Digital platforms and their application in the aviation industry

Abstract

The article considers one of the directions of digital transformation, namely digital platforms. United Nations Conference on Trade and Development says that digital platforms create new opportunities for companies of all sizes to engage in trade. They can lead to efficiency gains through lower transaction costs and reduced information asymmetries supported by rating systems. Other benefits include lower consumer prices, increased market access, more competition, better use of underutilized resources and increased flexibility for the providers of services. However, gains are not automatic, and there are growing concerns over the rising market power of certain platforms and the related implications for competition, data protection and ownership, consumer protection and taxation and employment policies. Economic policies and regulations will need to maximize the benefits while at the same time minimizing the costs of digital platforms. Accordingly to Digital Economy Report 2019 by UNCTAD digital platforms provide the mechanisms for bringing together a set of parties to interact online. A distinction can be made between transaction platforms and innovation platforms. Transaction platforms are two/multi-sided markets with an online infrastructure that supports exchanges between a number of different parties. They have become a core business model for major digital corporations (such as Amazon, Alibaba, Facebook and eBay), as well as for those that are supporting digitally enabled sectors (such as Uber, Didi Chuxing or Airbnb). Innovation platforms create environments for code and content producers to develop applications and software in the form of, for example, operating systems (e.g. Android or Linux) or technology standards (e.g. MPEG video). Several factors help explain the rapid rise to dominance of these digital giants. The first is related to network effects (i.e. the more users on a platform, the more valuable it becomes for everyone). The second is the platforms’ ability to extract, control and analyses data. As with network effects, more users mean more data, and more data mean a stronger ability to outcompete potential rivals and capitalize on first-mover advantages. Thirdly, once a platform begins to gain traction and starts offering different integrated services, the costs to users of switching to an alternative service provider start to increase. The transformative power of data in the sphere of economic and social interactions means that governments, businesses, and people must adapt to use emerging opportunities and avoid traps and risks. The ability of countries and various stakeholders to master digital transformation varies greatly and depends on their level of development and digital readiness. Developed countries are in many ways better equipped to deal with the growing role of digital platforms than countries with limited resources and capabilities. The aviation, travel and tourism industry has been at the forefront of digital innovation, but industry and technology trends suggest that further change lies ahead. The sector has been an early adopter of digital technologies and platforms, but steep demand for travel, driven by a growing middle class in emerging markets and the increasing importance of digital experiences, implies that further digitalization will be vital if the expectations of tomorrow’s consumers are to be met.