White Paper Digital Transformation Initiative Aviation .

Calculating the value of digital transformationThe Forum’s value-at-stake analysis aims to assess thevalue unlocked by digital transformation initiatives withinthe four themes across the entire ecosystem. (For anexplanation of the value-at-stake methodology, see Section4 of this report, Value Framework.)Over the next decade (2016 to 2025), digitalization inaviation, travel and tourism is expected to:–– Create up to 305 billion of value for the industrythrough increased profitability–– Migrate 100 billion of value from traditional players tonew competitors–– Generate benefits valued at 700 billion for customersand wider society through a reduced environmentalfootprint, improved safety and security, and cost andtime savings for consumers–– Result in a net displacement of current jobs in theindustry, which is expected to be partially offset bythe creation of next-generation skilled jobs inside andoutside the travel ecosystemDigitalization should have a positive environmental impact,contributing to a more sustainable industry footprintthrough innovations in manufacturing, smart assets andefficient resource use. For customers, the personal impactis expected to be significant as travel becomes a seamless,frictionless, higher-quality experience.––––How will the operating models of travel organizationschange in a smart and connected world where thelines between online and offline are blurring, andphysical assets are becoming digital? How will thischange the behaviour of individuals?To what degree can personal data be securely andethically used, and made interoperable across publicand private stakeholders, to boost safety and security?Key points to considerMaximizing the value of digitalization in aviation, traveland tourism will require concerted action from industryleaders, regulators and policy-makers. A series of actionsfor ecosystem participants looking to make digitaltransformation a success has been have been identified:–– Transform legacy systems into agile interoperableplatforms, to enable plug-and-play interactionsbetween partners in the ecosystem.–– Support the transition of the workforce by reskillingcurrent employees through training, and empowereducational institutions to design curricula that preparethe next generation for the digital economy.–– Develop a multistakeholder approach – involvingprivate, public and civil-society organizations – todeliver regulatory frameworks that define theappropriate uses of data.The greatest societal impact may be the effect of digitaltransformation on the travel workforce, which couldrepresent as many as one in every 11 jobs worldwide by2025. Intelligent automation will change the nature ofsome travel jobs and eradicate others altogether. However,digitally enabled growth will also generate new employmentopportunities that could outpace the automation of existingroles, especially as strong growth is forecast for theindustry. Platforms also enable “liquid”, flexible workforcemodels, which will redefine the employer-employeerelationship and present new challenges for regulating theworkforce. A concerted effort across industry, government,educational institutions and civil society will be required tomitigate any negative impacts.Key questionsAs the digitalization of aviation, travel and tourismaccelerates, stakeholders within the industry will need toconsider important questions about the future evolution ofthe travel ecosystem, including:–– How can the travel ecosystem incentivize customers toshare personal data in exchange for tangible benefits,such as a hyper-personalized travel experience,while ensuring that a consumer’s right to privacy isprotected?–– Is there a model for forging global collaboration andfacilitating the sharing of company assets, to unleashthe full potential of digital transformation, while alsopreserving a company’s relevance in the battle forconsumer mindshare?Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 5510.01.17 09:00

Industry Context and Digital TrendsThe aviation, travel and tourism industry has been at theforefront of digital innovation, but industry and technologytrends suggest that further change lies ahead. The sectorhas been an early adopter of digital technologies andplatforms, but steep demand for travel, driven by a growingmiddle class in emerging markets and the increasingimportance of digital experiences, implies that furtherdigitalization will be vital if the expectations of tomorrow’sconsumers are to be met.The travel ecosystem (see Figure 1) has helped shapecustomer expectations for on-demand and convenientservices through digital innovation, both within and acrossindustry boundaries. The next step is for organizationsthat are lagging behind to change how they work, sothat they too can capture the opportunities that digitaltransformation presents.Figure 1: The Aviation, Travel and Tourism nesLow-costAirlinesTaxiTrip"OrganizersARRIVALCar ceProvidersAirport"OperatorsOEMs / SystemAirport"ProvidersOperatorsSocial ce: World Economic Forum/Accenture analysisThe transformation is encapsulated in a macro trend: from the traditional economy to the new economy, i.e. frommanufacturing to services. Digital is one of the developments that enables companies to offer services instead ofproducts. As an industry, aviation, travel and tourism has a head start, because of its position as a heavily serviceoriented ecosystem at the “new economy” end of the spectrum.6Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 610.01.17 09:00

