Markets for Air Transport Services

Markets for Air Transport Services

Businesses in which airline participates:

• Transportation: airline satisfies in an optimum way the social need of transportation. It competes with surface and other mode of transportation

• Communication: it assists people to communicate as travel allows opportunities for face-to-face meeting. Revolutionary video-conferencing & others electronics aids are the detrimental factors for air travel. Companies are investing in providing computers with above facilities to their employees to communicate discouraging air travel

Markets for Air Transport Services

• Leisure: airline involves in intensely competitive leisure industry – disposable income & time of customers.

• Logistics: it is rarely possible for airlines to sell successfully against surface transport on the basis of price. Surface rates ate only a fraction of the air-based equivalent. It succeeds in logistics concepts based on fast transport, low inventories, high value products & minimizing warehousing

• Information: it competes in businesses associated with movement of information

• Selling services: it is successful in selling its skills- engineering, handling & data processing management

Who is the “Customer”

"Consumers" are those people who actually travel. They are easy to identify and analyze. They may not be decision-makers.

In Marketing such decision-makers are defined are "Customers".

There are at least four customer decisions which must be analyzed:

• Will a trip be made at all?

"Customers" for the airlines might be firms CEO or CFO.

• What mode of transport will be selected?

Considering merits of different mode of transports, usually corporate policy is formulated for selecting the suitable mode of transport. In leisure trip, influential member of the family will take decision.

Who is the “Customer”

• For air trip, what classes of service will be purchased?

All most all firms have a corporate policy whereby very senior executives are allowed to travel in First class, mid level in Business class and junior in Economy class. Policy is reviewed in recession and crises

• Which airlines will be selected?

In the post, business traveler did have choice in selecting airlines. Corporate discounts offered by airlines have forced to narrow down the choice. In leisure travel, Tour Operators are the decision makers. Passengers have little to say.

It is crucial for airlines to identity "Customers" for an effective marketing policy.

"Apparent" and "True" needs

The difference between the claim and the truth is known in marketing as the difference between "Apparent" and “True" needs

Example: Business travellers might figure out prominently for services such as flight frequency, punctuality and roomy cabin. But true needs of greed might be confined to maximize personal benefits available to them through Frequent Flyer Program using employers money

"True needs" are at the heart of successful marketing

"Customers" in the Business Air travel market

Correctly identifying and targeting "Customers" rather than "Consumers" is a cornerstone of successful marketing in the airline industry.

The "true needs" of the customers should be taken into consideration in order to ensure accurate targeting. Followings are the probable customers in air travel market

Secretary to Senior Executive:

Busy executives might trust their secretaries to select airlines and make booking. He/she will choose suitable airline considering the choices and requirements - departure airport, flight timing. Airlines targets secretaries with offers of corporate entertainment and discounted travel in return for loyalty.

"Customers" in the Business Air travel market

Travel Agent-Busy executives regard the travel agent

as an expert to obtain their advice to explore alternatives. Travel agents motivates by the greed of higher commission provided by airlines.

Travel clerks actually make bookings and issue

tickets, offer of incentives free travel on so-called educational or familiarization visits arranged by airlines

Corporate travel Managers in large corporation

organize travel plan for executives

Many airlines today follow the policy of giving incentive to everyone, whether or not the person in question is actually able to influence the amount of business obtained. Thus, today almost all airlines offer individual incentives through Frequent Flyer Program.

The "Customer" in the leisure Air Travel Market

Children can have an important influence on travel buying decision made by parents. Video game availability in airlines in flights entertainment (IFE) system and preference choices of destination - Disney resort.

Some societies are matriarchal, where women are dominant in family. Others are patriarchal, where men dominate. In UK, Women are extremely influential in holiday planning.

Travel Agents - Leisure travellers turn to travel agents for advice on making of booking and visa application as they are relatively in experience.

Tour operators usually selects airlines of a group along with others relevant aspects of travel. They coordinate "consolidators" - dealers of discounted air tickets - to organize tour.

"Customer" in the Air Freight Market

Air freight forwarders - More than 90% of the air freight is provided by forwarders. Forwarders do gather together a large number of small packages from individual shippers and present them to an airline as a large consignment. In return airlines charges much lower rate per kilo. All airlines regard managers of forwarder as "Customer"

Clerks who work for freight forwarder do take decision in selecting routing and carriers for moving emergency shipments late at night without disturbing Senior Managers.

Integrators - FedEx, UPS and DHL - provide good support in retail market of non-expert users.

Market Segmentation- Air pax market

If an airline was to carry out market research into requirement of its customers, the outcome would not be a uniform set of results. The process of trade-off customer requirements against production economics is done through “Market Segmentation”.

