International Marketing Plan

Guilherme Vieira Dumit INB 337 – Dr. Fetscherin

Rollins College – April 27th, 2016

Table of Contents

1 Company Analysis..................................................................................................................... 71.1 The Company..................................................................................................................................... 7

1.1.1 The Brand Image.........................................................................................................................................71.1.2 Missions and Values...................................................................................................................................71.1.3 Corporate Social Responsibility (CSR)...............................................................................................7

1.2 Organizational Structure................................................................................................................ 81.2.1 Internal Analysis..........................................................................................................................................81.2.2 Financial Information................................................................................................................................91.2.3 International Involvement........................................................................................................................9

1.3 SWOT Analysis............................................................................................................................... 101.4 Service Profile................................................................................................................................. 111.5 Industry Analysis............................................................................................................................ 11

1.5.1 Airline Industry in Brazil.......................................................................................................................121.5.2 Porter’s 5 Forces......................................................................................................................................12

1.6 Conclusions and Recommendations...........................................................................................14

2 Global Market Search............................................................................................................ 152.1 Country Selection........................................................................................................................... 15

2.1.1 Pre-Selection..............................................................................................................................................152.1.2 Criteria Selection......................................................................................................................................15

2.1.3 Country Comparison............................................................................................................. 19

3 Market Analysis....................................................................................................................... 203.1 Pest Analysis.................................................................................................................................... 20

3.1.1 United Kingdom........................................................................................................................................203.1.2 Germany......................................................................................................................................................213.1.3 Canada.........................................................................................................................................................22

3.2 Cultural Distance............................................................................................................................ 243.3 Competitive Analysis..................................................................................................................... 253.4 Country Comparison with Secondary Variables....................................................................25

3.4.1 Criteria Selection......................................................................................................................................253.4.2 Country Side-by-Side Assessment.......................................................................................................27

3.5 Country Selection........................................................................................................................... 29

4 Market Entry........................................................................................................................... 294.1 United Kingdom Air Traveling Market....................................................................................294.2 Competition Overview.................................................................................................................. 30

4.2.1 British Airways..........................................................................................................................................304.2.2 EasyJet......................................................................................................................................................... 304.2.3 Virgin Atlantic Airways..........................................................................................................................30

4.3 Competitors Comparison............................................................................................................. 314.3.1 Herfindahl–Hirschman Index (HHI) by seat-kilometers used...................................................31

4.4 Hofstede Analysis Brazil and United Kingdom.......................................................................324.5 Market Entry Mode....................................................................................................................... 334.6 Marketing Mix................................................................................................................................ 34

4.6.1 Pricing..........................................................................................................................................................344.6.2 Product.........................................................................................................................................................354.6.3 Promotion....................................................................................................................................................364.6.4 Placement....................................................................................................................................................36

4.7 Conclusion........................................................................................................................................ 37References.................................................................................................................................................. 38

Executive Summary

This marketing plan has been developed for Azul Airlines, an airline carrier who is proud of their quality at the same time that they can provide low-cost to their Brazilian customers. As of May 2016, Azul currently operates in a few countries in South America and is looking to expand, majorly through acquisition or FDI, as they recently did with TAP Portugal. Throughout this marketing plan, a study of some international industries and analysis (such as PEST) for new countries in order to determine the best region or country of which Azul should target. The increase in consumer air travel has been substantial in many countries these modern days, showing the preference for faster transportation, but also considering low-prices. Although some countries see air travel as something expensive and not useful for shorter distances, one can be sure of the quality of Azul on-flight experience. The airline industry is certainly one of the most technologically developed in the modern world and presents everyday a more existent preference for this vehicle. As based on the research made for this plan, the best country for Azul to enter in is United Kingdom. The key factors in choosing this country are population, consumer expenditure on air travel per person, GDP per capita, ease of doing business, culture distance, international tourist arrivals, and foreign direct investment inflow. The main competitors based on market share in the United Kingdom market are British Airways, EasyJet, and Thomson Airways. Due to the strength and knowledge of its competitors, Azul has to be careful during the entering process and slightly adapt the components of marketing mix. The entry mode that is the most recommended is FDI, as we look at the example used in Portugal. In the future, Azul is very likely to keep expanding internationally, as it is now considered Brazil’s flag carrier and has had great rates of approval throughout its 8 years of story.

1 Company Analysis

1.1 The Company

1.1.1 The Brand Image

David Neeleman moved to the US after being born in São Paulo only five years before. After graduating from the University of Utah, Neeleman would become an avid entrepreneur, with the crucial participation and foundation of companies like Morris Air and JetBlue. In March of 2008, David Neeleman announced his plans of founding a new low-cost airline company in Brazil, to the surprise of all. 36 airplanes had already been ordered in a billionaire contract when a survey website to define the name, colors, uniforms and logos of the company was being created. The company was to be named Azul (“Blue” for Portuguese) after the survey pointed out Portuguese words “abraço”, “felicidade” and “samba” (which stood for “hug”, “happiness”, and “samba” respectively) were considered the public favorites. The initiators of the name Azul were then awarded with lifelong travelling passes. Today, Azul is ranked as high as the third biggest airline in Brazil with 17% of the market share and various awards such as “Best low-cost airline company in South America five times straight.

1.1.2 Missions and Values

Azul founder David Neeleman wanted to revolutionize the air traveling system in one of the most advanced South American countries by making it more humane, easy and economical. Their mission statement emphasizes the importance of customers over all, as the company envisioned targeting the C and D classes as well as the more wealthy Brazilians looking for good prices matched with comfort. Focusing on customers, Azul builds the best airline, generating crewmember growth, return to investors and benefits to the communities served.1 For Azul and its employees, the main values enforced in training that represent the company are: passion, innovation and example, all of which can be showed by their well-acclaimed elite loyalty program TudoAzul. Proof of that passion and example is the award of 2nd best airline staff in South America with less than 10 years in the market.

1.1.3 Corporate Social Responsibility (CSR)

Azul is widely known by its strong marketing in campaigns that move the public, such as its latest Pink campaign in October. For its 5th straight year, they reminded clients of the need for: fight, diagnosis and awareness of breast cancer all around the world. In a partnership with the Brazilian Federation of Philanthropic Breast Health Institutions, ATR and Embraer, the low-cost airline painted three of its airplanes in the pink color, along with special videos reinforcing the prevention and diagnosis importance. Tradition during that period, some flights have all female crews dressed in pink, color that is known for symbolizing the campaign.2

1 http://www.sabreairlinesolutions.com/pdfs/Tudo-Azul.pdf2 http://socialhospitality.com/2014/03/marketing-to-millenials-on-social-media/

Figure 2: Azul Airlines “Ladies in Pink” campaign in pro of breast cancer awareness 3

Aligned with its main values, the company also does many events that focus the practice of physical exercise as well as healthy nourishment. The main Azul building located in Campinas, one of the main destinations and location of one of the most recently renovated airports, is also illuminated with the colors of the campaign they are following or supporting at the moment, for example: green, yellow and blue while the FIFA World Cup was being organized in Brazil.

