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Marketing Final Project.pdf

28 Pages

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MKTG 1021

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                                    Marketing Principles MK 02102 Group Term Project Tess Carroll Keeley Nicoletta Payne Nicole Sullivan Chantz Delgado                             Introduction In an attempt to restructure itself after filing for bankruptcy in 2011, AMR Corporation’s American Airlines will be merging with US Airways, thus creating the largest airline in the World. The $11 billion merger is a means for American to revamp its business, while US Airways, an originally smaller airline, will benefit from the opportunity to now compete with the bigger airline companies in the United States, such as Delta and United. The two airlines will now operate under the sole name of American Airlines. Marketing Environment Analysis (Refer to Exhibit 1 for a SWOT Analysis) Analysis of the external environment Over the last five years, the Domestic Airlines industry has remained level with revenues growing marginally at 0.7% to $164.6 billion and the International Airlines industry has experienced ups and downs but is currently at a level of $60.6 billion in revenues. Industry profitability and demand have been threatened by rising fuel prices and the corresponding increase in ticket prices, particularly in 2009 when the recession further decreased demand. Fortunately, beginning in 2010, airlines were able to turn a corner as more passengers boarded domestic flights due to improving economic conditions along with hefty cost-cutting measures by international airlines. Over the five years to 2018, the domestic airlines industry revenue is expected to grow at 5.0% to $210.4 billion and international airlines industry revenue is forecasted to increase at 2.3% to $67.9 billion. As consumer and business sentiments recover and spending increases, heavy passenger traffic will return. Open sky agreements and foreign tourists coming to the United States encouraged by another cycle of depreciation of the US dollar will also aid demand. Future profit will largely depend on volatile fuel prices, along with airline's capacity to effectively hedge against changing prices and increases in the cost of greenhouse gas emissions. Innovative fuel-efficient aircraft will boost operator competitiveness in the global i market.   1   Competitive Landscape Over the past five years, industry participation has declined as a result of mergers and acquisitions, consolidations and bankruptcies. With the top four industry players combining for about 49.7% of industry revenue in 2013, the Domestic Airlines industry has a medium level of concentration. Meanwhile, the International Airlines Industry is classified as having a high concentration level with the top four industry players are estimated to hold a combined market share of more than 70.0% in 2013, up significantly from their combined 50.0% market share in iii 2008. Delta Air Lines and Northwest Airlines merged in 2008, nearly doubling their market share and creating the world's largest airline at the time, and United Airlines and Continental Airlines merged in 2010, taking the place of the world's largest airline. These trends point out that many airlines are having trouble sustaining operations. Airlines lack of profitability caused many firms to leave the industry or consolidate. Low-cost airlines, such as JetBlue Airways, have been most profitable in the industry, which is expected to encounter further structural changes in the form of mergers and acquisitions, given such competition from low-cost airlines. Analysis of Competitors United Continental Holdings United Continental is the world's largest airline with a 26.6% market share in the international airlines industry and a 14.7% market share in the domestic airlines market, as shown in Exhibit 2. One of United Continental's major strengths is that it is a founding member of Star Alliance, an international global alliance network that provides service to 189 countries via 26 member airlines, allowing UCH to serve practically every major market in the world. A weakness is that United Continental was unable to maintain its United "Ted" low-fare services. iv The services created in the bankruptcy restructuring in 2003 were discontinued in 2008. Delta Air Lines With a 21.4% market share in the international airlines industry and a 15.1% market   2   share in the domestic airlines industry, Delta Air Lines is the world's second largest airline. One of Delta Air Lines' strengths is that it has code-share agreements with a number of airlines along with being part of the SkyTeam alliance. This offers revenue and cost sharing on transatlantic and international routes. v Southwest Airlines With an 11.1% market share in the domestic airlines market, Southwest is the most successful low-cost carrier in the country, and is the largest domestic US airline by number of passengers enplaned and scheduled domestic departures. Based out of Dallas, Southwest has expanded its low-cost, no-frills, open-seating approach to air travel throughout the United States to serve about 72 cities in 37 states. A major strength is the company's ability to keep costs vi down, which it