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A MAGAZINE FOR AIRLINE EXECUTIVES

Ta k i n g

y o u r

a i r l i n e

OCTOBER 2003

t o

n e w

h e i g h t s

EXTREME AIRLINE MANAGEMENT

A conversation with …

David Siegel, CEO, US Airways INSIDE Traditional carriers launch low-fare subsidiaries

How airlines weathered "the perfect storm"

Cathay Pacific Airways’ crisis management process


Optimal performance for airlines and airports

T a k i n g

y o u r

a i r l i n e

t o

n e w

h e i g h t s

OCTOBER 2003 Publisher

James Filsinger Sabre Airline Solutions 1 E. Kirkwood Blvd. Southlake, Texas 76092 www.sabreairlinesolutions.com Editors

Stephani Hawkins B. Scott Hunt Designer

James Frisbie Print Manager

Shari Stiborek Contributors

Pam Ashley, Nejib Ben-Khedher, Holly Burkholder, Jack Burkholder, Al Comeaux, Cameron Curtis, Melissa Deaton, Karen Dielman, Rick Dietert, Walter Di Luca, Vinay Dube, Tim Finholt, Greg Gilchrist, Sam Gilliland, Gretchen Greene, Vicki Hummel, Brad Laser, Craig Lindsey, Gianni Marostica, Apurva Mathur, Michael McCurdy, Heather Parham, Marcus Pearson, Russ Perkins, Michelle Porter, Gary Potter, Jim Quilty, George Schenck, Cathy Smith, Thomas Sondey, Anchawan Sukrachun, James Sun, Chris Vasiliou, Elayne Vick, Carla Warren and Gabriel Young.

real

Reader Inquiries

If you have questions about this publication or suggested topics for future articles, please send an e-mail to wearelistening@sabre.com. Address Corrections

Please send address corrections via e-mail to wearelistening@sabre.com. Sabre Airline Solutions, the Sabre Airline Solutions logo and products noted in italics in this publication are trademarks and/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are the property of their respective owners. Š2003 Sabre Inc. All rights reserved. Printed in the USA.

Why do more than 200 airlines around the world choose Sabre Airline Solutions as their technology partner? Because they rely on us to deliver integrated solutions to real-world problems such as operations, crew scheduling and fleet planning. Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions. www.sabreairlinesolutions.com


contents

New Distribution Paradigms: Controlling Costs in the Internet Age

Airlines must take specific steps to maximize the benefits of online distribution.

10

Preparing for the Changing World of In-Flight Services

Cathay Pacific executive Alan Wong discusses how the airline benefits from its crisis management process.

19

Airlines have weathered the so-called “perfect storm” – are the skies now clearing? Lufthansa “D-Check”s its Organization and Processes

A thorough process of examining the airline has helped Lufthansa stay competitive.

You’ve Come a Long Way, bmibaby!

Extremely Prepared for the Future

US Airways CEO David Siegel discusses the radical steps his airline has taken to restructure.

54

Improving Interline Electronic Ticketing

New solutions enable airlines to use interline electronic ticketing.

56

Just Right: The Resource Management Systems

60

Web-Enabling Revenue Management

Remote connectivity offers access to advanced technology with a low cost of ownership. Through a remote connection, Aerolineas Argentinas utilizes key functionality at a lower cost.

An integrated resource management suite can help airlines save up to 25 percent on labor costs.

perspective

62

company Asia/Pacific Carriers Open a Portal

Sixteen carriers have launched the first region-wide online travel portal.

65

Capitalizing on Consolidation

The consolidation of the Chinese aviation market has positioned China Eastern to become a key player.

67

With Success

Russian carriers continue to realize substantial growth despite an industry-wide downturn.

70

Looking Through the “Contact” Lens

A new state-of-the-art call center improves customers’ ability to contact Gulf Air.

with Tom Klein

T

From Russia,

The New Revenue Reality

Multiple factors are driving airfares downward.

46

From the Ground Up

By building its own airports, Bangkok Airways opens new markets.

48

By first improving operations, flag carriers can better prepare themselves for privatization.

on Track

Recently emerging technology offers hope to help airlines efficiently recover from offschedule operations caused by inclement weather, mechanicals and labor actions, saving money and increasing customer satisfaction.

75

The Winning Combination

United Airlines takes aggressive steps to maximize revenue and control distribution costs by leveraging winning technology.

dous challenge bringing US Airways through Chapter 11

airline industry has been one of extremes.

bankruptcy proceedings. And he completed the process

From the lows of the early ’90s to the highs at the end of the decade and back to the lows of the past few years, the

more quickly than any other major corporate restructuring in recent memory. Dave also drove an incredibly rapid set of strategic initia-

downs that have forced executives to look for radical ways

tives including a key codeshare agreement, joining the Star

to adjust to the changing environment.

Alliance and placing a record order for regional jets. Fast?

It reminds me of the new X-treme sports, or X-games,

You bet. Dangerous? Maybe, but I'd call it brilliant despite

that have become popular during the past several years.

the risks. Done before? Not like this. US Airways is setting a

Young athletes have created new games, new rules and are

new standard.

taking new risks. More and more, airline executives are practic-

All throughout the industry, we see extreme ideas being

ing “extreme” management. They are challenged to compete

tested — be it Lufthansa with its all-business-class trans-Atlantic

in new arenas, to try things never done before and to take

service, America West with a new pricing structure or jetBlue

greater risks.

changing the rules in the low-cost segment. We dedicate this issue to the leaders in the industry who are rapidly driving

fast” or finding success, is a valuable attribute for all of us

innovation and taking risks — those “extreme” leaders who

in and close to the industry. Airline managers are using

aren’t afraid to fail in an effort to drive a healthy air trans-

extreme plans and radical decisions to create new realities

portation industry.

in the industry. Our cover story features Dave Seigel, president and chief executive officer of US Airways. Dave faced a tremen-

26

Getting Back

here’s little doubt that the past decade in the

A willingness to try new ideas and learn, either “failing Turnaround First, Then Privatize

72

Group President, Sabre Airline Solutions

airline industry has been on a roller coaster ride of ups and

41 26

Song Reaches Top of the Charts

bmi’s low-cost subsidiary is helping the group defend its home turf.

38 Riding the Storm Out

Job

As Delta’s low-cost start-up, Song is helping keep a key market profitable.

31

Expecting the Unexpected

An Inside

Many carriers are looking at creating a low-cost “carrier within a carrier” to more effectively compete.

30

Many airlines are embracing “buy-on-board” programs to better serve their customers.

14

30

regional

industry 4

75

62

products

56


industry

New Distribution Paradigms:

Controlling Costs in the Internet Age The growth of the Internet offers airlines more channels to distribute their product. As airlines increase use of these channels, they can take specific steps to control costs and maximize the benefits of online distribution. By Stan Boyer | Ascend Contributor

T

he advent of the Internet provides airlines with the opportunity to make

substantial changes to the way they

has also had a severe impact on revenue. The consequences of consumer-direct distribution include:

inventory agencies such as Hotwire. The most recent statistics indicate that the top six online agencies in North

distribute their product. Not surprisingly,

Passengers use the increased price

America now account for about 25 percent

some airlines have recently placed more

visibility of the direct distribution

of all travel agency bookings in the region.

focus on direct distribution, interacting

channel to find lower fares, reducing

What does this mean for airlines?

directly with travelers and bypassing

ticket yields,

If they plan to conduct business in the

intermediaries, such as global distribution

Travel agencies react to airline direct-

North American market, they should

systems and travel agents. Although air-

sell competition, obtaining lower fares

include these agencies. For carriers

lines have always possessed this capability

for their passengers in order to maintain

based outside of North America, these

in their reservations centers, Internet-

viability, again reducing ticket yields,

agencies provide an opportunity to

based distribution has taken the call

Airlines incur increased costs to main-

distribute their product much more

center concept further by allowing more

tain Web sites and other direct-distri-

widely and with less effort than setting

customers to interact with their schedules

bution channel centers, often displacing

up sales teams in individual cities.

and fares than previously possible.

any savings gained by decreased travel agency commissions.

Airline Consumer Direct Web-based distribution has taken

The bottom line — Web-based,

The advantages of online agencies include their widespread use for instant purchase, resulting in quick inventory

consumer-direct models often result

turnover, and the breadth of products

several forms, and different models con-

in both product dilution and increased

made available to the consumer, such

tinue to emerge depending on where the

distribution unit costs.

as vacation packages and fly/drive deals.

Online Agencies

this distribution channel is that, like other

airline operates. In North America and Europe, airlines tend to favor consumer-

However, the downside to using

direct models for both published fares

Another distribution model that has

and distressed or “opaque” inventory.

emerged is the online travel agency. The

ber of hits without resulting in actual

Some have attempted to engage travel

online agencies have taken mainly two

bookings. Depending on an airline’s

agents with their Web sites as well. While

forms: published and net-fare retailers

connectivity to the Web site or its spon-

this model has lowered distribution costs, it

such as Travelocity and distressed

soring GDS, this could have a profound

consumer-direct sites, they draw a num-

october 2003

5


industry impact on its host reservations system.

If the currency devalues to 4 to 1

Most of the larger online agencies

against the Euro — as was the case

are attempting to minimize the impact

in late 2002 — the impact is dramatic.

by reducing the number of hits to the

Because much of the airline’s costs are

airline’s host system.

in the local currency, the airline leaves

Internet to Agency

The travel agency commission remains

the round trip cost at R$600 or € 150. For many areas of the world, Internet

the same at 7 percent, dropping to

penetration remains moderately low, and

€ 10.25. The GDS fee remains constant

thus consumer-direct models are not as

in Euros, and now the € 8 fee is equal

effective. In these markets, some airlines

to 5.3 percent of the fare.

are creating new models that use the

The benefit is magnified with con-

Internet to connect travel agencies directly

firmed, passive, waitlisted or duplicate

to an airline-sponsored Web site. Why

bookings for which a GDS often charges

would an airline choose this route?

a fee. If a traveler has to waitlist for an

The answer to this question lies in

The development of the Internet has created more opportunities for airlines to distribute their product more widely and with less effort. However, new channels can result in product dilution and increased distribution costs. Despite the potential pitfalls, there are ways for airlines to control distribution costs and maximize the benefits of these new channels.

earlier flight in the desired fare class,

understanding what airlines perceive to

but is unable to get the fare, and the

be their largest costs of distribution. In

travel agency does not cancel the wait-

Brazil, for example, the Real is nearly 3

listed segments in the GDS, then the

to 1 against the Euro. If the fare between

GDS costs will now be about € 16 or

some airlines do not exclude travel

based distribution, require special care

they use, their business relationships

São Paulo and Rio de Janeiro is R$600

10.6 percent of the new fare.

agencies but encourage them to book

in order to avoid fraud. For this reason,

and overall marketing strategies.

How to Control Distribution Costs Host Record Maintenance An airline should make use of data mining

In this case, the electronic cost of

directly on the airline’s Web site, leaving

it is often in the best interest of the

commission is about 7 percent, or € 14,

distribution could be more costly than

the commission intact. In addition, credit

airline to continue to have the travel

channels by focusing on:

and the GDS fee is € 8, or 4 percent.

the travel agent commission. Therefore,

card transactions, the mainstay of Web-

agency handle the transaction, thus

Corporate incentives,

records, such as unticketed bookings,

relieving the airline of the liability.

Call center and sales office efficiency,

duplicate bookings and waitlists that the

or about € 200 round trip, the agency

vıew

H I G H

L E V E L

Waitlist control,

airline knows will not be cleared. Many

Waivers and favors control,

airlines only focus on critical flights, those

Internet speeds and links throughout

Group management.

at least 85 percent full, but any flight

Who Cathay Pacific Airways

What Renewed its “smartsourcing” con-

the country, and cost and availability

News Briefs from Around the Globe

of security features.

For indirect channels, areas for cost containment include:

these records. These records should be cancelled far enough in advance in order

is the norm are experimenting with spe-

and overrides,

to ensure only accurate records on the

cial bank accounts for individuals and

Waivers and favors control,

day of departure, saving unnecessary GDS fees.

corporate clients that will allow the airline

Fraudulent booking and ticketing

ware and expertise in a range of areas

to deduct funds from the account for

practices,

Cathay Pacific access to new product

including planning and flight schedul-

the purchase of a Web-based ticket.

GDS costs,

releases and participation in Sabre

ing, pricing and revenue management,

Airline Solutions’ extensive solutions

flight operations and crew scheduling,

user groups. Through the agreement,

and automated check-in.

The smartsourcing contract provides

could contain a substantial number of

Travel agency commissions

Airlines located where cash payment

Why

tools or robotics to eliminate unproductive

depends on a host of factors such as

Whether this model will work

T H E

Airlines can control costs in direct

Communication costs —

Controlling Distribution Costs Regardless of Channel Regardless of the channel, airlines

Inventory Control Airlines’ desire for flexible product

SITA, Arinc,

distribution led to the implementation

Online agency costs.

of advanced, robust systems to control

tract with Sabre Airline Solutions. The

first signed in 1997, Cathay Pacific has

three-year, multi-million dollar contract

accessed and implemented 19 Sabre

also assures we have significant

must control distribution costs, which

of indirect distribution, most notably

responsibility on the part of the

provides Cathay Pacific the full range of

Airline Solutions software applications.

input in further product portfolio

can range from 2 percent to in excess

electronic distribution via GDSs.

airline to make the most of each

development and enhancement from

of 30 percent depending on several

However, if an airline’s reservations

system through which it distributes

with Sabre Airline Solutions will help

Sabre Airline Solutions, ensuring

factors, including markets where they

and inventory control are “hosted”

its product.

us keep ahead of the competition,"

products that meet our objectives

operate, how they manage currency

by a service provider, then many of

said Anthony Yeung, general manager

and technology that helps us remain

exchange rates, whether they treat

the same techniques used to control

work, airlines can control distribution

information management for Cathay.

at the forefront of the industry,”

incentives as diminution of revenue or

GDS costs can be applied in the

costs by conducting a monthly review

“This partnership includes both soft-

he added.

as a cost, which distribution channels

hosted environment.

of the GDS invoice detail, known as

Sabre Airline Solutions' integrated portfolio, including consulting services.

“The strategic alliance developed

“The smartsourcing contract

Many airlines focus on the costs

inventory. With this flexibility comes

Within the GDS distribution frame-

October 2003

7


industry by either SITA or Arinc, for which the

the airline should consider options such

agency. Where ticketless or electronic

airline is charged a per-message fee. In

as caching availability for the most

ticketing is common, this practice can

an attempt to achieve “last seat avail-

requested city pairs or limiting the

be eliminated. Where paper tickets are

ability,” airlines often set their inventory

number and types of transactions that

widely used, the practice can lead to

open/close thresholds too low and send

can be performed from the site. These

higher distribution costs as the agency

large volumes of messages without

options must be implemented with care

may have to make a “passive booking”

realizing the potential costs involved.

in order to avoid the perception that the

in order to ticket the airline-originated

airline is not providing the best options

booking. GDSs offer remedies for this

to its customers.

with tools that allow the agency to

Of course, for many airlines that participate at the highest levels of availability in the GDSs, AVS messaging is as a back-up mechanism. Unfortunately,

Online agencies continue to emerge as a more prominent distribution channel. In North America, the top six online agencies represent about 25 percent of all travel agency bookings in the region, and they are also gaining influence in Europe and Asia/Pacific.

billing information data tapes. Using

Many of these same principles apply in a hosted environment. An airline

status messages, or AVS messages. These

data, airlines can focus on “unproduc-

may be charged for either message

messages are transmitted to the GDSs

tive bookings” such as:

Carriers with a presence in the

from the carrier’s host system. Using this technology, the airline avoids the

airlines often forget to change their

United States have mostly eliminated

agreements when they move to higher,

travel agency commissions, resulting

more reliable levels of participation in

in lower overall distribution costs via

emerge, it is paramount that an airline

the GDSs. One U.S.-based carrier recently

this channel. However, in lieu of com-

understands the costs and revenue

modified all of its AVS agreements, yield-

missions, some carriers pay volume- or

ramifications associated with them.

ing millions of dollars worth of savings.

revenue-based incentives to agencies.

Only by understanding these issues

The structure of the incentive program

can an airline successfully control its

must be tightly controlled and inte-

distribution costs. Through the Sabre ®

grated across all segments of the

Global Distribution System, Travelocity

reduce distribution costs is availability

tools that are available to analyze this

“claim” the airline-originated booking

Commissions and Incentives

largely unnecessary and is only used

Web Transactions Studies have demonstrated that Web

cost of the passive booking. As new channels of distribution

traffic, reservations made or passengers

and other airline host systems to indicate

site traffic creates substantially escalated

airline’s indirect suppliers, such as

and GetThere, a corporate online booking

Bookings that have not been cancelled

boarded. In the case of reservations

whether a particular booking class of

numbers of transactions to the airline

consolidators, tour operators and

tool, Sabre Holdings provides an inte-

by a travel agency even after the airline

made, an airline should cancel as many

service is open or closed. An airline must

host system. Although Web-based travel

corporate accounts.

grated offering for distributing through

has sent a message for the agency to

unproductive bookings as possible prior

establish an agreement with each system

agencies are working to rectify this issue,

do so,

to a flight. The 24-hour rule does not

to which it wants to send AVS messages.

an airline should speak with the agency

Bookings that are used for ticketing

usually apply here, as is the case with

Several types of agreements are available

to adjust the volume of hits, based on

GDS bookings.

to avoid sending unnecessary messages.

technology available to the online agency.

Unless the airline has direct connections

For the airline’s own Web site, which

to another system, the messages usually

more than likely links directly to its host,

purposes only and do not affect airline inventory but still result in paying a fee to the GDS, Waitlist bookings that have not been

Availability Status Messages Another area where airlines can

every channel and can assist airlines

Sales Office and Call Center Efficiency

with managing the costs of distributing their product.

To serve customers better, airlines allow callers to book with its call center and receive their tickets via a travel

Stan Boyer is a director with Sabre Airline Solutions Consulting.

pass through a “clearing house” hosted

cancelled by the airline or the travel agency. These bookings must be cancelled by the travel agency at least 24 hours

T H E

prior to the flight to avoid charges. Each

vıew

H I G H

GDS has procedures to work with participating airlines to remedy situations where agencies make fraudulent or

Who

improper use of the system. Two recent

L E V E L

News Briefs from Around the Globe

Why

US Airways

turned off waitlist functionality, resulting in more than US$1 million annual savings

What

each. Such action is justified because booking curves are very short, and if the revenue management teams are performing their responsibilities, the need for waitlists is greatly diminished.

In North America today, 40 percent of all bookings are made directly with airlines. Of the remaining 60 percent of trips booked through travel agents, a fourth are made through online agencies.

Selected Travelocity to be the

Hotel inventory provided by

to a mutually beneficial relationship

Travelocity to usairways.com will

with this industry veteran moving for-

feature the entire complement of

ward,” said Steven Tracas, US Airways

Travelocity's offerings, including

vice president of sales and marketing.

guaranteed low-priced "Good Buy"

“I'm confident our passengers will

exclusive distributor of hotels, car

rates. The same is true for car

notice the added savings and conven-

rentals and last-minute deals on its

rentals and last-minute deals.

ience of booking their entire trip on

Web site, www.usairways.com.

8 ascend

reputation as being very supplier friendly, and we are looking forward

Sabre Airline Solutions clients actually

“Travelocity has forged a

usairways.com immediately.”


industry

industry costs. Traditional catering leaders such

Preparing for the Changing World of In-Flight Services

By Jamie Patel and Erin Bouck | Ascend Contributors

F

and buy-on-board operations as well

as LSG Sky Chefs and Gate Gourmet

Café in lieu of, or in combination with,

as multiple parties’ schedule policy

are also establishing themselves as the

traditional services can prove to be a

creation and schedule maintenance.

leaders in developing buy-on-board

very beneficial decision for airlines,

In addition, these same specifications

programs for airlines. LSG Sky Chefs

but it also comes with its fair share of

and scheduling functionality should

launched its In-flight Café concept earlier

complexity and, in certain cases, may

be able to be used as a content man-

in the year, teaming with recognized,

not vastly decrease the effort needed

agement system to inform passengers

respected restaurant brands such as

to manage such operations.

of what will be for sale on their flights,

T.G.I. Friday’s ® and Wolfgang Puck.

New “buy-on-board” programs enable airlines to provide quality customer service while boosting revenues and controlling costs.

Offering programs such as In-flight

For such programs, both airlines

complete with pricing information as

Since launching In-flight Café, LSG Sky

and caterers need technology to help

well as a digital image.

Chefs has run tests with five major

them market the buy-on-board programs,

A meal-ordering system that can

U.S. airlines and continues to run full-

operate them efficiently, and drive the

automatically segment an airline

scale programs for two carriers totaling

largest and most profitable response

schedule by class of service and

nearly 400 flights per day.

from passengers. To facilitate such pro-

provide forecasts for the appropriate

grams, airlines need a comprehensive,

class for both traditional and buy-

“The successful adoption of the In-flight Café program thus far by airline

integrated system to accomplish pre-

on-board services. For buy-on-board

aced with seeking ways to cut costs,

in some of the low-cost carrier models.

customers indicates the growing accept-

flight, in-flight and post-flight activities.

flights, the system should provide

yet still provide a high level of service

In addition, the industry has seen more

ance of the buy-on-board concept as

to customers, many airlines — particularly

and more service strategy volatility

the new model for in-flight dining in

tool to manage all planning, operational,

time information from reservations

in the United States — have begun

mainly due to the need to help drive

the United States, as more U.S. airlines

financial and decision-support functions

and departure control systems as

experimenting with selling meals to

profits in tough economic times.

seek ways to offer cost-effective meal

associated with successful buy-on-board

well as past historical sales data. This

passengers on board their aircraft.

