Strategic Marketing Approaches within Airline Management: How the Passenger Market causes the Business Concepts of Full Service Network Carriers, Low Cost Carriers, Regional Carriers and Leisure Carriers to overlap
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Textbook
110 Pages
Summary
On the German passenger market, airlines approach different business concepts in order to cope with the threats and to be successful. The case of the Lufthansa Passenger Airline and its subsidiary Germanwings has been discussed many times currently. Together they have implemented a restructuredconcept of the Low Cost Carrier Germanwings in order to overcome their weaknesses. The purpose of this paper is to evaluate the potential of economic success of this strategy change. Therefore, the papercomprises three main areas. The first one is the theoretical part, which explains the differences between Full Service Network Carriers, Low Cost Carriers, Regional Carriers and Leisure Carriers. Secondly, the analysis takes place by applying Porter’s five forces model. Subsequently, the strengths and weaknessesof the Lufthansa Passenger Airline and Germanwings are highlighted and the new business concept isintroduced. Finally, all findings are put into relation using the SWOT-analysis.
Excerpt
Table Of Contents
IV
4
Analysis of the German Passenger Airline Market Porter's Five Forces... 26
4.1.1
Competition among Low Cost Carriers...29
4.1.2
Full Service Network Carriers and Strategic Alliances...31
4.1.3
Differentiation of Products and Services ...32
4.1.4
The German Passenger Airline Market in Europe...32
4.2.1
Entry Barriers through Slot Allocation Regulations...33
4.2.2
The Liberalization of European Air Traffic ...35
4.2.3
Subsidies at Regional Airports ...36
4.2.4
The Elimination of Further Subsidies via the Aviation Tax Act...37
4.2.5
Competitive Disadvantages Through Emission Trading...38
4.2.6
Relatively High Capital and Resource Requirements ...39
4.3.1
Intermodal Competition by Road and Rail ...40
4.3.2
Substitution Through New Media...42
4.4.1
The Power of Aircraft Manufacturers...43
4.4.2
The Bargaining Power of Airports ...44
4.4.3
Global Distribution Systems ...45
4.5.1
The Number of Buyers ...46
4.5.2
Switching Costs...46
5
The Demand within the German Passenger Airline Market... 50
5.2.1
Development from 2001 to 2013 and Forecast...55
5.2.2
The Development of Business and Private Travel...58
6
The Case of Lufthansa and Germanwings ... 60
V
7
The SWOT Analysis applied for Lufthansa and Germanwings ...70
8
Conclusion and Recommendations ...80
Appendix ...83
List of References...91
VI
List of Abbreviations
ASK Available
Seat-Kilometers
FSNC Full
Service
Network
Carrier
GDP
Gross Domestic Product
GDS Global
Distribution
System
GW Germanwings
LC Leisure
Carrier
LCC Low
Cost
Carrier
LH Lufthansa
NGW New
Germanwings
RC Regional
Carrier
RPK Revenue
Passenger-Kilometers
SWOT
Strengths, Weaknesses, Opportunities, Threats
VII
List of Figures
Figure 1:
Overlapping Airline Business Concepts ... 24
Figure 2:
Michael Porter's Five Forces Model ... 26
Figure 3:
Market Share of Business Concept in Germany in 2011 ... 29
Figure 4:
Route Network offered by LCC in Germany
(January of each year) ... 30
Figure 5:
LCC Market Share in Germany in January 2013 ... 31
Figure 6:
FSNC and Strategic Alliances Market Share
in Germany in 2011 ... 32
Figure 7:
Geographical Segmentation of the European Airline
Industry
Value
... 33
Figure 8:
Attractiveness of the German Passenger Airline Market ... 47
Figure 9:
Criteria for Transport Mode Selection ... 53
Figure 10:
Decision-Making Criteria for Booking a Business Trip ... 54
Figure 11:
Decision-Making Criteria according to Preferences ... 55
Figure 12:
Annual Percentage Change of Passenger Volume
(Arrivals and Departure) of Schedule and Charter Flights at
Germany's 22 most Congested Airports ... 56
Figure 13:
Passenger Volume at German Airports According to
Destination and Origin Respectively ... 57
Figure 14:
