Multinational Marketing

Multinational Marketing

University-Wide Individual Assignment Mukesh Kumar (Student Id: P000099690 )

BA540 (SN9) Arcadia University International Master of Business Administration

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Question Analyze a global trend and explain the driving forces and/or contributing factors affecting the competition within a specific industry. Growth of Low Cost Carrier ( LCC ) industry globally and in Singapore Answer Singapore has more than 100 old aviation history. First powered human flight took off in 1911. Singapore thrived on its connectivity as a trading city and became a major port and transhipment hub. Good air connectivity enhanced its attractiveness as a global city, an international business centre and a manufacturing hub. It is a key factor in attracting investments and tourists. Singapore Government adopted a liberal aviation policy, welcoming all countries to establish air links with Singapore and foreign airlines to operate at Singapore airport. In 1972, Singapore Airlines was set-up. SIA quickly rose to the challenge and became one of the best global airlines. Government also invested in infrastructure and Changi Airport stated commercial operation in 1981. Today, Singapore is a thriving wellconnected air hub for both full service and low cost carriers. Aviation is an integral part of Singapore economy, contributing over 3% to Singapores GDP in direct value-add. As an enabler of people and business connections, aviation has a far reaching impact on the economy and society. Singapore could not have become the global city it is today without a good airport with superior air connectivity. The aviation industry is constantly evolving as new trends and technologies shape an ever-changing landscape. Low-cost carriers are driving growth in the aviation industry, accounting for a billion-dollar increase in the profits forecast for airlines in 2012. Low-cost carriers have continued to enjoy healthy profits, with the number of economy passengers more than doubling that of premium travellers. From virtually nothing four years ago, there are four Southeast Asian long-haul low-cost carriers in the market namely Jet Star, Air Asia, Scoot and Cebu Pacific. Low-cost carriers currently take up about 18 per cent of the market in Asia Pacific, compared to 24 percent globally. Most of LCC are adding new planes to the fleet.

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Budget airlines such as Australia's Jetstar and Malaysia's AirAsia Bhd., have been eating into market share of many full-service carriers because of cheaper fares, forcing the latter to explore low-cost models.SIA, Singapore's national carrier is also repositioning its focus from the premium to value segments. Multiple carriers are creating multiple brands under one umbrella, either SIA creating SilkAir, Scoot; Thai Air with Thai Smile and MAS with MASwings, Firefly. The only way to survive in this market is to consolidate and position their strengths. Seeing a slowdown across the globe and people tightening belts, market watchers predict that low cost travel is here to stay and is airlines are making plans to leverage on this. Scoot, which started operations only in June 2012 and flies to several Asian destinations, said it would acquire 20 Boeing 787 Dreamliners with a total list price of more than $4 billion dollars. Low-cost carriers are leading the way in aviation industry growth. Asia Pacific region's airline market is the fastest growing in the world and low-cost carriers will grow nearly three times faster than traditional airlines. Despite the difficult environment airline gross bookings marked double-digit gains across all APAC markets but the standout performance came from the region's LCCs, whose passenger revenues jumped 42% in 2010 and another 27% in 2011. In 2012, LCCs revenues were expected to grow 23% versus just 8% for traditional airlines. LCCs are instrumental in driving the online air market across the region. By 2013, LCC online gross bookings will reach US$13.3 billion, up 55% over 2011. Budget airlines revolutionized the air industry with low fares by ditching expensive overheads like free food and drink, only using the same type of airplanes to minimize maintenance, training and repair costs, and flying to airports with cheaper landing fees, the budget airlines have passed on huge savings to their customers. This business philosophy has been adopted by pretty much every budget airline around the world. By selling tickets electronically online or via telephone, the budget airlines marketing costs are much lower too. Virtually all budget airlines use a system of dynamic pricing on their tickets, which means their prices change continually based on demand. Usually the further ahead you book a budget ticket, the cheaper it will be. Low Cost Carriers are cheap, quick and convenient to book online, passengers pay only what they want and frequent promotions are available. On the other hand LCC are having restricted baggage allowance, point to point operation, frequent delays or cancellation, crammed seating and no seat allocation.

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Michael Porters five forces theory is being used to analyze the LCC industry in the following paragraphs. Threat of new entrants The airline industry require a huge capital investment. It also requires highly skilled personal such as pilots, aircraft technicians and specialise managerial personnel which are often limited in resources in the industry. Limited access to airport and route are also another difficulty post to new entrant. LLC are venturing into the premium market sector when they reach certain level of business expertise. As growth potential is high and major full service airlines are entering into LCC market it would be safe to assume that the threat of new entrants is high. Threat of a substitute Technology advancement is posing threat to the aviation industry. Communication facility such as video conferencing as a means of meeting relinquish the requirement for travelling hence post serious treat as substitute to the whole airline industry. As LCC market growth depends on the leisure travellers and affordability lower middle and lower income groups the threat of substitute is low. Bargaining power of buyers LCC industry has become a commodity over the years, with objective of getting from one point to another and it doesn't matter on which airline passenger travelled. Discretionary travellers are quite flexible on the time and flight connections while cost is a main concern for them. A small change in price may turn these passengers to other operators. Therefore the buyer bargaining power is indeed very high for LCC. Bargaining power of suppliers LCC depends heavily on Airport Terminal Service, 3rd party maintenance services, and supply from air craft manufacturer. Jet fuel is a commodity that fluctuate with crude oil price. As these airlines profitability heavily depend upon the performance of suppliers but they do not possess enough muscle power to influence suppliers. Suppliers have high bargaining power in LCC industry. Rivalry among existing firms

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While there is still potential for growth in the LCC industry in the Asia-Pacific region, recent financial slowdown have force companies around the globe to engage in cost cutting measure. Most of these carriers are using differentiation strategy approach which concentrates mainly on additional services and frequent promotions. These airline select the destinations where there is minimum competition to maintain passenger volumes. LCC industry is a very fierce competition and level of rivalry is high. In summary Low Cost Carriers industry globally and in Singapore particularly has high growth potential and room for economic profits. However bargaining power of buyers, suppliers and rivalry of existing big players will remain a deterrent to new players.