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 declining
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, 1999). 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 or
differentiation. 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 ................................................................... 37
1. Cost Leadership ........................................................................................... 37
2. Differentiation ............................................................................................. 38
3. Focus ........................................................................................................... 38
SWOT ANALYSIS
External Factors
1
Internal Factors
S
W
O
T
A
N
A
L
Y
S
I
S
Strengths
Opportunities
1. Leading Market Position
1. High dependence on Passenger
2. Brand Recognition
Revenues
3. Superior Operating Structure
2. Debt
4. Network Presence
3. Reliance on Oil Prices
5. Hub airport at Karachi
Threats
Weaknesses
1.
Route and fleet expansion
1.
High Interest Rates
2.
Growing demand for Low
2.
Accidents
cost airlines
3.
Strong Competition
3.
Expansion of Freight
Business
4.
Interest and foreign
4.
Customer loyalty
5.
5.
Shifting customer needs
6.
Further Alliances
7.
Industry Recovery
currency exchange rates
Decline in airline industry
A. STRENGTHS
1. LEADING MARKET POSITION
AirBlue is one of Pakistan’s leading air carrier, with more than 800 daily flights to
8 destinations. Around 100,000 passengers a month fly on AirBlue, making it one
of the major operators in the domestic market in terms of passenger kilometers. Its
revenue growth was driven by stronger yields per passenger, up
2.8 percent year-on-year.
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
2. BRAND RECOGNITION
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. SUPERIOR OPERATING STRUCTURE
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 pointto-point
route structure. Flying one type of aircraft significantly simplifies scheduling,
maintenance, flight operations, and training activities. AirBlue has continually
achieved high asset utilization and employee efficiency. Superior operating
structure serves as the primary competitive advantage of AirBlue.
4. NETWORK PRESENCE
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. HUB AIRPORT AT KARACHI
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 is also the
leading international air passenger (and cargo) gateway to Pakistan. The
3
company’s strong presences in airports with heaviest traffic levels in Pakistan give
it a competitive advantage.
6. EFFICIENT USE OF TECHNOLOGY
AirBlue has successfully incorporated latest technology in all its systems, giving it
an edge over competitors. As discussed in the case study, AirBlue takes credit for
introducing most new technologies to the Pakistani market. It was the first carrier
in Pakistan to incorporate the e-ticketing system and the second in South Asia to
introduce self check in systems at the Jinnah International Airport, Karachi. It also
has an efficient intranet called “AirBlue EDNET” that helps it successfully
maintain a paperless environment, providing managers and employees real time
access to information. It has also vertically integrated the intranet incorporating
major strategic partners such as American Express.
B. WEAKNESSES
1. HIGH DEPENDENCE ON PASSENGER REVENUES
Passenger revenues accounted for 78 percent of the AirBlue’s total revenue in
2005. Cargo services allow airlines to generate additional revenues from existing
passenger flights. In addition, cargo revenues are usually counter cyclical to
passenger revenues and have lower demand elasticity than passenger business,
which allows airlines to pass on fuel price hikes to customers.
2. DEBT
AirBlue has a significant amount of debt. It has short term financing of Rs. 254
million. Current and future debts could have important consequences for
stakeholders of the company. For example, debt could impair AirBlue’s ability to
make investments and obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate or other purposes. Debts could
also put AirBlue at a competitive disadvantage to competitors that have lesser debt
and could also increase the company’s vulnerability to interest rate increases.
4
3. RELIANCE ON OIL PRICES
AirBlue’s sustainability, growth and revenues directly depend on oil prices. A steep
rise in oil prices can seriously damage the long term viability of any airline.
Recently many airlines around the world went bankrupt due to rising oil prices.
Airlines need to hedge against this risk by taking proper measures. In case of
AirBlue, fuel prices also had an impact as fuel cost increased from Rs. 519 million
to Rs 1,475 million.
C. OPPORTUNITIES
1. ROUTE AND FLEET EXPANSION
AirBlue is planning to include more domestic and international destinations in its
network in 2005. Expansion plans are already in the pipeline with permission to
start flights to Manchester awaiting clearance whilst an application to start flights
to Jordan has been submitted. Other destinations included in their long term plans
include further cities in the UK and USA, India and Saudi Arabia. Route and fleet
expansion will positively impact the company’s operations by increasing revenues
and expanding its network.
2. GROWING DEMAND FOR LOW COST AIRLINES
The growing demand for air travel is driven by lower fares and consumer
confidence. A survey by International Aviation Authority showed that ticket price
is the number one criterion for passengers when selecting a flight, well ahead of
the availability of a non-stop service.
3. EXPANSION OF FREIGHT BUSINESS
Though a late starter, AirBlue’s cargo revenue is developing. Cargo revenue
showed an increase of 32 percent, as it touched Rs. 41 million this year up from
Rs. 31 million. The current growth in AirBlue’s freight segment is aided by recent
introduction of scanning technology, which meets the requirements private courier
service providers operating in Pakistan. Equipped with the right technology,
AirBlue is now in a position to cash in on increasing demand for freight and reduce
its business risk by reducing dependence on passenger traffic.
5
4. CUSTOMER LOYALTY
AirBlue’s frequent flyer and loyalty programs can help it retain customers.
AirBlue’s BlueMiles (frequent flyer program) was established to develop
passenger loyalty by offering awards and services to frequent travelers. Such
schemes encourage repeat travel on AirBlue, as passengers seek to accrue the
benefits given to regular travelers. This enables the airline to retain customers and
reduce costs, as it does not have to spend money targeting new customers to replace
those lost to other airlines.
