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Role of information systems in the airline industry; Use of Porter`s five forces model
In the global market, every sector is very different and unique. The industries do vary by size, its structure, the distributional channels, the customers’ needs and wants and product life cycle. We can also have industry differ in regards to growth that occurs in the industry and the alternatives for the consumers (Dobbs, 2014). These difference will always make us ask questions like why does one industry make more profit than another one. In this report, we are going to focus on the played by information classifications in the US airline sector. We will analyze the industry by the use of Porter’s five forces model. The model identifies five-factor that act together does determine the nature of competition and effectiveness within a given industry. The five-factor that we are going to consider in our analysis of the US airline sector include; first is the threats of new entrants into the industry. Second is the negotiating power of the contractors (Dobbs, 2014). The third is the negotiating power of the clients. Fourth is the challenge of substitute products in the industry. The final factor to consider is the degree of competitive rivalry in the industry.
Moreover, the primary aspects of utilizing Porter’s five forces for the US airline sector is that the industry has been pounded by robust headwinds from a host of external elements (Zou, Elke, Hansen & Kafle, 2014). Such factors include increased operational cost, higher fuel prices, and increased competition. Also, the US airline sector has had many prominent carriers that have been forced into insolvency or been forced to amalgamate with other carriers to stay in business.
The first factor in Porter’s five forces analysis is the supplier power. The power of the supplier in the US airline industry is so intense. The reason is that the three main inputs that the industry depend on are influenced by the external environment (Dobbs, 2014). Such inputs include labor, aircraft, and fuel. For instance, the prices of the fuel are influenced by factors like fluctuating global market prices and global politics. Labor, on the other hand, is affected by the decision made by labor unions, and aircraft is dependent on the two biggies that is Boeing and Airbus (Zou, Elke, Hansen & Kafle, 2014). Therefore, Porter`s five forces rank the supplier power in the US airline sector as high in regards to the three inputs.
The next factor is the buyer`s power. The buyers do not have to be at the mercies of the agencies, intermediaries and the airlines anymore to get their ticketing needs. This is because of the proliferation of online ticketing and distributional system. The other reason is the introduction of the low cost of carriers and the resultant price wars (Dobbs, 2014). Moreover, there has been tight regulations that have been implemented on the demand side of the air company sector. Thus the balance of influence is tipped in their favor. Therefore, as per Porter’s five force, the buyer’s power is moderated as high.
Besides that, we have the entry and exit barriers in the industry. For a business investor to join the US airline sector, they need a huge amount of capital investment to enter the sector. On the other hand, when an airline firm wants to leave the sector, they have to write down and accrue many losses. Not everyone can join the sector; it requires high capital investment and knowledge in the operations of sophisticated equipment. This makes it hard for every player to invest in the sector. The regulatory agencies in the US do not just allow airlines to exist the industry unless they have a genuine business reason for exist (Dobbs, 2014). Furthermore, the presence of economies of scale for the airline discourages new entries. Therefore, by using Porter’s five forces framework, we realize that the US airline poses a bigger entry and exit barriers which mean the impact of this factor is so high.
We also have the threat of substitutes and complementarities. The US airline sector is not affected by substitutes and complementariness as it is in the developing nations. The industry is not affected like their customers will opt to take a train or a bus instead of a flight. In the US taking a flight is like a natural phenomenon (Dobbs, 2014). The impact of customers shifting to use trains or buses in at minimum in the US airline sector. Regarding complementarities, the provision of services like passages’ amenities that are offered by full survives airlines do not have a significant impact nowadays. Therefore, by the use of Porter’s five forces framework, we rank threat of alternatives and complementarities as moderate.
The final factor to consider is the concentration of competitive firms. The US commercial airline sector is very competitive as compared to the other airline industries in the world. The reasons for its competitive nature is of reason like the entry of low-cost carriers, right regulations in the sector and high operational cost due to an emphasis on airline safety (Dobbs, 2014). Also, the sector is regulated more on the supply side than on the demand side thus the airline cannot be free to choose which market to operate. For this reason, it has made the airline sector in the US one of the competitive sector. Therefore, in regards to Porter’s five forces framework, we rank the intensity of competitive companies as high in the sector.