1.2 Organizational Structure

1.2.1 Internal Analysis

Azul numbers from 2010 are extremely remote compared to the ones of 2015. Showing of its advanced development is the number of clients transported from 4 million to 22 million, along with the amount of airlines increasing from 26 to 139 in just 5 years. The same period showed an increase in the number of destinations from 28 to 102, and majorly the increase in market share from 7% to 17%. 4 The exclusive routes Azul provides from major airports have been of great help for those who travel to the capitals Rio de Janeiro and São Paulo often. In a codeshare agreement with United Airlines made in 2014, and another with TAP Portugal in 2015 (which David Neeleman owns 61% of), Azul was then able to extend their clients’ possible destinations to 450 and 60,000 daily flights through their partnerships.5

1.2.2 Financial Information

Azul has been one of the airlines with the most improvement in the last decade. With 8 years of functioning, its revenue was estimated to be around US$ 2.2 billion (2012) and net

3 http://shop.justplanes.com/gb/Bestsellers/c/4/Azul-Airlines-Ladies-in-Pink/p/298294 http://www.voeazul.com.br/en/about-azul5 http://www.voeazul.com.br/en/about-azul

income to be US$187.3 million (2012). According to the National Civil Aviation Authority (ANAC), Azul had an approximate of 17% of the domestic market shares in 2014, 8% more than in 2012. This change is expected to bring new numbers to Azul charts, with higher estimates for both net income and revenue. In June of 2015, United Airlines anounced the purchase of 5% of the company for US$100 million, giving the American company a seat in its administrative council. In november of the same year, the Chinese group HNA confirmed the purchase of 23.7% of the company for US$450 million, which also gave them a seat in Azul administrative council and made the group the largest single shareholder of the low-cost carrier.6

1.2.3 International Involvement

Azul low-cost flight experience is definitely attractive to all markets, independently of the country. For a company of almost 8 years of existence, they have covered major routes in Brazil, including the ones leaving and coming from capitals and major cities, such as Rio de Janeiro, São Paulo, Brasília, Campinas, among others. Currently, the company provides daily flights to multiple destinations in Brazil (around 100), as well as to major cities such as Cayenne (French Guiana), Punta Del Este (Uruguay), and two flights to the US in Florida, Miami / Ft. Lauderdale and Orlando. Although flights to Uruguay are only seasonal, inducing the low demand after February, period when they cease their flights. Unmotivated by the strength of the US currency in comparison to the Brazilian real, Azul shut down its plans of adding a flight to New York. A new flight to the capital of Portugal, Lisbon, has been incorporated and is expected to start flying May 6th, as often as 6 times a week.7

Figure 3: Destinations provided by Azul (March 2015) 8

1.3 SWOT Analysis

6https://pt.wikipedia.org/wiki/Azul_Linhas_A%C3%A9reas_Brasileiras#TAP_Portugal_e_United_Airlines7 http://g1.globo.com/economia/noticia/2016/01/azul-anuncia-voo-entre-campinas-e-lisboa-sua-primeira-rota-para-europa.html8 http://www.voeazul.com.br/sobre-azul

Strengths: Azul is known for its great customer service mainly because of their loyalty program TudoAzul, meaning “everything is great” in Portuguese. The program already had 5 million members in 2015 that could acquire points for every trip, maximizing their advantages when traveling with Azul, with benefits such as extra luggage on international flights, courtesy better seating (according to demand of flight), priority check-in, and others. In its international flights, Azul has now more than just the economy comfort. Along with it’s already spacious economy class, the airbus A330 provides an Economy Xtra that includes a lot more space, a 9-inch individual screen and even a future option that can transform 4 seats in a family sofa. The airbus A330 is the airplane most commonly used for international flights, and it includes the newest Xtra Business Class, with seats that turn into beds and lights that specifically diminish the jetlag effects, along with 16-inch individual screens with the most recent movies and superb Brazilian gastronomy. Finally, Azul also boasts about their increasing number of destinations, with many of them in Brazil, but also including the US, French Guiana and Uruguay (seasonal).

Figure 4: Azul Xtra Business Class in airplane A3309

Weaknesses: Since Azul is constantly talking about its low-cost, it is still somewhat perceived by some as a less luxurious airline, which is not often true. Even though it’s attempts of bringing Xtra Business Classes into domestic flights have been constant, there is not much demand in Brazil, as the company’s brand image seems to target only these customers that are flying majorly because of the cost. Although it is extremely present in Brazil, Azul only provides flights to 3 other countries, while both of them are only two capitals in South America, and the other is the US with only 2 destinations in Florida, leaving them behind competitors TAM and GOL.

Opportunities: With the world’s eyes looking at Brazil since it has successfully hosted the FIFA World Cup and will in a few months host the 2016 Olympic games, tourism in the country is increasingly attractive. In 2013, most of airport reforms and constructions were finished, what developed the air travel system and increased the amount of flights Azul has been doing in its three major airports: Santos Dumont (Rio de Janeiro), Viracopos (Campinas), and Guarulhos (São Paulo). Since Azul still does not present routes to many different countries, there are also great opportunities for expansion into new markets, according mostly to clients’ demands, as it has happened with the newer routes to the countries of French Guiana and Uruguay.

9 http://www.voeazul.com.br/azul-xtra

Threats: Azul plans of providing their initial public offering (IPO) have been delayed more than 3 times, since the market in Brazil shows itself to be very unstable, due to political and economical issues that lead to the crisis the country has been in for almost 2 years. This economic crisis has proven to be an issue for many businesses in the country and most likely affects the customers’ decisions on when to spend more, even though Azul has maintained it’s low costs. Azul has faced intense competition from various airline companies, but a major one to be seen is the case of Delta in Florida. In this case, Delta Airlines has taken ownership stakes in GOL, one of Azul main competitors, in order to increase the market share in this itinerary, which already counts in great extent with big competitors, such as: American Airlines, TAM Airlines, US Airways, Korean Air, and Azul (with numbers around 5.4% percentage share) 10.

Strengths WeaknessesGreat customer service Earnings correlated with fuel pricesDifferentiated technological enhancements in airplanes

Not considered “premium” airline

Airplane comfort Less international destinationsNumber of destinationsActs in niche which other airlines are likely not to engage

Opportunities ThreatsIncrease in national tourism industry New entrants2016 Olympic Games High competitionUseful and better infrastructure resulted from 2014 World Cup

Brazil’s market instability

Expanding into new and existing markets Governmental regulationsTable 1: SWOT Analysis – Azul / Aviation Industry

1.4 Service Profile

Azul proudly centers its main service on the low-cost flights to more than 100 destinations in Brazil, as well as the few routes to other countries. Although, the products that differentiate the company from other airlines vary from free bus services at common city destinations to more space and comfort for passengers. Naturally, Azul is also known for its great gastronomy with free food and snacks, and also free TV on most airplanes in domestic flights in a partnership with SKY that provides more than 30 live channels.11

1.5 Industry Analysis

The airlines industry has, over the last few years, experienced an important transformation that has led the industry to a better financial state. Executives of this industry were seen to perceive schedule planning and capital investments as more crucial items, as aiming to long-term profitability turned to be a main goal, instead of focusing so much on market share gain. Also noteworthy is how the industry is achieving benefits from lower jet fuel costs due to the sudden drop in oil prices, as it is the case of the US. This better financial condition in the industry has been responsible for attracting new investors who consider the business more certain and more safe than it has been in the previous years. US airline stocks 10 http://centreforaviation.com/analysis/azul-and-delta-intensify-competition-in-the-florida-brazil-market-to-solidify-their-long-term-goals-22834011 http://www.voeazul.com.br/experiencia-azul/tv-ao-vivo

were a great reason for contentment in both 2013 and 2014, leading to that so long coveted financial stability.12

1.5.1 Airline Industry in Brazil

The aviation industry in Brazil has shown to be developing for the last few years as air travel has been expected to double over the next decade. The large territory that Brazil comprises stimulates air travel as the fastest and safest transportation method. The National Civil Aviation Authority (ANAC) is the organization responsible for the regulation and control of flights throughout the country. Driven by low-cost airlines such as Azul, the industry has been able to perceive great increase in the capacity growth for the next years, since demand has grown due to lower prices being made more available. The great majority of airplanes used for the larger airlines (including Azul) is produced by Embraer, now the third main commercial airplane producer in the world, with its main product being the Embraer 195, which can carry up to 122 passengers. Brazil’s top airlines are TAM and GOL. Both present great percentage of market share, while Azul is located in third place, with 17% of the domestic flights market.

