1. Balaji Institute Of Modern
Management
The AIRLINES Case Study
SUBMITTED BY:
ArchitGarg
GeetSawhney
Mohit Sharma
Siddharth Kumar

2. Q1: How did the airlines find or discover the opportunities for
growth?
A: The airlines company later discovered that that passenger differs in
their expectation. Business travelers value convenience, comfort and
service while leisure travelers were more interested in lower price.
Q2: What segmentation variables or bases did they use in
segmenting the market?
A: Segmentation was done on the basis of Demographic differences i.e.
Social class, economic circumstances and occupation.
Q3: Make profile of each of three segments. What targeting
strategy did they select?
A: The three profiles where:
- Economy: For $250 per passenger
- Business: For $500 per passenger
- First Class: For $1000 per passenger
They went for product specialization because the company
concentrates on making single product category that it sells to several
segments.
Q4: How did they take position or what position strategy they
applied?
A: They have used User positioning and Quality/Price positioning
strategy.
User positioning because it involved positioning product as best for some
user group. And Quality/Price positioning because product is offering
best value for money.

3. 1. Calculate the following :
i. Revenue
ii. Cost Incurred
iii. Profit
iv. Profitability
v. Break Even Point(B.E.P.)
For both strategies for the full plane, for each class and per passenger in each
class, assuming that plane is 80% loaded.
A) UNDIFFERENTIATED STRATEGY
REVENUE
No. of Seats, A= 300
Average Load Factor, B=0.8
Average no. of seats occupied, C=X*L=240
Charge per Seat, D=$250
Revenue=C*D = $60000
EXPENSE
Fixed Cost = $50,000
Variable Cost per Passenger = $20
Total Variable Cost = No. of passengers * $20
= 240 * $20
= $4,800
Total Expense = $50,000+$4,800 = $54,800
PROFIT
Profit= Revenue - Expense
=$60,000-$54,800
= $5,200

4. PROFITABILITY
Profitability by Revenue= (Profit / Revenue) * 100
= ($5,200/$60,000) * 100
= 8.66%
Profitability by Cost= (Profit / Total Cost) * 100
= ($5,200/$54,800) * 100
= 9.45%
BREAK EVEN POINT (BEP)
Contribution/unit, C = Price per ticket – Variable Cost per ticket
= $250-$20
= $230
Fixed Cost, FC = $50,000
BEP (in units) =FC/C = $50000/$230 =217.39
= 218 seats
BEP (in sales) =FC/PV ratio = BEP (in units) * Price per ticket
=$54500
B) DIFFERENTIATED STRATEGY
REVENUE
FIRST BUSINESS ECONOMY
NO OF
A PASSENGERS 24 72 144
PRICE PER
B SEAT $1,000 $500 $250
C REVENUE(A*B) $24,000 $36,000 $36,000
TOTAL REVENUE = $24,000 + $36,000 + $36,000
= $96,000
EXPENSE
FIRST BUSINESS ECONOMY
A FIXED COST $7,500 $17,500 $30,000
VARIABLE
B COST $2,400 $2,880 $2,880
TOTAL
C COST(A+B) $9,900 $20,380 $32,880

5. TOTAL EXPENSE = $9,900 + $20,380 + $32,880 = $63,160.
PROFIT/PROFITABILITY
FIRST BUSINESS ECONOMY
A REVENUE $24,000 $36,000 $36,000
B EXPENSE $9,900 $20,380 $32,880
C PROFIT(A-B) $14,100 $15,620 $3,120
D NO OF PASSENGERS 24 72 144
E PROFIT/PASSENGER(C/D) $587.5 $217 $21.67
F PROFITABILITY by revenue 58.75% 43.38% 8.67%
G PROFITABILITY by cost 151.51% 76.64% 9.45%
TOTAL PROFIT= TOTAL REVENUE- TOTAL EXPENSE
=$ 96,000 - $63,160
= $ 32,840
OVERALL PROFITABILITY (By Revenue)
= (PROFIT / REVENUE) * 100
= ($32,840 / $96,000) * 100
= 34.2%
OVERALL PROFITABILITY (By Cost)
= (PROFIT / REVENUE) * 100
= ($32,840 / $63,160) * 100
= 52%

6. 2. List down all benefits of segmentation to all possible
stakeholders of the airlines.
Answer: Following are the benefits to various stakeholders:
a) CUSTOMERS
Customer satisfaction is achieved if the customers get their choice and preferences.
Customers get the value for their money.
b) SUPPLIERS AND VENDORS
Travel agents: Better commission due to increase in customer base.
Caterers: Opportunity to provide superior quality food and beverages.
c) EMPLOYEES
Better wages, therefore they are more satisfied.
Clarity in job description, resulting in better performance.
d) SHAREHOLDERS
Higher dividends
Increases faith in management
Brand loyalty
3. Who all could be the beneficiaries?
• Government
• Service Industry
• Business travellers- They get personalized service, comfort and convenience.
• Company- The profits of the company has increased a lot due to segmenting the
market.

7. 4. (a) Do you think any segment is subsidizing for any other
segment? If so who to whom? If not. Why not?
No, segment is subsidizing for any other segments.
They are receiving services commensurate for the price they paying.
(b) What do you mean by absolute and relative satisfaction? Do
you think there is a possibility that any class may feel
relatively dissatisfied although absolutely satisfied? How
would management prevent it?
Absolute satisfaction of segment:
In this case there is no external comparison but the comparison is only between what
the customer/buyer expected to get and what he got after buying. This occurs when the
perceived and delivered value match from the point of the view of the customer.
Relative satisfaction:
In this case customer/buyer compares the value he gets with what the others have got.
For relative satisfaction, a customer should perceive same value/cost ratio as that of
another customer in the other high value and high service segment.
Relative dissatisfaction although absolutely satisfied:
This occurs when the customer is fully satisfied with the services received according to
his perception, but is relatively unsatisfied vis-à-vis the other high value and high
service segments.
In this case, we don’t think any class feels relatively dissatisfied as the price paid are in
proportion to the services provided for every class.
However there is a possibility that the first class and business class have relative
dissatisfaction if the service quality and differential benefits go down.

8. Prevention of relative dissatisfaction:
Management should ensure that the price paid by the customer is in proportion to the
services and values provided. Value/Cost ratio across various segments would remain
same.
5. When can segmentation go wrong? How to avoid
segmentation from going
wrong? What precautions to take?
Segmentation can go wrong when the following factors are misread:
Geographic & Demographic variables:
Purchasing power, size and characteristics of the segment are interpreted
wrongly.
Small and heterogeneous segments.
There can be an overlapping in the segments making them in-differentiable from
each other. As in this case, there might be customers who are capable of paying
for business class but want to travel in economy class.
Psychographic Variables:
Wrong approach in targeting heavy, medium and low users.
Improper selection of services to be provided to suit the lifestyle and personality
of the customer.
Behavioral Factors:
Services provided should be based on frequency and urgency to the customers.
Loyalty and user-status of the customers should form the basis of the services.
The management can avoid wrong segmentation in this case by:
Clearly defining the size of each class in terms of no. of seats allocated to each
class.
Services provided in each class should be at par with the prices paid.
Ascertaining the profit earned from the seats allocated in each class.
Segmentation bases for airlines:

9. Geographical: Metros, Urban areas
Demographics: - High Income
- Business class in Occupation
Psychographics - Life Style
- First & Business Class – People conscious of status, comforts and facilities.
- Executive Class – Fliers who want low cost travel at faster rate.
Behavioral
- Business and first class will remain loyal if they get the required luxuries they expect.
Economy class will remain loyal if they get reasonable travel fare.