5. SHIFTING CUSTOMER NEEDS
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. FURTHER ALLIANCES
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. INDUSTRY RECOVERY
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
6
it could generate increased revenues and command market share if it capitalizes
on increases in demand.
D. THREATS
1. HIGH INTEREST RATES
The past few years have seen State Bank of Pakistan impose high as well as low
interest rates to check inflation and the over heating of Pakistani economy. Inflation
in Pakistan may see another raise in the short-term. According to
International Monetary Fund’s World Economic Outlook 2006, the Pakistan real
GDP growth could fall from 6.5 percent in 2005 to 5.5 percent in 2006. This could
depress consumer spending and offset some of the positive trends for AirBlue, in
Pakistan. The US and Eurozone are expected to be the key markets for AirBlue in
the near future. A slowdown in the US and Eurozone economies could lead to
reduced demand from corporate travelers.
2. ACCIDENTS
Though AirBlue did not suffer any accident in past. It has to continuously ensure
utmost safety and security of its passengers. Accidents can adversely affect
customer confidence in AirBlue and result in declined revenues intensifying
competition.
3. STRONG COMPETITION
AirBlue is now competing against more credible low cost carriers such as Shaheen
Airline, AeroAsia and PIA Express. PIA remains AirBlue’s strongest competitor
because of the huge market it has gained over time, strong brand image and
customer loyalty.
AirBlue also faces competition from PIA’s new low-fares subsidiary, PIA Express.
Moreover, major legacy airlines have been focusing on restructuring costs, which
has improved their competitiveness. With costs restructured, the legacy airlines are
becoming more formidable competitors in terms of increasing capacity, matching
prices and leveraging their frequent flier programs. Increasing competition could
adversely affect the company’s margins.
7
4. INTEREST AND FOREIGN CURRENCY EXCHANGE RATES
Fluctuating foreign currency exchange rates can have a significant impact on
AirBlue’s earnings. For example, as AirBlue is planning to expand its services to
the UK. As a result, AirBlue can experience negative or positive effects arising
from exchange rate movements. Strengthening of foreign currencies against the
British Pound will positively impact AirBlue and vice versa.
5. DECLINE IN AIRLINE INDUSTRY
A number of factors have caused the current decline in the airline industry. For
example, the threat of further terrorist attacks since September 11 and a fall in the
number of business travelers have both caused passenger numbers to fall. These
and other factors may continue to affect demand for air travel in the future, which
will affect revenues of AirBlue. For example, global problems such as an increased
threat of terrorism in response to the coalition’s war on terrorism could have an
adverse effect on AirBlue. The threat of terrorism may discourage people from
traveling by air and could espeically reduce the number of passengers traveling on
international flights.
PEST ANALYSIS
The macro-environment includes all factors influencing a company that are not
within its control. These include political social, economic and technological
factors. These are known as PEST factors. A technique of analysis of the macro
environment is PEST analysis. Environmental analysis should be continuous and
precede all aspects of planning. Since the airline industry is very much influenced
by changes taking place in the environment and has undergone rapid and dramatic
changes during the last decade, this analysis is especially important for AirBlue.
PEST ANALYSIS
8
Political
1. Increased
Competition
(Deregulation
of airline
industry)
2. Political
Stability
Social
1. Greater
Customer
Awareness
2. Increased
Entertainment
Spending
3. Increased
Investment
3. Technology
Averse
Customers
Opportunity
4.
Economical
Technological
1. Improved
Purchasing
Power
1. In-flight
Entertainment
2. Demand
Value-forMoney
3. Soaring Oil
Prices
4. Reduced
Ticket
Prices
2. E-ticketing
(SABRE
System)
3. Automated
(Self) Checkin
4. SMS Services
POLITICAL FACTORS
Political factors always have a great influence, on the way businesses operate in the
airline industry and the spending power of customers. Governments intervene in
•
It is a major employer and provider of livelihoods.
•
•
International tourism flows mean that governments benefit directly from
incoming tourists.
•
Government still owns a significant stake in national carrier, Pakistan
International Airlines (PIA) and gives it frequent subsidies in terms of
financing and oil.
9
However, in recent years it has been observed that government played an active
role in increasing competition in the airline industry. A number of new airlines
such as AirBlue and JS Air have been awarded licenses to enter the domestic
market. Despite increasing competition, PIA has maintained a monopoly on
international routes. Airline industry is significantly affected by political stability.
Pakistan has achieved some political stability in recent years. If the management
of AirBlue believes that the present government will perform well (consistently),
then there will be more investment in the form of purchase of new airplanes and
latest technology. The over all industry will grow resulting in more luxurious and
comfortable flights. With the military takeover government policies have become
more liberal. In the past, Pakistan’s Civil Aviation Authority (CAA) played a major
role in discouraging new airlines to enter the industry. CAA had a restriction that
companies could not operate as airlines unless they own their aircrafts. This means
that new firms will need humongous investment even to enter the market.
ECONOMIC FACTORS
Currently, Airlines industry has four major players: Pakistan International
Airlines, AirBlue, Aero Asia and Shaheen Airlines. Their target market includes
domestic travelers as well as Pakistanis living abroad particularly in the UK and
USA. These countries have strong economies coupled with high purchasing power.
