With the global downturn showing no sign of abating any time soon, airlines are left facing a huge dilemma when it comes to their marketing budgets. Does it make more sense to boost marketing spend in a recession to try and stimulate flagging demand, or is it wiser to cut back in order to save money? And once that decision has been made, how can airlines take advantage of new techniques that will allow their marketing strategies to evolve with the times?
The spending question draws varied responses from airlines, but the results from a survey carried out exclusively by Airline Business show that most carriers believe marketing spend should not be slashed during difficult times. It seems airline sales teams are winning the battle to at least maintain, if not increase, their marketing budgets at a time when in many sectors this is a tempting target for the axe to fall upon.
The Airline Business Marketing Survey 2009, carried out by this magazine in early February, collected responses from 22 top level executives from a wide range of airlines, including network, low-cost and regional carriers, based across all continents. More than 60% of survey respondents said the statement that most accurately describes their strategy when it comes to marketing during an economic downturn is: "Invest more in marketing to try and stimulate demand". The remainder said their strategy is to "try to save money by cutting back on marketing spend".
 |
|---|
©Rex Features |
Ivan Misetic, chief executive of Croatia Airlines, believes marketing should not be allowed to fall by the wayside in a recession. "We have to go back to basics when we talk about the economy - spending can save the world," he says. "Marketing shouldn't be considered a luxury. Long-term success is related to building brand awareness, so marketing is of essential importance and should be used as a tool to attract passengers."
Etihad Airways executive vice-president of marketing Peter Baumgartner agrees. "You still have to make the sale despite the market conditions. It is not the right strategy to say 'we're going to stop doing marketing because we can't afford it'. This would only backfire. 2009 will be a very challenging year so you don't do a massive ramp-up, but there will certainly be a ramp-up for us. This will be in line with the overall growth of our business."
Also in favour of boosting marketing spend during difficult economic times is Icelandair chief executive Birkir Holm Gudnason, whose home market suffered more than most with the collapse of the Icelandic economy in October. "We're going to spend 10-20% more on marketing this year. We did a similar thing after 9/11. When there's a downturn we usually put more money into marketing," says Gudnason. "Because of the financial situation in Iceland, we are putting more focus on foreign markets. We have seen since October that as soon as we stop promotions the inflow of bookings slows down. If we are visible, the number of visitors to Iceland increases."
Another carrier that plans to increase marketing spend by "at least 15%" this year is Tunisair. "We will certainly be spending more on marketing this year - more precisely in the first three months of the year," says Tunisair vice-president commercial affairs Ali Miaoui. "In the second period of the year we may also spend more, but there is no visibility [about the economic situation] so we are waiting to make a decision on that."
Some airlines, such as Qatar Airways, see a downturn as an opportunity to continue to invest heavily in marketing their brand and expanding their global reach. "Not everyone struggles in a downturn," says Qatar Airways chief executive Akbar Al-Baker. "Qatar Airways is in a strong financial position and has no intention of slowing down. On the contrary, we see the current situation as an opportunity to grow and further expand the brand presence in more markets around the globe. We will continue our marketing activities and brand building initiatives in 2009."
Marketing Spend
Our survey showed that 45% of respondents planned to spend "about the same" on marketing this year as they did in 2008, while 15% planned to spend less. A total of 30% of respondents said their marketing budget for this year would be higher than last year, and a further 10% said their marketing budget for 2009 would be "significantly higher".
Among the larger network carriers, Delta Air Lines' marketing budget for this year will be "consistent with what we've had in years past", says Delta senior vice-president of marketing Tim Mapes. Much of this will go towards marketing the integration of the Delta and Northwest Airlines brands, following their merger last year.
"Our strategy for 2009 is centred on the customer and will be largely based on not doing anything that confuses the customer," says Mapes. "We have two very distinct customer bases and we still have planes flying that are painted in Northwest colours. In the near-term our customers will be interacting with both brands, so we're working hard to ensure they're not confused."
One airline that will probably end up spending less on marketing this year than it has in previous years is Air Jamaica. "Last year we had already started to feel the impact of the economy, so we'd taken steps to significantly reduce our marketing spend," says Air Jamaica executive vice-president commercial Subodh Karnik. "This year [marketing spend] will probably be a good percentage point less than what we'd have spent in a normal year."
Karnik says Air Jamaica's marketing budget can be broken down into three components. Half of the budget goes towards "year-over-year rolling commitments that are hard to pull back from", while 15-20% goes towards supporting pricing initiatives and sales. The remaining 30-35% is funnelled into "initiatives that are relevant for the year", and this is the part that will take the hit in 2009. "I don't know if we'll do much to our year-over-year rolling costs, and in a downturn sales support activity increases. So unfortunately what takes the bite are initiatives that are relevant for the year," explains Karnik.
