Airline e-Commerce

Log on. Take off.

Michael Hanke

• Publisher: Routledge
• Year: 2016
• ISBN:
  9781317336976
• Edition: 1
• Topic: Business
• Subtopic: Business General
• Index: Business

From the few tickets that were sold by Alaska Airlines and former British Midland in December 1995 via the industry's first airline booking engine websites, global online travel has grown to generate today more than half a trillion dollars in annual revenue. This development has brought significant changes to the airline business, travel markets, and consumers. Today, airlines worldwide not only use e-commerce for online marketing and selling but also as a platform to offer unique services and capabilities that have no counterpart in the physical world.

This book is an in-depth introduction to airline e-commerce. It covers a broad scope of areas that are essential to an airline's ongoing digital transformation.

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• Digital properties & features

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• E-marketing

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• E-sales & distribution

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• Web customer service

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• E-commerce organization

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• E-commerce strategy

Written by an airline e-commerce expert and illustrated with numerous examples of leading airlines in this area, Dr. Hanke provides for comprehensive "behind-the-scenes" details of how airline e-commerce works. This book is a crucial companion for students and practitioners alike because it allows the reader to acquire a thorough foundation of airline e-commerce. Furthermore, the book enables the reader to appreciate the ramifications of airline e-commerce in certain corporate areas and to take effective action for a successful e-commerce strategy.

Chapter 1

Introduction to e-commerce in the airline industry

The internet was invented for travel.

Scott Praven, former United Airlines chief marketing officer and head of united.com

1.1 THE OPPORTUNITY

Few innovations in the history of mankind offer as many actual and potential benefits as e-commerce does. Today, for any business, it is therefore no longer a question of if but how to deal with e-commerce. The opportunity to leverage it to enhance one’s competitiveness in the marketplace is simply too big and no airline in the world can afford to ignore it—unless it wants to drive itself out of business.

So how big is this opportunity? Let us start with some basic statistics on consumer adoption. From humble beginnings in the mid-1990s to today, the commercial internet has come a long and fast way. In 1995, less than 0.5% of the world’s population or 16 million people were internet users². This is an incredibly small number compared with the 42% or over three billion people in 2015 (Figure 1.1). To put these numbers into perspective: Facebook in 2015 with 1.5 billion active users is almost 94 times larger than the entire global internet population from 1995.

■ Figure 1.1 Worldwide internet users and penetration: Growing and growing

Source: FT.com (2014)¹

The internet has also become more pervasive due to the ongoing proliferation of connected devices. Desktops, smart phones, and tablets have been joined by smart TVs and cars, computing wearables, and connected everyday objects (also referred to as the Internet of Things or IoT). In total, we are talking about an estimated 10 billion devices in 2015. This number is predicted to jump to almost 35 billion by 2019.³ Clearly, tomorrow’s travelers will be connected like no other generation before.

Online shopping by consumers (the so-called Business-to-Consumer or B2C trade) has turned into big business. In 2012 for the first time, global B2C sales topped $1 trillion. This is expected to more than double to $2.3 trillion in 2017.⁴ Airline tickets contribute significantly to this online sales story. After books and clothing/accessories/shoes, they are the third most popular item bought on the internet.⁵

Total global travel generates more than a trillion dollars every year. In 2015, sales exceeded $1.2 trillion and there is more growth ahead. By the same token, online travel not only accounts for a significant share of this but it also grows at a faster rate.⁶ In 2015, online travel worldwide accounted for more than $533 billion and the forecast is a steady increase through 2019 with $762 billion. The online travel penetration rate has grown in all travel regions (Figure 1.2). The bulk of global online travel sales comes from the air sector. Depending on the data source used, it ranges somewhere between 30% and 40%. Other popular online travel products include travel accommodation and car rental.

A powerful combination of factors fuels this impressive development. Among them are inexpensive access to an ever more ubiquitous internet, online travel’s mass market appeal, changing shopper behavior, favorable demographics, and the arrival of large marketing and technology savvy companies in the travel space (Figure 1.3). In essence, an airline that aims to capture its share of this growth story needs to go digital.

