The application of marketing in air service of vietnam airlines

members, after Malaysia, Thailand, Singapore and Indonesia. Five other members of the grouping are Brunei, Cambodia, Laos, Myanmar and the Philippines. Vietnam Airlines has set a target of having upper seat in the region in the next 5 years. To achieve this target, the country hopes to serve 10 million by 2010 throughout a strategically developed network of long haul flights and local and regional connections. With so many changes under its wings, Vietnam Airlines now looks forward to further integrating in the world of global aviation and to establish itself as a truly regional air carrier of choice. 2.2. THE APPLICATION OF “MARKETING IN AIR SERVICE” OF VIETNAM AIRLINES 2.2.1. Studying Marketing environments Political/ Legal Political stability plays an important role in Vietnam’s constant economic growth in recent years. Vietnam has been committed to strengthening bilateral and multilateral relationships with other countries and international organizations. The country has participated into regional and international trading blocs such as: AFTA, APEC, and ASEM and prepared to enter WTO in the future. The Vietnamese Government is also pushing towards a more and transparent economic system based on the rule of law. These events help Vietnam Airlines attract foreign sightseeing and investment into the country. Moreover, Vietnam also engaged in bilateral and multilateral aviation and agreements with many countries such as the US The war on terrorism assisted in making Vietnam stand out as a safe destination. The passengers can put all their faith in Vietnam Airlines, because its air security is currently standing at the top ten nations. Finally, the country’s new rule on visa exemption for travelers from ASEAN, Japan, France etc results in increasing number of incoming visitors. Economic GDP per capita in Vietnam remained less than USD 500 a year. Thus, air travel is too expensive for most Vietnamese. However with the economy constantly growing in the past decade, and is expected to continue in the coming years, Vietnamese income has increased remarkably by 34% over the period 1999-2003. According to the Vietnam Airlines’ statistics, the amount of travelers who are inbound or outbound Vietnam has been remarkably increasing. The Vietnamese Government’s efforts to promote foreign investment and tourism have increasingly attracted international visitors which counted about 2.5 million in 2003. The weakened Vietnamese currency also made Vietnam more economical destination for many countries such as US, Japan, Australia (VANT website). However, rising fuel costs appear to be a threat to the profitability of the airlines. Socio-cultural In term of Socio-cultural, Vietnam Airlines considers many factors, especially if it wants to enter into other nations, to expand its agents in many countries or to connect airlines with farther nations in all over the world. These factors are: demographics (age, gender, race, family size, etc.), lifestyle changes, population shifts, education, trends, fads, diversity, immigration/emigration, health, living standards, housing trends, fashion, attitudes to work, leisure activities, occupations, and earning capacity. By this way, Vietnam Airlines can select which country it should inter into and how it can compete with foreign competitors. Vietnam is internationally renowned for its beautiful scenery, culture and history. There is also an increasing number of Vietnamese traveling overseas, mainly to Thailand and China. The community of two million overseas Vietnamese living mainly in the US, Europe and Australia is a key factor in favor the air travel inbound or outbound Vietnam (Vietnam Airlines). Moreover, the Government has given great support in developing and pushing socialization of education, science, culture, public health, sport events, etc. More and more training programs coordinated with foreign organizations especially Australia has brought potential passengers into Vietnam via the route Vietnam-Sydney, Vietnam-Melbourne. Besides, Vietnam participation in regional and international cultural activities like ASIAD, Tiger cup, etc has created opportunities for Vietnam Airlines to get more passengers. 