The Impact of E-Commerce on the Air Travel Industry

The Impact of E-Commerce on the Air Travel Industry

The two main primary objectives discussed in this case are how competitive advantage can be obtained from the exploitation of new information e-commerce technologies and how the role of the travel agent has change because of the new information technologies being used in the air travel industry. As time goes on and advances in technology are rapidly increasing, the air travel industry is also seeing major advances in the way they conduct business. Airlines must constantly keep up to date with computer technology and fight to have the best GDS (Global Distribution Systems) on the market to obtain customer sales and customers satisfaction.

The role of the travel agent was to advise clients on travel destinations and act as an intermediary in the process of travel booking. Their roles changed dramatically when the development of direct reservation systems and online sales channels were introduced to the air travel industry. The first such system was called SABRE, introduced by American Airlines in the 1960's. This was the first computerized airline reservation system, serving AA reservation counters across the entire North American continent. Today, over 90% of the 40,000+ travel agents in the U.S. employ various direct reservation systems. Each agent tends only to have one system in place because of the limited space and the high learning process that is involved with it. SABRE still continues their competitive advantage today because approximately three out of five airline tickets are booked through the SABRE system. American Airlines accounted for more revenue using the SABRE system than from flying passengers alone. The reason SABRE still has the edge in competitive advantage today is because it continually updates and keeps up with technology innovation, employing the best and most up to date technology.

During the mid 1970's, many airlines began to offer travel agents the access to the direct computerized reservation systems. This access was thru dial up connections and changed the way travel agents completed transactions because they had up to date availability and price information. Travel agents were still essential to the process of reservations because they had the knowledge, expertise, and access to the systems that were unavailable to the consumer. Over time, direct reservation systems became more available and included a wider range of products and services, to become GDS's. The role of the travel agent changed as the time went on, from knowledgeable travel and destination expert, to an intermediary, who saved the customer time and money by booking whole travel packages and travel-related products and services. By the mid 1990's, the market had dramatically changed and travel agents became less important. But most recently, travel agents had faced additional threats to profitability because of the widespread use of the internet. First, airlines use disintermediation, by cutting out the middle man, in this case the travel agents, and replacing them with computer-reservation system operators. It is cheaper and more profitable for the airline to book customer reservations over the internet rather than by a human salesperson. The second threat for competition is online travel agents whose overhead costs are much lower and who can achieve much wider economies of scale in processing large numbers of sales transactions. There is however a cost to using online travel booking services. The search cost can be high as air ticket prices may change from day to day, even from hour to hour.

Before all of these systems and internet website for air fare developed, it was normal to visit a travel agent to set up your travel plans. It was not worth the time and cost for an individual to search for and discover information themselves, and the commission fees paid to travel agents were also applied to direct booking made my individuals, so there was no cost or convenience advantage of not using a travel agent. The use of direct reservation systems by travel agents raised barriers to entry for those who were not early adopters of the system because the investment required in training was high and late adopters of the new technology struggled to keep up.

Recent trends in the airline industry have also had an impact on the way air travel is conducted. Many travel agents now bundle a variety of products and services into an attractive package with an attractive price. Bundling gives the travel agent more power, as they can present the client with more attractively priced product bundles rather than if the consumer buys these services separately. Air travel booking provide roughly about 54% of all revenue for U.S. travel agents, therefore direct and online sales of air tickets represent a huge threat to the survival of most travel agents. Unless they can find a way to differentiate