Good Morning. Thank you for that kind introduction. It is a pleasure to be returning to the Air Transport IT Summit.
This year we are celebrating the 100th anniversary of the first scheduled commercial flight, which took place between St. Petersburg and Tampa, Florida on 1 January 1914. From a single airplane, a single pilot and a single passenger, commercial aviation has evolved into the global air transport system that will safely connect some 3.3 billion travelers and 52 million tonnes of air cargo in 2014 with nearly 100,000 flights per day.
This activity drives economic growth, creates jobs and facilitates business opportunities. Aviation’s annual economic impact is estimated at $2.4 trillion and it supports 3.4% of global GDP. By value, over a third of goods traded internationally are delivered by air and some 58.1 million jobs are supported by aviation.
Aviation has transformed the globe but we are still a young industry, with plenty of potential. Unlocking that potential depends to a very large degree on using IT effectively to provide our customers with a travel experience that delivers even greater value for the money they spend. I think this plays nicely into the theme of this year’s IT Summit, “More Ground to Break.”
We certainly have More Ground to Break when it comes to airline financial performance. This year we expect airlines to achieve a collective global net profit of $18 billion. That sounds impressive. But on revenues of $746 billion it is a net profit margin of just 2.4%. That’s less than $6 per passenger.
The good news is that profits are improving. Our average return on invested capital today is 5.4%—up from 1.4% in 2008. But we are still far from earning the 7-8% cost of capital that investors would expect. Moreover, airlines are the least profitable segment of the air transport value chain, while other segments consistently generate good returns for their investors.
So, to sum up, we are doing better than in the past, although we are not where we need to be. With a few years of profits under their belts, airlines are able to make investments in new kit. US airlines, for example, are spending almost $1 billion a month in upgrades such as new aircraft, airport lounges, cabin interiors and onboard Wi-Fi.
But we hardly are in a position simply to throw cash at problems. When airlines invest in IT, it cannot be just for the sake of having the latest, greatest systems. It’s got to be focused on value. That means improving our product to serve our customers better. And of course that is directly linked to business benefits.
And I should emphasize that we need to keep our customers happy, so they want to return. We are competing with other modes of transport and an array of lifestyle activities, after all. Many in this room are IT people and the window through which you naturally see the business is about how IT can be used to automate manual processes and improve efficiency--both important to IATA members. But that needs to be linked to what it means for the customer.
While I know that today we are concentrating on the passenger experience, let’s not forget the cargo side of the business is also ready for some customer-focused IT innovation. We have set a goal of reducing air freight transit times 48 hours by 2020. This won’t be easy, but we simply have to up our game in order to keep air cargo competitive with alternatives.
We must always remember that we fly people and cargo, not planes. So our mindset has to be oriented to view things from the perspective of the customer in all that we do—including how we design, integrate and implement IT systems.
We certainly see this occurring outside of aviation—just look at companies like Uber, AirBnB, Pandora and Open Table that created new market niches by identifying consumer needs and meeting them using existing and emerging IT. Because of that, they became very popular very quickly. There are lessons here both in terms of the power of creative customer-focused thinking and the speed-to-market with which innovations are being introduced.
There are some significant opportunities to create a better experience for air travelers through re-engineering the processes and procedures affecting them. But if we really want to impact our customers, we need to be willing to step out from behind the counter and see things through their eyes.
For example, travelers evaluate their experience on how they got from A to B. Yet, the mindset of the industry is to break that into discrete processes—many of which do not talk to or link with each other. At IATA, we are spending a lot of time focusing on trying to smooth out the end-to-end experience based on globally-agreed upon standards and cooperation with our stakeholder partners.
Since taking on this job almost three years ago, I have emphasized the importance of coming together as an industry to address our major challenges. Partnerships were critical to driving aviation’s success over its first century, of which IATA’s relationship with SITA is an excellent example. Our joint WorldTracer product is just one example of that relationship. And note that we named the product WorldTracer. Ours is a global business that can only be served through global standards. We could not function as an industry if we needed to develop bespoke systems for each airport or destination. The 100,000 flights that will operate today can do so only because the rules are basically the same across their networks.
Today, I would like to focus on three areas where through working together, guided by global standards, we have opportunities to Break More Ground to use IT to provide a better passenger experience. In doing so, we will deliver greater value in commercial aviation’s second century.
These areas are:
- How we distribute our products
- The airport environment
- Data standards for information exchange
Everything begins with the shopping experience. The most successful brands—whether they are fast food chains or five star hotel groups--aim to deliver a predictable and consistently pleasant shopping experience. In the case of air travel, the simple truth is we can’t always do that…yet.
It is no secret that airlines and travelers struggle with the limitations of the pre-internet language that powers most travel agent and online travel agency displays. And remember: travel agents sell about 60% of our tickets by value, so they are an extremely important constituency.
