As Air Transport I.T. professionals, every one of us is aware that we are living through another period of stress within our industry. So as we reflect on the 10 years of the Airline IT Trends survey, and review the results of 2008, let's remember that we have been through tough times before.
The picture we see today shows an industry still forecasting long term passenger growth, even if those forecasts have been reduced significantly over the past few months. In fact, our industry now transports the equivalent of one third of the world's population across the globe.
Two of the fastest growing economies in the world - China and India - are on track to build 100 new airports in the next decade to meet demand.
Yet despite this growth, the picture we see tomorrow is different.
In addition to the tough economic conditions we face, we also need to deal with other emerging challenges and opportunities such as:
- managing disruption...
- improving turnaround-times...
- reducing our carbon footprint...
- and exploiting the next wave of mobile-based technologies.
Our industry changes at phenomenal rates.
Over the last 10 years, our I.T. Trends survey - conducted in partnership with Airline Business - has recorded how I.T. has played a major role throughout this change.
I.T. has helped the air transport industry:
- to reduce costs...
- to drive efficiencies...
- to create value…
- to generate new revenue opportunities...
- and to improve customer service.
It is a critical business enabler; and it is able to transform the way business is done.
The past decade was a 'digital decade' for our industry - during which we experienced three huge transformational I.T. waves.
First, the impact of the Internet. Who could dispute that the Internet has transformed air transport?
We are the first truly web-enabled industry in the world.
Then came the simplification effort. This is a success story - not just about the power of I.T., but also about working together as a community, to deliver benefits such as e-Ticketing.
Third, we have seen the rise of e-commerce, which has revolutionized our business.
In India alone the online travel market is expected to grow an average of 46% a year from 2007 to 2011. This is a staggering figure.
The e-commerce potential for all airlines is enormous. The focus on the power of the airline's own website will be intense, as it becomes the first destination for any potential traveller.
So our industry is very different today, compared to 10 years ago, and much of that change was enabled by I.T.
Where do we stand in 2008?
I am pleased to say that we received our highest number of responses - with 121 airlines participating in the Airline IT Trends Survey.
Half of the respondents are represented in the Airline Business Top 100 passenger ranking.
As you can see on the chart, the largest group of respondents came from Europe. And an increasing number of these from Eastern Europe.
We have also received our best ever support from the Africa/Middle East region, who make up a quarter of the sample group. Much higher than the 16% last year.
Also, the number of Low Cost Carriers increased from last year and this sector now represents 15% of our sample size.
As usual some results are weighted, either by airline revenue or passenger numbers, to take into account the size of the airline. This gives us a more accurate picture when we look at industry averages.
As a reminder the survey looks at the following major areas:
- Management and Strategic Issues, which includes investment,
- Self Service,
- Mobile and on-board connectivity,
- Travel distribution,
- and Security.
Before looking at the specific results, let me point out that the survey was carried out during the first quarter of this year. It is unlikely that the results fully reflect the impact of rising fuel prices.
Let us look first at investment in I.T. You can see on the chart, the overall industry average for I.T. investment is flat at 2.2% of revenues. This equates to just under 11 billion dollars of investment.
Looking at the average airline I.T. spend by region, the North American result is significant. This is because spend dropped back: from 2% last year to 1.4%.
This 30% drop is not a surprise. It perhaps gives us an insight into what may happen in the other regions later this year.
On the other hand, the biggest increases were in Africa and the Middle East, and Latin America. Europe and Asia remained almost unchanged.
The split of Low Cost Carriers shows they spend only 1.1% of revenues on I.T. - half the industry average. Network carriers spend just over 3%.
In terms of how the I.T. budget is spent, 62% is for ongoing operations and maintenance, and the rest for new initiatives.
It is likely that reductions will be needed in both areas, to impact costs in the current climate.
Looking at investment priorities, 'projects with proven pay back or cost savings,' are the number 1 priority for 62% of airlines.
A close second is 'improving customer service' initiatives. However, we can expect to see an immediate focus on ROI and cost savings which presents a challenge when most companies also need to invest for growth.
It is clear from the results that 'self-service' remains a strategic focus for technology investment - although globally the adoption varies.
The global proportion of passengers using the Internet to check-in is catching-up with those using airport kiosks. Currently, 18% of passengers arrive at the airport already with a boarding pass, while kiosk usage stands at 17% of passengers.
… and this is moving very much in the direction airlines want to go.
We can see that by the end of 2009, airlines expect this gap to increase. For improved efficiency at the airport - and for lower costs to the airline - the move to Internet check-in is critical.
The North American market is leading this move.
Kiosk check-in has fallen from 57% of passengers last year to 40% this year, while web check-in has increased from 35% to 42%. So a clear transition to a lower cost option.
This year for the first time we also measured the trend towards the use of mobile devices.
Today, 1.5% of passengers use them for check-in.