Factor / Airline Market Share (Dez

2015)

Fleet Number of Destinations

FTE (estimated)

TAM Airlines 37.04 % 169 63 24,000(+)

VARIG-GOL Airlines

36.29 % 145 75 16,700(+)

Azul Airlines 17.14 % 149 108 5,001-10,000*

Avianca 9.54 % 163 24 1,001-5,000*

Table 2: Competitor’s table (Brazil)

*Azul and Avianca prefer not to report their exact quantity of full time employees as they are privately held.

12 http://clients1.ibisworld.com/reports/gl/industry/default.aspx?entid=1560

1.5.2 Porter’s 5 Forces

Threat of New Entrants: Because of the success of Azul, newer airlines have been trying to engage into low-cost flight tickets, providing the same comfort patterns that the Brazilian airlines does. Avianca (previously OceanAir) is an example of these. Even though the aviation industry shows itself to be extremely competitive, there has been intention from larger airlines around the world to make Brazil’s capitals one daily or frequent destination. As an example, Web Jet has made available flights from the US to Rio de Janeiro and São Paulo that are considerably cheaper in comparison to other airlines, even with the distance or higher demand seasons, such as Carnival in February.13 American and Delta have also lowered their prices in order to add Brazil as a main destination for Americans.

Threat of substitute products or services: GOL and TAM have been fairly known for a long time for their first class and loyalty VIP programs, as Azul has just introduced their new Xtra Business Class, which seems a promise of comfort and luxury put together. As of 2015, the brand Azul does not put luxury as their main values, since it is essentially and proudly a low-cost carrier. Focusing on being accessible to more people in Brazil seems like a great strategy but one that may put Azul as second option for wealthier clients. In wait of responses on new Azul technology and comfort improvement, TAM, GOL, and most international airlines seem to be great threat for the Brazilian low-cost carrier.

Bargaining Power of Buyers: Due to the economic situation the country is in, many consumers that usually saw travel as a possible and expected piece of their lives, have now different viewpoints. The ratio R$ (Brazilian Real) to US$ (US dollar) is constantly at 1 to 4, which makes it harder for buyers to consider some purchases. Due to the low demand, buyers have the opportunity to force down prices, since flights are fairly more expensive than other common services in Brazil, such as buses and trains. Because of that recession period, it becomes considerably more difficult to spend more, especially when travelling to other countries with stronger currencies, like Miami and Orlando with the US dollar.

Bargaining Power of Suppliers: Airlines are substantially dependent on fuel prices, as fuel is a major variable of their costs. Airlines normally see their profits prosper when fuel costs are relatively low, since costs are reduced without any relation to the demand of clients. Azul surely follows the same case. Even though Azul has, in some cases, relied on fuel hedging (contract used to decrease unpredictability of fuel costs), most of their aircrafts rely on the volatile fuel costs that the Brazilian economy has seen soar in the last years.14 It was seen from GOL that operating costs can “outpace” revenue mainly due to rising fuel costs in the country.

Competitive Rivalry: In an attempt to increase competition for demand, GOL, the 2nd largest airline in Brazil, is reducing their flight frequency to Miami and Orlando via Punta Cana in order to challenge Azul on their domestic dominance by adding routes from Campinas, main hub of Azul. GOL is also increasing the number of aircrafts leased during the 2016-2017 season. GOL has also cited to add more routes to Buenos Aires (Argentina) and Central America, as Azul has not yet engaged into these regions. For GOL and TAM, the plan for the next few years is to break the monopoly that Azul has built in Campinas (Viracopos International Airport), as they comprise almost 87% of seat capacity at that airport.15

13 http://www.webjet.com/flights/brazil/14 http://www.globalpetrolprices.com/Brazil/gasoline_prices/

Figure 5: Porter’s 5 Forces – Azul and Airline Industry

1.6 Conclusions and Recommendations

Azul was and still is developed with great structure and knowledge surronding its name. Their high quality and fame among customers has already brought a lot of confidence when talking about air travel in Brazil. The expanding to a new country can only increase this great brand image and motivate customers to always look for the quality Azul provides. Enjoying this customers’ preference while it is in its first years can cause Azul to increase their market share in Brazil and other countries substantially.

15 http://centreforaviation.com/analysis/gol-increases-domestic-competition-with-azul-as-it-navigates-brazils-ailing-economy-254226

Competitive Rivalry: TAM Airlines GOL Airlines

Threats of New entrants:

New Airlines Foreign Airlines

Bargaining Power of Buyers:

Economy Situation

Threat of Substitute Products

or Services: Travellng

alternatives (bus, train) More Premium

airlines

Bargaining Power of

Suppliers: Fuel

Companies Catering

Companies Aircraft

Producers

2 Global Market Search

2.1 Country Selection

2.1.1 Pre-Selection

Countries that do not have more than 5 million in population were not considered in order to have a relatively good-sized customer market.

Countries with GDP per capita lower than 20,000 were not considered in order to present a fair amount of people that can afford air travelling constantly.

Countries where consumers spend less than US$20 on air travel were not considered due to the need for more probability and willingness to pay for air travel.

Countries that were not on the top 100 of ease of doing business were not considered in order to avoid these that are probable to cause more problems prior Azul entrance.

2.1.2 Criteria Selection

Considering the fact that Azul has already started activities in more countries out of Brazil, the focus for new possible destinations will be concentrated in North America, Latin America, and Europe. European countries are applicable since Azul has aligned plans of starting a route to Portugal in May and are close to actually operating there. Latin America is applicable since a few countries have already been engaged in Azul activities, such as Uruguay and French Guiana, and obviously because of the short distance. North America is also applicable because it has long been a preferred destination of Brazilians when on vacation and work traveling.

The country narrowing was based on these following criteria:

Population16: It is important for Azul to focus on countries that have high population numbers in order to have an increased demand for flights, as it is one of the most highly recommended and demanded transportation vehicles today.

GDP per Capita17: Even though Azul is a low-cost carrier, flying is typically the most expensive method of transportation. This element is a suitable pointer of how wealthy a country and its citizens are, and thus how it can bring potential consumers for Azul.

Consumer Expenditure on Air Travel18: Azul being an airline, the consumer expenditure on air travel per country (per capita) data is essential for this case because it shows the probability of there being more or less demand for flights.

Ease of Doing Business19: This criterion shows how easy it is for a company to be established as well as to negotiate, and build on the new country.

