This applications market sizing report examines the 2009 performance of the top 10 applications vendors in the transportation vertical, which includes airlines, railways, postal and package carriers, shipping companies, and logistics service providers.
The market was essentially flat in 2009 as recession, coupled with relatively high fuel costs in the first half of the year, hurt the performance of the whole sector. Many transportation companies slashed their IT spending as a result. The tentative recovery did not improve things until the tail end of the year.
Still the signs are encouraging as passenger and freight traffic starts picking up once again. Government-funded initiatives, including high speed rail projects that could begin service as early as 2013, will also boost investment in the applications market through the forecast period.
Top Line and Bottom Line
On the top line, the transportation vertical is one of the most fragmented sectors encompassing different modes of transport for moving people and goods around the world. Hence there will always be a need for not just implementing new applications for new transportation systems, but also upgrading existing ones with the latest technologies to improve speed, performance and scalability.
Airlines, for example, are undergoing major expansion as leisure travel picks up in developing world and business travel is rebounding in industrialized nations. The result is an increased demand for agile applications to accommodate airlines’ requirements for real-time booking and ticketing as well as for managing passenger records and departure control.
Legacy applications for computer reservation systems are at different stages of being replaced or upgraded as airlines are loath to carry on with the expensive task of maintenance and support so that they can focus on their core competency. Hence new software will need to be written specifically for next-generation infrastructure that leverages the latest mobile technologies.
In one example, the Chinese government plans to invest up to $1 trillion by 2015 on infrastructure projects. More than half of that amount will go into new railways, airports and other systems for the nation’s more than 30 domestic airlines.
The bottom line is that the transportation vertical is a work in progress because of its inherent challenge of running a distributed network that is always in search of the nexus to accommodate people on the move. In fact there are so many untapped opportunities for new applications including electronic toll collection for the next-generation car to grid system or Web-based portals for clearance of customs forms to meet shifting global trade management compliance requirements.
The market for applications for the transportation vertical was essentially flat in 2009 as new IT spending was either halted or postponed at the teeth of the recession. As economic outlook began to look rosier, new projects were placed on the front burner.
In August 2009 American Airlines announced its plan to develop a new computer reservation system with HP, which has considerable presence in the market through its EDS division. The new system called Jetstream is expected to be phased in over the next four years replacing the Sabre CRS that American has been running for decades.
Other new developments have been put into high gears by applications vendors such as Amadeus, Sabre, SAP, Travelport and TravelSky, all vying for the opportunity to sell next-generation applications to airlines and airports to manage their operations and customers over the next few decades.
Other vendors have focused on ground carriers, logistics service providers as well as an army of freight brokers, forwarders and other stakeholders helping them improve their operations through optimized profitability by incorporating partner collaboration, transportation network design with the help of RFID and fleet management, as well as the inclusion of carbon footprint analysis for companies that make sustainability a business priority.
On the M&A side, apps vendors focusing on the transportation vertical have done their share of deal making. Descartes, for example, raised $38 million in a stock offering to help fund its acquisitions. Its latest one was the purchase of Belgian-based Routing International for its optimized route planning solutions.
RedPrairie, following its acquisition by private equity firm New Mountain Capital in March 2010, acquired SmartTurn for its warehouse management applications two months later.
The underlying strengths of the transportation vertical, coupled with the heightened interest of institutional investors, are expected to fuel the growth of apps vendors that have every intention of making it easier for companies to transport people and goods around the world.
Implications Of The Great Recession of 2008-2009
While the recession has dented the hopes of sustainable growth in the transportation vertical, it did not threaten to take down the entire industry. While the transportation vertical appeared to be more resilient than financial services because of its critical role as a global link, it was not immune from external threats.
The spread of the H1N1 virus in early 2009 – and more recently the volcanic ash eruption incident – posed serious challenges to the vertical, underscoring the vulnerability of the system in staving off potentially disastrous outcome. What it remains unclear is whether new technologies and the accompanying applications can be put to the test of securing the system, perhaps limiting the damage done to the entire transportation network.
