The application of marketing in air service of Vietnam airlines

THE APPLICATION OF MARKETING IN AIR SERVICE OF VIETNAM AIRLINES TABLE OF CONTENTS Acknowledgement This thesis would not have been made possible without the help from many wonderful people who gave their supports in different ways. To them I would like to express my deepest gratitude and sincere appreciation. First of all, I am deeply indebted to my supervisor Asso. Prof., Dr Do Thi Loan, a senior lecturer and the Dean of the Post Graduate Studies Faculty of Hanoi Foreign Trade University,

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for her valuable instruction, corrections, comments, suggestions and enthusiasm during the development of my graduation thesis. Her guidance and encouragement have been invaluable to me and she will always be remembered as the key factor that influenced my career towards this path. Second, I am especially grateful to the lecturers of the English Faculty who provided me with a basic knowledge that is absolutely important in writing the thesis. I would also like to extend warmest thanks to all staff of the Vietnam Airlines and the Civil Aviation Administration of Vietnam (CVVA) who supplied me with valuable data. Third, throughout my hard working days, I was blessed with a great deal of support from my family. I am forever thankful to my admired parents for their love, understanding, and endless patience and for supporting me in all my endeavors. Finally, my last thanks go to all my classmates and former BBE graduates of the Foreign Trade University, for their encouragement and support whilst I was working on the completion of this work. List of abbreviations SWOT : Strength, weakness, opportunity, threat ATL : Above the line BTL : Below the line CAAV : Civil Association Administration of Vietnam VNA : Vietnam Airlines WTO : World Trade Organization SARS : Serve Acute Respiratory Syndrome HCMC : Ho Chi Minh City AVOD : Audio/Video on demand RTW : Round the world VFF : Vietnam Football Federation 7ps : Price, Place, Promotion, Product, People, Physical Evidence, Process UK : United Kingdom USa : The United Stated of America PEST : Political, Economic, Socio-cultural and Technological ICAO : International Civil Aviation Organization IATA : International Aviation Transport Association CRS : Computer Reservation System GPS : Global Distribution System List of Charts and tables Table 2 . 1: Vietnam Airlines' competitors 23 Table 2 . 2: Market Share of Vietnam Airlines 29 Table 2 . 3: Key competitors and competitive strategies 33 Table 2 . 4: Roundtrip prices 37 Table 2 . 5: Evaluating passengers' taste Source: Vietnam Airlines market survey 42 Table 3 . 1: Action plan for 2006 60 Chart 3.1: Good aspects of Vietnam Airlines’ service. 65 Chart 3.2: Aspects which VNA needs improving. 66 Chart 3.3: Passengers’ Favorite Airlines. 68 Introduction 1. Why I choose this topic The sixth Party Congress marked a turning point in the process of economic development of our nation. The country’s reform that began in the late 1986s and started generating results in the early 1990s created breakthrough changes in attitudes towards economy and what constitutes a modern state. What Vietnam has gained from the Doi Moi process is practically immeasurable. More important than any other things, however, is that the most significant achievement over the last 20 years was that Vietnam has successfully changed from its centrally planned economy into a socialist-oriented market economy. Thanks to the renovation process and the open door policies of recent years, Vietnam’s tourism and civil aviation industries have grown rapidly and recorded encouraging successes. Tourism development has helped the air industry to grow, and the development of the air industry ensures an important means of transport for tourism. The number of foreign visitors to Vietnam in the past few years has continued to increase, and those arriving by air account for well over 50 percent of them. At present, the concept of marketing has been widely applied in manufacturing sector in Vietnam. Nevertheless, the concept of marketing service in general and marketing air service in particular are quite new. In fact, many services industries such as airlines have traditionally applied marketing to their operations less than manufacturing firms. It cannot be denied that marketing is an important activity for any business that wishes to become and remain competitive and successful. This is certainly the case in the rapid changing airlines industry, especially Vietnam Airlines. However, there remains much room to improve in the application of marketing to air service of Vietnam Airlines. This is the reason why I choose this topic for my graduation thesis in the hope of making some recommendations to improve the efficiency of Vietnam Airlines. 2. Research Methodology Collecting data primary from doing field research, direct interviews and surveys in Vietnam Airlines and secondary data from text books and reference books concerned. Using different methods for study, comprising of analysis, comparison and generalization. Analyzing based on the marketing rules, processing and summarizing the collected data. Using online survey via email. 3. Focus of the study The focus of the thesis is on theoretical framework of marketing service and marketing air service and the assessment of the application of marketing air service strategy of Vietnam Airlines. 4. Structure of the thesis Apart from the introduction and conclusion, the thesis is divided into three chapters: Chapter 1: An overview of air service marketing. Chapter 2: Assessment of the applications of marketing in air service of Vietnam Airlines. Chapter 3: Marketing solutions to improving services of Vietnam Airlines. CHAPTER 1 An overview of air service marketing Since 1980s, in the UK more people are employed in the service sector than in all other sectors of the economy put together. It is the same in the USA and in most Western economies. In Britain, income from services contributes more than any other sectors to the Gross National Product, and income from selling services overseas, called ‘invisible earnings’ plays an increasingly important role in the balance of trade. Since that time, service has grown considerably and has received much attention. There are a number of factors which make services different from physical goods. Marketing applied in service including has developed accordingly. 1.1. WHAT IS AIR SERVICE MARKETING? 1.1.1. Special features of air service Unlike goods, services in general and air service in particular cannot be seen, touched, smelt, tasted, tried on for size or stored on a shelf. They are intangible. Services own some special features that often have a significant effect on marketing strategies. These features of services result in marketing mix decisions that are substantially different from those relating to the marketing of goods. It must be concerned with factors such as intangibility, inseparability, perish ability, heterogeneity and ownership when implementing marketing strategy. Intangibility Air services are intangible, that means services cannot be seen, tasted, felt, heard or smelt before the purchase decision. Some marketing authors even say that the basic difference between goods and services is the intangibility. Air services do not have real, physical presence as a product does. For instance, prior to boarding an airplane, airline passengers have nothing but an airline ticket and the promise of safe transportation to their destination. Although services are intangible, the experience customers obtaining from the service has an impact on how they will perceive from. What can the customers achieve from the customer service? The answer is the location, the inner presentation or the environment of where they are purchasing the service? In fact, a professional working environment, the hearty welcome of the staff or even the security of the airline will provide cues as to how well it is run. Inseparability The production and consumption of services are inseparable. Inseparability means that the consumers have direct experience of the production of the service. The task of satisfying customers for the provider of a service is in many ways much more difficult than it is for the manufacture of a product. In service industries everything has to be right from first time, all the time, any mistake can prove very costly in terms of losing customers. To take advantage of a bus service, both you and the bus must make the journey at the same time. Air service is similar, in most air services; both service providers and the customers must be present for the transaction to occur. Customer-employees are part of the product. The simultaneous occurrence of production, purchase and consumption of some services contrasts starkly with the lengthy time scale which can separate the production, purchase and consumption of a product. Heterogeneity Products are often made in batches while services are never identical. The human element ensures that services will be highly heterogeneous, which simply means varied. There are so many aviation firms within nation but how the customers choose among them? In traveling by plane the service quality may differ from the first time you traveled by that airline to the second, because the airhostess is more or less experienced. Thus, there are several causes of variability. First of all, services are produced and consumed simultaneously, which limits quality control. Secondly, the high degree of contact between the service providers and the guests means that product consistency bases on the service providers’ skills and performance at the time of exchange. Variability of services poses challenge to the marketing staff in service sector in general and in aviation in particular. Perishability Services last a specific time and can not be stored like a product for later use. In addition, with some services, there is fluctuating demand that may make perish ability features more serious. Key decisions have to be made on what maximum capacity level should be available to cope with demand. Moreover, attention has to be paid in times of low levels of usages. Short-term policies such as different pricing, special promotions will be adopted to deal with fluctuations in demand. Lack of ownership Ownership is not available in service since customer can not own and store service like a product. When a consumer buys a service he does not usually receive ownership of anything intangible. Services are used or hired for a period of time. Buying an air ticket to Australia, say, the service will prolong within 13 hours but the customers want and expect excellent service for that long journey. Air service buyers are therefore buying only access to the air plane or use of seats on the plane. 