Industry Trends

March 1, 2005
Unisys Exec Says Controlling Costs Remain Atop the List, but Technology a Top Priority

To survive in 2005 and beyond, the transportation industry must continue to reduce costs and reinvest in solutions that can help more easily and quickly respond to changes in business, technology, and consumer buying trends. Forward-looking companies are showing an interest in

transformation projects that will help them become more agile, able to make faster and smarter business decisions. That?s the word from Unisys, which recently conducted a study of the industry to come up with ten industry trends, outlined here.


1) More bankruptcies are unlikely, but some legacy and smaller fringe carriers will disappear.

Consumers will soon begin to see the fruits of airlines? restructuring efforts as unit costs, excluding fuel, plummet and the offering of low fares day-in and day-out become sustainable. In other parts of the world, the worst is already over.

2)Some legacy carriers will demonstrate that they can deliver a streamlined business traveler service offering, relying on lower unit costs and revamped hub networks, to ensure their long-term survival.

With genuinely low costs, restructured balance sheets, and smartly revised network and product strategies, they will be able to shine. New generation airlines will suffer from growing pains and, particularly for start-ups, face limited availability of new aircraft. These newly-restructured U.S. legacy carriers will be able to bring their low costs and new products to international long-haul European and Asia-Pacific markets as well as to domestic markets, placing increasing financial pressure on their foreign competitors.

3) Legacy carriers could vanish from U.S. non-hub transcontinental markets and other non-strategic markets as they refocus on their streamlined hub-and-spoke networks.

These newly-restructured U.S. legacy carriers will be able to bring low costs and new products to international European and Asia-Pacific markets as well as to domestic markets, placing increasing financial pressure on foreign competitors.

4) There will be more consolidation in the European airline industry, ala Air France and KLM.

Europe isn?t large enough to support dozens of legacy carriers and the rules of the European Union make it possible for airlines to expand beyond their borders. The negotiating stance of the European Commission has made it clear that they see aviation as a union-wide, not a national, enterprise. Consolidation like in the Air France/KLM model will allow the emergence of a handful of successful, Europe-based global airlines.

5) New low-cost carriers will continue to emerge around the world, including in China and India, but the new-generation industry will continue to consolidate.

This is because many will fail or be absorbed by more successful low-cost airlines, just as Ryanair bought Buzz and easyJet bought Go in the U.K. and Continental Europe markets. New-generation airlines that don?t have strong management teams, strategies, and finances will be squashed by competition from legacy carriers and other new airlines. It?s unlikely that planned start-up Virgin America will begin service in 2005 or even by late 2006 due to the issues surrounding foreign ownership control. Eventually, they should be approved by the U.S. DOT.

6) Low-cost trans-Atlantic service will emerge and begin to spread.

Low-cost trans-Atlantic service will emerge, perhaps in 2005 or soon thereafter, probably first between the U.S. East Coast and London Stansted Airport ? and it will be successful. The spread to other markets, such as Amsterdam, will be more rapid.


7) Airports will begin serious efforts to reduce airport costs in response to increased pressure from airlines worldwide.

Airports will begin to unbundle their services and related charges so airlines can select and pay only for services required. Unbundling can reduce costs to airlines, identify unwanted airport services, and reward airlines for more efficient use of airport facilities. The first unbundling efforts are likely to begin in the Asia-Pacific region.

8) Airports and government security agencies will continue to seek ways to streamline passenger flows.

The security-conscious public is becoming more accepting of identity/biometric technologies and will therefore bring more timely and accurate intelligence to the security-focused regulators. Thus, regulators will swing their focus toward analysis and airfield operations. Travelers will be empowered with ever-greater personal communications technologies and will thus favor industry providers and regulatory incentives with customer-centric solutions.


9) Airlines and hotels will continue to increase their use of kiosks.

Airlines and passengers are enjoying the increased efficiency of check-in kiosks. To take it even further, airports and airlines will likely benefit the most from Common-Use Self-Service (CUSS) kiosks since the technology is non-proprietary by airline and airports can install them wherever they are needed the most, regardless of airline.

10) Traditional cargo carriers will need to adopt a new business model in order to better control prices and retain market share over the low-cost cargo carriers.

Many traditional carriers are adopting one or some of the following practices and they will continue to do so: using the Internet to drive lower distribution costs; using the e-Airway bill to remove carrier and 3PL process costs and realign shipper responsibilities and liabilities; using Document Imaging services to remove the costs of handling paper; using RFID and EPC code technology to enable electronic audit, pedigree and cargo security and to automate item-level tracking with lower process costs; and continuing to use new technology to drive change ? as soon as the benefit case exists.