Low-Cost Carrier (LCC) models have become familiar in North America and Western Europe. Since 1971, the first low-cost airline - US's Southwest Airlines has started exploiting this type of transport. Low-cost airline then quickly spread to Europe with the arrival of well-known brands Ryanair and EasyJet. The year of 2003 marked a new development in the Asian civil aviation industry when the Low-Cost Airline trend started to blossom, pioneering as Malaysia's Air Asia. Four years after Low-Cost Airline is present in Vietnam, the situation of air transport market has changed so much , the competition between more than 40 carriers has routes to Vietnam become more intense, especially is a market share competition among foreign Low-Cost Airlines operating in Vietnam. Under these
circumstances, domestic airlines could not help but jump in, starting with Jestar Pacific Airlines' transformation into a Low-Cost Airline in February 2007. Next is the Vietjet Air -Vietnam's private airline, established in December 2007 but it was not until the end of 2011, Vietjet has started the first commercial flight, has
triggered a new competition among domestic airlines. Not just stop there, the fact that a series of private airlines like AirAsia Phu Quoc Air, Saigon Air, Bamboo Airways, Vietstar Air are waiting to be licensed to operate is demonstrading that Low-Cost Airline will explode in Vietnam next time. It can be said that Low-Cost Airlines are a very timely issue of Vietnam's aviation industry, which is a good sign of the abolition of monopoly that Vietnam Airlines has held for a long time and demonstrating a new development up of the Vietnamese economy. Not only that, the fact that Vietnam’s Low-Cost airline products attracted the attention of many Vietnamese people, the average or lower income people could use the means
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of fast and modern transportation is aircraft, however, most of them do not
understand what is the essence of low- cost airlines products? How is it different from traditional airlines products? Why are these companies selling at such low fare rates that can survive and grow so strongly? Which marketing strategies have these airlines used to make their success? Therefore, I chose the topic " Study of Marketing Strategy for Low-Cost Carrier : The case of Vietjet Air in Vietnam ", hoping that there will be a more specific look at Low-Cost Airline products and evaluation of development prospects of this product in Vietnam.
1.3 The Purpose of Study
This study is a qualitative analysis ; the main purpose of this study are as follows:
1. To understand airline industry in Vietnam 2. To investigate Low-Cost Carrier in Vietnam 3. To evaluate marketing strategy for Vietjet Air 4. To offer suggestions for Vietjet Air
1.4 Research Procedure
With Research Topic is : “ A Study of Marketing Strategy for Low-Cost Carrier Industry: The Case of Vietjet Air in Vietnam”. The research process consists of 5 main steps.
The first step is introduction of the airline industry of the world , the situation of the airline business environment in Vietnam, namely Vietjet Air_Low-Cost
Carrier. From that point view, we will propose research problems: Why can Vietjet achieve admirable results in such a short time? What is Vietjet's marketing
strategy different from other airlines in Viet Nam ? Is this marketing strategy can applicable to the entire airline industry?
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The second step is Literature Review. Reviewing the necessary background knowledge related to research issues through previous quality journalism and research books. From there, select the content suitable for the research topic and then rewrite in your own way. Based on foundation of theories, we will analyze the Marketing strategy of Vietjet did and make the right conclusions and strategies for Vietjet and airlines industry .
The third step is Research Method. The related datas will be found out on the official website of Vietjet, prestigious business magazines, speeches , experts assessment, Vietjet financial report ...will use for SWOT and 4P matrix analysis.
SWOT includes analysis the strengths, weakness, opportunities, and threats of this strategic research. 4P or Marketing mix includes analysis about Product, Price, Place and Promotion.
The fourth step is Major Findings : Brief introduction of Vietjet and outline qualitative results .
The last step is Concluding Remarks , after finishing analysis, we can draw key conclusions for Marketing strategy for Vietjet, the limitations of the study and future research proposals. Which do Vietjet's Marketing Strategies bring to real value to the entire airline industry and new brands in the future?
