Case Study on "Low Cost / Full Service Airlines"

Case Study 7 pages (2506 words) Sources: 25

[EXCERPT] . . . .

Low Cost / Full Service Airlines in Thailand

Over the last ten years, globalization has had a tremendous impact upon Asia. Where, the continent is experiencing: unprecedented growth, it has 3.8 billion people living in the region and many of the different cities are within close proximity to one another. (Delfman 2005, pg. 145) These factors are important because they highlight the need, for effective low cost airlines throughout the region. When you combine this with the effects of globalization, meant that the total number of low cost carriers (LCC's) would skyrocket. This is because the LCC's would have a business model, designed to provide travelers with dramatically lower fares, in comparison with the full service carriers (FSC's). As a result, the competition between these different organizations would intensify, as the full service airlines would dramatically cut their fares, in an effort to remain competitive. This has created a battle for the loyalty and perceptions among the traveling public. To see the overall impact of what is occurring requires: examining customer perceptions about both types of carriers. At which point, research will be conducted, with an examination looking at: perceptions, major factors affecting buying decisions and recommending possible theories as to why this is occurring. Together, these different elements will provide the greatest insights, as to possible reason why customers are selecting one type of airline over the other.

Statement of the Problem

Since the 1990's the demand for international air travel in Asia has been growing at twice the rate of North America. (Organization for Economic Cooperation and Development 2005, pg. 148) This is in response to deregulation from many governments throughout the region, as they would reduce regulations in flying new routes and would begin spinning off, some of the large national carriers such as: Cathy Pacific. At the same time, various air transportation agreements were signed by a variety of countries throughout the region. This would lead to a shift within the industry, as a new deregulated pricing model would emerge. At which point, many LLC's began to play a dominant role in the industry. Where, they would offer less frills with one low price to include: one single passenger class, one type of airplane, an innovative fare scheme, unreserved seating, short flights and they fly to less congested airports. (Organization for Economic Cooperation and Development 2005, pg. 148) These different elements are important because they would highlight a major shift in the industry, as consumer wanted less frills and cheaper fares. The research that will be conducted will examine: if changes in customer perceptions are occurring, to what extent and what factors are affecting the buying decisions of consumers.

Purpose of the Study

The purpose of the study is to see the total impact that the LLC's are having on the FSC's and what they are doing to adapt to the changes. Once this takes place, is when you will begin to see the major factors that are causing a change in consumer tastes. This information would be useful, in helping to determine the future of the industry and possible long-term growth rates.

Review of Literature

Tamasy, C, 2008, 'The Origin of Low Cost Air Transport,' Globalizing Worlds and New Economic Configurations, Austin Publishing, Burlington, pp. 224 -- 229.

In this piece of literature, the author discusses the impact that low cost airlines are having upon the travel industry in Asia. Where, it talks about the effects that Air Asia is having upon the industry, as the FSC's are forced to compete with their lower prices. The effects of this are: more alliances between select FSC's / LCC's, it introduces air travel to a large segment of the population, it has create jobs and helps to increase revenues for local governments (through taxes / fees that are paid). As a result, the overall business model has allowed many LCC's to flourish, when other FSC's are struggling. A good example of this can be seen with the SARS outbreak in 2003, where many FSC's would see a decline in bookings, while the LCC's saw an increase in bookings. This is significant, because this information can be used to show some of the major factors that affecting buying decisions.

Cheng, Y, 2004, 'Analyzing the Strategies of LCC's and FSC's,' Aerlines [online] 36, 1 -- 6. available from [29 July 2010].

In this article, the author discusses the impact that Thai Air Asia is having upon the industry. Where, many of the full service carriers will offer more services for free to consumers. However, when you look at the pay for service programs offered by the LCC's, they can be just as competitive as the FSC's. A good example of this would be with Thai Air Asia's door to door service program at Don Muang Airport in Thailand. This is significant, because it shows how the LCC's are offering a competitive product for their high end customers. When you combine this with the lower fares that they are offering with these unique programs, this helps Thai Air Asia be able to distinguish itself, based on price and high quality service. In many ways, one could argue that this is a major factor that is contributing, to more consumers using LCC's over FSC's.

Air Asia (2009) Academic [online] available from: . [ 28 July 2010].

This source discusses Thai Air Asia's accent, with the airline beginning as a subsidiary of Air Asia, through their overall strategy of providing low cost airfare to a variety of destinations. This meant, that the airline would use a combination of providing unique services and having a variety of low cost airlines, serving a number of destinations. A few of the most notable services would include: web check in and express boarding (for a fee). Several of the different LCC's that are owned by Air Asia include: Indonesia Air Asia, Air Asia X and Fly Asian Express. This information is significant, because it highlights how the wide variety of LCC's and special services for a fees, are helping to make them increasingly popular with consumers. As a result, this source can be used to corroborate other sources, highlighting several of the major reasons why consumers are choosing LCC's.

SWOT Analysis for Air Asia (2008) Kulothunkan [online] available from: . [28 July 2010].

This source conducts a SWOT analysis of Air Asia. This is when they are examining the underlying strengths, weaknesses, opportunities and threats. The various strengths that were indentified would include: a strong management team, strategy formulation, brand name, low costs and the use of information technology. The different weaknesses would include: it does not have its own maintenance facilities and there are lots of customer complaints. The various opportunities would include: fuel hedging, the open skies agreement, partnering with other LCC's and a growing middle class in Asia. The different threats would include: no control over certain fees (such as airport fees) and FSC's partnering / creating their own airline. This is significant, because it shows the overall strengths and weaknesses of Air Asia. At which point, the information can be used, to understand some of the different reasons why they would choose one airline over the other.

Thai Receives Awards ( 2007) Thai Airways [online] available from: [28 July 2010].

This source discusses how Thai Airways received an award for the Best World Airline from the customers of Smart Travel Asia. Where, the airline is known for providing exceptional service to its customers, with the company focused on providing services that will address the specific needs of their customers and creating strategic partnerships, to increase flight capacity. This is significant, because this information can be used to show how Thai Airways is attempting, to reach out to consumers by offering more services and alliances that will offer the ability to fly on a variety of carriers. In many ways, one could argue how this strategy would be useful in reaching out to the newly emerging Asian middle class (which would highlight several reasons why consumers would prefer this airline over LCC's).

Airline Review (2009) Knowledge Man [online] available from [28 July 2010].

This source discusses the experience of flying on Thai Airways from Melbourne to Bangkok. Where, the fare was lower in comparison with the other carriers, with it costing $1,350.00 versus the $3,500.00. At the airport, the staff was very courteous and helpful, which made check in much faster. During the flight, they offered a number of different amenities including: an in flight meal and movies. The arrival time was within, the time listed on the itinerary, even through the plane left later due to congestion at Melbourne. This is significant, because it shows how Thai Airways is offering low prices and a variety of services. As a result, this information is useful, because it shows how the airline is affecting the perceptions among Thai citizens. Where, they are offering more than the LCC's at a competitive price.

Air Asia Flight Cancelations (2009) Asia Air Reviews [online]… READ MORE

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