Pricing Strategies of Tiger Airways - Research Paper Example

?Pricing Strategies of Tiger Airways Pricing Strategies of Tiger Airways Table of Contents Table of Contents 2 0 Introduction 3 2.0 The pricing strategies used to sell the Tiger airways tickets and other product 4 2.1 Low-fare pricing Strategy 4 3.0 The factors influencing tiger airway’s pricing strategies 5 3.1 Increased customers and Increased Fleet 5 3.2 The market environment 6 3.3 Stripes Loyalty Program 7 4.0 The positive and negative impacts of the pricing strategies used by Tiger airways 8 4.1 Enhanced returns 8 5.0 Conclusion 10 6.0 References 11 1.0 Introduction Tiger Airways was incorporated in 2003 and started its full operations in 2005. It operates flights in more than eight countries and its flights ply more than nineteen destinations (Chitty, 2011). Tiger Airways is actually made up of a group of airlines that are largely specialize in passenger transportation. It does this via a number of complementary airline brands such as Tiger Air Singapore, Tiger Air Australia, Tiger Air Mandala and Tiger Air Philippines. In Singapore, the main reason why the airline chose to operate from the Changi Airport is that it wanted to achieve operating-cost savings. To enhance this objective, the airline modeled its cost structure after Ryan Air. Even with intense competition in the region, the air company has restated its objective by emphasizing on flying in a five-hour radius and its pricing strategies. The Tiger Airways is divided into services and brands such as the marketing and customer services which comprise the in flight services, the marketing service and cabin crew (Albers, Auerbach, & Baum, 2005, p. 154). Furthermore, the operational services comprise flight operations, catering, aviation services, and operation planning and control services. The other section of the airline is the commercial service section. The airline has operations in countries like China, Hong Kong, Thailand, and Australia. Amongst all its destinations mentioned above, Thailand stands out as its major market. The company has a well-established website that enables passengers and other clients to book tickets cheaply online. This and other pricing strategies will be discussed in subsequent sections. This project, therefore, aims to explore the pricing strategies used to sell the Tiger airways tickets as well as other products. To successfully explore its pricing strategies, the discussion will also capture the factors influencing tiger airway’s pricing strategies and the positive and negative impacts of the pricing strategies used by Tiger airways. 2.0 The pricing strategies used to sell the Tiger airways tickets and other product Tiger Airways employs a mix of pricing strategies coupled with unbeatable deals on airfares aimed at helping passengers to reach their destinations safely and cheaply. In addition to their competitive airfares, they also offer superb deals on hotels. Some of these strategies are discussed below. 2.1 Low-fare pricing Strategy Tiger Airways employ a low-fare pricing strategy. By definition, according to Graham (2008) the low-fare airlines also employ low cost strategies lowering their costs in relation to the pricing and cost strategies of their rivals. The business model of Tiger airways is primarily characterized by the simplicity of products and services, low costs of operation as well as a specific positioning, allowing them to offer their customers prices that are low, without offering many of extra services. The low prices provided by Tiger Airways have been appealing and attracting new clients in the market and even the airports such as Changi Airport in Singapore have adapted and transforming relative to the growth of the airline (Carrilho, 2010). Based on the fact that low cost air companies require reduced or lower airfares, airports are also assigned to this particularly segment by paying close attention to the income generated by activities that are non aeronautical in nature as commercial services due to the income generated by these commercial spaces (Graham, Papatheodorou, & Forsyth, 2010). Amongst other things, the low cost or low-fare airlines are characterized by functioning largely in point-to-point routs such as between regional airports that are not excessively congested and charge low landing fees. With this strategy, Tiger Airways has been trying to reach sustainable agreements with the airport authorities to provide the airline with some discounts on airport fees. Tiger Air brands usually offer low domestic travel fairs that can easily be bought online. Furthermore, these fares are usually not charged any fees especially when one uses a MasterCard or debit card. For a one-way travel, for instance, fares usually start at as low as US$49, and at times drop down to about US$29 particularly when sales are not yet closed. In comparison to other airlines, these prices are actually the lowest given the fact that they already include miscellaneous charges and all the necessary levies. By investing significantly in the end user and fleet processes, the organization has continued growing as well as solidifying its position in terms of maintaining its growth initiatives (Hierling, 2007). Internationalization is very significant in the present airline market and for Tiger Airways it has proven to be appropriate and highly competitive (Fojt, 2006). In fact, these considerable investments have been the airline’s strategic plan as they provide a platform for the airline not only to expand its operations by opening up new operational routes, but also improve the services offered to its clientele. 