The Tag is on The Bag: A Suit(Able) Case For Rfid And Airline Luggage Handling
Overview
The RFID (Radio Frequency Identification) equation for tagging checked airline baggage is unique. RFID technology is far more accurate than the legacy barcode method of tracking, which often requires human intervention for accurate luggage sortation and routing to occur. The business case is solid, and the ROI is clear and short (roughly 1-2 years for installations). The industry’s worldwide trade association - the International Air Transport Association (IATA) – has established global UHF standards. The customer service needs are great, and public safety concerns in preventing terrorist attacks are paramount. The one missing element has been the financial health of the airlines themselves. Plain and simple, in the aftermath of September 11, US airlines faced unprecedented operational, financial, and security challenges. Thus, however good the charts and Powerpoints were in favor of moving to RFID from barcode technology for luggage tracking, airline executives simply lacked the capital necessary to take on the intractable problem of baggage handling by implementing RFID technology.
Surveys have consistently shown that misdirected, delayed, and lost baggage is a major headache for both the airlines and their passengers. Tales of airline customer service are often intensely personal (“I’ll never fly XYZ Airlines again, after they lost my bags for five days with all my skiing clothes and ruined my Colorado vacation!”). While they are anecdotal in nature, they quite often grow in magnitude as they are passed along, both in person and, nowadays, also via blogs and email.
Sometimes though, baggage woes are systemic, as was the case with the 2004 “Christmas nightmare,” when US Airways baggage systems were overwhelmed with holiday traffic and weather. Quite literally mounds and mounds of misrouted baggage – over 10,000 pieces – accumulated at the carrier’s Philadelphia hub and were broadcast over and over and over again on news outlets. After the 2006 air terror scare, when the US Transport Security Administration put in new restrictions on carry-on liquid items (the infamous “all your toiletries - 3 ounce maximum for each - must fit in a small plastic bag” rule), more and more flyers have elected to check their bags rather than deal with the new security procedures at airport checkpoints. This means that today, US airlines are handling anywhere from 10-20% more checked bags than in prior years, further exacerbating their baggage handling problems.
The Airline Quality Rating
The numbers are stark. Each month, US airlines report a number of performance metrics to the US Department of Transportation (DOT). These make transitory news headlines when print and broadcast media report on which airlines fared best and worst in terms on on-time performance, “bumped” passengers, customer complaints, etc.
However, Professors Brent D. Bowen of the University of Nebraska at Omaha and Dean E. Headley of Wichita State University have become the leading academic analysts covering the American airline industry, as they have issued their Airline Quality Rating (AQR) Reports for sixteen consecutive years. Their analyses take the monthly DOT data and analyze all domestic US airlines annually for performance on four key customer service metrics:
• On-time arrivals
• Denied boardings
• Mishandled baggage
• Customer complaints (including flight problems, reservations, fares, refunds, disabled passenger issues, animal handling, etc.)
The Airline Quality Rating score is based on a formula combining these four measures. Based on the 2006 data, the best-rated US airlines were Hawaiian, JetBlue, and AirTran, while the worst rated were three regional carriers (Comair, American Eagle, and Atlantic Southeast). Overall, AQR scores for the industry have declined significantly over the past five years, and worsening baggage handling statistics are a major reason why. In fact, US airlines have performed considerably worse in recent years, losing almost a half a bag more per thousand passengers enplaned.
Airports Taking the Lead
A recent research report from ABI Research projected that the overall systems revenue for RFID in the area of airline baggage handling will grow from .8 million in 2006 to an estimated .5 million in 2011, representing a compound annual growth rate of over 18%. From the perspective of Lorne Riley of the IATA: “It’s reaching the tipping point. The business case itself is relatively strong.”
While the business case is there, the question remains as to whose business baggage transport really is? There is no question that there are multiple stakeholders interested in successfully identifying, tracking, and ultimately delivering checked baggage. As can be seen in the graphic opposite, not only do air carriers and passengers have a stake in having better and more secure baggage tracking, so too do airports and public safety officials (and, by extension, society and the economy as a whole, with our dependence on a secure and dependable global air transport network today).
Also, as airlines’ baggage problems have worsened, they have spilled over to affect other travel related businesses, including cruise lines, hotels, and rail lines, which depend on successful delivery of both passengers and their luggage to their sites for successful enjoyment/delivery of their services. Passenger doubts about the airlines’ abilities to deliver their luggage have led to increased business opportunities for companies such as FedEx and UPS, along with a number of rapidly growing third-party service providers who employ shipping companies to assure “door-to-door” delivery of air travelers’ luggage – for a fee. As an alternative to the per bag fees now imposed by most airlines, many business and even leisure travelers are seeing this as a viable alternative today.
