You are on page 1of 50

PEST Analysis.........................................................................................................

9
Political Factors.................................................................................................10
Decline - Many services remain in the maturity and saturation stage for years.
However, for most, obsolescence sets in, and new products are introduced to
replace old ones. In the decline stage, demand obviously drops, advertising
expenditures are lower, and there are usually a smaller number of competitors.
While it is possible for a product to do very well in this stage of the life cycle,
there is not a great deal of comfort in getting a larger share of a declining
market................................................................................................................37
Generic strategies were first presented in two books by Professor Michael
Porter of the Harvard Business School (Porter, 1980, 1985). Porter (1980,
1985) suggested that some of the most basic choices faced by companies are
essentially the scope of the markets they would serve and how they would
compete in the selected markets. Competitive strategies focus on ways in
which a company can achieve the most advantageous position that it
possibly can in its industry (Pearson, 1999). A firm’s relative position within
its industry determines whether its profitability is above or below the
industry average. The profit of a company is essentially the difference
between its revenues and costs. The fundamental basis of above average
profitability in the long run is sustainable competitive advantage. There are
two basic types of competitive advantage a firm can possess: low cost or
differentiation. The two basic types of competitive advantage combined with
the scope of activities for which a firm seeks to achieve them, lead to three
generic strategies for achieving above average performance in an industry:
cost leadership, differentiation, and focus. The focus strategy has two
variants, cost focus and differentiation focus. We will briefly overviews
these generic strategies because ...................................................................39
1. Cost Leadership.............................................................................................39
2. Differentiation...............................................................................................39
3. Focus..............................................................................................................40

1
SWOT ANALYSIS

2
External Factors Internal Factors

Strengths Opportunities
1. Leading Market Position
1. High dependence on Passenger
2. Brand Recognition
Revenues
S 3. Superior Operating Structure
W 2. Debt
O 4. Network Presence
3. Reliance on Oil Prices
T 5. Hub airport at Karachi

A
N
A
L Weaknesses
Y 1. Route and fleet expansion Threats
S
2. Growing demand for Low cost 1. High Interest Rates
I
S airlines 2. Accidents
3. Expansion of Freight Business 3. Strong Competition
4. Customer loyalty 4. Interest and foreign currency
5. Shifting customer needs exchange rates
6. Further Alliances 5. Decline in airline industry
7. Industry Recovery

A. STRENGTHS
1. LEADING MARKET POSITION
AirBlue is one of Pakistan’s leading air carrier, with more than 800 daily flights
to 8 destinations. Around 100,000 passengers a month fly on AirBlue, making it
one of the major operators in the domestic market in terms of passenger
kilometers. Its revenue growth was driven by stronger yields per passenger, up
2.8 percent year-on-year.

3
Its strong market position is driven by consistently low fares as well as reliable
service, frequent and convenient flights, use of new technologies like e-ticketing
and self check-in terminals, comfortable cabins and superior customer service.
2. BRAND RECOGNITION
AirBlue has high brand recall. It is recognized by travelers all over the country.
AirBlue commenced operations in 2004, and reached the milestone of serving
one million customers within two years. This helps clarify why customers prefer
AirBlue to other carriers such as PIA, Aero Asia and Shaheen Airlines.
AirBlue earned the number one ranking in customer satisfaction for 2005, based
on least number of complaints per passenger carried as reported to the Civil
Aviation Authority (CAA). This strong market position gives the company a scale
advantage and helps it strengthen its brand image.
3. SUPERIOR OPERATING STRUCTURE
AirBlue has maintained its position as the low cost carrier for the last two years.
It has one of the lowest operating cost structures, being first in the Pakistani
market to use the latest technology. Factors contributing to its low cost structure
include; single type aircraft (Airbus) and an efficient, high-utilization and point-
to-point route structure. Flying one type of aircraft significantly simplifies
scheduling, maintenance, flight operations, and training activities. AirBlue has
continually achieved high asset utilization and employee efficiency. Superior
operating structure serves as the primary competitive advantage of AirBlue.
4. NETWORK PRESENCE
AirBlue enjoys a strong network in key domestic and international destinations.
The company’s network includes three the major airports in Pakistan, as well as
major international airport such as Dubai International Airport. Having a strong
network means that AirBlue can generate traffic feed for both its domestic and
international flights.
5. HUB AIRPORT AT KARACHI
AirBlue operates from its hub in Jinnah International Airport, Karachi. Jinnah
International is one of the world’s busiest airports in terms of number of
passengers carried. It is also one of the largest international gateways to Asia. It

4
is also the leading international air passenger (and cargo) gateway to Pakistan.
The company’s strong presences in airports with heaviest traffic levels in Pakistan
give it a competitive advantage.
6. EFFICIENT USE OF TECHNOLOGY
AirBlue has successfully incorporated latest technology in all its systems, giving
it an edge over competitors. As discussed in the case study, AirBlue takes credit
for introducing most new technologies to the Pakistani market. It was the first
carrier in Pakistan to incorporate the e-ticketing system and the second in South
Asia to introduce self check in systems at the Jinnah International Airport,
Karachi. It also has an efficient intranet called “AirBlue EDNET” that helps it
successfully maintain a paperless environment, providing managers and
employees real time access to information. It has also vertically integrated the
intranet incorporating major strategic partners such as American Express.
B. WEAKNESSES
1. HIGH DEPENDENCE ON PASSENGER REVENUES
Passenger revenues accounted for 78 percent of the AirBlue’s total revenue in
2005. Cargo services allow airlines to generate additional revenues from existing
passenger flights. In addition, cargo revenues are usually counter cyclical to
passenger revenues and have lower demand elasticity than passenger business,
which allows airlines to pass on fuel price hikes to customers.
2. DEBT
AirBlue has a significant amount of debt. It has short term financing of Rs. 254
million. Current and future debts could have important consequences for
stakeholders of the company. For example, debt could impair AirBlue’s ability to
make investments and obtain additional financing for working capital, capital
expenditures, acquisitions or general corporate or other purposes. Debts could
also put AirBlue at a competitive disadvantage to competitors that have lesser
debt and could also increase the company’s vulnerability to interest rate
increases.
3. RELIANCE ON OIL PRICES

5
AirBlue’s sustainability, growth and revenues directly depend on oil prices. A
steep rise in oil prices can seriously damage the long term viability of any airline.
Recently many airlines around the world went bankrupt due to rising oil prices.
Airlines need to hedge against this risk by taking proper measures. In case of
AirBlue, fuel prices also had an impact as fuel cost increased from Rs. 519
million to Rs 1,475 million.
C. OPPORTUNITIES
1. ROUTE AND FLEET EXPANSION
AirBlue is planning to include more domestic and international destinations in its
network in 2005. Expansion plans are already in the pipeline with permission to
start flights to Manchester awaiting clearance whilst an application to start
flights to Jordan has been submitted. Other destinations included in their long
term plans include further cities in the UK and USA, India and Saudi Arabia.
Route and fleet expansion will positively impact the company’s operations by
increasing revenues and expanding its network.
2. GROWING DEMAND FOR LOW COST AIRLINES
The growing demand for air travel is driven by lower fares and consumer
confidence. A survey by International Aviation Authority showed that ticket price
is the number one criterion for passengers when selecting a flight, well ahead of
the availability of a non-stop service.
3. EXPANSION OF FREIGHT BUSINESS
Though a late starter, AirBlue’s cargo revenue is developing. Cargo revenue
showed an increase of 32 percent, as it touched Rs. 41 million this year up from
Rs. 31 million. The current growth in AirBlue’s freight segment is aided by recent
introduction of scanning technology, which meets the requirements private
courier service providers operating in Pakistan. Equipped with the right
technology, AirBlue is now in a position to cash in on increasing demand for
freight and reduce its business risk by reducing dependence on passenger traffic.
4. CUSTOMER LOYALTY
AirBlue’s frequent flyer and loyalty programs can help it retain customers.
AirBlue’s BlueMiles (frequent flyer program) was established to develop

