Low-Cost Carrier Market Valuation Report

Introduction

Eh!Jeta is a new low-cost carrier (LCC), whose parent company is XYZ legacy carrier. Eh!Jeta will be making an entry into the US airline industry at a time when LCCs have been on the increase. Starting 2000, LCCs have steadily increased their presence in the US market, and have provided an alternative, less-costly air transport to what the traditional network carriers have been providing the US consumers (Barker, 2013).

This marketing report includes a market analysis which indicates the strengths, weaknesses, opportunities, and threat that face the new LCC. Additionally, the report contains the LLC’s customer analysis, competitor analysis, and a branding strategy.

The report notes that competition is rife among LCCs, and as such, only capitalizing on the unique small things that matter will provide the new LCC with the competitive edge necessary to succeed in the nearly saturated market.

Objectives

• To become the most preferred LLC among passengers traveling between Pearson International Airport and Fort Lauderdale (FLL) and Dallas-Fort Worth (DFW) routes within the first three-six months of operation
• To increase Eh!Jeta’s brand awareness by 80 percent within the first six months of operation
• To create brand loyalty through service excellence, which will be attained through meeting consumers’ service expectations hence affecting their brand perceptions positively

Market Analysis

The following SWOT analysis will offer details regarding the internal strengths and weaknesses that, Eh!Jeta has, and the external threats and opportunities that the new LCC is exposed to.

Internal Analysis

Strengths

• Eh!Jeta’s parent company has been in operation for 12 years. As such, the new LCC will benefit from its parent company’s experience in the airline industry.
• The parent company has a wealth of assets, including CRF 900 jets, and as such, Eh!Jeta will not be struggling to acquire new assets.
• The parent company also has adequate capital, which it is willing to advance to the new LCC.
• The new LCC will benefit from a knowledgeable human resource capital, which is drawn from the parent company.

Weaknesses

• The parent company has a fair reputation for timeliness and consumers may perceive the same to be true for the new LCC
• The parent company’s reputation for customer service is weak and just as above, customers may perceive the same to be true for the new LCC
• Employee motivation and satisfaction levels are sub-optimal
• A great percentage of employees are unionized, and this limits the LCC’s flexibility in motivating employees and enhancing their motivation walls.

External Analysis

Opportunities

• The new CRJ 900 jets have adequate legroom and are less cramped when compared to other jets used in the LCC industry.
• The rebranding will position the LCC as a distinct entity from its parent company.
• The LCC’s catchphrase, “It’s the little things that count,” will provide the firm with opportunities to do small things (e.g., smiling, providing hot towels, and hot chocolate/cold drinks depending on weather) to customers.
• The low-cost strategy will enable the LCC to access high customer volumes, albeit at lower airfare.
• To increase revenues, Eh!Jeta will target utilizing technology to make money through onboard advertising. The airline will also offer duty-free merchandise to travelers. Finally, the airline will charge for food, beverages, and luggage that exceed stated weight limits.
• The airline will also reduce costs through implementing technology (e.g., in bookings and ticketing); hiring flexible employees who can take on different tasks when the need to so arises; and introducing corporate “perks” which will motivate employees and improve satisfaction levels, hence reducing employee turnover, and recruitment costs.

Threats

• The Eh!Jeta strategy can be mimicked by competitors easily; admittedly, the proposed strategy has a few commonalities with what Southwest Airlines have established. Notably, however, and considering the newness of Eh!Jeta, the airline might not be able to implement the concept similarly as Southwest did.
• Implementing strategy may take, and need to be correctly implemented to gain a first-mover advantage over the competitors
• Eh!Jeta ties its brand to the Canadian culture –i.e., the “nice Canadian” image, and as such, the airline needs to keep an eye on negative publicity.

Customer Analysis

The importance of customer analysis is underscored by Gale and Swire (2006) and Otalik (2009), indicating that, it enables marketers to create a mutually beneficial strategy for both customers and the organizations. Customer analysis enables the marketers to understand the needs, wants, and preferences of the customers, hence enabling the organization to create value for them (Gale & Swire 2006; Otalik, 2009).

