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BearingPoint: Mixed Benefits from Baggage Tagging

BearingPoint has developed an economic model to help determine the business case (or lack thereof) for RFID baggage tracking systems. While the company believes that such systems will become prevalent, the model suggests that in the near-term airlines and airports may want to hold off. This article has more details.
Tags: Aerospace
Nov 11, 2005This article was originally published by RFID Update.

November 11, 2005—Management and technology consulting firm BearingPoint has conducted a study on RFID baggage tracking. While there have been many studies done before on the technological aspects of this application of RFID, the BearingPoint study is an assessment of the economic aspects to determine whether there is a compelling business case that would incent airlines and airports around the world to deploy. The study was conducted in conjunction with Germany's HapagFly airlines at the Stuttgart and Hannover airports as well as at the Palma de Mallorca airport in Spain.

What BearingPoint did was construct an economic model that incorporates various inputs to calculate the potential savings offered by an RFID baggage-tracking system. The input parameters include the number of mishandled bags per 1,000 passengers, the average cost to the airline of a lost bag, the read rate of existing bar code systems, annual passenger growth, and the bags-to-passenger ratio. The model showed that the benefits of RFID baggage tracking vary widely depending on the values of these inputs.

Generally, an airline whose current performance is quite low -- as defined by a high number of mishandled bags and a high cost per mishandled bag -- will see considerable returns. Specifically, a hypothetical airline with 16.4 mishandled bags per 1,000 passengers at $100 per lost bag would see positive cash flow in the third year after implementation. By contrast, a well-performing airline with only 5 mishandled bags per thousand passengers and $75 in cost per mishandled bag would never see a return. In that case, the ongoing cost for maintenance, upgrades, and -- most significantly -- RFID tags would outweigh the savings provided by the system. (The study consequently concluded that HapagFly probably would not benefit from baggage tagging given its currently "much higher than average performance".)

Another finding from the study was that baggage tagging best serves larger airlines and airports with hub-and-spoke flight networks rather than midsize airlines and airports that focus on point-to-point traffic.

BearingPoint is making available the model used for the HapagFly study to other prospective baggage-tagging implementers. The company's European aviation practice managing director, Dr. Christian Petschke, said, "Although RFID may not be suitable for every airline and airport in the near term, we believe BearingPoint's methodology and experience will provide clients a better ability to evaluate the technology and forecast potential return on investment."

The HapagFly study summary is available here
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