air East
passengers choose from a menu of attributes–meals on board, different
baggage allowances, flexibility of ticket and so forth in Economy. In Business
class, in-flight meals are included as well as enhanced leg room compared to
economy and lounge access. It has no First class. Air East has also invested
heavily in the airline website, mobile applications for passengers and generally
trying to deliver an easy-to-use travel experience for its customers. As a result,
the airline is profitable and has a strong reputation among travelers for
innovation, customer service and competitive pricing.
A key development for Air East will be the opportunity to expand its network
when Air Ribernia is fully privatized. When this occurs, the restrictions on
routings that currently apply will be lifted. This will mean an opportunity for Air
East to fly from Eastland to other destinations and also for Air Ribernia to enter
and compete on routes into Eastland.
In summary, the competitive picture is about to undergo significant change with
Air East entering markets previously closed to it. Historically, Air Ribernia has
had competition from similar or less competitive rivals. It is going to have to
look carefully at how the current travel market is performing and look for
changes and trends in customer needs.
Did You Know?

In 2019, the biggest airline in the world by fleet size was American airlines with
956 aircraft. The biggest non-U.S. airline was Ryan Air with 437 aircraft.

4.2.4 Marketing Audit of Customers

We have provided an overview of Air Ribernia and the competition. Now let's
turn to look at the customers of Air Ribernia and the external environment in
which it operates.
Travel Market Overview

Government statistics often provide a good overview of the general aviation
travel market. Below is a summary of information for Ribernia.
Figure 4.2.4a—Air Ribernia's Market Overview
From the above information, we can point out the following insights:
• Ribernia residents generate almost 60% of total air travel into and out of
the country (2.4 million out of a total of 6 million). This means that Air
Ribernia is very dependent on its home market for generation of revenue.
Any decrease in home sales, unless compensated for by an increase in
sales elsewhere on its network, is going to have a major impact on the
airline's health.
• Government forecasts indicate a growth rate of 9% going forward and
highlight rapid growth of 11% per year in the recent past. These kinds of
statistics always have to be treated with care and tested against other
sources of information that may arise from the environmental scanning
process.
• Business and holidays make up the highest percentage of travelers.
Depending on how the Ribernia market grows, there will be potential
upside for both groups. What the numbers do not indicate, however, is
which traveler segments are growing or declining and by how much.
• Immigration statistics give us the destinations people fly to from Ribernia.
Nova and Eastland are the two main destinations and currently Northern
Airways only flies to one of them–Nova.

Airline's Share of Market

To get a more comprehensive picture, we can add Air Ribernia's own statistics
from the Commercial Department to the Market Review. This can help us
answer in more detail which traveler segments are growing or declining and
determine whether the growth rates shown so far are realistic and in line with
‘field sales’ knowledge.
Some key points to take note of are:
• The range of market shares on different routes. From information we
already have on competitors and customers, the higher load factor routes
reflect weak competition and the lower factors reflect routes with more
competition. The largest destination by size–Nova–has a below average
market share which requires an understanding of reasons why this
happens.
• Fare type data indicates a current high revenue dependency on First and
Business Class, but these two cabins have the lowest growth rates. In
contrast, the discount Economy cabin is growing at a rapid rate. Again, this
needs to be better understood.
• A heavy reliance on retail and online travel agent channels and low sales
from the airline's own web channel.
Customer Knowledge
Customer knowledge is information that will be obtained from in-flight surveys,
sales force feedback and special research projects. Below are given
summaries of information for business travelers and non-business travelers.
This kind of data can give insights into customer views of airline customer
service, customer perception of product offerings and potential new sources of
revenue.
Figure 4.2.4b—Air Ribernia Commercial Data

Some key points to note here:

• Air Ribernia is currently very strong in the business market.
• However, there is evidence that our current dominant position is under
threat from both our own shortcomings and from current and potential
future competitor activity.
• The trend for business passengers to downgrade to economy to save costs
is a concern. There are also more corporate contracts being negotiated.
These can buy volume but drive down yield.
• Our general lack of e-commerce offerings is a major weakness.
Did You Know?

In 2019, the biggest airline in the world by the number of destinations served
was UPS–an all-freight airline based in the U.S. that served 727 destinations.
The passenger airline that served the most destinations was United with 323.
4.2.5 Environmental Scanning–Understanding the

Wider Business Environment
We now move to environmental scanning information and will use the PESTLE
framework introduced in section 2.1.3. Recall that this structured approach will
ensure that no important elements are missing among the key components of
the marketing environment in which an airline operates. This includes the
Political, Economic, Social, Technical, Legal and Environmental factors.
Figure 4.2.5—The Airline PESTLE Framework
Information such as that shown above gives a picture of the market within
which Air Ribernia is operating. For example. It might show an economy which
is growing, diversifying and becoming more internationally linked in terms of
trade and business generally, there might be evidence of significant upcoming
changes in terms of potential market segments as well as the behavior and
expectations of consumers. Examples include the increasing number of foreign
nationals working in Ribernia and the increasing impact of Internet and mobile
technology on consumer expectations. Finally, there might be changes in
behavior as customers begin to rely on digital personal assistants and
metasearch sites that influence their airline selection.

The amount of information and data that can be collected is potentially huge.
The key is to be able to organize this information in ways that can help the
management team to make informed decisions and not be overwhelmed by the
sheer volume of perspectives and ideas that can be generated by such market
knowledge.
As an example, Northwest Airlines in the 1980s completed a similar market
audit as part of its own strategic assessment. It was subsequently determined
that it did not have an acceptable share of the lucrative business traveler
segment because its on-time performance lagged that of its competitive set,
namely United, American, Delta, and Continental Airlines. Based on that
assessment, it set a company goal of becoming the top-ranked airline in the
United States in the key metric of on-time performance and subsequently
invested millions of dollars to address the root cause of its punctuality
problems. Two years later, it achieved the number one spot and gained a
larger share of the business market as a result. The point? Without having
completed a market audit and SWOT analysis, it would not have had a basis
for articulating a clear goal for the company which eventually gave it strategic
advantage.
In terms of marketing planning, one of the most important tasks is to be able to
identify key segments of the market and determine which ones to focus activity
on in order to maximize profit. In the final part of this module, we will introduce
the concept of market segmentation which aims to help managers achieve this
objective.
1. What is the basic framework for conducting a marketing audit?

(a) The Marketing Mix
(b) Triangle of Marketing
(c) The Business Mission
(d) SWOT analysis
2. When the corporate team in the center decides the marketing targets and
then disseminates to the group and area teams, this is called:
(a) An inclusive approach
(b) An exclusive approach
(c) A bottom-up approach
(d) A top-down approach
3. Successful are usually a result of dialogue and structured discussions

between the center and route and area departments.
(a) Marketing plans
(b) Market segments
(c) Market audits
(d) Marketing environments

4. Reviewing total market volume, growth rates, types of travelers and

destinations forms the backbone of a:
(a) Market overview
(b) Marketing environment scan
(c) Marketing Mix
(d) Triangle of Marketing
5. What elements of the airline's environment influence the Triangle of

Marketing?
(a) Social, political, regulatory and financial developments
(b) Economic, social, technical and political developments
(c) Regulatory, social, financial and political developments
(d) Geographic, economic, technical and social developments
6. If a government were to pass laws regarding airline pricing transparency,

which component of the PESTLE framework would apply?
(a) P
(b) E
(c) S
(d) L
4.2.6 Unit Summary

In this unit, we have gone through the process of conducting a marketing audit.
The purpose of a marketing audit is to provide data that will become the basis
for developing a marketing strategy and plan. In its essence the market audit is
a detailed analysis of the airline's internal and external environments. Instead
of providing a checklist of all the data that can or should be included in this
analysis, we illustrated the process by looking at a hypothetical case study.
Some of this data allowed us to make certain preliminary observations and
conclusions. Other data remained untapped at this stage. We will return to this
data during later steps in the development of our sample marketing plan. At this
point it is just important to begin to see how this data lays the foundation for the
next steps.

4.3 Introducing Market Segmentation
• Define and describe the role of segmentation in an airline's marketing

program
• List the main criteria used to identify the characteristics of a viable market
segment
Unit Learning • Describe the limitations that traditional market segmentation has
Objectives • Understand social media as a tool for market segmentation
Unit Overview
In the previous unit, we looked at customer analysis as part of the marketing
audit. Market segmentation is the third step in developing a marketing strategy
and is somewhat related to customer analysis but goes beyond it in many
ways. Market segmentation seeks to identify groups of customers that share
similar characteristics, needs and preferences.
The traditional way of segmenting the airline market was by travel purpose. In
this unit, we will analyze this approach and indicate some of its main
limitations. The airline market has changed significantly in recent years and
these changes require a new approach to market segmentation. In the last
section of this unit, we will share a new way of looking at the characteristics
that place travelers in a market segment. In Module 5, we will take a much
closer look at the crucial process of market segmentation.
4.3.1 Defining Segmentation

The actual process of prioritizing customer requirements against what the
airline can actually deliver at a profit leads to a need for an airline to try and
identify market segments. Concentrating on the segments with the most
potential enables airlines to try and gain a competitive advantage over their
competitors. Different airlines may then decide to target different market
segments depending on their own internal economics and capabilities.
Key Learning Point

Segmenting the market enables an airline to identify different ‘customer groups’
that have some distinct characteristics.
Segmenting the market, therefore, enables an airline to identify different
‘customer groups’ that have some distinct characteristics. A segment can be
defined as a group of customers within a market who share a similar level of
interest in the same or comparable needs. Or, put another way, “a market
segment is a group of customers who have sufficient characteristics in
common that they form a viable basis for a product/price/promotion
combination” (Shaw, 2011).

What are the characteristics of a viable market segment? There are three main
criteria that are often used:
• The segments should be of an adequate size to provide the airline with the
desired economic return for its effort.
• Each segment should have a high degree of similarity in their requirements
yet be distinct from the rest of the market.
• Whatever criteria are used to classify segments, the end result must
enable the airline to communicate effectively with these segments from a
marketing point of view.
In summary, segmentation allows you to develop and launch new customer
offerings that can meet the needs of each segment identified as well as help
establish the relative attraction of each segment.
Did You Know?

In 2019, the airline that served the most countries was Turkish Airlines with
121. Air France was number 2 with 91 countries served.
4.3.2 Basic Segmentation by Purpose of Travel

Segmentation of the air travel market in the traditional sense has used three
key variables:
• The purpose of the passengers' journey
• The length of the journey
• The passengers' country or culture of origin
Using the purpose of travel as an example, the airline market has often been
segmented as follows:
• Business travel
• Holiday travel
• VFR (Visit Friends & Relatives) travel
Using the three key variables for segmentation, we can now have a closer look
at each segment with regard to their particular needs or what we call “purchase
criteria”; that is, the basis for how customers select airlines to suit their own
particular needs.
Figure 4.3.2a illustrates the difference between the needs of each of three
passenger segments: business travelers, holiday (leisure) travelers, and
visiting friends and relative travelers (VFR). As you can see, the primary
differences among the segments involve price sensitivity and convenience
sensitivity. For example, the business traveler demands convenience and
reliability, along with excellent service and seat comfort. The holiday and VFR
segments, on the other hand, are more sensitive to price, and less sensitive to
convenience and comfort.
These differences in segments are crucial for airlines to understand if they are
to match customer needs with an airline value proposition that keeps them
competitive.
Unit 4.3: Introducing Market Segmentation 135

Figure 4.3.2a—Segmentation by Purchase Criteria
Using the segmentation above, we can describe how airlines can use their
marketing mixes to meet the needs and wants of the business segment, as an
example, in Figure 4.3.2b.
Figure 4.3.2b—Marketing Mix for the Business Travel Segment
The Business Segment

The diagram above gives a summary of business customers' perceived needs
and the responses of the airlines to those needs. In terms of the responses
offered, there are examples of how airlines have varied their marketing mix to
meet those, e.g. business class/lounges/frequent flyer programs, etc.
However, when it comes to price sensitivity, economic conditions and the
availability of different airline models–notably low cost carriers–have made this
segment less price immune than before. In other words, the airlines' ability to
consistently charge a higher price premium has been under pressure. Also,

corporate business travelers and independent business travelers have different

sensitivity to price–with independent business travelers far more willing to
travel in Economy class. According to recent data, roughly 50% of business
travelers travel in Economy.
Typically, business travelers will have a varied travel pattern with a variety of
destinations involving short stays, often with travel decisions made at short
notice. Quality and consistency of service in all areas are the key to satisfying
this segment of traveler.
Now, let's take a look at the holiday travel segment.
The Leisure Segment

When it comes to the leisure segment, there needs to be the development of
packages of flights and hotels (ground packages) to meet the needs and wants
of customers. Price is a key factor as is the desire to book well in advance,
often up to 12 months. Simplicity is provided by all-inclusive packages, which
combine a return flight, hotel, airport transfers, and (usually) all hotel meals and
drinks, giving price certainty to the customer. The inclusion of new and different
destinations continually being added to the portfolio of destinations keeps the
program of holidays offered to customers fresh.
4.3.3 Limitations of Segmentation by Purpose of

Travel
Key Learning Point

Social media tools like Facebook are emerging as powerful tools for airline
marketers to use to develop a detailed understanding of travel segments.
The basic segmentation by purpose of travel gives an insight into the make-up
of the total population of customers of an airline. However, there are
shortcomings to this segmentation. The most obvious are:
• Over-generalization
• Omission of vital information about key customers
• A potential failure to see customers as individuals
We will discuss each of these shortcomings in turn.
Over-Generalization
Descriptions such as VFR, business and holiday travelers, while good as a
starting point, can be misleading. To claim that all business customers are not
price sensitive is simply not true, particularly in a challenging economic
environment. Furthermore, the rise of Low Cost Carriers and the recent move
by some of them to attract the business market with the introduction of
business-orientated products, motivates more business travelers to try out and
then use on a regular basis different carriers based more on price
considerations than was the case before. Until recently, this has applied
primarily to small businesses, but increasingly, large companies are seeking
cost reductions in their travel budgets. Coupled with the increasing
sophistication of the buying departments within large companies, price is
becoming more of a factor.
On the other hand, there are some segments of the holiday market that are
prepared to pay more, e.g. for a more ‘luxury’ experience. So, not all holiday
travel is as price sensitive as may seem the case at first sight.

Omission of Key Information

For better segmentation, in addition to knowing the purpose of travel, we need
to know the answers to the following types of questions:
• The frequency of travel
• Travel destinations
• Products used
• Decision-making–do customers obtain information and buy directly from
airlines or from travel agents, through their ‘travel shops’ or over the
Internet, or through call centers?
• Socio-demographics–what types of people are our customers? For
example, their age, social class, ethnic group, etc.
Customers as Individuals: Redefining Target Segments

In today's world, the ability of marketing departments to design programs that
can reach out to individual customers with tailored offerings is becoming more
of a reality than ever before. Sophisticated data capture and software programs
that analyze and produce targeted marketing messages are commonplace.
Did You Know?

According to the World Atlas, the country with the most annual air trips per
capita was Finland in 2018 with 7.5 trips per person.
4.3.4 Market Segmentation and Social Media

For businesses, social media channels like Facebook have become a powerful
tools through their ability to define and segment customers on the basis of very
specific demographic, geographic, behavioral and psychographic criteria. For
example, if Air Alpha wanted to promote a new Singapore-Jakarta-Singapore
service on Facebook, it could narrow the population of 15 million residences of
Singapore and Jakart6a down to only those with a propensity to travel i.e.
those with the potential need and buying power. As an illustration, please see
4.3.4a below where a target audience of 1.9 million potential travelers was
filtered and created on the basis of their geography (Jakarta and Singapore),
demographics (both genders, ages 25-30 with professional degrees), and a
psychographic interest in travel. Based on a daily budget of $100, the reach
(impressions) of this campaign would be 27,000-79,000 per day. Prior to
having these social media tools available, marketers would have had to rely on
very broad assumptions about travelers in a given area and would have had to
develop very inefficient marketing campaigns.
This will be discussed more in Module 8: Promoting Airline Products and
Services.
Key Learning Point

A balance has to be struck between identifying segments that are sufficiently
detailed in order to be useful and sufficiently clear for us to understand and be
able to design appropriate marketing messages and products.

For airlines, both Frequent Flyer Programs and a more comprehensive

Customer Relationship Management system which captures passenger travel
data and activity in all areas of customer contact, produce insights that show
how customers travel for a whole variety of reasons. Companies can segment
customers into over 20 different segments and communicate effectively with
each group.
Using what we know from the various components of the Marketing Audit, we
can use the Air Ribernia example to look at their current business market.
Figure 4.3.4a—Air Ribernia's Customer Base
From the information above, various segments and trends can be seen:
• There is a clear segment of First (F) and Business (J) class passengers
who are foreign nationals. They may be relatively small in number, but their
value will be higher than the relatively low percentage suggests.
• First class travel is slowly declining, but Business class traffic is still
growing.
• There is a fast-growing small business segment travelling in
Economy–averaging 10% per annum.
• Air Ribernia has a large dependency on business traffic–40% of total
passengers.
• Air Ribernia has a whole range of poor standard offerings according to
customer feedback and research. This should be of great concern.
Segmentation is an ongoing process and the above information can provide a
starting point for further understanding of the different segments.

If we look at Economy travelers from small businesses, what questions would

we need to ask?
• Value: On a sector basis, they obviously bring in less revenue than F/J
class, but do they travel more often? Are the numbers of these travelers
increasing?
• Motivation: Is business combined with leisure? Are trips undertaken with
the purpose of marketing products or for delivering contracts, or both?
• Travel patterns: Frequency of travel? Which destinations? What patterns of
destinations? In what order are places visited?
• Buying pattern: Is the ticket purchased by a person or by a small business?
Do they book directly or via an agent? Is the purchase web-based?
• Needs and wants: What are prime service requirements? Excess
baggage? Lounge access? How price sensitive is the customer?
• Satisfaction: How committed is the customer to the airline? Or do they
travel with many carriers?
• Influence: Are they small business federation leaders within this group?
Opinion formers?
• Demographics: What age range? What is their sex and social grouping?
Where do they live? Which businesses are they working in?
From these questions a fuller picture could be developed, which in turn may
prompt even further research.
The Air Ribernia small business segment could be summarized as:
• Young to middle aged self-employed professionals/managers of small
enterprises.
• Travelling an average of once per month–wide variety of destinations.
• Buy directly over web using agents' websites not the Air Ribernia site.
• Using metasearch as key sources for airline fares and schedules.
• Want an FFP and want recognition with upgrades.
• Not happy with products and services of Air Ribernia.
• Average age 28–38, predominantly male, international services sector and
reps of specialist manufacturing industries.
From the above examples we can see that effective segmentation of markets is
critical to success. To summarize, the prime objectives of market segmentation
are:
• To assist in determining the marketing direction of an airline by analysis
and understanding of business and economic trends as well as buyer
behavior and needs.
• To help the process of determining realistic and obtainable marketing and
sales objectives.
• To help managers improve decision-making by putting a process in place
that forces managers to consider and review the options ahead of them.

1. Which of the following statements about the characteristics of market

segments is FALSE?
(a) The interests of the segments should align with the airline's mission
statement.
(b) The segments should be big enough to provide a reasonable return on
investment.
(c) Each segment should have a high degree of similarity in their
requirements yet be distinct from the rest of the market.
(d) The criteria used to classify segments must enable the airline to
communicate effectively with these segments from a marketing point of
view.
2. A segment can be defined as a group of customers within a market who

have a similar level of discretionary income. TRUE or FALSE?
(a) True
(b) False
3. Whatever criteria are used to classify segments, the end result must
enable the airline to communicate effectively with these segments from a
marketing point of view. TRUE or FALSE?
(a) True
(b) False
4. Which of the following statements about business travelers is TRUE?

(a) Most business travelers travel in the First or Business class cabins.
(b) Corporate business travelers and independent business travelers are
equally sensitive to price.
(c) Business travelers are interested in a more ‘luxury’ experience.
(d) Economic conditions and the availability of Low-Cost Carriers have
made this segment more price sensitive.
5. What internal tools can airlines use to gain a better understanding of their
customers and more effectively target their marketing to specific
customers?
(a) Surveys and Google Analytics
(b) Frequent Flyer Programs and Google Analytics
(c) Frequent Flyer Programs and Customer Relationship Management
systems
(d) Customer Service systems and Frequent Flyer Programs

4.3.5 Unit Summary

In this unit we discussed the third step in the process of developing a marketing
strategy and plan–market segmentation. The main benefit of market
segmentation is that it allows an airline to develop products and services that
meet the needs and preferences of certain segments of the market. With the
developments in the airline industry in recent decades, the traditional approach
of segmenting the market based on the purpose of travel is not as helpful
anymore. We have shared some of the limitations of this approach. At the
same time, it is possible to try to identify travelling needs and preferences of
groups of customers by adopting a more comprehensive approach. The key
factors that need to be included in this approach have been mentioned in the
last part of this unit.
The knowledge base covered in this unit is just introductory to market
segmentation. In fact, this is such a large topic that we will continue to discuss
it in the next module.

Module Summary
In this module, we introduced the concepts of marketing strategy and
marketing planning. The set of activities included in these two concepts focus
on the airline's long-term development. In contrast to market research that is
more project-based, marketing strategy and planning include a series of steps
that deal with fundamental questions for the airline. We have provided an
overview of all the steps for developing a marketing plan. In this module, we
have fully covered the first three steps: business mission, marketing goals and
the market audit. We have only introduced the fourth step, market
segmentation, and identified the main challenges. Finally, we identified the
important role that social media is playing towards helping marketers better
understand and define market segments. In the next module, we will look at
market segmentation in more detail.
Module Summary 143


McDonald, M. & Wilson, H. (2011). Marketing Plans: How to prepare them, how
to use them (7th ed.). West Sussex, UK: John Wiley & Sons.
Shaw, S. (2011). Airline Marketing and Management (7th ed.). Burlington, VT:
Ashgate.
World Atlas. (2019). The Most Traveled Countries in the World.

Answer Key
1. b
2. d
3. d
4. b
5. a

1. b
2. d
3. a
4. a
5. b
6. d

1. a
2. b
3. a
4. d
5. c
Answer Key 145


Module 5:
The Airline Marketing Plan
• Describe the process of market segmentation

• Explain the approach for identifying target market segments
• Identify the elements of a SWOT analysis
• Explain the approach for setting marketing objectives
Module Learning
Objectives • Describe the process for choosing marketing strategies
Module Introduction
In the previous module, we began to review the topic of marketing strategy and
marketing planning. Developing an airline marketing plan takes a number of
steps that follow a prescribed sequence. We have already covered the first
steps, business mission, marketing goals and the market audit in the previous
module. We also introduced the fourth step–market segmentation. But
because market segmentation is such a wide topic, we will continue to discuss
it in this module. In fact, the first two units of this module will describe the
approach to segmenting a market and how to choose what segments to target.
Once you have a clearly defined market segment that you want to target, you
will need to do a SWOT (strengths, weaknesses, opportunities, threats)
analysis that will help you identify your strengths and weaknesses. The SWOT
analysis will enable you to focus on specific actions that need to be taken in the
market segments.

150 Module 5: The Airline Marketing Plan

5.1 Market Segmentation Process
• Explain the main stages of the market segmentation process

• List the characteristics of effective market segmentation
• Understand the criteria for segmenting a market
• Describes the benefits of effective segmentation
Unit Learning
Objectives
you will be able to: In this unit, we will provide an overview of the market segmentation process.
Segmentation is not an end in itself. It is a tool that helps you better understand
the airline customers' needs and develop an offering that will best serve those
needs. As a tool, segmentation can be effective and help you achieve your
goals. But it can also be ineffective. In this unit, we not only will share with you
the characteristics of effective segmentation, but also show you how it can be
used to identify value for your airline.
5.1.1 Overview of the Market Segmentation

Process
In order to understand market segmentation, we need to start with a definition
of what a market segment is. A market segment is a sub-group of individuals of
the overall market who have similar characteristics and needs and who will
potentially respond in a similar way to specific marketing actions directed at
that sub-group. Market segmentation, therefore, is the process of identifying
the distinct groups or segments of the market that might need different services
or marketing mixes to satisfy them. Market segmentation is customer
orientated and can be applied to any type of industry, company or airline.
Market segmentation can be seen as a three-stage process. First, divide the
market into segments. Second, identify which segments are going to be
targeted. Third, decide how to position the product or service to reach the
targeted market segments. This process is shown in the diagram below.
Unit 5.1: Market Segmentation Process 151

Figure 5.1.1—Three-Stage Process of Market Segmentation and Positioning
Initial segmentation can use a variety of criteria, such as described below.

From these segments, we target those that may be of more value than others.
Next, we develop a marketing mix and positioning in the market in such a way
as to maximize potential company benefit to be gained from selling to that
segment.
Key Learning Point

Market segmentation is customer oriented and can be applied to any type of
industry, company or airline.

5.1.2 Market Segmentation Criteria

We have already discussed Module 4 some of the challenges with segmenting
the travelling market by travel purpose: business, leisure and VFR. Instead, we
suggested that a more sophisticated set of criteria be used. Here we offer a
short review of these criteria:
• Value: For example, some passengers place a higher value on convenient
flights, while others feel price is a more important feature.
• Motivation: The reason for travel, such as for business or for leisure.
• Travel pattern: Travel frequency and pattern can vary. There may be
particular segments of business that travel frequently on a route or group of
routes.
• Buying pattern: How is travel purchased and why? E.g. is technology/
Internet used to search for and purchase travel?
• Needs and wants: What are the primary requirements? How price sensitive
are they?
• Satisfaction: How committed are different travelers to the airlines they use?
How likely are they to switch carriers?
• Influence: Are there particular individuals that are opinion leaders in their
segment? Do they have influence over travel decisions?
• Demographics: What age range, gender, social class?
• Geographic: What region, city, size of population, climate?
• Behavioral: Special occasions or attitudes.
Although the criteria listed above are very helpful, it is important also to apply
them in a way that will create market segments that can be effectively targeted
with new offerings. Therefore, in addition to the criteria listed above, effective
segmentation has the following characteristics:
• Homogeneity within the segment–that is, consistency in the characteristics
of travelers within that segment.
• Heterogeneity between segments–that is, differences between segments
exist which allow differentiation.
• Stability of segments–that is, they exist for a substantial period of time and
not just for a short period.
• Segments are measurable and identifiable–that is, one is able to clearly
identify the members of a particular segment and able to measure their
numbers and activity.
• Segments are accessible and actionable–that is, a company is able to
market successfully to the segment.
• Segment is large enough to be profitable–that is, the number of customers
in the segment and their potential revenue are large enough to make it
profitable for a company to meet their needs.
The importance of additional criteria can be demonstrated by referring to the
traditional segmentation by purpose of travel. However, if we look carefully, we
can divide traditional segments into subgroups. Moreover, we can apply to
these subgroups one more important criterion: Who pays for the travel? Below
is shown a more detailed list of segments for air travel, including a grouping
made by those that pay for their own travel versus those that have others pay.

Figure 5.1.2—Segments by Travel Sponsorship
Key Learning Point

Business passengers tend to be early users of the latest technologies and are
relatively easy to identify and target. They demand schedule, price and
purchase flexibility.
The segments described above can be further sub-divided in order to provide
even more targeted marketing opportunities. For example, the business
segment for airlines is very profitable and differs from leisure segments. The
number of trips businesspeople take depends largely on economic
conditions–not specifically on price or promotional activity. The travel agent has
relatively little influence in this situation. However, specialized Travel
Management Companies (TMCs) that offer a travel management service to
large corporations can influence airline choice to a greater degree. Business
passengers also tend to be early users of the latest technologies and are
relatively easy to identify and target. They demand schedule, price and
purchase flexibility.
Business travel can vary from senior employees in First class to junior
employees in Economy–where status determines class of travel. This can be
mixed with length of flight as a determining factor in cabin selection. For
example, company policy can restrict Business class travel for only those
journeys over four hours.
Using data captured from both FFP programs and a developed CRM system, it
is possible to refine the business travel segment further using individual
customer behavior.
Relating the above to our earlier airline example, Air Ribernia, it is clear that the
airline has a significant number of business/corporate passengers. Given the
importance of this segment, there are significant weaknesses in Air Ribernia
current product and positioning.
First, a lack of an effective FFP is a major problem for the airline because its
business passengers are not being effectively targeted. Also, there are
indications of a rate of growth in the emergent segment, in Economy, which is
ahead of the current Business class travel segment growth rates. Indeed, the
general growth rate of First and Business class is below the Economy rates. A

main competitor, Air East, has more attractive products–both FFP and ground
service and air products that are significantly better than Air Ribernia. We will
examine later the options for Air Ribernia and how it can rectify these issues.
Generally, the type of refined segmentation shown above will enable airlines to
develop specific strategies to grow these valuable segments. In particular, it
enables a marketing strategy to take into account the different value of each
segment.
Key Learning Point

Refined segmentation enables a marketing strategy to take into account the
different value of each market segment.
Did You Know?

The oldest airline in the world is KLM. It was established in 1919 as Koninklijke
Luchtvaart Maatschappij.
5.1.3 The Benefits of Segmentation

Segmentation enables the marketer to divide a large and otherwise generic
marketplace into meaningful segments of travelers. This allows us to achieve
the following:
• Identification of customer needs. Examples include the needs of business
passengers in terms of lounge facilities at airports, the use of mobile
technologies for travel-related sales and travel processes, fast track
facilities through Immigration, etc.
• Identification of new opportunities. Market research can help identify new
segments of travel with potential in different markets. The introduction of a
separate enhanced Economy class cabin, particularly on long-haul flight
sectors to meet the demand of Business class passengers not able to
afford full Business class fares as well as those Economy passengers
travelling for leisure reasons who are willing to pay extra for improved
legroom and better meals, is an example of a new opportunity being
exploited.
• Market resource efficiency. Improved segmentation of the market can help
companies better target the use of their resources. Marketing initiatives
can be better targeted and costs reduced.
1. How does segmenting a market support your overall business and

marketing goals?
(a) You can calculate the return on investment you will receive from
offering new services
(b) You can identify customer groups that might be better served with
different services or marketing mixes
(c) Customers will understand which services are most suitable for them,
according to their priorities
(d) You can identify geographic regions that might be better served with
different services or marketing mixes

2. Segmenting the market by “travel purpose” is the most effective criteria to

use. TRUE or FALSE?
(a) True
(b) False
3. Which of the following statements about effective market segmentation is

FALSE?
(a) The characteristics of travelers within that segment are consistent.
(b) Segments exist for a substantial period of time.
(c) The number of customers in the segment and their potential revenue
are large enough to make it profitable for the company.
(d) Segments are similar to one another to ensure that all customer types
are included in at least one segment.
4. The number of trips businesspeople take depends mostly on.

(a) promotional pricing
(b) economic conditions
(c) personal preferences
(d) seniority in the company
5. Effective market segmentation enables companies to identify more

precisely customer needs. TRUE or FALSE?
(a) True
(b) False
5.1.4 Unit Summary

In this unit, we provided an overview of the market segmentation process. We
discussed the criteria for segmentation and the characteristics of effective
segmentation. We showed how to focus on subgroups of customers and find
value in targeting some of these subgroups. In conclusion to this unit, we
described the benefits of market segmentation. However, this is only the first
part of the process. In the next unit, we will look at the second part: Market
Target Segmentation.

5.2 Market Target Segmentation
• Understand the purpose of market target segmentation

• Describe the benefits of selecting which market segments to target
• Explain the process for ranking market segments
• Describe the process of conducting a SWOT analysis
Unit Learning
Objectives
you will be able to: Once you have identified the segments of your market, you need to decide
which ones you should focus on. This is an important step because it forces
you to prioritize your market segments and identify those that are more
promising for the company. In this unit, we will describe a methodology that will
help you prioritize your company's products and invest resources in market
segments that are appropriate for the company. However, before a course of
action is chosen a SWOT analysis of each market segment must be
conducted. The SWOT analysis will indicate what course of action should be
taken. We describe the SWOT analysis in the last part of this unit.
Key Learning Point

Market target segmentation is the process by which marketers decide which
segments to focus on and develop.
5.2.1 The Purpose of Market Target Segmentation

While market segmentation is the process by which the marketer analyzes and
divides the total market into smaller, more meaningful groups, market target
segmentation is the process by which marketers decide which segments to
focus on and develop. In terms of process, one first segments the market and
then decides which segments to target. Targeting particular segments within
the market has certain benefits for the marketing strategy and planning
activities:
• Focus: It is impossible to target all segments equally and with equal
success.
• Identifying resource requirements: This enables an airline to differentiate
the types of resources required for each market segment. For instance,
what different types of processes and staffing are needed to deliver
products for Economy versus Business class passengers at airports?
• Setting priorities: To make segmentation effective it is necessary to rank
target segments in order of importance. The ranking provides direction in
terms of where best to invest the resources in order to maximize a return
on what is then spent.
Key Learning Point

The Boston Box is a framework that helps rank products and product portfolios
on the basis of value.
Unit 5.2: Market Target Segmentation 157

5.2.2 Ranking Product Portfolios

Ranking products and product portfolios on the basis of value uses a concept
developed in the 1970s called the Boston Consulting Group Box (BCG). The
basis of this concept is that products go through different phases of growth and
decline throughout their market life. This in turn can give companies direction
as to whether to invest or not.
This BCG method takes into account the inter-relationship between market
growth and market share. The underlying assumption is that a company should
have a portfolio of products that contain both high-growth products–that is,
products that are rapidly expanding in terms of sales and which might be in
need of resource inputs to ensure that they can continue to grow at a fast
rate–and low-growth products which have already reached a substantial size in
terms of their share of the market, are profitable and are generating excess
cash to ensure the long term success of the company.
As we have mentioned, there are two dimensions to the BCG method: market
share and market growth. An expected market growth percentage or rating is
applied to each product or service in the portfolio of offerings. They are then
plotted into one of the four quadrants shown below, based on relative market
share and relative growth.
Four types of classification can then be developed in terms of relative
attractiveness of products. Traditionally, the terminology used in this
classification of products is ‘western’ in its phrasing; the action associated with
each segment is more universal in its terminology. In the section that follows,
each type of product is defined along with a fictitious example.
“Stars” designate products that enjoy a relatively high market share in a
strongly growing market. They are potentially profitable or already profitable
and may grow further. Action should be taken to further improve the position
and growth of this product type. For example, the fictional Air Korea Airlines
might have a strong market share in the fast-growing Seoul to Shanghai
business segment. Air Korea invests even more money and effort to maintain
or grow its share of this “Star” service.
“Cash cows” refer to products that are extremely profitable with little extra
effort required to maintain the status quo. A product like this is one where the
growth of the product market decreases, but the company's market share
remains high and stable. Companies should seek to maintain this product's
size and relative position. For example, as the only national airline of Portugal,
the fictional Port Air has a monopoly on government-sponsored travel which
enjoys high yields. Even if the segment gets smaller due to government budget
cuts, it is still worthwhile for Port Air to maintain its share of this “Cash Cow”
without spending any more resources.
“Question marks” is used with respect to products that have high market
growth but small market share, so their actual growth rate is uncertain. If there
is investment in this area it may or may not produce significant results in the
future, so caution is needed. For example, perhaps CB Air has only been
allocated three weekly slots at the Tokyo Narita airport. While the Japan to the
Philippines market might be growing, CB Air cannot add any flights so it is hard
to compete for the business market. This service becomes a “Question Mark.”
They decide to not invest any money and might stop service completely.
“Dogs” refers to products that probably should be dropped. Companies should
make the best of their current value though. For example, Air F's once-daily
Bangkok to Singapore cannot compete with multiple flight schedules offered by
(the fictional) Siam Pacific and Asia South Airlines and they are losing money.
They decide to drop this “dog” flight and operate Singapore-Helsinki and
Bangkok-Helsinki on a non-stop basis instead.

Overall, the basic idea of this business model is to invest in growth

opportunities from which the airline can benefit. The key variables that the
company looks at are the attraction of the market segment being looked at, the
airline's performance in that segment and the size and future growth prospects
for that segment.
The BCG Matrix Strategic Classification

of Products and Markets
High
Market Growth Star Question Mark
Cash Cow Dog

Low
High Market Share Low
Figure 5.2.2—BCG Matrix for Classification of Products and Markets
Using the data collected about Air Ribernia, in particular the market share and
market growth information, we could allocate different products into different
quadrants to give us a feel for where investment would best be made.
The business segment for Air Ribernia is large and produces the largest size of
revenue. As such it is considered a Cash Cow for the airline. It would contain
all passengers from the Elite A segment of passengers mentioned earlier in this
chapter where we looked at the composition of the business market. The main
issue for this segment is the reduction in demand for ‘F’ class travel and the
imminent introduction of significant competition on routes operated by Air
Ribernia.
Stars: Two Air Ribernia segments occupy this quadrant: Independent holiday
travelers and independent business travelers in the Economy class. They are
considered “Stars” because they are growing relatively quickly and could
significantly add to future revenues. There needs to be investment, but it needs
to be carefully assessed, and not at the expense of the Cash Cow–the lucrative
business segment.

VFR travel could be characterized as a Question Mark in the Boston Matrix.

This segment is relatively more profitable than the Group Holiday segment.
Therefore, market share should be protected, but should not receive significant
investment. Rather, investment should be directed to the Star segments
(business travelers) as this would provide better returns.
Finally, we have our “Dog”: The Group Holiday segment that offers very low
yield and is dominated by large tour operators who demand very low rates from
the airline. It is not an attractive segment for the airline.
Did You Know?

Qantas is actually an acronym that comes from its original name of
Queensland and Northern Territory Aerial Services.
The main use of this type of analysis is that it starts to give the company a view
as to which segments to invest in and which segments to protect from
competitive threat. It is part of a process of trade-offs within a company in terms
of decisions to be made. In other words, a company cannot be all things to all
people. Decisions have to be made about products/segments in which to invest
and products/segments in which it is not worth investing. And in the final
analysis, there may be segments from which to withdraw.
Ranking market segments is therefore important. In the recent past in Europe
and North America, there have been examples of airlines that have
underestimated the potential of the ‘low cost market’ model only to see LCCs
grow and challenge the survival of many ‘legacy’ carriers who were slow to
adapt to changing market conditions and opportunities.
In practice, however, most airlines rarely concentrate on just one segment.
There are a number of reasons for this:
One segment may not be enough for a company to achieve economies of
scale. In other words, it does not provide enough ‘size’ to enable the company
to maximize the potential use of aircraft and other resources. In addition,
expanding a route network may involve targeting a number of different
segments of travel in order to fill the aircraft.
Combining different segments may enable the introduction of more frequencies
on a route. This may have a particularly positive effect on the business
segment for which frequency is important.
Key Learning Point

Serving a number of segments enables a company to spread ‘risk’. By this we
mean that, if one segment is ‘down’ in volume and revenue, another segment
may be able to grow to offset that decline in revenue.
Even LCCs which originally targeted one particular segment–low cost leisure
travel–are now beginning to actively target different segments. For example,
EasyJet in Europe is now offering special products to attract business travel
from small and medium business enterprises.
The next step, once you have identified the segments in the total market and
ranked those most important to your business, is to conduct a SWOT analysis
for each market segment.

