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RFIDS FOR AIRPORT LUGGAGE:

WHY THE INTRODUCTION OF RADIO FREQUENCY IDENTIFICATION


FOR TRACKING AND HANDLING LUGGAGE IN AIRPORTS FALTERED

ENTREPRENEURSHIP AND INNOVATION


STRATEGY
PROFESSOR RON ADNER
FALL 2010
SECTION 1

M. HALSEY COUGHLIN
KYLE DAVIS
ALEXANDRA NEE
JULIAN NEMIROVSKY
ERIC SNOW
1

TABLE OF CONTENTS
EXECUTIVE SUMMARY
.3
INTRODUCTION..
4
PART ONE:
THE HISTORY OF LUGGAGE TRACKING IN AIRPORTS
5
THE INTRODUCTION OF RFIDS TO AIRPORTS
6
PART TWO:
RFID IMPLEMENTATION AT HONG KONG INTERNATIONAL AIRPORT 8
ANALYSIS OF RFID IMPLEMENTATION
HURDLES.10
INNOVATION ECOSYSTEM HURDLES
General Market Size10
WHAT STANDS TO BE GAINED BY
WHOM...11
Passenger Cost/Benefit Analysis12
Airline Cost/Benefit Analysis.13
Airport Cost/Benefit Analysis.14
CONCLUSION
...16
APPENDIX:
TABLE 1: RFID COST IMPLEMENTATION
SUMMARY.....17
2

TABLE 2: AIRLINES POSITION REGARDING THE USE OF RFID IN THE AIR


INDUSTRY17
BIBLIOGRAPHY
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Overview:
Radio Frequency Identification
(RFID) emerged early in the 1970s,
but was not implemented as a
device for tracking airport luggage
until 2005. RFID was supposed to
increase speed and accuracy of
handling and transfer of luggage
while in-transit. The success of
RFID for tracking baggage in
airports and across airlines lies in
the successful implementation of
this new tracking system across
multiple parties, where the benefit
to the end-user is also shared by
other adopters earlier in the valuechain. Focusing on Hong Kong
International Airports (HKIA)
rollout of RFID technology in 2005,
it becomes clear why RFID
technology did not end up
successfully conquering traditional
2-D barcodes (despite their inferior
performance in terms of percent
accuracy on baggage sorting scans).

Airports: All airports serving


local and international flights
have the ability to decide
whether to adopt this system
of baggage security, handling,
and tracking
Airlines: Every individual
airline has the opportunity to
decide whether to adopt RFID
luggage tracking.
Passenger: The passenger
receives much of the benefit
of RFID adoption since this
enables greater efficiency in
the handling and tracking of
their luggage.

Product:
RFID emerged as a viable solution
in handling and tracking luggage in
airports against the traditional 2D
barcode, which frequently suffered
from barcode misfires. RFID was
predicted to deliver 5.7 million
fewer passenger claims, and save
airlines up to $733 Million per year
if implemented in across all airlines,
in all airports globally.

History of Airport Luggage


Tracking:
Prior to 1990:
Paper tag
attached w/ string
containing airline name,
flight number & code
1990:
Introduction of the
barcode-based luggage
tag by most airlines
2005:
2D Barcode tags
introduced
2005/2006:
Emergence of
RFID as a possible
substitute technology in
the airline industry
Key Players:
- International Air Transport
Association: This association
serves to set guidelines and
principles for the air transport
industry.

Case for RFID Adoption in


Airports:1

1 International Air Transport Association,


RFID Case for Baggage Tagging. (2007)
http://www.iata.org/whatwedo/stb/Documents/R
FID%20for%20baggage%20business%20case
%202%201.pdf Last viewed November 7, 2010.
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adopters (400 airports) needed to


make the technological investment
on RFID luggage tracking
worthwhile was far too large given
the pace of rollout. Secondly, the
production/service capacity of the
existing major manufacturers of
RFID labels for the first year of
intended rollout was far too small in
2006 to hit adoption goals in time.
(Initially the 3 major manufacturers
were predicted at maximum
capacity to product labels for 10
airports each.) Finally, there was a
lack of shared benefit among the
key players who needed to
implement the RFID technology and
bear the brunt of the
implementation cost. Passengers
clearly gain the greatest benefit by
having increased efficiency in the
tracking and handling of their
luggage, however they bear none of
the cost burden while airports and
airlines were expected foot the bill.