6
passenger loyalty by offering awards and services to frequent travelers. Such
schemes encourage repeat travel on AirBlue, as passengers seek to accrue the
benefits given to regular travelers. This enables the airline to retain customers
and reduce costs, as it does not have to spend money targeting new customers to
replace those lost to other airlines.
5. SHIFTING CUSTOMER NEEDS
The needs of air passengers are increasingly changing, as they are becoming
more and more price sensitive. The effect of this has been that traditional airlines
such as PIA have struggled, while low-cost airlines such as AirBlue have
experienced significant growth despite a turbulent industry, especially in the
short haul market in Pakistan. If AirBlue succeeds in making its prices more
competitive, then the company will be able to gain significant market share.
6. FURTHER ALLIANCES
AirBlue has entered in a number of bilateral and multilateral alliances with other
airlines e.g. with JS Air to enhance its market reach and serving customers on
remote destinations not covered by their own flights. Such collaborative
marketing arrangements typically include one or more of the following features:
joint frequent flyer participation; code sharing of flight operations (whereby one
carrier’s flights can be marketed under the two-letter airline designator code of
another carrier); coordination of reservations, baggage handling and flight
schedules; and other resource-sharing activities.
AirBlue should attempt to expand the its alliances with other airlines to increase
its coverage even further by participating in more markets worldwide that it does
not serve directly.
7. INDUSTRY RECOVERY
Market analysts believe that the global airline industry will experience an upturn
in fortunes over the next few years. This represents an opportunity for AirBlue, as
it could generate increased revenues and command market share if it capitalizes
on increases in demand.
D. THREATS
1. HIGH INTEREST RATES

7
The past few years have seen State Bank of Pakistan impose high as well as low
interest rates to check inflation and the over heating of Pakistani economy.
Inflation in Pakistan may see another raise in the short-term. According to
International Monetary Fund’s World Economic Outlook 2006, the Pakistan real
GDP growth could fall from 6.5 percent in 2005 to 5.5 percent in 2006. This
could depress consumer spending and offset some of the positive trends for
AirBlue, in Pakistan. The US and Eurozone are expected to be the key markets
for AirBlue in the near future. A slowdown in the US and Eurozone economies
could lead to reduced demand from corporate travelers.
2. ACCIDENTS
Though AirBlue did not suffer any accident in past. It has to continuously ensure
utmost safety and security of its passengers. Accidents can adversely affect
customer confidence in AirBlue and result in declined revenues intensifying
competition.
3. STRONG COMPETITION
AirBlue is now competing against more credible low cost carriers such as
Shaheen Airline, AeroAsia and PIA Express. PIA remains AirBlue’s strongest
competitor because of the huge market it has gained over time, strong brand
image and customer loyalty.
AirBlue also faces competition from PIA’s new low-fares subsidiary, PIA Express.
Moreover, major legacy airlines have been focusing on restructuring costs, which
has improved their competitiveness. With costs restructured, the legacy airlines
are becoming more formidable competitors in terms of increasing capacity,
matching prices and leveraging their frequent flier programs. Increasing
competition could adversely affect the company’s margins.
4. INTEREST AND FOREIGN CURRENCY EXCHANGE RATES
Fluctuating foreign currency exchange rates can have a significant impact on
AirBlue’s earnings. For example, as AirBlue is planning to expand its services to
the UK. As a result, AirBlue can experience negative or positive effects arising
from exchange rate movements. Strengthening of foreign currencies against the
British Pound will positively impact AirBlue and vice versa.

8
5. DECLINE IN AIRLINE INDUSTRY
A number of factors have caused the current decline in the airline industry. For
example, the threat of further terrorist attacks since September 11 and a fall in
the number of business travelers have both caused passenger numbers to fall.
These and other factors may continue to affect demand for air travel in the future,
which will affect revenues of AirBlue. For example, global problems such as an
increased threat of terrorism in response to the coalition’s war on terrorism could
have an adverse effect on AirBlue. The threat of terrorism may discourage people
from traveling by air and could espeically reduce the number of passengers
traveling on international flights.
PEST ANALYSIS
The macro-environment includes all factors influencing a company that are not
within its control. These include political social, economic and technological
factors. These are known as PEST factors. A technique of analysis of the macro
environment is PEST analysis. Environmental analysis should be continuous and
precede all aspects of planning. Since the airline industry is very much influenced
by changes taking place in the environment and has undergone rapid and dramatic
changes during the last decade, this analysis is especially important for AirBlue.

9
PEST ANALYSIS

Political Social
1. Increased Competition 1. Greater Customer Awareness
(Deregulation of airline industry) 2. Increased Entertainment
2. Political Stability Spending
3. Increased Investment 3. Technology Averse Customers
Opportunity 4.

Economical Technological
1. Improved Purchasing Power 1. In-flight Entertainment
2. Demand Value-for-Money 2. E-ticketing (SABRE System)
3. Soaring Oil Prices 3. Automated (Self) Check-in
4. Reduced Ticket Prices 4. SMS Services

POLITICAL FACTORS
Political factors always have a great influence, on the way businesses operate in
the airline industry and the spending power of customers. Governments intervene
in the airline industry for various reasons, including: 
• It is a major employer and provider of livelihoods.
• Transport systems are subject to legislation and regulation.
• International tourism flows mean that governments benefit directly from
incoming tourists.
• Government still owns a significant stake in national carrier, Pakistan
International Airlines (PIA) and gives it frequent subsidies in terms of
financing and oil.
However, in recent years it has been observed that government played an active
role in increasing competition in the airline industry. A number of new airlines

10
such as AirBlue and JS Air have been awarded licenses to enter the domestic
market. Despite increasing competition, PIA has maintained a monopoly on
international routes. Airline industry is significantly affected by political stability.
Pakistan has achieved some political stability in recent years. If the management
of AirBlue believes that the present government will perform well (consistently),
then there will be more investment in the form of purchase of new airplanes and
latest technology. The over all industry will grow resulting in more luxurious and
comfortable flights. With the military takeover government policies have become
more liberal. In the past, Pakistan’s Civil Aviation Authority (CAA) played a
major role in discouraging new airlines to enter the industry. CAA had a
restriction that companies could not operate as airlines unless they own their
aircrafts. This means that new firms will need humongous investment even to
enter the market.
ECONOMIC FACTORS
Currently, Airlines industry has four major players: Pakistan International
Airlines, AirBlue, Aero Asia and Shaheen Airlines. Their target market includes
domestic travelers as well as Pakistanis living abroad particularly in the UK and
USA. These countries have strong economies coupled with high purchasing
power. Customers’ purchase behavior depends very much on prices of the
competing airlines as well as services offered. As inflation rate is stable in
Pakistan, spending power of consumers is not effected in the long term. In fact
growth in Pakistani economy has resulted in an increase in spending power and
has positively impacted the airline industry.
Economically, the new millennium has been highly volatile; the September 11
attacks revolutionized the whole world. Consequently, there was a global
depression in the North America, South America, Australia and Europe. However,
in Asia especially Pakistan the effect in the short term was otherwise. The
economy began to boom because of greater remittances from abroad and whole-
sum immigration by expatriates. As a result, demand for air travel in South Asia
rose.