Key Learning Point

The purpose of a SWOT analysis is to enable an airline to focus on specific
actions that need to be taken in those segments.
5.2.3 SWOT Analysis

The use of this type of analysis enables an airline to focus on specific actions
that need to be taken in those segments. The consideration of the strengths,
weaknesses, opportunities and threats of each market segment helps to
identify clearly what those actions might be.
SWOT analysis looks at four factors:
• Strengths–What does the airline do well? Does the company benefit from a
good sales force and a good brand reputation?
• Weaknesses–Things that the airline lacks or does not do well.
• Opportunities–Could the company benefit from technical or market
changes taking place? Is a possible airline alliance membership going to
add value to the business?
• Threats–Changes in bilateral agreements, technology. Often, though, one
company's threats can be another company's opportunity. The key is how
to convert the various factors into positive opportunities.
Figure 5.2.3a—The SWOT Analysis Framework
Back to our Air Ribernia example, if we start at the top left of the chart and
consider the strengths of the business travel segment:
Strengths for the business market segment could be:
• Current performance–a strong market share and high approval ratings are
two positive indicators for this segment
• Competitive products–better schedules, superior in-flight service
• Effective marketing–excellent communications using a FFP/CRM
database, provided it is better than the competition's

Weaknesses for the business market segment could be:

• Lack of a comprehensive network; business travelers demand good
network/destination coverage, linked to high frequencies
• Customer service and operational problems; these could include poor
punctuality and poor baggage performance, e.g. a high number of lost
bags
• Poor brand awareness
• A shortage of skilled sales staff who have the required relationship
management and account management skills to manage both corporate
accounts and any specialist travel agents who deal with this kind of
business
Opportunities for the business market segment could be:
• A continuing growth trend
• The emergence of new sectors of travel
• New aircraft types to improve punctuality and comfort for passengers
• General economic growth and rise in disposable incomes
Threats for the business market segment could be:
• A period of economic instability
• Increased competitor activity
• Increased buying power of large corporations negatively affecting the price
that can be charged by airlines
• Business travel is increasing, but not all in J/F class
• Ground service has problems
• Competition changes due to bilateral changes

Taking all the above information into account, we can construct a SWOT matrix
for Air Ribernia's business market segment as noted in Figure 5.2.3b below.
Figure 5.2.3b—SWOT Matrix for Air Ribernia
The SWOT matrix gives a clear visual representation of key elements of the
business that need to be considered moving forward in the process.
The usefulness of this approach is that it highlights areas for possible action by
a company. By slightly reconfiguring the matrix, we can begin the process of
thinking about the development of different objectives and marketing strategies
for our airline, in order to protect and grow Air Ribernia. The chart below
highlights the different ways you can think about this.
Did You Know?

Thai Lion Air–an associate company of Indonesia Lion Air–grew by 40.7 per
cent in 2018, making it the fastest growing airline in the world.

Figure 5.2.3c—Air Ribernia Marketing Strategies based on the SWOT Analysis
The key unit here is to recognize that strengths and weaknesses can be
converted into potential opportunities. It requires a mindset in the management
and staff of the airline that is commercially and customer driven, not purely
operational in focus. Only in this way can threats to the business be neutralized
and opportunities exploited to the full.
1. The Boston Consulting Group Box concept focuses on:

(a) Market share and market growth
(b) Market size and market potential
(c) Market stars and market dogs
(d) Market portfolio and market percentage
2. Low Cost Carriers (LCCs) originally targeted low cost leisure travel but are
now beginning to target different segments. TRUE or FALSE?
(a) True
(b) False

3. When ranking market segments, there are four levels of classification

used. What term describes products with high market growth but small
market share?
(a) Cash cow
(b) Star
(c) Question mark
(d) Dog
4. Airline ABC's primary market is entering a period of economic instability. In

a SWOT analysis, in which quadrant would this fit?
(a) Strengths
(b) Weaknesses
(c) Opportunities
(d) Threats
5. A company should avoid serving a large number of market segments in

order to minimize risk. TRUE or FALSE?
(a) True
(b) False
5.2.4 Unit Summary

In this unit, we looked at the second and third steps of the market segmentation
process. First, we described a methodology for ranking market segments
based on their share of the market and potential for growth. In the last part of
this unit, we focused on conducting a SWOT analysis of each market segment.
The SWOT analysis helps a company focus on specific actions with respect to
each segment. In fact, the SWOT analysis is the fourth step in the process of
developing a marketing plan. Based on the data of market segmentation and
the SWOT analysis we can focus on marketing objectives.

5.3 Marketing Objectives
• Explain the role of marketing objectives in the context of the company's

business objectives
• Understand the role and importance of KPIs
• Identify the main elements of the Ansoff Matrix
Unit Learning • Describe the approach for setting marketing objectives
Objectives
We continue to discuss the steps for developing a marketing plan. The fifth
step in this process is defining marketing objectives and strategies. Market
segmentation, understanding the relative attractiveness of those segments and
the results of the SWOT analysis provide the information needed to develop
specific marketing objectives for the airline.
In this unit, we will discuss the implication of the wider business objectives of
the company as a context for developing marketing objectives and strategies.
We will describe a widely used approach that will help prioritize marketing
objectives. In the last part of the unit, we will focus on the process for setting
marketing objectives and some characteristics that distinguish effective
objectives.
Key Learning Point

Whereas the marketing objectives describe what products are to be sold into
which markets, the marketing strategies describe how these objectives are to
be delivered.
5.3.1 Marketing Objectives and KPIs

Marketing Objectives
We learned earlier that goals are timeless and non-specific. A marketing
objective, on the other hand, can be described as the quantification of what an
organization does and to whom (its markets). Marketing objectives are what
the airline seeks to accomplish in pursuit of its goals , and helps state clearly, in
quantifiable form, where we would like to be at the end of a specific timeframe.
The diagram below provides context to our discussion of marketing objectives
and strategies. The objectives attempt to describe the desired destination of
the company's actions and/or results, usually stated as a certain level of profit.
Corporate strategies, on the other hand, describe how the corporate objectives
(and goals) are to be achieved. Within a marketing department, the marketing
objectives describe what products are to be sold into which markets, by which
activities, and within what timeframe, whereas the marketing strategies
describe how these objectives are to be delivered using various combinations
of the marketing mix.

Figure 5.3.1a—Marketing Objectives in the Context of Corporate Strategy
KPIs
Key Performance Indicators (KPIs) are closely related to objectives and are
often used interchangeably. By definition, however, a Key Performance
Indicator is a measurable value that demonstrates how effectively a company
is achieving the key business objectives. Organizations use KPIs at multiple
levels to evaluate their success at reaching targets on an ongoing basis.
Using our case study, we have identified a number of segments and have
attempted some form of prioritization of each segment. Defining objectives will
involve setting objectives for Air Ribernia in terms of market growth. In our
case, we will measure market growth in terms of passenger journeys, yield and
revenue.
Defining the value of what is to be delivered to the customer and the costs to
the company of doing so will lead to development of particular marketing
strategies for the airline, centered on a clear understanding of the 4Ps. The
cost implications, in turn, affect the final decisions of the company both in terms
of strategy and also may affect the original expressed objectives. For example,
some products/segments may be unprofitable for the company to exploit due to
the company's availability of resources, skills or its costs of delivery.
Did You Know?

According to Airbus, India will have the fastest growing domestic aviation
market in the world through 2034. Over the course of 20 years, it will have
grown 5-fold, according to the study.
Lastly, when thinking specifically of direction for the airline's marketing efforts,
a useful tool to use is the Ansoff Matrix. It helps a company think about what is
the strategic direction in which it wants to travel in terms of developing its
products and which markets to serve. Deciding which products to sell to which
markets gives a company clarity in terms of its positioning in the overall market.
The Ansoff Matrix shown below helps to crystallize these decisions.
Unit 5.3: Marketing Objectives 167

Figure 5.3.1b—The Ansoff Matrix
Ansoff (as in Assen, Van den Berg & Pietersma, 2008), described four possible
courses of action:
• Market penetration: Selling existing products to existing markets. This
could involve trying to increase brand loyalty through various marketing
campaigns and offering special promotions to increase the frequency of
flying by passengers.
• Market extension: Extending existing products to new markets. In our
airline Air Ribernia opening a new market in Eastland would be a good
example of this.
• Product development: Developing new products for existing markets.
Developing and implementing an FFP would be an Air Ribernia example.
• Diversification: New products for new markets. Developing a new market
segment–Economy business travel–in particular on a new route to
Eastland could be an example for Air Ribernia.
We will now use the Air Ribernia data we have collected to form some
marketing objectives for the airline. To remind ourselves of the main segments
we have identified, below is the segmentation diagram we introduced earlier in
this module which gives us some marketing direction in terms of which
segments to prioritize.

Southwest: Recipes for Success
Southwest Airlines is one of the great success stories in the airline industry.
Not only has it delivered consistent profitability to shareholders at levels far
greater than that of its competitors, but it has done so in the face of very stiff
competition. This article and related videos help us understand some of the
factors that set Southwest apart from the competition. Video Link: Southwest
Airlines https://thepointsguy.com/2016/10/6-ways-southwest-airlines-stands-
out/

5.3.2 Setting Marketing Objectives

When setting the objectives, we have to make them ‘SMART’. This means that
whatever objectives are set, they have to be:
Specific, Measurable, Achievable, Relevant and Timed
If we look at the main market segments we have identified in the Air Ribernia
case, we could try and use a profit target or market share as measures for each
segment. Both are possibilities, but both have difficulties. Profit by segment
introduces complexities in terms of cost allocation. Market share implies
knowledge of total market size with accurate data on a regular basis which may
not be available to all markets served.
In many cases, airlines use a measure of growth over previous years as a
means of setting objectives. Firstly, we must look at total market growth rates
and then calibrate our own response to this market data in terms of airline
objectives, based on the market segmentation we have done and the relative
attractiveness of each segment to us.
Table 5.3.2—Total Market Growth for Air Ribernia
Taking each segment in turn, we can begin to make some judgments as to

what objectives to set.
Group travel is not forecast to grow strongly in terms of passenger growth and
revenues are forecast to be flat going forwards because the major tour
operators continue to force fare yields lower. Given that we don't want to
increase market share in this segment, it is preferable to have an objective of
nil passenger growth and a gradual decline in revenue of about -2/-3%.
VFR travel is a relatively good performer for the airline and we wish to hold
share, but not increase our proportion of business in this market segment. An
objective of growing in line with market growth would be sensible.
Independent business travel in Economy. This is a growing market segment
and one that we wish to grow. It has relatively good yield and could be more
profitable for us. Keeping the Year 1 target of 12% market growth, we could set
Year 2 and Year 3 slightly higher at 14% and 15%.
Independent holiday customers are likewise experiencing growth and a
similar set of objectives as Independent business travel would seem
reasonable. So, for Year 1 - 10%, for Year 2 - 12% and for Year 3 - 15%.

Corporate is our largest segment and one that we need to protect and, if
possible, grow. We can use the SWOT chart we developed for the airline and
take note of the specific issues that relate to this segment. This would include:
• What are the forecast economic conditions for the countries we fly to and
from?
• The timing of new aircraft arrival into our fleet.
• The change in bilateral agreements and timing of expansion opportunities
into Eastland.
• Our need to respond to the competitive threat from East Air.
• The availability of skilled sales staff and the efficiency of our sales
distribution of our products.
• The timing of our FFP which we need to address as a key weakness.
Based on all of the above, we would probably target passenger growth for this
segment at slightly above the market forecasts. This would require specific
marketing actions to support these objectives.
In general, SMART objectives need to be able to be measured accurately. This
means that it must be achieved using available data.
Finally, setting targets involves a degree of judgment. To achieve the highest
degree of accuracy, all data available needs to be carefully weighed, before a
final decision is made.
1. What is the difference between a marketing objective and a marketing

strategy?
(a) Objectives are fixed, whereas strategies are flexible.
(b) Objectives describe the business mission, whereas strategies set
numeric goals.
(c) Strategies describe what products will be sold in which markets,
whereas objectives describe how those strategies will be achieved.
(d) Objectives describe what products will be sold in which markets,
whereas strategies describe how those objectives will be achieved.
2. Airline ABC would like to begin offering product X, an existing product, in a

new market. This is an example of:
(a) Market penetration
(b) Market extension
(c) Product development
(d) Diversification

3. If you were to apply the Boston Matrix analysis to Air Ribernia, you would
consider the VFR market as a what?
(a) Star
(b) Cow
(c) Question Mark
(d) Dog
4. Developing a new market segment on a new route is an example of:

(a) Market penetration
(b) Market extension
(c) Product development
(d) Diversification
5. Which one of the following is the best measure in setting up the objectives
for each market segment?
(a) Market share
(b) Cost allocation
(c) Revenue
(d) Profit
5.3.3 Unit Summary

Marketing objectives build on all the previous steps for developing a marketing
plan. However, the context of the company's business objectives and
strategies also needs to be taken into consideration. The next stage is to
prioritize the possibilities. A good tool to use for prioritizing marketing
objectives is the Ansoff Matrix. In addition, make sure the objectives are
SMART, i.e. they are Specific, Measurable, Achievable, Relevant and Timed.

5.4 Marketing Strategies and Competetive

Advantage
• Describe the purpose of a marketing strategy

• Identify the four main marketing strategies
• Explain the approach for defining your competitive advantage
Unit Learning
By completing this Unit, The last step before developing a marketing plan is to identify the marketing
you will be able to: strategies and marketing objectives. These two activities are closely related;
therefore, we consider them as one step. This unit is a continuation of the
previous one, but the focus will be on marketing strategies.
In developing your marketing strategies, you choose the market segments that
you want to focus on. The purpose of this is to concentrate on market
segments where you can develop a competitive advantage. In this unit, we will
share with you four basic marketing strategies. We will demonstrate how some
airlines apply these marketing strategies based on their position in the market.
Once you have identified your marketing strategy, you are in a position to
develop your marketing objectives. We will demonstrate this step using our Air
Ribernia case to demonstrate how these principles are applied.
Key Learning Point

Marketing strategies are in effect the means by which marketing objectives will
be achieved.
5.4.1 Marketing Strategies

The main purpose of the marketing strategy is to be able to choose customers
and hence the markets with which you wish to deal. Marketing strategy reflects
the company's best judgment on how to most profitably use its skills and
resources in the marketplace.
Marketing strategies are in effect the means by which marketing objectives will
be achieved and will require use of the four major elements of the marketing
mix–the 4Ps–in various combinations to satisfy customer needs and ensure
opportunities are maximized.
The company's decision on which markets/segments to target and which
competitors to engage and compete with are part of developing a core strategy
for the airline. The concept of competitive advantage provides the link between
target markets/segments which the airline can choose for itself as well as
competitor target markets/segments with which an airline can choose to
compete with or not, as the case may be. Competitive advantage over other
firms is a critical component of success.
Competitive advantage can be achieved through differentiation of the product
being offered, making it of superior customer value as compared to
competitors. It can also be achieved by managing the lowest delivered cost for
an airline's product. Combining these two factors while deciding on the scope
of the business, i.e. how wide or narrow a market does one wish to compete in,
gives rise to four main strategies.

Figure 5.4.1a—Choosing the Best Strategic Leverage (Assen, Van den Berg &
Pietersma, 2008)
These four strategies are:

1. Product Differentiation: This is usually associated with premium products
when they are sold to a broad target market at higher than average industry
costs. The objective is to try to differentiate in such a way as to command a
price premium that is in excess of the cost of differentiating. Differentiation itself
gives customers a reason for choosing one product versus another. This
concept is a central premise of marketing thinking and builds on the idea of
companies having products and services that give them unique selling
propositions (USPs) versus other companies. British Airways is an example of
an airline that positions itself as a ‘premium’ network airline, serving
destinations on four continents.
2. Cost-Leader Differentiation: Cost leadership is the attainment of the lowest
cost position in the industry. Low cost carriers are a good example of this type
of strategy. Products tend to be simplified and standardized to reduce the costs
of production. The LCC Ryan Air is a good example here.
3. Segment Differentiation: In this case, an airline aims to differentiate within
one or a small number of market segments. Regional airlines and all-cargo
airlines like FEDEX fit this type of strategy. Airlines like Premium Air that
completely focus on the business segment is another example.
4. Cost-Segment Differentiation. This strategy combines the previous two
features by using low-cost leadership to focus on a single segment. For
example, an airline that only focuses on group holiday charters.
In the case of Air Ribernia, it is currently positioned in the ‘differentiation leader’
quadrant. It has a strong business traffic segment, is a network airline, its costs
are relatively high compared to new competitors about to enter the
market–East Air–and it is seeking to improve its customer service and product
offering.
Examples of airlines and their core strategies would be:
• Large network premium airlines–Emirates, British Airways, Lufthansa,
American Airlines
Unit 5.4: Marketing Strategies and Competetive Advantage 173

• Low Cost Carriers–Air Asia, Air Arabia, Ryanair, EasyJet

• Regional carriers/cargo specialists–Cargolux, Flybe,
• Charter airlines–Monarch
The core strategy of an airline will contain a number of characteristics if it is to
be successful. First and foremost, it must deliver competitive advantage. This,
in turn, requires that the target market segments be clearly identified and their
requirements understood. Finally, the company must have the resources and
managerial competencies to deliver the competitive core strategy chosen.
Key Learning Point

It is important to recognize that different market segments may require different
marketing mixes.
As we stated at the beginning of this unit, marketing strategies are the means
by which marketing objectives will be achieved. Marketing strategies require
the use of the four major elements of the marketing mix–the 4 Ps–in various
combinations to satisfy customer needs and ensure opportunities are
maximized. To remind ourselves, the 4 Ps are:
• Product–policies for product branding, the design of the product, etc.
• Price–the pricing policies to be used for different products in different
segments.
• Place–for airlines this would be distribution channels used to sell the
product to the customer as well as customer service standards.
• Promotion–communicating with customers, advertising, exhibitions, etc.
These marketing mix decisions can result in a product that delivers competitive
advantage over and above, equal to or below that of a competitor. In practice, it
is impossible to outmatch the competition in all areas. It is also important to
recognize that different market segments may require different marketing
mixes. A common marketing for all segments of an airline's business ignores
the advantages of segmentation.
We will cover each of the 4 Ps in more detail in subsequent modules.
At a high level, one can identify three main forms of airline marketing strategy.
These can be summarized as:
1. Aggressive–where the objective is to increase market share
2. Defensive–where the strategy is to maintain market share
3. Customer focus–where the strategy is to obtain customer commitment and
loyalty
With each of these, a ‘strategic mix’ is used which focuses attention and action
on four key issues:
1. Important customer needs and wants that the competition provides
2. Important customer needs and wants that the competition does not provide
3. Unimportant customer needs and wants that the competition provides
4. Unimportant customer needs and wants that the competition does not
provide

Aggressive Strategy Example: EasyJet and Air Asia

The chart below illustrates the aggressive strategy used by Low Cost Carriers
such as EasyJet and Air Asia.
Figure 5.4.1b—Choosing the Best Competitive Strategy
At the top left of the matrix, the carriers will aim to outmatch what competitors
offer in terms of punctuality, newness of aircraft and onboard product offerings
such as food.
At the top right of the matrix, these airlines aim to upstage the competition by:
• Uncovering the unmet needs and wants of target market segments–in this
case, leisure traffic could be stimulated by aggressive low prices.
• Developing innovative ways to meet segment requirements that the
competition would find hard to match–in this case, innovative Internet-
based direct selling to customers, mobile applications such as boarding
passes, Internet/mobile check-in, etc.
The essence of this aggressive approach is to deliver the most powerful core
proposition to customers. By this we mean a powerful combination of value and
price.
Defensive Strategies-Large Airlines and Home Markets

Most carriers that are large and well established in their home markets will
pursue defensive strategies. They will match initiatives of airlines challenging
them for leadership, though only in areas where there exists customer value for
the airline.

Figure 5.4.1c—Choosing the Best Defensive Strategy
British Airways is the dominant business class long-haul carrier in the UK

market. Virgin Atlantic offers limo pick-up from home for Business and Upper
Class passengers. British Airways does not fully match but offers a valet
parking service for passengers to drop off their cars on departure. It does not
feel that the extra cost of full limo pick–up is justified as it considers its network
coverage and frequencies offered outweigh any advantage Virgin may gain
from this feature. However, it is critical for airlines to monitor competitive
product offerings and ensure they are matched where appropriate.
Customer Focus Strategy

A strategy that is increasingly used in recent years is customer focus. This
strategy places emphasis on relationship building with customers.
Sophisticated software is now available that can help a company to develop a
comprehensive customer relationship management (CRM) system covering all
areas of the airline that come into contact with customers. Key features of a
CRM system are:
• Seeing all customer contacts as potential opportunities for revenue
generation and service improvement
• Restructuring to ensure that internal company relationships are working
properly
• Traditional market research is increasingly replaced by more direct
feedback from individual customers. The use of customer discussion
groups, e-mail surveys and one-on-one discussions help the airline find out
about such topics as:
○ Recent usage of the airline and its competitors
○ Levels of satisfaction and commitment
○ Intention to repurchase
○ Unfulfilled needs and wants
○ Reaction to possible new products and services

○ Attitude towards e-commerce, mobile applications and use of social

media
• Front line staff play an important part in the change process, rather than
being seen as purely ‘operational’ in role
All the above leads to an airline that can develop marketing strategies that can
deliver marketing messages and action down to an individual level, if required.
5.4.2 Selecting a Marketing Strategy

Using our case study airline–Air Ribernia –we have identified five market
segments. We can apply different strategies for each of these segments. As a
reminder, here are the five market segments once more:
Segment A: Business travel–corporate travelers that use Business and First
class to a wide variety of destinations. Although currently a market leader,
there are a number of threats to its current position.
Segment B1: Independent holiday travel–people who want to create their own
holiday and are prepared to pay a premium to do this. A rapidly growing
segment, but as yet not fully defined in terms of true potential.
Segment B2: Independent business travelers using Economy class. Also a
rapidly growing segment and one which must be exploited in order to
accommodate downgrading by Air Ribernia 's current business travelers as
well as countering the threat of other carriers such as East Air who are
capturing a large part of this new market.
Segment C: VFR travel–a much smaller and slow-growing segment, but
nevertheless profitable to the airline.
Segment D: Group Leisure (holiday) Travel–a segment becoming less
attractive as large group tour operators continue to keep yields low, minimizing
the margin the airline can make on this business segment.
Figure 5.4.2a—Segment Strategies for Air Ribernia
The above strategies can be put into a matrix to begin to describe the
marketing objectives by segment as well as the strategy and strategic issues
facing the airline.
In the next four modules, we will consider in more detail the main elements of
the marketing mix as well as airline alliance impacts. We will see how they
come together to provide fully developed marketing strategies that can then be
fitted into a marketing plan. The marketing plan will describe how to implement
these marketing strategies and review performance against specific objectives.
The first part of a marketing plan should be able to describe these objectives
and strategies. An initial view is given below for Air Ribernia.

Figure 5.4.2b—Air Ribernia Marketing Objectives
1. The airline's core strategy identifies which market segments will be

targeted, but it does not include which competitors will be engaged. TRUE
or FALSE?
(a) True
(b) False
2. How can a company achieve a competitive advantage?

(a) By differentiating their products and managing the lowest delivered
cost
(b) By diversifying their product range to achieve economies of scale
(c) By pricing their products lower than the competition
(d) By developing unique marketing campaigns
3. What do customer relationship management systems do?

(a) Reduce the need for front line staff
(b) Identify the top tier of customers who are key revenue generators
(c) Collect feedback directly from customers instead of through traditional
market research systems
(d) Allow customers to connect directly with one another to compare
airlines and products

4. Which of the following is the main feature of a differentiation leader

marketing strategy?
(a) Broad target market
(b) Products simplified and standardized
(c) Products offered at significant discounts
(d) Specializing in small number of market segments
5. Airline ABC has identified a rapidly growing segment: independent

business travelers using Economy class. Airline XYZ already dominates
this market. What type of marketing strategy should Airline ABC not use if
they wish to increase their market share?
(a) Aggressive
(b) Defensive
(c) Customer focus
(d) Price focus
5.4.3 Unit Summary

In this unit, we discussed the last step before developing a marketing
plan–marketing objectives and strategies. We identified the main purpose of a
marketing strategy: to choose markets the company wants to deal with in order
to achieve competitive advantage. Competitive advantage can be achieved
through differentiation of the product being offered. Therefore, we have
described four marketing strategies and we have shown how these strategies
are applied by different airlines. We have also shown, on the basis of Air
Ribernia, how these strategies become the basis for developing marketing
objectives.

Module Summary
In this module, we discussed the remaining steps in the process for developing
a marketing plan. These steps are closely related because the data and
conclusions or choices made in one step become the foundation for the next
step. Marketing strategy–to be successful–requires a strong foundation of
analysis and segmentation of the overall market. From this, priorities for the
business can be identified and objectives set.
The airline's relative position in a target market segment vis-à-vis other airlines
will affect objectives and the type of strategy adopted–aggressive, defensive or
customer focus.
The initial part of the marketing plan identifies the market segment we are
targeting, then assesses the market position. From there we can establish
marketing objectives by segment and develop strategies for reaching those
objectives.


Assen, M., Van den Berg, G. Pietersma, P. (2008) Key management models:
The 60+ models every manager needs to know. New York: Prentice Hall.
The Boston Consulting Group. (2010). The BCG Matrix.
Airbus. (2018). Market Forecast: 2014-2034.

Answer Key
1. b
2. b
3. d
4. b
5. a

1. a
2. a
3. c
4. d
5. b

1. d
2. d
3. b
4. d
5. c

1. b
2. a
3. c
4. a
5. b

Module 6:
The Airline Product
• Understand the nature of airline products and services

• Explain the significance of each stage of a product's life cycle for
marketing
• Explain the role of branding in airline marketing
Module Learning • Describe the key factors that affect an airline loyalty scheme's (FFP)
Objectives effectiveness
By completing this Module, • Identify the objectives that airline schedules need to meet
Module Introduction
In the previous modules, we looked at the steps and processes for developing
a marketing plan and strategy. The next stage is to design a marketing mix that
can implement the marketing plan. As we saw in Module 1, the main roles of
the marketing mix involve creating, communicating, pricing and distributing the
airline value proposition to the target customer on the basis of their needs. In
this module, we will look in detail at the first component of the marketing
mix–the airline product. Defining the product for an airline is not an easy task.
Part of the challenge has to do with the fact that the airline product always
includes tangible, variable, perishable and intangible aspects. In this module,
we will share a structured approach for defining the airline product.
Once you have defined your product, you need to consider it from the
perspective of the product life cycle. This is an important framework that will
help you better understand the dynamic nature that products have over a
period of time. Understanding this aspect will help you prioritize your efforts
and resources according to the life cycle of the products that your company can
offer.
The history of low-cost carriers shows that sometimes an innovative approach
to defining your product can lead to the discovery of new market segments.
Think of the airline product not just in terms of a seat on a plane, but as a
number of engagements that shape the relationship between the airline and its
customers. For this reason, we will also discuss in this module the importance
of the airline's brand and the Frequent Flyer Programs that it offers.

186 Module 6: The Airline Product

6.1 Airline Products and Services
• Describe the main features of an airline product

• Identify the features of the ‘hard’ aspects of an airline product
• Describe the ‘soft’ aspects of an airline product
• Explain the role of marketing in defining the ‘hard’ and ‘soft’ aspects of the
Unit Learning product
Objectives
• Understand the steps involved with the customer experience
Unit Overview
The airline product is not something that can be easily defined because airline
“product” consists of a series of services. Some services are more tangible, like
the seat on the plane or amount of leg room. The courtesy of the flight
attendant, on the other hand, is less tangible. What is the role of marketing in
defining the airline product?
In this unit, we will describe a structured approach to defining the airline
product. We will focus on both the tangible and intangible aspects of the airline
product and will identify features and areas that can be used for ‘packaging’ an
airline product that will serve the needs of the customer.
Key Learning Point

A service is a form of product that consists of activities, benefits and customer
satisfaction offered for sale. It is intangible and does not result in actual
ownership of any physical product.
Did You Know?

The Boeing 737 is the top-selling aircraft in the world with over 15,000 sold
through 2019.
6.1.1 Defining the Airline Product

In its simplest form, a product is a bundle of attributes that satisfies customer
needs. A service is a form of product that consists of activities, benefits and
customer satisfaction offered for sale that is essentially intangible and does not
result in actual ownership of any physical product.
For an airline, much of the product is intangible–that is, not related to the
physical product such as aircraft type or physical seat but tied to the type of
customer service and interaction delivered. Airlines are service organizations
and the marketing mix must include in its ‘product bundle’ the people and
processes that the airline uses to actually deliver customer service.
Airlines have to cater to a wide variety of customer needs. Airline passengers
have some of the highest expectations of any group purchasing products from
service industries. Because of this, the types and levels of products and
services being delivered have to be subject to continuous innovation in order to
maintain competitive advantage over other airlines and to maintain customer
satisfaction levels.
Unit 6.1: Airline Products and Services 187

Great emphasis is placed today on the ‘total customer experience’ or the

‘customer journey,’ as it is sometimes called, and how the airline can influence
and change that experience to make customers more loyal to their airline and
encourage them to purchase more of their product.
It is possible to examine the airline product by looking at two main aspects:
• Product hardware–tangible features that have mainly to do with equipment
and facilities on the ground and in the air.
• The ‘soft’ side of the product–features that have mainly to do with how the
airline engages with and treats its customers throughout their process of
interactions with the company as they go through their journey.
In the next two units, we will discuss in detail these two main aspects of the
airline product.
6.1.2 Product Hardware

Because the airline sells services, the “hardware” of an airline is really quite
limited. Still, the customer interacts with these aspects of the airline product on
three levels:
• The aircraft itself
• The features present in the various cabin classes of the aircraft
• A set of peripheral features involving ground services
Graphically, these tangible aspects of the product are presented in the diagram
below with examples of the features that comprise each aspect.
Figure 6.1.2—Features of the Airline Product

Most of the features mentioned in the diagram above are concerned with the
equipment and facilities on offer. Marketing has a role to play in decisions
regarding these features. Its prime contribution is to promote a marketing view
that enables the correct ‘trade-offs’ to be made when choosing different aircraft
types, routes, etc.
Key Learning Point

Marketing has a role to play by promoting a marketing view that enables the
correct ‘trade-offs’ in designing a product to be made.
For example, it could be that market research will provide information and
insights into customer needs in terms of preferred timings or frequency on a
route. This can be a total market view or by particular segment. If a route is
primarily leisure-based, timings will not be such a key factor. Business travelers
will prefer high frequency and timings to suit their needs.
This could also impact the type of aircraft chosen to fly a particular route. If a
route is seen to have significant growth potential, then introduction of a larger
aircraft type may be feasible and the risk of doing so relatively low.
The second area shown covers the class of service features. This is where
distinctions are made in terms of different product offerings to different classes
of travelers, in the air and on the ground. Seat access refers to the ‘flexibility’ of
seat product offerings as a result of different fare types and price levels. Fares
can range from a very restrictive type allowing no changes to a booking once it
is completed through to a fully flexible fare type allowing customers to change
travel arrangements without any penalties. This enters into the area of pricing
which we will cover in the next module.
The supplementary service features cover reservations and booking services
as well as any special items that are built into the product.
6.1.3 The ‘Soft’ Side of Airline Products

Apart from all the ‘hardware’ the airline uses in its products, there is also the
mix of people and processes that the airline uses to deliver value throughout
the customer's experience.
There are certain key features to consider:
• The skills, experience and motivation of customer contact staff
• The ease with which the systems and processes provided to staff can be
used
• The ease with which automated processes can be used such as booking
and self-serve check-in
• The degree to which staff are given responsibility to resolve any problems
as they occur, rather than having to refer to a higher authority for final
decisions.

From a customer point of view, there are multiple points of contact during their
product experience. These can be shown in the diagram below:
Figure 6.1.3a—The Customer's Product Experience
During the planning, booking and journey, the customer may have interaction
with the following:
1. The airline's Internet website when researching, planning and booking the
journey.
2. The airline's reservation staff, if the booking is made by phone, in-person at
the airport or at another airline sales point.
3. Pre-airport processes using Internet and mobile-based applications for
issuing boarding passes or collecting passport and visa information. These
are all designed to make the airport experience easier.
4. The airport experience where customer service staff need to provide
consistent levels of service delivery at the check–in counter, in the lounges,
at the boarding gate and when handling general inquiries.
5. The cabin crew on board the aircraft.
6. Staff at the point of the destination, including staff taking care of connecting
passengers.
7. Post-flight follow-up may be required if there is missing baggage,
interaction regarding Frequent Flyer benefits, market research and/or post-
flight commercial offers.
The customer's perception of the airline staff with whom they come into contact
is critical to the reputation and potential re-purchasing behavior of customers.
Important questions that customers typically ask themselves are:
• How easy did they make it for me?
• Were they helpful?
• Did they have the knowledge and support needed to meet my needs?

• Did they care?

• How were any problems that occurred handled?
• Was the service I received consistently good?
• How does this experience compare with my previous experiences on this
airline?
• How does this experience compare with my previous experiences on other
airlines?
From the above questions and other market research, the following points
emerge:
• The attitude of staff and their behaviors are just as important as
punctuality, schedules and seat comfort in keeping customers. One bad
customer experience can completely negate all the effort and investment in
the ‘hard’ parts of the product.
• Most customers find their experience on the ground far more stressful than
in the air. Hence, the trend for significant investment in making the airport
‘experience’ as hassle-free as possible for customers. These investments
include better use of technology and ensuring staff are properly trained.
• Problem handling by staff is crucial to success. In fact, if a major
problem–i.e. a long delay or missing baggage–is handled well and
succeeds in overcoming passenger dissatisfaction, the reward for the
airline could be a customer more likely to use the airline again and
recommend the airline to other customers.
Overall, the mix of ‘hardware’ and ‘software’ that enables passengers to
experience safe and easy travel is a key ingredient for airline success. Airlines
compete intensely on both aspects. The mix will vary as well within an airline
depending on the passenger target segments that the airline is trying to satisfy.
Sometimes this is called the ‘service concept’ that defines the how and
the what of service design and helps mediate between customer needs and an
organization's strategic intent. (Goldstein and Johnson, 2017). Customer
needs and product developments combine to help develop specific service
concepts for different passenger segments. A video about how Toyota applies
a Total Service Concept (TSC) can be found here
https://www.youtube.com/watch?v=wHPXHubFoSc
At an air transport level, ‘product’ can also be shown as having a
‘core’–transportation–and a number of ‘actual products’ that are mainly of a
tangible nature. The outer ring, or ‘augmented product’ mainly relates to
customer care/service and other features over-and-above the main tangible,
physical products.

Video Window on the Aviation World:

Inside Singapore Airlines: The World's Best Airline. An interesting video on how
Singapore Airlines trains the crew and delivers award-winning service can be
found here https://www.youtube.com/watch?v=y_uUnrIVO-c
Figure 6.1.3b—The Levels of the Air Transport Product
1. Which term matches this description: “A form of product that consists of

activities, benefits and customer satisfaction, but does not result in actual
ownership of any physical product”?
(a) Service
(b) Air travel
(c) Customer experience
(d) Supplementary features

2. How does marketing inform decisions about the equipment and facilities on
offer?
(a) It establishes marketing objectives against which plans for new
products can be measured
(b) It helps airlines decide which trade-offs to make when selecting new
product features (routes, aircrafts, etc.)
(c) It provides information about which advertising campaigns have
received the most positive feedback
(d) It champions the customer by representing their interests and needs
3. The staff attitude and behavior are just as important as punctuality,

schedules and seat comfort in keeping customers. TRUE or FALSE?
(a) True
(b) False
4. Most customers find their experience in the air far more stressful than on
the ground. TRUE or FALSE?
(a) True
(b) False
5. A customer's checked baggage has been lost en route to her destination. If

the airline staff successfully handles this issue, what will this customer
probably do?
(a) Avoid using the airline and advise others to do the same
(b) Use the airline again if there are no other options, but not encourage
other people to use it
(c) Use the airline again and probably recommend the airline to other
customers
(d) Nothing–the positive and negative experiences will cancel one another
out
6.1.4 Unit Summary

As we have explored in this unit, the main challenge in defining an airline
product is that customer experience is an intangible service. This experience is
shaped both by hardware that the airline uses as well as by the interactions
with airport and airline processes (‘soft’ assets). By taking a detailed and
structured approach to defining the product, we can design an offer that is
appropriate for the customer's needs.

6.2 Managing the Product Life Cycle
• Describe the main stages of a product's life cycle

• List the product and service customer preferences identified by market
research
• Describe strategies for monitoring competitor product developments
Unit Learning • Understand the genesis of the low cost airline model (LCC)
Objectives
• Understand the concept of QSI
Unit Overview
Once you have defined your product, you may be ready to consider the
marketing mix that would bring the product to market. However, we need to
pause at this point and clarify the dynamic nature of the product you have
defined. The concept that we will explore in this unit is the product life cycle.
Designing a product in the airline industry is a continuous process. The needs
and preferences of customers change over time. Therefore, all players in the
market follow these changes closely. The key to success is to be keenly aware
of your product's life cycle and be prepared to adjust or redesign it completely
based on the changes in the business environment. In this unit, we will share a
number of examples that will demonstrate how companies have successfully
managed the life cycle of their products.
Did You Know?

According to Conde Naste Traveler magazine, Bangkok was the most popular
tourism destination in the world in 2019 with 22.8 million overnight visitors.
Paris was number 2 with 19.5 million annual visitors.
6.2.1 Overview of the Product Life Cycle

Product development, innovation and its management is a never-ending
process within a company. Innovation in developing and launching new
products and refreshing current products are necessary to ensure a company
maintains its profitability.