Portions of Business and Private Travelers at the
Cologne-Bonn Airport ... 59
Figure 15:
Total Numbers of Business and Private Travelers at the
Cologne-Bonn Airport ... 59
Figure 16:
Lufthansa Passenger Airline Group - ASK and RPK
from 2007 to 2012 ... 63
Figure 17:
Lufthansa Passenger Airline Group - Operating Result from
2007 to 2012 ... 64
Figure 18:
Lufthansa Passenger Airline - Number of Passengers ... 65
Figure 19:
Lufthansa Passenger Airline - ASK and RPK in Millions ... 66
Figure 20:
Lufthansa Passenger Airline - Operating Result ... 66
VIII
Figure 21:
Germanwings - Number of Passengers from
2005 to 2011 in July ... 67
Figure 22:
Germanwings - Load Factor from 2005 to 2011 in July ... 68
Figure 23:
Germanwings - Operating Result ... 69
Figure 24:
Development of the GDP in Germany and Forecast ... 83
Figure 25:
Market Share of Existing Business Concepts ... 84
Figure 26:
FSNC Supply According to Alliance Membership ... 85
Figure 27:
The Lufthansa Group Business Segments - Share of the
Operating Result and the Revenue in 2012 ... 86
Figure 28:
Operating Result of the Lufthansa Group's
Business
Segments
...
87
Figure 29:
Lufthansa Passenger Airline Group - Number of
Passengers
...
88
Figure 30:
Lufthansa Passenger Airline Group - Load Factor
from 2007 to 2012 ... 88
Figure 31:
Lufthansa Passenger Airline Group - Operating Expenses
in
m
...
89
Figure 32:
Lufthansa Passenger Airline Group - Regional
Market
Share
...
90
IX
List of Tables
Table 1:
Classification of Airlines Operating in Germany ... 28
Table 2:
Profiles of Private Travelers ... 52
Table 3:
Business Segments of The Lufthansa Group ... 60
Table 4:
SWOT-Portfolio Lufthansa Passenger Airline and
Germanwings ... 71
Table 5:
The Business Concept of the NGW ... 75
Table 6:
Geographical Segmentation of the European
Passenger Airline Market in 2011 ... 83
Table 7:
Market Share of Existing Business Concepts ... 84
Table 8:
FSNC Supply According to Alliance Membership ... 85
Table 9:
Lufthansa Passenger Airline Group - Business
Performance ... 87
Table 10:
Lufthansa Passenger Airline Group - Operating
Expenses
in
m
...
89
Table 11:
Germanwings - Business Performance ... 90
2
1 Introduction
According to SHAW the success of an airline depends a lot on the applied
marketing mix, which is the result of strategic marketing and the business
concept of an airline.
1
Through the commencements of new acts, the liberalization of the passenger
market as well as a change in demand, the market has always been in motion.
New airlines have emerged and existing ones have disappeared due to
different opportunities and threats. Consequently, the German passenger
airline market has changed during the last decade from a Full Service Network
Carrier (FSNC) shaped to a more and more Low Cost Carrier (LCC) dominated
one.
The most current case for changing the business concept according to the
recent market situation on the German passenger airline market, is the case of
the Lufthansa Passenger Airline and its subsidiary Germanwings.
1.1 Research
Objectives
Airlines apply different marketing strategies and thus different marketing mixes
in order to tackle the everyday challenges of the German passenger airline
market. The objectives of this paper are to give an overview of the recent
situation of this market, and to prove the potential for success for the new
business concept applied by the German airlines Lufthansa Passenger Airline
and Germanwings in the sense of overcoming their weaknesses and to take
roots.
1.2
Overview of the Study
In order to reach the purpose of this paper, the inductive research method is
applied, which observes the general market and draws a conclusion at the end.
Thus, the paper is divided into three major parts, which are the theoretical one,
the analyses and the evaluation part.
1
Shaw (2011), p. 6.
3
Chapter two jumps directly into the theoretical section. It comprises information
about strategic marketing in general and the marketing mix in particular.