Industry trends1.Growing demand for travel. Growing demand bringsa great opportunity, while challenging ecosystemstakeholders to rapidly adapt their strategies to capturegrowth. Since the 1980s, the amount of air traffic hasdoubled every 15 years, and is expected to continue todo so (see Figure 2).Appetite for travel is increasing due to demographicdevelopments: the growing influence of millennials, whoare more likely to travel; and the expected doubling ofthe middle class in high-growth global regions, andthe corresponding rise in their disposable income.2Furthermore, travel itself has become more affordable, withglobal airline fares falling in price by 4% in the first quarterof 2016 compared to a year earlier.370%Forecast share of global airline travel that emergingmarkets will account for by 2034.2Figure 2: Aviation Traffic Forecast to Double in the Next 15 years (revenue passenger kilometre, trillion)Source: ICAO, Airbus GMF 20152. The rise of the digital consumer. The travelindustry is a leader in e-commerce maturity. Withoutowning high-capital assets (e.g. cars, planes oraccommodation), new entrants such as online travelagencies (OTA), meta-search engines and bookingplatforms are harnessing technological developmentsto build digital platforms that aggressively disrupt thevalue chain. These new entrants challenge the aviation,travel and tourism incumbents, while the incumbentstry to adapt to the new digital paradigm – and attemptto gain direct access to the “digital customer” and ownthat relationship.37% Percentage of airline travellers with an onlinepresence in 2014, compared to a global average of 6.5%for other industries.43. Changes to the security landscape. Geopoliticaltensions, terrorist activity and some high-profileaccidents have brought a renewed focus on securityand safety. Beyond their direct human cost, attacksand accidents can also have significant economicfallout, as the example below illustrates. As securitymeasures tighten, an impact on the overall demandfor travel can be expected. The question forstakeholders is how to support growing demand fortravel seamlessly, while also maintaining and improvingsecurity standards. Security concerns are relevant toboth physical environments (e.g. border checkpointsand within tourist zones) and the digital world (e.g. dataprivacy). Security breaches (in the physical or digitalworld) and accidents can inflict severe financial andreputational damage on travel companies.5Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 7710.01.17 09:00

Economic Cost of the World Trade Center Attack on 11 September 20016 95 billion 40 billion 10 billion83,000Losses to New York City (jobs, taxes, infrastructure, cleaning)Losses to insurance industryLoss in air traffic revenueNumber of direct job lossesTechnology trends1.Rise of intelligent automation. Intelligentautomation (e.g. robotics, 3D printing, AI and IoT)will result in high-quality services and products witha lower environmental footprint and reduced costs.Powered by AI, the next wave of solutions will gatherunprecedented amounts of data from disparatesystems via the multiple touchpoints the traveller haswith providers.72. Dominance of digital platforms. Digital platformsare taking shape across the industry. In the digitaleconomy, platform ecosystems are the foundationfor new value creation. Figure 3 below shows thecomparison of market capitalization of OTAs versustraditional industry players.Generating innovation from the outside is the key tostaying relevant. This can be achieved by extendingconnections with players in the same ecosystem.50 billion Approximate number of connected devices 50% Proportion of large enterprises creating and/orby 2020 – equivalent to 6.6 per person.8By weaving together systems, data and people, thetraveller experience will be transformed to maximizethe likelihood of a rebooking due to the quality ofservice. From an operational perspective, intelligentautomation represents a sizeable opportunity to makeenterprises more efficient and effective. Connectedassets, combined with AI, will allow companies torethink their processes, simplifying and delayeringorganizations, and cutting out intermediaries – internaland external – that no longer provide value. Examplesinclude dynamic network scheduling and self-rosteringfor employees.partnering with industry platforms in 2018.Search engines such as Google already have theinformation to arrange seamless pickups betweena flight and Uber, or tell hotels and airlines whensomeone books to attend a conference. It illustrateshow fast the travel industry is evolving.Figure 3. Market Capitalization Comparison of OTAs, Airlines and HotelsSource: World Economic Forum/Accenture analysis8Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 810.01.17 09:00

