Thai customers' perception of low cost and full service airlines

Low Cost / Full Service Airlines in Thailand

The Role of Various Governments

The Business Models of LCCs

How FSCs are Adjusting to these New Trends

The Challenges Facing LCCs

Research Philosophy

Sampling

Data Analysis Process

Ethical Issues of the Research

Chapter 4 Data Analysis, Results and Discussion

Profile of Population Sample for the Survey

Survey Findings

Implications for the Practice

Recommendations for Future Research

List of Tables / Figures

Thai customers' perception and determinant of selection of low cost airline and full service airlines in Thailand.

Over the last several decades deregulation and globalization have been having a profound impact upon the air passenger industry in Asia. Where, a variety of low cost carriers have quickly emerged, in providing travelers with affordable options, for going to different destinations throughout the region. This chapter provides a basic background of: the situation, it identifies the problem, it provides aims / objectives of the study, there's an overall structure of the dissertation and a hypothesis is presented.

A.2: Literature Review

In this chapter, previous research on the subject will be examined in the form of a literature review. Where, there is an emphasis on the following points: past / current trends in the industry, the role of various governments, the business model of LCCs, how FSCs are adjusting to the new trends, and the challenges facing LCCs. These different pieces of research will provide a basic background, as to what possible issues could be affecting the industry.

A.3: Methodology

This chapter discusses the methodology that will be utilized as a part of the survey sample that is being taken. With there being an emphasis on the following areas: research philosophy, research design, sampling, data collection, data analysis process and ethical issues of research. This is important, because it provides a basic foundation as to how the survey will be conducted.

A.4: Data Analysis, Results and Discussion

This chapter talks about how the surveys were conducted, by examining the results and then discussing the findings. The different areas that are covered in this chapter would include: a profile of the sample population, research findings and a research discussion. These different findings from the surveys are then, corroborated with the research from chapter two, to identify what specific factors are affecting customer perceptions.

Chapter 1

1.1: Introduction

This chapter provides a basic history and background, as to how the airline industry evolved in Asia. The way that this is accomplished is: by comparing the full service carriers (such as Thai Airways) to the low cost carriers (i.e. Thai Air Asia).This is followed by: a statement of the problem, the aims / objectives of the study and (at the end of the chapter) a hypothesis.

1.2: Background

Over the last 25-year Asia has underwent a massive transformation, as globalization is causing many countries to experiences above average rates of growth. This is because, the reduced trade barriers and the principals of free trade; have transformed the region's economies from: mainly an agricultural focus to one that has become the manufacturing hub for the world. One of the effects of these changes is: an increase in air passenger and freight traffic. This has caused the demand for a variety of air transportation services to rise dramatically. In the case air passenger traffic, these events have placed the industry at unique cross roads. Where, a number of different features have begun, to have a profound impact upon the demand for these services. Evidence of this can be seen by looking no further than June 2010 passenger traffic totals. Where, the Association of Asia Pacific Airlines found that passenger traffic rose to total of 15.1 million people, up 25.2% from the same time last year. (Asia Pacific Airline Passenger Traffic, 2010) This is significant, because it highlights a shift that is occurring in the airline industry as passenger traffic has been rising dramatically in response to the increased, business activity throughout the region. However, when you look at the issue a little closer, it is clear that there are many other factors that are helping to increase demand for air passenger service. The most notable would include: rising levels of per capita income, the vast distance between many cities, the development of tourism in different areas and the lack of infrastructure in various countries. These elements are important, because they highlight how despite volatility in the economic cycle or increases in energy prices, demand continues to increase. An example as to how this trend has affected the industry can be seen by looking no further than the dominance of Asian air passenger traffic in 1972, with it comprising just 13% of the total market shares. By the early 2000's this number has increased dramatically to 33.3%. In the case of Thailand, they were affected by the different factors mentioned above and because they are strategically located in heart of Southeast Asia. This would result in the dramatic expansion of full service airlines such as Thai Airways. Where, they would focus on providing the customer with that unique experience of the full service carrier (FSC). At the same time, these carriers were seeing pricing pressure and competition from the low cost carriers (LCCs). Their objective was to offer less service, with lower ticket prices. As a result, this has caused a shift within the air transportation industry, with the total number of LCCs rising dramatically. (Doganis, 2006)

To see the full effects of this shift; means that you must examine how these changes have occurred in: the perceptions of Thai customers, the factors that have influenced their decisions and analyze these results. This will be accomplished by: introducing a hypothesis, conducting a literature review, conducting a survey, analyzing the results and making possible recommendations / introducing theories as to why the trend is occurring. Together, these different elements will provide the greatest insights, as to what factors are affecting the buying decisions of customers, when it comes to airline travel in the region.

