Airlines: Low-cost Carrier and Airline Industry

South Africans airline industry companies have been fighting to stay in the black over the past year, with SAA getting a Urban rationalization (which they claim is not a bail- out), new entrants like Velvet Sky not lasting a full 12 months in the industry and established low cost carrier company Kulak. Coma’s parent company Commit slipping into the red for the year ended December 2011 (Commit declares six-month loss amid rising costs, (n. D)). I will be discussing the macro-environmental forces that are affecting the domestic airline industry, with a focus on the South African industry.

I will also analyses consumer behavior in the low cost carrier market and the airline industry in general, by finding out what the main factors which influence consumers to choose one airline over the other are, with particular reference to Kulak. Com. Then I will briefly propose a growth strategy for Kulak which will be able to help them grow by making use of knowledge gained from the investigation into the macro- environmental forces and consumer behavior. The main macro-environmental forces which are affecting the airline industry are economical, technological, and trial forces.

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Demographical and political forces have a smaller affect, however as will be elaborated on later, a significant affect nonetheless. The economic recession has reduced spending across all industries, especially on luxuries. People fly around the country for business and pleasure, but with reduced disposable income many ‘holiday fliers are cutting back and businesses are finding alternatives to get their Job done which doesn’t require people to meet in person (for example conference calls).

The airline companies have thus been squeezed, with low numbers of customers, increasing costs and demand for lower prices from the consumers ( West, Edward. 2012). This is a result of a “combination of high fuel costs, an increase of 70% in airport taxes in October (201 1), and weaker demand from cash-strapped consumers who are spoilt for choice because of the supply of air tickets in the local market” (Smith, Knick. 2012).

The weak economic climate has had a massive impact on the airline industry and has made it difficult for the companies to stay afloat, they have been forced to restructure, cut costs, develop a better product ‘package’ to try main market share and has required some companies to be recapitulated (SAA) and some to record their first loss in 61 years of operation (Commit) (West, Edward. 2012). Technology plays a major role in the airline industry, one of the biggest industry ‘game-changers’ has been the internet booking systems that all airlines use these days.

The internet allows the consumers to be able to compare prices for every airline flying the route that they wish to fly, by simply going to one website like www. Fly. Co. AZ which gives you the cheapest price that each airline in South Africa offers and allows the consumer to be his/her own travel agent (Statistic, l. 2007). This has resulted in consumers being able to skip the middle-man that once was a travel- agent which was commonly used by many in the past, almost unheard of these days.

This means the airline companies have lower costs, since they used to pay travel- agents commission, and so they can reduce their prices or increase profits. However since the consumer has access to all the information regarding prices, competition is tough and price is a massive factor to get the customers, this will be elaborated on in Airlines: Low-cost Carrier and Airline Industry By Leander airline companies market to the consumer and have changed their pricing strategies drastically.

The natural environment has had a huge impact on the airline industry for many different reasons, but the main reasons being increased price of oil and the increased global warming awareness. The price of oil has risen rapidly over the past few years, over the past year the industry has had the “highest average fuel price seen to date” (Commit declares six-month loss amid rising costs, (n. D)). This obviously as caused major problems for airline companies, companies have to deal with, as stated before, rising costs and the need to have competitive prices.

The increased global warming awareness has resulted in higher penalties on airline companies for their environmental footprint, as regulations stated in the Kyoto Protocol require certain fines on certain emissions to be paid (Statistic, l. 2007). These factors have increased the expenses in the airline industry and have caused much difficulty for companies to compete and stay in business. The macro-environmental forces have s discussed changed the consumer’s behavior as well.

With the internet giving consumers buying power and has now formed a very ‘price receptive’ consumer (Statistic, l. 2007). The influence of price on the consumers’ decision has strengthened the low-cost airline market, which Kulak. Com, I-time and Mango compete with each other in (Irwin, Ron. 2007). Flights (I. E the product) are typically viewed by the majority as indifferent across differing airlines, therefore price is the main reason for consumers choosing one company or the other (Statistic, l. 007).

However there are certain aspects that do influence the behavior of consumer when it comes to selecting which airline company to fly with. Brand loyalty is a minor factor in this buyer decision process, as there is very little incentive to consistently use one airline, thus if there is some form of brand loyalty towards kulak. Com certain consumers have they might chose Kulak over other low cost airlines. A more influential factor is the perception of quality associated with the company, in terms of safety, cleanliness, laity of planes and integrity (Kettle, Philip; Armstrong, Gary. 2010).

Noting that safety and quality of planes are a major concern for the consumer with terrorist attacks and technical mishaps being a huge threat to each company’s reputation. Kulak is considered a no-frills airline, so the some people perceive it as being of lesser quality than other airline companies like I-time or Mango, and expect this to be reflected in the price (Kulak Brand Information, (n. D)). So an individual who is not overly concerned with having a better meal on the plane or of having a slightly nicer eat will chose Kulak over the other competitors in the low-cost airline market.

Mango is a subsidiary company of SAA, and it has been found that South Africans sometimes still link SAA with the apartheid regime and thus prefer to go with post- apartheid companies, like Kulak which also has a more traditional African name (Irwin, Ron. 2007). This is another factor that could cause consumers to fly Kulak over other low-cost airlines. Kulak will need to make use of data from more in depth research into the above mentioned macro-environmental forces and consumer behavior and strategies a growth plan.

From the basic research conducted Kulak could possibly upgrade their various systems “to deliver substantially improved customer service, revenue and operating efficiency’ (Commit declares six-month loss amid rising costs, (n. D)). This is in fact what they are busy doing. Kulak will need to be able to maintain profit margins on flights but have cheaper flight prices, which are in such high demand given the various reasons discussed above.

Kulak must try broaden their consumer base and tap into the ‘inflow’ market by developing racketing strategies to attract those customers, a good start would be to research why these people haven’t flown yet and so try target market to these people with a altered strategy. Kulak should also try to implement a tool that will promote brand loyalty, try offer improved services that are not standard across the industry, things like voyager miles (perhaps currently the most effective brand loyalty tool) should be promoted and made easier to access and register for.