What’s Happening?!
Chief Information Officers (CIOs) expect IT budgets to
increase by 2.5 percent in 2005, and believe their focus will
be on supporting business growth and results, according to
a survey by Gartner Inc.
In the past few years, CIOs have had to focus on internal
efficiency and cost control, while preparing their
organization for an economic upswing.
CIOs voiced concerns about their relationship with the
CEO and whether they have the right people to meet
current and future business needs.
Ted Kennedy says that the solution for run-away costs with
Medicare is Information Technology.
ATP Clinic
Tomorrow, Wednesday at 4 to 5 PM
 Baskin Engineering, room 318.
 Leslie Clark will run the session.

ISM Toastmasters

First session on Thursday at noon.

Engineering II building – room 280.
Chapter 3
The Porter Competitive Model for
Industry Structure Analysis
Agenda

Porter Competitive Model
– Objectives
– Generic Example
– Specific Example

Value Chain Model
– Generic Example
– Specific Example

Competitive Strategies
Porter Model Objectives

Build barriers to prevent a company from entering an industry

Build in costs that would make it difficult for a customer to
switch to another supplier

Change the basis for competition within the industry

Change the balance of power in the relationship that a
company has with customers or suppliers

Provide the basis for new products and services, new markets
or other new business opportunities
Porter Competitive Model
Potential
New Entrants
Bargaining
Power
of Suppliers
Intra-Industry
Rivalry
Strategic Business Unit
Bargaining
Power
of Buyers
Substitute
Products
and Services
Source: Michael E. Porter
“Forces Governing Competition in Industry
Harvard Business Review, Mar.-Apr. 1979
Figure 3-1
SUPPORT ACTIVITIES
Generic Value Chain
FIRM INFRASTRUCTURE
HUMAN RESOURCE MANAGEMENT
TECHNOLOGY DEVELOPMENT
PROCUREMENT
INBOUND
LOGISTICS
OPERATIONS OUTBOUND
LOGISTICS
MARKETING
AND SALES
SERVICE
PRIMARY ACTIVITIES
Adapted with the permission of the Free Press, an imprint of Simon & Schuster Inc.. from
COMPETITIVE ADVANTAGE: Creating and Sustaining Superior Performance by Michael Porter. Copyright
© 1985 by Michael E. Porter.
Figure 3-6
Value Chain Model – US Department of Justice
Competitive Strategies
Primary Strategies


Differentiation Strategy
Low-Cost Strategy
Supporting Strategies



Innovation
Growth
Alliance
Examples of Wal-Mart
Strategies
Primary Strategy:
Least Cost as evidenced by its every-day low prices sales strategy.
Supporting Strategies:
Innovation: In both business processes and the use of
information systems.
Growth: Sales volume growth adds to their ability to leverage
purchasing discounts from suppliers and gain operational
productivity.
Alliances: Joint efforts with suppliers to implement leading
edge e-business processes.
Possible Exam Questions
1.
To date we have addressed three models developed by
Michael Porter: Diamond of National Advantage,
Competitive Model and Value Chain. Explain the
objective to be gained from using each of these models.
2.
Identify three mistakes that are often made in using the
Porter Competitive Model.
Chapter 4 Introduction
Airline Industry Analysis
Objectives and Key Points
History and Deregulation in 1978
 Recommendations to ensure strong
competition
 Analysis of the Airline Industry using the
Porter Competitive Model
 Airline Industry Business Strategy Model
 Two Successful Airlines
 Importance of IT in the Airline Industry

Industry History






Wright brothers’ first successful flight in Kitty
Hawk in 1903.
American Airlines in 1928 and United Airlines in
1931.
Development of the mail system by the U.S.
Postal Service helped create the airline industry.
Increased R&D of aircraft after World War II.
FAA created in 1958 to develop an air traffic
control system.
Deregulation in 1978.
Some Necessary Background

Deregulation – Entry and exit of routes and the
pricing of fares were deregulated.

Benefits:
1. The creation of new jobs and lower fares.
2. More Americans were flying so airplane
load factors were up.
3. There was increased competition and a
wider choice for passengers.
Does the airline industry have basic structural
problems or is it just a collection of poorly
managed companies?
Question raised by Presidential
Commission addressing the
competitiveness of the industry
Presidential Commission Report
Recommendations
Reducing the burden of regulation.
 Reducing the tax burden.
 Moving beyond nationalism in the air
service.
 Modernizing the air traffic control system.