The second half of 2009 appeared to have given the vertical a new lease on life as the transportation vertical was swamped by increased passenger traffic. By the end of the third quarter of 2009, bookings using Amadeus Global Distribution System ended the fifth-straight quarterly decline with only a 2.8% drop. The figure shot up to an 8.8% jump in the fourth quarter of 2009 and continued with a 9.6% jump the following quarter. Amadeus attributed the rebound to strong bookings in Middle East and Asia Pacific. Similar sentiments were echoed by other GDS providers as well as applications vendors that specialize in transportation industry.
Descartes, which operates an on-demand service that acts as a federated global logistics network processing everything from carrier selection to cargo freight billing, saw a 35% jump in revenues for its latest quarter ended July 31, 2010, citing improved business conditions and recent acquisitions. That followed a 22% rise in revenues for its preceding quarter even though its network was snared by disruption of cargo traffic due to the Icelandic volcanic activity in April.
As the turnaround of transportation vertical was buoyed by heavy infrastructure investment around the world, the threat of a double-dip recession began to recede. Even in mature markets such as Western Europe, Amadeus saw pockets of growth. In its latest quarter, Amadeus sold its Altea passenger service systems to two regional airlines in France and migrated three airlines including Spanair of Spain to new departure control module.
What these developments suggest is the resiliency of the transportation vertical fueled by man’s eternal quest for discovery. The applications vendors in turn are doing their part not to disappoint the intrepid travelers.
Airlines, railways and logistics service providers in Asia Pacific and Middle East are expected to serve as the catalyst for applications vendors to expand in the transportation vertical. Given the strong fundamentals of these regions and their lavish spending on bulking up their transportation networks, the market is ripe for sustainable growth.
A case in point is Dubai-based Aramex, an 8,100-person logistics service provider that has doubled its size since 2005 and now plans to enter 10 new markets in Africa, Asia, and Eastern Europe. Recently it signed Descartes to start using its Global Logistics Network and global supply chain execution applications, Messaging and Cargo 2000, to help manage its air freight operations.
Similarly applications implementations will gravitate toward countries such as China, India and Indonesia where transportation systems are undergoing major overhaul.
For instance, Infor last year signed three metro operators Chongqing Metro, Shenzhen Metro and Seoul Line 9 to sell its enterprise asset management applications to help these rail companies keep up with their increasingly complex operations and equipment needs.
Top 10 Applications Vendors In Vertical
The following table lists the 2009 shares of the top 10 applications vendors in the transportation vertical and their 2008 to 2009 applications revenues(license, maintenance and subscription) from the vertical.
Vendors To Watch
Because of the fragmented nature of the vertical, small and midsized applications vendors will continue to take advantage of often overlooked opportunities.
Rostima, for example, has become a viable alternative to mainstream workforce management applications because of its domain expertise in serving port operators by addressing their human capital management requirements.
McLeod Software and Mercurygate are among the apps vendors that have succeeded in tapping into logistics services providers. McLeod, which focuses on the trucking segment, has established a base of more than 500 carriers and brokerage customers. Mercurygate is another major contender in transportation management applications for 3PL, brokerages and shippers.
On the airline side, the vendor to watch is Navitaire, which is often considered an underdog compared with the wellknown Airline IT operations of Amadeus, Sabre, and Travelport. Navitaire, which acquired the computer reservation system from HP in 2000, has carved out a niche by selling passenger service systems to low cost carriers such as AirTran, Cebu Pacific, GOL, Jetstat Airways, Porter Airlines, and Virgin Blue. It’s not clear the pending merger between Southwest Airlines, a big Oracle customer, and AirTran would have on Navitaire.
On the upside, the transportation vertical is girding for a new era of expansion as passenger and cargo traffic starts taking off. Applications vendors appear to be benefiting from the upward movement given the amount of legacy systems that needs to be upgraded or replaced by airlines, railways and LSPs in order to accommodate their growth. For one thing, both American and Air France/KLM are doing just that. Other so-called legacy operators, including United Airlines, are considering the same to better compete with upstarts and low-cost carriers.
On the downside, the transportation vertical, which has been hurt by sharp swings in fuel costs, labor unrest and external factors from climate changes to terrorist attacks, has gone through the boom to bust cycle a number of times since the 1990s.
Applications vendors will not experience smooth sailing given the fragility of the current recovery. The outlook is particularly worrisome in North America and Western Europe, which still represent the lion’s share of the passenger and cargo traffic and any sustainable growth in IT spending is far from certain.
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Transportation Market Report 2009-2014