E-Commerce: How has it helped British Airways - Essay Example

E-Commerce: How has it helped British Airways of Presenter] of Introduction E-commerce: the revolutionary businessparadigm Until about a few years ago, all commerce has to be transacted against cash behind a counter. Airline industry too had to implement very expensive retailing models with huge commissions being paid to the agents or service retailers. E-com models have helped global businesses build up their revenue. There have been cases where e-com has physically wiped out retails avenues of conventional businesses. In some cases, immense customisation means that you have to have a single point sales centre with your customer and this means that ecommerce is the best way of doing it. Many software companies today use the online sales channel and only maintain a namesake sales desk. People have also come to embrace it for its convenience factor. You can just do your shopping from the home or office and pay with your credit card. You can order hot pizzas and sandwiches or even a bottle of wine. In the United States, all major retailers have an e-order facility by which the customer can pay from home and the purchases are delivered by courier. In this model, the manufacturer of goods or services also saves a lot of money on the following fronts: Sales department's salary and maintenance cost Huge advertising spends can be replaced with cheaper and easier to implement on-line advertisement models Retail networks that are given a share of the product cost can be avoided in full and thereby a part of the cost can be saved Transportation costs of goods across the country is another area of vital saving A conceptual example is a company 'a' who manufactures and sells dog biscuits. Conventional marketing means that the company should have offices in all the states, c&f agents, stockists and retailers in all parts of the country. The goods have to be transported over the road to all different stores in all the streets of the country. The company 'a' will also have to man a sales department that is several thousands strong. Apart from all this, they will also advertise on all the available media in the country in order to introduce it to the prospective buyers. All these costs add up to over 40 percent of the product cost. In certain cases, it will be even higher. What if they implement an e-com model The company 'a' can set up a plant in a remote location where water, power and labour is cheap. They can send mailers to all the prospective buyers with enticing schemes and annual promotion plans. This is much cheaper than a conventional advertising model. Here the prospects are also going to be customers. The customers visit the company's website and orders for the goods. They pay instantly with a credit card. The company does not have to give any credit and can save on huge working capital interest costs. The products can be mailed all over the country from one single point and a lot of wasteful transportation costs can be saved. A successful sale in just a few days and with such little over-heads! They save about forty percentage of the costs. An important thing here though is whether the customer is happy with the product experience. That ultimately depends on the quality and value of the product which compels the customer to buy again. Without a good product, the company will soon go out of business. So the company 'a' will strive to do their best in terms of quality care and customer relationship management. With such big savings, the company can also help to pass on a percentage of the savings to the end-user or customer. E-com models have reduced costs of many products by over fifty percentage. In fact it is the cheapest retailing model and it is easy to implement. It also amounts to saving huge amount of money in employee salary because the payrolls can be shorted by excluding your army of expensive sales men. Airline Industry embraces IT E commerce has come as a boon to the airline industry. No other industry was as interested and enthusiastic about jumping in to implement IT than names in the aviation sector. The no-frills service providers were looking for a better way to deliver their services cheaper and faster to the customers and they logged on to the internet to achieve this. Apart from e-commerce, IT bags have lent other goodies to the industry. It has helped them integrate end-to-end processes in the industry thereby having superior management decision capability and faster communication. Real-time sales and operational figures have been very important to the sector. Databases that were connected to the internet could gather all the information from all over the world and produce an updated picture on any vertical within the industry. The cost savings is also immense. Airlines spend almost sixty percent of their revenue in fixed cost such as fuel, operational cost, salaries etc. The other fourty percentage is spent on sales network maintenance, advertising and promotion, reservation systems cost and other things. It is this soft cost that airlines industry can save if they make optimum use of the internet as a selling tool. The heads of savings are the following: Reservation system cost Sales offices (stations) cost Advertising and sales promotion cost Agent fees and commissions Ticketing fees Online ticketing Most airlines using the conventional ticketing model pays a standard fee of 3 - 25% of their revenue as travel agent commissions apart from the whole inconvenience of maintaining a Computerised Reservation System that is also expensive and in-efficient. The whole process is time consuming and the customers value time. It is the most expensive commodity that one has at his disposal. Airline seats are also very highly perishable commodities like agricultural produce. You sell it too early, and you have to give an incredible discount which translates in to lower revenue and if you wait and cannot sell it by the time the flight takes off for a better deal, you have lost the opportunity to make any money. Empty seats on a flight are actually losses. Online ticketing systems have to take this factor in to account during their conception and design. Customers who wish to buy tickets online should have access to the internet, a credit card and a computer. Large number of Europe's population already possesses these and are highly educated. Hence the problem of customer awareness can be easily tackled. The technical terminology in the procedures has to be removed with easy to understand language and you have a magic