MKT – 6301
Group 10
Air France – Written Case Analysis Background & Key Issues Air France, which came into existence with the merger of five French airlines in 1933, seventyfive years later it had become one of the most efficient in the entire Europe. It was able to provide largest number of connections within the shortest time span. It had also started its flight to United States after World War II. In 2004, it conglomerated with the Netherland-based KLM and created the SkyTeam global alliance. Hence, Air France was growing and expanding at great pace. By the end of 2006-07 fiscal year, Air France-KLM continued to see growth. The global economy grew by 4.9 percent whereas the airline traffic increased by 6.6 percent.
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Air France was a big client for a media solutions provider firm, Media Contacts. The main aim of Media Contacts here was to optimize the performance and increase the rate of advertisement for Air France with respect to the dollars spent on the search engine marketing campaigns. Now was the time when the search engine marketing was catching up the heat and the revenue because of it was also increasing. So, here the key issue for Media Contacts was to suggest an optimized search engine which could increase their revenue which they were targeting right now. This can be seconded as even the consumers were going online for research and booking their tickets. There was an increase of 263 percentages between 1996 and 2005 in the number of people going online to research and book the tickets. There were many big search engines which were famous and each had their one or the other advantage. The search engines included Google, MSN, Yahoo and Kayak. Media Contacts felt that there might be a case where each search engine might be able to target a particular type of people and cater customers from different background. Hence, the issue that Media Contacts faced was to use one or more of the above mentioned search engines and tries to increase the revenue as much as possible for Air France.
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Most of the budget was spent on Google adwords. After that came Yahoo. MSN had he highest cost per click in the Stated whereas Overture was at the opposite end. Other key issue which Air France faced was to reduce the air fare prices as there were competitors in that market and they had to do the same to be or remain at the top. They also had to decide whether or not to increase their budget after branding. Also the use of Kayak is a must. The use of metasearch for the brand building and converting the clicks into sale is also very important. These are the major things or issues which need to be kept in mind.
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MKT – 6301
Group 10
Industry Analysis The Airlines industry is dominated by several big companies; American Airlines is the biggest airline worldwide. The Sky-Team Global Alliance is a major player in Europe; the industry is not very profitable due to heavy competition and heavy Churning. The average airline industry ROIC(Return on investment change) is about 5,9 %, this average in particular in US industry is about 14.9%.
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The Airline traffic growth is continually increasing and is more than global economic growth in a year, there was about 50% more Increase in demand for air travel between the years 2000 and 2006. The airline industry has been plagued with low returns, bankruptcies, and everfluctuating demand. But in 2006 airline profitability finally improved. After six challenging years and $42 billion in losses, airlines came within $500 million—0.1 percent of revenue—of what industry analysts considered breaking even. Furthermore, operating profit for the industry reached $13 billion in 2006, more than double the amount generated previous year. At just over 3 % of revenues, this was still far from ideal industry profit levels. The landscape for airlines industry is a competitive one, the driving factors being – becoming Low Cost Airlines (in order to show price differentiation) results in prices decrease, which inturn would lead to price competition rather than service competition?!, also the suppliers in this industry are very powerful, mainly dominated by Boeing and Airbus. Also the Pilots Unions is a highly qualified workforce, the lobbying in this industry is highly Intensive, Government policies on this industry is also not very supportive, as most of the revenue that is generated would have to be given off as either taxes or some other investments. Very important barriers to entry, as the initial investments and the exiting barrier is very high as a result of which the Industry becomes highly competitive and less service oriented.
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The modern day Internet has a very big impact on the industry; internet is also a very appropriate medium for airline industry which makes the industry omnipresent. Internet also acts as a fast multitude of advertising tools and possibilities, due to obsolescence of travel agents, which is a major shift of focus in terms of distribution, now Direct Distribution Channel enables the shift in bargaining power to consumers, there is a sudden and high emergence of different kinds of online flight sales platforms, which in-turn gave rise to travel aggregators and travel booking alternatives like -Kayak, Orbitz and Expedia.
SWOT Analysis
Strengths
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SWOT Analysis – Air France
The alliance of the two airlines(Two of Europe’s oldest airlines) made it possible to cater to a large number of international passengers flying to 225 destinations in 109 countries. 2
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MKT – 6301
Group 10
Many the end of 2006-07 Air France had maximum growth, During this time the global economy grew by 4.9% according to the association of European Airlines. The passenger activity increased 5 percent, with 73.5 million passengers carried resulting in Air France posting a 5.1 percent rise in unit revenue per available seat kilometer.
The Airline industries evolvement into the worldwide web and the emergence of ECommerce better protected from many of the logistical problems faced by other industries as they evolved toward online sales.