The ideal system provides a single

meal “sales” forecasts based on real-

Carriers such as America West

service in coach class,” said Rex Roe,

programs. Some key points of function-

system’s meal-ordering functionality

The “buy-on-board” programs —

Airlines, Midwest Airlines, US Airways

vice president of design development

ality to support buy-on-board include:

should ensure that the right quantity

enabling passengers to purchase

and United Airlines have already looked

for LSG Sky Chefs.

high-quality meals on flights where

into buy-on-board programs.

Environments to support both traditional

of meals are boarded, minimizing

“The concept earned America West

concept earned America “ The West public accolades for its innovativeness. Most importantly, customer feedback has been overwhelmingly positive ….

public accolades for its innovativeness,” said W. Douglas Parker, chairman, president and chief executive officer

T H E

of America West Holdings Corp. “Most

vıew

H I G H

importantly, customer feedback has been overwhelmingly positive, and we hope to be able to expand the product.”

L E V E L

News Briefs from Around the Globe

The new, and increasingly popular, no other meal service would typically

buy-on-board trend represents a radical

be offered — helps offset the cost of

divergence from previous service models.

meal service while maintaining, or

The program provides an alternative to

even potentially increasing, customer

simply reducing services offered to pas-

satisfaction.

sengers. The buy-on-board programs

In-flight services — traditionally representing an average of 2 percent to 3 percent of total expenses — have long

Who Qantas Airways

What

provide airlines another opportunity to Selected the Sabre ® AirFlite ™ suite

outsource a piece of their operations.

of planning and scheduling solutions

Many carriers are looking to their

been a key differentiator for carriers.

catering partners to run all aspects of

to develop the airline’s flight schedules

During the past few years, the variety

these programs for whatever portion

and improve its profitability across all

of business models and strategies asso-

of their schedule/class-of-service combi-

the carrier's regional, short-haul and

ciated with in-flight service has grown

nation they deem applicable. Such

dramatically to include everything from

outsourcing activities may even provide

premium service to virtually no service

further efficiencies and help control

10 ascend

Enhancing the traveler experience, many airlines offer brand-name food items — such as T.G.I. Friday's ® and Wolfgang Puck — through buy-onboard initiatives.

long-haul routes. As part of the agreement, Sabre Airline Solutions will also establish

a regional Center of Excellence to

perspective, allocate capacity

advise Asia/Pacific-based carriers on

according to demand, quickly and

fleet scheduling issues. The Sydney-

efficiently develop regional, short-haul

based COE will initially aid Qantas in

and long-haul schedules, and plan

evaluating the profitability of routes

and assess the profitability of proposed

from an entire network and fleet

changes to both the existing network

perspective and aims to work closely

and proposed new routes.

with other APAC-based carriers.

“The installation of the AirFlite suite will enable us to quickly allocate

Why

appropriate capacity according to consumer demand or during any

The AirFlite suite will enable

short-term disruptions,” said Alan

Qantas to make flight scheduling

Joyce, Qantas group general

decisions from a network-wide

manager network.


industry

industry

Distribution System will further expand

more and more vital. Buy-on-board

sioning system, which traditionally

awareness of such programs by allowing

programs represent a dynamic new

enabled an airline to tightly manage

direct marketing to another key player,

trend that offers airlines the ability to

board program as well as flight atten-

all aspects of its “above the wingtip

the travel agent. Targeted messaging

control costs while providing a desired

dant incentive programs and tracking

provisioning,” is being adapted to

to agents about the programs offered

service. Utilizing the AirServ system in

of overall performance of the crew.

help carriers manage buy-on-board

by carriers as well as any incentives

conjunction with other tools available

programs or hybrid environments

that might be available can be easily

through the Sabre Holdings family will

including both buy-on-board and

sent through the existing technology.

ensure that airlines and caterers alike

waste and maximizing revenue.

pricing decisions, menu decisions,

process. It should also manage the

Extended data warehouse capabilities

market-segment adoption rates and

revenue-share process across the vari-

that enable storing and reporting on

competitive impacts of other carriers;

ous parties supporting the buy-on-

retail-based information for a buy-on-

and automatic cataloging of sales

board or gate-boarded environment;

information captured in any handheld

provide decision support to drive

technology utilized in the selling

hightech

The Sabre ® AirServ ® aircraft provi-

traditional components.

Marketing buy-on-board programs

can support any environment from both

The AirServ system will

News on New and Improved Products and Services from Sabre Airline Solutions

integrate with many marketing engines to help promote buy-on-

product

Reservations and Departure Control Interface version 2.0.0 description

Enhanced flight check-in functionality

Easy-to-read graphical output — Most

board programs

— Increases agent productivity by

system responses are displayed to the

to passengers,

expanding the functionality available

agent as dynamic graphical output

travel agents

on the check-in screen to include the

rather than native green screen host

and potential

cabin map, current flight information

responses. The trip summary window

consumers.

and passenger counts.

also provides the ability to display

Using the mes-

Consistent, easy-to-use navigation —

large amounts of information in an

saging delivery

A new graphical user interface for airline

In 80 percent of the cases, agent func-

easy-to-read format.

platform avail-

agents to manage reservations and

tions are performed within one click

Integrated customer relationship

able through

check-in functions from a single, easy-

from the homepage. The functions are

management functionality — Agents

the Sabre ®

to-use tool.

mapped to the natural dialog with the

are able to quickly identify their fre-

VirtuallyThere ®

traveler and are equally accessible

quent travelers and capture additional

Web site, airlines

with or without a mouse.

information about the traveler.

can send direct

benefits The combined GUI has been designed

marketing

to follow natural, intuitive workflows,

messages to

streamlining agent processes and

upcoming

increasing productivity. By eliminating

passengers

complex system formats, the GUI enables

in a variety of

agents to offer customers more attentive

formats and can

service. The easy-to-use design reduces

include specific

training time, and the consistent naviga-

information

tion between reservations and airport

about, and even

functions significantly reduces the time

photos of, the

for crosstraining. Adopting this com-

meals available

bined interface will also ease the

on their upcoming flights. Such messages

will be crucial to their overall success,

an operational and marketing stand-

process to upload enhancements and

can also easily be expanded to allow

and having a single technology provider

point. Such flexibility will help manage

new versions as they are released.

pre-purchasing of meals prior to boarding

across all avenues ensures a concrete

costs in any environment, without

the flight. On a broader scope, integration

and standard message is being deliv-

having to disappoint passengers.

features

The graphical user interface for the automated meal ordering service, also known as AMOS, helps airlines easily manage, streamline and improve their catering operations.

with booking engines such as Travelocity

ered regardless of the communication

Graphical seat maps — Allows agents

add further touch points for consumers

channel.

to view a dynamic cabin map and

as well as opportunities to drive pre-

quickly identify and assign available

departure sales. Utilization of existing

continues to change, the ability for an

seats to customers.

functionality in the Sabre ® Global

airline to adapt will continue to become

As the market for in-flight services

Jamie Patel is director of dining and cabin services at Sabre Airline Solutions. Erin Bouck is the product manager for the AirServ system.

october 2003

13


Expecting the

industry

Unexpected A conversation with Alan Wong, Cathay Pacific Airways hile the global airline industry

W

syndrome in Asia, Cathay Pacific suddenly

methodology instead of the more com-

struggled with an economic

saw travel to and from its home base

monly used scenario-driven method.

downturn, the events of Sept. 11, 2001,

plunge. The World Health Organization

This response-driven planning

in the United States, and the outbreak

issued a travel warning for Hong Kong,

methodology enables us to avoid having

of conflicts in Afghanistan and Iraq,

and bookings in its home market

to write and maintain a library full of

Cathay Pacific Airways managed to

decreased 80 percent. In May, the carrier

specific plans for specific crisis scenarios.

weather the storm. In March, the carrier

averaged 5,500 passengers a day —

announced record profits even in the

a dramatic decrease from the 33,000

face of such challenging conditions.

a day it carried during the same month

Weeks later, however, another blow to

the previous year.

the industry dramatically affected the Hong Kong-based airline. With the

Cathay to issue its first-ever profit warn-

outbreak of severe acute respiratory

ing and to take other dramatic steps to

planning methodology instead of the more commonly used scenariodriven method.

address the crisis and maintain its posi-

Photo courtesy of Cathay Pacific Airways

Photo courtesy of Cathay Pacific Airways

The drop in passenger traffic forced

corporate decision is that we “ Our use a response-driven contingency

tion as one of the world’s preeminent carriers. In the months following the

There are too many potential crises out

outbreak, the carrier reported a rise in

there for a modern airline. It also allows

passenger numbers and plans to return

us to clarify our thinking throughout

to a full schedule.

every level of the company on our core

Alan Wong, a general manager at

ery processes — what may be affected,

reacted to the crisis and some of the les-

what needs to be protected.

sons it learned.

Alan Wong, a general manager at Cathay Pacific, said the airline’s crisis management process helped it cope with the severe downturn in traffic earlier this year.

business functions as well as their deliv-

Cathay, discussed how the airline

This method ensures systematic

Question: Although it’s impossible

business continuity planning through-

to anticipate an event such as the out-

out all departments and outports, such

break of SARS, you have a plan in place

as overseas offices, by making use

to deal with crises. Can you outline

of a corporate standard planning

your crisis management process?

template. And it maximizes cost

Answer: As an airline, we always

savings in pooling resources and

have plans to handle flight disruptions.

manpower by making use of an

Our corporate decision is that we use a

integrated, holistic corporate response

response-driven contingency planning

infrastructure.

october 2003

15


industry

industry Q: What are the steps involved in it,

structure was adequate in ensuring

12 months ago. Everyone must be

and what input and types of informa-

business continuity and dealing with

trained according to the plan — it's no

tion do you seek?

issues such as impact on personnel.

good if the staff doesn’t know how to

A: Basically the crisis management

Q: Have you identified any changes

use the plan. We also conduct drills and

process involves all departments and

that you would make to the crisis man-

exercises to ensure efficient execution

staff at all levels. When a crisis is called,

agement process so that it would work

of the plan including all levels of staff

a crisis team composed of representa-

even better in future crisis situations?

from frontline staff to company directors.

tives from various departments will be

A: The spread of SARS and its impact

formed and meet on a regular basis.

on us was so quick that it deepened

The team is chaired by a Cathay director. Its job is to monitor the situation and

decisions and actions are “ Quick crucial in handling a crisis. … SARS first became an issue for us on March 16 … On March 18, we formed our SARS committee ….

period in our 57-year history. The measures mentioned were

normal by the end of September. The outbreak of SARS has reinforced our

all necessary to conserve cash and

belief that the aviation industry is very

preserve jobs. The fact that we survived

dependent on the global economic cycle

and are now able to work toward our

and is very vulnerable to exogenous

most effective steps to take? Were there

recovery is due to our prompt business

events like 9/11 and SARS. One item

other options that were not pursued?

decisions, the admirable teamwork

that we can consciously control is cost,

Q: During the height of the outbreak,

A: Dealing with something unknown

of our staff and management, and our

and we will continue to keep a close

you took some dramatic steps — cutting

like SARS, other than protecting the

shareholders' continued confidence

watch on it.

our belief in ongoing preparation. Every

more than 40 percent of daily flights,

health of our passengers and staff, our

in the company.

Q: Under normal circumstances, key

group must maintain and update its

parking 22 aircraft, cutting dividend

first priority has to be the preservation

Q: Were any of the changes you made

decisions are made after thorough

devise, communicate, implement and

plans on a regular and periodic schedule

payments, placing staff on unpaid leave

of the business and jobs. The outbreak

permanent?

discussion and debate. Did the need

evaluate our response from an opera-

— it's no good if the plan was updated

— how did you identify specifically the

of SARS posted the most challenging

A: Operation wise, we were back to

to react quickly to a crisis situation

alter the decision-making process?

though there was no specific “ Even plan on SARS, the generic corporate response structure was adequate in ensuring business continuity and dealing with issues such as impact on personnel.

Once the World Health Organization lifted its travel advisory for Hong Kong, Cathay Pacific Airways moved to allay fear of travel to the city through its “Flying without Fear” campaign. Cathay Pacific also worked with other tourism

partners to launch the “We Love Hong Kong” campaign. Such steps have helped the airline rebound. In August, Cathay Pacific carried 23.9 percent more passengers than the previous month.

A: Quick decisions and actions are crucial in handling a crisis. Our established plans have enabled us to do so. SARS first became an issue for us on March 16 when we were told that a passenger that had flown with us to Canada 10 days previously had taken ill. It was immediately apparent to us that SARS could have commercial implications

tional and communication point of view. Any information related to the crisis

for the airline. Our first concern was to protect the health of our passengers

will be needed. For the SARS outbreak,

and staff. At the time, there were very

we worked closely with the International

limited recommendations for airlines

Air Transport Association, the Association

to deal with the situation, so we devised

of Asia Pacific Airlines, the World Health

our own.

Organization, Hong Kong Department of

On March 18, we formed our SARS

Health, et cetera, to gather the latest SARS

committee chaired by the director of

information. We needed them for decision

service delivery and brought together

making and message development for

representatives from all departments.

both internal and external audiences.

Its job was to monitor the situation and

Q: How well did your crisis manage-

devise, communicate, implement and

ment process address the SARS out-

evaluate our response from an opera-

break? Was it robust enough to handle

tional and communication point of view.

such unprecedented changes, or did

Q: How long do you believe it will take

you have to adjust it to manage the

you to fully recover from the affects of

magnitude of the situation?

the SARS outbreak? Do you believe the

A: SARS is so new that it’s probably

recovery process was hastened by hav-

not included in any contingency plan.

ing a crisis management plan?

Nevertheless, our established plans

A: Passenger numbers are picking up

are response-driven rather than sce-

across the network. However, yield is

nario-driven. We were able to meet the

low as a result of all the promotional

challenges of the SARS event. Even

offers to encourage people to travel

though there was no specific plan on

and help to rebuild the tourism industry

SARS, the generic corporate response

in Hong Kong. Full recovery will take

16 ascend

october 2003

17


industry

industry some time. Having a crisis management

back to full operation by the end of

acted to contain them, the outcome

plan has definitely helped the company

September. For destinations such as

to the company, its staff and sharehold-

to manage the crisis in a more structured

London, Melbourne and Auckland,

ers could have been much worse.

way. Very soon, it became clear that the

the frequencies will be even higher than the pre-SARS level.

of crisis, people need “ Into betimesbriefed. Unity among staff and confidence in the company are essential ….

Notwithstanding current difficulties,

Very important was our ability to act quickly in the face of crisis, both to protect the health of passengers and

we will continue with plans to grow our

staff and to make swift decisions in

fleet, develop our network and strengthen

order to safeguard the business in the

Hong Kong's position as Asia's leading

short term and maintain confidence in

aviation and logistics hub.

the company in the long term.

Q: Since Cathay has successfully

Riding the Storm Out For nearly three years, various elements have converged to form a “perfect storm” for the airline industry. Addressing some of the causes and effects of the storm will result in changes that will reshape the industry.

In times of crisis, people need to be

crisis would break down into three broad

survived the SARS crisis, do you think

briefed. Unity among staff and confidence

phases with specific focus in each phase.

you are better prepared to handle future

in the company are essential to ensure

After taking the necessary measures to

situations that may arise?

that everyone puts in their best and

protect our passengers and staff and

A: We are coming through an extremely

moves in the same direction.

cutting costs, we moved quickly from

difficult period with our company, staff

Communicating promptly and transpar-

L

the response phase to the reassurance

and product intact. The experience has

ently to external audiences also helps to

airline industry was preceded by decep-

too alarming — the booming North

phase in order to allay the fear of

given us very good lessons on how to

retain people’s confidence in the company.

tively beautiful weather.

American economy began to cool.

travel because of SARS. We launched

manage the company during an extremely

a "Flying without Fear" campaign in April. Faced with the rapidly declining

By B. Scott Hunt | Ascend Editor ike many spectacular tempests, the

airline industry analyst for Blaylock

so-called “perfect storm” that hit the

& Partners in New York City. Nothing

From our point of view, it was

Although it may seem like an

difficult business environment. While

important that we did not just wait for

eternity has passed, the airline industry

thickened as fuel prices rose and high-

we remain vigilant, we believe the expe-

help. We provided leadership and took

once found itself flying through the

margin business travel slackened, Neidl

local economy, we had to do something

rience we had will help us handle future

action to rebuild our own business as

clear skies of relative prosperity as

said. Meanwhile, he added, airlines

to build confidence and stability among

situations that may arise.

well as support government and industry

recently as three years ago. According

continued to add capacity, and labor

Hong Kong residents and to get life

Q: What key lessons did you learn

initiatives, both to maintain confidence

to Steve Hendrickson, a partner with

costs in the United States jumped,

back to normal. Together with other

from the SARS outbreak and its

in air travel and restore vigor to the

Sabre Airline Solutions Consulting,“

sparked in part by an industry-leading

tourism partners in Hong Kong, we

affects on your airline?

tourism industry of Hong Kong.

things were calm and sunny” as

contract United Airlines gave pilots to

launched the "We Love Hong Kong"

A: Although SARS created a very

campaign. Once the World Health

different crisis to one an airline might

Organization removed Hong Kong from

normally be prepared for, it nevertheless

to address the issue have helped it

the SARS-infected area list, we rolled

highlighted some very fundamental

make a strong recovery. In August,

out an aggressive plan to rebuild the

lessons.

Cathay Pacific carried 1,083,011 pas-

tourism industry in Hong Kong.

The key lesson is the need to be

Following that, though, the storm clouds

recently as 2000. The steps taken by Cathay Pacific

sengers, a 23.9 percent increase over

The “perfect storm” that impacted the airline industry had a dramatic effect on the financial performance of carriers around the world. In 2001 and 2002, the world’s airlines combined to lose nearly US$25 billion.

“The economy was riding high in ’99 and 2000,” he said. “You had your ‘dot.com’ venture capitalists throwing (around) money, and people were saying, ‘Don’t worry about being profitable, just

just like a perfect storm. “ ItIt was was a whole bunch of different things that were coming into play at the same time … none of them good.

Q: As you emerge from the impact of

prepared. We are always sensitive to

the previous month. Its passenger

generate more eyeballs.’ Of course, we

SARS, have you readjusted your opera-

possible threats and a strong sense of

load factor climbed 3.2 percent year-

had Y2K grabbing a lot of activity. Even

tions and/or your overall strategy?

crisis is in our corporate culture. If

on-year to 85.3 percent, and it carried

into 2000, they were still wrapping up

A: We are progressively reinstating

we had not identified the possible

70,452 tons of freight, up from 67,340

Y2K projects. Then a lot of those projects

win support for its ill-fated merger

more flight frequencies. We were

implications of SARS early on and

tons in July.

were used as justifications for other

attempt with US Airways.

modernization efforts: ‘As long as we’re

+count it up Less than 2 — Number

4 — Number of doctorate

7.1

of minutes for the world’s shortest

degrees held by members of the

for overall passenger traffic year

scheduled flight, from Westray to

Sabre Airline Solutions consulting

on year for the first half of 2003,

Papa Westray.

team. Team members also hold

according to the International Air

15 master’s of business administra-

Transport Association.

tion degrees.

— Percentage of decline

And then came the lightning bolt —

going to clean up the code on the two-

the events of Sept. 11, 2001, when four

digit year, let’s also put a data warehouse

commercial aircraft in the United States

behind this thing.’ So there were a lot

were commandeered and crashed into the

of things helping the economy peak and

two World Trade Center towers in New

even bubble, and we were enjoying the

York City, the Pentagon in Washington,

excesses of that period.”

D.C., and a field in Pennsylvania. Dramatic and damaging as it was,

Signs of Trouble But in March 2001, a few clouds started to gather, said Ray Neidl, an

that lightning strike only marked the storm’s flashpoint. It was followed by conflicts in Afghanistan and Iraq and

october 2003

19


industry

industry the outbreak of the deadly severe acute

“In my view, it’s the confluence

cent for the year. Kilometers flown, which

were good, was profitless growth. Yes,

try, “Driving Airline Business Strategies

respiratory syndrome in Asia — all of

of several factors aligning in time and

had increased by at least 5 percent from

it was growth, but we were giving the

Through Emerging Technology” and

which combined to keep an already

then triggered by some pretty severe

1998 to 2000, dropped 0.5 percent in 2001

product away.

“Airline Survival Kit: Breaking Out of the

skittish traveling public at home.

catalysts such as 9/11 that has probably

and an additional 1.1 percent in 2002.

“It was just like a perfect storm,”

The financial impact, naturally, was

brought the industry to its knees like it

“It’s not that these things were not

Zero Profit Game” — said the availability

detected before; it is just that our focus

of low-cost carriers on more routes has

Neidl said. “It was a whole bunch

has,” Hendrickson said. “You can meas-

almost incomprehensible. In 2001-02,

was not on them,” he continued. “We’re

given travelers a viable alternative to

of different things that were coming

ure the storm by the damage it’s caused,

according to IATA, the world’s airlines

now more focused on them. We’ve

the traditional carriers, and they were

into play at the same time … none of

and the damage is showing up on the

combined to lose US$24.7 billion —

always known that we have carried

well-positioned to draw traffic during

them good.”

bottom line and the top line. It’s not just

more than the gross domestic product

some traffic at below cost. We’ve always

an economic slowdown. Indeed, some

the bottom line. The revenue line has

of Nicaragua for the same period.

known that we added complexity to our

low-cost carriers have continued to earn

business, and the complexity that we

profits despite the raging storm.

The constant piling on of adverse circumstances seemed to some in the

Nearly three years into the industry’s

fallen apart.”

