As American airlines were well established airlines compared to people express, and hence people express were new in to the market and wanted to do more business compare to all other 5 top airlines at that time, so people express started to sell their tickets at much cheaper rates than compared to all other airlines. Bob Crandall, a senior vice-president of the American Airlines said that charter planes were flying from New York to California at such a less amount of money, that American Airlines were not able to sell their seats less than the charter airlines, because they can’t cover the cost of the Airlines management which includes their staff, the fuel, services which they would be offering inside the plane. American Airlines were almost running on average their most of the flights were flying empty. Crandall with his team wanted to come up with this solution and wanted know whether they can feel those empty seat with less rates, but as the People Express fares were much more cheaper. Crandall thought that why people will go for high rate charges if they are getting low charges, and he also suggested if we change our rates to fill our empty seats than the revenue which they would be generating from the low charged empty seat will be almost equal to zero, which means they would not be making any profit.
To prevent the American Airlines loss from the business, he decided to make SABRE a strategic management tool, where he introduced the Ultimate Super Saver Fare plan. To overcome this problem Bob Crandall recognised two factors which would affect their revenue to increase the first reason was the average cost and the other reason was the market value. Both the factors were very well specified by Bob Crandall to improve the rev...
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...ue to which their bookings began to fall down and their traffic began to disappear. It was the first when People express had a reason to fear. After the launch of Ultimate super saver plan people express was in deep trouble. To other airlines the Ultimate Super Saver was just another short of war after the people express. The super saver fare was a new kind of engagement it was a secret pricing war by American Airline. Crandall put an effort to develop a new automated guidance system that specified how much would be the pricing strategies for their airlines. This plan inversely bought sell all of its surplus seats for incremental revenue and which effectively competed with other airlines including the low-fare carriers like people express. American airlines initially chose more than 50% of the seats on particular flight to be in the ultimate super savers category.
The following value chain, which focuses on Spirit Airlines, is representative of most of the firms in the Ultra Low-Cost Airline industry. Spirit is the industry leader in many areas such as operational efficiencies/cost structure, aircraft fleet management, brand/network and growth. The firm, however, trails industry foes in areas such as customer service and operational reliability and recoverability. While most in this segment pursue the cost-leader competitive strategy, Spirit has demonstrated the most effective model to date – whether the model is the most sustainable remains to be seen.
The new trend in airline industry to use fuel efficient, high -tech aircraft is of a major concern for Air Canada. It has been under immense pressure to replace its fleet aircraft with more efficient Boeing 777 aircraft. However, the airline has purchased some Boeing777 aircraft, but these new purchases are used only for more profitable international routes depriving Air Canada’s domestic consumers of the facility. Furthermore, the varied fuel price has affected pricing policy significantly as its promotional policies are more price point based as compare to consumer based.
Spirit makes our fares so low because they know that draws in the attention of the consumer. Once they have your attention you’re shocked at the price so you go for the deal, oblivious to the fact that you walked into their trap. Southwest’s symbol for shareholders is LUV while Spirit’s is SAVE. They are not the only companies to start to enter into these paths. Hotels, rental cars and cruises are all faced with the same choice to embrace the LUV or the thriftiness with SAVE (Elliot
The airline industry has long attempted to segment the air travel market in order to effectively target its constituents. The classic airline model consists of First Class, Business Class and Economy, and the demographics that make up the classes have both similarities and differences to the other classes. For instance there may be similarities between business class travellers on a particular flight, but they will not all be travelling for the same reason. An almost-universal characteristic of air travel is that customers do not fly for the sake of flying; the destination is the important element and the travel is a by-product, a means-to-an-end that involves the necessity of an aircraft that gets the customer from point A to point B. Because the reasons can differ greatly in the motivations for a customer wanting to fly, it can be difficult to divide the market into discrete segments, that is, there is always going to be overlap in the preferences and characteristics of any given segment. With that in mind, the commonalities that are shared between the clientele that make up the respective classes can easily withstand analysis.
In 1978, deregulation removed government control over fares and domestic routes. A slew of new entrants entered the market, but within 10 years, all but one airline (America West), had failed and ceased to exist. With long-term growth estimates of 4 percent for air travel, it's attractive for new firms to service the demand. It was as simple as having enough capital to lease a plane and passengers willing to pay for a seat on the plane. In recent news, the story about an 18-yr British...
Spirit Airlines has long been considered an unorthodox airline. They, of course, address all four P’s in their marketing strategy; however, they focus a large amount of their effort on price and promotion. They focus on cutting price through “unbundling”. They focus on promotion through taking advantage of social issues and breaking news. Many advertisements and deals promoted by Spirit have given the public a definite shock-factor. Spirit has made two objectives very clear: they are furious at getting the customer the lowest fare possible by any means necessary, and they will similarly use any means necessary to get those potential customers to notice those fares. Such a blatant marketing strategy works. Even going up against some big competition, Spirit finds ways to be competitive and successful in flagrant fashion.
