Vertical View: UK Transport Sector & SITS investment
The UK transport sector finds itself in the eye of the storm, as the COVID-19 coronavirus pandemic shuts down airports, slashes rail passenger traffic, and makes cross-border journeys hugely challenging.
Easyjet has shrunk the size of its fleet and stated that it does not expect to return to pre-crisis levels until 2022. British Airways has furloughed 36,000 of its 45,000 workforces, while Virgin Atlantic has completely suspended passenger operations for at least one month, and is currently seeking a government bailout.
With the number of rail journeys at 5% of their normal level in April, the Government has partially nationalized the passenger rail network, with all commercial franchises suspended for six months and the state assuming all operating risk. Meanwhile, UK ports reported a 30% decline in throughputs during March as Asian exports ground to a halt.
The transport industry has been the source of some major digital transformation programs – most notably in the airline space, with technology playing a key role in British Airways’ £6.5bn program to improve the customer experience. So how is the pandemic likely to reshape software and IT services (SITS) investment in the coming months?
SITS SPENDING DOWNTURN
In the short-term, it will be the single sector that suffers the most dramatic slowdown in technology spending. Based on teknowlogy’s Group’s latest outlook for the UK transport sector, we anticipate two potential scenarios for software and IT services investment. The more “optimistic” view (with the peak of the crisis and widespread lockdown successfully contained within three months) would see SITS investment decline 5.6% to £2.4bn.
However, the more “pessimistic” view (with the peak playing out over a longer duration of six months) would see a decline of 19%. This would represent a huge shortfall on our original pre-crisis growth expectation of 4.5%.
At the time of writing (April 21), the hope remains that the market will lean towards the more optimistic outcome. But the sector is taking a massive hit, which will ensure that cost reduction will be the top priority – and that will impact SITS investment in many ways.
While other sectors have driven a spike in investment in new technology to enable large-scale homeworking, this is, of course, not possible for many areas of UK transport. Widespread furlough and in some case redundancy programs will impact the number of users being supported, and in a sector that has been relatively aggressive in adopting cloud-based services to support peaks in demand (Ryanair is a major AWS reference customer in the UK for example), it will be interesting to see how successful they have been in saving costs by flexing gown their consumption.
UK transport companies have been aggressive for many years in outsourcing key elements of their IT landscape. TCS has major deals with British Airways and Virgin Atlantic, and both Network Rail and Transport for London have frameworks in place with several large SITS suppliers that are worth hundreds of millions of pounds. As the pressure mounts to squeeze the cost base as far as possible, customers will lean on their incumbent suppliers to help them to cut and re-prioritize as much as possible.
While there has been some disruption to construction work on infrastructure projects, it appears that many of the country’s most substantial initiatives are continuing as planned. The development of the HS2 rail link controversially received the green light from the Government earlier this month, and the UK Highways Agency is pushing ahead with a £3.6bn tender to support major road modernization, including traffic management systems. The expansion of Birmingham Airport – which has recently benefited from increased freight traffic – started earlier this month, and all these initiatives will drive attached SITS investment in core areas such as IT and networks infrastructure and core applications, but also in growth topics such as the Internet of Things (IoT).
A LASTING IMPACT
Several areas of cutting-edge technology are emerging as key weapons in the transport sector’s battle to control the impact of the pandemic.
CGI is working to develop solutions to minimize exposure by providing essential workers with the means to travel using a ‘Key Worker and General Public Transport Permit’. This solution, an app residing on AWS architecture, has already been tested and adopted by Glasgow City Council. In the post COVID-19 era, CGI claims the app can be repurposed to aid in the free movement of people and goods once the UK leaves the EU with or without a deal.
The Department for Transport (DfT), in cooperation with Intelligent Transport Systems (ITS UK), is taking an innovative approach to source data sets of transports movements from local councils across the country, enabling insights through analytics into behavior and movement trends, and how COVID-19 spreads. The data sourced captures traffic flow, traffic movement, parking, and cyclist and pedestrian movements.
Some of the insight gained from the current situation is likely to have a lasting impact.
Going forward, public and private sector organizations will continue to look at real-time data sourcing and data analytics to understand better how citizens’ movements and behavior change through the use of sensors, traffic cameras, GPS, etc.
The UK Government will also use data to build smarter cities with strategic infrastructure to support transportation and reduce congestion, leading to reduced levels of emissions. A few illustrative examples could be smart traffic signals, smart parking meters, or smart traffic flow to route traffic into a specific direction. DXC is currently working with European ports to help them route dry freight trucks in and out of ports for greater efficiency while reducing traffic congestion.
In a post-pandemic scenario, the UK transport sector will undergo significant changes. Companies and organizations will be looking at software and IT service providers to provide business operations assessments to evaluate damages. This will lead to the modernization and implementation of new management systems coupled with data analytics to achieve greater visibility into the business while also strengthening remote-working capabilities for future adversities.