Another pre-existing factor also helped magnify the effects of the storm, Taneja said. “The development of the Internet (as a distribution channel) completely

80

changed the industry,” he said. “It made fares transparent, that there is a lower fare available to the business traveler.” The Internet also revealed the con-

70

ditions required for a business traveler to take advantage of lower fares. They might have to travel to an alternate airport where a low-cost carrier is based,

60

or make a connection as opposed to a non-stop. But, with the volumes of fare information available on the Internet, Taneja said travelers could now make

The profitability of airlines during the last 10 years has swung dramatically, ranging from losses following the first Gulf war to healthy levels in the late ’90s and back to losses with the start of the “perfect storm.”

Data from IATA shows that historically, passenger load factors have followed a consistent pattern that was disrupted by events such as Sept. 11, 2001, and the outbreak of SARS in early 2003.

“a choice based on knowledge they had gotten” rather than relying on an intermediary who had a vested interest in steering customers to a higher fare. With the growth of the Internet as

industry to parallel the ancient story of the plagues that once afflicted Egypt.

The Storm’s Effects The damage report, according to the

perfect storm, analysts have examined

added raised the cost. The only difference

a distribution channel, practices travelers

its origins and have found that perhaps

is that before we were able to get away

developed while shopping online for

“I hope we don’t have a wave of

International Air Transport Association,

the underlying “meteorological” condi-

with charging higher fares to a certain

the family vacation soon spilled over

locusts,” Northwest Airlines Chief

indeed paints a stark picture.

tions that set the stage for the turbu-

segment of the traffic.”

to planning corporate travel.

Executive Officer Richard Anderson

In 2001, seemingly every performance

remarked to a reporter during the SARS

measure kept by IATA fell: kilometers

outbreak. “We've had war, and we've

flown, aircraft departures, hours flown,

had plague, I guess, and we seem to

passengers carried, freight tons carried,

have sort of one event after another.”

passenger kilometers flown, available

Individually, the elements in the storm

tors. The picture didn’t improve much

in combination, however, they drenched

in 2002. The total number of passengers

the industry, flooding it with financial

carried by IATA members fell another 2.1

setbacks during what many call the worst

percent in 2002, and, on top of that, they

period in commercial aviation history.

paid less to fly: yields shrank by 0.3 per-

Other pre-existing conditions also magnified the effects of the storm.

The Early Factors

ers is one of the aspects, and that goes

we’re seeing the consumer paradigm

Even during the boom times, there

The flashpoint of the perfect storm — the events of Sept. 11, 2001 — compounded the conditions already facing the aviation industry, forcing it into perhaps the most challenging period in its history.

“People flocking to the Internet

of rain.

“The proliferation of low-cost carri-

seat kilometers and passenger load fac-

would have each had an impact. Working

20 ascend

lence go back well before the first drops

learned how to do their comparison shopping,” Hendrickson said. “I believe

back quite a bit,” Taneja said. “I would

change. I used to accept the US$1,600

were underlying problems in the indus-

say that by the early ’90s, they really got

fare if I was booking two or three days

try, said long-time industry analyst

going and really started becoming more

in advance of my trip. Today, I find

Nawal Taneja.

prominent. That’s my definition of the

that unacceptable.”

“Prior to ’97-’98, the industry was making gobs of money,” he said. “But some of the growth, even when times

first event (of the storm).” Taneja — who has recently authored two books on the airline indus-

Of all the elements of the storm, the development of online distribution packed the most powerful punch,

october 2003

21


industry

industry

A Changed Environment

Taneja said, because “the Internet

above the rising water, some could not

Airplanes are technology (as well as)

simply changed travel distribution and

escape the storm. The fallout included

information technology and technology

passengers’ behavior.”

the failure of weaker airlines and bank-

such as mobile communications.

The response by a thunderstruck industry to the deluge was swift and drastic. Thousands of employees were

to restructure their businesses. Those who have survived have made needed changes, Taneja said.

said. “The Internet makes it easier to

overall passenger traffic for the first

shop. The low-cost carriers are really

half of 2003 was 7.1 percent below 2002

gaining significant market hold, and the

having access to information in almost

levels. And capacity remained signifi-

big carriers are never going to be able

real-time in a very pervasive manner,”

cantly down, led by the Asia/Pacific

to get the revenue premium they had before.”

he said. “There should be one unified

region (a decrease of 27.2 percent)

furloughed, hundreds of aircraft were

he said. “My only question would be

view of this information available

and North America (12.5 percent).

parked and marginal routes were cut.

the speed with which they are moving

across the board.”

Around the world, governments

“The general direction is correct,”

Yet, the end of the storm may be

The cost of investing in technol-

and the depth to which they are moving.

“Now, I see a rainbow,” Neidl said. “I’m looking for an improved economy.

compared to the benefits it can provide,

I’m looking for cost cutting to really take

assuming you are willing to capitalize

effect later on this year or early next year.

on that benefit. You do not just need

I’m looking maybe for even some con-

a new system, but you need a new

tinued reduced capacity by the major

culture.”

carriers. All those things combined,

By investing in technology and

I’m looking for the industry to return to

making necessary changes, airlines can

profitability maybe in the third quarter

position themselves to stand on solid

of next year.” But, even after it subsides, the

T H E

severity and duration of the storm will

vıew

H I G H

According to IATA, the main traffic and capacity trends — revenue per kilometer, freight ton kilometers and available ton kilometers — dropped significantly following the events of Sept. 11, 2001, and again earlier this year after the outbreak of SARS.

rapidly and going pretty deeply. Most

government put together a package of

are not doing it as quickly or as deeply.”

US$5 billion in cash and US$10 billion

Royal Brunei Airlines and Regional

quick enough to adopt technology to

for the effects of 9/11. Both U.S. and

assist with making changes.

I believe, is not being “ Technology, utilized to the fullest to help them restructure. I think that it could not only be an enabler of some of these changes, but perhaps a driver. There is no question in my mind that technology has become much more of a tool that they can use.

News Briefs from Around the Globe

the need for costly and complicated in-

Hj Mohd Daud, director of marketing at

house data center infrastructure and

Royal Brunei.

support.

Regional Express — “With the

Why

be able to provide our Regional Express

Express Airlines

He also said airlines have not been

in loan guarantees to compensate

immediate impacts. Following the events

L E V E L

Who Only a few carriers are moving pretty

Some of the changes have had of 9/11, increased security — and its

“In the long run, (the cost) is minute

Taneja said.

for airlines. In the United States, the

in sight.

ogy, he said, will pay off for airlines.

ground when the sunny skies return,

attempted to provide some shelter

“The industry has changed,” Neidl

the storm lingers. According to IATA,

part of all of this is information —

“I think the most fundamental

ruptcy court protection for others seeking

Seeking Cover

While the worst may have passed,

have lasting effects.

addition of the Traverse system, we will

What

Flyer members with greater customer Royal Brunei — “We want to

Successfully implemented the

service than we could previously," said

reward our Royal Skies members with a

Hans Van Pelt, chief information officer

write terrorism insurance for airlines.

utilized to the fullest to help them

Sabre ® Traverse ™ loyalty management

full range of features and benefits

at Regional Express, a domestic

After the outbreak of SARS had

restructure,” he said. “I think that it

system to automate their frequent flyer

through new partnerships and multi-

regional carrier in Australia with 1,500

subsided, and travel advisories for

could not only be an enabler of some

programs, Royal Skies and Regional

faceted promotions and awards. The

flights per week. “The ASP interface

affected Asian countries were lifted,

of these changes, but perhaps a driver.

Express Flyer, respectively. The airlines

Traverse system has enabled us to do

also enables us to eliminate the burden

area governments began aggressive

There is no question in my mind that

access the Traverse system via the

all this and more, and we are extremely

of maintaining a costly infrastructure to

campaigns to bring back tourists.

technology has become much more of

European governments helped under-

Even though the airlines themselves took radical steps to keep their heads

22 ascend

“Technology, I believe, is not being

a tool that they can use. And I’m using technology in the broader sense.

Heightened airport security has put another burden on airlines as they have struggled to cope during the perfect storm. According to IATA, new security regulations cost airlines US$5 billion in 2002.

Sabre eMergo Web-enabled and dedi-

pleased with the positive feedback from

support our loyalty program; now we

cated network solutions, an applications

our customers from the date Royal

have an effective customer self-man-

service provider model that eliminates

Skies was launched,” said Hj Omar Ali

aged program completely online.”

®

®


industry

industry accompanying costs — have directly impacted airlines.

we’ve got some real problems.”

what your scope is going to be and

would be able to charge for it. But

type of system airlines had worked

the type of network and the type of

even when you do, the price has to

long and hard to perfect, but it won’t

try has been irreversibly changed. The

fleet and the type of customer service

reflect, to some extent, the perceived

work anymore.

at airports now has done two things,”

severity of the storm revealed underlying

and onboard products and so on,”

value that a person is willing to pay

“What the low-cost carriers are

Taneja said. “One, it has raised costs.

conditions in the industry that could no

he said.

for the feature. The feature has to be

doing is coming into markets, and they

The other one is simply having to show

longer be ignored, he said.

“The extra security that is needed

up at the airport a lot earlier to make a

Taneja agreed the look of the indus-

“I don’t think we’re ever going back

something the customer wants to buy.

are not using those restrictions,”

competition among themselves —

Second, it has to have a reasonable

Hendrickson said. “So, carriers’ ability

value for that customer.”

to fence off the business segment is

For low-cost carriers, increasing

flight. Short-haul travel is going to be

to the way we were,” he said. “I’m not

and from revamped traditional carriers

(particularly) impacted. If you are only

saying that airlines will continue to lose

— will force them to change as well,

traveling from Cleveland to Chicago,

money at the rate they are forever and

he said.

and you have to show up an hour and

ever and ever. They will turn around.

The low-cost carriers, which today

“Their competitive advantage is

gone, plus passengers have the expecta-

are better capitalized and better man-

tion that they shouldn’t have to pay the

aged than ever, will continue to drive

higher fares anymore.”

a half early on each end, that’s going to add a lot more time.” But there are other long-lasting results as well. According to Hendrickson, the industry “might be looking at climate change here.” “Take fare transparency,” he said. “Initially the airline industry thought it was a great idea; bypass the global distribution system, give customers the ability to use online bookings, avoid commissions, lower distribution costs. But at the same time, they introduced the start of a revolution, which brought comparison shopping and completely emphasized price. That genie has come out of the bottle and will not go back in. There’s no way you’re going to reverse that trend,

A drop in available ton kilometers across the Asia/Pacific, North American and European marketplaces reflected the events that had a dramatic impact on the industry, according to IATA.

A downturn in the airline industry began in early 2001 with a decline in revenue passenger kilometers, according to statistics from IATA. The declining performance plummeted in late 2001 and again in early 2003.

so that’s here to stay.” Hendrickson also noted that, historically, there was a strong rela-

But in order for them to turn around,

low cost,” Taneja said. “If the legacy

change in the industry, particularly

tionship between GDP and industry

they are going to have to change their

carriers reduce their costs and approach

in pricing.

revenues. During the past few years,

business models significantly.

the low-cost carrier, then the latter may

“A lot of us find it a little counter

Despite the pressures of the past few years, airlines can take solace in that having survived the worst, they’ll be

have to go even lower. And, second,

intuitive to fly on a ticket one day with

carrier, the change will be more drastic

they are going to have to differentiate

a briefcase in our hand and pay some

and dramatic,” he said. “But even the

among themselves. AirTran, for exam-

astronomical price and fly on the week-

the storm are going to be stronger

may not be cyclical,” Hendrickson said.

new paradigm airlines are going to

ple, offers two classes of service and

end and get it for a fraction of that,”

and profitable and are going to do

“That might be a fundamental change

have to change.”

flies into more conventional airports.”

Hendrickson said. “Imagine if you went

very well,” Taneja said. “It’s not like

Differentiation will also be the

to buy a notebook, and the store looked

demand for air transportation and

at whether or not you were in a business

services has disappeared. Those that

suit. ‘This is a businessman, let’s make

survive are going to find the optimal

the price $2.’ But you come in with your

mix to provide a reasonable return to

kids at back-to-school time, and you

shareholders, reasonable wages to

get the same notebook for 99 cents.

employees and reasonable fares to

You’d be furious. That’s essentially the

customers.”

however, that relationship seems to have been broken. “That strikes me as something that

in the way this economy looks at the

“If you are a traditional legacy

Traditional carriers will “have to

value of air travel. It’s a pretty startling

reduce their costs and not just labor

key to regaining pricing power,

change. That’s what I think is most

costs,” he said, but also will have “to

Taneja said.

alarming. We can always fight over

pick very carefully the customers that

share, but if the economy is switching

they want to serve.”

its view of travel as a facilitator of commerce to something else, then

24 ascend

“One way you get to a commodity business is if you don’t set up differenti-

“If you decide you are going after

ated products and services,” he said.

a kind of customer, that will determine

“But, if there is a difference, then you

Although the effects of the perfect storm continue to linger, there are positive signs on the horizon, analysts say. Analysts predict that some airlines will return to profitability in 2004.

better equipped to succeed in the future. “I think that airlines that survive

october 2003

25


industry Photo by Gerd Rebenich/Lufthansa

Lufthansa “D-Check”s its Organization and Processes Through a program designed to thoroughly examine its operations, the Lufthansa Group is positioning itself for the long haul.

By Hanjo Krause | Ascend Contributor Photo by Rolf Bewersdorf/Lufthansa

T

he term “D-check” is nothing new

better position than most competitors,”

to the airline industry. At every

said Juergen Weber, the group’s former

airline, each aircraft must eventually

chief executive officer who launched the

undergo this extensive maintenance

program. “The D-check program will

procedure in which it is completely

ensure that it remains that way.”

overhauled — systematically disassembled and scrutinized piece by piece. But the Lufthansa Group has taken

Through the enterprise-wide program, the processes and procedures of all business divisions are meticulously

the “D-check” concept and applied it

examined to measure performance

throughout the organization, a radical

and seek ways to improve quality, cut

approach to ensure the airline maintains

costs and identify potential procedural

its leadership position in the industry.

improvements. The objective of the

Launched in early 2001, the “D-check

program is to increase the efficiency

— Maintaining Leadership” program

finds itself in a much “Lufthansa better position than most competitors. The D-check program will ensure that it remains that way.

helped the company avoid an operational loss following the events of Sept. 11, Under the direction of Wolfgang Mayrhuber, chief executive officer of Lufthansa, the airline has embarked upon a program to thoroughly analyze its operations.

2001, and helped the Lufthansa Group post a € 718 million (US$814 million) operating profit in 2002. When the program was launched, prior to the extreme turbulence in the industry,

is important now, but “ Saving saving alone is not the future. We must at the same time invest in our products for tomorrow to maintain our lead.

company officials projected that the

and effectiveness of the airline by

program would generate € 1 billion in

making it lean, nimble and first rate.

benefits by the end of 2003. Company officials said this program

“Saving is important now, but saving alone is not the future,” Weber said. “We

will help the airline secure its position

must at the same time invest in our prod-

for the future.

ucts for tomorrow to maintain our lead.”

“Lufthansa finds itself in a much

Under the direction of the new chief

october 2003

27


industry Photo by Stefan Wildhirt/Lufthansa

executive, Wolfgang Mayrhuber, the airline is doing just that. It has pursued high technology to differentiate itself from its competition. From the beginning of 2004 on, Lufthansa will become the world’s first airline to provide inflight broadband Internet connectivity on its long-haul fleet. The airline will

spirit and innovative “ Pioneering strength are important pillars in our success. Investments in product quality, therefore, are investments for our passengers and in the future of Lufthansa.

equip 80 aircraft — including Boeing 747-400s, and Airbus A340s and A330s

Photo by Werner Krüger/Lufthansa

— with the Internet service, provided by Connexion by Boeing. “The Internet is being given wings and will enable the mobile business traveler to make better use of his or her flying time,” said Mayrhuber in announcing the new service. Through this service, called FlyNet, the airline provides carrier information, news, weather, stock market data and destination information through a free portal. And passengers can also pay a

Lufthansa Cargo, which uses the CargoMax Revenue Manager, carries cargo to nearly 500 destinations around the world. In addition to its 14 MD-11s and eight Boeing 747200s, Lufthansa Cargo has access to the freight capacities of more than 300 Lufthansa passenger aircraft.

fee to use the service to surf the Internet or connect with their offices’ secure Photo by Gerd Rebenich/Lufthansa

intranet or e-mail server via a virtual private network. In June, the airline equipped its seven lounges at its Frankfurt hub with wireless Internet access, and it plans to expand the service to its 55 lounges at 30 locations worldwide.

strategic course of the airline during the

costs by automating and integrating

to optimize varying capacity needs

past decade helped Lufthansa successfully

their in-flight catering process. Last year,

across the network. Combined, these

master the challenges of the industry

eLSG.SkyChefs introduced its automated

tools help Lufthansa effectively respond

during the past few years.

meal ordering service, called AMOS. The

to unexpected events, protect yields and

service enables airlines to automate,

adjust to fluctuating demand.

“Pioneering spirit and innovative strength are important pillars in our

manage, streamline and improve their

become an important competitive edge

success,” Mayrhuber said. “Investments

catering operations, potentially reducing

carrier such as Lufthansa must focus on

in the age of global economic relations,

in product quality, therefore, are invest-

annual meal overages by 5 percent.

competition, quality, cost management,

particularly for business travelers,”

ments for our passengers and in the

Mayrhuber said.

future of Lufthansa.”

“Reliable communications have

Lufthansa’s innovation spans across

He said through the wireless connec-

Lufthansa Cargo implemented its

More than ever, a global network

creative innovation, customer service

eBooking tool to allow airfreight cus-

and changing market conditions. But, as

tomers to submit bookings electronically

Weber noted when passing the baton,

tions, Lufthansa is offering its passengers

its various subsidiaries, including LSG

24 hours a day. The cargo division also

success relies on a committed, forward-

“a service that makes the lounges

Sky Chefs, the world’s largest in-flight

implemented a revenue management

thinking team and the right tools.

worldwide into mobile offices.”

services company, and Lufthansa Cargo.

tool, the Sabre CargoMax ™ Revenue

In October 2001, the catering group

Lufthansa said the Internet connectiv-

®

“Under (Mayrhuber’s) leadership,

Manager, to prepare the division for the

Lufthansa will remain ready for change

ity adds a communication dimension to its

launched eLSG.SkyChefs, the first total

next phase of growth in the cargo busi-

and will develop its strength such as

lounges, which already provide options

e-business solution provider to the airline

ness. Lufthansa’s passenger airline uses

vigilance, speed and choice of the right

for entertainment and relaxation.

catering industry. The service, which utilizes

the Sabre AirFlite™ Fleet Manager

tools,” Weber said.

the Sabre ® AirServ ® aircraft provisioning

to support its more refined schedule

system to optimize the provisioning process,

planning and tactical short-term capacity

helps airlines realize up to a 10 percent

adjustment processes. The tool allows

Germany-based account

reduction in their operational catering

Lufthansa to re-assign aircraft in order

director for Lufthansa.

These innovations build on Lufthansa’s history of pioneering dynamic methods of doing business to keep itself at the forefront of the industry. The constant

28 ascend

Through its organizational “D-Check” program, Lufthansa German Airlines, which uses the AirFlite Fleet Manager to support its more refined schedule planning and tactical short-term capacity adjustment processes, is gaining altitude in a competitive marketplace.

®

Hanjo Krause is Sabre Airline Solutions’

october 2003

29


industry

industry

Job

An Inside By B. Scott Hunt and

Stephani Hawkins | Ascend Editors

– and a growing percentage in Europe

carriers that have started their own

five destinations with a fleet of four

they also have key differences in the way

and Asia/Pacific as well – traditional car-

low-cost airline.

Airbus A320 aircraft. And Delta, with

they operate. While both have a single

riers have been forced to take extreme

Despite a checkered history of such

Song, and bmi, with bmibaby, have

fleet type, Song uses larger 757s com-

measures to deal with the growing

offshoots, in the past couple of years, sev-

used their low-cost subsidiaries

pared to bmibaby’s 737s. Song also has

threat. The low-cost carriers have put

eral airlines have launched, or announced

to aggressively compete in their

maintained the pay scale of the parent

tremendous pressure on traditional

plans for, low-cost subsidiaries. Air Canada

dominant markets.

airline while bmibaby forged complete

network carriers to cut costs in order

has launched Tango and Zip. Qantas is

to compete with the LCCs and match

now examining the possibility of launch-

endeavors risky, early returns have been

their discount fares.

ing a domestic low-cost carrier. United

positive for Delta and bmi, who show

Airlines recently announced it will

that, perhaps, such a new venture is

low-cost carrier startup differ somewhat,

Although some consider such

new labor agreements. Each also offers different amenities to its customers. While their approaches to their

t may not be a case of “if you can’t beat

I

assets, incorporating elements of the

’em, join ’em.” But several traditional

low-cost model in their own “carrier-

back by reducing labor costs, develop-

launch a new low-cost operation from

not quite the flight of fancy many peo-

both Delta and bmi are committed

airlines, faced with increasing competi-

within-a-carrier” startups.

ing “rolling” hubs and simplifying

its Denver hub beginning in February.

ple once believed. Although they share

to using their new subsidiaries to

With low-cost carriers now control-

their fleets. But none of those steps

The low-cost operation, currently code-

similarities – including drawing upon

compete strongly against the low-cost

ling nearly a quarter of the U.S. market

match the radical approach of those

named Starfish, will begin by serving

the resources of the parent airline –

competition.

tion from low-cost carriers, have begun looking at ways to re-deploy their

Traditional airlines have fought

Song Reaches Top of the Charts

You’ve Come a Long Way, bmibaby!

By Stephani Hawkins | Ascend Editor ith 30 percent of its traffic coming

By Stephani Hawkins and B. Scott Hunt | Ascend Editors ack in 2001, officials with bmi, the

Go, announced that December it would

second largest carrier in the United

attractive. Really, the decision for us was

begin operations at East Midlands.

