PEST Analysis ......................................................................................................... 9 Political Factors ................................................................................................. 10 Decline - Many services remain in the maturity and saturation stage for years. However, for most, obsolescence sets in, and new products are introduced to replace old ones. In the decline stage, demand obviously drops, advertising expenditures are lower, and there are usually a smaller number of competitors. While it is possible for a product to do very well in this stage of the life cycle, there is not a great deal of comfort in getting a larger share of a declining market. ............................................................................................................... 37

Generic strategies were first presented in two books by Professor Michael Porter of the Harvard Business School (Porter, 1980, 1985). Porter (1980, 1985) suggested that some of the most basic choices faced by companies are essentially the scope of the markets they would serve and how they would compete in the selected markets. Competitive strategies focus on ways in which a company can achieve the most advantageous position that it possibly can in its industry (Pearson, 1999). A firm’s relative position within its industry determines whether its profitability is above or below the industry average. The profit of a company is essentially the difference between its revenues and costs. The fundamental basis of above average profitability in the long run is sustainable competitive advantage. There are two basic types of competitive advantage a firm can possess: low cost or differentiation. The two basic types of competitive advantage combined with the scope of activities for which a firm seeks to achieve them, lead to three generic strategies for achieving above average performance in an industry: cost leadership, differentiation, and focus. The focus strategy has two variants, cost focus and differentiation focus. We will briefly overviews these generic strategies because ................................................................... 39

1. Cost Leadership ............................................................................................. 39 2. Differentiation ............................................................................................... 39 3. Focus .............................................................................................................. 40

1

SWOT ASWOT ANALYSISNALYSIS

2

A. SA. STRENGTHSTRENGTHS

1. L1. LEADINGEADING M MARKETARKET P POSITIONOSITION

AirBlue is one of Pakistan’s leading air carrier, with more than 800 daily flights

to 8 destinations. Around 100,000 passengers a month fly on AirBlue, making it

one of the major operators in the domestic market in terms of passenger

kilometers. Its revenue growth was driven by stronger yields per passenger, up

2.8 percent year-on-year.

Strengths

1. Leading Market Position

2. Brand Recognition

3. Superior Operating Structure

4. Network Presence

5. Hub airport at Karachi

Weaknesses

1. Route and fleet expansion

2. Growing demand for Low cost

airlines

3. Expansion of Freight Business

4. Customer loyalty

5. Shifting customer needs

6. Further Alliances

7. Industry Recovery

Opportunities

1. High dependence on Passenger

Revenues

2. Debt

3. Reliance on Oil Prices

Threats

1. High Interest Rates

2. Accidents

3. Strong Competition

4. Interest and foreign currency

exchange rates

5. Decline in airline industry

External Factors Internal Factors

SWOT

ANALYSIS

3

Its strong market position is driven by consistently low fares as well as reliable

service, frequent and convenient flights, use of new technologies like e-ticketing

and self check-in terminals, comfortable cabins and superior customer service.

2. B2. BRANDRAND R RECOGNITIONECOGNITION

AirBlue has high brand recall. It is recognized by travelers all over the country.

AirBlue commenced operations in 2004, and reached the milestone of serving

one million customers within two years. This helps clarify why customers prefer

AirBlue to other carriers such as PIA, Aero Asia and Shaheen Airlines.

AirBlue earned the number one ranking in customer satisfaction for 2005, based

on least number of complaints per passenger carried as reported to the Civil

Aviation Authority (CAA). This strong market position gives the company a scale

advantage and helps it strengthen its brand image.

3. S3. SUPERIORUPERIOR O OPERATINGPERATING S STRUCTURETRUCTURE

AirBlue has maintained its position as the low cost carrier for the last two years.

It has one of the lowest operating cost structures, being first in the Pakistani

market to use the latest technology. Factors contributing to its low cost structure

include; single type aircraft (Airbus) and an efficient, high-utilization and point-

to-point route structure. Flying one type of aircraft significantly simplifies

scheduling, maintenance, flight operations, and training activities. AirBlue has

continually achieved high asset utilization and employee efficiency. Superior

operating structure serves as the primary competitive advantage of AirBlue.

4. N4. NETWORKETWORK P PRESENCERESENCE

AirBlue enjoys a strong network in key domestic and international destinations.

The company’s network includes three the major airports in Pakistan, as well as

major international airport such as Dubai International Airport. Having a strong

network means that AirBlue can generate traffic feed for both its domestic and

international flights.

5. H5. HUBUB AIRPORTAIRPORT ATAT K KARACHIARACHI

AirBlue operates from its hub in Jinnah International Airport, Karachi. Jinnah

International is one of the world’s busiest airports in terms of number of

passengers carried. It is also one of the largest international gateways to Asia. It

4

is also the leading international air passenger (and cargo) gateway to Pakistan.

The company’s strong presences in airports with heaviest traffic levels in Pakistan

give it a competitive advantage.

6. E6. EFFICIENTFFICIENT USEUSE OFOF T TECHNOLOGYECHNOLOGY

AirBlue has successfully incorporated latest technology in all its systems, giving

it an edge over competitors. As discussed in the case study, AirBlue takes credit

for introducing most new technologies to the Pakistani market. It was the first

carrier in Pakistan to incorporate the e-ticketing system and the second in South

Asia to introduce self check in systems at the Jinnah International Airport,

Karachi. It also has an efficient intranet called “AirBlue EDNET” that helps it

successfully maintain a paperless environment, providing managers and

employees real time access to information. It has also vertically integrated the

intranet incorporating major strategic partners such as American Express.

B. WB. WEAKNESSESEAKNESSES

1. H1. HIGHIGH DEPENDENCEDEPENDENCE ONON P PASSENGERASSENGER R REVENUESEVENUES

Passenger revenues accounted for 78 percent of the AirBlue’s total revenue in

2005. Cargo services allow airlines to generate additional revenues from existing

passenger flights. In addition, cargo revenues are usually counter cyclical to

passenger revenues and have lower demand elasticity than passenger business,

which allows airlines to pass on fuel price hikes to customers.

2. D2. DEBTEBT

AirBlue has a significant amount of debt. It has short term financing of Rs. 254

million. Current and future debts could have important consequences for

stakeholders of the company. For example, debt could impair AirBlue’s ability to

make investments and obtain additional financing for working capital, capital

expenditures, acquisitions or general corporate or other purposes. Debts could

also put AirBlue at a competitive disadvantage to competitors that have lesser

debt and could also increase the company’s vulnerability to interest rate

increases.

3. R3. RELIANCEELIANCE ONON O OILIL P PRICESRICES

5

AirBlue’s sustainability, growth and revenues directly depend on oil prices. A

steep rise in oil prices can seriously damage the long term viability of any airline.

Recently many airlines around the world went bankrupt due to rising oil prices.

Airlines need to hedge against this risk by taking proper measures. In case of

AirBlue, fuel prices also had an impact as fuel cost increased from Rs. 519

million to Rs 1,475 million.

C. OC. OPPORTUNITIESPPORTUNITIES

1. R1. ROUTEOUTE ANDAND FLEETFLEET EXPANSIONEXPANSION

AirBlue is planning to include more domestic and international destinations in its

network in 2005. Expansion plans are already in the pipeline with permission to

start flights to Manchester awaiting clearance whilst an application to start

flights to Jordan has been submitted. Other destinations included in their long

term plans include further cities in the UK and USA, India and Saudi Arabia.

Route and fleet expansion will positively impact the company’s operations by

increasing revenues and expanding its network.

2. G2. GROWINGROWING DEMANDDEMAND FORFOR L LOWOW COSTCOST AIRLINESAIRLINES

The growing demand for air travel is driven by lower fares and consumer

confidence. A survey by International Aviation Authority showed that ticket price

is the number one criterion for passengers when selecting a flight, well ahead of

the availability of a non-stop service.

