Executive Summary
The company has identified a growth opportunity in the aviation industry, specifically in the low cost sector in Europe. Opportunities in the low cost industry arise as a result of unfulfilled demand, especially in relatively smaller markets outside the major cities in Europe.
In response to the gap in the aviation industry, the company has chosen to establish fly360 airline, an airline that offers passengers a wider array of destinations, linking established cities and growing economies within Europe. The airline will adopt a low cost model, whereby cost savings from operations will be passed down to consumers, and thereby increase access to the airline.
The proposed airline comes at a time when Europe, and the rest of the world, is emerging from the recent global recession. While some airlines have wound down operations, fly360, with a sufficient capital base, aims on establishing itself in Europe’s regional airspace. Some of the strategies that will be adopted by the airline include high seating density in aircrafts, uniformity of planes and simple and consistent pricing mechanisms.
The airline will also employ technology that will lead to cost and time savings, and in the derivation of customer satisfaction. Quality services will differentiate the company from its competitors. Fly360 targets to achieve sales of £30 million within the first year of operations, and an operating margin of 15 per cent.
Situational Analysis
Customer Analysis
Majority of customers are price conscious business travelers. Passengers may not be keen on paying higher prices for short haul trips, and many may rather go without the amenities such as food and drinks aboard the plane for a three hour flight.
Business people form a significant proportion of airline passengers as their travelling needs last throughout the year, as compared to leisure and tourist passengers whose flight requirements are characterized by seasonal patterns. Business people would be attracted by an airline that offers a high frequency of flights in a day, or within a week.
Customers would be attracted to cheap fare offers. The low cost structure of the business could not allow for distinction of classes within the plane. For a short haul flight, basic standard services could be preferred by air travel passengers.
With the strengthening economic growth in Western Europe, and growing opportunities in Eastern Europe, demand is likely to increase between these two routes as passengers travel for business purposes. Passengers were initially forced to purchase return tickets so as to benefit from discounted tickets.
A simple and flexible pricing structure may encourage passengers to book in advance so as to benefit from cheap fares. The business community travels frequently hence a pricing mechanism where all fares are one way may go well with the passengers.
The appropriate segment for the airline would therefore be price conscious business community. Other passengers such as the middle class, students and leisure seekers may also access the services of Fly360. Marketing efforts will be directed to ascertain to these passengers that the company is not only comfortable to fly with, but has a clear and advantageous pricing policy.
Given the travelling requirements of the business community, the passengers are likely to award the airline with volumes which can lead to the achievement of economies of scale. High frequency of flights will subsequently lead to increased revenues for the airline, and the company as a whole.
Competitor Analysis
There are two types of competitors that must be considered in the airline business. First, attention has to be drawn to other low cost “no-frill” airlines within Europe, and secondly high standard established airlines that operate within and beyond Europe.
Big airlines such as British Airways, KLM, Air France and Lufthansa all provide valid competition for the proposed airline by offering the business and economy classes of travel packages. Low cost airlines such as EasyJet, Debonair, Ryanair and Virgin express offer direct competition for the proposed airline since they all offer similar services, and serve most of the projected routes.
Getting a competitive advantage for both direct and indirect competitors is both vital and essential towards achieving the objectives of fly360.
The company has established strategies that will lead to relative differentiation of the airline from its competitors and also lead to cost savings that will be beneficial to the airline. The airline hopes to incur low operational costs while delivering value to passengers of fly360, an effective combination of strategies that will propel the growth of fly360.
Factors to consider when developing competitive advantage include; the safety of the airline, whether as a result of actual results or through perception of fly360. The range of prices offered, number of destinations served and the convenience of flights will serve a major competitive ability for the proposed airline.
Fly360 will seek to increase the frequency of flights and increase the number of connections so as to serve more passengers. Convenient arrival and departure times will make the airline reliable; while the ease of booking flights online in advance so as to take advantage of discounts will improve the image of the airline.
Furthermost, a competent and friendly workforce may work to ensure that customers are comfortable, leading towards customer satisfaction and ultimately a good reputation of the airline.