Airlines themselves are forecasting this to increase by over 300%, to reach 6.5% of passengers by the end of next year.
By this time 67% of airlines will offer the service.
As you can see, self-service is becoming fully end-to-end, with many initiatives already in place.
- Web check-in, for example, at 59%
- And Mobile phone check-in, at 21%
A key driver for these new check-in technologies is the bar code.
The good news is that 78% of airlines who use bar code technology for boarding passes, have deployed the IATA standard.
The even better news is that: 93% are proposing to use the industry standard.
So the case for an industry-wide system is now well understood.
We should expect the industry to also embrace bar code technology for mobile phones. Currently 72% of airlines plan to do this.
Looking at ticketing, airlines have been pioneers in e-commerce. Online sales now account for 26% of tickets globally.
However, this year's results seem to confirm what was suggested last year. In the 'mature' market of North America, online sales will settle at around 50 to 60%. This shows that the industry will always depend on using a mix of sales channels.
Other regional markets still have some way to go to reach this level.
Europe is the closest at 36% of sales online. Africa, the Middle East and Latin America have also seen increases from online channels, but to a lesser extent.
So in many regions the potential for airlines is still enormous … online sales increase revenue and dramatically reduce costs.
This means that airlines must move as many people to their website as possible, to encourage customers to pay more for "extra" services.
These upsell and cross sell opportunities can be offered very effectively online to grow revenue. The industry is only scratching the surface of what is possible.
It is clear is that the airlines' own website is now critical to their business, with airline sites accounting for nine out of every 10 tickets sold online.
Turning to security. At the IATA AGM a few weeks ago, we heard that since 2001, airlines and their customers have paid over 30 billion dollars for security measures - a huge figure.
The fact is, security costs are now a normal part of doing business. We can expect the cost to the industry to rise, as more countries put in place stricter border controls.
This is supported by our survey, which looks at the provision of passenger data to governments.
Only 16% of airlines provide NO passenger data, and by 2009 this will drop to 3%
Of the airlines providing passenger data, 26% provide it to 6 governments or more - but this figure is predicted to rise to 60% in 2009.
With more passenger data required, the case for a common collection and distribution process is very strong.
In fact the number of airlines outsourcing this has gone up from one third of airlines last year to just under 50% this year. This is a huge opportunity for a community solution, and a community return on investment.
Moving from the ground to on-board… the convergence of wireless and internet is shifting passenger expectations of the cabin experience. It is also opening up productivity opportunities for the crew.
Our survey first looked at in-flight communications in 2003, including SMS, email, and Internet access. Since then, the results show that the market has not evolved as quickly as expected.
But looking forward, it is an exciting time, with all the main ingredients in place:
- technology,
- certification,
- regulatory
- and the business case for the airline.
This view is supported by the survey. We can see that a majority of airlines expect to have deployed at least one of these services within three years.
However, 'Improved onboard productivity' for crew has not taken off.
But its potential is promising.
For example, Internet connectivity in-flight will enable cabin staff to send messages of malfunctions to maintenance crew, so that repairs can take place immediately on landing.
Some carriers are already doing this. Our survey indicates that real-time connectivity for onboard staff will become standard for 43% of airlines over the next few years.
The use of hand-held devices in the cabin is already common for credit card verification.
But we are starting to see them adopted to speed up other tasks, such as stock taking of catering equipment and food.
Onboard wireless connectivity will help adoption - and around 45% of airlines expect to be using hand-held devices for productivity improvements in two years from now.
What is clear, is that the aircraft is becoming an extension of the I.T. network.
For CIOs this will provide its own technical challenges. But it shows how dependent airlines have become on I.T. performing 100% of the time.
So for now that concludes this brief review of the 2008 survey results. More information is available in the booklet in your delegate packs but let's now look ahead to the next digital decade.
I.T. waves are coming much closer together.
Take check-in technology, for example: self-service kiosks have taken 10 years to make an impact. But it has only taken two years for web check-in to start reducing kiosk usage.
Already there's a lot of talk about the third wave of check-in technology:
- mobile check-in … with the potential to have an even bigger impact than web check-in.
What are the implications of the next I.T. wave?
Firstly, as we put more technology in front of passengers, and within the airline and airport environment, one thing is clear:
'Reliable technology will be absolutely critical to our success.'
In a 24 by 7, passenger-connected industry, quality of service means:
- around-the-clock web booking
- boarding pass printing,
- self-bag tagging,
- kiosk check-in,
- passport identification,
- and more.
Passengers expect 100% availability.
New systems will increasingly link and integrate air transport processes. The industry eco-system will be less tolerant of disruption. So the end game for all of us, over the next decade, is to achieve:
Zero I.T. downtime!
Zero I.T. downtime means all individual components of a service must be available 24 by 7, and so must the entire integrated service: end-to-end.
Recent public network issues are a wake-up call to all of us. They highlight the dependency of businesses on the Internet.
