Business Market of Airlines
What is the Business Market of an Airline Industry?
Business market has been defined as a market that is characterized by fewer customers and larger transactions. Customization is the key and the usage of the product or service determines its value. Brand name means little to customers and there is no retailing. Also, selling is a complex process and the target of the sales pitch may not always be the end product’s users (NarayanDas 2005).
This kind of market is different from customer markets and, service is the cornerstone of business markets. The products are customized to meet the needs of different customers in different geographical or operational regions. Also, every company operating in a business market strives to attain customer loyalty though the means by which they create and sustain it varies between industries.
With regards to the airline industry, business markets determine many aspects of their operations including their pricing, routes, frequency of operations and the kind and size of air-crafts that should be used in a particular market. Identifying and operating in each business market is a complex strategy and it involves numerous aspects such as aircraft, personnel, governments, suppliers, financing, customer support and marketing.
Customer Characteristics in the Gulf region
The Gulf region is one of the fastest growing places in the world and the increasing oil price is booming its economies. It has a GDP of $1.1 Trillion and the population is increasing slowly and steadily and is currently at 1.96 million. In fact, this region grew by 11% in 2009 when other regions were beset by economic problems. This segment is serviced by 38 airline companies that operate in 112 airports (embrarercommercialjets.com, 2011)
An examination of SWOT analysis for airlines in this region bring some interesting results. The companies that operate in the gulf have many inherent strengths. This region is rich in oil and this makes it easier and cheaper for airlines to fuel. This region is geographically located between the east and west and this makes it a favorable route for anyone traveling from the west to east or vice-versa.
The weaknesses are also numerous. The air cargo traffic is less compared to other regions because of the easy access to ports and the nature of goods that flows in is mostly non-perishable. Also, the trade between the countries in the middle east is only a fraction of what it is in Asia and Europe. Another problem is that the airline industry is highly regulated by the Government and this prevents the management from making strategic decisions to exploit opportunities as they come up. A good part of the region is a no-fly zone and so it is restricted only for military aircrafts. So, the existing space is hugely crammed for increasing air traffic. (Clarke, 2011).
The opportunities are the booming population that comprises of a young demographic crowd that is looking to cash in on the advantages of globalization. Also, the huge expatriate population that live here travel back to their home countries frequently and this means more passenger traffic for the airlines. The threats continue to be the overcapacity and tight regulations from the Government. “Overcapacity, poor management and regulatory restrictions are threatening the financial viability of many low-cost carriers in the Middle East, as is reflected in the demise of Sama Airlines in Saudi Arabia” (Flottau, 2010, p.24).
Porter’s Five Forces
Porter’s five forces are the threat by the entry of new competitors, threat of substitute, bargaining power of customers, bargaining power of suppliers and the intensity of rivalry. Out of these, the force that is most likely to affect this segment is the intensity of rivalry. Though Emirates is the current leader, many airlines like Etihad and Qatar are catching up with lower fares and better amenities. Innovation is the key factors that can provide a competitive advantage to an airline company.
The pricing strategy that is used in this segment is cost of service. Under this strategy, the price paid by the customer is the cost of the service incurred by the airline. This is a sensible approach because the prices of gas is cheaper than in other parts of the world and so the prices offered are more competitive.
The promotional strategy employed by the airline industry should be attractive and yet, should provide profits for the company. In this region, the operations are regulated by the Government and so the airline companies have little to no room for innovation. It is determined to a large extent by the demand and the natural low cost of gas prices results in attractive prices to consumers. This means there is no need for an aggressive promotional strategy in this region.
Yield management helps an airline to gain the maximum revenue from each airline. In this region, a higher rate is charged for first-class and business class passengers. Also, airlines that operate at odd hours and those with a low seating capacity may have lesser rates to attract more people. In general, the yield management in Gulf region is high because of high traffic and overcapacity.
The cargo is highly limited because of the proximity of places and the similarities in culture among the gulf countries. Also, easy access to ports and the nature of non-perishable goods that are transported reduces the need for cargo.
There is little need for multiple kinds of air-crafts in this region because of its limited transportation of cargo. The size of the passenger airplane varies according to the distance and the demand.
Since most flights are overloaded and the availability of fuel is high, the payload is relatively unrestricted. Also, the distances between places are small and this means less ATC procedures and clearances.
The airlines operating in Asia should look into the different economic aspects such as airport handling charges, service requirements, crew training, marketing and catering. The cost is highly reduced for catering because of the short distances between destinations and the regulations of Government means little cost towards airport handling charges. The crew training is also low because of the ready availability of labor and all this means a lower price for the customers.
Customer Characteristics in Asia
The customer characteristics of Asia are vastly different from that of the Gulf region. It is the most populous continent in the world and it makes up more than half of the world population. This simply means more business for the airline industry. The number of people traveling between Asia and the Western world is ever-increasing because of the improved economic relations between China, India and the U.S. Also, the economic conditions are improving in Asia and more and more people can afford air travel. The presence of numerous low-cost carriers have also helped to make air travel a preferred option for many people.
The primary strength is the ability of
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