16 http://www.portal.euromonitor.com/portal/statistics/tab17 http://www.portal.euromonitor.com/portal/statistics/tab18 http://www.portal.euromonitor.com/portal/statistics/tab19 http://www.doingbusiness.org/rankings

Factor 1 2 3 4 5 WeightPopulation (in

millions) 0-15 15-30 30-45 45-60 60+ 30%

GDP per Capita (in US$ thousands) 0-25 25-35 35-45 45-55 55+ 25%

Consumer Expenditure on Air

Travel (in US$)0-50 50-100 100-150 150-200 200+ 25%

Ease of Doing Business 100-80 80-60 60-40 40-20 20-1 20%

Table 3: Likert Scale

Factor Norway United Kingdom Germany France Canada Switzerland Austria Sweden Italy Ireland Belgium Netherlands Weight

Population (in millions) 5.2 64.7 80.9 64.2 35.9 8.20 8.60 9.70 60.80 4.60* 11.3 16.9 30%

GDP per Capita

(in US$ thousands)

69.1 41.0 47.5 41.2 45.4 59.0 47.2 48.4 35.7 54.8 43.8 49.3 25%

Consumer Expenditure

on Air Travel

(in US$)

417.4 413.4 295.5 178.7 277.6 174 216.6 180.4 111 192.4 105.7 110.3 25%

Ease of Doing

Business9 6 15 27 14 26 21 8 45 17 43 28 20%

Table 4: Countries real numbers

Factor Norway United Kingdom

Germany France Canada Switzerland Austria Sweden Italy Ireland Belgium Netherlands Weight

Population (in millions) 1 5 5 5 3 1 1 1 5 1 1 2 30%

GDP per Capita

(in US$ thousands)

5 3 4 3 4 5 4 4 3 4 3 4 25%

Consumer Expenditure

on Air Travel

(in US$)

5 5 5 4 5 4 5 4 3 4 3 3 25%

Ease of Doing

Business5 5 5 4 5 4 4 5 3 4 3 4 20%

Base Score 4 4.5 4.75 4 4.25 3.5 3.5 3.5 3.5 3.25 2.5 3.25 -

Weighted Score 3.8 4.5 4.75 4.05 4.15 3.35 3.35 3.3 3.6 3.1 2.4 3.15 -

Table 5: Base and Weighted Score

2.1.3 Country Comparison

GermanyUnited Kingdom

Canada

Series66

Hig

h C

on-

sum

er

Satis-

fact

ion

Low Market Share

Low Ease of Doing

Business

Low Market Share

High Ease of Doing Business

Low

C

on-

sum

er

Satis-

fact

ion

Figure 6: Perceptual Map for Three Final Countries

The size of the circles represents the GDP of the country, which is equal to the multiplication of the 2 other variables, population and GDP per capita. As it can be seen, most factors in the three countries are very similar. In the case of the United Kingdom, consumer expenditure on air travel per capita showed to be the highest among these and also one of the highest in the world. Germany has the greatest GDP per capita and Population levels, inducing a larger GDP and therefore, the larger circle. For Canada, the ease of doing business is not the best, but is also greatly appreciated in the whole world, as well as a high consumer expenditure on that matter.

3 Market Analysis

3.1 Pest Analysis

3.1.1 United Kingdom20

Political Factors:The United Kingdom (UK) has traditionally been a parliamentary democracy. It is

also a constitutional monarchy and member of the Commonwealth realm, which consists of England, Scotland, Wales, and North Ireland. Queen Elizabeth II is the head of state of the UK as she has the rights to be consulted, to encourage, and to warn. The monarchy may not take part in politics or government affairs, with the exception of severe circumstances, when a monarch may reject the government decision. The United Kingdom Parliament has the power to modify or eliminate almost any component of the constitution. Although, the Parliament cannot pass laws that future Parliaments cannot change. The prime minister (David Cameron since 2010) is responsible for governmental decisions, which are usually respected by the Queen. The UK is part of the EU but does not choose to use the Euro as its currency.

Economic Factors:The UK has a partially regulated market economy and is the second largest European

economy, right below Germany. It is one of the fastest growing economies in the G7, with an approximate 2.5% growth in GDP per year. The service sector in UK originates 79.6% of its GDP, and composes 83.5% of labor force. It has the financial sector and trading power as responsible for these increases as they have often shown to be GDP drivers. The financial sector in the UK has had such tremendous impact in the global economy that it has been commonly called a command center, along with New York City and Tokyo. Its relationship with the EU and its members indicates that the UK is really the European financial hub. The region’s aerospace industry is the second largest national aerospace industry in the world with estimated annual revenue of £25 billion (approximately US$36 billion.)

Social Factors:With almost 64 million people, the UK has had an approximate 0.5% population

growth every year. An unemployment rate of 20% is present among 15-24 year-old British people. Also, about 82% of the 64 million British live in urbanized areas, mainly in large cities, such as the capital London, Manchester, Birmingham, and Liverpool.

Technological Factors:The UK also boasts about its infrastructure, considering mainly its 460 airports, which

ranks it as the18th in the world among countries with more airports. Over 270 of these airports have paved runways, with the biggest being London Heathrow (LHR), London Gatwick (LGW), and Manchester (MAN).

20 https://www.cia.gov/library/publications/the-world-factbook/geos/uk.html

Figure 7: London Heathrow Overview21

3.1.2 Germany22

Political Factors:For the most recent years, Germany has been a federal parliamentary democratic

republic. President Joachim Gauck has been in command since 2012, as presidents are usually elected for five-year terms. Chancellor Angela Merkel has been the responsible for governmental decisions and exercising executive power since 2005. Merkel is known to be a leader example to the whole world. The Parliament is consisted of 700 seats, which cover laws and major regulations for the 16 states in Germany. Germany, as a member of the EU, is a key contributor of the union budget. Elections are very important to Germans, as the politicians responsible for commanding the country have done fairly well in the past years and they intend to maintain the country in this state.

Economic Factors:Germany’s economy is the 5th largest economy in the world and first among

European countries. Its annual growth has rounded an approximate of 1.5% for the past recent years, mostly due to the services sector, with 69% of GDP, and to the industry sector with 30% of GDP as its main drivers. Germany plans on investing an estimate of 15 billion in infrastructure from 2016-2018 and thus, spur private investment. The aerospace industry in Germany is one of the most innovative and best-performing industries in the country, as the industry revenue has quadrupled since the mid 90’s to over EUR 31 billion in 2014 (approximately US$ 35 billion.)

Social Factors:With an approximate of 81 million people, Germany had, in 2015, a decrease to only

0.17% in population growth. 75.3% of Germans live in urbanized areas, such as the major cities of Berlin (capital), Hamburg, Munich, and Cologne. Youth among 15-24 year-olds have an unemployment rate of almost 8%.

21 http://vizts.com/heathrow-airport/22 https://www.cia.gov/library/publications/the-world-factbook/geos/gm.html

Technological Factors:Germany uses its train and buses transportation at its maximum. Many citizens prefer

to use these trains and buses for shorter distances, as they have better value than what airplane companies offer them. Not only value, but the luxuriousness of these trains is highly noticed, to the extent where some trains have elaborate Starbucks stores in them. Germany not only has 539 airports, but 318 of them have paved runways with 14 having over 3,047m. Germany is ranked 13th with most airports in the world, being Frankfurt (FRA), Munich (MUC), Dusseldorf (DUS), and Berlin (TXL) the largest and busiest ones.

Figure 8: Frankfurt Airport23

3.1.3 Canada24

Political Factors:Canada has a parliamentary democratic system within a constitutional monarchy.

Queen Elizabeth II is also the head of state. She holds the same right to exercise power in extreme circumstances and usually does not take part in governmental issues. Canada’s Prime Minister Justin Trudeau is the head of government and takes all governmental decisions since 2015. Forbes ranked Trudeau as the 69th most powerful person in the world. Canada has a duality on official language, as English and French are widely spoken, especially in the province of Quebec.

