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Effects of the E-commerce on Competitive Advantage in the Airline Industry

By: Timothy Somerville

A dissertation submitted in partial fulfilment of the requirement for the degree of European Business and Languages

National College of Ireland Sandford Road Ranelagh Dublin 6

Research Supervisor: Gabriel Byrne April 2002

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Declaration

I hereby certify that this material, which I now submit for assessment as part of the programme of study leading to the award of BA, is entirely my own work and that it has not been taken from the work of others save and to the extent that such work has been cited and acknowledged within the text of my work.

Signed:

$

[w$\\P. Date: *\01.

Acknowledgements

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To mum and dad in love and gratitude for giving me all these opportunities.

To Ken and Ivor who taught me how to be patient but were often the source -ofunexpected but gratefkl information. To Mairead, the best girl in the world, a compassionate critic and a doting girlfriend.

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Abstract

The use of the Internet is becoming more and more commonplace every day. Its sustained growth over the last 10 years have been dazzling and anticipated expansion for the future is intensely high. The way in which companies operate is changing and will continue to change for as long as the Internet continues to develop. In a company like Ryanair, the strategic use of e-commerce will create for them important strategic opportunities over their competitors. This can be seen in the changes in the value chain of a company that interfaces IT with the activities of the value chain. In order for other companies to remain competitive it is essential that they implement similar Internet strategies. Companies must accommodate this new technology and use it to the best of their abilities. Thus an IT strategy is not a question of IF firms should implement one but WHEN they implement one.

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Appendices Page Appendix 1

47

Appendix 2

48

Appendix 3

52

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Effects of the E-commerce on Competitive Advantage in the Airline Industry

)

Title Page Declaration Acknowledgments Abstract Appendices Table of Contents Chapter 1 1.0 1.1 1.2 1.3 Chapter 2

Introduction Introduction Objective Research Questions Structure of the Research Process Literature Review Introduction The Internet Evolution of the Internet Applications of the Internet Commercialisation of the Internet Growth and Current Situation Future Trends Electronic Commerce What is Internet E-commerce? (BiB) and (B2C) Business to Business (B2B) Business to Consumer (B2C) Perspectives Competitive Advantage Competitive Advantage through IT Airline Competition Competition and the IATA Competition and the ICAO Bilateral Agreements European Airline Deregulation and Competition

Page

2.4.7 On-line Booking 2.4.8 Competing among On-line Booking Vendors 2.4.9 Airlines on Top

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Chapter 3 3.0 3.1 3.2 3.3 3.4 Chapter 4 4.0 4.1 4.1.1 4.1.2

Hypothesis Introduction Theory Hypothesis 1 Hypothesis 2 Hypothesis 3 Research Methodology Introduction Research and Methodology Secondary Data Primary Data

Chapter 5

Classification of Data

Chapter 6

Testing the Hypothesis

Chapter 7

Findings and Recommendations

Appendices Glossary Bibliography

Effects of E-commerce on Competitive Advantage in the

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Airline Industry

Chapter 1 1.0

Introduction

The traveller from twenty years ago, when wanting to venture fiom his home in a small town in Ireland, for example, to America in the west or Europe, usually called up his travel agent who had an official airline guide, and conferred with the written airline schedules of Aer Lingus or British Airways, the two dominant carriers in and out of Ireland. The same traveller today can log onto any airline homepage on the Internet, and book tickets via a credit card on virtually any carrier. Whereas the traveller fiom the 1970's and 1980's would have to fly on two different carriers, today's traveller can usually make arrive at a destination on the one airline and possibly without a stop in a gateway city. The objective of this thesis will be to study and report on how the use of the Internet and other electronic media has influenced competitive advantage in the Irish aviation industry over the last number of years and offers a reflection of the relationship between the two. The author chose this topic of study because of the level of interest in this sector of business. E-commerce is changing the way in which consumers transact in both the business world and in their private lives. It is evident that the e-commerce revolution has changed the way the world works, causing it to become a

global village. Like most technologies it is here to stay, thus it has become

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impossible for both businesses and consumers to ignore it. It is an extremely innovative area as it is continuously changing. There has been an impressive growth in the Irish economy over the past number of years. This has affected the tourism industry in Ireland in a way, which it has never encountered before. It is experiencing a tremendous period of success at present. This success has called for an unprecedented improvement in the services provided by Irish Airlines, especially in the area of payment over the Internet. Airline companies have therefore tried to gain an advantage over each other by embracing the Internet. The Internet is a place where companies can communicate with up to sixty five million people to computers all around the world, twenty-four hours a day, seven days a week. Therefore the firms that better utilise e-commerce over the Internet stand a much better chance of prevailing ahead of their competition. The author was drawn to this area because of these unprecedented opportunities of competition and was interested to find out how much ecommerce has been at the route of this new method of competition. My units of analysis are e-commerce over the Internet and competitive advantage. 1.1

Objective

This dissertation aims to investigate the topic of e-commerce over the Internet in relation to competitive advantage in an Irish airline. The author wishes to examine the influences it has had (or may have in the future) on this area of competition.

Focus is placed on the airline sector as preliminary studies have shown

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that these industries are very likely to be at the forefront of any development in electronic trading in Ireland in the future. The author intends for this thesis to be of interest to both consumers who are aware of such opportunities on the web and those are still to use it. Also it is hoped that it will be of interest to Irish airlines. 1.2

Research Questions

What are the influences that e-commerce has had (if any) in industry in the context of competitive advantage? Has the use of commerce over the Internet affected competitive advantage among Irish airlines? 1.3

Structure of the Research Process

The research is structured as follows: Chapter 2 reviews the relevant literature. The literature on the definition of the internet, with a summary of its history is reviewed. The literature of e-commerce is investigated as a potential source of competitive advantage in the market place. Finally, competitive advantage through lT is examined.

Chapter 3 draws on the literature review, particularly on the notion of

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e-commerce as a tool for competitive advantage, to develop a theory. Hypotheses are asked relating to the various possible outcomes of the research. Chapter 4 describes the research methodology. An account of the research methods is given related to the secondary and primary methods used to conduct the study. Chapter 5 summarises the exact statistics of the data collected through out the study. In Chapter 6 the hypotheses are investigated in relation of the research questions. Chapter 7 contains the findings and recommendations relating to the research of this project.

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Chapter 2 " Triggered by developments in telecommunicationsand computing, the information revolution is the single most powerful event of this decade"

(J. Bond, The World Bank) 2.0

Introduction

This chapter presents the literature review in relation to the concepts raised in the research objectives and research questions. There is a definition of the Internet, briefly presenting its history made. From this point, a review of the commercial applications of the Internet, the World Wide Web, and the rise of e-commerce is made. Finally, a review of the literature of competitive advantage through IT is explored. 1

2.1

The Internet

E-commerce has evolved out of the rapid expansion of the Internet. So, the first question to be answered is: "What is the Internet?" According to McGoey (1998), an Internet is an open network of networks of computer hosts that are capable of continuously communicating through the Internet Protocol (IP)and Services. Two protocols, Transmission Control Protocol and Internet Protocol link the networks. The use of these protocols allows for services such as Electronic mail and the transfer of computer files. The World Wide Web is an information

retrieval system that spans the whole of the Internet. It works on a system

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of computer networks. The information is stored and retrieved fiom their locations, which are known as web servers. The WWW is not the Internet. It is a subsection of the Internet. It allows for the transformation of information via designed pages known as web pages. Kalakota and Robinson (1999), state that the Web began as an uncomplicated, unelaborated set of Protocols and Formats. It is the systematic ordering of documents known as 'pages' which are stored at locations known as 'servers'. The use of a browser allows a user to search for and view server-based documents. It is the most widely used application for navigating, searching for information and klfilling transactions on the Internet. It gives users the ability to create, manipulate, organise and regain possession of documents, audio and video files and graphics.

