This research used the Benefit-Cost analysis method to analyze the benefit and cost for customers who buy an E- Ticket on the Internet under the Electronic Signature Act. The purpose of the Cost-Benefit analysis is to evaluate the cost and benefit of an investment. This experience can be applied on the other E-Products such as E-Book.
Electronic signature is a trend for official document transmission online. Lots of advanced countries have pronounced the electronic signature act since 1996, such as United Nation Commission on International Trade Law (UNCITRAL), Germany, Italy, Korea, EU, Hong Kong, Japan, and the US. The Taiwan Electronic Signature Act was announced by the Economic Department on Nov. 14th, 2001. It’s for trading on the Internet effectively with the civil law. The goal of the Taiwan Electronic Signature Act is to popularize the E-Commerce and to ensure security of trading on the Internet.
o Customers have to apply for CA-Identifications at a certificate authority (CA).This will identify them through the platform when shopping online.o There is a Root-CA, it handles all of the CAs in a country. When a traveler wantsto purchase a ticket with a U.S. website (overseas), the order will travel throughthe Taiwan Root-CA, then go to the U.S. Root-CA, and finally be sent to thewebsite where the traveler wants.o Therefore, the purchase is secure if through a CA.
Opportunity Cost One of the concepts of the Cost-Benefit Analysis is Opportunity Cost, technically, which is for the cost of another selection. For example, if the government builds a High-Speed-Railway in Taiwan, then the domestic airline industry will lose some of the market because Taiwan is a small island. Therefore, the opportunity cost of this case is losing some of the domestic air transportation market. Consumers’ Surplus If a consumer buys an E-Ticket online, and it is cheaper then buying in a real travel agency, in this case, the consumer saves time and money, which is Consumers’ Surplus. The Cost and Benefit Elements The direct cost (benefit) and indirect cost (benefit) are only the extra cost (benefit) for shopping online, not including the cost of the product. The direct cost and benefit will be easy to find because it is already in dollars. But the indirect costs and benefits are not in dollars.
Where, NPV = Present Value TC = Total Cost TB = Total Benefit r = Interest rate in the market n = YearsNet Present Value is one of the financial concepts, which can calculate the present value for its future profit. When NPV (cost) <= NPV (benefit), it means the investment can be processed.
Direct cost E-Ticket Payment: Usually pay 2% or 3% of E-Ticket price for credit card service fee in Taiwan. Internet Rent: The shopper has to rent the Internet to shop. The cost, for example, the ADSL or CABLE network rent is between US$20 and US$50 monthly in Taiwan. CA fee: The shopper should pay for having a CA license for the security of shopping online. Usually it is US$20 per year. The Internet Rent is US$0.03 per hour and the CA fee is US$0.01 per hour. The direct cost for each E-ticket from Taipei to Hong Kong will be: 200*(2%) + 0.03+0.02 = 4.05 (US$) Indirect cost Cost time to learn how to shop online. Cost time to apply for a credit card and a CA license.
Direct benefit element Transportation fee saving: usually, the traveler has to go to travel agency to get a ticket. In the same city, it will take about US$0.8 for the round trip bus tickets in Taiwan. Indirect benefit element Time saving: the opportunity cost of the time saving is the difference in price between the real store price and the online store price, therefore, a traveler can save about 220(real store price)- 200(online store price)=20(US$). The total benefit for a traveler will be 0.8+20 = 20.8(US$) each E –Ticket.
Direct cost element CA fee cost: The CA fee is US$500 per year for a business. Internet server rent and website management: It is US$1000 per year. It depends how many E-Tickets are sold in a year, there were 538,464 tickets sold for the route of Taipei to Hong Kong in 2002. The total cost for the airlines is (500/538464)+(1000/538464) = 0.002786(US$) for each E-Ticket. Indirect cost element Opportunity cost of traditional trade: The total market can be separated into two parts, one is the real store and the other is the online store. If all of the tickets are sold online, then, it will lose the customers for the real store.
