Use of Information Technology in US: Airline Industry - Case Study Example

The use of INFORMATION TECHNOLOGY in the US Airline Industry INTRODUCTION Flying has become one of the most popular forms of public transportation. Now air transportation is as much a part of life as telephone or computer. Speed, efficiency, comfort and safety - these are the 4 symbols of both modern civilization and modern air transportation. If one wants to get anywhere in a hurry, as most business people do, because time means money, is to fly. Air transportation has enabled employees of business and government organizations to reach any point in the world within hours. Over the recent years, as more and more passengers are flooding airports it has became more and more obvious that only the technology of the integrated information systems can be the way leading to the future. As such there is a need for airlines to look into the future. The main ingredients for any future development are- innovation along with forging a unique relationship with passengers. It is projected that the airline industry will continue to be key to the future of economic development & prosperity in order to implement changes for the future, Innovation and partnership will have to play key roles in any airlines' strategy, which focuses on Internet technologies, end-to-end services to the desktop and airport integration. The Committee on Commerce, Science, and Transport (2001) has come to a conclusion that some areas in which airlines will have to revamp existing technologies & services are such as introducing on-line distribution, ticketless travel, self-service ticketing and adapting to smart cards. There is a great opportunity for the integration of airport and airline systems, along with creating new & innovative applications for domains such as biometric security, electronic passports, wireless bag tracing and much more. The airline under consideration is the Southwest airlines, which is a major player in the US airline industry. The consultant company aims to signify the importance of adopting Information Technology into the Functioning and infrastructure of the company in order to reduce costs, improve efficiency, quicken processes, and enhance customer satisfaction. Financial Information (last 15 years) According to Crandall, R. L. (1995), the U.S. airline industry registered a $721 million profit for the third quarter of FY 1993. Traffic, which had seen a standstill flow of customers prior to the summer of 1993, responded to the substantial discounts in the summer of 1992, resulting in registering a record numbers of airline travelers. Traffic in July and August of 1992 increased 13 percent over the previous year. For all of Financial Year 1992, traffic for the major air carriers had increased by about 6.7 percent as shown in the table below: Table 1: Airline Trends (in billions of dollars except as noted) Item 1991 1992 % Change Total operating revenue 75.2 8.1 3.9 Scheduled passenger revenue 57.1 59.8 4.7 Cargo revenue 6.6 7.2 9.1 Charter passenger revenue 3.7 2.8 -24.3 Other revenue 7.8 8.3 6.4 Scheduled revenue passenger miles(1) 448.0 478.1 6.7 Charter revenue passenger miles(1) 15.3 15.1 -1.3 Cargo revenue ton miles(1) 16.1 17.1 6.2 Number of aircraft (actual) 4,206 4,265 1.4 Employment (000)(2 533.6 540.4 1.3 (1) Billions. (2) Employment is only for large, certificated air carriers. SOURCE: U.S. Department of Transportation, Federal Aviation Administration; Air Transport Association. According to information provided by industry sources, due to lack of passenger turnout and the delay in offer of cuts to travelers, the airline industry saw a lukewarm response in the financial year of 1993. Another measure which is popularly used and known as the available seat miles (ASMs), which measures the available capacity, was seen to have risen by 2%. As against the previous year's 62.6%, the airline industry reported a healthy but slightly lower 61.2% in 1993 for the domestic load factor. Meanwhile, international traffic in FY 1993 has increased by an estimated 4.5 percent. ASMs in FY 1993 were up 3.9 percent, resulting in an average international load factor of 67.5 percent, up slightly from 1992's 67.1 percent. Many industry analysts are of the view that the industry has turned mature, and that its period of high growth is now extinct. BUSINESS PHILOSOPHIES Pricing is an important factor for determining any airline's success, and for this they adopt two different strategies. The bigger airlines practice premium pricing wherein, according to Robert M Grant, Ken Neupert & Patrick N Malcolmson (2003), emphasis is laid on the pricing each individual seat. This sort of technique is used for selling every seat at the maximum possible price. But, airlines here fail to understand that not all can afford such prices, and this is where the medium sized airlines like Southwest come into the picture by practicing what is called discount pricing. Here the seats are sold in bulk at a lower price, which has been known to attract the middle-class travelers especially. This technique was discussed in an interview with Kelly, G. C. (2001) & Hopper, Max (2001). Thus, under discount pricing, airlines decide the minimum amount that they want to charge for each seat, which would still assure them of a decent