CHAPTER I

INTRODUCTION

a. Overview

“High-Competition” would be the best words describing current Indonesian

Airline Industry situation, unless they could find their own niche market. One of the

“fire-starter” was the Low Cost Carrier (LCC) flight, with some strategy to reduce the

ticket price to consumers.

Indonesian airlines market has been very interesting in the past few years. The

proportion of the Airlines Businesses market itself has also grown by the shifting

Land and Sea transport to Air transport. The market growth shown in the following

tables:

Table 1.1 Indonesia’s Airlines Passengers Data

Year

2001

2002 11.4 Million

2003 12.5 Million

2004* 15 Million

Passenger

9.12 Million

* Estimation

Source: Angkasa Pura Passenger Number 2001-2004

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Right now, what happening in Indonesia is the ticket price war because of

the oversupply market by more than 50% new armada operated by 17 operators, and the

new expansion to the “Fat Routes” - route with a high demand - such as Surabaya and

Medan and the new routes to the new area.

Generally, the variables that affecting the Airlines Industry Market was: Price,

On-Time Performance (OTP), or Services (including On-board performance, food &

beverages, and after sales service).

The Global Economy has also brought several impacts for the transportation

industry. Besides national problem, the companies must also prepare themselves to

compete with foreign companies that have started to enter Indonesian market.

PT. Merpati Nusantara Airlines (PT. MNA or Merpati or Merpati Airlines) as one

of the players in the Indonesia Airlines Industry realize about this problem. As the

Indonesia’s 2nd Brand of Airlines Industry (Frontier FGD Result, April 2003) they expect

to preserve their position in the 2nd after Garuda Airlines. Some efforts running for

this Mission was the Company’s Big Business Process Re-engineering is which has been

running from year 200X. The top 5 player in Indonesian Airlines Company currently

(Frontier FGD Result, April 2003): Garuda Airlines, Merpati Airlines, Lion Air, Bouraq,

Mandala.

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Table 1.2 Brand Awareness Ranking of Airlines in Indonesia

Ranking Airlines Names

1st Garuda Indonesia

2nd Merpati Airlines

rd Lionair

th Bouraq

5th Mandala

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Source: Quantum Focus Group Discussion (2003)

Merpati in the past few years has tried very hard to boost up their revenues and

profit by making some changes in their corporate level strategy, such as:

a. Cost Reduction Program

b. Employee Downsizing

c. Insurance Premium Reduction

d. Debt Restructuring

e. Company Culture

f. Operation Productivity

Table 1.3 Merpati’s Revenue Performance

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Year

2002

2003 1.58 Billion

2004 1.70 Billion*

Sales

1.50 Billion

* Estimation

Source: Merpati’s Corporate Planning 2002-2004

We found some interesting results about Merpati’s current Brand in several

aspects from the Brand research report that was conducted by Frontier and submitted to

the Merpati’s Branding Department:

1. About the Logo Awareness

That cannot really the Merpati Airlines (MZ) Logo. The customers have the shape

and the color perception about the logo:

a. Like Perusahaan Jasa Kereta Api (PJKA) and Perusahaan Air Minum

(PAM)

b. Not Flexible, not dynamic

c. The Colors doesn’t look goods, Looks cheap

d. Formal

2. About the Brand Name

The Brand Name was not communicative enough and has an association with the

word “Peace”

3. About the Brand Image and Perception

The Customers assumed that Merpati is:

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a. The Sister Company of Garuda Airlines

b. Fokker Airplanes

c. They pick Merpati because of no other better

d. The tag not captures and understood

And the brand was associated with:

a. Positive: good in flight community & relations, good pilots difficult routes,

friendly pilots, friendly crew, good relation

b. Negative: late, unfriendly, small aircraft, old fashion, unsafe, difficult to contact,

not flexible, unreliable & bad online system, not responsive.

Furthermore, there are several changes in the Merpati’s performances including

the On Time Performance, Safety performance, and fleet that must be informed to the

public. From 1999 until now, they can reach the impressive performance for their

services to the public, especially after they had standardized their Airline operation in

1999.

64666870727476788082

1996 1997 1998 1999 2000 2001 2002 2003

Year

Perc

enta

ge

Figure 1.1 Merpati on Time Performance 1996 – 2003

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Merpati’s on time performance were improving since 1999 until now. They can

successfully reach the impressive performance for their services to the public, especially

after they had standardized their Airline operation in 1999.

0

0.005

0.01

0.015

0.02

0.025

0.03

0.035

1996 1997 1998 1999 2000 2001 2002 2003

Year

Perc

enta

ge

Figure 1.2 Merpati Safety Performances (1996 – 2003)

The operation standardization in 1999 enhanced performance of Merpati flight

and passenger safety. The level of accident is slopping down to zero percent in year 2002.

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5052545658606264666870

1996 1997 1998 1999 2000 2001 2002 2003

Year

Perc

enta

ge

Figure 1.3 Merpati Passenger Load Factor

The better operation performance, especially On-time Performance and Safety

could boost up the passenger Load Factor, from less then 60% at 1998 to almost 70% at

2003. Customers trust to Merpati will be able to increase with these performances.

(Source: Merpati’s Company profile, 2003).

Merpati already had some facilities that bring easier and better way for the

customers to communicate to the company, with some auxiliary services such as:

1. Merpati Online

The Merpati’s Airlines Officially Website, www.merpati.co.id, which is providing

information such as: time schedule, reservation on-line, ticketing on-line, and more

about Merpati

2. Call ‘n Fly

Merpati Delivery Service, the customers can just dial Merpati toll free number and

they can do the reservation and ticket delivery

3. Info Merpati

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Hotline Services to get all information about Merpati’s Product and services

by dialing Merpati’s Hotline number

4. Easy Flyer

A frequent flyer program that based on mileage point and discounts for the members

with privileges in more than 36 merchants across the country

To change the people’s misperception about Merpati, these facts about the

changes must be informed and well communicated to the public, especially to the airlines

passengers. They might not notice neither understand that current their perception about

Merpati Airlines is not 100% right. There have been more changes that they aren’t notice

yet, that might change their perception about Merpati and their Services.

