NICHOLAS IONIDES SINGAPORE
The year 2000 was to bring big e-commerce developments by Asian airlines. While little of substance was delivered, 2001 looks to be a true break-out year
Although per-capita Asian Internet usage rates still pale by comparison to those of North America and Europe, the number of customers signing on to the World Wide Web is growing at an exponential rate. This is in part what the region's airlines are hoping to profit from as they take to the net in the same way as have their more advanced North American and European counterparts. Finally they hope to move forward with concrete online strategies.
It is not just players in traditionally forward-looking communities, such as those in Singapore and Hong Kong which are going online. Some airlines in China are extremely aggressive in areas such as online bookings and flight tracking, as are those in South Asia, such as Biman Bangladesh, which now allows Internet ticket bookings.
But it has generally been slow in coming, and Asia is still lagging when it comes to booking entire holiday packages or business travel itineraries over the web. Part of the reason for this, observers explain, is that airlines have yet to prove to the public that benefits exist in terms of convenience and, perhaps more importantly, lower prices. Apart from the region's e-business leaders - Cathay Pacific Airways and Singapore Airlines - many airlines have been slow to log on, although a rapid catch-up game is taking place. Airlines are seeing the benefits of not just selling online, but buying.
"We are well on the way to making e-business an integral part of all our operations," Cathay's chief operating officer, Philip Chen, said late last year when unveiling an aggressive plan covering more than 30 projects. In announcing that the carrier would invest more than HK$2 billion ($257 million) on a range of e-business initiatives over three years, Chen pointed to global-industry predictions that between 25% and 30% of all ticket sales would be made online by 2005. He also said e-business activities were expected to help the carrier reduce total expenditure by more than HK$500 million a year by 2003, and predicted that as much as 50% of Cathay's purchasing would be made over the Internet within three years.
E-buying
After experiencing two years of hardship following the start of the regional economic downturn in mid-1997, which devastated several airlines' finances, any potential way to cut costs tempts major players to take more than a cursory look.
Several major airlines in Asia are founding members of the Aeroxchange industry procurement site and have joined a fuel-purchasing portal being established. Japan's All Nippon Airways (ANA), for example, says it expects to save $1.8 million annually from buying fuel through Jet-A.com. This is an online venture which aims to start operating in the second quarter 2001.
If a study on e-commerce growth in the Asia-Pacific region by Goldman Sachs is to be believed, there is a huge potential market for online procurement of products and services among the area's airlines.
The Goldman Sachs Investment Research team's B2B@sia report says few sectors offer as wide a range of benefits from e-commerce as the airline industry. It identifies cost-side benefits from e-procurement and distribution, as well as from revenue and product enhancement, plus the potential for value-creation through the development of lucrative e-businesses.
Goldman Sachs says it has identified, at base level, a potential annual market of $19 billion for e-procurement among Asian airlines, adding that there is a potential for after-tax profit enhancement of $262 million collectively. It believes e-procurement will quickly become the industry norm with significant cost savings and efficiency enhancements through sharing of inventories to be gained. Cost savings will be amplified by the strong operational leverage of the business. It fully expect the majority of cost savings to be passed on to the customer, however, particularly in Asia where travel penetration lags the rest of the world. Airlines will benefit from the volume growth.
The report goes on to say that e-procurement "should help airlines achieve better prices, and increase the timeliness and efficiency of the procurement process. This should be particularly true of spare parts and amenities, where significant cost savings can be achieved."
While looking carefully at online purchasing, airlines are also desperate to boost online revenue generation by proving to the general public that their travel planning can be made easier through use of the Internet.
Most large Asian airlines now accept bookings over their web sites and plan to team up to sell tickets together through a major online venture that was to have been launched last year but has been delayed.
Perks such as extra air miles are being offered to lure customers to buy over the web but many more incentives are planned. These include cut-price holiday packages and one-stop-shopping for all travel needs.
In January, a group of major Asian carriers brought the Internet travel firm Travelocity on board as a shareholder and to provide technology for their new online partnership which threatens to hurt traditional travel agencies.
Although originally targeted for launch late last year, the airlines delayed the start of their new online agency's operations and it is now scheduled for launch in the middle of this year. The yet-to be named site aims to offer a complete range of travel products including airline tickets, hotel services, car hire, packages and tours, and general travel information - something many US airlines already offer on their individual sites. Travelocity will be co-branding the site and will probably offer services outside the Asia-Pacific region.
E-selling
Airlines involved in founding the travel exchange believe it will give customers unrivalled choice when selecting a flight or other service. An independent management team is being recruited to ensure it is non-partisan.
While the founding airline members are at pains to stress that they are not seeking to put travel agents out of business, some observers believe the exchange will eventually sink many of the region's smaller agencies, which have failed to band together to develop their own comparable services.
Stakeholders in the exchange include Air New Zealand, Australia's Ansett, Cathay, Taiwan's China Airlines and EVA Air, Garuda Indonesia, Malaysia Airlines, Royal Brunei Airlines, and both Singapore Airlines and its regional arm, SilkAir. A Japan-focused joint venture between ANA, Japan Airlines, Northwest Airlines and United Airlines also holds a stake through a cross-equity arrangement.
Similarly, Asiana Airlines and Korean Air are teaming up to establish an online travel site for their home South Korean market. The two carriers signed a letter of intent on 17 January to form the joint portal, which is being targetted for launch at the end of this year.
US-based Orbitz, a travel site which itself will be launched later this year by American, Continental, Delta, Northwest and United Airlines, will supply the core search technology for the South Korean exchange.
In Australia, online services are greatly advanced among airlines, with low-fare carriers Virgin Blue and Impulse Airlines claiming that a huge percentage of their sales are now made over the Internet. Majors Ansett and Qantas also say online bookings are picking up at a rapid pace.
In China, Guangzhou-based China Southern Airlines has led the way in terms of online services through travel site Et-China.com, which it owns jointly with Australia's Et-China.com Investments. China Southern also claims huge growth in its separate online cargo sales channels, and other carriers in the country such as China Eastern Airlines are scrambling to follow its lead.
Also in China, domestic global distribution system (GDS) operator TravelSky Technology was listed on the Hong Kong Stock Exchange early in February following a successful initial public offering that raised HK$1.1 billion - much of it to fund new ventures. Four strategic investors took stakes through the initial public offering - Cathay, SITA, Sabre Technology Enterprises and Amadeus Global Travel Distribution.
Analysts see TravelSky as a good investment because of its monopoly status. The company is controlled by the China Civil Aviation Computer Information Centre, which is controlled by the regulatory agency Civil Aviation Administration of China.
Its GDS handles virtually all bookings for Chinese airlines and the company provides other information technology-based services to the country's airline and tourism industries. With the Internet potentially allowing consumers direct access to TravelSky's services - instead of just through airlines or travel agents - analysts predict continued growth.
Some airlines in Asia-Pacific have been slow to embrace online booking, however, and this may be partly attributed to the lack of uniformity in the region in terms of fare structures, which are more complex than in the US or European markets.
Industry observers say, however, that it is only a matter of time before all airlines in the region join their major counterparts in the USA and Europe in taking to the Internet.
Source: Airline Business
