Analysis of Brand Identity System of Vietnam Airline

Building strong brands is one of the ways on which a company can develop and sustain an advantage over its competitors, and thereby is bale to maintain or increase its sales or market share.

POSITIONING STRATEGY WITH A NEW IDENTITY:

A CASE STUDY OF VIETNAM AIRLINES

Previous Degree: Bachelor of Economics

University of Agriculture and ForestryHoChiMinh City, Vietnam

Scholarship Donor: The Government of Switzerland

Asian Institute of TechnologySchool of ManagementBangkok, ThailandAugust 1999

I wish to express my profound gratitude and great appreciation to my advisor Dr TruongQuang for his valuable guidance, advice and encouragement throughout the research study.Special thanks are extended to the other members of the Examination Committee, Dr.Clemens Bechter and Dr.Lalit.M.Johri for taking interests and giving valuable suggestions toimprove the content of this study

Deep appreciation and thanks are also extended to Mr Luong Hoai Nam, Mr Trinh NgocThanh, Mr Duong Tri Thanh, Mr Mai Quoc Tuan, Mr Nguyen Thuong Hai, Mrs Nguyen ThiMinh Yen and Mr Le Dinh Tuan of Vietnam Airlines Corporation for providing me the desiredinformation and data for this research study

I fall short of words to express my thanks to my family and my friend Ngo Thi Hong Thu fortheir constant love, moral support and encouragement

Last but not least, I would like to thank the government of Switzerland for providing me a fullscholarship to study at SAV in HCMC, Vietnam and at School of Management in Bangkok,Thailand

There is a strong link between the growth of market share and the profitability of a companywith the power of its brands Like other well-known carriers in the region or in the world, whenthe old identity is not suitable with the current status of the company anymore, changing in to

a new identity should be implemented as soon as possible More often than not, theVietnamese companies seem to neglect the issue of branding This study analyzes theimportance of brands and the process of branding management To illustrate the corporateidentity building issues and positioning with a new identity in the airline market, this studyexamines the case study of Vietnam Airlines Corporation Interviews with managers andcustomer survey are carried out to investigate the competitors’ reaction and customer’sperceptions toward the new identity At the end, some recommendations are proposed forVietnam Airlines to manage its new brand successfully and for other companies that want tochange into a new corporate identity

