CHAPTER:2

2.0. Theory of consumer behavior and satisfaction

Consumer wants and needs

Demand is the economic principle that describes a consumer’s desire, willingness and ability to

pay a price for a specific good or service. A firm in the market economy survives by producting

goods that are in demand by consumers. A need is a consumer’s desire for a product’s or services

specific benefit, where that be a functional or emotional. The emotional benefit tends to be a

stronger driver for consumers, as functional benefits can easily copied by competitors.

Customer decision process: There is a five step process that consumers can go through in

marking a purchase decision. These steps include:

Need recognition

Information search

Evaluation of alternative

Purchase

Post-purchase

The customer decision process begins with need identification. Whether we act to resolve

a particular problem depends upon two factors: the magnitude of the discrepancy between what

we have and what we need and the importance of the problem. This involves the concept of

consumer motivation, which is the internal drive consumers experience to fulfill conscious and

unconscious wants and needs. Once the problem is recognized, it must be defined in such a way

that the consumer can actually initiate the action that will bring about a relevant solution.

2.1: The Four Elements of The Marketing Mix

The marketing mix and the 4ps of marketing are often used as synonyms for each other. in

fact, they are not necessarily the same thing. “marketing mix” is a general phrase used to

describe the different kinds of choices organizations have to make in the whole process of

bringing a product or service to market. The 4ps is one way-probably the best-know way of

defining the marking mix.

Figure.6: The Four Elements of the Marketing Mix

T

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4

p

s

T

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e

4

p

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A good way to understand the 4ps is by the questions that you need to defines your

marketing mix. Here are some question that will help you understand and define each of

the four elements:

1.product:

The term “product” is defined as a anything either tangible or intangible, offered by the

firm: as a solution to the needs and wants of the consumer: something that is profitable or

Potentially profitable: and a goods or service that meets the requirements of the various

governing offices or society. The two most common ways that products can differentiate

are:

Consumer goods versus industrial goods and

Goods products (i.e durables and non-durables)versus service products

Intangible products are service-based, such as the tourism industry, the hotel industry and

the final industry. Tangible products are those that have an independent physical

existence. Typical example of mass-product,tangible object are automobile and the

disposable razor. A less obvious but ubiquitous mass produced service is a computer

operating system.

Product

Quality

Feature

Brand

Packaging

Size

Warranty

After sales

Distribution

Distribution channel

Distribution area

Point of sale

Warehouse

Means of the transport

Price

Tariff

Sale

Discount

Credit terms

Communication

Advertising

Sales force

Sale promotion

Public relation

Free advertising

Marketing

mix

2.Distribution types

Intensive distribution means the producer’s products are stocked in the majority of

outlets. This strategy is common for basic supplies, snack food, magazine and soft drink

beverages.

Selective distribution means that the producer relies on a few intermediaries to carry their

product. This strategy is commonly observed for more specialized goods that are carried

through specialist dealers, for example, brands of craft tools or large appliances.

Exclusive distribution mean that the producer selects only very few intermediaries.

exclusive distribution is often characterized by exclusive dealing where the-re-seller

carries only that producer’s products to the exclusion of all others. This strategy is typical

of luxury goods retailers such as Gucci.

The decision regarding how to distribution a product has, as its foundation, basic

economic concepts, such as utility. Utility represents the advantage or fulfillment

receives from consuming a good or service. Understanding the utility a consumer expects

to receives from consuming a good or service. Understanding the utility a consumer

expects to receive from product being offered can lead marketers to the correct

distribution strategy.

3.promotion:

The three basic objectives of promotion are:

To present product information to targeted consumers and business customers.

To increase demand among the target market

To differentiate a product and create a brand identity.

A marketer may use advertising, public relations, personal, direct marketing and sales

promotion to achieve these objective. A promotional plan can have a wide range of

objective, including: sales increases, news product acceptance, creation of brand equity,

posting, competitive retaliations, or creation of a corporate image.

4.price:

The price is the amount a customer pays for the product. The concept of value, which is

the perceived utility a customer will receive from a product. Adjusting the prince has

profound impact on the marketing strategy and depending on the price elasticity of the

product, often it will affect the demand and sales as well. The marker should set a price

that complements the other elements of the marketing mix. A well chosen price should

(a) ensure survival (b) increase profit (c) generate sales (d) gain market share and

establish an appropriate image.

2.2: Customer satisfaction

Whether the buyer is satisfied after a purchase depends on the offer’s performance in

relationship to the buyer’s expectation and whether the buyer interprets any deviations

between the two.7 In general, satisfaction is a person’s feeling of pleasure or disappointment

that result from comparing a product’s perceived performance to expectation. If the

performance falls short of expectations, the customer is dissatisfied. If performance matches

expectations, the customer is satisfied: if it exceeds expectations, the customers is highly

satisfied. 8 Customers has with the brand. Buyers from their expectation from past buying

experience: Friends’ and associates’ advice: and marketers’ and competitors’ information and

promises. If marketers raise expectations too high, the buyer is likely to be disappointed.

