Loyalty Management in the Airline Industry
©2002
Bachelorarbeit
114 Seiten
Zusammenfassung
Inhaltsangabe:Abstract:
This report will demonstrate the importance of Loyalty Management in the competitive environment of the airline industry and will show that a successful approach to Loyalty Management consists of three different, interlinked aspects. These three pillars are Customer Service, Frequent Flyer Programs, and Complaint Management; their interdependence will be analysed in depth, with special attention given to the perceived importance of Frequent Flyer Programs.
Findings from a detailed literature review and a survey show that customers do indeed perceive these issues as vital with regards to their loyalty towards a particular airline. It was found that Customer Service can be regarded as the foundation for Loyalty Management; it can help an airline to gain competitive advantage by setting it apart from its competitors. Frequent Flyer Programs, if implemented and run properly, can provide the customer with added value. As such, they compliment Customer Service and can help to increase overall loyalty. Additionally, Complaint Management was found to be gaining importance among airlines. The number of complaints was shown to be rising gradually, stressing the growing significance of efficient Complaint Management and its strong after-effect on customer loyalty.
Inhaltsverzeichnis:Table of Contents:
1.INTRODUCTION6
1.1AIM AND OBJECTIVES OF THE REPORT7
1.2TERMINOLOGY9
1.3BACKGROUND INFORMATION: LOYALTY MANAGEMENT9
1.3.1DEFINITIONS9
1.3.2TRADITIONAL MARKETING AND LOYALTY MANAGEMENT10
1.3.3IMPORTANCE OF LOYALTY MANAGEMENT12
1.4CHARACTERISTICS OF THE AIRLINE MARKET13
1.4.1AIRLINE INDUSTRY ANALYSIS - STEEPLE13
1.4.1.1Social13
1.4.1.2Technological14
1.4.1.3Economical14
1.4.1.4Environmental14
1.4.1.5Political15
1.4.1.6Legal15
1.4.1.7Ethical15
1.4.2CONSOLIDATION IN PRACTICE: BRITISH AIRWAYS16
1.4.2.1British Airways and KLM16
1.4.2.2British Airways and American Airlines18
1.4.3THE CURRENT AIRLINE SITUATION19
2.LITERATURE REVIEW22
2.1CUSTOMER SERVICE22
2.1.1BACKGROUND INFORMATION23
2.1.1.1Singapore Airlines23
2.1.2REVELATION OF DISSATISFACTION24
2.1.3EMPLOYEES25
2.1.4COMMUNICATION25
2.1.5THE CUSTOMER26
2.1.5.1Customer Requirements26
2.1.6SERVICE QUALITY27
2.1.6.1Quality and Retaining Customers28
2.1.7ORIENTATION OF COMPANY29
2.1.8CONCLUSION CUSTOMER SERVICE29
2.2FREQUENT FLYER PROGRAMS31
2.2.1BACKGROUND INFORMATION31
2.2.1.1Statistics Frequent Flyer Programs32
2.2.2CRITICAL SUCCESS FACTORS […]
This report will demonstrate the importance of Loyalty Management in the competitive environment of the airline industry and will show that a successful approach to Loyalty Management consists of three different, interlinked aspects. These three pillars are Customer Service, Frequent Flyer Programs, and Complaint Management; their interdependence will be analysed in depth, with special attention given to the perceived importance of Frequent Flyer Programs.
Findings from a detailed literature review and a survey show that customers do indeed perceive these issues as vital with regards to their loyalty towards a particular airline. It was found that Customer Service can be regarded as the foundation for Loyalty Management; it can help an airline to gain competitive advantage by setting it apart from its competitors. Frequent Flyer Programs, if implemented and run properly, can provide the customer with added value. As such, they compliment Customer Service and can help to increase overall loyalty. Additionally, Complaint Management was found to be gaining importance among airlines. The number of complaints was shown to be rising gradually, stressing the growing significance of efficient Complaint Management and its strong after-effect on customer loyalty.
Inhaltsverzeichnis:Table of Contents:
1.INTRODUCTION6
1.1AIM AND OBJECTIVES OF THE REPORT7
1.2TERMINOLOGY9
1.3BACKGROUND INFORMATION: LOYALTY MANAGEMENT9
1.3.1DEFINITIONS9
1.3.2TRADITIONAL MARKETING AND LOYALTY MANAGEMENT10
1.3.3IMPORTANCE OF LOYALTY MANAGEMENT12
1.4CHARACTERISTICS OF THE AIRLINE MARKET13
1.4.1AIRLINE INDUSTRY ANALYSIS - STEEPLE13
1.4.1.1Social13
1.4.1.2Technological14
1.4.1.3Economical14
1.4.1.4Environmental14
1.4.1.5Political15
1.4.1.6Legal15
1.4.1.7Ethical15
1.4.2CONSOLIDATION IN PRACTICE: BRITISH AIRWAYS16
1.4.2.1British Airways and KLM16
1.4.2.2British Airways and American Airlines18
1.4.3THE CURRENT AIRLINE SITUATION19
2.LITERATURE REVIEW22
2.1CUSTOMER SERVICE22
2.1.1BACKGROUND INFORMATION23
2.1.1.1Singapore Airlines23
2.1.2REVELATION OF DISSATISFACTION24
2.1.3EMPLOYEES25
2.1.4COMMUNICATION25
2.1.5THE CUSTOMER26
2.1.5.1Customer Requirements26
2.1.6SERVICE QUALITY27
2.1.6.1Quality and Retaining Customers28
2.1.7ORIENTATION OF COMPANY29
2.1.8CONCLUSION CUSTOMER SERVICE29
2.2FREQUENT FLYER PROGRAMS31
2.2.1BACKGROUND INFORMATION31
2.2.1.1Statistics Frequent Flyer Programs32
2.2.2CRITICAL SUCCESS FACTORS […]
Leseprobe
Inhaltsverzeichnis
ID 5464
Beiske, Ben: Loyalty Management in the Airline Industry / Ben Beiske -
Hamburg: Diplomica GmbH, 2002
Zugl.: London Nl7 8HR, Universität, BA-Arbeit / Bacherlor, 2002
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Diplomica GmbH
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Printed in Germany
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Abstract
This report will demonstrate the importance of Loyalty Management in the
competitive environment of the airline industry and will show that a successful
approach to Loyalty Management consists of three different, interlinked aspects.
