Express Yourself

About anything and everything on the planet

March 28, 2009

WestJet Airlines: Initial Segment Rating – From Marketing Point of View

Most companies no longer aim a single product and marketing program at the entire market. Instead they break the market into homogeneous segments on the basis of meaningful differences in the benefits sought by different groups of customers. Based on this they tailor a product or service that provides a perceived value for that segment. But, not all segments represent equally attractive opportunities for the firm. Even before starting there journey in 1996, WestJet airline have prioritize target segments by their potential, evaluated their future attractiveness and their strengths and capabilities relative to the segments’ needs and competitive situation. In this Marketing Management Report Exercise a segment rating chart will be drawn to show WestJet’s market attractiveness factors in comparison with its competitor Air Canada. Using that chart, one market attractiveness factor of WestJet  and one competitive position factor will be discussed in details.

Assessing the WestJet Airline’s Market Segment in 1996

Weight

Rating (0-10 Scale)

Total

Market-attractiveness factors

Customer needs and behavior: unmet needs? (need for cheap, fun to fly with airline)

0.6

10

6.0

Segment size and growth rate (People who drive to meet with friends and families)

0.2

7

1.4

Macro trends (Demographic, economic, technological)

0.2

8

1.6

Total: Market attractiveness

1.0

9.0

Competitive-position factors

Opportunity for competitive advantage (Air Canada expensive to fly with and not fun)

0.5

10

5.0

Capabilities and resources (Air Canada’s expanded network: small and larger communities)

0.3

5

1.5

Industry attractiveness (Threat of substitutes, buyer power, threat of new entrants, industry capacity)

0.2

7

1.4

Total: Competitive position

1.0

7.9

The reason why WestJet is being compared against Air Canada is Air Canada’s sustainability, not necessarily because of its excellent business plan but because of some government and third party investors’ intervention. Since WestJet started its journey in 1996, some of the established airlines closed their businesses. Jetsgo had closed down on March 11, 2005, despite having captured up to 10 percent of domestic market. On September 05, 2006 CanJet stopped its scheduled airline business and on March 2007, Harmony Airways announced its retirement from airline business. However, by 2007, Air Canada and WestJet were regularly reporting fuller planes and rosier bottom lines. Based on this, Air Canada is the only recognizable competition for WestJet in domestic airline business.

Market attractiveness factors include many factors such as customer needs and behavior which addresses the questions, “Are there unmet or undeserved needs we can satisfy?” Of course unmet need of cheap and fun air travel is the most attractive option that WestJet persuaded. They wanted to capture the segment that travels in a family vehicle to meet friends and family. WestJet identified that if people were given an option to fly cheaper and in a fun environment for short amount of time verses travelling for 8 hours or more with screaming children at the back just to meet friends and family, people would choose to fly instead of driving. At the time there were no other options other than Air Canada and Canada 3000 airlines who were charging premium pricing for travelling. Clearly that segment’s needs were not met. Based on this clear identification of unmet need, rating for this is 10.

Segment size of people who travel to meet family and friends were also high but based on the previous fact that their needs were not being met, WestJet identified the segments to be very attractive. They also realized once they start offering cheap air fare they will have increased growth rate as well in next few years. All the data displays their assumption to be true. In 1999, they have 4.25% of domestic travelers. In 2000 they have captured 6.61% domestic air travelers. In 2001 and 2002 they have captured 9.83% and 14.16% respectively. By 2013, they are predicting this to be 50%. WestJet started by targeting small segment but knowing it will grow. Now they are trying to capture business travelers, vacation goers and also small local communities. Based on this segment size and growth rate this section scored at 7.

Macro trends such as demographic, economic and technology was considered next on the chart. WestJet initially started with the segment that travels to meet friends and family in a family vehicle. Given the option of going from Prince George to Vancouver or Vancouver to Calgary or Calgary to Winnipeg an airplane for an hour that cost $100 or less or driving in a vehicle with 2 children at the back screaming in a long drive of at least 10 to 12 hours including rest stops, they realized people would chose to fly rather driving. Demographically it made sense to WestJet to find it attractive. Offering cheaper air fare compared to its competitors at the time was also attractive. Available technology of utilizing same type of airplanes which is Boeing 737 also became attractive options for WestJet. More recently they have entered into an agreement with Singapore Aircraft Leasing Enterprise to get one 700 series and one 800 series next generation aircraft to be delivered in November and December 2009. Technologically this type of aircraft is easier to maintain and more fuel efficient. As a result this also became clear to WestJet that if they can use same type of fuel efficient aircrafts they will be able to keep the maintenance cost down in turn offering the savings to its customers. Based on these macro trends, the score is 8.

