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Investments in the air well-grounded

Interview - April 10, 2012
We speak with Damian Hickey, Regional Vice President of Sales and Relationship Management at SITA, who shares his insight on how his company's intelligent airport technology will help Indonesia realize its tourism potential
DAMIAN HICKEY | REGIONAL VICE PRESIDENT OF SALES AND RELATIONSHIP MANAGEMENT AT SITA

Indonesia boasts over 17,000 islands, has consistently great weather thanks to its position along the equator and is also recognized for its many UNESCO World Heritage Sites. How would you rate Indonesia as a tourism destination?

I think Indonesia is very unique in its geographic position and the wide variety of cultural and tourism attractions that they have. With the tens of thousands of islands, it is in a unique position in that it has been underdeveloped for many years. The challenge that we see in Indonesia is that the underdevelopment of the infrastructure has meant that, apart from a few key locations, today tourism is really in its infancy. As the demand for travel increases, equally the demand for improved infrastructure will increase. SITA has been working very closely with all of the relevant stakeholders to see what we can do together in order to bring that infrastructure up to international standards so that we can unlock the huge opportunity to grow the tourism potential that lies here. It is untapped and just waiting to be brought up to that international level so it can be most effectively exploited.

The Ministry of Transportation has recently been talking about public-private partnerships (PPPs) being the way forward for developing aviation infrastructure. What is your opinion of this and do you think such an approach will have a big impact?

I think it is the right approach because if you push forward with a government investment program alone, the level of investment is so high that the time that the government by itself would need to be able to make these large infrastructure investments would be very significant. You do not want to miss that window of opportunity. What the PPP scheme allows is to accelerate that investment. Now whether it goes to a pure PPP or some hybrid is yet to be seen. I think you will see some areas where there are pure government investments and other areas that have PPPs. But I also believe that in some areas you will have pure private investment as well. It is a matter of finding the right balance between all of that in order to accelerate the development of this infrastructure in the next 5-10 years.

Talking about this balance between government and private investments, a recent official at the Ministry of Transportation said that $3.6 billion dollars would need to be invested over the next 10-15 years in order to meet the predicted demand for aviation infrastructure development. Do you think this is a realistic figure? How would you assess the current investment climate in Indonesia in terms of regulations?

I think the investment figure is probably a little bit conservative. To be honest, $3.6 billion dollars does not go that far in infrastructure. I think it is a good starting point, but I think there will be a lot more investment required going forward. It is still early days to encourage infrastructure investment in Indonesia. The appetite is now there for investment and the government is starting to show its support, but there is still a lot of work to be done in order to reduce the red tape and encourage external investment. At the end of the day external investors would be very happy to invest in Indonesia, provided they can see a reasonably good return, in a reasonable period of time, with a reasonable amount of risk. Right now the bureaucracy surrounding PPPs and external private investment is such that the risk profile is quite high. The government needs to improve on that to make it easier for organizations to invest.

SITA as an organization has earmarked funds to invest in Indonesia. We invest somewhere between $150-$200 million in IT and communications infrastructure here and around the world. It is not $3 billion, but it is still a reasonable amount of money. A large portion of that has been earmarked for investment in Indonesia. But again we need to be assured that we will be able to make a return on those, which are generally long-term investments.

For example, when we make an investment in an airport in technology infrastructure, we will make all of the capital investment upfront. We will put in computers and network equipment and whatever technology is required. Then over 10-15 years, we will recoup that investment through charges we charge back to the airport owner, the airline user, and in some cases even back through the passengers through service charges, etc. But we need to be assured that we will see those returns over that 10-15 year period because at the end of the day, it is a usage model. We assume that over that 10-15 year period there is going to be a continual flow of passengers, that there will be a reasonable level of growth, of which we have no control. We rely on all of the other auxiliary things around that to encourage people to travel, etc.

We have recently been awarded a project at Lombok. Again, Lombok is a fantastic destination and the government has made a substantial investment in a brand new airport there. But there is still work to be done in terms of cutting down the bureaucracy, but the appetite is there and that is half the battle. 

I would like to talk about the memorandum of cooperation with Angkasa Pura 1. You are installing an intelligent airport system and taking on the risk by charging on a per-passenger basis. What does that mean in terms of the commitment you are making to Indonesia and the support you are showing the country?

