Appropriating Value From CRS Ownership in the Airline Industry

Abstract

It is difficult for the firm competing through information technology (IT) resources to gain a sustainable advantage because systems are easy to imitate and often substitute resources are available to competitors. The innovator may be unable to appropriate all of the benefits from IT investments. Airlines have installed computerized reservations systems (CRSs) in travel agencies in order to appropriate the returns from their investments in information technology. The airlines expected to obtain a number of benefits from this strategy including increased efficiency, possible bias in favor of the CRS owner on the part of the travel agent, and fees from other airlines for making reservations for them. The purpose of this paper is to evaluate the appropriation of value by CRS owners from deploying systems in travel agencies. These benefits, beyond fees from travel agents, should be seen in the vendor airline's market share between cities and in the overall performance of the airline at an industry level. This paper models airline performance as a function of CRS ownership at two levels: for selected city-pairs and at the overall level of the firm. The city-pair analysis employs a multinomial logit (MNL) market share model that analyzes five years of data on 72 city-pair routes. The industry model uses longitudinal data for a panel of ten airlines for twelve years. The results of both analyses support hypotheses that CRS ownership is positively related to airline performance. It appears that strong airlines have appropriated the benefits of their CRSs, turning them into highly specialized assets for further travel-related innovation. This work offers useful theoretical extensions and methodological approaches for the study of similar kinds of network technology innovations that are currently being deployed in association with electronic commerce on the Internet.