Porter Competitive Model
Airline Industry Analysis – U.S. Market
•Aircraft Manufacturers
•Aircraft Leasing Companies
•Labor Unions
•Food Service Companies
•Fuel Companies
•Airports
•Local Transportation Service
•FAA
•Hotels
Bargaining
Power
of Suppliers
•Alternate Travel Services
•Fast Trains
•Boats
•Private Transportation
•Videoconferencing
•Groupware
Potential
New Entrants
•Foreign Carriers
•Regional Carrier Start ups
•Cargo Carrier Business Strategy Change
Intra-Industry Rivalry
SBU: American Airlines
Network (traditional) Rivals: United,
Delta, Northwest, US Air
Low-cost Rivals: Southwest,
JetBlue, ATA
Substitute
Products
and Services
Bargaining
Power of Buyers
•Travel Agents
•Business Travelers
•Pleasure Travelers
•Charter Service
•Federal Government
•U.S. Military
•Cargo and Mail
Figure 4-2
Airline Industry Strategies
Products/Services
Scheduled Flights
Chartered Flights
Air Freight
Mail
Customers
Business Travelers
Personal Travelers
Seniors Families Government
Fare Strategy
Low Fares
Premium Fares
Markets
North America
Europe
Asia
Latin America
Routes and Route Structure
Short Haul
Long Haul
Hub and Spoke
Point to Point
Company Structure
Independent
Alliances
Code Sharing
Information Systems
Customer Systems Operational Systems Logistical Systems Business Systems
Two Successful Airlines
1.
Southwest Airlines
2.
Singapore Airlines
Importance of IT
Convenience to Customers.
 Knowledge of Customers.
 Providing a Foundation of Other Systems.
 Building a Base for other Business.


Can be assessed through the use of the
Value Chain.
Conclusions
A clearly structured industry.
 Vital role of Information Systems in the
industry.
 The industry is greatly affected by many
factors.
 Strategies dictated by the market are crucial.
 Still regulated.

Chapter 4
Porter Competitive Model
and
the Airline Industry
Key Points

Analysis of the Airline Industry using the Porter
Competitive Model

Airline Industry Business Strategy Model

Lessons Learned from Profitable Airlines

A Perspective of the Challenges of the Industry

A Historical Perspective

Importance of IT in the Industry
U.S. Airline Industry
Does the airline industry have basic structural problems
or is it just a collection of poorly managed companies?
Question raised by 1993 Presidential Commission
addressing the competitiveness of the industry
This industry is always in the
grip of its dumbest competitors.
Robert Crandall
Former CEO
American Airlines
We must look at the world as it
is versus how airlines would
like it to be.
Robert L. Crandall
And as government officials, politicians
and consumers would like it to be.
Airline Industry Goals

Public Service. (Service to Customers)

Return to Investors.