SITA is a very unique organization in that we are not a purely commercial entity, unlike many peers of ours in the IT industry. The organization was set up more than 60 years ago as a non-profit cooperative by the air transport industry, in order to provide a cost effective IT and communications service to our members, who are our owners. So we have a true community approach. When we make investments, we make them on behalf of the air transport industry so we have a bit of a different mandate. For example, the whole reason behind the memorandum of cooperation with Angkasa Pura 1 was to work with the airport authorities to bring the infrastructure in their 13 airports up to world-class standards. Today about 80% of the world’s airports operate using SITA technology, so we have vast experience in what is considered industry-wide best practice. Angkasa Pura 1 was very keen to work with us and bring some of those worldwide best practices to Indonesia, to bring some of these airports up to Skytrax 5-star standards.

When Western travelers think of where they want to go for an exotic holiday in the emerging world, convenience is a major consideration. They want to know that their journey will be smooth and once there, they will be able to travel around effectively. How will the installation of these 13 intelligent airport systems exude an image of convenience?

When looking at intelligent airport infrastructure, there is always a balance between facilitation and security. You want to get passengers through the airport as hassle-free as possible, but at the same time you are working in an operational environment and you have all of the procedures and processes to balance. We do a lot of industry surveys as part of our community mandate. We spend a lot of time talking to airlines, airports and passengers to try and understand what they want. When we did our last passenger survey, the number one thing that came out of that survey is that passengers want control of the experience. So there is a huge push in airports to put in as much self-service capability as possible to that passengers feel like they are in control. Passengers want to be able to go on their cell phone and check-in before they leave for the airport. When they get to the airport, they do not necessarily want to line up at the check-in desk. They just want the easiest way possible to get rid of their bags so they want some bag drop technology. When passengers get to immigration, again they do not want long lines, they just want to get through it. There is a lot of money being invested in automated border controls because what is coming through is that passengers want a fast and easy experience.

The interesting part of that is that when you look from an airport operator’s perspective, airports are looking to minimize the amount of airline charges. The airline industry around the world is very fragile. It is a bust-and-boom business where they are doing well for a few years, and then the next few, they are all losing money. It works on margins that are tighter than the retail industry, so it does not take a whole lot for it to tip over. Airports and airlines work together to see how they can minimize airport costs. The only way to do that is to drive more and more non-airline revenue at airports. So there is a huge focus on getting passengers through the airport’s operational side as quickly and efficiently as possible, so they can increase “dwell time”, which is the time between when you get to the airport, and when you get on the aircraft. You can browse the duty-free shops, sit down and have a nice meal or coffee, and spend some money.

Typically the retail model in airports is a concession-basis, no different than a department store. A small portion of the price of every cup of coffee that is bought at an airport goes back to the airport operator. That income can then be used to offset the costs to the airlines, and this becomes a snowball. The lower the costs that the airport charges the airlines, the more attractive it is for an airline to fly to that destination. The more airlines that fly there, the more passengers they bring. The more passengers that are there, the more money is spent in retail. If you can get that model right, it is a very sustainable growth model. I think that was also a key thing at the development conference in terms of how can you bring those charges down, and as a stakeholder we can bring more and more passengers to our airports and to the country. It is very important.

When you look around Southeast Asia there is some very serious competition for tourism. You have Malaysia, Thailand, and all of these markets, whose airport infrastructure is getting more and more sophisticated. There is Bangkok, Kuala Lumpur International Airport (KLIA), Hong Kong, and even more five-star airports. That is what Indonesia has to compete with. The Airports Council International (ACI) does a yearly quality survey on airports where they award different star ratings. The competing destinations have airports with four or five star ratings. Indonesia does not have any, they are not even rated. If you can get five-star airport infrastructure in there to attract passengers and more airlines to serve those markets, that is going to fuel growth.

Speaking of Asia’s world renowned airports, an issue in the past with many Asian airports in the 1990s was poor coordination between airports and aircrafts. There were situations where planes had to circle for a while before being able to land. How do things such as this year’s AIRCOM deal you have with Garuda really set Indonesia on the right path towards improved efficiency of this communication relationship?

You are absolutely right. Investment in airport infrastructure is a long-term venture. When you have a rapidly growing market like Indonesia, like you were looking at 10 years ago in India, even if today you decide that you have $50 billion dollars to invest, it isn’t going to make any difference for the next 10 years. First you need to build the airport. Then you need to get people to the airport, so you need to build expressways or a rail link. That infrastructure investment is a long-term investment that takes a long time. Like it or not, what you are faced with is how to get more efficiency out of your existing infrastructure. This is where SITA’s technology comes in.

