Chaffey (2007), explains that digital business can be defined in two main ways in organisations. One is that it can be applied to strategy and operations, and the second is that digital business is an adjective used to describe businesses that are mainly operating online.
Since the internet emerged, the world wide web has changed the way everyone now lives. Businesses apply digital technologies and the media to help them compete with similar companies, through optimising their processes on the internet. The internet has become a medium for travel transactions over the past few decades. Sondergaard (Gartner, 2013) claims that now, ‘every company is a technology company’ which suggests that he, as well as many others, believe that technology is now a part of every sector in the economy.
The airline industry is a major sector in the tourism industry. According to IATA’s industry statistics for 2016, airlines received over $511 billion compared to $365 billion ten years ago. Passenger growth has gone up by 7.4% in the past year (IATA, 2015).
Technology based systems are all competitive methods used between airlines to help their companies gain costumers and advertise significant cost reductions. The underpinning explanation for the internationalisation of tourism is the introduction of new technology in the airline industry (Page and Connell, 2009). Now that e-tourism is being used majorly, there has been a rapid growth in global tourism because of many factors. Technological change has transformed all of the tourism industry, including the airline sector. The introduction of information technology has revolutionised businesses all around the world. According to Page, (2009) “airlines use technology to develop and manage their business model as well as monitor the external environment and competition, undertake revenue analysis, forecasting, maintain historical data, predict demand, and design desirable products.”
Digital business has developed majorly, but in different ways across the different industries. The aim of this report is to investigate the airline industry in terms of digital business. It will evaluate how the airline industry uses strategic applications of digital technology, digital technology innovation, and also the digital technology of the future.
Digital Technology Innovation
An innovation is an idea that is perceived as something new by an audience. To influence the spread of this new idea, Rogers (1983) believes, in his Diffusion of Innovation Theory, that there are five elements which spread the word, which are; the innovation, early adopters, early majority, late majoring, and laggards. The innovation is spread amongst the population until it is at a point where a large amount the population knows about it (Kaminski, 2011).
An innovation in terms of booking in the airline industry was the introduction of CRS in American Airlines. In 1953 ‘Sabre’ (Semi-automated Business Research Environment) reservations system was launched by American Airlines which lead to the birth of Computer Reservations System (CRS). This helped airlines check how many seats were available on a flight and was an innovation at the time, as before this change in technology, the system for booking was all manual. The introduction of this system meant that American Airlines could cut call centre staff, saving them money. After CRS became more popular, they were no longer used by airlines but eventually used instead by travel agencies and tour operators to make reservations themselves.
A few years later, we came to the ‘Age of the internet’ which was in the 90’s/2000’s. The world wide web was first introduced then, so this is when technology really started to progress. The internet became the fastest progressing tool of communication ever. Radio broadcasters took thirty-eight years in total to reach an audience of fifty-million and television thirteen years, whereas the internet took just four (Kastelein, 2013). Internet Booking Engines (IBEs) were the new advancement which let passengers book tickets themselves online without the help of travel agencies. This made direct selling possible as consumers didn't need to go to a travel agent anymore to book tickets, but instead straight to the airline, saving time and money. Nowadays IBEs are used commonly and globally with companies, saving time and money and letting costumers make instant bookings in the comfort of their own home. This has cost many travel agents their jobs and they are in danger of decline as costumers now mainly go straight to the supplier. Alaska and Horizon were the first US airlines to introduce buying and selling tickets online, in 1965. Some benefits of online booking are that it makes businesses want to be more competitive as they will always want to give costumers the better deal and prices. Them being competitive will put them in a better position to meet their costumers expectations and make buying simpler for them. Another benefit of booking online is that it reduces the cost of sales administration.
In the past, airlines wouldn’t pick and choose their intermediaries as they wanted any way to get as many sales as possible. However, now that airlines use direct sales they are able to pick and choose which intermediaries they think will help them get the sales they need. Before the 90’s the high street travel agent was the main way people would purchase their flight tickets, but now that the online travel websites are readily available and internet in homes has become the norm, there is serious competition between them. Costumers no longer need to wait to see an agent at a specific time, they are able to book a flight at any time in the comfort of their own home, feeling confident with making online transactions.