The flow chart of this study is as follows:
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Fingure 1.1 Flow Chart REFERENCES CONCLUDING REMARKS
Conclusions, Suggestions, Limitations and Study Future MAJOR FINDINGS
Brief Case of Vietjet, Qualitative Analysis Results, Marketing strategy for Vietjet
RESEARCH METHODE
Research Framework, Outline Qualitative Analysis: SWOT, 4P LITERATURE REVIEW
INTRODUCTION
Background, Motivation & Objective
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Chapter Two: Literature Review
2.1 The Definition of Low-Cost Carrier & LCC Business Model
The emergence of low-cost carriers has been a key catalyst for the development of the aviation industry in the last decade. There are various definitions that have been applied to describe the low-cost carrier ( Dietlin 2004; Kumar 2005; Doganis 2006; Hunter 2006; Holloway 2008). In essence the majority of researchers define LCCs as carriers, through a variety of operational processes, have achieved a cost advantage over full-service carriers (FSCs). A low-cost carrier will be defined as a carrier which translates these cost savings into lower , more affordable fares for the travelling public (World Bank Document, Ready for takeoff). Or according to Wikipedia definition : A Low-Cost Carrier or Low-Cost Airline (occasionally referred to as no-frills , budget or discount carrier, and abbreviated as LCC) is an airline that generally has lower fares and fewer comforts. To make up for revenue lost in decreased ticket prices, the airline may charge for extras like food, priority boarding, seat allocating, and baggage etc.
For any business, choosing the right business model is very important and the airline industry too. The business model will determine the way one intends to make money with the airline. There are many economic proposals, business strategy research for the airline industry and a lot of airline business models are presented. According to Airlinebasics.com , there are really 6 main airline business models which are being used by the majority of airlines around the world: Those are Legacy Airlines ( Full Service Carriers) , Low Cost Airlines (Low Cost Carriers), Charter Airlines (Holiday Carriers), Regional Airlines, Cargo Airlines ( Traditional Freight Carriers) and Hybrid Airlines. There are a number of key characteristics that can generally be found in LCCs as follows (IATA and World Bank Document)
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1. The service offering focusing on the key service of transport and removal of all
“frills” (for example, free baggage, on-board meals, assigned seating) or charging additional fees for them;
2. Primarily point - to - point operations, serving short-haul routes, often to/from regional or secondary airports lower airport charges, higher availability of slots, and reduced congestion .
3. High aircraft utilisation rates with short turnaround times between operations.
4. Low-cost distribution through online selling, a very high proportion of bookings made through the Internet.
5. A strong focus on price sensitive traffic, mostly leisure passengers. The fleet consisting of just one or two types of aircraft.
6. Different fares offered, related to aircraft load factors and/or length of time before departure.
7. The high labor utilization time through a higher number of average block hours per employee and/or higher passenger per employee ratio
Not all low-cost airlines do all of the above. However, here are the general characteristics that most low-cost airlines apply to themselves.
To put it simply, the business model of the low-cost carrier can be understood simply as follows: Travelers are very sensitive to cost, particularly for short flights.
LLC can offer very low prices by eliminating unnecessary luxuries, like in-flight meals or business-class seating. Given the high level of congestion at most hubs, low-cost airlines can also take the less expensive late-night and early-morning.
Some airlines actively advertise themselves as low-cost, budget, or discount airlines while maintaining products usually associated with traditional mainline
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carrier's services which can increase operational complexity. These products include preferred or assigned seating, catering other items rather than basic
beverages, differentiated premium cabins, satellite or ground-based Wi-Fi internet, and in-flight audio and video entertainment. More recently, the term "Ultra Low-Cost Carrier" differentiates some low-cost carriers, particularly in North America where traditional airlines increasingly offer a similar service model to LCC.
With the fluctuation of fuel prices & the global economic downturn created a thriving market for low-cost carriers pressuring more up-market airlines into looking for new strategies for differentiating their service. The airline industry is intensely competitive. This also means that low-cost airlines must always innovate, carefully prepare short-term and long-term strategies to cope with changes in the market and fierce competition among firms in the industry together.
2.2 The Growth Period
Over the past three decades, Low Cost Carriers (LCCs) have transformed the air travel market and created a revolution in air service (IATA) . In 2018, LCCs worldwide with the greatest number of seats accounted for about 31 percent of the world total scheduled passengers (Statistatic Portal 2019) . The global LCC has grown at a staggering pace since the beginning of this decade and now account for one third of intra-regional seat capacity.There are now more than 100 LCCs
operating a combined fleet of 6,000 aircraft. The LCC fleet has doubled in size since the end of 2009, when it consisted of only 2,900 aircraft (source: CAPA Fleet Database). Global LCC seat capacity has also doubled since 2009 (753 million) , reaching nearly 1.7 billion (1.564 billion) in 2018 (source OAG).