11
PIA because of its monopoly in the market had been dictating policies and prices.
Economic conditions of Pakistan are however improving. The air travelers in
Pakistan lie in four categories mentioned in the case study i.e. The Hustlers and
Overloaded, The Frill Seekers, The Economizers The Habitual/Regular Fliers-
The Frecuente fliers, The Well-to-do and The Content-able. These customers use
the services of airline companies according to their needs. An increase in interest
rates has negatively impacted the airline industry. Due to the devaluation of
rupee, attractiveness of the Pakistani market has been reduced for foreign
investors. PIA has cost advantage over its competitors because of its newly
acquired, improved, long distance aircrafts from Boeing1 which give longer range
and better fuel economy than any other jet currently produced. This cost
advantage is a barrier to entry for new firms. However, this cost advantage will
not be significant on domestic routes.
SOCIAL FACTORS
The social and cultural influences on business vary from country to country. The
social structure of Pakistan is closely tied. The trend is now changing as the
general public is educated and is pursuing professional goals. Customers are
more aware of market conditions and available options and want to get best
value for their money. They spend considerable time and money on entertainment
hence increasing the need of in-flight entertainment systems. Also, word of mouth
has a significant impact in the use of airline services and that is one the reasons of
AirBlue’s ever increasing popularity. Hajj attracts a huge number of customers;
however acquiring a license to provide services to pilgrims is a major hurdle.
The social environment of Pakistan is turning liberal with the new regime. The
initiative to automate check-in and ticket booking process2 might not be very
popular with the general public (even educated population) is still technology
averse. E-ticketing might also face significant challenges as consumers are
generally reluctant to provide their credit cards information over the phone and
the internet. The consumers, however, have a warm reaction to the prospect of
less costly but quality service flights. AirBlue, however, has untapped market
1
Boeing-777
2
Currently done by Air Blue and PIA.

12
potential as consumers are unaware of its services because of ineffective and
meager marketing efforts.
TECHNOLOGICAL FACTORS
Technology is vital for competitive advantage and is a major driver of the airlines
industry. Major technological changes are taking place in the airlines industry
with innovations in the reservations and booking systems. In-flight entertainment
systems and auto check in counters are two examples of such innovations.
Internet plays a key role in e-ticketing as consumer can easily reserve tickets or
check the status of the flight. A key issue will be the extent to which technological
advancements (such as Internet) impact distribution and cost synergies from
industry consolidation, can offset upward pressures on costs. AirBlue has led the
path of technological innovations by introducing new technologies ahead of its
competitors such as its auto check-in counters which has helped it gain market
share. It was the first airline in Pakistan to install Sabre system followed by the
market leader, PIA. Pakistani Airlines have to be abreast of the technological
developments in e-commerce and aircraft manufacturing technology in order to
gain a competitive advantage.

PORTER’S FIVE FORCES ANALYSIS

13
THREAT OF NEW ENTRANTS
Initially, PIA enjoyed a complete monopoly in the domestic sector and
preferential treatment in the overseas sector. Its interests were protected by laws
which made it mandatory for a national traveling overseas to fly only with it at
least once in case of several foreign trips a year. Its monopoly existed until early
1990s when the Nawaz Sharif government implemented the Open Sky policy. The
Open Sky Policy encouraged private sector investment in the airline sector. The
last decade witnessed the emergence of six private airlines (which are; Raji,
Hajvery, Saif, Bhoja, Shaheen Airways and Aero Asia). Despite the fact that only
two of these airlines are still operating, the ensuing competition was a decisive
factor to keep the fares in check, particularly on the domestic sector where PIA
did not face any competition previously.
This situation significantly lowered entry barriers. Although the initial investment
required for starting an airline is quite large, banks readily provide them credit but
this is only in the case of established names or companies backed by well known
groups. However, capital expenditure is very large (and is a significant barrier to
entry) and most new entrants come in the market with few leased air crafts.
Economies of scale are mostly achieved through maximum utilization of these
planes. While the private airlines did instill a competition benefiting domestic
travelers in particular, their overall performance was marred by many problems.
Almost all of the private airlines had to suspend their operations altogether, many
of them more than once, for unavailability of aircraft due to lease problems. This
resulted in suspension of services without any notice to the travelers and in many
cases these suspensions lasted not only for days but for weeks and months.
THREAT OF SUBSTITUTES
Likely substitutes for air travel include other transportation modes such as trains,
buses and cars. Driving on shorter routes (e.g. Islamabad to Lahore) provides a
cheaper substitute. Buyers may thus, be inclined to use personal cars or buses for
such trips. This however, will vary for from person to person3. A vacationing
traveler has the option of choosing a train, enjoying the scenery and its leisurely
3
For example business travelers will more often than not prefer air travel because despite it is
faster despite being more expensive.

14
pace. Air travel can, however, save both time and money for longer routes. Flying
from Islamabad to Karachi is often cheaper, safer and less time consuming than
chugging along in a train or car. The threat of substitutes in the air travel industry
will vary for each customer segment depending upon time, money, preference,
and convenience.
BARGAINING POWER OF SUPPLIERS
The price of jet fuel is directly related to the cost of oil. This price is determined
by international markets.and an individual company does not have the power to
influence it. The airline supply chain is dominated by Boeing, Airbus, Aircraft
Parts Suppliers and Reservation System Providers. There is cut throat
competition among suppliers and they are very likely to integrate vertically. Oil is
an integral input of the airline industry and has the power to directly influence air
fares. Hence, the oil suppliers have high bargaining power.
BARGAINING POWER OF BUYERS
Buyers now have a number of options when choosing an airline. Due to
technology advancements, pricing information is less fragmented and easier to
compare. Travelers can easily compare prices and can find price variations for the
same flight4. One seat is hardly any better than the next, since the arrival time is
same for everyone. Vacationers will want the best deals, whereas business travels
are frequently more pressed to time and are less price sensitive. Despite intense
competition, air travel is not cheap and command substantial finances of a
vacation. Hence, for vacationers the demand is highly elastic (as the price drops
demand increases) and for business travelers it is less elastic or inelastic.
However, airlines may move their prices in tandem with competition and force
buyers to pay market price until a price war breaks out.
INTENSITY OF RIVALRY
The Pakistani airline industry is fiercely competitive. Industry growth is
moderate, and carriers are struggling to increase their market share. There are
substantial exit barriers in the industry. Grounded planes do not earn any returns
and their disposal becomes difficult. Due to this high rivalry airlines generally
4
As is the case for Air Blue which uses Yield Management to offer substantially lower rates for
advanced bookings.

15
earn low returns because competition drives down prices5. This can spell disaster
for the economy in tough times.
According to Managing Director of Shaheen Air International (SAI), Air Vice
Marshal (Retd) Syed Ataur Rahman; “The passenger load has dropped
substantially amidst the global recession which like elsewhere has also taken a
heavy toll on our economy. The sluggish economic and industrial activities and
drying of foreign investment have resulted in substantial reduction in foreign air
traffic into the country which has taken a heavy toll on the domestic airlines. In
addition, the airline industry has also been hurt by a drastic increase in jet fuel
prices which soared by 350 percent in last three years. This has put an enormous
pressure on the airlines, to remain profitable. According to global standards
aircraft, crew, maintenance, insurance and fuel make up 68 percent of an airline’s
operating costs. The massive increase in the international prices of jet fuel is
taken a far heavier toll on small airlines which don’t have the resources and
business base to cushion the blow.
The cut throat competition on the domestic sector is unethical as well as
uneconomical and yet we have accepted it as part of the game. It has helped us
push the seat occupancy ratio to 95 percent which is way over the globally
accepted breakeven standard of 65 percent. The primary beneficiaries of the price
war are the domestic travelers as the prices of domestic airfares have been
substantially reduced.” Mr. Rahman said the absence of level playing fields,
unethical competition and rising costs of operations are all taking a heavy toll on
the private sector airlines. He urged the government to allow private airlines duty
free import of aircraft at par with PIA instead of charging them 5 percent duty.

