introduction to marketing environment(peste analysis) PDF

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PESTE-
POLITICAL, ECONOMIC, SOCIAL, TECHNICAL, ENVIRONMENTAL factors in aline...

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Airline Marketing and Aviation Safety Management

BBA Airline & Airport Management (Annual Pattern) IIIrd Year Paper No. 12

School of Distance Education

Bharathiar University, Coimbatore - 641 046

CONTENTS

Page No. UNIT I Lesson 1

Introduction to Marketing Environment (PESTE Analysis)

Lesson 2

Airline Business and Marketing Strategies

7 26

UNIT II Lesson 3

Promotion Marketing

57

Lesson 4

Airline Selling, Advertising and Promotional Policies

72

UNIT III Lesson 5

Extraction of Financial Benefits

113 UNIT IV

Lesson 6

Managing Human Errors

127

Lesson 7

Threat and Error Management (TEM)

142

Lesson 8

Major Accident Analysis

163 UNIT V

Lesson 9

Nature of Aviation Accidents

189

Lesson 10

Aviation Discipline and Maintenance

204

Model Question Paper

219

AIRLINE MARKETING AND AVIATION SAFETY MANAGEMENT SYLLABUS UNIT I Maintenance: Marketing Strategy: PESTE analysis: political factors – Economic factors – Social factors – Technological factors – Environmental factors – Introduction of Airline Business and Marketing Strategies – Porters Five Forces and their Application to the Airline Industry – Strategic Families – Differentiation Aairlines – The Future – Focus Strategies – Airline Business and Marketing strategies – Common Mistakes

UNIT I

LESSON

1 INTRODUCTION TO MARKETING ENVIRONMENT (PESTE ANALYSIS)

7 Introduction to Marketing Environment (PESTE Analysis)

CONTENTS 1.0

Aims and Objectives

1.1

Introduction

1.2

Political Factors

1.3

1.4

1.5

1.6

1.2.1

Deregulation

1.2.2

Terrorism

1.2.3

Airport Slots

Economical Factors 1.3.1

Rising Oil Prices

1.3.2

Euro Debt Crisis

1.3.3

Falling Airfreight Industry

1.3.4

Security Concerns and Risk

1.3.5

Competition between Low-cost Carriers and Other Airlines

1.3.6

Ambitious Expansions

Social Factors 1.4.1

Obesity

1.4.2

Security

1.4.3

Ethnicity

Technological Factors 1.5.1

Internet

1.5.2

A Spotlight on Standards

1.5.3

Knowledge Drives Consumer Behaviour

1.5.4

Enhancing Journeys, Saving Costs

Environmental Factors 1.6.1

Climate Change and Global Warming

1.6.2

Tourism Saturation

1.6.3

Fuel Efficiency

1.6.4

Aircraft Noise

1.6.5

Aircraft Emissions

1.6.6

Recycling Contd…

8 Airline Marketing and Aviation Safety Management

1.6.7

Fuel Management and Clean-Up

1.6.8

De-icing Fluid Management

1.7

Let us Sum up

1.8

Lesson End Activity

1.9

Keywords

1.10

Questions for Discussion

1.11

Suggested Readings

1.0 AIMS AND OBJECTIVES After studying this lesson, you should be able to: 

Discuss the Political Factors in airline industry



Describe the Economical Factors in airline industry



Identify the Social Factors in airline industry



Examine the Technological Factors in airline industry



Analyse the Environmental Factors in airline industry

1.1 INTRODUCTION In the present lesson, you will study about the environment of the airline industry such as political environment, economical environment, social environment, technological environment and other environmental factors. A PESTE analysis is a view over the external environment of a company, business or an economical sector, and it plays an important part in the resource management and in a future decision making process. PESTE analysis places emphasis on the impact of each factor. At international level, different structures, from the governmental ones to well-known companies and not only, choose to analyse the important factors that disturb the good functioning of these entities. In the sector of passengers and freight air transport, the majority of airline operators have chosen to investigate the external environment in which they operate by using analytical methods. In the next lesson, you will study about the airline business and marketing strategy. The lesson will also with porter’s five forces and their application to the airlineindustry as well as strategic families. You will get to know the future of differentiation airlines. After studying the next lesson, you will be able to explain the focus strategies in airline industry. The lesson will bring to your attention the common mistakes in airline business and marketing strategies.

1.2 POLITICAL FACTORS Following are the political factors which affect airline industry:

1.2.1 Deregulation Today's airline industry is radically different from what it was prior to 1978. At that time, the industry resembled a public utility, with a government agency, the Civil Aeronautics Board (CAB), determining the routes each airline flew and overseeing the prices they charged. Today, it is a market-driven industry, with customer demand determining the levels of service and price.