2.2.2. SWOT analysis 2.2.2.1. Strength Vietnam Airlines is a national flag carrier run by a management board reporting to the Vietnamese Prime Minister, thus it is well protected by the Vietnamese Government for the sake of national pride and interest. Vietnam Airlines services reflect the Vietnam cultural identity such as foods, Vietnamese language, the friendliness of cabin crew etc that Vietnamese travelers are proud of and foreign travelers may wish to experience. For the last 5 years, Vietnam Airlines enjoyed a fast growth at about 12-16% a year. International operation is the main driving force behind this growth, with an annual growth rate of 18%, compared to that of domestic market 7%. Vietnam Airlines was in good financial situation for the last five years, despite the negative growth in profit in 2003 due the SARS outbreak, rising fuel costs and weakened Vietnamese Dong. Vietnam Airline dominates the domestic air travel with 85.6% market share in 2004. It also holds 40% share of international passenger’s traffic from/to Vietnam. This is a really strength as is takes strong share in international routes from or to North Asia, South East Asia and Australia where the market is hotly competitively filled with strong airlines such as Japan Airlines, Singapore Airlines, and Cathay Pacific. Vietnam Airlines has become an international airline with 19 branch offices and thousands of agents worldwide. The share of international market in its business has gradually increased from about 38.6% to 48.3% of its business. The company also have nationwide network of sales office and sales agents. Vietnam Airlines has joined ICAO (International Civil Aviation Organization) and IATA (International Aviation Transport Association) so that it can cooperate with other airlines to operate code-sharing flights. Vietnam Airlines has signed co-operative agreements with international leading airlines such as JAL, Cathay Pacific, Qantas for joint services, revenue pooling and interline traffic. Table 2 . 2: Market Share of Vietnam Airlines No. of Passengers Passengers carried by Vietnam Airlines Total passengers traffic Market share Domestic 2,169,327 2,534,000 85.60% International 2,026,822 5,016,886 40.40% North America 65,209 486,638 13.40% South East Asia 560,953 918,090 61.10% North Asia 1,098,628 2,463,291 44.60% Australia 67,698 195,659 34.60% Europe 178,441 571,925 31.20% Others 55,893 381,283 14.70% Source: Vietnam Airlines website 2.2.2.2. Weaknesses Although VNA is currently developed step by step, it still has some weaknesses which need to be overcome. Mrs. Pham Chi Lan _ a member of the Prime Minister’s Research Board said: “The scandals at state-owned corporations like Vietnam Airlines show the looseness of administrative control over state-owned companies. It is easy for staff to abuse power to misappropriate funds at state corporations”. Firstly, the reason that is very easy to see is the weakness of the supervisory system. In our decrees and laws, supervision at state-owned enterprises is often described by just seven lines compared to hundreds of pages within entire legal documents. The laws generally state that state employees and state-owned companies that violate the law are to be punished under the law. Meanwhile, state-owned corporations operate in an unstable manner. Responsibility and powers are not clear between the management board and the general director. Sometimes both sides fight each other. Executive directors said that they have to report everything to management boards, while management boards say they have no real power. Secondly, the domestic tourism market has been developing fast in the past years however its pace is still unstable whilst the promotion activities to attract foreign tourists has been taken slowly and they are not effective, thus the amount of passengers flying with Vietnam Airlines is considerably decreased. In addition, Fuel provided by the aviation fuel company is three times as expensive as that of the world price due to high tariff. Vietnam Airlines’ network is still so small and less well-known. It’s partly due to the high advertising cost. Thirdly, in terms of platform and port, Vietnam Airlines hasn’t had a reasonable design for the passengers. Besides, the airlift is not suitable to absolutely exploit all planes. “Delay” situation is one of the main issues need to be overcome. Finally, Vietnam Airlines’ aircrafts are leased and the fleet is small in term of quantity therefore the flight schedule is not secured and VNA could not foresee and prepare for unexpected changes. Despite of quite good service in flight, it has not come up with the international standard quality. While Vietnam Airlines would like to have more air lines to all nations, most of Vietnam air-hostess can only speak English and especially the service is not good. It’s also one of the weaknesses need to be quickly surmounted. 