THE AVIATION INDUSTRY faces multiple challenges to remain profitable and stay ahead in business. Escalating fuel bills, the threat of a US slowdown, environmental responsibilities and customers demanding more for less are increasing cost pressures in the competitive global environment.
IT and associated infrastructure form the backbone for any airline both in terms of cost management and of providing a competitive advantage for customer services. Airlines generally tend to spend between 2% and 4% of annual revenues in this area. With increasing pressure on margins, using IT in cost-effective ways while maintaining high-quality services has become imperative. E-commerce can help airlines through distribution channels and customer services such as online check-in, booking and travel management.
A recent study by McKinsey Global Institute shows that the potential cost saving from a typical global sourcing engagement is about 45% to 55%. Global sourcing with a focus on business transformation can add another 15% to 22% in savings. This has become a key growth imperative and effective competitive strategy for airlines.
As per SITA's "2007 Airlines Survey," airlines plan to further outsource IT functions in voice communication, desktop and application management, data center operations and MRO. Major IT investment will be in the areas where there are proven paybacks or return on investment, improvement in business processes and enhanced customer services and experience.
In the past, customers used to think twice before embarking on global sourcing models because of the lack of transparency and choice of selection parameters. Now airlines can choose from sourcing models like Captive Units, Build-Operate-Transfer, Joint Venture, Dedicated Development Center and Dual Shore Centers based on various selection parameters like ROI, startup costs, level of management control, IP protection and exit policy.
Successful partnerships call for common vision and strategy, flexibility, adaptation to changing industry dynamics, the ability to retain the best talent and handle attrition through effective knowledge management, risk assumption from the executive to the operations level, innovation and leadership in technology solutions. Vendor performance can be managed effectively using risk and reward strategies with tools like a business scorecard, which is aligned to an organization's goals, objectives, targets and key initiatives.
Carriers like British Airways are clearly ahead of their competitors because they've adopted IT outsourcing as a key strategy to gain business leadership. Major success factors include a motivated team with clear roles and responsibilities, effective leadership that can align staff with a diversified cultural background to project goals and objectives, a well-defined communication process and governance model and the ability to provide value to a customer's business through innovations and process evaluation and consulting engagement (PEACE).
One way to achieve this is to set up an offshore development center that can provide maximum value and address current and future needs. Airlines that have not yet engaged in global sourcing can begin with Application Development & Maintenance for nonmission-critical functions, HRMS and time tracking, resource management, Loyalty, promotions and CRM applications, Agency applications, Helpdesk, Business Process Management and back-office operations like Contact Center, Queues Management and Infrastructure and Hosting services.
Large airlines are increasingly adopting global sourcing models and low-cost airlines are beginning to recognize the advantages of this technology as well. The fact that airline domain is showing a preference for global sourcing service providers also supports this prospect. Indeed, to compete more effectively in a challenging environment, this opportunity is more of a necessity than a luxury.
Mahesh Shastry is the global vertical head for travel, transportation and logistics at NIIT Technologies.