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

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SWOT ANALYSIS

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External Factors

Internal Factors

Strengths
1. Leading Market Position 2. Brand Recognition

Opportunities
1. High dependence on Passenger Revenues 2. Debt 3. Reliance on Oil Prices

S W O T A N A L Y S I S

3. Superior Operating Structure 4. Network Presence 5. Hub airport at Karachi

Weaknesses
1. Route and fleet expansion 2. Growing demand for Low cost airlines 3. Expansion of Freight Business 4. Customer loyalty 5. Shifting customer needs 6. Further Alliances 7. Industry Recovery 2. Accidents

Threats
1. High Interest Rates 3. Strong Competition 4. Interest and foreign currency exchange rates 5. Decline in airline industry

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.

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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 pointto-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

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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

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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

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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

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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.

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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.

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PEST ANALYSIS

Political
1. Increased Competition (Deregulation of airline industry) 2. Political Stability 3. Increased Investment Opportunity Spending

Social
1. Greater Customer Awareness 2. Increased Entertainment 3. Technology Averse Customers 4.

Economical
1. Improved Purchasing Power 2. Demand Value-for-Money 3. Soaring Oil Prices 4. Reduced Ticket Prices

Technological
1. In-flight Entertainment 2. E-ticketing (SABRE System) 3. Automated (Self) Check-in 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

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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 wholesum immigration by expatriates. As a result, demand for air travel in South Asia rose.

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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 FliersThe 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 2

Boeing-777 Currently done by Air Blue and PIA.

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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

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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.

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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.

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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.

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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 Market Penetration Development

P re se nt M a rk e ts New

Market Development

Diversification

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

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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.

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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 A310300. 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

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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 7

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

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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 Destinations Punctuality Quality of Food Hospitality/Customer Service Economical Technological Advancements Services AirBlue 5 7 7 5 6 7 5 21 PIA 7 5 6 6 5 5 6 Shaheen Air 5 6 4 5 6 5 4 AeroAsia 5 4 3 6 7 5 4

Corporate Image

3

7

4

6

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PERCEPTUAL MAP 1 Attributes Destinations Punctuality AirBlue 5 7 PIA 7 5 Shaheen Air 5 6 AeroAsia 5 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.

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PERCEPTUAL MAP 2 Attributes Quality of Food Hospitality/Customer Service AirBlue 7 5 PIA 6 6 Shaheen Air 4 5 AeroAsia 3 6

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

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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 9

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

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PERCEPTUAL MAP 3 Attributes AirBlue Economical Technological Advancements 6 7 5 6 5 6 7 6 PIA Shaheen Air AeroAsia

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

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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.

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PERCEPTUAL MAP 4 Attributes AirBlue Services Athletic Image 5 3 6 7 4 4 4 6 PIA Shaheen Air AeroAsia

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 eticketing. 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.

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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

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Need/Benefit Time Saving The Hustlers and Overloaded

Activities Businessmen, Corporate individuals, Celebrities, Working professionals, Families Students, Working professionals, Business men Families

Interests Current Events, Personal Traveling Restaurants, gyms, parties and other social events, Recreation, Personal Achievements

Opinions Active Ambitious Strong Views and Social Work, Self Satisfaction Want ‘value’ spent, Perfectionist, Gregarious, Vigorous, Politics, Business Hard Work, Energetic, Planned and rational purchasing patterns, Rational Approach towards life Active, Energetic, Rational Approach

Demographics Age: 28-45 Heavy Users Married, Full Nest Upper Middle Class-Upper Class Age: 25+ Medium to Heavy Users Full Nest I,II and III Upper Class Age: 23-40, 5560 Married/Single, Medium Heavy Usage Full Nest I&II Middle-middle class – Upper middle class Age: 35+ Heavy Usage Full Nest Upper middleto

Entrepreneurs, Affairs, Social

Finance News, about politics Achievements, Issues, Hard

Better Services The Frill Seekers

for the money Married/Single

Economical/Special Deals and packages The Economizers

Families, Studies, Working people, Travelers

Socializing, Mingling with people, Picnics, Movies, Vacations, Movies, Music

Blue Miles-frequent flyer program The Habitual/Regular Fliers- The Frecuente10fliers
10

Business men, Gadgets, Established professionals, entrepreneurs, corporate Sports, Gym, Clubs, traveling, Shopping,

Perfectionists, Married

“Frecuente” is a Spanish word meaning Frequent

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individuals, Luxury The Well-to-do Tourists Businessmen Politicians Entrepreneurs Diplomats Celebrities

Real Estate Clubs Swimming, Health Swimming Shopping Cultural events

towards life, Politics Political Views Authoritative, Open views on different matters, branded products,

Upper Class Age: 35+ Married/Single Medium – Heavy Usage Upper Class

Convenience The Content-able

Studies, Traveling Business and job chores, Families, Top level managers

Gadgets,

Planned

Age: 30 and above Married/Single Medium to Heavy Usage Upper middleMiddle Class

sports, music, Puchasing, parks, picnics, Making life vacations, Home Appliances, Traveling comfortable for others and themselves, Social Issues, 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

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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

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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

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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.

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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

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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

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PORTER’S GENERIC STRATEGIES

Competitive Advantage

Low Cost C o m p e t i t i v e S c o p e

Higher Cost

B r o a d

Cost Leadership

Differentiation

N a r r o w

Cost Focus

Differentiation Focus

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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

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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

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“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. ”

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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.

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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 nonfrequent 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 priceconscious and go for the most economical deals. These people prefer low price or discounted fares over travel time and convenience. 1. PROBLEM RECOGNITION

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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

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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

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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.

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AIRBLUE’S PRICING STRATEGY LOW HIGH

LOW Economy

Penetration

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.

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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 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
AND BE CONSISTENT WITH THE OTHER VARIABLES IN THE

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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.

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