Furthermore, it applies the marketing mix to the passenger airline market. The
third part describes the existing business concepts of airlines as a result of
applied strategic marketing. It evaluates them according to different features
and their potential success.
After the completion of the theoretical part, different analyses are applied in
order to state the status quo of the German passenger airline market. In
chapter four Porter's five forces model is used to state the recent situation of
the market itself. This tool gives the opportunity to evaluate the competition
amongst the existing airlines, but also focuses on indirect competitors, which
may also minimize the profitability of an airline. However, this tool only
assesses the macro-environment of an airline and does not include information
about the demand and the micro-environment. Consequently, further analyses
are approached in the subsequent chapters. The recent demand and a forecast
for the next years are discussed in chapter five and the performances of the
Lufthansa Passenger Airline and Germanwings during the previous years are
stated in chapter six.
Chapter seven combines the results of the aforementioned analyses in order to
evaluate the findings and the just implemented business concept of Lufthansa
and Germanwings. Finally, a conclusion is drawn and some recommendations
are given.
1.3 Research
Methodology
Secondary research was done on quantitative as well as on qualitative data
according to each part. Thus, the theoretical part is mainly based on literature
reviews. For the analysis section, statistics were used additionally. These
comprise statistics by German and European organizations (Arbeits-
gemeinschaft Deutscher Verkehrsflughäfen, Verband Deutsches Reise-
management e.V. Deutsches Zentrum für Luft- und Raumfahrt e.V., etc.),
suppliers (e.g. AIRBUS), airlines (Lufthansa, Germanwings, etc.), and the
government.
4
2
Strategic Airline Marketing
2.1
The Classical Marketing and the Marketing
Management Process
The meaning of the term `marketing' has developed during the last 60 years.
Originally, it used to describe the promotion and distribution of products only.
Later the satisfaction of consumer needs in order to reach the company's
economic objectives became important. Next, a more complex process,
including planning, coordination and control, was taken into account.
2
Thus, a
variety of definitions of `marketing' with different core statements exist today.
However, today's markets are very complex and each component mentioned
might lead to success or to failure to the same degree. In addition, many
components overlap and can influence each other. Thus, another definition is
needed. The AMERICAN MARKETING ASSOCIATION defines marketing as
"the activity, set of institutions, and processes for creating, communicating,
delivering, and exchanging offerings that have value for customers, clients,
partners, and society at large."
3
This definition appears to be the most current
and most appropriate, since it covers the main facets of marketing mentioned
above, and can be applied to products as well as services. Additionally, it does
not only take into account customers and the company, but all existing
stakeholders.
On the basis of BRUHN and MEFFERT, the marketing management process
can be divided into four different main phases:
· the analysis of the current situation
· the planning phase
· the implementation phase
· the controlling phase
2
Meffert (2012), p. 10-12.
3
American Marketing Association (2007).
5
During the first stage, the macro environment is analyzed. Thus, all external
factors, which have or might have an impact on the company's performance,
are identified. Additionally, the branch which the company is operating in is
inspected. Therefore, research is done on the competition, the target groups,
as well as on the supply. Last, but not least, the company's current situation is
analyzed and a future trend is given.
According to the research results of the first phase, marketing objectives can be
defined. These objectives can be economic, such as the achievement of a
certain turnover or a certain profit margin, or pre-economic, such as the change
of the demand behavior.
4
Additionally, MEFFERT mentions that marketing
objectives might have a social or an ecological background as well.
5
However,
these objectives can also be considered as pre-economic objectives since by
achieving them, companies again try to improve some economic results, such
as the profit. Hence, the marketing objectives have to conform to the
company's overall objectives in order to be successful.
According to the set objectives, a marketing strategy is formulated in the next
step. Among others, this includes the definition of the target segments and the
target groups, which are supposed to be focused on in the future, as well as a
framework for the marketing plan. On the basis of the marketing strategy the
operative marketing mix can then be defined. This includes decisions on the
product, the price, the promotion and the place/distribution (4 Ps).
6
Different
authors also extend this classical marketing mix of the four Ps to seven Ps in
the service sector. Thus, additional decisions are made on personnel,
processes and physical facilities.