2.2.2.3. Opportunities Aviation is one of the important economic sectors in Vietnam’s modernization, especially in the context of its pending accession to the WTO. For the last few years, Vietnam Airlines has developed in terms of scale, speed and growth. From now until the end of 2007, one of the key tasks of the company is to open a new direct flight to the United States. This flight will be an important means to strengthen and expand international cooperation by meeting the travel demands of enterprises and overseas Vietnamese living in the US. Many preparations must be made for the opening of this transoceanic line, including the enhancement of planes. Presently, VNA has 38 planes, most of which are modern Boeing and Airbus. This number has not met demands for domestic, regional, and European flights. To solve the shortage of planes, the Prime Minister has approved VNA’s plan to buy ten Airbus 321s and four Boeing 787s. He has also allowed the company to develop a project to buy or hire ten additional Boeing 787 planes, to research the possibility of purchasing Airbus 350 and to research the possibility of hiring more Boeing 777-200 ERs. These steps take initiative in meeting the company’s development demand in the 2010-2020 periods. In its domestic transportation plan, VNA will submit to the Prime Minister a proposal to buy five more ATR72s for domestic lines. With plans to open a new direct flight to the US and to strongly develop its modern aircraft, Vietnam Airlines has been affirming its image in the international aviation transportation market, earning the prestigious right to be the national airline company. In addition, the national flag carrier has put Vietnam Airlines’ first leased Boeing 777 into commercial operation on international routes. It launched a direct Hanoi-Paris service in June and a non-stop Ho Chi Minh City-Paris service in July, using Boeing 777s. The success of this deal and business cooperation between Boeing and Vietnam Airlines will lure investors and business from the US and other nations. 2.2.2.4. Threats The second half of 2003 was fluctuated by events related to control of the Airline. With the economic slowdown continuing to weaken the travel and tourism industry, consumer demand was further dampened by the global terrorist alerts, the worsening situation in Iraq in this year leading to the eventual war, and at the end of the financial year, the sudden and devastating outbreak of the Severe Acute Respiratory Syndrome (SARS) in Asia. The outlook for the industry was rather uncertain. Vietnam Airlines dominates the domestic market and its only minor competitor Pacific Airlines. On international routes, Vietnam Airlines has to compete with world’s leading airlines. However, the operations of flights between destinations are bound by aviation agreements between countries which are in favor the national flag airlines (Company interview). Thus, the determination of key competitors is narrowing to the narrowly defined segment i.e. the specific routes. Table 3 summaries the key competitors on key competing markets with their generic strategies. In just over two years, four foreign cheap airlines have conquered Vietnam’s airline market. Vietnam’s airlines have missed their chance and have to face fierce competition with foreign airlines. With an average ticket price of around 70 USD, excluding airport fees, for a Hanoi – Singapore one way flight, and 50 USD for a one-way ticket between Hanoi and Bangkok, low-cost carriers Tiger Airway and Thai Air Asia have made a breakthrough in Vietnam’s airline market. This is the first time for those who are not rich to have chance to fly abroad. Many Vietnamese have never used domestic airline services but they now have the chance to access low-cost foreign airlines, with undreamed-of one-way ticket of 6-25 USD. Meanwhile, ticket prices for Vietnam airlines domestic flights are still very high. Low-cost foreign airlines meet the demands of low-income people. Recognizing the potential of Vietnam’s airline market, low-cost foreign airlines continue opening more air routes in Vietnam and working out strategies to attract passengers with competitive airfares. Whilst foreign low-cost airlines are seeking potential markets and initially succeeding in conquering the Vietnamese market, Vietnam’s airlines are missing business opportunities. Vietnam Airlines announced its intention turn Vasco into a low-cost airway but it has not made a specific plan yet. In addition, the traditional routes of Vietnam Airlines are also facing fierce competition with low-cost flights. Overall, on all routes Vietnam Airlines has to compete with stronger competitors who have competitive advantage in bigger fleet, wider market coverage, alliance membership, information technology deployment in e-business and higher perception of quality. Table 2 . 3: Key competitors and competitive strategies Generic strategies Cost leadership or focused cost strategy Differentiation or focused differentiation strategies Key competing markets South East Asia and Australia Thai Airways, Malaysia Airlines Garuda Singapore Airlines, Cathay Pacific North Asia (mainly China,Taiwan, Korea, Japan) China Airlines, China Southern Airlines, Korean Air Cathay Pacific, JAL, Singapore Airlines Europe Malaysia Airlines Air France, Lufthansa Singapore Airlines, Cathay Pacific North America China Airlines, Korea Air Singapore Airlines, Cathay Pacific United Airlines Source: International civil aviation organization website 2.2.3. Doing market research 2.2.3.1. How does Vietnam Airlines find out the customers’ needs and wants? According to one survey, we know much more about what