1.1.2. Service and Marketing service In general meaning, a product is something that is developed, manufactured, grown or extracted in exposure to the use of the buyer. A service, on the other hand, is a non-material equivalent of a good. Service provision has been defined as an economic activity that does not result in ownership, and this is what differentiates it from providing physical good. It’s claimed to be a process that creates benefits by facilitating a change in customers, a change in their physical possessions or a change in their intangible assets. The standard definition of a service is that provided by the American Marketing Association, which says: “Services are activities, benefits or satisfactions which are offered for sale or are provided in connection with the sale of goods”. Then William Stanton modified this definition to: “Those separately identifiable, essentially intangible activities which provide want satisfaction and which are not necessarily tied to the sales of a product or another service. To provide a service may or may not require the use of tangible goods. However, when such use is required, there is no transfer of the title to those tangible goods”. And how about marketing these services? There are different marketing service definitions by many famous economists such as Philip Kotler- John Bowen James Makens define marketing service as “ a social and managerial process by which individuals and groups obtain what they need and want through creating and exchanging products and value with other”. In addition, according to American Marketing Association, marketing service is defined as: “An organizational function and a set of processes for creating, communicating and delivering values to customers and for managing customer relationships in ways that benefit the organization and its stakeholders”. Thus, it can be said that marketing service refers to the marketing of activities and processes rather than objects, creating benefits and values to customers. 1.1.3. Marketing in air service Marketing in air service is part of marketing service bearing the characteristics of marketing service. Some aspects of air service marketing can be described as “consumer marketing”, in the sense that they are targeted at the individual or the family group. Marketing an air service means converting available seats into revenue seats. It is the revenue producing side of the air carrier operating statement; it interacts horizontally across any departments and vertically through all the tiers of the organizations. In order to be globally known, an airline has to determine passengers’ needs and wants, formulate strategies and provide total customer satisfaction collecting in the same time feed back on its performance. The marketing objective is to create value for a potential ticket buyer in open competition with similar offerings. In the airline industry, the value is created through corporate and brand image. For this reason, airlines invest huge sums of money in corporate advertising and developing brands which tend to distinguish from others. 1.2. PROCEDURES OF DOING AIR SERVICE MARKETING. 1.2.1. SWOT analysis SWOT analysis is a very necessary step that can not be skipped. It is regarded as an evaluation of the existing of any industry. SWOT stands for Strengths, Weaknesses Opportunities and Threats. By studying and analyzing SWOT, the company will have useful data to work out optimal marketing strategies. Strengths Every organization has some strength. In some cases this is obvious. The Strengths, hence, can be considered as anything that is favorable towards the business, for example Bangkok airways take advantages of the international network of Thai airways, Eva Air, Silk air, Malaysia Airlines are strongly potential ones, and Vietnam airline has comprehensive competition in the market. To analyze the strengths of an air service, ask the following questions. The answers will indicate the sources of strength. Does the air service have strong brands? Is the air promotion effective? How has the air service withstood international competition? What can the air service do better than any others? Weaknesses Every organization has Weakness. In some cases, this is obvious; say, for example, a stricter regulatory environment. In other cases, it is a matter of perspective, for example, a company has 99% market share and is open to attack from every new player. For instance, the weakness of Thai airways is based on schedules of Thai airways International and transit flights of two different airlines does not have advantage as operating planes of one airlines, or because of geographical position of airports, Malaysia airlines is not convenient to have transit flights to Cambodia. To analyze the weaknesses of a company, ask the following questions. The answers will indicate the sources of weakness. Is the air promotion effective? Will the air service be able to stand price pressure from competitors? Is the air service losing out to competitors on the technology front? Opportunities All organizations have some opportunities that they can gain from. Keeping in mind what have been listed as the company strengths, it can now influence the opportunities for the business. These can be seen as targets to achieve and exploit in the future for example safety and good service creating a good reputation for the air service. To analyze the opportunities for a bank, ask the following questions. The answers will indicate the opportunities. What is the competitive position of the air service? Can the air service spread its wings internationally? Can the quality of operations, services management be improved without incurring serious cost? Threats The final part of the analysis will also be seen as the most feared - the threats. These could be internal, such as falling productivity. Or they could be external, such as lower priced international competition. Followings are some examples of threats that one company can face nowadays: large and increasing competition, possible relocation costs due to poor location currently held, end of season approaching (if you depend on hot weather, etc), existing product becoming unfashionable or unpopular, etc. To analyze the threats, ask the following questions. The answer will indicate the threats. Are international competitors eating away market share? Are employees adequately trained and motivated? Is the air service spread too thin? Successful SWOT analysis should follow simple rules. First, it is realistic about the strengths and weaknesses of the organization. Second, analysis should distinguish between where the organization is today and where it could be in the future. Third, the analysis is specific, short and simple. Fourth, it is necessary to analyze in relation to other competitors. 1.2.2. Doing market research Finding out customers needs and wants Any firms or organizations in general and air service in particular wishing to achieve a profitable and durable penetration of a market must base on its marketing strategy upon a thorough understanding of customer needs and wants. Studying customers’ desire is so important for every business and firms. First of all, it can help the manager establish the basic requirements of their customers and then assist them in modifying their product specification as circumstances change. Secondly, it will assist them in decision-making in a route-based context. Customers’ needs are to get to the right destination safety and on time, to be served well, quickly and enthusiastically. Therefore, basing on the study of customers’ desires, airline firms day by day design travel products and services that satisfy customers. Better understand customers’ needs and wants will bring success for airline firms. Segmenting markets What is market segmentation? The variation in customers’ responses to a marketing mix can be traced to differences in buying habits, in ways in which the good or service is used, or in motives for buying. Customer-oriented marketers take these differences into consideration but they can not afford to design a different marketing mix for every customer. Consequently, most marketers operate between the extremes of one marketing mix for all and a different one for each customer. To do so involves market segmentation, a process of dividing the total market for a good or service into several smaller, internally homogeneous groups. The essence of segmentation is that the members of each group are similar with respect to the factors that influence demand. A major element in a