Low Cost Carriers (LCC) Tiger Airways’ Marketing Strategy

Executive Summary

Since the late of last century, the business model of low cost airline represented by Southwest Airlines has been spreading all over the world, has influence and changed the framework and development of the world airline industry.

This report is the analysis of the youngest airlines companies of Low Cost Carriers (LCC) Tiger Airways’s marketing strategy. Firstly, it is focused on the macro environmental factors affecting Tiger Airways. Next, it analyzes the competitors including direct and indirect competitors to point out the competitive advantage of Tiger Airways. Finally, this report is focused on the core competence analysis of Tiger Airways.

1. Introduction

The low cost carrier is an airline that offers generally low fares in exchange for eliminating many traditional passenger services. The concept originated in the United States and subsequently spread to much of the rest of the world. The term originated within the airline industry referring to airlines with a lower operating cost structure than their competitors. The first successful low cost carrier was Pacific Southwest Airlines in the United States, which pioneered the concept in 1949, then this concept has been incorrectly given to Southwest Airlines which began service in 1971 and has been profitable every year since 1973.^[1]

Today, the low cost carrier model is applicable worldwide. One of the famous and successful airlines is Tiger Airways.

Tiger Airways Private Limited is a low-cost airline which set up their headquarters in Singapore’s Changi International Airport. It is operated by one of the premium airlines in the world (Singapore Airline). The parent company is Tiger Aviation Private Limited that consists of The Tiger Singapore and Tiger Australia, Incheon Tiger Airways with slogan “Get The Real Deal”. The company was established from December 2003 to September 15, the 2004 maiden voyage.^[2] It is currently the largest low cost airline operating in Singapore in terms of the amount passengers.

Tiger Airways is Asia Pacific’s true low fare airline. It offers the lowest fares of passenger safety and convenience of air travel. Tiger Airways from Singapore in September 2004 brought in two aircrafts in its fleet, the network of three routes. In the four years of operation, the operation of Tiger Airways from Singapore and Melbourne bases, base and third-party action in Adelaide in early 2009.

Tiger Airways currently fly to over 25 destinations in nine countries in Asia. In only one year (2006), the airline served 1.2 million passengers; it is a growth of seventy five percent compared to the previous year. ^[3] Through the internet (the public and agents), it accounts for seventy five percent of Tiger Airways seats sold. In other words, passenger book from call centers and airport outlets accounts for twenty five percent. This indicates that the low cost carrier (LCC) model uses online marketing and technology to reduce operating costs is working. ^[4]

2. Macro-Environmental analysis

2.1 Technology

Singapore is a technology driven country. From wireless internet to escalators, advanced technology is found everywhere in the country. People use technology here for the better quality of their lives. Under the Infocomm Development Authority of Singapore (IDA), wireless@sg is a government initiative to build Singapore’s infocomm infrastructure. Working through IDA’s call-for-collaboration, SingTel, QMax and iCell deploy a municipal wireless network throughout Singapore. Internet based booking adopted by Tiger Airways is one of the technological benefits.

E-ticketing is the fastest way of booking tickets in the 21st century. Tiger Airways attracts most of its customers online.

In addition, Tiger Airways operations are based on high-technology, and the company is constantly striving to bring customers the best services available in the industry in terms of operational efficiency, reliability and safety.According to industry standards, the ‘on-time’ departure is the one that departs from the designated bay less than 15 minutes from the scheduled departure time.^[5] That means they are not only doing their every effort to ensure that their planes leave on time (and get customers there on time), but also remain in tiptop condition as well, thus, customers will always get the same great experience that have come to expect, every time.

2.2 Demographic and economic

The population in Singapore has increased and the visitors coming into Singapore has also increased. According to government statistics, the population of Singapore was 4.84 million in 2008, of whom 3.64 million were Singaporean citizens and permanent residents.^[6] Singapore has one of the world largest GDP growths, which means that the people in Singapore are growing richer with higher rate of success.

Singapore has a highly developed market which has historically revolved around extensive exports trade, in other words an export driven economy hugely dependant on export of goods to other countries.

Along with Hong Kong, Taiwan and South Korea, Singapore is one of the Four Asian Tigers countries. The economy depends heavily on exports and refining imported goods, especially in manufacturing. Moreover, Singapore is also a popular travel destination making tourism one of its largest industries. There were about 7.8 million tourists visited Singapore in 2006.^[7] It has also indirectly resulted in booming development of aviation industry. Singapore gets its revenue mainly through tourism and most of people coming from different nearby countries prefer these types of airline for their short travel.

