PEST Analysis ......................................................................................................... 9 Political Factors................................................................................................. 10 Decline - Many services remain in the maturity and saturation stage for years. However, for most, obsolescence sets in, and new products are introduced to replace old ones. In the decline stage, demand obviously drops, advertising expenditures are lower, and there are usually a smaller number of competitors. While it is possible for a product to do very well in this stage of the life cycle, there is not a great deal of comfort in getting a larger share of a d eclining market. ...............................................................................................................37 Generic strategies were first presented in two books by Professor Michael Porter of the Harvard Business School (Porter, 1980, 1985). Porter (1980, 1985) suggested that some of the most basic choices faced by companies are essentially the scope of the markets they would serve and how they would compete in the selected markets. Competitive strategies focus on ways in which a company can achieve the most advantageous position that it possibly can in its industry (Pearson, 199 9). A firm’s relative position within its industry determines whether its profitability is above or below the industry average. The profit of a company is essentially the difference between its revenues and costs. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost ordifferentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus. We will briefly overviews these generic strategies because ................................................................... 39 1. Cost Leadership............................................................................................. 39 2. Differentiati on............................................................................................... 39 3. Focus .............................................................................................................. 40 1
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PEST Analysis .........................................................................................................9Political Factors .................................................................................................10Decline - Many services remain in the maturity and saturation stage for years.However, for most, obsolescence sets in, and new products are introduced toreplace old ones. In the decline stage, demand obviously drops, advertising
expenditures are lower, and there are usually a smaller number of competitors.While it is possible for a product to do very well in this stage of the life cycle,there is not a great deal of comfort in getting a larger share of a decliningmarket................................................................................................................ 37
Generic strategies were first presented in two books by Professor MichaelPorter of the Harvard Business School (Porter, 1980, 1985). Porter (1980,1985) suggested that some of the most basic choices faced by companies areessentially the scope of the markets they would serve and how they wouldcompete in the selected markets. Competitive strategies focus on ways inwhich a company can achieve the most advantageous position that it possibly can in its industry (Pearson, 1999). A firm’s relative position within
its industry determines whether its profitability is above or below theindustry average. The profit of a company is essentially the difference between its revenues and costs. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There aretwo basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined withthe scope of activities for which a firm seeks to achieve them, lead to threegeneric strategies for achieving above average performance in an industry:cost leadership, differentiation, and focus. The focus strategy has twovariants, cost focus and differentiation focus. We will briefly overviewsthese generic strategies because ...................................................................39
Its strong market position is driven by consistently low fares as well as reliable
service, frequent and convenient flights, use of new technologies like e-ticketing
and self check-in terminals, comfortable cabins and superior customer service.
2. B2. BRANDRAND R R ECOGNITIONECOGNITION
AirBlue has high brand recall. It is recognized by travelers all over the country.
AirBlue commenced operations in 2004, and reached the milestone of serving
one million customers within two years. This helps clarify why customers prefer
AirBlue to other carriers such as PIA, Aero Asia and Shaheen Airlines.
AirBlue earned the number one ranking in customer satisfaction for 2005, based
on least number of complaints per passenger carried as reported to the Civil
Aviation Authority (CAA). This strong market position gives the company a scale
advantage and helps it strengthen its brand image.
3. S3. SUPERIOR UPERIOR OOPERATINGPERATING SSTRUCTURETRUCTURE
AirBlue has maintained its position as the low cost carrier for the last two years.
It has one of the lowest operating cost structures, being first in the Pakistani
market to use the latest technology. Factors contributing to its low cost structure
include; single type aircraft (Airbus) and an efficient, high-utilization and point-
to-point route structure. Flying one type of aircraft significantly simplifies
scheduling, maintenance, flight operations, and training activities. AirBlue hascontinually achieved high asset utilization and employee efficiency. Superior
operating structure serves as the primary competitive advantage of AirBlue.
4. N4. NETWORK ETWORK PPRESENCERESENCE
AirBlue enjoys a strong network in key domestic and international destinations.
The company’s network includes three the major airports in Pakistan, as well as
major international airport such as Dubai International Airport. Having a strong
network means that AirBlue can generate traffic feed for both its domestic and
international flights.