profit. This has also been attributed to the popular technique called Wal-Mart pricing, wherein innovative solutions are sought in order to sell maximum number of products at a lower price that ultimately ensures considerable profit. The overall planning of a strategy for the pricing of Southwest's seats is critical, as it must be able to earn profits and attract more customers by lowering prices. Over the last year, there has been some resentment regarding U.S. carriers from foreign airlines & governments, which have begun to enjoy a cost advantage in the marketplace; have obtained an increasing share of travel between the United States and other countries as cited by Steven A Morrison (1995). As a result, some foreign governments have requested the US to ink trade agreements with them that has led to the creation of a position that conflicts with U.S. policy. In turn, the United States supports the establishment of agreements with its trading partners to liberalize terms of international transportation and will oppose any regressive transport policy. Negotiations are underway to reach new agreements with all major trading parties, including carriers from the United Kingdom, Germany, Canada, and Japan. Future Prospects The FAA has forecasted that there would be a rise of 3.9% on an annual basis in the passenger miles. Domestic enplanements are expected to rise by 3.5 percent annually, as against the same on an international scale at a projected 6.6%. The finances of the airlines in the near future depend on a number of factors such as number of passengers, fuel prices, operating costs etc. New Technological Areas in the Airline Industry Carriers are turning towards adding more functionality, especially in customer service areas ranging from check-in desks upwards. Furthermore, airlines are also opting to integrate their internal system, which has been identified as an area for potential growth. Evans, P. and T. Wurster (2000) point out that the drastic effect in the year 2001 on airline ticket sales forced carriers to revamp their distribution systems, focusing sharply on adapting and implementing e-commerce. Online services can be configured to include specialist applications such as Content management systems, for example - to make the site easier to navigate and use; Business intelligence tools - for in-depth management information; Personalization software - that will allow the site to be customized for each individual user. This kind of solution is increasingly integrated with other processes which, if not underway already, are certainly under development by many airlines today, aimed at delivering effective customer services at the lowest possible costs. Automating time-consuming transactions helps to improve efficiency, curbs costs and helps re-assign staff for more profitable activities. It also plays an important role in enhancing business knowledge; collecting data as transactions are processed and delivering valuable management information that can help airlines shape, rethink & redesign their marketing strategy. Other areas of airline operation can also benefit from some of the same processes and e-commerce integration expertise. Internet Technology Internet Technology has been recognized as a major choice for aviation to function smoothly, fastly, effectively and safely, while achieving substantial cost savings. If Internet Technology plays a critical role in determining how the airlines compete with one another, there is also a need for it to serve common purposes. At present carriers have two main strategic goals: to attract more customers by offering better services and to reduce costs. And they are looking towards the Internet to deliver both. Evans, P. and T. Wurster (2000) have mentioned that the initial stage of adopting IT (information technology) involves attempting to replicate the physical world in cyberspace. Accordingly, airports are trying to move their merchandising activities to the Web but it is highly unlikely that the current variants will prove to be successful. Although IT has been long at the heart of every airline operation the truth is that it has mostly been used until now for running aircraft-critical operations. Their future applications will be characterized by three critical success factors - lower costs, increased profitability and improved levels of customer service. S-Travel Initiative to Increase Security of Global Aviation Major airlines have now formed alliances & collaborations with leading smart card and biometrics integration companies in order to develop a 'secure-travel' initiative. The S-Travel project aims to achieve such a high level of personal verification for frequent travelers and to contribute to a secure global air transport system. The System is already undergoing trials in Europe, with a view to expanding the initiative globally. S-Travel will include digitized authentication to enable secure access to airports for travelers. The project team that will work for us will develop and implement systems to authenticate passengers at both check-in and boarding stages. The solution will also enable effective control of airport and airline employees' access to restricted areas, as well as electronic access to computer systems. The S-Travel system took help from a certification authority, smart-cards