The third phase of the marketing management process is the implementation
phase. During this phase, decisions on how to implement the marketing mix
have to be made. These include, for example, decisions on the distribution of
responsibilities to the relevant departments and/or to certain people, decisions
on the time frame, as well as decisions on the budget. As soon as all these
decisions are made, the marketing mix can be realized. The last stage of the
marketing management process, phase four, is the controlling phase. At this
4
Bruhn (2012), p. 37 ff.; Meffert (2012), p. 20.
5
Meffert (2012), p. 21.
6
Bruhn (2012), p. 47-49; Meffert (2012), p. 21.
6
point, the achieved results match the before set objectives. Although controlling
is stated as the last stage of the process, it needs to be done along all phases
in order to be able to react to sudden changes at any time.
7
Each stage of the marketing management process can be sub-divided further;
however, this paper is intended to analyze whether the current applied
business concepts of airlines are strategically useful according to the market
situation. As a consequence, only the marketing mix, which includes the
operative tools product, price, place and promotion, will be broken down further.
2.2
The Marketing Mix Applied by Airlines
According to CONRADY, FICHERT and STERZENBACH, the marketing mix
can be seen as the `heart` of the marketing management process.
8
Additionally,
SHAW describes the classical marketing mix as a `powerful model' to be a
successful airline.
9
As a consequence, the four Ps (product, price, place, and
promotion), or rather the airlines' business concepts, play a major role for
airlines and shall, thus, be described further in the following part of this chapter.
2.2.1 Product
Policy
The product policy describes the way of analyzing the current products and the
design of new ones. This includes all decisions that have to be made in order to
establish a product or a service which can be offered on the market later on.
10
The classic product is a combination of different characteristics with the
objective to satisfy certain customer needs. It can be tangible or non-tangible in
the sense of services. As a result, the word `product' in this paper always refers
to services as well. In the classic marketing the product usually consists of the
core product, which is supposed to fulfill basic needs only, and the augmented
product, which is not essential but adds value to the product in order to satisfy
7
Bruhn (2012), p. 47-49; Meffert (2012), p. 21.
8
Conrady, Fichert, and Sterzenbach (2013), p. 418.
9
Shaw (2011), p. 6.
10
Meffert (2012), p. 385.
7
additional needs.
11
This description can be applied to tangible products, such
as cars, easily. Here, the core product is the car, which fulfills the basic function
of driving from destination A to destination B, and the augmented product could
be the interior of the car, which is not essentially needed, but adds value to the
product. This approach can be applied to services, such as hotel
accommodations, as well. In this case, the core product is the night spent in the
hotel itself, which meets the customer's need of lodging. The augmented
product could be a mini bar in the room, which again adds value to the hotel
night by offering something that is not essential but nice to have. The
combination of the core product and the augmented products allows the
creation of unique products and, thus, the distinction from other products.
However, this product approach cannot be applied to any service. Airlines, for
example, are not able to distinguish as strictly between the core product and
the augmented product. Here the core product comprises the basic flight from
destination A to destination B. Thus, the basic need of the customer is met. But
there are many services coming along with the booking process already, such
as the mode of payment, for example. These services are essential but not a
part of the core product. However, they already allow for a differentiation from
other products but yet are not augmented products. The customer has to
purchase these services in order to use the core product. Augmented products
of airlines are, for example, snacks, which are provided during the flight, or
movies which can be watched on board of the aircraft. These services are not
essential for the realization of the flight but add value to it.
12
The next section of this paper will give insight into the variety of components
the airline product may comprise in order to achieve a sustainable competitive
advantage. The main elements are the route network, the type of aircraft, the
flight frequencies, and timings.
13
Alongside a variety of other features are
available. In relation to the point of realization, these can be divided into three
different groups pre-flight, in-flight, and post-flight features, which finally form
the service chain. Pre-flight features are those that are used starting with the
11
Meffert (2012), p. 387.
12
Conrady, Fichert, and Sterzenbach (2013), p. 419.
13
Shaw (2011), p. 5.
