Marketing differences between traditional airlines and low-cost airlines in Europe

Thesis
Paris Graduate School of Management
25, rue Saint-Ambroise – 75011 Paris
EMBA 2004

Marketing differences between
traditional airlines and low-cost
airlines in Europe

Nils Kernchen

1. Introduction ... 3

2. Aviation History  ... 4
2.1. The beginning of aviation ... 4
2.2. Air traffic regulations  ... 5
2.3. Airline market before 1993 and National carriers  ... 5
2.4. From monopoly to Air Transportation Liberalisation  ... 6
2.5. Airline business today: New competitors  ... 7
2.6. Change to customer oriented Marketing concept  ... 9

3. Low-cost airlines versus traditional airlines ... 11
3.1. Situation of traditional airlines in Europe ... 11
3.1.1. Airline Alliances and hub- and spoke system ... 12
3.1.2. Example of a traditional airline: Air France  ... 14
3.2. Low-cost airlines  ... 15
3.2.1. A fascinating example: EasyJet  ... 16
3.2.2. The European low-cost market and development  ... 18

4. Marketing Analysis ... 20
4.1. Scanning the marketing environment  ... 20
4.1.1 Market ... 20
4.1.2. Segmentation of the airline industry ... 21
4.1.3. Target market ... 22
4.1.4. Motivation and Buyer behavior  ... 23
4.1.5. Needs, wants and demands  ... 25
4.2. The Marketing Mix ... 26
4.2.1. Product ... 26
4.2.2. Place ... 28
4.2.3. Promotion  ... 30
4.2.4. Price  ... 31
4.3. High performance business  ... 32
4.3.1. The service character of Airline marketing  ... 33
4.3.2. Total Quality Management  ... 34
4.3.3. Internal Marketing  ... 34
4.3.4. Total Customer satisfaction  ... 36
4.3.4. Customer Relationship Management ... 39
4.3.5. Frequent Flyer Program ... 39
4.4. Market-oriented strategic planning ... 40
4.4.1. Positioning for competitive advantage  ... 40
4.4.2. Meaningful Differentation  ... 42
4.4.3. Brand Management ... 43
4.4.4 SWOT analysis  ... 45
4.4.5. Dealing with the competition ... 49

5. Conclusison and future developpement ... 51

Bibliography  ... 53

APPENDIX ... 56

1. Introduction

European Media is writing daily articles about the situation of the European airline business. The European airline market is, at the moment, with all the important changes and actual turbulences, the most dynamic industry sector. Some of these changes are:

• The creation of new low-cost airlines in Europe, like Germanwings (Germany), Volareweb (Italy), and Sky Europe (Slovakia);
• The disappearance and bankruptcy of airlines, such as V-Bird (Netherlands) and Swissair;
• Air France merges with KLM to become the worlds biggest airline group;
• A significant increase of purchases of airplanes by Arabic airlines.

This thesis focuses on the low-cost airlines, which arrived in Europe during the last 10 years and changed micro and macro environment of the airline business. Low-cost airlines like Ryanair and EasyJet make big profits while Alitalia, British Airways, Air France, and Lufthansa are having enormous problems.

The general opinion is that low-cost airlines are successful because of its lower cost in production, and therefore of its lower price they can offer to the customers. The thesis will show that the cost factor is not the only reason for the success of low-cost airlines:

"Being cheap is not enough"

The objective of the thesis is to find other reasons which explain the success of low-cost airlines by analysing the marketing development of European low-cost airlines with its strategies, positioning, customer satisfaction etc. Of special interest: The question how the low-cost trend changes the marketing and the behaviour of the traditional airlines and how do the customers react.

As reaction to this trend the traditional airlines are reducing at the moment costs in salary, distribution, maintenance etc. to survive. This is not enough. The thesis mentions marketing ideas and possibilities of how to compete against low-cost airlines, either by copying successful marketing methods of these airlines or by finding new innovative methods, fresh ideas and a new positioning.

The creation of these low-cost airlines was provoked by the liberalisation of the European airline market. That is why the thesis will start with the development and history of the European airline business, followed by the analysis of the micro and macro environment and the different marketing concepts between traditional airlines and lowcost airlines.

Afterwards a detailed study of the marketing mix, the internal marketing, customer satisfaction, and different strategies (positioning, differentiation etc.) is given.

The thesis closes with an overview of the future development, a conclusion and marketing propositions for traditional airlines and low-cost airlines.

To conclude this introduction, the main objectives for my thesis are:

1. Is the success of low-cost airlines only a short term event or is it a successful business marketing concept? Are the traditional airlines in danger?
2. Is the Low Cost concept the better concept? What can traditional airlines learn from the marketing methods of low-cost airlines?

2. Aviation History

2.1. The beginning of aviation

In the beginning, aviation began as an “adventurer’s sport”, in which pilots were more famous than their planes, (i.e., Wright Brothers, Lindberg, etc.). Each fare was considered as an exploit, and aviators were highly romantic and heroic figures. The first “real” flights took place in 1909 with the crossing of the “channel” by Louis Bleriot and the crossing of the Mediterranean Sea in 1913 by Roland Garros.

Aviation was first used as a means of transport for goods and mostly mail. It rapidly gained in speed and autonomy. Aircraft flew faster, higher and further every day. Air traffic was totally free of any constraints and control. The first commercial flights in Europe took place in 1919, and linked Berlin-Leipzig-Weimar.1

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1 Pierre Merlin, Le transport aerien (Paris: Les etudes de la documentation francaise, 2000) 9.