HOW HAS INTERNET CHANGED THE AIRLINE INDUSTRY?
INTRODUCTION The Internet has had a notable affect on the airline business. In the '80s airline revenues were dependent on travel agents, who primarily took a cut out of every ticket. This was costly for the airlines and costly for the customer. The industry found itself struggling with a third-party cost it couldn't effectively control. However, when San Diego State University rolled out the first iteration of the commercial Internet, all bets were off. Aviation Industry in India is one of the fastest growing aviation industries in the world. With the liberalization of the Indian aviation sector, aviation industry in India has undergone a rapid transformation. From being primarily a government-owned industry, the Indian aviation industry is now dominated by privately owned full service airlines and low cost carriers. Private airlines account for around 75% share of the domestic aviation market. Earlier air travel was a privilege only a few could afford, but today air travel has become much cheaper and can be afforded by a large number of people.
Aviation industry in India
In early 1948, Government of India established a joint sector company, Air India International Ltd in collaboration with Air India (earlier Tata Airline) with a capital of Rs 2 crore and a fleet of three Lockheed constellation aircraft. The inaugural flight of Air India International Ltd took off on June 8, 1948 on the Mumbai-London air route. The Government nationalized nine airline companies vide the Air Corporations Act, 1953. Accordingly it established the Indian Airlines Corporation (IAC) to cater to domestic air travel passengers and Air India International (AI) for international air travel passengers. The assets of the existing airline companies were transferred to these two corporations. This Act ensured that IAC and AI had a monopoly over the Indian skies. A third government-owned airline, Vayudoot, which provided feeder services between smaller cities, was merged with IAC in 1994. These government-owned airlines dominated Indian aviation industry till the mid-1990s.
In April 1990, the Government adopted open-sky policy and allowed air taxi- operators to operate flights from any airport, both on a charter and a non charter basis and to decide their own flight schedules, cargo and passenger fares. In 1994, the Indian Government, as part of its open sky policy, ended the monopoly of IA and AI in the air transport
services by repealing the Air Corporations Act of 1953 and replacing it with the Air Corporations (Transfer of Undertaking and Repeal) Act, 1994. Private operators were allowed to provide air transport services. Foreign direct investment (FDI) of up to 49 percent equity stake and NRI (Non Resident Indian) investment of up to 100 percent equity stake were permitted through the automatic FDI route in the domestic air transport services sector. However, no foreign airline could directly or indirectly hold equity in a domestic airline company. By 1995, several private airlines had ventured into the aviation business and accounted for more than 10 percent of the domestic air traffic. These included Jet Airways Sahara, NEPC Airlines, East West Airlines, ModiLuft Airlines, Jagsons Airlines, Continental Aviation, and Damania Airways. But only Jet Airways and Sahara managed to survive the competition. Meanwhile, Indian Airlines, which had dominated the Indian air travel industry, began to lose market share to Jet Airways and Sahara. Today, Indian aviation industry is dominated by private airlines and these include low cost carriers such as Deccan Airlines, GoAir, SpiceJet etc, who have made air travel affordable. Airline industry in India is plagued with several problems. These include high aviation turbine fuel (ATF) prices, rising labor costs and shortage of skilled labor, rapid fleet expansion, and intense price competition among the players. But one of the major challenges facing Indian aviation industry is infrastructure constraint. Airport
infrastructure needs to be upgraded rapidly if Indian aviation industry has to continue its success story. Some steps have been taken in this direction. Two of India's largest airports-Mumbai and New Delhi-were privatized recently. Two greenfield airports are coming up at Bangalore and Hyderabad in southern India. Investments are pouring into almost all aspects of the industry, including aircraft maintenance, pilot training and air cargo services. The future prospects of Indian aviation sector look bright.
Effect of internet
The effect of internet on aviation industry can be discussed in details taking up the benefits one by one. Following are the benefits and effects of internet on aviation industry including the effect on the customers too:-
a) Greater Flexibility Airlines industry in America took advantage of the new technology first, when it integrated its formerly stand-alone Sabre computer system with the Net. The new capability resulted in an ability to manage and store 36 million fare records that in turn, were able to produce 1 billion fare offers on-demand. As a result, this practical innovation lead the airline to become one of the most efficient, and successful companies the industry's history. b) Wider Selection For the customer, the ability to individually research, negotiate and purchase tickets directly has altered the competitive equation between buyer and seller. Before the Internet, ticket choices were primarily limited to the major airlines, and regional airlines were not able to market effectively against the larger carriers. However, once smaller carriers and customers could connect effectively, this synergy created a host of new, cheaper travel options. As an example, between 1984 and 1996, the airline industry grew more than 40 percent in gross terms, and much of that expansion can be directly tied to new efficiencies associated with networked marketing, sales and point-of-sale systems. c) Ticketless Travel In the past, customers expected to wait up to two weeks for paper tickets to be delivered, and even the fastest ticketing processes offered only 24-hour turnarounds. The only way to get a ticket on demand was to go to the airport and stand in line at the counter. However, with the advent of the Internet, followed by ticketless travel, a customer could make ad-hoc travel plans in as little as 10 minutes. d) Decreased Indirect Costs
Indirect costs affect an airline's bottom line in different ways. For example, eliminating the travel agent as a cost center created all kinds of additional revenue margin that was then redirected to marketing, equipment, systems and staff growth. This subsequently lead to customer-centric, globally distributed ticketing processes that additionally reduced point-of-sale costs across the board.
