E-tourism provides opportunities for business expansion in all geographical, marketing and operational senses. As a result of Internet developments, a number of new players have come into the tourism marketplace. Perhaps the most significant change was the proliferation of low-frills airlines that use the Internet as a main distribution mechanism for direct sales. This development has educated consumers that they can only find cheap fares if they go direct to the carrier online threatening both traditional/flag carriers as well as their entire distribution system (e.g., GDSs and travel agencies). Equally the development of major eTravel agencies such as Expedia, Travelocity, Lastminute, Orbitz and Opodo has created powerful “travel supermarkets” for consumers. They provide integrated travel solutions and a whole range of value added services, such as destination guides, weather reports and insurance. By adopting dynamic packaging (i.e., the ability to package customised trips based on bundling individual components at a discounted total price), they effectively threaten the role of tour operators and other aggregators.
A thorough analysis of the various sectors of the tourism industry demonstrates the key developments and the influence of ICTs and the Internet for their internal organisation, their relationships with partners and the interaction with consumers and stakeholders.
1. eAirlines
Due to the complexity of their operations, airlines realised quite early the need for efficient, quick, inexpensive and accurate handling of their inventory and internal organisation. Originally, reservations were made on manual display boards, where passengers were listed. Travel agencies had to locate the best routes and fares in manuals and then check availability and make reservation by phone, before issuing a ticket manually.
In 1962, American Airlines introduced the SABRE CRS as an alternative to expand its Boeing 707 fleet by 50%. The growth of air traffic and air transportation deregulation stimulated the expansion of CRSs to gigantic computerised networks. As prices, schedules and routes were liberated, airlines could change them indefinitely, while new airlines entered the market. CRSs enabled airlines to compete by adapting their schedule and fares to demand. To increase competitiveness, airlines developed the “hub and spoke” systems, while their pricing became very complex and flexible. “Fare wars” multiplied the fare structures and increased the computing and communication needs, while most major CRSs installed terminals in agencies to facilitate
distribution. In addition, vendor airlines biased their CRSs screens in order to give higher display priority to their flights rather to their competitors. The remote printing of travel documents, such as tickets and boarding passes, itineraries and invoices, as well as the sale settlements between airlines and travel agencies, and the partnership marketing through frequent flyer programmes were invaluable benefits supported by the emerging ICTs.
CRSs were developed to GDSs and re-engineered the entire marketing and distribution processes of airlines. They essentially became strategic business units (SBU) in their own right due to their ability to generate income and to boost airlines’ sales at the expense of their competitors. Many airlines sold their interests in GDSs enabling them to operate as independent distribution companies.
Distribution is a crucial element of airlines’ strategy and competitiveness, as it determines the cost and the ability to access consumers. The cost of distribution is increasing considerably and airlines find it difficult to control. Nowadays ICTs and internal CRSs are used heavily to support the Internet distribution of airline seats. These systems are at the heart of airline operational and strategic agendas (Buhalis, 2004). This is particularly the case for smaller and regional carriers as well as no-frills airlines which cannot afford GDSs’ fees and aim to sell their seats at competitive prices. This has forced even traditional/full-service/flag airlines, such as British Airways and Air Lingus, to recognise the need for re-engineering the distribution processes, costs and pricing structures. Hence, they use the Internet for:
enhancing interactivity and building relationships with consumers and partners;
- on-line reservations;
- electronic ticketing;
- yield
- management;
- electronic auctions for last minute available seats;
- disintermediation and redesign of agency commission schemes; and
- maximising the productivity of the new electronic distribution media (Buhalis, 2004).
The Airline IT Survey 2006 demonstrates that the vast majority of airlines have a 3-year IT strategy that aims to reduce costs and increase efficiency. Between 1999 and 2006 on average airlines spend between 2 and 3% of their revenue on ICTs investment. As demonstrated on Figure 7, on average 21.5% of airline bookings take place on own airline website, and 29.7% on all online sales (SITA, 2006). Airlines are investing heavily in direct sales which coupled with ‘customer relations management (CRM)’ and ‘revenue management systems (RMSs)’ will enable them to better control their distribution and strategic marketing.
2. eHospitality
Hotels use ICTs in order to improve their operations, manage their inventory and maximise their profitability. Their systems facilitate both in-house management and distribution through electronic media. ‘Property management systems (PMSs)’ coordinate front office, sales, planning and operational functions by administrating reservations and managing the hotel inventory. Moreover, PMSs integrate the “back” and “front” of the house management and improve general administration functions such as accounting and finance; marketing research and planning; forecasting and yield management; payroll and personnel; and purchasing. Understandably, hotel chains gain more benefits from PMSs, as they can introduce a unified system for planning, budgeting and controlling and coordinating their properties centrally.