Customers’ purchase behavior depends very much on prices of the competing
airlines as well as services offered. As inflation rate is stable in Pakistan, spending
power of consumers is not effected in the long term. In fact growth in Pakistani
economy has resulted in an increase in spending power and has positively impacted
the airline industry.
Economically, the new millennium has been highly volatile; the September 11
attacks revolutionized the whole world. Consequently, there was a global
depression in the North America, South America, Australia and Europe. However,
in Asia especially Pakistan the effect in the short term was otherwise. The economy
began to boom because of greater remittances from abroad and wholesum
immigration by expatriates. As a result, demand for air travel in South Asia rose.
PIA because of its monopoly in the market had been dictating policies and prices.
10
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 Boeing 1 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.
SOCIAL FACTORS
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. Eticketing 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 potential as
1
2
Boeing-777
Currently done by Air Blue and PIA.
11
consumers are unaware of its services because of ineffective and meager marketing
efforts.
TECHNOLOGICAL FACTORS
Technology is vital for competitive advantage and is a major driver of the airlines
industry. Major technological changes are taking place in the airlines industry with
innovations in the reservations and booking systems. In-flight entertainment
systems and auto check in counters are two examples of such innovations. Internet
plays a key role in e-ticketing as consumer can easily reserve tickets or check the
status of the flight. A key issue will be the extent to which technological
advancements (such as Internet) impact distribution and cost synergies from
industry consolidation, can offset upward pressures on costs. AirBlue has led the
path of technological innovations by introducing new technologies ahead of its
competitors such as its auto check-in counters which has helped it gain market
share. It was the first airline in Pakistan to install Sabre system followed by the
market leader, PIA. Pakistani Airlines have to be abreast of the technological
developments in e-commerce and aircraft manufacturing technology in order to
gain a competitive advantage.
PORTER’S FIVE FORCES ANALYSIS
12
THREAT OF NEW ENTRANTS
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 domestic
travelers 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.
THREAT OF SUBSTITUTES
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
13
such trips. This however, will vary for from person to person 3 . A vacationing
traveler has the option of choosing a train, enjoying the scenery and its leisurely
pace. Air travel can, however, save both time and money for longer routes. Flying
from Islamabad to Karachi is often cheaper, safer and less time consuming than
chugging along in a train or car. The threat of substitutes in the air travel industry
will vary for each customer segment depending upon time, money, preference, and
convenience.
BARGAINING POWER OF SUPPLIERS
The price of jet fuel is directly related to the cost of oil. This price is determined by
international markets.and an individual company does not have the power to
influence it. The airline supply chain is dominated by Boeing, Airbus, Aircraft
Parts Suppliers and Reservation System Providers. There is cut throat competition
among suppliers and they are very likely to integrate vertically. Oil is an integral
input of the airline industry and has the power to directly influence air fares. Hence,
the oil suppliers have high bargaining power.
BARGAINING POWER OF BUYERS
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 travels are
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.
3
For example business travelers will more often than not prefer air travel because despite it is faster
despite being more expensive.
4 As is the case for Air Blue which uses Yield Management to offer substantially lower rates for
advanced bookings.
14
INTENSITY OF RIVALRY
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 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 price war 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.
5
As was done by Air Blue.
15
ANSOFF MATRIX
Ansoff Matrix allows marketers to consider ways to grow the business via existing
and/or new products, in existing and/or new markets. There are four possible
product/market combinations:
•
Market penetration (existing markets, existing products)
•
Product development (existing markets, new products)
•
Market development (new markets, existing products) • Diversification (new
markets, new products)
Products
Present
M
a
rk
e
ts
New
Product
Market Penetration
Developme
Market Development
Diversificat
New
Keeping in view the airline industry of Pakistan, AirBlue is in the Market
Penetration Matrix. Market penetration occurs when a company adopts a low cost
strategy to induce customers to try its product or service. It is important to note here
16
that market penetration strategy begins with existing customers of the organization.
This strategy is used airlines to increase sales and market share without drifting
from the original product/market strategy. AirBlue penetrated the Pakistan market
employing a three pronged strategy; by attracting competitors’ customers,
providing superior services, and targeting non-user segments. AirBlue also tried to
entice its current customers to use more of the company’s services by offering
various discounts and schemes such as student and old citizen discounts and Blue
Miles. AirBlue has used a rare but attractive combination of low-cost, all-frills
strategy which is rarely used in the airlines industry. It has managed to successfully
attract and retain customers by superior services at the same or lower fares. This
gives it a competitive advantage of having strong brand equity and has helped it
attract new and retain old customers.
17
COMPETITORS ANALYSIS
Analyzing an organization’s competitors helps it decide the strategies it will follow
in both the short and long term. By looking at competitors, a firm can determine
the industry trends and make decisions on crucial issues such as discounts to be
offered, quality of services provided, channel of distribution and promotion
strategy. A firm can improve its operations and is in a better position to compete
by taking into account all these aspects. The airline industry in Pakistan currently
has cut throat competition. Passengers, today, are time conscious since time is the
only rare commodity in today’s world. The offering of the airlines are continuously
changing with changing customer needs. The airlines are deploying more efforts to
meet customer requirements and provide superior quality of services. Every
organization faces competition and so does Air Blue. Its competitors include PIA,
Aero Asia and Shaheen Airways.
PAKISTAN INTERNATIONAL AIRLINES ( PIA )
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 hubs
include 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 A310300. 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 2006, PIA unveiled
18
four designs representing the four provinces of Pakistan to be applied throughout
their fleet, these will replace the present flag6.