A market segment is a group of Customers who have sufficient in common that they form a viable basis for a product/ price/ promotion combination

Under-segmentation- grouped into segments which are too large with high degree of difference Over-segmentation- is a situation where too many segments are isolated give insufficient indicators for policy development

Segmentation variable in Air pax market

Journey purpose : Fundamental segmentation in air pax market. Needs further division between business and leisure travel In business travel, a useful distinction is between Corporate and Independent business travel • Corporate travellers- ticket price is paid by

company. Placing importance on high product standards

• Independent business travellers- prices of an air

ticket is coming out of their own pocket. Requirements identical to corporate travellers. Often prepared to sacrifice product frills

Segmentation variable in Air pax market

In Leisure travel, two segments can be isolated: • Holiday- Someone travelling by air on holiday, have

to pay of their meals & accommodation at destination. Size of the market is restricted by those who have relatively higher disposable incomes.

• Visit-friend-and-relatives (VFR)- travellers under

this segment gets meals and accommodation free-of-charge. Relatively lower disposable income. Recently migrated population have strong ethnic link to origin

Two other categories are completely outside of the above:

• Pilgrims visiting Islam’s holiest places in Saudi Arabia. • Population travel abroad for better medical facilities

Segmentation variable in Air pax market

Length of Journey:

There are fundamental difference between the requirements of:

• Short haul routes – flight time of 45 minutes should be regarded as short haul route. Airport experience is important one, while in-flight aspects- seating comfort & food assume rather less significant

• Long haul routes – flight time of 01-10 hours should be regarded as long haul route. Better In-flight aspects- seating comfort & food- are expected

Country/culture of origin of the travellers: Global branding and seamless service concept in aviation come into conflict with marked difference in customer requirements which occur between different culture.

• Business travellers in north-west Europe or north America – middle aged, soberly dressed & carrying only a small amount of baggage

• Business travellers in third world countries largely consists of traders who fly to a destination where customer goods are available cheaply

Customer Requirements-Business Travel Market

1. Frequency and Timings:

An airline offering a high frequency will have crucial advantage. Frequency ensures that business travellers can fly out for a meeting shortly before it is due to begin and return very soon after it has been completed.

A high frequency of flights will be of no value if all the flights are concentrated at the weekend or during mid-day periods. Flights will need to be concentrated in the early morning and evening periods.

2. Punctuality:

Flight delays meaning inconvenience, missed appointments and perhaps, the loss of customers. No airline can hope to obtain a large share in business travel market if it does maintain a poor punctuality

Customer Requirements-Business Travel Market

3. Airport Location and Access:

One short-haul routes, passengers will prefer service from a local, easily accessible airport, rather than from a more distant hub. This rule may apply even if the service from the local airport is with a "No Frills" airline.

4. Seat Accessibility/Ticket Flexibility:

"Seat Accessibility" refers to probability of a passenger being able to book a seat on a flight shortly before it is due to depart.

A sudden crisis requires one to travel on a "next flight out" basis. In other situations, a flight may be booked well in advance, but at the last minute a change of plan means that the booking must be cancelled and a new one made on an earlier or later flight. Ticket flexibility is that many business travellers expect the right to no-show for a flight, and then to be re-booked on a later one, without any penalty being charged.

Customer Requirements-Business Travel Market

5. Frequent Flyer Benefits:

Almost all airline operate their own Frequent Flyer Program, or are partners in another carrier's program. FFP benefits build market loyalty.

6. Airport Service:

On a short flight, business travellers demand the opportunity to check-in very late for a flight, by using a separate check-in desk to guard against the possibility of being delayed by a long line of less time-sensitive travellers. Expedited security and passport checks, and that a lounge should be available in which they can relax prior to a flight and make any last-minute phone calls or send emails also expect a premium baggage service.

Customer Requirements-Business Travel Market

7. In-Flight Service:

In-flight experience, seating comfort in terms of seat pitch and seat width will be significant.

A working environment away from crying children etc., where important documents, say, can be read before a business meeting.

Meals and drinks are expected to be served at the appropriate time of day.

Independent business traveller, as ticket cost is coming out of their own pocket, they are ready to trade off cheaper tickets against product frills such as standards of seating comfort, free drinks and in-flight

meals.

Customer Requirements-Business Travel Market

• On long-haul routes:

• it is difficult or impossible for an airline operating a stopping service to compete for high-yielding traffic with one which flies a route non-stop.

• Punctuality assumes even greater importance for the connecting passenger.