company’s success is the ability to segment its market effectively. Benefits of Segmentation Benefits of Segmentation are as follows: Early isolation of a previously unidentified or ignored segment can create the first- mover advantage. By identifying the requirements of individual segments, an airline can target those whose distinctive capabilities can serve effectively and efficiently and whose cost structure allows it to serve most profitably. Deferential pricing based on the elasticity of different markets segments allows airlines to capture more revenue that could be achieved using a single fare set at a higher level than the more price- elastic segments of demand would be prepared to accept. The process of Segmentation Markets are sometimes segmented intuitively, that is, a marketer relies on experience and judgment to make a decision about the segments that exist in a market and how much potential each offers. Others follow the lead of competitors. The steps involved in segmenting a market in an organization are: Identify the current and potential wants that exist within a market Identify characteristics that distinguish among the segments Determining the size of the segments and how well they are being satisfied. The marketers can base on many criteria to segment the market such as: Demographic segmentation Age: Segmenting customers according to age bands is very common. Children are clearly different to retired people. Income: For many products income levels can be a sure discriminator. For instance, a ticket to Hawaii is not suitable to someone who has low standard of living or low income. Social class: Segmentation by social class is used very frequently by consumer marketers. It will often be used instead of the income and educational variable since it incorporates aspects of both, together with additional sociological concepts about dividing people into groups. There are many levels: A. Upper Middle Class, B. Middle Class, and C1. Lower Middle Class, C2. Skilled working Class, D. Working Class, E. Those people who at the lowest levels of subsistence. Geographic segmentation Benefit segmentation Behavior segmentation Geo-demographic segmentation Lifestyle segmentation (Sustenance driven groups, Outer directed groups, inner directed groups) Targeting market Marketers’ chief objective is to locate a group of customers who have an unsatisfied need which could be met by their company. Segmentation helps them to move towards this objective because it enables them to analyze and describe customer’s needs in more detail. To attain their objective they must take the next step of identifying that particular group or segment which has an appropriate need and could be met by their company. This is back to the matching concept. The marketer will try to match the strengths of the company and its products with the market segment or segments exhibiting the most suitable needs and priorities. This is the process of targeting which is the next logical step after segmentation. When selecting the most appropriate segments to target, the marketer has the broad strategies to choose from. Mass Marketing: One product for the whole market. Sometimes called undifferentiated marketing this involves selling one product to the entire market, or at least to a very large proportion of it. Mass marketing has to focus on what is similar in the needs of customers rather than on what is different and must develop a product and marketing program that aims to appeal to most buyers. Selective marketing: Several segments targeted with a different marketing mix offered to each segment. A selective marketing strategy will be followed by most medium and large sized companies. It involves covering several or even all the segments of the market, but in contrast to mass marketing will offer a different marketing mix carefully designed to meet the needs of each segment served. Most of the large car manufacturers sell a range of models designed to cover most market segments. Niche marketing: Concentration of the resources on one small part of the market. Often most suited to the strengths of small companies, niche marketing involves concentrating the organization’s resources on just one small segment, or at most a small number of tiny segments. These small segments are called “niches”. Such a strategy makes a lot of sense for small companies for two reasons. Firstly, they can concentrate their limited resources on being one of the best suppliers in a precise market. Secondly, many niches are ignored by large companies because they are not considered to represent a sufficiently worthwhile opportunity. The small company may therefore find that it faces less competition from large companies in carefully chosen niche markets. 1.2.3. Working out marketing mix strategies Services are different from product in marketing strategy because of its own characteristics. In order to manage these features, service marketers should develop the 7Ps framework. Beside product, price, place and promotion, now we have three more Ps which are people, process, and physical evidence. As marketing in air service is a component part of marketing services, 7Ps are also applied in marketing strategies. Product Strategy Like manufacturing businesses, good service-providers use marketing to position strongly in chosen target markets. However, as services differ from tangible products, they often require additional marketing approaches. In a product business, products are fairly standardized and can sit on shelves waiting for customers. But in service business, the customers and front-line service employees interact to create the service, therefore the skills of the front-line service employees; service production and support processes backing these employees are needed. A product is anything that can be offered to a market for attention, acquisition, use, or consumption that might satisfy a want and need. It includes physical objects, services, places, organization and ideas. Of course, there must be much more to a product than the glib statement “whatever we sell”. According to Theodore Levitt, Typically, product in air service could be divided into four levels: Generic product Kotler refers to this first product level as the core product or core benefit which answers the question: What is the buyer really buying? What is the core benefit the product offer? All the core benefit should be covered when selling product to the customers than merely selling features. Expected product The customers not only want the core benefit of the products or services but also expect other additional features from these products and services. The customers do not just want a flight to right destination but they also expect a good service, safety, delicious food and an enthusiastic air hostess. Augmented product In order to gain an advantage over the competition, suppliers are always trying to offer something over and above the expected product, since it may be that little something extra which clinches the sale over a rival product. The product can be augmented in major ways, by adding a discount-ticket for the customers under 5 years old, or discount ticket price for special occasions such as on the Christmas, or summer holiday etc for example. Potential Product According to Levitt the potential product includes “Everything that might be done to attract and hold customers”. Even for the most basic and mature of products and services, alert marketers have to discover new ways of marketing the products or services more attractive to buyers. Successful companies will therefore manage the products or services very carefully. They will appreciate that customers buy holes rather than drills, and that some additional benefits must be provided to attract customers in competitive markets. Far sighted air service will therefore put much effort into research and development because the potential product is the one which will be a winner in tomorrow’s markets. Price Strategy The prices should be set according to the level of demand in the market place especially for many services companies since extreme fluctuations in demand can occur. Their reaction is usually to adopt a policy of price discrimination, charging high prices during periods of peak demand and much lower prices during times of slack business. Airlines offer greatly reduced prices during the special occasions in order to encourage people to take their holidays out of season. Price discrimination is practiced by many service businesses. Rail attracts a lot of businesses with their saver tickets. Airlines have standby tickets, which can be sold very cheaply to people who are prepared to wait and take the risk that a sear may not be available. There is one potential problem which can result from the use of the price discrimination weapon. If full price customers begin to feel that they are being treated unfairly in relation to cut price customers they may decide to switch to the cut price service or to another service provider where their status will be better preserved. In case first class passenger will expect to encounter visible benefits in return for their expensive ticket. They will expect a much higher quality service, failing which they may take their business to a competing airline. Place Strategy As an element of the marketing mix, place or distribution involves those management tasks concerned with making the product available and accessible to buyers and potential buyers. Distributing the product in air service refers to all aspects of the link between the airline, as producers, and the final customers. Air services are perishable, and can not be stored for sale later. This affects the distribution of air service, as they must be marketed in a way that minimizes lost capacities (ex empty seats on the airplane, or a long waiting list). There are two types of channel of distribution: direct and indirect distribution. Direct distribution involves distributing directly from a supplier to the customers; equally, indirect distribution involves distributing product by the use of an intermediary. Airlines sometimes sell direct to the retail customer. However, mostly they do not. On the passenger side of their business, airlines widely employ the services of travel agents. Indeed, in many markets, 80% or more of tickets are sold in this way. On the cargo side, most airlines find that almost all of their capacity is sold through intermediaries known as air freight forwarders. There are various channels of distribution but the most common way is direct dealing with the retail customers which results in obviating the commission. 