However, if the company sets expectation too low, it won’t attract enough buyers (although it

will satisfy those who do buy).10 some of day’s most successful companies are raising

expectation and delivering performance to match. Korean automaker Kia has been successful

in the U.S.A. market by offering low-priced, high-quality cars reliable enough to be backed

by 10 years warranties.

However, high customer satisfaction is not the ultimate goal. If the company increase

customer satisfaction by lowering its price or increasing its services, the result may be lower

profits. The company might be able to increase its profitability by mean other than in creased

satisfaction (for example, by improving manufacturing processes).also, the company has

many stakeholders, including employees, dealers, suppliers and stockholder. Spending more

to increase customer satisfaction might divert funds from increasing the satisfaction of other

“partner” Ultimately, the company must try to deliver a high level of customer satisfaction

subject to delivering acceptable levels of satisfaction to the other stakeholders, given its total

resources.

2.3: The Concept and Theory of Consumer Behavior

Consumer behavior is the study of how individual, group and organization select, buy, use

and dispose of good, service, ideas or experience to satisfy there are need and wants. Masters

must fully understand both the theory and reality of consumer behavior. A consumer’s buying

behavior is influenced by culture, social, personal factors, of these: culture factors exert the

broadest and deepest influence.

2.4:The Four Factors Influencing Consumer Behavior

Find out what are the factors influencing consumer behavior, how they work and how to

better understand them in order to better meet consumers’ expectations and improve your

marketing strategy. There are 4 main types of factors influencing consumer behavior: cultural

factor, social factors, personal factors and psychological factors.

Table 3: The 4 factors influencing consumer behavior

Culture Social Personal psychology

*Culture

*Subculture

*Social Class

*Group

*Family

*Status

*Age

*occupation

*Economic

*Lifestyle

*personal

*Motivation

*perception

*Learning

*Beliefs

Buyer

2.5:Capital Budgeting Strategy and Process

The airline business is one of the biggest capital intensive industries. The investment in

new aircrafts, either by purchase or lease, maintenance of aircrafts, sophisticated technology

systems for ticketing and airline schedules that need to be linked with those of business partners,

and other related operation systems such as ground service and in-flight service including bus

shuttles services is exorbitantly expensive. It is generally known that nothing is cheap in the

airline business. Moreover, the business is very sensitive to the situation of the economy and

politics because a negative situation in both factors can lead to a sharp drop in business

passengers and tourists. Worse is that the more freedom in the flying business with the

permission of many national governments to let private firms do air transport, both in cargo and

passenger sector. This leads to a larger number of competitors in the market, especially low cost

airliners. Therefore, airlines have to rely on a good capital budgeting process in guiding and

helping management make decisions over capital investment.

In the middle of several gloomy variables at present such as a shaky world economy,

terrorism, epidemics outbreak, energy crisis, environmental concerns, and intensity of

competition, the airlines must develop the capital budgeting process and economic evaluation

tools to assist in deciding capital investments in order to choose the option that is best fitted to

the firm, besides a good process can help ensure the sponsor of the project till the funding and

ensure the control and monitoring of the project till its completion is as planned and scheduled.

For Bangkok Airways, the situation should be tougher because the firm not only does the airline

business but also the airport business that it also needs to consider well as a big capital

investment.

2.6: Strategy of The Bangkok Airway

Bangkok Airways has been applying the “underdog strategy” to the “niche strategy” in

order to compete with Thai Airways, a national carrier. The company is well aware of their

position which cannot have a head-on collision as a strategy. The company has been updating

their market position, performance and competitive advantages. The company is continuously

trying to find the best place for themselves, that is a niche market, in which big national carriers

are not interested due to no or low value for money, while low cost airliners ignore it due to it

not being their target market. The firm differentiates itself through being the first boutique

airliner in Asia. The firm gives the description of boutique as a small business with special or

specialized products. Bangkok Airways has offered discernible services with new airport

lounges, servingfood in the flight, and new planes. The company has a strong determination to

make their passengers feel at ease on board as they are at home under the concept of “be at home

in the sky”.

To distinguish itself, the firm started revamping the whole business direction through

development of four significant factors:

Destination: the company must locate destinations as really unique, but tourist attractive, like

Samui Island, Hiroshima, Nagoya, Luang Prabang, Sukhothai, Chang Island and the Maldives.

These destinations are top for tourists who have a high ability to pay; however, these routes are

comparatively small for big national carriers like Thai Airways, whose main target business is

for any destination that can fill their seats. It is impossible due to the fact that big national

carriers always provide services through huge airplanes accommodating several hundreds of

passengers per flight. In contrast with other competitors, low cost airliners cannot serve because

of the fact that their target customers are not “high paying” customers. Thus, the firm can nestle

in a niche of the aviation business.

Airline image: the company definitely alters the image of their fleet of airlines with colourful

painting on the body of airplanes so that any customer can differentiate well at a glimpse of the

airplane.