Based on the discussion above, WestJet’s market attractiveness score was 9.0. When WestJet was doing its business planning in 1993, they had no idea where they will be in 5 years or 10 years. However, they realized if they can keep their costs low and offer cheaper air fare to its customers; if it can maintain its superiority in customer service for its targeted segment then that will meet the unmet needs of existing customers, from there they can grow, and they can take advantage of demographic, economic and from technological changes over time.

WestJet also had to understand the attractiveness of the industry in which it will be competing. At the time, the main domestic air careers were Air Canada and Canada 3000 airlines. However for this report we will focus on Air Canada because it is still in direct competition with WestJet in domestic air travelling sector. Opportunity for competitive advantage is in favor of WestJet. In 1996 and 3 years prior to its launch when they were doing their planning and analysis, they have identified that Air Canada charges premium pricing based on its superiority in reaching smaller communities and also because they had no other competitions with a viable business plan. Air Canada also did not have superior customer service plans. As a result by offering a cheaper price and superior customer service they could differentiate them from their competitor. This was very favorable. People want to travel whether it is by air by road it depends on price and what added value they get out of it. For this reason this section of competitive attractiveness factor scored at 10.

Capabilities and resources for WestJet were very limited at the time. Based on all the analysis prior to WestJet’s launch it was clear that no airline business can survive beyond its first 5 years. WestJet also did not want to utilize different aircrafts to reach smaller communities to capture larger market share. Their inaugural flight was to Saskatchewan from Edmonton. The company was initially offering one daily round-trip flight between Edmonton and Regina. In Edmonton, Regina passengers will be able to make connections with WestJet flights to Calgary, Kelowna, Vancouver and Victoria. One-way fares range from $69 to $149 for the Regina to Edmonton flight, while Regina to Victoria ranges from $119 to $209. At the same time even though Air Canada was reaching many other destinations, but all their fare were in the $200 to $400 range. Even though WestJet did not start with huge resources by offering services to many little communities but still they captured the targeted market extremely well making them superior from their competitors in cheap air travel. For their limited capabilities at the time, this section scored at 5.

Ultimately it was up to the consumers whether they want to fly with WestJet or not. Threat of substitute was high. At the same time WestJet started its flight, Air Canada and Canada 3000 was competing for domestic market. Consumers had the options to substitute. Buyers also had to have the ability to afford the pricing. Many family travelers were unable to pay $200 to $400 for air travel to visit and meet with family and friends, but WestJet’s $69 to $149 certainly became more affordable and people started to think of flying instead of driving. New entrants were also a concern however because of their solid plan WestJet became a success story. For all these reasons the score for this was 7.

Based on the discussion above on competitive-position factors, the total score is 7.9. WestJet realized there is an opportunity by offering cheaper price and fun environment to fly in they can capture large segment that can grow and in which their competitors are lacking. They had the ambition but not required resources. They started small but by 2013 they are trying to capture 50% of domestic air travelers market. They also realized they are not the only one in the business. There have been few other airline business came and gone since 1996 but WestJet is still surviving by meeting the needs of it customers by keeping the low cost, which they have identified their competitors are lacking at and complemented this by offering superior customer service.

To complement the initial assessment by using the segment rating chart, one market attractiveness factor and one competitive-position factor will be discussed in further detail. For the market-attractiveness factor, “customer needs and behavior: unmet needs?” will be discussed. For competitive-position factor, “opportunity for competitive advantage” will be analyzed further.

Very early stages of WestJet’s business planning its founders Clive Beddoe, Mark Hill, Tim Morgan and Donald Bell realized there is a niece in domestic air travel market. They realized there is a large portion of people who travel to meet friends and families in a family vehicle. A typical family vehicle would have mom and dad at the front and at least two children at the back. If someone wants to go from Prince George to Vancouver, the driving would take about 8 to 10 hours. Most children do not like that kind of travelling in a family car. This kind of travelling is very frustrating for the parents and for the children. Driving for 8 to 10 hours would also require rest stops, food and fuel cost which can amount to $200 to $500 and the perceived value of time lost from driving for so long. Before 1996, the only Air Canada (Canadian Airline at the time) was the only option to fly. However to fly with them it was very expensive. A round trip would cost over $250 per person including the children. Which will amount to about $1000 for 4 member family. Air Canada’s customer service was also greatly impacted due to lack of understanding of customer needs at the time. WestJet’s owners realized there is an unmet customer needs in domestic flights. Interestingly enough, they initially tried to compete with vehicles on the road instead of airplanes in the sky. They knew if they can compete with family vehicles then they can compete with any other competitors at the time easily. As a result their first flight in 1996 they offered $69 round trip which is amounting to $276 for a four member family for an hour flight. Of course this type of pricing revolutionized domestic flight industry.