Vietnam Airlines has done and what it has not done yet. Here are some customers’ comments about the Vietnam Airlines service: “We flew recently from Paris to HCM and Hanoi. During our stay we took several internal flights before flying back to Paris. We had quite positive experiences, clean planes, good food, friendly crew, good service.” Frans Van Viem’s comment_ Source: Vietnam Airlines’ navigation log. “We flew to Vietnam in June and in total boarded 4 different flights. We were very happy with the service, meals and cleanliness of the aircraft. On our way home we were delayed in HCMC for 2 hours and the cabin crew served dinner at the terminal, then we were served another meal shortly after take off. We would fly with them again and thought they were good value.” Elizabeth Richardson’s comment_ Source: Vietnam Airlines’ navigation log “SYD-SGN-SYD Economy Boeing 777-200ER. This is the second time I have flown Vietnam Airlines to SGN in the last 3 years for leisure purposes. Both times the aircraft have left and arrived on time. On board the aircraft are clean and there is plenty of staff to attend to your needs” Jake Mansfield’s comment_Source: Vietnam Airlines’ navigation log On the other hand, some others people do not satisfy much with VNA’s service. “I've visited Vietnam Airlines' website for the fist time and must say I was not impressed. The site is poorly designed and it contains virtually useless information. Links to "news" led to broken links (page not found)! If the people of these airlines are as incompetent as the company's website, I would not consider flying with them.” H Tran’s comment_Source: Vietnam Airlines’ navigation log “We traveled from Brisbane to Hanoi via Sydney & HCMC. We were quite surprised to have flown into HCMC as the travel agent told us we would be going direct from Sydney - Hanoi. Flight to Vietnam was quite interesting on a 777ER. Plane looked great on the outside, another story for the inside. As been posted previously, there was no in-flight entertainment, not even a TV screen to look at, the audio didn't work, and some seats didn't have a recline button to press for recline. I have seen in other posts that the planes lacked good air conditioning, at times this is true but at other times it was quite comfortable” Kelvin Folkes’comment_Source: Vietnam Airlines’ navigation log In general, the passengers satisfy with the Vietnam airlines’ security, attitude and service however there are some limitation needs to be adjusted. 2.2.3.2. Market Segmentation 2.2.3.2.1. Broad Segmentation The current market of Vietnam airlines is composed of people that travel by air from, to or across destinations in Vietnam. As Vietnam Airlines operates nationally and internationally, passengers are so various of nationalities, country origins and hence the psychographics and behavior. Therefore, it would be difficult, complicated and insufficient to segment customers by demographics or by destinations either domestic or international. Vambery (1976) suggested that the market for air transport can be divided into segments, each possessing preference sets regarding to level of fares, service quality, scheduling of flights and supplementary services distinguishable to others. As the airline industry is characterized by substantial variety of demand level over time and demand peaking, it’s suggested that there are two factors influencing customers’ behavior, schedule-sensitivity and price-sensitivity. Currently, with the absence of no-frills, airlines in Vietnamese air transport market, full-service carries offer 3 classes of service: First Class, Business Class, and Economy Class. We have classified service types according to factors affecting buyer behavior (schedule/convenience, price-spectrum) and the purpose of travel (personal, business or leisure purpose). We also take into account the expectation of no-frills venture in the future. Customers satisfy their need for time critical travel by using the airline service as air transportation deems so outweigh other means of transportation in meeting customers’ needs for timely transportations. This need can be included in the broader need for traveling between distant destinations within a nation and from/to other overseas nations: This broader need could be satisfied by the transport (travel) market. In Vietnam, it is possible for traveling by sea, rail and road. 2.2.3.2.2. Needs-based segmentations and segment identifications The Business travelers These travelers assign the high priority to schedule, convenience and comfort. The people need timely transportation due to business requirements. They travel to Vietnam for seeking investment and business opportunities. This is the second largest and fastest growing group of incoming travelers. Business travelers tend to come from Taiwan, Japan, Singapore, and North America. The holiday markers This group of leisure travelers on the other hand, may place