These three `pillars' are Customer Service, Frequent Flyer Programs, and Complaint
Management; their interdependence will be analysed in depth, with special attention
given to the perceived importance of Frequent Flyer Programs.
Findings from a detailed literature review and a survey show that customers do indeed
perceive these issues as vital with regards to their loyalty towards a particular airline.
It was found that Customer Service can be regarded as the foundation for Loyalty
Management; it can help an airline to gain competitive advantage by setting it apart
from its competitors. Frequent Flyer Programs, if implemented and run properly, can
provide the customer with added value. As such, they compliment Customer Service
and can help to increase overall loyalty. Additionally, Complaint Management was
found to be gaining importance among airlines. The number of complaints was shown
to be rising gradually, stressing the growing significance of efficient Complaint
Management and its strong after-effect on customer loyalty.
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Acknowledgements
I would like to express my gratitude to Mr Hong Woo for tutoring and guiding me
throughout the preparation of this report. He was never out of reach and his help was
invaluable and very much appreciated.
Additional thanks to countless friends and family members for revising and proof-
reading my paper, participating in long discussions, and making helpful suggestions.
Library staff at Middlesex University Business School, London, deserve a great
`Thank You' for continuous support and their patience with many awkward requests.
Finally, a special thanks to Miss Nirmala Sukhu for emotional support and much
needed motivation. As always.
Ben Beiske
London, April 2002
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
One must have some sort of occupation nowadays.
If I hadn't my debts I shouldn't have anything to think about.
OSCAR WILDE
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 1 of 108
Table Of Contents
1.
INTRODUCTION
6
1.1.
A
IM AND
O
BJECTIVES OF THE
R
EPORT
7
1.2.
T
ERMINOLOGY
9
1.3.
B
ACKGROUND
I
NFORMATION
:
L
OYALTY
M
ANAGEMENT
9
1.3.1.
D
EFINITIONS
9
1.3.2.
T
RADITIONAL
M
ARKETING AND
L
OYALTY
M
ANAGEMENT
10
1.3.3.
I
MPORTANCE OF
L
OYALTY
M
ANAGEMENT
12
1.4.
C
HARACTERISTICS OF THE
A
IRLINE
M
ARKET
13
1.4.1.
A
IRLINE
I
NDUSTRY
A
NALYSIS
-
STEEPLE
13
1.4.1.1.
Social
13
1.4.1.2.
Technological
14
1.4.1.3.
Economical
14
1.4.1.4.
Environmental
14
1.4.1.5.
Political
15
1.4.1.6.
Legal
15
1.4.1.7.
Ethical
15
1.4.2.
C
ONSOLIDATION IN
P
RACTICE
:
B
RITISH
A
IRWAYS
16
1.4.2.1.
British Airways and KLM
16
1.4.2.2.
British Airways and American Airlines
18
1.4.3.
T
HE
C
URRENT
A
IRLINE
S
ITUATION
19
2.
LITERATURE REVIEW
22
2.1.
C
USTOMER
S
ERVICE
22
2.1.1.
B
ACKGROUND
I
NFORMATION
23
2.1.1.1.
Singapore Airlines
23
2.1.2.
R
EVELATION OF
D
ISSATISFACTION
24
2.1.3.
E
MPLOYEES
25
2.1.4.
C
OMMUNICATION
25
2.1.5.
T
HE
C
USTOMER
26
2.1.5.1.
Customer Requirements
26
2.1.6.
S
ERVICE
Q
UALITY
27
2.1.6.1.
Quality and Retaining Customers
28
2.1.7.
O
RIENTATION OF
C
OMPANY
29
2.1.8.
C
ONCLUSION
C
USTOMER
S
ERVICE
29
2.2.
F
REQUENT
F
LYER
P
ROGRAMS
31
2.2.1.
B
ACKGROUND
I
NFORMATION
31
2.2.1.1.
Statistics Frequent Flyer Programs
32
2.2.2.
C
RITICAL
S
UCCESS
F
ACTORS
FFP
S
34
2.2.2.1.
