

Airlines Could Benefit From RFID-Enabled Baggage Handling

Despite a decline in the number of problems per thousand travelers, mishandled bags still cost the global airline industry $2.6 billion annually. RFID could help.
By Mark Roberti
Sep 15, 2013

SITA, a global communications and IT services provider for the airline industry, has released its ninth annual study regarding baggage handling. The news is both good and bad. The number of mishandled bags dropped from 8.99 per 1,000 to 8.83 per 1,000. That's pretty good, given that the airline industry handles 3 billion passengers annually—but it's unclear whether that decline was due to fewer people checking bags, or to operational improvements. But there is some bad news as well: It costs the airlines an estimated $100 per mishandled bag. So 26 million mishandled bags would represent a cost of $2.6 billion.

To me, that's a staggering number, and a back-of-the-envelope calculation suggests that RFID could deliver significant benefits over a span of 10 years. Let's do some quick math. The SITA report does not provide a total number of bags handled, but let's say that it's 3 billion a year (some people travel without luggage, while others have two or three checked items). At 20 cents per tag, it would cost $600 million to tag every bag. And let's say the world's top 1,000 airports needed 1,000 RFID-enabled label printers each, at a cost of $2,000 apiece. That would be a total cost of $2 billion for the readers, on top of the $600 million for the tags.

RFID might not completely eliminate baggage-handling errors, but let's say it reduced the number from 26 million to 6 million, saving the airline $2 billion during year one. That means the airlines would invest $2.6 billion and be $600 million in the hole after the first year.

But during year two, the airlines and airports would not need to buy any additional label printers—they could just maintain what they had already purchased. But they would have to buy more transponders, so collectively, they would save roughly $1.4 billion.

Let's assume the number of bags handled rises by 5 percent annually every year for 10 years—and, for the sake of simplicity, let's say the cost of tags remains at 20 cents. The total number of tags consumed over 10 years would be approximately 40 billion, at a cost of $8 billion. Add in the investment of $2 billion in RFID label printers, and the total investment over a decade would add up to roughly $10 billion. If the savings from RFID were to remain flat at $2 billion annually, that would total $20 billion over the course of a decade, which (minus the $10 billion investment) would mean the airlines would collectively save $10 billion.

This seems like a no-brainer, so why don't they do it? Well, there are a number of reasons. For one thing, many airlines are currently struggling. Investing millions in baggage-handling systems might save money in the short-term, but they need to make sure they are around for the long-term. That means investing in advertising and, perhaps, upgrading their planes to attract more customers.

I've also been told that the airlines often do not provide the label printers—the airports do. That means the airports would have to spend the money to upgrade their facilities, and would not necessarily achieve great savings. So it looks like RFID might not be used to get your bags to the right location any time soon, except at forward-thinking facilities, such as Hong Kong International Airport and Las Vegas' McCarran International Airport (see Hong Kong Airport Says It Now Uses Only RFID Baggage Tags and McCarran International Airport Expands Its RFID Baggage-Handling System).

One option might be for the airlines and airports to form a consortium that would handle all baggage and perhaps all food carts. The airlines could pay a fee for each item handled, or an annual fee based on volume. Any profits made by the consortium after paying off the initial investment could be shared with the airlines and airports that created the consortium. I have not heard any discussions along these lines, so I'm just going to hope that I am not one of the 26 million or so passengers who will have their bags mishandled next year.


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Brady Willhite 2013-10-29 01:11:02 PM
Mr. Roberti, have you seen this yet? I just came across it yesterday: http://www.mmdnewswire.com/battery-free-permanent-rfid-luggage-tag-130245.html E-ink display. No printers required! :) I thought this information might be right up your alley. Enjoy!

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