Pet Airways Is a Low-Cost

Pet Airways is a low-cost carrier differentiated by its high service levels and its unique ability to handle pets. It will focus on three major target markets in the U.S. Northeast, and will be launched with an extensive marketing campaign. The company is going to have stringent controls and a high level of ethical integrity. The airline is going to use skimming and penetration pricing to build market share and brand loyalty, and the pet strategy will help to capture that untapped market.

Situation Analysis

The airline industry is highly competitive, and as a result is a difficult one in which to break into. For firms entering the market, a competitive edge is required. The objective of Pet Airways is to successfully enter the airline market in the United States. The company will need to compete with a number of key resources. Human resources are essential, as service will be a critical factor in developing the market base. This will include training with respect to handling pets, which is a key point of differentiation for the airline. The opportunity is believed to arise from the poor service that other airlines deliver these days to pet owners. Most pet owners are faced with high fees and questionable service and safety records with respect to pets. Most pet owners have abandoned flying altogether, in favor of driving or other modes of transport. Pet Airways believes that these customers will return to flying if they know that there is going to be a superior service level. Non-pet customers will see that the high level of service afforded to pets is given to them as well, and this will entice them to fly with the airline.

Clearly, ethics and corporate social responsibility are important elements of the company. Any airline needs to be especially oriented towards ethical behavior, because people's lives are in the hands of the airline. Any issues that lead to death not only will be horrific, but will put the company out of business as well. Therefore, nothing can be said to affect the ethical standards of the company. The company will be incorporated in Delaware to reduce its tax burden, but will have the core of its business in the Northeastern U.S.. The company will compete for business in the short-haul sector, because it is going to be drawing on the unserved market that is currently driving because they do not trust airlines with their pets.

Customer Analysis

There are two main customer types that Pet Airways will serve. The first are pet owners, who currently have a lot of problems with airlines. Most airlines do not understand that pets have unique needs. Not all breeds are alike, and therefore need to be handled differently according to their breed. Pets are not "cargo," but specific types of animals. This lack of knowledge of animal handling leads to needless deaths and injuries among pets, and there are a high number of these reported every year (PetFlight.com, 2011). As a result, many pet owners reject commercial airlines, only using them to transport pets overseas. These are people who would prefer to fly, but simply do not wish to risk the health of their beloved pets to do so. This market is estimated to make up around 10-20% of the total load of any given flight.

The largest customer group will actually be non-pet owners. These will be attracted by the airline's price and service offering, which will be competitive with other low cost airlines. As a result, the airline will attract both business and pleasure travelers seeking good connections, and easy travel. Business people are typically in their 30s-50s, upper managerial or executive level, or sales, and often travel on the company tab. The consumer group will be made up largely of seniors and students able to take advantage of good last minute fares, and of ordinary people in their 30-60s who book well in advance for their trips around the U.S. They are typically going to be of middle income and education level, and employed.

Most of the pet customers will select Pet Airways specifically because of our special abilities in handling animals. They are more likely to purchase well in advance, but even if they do not Pet Airways will be able to meet their needs. Other than pet customers, advance purchase customers are going to be oriented towards price as a main selling point, and within the concept of low cost airlines service will be the secondary selling point. It is on this that Pet Airways will truly differentiate itself from the competition. Business travelers will also be price sensitive, but this is a secondary selling factor. The primary selling factor for business travelers is convenience. Scheduling and choice of destinations is therefore an important component of the business.

Essentially, these are the three segments that will be targeted. The business and non-pet consumer markets are critical as the base of any airlines' business. Without these customers, the airline would not survive, due to the high costs associated with flying planes. Business is a growing and lucrative element of business travel and many airlines are reconfiguring their planes to meet demand for this market (Negroni, 2011). It is worth considering that airlines will be increasingly called upon by the market to accommodate the needs of narrower passenger segment types, from those with long legs to those wanting premium meals to those with pets. It is the latter that will be targeted most by Pet Airways, carving out a niche within the low cost segment to deliver a sought-after value-added service.

Competitive Market Analysis

There are essentially two types of airlines competing in the domestic U.S. market -- legacy carriers and low-cost carriers. The market is worth $731.5 billion to America's GDP, including $154.7 billion in airline revenue alone (ATA, 2010). In terms of operating revenues, legacy carriers account for five of the top six spots, the other being FedEx. These airlines have revenues in excess of $10 billion per year, while Southwest is the only low cost carrier to have this level of sales, that company being the oldest and most well-established non-legacy carrier. The remaining low cost carriers are a mix of relatively new companies (JetBlue) and older companies that have rebranded themselves (Alaskan), and there are many regional players with in the low cost niche, as most of these companies focus on short-haul flights.

JetBlue competes in the Northeast corridor that Pet Airways wants to target, as do all of the legacy carriers and a significant number of smaller, regional airlines. The industry is characterized by stable demand and is generally a mature industry. Among many consumers there is a high degree of brand loyalty, fostered in part by loyalty programs that almost all airlines have. Yet many casual travelers lack brand loyalty, partly out of dissatisfaction and partly because most loyalty programs do not meet their needs. The airline industry is a high-volume, low-margin business. According to the ATA, the industry's net profit margin for 2009 was negative, as too many airlines lost money in the year. This was despite a load factor of 80.4%. Thus, it is imperative that Pet Airways achieve a load factor over 80% in order to have a chance at being profitable. This will require outcompeting other low-cost carriers. While the price/service offering is expected to get the airline close, the pet focus is expected to push the load factors over the top, allowing Pet Airways to achieve 82-83% load factors, which should be enough for the company to be profitable.