US airline industry structure
The US airline sector is made up of more than one hundred certificated passenger airlines that operate in more than eleven million flight exits per year. The sector carries over one-third of the global market total air traffic. The sector did report nearly one thousand million passengers in the year 2006 (Zou, Elke, Hansen & Kafle, 2014). On a daily basis, the sector is operated by approximately six hundred thousand employees and nearly nine thousand aircraft operating over thirty-one thousand flights. The commercial aviation contributes about nine percent of the US Gross Domestic Product as per the national sectorial statistics. Moreover, the US airline industry is structured in that there are the government regulatory agencies, the airlines and the other stakeholders in the sector.
In the US airline sector, the scheduled airlines are classified by the government by amount of revenue generated in their operations. Thus, the classification is grouped as a major, national and regional airlines. For the airlines to operate, they have to hold two credentials from the federal government and the Department of Transportation (Zou, Elke, Hansen & Kafle, 2014). The certificate by the state ensures the airline is fit and permit to operate. The certificate by the Department of Transportation is referred to as the credential of public convenience and necessity. Further, the sector is subdivided into two groups which are the cargo airline and the passenger airline.
Also, the sector is structured regarding line employees, actions, repairs, sales and advertising, reservations and ticketing, staff personnel and finally the subcontractors. The line employees are the individuals who directly get tangled in the production and selling of airline`s facilities and products. This individual includes the experts who maintain the plains, the pilots who operate the planes and the security (Zou, Elke, Hansen & Kafle, 2014). This category is further divided into the sub-groups maintenance and engineering group, the sales, and marketing group and flight operations group. This sub-groups form nearly eighty-five percent of the airline employees.
The operations group is the group in the sector that is responsible for the operations of the aircraft safety and efficiency. This groups schedules all the aircrafts and aircraft staff. It also advances and administers all the guidelines and measures needed to uphold the security and meet all FAA operational necessities (Zou, Elke, Hansen & Kafle, 2014). The next group that structures the sector is the maintenance group. It makes about eleven percent of the aggregate employees and about fourteen percent of the operating expenses. They perform duties like ensuring customers comfort, keep the aircraft save and preserve airline`s important physical assets.
Furthermore, we have sales and marketing group that structures the sector. The group is to perform activities like pricing, ticketing, and reservation. The other group is the staff personnel. This group is made up of professional specialists and experts. They are the individuals in professional fields like law, finance, public relations and accounting (Zou, Elke, Hansen & Kafle, 2014). They make sure the airline runs effectively and at a profit. The final group is the subcontractors. There are some duties that the airline cannot perform. Therefore it outsources the duties of other firms. These companies include airplanes cleaning, airfield security, and food services.
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The dominant competitive strategy within the US airline industry
The dominant competitive strategy is a medium or long-term factor that works in favor of the airline organization. Dominant strategy in the airline sector will always hinder potential rivalry in the sector regarding cost and time consumption (Zou, Elke, Hansen & Kafle, 2014). Typically, the dominant competitive strategy will lead to the creation of competitive advantage regarding cost leadership, the uniqueness of the firm and the technological superiority.
The first dominant competitive strategy that the US airlines can put in place is the digitization strategy. The strategy of digitization should be in the top of mind throughout the commercial airline sector. Sophisticated technologies will always enable the airline to grow their opportunities. They will grow top in the sector and thus reduce the operating cost (Zou, Elke, Hansen & Kafle, 2014). In the contemporary aviation world, customers have the taste and the preference of convenience one-stop on seamless digital platforms. Therefore, for the US airline to attain high in terms of growth in the competitive market, they need to integrate the best of what they call channel consolidators. They also need to offer an attractive and holistic travel distribution programs. Moreover, they need to make sure that their direct distributional channels and loyalty programs can deliver personalized services and render business services and leisure customers.
