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

Speed of

Light• 299,792,458 m/s

• 671 million mph

• 1,079 million km/s

Sound• 343.2 m/s

• 768 mph

Chapter 4:Chapter 4:Passenger Marketing & Passenger Marketing &

Airline CostsAirline Costs

““To more effectively determine customer To more effectively determine customer potential and to increase revenue, potential and to increase revenue, transport enterprises need to target transport enterprises need to target

potential customers.”potential customers.”

Key points:Key points:

• The Marketing MixThe Marketing Mix

• The consumer-oriented marketing conceptThe consumer-oriented marketing concept

• Other Marketing strategiesOther Marketing strategies

Passenger MarketingPassenger Marketing


One of the most important activities in air One of the most important activities in air transportationtransportation

Most of carrier’s employees engaged in Most of carrier’s employees engaged in marketing activities:marketing activities:• Reservations personnelReservations personnel

• Ticket and customer service agentsTicket and customer service agents

• Baggage handlersBaggage handlers

• Flight attendanceFlight attendance

• Food service representativesFood service representatives

• Passenger and cargo representativesPassenger and cargo representatives

• Pricing and market research analystsPricing and market research analysts

The concept of Airline Marketing approachThe concept of Airline Marketing approach• Production-oriented approachProduction-oriented approach

• Sales-oriented approachSales-oriented approach

• Consumer-oriented approachConsumer-oriented approach


Production-oriented approachProduction-oriented approach The era where emphasis was given on The era where emphasis was given on

carriage/airline then passenger-why?carriage/airline then passenger-why? A time when services were so scarce that A time when services were so scarce that

customers accepted whatever was availablecustomers accepted whatever was available People still do not have confidence on People still do not have confidence on

the air carrier the air carrier But, as time flies, the airline begin to realize But, as time flies, the airline begin to realize

the importance to gain passenger the importance to gain passenger confidence on its services and productsconfidence on its services and products

Sales-oriented approachSales-oriented approach As airline’s capacity increase, much more As airline’s capacity increase, much more

efforts were put to convince the consumers efforts were put to convince the consumers The strategy was produced services that The strategy was produced services that

reflected the operations and selling talents reflected the operations and selling talents of the airline, not the needs of the publicof the airline, not the needs of the public

It was basically a shotgun approach: It was basically a shotgun approach: Convincing people to fly rather than drive or Convincing people to fly rather than drive or take the railroadtake the railroad

Consumer-oriented approachConsumer-oriented approach

Centered to satisfy the consumers (the Centered to satisfy the consumers (the passengers)passengers)

Moved from shotgun approach to target Moved from shotgun approach to target market approach (riffle approach)market approach (riffle approach)

More surveys and tests were carried out to More surveys and tests were carried out to find out what the consumers really wantfind out what the consumers really want

The aim is to identify specific group of The aim is to identify specific group of customers to appeal with its servicescustomers to appeal with its services

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

Consumer-oriented approachConsumer-oriented approach

The marketing mixThe marketing mix

Def: The types and amounts of controllable Def: The types and amounts of controllable marketing-decision factors that an airline marketing-decision factors that an airline uses over a particular period of timeuses over a particular period of time

Commonly referred as ‘four Ps’: Commonly referred as ‘four Ps’: • ProductProduct

• PricePrice

• PromotionPromotion

• PlacePlace

ProductProduct• The right product must be developed to the target The right product must be developed to the target

marketmarket

PricePrice• The right price for the customer and adequate for The right price for the customer and adequate for

the airline revenuethe airline revenue

PromotionPromotion• Use selling and advertising to communicate Use selling and advertising to communicate

information to the consumer and to information to the consumer and to facilitate salesfacilitate sales


PlacePlace• Determine the right channels of distributions to Determine the right channels of distributions to

ensure the product reaches the target market at ensure the product reaches the target market at the right time and place the right time and place



There are also uncontrollable factors such There are also uncontrollable factors such as:as:• Cultural and social differencesCultural and social differences

• Differences in values and traditions among customers Differences in values and traditions among customers like eating habit and food preferences like eating habit and food preferences

