The Low Budget Airline Jetstar Asia Airways Tourism Essay

Jetstar Asia Airways is a low-cost budget airline operating in the Southeast Asian region. It is founded by its mother company – Australia’s Qantas Airways in 2003. Unlike Jetstar in Australia, Jetstar Asia is majority Singapore in which a Singapore investment company, Temasek Holdings Limited holds 19 per cent of shares, two Singaporean businessmen possess 32 percent, and the remaining 49 per cent of shares belongs to Qantas Group. The company is known as an airline to offer low fares, all day and every day to South East Asia customers. It has received several valuable awards, such as “Best Brand Experience for Low Cost Carrier” (2006), “Best Low Cost Airline, Southeast Asia and Asia” (2006, 2008), “Top 10 Airlines by Passenger Carriage” (2006, 2007), “Best Asian Low-Cost Carrier” (2006, 2007). The first Jetstar Asia Airways’ flight took off for Hong Kong on December 13, 2004. Jetstar Asia and Valuair Airways Limited were merged on July 22, 2005 (Jetstar, nd).

With a fleet of seven A320 aircrafts, Jetstar Asia now offers up to 126 weekly flights from Singapore to 17 destinations in ten Asian countries. It is planning to increase capacity by more three A320 aircrafts by early next year and add destinations in India and China.

This marketing study aims to provide the Jetstar Asia Airways’ current marketing environment. It will analyse SWOT as well as PESTEL to make clearly internal and external marketing environment. The report also discuss about the current market plan of Jetstar Asia Airways. From the audit process, recommendations will come out for improving Jetstar Asia Airways’ marketing performance in existing competitive aviation environment.

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II. Background

Today, global aviation industry has been divided into three major categories (Lelieur, 2003). The first category consists of large network carriers, such as United Airlines, American Airlines, and Delta in the United States; Air France, British Airway, Lufthansa in Europe. The second one is the middle size carriers such as KLM and SAS in Europe. The final category is the low cost carriers, such as Jet Blue, Westjet in North America; Virgin Blue and Australian Airlines in Australia; Ryanair, EasyJet, and Air Berlin in Europe; Air Asia, Oasis Hong Kong Airline, Jetsatr Asia Airway, and Tiger Airway in Asia Pacific.

According to Weiss (2008, p.84), “Low-cost carriers, also known as a no frills or discount airlines, offers low fares in exchange for eliminating many traditional passengers services. These airlines have a lower cost structures than competitors. They often operate a single passenger class and fleet, reducing training and servicing costs”.

In recent years, the low-cost carriers (LLCs) phenomenon has become more popular in aviation industry. The low cost airline business has experienced surprising growth in term of passengers carried and aircraft ordered. LLCs are likely to keep their price down thoroughly online booking as well as providing the minimum level of onboard services. They can be seen as a new big success in the world airline industry. According to OAG’s Quarterly Airline Traffic Statistics (2007), low cost international flights have increased 20% year by year. Asia Pacific witnessed a dramatic growth in low cost sector, with an increase from 3,900 flights and 600,000 seats in 2001 to 61,000 flights and 9.2 million seats in 2007 (Abacus, 2008). The Asia Pacific low cost market now has accounted for 12% of all flights and all seats. Many Asian countries such as Singapore, Malaysia, India has opened up LCCs to attractive a large number of passengers. As an affirmation about Jetstar Airways’ prospect, Geoff Dixon, CEO of Qantas Airways Ltd said: “We’re very confident about the timing of the launch of this airline. I don’t know where other airlines will end up but I can assure you Jetstar Asia will be around in four years’ time and will be profitable, so Temasek and our other investors can be confident.” (2004).

Jetstar Asia has announced its revenue increases 20% for the year ended 31 March 2008 (Jetstar, nd). These proves that low fares has become attract more travellers. The expectation of Jetstar Asia Airways about “the world’s largest potential aviation market” is coming true.