2.1.1 Evolution of the Internet The Internet, a 29-yeas-old network of networks, which connects computers worldwide, was originally a communication tool for the American government and research community. It began as a defense mechanism created by the US Department of Defense during the Cold War. To combat the possibility of bomb attacks; the defense department developed ARPAnet. It was a system that connected all the defense departments in one network through commercial and private phone lines. If one department became unable to operate then the network could find an alternative route to its destination. The aim of the exercise was that if there should be a strike on any one institution, then the remaining departments could continue operating freely with the minimum disruption. (Irene McGoey, 1998)

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No one person owns the Internet. The rules are laid down by its users. Through international efforts, the Internet Society publishes standards governing the Internet through its many taskforces. (The Economist, 2000)

2.1.2 Applications of the Internet There are several applications of the Internet, the World Wide Web

(WWW), HTML and E-mail. A carehl distinction must be made between the Web and the Internet in that they are not the same things. The Web or WWW (short for World Wide Web) can be described as an abstract (imaginary) space of information. The Web is an interactive system that provides a more userfriendly method of organising and delivery of information than was possible with the original set of Internet services. (www.w3 .org/people/Berners-Lee/FAQ,2002) In attempting to assess the difference between the WWW from the Internet, it is beneficial to think of the latter as a set of computers and cables which are capable of delivering packets of information to anywhere in the world where the Internet is available. When describing the Internet, the connections are cables between computers. In the case of the Web, the connections are hypertext links. The Web owes its existence to the ability of programs to communicate between computers on the Internet. Therefore the Web is dependent on the Internet. (Internet Society, 2002) In the beginning it's span of networks was limited. The World Wide Web (WWW) was brought into use in 1993 and at its inauguration it had 130

web sites. By the year 1995 the number of sites available had grown

immensely to 23,500 making it the most widely used application on the

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Internet. (Cameron, 1996) HTML is the coding that allows Internet files to be seen as user friendly pages on the computer screen. Hypertext is the ability of words in text files to jump to other words, references etc. Created with the most simple of word processors it links to other text documents, pictures, sounds or video files. (Musciano and Kennedy, 1997) E-mail is a system that allows users to send and receive text documents, pictures, sounds or video files in a standardised electronic format. (Shimmin, 1997).

2.1.3 Commercialisation of the Internet

No one can refhse to acknowledge the immense growth of the Internet and the massive influence that it has had in the business world. This has happened because organisations have come to realise that the Internet can be an effective tool in increasing their competitive advantage. It provides a platform for improved management and the ability to better handle information as well as improving communication among employees, partners, clients and other parties.

2.1.4 Growth and Current Situation The growing number of Internet users can be explained as a system of information feedback. As more and more companies develop their businesses towards the Internet, network effects take place. Since businesses benefit fiom investing in on-line e-commerce it is a natural to

persuade their clients and partners to do the same, creating a self-

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reinforcing cycle. Basically, companies and individuals will invest more time, energy and cash into creating new web sites on the Web if there are a high number of users visiting them. These new sites will make information available that will attract more users, both first time visitors and repeaters. (The Economist, 1999) Another two characteristics of the Internet that have permitted it to attain such monumental growth, are openness and scalability. The openness stems from the fact that no one owns the Internet. This allowed it to gain the masses of people needed to benefit from network externalities. Scalability, is the Internet's ability to gain endless growth by being able to add countless point destinations, locations without having to change the initial design of the Internet. (Dertouzos, 1997) The number of Internet users has increased rapidly. At present, most countries, households and companies have some type of Internet connection. Cameron (1996), states that today the Internet is available in 106 countries worldwide. For those countries that cannot yet directly connect to the Internet, they can connect to other available networks that have links to the Internet. The availability on the Internet makes it one of the largest media distributors in the world.

In Ireland in particular, there is continuous expansion in the use of the Internet. According to a nationwide survey, Ireland On-line (1998), there has shown to be a marked increase in the availability of the Internet in both the workplace and in the residential homes. The survey revealed that 64% of Irish organisations had connection to the Internet, 2.85% of

Irelands total population had access to the Internet, 13% of all adults

owned a computer and on-line shopping was becoming more popular, with

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software being the most common purchase.

2.1.5 Future Trends The digital revolution is upon us and it is transforming the workings of the world's economies. Technology has driven more than a quarter of all economic growth since 1993 with much of the growth of the Internet in the commercial segment. Approximately 75% of all new users will access the Web from their on-line connection in work in the future. (Aughney & Plenderleith, 1995) Aughney & Plenderleith (l995), also state that at the beginning, the use of the Internet for commercial purposes was frowned on and in certain situations was even banned. Today, however, there are no limits to the type of enterprise one may find on the Web. A survey carried out of 500 large companies found that almost more than 90% of the managers within the organisations believed that the Internet would play a significant role within their business and that of the global marketplace in the future. (The Economist, 1999) In this advanced technological age of on-line business all firms should recognise that an e-business strategy is an essential part of any firms corporate strategy. If Ireland is to be at the forefront of e-commerce in Europe then it must ensure that the Irish corporations that wish to take complete advantage of the situation are hlly integrated into their ebusiness strategies. While the Internet is in use in many of the companies, it is generally restricted to marketing and sourcing information. On average 71% of Irish companies realise that a successful e-business strategy is paramount in regards to gaining competitive advantage among

its competitors. Around 68% also believe that over the next five years, the

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way in which companies do business will greatly change in direct response to e-strategies. (Chambers of Commerce, 2000)

2.2

Electronic Commerce

Early business uses of the Internet were predominately focused on e-mail and file sharing. However, with the introduction of the World Wide Web (Web), an interactive service that provides user-fiiendly ways to organise and deliver information, people and firms now conduct business through the Internet. This way of doing work has become known as e-business. A subdivision of e-business is e-commerce. This is the buying and selling of commodities or services over the Internet where a financial transaction is included. Today anybody can connect a computer to the Internet and an endless supply of potential customers.

2.2.1 What is Internet E-commerce? E-commerce means many things to many people. Because there are many different types of electronic market transactions, electronic commerce is a term that is used to describe many different forms of transactions that use information technology. Basically, e-commerce generally refers to the action of buying, selling and sharing information, collaborating and providing services using the applications of the Internet started in 1995 with the World Wide Web. (Carter, 2002) Kalakota and Whinston (1999), generally describe electronic commerce as transaction of information between any number of users using an interconnected network. The network is made up of telephone lines, TV

lines etc. A transaction occurs when one party provides to another party a

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product or service through a technologically separable interface. Another explanation is that it is the application of technology toward the automation of business transactions and workflow. Business transactions that contain the electronic transfer of commercial or private information are described as electronic commerce. Most of the e-commerce applications that are commonly used revolve around the provision of wholesale and retail services and commodities. This new process is striving to 'improve the execution of business transactions.

(http://www.globaltechnoscan.com, 2002)

2.3

(B2B) and (B2C)

E-commerce can be better understood by differentiating business to business (B2B) from business to consumer (B2C) e-commerce.

2.3.1 Business to Business (B2B) B2B e-commerce can take many forms. One of the originals was Electronic Data Interchange (EDI). It was the most popular system for electronic data transfer and was the most successfU1 use of information technology in business to business transactions prior to the Internet. It is a way of exchanging business information through private networks. Companies use ED1 in order to automate and increase the speed in the exchange of information. When using this system, no money is moved electronically, just information. However ED1 is suffering due to the enormous abilities of commerce over the Internet. The ED1 structure is based on parties having a standardised method of communicating.

Therefore, once a structure is installed, there is less room to accommodate

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potential new customers. (Kalakota and Whinston 1999) Business to business e-commerce is growing quicker than the consumer market sector. This stems from the fact that there is more loyalty between business partners who rely on each other, than retailers who are just one click away from another web page. In the future, the majority of on-line transactions will be conducted from business to business and not focused towards the consumer market. This theory is backed up by the figures. Of the $7.29 trillion e-commerce market available by 2004, B2C transactions will account for about one in every ten of B2B transactions. (Reuters Magazine, 2000)

2.3.2 Business to Consumer (B2C) In the future, business to consumer e-commerce will represent about one in every ten transactions of the on-line market. (Reuters Magazine, 2000) The B2C market mainly deals in information products and commodities. Usually the industries that have a more prominent position in this B2C market have a high information content and a high ratio of intermediary costs to total product costs. Companies who are involved in the entertainment, travel, news and information and financial services are the most obvious examples. (Carter, 2002) Over the past number of years, the Internet has created business opportunities for many start up companies, and at the same time, threatened many traditional business models. (Carter, 2002) Because of this, several new modes of business have emerged in the B2C area. Companies, that when they were first setup were totally without any connection to any on-line communication system, are now finding

themselves extending their offerings through the Internet. (Kalakota and

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Whinston 1999) The Internet has become for them, an on-line channel for distribution and marketing. Airlines are typical of this strategy, with Ryan Air as probably one of the most representative examples. There are numerous benefits for consumers who prevail of on-line shopping. With companies offering their services and products on the Net, consumers are able to complete a transaction in a few minutes without having to leave the comfort of their living room. Lower prices, more choice, lower search costs and more information put the user in control of all transactions. Firms have to be very careful in pricing their commodities since consumers will be able to compare rival costs at the tap of a button. (Banks, 1998)

2.3.3 Perspectives The expected growth in retail spending via the Internet is massive. Research shows that B2C e-commerce in Europe was worth €3.5bn in 1999 grew to approximately €9bn by 2000 and will reach €45bn in 2002. These figures represent two-tenths of a per cent of the entire retail market in Europe. With B2C sales accounting for such a small percentage of total retail sales, but growing at more than 200 per cent per annum, the market is wide open. This situation will benefit consumers who will be encouraged to buy on-line because of the resulting competition among competitors vying to stake a claim in the ever-growing market. (Financial Times, 2000)

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2.4

Competitive Advantage

According to Porter and Millar (1985), an organisation is profitable if the income it creates it creates is greater than the total cost of production. A company will gain a competitive advantage over its rivals if it can carry out the activities that it performs to do business in a manner that is less expensive or in some way creates differentiation and therefore a premium product.