1.2._..3.4. Promotion Strategy The fourth “P” in the marketing mix refers to “promotion”, which is the most visible element in the marketing mix, because advertising and other promotional activities are the primary means of communication with tourists in target markets. The purpose of promotion is to create and increase awareness of a business’ products or services and involves communicating with prospective clients. There are two main categories of promotion: above the line and below the line. Above the line (ATL) is an advertising technique using mass media to promote brands. Major above-the-line techniques include TV and radio advertising, print advertising and internet banner ads, newspapers, magazines, radio, and outdoor activities. This type of communication is conventional in nature and is considered impersonal to customers. It differs from Below the line (BTL), which believes in unconventional brand-building strategies such as direct mail, e-mail, personal selling, sales promotion, public relations, and trade fairs and exhibitions. Each of promotion elements can influence perceived images of air service. Above the line : Advertising Exhibit 1.1: Thai airways Source: Thai Airways website Exhibit 1.2: Malaysia airlines Source: Malaysia airlines website Exhibit 1.3:Virgin Blue Airlines Source: Virgin Blue Airlines website Advertising is the activity which includes adverts on the television, radio and cinema as well as print adverts in newspapers, magazines and directories. It also includes roadside posters, usually referred to as “outdoor advertising”. Advertising objectives can be classified by their aim: inform, persuade or remind. Informative air service advertising is generally used to increase awareness of new products, features or quantity. For example, when an airline open a new route, its management often run full page advertisement informing the market about new service. Below the line In recent years “below the line” activities have been growing at a much faster rate than “above the line” advertising. “Below the line” includes many activities such as: Personal selling, Sales promotion and Public Relations. Personal selling involves an interpersonal influence and information-exchange process. There are seven general steps in the personal selling process: prospecting and qualifying, pre-approach, approach, presentation and demonstration, handling objections, closing, and follow-up. Personal selling does provide a measurement of effectiveness because a more immediate response is received by the salesperson from the customer. Another advantage of personal selling is that salespeople can shape the information presented to fit the needs of the customer. Sales promotions are short-term incentives used to encourage consumers to purchase a product or service. There are three basic categories of sales promotion: consumer, trade, and business. Consumer promotion tools include such items as free samples, coupons, rebates, price packs, premiums, patronage rewards, point-of-purchase. Trade-promotion tools include discounts and allowances directed at wholesalers and retailers. Business-promotion tools include conventions and trade shows. Sales promotion has several advantages over other promotional tools in that it can produce a more immediate consumer response, attract more attention and create product awareness, measure the results, and increase short-term sales. Public relation is the third promotional tool. An organization builds positive public relations with various groups by obtaining favorable publicity, establishing a good corporate image, and handling or heading off unfavorable rumors, stories, and events. Organizations have at their disposal a variety of tools, such as press releases, product publicity, official communications, lobbying, and counseling to develop image. Public relations tools are effective in developing a positive attitude toward the organization and can enhance the credibility of a product. People Strategy People are the most important element of any service or experience. Services tend to be produced and consumed at the same moment, and aspects of the customer experience are altered to meet the “individual needs” of the person consuming it. Most of us can think of a situation where the personal service offered by individuals has made or tainted a tour or vacation. In addition, people should be seen as a valid and important part of the marketing mix. If employees go out of their way to give customers immaculate service at all times, those customers will gradually form a favorable impression of the company as a “caring company” and this will be a significant factor in their decision to buy from that company again. Customers who receive poor service, or simply form the impression that “this company isn’t really interested in me, they’re more concerned about themselves” will soon label that company as uncaring, and will begin to search elsewhere for a supplier. So, it is the reason why this fifth “P” is so necessary and vital for all businesses. This is seen as the most important “P” in air service. For instance, British Airways has invested in a major staff training program called “Putting People First”. Their marketing research had shown beyond any doubt that staff attitude towards and treatment of customers strongly affected sales. The objective of the training program was to help staff concentrates on the two most important aspects of company performance-satisfying the customer and beating the competition. Theodore Levitt puts this in a more erudite way when he states: “If marketing is about anything it is about achieving customer-getting distinction by differentiating what you do and how you operate. All else is derivative of that and only that”. Everybody in the organization must focus on giving the customers what they want and doing it better than the competition, and in service industries this often boils down to the way staff treat customers. In service industries in general even the little things like offering the customers a nice cup of freshly ground coffee whilst they are visiting the solicitor or being measured for a new suit can make all the difference. Physical Evidence Strategy Physical evidence is the material part of a service. Strictly speaking there are no physical attributes to a service, so a consumer tends to rely on material cues. There are many examples of physical evidence, including some of the following: Packaging Internet/ Web pages Paperwork ( such as invoices, tickets and dispatch notes) Brochures Furnishings Signage (Such as those on aircraft and vehicles) Uniforms Business cards Some organizations depend heavily upon physical evidence as a means of marketing communications, for example tourism attractions and resorts (e.g. Disney World), air service (ex. Thai airways, British Airways) parcel and mail services (e.g. UPS trucks), and large banks and insurance companies (e.g. Lloyds of London). Physical Evidence is the element of the service mix which allows the consumer again to make judgments on the organization. If you walk into a restaurant your expectations is a clean and friendly environment. On an aircraft if you travel first class you expect enough room to be able to lie down! Physical evidence is an essential ingredient of the service mix; consumers will make perceptions based on their sight of the service provision which will have an impact on the organizations perceptual plan of the service. Process Strategy Process is another element of the extended marketing mix, or 7P’s. There are a number of perceptions of the concept of process within the business and marketing literature. Process is an element of service that sees the customer experiencing an organization’s offering. It’s best viewed as something that your customer participates in at different points in time. Booking flight on the Internet-the process begins with you visiting an airline’s website. You enter details of your flights and book them. Your ticket/booking reference arrives by e-mail or post. You catch your flight on time, and arrive refreshed at your destination. This is all part of the marketing process. CHAPTER 2 Assessment of the application of marketing in air service of Vietnam Airlines 2.1. AN OVER VIEW OF VIETNAM AIRLINES 2.1.1. Vietnam Airlines’ history The Vietnam Civil Aviation was officially formed on January 15th, 1956 by a Government decree. Stemming from the national military body, its chief responsibility at the time was to promote economic development in the North and provide military aid in the South. During the first years of operation, the whole aviation branch of Vietnam owned only several light and medium turbine prop aircraft such as the IL-1, AN-2 and Aero-45. After 1975, responding to a demand for