The real understanding of WestJet’s understanding of unmet needs of customer is low-fare seats overall. WestJet’s share of the domestic market by seat-kilometer grew to over 14% in 2000 from 4.25% in 1999. When measured by seat, WestJet’s share increased to 17% from 6.5%. All low fare capacity34 by seat-kilometer increased to a 36% share in 2002 from 16% in 2000. At this rate of growth, a Transport Canada department official predicts that 50% to 60% of air services will be in a low fare format within the next year or two. This understanding of unmet or underserved needs of customers served in WestJet’s favor as well in 2001 when airline industry took a hit after September 11 air attack on the World Trade Center. WestJet rode high even during this turmoil and all the changes law makers brought. Because of their understanding of customer needs of low pricing and superior customer service, they had constant growth in low-fare service that got its customers to their destination pleasantly and with a minimum of fuss. Many of online forums consists of frequent domestic travelers indicates, “WestJet understands what we (customers) want but Air Canada simply don’t get it.” Because of this WestJet showed a profit through out the most difficult of times including $12 million for its quarters in 2002. WestJet was also named 2nd top performing “median” airline in the world by the trade publication, Aviation Week & Space Technology. WestJet initially did not go after business class travelers and smaller communities. They understood to keep the air fare low they had to serve the segment that hasn’t been looked at yet. Air Canada was taking care of business class travelers and people who needs to go to smaller communities. They wanted to stay away from that segment initially and concentrated their resources in meeting unmet needs of families and friends who travel in a family vehicle to meet their friends. They created top of mind awareness for family travelers. They understood if they can take care of that segment, many of their future customers will come from them as well, because this segment is also consists of business travelers. If they have a good experience with WestJet when they are flying with family members, then they will fly with them too when they need to fly for business. As stated earlier WestJet captured 4.25% of domestic air travelers mainly consists of people who wants cheaper and fun environment to fly with. Most of this 4.25% never flew before and all their travel experience included travelling in family vehicles. That is a tremendous achievement for a Canadian domestic airliner. By 2002 they have captured 14.16% of the market while Air Canada’s market share shrunk from 76.90% in 2000 to 73.18% in 2002.

WestJet’s main appeal is its low fare model and also the superior customer service. They differentiate themselves on both of these categories from their competitors. Right now they are not meeting the needs of smaller communities. There may be a very good reason for that. To maintain existing low fare model and serve its projected 50% domestic air travelers by year 2013, they need to maintain existing aircrafts. Smaller airports of smaller communities will not be able to accommodate a Boeing 737 air craft. As a result smaller planes need to fly in there. That is what WestJet’s competitor Air Canada is doing. However because of managing one type of air craft, WestJet can keep the air fare cost at its minimum and Air Canada’s air fare cost is higher. As a result even though travelers will fly in Air Canada but still for the cities WestJet fly in, that will be customer’s first choice. WestJet Airlines hopes to grow both by adding new destinations to its route network and by increasing the frequency of flights between markets it already serves. This means tapping into what WestJet thinks, unmeet needs of business travelers and vacation goers. In particular, it sees opportunities to add warm-weather destinations. Right now its competitor Air Canada is offering vacation packages but because of its reputation of poor customer service and high price, it hasn’t captured bigger share yet. WestJet sees an opportunity there. As part of the effort to expand its services outside Canada, WestJet in late 2008 signed a deal to deliver code-sharing with Southwest, which would allow the carriers to sell tickets on one another’s flights and thus offer passengers more destinations. Its joint code-sharing program with Southwest is scheduled to begin in late 2009. In another alliance, WestJet and Air France-KLM agreed in early 2009 to partner on baggage handling and electronic ticketing, saving passengers time on connecting flights. Code-sharing talks between the carriers are expected to begin in late 2009 or early next year. (Code-sharing enables airlines to sell tickets on one another’s flights and thus offer passengers more destinations. Serving leisure travelers will continue to be a priority, but WestJet hopes to attract business travelers as well. To meet what it hopes will be rising demand; WestJet has ordered another 45 737s for delivery by 2013. Right now Air Canada serves about 70% of business travelers need. WestJet thinks this large market share of Air Canada is not because of its superiority in air fare model or because of its superior customer service but because business travelers do not have any other options right now. Providing more flights and partnering with more air careers may resolve that problem for WestJet. Based on this type of understanding of customer needs and behavior, WestJet can capture larger share of business travelers and vacation destinations to compliment its already successful segment of family travelers. “Consumers associate WestJet with quality, low-cost, service, convenience and reliability,” says Darren Locke, a senior airline management analyst with Wings magazine. “I don’t see any blemishes on the brand.” The only way a firm can deliver this type of brand image is by understanding what customers want and providing them with that and complimenting it with little added value in the form of customer service.

