MARKETING THE INDUSTRY SEGMENTS 4.05 Explain the air transportation industry.

Airline Deregulation Act of 1978 Prior to 1978, the Civil Aeronautics Board was responsible for air fares, routes, and schedules. In 1978, responsibility for airline travel was transferred to the FAA and the DOT. The Deregulation Act allowed for free-market competition. Airlines could then adjust their fare structure and rates. Deregulation forced noncompetitive airlines out of the market and increased demand for regional carriers as full-service carriers moved to hub and spoke systems. More discount fares also became available.

Air Carriers Full service/mega carriers Regional carriers Supplemental carriers

Full service/mega carriers Fly both domestic and international routes Provide full service to customers

Regional carriers: Airlines that fly scheduled flights from smaller cities into larger cities Lower priced Smaller aircraft Shorter routes

Supplemental carriers: Planes hired by an individual or company to fly nonscheduled flights for a specific purpose; fly to locations where scheduled flights do not

Classes of Service Aboard Flights First class Business class Coach class

First Class Highest rate ticket Located at front of plane Wider, more comfortable seats Extra leg room between rows Special electronic entertainment centers on new planes Reclining seats on international carriers First to board and first to exit Multiple course meals served on china Free movies and beverages

Business Class A step down from first class in rate and service More seat/leg room than coach, but not as luxurious as first class Free beverages Larger total area than first class

Coach Class Most economical ticket Usually located in the rear of the plane Narrow seats located closer together Limited overhead storage space Basic flight attendant service Food service limited to beverages and snacks Only level of service available on many smaller aircraft

Types of Flights Nonstop: A flight from the origin to the destination with no stops Direct: A flight from the origin to the destination with one or more stops; passengers usually do not change planes Connecting: Flights from the origin to the destination with one or more stops and passengers have to change planes

Yield: The amount of profit generated per seat per mile on an airplane Yield management: The course of action an airline takes to meet a break-even point and earn a profit Airline product is perishable. If space on a flight is not sold prior to take-off, that revenue is lost forever. Fares are structured to sell as many seats as possible and create a profit for the company. Yield: The amount of profit generated per seat per mile on an airplane *Total passenger revenue/Total number of passenger miles flown

Discount fares Airlines restrict the number of seats that are discounted. Fares may not be refundable. No changes are allowed. Some require a minimum stay at the destination. Blackout periods are times when a discounted fare is not available (peak periods and holidays). Some discounts are based on demographic segmentation.

Air Travel Patterns Hub and spoke system Slots Spokes

Hub and spoke system Air space is restricted and carriers are not permitted to fly wherever they wish. Airlines concentrate their ventures at airports near or in major cities. Air carriers have maintenance repair facilities and administrative facilities located at their hub. Delta’s hub is Atlanta; United Airline’s hub is Chicago.

Slots: Spaces leased at an airport by a carrier so they can conduct business there Carriers can lose slots if they do not use them enough. Periodically, new slots and vacated slots are assigned to carriers through a lottery system. Carriers hold many slots at their hubs. Many top airports are primarily served by the single carrier that dominates the slots at their hub.

Spokes: Flights from smaller cities that fly into the hub to help passengers make connections Regional carriers are responsible for many of the spokes in this system. Regional carriers make frequent trips in and out of smaller centers to the hubs which are unprofitable for mega carriers. Problems can occur when flights are delayed from the smaller airports and passengers do not arrive at the hub in a timely manner. Inclement weather, lost or delayed luggage, missed connections, or long waits between flights are all problems that can occur.

Frequent Flyer Programs Established by airlines to reward passengers for the number of miles they fly and to encourage brand loyalty Once customer is enrolled in program, a computer tracks the number of flight miles. Accumulated miles can be traded for upgrades or free flights. Restrictions, including blackout dates and controls on the number of upgrades on each flight, apply to the redemption of miles. Expiration dates may also apply to the accumulated mileage.

Airline Executive Club Passengers may join for a fee. Airlines lease club space at the airport, and only members are allowed to use the facilities and services. Amenities vary, but may include: Meeting room space Free newspapers Check-in service for passengers without baggage Video screens to check flight status Beverage service *American Airlines Admiral’s Club, Delta’s Crown Club Air Canada’s Mapleleaf Lounge

Ticketing procedures Paper ticket Airport counters Travel agencies Ticket offices

Ticketing procedures (cont.) E-ticket or electronic ticket: An electronically generated airline ticket representing permission to fly without the use of a paper ticket. Passengers confirm their reservations with a credit card and receive a confirmation number rather than a paper ticket. Internet Over the phone Ticketing machines

Marketing strategies used in the airline industry Frequent Flyer Programs Internet Print advertising E-mail Publicity