Lufthansa CIO says most CEOs still do not appreciate IT

Getting IT into boardroom-level discussions is still a problem for many chief information officers (CIOs), with corporate executives continuing to see IT service provision as nothing more than another operational cost that is ripe for reduction.

Few CEOs see IT projects as business enablers that can boost profitability or competitiveness, according to Lufthansa Passenger Airlines CIO Dr Cristoph Klingenberg, who joked that he had considered shooting both himself and his CEO after one particularly tortuous meeting where plans for IT upgrades had fallen on deaf ears.

"The airline would break down if the IT department did not get enough funding but still the CEO says that IT costs have to go down. I did not have a revolver to shoot myself or him, and wondered what he had been doing for the last hour," he told an audience of airline IT managers.

"IT is not a cost factor, it is just the opposite. You can be proud if you spend more than other airlines because it shows you are managing the operational side of things properly. If one airline spends one per cent of its revenue on IT and another spends three per cent, which is the better airline?"

Klingenberg's comments came on the back of a survey published by specialist airline IT services company SITA that suggests that while the average annual airline IT budget is growing at a steady 1.8 per cent on a global basis, CIOs in mature markets are struggling to match that level of investment.

"There are obviously regional differences in IT spend and optimism, extraordinary growth in the Asia Pacific and Middle East much more so than in Europe and the US," said SITA senior portfolio director Juergen Koella.

While airline CEOs are seemingly reluctant to shell out on IT projects unless they are absolutely necessary, industry figures warn that unless they quickly deliver the services that their increasingly technology literate customers demand, other companies will jump in and do it for them, further undermining their revenue streams.

Google's $700m acquisition of ITA Software last year has led to fears that the internet giant will soon begin to provide travel booking services of its own, diverting a significant chunk of revenue away from the airlines themselves and putting pressure on profit margins by increasing competition.

Some airlines appear to have heeded the warning, and are making efforts to find ways of promoting brand loyalty by improving their passengers' experience through increased use of mobile applications and social media monitoring tools.

Dutch airline KLM employs 23 people – mainly pregnant stewardesses and university students, according to KLM CEO Peter Hartman – to follow its passengers on Twitter and Facebook, for example. Global airline group Star Alliance, which is made up of 27 airlines, employs four staff for the same purpose.

During the disruption caused by the Icelandic ash cloud last year, KLM took steps to keep its customers informed about cancellations using Facebook and Twitter, for example, and intercepted customers at Amsterdam's Schiphol airport with gifts and vouchers related to the itinerary information they posted on Twitter.

"We set it up after we had issues with people arguing about compensation for cancelled flights on Facebook," said Hartman. "The Twitter gifts are a surprise and make a small difference to a passenger's day."

Other airlines are allowing customers to book tickets through social networks, and introducing mobile applications designed to speed up check-in, boarding and baggage-handling processes, though in many cases these initiatives can shave airlines' own operational costs as well as improve the customer experience.

Lufthansa's Klingenberg argued that new applications and services were not necessarily a way for airlines to differentiate themselves from competitors, pointing out that mobile applications can be easily copied by rivals.

"Whatever you develop on the consumer market can be copied by another airline within six months," he said. "We have a new iPad application for Lufthansa but it will not differentiate us."

Klingenberg offered more advice for CIOs, advising IT managers to never trust consultants trying to scare them into purchasing decisions with worst case scenarios, to outsource as much as possible, and make life easier for themselves by consolidating IT provision to no more than three IT suppliers.

"You are best off if the IT department is on the pure demand rather than the supply side. Developing your own lines of code or running servers, get rid of all that," he said.

"Don't worry about internal operations or development staff doing ‘Hey Joe' programming whenever the business wants something, they can have it the next morning. External suppliers can do that too on short notice. You do not have to have in-house for a short response time."