8
booking process to the point of boarding. They include services such as
reservation, booking, payment, transfer to the airport, entrance to the terminal,
and services that are offered at the airport (check-in, lounges, etc.). In-flight
features are those realized during the flight, such as the catering, restrooms,
and entertainment. After de-boarding, post-flight services can be used. These
are, for example, the transfer to the next airplane, the transfer within the airport,
a security check or a transfer to the final destination. All mentioned services
may be components of the product or might be purchased separately
depending on the product design of each airline. Additionally it needs to be said
that the stated features only give an insight into the variety of services
available. The list of existing services is much longer and is extended
constantly.
14
The product planning can be divided into five categories, on which decisions
have to be made. These are product innovations, product variations, product
differentiations, product eliminations, and product diversifications.
Innovations describe the creation of new products and services, which have not
previously been on the market yet. Product innovations, if successful, are
known to be the most profitable ones. However, there is always a chance of
failing. Additionally, the creation of new products is costly in terms of resources
needed.
15
According to the mentioned definition, product innovations are fairly
rare in the passenger airline industry, though CONRADY, FICHERT and
STERZENBACH argue that the product of the LCC, which is described in
chapter 3.2, is an innovation.
16
However, this is an entirely new concept
comprising more characteristics than those of a single product. It takes into
account all of the four Ps at once. Thus, the concept itself cannot be seen as a
product innovation, but the product of this concept may. It is an innovation since
it only combines the core product, which is the flight, and services, which are
essential for flying, such as the booking process, for example.
14
Conrady, Fichert, und Sterzenbach (2013), p. 422-425; Shaw (2011), p. 190-197.
15
Meffert (2012), p. 396-399.
16
Conrady, Fichert, und Sterzenbach (2013), p. 420.
9
Additional innovations, which were introduced to the German market lately, are,
for example, the provisioning of internet access on board of the aircrafts.
17
Product variations describe the change of characteristics of existing products in
order to react to market changes or to eliminate product errors, whereas the
product in general stays the same. Consequently, the product remains up-to-
date and satisfies the current demand. By modifying the product, the number of
products stays the same.
18
Within the passenger airline market products are
modified regularly by adjusting flight schedules, varying catering components,
etc.
19
Another way of changing the product portfolio is the product differentiation.
Here, an additional product extends the existing portfolio in order to saturate
different market segments than the ones that are already served. Product
differentiations are, like product variations, used to react to market changes and
to make profit of arising potential, such as new target groups for example.
20
Within the passenger airline market booking classes are a well-known example
for a product differentiation, where different target groups are addressed, such
as business travelers via the business class and leisure travelers via the
economy class. The offered classes may, for example, vary in the size of the
seats, the catering or the media provided during the flight according to what the
targeted customer requires.
21
Furthermore, products can be eliminated from the existing product portfolio.
Reasons for this might be, for example, the insufficient congruity with the
current demand or high costs.
22
The product elimination can thus be seen as
the opposite of the product diversification. Consequently, the example which
was used for describing product differentiation can also be used for describing
17
Opfermann (2012).
18
Meffert (2012), p. 446 f.
19
Conrady, Fichert, and Sterzenbach (2013), p. 420.
20
Meffert (2012), p. 446.
21
Conrady, Fichert, and Sterzenbach (2013), p. 421.
22
Meffert (2012), p. 454.
10
product eliminations within passenger airline market.
23
Here different booking
classes can be eliminated in order to stop addressing a certain target group.
Contrary to MEFFERT's four components, CONRADY, FICHERT and
STERZENBACH mention a fifth component, which a decision can be made on -
the product diversification. It also describes the expansion of the current
product portfolio by products which are either related to the existing ones
(horizontal diversification), which are a part of the supply chain (vertical
diversification), or which are not related to the existing products (lateral
diversification). All three kinds of product diversification can be applied by
airlines.
Air cargo, for example, is a case of horizontal diversification. Here the airline
offers an additional product, which is similar to the existing ones, but can use
conjunct resources, such as the aircrafts. Purchasing a catering company
would be an example of vertical diversification. When a company, which usually
operates in a totally different field of business, starts to operate in the
passenger airline market, it is considered a case of lateral diversification.
