ANALYSIS: How IT-led strategy is transforming airlines

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As new technological developments affect every aspect of how carriers are run, IT departments are being integrated into the centre of the airline business structure

If one word sums up the driving principle behind really astute airline IT strategies, it is transformation. Today, however, there is no longer an expectation that technology delivers solutions. Instead, the mindset is one where transformation is ongoing.

Both the challenge and the opportunity lies in the consumerisation of technology. In many parts of the world, fast-changing, smart technology is becoming an integral part of consumers' lives and whether they are passengers or employees, they expect a similar experience when they interact with their airline.

Innovative airline chief information officers and their boardroom peers are therefore positioning their IT teams as service organisations that could be engines of change because they are fully integrated into the airline business. The ultimate scenario is one where the IT specialists fully understand and are working to meet the goals of their airline business community and the business managers are taking ownership of technology.

Take these airlines from around the world - Fiji Airways, Aer Lingus, JetBlue Airways and American Airlines. They are at different points on this evolutionary journey. There are some broad similarities in their ambitions and in challenges they are tackling: modernisation, empowering and engaging customers and staff, developing and harnessing talent, delivering competitive difference and value. However, the unifying link in their strategies and stories is the shared vision of IT's transformative role for their airlines.

"Technology has always been at the heart of the industry since the early days in the 1950s of perforated tape and teleprinters transmitting data between airlines and airports around the world. Much has changed since then, but what is really different now is how passengers use technology in their everyday lives and how that forms their expectations of service from airlines," says Nigel Pickford, director, marketing operations and market insight, at SITA.

"Passengers are now setting the standard that drives an airline's IT strategy in a big way. There is an increasing number of airline customer touch points - social, smartphone, tablet, laptop, home, on board - that all demand attention. Customer-facing IT impacts passenger satisfaction, which impacts loyalty and up-sell opportunities. Internally too, IT is increasingly important to ensure operational efficiency. The power of mobile, business intelligence and cloud services will all play a critical role in these dimensions."

This is an environment that demands a versatile, agile and integrated technology backbone, so it's no surprise that 49% of airlines, according to the Airline Business/SITA 2013 Airline IT Trends Survey, are planning major investment programmes to upgrade their core passenger management systems over the next three years, and another 17% have earmarked resources for research and design projects.

Fiji Airways is three years into a turnaround programme that has seen the South Pacific network carrier restructure its route network, bringing in new aircraft to deliver greater fuel efficiency and frequency on long-haul routes and rebranding to a more authentic Fijian identity. Behind the scenes, the former Air Pacific has moved away from dependening on Qantas for critical systems such as inventory and revenue management to an Amadeus Altéa passenger service system.

Describing the systems from three years ago as "piecemeal or spaghetti", as well as being massively underutilised, airline programme director Mike Moore says the strategy of rationalisation, reducing complexity and improving reliability have been key successes. "Once the heavy lifting of rationalisation and updating is complete, then the strategy needs to focus on adding value to the organisation, being an enabler, rather than an obstacle. In particular, looking for opportunities to exploit technology for business change, for example, electronic documentation."

CUSTOMER FOCUS

The challenge now is to move away from using just 15-20% of application functionality to look at how existing tools can deliver more and to get people in the business to take more ownership. "My target for 12 months from now is that IT is respected for its contribution in demonstrating measurable business improvement," says Moore, adding that the solution is encouraging IT to ask why? It is "not accepting at face value that the solution of a problem needs something new implemented. Encouraging the role of super-user, demystifying IT and moving to a model where the business owner is expected to be the functional expert."

When IT moves beyond simply automating existing processes and starts to challenge the status quo, it creates opportunities for real differentiation. Ursula Silling, chief executive of XXL Solutions, points to the Swiss International Air Lines initiative to allow customers to select automated check-in when they book, so they get their boarding pass the day before their flight.

"This is true customer service and questioning old paradigms," she says. "After all, check-in is a process which does not really add value to the customer."

For the last year, since he moved from Virgin America to Aer Lingus where he is chief technology officer, Ravindra Simhambhatla has also been focused on modernising technology. The value carrier has reached the point where it makes more sense to buy an off-the-shelf PSS than build more functionality into the system developed in-house over 40 years ago.

"The whole world is changing around us; how consumers, or what we call guests, meet e-commerce. A lot of e- and m [mobile]-commerce is consumer-generated demand [rather] than supplier push. According to IATA, next year we will see in excess of 3 billion air travellers worldwide, generating hundreds of billions in revenue, so no one wants to miss that boat. It is time to modernise, to adopt new technology like [the] cloud, modernise upfront infrastructure and our application stack.

"We have to mobilise, give data to people, push data to our people when they need it and the same focus for our flyers, so our team mates and our guests can make good informed decisions about how they conduct business within or with us," he says.

INCREMENTAL STEPS

Aer Lingus is taking an incremental approach to providing data via mobile devices to pilots, flight crew and ground ops "to understand acceptance rates and what mobile brings to the table". The airline reflects the groundswell of desire across the industry to empower staff via mobile-based services on tablets.

According to the IT Trends Survey, 42% have already implemented electronic flightbags, while 36% are providing cabin crew services via tablets and 27% ground operations via the same route. By the end of 2016, this will have risen to over 70%, along with crew rostering/communications and aircraft maintenance/engineering.

