Under the Simplifying the Business theme, IATA is developing an ambitious series of initiatives aimed at saving airlines time and money
A few years from now the industry may look back at IATA's 60th annual general meeting (AGM) in Singapore last year as a watershed. At the June 2004 gathering, IATA director general Giovanni Bisignani spoke of how airlines, having survived an unprecedented series of shocks, should now look to move beyond firefighting to build sound industry structures that could withstand the cycles and crises that regularly rock the airline world.
In Singapore, IATA won airline backing for an agenda to improve efficiency and reduce costs. It was an aggressive programme, covering safety, security, relationships with industry partners and the role of governments.
Additionally, the agenda had a sharp practical edge as the association sought to lead carriers in developing simpler commercial processes. All the projects in the Simplifying the Business (StB) campaign are related to improving basic elements of the traveller's journey, from reservation to boarding and baggage reclaim, while also cutting through the expensive legacy of complex systems. IATA shortlisted five ideas out of 22 produced by an expert airline group as the top priorities: e-ticketing, common use self-service check-in kiosks (CUSS), barcode standards, radio frequency identification (RFID) of baggage and a study into automated interlining.
At this year's AGM in Tokyo in late May, IATA will report on how far it has come. StB is a major undertaking and one with targets that are much more aggressive and business-focused than the association has been used to. "It is great that IATA has stepped forward and put some financial targets that it feels the industry needs to achieve and that they are going to be accountable for," says Peter Buecking, president of SITA, one of the organisations helping the programme more forward.
The StB project has an annual budget of $7 million and IATA is recruiting a team of 35 to lead the various groups. "In the last six months we decided that this is the scale we need to get the job done," says Tom Murphy, head of IATA's industry distribution and financial services division, who oversees the work of the project. IATA has put more than two-thirds of the StB team in place, but is already searching for a new overall leader following a parting of the ways with industry veteran Bill Diffenderffer, who had joined from IBM in January. In the meantime the effort is being co-ordinated by interim project director Philippe Bruyère.
By far the largest of the five projects is the introduction of global electronic ticketing. "It is about 80% of our focus," says Murphy. The aim is for the industry to completely eliminate paper tickets by the end of 2007. Around a fifth of carriers are already well advanced towards bringing in e-tickets, representing about 80% of world traffic, he explains.
Judging by the number of tickets handled by IATA's Billing and Settlement Plan, by the end of 2004 an encouraging 13% were e-tickets, says Murphy. This jumped to over a quarter by the end of February and is targeted to reach 40% by year-end.
The savings from e-ticketing are substantial. Paper tickets cost up to $10 each to process; an e-ticket costs just $1. The main problem with e-ticketing is that while major carriers and the three global alliances have embraced the technology, there are hundreds of airlines that have not yet done so. "There are about 400 airlines that really don't have the ability to drive e-ticketing forward," says Bruyère.
Accordingly, IATA has embarked on a global mission to spread the e-ticketing message to its members. "Our first job is education," explains Bruyère. By the end of April, every one of the 400 carriers that need assistance had received a visit by an IATA representative to explain the importance of the StB campaign and specifically to give support on e-ticketing. "We are also asking each airline to nominate an StB project champion," he says. This person will co-ordinate a carrier's activities in each of the five areas and liaise with IATA.
"Local action is very important as implementation and execution will be the key to successfully bringing in e-ticketing," says Bruyère. In addition to setting up the StB project team, IATA has trained 130 staff to provide carriers with first-level support on the ground.
IATA's educational efforts are especially aimed at carriers from Africa and Latin America where e-ticketing is generally in its infancy. All have a vested interest in moving fast. "Carriers will, for example, begin to see a rapid escalation in the cost of handling paper," says Murphy. Today, around 300 million paper tickets are issued annually. This number will drop quickly as e-ticketing rises. "Then our ability to bulk-buy tickets will be reduced. At around 50 million tickets, that cost becomes much higher."
Furthermore, as e-tickets spread, airlines that do not issue them will find an increasing number of carriers with which they cannot do business. These so-called Green carriers, as IATA dubs those that have implemented full e-ticketing, "simply will not be able to issue tickets", says Murphy. Carriers without e-ticketing will lose their interline connections with those that have it.
In parallel with the roll-out of its StB awareness campaign, IATA is identifying suppliers that can provide technical solutions to implement e-ticketing, says Murphy. "Our job is that of a marriage broker and we will announce our partners at the AGM." SITA, which already works with IATA on e-ticketing, believes that community-wide solutions are the way to go, offering a more cost-effective result, says Buecking.
As it seeks to set standards and then steer carriers to an appropriate technical solution, IATA is also examining how it could help carriers in developing nations with financing. "We are looking at how suppliers could provide creative financing and recover their investment from transaction fees," says Murphy. There could even be a mechanism for IATA to underwrite the investment.
Apart from the issue of implementing e-tickets by the 2007 deadline, the issue of interlining is a problem for all carriers, big and small. Again, IATA will reveal the potential technical solutions to solve this problem at the AGM, but talks with the alliances and major global distribution systems are under way. "The board asked us to build an interline connection between alliances and build that on to the rest of the industry," says Murphy. "Once all the alliances are connected, that covers the bulk of the world and 70% of the interline problem." The alliances are progressing well on interline e-ticketing and will have it in place by year-end.