According to our survey, 40% of respondents planned to spend 1-2% of their revenues on marketing this year, while 20% said they would spend less than 1% of revenues. A total of 20% said they would spend 2-3% and a further 20% said they would be spending more than 3% of their revenues on marketing. But Peter Foster, chief executive of Air Astana, believes it is probably wrong for airlines to try and fix their marketing spend at a percentage of revenue because it is a sliding scale, and if revenues decline so does marketing spend.
Foster says Air Astana is planning to take a different approach this time - one of investing to build market share. "We are going to spend this time. Now is the time to nail down these market shares in our international markets," he explains.
The next big question is, what type of media do airlines see as being the most important for getting their marketing message across? Our survey shows that 81% of respondents rate the internet as being "very important" to their marketing strategies this year, with 57.1% saying they would spend more on online advertising this year compared to last year. A further 28.6% of respondents said they would spend significantly more on online marketing this year, so it makes sense to explore this medium first.
Delta's Mapes says it is "no surprise that the traditional forms of media are becoming less effective and efficient at reaching the target audience". He adds that "newspapers and television are becoming less effective", therefore Delta is "exploring new forms", most of which are internet-based. One form of online marketing that Delta and an increasing number of other carriers are focusing heavily on is social networking (see box p41).
But the internet offers countless other ways in which airlines can get their marketing messages across to a wider audience, the most obvious of which is to make sure their own websites are as attractive and functional as possible. Three-quarters of survey respondents rated having a good website as being a "very important" part of their online strategy, while a quarter said it was "important".
Etihad's Baumgartner says online marketing will be a key focus for the Abu Dhabi-based carrier, including looking into the opportunities offered by Facebook.com and other social networking sites, but he points out that other media will remain important. "Within the mix, online/digital marketing becomes more prominent. It's even more emphasised than ever before, but traditional media still has a place." he says. "We still have the full spectrum in the mix in 2009 - this will include heavy press and TV advertising and it will be the same share as the previous year."
Online Accountability
Al-Baker of Qatar Airways expresses a similar point of view: "There are increasing pressures to understand exactly what returns a client gets from their marketing spend. Hence, the biggest shift in a downturn is towards greater accountability, and this typically means a greater online marketing spend.
"While Qatar Airways' investment in online advertising campaigns will continue to grow at a rapid pace in line with its aggressive e-commerce push, the airline's focus on other traditional media will not be any less since these are also important platforms in its brand-building drive."
A total of 40% of our survey respondents rated search engine optimisation as being a very important part of their online marketing strategy, with a further 35% rating it as being important. One company which has embraced the importance of search engine optimisation to airlines is Frommer's Unlimited, which provides airlines with online city guides for the destinations they serve.
Frommer's can tailor the content in its destination guides to include keywords that airlines have found potential customers use when researching places to visit in a search engine. This means that as those keywords are entered, the Frommer's destination guide - which can be integrated into an airline's website - will appear high up on the search list and take potential customers directly to that airline's site. Once there, they can read up on the destination, see what flight offers the airline has and, hopefully, make a booking.
Joel Brandon-Bravo, general manager of Frommer's Unlimited, says the company currently works with eight airlines, including British Airways, KLM and Virgin Atlantic, but he sees this growing as airlines start to see the benefits of the service. "Initially this was seen as a 'nice to have' service. But in the last two to three years, what's changed in the minds of online marketers is the importance of search traffic," explains Brandon-Bravo.
He adds that sponsored advertisements on search engines such as Google "only get 25% of clicks", whereas ensuring your product or service appears as high up as possible under a search engine keyword search has the potential to drive much more traffic. "People research destinations in advance online. By providing information on destinations, airlines can get people to come to their websites much earlier in the buying cycle," says Brandon-Bravo. "Investment in keeping content up-to-date is considerable but we are seeing airlines investing because Google is a battleground for customers."
Optimised Searches
Even though budgets are under pressure, Brandon-Bravo says airlines are increasing their spend on search engine optimisation techniques, and Frommer's Unlimited is in discussions with seven other global carriers interested in signing up for its service. "The smallest airline client we have pays in the region of £10,000 ($14,764) a year, while the largest investment in content was a £1 million initial investment followed by ongoing annual costs of £100,000-£200,000 a year."