Asia Pacific region is now the world’s largest LCC market, where the LCC
penetration rate is now approaching the global average, accounting for nearly 600 million seats, or 35% of the global LCC seats in 2018. The Asia Pacific LCCs have
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expanded from a fleet of only 400 aircraft at the end of 2009 to 1,900 aircraft currently and are poised for more rapid growth, given their massive order book of 2,400 aircraft (CAPA). Latin America has also experienced rapid LCC growth, while Africa's LCC growth has been relatively modest. LCC growth in the Middle East market has been rapid but the region's LCC penetration rate remains low. The more mature markets of Europe and North America have experienced slower LCC growth than the emerging markets, although there have been significant gains between the two regions.
Fingure 2.1: Number of seats of leading low cost airlines worldwide in 2018
Some Low-Cost Airlines that are well known include Southwest Airline, Ryanair, Easyjet, jetBlue, Air Asia and Wizz Air…. During this period , Southwest Airlines had the highest number of seats with 206.6 million in 2018 (Statista 2019) and become one of the LCC largest airline in the world . Based on figures from OAG
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Schedules Analyser, the list of fastest-growing airlines was compiled by ranking the top 100 carriers in the world by available capacity during the first-half of 2018.
The data was then compared to the capacity figure during the same period in 2017 and ordered by year-on-year percentage growth. In total, eight of the top ten carriers are low-cost.
Table 2.2 : Top ten fastest-growing major airlines during H1 2018 AirAsia is the World's Best Low-Cost Airline for the 10th onsecutive years , the reason Air Asia is honored to receive this title is not only thanks to its cheap price, but also its quality and attitude towards its customers. From beginning of the fleet size has only two aircrafts , Air Asia now has hundreds of aircraft with a wide network of more than 100 destinations, serving tens of millions of passengers each year. Beside , Norwegian is the World's Best Long Haul Low-Cost Airline and the
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Best Low-Cost Airline in Europe (Skytrax 2018). The quickly growing of VietJet Air out of Vietnam earned prize the Best Ultra-Low-Cost Carrier for the second year in a row ( Airlinerating 2019). Here are the 20 best low-cost airlines in the world, according to the results of the Skytrax survey.The Skytrax rankings are based on the impressions of 19.87 million travelers from 105 different countries.
The survey, which covered more than 325 airlines, measured 49 parameters ranging from boarding procedures to seat comfort to the quality of service.
No World Low-Cost Airline Awards (Skytrax 2018) Name of LLC
1 World's Best Low-Cost Airlines 2018 Asia Air
2 World's Best Long Haul Low-Cost Airlines 2018 Norwegian
3 Best Low-Cost Airlines in Africa 2018 Mango
4 Best Low-Cost Airlines in Asia 2018 AirAsia
5 Best Low-Cost Airlines in Australia / Pacific 2018 Jetstar Airways 6 Best Low-Cost Airlines in Europe 2018 Norwegian 7 Best Low-Cost Airlines in the Middle East 2018 Flynas 8 Best Low-Cost Airlines in Central Asia / India 2018 IndiGo 9 Best Low-Cost Airlines in North America 2018 WestJet 10 Best Low-Cost Airlines in South America 2018 Sky Airline 11 Best Low-Cost Airline in Indonesia 2018 Citilink
12 Best Low-Cost Airline in the UK 2018 EasyJet
13 Best Low-Cost Airline in Germany 2018 Eurowings
14 Best Low-Cost Airline in France 2018 HOP
15 Best Low-Cost Airline in Mexico 2018 Interjet 16 Best Low-Cost Airline in Thailand 2018 Nok Air
17 Best Low-Cost Airline in Japan 2018 Peach
18 Best Low-Cost Airline in Russia 2018 Pobeda
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19 Best Low-Cost Airline in the USA 2018 Southwest Airlines 20 Best Low-Cost Airline in Spain 2018 Vueling Airlines
21 Best Low-Cost Airline in China 2018 West Air
Table 2.3: World’s Best Low-Cost Airlines 2018
Next, according to a new report published by Research and Market with titled, “Low Cost Airlines Market by Purpose, Destination and Distribution Channel: Global Opportunity Analysis and Industry Forecast,2017-2023,” the global Low-Cost airlines market was valued at $117,726 million in 2016, and is projected to reach
$207,816 million in 2023, registering a CAGR of 8.6% from 2017 to 2023. The development of the travel & tourism sector fosters the growth of the Low-Cost ost airlines market. For instance, in Latvia, Europe, around 80% of the passengers are flown by low-cost carriers; whereas, in Africa, nearly half of the countries have no Low-Cost airline service. The LCC penetration rate in Asia will soon approach the global average and should be able to exceed the global average, given the dynamics of this market (with a rapidly expanding price sensitive mid-class population).