Direct benefit element Ticket paper saving: the cost of each paper ticket is US$7 for product of IATA. Phone payment: it is US$0.06 for a local call in Taiwan. Personnel saving: usually, the travel agency has to spend about 20 minutes to write a ticket for a traveler, according to the airline staff salary, it’s about: 1500(US$)/160(hours) *1/3(20minutes)=3.125(US$) per hour. The benefit for airline of each E -Ticket will be: 8 + 0.06 + 3.125 = 11.185(US$) Indirect benefit element Expand the market: Airlines and travel agencies can hold on to the traditional customers and get younger or tech generation customers, because ordering tickets online is easier. Reputation promotion: Airlines and travel agencies can do the ads online. Improve relationship with partners: the airlines and its partner travel agencies can connect and exchange data, it’s easy to process between them. Reduce errors between firms: with Internet connections, businesses seldom get the wrong data, unless there was an error in the original data.
Total Savings for the travelers: There were 538,464 tickets sold in 2002 for the route of Taipei to Hong Kong, therefore, if all the tickets were sold via E-Ticket, then, the total savings for the travelers would be: (Traveler Benefit – Traveler Cost) * Total Traveler in 2002 (20.8-4.05) * 538464 = 9,019,272(US$) Total Savings for the airlines: For the route of Taipei to Hong Kong, what the airlines would have saved if all tickets were sold via E -Ticket in 2002, would be: (Airlines Benefit – Airlines Cost) * Total Traveler in 2002 (11.185-0.002786) * 538464 = 6,021,220(US$) To calculate the NPV of a Travel agency Here to apply the equation (1) and (2) to calculate the NPV for the E-Ticket sales system investment of a travel agency, there are some conditions as follow:
The net profit for Each E-Ticket is US$20 (include benefit elements for airline or travel agency: US$11.185). The fixed interest rate monthly which refers to 3 national banks (Bank of Taiwan: 1.2% , First Bank: 1.2% and International Commercial Bank of China: 1.2% ), the average rate for the 3 national banks is: 1.2% monthly. The Internet server rent and management fee is US$1500 per year, it should be paid on the first day of the contract year. Assuming that a travel agency sells 50 E-Tickets per month. The total net profit of this route is 50*20=1000(US$), and the NPV for 1 to 5 months is stated as in Table 2. The investment of an E-Ticket sales system is US$1500 for each year, but the NPV is US$1,735.537 in the second month (Table 2), therefore, an airline or travel agency can balance the cost and benefit in the second month in every year. Net Present Value for Investment of E-Ticket Sales System
Net Present Value for Investment of E-Ticket Sales System Month NPV (US$) Total NPV (US$) 1 909.0909 909.0909 2 826.4463 1735.537 3 751.3148 2486.852
In regard to the air traveler market, a route is a market. Therefore, the route of Taipei to Hong Kong can be called a market. It is a large market because Hong Kong is still a business center city. That’s the reason this research is very important for the airlines and travel agencies. Implementation of the E-Ticket could have saved 9.019 million US dollars for travelers and 6.021 million US dollars for the airlines and travel agencies, in 2002. The cost of e-Business will be lower in the future; thus, the result of 2002 was for basic reference. Technically, it’s a trend for the airlines in the future, many of the routes will use this kind of method to sell tickets, not only to save money, but also to save the environment (through paperless tickets). For the travel agency to invest in an E-Ticket sales system it will need to balance the cost and benefit in the second month in every year. The agency can save on personnel cost, by being able to reduce staff, because of the E-Ticket sales system investment. There is a problem that has to be discussed. According to the Internet population report of the Taiwan Information Association, about 35% of Taiwan’s population had the experience to use the Internet by the end of 2002. That means, 65% of Taiwan’s population hasn’t been using the Internet. This makes the ‘Digital-Difference for Populations8’, thus, travelers who don’t use the Internet should learn or entrust others to shop online for them. For future work this research can apply to any other E-Products: such as E-Books, E-learning (Course), E-Point (Long Distance Phone Card or Internet Game), or E-Consulting (Medical); because these kind of products do not have shipping fees, they have the same attributes that the E-Ticket does.