3. E3. EXPANSIONXPANSION OFOF F FREIGHTREIGHT B BUSINESSUSINESS

Though a late starter, AirBlue’s cargo revenue is developing. Cargo revenue

showed an increase of 32 percent, as it touched Rs. 41 million this year up from

Rs. 31 million. The current growth in AirBlue’s freight segment is aided by recent

introduction of scanning technology, which meets the requirements private

courier service providers operating in Pakistan. Equipped with the right

technology, AirBlue is now in a position to cash in on increasing demand for

freight and reduce its business risk by reducing dependence on passenger traffic.

4. C4. CUSTOMERUSTOMER LOYALTYLOYALTY

AirBlue’s frequent flyer and loyalty programs can help it retain customers.

AirBlue’s BlueMiles (frequent flyer program) was established to develop

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passenger loyalty by offering awards and services to frequent travelers. Such

schemes encourage repeat travel on AirBlue, as passengers seek to accrue the

benefits given to regular travelers. This enables the airline to retain customers

and reduce costs, as it does not have to spend money targeting new customers to

replace those lost to other airlines.

5. S5. SHIFTINGHIFTING CUSTOMERCUSTOMER NEEDSNEEDS

The needs of air passengers are increasingly changing, as they are becoming

more and more price sensitive. The effect of this has been that traditional airlines

such as PIA have struggled, while low-cost airlines such as AirBlue have

experienced significant growth despite a turbulent industry, especially in the

short haul market in Pakistan. If AirBlue succeeds in making its prices more

competitive, then the company will be able to gain significant market share.

6. F6. FURTHERURTHER A ALLIANCESLLIANCES

AirBlue has entered in a number of bilateral and multilateral alliances with other

airlines e.g. with JS Air to enhance its market reach and serving customers on

remote destinations not covered by their own flights. Such collaborative

marketing arrangements typically include one or more of the following features:

joint frequent flyer participation; code sharing of flight operations (whereby one

carrier’s flights can be marketed under the two-letter airline designator code of

another carrier); coordination of reservations, baggage handling and flight

schedules; and other resource-sharing activities.

AirBlue should attempt to expand the its alliances with other airlines to increase

its coverage even further by participating in more markets worldwide that it does

not serve directly.

7. I7. INDUSTRYNDUSTRY R RECOVERYECOVERY

Market analysts believe that the global airline industry will experience an upturn

in fortunes over the next few years. This represents an opportunity for AirBlue, as

it could generate increased revenues and command market share if it capitalizes

on increases in demand.

D. TD. THREATSHREATS

1. H1. HIGHIGH I INTERESTNTEREST R RATESATES

7

The past few years have seen State Bank of Pakistan impose high as well as low

interest rates to check inflation and the over heating of Pakistani economy.

Inflation in Pakistan may see another raise in the short-term. According to

International Monetary Fund’s World Economic Outlook 2006, the Pakistan real

GDP growth could fall from 6.5 percent in 2005 to 5.5 percent in 2006. This

could depress consumer spending and offset some of the positive trends for

AirBlue, in Pakistan. The US and Eurozone are expected to be the key markets

for AirBlue in the near future. A slowdown in the US and Eurozone economies

could lead to reduced demand from corporate travelers.

2. A2. ACCIDENTSCCIDENTS

Though AirBlue did not suffer any accident in past. It has to continuously ensure

utmost safety and security of its passengers. Accidents can adversely affect

customer confidence in AirBlue and result in declined revenues intensifying

competition.

3. S3. STRONGTRONG C COMPETITIONOMPETITION

AirBlue is now competing against more credible low cost carriers such as

Shaheen Airline, AeroAsia and PIA Express. PIA remains AirBlue’s strongest

competitor because of the huge market it has gained over time, strong brand

image and customer loyalty.

AirBlue also faces competition from PIA’s new low-fares subsidiary, PIA Express.

Moreover, major legacy airlines have been focusing on restructuring costs, which

has improved their competitiveness. With costs restructured, the legacy airlines

are becoming more formidable competitors in terms of increasing capacity,

matching prices and leveraging their frequent flier programs. Increasing

competition could adversely affect the company’s margins.

4. I4. INTERESTNTEREST ANDAND FOREIGNFOREIGN CURRENCYCURRENCY EXCHANGEEXCHANGE RATESRATES

Fluctuating foreign currency exchange rates can have a significant impact on

AirBlue’s earnings. For example, as AirBlue is planning to expand its services to

the UK. As a result, AirBlue can experience negative or positive effects arising

from exchange rate movements. Strengthening of foreign currencies against the

British Pound will positively impact AirBlue and vice versa.

8

5. D5. DECLINEECLINE ININ AIRLINEAIRLINE INDUSTRYINDUSTRY

A number of factors have caused the current decline in the airline industry. For

example, the threat of further terrorist attacks since September 11 and a fall in

the number of business travelers have both caused passenger numbers to fall.

These and other factors may continue to affect demand for air travel in the future,

which will affect revenues of AirBlue. For example, global problems such as an

increased threat of terrorism in response to the coalition’s war on terrorism could

have an adverse effect on AirBlue. The threat of terrorism may discourage people

from traveling by air and could espeically reduce the number of passengers

traveling on international flights.

PEST APEST ANALYSISNALYSIS

The macro-environment includes all factors influencing a company that are not

within its control. These include political social, economic and technological

factors. These are known as PEST factors. A technique of analysis of the macro

environment is PEST analysis. Environmental analysis should be continuous and

precede all aspects of planning. Since the airline industry is very much influenced

by changes taking place in the environment and has undergone rapid and dramatic

changes during the last decade, this analysis is especially important for AirBlue.

9

PPOLITICALOLITICAL F FACTORSACTORS

Political factors always have a great influence, on the way businesses operate in

the airline industry and the spending power of customers. Governments intervene

in the airline industry for various reasons, including:

• It is a major employer and provider of livelihoods.

• Transport systems are subject to legislation and regulation.

• International tourism flows mean that governments benefit directly from

incoming tourists.

• Government still owns a significant stake in national carrier, Pakistan

International Airlines (PIA) and gives it frequent subsidies in terms of

financing and oil.

However, in recent years it has been observed that government played an active

role in increasing competition in the airline industry. A number of new airlines

Political

1. Increased Competition

(Deregulation of airline industry)

2. Political Stability

3. Increased Investment

Opportunity

Economical

1. Improved Purchasing Power

2. Demand Value-for-Money

3. Soaring Oil Prices

4. Reduced Ticket Prices

Social

1. Greater Customer Awareness

2. Increased Entertainment

Spending

3. Technology Averse Customers

4.

Technological

1. In-flight Entertainment

2. E-ticketing (SABRE System)

3. Automated (Self) Check-in

4. SMS Services

PEST ANALYSIS

10

such as AirBlue and JS Air have been awarded licenses to enter the domestic

market. Despite increasing competition, PIA has maintained a monopoly on

international routes. Airline industry is significantly affected by political stability.

Pakistan has achieved some political stability in recent years. If the management

of AirBlue believes that the present government will perform well (consistently),

then there will be more investment in the form of purchase of new airplanes and

latest technology. The over all industry will grow resulting in more luxurious and

comfortable flights. With the military takeover government policies have become

more liberal. In the past, Pakistan’s Civil Aviation Authority (CAA) played a

major role in discouraging new airlines to enter the industry. CAA had a

restriction that companies could not operate as airlines unless they own their

aircrafts. This means that new firms will need humongous investment even to

enter the market.

EECONOMICCONOMIC F FACTORSACTORS

Currently, Airlines industry has four major players: Pakistan International

Airlines, AirBlue, Aero Asia and Shaheen Airlines. Their target market includes

domestic travelers as well as Pakistanis living abroad particularly in the UK and

USA. These countries have strong economies coupled with high purchasing

power. Customers’ purchase behavior depends very much on prices of the

competing airlines as well as services offered. As inflation rate is stable in

Pakistan, spending power of consumers is not effected in the long term. In fact

growth in Pakistani economy has resulted in an increase in spending power and

has positively impacted the airline industry.

Economically, the new millennium has been highly volatile; the September 11

attacks revolutionized the whole world. Consequently, there was a global

depression in the North America, South America, Australia and Europe. However,

in Asia especially Pakistan the effect in the short term was otherwise. The

economy began to boom because of greater remittances from abroad and whole-

sum immigration by expatriates. As a result, demand for air travel in South Asia

rose.