Country Strategic Resource.
Are these consistent or in frequent
conflict?
Porter Competitive Model
Airline Industry Analysis – U.S. Market
•Aircraft Manufacturers
•Aircraft Leasing Companies
•Labor Unions
•Food Service Companies
•Fuel Companies
•Airports
•Local Transportation Service
•FAA
•Hotels
Bargaining
Power
of Suppliers
•Alternate Travel Services
•Fast Trains
•Boats
•Private Transportation
•Videoconferencing
•Groupware
Potential
New Entrants
•Foreign Carriers
•Regional Carrier Start ups
•Cargo Carrier Business Strategy Change
Intra-Industry Rivalry
SBU: American Airlines
Network Rivals: United,
Delta, US Air, Northwest
Low-cost Rivals: Southwest,
JetBlue, ATA, etc.
Substitute
Products
and Services
Bargaining
Power of Buyers
•Travel Agents
•Business Travelers
•Leisure Travelers
•Charter Service
•Federal Government
•U.S. Military
•Cargo and Mail
Figure 4-2
Product/Service Strategy
Scheduled
Passengers
Charter
Services
Mail
Air Express
Cargo
Customer/Fare/Market Strategy
Business
Travelers
Leisure
Senior
Travelers Citizens
Low Fare
Super Saver
North American
Europe
First Time Frequent
Flyers
Flyers
Premium Fare
Pacific Rim
Latin American
Sales Strategy
Reservation Agents
Business Strategy
Travel Agents
Web Page
Routes and Route Structure Strategies
Short Haul
Hub and Spoke
Long Haul
Model –
Airline Industry
Point to Point
Company Structure Strategy
Independent
Alliances
Code Sharing
Information Systems Strategy
Passengers
Operations
Logistics
Business
Figure 4-1
Airline Industry Value Chain
FIRM
INFRASTRUCTURE
HUMAN
RESOURCE
MANAGEMENT
TECHNOLOGY
DEVELOPMENT
-Financial Policy - Accounting -Regulatory Compliance - Legal - Community Affairs
Flight, route and
yield analyst
training
Pilot Training
Safety Training
Baggage Handling
Training
Computer Reservation System, In-flight System
Flight Scheduling System, Yield Management System
Agent
Training
Product
Development
Market Research
In-flight
Training
Baggage Tracking
System
Information Technology
Communications
PROCUREMENT
•Route Selection
•Passenger Service
System
•Yield Management
System (Pricing)
•Fuel
•Flight Scheduling
•Crew Scheduling
•Facilities Planning
•Aircraft Acquisition
•Ticket Counter
Operations
•Gate Operations
•Aircraft
Operations
•On-board Service
•Baggage Handling
•Ticket Offices
•Baggage System
•Flight
Connections
•Rental Car and
Hotel Reservation
System
INBOUND
LOGISTICS
OPERATIONS
OUTBOUND
LOGISTICS
•Promotion
•Advertising
•Advantage
Program
•Travel Agent
Programs
•Group Sales
•Lost Baggage Service
•Complaint Follow-up
MARKETING
AND SALES
SERVICE
Adapted with the permission of Michael E. Porter from Competitive Advantage: Creating and Sustaining Superior
Performance, copyright 1985 by Michael E. Porter.
Figure 4-3
Impacts of a Weakened Airline Industry
Airline Industry
Carriers, General Aviation, Airports
Suppliers
• Aircraft
• Engines
• Electronics
• Computers
• Chemicals
Services
Passengers
• Insurance
• Financing
• Distribution
• Telecom
• Maintenance
• Fuel
• Business Travelers
• Leisure Travelers
Travel &
Tourism
• Travel Agents
• Tourist Attractions
• Conferences and
Conventions
• Hotels
• Restaurants
• Retailers
Induced
Costs
Lower
Sales
Lower
Sales
Decreased Productivity
& Weaker Relationships
Lost
Revenue
Airline Related Statistics

The total economic impact of the airline industry is
approximately $900 billion or 9% of the U.S. GDP.

Ten million people owe their jobs directly or indirectly to
the airline industry.