Economic Factors:23 http://www.restoranoved.ru/rubriks.php?start=450&rubr=15224 https://www.cia.gov/library/publications/the-world-factbook/geos/ca.html

Canada resembles the US in the market-oriented economy, as they focus on the trillion-dollar high-tech industry. Being the world’s 11th largest economy. In Canada, the service sector is also a major driver of the GDP, with 70% of it composite from that sector. Science and technology has received an approximate of C$30 billion (approximately US$ 22.6 billion) investment in R&D, while it has already produced 13 Nobel laureates in the sciences of physics, chemistry, and medicine. Communications in Canada is also a major industry with over 92% of the population obtaining great access to the Internet. The Canadian aerospace industry contributes to C$29 billion (approximately US$21 billion) to the economy and 73% of that industry activity is devoted to manufacturing and maintenance, while services within that industry represent 27%.

Social Factors:With a population of 35 million, Canada presented a population growth rate of 0.75%

in 2015. Of these Canadians, almost 82% lives in urbanized areas, such as Toronto, Montreal, Vancouver and Ottawa (capital). Unemployment among 15-24 year-olds has reached a 13.5% rate.

Technological Factors:Canada is the origin of big technological companies such as Blackberry, a major

smartphone leader in the early 2000’s. Not only that, Canada has been important due to its innovative wireless network usage and infrastructure development, mainly related to the increase in airport innovation. Canada had 1,467 airports in 2013, including 523 with paved runways (21 with 3,047m or more). This ranks Canada as the 5th country with most airports in the world, the busiest being in Toronto (YYZ), Vancouver (YVR) and Montreal (YUL).

Figure 9: Pearson International Airport in Toronto25

3.2 Cultural Distance25 https://canadaalive.wordpress.com/2014/04/08/pearson-international-airport-toronto/

Hofstede’s five dimensions of culture are a great way to indicate cultural distance between the selected countries and Brazil. The following Table 6 of dimensions explains these in depth.

Hofstede Dimension Description

Power Distance Extent to which less powerful members accept that power is distributed unequally.

Individualism vs. Collectivism Degree to which individuals are integrated into groups.

Masculinity vs. FemininityDistribution of roles between the genders with an assertive pole seen as “masculine” and a modest,

caring pole as “feminine”.

Uncertainty Avoidance Society’s tolerance for the uncertain, ambiguous and unstructured situations.

Long Term vs. Short Term OrientationOrientation towards thrift and perseverance vs. Orientation towards respect for tradition, and

fulfilling social matters.Table 6: Hofstede Dimensions and Description26

Below, Figure 10 shows the comparison of these values among the countries.

Power

Distan

ce

Indivi

dualis

m vs. C

ollect

ivism

Masculin

ity vs

. Fem

ininity

Uncertai

nty Avo

idanc

e

Long T

erm vs

. Sho

rt Term

Orientat

ion

35

8966

3551

35

67 66 6583

39

80

52 4836

69

3849

76

44

Hofstede Cultural Dimension Comparison

United Kingdom Germany Canada Brazil

Figure 10: Hofstede Cultural Dimension Comparison27

Table 7 shows the absolute values for the Hofstede Dimensions of each of the selected countries as well as Brazil for comparison matters. It also includes Cultural Distance, calculated by the following formula:

∑i=1

5

|Co−Cd|

26 https://geert-hofstede.com/national-culture.html27 https://geert-hofstede.com/countries.html

In the case, Co relates to the country of origin (Brazil) and Cd relates to the country of destination (United Kingdom, Germany and Canada).28

Dimension United Kingdom Germany

Canada

Brazil

Power Distance 35 35 39 69Individualism vs. Collectivism 89 67 80 38

Masculinity vs. Femininity 66 66 52 49Uncertainty Avoidance 35 65 48 76

Long Term vs. Short Term Orientation 51 83 36 44Cultural Distance 150 130 111 -

Table 7: Absolute Values for Hofstede Dimensions and Cultural Distance

3.3 Competitive Analysis

United Kingdom: British Airways is the biggest airline in the UK by fleet size and international destinations. With its hub at London Heathrow, it serves more than 160 destinations, including the main six domestic airports and all continents by codeshare agreements with more than 25 different airlines. EasyJet is also one of the major operators in the United Kingdom, holding great market share due to its low-cost core. Mainly through acquisitions, it has seen large development all around Europe. For example, with a hub located in London Gatwick airport, EasyJet currently has 223 airplanes in service.

Germany: A major competitor in the global industry, Lufthansa is the largest airline not only in Germany, but in Europe. With 18 domestic and 193 international destinations, it also includes 4 of its destinations to Brazil. It consists a fleet of more than 260 airplanes in service. It is one of the founders of Star Alliance, the largest airline alliance in the world since 1997. The alliance not only helps develop and increase the number of destinations through codeshare agreements, but it also helps providing destinations to all continents.

Canada: Air Canada is the largest airline carrier in Canada. It is the world 10th largest airline, while having its largest hub in Toronto. Along with its partners, it provides more than 180 international destinations and has a current fleet of around 162 airplanes in service. It has 29 codeshare agreements that take Air Canada airplanes to six countries worldwide, including the Brazilian majors Gol and Avianca, as well as TAP Portugal, who David Neeleman is a majority owner of. It presents two destinations to Brazil, which are Guarulhos (São Paulo) and Galeão (Rio de Janeiro).

3.4 Country Comparison with Secondary Variables

3.4.1 Criteria Selection

In order to assess the selected countries, the old variables are added to three more. The four following criteria are mirrored from the previous country selection, since they still have a significant weight for the comparison of these countries, and since their objective still counts toward this secondary selection:

28 Values obtained through http://geert-hofstede.com/countries.html

Population29: It is important for Azul to focus on countries that have high population numbers in order to have an increased demand for flights, as it is one of the most highly recommended and demanded transportation vehicles today.

GDP per Capita30: Even though Azul is a low-cost carrier, flying is typically the most expensive method of transportation. This element is a suitable pointer of how wealthy a country and its citizens are, and thus how it can bring potential consumers for Azul.

Consumer Expenditure on Air Travel31: Azul being an airline, the consumer expenditure on air travel per country (per capita) data is essential for this case because it shows the probability of there being more or less demand for flights.

Ease of Doing Business32: This criterion shows how easy it is for a company to be established as well as to negotiate, and build on the new country.

The new variables are the following with the description of their purpose. For the variable international tourist arrivals, only countries with more than 1 million were considered. For the variable Foreign Direct Investment Inflows, countries with less than US$1,500 million were not considered.

International Tourist Arrivals33: This criterion shows how much transit there is on airports, important to show demand for flights by country. This data is from the year of 2014.

Cultural Distance34: Just like in any company or industry, a mix of cultures defines Azul. Its sucess in Brazil stimulates that the services be facilitated in a country with lesser cultural distance to its origin. The Hofstede Dimensions compares the cultures of United Kingdom, Germany, and Canada to Brazil as well as their distance in culture.

Foreign Direct Investment (FDI) Inflow35: Azul best strategy is to rely on foreign investment as way of entry to the new country. Therefore, this criterion is essential to indicate how likely Azul is of going to these certain countries or not. This data is from the year of 2014.