11

PIA because of its monopoly in the market had been dictating policies and prices.

Economic conditions of Pakistan are however improving. The air travelers in

Pakistan lie in four categories mentioned in the case study i.e. The Hustlers and

Overloaded, The Frill Seekers, The Economizers The Habitual/Regular Fliers-

The Frecuente fliers, The Well-to-do and The Content-able. These customers use

the services of airline companies according to their needs. An increase in interest

rates has negatively impacted the airline industry. Due to the devaluation of

rupee, attractiveness of the Pakistani market has been reduced for foreign

investors. PIA has cost advantage over its competitors because of its newly

acquired, improved, long distance aircrafts from Boeing1 which give longer range

and better fuel economy than any other jet currently produced. This cost

advantage is a barrier to entry for new firms. However, this cost advantage will

not be significant on domestic routes.

SSOCIALOCIAL F FACTORSACTORS

The social and cultural influences on business vary from country to country. The

social structure of Pakistan is closely tied. The trend is now changing as the

general public is educated and is pursuing professional goals. Customers are

more aware of market conditions and available options and want to get best

value for their money. They spend considerable time and money on entertainment

hence increasing the need of in-flight entertainment systems. Also, word of mouth

has a significant impact in the use of airline services and that is one the reasons of

AirBlue’s ever increasing popularity. Hajj attracts a huge number of customers;

however acquiring a license to provide services to pilgrims is a major hurdle.

The social environment of Pakistan is turning liberal with the new regime. The

initiative to automate check-in and ticket booking process2 might not be very

popular with the general public (even educated population) is still technology

averse. E-ticketing might also face significant challenges as consumers are

generally reluctant to provide their credit cards information over the phone and

the internet. The consumers, however, have a warm reaction to the prospect of

less costly but quality service flights. AirBlue, however, has untapped market

1 Boeing-7772 Currently done by Air Blue and PIA.

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potential as consumers are unaware of its services because of ineffective and

meager marketing efforts.

TTECHNOLOGICALECHNOLOGICAL F FACTORSACTORS

Technology is vital for competitive advantage and is a major driver of the airlines

industry. Major technological changes are taking place in the airlines industry

with innovations in the reservations and booking systems. In-flight entertainment

systems and auto check in counters are two examples of such innovations.

Internet plays a key role in e-ticketing as consumer can easily reserve tickets or

check the status of the flight. A key issue will be the extent to which technological

advancements (such as Internet) impact distribution and cost synergies from

industry consolidation, can offset upward pressures on costs. AirBlue has led the

path of technological innovations by introducing new technologies ahead of its

competitors such as its auto check-in counters which has helped it gain market

share. It was the first airline in Pakistan to install Sabre system followed by the

market leader, PIA. Pakistani Airlines have to be abreast of the technological

developments in e-commerce and aircraft manufacturing technology in order to

gain a competitive advantage.

PPORTERORTER’’SS F FIVEIVE F FORCESORCES A ANALYSISNALYSIS

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TTHREATHREAT OFOF N NEWEW E ENTRANTSNTRANTS

Initially, PIA enjoyed a complete monopoly in the domestic sector and

preferential treatment in the overseas sector. Its interests were protected by laws

which made it mandatory for a national traveling overseas to fly only with it at

least once in case of several foreign trips a year. Its monopoly existed until early

1990s when the Nawaz Sharif government implemented the Open Sky policy. The

Open Sky Policy encouraged private sector investment in the airline sector. The

last decade witnessed the emergence of six private airlines (which are; Raji,

Hajvery, Saif, Bhoja, Shaheen Airways and Aero Asia). Despite the fact that only

two of these airlines are still operating, the ensuing competition was a decisive

factor to keep the fares in check, particularly on the domestic sector where PIA

did not face any competition previously.

This situation significantly lowered entry barriers. Although the initial investment

required for starting an airline is quite large, banks readily provide them credit but

this is only in the case of established names or companies backed by well known

groups. However, capital expenditure is very large (and is a significant barrier to

entry) and most new entrants come in the market with few leased air crafts.

Economies of scale are mostly achieved through maximum utilization of these

planes. While the private airlines did instill a competition benefiting domestic

travelers in particular, their overall performance was marred by many problems.

Almost all of the private airlines had to suspend their operations altogether, many

of them more than once, for unavailability of aircraft due to lease problems. This

resulted in suspension of services without any notice to the travelers and in many

cases these suspensions lasted not only for days but for weeks and months.

TTHREATHREAT OFOF S SUBSTITUTESUBSTITUTES

Likely substitutes for air travel include other transportation modes such as trains,

buses and cars. Driving on shorter routes (e.g. Islamabad to Lahore) provides a

cheaper substitute. Buyers may thus, be inclined to use personal cars or buses for

such trips. This however, will vary for from person to person3. A vacationing

traveler has the option of choosing a train, enjoying the scenery and its leisurely

3 For example business travelers will more often than not prefer air travel because despite it is faster despite being more expensive.

14

pace. Air travel can, however, save both time and money for longer routes. Flying

from Islamabad to Karachi is often cheaper, safer and less time consuming than

chugging along in a train or car. The threat of substitutes in the air travel industry

will vary for each customer segment depending upon time, money, preference,

and convenience.

BBARGAININGARGAINING P POWEROWER OFOF S SUPPLIERSUPPLIERS

The price of jet fuel is directly related to the cost of oil. This price is determined

by international markets.and an individual company does not have the power to

influence it. The airline supply chain is dominated by Boeing, Airbus, Aircraft

Parts Suppliers and Reservation System Providers. There is cut throat

competition among suppliers and they are very likely to integrate vertically. Oil is

an integral input of the airline industry and has the power to directly influence air

fares. Hence, the oil suppliers have high bargaining power.

BBARGAININGARGAINING P POWEROWER OFOF B BUYERSUYERS

Buyers now have a number of options when choosing an airline. Due to

technology advancements, pricing information is less fragmented and easier to

compare. Travelers can easily compare prices and can find price variations for the

same flight4. One seat is hardly any better than the next, since the arrival time is

same for everyone. Vacationers will want the best deals, whereas business travels

are frequently more pressed to time and are less price sensitive. Despite intense

competition, air travel is not cheap and command substantial finances of a

vacation. Hence, for vacationers the demand is highly elastic (as the price drops

demand increases) and for business travelers it is less elastic or inelastic.

However, airlines may move their prices in tandem with competition and force

buyers to pay market price until a price war breaks out.

IINTENSITYNTENSITY OFOF R RIVALRYIVALRY

The Pakistani airline industry is fiercely competitive. Industry growth is

moderate, and carriers are struggling to increase their market share. There are

substantial exit barriers in the industry. Grounded planes do not earn any returns

and their disposal becomes difficult. Due to this high rivalry airlines generally

4 As is the case for Air Blue which uses Yield Management to offer substantially lower rates for advanced bookings.

15

earn low returns because competition drives down prices5. This can spell disaster

for the economy in tough times.

According to Managing Director of Shaheen Air International (SAI), Air Vice

Marshal (Retd) Syed Ataur Rahman; “The passenger load has dropped

substantially amidst the global recession which like elsewhere has also taken a

heavy toll on our economy. The sluggish economic and industrial activities and

drying of foreign investment have resulted in substantial reduction in foreign air

traffic into the country which has taken a heavy toll on the domestic airlines. In

addition, the airline industry has also been hurt by a drastic increase in jet fuel

prices which soared by 350 percent in last three years. This has put an enormous

pressure on the airlines, to remain profitable. According to global standards

aircraft, crew, maintenance, insurance and fuel make up 68 percent of an airline’s

operating costs. The massive increase in the international prices of jet fuel is

taken a far heavier toll on small airlines which don’t have the resources and

business base to cushion the blow.

The cut throat competition on the domestic sector is unethical as well as

uneconomical and yet we have accepted it as part of the game. It has helped us

push the seat occupancy ratio to 95 percent which is way over the globally

accepted breakeven standard of 65 percent. The primary beneficiaries of the price

war are the domestic travelers as the prices of domestic airfares have been

substantially reduced.” Mr. Rahman said the absence of level playing fields,

unethical competition and rising costs of operations are all taking a heavy toll on

the private sector airlines. He urged the government to allow private airlines duty

free import of aircraft at par with PIA instead of charging them 5 percent duty.

