Meeting Expectations with IT

Challenging business environment, competition and pressure to achieve cost efficiencies in business operations have all meant that managing today’s airline business has become a massive balancing act.

Above all, it is the changing consumer behaviour, more demanding than ever, which means it is absolutely critical for airlines to adapt and remain competitive. The current economic downturn is increasing the pace of change, with many travellers becoming more price-sensitive and airlines looking to reduce their operational costs in the face of significantly lower fare levels and falling profits. Travellers want seamless integration of various travel service options into a single offering to provide a holistic travel experience. The days of waiting in queue for check-in are numbered.

For an improved passenger experience, airlines today have to provide more flexibility, convenience and value generation for seamless travel. Many airline passengers are early adopters when it comes to using new technologies. So making those technologies available is very important.

At the same time, this also opens new opportunities for increasing efficiency along the service chain, says Norbert Müller, senior vice president – Sales Asia-Pacific, Lufthansa Systems.

With regards to the check-in process, passengers want maximum flexibility in their decisions how and where to check-in – conventional, at a kiosk at the airport, via Internet from home or from their hotel or from their mobile phone while being on the road. This, Müller, says opens new opportunities for airlines to differentiate their services from the competition while at the same time cutting costs.

“That is why we are constantly evolving our GroundSolutions Platform so it keeps pace with the changing trends in passenger behaviour. It covers all check-in channels. Its self-service applications can save a mid-size airline up to $5 million in costs per year,” Müller says.
Overall, for airlines, there is a race to capture the growing leisure and business air travel demand in emerging economies like China and India. At the same time, they must also contend with a heightened security environment and regulatory obligations – all within the current economic climate. 

“Bottom line, they must achieve business efficiencies and mitigate risk, while retaining customer satisfaction and patronage,” says Sue Carter, vice president – Commercial Industries, Unisys Asia Pacific.

Accepting new technology

Technology has brought in major changes in the way people travel today. And the changes are across the core process areas of the air transportation industry, be it for services, cargo services and flight operations.

Ultimately, technology is an enabler of airline success, says John Chapman, vice president – Airline Group, Amadeus Asia Pacific.

As the operating environment for airlines gets tougher, it is essential to employ technologies that will be able to deliver benefits such as the seamless automation of processes and increased cost-efficiency, not just in the short-term but in the future as well.

“More and more airlines are abandoning their in-house, legacy platforms and turning to new technology to meet the challenging new environment they are facing,” says Chapman.

Carter indicates that sometimes there is no choice but to embrace change. Sometimes it is external events that drive the needed change because hard deadlines must be met.   

For example, when airports are re-designed and capacity is expanded to handle extreme passenger peaks for mass events such as the Olympic Games in Beijing or Commonwealth Games in Delhi in 2010, the technology platform forms a key part of the infrastructure.

The significant existing investment in technology platforms makes any business case for change tough and challenging especially in the current business environment. And airlines, according to Carter, face a larger challenge as their current, systems which have successfully supported the business for many years, are relatively efficient and cost effective compared to other industries and any replacement strategy would significantly impact the airlines profit position in the short to medium term making the business case for significant investment in the current climate questionable. 

“As a result we are seeing many airlines take a maintenance and enhancement approach to existing systems including innovative application modernisation programs which leverage current investments and support the integration of new generation modules such as loyalty yield management, asset management, and passenger and cargo services – ie areas which can directly improve the bottom line,” added Carter.

From Lufthansa’s perspective, Müller said, “We are seeing an increasing trend towards IT platforms instead of individual solutions.”
Combining solutions for related tasks into a common platform has great financial and functional advantages. It speeds-up the decision making process and at the same time it enhances the quality of the decisions made, according to Muller. Additionally airlines benefit from lower cost of ownership.

The Integrated Operations Control Centre (IOCC) Platform from Lufthansa Systems integrates its operations-related products. The company says IOCC is the first integrated IT platform able to control and monitor all aspects of airline operations which are closely interlinked in practice, including flight scheduling, operations control, hub and turnaround management, crew planning, route planning and weight and balance.

