Digital Update The Airline of the Future

Airlines like Lufthansa desperately need digitization to increase revenue per passenger. Archaic computer systems stand in the way, but updating them will be a logistical nightmare.
Travelers at Frankfurt Airport. Digitization could radically streamline the flying experience. Photo: dpa

You’ve hardly entered the terminal when the app sends a notification to your smart device: your departure gate is A50, with a ten-minute wait to get through security.

But then you get word the flight is delayed, leaving you 50 minutes before boarding. You start to relax. After another message notifying you that the business lounge has only a 25-dollar entrance fee, you decide to relax even more. At the entrance to the lounge, you hold up your smartphone and the doors open.

Inside, you browse Lufthansa’s Worldshop catalogue. You consider buying perfume for your spouse, perusing the assortment until you find the one she likes. With the app, purchasing is done in an instant. The bottle will be waiting at the gate on your return flight.

This is what flying Lufthansa could soon be like. Currently, the company is pushing hard to digitize all its operations as quickly as possible. For some things, says the airline’s chief executive Carsten Spohr, the process is straightforward. This would include basic transportation between terminals. “But our core business provides an excellent foundation to develop new business models, which will hopefully yield profits.” Also, as Mr. Spohr explains, it's important not to be technologically eclipsed by other companies operating outside of your domain, like Google.

Airlines across the globe are finally arriving in the digital age, though many still appear to be in the landing process. New technology may help airlines overcome their largest looming problem: earning less and less from the core business of transporting people and goods.

In the last nine months of 2016, Lufthansa saw a 6.7 percent fall in revenue per available seat mile, the standard metric of airline efficiency. Overcapacity and still-inflated costs are depressing the earning power of the core business.

When it comes to digital revenue steams, Lufthansa's first target market is existing high-value customers.

So airlines are looking to tap other revenue sources. Above all, airline executives want to sell additional goods and services to passengers. New technologies, they hope, will tempt passengers to spend more money, more often.

For Lufthansa CEO Mr. Spohr, the first target market is existing high-value customers. Which is why last week he invited some 100 members of Lufthansa’s HON Circle, the highest status frequent flyers, to the company’s digital aviation forum at Frankfurt Airport. There, he personally outlined Lufthansa’s future digitization plans.

The idea? If top customers think it’s cool, then others will follow suit.

Indeed, hopes of additional revenue may well be fulfilled. According to a survey by Sita, an IT company specializing in air travel, 40 percent of passengers are prepared to make purchases via smartphone while waiting for their flight.

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But major hurdles remain. While Lufthansa’s app smoothly guides passengers through check-in and boarding, its tips on how to spend time at the airport are rudimentary at best. Improvements would need the cooperation of other companies, like airport operators. That makes things more complex, as operators have their own ideas about marketing to passengers.

Also, technical questions still remain. Many airlines, especially well-established ones, are burdened with outdated IT systems. “Many of the legacy carriers have very complex IT systems. Some airlines are using up to 200 different systems,” said Dirk Weigel, IBM’s head of Lufthansa services.

Last year, Delta suffered the consequences of its confusing IT infrastructure. After a power outage brought down the airline’s computers, it took days before the system was up and running again, forcing the cancellation of several thousand flights. In response, U.S. senators Richard Blumenthal and Edward J. Markey wrote to the 13 largest American airlines, asking for information on the reliability and robustness of their IT systems.

Parts of some airlines’ computer systems date back as far as the 1960s. New elements are often grafted onto these core systems, laboriously altered to work with older technology. As a result, modern computer integration protocols are often lacking.

A complete modernization is urgently needed, but hardly any airline wants to face up to the enormous cost and effort involved. “Of course, the airlines are discussing standardization, but it is a highly complex issue,” said Mr. Weigel. “All airlines are extremely reliant on functioning IT systems. In other words, a major overhaul would be like performing open heart surgery.”

For any airline, a major IT overhaul would be like open heart surgery on the company. Dirk Weigel, Head of Lufthansa services, IBM Germany

But that may be inevitable. If airlines want to extract more revenue per passenger, they have to know more about them. “Above all, it’s about a personalized approach. To do that, airlines have first to evaluate customer data better, as well as find new information sources,” said Mr. Weigel of IBM. Currently, most airlines have their customer information spread across different IT systems, which are unable to interact with each other.

Apps are undoubtedly one area of technology which airlines can improve upon. The cost of developing them is manageable, and apps can often be created without changes to the core operating systems. “But if I want to link data from core systems to the app, then I have to deal with those core systems,” said Mr. Weigel, who speaks from experience.

“Outdated IT systems present a challenge in the context of digital transformation,” admitted Lufthansa's head Mr. Spohr. This is why the company, shortly after the turn of the millennium, had already begun planning and implementing its digitization. Last year saw the replacement of the airline's old check-in process with a digital update – something no airline can get around.

“There are aspects of digitization that are simply necessary and have little to do with competitive advantage. Here, cooperation across the industry, even between competitors, would be very helpful,” Mr. Weigel points out. “Any airline not making use of digitization’s potential risks turning into a transport service provider.”

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Still, large gaps remain between digital ambition and digital reality, even at Lufthansa. In the United States, airlines such as Alaska, Delta, and American Airlines have already introduced a so-called weather waiver, which notifies passengers of the possibility of weather-related cancellations. It also allows customers to re-book or cancel their flight with their smart device at no cost. All in all, a simple and straightforward process

In contrast, during Lufthansa’s regular strikes, customers had no choice but to deal with long waits and unreachable telephone customer assistance. If only there were an app for that.

 

Jens Koenen leads Handelsblatt's coverage of the aviation and space industry. To contact the author: [email protected]