Airline Travel Market Segmentation

The airline industry is segmented in various ways to meet the specific needs of its diverse customer base. Traditionally, airlines used demographic segmentation, dividing passengers by age, gender, or purpose of travel (business vs. leisure). However, as customer expectations evolved, airlines had to adopt a more nuanced approach, focusing on behavioural segmentation to understand travellers' willingness to pay and their loyalty.

Behavioural segmentation helps airlines identify travellers' price sensitivity, with business and first-class passengers tending to book closer to departure dates and being less price-sensitive. This segmentation also helps airlines cater to different customer groups, such as frequent flyers or infrequent, budget-conscious travellers.

Additionally, the airline industry can be segmented based on the area served, with major airlines serving international routes, national airlines serving domestic routes, and regional airlines operating within limited regions or cities. Airlines can also be categorised as low-cost or full-service, targeting customers seeking basic connectivity or those willing to pay for add-ons like meals and entertainment.

Business vs. leisure travel

Airlines have traditionally segmented passengers into two categories: those travelling for business and those travelling for leisure. However, this binary approach is no longer sufficient for airlines to understand their customers' needs and motivations for travelling.

Business travellers may be attending conferences, going on marketing visits, or travelling on reward programme incentives. They are likely to be loyal to a small number of airlines and tend to be less price-sensitive. They may also be less likely to research airlines, instead relying on their experience and the opinions of other frequent travellers. This makes them an attractive target market as they have a high ability to influence the purchase decisions of other consumers.

Leisure travellers, on the other hand, may be travelling on holidays, for study purposes, or visiting friends and relatives. They are more likely to be price-sensitive and may be more willing to consider alternative airlines.

While business travellers tend to be brand loyal, leisure travellers are more likely to be loyal to a particular airline to accumulate frequent-flyer points. This makes them an ideal target market as they provide a long-term customer base, although they can be difficult to attract initially as they are less willing to switch between airline brands.

Some markets are dominated by either business or leisure travellers, but airlines need to shift their attention to other ways of segmenting customers to increase ancillary revenue for every seat sold. Behavioural segmentation, for example, helps airlines understand the willingness to pay, as business and first-class passengers tend to book closer to the departure date, indicating price sensitivity for certain routes or periods.

Major, national, and regional airlines

The market for airline travel can be segmented in various ways, one of which is by the area served by the airlines. This categorisation includes "major", "national", and "regional" airlines.

"Major" airlines serve an entire country and often fly passengers internationally. They are the largest carriers and usually have the most extensive networks, connecting major cities and hubs. These airlines typically offer a wide range of services and amenities to cater to diverse traveller needs.

"National" airlines, on the other hand, focus on providing services within a single country, although they may also offer some international flights to nearby destinations. They serve most parts of their home country and are often the primary option for domestic travel. National airlines usually have a strong presence in their base country and may cater to a wide range of traveller types, from business travellers to tourists.

"Regional" airlines operate within limited geographical areas, serving single regions or a small number of cities. They often connect smaller towns and cities that may not be served by larger carriers. Regional airlines tend to have a more focused route network and may provide more personalised services to their passengers.

These categories of airlines cater to different market segments based on traveller needs and preferences. Major airlines often attract a diverse range of passengers, including business travellers, tourists, and those visiting friends and relatives. National airlines cater to a similar market but on a more local scale, serving passengers travelling within their home country. Regional airlines, due to their limited routes, often cater to a more niche market, including those travelling for specific purposes, such as visiting nearby family or friends, or those who prefer the convenience and efficiency of direct regional flights.

The segmentation of airlines into major, national, and regional carriers helps to meet the varying needs of travellers. It allows for a diverse range of options, from extensive international networks to more focused regional services. This segmentation also enables airlines to tailor their offerings, amenities, and pricing to their specific target markets, ensuring they meet the unique demands of their respective passenger bases.