General Considerations
34
2.2.2.2.
Whom to Target: Share of Customer
35
2.2.2.3.
Program Structure
37
2.2.3.
H
ARMONISATION BETWEEN
F
REQUENT
F
LYER
P
ROGRAMS
39
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 2 of 108
2.2.4.
C
ONCLUSION
F
REQUENT
F
LYER
P
ROGRAMS
39
2.3.
C
OMPLAINT
M
ANAGEMENT
41
2.3.1.
B
ACKGROUND
I
NFORMATION
41
2.3.2.
C
OMPUTER
-A
IDED
C
OMPLAINT
M
ANAGEMENT
42
2.3.3.
H
ELP FROM THE
I
NTERNET
43
2.3.4.
S
TATISTICS
C
OMPLAINT
H
ANDLING
43
2.3.5.
C
OMPENSATION
45
2.3.6.
C
ONCLUSION
C
OMPLAINT
M
ANAGEMENT
46
2.4.
C
HAPTER
C
ONCLUSION
46
3.
METHODOLOGY
47
3.1.
S
ECONDARY
R
ESEARCH
47
3.1.1.
L
IBRARIES
47
3.1.1.1.
Local Libraries
47
3.1.1.2.
Interlibrary Loan
47
3.1.1.3.
UK Libraries Plus
48
3.1.1.4.
British Library
48
3.1.1.5.
Online Catalogues
48
3.1.2.
E
LECTRONIC
D
ATABASES
49
3.1.3.
N
EWSPAPERS AND
P
ERIODICALS
50
3.1.4.
I
NTERNET
50
3.1.5.
S
EARCH
T
ERMS
L
ITERATURE
R
EVIEW
51
3.2.
M
ETHODOLOGY
-
P
RIMARY
R
ESEARCH
52
3.2.1.
D
IARIES AND
O
BSERVATIONS
52
3.2.2.
E
XPERT
I
NTERVIEWS
53
3.3.
Q
UESTIONNAIRE
53
3.3.1.
P
URPOSE OF
Q
UESTIONNAIRE
53
3.3.2.
Q
UESTIONNAIRE
D
ESIGN
54
3.4.
C
HAPTER
C
ONCLUSION
57
4.
FINDINGS AND INTERPRETATION
58
4.1.
D
ISTRIBUTION AND
R
ESPONSE
R
ATE
58
4.2.
D
EMOGRAPHICS OF
R
ESPONDENTS
59
4.3.
Q
UESTION
O
NE
-
N
UMBER OF
F
LIGHTS IN
L
AST
T
WELVE
M
ONTHS
60
4.4.
Q
UESTION
T
WO
-
F
ACTORS
I
NFLUENCING
P
URCHASE
D
ECISIONS
61
4.5.
Q
UESTION
T
HREE
-
L
OYALTY TO
F
AVOURITE
A
IRLINE
62
4.6.
Q
UESTION
F
OUR
-
M
AIN
R
EASON FOR
L
OYALTY TO
F
AVOURITE
A
IRLINE
63
4.7.
Q
UESTION
F
IVE
-
F
REQUENT
F
LYER
P
ROGRAM
P
ARTICIPATION
64
4.8.
Q
UESTION
S
IX
-
M
AIN
R
EASON FOR
P
ARTICIPATION IN
FFP
66
4.9.
Q
UESTION
S
EVEN
-
C
OMMUNICATION WITH
FFP
67
4.10.
Q
UESTION
E
IGHT
-
M
EASURE OF
U
SEFULNESS OF
FFP
68
4.11.
Q
UESTION
N
INE
-
I
NFLUENCE OF
FFP
ON
A
IRLINE
C
HOICE
69
4.12.
Q
UESTION
T
EN
-
P
ERCEPTION OF
C
USTOMER
S
ERVICE
70
4.13.
Q
UESTION
E
LEVEN
-
P
ERCEPTION OF
O
VERALL
Q
UALITY
71
4.14.
Q
UESTION
T
WELVE
-
I
MPORTANCE OF
F
LIGHT
T
IMES AND
R
OUTINGS
72
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 3 of 108
4.15.
Q
UESTION
T
HIRTEEN
-
A
TTITUDE TOWARDS
L
ODGING
C
OMPLAINTS
73
4.16.
Q
UESTION
F
OURTEEN
-
S
ATISFACTION WITH
R
ESOLVED
C
OMPLAINTS
74
4.17.
Q
UESTION
F
IFTEEN
-
C
OMPLAINT
R
ESOLUTION AND
I
NFLUENCE ON
L
OYALTY
75
4.18.
Q
UESTION
S
IXTEEN
-
C
OMPLAINT
R
ESOLUTION AND
F
UTURE
B
EHAVIOUR
76
4.19.
C
HAPTER
C
ONCLUSION
77
5.
CONCLUSION
79
5.1.
C
ONCLUSION OF
C
HAPTER
F
INDINGS
79
5.2.
C
ONCLUSION
A
IM AND
O
BJECTIVES
81
5.3.