RFID Luggage Tag Summary:


RFIDs did not succeed due to three
key reasons. First off, the scale of

INTRODUCTION:
This paper will examine Radio Frequency Identification (RFID) in luggage tracking. RFID
was supposed to increase speed and accuracy of handling and transfer of luggage while intransit. The success of RFID for tracking baggage in airports and across airlines lies in the
successful implementation of this new tracking system across multiple parties, where the benefit
to the end-user is also shared by other adopters earlier in the value-chain. Focusing on Hong
Kong International Airports (HKIA) rollout of RFID technology in 2005 as a test-case, this
paper will show why RFID technology did not end up successfully conquering traditional 2-D
barcodes (despite their inferior performance in terms of percent accuracy on baggage sorting

scans). The analysis will specifically consider adoption and supplier chain risk, as well as the
distinction between shared benefits and shared costs. Given these levels of analysis, we will be
able to identify why RFID technology did not sweep airports globally, despite being a superior
technology for the end-user searching for increased reliability, security and efficiency of luggage
handling and tracking in air transit.

PART ONE:
THE HISTORY

OF

LUGGAGE TRACKING

IN

AIRPORTS

The commercial air travel industry was starting to take shape in the late 1920s. As air travel
became more common, many industry insiders saw the need for a legal framework covering air
carrier accident liability that could extend not just across a single country but across the world.
In 1929, that international framework was created at the Warsaw Convention.

The key

takeaways from Warsaw were that air carriers were mandated to issue passenger tickets, they
were given limited liability in case of accidents where they were not at fault, and finally, air
carriers were required to issue baggage checks and corresponding baggage tags for checked
luggage.
Prior to the 1990s, baggage tags consisted of a paper tag that was attached to passenger
luggage with a simple piece of string. The only information provided on these tags was the air
carrier name, flight number, identification code, and the name of the destination airport. These
tags were abandoned in favor of a bar-code system due to the fact that the paper tags were easy
to replicate and that they offered little in regards to security.
The current barcode system improved upon the earlier baggage tag design. The barcode
tags were printed on adhesive paper and manually attached to luggage upon check-in just like the
previous tags. After check-in, the tagged luggage would travel through the airports baggage
handling system where the tags were automatically read and routed to the appropriate flight. The
automated system reduced the number of misrouted, misplaced, and delayed bags. The system
upgrades required to install the barcode system included the installation of barcode printers at the
airline check- in desks as well as the installation of barcode reading devices throughout an
airports baggage handling conveyor system.

The barcode system was a great industry innovation as it led to an increase in baggage
handling speed and efficiency. However, the barcode system wasnt perfect. In order for the
readers to capture the critical information on each tag it was necessary to align the tags with the
barcode readers as the bags traveled along conveyors. If the tags were not visible or properly
aligned it was impossible to accurately read each tag. Another problem was the fact that barcode
tags were image-based and susceptible to many forms of damage including ink-bleeding,
scuffing, and spilling as the bags moved their way throughout the airport. For these reasons it
was clear that there was room for further improvement as the volume of baggage continued to
increase every year.

THE INTRODUCTION

OF

RFIDS

TO

AIRPORTS

In the early 2000s a technology called RFID, radio frequency identification, was gaining
popularity across a wide range of industries in the United States and elsewhere.

Due to

improvements in performance, significant decreases in chip size and a decrease in costs of tag
and reading equipment, it became apparent that RFID could be a strong match for the airline
baggage-handling industry. It seemed that replacing the current barcode-based luggage tags with
an RFID-based system would lead to fewer lost bags, reduced costs and greater security. The
customers travel experience would not be effected at all since upon checking luggage at the
airport a label containing an RFID chip would be affixed to all luggage instead of the traditional
tag containing a barcode. Then as the bag traveled from the front of the airport to the tarmac and
onto the plane it could easily be identified and tracked to ensure that it was in the correct
location.