2.2 PEST analysis

PEST analysis is a common tool for analysing an organisation’s macro-environment to identify those factors that might increase the potential for crisis. (Elliott, Swartz and Herbane, 2002). These include political, economic, social and technological factors and the analysis examines the impact of each of them on the business.

2.2.1 Political factors

On the August 09, 1965, Singapore left Malaysia Federation and became sovereign, democratic and independent nation. In 1967, Singapore, Indonesia, Malaysia, the Philippines and Thailand established the Association of Southeast Asian Nations (Asnic, nd). From 1970 Singapore is considered as a political stability nation. It has become the prosperous nation with a widespread network of trading links. So far, Singapore political stability has leaded to a high rate of economic growth. As one of Asia’ most stable economics, many Singapore companies have developed well. Singapore economic has been developing services industries such as wealth management and tourism, aviation industry. Singaporean airline industry plays a key role in Singaporean economy. It now includes mainstream Singapore Airlines and two low cost airlines – Tiger Airways and Jetstar Asia Airways. However, September 11th terrorist attack event in United States caused significant falling in travelling. Besides, the political instability in South East Asia region, such as Thailand, Indonesia, and Malaysia influenced negatively on aviation industry in Asia areas.

2.2.2 Economic factors

“The economic environment consists of factors that affect consumer purchasing power and spending patterns”.(Kotler and Armstrong, 2009, p103). These following analyses will show how economic factors have an effect on aviation industry.

In recent years, global economic crisis has pushed the trade-service dependent countries into worst recession. The world travel market has also been affected in this crisis. According to International Air Transport Association, due to economic recession, the global passenger traffic will decrease by 3% in 2009 and not growing above 4% until 2011 (IATA, 2008). Another major factor effects strongly on airline market, especially budget airlines, that is the increase in fuel price. From 2004, the oil price surge was a result of three main factors: increased demand, a small global excess of production capability, and the fear of supply disruption. The fuel cost increase caused of 36% rising of airline operating costs in 2008. The deadly combination of falling demand and high oil prices made a plunge of aviation industry’s profitability, approximately losses of US$10.4 billion in 2008. At the same year, Asia Pacific airline industry incurred losses US$ 300 million (IATA, 2009).

2.2.3 Social factors

Trends in social factors are significant component of the PEST analysis for airline industry. Firstly, some factors such as advanced medical provisions and low ratio at birth have allowed people to live longer. The average age of the population has been increasing steadily. Thus, the products that airlines offer concerning to older and disabled passengers who need help at airports. Besides, traditional family structure has been changing in today modern society. The increase of divorce rate as well as number of one-parent family has become contemporary trend that travel industry has to do to accommodate. They can be promotional and product planning policies, which offer to those who are singles or one-parent family. Furthermore, the changes in the job market have impacts for airline marketing policies. Due to work pressures, executives often have to make a day-return trip instead of two days. This has become more important for short-haul markets.

2.2.4 Technology factors

As an advanced technology, Internet now plays an important role in airlines industry. All airlines have websites that allow customers to book air ticket online. In making reservation, customers can also select their seat. Utilization of internet in aviation industry brings benefits for both airlines and passengers based on cost saving. The application of Simplifying the Business (StB) project in almost airlines brings not only convenience to consumers but also lower costs to airlines industry. The project includes electronic-ticketing, Common-Use Self-Service kiosks, and bar-coded boarding passes (BCBP). BCBP can be accessed through websites, kiosk, and a check-in desk. It will eliminate magnetic-stripe boarding passes in near future.

With PEST analysis as above, marketing environment of Jetstar Asia Airways has just evaluated to consider how the company operates in the today changing environment.