These technology trends are not new, but they are nowdeliverable at scale. Businesses should exploit these trendsfast – or at least prepare for their impact – because of twomajor developments:–– Digitization of everything. Now that advancedtechnology is affordable and miniaturized, the barriersthat prevented devices, vehicles, people and thingsfrom connecting have been torn down. A suitcase canbe tracked throughout a journey; a personal assistantcan tell you the time it takes to walk to the gate basedon your location. Companies who fail to adopt easytechnology-enabled applications will be left behind.–– Liquid expectations. Inspired by consumer-centricexperiences in other industries, customers in the travelindustry now have high expectations. Compare, forexample, the way airlines cope with flight cancellationswith the hassle-free way that Zappos and Zalandohandle returns. Customers seek highly personalizedand seamless experiences, all connected by theplatform of their choice. Today, even in the low-budgetsegment, what the industry is currently deliveringfails to live up to even the most modest customerexpectations.As each piece of a journey is digitally connected,opportunities to catalyse change and scale operationsincrease exponentially. Unfortunately, this enhanced abilityto scale also brings extra exposure to systemic risks,especially when legacy systems are still widely used.As every digital step forward creates new risks, trustbecomes a cornerstone in the industry. Without digitaltrust, businesses cannot use and share the data thatunderpins their operations. One advantage for aviation,travel and tourism stakeholders is that customers alreadytend to share information with airlines and hotels when theyperceive it to be required for security reasons.InfluencersDigital transformation does not take place in a vacuum.External influences play an important role. In some cases,they can accelerate digitalization, in others, they mayhinder it. Five factors expected to have a major influenceon digital transformation in aviation, travel and tourism havebeen identified:1. Regulation. Regulatory frameworks have a significantinfluence on the speed of transformation. They canpose major difficulties for cross-border integration,as regulations in different part of the worlds can bevery different. Innovation moves at a faster pace thanregulation and policy-making, forcing institutionsto make new regulations for nascent technologies.In some cases, regulatory regimes can discouragecorporations from pursuing new technologiesbecause they cannot be made profitable in the currentregulatory environment.2. Legacy systems. Companies need their legacysystems to continue operating as they develop newones, reducing an organization’s agility and capacityto transform itself quickly. Developing a multi-speedapproach to IT is one way to curb the negative impactof this influencer.3. Infrastructure. As asset-free business models takecentre stage, the importance of controlling the qualityof physical assets should not be ignored. Acceleratingchange from digitalization will also have an impact onfuture investments in both physical infrastructure anddigital technologies.4. Jobs and skills. Digital transformation demands adifferent skill set from workers in today’s economy,and will create new types of jobs. Aviation, travel andtourism players will need to adapt to this transition,as digital transforms the ecosystem, with changebeing driven by people from within the organization.Challenges such as managing the impact ofautomation on employment, reskilling the industryworkforce for the digital economy, and creating asafety net for workers in a flexible workforce, will needto be tackled collaboratively by industry, regulators andpolicy-makers.5. Demographics. Demographic trends will play a rolein determining demand for travel and the speed oftechnology adoption across regions. Thanks to afast-growing middle class, regions in Asia, Africa andLatin America will drive the bulk of future growth intravel demand. Technology adoption, however, may bespeedier in developed, rather than emerging, markets.Within markets, businesses will also face the challengeof managing experiences for both technology geeksand consumers who are less adept at using digitaltechnologies.Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 9910.01.17 09:00