The main competitors in the low cost aviation industry include EasyJet and Ryanair, which have both implemented most of the strategies identified for success. Fly360 hopes to differentiate itself from its competitors by employing technology to serve this purpose, such as cargo tracking, electronic ticketing, and electronic check-in as well as safety technologies.
The company will spend a considerable amount on its marketing portal that will make it easier for passengers to book flights, reserve tickets and acquire information about fly360 as well as its services. Customers will also be able to access promotional information from the marketing portal, while the company could view it as an effective and cheap means of advertizing to potential passengers.
Company Analysis
The company has identified the growth potential in the low cost aviation industry, and intends to start operations by the beginning of the year 2011. The company, with its fly360 airline, may partner with other airlines and companies in Europe so as to foster growth of the airline and mutually benefit from the growing industry.
The low cost aviation industry is witnessed significant expansion since the low cost model was first introduced in Europe in the 1990s. The growth in industry has been furthered by the growing economy and social stability in both Western and Eastern Europe. Turkey in particular has emerged as a high potential market, and its integration in the euro zone may increase travel between Turkey and the rest of Europe.
The company has realized that fly360 can best capitalize on the market by linking key destinations in Europe and beyond. Key success factors for the airline include provision of standardized services that will lead to lead to customer satisfaction and cost reduction for the company. The airline will serve under subscribed routes by major airlines as well as areas with unmet demand, especially regions in Eastern Europe.
The company will set about priorities that increase the airline’s competitive strength. Such priorities will include pricing policies that will make the services of the fly360 more accessible while maintaining healthy margins attractive to management. Performance is another vital priority whereby marketing efforts will communicate the airline’s dedication to timely and safe travel.
This will enable customer satisfaction, acceptance and goodwill of fly360 which will lead to the attainment of a healthy proportion of the market share (Piercy 2006). Performance can be measured by analyzing response from passenger feedback, public relations efforts and industry publications. Integrity in service delivery and management of fly360 will enhance customer loyalty, thus securing future earnings for the company.
Community/Climate Analysis
Oil price fluctuations are likely to impact future strategies used by the airline, which may lead to price adjustments or reduced profits. The economic situation in Western Europe is conducive for low cost airlines, whereby competition laws protect the industry from bigger players in the aviation industry.
The political environment in Eastern Europe is improving as governments wish to attract investors in those regions. Western Europe is also characterized by expatriates from Eastern Europe; therefore the growth of travel between Eastern and Western Europe appears positive, both in the short, medium and long term.
Marketing Mix
Product
The planes will have to be uniform so as to save on costs of maintenance and training that would have otherwise been incurred had the airline had several fleet models.
A few plane models will do in this instance so that the firm can easily transfer personnel and equipment from one plane to another without significant costs. The company can purchase several Boeing 737-300 or the 99 seat British aerospace Avro RJ100 for this purpose, thereby enabling the airline to transfer cost savings to customers.
The airline will strive to ensure comfort for its passengers in a cost effective manner. The proposed business model does not support the utilization of luxuries; hence the airline will have to offer standard services while ensuring that all services are customer friendly.
While the airline may not offer food and drinks aboard flights, customers may get the chance to purchase such items during the flight. Plane models will have to be modern, with spacious leg room for passengers as well as comfortable seats.
Price
The airline will set to establish itself as user friendly and predictable. The price levels are to remain clear and consistent, while tariffs will be understandable.
This will discourage any ambiguity in pricing policies which will enable the airline to build on passenger trust, as passengers will not expect any unpleasant surprises. Appropriate discounts may be set to encourage passengers to book tickets in advance. Adults flying with their children can also pay less for the passage of their children while infants may not be charged at all (Piercy 2006).
Majority of startups have gone under by engaging in price wars, both within and outside of the aviation industry. It is therefore the policy of the company to avoid strategies aimed to react to competitors, at least in the short run. A predictable pricing policy is likely to reduce uncertainty both from the company’s and customers’ perspective, and therefore result into fewer complaints from customers.
