This final thesis report covers the decision situation of a producer when confronted with the question whether to use Internet as a new sales channel or not. Three areas of consideration in that decision are: The relationship to the intermediaries, the added value in the traditional channel versus the Internet channel, and financials.
The study examined these issues in the airline industry. The traditional sales channel in the airline industry includes two intermediaries between the airline and end customer. The first is the GDS (Global Distribution System), there are four dominating actors in the world; Worldspan, Amadeus, Sabre, and Galileo.The Characteristics of the airline industry include:
• Low differentiated commodity product with high service content.
• High competitiveness among incumbent companies.
• Low margins, 1-2% net profits versus 5% for the average industry in the US.
• High capital intensity.
• High information intensity, (both the value chain and content of the product).
The airline industry has gone through a change process beginning with the
deregulation of the market. This happened in 1978 in the US, and in 1990 in
Europe. This lead to increased competition on flight routes. Since the industry
became an almost perfect market, with the airlines as price takers, no single
airline could increase its prices due to the competitive pressure. Cost cutting was the only way to increase an airline’s profit. Internet emerged as a way of
reducing the sales costs, counting for 14% of the total costs in 1997 the third
largest cost of an airline. Cost reduction was the prime reason for the
implementation of the Internet direct channel.
Scientific Theory and Methodology:
Benefits:
Frame Of Reference:
Sales Framework:
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