economic development and national security, the General Department of Vietnam Civil Aviation was established on February, 11th, 1976. Exhibit 2.1: Ho Chi Minh in Vietnam Airline’s plane on his trip Source: Heritages Magazine During the 70s and 80s, the feet of Vietnam Civil Aviation was furnished with new aircraft such as IL18, DC-6. International route were also inaugurated, including those to Laos, Cambodia, Malaysia, and Singapore. On April 12th, 1980, Vietnam Civil Aviation became an official member of the International Civil Aviation Organization. Vietnam Airlines Corporation was established in April 1993 when 20 other aviation businesses were combined, forming a single entity under the Civil Aviation Authority of Vietnam. Since then, the airline was grown exponentially. It has transformed itself from a small, relatively inexperienced operator of former Soviet Block aircraft into the proud owner of a modern fleet of Airbus and Boeing planes flown by highly trained professionals. In 2003, Vietnam Airlines (VNA) rented two Boeing 777-200ER planes and took delivery of the first two of four newly purchased 777s. It also ordered five large Airbus 321s, of which four were delivered. Vietnam airlines now operates 37 aircraft, including six Boeing 777-200ERs, four Boeing 767-300s, six Airbus 321s, 10 Airbus 320s, nine ATR 72s and two Fokker 70s. As well as expanding and upgrading its fleet, Vietnam Airlines has invested time and energy into the expansion of the route network. From the early 90s, the airline designed its flights in a hub-spoke network with 3 main connecting cities: Hanoi, Danang, and Ho Chi Minh City. VNA now operates 22 domestic routes between 15 destinations and offer international connections from Hanoi and Ho Chi Minh City to 38 cities around the world. The airline network is divided into 4 main groups: The Northeast Asia Group, including flights linking Hanoi and Ho Chi Minh City to capitals and major cities in Japan, China, South Korea, Hong Kong and Taiwan, operated with the Boeing 767 and Boeing 777, the ASEAN and Southern Asia Group, offering flights front Vietnam to Malaysia, Singapore, Thailand, the Philippines, Indonesia, Russia and Australia. Vietnam airlines also offer flights, through cooperation with other airlines, to Manila, San Francisco and Los Angeles. In the year 2003 alone, Vietnam airlines expanded network extensively: it initiated a direct route to Paris from Hanoi and Ho Chi Minh City (previously, the route involved a transit) and established regular flights between Hanoi and Siem Reap and between Ho Chi Minh City and Fukuoka. In the autumn of 2003, VNA reintroduced flights connecting Hanoi with Singapore, and launched routes connecting Hanoi with Kuala Lumpur and Ho Chi Minh City with Busan in South Korea. In January 2004, VNA established new routes between both Hanoi and Ho Chi Minh City and Frankfurt. Another part of VNA development strategy has been the improvement of the services offered to the customers. To this end, VNA has expanded and consolidated its sales network (currently has 28 branch offices and thousands of sales agents around the world) and has joined various global sales systems like Gabriel II Reservation System, AMADEUS, ABACUS, and IFINI. VNA has worked hard to raise the quality of its in-flight food and services, and to mark the huge changes that its corporation has undertaken over the past decade, in 2002, VNA took on a new corporate motif, the golden lotus. Since the beginning of 2003 VNA has worked with the National Administration of Tourism and the Ministry of Trade to organize advertising and promotion activities in many countries, including this year, Germany, Japan and U.K. In 2004, Vietnam Airlines carried over five million passengers, of whom over 2.8 million flew on our domestic routes and over 2.2 million travelled internationally. Vietnam Airlines also carried over 77,000 tons of cargo. The image of the airline has been further reinforced with the launching of Vietnam Airline’s new corporate identity, the Golden Lotus, in 2002, and the installation of the Airline’s frequent flyer program “Golden Lotus Plus” in 2003. 2.1.2. The status of Vietnam Airlines in the Region Table 2 . 1: Vietnam Airlines' competitors Airlines Key facts-competitive advantages Competing markets-competitive strategy-tactical marketing International airlines Thai airways .Thai Government owns 93% stake .Fleet of 81 medium and long aircrafts made up largely Boeing and Airbus. .Asia’s No. 7 in revenues and No. 3 in profit .E-Business as source of advantage .The world biggest airline alliance .One of air travel hubs in South East Asia. .Low cost strategy .Competing on South East Asia, Australia. .Highly frequent services to Vietnam .Offer holiday package tours to Thai destinations .Low price .Distribution includes on-line booking and ticketing offices Singapore Airlines .The most advanced airlines owing youngest, most modern fleet. .Consistent profitability .Asia’s No. 3 in revenues, but No. 1 in profit. .Winners of many service quality awards as the best airlines in Asia Pacific and in the world .E-business is a source for maximizing business and customer benefits .Member of Star Alliance, the world’s biggest airline alliance. .Focus differentiation strategy .Competing on Asia, Australia, Europe, North America .Highly frequent services to Vietnam .High Price .Distribution via online booking, payment and ticketing offices. Cathay Pacific .One of the most advanced airlines owning youngest fleet. .Asia’s no.6 in revenues, and No.2 in profit .One of the 2 leading e-airline in Asia-Pacific ( the other is Singapore) .One world alliance member .Focus differentiation strategy .Daily service to Vietnam .Offer extra benefits via free .Distribution via online booking payment and ticketing offices. China Southern Airlines .Largest airline in China .Mainly focus on domestic flying network .Young and modern fleet of 110 aircraft in which most of them under finance and operation leases. .Low cost strategy .Competing routes: China .Highly frequent service to Vietnam .Offer low incentives package tours to china .Distribution via online booking and ticketing offices. Korean Air .Young and modern fleet of 100 aircraft .Fly to 84 cities in 29 nations .Sky team airline alliance member .Low cost strategy .Competing routes: Korea, North America .3 flights/week to Vietnam .Distribution via ticketing offices. Japan Airlines .Ranked 3rd in revenue over the world .The huge fleet of 280 aircraft .Wide range of flight network, to 30 countries and 196 airports in the world. .Japan is busy hubs of Asia to America .Focus differentiation strategy .Competing routes: Japan, North America .3 flights/week to Vietnam .Distributing via online booking ticketing and ticketing offices Malaysia Airlines .Had received many awards for its service .Bad affected since 1997 .MAS’s fleet comprising 100 aircrafts mainly including B747, B777, A330. .77 international destinations .Focused low cost strategy .Competition routes: North East Asia, Europe and Australia .1 flight/week service to Vietnam .Distribution via ticketing offices. Philippines Airlines .Small fleet of 21 aircraft but new and modern .Begin embracing e-commerce .International destinations are mainly in Asia .Focused cost strategy with heavy ticket discounting to counteract with downturn in travel and tourism to Philippines. .Competitive routes: South East Asia and Australasia .Daily service to Vietnam .Distribution via online booking Air France .Europe’s leading airlines in terms of passenger carried .Ranked 3rd worldwide in international passenger transport .Huge fleet of 363 modern and streamlined aircraft .SkyTeam airline alliance member .Focused differentiation strategy .Competing routes: France and other European destinations .Medium price .Distribution via online booking Qantas .World leading long distance airlines .11th largest airlines worldwide in terms of Revenue per kilometers .Operate 193 aircraft, flying to 135 destinations in 77 nations .Proud history of reliability, safety, engineering excellence and customer service .Focus differentiation strategy .Code sharing with Vietnam airlines .Distribution via online booking, payment and General Sales Agent. American Airlines .Largest airlines in USA and the world .Modern and huge fleet of over 800 planes .Fly to 250 cities around the world and operate over 3,600 flights daily .Offer the lowest fare in domestic routes .Member of One World .Focus cost strategy .Competing route: America .Own modern and hi-tech management system Domestic Pacific Airlines .Vietnam Airlines hold 40% stake in the airline .Currently hold 14.4% domestic market .Small fleet of 4 short and medium haul aircrafts .Reputation for on-time domestic services. .Focused cost strategy .Services to high traffic destinations .Lower prices .Distribution via ticketing offices in big cities and travel agent network Sources: Euro monitor 2004, Airlines’ websites, VNAT website, VNA data) The starting point of Vietnam economy in general and air service in particular are low and new compared with that of the world. Nonetheless, thanks to its tremendous efforts, fast-moving reforms and by “taking the short-cut”, VNA has caught up with the general development impetus, narrowing the gap with the region and the world. According to the global airlines ranking, VNA can be ranked the fifth among ASEAN 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 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 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. 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. 