AERO ASIA INTERNATIONAL
Aero Asia is a private Pakistani airline based at Jinnah International Airport,
Karachi and Dubai International Airport, Dubai. Aero Asia was previously owned
and operated by the Tabani Group, which sold it to the UK based Regal Group,
following the temporary suspension of its flights in the summer of 2006. It was the
first low cost airline in Pakistan and operates to destinations in Pakistan and the
Gulf states. The fleet size is 10, and it has total of 11 destinations, 7 domestic and
4 international. Aero Asia has already covers the Middle-East and has been granted
permission to fly to the United Kingdom and United States from December 2005
by the CAA. However, because of its current restructuring, international flights are
expected to commence in 2007. It will start from Manchester, London and
Birmingham gradually including New York, Singapore, Copenhagen, Oslo and
Bahrain. The latest Boeing and Airbus aircraft are being inducted in the fleet.
Within Pakistan it currently provides services at Karachi, Lahore, Islamabad,
Peshawar, Multan, Faisalabad and Sukkur. Internationally, it covers Abu Dhabi,
Dubai, Doha, Manchester and Muscat7.
SHAHEEN AIR
Shaheen Airways is the second national airline after PIA. It mainly covers
Karachi, Lahore and Islamabad and the Gulf. Its base is Jinnah International
Airport, Karachi, with a hub at Islamabad International Airport, Islamabad. Its fleet
size is 10 and destinations are 11 which are further divided into 5 domestic and 6
international. This depicts that it is mainly focusing international customers. It
currently operates in Islamabad, Karachi, Lahore, Peshawar, Quetta, Abu Dhabi,
UAE, Doha, UK, Kuwait and Oman.
6
7
http://en.wikipedia.org/wiki/Pakistan_International_Airlines
http://en.wikipedia.org/wiki/Aero_Asia_International
19
PERCEPTUAL MAPPING
Perceptual mapping is a technique used to determine positioning of brands relative
to their competitors. We have used this technique to analyze the positioning
strategies of Air Blue. For plotting the perceptual mapping we have compared
positioning of Air Blue with Shaheen Airlines, Aero Asia and PIA using the
following attributes.
Destinations
Punctuality
Quality of Food
Value for money
Economy
Services
Technological Advancements
Corporate Image
Attributes
AirBlue
PIA
Shaheen Air
AeroAsia
Destinations
Punctuality
Quality of Food
Hospitality/Customer
5
7
7
5
7
5
6
6
5
6
4
5
5
4
3
6
Service
Economical
Technological
6
7
5
5
6
5
7
5
Advancements
Services
5
6
4
4
Corporate Image
3
7
4
6
20
PERCEPTUAL MAP
Shaheen Air
1
Attributes
Destinations
Punctuality
AirBlue
PIA
5
7
7
5
5
6
AeroAsia
5
4
Destinations
Punctuality
DESTINATIONS/COVERAGE
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
to a limited number of routes.
21
PUNCTUALITY
An important consideration for airline travelers is the punctuality of schedule. PIA
has an overall punctuality of 89 percent, which is the official figure. The passengers
of PIA, however, think that the actual percentage is lower. The flights for PIA are
usually delayed for considerable durations. Air Blue flights are on time and their
punctuality is more than 90 percent, much higher than PIA. Shaheen Airways
claims to be very punctual and scheduled whereas a few years back, Aero Asia had
some issues regarding consistent the delays of their flight. So we have ranked Air
Blue the highest, followed by Shaheen, PIA and Aero Asia respectively.
22
PERCEPTUAL MAP
Shaheen Air
2
Attributes
Quality of Food
Hospitality/Customer
PIA
AirBlue
7
5
6
6
4
5
AeroAsia
3
6
Service
Food Quality
Hospitality/Customer Service
FOOD QUALITY
Air Blue serves an exquisite cuisine, a choice of local and Chinese, consisting of
“Sweet and Sour Chicken with Vegetable Rice,” accompanied by a “Cucumber
and Tomato Salad with a wedge of Lemon,” a traditional Pakistani dessert made
with milk and vermicelli called “Sawai” followed by tea. The best part of the meal
is that it is served in china utensils (the main dish, the tea cup, desert and salad
bowls are all made of china). One of the Air Blue passengers rated the food 9 out
of ten and commented, “The taste was amazing. The juicy tender pieces of meat
along with rice mixed together blended in the mouth in such a way that it surely
23
made you say “yum8.” Since Aero Asia is a low cost, no frill airline, its food quality
is inferior to competitors. In most domestic flights, passengers are served half a
glass of cold drink and a packet of chips. The food quality of PIA is also good; the
typical menu includes “Biryani,” liked by both the local and foreign passengers.
The breakfast and snacks have a lower ranking, which is on average 4 out of 10
whereas the lunch and dinner have a ranking of around 7.5 out of 10.9
HOSPITALITY/CUSTOMER SERVICE
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 important
international routes is great.
3
Attributes
PIA
AirBlue
AeroAsia
Economical
6
5
5
7
Technological
7
6
6
6
Advancements
8
9
http://www.airlinemeals.net/meals/AirBlue.html
http://www.airlinemeals.net/indexMeals.html
24
PERCEPTUAL MAP
Shaheen Air
Economical
Technological Advancements
ECONOMY
In order to attract the price conscious consumers, airlines offer different packages
for target markets. Aero Asia is the lowest cost airline in Pakistan; it does not
provide any frills. Air Blue again is a low cost airline, but it offers all frills. Air
Blue offers special discounts if the seats are booked online. They also have students
discount and old aged citizen discounts. Air Blue fares are a bit closer to Aero Asia
but PIA fares are higher than all competitors on domestic routes.
