Air Canada: A Case Study of Corporate IS
By Karan Bokil
Part 1: Enterprise Strategy and IS at Air Canada
1) Does Air Canada demonstrate operational effectiveness or strategic positioning? Why?
Air Canada demonstrates strategic positioning in its business strategy as a major player of
the airline industry. It strives to “build loyalty through passion and innovation… [involving]
engaging with customers, with a focus on premium passengers and premium products” (KarimiAlaghehband & Rivard 2014). Thus, Air Canada strategically positions itself to promote a
unique value not available in other airlines by offering a more premium experience than its
rivals, an overall differentiating factor. Nevertheless, it does also display certain operational
effectiveness, though it is not as much of a priority and is clearly not the goal of the company. It
must consistently find new ways to reduce on costs across the company “to compete more
effectively on multiple levels against the low-pricing structures offered by low-cost carriers”
(Karimi-Alaghehband & Rivard 2014). Overall, it attributes its success to the strategic
positioning of premium services such as kiosks, emailed boarding passes, and reservation
applications for customer’s mobile phones.
2) Explain the term “strategic value.” Discuss, with three specific examples from the Air
Canada case, how information systems provide strategic value for the organization. While
engaging material from the case, you should also review and evaluate Air Canada’s website
and public systems (e.g. mobile apps, etc.).
Strategic value is the value that a certain element provides to a process towards operating
more efficiently or effectively. In the case of Air Canada, many of its information systems are
implemented with the desire of them adding strategic value to the company so that it can reduce
costs, improve communication, better market to customers, and analyze its overall business with
greater clarity. However, information systems can only provide strategic value if their value
proves to provide more than it costs – otherwise it would not be a very strategic maneuver.
Typically, strategic value is gleaned from long term goals that a system desires to attain and its
ability to either stabilize the company in a period of transition or provide for a future service in
the rapidly changing and competitive airline industry. The organization depends on processes
with strategic value in order to stay relevant in the market and keep or expand its market share.
One of Air Canada’s information systems is their passenger processing system. This
offers strategic value to the company because it enables a much smoother process of booking for
the customer, which aligns with their premium style for overall strategic positioning. A
transaction processing system encompasses services such as order processing, reservations, and
payment transfers to Air Canada and the airport selected. In effect, it is able to output relevant
data for other systems like a business intelligence system to analyze and better improve the
company’s operations. Furthermore, it is extremely efficient and used by lower-level and
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supervisor-level employees; this can can be an asset towards a service-type industry like the
airline business because the customer’s first interaction occurs with the booking of a flight, and
lower-level employees must ascertain that the transaction went through with minimal problems,
while supervisors must scrutinize if they can make the overall system even smoother. The
strategic value of this system is blatantly apparent just by accessing their website. Upon access
of aircanada.com, the user is immediately greeted with a “book a flight” tool that takes in the
departure airport and arrival airport, as well as dates, number of passengers, and even promotion
codes. Thus, this part of their passenger processing system can communicate with other systems
to provide relevant flights to a customer and quickly guide them through the transaction process,
a service critical to a premium airline. Air Canada was one of the first airlines to accomplish this
by innovating new technologies to its old legacy systems. In 1998 it was one of the first
companies to introduce the airline kiosks for passenger processing; in 2007 it was the first carrier
to introduce electronic boarding passes for customers to display on their phones; in 2009 it was
the first North American airline to create an iPhone app to check in (Karimi-Alaghehband &
Rivard 2014). Thus, the passenger processing system provides Air Canada with strategic value
for enhancing their image as a premium airline whilst efficiently transferring money from its
customers to the company.
Air Canada also places strategic value on its aircraft maintenance system because it
provides the airline with critical information that enables the service the carrier provides to
operate without malfunctions or safety hazards efficiently. The system “maintained all the data
about all the parts of an aircraft. For example, it had data on the age of thousands of parts in
each aircraft and the scheduled times for changing each part” (Karimi-Alaghehband & Rivard
2014). Consequently, the maintenance system must always be stable and running, or airplanes
may not be sufficient to fly. Manually checking for parts would be almost impossible because of
the number of parts. Furthermore, the data it provides can enable other systems to efficiently
schedule new part purchases and perhaps save by buying certain items in bulk. The system was
also strategic for being able to accommodate the new Boeing 787 to the fleet in 2010 without
halting the company. The 787 came equipped with its own maintenance systems that could
further be updated by the Internet through its WiFi compatibility. In effect, software updates
from Boeing could constantly change the system, which could prove as a conflict for integration
with Air Canada’s own systems. Thus, the aircraft maintenance system proved its strategic value
by taking the 787’s system and making sure it was compatible with the current IT infrastructure
and able to fit in to the company’s architecture.