The basic outline of a ‘product life cycle’ is given below:
Figure 6.2.1—The Airline Product Lifecycle
The introduction of a new product to market is a critical phase. On average,

60% of new products fail at this stage. In order to give a product the best
chance of success, it's critical that market research be thorough. In aviation,
there have been examples of aircraft types that have failed to pass through the
introductory phase and have been withdrawn from market due to poor
sales–for example the B717 and A380 aircraft did not meet market
expectations.
Key Learning Point

If the launch of a new product is successful, there will be ‘early adopters’ within
the different market segments of the business.
If the launch of a new product is successful, there will be ‘early adopters’ within
the different market segments of the business. This was especially true of
business class passengers when mobile and Internet check-in were made
available. Likewise, the use of social media applications can be linked not just
to Business class, but also to the customer's age profile.
After use of the product by early adopters, sales of the product will hopefully
increase rapidly and spread to a wider and deeper market share in the
segments at which it is targeted. At this point, sales will reach a mature stage.
With maturity comes increased competition as rival firms either adopt similar
products or develop even more attractive alternatives. At this point the product
can be enhanced and revised and its life extended or it can begin to decline in
sales and popularity. It will eventually be withdrawn from market.
If we look at aircraft, the Airbus A320 and Boeing B737 families have
developed different versions to extend their product life. Most recently, Airbus
has introduced the A320-neo and, in response, Boeing has launched the B737-
maxjet. Also, completely new aircraft types such as the B787 have been
introduced–with Airbus launching the A350 in response.
Unit 6.2: Managing the Product Life Cycle 195

6.2.2 Product Design

To illustrate the significance of product design, we will look at three examples
in more detail:
• The design of the ground product
• The development of ‘Low Cost Carriers’
• The development of ‘Business’ class products.
Ground Service
As we have stated previously, airlines are constantly developing new ways to
improve the customer's total travel experience, from the time of inquiry and
travel planning through to post-flight.
At an industry level, IATA has become involved in driving forward
improvements to the passenger experience on the ground and has
successfully delivered to the industry a Program called Fast Travel. Market
research has confirmed that passengers prefer products that enable them to
use self-service processes in a number of key areas described below.
Therefore, IATA initiated this project and contributed to the redesign of
processes and technology to facilitate passenger travel and enhance the travel
experience.
• Check-in/Bags ready to go: Self-tagging is self-service baggage tag
printing for application by passengers themselves. Passengers also weigh
their own bags.
• Check-in/Document check: Allows passengers to scan their own travel
document to verify the travel document against data requirements.
• Flight rebooking: In the event of irregular operations such as flight delays,
misconnects or cancellations, an airline proactively offers to reroute a
passenger and delivers a boarding pass or rebooking options via self-
service channels.
• Self-boarding: The ability of passengers to scan their own boarding passes
at the gate and to gain entry to the aircraft in a controlled manner. This is
done through specially designed ‘gates’ at the boarding point which open
once a passenger's boarding pass has been automatically validated.
• Bag recovery: The ability for a passenger to register a mishandled bag via
a self-service device, rather than having to go to a lost baggage counter.
For a more detailed summary of this program, please refer to the IATA Fast
Travel webpage found here https://www.iata.org/whatwedo/passenger/fast-
travel/Pages/index.aspx
While IATA is trying to drive through common standards of delivery, individual
airlines are launching their own specific products and processes to deliver the
above product design improvements. In doing so, they will each try and find
ways to make their processes not just compatible with industry standards but
delivered in a manner that provides competitive advantage over other airlines.
Also, as time goes on, new technologies will be developed and the current
generation of technologies and processes will reach maturity and be replaced
by newer methods of delivery. Again, some airlines will lead the way in renewal
and seek competitive advantage, while others will not. This can be due to lack
of the required skills or financial resources as well as risk-aversion or focus on
other market segments. Innovation is indeed a continuous process.

Low Cost Airlines

The introduction of the ‘low cost model’ (LCC) in the U.S. by Southwest Airlines
has spurred the creation of similar airlines across the globe. EasyJet in Europe
and Air Asia are also great examples of the classic airline LCC model that
shares some key characteristics:
• Commonality of fleet (e.g. all Boeing 737s or Airbus A319s)
• Single class of service: Economy
• Ancillary revenues: Charging for baggage, seat assignments and in-flight
catering
• Online booking only through the company website; no travel agent
commissions
• High aircraft utilization linked to high load factors
• Limited seat pitch: More seats per aircraft
• Short-haul point-to-point schedules and routes
• Aggressive advertising
• Aggressive pricing
However, in the last couple of years, the original ‘low cost’ model of operation
has evolved for some airlines as they seek to modify the product to meet
changing market needs and to ensure it is refreshed and does not decline in
market share and popularity. The original target market segment–low cost
leisure passengers–is still the dominant segment, but Air Asia, for example,
has since started operating long-haul flights with flat-bed seats to attract the
business segment. Norwegian Air, on the other hand, touts itself as a long-haul
LCC that serves destinations like New York for Europe.
From the airline's point of view, these adjustments enable them to develop
different market segments that potentially can deliver better yields. From the
business passengers' point of view, they can access cheaper fares and some
additional features that cater to their needs. These include the creation of a
‘Speedy boarding’ concept whereby paying extra one can board the aircraft
first, have priority check-in and have a fare type that can provide flexibility of
rebooking. These features meet business passenger needs and develop the
overall airline product offering. The product life cycle is therefore extended and
enhanced.
Business Class Products

The last twenty years has seen numerous examples of airlines continuing to
develop their Business class products in order to keep them ‘refreshed’ and
ahead of the competition.
One of the earliest examples of clear branding for a Business class cabin, as
distinct from First Class and Economy, was British Airways. In 1988, BA
launched Club World cabins for long-haul flights and Club Europe cabins for
Business class travel in Europe. The Business cabins featured improved
seating, meals and cabin service as well as ground service improvements to
enable passengers to move through airports with less hassle. Attention was
also paid to superior airport lounges in terms of seating,
communications/business services, arrivals lounge shower facilities, etc.
Since then, many airlines like Cathay Pacific, Qantas, Lufthansa and Delta
have matched BA by offering similar–if not better–cabin layouts, amenities and
seats. Qatar Airlines recently introduced its Q Suites business class product
that offers business travelers flat-beds and private suites. This innovation

helped the airline win the Skytrax Best Airline of the Year award in 2019, as
well as winning recognition as The Best Business Class product. (Skytrax
2019)
Key Learning Point

Product design and innovation is a continuous process in the airline business.
A final example of product design for Business class is where airlines provide
limousine service from home to the departure airport and, for some, at the
destination airport as well, thereby providing a door-to door limo service for
passengers. Virgin Atlantic in the UK offers this type of premium product, as
does Emirates in many of its key destinations
From the three examples above, a number of key points arise:
Product design and innovation is a continuous process. In order to keep
ahead of the competition, we have to ensure that current customer needs are
being met and provide innovative new products to capture more of the market.
An airline needs to be aware of its products' life cycle. Decisions need to
be made as to whether to enhance products or to withdraw them. A number of
airlines, for example, no longer have First class cabins, having decided that
First Class is no longer a product for their own particular set of routes and
segments of market. Others have enhanced and re-launched their First class
products–a recent example being Singapore Airlines in 2016 and Qatar
Airways in 2018.
Technological change has to be harnessed. In particular, the advent of
mobile telephony has resulted in more possibilities for passengers to interact
directly with the airline, be it in terms of buying seats or pre-flight and post-flight
services.
Did You Know?

Escapehere.com, a travel consultancy, rated Oslo, Norway as the world's most
expensive tourism destination in 2019, followed by Dubai and Tuscany.
6.2.3 Competitor Product Analysis

In order to keep track of product developments and to monitor competitor
activity and design developments, it is useful to use some form of product
specification process. This can be used in designing new products and to
monitor changes.
At the marketing audit stage, include your own airline product specifications,
and the same level of detail on your competitors. A matrix can be used which
has the following three main headings:
• Scheduling features
• Class of service features in the air and on the ground
• Supplementary features
Under each heading, list all the main features offered as well as the benefits
and advantages of each one. For example:
• Feature: Separate Business class check-in
• Advantage: Quicker, shorter queues

• Benefit: Easier and more comfortable for customers. Specific and visible
recognition of this important segment of customers
There can be standards incorporated for each feature. In the above example, it
could be queue length or duration of wait. It is also possible to show how actual
performance compares with targeted measures. In this way, a more complete
view of the airline's performance from the customer's point of view can be
obtained.
6.2.4 The Quality Service Index (QSI)

In order to assess schedule competitiveness, airlines use a measurement
called the
Quality Service Index, or QSI. This index assigns scores to each airline on a
route based on the relative strengths and weaknesses of each schedule, which
can be used to help predict market share. Some of the factors that help
calculate QSI include:
• Elapsed Time: The fastest flights (e.g. non-stop vs. one stop) receive the
higher scores
• Frequency: More frequent flights receive higher scores
• Times: More convenient times receive higher scores
• Seat Capacity: More seats receive higher scores
Consider the case of Air Alpha in Figure 6.2.4a below. Whereas it only has
35% of the seats on the route, its stronger schedule in terms of elapsed time,
frequencies, and departure times give it a higher overall QSI score of .48
compared to the competition. As a result, Alpha Air has a predicted market
share of 48% that is disproportionately higher than its 35% capacity share.
Beta Air, on the other hand, has a QSI score of .31, so its predicted market
share would be lower than that of Alpha Air because of Beta's flights that have
longer elapsed times and a less favorable departure time.
Official Airline Guides (OAG) compiles airline scheduling data and provides
airlines with their QSI scores on a subscription basis. More information can be
found at the OAG website at this link: https://www.oag.com/connections-
analyser
Figure 6.2.4a—QSI Scores and Predicted Market Share

1. At which stage of the product life cycle do 60% of products fail?

(a) Introduction
(b) Growth
(c) Maturity
(d) Decline
2. What is the term for the first group of people to begin using a new product
or service?
(a) Early majority
(b) Experimenters
(c) Early adopters
(d) Early buyers
3. All of the following are reasons why product design and innovation are
important for airlines, EXCEPT:
(a) To capture the market with innovative new products
(b) To stay ahead of the competition
(c) To meet customer needs
(d) To reduce the product's life cycle
4. Airline ABC has recently seen many of its business customers traveling in
Economy. In which stage of the product life cycle is this airline's Business
class?
(a) Introduction
(b) Decline
(c) Maturity
(d) Growth
5. Low cost leisure passengers are no longer the target market segment for
some traditional Low Cost Carriers. TRUE or FALSE?
(a) True
(b) False
6. QSI is a measure of the competitive strength of an airline's schedule, and

helps predict market share on a route. TRUE or FALSE?
(a) True
(b) False

6.2.5 Unit Summary

In this unit, we shared a number of examples of how airlines have developed
successful products based on the changing needs and preferences of certain
market segments, and some examples of airlines that have changed their
business class models to adapt to competitive and consumer changes because
they understood the dynamic nature of airline product development. The two
key terms to take away from this unit are product life cycle and QSI. There are
products that have a long life cycle and there are others that have a shorter life
cycle. Sometimes this is the result of the product design. Other times it may be
the outcome of a major change in technology or customer behavior. QSI, as we
have learned, is a valuable measure of the value of an airline product in terms
of scheduling and capacity

6.3 Airline Brands and Branding
• Describe the role of branding in marketing

• Understand master and sub-brands
• Explain the relationship between the brand's strength, assets and value
• Understand brand positioning
Unit Learning
Objectives • Describe the role of brand management in a company
Did You Know?

According to Skytrax, Air Asia was voted as the best low-cost airline in the
world in 2019, followed by easyjet.
Unit Overview
An important aspect of all current marketing strategies is branding. The most
basic function of a brand is to help customers distinguish the products and level
of service of one company from its competitors. Branding has become a very
complex concept because of the variety of activities used to build and promote
a brand. In many instances, building and managing a brand requires specific
knowledge and skills. In this unit, we will give a general overview of what a
brand is and its importance for marketing. We will describe the key
characteristics of successful brands.
It is important to understand the way brands impact customers because brands
themselves are a direct result of market segmentation and product
differentiation.
Key Learning Point

Brands are a direct result of market segmentation and product differentiation.
6.3.1 Defining Branding and its Role in Marketing

The development of brands and brand strategies is an increasing and
sophisticated part of airline marketing. Brands themselves are a direct result of
the marketing process of market segmentation and product differentiation.
A brand is a promise of value delivered with unique integrity and passion by the
airline involved. It is also a symbol that identifies the product or service of one
seller from another. It acts as a credible guarantee of quality. Over time, a
brand can become a valuable asset through accumulated customer
experiences based on investments made in quality, clarity and consistency of
communication. Brand value is such that it is often expressed in numerical
terms on the company's balance sheet, including airlines. A company's brand,
therefore, is intrinsically linked to its reputation in the marketplace.

A brand is made up of tangible and intangible associations customers form

about an organization and its products and services. These associations can
be:
• Visual–logos, banners, signage, etc.
• Emotional–feelings derived from interactions with the organization (i.e. its
people, services and/or promotions)
• Cultural–this is the way ‘things are done around here’
Key Learning Point

A company's brand is intrinsically linked to its reputation in the marketplace.
A strong brand will generate positive associations at each and every point of
customer interaction. For service brands such as airlines, the tangibles have to
do with the customer experience–the cabin environment, the lounges, the
aircraft, the overall satisfaction with the product, etc. The intangibles refer more
to the emotional connections derived as a result of the experience. These
intangibles are managed via the manipulation of identity, communication and
people skills.
In summary, a brand is something that:
• Describes in words and symbols the emotions and experiences consumers
have when they use a product
• Is identifiable
• Makes specific promises of value
• From a customer perspective, is ‘the promise to deliver an experience’
• From a company perspective, is a promise of future earnings, based on the
fact that a strong brand develops customer loyalty
• Provides competitive advantage which helps a company differentiate itself
from the competition
• Drives customer loyalty and builds customer confidence
Figure 6.3.1—The Role of Branding in Marketing
Unit 6.3: Airline Brands and Branding 203

When looking at successful brands, certain characteristics are evident:

• The brand has developed over a period of time and has received
significant investment
• The brand values–what it stands for–are very clear. For example, Virgin
stands for fun, value for money and innovation. Or, in the case of
Volvo–the name is clearly attached to safety.
• The company's culture is in line with its brand values–for example
Southwest Airlines
• The corporate identity–logos, symbols, etc.–reflect the brand values
• The employees have a good understanding of the brand and its position in
the market
• The company is consistent in delivering on its promises
6.3.2 Brands and Brand Value

Branding has become a very complex concept because of its impact on other
functions of the company. Although a brand includes so many intangible
aspects, if developed successfully it can have a measurable financial value
attached to it. In this unit, we will look at several key aspects that affect the
value of a brand
The Master Brand

A master brand is a uniform brand name and product that is used worldwide.
Examples include Oneworld, British Airways, Qantas and American Airlines.
Airlines, like most successful companies, have rigid brand identity standards
that they set and maintain in order to ensure that the brand is communicated in
a clear and consistent way. For example, when you think of Lufthansa, the
color yellow comes to mind. However, brand identity standards go well beyond
color schemes. They include logos, fonts letter layouts to even the proper
height of ticket offices. As an example of these standards, Figure 6.3.2a shows
a page from the 147-page British Airways Brand Guidelines manual called The
BA Way. The entire manual can be downloaded here: https://www.
logodesignlove.com/images/guidelines/british-airways-brand-guidelines.pdf
Sub-Brands
Often, an airline will have a number of sub-brands as part of its portfolio of
products. For example, there could be other airlines within the airline ‘family’,
e.g. Qantas and Jetstar, American and American Eagle, United Airways and
United Express. It can also describe the different products and services within
an airline, e.g. British Airways has First Class, Club World, Club Europe, Club
World London City, World Traveler Plus, World Traveler and Euro Traveler.
Thai Airways uses Royal Orchid as its sub-brand such as Thai Royal Orchid
Plus loyalty scheme, Thai Royal Orchid Holidays and Thai Royal Orchid airport
lounges.
Key Learning Point

A brand adopts a distinctive position in its competitive environment to ensure
that individual customers in its target market can tell it apart from others.

Brand Positioning
Positioning is defined as “creating a place of value in the target customer's
mind.” In other words, it is the distinctive position that a brand adopts to help
ensure that target audiences can tell it apart in a crowded competitive
marketplace. For example, when we think of Ryan Air, Air Asia or Southwest
Airlines, what comes to mind? They are value airlines. How about Singapore
Airlines or Qatar Airways? They evoke images of comfort and global networks.
Those are examples of how their brands are positioned in our minds.
In order to assess brand positioning in a particular market, a brand map can be
developed using the key product attributes that are important to each market
segment. For example, for business travelers on very short-haul routes, there
are two purchase criteria that stand out: flight frequency and efficient airport
processes. Once we know these attributes, market research can be conducted
to see how customers perceive this airline and others on these routes in
relation to those key attributes. Take a look at the diagram below that shows
the brand positioning of three fictional airlines according to two attributes: price
and comfort/service
Figure 6.3.2a—Brand Positioning Singapore-Jakarta (Fictional Airlines)

Once an airline determines its brand positioning objectives (e.g. low price and
low frills in the case of Jakarta Java in Figure 6.3.2a), they must then conduct
consumer research to ensure that customer perceptions match the brand
positioning objectives. For example, if Jakarta Java's positioning objective is to
be perceived as a “value” airline, but customers instead perceive its brand
image as expensive, it will need to take corrective action through advertising
and sales promotions.
Brand Equity and Brand Value

The strength of the brand is based on its brand assets such as its reputation,
strong customer awareness, customer preference, and the intellectual property
rights that protect it.
Financial analysts are always trying to assess the value of a company's brand,
just like any company asset. There are two ways to measure this:
Brand Equity: According to David Aaker, Vice Chairman of the brand
consultancy Prophet Brand, brand equity is a set of assets or liabilities in the
form of brand visibility, brand associations and customer loyalty that add or
subtract from value of a current or potential product or service driven by the
brand. It is a key construct in the management of not only marketing, but also
business strategy.
The concept of brand value demonstrates that a brand is not only a tactical aid
to generate short-term sales, but also a strategic support to a business strategy
that will add long-term value to the organization.
Did You Know?

According to Skytrax, Eva Air was voted as the cleanest airline in the world in
2019, followed by Japan Airlines and ANA.
Brand Value: Brand value, on the other hand, is a measure of a company's
brand value to the financial marketplace. In other words, how much would
someone pay for the brand if it were to be sold?
Figure 6.3.2b—Brand Assets and Strength in Relation to Value (Kapferer, 2008)
According to WPP's annual Global Brand Ranking (Figure 6.3.2c), the top five
global brands are all global service or technology firms. Their ranking is
calculated by combining financial and market data with surveys of nearly
4 million consumers in 51 countries on their views about brands.

Figure 6.3.2c—Five Most Valuable Brands 2019 (Financial Times)
Key Learning Point

Brand strength is measured for a specific market or competitive environment
for a specific timeframe.
Airline brands have brand equity and brand value as well, of course, and they
are also ranked annually by a number of independent organizations. Figure
6.3.2d presents the top 10 global airline brands in 2019 according to Brand
Finance. The top five are dominated by US airlines largely because of the size
of the US market and relative valuation of the brands.
Figure 6.3.2d—Top Ten Global Airline Brands 2019 (Brand Finance)

Key Learning Point

Brand value is an attempt to place a future value on the brand. What future
profits is the brand likely to deliver? Various different financial measures can be
used.
To illustrate the importance of brands, one only has to look at the ‘value’ that is
shown on the balance sheets of major companies. A key point here is that a
company's value is no longer just seen as a collection of tangible
assets–aircraft, airport slots, etc.–but also has to include the intangible value of
their most important asset, their brand.
6.3.3 Brand Management

Brand management involves managing the tangible and intangible aspects of
the brand in order to build the strengths of that brand in the marketplace. The
company brand managers will coordinate with other departments to ensure that
all elements of the brand are being correctly delivered, market researched,
performance monitored, marketed and developed.
There is a close relationship between a brand and the corporate culture of the
company delivering that brand. The corporate brand, whether it be Apple,
British Airways, Ryanair, Air Asia or American, will be an expression of the
employees of that company. By that, we mean that the brand very much
reflects:
• The collective knowledge and skills of employees
• The purpose and values of the airline organization
• The airline's relationships with customers
• The airline's commitment to innovation
Many companies at certain points in their development actively seek to change
the behavior and skills of their employees. An example of this would be the
intensive program of customer service and management training undertaken
by British Airways in the late 1980s under the title ‘Putting People First’ with
follow up courses such as ‘Managing People First’. These were designed to
ensure that brand delivery and performance would be of a high standard and
that staff were customer-focused in all aspects of their job roles.

1. What word best completes the following sentence: “A strong brand will
generate at each and every point of customer interaction”.
(a) emotions
(b) revenue
(c) customer feedback
(d) positive associations
2. What is a “master brand”?

(a) A uniform brand name and product that is used worldwide
(b) A brand that consistently dominates in a specific market
(c) An Airline Alliance made up of a number of brands
(d) A regional airline that is operated by another brand
3. Your airline rates well with customers when it comes to “speed and
efficiency”, but not well regarding “flight frequency”. Airline ABC rates well
with customers in both areas, even though they offer FEWER flights per
day to key locations than your airline offers. What should be the focus of
your marketing efforts?
(a) To focus on the positive perceptions about speed and efficiency
(b) To differentiate itself from the competition according to its brand
position
(c) To change customers' perceptions by linking them to actual operations
(d) To highlight the infrequency of Airline ABC's services
4. Brand management is concerned with customers' perception of the brand

and not with the corporate culture of the company. TRUE or FALSE?
(a) True
(b) False
5. Which statement best describes the list of top global brands:

(a) They are all global product companies
(b) They are all global services companies
(c) They are combination of global technology and services companies

6.3.4 Unit Summary

In this unit we explored a key aspect of marketing–branding. We looked at the
key characteristics of successful brands and how brands communicate the
values of the company. We discussed how the customer experience
associated with the brand can be used to strengthen the company's
relationship with its customers. Many successful brands exercise a brand value
that can be measured, including in financial terms. In conclusion, we shared
some insights into how to successfully manage a brand.

6.4 Frequent Flyer Programs and the Airline

Schedule
• Describe the key benefits of a Frequent Flyer Program

• List the factors that affect a FFPs effectiveness
• Identify the objectives that airline schedules need to meet
• Describe the three main types of route operations
Unit Learning
Objectives
you will be able to: As we learned earlier in this module, the product is a complex notion in the
airline industry. One reason for this is that the product consists of a series of
services that are offered to the customer. Among the components of the
product are the flight schedule and loyalty programs. In this unit, we will
discuss in detail Frequent Flyer Programs. These are intended to foster a
customer's loyalty to the airline by offering various advantages. Frequent Flyer
Programs have become an indispensable part of many airlines' marketing
strategy. But these programs entail significant challenges if managed
improperly. Therefore, we will describe a set of strategies about how to
increase the effectiveness of these programs.
Since frequency, timing and routes flown are also key components of the
airline's product, we will discuss various approaches that airlines use to offer
schedules that are convenient to the customer, but also maximize aircraft
utilization and load factors.
6.4.1 The Purpose of Frequent Flyer Programs

Airline loyalty schemes, also known as Frequent Flyer Programs (FFPs) are a
common feature of most airlines, including most network ‘legacy’ carriers as
well as many of the newer Low Cost Carriers. By offering ‘free’ travel in
exchange for a passenger's loyalty, the program's objectives are to generate
more loyalty (and revenue) from existing customers and to attract new
customers.
Market research indicates that when passengers are members of an airline
FFP (Frequent Flyer, n.d.):
• 72% are more likely to choose that carrier when considering another trip
• 92% are more likely to choose that carrier if they take more than 20 trips
per year
• Over his or her lifetime, a business traveler could spend up to USD500,000
on airline tickets
Market research also indicates that the average company loses half its
customers every five years. That's an average ‘churn’ of 10% per year.
Research also indicates that it costs five times more to attract a new customer
than to keep the loyalty of a current customer. And, as we have seen above,
once a customer becomes attached to a loyalty program, there is a high
probability they will take their additional flights with that carrier to build up
loyalty points.
The first FFP was introduced by American Airlines in 1991. The initiative was
driven by domestic airline deregulation in the U.S. which helped to change the
marketing environment and led to greater competition. This, in turn, led to a
need to better segment customers and find ways to earn their loyalty.
Unit 6.4: Frequent Flyer Programs and the Airline Schedule 211
American's FFP was made possible by developments in computer

infrastructure which was then beginning to be able to cope with the need for
data acquisition and analysis. Other U.S. airlines followed American's lead and
FFP programs soon spread globally.
In recent years, FFPs have become an important feature of airline alliances.
The ability of customers to use their loyalty points with other carriers in the
same alliance grouping has become a very valuable marketing tool.
Did You Know?

The Chase Sapphire Reserve Visa card was rated as the best airline rewards
card in the U.S. in 2019 by cardratings.com
6.4.2 Benefits of Frequent Flyer Programs

The basic FFP customer proposition is split into three key elements:
• Rewards
• Recognition
• Relationship
A customer's main interest in FFPs is the potential to ‘earn’ mileage points in
return for travelling on a particular airline. The customer can then redeem these
miles for travel, duty-free merchandise or other benefits.
From an airline perspective, besides enhancing customer loyalty, FFP
programs make it possible to determine the purchasing and user behavior of
some of their most profitable customers. This is important market research
information and enables the airline marketing team to:
• Identify and communicate with individual travelers
• Segment the market on the basis of actual customer usage and value
• Design and deliver recognition benefits to the most valuable customers
• Recover from service irregularities (e.g. cancelled flights) on the basis of
customer value
• Build new relationships with the FFP membership database.
Individual communication with an active database of motivated travelers
enables airlines to cut the cost of promotional campaigns. FFP members are
also a readymade, relevant and responsive target audience for market
research.
Segmenting the market based on actual usage makes it possible to link this
behaviour to the attitudes and opinions of known individual customers.
FFP members are a veritable cornucopia of information.

Figure 6.4.2a—Factors Influencing Airline Choice
From the above graphic we can see the factors that business passengers take
into account when selecting an airline. According to a 2018 McKinsey study,
earning FFP miles are important factors for business travelers to consider. The
ability to save up miles for free personal trips is the reason many customers
enroll in customer-loyalty programs in the first place.
From an airline's perspective, other advantages of FFPs can range through
involvement in product development, generating revenue from non–airline
partners such as hotels and car hire companies (by charging partners for each
mile they offer to their customers in return for their products) and using bonus
mile incentives to customers if they book for specified flights within a certain
time period.
Key Learning Point

What ensures loyalty is everyday operational excellence and service delivery
as well as excellent products.
6.4.3 What Makes an Effective FFP?

There are a number of factors that contribute to an FFPs effectiveness. We will
consider the most important ones here:
1. A loyalty program does not of itself create loyalty. What ensures loyalty is
everyday operational excellence and service delivery as well as excellent
products. An FFP will not compensate for bad service or poor safety
record. As can be seen from the diagram below, customers usually are
members of more than one program.
2. Control of seat capacity on flights: An airline should be able to ‘target’ those
seats that would otherwise be unsold commercially and target FFP
members to redeem their miles on those seats on those flights. A
percentage target can then be applied as to the percentage of FFP
redeemers who should use those seats. Ideally, it should be fairly
high–somewhere in the region of 80% plus.
3. Acquisition of customer data should be comprehensive and well analyzed
and acted upon.
4. The FFP should be built as a profit centre not just cost centre. FFPs are not
cheap to run. In the airline industry, where most airline FFPs are relatively
mature, they cost from 2-5% of airline revenue. Maximization of revenue
from partnerships and from optimal targeting of FFP members to increase
revenue is fundamental to success. As noted in Figure 6.4.3b below, the
major global airlines generate billions of dollars in revenue from their
respective frequent flyer loyalty programs according to
IdeaWorksCompany, an airline consulting firm for ancillary revenue and
loyalty marketing.
5. There should be time limits on the number of miles/credits accrued by
customers.
6. A cost and value should be clearly understood by the airline and the liability
in terms of unredeemed miles by FFP members needs to be clearly shown
on the airline's balance sheet.
7. There should be different tiers of membership.
8. The airline should have the ability to change FFP rules during the life of the
program.
9. An effective program will be able to deliver a range of benefits to FFP
members, such as:
• Access to Business and First Class lounges even with an economy
ticket
• Access to other airlines' lounges
• Increased mileage accumulation (e.g. doubling or tripling marketing
initiatives)
• Ability to reserve specific seats
• Priority wait listing when travelling on standby
• Preference in not being ‘bumped’ off the flight in the event that the
flight has been oversold
• Ability to redeem/use miles for the product or services of FFP partners
Figure 6.4.3a—Revenue from Airline Loyalty Programs 2018

(IdeaWorksCompany)
The average inactivity rate of an FFP is about 70%. In other words, around
70% of members do not actually fly that airline on a regular basis. This
inactivity can erode a FFP's profitability alarmingly. According to Mckinsey, a
consultancy firm, 5–20% of an FFP's costs could be saved through better

targeting of customers (as in Charlton, 2004). Given the size of airline

programs–see below–this waste can obviously be high.
Figure 6.4.3b—Value of Global Frequent Flyer Programs (On Point Loyalty)
On Point Loyalty conducted a study in 2017 of the most valuable airline loyalty
programs around the world. Their research examined public information on
over 170 airlines around the world to determine an estimated value for each
airline's loyalty program relating to 50 variables such as the airline loyalty
program, credit card industry and local market dynamics. This report gives a
view on the value generated by airline loyalty programs that are increasingly
important ancillary revenue contributors for airlines. As noted in Figure 6.4.3b,
Delta Airlines has the most valuable loyalty scheme, followed by American
Airlines and United Airlines. Not only are these among the largest airlines in the
world in terms of passenger volume, but they were some of the first Airlines to
offer frequent flyer programs.
Key Learning Point

The overall objective of an FFP must be to recruit profitable members.
The above observation is even more relevant when one considers that every
year the membership of an FFP will ‘churn’ by up to 15–25%. This means that
up to a quarter of the membership will leave and has to be replaced by new
active members.
The overall objective must be to recruit profitable FFP members. Accenture
(2004), another consultancy, estimates that 9% of an airline's passengers buy
50% of an airline's premium seats.
In summary, FFPs are a prevalent feature of the airline business. They deliver
key benefits for airlines but do come with costs and issues of management.
Whether or not an airline should develop a new FFP or modify an existing one
will depend on the competitive position of that airline in the marketplace.
Airline Loyalty Schemes: The Airline/Loyalty Leverage
Watch this video about airline loyalty schemes and the benefits they generate
for the airlines. Open Jaw Technologies.
6.4.4 The Airline Schedule

Frequency, timing and routes flown are key parts of the marketing mix that
serve the needs of customers. The airline schedule has to meet certain key
objectives:
• Satisfy customer needs in terms of destinations served
• High aircraft utilization–the number of hours flown in a day by an aircraft
• High load factors–number of passengers on flights
• High frequency–number of flights
• Maximization of connections available on the network
• Productivity of human resources–a network that enables efficient
deployment of resources
• Consistent punctuality and reliability
All the above factors could be delivered, but actual customer needs may not be
met.
Different segments of travelers will probably have different needs in terms of
timings. For example, business travelers would normally require three nonstop
flights per day, morning, midday and early evening and routes that serve
popular business destinations. It may be difficult for an airline to profitably
schedule this many flights, however.
A number of factors influence the design of a route network. The impact of
airline alliance relationships, code shares, new types of aircraft, regulatory
changes and airport congestion are just a few of the most recent types of
impact.
Did You Know?

Hartsfield-Jackson Atlanta International Airport (United States) has been the
busiest passenger airport in the world since 2000, handling more than 107
million passengers in 2018, according to Airports Council International. Coming
in second place, Beijing Capital International Airport passed the 100 million
passengers mark in 2018, hitting nearly 101 million passengers and growing by
5.4%

There are three major types of scheduling patterns:

1. Hub-and-spoke
Figure 6.4.4a—Hub-and-Spoke Network

The example in Figure 6.4.4a places Frankfurt as the airline “hub” airport.
The four cities of Bangkok, Paris, New York, and Dubai are served on a
round trip basis from Frankfurt. In addition to these four round-trip city
pairs, the airline can add city pairs to the network by scheduling the times
of flights in a way that enables Frankfurt to act as a hub. For example, the
flight from Paris to Frankfurt will connect with nonstop flights to New York,
Dubai, and Bangkok. Similarly, the flight from New York to Frankfurt will
connect with flights to the other three destinations.
Where volume of traffic is sufficient, these hub-and-spoke operations are
considered efficient because they involve low cost nonstop flights. Also,
high passenger loads can be achieved due to the absence of intermediate
stops, which means it is relatively easy to match capacity to actual traffic
flows.
Hub-and-spoke is beneficial to airlines as it can operate service more
frequently between hubs and feed traffic into hubs from spokes and vice
versa. The hub-and-spoke network model is widely used in the domestic
U.S. and increasingly in international hubs where alliance relationships and
their networks come together. Examples include the KLM-Air France hub in
Schiphol, the British Airways–Qantas hub in Singapore and the
Lufthansa–United hub in Frankfurt.
2. Triangular Operations
Figure 6.4.4b—Triangular Operations

In the case of the network shown in Figure 6.4.4b, the airline still operates
a hub-and-spoke pattern. However, in this case, there is not enough traffic
in the outlying points of Phnom Penh and Hanoi alone to justify nonstop,
round-trip flights from either of these two cities to the Frankfurt hub. In
order to increase load factors, the airline will combine the two markets by
flying from Frankfurt to Phnom Penh, and then make a stop in Hanoi on its
way back to the Frankfurt hub. From a scheduling point of view, that would
mean that passengers from Phnom Penh to Frankfurt would make a stop in
Hanoi, but passengers originating in Hanoi will fly non-stop to Frankfurt.
Airlines often use these triangular patterns of service until demand is great
enough to serve the city on a nonstop basis. However, these patterns can
sometimes be complicated by air service treaties among countries which
might disallow this type of operation.
3. Linear Operations
Figure 6.4.4c—Linear Operations

An airline using the linear pattern operates from point A and then transits
points B, C, and D in the eastward direction and returns in the reverse
order. Depending on sector lengths, it may be necessary for the aircraft to
overnight away from base [A]. This is the least economical of the patterns,
but may be applicable in some environments–for example, West African
route networks or across archipelago networks like Indonesia
Airport Hubs: Atlanta: The Busiest Airport in the World
Watch this video about Atlanta Hartsfield Airport, the busiest airport in the world
to learn more about the complexities of airline hub operations. National
Geographic. https://www.youtube.com/watch?v=rfObty2QtHc
1. For customers, what are the three key elements of Frequent Flyer
Programs?
(a) Product, Price, Place
(b) Visual, Emotional, Cultural
(c) Feature, Advantage, Benefit
(d) Rewards, Recognition, Relationship
2. For airlines, all of the following are benefits of running a Frequent Flyer
Program, EXCEPT:
(a) Gain customer loyalty and data at no cost
(b) Attract new customers
(c) Generate more loyalty and revenue from existing customers
(d) Track the purchasing and user behavior of some of the most profitable
customers
3. Your airline has a mature Frequent Flyer Program, but you notice a larger
than normal number of members leaving. What could be causing this?
(a) General economic downturn
(b) Customers are unhappy with the quality of everyday service and
products
(c) Frequent Flyer Program membership is very changeable, so this is
expected
(d) The customers who remain will be more profitable
4. Generally, different segments of travelers have similar needs in terms of

travel timings. TRUE or FALSE?
(a) True
(b) False
6.4.5 Unit Summary

One of the key takeaways of this unit is that loyalty programs, schedules and
routes are important components of an airline's definition of its product.
Frequent Flyer Programs have become such an integral part of airline
marketing strategy that it is difficult to imagine a major airline remaining
competitive without this tool. However, managing these programs can require
significant resources. Therefore, a most pressing issue is how to achieve
maximum efficiency in offering these programs. In this unit, we shared a
number of strategies that can be used.
A related aspect is the airlines' schedules. The airlines are in constant search
of the best solutions to offer frequent flights at the most convenient time of the
day for the most requested routes. At the same time, the airline needs to
maximize aircraft utilization and load factors. The main approach that airlines
use to achieve these objectives is developing various types of route operations
that can help them best serve the customer's needs in a cost effective way.

Module Summary
In this module, we looked in detail at the first component of the marketing mix:
product. Because the product offered by airlines consists of a series of
services, it can be defined in a number of ways. In fact, the low cost carriers
have been able to open new market segments by taking an innovative
approach to defining the product. In this module, we described a structured
approach to defining the product so that it includes the key features that serve
the customer's needs.
Another important concept that has been introduced in this module is the
product ‘life cycle’. Your awareness of this dynamic will help you better
prioritize your efforts and resources so that you achieve a higher return on your
investment.
In the last two units of this module, we described areas that you may not have
considered until now as components of the product. But the airline's brand and
its loyalty programs are in fact important tools for meeting customer
expectations and building a long-term relationship with them. This is especially
important in areas where the product embodies both tangible and intangible
aspects.
And finally, we discussed the approaches and strategies airlines adopt in
developing flight frequency, timing and routing in a way that serves the needs
of the customers but does so by maximizing aircraft utilization and load factors.
These strategies allow the airline to deliver a service that meets customer
expectations and makes profits for the company.
Module Summary 221


Accenture. (2004). Customer Service Rivals Loyalty Programs in Business
Travel Decisions, Finds New Accenture Research. Retrieved from
http://www.accenture.com/ca-en/search/Pages/Results.aspx?k=frequent+
flyer&s=AllAccenture&sType=basic+search
Charlton, P. (2004). The Achilles' heel of frequent flyer programmes. The Wise
Marketer. Retrieved from http://www.thewisemarketer.com/
features/read.asp?id=42
Frequent Flyer Features. (n. d.). Retrieved from
http://www.frequentflier.com/news-analysis/features/
Kapferer, N. (2008). Strategic Brand Management (4th ed.). New York: Free
Press.
OAG. (n. d.). Business travel lifestyle survey.
Toyota. (2014). Discover the Toyota Service Concept (TSC) (2014)
IATA. (2019). Fast Travel Program
Skytrax. (2018). Passenger Survey Results
OAG. (2019). Connections Analyzer
Prophet Brand. (2019). Brand Equity
Financial Times. (2018). World's Top Brands
McKinsey. (2018). Miles Ahead: How to Improve Airline Customer Loyalty
Programs
IdeaWorksCompany. (2019). Airline Ancillary Revenues
On Point Loyalty. (2017). Value of Global Frequent Flyer Programs
British Airways. (2007). The BA Way: Brand Identity Guidelines

Answer Key
1. a
2. b
3. a
4. b
5. c

1. a
2. c
3. d
4. b
5. b
6. a

1. d
2. a
3. c
4. b
5. c

1. d
2. a
3. b
4. b
Answer Key 223


Module 7:
Airline Pricing
• List the internal and external factors affecting airline pricing

• Explain the concept of demand elasticity and its application in managing
pricing
• Describe the main pricing strategies and their strengths and weaknesses
Module Learning • Explain the role of airline revenue management systems for managing
Objectives pricing strategies
Module Introduction
The second component in the marketing mix is pricing. When used effectively,
pricing can be a major tool for opening new market segments and generating
revenues. Because the airlines operate in a highly competitive environment,
pricing is an area of business that requires constant attention and a rigorous
approach. Such an approach requires that we pay close attention to the factors
that can affect pricing. In this module, we will share the key factors that affect
pricing, but will focus in detail at the two most important: demand elasticity and
type of market. Your knowledge of these two concepts will help you understand
what pricing strategy your airline can adopt. But as you will see in the second
part of this unit, each strategy has its strengths and weaknesses. Your
awareness of these limitations will help you develop a mix of strategies that will
best serve your product and market segment. Furthermore, we will share two
important tools for managing the risks associated with pricing
strategy–conditions of sale and revenue management.