The turning point was the Airline Deregulation Act, approved by Congress on October 24, 1978 and signed into law four days later by President Jimmy Carter. Pressure for airline deregulation had been building for many years, particularly among economists who pointed out, in numerous studies, that unregulated intrastate airfares were substantially lower than fares for interstate flights of comparable distances. However, it was a series of developments in the mid-1970s that intensified the pressure and brought the issue to a head. Hub-and-Spoke A major development that followed deregulation was the widespread development of hub-and-spoke networks, which existed on a more limited basis prior to 1978. Hubs are strategically located airports used as transfer points for passengers and cargo traveling from one community to another. They are also collection points for passengers and cargo traveling to and from the immediate region to other parts of the country or points overseas. Airlines schedule banks of flights into and out of their hubs several times a day. Each bank includes dozens of planes arriving within minutesof each other. Once on the ground, the arriving passengers and cargo from thoseflights are transferred conveniently to other planes that will take them to their final destinations. Airlines developed hub-and-spoke systems because they enable them to serve far more markets than they could with the same size fleet, if they offered only direct, point-topoint service. At a hub, travellers can connect to dozens, sometime hundreds, of flights to different cities, and often can do so several times of day. An airline with a hub-and-spoke system, thus, has a better chance of keeping its passengers all the way to their final destination, rather than handing them off to other carriers. Travellers enjoy the advantage of staying with a single airline. The carriers also found that with hub-and-spoke systems they could achieve higher load factors (percentage of seats filled) on flights to and from small cities, which in turn lowered unit operating costs and enabled them to offer lower fares. A city of 100,000 residents, for example, is unlikely to generate enough passengers to anysingle destination to fill more than a handful of seats aboard a commercial jet. However, it may very well generate passengers going to a number of different destinations. Operating a jet into a hub, where passengers can connect to dozens of different cities, therefore, makes economic sense for small-city markets. Most of the major airlines maintain hub-and-spoke systems, with hubs in several locations across the United States. Geographic location, of course, is a prime consideration in deciding where to put a hub. Another is the size of the local market. Airlines prefer to locate their hub airports at cities where there already is significant "origin and destination" traffic to help support their flights. New Carriers Deregulation did more than prompt a major reshuffling of service by existing carriers. It opened the airline business to newcomers just as Congress intended. In 1978, there were 43 carriers certified for scheduled service with large aircraft. Today, the number of carriers has doubled. The number has fluctuated over the years, with changing market conditions. By 1998, however, the number again was on the rise as new airlines offering direct, low-cost, nofrills service began to emerge. The new airlines were a result of several factors, most notably low prices for used aircraft and the availability of pilots, mechanics and other airline professionals.

9 Introduction to Marketing Environment (PESTE Analysis)

10 Airline Marketing and Aviation Safety Management

Increased Competition The appearance of new airlines, combined with the rapid expansion into new markets by many of the established airlines, resulted in unprecedented competition in the airline industry. Today, 85 per cent of airline passengers have a choice of two or more carriers, compared with only two-thirds in 1978. The airlines compete intensely with one another in virtually all major markets. The growth of hub-and-spoke systems resulted in increasing competition in small markets that would not normally support competitive service with a linear route system. Proportionately, the biggest increase in competition occurred in the small- and medium-sized markets. Discount Fares Increased competition spawned discount fares, and from the traveller’s perspective, the discounts are the most important result of airline deregulation. Fares have declined more than 35 per cent in real terms since deregulation in 1978. They have become so low, in fact, that interstate bus and rail service has been hard pressed to compete with the airlines, which today provide the primary means of public transportation between cities in the United States. The Brookings Institute, in 1999, estimated that the traveling public was saving in excess of $20 billion a year as a result of deregulation. Fifty-five per cent of the savings resulted from lower fares; 45 per cent from increased service frequency, which helps reduce the number of night’s travellers, must spend on the road. More than 90 per cent of air travel today involves a discount, with discounts averagingtwo-thirds off full fare. Growth in Air Travel With greater competition on the vast majority of routes, extensive discounting, and more available flights, air travel has grown rapidly since deregulation. In 1977, thelast full year of government regulation of the airline industry, U.S. airlines carried 240 million passengers. By 1999, they were carrying nearly 640 million. A recent Gallup survey revealed that 80 per cent of the U.S. adult population had flown at least once, more than one-third of them in the previous 12 months. Frequent Flyer Programs Deregulation also sparked marketing innovations, the most noteworthy being frequent flyer programs, which reward repeat customers with free tickets and other benefits. Most major airlines have such a program, and many small carriers have their own programs, as well as tie-ins to larger programs. While the programs vary, the essential elements are the same. Once a customer enrols, he or she is credited with points for every mile flown with the sponsoring carrier or with other airlines tied into thesponsor's program. The rewards (free tickets and upgrades that convert coach tickets to first class or business class tickets) are pegged to certain point totals. A more recent development has been the marriage of frequent flyer programs with promotions in other industries in general, and the credit card industry in particular. It is now possible to build up frequent flyer points by purchasing things other than airline tickets, and in some cases to exchange miles for other goods and services.

1.2.2 Terrorism The terrorist attacks on September 11, 2001 shook the United States in a profound way, deeply upsetting the national perception of safety within U.S. borders. No industry or sector of the economy felt the impacts of these events more than the airline industry. Both the immediate reaction to the attacks and the long-term repercussions has negatively affected the industry.