Indeed, aside from an early trial by Delta in 2004 and pilots abroad (Air-France-KLM and Asiana), the majority of the focus on RFID to date has been on the part of airports seeking to differentiate themselves through better baggage service, most notably the highly publicized installations at Las Vegas’ McCarran International Airport and Hong Kong International Airport. According to analyst firm IDTechEX, as of early this year, twenty-four airports around the world are either conducting trials of RFID baggage tracking systems or putting such installations in place. Airports are increasingly competing to become gateways for both passengers and air carriers, and they see smart baggage tracking systems as a way to distinguish their airports from a service and cost perspective.
The Importance of Airline Participation
Airlines now have the ability to seriously consider piloting and implementing RFID-based luggage tracking, given the recovery of the industry as a whole. Such systems may be a key differentiating factor for airlines to reverse their poor customer service. Indeed, in local markets where RFID-based baggage systems are trialed, either alone or in conjunction with an airport partner, the piloting carrier can market the fact that such service is unique to the “Anytown, USA” market. And, the first carrier that makes the leap to a system-wide RFID implementation will likely enjoy a significant first-mover advantage in this competitive marketplace, giving them a benefit to tout to customers and enabling them to differentiate their airline through improved service, rather than price in what has been an intensely fare-conscious traveling public.
However, RFID-based systems do have significant cost benefits as well, as the ability to more accurately route and track baggage will enable airlines to significant reduce their expenditures, compensating passengers for delayed, misdirected and lost baggage, while reducing the labor needed to manually intervene in the baggage handling process to read tags and correctly load baggage on the proper flights. Additionally, airlines and their passengers will see significantly fewer flight delays caused by the need to reconcile passengers and their checked luggage – as RFID-based systems could quickly locate a specific bag of a non-boarding passenger in the cargo hold of an aircraft, rather than what is today a process that can cause delays of an hour or more as bags are manually inspected in aircraft cargo holds to find 1 or 2 suspect pieces of luggage – bags that could indeed represent terrorist threats. While US airlines do have significant capital expenditures on the horizon in terms of fleet replacement and refurbishment to meet the needs of today’s business and leisure travelers, it is unlikely that any investment could pay greater financial and customer satisfaction/loyalty dividends than shifting to RFID-based luggage tracking, especially in light of the global IATA standards that are in place.
Analysis
While airlines have the most direct interest and need for RFID investment, auto ID vendors and entrepreneurs should also look at four other possible scenarios for how RFID-based baggage tracking could “go down” in the United States market, which alone could be worth millions of dollars in initial installation investments and similar amounts in recurring tag/printer/integration revenues each year. Concisely stated, these would be:
1. Government mandated action
In the event of a major terrorist attack against an American airliner in the form of “the bomb in the suitcase” which eluded today’s airport screening methods, it is very likely that the US government would mandate RFID as the most-secure way to gain complete control and visibility over a vulnerable area of our air transport system.
2. Airport-based action
Building on the successes of the Las Vegas and Hong Kong implementations, airports would feel the need to keep up with their competing facilities on RFID implementations, undertaken independently of the government and the airlines, in order to retain and attract passengers for their location.
3. Consumer-based action
Analysts have projected that there is an opportunity for a market to take shape in which all (or some) travelers would themselves buy uniquely serialized, RFID-enabled “permanent” baggage tags – or luggage with RFID embedded in the frame of the bag itself – rather than using the disposable tags of current RFID-based baggage tracking systems.
4. Contracted baggage service providers
As discussed earlier, outsourcing has been a key component in the turnaround of several US airlines. Thus, just as carriers are routinely contracting out for maintenance, food/beverage, and reservations services, so too might they for baggage handling as well. Already, this is largely the case in major European and Asian airports, and such specialized service provision might make great sense in the US market as well. If the core function of an airline is seen as transporting passengers, it might well make sense for carriers to concentrate their customer service efforts on the animate customer and let specialized baggage service providers work with their luggage. Also, from a facilities investment perspective, such third-party providers might be better able to outfit a whole airport, rather than 5, 10, or 20 carriers or more (in the case of large, international airports) having to work to equip all their facilities in their network.
Conclusion
Looking five years ahead, it seems assured that whether airlines do indeed take the lead or one (or more) of these alternate scenarios plays out, we are at “the tipping point” for RFID-based baggage tracking to take hold in the US airline industry, and indeed, the global air network. If so, all of us can breathe much easier when we hand our bags over at the check-in counter that they will be on the baggage carousel at the other end of our journey. Now, if they just weren’t greasy, dented, scratched, wet, crushed.... ah, but that problem is for another day!
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David C. Wyld (dwyld@selu.edu) is the Robert Maurin Professor of Management at Southeastern Louisiana University in Hammond, Louisiana. He is a management consultant, researcher/writer, and executive educator. His blog, Wyld About Business, can be viewed at http://wyld-business.blogspot.com/.
Written by David Wyld
Professor of Management, Southeastern Louisiana University