W

own backyard.

Florida leisure destinations, also

B

low-cost carrier would identify as being

nitely wanted to protect its market share

options. It could follow the lead of other

recently added service between Atlanta

Kingdom, predicted someone would

if we as a company had to start setting

“Because we had laid a lot of the

in a vital area.

airlines and pull out of Florida. It could

and Las Vegas, Nevada.

eventually bring a low-cost carrier to the

up our own low-cost carrier mindful of

groundwork, we were actually able to

airline’s East Midlands Airport home base.

some of the pitfalls that people like British

announce our own low-cost airline within

Airways with Go and some of the U.S.

three days of Go announcing it was

carriers had with their own ‘light brand.’

coming here,” Davis said. “The immedi-

from Florida, Delta Air Lines defi-

Long the state’s dominant carrier,

The carrier looked at several

maintain the status quo, continuing to

direct service from the northeast to key

When the concept of a new, low-

Delta faced the growing presence in

lose money and hoping to make it up in

cost airline was introduced to Delta

Florida of low-cost carriers such as

stronger markets. Or, ideally, it could

employees, it was welcomed with

Southwest, AirTran and jetBlue. Fending

find a way to rejuvenate its Florida

tremendous support and cooperation,

off the upstarts, however, posed a chal-

routes and make money.

said John Selvaggio, president of Song.

lenge. Historically, yields in Florida were

So, they thought, why not do it themselves? “It became fairly clear to us that our

Could we set up a low-cost airline and

ate reaction to Go’s announcement was

home base here in the Midlands was ripe

learn from some of the mistakes before

that we would stand and fight.”

for a low-cost airline,” said Tony Davis,

someone actually came into our home

low and, with low-cost carriers entering

of Song, Delta’s low-cost “carrier within

managing director of bmibaby. “It had

base airport and attempted to do that?”

the market, were actually spiraling even

a carrier.”

all the attributes for an airport that a

The third option led to the concept

In the summer of 2001, bmi began

further downward. The Atlanta, Georgia-

On April 15, Song took to the skies

based carrier knew it had a lot at stake if

with its maiden voyage from New York

those plans were put on hold after the

it didn’t find a radical way to meet the

City, New York, to West Palm Beach,

events of Sept. 11 of that year. As

demands of the changing market in its

Florida. The airline, which provides

30 ascend

planning its new low-cost operation, but

continued on page 32

expected, however, a low-cost airline,

Although a radical move by a fullservice carrier, Davis said the decision for bmi to start a low-cost operation made perfect sense.

continued on page 35 october 2003

31


industry continued from page 30 Every department assisted in setting up

Because it is an offshoot of a well-

the new operation. “I think people were in the mood to

getting better utilization of your people

enue side of the equation work, you’ll

live, all-digital satellite television pro-

burdened with a large capital outlay or

and your airports.

come out ahead,” said Selvaggio. “True,

gramming, digitally streamed MP3

the need to purchase or lease several

ner, and everybody wanted to be part of

new aircraft and bid on new airport

saying it couldn’t be done, we found that there were more optimists in the world, and fortunately, a lot of them

Photo courtesy of Song

the team,” Selvaggio said. “So while it up against the media and Wall Street

you’re going to have about a 30 percent

audio programming, pay-per-view pro-

aircraft or the gates,” he added. “And

higher operating cost, but you’ve got

gramming and an array of video games.

in most cases, you don’t need additional

an opportunity to make 70 percent

And to top it off, we offer buy-on-board

staff. It’s just that they have less down-

more revenue.”

snacks and meals.”

“It doesn’t cost more to lease the

The structural savings allowed Song

time in between flights. So we found we

work for Delta.”

to maintain the same employee pay scales

onboard, including freshly made sand-

while putting more seats into the market

as its parent company, from where it

wiches, salads and wraps; healthy

place, and that’s how we drove our cost

drew the majority of its employees.

snacks such as yogurt, breakfast bars

“Many of our flight attendants

the use of our assets.

Delta learned from its experience with

Passengers can purchase meals

could do this at very low marginal costs

structure down — we simply optimize

In creating a new low-cost carrier,

“We knew that to get the utilization

and juices; old standards such as chips

make more money now than they did

and candy; and top-shelf cocktails —

when they flew for the mother airline,

Cosmopolitans, Martinis and Mimosas.

its earlier carrier within a carrier, Delta

we needed, we had to turn them (air-

but they’re working more flights and

Express, which started in the late ’90s

planes) faster, which meant we wouldn’t

more hours,” Selvaggio said. “We’ve

still love to eat,” Selvaggio said. “And

connecting airports in the northeast

be able to offer some of the amenities,

changed the methodology in the struc-

people will eat no matter what the airline

United States to Florida.

such as pre-departure cocktails or special

ture of how people get paid, but it

boarding privileges, that Delta’s frequent

encourages them to fly more. And the

Florida, and we weren’t making money

flyers were getting,” Selvaggio said. “We

same thing with our ground employees

the way it was being served, so we

needed to be different from our mother

— they’re paid the same, but they’re

decided to find a way to lower costs,”

company. That was very important since

working more flights in their eight-hour

we were going to offer an all-coach

shift, so there’s potential to earn more

product on a bigger airplane.”

money. Our pilots are on the same pay

said Selvaggio. “Our costs kept going up,” he added. “Delta Express had been serving

Under the leadership of President John Selvaggio, Song has helped Delta Air Lines reassert its dominance in the Florida market.

As a member of the Delta family,

our Florida markets since 1996, well

the new airline had to maintain a certain

before low-cost carriers moved in there.

level of service to keep the overall com-

Over time, the cost structure had really

slots. Those were all advantages the

pany’s reputation intact. Initially, many

increased. Cabin crew and ground labor

parent airline passed down.

people thought Song would be a “less-than-

costs increased and maintenance costs on its 737-200s rose dramatically.”

“That’s why we are flying 36 aircraft rather than a handful or less,” Selvaggio said. “We’ve moved very quickly. We

We had to create an entirely new airline with a brand of its own.

Forming Song, therefore, “wasn’t a matter of swapping a few aircraft and

Delta” product, which, Selvaggio said, is what most offshoot carriers have been. mother brand,” Selvaggio said. “And

staff. We have all those things available to

we decided that our new operation was

us. We didn’t have to start from scratch,

going to be different from, but not less

get a certificate and try to launch this

than, our parent operation.” In starting the new airline, Delta

scale as Delta pilots as well, but the pay

Song employees sport stylish uniforms and accessories created by designers Kate and Andy Spade. Female flight attendants take to the skies in Kate Spade uniforms while male employees wear “Jack Spade” created by Andy.

“People hate airline food, but they

have a motto, ‘Song was “ We founded by optimists and built by believers.’ And the people on my staff are definitely the optimists, and we created a nation of believers.

rates are just a byproduct of the way we schedule the airplanes; they’ll (pilots) have more productive flying.” In addition to its fleet and pay struc-

offers them. So we said, ‘Suppose we offered food our passengers would

ture, Song has incorporated other changes

actually enjoy.’ With that, we decided to

to the traditional low-cost model.

stock brands people recognize and like,

Unlike many independent low-cost

“It’s always been less than the

have airport facilities. We have trained

airline without all the necessities.”

Illustration courtesy of Song

“We had a pretty strong position in

said. “Our passengers have access to

established brand, the carrier wasn’t

do something different and build a win-

was a challenge in that we were always

“If you feel you can make the rev-

resource, and at the same time, you’re

airlines, Song offers its passengers SkyMiles from its parent company’s frequent flyer program. “That’s a big advantage over our

and we give our customers the option to buy on board if they so desire. Selling brand-name food products on its flights meets the needs of Song’s core customers — females between the

competition,” Selvaggio said. “We’ll

ages of 34 and 56 — who typically want

replaced the 737-200s on many of its

meet the competitive fares of anybody,

a better quality of food, especially for

calling it Delta Express version 2.0,”

completely different product than its

Florida routes with Song’s 757s, which

and on top of that, we offer rewards for

their kids.

Selvaggio said. “We had to create an

parent company, Selvaggio said.

have a lower unit cost but also have

only work on a bigger plane if we were

more seats to fill.

able to fill the seats.”

entirely new airline with a brand of its own.”

Yet, Song also needed to become a

“You get the lower cost structure by reducing ground time and getting

“Changing out aircraft types was

Although the 757s cost about 30

flying with us.” Song also offers other amenities

“We realize that women are a very fast growing component of all travel,”

to differentiate itself from its low-cost

Selvaggio said. “In terms of leisure

competitors.

travel, they book about 75 percent, and

full utilization out of your fleet by sched-

part of a strategy to create a low-cost

percent more to operate than the 737-

was much simpler in many ways than

uling more flights per day on the same

airline,” Selvaggio said. “And we knew

200s, they have nearly 70 percent more

it would have been for an independent,

airplane,” said Selvaggio. “If you can

if we were going to do this, we better

seats. If Song could fill the extra seats,

inches between our all-leather seats that

and family vacation travel as well.

Selvaggio said, in large part due to the

get four flights a day rather than three

have a pretty good brand because we

it would more than offset the additional

are equipped with personal video moni-

Having a strong presence in Florida —

resources available from the parent

out of a single aircraft, you’re generat-

were going to have to drive a lot more

operating costs, and Song would come

tors incorporating touch-screen technology

a high vacation destination — we chose

company.

ing additional revenue with that

revenue, and the low-cost model would

out on top.

and credit card ‘swipe’ capability,” he

to target females in that age group.”

Starting a carrier within a carrier

32 ascend

“We have a minimum pitch of 33

they book about 90 percent of Internet

october 2003

33


industry All of the amenities designed to

environment,” Selvaggio said. “It keeps

benefit passengers make flying enjoy-

after sifting through some 600 options,

things a little lighter for our employees,

the low-cost airline development in

able again, Selvaggio said.

Song stood out.

who we call our talent, by the way, and

Europe,” he said. “It became clear to us

that transfers to our passengers.”

that it was going to become increasingly

“The airline business used to be

“Everyone has a favorite song,”

exciting and romantic,” he said. “We

Selvaggio said. “And when you think of

have made our planes safe, clean, on

your favorite song, you get a smile on

year over year in its Florida markets and

lines if they started expanding outside

time and affordable, but we’ve kind of

your face. That’s how we want our pas-

load factors on the rise — between 70

their London hubs.

lost the romance along the way. So

sengers to come to us and that’s how

percent and 77 percent — Song has cer-

we’ve strived to get that back by intro-

we want them to leave … with a smile.”

tainly achieved the goal of returning this

would effectively end up in a position

ducing an airline with a more unique

The airline business used to be exciting and romantic. We have made our planes safe, clean, on time and affordable, but we’ve kind of lost the romance along the way. So we’ve strived to get that back by introducing an airline with a more unique flavor than the ‘traditional’ types.

“If we didn’t adjust our model, we

part of Delta’s network to profitability. In

where the bmi business at East Midlands

September, the airline announced it had

Airport was unsustainable,” he said.

of beasts,” so the carrier plays music

carried its one-millionth passenger in

on its jetways, Web site and airplanes.

less than six months of operations. “We’re taking back our territory, but

In setting up the low-cost carrier, Davis said bmi transferred several 737s from its fleet and incorporated traditional

employees to use musical metaphors

we’re not giving (our product) away,”

low-cost philosophies, such as a point-

whenever possible, and even at its

Selvaggio said. “Our ticket values are

to-point route network, a single cabin, a

headquarters, conference rooms are

improving every month, and I think it’s

single fleet type, half-hour turnarounds,

referred to as studios.

remarkable that we’ve been able to add

distribution nearly exclusively through

that much capacity without sacrificing

the Internet and foregoing interline

load factors or ticket value.

agreements.

lexicon, we ‘auditioned’ our employees,”

flavor than the ‘traditional’ types.

difficult to compete against low-cost air-

According to Selvaggio, music is a

“In fact, in staying within a musical

With capacity up about 50 percent

universal language that can “calm a lot

In keeping with its motif, the carrier asks

“We took a very, very, very strict view

he said. “We hired people for attitude —

“We have a motto, ‘Song was

they had to be willing to use their person-

founded by optimists and built by believ-

of either it was low cost or it wasn’t,” he

ality, have a little fun, make someone’s

ers,’” he added. “And the people on my

said. “And we resisted the temptation

day and simply be there.

staff are definitely the optimists, and we

to end up with a hybrid. I think some of

created a nation of believers.”

the companies that have struggled are

“We try to keep the spirit of a musical

Tony Davis, the managing director of bmibaby, has seen the airline grow tremendously since it began service in 2002. The airline anticipates carrying 3 million passengers this year.

“To some extent Go helped us in

growth at a time when the industry is

“If we can give our passengers

the ones where the hybrid solution is

this because Go came into our backyard

choices of things to do while on our

preferred because it is perhaps not as

and said, ‘We are going to take you

challenging to set up.”

on in your home base and effectively

you want to be involved in something

destroy the business you’ve built up

that’s growing and has the potential to

over 35 years at this airport,’” he said.

be successful or do you want to take

“It was easy for us on that basis, going

your chances with the old model, which

to our staff (with the idea) that unless

in these particular airports is not looking

we approached this with a radical solu-

as strong as it had been historically.’”

flights, it will make their experience

For its single-fleet type, Song chose the Boeing 757, a larger aircraft than the Boeing 737 used by many low-cost carriers. The larger aircraft have a lower unit cost because they have 70 percent more seats.

that much better,” he said. That mindset is also what led to the new carrier’s identity, a name that “embraced lots of choices,” Selvaggio said. The airline wanted an identity completely different from that of any other airline – a light-hearted name with flair that was easy to remember yet had meaning behind it.

Photo courtesy of Song

“The U.K. was at the forefront of

options that were musical in nature, and

Photo courtesy of bmibaby

continued from page 31

To further maintain cost controls, all employees of bmibaby work under sep-

tried to adopt the philosophy “ We’ve of under-promising and overdelivering where historically airlines have often over-promised and under-delivered.

“Just about every airline has a name

tion the alternative would be that we could not compete. “I think people understood that we

contracting. “So, it’s really a case of saying, ‘Do

The new model has proved to be a success. In June, bmibaby carried a record 266,035 passengers, a 153 per-

as an industry have to change the way

cent increase year on year. It broke that

we were going to operate in order to

record again in July, and in August, the

that pretty much ties to geography, such

arate contracts with terms and conditions

continue to grow our business,” he said.

airline broke the 300,000 mark. The carrier

as American, United, Continental,

more in line with a low-cost operation.

“We’re creating jobs because we’re car-

also helped the performance of the

Eastern, Western, Delta and so on,”

The airline also provides different bene-

rying a lot more passengers now than

group. In July, the bmi group, which

Selvaggio said. “We decided that if

fits, such as its own profit-sharing plan,

we did when the assets were deployed

also includes bmi regional, set a record

we could get out of that space and not

separate from the parent.

differently. What we’re trying to do with

by carrying 905,000 passengers —

be like every other airline, we could go anywhere we wanted.” While in search for the perfect name, the carrier came across many

Davis said the current condition of

our employee group is manage growth

285,000 of which was carried by

the industry helped convince employees

and not manage decline, which would

bmibaby — the first time the group

to “modify the way we work to replicate

have been the scenario potentially if

exceeded the 900,000 mark.

the operating properties of a low-cost

we hadn’t created a low-cost carrier.

airline.”

bmibaby is experiencing significant

After only 18 months, bmibaby became the largest airline in the

october 2003

35


industry

industry an extra allowance to bring a laptop

from three airplanes in March of 2002 to

“Our expectation would have been that

computer on board.

I think for a long time airlines tried to

which has since slipped to third behind

convince themselves that we were a

British European. With the phenomenal

special case, a special kind of business.

growth at East Midlands, 300 percent

But in reality, when you get back to it,

year on year, bmibaby now carries more

successful airlines are the ones that come

passengers than the parent carrier ever

through to the core product. We’re selling

did when it served the airport.

a commodity. We no longer view our

you are expecting. We’ve tried to adopt

business as the ‘Come fly with me’ 1960s

the philosophy of under-promising

also helped create awareness for the

glamour jet travel. It’s mass transportation.”

and over-delivering where historically

new airline.

chairman of bmi. “We anticipate carry-

rier, bmi officials worked to make sure

current year, firmly establishing

the new low-cost operation would not

are experiencing 400 percent “ “We growth year on year because we are part of a group. We’ve gone from three airplanes in March of 2002 to 13 today. I don’t believe we could have done that as a complete startup.

it would have been quite difficult for us

done that as a complete startup. I don’t

as a new company to hold our own. But

than they historically have been on some

know that as a startup in this country we

because we’ve got the history and sup-

routes,” he said. “But the level of service

would have been able to fly 13 aircraft

port, and we believe we’re offering a

you get is perhaps a little bit better than

in 18 months.”

much better product, we’re finding that

Building off the bmi brand has

airlines have often over-promised and

In setting up a carrier within a car-

ing up to 3 million passengers in the

13 today. I don’t believe we could have

“The fares are still low, much lower

“We’ve gone from zero to 3 million

under-delivered.” Davis said there are other benefits

siphon traffic from the full-service or

of having ties to a large international

regional airlines. The three airlines in

carrier. The carrier inherited aircraft

the group have been able to differentiate

without having to purchase them. It

their product to serve different segments

leverages the expertise of the group’s

of the traveling market, Davis said.

management, pilots and engineers. It works with the parent company in areas

Although bmi began at East

the people who might have migrated are actually sticking with us.” Because of the benefits of its association with bmi, the low-cost offshoot

passengers a year in an 18-month time

incorporated the parent company’s

scale. And to have penetrated the mar-

name into its own to give customers the “security and knowledge” that the

Photo courtesy of bmibaby

“The growth of bmibaby is very encouraging,” said Sir Michael Bishop,

Photo courtesy of bmibaby

Midlands, surpassing British Airways,

airline was not a fly-by-night operation while building a separate identity that people “felt an affinity to and an understanding of,” he said. “I think initially there was quite a lot

Midlands Airport, the parent no longer

such as training and safety. It uses the

offers flights there. The parent airline

economies of scale from making pur-

go with a name like bmibaby,” Davis

has concentrated on London’s Heathrow

chases in conjunction with the parent

said. “It was a bold step, which airlines

Airport, where it is the second largest

airline. It also benefits from ties to a

are not particularly good at doing —

carrier with about 14 percent of the take-

strong, well-established brand such as

taking a marketing idea, not just trading

bmibaby as an important operation in

off and landing slots. And bmibaby,

bmi, which has received more than 50

on nationality or geographic location,

the ‘no-frills’ market and the third

which doesn’t even fly to London, has

industry awards since 1990, including

and trying to come up with something

largest operator in the sector.”

concentrated on its bases at East

repeated recognition as the best domes-

that, if nothing else, is memorable.”

Midlands, Cardiff and Manchester.

tic airline in the United Kingdom.

The key to setting up a successful low-cost carrier within a carrier, Davis

“bmibaby is competing against the

said, was convincing everyone through-

traditional charter airlines and the low-

out the organization that “this has to be

cost airlines, so we go to Spain, Prague,

a different company.”

Belfast — high-volume, leisure markets,”

“You cannot just paint the airplanes

he said. “Whereas bmi is focusing on

and hope that this will function as a sep-

Heathrow, and our regional business is

arate operating model,” he said. “We had

developing key business routes from

to get buy in from the very top that said

Scotland, Manchester and Leeds/Bradford.

this is a different airline. It can benefit

“The three airlines within bmi each

bmibaby employees have separate labor contracts from the parent organization, with terms and conditions more in line with a low-cost carrier. The separate contracts represent one of the methods the carrier utilizes to manage costs.

of surprise within the industry that we’d

No matter how memorable the

Most importantly, Davis said being part of a larger airline group gives bmibaby the ability to grow at a much faster rate than it would have as an independent. With access to trained

name, Davis said he knows that continFrom its initial three Boeing 737s, bmibaby in 18 months has expanded to 13 aircraft serving more than 25 destinations throughout Europe.

pilots and crew, aircraft, financial

higher level of service than that of some

the carrier sticks to its low-cost model. “Really, it’s a lean, compact business model, which is all about volume, high occupancy, high utilization and making

resources and know-how, bmibaby “We are looking to offer a slightly

ued success will depend on how well

sure every flight is as full as you can

has significant advantages over a pure

ket sufficiently against some fairly big

possibly make it,” he said. “People talk

start-up, he said.

competitors like easyJet and Ryanair

about target load factors. You should

without at least some awareness of our

be aiming to fill every flight, every seat.

from a lot of the history, experience and

have a particular cost base, market pres-

of our competitors,” Davis said, “partly

financial stability of the parent company,

ence and a consumer proposition,” he

because we are part of a group and

growth year on year because we are

parent company would have cost a lot

There’s no, ‘We’ll accept 65 percent load

but it has to conduct itself on a like-to-

continued. “Really, we have the best

have other companies that use the same

part of a group,” he said. “We’ve gone

more in advertising spend,” Davis said.

factors’ anymore.”

like basis with its primary competitor.”

opportunity now to make sure we put

name. As part of a family, you have to

the right vehicle into the right market,

at least uphold a level of presentation

changing the way airlines view them-

ensuring we can compete effectively

that’s acceptable to the whole family.”

selves and their product.

against whoever else is incumbent in

Another key, Davis said, involves

“The biggest thing we have learned is to stop thinking of ourselves as being

those markets.” Although incorporating many low-

“We are experiencing 400 percent

While offering low fares, Davis said bmibaby’s enhanced level of service includes extras such as assigned seating

+count it up

a special type of business,” Davis said.

cost principles, bmibaby’s ties to a

rather than asking passengers to “make

10 — Number of languages spoken

300 — Number of contracts

“We’re in the retail business. We sell

larger group have caused it to modify

a fairly desperate dash toward the airplane

by members of the Sabre Airline

signed with Sabre Airline Solutions

seats. Other people sell books or groceries.

some aspects of the low-fare model.

to secure a seat” and giving passengers

Solutions consulting team.

during 2002.