Opportunity to differentiate is also attractive as a competitive advantage for WestJet. This also goes hand to hand with the previous findings of unmet needs for customers. There is clearly a defined need for family travelers who wanted cheaper flights instead of travelling in vehicles to meet friends and families. This can also be differentiation factor for WestJet Airlines. The basic questions addressed trying to identify competitive advantage in this section were the followings:

  1. Can we differentiate from our competitors?
  2. Can we perform against critical success factors? (Identified in “WestJet Airlines: Critical Success Factors – From Marketing Point of View“)
  3. Stage of competing products in product life cycle: Is the timing right?

From the discussion above it is clear that WestJet airlines wanted to differentiate from it competitors by offering lower fare for flights, offering superior customer service, and by managing one type of air crafts to keep costs down. While Air Canada was targeting business travelers and smaller communities they were ignoring large portion of customer needs of cheaper air fare for travel to meet friends and family. WestJet clearly have differentiated them by identifying that niece and by offering there services to that segment. $69 for a round trip was unimaginable in 1996 but WestJet made it reality for many consumers. While Air Canada was heavily investing on different models of air crafts to reach to smaller communities, WestJet was concentrating on only one type of air crafts to reach hub cities in Canada. As a result of this business model they were able to keep maintenance cost very low and passed the savings on to its customers.

From the previous report (WestJet Airlines: Critical Success Factors – From Marketing Point of View) it was identified that critical success factors for WestJet are the employees, low fare model, and the way they manage strategies. Proper execution of all these success factors also gave WestJet Airlines the competitive advantages they need. Customer service of Air Canada is very poor compared to that at WestJet. Founders of WestJet understood to gain competitive advantage in domestic airline industry and to serve its targeted segment they had to make their employees happy. As a result from the beginning they wanted to harbor a corporate culture that gives opportunities for the employees to grow. In 2005 they made another strategic move to make employees more effective by offering all its employees ownership in the company. As stated on their website: “As owners, the best sentiment we can convey to our guests is the pride we feel for our company. Our dedication is evident in the way we perform our jobs and the way we extend our renowned hospitality towards our guests.” Their competitor Air Canada was dealing with complaints, WestJet was receiving compliments for their extra ordinary hospitality towards its customers. “I hope Air Canada has learned they really got beaten to the customer service punch by WestJet,said Bruce Fougner of Lloyds Travel and Cruises. “How they responded with air credits. You can’t buy that type of advertising,” he said. This is an extreme advantage for WestJet over its competitor Air Canada and examples are visible on television reports, news papers, magazine articles and online forums. Execution of strategies is also crucial advantage for WestJet over its competitor. Simple thing, such as seat selection option for a small fee, allowing guest to choose where they will be seated at the time of booking, or up to 24 hours before their scheduled flight is very popular among its loyal customers. The strategy of managing same type of aircraft to maintain the low cost structure model is also one of the success factors that differentiate them from their competitor. While air Canada manages 11 types of carriers, WestJet only manages one type of air craft which is Boeing 737. This gives WestJet tremendous advantage over Air Canada because they can keep maintenance cost at its minimum. Training crews to manage 11 types of carriers is even higher than training employees on one type of carrier.

WestJet also took the advantage over its competitor by being the first one to address the needs of its targeted segment which is people who wants to travel to meet friends and family but because they were not given any options of cheaper flight and fun environment to fly in with they were using driving routes. Since 1996 they have revolutionaries the way Canadians travel to meet friends and families. Air Canada was charging premium pricing to its travelers based on its reach to smaller communities with smaller airports, with no other competitors and by targeting towards mainly business travelers. WestJet saw that there were no options for family travelers as a result they have picked up that segment. Timing was right in 1996 for WestJet to address that segment’s needs. Airline industry was mature but it was not meeting the demands of large portion of potential customers. By following South West Airlines’ low fare model they were able to differentiate themselves and took advantage by being an early adopter. As a result Air Canada time to time puts on sale to compete with WestJet.

In conclusion of this report, we see that Market Attractiveness factors were in favor of WestJet airlines and Competitive-position factors also were in favor of WestJet airlines. They have gained and are also gaining significant amount of market share by meeting unmeet needs of its targeted segment, by expanding their services and targeting same level of offerings to its business travelers and to vacation goers they have identified one of the Market attractiveness factor which scored 10 on the chart. It is also clear that opportunity for competitive advantage is also higher for WestJet which scored at 10 on the chart. Reasons for the scores are their clear understanding of how they can differentiate themselves from Air Canada, how they are executing all crucial success factors and the timing of their offerings.

Similar Posts:

Incoming search terms for the article:

2 Comment(s)

  1. Dan Waldron | Mar 28, 2009 | Reply

    I must say this is a great article i enjoyed reading it keep the good work 🙂

  2. Mark Hill | Mar 29, 2009 | Reply

    Interesting take on things…..

    MH

Post a Comment