Part of The Future of Air Travel series, sponsored by Sabre. For more information see: http://bit.ly/FoAT

1. Justifying the return on investment (ROI) of technology upgrades
To gain greater insight into changes and innovations that could usher in
a new era for travellers, the Economist Intelligence Unit (EIU) conducted
parallel surveys of 100 airline executives and 810 air-travel customers in
August and September of 2013. Augmented by interviews with 16 industry
leaders and in-depth analysis, research into this topic culminated with the
whitepaper, The Future of Air Travel: Improved Personalisation and Profits
through the Integrated Use of Customer Data. This is one of a series of five
articles elaborating on some of the most salient points that emerged from
the findings.

2. As airlines emerge from an austerity-driven focus on
costs and begin to re-focus on improving the customer
experience, the return on investment (ROI) for necessary
upgrades remains top of mind. Yet ROI on “experiential
improvements”—unlike returns on fuel efficiency or other
more measurable inputs—can be difficult to quantify.
Nonetheless, it behooves airlines hoping to rebuild customer
loyalty to carefully consider these “softer investments”. With-out
them, it won’t be possible to meet customer demand
for a better, more personalised experience, including faster
boarding, better food or broader access to entertainment.
More nuanced cost-benefit calculations may be in order.
The Apple experience
Corporate training strategist Jim Kirkpatrick cites “return on
expectations” (ROE) as a key complement to ROI—Apple’s
successful strategies in the retail space support this
perspective.
Tim Kobe, founder and chief executive officer of the design
firm Eight Inc., was among the handful of people who
worked with the late Steve Jobs, Apple’s chief executive
officer at the time, to bring the Apple stores to fruition. “It
was impossible, selling online and through third-party re-sellers,
to justify the brand as valuable enough to justify the
price—which was higher than the value competitors,” he
says. “The most successful brands,” Mr Kobe emphasises,
“are those that offer a distinct brand experience, deliver on
it reliably and build an irrationally loyal customer base.
According to the news website Apple Insider, Apple spent
approximately US$745m on design, construction and leases
for its first wave of retail stores. Within three years, Apple’s
stores surpassed US$1bn in annual sales—faster than any
previous franchise.
“Store design and development costs are a rounding error,”
Mr Kobe insists. “Brand-building, performance and percep-tion
of value are where the revenue is generated,” he says.
At almost any cost, it’s expensive if “poorly done”, while
cost is “immaterial if well done”. The Apple story demon-strates
the income that can be generated by investing
heavily in the softer aspects of brand-building and the cus-tomer
experience. It also proves that going against the pre-vailing
trend—Gateway was shutting down its single-brand
retail operation while Apple was expanding into that exact
space—can also prove a smart play.
Technology costs have upended old ROI calculations
Another softer-side investment that was part of Apple’s
design process involved sending retail staff to Ritz-Carlton
hotel management classes taught by Diana Oreck, vice
president of the company’s executive training facility, The
Ritz-Carlton Leadership Center. What Apple clearly sought to
adopt from the hospitality industry was a greater capacity
to personalise the customer experience.
JUSTIFYING THE RETURN ON INVESTMENT
(ROI) OF TECHNOLOGY UPGRADES
2

3. In an effort to deepen that personalisation further, hotel
chains are standardising their practices and data-gather-ing
across all their global holdings. This is facilitating more
consistent and more accurate distribution of the information
that lets hoteliers know, before a guest even walks through
the door, the details that will soothe or annoy their visitor.
The IT backbone supporting these changes is not funda-mentally
new, but it is vastly more powerful and much
cheaper than ever before.
Valyn Perini, former senior vice president of Kalibri Labs,
which conducts revenue-performance analysis for the
hospitality industry, previously served as CEO of the Open
Travel Alliance, which works towards information distribu-tion
standards. Earlier in her career, she was the director of
database resources at Swissotel Hotels & Resorts.
“When I was at Swissotel one of my last duties there—in
the late 1990s, the early 2000s—was implementing a
worldwide guest loyalty database. We wanted to know
who our best guests were . . . who stayed at which prop-erty,
regardless of what country or region they were in,
how much they’d spent. And that was going to inform how
we talked to them and who we shared their data with. We
wanted to manage our guests’ expectations, giving them a
return on their expectations of the service and the product
they would get when they came back to Swissotel. Our ex-pectation
was that we would get a ROI because they would
return more often and spend more money.”
That Swissotel took on this task as an in-house project says
a great deal about the company’s commitment to invest
whatever was necessary to better understand and please
its guests. Going back almost 20 years, the cost of collect-ing,
aggregating, analysing, storing and transmitting the
amounts of data necessary to accomplish this task were
substantial. “As one downturn followed another,” Ms Perini
says, “hotels and airlines started re-thinking that approach.”
As she notes, airlines also took steps in this direction
around that same time—and then pulled back, unable to
justify the costs. So why should things be different now?
Advances in digital technologies have hugely increased the
amount of data that can be stored and the speed at which
it can be analysed and transmitted while lowering the cost.
An example that would apply to the Swissotel experience
puts this trend in perspective:
• In 2000, a 47 gb hard disk cost US$695
• In 2014, a 3 tb hard disk (physically smaller, but holding
64 times the data) cost US$110
Had the cost per byte for the year 2000 applied, the 3 tb
disk would be priced at an exponentially higher US$44,480.
Clearly, the cost of change has plummeted. The cost of
inaction, however, is getting higher.
3 JUSTIFYING THE RETURN ON INVESTMENT
(ROI) OF TECHNOLOGY UPGRADES

