Airlines are struggling to balance necessary strategic IT investment and overall cost-cutting as they face the recession, according to speakers at the SITA Air Transport IT Summit in Cannes this week.
A major revelation to come out of the conference was that BA had shelved a planned company-wide ERP project.
Airline investment in IT is set to reach a new low this year as airlines cope with huge financial losses, according to the 2009 Airline IT Trends Survey, sponsored by airline IT industry body SITA and Airline Business magazine.
Delegates at the SITA Air Transport IT Summit heard that IT and telecommunications operating spend as a percentage of airline revenue is forecast to be just 1.7 per cent, the lowest level recorded since 2002.
Airlines are seeking to reduce costs against a backdrop of $10.4bn in losses last year and an IATA forecast of $9 billion in losses this year.
Many airlines are in "survival mode", said the survey, with 72 per cent intending to renegotiate IT supplier contracts and 70 per cent planning to invest in systems that lower overall enterprise costs.
Most airlines have already put in place measures such as rationalisation of IT suppliers, IT infrastructure consolidation, reduced head count and outsourcing.
Paul Coby, SITA chairman and chief information officer at British Airways, said: "The drop in IT investment by airlines is a direct response to the $80 billion in revenue that is expected to disappear this year from falling passenger demand. For the first time in several years, there will be a year-on-year decline in IT spend. The focus everywhere is on doing even more with even less."
But Coby was keen to stress that IT was seen by airlines as an essential tool to help them get out of the mess. "Used well and effectively IT will cut costs and protect revenues," he said. "IT has already accomplished a great deal in reducing distribution costs and expanding self-service functionality."
Coby said technnology growth areas over the next three areas included IP telephony, service oriented architecture, software-as-a-service, Web 2.0, cloud computing, data security and biometrics.
BA cuts ERP
At a press conference, British Airways revealed it had shelved plans to roll-out a company-wide ERP system because it doesn't want to spend cash in the face of a recession.
British Airways chief executive Willie Walsh told reporters the time wasn't right for such a major IT project.
At the same summit last year, BA's Coby said the airline was planning the move to help it cope with increasingly tighter margins in the air industry. The system would have been one of the biggest ERP-deployments in Europe.
But Walsh said: "We have delayed this decision because of the financial situation we face. We want to conserve cash as cash is king at the moment."
Walsh said BA would consider such a system, along with other big cash hungry projects in around two years time, when hopefully the economic turmoil had died down. "From 2011 we will consider these types of investment," said Walsh.
BA was originally planning to choose an ERP provider for the company-wide project by the end of last year. SAP and Oracle were possibly in poll position. SAP provides an ERP system for BA's engineering, and Oracle provides ERP for BA's HR.
The ERP project isn't the only IT expenditure to be affected by the recession. Walsh said only new planes in the future would be fitted with equipment to allow passengers to make voice phone calls and access data services with their own devices.
Walsh said there wasn't much call from passengers at the moment for voice access, anyway. They were more interested in data access, he said.
The airline's new premium-only service from London City Airport to New York will offer passengers mobile SMS and BlackBerry support. This route uses new planes.
OnAir said Ryanair had signed up to use the system on 50 of its planes.
Tying up Iberia
BA is interested in taking over Spanish flag carrier Iberia, which has struggled for years to stay afloat.
The two airlines already have code sharing agreements and use each others staff at airports. Walsh said BA and Iberia "will get together over time".
He said consolidating BA's and Iberia's IT systems into one would be a priority when trying to save on costs and improving customer service.
Out of 40,000 BA staff, Walsh said 7,000 had so far volunteered to save the struggling airline cash by agreeing to work for free for a month, work part-time, take unpaid holidays or other cash-saving options.
Of these, he wouldn't say how many in the IT department had volunteered. Out of the 7,000, 800 are working for nothing. Walsh led the way by volunteering to work unpaid for a month.
"With my pay I know I can easily do it," he said. "I didn't expect everyone to do the same, but I think it's fair to expect all staff to make some sort of contribution."
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