24
2.2.2 Price
Policy
The price policy covers all decisions that have to be made on the fare that is
charged for the final product. This includes, for example, decisions on discounts
as well as on payment and delivery conditions in accordance with the overall
marketing strategy of the company.
In most cases price policy aims to maximize the profit. However, there is a
range of other objectives that companies try to achieve nowadays. These
comprise objectives regarding the company itself, such as an increased cost
recovery, full employment or a stable position in the market, and objectives
regarding the position in the market in general, such as the winning of new
market segments and new customers, or the creation of a certain image.
25
23
Conrady, Fichert, and Sterzenbach (2013), p. 420.
24
Conrady, Fichert, and Sterzenbach (2013), p. 420-425.
25
Meffert (2012), p. 466-470.
11
The price policy offers a wide range of strategies and instruments to find the
right price for the offered products. However, not all of them can be used at any
time to the same degree for any product or service due to different
characteristics. This also applies for airlines. Their products consist of typical
service characteristics. They are, for example, not storable and the production
and the consumption take place at the same time, which means that the core
product expires after the production, which in this case is the flight. The price
building process of airlines therefore is very complex and depends on many
factors, such as the point-of-sale, the target group, the season, etc. However,
to keep it simple, it can be said that in general the price policy process can be
divided into two phases. The pricing process, which indicates the fare levels for
each product, and the revenue management, which states how many seats are
to be sold at every level. Since this paper looks at the status quo of airlines
business concepts and its effect on the customers only, it will not consider
dynamic pricing strategies and the revenue management process in detail.
Furthermore, it will not take into account, whether prices are based on the
costs, the competition, or the value.
26
The pricing process of airlines can be divided into two main stages. First of all a
price level has to be set. It has to be decided whether prices are supposed to
be on a low, a medium or a high level. The low price strategy is also known as
promotion price strategy. It is usually used to sell a simple product with a few
added services only. This strategy usually does not need much promotion since
the low prices are promoting the product themselves. The high price strategy, in
comparison, also known as premium price strategy, requires more promotion.
This strategy is mainly used for selling more complex products, which include
the core product as well as a range of augmented products. All price levels in
between are known as medium price strategies.
27
Some authors argue that
airlines mainly apply the two major strategies; the premium price strategy or the
promotion price strategy.
28
However, today such a strict separation is nearly
26
Conrady, Fichert, and Sterzenbach (2013), p. 362; Belobaba (2009), p. 73.
27
Meffert (2012), p. 493.
28
Conrady, Fichert, und Sterzenbach (2013), p. 354.
12
impossible since the price levels vary just as the products of the airlines do.
There are prices available at a low, a medium and a high price level as well.
Additionally, the "No Frills Concept", also known as the "A La Carte Pricing",
has become more important recently. It allows the airline to sell the core
product (the flight from A to B) separately and to achieve additional revenues
by selling further services. These revenues are called ancillary revenues (see
chapter 2.2.1).
Once a decision on the price level is made, a price differentiation takes place.
This means that the same product is offered for different prices at the same
time. Through price differentiation, the pricing process can get very complex
depending on the overall business concept of the airline. Price differentiation is
done in order to skim the highest possible consumer's surplus. However, the
willingness to pay varies from target group to target group depending on
different factors. Thus, a differentiation within the passenger airline industry is
usually done related to the flight schedule, the location where the flight is
purchased, the customer status (student, business traveler, leisure traveler,
etc.), and the quantity of flights purchased.
29
2.2.3 Place
Policy
The place policy covers all decisions that have to be made regarding the
distribution of the products from the producer to the final customer or the
intermediary. Thus, the word `place' can also be replaced by the word
`distribution'.
30
In the context of the place policy an entire distribution system is designed,
whereas the final design depends on a number of different factors against the
background of the objectives and the concept of the business. These are, for
example, the availability to the customers, the height of the costs, the
29
Conrady, Fichert, und Sterzenbach (2013), p. 354 f; Meffert (2012), p. 499 f.
30
Meffert (2012), p. 543.
13
controllability as well as the adaptability of the distribution channel and the
achieved yield by each product sold.
