Marketing of any product requires evaluation and review of Price, Product, Promotion, and Place, generally referred to as the 4 Ps of marketing. Marketing personnel constantly attempt to identify the right balance of these factors to ensure that the customer will select their product. Marketing strategy is always determined based on how the company wishes to position itself with respect to its competitors. For example, Southwest Airlines is a success story at a time when most airlines are struggling to keep their heads above water. Southwest Airlines defined its strategy -- low priced travel cost, limited passenger service and reliable services. This strategy has proved very difficult for other airlines to follow in the recent times. Southwest entered into the airline industry late, it had a change to study the business plans of other airlines and learn from their shortcomings. In May 2003, for the contiguous U.S., Southwest transported 6.5 million passengers as compared to 6.3 million by Delta and 6.2 million by American Airlines. (Wire-Report, 2003)
Southwest Airlines is generating profit by flying to relatively well-traveled locations within the country, but not to regions that are high traffic and that may have other variables that can affect its on-time flight plans. In addition, keeping aircraft standardized (same make and model) and minimizing gate time and in-flight passenger service Southwest is able to keep its overheads low. In addition, Southwest's union contracts are flexible when compared to other airlines in the industry. Southwest also uses a limited number of travel agents for its ticket sales. Understanding the effects of the external environment on the airline industry has helped Southwest determine its strategy. The 9/11 attacks had a significant impact on the airline industry, however many of the players in the field did not wish to change their traditional method of operation in spite of the change in the travel patterns of the average individual. Delta's low cost subsidiary, Delta Express, Continental's point-to-point route service, Continental Lite, United Airlines' Shuttle service between many west cost cities, the U.S. Airways low-cost carrier operation, Metrojet were failures as they tried to straddle two philosophies of operations. They tried to stretch the capabilities of the organizations in an effort to duplicate the results if Southwest airlines, while having the legacy of a previous system.
The aviation industry is complex. It requires a wide variety of resources and logistics to keep it running efficiently. There are tremendous demands on all the companies involved to maintain these logistics. From the ground staff at airports, to the maintenance and service personnel, all have as important duties in keeping the aircraft in flight as the pilots. In the aftermath of the events of September 11, 2001, where terrorist attacked the World Trade Center buildings and the Pentagon, on March 21, 2002, the Council of the International Civil Aviation Organization (ICAO) adopted more stringent in-flight security standards. These standards will be applicable to aircraft of 60 seats or more for all of its 187 member countries for all international flights (Ott, 2002)
The September 11 attack seriously impacted the airline and the tourism industry. It impacted the tourism industry as fewer people went on vacation. The last time airlines sustained the maximum loss was during the gulf war. The airline industry lost $4.8 billions in 1992 and it took about a year for the airline to recover from this depression and get to the pre-war traffic levels. The recovery rate has not been observed as yet in the case of the market downturn due to 9/11. Many American airlines are reporting their worst financial losses in 2003. As passengers were afraid to fly, the airline industry reduced the number of flights. It also put a hold on some of the new aircraft purchases. Reduced flights also decreased the number if supporting businesses like aircraft service businesses and reduced parts and products that are required to maintain the aircrafts.
The traditional business strategy used in the airline industry has proved to be ineffective during this industry downturn. The entire airline industry will need to evaluate its plans; for example, it is more economical to fly smaller planes more frequently or is it better to fly a bigger plane fewer times. The aviation industry has always gone through cyclic periods where the market had been either on an upward swing or on a downward swing. A happy middle ground was never achieved. For a new entrant into the market, identifying the critical niches of the other competitors in the field will ensure success or failure of the organization. Southwest airlines, for example, identified that there was no airline offering lost cost service to passengers who were on a budget. As late entrants into the field, they determined that the customer would take an option of the low cost in exchange for reduced service like meals. Southwest used positioning statement like 'getting you there for the lowest cost', customers were willing to pay hundreds of dollars less for getting to a place on time and with fewer stopovers along the way.
The earlier paragraphs identified some of the issues and the concerns that airline companies have with respect to profitability and the marketing of their products to the customers. This section identifies some of the marketing issues that Aeroflot experiences and the evolution of this airline company over time. Privatization of many state run operation was undertaken following Perestroika. Aeroflot was one such entity that was privatized during this period. Poor management of the accounts and the fuel bills, landing fees at foreign airports, leasing fees for foreign aircraft, etc. cause the airlines to embed itself very deeply in loans at very high interest rates. (Klebnikov, 2002) Many middlemen such as banks, financial advisers, consulting companies, marketing companies and equipment supply companies for the airlines were involved in a complex management scheme by Boris Berezovsky. This move seriously impacted the image of the airlines and the profits that could be generated by the airlines over time. A number of top managers at the airline are up for trial on fraud charges for the embezzlement and the losses that they subjected the airlines to.
Aeroflot was established in 1923 as the official airlines of the country. During the Moscow Olympic Games, the carrier was also the official carrier for the athletes. Aeroflot has also increasingly looked to lease or rent aircrafts from other carriers. The government has also offered the company better tax breaks than other carriers in the region. (Anonymous, 2000) Currently, Aeroflot flies to all major cities of the world. In an effort to reach more markets and wider range of clientele the airlines is also increasing looking for collaborators and partners in the industry. Aeroflot has signed a code sharing with the Cathay Pacific Airline Company, which was a first by the airline with an Asian company. (Aeroflot, 2005) In recent times, Aeroflot has increasingly been seeking out code sharing with other airlines such as AlItalia and Korean Air. Aeroflot realizing that strategy to maintain market share and get economy to scale can help improve the profitability of the airlines is working to identify key marketing strategies to introduce and offer exposure of the airlines in the new markets.
In an effort to also increase its public image, Aeroflot offers comprehensive packages and pricing options through its various agents and travel bureaus. It has also been progressively increasing the number of flights that it offers to major cities in Europe and Asia. In an effort to improve the services that are provided by the airlines and the quality of experience Aeroflot has also undertaken a quality management and evaluation program. "In July issue of a well-known magazine Air Transport World (ATW) Aeroflot was listed at 13th place according to Net Income and at 20th place according to Operating Income." (Aeroflot, 2005) The airline has also been working at improving the safety and quality of airlines through upgrading of existing airlines and seeking to establish partnerships and rentals from other airline companies.
Simply duplicating the wining strategies used by others may not help Aeroflot in the long-term. Rather the airlines have to evaluate its market strategy and the global and local competition that it experiences. Having tacit knowledge and expert understanding of the variables affecting the any business is very essential; no blue print one fit model can be used for all airlines for all markets. This fact was made very clear with the success that Southwest has experienced in the U.S. When organizations know and understand both their strengths and their weakness their effectiveness as leaders in their respecting markets is greater. Good management is required at all stages of an organization's progress. Leadership is essential to ensure that all the strategy techniques that work is implemented in a proper fashion, while at the same time being sufficiently flexible to absorb market variations.
Aeroflot had to comeback from very serious financial and accounting scandals in the 90s. Realizing the need for improvement has encouraged the airline to make significant improvements…