IATA's second StB project is to promote the use of CUSS kiosks at airports. At present, although self-service kiosks have become a common sight over the past decade at many airports, they are almost exclusively dedicated to individual carriers. IATA has developed a CUSS standard that will allow airlines to share kiosks and enable passengers to enjoy the same convenience as they have with bank automatic teller machines (ATM).
With a technical solution in place, IATA is now working with airlines and suppliers on a common interface for CUSS. This includes discussions with the banking community to consult on how it approaches ATM design, says Murphy. The target is to present the result of its work in October.
During this year's AGM, IATA will announce memoranda of understanding (MoU) with several airports on CUSS. "Our vision is to have MoUs that would take us a stage further in terms of commitment to CUSS and to identify IATA's role," says Murphy. To date, only a few, such as Athens, Las Vegas, Tokyo Narita and Vancouver have installed CUSS kiosks. Several more airports will commit to installing CUSS, he says. "There is a growing recognition that it's the way to go." Apart from the customer benefits, the savings are significant. The cost of handling a passenger drops from an average of $3.70 for checking in at a manned counter to just 16¢ for a check-in using a CUSS terminal.
While CUSS and e-ticketing gather momentum, the use of RFID tags to improve baggage handling efficiency is not moving as fast. The technology was dealt a blow recently when RFID champion Delta Air Lines, citing cost reasons, cancelled plans to roll it out across North America by 2007.
Despite the Delta setback, IATA is pressing ahead with its RFID work, including the development of a non-proprietary standard for the use of the technology in the airline world. "The payback on RFID is still not 100% clear," says Murphy, "but everybody believes it is the right thing to do."
Several operational tests, all using standardised methodology, will begin soon with Air France at Paris Charles de Gaulle, Japan Airlines at Narita and KLM at Amsterdam Schiphol, with others being added shortly. The testing will continue to show how it can work in the airport environment and improve the baggage-handling process. More critically, work will continue on trying to gain a clearer picture on the cost benefits. At present, the industry simply knows that each mishandled bag costs on average $100.
Progress on the Barcode Standards project within StB is more easily charted than RFID. Worried about the proliferation of multiple standards, IATA has developed a global standard for boarding pass barcodes. Now its task is to promote the standard, says Bruyère.
Barcoded documents will replace ATB boarding passes with their magnetic strip technology, offering greater reliability and fewer mechanical issues. With the move to a paperless ticketing environment by the end of 2007, the adoption of barcodes has to be well ahead of e-ticketing, says Murphy.
But the barcoding standard goes much further. "The ultimate benefit is in the ability of travellers to print boarding cards at home," he says, and avoid check-in queues altogether. Some carriers, such as Alaska Airlines and British Airways, already offer this service.
Originally, the fifth StB project was a study into developing common processes for automated interlining. This has proved "very challenging because it changes airline back-office processes, and it is very difficult to get a consensus on this", says Murphy. IATA will continue examining this area, but has replaced the project within StB with one on Paperless Cargo.
With potential cost savings of $1.2 billion a year, the board's decision in December to develop a project designed to eliminate paper documents from cargo transport seems a logical move. And this estimate only covers the savings made by the airline community, with savings made by shippers and forwarders boosting this amount considerably. The potential is clear: today there are 25 sheets of paper that accompany a cargo assignment and the cost of processing this paper is around $35. The aim is to eliminate costly duplication, accelerating processing times and improving data quality.
The first step in the Paperless Cargo project has seen an airline steering group formed to develop the vision for a single technical solution to move the business forward. This group includes the heads of cargo for British Airways, Cargolux, Emirates, FedEx Express, Lufthansa and Singapore Airlines. A major element of this project will be the creation of a cargo data exchange to act as a single industry information database. Later in the year IATA plans to issue a request for proposals to find a supplier to develop this service, says Murphy. The target for eliminating paper from the cargo process is 2010, with a fast-track programme to enable those ready to move forward earlier by 2007.
In total, the industry stands to save billions from these five projects, with the results really beginning to be felt as e-ticketing gathers pace in the next couple of years. For the next two years, IATA is focused on achieving results before it moves to new projects. "We have built up a high level of expectation and we need to deliver," says Murphy.
IATA's five top priorities Electronic ticketing Aim To eliminate paper tickets by the end of 200 Saving Up to $3 billion annually Status By the end of February, 26% of all tickets issued through IATA's Billing and Settlement Plan were electronic
Common-Use Self-Service (CUSS) kiosks Aim To increase the number of airports using common kiosks Saving Up to $3.50 per checked passenger Status IATA poised to sign memoranda of understanding with several airports to implement CUSS
Radio frequency identification (RFID) Aim To simplify baggage handling by implementing RFID bag tracking Saving Not yet quantified Status Pilot tests and payback studies under way
Barcode Standards Aim Barcodes to replace magnetic-stripe technology on tickets and boarding passes Saving Reduction of 50-60% in paper costs, 40% reduction in equipment replacement costs Status Barcode standard defined
Paperless cargo Aim To eliminate paper cargo shipment documents by 2010 Saving $1.2 billion annually for the airline industry Status Project plan under way?
MARK PILLING LONDON
Source: Airline Business