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Unisys Predicts 10 Trends That Will Drive Global Airline Industry Transformation in 2005
[December 15, 2004]

Unisys Predicts 10 Trends That Will Drive Global Airline Industry Transformation in 2005


BLUE BELL, Pa. --(Business Wire)-- Dec. 15, 2004 -- Controlling Costs is Still Top Priority, but Investments in New Technology for Improved Passenger Experience and Smoother Operations Are Also Taking a Front Seat

Transportation consultants at Unisys today unveiled a list of trends that will likely drive global airline industry transformation in 2005. While cost reduction remains a key priority, forward-looking companies are showing interest in transformation projects, which will help them become more agile and able to make faster and smarter business decisions.



To survive in 2005 and beyond, the transportation industry must continue to reduce costs and reinvest in solutions that can help them more easily and quickly respond to changes in their business, technology, and consumer-buying trends. According to Unisys: -0- *T 1. More bankruptcies are unlikely, but some legacy and smaller fringe carriers will disappear. 2. Some legacy carriers will demonstrate that they can deliver a streamlined business-traveller service offering - relying on lower unit costs and revamped hub networks - to ensure their long-term survival. 3. Legacy carriers could vanish from U.S. non-hub transcontinental markets and other non-strategic markets as they re-focus on their streamlined hub-and-spoke networks. 4. There will be more consolidation in the European airline industry in the fashion of Air France and KLM. 5. New low-cost carriers will continue to emerge around the world but the new-generation industry will continue to consolidate. 6. Low-cost transatlantic service will emerge successfully and begin to spread. 7. Airports will begin serious efforts to reduce airport costs in response to increased pressure from airlines worldwide. 8. Airports and government security agencies will continue to seek ways of streamlining passenger flows through airports. 9. Airlines and hotels will continue to increase their use of kiosks. 10. Traditional cargo carriers must adopt a new business model in order to better control prices and retain market share over the low-cost cargo carriers. *T

"While the past several years have been daunting for the air transport industry around the world, we see many signs of growth and positive transformation occurring now and well into 2005," says Olivier Houri, president and general manager, Global Transportation at Unisys. "Legacy airlines are definitely making headway in controlling costs in line with those of the low-cost airlines. The overall trend that we see as true evidence of industry recovery is the renewed focus on technologies that streamline operations, improve passenger facilitation and loyalty, and create flexibility in changing business processes, which will eventually result in lower costs."


Houri provides the following additional details on these trends:

Legacy Carriers

1.) Brighter days are ahead for the airline industry - notwithstanding continued cost pressures, more bankruptcies are unlikely, but some legacy and smaller fringe carriers will disappear. The existing North American legacy carriers not already in Chapter 11 will weather the storm. 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. Legacy airlines that do not restructure themselves will face their toughest challenges yet and continue to fail. In Europe, Alitalia is in a very difficult position in terms of being able to prosper and Swiss is in a weak position. SAS is working hard to restructure its business in order to form a new path into the future.

2.) Some legacy carriers will demonstrate that they can deliver a streamlined business-traveller service offering - relying on lower unit costs and revamped hub networks - to ensure their long-term survival. The news in 2005 will be the revival of the North American legacy carriers. With genuinely low costs, restructured balance sheets and smartly revised network and product strategies, they will be able to shine. At the same time, new-generation airlines will suffer from growing pains and, particularly for start-ups, face limited availability of new aircraft. On service strategy, for example, United Airlines has begun to shift service on two routes from twin-aisle Boeing 767s, seating 168 passengers to single-aisle Boeing 757s, re-configured to seat 110 passengers in three classes. This demonstrates that the legacy carriers are re-thinking the fundamentals of their service offerings and looking to capitalize on the "differences" vis-a-vis the new-generation airlines that they can bring to the market. 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 re-focus on their streamlined hub-and-spoke networks. The U.S. legacy airlines are fighting for market share in the face of losses, and the low-cost airlines are finding markets that make money. It has become increasingly difficult for legacy carriers to compete profitably on the traditional transcontinental routes not core to their networks. The obvious lesson taught by the successful hub-and-spoke carriers - that networks matter - will finally be learned by the teachers.

4.) There will be more consolidation in the European airline industry in the fashion of Air France and KLM. Not every country needs a national flag airline any more than every U.S. state needs a hometown airline. Europe is not 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. Furthermore, 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.

Low-Cost/New-Generation Carriers

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 of them will fail or be absorbed by more successful low-cost airlines, just as Ryanair bought Buzz and easyJet bought Go in the UK and Continental Europe market. "Wanna-be" new-generation airlines that do not have strong management teams, strategies, and finances will be squashed by competition from legacy carriers and other new airlines. However, it is 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. Department of Transportation.

6.) Low-cost transatlantic service will emerge successfully and begin to spread. High-cost legacy carriers will discover that there is no permanent safety from low-cost competition in the international markets. Low-cost transatlantic 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. Its spread to other markets, such as Amsterdam, will be more rapid.

Airports

7.) Airports will begin serious efforts to reduce airport costs in response to increased pressure from airlines worldwide. In addition to creating lower cost facilities specifically for low-cost airlines - a strategy that Singapore Changi Airport is implementing - airports will begin to unbundle their services and the resulting charges so that airlines can select and pay only for those services that are required. This unbundled treatment of airport services can reduce costs to airlines, identify unwanted airport services which can then be eliminated, and reward airlines for more efficient use of airport facilities. For example, the longer the waiting time at a gate, the more it costs an airline. The more daily operations at a gate, fewer gates are needed and infrastructure costs are reduced. The first unbundling efforts are likely to begin in the Asia-Pacific region.

8.) Airports and government security agencies will continue to seek ways of streamlining passenger flows through airports. 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. As a result, 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. For example, the U.S. Transportation Security Administration's Registered Traveler pilot program (biometric-based) has more enrolees than originally expected because it provides a convenience and time savings to the usually harried passenger.

Technology Driving Change

9.) Airlines and hotels will continue to increase their use of kiosks. Airlines, passenger rail companies and hotels will increase their investments into more self-service kiosks. However, to get the cost savings and increases in efficiency, they must make sure the kiosks are easy to use for a wide variety of patrons. Airlines have been enjoying the increased efficiency of check-in kiosks, and passengers have as well. 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. Although some aspects of the air cargo market - notably price/demand elasticity - are not the same as for the passenger market, a solid business model can be built using low-cost carrier principles. 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-Airwaybill 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.

About Unisys in the Transportation Industry

Unisys has been a full-service provider to the transportation industry worldwide for 50 years. Unisys offers planning, consulting, solution development, application implementation and operations support services in the areas of security, passenger services, airport services, logistics, maintenance and engineering, hospitality, and financial analysis. Unisys counts more than 200 airlines, more than 100 airports and many top logistics organizations around the globe as its clients. Through its unique 3-D Visible Enterprise methodology, Unisys enables its transportation clients to find solutions to challenges by seeing every process, interaction and application that might be affected by prospective business decisions. For more information, please visit http://www.unisys.com/transportation.

About Unisys

Unisys is a worldwide information technology services and solutions company. Our people combine expertise in consulting, systems integration, outsourcing, infrastructure and server technology with precision thinking and relentless execution to help clients, in more than 100 countries, quickly and efficiently achieve competitive advantage. For more information, visit www.unisys.com.

RELEASE NO.: 1215/8481

http://www.unisys.com/about__unisys/news_a_events/12158481.htm

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