Similarly, Eh!Jeta needs to understand its customers, hence the need for customer analysis. Notably, the LCC’s main target customers are the general leisure travelers. As has been noted by O’Connell and Williams (2005), LCCs, just like their network carrier counterparts, do not have much differentiation. As such, what is offered by one airline is relatively similar to what the competitors have to offer. Customers, however, react to such factors as:

Safety Measures

The measures can be actual or perceived. With this in mind, Eh!Jeta needs to have optimal safety practices. Additionally, the airline needs to create public awareness regarding the same.

Flexible, Affordable Airfare

Research shows that customers who prefer LCCs react positively to low airfare (O’Connell & Williams, 2005).

Eh! Jeta will strive to keep the airfares at an affordable rate. The LLC will also introduce flexibility into the costing system to allow those people who travel during off-peak to enjoy lower airfares. To avoid confusing, all airfares will be set beforehand, and as such, the customer will know what they need to pay beforehand.

Destinations Served

Research shows that the route preference affects market penetration of an airline (O’Connell & Williams, 2005). Choosing to serve a route/routes that are not adequately serviced by competitors will be a big boost for Eh!Jeta. The LCC will service two destinations and will concentrate on making the airline the number one choice for customers.

Availability of Seats and Flight Frequencies

With the low pricing strategy, LCCs are usually in high demand, especially during the high-traveling seasons. To ensure seats are available for all customers, the LCC will strive to have several flights a day, depending on customer demand.

The Convenience of Flight Schedules

It has been established that timely departures and arrivals are critical factors affecting customer satisfaction (Baker, 2013). Eh!Jeta will strive to depart and arrive on schedule.

Quality of Service

Since LCCs operate on a “no frills” strategy, the main competitive advantage is only available by offering the best “no frills” service there is to customers. With the preceding in mind, Eh!Jeta will strive to offer the best “no frills” value to customers.

Onboard Comfort and Amenities

It has established that seat comfort, and the cleanliness and convenience of onboard amenities (such as toilets) are some of the critical factors affecting customer satisfaction (Baker, 2013; Franke, 2004).

In spite of the “no frills” strategy, Eh!Jeta will strive to enhance the onboard comfort of its customers by providing basics such as hot towel services, drinks and snacks, and extensive TV listings. Other comfort items such as headphones, pillows, and blankets will be available to customers on additional charges.

Type of Aircraft

Research shows that a significant number of air travelers consider the aircraft type, size, and speed as critical indicators of quality of travel (Clemes, Gan, Kao & Choong, 2008). As indicated elsewhere, the Bombardier CRJ-900 is less-cramped when compared to other regional jets. Notably, the jets for use by Eh!Jeta is new, and this will be made known through the initial marketing campaigns

Ease of Reservations and Efficient Ticketing

These two factors are also critical to customer satisfaction and Eh!Jeta will strive to enhance them by setting a customer care department that will take care of them.

Baggage Handling

Customers care about how their luggage is handled. Eh!Jeta has invested in a technology system that will ensure that luggage is handled in a convenient and reliable manner.

Ground Service/Ground Handling

Customers care about the nature of reservation and check-in services offered (Dobruszkes, 2006; Ringle, Sarstedt & Zimmerman, 2012). Eh!Jeta will train its employees to offer customer-centered services to enhance customer satisfaction.

Reputation

Reputation relates to perceptions (whether true or false) that are publicly available to customers (Board &Meyer-ter-Vehn, 2013). Eh!Jeta will strive to create a reputation that revolves around the “it’s the little things that matter” slogan, by providing quality customer experiences to enhance customer satisfaction and loyalty.

Competitor Analysis

Eh!Jeta’s competitors are LCCs which offer nonstop flights to FLL and DFW from Pearson International Airport. Currently, four airlines pose competition to Eh!Jeta and they include Air Canada, United Airlines, WestJet, and American Airlines.