Fly360 could operate from two sets of fares, based on weekday fares and weekend fares. Weekday fares would be slightly higher than those offered on weekends as they target business people who are willing to pay a slight premium for the convenience of weekday flights.
During weekdays, passengers can expect to pay prices ranging from £60 to £110 for short flights and prices slightly in excess of £150 for long flights. Weekend fares could be between10 and 20 per cent lower than weekday fares.
Variations in prices may only arise from discounts on early booking, discounts on children and infants and stand-by fares. Discount ranges are to be established on a scale whereby the amount of discount depends on the timing of the flight reservation. On early booking, customers may experience a 15 per cent discount if the reservation is made 30 days in advance.
Should the 30 day window pass, passengers could get a 10 per cent discount if the ticket is purchased more than 20 days in advance while a 5 per cent discount could be set for passengers who reserve a flight 7 days in advance.
The pricing mechanism is likely to draw a positive reaction from passengers as compared to competitors who only offer a flat discount regardless of the fare. Stand by fares are prices paid by passengers who are willing to accept any offer at the last moment before a flight.
Place
Fly360 airline will be located in optimal locations as per parameters such as financial implications of the chosen location. A critical factor to consider in this respect would be the price charged by airports that would be harboring the airline. Other factors include traffic conditions, availability of sufficient and low cost facilities and ability to connect with other major carries within Europe.
An appropriate location would encourage continuous flights to critical and secondary destinations within Europe. Possible locations include Luxembourg (Luxembourg), Berlin (Germany), London City Airport (UK), Amsterdam (The Netherlands), Cologne (Germany) and Stanstead Airport (UK).
Passengers can reserve tickets online, more conveniently at their homes or offices, rather than presenting themselves at the airports which will save them significant costs and time.
Promotion
The design and conception of fly360 will likely steer the airline during its launch in 2010 and in subsequent years. The management of the airline and the sales and marketing department will work hand in hand to ensure that positive and unique qualities are portrayed in the market, appealing directly to potential customers.
A strong public relations initiative will create a strong foundation for campaign activities that set to create a strong foot hold for the company on entrance into the industry.
The company could hire consultants who would advice on the placement of advertisements in online, telecommunication as well as print media. The company may also utilize consultants to conduct market research in the aviation industry. More emphasis will however be placed on the proposed online marketing portal which may prove to be a source of competitive advantage for the airline.
The online portal will have to fast paced, informative and user friendly so as to provide timely information and encompass services such as online reservations and e-ticketing. While marketing efforts may steer people towards the website, the website will offer a pleasant experience for visitors and encourage them to use it for all their travelling needs.
As a startup company, the use of promotional prices may strain the airlines cash flows. The airline will therefore have to limit promotional fares so as to achieve the specified objectives in the given time periods. In one instance, a special promotion may be used simply so as to gain recognition on entry into the industry, and launch of flights.
The airline may have to partner with travel agencies during the first year of operations, such as Travelocity, though marketing efforts will be targeted towards fly360’s website, therefore reducing costs on commissions paid to travel agencies over time.
The main mission of the advertizing initiatives will be to guide people to fly360’s online marketing portal. Advertizing content will be placed strategically in online websites and print materials such as newspapers and magazines. The advertizing campaign will commence two months prior to the launch of operations, with visual aid displaying satisfied passengers, including a slogan such as “We’re Here For You, Now Lets Fly360.”
The advertizing campaign is likely to cost £70,000, inclusive of tax. Performance of the marketing campaign will be measured by the number of visitors on the fly360 website.
Budget and Timeline
With the £1,000,000 marketing budget, the marketing department hopes to engage in activities that will increase the recognition of fly360, and increase the growth of the airline in accordance with the company objectives. The following table gives a timeline for marketing expenditures.
As a result of the marketing campaign, revenues are estimated at £6,500,000 in the first quarter of operations from flight passengers. The return on investment (ROI) would be: (total revenues of £6,500,000/total investments of £1,000,000) 650 per cent from the marketing campaign.
References
Piercy, N., 2006. “Reinventing the Airline Business”. Business cases. No. 0068. Retrieved from www.businesscases.org