How do you get more people through the airport? Shanghai Airport was designed for 20 million passengers, but it has got 42 million passengers going through it, and it is doing a pretty good job considering what is was designed for. This happens on the ground but it also happens in the air. You use technology to your best advantage so that you can optimize the use of the airspace as much as you do on the ground. If you only have one runway, there is only so much physical traffic you can put through it. You need to have the best technology out there so you can have better flight planning and do things like slot scheduling. This is when AIRCOM and other technologies are used to ensure that you get this coordination between the ground and the air. If you only have 15 check-in desks, how can you get twice as many through that? If you can use things like cell service technologies, or make sure that half of the people are already checked in by the time they get to the airport. Or maybe you put in a bank of kiosks in the car park. You are just trying to find the best way to get as many people through.

SITA actually has some technology that we use to for passenger flow management in airports. We can follow the flow of passengers by anonymously monitoring cell phones. You see lots of airports today advertising, “Please turn on your Bluetooth and we’ll send you offers”. They do that for multiple reasons. One is that they want to send you an offer to go and buy that Gucci handbag or whatever in retail. But the other part of it is that they want to know where you are in their airport. SITA has some really sophisticated technologies that allow you to look up on a screen and see where people are spending their time, and where the bottlenecks are. Hopefully they are spending their time walking through the retail and not waiting in lines anywhere. But once you get an idea of where people are you can start to optimize that flow. If we find that there are bottlenecks in immigration, maybe you can double the number of immigration counters. Maybe if there are people stuck around a coffee shop, you need to put in a bigger seating area. The reality is that in the next 10 years as the infrastructure is building out, how do you still manage to get more and more out of that existing infrastructure? World-class technology is the key.

The technology involved is incredible. Did SITA pioneer that?

SITA has pioneered a lot over the past and recent years. SITA’s technology research team, called SITA Lab, look at what are the emerging technologies and some of the key problems the industry is trying to solve. They do not have a commercial mandate but work closely with airports and airlines investigating cool ideas and seeing if they could become a reality. SITA Lab recently did an augmented reality project for Copenhagen Airport, the result is you can take your iPhone while in the airport, look around with the iPhone camera, and it will tell you where the different retail outlets are and what promotions are on. It will use the compass and find what is going on.

SITA also developed an app for Malaysia Tourism Board called MH Deals, which is a very similar thing. You hold up your iPhone or iPad and point in the direction of Kuala Lumpur it will show you the airfare deals to Kuala Lumpur. If you hold it up towards Dubai, it will show you their specials for Dubai, or wherever. And if you select one of the deals, it will bring you straight to booking.

And it brings up the offers of different airlines?

In this one it is just Malaysia because it is their application. It was a joint project between Malaysia Airlines and the tourism authority. It knows if you are in Jakarta, so it will show you flights from Jakarta to Malaysia with special offers. We are looking at a similar application on Facebook with other airlines in the region, from a thing that we did with Malaysia called MHbuddy. You can click on the event page, see if there are any offers to Malaysia or Indonesia, and then share it with your friends. These are the kinds of things that SITA Lab innovates and plays around with; some will become mainstream but not all will be commercially viable..

But when you consider that Indonesia has 240 million people, 50% of whom are under the age of 29, with the second-largest number of Facebook-users in the world, the third-largest number of Twitter-users, how much of an impact can these products have in this country?

In some of the recent surveys, we have seen that the big drivers are self-service, users want to feel in control during their travel experience, and they want everything mobile – the entire experience from booking to check-in, and information about their journey. Everything has to go on mobile and social media. When you are somewhat behind in your infrastructure, there is always an opportunity to leapfrog. It is a little bit like telephone communications. In some parts of the world where telephone communication infrastructure was poor, they went straight to digital. They never developed analog or in-the-middle, because of the leapfrog in technology. You still see that in many developing countries they have got some of the largest numbers of cell phone users on the planet. Why should they develop the infrastructure for a landline when they can just go straight to mobile? That opportunity to leapfrog is also possible in the tourism industry. You do not have to go about things the traditional way. In promotion, you do not have to go to all of the travel fairs or print glossy brochures, and so on. You can use the online portal, or go on to Twitter or Facebook, and reach a much wider audience much quicker.

In the post-9/11 era, the first thing on a Westerner’s or particularly an American’s mind when flying to a country like Indonesia is safety and security. Imigrasi has been using SITA technology since 2007 with its border management solutions. Can you tell us about BioThenticate, and what impact that is going to have on the image of security in this country?

