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DIGITAL TRANSFORMATION INTHE AVIATION SECTOR
APRIL 2017
02 | Digital Transformation in the Aviation Sector
CONTENTS
Executive Summary
Redesigning customer interaction
Business systems and processes
Nurturing innovation
Big data and advanced analytics
EXECUTIVE SUMMARY
In the aviation sector today, an effective digital strategy iscritical for long-term success. The role of digitaltechnology has changed from being a source of marginalefficiency gains to becoming the foundation fortransformation, and increasingly companies arerecognising the need to innovate - both to stay ahead oflegacy competitors and to pre-empt the disruption ofestablished business models by ambitious and nimbledigital natives. In this paper we discuss digitaltransformation in the aviation sector, focusing inparticular on the following four themes:
Redesigning Customer Interaction
Digitalisation is transforming the expectations ofconsumers across the globe. Its pace and scale meancompanies need to re-evaluate and transform thecustomer experience to adapt, using new products, appsand tools to enhance customer interactions.
Business systems and processes
Businesses are re-designing their internal processes,transforming their back-end systems and refreshing theirsupplier contracting structures to integrate and streamlineoperations. In addition to creating operating efficiencygains, such changes typically play a crucial role in theachievement of a company's strategic aims, whichincreasingly include maintaining business agility forquick adaptation to changes in the marketplace andgenerating new revenue streams.
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Nurturing innovation
Many businesses in the aviation sector are investing inspecialised departments or group companies, or engagingin partnering arrangements, in order to ensure that theystay ahead of the curve and are well placed to anticipateupcoming changes. This can range from creating newinnovation "labs" and "hubs" which bring togetherdifferent parts of a business, to partnering withinnovative companies and consultants.
Big data and advanced analytics
With the emergence of increasingly sophisticatedtechnology, the ability to capture – and extract valuefrom – ever increasing amounts of data is rising. 'BigData' can help companies understand customerpreferences and buying behaviour to transformrelationships. However, as the volume and variety of dataincreases, so to do the challenges associated with the useof Big Data. For many organisations, navigating thecomplex landscape of data protection, privacy and cybersecurity laws will be key to unlocking the full power ofBig Data, advanced analytics and machine learning.
REDESIGNING CUSTOMER INTERACTION
There is a growing demand for air travel, driven by anexpanding middle class in emerging markets, theexpectations of millennials, and cheaper airfares.1 Key tocapturing this opportunity will be utilising digitaltechnology to meet consumer expectations. Theseexpectations have, in part, been shaped by experiences inother sectors, such as retail and entertainment, and nowincreasingly include streamlined and integrated
purchasing journeys, frictionless travel and tailored, on-demand services.
The rise of 'the digital consumer' is prominent in theaviation sector, where a significantly greater proportionof customers have an online presence compared withother industries.2 With the use of digital technologyprojected to rise dramatically - with estimates rangingfrom 13 billion3 to 50 billion4 connected devices by 2020-companies are focusing on engaging with customersthrough effective online purchasing journeys, sociallistening, feedback apps and links with other players inthe aviation, travel and tourism industry.
Airlines, for example, are using customer apps not only toenable online check-in and provide virtual boardingpasses, but also as immediate customer feedbackchannels, and as tools enabling direct communicationfrom the business - including real-time updates on flightdelays and to prompt passengers to proceed to theboarding gate. They are now looking to luggage trackingapps, to apps combining airport maps with passengerflight itineraries to assist with tight connections, andbeyond. With the increasing accuracy of authenticationusing biometric data (such as facial recognition and irisand fingerprint scans) trials of virtual airport checkpointshave already commenced and use of iris scans and othersuch data in the boarding process is also being explored.Similarly, now that onboard WiFi is becoming a reality,some are setting their sights on the next level of tailoredservice - intelligent aircraft cabins with sensors built in toseats to monitor passengers' tiredness, temperature orhydration levels, automatically adapting the cabinenvironment or prompting crew to take a particularaction.
04 | Digital Transformation in the Aviation Sector
Digital natives, such as online travel aggregators andtravel service platforms, are adapting quickly to customerdemands, and the increasing prominence of digitalplatforms is disrupting some traditional value chains. Theindustry is expecting a greater focus than ever before onowning the customer relationship and establishingarrangements for the sharing of information acrossbusiness types, as consumer demands for a seamlessexperience increase and the rise of artificial intelligenceand analytics make data more valuable than ever.