228 Module 7: Airline Pricing

7.1 Price and Demand Elasticity
• Explain how internal and external factors affect pricing

• Differentiate between three main types of price elasticity
• Describe three types of markets and how each impacts the airline's pricing
Unit Learning
By completing this Unit, Pricing in the airline industry is a complex issue because it depends on a
you will be able to: number of factors. First of all, there are factors internal to the airlines that affect
their ability to manipulate prices. Second, there are external factors that affect
pricing decisions. In this unit, we will focus on two main factors that affect
pricing: demand and type of market. The general notion that increased demand
allows a company to raise prices is true for the airline industry also. However,
the relationship between demand and price is a more complex issue. We will
discuss in this unit three types of relationships between demand and price that
need to be taken into consideration. An airline's pricing action is also
significantly affected by the type of market in which it operates. Therefore, we
will introduce three types of markets and describe what room for pricing action
each market type allows.
7.1.1 Impact of Internal and External Factors on

Pricing
Simply defined, price is the money charged for a good or service. It is the
‘value’ that a customer applies to the good or service being purchased. There
are a number of factors that help a company to determine the price charged,
both internal to the firm and from the external environment in which an airline
operates.
The company's marketing objectives, for example trying to gain market share
or marketing a new route, requires creating a marketing mix to deliver these
objectives. The marketing mix is a combination of product initiatives,
distribution channels, promotions and pricing.
External factors could be a mixture of competitor airline activity, economic
growth, the mix of distribution channels and market demand.
Figure 7.1.1a—Factors that Determine Airline Pricing
Unit 7.1: Price and Demand Elasticity 229

A variety of factors affect the demand for air travel. Some of the most important
are summarized below:
• Demand usually follows a recurrent pattern associated with annual events
and activities
• Three distinct periods can be identified that affect demand: (a) peak
season, (b) off-peak season and (c) shoulder seasons (i.e. spring and fall)
• Holidays and special events
• Time of day, week and month
• Economic conditions
• Airline schedule changes
• Time of booking rules
• Cancellations and no-shows
• Price levels
Key Learning Point

The relationship between price and demand gives rise to the concept of price
elasticity.
7.1.2 Demand Elasticity

Demand elasticity is defined as an economic measure of the change in the
quantity demanded or purchased of a product in relation to changes in price.
This is a very important concept for marketers to understand and apply if they
are to maximize revenue. It is arguably even more important for airline
marketers to understand due to the huge differences in demand elasticity
between their two key segments of travelers: business and holiday.
As stated above, the relationship between price and demand is called demand
elasticity; that is, an increase in price reduces demand and a decrease in price
increases demand. It is measured by using the following formula:
Figure 7.1.2a—Elasticity of Demand
Elasticity of demand can be elastic or inelastic. The diagrams below give an

explanation of each type of elasticity.

Elastic Demand
Most holiday leisure traffic tends to be relatively price elastic. If prices rise then
demand can drop off quite rapidly. However, a drop in price can boost demand.
Low cost carriers have created a new market segment by putting very low
prices into the market and creating significant demand. Likewise, airlines
experiencing low load factors for mid-day or weekend flights can stimulate
demand from among demand-elastic leisure travelers by dropping the price.
Figure 7.1.2b—Relative Elasticity Demand
Inelastic Demand
In the case of relatively inelastic demand, raising prices can increase sales
revenues because demand will decrease by less than the rise in ticket price.
This is often the case with business travel, although increasingly the business
travel segment is becoming more price conscious. In most cases, however, a
drop in airline prices won't stimulate overall market demand from the business
sector. However, a drop in an airline's prices can create a “share shift” if it
drops its prices and competing airlines do not match these changes in price. In
that case, the number of business travelers and corporate accounts might
simply switch airlines, but the total demanded remains the same.

Figure 7.1.2c—Relatively Inelastic Demand
Cross Elasticity: Product Substitutes

A final characteristic of demand is called ‘cross’ elasticity. This can measure
the effect on demand when a change in price for one product impacts the
demand for another product. There are two possible effects depending on
whether the products or items are:
• Product substitutes or
• Product complements
If the two products are substitutes, then a decrease in the price of one product
will decrease the demand for the other. An example of this is Bolt Bus in the
U.S., which started a convenient bus service between Seattle and Portland
with elapsed travel time equal to air travel. With a fare of $25 versus $130 for
an air ticket, the bus service had an immediate impact on air travel demand.

Cross Elasticity: Product Complements

If the two products are complementary, then a fall in the price of one product
will potentially increase the demand for another. For instance, if the cost of
hotels falls substantially in a destination like Istanbul, then it is likely that leisure
segment demand for airline seats on routes to Istanbul will rise. This can also
happen if the value of a destination's currency were to drop significantly. This
would give tourists holding a hard currency like the Euro or USD increased
buying power in that destination, and that could drive more demand. In fact,
this happened a number of years ago when the Indonesian Rupia depreciated
80% against the U.S. dollar. As local hotels in Bali were priced in Rupia, a room
that cost a U.S. traveler USD 100 before the financial crisis suddenly went for
only USD 20.
7.1.3 Perfect, Monopoly and Oligopoly Markets

When considering demand, economists identify three basic types of markets:
• A ‘perfect’ market
• A monopoly market
• An oligopoly market
The main feature of a perfect market is that perfectly elastic demand is the only
determinant of price. All airlines are therefore forced to charge the same
market price. If one airline charges more than the market price, sales will be
lost as customers move immediately to other airlines. If an airline charges less,
then sales will increase as customers will shift to the airline with the lower fares.
In a monopoly market, there is only one supplier and this supplier is, therefore,
sufficiently powerful to completely control supply. The result is that prices can
be made artificially high and a company can make significant profit because
there are no competitors to worry about.
In an oligopoly market, a small number of major suppliers are able to dominate
a market and often act in concert to keep prices high.
Key Learning Point

Knowing the elasticity of demand for different market segments can help in
deciding pricing.
Understanding elasticity of demand for different market segments and the
different market types provides important background to pricing decisions.
Knowing the elasticity of demand for different market segments can help you in
deciding pricing. For example, it may not make sense to cut your prices in an
inelastic market unless you know that your product is an easy substitute for
others and that your competitors' customers will move to your airline. Even
then, what will you actually gain if the competitor cuts prices too? Alternatively,
a price rise may increase revenue in an inelastic market, although you will need
to make sure that customer loyalty to your brand is strong enough to prevent
them from moving to your competitors.
In terms of market models, with the advent of deregulation as well as increased
competition and price transparency in recent decades, the airline industry has
moved from monopolistic and oligopolistic markets toward a more perfect
market. Nevertheless, as we have seen, a segmented approach to pricing
strategies may still have benefits in the airline industry.

1. What does the concept of “elasticity” describe?

(a) The relationship between price and demand
(b) Market fluctuations due to external factors
(c) Changing numbers of travelers in different sectors
(d) The higher demand for seats during certain seasons
2. What is the formula for “elasticity”?

(a) % change in quantity demanded/% change in price
(b) % change in price/% change in quantity demanded
(c) % increase in price/% change in quantity demanded
(d) % change in quantity demanded/% increase in price
3. Select the type of market that matches this scenario: “Airline ABC raised
their 10% and demand increased 2%”:
(a) Cross elasticity of substitute products
(b) Relatively elastic
(c) Relatively inelastic
(d) Cross elasticity of complementary products
4. Hotels in a popular business destination have dropped their prices, which

results in increased demand for flights to the destination. What type of
elasticity does this demonstrate?
(a) Cross elasticity of substitute products
(b) Relatively elastic
(c) Relatively inelastic
(d) Cross elasticity of complementary products
5. You want to increase revenue on Route B, which is relatively elastic.

Raising your ticket prices will result in an increase in revenue. TRUE or
FALSE?
(a) True
(b) False

7.1.4 Unit Summary

In this unit, we discussed the factors that affect airline pricing. In general terms,
we distinguished internal and external factors that affect pricing. These factors
have different effects depending on the immediate circumstances. The two key
market factors are demand and the market type. Demand varies by season and
can vary by market segment. The concept that captures this dynamic is
elasticity. In addition, we have discussed how each type of market impacts
airline pricing decisions.

7.2 Pricing Strategies, Demand and Revenue

Management
• Understand different pricing strategies by airlines

• Identify the strengths and weaknesses of each pricing strategy
• Understand the role of QSI in helping set prices
• Describe the pricing strategy adopted by Low Cost Carriers
Unit Learning
Objectives • Explain the impact of implementing revenue management systems on
airlines
you will be able to: • List the benefits of implementing a revenue management system
• Understand future trends in airline revenue management
Unit Overview
In the previous unit, we looked at the key factors that an airline needs to
consider in setting the price for its product. In this unit, we will focus on the
pricing strategies that an airline can adopt. But since every pricing strategy has
its strengths and weaknesses, we will discuss the tools that an airline can use
to manage the risks associated with the adopted pricing strategy. Furthermore,
in this unit we will learn about the pricing strategy adopted by Low Cost
Carriers and the effect it had on their business development.
7.2.1 Pricing Strategies

A pricing strategy is the airline's overall approach to maximizing revenue. In the
context of the airline industry, a price can be defined as:
• A mechanism for bringing supply and demand into an equilibrium at a
particular quantity (in order to minimize overbooking or unsold seats)
• The process of determining what revenue an airline receives and how
much a passenger pays in exchange for goods and services
• The most important element in bringing the customer and airline together
• The only tool of the marketing mix that generates revenue
There are a variety of pricing strategies that can be adopted. The most
prominent ones are given in the diagram below.
Figure 7.2.1a—Pricing Strategies

Each of the above options has strengths and weaknesses, and are not
mutually exclusive. The best solution comes from combining the most useful
elements of each approach into a pricing strategy that works for your market
segment.
Cost-Based (or Cost-Plus) Pricing

Efficient use of this method requires an airline to have accurate and extensive
cost data for its business. This is required in order to fully identify the level of
costs incurred for different quantities of supply of a particular product or
service.
Key Learning Point

It is important to know the point at which the resources under fixed costs reach
maximum use.
Costs need to be calculated carefully–for example ‘variable costs’ (costs that
vary according to output, such as fuel or catered meals for a flight) and ‘fixed
costs’ (costs that do not vary with output, such as head office salaries) need to
be itemized separately. It is also important to know the point at which the
resources under fixed costs reach maximum use. In other words, there is a
point at which these costs actually increase.
Once these cost parameters are known, the next requirement is to accurately
predict output. Given this, the unit cost levels (the cost of a unit of output) can
be predicted. The pricing decision is to add a mark up to this unit cost that is
sufficient to meet profit requirements.
Whereas a thorough understanding of costs is indeed helpful when planning
airline pricing programs, using cost data in this way has three key weaknesses:
• First, it is seldom easy to accurately predict the level of sales volume in a
competitive market. Errors in forecasting actual demand could lead to
pricing decisions that do not then achieve profit targets.
• Second, because this method of pricing starts with the existing cost base, it
can discourage innovative approaches where new and more efficient
production methods could be considered.
• Third, it does not take into account the prices of other airlines. For
example, if airline A sets price on the basis of costs alone, it would be
ignoring the price competitiveness of airline B and airline C. As a result,
airline A's prices might be too high or too low.
Did You Know?

The top revenue earning air route in the world in 2019 was London to New
York, according to Forbes magazine. British Airways alone generated USD
$1.1 billion in revenue on the route.
Unit 7.2: Pricing Strategies, Demand and Revenue Management 237

Market-Based Pricing
Using this strategy–also known as competitive pricing–the airline marketer will
pay more attention to the prevailing competitive fares in the market than costs.
The objective of this approach is to find out ‘what the market will bear’ for the
products and services being offered, and then use this as the main criteria for
setting prices.
The prices arrived at in this manner are often referred to as ‘market fares’.
Variations in these fares will reflect changes in market conditions, such as
increased capacity or weakening demand, both of which will put downward
pressure on fares.
An advantage of this approach is that it connects pricing policy to the outside
market, where customer needs and competitive offerings are key
considerations. However, there are weaknesses in this approach:
• If costs are not considered alongside market rates, pricing decisions may
be unprofitable
• Market-based pricing can lead to a ‘price war’ where rates simply spiral
downward out of control as each competitor tries to outdo the rest
• Thanks to improved technology and industry-wide use of electronic fare
filings, an airline can almost immediately match the fares of a competitor in
order to prevent a loss of market share
If an airline is to effectively use a market-based pricing strategy, it will need
processes in place that constantly monitor its costs as well as the competitive
marketplace.
Predatory Pricing
This pricing strategy involves targeting a particular market and trying to
increase share in it by offering highly discounted rates. This can sometimes
occur when airlines are trying to encourage 6th freedom flows of traffic over
their main hubs. It can also occur when an airline is trying to fight off a new
entrant onto a route. However, a note of caution needs to be sounded here.
Competition authorities can intervene if it is felt that an airline is abusing its
dominant position in the market by undercutting new entrant fares to such an
extent that its own fares are below cost or that it drastically weakens the
financial viability of a competitor.
Premium Pricing
Here, it may be possible to charge a ‘brand premium’ provided the brand is
significantly stronger in the market than the competition's brand. It could also
be possible to charge a premium if an airline's flying times are significantly
faster because of a particular routing flown or aircraft type used. Pricing can
also be increased on certain days of the week or at peak vacation periods.
If you recall our discussion in Module 6, you will remember that QSI is a tool
that measures and compares the competitive strength of an airline versus its
competition. Here, that same QSI model can be used to determine market
position and help set price levels. In the figure below, we see that Alpha Air has
a stronger schedule–and QSI Score–than its competitive set, so it is
considered the market leader and is able to offer the highest fares on the route.
The fares of the other three airlines are lower than Alpha Air because of their
lower QSI scores. Yet, if Delta Air– the other nonstop airline in the
market–were to increase its frequencies from five to seven times a week, it
would then be able to match Alpha's higher fare level due to QSI schedule
parity.

Figure 7.2.1b—QSI and Fare Levels
Marginal Cost Pricing

Marginal cost pricing–or the cost of carriage as it is sometimes known in the
airline business--is widely used where the product is highly ‘perishable’–that is,
where the product or service is wasted if not used within a limited timeframe.
Airline seats obviously fall into this category. Once the aircraft doors are
closed, any empty seats are wasted revenue.
Marginal cost pricing involves understanding what the additional cost of filling
an empty seat with an extra passenger would be (e.g. some extra fuel and the
cost of a meal). These are called the cost of carriage. Empty seats can be
offered ‘at the last minute’ at a significant discount, so long as the price
exceeds the marginal cost of carriage. Airlines obviously need to be careful that
the prices charged at this rate do not become the ‘norm’ or their profitability will
suffer. For this reason, airlines will often seek to put strict conditions around
these types of fares.
While this strategy can be used to stimulate demand, there are obvious issues.
This would include the possibility of destabilizing the market with such low
fares. Also, airlines must guard against getting into a position where the cost of
carrying traffic starts to exceed the marginal cost formula that is being used.
Did You Know?

In 2019, India was the least expensive domestic air travel market in the world.
Followed by Malaysia and Russia, according to Kiwi.com, the flight comparison
website
Peak/Off-Peak Pricing
In this case, a premium is charged for travelling at peak times and a reduction
is offered for off-peak times. The variation in price can be:
• Seasonal–where demand fluctuates by time of year
• Weekly–where demand fluctuates between one day of the week and
another (i.e. weekday vs. weekend)
• Time of day–where flights are priced more attractively than others during
periods of low demand. One will often find fares on “red eye” flights
between 11PM and 5AM that are priced very aggressively for this same
reason

This type of pricing can be very effective, but competitive awareness is

obviously important to make sure that prices are in line with the market.
Key Learning Point

Low Cost Carriers use a pricing strategy that leverages their low unit costs and
the passenger's willingness to respond to elastic pricing.
7.2.2 Low Cost Carriers and Traditional Carriers

Pricing
The low-cost carrier (LCC) pricing strategy is fundamentally different from
traditional pricing techniques. Full-cost carriers choose pricing techniques
based on a number of different fare classes, complex systems of fare discounts
with limited access, customer loyalty schemes and overbooking techniques.
LCCs use ‘dynamic pricing’, which means they are very alert to ‘latent’
demand. This is characterized by a passenger's willingness to respond to
elastic pricing. In other words, LCCs recognize the potential to stimulate the
market by using lower prices and, in doing so, unlock completely new
passenger segments.
In general, LCCs use sophisticated revenue management techniques, the main
features of which are:
• The simplification of the number of fare types on offer
• The introduction of one-way fares and cheap fares that can be purchased
at an airport
• The offering of the cheapest fares available up to 12 months before
departure
• Encouraging early purchase of seats, with fares rising towards the
departure date and the sharpest fare rises commencing approximately two
weeks before the departure date.
This is completely the opposite of traditional pricing techniques, where airlines
try to clear unsold seats by discounting fares as the departure date
approaches.
The diagram below shows the global growth of low-cost (LCC) vs full-cost
(FCC) airline capacity from 2008 to 2018. LCC airlines accounted for 25% of
total capacity between regions in 2009. By 2019 the FCC share of total
capacity increased to 33%, according to CAPA. Among all the regions, the Asia
Pacific area had the biggest increase in regional LCC airline penetration during
that same period. In 2018, LCCs accounted for 29% of seat capacity
within Asia Pacific, compared to a 16% share in 2009, reflecting a gain of 13
percentage points, according to CAPA.

Figure 7.2.2a—Global LCC Capacity Growth in 2008-2018 (CAPA 2019)
Many ‘traditional’ carriers (shown as FCCs in the Figure 7.2.2a) have adopted
some of the Low-Cost Carriers pricing techniques, including the general use of
‘unbundling’ fares. This describes the way in which airlines are often charging
extra for what was once included in the fare - for example, food/catering,
baggage, credit card charges, specific seats. In addition, airlines can sell hotel
accommodations, car rentals and insurance for which they receive a
commission from the supplying companies.
The value of such ‘ancillary’ revenue can be seen from the table below. In the
case of low-cost airlines, this revenue can make up 25% of the total revenue
earned by the airline.
Table 7.2.2b—Airline Ancillary Revenue (IdeaWorks Company 2018)

7.2.3 Conditions of Sale

All airlines face the problem of trying to ensure that, if they attempt to stimulate
demand by lowering fares, they must also protect segments of higher fare
paying passengers and discourage them from trading down to a lower fare,
maybe resulting in an overall loss of revenue to the airline. To protect against
this ‘dilution’ of revenue, airlines introduce a number of conditions of sale,
which can be broken down into three major categories:
Types of customers. Typical examples are child fares and youth fares.
Although easy to apply, they can seldom be justified on the basis of cost. Their
usefulness depends on how much an airline can actually target the particular
segment and whether it fits with local market needs.
The purpose of travel. Examples include ships’ crews and student fares
where fares are linked to a particular purpose of travel.
Customer compliance. Compliance by customers with restrictions on how a
ticket is booked, paid for and used. These can include some form of advance
purchase, minimum and maximum stay, cancellation penalties, re-booking
charges, stopover restrictions, minimum group size and use only as part of an
inclusive tour package.
Key Learning Point

Revenue management is selling the right seat, at the right price, to the right
passenger.
7.2.4 Revenue Management

Revenue management is the process of understanding, anticipating and
influencing consumer behavior in order to maximize revenue or profits from a
perishable product. In other words, revenue management is selling the right
seat, at the right price, to the right passenger.
Revenue management systems are used when ‘differential pricing’ is required.
This basically means that a variety of prices can be charged for similar
products. As such, revenue management systems are critical to airlines’
profitability.
Furthermore, different segments of passengers have different price sensitivity.
For example, business travelers are considered less price sensitive than
holiday travelers. They book closer to departure, want flexibility and travel mid-
week. Leisure travelers, on the other hand, are more price sensitive, book in
advance and travel over the weekend.
Did You Know?

According to Kiwi.com, an air fare comparison website, the UAE was the most
expensive domestic air travel market in the world in 2019 with flights costing
32 times more than the least expensive domestic market, India.

Peak/Off-Peak Pricing
Revenue management relies on:
• Historical information, which provides the basis for identifying different
booking trends. Advance booking information, which can indicate future
demand
• A control mechanism combining people, equipment and processes:
○ Qualified/experienced route controllers who manage pricing on
different routes
○ Adequate revenue management systems/software
○ Efficient processes for decision-making, implementation and
communication
The diagram below summarizes the revenue management system and links it
with an airline's reservations system.
Figure 7.2.4—Airline Revenue Management System
The key components of the revenue management system include:

• The analysis of passenger demand, competitive pricing, economic
conditions and booking patterns.
• The ability to forecast demand accurately in order to be able to optimize
price.
• Ongoing review of actual revenue performance, which provides an ongoing
feed of information to continuously improve revenue management
performance.

Increasingly, airlines are moving towards a revenue management system that

looks at an origin-destination pair based on a seat inventory control method
rather than on each independent leg of the journey. In other words, the system
looks at the full itinerary of the journey rather than individual sectors. This
allows airlines to pick the best revenue producing mix of passenger journeys
and prices. This counters the situation where all the seats on shorter sectors
are sold which could prevent a long-haul connecting passenger who may wish
to also travel a shorter sector as part of his/her full itinerary to reach the final
destination.
The benefits of revenue management are fourfold:
1. Improved seat utilization
• An optimization of seat capacity on the aircraft, while minimizing
overbooking
• Higher prices on high demand seats
• Stimulation of demand with aggressive pricing in a ‘controlled’ manner
for remaining empty seats which results in overall increase in revenue
per airline seat kilometer
• Allocation of otherwise empty (perished) seats as FFP rewards
2. More responsive to market conditions
• It enables each flight to be managed individually
• The systems enable airlines to raise the price to the maximum level
that the market will bear
• Airlines can respond to competitive offerings, while minimizing revenue
loss
• Airlines can promote specific products–such as day of week, time of
day, time of year–which allows better segmentation of passengers
3. Improved commercial information
• A key source of advance booking and demand forecasting information
• It can provide a proper source of performance benchmarks against
which the airlines' revenue activity can be measured
• Measures the impact of specific commercial initiatives the airline might
launch
4. Network management
• It maximizes the flow of revenue around the airlines' complete network
A quotation from the former CEO of American Airlines, Robert Crandall,
highlights the impact of the introduction of revenue management systems (or
yield management) on airlines:
“I believe that yield management is the single most important technical
development in transportation management since we entered the era of airline
deregulation in 1979”.
To find out more about Revenue Management, please consider registering to
the IATA distance learning course on Revenue Management through this link:
https://www.iata.org/training/courses/Pages/airline-revenue-management-
talf51.aspx

Revenue Management and The Future

The science and processes of airline revenue management are still undergoing
rapid change, thanks to increasingly larger amounts of data about customer
behavior, booking trends and demand elasticity. The processing power and
capability of this data also continues to evolve and improve, thanks to more
sophisticated logarithms, and next generation mechanisms that will advance
the capabilities of airline revenue management in the years to come.
A 2017 study by PODS Research LCL highlights some of the next generation
revenue management systems and concepts that are increasingly at the
disposal of airlines:
• Frequent updating of fare structures, typically through automation
technologies to file fares more rapidly with ATPCO (the airline price filing
system). With these technologies, each airline could create unique fare
structures for each market for each departure day
• Dynamic availability of fare products, in which the availability of fares
could be adjusted for specific customers or in specific situations
• Dynamic pricing engines, which apply dynamic price adjustments
(increments or discounts) to filed fares in certain situations
• Continuous pricing, in which each airline would select prices from a
continuous range of possible values instead of from a small number of pre-
filed price points
• Dynamic offer generation, which merges into a single step the product
creation process and the price selection process. An airline would
dynamically create and price bundles of itineraries and ancillary services,
potentially at a transactional level.
One certainty is that the landscape of airline pricing, revenue management,
and distribution will look much different in five years than it does today. (PODS
Research 2017)
How Airlines Price Tickets
Many people think that airline pricing is completely random. Prices seem to
fluctuate for no reason at all and are sometimes not even available when it's
time to book a flight. The process is far from random. In fact, airlines use very
sophisticated linear programming that helps optimize pricing levels and
revenue. This excellent video by CNBC helps explain this process:
https://www.cnbc.com/2018/08/03/how-do-airlines-price-seat-tickets.html

1. Which of the following statements about “cost-based pricing” is FALSE?

(a) It requires an airline to have accurate and extensive cost data
(b) It requires knowing when the resources under fixed costs reach
maximum use
(c) It is a reliable system of achieving revenue targets because it is based
on constant factors
(d) It is built on the existing cost base so it may discourage new and more
efficient production methods
2. When using a market pricing strategy, why is it important that an airline

also examine its costs?
(a) It could result in a price war
(b) It can discourage innovative approaches
(c) It is difficult to accurately predict the level of sales volume in a
competitive market
(d) If costs are not considered, the pricing may be too low to produce
profits
3. Airline ABC is the dominant airline in market X. When a new competitor

tries to enter the market, Airline ABC drastically reduces its prices. What is
the major risk of this approach?
(a) Flights may no longer be profitable to run, and the airline will suffer
(b) Customers will become angry when the prices later return to their
usual level
(c) Competition authorities may intervene if they feel the airline is abusing
its dominant position in the market to undercut the new competitor
(d) Customers may still choose the new competitor because they are
disillusioned with the dominant airline
4. What are the three categories of “conditions of sale”?

(a) Types of customer, purpose of travel and customer compliance with
restrictions
(b) Fare class, ticket flexibility and rules and restrictions
(c) Peak/off peak, fare class and rules and restrictions
(d) Children and youth, student travel and customer compliance with
restrictions

5. Which of the following statements about revenue management systems is

FALSE?
(a) They include the analysis of demand and booking patterns
(b) They allow the airline to be more responsive to market conditions
(c) They account for the price sensitivity of different travel sectors
(d) They focus on selling independent legs of the journey
7.2.5 Unit Summary

In this unit, we focused on various pricing strategies that are employed by
airlines. Each of the current strategies has its strengths and weaknesses. Your
awareness of these will help you develop the most effective pricing strategy for
your product and market segment. As the statement by Robert Crandall
indicates, an effective pricing strategy can generate a significant increase in
your airline's revenue. Moreover, the experience of the Low Cost Carriers
shows that an innovative approach to pricing can open new market segments.

Module Summary
The setting of price is a key element in running a successful business. To do
this properly, an airline must have a full understanding of its cost structure and
how costs may vary if demand levels for its products change. It must also
understand customer reaction–for example, how price elastic is the target
market segment? Also, how will competitors react to a given price change?
Once a particular pricing strategy is chosen, it must be fully evaluated by
revenue management staff and the wider sales team before it is introduced to
ensure success.
Finally, pricing strategy is only part of the total picture. Promotion of products
and their prices, capacity management and effective distribution will all be
required to ensure commercial success.


Centre For Asia Pacific Aviation (CAPA) (2019). Capacity and Passenger
Growth. Retrieved from
https://centreforaviation.com/analysis/reports/singapore-lccs-scoots-fast-
growth-jetstar-asia-slows-449974
IdeaWorksCompany. (2018). Airline Ancillary Revenue Projected to Be
$92.9 Billion Worldwide in 2018. Retrieved from
https://www.ideaworkscompany.com/wp-content/uploads/2018/11/Press-
Release-133-Global-Estimate-2018.pdf
Crandall, R. L. (1992). American Airline Report.
PODS Research. (2017). Advances in Airline Pricing, Revenue Management,
and Distribution. Retrieved from https://www.atpco.net/sites/atpco-public/
files/2019-03/pods-summary-paper.pdf
CNBC. (2018). Airline Pricing
Kiwi.com. (2019). Air fare comparisons
Forbes. (2019). The World's Most Lucrative Air Routes

Answer Key
1. a
2. a
3. c
4. d
5. b

1. c
2. d
3. c
4. a
5. d

Module 8:
Promoting Airline Products and Services
• Understand the role of promotions in the marketing mix

• Describe the process of setting promotional objectives
• Understand the tools of the marketing mix
• Explain the benefits and drawbacks of each component of the promotional
Module Learning mix
Objectives
• Describe the main benefits of using social media as a communication
By completing this Module, channel
• Identify the best practices in using social media to engage customers
Module Introduction
Promotion is the most obvious and visible component of the marketing mix. In a
more general sense, you can think of promotion as a communication bridge
that the company builds for engaging its customers. It is helpful to think of
promotion as a spectrum of activities. At one end are the company's messages
that target a designated audience and have a specific objective. At the other
end is the airline's use of social media that is intended to engage the wider
audience with an open platform for dialogue.
In the first two units of this module we will focus on various communication
channels. We will introduce the concept of promotion mix. It is important for you
to think of all communication channels as a promotion mix because each
channel has benefits and drawbacks. Highly effective promotion campaigns
employ a ‘mix’ of channels.
In the last unit of this module we will discuss the increasing use of social media
by airlines. During the last several years some airlines adopted social media
largely as a communication channel. It is clear that social media has impacted
the way companies communicate with their customers in a very significant way.
A number of airlines have successfully used social media to engage their
customers in product and service design initiatives. However, there are also
social media projects that airlines had to end. You will learn some best
practices in using social media as part of your promotional mix.

254 Module 8: Promoting Airline Products and Services

8.1 The Role of Promotions and Promotional

Objectives
• Understand the role of promotions

• Describe the main categories of airline promotional objectives
• Understand the AIDAS activities
• Explain the sequence of actions that an airline customer goes through
Unit Learning when making a purchase
Objectives
In order to develop an effective promotional program, you need to start with a
clear framework. In this unit we will discuss the role of promotion. Your
understanding of the wider context will help you develop more focused
objectives for your own campaign. We will share with you the three main
categories of promotion objectives. Each of these categories contains a list of
very different yet focused promotion objectives. Once you have identified the
objectives of your promotion, consider the sequence of actions your customer
will go through when making a decision to purchase your product or service.
This awareness will help you better align your promotional objective with your
marketing objectives.
Key Learning Point

The role of promotion is to create a communications bridge between the
airline's offers and the target audience.
8.1.1 The Role of Promotions

After an airline has developed the product and pricing programs that meet the
needs of its target segments, the airline then has to create awareness of them.
The third element of the marketing mix-promotion-creates the communications
bridge between the airline's offers and the target audience.
Promotion, or as it is often called ‘marketing communication’, is the most
obvious and visible element of the marketing mix and is an integral part of the
marketing strategy. It must be coordinated with all the other elements of the
marketing mix to be fully effective.
Increased competition between airlines, and in particular the impact of newer
low cost airlines and innovative use of social media, make marketing
communications a critical area in which to ensure excellence. Deregulation,
coupled with technological innovations such as the Internet and mobile
communications, has created a 24/7 worldwide ‘market’ for airlines.
Unit 8.1: The Role of Promotions and Promotional Objectives 255

8.1.2 Promotional Objectives

Inform:
To inform the target segment, for example:
• To announce a new daily service in the market
• To educate about a new destination
• To explain how a new service works (e.g. a new mobile app for the airline)
• To correct false information or impressions
• To describe the availability of products and services
• To announce a price change
Remind:
To remind the target segment, for example, about:
• A seasonal discount
• A product's benefits and features
• A new product's popularity
• The sale of weekly web fare specials
• An award for “Best Business Class”
Persuade:
To persuade the target segment, for example:
• To persuade customers to buy at a specific time
• To persuade customers to join your FFP
• To encourage customers to choose your airline
• To convince customers to choose your airline
• To convince customers to request more information
• To encourage customers to share their opinion of your products
• To encourage customers to make suggestions about how to improve your
services
Promotional objectives can be tactical and short-term; for example, to generate
revenue next month, or promote a new flight to London. It can also be part of a
longer-term strategy to build awareness; for example, of a reconfigured
business class.

8.1.3 The ‘AIDAS’ Concept

The underlying objective of any promotional effort is to create awareness, and
consequently stimulate action on behalf of the target audience. The acronym
‘AIDAS’ refers to the sequence of actions that a customer goes through when
making a purchase of a product or service. An effective promotional campaign
helps to ‘move’ customers through the decision-making process. The diagram
below gives the five key stages of the process:
Figure 8.1.3—The ‘AIDAS’ Activities
Key Learning Point

The acronym ‘AIDAS’ refers to the sequence of actions that a customer goes
through when making a purchase of a product or service.
1. Attention/awareness: A need to attract the attention of the customer and
ensure the target audience becomes aware of an offer, product or service
2. Interest: Raise customer interest by demonstrating features, advantages
and benefits of the offer so that the target audience takes an interest in the
product
3. Desire: Convince customers that they want and desire your product or
service and that it will satisfy their needs.
4. Action: Leads customers to take action–that is, to buy the product or service
5. Satisfaction: Satisfy the client so they become a repeat customer, give
referrals to other customers and become an advocate for your products and
services
Until recently, most marketers used AIDA (i.e. no “s”) as an acronym to explain
the customer sequence. The “S” was added to recognize marketing's new role
of customer satisfaction and retention of customers.

Here are some examples of marketing objectives, promotional objectives and

promotional messaging for some segments of travel:
Segment: Business Travelers

• Marketing objective: Increase market share by 5% by Dec 31
• Promotional objective: Create 30% more awareness of new schedule
frequencies and improved punctuality by the end of 1Q
• Example of promotional message “Air Express: More flights. On time.
Guaranteed”
Segment: Independent Holiday Travelers

• Marketing objective: Achieve 25% share of the holiday traffic to Bangkok
by June 01
• Promotional objective: Achieve 25% more awareness by Sept 01 of the
Best Airline in Asia Award.
• Example: ‘Holidays come together for you from Asia's Award Winning
Airline’
Segment: Visiting Friends and Relatives (VFR)

• Marketing objective: Maintain 25% market share on the Tokyo route
through 2021
• Promotional objective: Maintain 65% awareness about Fly Rich FFP
Program through 2020
• Example: ‘Don't forget Gold Star: The most generous FFP in India’
As explained above, a number of objectives need to be met in order for your
sales promotion to be successful. In particular, customers need to be
energized and made aware of your products and have a desire to take action
(purchase). Reflect a moment on this observation by advertising giant, Saatchi
& Saatchi: ‘Reason leads to conclusions...emotion leads to actions’.
Companies that can generate an emotional bond with their customers through
their products are among the most successful companies today. Another
example: think of the company, Apple, and its products, and the huge
attachment their customers display for their products!
8.1.4 The Seven Stages of Customer Engagement

The Seven Stages of Customer Engagement model, shown in Figure 8.1.4, is
similar to the AIDAS model, in that it also illustrates different steps of customer
engagement, except in this case there are seven steps ranging from the initial
stimulation of awareness to customer advocacy of the product or service. This
model helps airline marketers in three ways:
First, it demonstrates the importance of each stage and how they build on one
another; that is, before customers will try a new airline, they must first be aware
of and knowledgeable about its selling proposition.
Second, by understanding the stage where a customer (or market) is, the
airline can apply the correct marketing tool. In a new market, for example, the
airline needs to create broad levels of simple brand and product awareness
through advertising. Pricing tactics, on the other hand, work best at stimulating
“trial”, FFP tools work well towards customer retention, and social media
channels help with advocacy among experienced fliers.

Third, the model also supports the notion that the job of marketing doesn't stop
when the customer flies the airline for the first time. Rather, marketing's job is
to also build loyalty and create brand advocates.
Figure 8.1.4—The Seven Stages of Customer Engagement

SAS: The Arrivals
As an example of how airlines use advertising to create an emotional
connection, watch this video by SAS called The Arrivals. Video Link
https://www.youtube.com/watch?v=fMkANluxlOs

1. What are the three main categories promotional objectives fall into?
(a) Inform, remind, persuade
(b) Awareness, desire, action
(c) Advertising, promotions, awareness
(d) Business, leisure, visit friends and relatives
2. What is the end result of an effective promotional campaign?

(a) It differentiates the company from its competitors
(b) It moves customers through the decision-making process
(c) It captures peoples' interest in the company, product or service
(d) It establishes correct perceptions of the company and its products or
services
3. According to the advertising company Saatchi & Saatchi, ‘reason leads to

actions’. TRUE or FALSE?
(a) True
(b) False
4. What is the first stage of ‘AIDAS’?

(a) Action
(b) Attention
(c) Attentive
(d) Alert
5. What does the ‘D’ in the ‘AIDAS’ acronym stand for?

(a) Develop
(b) Dream
(c) Discuss
(d) Desire
6. Of the letters in AIDAS, which is the letter that was added fairly recently?
(a) A
(b) I
(c) D
(d) A
(e) S

7. What is the fourth step in the Seven Steps of Customer Engagement

Model?
(a) Action
(b) Trial
(c) Awareness
(d) Preference
(e) Knowledge
8.1.5 Unit Summary

In this unit we looked at the framework for developing effective promotional
objectives. The first thing to keep in mind is the role of promotion in your
marketing program. Next, we shared with you specific examples of promotion
objectives that we grouped into three main categories. The last part of this unit
described the sequence of actions that the customer goes through when
purchasing a product or service. When you are aware of this sequence of
actions you are able to align your promotion objectives with your marketing
objectives.

8.2 The Promotional Mix
• Describe the purpose of the promotional mix

• Explain the roles and use the promotional mix tools
• Review examples of modern airline promotional tactics
Unit Learning
Objectives
Did You Know?