III. External analysis

1. Micro-environment (app 1,200 words)

– Description of the market

– Competitors analysis

– Market size, location, growth and opportunities

– Government participation in the marketplace

2. Macro-environment

2.1 SWOT analysis

“A SWOT analysis is an in-depth examination of key factors that are internal (strengths and weaknesses) and external (opportunities and threats) to a business” (Pinson, 2008, p.33). “Strengths are internal capabilities that may help a company reach its objects. Weaknesses are internal limitations that may interfere with a company’s ability to achieve its objects. Opportunities are external factors that the company may be able to exploit to its advantages. Threats are current external factors that may challenge the company’s performance.” (Kotler and Armstrong, 2009, p.78).

SWOT analysis helps a business to concentrate on those areas that present the greatest opportunities and those competencies in which it is strongest. That business look into ways to diminish its weaknesses, develop strategies to defeat threats. The following analysis focuses on Jetstar Asia’s SWOT.

SWOT ANALYSIS OF JETSTAR ASIA AIRWAYS

Internal

Strengths

Weaknesses

– Flexible ticket price structure

– Growth in market share

– One type of aircraft

– Performance

– Narrow flight destinations.

– Limited fleet.

External

Opportunities

Threats

– Strengthen competitive capability.

– Increase in short-haul travelling.

– Growth in Singapore tourism

– Increase of fuel price

– Unpredictable disaster factors

– Swine flu spread

– Customers’ belief.

2.1.1 Strengths

– Flexible ticket price structure: Jetstar Asia Airways has applied flexible ticket price structure that allows customers can choose any kind of ticket, depending on customers’ demand. Customers can purchase which ticket with or without luggage. By this application, Jetstar Asia Airways desires to meet customers’ diversified demands.

– Growth in market share: The Company is going to launch its first service into China on December 16, 2009 (BusinessWeek, 2009). After that, it will offer new destination in India. Moreover, with 3 additional A320 aircrafts, it will expand its current capacity by 46 per cent by launching twice daily services on the Singapore-Phuket route.

– One type of aircraft: Thanks to exploiting one type of aircraft – Airbus A320- Jetstar Asia Airways can save cost of fuel consumption, cost of maintaining other aircrafts and reduce cost of staff training, leading to lower operation cost. As a result, Jetstar Asia Airways can make up competitive advantage to lure more customers by offering low ticket price.

– Performance: One of the most important factors affecting customers’ choice in airline industry is on-time performance. Understand this; Jetstar has used the computerised Aircraft Communication Addressing and Reporting System (ACARS) to assure the accuracy of departure time and arrival time. In 2008 and 2009, Jetstar’s on-time performance always achieved from 92% to 98% (Jetstar, nd).

2.1.2 Weaknesses

– Narrow flight destinations: So far, Jetstar Asia Airways has just exploited its aeronautic routes to 17 destinations across 10 countries in Asia Pacific (Jetstar, nd). Meanwhile, Tiger Airways has operating with 27 destinations, and Asia Airways has 50 destinations. This can be seen weaknesses of Jetstar Asia in aviation competition to attain customers.

– Limited fleet: Due to the limited fleet of seven A320 aircrafts, Jetstar Asia Airways has some difficulties in expanding its market share to new destinations.

2.1.3 Opportunities

Jetstar Asia Airways has focused on not only individual passengers but also business travellers. It has set up several kinds of privilege services for business travellers to increase number of passengers year by year. From only 50 firms in 2004, now Jetstar has 400 corporations travelling with it (Baoying, 2009). More and more businesses, even multinational companies, are likely to choose low cost airlines to save their business cost that create potential low cost market for Jetstar Asia Airways and other airlines. Besides, trend of short-haul travelling is increasing in number of Asian tourists; instead of long-haul holidays because it enables Asian people travel more regularly in year. Focusing on these subjects, Jetstar Asia will catch more opportunities to expand its market share. In addition to this, in Singapore, two integrated resorts – the Marina Bay Sands and Resorts World Sentosa – will be opened in 2010. At that time, number of traveller visits Singapore will increase dramatically. There will be about 15 million visitors coming to Singapore (integratedresort, nd). Such general trends as mentioned above will bring prospect for Singapore airline industry, including budget airlines and mainstream airlines.