5. H5. HUBUB AIRPORTAIRPORT ATAT K K ARACHIARACHI
AirBlue operates from its hub in Jinnah International Airport, Karachi. Jinnah
International is one of the world’s busiest airports in terms of number of
passengers carried . It is also one of the largest international gateways to Asia. It
The needs of air passengers are increasingly changing, as they are becoming
more and more price sensitive. The effect of this has been that traditional airlines
such as PIA have struggled, while low-cost airlines such as AirBlue have
experienced significant growth despite a turbulent industry, especially in the
short haul market in Pakistan. If AirBlue succeeds in making its prices more
competitive, then the company will be able to gain significant market share.
6. F6. FURTHER URTHER AALLIANCESLLIANCES
AirBlue has entered in a number of bilateral and multilateral alliances with other
airlines e.g. with JS Air to enhance its market reach and serving customers on
remote destinations not covered by their own flights. Such collaborative
marketing arrangements typically include one or more of the following features:
joint frequent flyer participation; code sharing of flight operations (whereby one
carrier’s flights can be marketed under the two-letter airline designator code of another carrier); coordination of reservations, baggage handling and flight
schedules; and other resource-sharing activities.
AirBlue should attempt to expand the its alliances with other airlines to increase
its coverage even further by participating in more markets worldwide that it does
not serve directly.
7. I7. INDUSTRYNDUSTRY R R ECOVERYECOVERY
Market analysts believe that the global airline industry will experience an upturn
in fortunes over the next few years. This represents an opportunity for AirBlue, as
it could generate increased revenues and command market share if it capitalizes
PIA because of its monopoly in the market had been dictating policies and prices.
Economic conditions of Pakistan are however improving. The air travelers in
Pakistan lie in four categories mentioned in the case study i.e. The Hustlers and
Overloaded, The Frill Seekers, The Economizers The Habitual/Regular Fliers-
The Frecuente fliers, The Well-to-do and The Content-able. These customers use
the services of airline companies according to their needs. An increase in interest
rates has negatively impacted the airline industry. Due to the devaluation of
rupee, attractiveness of the Pakistani market has been reduced for foreign
investors. PIA has cost advantage over its competitors because of its newly
acquired, improved, long distance aircrafts from Boeing1 which give longer range
and better fuel economy than any other jet currently produced. This cost
advantage is a barrier to entry for new firms. However, this cost advantage will
not be significant on domestic routes.
SSOCIALOCIAL FFACTORSACTORS
The social and cultural influences on business vary from country to country. The
social structure of Pakistan is closely tied. The trend is now changing as the
general public is educated and is pursuing professional goals. Customers are
more aware of market conditions and available options and want to get best
value for their money. They spend considerable time and money on entertainment hence increasing the need of in-flight entertainment systems. Also, word of mouth
has a significant impact in the use of airline services and that is one the reasons of
AirBlue’s ever increasing popularity. Hajj attracts a huge number of customers;
however acquiring a license to provide services to pilgrims is a major hurdle.
The social environment of Pakistan is turning liberal with the new regime. The
initiative to automate check-in and ticket booking process2 might not be very
popular with the general public (even educated population) is still technology
averse. E-ticketing might also face significant challenges as consumers are
generally reluctant to provide their credit cards information over the phone and
the internet . The consumers, however, have a warm reaction to the prospect of
less costly but quality service flights. AirBlue, however, has untapped market
Initially, PIA enjoyed a complete monopoly in the domestic sector and
preferential treatment in the overseas sector. Its interests were protected by laws
which made it mandatory for a national traveling overseas to fly only with it at
least once in case of several foreign trips a year. Its monopoly existed until early
1990s when the Nawaz Sharif government implemented the Open Sky policy. The
Open Sky Policy encouraged private sector investment in the airline sector. The
last decade witnessed the emergence of six private airlines (which are; Raji,
Hajvery, Saif, Bhoja, Shaheen Airways and Aero Asia). Despite the fact that only
two of these airlines are still operating, the ensuing competition was a decisive
factor to keep the fares in check, particularly on the domestic sector where PIA
did not face any competition previously.