1.3: Statement of the Problem

Since the 1990's the demand for international air travel in Asia has been growing at twice the rate of North America. (Organization for Economic Cooperation and Development, 2005) This is in response to deregulation from many governments throughout the region, as they would reduce regulations in flying new routes and would begin spinning off, some of the large national carriers such as: Cathy Pacific. At the same time, various air transportation agreements were signed by a variety of countries throughout the region. This would lead to a shift within the industry, as a new deregulated pricing model would emerge. At which point, many LLC's began to play a dominant role in the industry. Where, they would offer less frills with one low price to include: one single passenger class, one type of airplane, an innovative fare scheme, unreserved seating, short flights and they fly to less congested airports. (Organization for Economic Cooperation and Development, 2005) These different elements are important because they would highlight a major shift in the industry, as consumer wanted less frills and cheaper fares. The research that will be conducted will examine: if changes in customer perceptions are occurring, to what extent and what factors are affecting the buying decisions of consumers.

1.4: Research Aims and Objectives

The aims of this paper are to find out the perception of Thai customers towards the low cost carriers and full service airlines. At the same time, it will find out about what factors are affecting their decisions, to use one particular type of airline over the other. The surveys have been established to determine the answers of these perceptions towards: both types of airlines and the reasons why they are selecting one particular carrier over another.

The objectives of the research include the following:

1. To investigate Thai customers' perceptions of full service airlines and low cost carriers.

2. To examine the major factors that have influenced and impacted buying decisions. While simultaneously, determining how these factors has affected the publics' decisions, to utilize one particular carrier over another.

3. The impact that these perceptions and buying decisions are having on the entire industry.

4. What will the future of the air transportation look like based upon these results?

1.5: Dissertation Structure

The dissertation will be structured in a way that will provide specific and general overviews of the airline industry to include:

1. Introduction: This chapter will provide a background of: the changes occurring in the industry, the statement of the problem, research aims / objectives and a hypothesis.

2. Literature Review: This chapter looks at the changes that are taking place with airline sector and how they are affecting the views of customers.

3. Methodology: This chapter will define the variables of the independent survey and will examine the different aspects, as to how the sample will be taken.

4. Results and Analysis: This chapter will conduct, compare and then analyze the results from the survey with the research.

5. Conclusions and Recommendations: This chapter will provide specific factors and issues that will be affecting in industry over the short / long-term. At the same time, it will help to identify what issues will shape the future of air passenger transportation in Asia.

1.6: Hypothesis

The introduction of LCCs in the North American and European markets started a trend that is beginning to unfold in Asia (with the birth of Asian-based LCCs). Part of this is in response to the increases in passenger traffic and the effects of globalization. However, there have been similar airlines in the past, which have tried and failed using the same kinds of business models. A good example of this can be seen by looking no further than, Oasis Hong Kong. This was a low cost carrier that attempted to enter the medium to long haul leisure / business travel market between Hong Kong and London Gatwick. The problem was that they were no match for the FSCs, which offered: more flights and greater flexibility. This is a similar model that Thai Air Asia's parent company is attempting, with Air Asia X and the other airlines. As they have redefined the short to medium range travel destination markets in Asia and are aggressively expanding into a variety of international cities. A good example of this can be seen with the service that Air Asia X is providing between Malaysia and the Gold Coast of Australia. Then when you combine this with fact, that Virgin Atlantic's Richard Branson owns 20% of: the company and has formed a partnership with them. Highlights, how there will be increasing focus, on applying this model to destinations throughout Europe and possibly North America. (Taneja, 2008) the big question is: will this model continue to work for LCCs in the future? The answer to this question will all depend upon how they react, to various partnerships and the better service that is offered by the FSCs. As this is the most important fact that allows the LCCs, to able to offer the competitive prices, without providing these extra services. At the same time, LCCs could be on the verge of redefining the international travel market. Given the increasing open skies agreements and alliances that have been formed, Air Asia appears to be achieving this objective. Yet, there are also new challenges that the company will be facing in the future. To determine if the company is successful at achieving its objectives: a literature review, survey and analysis will be conducted that will test this hypothesis. Where, we will compare Thai Air Asia with Thai Airways, to see how the industry is changing. Once this take place, it will identify what possible issues could be affecting the industry in future and it will provide insights, as to how Air Asia is changing the Asian passenger air industry.