The most expensive advertisement ever made was by Chanel. The ad, called
“The Film” cost USD $33 million to produce in 2004, according to Advertising
Age Magazine. The ad can be seen here:
https://www.youtube.com/watch?v=nfoMbir_Qd4
Unit Overview
The previous unit covered the topics of promotion objectives and the sequence
of actions the airline customer takes when purchasing a product or service. In
this unit we will look at the tools that an airline has at its disposal for
communicating its key product messages to potential customers. We refer to
this set of tools as the ‘promotional mix’ because it can be used in combination
or independently to reach the customer. Each has its strengths and
weaknesses which we will discuss.
8.2.1 The Purpose of Promotional Mix

In order for an airline to achieve its promotional objectives it can use a number
of promotional tools at its disposal. The various methods available are known
as a promotional mix, and are shown in Figure 8.2.1 below.

Figure 8.2.1—Tools of the Airline Promotional Mix
We'll now look at the advantages and disadvantages of each type of

promotional tool.
8.2.2 Personal Sales

Unlike advertising which appeals to a mass audience, personal selling is a
customized method of promotion. Personal selling can be successful when
advertising and other promotional methods fail to adequately connect with the
customer. Personal selling involves the interaction of two or more people and
enables all parties to observe each other's reactions in real time. This enables
quick adjustments to offerings or product type/mix in order to gain the sale. The
types of customer and influencer segments for airline sales efforts are shown in
Figure 8.2.3a.
Benefits of personal selling:
• Focus: It allows for selection and focus on a target audience and minimizes
wasted effort. For example, if an airline has identified 25 corporate
accounts as key to the success of its business travel segment, a personal
sales program can ensure all clients are contacted personally. No other
promotional medium can be as impactful.
• Flexibility: It enables a highly tailored and flexible presentation, provides
face-to-face contact with the target audience and gives immediate
feedback, increasing the probability of closing the sale.
Unit 8.2: The Promotional Mix 263

• Effectiveness: It is one of the few tools that can initiate, negotiate and
finalize the sale in as little as one encounter. Direct mail and digital
marketing including social media can generate sales of simple products but
for more complex offerings or for dealing with important corporate clients,
personal selling is the best technique. The drawback of personal selling is
primarily one of cost. An airline needs to weigh the cost-benefit of investing
in staff to personally deliver the sale versus the expected revenue gains.
As we shall see later in this chapter, the increasing use of digital and social
media channels is changing the way a ‘conversation’ can take place with a
customer. Today, “virtual” connections can deliver focus, flexibility and be very
effective.
Key Learning Point

Advertising is used to create or modify the behaviors or attitudes of the target
audience.
8.2.3 Advertising
Advertising can be defined as paid mass communication activities involving the
presentation of non-personal messages about a product or service. Advertising
is used to create or modify the behaviors or attitudes of the target audience.
More specifically, advertising can be used to accomplish the following:
• Introduce a new product or service in the market
• Enter a new market
• Target a new segment of customers
• Expand the total market demand for a product or service
• Build goodwill towards a company or its products and services
• Support the efforts of other marketing mix tools
There are a number of different advertising media to choose from, each with its
own advantages and disadvantages. This set of tools is often referred to as the
Advertising Tool Mix (See Figure 8.2.3a).
Figure 8.2.3a—The Advertising Tool Mix

Key Learning Point

The advertising mix is a set of mediums that a marketer can use for paid media
placements
Broadcast Media
Television
The television medium is very powerful and impactful in its ability to combine
sight and sound in a manner that can leave lasting impressions. According to a
study by Bain, a global management consultancy, television advertising has a
recall level as high as 60%, whereas the recall of ads placed in digital mediums
like web banners averages about 10% (Bain 2016).
While television is a great medium for creating lasting impressions, it is also
very expensive both in terms of production cost but also in terms of cost per
impression. Historically, television advertising has not been very efficient
because in order to reach a narrow target of, say, airline travelers who might
make up 10% of a TV show's audience, the advertiser would have to spend
money to reach the entire audience, so 90% of the spend would be wasted on
audiences that have no inclination to travel. With the proliferation of cable
channel broadcasts that have smaller audiences with similar demographics, TV
advertising can be an efficient medium if ads are properly placed. Likewise, as
cable providers continue to collect and analyze viewer data, we will start seeing
more advertising that is tailored specifically to a customer based on their
viewing, searching and even shopping habits.
Television and Viral Videos

In terms of audience reach, the popularity of social media channels like
YouTube and Facebook, which can feature creative and impactful TV ads for
free, means that advertisers can broaden the reach of an ad at no additional
cost. Of course, these viewing audiences might not fall within the crosshairs of
an airlines target groups, but it can help greatly with building a global brand well
beyond the intended markets. The Qatar Airways brand campaign that
launched on television networks in 2019 currently has over 9 million views on
YouTube. A link to the video can be found here.
https://www.youtube.com/watch?v=Xzpp0sIfzcE
For the airline marketer, television is an excellent medium for brand-building
and strategic positioning. As it is a very expensive medium, however, careful
thought must be given to content development and ad placement in order for tv
advertising to be cost-effective.

Figure 8.2.3b—Example of Viral Television Ad: Qatar Airways

Emirates: Hello Jetman Campaign
The message behind this broadcast ad is that Emirates has unguarded
ambition and the vision to push boundaries beyond the unthinkable, as their
website states. In addition to the number of impressions the ad has created
through media spots, at this writing it already had 26.6 million views on
YouTube. The ad can be seen here https://www.youtube.com/watch?time_
continue=7&v=_VPvKl6ezyc&feature=emb_logo
Radio
Radio offers affordability, broad reach, efficient target audience selection and
timely message delivery when compared to other mediums. However, poor
recall and a lack of visual impact are major drawbacks. Furthermore, unlike TV
and cinema ads that can draw in secondary (and free) audiences on YouTube
and other social media platforms, radio ads are temporary and fleeting; they
appear, and then they are gone. For airline marketers, radio spots might be a
good tool for supplementing an overall campaign (as discussed later), but by
themselves they will have minimal impact.

Cinema
Cinema (or movie theater) advertising is the third type of what we call
broadcast advertising. These advertising spots are almost always placed
before the movie begins (not to be confused with movie trailers, which are ads
about upcoming movies). Cinema advertising is quite unique in some regards
and does offer the airline marketer some distinctive benefits:
• Excellent visual and audio impact
• Captive audience with high attention span
• Good ad recall
• Credibility of the medium
• Reasonably good targeting
• Television spots can also play in cinema settings
• Format lends itself to viral audiences on YouTube and Facebook
There are also some disadvantages to cinema advertising:
• High cost of production and ad spots
• Relatively small audience reach
• Distractions by late arriving audience members
Did You Know?

The World Cup is the globe's biggest sporting event, with 3.4 billion
people expected to watch the monthlong, quadrennial tournament in 2022. By
comparison, the global audience for the Super Bowl is roughly 150 million
people each year.
Among these drawbacks, the combination of high cost with small audiences
make cinema advertising unattractive to some advertisers. Still, as we
mentioned earlier in the case of television advertising, if a cinema ad is creative
enough to go viral, it can attract an audience well beyond the initial target. An
example of a three minute cinema ad titled “Giving” by a Thai
telecommunications firm that went viral on YouTube with an audience of 2.4
million can be viewed here https://www.youtube.com/watch?v=iVrQqWIs6ZE
Of course, not everyone who watches a viral video would fall into the target
segment set of the airline, but it is something to consider.

Print Media: Newspapers

The newspaper is a very flexible medium, as advertisements can be placed at
short notice, can cover large or small markets and are good for conveying
information and pictures. It is a good medium for informing customers about a
new product or product features. It is also often used to place full-page
advertisements where an airline wants to have a high profile and immediate
impact, such as the Air Asia advertisement below promoting a fare sale. The
negative side of print media is that it is seldom read after the publication date.
Figure 8.2.3c—Print Advertising Example. Air Asia

Source: https://newsroom.airasia.com/news/my-airasia-free-seats-5-million-promotional-seats-up-
for-grabs

Print Media: Magazines

Magazines not only tend to be read in more depth and over a longer period of
time, but they are also specialized. This means that specific audiences can be
targeted by advertisers. For example, an ad for a new service to Nairobi, Kenya
in Travel and Leisure Magazine would reach readers who have a special
interest in travel. It is also an ideal medium for placement of high quality color
graphics. A downside is that magazines are usually published weekly or
monthly and therefore do not have the frequency of exposure. There is often a
substantial lead time for submitting ad placements. As magazine content is
increasingly being moved to online digital medium, the placement lead time is
become shorter, however.
Key Learning Point

Outdoor media like billboards are becoming more dynamic, thanks to new
technologies
Outdoor Media
Outdoor media uses billboards and window space and is a relatively
inexpensive medium. It can be effective, for example, in announcing a major
travel destination to an urban audience, but not in delivering messages about a
corporate sales initiative, due to limited space for text. The use of bus stop
billboards and tube/metro station advertising has been used extensively by
Low Cost Carriers in Europe and North America to push their fares and
destinations.
New technologies are making outdoor advertising more eye-catching, and
hence more effective.
British Airways' Magic of Flying campaign used digital billboards that used flight
schedule technology to detect planes flying overhead. The digital display
changed to a child pointing at the plane when there was a BA plane overhead,
with a message containing the flight number and departure city – e.g., “Look,
it's flight BA430 to Amsterdam.” A video of the ad can be found at this link.
https://www.youtube.com/watch?time_continue=1&v=GtJx_pZjvzc
Figure 8.2.3d—Outdoor Advertising Example: British Airways

Direct Mail
This is a selective method that can be used to target a group or even specific
individuals. Lists of names and addresses that match target audience criteria
are either purchased by advertisers from external providers or developed in-
house from Frequent Flyer Program membership lists and other captured
addresses during the sales booking process. The personalization, low cost and
flexibility that direct mail offers is very attractive to marketers. There are
drawbacks to direct mail, however: the printed medium generates a lot of
waste, has a low recall rate, and requires considerable production time and
cost.
Key Learning Point

While inexpensive, marketers have to be careful about the use of direct email
as it contravene local laws
Direct E-mail
E-mail as a promotional tool can fulfill the first three steps, namely Awareness,
Interest and Desire, of the AIDAS concept described earlier in this chapter. An
airline could use e-mail in a variety of ways, for example, to:
• Inform about a schedule change
• Launch a new promotional fare
• Announce a new schedule or destination
• Inform frequent flyers about changes to their program
However, like all promotional tools, direct e-mail has a number of advantages
and disadvantages.
Benefits:
• Low cost: E-mail promotions are the least expensive of any promotional
vehicle. An airline can reach virtually millions of customers with only the
cost of its systems and mailing lists.
• Personalization: Each e-mail message can be personalized with the name
and preferences of the recipient. The medium has moved from the mass e-
mailing of a common message to one which is targeted.
• Time-to-market: Execution of an e-mail campaign can be very fast; much
quicker than for a print advertising campaign or sales promotion. This is
particularly important when an airline needs to quickly stimulate demand
for travel on particular flights with low bookings.
Disadvantages:
• Impact on the brand: Because of the impact of e-mail ‘spam’ (the mass
sending of unsolicited promotional e-mail messages), consumers have a
relatively negative attitude to promotional e-mail messages. This means
that it is important to try and ensure the content is relevant to the recipient
and to the point.

Legality: In many countries there are restrictions on whom you can and cannot
send e-mails to. Consumes must provide their consent in order to receive
e-mail promotions. When using e-mail as a promotional tool a few simple rules
apply. First, ensure you comply with any local laws related to e-mail
promotions. Second, when collecting information about customers (e.g. on an
FFP Application), airlines should give the customer the option of either opting in
or out of receiving promotional material. Generally speaking, an airline should
try not to send unsolicited e-mail but communicate only with those who have
‘opted in’ to receive such material. Finally, when sending e-mail promotions,
customers should always be given the option of ‘unsubscribing’ at any time.
Joint (Cooperative) Promotions Using Direct Mail

Entering into joint promotions is a way for airlines to share costs and work with
companies who share similar marketing objectives or target audiences for their
products and services.
Credit card companies hold a vast repository of customer data and make good
partners for airlines. For example:
• They maintain lists of income-qualified customers, which improves the
potential success rate of the promotion
• The use of credit cards makes the purchase transaction fast and easy
• Their target customers are often the same as the airline's customers
• They like working with airlines, hotels and other travel suppliers because
travel expenditures generate substantial revenue and commissions for the
issuing bank.
In joint promotions, the following steps help ensure success:
1. Identify the airline's marketing goals and promotional objectives
2. Identify and invite any other relevant potential product sponsors to join (e.g.
hotels, car rental companies)
3. Develop the offer to be made to the customer
4. Discuss concept and commercial terms with the credit card sponsor
5. Decide on the concept and scope of the mailing
6. Determine the target audience (profile, numbers)
7. Develop and mail offer to recipients; follow with additional marketing
support as required
8. Brief customer service representatives of the airline and/or credit card
company on the terms and conditions of the offer.
9. Execute. Survey respondents.
10. Conduct post-promotion analysis

Figure 8.2.3e—Credit Card Promotion Example: Thai Airways

Source: https://images.app.goo.gl/Jusapqs4GN1d4CLL6
The offer must be creative and compelling, stimulating instant demand for the
product or service and generating revenue. Other benefits of this type of
promotion include:
• Creates awareness of the airline and its products and services
• Introduces new customers
• Favorably positions the airline in the market for offering attractive products
and services
• Positions the airline as an innovative and service-minded carrier who is
responsive to customer needs
• Helps launch new destinations, products and services

As we saw from previous modules, airlines are increasingly looking to develop

revenue streams over and above the pure selling of ‘seats’. Joint commercial
relationships offer potential for earning commissions by cross-selling the
partner's products and services. Often, promotional co-sponsors see their
financial contribution to the joint promotion as a ‘cost of marketing’ on the basis
that what they spend will be recovered through attracting new customers and
revenue.
From an FFP point of view, credit and charge card companies have become
major partners of airlines, with many offering co-branded credit cards. One
potential issue here is whether customer ‘loyalty’ is being developed towards
the airline or to the bank. Careful managing of brand awareness and brand
loyalty impacts in these situations have to be carefully considered and
managed.
In addition to credit card companies, there are other industry suppliers who
have an interest in joint promotions. Common objectives, such as exposure of
the product, generating interest and awareness, etc. create the desire for
promotional partnerships. Some examples:
• Suppliers of business services and travel goods
• National tourism organizations wanting to stimulate tourism
Key Learning Point

Metasearch sites were relatively unknown until just a few years ago but are
now one of the most powerful digital promotional mediums that airlines can use
Metasearch Sites
A metasearch site (or aggregator) is a search tool that uses
other search engines’ data to produce its own results. Please see the example
of the Momondo metasearch display in Figure 8.2.3f. A search on the Los
Angeles-Sydney city pair revealed two types of results: (1) Schedules and air
fares of competing airlines on the route whose data came from a Global
Distribution System (GDS) like Amadeus and/or the airlines’ own websites, and
(2) Display ads by Qantas promoting its non-stop flights on that route, whose
content came from the airlines themselves as targeted ad placements. There
are also a number of online travel agents (OTAs) shown in the display, like
Flyus and Priceline, who are competing for the customer's click-through to their
own website.
Because metasearch sites, by definition, do not take bookings, they generate
their revenue from the airlines on a pay-per-click (PPC) basis, which means the
airline will only pay for their hosted schedule or ad when someone clicks on it.
This is good for airlines with limited marketing budgets, as it only pays for
guaranteed traffic to its site. Airlines can also ‘bid’ for keyword search
placements. For example, an airline might bid on “Berlin” to show up as a top
result every time that keyword is searched. If a keyword is very popular,
however, the airline would have to bid higher to secure the top placement.

Figure 8.2.3f—Metasearch Example: Momondo
Hipmunk is also a metasearch engine, but with a twist: It displays that same
flight and fare information as traditional metasearch engines like Kayak, but it
also sorts them by what it calls the “agony” factor, which takes into account not
only the fare, but also the flight duration, departure time, number of stops and
punctuality record. Note the difference in display results for the same city pair
(LAX-SYD) and dates (Dec 02 and Dec 07), both in terms of net fares and the
order of airlines displayed. Try it out: Hipmunk can be accessed at this link:
https://www.hipmunk.com/
To learn more about metasearch, there is an interactive exercise below for
comparing metasearch sites.

Figure 8.2.3g—Metasearch Example. Hipmunk
Key Learning Point

Google Flights is a very powerful metasearch medium. For now, customers can
only use the tool to search for travel products. Most industry observers wonder
when they will start to leverage their marketing power to start selling travel
products online
Google Flights is a metasearch site similar to Kayak and Momondo. They
have also added some rather unique features, such as user-friendly
notifications about cheaper flight options at nearby airports, calendar search,
price tracking, and the Explore map (see Figure 8.2.3h) which lets you see
prices for a variety of destinations from a single city. Try it out: Google Flights
can be accessed https://www.google.com/travel/

Figure 8.2.3h—Metasearch Example. Google Flights Explore Map
Many industry observers believe that it is just a matter of time before Google
uses its advances in technology, datasets and buying power to get into the
online travel booking business. For now, however, airlines should consider
Google Flights as another tool in the online promotional mix. Phocuswire, a
travel research firm, called metasearch “the most important marketing channel
in travel.” (Phocuswire 2019). These sites accounted for 45% of the total
unique visitors to travel sites worldwide in 2019 and are growing 20-30% per
year. The most popular metasearch sites in the world in 2019 were Trip Advisor
with 588 million visits per month, followed by (non-hotel sites) Trivago,
Momondo and Skyscanner.
Key Learning Point

Google Flights is a very powerful metasearch medium. For now, customers can
only use the tool to search for travel products. Most industry observers wonder
when they will start to leverage their marketing power to start selling travel
products online.
Why the huge growth in metasearch? It simply comes down to this: Travelers
want to consider a range of competitive choices and fare options, which is
something that individual airline sites won't provide, for obvious reasons. This
reason, plus some other reasons are outlined in Figure 8.2.3i.

Figure 8.2.3i—Reasons Why Customers Prefer Metasearch
Figure 8.2.3j—Interactive Exercise: Understanding Metasearch
In summary, airline marketers need to understand the growing importance of

metasearch as a medium for fare displays and highly targeted advertising.
They should take this into account in their annual market planning exercise.
Key Learning Point

Metasearch sites offer customers what airline sites cannot: A broad selection of
competing travel product offers
Advertising: How to be Effective
Selecting the Right Media

The choice of media depends on a number of factors, such as which market
segments the airline is targeting and its advertising and positioning objectives
for each one. In addition, the combination of media channels likely to be most
effective will depend upon the advertising objectives of the airline and the

media habits of the target audience. Finally, the choice of media will be largely
determined by the prevailing budget.
Advertising Agencies
Airlines employ advertising agencies primarily to gain from their expertise,
which combines creative knowledge and comprehensive market data. These
firms can also provide insights and observations independent of the airline for
greater effectiveness. When selecting an advertising agency, there are some
key points to look for:
• Track record: How much work similar to what it will do for you has the
agency done for other clients, and to what effect?
• Versatility: Is the agency skilled in various media platforms–for example,
direct mail, print, Web, social media, radio and TV advertising? What are
their views on the use of different media in a promotional campaign?
• Creativity: How innovative, practical and memorable are their ideas on how
to communicate your message? Are you confident they can work within
your budget without overruns?
• Commitment: Who will be the main and dedicated contact person from the
agency working with your team? Are they at a senior level? Will they take
responsibility for results? How will they measure results? Purchasing
power: How good is the agency at buying media and production services?
It is also important to remember that no agency can function without a proper
clear brief from the airline, an approved budget, and a mutually developed
promotional plan based on your own marketing plan. The agency needs to
understand your business and be a full partner in your campaign for it to be
truly successful.
Key Learning Point

Public relations is another tool of the promotional mix. Unlike advertising that
places messages in the media for a fee, public relations activities attempt to
generate free coverage through tools such as press releases, press
conferences and interviews.
8.2.4 Public Relations

Public relations–or PR as it is more commonly known–is one of the least
understood but potentially most cost-effective of all the promotional tools
available to the airline marketer. Like the other tools of the promotional mix, PR
activities are also intended to build or strengthen awareness of the airline
product or brand, or support and influence opinions of stakeholders such as
governments, consumers, local communities and shareholders.
The most important difference between public relations and advertising is that,
whereas advertising relies on paid placement of promotional messages, public
relations activities attempt to gain media exposure through unpaid placement
of messages in both online and offline media such as newspapers, trade
journals and even television news spots. The roles and tools of public relations
are explained below, and highlighted in Figure 8.2.4a.

Did You Know?

The world's largest PR firm in 2018 was Edelman with annual revenues of USD
$900 million.
Roles of Public Relations

• Corporate communications: Using internal and external communications to
promote understanding of the organization, its objectives, plans and
values.
• Product publicity: Specific activities to publicize specific products
• Press relations: Developing good media and press relations to foster
positive coverage of the airline
Industry Relations: Activities that help airline industry players better understand
the products and market positions of the airline
• Lobbying: Meeting with government and ministry officials to ensure that
your airline's views are heard prior to the development of policy that might
affect the airline
• Crisis management: Helping airline management to develop company
positions on various topics and providing crisis management expertise to
mitigate bad press.
Tools of Public Relations

There are a number of different public relations tools available for building a
constructive relationship with the media and the audiences of their publications:
• Press conferences: When a new route is launched, for example
• Interviews with journalists: About company plans, industry developments,
etc.
• Press releases: About new products such as an FFP program, movements
of key personnel, financial performance, new routes, etc.
• Media press kits: Provide data, photos and other information about the
airline
• Media Luncheons: With journalists, hosted by the airline
• Media fam trips: To new destinations, on new aircraft, etc.
• Speaking opportunities: At trade events, industry forums, etc.
• Crisis management planning: Preparation of a crisis management strategy,
prepared statements, training of employees as spokespeople, etc

Figure 8.2.4a—Roles and Tools of Public Relations
Newspaper or magazine articles written by respected journalists about the

airline can often be seen as more credible than advertising by the airlines
themselves. It is a good way to raise awareness and build a positive image of
the airline.
However, there is little control over how an interview, speech or presentation by
a member of the airline will be finally reported in the media. It is quite possible
for events to ‘backfire’ and for negative press to result. Most companies
recognize the need for professional PR. Depending on their size and global
presence they will often use a combination of in-house PR services and the
expertise of external public relations agencies.
Figure 8.2.4a shows an example of how public relations can be used as an
effective promotional tool to help create awareness of a new airline route, On
the left of the image, we see the press release sent by Singapore Airlines
(available from the airline website) to media outlets around the world about its
new Singapore to Seattle nonstop service. On the right side of the image, we
see the “pick-up” of the story by local news outlets in Seattle and Singapore, as
well as global trade mediums. It is noteworthy to again understand that this
media coverage was free. Whereas it may have cost the airline a few hundred
dollars to write and distribute the press release, the resulting media coverage
around the world was free.

Figure 8.2.4b—Press Release Example: Singapore Airlines
As we have seen, a press release is a tool of public relations that is intended to

generate free media coverage in print media. In order to understand both the
scope of the possible coverage as well as the origins of that coverage, please
try the exercise that follows in Figure 8.2.4c.
Figure 8.2.4c—Interactive Exercise: Understanding Press Releases

Key Learning Point

Sales promotions are usually run on a short-term basis in order to stimulate
interest and sales.
8.2.5 Sales Promotions

Objectives of Sales Promotions
Sales promotion tools consist of activities that serve to supplement advertising,
public relations and personal selling. All sales promotion tools share three main
objectives:
1. Sales stimulation: This can work well at stimulating an immediate
purchase. For example, issuing a ‘coupon’ to 20,000 Visa cardholders
offering a 30% discount on flights, 2 for 1 offers, or a ‘reader’ offer from a
newspaper or magazine
2. Customer involvement: Promotions that invite customers to become
involved are more powerful than ordinary advertisements. Later in this
chapter we will explore a variety of examples where social media is used to
involve customers in promotions e.g. in choosing destinations for fare
promotions.
3. Education: An airline's appearance at a travel fair allows customers to
learn first-hand about the airline's product and services.
Unlike advertising and public relations, whose messages are usually
impersonal and fleeting, sales promotions can create deeper engagement with
the target audiences by getting them involved. An example is the Air France
sales promotion that served free food from a branded food truck in New York,
which promoted their special La Premiere Creations inflight menu (Figure
8.2.5). These creative promotions can also result in free publicity if, for
example, the airline were to invite journalists to join the promotion.
Figure 8.2.5—Sales Promotion Example: Air France Food Truck in New York

8.2.6 Sport Team and Event Sponsorships

Another type of sales promotional activity for airlines involves the sponsorship
of sports teams or sports events. Technically these might be considered
advertising because these teams, venues and events are really advertising
mediums. However, because of the various other promotional tools that
support these sponsorships, such as publicity, merchandising and contests, we
will consider them Sales Promotions for this discussion.
In recent years there have been several high-profile sponsorship agreements
between football clubs and airlines. Some notable examples include
Arsenal/Emirates, Manchester City/Etihad and AS Roma/Qatar Airways. These
promotions provide the airline sponsors with significant visibility, both in the
stadiums and to their television audiences. As these airlines are relatively new
to many markets, and because of the global fan base of the football clubs, the
sponsorships do a good job of creating basic brand awareness–the first crucial
step in the AIDAS process.
As mentioned earlier, the scope of these sponsorships allows the airline
marketer to develop other promotional activities around these, such as PR
releases, press conferences, sales of merchandise, social media engagements
and, of course, traditional advertising.
In addition to sponsoring teams, airlines have also become key sponsors of
major sporting events and football venues. Qatar Airways is the most notable
example, with their commercial sponsorships as the official partner and the
official airline of FIFA. This deal includes the 2022 FIFA World Cup Qatar.
While expensive, the World Cup audience is unprecedented in audience reach.
The 2018 World Cup in Russia had a television reach of 3.4 billion, a digital
reach of 7.5 billion impressions, and 580,000 digital engagements, according to
a 2018 press release by FIFA. Another example is Emirates that is the branded
sponsor of Emirates Stadium in London.
Figure 8.2.6a—Emirates Stadium home of the Arsenal Football Club

8.2.7 Comparing the Promotional Tools

There is no “one-size-fits-all” approach when it comes to using promotional
tools as part of the airline marketing mix. One must take into account the
audience, the nature of the message that needs to be communicated, the
reach of the different mediums, and of course, the cost. Figure 8.2.7 presents a
summary of the key points raised in this chapter by comparing the strengths
and weaknesses of the different promotional tools.
Figure 8.2.7—Comparing the Tools of the Promotional Mix
1. Your airline has identified 20 corporate accounts that are major business
customers. What promotional tool would be most effective with this group?
(a) Personal selling
(b) Advertising
(c) Sales promotion
(d) Public relations
2. If you wanted to build goodwill with a company or its products and services,
what promotional tool would you use?
(a) Personal selling
(b) Advertising
(c) Sales promotion
(d) Public relations

3. What is the disadvantage of newspaper advertising?

(a) Newspapers are seldom read after the publication date
(b) It requires a substantial lead time to submit advertisements
(c) It is expensive
(d) Most target customers do not read the newspaper
4. Which of the following messages would be most suitable for outdoor

advertising?
(a) Services to new destinations
(b) Corporate sales initiative
(c) New fare system
(d) New frequent flyer benefits
5. What must all promotional e-mail messages include?

(a) A limited time offer
(b) A comparison to competitors' offers
(c) A coupon or discount customers can redeem
(d) An option to unsubscribe from future messages
8.2.8 Unit Summary

In this unit we discussed the first four elements of the promotional mix. As we
know, each of these elements has positives and negatives, depending on the
situation. The best approach for the marketing mix is to tailor the
communication method to the market segment you wish to reach as well as to
your promotional message.
In the next unit we will focus on the fifth element of the promotional mix: digital
media, interactive marketing and social media.

8.3 Social Media and Interactive Marketing
• Describe the main features of the Internet as a communication channel

• Describe the use of the Internet as an advertising medium
• Explain how social media affects the communication between airlines and
their customers
Unit Learning • List various ways how social media is used by airlines to engage their
Objectives customers
By completing this Unit, • Explain the key areas that need to be considered when designing a
you will be able to: promotional mix
• Understand the concept of the Integrated Marketing Communications
(IMC)
Unit Overview
The purpose of the promotion mix is to develop a set of strategies that would
best communicate the message to the intended customers. In the previous unit
we looked at the benefits and limitations of the first four elements of the
promotional mix. In this unit we will focus on the fifth element: social media. We
have decided to explore this communication channel in a separate unit
because social media is an emerging field with much potential.
In order to understand how social media can be utilized in promotion
messaging we must understand how the Internet has changed the airline
industry and how it is used in marketing projects. We will cover a number of
examples of how airlines are harnessing social media to engage their
customers in a meaningful way. It is a new frontier for many airlines and is
expected to dominate marketing approaches worldwide. At the conclusion of
this unit we will provide a macro view of all promotional tools, including social
media and other digital tools.
Figure 8.3—Online and Offline Promotional Tools

Key Learning Point

The communication process is no longer a simple one-way delivery of the
message from the airline to the customer. The interactivity of the Internet
allows customers to engage in a real dialogue with airlines.
8.3.1 The Internet as a Communication Channel

The Internet has transformed the possibilities of marketing. It has also
fundamentally changed the nature of the airline business, as well as many
other industries. The Internet is an instant medium in that the marketer can
develop promotional messages and instantly post them either on the airline's
web page or on Twitter, Facebook, Instagram or YouTube. It is also an
interactive medium in which the customer can quickly access airline product
information or post comments. Different target audiences can be reached
simultaneously.
The communication process is no longer a simple one-way delivery of the
message from the airline to the customer. The interactivity of the Internet
allows customers to engage in a real dialogue with airlines.
Using the Internet as a promotion tool, airlines can use their own websites to
promote Frequent Flyer information, seating charts and seating assignments
through the use of Internet check-in, new destinations, routes and cities
served, flight and gate status, baggage allowance and refunds, holiday
packages, special promotions, community involvement initiatives,
environmental programs, and so much more.
Did You Know?

YouTube is available in a total of 80 different languages in over 91 countries
and covers 95% of the Internet population
Use of the Internet, particularly via mobile technology, enables customers to
easily and quickly find the information they need to make travelling easier–from
planning a journey, purchasing a flight, checking in, possibly rerouting or
changing flight times, checking for departure information and so on.
As a medium for promoting fares and services the Internet is efficient,
immediate and interactive. Efficiency is derived from it being low cost, quick
and easy for airlines to use. The Internet provides an immediate experience
because airlines can develop and execute last minute fare offers quickly, as
well as respond to competitive offers or flight disruptions. Finally, the Internet is
interactive because it provides the opportunity for two-way dialogue with
customers. It encourages feedback, helping the airline to customize content
and even develop new products and services.
8.3.2 The Internet as an Advertising Medium

We can broadly categorize the use of the Internet as an advertising medium as
follows:
1. Direct: The airline can advertise directly on its own website
2. Indirect: Ads can be placed on a third-party site that redirects the customer
to the airline's website. For example, American Airlines could place an ad
on the website of the Intercontinental Hotel, linking to its own site, or Lan
Chile can place an ad on a metasearch site like Kayak that directs
customers to its own website.
Unit 8.3: Social Media and Interactive Marketing 287

3. Search engine: This is when an airline pays a search engine company

such as Google to display its name and link in response to search queries.
These displays link the customer to the airline website and encourage
purchase of products and services.
The Internet is also used by airlines to communicate with the press as well as
investors. Parties can access information from the airline's website or
designated blogs, YouTube channels or Twitter feeds. All these different types
of online communication channels can also be used very effectively in times of
major disruption to keep passengers and press informed. For example, in the
case of the volcanic eruptions in Bali in 2019 that caused the closure of the
Denpasar airport for a number of days, many airlines used the Internet to
provide their customers with real time information. Finally, the Internet is also
used by airlines to communicate internally. This is called an ‘intranet’ for
internal communications with employees.
Airlines are also increasingly ensuring their presence via mobile phones and
tablets through the use of ‘Apps’ which enable the customer to stay connected
with the airline for travel needs.
Key Learning Point

Social media allows airlines to move from a one-way model of communications
to a two-way interactive model of communication.
8.3.3 The Impact of Social Media Applications on

Marketing & Marketing Communications
Social media is the result of a fundamental shift in the way we communicate.
Whereas the traditional model of communication is very much a monologue in
which the airline would ‘tell’ the customer what they needed, social media
makes it possible for airlines to dialogue with customers and find out what they
really need. We are in effect moving from a monologue model to a dialogue
model of communication. The various information sources available to
consumers are increasing, and although traditional forms of communication are
still used, new ways of communicating are emerging quickly.
Figure 8.3.3—Airline Promotional Tools–a Developing Picture
Social media marketing and communications benefits airlines by providing an

additional channel of customer support, a means to gain customer feedback
and insight, and a method of managing an airline's reputation online. From the
customer's perspective, online engagement is about convenience,

transparency, pricing and selection. According to a 2019 study by KMPG, the

top reasons why U.S. consumers prefer online vs retail channels include the
ability to shop online (58%), ability to compare prices (54%), obtain better
prices (46%), and time savings (40%).
Key factors to ensure its success are the relevance of the message to the
customer, the value it provides them, and the strength of the foundation on
which it is built. A strong foundation serves as a platform on which the airline
can centralize its communication and directly inform customers of recent
developments.
Social media is important because roughly two thirds of the global population
visit social networks. Visiting social sites is now the fourth most popular online
activity, ahead of e-mail. Use of social networks is also growing at three times
the growth of the Internet. Social media is very much like ‘word of mouth’
marketing, but with an extended reach and more lasting impressions.
Customers are permanently online with the almost total penetration of mobile
technology, and the widespread use of smart phones with increased capacity
and functionality.
Social media allows customers to actively and openly discuss their experiences
with products, companies and brands. Since social media platforms allow
companies to take part in conversations that customers are having about them,
now more than ever companies are able to manage their messaging and learn
what their customers are looking for. Social media allows people to share their
recommendations with more than just their immediate social circle. An
interesting statistic is that only 14% of people trust information in
advertisements, but 78% of people trust the recommendations of other
consumers.
Use of social media does not mean ignoring other more traditional marketing
and use of the promotional mix. Social media promotional campaigns, for
example, can be run simultaneously with traditional marketing and advertising.
Key Learning Point

One of the most powerful elements of the social mediums is their ability to
collect and display customer sentiments towards products and services
The power of a recommendation is very strong. Would you rather buy a product
from a faceless company or from a company that people recommend?
Customers who are so called “initiators and influencers”, play an important role
in the buying process. Remember the AIDAS diagram earlier in this module
and that these people can be reached by social media.
More traditional online advertising methods such as banner ads and pop ups
are no longer as effective as they once were. The online social networking
‘blindness’ to advertising and increasing reliance on online social communities
to provide information, opinions and product information means that social
media promotion and marketing has the potential to send visitors to an airline
website without the use of traditional advertising methods.
A recent study by Kissmetrics showed the extent to which millennials are
responding to influencers. According to the study:
• 89% of millennials trust recommendations from friends and family more
than claims by the brand
• 84% of millennials report that user-generated content on company
websites at least influences what they buy
• 84% said they don't trust traditional advertising.

Another recent study published in the media consultancy Martech (2019)

provides some interesting insights that directly relate to the effectiveness of
various components of the promotional mix in the U.S. and UK markets.
According to that study, 42% of consumers look for travel inspiration and 40%
actually book via mobile devices, while 52% of Facebook users say that their
friends' photos inspire their travel plans. Interestingly, 40% of UK millennials
consider how “Instagrammable” a destination is when making their travel plans.
The summary findings of the report are worth noting, as follows:
• We appear to trust the opinions of total strangers when we value their
product reviews over those of professional travel agents. These are people
whom we have never met and never will.
• Facebook and Twitter are not the only sites that matter. Independent
reviews, feedback on e-commerce sites, and rankings in search engines
are more important
• Older tourists are real online influencers as their consumer opinions are
having an impact on travel marketing and selling
• Supply and demand–whereas airlines, travel agents and tour operators
created supply and then attempted to fill it, consumers are now booking
their holidays directly, mixing and matching flights and hotels rather than
buying holidays as a package.
• Social media channels are as big as television and press
• Advertising in magazines and national newspapers does create awareness
and inspire people to travel. The traditional media are therefore still
relevant but ads must be linked to an overall promotional campaign
including links to social media channels, airline websites, etc.
• Marketing communications must capture and share customer experience
and think beyond the actual ‘sale’ itself, encouraging customers to review,
share and talk about their travel experience.
8.3.4 Social Media Marketing

Social media marketing attempts to use social media to persuade consumers
that one company's products and/or services are worthwhile. It creates content
that attracts attention, generates online conversations and encourages readers
to share it with their social networks.
There are a number of benefits of using social media:
Benefits of Social Media

• More online conversations about your brand: A successful social media
campaign leads to more talk about your brand online and is more effective
than traditional methods
• Quick turnaround: Hitting the landing page of a major social, video or news
site will generate huge amounts of traffic almost instantly. This will not
necessarily translate into inquires or sales but should generate momentum
in the right direction.
• Low costs: It can lead to a partial or complete replacement of traditional
advertising and marketing at significant lower cost
• Impact on search engine rankings: Social media campaigns generate large
amounts of links which will benefit your rankings in search engines

Key Learning Point

Social media marketing attempts to create content that attracts attention,
generates online conversations and encourages readers to share it with their
social networks.
Roles of Social Media

A good social media campaign will allow the airline to do a number of things:
• Build awareness of your airline and brand
• Give you an opportunity to research and learn about your market
• Provide an opportunity to defend and encourage positive conversations
about your product and services
• Create a truly interactive customer service channel for your existing
customers
• Further develop a brand identity and interact with your target markets, and
reach new audiences
• Increase exposure and traffic to your website
The following are some examples of the use of social media to drive
awareness of a product and service and to provide customer service and sales
opportunities.
Did You Know?

