Thailand's Low-Cost Carrier Airline Industry
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Asia-Pacific Social Science Review 18(2) 2018, pp. 65–79 RESEARCH ARTICLE Thailand’s Low-Cost Carrier Airline Industry: Is the Services Marketing Mix the Elixir for Economic Growth and Prosperity? Phoom Srisook and Vinai Panjakajornsak King Mongkut’s Institute of Technology Ladkrabang, Thailand [email protected] Abstract: In 2017, low-cost carrier (LCC) airlines consistently grew at a faster pace compared to the world’s average growth. In 2017, LCCs carried an estimated 1.2 billion passengers and accounted for approximately 30% of the world’s total scheduled passengers. In Southeast Asia, passenger traffic grew by approximately 10% in 2017, where six of the region’s 10 countries recorded double-digit growth. Southeast Asian airlines now have 1,600 airplanes on order, in addition to an active fleet of close to 2,000 airplanes, with LCCs currently accounting for approximately 70% of Thailand’s domestic seat capacity. Competition, however, amongst the LCCs has become fierce, with fare reductions being a common tactic to fill seats. Therefore, the researchers sought out to determine which aspects play the greatest roles in an LCC’s competitiveness, and used multi-stage random sampling to obtain 320 passenger respondents’ opinions who were departing on either Thai AirAsia, Thai Lion Air, Thai Smile, or Nok Air from one of Bangkok’s two main airports. Results determined that the service marketing mix of promotion, place, price, and services play the most important role in LCC competitiveness. Keywords: 7Ps, competitiveness, competitive advantage, service quality, Thailand 4.0 Low-cost carriers (LCCs) have proliferated in A second element which has also contributed to the the Southeast Asian nations since the 1997 global rise of LCCs in the region has been the deregulation financial crisis, which was partially responsible for and the implementation of the ASEAN Single Aviation the introduction of the region’s first LCC, Malaysia’s Market (ASAM)/ASEAN Open Sky Agreement, which AirAsia in 2001 (AirAsia, 2011; Tham, 2008). In has changed the competitive nature of the aviation Thailand, from 2011 to 2017, the total domestic industry (Baker, 2013, 2014; Kim & Lee, 2011), aviation market more than doubled driven by a especially as it has been applied to LCCs (Damuri & combination of economic growth, an expanding middle Anas, 2005). class and rapid LCC expansion from approximately 11 Within these agreements, it is stated that any ASEAN million passenger seats to 33 million seats (Centre for member state airline can operate both passenger and Aviation, 2018b). cargo scheduled services between its home country Copyright © 2018 by De La Salle University 66 P. Srisook & V. Panjakajornsak and another member country’s international airport Subsequently, over the next four years, the Thai (Grosso & Shepherd, 2010). These agreements also domestic market tripled from four million to more allow for the continuation of the flight to yet a third than 12 million passengers, with LCCs accounting member state, without having to return home before for 8.5 million passengers. By 2008, Singapore’s doing so (Nothhaw, Tungkunanan, & Manon, 2016). Tiger Airways and Jetstar Asia, Thailand’s Nok Air, This isLCC consistent SERVICES with Ishutkina MARKETING and Hansman (2009) MIX and One Two Go, and Indonesia’s Awair and Lion Air 4 who determined that the creation of LCCs often follows were common names for budget travelers throughout changes in the aviation regulatory framework, and the region (Tham, 2008). Similarly, low-cost carrier resultsremaining in demand second stimulation with effect9.6 million and significant domestic development seats. Th aihelped Lion stimulate during domesticthis period passenger was in third place changes in the traffic growth rates primarily due to growth in other global economies during this period, lower fares. Furthermore, the introduction of domestic such as Turkey, South Africa, and Indonesia. However, orwith international 8.1 million LCC servicesseats, andresults added in dramatic 28.6% inadditiona China, extensivel domestic government seats regulation during andthe fuel year, putting it changes in the air passenger growth rates, both in price/purchase controls in the past have been a major developedwithin range and developing of surpassing economies Nok (Centre in 2018. for obstacle to the growth of LCCs (Ishutkina & Hansman, Aviation, 2018b). 