2.4.1 Competitive Advantage through IT When IT first came to the forefront as a means of competitive advantage in the 1980's it did so by creating increased productivity and reducing costs. Today IT offers unparalleled assistance to businesses as an information resource. It provides advantages in the several areas, which are interrelated. Firstly, it is promotes fresh and original methods of managing and organising work. Also because of increased speed in decision making it will create new and fresh business. Thirdly, productivity and general performance of the company will be greatly enhanced through the strategic use of IT. Finally it is considered as an effective tool in gaining a competitive position over rivals. (Currie, 1995) In a modern organisation IT is regarded as a valuable resource. Porter and Millar (1985), ascertain that the idea of the 'value chain' is a significant link between IT and competitive advantage. The connection of the Value Chain to IT is important because in relation to its key activities, it depicts the array of advantages obtainable to companies, which can sufficiently control the internal and external operations. The value chain analyses the activities that a company must execute to do business and therefore affect the competitive position of a company. The Value Chain model classifies

tasks into nine categories. Five are called primary activities (inbound

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logistics, operations, marketing and sales and service) and the remaining four are support activities (firm infrastructure, human resources management, technology development and procurement). In order to gain a competitive advantage over the competition a company must be capable of achieving these activities at a lower cost or in a manner that leads to differentiation and therefore a premium price. (Porter, 1985) Porter and Millar (1985), developed an idea that showed how IT infiltrates all the areas of the Value Chain in an organisation (Appendix 1). For example, if a company introduces a system of buying its stock on-line the result is that the procurement of inventory in the h r e will both help to reduce the costs of acquiring the stock but will also improve its capability to deliver quality products to a customer at a greater speed. Another example arises if the marketing and sales department introduces better IT. The information that a manager may learn from the increased flow of information may better the level of decision making. Used effectively through out the entire company, IT will lead to overall cost reductions and more efficiency. Since it is hndamental in improving efficiency it therefore is incisive in determining profitability because it impacts the whole of an organisation in all its areas.

2.4.2 Airline Competition

The control of travel between airlines and international destinations is controlled by the International Air Transport Association (IATA), the International Civil Aviation Organisation (ICAO) and also with the use of bilateral aviation agreements between Ireland and other foreign governments.

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2.4.3 Competition and the International Air Transport Association (IATA) Founded in 1919 by the international air carriers, the IATA was devised to help with all the operational issues It also has responsibility for organising the regulatory framework for deciding all the international routes and fares which are binding on all the member nations It is also in charge with the regulation and coordination of flight operations, maintenance, crewmembers, security and international traffic control. Until 1979 the IATA was separated into three geographical areas After this date, the organisation was split up into eleven areas Fares were decided separately for each area They are binding s: long ?;:no more than four camers in r, - * ,

,,

any given area object If no solution can be found, the airlines are '

.,

*.:s

permitted to agree to bilateral fares provided a inajority of the other carriers do not object Because of these measures which saw the market place become more liberal concerning fares, the IATA has lost a lot of it's power (http.//www iata.org, 2000)

2.4.4 Competition and the International Civil Aviation Organisation (IC AO) The ICAO was a product of 1944 Civil Aviation Convention that took place between 52 nations and was a affiliated to the UN. It was devised as an instrument to help encourage international transportation and to oversee international safety guidelines. It was also responsible for the promotion of better development, design and operation of airports. (http://www.icao.int, 2000)

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2.4.5 Bilateral Aviation Agreements and Competition

There are four types of bilateral agreement, which can be charged with the original implementation of fare pricing. These agreements covered a range of areas including, pricing parameters, landing rights and capacity requirements. The 'Chicago' agreement covered Ireland and also Iceland and Turkey. The main purpose of this agreement governed landing rights and routes. (http://www.iata.org,2000) There are other associated agreements that deal with the rights of one countries airline to collect traffic for other foreign countries as long as the flight starts or ends in the camer's country. They also set out the rights of countries to other foreign countries with stops in it's home country and the right to carry people between two countries outside of it's own country.

2.4.6 European Airline Deregulation and Competition

European Airline Deregulation has opened the door for all airlines operating in Europe to grow and expand. Deregulation came about as the result of EU attempts to level the opportunity for fair competition. Full deregulation for European airlines came into effect on April 1 1997.The changes resulted in lower airfares alternative camers for potential passengers, new markets opening up foi existing airlines and more complex pricing. The deregulation removed many of the barriers that restrained airlines. For example, up until deregulation, an airline was only allowed to operate domestic routes within its national border. Now, an Irish airline is able to operate a domestic service between two cities in France, where as before it could only operate a domestic route within another EC state only if it was part of a service that originated or ended outside of that particular state.

Without the restraints regarding domestic routes beyond national borders,

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airlines can contend with each other for new routes. It opens the door for young airlines to stake a claim for local routes. This increase in competition resulted in falling prices for flights within Europe, which were at least double the costs of a similar route in the US. (http://www.iata.org, 1998)

2.4.7 On-line Booking On-line booking services allow customers to have a point of contact on the Web where they can research into suitable flights and fares and make a selection, which is then booked and ticketed by the on-line operator. There

are many on-line services in 2002 representing airlines, on-line travel agencies and traditional travel agents. It is expected that on-line travel sales will total 13% of the travel market by 2003. The.European online travel market will soar from the €3.4 billion in sales last year to €1 1.5 billion in 2002, a 300 percent increase. An on-line booking service executes various services in consecutive order: reservation information and recommendation service, reservation services and ticketing services. The initial service that it provides is the collection and delivery of flight reservation information and suggestions in a convenient arrangement. (eyefortravel.com, 2002)

2.4.8 Competing among On-line Booking Vendors. The Internet has extended the accessibility of data about prices and products, permitting customers to distinguish between the best deals or at

least to better their bargaining situation with vendors both on-line and in

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traditional channels. There are several key differentiating factors that allow for competitive advantage in on-line airline ticket sales. Among the factors is the design of their Web site (for example the quality of their interface), the speed of response to ticket inquiries and the extent to which they allow users to express preferences about tickets (for example search for low cost or bargains) all of which go to improve competitive advantage. (Currie, 1995) Also as markets move from physical to electronic, they remove inefficiencies on the consumer's side, principally the cost. Search costs represent the real costs for consumers; identifying sellers, locating products, comparing offerings and making a purchasing decision. These costs may be reduced in electronic markets due to elements such as increased convenience, decreased waiting times and removal of travel time. For on-line consumers the capability to search has been greatly enhanced by way of search engines like Yahoo and Google, which are among the most favorite websites on the Internet. It can take fewer than 10 clicks of a mouse to get a collection of on-line ticket vendors via a search engine. In addition, some Internet browsers such as Netscape arrange immediate links to on-line vendors. When a possible customer has indicated their itinerary, the on-line vendor displays to the consumer all the potential flights within seconds. Also, a customer can simultaneously open various windows and a search on different vendors at the same time. This makes it possible for the customer to compare the different flights at the same time. (eyefortravel.com, 2002)

The decline in consumer search costs in the electronic markets has put

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on-line vendors under additional pressure on account of price competition, resulting in converging prices and canceling any extraordinary profits that the operator's may have been able to make. The reservation information and recommendation service is also a basis of competition among on-line booking services. After the customer has selected a flight they can proceed to book the flight. These services are free of charge to the traveller, but they represent the operator's doorway to revenue. (eyefortravel.com, 2002) 2.4.9 Airlines on Top

The victors among all the on-line booking vendors are the airlines and other travel suppliers including hotels, tour operators, railways and car rental firms. In Europe they have captured 74% of the complete online market share in comparison to the 26% which the independent online travel agencies achieved. Airline Web sites racked up $810 million in sales during 2000, while online travel agencies sold $382 million in airline tickets. Ryanair and Easyjet were the two most favourite airlines with regard to on-line sales. Neither of these companies sanctions independent online agencies to sell tickets on behalf of their airlines. (eyefortravel.com, 2002)

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Chapter 3 3.0

Introduction

Various hypotheses have been proposed in order to explain why the use of web based business have a positive effect on a firms competitive advantage. The hypothesis for this study is based on the assumption that the Internet has indeed had significant positive influences on competitive advantage in the airline trade.