This situation significantly lowered entry barriers. Although the initial investment
required for starting an airline is quite large, banks readily provide them credit but
this is only in the case of established names or companies backed by well known
groups. However, capital expenditure is very large (and is a significant barrier to
entry) and most new entrants come in the market with few leased air crafts.
Economies of scale are mostly achieved through maximum utilization of these
planes. While the private airlines did instill a competition benefiting domestictravelers in particular, their overall performance was marred by many problems.
Almost all of the private airlines had to suspend their operations altogether, many
of them more than once, for unavailability of aircraft due to lease problems. This
resulted in suspension of services without any notice to the travelers and in many
cases these suspensions lasted not only for days but for weeks and months.
TTHREATHREAT OFOF SSUBSTITUTESUBSTITUTES
Likely substitutes for air travel include other transportation modes such as trains,
buses and cars. Driving on shorter routes (e.g. Islamabad to Lahore) provides a
cheaper substitute. Buyers may thus, be inclined to use personal cars or buses for
such trips. This however, will vary for from person to person3. A vacationing
traveler has the option of choosing a train, enjoying the scenery and its leisurely
3 For example business travelers will more often than not prefer air travel because despite it isfaster despite being more expensive.
Buyers now have a number of options when choosing an airline. Due to
technology advancements, pricing information is less fragmented and easier to
compare. Travelers can easily compare prices and can find price variations for the
same flight4. One seat is hardly any better than the next, since the arrival time is
same for everyone. Vacationers will want the best deals, whereas business travelsare frequently more pressed to time and are less price sensitive. Despite intense
competition, air travel is not cheap and command substantial finances of a
vacation. Hence, for vacationers the demand is highly elastic (as the price drops
demand increases) and for business travelers it is less elastic or inelastic.
However, airlines may move their prices in tandem with competition and force
buyers to pay market price until a price war breaks out.
IINTENSITYNTENSITY OFOF R R IVALRYIVALRY
The Pakistani airline industry is fiercely competitive. Industry growth is
moderate, and carriers are struggling to increase their market share. There are
substantial exit barriers in the industry. Grounded planes do not earn any returns
and their disposal becomes difficult. Due to this high rivalry airlines generally
4 As is the case for Air Blue which uses Yield Management to offer substantially lower rates for advanced bookings.
earn low returns because competition drives down prices5. This can spell disaster
for the economy in tough times.
According to Managing Director of Shaheen Air International (SAI), Air Vice
Marshal (Retd) Syed Ataur Rahman; “The passenger load has dropped
substantially amidst the global recession which like elsewhere has also taken a
heavy toll on our economy. The sluggish economic and industrial activities and
drying of foreign investment have resulted in substantial reduction in foreign air
traffic into the country which has taken a heavy toll on the domestic airlines. In
addition, the airline industry has also been hurt by a drastic increase in jet fuel
prices which soared by 350 percent in last three years. This has put an enormous
pressure on the airlines, to remain profitable. According to global standards
aircraft, crew, maintenance, insurance and fuel make up 68 percent of an airline’s
operating costs. The massive increase in the international prices of jet fuel is
taken a far heavier toll on small airlines which don’t have the resources and
business base to cushion the blow.
The cut throat competition on the domestic sector is unethical as well as
uneconomical and yet we have accepted it as part of the game. It has helped us
push the seat occupancy ratio to 95 percent which is way over the globally
accepted breakeven standard of 65 percent. The primary beneficiaries of the pricewar are the domestic travelers as the prices of domestic airfares have been
substantially reduced.” Mr. Rahman said the absence of level playing fields,
unethical competition and rising costs of operations are all taking a heavy toll on
the private sector airlines. He urged the government to allow private airlines duty
free import of aircraft at par with PIA instead of charging them 5 percent duty.
