Airline Endustry Marketing

7/31/2019 Airline Endustry Marketing

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Sample Solution Consumer Loyalty in the Airline Industry

Consumer Loyalty in the Airline Industry

Professor David Wessels 2006

The Wharton School of the University of Pennsylvania

3620 Locust Walk, Philadelphia PA 19104


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Professor David WesselsThe Wharton School of the University of Pennsylvania 2


Presentation Overview With the advent of the internet, consumers now have a wide choice of

air carriers. Since airlines have trouble distinguishing themselves, the

business has become commoditized, and profits are difficult to obtain.

Evaluation of

alternatives

Information

search

Purchase

decision

Travel websites such as Orbitz, display the prices and schedules

of nearly every airline providing service between two cities.

Almost half of all leisure travelers survey do not limit their search

to a specific airline.

For most differentiating items, the majority of surveyed travelers

can not distinguish between the network carriers and low cost

carriers. Business travelers will pay a premium, but the premium

is extremely small.

With choice plentiful, and differentiation difficult, the most travelers

purchase solely on price. However, airlines still control the final

purchase, and could alter the final decision.


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Survey Demographics

The survey was

distributed to

colleagues ofincoming MBA

students.

There were 1,406

respondents.

Before we start, some important characteristics about the travel survey

conducted by our students

Survey Characteristics

39%

95%

81%

60%

67%

0% 20% 40% 60% 80% 100%

% Leisure

travelers

% Living in the

Southeast

% With college

or higher degree

% Under the

age of 35

% Male

Characteristic

% of Res pondants


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The Consumers Information Search

Total

Set

Awareness

Set

Consideration

Set

Choice

SetDecision

For a given city

pair in the

United States,most network

carriers and

some low cost

carriers will

provide service.

Traditionally,

the awareness

set was limitedto carriers flying

in and out of

home airport.

Travel websites

expanded theawareness set to

the total set.

Nearly half of

leisure travelers

surveyed saidthey would not

limit their

search.

However, even

though the

consideration sethas expanded

greatly, most

fliers continue to

do business with

their preferredairline (perhaps

due to price

matching).


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Most Consumers Aware of All Choices

More than 1/3 of surveyed

travelers consulted a travelwebsite, such as Orbitz.

Travel websites rank all

available flights by price*.

Traditionally, consumers

used agents who would not

reveal the total set of

available options.

* Some airlines, such as Southwest do not

participate with travel websites.

Media Sources Used when Booking Travel

35% 41%

41%

45%

17%9%

0%

25%

50%

75%

100%

Business Leisure

Travel

Website

Airline

Website

Other

Source: Goizueta travel survey


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Will Consider Any Airline

Only 1/4 of business

travelers and 1/5 of leisure

travelers limited their

search to their preferred

airline.

In fact, nearly 1/3 of

business travelers and 1/2

of leisure travelers did not

limit their considerationset at all.

Number of Airlines Considered on Last Ticket

Purchased by Survey Respondents

26%

39%

4%

31%

19%

33%

4%

44%

0%

10%

20%

30%

40%

50%

1 2-3 4-5 No Limit

Airlines Considered

PercentofRespo

ndent

Business

Leisure


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But Usually Default to a Preferred Airline

Percentage of Flights

on an Airline for which Consumerhad a Frequent Flier Membership

0

50

100

150

200

250

300

350

400

0-20% 20-39% 49-60% 60-79% 80-99% 100%

Responden

ts

Leisure

Business

Even though many consumers

do not limit their search, they

still limit their choice.

The majority of travelers limit

at least 80% of their travel to

airlines for which they have a

frequent flier membership.

Why do they sometimes

deviate? Most likely priceand/or route availability (no

data currently exists).


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Evaluation of

alternatives

Information

search

Purchase

decision








is extremely small.





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The Key Attribute: Price

Prior to 2001, air travelers

identified scheduling

convenience and loyalty

programs as the most

important factors in choosing

an airline.

Today, leisure travelers rate

price even more important

than safety and loyalty

programs are no longer a top

priority.

Top 10 Factors in Selecting an Airline

3 3.5 4 4.5 5

Check-in convenience

Customer serv ice

Connecting flight convenience

On-time arrival

Baggage-handling

Reservation convenience

Non-stop flights

Scheduling convenience

Safety

Price

Impor tance Rating out of 5

Business

Leisure


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Attributes Which Matter Less

Even for business travelers,

the ability to upgrade, the

quality of meals, and the

availability of first class

does not matter.