“Because of the synergies it generates, the IOCC platform offers airlines much greater economic benefits than standalone systems. In the area of revenue accounting, our Sirax AirFinance Platform generates significant additional revenues from an exact recalculation of interline bookings, while the Lido FlightOps Suite optimises all aspects of an airline’s flight operations. The goal is always to look for an optimum overall result for the airline. This will benefit the company as well as its passengers,” explained Muller. According to him, the IOCC Platform can save a medium-sized airline up to $31.8 million per year.

Passenger services

Airlines are now able to support extensive passenger self-service options like web-based booking and check-in. According to SITA, both, web and kiosk check-in are now well established among airlines, and will reach almost 100 per cent adoption by 2012.
According to IATA, each web check-in by a passenger with baggage saves the airline $3.58 and check-in without baggage saves $5.34.

This is another reason for airlines to adopt web check-in, apart from the convenience it provides to customers.
Amadeus is currently studying a variety of enhancements for the self-service channel that go beyond a simple check-in. These include areas such as baggage acceptance, enabling up-sell and payment for ancillary services, re-booking of flights and frequent flyer miles redemption.

Overall, the industry has still a long way to go as far as the penetration of these services is concerned. For instance, a survey this year has indicated that only 15 per cent of airlines have optimised their websites for mobile phones. On the positive side, 78 per cent of airlines intend to adapt their websites to work on mobile phones by 2012. According to the SITA 2009 Airline IT Trends Survey, 38 per cent of respondent airlines do not provide any mobile services as they see no clear business case yet and only 20 per cent currently offer mobile phone check-in.

Another area has been planning and booking side of travel. Today, airlines are also getting directly involved with customers in the planning and booking stages of their trips and as such, are focused on enhancing their own websites.

Airlines are turning to enhanced technology solutions to meet this higher level of customer expectation for interactive and personalised services, with the airline websites being a major focus.

“Today’s travellers are more discerning and IT-savvy, and expect to have more information and services available to them directly, giving them greater control and choice. For airlines, this means offering customers greater flexibility and choice during the booking process, enhancing online and mobile check-in, and offering greater self-service options within the airport,” said Chapman.

“Gone are the days when you make reservations using the airline site, make hotel reservations through another site, arrange car rentals through a third site and book activity tickets in yet another site. Many airlines have adopted technology to give all these through their own websites. This improves the customer convenience while bringing in revenue for the airlines through commissions,” says V K Mathews, founder and CMD, IBS Group. He added that some airlines have even started offering business intelligence solutions to suggest the right combination of offerings based on the customers booking pattern.

Closer to consumers, more revenues

Ability to recognise valuable customers and provide value added services through all touch points is possible by adopting loyalty and CRM systems. These systems support management of preferences, identification of travel patterns facilitating a better understanding of the customers.

Earlier this year, SITA introduced a new offering called Customer Journey, which provides a “live” record of the passenger’s experience with the airline right down to seat preference, meal choice and the last time they made a complaint. The new tool provides reservations agents with real-time customer data through a single open integrated database.

The initiative exemplifies that the industry is increasingly realising that customers’ experience is a crucial consideration at every step of the journey.

“IT systems are evolving to reduce what we call Business Visibility Latency (BVL). Reducing BVL greatly improves the business’ ability to look into real time customer information and base decisions on instantaneous information,” says IBS’ Mathews. 

Predictive and proactive modeling techniques powered by next generation solutions such as iLoyal from IBS provide a near real-time information about the customer’s value.

“And combining it with the value/ nature of the transaction that is happening, you can greatly reduce the BVL. Decision making is pushed further down the line – where it actually matters – and that ensures that you have a delighted customer. Deploying the right IT systems will help achieve a greater amount of customer delight,” added Mathews.

IT is key to enhancing the overall travel experience by treating an airline customer as an individual person, says Muller. 

For an airline, compiling this data demands the ability to collect all relevant information every time the customer visits a touch point such as a booking agent or a check-in kiosk. This requires more than just a database, as the information compiled needs to be made available at the right time to the right staff, in order to offer suitable services to the passenger or to plan a successful mailing.

Chapman says as more and more airlines become members of global airline alliances, such as oneworld, Skyteam and Star, they will be able to share their passenger data and preferences with their partners, enabling enhanced CRM services and business intelligence.

This will mean that eventually, regardless of which airline a person takes, he or she will be assured that the carrier will be fully familiar with his travel history and preferences, and customise its service accordingly.

