BUSINESS STRATEGIES AND THE TRANSPORT SECTOR Chapter 5 BUSINESS STRATEGIES AND THE TRANSPORT SECTOR

Chapter Outline Business strategies and the transport sector Strategic alliances and cooperation Airline alliances Information technology and supply issues in tourist transport: a role for logistics and IT E-travel and the transport and tourism sector The future of e-travel The supply of tourist transport in destination areas Independent travel by tourists in destination areas

Business Strategies and The Transport Sector Strategy is one of the most important factors determining the success or failure of tourism businesses. the term strategy may constitute: a plan, a ploy (venture); a pattern of behavior, a position in relation to someone else, or a perspective. This involves a range of strategic elements including identifying long-term objectives in relation to marketing.

Business Strategies and The Transport Sector In particular, it requires different courses of action strategic alternatives to be recognized and planned for at different levels within organizations. This very hierarchical approach does not account for the success of strategic approaches by airlines where empowering staff to work as teams and to work towards set corporate objectives around the company vision.

Company vision

Business Strategies and the Transport Sector The strategic reactions of tourism companies to competition in the marketplace has differing implications for the transport sector. Inter-modal competition is a key element of transport (except in cases of monopoly provision or one mode transport such as a ferry to cross between two islands with no air access). Researches show that where contestable markets exist, such as in the airline sector, different strategies may result.

Business Strategies and The Transport Sector The strategic reactions in maintaining a competitive advantage may involve differentiation (i.e. making the product look different and more attractive to the competitor) or the use of either approach to set out a narrow focus on the market (one segment). The most common response to competition is either cost competition (i.e. reducing the price) or through product innovation which may combine cost savings with technology.

Business Strategies and The Transport Sector These strategies are often combined in the most successful companies by innovation to maintain a competitive edge. Innovation implies change of some sort and can be divided into a number of areas: a) diffusion of new ideas, products or processes; b) adoption by individual organizations; c) and levels of innovativeness. Much of the existing research identified five principal routes to innovations shown in Figure 6.1.

Business Strategies and The Transport Sector

Business Strategies and The Transport Sector Innovation has to be a continuous process as competitors are constantly seeking new products or niches, and only through process or product innovation can this edge be maintained. One other way in which companies in the transport and tourism sector have sought to maintain this edge is through forming strategic alliances to cooperate rather than compete

Strategic alliances and cooperation Companies have overcome the problems of fragmentation of the tourism product to cooperate and form alliances and collaborative arrangements to progress business objectives within the private sector and between the public and private sector. At a destination level, such partnerships seek to improve the competitive position of the destination, and transport may be a critical part. In the tour operator/transport sector this may be a partnership to deliver the product.

Strategic alliances and cooperation In the process of collaborative strategy there is a formulation into internal drivers (i.e. risk sharing, economies of scope and scale, accessing assets such as limited slots at airports and shaping the competition) along with external drivers (i.e. the changes induced by information technology and turbulent economic climates, rapid product and market changes as well as global competition). Despite the success of some alliances and collaborations, they can be very unstable and subject to change (i.e. partners enter and leave as business needs and objectives change).

Airline alliances There is a very clear link between the use of IT in tourist transport sectors and the development and expansion of airline alliances Much of the growth of alliances was only made possible with the growth of technology. such development in the context of a growing globalization of the tourist transport business, indicating that 60 % of alliances were formed between 1992 and 1996.

Airline alliances Two types of alliance: Tactical partnerships, comprising a loose form of collaboration designed to derive marketing benefits, characterized by code sharing agreements. Strategic partnerships, where an investment or pooling of resources, partners aims to achieve a range of common objectives focused on the partners' strategic ambitions

Airline alliances Strategic alliances can be seen as; incorporating shared airport facilities (check-in lounges), improved connections (synchronized schedules), reciprocity on frequent flyer programmes, freight co-ordination and marketing agreements (code-sharing and block selling)

Airline alliances Principal motivations that may explain why airlines enter into strategic alliances: to get economic benefits such as productivity gains to gain competitive advantages from improved customer service cost reductions from sharing lounge facilities, terminal facilities and block space sales on aircraft from partners and code sharing and pooling joint purchasing allows additional cost savings economies of scale and scope in marketing activities and learning principally to improve profitability (cont.)

Airline alliances more connected route network for passengers and greater choice of destinations expanding market access for individual airlines and growth where restrictions to access may apply. to gain access to the benefits of the other airline's assets to reduce risk by sharing it to help share the market, which may help reduce incapacity in mature markets speed in reaching the market given the structural changes occurring in the airline industry (e.g.privatization)

Airline alliances In terms of the direct impact on tourism, a potential 2.5 % increase was observed in visitor arrivals to Australia as a result of alliances among airlines. For full service airlines, strategic alliances are now a vital business model and part of how the airline industry operates and manages its competitive activities. Inevitably alliances are part of the trend towards a number of mega-carriers dominating the airline industry as part of the globalization process in tourism.