The innovation of price comparison websites have also helped costumers feel more confident in buying online, as they can compare flights themselves as well as book tickets, instead of the agent finding products for them. Unfortunately for the travel agents, the price comparison websites such as flight scanner, help people to see the prices travel agents as well as airlines offer, so costumers will always go to the best available. As travel agents will have to add the price of commission on top of ticket prices, they would usually be more expensive and therefore less desired. It has become popular for airlines to advertise and tell people to book online instead of on the ‘high street’. This will benefit the airlines as they already expect most of their sales to be made online. The fact that they try to lead costumers to buy online is them trying not to lose any costumers who will buy from an agency or intermediaries and instead be able to close shops down and save more money, as it is a lot more expensive to own a shop then to own and run a domain. This is an example of technological change helping reduce the cost of some businesses (Page, 2009). The use of online booking will definitely continue as tourism suppliers increasingly target the online bookers, for example, EasyJet receives over 93 per cent of its bookings from the internet (Page and Connell, 2009). Online book-ability is important and can help companies gain experience of the world of online distribution.
First Choice announced its 100,000th online booking publicly, a main reason being to show that they already have so many people booking online, so they think that others may also follow too because they will trust an online booking website that already has a lot of costumers. EasyJet has also made “extensive use of incentivised newspaper promotions along with very aggressive media campaigns, which has led to a strong proposition, where the company’s orange livery is also very prominent on the internet even with partnered products”. (Page and Connell, 2009) RyanAir started advertising more aggressively to widen their amount of costumers and have released their first television advert in twenty-five years, using the tagline ‘Low fares, made simple’. The use of the adjective ‘simple’ stands out and will attract the more nervous travellers.
The airlines will hire professionals to make the website to look sophisticated and be user friendly. This is also known as context management. Another thing thats changed is that european scheduled airlines are looking to also compete with no frills. British Airways sometimes have flights as cheap as EasyJet. Sometimes new airlines and routes will advertise very low prices to help establish a market demand, Ryanair has offered free flights before to help create a new market with massive media campaigns. (Page and Connell, 2009)
As well as some websites being mobile friendly, another advance in booking technologies is the phone application and the non-stop flight. In recent years, airlines have been launching phone applications, enabling passengers to store their boarding passes, see seating plans, manage their loyalty points, etc. The non-stop flight is different then the direct flight, it is a flight which has no intermediate stops whereas a direct flight will make stops on the way where some passengers may leave the flight and some come board. The longest non-stop flight was from Dallas to Sydney with Qantas airline and took sixteen hours and fifty-five minutes on the 29th of September 2014, the shortest was from Westerly to Papa Westerly being only two minutes long (Qantas Flights 7 and 8).
In-flight entertainment was first introduced in 1936 – although quite different to the entertainment now. The introduction of in-flight entertainment included a bar, smoking room, dining room and lounge, and a piano (Ayiez, 2014). Recently, in-flight entertainment will consist mainly of being able to watch movies/television on the plane. Singapore Airlines introduced in-flight entertainment system by Krisworld in 1996/1997 which initiated an entertainment system of 22 video channels at the seat of every passenger (Page, 1999). Wifi on flights is a fairly new invention but many airlines have begun to introduce this too, as it is now accessible with around 40 per cent of US and international flights. The problem with wifi on flights is that the connections are slow, and the prices are high.
Strategic Applications of Digital Technology
Porter (1979), explains that in an industry, competition is split between five forces. These five forces are; ‘the entry of new competitors, the threat of substitutes, the bargaining power of buyers, the bargaining power of suppliers, and the rivalry among the existing competitors.’ (Evans, 2015) This competition is what causes rivalry between businesses within the same sector, causing the need for strategies.
According to a recent Accenture study (Koops, 2016), senior executives of leading airlines from around the world say that competing effectively is their number one business challenge. They believe the strategies they need to compete are through the digital world, as digital intermediaries are forcing airlines to give travellers the best flying experience as well as low fares. Digital technologies help airlines, however Koops (2016) believes that airlines must turn their digital strategies into ‘business strategies’.