Chapter 2

Literature Review

2.1: Introduction

This chapter will examine the underlying trends that are occurring in the industry, by looking at how Thai Airways and Thai Air Asia are helping to reshape air passenger service throughout region. This will be accomplished by looking at a variety of different sources that will discuss: the past / current trends that have taken place in the sector, roles of various governments', the business model of LCCs, how FSCs are adjusting to these new trends and the challenges facing LCCs. These different elements will be essential in establishing a basic foundation, as to what changes are taking place and what the industry could look like in the future.

2.2: Past / Current Trends

Over the last several decades the industry has underwent tremendous changes. According to Doganis (2006), the trends that have been occurring in the airline sector since the early 1970's, have been helping to reshape air passenger service throughout Asia. Where, the industry accounted for just 13% of the world passenger traffic market share (during this time), as the majority of airlines were focused on European and North American air travel. Since that time a shift occurred, as the industry would begin to see above average growth. This information is significant, because it highlights the overall long-term trend that has been taking place throughout the region. Where, it is helping to provide insights, as to when the growth of the industry occurred and what were the effects upon the different carriers.

The various theories that are presented in this piece of literature provide insights, as to why more low cost carriers have been quickly entering these markets. Where, the sharp increase in demand has provided enough stability in the industry, to make opening such businesses profitable. This information can be used with the research from the proposal, to corroborate the underlying trends within the industry. At which point, it can help confirm the different views that consumers have about the airlines.

Moreover, Tamasy (2008) discussed about the effects that Air Asia is having upon the industry. Where, their lower pricing structure and less frills, are helping to create intense competition. This has caused many of the different FSC's to begin creating their own LCC's or they are forming alliances with them. This information is important, because it can help to identify key buying patterns that are occurring and it helps to explain why such shifts are taking place.

The various ideas that are discussed, can explain how and to a certain extent why, these changes are occurring in the industry. At the same time, it can help to explain how the FSCs are evolving to adapt to these changes. This will provide an overall view as to what kinds of trends are occurring in the industry and what changes are taking place. Where, the information can be used in conjunction with other pieces of information (such as the one previously discussed) to highlight the extent of what is happening.

At the same time other sources are corroborating these shifts; according to the SWOT Analysis for Air Asia (2008), the information conducts a SWOT analysis of the different various: strengths, weaknesses, opportunities and threats that Air Asia could be facing in the future. The different strengths of the airline would include: they use information technology effectively, low costs, they have an outstanding brand name and a good management structure. The various weaknesses would include: lots of customer complaints and the airline does not own its own maintenance equipment / facilities. The different opportunities would include: rising income levels, strategic partnerships, fuel hedging and various open skies agreements. The various threats would include: volatility in the prices of airport fees / taxes and new carriers / existing players entering the market. These different areas are significant, because they highlight the overall scope of the problem that is being faced by the industry. As the different factors that affect Air Asia will also have an effect upon the entire sector. (Kulothunkan, 2010)

This research that was conducted previously helps to correlate a variety of factors that could be affecting the industry. Where, these different concepts can be used from the responses in the questionnaire, to determine the underlying elements that are affecting why consumers will chose one particular carrier over the other. This will help to improve the overall levels of understanding, as to what specific factors could be affecting these decisions and how they could impact the future. Once this takes place, the information can be corroborated with previous pieces of literature, to determine how the air line sector is evolving in response to these views.

2.4: The Business Model of LCCs

The overall amounts of growth in the industry and deregulation has created a shift in the business model of many carriers. Hooper (2005) discussed the impact that LCCs are having on the industry. Where, they are: reshaping the markets throughout the region, affecting open skies agreements, increasing the competitiveness of the industry and lowering cargo / transportation rates. At which point, the paper discusses how the industry will evolve into the future, as they suggest that some kind of model mirroring the LCCs of North America and Europe are required. This is significant, because this information can be used to show how the LCCs are redefining the airline industry in Asia.

This information is important, because it can highlight why the industry has been going through such dramatic changes. As the information that was presented earlier will show how government policies would impact the industry. While this piece of information, can be used to illustrate the effects of this policy. This concept can then be linked to the different surveys to see how these policies are effecting their buying decisions and the overall levels of services that they offer. Once this takes place, it will help the research project to focus, on what happens from within the industry and what tools they are using to achieve their objectives.