The other dominant competitive strategy in the US airline sector is that they can establish a competitive positioning. The competitive landscape in the airline sector constantly continues to evolve. The new low-cost carriers are entering the market and dominating. They are starting to control the market share of the big and dominant airlines in the sector (Zou, Elke, Hansen & Kafle, 2014). Therefore, the dominant competitive strategy that they should do is put in place a competitive market in the market. In the implementation of this strategy, they have to consider factors like customers` needs, the market`s maturity, level of market consolidation and ability to satisfy the market expectation than the competitors.
Besides that, we have the airlines building a ‘social’ pace to create brand equity. The leading and dominant airlines in the US have taken off on their social flight. They have tried to indulge in the novel manner of engaging with clients for the purpose of establishing lasting relationships with the customers. For them to be dominant and competitive in the market, they need to always step out of their comfort zone and engage with customers (Zou, Elke, Hansen & Kafle, 2014). Doing this will foster brand equity and get the mindshare of clients. These airlines to foster the good and reputable relationship with the customers have engaged the use of social media. It use of social media has given these airlines a competitive advantage. The social media platform has enabled the airlines to respond to clients’ queries, their complaints, posts, and tweets. These actions have enabled the airline to establish and maintain a lasting relationship with the customer thus creating a dominant competitive advantage their competitors.
The value chains of the airline industry
The US airlines value chain entails the adoption of a systematic approach in association to competitive advantage. In the value chain analysis of the sector, we make a difference between the primary and supportive commercial events in the realization of the sources of economic advantage for each action (DaSilva, & Trkman, 2014). The value chain in the sector will entail the firm infrastructure, the human resources and the technological development in regards to support activities. The key events that add value to the airline chain include incoming logistics, operations, outgoing logistics, promotion and sales and finally rendered services (Markides, 2013).
Inbound logistics in the US airline always operates a complex and involving timely delivery of fleets, a wide range of other onboard products and catering products (Markides, 2013). The act of ensuring that the food that will be served on the plane are fresh makes the process more complicated. To ensure the establishment of competitive advantage by the airline, it ensures that there is a strong relationship with suppliers, sophisticated systems for stock control and professional training (Zou, Elke, Hansen & Kafle, 2014).
The other stage of the value chain is the operations. This stage involves the preparation of the goods and services to be sold to customers. The US airlines fly more than 1000 destinations all over the world thus the extension of business operations are extensive (DaSilva, & Trkman, 2014). To enhance competitive advantage at this stage, they do activities like enhancing luggage security, quick check-in services and online booking of other products and services.
The final additional value chain activities are marketing and sales and services. The marketing and sales will always ensure that they communicate to the targeted market to add value to their products (Markides, 2013). The marketing message of the US airline will always be associated with efficiency, safety, convenience, and reliability. Thus their marketing communication mix will act as their competitive advantage. On the other hand, the service activity will involve installation of the product and hand complaints in regards to airline services and products (DaSilva, & Trkman, 2014). The airline recognizes the significance of post-sale services as it enables them to have a competitive advantage in the market.
The business process of the US airline industry
Since the late 1970s, the airline companies have been using traditional businesses processes that were saddled with complex and high-cost business models (Markides, 2013). These traditional business processes have been attacked new business processes that are simpler ways which can enable the management to operate and contain cost within the airline companies (DaSilva, & Trkman, 2014). Among, the business processes in the US airline sector include the business process outsourcing.
The business processes outsourcing enables airline companies to strategically and efficiently strive and stay afloat in the hard and tumultuous business times. The BPO has enabled airline companies to reduce their operational cost (DaSilva, & Trkman, 2014). The other benefits that have accrued to the airline due to BPO are retaining customers in the face of operating cost reduction, makes the cost structure transparent and delivering continuous improvement.
