Monday, April 13, 2009

FIREFLY - MARKETING ANALYSIS, DISCUSSION & RECOMMENDATIONS


Hi folks,
Below is the essay I wrote for my Marketing Management Individual Assignment. I submitted it on the 4th of January 2009, so whatever data and reference, as well as info would be based on info I got till end of 2008.

FIREFLY

MARKETING ANALYSIS, DISCUSSION & RECOMMENDATIONS

TABLE OF CONTENTS :
Executive Summary
1. Introduction
1.1. Aim of Report
1.2. Overview of Low Cost Carriers (LCC)
2. Market Analysis
3. Current Product Analysis
4. Competitive Situation
5. Marketing Strategy – A comparison
6. Pricing Comparison with Air Asia
6.1. Perceptual Mapping of Comfort and Pricing
7. Analysis of External Factors
7.1. Political
7.2. Economic Trend:
7.2.1. Overall Decline in Air Traffic
7.2.2. Fluctuation of Fuel Prices
7.3. Socio Cultural
7.4. Technological Considerations
7.5. Legal factors
8. SWOT Analysis
8.1. Strengths
8.2. Weakness
8.3. Opportunities
8.4. Threats
9. Porter’s 5 Forces Analysis
10. Recommendation

TABLES
Table 1: A Comparison between Firefly & AirAsia’s Marketing Strategy
Table 2: Porter’s 5 Forces Analysis


FIGURES
Figure 1 : Passengers Carried by AirAsia (2008 vs. 2007 for first 3 quarters).
Figure 2: Perception Mapping of Comfort verses Pricing for the Sector’s Low Cost Carriers
Figure 3: Traffic Update for Association of Asia Pacific Airlines (AAPA) Member Airlines
Figure 4: ASEAN Roadmap for Open Skies


Executive Summary
Firefly, a subsidiary of Malaysian Airline System (MAS) Berhad is going into its second year of operation. The commercial air passenger market is segmented into Full Service Carriers and Low Cost Carriers, with Firefly targeting the latter. Even with the overall drop in air travelers, low cost air travel is still growing in this region. Firefly has positioned itself as a Community Airline; offering reasonable low fares while ensuring passenger comfort and convenience.

On the external front, Firefly will continue to face stiff competition from AirAsia, the Low Cost Carrier market leader in this region. AirAsia has many strengths including a powerful brand presence, high efficiency and strong online services. Also, Firefly’s hub, the Subang Airport has poor public transport services, causing inconvenience to customers.

Besides facing external competition, Firefly will need to continue improving itself internally. The main areas identified are in marketing and sales of tickets especially through the internet, strengthening its brand awareness and also its on-time arrivals and departures.

It is recommended Firefly re-position itself to be a clear choice for customers, by further improving passenger comfort and making its pricing comparable to AirAsia. To realize this, combined with the expected operational cost savings with its fleet upgrade, it is recommended that Firefly make on-time flights a performance indicator for employees, consequently improving on-time flights, efficiency and customer satisfaction.

In addition Firefly should provide shuttle services to it’s hub in Subang Airport, providing convenience to passengers while generating ancillary income. Subsequently, it needs to improve its brand awareness to users, locking in customer loyalty. In short, this will fuel Firefly’s market share growth while maintaining profitability.

Finally, Firefly will need to be flexible and anticipate new regulations especially the ASEAN open-skies implementation for future growth opportunities.


1. Introduction
1.1. Aim of Report
This report will discuss and analyze the current positioning and product offered by Firefly. The key objectives are to identify the current market situation as well as analyze and evaluate the competition. Finally make recommendations to Firefly on sustaining and growing its market segment.
1.2. Overview of Low Cost Carriers (LCC)
There exists no specific definition for LCCs, with many airlines declaring themselves as LCCs, but employ different working models. Piga & Filippi (2002) state that an LCC is an airline that offers low fares but eliminates all unnecessary services.
Firefly, Malaysia’s community airline was launched in April 2007. It is operated under Firefly Sdn Bhd (Firefly) and is a wholly owned subsidiary of Malaysian Airline System (MAS) Berhad.
Segmenting the commercial passenger carrier market into two major segments; Full-Service Carrier (FSC) and LCC; Firefly is placed in the LCC segment based on their service and price offering.

2. Market Analysis
‘AAPA (Association of Asia Pacific Airlines) intra-Asia Pacific passenger numbers rose 5.9% to 93.7 million in 2007, with all sub-regions registering positive growth’ (AAPA 2008b, p. 1). This indicates air travel in the Asia Pacific rim is gaining acceptance with the exception from 2nd half of year 2008 onwards due to the economical crisis.
The budget travelers segment has been growing steadily, even in 2008 which saw an overall drop in air passengers. Specifically in Malaysia and South East Asian (SEA) countries, budget air travel continues to gain popularity with Air Asia registering more than 20% customer growth Year 2008 over Year 2007 till date (AirAsia 2008a)
With the current economic situation, more travelers will look for the best value for money in travel, which translates to a boom for LCC.