Low-cost vs. full-service airlines

Low-cost and full-service airlines are the two main types of commercial airlines. While the difference in ticket price is the most visible distinction, there are several other factors that set these two types of airlines apart.

Low-cost carriers offer extremely cheap tickets and frequent sales, attracting customers with very low prices. Tickets can be as cheap as €1 one way, with tickets from Germany to Palma Mallorca during the off-season costing around €10-20. However, once you start adding on extras and food, the price increases. At this point, travellers may question the benefit of flying with a budget airline, as the same flight with a traditional airline may cost about the same and include all the add-ons. Budget airlines are ideal for those travelling light, who do not need checked luggage, meals, or specific seats.

Full-service airlines, on the other hand, typically have higher fares. They focus on network profitability and operate multiple aircraft types, while low-cost carriers focus on route profitability and stick to one aircraft type to minimize costs. Full-service airlines have multiple income sources, while low-cost carriers rely heavily on ancillary revenue.

Full-service airlines offer a better service and more extras than low-cost airlines. They usually include at least one full-sized carry-on bag free of charge, while low-cost carriers often require passengers to pay for checked luggage. Full-service airlines also provide meals and drinks, including water, as part of the ticket price, whereas these cost extra on low-cost airlines.

Another difference lies in the airports served by the two types of airlines. Low-cost carriers generally operate out of secondary airports to minimize airport fees, while full-service airlines typically fly to and from large, primary airports. These larger airports are usually closer to city centres and have better transport links and infrastructure.

When it comes to booking flights, many travellers buy tickets online. However, those purchasing tickets on full-service airlines, particularly in premium cabins, may opt to use a brick-and-mortar travel agent, who often has access to discounts and offers not shown on websites. Low-cost carriers, on the other hand, usually sell their tickets exclusively on their websites, giving them greater control over fare pricing and reducing costs.

In summary, while low-cost carriers offer extremely low base fares, the final price, including add-ons, may end up being similar to that of a full-service airline. Full-service airlines provide more amenities and services, justifying their higher prices. Travellers must decide whether they prefer the simplicity and flexibility of a full-service airline or the low base fares of a budget airline, taking into account the potential for additional fees.

Customer-specific segmentation

The classic RFM (recency, frequency, monetary) model is often applied in this type of segmentation, using data from the customer's past purchase behaviour. This includes information such as how long it has been since the customer's last purchase, the average number of days between purchases, and the historical revenue spend.

Other factors that can be considered in customer-specific segmentation include declared customer preferences, loyalty program affiliation, demographics, airline website activity, company affiliations, and preferred agencies.

By using customer-specific segmentation, airlines can better understand their customers' needs and motivations, and create more effective marketing campaigns.

Behavioural segmentation

For example, airlines often distinguish between business and leisure travellers, with business travellers attending conferences, marketing visits, or travelling on reward programs, and leisure travellers taking holidays, studying, or visiting friends and family. However, this simple binary segmentation does not capture the complexity of customer choices.

A more nuanced approach involves considering the different needs and motivations of travellers. For instance, non-business consumers who frequently travel by air tend to be older, such as retirees with the time and money to holiday often. They are likely to be loyal to a small number of airlines and seek travel comforts, making them less likely to choose based on price. This segment is attractive to airlines as they are influential in the purchase decisions of other consumers.

Another segment includes travellers who are highly brand loyal, seeking to accumulate frequent flyer or loyalty points. They are less price-sensitive and are an ideal target market as they provide a long-term customer base.

Urgent travellers, on the other hand, are infrequent flyers who need to travel immediately due to unexpected events. They prioritise flight availability and destination over price or brand, and airlines often withhold a few seats to cater to this segment at a premium price.

Business travellers form a large domestic customer base, with organisations making decisions on behalf of their employees. They tend to be loyal and price-insensitive, often leading to contractual deals with airlines.

Budget-conscious travellers are typically infrequent travellers or holidaymakers who may perceive little difference between airlines, so they tend to choose the cheapest option.

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