Airport: the company has to find opportunities to have more their own airports in “tourist

attraction” destinations or else to have a management contract to manage airports in the target

destination. The capacity to own and manage the airports can enable the company to avoid fierce

competition and to sustain a competitive edge. Above all, the company has just constructed a

new airport terminal building costing Baht 250 million at Samui airport which can house 300

passengers at a time or four flights a time. This scheme has been for upgrading Samui airport to

be their own aviation centre to directly connect to other attractive destinations. The old building

will be further used as a recreation area and an area for their staff.

Airport services: Bangkok Airways owns airport lounges for all passengers. Besides, the

company has kept upgrading lounge services and serving a wider variety of food and drink.

Above all, the company can get the concession from the Government to run, operate and manage

cargo services in the duty-free zone operation and catering service at Suwannabhumi airport. The

concession can better strengthen the image and credibility of the company and can provide the

company with more opportunities to develop and upgrade their service operations to fulfil

customers’ need and expectations.

Currently, the company has 13 airplanes with one “70 seats” ATR 72-200, eight “70 seats” ATR

72-500, both of them were made in France, four of “125 seats” Boeing 717-200 twinjet in which

Bangkok Airways is the first airliner in Asia to use this type of Boeing and two “162 seats”

Airbus A320-232.

2.7:Background of the Bangkok Airway

The story of the firm started in 1967 when the owner-manager, Dr. Prasert Prasarttong-

Osoth, set up Bangkok Aviation Company during the Vietnam War. He founded the company

because he had great passion for airplane and for being a pilot. This was due to his love and the

motivation from seeing very often military aircraft flew back and forth at a military airport

during the war where US Air Forces used airports in Thailand as their operation base. He felt

inspired to have his own business involved in airplane in which eventually he decided to have the

airline business. In the beginning, he started with a 10-seater aircraft providing charter services

to American military, but the American military retreated from the war after 15 months. He then

registered the airplane for general charter services.

In the years 1984-1985, the then Minister of Transport launched the first private flight table for

other private airlines; Bangkok Airways began flights to Suratthani province. But the service did

not last long because the state-owned Thai Airways also flew to this city. Bangkok Airways had

to stop because the law set by the Department of Aviation Air Transport stated that "If any state

airline needs to have flight paths, private airlines flying routes cannot fly there”. This forced

Bangkok Airways to serve NakhonSiThammarat, a neighboring province of Suratthani.

After commencing the commercial aviation services, the owner-manager was uncertain

about any route as it could be cancelled if Thai Airways flew the same route. Later, he thought to

build an airport himself. The start of his own airport was at Pattaya, but in a short time Thai

Airways flew into U-Tapoa which is very close to Pattaya. Again, Bangkok Airways stopped

flying there.

The turning point for the firm was when Dr. Prasert Prasarttong-Osoth purchased land to

build the airport and not rent one. This airline is the only airline in the world that decided to build

an airport. It was at Samui Island of Suratthani. At that time, people had to travel to the island by

boat. A good area to build the airport comprised two locations: 1) The crust area in front of the

city where there was a rice field. 2) The chosen airport area located near the sea. Initially, no

bank provided lending for building the airport. The owner-manager had to finance it by himself

until in the following two years the airport construction was finished and open for aircraft to fly

there successfully during the tenure of Gen. Chatichai Choonhavan as Prime Minister.

Dr. Prasert Prasarttong-Osoth is quoted to say that "over 40 years in the business, he had to

struggle for a long time because he had always been thwarted. … the business must be

competitive if we do not then who will do ". According to the owner-manager, so far Bangkok

Airways has three own airports: Samui Airport, Sukhothai Airport, and Trat Airport. However,

the most successful in terms of business expansion and money-earning is Samui airport. Samui

has an annual growth rate of more than 25% at a minimum and will grow by 50% soon. The

number of tourists travelling to Samui each year is about 700,000 persons (70% of domestic

passengers). 55% of them will travel by air and another 45% by ferry. 90% of international

tourists use aircraft. The owner-manager has as the main goal for Samui Airport to be a hub for

Indochina culture that is similar in many countries of Europe where people can use a single visa

to enter multiple countries. Here, there is "one visa 5 destinations" or called "Mae Khong Visa".

For example people can fly from Samui to Bangkok, Phuket, Krabi, Hua Hin, and Pattaya and

then can fly to Sukhothai to Hue in Vietnam, Myanmar, Vientiane, Laos and New North City,

Angkor Wat in Cambodia as well. In addition, Bangkok Airways has direct routes from Samui to

Bali, Singapore, Hong Kong, Shanghai and Dubai; moreover, in the future it will open routes to

India and Korea.

The overall potential of Bangkok Airways can be regarded successful after 40 years in the

business. From the start of the business, the company began the first flight with only one jet

aircraft. Now there are 20 aircrafts available to serve passengers. The fleet of aircrafts has the

average life of 2 years; the oldest is 7-8 years. In 2015, the company has plans to take delivery of

30 aircrafts in preparation for inter-regional long flights to several destinations in Europe.