At the same time, legislators globally have sought tokeep up with changing technology by introducing a rangeof laws and regulations restricting the use of personaldata. For example, the EU General Data ProtectionRegulation ("GDPR"), which will take effect from 25May 2018, introduces strict conditions on the use andsharing of data relating to an identifiable individual.Some categories of data in particular receive enhancedprotection, including biometric data which will oftenrequire the active, informed and explicit consent of thedata subject for processing. Given the significant finesavailable to regulators under the GDPR - up to €20million or 4% of global annual turnover - businessesacross the aviation sector are reviewing and updatingtheir data governance frameworks and policies, as well astheir supplier contracts and data sharing arrangements, toensure that customer and employee data is adequatelyprotected and new data subject rights are supported.
In this heavily regulated industry, data protection lawsare of course only one of many types of regulation to benavigated by aviation businesses. Disparities inregulatory regimes resulting in differing localrequirements and restrictions can create challenges forbusinesses seeking to standardise service offerings andcustomer experiences when operating on a global scale.For example, where airlines fold ancillary services intothe customer journey or create package offerings, thedegree to which these are caught by specific legislationor constitute regulated activities, and the consequences ofthis, can vary significantly across jurisdictions.
BUSINESS SYSTEMS AND PROCESSES
The aviation sector has long used digital technology toachieve operational efficiency gains and other costsavings. Cutting-edge use of digital technology todayranges from aircraft manufacturers utilising augmentedreality in their manufacturing process, to use of roboticsfor streamlined ground services provision. Airlinescontinuously strive for ever lighter equipment andentertainment kits to save on fuel costs and a range ofbusinesses increasingly use employee apps for the real-time reporting and quick resolution of issues.
The Internet of Things will undoubtedly enablebusinesses to break new ground in operationalefficiencies and cost savings, as well as revolutionisemanufacturing and maintenance processes. For example,while predictive maintenance solutions for engines arenot new, the latest engine monitoring systems use aircraft
connectivity to examine continuous operationalperformance data from all phases of flight.
Perhaps the major challenge for businesses in the aviationsector, however, is achieving a "true" digitaltransformation of back-end systems, internal processesand end-to-end customer interaction models – this meansmuch more than just creating a "digital wrapper" for theirexisting business models. Many aviation businesses arevery large and complex organisations working acrossvarious platforms supporting hundreds of differentbusiness processes in multiple regions and countries. Toadapt to the digital world, many are seeking toconsolidate and simplify these processes across theirentire business, centralise their technology landscape andupdate their platforms in order to make efficiency gainsand better support strategic aims, such as thetransformation of the customer experience.
We are seeing an increasing focus on digitaltransformation projects in the corporate strategies ofcompanies in the aviation sector, as digital programmesbecome key in supporting strategic business objectives.For example, aviation clients investing in a USD 700million cloud-based infrastructure outsourcing and digitaltransformation programme cited optimising theirinfrastructure function as a key driver for the project, inorder to enhance user experience through better dataanalytics and reduce overall operating costs. Suchprojects require careful negotiation - for example, on dataprotection issues arising in the context of infrastructure-as-a-service; intellectual property issues in the context ofcontractual obligations to deliver innovation; employeetransfer arrangements for affected staff; and vital servicelevels to safeguard mission critical operations.
We are also seeing a trend towards contracting structureswhich are designed to capture specialist expertise - suchas the use of "tower" contracts that engage differentservice providers - each at the cutting edge of their field -that have their own areas of responsibility for servicedelivery. This is typically combined with an agreementas to some level of shared responsibility for the end-to-end service, in order to strike a balance between gainingthe benefits of specialist expertise and curbing "buckpassing" in the event of service delivery failures.
A key challenge is often the requirement to continueusing legacy systems in certain areas. Often largebusiness will use a patchwork of systems of differingages, and new systems have to integrate with old, untilthose are replaced. This can hinder digital change,reducing an organisation's ability to transform quickly.