SERVICES
The unique services being offered by PIA include; its cargo; Speedex and other
baggage services. PIA also offers the best in-flight entertainment; a wide variety
of movies, over a dozen audio channels, duty free shopping, games (arcade style
games, playing cards, crosswords and strategy games) maps and tourist
information. Aero Asia offers an international cargo and courier service in
25
affiliation with top notch airlines including Emirates and Qatar Airlines. Venus
Aviation, a sister traveling agency of Aero Asia, operates one of the largest tours
in Pakistan and organizes local and foreign packages for tourists. Aero Asia does
not offer entertainment services except for magazines, newspapers and games for
kids. The unique services offered by Air Blue include its e-ticketing and self checkin systems along with new, spacious aircrafts and better in flight services. Air Blue
offers 2 channels; one audio which plays the recitation of Holy Quran and the other
is video. After privatization, the Shaheen Air Cargo Division was set up under
Shaheen Airways.
26
PERCEPTUAL MAP
Shaheen Air
4
Attributes
PIA
AirBlue
AeroAsia
Services
5
6
4
4
Athletic Image
3
7
4
6
Services
Athletic
TECHNOLOGICAL ADVANCEMENTS
Air Blue was the first airline in Pakistan to introduce e-ticketing bringing about a
revolutionary way of buying tickets. It is also a member of Sabre system that is used
by over a hundred airlines to help it with ticket automation services. Air Blue is
the first airline in Pakistan that has made use of IT as a strategic tool for
disintermediation of the middle agent and reaching out directly to customers. PIA,
Aero Asia and Shaheen Airways followed its foot steps and introduced eticketing.
Leading the way with innovative new technology, Air Blue became the first airline
in South Asia and only the second in the region after Emirates to introduce the
latest self-check-in facilities at the Karachi airport. It was also the first private
airline of Pakistan to operate the airbus A320.
27
CORPORATE IMAGE
For the purpose of positioning Air Blue and its competitors, corporate image means
if the brand advertises a corporate image. PIA, the national carrier of Pakistan was
a favorite of corporates before the introduction of AirBlue. PIA regularly sponsors
sports such as a first-class cricket team that plays in the ABN AMRO Patron’s
Trophy in Pakistan. PIA is also sponsoring the A1 Team Pakistan for the A1 Grand
Prix, recently being introduced in over 25 nations around the world. The sport is
very similar to the Formula One races and is held during the Northern Hemisphere
winter off-season of the FIA Formula 1 Grand Prix series. Aero Asia sponsors
cricket matches aired on TV. The cricket grounds are usually branded with Aero
Asia logo. Air Blue and Shaheen Airways, however, are not as active in sponsoring
sports events.
AIOD FRAMEWORK
28
Need/Benefit
Time Saving
Activities
Businessmen,
The Hustlers and
Overloaded
Interests
Current
Opinions
Active
Demographics
Age: 28-45
Entrepreneurs, Affairs, Social
Ambitious
Heavy Users
Corporate
Events,
Strong Views
Married, Full
individuals,
Finance News, about politics
Nest
Celebrities,
Personal
Upper Middle
Working
Achievements, Issues, Hard
professionals,
Traveling
Work, Self
Class
Better Services
Families
Students,
Restaurants,
Satisfaction
Want ‘value’
Age: 25+
The Frill Seekers
Working
gyms, parties
for the money Married/Single
professionals,
and other
spent,
Medium to
Business men
social events,
Perfectionist,
Heavy Users
Families
Recreation,
Gregarious,
Full Nest I,II and
Personal
Vigorous,
III
Achievements
Politics,
Upper Class
Business
Hard Work,
Age: 23-40, 55-
Economical/Special
Families,
Socializing,
Deals and packages
Studies,
Working
people,
Travelers
Mingling with
The Economizers
people,
Picnics,
Movies,
Vacations,
Movies,
Music
29
and Social
Energetic,
Planned and
rational
purchasing
patterns,
Rational
Approach
towards life
Class-Upper
60
Married/Single,
Medium
Heavy Usage
Full Nest I&II
Middle-middle
class – Upper
middle class
to
Blue Miles-frequent
flyer program The
Habitual/Regular
Business men,
Established
professionals,
entrepreneurs,
corporate
Gadgets,
Active,
Age: 35+
Sports, Gym,
Clubs,
traveling,
Shopping,
Perfectionists, Married
Energetic,
Heavy Usage
Rational
Full Nest
Approach
Upper middle-
Real Estate
towards life,
Upper Class
Luxury
Tourists
Businessmen
Clubs
Politics
Political
Age: 35+
The Well-to-do
Politicians
Swimming,
Views
Married/Single
Entrepreneurs
Health
Fliers- The
Frecuente10fliers
individuals,
Medium – Heavy
Celebrities
Authoritative,
Open views
Swimming
on different
Shopping
matters,
Cultural events branded
products,
Convenience
Studies,
Gadgets,
The Content-able
Traveling
Business
and job
chores,
Families,
Top level
managers
sports, music, Puchasing,
above
parks, picnics, Making life
Married/Single
vacations,
comfortable
Medium to
Home
for others and
Heavy Usage
Appliances,
themselves,
Upper middle-
Traveling
Social Issues,
Middle Class
Diplomats
Planned
Relationships,
Self
interested,
Time
conscious
10
“Frecuente” is a Spanish word meaning Frequent
30
Usage
Upper Class
Age: 30 and
1. TIME SAVING
DEFINITION
The first benefit of traveling with Air Blue is of saving time. Air travel is the
fastest means of transportation for domestic as well as international travel. Air
Blue flights are also punctual and fly right on time. The direct flights from
Dubai to Northern Areas have made traveling easier for the locals rather than
taking connecting flights. The e-ticketing service has made it possible to reserve
seats online, again saving time taken to go to the travel agent and reserving
seats through them.