These limitations that we face are apparent in three main areas:
- Beyond price and schedule, travel agents are not able to offer product differentiation among airlines, except on a limited and airline-specific basis
- Speed to market of new airline products is very slow
- Personalization and customization is very limited
Airline websites, on the other hand, use modern internet-based technology created in XML. This provides much more capability and a faster pace of innovation. On an airline website, you may have access to a wide range of add-ons and fare packages, as well as a richer and more agile shopping experience. This can include product descriptions with pictures and even video. And you can be recognized and even rewarded by providing your frequent flyer number.
That probably helps to explain why two-thirds of travelers usually choose to buy their ancillary services (such as seat upgrades, extra baggage allowances and priority check-in) via airline websites, according to our 2013 Global Passenger Survey.
To address this growing gap and ensure consumers have the ability to access and compare all of an airline’s products and services wherever they shop, we are working with our partners in the travel value chain on the New Distribution Capability (NDC). NDC will update the standard for electronic communications between airlines and travel agents from the pre-Internet standard to XML.
It’s true that Global Distribution Systems (GDSs) are moving in the same general direction with products aimed at supporting distribution of full, rich airline content to travel agents. However, each GDS has developed these products using proprietary standards, rather than the open and global standard being offered by NDC.
When I spoke here in 2012, the NDC standard still was on the drawing board. Now we are deep into the testing phase of the program. We have launched seven pilots in the past 12 months and announced four more at the beginning of June. Last November, in one such pilot, the Chinese online travel agency CTBA issued the very first e-ticket resulting from an NDC-based shopping transaction through the China TravelSky GDS.
We achieved another major milestone a month ago, when the United States Department of Transportation (DOT) granted Tentative Approval to IATA Resolution 787, which is the foundation document for NDC. In its decision, DOT stated that “Comparison shopping under the current system is generally limited strictly to comparing fares, and it is difficult to make price quality comparisons of different carriers’ product offerings.”
DOT further agreed that “the modernized communication standards and protocols and the marketing innovations that Resolution 787 could facilitate would be procompetitive and in the public interest.”
I could not have said it better myself!
So where do we go from here? We expect final DOT approval of Resolution 787 this summer. In the same timeframe, we will have a revised set of shopping schemas which benefitted from what we learned in the 2013 pilots.
We will also publish a first version of “end-to-end” schemas permitting any airline to test the full NDC vision covering shopping, booking, payment, ticketing and settlement. We anticipate further pilots and initial adoption in 2015, leading to full scale deployment in 2016. So we are looking for more pilot volunteers, airlines and IT providers—particularly from Asia-Pacific and Latin America—to create even more momentum.
I want to emphasize that the NDC standard is very much a collaborative effort involving the GDS, travel agent, and travel technology communities, with whom we engage on a regular basis. The NDC schemas themselves are the outcome of the Distribution Data Exchange Working Group, which is composed of 70-plus volunteers representing airlines, agents, GDSs, technology companies and independent experts. This is typical of the partnership approach to delivering an industry standard. And given the level of engagement, this speed of delivery is quite remarkable.
It’s also important to stress that IATA is 100% committed to the core principles of Resolution 787 including protecting anonymous shopping for air travelers, compatibility of existing data standards with the NDC standard and the voluntary nature of the NDC standard.
Concurrently with NDC, we are modernizing the back-office functions associated with airline ancillary offerings through the IATA e-Services project. This replaces all paper miscellaneous documents with the global IATA Electronic Miscellaneous Document (EMD) standard. An EMD is an electronic record of the sale and use of lounge access, preferred seat, excess baggage, or other such products or services. Passengers benefit because EMDs enable simpler billing, delivery, and accounting for ancillary purchases.
As we move forward with NDC and IATA e-Services, we are convinced there is More Ground to Break in transforming the purchase and fulfillment processes. For example, when the industry moved from paper to e-tickets, we did not re-engineer the processes; we merely automated them. Our customers welcome the convenience of e-tickets. I believe they would like it even better if they had a single ticket/receipt instead of a separate reservation (the Passenger Name Record) and ticketing (the sales record) that need to be synchronized to reflect a customer order.
This is not something that one airline or one supplier can develop. It will require common standards and broad acceptance. And we need our IT suppliers, who think about automation, to think more about how we can simplify our customers’ buying experience.
The airport environment
NDC and IATA e-Services are both part of the Simplifying the Business (StB) program that is celebrating its tenth anniversary in 2014. For passengers, the benefits of StB are most evident in things such as e-tickets, bar-coded boarding passes that can be printed at home, and self-serve check-in kiosks.
We know that our customers want to be able to do more things for themselves because they’ve told us so. Two-thirds of travelers would prefer to check-in online or automatically by receiving a text message or email from the airline. Only 11% prefer to receive their boarding passes from an agent at an airport check-in counter. This is according to our Global Passenger Survey which also found that 63% would prefer a self-boarding gate to board the aircraft, rather than the current procedure.