Moreover, Bangkok Airways were successful in getting the concession for their subsidiaries to

run and operate the air cargo services and the catering services at Suwannabhumi airport.

So far, there are four lucrative businesses for Bangkok Airways’ group: airline, airport, catering,

and cargo. This is complementary because they are inter-related businesses in which the firm has

its own airports and airline and they have to operate catering and cargo, as well. Therefore, it is

better to utilize their knowledge and experience to earn more moneyThe success of the firm is

testified by the several awards that it won:

2004 : Skytrax Airline Excellence Award 2004 for "Best Regional Airline - Asia".

2005 : Skytrax Airline Excellence Award 2005 for "Best Regional Airline - Asia".

2005 : Voted #1 "Favorite Small Airline" in the three-month 2005 Favorite Airlines

online poll by Smart Travel Asia.

2006 : Skytrax Airline Excellence Award 2006 for "All-Round Service Excellence for a

Regional Airline".

2006 : Skytrax World Airline Award 2006 for "Best Regional Airline - S.E. Asia".

2006 : Hong Kong Airport Authority Award for Best New Airline 2005/2006.

2006 : Centre for Asia Pacific Aviation Award for Excellence - Regional Airline of the

year.

2006 : Selling Long Haul Magazine; Travel Award 2006 "Best Regional Airline".

2007 : Skytrax World Airline Award 2006 for "Best Regional Airline - S.E. Asia".

2007 : Skytrax World Airline Award 2006 for "Best Regional Airline - Asia".

2008 : Bangkok Airways wins Asia’s Best Regional Airline 2008.

2.8: The Background of The Owner-Manager of Bangkok Airway

Dr.Prasert Prasarttong-Osoth, the owner-manager, was born to the “Chang-bunchoo”

family whose fame is their skill at medication. His uncle –that is, the younger brother of Dr.

Prasert’s father, for long time, taught and educated him about medication and medicines. Later,

his father, Mr. Thongchu Chang-bunchoo, changed the family name to “Prasarttong-Osoth”

meaning “the golden castle for medicine”. At the same time, his father established a factory for

producing and distributing basic balm and other basic herbal medicines. These products are still

known in Thailand. Family members are not very different from their roots. That is all of them

having graduated in the field of medicine, pharmacy, or science. The often-mentioned names in

the society are Dr. Prasert, Prapai, his yonger sister, the former mentor of Miss Thailand, and

Prasopsuk, his younger brother, the former editor-in-chief of a political magazine. Dr. Prasert

graduated from Siriraj Medical School as a surgeon. He is a rare surgeon with the confidence to

do the best work. Surgery in one case was on a military pilot that every doctor concluded would

"not survive," but Dr. Prasert proceeded until he showed some signs of life. However, Dr. Prasert

never had an idea to set up his own clinic. He thought this could destroy the ethic of a doctor

who should open a clinic only to help people rather than make money. He decided to quit the

medical profession after five years.

Dr. Prasert’s first business was in construction in a joint venture with his colleagues. The

name of the firm was Bangkok Sahakol. During that time the American military influenced the

region including Thailand. Bangkok Sahakol could get a number of construction jobs from

American military whereby Dr. Prasert and a group of his friends showed the ability to acquire

several construction jobs. The most outstanding job was the construction of U-Tapoa airport. Dr.

Prasert had good business acumen and good business references so as to be able to undertake

many construction projects. After the initial success, his group expanded into other related

businesses such as cargo and energy. Later, his colleagues went their own way. Mr. Sudharm

went back to do his family business – shipping business, Mr. Surat went back to do his own

engineering business - United Machinery Engineering Limited., and Dr. Prasert was determined

to conduct further air transport operations and energy businesses. According to Dr. Prasert, each

one carries on his own dream that he has from the childhood. He dreamt of being a pilot so that

he had to carry on with the job because it was close to his dream. However, according to one

source, the diversity of his businesses comes from the high confidence of Dr. Prasert; he might

have got this characteristic from the medical profession as it requires great self confidence.

Although he likes to retain decision making to self, it is generally accepted by his peers and

subordinates that he is very generous. He was always determined to go forward without further

help from his closed aides; he was very successful at air transport and warehousing in which he

had a warehouse for rental service to keep machinery and equipment.

Later, Dr. Prasert’s airport transport business was upgraded to a company and is now

Bangkok Airways. Previously, private firms in the aviation business could only charter aircraft.

The flying of passengers was reserved for the state or national airlines only. In 1985, the

government opened up the market to allow private enterprise to conduct passenger air services.

Bangkok Airways was one of the four firms to get a concession. It appears that all of them were

disqualified because the government needed firms, which had got the concession, to be a public

company. But, all of them wanted to remain private to have full ownership and control. Dr.

Prasert was very upset about this policy. However, later everyone was surprised that the

government gave the concession to Bangkok Airways. After that, one of his connections in

Nakornratchasima asked Dr.Prasert to have a route to that city. Although he has several adverse

experiences in flying routes that were later stopped to make way to Thai Airways, Dr. Prasert

agreed to have a route to Nakornratchasima. In the beginning, the business looked good. Not

long after that, a problem arose because of the aircraft was rented from an Australian company.

