Chair strategic address
Paul Coby discusses SITA in context of a 'financial decompression' that will test the strongest of companies.
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Transcript of Speech
While the votes are being counted, I would like to say just a few words about the recession...
the crisis the industry finds itself in...
and the critical role that SITA, and we as leaders of technology in the air transport industry can play together in leading the recovery.
We are in the deepest economic recession since the 1930s.
Giovanni Bisignani described our industry as being in "intensive care".
He is right. We are an industry under unprecedented pressure. For many airlines this is a fight for survival itself.
Forecast losses this year amount to US$9 billion. IATA estimates that revenues are 15% down. IATA says premium passenger traffic revenues had fallen by 44%.
In the first quarter international air freight shrunk by 25%, a drop never experienced before in post-war years.
So we have record drops in traffic across the world in passenger and cargo, premium and coach, volume and yield.
This is a "financial decompression" that will test the strongest of companies.
As a consequence, preserving cash and managing capacity become not just high priorities, but critical for survival.
All of this puts us back as an industry to where we were in 2006.
Three years of growth has been lopped off the industry. Growth will return - perhaps as soon as next year; but no one can be sure when or how much.
So we cannot expect the return to the levels of traffic demand we had until at least 2011 - and even then the passenger mix in the next cycle could look very different - and probably a less rich mix in many markets.
Now some of the challenge to air travel comes from technology.
Non-essential contact with customers and suppliers can now be done using cheaper forms of communication - video-conferencing and tele-presence are now real competitors of air travel.
Personally, I am quite sure that technology will supplement, but not replace air travel, but it is clearly going to have some impact on demand.
So we as CIOs and IT Directors will need to be able to explain the new post-recession World to our colleagues on the Board.
We will need to be more responsive; more customer focused; more able to cut costs; and more able to simplify the business.
You could get depressed at this point! But fortunately we do have help with all of this.
Enough of the doom and gloom! This is where SITA comes in...
We are here celebrating SITA's Golden Jubilee - it's 60th birthday!
Since its inception 60 years ago in 1949, SITA has proved adept at using new technologies to bring durable benefits to the air transport industry as it too evolves.
Let's go back to 1949...
The world was a very different place. The Iron Curtain had descended across Europe and the principal tool for communications was the tele-typewriter.
Now 60 years on, SITA has more than 550 members from across the air transport community, a turnover of US$1.5 billion and operations in over 200 countries and territories across the world, with colleagues who speak around 70 languages.
If there is a genuinely more global organization, I would like to know it!
Why has SITA not just survived, but prospered over these 60 years?
At the heart of SITA is the Community concept. I see this as an inspiring belief that people, nations and companies sometimes need to work together to produce wealth, health and happiness.
This current recession has shown that unregulated markets have limits and dangers.
SITA is not owned by the market, SITA is owned by the air transport community - by us:
SITA customers... the airlines... and the airports who use SITA's systems, services and networks.
It is a model that delivers enduring value for the industry. It delivers value in 4 ways.
First...
SITA invests and innovates in technology on our behalf. That eliminates the need for us to make individual investments. This model shares the R&D and operating costs across users.
Second...
SITA also promotes and ensures the deployment of industry-wide standards - this is essential since we are a network industry with many interdependencies.
Third...
The community model on which SITA is formed enables it to take a long-term view and make investments accordingly.
This is very important, because we work for an industry which is subject to short term shocks.
We have to react to the economic cycle; we have to react to fuel prices; we have to react to health scares and security concerns....
We have to react; it is the nature of our very dynamic industry. But it can make seeking out longer term opportunities - investing for the longer term - hard to do for individual companies.
This is especially true now.
From its inception 60 years ago, SITA has been able to take this longer term view. This approach is enabled by SITA's unique governance, and by its role as an essential component of the Global Air Transport Industry.
This has proved to be a unique advantage for SITA's customers, and for the air transport industry as a whole.
All of SITA's investments are focused on building long-term value for us and for our industry.
Fourth...
Having an organization entirely dedicated to our industry gives us all real choice.
SITA has the largest portfolio of systems, solutions and services in the business.
Why?
Because we have been able to steer it strategically to provide the services the industry needs.
It means that the Air Transport Community is not dependent on the giant multi-national IT providers covering many industries, and focused on none.
We have our own dedicated services and solutions company. This ensures we always have choice.
For these reasons, I believe that SITA is a great example of how the community-owned business model works - and it works well:
60 years of vigorous life certainly proves something.
And what of the alternative?
What about Venture Capitalism?