The benefits to RFID over barcodes are both numerous and significant. There are
significant cost savings not only from a drastic decrease in lost or misrouted luggage but also in a
decrease in the necessary labor due to the efficiency of the technology. As the efficiency of the
system improves there is also a direct positive impact on customer satisfaction. Finally, there are
benefits to both security and safety if such a technology were to be implemented.
While there are many obvious advantages in moving to RFID technology there are also
many challenges along the road to adoption. First, there is still work to be done by the IATA to
create a global RFID standard for the airline industry. Secondly, implementing the technology
would require significant upfront investment and it is unclear who would bare these costs.
Finally, in order for the technology to have a significant impact and ultimately succeed there
would have to be widespread adoption across the network of airports.

PART TWO:
RFID IMPLEMENTATION

AT

HONG KONG INTERNATIONAL AIRPORT

In 2004, the Hong Kong International Airport (HKIA) announced that it was planning to
implement an airport-wide system to track passenger baggage using an RFID system instead of
the traditional bar-code system. Hong Kongs announcement came a year after Las Vegas
McCarran International Airport made similar RFID plans. At the time, RFID technology was not
new to the air travel industry; for more than a decade, numerous airports including Atlanta,
Jacksonville, and San Francisco have considered using RFID technology to track baggage. In
2004, with RFID costs declining through process improvements and with air travel volume on
the rise, Hong Kong decided it was time to embrace RFID technology.
Shortly before Hong Kongs RFID announcement it was named the worlds best airport
by Skytrax and also received an excellence award from the International Air Transport
Association (IATA). Despite these accolades, HKIA wanted to continue to seek even higher
levels of excellence. HKIA claimed that the RFID decision was made in order to improve
customer satisfaction. While there is no doubt that passengers will be positively impacted by
the RFID system, HKIA and its airlines stand to benefit as well. HKIA is one of the busiest
airports in the world with about 48 million passengers and 3 million tons of air cargo passing
through each year. As an airport leader in traffic, there are large financial incentives to reduce
the number of mishandled bag incidents and to increase the operational efficiency of the baggage
process. Further, HKIA stands to reduce connections times through the addition of RFID for
connecting bags which will have a large impact on the airport as 60% of HKIAs passengers are
connecting passengers.

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Knowing that RFID implementation could have a tremendous positive effect on the
airport, HKIA took great care in selecting the vendor who would head the RFID supply chain.
Since RFID technology was already proven, HKIA only had to worry about who could
implement the system best. HKIA had strict qualifications and a drawn out testing process where
potential vendors went through a simulated system deployment and performance testing at HKIA
facilities. After the process was over, Matrics Inc., a Rockville, Maryland based firm, and
partner Marudeni Corporation were selected to carry out the implementation at a total cost of
$6.5 million. The comprehensive RFID system provided by the duo consisted of RFID readers
and writers throughout HKIAs intricate baggage-handling facilities. Readers were installed at
baggage carousels, unit loading devices (containers used by airlines to store luggage in-flight),
and conveyers while writers were installed at check-in counters so RFID tags could be printed
and applied to passenger luggage before entering the baggage-handling labyrinth. With such a
large volume of connecting flights, HKIA also needed to invest in handheld readers for mobile
baggage operations. The following is a description of how the readers will be used at HKIA.
To identify luggage ready for loading onto planes, Matrics readers will be deployed on
the luggage-holding systems four huge luggage carousels. Readers will be deployed also at the
lateral conveyors, which take luggage to loading piers where luggage is manually transferred to
unit load devices (ULD)large containers that are loaded onto the plane. An RFID reader will
be clipped temporarily to each ULD to ensure that the correct luggage is loaded into the correct
ULD, and then unclipped once loading is completed. The system will automatically create a
manifest so that items of luggage can be traced to specific ULDs.
After infrastructure, the other piece of the RFID supply chain is the actual RFID tags that
get affixed to passenger luggage. In 2004 HKIA signed a three-year contract with Motorola and

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its partners Avery Dennison and Print-O-Tape. Avery Dennison supplied the actual RFID inlays
and Print-O-Tape converted the RFID inlays into a baggage tag that could be applied to the
handles of passenger luggage.

