What should CAL do to send RED back to Ireland?
Have a read of the How Budget Airlines work below and it offers some clues as to what RED is likely to do to win share profitably. The thing about CAL is Government is a major share holder, so it’s likely to get some help from this source. (but that did not help TSTT with another Irish brand)
Putting that aside, what should CAL do to send RED packing? I think the answer lies in market segmentation. That is, figuring out which of CAL’s customers are most ripe for picking by RED and developing a plan to protect them if they are worth protecting.
From what I see in the papers CAL’s first response is “one size fits all.” That’s exactly not where they should be. CAL should be getting down and dirty with segmenting its customer base to figure out which customers are their biggest flight risk.
After segmentation identifies who RED are most likely to attract; next comes putting the choke on RED, through all elements in the marketing mix as well as CAL also acting like a budget airline itself. (and doing some of the things below/which it is probably already doing).
So CAL would need relevant pricing, new products and advertising that connects. This is not the time for CAL to throw money behind this attack on their business. It is time for brains not brawn.
Here’s how RED can offer their low fares:
- Fuel hedging. What is hedging? It’s a gamble against the future price of jet fuel. If an airline thinks that the cost of fuel is going to rise in the future, they can sign contracts locking in the current price for months or even years. If fuel prices double in 12 months, the airline would be buying fuel at last year’s cheaper rate. However, if prices drop, the airline is stuck paying their “locked in” higher rate.
- Use only one kind of plane. Southwest only uses Boeing 737s. This saves money on maintenance and repair, since the company only has to stock parts for the one make and model of plane they use. They also save money on pilot and mechanic training, since they don’t need separate training programs for each different type of aircraft.
- Cheaper airport fees can also help the bottom line. How do airlines pay cheaper airport fees? Sometimes they can do it just by negotiating ruthlessly, but the tried-and-true budget airline method is to use smaller, underutilized airports. A major airport, like Chicago O’Hare, is in high demand from airlines. The airport commands higher fees because so many airlines want to use it.
- Budget airlines also offer fewer cabin amenities. This can take many forms, from smaller, lightly padded seats to the absence of free meals and alcoholic beverages. The typical budget airline offers a basic seat and anything else a passenger wants in-flight can be had for an additional fee.
- Direct-ticket sales are another cost-saving tactic. If you go to an Internet travel site to book a flight, the site gets a cut of the ticket price from the airline. The same thing happens if you use a travel agent. Some budget airlines use the age-old cost-cutting practice of “cutting out the middleman,” and not allowing their tickets to be sold through these third party outlets. Instead, they only sell tickets through their own Web site or at the ticket counter.