The four original variables account for 70% of the rating, and the three newer ones for the rest 30%. The new Likert Scale is as follows, with all the variables together and each of their new weights:

29 http://www.portal.euromonitor.com/portal/statistics/tab30 http://www.portal.euromonitor.com/portal/statistics/tab31 http://www.portal.euromonitor.com/portal/statistics/tab32 http://www.doingbusiness.org/rankings33 http://www.e-unwto.org/doi/pdf/10.18111/978928441689934 Calculated on pages 19-2035 http://www.portal.euromonitor.com/portal/statistics/tab

Factor 1 2 3 4 5 WeightPopulation

(in millions) 0-15 15-30 30-45 45-60 60+ 20%

GDP per Capita (in US$ thousands) 0-25 25-35 35-45 45-55 55+ 18%

Consumer Expenditure on Air

Travel (in US$)0-50 50-100 100-150 150-200 200+ 18%

Ease of Doing Business 100-80 80-60 60-40 40-20 20-1 14%

International Tourist Arrivals

(in millions)1-8 8-15 15-22 22-29 29-36+ 12%

Cultural Distance 160-146 146-132 132-118 118-104 104- 10%Foreign Direct

Investment (FDI) Inflow (in US$

Billions)

1.5 - 15.5 15.5 - 29.5 29.5 - 43.5 43.5 - 57.5 57.5 - 71.5+ 8%

Table 8: Likert Scale with extra variables

3.4.2 Country Side-by-Side Assessment

The following charts compare the three countries based on the Likert Scale above and the variables used for it. The last three variables (therefore the most recently added ones) touch basis on the three selected countries: United Kingdom, Germany, and Canada. In table 9 below, the absolute values are stated; while in table 10, they are categorized from 1 through 5 and given the appropriate base and weighted scores.

Factor United Kingdom Germany Canada Weight

Population (in millions) 64.7 80.9 35.9 20%GDP per Capita

(in US$ thousands) 41.0 47.5 45.4 18%

Consumer Expenditure on Air Travel (in US$) 413.4 295.5 277.6 18%

Ease of Doing Business 6 15 14 14%International Tourist Arrivals

(in millions) 32 33 16 12%

Cultural Distance 150 130 111 10%Foreign Direct Investment

(FDI) Inflow (in US$ Billions)

72 1.8 53 8%

Table 9: Absolute Values for primary and secondary Variables

Factor United Kingdom Germany Canada Weight

Population (in millions) 5 5 3 20%GDP per Capita (in

US$ thousands) 3 4 4 18%

Consumer Expenditure on Air Travel (in US$) 5 5 5 18%

Ease of Doing Business 5 5 5 14%International Tourist Arrivals

(in millions) 5 5 3 12%

Cultural Distance 1 3 4 10%Foreign Direct Investment

(FDI) Inflow (in US$ Billions)

5 1 4 8%

Base Score 4.142 4 4 -Weighted Score 4.24 4.3 4 -

Table 10: Country Side-by-Side Assessment, Base and Weighted Score

United Kingdom

Germany

Canada

Low For-eign Di-rect In-

vestment Inflow

Low Foreign Direct Investment Inflow

Hig

h In-

tern

a-tio

nal

Tour

ist

Arr

ival

s

Low Foreign Direct Investment Inflow

High Foreign Direct In-

vestment In-flow

Low

In-te

rna-

tion

al

Tou

rist

A

rriv

als

Figure 11: Perceptual Map for Final Three Countries with New Variables

The sizes of the circles represent cultural distance between the certain country and Brazil. The bigger the circle, the less cultural distance between them there is.

3.5 Country Selection

Even though Germany seems to be a good place to enter by analyzing the variables compared and the not so large cultural distance with Brazil, the UK presents features that make it even more attractive.

The region presents the 2nd biggest national aerospace industry and boasts about its great infrastructure, which is product of the 2012 Olympic games improvements mainly in hospitality-related settings. Also, as seen on section 3.4, it presents an extremely higher consumer expenditure on air travel throughout the last years, and the 82% urbanization rate (contrasted to the only 72% in Germany) attract Azul to this region. Furthermore, the nation has showed an average 2.5% growth rate yearly compared to the 1.5% in Germany. Finally, the high competition present in Germany that is mainly represented by the Lufthansa Group reduces the appeal to go to this country. With the already very developed market for airlines and the infrastructure that is necessary to welcome a new low-cost carrier like Azul, United Kingdom becomes the most attractive country among these selected countries. As it is discussed in the next section, low-cost carriers have also been considered a preference in the UK, what facilitates the transition to the new market with a higher demand.

4 Market Entry

4.1 United Kingdom Air Traveling Market

The commercial transportation of passengers within the United Kingdom and from it has seen continuous growth during the past decades, which is showed by the demand forecast for air travel in this certain region to increase from the current 236 million passengers to approximately 465 million in the next two decades.36 As discussed on phase 3, the airport London Heathrow is amongst the busiest airports in the whole world. The Heathrow Express connects the airport to the Paddington station in the west of the city of London every 15 minutes, creating a intertwining structure among all mainline stations and city center. Manchester also presents one of the busiest airports in Europe, considering it is an alternative to more or less 20 million people that live in the English capital, being located at only a two-hour drive from London. The great feat of low-cost airlines has been the exponential growth in regional airports, which have spurred the whole industry to a new level over the last few years. To prove that, in 2013 the UK was ranked third in amount of passengers carried by a country, after the US and China.37 These low-cost carriers, such as easyJet, have had a great impact on air travel in the UK, carrying 18 times more passengers in the last10 years. 38 This 36 http://data.worldbank.org/indicator/IS.AIR.PSGR37 http://data.worldbank.org/indicator/IS.AIR.PSGR38 No-Frills Carriers: Revolution or Evolution?, ch.2, pp.4–5, figs. 2.4 & 2.5

market and the increasing preference for low-cost carriers are of extreme importance and become very appealing for Azul.

4.2 Competition Overview

4.2.1 British Airways

British Airways is an airline present in the UK, being the second largest in Europe. It is often known as the flag carrier of the country, and also one of the largest airlines in the world, with more flights from Asia to Europe than any other. Member of Oneworld, an alliance with American Airlines, Cathay Pacific, and Qantas, it operates flights to over 390 destinations including various codeshare agreements with other airlines (such as Brazilian competitor TAM), which shows their great presence in the airports Heathrow and Gatwick, both located in London. As of August 2015, British Airways had 266 airplanes on their fleet and franchising agreements with other airlines. The company also has a subsidiary company, FlyBe, which flies with smaller aircraft to European destinations, especially from Birmingham, Manchester and London City Airport. Routing to Brazil, British Airways (or BA as it is known) operates a daily flight from London Heathrow to Guarulhos (GRU – São Paulo), which is led by a Boeing 747-400. In addition, it also operates another daily and exclusive flight to Rio de Janeiro, using a Boeing 777-300.

4.2.2 EasyJet

EasyJet Airline Company Limited is a British low-cost carrier based in Luton, UK. It is one of the leading airlines in Europe and currently flies to over 137 destinations in 34 countries, with more than 200 aircraft available in their fleet. It is one of the airlines that recorded the highest growth in terms of fleet expansion and destinations in Europe in the 2000s. EasyJet was the first foreign company to make low-cost domestic flights available in Portugal when in June 2007, it started the route Porto – Geneva, and in October of that year Porto - Basel-Mulhouse-Freiburg. It is also the second company in number of flights and passengers at Lisbon and in March of 2015 it opened a new base at Porto. Main competitor and leading airline in the UK, the Airbus Easyjet is special and known because the areas in which the airline would supposedly keep the meals are replaced with extra fuel tanks, as the company does not serve food on their flights, what makes the Airbus Easyjet have the longest range than any other in Europe. This feature diminishes the comfort of the low-cost carrier and puts Azul in advantage and in place for a tough competition.

