IT to airlines' rescue

By Leon Engelbrecht, ITWeb senior writer

Brussels, 23 Jun 2008

Airlines must seize and exploit the Internet and e-commerce to cut costs and generate ancillary income to offset soaring oil prices, says the Airline IT Society (Sita). Its owners, the world's airlines, are in an existential crisis despite growing passenger numbers.

Announcing the outcomes of the 10^th airline IT trends survey, Sita chairman Paul Coby said airlines had been the first industry to fully automate all parts of their business. This allowed the air transport industry to "become the world's first truly Web-enabled industry".

Speaking at Sita's annual IT summit in Vlaamsbrabant near Brussels in Belgium, he said with the price of oil at over $130 a barrel, there is now an even more urgent need to deploy IT.

Twenty-four International Air transport Association (IATA) member airlines have already collapsed this year, at least partly because of the fuel price, and many more are grounding aircraft and retrenching staff in a desperate attempt to stay in business.

"Among the record 121 airlines responding to this year's survey, the online sales average is only 24% with their own Web site. This varies from 43% in North America to just under 10% in Africa and the Middle East," Coby said.

"A very important source of revenue is clearly being lost to those airlines not using Web selling, at a time when everyone in the industry needs to maximise returns on their IT spend. Selling online has already massively helped to drive down distribution costs, saving airlines in the region of $2 billion."

Coby added: "The adoption of the new generation Web 2.0 technology can deliver greater sales and greater savings across the industry, and better returns from the $11 billion invested annually."

Sita CEO Francesco Violante added that the price of fuel is providing the economic incentive for the airlines to tap further into ancillary revenue, "by acting not as traditional airlines but e-commerce companies, offering every type of service to their global consumer market of 2.3 billion passengers using state-of-the-art technologies such as Web 2.0 and Travel 2.0 applications".

This, he says, can greatly help to withstand expected losses of more than $6 billion this year.

Examples of success include Ryanair of Ireland that now sells 98% of its tickets online and gains over 17% of its revenue online from ancillary sources. For many established airlines the figure is less than 5%.

Since the first Airline IT Trends survey in 1999, airlines have invested around $100 billion in IT and communications, Violante adds.

"As a percentage of revenue, the average airline IT spend is now 2.2%. At the industry level, this equates to around $11 billion this year, which represents an increase of 5% on last year. This increase is seen as recognition that IT plays a strategic role, generating revenue as well as helping deliver cost reductions and customer service improvements through self-service and smoother passenger management."

Other key highlights from the survey include:

* Management and strategic issues: The main drivers for IT investment cited by survey respondents were reducing costs, 62%; improving customer service, 54%; enabling new market offerings and revenue opportunities, 45%; and improving workforce productivity, 40%. Top investment areas included passenger processing and services, 63%; aircraft management/operations, 44%; passenger security, 34%; and employee security, 21%.

* Self-service adoption: Airlines are forecasting that while only 1% of passengers use mobile phones for check-in today, this will rise to 6% next year. By this time more than half of airlines will offer the service. This forecast suggests an evolution of self-service to mobile devices. The following airline self-service initiatives are already in place: Web check-in, 56%; mobile phone check-in, 21%; self-boarding kiosks, 21%; online trip-change service, 25%; and lost baggage self-service, 12%.

* Passenger security: 85% of the airlines responding to this year's survey now provide passenger data to the world's governments, up 4% from last year. Of those providing data, 73% provide to less than five governments and the remaining 26% to six governments or more.

* Onboard technology: The majority of airlines expect to have deployed at least one of these services onboard aircraft within a three-to-four year timeframe: SMS via mobile phone; GPRS for BlackBerry; voice calls via mobile phone; Internet access via laptop; e-mail access via laptop; and IM via laptop. More than half of respondents indicate they are planning to charge for these services or to finance them through advertising.