We can and do use SITA's major competitors. Excellent companies like Amadeus... Galileo... Worldspan... Sabre - and others, who are also Board members.
Most were started by airlines. That meant the financial, technological and intellectual value they generated had remained within our industry.
This is no longer the case. Today these companies are owned by private equity, who dispense with normal Board governance, independent directors and published reports and accounts - all things that are transparently before us here today.
In some cases private equity can work exceedingly well. But its philosophy is one unavoidably centred on short-termism:
Where longer-term community investments are incompatible with meeting short-term financial targets...
Where competitive drive is prized so highly that co-operation and community can be suffocated.
In this world, communities are not encouraged and nurtured.
With SITA, we have a wide, inclusive membership base that comprises representatives from the airports, GDSs, aerospace, ground-handling, and government.
This enables SITA to create an industry-wide consensus and take a strategic approach to technology issues ... in a way that no other organization can.
We are as an industry uniquely dependent on technology. I believe that smart use of IT is going to be one of the distinguishing characteristics of the companies that come first out of the recession.
The maturing of the Internet has been an enormous catalyst for change in our industry.
E-ticketing was at the heart of the IATA-led Simplifying the Business Programme, which is saving the industry around US$5 billion each year.
I was privileged to be in at the start of this, both personally and with SITA.
The Web has given us the ability to automate processes from customer to airport, enabling us to serve customers more effectively, and drive our operations more efficiently.
Nevertheless, our desire to innovate must be governed by economic reality.
We must spend only on the things that matter; that improve relationships with our passengers or deliver great payback.
Let's think about our IT and our customers.
It is imperative that we encourage passengers back onto our aircraft. That means meeting their needs onboard and online.
I have never felt there was a mystery about the Web. Put something people want on-line at the right price and make it easy to use - and guess what - they use it in large numbers. At least that is my experience.
So customers have been quick to embrace online self-service whenever it is offered - whether via kiosks or the Internet.
Mobile services are a great opportunity for us to improve customer service, cut costs and potentially grow revenue.
We know that not only do the vast majority of our customers carry mobile phones or PDAs when they travel, but they are increasingly comfortable and actively prefer this way to interact with airlines and airports.
The linking of the online world with the mobile world is the first step.
Many of us will have already made significant investments in our online presence, so the ability to integrate this with mobile technology - which is the lowest cost service channel - will, I suggest, be the next technology revolution in our industry.
Web-to-Mobile functionality enables us to send the 2D bar coded boarding passes from the airline website to the passenger's mobile devices.
This makes paperless check-in a reality and brings the vision of a paperless travel experience from booking to boarding, closer.
Let's not forget that new travellers, growing up in the digital age will soon start arriving in the travel market in large numbers.
Mobile is going to be their preferred method of 'carrying' a boarding card. So we need to get alongside our technology-savvy customers - as technology-savvy airline people.
The SITA subsidiary OnAir is now taking the mobile opportunity into the aircraft cabin.
Mobile phones are now personalized entertainment devices. That will change the way our customers use their flight time and impact the way we provide in-flight entertainment systems.
So technology for customers will be key, our second opportunity is reducing the airline and airport cost base.
The IATA Simplifying the Business programme has already shown us the impact technology can make to it when deployed effectively - $4 billion dollars of savings a year.
The second phase is now aiming for US$ 14 billion savings per year. This is a big target, but I believe there are large cost savings to come from IT-led innovation and automating back-end processes.
The key here is not using technology to automate existing wasteful processes, but to use IT to reinvent simpler, better, cheaper ways of doing business.
So where do we find ourselves?
The "bad news" is the depth of the recession and the lack of investment.
The "good news" is that IT is needed as never before - for our customers and for our companies. And we have help in our community from SITA.
Technology is now at the heart of everything we do in airlines and airports. That makes our role critical.
Today, the leaders of our organizations are much more knowledgeable about the role that IT plays in enabling growth and driving efficiency than ever before.
All of this gives us - the CIOS and IT Directors of the air transport industry - with our greatest-ever opportunity to influence the future shape and direction of our companies - it places us at the heart of our businesses.
We must keep our IT strategy in line with the changing needs of the business. We need to be agile, continually looking for IT-led innovation that will make a difference to the top and bottom lines.
It also means taking tough decisions and stopping every investment that does not make a difference, focusing only on projects that add value.
Prioritise ruthlessly.
As SITA is our trusted advisor, expert technologist and innovator; so we should be our company's trusted advisor, expert technologist and business innovator - providing valuable business solutions, not just IT...
That makes us essential to the industry's Recovery and our companies survival...
And surely that is our greatest motivation and inspiration.
Thank you.
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