Research Paper on "Airline Industry Flying Full Service vs. Low Fair Discount"

Research Paper 8 pages (2128 words) Sources: 6

[EXCERPT] . . . .

Airline Industry: Flying Full-Service on Continental Airlines vs. Low-Fair Discount Flying on Southwest Airlines

Today, people have a wide range of transportation alternatives available to them, including personal conveyances, buses, trains and airplanes. Within these different modes of transportation, a further array of choices are available, such as a luxury automobile vs. A compact car, and first-class accommodations on trains compared to coach. With respect to air travel, passengers also have these types of choices, as well as whether to fly on a full-service airlines or a discount fare carrier. To determine what types of passengers are targeted by marketers at a full-service airline, this paper provides a review of the relevant literature concerning flying on Continental Airlines, a full-service airline as opposed to a low-fare discount carrier such as Southwest Airlines. The paper concludes with a summary and implementation section.

Review and Discussion

1.

Company Overview

Continental Airlines (hereinafter alternatively "Continental" or "the company") is currently operating as an independent airline, but is in the process of merging with United Airlines, a process that is expected to be completed in about a year or so pending regulatory approval. According to the company's corporate Web site, the merger "brings together two of the world's best airlines to create the new United Airlines. Continental and United are working to align key customer services, marketing activities and airport processes, and we expect to complete our merger integration within 12 to 18 months" (About us, 2011, para. 2). The company maintains headquarters in Chicago and was established in 1934 (About us, 2011). The company is a global air carrier with hubs in Chicago, Cleveland, Denver, Guan, Houston, Los Angeles, New York, San Francisco, Tokyo and Washington, D.C., completing almost 6,000 flights every day to more than 370 destinations around the world (About us, 2011). In addition, Continental (and its imminent merger partner, United) is a member of the Star Alliance that offers passengers extensive connecting flights to other international destinations (About us, 2011). The company has almost 87,000 employees as shown in Table 1 below.

Table 1

Continental employee breakdown

Category

No.

Airport Operations and Cargo

25,057

Food Services (Chelsea)

2,043

Continental Micronesia

1,224

Customer Contact Centers

3,475

Flight Operations

9,784

Inflight

21,024

International

3,616

Management / Admin

11,963

Technical Operations

8,601

TOTAL

86,787

Source: About us, 2001

2.

Executive Summary of Marketing Plan

The marketing plan for Continental is focused on promoting Continental's full-service alternative using a mobile-based marketing plan. The campaign will be modeled on a previous successful initiative targeted at Hispanic customers that allowed users to use wireless access points to participate in a travel voucher giveaway. The research shows that this marketing initiative was far more effective than the company's mainstream media advertising.

3.

Description of the Target Market

The general target market for Continental, of course, is the entire flying public as well as mail services by offering relatively competitive pricing, but the company has primarily focused on differentiating itself as a full-service carrier that provides travelers with far more than they can expect to receive on budget carriers. For instance, in its promotional material concerning the pending merger with United, Continental emphasizes that, "The new United will offer customers an enhanced travel experience, combining the best products and services each carrier has to offer. The airline will be focused on being the airline customers want to fly, the airline employees want to work for and the airline shareholders want to invest in" (the world's leading airline, 2011, para. 3). Some of the key attributes that will accrue to the merger that will serve to differentiate Continental's full service from low-cost providers include the following:

A. World's most comprehensive global route network, including world-class international gateways to Asia, Europe, Latin America, Africa and the Middle East with non-stop or one-stop service from virtually anywhere in the United States;

B. Most modern and fuel-efficient fleet (when adjusted for cabin size), and the best new aircraft order book, among U.S. network carriers;

C. Industry-leading frequent flyer program that will provide more opportunities to earn and redeem miles worldwide; and,

D. Optimal hub locations in 10 cities, including hubs in the four largest cities in the United States (the world's leading airline, 2011).