The problem kept growing that Bangkok Airways had to stop flights to Nakornratchasima.

According to an analysis from the aviation community, the problem resulted from the following:

Spare parts for aircraft were not available in Thailand. When getting then repaired in

Australia, it took a long time to finish the work with high costs of maintenance.

2. Once the problem arose, the contract to hire-purchase more aircrafts was delayed

because the owner-manager needed to revise the contract and asked for a discount to

which the Australian firm does not agree.

3. The Australian firm might also have heard the news that Bangkok Airways was

changing the aircraft it used to those of a Swedish company. When knowing fully about

it, the Australian firm decided to call back its aircraft.

This forced Bangkok Airways to stop operations so the firm lost credibility with the ticket

selling agent, Nakornratchasima Airport and customers. Later, the owner-manager solved the

problem by renting the aircraft from local people; however, the firm could not meet the customer

demand, especially as several customers cancelled flights until the sales agent decided to stop

doing the business with Bangkok Airways. Dr. Prasert’s problems got compounded as many

professionals were resigning from the firm. Being a fighter, he put his own fortune into the firm

to get the firm on the right track while stopping the energy business. The plan was to have own

airport, top tourist attraction destinations and a new fleet of aircraft. It is not difficult to get new

aircraft if one has funds and also the airport if one has funds to do construction. The most

difficult is how to get the concessions for both airports and money-earning routes. Owing to his

strength in business acumen, negotiation skill and good connection network, Dr. Prasert enabled

his firm to get the concession to operate and manage the Samui airport together with the right to

fly between Samui Island and Bangkok. This was the first stepping stone for Bangkok Airways

to take root in the aviation business in Thailand. It is the first private airline to be able to have its

own airport and have the right to fly between Bangkok and Samui Island one of the biggest

tourist destinations, especially international tourists in Thailand.

Dr. Prasert’s success is not based only on his good connection network but also his

capability, fighting spirit and the dedication and his willingness to sacrifice everything, through

the rise and fall of the business cycle and situation. Now Bangkok Airlines is stable and in a

niche market while the national carrier - Thai Airways - needs to have a plan to steer the firm

through difficulties according to recent business news. The business acumen of Dr. Prasert was

his decision to select the size of an airport in the beginning as too small for the aircraft of Thai

Airways, the decision to have his own airport and select the first airport on Samui island, the

decision to make Bangkok Airlines a boutique one instead of a low cost one in which the firm

can avoid price war, whereby the small fish cannot win over the big fish. Also, there was vision

to provide excellent services to the passengers as compared to the poor or inadequate services of

Thai Airways. Bangkok Airways provided excellent airport lounges to all passengers that are

only available to the business and first class passengers of Thai Airways. Thai Airways do not

provide hot meals in all flights while Bangkok Airways does and seating space of Bangkok

Airways is more spacious. The dedication and fighting spirit of Dr. Prasert and the power of his

character makes him a true professional entrepreneur.

2.9:Organization Structure of Bangkok Airway

Bangkok Airways has a functional organization structure. The functional departments work

under the guidance and policy supervision of the Board of Directors and the President and CEO.

The company has eleven departments as shown Following Figure.Board of Director, President &

CEO,Operations,Catering,Technical,Airport,Administration,Finance,Corporate,Communication,

Marketing,Sales,Information Systems,Human Resources .

Figure 7: Bangkok Airways’ Organization Structure

Board of

Director

President of CEO

Oper

atin

Cate

ring

Tech

nical

Airp

ort

Ad

min

istr

aio

n

Fina

nce

Corpo

rate

Com

munic

aton

Mark

eting

Sales

Infor

matio

n

Syste

m

HR

Operations Department is responsible for ground service operations, ground operations, and

flight operations including the flight operations training center, flight operations, operations

administration, flight operations control, and in-flight service.

Technical Department is responsible for heavy maintenance, line maintenance, technical

planning, engineering, logistics, technical training, power plant, technical finance and

administration, and technical quality.

Airport Department is responsible for airport development, Samui airport, Sukhotai airport, and

Trat airport.

Administration Department is responsible for legal affairs & contracts, government relations,

insurance & privilege, administration services, materials procurement, business development,

architecture design, foreign affair, and ISO.

Finance Department is responsible for budget, accounting, corporate finance and treasury.

Corporate Communications Department is responsible for creative, media relations, advertising,

corporate affair, and corporate events.

Marketing Department is responsible for marketing and customer relations, marketing &

distribution, and marketing strategy.

Sales Department is responsible for sales promotion, sales Thailand, sales oversea, cargo, and

charter flight.

Catering Services Department is responsible for catering services, production, maintenance,

accounting & administration, and quality control.

Information Systems Department is responsible for system infrastructure, user relations, system

analysis, new technology, and business partner.

Human Resources Department is responsible for personnel, welfare, and training.Besides the

above-mentioned departments, there are three more departments reporting directly to the

President and CEO: office of the president, internal audit, and flight safety.