Role of information system, its use, benefits, drawbacks, law and ethical issues associated with the use of information technology you identified
Role of information System and its use
Most of the airlines in the US strive to be market leaders in the airline industry. In the industry, there are factors like increased competition, inflation, and reduction in the number of customers. To be able to survive and have an economical advantage in the marketplace they have to implement information system within the sector and the organization (Johnston, 2017). The application of information system assist the airlines to make adequate use data, reduce workload and be in compliance with different mandatory regulations. Therefore, the role of information system in the US airline sector include;
The first role of an information system is information storage and analysis. When there is publication in a given airline, they do not have to manage their data and information physically with registers and hard copy set-ups. By the use of information systems, the airlines can use stylish and all-inclusive databases (Zou, Elke, Hansen & Kafle, 2014). These systems encompass all presumable pieces of data around the airline. The function of an information system is to stock, keep informed and analyze data that the airline can utilize to solve any recent or future problem the airline can encounter.
The second role of an information system is that it assists the airlines in the process of making decisions. The level of success and prosperity of any airline depends on the adequacy of their strategic plans (Johnston, 2017). The airline management will utilize the use of information system to formulate plans and make appropriate decisions for the airline’s longevity and prosperity. It will use the information system to evaluate information from different sources and provide information on the general global market.
The third role of the informational system is that it helps airlines with processes. The significance of information science is that it helps US airlines in the process of creating a significant number of value added-system in various airlines. For instance, the airline can assimilate information system with production series to certify that the end product produced conforms to the desires of the various quality management standards (Zou, Elke, Hansen & Kafle, 2014). When an airline adopts information systems, it simplifies their process and eliminates unnecessary activities. Moreover, it adds the control to the employees’ processes and ensures the right personnel with the right skills perform a particular task.
The final role of an information system is that it enables the US airlines to adapt to the global market. Most of the airlines in the US are on the path to success and have started participating in the global business air travel (Johnston, 2017). With the incorporation of the information system, the airlines increase their chances of earning more revenue and having a larger business prospect. It makes the airlines operations by making controlling operations and storing of information less complicated. Moreover, the information system has made activities like customer relationship management, product configuration and web-based ordering less complicated and simple.
Benefits of Information Technology
The first benefit of information technology is that it increases the production and saves the airlines time. The airlines in the US who have incorporated information technology have experienced more production and have saved time than they used to save in the past (Zou, Elke, Hansen & Kafle, 2014). They have used the technology to automate their task. For instance, airlines have installed senses in the planes which will enable them to detect variation in temperatures (Hannigan, Hamilton & Mudambi, 2015). The sensors will, in turn, send information directly to the operators who will act immediately on the appropriate temperatures for the plane. Also, information technology saves time through the use of x-rays and sensors to detect any harmful and poisonous substance. They don’t have to have many security guards to inspect the clients’ luggage.
The second benefit of information technology is that it has improved communication. With the incorporation of information technology, it has made communication within the airlines to be simple and fast (Hannigan, Hamilton & Mudambi, 2015). Communication technologies like phones and electronic mails have moved information within the airlines instantaneous. Also, the employees and management are now able to send information and data from one department to another without physical moving thus saving on time.
The third benefit is that it has enhanced data storage, file management, and data analysis within the US airlines. In the past airlines used to use cloud hosting services to collect and backup business information. With the incorporation of information technology, airlines can be able to transfer and access data remotely (Hannigan, Hamilton & Mudambi, 2015). This enables the airline’s management and employees to access data anytime and anywhere. With the availability of information and data anytime, it allows for greater connection of information, analysis of information relationship. This will foster improved and informed judgement making thus resulting in the development of the US airlines.
The other benefits of information technology are that it enhances financial management and improves the airline’s competitive advantage. The airlines are the US that has incorporated information technology has had the upper hand in regards to competitive advantage over their competitors (Hannigan, Hamilton & Mudambi, 2015). The reason is that the airlines that have adopted the use of technology are efficient and have improved processes thus having higher consumer loyalty rates. Finally, the other benefits that accrue to an airline that uses information technology are that it improves airlines to the customer relationship.