4.2.3 Virgin Atlantic Airways

Virgin Atlantic Airways is one of the largest airlines in the UK, with its headquarters in Crawley, West Sussex, England. The airline was founded in 1984 as British Atlantic Airways and was originally planned to fly between London and the Falkland Islands. Virgin Atlantic specializes in intercontinental long-haul flights from its bases, which are London-Heathrow, London-Gatwick and Manchester. It comprises a fleet of 42 airplanes and flies to 31

destinations in North America, Asia and Africa. It belongs to the Virgin group of British millionaire Richard Branson. On June 22nd of 1984, it made its first scheduled flight between Gatwick and Newark Airport, in the United States. The airline along with Virgin Holidays is controlled by the holding company Virgin Atlantic Limited, owned 51% by the Virgin Group and 49% by Delta Airlines. Administratively, it is separated from other airlines within the Virgin brand. In 2012, it carried 5.4 million passengers, making it the seventh largest airline in the UK in terms of passenger volume. The airline operates domestic flights in the United Kingdom since March 31, 2013. Virgin Atlantic pushed EasyJet to third place in the region in terms of capacity.

4.3 Competitors Comparison

With around 40 British airlines operating in the country, the United Kingdom air fleet numbered approximately 1000 airplanes for transportation purposes. British Airways and EasyJet attend almost half of the public demand from UK passengers. Even though British Airways also accounts for half of the cargo airlines, it is perceived as a more luxurious and high-priced airline in comparison to the EasyJet and Virgin Atlantic. EasyJet is the most similar carrier to Azul in the region. It not only comprises low-cost flights, but is also seen as a great alternative from the common higher prices in the London region. Although, EasyJet lacks on investments like in-plane comfort and on-flight experience, something that Azul is extremely known for and only improves as time passes. Also, Azul is about to start their expansion in Portugal with a few frequent flights to Lisbon and Porto, areas that EasyJet is trying to expand to. With an already established agreement with TAP Airlines (and David Neeleman being majority shareholder of that carrier), Azul is likely to have a starting advantage when competing against EasyJet and their popularity in Europe. At last, Virgin Atlantic does not present such significant market share in the Queen’s land, but it is sought when passengers look for transcontinental flights, such as the UK – US route as well as routes to farther countries such as Australia and close islands. The purpose of Azul in this case is to connect South America with Europe through a privileged yet cheaper way, which also gives them a comparative advantage for these long flights.

4.3.1 Herfindahl–Hirschman Index (HHI) by seat-kilometers used

Figure 12 shows the United Kingdom air industry market share percentage for the main competitors according to their seat-kilometer capacity and availability.

BRITISH AIRWAYS

43%

EASYJET19%

VIRGIN ATLANTIC

12%

THOMSON AIRWAYS

9%

THOMAS COOK AIRLINES

6%

MONARCH AIRLINES

4%

Figure 12: UK Major Competitors Market Share Percentage by Seat-Kilometer Capacity39

Table 11 below shows its respective non-rounded numbers and additional carriers not displayed in figure 12.

Carrier Market Share Percentage by Seat-Kilometer CapacityBritish Airways 43.3 %

Easyjet 19 %Virgin Atlantic 12.3 %

Thomson Airways 9 %Thomas Cook Airlines 6.2 %

Monarch Airlines 3.8 %Jet2.Com 3.4 %

Flybe 1.3 %Ba Cityflyer 0.5 %

Titan Airways 0.4 %Airtanker Services 0.3 %

Bmi Regional 0.2 %Eastern Airways 0.1 %

Loganair 0.1 %Aurigny Air Services 0.1 %

Table 11: UK Major Competitors Market Share Percentage by Seat-Kilometer Capacity40

The Herfindahl–Hirschman Index (or HHI) is a calculation used to measure the size of firms in relation to the industry and therefore indicate the amount of competition existent

39https://www.caa.co.uk/uploadedFiles/CAA/Content/Standard_Content/Data_and_analysis/Datasets/Airline_data/Airline_data_2015_11/01_2_Size_of_UK_Airlines_by_Available_Capacity.pdf40https://www.caa.co.uk/uploadedFiles/CAA/Content/Standard_Content/Data_and_analysis/Datasets/Airline_data/Airline_data_2015_11/01_2_Size_of_UK_Airlines_by_Available_Capacity.pdf

in the market. In this case of the United Kingdom air travelling, these features presented above will be source for our calculation of the HHI of this region. It can be estimated through the equation:

H=∑i=0

n

(S)i2

By using this formula, an HHI of 2534.88 is achieved. Since it is determined from 0 to 10,000 (as 10,000 being a total monopoly), it is shown that the market is not extremely competitive, where they have equally divided market shares, but it presents a certain degree of competitivity.

4.4 Hofstede Analysis Brazil and United Kingdom

Half of the variables from the Hofstede comparison between Brazil and United Kingdom are very similar. It can be seen that individualism is very different because of the high collectivist sense in Brazil. At the same time, power distance in Brazil is shown to be somewhat higher than in the British area. Those features shown are not so different to the point where the market entry should be prevented; instead, it only makes sense for this internationalization process to take place. Figure 13 below shows the differences in numbers of the Hofstede categories of Brazil and the UK for comparison matters of cultural dimensions.

Power Distance

Individualism

Masculinity

Uncertainty Avoidance

Long Term Orientation

Indulgence

69

38

49

76

44

59

35

89

66

35

51

69

United KingdomBrazil

Figure 13: Hofstede Comparison Brazil vs United Kingdom

4.5 Market Entry Mode

Azul scheduled its European first flight to Portugal with a three-time per week route between Campinas (São Paulo) and Lisbon starting on May 4. Currently, the international operations of Azul represent the third largest in Brazil, including flights to Miami, Orlando, etc, as mentioned priorly. In order to establish the route to Lisbon, which could reach six per week during high season, they established a codeshare agreement with TAP Portugal in

October of 2015. Besides the codeshare agreement, David Neeleman (founder of Azul) acquired 61% of TAP Portugal shares, representing a possible future acquisition of the Portuguese company, which is often talked and very expected to happen in the next year. According to Azul, the codeshare agreement mentioned will allow connections from Lisbon to more than 80 destinations in 35 countries and will bring many more opportunities for Azul in Europe. For the case of the United Kingdom, Azul can take a lot from the Portuguese acquisition.

Thomson Airways is a British airline that started its operations in 2008; it offers scheduled flights from the UK and the Republic of Ireland to many European destinations, as well as North America and Asia. It was considered the third largest airline among the British in total passengers transported, just after EasyJet and British Airways. It is mainly known as a charter airline and it was formed through a merge of former Thomsonfly and First Choice Airways. The main office is located in Luton, and its largest hub is at London-Gatwick, closely shadowed by Manchester. Thomson Airways has around 50 airplanes in the current fleet and 63 orders already made, mainly composed of higher-capacity Boeings. Considering their available fleet for these routes in Europe, Azul should consider entering the market using FDI (foreign direct investment) and acquiring Thomson Airways following a brownfield strategy, very similar to the TAP Portugal case. The reason why they should use a brownfield strategy is to positively use the already existing infrastructure from Thomson Airways and reduce their start up costs in a benefitial manner. Since both the carriers focus on low-cost experiences, Azul could take advantage of the available fleet and consumer trust to enhance the quality of those flights and stand out at the European market. By doing that, Azul can enjoy the opportunities of having a high market acceptance, full control of operations in specific routes, as well as diversify their operations, which is, in this case, comparably better than facing potential issues between partners (in the case of a joint venture) as well as possible existing culture and ideology differences between them.