2.10:Strategic Capital Investments in Future of Bangkok Airway

Airport Construction

The company has plans to build and operate more of their own airports overseas, not in

Thailand for the time being. In Thailand, the company needs to build up to one or two more

passenger terminals at Samui airport. Currently, Samui airport has 9,000 flights a year and is

visited by 1.3 million passengers p.a. Another one is Trat airport. Now there is only temporary

passenger terminal, but the firm is expected to build a permanent one by 2009-2010.

New Aircraft

Bangkok Airways’ aircraft has a plan to invest over Baht 17,000 million to add more new

aircraft. According to the plan, the company will purchase six units A350-800 which costs

approximately $ 85 million each. Two units are expected to be in operation in 2012, two more in

2013 and the last two units in 2013. This model of the airplane can accommodate over 200

passengers. The company expects to have more passengers due to the forecast of The

International Air Transport association (IATA) stating that growth of air passengers will be at

8% p.a. and Asian routes will have the biggest market share by 28%.

New Business Development

Bangkok Airways’ established two more affiliated companies: Bangkok Flight Services

Ltd. which has been granted outsourcing services regarding international cargo services in the

duty-free zone of Suwannabhumi airport, and Bangkok Catering Ltd. which has been granted

provision of catering services to international airliners at Suwannabhumi airport. Bangkok

Airways has to earmark funds for future business expansion or further undertake jobs overseas.

For Suwannabhumi airport, another concession the company plans to undertake is as a service

provider for the “check-in” counter. In the airport-services business, the company has

anoperating and management license for 20 years, in which the company expects to invest for the

first two years and reap revenues from the third year onward.

Boutique Hotel

The company plans to build up four or five boutique hotels at destinations having direct

flights of Bangkok Airways, approximately seven flights a week. Hotels have to be constructed

and designed for niche tourists in response to being the unique destination. The first place will

happen at Samui airport, where the company expects to develop shopping centers together with

boutique hotels in close proximity to the airport.

2.11:Control and Performance System of Bangkok Airway

Due to the fact that Bangkok Airways is a family-owned business and still non listed, and

the owner-manager, who is also the founder of the company, has still been steering, managing

and controlling the firm, the behavioral aspects reflect the uniqueness of the family business. The

capital comes from the owner, who runs the firm and centralizes the decision making. The

ownership and management control will be transferred from one generation to another generation

of family members; all gestures of the family members can be translated into “yes” or “no”, and

the owner-manager is representative of the whole firm both formally and informally. The owner-

manager’s decisions traditionally include long-term strategy, strategic direction, goals,

objectives, capital investment, resource allocation, financing decisions, new business ventures,

and performance evaluation.

At Bangkok Airways, the owner-manager is the founder while the other co-founders have

already gone. He built the company from scratch until it was successful. This is due to his

outstanding and unyielding character, his sacrifice and his many personal connections. All

current key executives are second generation which makes them strongly believe in the owner-

manager’s ideas and instructions. They have good discipline because when they joined the

company they could see the leadership of the owner-manager. According to the Assistant Vice

President of Finance of the firm, all of key executives know well that all capital investment ideas

belong to the owner-manager; they diligently do their job to support investment projects until

they can be fully implemented. They have no doubt about who generates the ideas.

The owner-manager likes to think and develop new things for the company. When he sees

business opportunity, he will discuss with his executives to carry on or to gather information to

make a presentation. In this case, it is possible that he might assign a particular job to an

executive not directly in charge. This can be interpreted that he really knows well the capacity

and skill of each individual executive, or he knows about the work load of each executive, or he

want to test the capability of each one, or it is just by default that normally can happen to anyone

especially the owner-manager who has to bear all responsibilities. The conflict in competition for

resource allocation is rare because the owner-manager is the only one who really manages and

controls the capital budgeting. For key executives, the owner-manager will do the evaluation and

make any decision about salary adjustment and bonus pay. For others, there is a performance

evaluation system operated and managed by the Human Resource department. The Owner-

manager has one son in charge of operations, responsible for all operations in ground services

and flight operations. His son is clearly designated as the successor.

The owner-manager has realized well that the firm has to grow permanently through the

teamwork and not from the particular capability of any individual. Therefore, he has been

instrumental in developing and installing many management systems as the backbone of the

company and to help the management make good decisions. The systems are, for example, the

capital requisition process, the E-ticketing system, the automat routing management system, the

performance evaluation system, etc.

2.12: Strategic Thinking and Planning

Bangkok Airways Co., Ltd. is a family-owned firm in Thailand, and it has been running

under the leadership of Dr. Prasert Prasarttong-Osoth. He owns and manages the biggest group

of hospitals in Thailand, Bangkok Hospital, Samitivej Hospital and BNH other than Bangkok

Airways. His leadership, connection network and charisma have led to the success of Bangkok

Airways; also to the unity and strong commitment among employees at all levels to bring about a

high work quality and development to Bangkok Airways, as we can see now. The owner-

manager has a tight control of the firm from strategic planning down the line to normal business

operations. The owner-manager is only the one who thinks what the company should do, where

the destinations should be, what type of airplanes the company should rent or buy, what the

airports should look like, and then he assigns the tasks to lower-level executives to further

develop and make his plans come true. The owner-manager influences other managers’ mindsets,

motives, values, goals, and attitudes that are central to the organization. Similarly, he has been

shaping the family firm's strategic behavior and its interaction with the external environment.