5
As was done by Air Blue.

16
ANSOFF MATRIX
Ansoff Matrix allows marketers to consider ways to grow the business via
existing and/or new products, in existing and/or new markets. There are four
possible product/market combinations:
• Market penetration (existing markets, existing products)
• Product development (existing markets, new products)
• Market development (new markets, existing products)
• Diversification (new markets, new products)

Products

Present New

Product
nt

re
se

Market Penetration Development


M
a
rk
e
ts

Market
New Diversification
Development

Keeping in view the airline industry of Pakistan, AirBlue is in the Market


Penetration Matrix. Market penetration occurs when a company adopts a low cost
strategy to induce customers to try its product or service. It is important to note

17
here that market penetration strategy begins with existing customers of the
organization. This strategy is used airlines to increase sales and market share
without drifting from the original product/market strategy. AirBlue penetrated the
Pakistan market employing a three pronged strategy; by attracting competitors’
customers, providing superior services, and targeting non-user segments. AirBlue
also tried to entice its current customers to use more of the company’s services by
offering various discounts and schemes such as student and old citizen discounts
and Blue Miles. AirBlue has used a rare but attractive combination of low-cost,
all-frills strategy which is rarely used in the airlines industry. It has managed to
successfully attract and retain customers by superior services at the same or lower
fares. This gives it a competitive advantage of having strong brand equity and has
helped it attract new and retain old customers.

18
COMPETITORS ANALYSIS
Analyzing an organization’s competitors helps it decide the strategies it will
follow in both the short and long term. By looking at competitors, a firm can
determine the industry trends and make decisions on crucial issues such as
discounts to be offered, quality of services provided, channel of distribution and
promotion strategy. A firm can improve its operations and is in a better position to
compete by taking into account all these aspects. The airline industry in Pakistan
currently has cut throat competition. Passengers, today, are time conscious since
time is the only rare commodity in today’s world. The offering of the airlines are
continuously changing with changing customer needs. The airlines are deploying
more efforts to meet customer requirements and provide superior quality of
services. Every organization faces competition and so does Air Blue. Its
competitors include PIA, Aero Asia and Shaheen Airways.
PAKISTAN INTERNATIONAL AIRLINES (PIA)
PIA is the flag carrier of Pakistan and the national airline operating passenger and
cargo services around the world. It is the oldest airline in Pakistan, (dating back to
the Indo-Pak subcontinent) and has the first mover’s advantage. Its main hubs
include Jinnah International Airport, Karachi, Allama Iqbal International Airport,
Lahore and Islamabad International Airport, Islamabad. Its current fleet size is 40
and it flies to 82 destinations. PIA has a rich history and made through various
ups and downs of the economy. It still claims --- percent market share and is the
largest airline in the country by all standards (i.e. fleet size, number of passengers
per month, income etc). In December 2003, PIA introduced a revamped its
corporate image from changing the outlook of its planes to its logo. The new
image was also applied to their first 777-200ER and another newly leased A310-
300. Under the new style, the tail was painted beige and a flowing Pakistan flag
placed on it, PIA acronym was enlarged and moved onto the fuselage. In early

19
2006, PIA unveiled four designs representing the four provinces of Pakistan to be
applied throughout their fleet, these will replace the present flag6.
AERO ASIA INTERNATIONAL
Aero Asia is a private Pakistani airline based at Jinnah International Airport,
Karachi and Dubai International Airport, Dubai. Aero Asia was previously owned
and operated by the Tabani Group, which sold it to the UK based Regal Group,
following the temporary suspension of its flights in the summer of 2006. It was
the first low cost airline in Pakistan and operates to destinations in Pakistan and
the Gulf states. The fleet size is 10, and it has total of 11 destinations, 7 domestic
and 4 international. Aero Asia has already covers the Middle-East and has been
granted permission to fly to the United Kingdom and United States from
December 2005 by the CAA. However, because of its current restructuring,
international flights are expected to commence in 2007. It will start from
Manchester, London and Birmingham gradually including New York, Singapore,
Copenhagen, Oslo and Bahrain. The latest Boeing and Airbus aircraft are being
inducted in the fleet. Within Pakistan it currently provides services at Karachi,
Lahore, Islamabad, Peshawar, Multan, Faisalabad and Sukkur. Internationally, it
covers Abu Dhabi, Dubai, Doha, Manchester and Muscat7.
SHAHEEN AIR
Shaheen Airways is the second national airline after PIA. It mainly covers
Karachi, Lahore and Islamabad and the Gulf. Its base is Jinnah International
Airport, Karachi, with a hub at Islamabad International Airport, Islamabad. Its
fleet size is 10 and destinations are 11 which are further divided into 5 domestic
and 6 international. This depicts that it is mainly focusing international customers.
It currently operates in Islamabad, Karachi, Lahore, Peshawar, Quetta, Abu
Dhabi, UAE, Doha, UK, Kuwait and Oman.

6
http://en.wikipedia.org/wiki/Pakistan_International_Airlines
7
http://en.wikipedia.org/wiki/Aero_Asia_International

20
PERCEPTUAL MAPPING
Perceptual mapping is a technique used to determine positioning of brands
relative to their competitors. We have used this technique to analyze the
positioning strategies of Air Blue. For plotting the perceptual mapping we have
compared positioning of Air Blue with Shaheen Airlines, Aero Asia and PIA
using the following attributes.
 Destinations
 Punctuality
 Quality of Food
 Value for money
 Economy
 Services
 Technological Advancements
 Corporate Image

Attributes AirBlue PIA Shaheen Air AeroAsia

Destinations 5 7 5 5
Punctuality 7 5 6 4
Quality of Food 7 6 4 3
Hospitality/Customer 5 6 5 6
Service
Economical 6 5 6 7
Technological 7 5 5 5
Advancements
Services 5 6 4 4

21
Corporate Image 3 7 4 6

22
PERCEPTUAL MAP 1

Attributes AirBlue PIA Shaheen Air


AeroAsia
Destinations 5 7 5 5
Punctuality 7 5 6 4

Destinations

Punctuality

DESTINATIONS/COVERAGE
The first attribute is the number of destinations (locations) that the airline covers
domestically as well as internationally. PIA covers 24 cities within Pakistan and
has flights in all continents and major countries of the world. Air Blue
internationally flies to only Dubai and to seven cities within Pakistan. Shaheen
Airways touches six cities nationally and Dubai internationally. Aero Asia has a
total of 11 destinations out of which seven are domestic and 4 destinations are in
Dubai. We have ranked PIA, the highest as they cover the maximum destinations
whereas the other three airlines internationally fly only to Dubai and domestically
to a limited number of routes.

PUNCTUALITY

23
An important consideration for airline travelers is the punctuality of schedule. PIA
has an overall punctuality of 89 percent, which is the official figure. The
passengers of PIA, however, think that the actual percentage is lower. The flights
for PIA are usually delayed for considerable durations. Air Blue flights are on
time and their punctuality is more than 90 percent, much higher than PIA.
Shaheen Airways claims to be very punctual and scheduled whereas a few years
back, Aero Asia had some issues regarding consistent the delays of their flight. So
we have ranked Air Blue the highest, followed by Shaheen, PIA and Aero Asia
respectively.

