Air Peace, British Airways, Virgin Atlantic and the Price War

The debut of Air Peace, a Nigerian airline, on the London route has sparked significant reactions from Nigerians, which is unsurprising given the long-awaited nature of this event. On the other hand, Air Peace’s aggressive pricing strategy, slashing fares, was widely welcomed, particularly in the current economic climate where cost-competitiveness is crucial for many Nigerians. Interestingly, in response to Air Peace’s fare reduction, British Airways and Virgin Atlantic followed suit, prompting allegations from Nigerians that these incumbent carriers had been overcharging them previously. This article aims to provide readers with a better understanding of the dynamics at play.It’s important to recognize that every business must balance the often-conflicting interests of consumers and shareholders.

Consumers demand high-quality products and services at affordable prices, coupled with excellent customer service and ambiance. Shareholders, on the other hand, seek maximum profitability, as they have provided the capital and expect a reasonable return on their investment.

This divergence in needs leads to differing perspectives.Just as consumers seek fair pricing, shareholders desire higher returns. Consequently, accusations of excessive, marginal, or moderate profitability leveled by consumers stem from these two distinct groups viewing the situation through their respective lenses. While consumers prioritize value and affordability, shareholders are primarily focused on maximizing their investment’s profitability.Striking the right balance between these competing interests is a constant challenge for businesses. Effective marketing strategies must carefully navigate this dynamic, delivering value to consumers while also ensuring the business remains financially viable and attractive to investors.

Ultimately, successful companies are those that can align these interests through innovative products, competitive pricing, and a compelling value proposition that resonates with both consumers and shareholders alike.Two major pricing strategies come into play – price skimming and price penetration. Price skimming involves setting high prices for a product or service, especially when facing little or no competition. Products and services with high brand equity often leverage this approach. It allows organizations to recover costs quickly. Price skimming is typically employed for new offerings in the market, though monopolistic players also take advantage of this strategy.We witnessed price skimming clearly when telecoms companies (GSM) entered the Nigerian market in 2001. MTN and Econet (now Airtel) sold SIM cards for N20,000 ($185 at the time) and charged N50 (46 cents) per minute for calls. The Mobile Network Operators (MNOs) claimed per-second billing was impossible, so even a 5-second call would be billed for a full minute.However, when Globacom launched its network in 2003, it disrupted the market by crashing SIM card prices to N500 ($4) and introducing per-second billing at 80k (0.6 cents) per second. This meant consumers only paid for the exact seconds they used during a call. Prices fell further when Etisalat (now 9mobile) entered, with calls currently costing 11k (0.009 cents) and SIM cards being virtually free. This exemplifies the power of competition to drive down costs for consumers.

The pricing strategy employed by Globacom and Etisalat is called price penetration. A new entrant penetrates the market with lower prices to rapidly gain market share, forcing existing players to lower their prices as well. This is the transformative impact competition can have on an industry for the benefit of consumers.In the airline scenario, Air Peace’s aggressive pricing appears to be a price penetration strategy aimed at quickly capturing market share on the London route.

The incumbent carriers, British Airways and Virgin Atlantic, then had to respond by reducing their fares to remain competitive. This dynamic illustrates how a new player can disrupt an industry through strategic pricing, ultimately benefiting consumers with more affordable options.The pricing battle between Virgin Atlantic, British Airways, and Air Peace on the London route is not an isolated phenomenon. We’ve witnessed similar scenarios unfold across multiple industries in Nigeria and beyond. In the telecommunications sector, the entry of new players like Globacom and Etisalat disrupted the market, forcing incumbents MTN and Econet (now Airtel) to reevaluate their pricing strategies.The milk industry experienced a shake-up in 1993 when Cowbell entered the market, and more recently, Arla Foods (Tolaram) disrupted the landscape with its Dano brand. The diaper and sanitary pad markets

have seen intense competition, with Molfix and Molped challenging established brands like Pampers and Always, followed by the entry of Kiss-Kid, Softcare, and Lebrace, further intensifying the rivalry.In the cola industry, Big Cola and Bigi-Cola’s arrival forced Coca-Cola to reduce the price of a bottle of Coke after three years of resistance, demonstrating the power of new entrants. Similar dynamics have played out in the noodles, beer, detergent, and toothpaste markets, with new competitors challenging incumbent players.The reality is that such competitive disruptions often lead to reduced profit margins for the involved organizations. Their ability to retain and grow market share hinges on their ingenuity and skillful execution of the marketing mix (the 7Ps: product, price, promotion, place, people, process, and physical evidence).Each organization must find ways to optimize its operations and reduce costs to offer competitive pricing to consumers. This is a challenge that Nigerian consumers have long desired to see in the cement industry, which requires substantial capital investment to establish new production facilities. Ultimately, whenever consumers perceive a product or service as overpriced, the solution often lies in fostering increased competition within that sector.

More players vying for market share typically drive down prices, benefiting consumers through greater affordability and choice.While an aggressive pricing strategy has given Air Peace a foothold in the lucrative Nigeria-London route, sustaining success requires a holistic approach that goes beyond just competitive fares. Price is undoubtedly a crucial factor, but it’s not the only determinant of consumer choice. If other complementary elements are not aligned, consumers may eventually revert to their preferred airlines.For Air Peace to truly cement its position, it must deliver exceptional service quality, with a keen focus on flight timeliness and punctuality. Augmenting the core offering with value-added services can further differentiate the Air Peace experience.

This could include elevated in-flight meal and beverage options, complimentary internet access for all passengers (a premium service on other airlines), and bundled packages encompassing hotel and car rental options.Furthermore, the human element cannot be overlooked. Air Peace’s customer service staff must consistently deliver warm, attentive, caring, and efficient service, as this frontline interaction often shapes the overall passenger experience. A satisfied customer is more likely to remain loyal, even in the face of price fluctuations. To truly distinguish itself from competitors and establish a lasting foothold, Air Peace should explore unique selling propositions beyond just pricing. This could involve leveraging technology for a seamless travel experience, implementing sustainability initiatives that resonate with environmentally conscious consumers, or offering exclusive loyalty programs and partnerships that elevate the overall value proposition.

By continuously innovating and delivering a superior end-to-end experience, Air Peace can transcend being a mere low-cost option and evolve into a preferred choice for discerning travelers on the Nigeria-London route. Striking the right balance between competitive pricing and a compelling overall offering will be key to capturing and retaining market share in this highly competitive market.

4 thoughts on “Air Peace, British Airways, Virgin Atlantic and the Price War”

  1. The ineteresting thing about flight unlike telecoms is that Airpeace does not have unlimited seats, when they are sold out, people who really want to fly will bo back to BA and Virgin.
    Just the way I read somewhere that they are sold out till September (unconfirmed), again what will be the sense in selling out till september when you can make more margins?.
    Another aspect that might not be obvious to “consumers” includes:
    1. When you miss your flight, how much will it cost to re-schedule another flight?
    2. How much does date change cost? these are other ways airlines can use to recoup or make more margin.
    I also think airpeace needs to align with a bigger group in terms of loyalty programs, some will not leave BA, virgin etc because of the miles/points that they have accummulated over the years, I know we are not very good at that generally in Nigeria, that is why it wont cost me anything to change bank accounts at anytime ot to port my mobile lines irrespective of how long I have used it.

    1. You have written very valid points. You have also highlighted areas Air Peace needs to look at. It is a game as well as a warfare. Let’s see how it will pan out.

  2. Abdulsalam Mohammed-Kabir

    As a pure science student and now a HR (social scientist) I only learnt this in my MBA classes but I can see it competition and marketing strategy(ies) play out in real life…. #HappyMoments.

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