• Political and regulatory environmentPolitical and regulatory environment• Constant change of political climate may affect airline Constant change of political climate may affect airline

marketing strategy (i.e, gov. tax, landing quotas at marketing strategy (i.e, gov. tax, landing quotas at certain airports)certain airports)


• Economic environmentEconomic environment• Recession would affect airline marketing operationRecession would affect airline marketing operation

• Existing competitive structureExisting competitive structure• Numbers and types of competitors the marketing team Numbers and types of competitors the marketing team

must face in its target markets may vary considerablymust face in its target markets may vary considerably

• Resources and objectives of the companyResources and objectives of the company• Marketing must develop a strategy consistent with the Marketing must develop a strategy consistent with the

company’s goalcompany’s goal


Apparently, marketing team can do little or Apparently, marketing team can do little or nothing about these uncontrollable factors nothing about these uncontrollable factors

But, these factor must be certainly But, these factor must be certainly recognized and responded to so as it could recognized and responded to so as it could alter marketing strategyalter marketing strategy


The consumer oriented The consumer oriented marketing conceptmarketing concept

Excess capacity and a shortage of Excess capacity and a shortage of customers changed the marketing concept customers changed the marketing concept to a consumer-oriented approachto a consumer-oriented approach

The purpose was to design services to meet The purpose was to design services to meet changing customer requirements as they changing customer requirements as they arose/ preferably before they arosearose/ preferably before they arose

Also to develop services that’d be Also to develop services that’d be responsive to particular customer needsresponsive to particular customer needs

Hence, these are among the essential Hence, these are among the essential information:information:• Who was flying?Who was flying?

• Why they were flying?Why they were flying?

• What Income group they belonged to?What Income group they belonged to?

• What they wanted and liked?What they wanted and liked?

• Where they wanted to go?Where they wanted to go?

• What they could afford? (First class or coach)What they could afford? (First class or coach)


• What are their personal status? (single, married)What are their personal status? (single, married)

• What newspapers and magazines they read?What newspapers and magazines they read?

• What TV shows they watched, and radio they What TV shows they watched, and radio they listened to?listened to?

• Whether they pay cash/ credit card?Whether they pay cash/ credit card?

• What times of the year they traveledWhat times of the year they traveled

With all these inquiries, the airliners have With all these inquiries, the airliners have begun to focus on increased begun to focus on increased market market segmentation segmentation and and intensive growth strategiesintensive growth strategies


Market SegmentationMarket Segmentation

Def: The process of dividing potential Def: The process of dividing potential customers for a service into meaningful customers for a service into meaningful groups groups

That is, to identify your target marketThat is, to identify your target market Involves 3 steps:Involves 3 steps:

• Finding relevant characteristics that categorize the Finding relevant characteristics that categorize the customers into meaningful groups like trip purpose customers into meaningful groups like trip purpose (business, pleasure, personal), traveler (business, pleasure, personal), traveler demographic characteristics (age, sex, occupation demographic characteristics (age, sex, occupation etc)etc)

• Use these characteristics to identify all Use these characteristics to identify all significant market segments and to relate significant market segments and to relate them systematically to the services each them systematically to the services each segment might buysegment might buy

• Select target markets- collection of market Select target markets- collection of market segments most consistent with company’s segments most consistent with company’s objectives and capabilities.objectives and capabilities.

Market SegmentationMarket Segmentation

Intensive Growth StrategiesIntensive Growth Strategies

Involves three essential stepsInvolves three essential steps• Penetrate existing target marketsPenetrate existing target markets

• Increase product developmentIncrease product development

• Develop new target marketsDevelop new target markets

Penetrate existing target marketsPenetrate existing target markets

Done via Done via • Promotional faresPromotional fares

• Provide promotional fare to leisure travelers who travel Provide promotional fare to leisure travelers who travel during off-peak and off-season periodduring off-peak and off-season period

• An effective way to fill in empty seats An effective way to fill in empty seats

• Varying the classes of serviceVarying the classes of service• First class, business class, economy class, coach-fare, First class, business class, economy class, coach-fare,

conditional reservation, jump-seat fareconditional reservation, jump-seat fare

Other market penetrating strategiesOther market penetrating strategies• Frequent-flier bonus awards mileage Frequent-flier bonus awards mileage

accumulatedaccumulated

• Buy one ticket get one free certificates to Buy one ticket get one free certificates to selected citiesselected cities