technology and biometrics technology integration. To ensure that the s-Travel system does not infringe upon the privacy of frequent travelers, the consortium is working closely with the EC and relevant data commissioners to resolve confidentiality issues. Both EC and Swiss funding, subject to final contract negotiations, were awarded as part of their programme to foster research and development on a pan-European scale. Security Solutions The most notable change will emerge in the relationship between the passenger and the airline. Travelers have accepted the new security requirements. They've accepted techniques like bag matching, but they are also averse to lengthy delays and irritations. The airline industry has to strive to achieve in making flying safer while speeding up the process of getting on a flight. In the near future, we can expect to see secure integrated networks within airports by pulling together existing capabilities, such as baggage reconciliation or border control with proprietary technology in areas like biometrics and explosive detection devices. Improved security has become a vital factor in efforts to revive the fortunes of the industry. Vendors have responded to 9/11 attacks in the US with the launch of Intelligent Aviation Security Solution - a robust platform for governments, airlines, airports and cargo agents that is available now. An increased use of security equipment will allow shared biometric devices in airports in public areas to be accessed by different agencies. The resultant shared environment for airport, airline, security and handling agents would be a secure, common platform. One of the core issues that need a review is baggage screening. The aim of such a study is to prevent any loading of unchecked baggage on aircraft. Every checked bag on every flight must be either screened for explosives & weapons. The present technique under this approach, which is known as Positive Passenger Bag Match (PPBM), is based on today's environment. PPBM has been known to save airlines millions of dollars in mishandled baggage costs and improves customer service. Inconvenience to passengers would be minimal to none. The new scanning technology that we propose to implement will have capabilities to know exactly where bags are to be loaded on the aircraft. Without this technology handlers would need to off-load each bag and inspect the tags to find any orphan luggage, which usually takes almost an hour. There is no question that airports and airlines can make this an effective solution and avoid long delays searching for unaccompanied baggage. Recommendations for Improving Air Transport Information Systems Many vendor companies are currently re-organizing and investing strongly in technologies focused on improving customer service changing - from self-service kiosks to check-in via mobile phone services, to baggage and airport management services, to electronic visas and in-flight e-mail. For the South-west Airlines, the prime objective remains: Optimizing revenues while maximizing customer relation ships. What has changed is the variety and scope of channels available for distribution that the airline wants to control. Online electronic ticketing must be integrated with frequent flyer programmes and the management will continue to develop as passenger demands for price competitiveness and transparency increase. Simplify Passenger Check-in One possible goal is to simplify the check-in process. Through the use of a Common Language Front-end to host check-in systems, agents and staff see the same screens no matter what host system they access. Agents sign in only once, after which hosts are accessed by simply entering the flight number associated with that host. Built around open source technologies, we offer a platform for integration with existing infrastructure. Using data available from each centralized check-in host and easy-to-use presentation, the staff will have all activities automated, which is dedicated to customer service. User prompts, color-coded screens, drop-down menus and dialogue boxes allow even staff with minimal training to quickly complete passenger check-in. Increase Agent Productivity while Better Serving Customers Airline staffs are the interface between the company and the customer. They are the company's representatives. And a customer's perception of an airline company can be strongly influenced by the service they receive. Service that is personalized and efficient wins loyalty for operation and helps recurring business. A good information system enables airline staff to provide the utmost in customer service. Onscreen user guide, customized workflow design, and other easy-to-use features: - Allow experienced staff to spend more time to important personal contact with passengers, because routine check-in activity is performed quickly; - Enable new staff to become proficient quickly, without spending much time on training; - Reduce training periods for new and experienced staff; - Open new avenues for sales, based on quality customer service and accessibility of passenger data; We have to understand that improving customer service while increasing staff productivity is impossible without using the right tools. Empower Airline Staff Latest Check-in solutions provide staff with much more versatility than ever