PIA is the flag carrier of Pakistan and the national airline operating passenger and
cargo services around the world. It is the oldest airline in Pakistan, (dating back to
the Indo-Pak subcontinent) and has the first mover’s advantage. Its main hubsinclude Jinnah International Airport, Karachi, Allama Iqbal International Airport,
Lahore and Islamabad International Airport, Islamabad. Its current fleet size is 40
and it flies to 82 destinations. PIA has a rich history and made through various
ups and downs of the economy. It still claims --- percent market share and is the
largest airline in the country by all standards (i.e. fleet size, number of passengers
per month, income etc). In December 2003, PIA introduced a revamped its
corporate image from changing the outlook of its planes to its logo. The new
image was also applied to their first 777-200ER and another newly leased A310-
300. Under the new style, the tail was painted beige and a flowing Pakistan flag
placed on it, PIA acronym was enlarged and moved onto the fuselage. In early
The first attribute is the number of destinations (locations) that the airline covers
domestically as well as internationally. PIA covers 24 cities within Pakistan and
has flights in all continents and major countries of the world. Air Blue
internationally flies to only Dubai and to seven cities within Pakistan. Shaheen
Airways touches six cities nationally and Dubai internationally. Aero Asia has a
total of 11 destinations out of which seven are domestic and 4 destinations are in Dubai. We have ranked PIA, the highest as they cover the maximum destinations
whereas the other three airlines internationally fly only to Dubai and domestically
Hospitality here means the way passengers are treated by the airline staff .
Friendliness of the crew is important in keeping customers satisfied. Hospitality
will entail all passenger encounters right from the airport until check-out,
including; treatment of staff at the counter, crew in the flight, the in flight services
which include the entertainment and food services, the baggage handling and the
comfortable seats. As far as the hospitability and friendliness of the staff is
concerned, Aero Asia is the best which is followed by PIA and Shaheen airways.
As one of the passenger commented about Air Blue, “Check in unusual, with the
female check-in agent managing to process me without a greeting, a smile or a
thank you.” Another customer mentioned that “the female staff were young but looked too casual and unprofessional, not right for the type of image the airline
wants to portray”. The PIA airhostesses and staff is considered to be friendlier
than the staff of Air Blue and the way PIA now handles its passengers at
The figure above shows the phases that a new product/service goes through from
inception to decline; (1) introduction, (2) growth, (3) maturity, and (4) decline.
Because of rapid changes in consumer lifestyles and technological changes, life
cycles of products and services are becoming shorter. It, however, remains auseful concept for strategic planning. Each stage of the product life cycle has
certain marketing requirements.
IINTRODUCTIONNTRODUCTION - The introductory phase of the life cycle requires high promotional
expenditures and visibility. The most productive time to advertise a service is
when it is new. Operations in this period are characterized by high cost, relatively
low sales volume, and an advertising program aimed at stimulating primary
demand . Most companies in the market fail in this stage.
GGROWTHROWTH - In the growth period, the service is being accepted by consumers.
Market acceptance means that both sales and profits rise at a rapid rate,
frequently making the market attractive to competitors. Promotional expenditures
remain high, but emphasis is on selective buying by trade name rather than on
primary motive i.e. to try the product . During the growth stage, the number of
outlets providing the service usually increases. More competitors enter the
marketplace; economies of scale are realized and prices experience a decline.
Launched in 2004, AirBlue has passed the introductory stage is in the early
growth stage of the life cycle. Customers have now endorsed it and are even
starting to prefer it to its competitors. It is also evident from the fact that AirBlue
has massive expansion plans for future both for its network and its fleet. AirBlue
has ordered ten brand new Airbus long haul and short haul aircrafts to facilitate
international expansion to the UK and strengthen domestic routes. The $ 790
million order includes eight Airbus A320 aircrafts for the Gulf and domestic
routes and two Airbus A330 aircrafts for the European routes with deliveries
commencing in 200812. Airblue has plans to start services to many cities
including; Nawabshah, Sukkur and Turbat. Its international expansion plans
include flights to Jordan, the UK, the US, and Saudi Arabia.
MMATURITYATURITY – A mature service is well established in the marketplace. Sales may
still be increasing but at a much slower rate; they are leveling off . At this stage of
the life cycle, many outlets are selling the service, and are very competitive,especially with respect to price, and firms are trying to determine ways to hold on
to their market share.