Figure 1 : Passengers Carried by AirAsia (2008 vs. 2007 for first 3 quarters).
Source: AirAsia (2008a)

3. Current Product Analysis
Realizing the potential of LCC, Firefly was launched by MAS in 2007 (Leong 2007). This enables MAS to target a new segment with a suitable product model without diluting its own World Class Carrier brand. Previous attempts by MAS to fly unprofitable domestic routes with its larger planes and existing model made substantial losses (Gottfredson, Vestring & Maceda 2008).
Firefly is gaining acceptance and achieving good load factors, currently around 70% (Yen 2008). It operates on a low cost and short haul model. Firefly has made Penang and Subang it's hub (Yen 2008) and from Quarter 4 of 2008 provides connectivity to nine destinations from both hubs (Firefly 2008).

4. Competitive Situation
Most established carriers including Singapore Airlines and MAS are positioned towards targeting the FSC market segment.
The direct competition for Firefly is AirAsia; the pioneer LCC in this region. AirAsia has the world’s lowest unit cost of $0.023 per Available Seat Kilometres (ASK) (O'Connell & Williams 2005). This enables AirAsia to offer competitive prices combined with its strong brand presence.
AirAsia is a direct competition for two routes from Penang and six routes from Kuala Lumpur (KL). Although Air Asia flies to the Low Cost Carrier Terminal in Kuala Lumpur International Airport (KLIA) whilst Firefly flies to Subang, the airports can be considered to be in proximity and a competition for point-to-point passengers.
For the remaining Firefly routes, no direct competition exists and Firefly stands to fully benefit.


5. Marketing Strategy – A comparison
Table 1: A Comparison between Firefly & AirAsia’s Marketing StrategySource: Air Asia (2008b) and Firefly (2008)
Table 1 shows the marketing strategy applied by both carriers. Both have positioned themselves as LCC. AirAsia focuses on low fares with no frills and Firefly maintains a Community Airline tagline.

AirAsia’s free-seating with Xpress Boarding option, imposes on itself a negative perception, by inconveniencing passengers. Firefly’s allocated seating is a plus for travelers especially groups, with no rushing and queuing for preferred seats. Strengthening the Community Airline tag is Firefly’s higher baggage limit and no baggage check-in fees but again looses out on ancillary income. AirAsia goes with the No-Frills, has hidden cost, and is a turn off for international transit travelers who usually travel heavy and expect a higher baggage limit.
In short, Firefly is positioning itself using a differentiation strategy in customer convenience compared to the competition.

6. Pricing Comparison with Air Asia
With the pricing scheme of both airlines being dynamic, it is not possible to directly compare their pricing. Both airlines charge additional admin fees and airport tax.


A comparison of taking a return flight from Penang to Medan reveals; Firefly’s Admin Fee amounts to RM20 while AirAsia RM22.50. However AirAsia’s GoInsure Insurance Premium is RM18 for a return flight verses Firefly’s RM34.
AirAsia leads the market by being the first airline to remove fuel-surcharge, followed later on by Firefly on 18 Dec 08.

6.1. Perceptual Mapping of Comfort and Pricing
Based on the Skytrax forum, passenger experience on Firefly is commendable except for one issue; flight delays (Skytrax 2008).


Figure 2: Perception Mapping of Comfort verses Pricing for the Sector’s Low Cost Carriers

The perception would be AirAsia offers better bargains over an averaged period but sacrifices passenger comfort. By pricing comparably with AirAsia and increasing comfort, Firefly will be a clear choice for passengers.

7. Analysis of External Factors
Being in the passenger airline carrier business, Firefly is strongly impacted both positively and negatively in changes from external factors. Understanding and making the best of these external factors will assist Firefly to position and target its product better in these trying times and come out stronger.


7.1. Political
Government stability and decisions in destinations plied by Firefly impacts business. The Malaysian government policy to support and develop the Low Cost Travel sector (Bernama 2006) augurs well for Firefly.
Being a subsidiary of MAS which is under government influence, Firefly faces similar challenges where some state governments try to pressure the LCC to fly to non-lucrative states which either impact profits or relations. Recently the Perak state government has urged Firefly to do so (Star 2008b).

7.2. Economic Trend:
7.2.1. Overall Decline in Air Traffic


Figure 3: Traffic Update for Association of Asia Pacific Airlines (AAPA) Member Airlines
Source: AAPA (2008a).

Figure 3 shows a significant decline in passengers by 9.8% for Nov 2008 compared to Nov 2007.