4. Wi-Fi in the sky . . . is the time now?
On the other hand, without an accurate assessment of the
environment a company is operating in, the cost of forging
ahead at the wrong time can be high. Such was the case
for Lufthansa in 2004 when it launched Boeing’s in-flight
Internet service, dubbed “Connexion”. A billion dollars later,
at the end of 2006, Boeing discontinued the commercial
aviation side of the programme. For a decade, the problems
have remained more or less the same: speed (too slow),
price (too high), customers (too few).
Michael Small, Gogo Inc.’s chief executive officer, comment-ing
on Boeing’s early foray, says that the airline “tried a
little too early so they chose solutions that were ‘not quite
ready-for-prime-time’. But the solutions that get deployed
now [referring to his company’s products, which enable in-flight
access to the Internet] are going to be pretty good.”
To ensure that will be the case, in December 2013, Inmar-sat,
in partnership with Honeywell and Gogo, launched one
of the three satellites that will offer the Global Xpress (GX)
Aviation network, touted as “global high-speed broadband
for the skies”. And, in April 2014, AT&T announced it would
begin offering in-flight Wi-Fi within the continental US
by late 2015, using the 4G LTE technology that its cellular
phone network runs on.
Calculating ROI on in-flight Wi-Fi requires answers to a
number of key questions, an approach useful to airlines an-alysing
other, similarly hard-to-quantify investments: Is the
timing right? Is demand sufficient? Is there a map—ideally
offering more than one route—to how the investment can
pay off? And, taking from Mr Kobe’s playbook, what’s the
cost of doing nothing?
Customer and operational demand
In calculating the anticipated demand for Wi-Fi, Gogo
considers the rate at which consumers adopted previous
breakthrough technologies, for example, cable television,
mobile phones and home broadband. Gogo is counting on
two potential revenue streams for in-flight Wi-Fi: custom-ers
and airline operations. Until now, the only revenue has
come from “the business traveller at a premium price”,
Mr Small says, “. . . five years from now”, prices down and
speed up, “it will be everybody”. He puts the potential
revenue value of aircraft connectivity at “close to a million
dollars per aircraft per year”.
Passenger side, Wi-Fi revenue will come not just from
access fees (likely to be cut significantly or phased out
altogether as on-board Wi-Fi becomes ubiquitous) but also
from the range of additional opportunities this new channel
opens up. These include advertising, sales of premium en-tertainment,
sales partnerships with other travel providers
and retailers—as well as upselling future flights.
4 JUSTIFYING THE RETURN ON INVESTMENT
(ROI) OF TECHNOLOGY UPGRADES

5. Operations side, aircraft that are online will reap similar
sorts of efficiencies that 24/7 on-the-ground connectivi-ty
has brought to offices, homes and people with mobile
phones as planes become able to communicate easily with
various of their divisions on the ground, as well as with
connecting components of the full trip. Mr Small sees the
networked plane becoming an operational necessity for
“safety . . . reporting . . . maintenance . . . marketing. Soon
you will not be able to be in the airline business without
connecting your aircraft,” he maintains. “If your office were
unconnected, your office would be useless. Aircraft will be
the same way.”
The value of return on expectations
The J.D. Power 2014 North America Airline Satisfaction
Study, released in mid-May 2014, shows a positive trend
in how customers feel about airlines. From a 2009 low of
658 (on a 1,000-point scale), customer satisfaction with the
airlines reached a record high of 712—an improvement, but
still trailing hotels (777), rental cars (775) and even mort-gage
lenders (771).
In the accompanying press release, Rick Garlick, J.D. Power’s
global travel and hospitality practice lead, cited technology
upgrades—directly and indirectly—as one of the factors
boosting customer satisfaction despite high air-travel costs,
specifically mentioning onboard Wi-Fi and improvements in
check-in procedures.
Businesses run on numbers and the resulting calculations.
But businesses that strive to be consumer-oriented, rather
than commodities, ignore softer factors at their peril. As Mr
Kobe notes, in making investment decisions, it is important
to always assess “the cost of doing nothing”. By invest-ing
in Wi-Fi, for example, when the time is right and the
lessons of earlier attempts have been absorbed, airlines are
improving both their return on investment and their return
on expectations—to the benefit of their customers and their
business.
5 JUSTIFYING THE RETURN ON INVESTMENT
(ROI) OF TECHNOLOGY UPGRADES

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