Hotels also utilise ICTs and the Internet extensively for their distribution and marketing functions. Global presence is essential in order to enable both individual customers and the travel trade to access accurate information on availability and to provide easy, efficient, inexpensive and reliable ways of making and confirming reservations. Although Central Reservation Offices (CROs) introduced central reservations in the 1970s, it was not until the expansion of airline CRSs and the recent ICT developments that forced hotels to develop hotel CRSs in order to expand their distribution, improve efficiency, facilitate control, empower yield management, reduce labour costs and enable rapid response time to both customers and management requests. Following the development of hotel CRSs by most chains, the issue of interconnectivity with other CRSs and the Internet emerged. As a result, ‘switch companies,’ such as THISCO and WIZCOM, emerged to provide an interface between the various systems and enable a certain degree of transparency. This reduces both set-up and reservation costs, whilst facilitates reservations through several distribution channels (Emmer, Tauck, Wilkinson, & Moore, 1993; O’Connor, 2000).
One of the most promising developments in hospitality is ‘application service providers (ASPs)’. ASPs will be increasingly more involved in hosting a number of business applications for hospitality organisations. Hotels will ‘rent’ the same software for a fee and will use it across the Internet. For example, some hotel firms may ‘rent’ their PMS software application from supplier Micros/Fidelio. ASPs are ideal for hotels, especially for smaller- to mid-sized ones, that want to leverage the best vertical and enterprise support applications on the market without having to deal with the technology or pay for more functionality than needed. As they do not have extensive ICT departments and expertise, they can easily access up-to-date applications and benefit from the collective knowledge accumulated by ASP providers without having to invest extensively in technology or expertise building (Paraskevas & Buhalis, 2002).
The development of the Internet has provided more benefits as it reduces the capital and operational costs required for the representation and promotion of hotels. For example the cost per individual booking can be reduced from US$10-15 for voice-based reservations, to US$7.50-3.50 for reservations through GDSs, to US$0.25 through the WWW. Savings can also be achieved in printing, storing, administrating and posting promotional material. Chan and Law (2006) suggest that hotel websites are a basic requirement to an increasing number of communication and business strategies. The usability of a website, effectiveness of
its interface, as well as its amount of information, ease of navigation, and user friendliness of its functions, are central to the success of these strategies and an Automatic Website Evaluation System (AWES) can provide objective and quantitative guidance to website design. However, many small and medium sized, independent, seasonal and family hotels, find it extremely difficult to utilise ICTs due to: lack of capital for purchasing hardware and software;
- lack of standardisation and professionalism;
- insufficient marketing and technology training and understanding;
- small size which multiplies the administration required by CRSs to deal with each property.
3. eTour operators
Leisure travellers often purchase “packages,” consisting of charter flights and accommodation, arranged by tour operators. Tour operators tend to pre-book these products and distribute them through brochures displayed in travel agencies. Hence, until recently in northern European countries, where tour operators dominate the leisure market, airline and hotel CRSs were rarely utilised for leisure travel. In the early 1980s, tour operators realised the benefits of ICTs in organising, promoting, distributing and coordinating their packages. Thomson’s Open-line Programme (TOP) was the first real-time computer-based central reservation office in 1976.
It introduced direct communication with travel agencies in 1982, and announced that reservations for Thomson Holidays would only be accepted through TOP in 1986. This move was the critical point for altering the communication processes between tour operators and travel agencies. Gradually, all major tour operators developed or acquired databases and established electronic links with travel agencies, aiming to reduce their information handling costs and increase the speed of information transfer and retrieval. This improved their productivity and capacity management whilst enhancing their services to agencies and consumers. Tour operators also utilised their CRSs for market intelligence, in order to adjust their supply to demand
fluctuations, as well as to monitor the booking progress and productivity of travel agencies (Karcher, 1996).
Tour operators have been reluctant to focus on ICTs through their strategic planning. Few realise the major transformation of the marketplace, while the majority regard ICTs exclusively as a facilitator of their current operations, and as a tool to reduce their costs. However, several tour operators in Germany, Scandinavia and the UK have moved towards electronic brochures and developed their online strategies. Successful operators report that up to 25% of their packages are booked directly by consumers online. This enables them to concentrate on niche markets by:
- offering customised packages;
- up date their brochures regularly;
- save the 10-20% commission and reduce the costs of incentives, bonus and educational trips for travel agencies;
- and save the cost for developing, printing, storing, distributing conventional brochures which is estimated to be approximately £20 per booking.
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