In the currently fragile global economic environment made all the more challenging by a barrage of seemingly ever changing regulations, air cargo carriers need to be at the top of their game. But many carriers still rely on old, cumbersome and rigid IT systems for managing their cargo business. For IBS Software, reluctance to switch over to next generation cargo management systems potentially puts carriers at a competitive disadvantage. Donald Urquhart reports from Mumbai.
There are a number of less than desirable, immutable truths about the air cargo industry – the most obvious and vital one – it’s a business with razor thin margins. If ever in doubt, one need only look at International Air Transport Association (IATA) figures for both passengers and cargo – for 2011 an estimated global profit of US$6.9 billion with an overall margin of just 1.2 per cent and the forecast for 2012 even more dismal with profits dropping to as low as $3.5 billion and a paltry net margin of 0.6 per cent.
And while this is certainly a low point in the industry, the forces now buffeting the industry are not going to go away anytime soon. Security, fuel prices, over-capacity, predatory pricing, ash clouds, the list goes on and on. “There are also significant economic financial disruptions that are happening, from the Euro-zone to unrest in the Middle East,” notes IBS Software’s CEO Rajiv Shah. And although the passenger side has always had more attention focused on it, with margins under severe pressure more focus has been placed on cargo as a revenue generator, he adds.
“Whether it be security, or fuel prices, or waiting for the next iPhone to pick up cargo volumes, the industry tends to keep us on our toes by not really knowing what’s coming next,” Sankalp Saxena, president of Aviation Operation Services at IBS Software Services wryly notes. It is he observes, an industry typified not just by its extremely low margins, but one deeply scored by a “high degree of complex challenges that are provided by operating in a global landscape that requires us to do business in a borderless state in one sense and to do so efficiently, predictably and most importantly, profitably on the other.”
Saxena goes on to argue that in light of these key defining features it’s important to consider that, especially when compared to other modes of transportation, “that 1.2 per cent margin can be extremely transformational in driving bottom line profitability of companies.”
“There are so many changes that are happening in the market place that require new ways of thinking and new sets of technologies,” adds Shah.
But new ways of thinking require information and in today’s world that means technology. Saxena notes that the true value of information for a business is only realized “when it’s transformational power is unleashed by the right technology.”
For Saxena there is no point in looking back at past months performance, or what the trend has been for the last three months because it not going to give the best indication of what is coming ahead. “We need to be driving our business today with information that is available, that is current and lets us steer our ship looking forward at where we want to take our business, vis-a-viz looking at the rear view mirror and trying to drive a car that way.”
“I believe our industry has enough volatility and we’ve seen it over several cycles, that you clearly want to be equipped with fresh information that’s available on demand, on a platform of your choice as and when you want it.” With this, companies can realise nonlinear growth that results in efficiency gains and ultimately financial benefits, he argues. “If you’re not current and agile, you’re dead, you’re obsolete,” he warns.
The rigidity of legacy
“One of the biggest things we’ve seen in the air cargo market is the replacement opportunity for legacy systems and this has been hyperaccelerated in recent years based on that razor thin margin opportunity that exists and the ability to then transform that against the new business requirements and business models that have evolved in the industry,” he says.
These legacy IT systems – including those developed in-house – are estimated by IBS to still be so prevalent across the industry that between 70-90 per cent of major carriers are still using them. Typically these systems are 10-15 years old – in IT terms nothing less than antiquated – and lack the flexibility to meet the rapidly changing environment of today’s air cargo industry.
As IBS VP for Cargo, Murray Kidd points out, the rapidly evolving marketplace means significant customisation is needed in the legacy systems to keep up. “It’s costly because it’s old technology and if you want to make a process change you need to change the system whereas the process should be changed and the system should adapt to that change.”
There’s a very strong resonance in the market, Saxena says, with companies increasingly finding that they are not getting the desired effect of using these “fragmented or fissured, piecemeal solutions.”
“The cost of ownership of so many heterogeneous solutions to connect the dots is very, very high,” he says adding that even higher is the cost of obsolescence of any one of those particular solutions. “It’s only as sustainable as the weakest link in that chain,” he notes.
Indeed, what he describes as the rigidity of obsolete technology is a key driver for moving away from legacy systems. The lack of flexibility creates divergent views between what business users needs are and what the legacy system can provide.
The cost of obsolescence can also be seen in the competitive disadvantage such systems place companies in, in terms of being able to harness or leverage any of the new market drivers that are coming out in the industry. “You can have the best of ideas, but your product may not support it because you were baked in cement and kind of tossed over the wall,” he adds.