NURTURING INNOVATION
Although the capital-intensive nature of the aviationsector can create barriers to entry for many of the types ofbusiness in the ecosystem, technological advances arecreating roles for new players and strong competition inthe industry remains. This is incentivising innovation notonly by start-up companies and digital businesses, but
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also by traditional players that are increasingly seeking toinvest in departments, group companies or partnershipsfocused on anticipating and shaping changes in themarket.
For example, GE Aviation launched a digital divisionwhich combines the operating unit’s digital expertise intoone business. In the same vein the Airbus Group hasestablished both a corporate venture capital fund - AirbusGroup Ventures - and a technology and businessinnovation centre in Silicon Valley called A3, which aimsto define the future of flight. With a belief that the futureis created through episodic disruption and interveningperiods of incremental innovation, it proclaims itsmission to be building the future of flight by disruptingthe Airbus Group and its competitors before someoneelse does.
Other companies are instead using partneringarrangements to invest in digital and tech savvy start-upsproducing innovative solutions relevant to their corebusiness. For example, International Airlines Group(IAG) has partnered with L Marks to launch Hangar 51 -a 10 week incubator programme that enables start-upsand other companies at the forefront of technologicalexploration to work with IAG senior management to trialtheir products and services globally with airlinecustomers and pitch for investment. The focus of Hangar51 is on improving airport processes, digitising businessprocesses, finding new ways to use data for decisionmaking and customer satisfaction, and 'wildcard' ideasfor improving customer service.
Approaches such as these help aviation companies tokeep abreast of digital innovation, continuallyincorporate new technologies into their business
operations and, potentially, anticipate the next "gamechanger". The form of investment or partnering selectedwill have implications for the level of investmentrequired and the level of ownership in the underlyingintellectual property. Another key legal issue to considerwhen structuring partnering arrangements or setting upinnovation "hubs" is striking the right balance betweenaccountability, governance and concrete deliverables, onthe one hand, and, on the other, facilitating the agileworking methods required for innovative development.
Even where investment and collaboration at this level isnot being pursued, we are seeing an increased interest incontracts for prototypes and pilot programmes, to testnew technologies emerging in the marketplace.Similarly, in business process outsourcings - which areincreasingly becoming business process re-engineerings -companies in the aviation sector are continuing to useagile contracts to get the flexibility to incorporate newlydeveloped or newly required functionality later in aproject delivery cycle. However, as the fluidity ofdeliverables in this contract structure can result inreduced supplier accountability, we are beginning to seethe rise of a hybrid contracting method - "contractualisedagile". This hybrid approach seeks to combine thefluidity of agile contracting with objectively measurabletargets over the contract life.
As businesses operating in the aviation sector are subjectto industry specific regulations as well as to more generalregulations, once an innovation hub, partneringarrangement or contract does yield new products andservices, regulatory hurdles may increase time to market.Clearances for the use of new technologies may need tobe sought, and regulations across jurisdictions checked.
06 | Digital Transformation in the Aviation Sector
BIG DATA AND ADVANCED ANALYTICS
With the emergence of increasingly sophisticatedtechnology, the ability to capture - and extract value from- data is rising. 'Big Data' involves using large amountsof data, often including individuals' "personal data", froma variety of sources, to demonstrate patterns of behaviourand provide insights which can inform the developmentof products and services. The nature and extent of thedata means it can be difficult to process using traditionaldatabase and software techniques, but with the value ofBig Data ever growing, new technologies such asmachine learning or artificial intelligence (AI), thatprovide effective analysis, are in demand. Machinelearning, a method of data analysis specifically designedfor Big Data, uses algorithms to learn from data. It looksfor patterns to produce reliable decisions, predictions andresults on a vast scale.
Machine learning can provide analysis of data as soon asit is recorded. For example, this could include up-to-dateinformation to assist with fraud identification, or couldtrigger the deployment of additional resources based onpatterns of passenger flows across an airport terminal.Big Data and machine learning can also be combinedwith the use of connected devices in order to collect andanalyse vast amounts of data from machines. This caninclude the use of feedback loops to use the datacollected real-time to make adjustments that will drivefuel efficiencies and reduce unplanned engine removals.