The Electronic Customer Relationship Management system or e-CRM for short delivered
strategic value to Air Canada as well because of its importance to the premium theme of the
airline and effectively enabling communication between the company and the customer. The eCRM’s main task was to manage email communications with customers. This is a crucial task,
because it confirms booked flights for customers, provides information if they reserve seats,
sends electronic boarding passes, offers new confirmations if the customer rebooks or reroutes,
and provides coupons amongst other relevant customer experiences. The e-CRM must also
convey appropriately news about a cancelled flight. Accordingly, these email services are
crucial to preserving the premium Air Canada image, because a close connection with the
customer is key to their company values. Thus, the system’s efficiency in doing such tasks
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almost immediately can effectively inform the customer and promote the airline’s image,
suggesting attentiveness, proving its strategic value.
3) What problems did Air Canada face with their decentralization of the IT Department? What
structure was ultimately adopted and why?
When Air Canada decentralized their IT Department, they transferred business
representatives from IT to their respective business departments, giving them direct access to
vendors. The conflict that arose out of this was that the effectiveness of the IT department was
contingent on the effectiveness of each representative. Consequently, poor representatives could
hinder communication, coordination, and ultimately lead to inefficiency within the company.
This problem can be scrutinized as a systemic effect, where an information system’s components
are interdependent and socio-technical. An improper interaction can ruin the overall efficiency
of the entire IT system. Another issue with the decentralization was departments now being
independent from Corporate IT, which handled the policies and standards of projects. However,
some departments were very late to check, which caused costs in project redesign and pushed
back deadlines. This issue could be perceived as a specific problem within the Information
Systems Strategy Triangle. This diagram outlines business strategy, organizational strategy, and
information strategy as the key ingredients to a successful firm, but the decentralization’s policy
violations were detrimental to the organizational strategy. In effect, this flaw was most likely
deleterious to the business strategy and information strategy as well, because they would need to
compensate and balance the triangle. These problems effectively harmed the airline as a whole,
which highlights the general effect of transitionary periods.
Air Canada ultimately adopted a structure where an “an IT representative was assigned to
each of the three main branches: Customer Service, Commercials and Operations” (KarimiAlaghehband & Rivard 2014). In effect, each branch would have an IT supervisor rather than
each department having a business representative to report back to IT like before. This was done
to ultimately bridge the communication and efficiency gap between IT and business, a gap that
would have lead to many more problems. For the company to run, business needs had to be
effectively communicated to IT, and IT developments had to effectively address the needs of the
business departments. Thus, this helped ameliorate the Information Systems cycle of people,
processes, and technology, where the transition between business and technology can be
smoothly dealt with. For an information-driven company like Air Canada, the fluidity between
technology and business had to be at a mission-critical level to achieve parity, even if it did not
differentiate them substantially from the market.
4) What strategies did Air Canada put in place to create a culture of openness and
communication among its employees, and with its suppliers?
Air Canada implemented several strategies to accomplish the creation of such a culture.
The company separated many of its core tasks and operations into several smaller sized teams
who would report up to their supervisors. For example the Information TechnologyTransformation Solutions unit was only comprised of 16 people, whom were further split into 5
teams (Karimi-Alaghehband & Rivard 2014). This organizational strategy allowed ideas to go
up the hierarchy to the necessary personnel almost directly. Transformation IT also used IBM as
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a “custodian of standards” to find errors in policies and report them back to Transformation IT.
Thus, this singular department’s creation enabled communication amongst the employees. Other
units like the Employee Innovation team could become creative and improve employee
conditions, including personnel that worked “below the wing,” thus promoting openness. Air
Canada utilized a relational approach to create the same culture with its suppliers. The CIO
explained that when issues arise, project leaders from Air Canada develop relationships with
their counterparts at the supplier company and effectively negotiate and mitigate such situations.
Air Canada also takes responsibility for the inefficacy of their suppliers at some point because
they are the company that ultimately chose to hire them. Thus, by avoiding the blame game and
placing emphasis on communication, Air Canada promotes openness and communication with its
suppliers as well.
5) Apply Porter's Five Forces framework to analyze Air Canada’s competitive strategy based
on the information provided in the case and other available information about the related
industry.