• Weekenders clubsWeekenders clubs

• Membership that provide exclusive notice of Membership that provide exclusive notice of vacation packagesvacation packages

• Upgrading of coach-fare passengers to first class Upgrading of coach-fare passengers to first class for a small chargefor a small charge

Penetrate existing target marketsPenetrate existing target markets

Increase product developmentIncrease product development

Provide products that could accommodate Provide products that could accommodate the passenger’s needsthe passenger’s needs

Greater emphasis on product improvementGreater emphasis on product improvement Some added services in airline:Some added services in airline:

• In flight telephone and fax, with internet accessIn flight telephone and fax, with internet access

• In flight reservations for hotel and car rentalsIn flight reservations for hotel and car rentals

• Comfortable seats with increased width and pitchComfortable seats with increased width and pitch

• Gourmet meals and complimentary beveragesGourmet meals and complimentary beverages

• Enhanced entertainment systems, direct TV, video Enhanced entertainment systems, direct TV, video games etcgames etc

• Reading and writing materialsReading and writing materials

• Larger lavatories with amenitiesLarger lavatories with amenities

• Impressive duty-free servicesImpressive duty-free services

• Special on ground service like lounges Special on ground service like lounges

and meeting rooms for business travelersand meeting rooms for business travelers

• Special baggage serviceSpecial baggage service

* Some airline even shown the rerun of football game!* Some airline even shown the rerun of football game!

Increase product developmentIncrease product development

Develop new target marketsDevelop new target markets

Def: Process of selling new products or Def: Process of selling new products or services to new target groupsservices to new target groups

Who are this these new target groups?Who are this these new target groups? Determine byDetermine by

• Demographic segmentationDemographic segmentation• Categorize by age, sex, race, nationality etcCategorize by age, sex, race, nationality etc

• Psychographic segmentationPsychographic segmentation• Categorize by life-style and personality linesCategorize by life-style and personality lines

So, NO MORE single market!So, NO MORE single market!

Other marketing strategiesOther marketing strategies

Computerized Reservation Systems (CRSs)Computerized Reservation Systems (CRSs) Travel AgentsTravel Agents Business-Class ServiceBusiness-Class Service Code SharingCode Sharing Hub-and-Spoke ServiceHub-and-Spoke Service Advertising and Sales PromotionAdvertising and Sales Promotion

Where do marketing lead the airline Where do marketing lead the airline business? – sustainable marketingbusiness? – sustainable marketing

Subsequent to sufficient marketing the Subsequent to sufficient marketing the issue is issue is • Determining the Passenger AirfaresDetermining the Passenger Airfares

• The trendThe trend

• Types of Passenger AirfaresTypes of Passenger Airfares

• Pricing processPricing process

• Passenger airfares and airline costPassenger airfares and airline cost

Other marketing strategiesOther marketing strategies

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)

Airline PricingAirline Pricing

Trend in Passenger AirfaresTrend in Passenger Airfares No-Frills AirfareNo-Frills Airfare Types of Passenger FaresTypes of Passenger Fares The Pricing ProcessThe Pricing Process Pricing & Output DeterminationPricing & Output Determination

The trend in passenger airfaresThe trend in passenger airfares

The trend of airfares illustrate the importance The trend of airfares illustrate the importance relationship between demand.relationship between demand.

As they have been implemented over time, they As they have been implemented over time, they illustrate the importance of the relationship illustrate the importance of the relationship economics, business, managerial judgment and economics, business, managerial judgment and governmental regulatory policy.governmental regulatory policy.

During the pioneer days of airline development, the During the pioneer days of airline development, the airfares were based on the responsiveness of airfares were based on the responsiveness of demand for passenger service combined with mail demand for passenger service combined with mail revenues, that would produce the maximum net revenues, that would produce the maximum net return.return.