THE HUSTLERS AND OVERLOADED
Customers from this category belong to the upper class and are business men,
entrepreneurs, corporates, high level managers, media celebrities, politicians.
These people are always on the move and perform multiple roles and tasks.
They are very frequent travelers. These people are above 28 years of age, may
belong to both genders, are married and have kids. They are ambitious, have
strong views about themselves, politics, and social issues, believe in hard work
and are energetic. This category also includes expatriates who want to visit
their loved ones back home. They want to use direct flights in an effort to
maximally utilize their vacation.
2. BETTER SERVICES
DEFINITION
The in-flight and other customer services offered by AirBlue are far more better
than PIA and other competitors. They offer the services of e-ticketing, self
check in counters, more entertainment on flight, better variety and quality of
food and the exquisite cuisine give a value experience to the passengers.
THE FRILL SEEKERS
These people are outgoing, assertive, gregarious and high achievers. They like
to go to restaurants, gyms, and attend parties and other social events. Their
thoughts and opinions are formed about family, friends, fashion, future, ideals,
politics and business. They belong to the age brackets of 25 and above, can be
31
married or single, highly professional, belong to the upper class. They are
perfectionists and purists and like to socialize, go to clubs, like sports, health
and gym, shopping and cultural events.
3. ECONOMICAL/SPECIAL DEALS AND PACKAGES
DEFINITION
Air Blue offers different packages for different target markets. These packages
are more economical than other airlines. Air Blue also offers special discounts
for students and old age citizens. By booking the ticket online, the customer
gets a Rs. 300 concession, which is another considerable factor for the price
conscious consumer.
THE ECONOMIZERS
This group of people consists of consumers who usually belong to the middle
class (middle or upper middle class) or even the upper class people who
frequently travel by air. They like to socialize and enjoy spending time with
their families. This group consists of colleges or university students studying
away from home who visit their parents often. It also includes the vacationing
families who once in a year or very seldom travel by air for their holidays.
Since the families usually consist of 4 or more individuals, so the most
economical package is considered. It may also consist of people from the older
age brackets as they have special discounts. These people are interested in
picnics, movies, recreation and vacations. They have a planned purchasing
pattern, think rationally, want value for the money spent and believe in hard
work.
4. BLUE MILES- FREQUENT FLYER PROGRAM
DEFINITION
The Air Blue Frequent Flyer program helps passengers earn BlueMiles with
every flight they make. If the passenger can earn enough miles, she can qualify
for express check in, lounge access and free tickets.
32
THE HABITUAL/REGULAR FLIERS- THE FRECUENTE
11
FLIER
This group of customers consists of people who very frequently travel by air
for business or recreational purposes and may considered to be loyalists. This
group consists of business men, corporate managers, entrepreneurs,
established workers, self made people and tourists. They are interested in
vacations, clubs, socializing, shopping, gym, golf, exercise and adventures.
They are active, consume branded products, and are energetic, perfectionists,
passionate and are fashion conscious. They are above the age of 35, married,
heavy users and belong to the upper class.
5. LUXURY
DEFINITION
Air Blue gives a luxury experience to its passengers. The in flight
entertainment, exquisite cuisine, leather upholstered seats, caring treatment by
the crew and lounges make the experience a luxury experience for the
passenger.
THE WELL-TO-DO
This segment of people includes the rich and successful businessmen,
youngsters and the young-at-heart who like to show off and make an
impression. These consumers are from the upper class of the society, are
mature and established. They have strong political views, they are
authoritative, have open views on varied topics, believe in using branded
products and high achievers.
6. CONVENIENCE
DEFINITION
Air Blue provides convenience by its routes such as direct flights from Dubai
to Northern Areas, where passengers do not have to take connecting flights. Eticketing has made it convenient for customers to compare different options
available and reserve seats. The self check in systems allows the passengers to
11
“Frecuente” is a Spanish word meaning Frequent
33
get boarding passes without counters so that they do not have to wait in the
queue.
THE CONTENT-ABLE
This group consists of people from middle to upper class, usually the busy
people who do not have much time such as business men, CEOs, Presidents
and top level managers. Anyone traveling by air would want to utilize these
services. These people are interested in gadgets, sports, music, parks, picnics
and vacations. They believe in relationships, planned and rational purchasing,
like to make life comfortable for themselves and other and social issues. They
are above 30 years of age and can be married or single.
PRODUCT LIFE CYCLE
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 a useful
concept for strategic planning. Each stage of the product life cycle has certain
marketing requirements.
34
INTRODUCTION - 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.
GROWTH - 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.
MATURITY – 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,
12
http://en.wikipedia.org/wiki/Airblue
35
especially with respect to price, and firms are trying to determine ways to hold on
to their market share.
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 declining
market.