O
VERALL
C
ONCLUSION
83
GLOSSARY OF TERMS
85
LIST OF REFERENCES
87
APPENDICES
92
A
PPENDIX
I:
C
OMPARISON OF
A
IRLINE
K
EY
F
IGURES
2001
92
A
PPENDIX
II:
F
REQUENT
F
LYER
D
EVELOPMENT
T
IMELINE
93
A
PPENDIX
III:
F
REQUENT
F
LYER
P
ROGRAMS IN
N
UMBERS
103
A
PPENDIX
IV:
C
OPY OF
Q
UESTIONNAIRE
106
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 4 of 108
Table of Figures
F
IGURE
1-1,
L
OYALTY
M
ANAGEMENT
V
ISUALISED
8
F
IGURE
1-2,
R
ELATIONSHIP
M
ARKETING
L
ADDER OF
C
USTOMER
L
OYALTY
12
F
IGURE
1-3,
R
EVENUE
P
ASSENGER
K
ILOMETRES
2001
TO
2002
20
F
IGURE
2-1,
P
ORTER
'
S
G
ENERIC
S
TRATEGIES
23
F
IGURE
2-2,
D
EVELOPMENT OF
KLM'
S
F
LYING
D
UTCHMEN
P
ROGRAM
1996-2001
33
F
IGURE
2-3,
S
HARE OF
C
USTOMER
I
35
F
IGURE
2-4,
S
HARE OF
C
USTOMER
II
36
F
IGURE
2-5,
N
UMBER OF
P
AID
F
LIGHTS
N
EEDED FOR
F
REE
T
ICKET
38
F
IGURE
2-6,
R
ISE IN
F
LIGHT
D
ELAYS
1995
TO
2000
44
F
IGURE
2-7,
R
ISE IN
C
OMPLAINTS
1995
TO
2000
45
F
IGURE
4-1,
R
ESPONDENTS BY
G
ENDER
59
F
IGURE
4-2,
R
EASONS FOR
T
RAVEL
59
F
IGURE
4-3,
N
UMBER OF
F
LIGHTS
T
AKEN IN
O
NE
Y
EAR
60
F
IGURE
4-4,
F
ACTORS
I
NFLUENCING
P
URCHASE
D
ECISIONS
62
F
IGURE
4-5,
O
VERALL
L
OYALTY TO
F
AVOURITE
A
IRLINE
63
F
IGURE
4-6,
M
AIN
R
EASON FOR
L
OYALTY TO
F
AVOURITE
A
IRLINE
64
F
IGURE
4-7,
N
UMBER OF
FFP
S
T
AKEN
P
ART IN
65
F
IGURE
4-8,
M
AIN
R
EASON FOR
P
ARTICIPATING IN
FFP
66
F
IGURE
4-9,
FFP
C
OMMUNICATES WITH
P
ARTICIPANT
67
F
IGURE
4-10,
F
EELING OF
B
ENEFIT FROM
F
REQUENT
F
LYER
P
ROGRAM
68
F
IGURE
4-11,
W
OULD
C
HOOSE AN
A
IRLINE
M
AINLY
B
ECAUSE OF
FFP
69
F
IGURE
4-12,
S
ATISFACTION WITH
C
USTOMER
S
ERVICE
70
F
IGURE
4-13,
Q
UALITY OF
F
AVOURITE
A
IRLINE
71
F
IGURE
4-14,
I
MPORTANCE OF
F
LIGHT
T
IMES AND
R
OUTINGS
73
F
IGURE
4-15,
N
UMBER OF
C
OMPLAINTS
M
ADE TO
A
IRLINES
74
F
IGURE
4-16,
S
ATISFACTION WITH
R
ESPONSE TO
C
OMPLAINT
75
F
IGURE
4-17,
I
NCREASE IN
L
OYALTY AFTER
S
ATISFACTORY
R
ESPONSE TO
C
OMPLAINT
76
F
IGURE
4-18,
R
EASON FOR
F
LYING WITH
U
NSATISFACTORY
A
IRLINE
77
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 5 of 108
Table of Tables
T
ABLE
2-1,
S
HARE OF
C
USTOMER
37
T
ABLE
3-1,
E
XTRACT OF
S
EARCH
T
ERMS
U
SED
52
T
ABLE
A-1,
2001
F
IGURES
F
OR
S
ELECTED
A
IRLINES
W
ORLDWIDE
92
T
ABLE
A-2,
T
IMELINE OF
FFP
S
102
T
ABLE
A-3,
V
ALUE FOR
M
ONEY IN
FFP
103
T
ABLE
A-4,
S
ELECTED
F
IGURES
FFP
S
W
ORLDWIDE
104
T
ABLE
A-5,
FFP
M
EMBERSHIP
N
UMBERS OF
S
ELECTED
P
ROGRAMS
105
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 6 of 108
1.
Introduction
The airline industry is a unique and thoroughly fascinating industry. Growing numbers of
passengers, fuelled by increased mobility, reduced barriers to travel, and the entrance of
new companies into the market, have increased the glamour, impact, and reach of this
industry even further in recent years. British Airways' Chief Executive Officer called the
industry the `flywheel for the engine of the world's industry' (Chan 2000). In terms of
numbers, the whole industry was worth US$1,000 billion in 1998, employed over 22
million people, and transports over 1,25 billion passengers each year (Chan 2000), with
passenger numbers steadily increasing.
