RECITE A PRAYER….(15 SECONDS)

Course Contents Content 8 chapter: Chapter 1:FUNDAMENTAL OF AM. Chapter 2:MARKET FOR AIR TRANSPORT SERVICE. Chapter 3:MARKETING ENVIRONMENT& AIRLINE BUSINESS Chapter 4:PRICING AND REVENUE MANAGEMENT Mid-term Chapter 5:DISTRIBUTING OF THE PRODUCT AND BRANDING Chapter 6:RELATIONSHIP MARKETING Chapter 7:AIRLINES SELLING,ADVERTISING&PROMOTE Chapter 8:THE FUTURE OF AM Final exam

Learning outcome Theoretical basis for marketing environment Analyses the factor from this environment which need to be considered by airlines. Know the impact of the marketing environment to the airline marketing

4 Marketing Environment & Airline Business Marketing Strategies Chapter 3

What are understand about the marketing environment? ~~The various external forces that can directly or indirectly affect the many activities of an organization.~~ CHAPTER 3:MARKETING ENVIRONMENT

~~How is it so important???~~ “Airlines cannot develop sound marketing policies independently of a range of political decisions”

The PESTE Analysis -Political -Economic -Social -Technological -Environmental CHAPTER 3:MARKETING ENVIRONMENT

~~What do you understand with POLITICAL???~~ is a process by which groups of people make collective decisions. The term is generally applied to the art or science of running governmental or state affairs.

~~Do you think that because of the POLITICAL issues will effect to airline industry~~ YES!!!!!

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

TERRORISM FEARS/POLITICAL INSTABILITY ~~ Fear of Terrorism in September Attack World Trade Centre and Pentagon -Many thousands of people lost their lives~~ ~~WHAT THE EFFECT TO AIRLINE INDUSTRY~~ -AIRSPACE WAS CLOSED -DECLINE IN DEMAND -FEAR Chapter 3:Marketing Environment

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

CHAPTER 3:MARKETING ENVIRONMENT DEREGULATION AND “OPEN SKIES” ~~Airline industry has been constrained by decision made by politician and government~~ ~~airline being able to fly to any number of gateway point without limitation on their capacity and pricing~~ ~~What the effect to airline industry?~~ -Government control their product, pricing policies

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

CHAPTER 3:MARKETING ENVIRONMENT MARKETING POLICIES FOR DEREGULATED ENV. ~~airline manager are facing the challenge of change and adaption~~

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

PRIVATISATION ~~Gov: airline bring benefits as a back up national defense capability, employment,tourism income~~ ~~to ensure that the airline maximized the contribution it made to the advancement of the national interest~~ ~~MAS~~ ~~Air Asia~~ ~~Berjaya Air~~

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

~~State aid~~ Political support given by government to airlines in the form of subsidies

CHAPTER 3:MARKETING ENVIRONMENT POLITICAL FACTOR  TERRORISM FEARS/POLITICAL INSTABILITY  DEREGULATION AND “OPEN SKIES”  MARKETING POLICIES FOR DEREGULATED ENV.  PRIVATISATION  STATE AID  AIRPORT SLOT ALLOCATION

CHAPTER 3:MARKETING ENVIRONMENT ~~Airport Slot Allocation~~ 1.Airline schedule is important 2.a pre-agreed time for a takeoff or landing to take place at a particular airport~~

~~What the effect of Political issues on the Airline industry??~~ 1. Catastrophic 2. Airline and airport shut down 3. No sale 4. Bankruptcy e.g.: New York Airways(1979),Will’s Air(1982)

The PESTE Analysis -Political -Economic -Social -Technological -Environmental CHAPTER 3:MARKETING ENVIRONMENT

MARKETING ENVIRONMENT 1.The PESTE Analysis b)Economic Factors -World economy grow, demand for the air travel also growth grow with the economy -over invest during good times -not able to control cost during bad times eg., salary, etc

CHAPTER 3:MARKETING ENVIRONMENT ~~Do you know why the Malaysia economy significant increasing every year?~~ ~~Why does Malaysia has a lot of public Holiday compared than other country?~~

CHAPTER 3:MARKETING ENVIRONMENT ~~What the effect to the airline industry if our economy significantly decreasing?~~ - Less demanding form customer- - No sale - Less profit

The PESTE Analysis -Political -Economic -Social -Technological -Environmental CHAPTER 3:MARKETING ENVIRONMENT