Tables of Contents

Tittle page ……….i

1.1 Rationale of the Study 10

1.2 Statement of the Problem 10

1.3 Objectives 10

1.4 Research Methodology 11

1.4.1 DATA COLLECTION 11

Secondary data: 11

Primary data: 11

1.4.2 DATA ANALYSIS 11

1.5 Research Framework: 11

1.6 Scope and Limitations 12

1.7 Structure of Research Study 12

2.1 Introduction 14

2.2 Develop a Brand Identity 14

2.2.1 WHAT IS A BRAND? 14

2.2.2 A BRAND IS MORE THAN A PRODUCT 16

2.2.3 BRAND EQUITY 17

2.2.4 BRAND IDENTITY 18

Definition 18

The brand position trap 18

Four brand identity perspectives 19

The Identity Structure 20

2.2.5 Brand Identity Planning Model 22

2.2.6 BRAND POSITIONING 22

2.2.6.1 Developing a positioning strategy 23

2.2.6.2 Strategic Misconceptions 23

2.3 Manage Brand Image 24

2.3.1 THREE COMPONENTS OF BRAND IMAGE 24

2.3.2 BRAND IMAGE DRIVES BRAND EQUITY 24

2.3.3 BENEFITS AND IMPORTANCE OF A BRAND IMAGE: 24

2.4 Maintain Brand loyalty 25

2.4.1 CULTIVATING LONG-TERM RELATIONSHIPS WITH CUSTOMERS 25

2.4.2 BRAND LOYALTY 25

2.4.3 BRAND LOYALTY VERSUS SERVICE LOYALTY 26

2.4.4 HOW TO BUILD LOYALTY? 26

3.1 Asian-Pacific airline market 28

3.1.1 INTRODUCTION 28

3.1.2 FUTURE TREND 29

3.1.3 GLOBAL OUTLOOK AND GROWTH TREND: 30

3.1.4 AIRLINE ALLIANCES 31

3.2 Airlines Industry in Vietnam 32

3.2.1 BRIEF HISTORY OF VIETNAMESE CIVIL AVIATION: 32

3.2.2 VIETNAM AIRLINES BACKGROUND 33

Current Status of Vietnam Airlines 34

2.2.2 CORPORATE BRAND NAME: VIETNAM AIRLINES CORPORATION 37

2.2.3 VIETNAM AIRLINES NETWORKS 37

4.1 Company Strategy Analysis 39

4.1.1 CUSTOMER ANALYSIS 39

Industry Trend 39

Unmet needs 39

Market Segmentation 39

4.1.2 COMPETITOR ANALYSIS 40

i Domestic routes 40

ii International routes 40

4.1.3 SELF-ANALYSIS 44

Existing Brand image: 44

Friendliness 44

Vietnam Airlines’ SWOT Analysis 44

Organization structure and values 47

4.2 Analysis of Brand Identity System of Vietnam Airlines 55

4.2.1 BRAND AS PRODUCT 55

The Product Scope: Associations with Product Classes 56

Product-Related Attributes: 56

Quality Value 56

Associations with Use Occasions 56

Country of Origin 56

4.2.2 BRAND AS ORGANIZATION 57

4.2.3 BRAND AS PERSON 57

4.2.4 BRAND AS SYMBOL 57

The Old Logo of Vietnam Airlines 57

The Old Design of Vietnam Airlines 57

4.2.5 EXISTING MARKETING MIX 58

Reservation Service 61

Before-Flight Service 61

Check-in Service 61

On-board Service 62

After Flight Service 62

Vietnam Airlines’ Strategic Alliances 63

4.3 Develop New Brand Identity for Vietnam Airlines 64

4.3.1 CORE IDENTITY: SERVICE-MINDED, SECURITY AND SAFETY 64

4.3.2 EXTENDED IDENTITY 64

4.3.3 THE NEW DESIGN OF VIETNAM AIRLINES 66

4.3.4 REASONS FOR LAUNCHING A NEW DESIGN AND A NEW IDENTITY 66

4.3.5 UPDATING VIETNAM AIRLINE’S IMAGE 67

(b) The New Identity of VNA 70

4.3.6 PARTNERS IN THE SPECIAL LIVERY DEVELOPMENT 70

4.3.7 PLANNING FOR LAUNCHING THE NEW DESIGN AND NEW IDENTITY 71

4.4 Manage Brand Image 71

4.4.1 POSITIONING STRATEGY 71

4.4.2 PERSONALITY 71

4.4.3 BRAND STRATEGY 71

4.4.4 NEW MARKETING MIX 72

Product 72

Personnel 72

Service 72

Price 73

Promotion 73

Tactical and Strategic Advertising 75

Place 76

4 5 Brand Consistency and Loyalty 77

4.5.1 CONSISTENT BRAND STRATEGY 77

4.5.2 BRAND LOYALTY 77

5.1 Outline of the survey 78

5.2 Profile of the Customer Survey 78

5.3 Factor Analysis 81

Airlines 85

Ads theme line 85

Now more than ever, a great way to fly 85

5.3.9 MULTIVARIATE ANALYSIS OF VARIANCE (MANOVA) (APPENDIX 1) 88

5.4 Brand awareness 89

5.4.2 BRAND NAME TRIAL 91

5.4.3 THE MOST FAVORITE ADVERTISING CAMPAIGN (APPENDIX 1) 92

5.4.5 FACTORS INFLUENCE ON DECISION-MAKINGS OF CHOOSING VNA’S SERVICE 93

5.4.6 THE EVALUATION OF VIETNAM AIRLINES’ SERVICE QUALITY 94

5.5 Brand Loyalty 94

5.5.4 INFORMATION ACCESS FOR A NEW BRAND 97

5.6 Questions related to a New Logo and New Colour (New Design) of Vietnam Airlines 98

5.6.1 COLOUR OF THE NEW PAINTING 98

5.6.2 NEW LOGO 98

5.6.3 FEELINGS ABOUT THE NEW DESIGN (NEW COLOUR AND NEW LOGO) 99

5.6.4 PREFERENCE ABOUT THE NEW DESIGN 99

TABLE 5.6.4A: PREFERENCE OF NEW DESIGN BY AGE 99

6.1 Conclusions 102

GENERAL CONCLUSIONS 102

6.2 Recommendations for Vietnam Airlines 103

6.3 The suggested model for Corporate Identity Building Process 104

CORPORATE IDENTITY BUILDING PROCESS 104

List of figures

Figure 2.1: The brand 15

Figure 2.2: The brand and the consumer 16

Figure 2.3 A brand is more than a product 17

Figure 2.4: The core of the brand identity 21

Figure 2.5: Brand Identity Planning Model 22

Figure 2.6 Brand Image drives brand equity 24

Figure 2.7 Brand loyalty builders 27

Figure 3.1: Passenger Transport Through Years 35

FIGURE 3.2: Vietnam Airlines Route Map 38

Figure 4.1: Regional airlines market mapping 44

Figure 4.2: The Current Organizational Structure of Vietnam Airlines 52

Figure 4.3: Transforming Organizational Structure 54

Figure 4.4: The Proposed Organizational Structure 55

Figure 4.6: The Old Design of Vietnam Airlines 58

Figure 4.7: Distribution Channel of Vietnam Airlines 63

Figure 4.8 Anatomy of Vietnam Airlines Brand 66

Figure 4.9: The New Design of Vietnam Airlines 66

Figure 4.10: The Factors Creating Change Into a New Identity of Vietnam Airlines 67

Figure 4.11: The comparison between the old and new identity 68

Figure 5.1: Age group of respondents 81

T-Test 85

Figure 5.2: Awareness of airlines 91

Figure 5.3: Brand Name Choice 92

Figure 5.4: Brand Loyalty 95

List of tables

Table 2 The brand position trap 19

Table 3.1: Overall Financial Performance (in US $ millions) 29

Table 3.2: International Traffic Growth (1998-2002) 30

Table 3.3: AAPA traffic – 1998 31

Table 3.4: Alliance summary 1994-1997 32

Table 3.5: Average Age of AAPA Fleets by Airlines (as of November 1, 1998) 34

Table 3.6: Passenger & Cargo Transport (domestic and international routes) 34

Table 3.7: Total of international passengers carried from 1991 to 1998 35

Table 3.8: Market share of Vietnam Airlines from 1996 to 1999 in main Asia-Pacific routes .36 Table 4.1: Customer Profile of VNA 40

Table 4.2: Vietnam Airlines profile in Southeast Asia market (on a 1-7 scale) 41

Table 4.3: Ranking by categories 41

Table 4.4: Vietnam Airlines Profile in North-east Asia market 41

Table 4.5: Ranking by categories 42

Table 4.6: Vietnam Airlines Profile in European market 42

Table 4.7: Ranking by Categories 42

Table 4.8: VNA Ranking (as compared 15 carriers under survey) 43

Table 4.9: VNA’s Brand Image (between 1996 and 1997) 44

Table 4.10: Vietnam Airlines’ SWOT Analysis 46

Table 4.11: Vietnam Air Cargo Transport Projection (tons) 59

Table 4.12: Vietnam Airlines International Passenger Transport Projection 59

Table 4.12: Number of Personnel as of May 1999 60

Table 4.13: Level of education of Vietnam Airlines employees (as of May 1999) 60

Table 4.14: Vietnam Airlines Resources and Skills 61

Table 4.15: Vietnam Airlines’ Strategic Alliances 64

Table 4.16 Change of VNA Brand Identity 68

Table 4.17: Advertising concepts for 1999 74

Table 5.2.1: Gender 78

Table 5.2.2: Frequency of passengers flying on international routes 79

Table 5.2.3: Structure of Nationality 79

Table 5.2.4: Occupation structure of respondents 80

Table 5.2.5: Income 80

Table 5.2.6: Age 81

Table 5.3.1: Descriptive statistics of thirteen variables 82

Table 5.3.2: MSA (Measure of sampling adequacy) 82

Table 5.3.3: Guidelines for Identifying Significant Factor Loadings Based on Sample size 83

Table 5.3.4: The rotation of factors 84

Table 5.3.5: The Total Variance Explained 84

Table 5.3.6: Ads slogans of some famous airlines or aircraft manufacturers in the world 85

Table 5.3.7: Test with Gender 85

Table 5.3.8: Test with Income 87

Table 5.3.9: Test with Nationality 88

Table 5.4.1: Awareness of the carrier 89

Table 5.4.2 Brand name vs Income 91

Table 5.4.4 Sources of information about Vietnam Airlines 93

Table 5.4.5: Factors affecting passengers to choose Vietnam Airlines’ services 93

Table 5.4.7: Vietnam Airlines’ Service quality 94

Table 5.5.1 Buying the same brand 95

Table 5.5.2 Brand Switching 96

Table 5.5.3 New Brand Trial 96

Table 5.5.4 Source of information for a new brand 97

Table 5.6.1: Attitudes towards the new painting of Vietnam Airlines 98

Table 5.6.3a Feelings about the new design by age 99

Table 5.6.3b Feelings about the new design by nationality 99

Table 5.6.4b: Preference of New Design by nationality 101

Chapter 1 Introduction 1.1 Rationale of the Study

Building strong brands is one of the ways on which a company can develop and sustain anadvantage over its competitors, and thereby is bale to maintain or increase its sales or marketshare The development of competitive advantage through branding is particularly crucial formature and declining industry or market

With a population of more than 79.4 million people in 1998 (AsiaWeek, 05-07-99), Vietnam is

a great potential for both local and foreign investors in air transport sector Many internationalairlines have come to exploit business opportunities in this country As a result, this emergingmarket has become the site of fierce competition for airlines industry, especially when theregion entered the economic crisis in 1997 Taking advantage of global branding andpowerful financial resources, many carriers have been eating up the market share of VietnamAirlines Furthermore, airlines industry is one of the toughest markets because of its specificcharacteristics Especially, there exist a very high entry barrier due to high cost of entry(required huge capital investment in terms of facilities and other fixed assets) and theperishability of the products Therefore, to be successful in doing business in this industryrequires a very good branding strategy This is not, by no means, an exception for VietnamAirlines

1.2 Statement of the Problem

Thanks to the open door policy, Vietnam Airlines experienced an exponential growth duringthe period between 1991 to 1996 with an average volumes growth of 32% per annum (even

as high as 55 % per year in 1992 But it started to face sharp decline in 1997 and 1998 due tothe financial crisis in Asia Meanwhile, many foreign airlines firms have kept on increasingtheir flights to Vietnam, which has aggravated the situation for Vietnam Airlines Therefore, toresponse to these challenges, Vietnam Airlines needs to better to REPOSITION ITSELF INTHE ASIA-PACIFIC REGION BY A MORE EFFECTIVE BRANDING STRATEGY (new logodesign) It is a survival mission presently and for building up competitiveness in the future forthe airlines

1.3 Objectives

This research focuses on the following objectives:

 To define the principles of brand performance attributing to airline's competitiveadvantage

 To investigate the consumer perceptions toward brand name and their choice criteria forbrands

 To investigate the consumer perception towards the new brand of Vietnam Airlines

 To reposition Vietnam Airlines in the Asia-Pacific region with its new identity.