3.1

Theory

Moving commerce on-line would appear to bring efficiency to this marketplace and help create competitive advantage. Also, because the offline business-to-consumer ticket market is based on intermediaries physically bringing parties together, on-line ticket selling based on providing a quick and easy method of booking flights would also appear logical. Intermediary fees are eliminated because it may be a ticketless flight or the buyers can simply pick up their tickets at the airport.

Competitive advantage can be created through the Internet.

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Airlines must embrace the Internet if they are to remain competitive,

The development and use of Internet technology in airline ticket sales has brought greater efficiency to ticket booking in the airline business.

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Chapter 4 4.0

Introduction

This chapter describes the methodology employed in completing this dissertation and describes how that methodology was organised. It sets a background for the case study and to how the author acquired the information to gain a thorough understanding of the case. It also describes some of the difficulties that arose while investigating the research.

4.1

Research and Methodology

4.1.1 Secondary Data

The first task in completing this dissertation was to identify all the appropriate textbooks. These deviated in age from the early 1960's to the current day. They served to distinguish the principal domain to be studied and also provided a hndamental insight into each area. The books that the author used were collected from the major academic and business libraries to which the author had access. During the course of the study it was found that most of the publications concentrated either solely on e-commerce or competitive advantage. This was something that the author wished to avoid as it was felt that the understanding of one was incomplete without an insight into the other. The research was conducted by using the following sources of information, articles Cjoumals, newspapers and Internet information), literature (books and write-ups), institute research documents and public information either from the companies or industry analysts.

In order to establish the current standing of Ryanair the author used the

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company reports and news articles. These were obtained directly from the Ryanair website. The Ryanair air website contains a comprehensive catalogue of the history of the group from the beginning all the way up to the present. Ryanair, being a public company, provided all their financial reports on the website for the last three years.

On completion of the case study it was reviewed by Mr Shay Warren. Mr Warren is the Deputy Dire'ctor of Operations in Ryanair. Having studied the case study he confirmed the facts and statistics the author had seen fit to mention about his company. The area of e-commerce is particularly dynamic. Innovations in the industry are constantly being made. Such innovations require firms to adopt constantly to their changing environment. In order to understand the general effects the author monitored the business publications (both magazines and newspapers) in order to get an up to date viewpoint from critics and analysts. 4.1.2 Primary Data

The author found that there were many texts and articles related to the expanding affect of e-commerce on the growing numbers of travellers using airlines. However, it was observed that there was no data which specifically dealt with the public's reaction to on-line booking as a viable competitor to booking via a travel agent. In order to gain a more clear understanding of the opinions of the general public, which was pivotal to the research, the author decided that a primary research study must be carried out. Many different forms of research were considered but it was felt that a questionnaire was the most suitable.

A questionnaire was designed which would extract from the public the

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information that was deemed important for the study. The opinions and remarks that the author received were invaluable to the study. Before deciding on the questions the author considered the appropriate population make up. It is important to choose a population that completely represents the area, which is under examination. Due to the financial and physical requirements concerned with booking a ticket on-line the author decided on this makeup. The population for the survey was specified as: males or females; people aged between 18 to 65; people who have booked a commercial flight via the web in the last three years. While classifying the data received from the questionnaires the author noted that there was an excellent consistency of answers in relation to the proposed hypotheses.

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Chapter 5 5.0

This chapter focuses on classifying the data collected through the

questionnaire (Appendix 2) and the case study (Appendix 3). The population for the survey was specified as: male or female; people aged between 18 to 65; people who have flown on a commercial flight in the last three years. 5.1

Questionnaire

1. What is your age? 18/24

The author collected 40 satisfactorily completed questionnaires. The author asked this question for two reasons. Firstly, it was asked to ensure

that the individual fitted the required population for the survey. Secondly, it helped to determine what age groups were most likely to use an on-line booking fixility. 16 subjects were between 10 to 24, 12 between 25 to35, 10 between 36 to 50 and 2 between 51 to 65.

Series 1

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2. How long have you been connected to the Internet? 316 months

6/12 months

P

112 years

213 years

I

The author asked this question in order ascertain the effectiveness the Internet has over an individual in relation to the length of time it has been available to them. 7 said 316 months, 9 said 6/12 months, 18 said 11 2 years and the remaining 6 said 213 years.

OH2 M o n t h s

112 Y.ars

S e r i e s 1

213 Y e a r s

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3. Do you use a commercial flight every year?

No

112 times

2l5 times

Habitually

J

This question aimed to establish a relationship between on-line buying and the frequency of travel among the population. A majority percentage of the answers received varied among No and 1 to 2 times a year. 15 people did not fly at least once a year; 21 did fly at least once a year; 3 people were regular passengers with 2lS times a year and 1 person flew habitually.

Habitually (2.5%) -

I R times (52.5%)

215 times (7.5%)

-

7

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4. Please indicate how often you use on-line booking?

Occasionally

Once

Constantly

There are many ways of booking a seat on an airline, travel agent, directly with the airline, telephone booking, on-line. The author wished to establish how frequently people use an on-line ticket buying facility when they are booking a flight. 16 have done it once before, 15 used it occasionally and 9 constantly acquire their tickets on-line. 1614.-

1210 -

86-

420

0nce

Occasionally

Constantly

Series 1

5. Do you believe that on-line booking is the future for air travel?

Yes

No

A vast majority of the population believed that the future of air travel lies

with on-line booking of tickets. The author became aware that only 6 people (15%) thought that on-line booking was not the future for air travel whereas 34 people (85%) agreed that it was the way forward.

6. Would you recommend on-line booking to a fiiend?

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Yes

0

No

The author wished to try to determine the acceptability and the confidence the population had in recommending on-line booking to a fiiend. The author learned that people on-line are comfortable with the idea of making leisure travel arrangements on the Web, by the majority of the people that answered yes to the question. 33 (82.5%) people responded that they would recommend it to a fiiend where only 7 (17.5%) said they would not.

7. Have you experienced any problems with the Internet?

Yes

No

Problems experienced using the internet by users can impede websites fiom reaching its fill potential. The author wanted to investigate if problems existed and weather these problems (if any) were the cause of obstructions in the competitive advantage of an organisation using on-line technology. 24 people (60%)had encountered problems with the Internet.

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8. If answered yes, could you explain these problems?

A majority of the people interviewed had at some time encountered a problem with the Internet. The problems ranged fiom external problems to internal problems in the actual website. External problems obsemed were bad connections, unfamiliarity with internet procedures. Problems that were caused by internal operations included, web design, down load speed, failure to meet required user needs. 9. How satisfied were you with your last experience of on-line booking?

0 Very satisfied Somewhat satisfied Neither satisfied nor dissatisfied 0 Somewhat dissatisfied Very dissatisfied A high percentage of the population was pleased with their experience.

The author observed that although many people had experienced problems with the internet, this did not affect their personal impressions of on-line shopping. 20 people recorded an opinion of being very satisfied, 15 were somewhat satisfied, 2 was neither satisfied nor dissatisfied and 3 were somewhat dissatisfied. No one was 'very dissatisfied' with their experience.

S. dissatisfied

V. dissatisfied satisfied

V. satisfie

N. satisfiedldissatisfied

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10. Please give reasons for your previous answer.

The answers received varied as to why people went from satisfied to dissatisfied. People who found their experience satisfactory commented on the time and ease that it took to complete the transaction and on the accessibility of the website. They commented on the amount and extensiveness of offers that were available to them that were not in tradition travel agency packages. Those who recorded a less auspicious outcome felt that the destinations available and the proximity of the arrival airports to the city of choice were less than perfect. 11. Please evaluate,on-lineairline booking on the following

characteristics.

