Accounting. Information Technology in the Airline Industry

Introduction

Application of information technology to record and balance the books of accounts did not take off in the airline industry prior to the deregulation of the airline industry (Alamdari, 2002, p.339). The increased competition after the deregulation of the airline industry, increased the cost of product services, increased return on capital, the need to develop cost systems that would accurately measure expenditure vs. revenue to analyze profitability of individual service provided were the main factors that drove the adoption of airline accounting system (Drury, 2008, p.257; Curtis & Cobham, 2008). This consequently increased the need to develop appropriate management accounting information system to enable understand their cost base as well as determine the sources of profitability, either through service improvement and or expanding the product ranges. Interestingly, many of the organizations have only recently turned their attention to management accounting information system (Drury, 2008).

It has also increased the productivity of the process as airline companies are able to offer online booking process which has not only improved efficiency, but enhanced accountability and profitability in the management of accounts, largely as a result of reduced costs of operation from the streamlined process (Alamdari, 2002, p.343). In order to have a better understanding of information system’s impact on the accounting system, it is important to highlight at least one information technology application by an airline company that has helped them change their accounting system and management.

Enterprise Resource Planning System (ERPS)

Since its introduction in the middle of last decade, enterprise resource planning system, abbreviated as ERPS has created a business model that has proved very critical to many organizations, a fact justified by the sublime speed at which a number of organizations have adopted it since its inception (Holland & Kelly, 2002).

An ERPS is a combination of integrated software applications modules with a structures aimed at controlling the flow of all information within an organization, including accounting (Holland & Kelly, 2002). In practice, a standardized ERPS module would be a host of several menus such as book keeping, product profitability analysis menu and budgeting, and its use means that a fully integrated database with modules is available for approved users to have access to all the information in real time when need be (p.113). One of such people who have got much benefits of ERPS are the managers since they have all the information at their disposal that enables then make decisions on the improvement of efficiency. One critical and major feature of an ERPS is that it can only allow all the data to be entered once, specifically from the origin of such data. With quite a number of companies (e.g. Oracle, Baan, SAP, J.D. Edwards, etc) offering the numerous number of packages (Holland & Kelly, 2002), ERPS has truly revolutionized the functions of the organizations.

Easy Jet and ERPS application

Easy Jet, a pioneer in the low-cost airline business was one of the first airline companies to adopt the ERPS technology into the mainstream of their business operations (Vasilecas, 2005). ERPS has had a significant impact on the management accounting for Easy Jet. The adoption of the ERPS by the company could be explained by their key business accounting principles they operate on, i.e.:

  • Reducing the cost of operation; this is done through easing of the booking process so as to minimize the cost of distribution through online sale of tickets (Vasilecas, 2005, p.186). Considering the fact that well over 90% of the Easy Jet bookings are done online, the company has in essence minimized the costs of operations and considered one of the largest online retailers in Europe;
  • Increase revenue; ticketless travel for passengers, whose bookings are confirmed, cost of ticket processing, issuing and distribution has increased the number of bookings dust to ERPS’s reliability and convenience (Vasilecas, 2005, p.186). In summery, the system provides aggregate information on accounts payable, accounts receivable, payroll, and many more in one package for account balance (Vasilecas, 2005, p.186).

The management accounting department at Easy Jet has specifically benefited a great deal from the ERPS initiation. This has particularly been seen in its reduction of routine information gathering as well as information processing by the management accountants at the company. That is, instead of managers seeking accounting information from the management accountant, they have the freedom to access the system so as to acquire the information they are interested as fast as they wish, thus enabling them to do analysis and come up with their own interpretation of the business flow. More importantly, ERPS’s ability to integrate all the separate line of business the company deals in into one unit of system, coordination is normally done centrally by the help of a specialist who has the full responsibility of its operations at all levels (Willcocks & Lacity, 2008). This is in line with the theory of the business information system. According to Willcocks & Lacity (2008, p.89) among the key areas that businesses face such as markets, customers, competitions, core competencies, mission and technology, there is no area that has experienced and will continue experiencing changes like technology. It is therefore upon the organization’s management to adapt to the changes brought abut by the “fourth resource”, technology, which has been found to carry over 50% of the capita goods dollar spent in the United States (Harvard Business Review, 1999).

Emirates Airline is another company that has extensively applied ERPS. After realizing mercurial growth, the company adopted the accounting system to support their plan to maximize revenue through value added revenue accounting (Harvard Business Review, 1999). They also use the system to carry out the audit of accounts hence ensuring the intended financial goal is achieved through continuous monitoring.

However on the not so positive side, ERPS has created an avenue where it is quite difficult to generate information that is locally relevant. Notably, the application of ERPS has created core challenges especially to the traditional accountants who have to diversify their skills in order to remain relevant (Becker & Von, 2000, p.30). On this note, the initially confined responsibility of balancing the books of accounts by accountants has changed drastically to other roles such as advisers and consultants, with mostly finding themselves in a role of interpreting and information of ERPS as well as management support (p.32).

Conclusion

The expanded use of information technology is expected to continue growing, with the expanded different types of service deliveries in the airline industry. Considering the three core areas of operations for the airline industry, which include capacity configurations, capacity management and service quality (Harvard Business Review, 2009); it is important to find the linkage mechanism between them in order to predict the future trend. The linkages between these three areas is likely to generate more interest in the role of low-cost airlines and the new information technology in the development of short haul independent travel, and whether the traditional carriers will limit their operations to their already acquired niche markets or attempt to span all; particularly mass provision (HBR, 2009). Whichever route taken, the process seems to be directed towards re-engineering their products in areas like value analysis and engineering with the help of information technology. The possible impact from such a scenario is likely to increase more sensitive approach to the customer satisfaction, which is the core to the survival of any service industry, and considering the increased complexity of their awareness and increased skills used by customers before service choice.

Reference

Alamdari, F. (2002) Regional developments in airlines and travel agents relationship. Journal of Air Transport Management, 8(50, 339-348.

Becker, M. & Von, C. (2000) Guidelines of business process modeling. Business Process Management: Models Techniques and Empirical Studies, Springer-Verlag, Berlin, pp.30-49.

Curtis, Graham & Cobham, David (2008) Business Information Systems: Analysis, Design and Practice. New York, Prentice Hall.

Drury, Colin (2008) Management and Cost Accounting. Queensgate Huddersfield, University of Huhhersfield.

Harvard Business Review (2009) The Business Value of Information Technology. Harvard Business Press.

Holland, C. & Kelly, S. (2002), The ERP development approach to achieving an adaptive enterprise: the impact of enterprise process modelling tools. Systems Engineering for Business Process Change: New Directions, Springer, Berlin.

Vasilecas, Olegas (2005) Information Development: Advances in Theory, Practice, and Education. UK, Springer.

Willcocks, P. & Lacity C. (2008) Studies in Theory and Practice. Plagrave MacMillan, ISBN: 978-0-230-20537-6, ISBN10: 0-230-20537-2.

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