Historically the trend fluctuate, measured by RPMHistorically the trend fluctuate, measured by RPM From From 1929-19411929-1941: Introduction of Pullman : Introduction of Pullman

charges- It was charges- It was downward trenddownward trend 19421942:: Stable Stable (post WW1) as federal (post WW1) as federal

transportation tax was introducedtransportation tax was introduced 19431943: All discounts & fares were eliminated as : All discounts & fares were eliminated as

WW2 took place- WW2 took place- upward trendupward trend Post WW2: Reduction of airfares and return of Post WW2: Reduction of airfares and return of

discountsdiscounts

1950s1950s: : IncreaseIncrease as there are more passenger as there are more passenger demand as well as demand for military airlift demand as well as demand for military airlift capacitycapacity

1962-19681962-1968: : DeclineDecline due to tremendous growth due to tremendous growth in airline traffic and productivityin airline traffic and productivity

1970s1970s: : DoubledDoubled due to great increase in fuel due to great increase in fuel pricesprices

1980s1980s: : Price decreasePrice decrease, people enjoy , people enjoy marvelous fares and discounts- Technology marvelous fares and discounts- Technology turnoverturnover


1990s to 20031990s to 2003: On average price : On average price decreasedecrease as competition increase as competition increase between new-entrant low-cost carriers between new-entrant low-cost carriers and increased competition between and increased competition between airlinersairliners


No-frills airlines are airlines offer low fares No-frills airlines are airlines offer low fares but eliminate all unnecessary services, such but eliminate all unnecessary services, such as complimentary drinks and business-class as complimentary drinks and business-class seating. seating.

A no-frills airline will typically cut overheads A no-frills airline will typically cut overheads by flying from more remote airports (with by flying from more remote airports (with lower access charges) and by using one lower access charges) and by using one type of aircraft.type of aircraft.

No-Frills AirfareNo-Frills Airfare

No-Frills AirfareNo-Frills Airfare

Aircraft cabin interiors may be fitted out with Aircraft cabin interiors may be fitted out with minimum comforts, dispensing with luxuries minimum comforts, dispensing with luxuries such as seat-back video screens, reclining such as seat-back video screens, reclining seats and blinds; some airlines choose to seats and blinds; some airlines choose to carry advertising inside the cabin to carry advertising inside the cabin to increase revenue.increase revenue.

Types of Passenger AirfaresTypes of Passenger Airfares

Normal FaresNormal Fares• A.k.a standard or basic fares, basis of all faresA.k.a standard or basic fares, basis of all fares

• Apply to all passengersApply to all passengers

• Separate normal fares are provided for each Separate normal fares are provided for each class of service: First, business and economyclass of service: First, business and economy

Common FaresCommon Fares• Specific fare to destination other than the Specific fare to destination other than the

destinations between which the destinations between which the

fare is determined fare is determined

Joint faresJoint fares• Single fares that apply to transportation over the Single fares that apply to transportation over the

routes of two or more airliners and that are routes of two or more airliners and that are determined by an agreement between them.determined by an agreement between them.

Promotional faresPromotional fares• Discounted fares that supplement the Discounted fares that supplement the

normal fare structure. Usually offered normal fare structure. Usually offered

with some restriction, such as minimum with some restriction, such as minimum

length of stay, day of the week, length of stay, day of the week,

or season or season

Types of Passenger AirfaresTypes of Passenger Airfares

Pricing ProcessPricing Process

Involve several steps:Involve several steps:• Pricing strategies and objectivesPricing strategies and objectives

• Pricing tacticsPricing tactics

• Pricing analysisPricing analysis

• Inventory ManagementInventory Management

Pricing strategies Pricing strategies

Charges by airline services include:Charges by airline services include:• The predictable seasonal pattern of demand, The predictable seasonal pattern of demand,

especially leisure travelespecially leisure travel

• The influence of override commissions that many The influence of override commissions that many airlines pay to travel agenciesairlines pay to travel agencies

• The dynamic nature of airline schedules (the The dynamic nature of airline schedules (the strong r/ship between schedule frequency and strong r/ship between schedule frequency and passenger demand)passenger demand)

• Varied pattern by market over timeVaried pattern by market over time

Pricing tacticsPricing tactics

Can be categorized as:Can be categorized as:

1) Fare actions1) Fare actions

• Changes (Increase/ reduce) to actual fares levelChanges (Increase/ reduce) to actual fares level

• Changes can be market specific, regional or mass market in Changes can be market specific, regional or mass market in scopescope

• Among the tactics are Among the tactics are

• Introductory faresIntroductory fares

• System-excursion-fare salesSystem-excursion-fare sales

• System business-fare salesSystem business-fare sales

• Connect market salesConnect market sales

* * Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of year, Excursion Fares are lower priced fares that involve restrictions like advance purchase, time of year,

minimum/maximum stay, etc.minimum/maximum stay, etc.