Vietnam Economic Review, Vietnam Investment Review, Saigon Times, Vietnam Civil

Aviation Magazines, Airlines Business Magazine, Orient Aviation Magazine, Air TransportWorld Magazine, etc and even Internet search In addition, the annual and quarterly servicequality report and the Report of Investigation of Customer Behavior were also studied

Primary data:

The following surveys were undertaken to provide a proper understanding of the situation:

 Qualitative research: In-depth interviews with functional managers of Vietnam Airlines

(Market Planning Deputy Director, Sales Managers, General Managers at selectedinternational airports, and sales representatives) are held together with air hostesses ofVietnam Airlines, in order to understand employees' opinion about the new brandassociation and intended new logo design

 Quantitative research: Market survey toward passengers’ perceptions regardingVietnam Airlines and other carrier brands through questionnaires will help understandcustomer’s behavior and criteria in choosing brands, and what they feel about the newdesign of Vietnam Airlines 140 questionnaires were distributed to passengers in thewaiting lounge in international terminal of Tan Son Nhat Airport in two weeks Sampleswere taken on the basis of two following criteria:

 Passengers who have flown with Vietnam Airlines more than once

 Passengers who have ever flown with other international airlines

Interviews with selected passengers were also held to clarify controversial and unclearissues

1.4.2 Data Analysis

Qualitative analysis was done with information collected from interviews and the survey.SPSS (Factor Analysis, MANOVA, Crosstabulation) was used to analyze the data collectedfrom distributed questionnaires in order to know how consumer behavior would be affected bythis brand's attributes

1.5 Research Framework:

The research was structured according to the following chart:

1.6 Scope and Limitations

This research focuses only on the positioning strategy of Vietnam Airlines through creating anew identity by means of a new brand design in the Asia-Pacific airlines market

The research study was conducted in Tan Son Nhat International Airport, in the internationaldeparture terminal in Ho Chi Minh City because this airport is the main hub of VietnamAirlines in Vietnam, where many passengers around the world come and leave the country.The research study was also mainly aimed at the foreign passengers, whose target matchedwith the airline long-term strategy – to extend the network to new destinations, and theinternational flight routes are seen the targeted markets for future growth Other reason is thatwith the average income of approximately US$800/head/year which is 3 times higher than theaverage income of the whole Vietnam’s population (World Bank Report, 1998)

1.7 Structure of Research Study

The research study’s report will be organized in the following order:

Chapter 1: Introduction

Chapter 2: Literature review

Chapter 3: Overview of airline market in the Asia-Pacific and in Vietnam

Chapter 4: Vietnam Airlines’ positioning strategy

DEVELOP

Brand Identity

Brand concept

MANAGE Brand Image

Portfolio management

MAINTAIN Brand loyalty

Equity building

CONSISTENT BRAND STRATEGY

COMMUNICATION PROGRAM

MARKETS

Chapter 5: Analysis on Customers’ FeedbackChapter 6: Conclusion & recommendations

Chapter 2 Literature Review 2.1 Introduction

Discussions of brands and branding have become increasingly common in recent years One

of the reasons for this interest, as indicated by McKenna (1991) and Bello et al.(1994) is the

fact that new tendencies in marketing are concerned fundamentally with the creation of addedvalue, long-term relationships, based on knowledge and experience with the aim of finding away for the client to interrelate and integrate with the company Among the type ofcompetitive market in which companies act, brands are the strongest, most stable valuesthrough time that they can count on (Aaker and Blanco, 1995a)

Another reason for a company’s interest in studying brand value arises from strategicconsiderations To improve its productivity in the market, marketing managers need anunderstanding of consumer behavior and attitude toward the brand on which to base strategicdecision making Here is where the study of brand value can offer us a measure of consumerattraction, or loyalty to the brand, which reflects a measure of the resistance to brand change

if there is a change in commercial policy (Aaker, 1994)

2.2 Develop a Brand Identity

2.2.1 What is a Brand?

Roderick White (1999) defines that a brand is the means by which a company aims to

differentiate its products from competition and – through marketing- protect its position in themarket, profitably, over time For this to happen, it has to achieve a rapport with itsconsumers: if a brand is not somehow “in the mind” of its target market, it can be only acasual purchase, at best

How should we understand this? A brand has been graphically described by Julie Lannon

(1994), drawing on anthropological analyses, as consisting of a ‘mosaic of meaning’ She

describes branding as the mechanism that crates and sustains ‘consumption myths andconsumption rituals, involving products and services endowed with symbolic meanings’

S King (1971), offers a different view: a product is something that made in a factory, a brand

is something that is bought by consumers A product can be copied by a competitor, a brand

is unique A product can be quickly outdated, a successful brand is timeless

Graham Hankinson and Philippa Cowking defines that a brand is a product or service

made distinctively by its positioning relative to the competition and by its personality Itpositioning defines the brand’s point of reference with respect to the competition The brand

personality consists of a unique combination of functional attributes and symbolic values For

successful brands, the positioning and the personality are inextricably linked The positioningdefines potential competitors and the personality distinguishes the brand The relativeimportance of positioning and personality will depend on the extent to which a brand isintended for a specific target market or product sector

Kotler (1994) defines a brand as “a name, term, sign, symbol, or design, or a combination of

them, intended to identity the goods or services of one seller or group of sellers and todifferentiate them from those of competitors.”

Kapferer (1992) makes a clear distinction in writing that, “ products are what the company

makes; what the customer buys is a brand.” So brand can be understandable as the product

in the customer viewpoint A brand is landmark Buyers are actually purchasing a position inthe minds of potential customers be in the stalls or in the royal circle

Arnold (1992) comments that brand is the personality or identity of a product, range of

products or an organization, derived from consumer perception of both tangible and intangibleattributes Brands are recognized and understood on an emotional level, in a way that most oftheir founders would find astonishing

David.A.Aaker (1991) also has similar definition He says a brand is a distinguishing name and/or symbol (such as a logo, trade-mark, or package design) intended to identify the goods

or services of either one seller or a group of sellers, and to differentiate those goods or services from those of competitors A brand thus signals to the customer the source of

product, and protects both the customer and the producer from competitors who would attempt to provide products that appear to be identical

A brand can be visualized as a form of see-saw, achieving a balance(which may vary widely for different types of brands) between rational and emotional elements or characteristics (figure 2.1)

Figure 2.1: The brand

From the marketer’s point of view, this is constructed and articulated by the whole of themarketing mix but, in particular, the communications elements of the mix, of which advertising

is typically the largest part in monetary terms (figure 2.2) However, without the consumer, thebrand barely exists To complete the picture, we have to recognize the consumer’srelationship with the brand, which , as we have seen, involves the three facets of recognition,affect and experience Each of these operates both as a recipient of the brand (Figure 2.2)

BRAND

Figure 2.2: The brand and the consumer

Source: International Journal of Advertising, 1999

Branding, therefore, has to do with the way customers perceive and buy things, it is not simply a characteristic of certain industries

2.2.2 A Brand is more than a Product

According Aaker (1996)Brand is more than a product Branding is about the way peopleperceive, not about the products in isolation (Aaker, 1996)

A brand represents a pact between brand owner and consumer Brand allows consumers toshop with confidence in what is an increasingly complex world The brand offers theconsumer a guarantee of quality, value and product satisfaction Branding re 2real, in theminds of consumers Strong brands exist, because they have become deeply rooted in theminds of consumers, and are apart of the texture of people’s lives They become part of thistexture because people are willing to respond to the brand and the way in which it ispresented, and advertising is often the most visible and dramatic aspect of this ( RoderickWhite, 1999)

Information Awareness

Communication

Positioning

Motivations Associations

Products cannot speak for themselves The brand is what gives them meaning and speaksfor them Figure 2.3 describes all possible attributes of a brand.

