By Joshua Norrid, Industry VP, Travel and Leisure, Progress Software
According to recent figures released by the International Air Transport Association (IATA), industry profit forecasts so far for 2011 will drop 54% from $8.6 billion to $4 billion, with the recent spike in jet-fuel prices being cited as the key reason.
If the IATA’s recent profitability forecast has shown us anything, considerable changes need to be made if the current slide in profitability is to be reversed. The international trade body also suggested that we could see a drop in year-on-year profitability of as much as 78% in 2011, underlining the fact that the need to cut operational expenses across the industry has never been more pressing. Of course, there are several ways to achieve this, and we’re already seeing the airlines industry looking to slash maintenance budgets and reduce distribution coasts.
The problem is that a variety of global pressures are driving this need to cut costs, which, in turn, means that growth can be difficult to achieve. Certainly, low-cost airlines seem to have an advantage in this respect, as their comparative size makes it easier to undercut their larger rivals in terms of price; but it’s also true that they find it easier to drive growth by forming strategic alliances, which allow them to broaden their offering.
Alliances in the industry are not a new concept, and it’s become commonplace to see an extended travel itinerary containing two or three different carriers. However, what’s less well known is that in order for these alliances to work, IT systems owned by the operators must be integrated to allow them to share all relevant information, such as reservation details or baggage retrieval. The trouble is that many of the larger airlines have large, complicated legacy IT infrastructures, which can take years to integrate into other processes.
Low-cost airlines, on the other hand, tend to have more streamlined processes, which makes it easier for them to manage data and integrate systems which means growth is much more achievable.
It seems clear to me that, in the coming years, we’ll see more established players turning to more responsive software which can work alongside existing processes to drive down the time it takes to integrate processes. Clearly, the lesson for major airlines is that simplified, uncomplicated IT processes can open the doorway to growth – and help them to remain competitive.