The Impacts of Electronic Commerce on the Logistics’ Functions of an Airline Company
Submission Date: June 15, 1998
Module: Logistics Management Degree Enrolled in: Master of Transport Management Student Number: 9806945
Estimating the impacts of electronic commerce (EC) today is like estimating the impacts of the automobile a hundred years ago. There is only one thing that can be said for sure today: Electronic commerce will substantially change the way in which we do business.
Hence electronic commerce has to be seen as a conceptual framework (section 1), which allows us to create unpreceded win-win situations, by implementing the appropriate technological means for each process (section 3). However, lack of security still is the major inhibitor for a full development of electronic commerce (section 4).
Fully embracing the benefits of electronic commerce requires long-term commitment and senior management vision and leadership, as the strategic implications of electronic commerce are considerable (section 5).
The impact of electronic commerce on logistics functions is considerable. It will foster the necessity of coordinating particularly marketing and logistics functions. The use of electronic commerce will lead to significant reductions in cost and increased revenues (sections 6 to 10). The most important being: A significant reduction in distribution cost (section 9) Incremental revenues through reduced inventory of seats (section 8)
The costs of implementing electronic commerce are significant, however savings in airline operations costs of up to 70% have been reported, depending on the share of electronic tickets. As long as this share remains low, short-term revenues cannot be expected (section 11).
“Electronic Commerce (EC) is the conducting of business transactions by means of electronic media and communication” (US Department of Commerce 1998)
Electronic commerce is a business concept, it is not defined by a specific technology, like Electronic Data Interchange (EDI), Internet or Voice Response. No one technology is sufficient to fit all needs of an airline’s business functions. Electronic commerce has an impact at different levels: not only does it speed up processes that hinge on information processing and distribution, but it also allows certain activities to be redirected or re-engineered. This represents added value in terms of lower cost, higher accuracy or more reliability: higher seller’s value, higher buyer’s value or both.
Electronic commerce therefore implies a high potential for creating win-win situations in our relationship with business partners and end-consumers.
Exact statistics on the growth of electronic commerce are scarce (commercial sensitivity and lack of tools for data collection). However, the data available indicates rocketing figures for on-line ticket sales, which as a business has the second largest volume of Internet sales after hard & software.
90% of Web users go on-line to retrieve information only. When polled in 1997, nearly 70% of Internet users said they planned to use the Internet for travel in the upcoming year and 38% of all adults said they would consider using the Internet for their travel in 1998. However, current on-line bookings form 7% of total ticket sales only.
Source: US DoC 1998
Southwest Airlines was the first U.S. airline to let passengers buy tickets on their Internet site in 1996. Since then Web travel services proliferated, like airline sponsored sites and virtual travel agents. Currently Southwest Airlines sell over 50%, Delta Airlines approximately 40% and American Airline 10% of their tickets via the Internet.
This section describes the key technologies of electronic commerce, currently available or under development. It will discuss which technology to use for what purpose, when to implement stand-alone or integrated systems as well as benefits and impediments of each technology. The crucial issue, however, will be the integration of existing and new systems in a seamless way. This is where additional value can be created and costs can be reduced.
A number of ‘core’ or ‘base’ technologies are underlying the system of electronic commerce. The combination of those provides another level of technologies, called capabilities below. These capabilities provide generic value. The base technologies and the generic values, as layed out in figure 1, remain the same across key electronic commerce technologies.
To estimate the value added by electronic commerce, the future development in those base technologies has to be observed very closely.