Regarding the market situation, we could draw one important point, which is

likely to occur as a general but important marketing problem: Brand Equity. Whereas

the Brand shall be the First and the Last battle itself on the Consumer buying decision

(Source: Jack Trout & All Ries, 1980). The first battle at the stage of requirement

analysis or recognition, the consumer will pick the best brand they have been told,

because lessen the risk of wrong decision in purchasing. On the other side, whenever all

things being equal, the product’s quality and all of the service they offered has been

almost equal, consumer will only consider about the brand image of the product or

service. Therefore, “how to enhance the brand equity of a company and its product or

service, especially in Indonesian Airlines Industry” would be an interesting topic to be

researched.

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Some sponsorship events had been celebrated to increase the company’s

brand equity. The program such as Fashion on the Sky (December 31 , 2003), Inviting

Miss Universe to fly with Merpati (July 24 , 2003), and Dewa’s Concert in East Timor

st

th

Brand Equity Requires Company’s Vision and Mission and also its marketing

strategy. The company will try to communicate what position they expect to be in their

customer mind by the Marketing Communication tools, one of the Marketing Mix

elements, the Promotion.

Looking back to the current problem statements, of course there’s a brighter view

to the Airlines industry. The proportion of the Airlines Businesses market itself has also

grown by the shifting Land and Sea transport to Air, offering higher speed in a

relatively cheaper price. This phenomenon is also reflected in many new airlines

companies have started their operation, especially in Indonesia. Moreover, they are even

offering a cheaper price than the existing player, causing fares to decline rapidly.

Consumers are about to begin shifting their prime consideration to price, rather than

service or prestige. Marketing Communication Campaign shall be given more attention

and careful planning to win the new proportion.

When planning for the Marketing Communication Campaign, the Integration of

the Marketing Communication elements seems to be a must-have factor. So that the

company will strengthen its position with a Consistent Positioning to market, enabling

Interactive Marketing Communication, and moving with Marketing programs that

Consistent with the Marketing Missions. This Tool was so called the Integrated

Marketing Communication (IMC).

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b. Problem Statement

As an experienced player in airline industry, Merpati has an advantage, especially

in remote routes. Based on GFP Team analysis and discussions with Merpati’s personnel,

we have summarized some problems for our topic: In this Merpati’s Marketing

Turnaround Event, showing some facts that Marketing Communication effort seems

not reaching its target as expected (Current Brand Perception VS Expected Brand

Perception). This will lead to declining perception about Merpati Airlines. Meanwhile,

Tight Marketing Budget – Relative to the Indonesian Airlines Industry – has also set

some constraints.

These issues are supported with relevant data from Interview with Company and

previous survey result from Quantum and MARS / CIC consulting, Frontier Marketing

Research.

c. Research Significance

Researches could bring down the fact to a real question and support the

conclusion or thesis. Sometimes, people do could make thousands of logically reasonable

assumptions based on their intuitive, but when we are planning for the big move of a big

company, research data will be a vital Requirement (Source: Ethan M. Rasiel 2002)

Research will supports decision making process, it enable the decision makers to

make a better quality decision, and with a good explanation. Specifically speaking about

Marketing Research, it would reduce the Marketing Strategy efficacy without the data of

Product, Price, Promotion, and Place / Distribution (Marketing Mix or 4P).

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d. Objectives of Group Field Project (GFP)

The Main Goal of this GFP is to bring best solution possible to Merpati Airlines

as the GFP Clients, to their current problem that will bring the most impact on their

business, but also considering the Time Frame available & limitation of the GFP Team.

The goal then will be drilled-down as:

1. Research for Current Brand Position

2. Integrated Marketing Communication (IMC) Planning

3. Provide Marketing Strategy for year 2005

Expected Outcome upon those goals are to increase effectiveness of Marketing

Communication in the current Indonesia’s Airlines Industry competition, which indirectly

would bring Consumer loyalty and brand equity rehabilitation of Merpati, so that this

research could helps in decisions making that will improve overall profitability. At the

end, a better return to shareholders of Merpati should take place.

To achieve the goals, we will gather information from survey conducted by GFP

Team independently. Based on data gathering and analysis, we will identify specific

problem, look for correlated Theory to apply best as the solution, present Alternatives,

and finally, recommend effective solution.

e. Scope of Study

The scope basically bounded by the objective of GFP (Chapter 1.4), the

Marketing & Branding Division. Furthermore, time & place limitation of the sample of

this GFP, GFP Team will only focusing on Several West Indonesian Cities or Routes,

where Merpati is having a lower brand equity compared to the East Indonesian.

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For scoping based on the Topic - Integrated Marketing Communication –

This Field Project will only cover for External IMC and some of the Internal:

• Some of the Internal IMC Task: Defining the IMC Elements, and

integrate the elements, and align it upon the Company’s Vision and

Mission, and Marketing Strategy

• The External IMC Tasks are: Positioning of Company Brand & Products,

approach to customer and updating their consumer behavior, and focusing

more on synergizing the promotion mix rather than giving a big bang

independently

f. Schedule

The Project kicked-off on 20th April 2004, planned to be finished on 27th

November 2004. The Non-Disclosure Agreement, Term of References, signed on 9th June

2004.

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