Mr. Herdman, AAPA Director-General commented the recent plunge in oil prices provides some relief, but market conditions are expected to remain extremely difficult moving into 2009, forcing airlines to adopt additional cost-saving measures, including capacity cutbacks and deferral of planned capital expenditures’ (AAPA 2008a).

7.2.2. Fluctuation of Fuel Prices
Fuel amounts to a significant percentage of the total operating cost and spikes can lead to significant losses. As world fuel prices fluctuate, costing for this variable is difficult. Many airlines including Firefly introduce fuel-surcharge on ticket prices when fuel prices rise. This method to a certain extent offloads the pressure of fuel fluctuations from airlines to end-users.

7.3. Socio Cultural
A growing budget conscious middle-class bodes well for Firefly's positioning.
More people plan their own tour trips, further enabling Firefly's Business to Customer (B2C) model.
The overall market in South East Asia is well spread and likely to frequent multiple destinations. Indeed with the Southeast Asian population becoming more educated, combined with easier and cheaper access within Asia, there should be a greater desire to travel to see the region either individually or with their families (Delfmann et al. 2005).

7.4. Technological Considerations
The standardization of Firefly’s fleet to the highly fuel efficient ATR72 airplanes not only leads to improvements in yield and revenue (Star 2008a), but also portrays a strong brand presence and an environmental friendly airline.
As Firefly’s service spreads across the Association of South-East Asian Nations (ASEAN) countries, specifically Malaysia, Thailand and Indonesia, the technology used to conduct sales requires some specialized approaches.
With the internet penetration of 59% in Malaysia, 10.5% in Indonesia and 12.6% in Thailand (Miniwatts Marketing 2008), the distribution strategy through online sales and marketing is expected to be the major contributor for Malaysia, where-as for Indonesia and Thailand, sales offices within reach-able distance is necessary.

7.5. Legal factors
The liberalization of KL-Singapore air route in December 2008 and expected liberalization of ASEAN capital routes in 2009 will offer opportunities to Firefly.

Figure 4: ASEAN Roadmap for Open Skies
Source : Sidhu (2008)

Sidhu (2008) expects LCCs to be the big beneficiaries mainly because the FSC have had more access to these routes previously. With the above events and existing no-visa requirements between most ASEAN countries (Association of South-East Asian Nations 2006), cross-border travel is set to further grow.
Analyzing this, Firefly’s option of the ATR-72 aircraft fleet was wise as it is well placed for short haul flights between ASEAN countries. Also not being a jet aircraft, the ATR72 can easily land in smaller airports (Maye 2008) which is common for tourist spots and islands like Langkawi.



8. SWOT Analysis


8.1. Strengths
Being a subsidiary of MAS, Firefly’s start-up cost and learning curve in the industry is significantly reduced.
Firefly has introduced an innovative product with new routes tapping into new markets. It has landing rights and is the sole carrier from Penang to world famous tourist destinations including Koh Samui & Langkawi.
Exclusive access to the Subang Airport enables it to fully capture travellers opting for this route. The Subang Airport is closer to main commercial and residential hotspots including KL and Petaling Jaya compared to KLIA.

8.2. Weakness
Undoubtedly Firefly is new in the business, especially online sales. Even it’s parent company MAS was late to introduce its online booking engine only in January 2004 (O'Connell & Williams 2005) . It lacks the experience in this field compared to Air Asia. Already in 2003, Air Asia was voted as the most popular website for online shopping in a survey conducted by AC Nielsen Consultancy (AirAsia 2003)
Subang Airport as a hub has its drawbacks though. Exclusive access to Subang eliminates possibilities of other airline passengers using Firefly in Subang for connectivity or during stopovers.
The other limiting factor of the Subang Airport is the lack of a systematic public transport to and fro the airport, compared to the KLIA which boast the ERL (Express Rail Link), shuttle buses to town and taxies. Subang Airport relies solely on taxis.

8.3. Opportunities
Connell (2006) comments that medical tourism has been a success in Asia especially and has prompted global interest. Penang itself has 13 private hospitals (APHM 2008) which Firefly can work with on promoting medical tourism
Firefly has many spokes out of Penang to popular destinations (Firefly 2008). With international airlines plying Penang Airport, Firefly can capture stopover passengers seeking to visit popular destinations.

8.4. Threats
AirAsia is the main threat to Firefly. The on-going price war between budget airlines is expected to continue cutting into profits.
With the overall drop in Asia Pacific air-traffic expected to continue (AAPA 2008a), FSCs will consider joining in the fight for the budget travellers segment directly or by launching a subsidiary LCC.
There also exists threats of substitute products namely the train services, bus services and car travel especially for routes on the Peninsular of Malaysia, for example the KL-Penang route. Aeroline, a Business Class like Bus Service charges RM55 for a KL-Penang trip, and takes approximately 5 hours (AEROLINE 2008) compared to 1 hour by flying (Firefly 2008).

