Airlines see IT as key to recovery
But focus on flexible cost models to deal with downturn
Wed 24 September 2003 09:24AM BST
Despite being hit hard by the SARS virus, war in Iraq, terror threats and a wider economic slowdown, airline IT chiefs see technology investment as key to cutting costs and rebuilding the industry.
The Airline IT Trends Survey 2003 found that IT investment increased slightly to 2.4 per cent of carriers' revenue this year, with three-quarters of CIOs predicting budgets to remain the same or increase next year.
Cost reduction and improving efficiencies were cited as key drivers for new technology in the survey, which was questioned over half of the 200 worldwide top carriers and was commissioned by non-profit airline industry group SITA and Airline Business magazine.
Peter Buecking, president of SITA, told silicon.com the current scale of problems the industry faces is unprecedented in its history.
"The CIOs see IT as central to enabling cost reduction and that is going to be there for the next few years. The airline industry has to rebuild its balance sheet," he said.
The increasing use of application service providers (ASPs) and outsourcing is one of the key trends highlighted by the study. Over 80 per cent use ASPs and Buecking said companies are moving to these models as they realise the need to have a more flexible cost base to cope with downturns and upturns in business.
"With the ASP model airlines have moved to a more variable cost structure. When there is a downturn you need a more variable cost structure. ASP and outsourcing makes a lot of sense and this is a strong trend, not just a flavour of the month thing," he said.
But a hardcore of 20 per cent of airline CIOs said they have no plans to outsource any of their IT in the next two years.
Based on five years of this study, SITA has established a benchmark model of the ideal "IT-enabled airline". This includes a three-year IT strategy in place led at board level with a budget at around 2.5 per cent of revenue, and be already or rapidly moving to an IP infrastructure and outsourcing non-core, non-competitive parts of IT.
One area of growth that airlines are looking at to enable them to differentiate their services from competitors is offering in-flight email and SMS services.
By the end of this year 25 per cent of airlines will offer email and 22 per cent will offer SMS services to passengers onboard their aircraft. By 2006 these figures will rise to 46 per cent offering email and 45 per cent SMS.
Buecking said it will be another three or four years before these services become widely available to passengers on planes but that it will be inevitable.
"It is like in-flight entertainment years ago. Not everyone did it, then they all did, and then the airlines moved to personal TV screens. It becomes a competitive necessity after a while," he said.
Another area of growth is the use of the web as a direct channel for ticket sales, the survey found. Web sales and direct ticketing doubled in the past year and now account for 10 per cent of total airline ticket sales, posing a threat to traditional travel and ticketing agents.
Andy McCue
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