importance on schedule and comfort of air travel, on the other hand, is willing to take advantage of available discounts. The degrees of price elasticity are varied, as the travelers can be ranging from affluent people and those who want a premium holiday to back packers. As for Vietnam and to neighboring nations are more popular than expensive trips. The affluence aged 25-49 is the major group of travelers (55% of Vietnamese holiday’s takers). Thailand and China are two main destinations of Vietnamese outbound travelers). The “Economy” travelers. This segment is relatively sensitive to price. Passengers belonging to this segment would be willing to make significant compromises on schedule and comfort for better prices. On one hand, the large majority of the inbound travelers belonging to this group are Vietnamese overseas who travel regularly to their homeland. On the other hand most Vietnamese companies’ employees travel on business trip with economy fares. “ Traveling by air is too expensive to me” Members of this segment are probably using substitutes of air transportation such as train or coach service because they can not afford the air ticket. With a large population and a long territory like Vietnam, the market potential of the home market is so enormous if air travel is more affordable. Of 28% of international visitors arriving by land, most are Chinese. In the home market, the Vietnamese 15-24 are group consisting of mainly students who do not have financial means is the third largest holiday maker group. It is noteworthy that domestic air travel increased by nearly 50% over the period 99-03 through it accounts for only 3% of the 15 million domestic. To know more clearly, we can take the roundtrip price for domestic route as an example of Vietnam Airlines’ market segmentation. Table 2 . 4: Roundtrip prices Roundtrip Prices in VND Business class Economic Class Purchased 7 days in advance Purchased 14 days in advance Seniors Students and youth Hanoi- HCMC 4.200.000 3.000.000 2.700.000 2.400.000 1.950.000 1.950.000 Hanoi-NhaTrang 3.640.000 2.260.000 2.350.000 2.100.000 1.700.000 1.700.000 Hanoi-Danang 2.240.000 1.600.000 1.450.000 1.250.000 1.050.000 1.050.000 Hanoi-Hue 2.240.000 1.600.000 1.450.000 1.250.000 1.050.000 1.050.000 HCMC-HaiPhong 4.200.000 3.000.000 2.700.000 2.400.000 1.950.000 1.950.000 HCMC-Vinh 3.100.000 2.200.000 1.950.000 1.750.000 1.450.000 1.450.000 HCMC-Danang 2.240.000 1.600.000 1.450.000 1.250.000 1.050.000 1.050.000 HCMC-Hue 2.240.000 1.600.000 1.450.000 1.250.000 1.050.000 1.050.000 Source: Heritage Magazine Look at the above table; we can notice that there are different price levels for different classes. 2.2.4. Targeting Markets of Vietnam Airlines Vietnam Airlines will target the following segments. Primary: - Domestic Leisure & Economy travelers: Vietnam’s population of 80 million, whose living standards are rising, is a key demographic factor behind the choice of this targeted segment. Vietnam Airlines also seeks to satisfy its public obligation as an infrastructure service provider (Vietnam Airlines website). - International Leisure & Economy travelers: As the foreign tourism, particularly economical package holidays, increases, it is expected that passenger traffic between Vietnam and other countries will continue to rise strongly. More than two million Vietnamese living overseas also offer further potential for air travel market to or from Vietnam. The overseas Vietnamese community is the buoyant group for international travel market inbound/ outbound Vietnam regardless of situational uncertainties such as recent SARS outbreak or terrorist attacks. Secondary Domestic and International Business travelers: The segments have similar need for schedule flexibility and travel comfort. The Government’s efforts in improving business and investment climate and promoting Vietnam as a MICE (meeting, incentive, convention and exhibition) destination results in the increasing number of business travelers who are also the big spenders. Vietnam Airlines will target business and MICE travelers who seek both economical travels with reasonable comfort. 2.2.5. Marketing Mix Strategies 2.2.5.1. Product Strategy Product is the most crucial element, if not want to say it is the first and foremost “P” that Vietnam Airlines must care about setting up its marketing strategy because other Ps has to fit the Product. Air service is a special industry that produces both products and services. When people buy a ticket to any place in the world- a product, they also purchase other services that accompanied with that ticket. In the context of fierce competition from other nations Vietnam airlines has to offer right products which are typical and best satisfy its customers. In general, the major product of Vietnam airlines is passengers. The core products include flight routes, available seats, etc. The secondary products include ground service and in-flight service i