User friendliness

Average Excellent 3 4 5 6 7 0 0 0 0 0 0 0

Price

0 0 0 0 0 0 0

Offers available on-line

q

Poor 1 2

q

q

q

q

q

0

On-line booking scored high in all the categories. The author wanted to establish that the population as a whole was happy with the content and offers available within on-line booking websites in general. User friendliness scored an average of 5 out of a possible 7 giving it a plus average rating. Price got a similar result with an average of 6 giving it a near excellent rating. Offers available on-line scored 6 also.

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12. Is the on-line experience as consumer fiiendly as that of a travel

WPcy? Yes

No

The objective of this question was to see if people find booking on-line as comfortable as booking with a travel agent. With the use of a travel agent

a customer has an agent of the airline on hand to personally explain the details of any flight that may seem of interest. With on-line booking the understanding of details is very much up to the p o t d customer. The author observed that even though a majority of the population found that on-line booking was as consumer fiiendly, a significant amount of the population still preferred the personal touch available only with a travel agent. 21 (52.5%)people said yes to the question with 19 (47.5%) indicating no.

Yes

13. Please indicate how concerned you are about releasing credit card

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details through on-line server transactions.

Very unconcerned Somewhat unconcerned Neither concerned nor unconcerned Somewhat concerned Very concerned This objective of this question was to determine if on-line customers are at ease with the idea of releasing credit card details through on-line server

transactions. The answers varied but leaned towards customers being unconcerned about this topic. 6 were very unconcerned, 15 were somewhat unconcerned, 13 were neither concerned nor unconcerned, 6 were somewhat concerned and no one indicated very concerned.

S. unconcemed (37.5%)

1

14. How could airlines improve their booking service to better satisfy the

consumer? The objective of this question was to gather ideas that people feel the airlines need to address for their on-line booking systems to progress. A common suggestion was to be able to alter flight details on-line after they have been booked and paid for. Another suggestion noted was that it is impossible for customers to arrange for connecting flights via a different

airline. People also wished to be able to book complete package tours. The

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most common answers dealt with web design, down load speed and the destinations available. 15. Would you use on-line booking again?

Yes

No

There are many options open to potential customers when arranging details for travel. This goal of this question was establish if customers who have already used the facility will return to it. 34 (85%) answered yes while 6 (1 5%) answered no.

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5.2

Results of the Case Study

The concept behind Ryanair is to bring the lowest possible fares to the air traveller. In order to do this they have realised that the most cost-effective strategy was to use on-line booking as their principal method of selling tickets. Ryanair has the lowest airfares in Europe. They have shown that the traveller wants low cost by the success they have achieved against long term popular airlines such as AerLingus, British Airways etc. This is possible because of their aggressive on-line strategy which competitors find difficult to deal with. By selling a majority of their tickets on-line Ryanair lowers the price of tickets by cutting out the costs of the middlemen. The commissions charged by travel agents can be as much as 10%. The reduction in the price of the ticket is passed directly on to the consumer. The other airlines find it difficult to compete with them because their airlines are structured differently. The travel agent is an important intermediary between the customer and the airline because there is no system of booking on-line. Ryanair benefits because customers feel as if they have more power in the decision making process because they can book the tickets in the comfort of their own home with out having to go to the trouble of contacting a travel agent. The other leading airlines in Europe have noted the success that they have attained. In reaction to this many have begun their own pursuits to harness on-line trading. Many of these airlines have until now barely registered on-line booking as part of their strategy. However there is now a scramble to copy the trend set by Ryanair. British Airways committed f 100 million

expenditure over two years to make their low cost airline 'Go' a success.

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Even though Go airlines failed for BA they are still intent on providing a low fares service in the fitture. When Ryanair launched its website in early January 2000 its aim was to achieve a quarter of its bookings on-line within a year. But it achieved that target within six months. Within a month of the launch Ryanair had achieved over £4 million in sales revenue from on-line booking. In the following February that figure rose to f7.3m. It was selling 50,000 tickets a week from its website at the time. In the first two weeks of February 2001, exactly one year after its launch, 69% of all Ryanair's bookings were made on the website amounting to an impressive 300,000 seats being sold on-line. The total for the first year of trading was 3.3 million seats being sold on-line making Ryanair.com the most popular travel site in Europe. Within a year of its introduction the website was registering 10 million hits per week. In February 2002, Ryanair carried 40% more passengers than in February 2001. This amounted to 886,320 passengers, 250,500 more than in the previous February. Over the past year almost 11 million people travelled on the airline with 91% purchasing their ticket on-line.

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Chapter 6 Introduction This chapter deals with testing the hypotheses with the data from chapter 5.

Testing of the Hypotheses.

The Internet is a reasonably new phenomenon. However through the course of the study it became apparent that organisations are convinced that it is the way of the future concerning competitive advantage. It is generally understood that if you are standing still with IT then you are already at a disadvantage in area that is in a constant state of change. When business first became popular on the Internet, organisations concentrated on e-mail and file sharing. Modern IT that provided e-mail was seen more as a tool for receiving information than as a strategic device. However with the arrival of World Wide Web companies could engage in interactive services that provided a more user friendly method of arranging and transferring data. Companies began to do more business through the Internet, which became known as e-business. In today's organisations IT is seen as a priceless resource. According to Porter and Millar (1985) the 'value chain' provides a link between competitive advantage and IT. Their research showed that IT could be integrated into every activity of the value chain creating greater efficiency by changing the company's strategy. If used effectively in every part of an

organisation an active use of IT could introduce cost reductions and

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important efficiency. It does this by creating several advantages. It encourages new and dynamic methods of management. It improves decision making. It also affects the productivity of the organisation as well as the performance of the company. This overall change in the strategy of an organisation through the implementation of IT creates competitive advantage. It achieves this by lowering the costs of production. Competitive advantage is obtained when the expenditure on the activities that it must perform to do business is less expensive than that of its competitors or when it can conduct these activities in such a way that it formulates differentiation and therefore a premium product. E-commerce is progressively transforming the mould of industrial organisation. It is therefore pivotal to organisational innovation. The success of established business in the future will be dependent on their capacity to take advantage of electronic communications with customers. In the questionnaire it became apparent to the author that consumers are becoming increasingly aware that the Internet is the way forward for B2C. A majority of 85% noted that they though it was the future for air travel.

Ryanair have been one of the few airlines in Europe to realise that e-commerce is the newest and most effective way to gain competitive advantage over its competitors. They have led the way in on-line booking and it shows in their financial and growth results during the last four years. They achieved this through an aggressive on-line strategy, which has made them the seventh biggest airline in Europe and the most successhl low fare carrier. In the last three years according to their balance sheets

Ryanair shown continuous growth despite recent setbacks to the airline

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industry and a worldwide slow down of economies. The main reason for this success is their IT strategy. It has allowed them to undercut any price set by competing airlines and also to offer deals that are vastly superior to any others available on the web. In order to remain competitive many of the established European airlines are having to copy the low fares tactic used by Ryanair. In only five years Ryanair have gone from being a small commercial airline with a handfkl of routes to being the seventh largest carrier in Europe. This success is owed principally to their e-commerce strategy. They have proven that on-line consumers are happy with the idea of booking tickets over the web. 91% of their tickets were sold over the Internet last year. This statistic matches the answers received in the questionnaire. When asked if they would use the Web service again 85% said Yes. This is significant when one considers the many other travel purchase options that are available to consumers. There are various benefits for consumers who shop on-line. With more organisations offering their services and products on the Web, consumers are able to conclude a transaction in a few moments without having to leave their living room. Lower prices, more choice, lower search costs, fast product research, cross shopping, an easy purchasing process and more information put the user in control of all transactions. Therefore it is imperative that airlines seize the Internet for strategic use if they are to take advantage of the popularity people are showing on-line shopping. BA recognised the value of.Web based ticket sales. They invested £100 million over a period of two years on on-line ventures. This was in line with their wish for the total on-line ticket sales percentage of 50%. The result was 'Go' airlines. However even though other carriers such as

Ryanair and Easyjet showed that great success with an on-line business-to-

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consumer strategy is possible, BA also proved that unless it is amalgamated correctly with your current strategy the results will insignificant. BA has since sold Go but they still intend to make moves to compete more effectively with budget carriers. Luftansa, Air France, Alitalia and KLM are all investigating potential on-line strategies. People are beginning to accept the Internet as a serious form of commercial trading. The record numbers of people who daily, purchase commodities on-line proves this. The European online travel market will rise from the €3.4 billion in sales last year to €1 1.5 billion in 2002, a 300 percent increase. Airlines cannot afford to ignore a trend which consumers find so attractive. Indeed concerns have been raised about the safety of buying over the Web. Indeed 60% of the people surveyed had come upon problems with the Internet. Often information that appears on the Web may not be accurate. Also when making a booking a consumer must provide private details such as a credit card number, names and addresses and telephone numbers. The questionnaire noted that many of the problems were caused due to external and internal difficulties. External problems recognised were bad connections, unfamiliarity with internet procedures. Difficulties that were caused by internally included, web design, down load speed, failure to meet required user needs.. However this has not stopped the growth of on-line sales. According to results from the questionnaire, people when asked if they were worried about relaesing information through on-line server transactions 15% were very unconcerned, 37.5% were somewhat unconcerned, 32.5% were neither concerned nor unconcerned, 15% were somewhat concerned and no one indicated very concerned. Last year Ryanair sold 91% of their tickets via the Web. Also when questioned a majority of 82.5% said that they would recommend on-line booking to a friend. In the future, business to consumer e-commerce will represent about one in every ten transactions

of the on-line market. A trend this broad is something that every airline

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must pay attention to. In doing so they must try to capture a percentage of the market or they will find themselves left behind by the other carriers.