Yu (1998) discussed about the total percentage of worldwide airline traffic Asia represented between: 1985 and 2010. Where, the total amount of passenger traffic that the region accounted for in 1985 was 26.4%. During 2010, this number would increase dramatically to 50.5%. Next, the source discusses the impact that the increased amounts of traffic are having on the revenues of Asian airlines. With the majority of carriers, facing financial challenges as the industry has become increasingly competitive. The two biggest factors that major carriers are focusing on are: lowering costs and ensuring that they have extra services that are offered. This information is important, because it shows how the industry is focused on these two elements out of survival. Where, the profit margins are tight and changes can occur quickly in tastes / demand. As a result, the airlines have to concentrate on costs or combination of costs / services to remain competitive.

This information can be used to corroborate various factors that have been identified, as to what kinds of changes are taking place in the industry. With it providing a basic overview of economic reasons, why the airlines are focused on these two factors. This concept can then be applied to the questionnaire, where there will be specific questions asking if costs and the various services offered; were influencing the decision to use one carrier over the other. The benefit of using this information is that it can be applied directly to Thai Airways and Thai Asia Air, to see how these factors have influenced customer thinking. At which point, it will provide clarity as to how globalization is changing the industry.

The Organization for Economic Cooperation and Development (2005) discusses the challenges that the airline industry will face to include: international carriers improving their operating efficiency, rising costs / declining fares and the development of the hub / spoke network. The international carriers are becoming a major threat to both LCCs and FSCs. This is because many of the North American and European airlines have been restructuring their business models to become more competitive. This is important, because it signifies how these carriers are making adjustments for the changes that are taking place, increasing the overall amounts of competition.

The rising costs are reflecting the continued pressures that all carriers will face in the region. As the economic prosperity that is being experienced, will cause labor costs to increase dramatically over the long-term. This can affect the overall bottom line of a number of different LCCs and FSCs that rely on this low cost structure to offer low fares to consumers. When these kinds of costs begin to increase, is when you will find that many carriers have trouble remaining as competitive. The reason why is because, the rising cost structure, will force these companies to have lower profit margins or increase their fares. This is important, because it shows how over the short to medium term, the different carriers can remain economically viable. However, once labor costs begin to increase throughout the industry is when you will see pricing pressures, begin to become more of an issue.

The development of the hub and spoke network is another issue that is facing many of the different airlines in Asia. Where, many of the various airports do not have the same kind of infrastructure or support that the European and North American airports have. This is important, because this information can be used to show how the improvements that made are a good first step. However, the fact that the hub and spoke network is: not nearly as extensive as other areas; means that more investments in infrastructure need to occur.

This information is useful, because it can highlight some of the different challenges facing the industry. Where, these different factors could affect the profitability of many carriers and the fares / services that they are providing to consumers. This can be used in conjunction with the results of the surveys; to see how the overall cost structure is having an impact upon both Thai Asia Air and Thai Airways. Once this takes place, it could provide a more complete picture, as to how these different challenges are affecting the industry and what could be the possible impact in the future.

Moreover, Gluckman (2007) discussed on the impact that Air Asia has had upon the industry. Where, their low costs and no frills have helped the company to be able to redefine the sector. The reason why is because Air Asia has a very low labor cost structure in comparison with the traditional airlines. Evidence of this can be seen by looking no further than the fact that their labor costs typically account for 17% of the total operating expenses for the company. While the industry average is 30% to 40%, of the total operating expenses that normal airlines must pay. At the same time, the company will fly to airports that are less congested (which have lower landing fees) and they fly reconditioned aircraft. The results of these actions were that Air Asia would redefine the industry by showing how low cost structures, could allow an airline to be competitive. The problem is that the labor costs of Air Asia are some of the lowest in the world. When you compare this to other low costs carriers in markets such as North America or Europe, this is just of fraction of what the LCCs are paying. Over the course of time, as incomes continue to increase, the cost of labour will rise towards the industry average. This is significant, because it shows how Air Asia has identified ways that it can compete over the short to medium term. However, over the long-term is when the airline will face the possibility of having it business model go through severe challenges, as it will not be able to maintain these low costs indefinably.

This information is important, because it shows how Air Asia and many of the other LCCs are able to remain competitive. As their overall labour costs, are significantly lower than any