2.3 Governmental

Political forces are one of the most important factors for budget or low cost airlines. Forty nine percent of the shares of Tiger Airways are owned by Singapore Airlines (SIA). The chairman of the Singapore airlines belongs to the advisory council of the president which gives an added advantage to expand their network relationships with other airlines and countries. Singapore has a successful and transparent market economy. Government linked companies are dominant in various sectors of the local economy, such as utilities, media, and public transport.

Singapore has consistently been rated as the least corrupt country in Asia and among the world’s 10 most free from corruption by Transparency International.^[8]

Apart from that, the Economic Development Board (EDB) together with the Information Development Authority of Singapore (IDA) aim to make Singapore the region’s major center. Their purpose is to promote Singapore as a compelling location for companies across the entire industry value chain; creating a self-reinforcing, inter-dependent ecosystem that will continuously attract talent, capital, ideas, and enterprises to create international products and services from Singapore. ^[9]

2.4 Cultural

Singapore is a mixture of an ethnic Malay population with a Chinese majority, as well as Indian and Arab immigrants. There also exist significant Eurasian and Peranakan who are known also as ‘Straits Chinese’ communities. Around 78,000 people work in the media in Singapore, including publishing, music, broadcasting, print, film, digital and IT media sectors. The industry contributed 1.56% to Singapore’s gross domestic product (GDP) in 2001 with an annual turnover of S$10 billion. The industry grew at an average rate of 7.7% annually from 1990 to 2000, and the government seeks to increase its GDP contribution to three percent by 2012.^[10]

Singaporean cuisine is an example of diversity and cultural diffusion, with influences from Chinese, Indian, Malay and Tamil cuisine. In Singapore’s hawker centres, traditionally Malay hawker stalls selling halal food may serve halal versions of traditionally Tamil food. Chinese food stalls may introduce indigenous Malay ingredients or cooking techniques. This continues to make the cuisine of Singapore a significant cultural attraction. That is one of reasons why Singapore is a popular tourist country.

3. Competitive analysis

The cost of competition in airline industry is high. Tiger Airways, due to its low cost nature, has cut throat competition with the rival airlines like Virgin Blue and Jetstar. The industry growth is average for switching between airline companies which brings more convenience to the customers. The fixed cost is high for the Tiger Airlines and there is opportunity for it to sell unsold seats cheaply which results in pricing wars between the rivals. Tiger Airways competes in terms of price technology, customer services, in-flight entertainments and many more areas.

3.1 Comparison of Tiger Airways with Direct Competitors

Air Asia:

Air Asia is a low cost airline based in Kuala Lumpur, Malaysia. This is the first airline in the region providing ticketless travel and implementing comprehensive unassigned seats. With the domestic and international flight reservation Air Asia operates 656 flights daily, 102 routes to 57 destinations in 12 countries.^[11]

Destinations Covered: Air Asia covers fifty seven destinations as Tiger Airways which covers only nineteen destinations. It covers three times more than Tiger Airways’.

Cost Analysis:

Air Asia is approximately thirty percent more expensive as compared to Tiger Airways. For example, Tiger Airways ticket to Phuket is seventy two SGD whereas Air Asia charges one hundred and ten SGD. Air Asia charges one hundred and seventy SGD to Bangkok whereas Tiger Airways charges one hundred and thirty SGD.

Baggage Allowance:

Tiger Airways allows a maximum of fifteen Kg check in luggage and charges 25 SGD whereas Air Asia charges 7.50 SGD.

Air India Express:

Air India express is India’s first international airline that offers great value for money and provides convenient connectivity in the short range routes. Air India Express and Tiger Airways both connect India to Singapore and vice versa through Chennai.^[12]

Destinations Covered:

Air India covers ten international destinations whereas Tiger Airways covers nineteen destinations.

Cost Analysis:

Air India Express is more expensive than Tiger Airways, for example, Air India charges 306 SGD to Chennai whereas Tiger Airways charges 269 SGD to Chennai.

Baggage Allowance:

Air India allows a certain limit of free of charge baggage whereas Tiger Airways only allows seven Kg of free hand baggage.