Statista reported that the 5 countries that have the highest social media
penetration in 2019 were the UAE at 99%, Taiwan at 89%, South Korea at
85%, Singapore at 79% and Hong Kong at 78%.
Facebook
We first discussed Facebook in Module 4, in terms of its ability to segment
Facebook users on the basis of very specific filtering criteria to help create very
well defined targets for airline promotional messaging. Here we will discuss
Facebook as a promotional medium to reach those same target audiences.
Facebook is too big to not be included as part of a company's digital
promotional platform. It represents a dynamic marketing platform and
promotional channel that, according to Facebook, currently has 2.4 billion
monthly active users (MAU) worldwide as of September 2019. This is an
8 percent increase in Facebook MAUs year-over-year. Of these, 1.6 billion
people are considered daily active users. By that number, sixty-six percent of
Facebook's audience would be considered Daily Active Users (DAU) versus
Monthly Active Users (MAU). One in five page views–among all digital
mediums in the United States–occurs on Facebook, according to a 2019 study
by Zephoria,a digital communications consulting firm.
As a medium for advertising messages, Facebook is a very attractive
promotional platform, given its audience size, penetration, growth and some of
its unique user features:
• There are many loyal and active users of Facebook, thereby helping
ensure breadth and frequency of promotional reach
• Facebook allows for many advertising formats, from banner ads to surveys
to video content

• Facebook's advertising tools make managing ads very easy, from editing
content to instantly changing target audiences
• Facebook's advertising costs are quite low. Because of their targeting
ability, ads can be very cost-effective in terms of the cost to reach specific
target groups
• Responses to ads placed on Facebook can be tracked by the advertisers
in order to gauge their readership and effectiveness
• Facebook's audience segmentation criteria allow marketers to define and
target their audiences by using very specific filtering criteria
• Facebook's audience of influencers can amplify the reach and credibility of
the promotional messages by sharing them with others
• Facebook allows for customer engagement and affinity grouping
• Facebook allows for “remarketing” by using a technology that can show an
airline advertiser's ad content on Facebook after they have visited the
airline website
• The use of call buttons on Facebook allows for customers to immediately
call or chat with the airline advertiser. This interactivity greatly increases
engagement, and ultimately sales
Some airlines use Facebook in a highly effective manner. The German airline
Lufthansa, for example, features regularly updated posts and ongoing
engagement with their customers. They also feature an app called the
Lufthansa ‘Scenespotter’ that allows users to explore tourist sites, eating and
shopping places and airport layouts in Lufthansa's major global destinations.
Through the use of tabs, links and apps, the Lufthansa Facebook page offers
interactivity and information for their customers. As another example, the
Qantas Facebook page (see the image below) allows customers to make
bookings and share their travel plans and experiences with other Facebook
friends.
For more information on how airlines use Facebook, please see this link
https://www.routesonline.com/news/29/breaking-news/244646/how-airlines-
use-social-media/

Figure 8.3.4a—Facebook Example: Qantas
Key Learning Point

In addition to Facebook, other social media sites like Twitter, Instagram.
LinkedIn and YouTube offer interactive capabilities with highly targeted
audiences
Twitter
Twitter is a social networking and microblogging site that allows users to create
and send messages known as “tweets.” While not as big as Facebook, Twitter
still has a sizable audience of over 350 million active users. The nature of the
Twitter platform lends itself to a very high level of customer interaction and
engagement where airlines use it for everything from promoting fare sales to
dealing with customer service issues. Tripsavvy.com, a social media
monitoring firm, provides three good benchmarks of how airlines use Twitter:
Air Asia: With nearly four million followers, this Malaysia-based low-cost
carrier has one of the most active Twitter accounts among the world's airlines.
The airline uses its account for fun contests, photos from the destinations it
covers and notices about sales and deals. It created a separate Twitter
account, @AskAirAsia, to handle questions and concerns about baggage,
seats, and meals seven days a week during business hours.

Figure 8.3.4b—Twitter Example: Air Asia
Alaska Airlines: The airline's Social Care team helps travelers 24 hours a day,
seven days a week. They answer passengers' questions, but they also use
their Twitter content to feed contests (find the Robinson Cano bobblehead
doll), highlighting snacks with great photos and show infographics on how
in-flight Wi-Fi works.
British Airways: The U.K.'s flag carrier operates its Twitter account 24 hours a
day, seven days a week. It offers daily travel weather updates, highlights
destinations, marks special days (National Sibling Day), holds a live
Periscope broadcast with its CEO and has contests. It also shows off gorgeous
photos of its fleet and the cities it serves and helps customers in need.
Did You Know?

According to Statista, there were over 269 million Facebook users in India in
2019, making it the leading country in terms of audience size. To put this into
context, if India's Facebook audience were a country then it would be ranked
fourth in terms of largest population worldwide.
Instagram
Instagram is another excellent social medium for airlines to use to promote
products, destinations and fares, as well as engage with customers. One of the
best cases is Emirates. As the Points Guy (2019) writes: “With an impressive
2.4 million Instagram followers, Emirates doesn't disappoint with content. The
Dubai-based carrier first launched operations in 1985 and now flies the world's
biggest fleets of both Airbus A380s and Boeing 777s. On its Instagram feed,
you'll find not just the usual photo suspects, but also travel tips for planning
your next vacation. Whether it's glamour shots of its extensive fleet, appealing
onboard products or a wide-ranging route network, Emirates offers its followers
a little bit of everything.” The Emirates Instagram page can be found here:
https://www.instagram.com/emirates/

Figure 8.3.4c—Instagram Example: Emirates
YouTube
The video sharing service where users can watch, like, share, comment and
upload their own videos is the 2nd most visited website in the world. YouTube
has a user base of 2 billion (covering 95% of the global internet audience) that
watches an average of 5 billion videos each day in 76 languages, according to
YouTube.
Given its scope and popularity, airlines can use YouTube as an effective
promotional medium in a number of ways through channels that host video
content about such features as new destinations, product updates, new aircraft
and advertising campaigns. The Singapore Airlines YouTube channel has
more than 70,000 subscribers and 45 million views, according to the airline.
The Emirates site can be found at this link:
https://www.youtube.com/user/singaporeair/featured

Figure 8.3.4d—Eight Different Ways Airlines Can Use YouTube
LinkedIn
The professional network site, LinkedIn, has 600 million users in 200 countries
and territories according to the company's website (see the LinkedIn site here).
It differentiates itself from other social media channels by focusing specifically
on the business segment. According to LinkedIn, 90 million senior-level
influencers and 63 million from 92% of Fortune 500 companies use their
services. Globally, 70% of the user base is located outside of the United
States, with India as the second largest user base of 53 million.
Airlines can create Company Pages on LinkedIn for prospective customers to
learn more about the company and the people who work there, and to engage
with relevant content. Beyond providing their own content, airlines can, of
course, use LinkedIn as a medium for their own sponsored advertising. KLM,
for example, used sponsored video content on LinkedIn to promote its
Christmas Jumper campaign, with a key objective of attracting more
travelers–including business travelers–to the KLM brand, as well as drive
social action. Their cost-per-view was 62% below average campaign
benchmarks, according to LinkedIn. The KLM promotional video can be found
at this link:
https://www.linkedin.com/feed/update/urn:li:activity:6341289007963521024/

Figure 8.3.4e—LinkedIn Example: KLM
Airline Websites
The airline's own website, of course, is also a powerful medium for promoting
the airline, engaging with customers, selling tickets and even checking in for a
flight. In an effort to drive direct online sales, there has been a shift in the
structure and focus of the airline web home page from pure content to last seat
booking functionality. An example is Ryan Air which, according to a study by
CAPA, used to require customers to book a seat after 17 clicks on its website.
After redesigning the home page to be more customer-centric, the number of
clicks was reduced to an industry average of five clicks. Ryan Air currently sees
98% of its bookings done on a direct basis through Ryanair.com, which can be
accessed at their website at https://www.ryanair.com/us/en/

Figure 8.3.4f—Airline Home Page Example: Ryan Air
All the above examples aim to proactively engage with the marketplace and
allow customers, influencers and airline ‘fans’ to interact with the company.
Airlines have to keep abreast of what is happening in the social media realm,
monitoring key communities, competitors and influencers on Twitter,
Facebook, LinkedIn and other social networks. By doing so the airline
increases its understanding of what people are talking about and are better
able to enter the conversation.
Key Learning Point

Harnessing the real power of social media means having your customers, fans
and influencers talk about you more than you do.
8.3.5 Social Media and Key Opinion Leaders

(KOLs)
A Key Opinion Leader, also known as a “KOL,” is a person who has significant
influence over others in their purchasing decisions and behaviors, as well as
someone who is also able to draw attention and create awareness to the
products and services that they write about. Many KOLs engage with their
audiences by posting text, images or videos on social media channels like
Facebook and often have a much high degree of public trust and credibility
than traditional advertising. KOLs play a very strong role in China, where some
have millions of followers. Many businesses, such as airlines and holiday
destinations, will see increases in business because a KOL happened to share
a photo or post while traveling on vacation.
As part of a broader social media strategy, airlines should consider the use of
KOLs to target and engage the huge millennial audiences. When selecting a
KOL, factors to consider include (a) number and quality of followers, (b)
engagement and (c) expertise (Brand Now 2019). In terms of social media

channels, Instagram (69%), YouTube (11%) and Blogs (7%) are receiving the
most expenditures by marketers in 2019 (BigCommerce 2019).
Social media communication and promotion works best when they are two-way
experiences and not simply one-way. Harnessing the real power of social
media means having your customers, fans and influencers talk about you more
than you do.
Instead of simply evaluating an Internet promotion by whether recipients
opened and clicked through an offer, you should also measure if customers
and prospective customers are sharing your offer and talking about it. Then use
the data to adjust and optimize future initiatives. For example, if you discover a
new product campaign results in a strong upsurge in tweets and blogs, you
might design a special twitter only campaign offering a specific discount or
place a special promotion on key blogs offering a product discount.
In summary, social media has put the airlines' reputation much more in the
hands of the general public and has made the airlines' product and service
delivery standards much more transparent and open to all. It means that airline
brand managers need to engage in online conversations, direct sales teams
must understand that pushing messages too hard may make them ineffective
and that PR staff must use a conversational style of communicating. Any social
media strategy must be combined and aligned with the overall business and
marketing objectives of the airline. Lastly, any social media messaging should
run in parallel with more traditional promotional and marketing efforts and be
complementary to them.
Did You Know?

After India, the three largest markets of Facebook users in 2019 were The
United States, Brazil, and Indonesia with 190 million, 123 million, and
120 million Facebook users, respectively.
8.3.6 Designing a Promotional Mix

When deciding which elements of the promotional mix to use and how much to
spend on each element it is helpful to answer the following questions:
Consider the marketing environment: How big is the market that the airline is
targeting? If you need to promote to a large urban area and sales targets are
ambitious then all elements of the promotional mix will come into play. The
number of competitors and their own promotional methods will also have a
bearing on the type of programs selected. Are there particular segments of the
market that have high potential and have to be specifically targeted?
Key Learning Point

An effective promotional mix will ensure that an airline's promotional messages
will be heard through a multitude of channels, thereby strengthening the recall
of the message.
Evaluate your target audience: Who are you targeting? Is the use of personal
selling appropriate, for example, to target a limited number of corporate
accounts? Should there be joint promotions with credit card, hotel or car hire
companies for leisure customers?
At what stage is your product? Where is your product in its life cycle? With a
new destination, interest will have to be built, therefore using print advertising
and PR campaigns would be effective. If the route is established and growing
strongly but there is increasing competition, however, you will need to show

differentiation from other products. The target audience would need to be

convinced of the value of your airline's product and brand and of its unique
value proposition in the marketplace.
Figure 8.3.6—Measuring Offline Media
8.3.7 Evaluating the Promotional Campaign Tools

As we have seen, there are many different tools of the promotional mix.
Oftentimes marketers ask: “which tool is best?” The answer to this question is
that it depends on any of eight different factors that should be considered when
selecting a promotional media channel. These include:
Reach: This is a measure of how many people are reached by the medium
concerned. For example, if 300,000 people typically tune in to an evening news
broadcast, that would be its reach: 300,000.
Targeting: This measure takes into account the coverage of the target
audience by the medium. For example, cinema advertising for a movie like
“Fast and Furious” would have a close overlap with car enthusiasts.
Recall: This measures the number of people who can recall the ad after two
days. This is an often-overlooked measure. While a particular ad might be very
creative, it is important that people actually remember the brand and the
product being advertised.
Cost: The cost to reach an increment of 1,000 people is called CPM, or cost
per 1,000. TV spots-depending on the audience size–might have a CPM as
high as USD 35, whereas digital (internet) media spots might cost as little as
USD 3 to reach 1,000 people. See Figure 8.3.7a for a comparison of costs in
the US. These costs will vary greatly from country to country, so this is only a
general guideline.

Figure 8.3.7a—Measuring Media Costs (Wall Street Journal. 2019)
CTR: Click through rates (CTR) measure how many people clicked on an ad
and CPT measures cost per transaction; that is, how many marketing dollars it
cost to prompt the customer to buy the product or service.
Credibility: Different mediums have different levels of credibility with their
target audiences. For example, a banner ad on the web promoting 2% car loan
interest will have far less credibility than a television ad promoting the same
thing.
Control: Amount of control over the message content. Generally, advertisers
have complete control over the content of the message. However, when it
comes to publications–or free media placements–control is lost, in that the
newspaper or magazine can write whatever they want.
Production: This measures how long it takes and how much it costs to
produce an ad. For example, it might take only a few minutes and very little
expense to create an Internet banner ad, but it might take weeks and over USD
100,000 to produce a television commercial.

Figure 8.3.7b—Evaluating the Promotional Tools
Key Learning Point

There are eight different factors that must be taken into account when
evaluating promotional tools.
8.3.8 Integrated Marketing Communications

As we have seen, Promotion is one of the Ps of the Marketing Mix and has its
own mix of communications tools, such as advertising, public relations, direct
sales, and so on. Rather than using these tools on an ad hoc basis, they need
to instead be coordinated in their execution in order to strengthen the
promotional messages. This process is called Integrated Marketing
Communications, or IMC, as it is commonly known. The idea is that these
various communications tools will be more effective if they work together in
harmony rather than in isolation. Their sum is greater than their parts –
providing they speak consistently with one voice all the time, every time.
As an example, look at the illustration shown in Figure 8.3.8 of Alpha Air's plan
to launch a new service from Bangkok to Singapore. They use many different
online and offline promotional tools in order to create awareness of the new
route.

Figure 8.3.8—Example of an Integrated Marketing Communications (IMC) Plan
The Integrated Marketing Campaign (IMC)

In the previous section, we discussed the concept of IMC. Here, we will think
about when to execute these tools. This is called a “campaign” in adverting
jargon and its role is to organize the various promotional tools on the basis of a
pre-launch schedule. The promotional objectives of the airline may not vary
much during the year, but the actual promotional campaign(s) may run for a
few days, weeks or months. The key point here is that all elements should work
together in a planned and cohesive fashion in order to achieve maximum
impact.
Key Learning Point

All elements of the promotional campaign should work together in a planned
and cohesive fashion in order to achieve maximum impact. This is called the
Integrated Marketing Campaign, or (IMC)

1. A storm has disrupted airline services in a major area of your market. What
would you use to keep people informed of the status?
(a) Newspaper advertising
(b) The airline website
(c) Public relations
(d) Direct e-mail
2. Which of the following is an example of social media?

(a) E-mail
(b) Twitter
(c) Smart phones
(d) Search engines
3. What is the most significant way in which social media has changed how
companies communicate with their customers?
(a) Companies can now build a dialogue and develop positive
relationships with customers
(b) Companies can more efficiently tell customers about their products
and services
(c) Social media is free, so companies can communicate more often with
customers
(d) Social media allows companies to reach the 20 to 35-year old age
group more effectively
4. Social media campaigns can replace more traditional marketing. TRUE or

FALSE?
(a) True
(b) False
5. What source of information is the most influential for UK customers in

determining their travel plans?
(a) Travel agents
(b) Advertisements
(c) Online reviews
(d) TV travel programs

6. Which criteria is not taken into account when evaluating a promotional

tool?
(a) Reach
(b) Recall
(c) Credibility
(d) Cost
(e) They are all taken into account
8.3.9 Unit Summary

In this unit we have looked in detail at the potential of social media in the
promotional mix. As you have seen from the research reported in this unit,
social media can be a very persuasive communication channel if used
correctly. However, we need to keep in mind two main points: social media is a
two-way communication channel, making it challenging to control and manage;
and, social media is just one communication channel in the promotional mix.
The appropriate use of all other elements in the promotional mix helps to reach
your target market.

Module Summary
In this module you learned that promotional activities are planned and
executed in order to achieve specific marketing objectives. Raising awareness,
educating, informing and persuading the potential customer are the key
objectives of promotional activities.
There are a number of tools available to bring success to your campaign:
advertising, sales promotions, personal selling, public relations, direct
marketing and the whole range of Internet and mobile-based communication
channels. Social media channels such as Facebook, Instagram, Twitter and
YouTube are also highly effective promotional mediums and should be
incorporated into any airline's promotional mix. The main message of this
module is that all of the vehicles above can be used in a coordinated manner
called IMC to achieve maximum effectiveness and sales revenue.


Universal McCann. (2006). Comparative study on social media trends.
FIFA. (2018). Russia the Most Engaging FIFA World Cup Ever
KMPG. (2019). Consumer Shopping Trends
Big Commerce. (2019). Key Opinion Leaders
Kissmetrics. (2019). The Role of Travel Influencers
Martech. (2019). Marketing to Millennials
Tripsavvy. (2019). Airlines You Should be Following on Twitter
Zephoria. (2019). The Top 20 Valuable Facebook Statistics
Ryan Air (2019). Ryanair.com
LinkedIn (2019). LinkedIn.com
Facebook (2019). Facebook's User Statistics
Advertising Age. (2018) World's Most Costly Television Ads

Answer Key
1. a
2. b
3. b
4. b
5. d
6. e
7. b

1. a
2. b
3. a
4. a
5. d

1. b
2. b
3. a
4. b
5. c
6. e

Module 9:
Distributing Airline Products and Services
• Define and describe the role of airline distribution channels

• Understand direct and indirect distribution channels
• Identify the strengths and weaknesses of various distribution channels
• Explain why most airlines employ a mix of channels to deliver their product
Module Learning
Objectives • Describe the role that a GDS plays in the airline distribution process
By completing this Module, • Understand distribution channel costs and efforts by airlines to reduce
you will be able to: them
• List the key factors that should be considered in developing a distribution
strategy
Module Introduction
For an airline, the process of distribution involves making the travel product
available to the right customer at the right time and in the right place. This may
seem like a simple and straightforward process but developing a distribution
strategy has its challenges. In fact, for most airlines there is no simple
distribution strategy so they often use a mix of distribution channels to take
their product to their customers. Yet, airline distribution activities are very
expensive and can average more than 20% of total ticketed revenue for many
airlines. Not only should airline marketing managers understand distribution in
terms of the customer value proposition, but it is also crucial that they
understand distribution strategy with regard to reducing costs and optimizing
profits.
In this Module we will look at various airline distribution channels in an attempt
to understand their role and the factors that should be considered when
developing a distribution strategy. We will examine a variety of direct and
indirect distribution channels and explain how these channels can be most
effectively used. You will learn how the airlines have reshaped some traditional
channels over the years so as to make them more cost-effective and
responsive to customer needs. Lastly, you will learn about some of the key
trends in distribution and how they will impact the future airline marketing
environment.

312 Module 9: Distributing Airline Products and Services

9.1 Airline Distribution–An Overview
• Define what is meant by distribution channels in an airline context

• Define the different types of market intermediaries
• Explain the function and role of Global Distribution Systems (GDSs)
• Explain the role, trends and impact of online travel agents (OTAs)
Unit Learning
Objectives • Classify direct and indirect distribution channels
Distribution is one of the key components of the marketing mix because it deals
with ways to make the product or service available to the customer. An airline's
profitability can be impacted both by the effectiveness of the distribution
channels and the cost of using them. In this unit, you will learn about the role of
distribution channels for the airlines and the main factors they must consider
when adopting a strategy. This will help you understand the types and roles of
different intermediaries and the benefits of different channels for reaching
various market segments. You will also gain a better appreciation of the driving
force behind the development of new distribution channels.
Key Learning Point

For an airline, the process of distribution involves making the travel product
available to the right customer at the right time and in the right place.
9.1.1 Defining Airline Distribution

Once the airline marketer has developed the product, determined pricing, and
prepared its promotional tactics, the next challenge is to determine which
‘place’ will host the product for purchase. These “places” are called distribution
channels that are either owned and managed by the airline, or are made up of
third-party “intermediaries” such as travel agents which together make the
product or service available for the end user. The airline decision to select from
among these different channels as part of its distribution strategy should
address the following questions:
• Which target markets do we want to serve, and will they prefer direct or
indirect channels?
• Should we sell directly from the airline website and mobile apps?
• Do we need retail and online travel agents? If so, which ones?
• How should we compensate our travel agents?
• Should we use metasearch engines to help steer customers to our
website?
• Where should our sales, ticketing and reservation offices be located?
• What should be their hours of operation?
• What CRS systems should we use? Do we need GDS?
• Should we appoint General Sales Agents (GSAs) in certain markets?
All of these questions are part of one fundamental question: Which channel
strategy should we most profitably deploy to satisfy our target customers?
Unit 9.1: Airline Distribution–An Overview 313

The rest of this module is devoted to answering that crucial question, with the
first unit focused on the types, costs and uses of different distribution channels.
9.1.2 Defining Distribution Channels and

Intermediaries
Distribution Channels
A distribution channel is the route that products or services take from the airline
supplier to the end user. Typically, each channel has several stages, starting
with the airline's own reservations system, and ending with the customer. In
some cases, these channels are direct; that is, the airline sells directly to the
customer without the involvement of intermediaries like travel agents. In other
cases, the channels are indirect, whereby services pass through one or more
intermediaries before they reach the customer. Whether to use intermediaries
depends on a number of factors that will be explained here. But first, let's look
at the different types and roles of these intermediaries.
Market Intermediaries
Market intermediaries are third-party companies that link the airline to the
consumer. They can be a travel agent, a travel wholesaler or a tour operator
and they can be either digital, like an online travel agent, or a physical brick-
and-mortar agency location.
These intermediaries promote, sell and service airline tickets through
contractual agreements with the airline. They either receive the tickets at a
particular price point, add their profit margins to it and move it to the next link in
the supply chain at the higher price point, or they are paid commissions or fees
by either the airline or the consumer.
Roles of Intermediaries
Historically, travel agent intermediaries have played crucial roles in airline
distribution strategies and processes. Their roles include:
• Bridging the physical gap between a single supplier (the airline) and the
customers who are scattered in multiple global locations.
• Helping price, promote and sell the airlines' services.
• Helping find new markets and market niches.
• Performing both retailing and wholesaling functions for the airline.
• Extending credit to the customer and collecting payment before remitting to
the airline.
• Servicing customers by answering questions and making changes to
itineraries.
• Providing specialized knowledge and services to the airline customers.
• Providing market intelligence and sales forecasting information to the
airline.
In summary, market intermediaries are important partners for the airlines
because they help promote, sell and service more effectively, efficiently, and
less expensively than airlines historically have been able to manage on their
own. Of course, these services come at a price, and recent developments in
e-commerce, in particular, have given airlines an opportunity to provide many
of the same services that the intermediaries have traditionally provided, but at a
lower cost. Yet, these same advances in technology have enabled some types

of intermediaries to become even more indispensable to the airlines. Before we

examine these technologies and trends in greater detail, let's first explore some
different types and roles of airline market intermediaries, the types of airline
channels that use them, and some future trends that are having an impact on
these channels and the overall airline channel strategy.
9.1.3 Indirect Airline Channels

As we have just learned, market intermediaries are independent companies
that are used in promoting, selling and servicing airline tickets through
contractual agreements with airlines. There are eight different types, both
traditional and emerging, of airline channel intermediaries:
Retail Travel Agents account for the majority of revenue sold through indirect
airline channels. In addition to selling airlines, they also sell hotel rooms,
cruises, car rentals and many other travel products. Traditionally, these agents
operate out of physical locations but might also sell travel products through
their own websites.
Online Travel Agents (OTAs) lack a brick-and-mortar presence and sell travel
services only through e-channels such as web portals or mobile apps.
Specialized Agents focus on the needs of special segments, such as labor
traffic, ship crews, meetings and incentives, cruises and the like.
Corporate Travel Agents (CTAs) are travel agents that specialize in corporate
travel. They often manage travel portfolios for large companies on an annual
contract basis.
Wholesale Agents combine various suppliers' services such as airlines, hotels
and tours by packaging them together and reselling them to retail agents who
then sell them to the customer. They do not operate the tours.
Tour Operators act as wholesale agents but also manage and actually
operate the tour program.
General Sales Agents (GSAs) are normally appointed as the exclusive agents
in markets not directly served by the airline, or where revenue is not sufficient
to justify the airline's own ticket office.
Airline Partners, also known as interline partners, are also considered as
indirect distribution channels. For example, Star Alliance partner United can
sell seats on alliance partner Lufthansa, or a Delta ticket office in Atlanta can
book and sell a full-fare ticket on non-partner Thai Airways from Seoul to
Bangkok.
Many industry observers originally believed that trends in e-commerce and
agent commission caps imposed by airlines would lead to the total demise of
the travel agent, much like Amazon has impacted small retailers in the U.S.
That has not happened, however. Whereas a good number of old-school retail
travel agents have closed, specialized agents still dominate specific but large
market segments, such as corporate travel, special interest travel and the
ship/labor crews. In fact, Figure 9.1.3 illustrates that specialized agents had a
dominant 67% share of these special segments in 2017, and their share is
forecasted to increase by 2021.

Key Learning Point

As true marketing begins and ends with the customer, airlines must first
understand where, when and how their target segments demand airline
services, and then deploy the most cost-effective distribution strategy to reach
them.
Figure 9.1.3—Agent Penetration of Specialized U.S. Markets. (Phocuswright,

2017)
9.1.4 Electronic Channel Intermediaries: The GDS

Until the early 1990s, airlines relied on their own reservations systems (known
commonly as CRS or Central Reservation Systems) such as Sabre that was
owned by American, and Apollo that was owned by United Airlines to connect
to preferred travel agents. In the 1990s, these systems were sold by the
airlines and grew to become networked Global Distribution Systems (or GDS)
that now provide thousands of agents around the globe with inventory from
multitudes of airline, hotels and other travel suppliers. Essentially, GDSs act as
networked, computerized intermediaries between airlines and travel agencies
by drawing on real-time schedules, fares and seats provided by the airlines.
The travel agents then use this information to help customers select, book and
ticket the airline.
Key Learning Point

Global Distribution Systems (GDS) are powerful market intermediaries that
push airline content, schedules and fares from the airline to global networks of
travel agents.
When an airline booking is made by a travel agent, the GDS system charges
the airline a fee of about $3 per one-way sector. Given the importance of travel
agents and the need for airlines to electronically and instantaneously distribute
seats across the globe, airlines now pay as much as $10 billion a year in fees
to the GDS industry, which is dominated by two providers: Amadeus with a
44% share and Sabre with a 36% share. (Phocuswire 2018).
While airlines like American and United were at one time far ahead of any
intermediary in terms of the CRS systems' technological and network

capabilities, they have since lost that lead to the GDS platforms which,
ironically, the airlines actually created. As a result, they have been at the mercy
of GDS platforms and are paying huge fees. A 2016 study by Atmospheric
Research noted: “Airlines outsourced their PSSs (passenger service systems)
to three major GDS operators: Amadeus, Sabre, and Travelsky, which
increased those companies' power over airlines. The end result: In 2016,
airlines have become the tail and GDSs the dog.”
To better understand the airline indirect channels, have a look at Figure 9.1.4,
which shows the “channel flow” from the airline through GDS and then to a
travel agent before it reaches the customer. In this example, there are two
intermediaries between the airline and the customer: the GDS system and a
travel agents or interline partner shown in the diagram below.
Figure 9.1.4—Airline Indirect Channel Intermediaries
Despite some technical constraints and the relatively high cost of distributing
their product via GDSs, airlines are still reluctant to withdraw from GDS
contracts because they risk losing a key distribution channel. Even today,
agent intermediaries still handle more than half of the global airline bookings.
As a result, it is more a question of how airlines can use GDS systems in the
most cost-effective manner, rather than whether to use them.

AMADEUS
The GDS company, Amadeus, has produced this video about how these
systems work. Video Link https://www.youtube.com/watch?v=xF1OGj2MIEw

9.1.5 Online Travel Agents (OTAs)

Among the eight market intermediaries we discussed in the previous section,
one of these–the online travel agent–or OTA, as they are more commonly
known–deserves special attention, given their increasing size, relative
newness, and dynamic nature.
History and Size of the Online Travel Agent

The online travel agent model was created by a confluence of growth in
e-commerce, credit card penetration, a fragmented and slow-reacting airline
industry, and some shrewd investments from companies like Microsoft. Simply
put, an OTA is a travel agent that uses its website and mobile apps to sell
travel products to consumers.
Some OTAs sell a variety of travel products, including flights, hotels, car
rentals, cruises, activities, and packages, while others specialize in air
bookings, hotels, cruises or packages. OTAs use the information from
third-party global distribution systems (GDS) such as Amadeus, Sabre or
Travelport to access real-time info on availability and fares from travel suppliers
like airlines. An OTA like Expedia then services their customers' demands by
providing a wide selection of travel products and prices, taking instant
bookings, and even running its own loyalty scheme–all this at prices equal to or
sometimes lower than the price for the same service from the hotel or airline.
No wonder these online travel agencies have such loyal and growing customer
bases.
Did You Know?

Expedia, the online travel agent, carried the inventory of over 400 airlines and
500,000 hotels.
The online travel market, in which the OTAs are the major players, is
forecasted to generate $1,091 billion in sales by 2022, registering an average
annual growth of 11.1% through 2022 (Allied Research 2019). The growth in
the online travel market has been driven by quick and convenient flight
bookings, rise in customers' trust in online payments, higher Internet
penetration rates, an expanding global middle class of consumers, and
increasing customer preference. U.S.-based Expedia alone had a total revenue
of $11.22 billion in 2018 with 10% of the total U.S. market for travel services
being booked through the Expedia web portal. (Skift 2019) China-based
Trip.com, which also owns Skyscanner, saw revenues of $4.5 billion in 2018
and growth of 16% over the previous year. (China Daily 2019).
Key Learning Point

Online travel agents (OTAs) have flourished in recent years through their
capability to provide consumers with a broad product selection among a
number and types of travel suppliers, and competitive options.
Online travel agents like Expedia generate revenues from the airlines and other
suppliers by charging commissions. Lately, however, OTAs have also started
acting as metasearch sites by referring customers to related travel service
suppliers, and have also become advertising mediums whereby they provide
travel suppliers with opportunities to pay for targeted advertising or premium
display positions. Figure 9.1.5a is a screenshot taken from a city-pair search on
Expedia for a flight from San Francisco to Delhi. Note the Emirates ad that
pops up on the right margin promoting its flights to India–an example of how

OTAs are also acting as advertising mediums that help travel suppliers target
interested audiences.
Why the growth in online travel agents? The answer is simple: They provide
customers what airlines cannot offer: Broad product selection among
numerous travel suppliers, competitive options and their own loyalty scheme.
As testimony to this point, a survey by Atmospheric Research in 2016 revealed
that 45% of consumers consider shopping for airline flights and prices to be
drudgery. OTAs like Expedia and Trip.com have responded to this latent
demand by offering customers one-stop shopping and competitive prices.
Figure 9.1.5a—Screenshot of an Expedia Schedule Display
Key Learning Point

When it comes to OTA market penetration, not all markets are similar in terms
of market preference, booking trends and penetration. The smart airline
marketers will do their research before developing the right channel mix for a
market.
OTAs: Important and Expensive Airline Channels

For the airline, OTAs are very important–albeit expensive–indirect distribution
channels, given their increasing breadth and market penetration, especially
among millennials who increasingly rely on OTAs and metasearch sites for
their travel research and bookings. According to IATA, one in five airline
bookings globally is through OTAs, but the penetration rate will vary from
country to country. Indonesia is dominated by Traveloka, while Expedia is the
market-leading OTA in the U.S., Malaysia, and Singapore markets. In late
2019, the biggest OTAs in the world in terms of size were booking.com,
TripAdvisor, Trip.com, Airbnb and Expedia. Of these, only Trip.com and
Expedia take airline bookings, while the other OTAs largely focus their efforts
on hotel bookings.

OTAs and The China Online Market

The China travel market is worth special attention both because of its size and
its uniqueness in terms of the role of OTAs there. According to a recent report
by EyeforTravel that profiles the Chinese travel consumer, OTA websites have
a 77% penetration rate while OTA apps have an 82% market penetration rate,
resulting in 70% of all travel bookings in China passing through three dominant
OTAs: Trip.com, Qunar and Meituan-Dianping. According to the same report,
OTA penetration rates will continue grow as China's younger travel consumers,
who favor smartphone and app bookings, become a larger segment of the
market. With more than nine in ten Chinese consumers visiting price
comparison sites during research, they have also been able to strengthen their
market proposition by becoming integral players in metasearch, further
entrenching their competitive advantage.
To give you a sense for how OTAs work, please complete the exercise shown
in Figure 9.1.5b below.
Figure 9.1.5b—Interactive Exercise: Comparing OTAs and Direct Channels
Key Learning Point

The use of OTA channels is a strategic option for airlines to consider. While
most airlines rely on these intermediaries, some low-cost airlines deal with their
customers on an exclusively direct basis, thereby saving agent commission
expense but at the expense of market coverage.

Like all agent channels, OTAs are expensive for airlines to use because they
have to pay commissions and GDS fees. Furthermore, if an airline wants to
have a premium listing position, they have to pay separately for that. The last
biggest complaint about OTAs is their inability to sell airline ancillary services
like excess baggage and seat assignments which, as we learned in Module 8,
is becoming a huge source of revenue for the airlines.
Did You Know?

In 2016, Ctrip, the largest travel firm in China, bought Skyscanner for
$1.75 billion. In 2017, Ctrip bought the Trip.com domain and launched its new
service Trip.com.
The airline-OTA partnership has been coined by many as a love-hate
relationship. As we have seen, airlines have historically relied on these third-
party booking sites to sell their seats, yet they've also done everything they can
to discourage customers from booking through them in favor of their own direct
channels. Indeed, the CEO of one of the largest airlines in the world has
threatened to cut ties completely with OTAs by saying: “Expedia has
historically been very good in selling our lowest fares but quite obviously, we
think we can sell our lowest fares just as well. We look forward to having a
direct relationship with our customers going forward, and that's really where we
are with Expedia.”
Yet, not all airlines use OTAs. Low-cost airlines like Ryan Air and Southwest
Airlines bypass travel agents and only sell directly to the customer. Some
airlines, on the other hand, have exclusive arrangements with only OTA. For
example, Air Asia only uses Expedia) but still relies most heavily on its own
airline web and mobile booking channels.
Figure 9.1.5c—Biggest Global OTAs (Medium.com 2019)

Travel Technology and The Future. An interview with an executive of one of the
world's largest OTAs, booking.com, can be watched here.
https://www.youtube.com/watch?v=O5yp9yLcjWo

Key Learning Point

The distribution landscape is changing very quickly and airlines have a number
of channel options and market intermediaries from which they can choose. The
right channels and intermediaries depend on a number of factors, but this is still
largely dictated by where and when the target customer wants the service
delivered.
1. A GDS platform like SABRE is a direct distribution channel because they

connect the customer directly with the travel agent. TRUE or FALSE?
(a) True
(b) False
2. Which of the following are examples of OTAs:

(a) Expedia and Amadeus
(b) Trip.com and Expedia
(c) SABRE and Expedia
(d) SABRE and Amadeus
3. Which of these best describes the role of marketing channels?

(a) Making products available where and when the customer demands
them
(b) Using various social media channels to advertise new offers
(c) Developing products for various market segments
(d) Using various channels to collect information about market demand
4. What term is used to refer to the travel intermediary who specializes in one
particular region of the country?
(a) Wholesaler
(b) OTA
(c) Tour Operator
(d) General Sales Agent
5. Airline B sells tickets for Airline A. As a result, Airline B can be considered

an indirect distribution channel of airline A. TRUE or FALSE?
(a) True
(b) False

9.1.6 Unit Summary

In this module, you have learned about the roles of market intermediaries and
how they have been important airline partners because they help promote, sell
and service more effectively, efficiently, and less expensively than airlines
historically have been able to manage on their own. You have also learned
about the role and importance of GDS platforms that connect the airline with
travel agents, and which has helped give rise to the OTA, or online travel
agent. We discussed the drivers behind these shifts to online agents and why
customers prefer these channels versus airline direct channels, and about the
struggle by airlines to shift bookings to their own less costly e-channels. Lastly,
through an interactive exercise, we have learned how the different OTAs work
and how they are different from the airline web channels.
In the next sections of this Module, we will discuss airline direct channels and
why airlines are investing millions of dollars to develop and improve them. We
will also look at the cost efficiency of different channels and then discuss how
technology is having a continuing impact on this very important yet extremely
dynamic component of the airline marketing mix.

9.2 Direct Airline Channels
• Define and describe airline direct distribution strategies

• Discuss the key roles and trends of direct channels
• Identify the trends behind the shift to airline direct channels
• Understand New Distribution Capacity for airlines
Unit Learning
Objectives • Describe the approach for developing a direct distribution strategy
By completing this Unit, • Understand some of the trends impacting direct airline distribution
9.2.1 Direct Channels: Roles and Trends

Unlike indirect channels that are made up of intermediaries between the airline
and the final customer, direct distribution channels connect the airline directly
with the customer, without passing through any intermediaries such as travel
agents. Until the mid-1990s, the only direct airline channels consisted of airline
call centers and ticket offices that together accounted for less than 5% of total
airline sales (K. Soy. 2018), with the balance of the bookings being booked and
sold through traditional offline travel agents and wholesalers. Figure 9.2.1
below illustrates an airline direct channel mix similar to the type of direct
channel strategy currently undertaken by low-cost airlines such as Ryan Air
and Southwest.
Figure 9.2.1—Airline Direct Channel Mix
Thanks again to trends in e-commerce technologies, credit card penetration

and changing consumer behaviors, airlines have been able to see healthy
increases in sales through direct electronic channels such as website booking
portals and mobile apps. In 2016, these two e-channels accounted for 35% of
total airline revenue, and this is forecasted to increase to 42% by 2021. (IATA
2016).
Key Learning Point

The benefits of using a direct sales channel are three-fold: clear cost savings,
the ability to communicate in a straightforward manner and the potential to
build direct relationships with customers without using intermediaries at all.