Air Canada’s overall competitive strategy seems aligned to being a product leader, in
which it has a broad strategic scope and a competitive position of differentiation from other
airlines in the industry. This can be observed through an analysis of its rivalry among existing
competitors, potential new entrants to the market, power of its suppliers, power of its buyers, and
the looming threats of substitute services.
Rivalry among Air Canada’s existing competitors serve as a force that shapes much of
Air Canada’s strategy. Domestically they own 56% of the market share, with their closest
competitor WJA at 36% (Karimi-Alaghehband & Rivard 2014). WJA and other airlines cheaper
cost structures force Air Canada to reduce its own costs in light of being portrayed as a ripoff
airline. Nonetheless, Air Canada strives to differentiate itself through its premium services and
justifies higher prices. They advertise themselves on their website as a 4 star airline and also try
to distinguish themselves by creating alliances with other international airlines. As a founding
member of Star Alliance, it has become part of the world’s most inclusive network of air
transportation, globalizing the company and providing a unique value of connecting flights to its
customers. Thus, its information systems that couple it with the star alliance are at a partner
level status as a business process and classify Air Canada as a product leader. Nevertheless, it
must be vigilant on the lower and lower airfare costs of its competitors because of the price
elasticity of the market.
New entrants to the market serve as a competitive force that affect Air Canada’s
competitive strategy. Air Canada had been founded in 1937 and had started losing money from
1990 to 1993 in the wake of new airlines like Canadian Airlines which was founded in 1987
(Wikipedia). By 2001, it had acquired Canadian Airlines, and integrated all its planes and hubs
within its own information systems. Thus, Air Canada utilized its network effect of moving in
early to squash new entrants who could become possible competitors in the future. Air Canada
also spends a large amount of money on innovations in its information systems to offer more
premium services while driving down costs. This is another network effect it can use because of
its large infrastructure and economies of scale that enable it to prevent smaller, newer airlines
from competing. In effect they distinguish themselves to have a best product competitive
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strategy because they reduce the number of competitors in their market with their strategic
positioning. The strategy has proven effective up to this point, but as Air Canada move to more
destinations, a multitude of smaller airlines with varying distinguishing features could possibly
make a dent in their market share.
The power of suppliers affects Air Canada as a competitive force, essentially as the
suppliers’ desire to be paid more while delivering less. The power of fuel suppliers is so much,
that Air Canada has virtually no control over the price they receive it at. Nonetheless, they keep
buying it at the standard rate because its necessity in airplane flight (Karimi-Alaghehband &
Rivard 2014). However, they have the ability to compensate for less when it comes to its IT
vendors for certain information systems. Air Canada tends to outsource information system
solutions to external vendors such as IBM. When selecting specific vendors, it only looks to
finding experienced suppliers that have knowledge on how to deal with large airlines. It
outsourced 95% of its IT services to vendors which suggests that they are more concerned about
the quality of the service rather than the price. They pay suppliers like IBM to innovate, despite
an additional cost it may prove to the company and the risk of no reward (Karimi-Alaghehband
& Rivard 2014). Thus, they utilize their suppliers to stay within a growth phase on their product
lifecycle, constantly reengineering their business to gain in performance. Their lack of concern
for pricing by the suppliers and desire for differentiated solutions ultimately convey a partner
role in their supplier’s information systems. This accordingly aligns itself with the product
leader competitive strategy. A possible drawback of this is that they could be spending excessive
amounts to outside services, whereas the in house equivalent could be an investment that leads to
savings and greater profit rates in the future.
Air Canada is affected by the power of its buyers, a competitive force where the
customers of airplane travel generally desire to pay less and still receive more. In other words,
customers want to always find the cheapest flight for a given amount of miles, but still expect
premium in-flight service. According to a 2015 air travel trend guide by Expedia, the gap
between premium and economy seat fares shrunk from 138 percent to 89 percent in North
America (Expedia Inc. 2015). This alarming statistic demonstrates the overwhelming power of
buyers in the airline industry. However, Air Canada responds to this power by focusing on
premium aspects of air travel and acquiring their customers from that target audience. It tried to
reduce costs through operational process improvements, supplier contract renegotiations, and
revenue productivity gains to not be obscenely more expensive than competitors, but it
nonetheless did not care about going cheaper for the sake of the customer; this was all done in
the hopes of still being the largest airline in Canada and connecting people to several destinations
worldwide (Karimi-Alaghehband & Rivard 2014). To this end, they decided to have high market
differentiation and low desires to be a mission-critical cheap airline, prioritizing their activities
and resources at a partner level. Consequently, this supports their competitive strategy of being a
product leader. However, this may be dangerous considering price elasticity of airfare. Their
loyal customers could potentially leave them because of the high elasticity of prices that keep
going lower because of new innovations in other airline’s information systems. Thus, Air
Canada must maintain their customer base by innovating the value of experience to the customer.
