Airlines' investment in information technology (IT) and telecommunications has fallen to an all-time low of 2.1 percent of revenues--down from 2.4 percent in 2003, according to the 2004 Airline IT Trends Survey. This decline reflects the pressures to reduce costs across the airline industry. However, the aviation community must recognize the need to make smarter and more customer-focused investment in IT and telecommunications in order to achieve the goal of sustained profitability. It's not how much you spend, but what you spend it on -- how you deploy and maximize the technology -- that truly matters.
In order to be profitable again, airlines must align IT spending tightly with strategic business objectives. This ensures that IT delivers the returns the airline industry demands. IT must play a central role in helping to further reduce costs and simplify the business while also improving the passenger experience. Currently airlines are focusing nearly half of their investment in short-term projects with proven cost savings, some 40 percent on customer service or marketing advantages, and about 20 percent on simplifying internal processes. Thus a majority of the IT investment is on external, versus internal, priorities.
What holds the industry back? The biggest obstacles that airlines face in achieving an optimum IT strategy are lack of investment/allocated budget, lack of skilled IT people, and lack of IT people with airline industry experience.
These issues are not short-term. In fact, these have been reoccurring themes for the past six years. While the solutions are not easy, smart, strategic investments in the right technology are a critical success factor. Here are some key areas in which airlines should continue to invest their IT budget and resources:
Online and e-ticketing sales. According to the IT Trends Survey, more than 15 percent of airlines are already fulfilling more than half of their ticket sales as e-tickets, making it their primary distribution mechanism. These mainly are in North America, with the rest of the world aiming to achieve this by 2010. In terms of the Web, 10 percent of airlines are selling more than half of their tickets online. The complexity of airline pricing/fare models, a desire not to upset traditional channels, and not enough customers buying online are the biggest issues challenging online travel sales. It is not the technology backbone or capabilities.
Self-service kiosks. Nearly two-thirds of airlines offer or plan to offer self-service kiosks. By the end of 2006 most carriers will have the majority of passengers using kiosks in their domestic markets, achieving this in 2008 in all overseas markets. Kiosks save airlines substantial monies in terms of real estate within the airport and human capital resources. This technology provides both short- and long-term cost savings.
In-flight communications. By 2007, almost a third of the airlines plan to offer a short messaging service (SMS) plus the ability to surf the Web, access e-mail, and use mobile phones. The industry already is seeing the start of pilot trials that enable the use of mobile telephones in flight. These new developments are aimed primarily at enhancing passenger services, but the basic technologies also offer considerable operational and safety benefits to the airlines. While the trend is growing, about half of airlines still don't have a timetable for introducing SMS, e-mail and mobile telephone connectivity on board for their passengers. These airlines need to get in the game now.
Customer service technologies. Eighty percent of the industry is experiencing tremendous demand for Web systems applications development, and 65 percent commented on an increasing need for customer relationship management/customer service technologies. These technologies are crucial for airlines to retain their loyal frequent flyer passenger base, as well as build and protect their brand reputation.
The return to profitability for airlines hinges on cost reduction and efficiency gains. Smart technology investments, too, are essential. According to the data, nearly 60 percent of airlines expect an increase in IT budgets next year, 26 percent expect the same size budget as this year, and 16 percent expect a decrease. Smart IT investing is the critical component to achieving the goals International Air Transport Association members have set for e-ticketing, common use self-service kiosks, radio frequency identification baggage tags, and bar codes on boarding passes.
Outsourcing may be a route airlines take; however, many feel the skills and technologies are best managed through an in-house strategy. The overall goal of technology for airlines is to "simplify the business." Not to create complexities, but to drive customer service. Not to create processes, but to drive profits. Strategic, sound technology investments will enable airlines to reach these goals.
Peter Bueking is president of SITA.