Tech innovations set to transform Aviation Tech innovations set to transform Aviation

The aviation industry has embraced opportunities with technology and data to drive customer focused innovation over the last decade. The next phase of this trend is delivering genuine data-driven insights in finance and operational functions according to Kieran O’Brien and Brendan Crowley of KPMG in Ireland.

In recent years the aviation industry has used data to improve the customer experience, impacting on highly visible processes such as loyalty programs, targeted booking systems, automated check-ins and apps.  These changes are all highly visible but back-office functions and strategic decision making offer the next round of innovation.

While customers may have benefitted, airlines and lessors are increasingly asking the question of themselves as to whether they are making the best use of data for their own decision making, profitability and cost control. Kieran O’Brien says that there are continuing challenges with siloed datasets, changing business plans and legacy technology. These factors have inhibited organisations in utilising data to drive performance and data-driven insights.  Furthermore the capital intensive nature of the industry can swiftly punish poor decision making as evidenced by recent airline failures in both Europe and the United States. 

Airlines and Lessors are increasingly focused on integrating their data-sets across Finance teams, Maintenance teams, Contracts Management teams and HR. Whilst the use of data warehouses and data lakes has increased, the key challenge is ensuring that you have the tools to provide the right insights and the ability to run scenarios and deep dive on questions.

In the Leasing Industry competition is forcing Lessors to be both innovative and strategic with how they structure their contracts, account for credit risk, manage their maintenance programs and make key trading decisions. While companies are getting to grips with data quality and integrity, there is still a distance to travel to utilise that data effectively for the C-suite. We have seen other industries utilize Enterprise Performance Management (“EPM”), not just to provide access to data but to provide real insight and the ability to run scenarios and push driver based planning into the hands of the C-Suite. This must be the next step for the aviation industry to fully utilise the power of data.

We examine below some of the trends shaping the Aviation Industry.

The aviation industry is making rapid strides with the digitalisation of its data.

Maintenance records, contract management and asset specifications are at the forefront of this revolution.

• In the medium term our clients are looking towards Optical Character Recognition (OCR) to automatically digitalise their paperwork and turn this into a data-set that can be analysed. Brendan says that this technology already exists for established contracts with structured data. The next challenge is harnessing Artificial Intelligence (AI) to interpret bespoke amendments. KPMG has partnered with IBM and is leveraging its Watson technology with clients and applying lessons from other industries to analyse lease contracts.
• Longer term the aviation industry will change its processes to fully remove the need for paperwork. Smart contracts will be immediately interpreted and field agents will rely on digital signatures.
• A new wave of start-ups are already pre-empting the advent of full digitalisation and are encouraging all market participants to share their data for mutual benefit.

Kieran says that digitalisation is transforming operational efficiency from an art into a science.

• Airlines are using AI to produce analysis on fuel efficiency and cost savings, breaking down digital boundaries between data-sets to identify correlations that may otherwise be hidden.
• More traditional activity based costing initiatives and benchmarking continues to make strides by having access to more relevant data. Executives should never underestimate the power of harnessing comprehensive data-sets and applying established techniques using new technology.
• We have already started to see this trend in fuel saving through predictive analytics for airlines and lessors using robotics to drive operational efficiencies and integrate legacy systems.                   

Airline customers have seen huge benefits from getting access to real time information. Delta Airlines is continuing to position itself as an industry leader with innovative online baggage tracking software for customers. Aircraft tracking and customer relationship software are now the norm in the industry.

However back-office functions across many industries, including aviation, have still to realise the benefits from these innovations.

• The aviation industry has been hit with a number of airline collapses in 2019 that have raised questions about the effectiveness of financial planning and analysis (FP&A) functions. The speed of such collapses clearly surprised many of the executives in these companies with mixed messages contributing to a sense of a company not in control of its data or business plan.
• Aviation companies are proficient at evaluating individual opportunities but fail to monitor how such opportunities evolve over time, in favour of macro level performance indicators. Real time reporting will allow executives to monitor their performance and take corrective action before it is too late. 
• Real time reporting can also help executives understand the limitations in their current approach when they compare the realisation of their forecasts with their predictions. “What-if analysis” can account for factors outside of their control and can help to remove “market forces” and “fuel prices” being used as reasons to avoid engagement in real assessments. 