formula to make money and save your earnings. Customers prefer it Online Recent studies have shown the customer's increasing preference for online ticketing. A major factor is their savings on cost and time. Conventional travel agencies can take a long time to see the availability and charting of an airline. This adds up to wasted time spend by the customer. Most travel agents are also facing the image problem. They do not enjoy the trust of their customers. All these factors contribute to the growth of online ticketing. IT has also been fast catching up with the masses. The growth in the internet usage base is good news for e-commerce models. With reference to a study undertaken in the US, Siliang Yang presented the following statistics of growth of online ticketing at the International Symposium on Government in E-Commerce Development in 2001. Year Number of tickets Turnover percentage of bookings 1996 25.3 m US$276 m 1.3% 1997 32.2 m US$827 m 2.9% 1998 41.0 m US$1.9 b 4.3% 1999 48.1 m US$ 3.2 b 5.9% 2000 54.2 m US$ 4.7 b 7.4% 2001 (estimated) 60.5 m US$ 6.5 b 9.2% 2002 (estimated) 71.9 m US$ 8.9 b 11.1% The studies indicate that the ecom ticketing model has grown by over 100 percentage year-on-year. Post 9/11 debacle and the recession that followed, airlines industry was hit hard and a large number of jobs had to be struck down. E-commerce was resorted to by all the airlines to save their cost and seal the holes in their pockets. British Airways - Why e-com British Airways was facing huge financial pressure after the recession. The company had struck down about 13,000 jobs including many managers. Many departments were brought to their knees. Value for money spent was the new spell. Competitors who couldn't hold their belly such as Swiss air had gone under. The IT department cut down their 300 strong contractor list to just thirty. No new spending was authorised and no new investment in IT was permitted. In these circumstances, the airline was forced to implement the e-ticketing model and it was done in ninety days. The attempt was a huge success. The website has been at the centre of every customer oriented process today after over five years. The website issues four out of every five tickets issued by BA and also saves a lot of money for the company. The company has reduced their cost of operations by 40 % from 250 million pounds to 150 million pounds. It has created value for the customer and today, you can buy a ticket online and even reserve your seat and check-in to the flight before getting to the airport. Some eighty nine percentage of the companies tickets are now electronically issued ones. The company has saved huge amounts of money on advertising and sales commissions. Besides these, it has also been able to save money on labour since a large number of services such as check-ins have been over the net and kiosks installed at the airports. These savings are so vital to the company that it enabled them to pay a dividend to the shareholders after half a decade! What was BA's competitors doing Competition pressure from domestic and overseas non-frill airline companies was strong all during this period. They have already applied the e-com component and were doing quite well by adding technology to the sales process. Carriers like Virgin Atlantic and famous North-American carriers. Other European budget airline competitors of BA are: Air Baltic.com Blue Air Central Wings Dba Estonian Air FlyMe.com Fly Nordic.com FlyNiki.com German Wings Hapag-Lloyd Iceland Express.com Lithuanian Airlines Meridiana Norwegian Air Shuttle SkyEurope Sterling European Airlines Transavia Airlines Virgin Express Vueling Airlines Wizzair While these companies had already edited their frills and selling tickets cheaper, BA was subscribing to the old model. When the crisis hit the airline industry, they had no cost to reduce and many of them had filed for bankruptcy. BA had a lot of frills and additional expenditure to reduce and remain afloat. The crisis inspired BA to go online and come out with a better strategy with improvised sales and lower operating costs. The e-com model was adapted successfully and BA has demonstrated its capacity to adapt to new environments. While the tough competition also eased due to a large number of companies sinking under the weight of their own balance sheets, huge operators like BA could survive albeit with a little job cut and cost saving and grab the opportunities presented by the new markets. E-commerce - the future The future of e-commerce is also very bright. The user base of internet has been growing by over 80 percent every year. More and more people purchase computers and subscribe to credit cards which is a good news to the industry. There is a lot of money to be made on the net and all this will translate in to profits for the sector. Strategies for e-com era Strategies should be in keeping with the times. The company should try to integrate its media and communications efforts in this line. It should have a loyalty base and keep widening it. Constant emailing and opinion gathering is vital to the industry. On the internet, everything happens at an incredible speed and it can also be negative and destructive to the industry. The company might never get the time and chance to correct a mistake it has made. Gearing up to e-com A e-com gives unprecedented opportunities, so does it increase the work pressure of the employees. Auxiliary systems have to be updated and constant training imparted to the staff in all areas about the changing business model. This will explain to them the future and the reasons for the change and will bring in better efforts to help the company. Limitations of IT Information technology is both a blessing and a curse. The speed is a vital problem since the rate at which technology grows is higher than the rate at which the market is growing. Hence systems that are state-of the art today, will soon become outdated and hence investment in the sector has a faster rate of depreciation. Along with the infrastructure, the knowledge and skill sets of the employees should also be constantly updated to keep milking the e-com cow. References The full text of Mr yuang's presentation as published in the UN website http://unpan1.un.org/intradoc/groups/public/documents/UN/UNPAN001219.pdf Visited on 04th May 2006. Ecom business models in the IATA website http://www.iata.org/whatwedo/creditcard/benefits.htm visited on 04th May 2005. The BA.com website http://www.britishairways.com/travel/globalgateway.jsp/global/public/en_ accessed on 04th May 2006. Read More