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Examination of the adaptation of the frequent flyer miles program as a cost cutting strategy tool for the airlines

  • Low profitability is one of the major problems of the airline industry and one approach to solve it is that selling ancillary services to passengers which is called a-la-carte pricing. While this strategy has had some success in terms of additional revenue generation, especially for the low-cost airlines, full-service airlines struggle to implement this approach since their brand image is equivalent to better comfort and complimentary services served to their customers. Therefore, a new and possibly more effective strategy about the ancillary services comes into play which is called the a-la-carte options strategy. This strategy suggests rather than removing the complimentary ancillary services, the airlines can offer a certain number of reward miles to their frequent flyer program members to not choose to use that free ancillary service. By doing that the customer would receive free reward miles and the airlines would save from a substantial cost factor from ancillary services since the reward miles are low-cost for them. In this research, the potential cost reduction of a-la-carte options, optimal mile offer, and the possible customer reaction for launching the strategy are examined. First, potential cost reduction is calculated with real scenarios and flights. Second, customer responses are assessed with a survey conducted. The results show that a-la-carte options strategy can be highly effective on cost-cutting and customers tend to accept and use this strategy. Therefore, a-la-carte options strategy is potentially a good and effective instrument to fight the sector’s long-standing profitability problem by decreasing ancillary service and other customer service operation costs.

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Author:Ozan Baytak
Advisor:Michael Lederer
Document Type:Master's Thesis
Year of Completion:2022
Granting Institution:Hochschule Furtwangen
Date of final exam:2022/02/28
Release Date:2022/03/02
Tag:A-la-carte options; Airlines; Ancillary services; Cost reduction; Frequent flyer program FFP
Degree Program:IMM - International Management
Functional area:Business Strategy
Licence (German):License LogoUrheberrechtlich geschützt