5 As was done by Air Blue.

16

AANSOFFNSOFF M MATRIXATRIX

Ansoff Matrix allows marketers to consider ways to grow the business via

existing and/or new products, in existing and/or new markets. There are four

possible product/market combinations:

• Market penetration (existing markets, existing products)

• Product development (existing markets, new products)

• Market development (new markets, existing products)

• Diversification (new markets, new products)

Keeping in view the airline industry of Pakistan, AirBlue is in the Market

Penetration Matrix. Market penetration occurs when a company adopts a low cost

strategy to induce customers to try its product or service. It is important to note

Market Penetration

Market

Development

Product

Development

Diversification

Products

Markets

Present New

Present

New

17

here that market penetration strategy begins with existing customers of the

organization. This strategy is used airlines to increase sales and market share

without drifting from the original product/market strategy. AirBlue penetrated the

Pakistan market employing a three pronged strategy; by attracting competitors’

customers, providing superior services, and targeting non-user segments. AirBlue

also tried to entice its current customers to use more of the company’s services by

offering various discounts and schemes such as student and old citizen discounts

and Blue Miles. AirBlue has used a rare but attractive combination of low-cost,

all-frills strategy which is rarely used in the airlines industry. It has managed to

successfully attract and retain customers by superior services at the same or lower

fares. This gives it a competitive advantage of having strong brand equity and has

helped it attract new and retain old customers.

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CCOMPETITORSOMPETITORS A ANALYSISNALYSIS

Analyzing an organization’s competitors helps it decide the strategies it will

follow in both the short and long term. By looking at competitors, a firm can

determine the industry trends and make decisions on crucial issues such as

discounts to be offered, quality of services provided, channel of distribution and

promotion strategy. A firm can improve its operations and is in a better position to

compete by taking into account all these aspects. The airline industry in Pakistan

currently has cut throat competition. Passengers, today, are time conscious since

time is the only rare commodity in today’s world. The offering of the airlines are

continuously changing with changing customer needs. The airlines are deploying

more efforts to meet customer requirements and provide superior quality of

services. Every organization faces competition and so does Air Blue. Its

competitors include PIA, Aero Asia and Shaheen Airways.

PPAKISTANAKISTAN I INTERNATIONALNTERNATIONAL A AIRLINESIRLINES ( ( PIAPIA ))

PIA is the flag carrier of Pakistan and the national airline operating passenger and

cargo services around the world. It is the oldest airline in Pakistan, (dating back to

the Indo-Pak subcontinent) and has the first mover’s advantage. Its main hubs

include Jinnah International Airport, Karachi, Allama Iqbal International Airport,

Lahore and Islamabad International Airport, Islamabad. Its current fleet size is 40

and it flies to 82 destinations. PIA has a rich history and made through various

ups and downs of the economy. It still claims --- percent market share and is the

largest airline in the country by all standards (i.e. fleet size, number of passengers

per month, income etc). In December 2003, PIA introduced a revamped its

corporate image from changing the outlook of its planes to its logo. The new

image was also applied to their first 777-200ER and another newly leased A310-

300. Under the new style, the tail was painted beige and a flowing Pakistan flag

placed on it, PIA acronym was enlarged and moved onto the fuselage. In early

19

2006, PIA unveiled four designs representing the four provinces of Pakistan to be

applied throughout their fleet, these will replace the present flag6.

AAEROERO A ASIASIA I INTERNATIONALNTERNATIONAL

Aero Asia is a private Pakistani airline based at Jinnah International Airport,

Karachi and Dubai International Airport, Dubai. Aero Asia was previously owned

and operated by the Tabani Group, which sold it to the UK based Regal Group,

following the temporary suspension of its flights in the summer of 2006. It was

the first low cost airline in Pakistan and operates to destinations in Pakistan and

the Gulf states. The fleet size is 10, and it has total of 11 destinations, 7 domestic

and 4 international. Aero Asia has already covers the Middle-East and has been

granted permission to fly to the United Kingdom and United States from

December 2005 by the CAA. However, because of its current restructuring,

international flights are expected to commence in 2007. It will start from

Manchester, London and Birmingham gradually including New York, Singapore,

Copenhagen, Oslo and Bahrain. The latest Boeing and Airbus aircraft are being

inducted in the fleet. Within Pakistan it currently provides services at Karachi,

Lahore, Islamabad, Peshawar, Multan, Faisalabad and Sukkur. Internationally, it

covers Abu Dhabi, Dubai, Doha, Manchester and Muscat7.

SSHAHEENHAHEEN A AIRIR

Shaheen Airways is the second national airline after PIA. It mainly covers

Karachi, Lahore and Islamabad and the Gulf. Its base is Jinnah International

Airport, Karachi, with a hub at Islamabad International Airport, Islamabad. Its

fleet size is 10 and destinations are 11 which are further divided into 5 domestic

and 6 international. This depicts that it is mainly focusing international customers.

It currently operates in Islamabad, Karachi, Lahore, Peshawar, Quetta, Abu

Dhabi, UAE, Doha, UK, Kuwait and Oman.

6 http://en.wikipedia.org/wiki/Pakistan_International_Airlines7 http://en.wikipedia.org/wiki/Aero_Asia_International

20

PPERCEPTUALERCEPTUAL M MAPPINGAPPING

Perceptual mapping is a technique used to determine positioning of brands

relative to their competitors. We have used this technique to analyze the

positioning strategies of Air Blue. For plotting the perceptual mapping we have

compared positioning of Air Blue with Shaheen Airlines, Aero Asia and PIA

using the following attributes.

Destinations

Punctuality

Quality of Food

Value for money

Economy

Services

Technological Advancements

Corporate Image

Attributes AirBlue PIA Shaheen Air AeroAsia

Destinations 5 7 5 5Punctuality 7 5 6 4

Quality of Food 7 6 4 3Hospitality/Customer

Service

5 6 5 6

Economical 6 5 6 7Technological

Advancements

7 5 5 5

Services 5 6 4 4

21

Corporate Image 3 7 4 6

22

PPERCEPTUALERCEPTUAL M MAPAP 1 1

Attributes AirBlue PIA Shaheen Air

AeroAsiaDestinations 5 7 5 5Punctuality 7 5 6 4

DDESTINATIONSESTINATIONS/C/COVERAGEOVERAGE

The first attribute is the number of destinations (locations) that the airline covers

domestically as well as internationally. PIA covers 24 cities within Pakistan and

has flights in all continents and major countries of the world. Air Blue

internationally flies to only Dubai and to seven cities within Pakistan. Shaheen

Airways touches six cities nationally and Dubai internationally. Aero Asia has a

total of 11 destinations out of which seven are domestic and 4 destinations are in

Dubai. We have ranked PIA, the highest as they cover the maximum destinations

whereas the other three airlines internationally fly only to Dubai and domestically

to a limited number of routes.

PPUNCTUALITYUNCTUALITY

Destinations

Punctuality

23

An important consideration for airline travelers is the punctuality of schedule. PIA

has an overall punctuality of 89 percent, which is the official figure. The

passengers of PIA, however, think that the actual percentage is lower. The flights

for PIA are usually delayed for considerable durations. Air Blue flights are on

time and their punctuality is more than 90 percent, much higher than PIA.

Shaheen Airways claims to be very punctual and scheduled whereas a few years

back, Aero Asia had some issues regarding consistent the delays of their flight. So

we have ranked Air Blue the highest, followed by Shaheen, PIA and Aero Asia

respectively.