The most important attribute of a successful brand is, of course, the product itself Creating abrand image for a product, which does not match the consumers’ expectation, is a formula for

a certain failure (Tennant, 1994)

Figure 2.3 A brand is more than a product

Source: Building Strong Brand, D.A.Aaker, 1996

However, non-tangible factors have come to play an increasingly important role Recently, theway in which branded products or services have been distinguished from one another hasincreasingly concerned non-tangible factors rather than tangible factors Therefore, brandinghas become a highly skilled and specialized discipline It concerns with managing andmaintaining a mix of factors, both tangible and intangible to attract consumer loyalty (Stobart,1994)

Brands are real, in the minds of consumers Strong brands exist, because they have becomedeeply rooted in the minds of consumers, and are apart of the texture of people’s lives Theybecome part of this texture because people are willing to respond to the brand and the way inwhich it is presented, and advertising is often the most visible and dramatic aspect of this( Roderick White, 1999)

2.2.3 Brand Equity

Brand equity is the aggregation of all accumulated attitudes and behavior patterns in theextended minds of consumers, distribution channels and influence agents, which will enhancefuture profits and long term cash flow

The key elements of this definition are as follows:

Product Scope Attributes Quality Uses

Brand Personality

Organizational Associations

Country of Origin

Self-Expressive Benefit Emotional benefit

Brand-Customer Relationships

Symbol

User Imagery

BRAND

 It follows the holistic approach to branding;

 “extended minds” such as automatic ordering programs and other systems are included;and

 This definition distinguishes the asset from its valuation

The job of the brand manager is to maximize both profits and brand equity, not just sales,market share and short-term profits alone

One stream of brand equity research has focussed on brand extensions (Barwise, 1993) Part

of this work has explored the impact of a brand’s equity on its extendibility, with the generalconclusion being that the firm can leverage a brand’s existing equity in new categories(Shocker and Weitz, 1988) Research within this stream has found that highly valued brands

(i.e those with higher brand equity) extend more successfully (Rangaswamy et al., 1993)

Other research has looked at the reverse relationship: the effect of brand extensions on brandequity As one would expect, the findings are that successful brand extensions can have apositive effect on the core brand, i.e build brand equity (Dacin and Smith, 1994; Keller andAaker, 1992)

a promise to customers’ form the organization member.

Brand identity should help establish a relationship between the brand and the customer by generating a value proposition involving functional, emotional or self- expressive benefits.

Brand identity consists of twelve dimensions organized around four perspectives - the brand-as-product, brand-as-organization, brand-as-person, and brand-as-symbol

Brand identity structure includes a core, extended and proposition identity A brand identity is to brand strategy what “strategic intent” is to a business strategy Strategy intent involves an obsession with winning real innovation, stretching the current strategy and a forward-locking dynamic perspective.

The brand position trap

A brand position has been defined as “the part of the brand identity and value proposition that

is to be actively communicated to the target audience and that demonstrates an advantageover competing brands” (Aaker, 1996)

Thus, the brand position guides the current communication programs and is distinct from themore general brand identity construct There is a distinction between three related constructs

as illustrated in the table below:

Table 2 The brand position trap

Brand Image Brand Identity Brand Position

How the brand is

The brand position trap occurs when the research for a brand identity becomes a search for abrand position, stimulated by a practical need to provide objectives to those developing thecommunication programs The goal becomes an advertising tag line rather than a brandidentity (Aaker, 1996)

Four brand identity perspectives

Aaker (1996) classifies brand identity into 4 categories:

a The brand-as-product

Although strategists should avoid the product-related associations, they remain to be animportant part of a brand identity as they are directly linked to brand choice decisions and theuse experience Product-related associations may comprise product-scope, productattributes, quality/value, uses, users and country of origin

b The brand-as-organization

The brand-as-organization perspective focuses on attributes of the organization rather thanthose of the product or service The people, culture, values, and programs of the companycreate such organizational attributes as innovation, a drive for quality, and the concern for theenvironment Organizational attributes are more enduring and more resistant to competitiveclaims than are product attributes It is difficult to duplicate an organization with uniquepeople, values, and programs These attributes may apply to a set of product classes

c The brands-as-person:

The brand-as-person perspective suggests a brand identity that is richer and more interestingthan one based on product attributes Like a person, a brand can be perceived as beingupscale, competent, impressive, trustworthy, fun, active, humorous, casual, formal, youthful,

or intellectual A brand personality can create a stronger brand in several ways First, it canhelp create a self-expressive benefit that becomes a vehicle for the customer to express his

or her own personality Second, brand personality can be the basis of a relationship betweenthe customer and the brand Third, a brand personality may help communicate a productattribute and thus contribute to a functional benefit

d The brand-as-symbol

A strong symbol can provide cohesion and structure to an identity and make it much easier togain recognition and recall Its presence can be a key ingredient of brand development and itsabsence can be substantial handicap Symbols involving visual imagery can be memorableand powerful A strong symbol can be the cornerstone of a brand strategy

The Identity Structure

Brand identity consists of a core identity and an extended identity In addition, the identityelements are organized into enduring patterns of meaning, often around the core identityelements (Aaker, 1996)

 Core identity

The core identity represents the timeless essence of the brand, which contains theassociations that are most likely to remain constant as the brand enters to new markets andproducts classes In addition, the core identity for a strong brand should be more resistant tochange than elements of the extended identity Ultimately, the core identity follows from theanswers to some tough, introspective questions, such as:

 What is the soul of the brand?

 What are the fundamental beliefs and values that drive the brand?

 What are the competencies of the organization behind the brand?

 What does the organization behind the brand stand for?

 Extended Identity

The extended brand identity includes elements that provide texture and completeness It fills

in the picture, adding details that help portray what the brand stands for Important elements

of the brand’s marketing program that have become or should become visible associationscan be included A brand personality does not often become a part of the core identity.However, it can be exactly the right vehicle to add needed texture and completeness by beingpart of the extended identity (Aaker, 1996)

The extended brand identity may include product scope, retail experience, slogan, logo,personality, and relationship

There are three types of benefit, which brand name product/service can bring to consumers:

Functional benefit: The benefit based on a product attribute that provides functional utility to

the consumer Such a benefit will usually relate directly to the functions performed by theproduct or service for the customer

The functional benefits have limitation of failure to differentiate, easy to copy Other benefitsattributes can overcome those limitations

 Emotional benefit: When the purchase or use of a particular brand gives the customer a

positive feeling, that brand is providing an emotional benefit It adds richness and depth tothe experience of owning and using the brand

 Self-expressive benefit: A brand can provide a self-expressive benefit by providing a

way for a person to communicate his or her self-image

For each individual, the people will have an associated self-concept and a need to expressthat self-concept The purchase and use of brands is one way to fulfill this need for self-expression For example, using a positioned brand name products/ service with strongpersonality associated with a visible athlete generates self-expression (Aaker, 1996).

Figure 2.4: The core of the brand identity

Brand Positioning

Strategic Personality

Selling

BrandName

Product/ServicePerformance

Logo/

GraphicSystem

MarketingCommunication

2.2.5 Brand Identity Planning Model

Figure 2.5: Brand Identity Planning Model

Emotional benefits

BRAND IDENTITY IMPLEMENTATION SYSTEM

BRAND POSITION

Subset of the brand identity and value proposition

At a target audience

To be actively communicated Providing competitive advantage

Execution

BRAND IDENTITY SYSTEM

BRAND as Organization

Organization attributes (e.g., innovation, consumer concern, trustworthiness) Local vs global

Brand-customer relationships( e.g., friend, adviser)

The positioning decision for an established brand is complicated by the set of associationsalready in place A s a result, consideration needs to be given as to which associationsshould be weakened or eliminated, as well as which should be created or enhanced.