Airlines have responded to

less popular attributes by

removing meals and

making upgrades difficult.

Bottom 10 Factors in Selecting an Airline

1.7

2.2

2.3

3.0

3.1

3.6

3.4

3.2

3.5

0 1 2 3 4 5

Availability of business class or firstclass

Quality of meals

Ability to upgrade

Loyalty program

Seat size or legroom on plane

Airport Location

Efficiency of airline security checks

Ability to change or cancel plans

w ithout penalty

Professionalism of airline personnel

Importance Rating out of 5

Business

Leisure


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Consumer Perceptions of

Discount versus Full Service Airline Services

-150% -100% -50% 0% 50% 100%

PercentofRespondent

s

I can't tell the

difference

Discount

airline is

better

Major airline

is better

Majors Exceed LCCs on Most Attributes

The major airlines have invested billions in infrastructure and staff in

order to create the perception of a full-service, catered experience.

Consumers do perceive majors to be better.

Loyalty programs

First class

Non-stop flights

Meal quality

Travel times

Airport location

Check-in convenience

Legroom

Professionalism

Customer service

Safety

On-time arrivalReservations

Baggage handling

Security checks

Price


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But Most Consumers Cant See Any Difference

For the majority of

surveyed consumers, low

cost carriers have

the same professional

personnel as network

carriers

are just as likely to land on

time

have the same legroom

and same level of customer

service as network carriers

% of Respondants Who Can't Distinguish

Between Low Cost and Network Carriers

15%

30%

33%

38%

45%

46%

49%

49%

52%

54%

55%

55%

0% 25% 50% 75% 100%

Ticket price

Frequent flyer program

Availability of non-stop f lights

Availability of business class or first class

Convenience of arrival/departure times

Quality of meals

Convenience of check-in

Location of airport

Customer serv ice

Seat size or legroom on plane

Likelihood of an on-time arrival

Professionalism of airline personnel


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Attribute Prices for Business Travelers Full service carriers have identified frequent business travelers as their primary

target market because of their willingness to pay a higher fare for last minute

bookings and more brand loyalty over leisure travelers.

However, even

business travelers are

becoming less

willing to pay forupgraded services.

12% of respondents

companies require

that they book the

lowest fare without

exception.

Announced Premium Size for Selected Services

Business Travelers Only

10.0%

6.7% 6.2%5.2% 5.1% 4.7% 4.4% 4.1%

2.3%

0%

2%

4%

6%

8%

10%

12%

Safety

On-timea

rrival

Legroo

m

Bagg

age-han

dling

Secu

rityche

ckeffici

ency

Check-in

conven

ience

Custo

merse

rvice

Reservation

conven

ience

Mealqu

ality

Premium


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Evaluation of

alternatives

Information

search

Purchase

decision








is extremely small.





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The Purchase Decision: Leisure Traveler

Although travel websites are

often referenced, most

ticketing is still done directly

with the airline.

Thus, the airline has anopportunity to alter the

consumers decision through

careful marketing (to

generate small premiums for

certain services).

Preferred Ticket Purchase Method for

Leisure Travelers

Airline

phone rep

16%

Airline ticketcounter

3%

Airline

w ebsite37%

Travel

w ebsite

25% Travel

agent

16%

Other

3%


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Professor David Wessels

The Wharton School of the University of Pennsylvania 16


The Purchase Decision: Business Traveler

Preferred Ticket Purchase Method for

Business Travelers

Airlinephone rep

9%

Airline ticket

counter

3%

Airline

w ebsite

26%

Travel

w ebsite

17%

Travel

agent

40%

Other

5%

The business market is stillcontrolled by travel agents.

Therefore, some pricing power

can be generated by controlling

the channel.

Travel agents should still be

offered incentives to sell

higher priced fares when

possible.


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Professor David Wessels

The Wharton School of the University of Pennsylvania 17


Conclusion

The internet has expanded the awareness and choice sets for the

average consumer.

The internet reveals only price, schedule, and number of stops, so most

consumers rank choices based on these factors only. Other factors are

either unimportant, or are impossible to distinguish amongst airlines.

To survive, network carriers must lower costs to within 5% (the

average premium willing to be paid for services) or find alternative

ways to distinguish their airlines.

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