With the overall growth rate, the Asian LCC market has many opportunities to grow faster than other regions. Market share gains in Africa and the Middle East are inevitable. Latin America's LCC penetration rate is already above the global average, but opportunities still beckon as several of the region’s markets remain unpenetrated.
The growth of the market is attributed to the rise in economic activity, ease of travel, travel & tourism industry, urbanization, changes in lifestyle, consumers’ preference for low cost service along with non-stops, and frequent service, increase in purchasing power of middle class households especially in the developing regions, and high internet penetration coupled with e-literacy. Conversely, factors such as volatile crude oil price , increase in terrorism & crime rate, political uncertainty,
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natural disasters and high investment & operational cost but low profitability are anticipated to be a major challenge of the low cost airlines industry.
2.3. Background of the LCC in Southeast Asia
Southeast Asia is a dynamic region consisting of 11 members located between the Indian Ocean and the Pacific Ocean. The area has long been known as a favorite place of the world for tourism, known for its beautiful tropical beaches, delicious food, low prices, and hospitable people with cultural backgrounds. A fairly safe environment for travelers and easy to travel through around the ASEAN countries.
ASEAN Open Skies policy being in effect since January 2016, which is the region’s long-awaited single aviation market, allows airlines to fly freely
throughout the ASEAN member states in a unified air transport market, which will facilitate trade and tourism, especially low-cost airlines, by shorter flight times (within 3 hours) .This ASEAN Open Skies policy has yielded positive growth in the aviation sector and it will attract a big number of tourists to arrive in the region, projected to hit 145 million tourists by 2023. Moreover, Southeast Asia airline market is one of the most powerful growth areas in the world, just behind the Middle East. This is an assessment made by the International Civil Aviation Organization. Thanks to the drop in airfare prices, many ASEAN people have the opportunity to travel, travel and trade in the region more easily. In the coming time, the market for cheap aviation in ASEAN will continue to grow strongly. The explosion of low-cost aviation has strongly stimulated the trend of air travel in many countries around the world, especially developing countries in Southeast Asia. The race to gain market share is becoming more and more fierce not only among low-cost airlines but also airlines that serve traditional forms cannot stand outside. One of the factors to increase the influence, occupying strong market share is the ability to own the number of airplanes of airlines. When the competition is
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mainly based on the frequency of exploitation on the same route, amount of
aircraft , the ability to ensure the accuracy of the take-off / landing time higher, the brand's popularity will hold market share advantages.
Starting from zero since 2000, currently in Southeast Asia there are about 26 Low-Cost Airlines operating with flights to 10 countries in ASEAN region.In the five main domestic markets (Indonesia, Thailand, Vietnam, Malaysia and Philippines), LCCs account for at least 50% of the capacity. LCCs account for more than 70%
of the domestic market in Thailand and nearly 70% in the Philippines.
Fingure 2.4.: The penetration of LCC in Southeast Asia domestic market 2018 The Southeast Asia fleet consists of more than 2,000 aircraft and has nearly as many aircrafts on order (Centerforaviation.com, Southeast Asia Airline 2019 Outlook). Lion Air Group is the largest airline group in Southeast Asia which has held the highest number of aircraft in the region since 2014, surpassing both AirAsia X and AirAsia combined. Lion Air of Indonesia is also the first choice of people from thousands of islands due to its wide network of flights with domestic flights and up to 36 points. Hold the 2nd position is AirAsia Aviation Group with
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the fleet growth of 13% in 2018 , owning 211 aircraft. AirAsia X, the traditional non-service brand of this group, plans to increase its fleet to 30% for the three affiliated airlines operating in the region with the mainstream aircraft is A330.
Besides, AirAsia with six other airlines are exploiting the routes in Southeast Asia using mainly the A320 series. After adding 17 aircraft to the fleet, Vietnam's leading low-cost carrier - Vietjet Air is ranked at the 3rd position in terms of the growth in the number of aircraft after Lion Air and AirAsia. However, in terms of the total number of existing aircraft according to the statistics as of January 2018 from CAPA, Vietjet has not been able to appear in the Top 10 .
Figure 2.5: Number of Aircrafts of Southeast Asia LCC
Figure 2.5: Number of Aircrafts of Southeast Asia LCC