JetBlue and other low-cost competitors are able to deliver good prices; legacy carriers compete mainly on the high number of flights and long-term customer loyalty. The latter are weak financially, but JetBlue is not. However, it has failed to live up to its big talk on customer service, so that is a weakness that can be exploited. The competitive environment illustrates that it is necessary to match prices of JetBlue but offer better service, and be able to undercut the prices of legacy carriers, if Pet Airways is going to be able to attract non-pet customers.

Because of the critical importance of volume, it is expected that the response of other airlines to our market entry is going to be serious. Airlines can be expected to compete on price -- predatory pricing is common industry practice and goes largely unpunished despite it being illegal (Robenalt, 2007). In addition, it may be difficult to secure access to the best routes, because of the strong alliances that many airlines have with major airports. Thus, competitive response is expected to be intense. Other airlines may work to improve their pet service as well, as a means of eliminating one of our most important sources of sustainable competitive advantage.

External Market Environment

The airline industry is dependent on two facets of the external environment -- the general state of the economy and the price of oil. The former is moderately favorable, with the Congressional Budget Office predicting slow GDP and employment growth in the next couple of years but a generally stable environment (CBO, 2011). The price of oil is a significant concern, however, as this impacts on the price of jet fuel (though they are not perfectly correlated). Airlines typically rely on sophisticated hedging strategies in order to control fuel costs, as rapidly rising fuel costs can be devastating for business (McAllister, 2010).

The technological environment is one characterized by changes in plane configurations and models, in order to capitalize on the latest trends in the airline industry. As airline manufacturers become more responsive to the market needs, this will benefit Pet Airways, as our company will need to have specialized cargo holds to handle our star passengers. The political and legal environment is generally favorable. While laws regulating airlines are strict, they are universally applied. The biggest challenge will be when tighter security regulations reduce demand for flights, as most flights are within a few passengers of being unprofitable. The cultural and social environment is in the company's favor, as people like to fly, they value pets and they like to fly with their pets. There is always room in the market for another well-run low-cost carrier, as evidenced by markets like Europe where several low-cost carriers compete with each other successfully.

SWOT Analysis

As a new company, Pet Airways has few strengths on which to draw. The company has a unique concept that will help it to differentiate itself from the competition. Pet has also studied the low-cost airline niche, learning from the successes and failures of the companies that have gone before it. In addition, Pet has a strong management team with extensive airline experience, and is fairly well financed for a startup airline. There are a number of weaknesses as well, however. One key weakness is that the brand has yet to become established. Nobody knows about Pet and it will take a substantial marketing effort to change that. Another weakness is the lack of key landing routes. Pet needs to have access to the best airports in order to be attractive to customers, but landing rights can be difficult to acquire, especially for new airlines. Lastly, the airline still needs to put together its staff and training programs. These are essential for the airline's success, but may need time to gel before becoming the well-oiled machine the staff will need to be -- a learning curve at the airline's launch could be challenging.

There are a couple of main opportunities that Pet Airways has been built to take advantage of. The first of these is the relatively untapped animal market, which other airlines either do not serve or serve poorly. Another is that it is believed there is still room for another major low-cost carrier in the Northeastern U.S.. JetBlue's growth rates and the ongoing poor performance of legacy carriers indicates that there is not only growth in the segment but further opportunity to cull customers from the legacy carriers. There are a number of threats in the environment as well. The first is the competition -- it has already been noted that the response of the competition is likely to be intense. The second is the state of the economy. Slow growth and high fuel prices are expected to put pressure on airlines, making it difficult to grow the industry. It would be easier to launch in a different economic environment. Lastly, there is the threat represented by the ongoing security issues at airports. The security burden not only adds costs to the industry but also reduces demand for air travel as consumers opt to use other modes of transportation.

The market plan objectives will be to capture enough of the market to achieve 82-83% load factors, and to dominate business amongst people traveling with pets. This will be the main point of differentiation, but within that niche it is expected that Pet Airways will otherwise compete as a low-cost carrier. This is the only growing segment of the market, but firms entering this segment will need to have some points of differentiation with respect to their services in order to help them build their businesses. The marketing strategy will support this by being focused on building brand exposure, on creating specific brand associations and on generating interest in the concept in general. The three target markets for the marketing plan are the pet owner market, the business traveler market and the general, price-sensitive leisure traveler market.

Marketing Plan

The primary service that will be provided is air travel. The primary sub-service will be air travel for pets, being a specific service niche that Pet Airways hopes to exploit. Exploiting this niche will require that the company develop specific competency in animal handling for flights, including in-depth knowledge of how all animal types fly. This will include the involvement of trained veterinarians. For non-pet customers, the flight will be the service, with the service level from the staff as the secondary service offering. This product is in the mature stage of the life cycle, but could be viewed as a cash cow in the BCG Matrix (NetMBA, 2010). Place is a critical component to this service, as airline attractiveness is often predicated on destinations. To this end, Pet Airways must secure access to the most attractive airports in the core Northeast market. The company will need, for example, Boston, New York, DC, Philadelphia and other key markets, even if at secondary airports. Without access to the most important destinations, the airline will not have a high enough convenience factor to attract customers. It is expected that while the initial routes will number in the single digits, Pet Airways will need to rapidly expand to a few dozen routes.