The selection is based upon an economic decision involving the market response to the associations, and the investment and marginal cost associated with them Basically, a

position is needed that will attract a market or a large part of a small market-at a cost that will result in an attractive return over an appropriate time frame The problem is, of course that is not easy to forecast the sales and cost streams that will be associated with any specific positioning decision

2.2.6.1 Developing a positioning strategy

Positioning by product attributes and benefits

A common approach to positioning is setting the brand apart from competitors based onspecific characteristics or benefits offered Sometimes a product may be positioned on morethan one product benefit

Positioning by price/quality

Marketers often use price/quality characteristics to position their brands One way they do iswith ads that reflect to the quality benefits derived from using the brand Premium brandspositioned at the high end of the market use this approach to positioning

Positioning by competitor

Competitors may be as important to positioning strategy as a firm’s own product or service

In today’s market, an effective positioning strategy for a product or brand may focus onspecific competitors When positioning by competitor, a marketer must often employ anotherpositioning strategy as well to differentiate the brand

Positioning by cultural symbols

Aaker and Myers include an additional positioning strategy in which cultural symbols are used

to differentiate brands

The use of cultural symbols has become so common in our society that psychologists andsociologists have examined the mythological foundations underlying many characters anddissected the inherent meanings consumers ascribe to them

Repositioning

One final positioning strategy involves altering or changing a product’s or brand’s position

Repositioning a product usually occurs because of declining or stagnant sales or because of

anticipated opportunities in other market positions

2.2.6.2 Strategic Misconceptions

A new Identity/Execution is Ineffective

Sometimes, it takes time for an identity/execution to wear in Customers need to get used tothe concept, and the execution needs to be refined A brand identity is not like a TV show thatstarts slow, develops a growing following, and only after two or three years becomes a hit Itcan take that long for the audience to build, and for the characters to find their niche andbecome familiar to the audience During that time, characters or other elements may beadded, deleted, or modified as the show settles into its style

A new Paradigm Requires a New Identity/Execution

Managers, by instinct and training, are always examining the market for trends A major challenge is to determine which of these trends represent a fundamental shift in the market.Even when a paradigm shift is accurately detected, it is not always clear that the brandstrategy should change The old strategy, even if found to be inappropriate for a majorsegment, may still represent a better strategy than alternatives Further, there is an upside tomaintaining an existing identity in the face of a new paradigm

2.3 Manage Brand Image

2.3.1 Three components of brand image

The image of a brand has three contributing subimages:

 The image of provider of the product/service, or corporate image

 The image of the user

 The image of product/service itself

2.3.2 Brand Image Drives Brand Equity

Figure 2.6 Brand Image drives brand equity2.3.3 Benefits and importance of a brand image:

A strong brand image offers an organization several important strategic advantages A branddistinguishes the goods and services of one seller from those of competitors A powerfulbrand identity creates a major competitive advantage; a well recognized brand encouragesrepeat purchases Thus, a brand acts as a signal to consumers regarding the source of theproduct and protects customers and manufacturers from “me-too” products that may appearidentical Brand image consists of consumer knowledge and beliefs, stored in memory asassociations, about brand attributes and the consequences of brand use (Peter and Olson,1994) These associations are usually organized in some meaningful manner (Aaker, 1991).Thus, Coke is not just a set of ten strong associations and 20 weaker ones Rather, the

Brand Image

Brand Equity Market Value of a

Brand

Market Value of a Brand

All Non-image

Factors Contribute to

Brand Equity

All Non-image

Factors Contribute to

Brand Equity

associations are grouped in such a manner that it has meaning There may be a lifestylecluster, a sponsorship cluster, and a variety of products cluster There might also be one ormore mental pictures that come to mind when Coke is mentioned, such as the Coca-Colalogo, the Olympic Torch Relay, or inevitably, a refreshing drink.

2.4 Maintain Brand loyalty

2.4.1 Cultivating long-term relationships with customers

In today’s changing global environment, every organization is searching for innovative ways

to achieve competitive advantage, increase customer loyalty, and improve efficiency withoutsacrificing quality of service Confronted with these challenges, marketers are differentiatingtheir product service offerings by cultivating long-term relationships with their customers, whoare setting new standards for service excellence

Marketers have been studying the differences between goods and services (Berry, 1980;Bessom, 1973), and the variations in optimal marketing strategies to satisfy customers (Berryand Parasuraman, 1991; Crosby and Stephens, 1990; Hart, 1988) Inseparability, intangibility,heterogeneity, and perishability are the four characteristics that are most commonly used bymarketers to differentiate between goods and services (Berry, 1980; Parasuraman, Zeithaml,and Berry, 1985) Since goods and services have these distinct characteristics that result invarying optimal strategies, it makes sense that the most effective strategies for building andretaining loyalty will also vary between goods and services

2.4.2 Brand loyalty

Numerous studies have been conducted to examine determinants of brand loyalty in goods (Cunningham, 1966; Jacoby and Chestnut, 1978; Tranberg and Hansen, 1986), and the mosteffective ways in building loyalty for goods (Laforet and Saunders, 1994) Compared with brand loyalty research, studies on service loyalty are less numerous Snyder (1991) found some correlations between demographic variables and strong service loyalty One study found that men and women often differ in how they value the core and relationship aspects of services (Iacobucci and Ostrom, 1994) Morgan and Dev (1994) studied the impact on the lodging industry of variables on brand switching To build service loyalty, hotel managers entice guests to join frequent-stayer programs Frequent stayers tend to exhibit demographic,attitudinal, and behavioral characteristics that differ from those of non-frequent stayers

(Rivers, Toh, and Alaoui, 1991) There have been other articles that have focussed on

building loyalty for specific service industries(Bond, 1995; Meyers, 1994) Even with these exceptions, a recent review article on loyalty noted that most of the studies that were

examined focussed on loyalty for goods (Dick and Basu, 1994)

The consensus among researchers is that loyalty is a very complex construct Evidence ofthis complexity can be found in the lack of consistency in how loyalty has been defined in theliterature:

One group prefers to define loyalty in behavioral terms Behavioral definitions are based on

the amount of purchases for a particular brand (Bass, 1974; Tranberg and Hansen, 1986).Level of brand loyalty is measured by monitoring the frequency of purchases or the amount ofbrand switching among consumers in a product category

Critics of behavioral definitions point out that no explanation of the choices made by

consumers is sought by this limited definition of loyalty Behavioral measures simply estimatefrequencies with no examination of the reasons for purchases or the factors that mayinfluence choices (Dick and Basu, 1994)

To overcome the limitations of behavioral definitions, many researchers have defined loyalty

by including attitudinal measures (e.g Day, 1969).

Attitudinal measures of brand loyalty incorporate consumer preferences and dispositionstoward brands to determine levels of loyalty It is argued that loyalty must be measured as acombination of attitudinal and behavioral dimensions (Day, 1969; Lutz and Winn, 1974;Snyder, 1984)

2.4.3 Brand loyalty versus service loyalty

A common question raised by marketers is how are brand and service loyalty different?Researchers have provided some insight to this question

In an analysis of how consumers evaluate products and services, Zeithaml (1981) included adiscussion of the differences in loyalty that exist between goods and services Some of themain determinants of brand loyalty of products and services are:

 Past satisfaction with a brand;

 Perceived risk associated with a purchase;

 Availability of substitutes; and

 The costs of changing brand

The difficulty in evaluating quality of services makes switching brands of service less likely ascustomers become familiar with one service Since there is also an inseparability of providerand customer in many service settings, consumers may be less likely to switch after theyhave developed a relationship with a service provider

2.4.4 How to build loyalty?

Kuczmarski & Associates’ research has found that even with this increasingly complex “brandworld”, nearly three-quarters of consumers state they do make decisions based on severalkey brand loyalty builders (see Figure 2.13) Brands do help consumers cut through theclutter and help to ease their anxieties regarding what level of quality they will get from thebrand

What is disconcerting though is that these same consumers can easily state brand disloyaltytriggers, which may result in short-term decisions being made away from even their mostloyal of brands These four disloyalty triggers are:

(1) Peer recommendations to try a different brand;

(2) New product offerings competing directly with their brand;

(3) Perceived shift in the price-value relationship of either their current brand of choice or anear-proximity, competitive brand; and

(4) Strong advertising from the competition

These triggers highlight the fragile nature of the brand and the lack of control we have overthe world surrounding the brand, as three out of the four triggers are out of the control of thecompany

Question: Why are you so loyal to your most preferred brand?