36 ascend


industry

Extremely I

t is probably a large understatement

bankruptcy process, the airline was able

to say that the 19 months that David

to successfully restructure itself — “we

Siegel has led US Airways have been

looked at our strengths and weaknesses

eventful. In March 2002, when he

and devised a way to leverage our

assumed the helm of the airline after

strengths and turn our weaknesses into

leaving his post as chief executive offi-

assets,” Siegel said. A US$240 million

cer of Avis Rent A Car System, Siegel

equity investment from the Retirement

faced a daunting task — reinvigorating

Systems of Alabama Holdings LLC, and

an airline seeking to reposition itself

a US$1 billion loan, US$900 million of

to better compete in a radically trans-

which was guaranteed by the U.S. Air

formed industry.

Transportation Stabilization Board, gave

Facing continued losses in the aftermath of the events of Sept. 11, 2001, US

Photo by Derek Pedley

Prepared for the Future

A conversation with David Siegel, president and chief executive officer of US Airways

US Airways the liquidity it needed. Modified labor agreements with the airline’s unionized employees helped

Photo courtesy of US Airways

March, as scheduled, US Airways “ Incompleted its ‘fast track’ emergence from bankruptcy. ”

significantly reduce costs. Through bankruptcy, the airline also was able to address other key issues, such as achieving the distress termination of the

US Airways has seen its operations take off after rapidly completing a corporate restructuring.

defined benefit pension plan for its pilots,

Airways, the seventh largest airline in

which was underfunded by US$2.5 billion,

Under Siegel, the airline announced

the United States, began seeking ways

and replace it with a defined contribution

the ambitious purchase of 170 regional

to improve liquidity, increase revenues

plan to supplement the Pension Benefit

jets from Bombardier and Embraer. US

and reduce its costs, which, at the time,

Guaranty Corp. payout.

Airways signed codesharing agreements

were among the industry’s highest. As

In March, as scheduled, US Airways

with Lufthansa German Airlines and

the pressure to restructure mounted, the

completed its “fast track” emergence

United Airlines and was approved to

airline in August 2002 filed for Chapter

from bankruptcy. Now, the rejuvenated

join the Star Alliance. These measures

11 bankruptcy protection, which

airline, which earlier this year was

significantly impacted the airline’s bottom

shielded the airline from creditors, giv-

ranked first in the annual Airline Quality

line. In the second quarter, the airline

ing it time to reorganize. Through the

Rating, is aggressively competing.

reported a net income of US$13 million,

october 2003

39


industry

industry compared to a net loss of US$248 million

Alliance. We also needed regional jets

already phasing out turboprops.

for the year-previous period.

to improve our service to the dozens

However, we believe there will continue

of smaller cities that we serve. We

to be limited uses for turboprops in our

secured financing earlier this year and

system, especially to very small markets.

Siegel, who also previously served including president of the Continental Express subsidiary, recently discussed US Airways’ successes in preparing for the future. Question: It appears US Airways was able to successfully use the bankruptcy process to restructure the airline.

Q: The current conditions of the

Photo courtesy of US Airways

as an executive with Continental Airlines,

The New Revenue Reality

industry have led many airlines to

Multiple factors, including the rise of low-cost carriers, fare transparency and diminished passenger segmentation, have put an irreversible downward pressure on airfares.

“think outside the box.” Is this just a reaction to extreme circumstances, or do you believe this will become a vital part of the culture of the industry in the future?

By Steve Hendrickson | Ascend Contributor

Would you consider bankruptcy suc-

A: We have been thinking outside the

cessful for your airline? What were the

box for the last 19 months since I got

benefits? Were there any drawbacks?

here, completing a fast-track reorganiza-

Answer: When I made the decision

tion under Chapter 11 protection. It has

L

to join US Airways, I realized that the

made US Airways a more competitive

company needed to permanently reduce

airline with US$1.9 billion lower annual

its costs and restructure, ideally outside of bankruptcy. However, the responsible path to take was one that prepared us for the option of reorganization under the protection of Chapter 11. Our plan

Under the leadership of Siegel, US Airways has formed alliances with Lufthansa and United, been accepted into the Star Alliance and announced the purchase of 170 regional jets from Bombardier and Embraer.

was well thought-out, and we were

ately, most airlines have focused

reactions to an unprecedented shift in

pearance of premium-fare levels histori-

their attention on cutting operating

the industry’s passenger revenue equa-

cally paid by most business travelers.

costs, in many cases as a survival strat-

tion. This “new revenue reality” is driving

The two-tiered revenue model of old

egy. Indeed, several carriers have found

nearly all of the industry’s current efforts

is rapidly deteriorating, bringing fare

costs, reduced debt and a well-regarded

significant internal opportunities to

to effect dramatic change.

levels toward a new, less stratified mix

business plan. Undoubtedly, the take-

reduce expenses, improve efficiencies

away is that any business initiative

and lower overall unit costs. For others,

demand as a percentage of nominal gross

requires consensual participation by

cost pressures from external factors

domestic product fell by more than 26

all stakeholders and total commitment

such as oil prices, airport security pro-

percent from 2000 to 2002. Historically,

by every employee in the organization.

grams and various forms of government

the industry’s revenues maintained a

average fares fell so far so quickly is to

In the U.S. domestic market, total

of price points.

The Big Fall To understand how revenues and

committed to a fast-track emergence.

announced an order for almost 200

With the recent plane orders and expan-

taxation have proven more difficult, if

fairly tight correlation with the broader

understand the basic remixing of ticket

As I’ve said many times before, when

planes that have started arriving and

sion plans announced by Southwest,

not impossible, to manage or influence.

economy, but clearly, something has

prices being sold to travelers. The mar-

we came to the conclusion that we had

will continue through 2006.

AirTran and jetBlue, it is abundantly

changed in that relationship. Contributing

ket for trips between the east and west

to execute our plan with a Chapter 11

Q: Speaking of your purchase of

clear that low-cost competition will

to this historic drop is the near disap-

coasts of the United States provides a

filing, we jumped into the pool to swim

regional jets from Bombardier and

only grow. So now, every mature

startling example of this phenomenon.

some laps, get in shape and then get

Embraer, what led to this decision?

carrier including US Airways, needs

This corridor is characterized by a large

out. And while we had some difficult

A: One of the key elements of our reor-

to deal with this new reality.

set of long-haul origin and destination

challenges along the way, we remained

ganization plan was to generate additional

Q: With all the changes you’ve made,

markets, which use numerous competing

on track. Bankruptcy reorganization is

revenue through a substantial increase

are there more to come? How different

mid-continent hubs. For example, the

effective for reducing costs, but there

in regional jet flying. We couldn’t afford

will the US Airways of 2005 be from

Boston, Massachusetts, to Portland,

are many gut-wrenching decisions that

not to take that step.

the airline of today?

Oregon, market has no nonstop flights,

are part of the process.

Q: What role will these new aircraft

A: We have a history as a strong busi-

but there are more than 50 daily con-

Q: If “necessity is the mother of inven-

play in strengthening your airline?

ness carrier during the week, and we are

necting choices possible in each direc-

tion,” what innovative new thinking has

What kind of impacts will adding so

now exploring new ways to deploy our

tion via 18 hub operations offered by

emerged at your airline to overcome

many new aircraft have on your airline?

fleet for the different kinds of demand

seven operating carriers (and even more

perhaps the most challenging conditions

A: The new RJs will serve three main

we’re seeing on weekends. We’ve nearly

if codeshare offerings are included).

in the history of the airline industry?

purposes. They will allow us to replace

doubled our weekend service to the

A: We are focused on proven strategies

turboprop aircraft that customers prefer

Caribbean, from 40 weekday flights to 75

any of the largely undistinguishable

and tactics. We said we needed marketing

less than jet aircraft; initiate service to

on Saturdays. Clearly, a reinvigorated

connecting points, has come to typify

alliances, and we have done that. Our

new “thin” demand markets that even-

economy will ultimately determine when

the commodity nature of such routes.

alliance with United Airlines is already

tually could grow to warrant mainline

corporate and individual customers

Up to 2000, significant portions of

very successful, and we’ve begun our new

aircraft; and re-deploy current mainline

change their current buying behavior

the market paid vastly differing fares,

international agreement with Lufthansa.

flying that does not need larger aircraft

and, by extension, some of the moves

Early in 2004, we will join the world’s

to other markets that do require more

we make. We just need to stay focused

leading airline partnership, the Star

capacity, such as the Caribbean. We are

and execute our plan.

40 ascend

But the sudden focus on belt tightening is merely one of the most visible

This type of journey, through

The average fare among coast-to-coast journeys fell more than 25 percent from the third quarter of 2000 to the third quarter 2002 leading to a drop in revenues of about 29 percent even though the market overall experienced only a 4 percent traffic decline.

which reflected strong market segmentation. However, in the past two years, the price spreads have begun to disap-

october 2003

41


industry

industry pear, moving the industry further toward

much hope of reversing its impact.

before the tragic events of Sept. 11

deals. Back then, it was almost consid-

premium-priced walk-up tickets. The

duced another major dynamic to the

a commodity market price structure.

The others may well be here to stay.

gave the industry another push in the

ered shameful for a dot.com company

economy encouraged travelers not

market’s revenue picture. These airlines

wrong direction.

to show a profit. Venture capital urged

to worry about saving a few hundred

have brought low fares into the market-

The average fare among coast-tocoast journeys fell more than 25 percent

General Economic Deceleration

the rapid development of alliances and

dollars on airfare by driving to a smaller

place in aggressive ways much like

from the third quarter of 2000 to the third

While economists on Wall Street

dramatically with that of the 1999-2000

other cyberspace deals to build “eyeball

airport or taking a connecting flight for

early LCCs. However, unlike some of

quarter of 2002. Most strikingly, the

debate how to describe recent economic

“economic bubble.” During the bubble,

share,” earnings be damned. High

less than the nonstop.

the failed upstarts in prior decades,

volume of passengers at the discount

conditions, employers and consumers on

a combination of Y2K initiatives and

demand Web programmers jumped

end of the market (US$350 or below

Main Street largely agree that the good

speculative Internet ventures drove a

from contract to contract at higher and

each way) actually increased slightly,

times came to a rather abrupt halt about

technology-based boom that pushed

higher rates, and technocrats every-

while premium-fare passengers (above

three years ago. And, that downturn was

many business travelers onto airplanes

where jetted around to strike the next

US$350 each way) decreased by nearly

really felt in early 2001, many months

in pursuit of high value, mission critical

deal — a perfect environment for selling

Today’s environment contrasts

the newest genre of LCCs have largely

Increased Presence of Lower-Cost Suppliers The coming of age of low-cost carriers during the past few years has intro-

avoided many of the pitfalls that rendered their predecessors unable to stay the course. Thin capital structures have been

half. Without those relatively small volumes of premium tickets, revenues

hightech

plunged by about 29 percent even though the market overall experienced only a 4 percent traffic decline. Although the third quarter of this year saw unit

News on New and Improved Products and Services from Sabre Airline Solutions

revenues start to improve, those trends were primarily driven by historically high load factors made possible by the cumulative effect of widespread capacity

product

reductions. Unfortunately, there are few,

Control Center version 2.0 — for reservations and departure control

if any, signs of a fundamental reversal in the disappearance of premium fares in the industry.

description

A Confluence of Factors

The Control Center is a new graphical

It is difficult to blame a single cause

features Web-based — Authorized administra-

up their partition with increased accu-

tors are able to access this tool via

racy. This not only enables adminis-

the Web with no proprietary client

trators to be quickly trained, but it

software required and will, therefore,

also frees them to utilize system func-

always have the latest version of the

tionality that was previously too cum-

product at their fingertips.

bersome to set up and maintain.

for the collapse of the traditional revenue

user interface enabling system adminis-

model. Rather, the drop appears to reflect

trators to easily configure and manage

a unique combination of factors all

the Sabre ® Passenger Reservation

Administrators

coming into the equation at roughly

System, the Sabre ACS ™ airport

are less reliant

the same time — what some have called

check-in system and the Sabre ACSI ™

on Sabre Airline

a “perfect storm” hitting the industry.

international airport check-in system

Solutions person-

At a high level, these factors include:

from a single Web-based tool. The first

nel for set-up

General economic deceleration,

phase of this interface was released in

tasks, giving them

Increased presence of lower-cost

January, and functionality will continue

the ability to

suppliers,

to be added in phases.

quickly adjust to

Direct control —

Fare transparency and Internet-based

changes in the

consumerism,

benefits

Diminished passenger segmentation

The Control Center enables airlines to

in pricing.

focus on managing their operations

As it turns out, each of these issues

these issues have proven especially harmful when interacting together. Only one of these, the economy, has

42 ascend

Single tool — Administrators will be able to

rather than the systems they are using.

has serious negative implications for total industry revenues on its own, but

marketplace.

TOP: Historically, the airline industry’s revenues maintained a fairly tight correlation with the broader economy, but in the past few years this relationship has changed. BOTTOM: In the U.S. domestic market, total demand as a percentage of nominal gross domestic product fell by more than 26 percent from 2000 to 2002.

Control Center creates significant effi-

Graphical navigation —

configure both the reservations and

ciencies for system administrators by

Administrators utilize graphical navi-

departure control systems from a

providing easy-to-use tools for system

gation such as form-based screens for

single tool increasing consistency

configuration, table maintenance and

all entries, drop-down lists and buttons,

between systems and in turn

management reporting.

and on-screen help, to efficiently set

improving customer service.


industry

industry replaced with well-financed business

their cost structures can survive or even

With the Internet, passengers have a

more conscious of potential travel budget

in the United States, LCCs (and match-

the desired impact on the economy.

plans. Fleet plans have focused on newer,

thrive, but higher-cost traditional carriers

new sense of empowerment to find the

savings, in turn fueling more bargain

ing traditional carriers) are offering

Time will tell, but eventually the U.S.

more efficient models rather than

will be faced with unsustainable losses.

bargain they believe they deserve.

hunting and lower price expectations.

unrestricted walk-up fares from coast

economy can be expected to recover

low-priced used equipment. Management

As profits accrue for these LCCs, they

to coast that are far lower than they

and help lead the global economy

teams are still lean but are often popu-

will become increasingly prominent,

led to a “shop-till-you-drop” mentality

were formerly, in many cases never

back toward a healthier trajectory.

lated by more experienced managers

creating unavoidable competitive impli-

among travelers — “if the fare isn’t low,

than in years past. Software systems and

cations for fare structures.

you don’t have to go.” All of this new-

decision-support tools, once practical only for major airlines with large in-house information technology departments, are now available to LCCs, giving them

Fare Transparency and InternetBased Consumerism Travelers’ rapid acceptance of self-

Easy, side-by-side comparisons have

Diminished Passenger Segmentation in Pricing The bi-modal distribution of fares

exceeding US$299 each way. New

As for other dynamics, there is

passenger behavior is emerging as

ample reason to believe that the world

found fare transparency has, of course,

previously seen in a given market was

passengers are increasingly weaned

has changed forever. The competitive

only magnified the impact of LCC fare

made possible by using fare restrictions

away from advance purchase habits

advantages of low operating costs

offerings during this period. Likewise, it

as “fences” to segregate buyers of seats

amid new confidence that affordable

will ensure that a new tier of carriers

has helped business passengers under-

based on their respective economic utility.

fares can be found closer to their travel

with lower breakeven price levels will

leading-edge technology at cost-effective

service booking engines and fare searches

stand how much premium they were

Through a mixture of requirements such

dates. For many carriers, the booking

remain a marketplace reality. The new

prices. And LCC strategies have evolved

has unleashed a new set of expectations

previously paying for that prime-time

as advance purchases, roundtrip travel,

curve is now shifting closer in and

air travel consumerism stimulated by

to the realization that, if they stick to

into the market. The fundamental interface

nonstop or other preferred service

Saturday-night stays and non-refund-

having a dilutive effect on yields for

Internet bookings and fare transparency

their strengths and avoid the temptation

between a passenger and an airline’s seat

attribute. Now, travelers are armed with

ability, the basic fare structure across

close-in ticket sales. The result has been

is a trend that will only grow stronger

to be all things to all travelers or grow

inventory has been radically changed.

information to evaluate the relative

the industry allowed for price discrimi-

to radically redefine the revenue value

over time. And market segmentation

too fast, they can maintain their success

Gone is the 20-question interview

cost/benefit tradeoffs represented in their

nation by passenger market segment.

of the business passenger market seg-

through the widespread use of restric-

story. All of this has allowed LCCs to

conducted over the phone with a travel

array of ticket options. And the softer

To the extent that competitors were

ment and to reduce overall revenues

tive “fare fences” will not likely regain

drive price levels down to a point where

agent or airline reservations agent.

economy has made their companies

well-behaved within a price leadership

available to the industry.

its earlier popularity among suppliers

model, this structure allowed the industry to become increasingly reliant on a revenue mix that pushed business

T H E

vıew

H I G H

L E V E L

Who

News Briefs from Around the Globe

control capability” as well as electronic ticketing services, said Ping na Thalang,

Bangkok Airways, Siem Reap

“Our migration will enhance our

Bangkok Airways vice president of

position as a leader in Mexican regional

Airways International, Transportes

information systems. The conversion,

aviation by delivering a consistent

Aeromar, Aero Continente

which also involved its Siem Reap

executive world-class product,” said

commuter carrier, will also help the

Ami Lindenberg, executive vice presi-

airline’s domestic and international

dent and chief financial officer for

expansion program.

Transportes Aeromar.

What

It’s reasonable to expect the econ-

traveling public that has a new set of purchase price expectations. A new

travelers to higher and higher fares

omy to regain strength at some point

revenue reality has arrived, and it will

while leisure fare levels remained

in the future. There are already nascent

greatly challenge those airlines that

largely unchanged.

signs of a rebound, and many believe

do not aggressively rethink their strate-

that the extremely low-interest-rate

gies and techniques for managing

opportunity for LCCs to break from

environment will induce economic

within it.

the fare rules model and create a new

expansion. However, the Japanese

value proposition for those passengers

economy has had such an interest-rate

Steve Hendrickson is a partner with

previously paying premium fares. Now,

environment for some time without

Sabre Airline Solutions Consulting.

The widening gap became a prime and regional travel agents.

and may not find tolerance among a

A New Revenue Reality?

+count it up 280 — approximate number

1910 — Year of the first major

10 — Number of people who

to the Sabre ® Passenger Reservation

Solutions offers an excellent product

offers more comprehensive functionality,

of airlines that are members of

international conference on interna-

have held the title of Secretary

System. All four cutovers were accom-

and overall value and a range of tech-

lower cost of ownership of its technol-

the International Air Transport

tional air law code. The meeting, in

General of the International Civil

plished in less than one hour with less

nology interfaces that enables Bangkok

ogy systems, access to new sources of

Association. The IATA members com-

Paris, was attended by delegates from

Aviation Organization. Taïeb Chérif

than a 1 percent error conversion rate

Airways to continue building its own

revenue and better management of its

bine for more than 95 percent of all

18 European nations and established

of Algeria became the 10th leader

and without disruption to the carriers’

applications around the host system,”

sales channels and partnerships.

international scheduled air traffic.

several of the governing principles

in the ICAO’s 59-year history when

operations.

Ping na Thalang said.

of aviation.

he assumed leadership of the

In June, the four airlines cut over

“We believe that Sabre Airline

Bangkok Airways — The carrier

“The agreement with Sabre Airline Solutions satisfies a demand among

2.9 trillion — Number of

sion equips the airline with a comprehen-

regional operators who wanted a more

passenger kilometers flown in 2002,

7.3

sive solution for customer processing

efficient connection with the airline

according to the International Civil

freight traffic during the first half of

Transportes Aeromar — The conver-

Why

Aero Continente — The conversion

organization on Aug. 1. — Percent of growth for

and service from initial contact to post-

systems of Aero Continente,” said

Aviation Organization. The number is

2003, according to the International

gained immediate access to “market-

travel support. It also upgrades visibility

Milagros Zevallos, commercial director

expected to rise to 3.1 trillion in 2004.

Air Transport Association.

leading reservations and departure

for the carrier's offerings among local

for the airline.


industry (airport) project was conceived “ The with a view of complementing the

From the Ground Up Bangkok Airways’ unique business model, combining airline and airport ownership, delivers growth for itself and its home regions.

ack in the 1980s, Bangkok Airways

B

identified an untapped opportunity

to bring visitors to the beautiful, though

Photos courtesy of Bangkok Airways

By Hans Belle | Ascend Contributor

government’s regional economic development policies while offering tourists another choice destination to tempt them to Thailand and the region, and on both counts, we have every expectation of success.

gardens, has also been honored for

kilometer), 700 million baht (US$17

its architectural design and environ-

million) airport in Trat, the easternmost

mental awareness.

province of Thailand between the

At the Sukothai airport, Bangkok

Cambodian border and the Gulf of

Airways is already expanding the length

Thailand. The airport is conveniently

of the runway, from 2,100 meters to

located near the tropical island of Koh

2,400 meters, to better accommodate its

Chang, previously reachable from

fleet of 717 jets. Since gaining customs

Bangkok only after a five-hour drive

status, the 800-acre (3.2 square kilome-

and a ferry trip to the island. With the

ter) airport has become Bangkok

airport, the journey from Bangkok has

Airways’ northern hub, providing easy

been cut to 45 minutes. As with its

success,” said Prasarttong-Osoth, the

access to the northern Thai capital of

other two airports, Bangkok Airways

driving force behind the decision to

Chiang Mai as well as Luang Prabang,

constructed the Trat airport to reflect

build the airports.

Laos; Pagan, Myanmar; Siem Reap,

the local people, their culture and the

Cambodia; and Kunming, China. The air-

environment.