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._. particular, stewards are their only representatives when dealing with passengers. For this reason, the knowledge and skills of the tour guides, as well as their manners and behaviors as well are of crucial importance to the quality of the travel products. It is recorded that 80% of the airlines’ pilots and 100% of co-pilots are Vietnamese who received training from British Airways, Air France. In the future, placing guards on flights to protect passengers and crew is a step that Vietnam Airlines will have to carry out when the firm opens its direct route to the US. This will be stipulated in the Vietnam Civil Aviation Security Program that is about to be issued by the Minister of Transport. This is the first time Vietnam will establish an aviation guard force. This guard force is so important and essential especially the time for the APEC Summit in Hanoi is coming (November 2006). Process Strategy It is important that Vietnam Airlines understand the nature of customer experience, identify and handle service problems through blueprinting its service process (Lovelock et al 2001). However, Vietnam Airlines needs to study further regarding current average timing and acceptable tolerances in timing for critical functions such as check-in, baggage handling….The current bottlenecks are long queuing check-in, slow baggage handing and service recovery when flights are delayed and cancelled. The airline needs to work out the reason behind those service problems or failures by blueprinting the current process which is invisible to customers. Vietnam airlines can make use of the service blueprint to pinpoint opportunities for enhancing the service offering. Physical Evidence strategy Physical evidence is all tangible cues of the service (Lovelock et al 2001). For airlines, those are booking and ticketing facilities, check-in facilities, in-flight amenities and the grooming and appearance of staff etc. The service blueprint identifies three front-line areas that provide a quality experience for customers: booking and ticketing facilities, on the ground services including check-in facilities; in-flight amenities, and the grooming and appearance of staff. Efforts should be made to improve the service offering such as in-flight services and promote the image of charming and distinctively uniformed stewardesses which reflect the Vietnamese personality. In addition, Vietnam Airlines needs deploy technologies in improving ground services and ticketing-related services. Vietnam Airlines can install Automatic Check-in Machine in two key international airports in Hanoi and Ho Chi Minh City so that is can speed up the check-in process. Online check-in should also be considered in the development of web site. As mentioned, a recommendation is that Vietnam Airlines revamp its website so that it can provide a good customer interface as a powerful selling and communication channels. This will help boost business efficiency, increase revenue stream, reduce operating cost and improve customer services. According to the analysis, it is shown that the current websites of Vietnam Airlines and its competitors revealing a number of common initiatives that competitors adopt for their online business: extensive flight schedule, flight booking and purchase, flight status update, frequent flyer section (online application, profiling and account checking), online feedback and links to other travel and hospitality sites. 2.2.6. Evaluation Achievements During the first days of its establishment, the Civil Aviation Department belonged to the Air Security and Air Forces Command with the task of services economic activities and national security. The aviation industry obtained substantial achievement during this period. Following national reunification, and from 1990 onward, the outstanding accomplishments of Vietnam’s Civil Aviation became evident throughout the process of national renovation and integration into the world. During the last 50 years, and especially since 1990, Vietnam’ aviation industry has made great leaps forward: 1990-1994: exceptionally high growth rates, from 20 up to 45%. This was a landmark period, setting a new premise to develop the whole branch and participate in the world’s civil aviation community. 1995-2004: This period was marked by considerable growth. Air transport vehicles were renovated with new generation and more modern aircraft such as Boeing and Airbus airplanes; the department’s competitiveness also improved and developed steadily. During this period from 1995 to 2004, the Vietnam air transport market saw rapid growth with 72.86 million passengers ( an average annual growth of 14%), and the addition of an air network of Vietnam Airlines and 24 other foreign airlines linking Vietnam to 27 cities in Asia, Europe, America, and Australia. In the same period, VNA has focused much on developing domestic market. It has reopened the HCM-Tuy Hoa flight route with two flights a week, and increased the frequency of flights on the HCMC-Phu Quoc route from two to three trips a day. In 2005 alone: the estimated total number of passengers carried to and from Vietnam was around 14 million, in which Vietnam Airlines alone carried around 6 million. As for international integration, with the aid of bilateral cooperation, beginning with the first agreement signed between Vietnam and the People’s Republic of China in 1956, Vietnam has so far established airline cooperation with 57 nations and territories around the world. Within a complex and instable international context, the fact that Vietnam has assured strict air security is extremely significant. Thousands of international and domestic flights, as well as hundreds of special flights carrying VIP and Vietnamese leaders to other nations, have been safely served. The Vietnam Civil Aviation and Vietnam Airlines has thus contributed greatly to the introduction of a friendly and safe Vietnam, attracting more and more investment and tourist potential. It is likewise worth mentioning the outstanding results in the fields of infrastructure, renovation, and technology within the Vietnam Civil Aviation. The system of air terminals and airports has experienced considerable changes in terms of dimension, scale and quantity. T1 platform at Noi Bai Airport, with a capacity of 4 million passengers per year, will be upgraded to receive 6 million passengers per year. The project of construction of T2 platform in Noi Bai airport is designed to hold 10 million passengers, while the project of building the cargo Platform with a capacity of 260,000 tons of cargo per year are also under consideration. In the South, the International Airport with a capacity of 8-10 million passengers per year is under construction and expected to be taken into operation in 2006. In the Central Vietnam, an International Airport with a capacity of 4 million passengers per year is currently being designed. In this context, the establishment of private airlines will further contribute to the development and improvement of competitiveness of the Vietnam Aviation industry as a whole in the region, and in the world as well. Drawbacks Besides the achievements made by Vietnam Airlines, drawbacks are hot issues that must be overcome as soon as possible for smoothly-run business. Firstly we have to discuss about the price, the price is still so high, at least compare with other airlines in the same regions such as: Tiger air, Thai Airways, Asia Air or even Pacific Airlines, etc. Moreover, instead of being printed, the tickets are still written. It speeds up the passengers choose another airlines. Secondly, the procedure of Vietnam Airlines before flights still prolix and waste of time (for nearly 1 hour). Secondly, the magazines, newspaper and other entertainments in flights are not plentiful. “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” said by a passenger named Kevin Folkes on the Flight to France on 15th May 2006. Thirdly, the attitude and the language of the staff in general and especially of the flight attendant need to be adjusted much. For example, on the flight to France, passengers love to listen to audio in French language and to be served by stewardesses who can speak French, unfortunately, the ability of VNA stewardesses is not qualify so it prevents them to satisfy the customers’ needs. The air hostesses should improve their skills and languages as well, not only English but also other languages especially Vietnam is now entering WTO. Finally, VNA from time to time changes flight time and schedule especially in domestic routes that badly affects the passengers’ attitude. The traffic jam and fee is the hot issue. Instead of giving the customers free tickets going buses from the center to the airport like other airlines such as Pacific Airlines, Vietnam airlines still take a fixed amount from the customers. Last but not least, due to the poor condition of airport, there is still the jam in air station when so many airplanes land or take off at the same time. One of the French passenger’s opinions named Marinus Kluijver about the crew and the service of Vietnam Airlines on 30th March, 2006. “Paris-Hanoi and Saigon-Paris on one of Vietnam Airlines’ new B777 planes. Seats quite comfortable in economy, but neither the food nor the cabin crew's attitude can be called good. I was especially shocked by the fact that on the SGN-PAR leg none of the cabin crew seemed to speak comprehensible English or French. Wonder how this would come across in an emergency? Panic and pandemonium, I'm afraid! The two internal flights we took were both grossly delayed, like some hours, which wreaked havoc with our schedules. On these, the seats were less memorable and the "food" as strange as was mentioned by one of the other correspondents, with an indefinable sandwich and a beaker of water.” Thus, Vietnam Airlines has to review what they have not fulfilled and what are shortcomings not being surmount. Then it have to take much more efforts to look forward to further integrating in the world of global aviation. Chapter 3 Marketing Solutions to improving Vietnam Airlines’ service 3.1. MARKETING SOLUTIONS Basing on the theory of marketing air service in chapter one and the assessment of marketing strategy of Vietnam airlines and its potential in chapter two, Vietnam Airlines need to develop more efficient marketing strategies to promote the image Vietnam in both domestic and foreign markets. 