IATA chief slates 'greedy' IT vendors

By Leon Engelbrecht, ITWeb senior writer

Brussels, 20 Jun 2008

International Air Transport Association (IATA) director-general and CEO Giovanni Bisignani has fired a broadside at airline ICT vendors, particularly those that provide ticket booking systems to the airline and travel industries.

Bisignani says the airlines have become hostages to an industry they created - the Global Distribution System that is used by IATA members and travel agents to book tickets.

"It's no secret that airlines are held hostage to GDSes," says Bisignani, who told an audience of airline CIOs in Brussels the industry had created the business and had then sold it in a moment of crisis years ago to gain revenue.

"We sold them and were quickly taken hostage. The GDSes took advantage of their position to charge enormous fees supported by government regulation," Bisignani charged. "Deregulation helped, but, even while airlines struggle for profitability, double digit margins are the norm."

The IATA chief said the Internet was a "golden opportunity for airlines" giving them direct contact with their customers and bypassing the GDS.

"Combined with a revolution in yield management and distribution tools and the benefits of e-ticketing, sales and marketing unit costs dropped 25%.

Bisignani wants more. "But still there is need for change. Why can China TravelSky charge $0.50 for a transaction, while the western GDSes charge over $4? The industry is in crisis with $130 oil [per barrel]. It's time for the GDSes to come to the table with efficiency gains and cost savings or we will find ways to further globalise the market," he threatened.

The Airline IT Society's (SITA) annual IT summit, where Bisignani made his threat, comes at a time when many airlines are facing ruin because of skyrocketing fuel prices, which the ongoing growth in passenger numbers is doing nothing to offset.

Short party

"2007 was our first year of profit since 2000," said Bisignani. "We made $5.6 billion and a 1.1% margin, but this was an amazing achievement with oil at $73 [per barrel]. It was made possible by a lot of hard work - much of it related to IT: dropping sales and distribution unit costs 25%, reducing non-fuel unit costs by 18% and improving fuel efficiency by 19%."

"We did celebrate, but it was a short party," Bisignani added. "The industry is in crisis. With oil at $130 a barrel, fuel is now 34% of costs. In 2007, the bill was $136 billion. And if oil averages $107 - the consensus forecast - the 2008 bill will be $176 billion and losses will be $2.3 billion.

"And that's the optimistic forecast. If oil stays at $135, losses will be $6.1 billion. Over the next 12 months, that would be an added fuel burden of $99 billion. Alone, this is a staggering number. But we cannot forget the US credit crunch. Traffic is slowing in all parts of the world. Last year, growth was 6%. This year we may achieve 4%," Bisignani explains.

"Difficult decisions on capacity and aircraft deliveries are being made. It's a perfect storm of increasing costs and falling demand. IATA's $315 billion settlement system gives us a unique view on what is happening. In the last six months, 24 airlines went bust. The industry sent a very strong message: we are in constant crisis and change needs to happen.

"IT has an important role in battling this perfect storm. In fact, the work that you do is more important than ever - to deliver results that make the business stronger," he told CIOs from 24 airlines.

"Airlines were the first industry to fully automate all parts of their business. Nothing happens without IT. This comes at a cost. Internally, we spend about $10 billion on IT and an additional $10 billion with GDSes. Like all aspects of the business, you can expect pressure to drive down costs and support revenues. That's a polite way of saying, 'deliver more for less!'"