Back to Air Transport IT Review - Issue 2, September 2010

Airline IT Trends Survey 2010

Strategic IT priorities return as airlines see the road to recovery

Stabilizing budgets and increasing business confidence are translating into a change in IT spending behaviour for airlines - away from short-term tactical remedies needed in 2009 and back towards long-term strategic thinking. That is a key finding in the 2010 Airline IT Trends Survey, by SITA and 'Airline Business'.

A record number of airlines, carrying over one billion passengers annually, took part in this year's 12th annual SITA/Airline Business Airline IT Trends Survey. Despite the sharpest decline in passenger traffic demand for decades and a very mixed picture of economic recovery, the survey supports growing optimism that the worst may be over. Here are the key findings.

IT Budgets are stabilizing and, overall, the outlook is positive

Last year's austerity measures resulted in reduced IT budgets. However, this year's survey shows a slight increase in IT spend. The operating spend for Information Technology & Communications (ITC) this year averages 1.8% of revenue, while capital spend is 1.4%. Overall, 45% of respondents reported an increase in spend in 2010 compared with 2009, while 27% reported a decrease.

However, there remain large regional differences, reflecting economic issues. Approximately half of the airlines reporting a decrease were European airlines, more than in any other region, while Asian and Latin American airlines are more positive in reporting increases in IT spend.

Overall, the 2011 outlook is positive, with nine out of 10 respondents expecting an increase or stable budgets next year. Globally, 56% of responding airlines expect an increase in IT spend next year, with only 10% expecting a decrease.

The positive outlook is led by carriers in emerging markets such as Asia Pacific, where 75% expect an increase in 2011. Europe and North America remain more hesitant about the speed of recovery.

Paul Coby, Chair of SITA:
"Stabilizing budgets and increasing business confidence translates into a change in spending behaviour for airlines away from short-term tactical remedies needed in 2009 and a return towards long-term strategic thinking.

"After the last two incredibly difficult years there is an emphasis still on accelerating IT projects which promise an early return on investment. The majority of airlines also want to extend their partnerships with strategic IT suppliers like SITA - and IT outsourcing is a major element in this."

Airlines' IT spending priorities return to their strategic focus areas

Growing confidence has been translating into a change in spending behaviour for airlines. They are moving away from the short-term tactical remedies needed in 2009 - and back towards long-term strategic thinking, the survey suggests.

In 2009 many airlines adopted short-term tactical measures such as renegotiating with IT suppliers and deferring IT projects to deal with the economic pressures. This emphasis has now waned. For example, 48% of airlines noted renegotiation of IT suppliers as an important action in 2010, compared to 76% in 2009.

Conversely, airlines are now intent on strengthening those relationships (39% in 2009, 52% in 2010), as well as increasing the proportion of IT outsourcing (27% in 2009, 40% in 2010).

IT continues to play an increasingly important role across the business. It is the top priority for 82% of respondents in driving down costs, the second priority when it comes to improving service quality and third in priority when planning how to increase revenues.

Passenger Management remains the key investment area for nearly 80% of respondents. Yet significant investments are also anticipated in flight and aircraft operations. With increased attention being paid to the opportunities offered by the digital aircraft (see pages 10-11), this appears to be a logical evolution of investment priorities.

Virtualization is a key instrument in driving cost reduction

The survey confirms the industry's move towards the implementation of virtualization technologies, with an initial priority on infrastructure services.

As many as 85% of all responding airlines want to have a virtual infrastructure environment deployed by 2013, with 40% having already deployed it. This strong push for virtualization should not be a surprise, as the technology can provide support to the airlines' key investment driver: reductions in the costs of business operations. Infrastructure-as-a-service shows the highest adoption rate, followed by software-as-a-service.

Direct distribution strategy is shifting towards new (direct) channels to market

Airlines continue to seek an increase in direct distribution in favour of a reduction in the level of tickets sold via GDSs. The overall progress of this transition shows signs of slowing compared to previous years, as direct (online) distribution becomes universal among airlines.

Airlines are hoping to drive further direct sales by providing richer functionality to their online customers, as well as having a strong ambition to drive further sales via the passenger's mobile phone, with 70% of all respondents planning to sell tickets via passenger's mobile phone by 2013.

The survey confirms the airlines strong ambitions in growing ancillary revenues, expecting implementation of their ancillary revenue strategy to continue across all distribution channels. (See also: The Digital Traveller, pages 6-7.)

Airlines are striving towards end-to-end passenger management

Investment in IT projects to enable end-to-end self service - such as IATA's Fast Travel initiative -is planned by 63% of responding airlines. Check-in, as part of this process, has so far been given the highest priority, with airlines continuing to migrate passengers to a multi channel self-service check-in environment away from agent led check-in facilities (again,see also pages 6-7).

Mobile strategy: transition from 'communicational' to 'transactional' mobile services for passengers

Providing mobile services to passengers continues to be a key ambition for airlines, with 76% of airlines planning to invest in such IT projects.

This year's survey shows a shift in the airlines' mobile strategy: in addition to using mobile phones as an additional communication channel for passengers, airlines now show strong ambitions to use the mobile phone in support of travel transactions.

In past surveys, airlines focused on implementing mobile solutions to communicate with their passenger - such as mobile notifications of flight status/delays. The survey suggests that by 2013 almost 9 out of 10 airlines plan to have mobile notification available (from 50% who have it today).

Mobile check-in is advancing fast and set to become a reality for many airlines, with 28% already providing such a service to passengers and an additional 52% planning to implement it by 2013. Enabling passengers to make ticket modifications/upgrades on their mobile phone is planned by almost 60% of respondents in the next three years (from only 6% today).

Mobile services will also directly support the airlines' revenue strategy. All told, 68% of airlines plan to target passengers with travel offers via their mobile phones, while 70% of airlines plan to sell tickets directly to passengers on the mobile phone by 2013.

Workforce mobility is strong among Tier 1 airlines, but slower elsewhere

Priorities for the implementation of mobile services for staff are largely unchanged.

Tier 1 airlines are ahead of the technology adoption curve, with a higher number of implementations and a stronger ambition to implement workforce mobile services in the years ahead.

But overall there is a more gradual increase in adoption of these services than anticipated in earlier surveys, as the industry begins to recover from the downturn. Mobile services for staff are more likely to be implemented at hub locations initially (61%); but 23% of respondents also consider selected remote airports for such services.

About the Airline IT Trends Survey

The Airline IT Trends Survey is commissioned annually by SITA and Airline Business magazine. Now in its 12th year, it has become the industry's strategic IT benchmark survey. A record number of responses were received from senior IT executives representing the world's top 200 airlines, together with key players across all types of airlines. An independent research agency undertook the study in the first quarter of 2010.

For further information, including a downloadable document with key findings, an executive summary with key charts, and purchase information for the full CD, please go to http://www.sita.aero/content/airline-it-trends-survey-2010. If you would like to receive the full results for free in 2011, please go to the same Web address and register to become a respondent in the 2011 Survey.

Webcast of the Airline IT Trends Survey results

See www.sitasummitwebcast.aero.