In this light, Loyalty Management is becoming an ever more important issue for most
major companies, including commercial airlines. Customers often have often a free
choice where their custom will go to, making it harder and more expensive for companies
to attract new customers and to retain existing ones. This is especially true for the highly
competitive field of internationally operating airlines. Airlines around the world are
studying, evaluating, implementing, or improving different loyalty strategies aimed at
cultivating strong relationships with their customers.
Airline customers are very much like customers of other industries. They make an initial
purchase - for whatever reason - with a particular airline. The customer tries to validate
his or her choice by judging the airline through certain criteria, possibly overall Service
Quality. For subsequent purchases, the customer becomes more critical and reacts
stronger to service failures. If performance proves satisfactory however, he or she might
eventually move to a point where they become advocates for the airline.
The aspect of advocacy is described in more detail in a later part of this chapter; the
crucial point is to ensure that a customer moves from being an irregular customer to the
point where he acts as an advocate for the company. This is the test for airline marketers,
to manage this `rocky period' (Executive Summary and Implications for Managers and
Executives 1998) between initial purchase and a solid relationship between the customer
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
Page 7 of 108
and the company. The management of the customer's loyalty is a challenge to any
commercial airline.
1.1.
Aim and Objectives of the Report
The aim of this report is to demonstrate to the airline industry that a successful approach
to Loyalty Management consists of variety of different aspects in regards to the customer.
The basis for a prosperous airline is seen to be Service Quality. Service Quality itself
consists of three pillars. These are seen as:
·
Customer Service through optimum adjustment to customer needs;
·
Frequent Flyer Programs; and
·
Customer Dialogue through active Complaint Management.
The report's objectives are to analyse these three issues in depths, to show the
interdependence of these issues, and to illustrate that only a combination of all three can
assist an airline in its pursuit to exercise true customer satisfaction and thus increased
customer loyalty. Furthermore, the usefulness of Frequent Flyer Programs will be
analysed with regards to loyalty; it will be argued that such programs are seen to be of
value for customers in that they can help to increase loyalty. However, it will also be
investigated if a Frequent Flyer Program (FFP) alone can be a reason for a customer to
choose a particular carrier, or if it needs to be complemented by outstanding Customer
Service and fast and efficient Complaint Management.
Figure 1-1 on the next page visualises the concept behind Loyalty Management as it is
seen in this paper. The foundation of the concept, at the bottom of the figure, is seen as
Service Quality. The three pillars that Loyalty Management comprises of, namely
Customer Service, Frequent Flyer Programs and Complaint Management, are built on
this base.
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Ben Beiske, April 2002
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towards
Customer
Loyalty
Service Quality
Customer
Service
FFP
Complaint
Management
towards
Customer
Loyalty
Service Quality
Customer
Service
FFP
Complaint
Management
towards
Customer
Loyalty
Service Quality
Customer
Service
FFP
Complaint
Management
Figure 1-1, Loyalty Management Visualised
The upper part of the diagram shows that the overall target, Customer Loyalty, can only
be reached when these three columns are of `equal height', when they are working
together and thus support and compliment each other.
The focus of this report will lie on the three pillars described above in relation to their
respective importance to an integral Loyalty Management approach by any major airline.
It will be argued that the three areas Customer Service, Frequent Flyer Program and
efficient Complaint Management act as the three pillars of long-term sustainable Loyalty
Management in the airline industry.
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Ben Beiske, April 2002
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1.2.
Terminology
The term Loyalty Manage ment is often described with a variety of names in the
literature. One can find Loyalty Marketing, Customer Relationship Marketing, Frequency
Marketing, One -to-One Marketing, and Customer Centric Marketing. For the purpose of
this report, the term Loyalty Management is preferred, but will be used synonymously
with Relationship Management. Different to other terms commonly used, these two
describe a more holistic approach to the strategic management of customer loyalty and
connected marketing efforts.
Additionally, the term Loyalty Management is often described as Customer Relationship
Management, or CRM. CRM is often seen as computer-assisted management of the
organisations customer-relations. While new technologies do without any doubt play an
important part to this effect, for the purpose of this report any reference to CRM shall be
considered as being non-technological.
1.3.
Background Information: Loyalty Management
1.3.1.
Definitions
Loyalty Management seems to have different meanings and various definitions in the
literature examined. One of the most comprehensive ones was offered by Roberts-Phelps
(2001):
In its simplest form it is an attitude, a mindset, a value that you place on your business
and on its relationship with its customers. It is a methodology, a way of creating and
evolving your organization in the marketplace and at the same time in the mind of each
individual customer.
Robert-Phelps goes on describing that an organisation must realise that each customer is
an individual and has a choice. It follows that the organisation must treat each customer
as such and try to influence the customer's decision towards the organisation.
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A more conceptual definition of Brand Loyalty itself is offered by Jacoby and Chestnut
(1978):
The biased ... response, expressed over time, by some decision -making unit, with respect
to one or more alternative brands out of a set of such brands ...
This report will adopt the two definitions above for the purpose of relating to and
identifying Loyalty Management and Brand Loyalty.
When considering the aim of Loyalty Management, the primary focus lies on customer
markets. Other markets exist, ranging from internal, referral, supplier, employee to
influence markets. With regards to passenger airlines however, this report will focus
purely on customer markets, and Loyalty Management will be examined only in relation
to these.