Machine learning can also be an effective tool inovercoming internal silos. Organisations often faceobstacles when trying to extract value from data, due tothe way the data has been stored or the basis on which it
has been obtained. Many companies collect largeamounts of unchecked data, and consequently do nothave adequate oversight of what data is held by, orcoming into, their organisations. Data may be held bydifferent entities or departments, and have been obtainedsubject to different consents or notifications. As a result,although businesses are keen to extract value from thedata they hold, they do not know where their mostvaluable data is stored or on what basis it was collected.Machine learning can be used to break down internalsilos by analysing a range of data sources and types andforms on the executable data.
As the volume and variety of data for analysis increases,so do the difficulties and challenges associated with theuse of Big Data. Although not all Big Data analysisinvolves personal data, a large part of Big Dataoperations often rely on the extensive processing of suchdata. Where this is the case, businesses will need tocomply with applicable data protection laws. In respectof businesses established in the EU (and their processors),or any business who offer goods or services to datasubjects in the EU, or who monitor behaviour of a datasubject that takes place in the EU, this will include theGDPR.
Under the GDPR, personal data is to be collected forspecified, explicit and legitimate purposes, and datacollection should be limited to what is necessary inrelation to the purposes for which the data is processed.There are restrictions on repurposing data for purposesincompatible with those for which the data was originallycollected, which could limit the ability to use personaldata in Big Data projects where such use has not beenmade sufficiently clear to the data subjects or where the
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information involved is such that the individual to whomit pertains would have a reasonable expectation that itwould not be used in this way. Information notices willbe required in order to make clear to data subjects howtheir personal data is being used and shared. In addition,companies will be required to adopt good informationand retention governance, and so will not simply be ableto retain data indefinitely for use in future analyticsprogrammes.
At the same time, cybersecurity is a growing risk and anarea of heightened regulatory focus. As we are likely tocontinue to see an increase in legislation in this area inthe future, businesses in the aviation sector are advisednot only to focus on the immediate cybersecuritycompliance obligations, but also to ensure that forward-looking cybersecurity compliance programmes aredeveloped to take into account increasing reliance ontechnology and data.
This challenging compliance landscape can also be seenas an opportunity for businesses in the aviation sector.Actively seeking solutions to ensure compliance withregulation will allow businesses to not only build oninnovative methods to monetise data, but also ensure thatthe organisation maintains and builds trust with itscustomer base. Organisations should embrace dataprivacy compliance as a competitive advantage.
1. The World Economic Form White Paper: Digital Transformation Initiative - Aviation, Travel and Tourism Industry, January 2017, https://www.accenture.com/t20170116T084449__w__/us-en/_acnmedia/Accenture/Conversion-Assets/WEF/PDF/Accenture-DTI-Aviation-Travel-and-Tourism-Industry-White-Paper.pdf.
2. World Economic Form White Paper: Digital Transformation Initiative - Aviation, Travel and Tourism Industry, January 2017, https://www.accenture.com/t20170116T084449__w__/us-en/_acnmedia/Accenture/Conversion-Assets/WEF/PDF/Accenture-DTI-Aviation-Travel-and-Tourism-Industry-White-Paper.pdf.
3. Gartner Press Release: Gartner Says 6.4 Billion Connected "Things" Will Be in Use in 2016, Up 30 Percent from 2015, November 2015, http://www.gartner.com/newsroom/id/3165317.
4. Cisco White Paper: The Internet of Things - How the Next Evolution of the Internet is Changing Everything, April 2011, http://www.cisco.com/c/dam/en_us/about/ac79/docs/innov/IoT_IBSG_0411FINAL.pdf.
DLA Piper is a global law firm operating through various separate and distinct legal entities. Further details of theseentities can be found at www.dlapiper.com.
This publication is intended as a general overview and discussion of the subjects dealt with, and does not create alawyer-client relationship. It is not intended to be, and should not be used as, a substitute for taking legal advice inany specific situation. DLA Piper will accept no responsibility for any actions taken or not taken on the basis of thispublication. This may qualify as "Lawyer Advertising" requiring notice in some jurisdictions. Prior results do notguarantee a similar outcome.
Copyright © 2017 DLA Piper. All rights reserved. | APR 17 | Ref: 25632687.1
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