e) Tactical Promotions The Internet's communications infrastructure is made for direct airline marketing and sales, and this capability is used for promotional programs that either reduce operational cost, or rapidly increase ticket volume. For an example, in August 2009, JetBlue launched a flat-rate, 30-day pass for $599. Subsequently, the ability to store information on past ticket-holders then re-contact them electronically, allowed the airline help fill its entire flat-pass program quota by the middle of the month. f) Real-time decision-making mechanisms Real-time flight reservations can be pursued directly without reliance on bricks and mortar agents’ opening hours or ability to access the Computer Reservations Systems (CRS) at the time when a customer wishes to purchase. Buyers and sellers receive instant payment details and confirmation, thus instantly appropriating mutual value symmetrically. Airlines have the potential to re-enforce their brand values and trustworthiness through this direct interface with customers. On-line customers may place more trust in their own purchasing decisions and may be more confident that the information content of the site is up to date, and that the booking is error free. Decision making is further facilitated by access to a wealth of information on complementary travel services such as hotel accommodation and car-hire on both the airline’s web site and those of on-line agents. As a result of the reduction of information asymmetries, sellers have the ability to make quick decisions and generate rapid responses to customer needs, particularly in terms of direct communications mechanisms. For example:- the online presence has enabled the airline to provide ‘better value and respond more quickly to market conditions. Airlines can also gain rapid feedback on promotional effectiveness and demand structures, in addition to having the ability to monitor the behavior of competitors and respond appropriately in a timely fashion. Information efficiencies further reduce transaction costs and increase total value.
g) Future perspective There are a number of major areas where future developments in IT will create change within the airline industry. One of the greatest impacts will come from the increasing influence of consumer review websites: for example, Tripadvisor.com,
Airlinequality.com, Reviewcentre.com and other such sites. In the first phase of the Internet's penetration of the industry, websites proliferated - offering transparency on ticket prices. These consumer review sites are evolving with the "architecture of participation" (or Web 2.0), encouraging users to add content to the website describing and rating their experiences. This is typified by resources such as BA's recently introduced Metrotwin social networking site. This is not all. There are various private firms rather websites from the private domain like makemytrip.com which are now collaborating with the airlines and offering the tickets as well as providing the details of the offers and concessions available. This system is really making a buzz. h) A spotlight on standards
The rise of participating consumer review content has thrown a large spotlight on product and service standard differences between airlines. Airlines that treat passengers with indifference will find it much harder to retain existing passengers and to attract new ones.
i) Knowledge drives consumer behavior
Passengers will develop a good knowledge of the service and product to expect of each airline. For example, crew service standards, seat pitch, meals offered, drinks offered, inflight entertainment (IFE) experience and so on. With that knowledge and insight, they will make their choices accordingly. It was anticipated and has further been proved that this extensive consumer knowledge of airlines' relative merits has increasingly driven consumer behavior. Airlines delivering a sub-standard product and treating passengers with indifference will eventually go out of business.
j) Enhancing journeys, saving costs
The drive towards integration enabled by the Internet, open source software, service orientated architecture and mobile computing has continued to create change in the airline industry. It has lead to a number of opportunities for airlines to enhance a passenger's journey experience and to simultaneously save costs.
Delivering to customers the ability to both check-in via their mobile - and then to use a barcode displayed by their mobile's screen as a boarding pass - will smooth the passenger's journey and at the same time reduce airline costs.
Providing live flight status information to airline staff and passengers via the same Internet-based application will streamline communication processes, giving passengers the most up-to-date data and reducing airline costs.
It is therefore been proved that the last 5-10 years of technological change has brought significant benefits to those airlines that embrace the opportunities and to those passengers that choose to fly with them.