U. S. leisure travelers spent $187 billion in 2000. This was
7% less in 2001.
A financially viable airline industry is necessary for a
healthy U.S. economy.
Operating
ANNUAL PROFIT/(LOSS)
YEAR
Revenues ($000)
Operating
1940
N/A
7,224
N/A
13,064
N/A
1950
839,920
75,986
42,678
270,281
60,211
1960
2,884,779
77,591
9,140
1,383,754
638,095
1970
9,289,658
43,031
-200,503
5,439,165
2,226,533
1980
33,727,806
-221,615
17,414
10,763,271
5,810,207
1990
76,141,739
-1,912,335
-3,921,002
20,590,676
4,343,887
1991
75,234,234
-1,784,741
-1,940,157
18,805,935
2,403,730
1992
78,357,040
-2,444,460
-4,791,284
16,361,475
-2,387,554
1993
85,298,379
1,438,172
-2,135,626
17,799,647
-4,523,180
1994
89,036,582
2,713,455
-344,115
20,513,102
-4,867,295
1995
95,117,473
5,859,518
2,313,591
26,372,620
-2,553,704
1996
102,443,738
6,209,069
2,803,915
32,581,689
250,211
1997
109,917,304
8,586,794
5,167,657
41,168,483
5,417,868
1998
113,810,206
9,327,810
4,903,203
50,496,293
10,321,071
1999
119,455,126
8,403,305
5,360,252
58,899,598
15,681,323
2000
130,838,619
6,998,931
2,486,298
65,898,529
18,167,621
2001
115,526,896
-10,325,852
-8,274,866
55,572,677
9,892,755
2002
106,985,463
-8,566,412
-11,312,415
47,006,265
-1,419,660
2003
115,906,315
-2,200,450
-3,624,682
44,807,448
-5,042,710
2004
Net
CUMULATIVE PROFIT/(LOSS)
Operating
2004 results expected from U.S. DOT in June 2005
Net
Aviation Week Contentions
U.S. major hub-and-spoke carriers are being forced to
restructure their operations or face the prospect of eventually
going out of business.
The crux of the problem is a combination of excessive costs in
relation to carriers' current and projected revenues, an
imbalance between the supply and demand for available
airline seats, and an inability to boost air fares.
United Flight 815
Chicago to LAX, October 31, 2003
204 tickets were sold and 186 people showed up.
68 passengers originated in Chicago and 118 were from
connecting flights.
97 passengers terminated at LAX, 89 continued on another
flight.
Of the 33 passengers that were only Chicago-LAX there were 27
different fares:
A frequent flyer passenger paid nothing.
A 1st class passenger paid $1,248.51 on the day of the flight.
A coach passenger paid $102.26 on the day of the flight.
A cash fare passenger paid $87.21 twenty-nine days in advance .
Airline Profitability
Profitability = [yield X load factor] - cost
In order to survive and profit in this tough environment,
airlines attempt to manipulate three main variables:
Cost, calculated as total operating expenses divided by
available seat miles (ASM)
Yield, calculated as total operating revenues divided by
the number of revenue passenger miles (RPM)
Load Factor, calculated as the ratio between RPMs and
ASMs, which measures capacity utilization.
Always Profitable Airlines

Southwest Airlines
Aircraft Utilization, focus on city pairs, corporate culture, cost savings
in reservations

Singapore Airlines
Geographic Locations, National Strategies, Shrewd Management and
Leadership in IT, Competitive Strategies
Southwest Airlines





A U.S. carrier success story.
Commuter airline that concentrates on city pairs.
(Average flight is 541 miles and takes about one
hour)
CEO Herb Kelleher, a Connecticut attorney turned
Texan, had the best labor relations in the industry
and an excellent company culture.
Lowest cost structure in the industry.
31 years of consecutive profitability
Why Southwest is Successful
1. The success of Southwest starts with the following
three important factors: 1) Focus, 2) focus and 3) focus.
2. Standardizing their fleet on the Boeing 727 provides
major operational and financial benefits.
3. Herb Kelleher as one of the founders and the long time
CEO should probably be cited as the number one
reason for the success of this airline.
4. Focus on high volume city to city routes.
Southwest Success
5. Southwest came into the deregulated era of the
industry as a small, intra-state airline that had always
been able to compete on the terms that they chose
since they were not subject to federal regulation.
6. The financial success of Southwest has received a
large amount of free publicity that has certainly helped
to create an image of an airline to be trusted and used
by many passengers.
Best Airlines for Business Travelers
1.
2.
3.
4.
5.
6.
7.
8.
9.
10.
Singapore Airlines
Swiss Air
Cathay Pacific
Midwest Express **
Japan Airlines
Quantas
ANA
Virgin Atlantic
Lufthansa
KLM-Royal Dutch
11. Finnair
12. British Airways
13. Alaska
14. Air France
15. Varig
16. Aer Lingus
17. Kiwi
18. Air Canada
19. American **
20. Delta**
Source: Zagat Survey of Frequent Flyers
Singapore Airlines

Winner of multiple awards for “airline
excellence.”

Leader of the Orient Airlines Association (OAA)
– Abacus reservation system.
– Price collusion on major routes.

Outsourced IS application development.