The opening up of datasets to management encourages them to frame their own questions and discover their own answers.

• EPM systems encourage collaboration among teams, and put structure on processes and procedures. In addition, “drag and drop reporting” provides an invaluable resource to management by allowing them create their own bespoke reports instead of relying on their IT teams.
• The key to unlocking real insights is choosing tools with a full range of capabilities including workflow, visualisation, automated controls etc. 
• Drill down reporting, automated alerts and access to transactional level detail democratises data and means that underlying trends and patterns can be identified and challenged.
• KPMG’s “Powered Enterprise” solution provides an effective framework and technology platform for organisations looking to bring their Finance functions into the 21th century.

The IATA published a whitepaper in October 2018 entitled “Blockchain in aviation”, identifying 5 applications for the aviation industry as follows:

• Smart contracts: The codification of terms and conditions and neutral confirmation sources can revolutionise a typical “procure to pay” service delivery mechanism;
• Certification: Certification of maintenance events, and individuals can be streamlined and monitored in realtime; 
• Tokenisation: Digital assets and liabilities can contribute to automated reporting and accounting;
• Provenance: Asset and status tracking can be facilitated via Blockchain and can create an immutable history; and
• Digital identity: Identity management solutions and authentication software are facilitated by blockchain technology.

We are already seeing clients “dipping their toe” into blockchain solutions like Singapore’s frequent flyer program.

Kieran notes that while there continue to be some scepticism in the industry about the applications of blockchain, we continue to see the development of the technology and the emergence of specific Blockchain companies focused on aviation. To truly benefit from this technology quickly we will need consensus within the industry regarding data standards and consistency. Blockchain is encouraging executives to “think big” and that can only be a good thing. If a different technology can better solve the problem then this should be embraced.

As airlines, lessors and service providers grow in scale and the data available to inform their decisions becomes increasingly vast, executives are challenged with focusing their attentions on where it is most important.

• Exception reporting allows management to set thresholds, limits, watch-items and receive automated alerts when these are breached. Has an aircraft held its value to the point that it no longer becomes economically viable for a lessor to continue to lease it? An effective decision making engine will prompt management to consider a trading decision before a more arbitrary “annual review” comes up.
• Rules based engines are an incredibly effective means of tapping into a company’s intellective property and knowledge base. It encourages leaders to evaluate how they make decisions and document their thought process for the benefit of other future executives and the company good.
• Trading decisions require detailed analysis for both airlines and lessors. Airlines need to evaluate new technology and the benefit that it brings.

Having distributed models, decision support tools and certification and procedural software streamlines administration activities for field users. It also provides real-time data to management in head office and avoids needless paperwork.

The aviation industry is a unique ecosystem of participants encompassing airports, regulators, airlines, manufacturers, lessors, MROs and numerous service providers.

Brendan argues that cost efficiency, safety and regulatory requirements are accelerating the trend towards sharing of digital records and that once this trend is established participants will be encouraged to conform, as with the upcoming GATS initiative, which KPMG has had the privilege of supporting on a number of fronts.

However there are challenges with the vision of a fully integrated ecosystem.

• Participants worry about the obligations imposed on them with having access to too much information. Could a third party have been more alert to warning-signs and come forward to regulators with concerns? 
• Is there an obligation on participants to analyse the data if it is available?
• In Europe there are GDPR considerations around customer data and cross-border data sharing challenges.
• Brendan identifies disparate technology solutions as one of the key roadblocks to achieving this vision. He believes that industry bodies have a key role to play in defining the standards expected and encourage a shift towards interoperability.  

KPMG’s “Connected Enterprise” research with Forrester identified 8 capabilities that will improve organisational alignment and drive growth. The “Connected Enterprise” methodology, or a similar approach, allows organisations to assess their organisational and operational alignment in a clear and structured manner. Kieran notes that investing in the right areas is critical and honest structured self-assessments allow investment to be made where it has the most impact; from product and pricing and supply chain to technology architecture and advanced data and analytics. 