This information can be used for increasing revenues. For instance, for an airline group like AirAsia Berhad, its ancillary income grew by 89 per cent to $27 million in the second quarter. The average ancillary spend per passenger has increased by 52 per cent to $7.6.

Ancillary income now represents 14.5 per cent of total revenue, a six percentage-point increase from the same period last year.

With the average fare paid by passengers now lower due to increased competition and economic downturn, airlines must find additional sources of revenue. In addition, customers are increasingly expecting to have greater control and flexibility over what they buy. This has seen full service airlines follow low cost carriers by offering passengers the option to “add-on” services to their basic ticket price.

This has led to airlines investing in technology upgrades to allow for these options. Many carriers (particularly in the US and Europe) have unbundled their fares to sell items traditionally included in the full-service flight – such as baggage storage, F&B provision and seat options.

“Airlines then need to find IT solutions to enable them to offer these new products and services across their various channels of distribution, including their online website, call centres, check-in/ticket desks and via the traditional travel agency channel,” says Chapman.  

Carriers are also exploring the sale of items beyond the in-flight experience, to offer hotel packages, travel insurance or transport services to and from the airport. These add-on items not only allow the customer to take more control over their travel experience, but also help the airline to generate additional revenues.

Sue Carter says passenger and logistics solutions are mission critical applications for an airline as they are used to generate flight schedules, display seat availability, manage flight inventory, record passenger bookings, and handle passenger check-in and departures at airports across its network and help to manage cargo operations including inventory control, bookings, warehouse operations and customs interfaces across. 

Lufthansa says airlines need to get as much revenue as possible out of every flight. Airplane seats are perishable goods. As soon as a flight has left the gate unsold seats on board are worth nothing. Managing the complex relationship between price, demand, capacity and behaviour of the passengers in a way that maximises revenues is a difficult task.

Lufthansa’s ProfitLine/Yield O&D enables airlines to take into account the important aspect of the origin and destination (O&D) of every passenger. It puts them into a position to sell seats for a certain flight preferably in the markets with the highest price. It has now created the ProfitLine/Yield O&D Market Sensitive Forecaster. This new module enables airlines to better predict demand and adjust their availability more precisely. Initial benchmarks have shown that this system can generate additional earnings of up to 0.25 percent compared to the traditional ProfitLine/Yield O&D Forecaster.

IT outsourcing

SITA’s Airline IT Trends Survey has indicated that IT operational expenditure (as percentage of revenue) has dropped to 1.7 per cent this year. The scope for further cuts appears limited and has probably reached it lowest point. It added that reducing enterprise costs and generating revenue opportunities are the prime focus for IT investments.

One of the key strategies for the airlines is to reduce fixed costs and have variable costs linked to business revenues, where possible.

This would give airlines the capability to respond effectively to changing market conditions on which they have no control.

Also, considering that airlines are in a very tough position under the current market conditions, it is critical that airlines explore cost-cutting measures that do not compromise productivity, customer service and safety, while at the same time converting fixed costs to variable models that allow for business fluctuation.

Outsourcing IT allows airlines to focus on their core business, says Chapman. They can eliminate the fixed costs associated with developing and upgrading internal passenger IT systems.

Value addition, according to Mathews, in its strict sense comes when outsourcing is seen as something that can go beyond IT.

“This is because few businesses have as many challenges as airlines. All of what they do is capital-intensive. Therefore airlines should outsource their business processes (reservation services, revenue accounting, engineering, ground handling, and so on) if they have to drive up efficiencies and reduce costs in operation,” said Mathews.

It helps them reap several benefits, including primarily reduction on fixed costs. First, airlines can keep most of the costs linked to business activity, thus being able to reduce costs when the revenues are impacted, thus being able to better respond to changing/adverse market conditions. Two, this would help them internationalise costs. This is required because revenues are international. Three, they can derive benefits from economies of scale that the outsourcing partner can provide.

Muller says optimising the complex business processes in this industry in order to use all resources – people, aircraft and money – in the best possible way and to take operating efficiency to the next level requires advanced IT solutions.

They too open opportunities for creating new passenger services and enhancing the overall travel experience.

“Not by a chance those airlines which have kept investing in their IT are among the industry leaders in terms of passenger satisfaction and financial success,” Muller says.