So why not get out of their way and let them do it at their own pace and convenience?
That’s the premise behind Fast Travel, which responds to passenger demands for a more seamless travel experience and more control through six time-saving, self-service options. They are:
- Self-check-in and/or automatic check-in
- Document check
- Flight re-booking
- Bag recovery
What is IATA’s role? We don’t process passengers or baggage; we don’t build the systems or hardware or IT infrastructure to support Fast Travel. What we do is to:
- Create standards required to allow the industry to develop self-service solutions
- Engage with regulators on the acceptance of new technologies
- Facilitate the implementation of shared infrastructure where it makes sense
- Drive the implementation of the program where it is cost-effective
For 2014, our target is to implement Fast Travel projects covering 27% of eligible passengers. This will require a significant acceleration from the current figure of 17.5%. Clearly we can’t do this by ourselves. It will require airlines, airports, and IT providers working together to make it happen.
We need your support. By 2020, we want 80% of passengers to be offered a complete self-service suite based on industry standards.
While we work to give passengers more control over their journey, we also need to stay focused on areas where we have More Ground to Break. I’d like to provide two examples of how we are working with our industry partners to smooth out the bumps and potholes.
The first is Innovation in Baggage, or InBag. In Bag follows our very successful Baggage Improvement Program (BIP) that concluded in 2012 and contributed to a 50% reduction in baggage mishandling, based on SITA data. Whereas the BIP focused on improving handling at individual airports, InBag is aimed at addressing the fundamental causes of mishandling and aims at improving baggage processes efficiency for 99% of the bags that are correctly handled.
By 2020, InBag aims to reduce the percentage of mishandled bags worldwide from 1% to 0.5% and to elevate efficiency to 20% in five key baggage areas: check-in, security, manual handling, arrivals, and transfers. InBag will also enable innovation in making such products as a baggage delivery service widespread and in introducing modern standards for communications and systems design.
A second project is Smart Security. The Smart Security vision is to improve security, and remove the hassle, so that passengers proceed through security checkpoints with a minimum of queuing and disrobing. Queuing time is listed most frequently as the most frustrating element of the security screening process by 34% of air travelers, followed by removing shoes and belts.
With Smart Security, resources will be allocated based on risk and airport facilities will be optimized.
This year we will conduct airport trials with Smart Security components and assess the impact on operational efficiency, the passenger experience, and security effectiveness. These pilots will take place at Amsterdam Schiphol, London Heathrow, and our newest participant, Hamad International Airport in Doha.
A key driver for Smart Security will be collaboration with Airports Council International (ACI). IATA and ACI signed a Memorandum of Understanding in 2013. Aside from Smart Security, the MoU covers projects that will drive improvements in airport throughput capacity and efficiency as well as improvements in cyber security.
We are very excited by all of these efforts and we are relying on our industry partners like ACI and SITA to help move them forward. But we have More Ground to Break in terms of working together as an industry--including regulators. With modern technology advancing rapidly, we find ever more new services we can provide to passengers, yet we cannot always implement them because regulations are not keeping pace. An example is home-printed bag tags. The standards have been defined and the technology has proven itself. Now regulations have to catch up in many parts of the globe in order for large scale implementation to occur.
Data Standards for Information Exchange
Getting to a seamless journey requires many different systems to be able to communicate information, something that is not always the case today. Gaps exist between airline and air traffic management systems, for example. And gaps can even occur among the systems used within a single airline if those systems use different standards. If all industry used the same definitions (or mapped their respective definitions without gaps), passengers would have a smoother experience and it would cost the industry less. It also would make it easier for hotels, car hire companies and other travel partners to interact with airlines because they will better understand how to talk to the airlines—in computer terms.
IATA’s Industry Data Model will provide the technology to avoid information gaps. Structured information will be available in an electronic repository for all to see and use. It will store industry-agreed vocabulary, data definitions and their relationships, as well as the related business requirements.
The resulting standards will be easier to implement for our members and as a bonus, since the individual “parts” will be available, the industry can use them as building blocks to their own systems. Think about it as a repository of standardized parts needed to build many different automobiles. From time to time a custom-designed part may be required, but often you can reuse what you have and this is what the Model facilitates.
In sum, the Industry Data Model will be used as a common point of reference to generate messaging standards that work with each other much better, are faster to develop, and easier to implement.
As is the case with all IATA standards development activities, the project relies on resources from airlines and other industry stakeholders. Along with airlines, I want to invite our stakeholder partners to contribute existing data models and/or business architecture models.
Commercial aviation has come a long way since that very first flight 100 years ago. And the importance of IT to our industry has increased with each passing decade. In identifying the areas where we have More Ground to Break, I hope I have not sounded discouraged--far from it. I am an enormous optimist when it comes to aviation and our ability to overcome challenges. All of us should be proud of the part we are playing to make aviation’s second century even brighter than the first.