E-Commerce in the Airline Industry

E-Commerce in the Airline Industry

Introduction

The airline industry exemplifies the effectiveness of e-commerce and the way technology can re-create the industrial structure. Today a traveler from New York can book a return flight from New York to London, a car on reaching, and the hotel room. The traveler on reaching the airport can get his boarding pass and confirmation to his car and hotel room number from the automated ticket machine of the airline.

And if the traveler is a non smoker and prefers a room in the non-smoking floor, the system would have his preference and would book the room accordingly. If any changes are to be made in the travel itinerary at any point of the travel, it can seamlessly be made by calling the customer services. All this is possible, without any human interface, through the development of information technology and the Internet (Doganis, 2006).

Research shows that business travelers are almost twice as likely to use internet travel agency to book their tickets as the conventional model because it is faster and more convenient (Travel Weekly, 2005). This forms only a part of the e-commerce, which is not restricted solely to making reservations. It encompasses the whole process of doing business, interaction between the firm and its suppliers, partners, and customers.

The Internet and IT provides immense possibilities for growth for the airlines, and plethora of information for the buyers so that they can grab the best available offer. The airline reservation systems are sophisticated computerized systems that can predict and determine the demand for tickets over time and set the price accordingly (Economist, 2001). Therefore, e-commerce becomes the interface for doing business between all the service providers and receivers.

The airlines industry was one of the early adopters of IT and it has helped in changing the whole structure of the industry. Using this they have successfully reduced their operating costs and marketing and distribution cost. As estimated by the Economist, the management information system and the Internet together has saved the airlines “commissions of up to 5% on ticket sales” and “cost of printing and sending out tickets and the fees (around $11 per ticket) for the computerized reservation services” (Economist, 2001, p. 20). Companies like Southwest, Easy Jet, and Ryanair have reported that almost 90 percent of their tickets were sold online (Economist, 2001).

There has been a growth in the e-booking industry in America and it is not restricted only to passenger ticket booking, but also to cargo booking. In 2005, 14 percent cargo shipping through airlines was booked online (McKenna, 2005). The advantage of e-commerce is not restricted solely to cost reduction and provides opportunity towards improving their operations and customer services. This paper traces the history of integration of IT and the Internet in the business models of airlines and studies how this has changed the face of the industry. The paper will also discuss the technologies used by the airlines presently, and the future trend of the industry.

History of the airline industry and e-commerce

Today airline industry can be called one of the best adopters of IT. An interest, therefore lingers to understand the way internet and IT has changed the interface of the airline industry. The early beginning of the innovations and changes in the airlines industry to adopt new technology began in the 1940s with American and United Airlines tried to adopt a reservation system to reduce the clerical cost (Copeland & McKenney, 1988).

However, soon the need to keep a track of the customer ticket numbers and other personal details important to control operations, so this information was then started being utilized for seat allocation, baggage, food, and other operational and service issues. This led to utilization of the data to the airline’s retail distribution channels for better marketing. This section will provide a brief history of the development of the airline reservation system and development of e-commerce for airlines industry.

The initial years of adoption of the automated reservation Copeland & McKenney (1988) call system the “experimental years”. They point out that the first automation was brought forth in the 1940s with the electromechanical engineering available, when the manual reservation systems were automated. During the manual era, all the flight reservation, seat allocation, operations, reservation clerks did customer information gathering manually.

There were huge availability boards placed in all reservation counters that displayed the number of seats available in particular flights. In 1950s, this was replaced by magnetic drum memories that captured the inve