Latin America’s Growing Air Travel Market Creates Opportunity for Outsourcers

As airlines seek to make their operations as efficient and profitable as possible, they are increasingly looking to outsourcers to provide key services and modernize their electronic platforms. …

Luke Bujarski, Director of Research, PhoCusWright.

As airlines seek to make their operations as efficient and profitable as possible, they are increasingly looking to outsourcers to provide key services and modernize their electronic platforms. And as Latin America’s relatively young air travel market continues to expand, third-party providers will be able to tap into the growing demands of airlines that operate in the region.

“From an operations perspective, carriers have less control over costs compared to other industries. They find themselves at the mercy of fluctuating fuel prices, fleet maintenance costs, and wages for roles that are difficult to offshore or automate,” Luke Bujarski, director of research at global travel market research firm PhoCusWright (and former Research Director at Nearshore Americas), said recently. However, “When it comes to innovative IT development across Latin America, leveraging third-party expertise could definitely give them an advantage,” he added.

For example, outsourcers that dig deeper into the wealth of available data can considerably enhance airlines’ understanding of their client bases from a personal perspective, Bujarski said. “Increasingly Big Data is a huge consideration. Intermediary services can look at it and consider how to increase sales or things like seat upgrades and other personalized consumer services,”he explained. “I see a lot of opportunity for airlines to tap into the knowledge base of experts in (the Big Data) field, in the high-end of the technology spectrum – not just the basic IT support services that you might see in other industries.”

Passenger Services

One outsourcer with a strong focus on the airline industry is Hexaware Technologies, an IT and BPO firm based in Mumbai, India. Hexaware has service delivery options in Monterrey, Mexico; Atlanta and  Virginia in the U.S.; the United Kingdom; Germany and five major cities in India. Among the company’s clients are eight of the world’s top twenty airlines and many more smaller carriers, Executive Vice President Madhu Kumar told Nearshore Americas.

Hexaware provides a wide range of services, including inventory management; reservation; ticketing; check-in; departure control systems; ground handling; customer loyalty systems; GDS integration; interlining messages; weight and balance; contract management; crew, staff scheduling; maintenance, repair and overhaul (MRO); flight operations; revenue accounting and management systems.

Of these, passenger service systems, freight and logistics management, MRO analytics and E commerce services are Hexaware’s most in-demand services from airlines, Kumar said. “Many airlines, especially larger carriers, are automating their passenger service systems and technical operations systemswhich are often run on very old systems,” he explained, so these airlines typically contract “providers to modernize their IT/application infrastructure.” As Hexaware explains on its website, “The most important touch points between the airline and the customer are booking and check-in process at the airport. The smoother the process the better the customer experience. Airlines are increasingly resorting to the use of technology to empower the passenger for a customized and enjoyable travel experience.”

A Growing Market

The combined air travel market in Argentina, Brazil, Chile, Colombia, Mexico, Peru is worth US$31.6 billion and is growing at 8% per year, according to PhoCusWright. And there is still plenty of room for growth, as the annual spend per capita on air travel is just $168 in Brazil and $217 in Mexico, compared to $1,064 in the U.S. and $1,048 in the U.K.

“There are opportunities there in terms of contact center services and also web-based app development as the online travel space develops. Airlines are going to have to really compete with each other and with intermediaries,” Bujarski said. “Online travel agencies help them distribute their overall sales but at the same time take a healthy cut. So to help boost profits they’re increasingly trying to grow their bookings by direct sources so as to cut out the middle man. They’re going to need real help when it comes to innovative app development and web design.”

The average share of passenger revenue coming from direct online channels (i.e. airline websites) is currently 25%, while the average share coming from indirect online channels (i.e. online travel agencies) is 11%, Bujarksi revealed.“The remaining share of bookings are processed via contact centers, traditional travel agencies, and corporate travel management companies,” he explained. Leveraging third-party expertise in web and application development will be critical to improving user experience, to wrangle customers toward direct online bookings channels, hence reducing hefty commissions paid to intermediaries.

“One difference between low-cost and traditional airlines is that low-cost airlines sell much more of their services through direct online channels and call centers, whereas traditional airlines use travel agencies more,” Bujarski added. “So there’s a higher pressure on the low-cost airlines to make sure that those platforms are top notch in terms of user experience and locating all the things that are going to sway the customer in one direction or another.”

Another significant factor to consider is that “Travel behavior is very different in Latin America compared to more mature travel markets like the U.S. or Europe,” Bujarksi noted. “So from a consumer side, Latin American airlines are going to require a bigger focus on contact center services but they must also really step up their game when it comes to developing their online portals, making sure that they’re compatible, and this goes for the intermediaries as well, the likes of Despegar, etc.”

In general, “Airlines in Latin America are more offline than they are online, in contrast to airlines in the US or Europe. So naturally the front-end outsourcing services that they’re going to be leveraging are going to be a little bit different from what you would see in the US or Europe,” Bujarski added.

An Airline Outsourcing Hub

Puerto Rico is one of the locations working to establish itself as a leading hub for both BPO and MRO for airlines in Latin America.As Nearshore Americas recently reported, Infosys is investing $9.3 million in a new contact center on the island to provide customer service, order management and administrative services to clients in the aerospace industry.

Meanwhile, other companies are also taking advantage of Puerto Rico’s technical expertise and strategic location to provide in-house or third-party services to major clients, with Honeywell Aerospace and Lufthansa Technik both committing to open new facilities on the island earlier this year.

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Honeywell Aerospace already has a center of excellence to service its own internal clients from Puerto Rico and it is now investing $35 million in a new lab to support its global aerospace and defense operation in the areas of app and software development and aeronautics engineering design, Antonio Medina, the executive director of the Puerto Rico Industrial Development Company (PRIDCO), told Nearshore Americas.

“Another very important project that we were able to negotiate was the entry of Lufthansa Technik to Puerto Rico. Lufthansa have been looking for ten years for their first location in the Americas to repair airplanes and they chose to come to Puerto Rico because of the human capital and because of their relationship with the government and because of the incentives that we have provided,” Medina said. “We’re going to build some new hangars for them and they’re going to create 400 jobs. It’s a fantastic opportunity for Puerto Rico to expand its aerospace capabilities. We will have construction starting this summer and the first airlines should be serviced in mid to late 2015.”

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