does through the use of smaller, less congested airports. JetBlue Airways Corporation JetBlue has a domestic airlines market share of 2.4% and is a relatively young airline based at JFK Airport. One of JetBlue's strengths is that it uses less congested airports located near larger cities. Also, JetBlue has achieved this growth by complementing its leisure travel markets with higher yielding business markets and capitalizing on key growth regions. vii Customer Analysis The main customers in the airline industry are private consumers, businesses, and freight and mail forwarders. Private consumers form the largest market segment, accounting for 71.3% of domestic airlines industry revenue and 66.7% of international airlines industry revenue. In the domestic industry, 62.1% of revenue will come from coach class customers and 9.2% will come from first class clients. For these private consumers, price is usually the first and one of the most important factors considered when planning a trip. Other factors considered are baggage allowance, route of travel and service levels. Immediately after September 11, 2001, this market suffered major losses, however consumer flights have increased considerably over the past   3   decade, due to reduced fear, higher incomes, more route offerings by major and low-cost airlines. There was another reduction in private travel during the recession of 2008 and 2009, but it has started to pick up again since. Businesses comprise another main customer sect. They account for about 24.6% of the domestic airlines market and 25.2% of the international industry revenue. Generally, business travelers sit in business class and pay a premium for these tickets, as the company pays for the trip and last-minute bookings command a higher price. The business travel sector suffered even more than private travel in 2008 and 2009 as companies were forced to tighten their budgets, but the sector has grown strongly over the past five years. viii Based on this analysis, opportunities exist in the airlines industry for companies able to operate at low-costs, offer favorable or distinct routs, or provide supreme customer service. One threat to this industry is the possibility of economic downturns, as many of the demand determinants are based on economic influences. Shocks to the industry, including terrorist attacks involving planes, disease outbreaks which tend to spread through airplanes, and plan crashes that scare people away from flying, are other possible threats to the industry. Analysis of partnerships Alliances are common in the airline industry, as they provide for an extended network of connectivity and convenience for international passengers and packages through code-share agreements on flights. The main benefits of being part of an alliance are cost reduction through shared operations and passenger benefits of lower prices due to lowered operational costs, more departure times, and more destinations within easy reach. The three largest passenger airline alliances are Star Alliance, SkyTeam, and Oneworld. American Airlines is the founding member of Oneworld Alliance, which brings together Aer Lingus, British Airways, Cathay Pacific, Finnair, Iberia, Japan Airlines, Lan, Malev, Qantas and Royal Jordanian, as shown in Exhibit 3. These 10 international airlines together serve more than 675 destinations worldwide. US   4   Airways, however, is currently part of the Star Alliance. Also, in 2009 it entered into a partnership with Delta Air Lines, which includes a swap of takeoff and landing privileges between the two companies. This partnership is expected to increase profitability for both companies. US Airways has said that it will leave Star Alliance for Oneworld when it merges with American Airlines. However analysts say that it is easy for US Airways to say it will leave Star, but more difficult to actually do so. "These divorces are expensive 12-month exercises. You have to manage the divorce and then get married to someone else, but in this case you want to get married before you get divorced." Nevertheless the Oneworld alliance will hopefully help American and US Airways passengers get to Asia. American Airlines has little presence in Asia and US Airways has none, so Oneworld partners Japan Air Lines and Cathay Pacific will be x heavily involved in filling the American and US Airways gap in Asia. American Airlines Current Marketing Strategy (See Exhibit 4) Business Objective American Airlines, under parent company AMR Corporation, currently defines its business mission to be serving to provide every citizen of the world with high quality air travel to the widest variety of destinations possible. Some of American Airlines’ sustainable competitive advantages include a vast network, a strong corporate clientele and focus on the business customer, and the creation of the first airline rewards program. xiHowever, analysis suggests that while American and other large airlines may have assumed that their size and dominance in the market provides them with sustainable competitive advantages, smaller, low-cost companies such as Southwest for example are disputing this idea. In terms of business related goals, American Airlines is focused on maintaining its position as a dominant airline in the world while also becoming a