Value FrameworkDigitalization represents an attractive option for aviation, travel and tourism to create value, both for the industry itself andwider society. To understand the potential of digital transformation to create value, the drivers that underpin the industry’sfinancial performance, and its societal, customer and environmental impact have been analysed (see Figure 4).Figure 4: Drivers of Value Creation in Aviation, Travel and TourismValue DriversINDUSTRYIMPACTCustomer RevenuesFree Cash Flows/Operating MarginsShareholderReturnsVALUE IMPACTOF DIGITALTRANSFORMATIONSOCIETALIMPACTValue DriversLoad FactorYieldAncillary RevenueOccupancyRevPARPlatform FeesDemandCostsCustomersEnvironmentCost SavingsFuel/UtilitiesEmployeesTime SavingsMaintenanceInventoryCO2 EmissionsEmploymentOther: R&D, SG&A, food insurance,commissions, non-aircraft rentals, landingfees and other minor categoriesCapital AllocatedEconomic SurplusSocietyLives Saved / Securityand SafetyHow the value of digital transformation inaviation, travel and tourism was calculatedBuilding on this framework, the value-at-stake analysisaims to assess the impact of digital transformationinitiatives on industry, customers, society and theenvironment. It provides estimates of global industryoperating profits at stake from 2016 to 2025, and thecontribution that digital transformation can make tocustomers, society and environment in that time frame.Value at stake for industry comprises two elements:the potential impact of digital initiatives on an industry’soperating profits (value addition); and the shift in operatingprofits between industry players (value migration). Valueat stake for society measures the value impact of digitaltransformation for customers, society and the environment.The net impact on employment has been calculatedseparately and is not included in the monetary value atstake for society.Headline assumptions and observations for calculatingthe impact of digitalization in aviation, travel and tourisminclude:–– Industry. Organizations in the value-at-stake analysisinclude booking intermediaries, airports, airlines,aircraft manufacturers, hotels and lodging companies.These companies can benefit primarily from lower unit10Capacity––––TechnologyAircraft Rentals/OwnershipTerminal Facilities /Gates / Propertiescost through improved efficiencies handling highervolumes; and premiums and additional demandfor offering personalized and better experiences.Significant value to migrate within the industry fromtraditional hospitality players to the disaggregatedcrowd economy, led by online aggregation platformssuch as Airbnb and Uber, is expected.Customer. The benefits are clear: improved travelexperiences tailored to individual preferences andtime savings thanks to a seamless journey, optimizedthroughout the travel ecosystem. The extent to whichcustomers benefit may depend on their willingness touse their personal data as “currency” by sharing it withservice providers.Society. A lower environmental footprint throughmore efficient production processes and optimizedutilization of assets will be a positive impact fromsuccessful digitalization. New income sources forparticipants in the sharing economy by utilizing theirassets such as homes and vehicles are also expectedto be a significant benefit. Negative impacts couldarise from job losses in the travel industry, especially insimpler, process-driven roles, as a result of increasedautomation.A full explanation of the value-at-stake methodology can befound in the appendix to this report.Digital Transformation Initiative: Aviation, Travel and Tourism IndustryWhite Paper ATT 2017 FINAL .indd 1010.01.17 09:00

Future Horizons: Digital Themes andInitiativesDigitalization represents an exciting opportunity for theaviation, travel and tourism ecosystem, with the potential tounlock approximately 1 trillion of value for the industry andwider society over the next decade. Digital transformationis impacting every element of the aviation, travel andtourism value chain. Platforms such as Airbnb and Uberhave radically altered demand-side dynamics, enablingsmall entrepreneurs to compete with bigger players. Atthe same time, OTAs are using up-to-date informationto change the way travellers explore travel offerings. Thetravel ecosystem is evolving, with blurring boundaries andchanging roles across the industry landscape.Four themes are central to the industry’s digitaltransformation over the next decade:Living travel experienceTravellers will experience seamless journeystailored to their habits and preferences.Companies along the travel journey willoptimize customer experience by collectingand exchanging data, and continuouslygenerating insights. In time, travel willbecome frictionless, blending seamlesslywith other everyday activities.Enabling the travel ecosystemEcosystem roles are blurring asstakeholders throughout the customerjourney vie to own the customerrelationship. Digital platforms that enableecosystem alliances will continue toemerge, as asset- and information-sharingbecome increasingly important from a B2Bperspective.Digital enterpriseDigital technologies that revolutionizemanufacturing, optimize the real-time use ofassets and eventually augment the industryworkforce will transform operations.Innovations such as 3D printing, AI, IoT,VR and digital platforms will enable flexibleworking and changes to core operationalprocesses.Safety and securityAs identity management becomesincreasingly digital, a collaborative efforttowards boosting cybersecurity andprotecting the privacy of traveller data willbe crucial to maintaining customer trustand public safety. Digital technologies (e.g.biometrics such as facial recognition, IoT,crowd analytics and video monitoring via AI)will be used to create a ubiquitously secureenvironment.Within each theme, specific digital initiatives have beenidentified that are expected to be the building blocks ofdigital transformation in aviati

Digital Transformation Initiative: Aviation, Travel and Tourism Industry 3. Foreword. There is widespread recognition among industry leaders that the role of digital technology is rapidly shifting, from being a driver of marginal efficiency to an enabler of fundamental innovation and . disruption.