The Internet offers the possibility to forge a global marketplace for business-to-consumer trading. In the area of airlines this trading has up until now been conducted through intermediaries, travel agents. However with the advent of e-commerce these off-line markets have become inefficient. There are several reasons for this. (1) There is limited time and freedom to make a decision. (2) The transaction costs incurred can add at least 10% to the total cost. (3) Because it requires the travel agent and customers to meet face to face it becomes troublesome and costly and therefore inefficient. At first companies saw the Internet as something that could provide information to its customers. However then companies began to see that it could also be used as a new method of distribution to possible consumers. Consumers could for the first time engage in on-line transactions, a business-to-consumer transaction. This new phenomenon made certain inefficiencies veryapparent. In the case study the author saw that Ryanair had become aware of this. They discovered that it was possible to sidestep their traditional distribution channels by selling direct to their customers. By doing this they were effectively removing them from their value chain. It was now easier for them to reach customers and costs fell because of the removal of distribution and agency fees. Having an on-line ticket sales service permits the airline to maximise its cost effectiveness due to the savings incurred from a lower personnel count and less real estate. Also it

provides buyers with a rapid service which can be accessed any time of

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day anywhere in the world. Using a PC in the privacy of your own home, an on-line consumer can reserve a flight or even book a rental car or a hotel. Making reservations on the Internet has made the task very convenient. A potential customer can search around for the lowest prices and locations free of charge. According to results from the questionnaire consumers are quite willing to book on-line. Out of the forty questioned 40% have done it once before, 37.5%used it occasionally and 22.5%constantly acquire their tickets on-

line. This is significant because although there are many ways of booking a seat on an airline Internet booking is prominent. Also consumers noted that they are satisfied with the level of consumer friendliness during an online transaction. 21 people (52.5%)said that they considered it as consumer friendly as that of a travel agent.

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Chapter 7 This work describes the effects e-commerce has had on competitive advantage in airlines. The author has attempted to show how in the future airlines must adapt in order to remain competitive amongst competitors who are integrating e-commerce into their value chain and therefore their long term strategy. However as IT technology continues to develop there will be many opportunities for fbture discussion on this topic. While e-commerce on the Internet is still in a fundamentally early stage, organisations endeavoring to facilitate business over the Internet face immense opportunities as well as immense challenges. Booking leisure travel on-line is an ever growing sector. Assertive attempts by airlines and other travel suppliers and a general consumer acceptance of on-line buying has turned on-line booking into an important competitive strategy. It is not yet perfect though. Consumers are still eager for improvements. The ability to alter flight arrangements on the Web, to be allowed to arrange for a connecting flight on a different airline, package holidays available on the sites are just some of the possibilities that may be around the comer. r-

It has become evident throughout the study that certain characteristics must be in place for the Internet to thrive. There must be a relaxing in government regulations concerning competition, a stable financial environment, a competitive marketplace and a climate that encourages innovation. Today, business and consumers are adopting the Internet for various reasons including increased efficiency, new forms of competitive advantage and also the forging of new types of business opportunities. The integration of existing companies with the Internet, increasing revenues

and reducing costs are the principal objectives of e-commerce.

ow ever

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through this research it can be seen that there are bigger changes occurring. New business models are appearing in all forms of business. The aim of these new models is to bring consumers and retailers closer together. E-commerce is allowing enterprises to lower their costs dramatically throughout their value chains. It is permitting closer relationships between customers and retailers in order to better comprehend their requirements. Also as well as benefits to the business sector e-commerce is assisting in helping consumers reduce search costs as well as gain access to more information on products and services.

An organisation trying to develop a long-term Internet strategy will find it difficult because of the rate at which Internet technology is changing and the size of the market is expanding. As commerce over the Internet reaches a stage of maturity, it is certain that both retailers and potential customers will become more.educated and experienced with e-commerce: transactions. Although this research has been able to statistically prove many positive relationships between e-commerce and competitive advantage it is important to point out that it has only just touched the surface of what the Internet holds for this new type of economy. It is significant to note that some of the findings in this research may be characteristic of the early stage of commerce over the Internet. Therefore further research in the future alone will determine if e-commerce can improve long-term efficiency and therefore prove to be a competitive advantage.

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Appendix 1 IT infiltrates Porters value chain Source: Porter, M., Millar, V. (1985)

1

Emmresoluce

/ Automated personel

I n r m a g m t I scheduling 1 Technology j ~onputer-aided 1 developmmt 1 design

EI-nic rrarket research

On-line p m c m t of parts Telming

Automated -house

Flexible nrmufachuing

Automted order processing

Rmmte senking of equip~mt h t e Corrputa scheduhg a terminals for salespersons . muting of repair tmcks

Inbound logistics Primary adivif es

Operations

Outbound logistics

Mzuketingand Service sales Margin

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Appendix 2 Questionnaire

On-line Booking Survey All Information will be treated in the strictest confidence.

1. What is your age? 18/24

2. How long have you been connected to the Internet? 316 months 112 years

6/12 months 0

213 years

3. Do you use a commercial flight every year? No

112 times

215 times

Habitually

4. Please indicate how often you use on-line booking? Once

Occasionally

Constantly

5. Do you believe that on-line booking is the fbture for air travel?

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Yes

No

6 . Would you recommend on-line booking to a friend?

Yes

No

7. Have you experienced any problems with the Internet?

Yes

No

8. If answered yes, could you explain these problems?

9. How satisfied were you with your last experience of on-line booking?

Very satisfied Somewhat satisfied Neither satisfied nor dissatisfied Somewhat dissatisfied Very dissatisfied

10. Please give reasons for your previous answer.

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11. Please evaluate on-line airline booking on the following

characteristics.

User friendliness

Average Excellent 1 2 3 4 5 6 7 0 0 0 ~ 0 0 0

Price

0 0 0 0 0 0 0

Offers available on-line

q

Poor

q

q

q

q

12. Is the on-line experience as consumer friendly as that of a travel

agency? Yes

q

No

13. Please indicate how concerned you are about releasing credit card

details through on-line server transactions.

q q q

Very unconcerned Somewhat unconcerned Neither concerned nor unconcerned Somewhat concerned Very concerned

14. How could airlines improve their booking service to better satisfy the

consumer?

15. Would you use on-line booking again?

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Yes

0

No

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Appendix 3

Case Study on Ryanair Source: www.ryanair.com : Mr Shay Warren. Deputy Director of Operations, Ryanair.

Introduction This case study is concerned with the recent movement of Ryanair's core ticket booking strategy from travel agents that represent the company to an exclusive Ryanair on-line service, Ryanair.com. The study illustrates the application of the Internet booking site and shows the change that occurred in the company in view of it. Ryanair was chosen due to its impact on the global airline business and as

an appropriate subject matter through which to illustrate the influence the Internet has had on competitive advantage in the airline trade.

