SCANDINAVIAN AIRLINES SYSTEM IN 1988: VERTICAL INTEGRATION

Scandinavian Airlines System In 1988: Vertical Integration

Scandinavian Airlines System In 1988: Vertical Integration

Industry Situation

The airline business is a mass market with mostly standardized services. All customers used to be, and still mostly are, treated the same. Furthermore, there is little differentiation between airlines. Consequently, the customers have limited options and are caught in the “happy slave” problem. A word that better than most others describes air travel of today is “fragmentation”. Many customers feel they are forced into a system characterized by contradictions, redundant or insufficient information, misguided authority and confusion. In this system, they are expected to carry out or participate in a series of activities, each of which individually might seem logical but together may lead to an impression of chaos. The system is also dominated by conditions unknown to the passengers, creating a sense of randomness that overwhelms even the most experienced of travellers.

For a long time the airline industry has found itself struggling not just in terms of profitability, but also in customer satisfaction and loyalty. The industry has been dominated by subsidized national monopolies and suffering from over-capacity. Despite what is often portrayed in commercial advertising, airline travelling has become utilitarian, uninspired and outright customer unfriendly. Passengers have been forced to accept this general deterioration and have quietly watched as the airline industry has drifted from its purpose of serving customers. The airline business must aim at fulfilling the individual customer needs or even reaching beyond these. By this simple measure, SAS tries to do more than the customers actually expect. The present challenge for SAS is to come up with a larger number of product variations and to supply the customers with services that have only few limits. In this way, SAS tries to provide services that will allow customers to design their own travel experience. This in turn will put a lot of pressure on the SAS organization and its way of working. In other service industries it has become popular to let customers take care of routine tasks while carrying out the service themselves. The bank industry is a good example; bank customers can withdraw money from their accounts at any time, they can also move money between accounts or pay their bills without the help of bank staff. This trend will, as shown later, also be applicable to the airline industry.

Realizing the possible gains for the ...