3.0 The factors influencing tiger airway’s pricing strategies 3.1 Increased customers and Increased Fleet In 2005, a report card of first year operations indicated that more than 500,000 passengers were carried with more than 5000 scheduled flights was flown. This means that a flight or an airline completion rate of about 98 percent was achieved. According to the records, more than 90 percent of arrivals and over 94 percent of flight departures took place. Furthermore, the airline acquired extra four aircrafts and also launched more than nine routes the same year. In 2006, the airline acquired Airbus A320 aircraft, which increased the capacity from the initial 0.5 million to about 3 million passenger a year. With this, six more routes were added and specifically to destinations in India and China. This aspect meant that customers had increased three fold as these two countries have a lot of people who travel the region where Tiger Airways operate (Farabi, 2012, p. 5-7). Therefore, to attain their objectives, pricing strategies played a key role here. In other words, pricing strategies of tiger Airways are influenced by the number of destinations as well as the number and capacity of airplanes of the company. 3.2 The market environment In order to enhance its services including that of its subsidiaries, the airline has been strategically adapting to the environment in the airline industry and at the same time becoming more flexible to the shifting dynamics in the market (Cento, 2009, p. 13-15). For instance, it has been responding in a well-timed manner via capacity management particularly through discounts lowering their prices. In addition, the airline has been enhancing its capacities in the regional and international market by optimizing its operations. Tiger brands have been transforming their operations via an annual program that aims to marginally advance their services and at the same time maintain the standards of service they have set for their operations and clientele (Gross & Schro?der, 2007). This program as well ensures the company and its subsidiaries are able to manage or navigate the market trends via the low-pricing pricing strategies that are impacting their revenues. Moreover, the low-prices set by the company are not expected to vary or change anytime soon an aspect that enables the company to stay a float even when the market conditions are not stable. So far, this transformation program has benefited the airline by delivering more than US$611 million in revenue across the different areas of operations. The management of Tiger Airways has been concentrating on the low-price market via its subsidiaries by enhancing its brand as one of the low-fare airlines not just locally but internationally as well. This has made the airline one of the fastest growing brands in the airline industry. By increasing the number of flights through a low-fare strategy, the airline has been able to attract and capture a large share of the market both domestic and internationally and become very profitable. As of 31 Oct. 2013, the Tiger Airways fleet comprised of the following aircrafts: Aircraft In Fleet orders Passengers Airbus A 320-200 24 25 180 Total 24 25 Source: Tigerair.com With such an immense capacity, coupled with its low-fare pricing strategies the company has put in a privileged position to favorably compete with the other established international and domestic discounting operational air companies. In the financial year ending March 2013, the Singapore brand was able to deliver more than $600 million in revenue and become one of the major contributors to the total revenue of the airline. 3.3 Stripes Loyalty Program When passengers chose to travel with Tiger Airways brands, they stand a chance of becoming members of "Stripes" (Chitty, 2011, p. 98). In airline industry, stripes simply is a program designed to enable or allows its members to efficiently book online and the most important part of it is that it allows members to take advantage of the special offers something that non members cannot enjoy. Under this program, members are offered a unique opportunity to book online at any given time, including times when promotions are being conducted. Normally, deals on airfares have a tendency of running out and in this case, members of Stripes are usually guaranteed unrestricted access to such promotions before none members. Generally, this leaves non-members with the likelihood of not just missing out on the lowest airfare deal, but also with likelihood of missing a plane altogether. Furthermore, members of Stripes have are provided with a range of exclusive perks such as having their spouses enjoy comparable fares on top of getting access to other promotional programs with affiliates and partners of Tiger Airways. Stripe members also enjoy some exclusive airfare promotions that at times go as a low price of US$29.95 for a one-way travel. The airline has as well continued to advance its frequent flyer program in addition to increasing membership in the stripes loyalty program in order to reward its returning clientele for their loyalty and trust in the company. For the first three years of commencement, the program was able to deliver more than $400 million before tax and miscellaneous charges. The frequent flyer program of Tiger Airways has continued to benefit from its alliance with the Singapore Airline as well as from other new partnerships such as the one with Dahlia Investments (Samuel & Gupta, 1993, p. 87). These strategies are being developed in a bid to enhance the company’s the performance through low-fare pricing strategy especially in the global market. 