Once companies have completed an assessment of their operational alignment, effective change management programmes can be implemented. Brendan notes that over the last decade many executives have chosen the right technology but adopted the wrong implementation model, frustrating their vision. For this reason KPMG’s “Powered Enterprise” suite of EPM transformational solutions combines technology with the processes, governance and best in class procedures to make the implementation a success. Companies should be honest with themselves regarding where their project management strengths lie.  

Our experience has identified 3 key obstacles that impede the C-suite’s ability to achieve their vision. 

• Aviation companies are alive to the possibilities of the data they hold. Increasingly Chief Information Officers (CIOs) have a vision of what is possible if data is integrated and analysed to support real time decision making.
• However strategic visions require strategic planning and an acknowledgement that developing a “best-in-class solution” will take time, effective design and hands-on involvement of management.
• Statements such as “we don’t want to change our processes, we just want to change the technology” often end up understating the degree of complexity in a process and sets the technology solution up for failure. Managers need to recognise that change will take time and technology solutions require cross functional steering groups, careful business requirements and a realistic timeline. Otherwise initiatives are doomed to failure or being relegated to proof-of-concepts that cannot meet management’s expectations.

• Technology solutions often fail as soon as they are implemented because users need to deal with a bespoke situation. Airlines and lessors need to be honest with themselves about how codified their existing models really are.
• Existing processes and models are not always as structured as many companies believe. Developing a strategic solution is never as simple as “I just want to convert my current Excel model to the cloud”. In most cases a single Excel model does not exist. Your process is ever changing and dependent upon subject matter experts.
• Your solutions need to allow room for expansion, overrides and management judgements. An inflexible rules based solution can quickly become unworkable and users will be forced back into their old bad habits and processes.

• Companies offer off-the-shelf solutions for contract management, technical management and financial management that will allow aviation companies put in place a solid technology foundation. These are important building blocks.
• Airlines and lessors need to give careful attention to the technology they chose, how their disparate software can work together and what bespoke technology they need to meet their strategic vision. 
• Success factors should be reviewed including:
  • In house support;
  • Interoperability, including online access;
  • Scalability;
  • Visualisation software;
  • Processing power; and
  • Licensing.

• Investors and management are increasingly demanding real-time access to information. The competitive environment for lessors and airlines is intense meaning pricing, trading and investment decisions are often made with increasingly fine margins. Having the most accurate information available is critical.  Negotiations often involve time-sensitive “what-if analysis” to evaluate whether concessions or opportunities make economic sense.
• Industry trends including the introduction of GATS and regulatory demands means digitalisation of records and automated data-flows are no longer a “nice to have” but are essential to companies that want to participate in global markets.
• A scalable business platform requires that executives have the tools and technology to support their growth plans. In particular lessors who previously relied on Excel to manage their fleet are increasingly asking themselves whether automating their models can allow them focus on strategic decision making.
• GDPR requirements means that aviation companies are increasingly focused on the data they hold, and its power.
• Employee satisfaction requires that staff focus on tasks that interest them. Opening up your organisation and embracing the opportunities afforded by digital insights can energise staff, democratise decision making and generate new and innovative ideas.

Kieran defines a number of activities that all executives and CIO’s should be actively pursuing to ensure they take advantage of digital and technology change.

• Define a vision of your digital landscape: It can be difficult to look beyond your short term challenges and systems. Consider what the future might look like and what your companies’ intellectual property and differentiators will be as your industry matures.  Thank big.
• Catalogue your current models and systems: How can you make your current models more efficient, more accurate and timelier? Identify recurring tasks that may benefit from automation and ask yourself how processes are adding value.
• Engage with industry bodies and participate in discussion: Listening to other market participants can help shape your view of where change is needed.
• Survey your customers and employees: What excites or antagonises your customers and employees? 
• Look to other industries to see what can be learned: An over focus on your own industry can limit your vision of what is possible. Embrace an innovative mind-set and consider how unrelated solutions have transformed experiences for people in other industries and even your pastimes and interests.
• Don’t be afraid to ask for help.

This article first appeared in the Airfinance Journal, and is reproduced here with their kind permission.