MindBullets 20 Years


PC makers in a frenzy as the rules-of-the-game change

In the aftermath of last year’s chaotic holiday season at British airports, and the incident a few months later when a Blackberry was used to detonate a bottle of ‘baby milk’ aboard a US-bound airliner, IATA was forced to introduce a world-wide ban on carry-on items.

The initial frustration at carry-on luggage restrictions has turned to guarded pleasure as business travelers have realized that it is possible to have a productive business trip without a laptop computer.

The reduction in business travel was immediate and airlines scrambled to put in place alternatives for their most profitable travel segment. This week, BA has announced that they are the first to complete the delivery of full-service PCs with internet connections in all business and first class cabins.

Hyatt and Hilton hotels say that 80% of their rooms are now equipped with PC and internet functionality. Every major airline and hotel chain has to do the same to survive.

The real losers seem to be PC makers, with Lenovo, Dell and HP reporting sales declines. Business users are not replacing their laptops with newer models due to carry-on limits and because “airlines and hotels are listening to our new travel needs”.

The effect of lower volumes and large unplanned capital expenditure has hit the airline and hotel industry badly in the past year.

This week’s rise in travel-related stocks seems to indicate that business travel may be returning to normality – but in a very different way for PC makers.

ANALYSIS >> SYNTHESIS: How this scenario came to be

The selective ban on carry-on luggage in August 2006 had some interesting consequences:

  • IATA extended the carry-on ban on all liquids to include all electronic devices (including laptops, PDAs and phones) for their ability to detonate explosions. The ban now includes all airlines and airports, globally.
  • Business travel dropped sharply as executives cited security exposures on checked-in laptop computers and the inability to use unproductive long flying times for preparatory work.
  • Airlines began to address falling numbers of business travelers by announcing the intent to provide in-cabin computing, phones and internet facilities as an integral part of all business and first class tickets. Implementation was said to be “planned within a year”. First-class travellers were also promised their own electric toothbrushes.
  • Some hotels began to use in-room computing, phones and internet facilities as a competitive differentiator back in 2005. Now with the airline security impetus, an in-room IT infrastructure became a ‘must have’ for corporate travelers. The Hyatt and Hilton chains were the first to react, implementing these facilities in their premium business class rooms first.
  • Conference centers and corporate meeting rooms had computer and internet facilities integrated into their AV facilities. Presenters simply hooked up their presentation via a broadband connection. There was even no need to bring along the customary memory-stick.
  • Computer-makers started to feel a drop in sales as upgrades to the latest laptop computers were seen to drift. Users, seeing the new facilities being offered by airlines and hotels, coupled with difficulties of traveling with their own computers, failed the need to replace their existing machines.
  • Lenovo had to complement its high-end full-power strategy to focus on low-cost PC appliances. Dell and HP followed suit. Gartner estimated that more than 75% of the high-end laptop market would disintegrate “within three years”. The prices of these high-end devices would likely rise for the first time in history.
  • With the loss of high-margin individual and corporate sales, computer-makers were now forced to bid against each other for large orders of PC-appliances for hotel chains and airlines. This proved to be the ultimate commoditization of the personal computer. Few people bought one as a consumer appliance any more. Profit margins shrank and share prices plummeted.
  • Business executives realized that they had to put all their information and presentations on-line so they could be accessed from wherever they were. The days of ‘carry-with-you data’ were numbered.
  • Demand for broadband and wireless communications mushroomed. Cities accelerated plans to provide free city-wide services.

Within two years the travel industry seemed to return to ‘normal’ but with a completely different paradigm for business users.

Warning: Hazardous thinking at work

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