The pricing policy aims to maximize flight revenue, so the fare system of traditional airlines often applies a simple fare system that rarely changes during each period.
Because the characteristics of traditional and low-cost airlines are different, Vietnam Airlines' pricing strategy also needs to be clearly distinguished according to these two market segments.
For international routes, traditional routes - the fare system will be simpler, less change in each period. Price changes are often based on variables as currently applied and can be applied in 2 seasons: low season and high season. However, to increase the ability to maximize revenue, Vietnam Airlines needs to expand these variables. For this market segment, due to less flexibility in price, analyzing the prices of direct competitors is very important. Based on the level of competition, service quality, analysis of strengths and weaknesses of each airline to design the most suitable price.
For the low-cost or “air-taxi” market segment,
The fare system should be based on the criteria:
o Significantly lower than traditional airline fares but still achieves equivalent efficiency.
o Higher than other means of transport with longer transport times (cars, trains, ships...)
o Attractive according to people's income to be able to regularly use this means of transport.
With a minimum cost price of 25% lower according to cost orientation, applying a price 20-25% lower than the price of traditional airlines is completely possible for low-cost airlines in Vietnam. Normally, with the price policy and reputation of products and services, the ability to fill seats of low-cost airlines is much higher than that of traditional airlines. With this advantage, low-cost airlines have more flexibility in adjusting fares. The price adjustment range is shown in Figure 3.4.
A – Break-even point of traditional airlines. A' – Break-even point of low-cost airlines.
B – Achievable seat utilization ratio of traditional airlines. B' – Achievable seat utilization ratio of low-cost airlines.
In Vietnam, according to each market, through research on the ratio of seat utilization and fare, the break-even point is 70-75%. For traditional multi-service airlines, the seat utilization rate can increase by 7-10% compared to the break-even point. If applying the interest rate of 4-5% of income like traditional airlines, low-cost airlines can reduce prices by 5-7% compared to the price determined at the break-even point.
Cost
Break-even point of traditional HK airlines
A
B
Price adjustment range of traditional HK airlines
A' B'
The price adjustment range of the company
Break-even point of HKCPT
100% seat utilization rate
Figure 3.4 – Price adjustment range
On that basis, it is possible to orient the construction of a pricing policy with 2 options:
- Option 1 : Based on cost determination, build a pricing system with a break-even point from costs.
- Option 2 : Based on market research to determine transport capacity and income, the required profit margin can be determined and a pricing system can be built. The price of this pricing system is usually lower than the price of the pricing system according to option
1. Option 2 requires the construction of scientific prices with the experience of the exploited market and when exploiting, immediately encounter competition from exploiting enterprises. The compromise option is established in harmony between option 1 and option 2.
For selected international destinations, it is possible to divide into two current market areas: Markets with high competition such as Vietnam-Taiwan, Vietnam-Thailand and markets with moderate competition such as: VN-HKG, VN-SIN, VN-Korea, VN-Japan and markets without competition operated by one airline such as Vietnam, China. These markets almost exclusively participate in air passenger transport. Depending on the level of competition of each market, a competitive price system can be applied that is 25-35% lower than the current traditional airlines, and 10-20% lower than the lowest price of traditional airlines usually applied to tourist groups.
Compare the fare difference between traditional airlines and the expected fare of low-cost airlines. It can be seen that the low price criterion is demonstrated and reaches the level of customer attraction because the fare difference accounts for a significant proportion of the average income of people in the region.
3.3.3. DISTRIBUTION POLICY
It can be assessed that the current distribution system of Vietnam Airlines is organized and operates relatively effectively and scientifically. However, it seems that the organization of this distribution system is still in the traditional style - not keeping up with technological innovation as well as the new distribution method that is very popular today, which is using the conveniences of the internet - online transactions. Airlines around the world use and maintain a system of agents to organize the sale of aviation products and services. However, in the current business environment, the
The company is implementing direct sales policies through the Internet (E-Commerce) to distribute directly to some final customer segments, cutting down on sales costs through the dealer system.
Comparison between 02 traditional distribution systems and e-commerce as shown in Figure 3.4
With the above internet-based distribution system combined with the use of e-tickets, it is clear that airlines can save a lot of costs, specifically:
- Commission cost for agents (average 5% of ticket price)
- Cost of printing paper tickets
- Booking fee (4.5 USD /booking)
- Huge costs for resources (office, people, equipment, management...) for the system of regional offices
Traditional distribution E-commerce
Airlines
Dealer system
Client
Airlines
-Internet
-Electronic reservation system
Airlines
Figure 3.4- Comparison of 2 forms of distribution
On the other hand, this form is more convenient for customers as they have the autonomy to change their itinerary.
The fact that traditional airlines apply a multi-service approach using modern reservation systems and distributing through ticket agents leads to high costs due to the payment of fees for using the reservation system as well as commissions for ticket agents, which are usually 7%-10% of sales. Therefore, the selling cost of traditional airlines is up to 15% of sales.