If demand was low, the company reduced capacity by eliminating unnecessary aircraft. For this reason, a substantial part of Air France’s fleet was on short- or medium-term lease, a practice known as a “progressive operating lease
Weaknesses
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Air France’s growth flourished inside the United States, Outside the United States, airlines had suffered net losses in 2001 following the events of September 11, but in subsequent years, most airlines had seen the return of modest profits.
The airlines’ direct Web sites had difficulty competing with the convenience of the aggregators, which could perform lowest-price searches and allowed the consumer to build full travel packages with the convenience of one purchase from one Web site.
Several search engine marketers like Kayak, Google etc had better deals through bundling which ended in Airlines losing on ticket sale profits.
Opportunities
Each search engine that Air France was working with in July 2007—Google, Yahoo, MSN, and Kayak—appeared to specialize in different services and consequently might appeal to different audiences.
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Media Contacts recommend a uniform strategy for Air France across search engine publishers but they can more effective to tailor each publisher strategy to maximize return on investment.
Th
In 2005 an estimated 32.2 million households in the United States had high-speed Internet connections and subsequently moved to Mobile technology, AirFrance had the opportunity to make a move to online mobile ticket sales.
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MKT – 6301
Group 10
A substantial part of Air France’s fleet was on short or medium term lease, a practice known as a “Progressive Operating lease” which proved to reduce losses and could be used as a future operating base.
Threats The Taking advantage of this growing demand for economy air travel was Ryanair, Europe’s original low-fare airline – Such competition from other smaller players inside the Unites States was a threat.
Air France had a strong base inside United States, Outside United States, AirFrance had incurred net losses following Terror threats. Such factors were always a threat not only to Air France but also to the entire Airline Industry.
Airline normally made profits but restructuring during bankruptcy may lead to huge losses.
Search Engines like Google, Yahoo not only can be a boon but also a bane in some situations like display of other Airline Fares along with the desired company’s fares.
Media Contacts had to determine whether broad or focused keywords were more profitable for AirFrance since almost all of the other competitors had similar tags/keywords.
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Assessment of Alternatives
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“Profitability is finally on the horizon. Airlines can be proud of impressive results in safety, efficiency and the environment. But profits still don’t cover the cost of the capital. Air transport must continue its agenda for change.” – Giovanni Bisignani, Director and CEO of IATA. The internet brought the major transformation in the travel industry. The travel industry was the one of the first to adopt the e-commerce in their sales strategies. This allowed more convenience to the customers for accessing the information. This new way of providing the accessibility to the customer played an important role in increasing the businesses. The customer gained trust the in the online services and this helped emergence of the e-commerce which indeed helped the Air industry as the provided the direct-to customer service. There are different type of online service providers, like direct website of the airlines and the aggregator websites. The website of the individual airline provides the booking of the flight and provides the information related to the flight schedules, real time flight information. In the span of two years from 2002 to the 2004, the Online Check-in has increased from 22 to 76(reference: exhibit 4). Many aggregator websites are also available like expedia.com, priceline.com, when customer books from these websites, airlines earn the revenue but the pay a certain fee for 4 This study source was downloaded by 100000805705997 from CourseHero.com on 12-08-2021 10:34:38 GMT -06:00
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MKT – 6301
Group 10
facilitating the purchase. These websites also provides the other services like hotel booking, car pickup, etc. The meta-searchers is the other type of the service provider which is used by the customers just to search the travel services and make their choice, then getting linked to companies’ website for the further bookings. Examples are: Kayak.com, sidestep.com With consumer accepting the ecommerce platform, the main task was to reach out the maximum customer via internet. This gave rise to the SEM, Search Engine Marketing. This is a well-known method of marketing in which the product and services are promoted through the targeted placements on Internet search engine results page (SERPS). The SEM includes Search Engine Optimization and pay per click sponsored search campaigns. SEO strategies looks for the technical aspects of sites such as URL, address structure, text content, information structure, etc. The goal of SEO is to improve the sites ranking on the search result page, i.e to naturally appear higher on the SERP.
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In Pay per click, the sponsored link usually appears on the top of a SERP for a relevant search, the relevancy is determined by the match of the keywords bid on the advertiser. PPC is considered easily measurable, due to the ability to track precise actions on the internet. Advertiser uses the analytic software that gives details about the keywords that are frequently clicked, number of clicks, number of clicks converting into the transactions and the revenue generated with the same. SEO and Pay per click works together in the SEM strategy and helps to boost the sales.
Quantitative Analysis Market - Share
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The Market-Share for all the search-engines for the year 2007 can be seen as below:
As seen in above chart, Google has the greatest market share and clearly is the best when it comes market-share, implying that it is a very well-known brand and would reach a majority of audience, hence being a safe(but a little costly) return on investment.
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