profitable one. AMR Corporation filed for bankruptcy in 2011 as a means of   5   restructuring itself so that American Airlines can remain competitive in the airline industry and continue to provide high quality air travel to its customers. Acquisition/Retention Focus Since American Airlines is primarily concerned with earning the satisfaction and loyalty of their customers, it is primarily focused on retention of existing customers. It feels strongly that each of their customers should be made invaluable. Segmentation and Targeting American Airlines currently targets several diverse customer segments, which include “The Domestic Commuter”, “The Entrepreneur”, “The Global Professional”, “The Climber”, and “The Up and Comer.” While American Airlines’ audience covers a large demographic and psychographic scale, basic customer demographics and psychographics include: 56% male, 44% female; median age is 49; purpose of travel: 39% business, 47% pleasure/personal, and 14% combination; and the median household income is $163,300. It is evident that American Airlines caters to both the frequent flyer and the occasional traveler, as well as serves passengers who are going on business trips and family vacations. See Exhibit 5 for passenger demographics and psychographics and Exhibit 6 for a prototypical target customer description. Positioning American Airlines positions itself as one of the largest airlines in the marketplace. It serves approximately 250 cities in over 40 countries with an average of 3,400 daily flights. The benefits that the brand emphasizes in its positioning are its superior network and global reach, as its network covers locations throughout North America, the Caribbean, Latin America, Europe and the Pacific. Additionally, in the United States, American Airlines serves five major markets, including New York, Los Angeles, Dallas/Forth Worth, Chicago, and Miami, which are all important cities for both business and leisure travelers. American Airlines' position as one of the largest airlines in the marketplace is demonstrated by daily statistics, as on any given day the   6   airline flies approximately 275,000 passengers, receives approximately 240,000 reservation calls, handles more than 300,000 piece of luggage, and flies over 3000 flights. xiii Product The core of American Airlines’ product assortment includes a fleet of almost 900 aircraft focusing on five main planes, the Boeing 777, the Boeing 767, the Boeing 757, Boeing 737-800, and the Boeing MD-80. Each of these planes serves the customers’ values of being provided with comfort and flexibility. First class customers receive more benefits in terms of privacy and comfort, such as a transformable six-foot bed for sleeping. Passengers value inflight entertainment as well, which is available on all flights and includes a selection of movies, music, games, and television shows. Price Along with other major airlines, U.S. Airways employs Yield Management as a pricing tactic. Airline pricing is complicated, as it can vary from one day to the next, or even within the same day depending on a variety of factors such as destination demand, the fluctuating cost of fuel, the number of crew required for destinations, and seasonal popularity. American Airlines’ current pricing orientation revolves around the notion that when a passenger books online at, he or she will get the lowest airfares and travel prices guaranteed as well as earn AAdvantage miles. In terms of specific pricing tactics, American Airlines offers every flight online and passengers can search by price and schedule to view up to forty flights and prices for their designated travel dates. Since customers often value cheaper flights, customers can view the lowest prices available three days before and after their selected travel dates and make a selection based on their flexibility. Additionally, American Airlines advertises that customers will always get the lowest airfare guaranteed on their website, as well as no online booking fees. In order to retain customers, American Airlines also advertises that in the event a customer finds   7   the exact same flight for at least $5 less on another website the same day he or she made the purchase with American, the customer will be refunded the difference in fare and be given a $50 xiv promotion code for a future flight. Furthermore, customers can earn AAdvantage frequent flyer miles on any flights with American Airlines, as well as any of American’s airline participants. Place American Airlines currently has five major hub operations: Dallas, Chicago, Miami, Los Angeles, and New York. These are important gateways because they give customers easy access to a multitude of destinations. Additionally, of the five major hub operations, four are the biggest metropolitan areas in the United States. Customers can purchase flights either online or call to make a reservation. The current channel design delivers on the value the target customers seek by providing customers with the lowest airfare guaranteed to a plethora of destinations across the United States and around the world. In terms of alliances, American Airlines has a variety of Oneworld alliance partners so that they can truly achieve a global network in the international arena as American connects to the hubs of its