By several standards, the airports have proven successful. Bangkok

port, built for 500 million baht (US$12

Airways now operates 40 flights a day

million), incorporates the latest air traffic

nation of airline and airport ownership

from Samui to five destinations. The

control, weather monitoring and safety

has not only distinguished itself from

nearly 200-acre (.8 square kilometer)

technology. And it, too, has an award-

other airlines, but has also helped the

airport has also substantially cut travel

winning design, featuring traditional

regions where its airports are located

time to the island. Before it was built,

Thai architecture. Its soaring roofs and

improve business links and boost

Gulf of Thailand, lacked an adequate

travelers from Bangkok spent 14 hours

tropical gardens earned the airport the

tourism, providing an economic stimu-

commercial airport.

traveling by rail, bus and ferry to reach

nation’s “Outstanding Architect Award.”

lus to these areas.

still largely undiscovered, Thai island of Ko Samui. But there was one small problem. The island, located off the southeastern coast of the country in the

Rather than wait for local officials to

Ko Samui. The airport, with its low-rise

remedy the situation, Bangkok Airways

palm-thatched roofs and tropical

airport itself. Instead of waiting for the opportunity to open a new market and help build the area into a popular tourist destination, the airline in 1989 opened its 800 million baht (US$19 million) airport on the northern end of the island. That was the first of three airports the airline, which serves 13 destinations in five countries with its fleet of 13

By building airports in unserved areas, such as Samui, above, and Sukhothai, right, Bangkok Airways has been able to grow as well as provide an economic engine for the regions it serves.

Boeing 717 and ATR72-200 aircraft, built to expand its operations to underserved areas throughout the country. The Samui

attempts to serve cities with rich cultures

another choice destination to tempt them

airport venture proved so successful,

and historically significant sites that are

to Thailand and the region, and on both

the airline opened its second airport, at

not easily accessible to the everyday

counts, we have every expectation of

Sukhothai in central Thailand, in 1996,

traveler. Building the three airports rein-

and a third, Trat in eastern Thailand, in

forces the airline’s commitment to not

March. The airline has since added new

only build the local tourism industry

customs, immigration and passenger

but also promote local heritage, said

terminal facilities at Samui and Sukothai

Dr. Prasert Prasarttong-Osoth, president

to gain customs status, opening the

and chief executive of Bangkok Airways.

doors to direct international flights. Bangkok Airways, which traces

“The (airport) project was conceived with a view of complementing the

its roots back to 1968 when it began as

government’s regional economic devel-

an air taxi service called Sahakol Air,

opment policies while offering tourists

46 ascend

The airline, which is hosted in the Sabre ® Passenger Reservation System, also just opened a 435-acre (1.74 square

took a radical approach — it built the

Bangkok Airways’ unique combi-

Hans Belle is vice president of marketing, Asia/Pacific for Sabre Airline Solutions.


industry

Turnaround First, Then Privatize There are plenty of pitfalls for a state-owned airline preparing for privatization. But a comprehensive turnaround program can minimize the risk and prepare the carrier for the private sector. By Shane Batt | Ascend Contributor

M

The Strategic Investor

privatization. Most of these countries

rush into privatization without consider-

ownership of Emirates Airlines and the

are considering such an extreme step

ing the best option. The quickest model

“Lan” carriers, including LanEcuador,

because they are struggling economi-

for privatization is through a “strategic

LanPeru and LanDominicana, under

cally, and a bloated national carrier

investor” where a country sells a major-

LanChile.

makes a politically charged privatization

ity portion of its national carrier to a

target. Because national carriers are

“white knight” private carrier with a

cessful as Emirates and LanChile are

usually among a country’s most promi-

good reputation. The idea is that the

actively acquiring interests in national

nent companies and often the only ones

government will receive a large payoff,

carriers. Most strategic investors

any countries that still own their national airlines are examining

Many of these countries, however,

with an international presence, they are perceived to have a substantial value that can be leveraged by the governments to generate capital. While airlines generate significant cash, they operate on very small margins and therefore frequently require capital injections from their owners to

received the expected benefits from this model: Air Lanka under the partial

Unfortunately, few airlines as suc-

today are interested only in acquiring

countries must make “ Many the difficult decision to re-capitalize an ailing national carrier or to build hospitals, schools and roads.

update assets and cover losses, which

a national carrier’s assets at very low rates and without substantial conditions. The strategic investor model offers some unanticipated pitfalls. The white knights can be corporate raiders – airlines wishing to expand in a cost-effective

A carrier with US$500 Million in annual revenues can reap more than US$164 Million in revenue benefits within two-and-a-half years by employing the turnaround model.

manner by acquiring less stable competitors to strip them of their primary

only serves to make them more attrac-

and the private carrier’s culture will rub

assets and routes, relegating them to

the “hub” point for the two carriers

which means that routes protected from

This model, on the surface, appears to

tive for privatization. Many countries

off on the national carrier, improving the

colonial feeder status. When a strategic

will be in the strategic investor’s home

fare increases may become much more

resolve many of the issues associated

must make the difficult decision to re-

country’s transportation infrastructure.

investor talks about “schedule and prod-

country. At the very least, the strategic

expensive for passengers.

with a strategic investor. Through widely

capitalize an ailing national carrier or

The country loses a national carrier but

uct alignment,” it often plans to relegate

investor will insist that the national car-

A likely result of strategic investor

held ownership, the government main-

to build hospitals, schools and roads.

gains much needed capital and obtains

the national carrier to second-tier status.

rier use competitive business practices,

privatization is making air travel more

tains the controlling stake in the carrier

Therefore, many countries, particularly

a better airline for its citizens.

eliminating the various “socio-economic

elite and reducing the transportation

and can ensure that it maintains control

Both Belgium and Portugal used

ing an airline is that it generates a sub-

routes” and “foreign policy routes” the

infrastructure, which can cause severe

over finances, flight scheduling, employ-

this model when they sold their national

stantial amount of cash – often foreign

national carrier operates.

political problems in developing countries.

ment and fares. Many governments

carriers to a strategic partner, Swissair.

currency. Countries should consider the

and the Far East have led the way

Similarly, Air Afrique sold a portion of

effect on their own economies when the

mation of the former national carrier’s

in privatizing their national carriers.

its airline to Air France to raise capital.

bulk of the foreign currency generated

large employee base to reduce costs,

For the remainder of the developing

The strategic investor theory sounds

by their national carrier is channeled

thus reducing tax revenues and increas-

the “widely held ownership” model –

world, the government continues

good on paper, but the reality often is

through the country of the strategic

ing the need for social services. Finally,

the government offers shares of the

held ownership is that governments

to own all or most of the national

much different. The list of failures using

investor. The loss of foreign exchange

protective fares and scheduling practices

national airline on the open market

sell their stake in their national carriers

carriers and are actively examining

this approach is much greater than the

can result from schedule and product

will be eliminated. The strategic investor

while restricting individual ownership to

for well under their true market value.

privatization.

list of successes. Some carriers have

alignment because, almost invariably,

will insist that fares obey market forces,

ensure government control is maintained.

Governments often give away the

developing ones, are actively moving to privatize their national carriers. Governments in Latin America

48 ascend

One of the primary benefits of own-

Another pitfall comes from the deci-

have passed legislation to limit foreign

Widely Held Ownership In a second privatization method –

ownership. But the widely held ownership model also has pitfalls. The main problem with widely

october 2003

49


industry

industry national carrier to a wide base of investors

making it profitable and competitive.

enough to operate without governmental

cial position of the national carrier

turnaround is cut short before the assets,

process should concentrate first on

without gaining substantial returns for

Carriers that have sustainable profitability

assistance, the transportation infrastruc-

improves, two pressures arise. First,

services and personnel have been

revenue production.

the remainder of their citizens who are

can fund their own capital requirements,

ture of the country is maintained and

government sources pressure the

upgraded, the carrier’s long-term viability

not shareholders. Governments don’t

enabling them to use widely held own-

assured, and the benefits of nationalized

national carrier to take actions that are

will still be in question. For the turnaround

than costs are to decrease. Because an

privatize their national carriers because

ership or a strategic investor without

ownership, such as socio-economic

counter-productive to its future success.

model to succeed, the national govern-

airline’s five highest costs are labor, fuel,

they are well-run, highly profitable entities.

governments giving away ownership at

routes, lower fares and currency bene-

The national carrier, for example, will

ment must show enough patience to

maintenance, aircraft ownership/lease

Except in regions such as the European

bargain prices. The turnaround model

fits, remain intact.

be instructed to increase employment,

allow the carrier to proceed through

and customer service, these areas would

Union, where legislation requires priva-

improves the national carrier at all levels

increase services on socio-economic

financial improvement; asset upgrade,

have to be targeted to achieve substan-

tizing national carriers, most countries

to ensure it is competitive and profitable

routes or give employees raises, which

service improvement and personnel

tial and quick cost savings. National

privatize because their national carriers

before privatization occurs. By demon-

will make the government popular

upgrade. Once the turnaround has

carriers, however, cannot easily reduce

are bloated and inefficient. Since these car-

strating sustainable profitability, the

but will seriously impact the long-term

been accomplished, the government

any of these areas.

riers are generally unprofitable, the share

carrier ensures that there is no urgency

the turnaround model. The national

viability of the national carrier. Second,

will have a strong and valuable asset

price of stock will be lower than its

associated with privatization, and therefore

carrier, with the help of its government,

factions will argue whether the govern-

to privatize.

Implementing the Turnaround Model In principle, it is not difficult to use

growth, neither of which are high with national carriers. So, demand for shares

Reducing labor costs adversely impacts employees. Because they are typically government employees,

potential market value. The minority investor buys shares for income or for

Revenue is much easier to increase

By making improvements throughout its operations, a US$1 billion airline with 70 aircraft serving domestic and international routes can achieve cumulative financial benefits in excess of US$164 million by the end of the two-and-a-half year turnaround process.

Throughout the developing world, nearly half of the airline equity is government owned, and in some regions, such as Africa, the Caribbean and the Middle East, there’s tremendous opportunity for privatization.

national governments are hesitant to reduce their pay. Reducing fuel by more than a few percent usually requires

stays low, the price stays low and

decreased flying, which results in lower

majority ownership shifts from the gov-

revenues. Maintenance costs generally

ernment to investors at very low prices.

cannot be reduced by double-digit levels

Of course, using widely held ownership

without fleet renewal, and national

reduces the government’s responsibili-

carriers generally do not have sufficient

ties for future equity injections, but the

funds or capital to renew their fleets

former national carrier still has the same

quickly. Aircraft ownership/leases can

problems it did prior to privatization. In

only be reduced by paying off loans

a few years (or even a few months) fol-

or renegotiating leases. Most national

lowing privatization, the new owners

airlines lack resources to pay off loans,

start looking to raise much-needed capi-

and leasers are becoming less receptive

tal and soon turn to a strategic investor

to negotiating reduced lease rates.

or ask for a government investment.

And customer service reductions tend to reduce revenues, which should

By using the widely held ownership model, the government can inadvertently

be protected if the airline is to turn-

promote the excesses of a strategic

around properly. Airlines, therefore, should focus

investor without reaping the significant

on containing the growth of costs while

capital advantages.

increasing revenues. Most carriers can

It may appear that privatization is doomed; however, it’s an important step

it can take place in a controlled manner.

proceeds through a steady process of

ment should immediately liquidate the

Improving Financial Position On the surface, improving a carrier’s

contain costs if they concentrate on their

rapid improvement to position itself

national carrier or end privatization

riers to survive in the highly competitive

because the rising share price of the

for a strong privatization push. The

discussions. When the financial position

finances appears to be the hardest task.

international marketplace. Privatization

profitable national carrier discourages

turnaround begins by improving the

of the carrier has improved, the govern-

In practice, however, the true challenge

must protect the national interests of the

its dismantling. Similarly, widely held

national carrier’s financial position. Once

ment must demonstrate its support for

is staying on course after the carrier’s

for most national carriers by focusing

country as well as develop strong com-

ownership is strengthened because

the financial position of the national car-

continuing the turnaround process by

financial position has improved. Improving

on all factors that influence revenues.

petitors. The best way to privatize is

minority investors are attracted to the

rier has improved, its surplus funds are

providing the national carrier with suffi-

the financial position of the national

Frequently, carriers assign revenue-

through the “turnaround” model.

growth of the national carrier’s share

invested in three primary areas: operating

cient breathing room to ensure its own

carrier first requires concentration on

influencing factors to a variety of different

price, which will continue to grow: a

assets, provision of service and personnel.

long-term survival.

revenue production. Any financial prob-

middle managers who do not cooperate

needed for most of today’s national car-

Turnaround The turnaround model prepares the national carrier for privatization by

50 ascend

A strategic investor is kept in line

indirect fixed costs and lower the growth of their direct operating costs. Revenue production can be increased

Once the financial position has

The “hands-off” approach, however,

lem can be solved by increasing revenues,

extensively. The lack of cooperation

importantly, as a result of the turn-

improved, governmental support is

often proves impossible for the national

as long as revenue production outpaces

impacts the carrier’s competitiveness

around, the national carrier is strong

required. In most cases, when the finan-

government to implement. If the carrier’s

cost increases. Therefore, the turnaround

in hidden but significant ways. The

form of self-fulfilling prophecy. Most

october 2003

51


industry

industry primary factors influencing revenue include pricing, inventory control, flight

with the corporate strategy,

chest of capital for the airline’s long-term

just as important as the core foundation

in higher customer satisfaction and

management training should be pro-

improvement. The complete turnaround

systems, and the national carrier should

ultimately higher revenues. But realizing

vided at all levels to ensure a smooth

scheduling, sales, distribution, branding

new, improved business processes

process, however, involves improve-

ensure that it has a reasonable strength

returns on investment in service takes

management migration from a govern-

and loyalty, advertising and promotion,

and practices,

ment of assets, service and personnel.

in decision-support systems including

significant time. A lack of investment

ment-owned to a free-market carrier.

revenue management, flight scheduling

in service upgrades, though, will be

In addition to training, merit-based

and public relations. By using the

4. Training — Instructing staff on

5. Consolidation — Implementation

Improving the assets of the carrier

latest marketing techniques to tie these

and consolidation of new business

involves renewing some or all of its

and crew planning. Asset renewal is

detrimental to the long-term viability

promotion and placement should

revenue-influencing factors together,

processes within the airline environment

primary operating resources including

expensive, but it will ensure that the

of a national carrier contemplating

be implemented even if the carrier’s

the national carrier will undoubtedly

and culture,

aircraft, facilities and technology. By

carrier has a sound infrastructure for

privatization.

government ownership rules must be

operating newer aircraft, the national

privatization.

increase revenue, more than offsetting the slightly increased costs. Without impacting the operational integrity of the carrier, cost containment should begin in key areas such as crew

6. Tracking and enhancing —

While upgrading other infrastruc-

Monitoring airline and process perform-

carrier can reduce its operating costs,

Along with asset renewal, the

ture, the carrier should ensure that its

placement ensures that the most quali-

ance and enhancing as necessary.

improve its image and marketability,

national carrier must improve its cus-

staff – which often expects the worst

fied staff rise quickly thus invigorating

and provide a higher level of service

tomer service to meet international

from privatization because of its perceived

the management of the carrier. Finally,

to its passengers. Renewal doesn’t

standards. Many national carriers offer

impact on job security and pay – is prop-

along with the other personnel initia-

The largest value derives from the process improvement phase, but the

planning and scheduling, fuel purchasing and consumption, flight planning, budget control, capital expenditure control, and maintenance. Cost contain-

changed. Merit-based promotion and

tives should be a complete examination The turnaround process involves six main steps that flow seamlessly from one to another. The largest value derives from the process improvement phase, but the financial benefits begin during the quick hits phase.

Improving an airline’s financial status involves a three-pronged attack, which will help prepare the airline to set the stage for successful privatization.

and restructuring of staff compensation. The new pay scale should be consistent with market conditions in the country

ment should be geared toward reducing

and with international standards. As the

expenditures where possible as long as

staff becomes more effectively skilled,

dependability and service standards are

its value in the international marketplace

not lowered. Throughout this period,

increases, and the national carrier will

it will be important to watch cash man-

need to adjust compensation to ensure

agement. Carriers with limited financial

the staff will remain throughout the

resources must ensure that their cash

privatization process.

reserves are sufficient to cover the

The complete turnaround process

increased operating costs that result

requires less than two-and-a-half years –

from growing revenues. By containing

one for financial improvements and 12

costs and increasing revenues, however,

to 18 months for infrastructure improve-

the financial position of the carrier should

ments. During the final six months

improve noticeably within a period of less than six months.

Typical Approach to Financial Improvement Implementing a turnaround involves six main steps:

of the turnaround, the government financial benefits begin during the quick

require purchasing aircraft. Operating

excellent service, but frequently, these

erly prepared for future privatization.

can proceed with steps necessary to

hits phase. Revenue increases drive

and financial leasing are viable options

carriers fall behind more aggressive

Properly preparing staff members for

privatize the carrier.

the most benefits during the quick hits

for the national carrier turning around

competitors in areas such as in-flight

the changes that will impact their jobs

While the turnaround model

period, but cost containment is impor-

its operations. Facilities – particularly

entertainment, interior appointments,

is necessary so that labor actions don’t

requires more time to implement than

tant because it allows profits to increase

customer service areas, but also offices,

lounge facilities and catering quality.

become the inevitable byproduct of

the strategic investor or widely held

at a faster rate.

maintenance and outstation facilities –

Passengers have come to expect a high

privatization. Investment in training is

ownership models, the outcome of

must also be kept up-to-date so that no

level of service at a very low price. The

the first major step. Professional train-

privatization should be much more

substantial capital resources are needed

move toward upgraded first and busi-

ing provides staff with viable skills that

stable. The consulting group at Sabre

for at least five years following privatization.

ness classes on world-class carriers

translate to job security. Operational

Airline Solutions specializes in helping

Finally, technology must be kept

1. Initial assessment — A commercial, financial and operational evaluation of the airline identifies major issues and

Applying Improvements Using the turnaround model, the

assesses and evaluates the corresponding

national carrier can generate substantial

such as Singapore Airlines, Cathay

and service-related staff require frequent

airlines turn around their operations

impact and potential for improvement,

improvements in its financial position

current because airlines today require the

Pacific Airways and British Airways

training to ensure that their skills are

to prepare for privatization, helping

within one financial year. Taking short-

assistance of computerized systems. Core

show that international carriers must

maintained to appropriate international

produce viable carriers that become

issues that are relatively easy and quick

term gains, however, should be resisted

systems such as reservations, departure

concentrate on passenger service and

levels. In addition, professional training

sources of national pride – even if

to resolve and have a substantial impact

until the turnaround process is complete.

control, flight operations, and mainte-

comfort. For those national carriers

for business staff in analysis, sales,

they are not owned by their national

on an airline’s performance,

During the first 30 months of a turnaround

nance and engineering systems must

that offer less than competitive service

marketing, revenue management, flight

governments.

2. Quick hits — Identification of

implementation, the airline should

be modernized and deployed properly

today, money will also have to be spent

scheduling and similar industry skills is

business processes, performance meas-

increase annual revenues by at least

to allow for significant expansion as the

on service training and staff renewal.

a good investment in the carrier’s future

urements and decision-support tools

8 percent, producing a substantial war

carrier prospers. Business systems are

Service upgrades, however, often result

and its employees. Most importantly,

3. Process improvement — Aligning

52 ascend

Shane Batt is a partner with Sabre Airline Solutions Consulting.

october 2003

53


product

product

Improving Interline Electronic Ticketing

All unique carrier requirements can

Aloha Airlines,

only delivers electronic ticketing capability

be supported with the initial connection

America West Airlines,

but also the increasingly valuable option

to the hub. Once a carrier is connected,

American Airlines,

of interline electronic ticketing connectivity.

ATA Airlines,

Two new solutions enhance airlines’ ability to better develop and utilize electronic interline agreements.

By Darren Henley | Ascend Contributor

benefits of moving to electronic “The ticketing are two-fold — first, we’ll be able to reduce the costs incurred by processing paper tickets, and second, we’ll be able to improve efficiency and customer service levels.

