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Supply chain

Radio Frequency ID: A solution for lost luggage? 

Published 7 July 2023 in Supply chain • 7 min read

Airport luggage handling is a complex, expensive process that is at its capacity limit. The authors look at the question of why RFID technology has not yet stepped in to modernize and streamline this source of enduring passenger frustration. 

The summer of lost luggage 

 As we begin another summer travel season, the chaotic scenes at airports from last year are still fresh in travelers’ minds.  

 Failing to anticipate a swift bounce back in passenger volume following the pandemic, airlines and airports struggled to find enough staff and grappled with the lost institutional knowledge of how to efficiently keep travelers moving, luggage sorted, and turn planes around on time. The results were long lines at check-in and security gates and delayed and cancelled flights. But it is perhaps 2022 being the ‘summer of lost luggage’ that left the biggest impression. 

The misplaced luggage rate nearly doubled from 4.35 misplaced bags per 1,000 in 2021 to 7.6 in 2022. The rate hit of 19.3 for international flights is not a surprise as the largest source of error in misplaced luggage is when the passenger has a connecting flight and luggage must successfully be transferred to the connecting plane on time. Misplaced luggage became so commonplace that passengers began packing Bluetooth-enabled tags into their luggage. This led to many tragicomic stories of passengers tracking their luggage and finding it when the airlines could not help. 

But for supply chain managers who have been confronted with similar challenges in their professional roles, this inevitably leads to the question of why airlines are not electronically tagging the luggage themselves? If passengers are finding themselves obliged to electronically tag their baggage, then wouldn’t it make sense for the luggage to be tagged as a matter of course for airlines and replace the paper barcode-labels currently affixed to luggage? Not with Bluetooth but with the industry standard for tracking goods: radio-frequency identification (RFID) tags. 

A worldwide standardized change in handling baggage would be expected to take years. 

RFID tagging of luggage comes with some clear benefits. They are easier to scan than barcodes since the scanner does not need a direct line of sight to the tag. This means that ensuring the luggage is being directed down the correct conveyor or on to the correct airplane can be constantly monitored through fixed scanning antennae. It would even be possible to ensure that there is no luggage remaining in the terminal for a flight that has completed loading. With enough scan antennae throughout the airport, misplaced luggage would be rare and quick to find. One could even imagine apps that allow passengers to track each ping on the RFID of their luggage along its journey. 

Complex network effects 

We spoke to Olivier Matthey, an expert in ground services in the air travel industry with over 20 years’ experience in the field. Through the course of his work, Matthey has considered the question of RFID tagging of luggage. 

He agreed that RFID tags would provide a more robust tracking system than placing barcode labels on luggage, but he believes that the business case is less intuitive than one might think, even though the price of passive RFID tags has dropped precipitously over the years, from several US dollars per tag to around $0.10 USD per tag. One reason the business case is not compelling enough is that many international flights are arriving from countries where the cost of labor is low. The lower the labor cost, the less return on investment for the capital expenditure required to load the RFID tags and install scan antennae for these airports. 

This last point, Matthey explained, highlights one of the true barriers to RFID implementation for luggage handling: the complex, global network of airports. A RFID system is of no use unless all airports around the world can generate RFID tags using a common data protocol. Should some bags only have the standard baggage labels, then each airport would be forced to maintain two identification systems, destroying any value the RFID system might have brought. A worldwide standardized change in handling baggage would be expected to take years. 

This means that ensuring the luggage is being directed down the correct conveyor or on to the correct airplane can be constantly monitored through fixed scanning antennae

With Europe having an outsized share of luggage misplacement, along with high labor costs, and many connecting flights coming from countries where the cost of labor is low, there is an inherent conflict of benefits. The lower-cost airports would see a smaller share of the benefits and so little motivation to install RFID systems. As Matthey points out, there is an IATA-led recommendation to implement RFID, but very few airports have done so, even if the business case might argue for it. 

Many players on the field 

The picture gets even more complicated when looking at the different players involved in handling luggage. 

There is the airport, which provides the necessary infrastructure and fixed equipment like the check-in desks, conveyors, security x-rays, gates, etc. But in most cases the people who check in the luggage and load it onto planes are not airport employees, they work for an airline or ground services companies like Swissport or Celebi, to name two from a crowded, fragmented market. These companies provide the labor, and most servicing equipment for an aircraft, but not the airport’s infrastructure. Both the airports and the ground handling providers bill the airlines for the “services” provided. Those costs are in turn part of the airfare and taxes the passenger pays. 

With this market structure, it is difficult to see an RFID project making headway. The airports do not benefit from the greater efficiency brought by RFID, yet they normally provide capital improvements to their facilities. Ground services companies have no infrastructure equipment at all, and any efficiency benefits they would reap would accrue to the airlines through cost reductions. 

That would leave the airlines as a potential investor in RFID systems. But even here the incentive structures are not aligned. Airlines are not normally in the business of paying for infrastructure investments for airports. Also, low-cost airlines have grown over the last 20 years and these airlines generally work point-to-point, with few international transfers that are the largest cause of misplaced luggage. They would see little reason to pay for RFID systems that would benefit their competitors. And as with airports, there is no global body that provides a mechanism to orchestrate and move initiatives forward. 

The airports do not benefit from the greater efficiency brought by RFID, yet they normally provide capital improvements to their facilities.

On top of this, Matthey makes an astute point about passenger expectations. Even if these challenges were overcome and RFID tagging systems were successfully implemented at a global scale, many passengers would still want a paper receipt for their luggage that is clearly linked. Assurances that the RFID tag is flawless would not be enough to satisfy most passengers, and so some sort of label system would likely be needed regardless. 

It’s not about the technology 

Much of the dilemma around RFID luggage tags has a familiar ring to it. It is not entirely dissimilar to the challenges Wal-Mart faced 20 years ago when they pushed to have their vendors place RFID tags on each pallet sold to Walmart (then Wal-Mart). 

The effort fell flat, as not even the powerful influence of Walmart was enough to overcome the structurally misaligned incentives. There was likely a business case to be made for the supply chain efficiencies of having RFID-enabled pallets, but to the extent there were benefits, they would fall to Walmart, not to their vendors. Yet Walmart insisted that the vendors carry the full cost of the tags and supplier scan antennae. Almost every supplier refused, and the initiative faded away. 

RFID has again demonstrated that supply chain innovation is not just about having impactful technology. The structures and nature of incentives and client expectations play just as important a role. This is true for passenger air travel as much as for consumer goods. 

 

Authors

Ralf Seifert - IMD Professor

Ralf W. Seifert

Professor of Operations Management at IMD

Ralf W Seifert is Professor of Operations Management at IMD and co-author of The Digital Supply Chain Challenge: Breaking Through. He directs IMD’s Leading the Future Supply Chain (LFSC) program, which addresses both traditional supply chain strategy and implementation issues as well as digitalization trends and the impact of new technologies.

Richard Markoff

Richard Markoff

Supply chain researcher, consultant, coach and lecturer

Richard Markoff is a supply chain researcher, consultant, coach, and lecturer. He has worked in supply chain for L’Oréal for 22 years, in Canada, the US and France, spanning the entire value chain from manufacturing to customer collaboration. He is also Co-Founder and Operating Partner of the Venture Capital firm Innovobot.

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