Primary drivers:

Secondary drivers:

Other drivers:

Source: Kuczmarski & Associates lnc (1993)

Figure 2.7 Brand loyalty builders

reliability Performance Familiarity Familiarity

Availability and/or convenience

Price/value relationship

Advertising Service and/or sales persons

Chapter III Overview of the Airline market in Asian pacific region and in

Vietnam 3.1 Asian-Pacific airline market

3.1.1 Introduction

At present, the AAPA (Association of Asia Pacific Airlines) has 19 member carriers, namely,Air New Zealand, Air Niugini, All Nippon Airways, Ansett Australia, Asiana Airlines, CathayPacific, China Airlines, Dragon Air, Eva Airways, Garuda, Japan Airlines, Korean Air,Malaysia Airlines, Philippines Airlines, Qantas Airways, Royal Brunei Airlines, SingaporeAirlines, Thai Airways, and Vietnam Airlines (just joined in November 1997)

Due to widespread economic and financial crisis in the region and a host of other factorsbeyond the control of AAPA airlines, all of its members posted a massive, collective loss ofUS$843.8 million in the 1997-1998 financial year

In view of financial situation, 1998 was really a challenging year for the AAPA members Thebottom line result dropped by 175.6% against the $1.2 billion profit recorded in 1996-1997.Operating profit was down 3.6% to $2.2billion On the one hand, the AAPA airlines battledwith a severe regional economic and financial crisis; on the other, they had to cope with anunprecedented confluence of political unrest, health scares, environmental catastrophes and

a string of air accidents (AAPA Annual Report 1998) In addition, the economic slump forcedthe majority of AAPA airlines to perform drastic restructuring which would have beenunthinkable when the region was enjoying record growth two years ago Jobs have been cut,pay reduced or frozen across-the-board, aircraft orders cancelled and deferred, rout networksslashed and working practices changed System-wide, the number of passengers carriedincreased by 2.8 % to 215 million, of which 86 million were international passengers and 129million domestic travelers (AAPA Annual Report, 1998)

Practically, all airlines suffered a fall in load factor with Hong Kong-based Cathay PacificAirways recording the sharpest decline Tourism took the brunt of the economic andecological crises in 1997 and Hong Kong was the worst hit of member carriers with visitorfigures to the city down 11.1 %(AAPA Annual Report, 1998)

Overall, despite an increase in traffic, combined operating revenue of AAPA carriers fell 3.5%

to $50.5 billion Operating expenses dropped by the same percentage to $48.3billion Thecurrency devaluation against the US dollar had a dramatic effect on many airlines’ balancesheet If currency effects were factored out, collective revenue and operating profit wouldhave shown increases of six percent and 4.4% respectively (AAPA Annual Report, 1998).Only three AAPA airlines, Qantas Airways, and Taiwan’s international carriers, China Airlinesand Eva Airways, increased profits over 1996-97 Singapore Airlines, Cathay Pacific Airways,Thai Airways International and Ansett Australia posted a reduced profits Malaysia Airlines(MAS) got a dramatic loss about US$ 116.7 million in 1998, and ended 1997 M$ 259.9 million

in red

With the exception of freight, which increased 6.6 %, all sources of revenue declined.Passenger revenue was down 4.5 % to $37.9 billion Unit revenue (revenue per available tonkilometer) fell 8.3 % to U.S 45 cents Overall yield nose-dived 9.8 to 67 cents per RTK.

By the end of the financial year, growth of AAPA international traffic had hit record lows, from

an RPK decline of –0.7 % in October 1997 to –9% in March 1998 On many regional routestraffic continued to fall in following months

Ominously, cargo traffic also had begun to show signs of weakening by the year-end of theyear under review and throughout the first nine months of 1998 as the economic crisisexerted its full force on trade and commerce

In view of expenditures, all airlines expenditure items decreased, but with the exception of flight equipment rentals Unit costs (costs per available ton kilometer) declined by 8.5 % to 43 cents The largest reduction was in depreciation and amortization costs as several member airlines sold aircraft or terminated leases Beside, aviation fuel costs were 2.2 % lower than the previous year and low oil prices provided one of the balance sheet’s rare bright spots

Table 3.1: Overall Financial Performance (in US $ millions)

1997-98 1996-97 % change

Operating Revenue 50,490.2 52345.8 -3.5

Passenger 37,869.2 39,670.4 -4.5

Freight 8,098.2 7,595.9 6.6Others 4,522.7 5,080.5 -11.0Operating Expenses 48,302.8 50,076 -3.5

Operating Profit 2,187.3 2,269.8 -3.6

Source: Orient Aviation Magazine, December 1998- January 19 99

3.1.2 Future Trend

Only modest powers of prognostication are required to foresee that 1999 will be the year that

is dominated by the crystallization of the newly formed alliances, which have been muchtouted in the past, but which only began to assume their true shape in 1998

With the creation of the Oneworld Alliance, which enfolds the last of the major free elements

in the region, the centripetal forces of the alliance trend will propel the remaining carriers intosome form of association or consolidation with the behemoths

Nor is it difficult to see that in 1999 alliances will facilitate the rationalization of capacity andfrequency on both regional and intercontinental routes, which is needed to aid financialrecovery

Y2K, safety and the environment are issues which will intensify in 1999, although this is less aprediction than a recognition of the obvious and inevitable But it is also needs to beemphasized that these are, in the main, issues where action is being forced on the airlines ofAsia by agencies outside the region, mainly in the US and Europe It is less clear whether this

will provoke any form of counteraction from within the region, particularly on the subject ofenvironment.

It is equally unclear whether 1999 will see the Asian airlines finally wake up to the threat totheir operation posed by various environmental proposals in Europe such as proposal for newnoise limits, etc

These are the kind of issues, pitting the interests of the regional carriers against externalforces, which will continue to call for voice such as AAPA, regardless of the absorption of itsmembers into much broader global alliances

3.1.3 Global Outlook and Growth Trend:

With the world economy poised to slow in 1999, the airline industry may finally get the chance

to show whether it has learned the lessons of the last recession Following is the growth projection of international traffic between 1998 and 2002

Table 3.2: International Traffic Growth (1998-2002)

Source: Airlines Business Magazine, January 1999

The following table is the report of AAPA traffic in 1998, which provides an overview of

operating result of all AAPA members in 1998

Table 3.3: AAPA traffic – 1998

Source: Air Transport World April 1999

Note: NH-All Nippon Airways, OZ-Asiana Airlines, CI-China Airlines, BR-Eva Airways, Japan Airlines, PR-Philippines Airlines, QF-Qantas Airways, SQ-Singapore Airlines, TG-Thai Airways, VN-Vietnam Airlines, BI-Royal Brunei, KE-Korean Airlines

JL-3.1.4 Airline Alliances

The global alliance scene is under constant reconstruction In 1994, Kaynak, Kucukemirogluand Kara (1994:238) listed the most significant cooperative agreements between airlines:United Airlines and British Airways; Continental Airlines and SAS; Northwest and KLM; Delta,Swissair and Singapore Airlines; KLM, SAS, Swissair and Austrian Airlines Now that threeyears have passed, only one of the agreements still stands - the Northwest/KLM deal thatFortune (1996) calls "the Alliance from Hell" The two airlines have recently been battling incourt and KLM is said to be looking seriously at a new U.S partner Although now, the twocarriers are said to have returned to speaking terms (Odell, 1997 and Walker, 1997)

