IT COS HOPE TO RIDE OUT AVIATION TURBULENCE

Adith Charlie, Mumbai
The Hindu Business Line

Indian IT firms say that despite turbulent times for the global aviation sector, their airline clients are only changing priorities on technology investments and are not cutting down on IT budgets.

This means that anything that improves efficiency is in. But investments in projects that require a high investment upfront or where there is no guarantee of immediate savings are out.

“Even though corporate earnings are under pressure, airlines will never curtail investments in technology projects as they are closely linked to safety, security and other operational aspects. If they do so, their airworthiness will be adversely impacted and it will send out the wrong message to customers,” said Kapil Arora, Partner – Aviation Sector, Ernst & Young.

There is a parallel that industry watchers draw to the slowdown that happened in 2000.

Though airlines were affected by events following 9/11 and the dotcom meltdown, the average IT budget of these companies has always remained above 2 per cent (of individual company revenues), said Reji George, Global Head, TTHL Practice of Hexaware Technologies. This year, IT budgets are expected to be in the range of 2 to 3 per cent at least till the end of this year, say analysts.

Indian IT firms provide services related to customer solutions (integrated IT and BPO), development and maintenance of reservation systems and airline cargo systems, and fares filing, among others.

Today, the balance sheets of aviation companies are bleeding because of high crude prices. Airline companies in the US and India alone are collectively expected to report losses of around $10 billion this year.

All these factors have compelled airline companies to realign their IT budgets with a singular focus on cutting costs. IT projects, which involve automation of manual processes, will immediately get the go ahead, as manual systems tend to be expensive and time consuming.

In India, the opportunity to capitalise on the pro-IT outlook is huge, especially as airline companies are set to do away with the five per cent commission paid to travel agents on ticket bookings. IT companies could leverage this opportunity to help in strengthening the e-ticketing infrastructure, said Arora. By cutting the commission to travel agents, the Indian airline industry will save between Rs 1,000 crore and Rs 1,500 crore annually.

Today, fuel and staff costs collectively account for 60 per cent of an airline’s overall costs. “While fuel prices are beyond control, deploying effective optimisation software can reduce staff costs by a minimum of 10 per cent,” V.K. Mathews, Chairman and CEO, IBS Group, said.

Currently, nobody would like to risk savings by reducing the IT spend, said Mathews. Moreover, “bread and butter” areas such as application and product development as well as maintenance and support, will not see a cut in IT funding, as they have a direct impact on the operations of an airline.

However, projects that do not guarantee immediate cost cutting and the ones that involve high upfront payment will be put on hold, said Vipul Jain, CEO & MD, Kale Consultants. Similarly, re-engineering projects that will yield tangible results only after a couple of years are strictly out of favour, said Jain.

George feels that the projects that could be put on the back burner include adoption of radio-frequency identification (for cargo and baggage tracking), investments in biometry for identity management and 2D bar-coding for boarding.