However, a few years ago, the firm reached a turning point from more intense competition,

high fuel prices, and faster changes in the external environment. The owner-manager let the

Board of Directors help him more in formulating strategic direction; moreover, the executive

committee and the latest one, an investment committee, has also been established to have more

involvement of executives in critical management decisions. Although until recently almost all

members of the Board were passive, it was good enough to make the first step in engaging more

people in the decision making process. Everyone strongly believes in the future of the company,

and that it can have definite bottom-up approach and participative management decision making.

Then, more delegation can be made to lower level management. However, the owner-manager

still has meetings with department-heads level for discussion and recommendation about the

strategic direction. This is deemed informal because there is no pre-determined schedule or the

written procedure.

2.13:Strategic Business Plan

The company has prepared a 7-year Business Plan which has the following features:

Locating more new destinations : new tourist cities under the route expansion plan are

Mandalay, Myeik, Rangoon, Da Nang, Sihanoukville, Dubai, Shanghai, Nagoya, Osaka,

Hiroshima, and Fukuoka. (Four cities in Japan have already had flights of Bangkok

Airways in 2008.)

2. Increasing the number of passengers : the company plans to attract more passengers

from upgrading its existing own airports to accommodate more people, securing

management contracts to operate and manage new airports in Vietnam and Southern

China, having their own boutique hotels to attract customers, to prolong their stay and

possibly take more connecting flights.

3. Increasing the number of airplanes : the company plans to add more new planes to

their own fleet to serve long flight destinations and to develop an economy class on the

plane.

4. Securing more “airport management” contracts : the company now is licensed to

operate and manage U-Tapao airport. They plan to secure more over Myeik in Myanmar,

Koh Kong in Cambodia and another one in Southern China soon.

5. Securing “management services” in Suwannabhumi : the company in 2008 could get

the license to operate and manage cargo services in the duty-free zone and catering

services. It intends to continue doing so.

6. Annual growth in term of gross revenue will be at 25% p.a. and market share will be

at 20 – 25% (total market share of travelling and cargo services belong 50% to Thai

International Airways Plc., the rest is for Bangkok Airways and other airliners)

7. Bigger size : Bangkok Airways Ltd. has the determination to be bigger than the

national carrier in the region in terms of number of destinations. (Chairman of the firm

spoken in this direction with any elaboration of details).

2.14:Capital Budgeting Strategy and Process of Bangkok Airway

The airline business is one of the biggest capital intensive industries. The investment in new

aircrafts, either by purchase or lease, maintenance of aircrafts, sophisticated technology systems

for ticketing and airline schedules that need to be linked with those of business partners, and

other related operation systems such as ground service and in-flight service including bus

shuttles services is exorbitantly expensive. It is generally known that nothing is cheap in the

airline business. Moreover, the business is very sensitive to the situation of the economy and

politics because a negative situation in both factors can lead to a sharp drop in business

passengers and tourists. Worse is that the more freedom in the flying business withthe

permission of many national governments to let private firms do air transport, both in cargo and

passenger sector. This leads to a larger number of competitors in the market, especially low cost

airliners. Therefore, airlines have to rely on a good capital budgeting process in guiding and

helping management make decisions over capital investment.

In the middle of several gloomy variables at present such as a shaky world economy, terrorism,

epidemics outbreak, energy crisis, environmental concerns, and intensity of competition, the

airlines must develop the capital budgeting process and economic evaluation tools to assist in

deciding capital investments in order to choose the option that is best fitted to the firm, besides a

good process can help ensure the sponsor of the project till the funding and ensure the control

and monitoring of the project till its completion is as planned and scheduled. For Bangkok

Airways, the situation should be tougher because the firm not only does the airline business but

also the airport business that it also needs to consider well as a big capital investment.

2.15:Major Capital Investments in the Past

Bangkok Airways, in the past, has made following significant capital investments.

Airports: In order to assist in developing modern transportation hubs to accommodate Thailand’s

ever-growing economy and increasing air traffic volume, Bangkok Airways has opted to build its

own airports. The airline currently maintains one international airport, and two domestic airports.

Samui Airport: Bangkok Airways built its first airport at Samui island, a major resort island in

the Gulf of Thailand. Samui airport, located at the northern part of the island began construction

in 1982 and officially commenced operations on April 25, 1989. The airstrip is 2,100 meters

long; while the main facility is outfitted with the highest safety-standard equipments, modern

communications, and open-air passenger terminals. Its architecture was built to blend naturally

with the island’s surrounding flora and fauna. On September 25, 1997, Samui airport was

upgraded into a customs airport. The resulting enhancements comprise immigration facilities,

customs services, new passenger terminals, and additional direct flight routes into Samui.