Once an airline has decided which media to invest the most in the next question in times like these is, what type of marketing campaign is the most effective in a downturn? Jose Calderoni, marketing director at Mexican low-cost carrier Volaris, believes that "any strong, simple message promoting a call to action will be more effective as you need to cut through the clutter".
Other airlines, such as Croatia Airlines and Icelandair, see pushing their home markets as attractive destinations to potential customers as being the best strategy. Croatia Airlines will focus on a promotional campaign for Croatia, led by the country's tourism board, says Misetic, while Icelandair will emphasise that the country's currency crisis means it has never been cheaper to visit. "People that have wanted to or dreamed of going to Iceland are more likely to go now because of the currency situation," says Gudnason. "We point out that Iceland has never been as low-cost."
No matter what type of marketing strategy airlines adopt to try and stimulate demand, or whether they decide to spend more or less on their marketing campaigns as the economic downturn continues to linger, it is clear that one thing has changed. The internet is now king and the potential it offers to reach individual customers cannot be underestimated.
As Delta's Mapes puts it: "The days of one-size-fits-all marketing are dead. You have to develop very sophisticated, predictive modelling using customer data."
Social Networking
Airlines are beginning to catch on to the marketing opportunities available to them through the use of online social networking sites, such as Facebook. While the Airline Business Marketing Survey 2009 showed that over 70% of respondents rated social networking as being "not very important" to their online marketing strategies, there are signs that some carriers are already ahead of the game in tapping into this relatively new phenomenon, and others are slowly starting to put it on their radars.
One carrier that recognises the benefits of social networking sites for directly reaching out to customers is Delta Air Lines. "Social networking enables us to engage directly with customers - it centres on the quality of the customer experience," says Delta senior vice-president of marketing Tim Mapes. "This can be either positive - for example, communicating new product innovations - or negative - for example, what happens if a customer has a flight cancelled. The question is, how well do we use those forums to communicate?
"In those forums are opportunities to save a customer who has had a bad experience. We look for customers who are evangelists for the Delta brand, and also for those who have had an experience other than we intended them to have."
Mapes says the beauty of using social networking sites is that they provide a "two-way street" in terms of conversing with customers. "These new forms of media enable a greater degree of dialogue. Anything that allows us to have as close to a direct dialogue with our customers as we can is a good thing." Delta has also been using online video-sharing site Youtube.com to generate discussion about its brand.
The "Delta Sightseer Challenge" invited passengers to send in videos of their travels for others to comment on. "This is a much more robust, comprehensive, experiential piece of communication - customers are sharing with the online community elements that they're experiencing," says Mapes.
Not all carriers are this far ahead in their thinking about social networking, but the subject is definitely generating interest. Swiss International Air Lines chief marketing and strategy officer Christoph Beckmann says social networking is "taking more and more attention" but there is still uncertainty over how much airlines can gain from using it. "What has not become clear is the degree of commercial benefits you can get with such networks without annoying people using the site," explains Beckmann. "It's a thin line. The topic of conversation on this is increasing, but we have to find our own way in this new space."
Another airline that is exploring social networking but remains somewhat wary about its benefits is Air Jamaica. "We've not spent as much as we'd like to on social marketing - this is in development now. Given that we're a niche player, we have to look at how to build an appropriate mechanism," says Air Jamaica executive vice-president commercial Subodh Karnik. "I've found [social networking] to be a fairly intoxicating medium. You tend to get half way down a road and then find that it reaches a plateau. The control element is lacking."
Other airlines, such as Icelandair, have experimented with social networking but found other online marketing techniques to be of greater value. Icelandair chief executive Birkir Holm Gudnason says: "We've tried using social networking sites like Facebook in local markets and this gives us visibility, but we find that search engine optimisation works the best so we have been spending the money on that."
The Airline Business Marketing Survey 2009 In Quotes
"TV is generally too expensive and our network is not large enough to justify the cost. We find the internet to be effective from both a cost and result standpoint"
"We book 80% of our traffic online so this is by far the most important medium for us"
"99% of our budget is spent in newspaper print. We don't advertise on the web"
"We have done a lot of work in search engine optimisation and this year we will be focusing on social networking"
"Search is our primary focus and we have gained a lot from investing in it. Email marketing allows you to stay below the radar with segment specific promotions. Your website needs to have an adequate architecture for the search strategy to work"
"To have first class search engine optimisation is very important as a big portion of customers start on pages like Google before they buy a ticket. Having a good website is essential to get the customers back as repeat customers. Internet sales are increasing and are the future"
"The days of one-size-fits-all marketing are dead. You have to develop sophisticated modelling"
Click here for more on social networking opportunities for airlines
Source: Airline Business