24

PPERCEPTUALERCEPTUAL M MAPAP 2 2

Attributes

AirBlue

PIA Shaheen Air

AeroAsiaQuality of Food 7 6 4 3

Hospitality/Customer

Service

5 6 5 6

FFOODOOD Q QUALITYUALITY

Air Blue serves an exquisite cuisine, a choice of local and Chinese, consisting of

“Sweet and Sour Chicken with Vegetable Rice,” accompanied by a “Cucumber

and Tomato Salad with a wedge of Lemon,” a traditional Pakistani dessert made

with milk and vermicelli called “Sawai” followed by tea. The best part of the

meal is that it is served in china utensils (the main dish, the tea cup, desert and

salad bowls are all made of china). One of the Air Blue passengers rated the food

9 out of ten and commented, “The taste was amazing. The juicy tender pieces of

meat along with rice mixed together blended in the mouth in such a way that it

Food Quality

Hospitality/Customer Service

25

surely made you say “yum8.” Since Aero Asia is a low cost, no frill airline, its

food quality is inferior to competitors. In most domestic flights, passengers are

served half a glass of cold drink and a packet of chips. The food quality of PIA is

also good; the typical menu includes “Biryani,” liked by both the local and

foreign passengers. The breakfast and snacks have a lower ranking, which is on

average 4 out of 10 whereas the lunch and dinner have a ranking of around 7.5

out of 10.9

HHOSPITALITYOSPITALITY/C/CUSTOMERUSTOMER SSERVICEERVICE

Hospitality here means the way passengers are treated by the airline staff.

Friendliness of the crew is important in keeping customers satisfied. Hospitality

will entail all passenger encounters right from the airport until check-out,

including; treatment of staff at the counter, crew in the flight, the in flight services

which include the entertainment and food services, the baggage handling and the

comfortable seats. As far as the hospitability and friendliness of the staff is

concerned, Aero Asia is the best which is followed by PIA and Shaheen airways.

As one of the passenger commented about Air Blue, “Check in unusual, with the

female check-in agent managing to process me without a greeting, a smile or a

thank you.” Another customer mentioned that “the female staff were young but

looked too casual and unprofessional, not right for the type of image the airline

wants to portray”. The PIA airhostesses and staff is considered to be friendlier

than the staff of Air Blue and the way PIA now handles its passengers at

important international routes is great.

8 http://www.airlinemeals.net/meals/AirBlue.html9 http://www.airlinemeals.net/indexMeals.html

26

PPERCEPTUALERCEPTUAL M MAPAP 3 3

Attributes

AirBlue

PIA Shaheen Air

AeroAsiaEconomical 6 5 5 7Technological

Advancements

7 6 6 6

EECONOMYCONOMY

In order to attract the price conscious consumers, airlines offer different packages

for target markets. Aero Asia is the lowest cost airline in Pakistan; it does not

provide any frills. Air Blue again is a low cost airline, but it offers all frills. Air

Blue offers special discounts if the seats are booked online. They also have

students discount and old aged citizen discounts. Air Blue fares are a bit closer to

Aero Asia but PIA fares are higher than all competitors on domestic routes.

SSERVICESERVICES

Economical

Technological Advancements

27

The unique services being offered by PIA include; its cargo; Speedex and other

baggage services. PIA also offers the best in-flight entertainment; a wide variety

of movies, over a dozen audio channels, duty free shopping, games (arcade style

games, playing cards, crosswords and strategy games) maps and tourist

information. Aero Asia offers an international cargo and courier service in

affiliation with top notch airlines including Emirates and Qatar Airlines. Venus

Aviation, a sister traveling agency of Aero Asia, operates one of the largest tours

in Pakistan and organizes local and foreign packages for tourists. Aero Asia does

not offer entertainment services except for magazines, newspapers and games for

kids. The unique services offered by Air Blue include its e-ticketing and self

check-in systems along with new, spacious aircrafts and better in flight services.

Air Blue offers 2 channels; one audio which plays the recitation of Holy Quran

and the other is video. After privatization, the Shaheen Air Cargo Division was

set up under Shaheen Airways.

28

PPERCEPTUALERCEPTUAL M MAPAP 4 4

Attributes

AirBlue

PIA Shaheen Air

AeroAsiaServices 5 6 4 4Athletic Image 3 7 4 6

TTECHNOLOGICALECHNOLOGICAL A ADVANCEMENTSDVANCEMENTS

Air Blue was the first airline in Pakistan to introduce e-ticketing bringing about

a revolutionary way of buying tickets. It is also a member of Sabre system that is

used by over a hundred airlines to help it with ticket automation services. Air

Blue is the first airline in Pakistan that has made use of IT as a strategic tool for

disintermediation of the middle agent and reaching out directly to customers.

PIA, Aero Asia and Shaheen Airways followed its foot steps and introduced e-

ticketing. Leading the way with innovative new technology, Air Blue became the

first airline in South Asia and only the second in the region after Emirates to

introduce the latest self-check-in facilities at the Karachi airport. It was also the

first private airline of Pakistan to operate the airbus A320.

Services

Athletic

29

CCORPORATEORPORATE I IMAGEMAGE

For the purpose of positioning Air Blue and its competitors, corporate image

means if the brand advertises a corporate image. PIA, the national carrier of

Pakistan was a favorite of corporates before the introduction of AirBlue. PIA

regularly sponsors sports such as a first-class cricket team that plays in the ABN

AMRO Patron’s Trophy in Pakistan. PIA is also sponsoring the A1 Team Pakistan

for the A1 Grand Prix, recently being introduced in over 25 nations around the

world. The sport is very similar to the Formula One races and is held during the

Northern Hemisphere winter off-season of the FIA Formula 1 Grand Prix series.

Aero Asia sponsors cricket matches aired on TV. The cricket grounds are usually

branded with Aero Asia logo. Air Blue and Shaheen Airways, however, are not as

active in sponsoring sports events.

AIOD FAIOD FRAMEWORKRAMEWORK

30

Need/Benefit Activities Interests Opinions DemographicsTime Saving

The Hustlers and

Overloaded

Businessmen,

Entrepreneurs,

Corporate

individuals,

Celebrities,

Working

professionals,

Families

Current

Affairs, Social

Events,

Finance News,

Personal

Achievements,

Traveling

Active

Ambitious

Strong Views

about politics

and Social

Issues, Hard

Work, Self

Satisfaction

Age: 28-45

Heavy Users

Married, Full

Nest

Upper Middle

Class-Upper

Class

Better Services

The Frill Seekers

Students,

Working

professionals,

Business men

Families

Restaurants,

gyms, parties

and other

social events,

Recreation,

Personal

Achievements

Want ‘value’

for the money

spent,

Perfectionist,

Gregarious,

Vigorous,

Politics,

Business

Age: 25+

Married/Single

Medium to

Heavy Users

Full Nest I,II

and III

Upper Class

Economical/Special

Deals and packages

The Economizers

Families,

Studies,

Working

people,

Travelers

Socializing,

Mingling with

people,

Picnics,

Movies,

Vacations,

Movies,

Music

Hard Work,

Energetic,

Planned and

rational

purchasing

patterns,

Rational

Approach

towards life

Age: 23-40, 55-

60

Married/Single,

Medium to

Heavy Usage

Full Nest I&II

Middle-middle

class – Upper

middle classBlue Miles-frequent

flyer program

The Habitual/Regular

Fliers- The

Frecuente10fliers

Business men,

Established

professionals,

entrepreneurs,

corporate

Gadgets,

Sports, Gym,

Clubs,

traveling,

Shopping,

Active,

Perfectionists,

Energetic,

Rational

Approach

Age: 35+

Married

Heavy Usage

Full Nest

Upper middle-

10 “Frecuente” is a Spanish word meaning Frequent

31

individuals,

Tourists

Real Estate towards life,

Politics

Upper Class

Luxury

The Well-to-do

Businessmen

Politicians

Entrepreneurs

Diplomats

Celebrities

Clubs

Swimming,

Health

Swimming

Shopping

Cultural

events

Political

Views

Authoritative,

Open views

on different

matters,

branded

products,

Age: 35+

Married/Single

Medium –

Heavy Usage

Upper Class

Convenience

The Content-able

Studies,

Traveling

Business and

job chores,

Families,

Top level

managers

Gadgets,

sports, music,

parks, picnics,

vacations,

Home

Appliances,

Traveling

Planned

Puchasing,

Making life

comfortable

for others and

themselves,

Social Issues,

Relationships,

Self

interested,

Time

conscious

Age: 30 and

above

Married/Single

Medium to

Heavy Usage

Upper middle-

Middle Class

1.1. TTIMEIME S SAVINGAVING

DDEFINITIONEFINITION

The first benefit of traveling with Air Blue is of saving time. Air travel is the

fastest means of transportation for domestic as well as international travel.

