EBusiness systems innovation and change in the passenger airline industry

Van de Zwaag, Frank
Doe, John
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Master of Business
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Auckland University of Technology

The purpose of the research is to identify to what degree the radical change and innovation of recent years in the passenger airline industry is driven and enabled by information and communication technology.

The legacy airline industry environment is characterised by regulations imposed by governments, quasi government bodies, industry bodies, conventions, and alliances. Traditionally the airline business model drivers focused on technology, safety and control. Historically airlines had a strong focus on passenger revenue optimization systems, revenue accounting systems, and passenger reservation systems, combined with aircraft routing and scheduling algorithms, and supplemented with aircrew allocation and tracking systems.

A major innovation of the airline industry was the deployment of a worldwide network of airline computer reservation systems in order to provide global access by the airline's agents to its seat inventories and prices. As the network was developed and controlled by the airline industry, it further enabled the incumbents to effectively control the market.

The emerging open structure of the Internet provided alternative distributions channels for a new airline business model. Theses airlines based their strategy on capturing a large segment of the consumer market by offering low airfares as alternatives to the relatively high fares of the incumbent airlines. As an alternative to the relative expensive global distribution systems, the new airlines used call centres and the Internet as their distribution channel, thereby creating an efficient market, and diminishing the stronghold the incumbent airlines had on the industry.

Change is taking place within the airline business models in order to restore equilibrium and new airline business models have appeared. The focus of this research is to identify the new drivers that are either based on, or directly related to, Information and Communication Technology. These drivers are the new airline business model. The author has sought to understand the context in which the airline industry operates, as well as the innovation that drive the airline business models of the emergent airline businesses.

The author used a qualitative approach for the research to elicit grounded data, and be able to define a base system dynamics business model. Qualitative interviews were conducted with airline industry experts from across the globe to ascertain their vision on the research questions. The data was analysed using a qualitative analysis software tool and the results interpreted by the author.

The outcome of the research was that customer adoption of new technologies has changed customer behaviour. Customers are now more able to and demand a sense of control over their journey. As a result the new airline business model will have a strong customer focused strategy, in which technology plays an important role. The author identified the following major business value drivers that technology based: an online distribution channel, online check-in capabilities, airport self-service facilities, and passenger baggage tracking. The new business value drivers are focused on giving control back to the customer and enabling seamless journey management. A growing amount of control is given back to the customer to make personal decisions in an otherwise heavily regulated environment.

The author recommends that further, quantitative, research is conducted to build a systems dynamics business model to ascertain the degree each of the technology drivers contribute to the business value.

Airlines -- Management , Electronic commerce
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