Substitute services are competitive forces which offer alternatives to air travel with the
power to steal away customers from Air Canada through other amenities including time and
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entertainment. The substitutes to air travel may include cruises, tour busses, and perhaps
individual car travel as well. Air Canada responds to this force by promoting its passion and
innovation for premium transportation. Consequently, it hopes that customers will travel by Air
Canada instead of a cruise or other substitute because it provides fast global travel and
reasonably low costs, with convenient access to booking and rerouting through its various
information systems. It also seeks to create network effects, because rewards it provides through
miles traveled by Air Canada as well as the premium experience compel customers to continue
using Air Canada. Thus, though it may be more expensive than riding by car, it hopes to offer an
easier and more comfortable experience, differentiating its booking process information systems
at a partner level. This effectively causes it to identify itself as a product leader in their
competitive strategy. A possible issue that could arise out of this is a new disruptive technology,
which could offer more amenities with faster travel time and more luxury, though such a
technology does not seem to exist yet.
Part 2: Future IS Strategies for Air Canada
6) Research, identify, and explain four critical challenges facing the airline industry. For each
challenge, identify and justify ways in which IS could provide an innovative solution.
One challenge facing the airline industry today is the monopolization of airline hubs at
various airports all over the world. Airline hubs are terminals where passengers get on to a
connecting flight to reach their destination. In theory, it can cause great densities of passengers
and solves inefficiencies of nonstop flights by providing one, larger aircraft for multiple people.
Air Canada has hubs in Toronto, Montreal, Vancouver, and Calgary (Karimi-Alaghehband &
Rivard 2014). These hubs could in fact reduce the cost per passenger-mile at the hub itself.
However, “it is likely to reduce the welfare of passengers in all other [airports] served by the
network” because the competitors at other airports can more easily attract customers (Brueckner
& Spiller 1991). Thus, Air Canada faces a threat of losing money at its non-hub locations to its
competitors, but cannot stop its hubs because the hub system is the most lucrative and efficient
system they have. An information system can thus be used in this scenario. Specifically, a
geographic information system can alleviate the concern by displaying the populations of
customers at various airports that Air Canada flies out of. In effect, they can automate their
system to assign flights based on traffic at individual airports, which could keep their
competition down and raise profits. So long as their system is integrated well with their existing
systems, an investment in GIS can be an innovative solution.
Another challenge the airline industry faces is expanding their network in areas that
already have dominant airlines preventing access from other airlines. The solution to this
problem comes in two forms – a complementary alliance with the foreign airline or a parallel
alliance. A complementary alliance entails the linking of two airlines existing networks, while a
parallel alliance “refers to a collaboration between two firms competing on the same routes. The
partners integrate non-stop services on the route in a way that only one partner continues to
provide the services” (Park 1997). Nevertheless, the economic research shows that
complementary alliances cause air fares to decrease and increase consumer surplus and overall
generating greater profit for both firms (Park 1997). An information system can help implement
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this alliance specifically through an Enterprise Resource Planning System. ERP systems can
enable a business to track all of its commitments and integrate various business information
systems. Thus, the information systems of two different airlines can be integrated to create flight
schedules and connected flights efficiently, whilst benefitting from the aforementioned effects.
As a service type industry, airlines face the challenge of providing adequate quality to
their passengers during the airplane flight. Air Canada prides itself for providing premium
quality flights, but actual service satisfaction is difficult to assess and hard to improve because of
this. Thus, a study on the airline service industry concluded that “Among the fifteen service
criteria, the most important attributes are ‘courtesy of attendants’, ‘safety’, ‘comfort and
cleanness of seat’ and ‘responsiveness of attendants’” rather than empathy (Tsaur 2002). Thus,
Air Canada must provide a lot of attention to the way its staff behaves to differentiate itself as a
premium airline and provide customer satisfaction that is integral to its competitive strategy. An
information system can identify problems with service through a customer relationship
management system. CRMs can gather information about customers and their overall opinions
about the company. Once the problem is identified, another information system called the
Massive Open Online Course can possibly train attendants over time on the ways to treat
customers. This can be useful mainly because the amount of flight attendants is already so large,
and it would be less efficient and more expensive to put them through more training courses. A
MOOC can be an innovative approach to teach at them all at once.
