Picking up the pace

With IATA’s e-ticketing initiative drawing to a close, Bryan Wilson discusses the savings for airlines that convert and the costs for those that fail to.

If 2005 was the year of mobilisation for IATA’s 100% electronic ticketing project, 2006 is the year of acceleration, and for good reason. Less than two years remain before IATA turns off the flow of paper tickets to its 60,000 accredited travel agents around the world. By the end of 2007, airlines that aren’t fully converted will have to distribute paper tickets on their own at a high cost. They will also risk losing interline revenues from carriers that have made the transition to ET.

‘Simplifying the Business’ was launched with the full support of IATA’s Board of Governors and AGM in May 2004. The genesis of the programme stems from the industry’s need to cut costs in a harsh and rapidly changing environment. It is also derived from Air Transport’s reliance on standards and complex procedures built up over the past 50 years. Many of these processes are costly and fail to take advantage of newer technologies. The five projects under the StB umbrella are designed to leverage technology to enhance service and contribute US$6.5 billion in annual industry savings through process change. Of that, US$3 billion is associated with the switch from paper to ET.

In that context, airlines are embracing the ET opportunity. The fact that the so called ‘low cost carriers’ are not burdened by equivalent paper-based practices is added incentive.While some airlines see technology change as a real challenge, the vast majority recognise the need to move forward. In this day and age, standing still is not an option; the momentum for change is building.

Building momentum

Last year, IATA’s biggest challenge was to send a clear signal that the move to 100% ET was the ‘real deal’. That meant getting it onto the top of the ‘To Do’ lists at every airline.With the approaching deadline and buy-in of airline CEOs, IATA had a burning platform that served as a catalyst to ramp up activity with ET-capable airlines and stir ET-dormant carriers into action.At the same time, there was a need to grease the wheels by developing a support model that could help carriers without ET get underway. This took the form of a comprehensive website, hands-on ET workshops, an ET buddy system to share ET expertise between airlines, active assistance by IATA experts and much more.

The end result is that ET market penetration almost doubled in a year as big airlines have surged forward with implementation. The industry reached its 2005 target of 40 per cent ET penetration in our BSPs in November. Aside from the industry imperative, progress has been driven by growing customer acceptance. Travellers in mature markets have seen electronic ticketing as a step forward. This, in turn, created the momentum for some smaller airlines to move rapidly towards 100%, where ET was already being used across their sales and route networks.

Moreover, the success of ET reflects the commitment of airlines to implement projects that are a win for themselves (better service, lower costs), a win for agents (removing logistical complexity and associated costs) and win for passengers (eliminating lost tickets and the need to collect paper tickets and avoiding the stress of queues at airport ticket desks). Good products sell themselves.

Cracking the ET puzzle

Now the bar has been raised. To deliver 70 per cent ET by the end of 2006, the industry faces a different type of challenge. Whereas the average monthly increase in ET penetration during 2005 was 1.3 per cent, that rate must virtually double for the industry to meet its target.

To a certain extent, the low hanging fruit has been picked. We now have to crack the more difficult parts of the ET puzzle. That includes quickly addressing airlines whose systems don’t support ET or that have not prioritised ET, countries with regulatory hurdles, airports where ground handlers are choosing to ignore ET, interline electronic ticketing and inevitably those customers or agents who may still be resistant to going electronic.

Some of these hurdles are more ponderous than others. Regulatory obstacles, for example, are proving to be more surmountable that initially thought. Several States have legislation that requires a paper ticket to be issued to the customer for air travel. Governments must understand that allowing an electronic ticket to be issued and kept by the airline whilst providing an itinerary receipt to the passenger, fulfils the same need. Other countries have fiscal procedures that currently make use of paper tickets for receipts or foreign currency control. Some require the ticket for security procedures at airports.We believe there are fairly simple workarounds for these problems. However, airlines, regional airline associations and IATA have to make the right representations to Governments. The key argument is that if the rest of the world is moving to 100 % ET, why can’t this country as well?

Ground handling service providers are somewhat more problematic, particularly those that use systems that are currently not able to handle electronic ticketing. Airlines are continuing to pressure their providers to address any shortfalls. Those ground handlers that don’t make the adjustment, may well find themselves with a rapidly shrinking client list. IATA will be working with those handlers and airports to ensure that flights can continue to be handled to the satisfaction of airlines and passengers.

For airlines running their own systems, especially those that are smaller and have not maintained a regular stream of upgrades to support ET component technology, an ET upgrade seems a large and expensive project. However, unlike large airlines that have made significant investments in system development, smaller carriers tend to use industry system providers that can spread the ET cost across many customers.Accordingly, IATA has signed memoranda of understanding with seven leading solution providers to help airlines with the conversion.

Interline ET agreements are another area of focus. Over the years, many airlines have gradually increased the number of interline agreements to the point where some large airlines have amassed well in excess of 200. But, the recent reduction in interline agreements by some carriers has occurred independent of ET. Some airlines, for example Aer Lingus, have reduced their number of partners or actively prioritised some partners over others. This is almost always true for airlines in an alliance. The stated reasons reflect a desire to consolidate partnerships in general and a realisation that it is not cost effective to build and maintain interline relationships for low traffic volumes.

IATA’s analysis confirms that airlines can carry the vast majority of their existing interline passengers with only a small proportion of their interline partners. The 80:20 rule seems to apply. If airlines choose to only implement IET agreements with their preferred partners, they will still support the majority of the interline activity today.

A strong case for picking up the pace

Running an airline continually requires investment – in people, planes and processes. The returns from implementing ET are significant.Apart from the obvious savings in areas like paper stock and printers, airlines must consider how ET moves them towards cheaper distribution channels and self-service for passengers at airports.

The cost to an airline of not implementing ET is also an important consideration.Without ET, airlines will need to distribute their own paper tickets and they will inevitably lose the majority of interline traffic as other airlines will simply be unable to accept paper from 2008. In a nutshell, there is a saving to implementing ET and a cost to not implementing. Each on its own would likely more than justify the business case.

This year IATA intends to build upon the relationships developed with the ET managers at every single airline in the world. Over the past year, IATA has collected extensive data detailing the progress that carriers have made in rolling out electronic ticketing including interline ET agreements.We intend to keep a regular channel of communication with all 350 airlines around the world that use IATA Billing Settlement Plans (BSPs) via our network of100 IATA country managers, who have been well briefed on the essentials of ET. Depending upon the feedback received, IATA will respond with more expert advice on how to move forward, or help where airlines have problems with third parties.

Meeting our targets will not be easy, but the growing realisation of the benefits that ET offers and continued industry commitment to deliver, make them achievable.

Bryan Wilson

Bryan Wilson began his career with British Airways, where he worked for 26 years in both IT and Strategy, starting his career in Operational Research and finishing with six years in charge of the BA route network and a further two years as the CIO. He has subsequently worked for SITA in Geneva as SVP for Applications Services, providing systems and aircraft communications to more than 170 airlines. Prior to joining IATA in April 2005, he had been an independent IT and Transportation consultant.