Over the first five years after implementation, HKIA was

expected to use approximately 80 million RFID labels. The cost to the airlines per RFID tag is
approximately $0.30 compared to $0.05 for the traditional barcode tag.
As the RFID system was rolled out airline by airline, operating improvements were
noticed throughout the airport. The baggage tag read rate at HKIA increased from the barcode
average rate of 80% to 97% for the RFID tags. HKIA is able to process 5% more bags due to
this gain in efficiency. As more bags were processed automatically, the average processing time
per piece of luggage decreased, which helped reduce baggage loads during peak traffic periods.
Finally, Henry Ma, Airport Authority Hong Kongs General Manager of Terminal Business said,
Weve seen significant performance improvements, and we believe there will be further
efficiency and reliability gains when the rollout is completed.
ANALYSIS

OF

RFID IMPLEMENTATION HURDLES

The rollout of RFID in the Hong Kong International Airport exposes key challenges
RFID implementation faces in individual airports, as well as what is needed in order for RFID to
be scaled to become an international standard for luggage tracking. We have categorized these
risks into two key buckets: the first being general ecosystem hurdles and/or supply chain risk;
and the last being an analysis of cost versus benefits to each of the players involved in this
process.
Innovation Ecosystem Hurdles:
General Size of Market Prior studies on the implementation of RFIDs for Airport
Luggage determined that implementation had to occur in at least the top 400 airports in order to
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become successful.

This number was identified based on the cost of implementing the

technology versus the reward to passengers, airlines and airports reaped once the RFID
technology was assumed to be in place.

A large part of the reason so many airports must be

included is that the benefit of RFID luggage tracking becomes exponentially more pronounced as
the use-case (i.e., interoperability across multiple airports and airlines due to flight
connections/transfers) expands. The sheer number of adopters necessary to make this technology
a success is staggering, given the fact that the first 399 airports to adopt this technology face
enormous risk of investment in a baggage handling and tracking technology that will not have a
positive ROI.

What Stands to be Gained by Whom:


As previously mentioned (see Part One: History of Luggage Tracking in Airports), RFID
implementation in airports becomes an attractive proposition over and above existing 2-D
barcode technology, where the read rate was found to be only 80%.

The reasons for read rate failure were examined and found to be:
Tag Attaching Error 30%
Network Problem 25%
Baggage Type 15%
Environment 40%
These errors counted for the 20% barcode read rate loss.
Therefore, RFID technology presented an opportunity to reduce this read-rate failure rate, and
bring overall luggage handling and tracking up to roughly 98% accuracy. It was proposed to the
IATA as a win-win-win for the airlines, airports and passengers.

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Below is a chart presented in the business case for implementation of RFID technology to the
IATA in 2006:

However, a key assumption in this analysis hinged on international implementation at the 400
top airports at minimum. Needless to say, this integration of RFID technology did not occur. In
part, the failure to successfully implement across hundreds of airports lay in the misalignment of
benefits and risks.
Our analysis shows that there was not significant shared benefit and shared risk occurring
in the rollout of this technology.
Passenger Cost/Benefit Analysis:
Passengers benefited by greater visibility into the location of their luggage, which created
increased peace of mind and greater certainty around the promised delivery of their bags upon
reaching their final destination. RFIDs also delivered greater security, as an RFID scan at the
checkout point in airports (after retrieving your bags from the carousel) would decrease the