Air Blue flights are also punctual and fly right on time. The direct flights from

Dubai to Northern Areas have made traveling easier for the locals rather

than taking connecting flights. The e-ticketing service has made it possible to

32

reserve seats online, again saving time taken to go to the travel agent and

reserving seats through them.

TTHEHE H HUSTLERSUSTLERS ANDAND O OVERLOADEDVERLOADED

Customers from this category belong to the upper class and are business men,

entrepreneurs, corporates, high level managers, media celebrities, politicians.

These people are always on the move and perform multiple roles and tasks.

They are very frequent travelers. These people are above 28 years of age, may

belong to both genders, are married and have kids. They are ambitious, have

strong views about themselves, politics, and social issues, believe in hard

work and are energetic. This category also includes expatriates who want to

visit their loved ones back home. They want to use direct flights in an effort to

maximally utilize their vacation.

2.2. BBETTERETTER S SERVICESERVICES

DDEFINITIONEFINITION

The in-flight and other customer services offered by AirBlue are far more

better than PIA and other competitors. They offer the services of e-ticketing,

self check in counters, more entertainment on flight, better variety and quality

of food and the exquisite cuisine give a value experience to the passengers.

TTHEHE F FRILLRILL S SEEKERSEEKERS

These people are outgoing, assertive, gregarious and high achievers. They

like to go to restaurants, gyms, and attend parties and other social events.

Their thoughts and opinions are formed about family, friends, fashion, future,

ideals, politics and business. They belong to the age brackets of 25 and

above, can be married or single, highly professional, belong to the upper

class. They are perfectionists and purists and like to socialize, go to clubs,

like sports, health and gym, shopping and cultural events.

3.3. EECONOMICALCONOMICAL/S/SPECIALPECIAL D DEALSEALS ANDAND P PACKAGESACKAGES

DDEFINITIONEFINITION

Air Blue offers different packages for different target markets. These

packages are more economical than other airlines. Air Blue also offers special

discounts for students and old age citizens. By booking the ticket online, the

33

customer gets a Rs. 300 concession, which is another considerable factor for

the price conscious consumer.

TTHEHE E ECONOMIZERSCONOMIZERS

This group of people consists of consumers who usually belong to the middle

class (middle or upper middle class) or even the upper class people who

frequently travel by air. They like to socialize and enjoy spending time with

their families. This group consists of colleges or university students studying

away from home who visit their parents often. It also includes the vacationing

families who once in a year or very seldom travel by air for their holidays.

Since the families usually consist of 4 or more individuals, so the most

economical package is considered. It may also consist of people from the

older age brackets as they have special discounts. These people are interested

in picnics, movies, recreation and vacations. They have a planned purchasing

pattern, think rationally, want value for the money spent and believe in hard

work.

4.4. BBLUELUE M MILESILES- F- FREQUENTREQUENT F FLYERLYER P PROGRAMROGRAM

DDEFINITIONEFINITION

The Air Blue Frequent Flyer program helps passengers earn BlueMiles with

every flight they make. If the passenger can earn enough miles, she can

qualify for express check in, lounge access and free tickets.

TTHEHE H HABITUALABITUAL/R/REGULAREGULAR F FLIERSLIERS- T- THEHE F FRECUENTERECUENTE 1111 FLIERFLIER

This group of customers consists of people who very frequently travel by air

for business or recreational purposes and may considered to be loyalists. This

group consists of business men, corporate managers, entrepreneurs,

established workers, self made people and tourists. They are interested in

vacations, clubs, socializing, shopping, gym, golf, exercise and adventures.

They are active, consume branded products, and are energetic, perfectionists,

passionate and are fashion conscious. They are above the age of 35, married,

heavy users and belong to the upper class.

5.5. LLUXURYUXURY

11 “Frecuente” is a Spanish word meaning Frequent

34

DDEFINITIONEFINITION

Air Blue gives a luxury experience to its passengers. The in flight

entertainment, exquisite cuisine, leather upholstered seats, caring treatment

by the crew and lounges make the experience a luxury experience for the

passenger.

TTHEHE W WELLELL--TOTO--DODO

This segment of people includes the rich and successful businessmen,

youngsters and the young-at-heart who like to show off and make an

impression. These consumers are from the upper class of the society, are

mature and established. They have strong political views, they are

authoritative, have open views on varied topics, believe in using branded

products and high achievers.

6.6. CCONVENIENCEONVENIENCE

DDEFINITIONEFINITION

Air Blue provides convenience by its routes such as direct flights from Dubai

to Northern Areas, where passengers do not have to take connecting flights.

E-ticketing has made it convenient for customers to compare different options

available and reserve seats. The self check in systems allows the passengers

to get boarding passes without counters so that they do not have to wait in the

queue.

TTHEHE C CONTENTONTENT--ABLEABLE

This group consists of people from middle to upper class, usually the busy

people who do not have much time such as business men, CEOs, Presidents

and top level managers. Anyone traveling by air would want to utilize these

services. These people are interested in gadgets, sports, music, parks, picnics

and vacations. They believe in relationships, planned and rational

purchasing, like to make life comfortable for themselves and other and social

issues. They are above 30 years of age and can be married or single.

35

PPRODUCTRODUCT L LIFEIFE C CYCLEYCLE

The figure above shows the phases that a new product/service goes through from

inception to decline; (1) introduction, (2) growth, (3) maturity, and (4) decline.

Because of rapid changes in consumer lifestyles and technological changes, life

cycles of products and services are becoming shorter. It, however, remains a

useful concept for strategic planning. Each stage of the product life cycle has

certain marketing requirements.

IINTRODUCTIONNTRODUCTION - The introductory phase of the life cycle requires high promotional

expenditures and visibility. The most productive time to advertise a service is

when it is new. Operations in this period are characterized by high cost, relatively

low sales volume, and an advertising program aimed at stimulating primary

demand. Most companies in the market fail in this stage.

GGROWTHROWTH - In the growth period, the service is being accepted by consumers.

Market acceptance means that both sales and profits rise at a rapid rate,

frequently making the market attractive to competitors. Promotional expenditures

36

remain high, but emphasis is on selective buying by trade name rather than on

primary motive i.e. to try the product. During the growth stage, the number of

outlets providing the service usually increases. More competitors enter the

marketplace; economies of scale are realized and prices experience a decline.

Launched in 2004, AirBlue has passed the introductory stage is in the early

growth stage of the life cycle. Customers have now endorsed it and are even

starting to prefer it to its competitors. It is also evident from the fact that AirBlue

has massive expansion plans for future both for its network and its fleet. AirBlue

has ordered ten brand new Airbus long haul and short haul aircrafts to facilitate

international expansion to the UK and strengthen domestic routes. The $ 790

million order includes eight Airbus A320 aircrafts for the Gulf and domestic

routes and two Airbus A330 aircrafts for the European routes with deliveries

commencing in 200812. Airblue has plans to start services to many cities

including; Nawabshah, Sukkur and Turbat. Its international expansion plans

include flights to Jordan, the UK, the US, and Saudi Arabia.

MMATURITYATURITY – A mature service is well established in the marketplace. Sales may

still be increasing but at a much slower rate; they are leveling off. At this stage of

the life cycle, many outlets are selling the service, and are very competitive,

especially with respect to price, and firms are trying to determine ways to hold on

to their market share.

DDECLINEECLINE - Many services remain in the maturity and saturation stage for years. However, for most, obsolescence sets in, and new products are introduced to replace old ones. In the decline stage, demand obviously drops, advertising expenditures are lower, and there are usually a smaller number of competitors. While it is possible for a product to do very well in this stage of the life cycle, there is not a great deal of comfort in getting a larger share of a declining market.

