Airlines' IT spending drops

Testing times in the airline industry are leading to significant cuts in technology spending

IT and telecoms spending by airlines has fallen in the past year as the pressure to cut costs continues, according to the annual industry survey.

The Airline IT Trends Survey 2004 by industry body SITA and Airline Business magazine found investment in IT fell from 2.4 per cent of revenues to 2.1 per cent of revenues. Given that many airlines are also struggling with falling revenues, the level of overall investment is down even further.

But Paul Coby, CIO of British Airways and chairman of SITA Group, maintained IT is still strategic to the future of the airline industry.

"The fall in investment reflects the enormous pressures to reduce costs across the airline industry," he said in a statement. "But it's not how much you spend, it's what you do with IT that matters. Aligning IT spending tightly to strategic business objectives is the only way to ensure that IT delivers the returns the airline industry demands."

Short-term projects with proven cost savings are the top priority for 50 per cent of the 109 airline CIOs questioned, while cost cutting looks set to boost the number of airlines outsourcing their IT. A lack of investment (61 per cent) and a lack of skilled IT people (55 per cent) were cited as the major obstacles to progress.

The number of airlines outsourcing the majority of their IT systems will double by 2006 to more than 20 per cent, although half of the overall respondents think these systems are still core to the business and should remain in-house.

Outsourcing of general business applications is a growth area and is set to grow by 23 per cent in the next two years.

But the survey also shows that 60 per cent expect increased budgets next year, and highlighted areas for investment. By the end of this year, over two-thirds said the majority of their systems and sites will be IP-enabled and this is set to be completed across the industry by 2006.

Skills in demand this year in airline IT will be Web systems application development (80 per cent), customer relationship management skills (65 per cent) and IT strategy skills (65 per cent). But there will be a fall in demand for legacy-systems support staff.

One area of technology set to become standard on flights is SMS and Web surfing. By 2007 a third of airlines will offer a range of cabin connectivity services.