3.1.1. Diversification and improvement of the quality of Vietnam airlines Vietnam Airlines looks forward to establishing itself as a truly world class carrier pertaining the identity of Vietnamese culture. Vietnam Airlines’ mission is “To build a modern airline with reputation for reliability and service… which reflect the hospitality and warmth of Vietnamese people”. (Vietnam Airlines website) In order to increase the quality in terms of service and transportation, Vietnam Airlines should take all its effort to gain the purposes such as: To increase the awareness of Vietnam Airlines’ image as an airline with high reputation for service quality, especially for international passengers. To achieve overall sales growth rate 14-18% per year. To increase domestic sales by 10-14% annually (currently average domestic sales growth 7% per year whereas market growth 9.4% per year) and to increase market share of international passengers traffic from or to Vietnam to 50% within 2 years. To rebound profit growth rate to 20% in 2007 and higher in following years (Profit growth rate for period 2003-2004 was average 17% but was negative in 2005) To become a key player in the Asia’s hotly competitive aviation market. Besides, projected sales for each year will be monitored on quarterly basis by the Passenger Marketing and Marketing Planning Department of the client (i.e. Vietnam Airlines). The consultants will be advised any shortfalls in sales early so that the consultant and the client can investigate the problems and take measures to the problems at hand. Catching the passengers’ needs and wants is also very vital. The consultants suggest the company conduct research to study consumer perception of quality and awareness. The findings from such research will be of importance as they will help the company to identify service problems as well as serves as basis for future evaluation of marketing planning. For example, survey regarding service quality can be delivered in-flight or at the counter of ticketing offices and customers answering the questionnaires will be entitled to participate lucky draw. The effectiveness of advertising will be monitored through omnibus research or ad-hoc research. The effectiveness of the website will be monitored based o visitor number counter, amount of sales through the sites. 3.1.2. Enhancement of air service marketing and promotion activities This is one of the top vital roles for Vietnam Airlines’ expanding and growing. The image of Vietnam Airlines in particular and Vietnam Air service in general can be pushed up; promoting unique of Vietnam airlines and Vietnamese people to attract international arrivals from over the world. The public media can not be missed in this action plan. TV commercials will be aired during peak seasons, whereas other advertisings will be placed throughout the year both in the home nations and the foreign countries. Research and distribution of printed marketing materials will be done quarterly. Promotions will be launched during off-peak season to encourage people to travel. In addition, the company also participates in fairs or exhibitions before the seasons to increase awareness of Vietnam Airlines services. Table 3 . 1: Action plan for 2006 Key elements Jan Feb Mar Apr May Jun Jul Aug Sep Oct Nov Dec Television commercials X X X X X X X Magazine ads X X X X X X X X X X X Outdoor and online advertising X X X X X X X X X X X X Printed materials and produce souvenir gift X X X X X Public relations/Sponsorships X X X X Participate fairs and exhibitions X X X Promotions X X X X X Improve Frequent Flyers Program X X X X X X X X X X X Revamp website X X X X X X X X X X X Marketing research X X X X Source: Vietnam Airlines internal website 3.2. RECOMMENDATIONS 3.2.1. For the Government Vietnam Airlines is strongly supported by the Government and it is the monopoly company in our nation. In the way entering World Trade Organization and other organizations, the support from the Government is more necessary than ever before. Vietnam Airlines require large investment in machinery, equipment, modern and luxurious aircraft etc. In this period, it is necessary for the Government to provide Airlines with capital for purchasing machinery, techniques as well as market information so that Vietnam Airlines then can increase its competitiveness. First, the Government should set more strict securities policies for Vietnam air service in particular so that Vietnam Airlines can reduce the terrorism, riots, etc. There is a large amount of passengers going abroad for business so the Vietnam Airlines should give them the discount policy with the support of the Government and Ministry of Finance. Second, the government should invest more in air service with the aim to meet the increasing demand of passengers. In order to have much more investment funds, the government should enhance promotional investment activities inner and outer countries. Regulations that are not suitable with integration and attraction of investment especially FDI should be readjusted and reconsidered. Third, the Government also should strengthen international relationship with countries in the same region, all over the world and international organizations. This effort helps to increase Vietnam image and also receive assistance (management, technology, experience in human resource development and tourist promotion, etc.) from outside sources. It is suggested that Vietnam Airlines promotion offices should be opened in many different nations. Finally, one more thing the Government should do to support Vietnam airlines is that the government support air service to conduct a cost-effective linkage between air service and other industries (tourism industry, customs, foreign affairs and internal affairs). Without the support of the government, Vietnam airlines itself can not develop and contribute to the national modernization process. Current linkages are not good enough to minimize time-consuming procedures and fees, improve attractiveness and business effectiveness of the air service. 3.2.2. For Vietnam Airlines Vietnam Airlines should take advantage of the growing economy and current Government’s protection to grow the domestic market. By doing so, the Airline can achieve larger volume and market share as it is much stronger than its minor domestic competitor. Besides, VNA should improve its marketing capabilities pertaining to 7P’s of service marketing (McColl-Kennedy 2003) by improving service quality, differentiating offers to different segments. Moreover, VNA should deploy information and communication technologies in developing e-business platform and managing customer relationships. This is very crucial to improve the operating efficiencies, acquire and retain customers. The analyses and projections suggest that the implementation of the plan will help the airline achieve a sales growth rate 10-15% per year for its domestic business and 18-20% per year. In order to achieve such growth rates, it is suggested a profit growth at about 20% per year. In order to achieve such growth rates, it is suggested that the company invest 7.5-8.5% of its sales revenue to promotion budget each year for the next three times. Specifically, it is projected that for the planning year 2007, the company will need to spend 702 billion VND, accounting for 7.7% of its sales revenue of $9,113 billion VND. In 2007, operating profit is expected to be 168.5 billion VND. In addition, I have done a survey to investigate the domestic and foreign passengers who have traveled with Vietnam Airlines. My purpose is to know how Vietnam Airlines have satisfied the passengers’ needs and then give it the suggestion for what it has to do to improve the advantages and minimize the limitations as well. My research findings show as follows: Company interview (Directly) Followings are the questions I directly interviewed Vietnam Airlines staff and their answers have been summarized. 1. What are the goals and strategies of Vietnam Airlines for the next five years? Our long-time goal is “to build modern airlines with a reputation for reliability and service. Our top priorities for the next years are to modernize our fleet and improve the service as well as preserve our identity which reflects the hospitality and warmth of Vietnamese people”. 2. What international airlines that Vietnam Airlines considers as the company’s main competitor. Vietnam Airlines is just as its first step to become a regional airline. It only operates flights between Vietnam and the countries with which our Government has signed civil aviation agreements. Therefore for different routes we have different competitors. 