Strategic Use of B2B E-Marketplaces in the Airline Industry: Promoting Competitiveness and Value Creation
A Smyth, C-M Wagner, NITL, IE
Worldwide, the airline industry has become increasingly competitive ever since the US deregulation Act of 1978. Since then, the forces of market deregulation have spread across the globe. Thus, competitive pressures are increasing within and between strategically oriented groups of airlines. Earlier studies have concluded that reductions in unit costs of airlines have been primarily due to changes in operating characteristics and only secondarily to technical efficiency (Caves, Christensen, Tretheway, 1984). In fact, there is a tendency to find declining unit costs for any city pair market. Especially, the low-cost airline sector has completely embraced this approach, but other airline groupings are rearranging themselves to keep their costs to a minimum. However, besides operating characteristics, increasingly other factors, such as procurement efficiency, play an increasing role in enhancing efficiency levels.
This paper, which is part of a larger programme of doctoral research on B2B e-Marketplaces in the airline industry, focuses on the level of efficiency improvements gained by using B2B e-Marketplaces in the procurement process. Many e-Commerce principles were pioneered in the airline industry. The computer reservation systems were among the earliest examples of e-Commerce. At a later stage, these reservation systems have evolved into global distribution systems. While the airline?s focus was on Business to Consumer strategies in the early 1990s, in the late 1990s, B2B e-Business became more and more the centre of attention. A B2B e-Marketplace exchange is a central e-Marketplace, facilitated by ICT, in which multiple buyers and suppliers come together to gather information and buy and sell goods and services (Bakos, 1998).
The potential of B2B e-Marketplaces to enhance efficiency levels and competitiveness are tested through a survey questionnaire addressing a sample of 300 major international airlines, e.g. full service airlines, charter and low cost airlines of different types and sizes. The results are based on a response rate of 28,7 %. The use of B2B e-Marketplaces does play a vital role across the various airline groupings. Airlines that are involved in strategic alliances show higher joint-procurement activities than airlines that are not involved in alliances. However, alliances are probably viewed as loose arrangements and thus airlines may be reluctant to share information on procurement prices and processes to another airline that could act as a competitor next day. The financial involvement in or initiation of such e-Marketplaces by airlines is very low. Low-cost airlines show high use of e-Marketplaces, but demonstrate no financial involvement in contrast. Low cost airlines have taken the lead in using e-Marketplaces in non-maintenance related areas, while full service airlines tend to use them as fairly constant but lower levels across all spending categories. Overall, the categories of spares and repairs, office supplies and tools/GSE show the greatest potential for reducing costs and increasing procurement process efficiencies. The intense competitive pressures facing carriers will make their search for tools to realise even incremental savings and efficiency gains ever more urgent. Is it clear that B2B e-Marketplaces are one such tool, a lesson already well appreciated by the low cost sector. The survey findings reflect the volatility in both the airline industry and the global economy. By creating various sub-samples, e.g. airline groupings in terms of competitive airline strategy and company size are compared and conclusions drawn in view of the specific use of B2B e-Marketplaces and their efficiency enhancement levels of procurement.
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Caves, D., Christensen, L. and M. Tretheway Economics of Density vs. economies of scale: Why trunk and local service airlines costs differ. Rand Journal of Transport Economics, 1984, Winter 471-489.
Association for European Transport