You do not have to be a financial analyst to work out that airlines are going through pretty rough times at the moment. Soaring oil prices are increasing the cost base of airlines far in excess of any additional revenue that they can generate to compensate, particularly when there is a consumer squeeze and increased costs in other parts of the business. It really is a "perfect storm" of challenges to the industry.
Weathering the Storm
If it is not easy to raise additional revenue, the only other alternative for airlines is to further reduce costs. Although a lot of airlines, particularly in the low-cost sector, have a much lower cost base than their legacy compatriots, this does not mean that significant opportunities to further reduce cost do not exist.
A lot of airlines emerged in the past 10 to 15 years, and are only now starting to break out of the start-up mentality of new businesses. As a result, processes and IT systems are often designed for far smaller volumes than firms now have to deal with. To compensate for this, manual processes are rife, and there is a reliance on dated and costly off-the-shelf systems that used to be the staple diet of the industry. It is in this area that IT departments can really make the difference.
Innovate before it is too late
If airlines are going to survive, they are going to have to start cutting costs and improving revenues - quickly. There is a lot that IT can do to optimise the way the business operates, particularly in the arena of crewing and pricing to ensure that they are getting the most out of these large cost bases.
The advent of concepts such as software as a service can undoubtedly do a lot to help the agility of airlines, and help them to start to move away from costly legacy systems. By utilising more specialised systems that are fit for a particular purpose, developed in-house or bought off the shelf, airlines can significantly reduce their baseline costs, and as a result free up capital for investing in more innovative systems.
Darwinian law applies
What is clear is that in the next 12 months, a number of airlines will go out of business, and plenty more will scale back their operations significantly. The brave few that see this as an opportunity to invest in IT more heavily will come out on top. Once you start looking at investments in IT, however big, against the cost saving or return on investment, most airlines will be looking at pretty big numbers. They just have to have the nerve to go against their better judgement of unilaterally reigning in the spending.
Those that survive the cull will be leaner, more efficient organisations, with smart IT systems on current technologies. The simple low-cost airline of the 1990s is no more. The new era will bring in smart, innovative IT enterprises able to adapt to the changing landscape.
Paul Curtis is head of application architecture at easyJet
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