Airlines stand poised with the wallet

SITA believes airlines are about to start spending big on IT in 2003 after this year's dip in spending.

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By  David Ingham Published  November 25, 2002

SITA, a major provider of IT services to the air transport industry, is confident that airlines will boost IT spending next year as they emerge from their post September 11 gloom. The company bases its view on the results of the latest annual Airline IT Trends Survey, which it runs every year in partnership with Airline Business magazine.

The survey’s key finding is that 61% of 91 airlines surveyed expect to increase IT spending next year. 25% expect it to stay the same, only 10% expect it to decrease and 4% did not answer. The 91 airlines surveyed account for around 62% of world airline revenue and around 10% of responses came from the Middle East.

“It became clear in the survey that there’s a desire and an identified need within the airlines to increase their IT spend,” says Chris Hurdiss, marketing director, Middle East & Africa, SITA. “I think that after we’ve overcome these difficulties experienced after September 11, we’ll see a lot of activity in terms of [IT spending.]”

Airlines’ overall investment in IT and telecomms dropped to an average of 2.3% of revenue in 2002, the lowest level since the survey began in 1999. SITA sees 3% as the optimum level of investment.

Ironically, the average IT spend for regional airlines was 2.88% of revenue, the highest average for any geography. The Middle East was followed by North America at 2.7%, Latin America at 2.4%, Asia Pacific at 2.2% and Europe at 1.9%.

One of SITA Middle East’s most recent successes was a US $4.1 million three year project to move Qatar Airways’ telecomms infrastructure from legacy based protocols to IP. The move will allow the airline to run new reservation, ticketing and customer care applications; to prioritise traffic; and support future voice and video services.

Hurdiss holds the project up as an example of how airlines can utilise technology to increase efficiency. “It opens up the possibility to use applications that can help them increase their efficiency and reduce costs,” he says.

Could it not be the case, however, that airlines are learning to utilise IT more efficiently and that this might partly explain 2002’s spending cutbacks? “That could be the case in a few years time,” concedes Hurdiss. “I don’t think it’s specifically the case now. In the difficult times that the industry is facing, IT has unfortunately been one of the areas that has been cut."

For next year, however, IT spending will very much be focused on cost savings and efficiency, Hurdiss says. In fact, 53% of the survey’s respondents said that this factor would be a key driver of their IT investment strategies in 2003, followed by improving customer service at 21% and increasing revenue at 18%.

That means, according to Hurdiss, that revenue accounting systems and the development of online ticketing services, along with network migration, will be hot areas for 2003. “Look for services that show an almost immediate cost saving benefit,” Hurdiss says.

An example of such an application is SITA’s revenue accounting system. “One of the services we provide, which has been taken up by a number of airlines in the region, is a revenue accounting system that allows airlines to consolidate and collect revenue from other airlines that they have ticketed,” says Hurdiss. “It automates what at the moment is a very time consuming and laborious process and means they can gather revenue a lot more quickly.”

Although only cited by 3% of respondents as a driver for IT investment, Hurdiss is also confident that security will become a major factor for airlines next year. He doesn’t only mean IT security, however. SITA also has high hopes for a border management system that can collate, manage and distribute information on arriving passengers. The USA and Canada already demand advanced information on passengers and more countries are expected to follow suit.

Back to the issue of cost saving, outsourcing has been a growing phenomena for years and many airline functions are already outsourced. 48% of respondents said that network management is already outsourced and 10% expect to outsource it over the next two years. 31% outsource desktop PC management and a further 20% expect to do so over the next two years.

SITA has put together a profile of what it sees as the IT proficient airline. Such an airline commits around 3% of annual revenue to IT, has a strong CIO who sits on the board and makes widespread use of outsourcing to reduce costs.

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