1.3.2.
Traditional Marketing and Loyalty Management
Gokey and Coyles (2001) argue that companies are poised to enter a new era of Loyalty
Management, in which companies will move beyond simple measures of customer
satisfaction and defection to broader approaches based on customer attitudes. The authors
believe that successful companies can influence customer loyalty by as much as 20 to 30
percent by addressing is sues such as the understanding of customer migration and
defection, the customer's attitudes, values and satisfaction, and by focusing on the
customer's changing needs.
Mellens, Dekimpe & Steenkamp (1995) state that the success of a firm depends in large
parts on its ability to attract consumers towards its brand. Nevertheless, it appears critical
to the long-term survival of the company to retain its current customers, and to make
them loyal to the company. It follows that firms with a high degree of customer loyalty
have a competitive advantage over competitors. This can be ascribed to the fact that loyal
customers reduce the company's marketing costs by reducing the need to continuously
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Ben Beiske, April 2002
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attract new customers. In addition, loyal customers tend to be less price-sensitive
(Reichheld & Sasser 1990).
Traditionally, marketing has often focused on acquiring new customers. Loyalty
Management on the other hand focuses on twin-concerns: Acquiring new customers and
keeping existing customers. Relationship Manageme nt comprises of both external
relationships (with customers or other businesses) and internal relationships (with staff
crucial to the external marketing efforts) (Christopher, Payne & Ballantyne 1991).
Loyalty Management is changing the traditional focus on transactions towards a stronger
focus on relationships. Transaction marketing is characterised by a focus on a single sale;
it is oriented towards product features, is short-term in scope, and requires limited
commitment by the customer. Relationship Management, on the other hand, focuses on
customer retention and product benefits; it is long-term in scale and requires a higher
level of customer commitment.
Conventionally, the greatest part of marketing activity has often been directed on
attracting new customers, whereas existing customers have not received the attention
needed. As a result, companies often experience what Davidow (1986) describes as the
`leaking bucket effect':
It has always been incredible to me how insensitive companies can be to their customers.
Most of them don't seem to understand that their future business depends on having the
same customers come back again and again.
This describes the phenomenon when companies, having won a new customer, then turn
their attention to gaining yet new customers without understanding the need to maintain
the relationship with this existing customer.
Things have changed since Davidow wrote this back in 1986, and today's customers,
especially in the airline business, are in many cases strongly encouraged to stay loyal to
one or two airlines. Airlines seem to have realised the benefit of retaining a customer.
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Figure 1-2 shows the Relationship Marketing Ladder of Customer Loyalty: The potential
customer (the `prospect') turns into a customer, and as he climbs up the loyalty ladder he
advances from simple customer to client with repeating purchases, on into a strong
supporter of the company, and finally into advocate, where the customer plays an
important part as a referral source for the company. Lo yalty Management with its
different components essentially aims to move a customer up this loyalty ladder.
Christopher, Payne & Ballantyne (1991) argue that in order to achieve this, a company
needs to aim beyond mere customer satisfaction towards `custome r delight' by exceeding
the customer's expectations. The ultimate success factor will then be increased customer
loyalty.
Advocate
Supporter
Client
Customer
Prospect
Figure 1 -2, Relationship Marketing Ladder of Customer Loyalty, adapted and modified from
Christopher, Payne & Ballantyne (1991)
1.3.3.
Importance of Loyalty Management
The proliferation and fragmentation of the media makes it harder for companies to reach
their target audience. Busy lifestyles in modern society make it even more difficult for
airlines to reach their target group; people are less able to receive and interpret the ever-
increasing flood of advertisement.
Firstly, it costs substantially more to attract a new customer than to retain an existing one.
While it is difficult to put a monetary figure to the cost of attracting one new customer as
opposed to retaining one existing customer, it seems certain that the latter is by far the
cheaper option (Duffy 1998).
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Secondly, the longer a business keeps a customer, the more he/ she becomes profitable to
the company. This is a direct result of the customer's continuing custom with the
organisation for the duration of their relationship.
Thirdly, the more the customer's value for the organisation increases, the more the
customer grows dependent on the company. This in turn means that the customer will be
less likely to take his or her custom to another company; the barriers to leave are higher.
Even lower prices with competitors' products might not stimulate the customer enough to
switch brands.
Finally, as mentioned earlier, as a customer stays with a company over time and becomes
more loyal, he/ she often become advocates for the business. As such, he/ she
recommends the company to friends or family and encourages the latter to also fly with
that particular airline.
1.4.
Characteristics of the Airline Market
1.4.1.
Airline Industry Analysis - STEEPLE
There are different variables that operate within the environment of an industry; one tool
that can help analyse the environment of an industry is the PEST analysis. This is a
simple examination of an industry's Political, Economical Social and Technological
environment (Lynch 2001). This analysis can be extended to a STEEPLE analysis, which
covers additional dimensions like ethical, legal, and environmental. The following
section will offer a concise analysis of the market environment of the airline industry.
1.4.1.1.
