Low-Cost Airlines’ Challenges and Overcoming Strategies

Subject: Marketing
Pages: 3
Words: 619
Reading time:
2 min

Low-cost airlines such as Southwest Airlines in the US, Easyjet and Ryanair in the UK and Air Asia in the East face numerous challenges caused by a market structure and increased competition. The main challenges are increased (and unstable) fuel prices which lead to changing pricing strategies, terrorist attacks and competition from other companies. Open sky policies limit market operations of low-cost carriers and demand new solutions to deliver high-quality services. Such forecasts cannot be very precise, but they can be realistic. If a marketing plan is expected to result in the new venture’s products/services being distributed in only 60 per cent of the outlets serving the target market, then only 60 per cent of the “more realistic market potential” is likely to be available to the new venture.

Further, if during the screening and evaluation of the new venture idea, only 40 per cent of the members of the target market “liked the idea” In this regard, as was briefly mentioned, financial and marketing concepts and guidelines, which are second nature to business administration graduates, such as demand, break-even, market potential, inventory management, overhead costs, expense ratios, and the like must be translated into simple, meaningful, really understandable ideas, rules of thumb, and working procedures. They must be presented in such ways that they can be grasped easily and implemented immediately.

For instance, simple rules of thumb, such as keeping on hand inventories that are no larger than last week’s sales; limiting credit to a specified amount per customer and total per week; or explaining the idea of break-even and the increased profitability of added sales when a certain amount of costs are covered, have proven invaluable. Other topics dealt with during training sessions included such “how-to” aspects as to how to price a product, how to expand a market, how to market products and services, how to train employees, how to control inventories, how to control expenses, and so on.

Knowledge and enactment of appropriate roles are important for entrepreneurial success as well as understanding consumer behaviour in marketing. Roles act as social scripts that dictate how one should act within a given situation or market context. In assuming the role of entrepreneur, people must be able to exhibit behaviours that are associated with this role. The more the entrepreneur fulfils role expectations, the more likely the individual will be to succeed in that venture.

An environmental change demands that low-cost carriers cut costs and improve their service. It is combined with the presence of profound knowledge, entrepreneurial behaviour, and strategic thinking that opportunities become identified. If the new venture idea is based on a “new-to-the-world” product or service, then by definition, it is unlikely that the entrepreneur will be experienced with the marketplace or how to market the product/service involved. After the entrepreneur has measured the target market, evaluated the competition, and developed a marketing plan, they should attempt to integrate these three components in such a way as to arrive at a realistic sales or market-share forecast for the new venture.

The concept is to start with the size of the entire target market and to realistically reduce that market size to reflect the number and effectiveness of competitors. The “more realistic market potential” arrived at should further be modified to reflect the effectiveness of the marketing plan. With a near-perfect marketing plan, it may be possible for the new venture to achieve 80 to 90 per cent of the “more realistic market potential.” With a weak marketing plan, the new venture might achieve no more than 10 per cent of the market potential.