MARKETING ENVIRONMENT 1.The PESTE Analysis c)Social Factors -Ageing population; n America, Europe -Changing family structure: small family, single parent, -Fashion & taste in holidays; hobbies, adventure, etc - Female business traveler - disable passengers, medical

The PESTE Analysis -Political -Economic -Social -Technological -Environmental CHAPTER 3:MARKETING ENVIRONMENT

MARKETING ENVIRONMENT 1. The PESTE Analysis d)Technological Factors -Video conferencing; a threat -Internet; a challenge -Surface transport investment; competitor

The PESTE Analysis -Political -Economic -Social -Technological -Environmental CHAPTER 3:MARKETING ENVIRONMENT

MARKETING ENVIRONMENT 1.The PESTE Analysis e)Environmental -Global warming; temperature & cost -Shortage of infrastructure ; Atmospheric& noise pollution -Tourism saturation; limited or over exploitation

Aviation Management College AIRLINE MARKETING

SUMMARY OF AIRLINE MARKETING ~~The PESTE Analysis~~ - Political - Economic - Social - Technological - Environmental

Q-bank Please explain what are you understand about PESTE analysis.(10M) What is the important of this PESTE analysis?(5M) Please explain the effect of political issues to airline industry?(5 M) Please explain the effect of economy issues to airline industry?(5 M) Please explain the effect of Social issues to airline industry?(5 M) Please explain the effect of technology issues to airline industry?(5 M) Please explain the effect of environment issues to airline industry?(5 M)

Chapter 3: Airline Business & Marketing Strategies

Learning outcome Understand the airline business Know the challenge face by airline industry Know the unique of airline marketing strategies

~~No airline can hope to apply these principle successfully without the understanding of customer needs~~

Harvard Professor,Michael Porter Harry Porter??

Chapter 3: Airline Business & Marketing Strategies 1.Porter’s 5 Factors of Strategic Issues 2.Cost Leadership Strategy 3.Differentiation strategy 4.Focus Strategies 5.Common Mistakes

Chapter 3: Airline business and marketing strategies Porter’s 5 Forces of Strategic Issues ~~According to Porter, the strategic issues are colored by the interplay of the 5 forces~~ 1. Rivalry amongst Existing Firms 2. Substitution 3. New Entry 4. Power of customers 5. Power of Suppliers

CHAPTER 3:Airline Business & Marketing Strategies 1.Porter’s 5 Forces of Strategic Issues 1.1Rivalry amongst Existing Firms - competition between old/existing airline in pricing, product, services and can be a head-to-head competition - similar aircraft, seating configuration, frequency & ticket

CHAPTER 3:Airline Business & Marketing Strategies 1.2 Substitution -occur when other firms in another industry find a new and better way of meeting the customer needs- - electronic communication (video conferencing) -improvement in surface transport, efficient, fast.. ~~What the effect?~~ E.g: Using no movement of urgent document by air -newspaper

1.3 New Entry - A first possible barrier to entry may result from regulatory limitations. - Airlines are constrained in their market entry policies by out- of-date and anachronistic limitations on ownership and control. - Must be ready for challenges from new entrants CHAPTER 3:Airline Business & Marketing Strategies

1.4 Power of customers - Crucial determinant of profitability for the firms in any industry. - Customer power will be related to two variables: the number of customers a firm has, and the existence. - bargaining power of Business Travelers - structure of travel agency industry - internet as airline communication channel - Integrated Carriers ; customers demand for additional services, Read pg: 82 CHAPTER 3:Airline Business & Marketing Strategies

1.5Power of Suppliers - when a firms is totally dependent on monopoly supplier will be able to charge prices higher - need to pay tax, levy, airport charges

CHAPTER 3:Airline Business & Marketing Strategies “Disintermediation” - the removal of intermediaries in a supply chain: - "cutting out the middleman".intermediariessupply chain Page:86

Chapter 3: Airline Business & Marketing Strategies 1.Porter’s 5 Factors of Strategic Issues 2.Cost Leadership Strategy 3.Differentiation strategy 4.Focus Strategies 5.Common Mistakes

2. Cost Leadership Strategy Firm has a set of clear requirements it must satisfy if it is to be successful. 1.It must achieve, and then sustain, significantly lower operating costs than its rivals. If it loses its cost advantage, it will be in serious difficulties. Chapter 3:Airline Business & Marketing Strategies

