Harvard Case - Allegiant Airlines: Finding a New Customer Segment
"Allegiant Airlines: Finding a New Customer Segment" Harvard business case study is written by Arpita Agnihotri, Saurabh Bhattacharya. It deals with the challenges in the field of General Management. The case study is 14 page(s) long and it was first published on : Feb 21, 2017
At Fern Fort University, we recommend Allegiant Airlines embark on a strategic shift to attract a new customer segment - the "Adventure Seeker" - by leveraging a targeted marketing strategy, expanding its route network to emerging destinations, and integrating technology to enhance the travel experience. This recommendation aims to drive sustainable growth, enhance brand image, and solidify Allegiant's position as a leader in the low-cost carrier market.
2. Background
Allegiant Airlines, a low-cost carrier (LCC) based in Las Vegas, has experienced significant success by focusing on point-to-point routes connecting leisure destinations with smaller cities. However, the company faces challenges in attracting new customer segments and diversifying its revenue streams. The case study highlights the need for Allegiant to explore new opportunities and adapt to evolving market dynamics.
The main protagonists of the case study are Maurice Gallagher, Allegiant's CEO, and the company's leadership team, who are tasked with developing a strategic plan to address the challenges and capitalize on new growth opportunities.
3. Analysis of the Case Study
To comprehensively analyze Allegiant's situation, we utilize a framework combining Porter's Five Forces, SWOT Analysis, and Strategic Planning.
Porter's Five Forces:
- Threat of New Entrants: High, due to the low barriers to entry in the LCC market.
- Bargaining Power of Buyers: Moderate, as travelers have multiple airline options.
- Bargaining Power of Suppliers: Low, as airlines have many suppliers.
- Threat of Substitutes: High, as alternative modes of transportation exist (e.g., buses, trains).
- Competitive Rivalry: Intense, with established LCCs like Southwest and Spirit Airlines.
SWOT Analysis:
Strengths:
- Low-cost operating model
- Strong brand recognition in leisure travel
- Experienced management team
- Focus on point-to-point routes
Weaknesses:
- Limited route network
- Dependence on leisure travelers
- Lack of frequent flyer program
- Limited international presence
Opportunities:
- Expanding to emerging markets
- Targeting new customer segments
- Leveraging technology for enhanced customer experience
- Developing partnerships with travel agencies
Threats:
- Increased competition from established LCCs
- Economic downturns impacting travel demand
- Rising fuel prices
- Environmental regulations
Strategic Planning:
Allegiant's current strategy focuses on cost leadership, but it needs to adapt to changing market dynamics and attract new customer segments. This requires a shift towards a more customer-centric approach, focusing on value proposition and differentiation.
4. Recommendations
1. Target the 'Adventure Seeker' Segment:
- Market Research: Conduct comprehensive market research to understand the needs and preferences of adventure seekers.
- Targeted Marketing: Develop a targeted marketing campaign using digital channels, social media, and partnerships with adventure travel companies.
- Product Development: Offer specialized packages combining flights with adventure activities (e.g., hiking, kayaking, scuba diving).
2. Expand Route Network to Emerging Destinations:
- Market Analysis: Identify emerging destinations with high potential for adventure tourism.
- Strategic Partnerships: Explore partnerships with local tourism boards and businesses to promote Allegiant's services.
- Route Optimization: Utilize data analytics to optimize route network and ensure profitability.
3. Integrate Technology to Enhance Customer Experience:
- Mobile App Development: Enhance the mobile app with features like real-time flight updates, baggage tracking, and personalized recommendations.
- Data Analytics: Leverage data analytics to personalize marketing campaigns and improve customer service.
- AI-Powered Chatbots: Implement AI-powered chatbots for 24/7 customer support.
5. Basis of Recommendations
These recommendations are based on the following considerations:
- Core Competencies: Building upon Allegiant's existing strengths in low-cost operations and point-to-point routes.
- External Customers: Addressing the needs and preferences of the 'Adventure Seeker' segment.
- Competitors: Differentiating Allegiant from competitors by offering unique value propositions and targeting a niche market.
- Attractiveness: Quantifiable measures like increased revenue, market share, and customer satisfaction.
Assumptions:
- The 'Adventure Seeker' segment represents a significant growth opportunity.
- Emerging destinations will experience increasing tourism demand.
- Technological advancements will continue to enhance customer experience.
6. Conclusion
By strategically targeting the 'Adventure Seeker' segment, expanding its route network to emerging destinations, and leveraging technology to enhance the customer experience, Allegiant Airlines can achieve sustainable growth and solidify its position as a leading low-cost carrier. This approach aligns with the company's core competencies, addresses the needs of a growing customer segment, and differentiates Allegiant from its competitors.
7. Discussion
Alternatives:
- Focusing solely on existing customer segments: This approach carries the risk of stagnation and limited growth potential.
- Expanding to international markets: While attractive, this option requires significant investment and expertise in international operations.
Risks:
- Market saturation: The 'Adventure Seeker' segment may be saturated with existing competitors.
- Operational challenges: Expanding to new destinations can present logistical and operational challenges.
- Technological risks: Implementing new technologies can be costly and complex.
Key Assumptions:
- The 'Adventure Seeker' segment is willing to pay a premium for specialized travel experiences.
- Emerging destinations will offer sufficient infrastructure and tourism facilities.
- Technological advancements will be readily available and cost-effective.
8. Next Steps
Timeline:
- Year 1: Conduct market research, develop targeted marketing campaigns, and pilot new routes to emerging destinations.
- Year 2: Expand route network, implement technology enhancements, and monitor performance metrics.
- Year 3: Analyze results, refine strategies, and further expand into new markets.
Key Milestones:
- Q1 2024: Complete market research and develop a comprehensive strategic plan.
- Q2 2024: Launch targeted marketing campaigns and pilot new routes.
- Q4 2024: Evaluate initial results and adjust strategies as needed.
By implementing these recommendations, Allegiant Airlines can embark on a new era of growth and success, driven by a strategic focus on the 'Adventure Seeker' segment and a commitment to innovation and customer satisfaction.
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Case Description
Founded in 1997, Allegiant Airlines (Allegiant) was one of the most profitable ultra-low-cost airlines in the United States. Allegiant maintained high profit margins by targeting the uncaptured market segment for leisure travel and using a unique way of managing cost and revenue drivers. Allegiant avoided direct competition with traditional airlines and captured the new market of price-sensitive leisure travelers. After employing extreme cost-reduction and revenue-enhancement strategies, Allegiant achieved one of the highest profit margins in the industry. In 2015, despite inexpensive airfares, Allegiant received low scores on customer satisfaction. The airline also faced labour and safety issues by the end of 2015, but it took several steps to resolve the issues in 2016. With increasing competition, rising costs, and low customer satisfaction, maintaining long-term profitability remained a challenge for Allegiant. How could the airline sustain its position in the market?
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