Nervous regarding U.S. carrier price competition.
Why SIA is Successful
1.
Singapore has always been only an international carrier
and focused accordingly on global competitiveness
through quality customer service.
2. The airline is an integral part of the country strategy to be
the center for commerce and travel within Southeast Asia.
3. The success of the country strategies promotes travel
demands.
4. SIA has been blessed with excellent senior management.
SIA Success Factors
5. While suggested above, the point needs to be made that
excellent management is capable and willing to do
aggressive things and take chances when it feels that it is
prudent to do so.
6. Prudent financial management has been a major strength of
the airline.
7. SIA had a labor cost advantage during its early years.
8. There were no comparable competitors in Southeast Asia.
Major Airline Issues
1.
Dysfunctional labor situation.
2.
High taxes, fees and other government-mandated
costs.
3.
Inadequate long-term plans for air and ground
infrastructure.
4.
Restrictions on airline consolidation and foreign
investment.
Earnings for Paid Hours

Based on a U.S. survey of 437 professions in 2001.

Pilots includes regional, commuters and general
aviation.

Transportation attendants includes airline flight
attendants.
Rank
Occupation
1 Pilots
2 Lawyers
21 Math Teachers
Hourly
Weekly
Earnings
Hours
$107.22
$59.78
$37.51
21.9
41.4
38.9
$34.56
$34.29
$32.73
$30.52
41.0
40.4
20.7
40.1
58 High School Teachers
100 Architects
120 Aircraft Mechanics, Engine
$30.23
$24.08
$22.04
37.1
39.7
40.0
130 Police
141 Aircraft Mechanics, Non-engine
$21.50
$20.64
40.0
40.0
$17.13
39.6
33
37
45
56
Electrical Engineers
Financial Managers
Transportation Attendants
Computer Scientists
National Average
Airline Labor Costs
Labor negotiations in the airline industry are governed by the
Railway Labor Act (RLA) of 1926.
The negotiation process is very complex and drawn out. It
can take multiple years to work through the approximately
fifteen stages.
A key distinction between the application of the RLA is that
the railroad unions bargain on a national basis while airlines
bargain as individual companies.
Within the airline industry there is incredible sensitivity to
contract changes at other carriers that results in continuously
spiraling labor costs.
Union Power
The highly unionized airline industry is unable to respond in a
timely manner to changing markets and unable to prevent
labor led service disruptions.
American Airlines
Has historically been the largest airline in
the world in terms of revenue and number
one in the U.S.
 A premium service carrier.
 Hub and Spoke System
 SABRE System
 Strongly opposed industry deregulation.
 Financial losses same as most other carriers

CEO Revolving Door
AMR –
United –
Delta –
Donald Carty to Gerald Arpey, May 2004
James Goodwin to John Creighton, Oct. 2001
John Creighton to Glenn Tilton, Sept. 2002
Leo Mullin to Gerald Grinstein, Jan. 2004
Northwest – Richard Anderson to Douglas Steenland, Oct. 2004
US Airways – Rakesh Gangwal to Dave Siegel, May 2002
Airline Industry Time Line
12/17/03 First flight in Kitty Hawk, North Carolina
1927 Lindbergh Trans-Atlantic Flight to Paris
1931 United Airlines was created from earlier multiple companies
1934 American Airlines was created from earlier multiple companies.
1941-1945 World War II
1949 First flight of Pacific Southwest Airlines (PSA)
1971 First flight of Southwest Airlines
1972 Singapore Airlines is created in split from Malaysian Airways
1978 US airline industry was deregulated
1987 Pacific Southwest bought by USAir
1/16/91-2/27/01 Gulf War—Desert Storm
10/22/01 US invasion of Afghanistan
2/11/03 Iraq War starts
On-going – Many problems for most US airlines
A Glamour Industry
The place for the rich and famous:
Barney Oldfield, Amelia Earhart, Howard Hughes, Bill
Boeing, Manfred von Richthofen aka The Red Baron, Eddie
Rickenbacker, Billy Mitchell, Jimmie Doolittle, Saburo
Sakai, Curtis LeMay, Frank Borman, Sir Freddie Laker,
Frank Lorenzo, Richard Ferris, Robert Six, Richard Branson,
Jan Carlzon, Herb Kelleher, Bob Crandall, Stephen Wolf,
Sam Walton, Larry Ellison
Conquistadores del Cielo, crop duster, jet-setter, Concorde,
SABRE, CRS, frequent flyer, Admirals Club.
Orville Wright
Wilbur Wright
First flight by Orville Wright, December 17, 1903
Airline Industry Financial
Viability?
If I had been at Kitty Hawk when Orville Wright
took off, I would have shot him down as a public
spirited act for the benefit of future capitalists.
Warren Buffett
Charles Lindbergh's
Transatlantic Flight
New York to Paris
Timeline, May 20-21, 1927
33 hours, 30 minutes, 29.8 seconds
Lindbergh had not slept in 55 hours
Pacific Southwest Airlines
In the Beginning
Pacific Southwest Airlines began initial operations on May 6,
1949, flying a leased DC-3 aircraft with a seating capacity of 31
passengers once a week between San Diego and Oakland via
Hollywood/Burbank.
Original fares for the three-city route structure were: SAN-OAK
$15.60, SAN-BUR $5.65, and BUR-OAK $9.95.
By the end of 1949, PSA was operating two DC-3s and had
carried 15,011 revenue passengers over 321,112 plane miles.
The airline posted operating revenues of $172,796 against
operating expenses of $160,902 for a net profit of $11,984.
PSA's 1969 fleet consisted of one DC-9, one Boeing 727-100, 14
Boeing 727-200s, and nine Boeing 737-200s.
The airline's fare structure included the following: SAN-LAX,
SAN-BUR, SAN-ONT, SFO-SMF $7.14; SAN-SFO, SANOAK, SAN-SJC $20.95; LAX-SFO, LAX-OAK, LAX-SJC,
BUR-SFO, BUR-OAK, BUR-SJC $14.52.
PSA entered the seventies with an all Boeing-equipped fleet that
included one 727-100, 16 727-200s, and nine 737-200s.
With Growth Came Financial
Problems