12 http://en.wikipedia.org/wiki/Airblue

37

PPORTERORTER’’SS G GENERICENERIC S STRATEGIESTRATEGIES

Cost Leadership

Cost Focus

Differentiation

Differentiation Focus

Competitive Advantage

Competitive

Scope

Low Cost Higher Cost

Broad

Narrow

38

Generic strategies were first presented in two books by Professor Michael Porter

of the Harvard Business School (Porter, 1980, 1985). Porter (1980, 1985)

suggested that some of the most basic choices faced by companies are essentially

the scope of the markets they would serve and how they would compete in the

selected markets. Competitive strategies focus on ways in which a company can

achieve the most advantageous position that it possibly can in its industry

(Pearson, 1999). A firm’s relative position within its industry determines whether

its profitability is above or below the industry average. The profit of a company is

essentially the difference between its revenues and costs. The fundamental basis

of above average profitability in the long run is sustainable competitive

advantage. There are two basic types of competitive advantage a firm can

possess: low cost or differentiation. The two basic types of competitive advantage

combined with the scope of activities for which a firm seeks to achieve them, lead

to three generic strategies for achieving above average performance in an

industry: cost leadership, differentiation, and focus. The focus strategy has two

variants, cost focus and differentiation focus13. We will briefly overviews these

generic strategies because

1. C1. COSTOST L LEADERSHIPEADERSHIP

In cost leadership, a firm sets out to become the lowest cost producer in its

industry. The sources of cost advantage are varied and depend on the industry

structure. They may include the pursuit of economies of scale, proprietary

technology, preferential access to raw materials and other factors. A low cost

producer must find and exploit all sources of cost advantage. If a firm can achieve

and sustain overall cost leadership, then it will be an above average performer in

its industry, provided it can command prices at or near the industry average.

2. D2. DIFFERENTIATIONIFFERENTIATION

In a differentiation strategy, a firm seeks to be unique in its industry along some

dimensions that are widely valued by buyers. It selects one or more attributes that

13 www.ifm.eng.cam.ac.uk/dstools/paradigm/genstrat.html

39

many buyers in an industry perceive as important, and uniquely positions itself to

meet those needs. It is rewarded for its uniqueness with a premium price.

3. F3. FOCUSOCUS

The generic strategy of focus rests on the choice of a narrow competitive scope

within an industry or a niche. The focuser selects a segment or group of segments

in the industry and tailors its strategy to serving them to the exclusion of others.

The focus strategy has two variants.

(a) In cost focus a firm seeks a cost advantage in its target segment, while in (b)

differentiation focus a firm seeks differentiation in its target segment. Both

variants of the focus strategy rest on differences between a focuser’s target

segment and other segments in the industry. The target segments must either have

buyers with unusual needs or else the production and delivery system that best

serves the target segment must differ from that of other industry segments. Cost

focus exploits differences in cost behavior in some segments, while

differentiation focus exploits the special needs of buyers in certain segments.

AAIRIRBBLUELUE’’SS G GENERICENERIC S STRATEGYTRATEGY –D –DIFFERENTIATIONIFFERENTIATION

AirBlue has employed a strategy that is unusual for the airline industry i.e.

differentiation. This means that AirBlue is an all-frills provider and has carved a

special place in the consumers’ minds. This has been a successful penetration

strategy but it remains to be seen if the company will be able to sustain in the

longer run and also especially since it is planning to enter the international

market. AirBlue’s operational efficiency, a major factor in contributing to its low

cost also has to be maintained. AirBlue’s business model has been based of the

business model of Southwest Airlines that emphasizes superior quality of service

at all customer encounters to ensure a memorable experience. Only time will

ascertain the success of this model in Pakistani companies. A point to be noted

here is that despite having lower cost packages (such as yield management,

children and old citizen discounts), AirBlue is not the lowest cost provider in

Pakistan. As Mr. Abbasi pointed out at the launch of AirBlue; “Though Airblue

would have a flexible fare structure, the fares in general would not be cheap. We

are focused on service, which we believe matters in the airline business.” AirBlue

40

is expected to perform superbly in the market which is evident from the comment

made by Prime Minister Shaukat Aziz, at its launch; “Airblue can earn a lot of

profit through promoting tourism in the country.” He also praised the company

for its plans to make an initial public offering (IPO) soon.

AAIRIRBBLUELUE

PPOSITIONINGOSITIONING S STATEMENTTATEMENT

“A cordial and reliable escort, AirBlue provides world class

services through state-of-the-art technology at very low cost.”

PPERSONALITYERSONALITY S STATEMENTTATEMENT

“An ambitious man of 28, AirBlue is a CEO by profession. He has

a track record of setting high objectives and meeting or exceeding

them with hard work and determination. He is exceptionally

punctual and has a professional image. He has friends in all walks

of life and is always on the outlook for making new ones. He is

very caring and can do anything to see his loved ones happy. He

does not hesitate in buying cheaper products that provide value.

He is mesmerized by technology and likes to keep up with

changing trends. He owns various high technology products such

as a PDA, a laptop, an iPod and a digital camera.”

PIA PIA

PPOSITIONINGOSITIONING S STATEMENTTATEMENT

41

“Like a responsible ally, PIA provides convenience, dependability

and a sense of closeness to home, anywhere in the world.”

PPERSONALITYERSONALITY S STATEMENTTATEMENT

“Dressed in green and white, PIA is a professional woman of 35 who

works from home. Juggling work and family at the same time, she has

managed to create an intricate balance between the two. She has a history

of being tardy, because of her multiple responsibilities. She is a bit moody

and is known for her temper tantrums. Despite these flaws, she is a Proud

Pakistani and represents Pakistan everywhere in the world. She adores

Pakistani food and does not like other cuisine.”

AAEROERO A ASIASIA

PPOSITIONINGOSITIONING S STATEMENTTATEMENT

“Aero Asia provides an interesting blend of average quality services at the

lowest possible cost. It has recently revitalized its personality and now

gives a younger and energetic look.”

PPERSONALITYERSONALITY S STATEMENTTATEMENT

“Aero Asia, a charming girl of 25, is price sensitive. Her philosophy is

‘saving for the rainy day.’ She is simple and straightforward and doesn’t

like to indulge in luxuries. She is on a strict diet and only eats healthy

snacks through out the day. She recently acquired a new wardrobe giving

her a younger and energetic feel. ”

42

MMASLOWASLOW’’SS H HIERARCHYIERARCHY OFOF N NEEDSEEDS

Consumer purchases products and services to satisfy various needs. According to

Maslow’s hierarchy of needs, presented by Abraham Maslow, air travel satisfies

needs of the fifth order, which is self actualization needs. Travel, always is an

enriching experience, let it be vacationing families or business executives on an

official tour. A person can obviously afford to travel by air only if he has already

fulfilled his basic physiological and safety needs. This is because air travel is a

high involvement service requiring an extensive decision making approach due to

high fares.

43

TTHEHE C CUSTOMERUSTOMER B BUYINGUYING P PROCESSROCESS

There are multiple decision parameters which the consumer keeps in mind while

purchasing the tickets. Out of these parameters, price is the foremost for a non-

frequent flyer. People who frequently travel through air usually belong to the

business class who travel for business and official purposes. These people care

more about the total travel time and the date/time of departure and arrival because

they are always on the move, and they have a much busy schedule to meet with.

They do bother about the prices also, but they prefer comfort and convenience

over fares.

On the other hand, people who very seldom travel by air, mostly for vacations,

weddings and to meet their relatives in other cities/countries, are usually price-

conscious and go for the most economical deals. These people prefer low price or

discounted fares over travel time and convenience.

1.1. PPROBLEMROBLEM R RECOGNITIONECOGNITION

Self Actualization

Ego Needs

Social Needs

Safety Needs

Physiological Needs

Maslow’s Hierarchy of Needs of

44

In the first stage of the buying process, consumers will identify the need which is

this case of a travel mode. Air travel is considered a luxury and is affordable for

the elite and upper middle tiers of the society. This situation has, however, been

altered with the introduction of low-cost airlines such as Aero Asia and Air Blue

in the Pakistani market. This situation has altered the industry scenario and has

included the middle class in the airlines’ target market.