• Target segment pricingTarget segment pricing

• Flight-time-specific-termsFlight-time-specific-terms

• Mileage-based pricingMileage-based pricing

• Zone pricingZone pricing

• Value-added pricingValue-added pricing

2) Adjustments to fare rules and/or restrictions2) Adjustments to fare rules and/or restrictions

• Periodic adjustment of rules and restrictions, that inludesPeriodic adjustment of rules and restrictions, that inludes

• Advance purchase requirementsAdvance purchase requirements

• One-way vs. round trip purchase requirementsOne-way vs. round trip purchase requirements

• Fare penaltiesFare penalties

• Directional pricingDirectional pricing

• Peak and off-peak pricingPeak and off-peak pricing

Pricing tacticsPricing tactics

Pricing analysisPricing analysis

The airline may use any one, or a The airline may use any one, or a combination of the tactics described earlier to combination of the tactics described earlier to raise or lower a fareraise or lower a fare

The proper economic analysis supporting the The proper economic analysis supporting the decision to change fares will differ, depending decision to change fares will differ, depending on whether it involves a fare reduction or an on whether it involves a fare reduction or an increase. increase. Steps in analyzing fare decreaseSteps in analyzing fare decrease

Analyzing fair decreaseAnalyzing fair decrease• Subtract refunds, advertising, and additional passenger costsSubtract refunds, advertising, and additional passenger costs

Role of Inventory ManagementRole of Inventory Management

Aim to maximize individual flight revenueAim to maximize individual flight revenue Simply sell as many seats as possible at the Simply sell as many seats as possible at the

highest possible fareshighest possible fares Making an adequate of lower fare seats far Making an adequate of lower fare seats far

in advance of the departure date in advance of the departure date Overbook the flights just enough to make up Overbook the flights just enough to make up

for the number of passengers who can be for the number of passengers who can be expected not to show up for the flightexpected not to show up for the flight

Airline CostsAirline Costs

Cost is a major determinant in pricing the Cost is a major determinant in pricing the airline productairline product

4 types4 types• Direct operating costsDirect operating costs

• Indirect operating costsIndirect operating costs

• Nonoperating costsNonoperating costs

• Fixed vs. Variable CostsFixed vs. Variable Costs

Direct operating costsDirect operating costs

Expenses associated with and dependent Expenses associated with and dependent on the type of aircraft being operated, on the type of aircraft being operated, including all flying expenses such asincluding all flying expenses such as1. Flying operations costs1. Flying operations costs

• Flight crew expensesFlight crew expenses

• Fuel and oilFuel and oil

• Airport and en route chargesAirport and en route charges

• Aircraft insurance costsAircraft insurance costs

• Other flight-operations expensesOther flight-operations expenses

2. MRO costs2. MRO costs



Indirect operating costsIndirect operating costs

Those costs that will remain unaffected Those costs that will remain unaffected by a change of aircraft type because by a change of aircraft type because they are not directly dependent on they are not directly dependent on aircraft operations such asaircraft operations such as• Station and ground expensesStation and ground expenses

• Reservations, sales and promotional costReservations, sales and promotional cost

• General and administrative costGeneral and administrative cost

• Depreciation costDepreciation cost

Indirect operating costsIndirect operating costs

Nonoperating costsNonoperating costs

Those expenses and revenues not directly Those expenses and revenues not directly related to the operation of an airlines’ own related to the operation of an airlines’ own air transportation services likeair transportation services like• Gains or losses raising from the retirement of Gains or losses raising from the retirement of

property or equipmentproperty or equipment

• Interest paid on loans, banks or depositsInterest paid on loans, banks or deposits

• Gains or losses raising from an airline’s affiliated Gains or losses raising from an airline’s affiliated companiescompanies

• Direct gov. subsidies and paymentsDirect gov. subsidies and payments

Fixed vs. Variable CostsFixed vs. Variable Costs

Variable costs are those costs that increase Variable costs are those costs that increase or decrease with the level of output, or or decrease with the level of output, or available seat-miles (ASM), that an airline available seat-miles (ASM), that an airline produces. produces.

