by Thomas Macaulay

Lufthansa CIO Dr Roland Schütz describes the airline’s digital transformation

Mar 31, 2017
Data CenterIT LeadershipIT Strategy

The world’s largest airline and is currently undergoing the most impactful restructuring in its 60-year history. Lufthansa Group employs more than 120,000 staff and has numerous revenues and complex business needs requiring a multifaceted strategy, as its CIO and Executive VP Dr. Roland Schütz told CIO UK.

“I don’t like this term of two-speed approach Gartner is using because in truth you always have multi-speed,” says Schütz about Bimodal IT. “You are living in a complex environment and in some areas you can move more aggressively and try out things, and in others, for example, those which are more safety-relevant, you are moving slowly.”

Replacing the decades-old computers onboard aircraft that are still reliable, for example, may pose more of a risk to safety than maintaining them would. Other aspects of the business must be updated more quickly to ensure the company remains ahead of the curve.

Schütz wants to enhance the company’s digitisation through automatisation, by combining emerging artificial intelligence capabilities with the airline’s existing troves of data. The approach can be used in applications such as predicting ticket prices and making individual offers to customers based on their personalised profiles.

“When it comes to flying we are running a complex network of aircraft circling around the globe and we have other conditions — an airport is closed or somebody’s going on strike — and of course this network gets disturbed and has to recover,” says Schütz.

“This can be done with artificial intelligence as well, or we can predict where we need spare parts for our aircraft and things like that.

“We have collected a lot of data, we’ve provided the infrastructure, but now we are slowly getting to the stage of harvesting it and implementing smart things and that makes me really excited what we can get out of it.

“I think that’s often overlooked, that you have extensive and lengthy preparation to do which can last years and years before you can really exploit the new technologies. Now I think we’ve reached a certain stage where we can really draw benefit out of it, and that’s what we are focusing on.”

Digital transformation

Schütz joined the company as Chief Operating Officer of Lufthansa Systems in 2005. He became CIO of Lufthansa Group Airlines in 2016 following stints in the same role at Lufthansa Cargo and Lufthansa Passage.

He offered his advice on how airlines can embrace digital transformation in the recent ISG whitepaper, Perspectives from the Pioneers, a series of 12 pieces by CxOs from different industries exploring the challenges they face in their roles today.

Schütz divides Lufthansa’s digital transformation into three separate clusters: digitising its core through automisation and the streamlining of processes, enhancing its products with digitised features such as in-flight entertainment, and finding new business models for the airline to exploit.

The company is finding new revenue streams by acting as what Schütz calls an “Amazon in the air”, offering services and products at 40,000 feet. Lufthansa now provides internet connectivity on both long and short-haul flights.

“The value of having a connected passenger in the air cannot be overestimated,” says Schütz. “Imagine you are sitting there, you are bored, you are fixed to your seat, you are reasonably rich and since you are personally known, somebody can sell things to you based on your profile and based on your behaviour.

“It’s even beyond Amazon. You can not only entertain the passenger, you can sell to them; you can give them discounts until the landing or you can provide some stuff they take home when they have landed.

“The seat in the air is one of the few remaining white spots on the merchandising landscape, and I think that it’s important that we find business models for how we can monetise these hours up in the air to the mutual benefit of our customers and third parties involved.”

Keeping customers can be more difficult once they’re back on the ground.  Lufthansa does this by embracing the consumer technology its customers are most comfortable with through innovations such as a chatbot created for the Facebook Messenger platform called Mildred who helps passengers find cheap flights.

“We have to enter the comfort zone of the customer in the future,” says Schütz. “I think that’s the way in the future we have to approach our customers, not only hoping that they approach us, but that we get in all the channels our passengers or potential customers are in.

“Of course we have different groups of customers and age groups and budget fliers and premium flyers, and all of these of course need the individual approach.”

Mobility and cultural change

The adaptation to developments in human behaviour also extends to Lufthansa staff. Changing working environments and increasing professional mobility requires a supportive infrastructure that may have only limited measurable business benefits.

“You have to develop your infrastructure. It’s eating up enormous amounts of money but it cannot be directly linked to top-line effects,” says Schütz.

“This modernisation of the overall infrastructure in terms of mobile and cloud computing which is expected by the modern workforce, by the millennials, that’s something which is really challenging us.

