Case Study No.

1
When People Problems Get in the Way: Four Sinners in Four Acts

Case Questions

1. In what ways is it possible for the airlines to use their computer systems for
competitive advantage? Use the checklist (Benefits of Information System) to
organize your response.
2. Do reservations systems provide potential for serious abuse or are the alleged
problems presented in the case just unfortunate manifestations of free enterprise?
If you feel there is potential for abuse, identify the abuse areas, who might suffer,
and which specific practices should be regulates.

Case Answers

1. Airline companies aim to provide better service for passengers and, lower costs for air
transport industry. As competitive environment gets tougher, many airline companies
are attracted to use their computer systems for competitive advantage. Key factors that
they develop are operational efficiency and functional effectiveness in which they
measure what goes in and what comes out to see where things are. Increasing these
important factors make them profitable as a function of their operating costs. For
instance, airlines can become more efficient by switching from paper charts to
electronic charts to monitor airplane’s technical information, such as fuel consumption
and on-board information, and integrate them into one system. On this way, real-time
data is being monitored and updated. These companies keep track of their operational
efficiencies and may benefit them in the long run and, this will help them to see where
things need to change or stay the same.
Also, various airlines have taken to action to reduce costs significantly by creating
direct contact with their customers for them to render better service than before. These
companies use information technologies to create a non-tangible product that provides
a distribution channel linking airlines more closely to potential customers.
Some companies also have taken advantage of completely changing the basis of
competition in the airline market. They do competitive analysis in evaluating what
information system best fits in their companies. Knowing what type of computer
systems would help them to establish both the proper level of expenses and proper
management structures. For instance, intense cost reduction can substantially alter the
old ground rules of competition.
Airline companies are also considering ways to bring a flock of customers to lock-in
to their ecosystem. They design superior business models to attract and retain their
customers. Switching costs is one way to lock customers and outcompete other
companies. Some companies lure customers with a base product and give them profits
from consumables that customers are forced to buy.
2. There is a potential for abuse of using reservation system in the airline business
industry. One way of abuse involves controlling the information sent on screens to
travel agents. Airline companies display flight information in a way that favors their
own flights. This is a great way for them to bias their displays. Airlines would use this
system to distort airline competition and give customers misleading information to get
higher profit. Some people didn’t realize that travel agents provide objective advice to
customers. In this way, the reservations system companies influence the displays in
favor of their own services. The control of the terms of involvement gives travel agents
and airlines little control to question favoritism.
Another way of potential abuse is by offering either for free or for a fee, office
automation and other information processing services to adopting travel agencies.
Reservation systems provide incentives to travel agents who use the system to book
flights. Travel agents enjoy these commissions, as well as exclusive memberships,
based on the volume of flights booked with the airline offering the incentive. They
also have overbooking benefits which is useful to agents who make last-minute
reservations which are generally for their business customers. Airline companies also
offer free tickets through award systems. All these positive reinforcements may affect
the choices available to consumers. This potential limitation on consumer choices
displays deception. Again, the influence of the reservation system on this situation
shows a travel agent’s ability to provide objective advice.
To minimize these potential abuses, certain practices should be regulated, such as
unfair, deceptive, or anticompetitive practices, excess market domination and
monopoly power, and limited access by consumers to essential facilities of the
reservations systems. These regulations are intended to protect customers from
misleading trade practices.