3. What do you think is the strength of Vietnam Airlines in competing with its stronger competitors? We are the national airlines. Our staff will demonstrate the hospitality and friendliness of our people. They serve Vietnamese food along with other options, speak Vietnamese along with other languages in-flight, wear our traditional costume etc. that are all about giving a sense of our culture that Vietnamese travelers can be proud of and the foreign travelers may be looking for. 4. Airlines around the world are adding e-commerce capacity to their website. How does the company’s view about this trend and the implication of information technology? In our strategy to be an aviation group in 2010 and to deploy technology to gain competitive advantage, however, so far we have not done much in realizing our strategic objectives. Currently VNA are just utilizing some systems for flight control and booking as basically required for any airlines business. 5. How do you think about the emerging trend of no-frills around the world? We are protected by the Government by the duopoly system in domestic market and inter-Governmental aviation agreements in international routes. But we are constantly studying the practices and lessons from those airlines. Questionnaire Email questions were sent to passengers who have been traveled or once traveled with Vietnam Airlines and other airlines. Key findings for questions are summarized as below: 1. What is your nationality? Most of them are Vietnamese and some others come from different nations such as Hong Kong, Singapore, America, etc. 2. What aspects that you found good in Vietnam Airlines’ services? Chart 3.1: Good aspects of Vietnam Airlines’ service. Source: Online survey result A) Food and Beverage B) Crew uniform and attitude C) Entertainment and in-flight reading D) Safety E) Electronic equipment F) Punctuation G) Website H) Ticket Price As you can see in the chart, most of the interviewees are most interested in in-flight food and beverage of Vietnam Airlines and happy with the safety of Vietnam Airlines. Both Vietnamese and foreign passengers find good at safety and traditional dress, intimacy of airhostess. Ticket price is quite good for them because it is easy to assess Vietnam airlines’ sales agents and ticketing offices but the price is another matter. On the contrary the website, punctuation is not much highly appreciated. 3. What aspects that you think Vietnam Airlines should improve? Chart 3.2: Aspects which VNA needs improving. Source: Online survey result A) Ticket price B) Website C) Crew D) Punctuation E) Check-in and check-out procedure F) Entertainment G) Food and Beverage H) Safety According to above chart, firstly, Vietnam airlines should take more consideration to the price ticket, especially in the competitive market as today. There are many cheaper airlines emerging and entering into Vietnam such as Tiger airways, Pacific Airlines. Their prices are reasonable and suitable to different kinds of passengers. So Vietnam Airlines should give more discounts and readjust the price to meet the demand of the customers more and more. Moreover, The Vietnam Airlines’ current website is not really useful because lack of necessary and updated information as well as functional offerings such as: current promotional programs, price quotation, retrieve points of Frequent Flyer Program members…and the interface of the website is so boring. Secondly, the check-in and check-out procedure is still the hot issue, the complicated procedure leads to a long waiting queuing thus make the passengers tired and dissatisfy. The crew is good however, they sometimes show little empathy and understanding to customers and the system is very slow in responding to any customers’ problems. Flight attendances should improve their English and learn more languages not only English. Thirdly, the in-flight entertainment program is out of date and not interesting. If Vietnam Airlines change its policies such as improving entertainment programs, minimizing prolix procedure and readjusting the price, it can compete with any competitors not only in the same regions but all over the world as well. 4. Overall, are you satisfied with Vietnam Airlines? Most of the interviewees are satisfied with Vietnam Airlines at a moderate level. Some of them who have got troubles in dealing with Vietnam Airlines are definitely not satisfied and some say that they will never fly with Vietnam Airline again. And some have no comment. In general, passengers are satisfied with Vietnam airlines. 5. If Vietnam Airlines offers such e-services as online booking, payment, check-in or retrieve/redeem points of Frequent Flyer Program, are you willing to use it? Vietnamese: Some of them want to use online services because it is very convenient and save time but limited at no-money-related services because they are afraid of security reason due to less-developed infrastructure in Vietnam. In addition this service requires payment by credit card so the rest are not ready because they are not familiar with such online transactions. Foreigners: welcome all online services because of their obvious advantages. They are familiar with this service and they can easily pay by Visa or Master Card via internet instead of buying ticket from the offices. 6. When you need travel by air from or to Vietnam, which airlines you will think first? Vietnamese: Most of them will think of Vietnam Airlines because it is the national airlines. Especially those who first time travel to an international destination, they prefer to fly with Vietnam Airlines because airhostess speaks native language and that would make them to feel more confident. On the contrary, to someone who have experienced other airlines and go abroad frequently, they do not have tend to go by Vietnam Airlines because firstly, the price is quite expensive and then the service of other airlines is better ( such as Singapore airlines or Thai airways). Foreigners: Cathay Pacific, Singapore Airlines, Thai Airways, Japan Airlines, Air France etc. Few of them think of Vietnam Airlines. Chart 3.3: Passengers’ Favorite Airlines. Source: Online survey result A) Cathay Pacific B) Tiger Air C) Singapore Airlines D) Japan Airlines E) Thai Airways F) Qantas G) Air France H) Vietnam Airlines I) Other Conclusion As with the rapid growing economy and its integration to the world economy, Vietnam Airlines has been growing fast in the past years. However, to meet the needs of integration when Vietnam joins WTO, marketing measures must be given enough attention and consideration to sustain the growth of Vietnam Airlines and achieve a competitive advantage. Strong growth of Vietnam Airlines is not only important to the company but also to Vietnam because the well-being of the airline will contribute measurably to the economic growth and the country’s infrastructure as well as enhance the image of the nation. This is the reason for the topic “The application of marketing in air service of Vietnam Airlines” to be chosen as graduation thesis. The thesis consists of 3 chapters. Chapter 1 covers the marketing theory in air service. It provides detail steps of applying marketing to air service. An analysis of marketing environment, SWOT and marketing mix are also mentioned in this chapter. Chapter 2 focuses on the current practices of air service marketing of Vietnam Airlines. Vietnam Airlines has drawn great attention to the differences between physical product and service product, and then designed appropriate marketing strategies to improve its products. Chapter 3, basing on the assessment of the application of marketing strategy of Vietnam Airlines and the theories of marketing in air services specified in chapter one, some recommendations and solutions for the government and Vietnam Airlines itself have been made. Especially via the surveys and questionnaires, the writer of this thesis knows how Vietnam Airlines has satisfied the customers’ needs and then makes suggestions to adjust the strategies to meet the passengers’ demand accordingly. Due to the lack of time and knowledge about airlines and marketing in air service, shortcomings are inevitable. Suggestions and corrections from lecturers, readers and friends will be highly appreciated. REFERENCES Books Do Thi Loan, (2003), “Trade Promotion. Theory and Practice”, Hanoi Science and Technology Publishing House. Gudergan, S., Kotler, P, Best, R, “Contemporary Marketing Management”, 2nd Edition, (ISBN 1 74103 377 2), Pearson Education, 2004. Hill, L. 2003, “Good morning, Vietnam”, Air Transport World, Dec 2003, Vol.40, Issue 12, pp 34-36. Lovelock, C.H. 1996, “Service marketing”, 3rd ed., Prentice Hall, Upper Saddle River, NJ McColl-Kennedy, J.R.2003, “Services Marketing: a managerial approach”, John Wiley, Milton Michael J. Etzel, Bruce J. Walker, William J. Stanton, “Marketing”, McGraw-Hill/Irwin. Nigel Hill, (1989), “Marketing”, A Tutor’s Guide. Philip Kotler, “Principles of Marketing”, Edition 2. Prentice Hall, “Marketing Principles and Practice” (4th edition). Journal Articles Airline Business 2004, “Vietnam Signs two historic pacts”, Jan 2004. Vol. 20, issue 1. ATW (Air Transport World) 2003, “Air Transport World’s World Airline Report”, July 2003. Country watch 2004, “Industry profile: Airlines in Asia-Pacific” Heritage, “The story of Vietnam Airlines”. Heritage. “Vietnam Airlines services” Saigon Times daily, “Vietnam Airlines plans direct flights to India” Stephen Shaw, “Airline Marketing and management” (3rd edition) Pitman Publishing. Vietnam News, December 20th 2005, “Vietnam Airlines flies direct to US” Vietnam Aviation Magazine Vietnam Economic Times, “Golden Lotus rising” Website All Nippon Airways website, American Airlines website: Air France website: China Airlines website: China Southern Airlines; JAL system website: Korean Air website, Pacific Airlines website: Philippines Airlines: Qantas website: Singapore Airlines website: Thai airways website: United Airlines website: Vietnam Airlines website: APPENDIX RESEARCH Questionnaires ._.

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