Simhambhatla's vision is that not only is IT a service organisation for the rest of the business, it is also a revenue enabler. "The true benefit of IT is the ability to monetise product on the retail shelves," he says. About 83% of Aer Lingus's intake is via the online channel, "so we are already doing something right", and his target is to build an equivalent level of services on the mobile platform that can generate a channel of general airline revenue. However, his vision for monetisation is even more ambitious.

The airline is set to launch high-speed in-cabin connectivity across its European network by the middle of the year (using LiveTV's Ka-band) and Simhambhatla sees opportunities to enable revenue, beyond simply payment for access, by forging partnerships across the value chain. "Once we have uninterrupted wi-fi on board we can serve up apps for our partners, we can serve up destination apps. That's the true monetisation. And we can tie it in with in-flight entertainment and sell ads to the IFE space."

Mobile is creating an opportunity to differentiate at later stages in the passenger journey, observes Pickford. And this is reflected in industry plans for services via smart phones. Presently, only 12% of airlines charge baggage fees and 10% sell other services such as parking, car hire and hotels, according to the Trends Survey. Over the next three years these services are set to be offered by 84% and 74% respectively.

"In a world where most consumers buy tickets based on the price, ancillary services, mobile services and innovative technology solutions become opportunities for an airline to differentiate its brand," says Pickford. "New innovative services such as wi-fi on board, movies/games streamed to iPads, mobile customer interaction, baggage status, mobile boarding are all enabled by innovative technology solutions and provide the basis for airlines to differentiate their service."

EVOLVING CREATIVITY

Across the Atlantic, JetBlue's IT strategy also aims to drive customer and crew engagement as well as empowerment through mobility and self-service. The low-cost carrier is focused on driving top-line revenue growth through technology and underpinning it with a flexible IT foundation. However, take a closer look at the flexible IT foundation and you will see some canny ideas at work.

"We have focused on three areas. First, right-sizing our outsourcing by moving more work into the company has been a critical factor in our recent success. Second, we have balanced our contractor-to-crew-member ratio. We now focus more on hiring our own talent for long-term success. Third, we changed our thinking from out-of-the-box to custom solutions for the airline. Custom solutions will drive our top-line and bottom-line success," explains executive vice-president and chief information officer Eash Sundaram.

And the benefits? "We have a faster time to market process for our solutions, which are also tailored for our crew members and customers. This helps drive revenue growth and operational excellence."

The challenge for the airline that prides itself for having "IT in our DNA" is attracting the right talent in the highly competitive New York IT space. "Getting the right talent, especially in the mobile and advanced computing fields, is a significant challenge for us," admits Sundaram. The solution is to "actively network with other companies and work with our partners to fill gaps, trying to globalise our talent footprint, rather than only being local. We have a good talent management team in place at JetBlue that drives home-grown talent. We like to retain and promote from within to build our team where possible."

The goal for IT strategy at US full-service carrier American Airlines is to place customers at the heart of everything it does, to be connected to them throughout their journey and to be as efficient as possible in the way it serves them. Successes over the past year have included equipping flight attendants, pilots and maintenance technicians with tablets to give them more information and control. Passengers also have more self-determination via a mobile app giving access to flight information, check-in, boarding and seat selection as well as the ability to self-tag checked luggage using tags from a self-service kiosk.

The challenge for American and others is to keep up with consumers whose daily lives are filled with technology. "We've found that our customers and employees alike are accustomed to having the latest technology and the most user-friendly systems in their personal lives, but also want to immediately be able to use that technology to interact with American," says Patrick O'Keeffe, vice-president, airline operations technology. "This is an ongoing challenge to ensure American remains relevant both for our customers and employees as new technologies are introduced."

CROWD SOURCING

A number of airlines are turning to crowd-sourcing to add an extra sparkle to their technical innovations. At the end of 2012, JetBlue launched its ThinkUp campaign to integrate customer feedback into product development by asking customers for ideas on what its new tablet experience should look like. In June this year, American hosted an international, company-wide "hackathon" to share creative and progressive ideas. "Every employee - not just those in technology - can contribute," says O'Keeffe. "We're having developers, designers, domain experts, and anyone with a cool idea come up with fun, useful apps that can help everyone across the company. Fostering internal creativity is what drives external innovation."

Harnessing feedback from staff and customers is nothing new. Supermarket chain Tesco has been engaged in this activity for years. Yet simple as it sounds, it can be tricky for airlines to pull off successfully. Silling points out that the hierarchical structures in some airlines make it difficult to give up power. "It requires determination and drive, and cultural change to focus on people and customers - yet the win can be enormous - leveraging people skills, investing in the right areas, crowdsourcing - using employees and customers to develop new approaches."

So what next for airlines on the transformational path? The future is one where organisations are flatter and more focused on achievement. "As much as real-time customer feedback is crucial for the development of a good customer experience and customer loyalty, human resource management and performance evaluation need to change and include ongoing feedback, and social goals to develop more dynamic teams - rather than a once-a-year top-down process," says Silling.

"IT is not sustainable as a separate department any more as it cannot deliver enough value, but rather becomes a bottleneck. It needs to be much more integrated into the organisation and be present in almost every department - and every person, starting with the CEO and the board members, [needs] at least a basic understanding of information technology."