Example: Flight cancellation, engineering Example: Flight cancellation, engineering and maintenance costs. and maintenance costs.

Fixed vs. Variable CostsFixed vs. Variable Costs

Fixed Costs. Fixed costs are those direct Fixed Costs. Fixed costs are those direct operating costs that, they are costs that operating costs that, they are costs that are unavoidable in the short term. are unavoidable in the short term.

Example: Fleet planning, labour and Example: Fleet planning, labour and maintenance requirement (handling maintenance requirement (handling aircraft).aircraft).

Question 1Passenger marketing is one of the most important

activities in air transportation which include a broad are of business activity that directs the flow of services provided by the carrier to the customer.

a)Briefly explain in your own words the concept of airline marketing approach.(6 marks)

b) Discuss the difference between shotgun approach and riffle approach. State examples for each approaches. (5 marks)

c) From your opinion, which is the best concept of airline marketing approach would you adopt for your airline company and state your reasons. (4 marks)

Question 2Effective airline marketing depends upon effective

marketing system employed by an airliner that carried out in a variety of contexts. Marketing strategies include a wide variety of techniques aimed to deliver customer satisfaction and safety.

a)Describe how can you strategies your techniques in aviation industry using the controllable marketing mix factors.(8 marks)

b) Discuss in your own words the uncontrollable factors in airline marketing mix and provide example to support your answer. (4 marks)

c) From your opinion, what are the essential information you required from your passenger for effective marketing? (3 marks)

Question 3

Excess capacity and a shortage of customers changed the marketing concept to a consumer-oriented approach which design services to meet changing customer requirements as they arose.

a)Describe your understanding on airline market segmentation. (4 marks)

b) Discuss in your own words the airline market penetrating strategies. (6 marks)

c) From your opinion, how can you improve the airline services that could accommodate the passenger’s needs (5 marks)

Question 4

AMC airline is a new established Malaysian Airliner that plans for a new corporate image which deliver the best services in comparison to MAS and Airasia.

a)Guide AMC airline the essential steps in intensive growth marketing strategies (9 marks)

b) Briefly explain what do you understand about the consumer oriented marketing concept and how AMC airline could practise new strategies to utilize the concept. (3 marks)

c) From your opinion, what is the best sustainable marketing strategies AMC airline could implement for continuous improvement and customer satisfaction. (3 marks)

Question 5During the pioneer days of airline development, the

airfares were based on the responsiveness of demand for passenger service that would produce the maximum net return.

a)Explain in your own words the trend in passenger airfares from 1929 and what was the primary reason for the changes in average air passengers fares. (9 marks)

b) From the passenger airfares since 1929, how can you summarize the price trend and the determinants of the demand that you have already described. (3 marks)

c) From your opinion, how is the price trend in 10 years time and elaborate your forecasting reasons (3 marks)

Question 6With airline tickets every person on a flight may have paid

a different price to fly. The airlines have a seemingly secretive formula to constructing various types of passenger airfares.

a)Explain in your own words the types of passenger airfares that can be implemented by airliners (8 marks)

b) Briefly discuss your understanding on no-frills airfare (4 marks)

c) From your opinion, what type of passenger airfares would you implement for your new established airliner and state your reason. (3 marks)

Question 7Expectations of airline passengers have gone up over the

years where airliners are required to design, control, and improve their pricing processes to achieve target results.

a)Explain in your own words the four steps of airline pricing process. (8 marks)

b) Briefly discuss the four types of airline costs that could determine the pricing the airline product (6 marks)

c) From your opinion, which pricing tactics would you implement for your MAS and state your reasons. (2 marks)

Documents

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