Ease of Use Consumer Reports Travel Letter determined five elements key to navigating an integrated travel site: • Broaden or narrow airport search parameters. • Specify the number of stops en route. • Select a seat. • Modify the flight information mid-search. • Re-sort search results by price, departure time, or total flight time. The top sites are investing more in customer interface and user-friendliness, while some of the second-tier sites are holding steadfast in their niche — such as CheapTickets, which has restricted search capabilities and advance purchase requirements. Customer Service In evaluating customer service of online travel Web sites, Consumer Reports Travel Letter looked at several criteria: • Toll-free numbers and availability of customer service help • Email responsiveness • Cancellation/refund policies • Change Fees While the sites vary in their customer service capability, the top sites again edged out the smaller sites — particularly in the 2002 study. It’s clear the smaller sites are vying for a niche market, while the largest ones are clamoring for dominance. This can be good news for consumers, provided they are aware of the trade-offs.
E-business Penetration in Global Aviation Markets European airlines joining forces on the Internet follows a similar strategy announced by U.S. carriers in November. United Airlines [UAL], Delta Air Lines [DAL], Northwest Airlines [NWAC] and Continental Airlines [CAL] unveiled plans to establish a Web site offering a selection of on-line airfares and related travel information. Currently, 27 airlines have expressed an interest in participating in the venture. No official launch date has been set for the site, but participants say it will be functional by the end of the second quarter. The U.S. Internet model is expected by its carriers to give them an opportunity to target a broader customer base for less of an investment than would be required if they went it alone. "It is not as expensive to capture the travel market on a group basis and it provides a more holistic approach to the travel experience. Analysts estimate marketing costs alone for the joint web site could range from US$20-US$50 million in addition to a booking engine, staff and customer service costs. Attracting Customers through Focused Strategies (case study of United Carriers) There is a broader danger for airlines in e-commerce of becoming commodities. Over the Web it is harder to differentiate them. Airlines are somewhat behind the curb in ecommerce initiatives, and they need to become more active overall in the travel industry. What airlines find out is customers do business with the most familiar, easy to use and valuable companies. They value that over and above an airline ticket. United Airlines has recognized the value of targeting a broader customer base through its e-commerce initiatives. Online customers with a family of products are targeted, and it was realized there is no one size fits all solution on the Internet for the carriers. In addition to its own Web site United has Internet partnerships with buy.com - through a new travel site buytravel.com and CollegeTravelNetwork.com. Buytravel.com offers travelers a variety of products including United's discount e-fares, which were previously only available through the airline's Web site. These relationships were designed to reach customers who normally would not visit United's company Web site. Travel Industry Retaliation (travel agents) But the airline industry's interest in e-commerce does not rest well with everyone. Travel agents, whose commissions from airlines have been cut by as much as three percent
over the last year, are attempting to sustain their roles as middlemen through regulatory channels. They claimed that airlines are systematically trying to control the web, the very same entity that has been touted as a method of free enterprise. It was argued that if airlines have a single outlet to control content, information and pricing the risk of violating anti-trust competition regulations is increased. However this industry lacks in competition already. So it is tough to tell how this benefits the consumer. The participating airlines in the joint Web site counter those accusations saying its purpose is to ensure competition. This benefits customers because it is an alternative to two dominant (Travelocity.com and Expedia Inc.) sites.
Internet technologies offer ways for airlines to operate more effectively, they also pose major challenges for corporate decision makers. This project report has illustrated how the Internet represents a powerful technology for commerce and communication between customers and airline companies. The Internet clearly enables the customer to move from being a passive participant to that of being proactive and more sophisticated in their relationship with airlines. The implications of these trends are that airlines are dealing with a ’virtual traveler’. These travelers have global access through the Internet to more products and services than ever before and with instant communications, they also pose major challenges for corporate decision makers within these organizations.
The Internet has become central to the strategic development of the airline Companies. The scope and boundaries of the airline industry have become less clear as a result of the adoption of Internet technologies at the customer interface. Such a trend presents airlines with a major challenge in their attempts to define and achieve areas of sustainable competitive advantage. The exploitation of information technology to manage information is already a key feature of the relationship between airline operators and their customers. Airline operators that deal directly with travelers will have to allocate resources towards analyzing and determining their needs in order to build successful relationships. The findings have also shown the trend towards partnerships and alliances resulting from demands on the part of customers for complementary offerings rather than for individual products and services. It is extremely difficult to identify which products and services offered by the airline are a distinct source of competitive differentiation. In fact, it could be argued that the source of value creation resides in networks of product and service providers. The adoption of Internet technologies at the customer interface to facilitate transactions requires a network of capabilities drawn from a number of sources including customers, suppliers, complementary product and service providers and, in some cases, competitors. Exploiting Internet technologies to integrate and leverage these resources in a more innovative and powerful way.
"E-business Penetrates Global Aviation Markets". World Airline News. FindArticles.com. 07 Nov, 2010. http://findarticles.com/p/articles/mi_m0ZCK/is_8_10/ai_59636717/
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