In November 1997 the two most significant airline alliances from a global perspective are theStar Alliance including SAS, Lufthansa, United Airlines, Air Canada, Thai AirwaysInternational, Varig and recent joint Air New Zealand, Ansett and the agreement betweenBritish Airways and American Airlines that is still waiting for approval from the authorities inthe United States and the EU Both arrangements are less than a year old and there is yet noreason to believe that their longevity will be any better than their precedents’ Both of thesealliances are global in nature and include all of the alliance forms that were described inchapters 2.3.1 – 2.3.5 (Air Transport World Magazine1997, Hatfield 1997 and Scanorama1997)

In addition to the two global alliances there are between 300 and 400 less extensivecooperative agreements active between airlines all over the world (Gallacher 1997a, p 26).Table 3.4 below summarizes the alliance situation in the recent years

Table 3.4: Alliance summary 1994-1997

1997 1996 1995 1994 % change Number of alliances 363 390 324 280 29.6

-Number of airlines 177 159 153 136 30.1

Most new agreements 1997: American (8), Finnair (7), and Swissair (7)

Most agreements overall: Lufthansa (26), Air France and MAS (25 each)

Source: Adapted from Gallacher, June 1997

3.2 Airlines Industry in Vietnam

3.2.1 Brief History of Vietnamese Civil Aviation:

 In 1917, the Indochinese Governor General decided to select Vi Thuy (Son Tay province)

as a landing field and a warehouse for aircraft petrol

 On July 13, 1917, the Indochinese Governor General set up a flying squad with fourVoixin aircraft for research tasks in northern Vietnam

 On April 6, 1918, the Indochinese Governor General decided to establish the IndochinaCivil Aviation Service and to build the Batch Mai Airport in Hanoi

 By late 1920, Vietnam had 34 emergency landing fields The northern aviation squadcarried out hours of flying and took 2,000 photos On April 19, 1923, a French lieutenantpilot and a Vietnamese mechanic, named Bang, flew non-stop from Saigon to Hanoi ineight and a half hours This was considered the first trans-Vietnam flight

 On June 4, 1936, the Gia Lam Air Terminal was inaugurated in Hanoi

 From 1940, the French began to sell fares on domestic routes By that time, Vietnam hadthe Hanoi-Saigon route (via Thanh Hoa, Vinh, Hue, Da Nang, Nha Trang, and PhanThiet), and the Hanoi-Dien Bien Phu-Laos-Hanoi route International route included:Hanoi-France operated by Air France, Saigon-Singapore-Indonesia by the Dutch airline,Hanoi-Hong Kong by Eurasian, Hanoi-Hong Kong-Penang by British Imperial Airway,Tokyo-Hanoi-Tokyo and Tokyo-Hanoi-Danang-Saigon-Bangkok by Dai Nippon KokuKaisha

 In 1951, Air Vietnam came into existence in Saigon as a joint venture between a number

of Vietnamese entrepreneurs and Air France Initially, the airline had three DC-3s andthree DC-4s for passenger transport, and three Bristols for cargo transport

 In 1954, the French were defeated in Vietnam were taken over by the DemocraticRepublic of Vietnam

 On Jan 15, 1956, Prime Minister Pham Van Dong signed a decision to establish the CivilAviation Administration of Vietnam (CAAV), marking the debut for the Vietnamese civilaviation industry Initially, the CAAV had only five aircraft, including two Li2s and threeAero-45s

 Meanwhile, in southern Vietnam, the Saigon regime took over the civil aviation industryfrom the French in 1956 By 1959, Tan Son Nhat Airport had received 6,000 flights, one-third of which were domestic and two-third international.

 In 1968, Saigon had international flights to Thailand, Cambodia, Laos, Malaysia,Singapore, the Philippines, Hong Kong, Taiwan and Japan

 After the South was liberated in 1975, the North took over 282 airports and 14 DC-classaircraft from Air Vietnam The Hanoi-Tan Son Nhat-Hanoi, Hanoi-Danang-Tan Son Nhat-Danang-Hanoi routes resumed operation Vietnam’s aviation industry had modern aircraftlike IL18, AN24, YAK40 and DC6

 Before 1975, the Saigon Government signed air agreements with 10 countries,participated in the Warsaw 1929 International Convention on Civil Aviation, and joined theInternational Civil Aviation Organization (ICAO), and the International Air TransportAssociation (IATA)

 In the period 1976-1979, the Vietnamese civil aviation industry carried 1,161,928domestic passengers and 40,000 international passengers, as well as 8,624 tons ofcargo

 The following years were a challenging time for the civil aviation industry when no newaircraft were purchased and no funds were available to maintain old planes

 The industry began to pick up in 1989 By the end of 1993, Vietnam had nine new aircraftmanufactured in Western countries And in late 1994, three Boeing 767s, seven A320sand four ATR72s In 1994, the aviation industry carried 1,760,380 passengers

 On December 8, 1994, Air Traffic Control in HoChiMinh City officially resumedmanagement of and control over FIR HoChiMinh City after 18years in the hands of foreigncountries

 At present, the Vietnamese aviation industry has two civil aviation companies and two airservice firms, and a fleet of 40 aircraft, including Boeing 767s, Airbus A320s, ATR 72s,Fokker 70s and other models In addition to expanding domestic routes, the company hasinternational services to 19 countries worldwide

3.2.2 Vietnam Airlines Background

Vietnam Civil Aviation (VCA) came into being in 1956 with a fleet of only five small formerSoviet-Union aircraft The first international route was to Beijing, follow by Vientiane in 1976

In April 1989, Vietnam Airlines (VNA) was established as a State enterprise Since 1990, VNAstarted leasing the modern jumbo-jet aircraft of Ansett (Australian Airliner) and Region Air(Singaporean airlines) to upgrade its image in terms of technological advance However, atthat time, due to American trade embargo against Vietnam, VNA logo still was not allowed toput on the body of the modern aircraft yet Therefore, the image of Vietnam Airlines was notwidely recognized In 1996, Vietnam Airlines Corporation (VAC) was formed, bringingtogether several service companies with the airline at its core The corporation is run by aseven-seat management board whose members are appointed by the Prime Minister

VNA’ fleet possessed 27, including fourteen leased jumbo-jet: four B767-300s and ten A320s,owning 6 ATR-72s and seven former Soviet-Union Tupolev 134 with the logo: a crane flying across clear skies, expressing the desire to become a truly world-class carrier Since the crash landing of TU134 flying to Phnompenh in late 1997, the corporation decided to ground all of the TU134s and bought two new Fokker-70s in replaces of TU134 for short-legged domestic and international flights Now the fleet of Vietnam Airlines is 21 aircraft including fifteen leased aircraft: 3 B767-300s, ten A320s, and two ATR-72s, owning 4 ATR-72s and twoFokker-70s As of ranking of AAPA in 1998, VNA was ranked number two out of 19 carrier members in the region in terms of age of aircraft

Table 3.5: Average Age of AAPA Fleets by Airlines (as of November 1, 1998)

11 Thai International Airways 7.5

12 All Nippon Airways 8.3

AVERAGE AGE OF FLEET 7.9

Source: Orient Aviation, December 1998-January 1999

Current Status of Vietnam Airlines

According to the In-flight Research Services for all of the carriers in the world in 1998, VNAwas ranked 43 for the Economy class, and 56 for the Business Class out of 67 carriers Vietnam Airlines experienced growth during the year 1993 to 1996 with an average of 32%per annum, thanks to the growth in the airline industry in the world as a whole Following isthe table and figure showing VNA’s performance between 1993-1998:

Table 3.6: Passenger & Cargo Transport (domestic and international routes)