These legacy systems – often developed in-house – came about for a host of reasons, in part because many companies in the early days strove to be different which resulted in a lot of customisation. And with each passing world event change, regulatory change, need to enter new markets, etc, these legacy systems need to be customised further. “And this is why they are finding it difficult with legacy systems – either they spend significant amounts of money on operations, maintenance and changing requirements that all make the system a mess. It is better for them to move to a new platform,” says Shah.
“Now people are finding they want to get onto a product base that gives a homogenious platform that you can extend or adapt. It gives you a runway, or a lifeline for future-proofing your investment in the product,” Saxena adds. “There is absolutely no denying that these legacy systems were the right choice in their time, but you must ask the honest question: ‘Are you getting the business benefit from the cost of maintaining it?’.”
Resistance to change
But change is always a difficult proposition, particularly when dealing with something as core as an airline’s cargo management system. “There is a high degree of inertia at times in our industry when we look at replacing some of the systems that have been in use across the business community for a number of years or decades or what have you,” Saxena notes.
On one hand there is the business community with their requirements and constraints and there’s the IT community with theirs and “marrying up the two we believe is extremely possible and more so, we believe is extremely lucrative in terms of the end results it can generate for companies.”
A large part of the problem says Shah, is that because the industry is so process driven, it becomes an issue of changing mindsets. “The people side of the technology process is a bigger challenge than just the technology,” he says. But the desire to change is there, driven by underlying frustration from most of the major carrier that the business can only be driven by the system, rather that the business driving the changes.
There are and have been a number of key transformations taking place within the IT space that have far reaching impacts on the enterprise solution environment, says Saxena. Some are premised around the so-called ‘cloud’ technology. While not a particularly new concept, the ‘cloud’ in Saxena’s previous days at Oracle for instance, was known as ‘apps on taps,’ – turn on the app and your application is online for you.
Today’s cloud concept and offering is quite different. “Certainly there’s been a migration from ‘apps on taps’ – from software being provided as a service to thereafter transforming the system to having a platform based capability. The platform, Saxena explains, enables you to couple-on different components, as and when your requirements become apparent for those needs “and this can be very, very differentiating for the customers.”
This concept marks the ongoing evolution in the enterprise solutions market which has seen client-servers in the earlier days and islands of applications, all holding out the promise of ‘plug and play’ connectivity – something that never quite lived up to its promise.
The mobility factor
Another key driver of this enterprise transformation is that of ultra mobile personal computing, or UMPCs in the jargon. These UMPCs are becoming very pervasive notes Saxena. “We’ve got location-based services, we’ve got nearfield communications devices – but netnet, all the jargon aside we’re effectively becoming the tablet generation.”
“Touch has become the most common medium when you want to access information. You want it on demand through your iPhone or through your tablet, it has now become a very pervasive and effective medium based on the provisioning of over-the-air technologies.”
“High speed data protocols now available on the 3G and 4G formats make these mediums extremely potent today,” he says. No longer are we coupled to the desktop computer at our workspace or even laptop. “We have clearly absolved ourselves of being chained down to a given workspace cluster by being able to access information on demand, by being able to have the over-air technologies pervasive and being able to carry very high amounts of data in a fraction of a second.”
Next gen HTML
Another key development on the Internet-side has been the development of next generation protocols like HTML5, or what is effectively ‘smart HTML’. Combined with the mobility aspect, the HTML5 protocol provides a very powerful tool. As Saxena details, the protocol doesn’t require you to embed an application on a device. Instead it provides the ability to access information from a central source syndicated on demand to the users who are authorised to use it and maintain all your other updates on a non-client, server-based protocol.
“This is effectively zero client architecture on mobile devices and it will become, in our judgment, the defacto standard in the industry because it has a lot of other advantages when you look at scaling up the number of touch points, or number of users you need to manage.” But Saxena emphasises that HTML5 is not simply putting the Internet on mobile by only shrinking a website and re-rendering it for a tablet or mobile device. “This is intelligent applications,” he says.
“We’re one of the early adopters of HTML5 and that’s given us a lot of conviction about where HTML5 can get to.” In his view some people are jumping the gun by going with imbedded applications, citing the example of a network of 300 users, for instance. If everyone has an embedded application on their phone and an upgrade is needed, it becomes troublesome. “It’s the same thing as the old client server days, the only thing different is, it’s been shrunk. The efficiency is just not there,” he adds. Alongside this evolution of HTML has been the growing power of Java, which has emerged as a “very strong and enabled backbone that has credibility not only in the cargo arena for enterprise solutions, but across all sorts of different industries.”