The need for air travel can be categorized into two categories i.e., for business

and for pleasure. Officials from both the government and private sectors have to

travel both within the country and overseas to attend workshops, seminars,

meetings and other events. For pleasure, people travel individually as well as in

families both for vacations, and tours, to meet relatives, attend weddings and even

for educational purposes.

2.2. IINFORMATIONNFORMATION S SEARCHEARCH – S – SEEKINGEEKING V VALUEALUE

Air travel is a high involvement service and that is why a typical consumer goes

through a complex purchasing process. In this phase, the customer will obtain

schedules and fares for different airlines. The customers will use both the

company sources including the airline websites and official sales center for

getting this information. The customers will then contact a traveling agent and

will inquire about the available options. The customer will also obtain

information from personal sources such as family and friends. This will include

word of mouth of one’s relatives and colleagues who have first hand experience

with the airline. As it is said, one satisfied customer produces 9 more customers,

and one dissatisfied customer looses 100 potential customers. Like any other

service industry, word of mouth plays a pivotal role in the airline industry. After

internal and external information search the consumers will have a clearly defined

set of criteria on the basis of which he will make the purchase decision.

3.3. EEVALUATIONVALUATION OFOF A ALTERNATIVESLTERNATIVES

In light of the criteria, the customer has set during the information gathering

phase, she will establish a set of alternatives which are up to the mark. In this

phase, every step is analyzed in terms of the value a customer will obtain from the

airline service and the price of the service. Value is perceived in terms of product

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promotion, place, people, physical evidence, and processes, whereas money is

considered in terms of price. The image of the service, its availability,

functionality, customer care, user-friendly booking system and attractive

environment all contribute to customer satisfaction from a service experience.

The customer by now has collected the schedules, routes, fares and travel time

offered by different airlines. She will now compare the fares and services offered

by each airline. Information search clarifies the problem for the consumer by:

a. Suggesting criteria to use for the purchase such as Fares, Travel Time,

Services, Connecting Cities and Rewards

b. Yielding brand names that might meet the criteria AirBlue, PIA, Aero

Asia, Shaheen Air etc.

c. Developing consumer value perception i.e. how consumers perceive each

brand and how it rates on each criteria decided by the consumers.

A consumer’s evaluative criteria represent both:

a. Objective attributes of a brand (such as Quality of Services, Safety,

Punctuality, Fares etc)

b. Subjective factors (such as Prestige, Brand Image, Status etc.)

These criteria establish a consumer’s evoked set viz. a group of brands that

the consumer would consider acceptable from all brands in a product class of

which she is aware.

4.4. PPURCHASEURCHASE D DECISIONECISION

The customer’s buying decision is influenced by the range, style, and

presentation of the service. In this stage, the customer undertakes the cost

benefit analysis of the product. People from the upper class might not be price

conscious and will go choose the airline that provides the maximum luxury

and comfort. They will choose airlines such as PIA or AirBlue and might not

even consider Aero Asia or Shaheen Air. On the other hand, a price conscious

consumer might settle with the basic services and choose Aero Asia or

Shaheen Air. AirBlue is currently targeting the price conscious consumers

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who want to get the maximum value and quality services for the price they

pay. Purchase decision is also effected by the perceived risks associated with

the airline service. These risks may include the quality of services which the

customer is expecting from the airline.

5.5. PPOSTOST P PURCHASEURCHASE B BEHAVIOREHAVIOR

Post purchase behavior of the consumer is very important since she spreads

the good or bad word about the airline to other potential customers. A good

word from consumers will promote the airline and will ensure greater loyalty

and recognition. For this reason, the airlines need to ensure that they produce

satisfied customers.

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AAIRIRBBLUELUE’’SS P PRICINGRICING S STRATEGYTRATEGY

A well chosen price should do three things:

1.1. AACHIEVECHIEVE F FINANCIALINANCIAL G GOALSOALS O OFF T THEHE F FIRMIRM ( (II..EE. . PROFITABILITYPROFITABILITY) )

AirBlue achieved operational profit in the first two months of its operations. This

shows that the differentiation strategy proved to be a great success for AirBlue.

AirBlue started operations in May 2004, when the jet fuel price in Pakistan was

around Rs .16 per liter, which almost doubled to Rs. 29 a liter within three

months, much beyond their cushion provision for such an exigency. AirBlue,

through its operations efficiency, managed to sustain the drastic increase in jet

fuel price, which was over 30 perceny of the entire operational cost. It not only

gained a substantial market share within a short span of time but also had a

profitable load factor of over 90 percent, due to the fact that it was the only 100

percent e-ticketing start-up airline in the world. So despite the fact that AirBlue

offered premium quality at premium prices, it has been able to meet the first

objective i.e. profitability.

Economy

Skimming

Penetration

Premium

LOW

HIGH

Price

Quality

Pricing Strategies

HIGHLOW

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2.2. FFITIT THETHE REALITIESREALITIES OFOF THETHE MARKETPLACEMARKETPLACE ( (WILLWILL CUSTOMERSCUSTOMERS BUYBUY ATAT THATTHAT PRICEPRICE?) ?)

The prices set by AirBlue targeted the elite class including the business travelers

and vacationers. Its differentiated and quality services generated loyal and

satisfied customers. The prices by AirBlue have been set keeping in view the

competitive environment and customer buying patterns. The tickets by Air Blue

are affordable and economical.

3. SSUPPORTUPPORT PPOSITIONINGOSITIONING ANDAND BEBE CONSISTENTCONSISTENT WITHWITH THETHE OTHEROTHER VARIABLESVARIABLES ININ THETHE

MMARKETINGARKETING M MIXIX

As AirBlue aimed to position itself as a high end service provider, it offered

premium prices to the customers. This fit well with the image the company was

trying to portray viz. high quality services at a premium price. This is evident

from AirBlue’s consistent success despite its high prices. This shows that the

target market of AirBlue is the upper and middle class of the society that can

afford luxuries.

From the marketers’ point of view, an efficient price is a price that is very close to

the maximum that customers are prepared to pay. In economic terms, it is a price

that shifts most of the consumer surplus to the producer. The effective price is the

price the company receives after accounting for discounts, promotions, and other

incentives.

For this marketers use the following strategies.

PPREMIUMREMIUM P PRICINGRICING

Premium pricing also called prestige pricing, is the strategy of pricing at, or near,

the high end of the possible price range. People will buy a premium priced

product because they believe the high price is an indication of good quality. They

believe it to be a sign of self worth – “They are worth it.” It authenticates their

success and status and acts as a signal of people’s’ status and success. They

require flawless performance in this application, the cost of product malfunction

is too high to buy anything but the best. In the airline industry, PIA and AirBlue

are offering a premium price as compared to their competitors. AirBlue is a ‘full

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frill’ service despite its image as the contrary and superior quality of their services

is what differentiates them from competitors.

PPENETRATIONENETRATION

Penetration pricing is the pricing technique of setting a relatively low initial entry

price, a price that is often lower than the eventual market price. The expectation is

that the initial low price will secure market acceptance by breaking down existing

brand loyalties. Penetration pricing is most commonly associated with a

marketing objective of increasing market share or sales volume, rather than short

term profit maximization.

AirBlue initially offered a penetration price. The ticket fares were relatively low,

whereas the quality of services was high when the company entered the market.

The prices were then increased as the company established a brand image.

SSKIMMINGKIMMING

Price skimming is a pricing strategy in which the marketer sets a relatively high

price for a product or service at first, and then lowers the price over time. It is a

temporal version of price discrimination/yield management. Until a few years

back, PIA was offering skimmed prices where the quality of services was not

equivalent to the price being charged for the tickets. Most of the customers did

not receive a value for the money they paid. Now, however, PIA has improved the

quality of the services and are offering a premium price.

EECONOMYCONOMY

Economy pricing is a pricing strategy in which a marketer follows low cost

strategy. An airline is said to have set economical prices when they charge low, or

almost lowest in the industry, for tickets and offer low quality services. In

Pakistani airline industry, Aero Asia is following the low cost strategy where the

ticket prices are the lowest and the quality of services is also meager.

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