24
PERCEPTUAL MAP 2

Attributes PIA Shaheen Air


AirBlue AeroAsia
Quality of Food 7 6 4 3
Hospitality/Customer 5 6 5 6
Service

Food Quality

Hospitality/Customer Service

FOOD QUALITY
Air Blue serves an exquisite cuisine, a choice of local and Chinese, consisting of
“Sweet and Sour Chicken with Vegetable Rice,” accompanied by a “Cucumber
and Tomato Salad with a wedge of Lemon,” a traditional Pakistani dessert made
with milk and vermicelli called “Sawai” followed by tea. The best part of the
meal is that it is served in china utensils (the main dish, the tea cup, desert and
salad bowls are all made of china). One of the Air Blue passengers rated the food
9 out of ten and commented, “The taste was amazing. The juicy tender pieces of
meat along with rice mixed together blended in the mouth in such a way that it

25
surely made you say “yum8.” Since Aero Asia is a low cost, no frill airline, its
food quality is inferior to competitors. In most domestic flights, passengers are
served half a glass of cold drink and a packet of chips. The food quality of PIA is
also good; the typical menu includes “Biryani,” liked by both the local and
foreign passengers. The breakfast and snacks have a lower ranking, which is on
average 4 out of 10 whereas the lunch and dinner have a ranking of around 7.5
out of 10.9

HOSPITALITY/CUSTOMER SERVICE
Hospitality here means the way passengers are treated by the airline staff.
Friendliness of the crew is important in keeping customers satisfied. Hospitality
will entail all passenger encounters right from the airport until check-out,
including; treatment of staff at the counter, crew in the flight, the in flight services
which include the entertainment and food services, the baggage handling and the
comfortable seats. As far as the hospitability and friendliness of the staff is
concerned, Aero Asia is the best which is followed by PIA and Shaheen airways.
As one of the passenger commented about Air Blue, “Check in unusual, with the
female check-in agent managing to process me without a greeting, a smile or a
thank you.” Another customer mentioned that “the female staff were young but
looked too casual and unprofessional, not right for the type of image the airline
wants to portray”. The PIA airhostesses and staff is considered to be friendlier
than the staff of Air Blue and the way PIA now handles its passengers at
important international routes is great.

8
http://www.airlinemeals.net/meals/AirBlue.html
9
http://www.airlinemeals.net/indexMeals.html

26
PERCEPTUAL MAP 3

Attributes PIA Shaheen Air


AirBlue AeroAsia
Economical 6 5 5 7
Technological 7 6 6 6
Advancements

Economical

Technological Advancements

ECONOMY
In order to attract the price conscious consumers, airlines offer different packages
for target markets. Aero Asia is the lowest cost airline in Pakistan; it does not
provide any frills. Air Blue again is a low cost airline, but it offers all frills. Air
Blue offers special discounts if the seats are booked online. They also have
students discount and old aged citizen discounts. Air Blue fares are a bit closer to
Aero Asia but PIA fares are higher than all competitors on domestic routes.

SERVICES

27
The unique services being offered by PIA include; its cargo; Speedex and other
baggage services. PIA also offers the best in-flight entertainment; a wide variety
of movies, over a dozen audio channels, duty free shopping, games (arcade style
games, playing cards, crosswords and strategy games) maps and tourist
information. Aero Asia offers an international cargo and courier service in
affiliation with top notch airlines including Emirates and Qatar Airlines. Venus
Aviation, a sister traveling agency of Aero Asia, operates one of the largest tours
in Pakistan and organizes local and foreign packages for tourists. Aero Asia does
not offer entertainment services except for magazines, newspapers and games for
kids. The unique services offered by Air Blue include its e-ticketing and self
check-in systems along with new, spacious aircrafts and better in flight services.
Air Blue offers 2 channels; one audio which plays the recitation of Holy Quran
and the other is video. After privatization, the Shaheen Air Cargo Division was
set up under Shaheen Airways.

28
PERCEPTUAL MAP 4

Attributes PIA Shaheen Air


AirBlue AeroAsia
Services 5 6 4 4
Athletic Image 3 7 4 6

Services

Athletic

TECHNOLOGICAL ADVANCEMENTS
Air Blue was the first airline in Pakistan to introduce e-ticketing bringing about
a revolutionary way of buying tickets. It is also a member of Sabre system that is
used by over a hundred airlines to help it with ticket automation services. Air
Blue is the first airline in Pakistan that has made use of IT as a strategic tool for
disintermediation of the middle agent and reaching out directly to customers.
PIA, Aero Asia and Shaheen Airways followed its foot steps and introduced e-
ticketing. Leading the way with innovative new technology, Air Blue became the
first airline in South Asia and only the second in the region after Emirates to
introduce the latest self-check-in facilities at the Karachi airport. It was also the
first private airline of Pakistan to operate the airbus A320.

29
CORPORATE IMAGE
For the purpose of positioning Air Blue and its competitors, corporate image
means if the brand advertises a corporate image. PIA, the national carrier of
Pakistan was a favorite of corporates before the introduction of AirBlue. PIA
regularly sponsors sports such as a first-class cricket team that plays in the ABN
AMRO Patron’s Trophy in Pakistan. PIA is also sponsoring the A1 Team Pakistan
for the A1 Grand Prix, recently being introduced in over 25 nations around the
world. The sport is very similar to the Formula One races and is held during the
Northern Hemisphere winter off-season of the FIA Formula 1 Grand Prix series.
Aero Asia sponsors cricket matches aired on TV. The cricket grounds are usually
branded with Aero Asia logo. Air Blue and Shaheen Airways, however, are not as
active in sponsoring sports events.

AIOD FRAMEWORK

30
Need/Benefit Activities Interests Opinions Demographics
Time Saving Businessmen, Current Active Age: 28-45
The Hustlers and Entrepreneurs, Affairs, Social Ambitious Heavy Users
Overloaded Corporate Events, Strong Views Married, Full
individuals, Finance News, about politics Nest
Celebrities, Personal and Social Upper Middle
Working Achievements, Issues, Hard Class-Upper
professionals, Traveling Work, Self Class
Families Satisfaction
Better Services Students, Restaurants, Want ‘value’ Age: 25+
The Frill Seekers Working gyms, parties for the money Married/Single
professionals, and other spent, Medium to
Business men social events, Perfectionist, Heavy Users
Families Recreation, Gregarious, Full Nest I,II
Personal Vigorous, and III
Achievements Politics, Upper Class
Business
Economical/Special Families, Socializing, Hard Work, Age: 23-40, 55-
Deals and packages Studies, Mingling with Energetic, 60
The Economizers Working people, Planned and Married/Single,
people, Picnics, rational Medium to
Travelers Movies, purchasing Heavy Usage
Vacations, patterns, Full Nest I&II
Movies, Rational Middle-middle
Music Approach class – Upper
towards life middle class
Blue Miles-frequent Business men, Gadgets, Active, Age: 35+
flyer program Established Sports, Gym, Perfectionists, Married
The Habitual/Regular professionals, Clubs, Energetic, Heavy Usage
Fliers- The entrepreneurs, traveling, Rational Full Nest
Frecuente10fliers corporate Shopping, Approach Upper middle-

10
“Frecuente” is a Spanish word meaning Frequent

31
individuals, Real Estate towards life, Upper Class
Tourists Politics
Luxury Businessmen Clubs Political Age: 35+
The Well-to-do Politicians Swimming, Views Married/Single
Entrepreneurs Health Authoritative, Medium –
Diplomats Swimming Open views Heavy Usage
Celebrities Shopping on different Upper Class
Cultural matters,
events branded
products,