before. The new display systems that are proposed to be installed will let the company's airport staff customize screens to best fit its check-in and operational environment. Changes can be made with minimum effort and can be adapted to any location depending on the needs of each location. The SITA (2000,2002) lays emphasis on the fact that the Internet, intranet and e-business solutions play an increasingly crucial role in transportation. Migration to building networks and Internet solutions are critical to the airline industry. In this field, vendors have achieved a position as recognized leaders for the industry, providing the infrastructure for IP-based services like e-business and e-commerce, high-speed connectivity and integrated data, voice and video. As the industry evolves, its applications are increasingly integrated within a network environment usually over the Internet. We have a wide range of integrated industry solutions and our applications cover every step of the journey. This includes reservations and bookings; freight movement; airport check-in, departure control and baggage management; flight management and operations; and aircraft maintenance and engineering. We offer these value-added solutions so as to improve the quality of passenger experience, streamline and integrate airline and logistics operations, and enable efficient communications to collaborate with the aircraft maintenance staff; safety and security processes. Conclusion The air transport, information and telecommunications industries have come a long way. The airline of 2000 has at its fingertips sophisticated desktop and Internet technology, in the form of powerful personal computers and connection to a wealth of information on corporate intranets, through e-mail and the Internet. According to the Department of Transportation (1998), circumstances in the airline industry have changed in recent years in a way that suggests that now competition is more important. In travel industry, the pressure to provide better customer service has never been greater. Yet the pressure to reduce operating costs is equally strong. Airport automation can play a key role in attaining these goals, and today many innovative solutions are available to assist. To meet these challenges, there are plenty of software solutions that help airlines that we provide. Airlines and ground handling companies distinguish themselves by making travel both convenient and easy. A good information technology enables operation to run efficiently, while emphasizing customer service. In fact, this was the major resolution of the Subcommittee on Antitrust (1989) & the committee on commerce (1999). Technology has the potential to answer the demands of politicians and the traveling public - increasing the level of security, without creating excessive time delays and without adding significantly to the cost of travel. We would therefore, like to present ourselves as a competent and a capable vendor who can provide cheaper and efficient solutions to all the issues discussed above. We would also like to add that the implementation of all these technologies will, in the future, help the Southwest airlines by enabling them to spend a mere 1/5th of what they are currently spending towards operations and staff maintenance. No doubt, the research on these topics will go on as the industry continues to evolve in the future. References 1) SITA: Simplifying the Journey for Passengers and Cargo - A Guide to SITA's Information and Telecommunication Solutions, January 2000. 2) Solutions SITA - IT and Telecommunication Solutions for Air Transport 2 Issue 4, (2002). 3) Butler, D. (2001). Deregulation, Information Technology, and the Changing Locational Dynamics of the U.S. Airline Industry, Dissertation, University of Cincinnati. 4) Crandall, R. L. (2000). Phone Interview with David Butler, May 12th. 5) Crandall, R. L. (1995). "The Unique US Airline Industry," in D. Jenkins, ed., Handbook of Airline Economics, McGraw Hill and Aviation Week and Space Technology. 6) Department of Transportation (1998). Proposed statement of enforcement policy On unfair exclusionary conduct by airlines, April 6. 7) Evans, P. and T. Wurster (2000). Blown to Bits: How the New Economics of Information Transforms Strategy, Harvard Business School Publishing. 8) Hopper, Max (2000). Phone Interview with Max Hopper May 31, 2000. 9) Kelly, G. C. (2001). Phone interview with David Butler. 10) U.S. Commuter Airline Industry: Hearings Before the Committee on Commerce, Science, and Transport. By Science, and Transportation United States. Congress. 11) Steven A Morrison (1995), The Evolution of the Airline Industry. Clifford Winston - Transportation. 12) Robert M Grant, Ken Neupert, Patrick N Malcolmson (2003), Cases in Contemporary Strategy Analysis. Business & Economics. 13) Problems in the Airline Industry: Hearing Before the Subcommittee on Antitrust, Monopolies. by Monopolies, and Business Rights United States. Congress. Senate. Committee on the Judiciary. Subcommittee on Antitrust - 1989. 14) Safety and Re-regulation of the Airline Industry: Hearings Before the Committee on Commerce. by Science, and Transportation United States. Congress. Senate. Committee on Commerce, 1999. 15) http://www.atwonline.com/channels/informationTechnology/index.html Read More