9. Porter’s 5 Forces Analysis
Based on the analysis and discussion done, it can be concluded into Porters 5 Forces on the level of each of the forces.


Table 2: Porter’s 5 Forces Analysis

In short, the LCC business is viable provided Firefly continuously improves itself and is flexible in this challenging market.

10. Recommendation
Firefly needs to improve on on-time flights, and de-market this negative perception. On-time flights will not only improve Firefly’s branding and perception, it saves significant amount of money due to inefficiency and downtime, and reduces airport charges. It is recommended that achieving on-time flights be made an index in employee performance, and have a monthly incentive tied to this performance indicator. On-time flight information can then be displayed on Firefly’s website, indicating Firefly’s commitment to customer satisfaction.
Firefly should provide a shuttle bus service to and from the Subang Airport, leading to ancillary income and boosting its Community Airline image.
Consequently, with improvement in efficiency and passenger comfort, Firefly can realize the proposed re-positioning of its product per Figure 2, thus improve its market share while maintaining profitability.
Achieving the above, awareness campaigns need to be conducted, informing the mass that Firefly offers value travel, while maintaining comfort. Once a brand reputation of low fair airlines has become embedded into the minds of consumers, 65% of those passengers travelling on a LCC surveyed did not look at any other carrier when booking their travel (O'Connell & Williams 2005).
Firefly will need to actively study all routes and phase out non-lucrative ones. The analysis indicates that new lucrative destinations will be available in 2009. Firefly needs to wisely anticipate & penetrate these markets as soon the open skies in ASEAN are implemented.
Firefly has the opportunity tapping into medical tourism, working with tour operators and medical institutions to offer attractive packages.



REFERENCE
AAPA, AoAPA 2008a, 'AAPA November 2008 Traffic Results', AAPA Traffic Results, no. 2008:24, p. 2, viewed 28 December 2008, .
---- 2008b, Association of Asia Pacific Airlines 2008 Annual Report, Association of Asia Pacific Airlines (AAPA), viewed 29 December 2008, .
AEROLINE 2008, A Convenient Way to Fly, Aeroline, viewed 29 December 2008, .
AirAsia 2003, Awards & Recognition, AirAsia, viewed 29 December 2008, .
---- 2008a, Air Asia July - September 2008 Quarter Results.
---- 2008b, Company Profile, AirAsia, viewed 30 December 2008, .
APHM, AoPHoM 2008, List of Member Hospitals, APHM, viewed 29 December 2008, .
Association of South-East Asian Nations, A 2006, ASEAN Framework Agreement on Visa Exemption, ASEAN, 25 July 2006.
Bernama 2006, 'PM Launches Biggest LCC Terminal', Bernama.
Connell, J 2006, 'Medical tourism: Sea, sun, sand and ... surgery', Tourism Management, vol. 27, no. 6, pp. 1093-100.
Delfmann, W, Baum, H, Auerbach, S & Albers, S 2005, Strategic Management in the Aviation Industry, Ashgate Publishing, Ltd.
Firefly 2008, Firefly, Firefly, viewed 29 December 2008, .
Gottfredson, M, Vestring, T & Maceda, M 2008, 'How Asian Companies Can Beat the Recession', Business Week, 28 October 2008.
Leong, D 2007, '26 Nov 2007: Corporate: Firefly keen to join LCC league', The Edge Daily, 26 November 2007.
Maye, S 2008, Bangkok Airways expands its ATR fleet with two more ATR 72-500s, ATR, viewed 29 December 2008, .
Miniwatts Marketing, G 2008, Internet World Stats: Usage and Population Statistics, Internet World Stats, viewed 29 December 2009, .
O'Connell, JF & Williams, G 2005, 'Passengers' perceptions of low cost airlines and full service carriers: A case study involving Ryanair, Aer Lingus, Air Asia and Malaysia Airlines', Journal of Air Transport Management, vol. 11, no. 4, pp. 259-72.
Piga, CA & Filippi, N 2002, 'Booking and flying with low-cost airlines.', The International Journal of Tourism Research, vol. 4, no. No. 3, pp. 237-49.
Sidhu, BK 2008, 'Competition up, air fares down', The Star, 13 December 2008.
Skytrax 2008, Airline Quality Forum, viewed 29 December 2008, .
Star 2008a, 'New ATRs for Firefly', The Star Online, 22 December 2008.
---- 2008b, 'Perak wants Govt to keep promise and upgrade airport', The Star, 6 December 2008.
Yen, JLM 2008, 'Firefly already cash positive ', TheEdgeDaily, 17 December 2008.



4 comments:

Balajee said...

good effort bro...looks informative.

Cheers

Jee

Anonymous said...

nice. very useful for my strategic management assignment. thanks :))

dorrysweetie said...

thanks for publishing..will use this as my reference..thanks author

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