Social
·
Reluctance to fly following the events of September 11 2001
·
Fear of continuing terrorism
·
Potential loss of consumer confidence in the industry due to security issues
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·
Rise in health scares of `economy class syndrome'
·
Generally poor labour relations
·
Fear of loosing jobs for employees of affected airlines
·
Many loyal and frequent flyers
1.4.1.2.
Technological
·
New electronic methods of ticket sales - reduction in overhead costs
·
Costly investments in new airplanes, for example new Airbus A380
·
Advances in aircraft safety, for example hijack prevention
1.4.1.3.
Economical
·
Very competitive and mostly global market
·
Various airlines with very similar product offers
·
High fixed costs combined with the perishable product `flight', low variable costs
·
Low operating margins compared to other industries
·
High competition both regionally and internationally
·
Market share of the major carriers began to drop following de-regulation
·
Increased competition from low cost airlines, forces airlines to compete on price
on many routes
·
Cost increases, for example higher insurance costs after September 11 2001
·
Drastic job-losses announced by many airlines
·
Cost reductions through increasing Internet booking and e-ticketing
·
Ongoing economic weaknesses in many key markets like USA and Europe
1.4.1.4.
Environmental
·
Environmental laws will become more extensive and exacting in the future
·
Public concern about environment has risen
·
Depletion of natural resources à engine fuel
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1.4.1.5.
Political
·
Governmental conditions affecting airline regulation
·
Complete deregulation years, if not decades, away
·
Prevents airlines from operating purely within third countries outside their home
country
·
Increasing consolidation in the industry
·
Stringent rules governing safety and also pricing to some degree
·
Repercussions following the events of September 11 2002
·
Taxes (for example for landing and take-off) set by governments, differ from
country to country
·
Often dominance of hubs in the airline's home country
1.4.1.6.
Legal
·
European airline de-regulation on competition, pricing and service
·
Privatisation
·
Employment Protection Acts are stricter in some markets (Europe) than others
(USA), can lead to disadvantage for airlines operating in or from stricter markets
·
Threat of lawsuits to airlines due to service failure increasing (extreme example:
plane crash)
1.4.1.7.
Ethical
·
Sustainable development
·
Consumers more aware of ethical issues; Southwest Airlines in USA enjoys very
good reputation because of good ethical company behaviour
The above analysis shows that the airline market is characterised by high fixed costs and
rather low variable costs, combined with low profit margins and poor labour relations.
The industry operating margin averages less than five percent, well below the margins in
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Ben Beiske, April 2002
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other industries. Surprisingly though, domestic airline traffic is one of the best-protected
industries in many developed countries. Foreign airlines are generally not allowed to
operate flights purely within a third country; Singapore Airlines for example is under
current regulation not allowed to fly from London to Glasgow (Evans 1999).
The product flight itself is highly perishable: If a plane takes off with an empty seat, the
revenue for that seat is lost immediately and cannot be regained, as there is no longer the
opportunity to sell this place to a potential customer.
Kuttner (2000) argues that `big airlines don't really want markets to work. They want to
dominate hubs, in order to gain market power ove r fares'. According to Kuttner, the
average air-route today has just over two carriers. It also appears that on routes where
competition is fierce, average fares tend to be almost half than on comparable routes
where there is little or no competition.
1.4.2.
Consolidation in Practice: British Airways
The airline industry has seen consolidation in the past, and this trend seems to continue
for the foreseeable future after the current market situation with declined passenger
numbers and increased fuel prices is tense. One airline that has drawn attention to itself
on numerous occasions in the past is British Airways (BA). The airline has repeatedly
tried to merge its business with a strong international partner, but has failed on different
occasions.
1.4.2.1.
British Airways and KLM
In September 2000, KLM Royal Dutch Airlines and British Airways ended four months
of merger negotiations without agreement. It was reported that the £5 billion merger
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Ben Beiske, April 2002
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halted as a result of difficulties involving competition concerns and stric t regulations over
transatlantic flights. The draft merger proposal failed to secure approval from the
competition authorities and KLM feared that it would lose its Dutch identity to a much
larger British carrier. It was also to lose its rights to serve third countries from the
Netherlands. This was not the first time a merger had been discussed, several years
previously a similar deal collapsed when KLM demanded a near equal partnership
(Elmuti & Kathawala 2001).
This recent merger proposal would have created the world's third largest carrier after
United Airlines and American Airlines, and would have cemented BA's status as
Europe's largest carrier. Revenue for the combined company would have been around
$20 billion in 2001 (Lobbenberg 2001).
The merger was an attractive option for British Airways as it had seen its profits slump
because of increased competition on transatlantic routes from budget airlines and high
fuel prices. It would have given BA access to KLM's strategic Amsterdam hub, which
had more spare capacity than London's Heathrow. Analysts felt the two businesses would
have complimented each other well: BA would have been able to focus high value
business traffic on its main base at London's congested Heathrow Airport and directed
internationa l connecting traffic through KLM's Amsterdam Schiphol Airport (Elmuti &
Kathawala 2001 ).
In any case, analysts believe that KLM may offer too little value for it to become a take-
over target for British Airways plc. "British Airways has got to get its own house in
order, and I would argue that that implies some really tough decisions on cost," said
Analyst Dan Solon from consultancy Armark International. "KLM is under attack in its
home base from low fare carriers", which makes the Dutch carrier less attractive than it
was back in 2000 (British Airways Cuts Capacity as Profits Slide 2001).
