How Arizonahop Should Appeal to Customers

Published: 2021-09-10 05:05:08
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Category: Marketing

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Executive Summary
ArizonaHop is a startup low-fare on-demand airline based in Prescott, Arizona. They are seeking funding via Indiegogo to purchase an aircraft and develop a flight booking mobile application. Their innovative feature is the ability to sell flights not based on a set schedule, but instead arrange flights according to demand depending on the immediate needs of customers in their service area. They are planning to launch in Central and Northern Arizona with a single turboprop aircraft. While most of the markets they will serve have no scheduled service, they will be competing against incumbent air carriers in three cities. The company is led by aviation and marketing industry veterans. It aims to set itself apart from competing air, road, and rail travel options by positioning its services as convenient, inexpensive, and fast. In this report, I analyze the competitive landscape, suggest additional sources of revenue, provide customer insights about service needs, and make recommendations as to the company’s future operational and marketing decisions.
Introduction
This is a report about ArizonaHop, an air travel startup that is innovating a convenient and cost-effective hybrid between the traditional scheduled airline service model and that of on-demand air charter operators. This is being written to draw the attention of the company’s leadership to emerging opportunities in the Arizona air service market while also critiquing potential weaknesses or flaws in the company’s plans so that management can address them. This report is directed to the management team of ArizonaHop, specifically CEO Paul Zawadzki and Marketing Executive Henry Gellerman and is written from the perspective of an independent consultant being paid by the CEO to further develop the business. I chose to take on this consultancy project as the airline industry is fascinating to me and I have spent a great deal of my free time following developments in the industry and becoming familiar with existing players. I feel this project is a good fit for me as I can draw upon my existing knowledge of the market when researching the competitive environment and finding opportunities for ArizonaHop. I have learned about the company’s ambitions to solve the problem of insufficient airline routes between cities in the state of Arizona and the fact that many Arizona cities lack a connection to the rest of the national air travel network. In the company’s present plan, they are missing out on opportunities to take advantage of local and federal government subsidies to provide air service to cities disconnected from the national airline networks. By planning to fly only between small airports, they are also not catering to the many passengers who need to fly from small cities to large hub airports in order to make connections to major airlines. The airline is vulnerable to changes in federal aviation regulations as well as competition from larger carriers. That said, most potential competitors lack the small aircraft that are needed to compete with ArizonaHop’s on-demand operation.Service Description
ArizonaHop intends to begin offering air service between eleven Arizona communities as well as Las Vegas, Nevada and Burbank, California. Presently, only three of these Arizona towns and cities have commercial air service. These communities range in population from approximately 7,000 to 250,000 residents and include popular tourist destinations such as the Grand Canyon, Lake Havasu, and Sedona. The company’s target market includes business and leisure travelers who reside in or need to travel to central or northern Arizona. They also specify targeting seniors who are less fit to drive long distances and have disposable income. Additionally, the company touts its service as promoting two-way tourism, such as Flagstaff or Prescott residents flying to Las Vegas for gambling as well as tourists in Las Vegas flying to the Grand Canyon or Sedona to see the sights (Newton). The main innovation ArizonaHop proposes is the use of a passenger aggregation system to assign passengers to flights and dispatch aircraft and crews using a mobile app, the “Flight Demander”. By taking into account the travel needs of each passenger requesting a place on the flight, such as their intended time of departure, origin and destination, and group size, ArizonaHop can adjust flight schedules on-demand and potentially combine multiple flights into one in order to eliminate empty, unprofitable scheduled flights that have challenged the carriers operating in these markets previously (ArizonaHop). Unlike today’s scheduled carrier’s, ArizonaHop does not publish a schedule from which passengers must choose a flight nor do their fares increase when booking last minute. Instead, ArizonaHop passengers select their route and desired time of travel in the mobile app and are notified of their exact departure time once enough passengers with similar needs make bookings. Fares are based on distance of the flight at a rate of 78 cents per mile plus 15% tax and are projected to be 12% less than fares of existing scheduled services in the markets where it currently exists (ArizonaHop). In order to finance its operations, ArizonaHop is seeking $2million to $5 million via Indiegogo to fund the acquisition of its first Pilatus PC-12 nine-passenger turboprop plus an option on a second aircraft of the same type (Smith). The company’s management team is led by CEO Paul Zawadzki who is a career air transport pilot as well as a flight instructor and air traffic controller. He is joined by Dennis Henson as Director of Maintenance who has a wealth of experience in aircraft manufacturing and flight training. Finally, Henry Gellerman serves as Marketing Executive and has experience in the creative departments of a variety of firms (ArizonaHop).
Methods
In researching the competitive landscape of the Arizona air travel market and the needs of its customers, I used qualitative and quantitative research methods. These included scouring the internet for customer reviews of existing services in the market, such as Great Lakes Airlines’ service from Prescott to Los Angeles, Boutique Air’s service to Page and Show Low, and American Airlines regional jet service from Flagstaff to the airline’s hub in Phoenix. With ArizonaHop proposing low-cost on-demand service from local airports, these competitors are the most relevant as they provide the most similar product within the same price range, as opposed to private air charter companies that serve a demographic with much higher incomes.
By determining the pain points customers experience with existing service, I developed recommendations as to what features ArizonaHop should promote in its marketing and improvements that could be made to its operating model. My research also included determining what types of government programs ArizonaHop could take advantage of in order to receive additional funding to assist with launching and growing its new service.
Findings