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possibility of thieves walking off with their luggage. Further, passenger safety would increase as
it would be easier to pinpoint and remove any luggage deemed a security risk. This same
passenger bore very little cost in the implementation of this new tagging system; from their end,
the process and procedure was similar to the current 2D luggage barcode system, and moreover
the airlines or airports would pay for the dispersion of RFID technology.
Airline Cost/Benefit Analysis:
Benefits to airlines included the reduced number of mishandled bags; an appearance of
better customer service; and improved efficiency of flight departures (due to the reduced transit
time of late/mishandled bags loading onto airplanes). However, this benefit did not outweight
the costs to airlines for providing this RFID luggage tracking. The actual benefit to an individual
airline of this product is derived from the percentage increase in properly handled/delivered
luggage to its customers times the traditional cost to the airline of finding and delivering a
delayed/mishandled or lost bag to its passengers. At HKIA, the RFID benefit was calculated to
be around three million dollars to the all airlines, yet the incremental cost to print RFID tags as
opposed to barcode tags exceeded $13.5 million dollars. This mismatch at HKIA is on top of the
initial RFID infrastructure cost of $6.5 million dollars. Simply put, airlines were not losing
enough bags using 2D barcodes to make RFID technology implementation economical.
In an interview Mike Saunders, Director of Aviation at Symbol Technologies, explained:
For the airlines, the primary barrier is the cost of the tag. The cost
of a [barcode] tag right now for an airline [] is about five to
seven cents per tag. To that number, one must currently add
another 15~20 cents for the RFID inlay on a tag. Although that
cost is projected to dramatically reduce over time, airlines []
must weigh the cost of purchasing RFID inlays over their entire
network, as well as the provision of the infrastructure to all the
airports that they fly to.2
2 David Zhou, RFID in the Airline Baggage Tracking: Interview with Mike Saunders. MoreRFID.com. Website:
http://www.morerfid.com/details.php?subdetail=Interview&action=details&report_id=1448&display=RFID (Last

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Saunders astutely concludes, The bottom line is that it will always be an economic decision for
the airline. And as it is with the introduction of most new 'disruptive' technologies, the return of
investment occurs when that technology causes process change.

Airports Cost/Benefit Analysis:


Airports, which seemed to be the most valuable adopter in the chain given their role as a
catalyst for airline adoption, received the least benefit. RFID adoption would benefit airports
through reputational or brand enhancement due to increased security and efficiency of baggage
delivery. Airports saw minimal benefit in operating costs decreasing for the few baggage sorters
and checkers they could release. If an airport decided to adopt this technology however, the cost
of refurbishing the entire airport, luggage carts, and carousel sorting system would have to be
financed.

viewed, November 7, 2010).

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CONCLUSION
In conclusion, while HKIA provides a helpful use-case where RFID technology was
successfully implemented in one airport, the success of RFID as a disruptive technology in the
luggage tracking industry hinges upon many key factors. The three primary reasons identified
were:
1. The scale of adopters needed to make the technological investment on RFID luggage
tracking worthwhile:
The 400 airports required for mutual benefit of the entire ecosystem was far too
large given the pace of rollout. Implementation suffers from the network effect Airlines have no incentive to pay for RFID infrastructure because for the
individual airline to see the full benefits of this technology investment they would
need to have RFID infrastructure at every airport they service.
2. The production/service capacity of the existing major manufacturers of RFID labels
for the first year of intended rollout:
There were three major manufacturers in 2006 of RFID labels. Initially these
major manufacturers were predicted at maximum capacity to produce labels for
10 airports each. This meant given dependency on these RFID label manufactures,
there was a supply chain constraint of guaranteed service to 30 total airports in the
first year of RFID rollout. This number was far too small given the need to hit
adoption goals (of 400 airports) in time.
3. The lack of shared benefit among the key players who needed to implement the RFID
technology and bear the brunt on the implementation cost:
Passengers clearly gain the greatest benefit by having increased efficiency in the
tracking and handling of their luggage, however they bear none of the cost burden
while airports and airlines were expected foot the bill in exchange primarily for
brand maintenance/enhancement.

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APPENDIX:
TABLE 1: RFID COST IMPLEMENTATION SUMMARY

TABLE 2: AIRLINES POSITION REGARDING THE USE OF RFID IN THE AIR INDUSTRY

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