And this is where IBS’ key product offering for the air cargo industry comes into the picture. The iCargo solution, tapping the latest HTML5, Java and 3/4G mobile technologies, is an end-toend, next generation cargo management solution that covers all the key areas of an air cargo carrier’s business.
The solution is process and workflow driven, whereby the user can configure processes or workflows which will adapt the system for changing needs. Because it does not involve doing hard coding, but rather simple changing of the configuration to enable it to behave differently, the solution is far more adaptable and flexible for today’s changing environment.
“We generalise the requirements and make it configurable within the system. It may only be a variation of a requirement already in place compared to a completely new requirement,” he adds.
Another key feature of the solution is event triggers which are configurable triggers that get the users attention to allow him to go straight to the issue at hand, rather than mining through the data to find the issue.
“It’s managing by exception using configurable thresholds, so each carrier can set up whatever they would like depending on their ecosystem and their landscape,” says Saxena. “It becomes very powerful because the user is not trying to fish out what could be a potential problem, because the system has drawn their attention to it and they can resolve that and see how it propogates through the entire network.”
Another advanced and unique feature of the software, allows the user a set of circumstances in which shipments can be rated up front. So before the flight actually leaves a carrier has a business plan right down to the flight deck for each day, month or year and they will know what revenue has been built for that flight.
“So when you’re building up the flight you actually see the revenue before the flight actually takes off – that way you can mix and match to get to the target which helps you manage your budget for the year by reaching a target on a per flight basis,” says Kidd. Very few systems do the rating upfront as it’s usually done back end, he adds, “but now the CEO can come in the morning and find out exactly what revenue he made yesterday on the flight.
“It’s a good tool particularly when yields are so tight and you want to maximise the uplift and the revenue for that particular flight,” he says, adding that a carrier might not want to do it for every flight, but the key sectors with heavy passenger loads and less belly cargo capacity might be ideal, for instance.
From legacy to cloud
But is it a big step for a carrier to move from a legacy system? “Yes, but the way the platform is architected you don’t have to go for the ‘big bang’, it does not necessarily have to be a ‘ripand- replace’ strategy. The solution set is extremely modular – the fact it is built on a common platform you don’t have to put bandaids, or integration links that are loosely coupled, it literally couples-in very well.”
IBS normally recommends a phased approach for the top-tier solution which involves a large-scale legacy replacement. For the mid-tier market the cloud offering can get companies up and running in as little as eight weeks. And at the lowest-tier IBS also offers a light solution. The group also actively engages end-users in the product development with a Core Group of Influence (CGI) which feeds back on the solution’s performance.
Customers for its cargo solutions include Air New Zealand, All Nippon Airways, Austrian Cargo, Avient Cargo, CargoJet, IndiGo, Kingfisher Airlines, Nippon Cargo Airlines, Northern Air Cargo, South African, Qantas and Tokyo International Air Cargo Terminal (TIACT).
Saxen cites the example of Qantas freight, which made the transformation from a legacy Unisys USAS (Unisys Standard Airline System) to the next generation iCargo platform. It was a complex project he notes, but “clearly a project that delivered tremendous value for them.” It involved a host of stations and systems that needed to be brought onto a common platform and Saxena notes that Qantas has been able to “drive and hyper-accelerate what we believe will be non-linear growth in the airline and cargo space specifically, with the solution enabling them to be highly agile, extremely forward looking and have visibility into their ecosystem to drive those results.”
“As part of this change the industry is going through – whether you want to call it an econmic downturn, or recession – clients are more willing to look at alternative business models.” While the earlier model was to operate with software licenses, Shah says for a company like IBS with a flexible model, “we are in a better position to adapt to a new set of business conditions and requirements and make them almost cost neutral,” he says.
“It’s an issue of operational costs versus capital costs. With no capital cost you can operationalise your costs and amortise them on a month-to-month basis,” Saxena says, adding the group is “bullish” on iCargo’s prospects despite the industry downturn. “It’s a good trend we’re seeing, the pipelines are healthy and I don’t think there is any slowdown in the pipeline we have and the projects we are pursuing.
“There is obviously a delay in decision making because people think twice, people need to get more sets of approval, they need a better, stronger story in terms of investment and they need to justify to more people than previously. From that perspective there is a delay in decision making but at the same time I don’t think there is an opportunity that has been taken away from the table.”
He also notes that in boom times the cost of complacency is low. “What is your catalyst if you are still making three or four per cent margins, but in times of recession then you’re really looking for any and all optimisations.”