Major IT investment from airlines is mandatory to support worldwide traffic growth, report concludes

BRUSSELS: Significant IT investment by airlines is mandatory to support passenger traffic growth across the world, the 2012 Airline IT Trends Survey has found.

Co-sponsored by SITA and Airline Business magazine, the survey represents the view of over half of the world’s top carriers which, between them, carry 53% of the world’s air travellers. At last week’s SITA IT Summit in Brussels, an executive summary of the survey was shared with over 200 attendees from 65 countries.

In his welcome address, SITA board chair Paul Coby said he sees four mega-trends shaping and transforming the industry. “First, we’ll witness huge growth in passenger numbers as air traffic doubles in the next 15 years, second, there will be 9,000 more aircraft flying in 2020 than in 2010; third, airlines within the so-called emerging economies will account for over half of world traffic growth by 2030; and fourth, and this is absolutely certain, competition will intensify.”

So what does this growth mean for IT investment?

The survey reveals that the top three IT investment priorities remained unchanged in 2012. Airlines continue to focus on investments that improve customer service, support revenue opportunities, and reduce the cost of business operations. For the second consecutive year mobile services for passengers tops the list of investment programs with over 58% of airlines making R&D investments in passenger services via mobile devices.

Airlines are also continuing to expand their interest in ticket distribution through direct channels, often with well-publicised spats between some airlines and GDS providers. Whilst 86% of airlines believe that their websites will remain as the dominant channel for direct sales beyond 2015, 70% of airlines believe that the second most dominant channel with be via smart phones – with over 90% of those surveyed planning to sell via mobile phones by 2015.

On the subject of mobile payment technologies, SITA CTO Jim Peters says, “It’s going to happen. There’s going to be a secure mobile wallet. The travel industry will be behind the financial industry in how that works. By 2015 there’ll be mobile wallets. You’ll do financial transactions with your phone and the travel industry will run right behind it to say how can we use this for self-service; put our boarding passes in there; put our loyalty cards in there; allowing people to buy stuff with air points via their phone during their travel as part of our whole merchandising scheme.”

In addition to their impact on direct sales, 71% of airlines surveyed stated that smart phones would become the most dominant channel for passenger processing beyond 2015 with kiosks dropping down to 39% despite the increase in kiosk functionality for services such as bag-tag printing, baggage tracking and flight transfers.

“With passenger numbers increasing as they are by 2030 they’ll be twice as many flying as there are today, and despite the billions of dollars going into airport development, the chances are that capacity management is going to become a bigger and bigger issue. So automation of the passenger process for me is a given and if we don’t try and solve aspects of that you’re going to be queuing for a long long time when you come into an airport in 2030,” says SITA director of market insight Nigel Pickford.

These issues are trending against a backdrop that will see “more airline consolidations, more importance attached to airline alliances, morphing of some low cost carriers and other airlines into hybrids and at the same time airports having to make major investments to cope with the passenger numbers that will be flying with us”, says Coby.

Meanwhile, the airline industry continues to weather financial storms. “I’ve often described the natural state of the airline industry as that of crisis, interrupted by brief, but enjoyable moments of relative calm,” says IATA director general and CEO Tony Tyler.

“IATA’s revised industry outlook for 2012 is for an aggregate profit of just $3 billion on revenues of $631 billion which, the mathematicians among you have already worked out, is less than a 0.5% net margin. The results are going to vary widely by region and we see European carriers posting net losses of $1.1 billion, which is nearly double the loss that we expected as recently as March. Asian carriers will post the largest profits of some $2 billion followed by North American carriers who we expect to post profits of some $1.4 billion. Middle East carriers and Latin American airlines will have small profits of $400 million each and we expect African carriers to loose $100 million.”

Adds Tyler: “Between 2002 and 2011 aggregate airline revenues totalled $4.6 trillion and we lost $16 billion. Our best annual net profit margin of this century was just 2.9%. A business that can’t generate a satisfactory return on capital is not sustainable over the long term and that’s the position in which the air transport industry finds itself, and this is odd because aviation creates so much value for the world.”

The IATA director general believes airlines “must be open to deriving benefits by all working together. Our focus should be on achieving benefits for everybody, and I think this is particularly relevant to our industry’s approach to IT. I want to focus on three areas which I believe will have enormous opportunity to shape tomorrow by managing IT change together: distribution, decision support and operational efficiency.”