One million passengers flew PSA in the month of August,
1986 marking the first time in the carrier's history that it
boarded that many passengers in a single month.

PSA carried a record 10.7 million travelers in 1986, but posted
a year end net loss of $3 million.
The End of PSA

On May 29, 1987 Pacific Southwest Airlines became a
division of USAir.

The last PSA departure left San Diego, California as flight
1486 bound for Las Vegas, Nevada on April 8, 1988.
The National Commission to Ensure a
Strong Competitive Airline Industry
Change, Challenge and
Competition
A Report to the President and Congress
August 1993
Commission Findings
• The Airline Industry is more competitive than before
deregulation in 1978.
• Travelers and shippers are charged less than in 1978.
• The Airline Industry has never made a sustained,
substantial return on investment.
• It lost huge amounts of money from 1990 to 1993.
• It canceled many aircraft orders shortly after an
unprecedented buying binge.
• Its freedom to compete in international markets is
uncertain because of government restrictions.
Commission Conclusions
For the U.S. to prosper in a global marketplace
the airline industry must:
• Be efficient and technologically superior.
• Have the financial strength to respond to rapid
change and opportunity.
• Efficiently move people, products and services
to markets, wherever they exist.
Recommendations
Efficiency: Reinvent the FAA.
Financial Health: Deal with factors that impact
the financial health of the industry.
Access to Foreign Markets: Replace the current
bilateral system with a multi-national regime.
To return their balance sheets to
respectability, most airlines would
have to achieve profit margins that
are almost unprecedented in their
history, and sustain those margins
for years.
September 11 Impact
An absolute disaster for the industry.
A Sobering Fact
Before September 11, 2001, the global industry was
showing a net loss on international services of
around $3 billion.
US Airline Industry Must
Restructure or Die
Aviation Week & Space Technology
November 2002
Low-Cost Airlines, Not September 11, Have
Transformed Industry Fundamentals
"When people say the traditional industry model is broken,
they are moving their jaw without putting their brain in gear,"
responds former American Airlines CEO Robert Crandall. He
added that he is skeptical that the industry will ever be
competitive as long as there are so many carriers selling what
has evolved into a commodity product.
Corrective Actions
It will take much more than concessions by labor for
major U.S. airlines to solve their financial problems.
Airline Industry US Market
Share
Based on current trends, the domestic market share held by
the six major US airlines (American, Continental, Delta,
Northwest, United and US Airways) plus Alaska Airlines
will drop from 75% in 2002 to 62% in 2010—and 45% by
2020, according to an industry projection.
Southwest could pass American to become the largest U.S.
airline by 2013, and JetBlue could pass Delta to become the
third largest by 2020.
Industry Structure Problems
The fact that low-cost carriers have been able to mature this
far says as much about what's wrong with the majors as it
does about what's right with their low-cost counterparts, and
begs the question: does the underlying strategy or business
model employed by the large hub-and-spoke airlines still
work?
Analysts and other industry observers believe it does, but to
function properly carriers must reduce their costs and
restore the balance between supply and demand.
Benefits of Information Systems
to an Airline
1. Convenience to Customers.
2. Knowledge of Customers.
3. Providing a foundation for other
systems.
4. Building a base for other businesses.
Computer Reservation System:

