SITA’s announcement that it is buying the self-bag drop vendor, Materna IPS, is the third major acquisition in the airport technology space this year and will undoubtedly leave some of the competition considering what their response should be.
Worth noting is that this deal is a little different to Amadeus’ acquisition of Vision-Box, or Entrust’s purchase of Onfido. Those saw two significant players acquiring specialist capabilities and expertise in new applications and technologies, relating to biometrics, border control and wider identity verification, to expand and grow their businesses and addressable markets. To some degree, this move mirrors Amadeus’ previous acquisition of ICM Technics in 2019. SITA already has a major presence in the bag drop market though and while the deal will make it the undisputed market leader, the businesses are largely aligned already. Is there more to come from this? What will Materna be adding that SITA does not already have? The outcomes will determine if it is as bold and revolutionary as some have said.
The travel sector has almost recovered from the pandemic shutdown and companies are responding with new strategies to maximise opportunities. This deal continues the recent consolidation trend where bigger companies with broader portfolios and deeper pockets are able to make such strategic moves as the market picks up. We believe that it demonstrates that the market for self-service passenger processing solutions is reaching a point of maturity, and the traditional airport IT big guns are positioning themselves to gain the wider revenue opportunities that have been created. These three major acquisitions are different because it is not simply a case of hoovering up smaller companies and adding a team of specialists in a new field. Each of the companies bought is a leader in its own right, with an established presence and will therefore require high levels of integration to maximise the investments made.
As stated, we believe that the market dynamics have changed and there is a move away from hardware-orientated contracts amongst the more forward-thinking customers, to being more focussed around the service and maintenance contracts and revenues. It is possibly indicative of changing business models, causing vendors to want to be better able to serve all (or as much as possible of) the components in tenders with turnkey solutions, particularly those of large-scale and flagship air carriers and airports in the top two tiers. To do this, vendors need to have broad portfolios and be able to address the wider needs of their customers in a flexible manner.
Undisputed Leader in Self-Bag Drop
Whilst it has a healthy presence, bag drop is not SITA’s strongest area. In our recent analysis of the self-bag drop market, we concluded that it is the third largest provider, behind Amadeus and Materna IPS. Much of this is based off the products and technology it acquired when it bought Type 22 in 2015 to address the burgeoning low-end bag drop market largely created by low-cost carriers. Once the new acquisition closes, SITA will be the clear leader for self-bag drop units (as shown in our recently launched Smart Airports Tracker). Its newly combined installed base will account for 38% of the global market, compared to Amadeus’ 21%.
Figure 1: Share of SBD Installed Base Following Acquisition
Source: Valour Consultancy
Clearly, SITA wants to be seen as the leading vendor for airport and travel solutions and Amadeus adding Vision-Box’s border control and biometrics to its portfolio will have somewhat weakened this perception in the market. Following the move, SITA has heavily emphasised that it sees itself as the only end-to-end provider of digital travel solutions (specifically relating to digital travel credentials [DTCs] and their use) and has certainly upped the ante with messaging around its biometrics capabilities and a new digital travel offering for airlines.
Something that Materna IPS does add is a hugely respected design, development and manufacturing process. The company produces all of its hardware in-house and develops its own software, often white-labelling its products for partners and customers. Whether this will continue under SITA’s vision and strategy is unknown at this time. Materna IPS has also had success in the traditional higher-end (and higher value) bag drop segment and has a strong track record of working with national and flagship carriers and airports. This expertise and additional knowledge may be more valuable in the long-run than the immediate gain of increased footprint, expanded customer base and geographic coverage.
The move also has implications for the competitive landscape. It is only 18 months since Materna IPS and Collins Aerospace signed an MoU to develop more integrated solutions for improved passenger processing. It is highly unlikely that this will continue as SITA will not want to support a direct major competitor. Similarly, SITA signed an agreement with Alstef Group just under two years ago to launch the Swift Drop product and there will be uncertainty about the long-term continuation of this deal now it has Materna IPS’ comprehensive portfolio and knowledge to call upon. One partnership that will presumably not be affected is the agreement between SITA and NEC for biometrics, which will continue to be mutually beneficial.
Further M&A Activity on the Horizon?
So where does this leave the competition? There remains plenty of opportunity – especially for smaller vendors who are better able to scale down to tier 3 and 4 airports. The larger companies will be more focussed on larger contracts and bigger airports (and airlines). Faster-growing, smaller companies are better able to trial, develop and deliver innovative products and approaches and once they reach a point of establishment will continue to provide attractive propositions for the bigger fish to swallow up as they strive to keep up with the latest trends.
And the larger vendors? Amadeus has already made its move, so this notably leaves Collins Aerospace as the only major airport IT provider yet to act in this respect. It is obviously looking at its options. In fact, it may have been doing so for a period of time. We understand that it went some distance into talks relating to Vision-Box’s sale and it has not been afraid to splash the cash in the past (it was created by the $1.39 billion purchase of ARINC by Rockwell Collins and has spent smaller amounts on companies such as Pulse.Aero in 2017, as well as other companies in non-passenger processing fields for its wider aviation-related business).
Options are a little limited, in terms of companies equivalent in size to Vision-Box and Materna IPS. Embross is equally well-established and has a good portfolio that would add to Collins’ own products. Daifuku Airport Technologies could be another if wanting to focus on bag drop and expand into new areas like security screening. Such a move would be a major statement of intent if it wishes to respond. Scaling down a bit, Elenium has a good track record of innovation and being a champion of new technologies. A case of history repeating itself would see it make a move for AirWare, which is challenging the traditional approach with its novel self-bag drop systems and was founded by the people behind Pulse.Aero. It is in early-stage rollout but has already had notable success in bagging Ryanair as a customer and we expect it to expand its footprint at a good rate over the next two years. A largely non-hardware option could be Aerocloud, which has grown quickly in the past three years with its modular cloud, AI and machine learning approach and a strong emphasis on mobile integration and technology.
Conclusion
Whatever the competition does, SITA will be in a stronger position after this move. It is growing its customer base, geographic reach and footprint, and brings improved capabilities and products into its operational structure and portfolio. Is it revolutionary for the industry? We don’t think so because it is not adding vastly different skills or expanding its target markets in any significant way – but it does add to it in the ways highlighted in this article and it does shake up the competitive environment.
Valour’s smart airport tracker service runs in parallel to our comprehensive market intelligence report “The Seamless Passenger Journey in Smart Airports”. In addition to bag drop, it provides a highly granular view of where check-in kiosks, immigration kiosks, eGates (individually for pre-security, lounge access, boarding and border control), pods, totems, desk units and identity management platforms are being deployed, by whom and in what quantities. Information is gathered via a combination of primary and secondary research and alongside an Excel workbook containing all the data, clients receive a PowerPoint summary report which adds context to the numbers and provides a summary of the key headlines during the reporting period. Throughout the course of this first year, updates will be provided every two months.
If you’d like to learn more about the tracker, schedule a demo, or take a look at some samples, please don’t hesitate to contact us. Our full research portfolio is also available on request.