partners. Promotion Since American Airlines’ primarily targets adults ages 25-54 who travel frequently on business and often for pleasure, its communication objective can be described as top-of-mind awareness. Advertising media outlets include TV, radio, newspapers, magazines, and direct mail, and oftentimes a specific strategic or sales message is employed with the American logo and airplane image. In order to not offend and lose any of its loyal customers, American Airlines xv abstains from any sponsoring that is linked with tobacco, alcohol, and politics or religion. American Airlines also has a program in place called American Airlines Incentive Travel, whose purpose is to create promotional techniques that will retain loyal customers and also acquire new   8   ones. Some incentives include flight certificates for the corporate flyer and gift certificates for all other customers. The slogan for these incentives is “When you think the world of someone, give xvi it to them.” Additionally, in an effort to boost sales and continue to inspire customer loyalty, American Airlines also has rewards programs, which foster a sense of continuity among loyal customers and encourage such continuity among new ones. U.S. Airways Current Marketing Strategy (See Exhibit 7) Business Objective According to its official website, U.S. Airways says that excellent customer service is a top priority for them. In order to achieve this goal, U.S. Airways prides itself on offering the lowest fares possible at the time to its customer, regardless of whether they book online, on the phone with a U.S. Airways employee, or at a counter desk. U.S. Airways also seeks to notify customers as much in advance as possible if there are delays or problems, and always seeks to get a customer’s baggage to him or her in a timely manner. U.S. Airways also seeks to accommodate special circumstances, such as providing unaccompanied minors with an escort and attention to customers with disabilities. xvii Acquisition/Retention Focus Because the airline industry is so volatile due to its pricing structure, many customers may not feel a particular loyalty to a specific airline; instead, they may choose their flights based on time management, locational convenience, or price. This is a difficult challenge for both U.S. Airways and all airline carriers. Because of this challenge, U.S. Airways is determined to providing superior customer service to its customers in the hopes that this will convince them to fly with U.S. Airways over other low-cost carriers or large carriers such as United. U.S. Airways hopes that this goal of excellent customer service will allow them to retain customers in an industry privy to a competitive and volatile pricing structure.   9   Segmentation and Targeting U.S. Airways seeks to accommodate both leisure and business travelers, and customers are 60% male and 40% female, with strongest influence in the age range from 18-54 years old. While this range is broad, its strength lies more towards the end of that age spectrum, between 45-54 years old. The median household income for a U.S. Airways customer is $129,000. A majority of U.S. Airways customers have some sort of degree, with 78% having a college degree and beyond. xviiSee Exhibit 8 for a prototypical target customer description. Positioning U.S. Airways has currently positioned itself in between the large, traditionally dominant airlines, such as United and Delta, and the smaller low-cost carriers like JetBlue and Southwest. This unique positioning allows U.S. Airways to be the only low-cost carrier with a significant international presence to destinations such as Canada, Caribbean, Latin America, and Europe. Product U.S. Airways’ primary product is aviation transportation domestically and internationally. It currently offers 18 different types of aircrafts, with plans to introduce the AirbusA350 aircraft in 2017, which would be able to seat 270-330 seats. This would be U.S. Airways largest aircraft to date. Currently, their aircraft with the greatest capacity for travelers is xix the Airbus A330-300 with 291 seats. Price US Airways also uses the Yield Management pricing technique explained earlier. Also, U.S. Airways currently employs a “Miles” promotion. Through their “Dividend Miles” program, “you can earn miles and award travel like a frequent flyer (even if you’re not).” If you are a member of the preferred program, your benefits increase with amenities such as priority boarding and check in features. U.S. Airways partners with other corporations to promote their Miles campaign, including MasterCard, FedEx, and National. xx   10   Place U.S. Airways currently has four major hub operations, from where the majority of their flights depart. These four cities are Charlotte, Philadelphia, Phoenix, and Washington D.C. Of these four routes, Charlotte has the largest number of daily flights (647 flights) while Phoenix has the largest employee base (9, 171 employees). xxi Promotion U.S. Airways has the benefit of basic awareness, as it has been an airline carrier since 1939 and is the fifth largest airline within the U.S. In terms of promotion, U.S. Airways currently is focusing a lot of attention on its public image both as an independent company now and regarding its future merger with American Airlines. As