■ Figure 1.2 Global online sales in travel (2015–19) and regional online travel penetration rates (2011–15) (rounded figures)

Source: eMarketer (2015)⁷ Phocuswright⁸

■ Figure 1.3 Why is online travel growing?

1.2 AIRLINE E-COMMERCE: WHAT IS IT REALLY?

Although the engagement varies widely from company to company, all commercial carriers in the world today are participants in cyberspace in some shape or form. Even Haiti’s Tortug Air with www.tortugair.com or Congolese airline Compagnie Africaine d’Aviation with www.caacongo.com, based in countries that are among the poorest on earth, have a web presence.

E-commerce is not just on or off. There are “fifty shades of e-commerce” and the different forms depend on the degree of digitization of the three dimensions involved in any commercial activity:

■ the product dimension

■ the agent dimension

■ the process dimension.

Any of these three dimensions could be physical or digital. Accordingly, e-commerce, could be “pure,” “partial,” or “non-existent” (Figure 1.4). For example, a customer checks with an airline’s airport ticket office to buy a paper ticket from an airline representative and pays cash for it. There are no digital but only physical aspects in this transaction. Hence, one would speak of “traditional commerce.” However, imagine the same customer engages an airline’s digital property such as the company’s website—we refer to such a person as a “web traveler”—and uses a credit card to complete the online purchase of an e-ticket. This scenario involves digital aspects such as the digital agent (the airline website) and the digital process (customer using an online form of payment and receiving an e-ticket).

■ Figure 1.4 The dimensions of e-commerce

Source: Whinston et al. (1997)⁹

To be clear about the digitization of the airline product: Unlike companies in media, music, and film industries that have been faced with the challenge of commercializing digital versions of their physical core products, airlines do not have this issue. The inflight product, the customer service infrastructure in the airport, and the destinations in a route network are all examples of an airline’s core physical product that cannot be digitized. Therefore, airline e-commerce should always be partial and never pure.

“Should” is the appropriate word because there is a dimension beyond digitization. It is called virtualization and it already impacts the physical aspect of air travel. With the introduction of virtual worlds such as Second Life in 2003, traveling in a computer-based simulated interactive 3D environment via avatars has become an option for some people who want to “fly” or teleport on an airline’s route network anywhere in the virtual world. Brazilian airline TAM was the first real-world airline to launch its presence on Second Life in 2007.¹⁰

In recent years, several airlines have become engaged in virtualization via the introduction of website avatars, holograms, and augmented reality applications. A new twist to virtualization recently emerged with Qantas. In January 2015, the Australian carrier announced the test of virtual reality headsets on selected long-haul flights in first class. Passenger can use them for inflight entertainment and to learn more information about the carrier’s services and destinations. Similarly, in summer of 2015, Dutch LCC Transavia launched a trial on several European routes from Amsterdam and deployed virtual reality headsets as part of its inflight entertainment. This new combination of physical, digital, and virtual aspects in managing the airline business is likely to grow in the future.

The overall trend points to a “purer” e-commerce environment in the airline industry. Since its beginnings in the early 1990s, airlines have gradually increased the digitization of their value chain. The digital properties of airlines have significantly evolved from being basic agents that provide limited static information about an airline’s products and services. Today, they are sophisticated one-stop platforms offering a wide spectrum of dynamic informational content and interactive applications for shopping and self-servicing. E-ticketing, online shopping carts handling web bookings and payments, and self-service features for web check-in, flight status queries, or frequent flyer program (FFP) account management are all examples of this digitization.

Moving forward throughout this book, there will not be any semantic difference between “pure” and “partial” airline e-commerce. We will just refer to airline-commerce as long as we keep in the back of our mind that it involves different degrees of digitization and that it actually exists the moment any single one of the three dimensions involved in a commercial transaction is digital.

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