Sukhothai Airport: Bangkok Airways’ second airport at Sukhothai, located in the Sawankhalok

district, began construction in 1992 and was officially opened to serve its first flight on April 12,

1996. Built over a 480 acres area, the facility comprises a 2,100 meters long runway and is

operated in accordance with the Civil Aviation Department of Thailand’s safety standards.

Bangkok Airways uses Sukhothai Airport as a domestic base hub to link air transportation

between other Indochinese countries. Its goal is to promote tourism in both northern region of

Thailand and the culturally rich destinations along the Mekong region.

Trat Airport: The third and latest airport built by Bangkok Airways, Trat Airport, puts the

eastern-most coastal province of Thailand on the aviation map. Built in 2002, it later commenced

operations on March 31, 2003. Trat Airport’s first service was mainly to serve as a hub for the

flight route to – and from Bangkok, thus reducing the conventional road trip from 45 hours to a

mere 45 minutes. The airport is located on a plot of 480 acres and its runway is 1,800 meters

long.

Trat Airport’s aim is to improve business links with the eastern provinces of Thailand and

neighbouring Chantaburi province. It also acts as a hub to the popular resort island of Koh Chang

and its neighbouring islands. With its unspoiled beaches and a plethora of Thai delicacies to be

found, Trat airport aims to release the provinces’ tremendous tourism potential.

2.16:Ground Operations Development

For over 36 years, Bangkok Airways has constantly strived to find new methods to

efficiently run its operations while ensuring the highest safety standards in both ground and flight

controls. By continually updating its systems to stay up-to-date with the latest modern advances,

Bangkok Airways provides its passengers with an added level of convenience and the comfort of

modern-day travel.

Air traffic Control

Bangkok Airways has a vested interest in Aerothai, a company with a long track record in

the aviation industry, to manage air traffic control at Samui, Sukhothai, and Trat Airports. Its

objective is the provision of safe, expeditious, and orderly flow of air traffic. Aerothai’s air

traffic control covers a radius of 35 nautical miles and up to an altitude of 11,000 feet from each

airport. The Meteorology Department also installed its high-tech weather equipment at all

airports to give Bangkok Airways up-to-date weather information.

Reservations Systems

Bangkok Airways has linked up with the world’s top computerized reservations systems:

Amadeus, Worldspan, Axess, Galileo, Abacus, Infini, and Sabre. This gives the airline direct

access to more than 100,000 travel agencies in every major destination worldwide; therefore,

passengers instantly book their seats on Bangkok Airways through those travel agents. In

addition, Bangkok Airways has Interline traffic Agreement with international airlines such as All

Nippon Airways, British Airways, Cathay Pacific, Czech Airlines, Thai Airways International

and Swissair. Passengers can make Bangkok Airways’ flight reservations and purchase tickets

through those airlines.

Bangkok Airways has also signed an agreement with Sabre to upgrade its information

systems. The airline implemented these new reservations and departure control systems, which

included the Sabre Passenger Reservation System, Sabre ACSI airport check-in system, Sabre

Steady State Weight and Balance System, and a suit of Sabre QIK products for the airline’s

operations. The saber Airline Solutions offers instant access to market leading reservations and

departure control, thus enhancing flight capacity and functionality.

E-Ticketing System

Bangkok Airways is “E-Ticket Ready” for both domestic and international flight routes.

Authorized travel agents in Thailand are also able to issue e-tickets for Bangkok Airways’

flights, thus bringing a fast and convenient travel experience for passengers no matter where they

book.

Mobile Check-In

Bangkok Airways is the first and the only airline utilizing the “Mobile Check-In” service

since late 2002. The service is readily available in Bangkok and Phuket. Its mobility is controlled

via a wireless system while using batteries to power functions.

Asia’s Boutique Airline

Bangkok Airways’ facelift aims to strengthen the company’s goals and to define the

pillars of its brand. The resulting outcome is to position Bangkok Airways as a credible and

trustworthy airline, while maintaining a modern and trendy boutique-like character. A boutique

normally refers to a small specialized business; often catering to niche markets. Applying this

philosophy, Bangkok Airways’ positioning as a “boutique airline” aims to offer the best

personalized service to passengers and to develop more exotic and cultural destinations. The full

service in all categories is boutique lounges, boutique airports, appetizing menus, new aircraft

and a friendly exclusive service to its passengers.

The goal of Bangkok Airways is to be the best regional airline in Asia by providing

exclusive services to all passengers. Bangkok Airways’ boutique lounges, therefore, allows all of

its passengers to relax in style and comfortably while waiting to board flights.

New Aircraft

All Bangkok Airways’ aircraft models are modern and brand new; each aircraft’s service

time never exceeds five years before they are returned and replaced with a brand new one.

Moreover, Bangkok Airways’ aircraft are also decorated with colourful liveries of the various

exotic and cultural destinations, thus adding to the airline’s trendy and boutique feel.