Even though Southwest offers no-frills, there is still a high degree of customer satisfaction that continuously builds customer loyalty for the company. As mentioned, Southwest offers low prices on their airplane tickets. Also, Southwest is renowned in the airline industry for its short turnaround time on arrivals and departures. And since people's biggest concern nowadays is money and time, having low price airline tickets to cater their traveling needs in a shorter period of time will surely satisfy them. Moreover, aside from the low prices offered, what attracts to customers is Southwest’s way in dealing with them. The employees of the airline treat their customers well and really listen to their needs.
More than 37 years ago, Rollin King and Herb Kelleher got together and decided to start a different kind of airline. They began with one simple notion: If you get your passengers to their destinations when they want to get there, on time, at the lowest possible fares, and make darn sure they have a good time doing it, people will fly your airline. And you know what? They were right. What began as a small Texas airline has grown to become one of the largest airlines in America. Today, Southwest Airlines flies over 104 million passengers a year to 64 great cities all across the country, and we do it more than 3,400 times a day.
JetBlue's mission is "to bring humanity back to air travel". Its low-cost strategy is second-to-none, not even to Southwest. Utilizing Southwest as a model and benchmark early in Neeleman's career in the industry, he's managed to copy the Southwest model and expand upon it with his ability to find more innovative ways to cut costs along the organization's value-chain, while utilizing technology to increase productivity and further add to operational efficiencies. JetBlue's value chain demonstrates its ability to successfully compete in several key areas relative to the bases of competition within the industry and creates processes that focus on reducing costs, for the specific purpose of continuously creating value for its customers, i.e. fare pricing, customer service, routes served, flight schedules, types of aircraft, safety record and reputation, in-flight entertainment systems and frequent flyer programs.
Before to select the proper alternative, three alternatives were analysed and evaluated under four decisions criteria: customer experience, cost, growth rate / market penetration and ease to implementation (See Exhibit 2: Factor Analysis). Between all the alternatives, it was suggested that Southwest Airlines enters to New York City by bidding the slots and gates at the LGA (See Exhibit 3: Alternatives Analysis). This alternative sustains the challenge of changing the customer experience which means adding more flights from and to the East; furthermore, entering to new markets will reinforce “the power of the network” through LGA. At the same time, this decision will allow signing more code-sharing agreements with other airlines flying to international destinations and offer new products and services to LUV customers as loyalty rewards, in-flight internet, onboard duty-free purchases, etc.; as a result of this, it will increase passenger’s insights and experiences by flying with Southwest Airlines. Nevertheless, there is potential risk by selecting this alternative, in the recent years the energy prices has had a huge increase affecting costs, fares and even capacity needed, however Southwest Airlines has been able to hedge fuel for decad...
Airline and travel industry profitability has been strapped by a series of events starting with a recession in business travel after the dotcom bust, followed by 9/11, the SARS epidemic, the Iraq wars, rising aviation turbine fuel prices, and the challenge from low-cost carriers. (Narayan Pandit, 2005) The fallout from rising fuel prices has been so extreme that any efficiency gains that airlines attempted to make could not make up for structural problems where labor costs remained high and low cost competition had continued to drive down yields or average fares at leading hub airports. In the last decade, US airlines alone had a yearly average of net losses of $9.1 billion (Coombs, 2011).
Southwest Airlines strategy of focusing on short haul passenger and providing rates as low as one third of their competitors, they have seen tremendous growth in the last decade. Market share for top city pairs on Southwest's schedule has reached 80% to 85%. Maintaining the largest fleet of 737's in the world and utilizing point-to-point versus the hub-and-spoke method of connection philosophy allowed Southwest to provide their service to more people at a lower cost. By putting the employee first, Southwest has found the key to success in the airline business. A happy worker is a more productive one as well as a better service provider. Southwest will continue to reserve their growth in the future by entering select markets only after careful market research.
It has stayed relevant to the market through its propelled philosophy of relationships to generate profits in the business. Since its establishment in Monroe, Louisiana the once tiny airline has stretched to greater heights serving in 6 continents. It has also established a distinguishable name among its competitors with a reputation of leading customer services. However, even as an established venture, the company needs to maximize its profits in order to stay in business and expand in to new territories beyond its conquered boundaries. A strategic analysis was carried out by our team to establish the company’s current situation. A SWOT analysis was performed to come up with three referenced, strategic alternatives. This alternatives are meant to act as a strategic guidance to the company in order to enhance growth. The strategic recommendation provided will improve and enable the business to cope with the competitors while the implementation of the strategy section will outline the way to go about achieving these alternatives in the business setting. Lastly, we put up a discussion on the evaluation procedures and necessary controls for the
When an airline does not have a sustainable competitive advantage, it does not have any properties of differences from there competitor and turns to a dangerous price war. The sustainable ...
This concept was challenged by Southwest Airlines by marketing itself as a cost leader. Their entire growth curve in the industry has been attributed to its cost effective strategies which has made it more efficient and successful than traditional airlines.