Empty Seat Budget Prepared especially for:
Recent Headlines “Markets in turmoil” “Airlines cut routes, workers laid-off” “U.S. to take over AIG” “Lehman Files for bankruptcy , Merrill sold” “Airline fees here to stay”
Don’t Touch that Ad Budget • The Impact of heavy Ad spend cuts on Premium brand share • “The clear findings was that those with the highest ad spend at the begining of any period were most likely to increase their share during the period.” • A study of the three economic downturns over the past 30 years shows that those brands who maintained advertising continually performed better than those who cut ad spend in terms of market share. • 2002 ARF Study
Don’t touch that Ad Budget • Advertising in a down economy clearly creates a competitive advantage. • - It relays a more positive message about the company’s commitment to its products and services. • - More importantly, it also keeps those companies top-of-mind when purchase decisions are made. • Profit Impact of Marketing Strategy (PIMS) • Profits of companies were higher both during and following recessionary periods. • - Research based on 1,000 global companies from 1973 – 1999 • - 2 years before and 2 years after recession
Recession Study Jif Peanut Butter and Kraft Salad Dressing increased their advertising and experienced sales growth of 57% and 70% respectively Coors light and Bud Light increased advertising and saw sales jump 15% and 16% respectively. Miller cut budgets and saw a 4% drop. Among fast food chains, Pizza Hut sales rose 61% and Taco Bell’s 40% thanks to strong advertising support, reducing McDonald’s sales by some 28% as they slowed advertising. MarketSense concluded the study: “The best strategy for coping with a recession is balanced exploitation of ad spending for long-term consumer motivation, plus promotion for short term sales boost.”
McGraw Hill Research’s Laboratory of Advertising Performance analyzed the performance of 600+ firms: those firms which maintained or increased their advertising expenditures “averaged significantly higher sales growth” during and for the three years following the recession compared to those which eliminated or decreased advertising. • McGraw Hill Laboratory of Advertising Performance 1985 • American Business Media Study: “Sales and profits can be maintained and increased in recession years and (in the years) immediately following by those who are willing to maintain an aggressive marketing posture, while others adopt the philosophy of cutting back on promotional efforts when sales appear to be harder to get.” • American Business Media 1974 - 1975
Advertising studies Pre-Recession & Post Recession • Buchen Advertising Inc. tracked a ‘large number’ of business to business companies: sales and profits dropped off, “almost without exception”, at companies which cut back on advertising. Post recession, those companies continued to “lag behind” companies which maintained their advertising budgets. • Buchen Advertising Inc. 1949, 54’, 58’ , 61’ • Harvard Business Review report of 200 companies: largest sales increases reported by companies that advertised the most during the recessionary year. • Harvard Business Review 1923
Ad Cutbacks Backfired for Bankruptcy Victims Mervyn’s, Bennigan’s, Sharper Image all cut ad budgets deep! • New York Aug 2008 - In the really tough times, It’s almost instinctual for a company to dial back on marketing, but there’s a growing body of evidence… and bankruptcy filings… to suggest that cutting ad dollars can be the ultimate false economy. • Advertising levels 12 months prior to bankruptcy • -25% • -75% • -82%
Airlines are stinging • Passenger Load Factors: “Load factors tell the story. They fell in the four largest carrier regions showing the growing impact of the US economic slowdown on the airline industry,” said Bisignani.European PLF recorded the largest single drop of 1.6 percentage points to 71.7%. Asian carriers saw their PLF fall by 0.1 percentage points to 75.2% while North American airlines experienced a 0.5 percentage point drop to 74.0%. The Middle East saw a 0.9 percentage point fall to 72.6%, balanced against a 20.3% growth in passenger traffic supported by the oil business. This is strong growth even taking into consideration the leap year impact. The exceptions were Africa, where a contraction in supply boosted the PLF by 2.1 percentage points to 67.4% and Latin America where strong economic growth and travel demand boosted load factors by 0.9 percentage points to 73.0%. Giovanni Bisignani is the Director General of the International Air Transport Association. IATA.org March 31, 2008
Conclusion… • We all can agree on the facts: • U.S. economy is, at best, unstable. Consumers are changing spending habits. • Passenger Load Factors are down… and so are the number of airlines. • Fuel remains costly and is prohibitive to growth. • The opportunity to grab additional market share with maintained or increased advertising is NOW! • When times are good, you should advertise. When times are bad, you must advertise.
But there’s nothing left for an ad budget! conserve your cash… • Reserves must be kept to meet obligations: • Payroll / Pensions • Maintenance • Lease payments • Infrastructure • Taxes • Security • Fuel
Create a media budget using empty seats. • Every time a flight departs with an empty seat, an asset withers on the vine, and is written off as a loss to the company. • The expense to fly a plane from point A to point B will remain relatively the same regardless of what the passenger load factor is. • When adding higher-class fares such as First or Business, the case for leveraging an empty seat makes even more sense. The average ticket cost increases and in turn the trade value increases. When utilizing all service classes, it is easy to see how an ad budget is created with just a handful of seats per week.
Calculating your budget Imagine creating a budget using just 2 seats each flight… $18,000,000.00 Annual Advertising Budget!
Calculating your budget • In this example we are using just a fraction of the average load factor of roughly 75%. Load factors on flights serving new destinations tend to be even higher initally. * With the consolidation of airlines and the reduction of daily flights, Load Factors have risen substantially, however this illustrates how even a few empty seats can afford a healthy media budget.
It’s your airline, stay in control • It’s not all or nothing, start with 1% or 2% of your budget and monitor the success. • We work with all media vendors and in all markets serving the U.S. and the U.K. • We make sure that reporting is ARC compliant and you receive a weekly accounting report as well as a master control report. • We ensure that Reservations, inventory management, fulfillment and revenue accounting can be handled professionally in-house • We can provide stronger service when working with you directly, however, we can work with your agency. • Lastly, we provide the best media at the best price. If you receive product that is outside perimeters you set, it is a waste of your time and valuable budget.
Thank You! Rob Fogarty, Director of Sales 21198 Beavercreek Rd. Bldg. B Oregon City, OR 97045 971-221-8834