Convenience Studies, Gadgets, Planned Age: 30 and


The Content-able Traveling sports, music, Puchasing, above
Business and parks, picnics, Making life Married/Single
job chores, vacations, comfortable Medium to
Families, Home for others and Heavy Usage
Top level Appliances, themselves, Upper middle-
managers Traveling Social Issues, Middle Class
Relationships,
Self
interested,
Time
conscious

1. TIME SAVING
DEFINITION
The first benefit of traveling with Air Blue is of saving time. Air travel is the
fastest means of transportation for domestic as well as international travel.
Air Blue flights are also punctual and fly right on time. The direct flights from
Dubai to Northern Areas have made traveling easier for the locals rather
than taking connecting flights. The e-ticketing service has made it possible to

32
reserve seats online, again saving time taken to go to the travel agent and
reserving seats through them.
THE HUSTLERS AND OVERLOADED
Customers from this category belong to the upper class and are business men,
entrepreneurs, corporates, high level managers, media celebrities, politicians.
These people are always on the move and perform multiple roles and tasks.
They are very frequent travelers. These people are above 28 years of age, may
belong to both genders, are married and have kids. They are ambitious, have
strong views about themselves, politics, and social issues, believe in hard
work and are energetic. This category also includes expatriates who want to
visit their loved ones back home. They want to use direct flights in an effort to
maximally utilize their vacation.
2. BETTER SERVICES
DEFINITION
The in-flight and other customer services offered by AirBlue are far more
better than PIA and other competitors. They offer the services of e-ticketing,
self check in counters, more entertainment on flight, better variety and quality
of food and the exquisite cuisine give a value experience to the passengers.
THE FRILL SEEKERS
These people are outgoing, assertive, gregarious and high achievers. They
like to go to restaurants, gyms, and attend parties and other social events.
Their thoughts and opinions are formed about family, friends, fashion, future,
ideals, politics and business. They belong to the age brackets of 25 and
above, can be married or single, highly professional, belong to the upper
class. They are perfectionists and purists and like to socialize, go to clubs,
like sports, health and gym, shopping and cultural events.
3. ECONOMICAL/SPECIAL DEALS AND PACKAGES
DEFINITION
Air Blue offers different packages for different target markets. These
packages are more economical than other airlines. Air Blue also offers special
discounts for students and old age citizens. By booking the ticket online, the

33
customer gets a Rs. 300 concession, which is another considerable factor for
the price conscious consumer.
THE ECONOMIZERS
This group of people consists of consumers who usually belong to the middle
class (middle or upper middle class) or even the upper class people who
frequently travel by air. They like to socialize and enjoy spending time with
their families. This group consists of colleges or university students studying
away from home who visit their parents often. It also includes the vacationing
families who once in a year or very seldom travel by air for their holidays.
Since the families usually consist of 4 or more individuals, so the most
economical package is considered. It may also consist of people from the
older age brackets as they have special discounts. These people are interested
in picnics, movies, recreation and vacations. They have a planned purchasing
pattern, think rationally, want value for the money spent and believe in hard
work.
4. BLUE MILES- FREQUENT FLYER PROGRAM
DEFINITION
The Air Blue Frequent Flyer program helps passengers earn BlueMiles with
every flight they make. If the passenger can earn enough miles, she can
qualify for express check in, lounge access and free tickets.
THE HABITUAL/REGULAR FLIERS- THE FRECUENTE11FLIER
This group of customers consists of people who very frequently travel by air
for business or recreational purposes and may considered to be loyalists. This
group consists of business men, corporate managers, entrepreneurs,
established workers, self made people and tourists. They are interested in
vacations, clubs, socializing, shopping, gym, golf, exercise and adventures.
They are active, consume branded products, and are energetic, perfectionists,
passionate and are fashion conscious. They are above the age of 35, married,
heavy users and belong to the upper class.
5. LUXURY

11
“Frecuente” is a Spanish word meaning Frequent

34
DEFINITION
Air Blue gives a luxury experience to its passengers. The in flight
entertainment, exquisite cuisine, leather upholstered seats, caring treatment
by the crew and lounges make the experience a luxury experience for the
passenger.
THE WELL-TO-DO
This segment of people includes the rich and successful businessmen,
youngsters and the young-at-heart who like to show off and make an
impression. These consumers are from the upper class of the society, are
mature and established. They have strong political views, they are
authoritative, have open views on varied topics, believe in using branded
products and high achievers.
6. CONVENIENCE
DEFINITION
Air Blue provides convenience by its routes such as direct flights from Dubai
to Northern Areas, where passengers do not have to take connecting flights.
E-ticketing has made it convenient for customers to compare different options
available and reserve seats. The self check in systems allows the passengers
to get boarding passes without counters so that they do not have to wait in the
queue.
THE CONTENT-ABLE
This group consists of people from middle to upper class, usually the busy
people who do not have much time such as business men, CEOs, Presidents
and top level managers. Anyone traveling by air would want to utilize these
services. These people are interested in gadgets, sports, music, parks, picnics
and vacations. They believe in relationships, planned and rational
purchasing, like to make life comfortable for themselves and other and social
issues. They are above 30 years of age and can be married or single.

35
PRODUCT LIFE CYCLE

The figure above shows the phases that a new product/service goes through from
inception to decline; (1) introduction, (2) growth, (3) maturity, and (4) decline.
Because of rapid changes in consumer lifestyles and technological changes, life
cycles of products and services are becoming shorter. It, however, remains a
useful concept for strategic planning. Each stage of the product life cycle has
certain marketing requirements.

INTRODUCTION - The introductory phase of the life cycle requires high promotional
expenditures and visibility. The most productive time to advertise a service is
when it is new. Operations in this period are characterized by high cost, relatively
low sales volume, and an advertising program aimed at stimulating primary
demand. Most companies in the market fail in this stage.

GROWTH - In the growth period, the service is being accepted by consumers.


Market acceptance means that both sales and profits rise at a rapid rate,
frequently making the market attractive to competitors. Promotional expenditures

36
remain high, but emphasis is on selective buying by trade name rather than on
primary motive i.e. to try the product. During the growth stage, the number of
outlets providing the service usually increases. More competitors enter the
marketplace; economies of scale are realized and prices experience a decline.
Launched in 2004, AirBlue has passed the introductory stage is in the early
growth stage of the life cycle. Customers have now endorsed it and are even
starting to prefer it to its competitors. It is also evident from the fact that AirBlue
has massive expansion plans for future both for its network and its fleet. AirBlue
has ordered ten brand new Airbus long haul and short haul aircrafts to facilitate
international expansion to the UK and strengthen domestic routes. The $ 790
million order includes eight Airbus A320 aircrafts for the Gulf and domestic
routes and two Airbus A330 aircrafts for the European routes with deliveries
commencing in 200812. Airblue has plans to start services to many cities
including; Nawabshah, Sukkur and Turbat. Its international expansion plans
include flights to Jordan, the UK, the US, and Saudi Arabia.

MATURITY – A mature service is well established in the marketplace. Sales may


still be increasing but at a much slower rate; they are leveling off. At this stage of
the life cycle, many outlets are selling the service, and are very competitive,
especially with respect to price, and firms are trying to determine ways to hold on
to their market share.

DECLINE - Many services remain in the maturity and saturation stage for years.
However, for most, obsolescence sets in, and new products are introduced to
replace old ones. In the decline stage, demand obviously drops, advertising
expenditures are lower, and there are usually a smaller number of competitors.
While it is possible for a product to do very well in this stage of the life cycle,
there is not a great deal of comfort in getting a larger share of a declining
market.