“We are especially impacted because we do have a globally mobile workforce. Most of our crews are continuously travelling, and so of course we’ve already reached the state where we’ve got way more mobile devices, smartpads, iPhone and stuff like that than standard office communication.

“That’s a complete paradigm shift, how you’re reaching and mobilising your workforce electronically, and I think that’s the most severe impact for us.”

Lufthansa has embraced the transformation through initiatives including equipping cabin staff with iPads to provide passenger information and process reports electronically. Such schemes support supports the company’s move towards a paperless workplace and more flexible workforce.

The increased connectivity in both business-to-customer and business-to-employee infrastructures is breaking down the boundaries between company and clients.

“The borders between the company and the public and the customer sphere are diluting in some way, and you have to integrate them, but based on different security levels and so forth,” says Schütz. “That’s really a challenge because it’s happening so fast and you are completely bound to the product lifecycles of consumer equipment.

“You have to do this but your back-end systems — all the legacy systems which are still in place — need to be connected to the front-end stuff in a very flexible way. We need a whole new type of architecture to integrate with these mobile frameworks, connecting to your workforce. And on the other hand of course, in a transparent manner, we have to abandon our legacy infrastructure.”

Lufthansa has invested €1 billion into replacing its IBM and UNISYS combined mainframe structure, an enormous cost and effort but an essential move to drive the company forward.

Other projects at Lufthansa have required more time for the approval and investment process than for the actual implementation. Schütz says the success of any innovation requires the support from top management and HR as well as the IT department, underpinned by their understanding that technology is a process of unceasing improvement and adaptation rather than static long-term plans.

Schütz is also constantly focused on enhancing cyber-security. The company is continuously threatened by increasingly sophisticated attacks, particularly on its booking and arrangement programmes.

“We are currently considering tripling the effort we will put on cybersecurity,” he says. “You are always somewhere in-between enhancing user-friendliness and getting your services secured, and that’s really very resource-consuming.”

Open collaboration

The Lufthansa strategy requires the flexibility to change and the drive to discover new channels while recognising that the company’s diverse set of customers will have their own specific preferences.

The airline has an open API and invites third parties to integrate their web services with its systems at the Lufthansa Developer Network. This emphasis on open collaboration lets the airline draw on the innovations of startups supported by schemes such as a partnership the Plug and Play accelerator.

The core technology in the company is provided by more established IT companies. Lufthansa does a limited amount of rapid development and prototyping of customer facing environments in-house but for complex systems, it relies on sophisticated technology providers to reduce time to market of new technology and features.

The airline works with IBM on its global IT infrastructure and smaller firms such as PROS for revenue management and has integrated its booking and ticketing service into the Amadeus Altea platform.

“We perceive ourselves as an end-user company. Our core purpose is flying and maintaining aircraft and the kind of technical engineering, but our core purpose is not developing software or running an IT shop, that’s only a necessary part of the whole.

“We really believe we need a smartly composed ecosystem of innovative partners which can carry us forward. We apply technology but we cannot afford developing technology. We are not building our aircraft by ourselves, it’s done by Boeing and Airbus, and IT is a complex masterpiece of engineering as well.

“We need strong partners that can help us pushing in some technologically important field forward. So we do need the right ecosystem of partners which help us to innovate in fields which are of strategic importance to us. I deeply believe we cannot do it completely by ourselves.”

Schütz draws on the practices of the retail industry for inspiration when personalising email marketing by sending passengers relevant flight offers and advice without swamping them with information that could cause them to be blocked.

Another area in which technology has benefitted Lufthansa is in handling its exponential growth in pricing enquiries that has resulted from the specific data requirements of real-time offers. Using bots to automate responses has cut the costs of answering in half.

“We increased the conversion rate in our marketing measures by 30% only by starting to filter emails by simple rules,” says Schütz.

“We are building up profiles of our customers and their preferences when they are flying with us. Of course, we are always strictly to the law when it comes to data privacy, but this kind of data is extremely beneficial for us better meeting the needs of the customer. Simply by introducing this filter, we increased our conversion rate by 30%.

“Knowing the customer and having an artificial intelligence-assisted relationship with the customer is most important, and I think that the retail industry is ahead of us there, but I think we can catch up.”