Unit: thousand of people for Passenger carried and tons for Cargo transport

Unit: thousand of people

Figure 3.1: Passenger Transport Through Years Challenges for the company:

Since the late 1997, because of financial crisis in Asia, the depreciation in Vietnam dong, thebad reputation of aircraft crash, low quality of service, unqualified management andunimagery of the brand, the VAC has been facing, big loss and sharp shrink in market share

as compared to other carriers in the region or in the world

First, in terms of market share, the market share of Vietnam Airlines decreased in 1998 ascompared with the result of previous year, as shown in Table 3.7:

Table 3.7: Total of international passengers carried from 1991 to 1998

% Change VNA

market share

Total of Passenge r carried by VN

Change in absolute number

1996 2,263,797 203,227 9.9 % 44.29% 1,002,576 101,163 11.2

1997 2,324,555 60,758 2% 42.9% 973,610 -28,966 -2.8

1998 2,360,807 36,252 1.6 % 38.64% 912,330 -61.280 -6.3

Source: Vietnam Airlines, Market Planning Department, 1999

Specifically, in main Asia-Pacific routes, the market share of Vietnam shows a declining trendover the years

Table 3.8: Market share of Vietnam Airlines from 1996 to 1999 in main Asia-Pacific

KIX

KUL

MNL

SEL

SIN

TPE

SGN-SGN-SYD/MEL

1999 30.6 41.3 40.1 38.0 100.0 7.9 31.3 20.2 100.0

Source: Vietnam Airlines, Market Planning Department, 1999

Note: In SGN-MNL route, Philippines Airlines suspended its services since June 1998

In SGN-SYD/MEL route, Qantas Airways suspended its services since April 1998The market share of Vietnam Airlines decreased in most of the routes in Asia-Pacific region.Especially, the SGN-TPE, SGN-SIN, SGN-SEL, SGN-KUL and SGN-BKK routes are the mostsuffered ones

In 1997, the loss was announced with around 48 billions VND In May 1998, Vietnam AirlinesCorporation was restructured Several changes took place in the management of VCA ingeneral and in VNA’s in particular with the high expectation to recover the business as soon

as possible However, the gloomy forecasts for 1999 are likely to materialize despite theairline’s better performance in the first 6 months of this year as compared last year In view ofthe VNA’s, General director of Vietnam Airlines says: “ if no miracle comes between now andthe year’s end, we are likely to experience losses worse than last year”(Vietnam News – 19September 1998) Additionally, VNA has a benefited the dual-price system for a long time inwhich foreign passengers have to pay a higher price for domestic flights However, recently,this system has just been removed by the Prime minister, which could cause more loss forthe years to come Until recently, all of the prices applied for the domestic routes subsidized

by the government were also just cut This is a disadvantage for Vietnam Airlines

Next is the about the slump situation As already mentioned in the above analysis, Asianfinancial crisis have hit tourism of the whole Asia-Pacific region in general and of Vietnam inparticular with arrival so far well down in 1997, which results in less tourists and businesstravelers The other reasons may be also caused by poor infrastructure and ineffectivemarketing

Last but not least is short of financing The tighter economic controls have made it difficult toacquire US dollars to cover its purchases of equipment and services such as fuel, aircraftleasing, pilot hiring and maintenance The problem here is it has to pay for those things inUS$, but it earns in VN Dong which has been depreciated strongly Vietnam Airlines needs at

least US$ 120 million but it is constantly having trouble with banks which are instead holdingback their hard currency (internet search)

To contain its possible losses for the year 1998 at around VND50billions, in the short run, theairline has significantly modified its services, especially those on international routes In earlyAugust, VNA announced the suspension of its services on Hanoi-Seoul route due to a sharpdecrease in passenger transport that resulted in financial problem As of September, it hassuspended its service between Seoul and HoChiMinh City South Korea’s financial crisiscaused it a loss US$2.8 million Meanwhile, it has reopened its services between HochiminhCity and Manila, the Philippines, when this route became wide open due to PhilippinesAirlines’ financial difficulties VNA has also invested heavily in promoting its services toBangkok and Paris which resulted in sharp increases in its passenger volumes In addition,strict budget cuts have been effected, including cuts in supply of certain in-flight services such

as meals and reading In the long run, it aims to accelerate technology transfer Firstly is bybuying more planes in 1999 and 2000, in turn help to save substantially from leasing.Secondly, it sent the qualified technicians abroad (to Seattle, USA and to France) to beretrained so that it can do by itself the maintenance and repairing jobs for the whole fleet Indoing so, it can reduce substantially the repairing and maintenance costs as undertakenoverseas

2.2.2 Corporate Brand name: Vietnam Airlines Corporation

Country of origin Vietnam

Business scale corporation

Brand image it sounds international and slightly strong

as combination of three above characters

As mentioned above, the name Vietnam Airlines has come into being not a long time ago,only 10 years It is fairly young as compared to other airlines in the region or in the world Inaddition, the crash landing in Nha Trang (1992) and in Phnompenh (1997) due to utilizing old-fashioned aircraft (made in former Soviet Union) and inflexible way of service has severelydamaged the image of VNA Furthermore, corruption has undermined the brand name a lot.This is the big problem for the name of Vietnam as a whole (Vietnam is ranked number two inthe top ten countries of corruption in the world according to FEER magazine).

2.2.3 Vietnam Airlines Networks

Since the last three years, VNA nowadays has worked hard to improve its network in the last

3 years and will continue to expand and add many new international and domestic flights InAugust 1998, Vietnam Airlines suspended services between Seoul and both Hanoi and HoChi Minh City due to substantial loss in this route In June1999, it suspends services toMoscow because of the same reason

Currently, it flies to 22 destinations around the world, in Europe, Asia, Australia and theMiddle East Domestically, VNA offers air transport to 16 destinations

FIGURE 3.2: Vietnam Airlines Route Map

Chapter IV Vietnam Airlines’ Positioning Strategy 4.1 Company Strategy Analysis

4.1.1 Customer Analysis

Industry Trend

Prior to the recent financial crisis, the Asian economy had been very dynamic which resulted

in the high growth rate in the airline industry During this period, the average growth rate ofthe world airline industry was about 25%, and in the region is about 30-35 % However, theAsian region is now in crisis To cope with the situation, most of the airlines have to shrinktheir business by decreasing the flight frequencies or cutting off unprofitable routes Someairlines even went bankrupt or being acquired, e.g., Philippines Airlines, by other strongerairlines Following that trend, Vietnam Airlines also has suffered a lot and now is in veryserious financial situation It is likely that people they have less need in travelling because ofbusiness opportunities Furthermore, people are not willing to travel for tourist purposesbecause of their income shrinkage, especially people with lower income In addition, in thisperiod crash landings occurred more frequently, which could have led to the reduction innumber of passengers Passengers are now more concerned about flight safety and security

of the flight along with the quality service level Frequent business traveler is looking forreliable, hassle-free service Any passenger equally wants the trip to correspond to hisexpectations In today’s fast-moving environment, the business traveler prefers his flight to be

as smooth as possible

Motivations

Based on the above analysis, for the short term the passengers now only feel motivated to fly with any carriers which perform better in terms of safety and low price with acceptable servicequality level In the long term, good quality of service and safety is the first priority of choice

Unmet needs

According to the recent market survey of FutureFlite Corporation, an American company specializing in the research and development of futuristic airline seating concepts, they have found that more and more passengers’ comfort expectations are rising (Airline Management Decisions, 1999) People are more aware of what a comfortable seat really is, due to seating

in new cars and offices, and demand no less from airlines Many innovative industry leaders such as Singapore Airlines are finding that minimal investment required to upgrade coach seats and promote this competitive advantage is being paid back time and time again in passenger loyalty and airline prestige

Market Segmentation

There are four classes of services in the airlines industry They are First Class, Business Class, Super Economy Class (Raffle Class) and Economy Class Because of the