DDECLINEECLINE - Many services remain in the maturity and saturation stage for years. However, for most, o bsolescence sets in, and new products are introduced toreplace old ones. In the decline stage, demand obviously drops, advertisingexpenditures are lower, and there are usually a smaller number of competitors.While it is possible for a product to do very well in this stage of the life cycle,
there is not a great deal of comfort in getting a larger share of a declining
many buyers in an industry perceive as important , and uniquely positions itself to
meet those needs. It is rewarded for its uniqueness with a premium price.
3. F3. FOCUSOCUS
The generic strategy of focus rests on the choice of a narrow competitive scopewithin an industry or a niche. The focuser selects a segment or group of segments
in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment , while in (b)
differentiation focus a firm seeks differentiation in its target segment . Both
variants of the focus strategy rest on differences between a focuser’s target
segment and other segments in the industry. The target segments must either have
buyers with unusual needs or else the production and delivery system that best
serves the target segment must differ from that of other industry segments . Cost
focus exploits differences in cost behavior in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.
AAIR IR BBLUELUE’’SS GGENERICENERIC SSTRATEGYTRATEGY –D –DIFFERENTIATIONIFFERENTIATION
AirBlue has employed a strategy that is unusual for the airline industry i.e.
differentiation. This means that AirBlue is an all-frills provider and has carved a
special place in the consumers’ minds. This has been a successful penetration
strategy but it remains to be seen if the company will be able to sustain in the
longer run and also especially since it is planning to enter the international
market. AirBlue’s operational efficiency, a major factor in contributing to its low
cost also has to be maintained. AirBlue’s business model has been based of the
business model of Southwest Airlines that emphasizes superior quality of service
at all customer encounters to ensure a memorable experience. Only time will
ascertain the success of this model in Pakistani companies. A point to be notedhere is that despite having lower cost packages (such as yield management,
children and old citizen discounts), AirBlue is not the lowest cost provider in
Pakistan. As Mr. Abbasi pointed out at the launch of AirBlue; “Though Airblue
would have a flexible fare structure, the fares in general would not be cheap. We
are focused on service, which we believe matters in the airline business. ” AirBlue
Consumer purchases products and services to satisfy various needs. According to
Maslow’s hierarchy of needs, presented by Abraham Maslow, air travel satisfies
needs of the fifth order, which is self actualization needs. Travel, always is an
enriching experience, let it be vacationing families or business executives on an
official tour. A person can obviously afford to travel by air only if he has already
fulfilled his basic physiological and safety needs. This is because air travel is ahigh involvement service requiring an extensive decision making approach due to
There are multiple decision parameters which the consumer keeps in mind while
purchasing the tickets. Out of these parameters, price is the foremost for a non-frequent flyer. People who frequently travel through air usually belong to the
business class who travel for business and official purposes. These people care
more about the total travel time and the date/time of departure and arrival because
they are always on the move, and they have a much busy schedule to meet with.
They do bother about the prices also, but they prefer comfort and convenience
over fares.
On the other hand, people who very seldom travel by air, mostly for vacations,
weddings and to meet their relatives in other cities/countries, are usually price-
conscious and go for the most economical deals. These people prefer low price or
discounted fares over travel time and convenience.
AAIR IR BBLUELUE’’SS PPRICINGRICING SSTRATEGYTRATEGY
A well chosen price should do three things:
1.1. AACHIEVECHIEVE FFINANCIALINANCIAL GGOALSOALS OOFF TTHEHE FFIRMIRM ((II..EE.. PROFITABILITYPROFITABILITY))AirBlue achieved operational profit in the first two months of its operations. This
shows that the differentiation strategy proved to be a great success for AirBlue.
AirBlue started operations in May 2004, when the jet fuel price in Pakistan was
around Rs .16 per liter, which almost doubled to Rs. 29 a liter within three
months, much beyond their cushion provision for such an exigency. AirBlue,
through its operations efficiency, managed to sustain the drastic increase in jet
fuel price, which was over 30 perceny of the entire operational cost. It not only
gained a substantial market share within a short span of time but also had a
profitable load factor of over 90 percent, due to the fact that it was the only 100
percent e-ticketing start-up airline in the world. So despite the fact that AirBlue
offered premium quality at premium prices, it has been able to meet the first