2009). As previously mentioned, the Asian economic crisis From 2009–2013, ASEAN airlines experienced of 1997 beganTherefore, when Thailand Thai devalued AirAsia, its currencyNok Air, double-digitand Thai growth.Lionwere By the selected end of 2017, fo rthere the were study’s focus on (Corera, 1998), resulting in the decline of gross 20 ASEAN LCCs with a fleet of 690 aircrafts, which domesticLCC competitiveness products (GDP) across due the region,to their along market with strengthwas 50% in(Figure just three 1).years Thai (Camus, Smile 2017; wasCentre also for added to the the suppression of air transportation demand (Ishutkina Aviation, 2016, 2017, 2018a, 2018b). Furthermore, &study Hansman, due 2009). to the As carrier’sa result, entrepreneurs market strength saw an atin the2017, time Thailand’s of resear LCC chfleet survey. had also Bangkok’s expanded to two airports opportunity. In February 2004, Thai AirAsia, the first 136 aircraft spread amongst six carriers, with Thai Thai LCC, was established (AirAsia, 2011). AirAsia AirAsia leading the pack, increasing its fleet from 28 statedwere that selected during this for period, the study, low-cost which air travel included was to the 59 oldeaircraftr andin just smaller, five years joint (Centre civ forilian/military Aviation, airport of virtually unknown in Thailand, with air travel only for 2018b). Additionally, international LCC seats have theDon elite Muang(DMK), who could afford the and premium the newer airfares. regi onalnearly air hub tripled of fromSuvarnabhumi five million seats (BKK). in 2012 to 13.5 Figure 1. Thailand LCC domestic seat capacity. Figure 1.Thailand LCC domestic seat capacity. Thailand’s Low-Cost Carrier Airline Industry 67 million seats in 2017, with LCCs currently accounting without any assistance. Reliability can also be for over 30% of international seat capacity in Thailand, described as the ability of an LCC to perform a service compared to less than 20% five years ago. dependably and accurately. These include such things Once again, Thai AirAsia in 2017 led Thai domestic as punctuality, the efficiency of the check-in process, capacity, operating 5.9 million domestic seats during and the convenience and accuracy of reservations and the year, up 12.2% from a year earlier (Waldron, ticketing (Kim & Lee, 2011). 2018), with Nok Air remaining second with 9.6 million Another factor is tangibles, which are the physical domestic seats. Thai Lion during this period was in equipment, facilities, personnel, and communication third place with 8.1 million seats, and added 28.6% devices. Concerning LCCs, tangibles have been shown additional domestic seats during the year, putting it to be of the utmost importance (Kim & Lee, 2011), within range of surpassing Nok in 2018. including customer responsiveness which is the ability Therefore, Thai AirAsia, Nok Air, and Thai of the LCC staff to quickly serve and help passengers. Lion were selected for the study’s focus on LCC competitiveness due to their market strength (Figure The Marketing Mix 4Ps (Market4Ps) 1). Thai Smile was also added to the study due to the To better analyze passenger responses, the expanded carrier’s market strength at the time of research survey. marketing mix 7Ps are shown in Figure 2. McCarthy in Bangkok’s two airports were selected for the study, 1960 (as cited in Quelch & Jocz, 2008), first identified which included the older and smaller, joint civilian/ the original 4Ps as product, price, place, and promotion. military airport of Don Muang (DMK), and the newer These marketing mix elements were confirmed by regional air hub of Suvarnabhumi (BKK). Kotler and Armstrong (2010), which indicated that the marketing mix is a set of controllable tactical marketing Literature Review tools which are used for organizations to implement their marketing strategies. Service Quality (ServiceQ) In AirAsia’s rise to become the leading Asian Airline services are made up of tangible and LCC, it has been observed that AirAsia penetrated the intangible properties (Byun, Lee, & Rye, 2014). aviation industry by gaining the competitors’ customers According to Curry and Gao (2012), service quality through improving the product quality and its level of has become a significant strategic value in achieving a service (Yashodha, 2012). This strategy was important genuine and sustainable LCC competitive advantage in for AirAsia because retaining existing customers a global marketplace. This is consistent with consumer is cheaper than attracting new ones, and engaging decision theory, which suggests that consumers likely in relationship marketing activities is pertinent in choose products or services based on behavioral and retaining its valued customers (Pearce & Robinson, attitude factors, not just price (Blythe, 2013). 2009). In Turkey, Pakdil and Aydin (2007) also measured airline service quality using SERVQUAL. Of the The Marketing Mix 3Ps (Market3Ps) variables measured, responsiveness was most judged to Qin (2012) also expanded the number of “Ps” to be most important, with aircraft availability being the seven, and indicated in his research on Thai LCCs, least