• In-flight Services- seat comfort, meal & drinks at appropriate timing & In-Flight Entertainment (IFE) system is considered a critical factor

• Flight frequency & timing remain significant with different meaning- double daily flights preferable-morning & evening

• Passengers incline to airline with attractive FFP

• Airport service, seat accessibility and ticket flexibility may, correspondingly, be of rather less importance for long haul passengers.

The Business Travel Market-

Demographics and Psychographics

"Demographics" is used to describe the physical and tangible characteristics of the members of the segment. Business traveller are:

- male and middle-aged - early forties.

- relatively wealthy individuals. They naturally expect the airline that they choose to reflect this.

-the average number of air trips made per year is more than ten.

"Psychographics" is the term used to describe the intangible attitudes, preferences and, perhaps, prejudices of the members of the segment. Business travellers tend to

-have strong opinions, and are often communicate these opinions loudly and frequently.

-require extensive international air travel as exciting. After a few years attitudes can change dramatically because of repeated doses of jet lag and acute difficulties in maintaining social and personal relationships.

The Leisure Segment of Demand

-Business travel tends to be concentrated in the middle-aged 35-55 age group. Leisure travel, on the other hand, encompasses all ages.

-Children are important in leisure travel, whilst young adults, benefiting from reasonable incomes and few commitments, usually have an especially high propensity to fly.

-Today, rising disposable incomes and even more the falls in the real cost of air travel have broadened the base of the leisure market enormously

-Price sensitive-dominant requirement for a cheap air fare

-leisure air travel is undertaken in a family group.

The Leisure Segment of Demand

-do not generally require frequent, on-demand service. This allow airlines to use relatively large aircraft & gain the benefits of the lower seat-kilometer costs

-willingness to sacrifice product features which can be traded off against the availability of cheaper fares. Some product features will clearly not sacrifice i.e. safety

-reasonable standards of punctuality performance are essential

-Also willing to sacrifice seating comfort, airport service and catering. Passengers will accept lower standards in both seat pitch and seat width. In the area of airport standards, leisure passengers will often accept longer minimum check-in times.

Air Passenger vs Air Freight market

• Directional balance: Almost all passengers who fly out on a route will also return on it. A directional balance is hardly found in freight

• Passenger are homogenous in the sense that they each occupy a seat. Freight is extremely heterogeneous – weighing less than a kilo up to consignment of 30,000 kilo or more

• Handling and stowage conditions that different commodity require. Fragile items need special handling, high value items need special security & perishable items need refrigeration

• Almost all passengers who travel long distance do so using air transport. In air freight market, airline faces intense competition from other mode of transports. Air freighter often found 10 times more expensive that surface transport

Segmentation Variables-Air Freight Market

Market segmentation is as important in the air freight market as it is on the passenger side of the business. Only if markets are properly segmented can airlines find a basis for their product, price and promotional policies.

First segment of air freight demand is that consisting of Emergency traffic. Emergency situations occur when goods have to be moved by the fastest possible mode of transport with the costs of achieving a fast transit a secondary consideration. Emergency situations may be divided into two types- Operating emergency and Marketing emergency

Segmentation Variables-Air Freight Market

An Operating Emergency occurs when a firm has to rectify an operational problem. For example, an oil company may find that one of its rigs has to cease production because of a breakdown. Every hour of lost production time will then have a substantial cost associated with it a cost which can be minimized if air freight is used to ship the spare parts which are needed to enable production to resume.

The second type of emergency situation is termed the Marketing Emergency. Such a situation occurs when a supplier is in danger of missing a deadline or one of its customers has expressed dissatisfaction with service levels. Then air freight is the obvious choice, though the justification will be based on the maintenance of customer loyalty rather than cost reduction.

Segmentation Variables-Air Freight Market

The second major segment is Routine-Perishable in nature-Routine as opposed to Emergency, and Perishable because the goods in question only remain saleable for a limited period of time. Perishability occurs for two reasons.

Physical Perishability describes situations where goods physically deteriorate. Cut flowers and soft fruits are good examples of this. A more profitable option might be to send the flower to distant markets where they will have scarcity value. Then, though, air freight will have to be used in order to ensure that the goods reach the market in a saleable condition.

Segmentation Variables-Air Freight Market

Economic Perishability is the second type. It occurs not when goods are prone to deteriorate physically, but when the Life Cycle within which they remain saleable is a short one.

Newspapers have been such a commodity. Other examples include fashion clothing, children's toys, and pop music CDs.

These goods can be sold in large quantities and at good prices if they reach the market when demand for them is still rising rapidly.

Air freight often provides the only realistic way of ensuring that this happens, at least in long-haul markets.