31
The design process can be divided into two steps. First of all, decisions have to
be made on the vertical structure. It has to be decided whether products are
supposed to be sold directly to the final customer, or whether one or several
intermediaries are supposed to be in between (indirect distribution). In the case
of indirect distribution, further decisions have to be made on the number of
intermediaries, on the kind of intermediaries, and on contractually conditions if
necessary.
Secondly, decisions need to be made on the horizontal structure of the
distribution channel, which includes decisions on the width of each step
(intensive, selective and exclusive market concentration) and the depth of each
step of the distribution channel (type of business).
32
Airlines use different ways to sell their products to their customers. Direct
distribution mainly happens via websites, call centers, ticket offices at airports
and cities as well as via selling points for employees. On the other hand,
indirect distribution mainly takes place via travel agencies (online and offline),
tour operators, and consolidators.
33
Global Distribution Systems play a major role for airlines. These are computer
based reservation systems, which combine products and services of different
service providers, such as airlines, hotels, and car rentals. They are operated
independently and on a worldwide basis. These systems enable the user to
compare the products offered by different suppliers and to purchase them
easily. Yet, they make the distribution of tickets easy, they also make them
more expensive, since the airlines have to pay fees in order to use them.
34
31
Conrady, Fichert, und Sterzenbach (2013), p. 439 f.
32
Meffert (2012), p. 550.
33
Meffert (2012), p. 441-445.
34
Schulz (2010), p. 264-265.
14
2.2.4 Promotion
Policy
The promotion policy covers all decisions that have to be made in order to
communicate information about the company and its products, to increase the
awareness and to achieve the company's overall objectives in return.
Within the promotion policy a separate strategy has to be formulated according
to the overall communication objectives. The strategy includes, for example,
decisions on the communication budget, such as the amount and its
distribution, as well as the communication instruments on which the budget
shall be spent.
Since this paper is supposed to evaluate the final result of the promotion policy
of an airline, which is a part of its business concept, it will have a further look at
the most common communication instruments, which matter to airlines most,
only.
35
The Corporate Identity plays a significant role in the promotion policy of an
airline. The term refers to the identity of a company, which is supposed to
express the company's portrait externally and internally based on a pre-defined
mission and a pre-defined image. It comprises the following items:
x the Corporate Design, which describes the visual appearance,
x the Corporate Communication, which describes the usage of different
communication instruments,
x the Corporate Behavior, which describes the working behavior of all
employees, and
x the Corporate Culture, which comprises norms and values defined by
the company.
The communication in general can be divided into indirect and direct
communication. Indirect communication happens via tools, such as classical
media advertising (e.g. television and radio commercials, advertising on print
media), sponsoring (e.g. of people, soccer clubs, organizations), or online
35
Meffert (2012), p. 606 f.
15
advertising. Whereas indirect communication is available to a high number of
people and addresses the audience by chance, direct communication reaches
a smaller amount of people, but can ensure to reach them by addressing them
directly. Direct communication includes instruments, such as newsletter, dot
mailer, and telephone marketing.
Furthermore, frequent flyer programs play a significant role within the
passenger airline market. These programs are instruments of the customer
relationship marketing, which reward the traveler for flying with the airline.
These programs are mainly used by FSNC but have enjoyed more popularity
among other carriers as well, lately.
36
The list of communication instruments applied within the passenger airline
market could be extended indefinitely. However, in order to draw a picture of
the promotion policy within the business concept of an airline, the named items
shall be sufficient.
In order to create a successful marketing mix, all components are designed in
accordance with each other. They are all set to harmonize and to fulfill common
objectives. Now that the processes of creating the components were described
in short, this paper will have a look at the status quo of existing airline
marketing mixes in the sense of business concepts.
36
Conrady, Fichert, and Sterzenbach (2013), p. 453-463.