Reduction in Passenger Demand Directly after the terrorist attacks on 9/11, the federal government closed airports, cancelling thousands of flights at a direct cost to airlines. However, even when the airports reopened, passengers were wary of air travel, and airlines experienced at least a 30 per cent reduction in demand during the initial shock period immediately following the reopening. In addition, business travel accounts for one of the most profitable segments in the airline business, and after the attacks, a significant number of businesses temporarily suspended non-essential travel for their employees. Bankruptcy and Large-scale Layoffs The week following the attacks, Congress put together a law that created the Air Transportation Stabilization Board, a body authorized to give faltering airlines up to $10 billion in loans. Despite this government-funded measure, several prominent American airlines declared bankruptcy not long after the 9/11 attacks, included US Airways and United Airlines. As a result of the massive financial losses due to lack of passenger demand, cancelled flights and increased expenditures for security, even airlines that did not have prior financial issues were forced to renegotiate labour contracts and lay off high numbers of employees, such as the 7,000 employees laid off by American Airlines. Indirect Effects of New Air Security Procedures Established on November 11, 2001, the Transportation Security Administration (TSA) and its overhaul of airport security processes were one of the most immediate and longterm consequences of the 9/11 attacks. Although the heightened airport security procedures do not directly affect airline operations, the new process has caused a noticeable subset of airline passengers who opt for different modes of transportation or skip travel entirely. An economic study from Cornell University in 2007 showed that federal baggage screenings brought about a 6 per cent reduction in passenger volume across the board, with a 9 per cent reduction in the nation's busiest airports, totalling a nearly $1 billion loss for the airline industry. The Opposing Viewpoint: The Airline Industry Needed to Change Anyway Some argue that the negative financial effects experienced by the airline industry following the 9/11 attacks only hastened an industry reorganization that would have come sooner or later. Many airlines, including US Airways, which filed for bankruptcy after the attacks, had long-standing financial issues prior to these events. Other airlines had over-stretched during better financial positions in the 1990s, negotiating plump contracts with unions and purchasing new planes. The downward dive in passenger demand after 9/11 forced the airlines to tighten their belts, re-negotiate contracts and ground their planes. Increased competition from efficient low-cost airlines could have also had this effect over a longer timeline.

1.2.3 Airport Slots Airport slots are specific time periods allotted for an aircraft to land or take off at an airport. Where the demand for slots at a particular airport exceeds the availablesupply, the airport can be considered “capacity-constrained”, at which time a “slot allocation” process is implemented. Capacity constraint may occur only at certain periods of the day or on certain days of the week, or even during specific seasons. The issue of slot allocation is linked to specific airport situations in specific States, but each of these local situations impacts market access and operation of international air services from any airport of another State. As air traffic continues to grow and huband-spoke operations continue to increase, slot allocation becomes more

11 Introduction to Marketing Environment (PESTE Analysis)

12 Airline Marketing and Aviation Safety Management

ubiquitous in those regions of the world where present demand far exceeds initial slot allocation Landing slots are allocated in accordance with guidelines set down by the IATA's Scheduling Services Group. All airports worldwide are categorized as either: 

Level 1 – Non-coordinated Airport,



Level 2 – Schedules Facilitated Airport, or



Level 3 – Coordinated Airport.

Allocated landing slots have a commercial value and can be traded between airlines. Continental Airlines paid $209 million for four pairs of landing slots from GB Airways at London Heathrow Airport. If an airline doesn't use an allocation of slots (typically 80% usage over six months) then it can lose the rights. Airlines may operate ghost or empty flights to preserve slot allocations. The aviation industry knows two different types of slot which are not related to each other: 

The Air Traffic Control (ATC) slot is needed by each departing flight on the actual day of operation to avoid congested airways. This slot is only valid for this specific flight and for a specific departure time window (~15 min.). In Europe, the ATC slot is centrally coordinated and allocated by Euro Control in Brussels.



The Airport slot is mandatory at coordinated airports for each movement (arrival AND departure) and is valid for a specific time at a specific weekday and for a specific period applied for! The airport slot is used to plan the runway capacity and/or other capacity constraints (see below) for a whole season to minimize airport congestion and potential delays.

Airport Coordination Airport coordination is a means of managing airport capacity through the application of a set of rules contained in the Worldwide Slot Guidelines (WSG). Coordination involves the allocation of constrained or limited airport capacity to airlines and other aircraft operators to ensure a viable airport and air transport operation. Coordination is also a process to maximize the efficient use of airport infrastructure. Coordination is not a solution to the fundamental problem of a lack of airport capacity. In all instances, coordination should be seen as an interim solution to manage congested infrastructure until the longer term solution of expanding airport capacity is implemented. The prime objective of airport coordination is to ensure the most efficient use of airport infrastructure in order to maximize benefits to the greatest number of airport users. For the purposes of airport coordination, airports are categorized by the responsible authorities according to the following levels of congestion: 

Level 1: Airports where the capacity of the airport infrastructure is generally adequate to meet the demands of airport users at all times.



Level 2: Airports where there is potential for congestion during some periods of the day, week, or season which can be resolved by voluntary cooperation between airlines. A facilitator is appointed to facilitate the planned operations of airlines using or planning to use the airpor...