In addition, Continental will continue to provide its preferred customers with perquisites such as it "Member Lounges" and United's "Red Carpet Club" where guests receive free WiFi service, as well as free snacks and alcoholic and non-alcoholic beverages. Moreover, the company is revamping its frequent flyer program to combine both airlines' offerings as a further draw (the world's leading airline, 2011). Finally, the company enthuses that, "Elite customers will have reciprocal seating and upgrade benefits in October 2010" (the world's leading airline, 2011, para. 5). Additional key facts and statistics about Continental's operations and air carrier partners are provided at Appendix a.

4.

Description of Competitors

With respect to other full-service airlines, Continental is in competition with American Airlines, Delta Airlines and U.S. Airways. The company's stock performance form January 2006 to date vs. these full-service competitors is shown in Figure 1 below.

Figure 1. Stock performance of Continental vs. American Airlines, Delta Airlines and U.S. Airways

Note:

UAL

Continental Airlines

AMR

American Airlines

DAL

Delta Airlines

LCC

US Airways

Source: Yahoo! Finance, 2011 at http://finance.yahoo.com/q/bc?s=UAL+Basic+Chart

As can be readily discerned from Figure 1 above, the company is outperforming its competitors, but the race is close. Of course, Continental is also in direct competition with low-cost carriers, making the provision of the aforementioned full-service perquisites an essential element in its marketing program. In this regard Flouris and Walker (2005) emphasize that Southwest Airlines in particular, but JetBlue and AirTran have eroded Continental's market share in recent years. According to these authorities, both JetBlue and AirTran use the low-cost business model (Flouris & Walker, 2005). Despite this stiff competition, the company's latest Form 10-Q SEC filing (October 2010) emphasizes that operating revenues improved in 2010-year over year to 2009 as a result of increased demand for business travel and premium service as the global economic situation improved.

5.

Description of Product or Service

The company competes in the air transportation of persons, property, and mail (Form 10-Q, 2010) and it appears to be doing a good job of it. For instance, representative comments from loyal passengers posting on Travel Discussion Forum (http://www.travelexpertguide.org/forum / Air-Travel/Is-Continental-Airlines-really-the-best-airline-to-travel-on-349141.htm) include the following:

A. Continental still gives you food. The other airlines don't. When I fly out of Newark, they're quite good. Their services to Europe and South America are good.

B. Continental has the best customer service of any major U.S. airline, in my opinion, and is one of the best in the world. I fly almost 100 times a year and I love Continental.

C. it's great if you're traveling to other countries. Its very convenient and they serve very good meals, and have a good entertainment selection.

D. At airlines, it's not only the traveling that counts but other things which a handful offer.

E. I'm guessing the other airlines don't want to waste money on advertising in competition with Continental, because it would be just that, a waste.

F. I've traveled on American Airlines, Southwest Airlines, Northwest Airlines, Delta Airlines, Frontier Airlines, and Continental Airlines...and out of all of those, Continental was the best to me because they actually gave us food, as the other airlines just gave us peanuts or pretzels for a 3-hour flight. And the stewardesses on Continental were the nicest. And Delta and Southwest were the worst. And the American Airline planes I've been on were always old and pretty much looked like they were falling apart.

6.

Marketing Budget

The company's marketing budget includes television and radio advertising (typically 30-second spot ads) as well as an extensive Web presence (Continental advertising, 2011). A more cost-effective alternative, though, has been realized through the use of mobile advertising campaigns in recent years, an approach that has been especially effective with both male and female middle-aged Hispanic customers. For example, Butcher (2009) reports that, "Continental Airlines mobile ads were five-to-ten times more effective than online at generating responses from Hispanics, a demographic that tends to be heavy users of wireless devices" (para. 2). The campaign, "Volver por un rato" ["Back for a while"] involved promotion of Continental services by having consumers enter the contest by texting a keyword or clicking on a wireless access point (WAP) link within a short message service notice from Univision and other providers (Butcher, 2009).

The contest offered a free trip for two to any destination in the world by uploading an original video captured with mobile phones or other mobile devices, as well as cash prizes for second and third place winners (Butcher, 2009). The contest's name relates to the focus of the campaign: "The campaign was originally designed to get people to upload videos via their mobile phones or online. We wanted consumers to tell us what they miss most about going back home, what makes them nostalgic -- do they miss… READ MORE

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