Business Traveler Choice?

Personal Traveler Choice?

Ticket-less Versus No Reservation?
Airline Alliances
The Star Alliance is the largest of the major groupings.
Consisting of 15 airlines led by United Air Lines and
Lufthansa. Star serves about 815 destinations in more than
130 countries.
Oneworld, which is eclipsed by only Star among the major
airline alliances, is led by British and American Airlines.
Eight airlines offer service to 550 destinations in more than
130 countries.
SkyTeam is quickly becoming a major alliance player by
serving more than 450 destinations in nearly 100 countries.
Led by Air France and Delta, SkyTeam has also consolidated
cargo services.
Code Sharing Agreements
The US Transportation and Justice Departments approved a pact
that will let Delta Air Lines, Continental Airlines and Northwest
Airlines share access to each other's routes.
The code-share agreement allows each carrier to market the
others' routes as its own. One Northwest flight, for instance,
might also have a Continental flight number and a Delta flight
number.
The agreement is the biggest in the industry. US Airways and
United Airlines have a similar agreement.
Code Sharing Agreements
It's an especially appealing arrangement to frequent fliers who
prefer to build up miles on one airline while flying all three.
The government placed several conditions on the deal.
Specifically, the DOT said 60 percent of any new code-sharing
routes must serve those areas of the country that are considered
under-served.
It also bans anti-competitive practices like coordinated pricing or
shared decisions about route planning and capacity.
Barriers to Entry
Access to airports continues to be impeded by:
(1) Federal limits on takeoff and landing slots
at the major airports in Chicago, New York, and
Washington
(2) Long-term, exclusive-use gate leases
(3) “Perimeter Rules” prohibiting flights at New York’s
LaGuardia and Washington’s National airports that
exceed a certain distance.
US Industry Strength
Fifteen major US carriers represent the following
significance in the world-wide airline industry:
29% of the aircraft
46% of the employees
32.5% of the the 2000 passenger miles
Based on a number of years of operating in a deregulated
environment within the US that forced them to compete in
a very tough market.
International Airline Industry
Between 1982 and 2002 the IATA airlines had
revenues of $2 trillion and cumulative losses of $5
billion.
Does a business model exist that is more susceptible to things
going wrong?
Deregulated But Very Regulated
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Safety factors.
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Air traffic controllers.
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Impact on constituents.
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International routes.
Continuing Concerns
1. Fuel costs
2. Decisions regarding passenger services like
whether to charge for food, the need for more
electronic capabilities.
3. Upgrading aircraft.
4. Route strategies.
5. Union relations.
6. Relations with travel agents.
Needed for the Industry
1. Changes in tax laws as they relate to airlines.
2. Encourage foreign investment in U.S. carriers.
3. Changes to bankruptcy laws to eliminate the ability for
airlines to hide from their creditors under court protection.
4. Improve the capacity and capabilities of airports.
Airports belong to cities and counties so there is no
national-wide plan.
Needed for the Industry
5. Provide a better air traffic control system to
minimize flight delays.
6. Continue to negotiate better international rights
for U.S. carriers.
7. Gain equalization of the regulatory requirements
on U.S. and foreign carriers worldwide.
8. Further eliminate unnecessary and costly
regulatory requirements on airlines within the
United States.
Airline Industry Conclusions
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It is a vivid example of the dynamics of the
markets that it serves.
Establishing strategies dictated by the market is
critical.
Once the right strategies have been identified,
information systems can play an important
supporting role.