Lion Air:

Lion Air is Indonesia’s largest private carrier and Asia’s first hybrid carrier which offers both economy and business class seating. It operates scheduled passenger services on an extensive domestic network from Jakarta to forty destinations with 210 daily flights as of May 2008.^[13]

Destinations Covered:

Lion Air covers 7 international destinations whereas Tiger Airways covers 19 destinations.

Cost Analysis:

Lion Airways is a little cheaper as compared to Tiger Airways. For example, Lion Airways charges 89 SGD for a ticket to Ho Chi Minh City whereas tiger airways charges 102 SGD.

Baggage allowance:

Free baggage allowance by Lion airs is 20kilos for economy class and 30kilos for business class whereas tiger allows only 7 kilos.

3.2 Tiger airways facing Indirect Competitors

Indirect competition includes trains and buses as other means of transport to reach a destination. Land transport that includes trains and buses are the indirect competition to air travel because they permit far greater capacity and frequency of service which is not possible by aircraft and their schedules are less interrupted by bad weather than airlines.

Tiger Airways covers destinations such as Kuala Lumpur, Bangkok, Phuket and other destinations where are also accessible through other means of transportations such as trains and buses. Trains and buses hence are an indirect competition because of various reasons, such as time, price, and luggage allowed to carry, etc,. For example:

1. Tiger Airways has daily flights to Kuala Lumpur and Bangkok from Singapore but the frequency of buses from Singapore to Kuala Lumpur are ten times more.

2. Tiger Airways charges 59 SGD for a one way ticket from Singapore to Kuala Lumpur whereas the bus charges 33 SGD. However there are few buses such as Transnational Express which costs 15 SGD. Therefore, the ticket price varies depending on the type of bus passengers choose and the place from where passengers board the bus. A slower, costlier, but more comfortable way to travel to Kuala Lumpur, Malaysia, would be by rail. To Kuala Lumpur there are two day time trains and one over night sleeper train daily. The charges vary depending on the seat passengers choose. For instance, if passengers choose a first class seat it will cost approximately 28 SGD whereas a second class seat would cost around 14 SGD.

3. Tiger Airways charges 131 SGD for a one way ticket from Singapore to Bangkok and the train charges approximately 82 SGD for second class sleeper. However there is no direct train from Singapore to Bangkok. Therefore, passengers have to change minimum two to three trains further down to Bangkok. Obviously, convenience of travel is a known fact as traveling by air is the fastest means of transportation as compared to any other means. Basically for an airlines industry the main substitutes are travelling by train, bus or car to any desired destination. The various factors affecting these substitutes are money, convenience and time.

However Tiger Airlines being price sensitive lures many travelers away from these substitutes. Thus, the cost is the key consideration for many travelers.

The competitive possession of tiger airlines is affected by the bargaining power of the buyers. The potential buyers can put a lot of pressure on airline business which further affects its price, volume and profit margin. Tiger Airlines flying from the Gold Coast airport is competing for the same customer, which in turn is strengthening the buying power.

A lot of buyers are attracted to tiger airlines as it main strength is its price.

The threaten route for Tiger Airlines in the future is determined by the existing barriers to entry. Cost of entry is the biggest barrier. The cost of buying and leasing aircrafts, safety and security measures, customer services and man power is high. Tiger Airways itself a new entrant in the Airline industry has added a lot to the competition. This means a major constraint on the profit margin for the Airline industry.

4. Core Competences Analysis

In order to satisfy the visitors on the Asia-Pacific region, Tiger Airways relies on low fares and the reliable regional air services. That is a true low fare airline which operates on three customer-focused core strategies:

First of all, market stimulation. Tiger Airlines creates opportunities for new travelers and empowering budget conscious people to fly more often by making travel affordable with its consistent low fares. Tiger Airlines facilitates its processes of providing effective consumer service by online sales services, they provide hotel accommodation for the passengers, car rental and travel insurance benefits to passengers online.

Huge response is generated by the consumers through the process of online sales as the number of seats booked online is increasing year after year. Services provided to travelers with benefits like offering them more options in terms of increased capacity in routes. Tiger Airlines is still under process of opening more travel options for the employees.

Secondly, Tiger realized the importance of stringent cost control through their operations, so that they can keep our fares consistently low for travelers. Tiger Airways empowers budget conscious people to fly more often by making travel affordable with its consistent low fares. The market share of the airlines has increased due to the low price. Tiger airways offered 100,000 seats at 9.95 for Australian destinations.