4.6 Marketing Mix

4.6.1 Pricing

There should be a slight adaptation of price because of the different currencies, but mostly because for the new route London – Brazil. São Paulo and Rio de Janeiro, being the major capitals and most attractive destinations are used for a comparison among carriers in this case (placement strategy will be analyzed below). For the category price, is important to analyze competitors that flight with or without any connections to London. Table 12 shows the average prices during off-season (no specific holiday period) of those straight flights (no connections) of the one-way adult ticket London (LHR) - São Paulo (GRU) from different airlines. Prices are in US$.

Carrier Average Price

Flight Time Duration

(including connection time)

Stops

TAM Airlines $1,451 11h50min (Direct Flights)IBERIA Airlines * $2,109 11h50min (Direct Flights)

British Airways $2,133 11h30min (Direct Flights)

Table 12: Average Price one-way ticket LHR – GRU with no stops.41

41 https://www.google.com/flights/

*Used for comparison matters only since it is one of the three major consumer choices for this route.

Prices for round-trips are, in average, proportionally the same as of one-way tickets (twice as much). Table 13 shows the average prices during off-season (no specific holiday period) of flights with stops (connections) of the one-way adult ticket from London (LHR) - São Paulo (GRU) from different airlines. Prices are in US$.

Carrier Average Price

Fligh Time Duration

(including connection time)

Stops

TAM Airlines $1,527 38h0min 2 - Zurich, ParisTAP Portugal $1,020 14h30min 1 - Lisbon

British Airways $2,144 15h25min 1 - Madrid

Table 13: Average Price one-way ticket LHR – GRU with stops42

As it can be seen in table 12, TAM Arilines is the one that brings better prices for the route. In table 13 though, its prices are far behind TAP Portugal, now affiliated with Azul, giving them some strong indication of how to achieve dominance in this route. In both cases, British Airways prices are extremely expensive, since they do not consider themlselves a low-cost carrier and rely on their more luxurious aircrafts. For Azul, it should not be a problem to compete with their prices and they can, with their new technology and comfort in on-flight experience, face against the British luxuries.

Comparing the prices of TAM and Azul in Brazil, Azul usually maintains a range of 20% - 40% of difference from TAM prices, making them the best price available between these two. Azul should maintain this percentage difference to conquer this route, ranging their prices from US$1,160 – US$870. An optimal experince start price would be then around US$1015 , which is very similar to TAP Portugal current price, but with Azul comfort and experience, it can become a very competitive price with higher demand during off-season.

During holiday season, most carriers adjust their prices to, in average, US$200 more than their off-season prices. Azul can stick to that strategy and have a range price of US$1,360 – US$1,070 for that period of time, specifically for that route.

4.6.2 Product

Just as the Portuguese case, the operation should be carried out with A330 jets from Airbus, as they are the jets used by Azul in the majority of their international destinations. Besides the already used A330, the new order of 63 A320neo and five A350-900 should have great significance for routes to the UK. These totally redesigned airplanes (as seen in figure 14 below) are the most modern in the world and represent Azul’s competitiveness to be considered a major player in the market.

42 https://www.google.com/flights/

Figure 14: New redesigned A320neo (top) and A350-900 (bottom) acquisitions from Azul43

Considering the very individualistic essence of the British, more customized interiors can be asked from these clients. In this case, all jets used should have good part of their economy class adapted in order to create more Azul Space (Economy Xtra), which even though it accommodates less people, it provides 86 cm of legroom, 9” entertainment touchscreens, and Brazilian gastronomy provided by the best chefs. These features, although they are a charged service, are expected to be used more widely on flights that have richer destinations, such as the UK in case. This adaptation can not only increase Azul profits through this route, but also start operations with a very strong brand image, as a luxurious yet low-cost carrier.

Also, the presence of the Xtra Business Class in these A330 jets is extremely important, considering this is where they can compete with higher-end carriers, such as British Airways. In this case, clients that are looking for a more luxurious trip with features such as bed-seats, 16” entertainment touchscreens, four-course meals and exclusive advantages can enjoy the Azul experience as much as they would with British Airways but with a more affordable price.

As a requirement for any international flights, Azul already provides all assistance and in-flight features in three languages: Portuguese, English, and Spanish.

4.6.3 Promotion

The very well acclaimed TudoAzul loyalty program in Brazil is great part of the promotion process, as building up thousands of frequent flyer mile points at Azul may convince one to us Azul more often than other carriers. Azul has special features for constant passengers, such as seat upgrades, free accesses to flights, point exchange from credit card purchases, and even an agreement with Delta Airlines that the miles acquired in any Delta

43 http://www.skyscrapercity.com/showthread.php?t=1672628&page=53

flight can be transferred to their loyalty program. Considering the United Kingdom example, they should go through some adaptation on how many miles one should acquire per flight. As of now for international flights, specifically the route Orlando (MCO) – São Paulo (VCP), 60,000 points44 are necessary for a one-way ticket in the economy class, and 105,000 points in the business class, in average. In an adaptation of its loyalty program, Azul could call “AllBlue” their new international loyalty program. Because of the increased distance and intention to promote the new destination to the UK, it is recommended that Azul starts providing these flights at 80,000 points and 125,000 points (one-way ticket) for economy and business classes, respectively. This will increase the demand for these flights coming from Brazilians (possibly already clients), and will induce more British citizens to adhere to the program, being able to build on the demand of this destination.In order to better promote the use of TudoAzul, the website voeazul.com.br/en should be adapted to better explanations and marketing in English as well, considering the higher demand of Americans and British that is expected for the future. Also, the domain “voeazul” should be changed to a more friendly and easier to find to English-speaking clients, such as the proper Portuguese translation ‘fly Azul’.

4.6.4 Placement

Azul’s new destination choice in the UK ought to be chosen by the most populated airports and possible concentration hubs. Azul can be establishing an office in Luton where Thomson Airways is now located as well as one in London, since the capital presents great infrastructure for airports (consequences of the 2012 Olympic Games) and is definitely the upmost for passenger concentration. Specifically in London, London-Gatwick is the best choice for establishing a hub, since they can once again enjoy the Thomson Airways structures and aim at an airport where not so many carrier hubs are established, like London-Heathrow.

Table 14 summarizes how standardized vs. adapted are the methods used in each of the “P”s of the marketing mix.

44 http://viajemais.voeazul.com.br/ScheduleSelect.aspx

Table 14: Standardization vs Adaptation

4.7 Conclusion

After analyzing (1) the company overall and its international involvement, comparing global target markets with two different comparisons - (2)one more basic and the other (3) deeper - and (4) selecting the adaptation necessary for each of the components of the marketing mix, the United Kingdom is the best choice for Azul to expand once again. Although, it is important for Azul to study the future trends in the air traveling market in the UK and base their product and brand image on consumer preferences, as it is extremely important to not be harmed by cultural differences, what can hurt the brand. By entering the Queen’s land with those measures in mind they can enjoy, as mentioned, the preference wave for low-cost carriers but also show similar comfort to major global airlines such as British Airways.

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“On my honor, I have not given, nor received, nor witnessed any unauthorized assistance on this work.”