Information technology and supply issues: a role for logistics and IT It is widely acknowledged that society has entered the 'information age' and that this has had implications for transport provision One of the immediate impacts for tourist transport providers is that up-to-date information flows are now vital when a supply chain exists, and the transport provider is just one component of the overall tourist product. the customer service explosion means there is a need for consistent provision of time and place utility. In other words, products do not have value until they are in the hands of the customer at the time and place required

Information technology and supply issues logistics of service delivery are of paramount importance and enable organizations to add value and deliver a consistent product Logistics is a vital concept to recognize, particularly when IT is also introduced, since IT and logistics enable transport providers to achieve their objectives in a competitive environment. Logistics is the process which seeks to provide for the management and coordination of all activities within the supply chain from sourcing and acquisition, through production where appropriate, and through distribution channels to the customer

Information technology and supply issues Figure 6.2 outlines the business functions which fall within the remit (task) of logistics. What emerges from Figure 6.3 is that information flows are a critical component in logistics and the management of supply issues The tourist industry generates large volumes of information that needs to be processed and used within a logistics context. For example, each airline booking generates 25 transactions that need processing.

Information technology and supply issues In the model of tourism information flows; there are three main agents involved: travellers, suppliers and travel intermediaries. It is the supplier's use of IT to handle, utilize and manage these information flows that is of interest From a transport supplier's perspective, information is essential to allow the organization to function and for different departments to make decisions about corporate objectives, their consumers and competitors.

Information technology and supply issues the examples of the airline industry for IT sources include: global distribution systems (GDSs) frequent flyer databases yield management programmes distribution and marketing of their products the design, operation and maintenance of aircraft and luggage handling check-in systems at airports.

Information technology and supply issues Although other transport sectors involved in tourism also make use of IT (including train operators, car rental agencies and coach and cruise ship operators), it is probably most highly developed in the airline sector, due to large investment in capital and the highly competitive nature of the business. In that sense, IT is seen as integral to gaining a competitive edge and maintaining continuous product innovations (SIA case). For example, on Singapore Airlines (SIA) Boeing 747s, all passengers have access to an in-flight telephone to make credit card calls from air to ground

Information technology and supply issues The airline sector first developed computer technology in the form of computer reservation systems in the 1950s. It is impossible to trace the rapid development of IT in the airline industry and all the other transport sectors, although it is related to outline the current state of the art in IT

Information technology and supply issues The typical configuration of an airline CRS comprises: a central site housing the computer systems driving the CRS (often up to 10 mainframe systems) the network hardware at the central site and computer staff to maintain it a series of front-end communication processors to process information and online storage devices at the central site.

Information technology and supply issues This is complemented by satellite communications to remote communication concentrators (RCCs) in key cities that relay data from the earth station. This is then relayed to reservation terminals and airports, providing rapid communications. One of the major changes in the late 1980s and 1990s has been the move from CRSs, which contained only airline information for the proprietary airline, to systems containing data for multiple airlines.

Information technology and supply issues the development of CRSs into what have now been called global distribution systems, such as the Asian GDS, Abacus. Table 6.1 outlines the principal developments contributing to the development of GDSs. GDSs are CRSs that are affiliated with airlines. There has been a great deal of debate over the impact of airline affiliation on the competitiveness of air travel in North America.

Information technology and supply issues

Information technology and supply issues The significance of major GDSs in 1996 was as follows: Sabre US $ 1,5 – 2.0 billion Apollo US $ 1,1 + billion Abacus US $ 650 million System One US $ 500 million Worldspan US $ 500 million Galileo US $ 400 million

Information technology and supply issues

Information technology and supply issues Although a CRS will show only one airline's schedules, a GDS has the advantage of showing data on multiple carriers, including: flight schedules and availability passenger information fare quotes and rules for travel ticketing

Information technology and supply issues Since the advent of GDSs airlines have also established ‘a presence on the Internet and [are] using that as an important distribution channel especially to consumers By accepting payment by credit card, airlines have harnessed (used) a developing technology to complement GDSs and traditional distribution channels.

Information technology and supply issues Other airline IT applications include: baggage and cargo handling systems cabin automation (e.g. entertainment systems, visual route systems on in-flight screens using geographical positioning system equipment) safety systems decision support systems flight scheduling and planning crew scheduling and management gate management and control

E-travel and the transport and tourism sector

E-travel and the transport and tourism sector E-tourism has been defined as "the digitization of all the processes and value chains in tourism, travel and hospitality ... industries that enable organizations to maximize their efficiency and effectiveness". Here technology has enabled consumers and businesses to use information communication technologies (ICTs) to communicate and interact as shown in Figure 6.4

E-travel and the transport and tourism sector Figure 6.4 also shows that the e-tourism revolution has spread across all sectors of the tourism industry, but it has had a pronounced impact on sectors such as transport and travel agents given the distribution channels they now access to reach the customer direct. One of the clear indications of this development is in the use of online buying from websites to access a wide range of suppliers.

