Back to Air Transport IT Review - Issue 2, September 2009
The road to recovery: airline IT trends
Airlines worldwide are in survival mode. IT budgets have been radically trimmed and there's little sign of a significant change before 2011, according to the 2009 Airline IT Trends Survey. But IT continues to play a critical role on the road to recovery.
The 11th Airline IT Trends Survey, co-sponsored by SITA and Airline Business, provides a revealing snapshot of how airline IT and telecommunications (IT&T) technologies are helping reduce enterprise cost and generate revenue opportunities.
Lowest level since 2002
Airline investment in IT&T is set to reach a new low this year as aircraft operators cope with unprecedented financial losses. Operating spend as a proportion of airline revenue is forecast at just 1.7% for 2009, the lowest level since 2002.
The speed and severity of global economic collapse can be seen in the trends for IT&T spend. The 2008 Survey recorded 47% of respondents expecting an increase in 2009 and only 24% expecting a decrease. The actual spend change was in reverse: just 23 % reported an increase and 54% a decrease.
Caution is the watchword for 2010, with 47% expecting the same level of spend and the balance evenly split between optimists and pessimists.
Cost management
Looking closer at IT&T spend, cost management is a critical factor. 72% of airlines said they would be renegotiating IT supplier contracts, while 70% would invest in solutions that lower overall enterprise costs. It appears that a growing number of airlines are putting into place measures such as rationalization of IT suppliers, IT infrastructure consolidation, reduced headcount and outsourcing.
Not surprisingly, cost reductions and new market and revenue opportunities dominate the priorities chosen for IT investment (57% and 43% respectively recording these as a high priority).
Investment over the next three years is expected to be heavily targeted towards new technologies that will rapidly contribute to these objectives. These include virtualization, VoIP and IP Telephony, and service oriented architecture - as well as critical data and security management.
Cutting distribution costs
For the first time in the Survey's history, all airlines report sales through online distribution. As the distribution mix continues its dramatic change, the ambition among airlines is to make their websites the single most significant distribution channel. To do this, they are increasing website functionality as well as the variety and number of ancillary products available online.
This is to the detriment of GDS/third party sales: the expected change in total ticket sales split over the next three years shows a continuing change, with a 25% decline in the use of GDS/third party sales.
Functionality enhancement plans over the next three years include the expansion of "change/cancel/rebook facilities" online, which 44% of respondents plan to offer, while 37% already do so.
Self-service focus
The continued focus on efficient self-service technologies is also reflected in the use of kiosks. 48% of respondents expect to increase the total number of kiosks they use - mainly for check-in. Meanwhile, the number of airlines considering increasing the number of kiosks for new functionality - such as lost baggage reporting and flight transfers - rose from 18% in 2008 to 26% this year.
A mobile world
The variety of self-service technology available has increased. Trends through to 2012 show how some technologies are expected to grow, while some may be little more than hype. However, passenger preference is expected to swing towards increased use of mobile devices, with a big increase expected in mobile-based check-in.
Airlines predict that passengers using mobile phones to check-in could represent up to 12% of the check-in transactions by 2012, up from 2% today. 25% of airlines have already adopted mobile check-in services for their passengers.
The number of mobile-based services for passengers' mobile devices is set to expand. While only 38% of respondents do not yet provide any mobile services, notifications about flight status and delays continue to be the most popular mobile-based service to passengers among those who do. 38% provide this service currently while 42% have plans to do so within the next year.
Airlines also have ambitious plans to increase the use of electronic Bar-Coded Boarding Passes (BCBP) on mobile devices. Adoption by passengers is expected to increase from 3% today to more than 13% by 2012. At that stage, 53% of airlines want to be able to send BCBP passes to mobile phones and more than half are considering BCBP use on mobiles for lounge access.
The use of mobile solutions for employees will steadily increase, with 61% of airlines surveyed already building a strategy for workforce mobility. Up to a third of airlines also plan to adopt aircraft onboard connectivity over the next three years, with almost three-quarters of those wanting to enable crews to exchange data in-flight, such as inventory, reports and special passenger handling.
IT as part of the solution
Commenting on the 2009 Airline IT Trends Survey, Paul Coby, SITA Chair and British Airways CIO, said: "We are living in the most challenging times any of us have seen in the air transport industry.
"We should not be surprised that when survival is the issue for many carriers, all but the most essential of IT investments has been put on the back-burner. Any of us involved in the front-line management of airlines and airports understand this to be an absolute necessity.
"But it is important to recognize that IT is also part of the solution to our challenges. Used well and effectively IT will cut costs and protect revenues. The survey tells us that IT has already accomplished a great deal in reducing distribution costs and expanding self-service functionality.
"Over the strategic time horizon of the next three years, airlines are still prioritizing investment in many areas. Again no one should be surprised by this. It tells me that airlines absolutely understand the importance of technology for the future, and what we are seeing here is the immediate and necessary response to the global recession.
"This shows just how close to the real airline business IT now is. Every airline IT department in the world is contributing to the fight for survival not just with cost saving systems and automation like online check-in and selling, but they themselves are saving costs.
"Now every airline in the world also knows that IT is going to be key to future success when we come out of the recession with smart use of technology addressing not just the 1.7 % of airline costs but addressing 100 % of the airline cost base and 100 % of airline revenues."
About the Airline IT Trends Survey
The Airline IT Trends Survey is commissioned annually by SITA and Airline Business magazine. Now in its 11th year, it has become the industry's strategic IT benchmark survey. 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 2009, so responses may not fully reflect the changing economic environment.
The 116 airlines taking part in this year's Survey represent almost half the 2008 Airline Business Top 100 Financial Ranking and 60 % of the Top 100 Passenger Ranking. They include airlines with revenues of US$ 5bn and above, as well as airlines with revenues of US$ 100m and below; plus airlines with more than 20 million passengers a year, and small airlines with less than one million passengers a year.
More information
For more information, including a downloadable document with key findings, an executive summary with key charts, and purchase information for the full CD, please go to www.airlinesurvey.aero.
Take part next year?
If you would like to receive the full results for free in 2010, please go to the same web address and register to become a respondent in the 2010 Survey.
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