Continental Airlines,

provides airlines the most cost-effective

Delta Air Lines,

and efficient solution for issuing, refund-

Finnair,

ing, exchanging and settling all transac-

Hawaiian Airlines,

tion types. Additionally, the product pro-

LanChile,

vides functionality to expand electronic

Midwest Airlines,

ticketing for the host carrier as well as

Northwest Airlines,

its interline partners. This solution deliv-

United Airlines,

ers substantial cost savings to the airline

US Airways.

while simultaneously enhancing cus-

lectronic ticketing solutions enable

E

ciliation and reducing the process of

airlines to improve business

scanning paper documents. During

processes and reduce ticketing costs. As

irregular operations, IET facilitates the

between an inbound carrier and the

more airlines mandate the use of paper-

transfer of coupons to alternative flights

receiving carrier and transforms this

access is available to all other linked

Hub also enables IET connectivity

less processes, interline capabilities

on other airlines.

ticket into a neutral message using the

carriers through selective or universal

between two carriers not hosted within

receiving carrier’s maps and rules.

activation.

become critical. Implementing interline

In the past, each IET implementa-

line electronic ticketing system. The hub verifies agreements

The Interline Electronic Ticketing

A vast array of diagnostic tools in

The electronic ticketing solution

tomer service and increasing relationships with its global interline partners. “The benefits of moving to elec-

the Passenger Reservation System. Until

tronic ticketing are two-fold — first, we’ll

now, at least one of the carriers was

be able to reduce the costs incurred by

required to be hosted in the system.

processing paper tickets, and second,

electronic ticketing increases the market

tion has been a unique and customized

opportunity by enabling multi-carrier

project requiring a dedicated link con-

anism; it supports and translates, if nec-

the hub gives carriers the ability to more

itineraries. Responding to this need,

necting each bilateral airline. The project

essary, all EDIFACT releases and ver-

closely monitor interline traffic. These

Sabre Airline Solutions has developed

can be complex; implementing all carri-

sions. If carriers implementing an IET

tools enable carriers to set notification

adapt to electronic commerce, the Sabre

customer service levels,” said Kevin

the Interline Electronic Ticketing Hub to

ers can be a lengthy process.

connection utilize different EDIFACT ver-

thresholds through a graphical user

Airlines Solutions Electronic Ticket

Hartigan-Go, vice president information

The hub is not just a routing mech-

Another key tool that helps airlines

we’ll be able to improve efficiency and

sions, the hub will translate those mes-

interface. For example, if a link goes

Hosting product enables a carrier to stay

systems of Philippine Airlines. “With

Hub is a multilateral product that virtu-

sages into a format the receiving carrier

down and error messages are gener-

hosted on its existing system while

this implementation, we are well placed

carrier the ability to seamlessly transfer

ally eliminates the necessity for individ-

can process. This translation process

ated, an e-mail notification is sent noti-

acquiring the ability to issue electronic

to facilitate electronic document

coupons to its interline partners and to

ual bilateral carrier implementations.

eliminates extensive development that

fying the carrier. Before the inception of

tickets and retain those records within

exchange with other airlines with whom

streamline revenue accounting

With this new product, all participating

was once required for carriers to estab-

these tools, someone physically had to

the electronic ticketing database.

we have interline relationships, fulfilling

processes by expediting revenue recon-

airlines are linked to a reciprocal inter-

lish the interline connection.

discover such incidents.

streamline interline implementations. Interline electronic ticketing gives a

The Interline Electronic Ticketing

Many airlines, such as the fictional airline ZZ, currently build individual bilateral connections with each of their interline partners. However, with the new Interline Electronic Ticketing Hub, all participating airlines are linked to a reciprocal system that routes and translates ticketing messages.

This solution eliminates both the

A number of airlines have carrier-to-

need for carriers to build a costly system

carrier interline connectivity through the

to distribute tickets electronically and the

Sabre ® Passenger Reservation System:

activities related to maintaining the elec-

Alaska Airlines,

tronic ticketing database. The product not

the requirements of some U.S. carriers to support e-ticketing by 2005.” Darren Henley is a senior product manager for Sabre Airline Solutions.

+count it up 53.33 — Seconds required

22,370,000 — Number

2,646 —Number of minutes

by a team from the Metropolitan

of kilometers flown by Fred Finn

required to circumnavigate the world

Police to pull a British Airways 747

as of June, the most air kilometers

using scheduled flights, by David

a distance of 100 meters at Heathrow

flown by an individual, according to

Springbett in 1980, to set a world

Airport in London: a world record,

the Guinness Book of World Records.

record. During that time, he covered

according to the Guinness Book of

The U.K. resident also holds

37,124 kilometers (23,068 miles).

World Records.

the record for most number of supersonic flights as a passenger with 718.

54 ascend


product

product

Just Right: The Resource Management Systems Through the use of Sabre Airline Solutions’ integrated resource management tools, airlines can yield labor savings up to 25 percent by ensuring that the right people are in the right place at the right time.

optimal shifts/rosters to ensure

lysts to perform “what-if” analysis to

In addition, using the StaffAdmin system

adequate coverage to perform the

evaluate multiple operational scenarios

helps airport resource administrators

required work, yielding labor savings

and determine the impacts to the busi-

more efficiently handle schedule prepa-

of up to 25 percent.

ness prior to the implementation of any

ration, vacation and overtime planning,

Once the system has determined the

new staffing strategies. Some of the key

and shift coverage. It also reduces the

optimal coverage level to perform the

benefits of the StaffPlan system include:

time spent on attendance tracking and

required work, the final step is to allo-

Improved ability to achieve consistent

administering training updates, freeing

cate tasks to those schedules/rosters.

staffing levels,

administrators to perform other addi-

This is performed by the Task

Ability to identify and explain seasonal

tional job functions and improving their

Assignment module, which takes

variations in staffing levels,

overall utilization. The entire employee

into consideration the drive and

Reduced time required to identify and

administrative process is streamlined,

plan staffing,

providing decision support for workforce

Ability to set proper staffing levels.

planning and scheduling in a paperless

walk times between job functions. Through the use of liner programming, integer programming and constraint-theory mathematics, the StaffPlan system develops the best

By Kamal J. Qatato | Ascend Contributor

possible solution — one that cannot be

ate agents are in place right on time

G

is not impossible.

to handle check-in for a flight. An

By breaking down

airplane is refueled, serviced and ready

the process into

to push back for an on-time departure.

phases, and

Baggage has been transferred from

automating each

the terminal to the airplane and loaded

phase, airlines can

without delay. A fresh flight crew is in

make the best possi-

position ready for takeoff.

ble use of their

For an airline, the optimal use of employees is not only essential to

During the administrative phase, usually six months up to the day of

that airlines optimally manage administrative tasks for their employees. Airlines commonly achieve up to a 20 percent

resources. The three

improving performance and customer

main phases of

service, but it also saves money.

the resource man-

Having the right people in the right

environment. It is designed to ensure

Administration

agement process

place, however, is not always as easy as

are planning,

it sounds. The effective management of

administration

ground handling and passenger services

and day-of-

staff is a complex, yet critical, aspect of

operations.

The StaffPlan system, left, and the StaffAdmin system, center, help airline schedulers build work requirements and assign adequate personnel at airport locations. The StaffManager system, right,

takes real-time flight movement data and maximizes the deployment of resources, yielding up to 15 percent improvement in overtime labor costs. The three systems are integrated to provide airlines optimal resource management capabilities.

an airline’s operations. Flight delays, cancelled services, holidays, labor actions and absenteeism — to name a few — arise

Planning During the planning phase, usually

on a daily basis and can have a tremen-

six months to one year out, airlines

dous impact if not managed optimally.

determine the work requirements generated from their planned flight schedule.

In addition to the unpredictable

Using the Sabre StaffPlan ™ staff

levels using the StaffPlan system includes

matched by an analyst alone. Without

operations when planning occurs for

improvement in administrative staff

three steps:

such optimization, it is difficult, if not

the next season, an airline takes the

utilization through paperwork reduction

The system uses industry-leading

impossible, to measure how close a

forecasted staff plan and determines

and increased employee involvement in

algorithms to determine the work

proposed staff schedule is to the ideal

daily staffing needs based on resource

data entry. Cost reductions of up to 15 per-

availability.

cent associated with errors in the recon-

demand required for a flight schedule,

solution. The StaffPlan system also

must address heightened security provi-

forecasting and planning system, airlines

work parameters, engagement stan-

enables an airline to make intelligent

sions and increased competition, all of

can employ automated decision support

dards, historical and forecast loads,

trade-offs between conflicting objectives

tracking and assignment system creates

time and attendance can also be realized.

which are forcing changes in how

to produce optimized forecasts and plans

and quality targets.

such as determining whether to use

and stores work and attendance rules. It

The Internet has provided a powerful

resources are planned, administered

for staffing levels required by a given

Once the work demand is produced,

part-time employees versus full-timers

helps administrators assign the appropri-

means for employees to proactively

and managed in real time.

flight schedule.

the system’s patent-pending shift

in terms of cost and shift coverage.

ate personnel to the work-level require-

manage their own schedules and work

ments established in the StaffPlan system.

assignments. The StaffAdmin system

nature of the industry, airlines also now

Although complex, efficient staffing

56 ascend

®

Determining the optimal staffing

scheduler algorithm determines

The StaffPlan system enables ana-

The Sabre ® StaffAdmin ™ employee

ciliation process related to payroll and

october 2003

57


product incorporates an employee self-service

spending precious time identifying

windows is configurable to the business

kiosk, enabling employees to complete

where those operational exceptions

unit or workgroup for which the analyst

During this time, many airlines —

tant to quickly determine the correct

paperless transactions related to shift

are. Airlines using the StaffManager

is responsible, ensuring complete focus

including Northwest Airlines, America

staffing levels for ground operations

trades and schedule checks as well as over-

system have yielded up to 15 percent

on that business area.

West Airlines and Continental Airlines —

to support the new flight schedule.

time and vacation requests over the Web

improvement in overtime labor costs by

relied on their resource management

Additionally, we faced unknown load

from home or another remote location.

being able to identify areas in which

Benefits of implementing the StaffAdmin system include: Producing rosters and daily staffing

The key benefits of the StaffManager

tools from Sabre Airline Solutions to

factors and the requirement to do new

resources can be more effectively utilized

Maximized productivity,

help determine the best course of action,

shift bids to make sure we had the

prior to aircraft arrival and departure.

Early problem identification,

identify the areas to cut and to make the

appropriate staff on each shift to meet

Measured and tracked employee

optimum use of the remaining personnel.

our performance requirements.

The StaffManager system is seam-

system include:

Continental Airlines used the

sheets,

lessly integrated with both the StaffAdmin

performance,

Vacation planning and administration,

and StaffPlan systems. It takes daily

72-hour moving window of flights

Sabre ® SaffPlan ™ staff forecasting

tool,” he added. “We were able to pull

Tracking employee accrual accounts,

staffing employee schedules from the

and tasks,

and planning system to help adjust its

in a new flight schedule, run it with

Providing employee access via a

StaffAdmin system on a real-time basis,

Views for flight, task and alert

staffing levels to match the dramatic

multiple load factor assumptions and

reduction in the demand for travel.

get a shift bid output that would assist

self-service kiosk,

including any anomalies to the planned

information,

Tracking employee training and quali-

rosters, eliminating the need for face-to-

Secured access through various

fication information,

face employee roll call. Most importantly,

security levels,

Importing and exporting data to human

to complete the resource management

Link to time and attendance badge-in data.

resources systems,

business process cycle, airlines are now

Open report writing,

able to use real-time historical data

Incorporating a time and attendance

as an input to the planning process,

interface.

namely the StaffPlan system, to identify trends against the previous operational

Day-of-Operations

It’s All About Efficiencies With modern decision-support tools, airlines no longer must rely on using past staffing plans as a

The day-of-operations

basis for future schedules.

phase considers real-time

Relying on past plans can

operational requirements

result in a repeat of previous

and resource availability for

shortcomings. Having the

deployment in the field.

right people, in the right

The Sabre ®

place, at the right time is key

THE

Right Tool IN TOUGH TIMES

Using the system, Continental’s

re-allocate a smaller staff to reduced

ated its manpower needs, matching

flight activity. We presented this analysis

changes to its flight schedule at little

to our executive team within the aggres-

cost to the airline.

sive timeframe committed, and they

Patrick O’Neill, senior manager,

were able to make informed decisions

resource planning and field engineering

regarding staffing risks associated with

for Continental, said the StaffPlan system:

a variety of load factor assumptions.

Enabled Continental to analyze the

The StaffPlan system allowed us to

financial impact of modifying staffing

turn this analysis around in a few days,

without compromising clean, safe and

which would have been impossible

reliable service. The program param-

otherwise.”

eters allowed the airline to cross-uti-

service finance at America West, said the

service goals.

benefits of using the decision-support

Performed financial analysis of multi-

tools from Sabre Airline Solutions came

ple staffing scenarios, allowing the

in two stages.

to successful resource management. Scheduling several

an airline respond in real

different functional areas to

executive management team to make

time to events that may

service aircraft while on the

accurate and timely decisions.

disrupt the schedule. Even

ground is a complex business

on a seemingly ideal day,

process that undoubtedly

staffing adjustments. The StaffManager system takes real-time flight movement data and maximizes the deployment of resources based on their availability, location in the airport and qualifications. The StaffManager system dramatically improves the fluidity and movement of

“We continue to utilize the StaffPlan

challenges airlines to develop Integrated resource management tools help airlines coordinate staffing needs through the long-term planning, in-season planning and day-of-operation phases, reducing costs and improving staff utilization.

plan to improve future plans. The StaffManager system has

cost-effective ways to manage their resources. Without a suite of tools to guide the planning, administrative and real-time business processes in resource management, airlines will never achieve

istory has proven the truth

H

of the axiom that “extreme

Kevin Bauerle, manager of customer

lize workgroups and adjust targeted

staff allocation system helps

to flight schedules and times that require

our operational managers to efficiently

resource planning team quickly evalu-

StaffManager ™ automated

there will likely be changes

“The StaffPlan system was the right

“Immediately after 9/11, we were able to electronically receive the new schedule with the new level of operations

system to efficiently manage more than

and quickly run the StaffPlan system

85 percent of our domestic agents in our

to determine the appropriate full-time

airport services division,” O’Neill said.

employees,” he said. “In conjunction

Northwest Airlines also benefited

with receiving the schedule, our capac-

times call for extreme

from the StaffPlan system in the after-

ity planning group provided us with new

measures.”

math of 9/11.

forecasted load factors to account for

During the most extreme time in

“We knew our customers would

additional reductions in flying.

operational efficiencies that will yield

the history of the aviation industry, the

be very slow to come back to flying

tremendous cost savings yet maximize

weeks and months following the events

after the terrorist attacks, and we had

number of scenarios using adjusted

customer service.

of Sept. 11, 2001, airlines were forced to

to reduce our flight schedule and

arrival curves and contact ratios to attempt

take drastic action to stay afloat. One of

resources accordingly,” said Jeff

to model the impact of the security direc-

“In the months after 9/11, we ran a

resources during an operation by giving

a simple-to-navigate graphical user

an analyst specific areas to concentrate

interface that provides detailed flight,

Kamal Qatato is director of the resource

those measures involved making painful

Benjamin, manager of staffing and

tives implemented by the Transportation

on — proactively managing the excep-

resource and operational alert informa-

management and passenger processing

staffing cuts and furloughing employees.

planning for Northwest. “It was impor-

Security Administration.”

tions in the operations rather than

tion. All data in each of three viewable

product suites at Sabre Airline Solutions.

58 ascend


product

product solutions, an ASP delivery method.

Web-Enabling Revenue Management By migrating its revenue management software to an application service provider model, Aerolineas Argentinas has access to increased functionality at a lower total cost of ownership.

revenue management tools,

to achieve higher service levels in a more

The ability to migrate from a manu-

cost-effective manner as compared to

ally intensive to a more automated

operating the entire IT infrastructure

that showed the financial benefits that

inventory control framework,

itself. A lower total cost of ownership,

could result if Sabre Airline Solutions

A migration from virtual nesting

however, was not the only benefit of

owned and managed the information

revenue management controls to

using the eMergo solution for its revenue

technology infrastructure required to

true origin and destination controls

management software. Through the

operate the Revenue Manager,” said

using a bid-price-based continuous

eMergo environment, for example,

Alberto Chehebar, chief information offi-

nesting framework.

Aerolineas Argentinas receives automatic

“The eMergo solutions team provided us with a total-cost-of-ownership analysis

cer for Aerolineas Argentinas. “Once all

The functionality of the new system

product upgrades, which are installed

the costs are considered, it is clear that

helps Aerolineas Argentinas maximize

on the host systems and automatically

Sabre Airline Solutions can operate the

its revenues by selectively accepting

made available for customer access.

environment much more efficiently. On

and rejecting reservations requests by

ince operating an airline today

top of that, the solution provided simpli-

O&D based on the value of the customer.

requires focus on where and how to

fied, predictable pricing.

By David Endicott | Ascend Contributor

S

spend resources — financial and physical assets as well as personnel — Aerolineas Argentinas sought to find a cost-effective

The Simple Solutions

and efficient way to upgrade its revenue

More than 40 airlines worldwide utilize one or more of the following

management system.

applications via the Sabre eMergo Web-enabled and dedicated

Aerolineas Argentinas found a way

®

®

network solutions:

to do so by moving to an application service provider model, which gives the

Quasar ™ passenger revenue

Manager, Sabre ® LiteVision ® personalized

costs of obtaining and maintaining new

Gate Reader,

MIDT system,

hardware and software.

Sabre ® Aerodynamic Traveler ™

Sabre ® Planet ® profitability

Roving Agent Check-in,

forecasting system,

Sabre ® AirCrews ™ crew

Sabre ® StaffAdmin ™ employee

Manager to help it maximize yields and

management system,

tracking and assignment system,

efficiently control its inventory across

Sabre ® AirMax ™ Revenue

Sabre ® StaffManager ™ automat-

its route network, which includes 34

Manager,

ed staff allocation system,

domestic and 19 international destina-

Sabre ® AirOps ™ Load Manager,

Sabre ® StaffPlan ™ staff forecast-

tions. To effectively run the system, the

Sabre AirOps ™ Movement

ing and planning system,

airline purchased the required sophisti-

Manager,

Sabre ® TransVision ® traffic flow

cated hardware. As the airline evaluated

Sabre AirOps ™ Dispatch

analyzer,

the new, feature-enhanced Revenue

Manager,

Sabre ® Travelcard Pro ™ billing

Manager, it realized that its hardware

Sabre AirPrice ™ fares

and marketing information

had become outdated. To upgrade to

management system,

access system,

the desired functionality would have

Sabre AirServ aircraft

Sabre Traverse ™ loyalty

also required a further investment in

provisioning system,

management system,

equipment unless the airline could find

Sabre CargoMax ™ Revenue

an alternative.

Manager,

®

®

®

®

®

upgrade, involved very little effort from our IT department,” Chehebar said.

of the system, the consulting team at

having to make any further investment

Sabre Airline Solutions helped train the

access option, Aerolineas Argentinas’

decisions,” Chehebar said.

airline’s revenue management depart-

personnel can focus on the key element

As part of the upgrade to version

By selecting the eMergo remote

ment and presented the group with

of their jobs, ensuring they meet the goal

5.3 of the Revenue Manager, the airline

ways to maximize revenue and the best

of managing the airline’s growth.

receives several key benefits, including:

processes to support the system.

mode that provides industry-leading

accounting system, Sabre ® Aerodynamic Traveler ™

®

maximum benefits from the new version

An origin-and-destination process

software without incurring the additional

For more than five years, the airline

“With the eMergo solution, we

environment, as well as the application

simply pay a flat monthly fee without

Sabre ® CargoMax ™ Accounting

airline access to the most up-to-date

used the Sabre ® AirMax ™ Revenue

To ensure the airline received the

“The migration to the eMergo

T H E

Aerolineas Argentinas recognized the value of a hosted solution as a way

vıew

H I G H

David Endicott is vice president for the eMergo solutions.

L E V E L

Who

News Briefs from Around the Globe

Under the agreement, Vinci Airport

their passengers. Implementing Sabre

Services, the world's leading independ-

Airline Solutions’ suite of resource

ent provider of aviation services for

management tools will allow us to

the aviation industry, will implement

further separate ourselves from our

the resource management tools for

competitors by delivering that same

its global airport operations at approxi-

high level of service at even lower

mately 100 locations worldwide.

costs,” said Jean-Francois Gouedard,

resource management systems —

Vinci Airport Services operates as

president and chief executive officer

the Sabre ® StaffPlan ™ staff forecasting

Worldwide Flight Services in the North

of Vinci Airport Services and Worldwide

Sabre WiseVision ™ sales

and planning system, the Sabre

American market.

Flight Services. “From our largest

expansion system.

StaffAdmin ™ employee tracking and

®

®

Vinci Airport Services

What Selected Sabre Airline Solutions’

®

assignment system, and the Sabre

Faced with investing in additional

®

stations with over 3,000 personnel to

Why

StaffManager™ automated staff alloca-

hardware to support the new software,

many of our smallest operations, we expect to improve our personnel utiliza-

the airline began considering other options

For more information about the eMergo solutions, contact Jim Quilty,

tion system — to improve the manage-

“At Worldwide, we have long dif-

and evaluated the Sabre ® eMergo ®

director of marketing for the eMergo solutions, at 817 264 2906, or send

ment of personnel across its worldwide

ferentiated ourselves with the service

tools, servicing more customers with

Web-enabled and dedicated network

an e-mail message to jim.quilty@sabre.com.

operations.

we provide to our airline customers and

the lowest personnel cost possible.”

60 ascend

tion through Sabre Airline Solutions’


regional Asia/Pacific

Asia/Pacific Carriers Open a Portal expect that by the end of 2004, “ We almost 10 percent of travel bookings

Leading Asia/Pacific carriers team with Travelocity to launch the first region-wide online travel portal — ZUJI.

will be made online in Asia/Pacific, and we intend to be the leading portal in this space in our part of the world.

By Frank Fotea and Hans Belle | Ascend Contributors

S

ZUJI, which offers the region’s

Australia, Singapore, Taiwan and Hong

carriers are putting their footprint

most sophisticated online airfare search

Kong — allowing us access to over 30

on e-commerce in the region.

engine, aims to become a world-class

million Internet users — with more sites

Web site by providing its customers

to come.

With travelers in Asia/Pacific following the U.S. trend of booking

with an efficient, user-friendly environ-

travel online, the carriers have collec-

ment to plan and purchase travel online.

tively launched an online portal called

ZUJI draws upon Travelocity’s tech-

“ZUJI,” a Mandarin Chinese word that

nology and experience in the U.S. market

considerable benefits in terms of cost

loosely translates as “footprint.” The

and shares its resources across a large

of development and the ability to drive

site, which is a joint venture between

geographic region. Chief Executive

revenue from that development across

the Asia/Pacific carriers and Travelocity,

Officer Scott Blume is focused on one

multiple countries in the region. We

a Sabre Holdings company, is the only

goal — making ZUJI the preeminent

expect that by the end of 2004, almost

one-stop site dedicated to Asia/Pacific

online travel site in Asia/Pacific.