4.0 The positive and negative impacts of the pricing strategies used by Tiger airways 4.1 Enhanced returns The performance of the airline from 2009 to 2013 is shown in the table below. All the figures shown in the table below are for various financial years ending March. These figures are for Tigerair Singapore, other subsidiaries are not included. 2009 2010 2011 2012 2013 Total Revenue (S$m) 268.0 277.9 341.8 460.9 611.0 Operating Profit (S$m) 12.2 25 53.8 -16.0 57 Passengers booked (thousands) 3,903 4,393 passenger change year-on-year + 12.6% Passenger load factor (%) 85.4 81.0 84.3 Number of aircraft (at year end) 9 10 14 18 20 Source: Tigerair. Com: The results shown in the table above indicate that Tiger Airways brands have been doing extremely well despite the competitiveness of the Airline industry. This is attributed to its aggressive and customer-centre pricing strategies on top of other factors that significantly contribute to the success of the pricing strategies (these will be discussed). Furthermore, the company has continued to advance and holds a high investment grading particularly on its credit capabilities. There are a number of positive and negative effects of the low-fare pricing strategy. Some of these impacts are in the business operations, customers section and even the environment. Particularly, the low-fare strategies have led to the growth of the aviation industry in countries where these airlines operate. In addition, they have revolutionized or transformed many processes based on the fact that these airlines require procedures that are highly simplified (Gross & Schro?der, 2007, p. 208-2013). In this context, the airports also have been compelled to redefine their strategic plans for the betterment of all stakeholders. Specifically, there are some airports which have almost exclusively been devoted or developed for the low cost segment (Carrilho, 2010, p. 2-4). This means better services to both customers and airlines and increased revenues to the state. The low cost pricing strategy also leads to increased tourism and environmental conservation (Graham, Papatheodorou, & Forsyth, 2010, p. 342-347). This is based on the fact that in order for the company to attract the attention of clients or in order for the company to convince them that despite the low airfares, services offered to them are above board and meets their demand, it must first associate with them through activities such as environmental conservation. It also leads to increased tourism. One of the major hindrances to tourism is airfares. With low-airfares, many people will remain with some extra money to be spent on tourism activities. However, this does not mean low-airfare strategies only occasion positive impacts. In times of inflation, it will be hard for the company to convince its clients that prices they are used to have increased. Furthermore, the airline can easily run into losses if it does not have a dependable client base. 5.0 Conclusion With most of the air companies focusing on enhancing their market share and their sales, Tiger Airways has been concentrating on low-airfare and low cost strategies to stay afloat. It has been working to ensure that it is in a better position in relation to its competitors when it comes to attracting clients. This has ensured the competitiveness of the airline in its operations, services and products and in making sure that its capacity is tied to the increasing end user demand. In a nutshell, the management has made sure that approaches are in place to enable the airline to capitalize of the expected future growth by acquiring additional low-cost airplanes. 6.0 References Albers, S., Auerbach, S., & Baum, H. 2005, Strategic management in the aviation industry. Aldershot: Ashgate. Carrilho, P. 2010, Competitive Strategies to Attract Low Cost Airlines - Application to Orio al Serio Airport, Italy. Orio al Serio: Orio al Serio Airport. Cento, A. 2009, The airline industry challenges in the 21st century. Heidelberg: Physica-Verl. Chitty, W. 2011, Integrated marketing communication. South Melbourne, Vic: Cengage Learning. Farabi, F. 2012, Analysis of Marketing Environment of Virgin Australia. Sydney: GRIN Verlag. Fojt, M. 2006, The airline industry. Bradford: Emerald Group Pub. Graham, A. 2008, Managing Airports: An International Perspective. New york: Routledge. Graham, A., Papatheodorou, A., & Forsyth, P. 2010, Aviation and tourism: implications for leisure travel. Farnham: Ashgate. Gross, S., & Schro?der, A. 2007, Handbook of low cost airlines: strategies, business processes and market environment. Berlin: Erich Schmidt Verlag. Gross, S., & Schro?der, A. 2007, Handbook of low cost airlines: strategies, business processes and market environment. Berlin: Erich Schmidt Verlag. Hierling, M. 2007, The Australian airline industry and the case of OzJet – A strategic analysis report: Case study about OzJet and the airline industry in Australia. Sydney: GRIN Verlag. Samuel, S., & Gupta, D. 1999, Issues in applied economics: an Australian text. South Melbourne, Vic: Macmillan Education Australia. Tiger Airways.com Read More