This research proposal aims to describe a proposed research study that will examine the effectiveness of the marketing strategy adopted by the low-cost airlines in the US and UK and speculate if this strategy will allow them to succeed in the current economic scenario.
If the global recession has hit any industry the hardest, it is the airline industry. The airline industry suffered its largest drop ever in passenger revenue in the year 2009 (www.heraldscotland.com). The global recession, accompanied by high levels of unemployment, hit air travel demand especially hard in 2009," said James May, ATA chief executive and president, in a statement.
As claimed by the Air Transport Association of America, the total passenger revenue for the major U.S. carriers fell 18% in 2009 versus the year before. It is not just the traditional national airlines like the British Airways that are threatened but the low-cost carriers that thrive mainly due to the availability of very cheap fuel and galloping growth in passenger numbers are more in danger than anyone else.
At this time, when the airline industry especially the low-cost airlines is in great need for a strategic plan for recovery from its financial losses, it will be the most appropriate for a research student doing Master’s degree in Business Administration with specialization in Marketing to take up the study on the effectiveness of the marketing strategy adopted by the low-cost airlines and contemplate if the existing strategy will yield the same results as it did during the good times.
• The airline industry exists in an extremely competitive market. Airport capacity, route structures, technology and costs to lease or buy the physical aircraft are significant in the airline industry others. • The airline industry remains vulnerable to the rise in fuel prices, climatic conditions, and the labour cost which is considered as the No. 1 cost to airline operators. • Despite the success stories of the low-cost airlines, almost all the low-cost airlines launched in the US, except Southwest Airlines, have failed in some areas or the other, some were acquired by other airlines, others closed down o Virgin Express reduced its network significantly in 2000, closing an Irish-based subsidiary o In the UK, AB Airlines, Debonair, Duo and Now have failed; o ‘Go’ lost £47m in its first two years
o Buzz was sold to Ryanair for a nominal sum (£15m) (The strategies and effects of low-cost airlines by Simon Smith) The low-cost airlines which operate by selling air tickets at a considerably lower price than the traditional airlines have developed a strategic plan for their existence in the market that depend on certain market conditions which are discussed below:
1. They operate short haul flights 2. They use their own websites for selling their tickets 3. They have created a brand for themselves which speaks their values. 4. They have developed a position in the market for selling cheap air tickets. 5. They reduce cost on labour by outsourcing some of their operations like helpdesk service. 6. They have no-frills like free food on board 7. The fares are conditional and have a rigid cancellation policy.
Based on the background of the existence of the low-cost airlines in the market, each of the points for their existence can be challenged.
• Who are the people travelling short distances by flight? o They are either those going on short vacations/city breaks or businessmen travelling for business. Those using the service for leisure can apparently use other means of transport like rail to save a little money. o Those going on business trips nowadays have the facility of tele- and video-conferencing. They have an option for not travelling at all. • Why should a customer log on to the website of a particular airline and make a reservation when he/she has the option of logging on to a travel agency portal and have the choice of finding many different airlines with better fares? • In today’s customer-focused age, why should the customer be bound by rigid cancellation policies and why should he/she be content with no food or snacks on board? o In fact, the airlines will have to introduce a good menu to lure the customers and make their policies more customer-friendly.
An airline operator invests an enormous amount of money to start, run its business and get established in the market. However, the success comes only after the airlines runs smoothly over a considerable period of time. If the strategy fails during the bad times, it may result into bankruptcy for the operator, loss of jobs for the employees and a liability to the government.
The aim of my research will be
1. To highlight the nature of the marketing strategy already in practice, such as to why it was developed and at what period of time it was developed. 2. To check how efficient the strategy will be under present conditions taking into consideration the economic downturn and in the future considering the demands of the new young generation. 3. A marketing strategy always needs to be flexible (Principles of Marketing, Philip Kotler). The aim of this research will be to contribute some significant ideas which the low-cost airlines may incorporate into their current strategy.