12
http://en.wikipedia.org/wiki/Airblue

37
PORTER’S GENERIC STRATEGIES

Competitive Advantage

Low Cost Higher Cost

C
o
m
p
B
d

e
a
o
r

t
i Cost Leadership Differentiation
t
i
v
e

S
c
o
p
w

N
o

a
r
r

e
Cost Focus Differentiation Focus

38
Generic strategies were first presented in two books by Professor Michael Porter
of the Harvard Business School (Porter, 1980, 1985). Porter (1980, 1985)
suggested that some of the most basic choices faced by companies are essentially
the scope of the markets they would serve and how they would compete in the
selected markets. Competitive strategies focus on ways in which a company can
achieve the most advantageous position that it possibly can in its industry
(Pearson, 1999). A firm’s relative position within its industry determines whether
its profitability is above or below the industry average. The profit of a company is
essentially the difference between its revenues and costs. The fundamental basis
of above average profitability in the long run is sustainable competitive
advantage. There are two basic types of competitive advantage a firm can
possess: low cost or differentiation. The two basic types of competitive advantage
combined with the scope of activities for which a firm seeks to achieve them, lead
to three generic strategies for achieving above average performance in an
industry: cost leadership, differentiation, and focus. The focus strategy has two
variants, cost focus and differentiation focus13. We will briefly overviews these
generic strategies because

1. COST LEADERSHIP
In cost leadership, a firm sets out to become the lowest cost producer in its
industry. The sources of cost advantage are varied and depend on the industry
structure. They may include the pursuit of economies of scale, proprietary
technology, preferential access to raw materials and other factors. A low cost
producer must find and exploit all sources of cost advantage. If a firm can achieve
and sustain overall cost leadership, then it will be an above average performer in
its industry, provided it can command prices at or near the industry average.

2. DIFFERENTIATION
In a differentiation strategy, a firm seeks to be unique in its industry along some
dimensions that are widely valued by buyers. It selects one or more attributes that

13
www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html

39
many buyers in an industry perceive as important, and uniquely positions itself to
meet those needs. It is rewarded for its uniqueness with a premium price.

3. FOCUS
The generic strategy of focus rests on the choice of a narrow competitive scope
within an industry or a niche. The focuser selects a segment or group of segments
in the industry and tailors its strategy to serving them to the exclusion of others.
The focus strategy has two variants.
(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b)
differentiation focus a firm seeks differentiation in its target segment. Both
variants of the focus strategy rest on differences between a focuser’s target
segment and other segments in the industry. The target segments must either have
buyers with unusual needs or else the production and delivery system that best
serves the target segment must differ from that of other industry segments. Cost
focus exploits differences in cost behavior in some segments, while
differentiation focus exploits the special needs of buyers in certain segments.
AIRBLUE’S GENERIC STRATEGY –DIFFERENTIATION
AirBlue has employed a strategy that is unusual for the airline industry i.e.
differentiation. This means that AirBlue is an all-frills provider and has carved a
special place in the consumers’ minds. This has been a successful penetration
strategy but it remains to be seen if the company will be able to sustain in the
longer run and also especially since it is planning to enter the international
market. AirBlue’s operational efficiency, a major factor in contributing to its low
cost also has to be maintained. AirBlue’s business model has been based of the
business model of Southwest Airlines that emphasizes superior quality of service
at all customer encounters to ensure a memorable experience. Only time will
ascertain the success of this model in Pakistani companies. A point to be noted
here is that despite having lower cost packages (such as yield management,
children and old citizen discounts), AirBlue is not the lowest cost provider in
Pakistan. As Mr. Abbasi pointed out at the launch of AirBlue; “Though Airblue
would have a flexible fare structure, the fares in general would not be cheap. We
are focused on service, which we believe matters in the airline business.” AirBlue

40
is expected to perform superbly in the market which is evident from the comment
made by Prime Minister Shaukat Aziz, at its launch; “Airblue can earn a lot of
profit through promoting tourism in the country.” He also praised the company
for its plans to make an initial public offering (IPO) soon.

AIRBLUE
POSITIONING STATEMENT
“A cordial and reliable escort, AirBlue provides world class
services through state-of-the-art technology at very low cost.”

PERSONALITY STATEMENT
“An ambitious man of 28, AirBlue is a CEO by profession. He has
a track record of setting high objectives and meeting or exceeding
them with hard work and determination. He is exceptionally
punctual and has a professional image. He has friends in all walks
of life and is always on the outlook for making new ones. He is
very caring and can do anything to see his loved ones happy. He
does not hesitate in buying cheaper products that provide value.
He is mesmerized by technology and likes to keep up with
changing trends. He owns various high technology products such
as a PDA, a laptop, an iPod and a digital camera.”

PIA
POSITIONING STATEMENT

41
“Like a responsible ally, PIA provides convenience, dependability
and a sense of closeness to home, anywhere in the world.”

PERSONALITY STATEMENT
“Dressed in green and white, PIA is a professional woman of 35 who
works from home. Juggling work and family at the same time, she has
managed to create an intricate balance between the two. She has a history
of being tardy, because of her multiple responsibilities. She is a bit moody
and is known for her temper tantrums. Despite these flaws, she is a Proud
Pakistani and represents Pakistan everywhere in the world. She adores
Pakistani food and does not like other cuisine.”

AERO ASIA
POSITIONING STATEMENT
“Aero Asia provides an interesting blend of average quality services at the
lowest possible cost. It has recently revitalized its personality and now
gives a younger and energetic look.”

PERSONALITY STATEMENT
“Aero Asia, a charming girl of 25, is price sensitive. Her philosophy is
‘saving for the rainy day.’ She is simple and straightforward and doesn’t
like to indulge in luxuries. She is on a strict diet and only eats healthy
snacks through out the day. She recently acquired a new wardrobe giving
her a younger and energetic feel. ”

42
MASLOW’S HIERARCHY OF NEEDS
Consumer purchases products and services to satisfy various needs. According to
Maslow’s hierarchy of needs, presented by Abraham Maslow, air travel satisfies
needs of the fifth order, which is self actualization needs. Travel, always is an
enriching experience, let it be vacationing families or business executives on an
official tour. A person can obviously afford to travel by air only if he has already
fulfilled his basic physiological and safety needs. This is because air travel is a
high involvement service requiring an extensive decision making approach due to
high fares.