One of the biggest problems facing airlines is efficient flight schedule design and fleet
assignment. Air Canada utilizes data from IBM to design schedules, but it is still very difficult
for it to effectively plan flights. This stems from the “difficulty of obtaining data that adequately
reflects passenger choice, and hence schedule revenue. Revenue models in airline planning
optimization only roughly approximate the passenger decision process” (Akartunalı 2013). This
rough approximation could potentially be costing Air Canada millions of dollars. An
information system to fix this would need to address the “passenger decision process.” In effect,
a business intelligence system that analyzes social media system could provide an innovative
solution to the dilemma. As companies such as Facebook obtain more and more data, airlines
can use big data from the social media and input it into a BI system to effectively analyze
holiday destination trends and design more optimized schedules. It may take some time for such
a system to exist and may infringe on privacy rights, but it would provide a benefit to most
airline customers.
7) Identify and illustrate how social media could improve Air Canada’s business model.
Discuss in sufficient detail and support with appropriate examples.
Social media has enabled a revolutionary format of communication throughout the world.
Social media can improve Air Canada’s current business model in several ways. First off, an
enterprise social-network like Salesforce Chatter can allow teams in business employees, IT
employees and even airplane crews to work more efficiently. For example, IT Commercials and
IT Customer Service need to work very close together in Air Canada, because any changes made
in either induces a change in the other for sake of consistency in policies of the company
(Karimi-Alaghehband & Rivard 2014). Thus, rather than slowing down the process with emails
and other methods of formal communication, social media platforms can quickly convey ideas
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across departments, and efficiently implement new solutions, providing time for other activities
and innovations. Social media can also help Air Canada in its advertising as a premium airline.
As more and more people join social media sites such as Facebook and Twitter, an increased
amount of Air Canada’s target audience can be accessed from there. In effect, by offering
promotions on their own social media pages and posting pictures of first class amenities, Air
Canada can attract more customers and develop the brand loyalty that they aspire to achieve.
Customers can also see transparency in the airline through posts by executives, which is could
promote transparency and create a trust between the customers and airline, establishing stronger
network effects. Customers can also post feedback about their service, which can facilitate Air
Canada’s methods of improvement.
8) Analyze how your proposed use of social media could result in changes to Air Canada’s
competitive strategy.
It is possible that Air Canada’s interactions with people on social media could cause a
change in its competitive strategy. For instance, a greater bond with the customers leads to
greater transparency. Thus, this information provides the buyer more power and that force could
shift Air Canada’s premium model to adopt the trend of cheaper and cheaper flights. Social
media can also solicit attention from existing competition and newcomers, who may gain more
power by replicating and improving upon social media presence, and steal away the attention
from Air Canada. Consequently, Air Canada’s value chain could also shift marketing up from its
current priority, and cause new changes within the chain. The strategic scope would likely stay
the same size because of the current size of the company. However, the aforementioned effects
of social media could change the competitive position to cost. Thus, the competitive strategy
could end up becoming one of “cost leader” instead. On the other hand, social media could also
strengthen Air Canada’s “product leader” competitive strategy. Promoting only the premium
facets of their service can extract people from a niche market and solidify Air Canada as a global
premium airline.
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Works Cited
Akartunalı K. 2013, ‘Airline planning benchmark problems,’ Computers & Operations
Research, vol. 40, no. 3, pp 793-804
Brueckner J. & Spiller P. 1991, ‘Competition and mergers in airline networks,’ International
Journal of Industrial Organizations, vol. 9, no. 3, pp 323-342
Expedia Inc. 2015, Preparing For Takeoff: Air Travel Trends 2015, viewed 08 February 2016,
<https://viewfinder.expedia.com/img/STOR-23513_White_paper.pdf>
Karimi-Alaghehband, F. & Rivard, S. 2014, ‘Air Canada: Flying High with Information
Technology,’ International Journal of Case Studies in Management, vol. 12, no. 2, pp 120.
Park J. 1997, ‘The Effects of Airline Alliances on Markets and Economic Welfare,’
Transportation Research Part E: Logistics and Transportation Review, vol. 33, no. 3, pp
181-195.
Wikipedia 2015, Canadian Airlines, viewed 07 February 2016,
<https://en.wikipedia.org/wiki/Canadian_Airlines>
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