To book return flights from Melbourne at Mackay at 49.95 per flight and there were no server problems as in the case of Jet star. They charge $30 for exit row seats and $8 for all other seats.

Thirdly, capacity utilization maximizes the number of sectors served by their aircraft per day with efficient air traffic planning. Tiger Airways has effective workforces, who work diligently to make the airlines a success. With the increase in the number of phone customers, due to good salesmanship done by the employees working in the call centers, the airline has decided to increase the number of staff in call centers. Generally the tickets are sold online or in airports. After sale services like delivering the purchased ticket at the house of customers adds to its marketing strategy.

Moreover, Tiger Airways seeks to act as a good corporate citizen at all times and undertakes contributions and sponsorship programs as part of its partnership with the community. For example, it is currently making conscious efforts to conserve wildlife and sponsors the upkeep of Winnie, a white Tiger at the Singapore Zoological Gardens for the purpose of conservation, education and recreation

Tiger Airways business model is based on the success of Ryanair, which uses a very low cost competitive basis, the basis of low fares. It also involves examining every aspect of the business, in an effort to eliminate non-essential costs, but it will not cut any corner of the passenger safety and on time.

However, Tiger Airways should be constantly looking for good business opportunities available to the market. For example, one glaring advantage of using YouTube is that it serves 100 million videos per day. No matter what YouTube content (unlicensed, kids falling of skateboards, etc), that’s a huge number and there are tremendous opportunities for Tiger Airways to benefit in order to reach such a huge audience for any business opportunities.

Changes in technology and markets on both a broad and narrow scale are opportunities that Tiger Airways can also utilize. According to Forrester Research, online consumer auction sales will reach US$65 billion by 2010. This is almost one-fifth of all online retail sales. The growth of high speed broadband, and the number of online users, has opened new windows of opportunity for reaching viewers. The aims is to find the most effective internet advertising techniques for making full use of the internet’s, rapidly expanding, global marketplace.

5. Conclusion

Based on above analysis, it can be seen clearly that Tiger’s success is no accident. It is based on their effective correct marketing strategies and operation performance. Although Tiger Airway is a successful company and has achieved good brand recognition widely, it still has much to improve in order to maintain the momentum it has generated over five years in operation.

From the research point of view, with the marketing mix audit, I am able to identify and provide suggestions based on the aspects which we feel have to be improved, reinforced, developed to be the most effective. Besides that, I get an obvious view of the marketing strategies employed by Tiger Airways through the macro, competitive and core analysis.

References

[1] The History of PSA, http://www.jetpsa.com/index/history.html

[2] Company Overview, http://www.tigerairways.com/sg/en/about_us.php

[3] Tiger Airways sees 75% jump in number of passengers. Channel NewsAsia, Janauary 2007

[4] Tiger Airways new Advertising Campaign sees sales up more than 60%, 26 October 2005, http://www.asiatraveltips.com/news05/2610-Advertising.shtml

[5] On-Time Performance, http://www.tigerairways.com/id/en/on_time_performance.php

[6] Singapore Statistic, http://www.singstat.gov.sg/stats/keyind.html#popnarea.

[7] Record Year As Tourism Exceeds 2006 Targets With S$12.4 Billion Tourism Receipts And 9.7 Million Visitor Arrivals, http://app.stb.gov.sg/asp/new/new03a.asp?id=6243

[8] Transparency International – Corruption Perceptions Index 2006. http://www.transparency.org/policy_research/surveys_indices/cpi. Retrieved on 2007-02-03.

[9] Singapore Paves the Way as Trusted Global E-Commerce Hub http://www.ida.gov.sg/News%20and%20Events/20060926094702.aspx?getPagetype=20

[10] Media 21: Transforming Singapore into a Global Media City. Media Development Authority Singapore (PDF). Retrieved on 17/09/06

[11] AirAsia, http://www.budgetairlineguide.com/airasia

[12] Air India Express, http://www.airindiaexpress.in/airindiaexpress/Home.asp

[13] Lion Air, http://w3.lionair.co.id/

[14] Tiger Airways, http://www.tigerairways.com/sg/

[15] Cheap Airline Tickets! http://www.kipaddotta.com/travel/cheap-airline-tickets.html

[16] Gross, S./Schroeder, A. (Eds.): Handbook of Low Cost Airlines – Strategies, Business Processes and Market Environment, Berlin 2007