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1.4.2.2.
British Airways and American Airlines
As a response to increasingly difficult market conditions after the terrorist attacks of
September 11 2001, British Airways made another merger-attempt in December 2001,
this time with the US carrier American Airlines (AA). British Airways and American
Airlines, the world's largest airline, envisioned a strategic alliance, which would have
seen the two carriers combine its transatlantic flights. The two companies planned to
merge their routes between North America and the United Kingdom, and proposed to sell
each other's tickets, effectively setting rates and routes together (American Airlines and
British Airways Alliance Called Of f 2002).
The regulatory authorities in the UK and the US were prepared to give permission to
proceed for the proposed merger in the form of anti-trust immunity for both airlines for a
certain price by the airlines. This price had been set by the US Department for
Transportation (DOT), and required the two airlines to give up 224 weekly takeoff and
landing slots at British Airways' home airport, London Heathrow. Consequently,
competitors would have been able to operate sixteen extra daily round-trips out of
London Heathrow, a price both BA and AA were not willing to pay. The current situation
at London Heathrow is that only two American carriers, United Airlines and American
Airlines, are allowed to serve the airport.
Giving up 224 weekly slots at London Heathrow would have cost British Airways
roughly £400 million in lost revenue, while the failure of the alliance is said to generate
losses of only around £200 million in future profits. In addition, BA relies much heavier
on transatlantic routes, whereas AA focuses stronger on its domestic market and is thus
less affected by the failed merger (Airline Alliances 2002).
After the deal was turned down jointly by the two airlines (the second time after a similar
proposal in 1996) on January 25 2002, the US and UK government abandoned talks
aimed at an open-sky agreement between the two countries. The issue was problematic
from the outset: The UK government would not agree to a `Transatlantic Common
Aviation Market' unless the US government approved the merger, while the US would
Loyalty Management in the Airline Industry
Ben Beiske, April 2002
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not approve the alliance unless the UK agrees to give US-companies expanded access to
the UK, particularly at London Heathrow. As the merger has effectively failed, so has the
open-skies agreement between the two nations (American Airlines, British Airways May
Still be Able to Cooperate on Flights 2002), and transatlantic air-travel will continue to
be governed by the Bermuda II UK -US Bilateral Agreement, one of the most restrictive
in the industry (Airline Alliances 2002).
1.4.3.
The Current Airline Situation
The summer of 2000 saw record airline traffic, which in turn produced record delays as
congestion at airports around the world increased, and airlines were struggling to meet
demand. In 2001, however, the industry was seen to battle hard with events not under its
immediate control. The events of September 11 caused most major airlines around the
world to cut their capacity, in some cases by up to 20%. The industry, already fighting a
slump in passenger numbers caused by a general downturn in the economy, was hit hard
by this new development (Flag Carriers at Half-Mast 2002).
European airlines have since then recovered slowly. Figure 1-3 shows Revenue per
Passenger Kilometre from August 2001 to March 2002, with a steep decline in revenue in
September 2001, especially on transatlantic routes. Revenue then slowly recovered, and
in January 2002 Air France reported January traffic fractionally higher than a year earlier
and losses for the fourth quarter of 2001 that were lower than expected. Other carriers
had grounded many aircrafts in the fall of 2001 to match fallen demand, but have
reported similar recoveries as that of Air France. Most carriers are aiming to restore
capac ity to its pre-September 11 levels for the summer of 2002 (Flag Carriers at Half-
Mast 2002).
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Figure 1-3, Revenue Passenger Kilometres 2001 to 2002. Source: Flag Carriers at Half-Mast
2002
Another challenge now facing the bigger national carriers is increased competition from
low cost carriers, especially in the highly competitive European short- haul market.
Companies such as Ryanair, Easyjet, or Buzz have managed to secure a growing number
of passengers in the wake of the industry downturn. Passengers were attracted mainly by
lower costs, even if it came at the loss of service offers.
The big carriers have yet to find a way to compete with these new types of airlines.
Simple denial works in some cases; airlines might use this tactic to keep low-cost carriers
at bay by simply not granting them slots at major airports. Air France has quite
successfully used this tactic at its headquarters Charles de Gaulle in Paris, France. Other
airlines are trying to compete on price with the new entrants, or are even transforming
themselves into low-cost carriers, as Olympic Airways of Greece has demonstrated. The
airline's privatisation fell apart in January 2002; Olympic Airways has responded by
reinventing itself as a regional low-cost carrier for south-eastern Europe, and plans to
Details
- Seiten
- Erscheinungsform
- Originalausgabe
- Jahr
- 2002
- ISBN (eBook)
- 9783832454647
- ISBN (Paperback)
- 9783838654645
- DOI
- 10.3239/9783832454647
- Dateigröße
- 1.6 MB
- Sprache
- Englisch
- Institution / Hochschule
- ( Middlesex University in London ) – unbekannt
- Erscheinungsdatum
- 2002 (Mai)
- Note
- 1,3
- Schlagworte
- loyalität fluggesellschaften vielfliegerprogramme kundenbindung beschwerdemanagement