You always have to have a balance between facilitation and security. This is where some of our technologies like BioThenticate come to fruition. When you are trying to process a very large number of passengers, in reality you are trying to separate the potentially high-risk passenger from the normal low-risk passenger, and you can do this very well with technology. SITA is in a very unique situation because our customers are airlines, airports, and governments. The thing that makes that process most efficient is data. If you have the information, you can then make the security process much more seamless. There are a lot of technologies out there where you can get advanced passenger information so you know about the passenger a long time before they ever get to the airport. The earlier you do those security checks with advanced passenger information, the easier it is when you arrive. What you then need when you arrive at security, your primary focus instead of analyzing the profile of this passenger, you are actually validating whether this person is who they say they are. You can do all of the data analysis, but they you need to physically find out whether this is really him or her.

This is where SITA’s iBorders BioThenticate technology comes in, it makes sure that someone actually is who they say they are, and does it as seamlessly as possible. BioThenticate is essentially a suite of intelligence software to process and match the data about you with the physical you, whether you are using the various forms of biometrics, fingerprints, facial recognition, iris scanning, etc. That technology is also developing at a very rapid pace, to the point where you are doing complete passive biometric recognition. Right now you may have to use your fingerprint or multiple fingers, or in the U.S. you do iris scanning and so on. These are all very intrusive and take time. But now the technologies are advancing whereby you can do passive biometrics, so you are just walking down to the immigration gate and it has a facial recognition camera that can very quickly scan you, which is even more secure than your fingerprint. Today these cameras are $50,000 dollars apiece, but that will come down in time. It already has all of your information so unless you have baggage to drop off, you can theoretically walk all the way to the aircraft without actually having to deal with a person and it becomes a totally seamless process.

The challenge today is that each piece of that process is owned by different people. You are dealing with the airline at the immigration process, but then you are dealing with immigration officials at the border, and then you are dealing with customs from there on, and may be handled by another ground company once you are on the aircraft. If you do not get all of the stakeholders aligned together, you just create what I call the “waterbed effect”, to which is that you just push the problem. You may have the most advanced check-in process in the world, but all it does is create lines at immigration. You may have wonderful solutions for immigration, but the flights are delayed because passengers are still held up checking-in.

At events like the Airport Conference, you can have all of the stakeholders sit together and think of how we can improve infrastructure. How can airports, airlines, governments, security agencies, tourism authorities, local bureaucrats, etc. all work together to bring everything together? That is how we bring the entire country infrastructure up to task. In reality the only way to do that is having people sit down and talk to each other.

Through this report we are hoping to help Minister of Tourism Mari Pangestu reach her goal of 8 million tourists next year. How would you assess the permanency of SITA and its commitment to bring the industry stakeholders together for this country? What benefit would SITA get from the increased tourism, in terms of achieving that investment return?

We have been in Indonesia for a long time. Garuda Indonesia joined as a member of SITA in 1963 and we have been here every since. We have a long-term commitment to the air transport industry here. But we have somewhat of a different mandate than most traditional commercial entities – SITA is here to provide cost-effective communications and IT solutions for the air transport industry. We make investments on behalf of the industry. We are still a commercial entity – in fact SITA operates a hybrid cooperative-commercial model. We expect to make modest returns on our investments so that we can then reinvest that to deliver long-term benefits to the air transport industry. SITA takes a much longer-term view and has the community in mind.
Everybody in SITA as an organization has a key performance indicator (KPI), some of which are a bit strange. One of my KPIs is how much money I save my customers. We have a mandate to make it as cost effective and efficient as possible. SITA is here for the long term, making long-term investments. We do not just bring technology. We bring our understanding of what is going on in the world in terms of best practice. But I have been very pleased, particularly over the last four or five years. I have seen phenomenal improvement in Indonesia not necessarily in the infrastructure itself, but in the cooperation between stakeholders. I think the Airport Development Conference that happened last week was the first one ever. The industry stakeholders rarely talked to each other and now they do. To me that is a very positive sign that Minister’s goal could be reached.

We have seen that in India where they had a very similar problem 10 years ago. There are many lessons to be learned about what you can do there, how you can work with the various stakeholders to bring up the infrastructure. Now you can go to India and New Delhi or Mumbai airports are now world-class airports. People would not even fly to India 10 years ago because they had to go through Mumbai and New Delhi. I think Indonesia will get up there, with Skytrax 5-star rated airlines and ACI 5-star status airports. That may take 5-10 years, but that is what it takes to bring up infrastructure.

What would be your final message to our readers, in terms of them being potential flyers to Indonesia?

My message is to come and see Indonesia. The further away you go from Indonesia, the less you know about it. We all hear about Bali, and we here a little bit about Jakarta, but there are so many beautiful things to see here. As the infrastructure develops, the opportunity to fly around these thousands of beautiful islands will become easier for everybody. Come here and explore it, there is a lot to be seen, and a lot of pleasant surprises.

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