16
3
Applied Business Concepts of Airlines
Airlines apply business concepts according to their marketing strategy. These
concepts differentiate in their marketing mix. They may have different product,
different price, different distribution and/or different promotion strategies. The
following pages will demonstrate the existing business concepts and their
characteristics. However, it needs to be said that there is a wide range of
concepts defined according to different criteria. According to these criteria
CONRADY, FICHERT and STERZENBACH distinguish between three groups,
which vary in their capacities as well as their flight plans. The first group
consists of Full Service Network Carrier, Regional Carrier (RC), Leisure Carrier
(LC) and Low Cost Carrier. These carriers operate on a fixed schedule and the
seats are mainly sold separately.
37
RUPERTI as well as DOGANIS, in
comparison, separate this group into three components only. They do not
classify RC as a separate business concept. However, since these carriers
distinguish from the other concepts in some crucial criteria, they shall be stated
as their own business concept.
38
The second group of carrier includes the concept of Business Aviation and
Executive Charter. These airlines operate upon demand and all seats of one
aircraft are sold to one client. The third group only contains one business
concept, which is called Air Taxi or General Aviation. These carriers operate on
demand and the seats of an aircraft are sold separately.
39
The four carriers of the first group are known as the classical business
concepts.
40
They dominate the German market
41
and shall, thus, be taken into
further account only. The second and third groups have become more
important during the last years
42
and are named for the sake of completeness,
but they do not play a further role for this paper.
37
Conrady, Fichert, und Sterzenbach (2013), p. 224-226; Pompl (2007), p. 104.
38
Ruperti (2012), p. 60 f; Doganis (2010), p. 131 f.
39
Conrady, Fichert, and Sterzenbach (2013), p. 224-226; Pompl (2007), p. 104.
40
Ruperti (2012), p. 61.
41
Deutsches Zentrum für Luft- und Raumfahrt e.V. (2012).
42
Conrady, Fichert, and Sterzenbach (2013), p. 225.
17
Until the nineties, within the first group of carriers only three major business
concepts were mentioned Full Service Network Carriers, Regional Carriers
and Leisure Carriers. Each concept was homogeneous in itself and, thus, easy
to differentiate.
43
Later on another business concept occurred, the concept of
Low Cost Carriers. It was still easy to separate from the others. However, a
strict separation of today's existing business concepts is almost impossible,
since the characteristics overlap in many cases. Some authors even say that
the business concept of the LCC can be differentiated again into a low fare
concept and a no frills concept. Whereas the low fare concept focuses on the
price, but still adds augmented services to the basic product, and the no frills
concept focuses on the basic product only.
44
Yet, this paper is supposed to
focus on the classical concepts only in order to create a clear picture of the
basic concepts.
3.1
Full Service Network Carriers
Full Service Network Carriers can be divided into Mega Carrier or Major
Carrier, Continental Carrier, and Flag Carrier according to their market position
and to their political status. Mega or Major Carriers are the market leaders seen
from a commercial point of view. They are operated privately and serve
intercontinentally. Some organizations even state a certain turnover, which has
to be achieved by an airline in order to reach the status of a Mega Carrier. They
are the leader of global alliances
45
. Flag Carriers, in comparison, are partially
held by the government, which in return can implement its politics and achieve
different goals, such as the provision of jobs or different routes. Through
subsidies, Flag Carriers are usually able to hold their leading position, even
though they are most likely not known for achieving their market leadership
through their operations. Continental Carriers are usually smaller and operate
on selected routes only. They play a secondary role for global alliances.
46
43
Groß and Schröder (2005), p. 11.
44
Gross (2007), p. 13.
45
A strategic global alliance is a cooperation of different airlines. Its goal is to achieve better
results in pre-defined business fields (e.g. frequent flyer programs, code sharing). [Conrady,
Fichert, and Sterzenbach (2013), p. 278 f.].
46
Conrady, Fichert, and Sterzenbach (2013), p. 229; Pompl (2007), p. 101 f; Ruperti (2012), p.
104 f.
Details
- Pages
- Type of Edition
- Erstausgabe
- Year
- 2014
- ISBN (eBook)
- 9783954897858
- ISBN (Softcover)
- 9783954892853
- File size
- 2 MB
- Language
- English
- Publication date
- 2014 (May)
- Keywords
- strategic marketing approaches airline management passenger market business concepts full service network carriers cost regional leisure