43
Self
Actualization

Ego Needs

Social Needs

Safety Needs

Physiological
Needs
Maslow’s Hierarchy of Needs
of

THE CUSTOMER BUYING PROCESS


There are multiple decision parameters which the consumer keeps in mind while
purchasing the tickets. Out of these parameters, price is the foremost for a non-
frequent flyer. People who frequently travel through air usually belong to the
business class who travel for business and official purposes. These people care
more about the total travel time and the date/time of departure and arrival because
they are always on the move, and they have a much busy schedule to meet with.
They do bother about the prices also, but they prefer comfort and convenience
over fares.
On the other hand, people who very seldom travel by air, mostly for vacations,
weddings and to meet their relatives in other cities/countries, are usually price-
conscious and go for the most economical deals. These people prefer low price or
discounted fares over travel time and convenience.
1. PROBLEM RECOGNITION

44
In the first stage of the buying process, consumers will identify the need which is
this case of a travel mode. Air travel is considered a luxury and is affordable for
the elite and upper middle tiers of the society. This situation has, however, been
altered with the introduction of low-cost airlines such as Aero Asia and Air Blue
in the Pakistani market. This situation has altered the industry scenario and has
included the middle class in the airlines’ target market.
The need for air travel can be categorized into two categories i.e., for business
and for pleasure. Officials from both the government and private sectors have to
travel both within the country and overseas to attend workshops, seminars,
meetings and other events. For pleasure, people travel individually as well as in
families both for vacations, and tours, to meet relatives, attend weddings and even
for educational purposes.
2. INFORMATION SEARCH – SEEKING VALUE
Air travel is a high involvement service and that is why a typical consumer goes
through a complex purchasing process. In this phase, the customer will obtain
schedules and fares for different airlines. The customers will use both the
company sources including the airline websites and official sales center for
getting this information. The customers will then contact a traveling agent and
will inquire about the available options. The customer will also obtain
information from personal sources such as family and friends. This will include
word of mouth of one’s relatives and colleagues who have first hand experience
with the airline. As it is said, one satisfied customer produces 9 more customers,
and one dissatisfied customer looses 100 potential customers. Like any other
service industry, word of mouth plays a pivotal role in the airline industry. After
internal and external information search the consumers will have a clearly defined
set of criteria on the basis of which he will make the purchase decision.
3. EVALUATION OF ALTERNATIVES
In light of the criteria, the customer has set during the information gathering
phase, she will establish a set of alternatives which are up to the mark. In this
phase, every step is analyzed in terms of the value a customer will obtain from the
airline service and the price of the service. Value is perceived in terms of product

45
promotion, place, people, physical evidence, and processes, whereas money is
considered in terms of price. The image of the service, its availability,
functionality, customer care, user-friendly booking system and attractive
environment all contribute to customer satisfaction from a service experience.
The customer by now has collected the schedules, routes, fares and travel time
offered by different airlines. She will now compare the fares and services offered
by each airline. Information search clarifies the problem for the consumer by:
a. Suggesting criteria to use for the purchase such as Fares, Travel Time,
Services, Connecting Cities and Rewards
b. Yielding brand names that might meet the criteria AirBlue, PIA, Aero
Asia, Shaheen Air etc.
c. Developing consumer value perception i.e. how consumers perceive each
brand and how it rates on each criteria decided by the consumers.
A consumer’s evaluative criteria represent both:
a. Objective attributes of a brand (such as Quality of Services, Safety,
Punctuality, Fares etc)
b. Subjective factors (such as Prestige, Brand Image, Status etc.)
These criteria establish a consumer’s evoked set viz. a group of brands that
the consumer would consider acceptable from all brands in a product class of
which she is aware.

4. PURCHASE DECISION
The customer’s buying decision is influenced by the range, style, and
presentation of the service. In this stage, the customer undertakes the cost
benefit analysis of the product. People from the upper class might not be price
conscious and will go choose the airline that provides the maximum luxury
and comfort. They will choose airlines such as PIA or AirBlue and might not
even consider Aero Asia or Shaheen Air. On the other hand, a price conscious
consumer might settle with the basic services and choose Aero Asia or
Shaheen Air. AirBlue is currently targeting the price conscious consumers

46
who want to get the maximum value and quality services for the price they
pay. Purchase decision is also effected by the perceived risks associated with
the airline service. These risks may include the quality of services which the
customer is expecting from the airline.
5. POST PURCHASE BEHAVIOR
Post purchase behavior of the consumer is very important since she spreads
the good or bad word about the airline to other potential customers. A good
word from consumers will promote the airline and will ensure greater loyalty
and recognition. For this reason, the airlines need to ensure that they produce
satisfied customers.

47
AIRBLUE’S PRICING STRATEGY

LOW HIGH

LOW Penetration
Economy

Price

HIGH Skimming Premium

Quality

Pricing Strategies

A well chosen price should do three things:


1. ACHIEVE FINANCIAL GOALS OF THE FIRM (I.E. PROFITABILITY)
AirBlue achieved operational profit in the first two months of its operations. This
shows that the differentiation strategy proved to be a great success for AirBlue.
AirBlue started operations in May 2004, when the jet fuel price in Pakistan was
around Rs .16 per liter, which almost doubled to Rs. 29 a liter within three
months, much beyond their cushion provision for such an exigency. AirBlue,
through its operations efficiency, managed to sustain the drastic increase in jet
fuel price, which was over 30 perceny of the entire operational cost. It not only
gained a substantial market share within a short span of time but also had a
profitable load factor of over 90 percent, due to the fact that it was the only 100
percent e-ticketing start-up airline in the world. So despite the fact that AirBlue
offered premium quality at premium prices, it has been able to meet the first
objective i.e. profitability.

48
2. FIT THE REALITIES OF THE MARKETPLACE (WILL CUSTOMERS BUY AT THAT PRICE?)
The prices set by AirBlue targeted the elite class including the business travelers
and vacationers. Its differentiated and quality services generated loyal and
satisfied customers. The prices by AirBlue have been set keeping in view the
competitive environment and customer buying patterns. The tickets by Air Blue
are affordable and economical.
3. SUPPORT POSITIONING AND BE CONSISTENT WITH THE OTHER VARIABLES IN THE

MARKETING MIX
As AirBlue aimed to position itself as a high end service provider, it offered
premium prices to the customers. This fit well with the image the company was
trying to portray viz. high quality services at a premium price. This is evident
from AirBlue’s consistent success despite its high prices. This shows that the
target market of AirBlue is the upper and middle class of the society that can
afford luxuries.

From the marketers’ point of view, an efficient price is a price that is very close to
the maximum that customers are prepared to pay. In economic terms, it is a price
that shifts most of the consumer surplus to the producer. The effective price is the
price the company receives after accounting for discounts, promotions, and other
incentives.
For this marketers use the following strategies.
PREMIUM PRICING
Premium pricing also called prestige pricing, is the strategy of pricing at, or near,
the high end of the possible price range. People will buy a premium priced
product because they believe the high price is an indication of good quality. They
believe it to be a sign of self worth – “They are worth it.” It authenticates their
success and status and acts as a signal of people’s’ status and success. They
require flawless performance in this application, the cost of product malfunction
is too high to buy anything but the best. In the airline industry, PIA and AirBlue
are offering a premium price as compared to their competitors. AirBlue is a ‘full

49
frill’ service despite its image as the contrary and superior quality of their services
is what differentiates them from competitors.
PENETRATION
Penetration pricing is the pricing technique of setting a relatively low initial entry
price, a price that is often lower than the eventual market price. The expectation is
that the initial low price will secure market acceptance by breaking down existing
brand loyalties. Penetration pricing is most commonly associated with a
marketing objective of increasing market share or sales volume, rather than short
term profit maximization.
AirBlue initially offered a penetration price. The ticket fares were relatively low,
whereas the quality of services was high when the company entered the market.
The prices were then increased as the company established a brand image.
SKIMMING
Price skimming is a pricing strategy in which the marketer sets a relatively high
price for a product or service at first, and then lowers the price over time. It is a
temporal version of price discrimination/yield management. Until a few years
back, PIA was offering skimmed prices where the quality of services was not
equivalent to the price being charged for the tickets. Most of the customers did
not receive a value for the money they paid. Now, however, PIA has improved the
quality of the services and are offering a premium price.
ECONOMY
Economy pricing is a pricing strategy in which a marketer follows low cost
strategy. An airline is said to have set economical prices when they charge low, or
almost lowest in the industry, for tickets and offer low quality services. In
Pakistani airline industry, Aero Asia is following the low cost strategy where the
ticket prices are the lowest and the quality of services is also meager.

50