Speed of

1. Light 299,792,458 m/s 671 million mph 1,079 million km/s Sound 343.2 m/s 768 mph Speed of

2. Chapter 4:Passenger Marketing & Airline Costs “To more effectively determine customer potential and to increase revenue, transport enterprises need to target potential customers.”

3. Passenger Marketing • Key points: • The Marketing Mix • The consumer-oriented marketing concept • Other Marketing strategies

4. Passenger Marketing • One of the most important activities in air transportation • Most of carrier’s employees engaged in marketing activities: • Reservations personnel • Ticket and customer service agents • Baggage handlers • Flight attendance • Food service representatives

5. Passenger Marketing • Passenger and cargo representatives • Pricing and market research analysts • The concept of Airline Marketing approach • Production-oriented approach • Sales-oriented approach • Consumer-oriented approach

6. Production-oriented approach The era where emphasis was given on carriage/airline then passenger-why? A time when services were so scarce that customers accepted whatever was available People still do not have confidence on the air carrier But, as time flies, the airline begin to realize the importance to gain passenger confidence on its services and products

7. Sales-oriented approach As airline’s capacity increase, much more efforts were put to convince the consumers The strategy was produced services that reflected the operations and selling talents of the airline, not the needs of the public It was basically a shotgun approach: Convincing people to fly rather than drive or take the railroad

8. Consumer-oriented approach Centered to satisfy the consumers (the passengers) Moved from shotgun approach to target market approach (riffle approach) More surveys and tests were carried out to find out what the consumers really want The aim is to identify specific group of customers to appeal with its services

9. Consumer-oriented approach Then, the airline may opt to strategize the kind and amount of activities necessary to reach the target market- How?

10. The marketing mix • Def: The types and amounts of controllable marketing-decision factors that an airline uses over a particular period of time • Commonly referred as ‘four Ps’: • Product • Price • Promotion • Place

11. The marketing mix • Product • The right product must be developed to the target market • Price • The right price for the customer and adequate for the airline revenue • Promotion • Use selling and advertising to communicate information to the consumer and to facilitate sales

12. The marketing mix • Place • Determine the right channels of distributions to ensure the product reaches the target market at the right time and place

13. The marketing mix

14. The marketing mix • There are also uncontrollable factors such as: • Cultural and social differences • Differences in values and traditions among customers like eating habit and food preferences • Political and regulatory environment • Constant change of political climate may affect airline marketing strategy (i.e, gov. tax, landing quotas at certain airports)

15. The marketing mix • Economic environment • Recession would affect airline marketing operation • Existing competitive structure • Numbers and types of competitors the marketing team must face in its target markets may vary considerably • Resources and objectives of the company • Marketing must develop a strategy consistent with the company’s goal

16. The marketing mix Apparently, marketing team can do little or nothing about these uncontrollable factors But, these factor must be certainly recognized and responded to so as it could alter marketing strategy

17. The consumer oriented marketing concept Excess capacity and a shortage of customers changed the marketing concept to a consumer-oriented approach The purpose was to design services to meet changing customer requirements as they arose/ preferably before they arose Also to develop services that’d be responsive to particular customer needs

18. The consumer oriented marketing concept • Hence, these are among the essential information: • Who was flying? • Why they were flying? • What Income group they belonged to? • What they wanted and liked? • Where they wanted to go? • What they could afford? (First class or coach)

19. The consumer oriented marketing concept • What are their personal status? (single, married) • What newspapers and magazines they read? • What TV shows they watched, and radio they listened to? • Whether they pay cash/ credit card? • What times of the year they traveled • With all these inquiries, the airliners have begun to focus on increased market segmentation and intensive growth strategies

20. Market Segmentation • Def: The process of dividing potential customers for a service into meaningful groups • That is, to identify your target market • Involves 3 steps: • Finding relevant characteristics that categorize the customers into meaningful groups like trip purpose (business, pleasure, personal), traveler demographic characteristics (age, sex, occupation etc)

21. Market Segmentation • Use these characteristics to identify all significant market segments and to relate them systematically to the services each segment might buy • Select target markets- collection of market segments most consistent with company’s objectives and capabilities.

22. Intensive Growth Strategies • Involves three essential steps • Penetrate existing target markets • Increase product development • Develop new target markets

23. Penetrate existing target markets • Done via • Promotional fares • Provide promotional fare to leisure travelers who travel during off-peak and off-season period • An effective way to fill in empty seats • Varying the classes of service • First class, business class, economy class, coach-fare, conditional reservation, jump-seat fare

24. Penetrate existing target markets • Other market penetrating strategies • Frequent-flier bonus awards mileage accumulated • Buy one ticket get one free certificates to selected cities • Weekenders clubs • Membership that provide exclusive notice of vacation packages • Upgrading of coach-fare passengers to first class for a small charge

25. Increase product development • Provide products that could accommodate the passenger’s needs • Greater emphasis on product improvement • Some added services in airline: • In flight telephone and fax, with internet access • In flight reservations for hotel and car rentals • Comfortable seats with increased width and pitch • Gourmet meals and complimentary beverages

26. Increase product development • Enhanced entertainment systems, direct TV, video games etc • Reading and writing materials • Larger lavatories with amenities • Impressive duty-free services • Special on ground service like lounges and meeting rooms for business travelers • Special baggage service * Some airline even shown the rerun of football game!

