AVSC 2180 Lesson 6 - Lesson 6 The Internet Travel Industry...

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Lesson 6 The Internet Travel Industry Between the airline deregulation era of the late 1970’s and the appearance of online travel services in the mid-to-late 1990’s travel business evolved with an integrated group of participants, primarily airlines, travel agents and credit card companies. Automated Computer Reservations Systems provided the interface between the parties and established the basis for interdependent success. If an airline sold a seat and made a profit, travel agencies and credit card companies generated revenues and profits commensurately. The advent of the internet changed, forever, the way we do business. Historically interdependent business associations morphed into competitive relationships. Instead of sharing customers the airlines, travel agents and credit card companies began to compete for them. This follows a similar pattern that occurred during the early stages of the development of the automated computer systems. During the early stages computer system advances were regarded as benefits to the business community in general. Between 1967 and 1974, firms within the airline industry attempted to develop a standardized reservations system that would be available to both the airlines and travel agents. As the value of information as a commodity became apparent cooperation was withdrawn and firms began in earnest the development of proprietary systems. Primary Objectives Two primary objectives motivate business: 1. Generate Revenue 2. Improve Profit Margins Businesses increase revenue by raising prices or expanding their customer base, mutually exclusive activities. Expanding the customer base requires retention of existing customers while adding new ones. Building customer loyalty is the key to retaining and expanding the customer base. Increasing prices has a negative impact on both objectives. One element cementing customer loyalty involves elimination of parties situated between the seller and the end consumer. Internet marketing facilitates the one-on-one relationship between buyer and seller. Via the internet, travelers are able to communicate directly with the airline. Travel agents and credit card companies are no longer direct participants in facilitating the transaction. As a result, each entity now competes with the other for direct contact with the customer, making significant effort to be the party that initiates transactions on a large scale. There are three possible ways to improve profit margins: increase sales while holding costs and expenses constant, or reducing costs and expenses, or a combination of increasing sales and reducing costs. The same factors play into improving profit margins as those that favor revenue expansion. Interdependent business relationships tend to increase transaction costs. This happens because each
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AVSC 2180 Lesson 6 - Lesson 6 The Internet Travel Industry...

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