Since deregulation, the most influential driver of profit in the airline industry has been the control of ticket distribution (Shaw, 2013). Spirit Airlines, the leading ultra-low-cost, no-frills carrier; the worst all-around carrier charges for every ancillary product. Consequently, this paper will discuss the carrier ticket distribution channels, pricing strategy and product promotion.
Direct and Indirect marketing channels.
Spirit airlines distribute tickets through both Direct and Indirect channels to exploit profitability. With direct distribution, the airline directly distributes tickets conventionally to the customers, using the internet as its primary disbursement channel. Whereas the indirect channel involves selling through channel
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Indirect Channel
Comparatively, Online Travel Agencies (OTAs) represents thirteen 13% of the airlines’ ticket sales, albeit receive zero commission for selling. Ordinarily, the airline outsourced Call centers, account for 9% of the tickets. Although Spirit does not have a complete contract with GDSs and OTAs they could distribute tickets through those channels. In fact, some advantages include intensive geographical coverage through intermediaries and channel flexibility. Indeed, selling tickets indirectly is noticeably more expensive, coupled with some loss of control are disadvantages of this route.
Notwithstanding, the sales contract permits the carrier to offer higher fares through GDSs than on spirit website to cover their incremental costs of distribution. Similarly, the airline date released fares to OTAs, if allowed to withhold the lowest fares from this
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Altogether, Spirit promotes their product through advertising, Sales promotion and Publicity.
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An online video “Embracing Customers Hate” depicts Spirit exploiting consumers’ complaints and insults over Twitter to power hatethousandmiles.com. Hate-thousand-miles offer free travel miles to people who unleash their frustrations on Spirit or any airline. Another, video promising customers ’Less Money, More Go’ exhibit two young, attractive flyers removing their clothing excluding underwear, in a show of baggage economy. On social media, Spirit Twitter feeds offer deals and responds to customers complaint online.
Sales Promotion
Besides the front-line staff, OTAs and Tour Operators receive exclusive access to unique benefits for registering and booking through their dedicated website, to promote the airline’s business. Unquestionably, these benefits include; ultra-low fares, program rewards, valuable tool, and features. Customers consistently, get destination deals along with promo codes and coupon from Spirit, but with restrictions on discount fares.
The prices of these seats however tend to change in accordance with the days that the bookings of these flights are made available till the date of departure (Koenigsberg, Muller and Vicassim, 2008). All bookings for easyJet are made straight from either telephones or the internet; this made it very easy to incorporate the web into its central booking system. By achieving this, there were no possible channel conflicts with other intermediaries, for example with travel agents Easyjet’s website illustrates their pricing policy as being “based on supply and demand, and prices usually increase as seats are sold on every flight. Basically the sooner a person books, the cheaper the flight ticket would be”. The web also states that the low cost scheme of easyJet is not tickets, no ties to other networks, no travel agents and no on-flight meals. (easyJet plc., 2010). A pin code is also given for each customer’s booking that is done on the website which is given to travellers upon arrival at the airport.
The airlines do not focus on the combination of quality and good service at a fair price; its focus is instead only on providing ultra low cost. It also charges customers for value added features and services. Thus the pricing is value added pricing. When compared to the competitors of Spirit for operating costs per seat mile; it is lower compared to other major airlines. The important points like encouragement to demand stimulation and preference for its low-cost model makes it successful for its low-cost pricing strategy.
Spirit Airlines business strategy is that they do not believe customers should have to pay for amenities unless they are absolutely going to utilize them and the services they chose shouldn’t subsidize other passengers. Spirit believes, they can offer a cheap flight with no amenities and each added amenity will be a cost. In the end, the lower fares will stimulate air travel by attracting customers who would have used on-ground
Flight Centre offers a very competitive price. The prices are usually are lower than its competitors when it comes to domestic and international flights. It provides the option of different prices ranges. These price ranges depend on the services that a customer requests. It provides economy class, business class, premium class, and first class price ranges. Due to its affordable prices and good services, it has grown to become a 13.5$ billion business comprising of more than 30 brands. It works had to keep up with the competition by providing best possible prices while ensuring customer loyalty (Flight Centre the Airfare Expert).