2.1.4 Threats

The increase in fuel price over the past few years has bad affected on sustainable growth of Jetstar Asia Airways and aviation industry. This can be seen an implicit threats to profitability of airlines. Furthermore, the spread swine flu in many regions has affected significantly on airline travelling due to the dramatic decrease of travellers. Unpredictable accidents that come from bad weather or technical problems are also threats to airlines. Passengers may hesitate in choosing between budget airlines and mainstream airlines because of the safety in budget airlines. This threat may negative impact on sales of Jetstar Asia.

Recommendation

Nowadays, Asian airlines industry is getting more fiercely competitive between budget airlines and traditional full services airlines. Moreover, competition among the emergence of Asian budget airlines, such as Air Asia, Tiger Airways and Jetstar Asia has also become intensely. In order to improve the company’s marketing performance, we suggest some recommendations based on SWOT analysis above and results collected from an interview with people who are concerning about airlines market.

Firstly, we suggest Jetstar Asia should design a customer driven marketing strategy to identify its target market. Its market segmentation includes customers those who usually travel on short haul trips and cannot afford average international tickets. Then the company should build profitable customer relationships based on subjects: travellers for leisure, businessmen and students. Understanding who its customers are, the company will build customer relationship to satisfy their demands.

In addition to this, the results from interviewing reflect the company’s convenience and services are not too high, just over 50% of respondents think that it is fair. In order to capture value from customers and own customer loyalty, in its marketing strategies, the company needs to build the right relationship with right customers and create customer delight. The company should strengthen customers’ belief that lower price does not mean bad services. Besides, Jetstar Asia should develop effective advertising strategy to consolidate their brand name through mass media.

Furthermore, limited fleet and flight destinations caused restriction in expansion marketplace as well as attracting target customers. Thus, we recommend the company to apply competitive strategies. The company should carry out not only protect its current market shares but also increase it further.

Books

Weiss, J.W. (2008) Business Ethics: A Stakeholder and Issues Management Approach, Cengage Learning, New York.

Lelieur, I. (2003) Law and policy of substantial ownership and effective control of airlines – Prospects for change, Ashgate Publishing, Hampshire.

Pinson, L.J.(2008) Anatomy of a business plan: the step-by-step guide to building a business and securing your company’ future, Out of your mind…and into the marketplace, California.

Kotler, P and Amstrong, G (2009) Principles of Marketing, Pearson, New Jersey.

 Elliott, D., Swartz, E. and Herbane, B (2002) Business continuity management: a crisis management approach, Routledge, London

Websites

Abacus (2008) The Year of the Resourceful & Enterprising Rat, accessed September 06, 2009,

http://www.abacus.com.sg

BusinessWeek (2009) Jetstar Airways Pty Ltd, accessed September 06, 2009,

http://investing.businessweek.com/research/stocks/private/snapshot.asp?privcapId=10917341&goback=.cps_1247149767187_1

Baoying, Ng. (2009) Jetstar Asia expands fleet and routes to keep up with competition, accessed September 06, 2009,

http://www.channelnewsasia.com/stories/singaporebusinessnews/view/450077/1/.html

integratedresort (nd) Singapore Integrated Resorts, accessed September 06, 2009,

http://integratedresorts.com.sg/

jetstar (nd) News, accessed September 06, 2009,

http://www.jetstar.com/sg/en/about-us/news.aspx#SinApr16b

Asnic (nd) Singapore history, accessed September 06, 2009,

http://asnic.utexas.edu/asnic/countries/singapore/Singapore-History.html

IATA (2008) IATA Economic briefing-The impact of recession on air traffic volumes, accessed September 07, 2009,

http://www.iata.org/NR/rdonlyres/7E25AD13-E0AD-4166-ABD8-CFA192D51AB4/0/IATA_Economics_Briefing_Impact_of_Recession_Dec08.pdf

IATA (2009) Annual report 2009, accessed September 07, 2009,

http://www.iata.org/nr/rdonlyres/a33bc4b3-431b-4690-be6d-6788900c8ae3/0/iataannualreport2009.pdf

Primary Resource Interview

We have conducted market research by an interview with clients of Jetstar Asia and non-clients at Changi Airport to find answers then develop marketing strategy for Jetstar Asia.