• Air Canada
• Has a relatively high number of the fleet (186 airplanes) that enables it to serve 178 destinations
• Offers onboard entertainment
• Charges a nominal fee for headsets and a pillow and blanket kit
• Has an onboard café that sells meals and beverages
• Has three flights daily to both DFW and FLL
• American Airlines
• Has DFW as the main hub hence offering direct competition to Eh!Jeta.
• Has a relatively larger fleet that Eh!Jeta – i.e., 616 airplanes serving 273 destinations
• Has a buy-on-board program that enables customers to access meals and beverages at an extra cost
• Onboard entertainment (i.e., Wi-Fi and headsets) are available for purchase
• Operates three flights daily to DFW and FLL. However, they do not fly to FLL on weekends
• WestJet
• WestJet’s largest hub is Pearson Airport (YYZ), and this poses direct competition to Eh!Jetta.
• Has a relatively larger fleet compared to Eh!Jetta (110 airplanes are serving 55 destinations).
• Avails onboard entertainment (live TV and Samsung tablets with pre-recorded movies and TV shows) for purchase
• Has a buy-on-board program, which enables customers to purchase snacks and beverages while traveling
• Operates three flights daily to and from DFW, and two flights to FLL on weekends hence posing direct competition to Eh!Jetta.

Overall, the preceding competitor analysis shows that Eh! Jetta will pose stiff competition in the target market. As such, only capitalizing on the unique “small things that matter” will provide the new LCC with the competitive edge necessary to succeed in the nearly saturated market.

Branding, Eh!Jeta

Although lacking in a precise definition, this report will adopt Aaker’s (1991, cited by Ahmad & Aghaeian, 2013) definition of the term, which indicates that a brand is a “distinguishing name/or symbol (such as logo, trademark, or package design) intended to identify the goods or services or either one seller or a group of sellers, and to differentiate those goods or services from those of competitors” (p. 130).

A brand has several elements, which include: identity, personality, communication, awareness, image, and positioning (Ahmad &Aghaeian, 2013).

Brand identity: Eh! Jetta will create a brand identity revolving around colors on its planes, uniforms worn by the crew and airport kiosks.

Brand personality: Eh!Jetta will create a brand personality revolving its slogan, “It’s the little things that matter,” by ensuring that its service provision is satisfactory to the customers

Brand communication and awareness: Eh! Jetta will strive to build a public awareness campaign that involves positioning the LCC as a safe, trustworthy, friendly, and fun way to travel. Different channels of communication, including face-to-face communication, internet and email, advertising in mainstream media, and public relations campaigns, will be used.

Brand image and brand positioning: Eh!Jeta will create a brand image that is different from other LCCs. The brand positioning will revolve around communicating factual details about what the airline has to offer, and what its differences are from the rest of the players in the LCC market segment.

Marketing Strategy

The marketing strategy, detailed in Table 1, is based on the need to have price leadership in the target market, and the need to offer services that are more satisfactory than incumbent carriers. Details of the initial product launch are detailed in Table 2.

Table 1. The Marketing Strategy

Table 2. Initial Launch Promotion

References

Ahmad, F.S., & Aghaeian, S. (2013). The impact of host country culture on new brand performance. International Journal of Management Research and Business Strategy, 2(2), 129-138.

Baker, D. M. (2013). Service quality and customer satisfaction in the airline industry: a comparison between legacy airlines and low-cost airlines. American Journal of Tourism Research, 2(1), 67-77.

Board, S., & Meyer-ter-Vehn, M. (2013). Reputation for quality,’ Econometrica, 18(6), 2381-2462.

Clemes, M., Gan, C., Kao, T-H., & Choong, M. (2008). An empirical analysis of customer satisfaction in international air travel. Innovative Marketing, 4(2), 49-62.

Dobruszkes, F. (2006). An analysis of European low-cost airlines and their networks. Journal of Transport Geography, 14, 249-264.

Franke, M. (2004). Competition between network carriers and low-cost carriers – retreat battle or breakthrough to a new level of efficiency? Journal of Air Transport Management, 10, 15-21.

Gale, B.T., & Swire, D. J. (2006). Value-based marketing & pricing. Customer-Value Inc. Report, 1-20.

O’Connell, J., & Williams, G. (2005). Passengers’ perceptions of low-cost airlines and full-service carriers: a case study involving Ryanair, Aer Lingus, Air Asia, and Malaysia Airlines. Journal of Air Transport Management, 11(4), 259-272.

Otalik, O. (2009). Wisdom of domestic customers: an empirical analysis of the Turkish private airline sector. International Journal of Business Management, 4(7), 61-67.

Ringle, C.M., Sarstedt, M., & Zimmerman, L. (2011). Customer satisfaction with commercial airlines: the role of perceived safety and purpose of travel. Journal of Marketing Theory and Practice. 19(4), 459-472.