Airline Marketing Presentation, Fall 09

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Rob Britton gives a lecture about the changing marketing and economics environment facing American Airlines, and its competitors.

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Airline Marketing Presentation, Fall 09

  1. 1. Marketing in the Real World: The Challenge of the Airline Industry Dr. Rob Britton Adviser to the Chairman Former Managing Director, Advertising Austin, 28 October 2009
  2. 2. Today’s Agenda • Overview of the airline sector: a difficult industry • The challenge of a commodity business • A brief look at the range of activities in airline marketing • Questions and discussion > This presentation will be available as a PDF file
  3. 3. A Small Commercial Message! • I want to acknowledge the kind help of American Airlines, which for more than 20 years has provided travel support for my lectures at places like UT • Without their help I could not visit 32 schools this year help, • American Airlines believes strongly in supporting the communities it serves • We are proud to be a good corporate citizen – in the U.S. and all over the world
  4. 4. Some “Facts of Life” about Airlines • The two types of carriers – old ones and new ones – are very different – Labor rates and productivity – Customer expectations • Profit margins are thin – or nonexistent • High fixed costs (70-80% of total) drive decisions • It’s hard to match supply and demand pp y – Demand varies temporally, by time of day, day of week, and season – Product is perishable – When demand declines, airlines cannot remove costs quickly declines enough, or proportional to the decrease – Low barriers to entry
  5. 5. Some “Facts of Life” • Airlines are capital-intensive, labor-intensive, and energy- intensive • The airline market is competitive, but the markets that supply the business are not – Union labor and airports are monopolies – Airframes, engines, and others are oligopolies • Government influence has been and remains enormous – The legacy of domestic regulation – Infrastructure on the ground and in the air – Excessive taxation – Archaic laws restricting foreign investment – Continued regulation of international flying
  6. 6. A Catalyst to Economies Worldwide • Airline services precede or facilitate the flow of investment, information, and human capital – what we commonly call “business travel” • Enable global logistics, the fast movement of high-value, perishable, or time-sensitive goods i h bl i ii d • Provide the indispensable foundation for tourism, by many measures the world’s largest single industry world s • Thus a first question for y to p q you ponder: how can a business so indispensable to us be on such unstable foundations?
  7. 7. A Commodity Business • Undifferentiated brands are one legacy of more than 50 years of government control of key economic parameters – entry, routes, price, and even amenities • More fundamentally, the economy-class flight experience is essentially the same – and has been for decades • The product is produced and consumed in real time, with many factors outside our control, notably weather and infrastructure – and thus prone to failure • These factors have created product uniformity, and the belief that “a seat is a seat” a seat – In the U.S., we collectively became “the airlines”
  8. 8. A Commodity Business • Flight schedules, historically a major driver of choice, has also caused “commoditization” – Companies with big networks and lots of flights have always enjoyed this benefit j y – Conversely, smaller firms with differentiated products have been disadvantaged • Examples: Eos, Maxjet, and Silverjet in the London-New York London New market – The hotel-industry model of amenity-based differentiation did not take hold
  9. 9. A Commodity Business • The commodity problem continues to the present day – Transparent pricing, the result of online distribution, drives much consumer choice – The rise of low-cost carriers (LCCs) like Ryanair, EasyJet, low cost Southwest, and Air Asia, all offering a simple product focused on low price, are perpetuating the commodity perception • It is possible to create sustainable differentiation as differentiation, exists in other sectors?
  10. 10. Airline Marketing • Controls and managed competition during the regulated era made comprehensive consumer and B2B marketing, as we understand it today, unnecessary – A curious exception: Braniff Airways’ rebranding, 1965-69:
  11. 11. Airline Marketing • Airline marketing is thus a new discipline, and we’re working hard to catch up! • Professor Kotler’s 4 Ps, elements of the marketing mix, are a good way to understand contemporary marketing practice in our business: – Product – Price – Place – Promotion
  12. 12. Product • Fundamentally, what is the product that we “put on the shelf”? • To airline people, it starts with schedule: the ability to carry you from point A to point B is the basic product • If you offer lots of “A to B” combinations you create a A B combinations, network – Two basic configurations, point to point, and hub and spoke • Network may also involve partnerships, with smaller airlines and with peers – Airlines and their customers benefit from network breadth
  13. 13. Product: Service Quality • Many believe that the aspect of product that we just discussed is foundational – it is a given • Th i focus is on service quality – th components of Their f i i lit the t f service delivery at airports and in flight • Within this framework, there are several fundamentals – Safety – Dependability – Reasonable prices • Beyond this are the softer, but still vital, elements – Tangible offerings on the g g g ground and in the air – Human connections: friendliness, respect, and responsiveness • Across this wide spectrum, consistency is key
  14. 14. Price • During regulated times, governments encouraged linear pricing • It was easier in those days to minimize some hard economic realities – High fixed and thus low variable costs – Perishability – Temporal variation in demand • Today, we must also deal with the following – Vigorous competitors with much lower cost structures – Different network configurations – Varied financial conditions (and in some places liberal bankruptcy laws)
  15. 15. Place (Sales Channels) • Channel strategy has flip-flopped during the past 40 years • Managing distribution costs has become a major focus, partly because so few other expense lines seem controllable • We have made great progress with “disintermediation” – The trend toward online selling and e-Commerce • But it’s also about regaining control of the product – it is, after all, ours
  16. 16. Promotion • What can we do to create sustainable brand preference? • The rise of loyalty programs – the single most effective marketing initiative since the airline business began – Increased share of wallet – Useful data on consumption – Opportunities to sell points to others • Tactical advertising increasingly moves online • What about brand or strategic advertising?
  17. 17. Questions and Comments

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