When a series of fibre cable outages disrupted Internet traffic in the Middle East and India earlier this year:
- trading on stock exchanges in Egypt were halted;
- international bank transactions were cut off;
- and India lost half of its Web capacity.
For some customers, service was back up in a few hours. For others, it took two or three days. The airline business cannot afford e-commerce activities to be stopped for any period of time.
Every minute counts.
I.T. must always be switched on, because we cannot rely anymore on manual backup systems.
As an industry we need to rethink service provision.
I.T. providers in the industry must have the ability to support this 'always-on' environment. And service organisations must invest to achieve this goal, even in times of downturn.
Waves of technology come faster. And every wave has the potential to transform and create value for businesses and for the industry.
As we heard in our opening video, I.T. will enable new ways of working between airlines and passengers, airport authorities and operators, ground handlers and aircraft - putting them in constant touch, in a real time, mobile world.
I.T. will play a greater role in optimizing aircraft management and turnaround, as well as on-time performance.
I.T. will also be imperative to our community's focus on the environment - giving us global measuring systems, enabling more fuel efficient flight planning, and making sure airlines, airports and air traffic management organizations interact in the most effective way.
Emerging technologies that you will need to evaluate, and build a strategy for, include mobile and wireless technology, Web 2.0 and Travel 2.0.
They will transform the way the industry interacts with its customers and the way customers interact with the industry.
Mobile devices are the tools of the future for travellers as well as for the industry itself.
There was a time during the 1980s when more than half of the world had never even made a single telephone call.
Today about one in three people on the planet owns a mobile phone.
And the potential for how they can use them to interact with our industry is only just becoming apparent.
In India, for instance, for many people, their first use of the Internet will be from a mobile phone. So e-commerce player, MakeMyTrip, has launched a system that lets its 60 million customers:
- search,
- book,
- pay for
- and receive domestic air tickets on mobile phones.
The challenge for airline and airport leaders is how to capitalize on this new mobile frontier.
The challenge for CIOs is how to manage a network environment which once ended at the check-in counter, and then the kiosk … but is now sitting in the hands of your passengers and employees.
The future may belong to wireless, but the role of the Internet will not decrease. With Web 2.0, the second generation of Internet-based technologies will drive further changes - as it powers social networking sites, including their travel equivalents, such as TripAdvisor.
With this technology, there is huge potential for airlines to give the passenger a complete travel information service for their whole journey from their web sites. And the e-commerce opportunities become endless.
With this change also comes Travel 2.0. By delivering advanced tools - such as:
- fares search engines,
- location tracking,
- user generated content,
- and geo-tagging
… it will empower consumers, instantly putting travel choices at their fingertips.
And finally as we look at the next decade we see the need for more cross-industry collaboration. With Simplifying the Business, and through our work with the industry to deliver:
- CUSS,
- eTicketing
- and Type X,
we have learned that it takes more than I.T. to get results. It takes community action.
More and more, all the stakeholders involved in moving passengers and cargo need to cooperate effectively, because the links and inter-dependencies of our industry's 'eco-system' are becoming ever more sophisticated.
Today we all face common industry issues:
- slowing economic growth,
- high fuel prices,
- climate change,
- security, and
- deploying next generation infrastructure to accommodate future passenger growth
to name just a few.
These are global issues. They require global solutions that cannot be addressed in isolation. Overcoming them will demand
- teamwork,
- better technology,
- innovation
- and the sharing of information.
Consider security. Never has the need been greater to collaborate as an industry to tackle the issue of border management on a global basis.
Also, consider the environmental challenge. If we are to have a carbon free future within 50 years, collaboration will be paramount. Success will require partnership, shared responsibilities and the sharing of data among many stakeholders. It is why industry-wide support of the Aviation Industry Commitment to Action on Climate Change, and the four pillar strategy of IATA and ICAO, is imperative.
By coming together, all industry stakeholders - acting as a community - can build common solutions. These solutions must enable the wider industry to take a strategic approach to solving common industry problems.
"Collaborative Community Models" - built to solve industry-wide issues - are an essential way forward.
To conclude, we are all in an industry where dramatic change continues and where 'Information Technology will continue to be a critical success factor'.
Our I.T. Trends Survey recorded its rise in the last decade. And we can see that I.T. will continue to be a powerful force in the next digital decade.
I.T. has shown its business value and its power to transform. It has earned a legitimate place at the top table of air transportation companies and will remain there. But we must stay focused on the actions that will deliver true value to the business.
Zero I.T. Downtime...,
the smart adoption of emerging technologies...
and finally, true industry collaboration.
I believe strongly, that these will be at the heart of our future success – and the success of the industry. As CEO of SITA, I have made them the guiding principles for our organization going forward.
I urge you to do the same.
The next decade promises to be just as exciting as the last one.
I.T. will be the crucial element.
Thank you.