27. Develop new target markets • Def: Process of selling new products or services to new target groups • Who are this these new target groups? • Determine by • Demographic segmentation • Categorize by age, sex, race, nationality etc • Psychographic segmentation • Categorize by life-style and personality lines • So, NO MORE single market!

28. Other marketing strategies Computerized Reservation Systems (CRSs) Travel Agents Business-Class Service Code Sharing Hub-and-Spoke Service Advertising and Sales Promotion

29. Other marketing strategies • Where do marketing lead the airline business? – sustainable marketing • Subsequent to sufficient marketing the issue is • Determining the Passenger Airfares • The trend • Types of Passenger Airfares • Pricing process • Passenger airfares and airline cost

30. Group Discussion Briefly explain what do you understand about the consumer oriented marketing concept and what are the strategies to utilize the concept. (Create 5 new strategies non-existance strategies)

31. Airline Pricing Trend in Passenger Airfares No-Frills Airfare Types of Passenger Fares The Pricing Process Pricing & Output Determination

32. The trend in passenger airfares The trend of airfares illustrate the importance relationship between demand. As they have been implemented over time, they illustrate the importance of the relationship economics, business, managerial judgment and governmental regulatory policy. During the pioneer days of airline development, the airfares were based on the responsiveness of demand for passenger service combined with mail revenues, that would produce the maximum net return.

33. The trend in passenger airfares

34. The trend in passenger airfares Historically the trend fluctuate, measured by RPM From 1929-1941: Introduction of Pullman charges- It was downward trend 1942: Stable (post WW1) as federal transportation tax was introduced 1943: All discounts & fares were eliminated as WW2 took place- upward trend Post WW2: Reduction of airfares and return of discounts

35. The trend in passenger airfares 1950s: Increase as there are more passenger demand as well as demand for military airlift capacity 1962-1968: Decline due to tremendous growth in airline traffic and productivity 1970s: Doubled due to great increase in fuel prices 1980s: Price decrease, people enjoy marvelous fares and discounts- Technology turnover

36. The trend in passenger airfares 1990s to 2003: On average price decrease as competition increase between new-entrant low-cost carriers and increased competition between airliners

37. No-Frills Airfare No-frills airlines are airlines offer low fares but eliminate all unnecessary services, such as complimentary drinks and business-class seating. A no-frills airline will typically cut overheads by flying from more remote airports (with lower access charges) and by using one type of aircraft.

38. No-Frills Airfare Aircraft cabin interiors may be fitted out with minimum comforts, dispensing with luxuries such as seat-back video screens, reclining seats and blinds; some airlines choose to carry advertising inside the cabin to increase revenue.

39. Types of Passenger Airfares • Normal Fares • A.k.a standard or basic fares, basis of all fares • Apply to all passengers • Separate normal fares are provided for each class of service: First, business and economy • Common Fares • Specific fare to destination other than the destinations between which the fare is determined

40. Types of Passenger Airfares • Joint fares • Single fares that apply to transportation over the routes of two or more airliners and that are determined by an agreement between them. • Promotional fares • Discounted fares that supplement the normal fare structure. Usually offered with some restriction, such as minimum length of stay, day of the week, or season

41. Pricing Process • Involve several steps: • Pricing strategies and objectives • Pricing tactics • Pricing analysis • Inventory Management

42. Pricing strategies • Charges by airline services include: • The predictable seasonal pattern of demand, especially leisure travel • The influence of override commissions that many airlines pay to travel agencies • The dynamic nature of airline schedules (the strong r/ship between schedule frequency and passenger demand) • Varied pattern by market over time

43. Pricing tactics • Can be categorized as: 1) Fare actions • Changes (Increase/ reduce) to actual fares level • Changes can be market specific, regional or mass market in scope • Among the tactics are • Introductory fares • System-excursion-fare sales • System business-fare sales • Connect market sales * Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of year, minimum/maximum stay, etc.

44. Pricing tactics • Target segment pricing • Flight-time-specific-terms • Mileage-based pricing • Zone pricing • Value-added pricing 2) Adjustments to fare rules and/or restrictions • Periodic adjustment of rules and restrictions, that inludes • Advance purchase requirements • One-way vs. round trip purchase requirements • Fare penalties • Directional pricing • Peak and off-peak pricing

45. Pricing analysis • The airline may use any one, or a combination of the tactics described earlier to raise or lower a fare • The proper economic analysis supporting the decision to change fares will differ, depending on whether it involves a fare reduction or an increase. Steps in analyzing fare decrease • Analyzing fair decrease • Subtract refunds, advertising, and additional passenger costs

46. Role of Inventory Management Aim to maximize individual flight revenue Simply sell as many seats as possible at the highest possible fares Making an adequate of lower fare seats far in advance of the departure date Overbook the flights just enough to make up for the number of passengers who can be expected not to show up for the flight

47. Airline Costs • Cost is a major determinant in pricing the airline product • 4 types • Direct operating costs • Indirect operating costs • Nonoperating costs • Fixed vs. Variable Costs

48. Direct operating costs • Expenses associated with and dependent on the type of aircraft being operated, including all flying expenses such as 1. Flying operations costs • Flight crew expenses • Fuel and oil • Airport and en route charges • Aircraft insurance costs • Other flight-operations expenses 2. MRO costs

49. Direct operating costs

50. Direct operating costs