Airline IT investment dips

Cannes, France, 02 Jul 2009

Airlines' investment in IT is set to reach a new low this year, as aircraft operators cope with unprecedented financial losses, a fall in passenger numbers, the worst global recession since the 1930s and the beginning of a new fuel price bubble.

IT and telecommunications operating spend, as a percentage of airline revenue, is forecast to be just 1.7%, the lowest level recorded since 2002.

This comes as airlines seek to reduce costs against a backdrop of $10.4 billion in losses last year and an International Air Transport Association forecast of another $9 billion this year.

A survey released yesterday suggests many airlines are in survival mode. The 2009 Airline IT Trends Survey says 72% of survey respondents intend to renegotiate IT supplier contracts and 70% will invest in solutions that lower overall enterprise costs.

The survey, co-sponsored by SITA, the airline ICT specialist (not to be confused with SA's State IT Agency), and Airline Business, was launched at the annual SITA Air Transport IT Summit in Cannes, France.

Most airlines have already put in place measures, such as rationalisation of IT suppliers, IT infrastructure consolidation, reduced head count and outsourcing, the survey adds.

Reactionary moves

Launching the survey, Paul Coby, SITA chairman and British Airways CIO, said the “drop in IT investment by airlines is a direct response to the $80 billion in revenue that is expected to disappear this year due to falling passenger demand in our industry.

“For the first time in several years, there will be a year-on-year decline in IT spend. The focus everywhere is on doing even more with even less,” Coby said in a keynote address.

“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 backburner.

“Any of us involved in the front-line management of airlines and airports understand this to be an absolute necessity. So it is no surprise that reductions in investment are cited by survey respondents as the main obstacle to airline CIOs achieving their strategy.

“But it is important to recognise that IT is also part of the solution to our challenges,” Coby added.

“Used well and effectively, IT will cut costs and protect revenues. The survey tells us IT has already accomplished a great deal in reducing distribution costs and expanding self-service functionality.

“For the first time, 100% of survey respondents said they sell tickets online and it is clear airlines are making Web sales their most important distribution channel. Web check-in capability is now at 60% and is expected to reach 92% over the next three years. So the IT-driven revolution in the air transport industry is continuing.”

Coby further commented that it was important to note that over the strategic time horizon of the next three years, airlines are still prioritising investment in many areas, including IP telephony, service-oriented architecture, software-as-a-service, Web 2.0, cloud computing, data security and biometrics.

“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."

Technology moves

In a bid to reduce distribution costs, the airlines are keen to add more functionality to their Web sites by the end of 2010, particularly “change/cancel/rebook facilities” online, which 44% of respondents plan to offer, while 37% already do so. Other Web site functionality planned for 2010 includes:

* Alternative payment options (34%)
* New products to improve revenue (34%)
* Booking portal for corporate customers (33%)
* Frequent flyer redemption functionality (29%)
* Booking portal for travel agencies (28%)
* Online shopping tools (26%)

The focus on efficient self-service technologies is also reflected in the use of kiosks, with 74% of all airlines planning to increase the number of kiosks for either check-in or new functionality.

With industry-wide adoption, there will be an increase in the number of airlines planning new kiosk functionality. In 2009, 26% of airlines plan to increase the number of kiosks with new functionalities, such as lost baggage reporting and flight transfers, versus 18% of survey respondents in 2008.

While 38% of respondents do not provide any mobile services as yet, notifications about flight status and delays continue to be the most popular mobile-based service to passengers among those who do, with 38% providing this service currently, while 42% have plans to do so within the next year.

The Airline IT Trends Survey is an independent poll of senior IT personnel working within the top 200 passenger carriers; 116 airlines responded to this year's survey, including 11% classified as low-cost carriers, and 27% were airlines carrying over 20 million passengers.