9.2.2 Airline Direct Channel Strategies

As we observed in Figure 9.2.1, airline direct distribution models currently use
one of four main channels: the airline call center, airline ticket offices, website
portals and mobile apps. Not only are airlines trying to shift bookings from
external intermediaries like OTAs to the airline web portal and apps, but they
are also trying to shift bookings from their own costly ticket offices and call
centers to the less expensive online channels.
Did You Know?

According to Amadeus, the largest GDS company in the world, over 600 million
bookings are made through their platform each year–that amounts to about
12,000 each second.
Figure 9.2.2 illustrates some of these shifts taking place among the different
airline distribution channels. Note the anticipated 10% increase in revenue
share from 35% in 2016 to 38% in 2021 through airline websites and a 200%
increase in mobile app bookings as airlines try to shift sales away from the
more costly call centers, ticket offices and online travel agents, and the
corresponding 40% drop in bookings through airline call centers and 25%
decline through online travel agents. A full copy of the IATA Future of
Distribution report can be downloaded here:
https://www.iata.org/whatwedo/airline-distribution/ndc/Documents/ndc-future-
airline-distribution-report.pdf
Figure 9.2.2—Shifts in Airline Distribution Channels: 2016–2021 (IATA 2016)
Unit 9.2: Direct Airline Channels 325

Behind the Shift: Airline Direct Channel Initiatives

The shift to airline e-channels is the result of a concerted effort by airlines since
the late 1990s to reduce cost (representing 18–25% of an airline's passenger
revenue at the time) and optimize direct customer engagement through what is
known as “disintermediation” i.e. bypassing the middleman or intermediary.
Some of these changes to airline distribution strategies and programs include:
• Reducing and cutting travel agent commission levels
• Eliminating paper tickets
• Developing direct airline-consumer e-channels to reduce costs and remove
the power of agents to influence customer choice
• Developing social media channels to influence and engage with customers
• Using social media and metasearch platforms to direct traffic to the airline
channels
• Encouraging customers to use airline e-channels through bonus FFP miles
or discount coupons
• Supporting new forms of payment such as mobile payments and virtual
credit
• Using airline alliance partners to increase distribution
• Charging customers usage fees for using expensive airline call centers and
ticket offices
• Negotiating and signing travel contracts directly with large corporations
• Negotiating and signing preferred agreements with selected travel
intermediaries
• Modifying ticket office policies–e.g. moving staff ticketing online,
eliminating travel agent ticketing through airline ticket offices and
transferring call handling to call centers
• Use of AI in call centers and chat boxes for handling of routine queries
• Offering mobile apps that are easy to use and web-centric
Key Learning Point

There has been a major shift by airlines from almost complete dependence on
travel agents to direct channels like airline websites and mobile apps over the
years. Technology, e-commerce penetration and airline policies have driven
this change.
New Distribution Capability (NDC)

In response to requests by member airlines for a more efficient distribution
channel, IATA has introduced the New Distribution Capability platform or NDC
that connects and facilitates direct information flows among airlines, agencies,
and consumers. According to IATA, the NDC will allow airlines to distribute a
full range of products through third parties via greatly improved
communications. Unlike GDS systems, the NDC is open to any third-party,
intermediary, provider or non-IATA member to implement and use.

Because the NDC promises to give airlines control over the exact product or
product suite they offer, at any given point in time, to any given traveler, and
through any channel, this platform could potentially increase choice, broaden
distribution, and facilitate a high degree of personalization. A number of parties
are watching these developments with interest. Websites with massive
penetration and customer data metrics, such as Google and Amazon, could
suddenly find themselves positioned to take advantage of an open,
standardized system, benefiting all parties.

IATA and NDC. A link to a series of videos about the IATA NDC can be found
here https://www.iata.org/whatwedo/airline-distribution/ndc/Pages/ndc-
videos.aspx
Key Learning Point

The IATA NDC platform gives airlines more control over the products that they
can deliver on a direct basis to global customers.
9.2.3 Managing Direct Airline Channel Costs

There has been a lot of discussion thus far about airline distribution and the
costs associated with different channels and intermediaries. We will now
explore these costs in more detail in order for the airline manager to have a
better understanding of the economics of direct vs. indirect airline distribution
so that they can take this into account when developing their channel mix
strategies.
Channel Cost Structures

Fortunately, analyzing and understanding airline distribution cost is relatively
easy due to the sequential and module nature of the airline booking process
from the initial fare query to the final sale and ticketing. Figure 9.2.3 breaks
airline costs into five categories: (1) CRS cost, which is the cost for an airline to
host and distribute its own schedules, fares and seat availability, (2) GDS fees
which, as discussed earlier, are what these systems charge to aggregate and
“push” the airline information to travel agents using their booking sites, (3)
travel agent commissions (4) airline overhead and labor costs, and (5) credit
card fees.
Did You Know?

According to Amadeus, the largest GDS company in the world, over 600 million
bookings are made through their platform each year–that amounts to about
12,000 each second.

Retail Travel Agents

In the past, the traditional brick-and-mortar agent channel was by far the most
expensive for an airline to use. When a customer purchased the ticket through
one of these agents, the airline had to pay for its own reservations system
(CRS), the use of a Global Distribution System (GDS), the travel agent
commission, and credit card fees. Before paper tickets were replaced with
E-ticketing, airlines absorbed this expense as well. All told, some airlines spent
as much as 22% of revenue towards distribution costs. As you will learn below,
airlines have addressed this by allowing agents to book the airlines but then
charge the customer booking fees instead of charging airlines commissions.
OTAs
Even today, the airlines have still not escaped these costs. As mentioned
earlier, airlines still rely heavily on OTAs as key distribution partners. The
crucial services that OTAs provide to airlines come at a cost, however. In the
case of OTAs, the airline must absorb the CRS costs, the GDS fees, the travel
agent commission and credit card fees, which can still amount to as much as
15% of the revenue collected.
Airline Call Centers and Ticket Offices

Airline ticket offices and call centers are examples of traditional airline direct
channels that are often more expensive than even indirect retail and online
travel agents due to the high labor and overhead expenses associated with
these channels. Imagine, for example, an airline that has a high-visibility ticket
office in New York City, for which it pays $12,000 a month, yet only sells 50
tickets a day. The allocated per-ticket costs become astronomical. Costs
associated with tickets booked through calling centers are also very high, but
this depends on call volume, overhead costs, and employee efficiency.
Airline E-Channels: The Most Cost-Effective Channel

The most promising channel illustrated in Diagram 9.2.3 is the airline web and
mobile e-commerce channel. This is the least costly of all channels at $8, or
4% of revenue. This channel is much more efficient because there are no travel
agent commissions, overhead or labor expenses or GDS fees. In addition to
this channel being less costly than others, it also offers some other benefits to
the airlines:
Benefits of Airline Direct Channels:

• Lower costs than agent channels
• Opportunity to sell add-ons like seat assignments and excess baggage
• Opportunity to better understand and build relationships with customers
• Opportunity to more easily recover from service lapses
• Opportunity to collect valuable customer metrics
• Opportunity to sell other travel products

Figure 9.2.3—Airline Channel Costs: Indirect vs. Direct
The unit for airlines here is to try to develop and deploy direct sales channels to
the customer to the extent that this is possible. As mentioned earlier, the
strategies must still match the demands of the customer, so this is more a
matter of understanding how to most efficiently satisfy the customer through an
effective and efficient distribution channel strategy.
Did You Know?

More than 70% of Chinese digital bookings are made through OTAs. Among
China's OTAs, Trip.com, Qunar and Meituan-Dianping are the most dominant.
9.2.4 Airline Direct Channels and the Future

In response to the many changes taking place in airline distribution, Yanik
Hoyles, Director of the IATA NDC Program, said: “The pace of innovation and
change is accelerating, prompted by worldwide access to Internet and the rapid
development of mobile channels. It is important, therefore, to look ahead at
some of the players and technologies that may emerge as dominant forces in
airline distribution in the years ahead”.
These technologies and trends include:
• Mobile apps that will dominate as customer booking “touch-points”.
• Digital personal assistants like Siri and Alexa that are able to make
bookings on a voice-activated basis.
• Virtual reality (VR) and augmented reality (AR) capabilities that will allow
travelers to interact with and select travel products such as seat
assignments, meals and inflight entertainment. As VR becomes more
common, airlines will need to create immersive and interactive flight
shopping experiences if they are to compete.

• Huge e-commerce and search companies like Amazon, Google, Facebook

and Microsoft could enter the travel distribution market by leveraging their
advanced technological capabilities and huge datasets in conjunction with
new upcoming NDC protocols.
• Google has already demonstrated its interest in the travel business. As
stated in a 2019 Phocuswire report on the future of airline distribution,
Google “not only pushed the gas pedal of product improvements on the
shopping front for Google Flights and Hotel Ads, but also showed its cards
for its Grand Masterplan: offering an end-to-end ecosystem where the
connected traveler never has to leave Google.
Blockchain: More Opportunities for Direct Airline

Distribution
Another technology that appears poised to have an impact on airline
distribution is blockchain. “The Blockchain Revolution” (Trapscott 2016),
defines blockchain as a transparent digital ledger that can be programmed to
record almost any commercial transaction. The main purpose of blockchain is
to allow fast, secure and transparent peer-to-peer transactions across a
decentralized network that allows for the safe transfer of digital values such as
currency and data.
According to a 2019 study by Boston Consulting Group (BCG), blockchain is
poised to provide fertile ground for innovation in the industry. With its ability to
manage and share data and facilitate digital transactions, blockchain promises
to resolve current issues of trust, security, control, and transparency in a
complex ecosystem of airline industry players such as suppliers, GDS
platforms and a multitude of other intermediaries. Although the technology is
still fairly young, airlines are already exploring applications that improve overall
performance in three areas, according to the BCG study:
Improving the customer experience: Blockchain-enabled “smart contracts”
can simplify and automate the process among airlines, minimize the risk of
error, and increase customer satisfaction. For example, Singapore Airlines has
developed a digital wallet that allows customers to use frequent-flyer miles at
participating retail merchants.
Simplifying revenue accounting: Blockchain can automate and streamline
complex settlement processes, keep booking data secure, eliminate disputes,
and do away with heavy reconciliation work.

Figure 9.2.4—Blockchain's Application to the Airline Industry
Reducing dependence on intermediaries. Blockchain offers airlines an

opportunity to reduce distribution costs by strengthening the security of direct-
to-customer channels. As an example, Air New Zealand has partnered with
Winding Tree to develop a blockchain app that allows consumers to access
tickets directly from the airlines. Hahn Air is also now issuing electronic tickets
using blockchain technology.
Key Learning Point

Blockchain offers airlines an opportunity to reduce distribution costs by
strengthening the security of airline direct-to-customer channels and among
airline partners.
In summary, blockchain is yet another technology that shows tremendous
promise for airlines to reduce costs and drive revenues, much like e-commerce
disrupted airline distribution models in recent years. According to the BCG
Report: “Most leading airlines are already experimenting with new digital
technologies–such as advanced analytics, robotics, and artificial
intelligence–and now blockchain is poised to provide fertile ground for
innovation in the industry. As with any new technology, the potential for
disruption isn't always immediately apparent. Forward-looking airlines that use
blockchain and other digital technologies to fundamentally rethink how they do
business will gain the greatest benefits.”
A copy of the BCG report can be accessed at this link:
https://www.bcg.com/en-us/publications/2019/what-could-blockchain-do-
airlines.aspx

Looking Ahead:
The distribution landscape has undergone major changes over the last few
years and will become even more dynamic and complex in the years ahead.
Online travel agents like Expedia and Trip.com will remain as e-commerce
giants in the industry, with their deep pockets, millions of loyal customers,
substantial customer data metrics, increasingly advanced technological and,
most importantly, an unmatched ability to distribute a real-time, broad array of
competing product choices to their customers.
Meanwhile, metasearch sites like Kayak and Momondo will continue to have a
huge influence over customer choice through their steering power to preferred
travel suppliers. Google has also started to show keen interest in the travel
business and might someday emerge as the most powerful travel booking site
of all by providing metasearch, travel wholesaling, packaging and retailing
services to sub-agents, corporate buyers and travel consumers all through a
single Google travel portal.
As Bangkok-based aviation consultant B. Loi said: “The airline distribution
landscape of tomorrow will be very different from what it is today.
Intermediaries like OTAs and referral sites like Kayak will remain as powerful
players in the airline distribution landscape despite the best efforts by the
airlines to create their private distribution ecosystems. And the role of Google?
The airlines are still not quite sure if it will emerge as a friend or foe of airlines in
the years ahead.”

1. The current trend is for airlines to shift bookings to online travel agents
because they are more efficient. TRUE or FALSE?
(a) True
(b) False
2. Which of the following channels is the least expensive for airlines:

(a) Airline calling centers
(b) Airline ticket offices
(c) Airline mobile apps
(d) Online travel agents
3. Airlines fear the development of the NDC because it will most likely
increase their distribution cost. TRUE or FALSE?
(a) True
(b) False
4. Blockchain offers the airlines which of the following opportunities

(a) Improving the customer experience
(b) Simplifying revenue accounting
(c) Reducing dependency on intermediaries
(d) All of the above
5. One of the driving motivators for airlines in developing direct distribution

channels is ____.
(a) Reducing costs associated with distribution
(b) Limiting the amount of competition
(c) Increasing market penetration
(d) Reducing fraud
9.2.5 Unit Summary

In this unit you have read about the role that airline direct distribution channels
play and how the shift in bookings from retail agent channels to airline
e-channels has resulted in tremendous cost savings for the airlines. In this unit
you have also learned about the various factors that affect airlines' choice of
distribution channels and about some of the technologies like blockchain and
NDC that are enabling airlines to more effectively sell directly to consumers.
The unit closed on a note of cautious optimism: while new travel technologies
will continue to offer cost-savings opportunities to airlines, these same
technologies will provide OTAs with increasing–and expensive–leverage over
their airline partners.

9.3 Choosing a Distribution Strategy
Unit Overview
In the previous units, we emphasized that airlines use a mix of distribution
channels to reflect the diversity of their product and their market. The software
platforms that airlines use to display their products and allow these travel
intermediaries to make bookings offer a number of possibilities, but there are
cost implications that you must take into account as you develop your mix.
Your understanding of how various aspects interact and affect each other will
help you make informed decisions.
9.3.1 The Distribution Strategy: Factors to

Consider
There are a number of factors to consider:
• What distribution channels do customers like to use when purchasing
travel?
• What advantages do customers see in these channels?
• What is the steering power of the different intermediaries?
• What are the costs of each of these channels?
• To what extent do the channels allow for engagement and interaction?
In deciding which channels to use, there are four key considerations:
Customer Needs: Base your choice of channel on what each target market
segment needs and wants. Take into account what the competition is doing.
Added Value: What is the added value of each channel? In other words, does
it make selling easier for you? Does it make buying easier and convenient for
your customers?
Cost Efficiency: How much does the channel cost on a per-transaction basis?
Is there a less expensive option?
Revenue: How does the revenue generated through this channel compare to
others?
The key unit here is that airlines must carefully consider each channel option
before developing the right mix. Make sure you carefully do your market
research of distribution options.
In addition to the above, you need to ensure that your airline's CRS and, if
applicable, Customer Relationship Management (CRM) systems, have the
right functionality to support your marketing strategies. For example, you need
to be able to both track and service your Frequent Flyers effectively. Can your
systems support this? Is the GDS/CRS you are using in each market cost
effective and developed to meet your future needs and requirements? What is
your mix of travel agents? How much comes from different types of travel
agents?
The principle of matching your distribution channels to the needs and wants of
different customer segments can be applied equally to airlines and other
industries. This is termed channel management. It is an important way of
looking at distribution when you want to minimize costs but maximize revenue.
Figure 9.3.1 below summarizes the complex mix of direct and indirect channels
available to airlines to distribute their products.

Figure 9.3.1—Full Airline Channel Mix
Key Learning Point

Deciding on the correct channel mix is an important strategic decision for
airlines. If these channels are selected and managed effectively, the airline will
profit from both sides of the equation: optimized revenue at the lowest cost.
1. If direct channels are the most cost efficient, then all airlines should just
shift their bookings to these channels. TRUE or FALSE?
(a) True
(b) False
2. The reason an airline should avoid promoting the same travel packages
through all distribution channels with equal emphasis is that ____.
(a) it does not add value to the customer
(b) not all channels are appropriate for every product
(c) it does not allow for a greater market penetration
(d) the cost associated with such promotion is too high
Unit 9.3: Choosing a Distribution Strategy 335

3. An effective distribution strategy should take many factors into account

such as market coverage, demands of the target audience and cost. TRUE
or FALSE?
(a) True
(b) False
9.3.2 Unit Summary

In this unit, we discussed the development of the airline distribution strategy
and the four key considerations that go into devising such a strategy that
basically come down to cost and revenue flows. We saw that there are indeed
some benefits to developing direct channels, but it ultimately comes down to
meeting the needs of the target audience. This unit has provided the basic
knowledge you need to make more informed decisions about the direct airline
channel mix.

Module Summary
Distribution is a process by which the marketer makes the airline products
available where and when the customer demands them. It has experienced a
significant transformation in the last decade, most of which has been possible
as a result of developments in Internet technologies and the wide adoption of
e-commerce as a distribution channel in other industries. Airlines can offer a
larger variety of products to a wider market without the services of any
intermediaries.
Even traditional distribution channels are evolving and are used by airlines in
ways that maximize their potential and minimize cost. About 50% of flights are
still sold globally by retail and online travel agents using GDSs. Although this is
a more costly distribution channel, it allows airlines to reach segments of the
market that could not be reached through their web sites as yet.
One of the main goals of this module was to help you understand both the
limitations and opportunities of various distribution channels. We have
emphasized that most airlines use a mix of distribution channels. Your product
and the target market segment should be the key factors to consider when you
develop a distribution strategy. Finally, we also discussed the dynamic nature
of airline distribution and some of the trends that are having an impact on this
environment. In doing so, we have tried to develop a sense of what the future
of airline distribution will look like, and the roles that intermediaries and
metasearch platforms like Google and Expedia will play on this landscape.
With a better understanding of these trends, opportunities and players, airlines
can prepare themselves to always distribute services to the right customer, at
the right place, and at the right time.
Module Summary 337


Phocuswright (2017). Where Travel Agents Still Rule
Axess Asia (2017). Distribution Analysis
IATA. (2019). New Distribution Capability Study
Phocuswire. (2018). Viewpoint on GDS Surcharges 2018
IATA. (2018). Ancillary Revenues to Reach $92 Billion in 2018
Google Flights. (2019). google.com
EyeforTravel. (2019). Chinese Travel Consumer Report
Startupgrind. (2019). Travel Technology and The Future.
AMADEUS (2019). What is a Global Distribution System?
Thomas, J. & McKone, D. (n. d.). Creating ancillary revenue opportunities:
Rethinking the airline selling proposition. Retrieved from
http://www.lek.com/sites/default/files/Volume_IX_Issue_3.pdf
Boston Consulting Group. (2019). What Could Blockchain Do for Airlines.
Retrieved from link: https://www.bcg.com/en-us/publications/2019/what-could-
blockchain-do-airlines.aspx
Reuters. (2019). Hahn Air issues blockchain-based tickets

Answer Key
1. b
2. b
3. a
4. d
5. a

1. b
2. c
3. b
4. d
5. a

1. b
2. b
3. a
Answer Key 339


Module 10:
Airline Alliances
• Identify the conditions that shaped the current form of collaboration

between airlines in an alliance
• Describe the risks and benefits of joining an airline alliance
• Explain the benefits and drawbacks of the airline alliance for the customer
Module Learning
Objectives
Module Introduction
Airline alliances are a very unique set of relationships among different carriers.
In fact, there are not many industries in the world where collaboration between
potential competitors has had such a significant positive effect. What is more
amazing is that this collaboration is beneficial for all parties: the airlines,
airports and, most importantly, the customer. In this module we will analyze in
some detail the conditions that led to the development of airline alliances.
Moreover, we will look at this phenomenon in the context of various other
existing forms of partnerships between airlines. You will have a chance to learn
about the three main airline alliances in the world today and their impact on the
airline industry.
As with many other business relationships, airline alliances offer not only great
opportunities, but a fair share of challenges. We will analyze both the benefits
and the risks involved for airlines joining an alliance. In addition, we will take a
look at how this form of partnership affects the customer. What are the benefits
and the drawbacks for the customer? By mastering this module, you will be
able to assess the benefits and risks involved in your airline's partnership in an
alliance.

344 Module 10: Airline Alliances

10.1 Alliances–An Overview
• Describe how membership in an alliance affects the airline's opportunities

• Understand the objectives and benefits of airline alliances
• Distinguish between various forms of airline partnerships
• Identify the main airline alliances and their impact on the industry
Unit Learning
Objectives
you will be able to: The relationship between an organization and its environment plays an
important role in that organization's development. However, the history of the
airline industry is unique in this respect because for decades airlines were
perceived as having strategic significance by national governments. This has
significantly affected the level of partnership between airlines based in different
countries. Airline alliances offer a special form of partnership that allows
airlines based in different countries to cooperate and, in the process, offer a
better travel experience to the customer. In this unit we will define the nature of
partnership that is created by an airline alliance. To see the benefits of this
partnership more clearly, we will look at a range of partnerships that have been
developed in the airline industry.
10.1.1 Defining Airline Alliances

Today, the world's airline industry has three major airline alliances that together
account for more than 70% of the world's scheduled airline traffic. Customers
increasingly demand a seamless travel experience which is almost impossible
for one airline to supply effectively.
Unlike many other global industries, cross border, transnational mergers of
airline companies that could deliver broad coverage are hindered by laws in
many jurisdictions. In place of a full merger, therefore, many airline alliances
have been formed. Lately, there has also been a trend towards bilateral or
trilateral joint venture business agreements as a way of improving revenues
and cutting airline operating costs.
Key Learning Point

An airline alliance attempts to achieve ‘synergy’ between its members through
its combined strength so that the whole is greater than the sum of its parts.
A strategic alliance can be defined as long term partnership of two or more
firms that attempt to enhance their competitiveness by sharing scarce
resources including brand assets and market access capability. Enhanced
service quality and improved profitability are the result.
The range and type of cross-industry partnership stretches from a basic
interline agreement facilitated by IATA, whereby passengers can arrange a
journey on two or more airlines to alliance relationships and joint ventures. In
some cases, mergers and acquisitions by airlines on a regional basis can occur
to promote growth and improve network coverage.
Figure 10.1.1 below illustrates the development of alliances over the last three
decades. Initially, there were simple interline agreements between airlines. As
airlines grew, many wanted to expand the number of international destinations
they served. Coupled with the growth of hub and spoke type networks in
domestic markets and regional markets, this required more feed traffic into the
Unit 10.1: Alliances–An Overview 345

hubs. This led to the development of code sharing between airlines. The
practice is largely an enhanced marketing agreement by which an airline can
sell seats using its own flight code on another airline's flight. This will explain
why some flights have multiple flight codes.
Did You Know?

The first global airline alliance was formed in 1993 between Northwest and
KLM.
Due to limitations imposed by regulatory authorities, early codeshares were
‘competitive’ codeshares. This meant that the partner airlines could not discuss
or mutually set price levels, frequencies of aircraft, or seat capacity on the
routes involved. If carriers did this without being granted legal authority, they
would be considered to be engaging in anti-competitive behaviour and
breaking competition law. In other words, they would be accused of collusion
and price fixing, against the interests of consumers.
Legal Anti-Trust Immunity (ATI) granted to carriers means they can now
discuss issues openly and coordinate their market activity in setting pricing,
scheduling and seat capacity. The granting of ATI was often linked to situations
where countries agreed to bilateral aviation agreements between countries,
termed ‘Open Skies’ agreements. These agreements opened up markets to
competition and allowed more airlines to enter markets, increase schedules
and destinations served. The increasing liberalization of air service bilateral
agreements, the globalization of trade and economic growth all contributed to
the growth of airline alliances.
Figure 10.1.1—Pattern of Strategic Airline Cooperation (IATA 2012)
10.1.2 Historical Development of Airline Alliances

The original ‘model’ for the development of an alliance was between KLM
(Royal Dutch Airlines) and Northwest Airlines in the early 1990s. The alliance
was granted full ATI by the regulatory authorities and was signed following an
Open Skies Agreement between the Netherlands and the USA.
Other alliances then developed with major US and European carriers. Currently
there are three major alliances–Star Alliance founded by Lufthansa and United
Airlines, Oneworld (founded by British Airways and American Airlines) and

SkyTeam (founded by Delta and Air France/KLM). By 2018 these three

alliances provided over 80% of the capacity across the Atlantic and Pacific and
just under 80% between Europe and Asia. Traditional interline trips on carriers
not aligned with one of the three major alliances have become much less
important. Based on available seat kilometers (ASKs), Star Alliance has the
largest share, with 21.7 percent of the global market, followed by SkyTeam and
Oneworld. However, non-aligned airlines as a whole still have a higher share of
46.6 percent. Please see Figure 10.1.2.
Figure 10.1.2—Global Alliances Market Shares (Statista 2018)
In summary, alliances are an established feature of the airline business,

accounting for the majority of the worldwide passenger airline business.
Restrictions on ownership, imposed by national governments, have made
alliances a necessity for airline companies as an option to purchasing
companies outright. However, alliances can be susceptible to clashes of
corporate cultures and strategies, resulting in their break-up. One of the key
tasks of any alliance is to ensure that benefits are balanced among partners
and there is stability.
To get a better understanding of the nature of airline alliances we will first look
at them from the perspective of the airlines.
1. Why do many airlines opt for airline alliances rather than full mergers?
(a) Full mergers are prohibited by law in many jurisdictions
(b) All of the benefits of an alliance can be achieved without a full merger
(c) Full mergers are expensive to implement and result in numerous job
losses
(d) Alliances offer greater benefits than full mergers
2. Select the term that matches this definition: “A long-term partnership of two
or more firms that share scarce resources, such as brand assets and
market access capability, to enhance service quality and improve
profitability”.
(a) Airline alliance
(b) Financial alliance
(c) Strategic alliance
(d) International alliance
Unit 10.1: Alliances–An Overview 347

3. A flight from New York to London has the flight codes BA1507 and IB4240.
What does this indicate?
(a) This flight is a joint venture between British Airways and Iberia
(b) This flight is a codeshare between British Airways and Iberia
(c) This flight is a strategic alliance between British Airways and Iberia
(d) There are two flights leaving New York at the same time
4. Early ‘competitive’ code sharing allowed partner airlines to discuss and

mutually agree on.
(a) price levels
(b) seat capacity
(c) frequency of aircraft
(d) shared responsibility
5. Which of the following is NOT a benefit resulting from joining an airline

alliance?
(a) Revenue generation
(b) Cost savings
(c) Interline agreement
(d) Market access capability
10.1.3 Unit Summary

In this unit we offered a brief overview of the development of various forms of
partnership between airlines. You have learned about the dynamics of this
process as well as the main factors that impact it. Judging by their share of the
market, airline alliances are a phenomenon that cannot be ignored by anyone
hoping to be successful in this industry. Therefore, a good understanding of the
nature of partnership in an airline alliance will help you successfully navigate
this form of cooperation.

10.2 Objectives and Benefits of Alliances
• Describe the main reasons airlines join an alliance

• Explain the impacts of alliance membership on airlines
• List the benefits to customers of the alliances
Unit Learning
By completing this Unit, Airline alliances can be a competitive advantage for any airline. The number of
you will be able to: airlines that have entered into alliances is testament to their benefit. However,
membership in an alliance can also have its disadvantages. In this unit we will
take a detailed look at the advantages and disadvantages of joining an alliance.
In addition, we will look at how an airline's membership in an alliance affects
customer service. Your understanding of these issues will not only help you
appreciate the privileges and responsibilities of partnership but how to leverage
it for maximum impact and growth.
10.2.1 Objectives of Airline Alliances

A lot of research has been conducted into airline alliances to understand the
main reasons why airlines wish to join alliance partnerships. In essence there
are three main areas of benefit:
1. Revenue generation through increased market reach and traffic feed
2. Cost reduction/rationalization through elimination of redundancies
3. Competitive advantage through better scheduling
Below are some results of research conducted by researchers of the Air
Transport Group at Cranfield University in the UK (Iatrou and Alamdari, 2005).
They provide a summary of responses from 28 airline alliance departments
regarding alliance activity.
The diagram below illustrates the objectives of alliance membership from an
airline's perspective. Increased coverage refers to the increased
network/destinations reached by being part of an alliance and being able to
potentially codeshare many new destinations.
Unit 10.2: Objectives and Benefits of Alliances 349

Figure 10.2.1—Airline Objectives in Joining an Alliance
Key Learning Point

The primary reason that airlines seek to join an alliance is to achieve increased
network coverage.
As you see from the figure above the primary reason for joining an alliance is
increased coverage. This is not surprising as airlines seek to grow their
revenues by ensuring access to new markets. Being a member of an alliance
can provide an alternative to actually flying the route yourself by using code
sharing. This reduces the commercial risk of starting your own flights and
potentially operating at a loss. Being a member of an alliance also enables an
airline to be more competitive, offering reciprocal Frequent Flyer programs and
access to airport lounges at a wider variety of destinations.
When we consider the major impacts on airlines of alliance membership, a
number of factors emerge from the research. The importance of cost reduction
and revenue generation is clearly shown in the diagrams below, linked to load
factor increase. Operating as part of an alliance does not necessarily mean
increased prices. Competition authorities tend to be more vigilant of airlines
potentially exploiting their position in an alliance. Consumer protection from any
form of anti-competitive behaviour will be a priority.

TAP Portugal
Star Alliance member TAP Portugal has developed a video that promotes the
benefits of Gold Status to its customer base. Video Link
https://www.youtube.com/watch?v=VyGuzerXrG4

10.2.2 Benefits of Airline Alliances

What are the positive effects of alliances? There are some key factors: (1) For
consumers, improved frequency and times of flights, and, for airlines, (2) better
utilization of aircraft with the elimination of flight time overlap, and (3) more
efficient use of aircraft. The impact of a ‘global network’ providing customers
with “fly anywhere” service is also important, as is a truly global FFP program
that allows customers to earn and use miles on a number of carriers within the
alliance.
When members of some alliances are asked about the impact of their
partnerships on traffic growth, most refer to ‘hub to hub’ traffic as the most
significant impact. Hub to hub reflects the needs of passengers who wish to fly
from ‘anywhere to anywhere’. To accommodate the demand profitably, airlines
use a hub and spoke network approach. While the approach will continue to
remain important, the impact of B787 and A350 type of aircraft on the
possibility for ‘thinner’ routes to be operated profitably without having to route
via a hub and spoke network will potentially increase the contribution on non-
hub to non-hub routes.
We can summarize the three main benefits of alliances as follows:
Improved Revenue Generation

• Entry into new markets at relatively low cost
• Codeshare flights resulting in an expanded network
• Improvement in visibility on GDSs
• Increased density of flights on particular routes.
• Hub-flow coordination results in better network coverage during a day can
be achieved
• Increased market share
Cost Rationalization
• Reduction in airport and sales staff overseas through joint operations
• Greater purchasing power for services such as airport ground handling,
catering, etc.
• Joint lounges at airports
• Joint promotions, advertising, etc.
• Maintenance and engineering support
• Knowledge and expertise sharing
• Airport facilities and equipment sharing
• Competitive Advantage

Improved Product Development and Market Access

• Geographical reach in terms of destinations and frequencies
• Access to slots at prime congested hubs, e.g. London Heathrow
• Frequent Flyer Program integration
• Consistent levels of IT applications across all member airlines
Alliances are driven by competitive advantage to integrate business activities
and areas. This often covers many marketing areas of the marketing
mix–product, price, place & promotion.
Did You Know?

The Star Alliance is the largest in the world with 28 members and a 22%
market share. Together, these airlines carried 762 million passengers in 2018.
10.2.3 Phases in Airline Alliance Development

Airline alliance cooperation and integration can be broken into three phases as
shown in Figure 10.2.3. The immediate benefits–in Phase 1-- are usually in
terms of revenue generation. This includes implementation of codeshares,
coordinated FFP programs, network coordination and a common alliance
brand.
In Phase 2, the alliance partners seek cost reductions from common airport
handling, joint sales teams, fleet harmonization, and a common IT platform (for
example, Star Alliance insists all members use Amadeus as their base IT
system).
In Phase 3 alliance partners work towards creating a joint venture company
such as KLM-Air France, but in many countries anti-trust laws might block such
coordination. Each phase is also characterized by the alliance branding and
the ease or difficulty associated with both entering and exiting an alliance.
In the late 1980s, Singapore Airlines, Swiss Air and Delta formed what was
called the Global Excellence Alliance but it only lasted eight years due to what
the airline partners felt was a lack of sufficient benefits. Furthermore, the three
very different national cultures of the airlines contributed to a loss of common
unity among the airlines.
Key Learning Point

Not all airline alliances are the same. They can vary greatly in key areas in
product integration, network coverage and investment

Figure 10.2.3—Phases in Airline Alliance Development (Doganis, 2001)
10.2.4 Alliances–Pros and Cons

Alliances are not all about benefits. There are drawbacks, and many alliances
in many industries, including aviation, do fail.
Table 10.2.4—Summary of the Benefits and Drawbacks of Alliances

Did You Know?

The SkyTeam alliance was founded in June 2000 and was the last of the three
major airline alliances to be formed. The alliance members' passenger count
was 630 million 2019, the second largest of the three major alliances, with a
16% market share.
To ensure that an alliance is successful, and that the drawbacks don't outweigh
the benefits, a number of factors must be followed by all airline management
teams involved:
Important Factors for Airline Alliance Success:

• There needs to be a common vision of where the alliance group is going.
This can cover such areas of the business as network growth, product
delivery, branding, sales policy, e-commerce, etc. The different partners in
the alliance should deliver a balance of benefits for all partners
• There needs to be commitment from the senior leadership team at each
airline to alliance success
• Communication at all levels of the airline and between alliance partners
must be transparent and comprehensive.
• Benefits of alliance membership must be quantifiable and clearly
understood. This can relate to cost reductions as well as revenue benefits
• There must be flexibility to respond to changes in the business
environment that pose a risk or represent an opportunity.
In summary, there are a number of benefits from an airline's point of view to
alliance membership, including revenue generation, cost reduction and
competitive advantage. Delivering those benefits is not necessarily
straightforward and requires rigorous focus by airline management.
Key Learning Point

A common strategic vision among alliance partners is a key starting point.
Without this, the alliance will have a weak foundation for growth and expansion
10.2.5 Alliance Threats to Stand-Alone Airlines

As we have seen, there are a number of benefits that airlines can derive from
joining an alliance. On the other side, an airline that chooses to compete with
alliances on a standalone basis will face some significant threats as outlined in
Figure 10.2.5 below.

Figure 10.2.5—Alliance Threats to Stand-Alone Airlines (SH&E 2009)
10.2.6 Do Alliances Benefit Customers?

Studies demonstrate that the customers who tend to benefit most are those
that need the ‘network power’ of an alliance to get from ‘anywhere to
anywhere’. Alliances have also tended to lead to special fares, ‘seamless
transfers’ at connecting airports and other features usually, but not always, in
the business travel segment.
Frequent flyers stand to benefit most from alliances, particularly as they gain
more opportunities to earn and use their mileage points. The main overall
benefits for a customer are:
• Greater frequency and choice of flight times on prime routes between main
cities
• Frequent flyer benefits–lounge access, mileage awards
• A greater variety of fare products for Business and Economy passengers
• Common service standards. There are still differences between member
airlines but passengers can expect a certain minimum standard across
alliance members
• Better connecting flight service–for baggage transfer, timings between
flights, etc.
• Common terminal usage, particularly for connecting flights. Most alliances
now tend to occupy one terminal at major airports in the world
Key Learning Point

Among the segments of passengers, the business traveler benefit most from
alliances due to FFP integration and access to broader flight networks

10.2.7 Joining an Alliance: What to Consider

When considering whether or not to join an alliance an airline will look at a
number of areas. These are summarized in the diagram below. Of primary
importance is whether membership will improve market access and therefore
revenue and value to the airline. Potential cost reductions are also a major
consideration. Other noteworthy considerations include whether management
teams are compatible and whether the airline has the capabilities to adapt to an
ever-changing and highly competitive business environment.
Figure 10.2.7—Factors Considered by Airlines when Joining an Alliance
Key Learning Point

The strength of different airlines in an alliance carries a risk that some airlines
might lose total ‘control’ and sovereignty.
It's also important to recognize the unique and individual strengths of each
airline in the alliance. The risks of losing total ‘control’ and sovereignty over
your airline's future growth must be balanced against the potential benefits.
Likewise, alliance members may play different roles in the alliance, depending
if they are large global carriers or regional ones. When considering your
marketing strategy, it is important to think about how your airline will ‘fit’ into an
alliance. What contributions would it bring? How will it benefit? The following is
a diagram that provides a view of the industry as a whole. You can determine
from this that within alliances there are different ‘levels’ of airline members.
Additionally, we see the growth of Low Cost Carriers, as well as the continued
existence of charter airline carriers.
Until 2012 the three major Middle Eastern carriers–Emirates, Etihad and Qatar
Airlines - were not closely linked or members of the three major alliances.
However, with their increasing size and importance in their respective hubs,
particularly from Australia and Asia, this is changing. While Qatar has recently
joined OneWorld, Emirates and Etihad have not yet joined the full alliance
ranks and instead partner with some airlines on FFP points and code shares.

As we reported earlier in this module, alliance memberships are constantly

being reviewed and subject to realignment and change.
1. Which customers benefit the most from alliances?

(a) Families
(b) Frequent flyers
(c) Leisure travellers
(d) Regional travellers
2. Sharing of aircraft and crews usually occurs during which stage of the
strategic alliance development?
(a) First
(b) Second
(c) Third
(d) Fourth
3. A small regional airline is considering joining an alliance with a larger

carrier. What factor is particularly important for the regional airline
management to consider?
(a) Will this alliance increase our reach?
(b) Will our customers react positively?
(c) Will our regular operations be interrupted?
(d) Will we be able to maintain sovereignty over our operations?
4. A large airline with a reputation for a relaxed approach and a large

international carrier are considering creating an alliance. What factor is
particularly important for both airline managers to consider?
(a) Will this alliance increase our reach?
(b) Will we be able to maintain sovereignty over our operations?
(c) Will our customers react positively?
(d) Will our management teams be compatible, and can we adapt?
5. What types of airlines usually make up an alliance?