We would be thankful if you could assist our group by completing our questionnaires, which will provide useful information to us.

Personal information

1. Sex: â-¡ Male â-¡ Female

2. Age range: â-¡18-25 â-¡ 26-30 â-¡ 31-40 â-¡ 41-50 â-¡ 51-60

3. Occupation: _______________

A. Questionnaires

1. Which airline with do you usually fly?

â-¡ Mainstream airlines â-¡ Budget airlines â-¡ Never

2. Which budget airline with do you usually fly?

â-¡ Jetstar Asia â-¡ Tiger Airways â-¡ Air Asia â-¡ Others ____________

3. What concerns you most when you think of choosing the budget airline?

â-¡ Money â-¡ Service â-¡ Convenience â-¡ Others ____________

4. Which source lead you know Jetstar Asia?

â-¡ Newspapers â-¡ Internet â-¡ Friends â-¡ Others ____________

5. What is the purpose of your trip? â-¡ Leisure â-¡ Business â-¡ Study â-¡ Others

6. How would you rate Jetstar Asia in terms of service?

â-¡ Poor â-¡ Fair â-¡ Good â-¡ Excellent

7. How would you rate Jetstar Asia in terms of convenience?

â-¡ Poor â-¡ Fair â-¡ Good â-¡ Excellent

8. What do you think about Jetstar Asia’s ticket price comparing to other budget airlines?

â-¡ High â-¡ Reasonable â-¡ Low

Thank you very much for taking the time to answer these questions.

B. Answers from surveying

Question 1:

For this question, the results show that passengers of budget airlines are lower than that of mainstream airlines, 27% compared to 69%. It means that budget aviation’s market share is small. 4% of the respondents have never been on plane.

Question 2:

Responding this question, outcomes point out that Jetstar Asia rank at third position behind Tiger Airways and Air Asia, with 23% whereas Tiger Airways and Air Asia are 31% and 42% respectively. 4% of the answers flew with other airlines. It should be recommended that Jetstar Asia need more effective marketing strategy to enhance the competitive capacity.

Question 3:

The result illustrate that the most customers’ concern when they choose budget airlines is saving money, with 69% of the respondents. Service criteria and convenient criteria rank the second and the third choice, with 16% and 13% respectively. 2% of the answers chose budget airlines primarily because accompanying with friends.

Question 4:

41% of the answers show that they knew Jetstar Asia through Internet. Newspapers, Friends and Others are ordered by 27%, 25% and 7% respectively.

Question 5:

For purpose of business, 31% of the respondents chose this result. 44% of the answers show that their trip for leisure. For studying purpose is 19%, other purpose is 6%, such as health care, visiting old friends. Therefore, Jetstar Asia should focus on target customers who are travellers in order to boost up its sales. Besides it should pay attention to potential customer segment, including businessmen and students.

Question 6:

In term of services, 53% of respondents explained that they considered Jetstar Asia’s services are reasonable and acceptable. In contrast, 8% of interviewees admitted poorness of service. Good criteria and excellent criteria are appraised by 25% and 14% respectively.

Question 7:

Similarly, 51% of interviewees illustrated that they evaluated convenience is fair. 23% of the answers think that convenience offered by Jetstar Asia is good whilst 15% of them considered it as excellent. Remaining 11% of respondents are not pleased with Jetstar Asia’ convenience as they think it is poor.

Question 8:

What do you think about ticket price of Jetstar Asia comparing to other budget airlines?

64% of them think that ticket price offered by Jetstar Asia is reasonable. 29% of them believe that is low. Only 7% of the answers claim its price is high.