Applying direct sales and distribution systems via the Internet, using electronic tickets or temporary tickets will significantly reduce the cost of distributing and selling products. The distribution and sales system of low-cost airlines is simple and only with the provision of point-to-point products can these airlines effectively use a simple distribution and sales system. On the other hand, with a simple sales system, using an independent central computer allows to increase the reliability of the sales system of low-cost airlines. Costs for the reservation system of service providers:
Global distribution system
For 1 pax booking (Domestic flights) | For 1 pax booking (International flight route) | |
Abacus | 1 USD/1 trip | 3.5 USD/trip |
Amadus | 1 USD/trip | 3.5 USD/trip |
Galileo | 1 USD/trip | 3.5USD/trip |
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Saying so does not mean that we absolutely overemphasize the role of e-commerce for Vietnam Airlines' operations. E-commerce needs to be developed as a new distribution channel to supplement the old distribution system to better meet market demand. Moreover, it is an important and especially necessary factor if Vietnam Airlines wants to establish a new department operating in the form of an airline.
low-cost airlines. E-commerce and e-tickets will contribute significantly to cutting costs for airline operations.
E-commerce is a new topic for Vietnam Airlines while it has become outdated in North America and Europe. Currently, according to statistics from the Ministry of Posts and Telecommunications, there are about 9 million Vietnamese people using the internet, this is a great opportunity to develop e-commerce for Vietnam Airlines.
Vietnam Airlines needs to have a precise understanding of e-commerce and needs to adjust its e-commerce development strategy to suit reality, along with building a customer-oriented e-commerce strategy and building a multi-channel distribution system.
However, it is necessary to distinguish between two concepts that many people often confuse when e-ticketing and e-commerce. In fact, e-ticketing is very important and is the driving force for e-commerce, but e-ticketing itself cannot become e-commerce.
Globally, electronic tickets are now gradually replacing paper tickets. Electronic tickets were first introduced and applied in the US in 1993. By April 2007, electronic tickets accounted for 47.8% of tickets issued worldwide, and in the US this rate reached 90 to 100%. In Japan and Korea, electronic tickets are applied on domestic flights and airlines of these two countries are gradually implementing electronic tickets on international flights. [49, p.240] . Currently, many airlines have plans to stop using paper tickets and cooperate interline with airlines that have not applied e-commerce.
The application of electronic tickets is essential for the development of e-commerce, but it is not a sufficient condition. E-commerce is basically everything related to customer service, which is to improve the efficiency and quality of service through the application of electronics and scientific and technological achievements.
The entire process of customer contact and transaction with airlines can be done online via the internet to improve service quality and management, such as automatic check-in, online reservation, etc.
In Europe and North America, when airlines applied and developed online booking as a new distribution channel, it greatly affected the role of travel companies/ticket agents. In 2005, the direct sales market share of airlines was 46%, of which 28% was sold directly online. Thus, online booking has become one of the main distribution channels of airlines in developed countries with high levels of science and technology. More and more airlines are choosing online sales channels. [49, p.222]
With the current situation of Vietnam Airlines, the airline should take advantage of the opportunity to proactively build a multi-channel distribution system to satisfy the needs of many different customer groups. The airline's customers are mainly agents, corporations, companies and individuals with very different travel habits and understanding of the aviation industry, so it is necessary to diversify e-commerce to suit the distribution channels.
Based on the existing website of Vietnam Airlines ( www.vietnamarlines.com ), Vietnam Airlines needs a portal for online booking. A modernly designed booking portal allows customers to conveniently access information about flight itineraries, available seats, purchase tickets and make online payments... and also helps Vietnam Airlines better manage its distribution system.
The module on this website should focus on the following information for easy access from customers:
- High focus on flight search and fare functionality.
- Highly focused on pricing function, no matter how complicated the journey is, users can know the price by fully updating the journey.
- Online payment facilities and payment confirmation.
- Information security and online safety.
3.3.4. PROMOTIONAL COMMUNICATION POLICY
3.3.4.1. Advertising
Vietnam Airlines' advertising activities up to now have been carried out relatively effectively and reasonably. Abroad, Vietnam Airlines still advertises through partners in Hong Kong to cut costs and achieve high efficiency. Domestically, Vietnam Airlines still advertises its products in coordination with major travel programs and companies. However, to be more effective, Vietnam Airlines' advertising activities should have
Advertising strategy
- Focus on exploiting VNA's highlights such as modern fleet, Class C service and globalization of FFP program.
- Balance the structure between tactical and strategic advertising to enhance support for key markets.
International Advertising
It is recommended to maintain an international advertising budget of around 2.5-3 million USD and implement it in key markets - allocating the budget based on the advertising reality of each market and the contract with those advertising agencies. For international advertising, it is necessary to pay attention to the culture of each country, the consumer behavior of each market to have a suitable advertising message. In fact, many large corporations have failed when applying advertising programs that were very successful in one market to another market due to differences in religion, culture and customer behavior.
Press tour:
It is necessary to organize Press Tour groups from major markets such as Japan, Germany, Korea, Russia and China to Vietnam to write articles promoting Vietnam's tourist destinations as well as Vietnam Airlines' services. Thanks to that, Vietnam Airlines can build good relationships with the press and through the press to build the right perception of passengers in evaluating the quality of service as well as the rapid development of Vietnam Airlines.