E-travel and the transport and tourism sector ICTs have led to developments in customer relationship management (CRM) through the information virtual organizations hold on consumers, but also in continually interacting with customers. What ICTs have also done is to revolutionize the experience through CRM by not only increasing selling opportunities by gaining customer attention, but also through building familiarity with an organization, brand aware­ness and product information relevant to the customer's needs

E-travel and the transport and tourism sector Changes from the GDS era induced by e-commerce and the Internet have led to a new generation of e-mediaries as single suppliers (i.e. BritishAirways.com) and multi-supplier sites and online agencies (i.e. expedia.com). The online agencies have certainly developed a diverse range of products for e-travel consumers, with transport a core component. One consequence of the growth in online booking via the different options available is that British Airways decided to close two call centres in February 2004 due to online booking on ba.com for short-haul traffic, of which 46 % is now booked on that website.

E-travel and the transport

E-travel and the transport and tourism sector ICTs also help businesses to compete globally for business as opposed to the more geographically defined markets in the 1970s and early 1980s. Much of this development has occurred through the convergence of technology (Figure 6.5), as tourism and transport operations harness (use) this new technology to achieve a competitive advantage. As Table 6.2 shows, many of the competitive issues can also be addressed by ICTs, since they allow a more timely strategic reaction to the complex and increasingly volatile trading environment.

The future of e-travel An annually updated study one-travel in Europe by C.Marcussen can be found at www.crt.dk/trends, which is helpful in trying to understand the nature of and market for e-travel. According to Marcussen, the demand for e-travel in Europe is continuing to grow at a dramatic rate It was worth € 13.9 billion in 2003, rising to € 24.7 billion in 2006 and could exceed € 26 billion in 2008, equivalent to 6.5 per cent of the European travel market.

The future of e-travel? The main category of travel purchases in 2007 was air travel (56 %), followed by hotels (17 %), and package tours (14.5 %). In 2007 the shares of the online travel market were: the UK 30 % ; Germany 19 %; France 14 %. Direct sellers accounted for some 65 % of online sales in 2007 and intermediaries some 35 %.

The supply of tourist transport in destination areas To some authors, accessibility was critical to destination development as a range of transport and infrastructure is progressively develop, so that different forms of tourism development can occur, from local or day- tripper markets initially through to regional, national and international markets. the rate of destination growth was dependent upon investment in infrastructure and transport services if new markets are to be accessible to destination areas.

The supply of tourist transport in destination areas Visitors expect good destination-specific transport systems and they form an important part of the tourist's overall experience of travel. The issues that highlight tourists' expectations in the developed world and the maintenance of service quality include: Airport transfers. Tourists arriving in a destination after a tiring flight require convenient and comfortable transfer vehicles. Sightseeing tours. For LDCs receiving high-spending tourists, one lucrative tourist transport service that offers potentially high profits to private operators is sightseeing tours

Independent travel by tourists in destination areas The more adventurous tourist often wishes to travel on local public transport systems and adequate information needs to be made available (e.g; timetables). The use of hire cars is also a major tourist service in Less Developed Countries, and they need to be supplied according to a code of good practice.

Independent travel by tourists in destination areas Good practice should include: high-quality vehicle standards, insurance and contract conditions provision of tourist-oriented maps and leaflets signposting of routes to tourist attractions and sights training for the police in dealing with tourist drivers action to address road-based and car-related crime affecting tourist hire cars (continued)

Independent travel by tourists in destination areas Good practices (Cont’d) safety standards for mopeds where governments permit tourists to hire such transport incentives to encourage short-stay visitors (e.g. cruise ship passengers) to venture away from the port to visit other locations licensing and regulation of taxi companies and drivers to prevent tourists being exploited

Independent travel by tourists in destination areas From the transport policy-makers' perspective, a range of problems needs to be addressed at government level to facilitate tourist travel in destination areas, including: Import duties may need to be relaxed to facilitate the acquisition of new vehicles and to make them more affordable and able to absorb 'standing costs' (when the vehicle is off the road) as tourist use declines outside of the peak season... (continued)

Independent travel by tourists in destination areas Roads and tourist transport infrastructure need to be maintained to reduce wear and tear on vehicles. Skilled mechanics and vehicle drivers need to be trained to ensure an adequate supply of labor to meet demands. Traffic congestion related to peak seasonal demand by tourists needs to be managed.

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