the merger becomes finalized, (the merger is expected to close in the third quarter), their promotion tactics are twofold. U.S. Airways wants to offer the same promise of a safe and customer-oriented airline, while also providing their customers and investors with current information about the impending American merger. U.S. Airways seeks to shape the public image of the new merger on the new website, xxii Marketing Strategy Critique   American Airlines currently positions itself as a large, high-quality airline with a superior network and global reach. However United Continental and Delta both have similar positioning and are currently more market dominant than American, so American cannot really capitalize on this positioning. After the merger, the new American will be the largest airline, so this could be an opportunity for American to exploit its positioning and take over the market, if it is able to retain both original American Airways customers and U.S. Airways customers. Nevertheless, merging two airlines is complicated and messy, so the new American could take severe hits if it is unable to quickly and smoothly transition its operations into one process. Also U.S. Airways business mission is to excel in customer service, so the new American Airlines must integrate   11   this into its current market strategy. This extended focus may be hard to maintain. Moreover, the merger will have greater access both internationally and domestically, but the new American still has very limited access to Asia. Asia is clearly a growing business hub, so not providing a lot of access to this international destination could alienate its business clients. Also, U.S. Airways was a member of StarAlliance but with the new merger will be joining American’s Oneworld alliance. This means a decrease in the number of alliance partners (StarAlliance has 27 partner airlines in contrast to Oneworld’s 12) and may upset U.S. Airways' loyal customer base. Recommended Future Marketing Strategy Business Objective We recommend the new American Airlines' business object be a combination of the business objectives of its merging parent companies. Thus it will strive to provide every citizen of the world with high quality air travel to the widest variety of destinations possible, as American has done, while also maintaining the high level of customer service that is essential to U.S. Airways' strategy. Specifically, the merger will create the largest carrier in the airline industry to date, and will have double the hubs and a greater international reach. According to the Wall Street Journal’s release of U.S. Airways first quarter profits, the merger between American and U.S. Airways should expect to have $1 billion in synergies by 2015. xxiii Acquisition/Retention Focus Both American and U.S. Airways are focused on retaining their current customers. The merger should continue to focus on retention of current customers through excellent customer service and increased convenience for travelers, through an increase in hubs and destinations. If the new American is able to accomplish the merger without alienating American or U.S. Airways customers, it will be able to secure its spot as the number one airline in the world. Merging operations, however, is tricky, so we recommend the new American focus all of its attention at   12   ensuring a smooth travel experience for their existing customers, so not to alienate anyone, rather than attempt acquisitions of new customers. Segmentation and Targeting We recommend the new American strive to serve the same segments and target customers as the companies did previous to the merge. The segmentation and targeting of both companies were similar enough, and the new company will be larger, so it is reasonable to advise them to continue serving the same segments and typical customers. Positioning Regarding the impending merger, the U.S. Airways official website positions the merger in a positive light, emphasizing the merger’s stronger global presence. “The combined company will retain the iconic American Airlines brand name, and will provide you with more choices and better service throughout the world. The combined company will be headquartered in Dallas-Fort Worth and will maintain a significant corporation, operational and hub presence in Phoenix.” xxiv The American merger should emphasize its position as the largest airline industry to date. While the merger will have an opportunity for dominance in its field, it should strive to position itself as a large airline with a low-cost carrier “feel”—specifically by maintaining excellent, personal customer service. The new merger promises to “provide you with more choices and better service throughout the world.” The new American should position itself as equally committed to customer service while simultaneously providing more global routes and destinations for its customers. Product We recommend that over the next few years the new American work on standardizing the interior and exterior of their planes as well as their appearance in airports across the two brands. More pressing, however, is the seamless integration of the flight experience, which is really the central "product" of an airline. To attempt to avoid any mishaps
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