Hidden gold mines for MENA’s air tech entrepreneurs
If Paul Papadimitriou’s realistic air tech projections can be summed up in one piece of cautionary advice for startups, it is that in this space, ambition and speed of execution often work in opposite ways.
First-mover and overnight successes in ecommerce, social media and, most recently, transport, have long discredited this traditional outlook on pace of change in business. But the aviation industry does not seem to follow suit.
In its 2015 Aviation Trends report, Strategy& highlighted increasing consumer expectations, and growing pressure to cut costs and improve operational efficiency, as challenges for the airline industry. Causes of concern for Mideast carriers, according to the same report, are forecast to form a large share of the long-haul market. UAE airlines, which will record the strongest growth of 6.3 percent in the Middle East by 2020, should move even faster.
In November 2015, GE opened its Middle East Aviation Technology center, launched out of Dubai to serve as a regional customer and product support hub, but also as an innovation hub combining data analytics and scientists, user experience designers and application developers. Since then, the aviation tech conversation in the UAE was fast-tracked with Dubai’s Hyperloop announcement, Abu Dhabi Global Market’s focus on aircraft financing, Holidayme.com’s $7 million Series A Funding, the launch of aviation incubator Intelak, Etihad Airways’ Fikra competition and events like the IATA NDC hackathon.
The regional ecosystem holds promise, and has indulged in outlandish predictions for the future of air tech. But the industry remains hindered by its own magnitude: heavy regulatory frameworks, complex supply chains and a legacy culture upheld by longstanding mega-players and long-term contracts – in the region, an example has been safety and security bans, and sanctions by governments in Abu Dhabi and Oman on drone technology.
Understandably, entry barriers for smaller, independent players are all that much higher.
Too many cooks in the cockpit
In April 2016, Airgo Design, a Singapore-based company patenting next-generation airline seating, secured its first external financing round from Turn8 – after it had received a $500,000 grant from the Singapore government – and then another round of investment from Middle East VC Prime Venture Partners. But it has hardly been smooth sailing.
Now the company’s chief technology officer, Alireza Yahghoubi developed the concept for cost-efficient, light travel seating back when he was an engineering student in 2012. His concept then won at region level in the James Dyson design awards and was covered by international media outlets in 2013. He then officially cofounded Airgo Design.
Since then, the company has had to navigate certifications, regulations and supply chain players in an industry that Yaghoubi admits has budged very little. “The bestselling economy seat has been the bestselling economy seat since 2002. You don’t hear this in any other industry,” he explained to Wamda. Airgo Design competes with three mammoth global players – Recaro in Germany, BE Aerospace in the US and Zodiac in France - whose order books are filled for the next three years “and couldn’t care less about innovation in economy classes,” says Yaghoubi.
The founder adds that airlines have wrongfully prioritized first and business class profit margins over those they could reap out of economy passengers. “And it is sort of a chicken and egg problem, because airlines say they have limited options from manufacturers. They don’t see the point of changing, especially given that they [manufacturers] have a lot of commitments [toward existing clients].”
“Typically, the big constraints are culture and mindset. That is where you hit the roadblock […] The travel industry [is governed by] legacy culture and legacy distribution, and that needs to change,” Neetan Chopra, vice president of IT strategy and architecture at Emirates Airlines told Wamda, adding that heavy regulation and top tech talent attraction have also been challenges. “Long term cycles are part of the nature of aviation,” says Kirsten Kutz Colombier, GE innovation communications manager, adding, however, that technology like 3D printing are speeding up processes like prototyping.
It will be another year before Airgo Design gets its end TSO (technical standard order) certification, pass a series of tests under the FAA (Federal Aviation Authority) and EASA (European Aviation Safety Agency), and work with regulatory bodies on a new set of protocols for the composing materials it uses. Should it want to be considered for new aircrafts at the time of assembly, it also needs to make it into the catalogues of the likes of Boeing and Airbus.
Companies focused on industrial innovation like Airgo Design are stuck between a rock and a hard place though - with such tests as those listed they can be seen as risky to investors. A lack of background in the aerospace ecosystem, and direct clients like major airlines, mean they don’t trust the startups’ longevity for long term contracts.
Hari Kumar Manivannan, general manager at Dubai-based B2B travel tech platform Travrays, says that concepts aimed at digitizing the travel supply chain can take off relatively quickly with the right resource management.
Travrays aims at bringing together all airline and hotel suppliers into a single-source B2B platform for brick-and-mortar suppliers such as travel agencies. However, its model was still met with impatience from investors. “Investors in the travel industry expect fast returns based on an assumption that transaction volumes, and therefore revenues, are big. Patience is needed because in the UAE, travel booking is divided between online retail and corporate customers,” explained Manivannan.
Guiddoo World, a curated marketplace and aggregator for travel experiences, initially started as an audio guiding company for tourists. It has had to prioritize monetization and revenue over product development: one, by creating a model that can be replicated across models and two, by building a back end framework to scale up the business. “Monetization has been a particular challenge in Dubai because investors [in the market] have made money from cash flow-based industries,” founder and CEO Vineet Budki told Wamda, adding that “the industry has a lot of [customer] acquisition costs so investors grapple with how [travel startups] can finally break even.”
Direct routes for investment
Where entrepreneurs could seek more investor leeway and patience is from the mega-players shaping the space - Emirates are not looking for equity for investment, their goal is to use startups products within their business.
Far from overreaching disruption, Chopra maps out three key opportunities for information technology and innovation in the airline industry; network-effect and platform-based business models such as Uber’s and Alibaba’s; mass personalization at scale of customer service using artificial intelligence and robotics; and a world of operational optimizers in the form of back office bots.
More specifically, he imagines a shift away from customer segmentation, and operational efficiency backed by AI and sensors – while it currently is supported by level one technologies. “To get a flight to depart on time, there are a number of processes that need to work in sync mode, from boarding the crew to cleaning the aircraft. The question is: can we deploy autonomous machine learning algorithms to optimize these assets?”
The real deals
Challenges aside, real developments are unfolding in the aviation tech space out of the UAE. ADGM’s foray into specialist services for the acquisition, use and financing of aircraft equipment shows serious commitment to advancing this space.
Emirates and GE’s Intelak partnership this month selected four startups that address crucial consumer journey pain points. They will now undergo a four month incubation program. Emirates has also partnered with Oxford University in the UK and Carnegie Mellon in San Francisco, inviting students to come up with MVPs (minimum viable products) across its business units. It has recently run a pilot with Microsoft Datascience on an optimizer using machine learning, and is working on a blockchain-based concept test with IBM in cargo logistics.
In July 2016, GE Aviation developed in collaboration with FlyDubai an application based on its Predix software platform, which will enable the airline to “minimize aircraft delays, improve pilot operational understanding and manage scheduling and revenues in a real-time setting,” according to a statement. Another partnership has been that with Royal Air Maroc on Fastworks, a program GE introduced in 2014 to decrease long cycles for product development - the concept behind which is to create minimal viable products and launch them into their intended market first, pivot and optimize them second.
Yaghoubi says Airgo Design’s talks with Etihad Airways have been fruitful, and that it is discussing opportunities with Emirates Airlines’ preferred suppliers.
It will take some time before MENA entrepreneurs think of starting up their own aircrafts or Uberfying aviation. But at the very least, they can start from the ground up.