PORTER’S GENERIC STRATEGIES
Competitive Advantage
Low Cost
C
o
m
p
e
t
i
t
i
v
e
Higher Cost
Cost Leadership Differentiation
S
c
o
p
e
Cost Focus
36
Differentiation Focus
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, 1999). 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 or differentiation.
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 focus13. We will briefly overviews these
generic strategies because
1. COST LEADERSHIP
In cost leadership, a firm sets out to become the lowest cost producer in its industry.
The sources of cost advantage are varied and depend on the industry structure.
They may include the pursuit of economies of scale, proprietary technology,
preferential access to raw materials and other factors. A low cost producer must
find and exploit all sources of cost advantage. If a firm can achieve and sustain
overall cost leadership, then it will be an above average performer in its industry,
provided it can command prices at or near the industry average.
13
www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html
37
2. DIFFERENTIATION
In a differentiation strategy, a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that
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. FOCUS
The generic strategy of focus rests on the choice of a narrow competitive scope
within 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.
AIRBLUE’S GENERIC STRATEGY –DIFFERENTIATION
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 noted here is that
despite having lower cost packages (such as yield management, children and old
38
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 is expected to perform
superbly in the market which is evident from the comment made by Prime Minister
Shaukat Aziz, at its launch; “Airblue can earn a lot of profit through promoting
tourism in the country.” He also praised the company for its plans to make an initial
public offering (IPO) soon.
AIRBLUE
POSITIONING STATEMENT
“A cordial and reliable escort, AirBlue provides world class services
through state-of-the-art technology at very low cost.”
PERSONALITY STATEMENT
“An ambitious man of 28, AirBlue is a CEO by profession. He has
a track record of setting high objectives and meeting or exceeding
them with hard work and determination. He is exceptionally
punctual and has a professional image. He has friends in all walks
of life and is always on the outlook for making new ones. He is very
caring and can do anything to see his loved ones happy. He does
not hesitate in buying cheaper products that provide value. He is
mesmerized by technology and likes to keep up with changing
39
trends. He owns various high technology products such as a PDA,
a laptop, an iPod and a digital camera.”
PIA
POSITIONING STATEMENT
“Like a responsible ally, PIA provides convenience, dependability and
a sense of closeness to home, anywhere in the world.”
PERSONALITY STATEMENT
“Dressed in green and white, PIA is a professional woman of 35 who works
from home. Juggling work and family at the same time, she has managed
to create an intricate balance between the two. She has a history of being
tardy, because of her multiple responsibilities. She is a bit moody and is
known for her temper tantrums. Despite these flaws, she is a Proud
Pakistani and represents Pakistan everywhere in the world. She adores
Pakistani food and does not like other cuisine.”
AERO ASIA
POSITIONING STATEMENT
“Aero Asia provides an interesting blend of average quality services at the
lowest possible cost. It has recently revitalized its personality and now
gives a younger and energetic look.”
PERSONALITY STATEMENT
“Aero Asia, a charming girl of 25, is price sensitive. Her philosophy is
‘saving for the rainy day.’ She is simple and straightforward and doesn’t
like to indulge in luxuries. She is on a strict diet and only eats healthy
snacks through out the day. She recently acquired a new wardrobe giving
her a younger and energetic feel. ”
40
MASLOW’S HIERARCHY OF NEEDS
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 a high
involvement service requiring an extensive decision making approach due to high
fares.
Self
Actualization
Ego Needs
Social Needs
Safety Needs
Physiological
Needs
Maslow’s Hierarchy of Needs
of
THE CUSTOMER BUYING PROCESS
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
nonfrequent flyer. People who frequently travel through air usually belong to the
business class who travel for business and official purposes. These people care
41
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
priceconscious and go for the most economical deals. These people prefer low price
or discounted fares over travel time and convenience.
1. PROBLEM RECOGNITION
In the first stage of the buying process, consumers will identify the need which is
this case of a travel mode. Air travel is considered a luxury and is affordable for
the elite and upper middle tiers of the society. This situation has, however, been
altered with the introduction of low-cost airlines such as Aero Asia and Air Blue in
the Pakistani market. This situation has altered the industry scenario and has
included the middle class in the airlines’ target market.
The need for air travel can be categorized into two categories i.e., for business and
for pleasure. Officials from both the government and private sectors have to travel
both within the country and overseas to attend workshops, seminars, meetings and
other events. For pleasure, people travel individually as well as in families both for
vacations, and tours, to meet relatives, attend weddings and even for educational
purposes.
2. INFORMATION SEARCH – SEEKING VALUE
Air travel is a high involvement service and that is why a typical consumer goes
through a complex purchasing process. In this phase, the customer will obtain
schedules and fares for different airlines. The customers will use both the company
sources including the airline websites and official sales center for getting this
information. The customers will then contact a traveling agent and will inquire
about the available options. The customer will also obtain information from
personal sources such as family and friends. This will include word of mouth of
one’s relatives and colleagues who have first hand experience with the airline. As
42
it is said, one satisfied customer produces 9 more customers, and one dissatisfied
customer looses 100 potential customers. Like any other service industry, word of
mouth plays a pivotal role in the airline industry. After internal and external
information search the consumers will have a clearly defined set of criteria on the
basis of which he will make the purchase decision.