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Drawbacks of Information Technology
The first disadvantage of information technology is that the airline has to incur extra expenses in its implementation. The developing airlines in the US airlines sector who are struggling to fit into the sector might find it expenses to implement the use of information technology (Mellat-Parast, Golmohammadi, McFadden & Miller, 2015). In the long run, they will lose to the bigger companies who have more capital to install and implement the technology.
The second drawback of information technology is that it can lead to security breaches. The airlines that use information technology will always store their data and information in the technology. They will store their data and information on the remote cloud that can be accessed online with a username and password (Mellat-Parast, Golmohammadi, McFadden & Miller, 2015). This is risky as there are possibilities of losing the data and information to hackers or viruses.
Laws and Ethical issues associated with the use of information technology
The use of information systems is significant and a source of competitive advantage for the airlines. However, this technologies used by airlines also involve the social and political relationships. The use of this electronic technologies can infringe the rights and the privacy of people thus there must be a new legal and ethical decisions necessary to balance the needs and the right of every individual (Hannigan, Hamilton & Mudambi, 2015). Therefore, the moral choices made by the airlines about the rest of the society, principles or acceptable conduct and the rule leading the members of the vocation. Therefore, the matters in regards to electronic information systems entails controlling of and assessment to information, privacy and waste of data and interpersonal contemplations. This information technology requires various kinds of ethical decisions.
Three companies within the US airline industry with successful implementation/use of information systems
The three airline firms that have been successful in the United States of America in the implementation of information system include Alaska Airlines Company, American Airline Company, and Southwest Airline Company (Johnston, 2017). The way they have been successful in the implementation of an information system is through use of technologies like Al Assistant, Smart Logistic, and Facial Recognition.
The three companies have invested in the three technologies, and it has given them a competitive advantage in the industry. The first technology Al Assistant helps the airline companies to respond to the clients` inquiries and responding to the voice of the command for the domestic airline flights. The second smart logistics technologies have helped the airlines companies in the automotive airline operations (Johnston, 2017). The third facial recognition technology has helped the three airline companies in the process of customer identity verification.
Three companies within the US airline industry with unsuccessful implementation/use of information systems.
The three airline companies that I think have had no success in the implementation or the use of information systems include Spirit Airline Company, Frontier Airline Company, and SkyWest Airline Company (Johnston, 2017). These are airline companies that are struggling to develop, and it cannot diverge its resources to buy sophisticated information technology. Thus, they have not been successful in the implementation of the information system in their company.
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Summary and recommendation for the US airline industry
In our report, we have seen that the implementation and the use of information technology has a greater impact on the airline companies of the United States of America. Nonetheless, this airline should always consider the ethical issues and the drawback that is associated with the different information systems. If they don’t take care, the information technology can impact the airline companies and the whole industry. They should focus more on the benefits of information technology in the process of enhancing the role of information systems in the industry. Moreover, for the US airline industry to continue to progress and be the leading aviation sector in the world, they should constantly apply new and innovative information technology. This new and innovative technology will also give them a comparative advantage in the global market.
- Airline Companies should create procedures to measure operational performance for operators `of current screening systems.
- The airline companies should study worker ergonomics, selection, training, and motivation for operators of current screening systems.
- The airlines ought to establish the optical equilibrium between the computerized system and the human operator in any new information system in the airline industry.
- In regards to facial verification, the airlines should determine the level of distortion that they have to introduce into the human image before screeners can lose the capability to sense threats substances.
- Also, in regards to facial verification, the airlines should establish an image scrutiny routines to eradicate the screener from crucial assessment.
- They should also, establish the time necessary for passengers to be screened under realistic airport screening conditions.
- The airline companies should give more focus on the significance of availing operators with information regarding the precise type and locality of the items.
- The airlines should indicate the manner in which new passengers screening technologies are assimilated into long-term execution plans for advancing airports security.
- The airlines should not just have one technology of assessing customers` relations but should have a wide range of technologies to assess the public relations with new or old customers.
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