Background of Ryanair

In 1985 Ryanair came to life from humble beginnings. Their first official flight route was from Waterford Airport to London Gatwick. At that time, they had to make do with a turbo prop bandeirante airplane that seated a meager 15 people. From the start the company had a resolution to remain a low cost air travel operation. Their aim was to make air travel affordable and thus available to everyone in the population. Even with the stakes stacked high against it

succeeding, it became successful very quickly, transporting more than

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5,000 travelers in their first year of business. In 1986, Ryanair broke the strangle hold that Aer Lingus and British Airways held over the Dublin London transport route. They introduced a policy of low cost flights between Dublin and London, which at the time made them the only European airline set up specifically to provide low cost fares. Up until then a flight between the two cities cost £209. Ryanair introduced a return fare ofjust £94.99. That year they carried over 82,000 people on two routes. Even though the next three years saw Ryanair's market share grow immensely due to it adding new routes, it had managed to incur debts of up to f20m. Due to the large expenditure on aircraft, numbering 14 at the time, and various other expenses the costs spiraled higher. With the implementation of new management and a complete renovation of the company between 1987 to 1989, Ryanair became a filly-fledged "low fareslno frills" airline. It cut back on non-profitable routes, from 19 to just 5, disposed of the turbo prop aircraft and reduced the remaining airfares in

order to improve the financial situation of the company. This change in strategy saw the company's fortunes turn. It recorded its first profit in 1991, carrying 700,000 people on just five routes. Over the next few years, the number of routes increased to destinations such as Birmingham, Manchester, Gatwick and Glasgow and the fares were lowered in accordance with its "low fareslno frills" policy. 1997 was a significant year for the company. The EU deregulated the European air transport system allowing Ryanair to expand and open up new routes into mainland Europe to destinations such as Stockholm, Oslo, Paris and Brussels. Europeans flocked to the airline enthusiastically

because of its low airfare policy, which was unheard of in the other

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European markets. In the same year the company was floated on the stock exchange in Dublin and New York. The next milestone came in 1999, when they announced an order for the purchase of 45 new Boeing 737-800 series aircraft at a cost of US$2billion. They were now the cheapest airline with the most up to date aircraft. With 45 routes over 11 countries, a fleet of 31 aircraft and 1,400 employees Ryanair's future is secure.

The Concept Behind Ryanair Ryanair was formed to bring the lowest possible fares to the air traveler. It,. is committed to lowering airfares and maximising the amount of low fare seats open to both business class and standard class. It does this even though it faces stiff competition from some of Europe's largest airline operators including Aer Lingus, SAS, British Airways and Air France. Because of its cost-effective strategy, on-time flights, high frequencies and customer friendly services they continue to take business from the larger carriers and increase public endorsement.

Awards 200 1 Best Managed Airline Award (Aviation Week Magazine)

2000

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Best Managed Airline Award (Aviation Week Magazine) Irish Company of the Year (Business & Finance Magazine) Market Development Award (Air Transport World Magazine) Golden Spider Awards Grand Travel Award (Sweden) 1999 Best Managed Airline Award (Aviation Week Magazine) Best Value for Money Airline (ATUC) 1998 Airline of the Year (Ireland) (ATUC) Best Value for Money Airline (Ireland) (ATUC) 1997 .

Best value' for Money Airline (Ireland) (ATUC)

Future Plans

In January 2002 Ryanair announced a deal with Boeing detailing plans for the delivery of 150 new aircraft over the next eight years. When Ryanair take control of their 150 new Boeing 737 800 series aircraft, which is the largest single order ever made for the new 737, they will also become the largest users of Next Generation 737 aircraft in Europe with the youngest fleet. This massive order will

Ryanair and Boeing to reform short-

haul air travel in Europe in much the same way as Southwest and Boeing have done it in America.

Market Share

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Ryanair predicted that by the end of the financial year 2002 they will have carried in excess of 10 million passengers to their destinations which will make it the 7thbiggest international scheduled airline in Europe. Wiih the introduction of~thenew aircraft Ryanair will be able to increase traffic to over 40 million pax per annum over the next eight years, malung it the largest international scheduled airline in Europe. Employment The company employed 57 staff in its first year of operation. By 1989 Ryanair had 350 people working for them. By the last year of the millennium the company was employing over 1,200 people. With the announcement of the new deal with Boeing, Ryanair also declared that over the next eight years the new aircraft would allow them to create more than 3,000 new jobs in Ryanair, made up of over 800 pilots, 2,000 cabin. crew and more than 400 operations and engineering vacancies. Financial Information When nearly all other airlines are requesting some type of State backing and extensive employment cuts, simply to survive, Ryanair are boasting high profit margins even in the aftermath of September 1lth.It announced record traffic and profit figures for the quarter ended 31 December 2001. This quarter covers trading in the immediate aftermath of the New York terrorist attacks on September 11. Despite such unfavorable conditions passenger traffic grew by 30% to 2.7 million. During the same time, load factors (a % measure of seats sold to seats available) rose to 79%. Total revenue grew by 18% in the quarter. Operating costs rose by 15%, (a slower rate than revenue growth). The net effect of this was that net profit increased by 35% to €28.8m for the quarter.

*-

Ryanair predicted that by the end of the financial year 2002 they will have

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carried in excess of 10 million passengers to their destinations which will make it the 7" biggest international scheduled airline in Europe. With the introduction of the new aircraft Ryanair will be able to increase traffic to over 40 million pax per annum over the next eight years, making it the lafgest international scheduled airline in Europe.

Employment The company employed 57 staff in its first year of operation. By 1989 Ryanair had 350 people working for them. By the last year of the millennium the company was employing over 1,200 people. With the announcement of the new deal with Boeing, Ryanair also declared that over the next eight years the new aircraft would allow them to create more than 3,000 new jobs in Ryanair, made up of over 800 pilots, 2,000 cabin crew and more than 400 operations and engineering vacancies. Financial Information When nearly all other airlines are requesting some type of State backing and extensive employment cuts, simply to survive, Ryanair are boasting high profit margins even in the aftermath of September 1l ~It .announced record traffic and profit figures for the quarter ended 3 1 December 2001. This quarter covers trading in the immediate aftermath of the New York terrorist attacks on September 11. Despite such unfavorable conditions passenger traffic grew by 30% to 2.7 million. During the same time, load factors (a % measure of seats sold to seats available) rose to 79%. Total revenue grew by 18% in the quarter. Operating costs rose by 15%, (a slower rate than revenue growth). The net effect of this was that net profit increased by 35% to E28.8m for the quarter.

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Consolidated Balance Sheets in accordance with UK and Irish GAAP - in Euro Source: www.Ryanair.com December 30,

March 31

March 31

2001

2001 e000

2000

am FExedassets Tangible assets Financial assets

735,442 0

613,591

Current Assets Cash and liquid resources Accounts receivable Other assets Inventories

725,883 13,740 9,172 16,340

626,720 8,695 12,235 15,975

Total current assets

765,135

663,625

Total current liabilities

225,095

202,476

Ofher liabilities Provisions for liabilities and charges Long temdebt

44,332 444,019

30,122 374,756

Shareholders' h d s -equity Called u p share capital Share premium account Profit and loss account

9,202 372,200 405,729

9,194 371,849 288,855

Shareholders' h d s -equity

787,131

669,898

1,500,577

1,277,252

36

Total fired assets

Total assets

Current liabilities Accounts payable Accrued expenses and other liabilities Current maturities of long temdebt Shoa termbornwings

Total l i i t i e s and shareholders' h d s

em

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Summary Table of Results (Irish GAAP) in Euro Source:www.Ryanair.com

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Ryanair.com was launched on the 10th January 2000 with the announcement that it was going to change the way, in which the air traveller perceives flying. Chief executive Michael O'Leary is the driving force behind the carriers strategy and it was he who wanted to create an airline that cut out the things that up until now were seen as necessities. He did it in order to lower the costs and provide a service that he felt most consumers wanted. Today the website is generally acknowledged to be the biggest, most efficient and most user-friendly on-line air-travel reservations system in the world. They opened it with their biggest ever seat sale which made all other travel sales appear poor value for money when paralleled with Ryanair's gesture. They christened the site by offering fares from only £24.99 return (including the f10 Government tax) on 21 routes from London to Ireland, Scotland and Europe with 70% of all the available seats offered at the lowest fares. With the introduction of Ryanair.com came Ryanair's transition to ticketless air travel. It pledged to be the most user friendly air travel reservation system available, for the on average 7 million passengers who fly with Ryanair annually. People from all over Ireland and millions of airline passengers worldwide were now able to book the seats on-line in minutes from the comfort of their own home or office. Ryanair offers the lowest fares from Ireland to Europe when booked online. This coupled with the lower fares it can offer from the UK to Europe have already made Ryanair.com the most popular air travel-booking site in Ireland. Despite the prosperity created through the 'Celtic Tiger', passengers are still very alert to value for money and that is why Ryanair has become Ireland's largest and most successful international airline.