From an analysis of comments left by customers of the local Arizona airports that currently offer scheduled service and the airlines that operate these services, several trends were observed. Complaints that were most common included delayed flights which often led to missed connections, canceled flights resulting in the need to drive to Phoenix or Las Vegas to take alternate flights, inconvenient schedules, unhelpful staff, and high fares (Yelp). More than 50% of passengers on these flights are connecting to or from other flights.
The features ArizonaHop plans to offer with its service address some of these concerns already. Its innovative app will allow customers to indicate the time they wish to depart instead of having to work within the limits of an airline’s schedule. As previously mentioned, ArizonaHop will be priced around 12% less than current scheduled services (ArizonaHop). Delays and cancellations can affect any aviation operation, but ArizonaHop plans to purchase a new aircraft which may result in fewer mechanical delays than competitors, some of whom operate aircraft that are more than 30 years old (Airfleets). One thing that the current ArizonaHop plan does not address is the need for many passengers to connect to other flights to reach destinations further afield domestically and internationally. As currently planned, ArizonaHop would fly to North Las Vegas Airport instead of McCarran International, Burbank Airport instead of LAX, and Scottsdale and Glendale as opposed to Sky Harbor in the Phoenix area (ArizonaHop). Therefore, ArizonaHop passengers would not be able to make convenient connections to other airlines at these hubs. In the second part of my analysis, I researched what government subsidies are available for air carriers providing service to small communities. The Essential Air Service program provides federal funding to airlines who are awarded contracts to operate air service between an unserved city and a hub airport (“Essential Air Service”). In Arizona, three cities, Show Low, Prescott, and Page, are eligible for EAS funding and the operating airlines, Boutique Air and Great Lakes Airlines, receive between $1.5 million and $3 million annually per route as a subsidy (“Current List”).
Airport authorities also offer incentives to airlines to begin service to unserved destinations in the form of marketing assistance and fee waivers. Airports can also apply for additional federal funding to attract new airlines through the Small Community Air Service Development Program (“SCASDP”). In its current plan, ArizonaHop does not intend to take advantage of such government funding, instead relying only on ticket sales as a source of revenue. I also found that the EAS operator that has provided Page and Prescott with subsidized air service, Great Lakes Airlines, has gone out of business as of 26 March 2018, leaving these cities without a connection to the rest of the national airline network (Barks). As such, the federal contracts for these services will be open to bids from new operators. Great Lakes decreased and finally ceased operations as a result of being unable to find sufficiently experienced pilots after the Federal Aviation Administration changed the requirements for pilots operating aircraft with more than nine seats in commercial service (Grady). ArizonaHop would operate a nine-seat aircraft and not be subject to these regulations.
Recommendations
Taking ArizonaHop’s current plans and the research findings into account, I make several recommendations for the company. The startup’s largest asset and differentiating factor is its innovative mobile app that matches passengers with similar travel plans to a flight at is convenient to all of them. Though the company reports progress on the app’s development, having a business so dependent on its technology requires the management team have experience with and a good understanding of software development. Therefore, I recommend the company appoint an individual with tech experience to a position on the board. He or she can function as a project manager for the application side of the business and serve as a voice of reason to the other board members, explaining what is or is not feasible. Next, I recommend that ArizonaHop offer service to major hub airports from the small communities from which it operates. Though costs will be somewhat higher than at the small airports in these cities, operating to the hubs makes ArizonaHop’s services far more viable by making them marketable to both connecting passengers and those whose destination is the hub city. For instance, by flying to McCarran International instead of North Las Vegas airport from Flagstaff, ArizonaHop appeals to people seeking a getaway in Las Vegas as well as those traveling onward to any of the myriad of destinations served from McCarran. This is especially important as the majority of passengers on existing services from local Arizona airports are connecting to other flights. I also recommend ArizonaHop bid on Essential Air Service contracts and seek out subsidies from airport authorities in order to have additional revenue streams, at least during its initial launch and expansion phase, especially considering the vacuum left by Great Lakes Airlines’ recent cessation of service. Though operating such services is not the end goal for ArizonaHop, operating these flights would enable them to have consistent revenue as they build brand recognition and work out operational kinks. As the company is introducing a new process for customers to book flights with their unique mobile app, it may take some time for consumers to get familiar with this new method of planning air travel. By operating subsidized routes initially, ArizonaHop could get its target market acquainted with utilizing this new system, tweak it based on feedback, and allow for word-of-mouth about this innovation to spread before expanding their low-cost on-demand services further. Finally, I recommend ArizonaHop evaluate the option of completing development of their app and launching air service by contracting the services of existing air charter operators. If the cost of charter is reasonable in comparison to the aircraft purchase, insurance, certification, maintenance, and training costs, then becoming a platform to connect customers with flights operated by other aircraft operators may be favorable. Funds saved on the aircraft purchase and operation could be invested in further application development. ArizonaHop could also pursue such an option as an interim measure while they go through the certification process of becoming their own air carrier. In this way, they could begin earning revenue sooner while also testing the waters for their service with much less capital outlay. In conclusion, ArizonaHop should appeal to customers by touting friendly customer service, flexible schedules to accommodate the customer, aircraft that are new, comfortable, and reliable, and fares lower than the scheduled airlines. They should advertise the ease of making connections to other airlines and that, as a small company, they offer friendly, personal service. In this way, ArizonaHop could become the uberPOOL of the skies.

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