2. Cost Leadership Strategy – Business Model 1.Low fleet costs-only one type of a/c in the fleet 2.Low landing fees-save cost 3.Short turnarounds/high a/c utilization-less hours 4.Limited On-board service-short haul no meal & drink service 5.Point to point only-eliminating cost 6.Simple Fares cost-different pricing practices 7.Low Distribution Cost.-Must know the distribution cost eliminate agents 8.Non-refundable –ticket;-have a policy of allowing no refunds Pages:89-96 Chapter 3:Airline Business & Marketing Strategies

Reasons For Growth 1.Opportunity for entrepreneur 2.Internet – a speedy & cost-effective channel 3.Increase in independent business traveler 4.Corporate purchase, price sensitive 5.Travel agent, for value-for-money package COST LEADERSHIP in the AIRLINE INDUSTRY Chapter 3:Airline Business & Marketing Strategies

Chapter 3: Airline Business & Marketing Strategies 1.Porter’s 5 Factors of Strategic Issues 2.Cost Leadership Strategy 3.Differentiation strategy 4.Focus Strategies 5.Common Mistakes

3.Differentiation strategy - In order to be successful in the Differentiation sector it has always been necessary for airlines to be innovative. -e.g.: Emirates and Singapore airline- consistently aimed to be at the forefront of new developments in such areas as cabin comfort, in-flight service and in-flight entertainment. -Pricing; domestic, regional & inter -Service; full, half or non -Product; package, frills, convenience -Place; airport location, reservation counters, internet Chapter 3:Airline Business & Marketing Strategies

Chapter 3: Airline Business & Marketing Strategies 1.Porter’s 5 Factors of Strategic Issues 2.Cost Leadership Strategy 3.Differentiation strategy 4.Focus Strategies 5.Common Mistakes

4. Focus Strategies ~~Successful focusing can come about in 2 ways.~~ 1.FIRMS ADDING A GREAT DEAL OF VALUE 2. STILL SUSTAIN PROFITABILITY.

FOCUS STRATEGIES in the AIRLINE INDUSTRY a)Value Added Focusing 1)Integrated carries such as FedEx, UPS single activity : guaranteed next-day delivery services for shippers who need to send small, urgent packages. 2) exclusively on meeting the needs of the business air traveler. They dislike flying with those on vacation, who may be noisy and disruptive. Prefer their own airline, where their needs and status can be properly recognized. Chapter 3:Airline Business & Marketing Strategies

b) STILL SUSTAIN PROFITABILITY The airlines used relatively large aircraft(A330). low seat-kilometer costs.

Chapter 3: Airline Business & Marketing Strategies 1.Porter’s 5 Factors of Strategic Issues 2.Cost Leadership Strategy 3.Differentiation strategy 4.Focus Strategies 5.Common Mistakes

A) Over-diversification -Some airlines have diversified into travel-related businesses such as hotel and car rental -Effect???-hotel vacant, car unrented -Some Airline tries to cover too broad a route network with a few aircraft. -Effect???-- competitors to invade the firm’s markets Chapter 3:Airline Business & Marketing Strategies

B) Pace of expansion Appropriate rate of growth which the airline should aim to achieve. Firstly, airlines tend to find that their costs rise.(increment salary, new staff) Secondly, unless an airline grows it will not be taking advantage of new market opportunities as they become available

5. Common Mistakes C) Competitive Response - Successful airlines - manage their competitive strategies well -When a small, start-up airline first begins to fly, it poses a difficult problem for its larger, more powerful rivals. -Small airlines start by giving problem to larger airlines -Larger airline responded with aggressive campaigns -Making life difficult for smaller airlines Chapter 3:Airline Business & Marketing Strategies

5. Common Mistakes d) Control Excessive spending Expensive cars & prestigious offices Funding lifestyle of Directors & Sen. Managers Chapter 3:Airline Business & Marketing Strategies

5. Common Mistakes E) Over-optimism Aviation industry a roller-coaster ride Recessions, wars, terrorism, political, uncontrollable cost (fuel), etc All can come at the same time as experienced Chapter 3:Airline Business & Marketing Strategies

SUMMARY OF AIRLINE BUSINESS AND MARKETING STRATEGIES 1. Porter’s 5 Factors of Strategic Issues 2. Cost Leadership Strategy 3. Differentiation strategy 4. Focus Strategies 5. Common Mistakes

Exercise!! Please explain Porters forces and their application to the airline industry?(10 M) In your own word, please explain how the airline can be different from other airline company(5 m) In your words, please explain what the common mistake did by airline operator?(5 m)