It began participating in online sales at the Basic Booking Request level, a level specifically designed for its own needs in 1995, largely to make life easier for travel agents in its home market of Dallas (Bremner, C. & Fiona, J., 2008). This method of distributing their “goods” has benefitted Southwest Airlines immensely. Lower ticket costs, higher sales volume and cutting out the middle man, offering a pseudo bulk break method for the airline shopper. Southwest could improve on this media through progressive marketing campaigns targeting the areas of air travelers they currently do not. The elderly, young college students and those with children; these untapped areas hold a great possibility for revenue if Southwest is willing to target and market to them.
Small business customers and leisure travelers were the ones benefited the most from American’s new fare structure. Previously, small business customers who does not have the power and volume to negotiate with airline companies for discounted deals had to pay higher rates for first-class or coach tickets. American’s new cost structure reduced the full coach fares which allowed small business customers to purchase flight tickets at cheaper prices more conveniently. Leisure travelers, unlike business travelers, have more flexibility in terms of travel dates, thus allowing them to take advantage of the advance-purchase discounts and Saturday-night stay discounts under the new fare system.
Social cultural forces are a double-edged sword for the company. Southwest used advertisements that targeted the cultural values and common buyer behavior of upper-middle class to upper-lower class consumers. Ads such as “bags fly free” and “Why do they hate your bags” resonated with consumers that believe airfare should be all-inclusive. The negative effect of this competitive advertising is reduced fee revenue compared to competitors like United Airlines. The demand of niche airlines will change as the demographics change, such as an increase in millennials flying versus baby boomers.
Market structure can be defined as patterns of behaviour by enterprises in an effort to adjust to the markets in which they operate (buy or sell). Pricing strategies and collusive behaviour mergers are a few dimensions of market conduct. It is the industry norm for a legacy carrier to offer service to most popular destinations; Delta reducing routes to a similar schedule as the low-cost airlines is not an option in the multi-billion dollar industry. In order to gain market share from low-cost airlines, Delta must create a value proposition that differentiates itself from its competitors. Many customers will pay a premium if the level of service provided is higher than the low-cost, no-frills
Continental, Northwest and United Airlines intended to adopt part of the new fare system. Continental, because it is in Chapter
Distribution strategies exist in three forms: exclusive distribution, selective distribution, and intensive distribution. Kotler and Keller (2009) define each of the distribution strategies as: exclusive distribution limits the number of intermediaries used; selective distribution depends on a limited number of intermediaries; and intensive distribution works with as many outlets as feasible. The distribution strategy of the airlines industry was not a part of its early history, but is now integral to the success of airline organizations.
Over the years, company sustained low operation costs and tickets prices following well-developed strategy. Among other measures, it was able to keep prices low by flying only one airplane type, minimizing service and maintenance expenses, and convincing employees to cut gate turn-around times and make the airline more efficient (Fitzpatrick, 2005).
In fact, Spirit Airlines distribute tickets through both Direct and Indirect channels to exploit the profits (Tnooz, 2011). With direct distribution, the airline directly distributes tickets conventionally to the customers, using the internet as its primary disbursement channel. Whereas the indirect channel involves selling through channel intermediaries like wholesalers and retailers.
United Airlines used questionnaires to classify their potential customers by their motivations and identified nine motivational segment profiles which are: global executives, schedule optimizers, corporate troopers, mile accumulators, reluctant travelers, tour takers, quality vacationers, travel seekers, and frugal flyers (The Times 100, 2003, p. 2). The reasons why travelers choose to fly United varies. For example, some may choose this airline because of price, while others choose it because of their frequent flyer program, schedules, or other services.
The advantages for business travelers is that, they no longer need to worry about restrictions attached to reduced fares, forcing them to pay higher prices. They can now get the advantage of being able to book at short notice but guarantee that they will still receive the same 28% off full Coach with no restrictions with anytime fares. Furthermore, if they can book in advance they can pay even less.
The success of budget airlines forced traditional operators to lower their prices by adapting internet sales and yield management techniques. However they still struggle to compete with low prices offered by the LCCs. Further reductions in traditional airline ticket prices are expected.