(a) Large carriers of equal size and reach
(b) A mixture of large and small carriers
(c) Small carriers
(d) Low Cost Carriers

10.2.8 Unit Summary

In this unit we looked at the main reasons airlines join an alliance. As you read,
the benefits of joining an alliance are significant for both the airline and its
passengers. However, along with the benefits come disadvantages and risks. It
is important to keep a balanced view and adequately assess the strengths of
your airline before joining an alliance. The alliance form of partnership has
proved itself viable although it is subject to change. There are increasing joint
ventures on a specific cluster of routes, and airlines are entering into tactical
relationships with other airlines outside of their own alliances. However, the
advantages and disadvantages of your airline joining a specific alliance can be
different. An alliance is only as strong as its weakest member. This unit
described the dynamics of the partnership process within an airline alliance.

Module Summary
There is a clear business argument for the development of airline alliances.
They can help the airlines involved increase revenue, reduce costs and deliver
competitive advantage. Regulatory changes have enabled airlines to forge
closer links but not enter into full trans-border mergers.
The future success of alliances depends on a number of factors, the most
important of which is whether benefits can be truly balanced among members.
This means alliances can be unstable, and attention must be paid to
successfully managing the relationships between members.
There are clear benefits of alliances for the customer. Regulatory authorities
remain vigilant against monopoly pricing by the airlines that would increase
costs to the customer.
The business case for joining an alliance requires a careful and thorough
review of fundamental questions: can an airline grow on its own? What is the
current regulatory environment? What strategies are being used by
competitors? Answering these questions will help determine your future
strategy.
Module Summary 359


Doganis, R. (2001). The Airline Business in the 21st Century. London:
Routledge.
IATA. (2005). Corporate and Business Travel Survey
Iatrou, K & Alamdari, F. (2005). Empirical analysis of the impact of alliances on
airport operations. Journal of Air Transport Management, 11(3), 127-134.
SH&E. (2010). The Benefits and Challenges of Airline Alliances
Statista. (2019). Airline Alliances
TAP Portugal. (2019). The Benefits of Star Alliance Gold

Answer Key
1. a
2. c
3. b
4. d first global
5. c

1. b
2. c
3. d
4. d
5. b
Answer Key 361


Module 11:
Airline Marketing Management in Practice
• Identify the elements of a marketing plan

• Describe the process for developing a marketing plan
• Describe the processes for monitoring the implementation of the
marketing plan
Module Learning • Explain the approach for creating a marketing outlook in the company
Objectives
Module Introduction
In previous modules we explored various processes and methodologies to
build a good airline marketing plan. In this module we will look at the elements
that comprise the marketing plan document. This document specifies key
activities for each market segment and helps the company stay focused.
However, the constantly changing marketing environment requires regular
reviews of the marketing plan and we will share with you two important
activities that will assist you in the monitoring. The activities allow the company
to correct its course of action and update the plan. The activities also provide
opportunities to involve other departments in the company in the marketing
plan. In the last part of this module we will describe a more comprehensive
approach for changing the company's outlook from a sales orientation to a
marketing focus.

366 Module 11: Airline Marketing Management in Practice

11.1 The Role and Development of the Marketing

Plan
• Explain the purpose of the marketing plan

• List the main deliverables of a marketing plan
• List the elements of a marketing plan
• Describe the format of a marketing plan
Unit Learning
Objectives
you will be able to: All the activities that we have discussed so far in this course are reflected in the
marketing plan. Some activities provide data, others guide decisions. The
marketing plan includes the sequence of actions needed to achieve the
marketing objectives. In this unit we will look at the main elements that
comprise the marketing plan and how they are incorporated into a single
document. First, we need to clarify the significance of the marketing plan in a
constantly changing marketing environment.
Key Learning Point

A successful marketing plan process takes into account the situation and
capabilities of the organization and reflects a detailed understanding of the
environment in which it operates.
11.1.1 Significance of the Marketing Plan for an

Airline
Effective marketing is a constant challenge, primarily because the marketing
environment is in a state of constant change. A successful marketing plan
process will be one where the organization takes into account the situation and
capabilities of the organization and reflects a detailed understanding of the
environment in which it operates. The potential impacts of change can require
short-term and long-term adjustments in marketing plan actions. There are
many factors that may require adjustments. For example:
• Revenue results can be above or below expectations, both of which will
have an impact on an airline's future approach to marketing. The key will
be to understand the reasons for the change. Are they due to short term
impacts, such as weather disruptions or are they the result of a
fundamental disconnect in product or service offerings? Unforeseen
changes can occur in the external environment, from sudden increases in
fuel prices to volcanic eruptions closing airspace. Does the airline have
contingencies in place to deal with such events? Are there pricing and
customer policies ready to go with regard to re-bookings, cancellations,
accommodation and so forth? If passenger numbers exceed expectations,
is there capacity to respond with extra seats, changes of aircraft type or
new schedules, for example.
• New competitive threats may develop. This could be the emergence of new
airlines or a change in strategy of existing airlines. The entry of a Low Cost
Carrier into a market will provoke a rethink of the incumbent carrier's
overall strategy. Does it respond and match pricing, or not? Does it change
its product? Does it look carefully at its cost structure? Does it decide to
change the way it sells its product, either via more direct sales or through
the introduction of a different mix of distribution channels?
Unit 11.1: The Role and Development of the Marketing Plan 367
• Regulatory controls could be relaxed or tightened up. This could be the

result of new environmental legislation or the introduction of new
government taxes on airline ticket sales. An airline will need to exploit
opportunities or defend against threats, otherwise other airlines will move
into space created for new activity and take market share away.
• New market segments may develop on certain routes. For example, the
discovery of oil and gas deposits in a particular country will generate new
market segments of travelers to that country. How will an airline respond?
With new routes, aircraft types, collaborative code shares, product, pricing,
etc.
• The impact of technical problems such as the delay in delivery of new
aircraft due to production problems or the discovery of mechanical issues
with existing aircraft. Delays or disruptions in aircraft capacity will require
either a delay in expansion plans, the short-term leasing of aircraft to
address the shortfall in capacity, the seeking of compensation from
manufacturers or the re-planning of the airline's network to cover shortfalls.
• A market could grow at a faster rate than the airline can grow its
frequencies due to lack of aircraft and/or staff. This could affect the airline's
market share and allow competitors to enter the market unless steps are
taken to improve the product offering. These may include the short-term
leasing of aircraft or transferring staff from routes with excess capacity.
Key Learning Point

The marketing plan helps a company retain or regain focus.
There is always a danger that short-term events can overwhelm a company's
ability to respond or force a company to make a short-term decision that might
not fit with the needed strategic direction. The marketing plan helps a company
retain or regain focus, delivering the following benefits:
Benefits of the Airline Marketing Plan

• It offers a structure and process to assess the environment it is operating
in. In Modules 2 and 3, we looked at how a comprehensive review of the
marketing environment is required to provide the basis for development of
options going forward. Without a thorough understanding of the external
and internal environments in which the company operates, it is very difficult
to develop meaningful plans that are likely to produce positive results.
• It enables the systematic development of different options as well as the
establishment of goals and objectives.
• It enables the establishment of marketing tactics and the optimum
marketing mix for different markets and segments travelers.
• It provides a structure for the review and analysis of company
performance, which enables clear and accountable actions to be
developed.
• It provides the ability to take corrective actions to enable delivery of
company targets.

In summary, a well thought out marketing planning process will deliver the
following key benefits for a company:
• A disciplined market review
• A clear direction to its efforts
• The ability to set budgets
• The ability to allocate resources
• The ability to coordinate efforts
• The ability to assign responsibility
• A basis for monitoring performance
Key Learning Point

The development of the marketing plan needs to be an inclusive effort so that it
can provide direction and focus to anyone involved in its implementation.
11.1.2 The Elements of a Marketing Plan

The marketing plan should be developed with input from not only headquarters
but also from the field sales offices and from other departments in the airline.
When it is an inclusive effort, a marketing plan can be used as a tool to provide
direction to anyone involved in its implementation, not just the marketing
department.
The diagram below outlines the elements of the marketing process that we
have discussed in previous modules. Modules 1 to 4 spelled out a series of
activities for environmental scanning, marketing audits and research, and the
initial segmentation of markets. In Module 5 we learned how the marketing plan
can be structured to identify all the market segments an airline is targeting, and
how to rank the segments in order of importance. Furthermore, we learned how
objectives could be developed for a number of target market segments, which
in turn need to be measured based on the management of information and
statistics available to the airline. Finally, we discussed different strategic
directions an airline can take for various market segments.
Steps for Developing the Airline Marketing Plan
Figure 11.1.2—The Marketing Plan Process
In Modules 6–9 we described how these different marketing strategies can be

implemented using all areas of the marketing mix (price, promotion, product,
place), as well as the potential to use alliance partners to deliver the marketing
strategies chosen discussed in Module 10.
Key Learning Point

The marketing plan highlights deadlines, staff accountabilities, specific actions
and functional focus
11.1.3 Format of the Marketing Plan

The marketing plan is produced annually and usually takes a three-year view of
the business. For a financial year running April 1 to March 31 the process will
usually commence with the period between March and May when the business
traditionally sets strategic direction for passenger segments, etc. Next, a
marketing audit and initial segmentation of the market are completed.
Between May and September, a marketing plan is developed that will contain
the following sections:
1. A statement of the mission of the airline
2. A summary of airline performance for the last three years
3. A summary of the projected performance for the next three years starting
from April 1st of the following year
4. A full market overview, including a SWOT analysis, a summary of the
products offered by the airline, and any major assumptions regarding
market growth/decline, rates of exchange, new technologies and their
impacts. This data provides a guideline of what is possible and also acts as
a means of ensuring any risks and opportunities are identified.
The components of the marketing plan will provide context for the more
detailed marketing objectives and strategies to follow. The contents are
summaries of the information obtained through the processes outlined in
Modules 1–4 and lead to the marketing plan objectives and strategies.
For the purposes of this course the template below provides a simple format for
a marketing plan for each segment. It attempts to pull together in a concise way
the elements required for an actionable marketing plan document.
It uses our analysis of different target market segments and shows their
ranking in order of importance to the airline. In addition, it highlights the key
objectives for each target market segment as well as the recommended overall
marketing strategy.
In the sample format below, each milestone throughout year 1 implementation
is called a ‘step’. Specific actions and accountabilities can be described, with
target dates. It also provides space to include a summary for years 2 and 3,
that can be refined as part of the next cycle of marketing plan development.

Table 11.1.3—Template for a Marketing Plan
The format also highlights actions as well as dependencies–things that must

precede the actions. For example, this could be the need for a new Customer
Relationship Management software tool to be introduced before the launching
of a marketing campaign. Likewise, review dates can be factored in to
correspond with key milestones of the implementation.
Longer term action is indicated in the summary plans which guide future
direction. The summary plans are designed to give an overview of year 2 and 3
to ensure there is linkage between each year's activity and to maintain
momentum in the marketing activity.
The marketing plan will then be reviewed between September and November
ensuring that the detailed operational plan, forecasts and budgets fit in with the
overall planning of the airline. By December/January all the different
departmental plans of the airline will begin to come together and internal
reviews will take place to finalize allocations of resources, make amendments
to the plan, and perform the final consolidation of one and three-year forecast
plans. The final marketing plan will be signed off early March and start to be
implemented beginning April 1st.
Delivering the marketing plan requires a set of actions which we will cover in
the next unit. Also, we can see how the marketing department plays a key role
in helping to define the overall mission and goals of the airline, shaping its
growth and development. We will explore this area at the end of this module.
1. If you need to review your marketing approach because the revenue

results are different than expected, the key aspect to look at is.
(a) whether revenue is higher than expected
(b) whether revenue is lower than expected
(c) the reasons for the change
(d) competitor activity during this period
2. Changes in the marketing environment impact only the short-term

component of the marketing plan. TRUE or FALSE?
(a) True
(b) False
3. What is the main challenge in developing a marketing plan?

(a) Overwhelming amount of data
(b) Long period of time to complete
(c) Uncertain capabilities of the company
(d) Constantly changing marketing environment
4. Which of the following is NOT a direct deliverable of the marketing planning

process?
(a) Ensuring the manufacturer delivers new aircraft on time
(b) A basis for monitoring performance
(c) Establishing of goals and objectives
(d) Ability to allocate resources
5. What is the main purpose of the summary plans in the marketing plan?
(a) To summarize the revenue objectives for the three-year period
(b) To ensure that there is a linkage between each year's activity
(c) To refine all elements of the marketing strategy
(d) To highlight the overall marketing strategy

11.1.4 Unit Summary

As you have learned in this unit, the marketing plan includes a great deal of
information and its development takes a lot of effort. One important strategy
that we have emphasized is the involvement of all departments in this process
so that each can align their objectives and resources to the plan. We shared
with you a template that summarizes the key aspects of the marketing plan by
market segment. One of the key benefits of a marketing plan is that it focuses
the company's efforts. However, it is important to keep in mind that the market
environment goes through constant change and the company's marketing plan
needs to be reviewed regularly based on these changes.
11.2 Controlling the Marketing Effort
• Describe the process for marketing planning control

• Describe the process for strategic marketing review
• Explain the approach for creating a marketing outlook in the company
Unit Learning
By completing this Unit, As you have learned in the previous unit, the marketing plan needs to be
you will be able to: reviewed on a regular basis due to constant changes in the marketing
environment. In this unit we will discuss two types of reviews that should be
conducted on a monthly and quarterly basis. These reviews will help you
evaluate the company's actual performance against the objectives set in the
marketing plan. Appropriate adjustments will need to be made based on these
reviews.
However, it is important that marketing plans and efforts not be the exclusive
responsibility of the marketing department. Both reviews discussed in this unit
should be used as opportunities to involve the whole company and create a
true marketing outlook. Change management efforts may be required to
reorient the company from a sales and operational emphasis to a more
marketing orientation.
Did You Know?

According to the 2019 Wall Street Journal's list of Best Managed Companies in
the United States, UPS was the top rated airline. Its 22nd place ranking put it in
the top 10% of all companies in the U.S., thanks largely to high scores in
customer satisfaction, innovation, and social responsibility
11.2.1 Executing the Marketing Plan

Having a marketing plan is a first and critical step in meeting the challenges of
the business. The marketing plan helps ensure that marketing objectives and
the resources needed to deliver them are identified. Once the marketing plan is
signed, the next main step is successful execution.
Key Learning Point

The marketing planning control is the term that refers to the ongoing review
and evaluation of the marketing objectives and strategies.
The marketing objectives and strategies provide the basis for ongoing review
and evaluation that we call marketing planning control. Review dates are set at
least 12 months ahead, and at these reviews actual marketing performance
can be evaluated against the objectives for each target segment. Adjustments
to the marketing activity depend on what the review sessions reveal.

Some examples of questions that might be raised at the review meetings would
be:
• Did our direct Internet sales from our website increase as per plan?
• Are we on track to reach our USD1.5 million target for Independent Holiday
Travel?
• Is corporate revenue volume increasing as per plan?
• Are joint alliance sales performing on target?
• Are customer satisfaction survey results improving as per plan?
Regular meetings are important to assess whether the department is on top of
changes occurring in the market and how the airline is performing. Reviews
enable the marketing manager to quickly identify any extra resources that are
needed to ensure delivery, such as promotional funds, extra IT support, price
changes, or more fundamental product changes.
Key Learning Point

Regular reviews enable the marketing manager to quickly identify any extra
resources needed to ensure delivery of marketing objectives.
There are three basic types of marketing control:
1. Marketing objectives control–the measurement of marketing results
against marketing objectives. For example, comparing a corporate sales
target of USD1 million in December with actual performance achieved. Any
shortfalls can be analyzed and discussed.
2. Resource efficiency control–measuring and evaluating the efficiency of the
airlines' service delivery on metrics such as the punctuality of flights,
telephone call centre performance or airline website usage. The latter is
also known as the ‘conversion rate’ -how many people visit your website
compared to how many actually purchase travel (i.e. enquiries converted to
actual sales)
3. Profit and Loss control–measuring and evaluating the profitability of
different product lines-e.g. Business class travel on certain sectors versus
others
Overall, the control process involves four key components, irrespective of the
type of control used:
• Stating the original marketing objective
• Comparing actual performance to objectives
• Analyzing and understanding any significant variances
• Taking corrective action, and modifying the marketing effort where required
Key Learning Point

There may be resistance in the airline to some marketing objectives. Marketers
must ensure they have the majority of an organization's support before
proceeding to execute to plan or objectives may be in jeopardy.
Unit 11.2: Controlling the Marketing Effort 375

One point to note is that the marketing objectives may substantially change the
way the airline is organized or job roles. For example, the growth of Internet
sales may reduce the need for staff in field sales.
This will require marketing departments to exert influence internally for their
plans. Sufficient time must be factored into the process for this step.
The marketing audit that is used at the start of the marketing strategy and
planning process looks in detail at how well the airline is performing vis-a-vis
the customer, competition and internally. Regular updating of the marketing
audit enables an in-depth review of the airlines' goals, objectives, strategies,
organization, tactics and performance. It is an audit deeper in scope and more
strategic than the tactical marketing control processes we have just discussed.
Marketing audits identify what the airline is doing in the market, and asses how
marketing tactics and programs are delivering to plan. The marketing audit can
also recommend any adjustment to current and future marketing activities by
the airline.
11.2.2 The Strategic Marketing Review

The feedback from the regular review meetings will be fed into a strategic
marketing review meeting, which is an important process for the
implementation and ongoing management of the airline's overall marketing
strategy.
Key Learning Point

The purpose of the strategic marketing review is to consider all marketing and
sales results, and any marketing-related service issues.
The purpose of the meeting is to review all marketing and sales results, and
any marketing-related service issues. Marketing objectives set earlier, such as
sales objectives, will form the basis of reviews, usually held quarterly.
The agenda for the meeting can vary but the following areas should be
covered:
1. Performance review and discussion is usually a quarterly review of
different target market segments such as web sales, tour operator sales,
sales by major markets, FFP member travel revenue.
2. A review of customer feedback from market research projects, complaints
and compliments. This is a key area for discussion and not always given
sufficient attention.
3. Discussion about changes in the external business environment such as
competitive changes, pricing developments, general economic data,
consumer and business confidence in the markets served. This aspect of
the strategic review is very important, and airlines need to make sure they
pay enough attention to what is occurring in the marketplace. Threats from
competitors, such as their knowledge of your product development, must
be given serious attention.
4. Changes to the company's internal environment such as staff training,
internal communications
5. A summary review of each period's marketing activities

These planning meetings will require discussion and input from across the
airline, from different departments and divisions. This marketing review can
then be included in a wider business review by the airline. It ensures marketing
plays a key role in the company's activities and fosters a customer-centric
culture.
As indicated above, the strategic review sessions should be conducted on a
quarterly basis at a minimum. Key staff from the sales and marketing
departments should attend, as well as staff from product and service delivery
areas, such as customer service and operations.
Key Learning Point

Strategic marketing review meetings enable the company to ensure that
marketing plays a key role in the company's activities and fosters a customer-
centric culture.
The agenda for the meeting should focus on the airline's performance in
comparison to the processes, tactics and objectives set in the marketing plan.
Shortcomings or positive variances should be highlighted and discussed for
future reference. Any changes to plan in the region of + or -5% are considered
a significant variance. In addition, it is important to track trends in performance
that may start with lower variances but gradually rise or fall with performance.
An agenda should be set before the meeting. Brief bullet points should be
distributed to attendees and copied to other departments where appropriate.
These notes should be ‘action items’ recording who will be responsible for
specific tasks and by when. At each review meeting, the previous meeting's
notes should be reviewed and action items verified for completion.
11.2.3 Creating a Marketing-Oriented Organization

By developing a marketing strategy and plan, marketers can generate a shift in
the focus of the company, with less emphasis on operations and sales. This is
especially relevant if the exercise is a new process conducted within the
company. By way of explanation, we can compare a sales-oriented
organization with a marketing-oriented organization.
Table 11.2.3—Differences between a Sales-Oriented Plan and a Market-Focused Plan

To assist in the process of changing the outlook of the company, and becoming
a more marketing-oriented team, a process of change management needs to
take place. There are a number of actions that can support this change
process:
• Conducting internal research: The current internal environment, attitudes
and beliefs of staff provide a baseline for the company's orientation. It will
highlight strengths and weaknesses and determine employee awareness
of the company's goals and strategies. Delivery of employee training: To
align employees' actions and behaviors with the goals of the airline,
investment must be made in marketing and customer-oriented training.
Many airlines deliver extensive ‘customer first’ courses and seminars that
highlight the importance of customer service and the principles of
marketing. A cross section of staff from all departments in the airline should
attend these events to ensure that the whole organization is oriented in the
same direction.
• A mission statement reflects the company's purpose and values: Staff
should be involved in the development of the mission statement so they
feel involved and take ownership of what the company is trying to do. This
involvement also helps further clarify employee understanding of the
company's vision and direction.
The marketing function will include product and brand development,
promotional activity, as well as pricing policy and sales and reservations
activity, including development of distribution channels for the airlines'
products.
Ongoing training, including annual marketing and customer service workshops,
keeps employees “in the know” and engaged.
11.2.4 Applying Your Learning at Work

Now that you have completed all the modules of this course, you are ready to
begin preparing your own marketing plan. Refer back to key modules, such as
those on market research, segmentation, SWOT and setting goals and
objectives to create the type of marketing plan we discussed in this module.
The diagram below provides a reference for each step in the process and can
be used with your teams.

Figure 11.2.4—The Marketing Process
1. What type of marketing control are you engaged in when you compare
your airline's sales for the first quarter with the targets set in the marketing
plan?
(a) Marketing objectives control
(b) Marketing strategy control
(c) Resource efficiency control
(d) Profit and loss control
2. What type of marketing control are you engaged in when you are
evaluating the financial indicators of the Independent Holiday Travel
segment in sector X and compare it with similar indicators in sectors,
Y and Z?
(a) Marketing objectives control
(b) Marketing strategy control
(c) Resource efficiency control
(d) Profit and loss control
3. Which of the following is NOT a component of the marketing control

process?
(a) Stating the original marketing objective
(b) Analyzing any significant variances
(c) Taking corrective action
(d) Identifying departments that failed

4. It is recommended that strategic marketing reviews are conducted once a

month and marketing control meetings once a quarter. TRUE or FALSE?
(a) True
(b) False
5. Which of the following is NOT a characteristic of a marketing-oriented

airline?
(a) Focus on managing individual sales accounts
(b) Use of environmental scanning methods
(c) Focus on the profitability of the sales
(d) Focus on marketing strategies and plans
6. In trying to change the outlook of the company and create a more

marketing-oriented team, what is the purpose of conducting internal
research?
(a) Create ownership of the company's mission statement
(b) Identify staff awareness of the company's goals
(c) Align employees' actions with the goals of the airline
(d) Identify internal marketing resources
11.2.5 Unit Summary

In this unit we reviewed several strategies for managing a company's
marketing efforts. These efforts have two points of emphasis: (a) making sure
appropriate corrective action is taken on the company's actual performance,
and (b) involving other departments in the process so everyone is onboard. We
have identified two main activities that manage the company's marketing
efforts: the monthly marketing control meetings and the quarterly strategic
marketing reviews. Both these activities cover similar territory but are different
in scope.
We also emphasized in this unit the need for marketing to inspire change.
Again, this is not an action that can be performed one time. It is a philosophy
that must be sustained through the market control meetings and the strategic
marketing reviews.

Module Summary
Marketing management in practice should enable your airline to develop into a
customer-focused organization, in which leadership ensures target market
segments are effectively and profitably served, and in which the customer's
view of the airline is high. The airline marketer can choose a particular
marketing mix of product, price, place and promotion in order to deliver the
products to the customer but solutions must be integrated and efforts
coordinated across the airline.
Regular progress and strategic reviews are required to ensure consistent
delivery, and to identify deviations from marketing objectives. Without these
reviews marketing efforts will fail.
The building of a customer-centric culture is also important and may mean
overcoming resistance to change within the company. Culture change requires
firm commitment from senior leadership.
We wish you every success in your career in a most rewarding industry.
Module Summary 381

Answer Key
1. c
2. b
3. d
4. a
5. b

1. a
2. d
3. d
4. b
5. a
6. b

Conclusion
Conclusion
Congratulations on finishing this course! We have covered the whole range of
activities that a marketing department undertakes at an airline. From scanning
the market environment to controlling the implementation of the marketing plan,
marketing plays a crucial role in the company. This is especially true in the
passenger air transportation industry. The diversity of customer needs in the
current globalized economy requires a keen sensitivity. Products should be
developed reflecting those needs. Awareness and insight about target
audiences are what successful marketing departments bring to the table.
The prevalence of social media offers unprecedented opportunities for
reducing costs and engaging customers. At the same time, social media has its
inherent risks. As in any other industry, disruptions cannot be eliminated
completely. What sets some airlines apart from the rest is how they handle
those disruptions. In this course we shared with you some of the best practices
for engaging and keeping customers informed. Technologies will change and
new forms of interaction will be developed but the basic principles of customer
focus–applied diligently - will always distinguish successful airlines.
Another important lesson that we would like you to take away from this course
is that marketing should never work in isolation from other departments in the
company. Effective marketing departments not only engage the customer but
they also keep the employees of the airline focused. In describing various
processes and activities undertaken by marketing we have consistently
emphasized the need to engage other departments in the company. Whether it
is the development of the company mission or the design of a new product, the
involvement of all departments is a critical factor.
Last but not least, we have described in this course a larger range of activities
and processes. In your airline some of these processes may be organized or
performed differently. Certain activities in marketing require a more innovative
or creative approach, others depend more on accuracy and rigor. The
effectiveness of most processes or strategies should be evaluated as part of
the system as a whole. Whether you are developing the marketing plan for your
airline or some aspect of the marketing mix, never lose sight of the system as a
whole. Ask yourself how this will affect other parts of the system and whether
the new development will support or disrupt the efforts of other departments.
If you are reading these lines chances are that you have acquired the
knowledge of current developments in marketing to analyze and understand
why certain marketing efforts are successful while others fail.
Furthermore, to improve your newly achieved skills and gain practical
experience, we recommend you enroll in our classroom course Airline
Marketing. (http://www.iata.org/marketing-advanced). This will help you
evaluate more accurately the appropriateness of marketing approaches and
judge what works best for your organization.
You can take this course in one of IATA's Training Centers, located in key
international locations, where you can exchange views, collaborate with peers
from around the globe and profit from an enhanced learning experience.
Guided by a top industry expert, you will learn how to develop and implement
an annual marketing plan in detail, tackling key topics such as market research,
brand positioning and integrating multiple channels. We encourage you to
remain engaged and learn from the successes and failures of the many players
in this challenging but exciting field.
Conclusion 385
Acknowledgment
James Reinnoldt, Adjunct Professor of Global Business, The University of
Washington

Glossary
Glossary
A
AIR SERVICE AGREEMENTS
Agreements between governments relating to scheduled air services that cover
all aspects of air services between the countries concerned.
ALLIANCE
A partnership between two or more airlines that involves the integration of
some or all operations and marketing activity.
ANTI-TRUST IMMUNITY (ATI)
A legal provision that allows alliance carriers to coordinate their market activity
in the pricing, scheduling and seat capacity areas.
ANCILLARY REVENUE
Revenue that airline collect from selling meals, seat assignments, upgrades
and the like
B
BOOKING FEES
The charge levied by a Global Distribution System on a supplier for handling a
reservation.
BLOCKCHAIN
A transparent digital ledger that can be programmed to record almost any
commercial transaction
BRAND
Verbal and/or visual designations that help customers distinguish between a
company's products and services and those of its competitors.
C
CAPACITY MANAGEMENT
The objective of yield or capacity management is to optimize the passenger
mix on each departure consistent with management objectives so that revenue
on each flight is maximized.
COMPANY MISSION
A concise and clear statement of the company's main goals and what they
mean for everybody employed by the company.
COST-BASED PRICING
A pricing strategy based on a complete knowledge of the fixed variable costs
involved in producing different levels of output.
COST-PLUS PRICING
A pricing strategy that entails the adding of a standard mark-up to the cost of
the product.
CUSTOMER BEHAVIOR
Customer decision-making processes, purchasing and usage patterns.
CUSTOMER FOCUS
A business philosophy where understanding the needs and wants of customers
and ensuring that these drive everything the company does.
Glossary 389
CHANNEL MANAGEMENT
The principle of matching your distribution channels to the needs and wants of
different customer segments.
CODESHARING
An agreement between airlines by which one airline could sell seats using its
own flight code on a flight operated by another airline.
COMPARISON WEBSITES
Websites that allow the customer to compare prices and flight information from
a variety of providers.
COMPLEMENTARY PRODUCTS
Products that can be included in the same package so that a fall in the price of
one will potentially increase the demand for another.
CONSUMER DEMAND
The amount of product that consumers want to purchase.
CONSUMER PANELS
A form of continuous research when a large number of individual households
are recruited to provide data about their purchasing habits.
CORPORATE TRAVEL AGENCY (CTA)
A specialized agency servicing corporate accounts and arranging their travel
and also providing back office services such as management, accounting, etc.,
related to the corporate travel budget. Also known as a TMC
CUSTOMER PROPOSITION
Consists of the sum total of benefits which a company promises its customer in
return for the customer's payment.
CUSTOMER RELATIONSHIP MANAGEMENT (CRM)
A system that allows collation of data from all points at which a customer has
interaction with the airline.
CUSTOMER WANTS
The form customer needs take after the influence of culture and individual
personality.
CUSTOMER VALUE
A balance between the perceived benefits less the perceived cost to obtain that
value.
CONSUMER
In the air transportation industry refers to the actual traveler on the aircraft and
may not be the purchaser of the ticket.
D
DESTINATION
As defined by ASAs covers aspects of both the number and characteristics of
the airlines that can use granted traffic rights.
DISINTERMEDIATION
Cutting out or bypassing market intermediaries like travel agents
DISTRIBUTION CHANNEL
The different ways by which an airline distributes its product to the market-
place.

DYNAMIC PRICING
A pricing strategy used mostly by Low Cost Carriers that is based on the
passengers' willingness to respond to elastic pricing.
E
ENVIRONMENTAL SCANNING
A process that enables an airline to anticipate and understand the changes
occurring in the marketing environment, and adjust its marketing strategy.
F
FREEDOMS OF THE AIR
A set of commercial aviation rights granting a country's airline(s) the privilege to
enter and land in another country's airspace, also known as Traffic rights.
FREQUENT FLYER PROGRAM
A loyalty program offering airline customers enrolled in the program to
accumulate frequent-flyer miles that can be redeemed for free air travel, class
upgrade and other goods or services.
G
GATEWAYS
As defined by ASAs refers to airports that can be served by an airline or airlines
from each country and often cover frequency and capacity of the service.
GENERAL SERVICE AGENT (GSA)
A distribution agent appointed by the airline to handle sales in a particular
geographical area.
GLOBAL DISTRIBUTION SYSTEM
A computerized reservation system for booking and selling airline tickets, hotel
rooms and rental cars.
GROSS DOMESTIC PRODUCT
The value of all goods and services produced within a country in a given period
of time.
I
INTERNAL ENVIRONMENT
The airline business environment that is made up of forces inside it that affect
its ability to serve its customers.
L
LOW COST CARRIER
Is an airline that generally has lower fares and fewer comforts, also known as a
no-frills, discount or budget carrier.
Glossary 391
M
MACROENVIRONMENT
The larger social forces that affect the microenvironment - demographic,
economic, natural, technological, political and cultural forces.
MARKET FORECASTS
The projected number of potential customers divided into segments, character-
istics, and trends in the target market as identified by the market analysis.
MARKET MATURITY
A market that has reached a state of equilibrium marked by the absence of
significant growth or innovation.
MARKET RESEARCH
The systematic design, collection, analysis and reporting of data and findings
relevant to a specific marketing situation facing the company.
MARKET SEGMENT
A group of consumers who share characteristics that make them distinct and
will respond in a similar way to a given customer proposition.
MARKET SHARE
The proportion or percentage of a given market that a particular company
holds.
MARKET TARGET SEGMENTATION
The process by which marketers decide which segments to focus on and
develop.
MARKETING AUDIT
A fundamental part of the marketing planning process conducted at the
beginning of the process and at a series of points during the implementation of
the plan.
MARKETING ENVIRONMENT
External forces that affect the company's ability to develop and maintain
successful transactions with its target consumers.
MARKETING MIX
A set of controllable marketing variables which companies blend to produce the
desired response in the target market (Product, Price, Promotion and Place).
MARKETING PLAN
A detailed statement of the marketing objectives, strategies and activities that a
company will be implementing in its main target market segments.
MICROENVIRONMENT
The forces closest to the company that affect its ability to serve its customers.
MARKETING CHANNEL (OR DISTRIBUTION CHANNEL)
The route that products or services take from the supplier to the end-user.
MARKETING PLANNING CONTROL
The ongoing review and evaluation of marketing objectives and strategies.
METASEARCH
Websites that collect and display data and information from other websites
MONOPOLY MARKET
A market environment where there is only one supplier and this supplier is
sufficiently powerful to completely control supply and price.

N
NEW DISTRIBUTION CAPABILITY (NDC)
A travel industry-supported program launched by IATA for the development
and market adoption of a new, XML-based data transmission standard
O
OLIGOPOLY
A market environment where a few major suppliers are able to dominate and
often act in concert to keep prices high.
ONLINE TRAVEL AGENT (OTA)
A person or organization which organizes and sells travel products and
services using the Internet as their primary distribution channel.
OPEN SKIES AGREEMENTS
A type of air transport treaty between two countries under which all restriction
on capacity, competition, pricing and routes are lifted.
OVERHEAD COSTS
Costs which do not vary with different levels of output.
P
PERFECT MARKET
A market environment where the market is the only determinant for the price
charged.
PESTLE ANALYSIS
An acronym (political, economic, social, technical, legal, environmental) for
analyzing the external business environment of an airline.
PORTFOLIO OF PRODUCTS
The whole range of products that a company offers. Sometimes the portfolio is
viewed as comprising different categories of products, different product lines
and finally the individual product itself.
PRICE ELASTICITY
The relationship between changes in price and demand.
PRODUCT LIFE CYCLE
The basis of this concept is that products go through different phases of growth
and decline throughout their market life.
PRODUCT SPECIFICATION
A complete description of each product that a company provides, listing all the
features and standards involved.
PRODUCT SUBSTITUTES
Products are in the same price bracket so that a decrease in the price of one
product will decrease the demand for the other.
PROMOTIONAL MIX
The specific mix of promotional channels applied for reaching a target market
segment.
Glossary 393
R
REGIONAL FEEDER ROUTES
Air routes that connect smaller communities and cities with the major hub
airports.
S
SAMPLE
A segment of the population selected to represent the population as a whole.
SECONDARY CITIES (AIRPORTS)
Airports that are not designated as primary international gateways serving
smaller cities distinguished from hub airports that connect international and
transcontinental traffic.
SEGMENTING CUSTOMERS
The process of dividing a customer base into groups of individuals that are
similar in specific ways relevant to marketing.
SHARE OF THE MARKET
A percentage of the market as defined in terms of units of product or revenue.
STEEP ANALYSIS
An acronym (social, technical, economic, environmental, political) for analyzing
the key trends that impact the operating environment of an airline.
SWOT ANALYSIS
Analysis of the company's Strengths, Weaknesses, Opportunities, Threats.
T
TRAFFIC RIGHTS
A set of commercial aviation rights granting a country's airline(s) the privilege to
enter and land in another country's airspace, also known as Freedoms of the
Air.
TRAVEL MANAGEMENT PROVIDER (TMC)
A specialized agency servicing corporate accounts and arranging their travel
and also providing back office services such as management, accounting, etc.,
related to the corporate travel budget.
TREND
The general direction of a market over a period of time.
TRIANGLE OF MARKETING
a structured approach for scanning the internal and external market environ-
ments of a company.
U
UNBUNDLING OF FARES (PRODUCTS)
A pricing strategy when airlines charge the basic price for the fare and
food/catering, baggage, credit card charges, specific seats are charged
separately.

International Air Transport Association
ISBN 978-92-9264-167-2
Customer service: www.iata.org/cs
+1 800 716 6326
iata.org/publishing
Printed in Canada

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Airline Marketing

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© International Air Transport Association. All

Airline Marketing Course Textbook, 3rd Edition

Airline Marketing Course....................................................................................................... 1

Module 1: What is Marketing?............................................................................................... 9

Module 2: The Airline Marketing Environment ..................................................................41

Module 3: Airline Marketing Research ...............................................................................73

Module 4: The Airline Marketing Strategy........................................................................109

Module 5: The Airline Marketing Plan ..............................................................................147

Module 6: The Airline Product .........................................................................................183

Module 7: Airline Pricing ................................................................................................... 225

Module 8: Promoting Airline Products and Services ......................................................251

Module 9: Distributing Airline Products and Services....................................................309

Module 10: Airline Alliances ............................................................................................. 341

Module 11: Airline Marketing Management in Practice ..................................................363

Conclusion ......................................................................................................................... 383

About IATA Training

Career Development with IATA Training

IATA Training Partners

4 Airline Marketing Course

Module Learning Objectives

Unit Learning Objectives

Key Learning Point

Did You Know?

Apply Your Learning

Other Resources and References

6 Airline Marketing Course

Accessing your IATA Training LMS User Account

Minimum PC System Requirements:

8 Airline Marketing Course

• Describe the role of marketing in an airline organization

12 Module 1: What is Marketing?

1.1 The Role of Marketing

• Understand the role of marketing in the modern airline

Key Learning Point

1.1.1 The Role of Marketing in the Modern Airline

Unit 1.1: The Role of Marketing 13

In a highly competitive environment where other companies try to achieve the

Figure 1.1.1—The Triangle of Marketing

Airlines, like any business, have to be constantly aware of the interaction

14 Module 1: What is Marketing?

By 2035, an additional 1.8 billion annual passengers will be transported to,

Did You Know?

Unit 1.1: The Role of Marketing 15

1.1.2 The Role of Marketing and the Airline

16 Module 1: What is Marketing?

Did You Know?

1.1.3 The Marketing Concept and Its Application

Figure 1.1.3—Marketing Concept (Kotler 2014)

In order to achieve the goal of exceeding customer needs and expectations,

Unit 1.1: The Role of Marketing 17

Key Learning Point

The Marketing Concept: Focused on the Customer

18 Module 1: What is Marketing?

Study Check (Unit 1.1)

2. The best reference point for a company to define itself is .

3. The Triangle of Marketing refers to the following three components:

4. If an airline is to be successful, it should be internally focused. TRUE or

5. China's obligation to open its air transportation market to foreign carriers