In Accenture’s report on ‘From Digital Strategy to Airline Strategy (Koop, 2016), the author discusses the five areas airlines need to focus on so that they can compete more effectively. These areas are; real-time insights, products and services, open platforms, connected operations, and transformation into a digital airline. Koops (2016) reveals that airlines can use real-time insights through reservation systems and social media to provide data about costumer behaviours. Airlines are then able to store all this data and then are able to use it to better the costumers journey as well as allow costumers to be provided with offers.
At a time where intermediaries are so popular for airlines, airline companies need to make sure that they are keeping the product they are selling to the best standard. They must offer different products and meaningful services that intermediaries cannot. They must make sure the product they are selling is to the best standard in terms of the plane being to the best standard, as well as the service.
As airlines are seen as just a means of travel in the travel chain for costumers, airlines will not have relationships with all of their costumers. To grow better relationships as well as reach potential costumers, airlines must begin to connect with online brands like Google, as well as online travel agencies which costumers go to, to book flights and holidays so that they can sell the products they want costumers to see. Airlines must open their platforms in order to reach out to a wider audience. It is proven that airlines with a big brand name, as well as having loyalty programmes are able to provide additional services such as hotels and insurance through non-airline industry players (Pappas, 2000).
Connections are one of the main things airlines must focus on to bring costumer satisfaction. The relationship between all of the functions in an airline must run smoothly to allow the costumer to have a good experience. Digital business now allows airlines to exchange data and analytics in terms of flight operations, ground operations, maintenance, marketing, sales, costumer service, and loyalty to share information to create the best experience, and digital business now allows this (Koops, 2016). This allows everything to be in real-time, for example if a flight is being delayed, costumers are able to find out about this much faster.
Transforming into a digital airline requires new business, technology and operating models. Things such as adapting to the current social media presence and allowing the staff to have tablets on them will help an airline stand out and become a ‘digital airline’. This will help all aspects of an airline to grow. All parts and colleagues of an airline will be able to work together providing more efficiency and better products and services.
Digital Technology of the Future
Although the digital technology of the airline industry has grown majorly, it is continuing its growth. New products and services are constantly being promoted so that airlines can compete with one another. There are many trends in the airline industry that are said to be released in the near future. Some may just be rumours, but it is interesting to see what the industry has got in store for everyone.
Future Travel Experience (2016) has released the five technology trends that airlines and airports will be releasing in the next year. One of them is robotics. Amsterdam Airport Schiphol has already testing out the ‘Spencer robot’. The Spencer robot is developed to help passengers through the airport terminals. The robot is said to be able to understand emotions and be able to respond in unanticipated circumstances (Future Travel Experience, 2015). This is not the first time airports have tried costumer service robots, however KLM, who designed Spencer robot is different to the others, which are usually used for luggage or cleaning duties.
Another future trend is said to be Biometric-enabled self-service. This relies on the biological characteristics of passengers to verify their identity, then enabling them to do things themselves. Air New Zealand installed the first thirteen biometric enabled self-service bag drop units in Auckland Airport. They contain a camera which captures the costumers face so that they are able to drop off their bag. Other airlines have begun to show interest in biometric technologies. This is not necessarily a new trend as people with biometric chipped passports have been able to use the automated ePassport gates, however, it is evident that biometrics will be used for more stages at the airport to ensure a smoother and faster passenger experience.
Future Travel Experience (2016) reveal that RIMOWA and Lufthansa launched RIMOWA Electronic Tag, which is a tracking device for baggage, solely available to frequent flyers. Many airlines have shown interest in this, including British Airways and Air New Zealand. Future Travel Experience have been told that this electronic tags for baggage should be popular within the year.
Some other rumours are that entertainment systems in aircraft will have wrap-around visual screens for 3D watching, as well as game playing. Another is that there will not only be in-flight bars available on some aircrafts anymore, but also small shops. (Dunn, 2016)
In conclusion, it seems that the digital technologies that are implemented and will be implemented in the future within the airline industry are all to help the passengers have the easiest and most seamless experiences possible. The fast growth of the internet has helped airlines adapt and use this tool to better their products and services. Digital connection between the industries and individuals is shown to be crucial now for economical advancements within the sector. The internet has lessened the costs of products for both the businesses and the passengers and has improved costumer satisfaction in many ways.