3. EVALUATION OF ALTERNATIVES
In light of the criteria, the customer has set during the information gathering phase,
she will establish a set of alternatives which are up to the mark. In this phase, every
step is analyzed in terms of the value a customer will obtain from the airline service
and the price of the service. Value is perceived in terms of product promotion,
place, people, physical evidence, and processes, whereas money is considered in
terms of price. The image of the service, its availability, functionality, customer
care, user-friendly booking system and attractive environment all contribute to
customer satisfaction from a service experience. The customer by now has
collected the schedules, routes, fares and travel time offered by different airlines.
She will now compare the fares and services offered by each airline. Information
search clarifies the problem for the consumer by:
a. Suggesting criteria to use for the purchase such as Fares, Travel Time,
Services, Connecting Cities and Rewards
b. Yielding brand names that might meet the criteria AirBlue, PIA, Aero Asia,
Shaheen Air etc.
c. Developing consumer value perception i.e. how consumers perceive each
brand and how it rates on each criteria decided by the consumers.
A consumer’s evaluative criteria represent both:
a. Objective attributes of a brand (such as Quality of Services, Safety,
Punctuality, Fares etc)
b. Subjective factors (such as Prestige, Brand Image, Status etc.)
These criteria establish a consumer’s evoked set viz. a group of brands that the
consumer would consider acceptable from all brands in a product class of which
she is aware.
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4. PURCHASE DECISION
The customer’s buying decision is influenced by the range, style, and
presentation of the service. In this stage, the customer undertakes the cost
benefit analysis of the product. People from the upper class might not be price
conscious and will go choose the airline that provides the maximum luxury and
comfort. They will choose airlines such as PIA or AirBlue and might not even
consider Aero Asia or Shaheen Air. On the other hand, a price conscious
consumer might settle with the basic services and choose Aero Asia or Shaheen
Air. AirBlue is currently targeting the price conscious consumers
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who want to get the maximum value and quality services for the price they pay.
Purchase decision is also effected by the perceived risks associated with the
airline service. These risks may include the quality of services which the
customer is expecting from the airline.
5. POST PURCHASE BEHAVIOR
Post purchase behavior of the consumer is very important since she spreads the
good or bad word about the airline to other potential customers. A good word
from consumers will promote the airline and will ensure greater loyalty and
recognition. For this reason, the airlines need to ensure that they produce
satisfied customers.
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AIRBLUE’S PRICING STRATEGY
LOW
HIGH
Penetration
LOW
Economy
Price
HIGH
Skimming
Premium
Quality
Pricing Strategies
A well chosen price should do three things:
1. ACHIEVE FINANCIAL GOALS OF THE FIRM (I.E. PROFITABILITY)
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 objective i.e.
profitability.
2. FIT THE REALITIES OF THE MARKETPLACE (WILL CUSTOMERS BUY AT THAT PRICE?) The
prices set by AirBlue targeted the elite class including the business travelers and
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vacationers. Its differentiated and quality services generated loyal and satisfied
customers. The prices by AirBlue have been set keeping in view the competitive
environment and customer buying patterns. The tickets by Air Blue are affordable
and economical.
3. SUPPORT POSITIONING
AND BE CONSISTENT WITH THE OTHER VARIABLES IN THE
MARKETING MIX
As AirBlue aimed to position itself as a high end service provider, it offered
premium prices to the customers. This fit well with the image the company was
trying to portray viz. high quality services at a premium price. This is evident from
AirBlue’s consistent success despite its high prices. This shows that the target
market of AirBlue is the upper and middle class of the society that can afford
luxuries.
From the marketers’ point of view, an efficient price is a price that is very close to
the maximum that customers are prepared to pay. In economic terms, it is a price
that shifts most of the consumer surplus to the producer. The effective price is the
price the company receives after accounting for discounts, promotions, and other
incentives.
For this marketers use the following strategies.
PREMIUM PRICING
Premium pricing also called prestige pricing, is the strategy of pricing at, or near,
the high end of the possible price range. People will buy a premium priced product
because they believe the high price is an indication of good quality. They believe
it to be a sign of self worth – “They are worth it.” It authenticates their success and
status and acts as a signal of people’s’ status and success. They require flawless
performance in this application, the cost of product malfunction is too high to buy
anything but the best. In the airline industry, PIA and AirBlue are offering a
premium price as compared to their competitors. AirBlue is a ‘full frill’ service
despite its image as the contrary and superior quality of their services is what
differentiates them from competitors.
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PENETRATION
Penetration pricing is the pricing technique of setting a relatively low initial entry
price, a price that is often lower than the eventual market price. The expectation is
that the initial low price will secure market acceptance by breaking down existing
brand loyalties. Penetration pricing is most commonly associated with a marketing
objective of increasing market share or sales volume, rather than short term profit
maximization.
AirBlue initially offered a penetration price. The ticket fares were relatively low,
whereas the quality of services was high when the company entered the market.
The prices were then increased as the company established a brand image.
SKIMMING
Price skimming is a pricing strategy in which the marketer sets a relatively high
price for a product or service at first, and then lowers the price over time. It is a
temporal version of price discrimination/yield management. Until a few years back,
PIA was offering skimmed prices where the quality of services was not equivalent
to the price being charged for the tickets. Most of the customers did not receive a
value for the money they paid. Now, however, PIA has improved the quality of the
services and are offering a premium price.
ECONOMY
Economy pricing is a pricing strategy in which a marketer follows low cost strategy.
An airline is said to have set economical prices when they charge low, or almost
lowest in the industry, for tickets and offer low quality services. In Pakistani airline
industry, Aero Asia is following the low cost strategy where the ticket prices are
the lowest and the quality of services is also meager.
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