Ticketless travel also removed the worry of waiting for the tickets to amve

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in the post and eliminated many of the hassles that accompany air travel. The combination of the lowest fares to 35 destinations and hassle free booking have made ryanair.com the most popular low fares website for air-travel in Ireland, the UK and throughout Europe. Ryanair is able to charge lower fares because of its on-line trading. The savings Ryanair make through on-line bookings are passed directly on to passengers in the form of lower fares. These low fares reflect the savings that Ryanair make through cutting out the costs that are accumulated by the travel agent commissions, CRS distribution costs and back office ticket processing costs. Ryanair still offer low fares through travel agents and Ryanair Direct (subsidiary set up for direct sales) however they insist that their lowest fares and best offers are available on their web page. Ryanair is famous not only for the constant low fares that it charges but also for the competition crushing offers that it makes available on their website. They are constantly promoting new routes into Europe with offers ranging £ 1 to £9.99. The most audacious of these came soon after the events of September 11 in America. With an aim to both prove that air travel was still the safest way to travel and also to lure nervous passengers to Ryanair from their competitors, Ryanair announced an offer of 1 million seats each for £1 5 (including all taxes) one way to 34 destinations only on their Ryanair.com website. In December 2001 they gave away 50,000 free seats to all people traveling from Glasgow Prestwick to London Stansted. Ryanair's aggressive on-line strategy has proved difficult for its competitors to contend with. Its nearest on-line competition comes from the Luton based Easyjet. They have a similar proportion of their sales booked through the Internet, between a quarter and, at peak times, 60 per

cent. However they are, as a whole, a smaller operation with

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approximately 4 million passengers per annum. Among the other major European airlines Internet sales barely resister on their balance sheet. British Midland sells less than 5% of their total annual tickets via the Internet. Other airlines such as Air France, Alitalia and KLM are even more minimal. British Airways and LuRansa are two of the most prominent airlines in Europe with massive sales both across the continent but also to America and the rest of the world. They are widely regarded as two of the strongest and most popular carriers. However they have failed to acknowledge, until recently, on-line booking as a source for competitive advantage. Per annum, each records less that 2% of its total trade through Internet sales. BA'acknowledgedthe obvious benefits of moving their trade on-line and decided to copy the tactics used by Ryanair. They launched their own low fares airline 'Go' in a bid to match the continuing growth of the Irish carrier. They pledged to achieve on-line sales of at least 50% by the end of 2002. Unfortunately, Go airlines did not do significantly well enough for BA, to avoid being sold by the corporation to the venture capital firm 3i for £1 10 million in June 2001. Despite this setback, BA have reiterated their aim to compete more comprehensively with European budget carriers such as Ryanair. Ironically, Go's new owners have proved that the carrier has the potential to be a commercial success. Go carried 428,999 passengers in March 2002, 81% more than March 2001. The next big step in the on-line booking service is the advancement of

WAP technology. WAP is the technology that allows customers to browse the internet using their mobile phone. Ryanair and Eircell (Vodafone) formed an agreement with each other, where customers of both companies are able to book their flights via their mobile phones through the integration of WAP technology and the Ryanair Website. A customer with

an Eircell WAP phone can inquire about flight availability and book and

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pay for their Ryanair flights using their mobile phone in the same way that it is done on a PC. Ryanair's on-line booking service is only available on Eircell's (Vodafone) WAP information service in the Republic of Ireland. This marketing initiative was a significant move for Ryanair. Each company individually promotes the others services, which creates a number of positive affects. It will help reduce advertising costs by providing greater access to Ryanair's website to the one million plus customers that Eircell currently have in Ireland. With the introduction of the ryanair.com management targeted a quarter of their tickets to be sold on-line with in twelve months. It took six months. Ryanair sold over £4 million of seat sales in the following four weeks. In the first two weeks of February 2001,69% of all Ryanair's bookings were made on the website. This totaled 300,000 seats being sold on-line. The first year of trading saw 3.3 million seats sold on-line. This propelled Ryanair.com to become Europe's favourite website. In February 2002, Ryanair carried 886,320 passengers, 250,500 more than in February 2001. Over the past year almost 11 million people travelled with the airline. 91% purchased their ticket on-line. The future for Ryanair looks very bright. Indeed Michael O'Leary's strategies have created as many critics as well as admirers. The other major airlines in Europe have seen their positions as priority carriers threatened by Ryanair and yet all have acknowledge that on-line buying is incredibly important

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Glossary Cyberspace: (Coined by William Gibson) Notional "information-space" loaded with visual cues and navigable with brain-computer interfaces called "cyberspace decks"; a characteristic prop of cyberpunk SF. Homepage: The top-level entry point web page relating to an individual or institution, or possibly a subject area. Hypertext: A term coined by Ted Nelson around 1965 for a collection of documents

(or "nodes") containing cross-references or "links" which, with the aid of

an interactive browser program, allow the reader to move easily from one document to another. HTML: HTML is the coding that allows Internet files to be seen as user friendly pages on the computer screen. Hypertext is the ability of words in text files to jump to other words, references etc. Created with the most simple of word processors it links to other text documents, pictures, sounds or video files. Information Superhighway: The name coined by US Vice-president A1 Gore in the early 1990s for the emerging high-speed global communications network capable of canying voice, data, video, and other services around the world. These services use satellite, copper cable, optical fibre, cellular telecommunications, and are accessible via set-top boxes or suitably equipped computers.

internet:

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Any set of networks interconnected with routers. The Internet is the biggest example of an internet. (1 996-09- 17)

Internet: The Internet is the largest internet (with a small "i") in the world. It is a three level hierarchy composed of backbone networks (e.g. ARPAnet, NSFNet, MILNET), mid-level networks, and stub networks. These include commercial (.corn or .co), university (.ac or .edu) and other research networks (.or% .net) and military (.mil) networks and span many different physical networks around the world with various protocols, chiefly the Internet Protocol. Net: The union of all the major noncommercial, academic and hacker-oriented networks, such as Internet, the old ARPANET, NSFnet, BITNET, and the virtual UUCP and Usenet "networks", plus the corporate in-house networks and commercial time-sharing services (such as CompuServe) that gateway to them. On-line: (of processing by a computer) canied out under the control of the central processor. Surfing: Used by analogy to describe the ease with which an expert user can use the waves of information flowing around the Internet to get where he wants. The term became popular in the early 1990s as access to the Internet became more.widespread and tools such as World-Wide Web browsers made its use simpler and more pleasant.

Web Page:

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In the simplest, most common case, a web page is a file written in HTML, stored on the server. It may refer to images, which appear as part of the page when it is displayed by a web browser. It is also possible for the server to generate pages dynamically in response to a request, e.g. using a

CGI script.

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Financial Times. "Europeans must get a foot in the virtual shop door ".

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February 15, 2000 Globaltechnoscan, "E-Commerce & 7he New Forms of industrial Organization." [http://www.globaltechnoscan.com],2002 International Air Transport Association (IATA): [http://www.iata.org], 2000 International Civil Aviation Organisation (ICAO): [http://www.icao.int], 2000 Internet Society. "AN about the Internet." [http://info.org/internet/],200 1 Ireland Online: [http://www.iol.ie], 1998 Kalakota, R., Robinson, M. "e-Business2.0 Roadmapfor Success." Massachusetts: Addison - Wesley information technology series, 1999 Kalakota, R., Whinston, A. B. "Electronic Commerce: A Manager's Guide".Massachusetts: Addison Wesley Longman, Inc, 1999 McGoey, I. "Marketingon the Internet, Winning Global Competitive Advantage". Dublin: Oak Tree Press, 1998 Musciano, C., Kennedy, B. "HlML: the definitive guide". Cambridge: O'Reilly and Associates, Inc, 1997 Porter, M. "CompetitiveAdvantage: creating and sustaining superior performance". New York: The Free Press, 1985

Porter, M., Millar, V. "How information gives you competitive

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advantage". Massachusetts: Harvard Business review, 1985 Proctor, T. "Essentialsof marketing research. London: Pitman Publishing, 1997 Reuters magazine, "How big can e-commerce get?." April, 2000 Ryanair. 'InvestorInformation.' [http://www.ryanair.com],200 1 Shimmin, B, "EfSectivee-mail clearly exp1ained:file transfer, security and interoperability".Boston: A.P. Professional, 1997 The Economist, "Business on the Internet." June 26, 1999 The Economist, " n e Net Imperative." A Survey of Business and the Internet. June, 1999 The Economist, "Whencompanies connect7'.January 10, 2000 Weiers, R. 'Marketingresearch ". Pennsylvania: Prentice-Hall International Editions, 1998