10 percent of travel bookings will be

travelers. The site — which offers

“Ours is the only online travel

Photo courtesy of ZUJI

ixteen of the leading Asia/Pacific

“We have taken world-leading technology and customized the offerings to local markets,” he said. “This gives us

made online in Asia/Pacific, and we

inventory from thousands of airlines,

portal with a regional network in

intend to be the leading portal in this

hotels and rental car companies —

Asia/Pacific whose core business is

space in our part of the world.”

enables travelers to easily search and

travel bookings in real time,” he said.

book the best values on flights, hotels

“To date, the ZUJI network comprises

its ability to quickly bring special deals

and rental cars.

customized, local language sites in

and content to market.

One of ZUJI’s unique strengths is

Scott Blume, chief executive officer for ZUJI, is positioning the Asia/Pacific travel portal, powered by Travelocity, to take advantage of a growing trend in the region toward online booking.

“We offer an extremely compelling

we can access between 20 to 25 million

in Australia and its home country in

proposition for our suppliers,” Blume

Internet users throughout Asia/Pacific

2002. A full marketing push began in

said. “We e-mail our members travel

each month. It’s a very fast and effective

August to build awareness and increase

deals that are tailored to match specific

method of bringing deals to market.”

the membership base. Even before the

interests, and we can mine our member

A user-friendly graphical user interface makes it easy for travelers to access the content of the ZUJI Web site, which includes thousands of airlines, hotels and car rental companies.

One of the many exciting features of the portal is the Flight Guru, which provides a host of search options for flights, including alerting passengers of free stopovers and enabling passengers to pre-select seats on certain flights.

Sam Gilliland, president and chief

database to reach travelers who have

executive officer of Travelocity, agreed

searched for specific destinations and

speed to market is a key benefit to the

contact them directly with customized

airlines that provide content for the site.

and personalized e-mails. We can also

“It is exciting to see how the airlines

offer site real-estate promotional space

are embracing ZUJI as a competitive

— all within a 24-hour timeline. It’s a

tool with its ability to bring fares to

short, sharp way of moving product.

market quickly,” he said.

Additionally, through our distribution alliances with Yahoo! and ninemsn,

push, however, the portal added sites

ZUJI, headquartered in Singapore, conducted a soft launch with Web sites

october 2003

63


regional

regional Asia/Pacific in late 2002 in Taiwan and Hong Kong,

ture that allows members to select five

and it is looking to add sites in Korea,

preferred destinations and to be notified

Travelocity have met the unique needs of

Malaysia, Brunei and New Zealand in

via an automated e-mail message or on-

the Asia/Pacific marketplace. Travelocity

the next several months. ZUJI officials

site updates when a flight to a specific

quickly realized it could not merely

The unequaled ZUJI sites built by

Capitalizing on Consolidation

destination meets a pre-set price criteria.

are not only actively building “ We a regional network, but a strong and compelling brand …. ”

This gives ZUJI members the advantage of being the first to know about inventory-controlled promotional deals.

After its merger with two smaller airlines, a larger, more competitive China Eastern Airlines looks to draw on its new strengths to become a more dynamic factor in the world airline industry.

Sweet Sixteen

“The outcome is ‘win-win,’” Blume said. “Our members learn of deals to

Sixteen leading Asia/Pacific airlines have

said the response to the soft launch

places they are interested in traveling

joined with Travelocity to form ZUJI, a

indicated that Asian markets are ready

to, and suppliers have access to a

one-stop travel portal for the region:

to embrace online travel. Once the

targeted audience.”

By Hans Belle and Peter Wu | Ascend Contributors

All Nippon Airways

effects of the conflict in Iraq and the

Combining the expertise of the

outbreak of severe acute respiratory

region’s leading airlines and Travelocity

Cathay Pacific Airways

syndrome diminished, the portal’s book-

enabled ZUJI to overcome a number

China Airlines

A

ing levels quickly increased, exceeding

of challenges, including the region’s

EVA Airways

changes, many experts and analysts

pre-SARS levels.

multiple languages, currencies and local

Garuda Indonesia

have spoken of a need for carriers to

laws. ZUJI worked with Travelocity’s

Dragonair

consolidate their operations to increase

elers choosing to book and buy flight,

Sydney-based development center to

Japan Airlines

competitiveness.

hotel and car rental content from ZUJI,

create country-specific sites in native

Japan Air System

and we anticipate that this trend will

languages using local currency with

Malaysia Airlines

largely an abstraction for much of the

continue,” Blume said. “We’ll soon

secure transactions through VeriSign

Northwest Airlines

world, in China it is already a reality.

reveal a new hotel booking path, which

Payflow. To date, ZUJI offers sites in

Philippine Airlines

Three years ago, the Civil Aviation

has been designed and developed in

three languages (including two varia-

Qantas Airways

Administration of China announced

conjunction with Abacus. We have a

tions of Chinese) utilizing four Asian

Royal Brunei Airlines

that it would merge 10 of the nation’s

dedicated commitment to constantly

currencies. ZUJI also has adapted to

SilkAir

airlines into three roughly equal groups

improving the site and ensuring our

the local markets, which have different

Singapore Airlines

in order to strengthen the domestic

customers have the best technology

levels of development and infrastructure

United Airlines

industry. Each group would be centered

and travel tools in Asia/Pacific.

to support e-commerce, such as the

on one of the nation’s three main carri-

penetration levels of credit cards and

ers: Air China, China Eastern Airlines

“We’re seeing more and more trav-

“We are not only actively building a regional network, but a strong and compelling brand, which features our

costs of Internet access. The state-of-the-art net fare booking

transplant technology and business systems from the United States without

s the worldwide airline industry continues to undergo dramatic

While airline consolidation remains

Executives from China Eastern Airlines and Sabre Airline Solutions announce an agreement for the airline to use the technology provider’s flight operations suite to help integrate its airline operations center.

and China Southern Airlines. Now, with its consolidation largely

Shanghai-based China Eastern has

the resources to compete more effectively.

‘Travel Guru’ personality,” Blume said.

engine, powered by Travelocity, was also

finding innovative ways to address the

complete, a restructured China Eastern

“set off for a new future,” company

As a result of the consolidation, China

“We’re experiencing consistent growth

developed specifically for the region.

region’s unique landscape. ZUJI, with

Airlines is poised to further raise its

officials said.

Eastern has approximately 40 percent

the knowledge and support of the

profile on the international aviation

in all of our markets.”

Gilliland said the partnership holds great promise for the future.

outcome is ‘win-win.’ Our “ The members learn of deals to places they are interested in traveling to, and suppliers have access to a targeted audience.

“Travelocity pioneered the online

region’s leading airlines and unmatched technology from Travelocity, is uniquely

travel space, and we have more than

positioned to meet the challenges of

seven years’ experience in the world’s

providing online service to the region’s

most competitive online travel market —

traveling public.

the United States,” he said. “We have learned that success in this industry

Frank Fotea is Travelocity’s

is driven by continuous investment in

vice president Asia/Pacific.

technology and the customer experience, ZUJI’s travel tools are designed to

focused marketing and distribution,

enhance the customer experience. Its

and great value content. ZUJI has

“Price Guru” tool is a customized fea-

these ingredients.”

64 ascend

Hans Belle is vice president of marketing, Asia/Pacific for Sabre Airline Solutions.

a result of the consolidation, “ AsChina Eastern has approximately 40 percent of the domestic Chinese aviation market.

Before the consolidation, the “huge

of the domestic Chinese aviation mar-

number, small size and lack of core competi-

ket. The combined China Eastern group

tiveness” of the nation’s multiple domestic

controls ¥47.3 billion (US$5.7 billion) in

carriers hampered the growth of China

assets, including 142 aircraft. The group

Eastern and other Chinese airlines, the

also has a combined 25,000 employees,

company said. Consolidation has helped

and it serves destinations throughout

China Eastern “achieve rapid expansion,

China as well as Asia, Europe, America

implement its business diversification

and Australia.

landscape and also to take advantage

strategy and form new mainstay lines

of events such as China’s entry into the

of business, thus becoming the new

the airline predicts it will have 180 large-

World Trade Organization.

starting point for future expansion.”

and medium-sized passenger and cargo

Through consolidation with China Northwest Airlines and Yunnan Airlines,

Consolidating with two smaller carriers has given the combined airline

By 2005, thanks to consolidation,

aircraft generating ¥24 billion (US$2.9 billion) in revenue.

october 2003

65


regional

regional

China Eastern said it sees the

president at China Eastern, said the inte-

tained several systems, which often

merging of the Chinese aviation indus-

grated AOC will streamline operations,

resulted in the duplication of tasks to

try as an opportunity to “build an air

enabling the airline to compete more

accommodate each individual tool.

transportation system of core competi-

effectively in the consolidated Chinese

Integration will also benefit the airline

tiveness; realize rapid, sustained and

aviation marketplace.

during irregular operations, helping

healthy growth; improve market com-

“Our ultimate aim is to reduce reporting lines in order to drive cost

schedule as quickly and cost-effectively

in international competitions; and

reduction,” Wu said. “We expect

as possible.

establish a world-recognized brand

this to be achieved by the continued

in the air transportation industry.”

improvement of our operations

the AOC includes the airline’s movement

and the reduction in our aircraft

control, flight planning, flight tracking,

utilization costs.”

load planning, meteorological function

Eastern plans to improve the profitability of its home Shanghai marketplace.

The AOC will integrate the airline’s

Europe, Middle East and Africa

From Russia, With Success

it efficiently return to its published

petitiveness quickly; fully participate

As part of its growth strategy, China

As Russia continues to emerge into a more open economy, the nation’s airliners are benefiting from the change. For the year, revenues per kilometer in the Russia market are up 7 percent, passengers boarded are up 6 percent and cargo volume is up 3 percent.

Despite an industry-wide downturn, a growing market and innovative practices have helped Russian carriers maintain growth and profitability.

The operational heart of the airline,

and data integration departments.

The airline also plans to concentrate

flight scheduling, flight planning,

domestically on Shanghai, Beijing and

crew rostering, payload and dispatch

with China Eastern Airlines brings to

Guangzhou while further developing the

departments, which will work seam-

five the number of carriers in the region

Xian and Kunming markets. The airline

lessly through an integrated suite of

utilizing Sabre Airline Solutions for

to continue — the country’s Civil Aviation

discover its convenience. Yet, the average

also plans to strengthen international

software provided by Sabre Airline

integrated operations centers. Other

State Services says the aviation crisis

middle-class Russian has similar prefer-

routes and develop cargo transport lines

Solutions, including Sabre ® AirOps ™

carriers include Cathay Pacific Airways,

in Russia is over, projecting that the

ences for travel as his or her Western

in Hong Kong as well as other parts of

Movement Manager, Sabre AirOps ™

China Southern Airlines, Air New

industry in 2003 will grow between 5

European counterpart, indicating that

Asia, Europe and the United States.

Dispatch Manager and Sabre ® AirOps ™

Zealand and Virgin Blue.

percent and 10 percent, continuing to

the growth of this segment will likely

build on the about 10 percent growth

mean an increasing demand for travel,

in 2002.

particularly air transportation.

The airline group also plans to pursue a diversification strategy that

®

By Inna Kizenkova | Ascend Contributor

Load Manager. By using integrated systems, China

incorporates importing/exporting,

Eastern will streamline data entry,

financial services, hotels and tourism,

data management and data integrity,

and air catering.

resulting in superior operational control. Before integration, China Eastern main-

As it prepares itself to compete

Announced in April, the contract

Hans Belle is vice president of

So, how have the Russian carriers

marketing, Asia/Pacific.

The move to a free economy

managed to excel during a time when

caused an explosion in the number of

Peter Wu is a Beijing-based account

the rest of the industry has battled to

carriers operating in Russia. However, the

director for Sabre Airline Solutions.

keep its head above water?

past few years have seen consolidation

domestically and internationally, China

One of the main advantages

Eastern plans to standardize its fleet

enjoyed by Russian carriers is the

planning, marketing strategies, services,

hile much of the airline industry

country’s continuing emergence into

continued struggling in 2002 to

a free marketplace. After years of

training and maintenance across the

W

organization.

cope with the lingering effects of the

stagnation under the Soviet-planned

severe economic downturn, Russian air

economy and a decade of adjusting to

dardization strategy, the China Eastern

transportation bucked the trend thanks

a free market, real incomes of Russians

group has invested in new technology,

to an expanding economy that enabled

are increasing and the Russian middle

including decision-support tools to

more travelers to take to the skies.

class is growing.

In conjunction with its new stan-

For the second consecutive year,

help integrate its systems operation

continued move toward an “ The open economy gives Russia an underdeveloped market with enormous potential.

within the industry — the number of

The continued move toward an

airlines declined from a high of 393 in

Russian carriers overall reported profits

open economy gives Russia an underde-

1994 to 235 in 2002 — as some airlines

as well as growth in the numbers of

veloped market with enormous potential.

acquired smaller carriers, some went

that it would integrate its flight opera-

passengers boarded. For the year,

Analysts estimate the potential Russian

bankrupt and some were unable to meet

tions into an airline operations center

revenues per kilometer in the Russian

air travel market at 90 million passengers

more stringent licensing requirements

in order to improve efficiency, improve

market were up 7 percent to US$64.5

boarded, although only 26.5 million, just

implemented by the country’s Civil

communications among departments

billion, passengers boarded increased

29 percent of the total potential market,

Aviation State Services. In 2002, the

6 percent to 26.5 million and cargo

were boarded in 2002. Because air travel

five largest airlines controlled 48 percent

volume increased 3 percent.

is still seen as somewhat of a luxury

of the market and the top 25 carriers

in Russia, many people have yet to

controlled 80 percent.

control center. China Eastern announced in April

and enhance the airline’s ability to respond to irregular operations. Captain Wu, Yu Lin, senior vice

66 ascend

As part of a government-ordered consolidation, China Eastern Airlines joined with two other carriers — China Northwest Airlines and Yunnan Airlines — to form one of the three largest carriers in China.

The positive trend is also expected

october 2003

67


regional

regional But beyond the natural market

States. For example, certain tickets that

US$10 for economy class to US$80

simply to maintain an international

growth, Russian carriers have

are popular among business and sum-

for business class.

presence. Faced with fierce competition,

Reducing aircraft leasing costs,

Participants receive a 20 percent to 40

excelled by taking aggressive and

mer leisure travelers can be returned

Aeroflot has cut the most unprofitable

Adding and enhancing information

percent discount for domestic flights

innovative approaches to expand their

up to three hours prior to departure

with no-frills service on its 40-minute

routes, even though it resulted in a

technology,

and up to 30 percent discount on

businesses.

with only a 15 percent fee rather than

Nizhny-Novgorod to Moscow flight,

drop of 342,000 passengers. Despite

Optimizing its resources,

international flights connecting

Many of the nation’s leading air-

The airline has begun experimenting

long-term strategy includes:

traveling across Russia and abroad.

the standard 25 percent. This policy is

targeting business travelers who usually

that drop, the airline’s profits actually

Rebranding the airline,

through the airline’s hub at the

lines have targeted financially troubled

aimed at increasing the loyalty of leisure

make the 420-kilometer journey by train.

increased from US$8.6 million in 2001

Improving customer service.

Pulkovo Airport.

but strategically positioned airlines

travelers during the highest demand

The airline expects to earn US$1million

to US$74.2 million in 2002, and the

for takeover, enabling them to grow

season. To also appeal to frequent

annually from the route.

airline projects a US$100 million profit

the Sky Team global alliance this year,

adapted to the rough and tumble airline

through mergers and acquisitions.

flyers, the airline launched Sky Seven,

for 2003.

is even using its frequent flyer program,

industry, they have taken great strides

Siberia Airlines, for example, increased

an incentive program for loyal repeat

is trying to boost its load factors through

Aeroflot Bonus, to reward travel agents

toward becoming globally competitive.

its passengers boarded by 41 percent

customers offering points that can be

innovative programs, including a special

factor will increase from 68.8 percent

who book flights on the airline.

The nation’s carriers are taking the

— to 2.69 million — in 2002 in part

used for free flights, service upgrades

offer of US$5 tickets from Nizhny-

in 2002 to 70 percent. Aeroflot Deputy

by acquiring Moscow-based Vnukovo

and other benefits.

Novgorod to Moscow for passengers

Airlines. The rest of the industry

connecting there to one of Siberia’s

increased its passengers boarded

international flights.

by only 6 percent. Siberia, founded

The airline whose name

in 1992, also has signed interline

was synonymous with air

agreements with British Airways

travel in Russia during the days

and Japan Air System. One of the largest domestic

Along these same lines, the airline

airlines in the Russian Federation,

them to meet their unique needs.

numbers in 2003 to rise about 5 percent,

boarded by more than 2 million, 10.2

Their growth during the past two years

a total of 250,000 to 260,000. He also

percent, in 2002. The airline, 100 per-

reflects their experience, knowledge

said that in addition to restructuring

cent owned by the federal government,

and determination to win in the Russian

the fleet and reducing lease costs, the

uses only Russian-built aircraft and is

market and be a significant player on a worldwide scale.

to capitalize on the growing desire for

spending on fuel.

which also operates Pulkovo Airport

In addition to renovating its

in St. Petersburg, offers a special

fleet and route network, the airline’s

Inna Kizenkova is a member of the Sabre Airline Solutions Marketing

“transfer” program for its customers

Strategy and Services group.

airline, established in 1994 as the

The airline, which in the first half

successor to the Soviet airline

of 2003 increased its flights by 8 percent

formed in 1923, inherited a large

and carried 18.4 percent more passen-

fleet, customer base, brand equity and

gers, offers amenities such as free

network from its predecessor. But this

transportation from the airport to

was a mixed blessing.

downtown Moscow for passengers

T H E

the majority of aircraft unable to meet

the airline become the first Russian

International Civil Aviation Organization Siberia Airlines is experimenting with a low-cost offering on its NizhnyNovgorod to Moscow flights. The airline expects to earn US$1 million annually from the route.

other business strategies that have

vıew

H I G H

The fleet was outdated, with

on certain flights. Such efforts helped

mergers, restructuring programs and

them a Russian flavor, customizing

Enterprise increased its passengers

overall market share at 21 percent. The

boost its on-time performance.

which recognizes companies for alliances,

dating back 70 years, Pulkovo Aviation

said the carrier expects passenger

region of the country. The enterprise,

nation, Aeroflot still has the largest

Aerospace Award for corporate strategy,

General Director Lev Koshlyakov has

the largest airline in the northwestern

improve its customer service,

carrier to earn a Flight International

industry’s best practices and giving

more economic planes to reduce

air travel. As a flagship carrier for the

As the Russian airlines have

One of the nation’s oldest airlines,

airline’s next step would be to use

Siberia has also taken steps to increase aircraft utilization and

The airline also projects its load

Russian Airlines, has also taken steps

of the Soviet Union, Aeroflot

Russia

And the airline, which plans to join

L E V E L

Who

technical standards, and the airline’s reputation for safety and customer serv-

Chicago Express

ice lagged its western counterparts. Aeroflot, however, recently tion initiative, including the addition

assignments (long trips, short trips or

ing and vacations. The introduction of

specific layover cities) or daytime con-

preferential bidding is part of an overall

siderations (no early starts or late

plan for automating Chicago Express’

returns).

systems operations control functions

What

using the Flight Control suite.

Why

launched a US$250 million fleet renova-

reshaped or revitalized the industry,

News Briefs from Around the Globe

“Preferential bidding has been a

Successfully introduced a system to

useful tool in our continuing commitUsing the PC-based preferential

of several western jets. By December

enable online preferential bidding for

presents several obstacles to the

2005, Aeroflot’s fleet will include 18

more than 200 flight crewmembers.

bidding system, a part of the Sabre

standard low-cost carrier model — the

Airbus A319/A320s, nine Boeing 767s

Crews submit scheduling preferences

Flight Control suite for small- , medium-

ational efficiency,” said Captain Scott

return and change policy to be more

lack of fuel-efficient aircraft, secondary

and 50 Russian-made aircraft. And the

via the Internet each month. These pref-

sized and low-cost airlines, Chicago

Hall, vice president of operations for

customer-focused, introducing a less

airports and Internet ticket sales —

airline is also revamping its network

erences are entered in a proprietary lex-

Express ensures that crews are

Chicago Express.

restrictive policy regarding exchanges

Siberia is looking to fill the low-cost

to be more efficient. In the days of the

icon and can include specific days off,

assigned duties to which they are fully

and returns of tickets for trips in Russia

niche by offering no-frills, short-haul

Soviet Union, the government would

generic days off (weekends, for exam-

qualified and which do not conflict with

and the Commonwealth of Independent

flights for lower fares ranging from

greatly subsidize unprofitable routes

ple), specific trip assignments, generic

other non-flying activities, such as train-

turned around a company or opened significant new markets. The airline also modified its ticket

68 ascend

Although the Russian market

®

ment to improving on crewmembers’ quality of life while enhancing our oper-


regional As part of its initiative to increase customer service, Gulf Air, the flag carrier of Bahrain, Oman and the United Arab Emirates, has consolidated its reservations activities into a single call center.

the center opened, the “ Before airline’s reservations operations

Photo courtesy of Gulf Air

were scattered across more than 50 separate locations, many of which were too small to justify the deployment of sophisticated technology.

verse with the reservations staff and

comfortable, whether telephone, e-mail,

enable the call to be directed to a

Web chat or SMS. The airline anticipates

suitably qualified representative

that the bulk of contacts will be made

according to the nature of the call.

by telephone during the first few years

The mobile services also dynamically

of operation, although it anticipates

monitor all transactions, including

other forms will eventually become

recording of all calls, to facilitate

more prominent. The contact center will support

processes and automate manual

Computer telephony integration

Gulf Air, Gulf Traveler (the all-economy,

tasks. The system is the industry’s

enables the contact center system to

full-service subdivision of Gulf Air),

only fully integrated solution designed

recognize the customer’s telephone

Gulf Air Holidays, the frequent flyer

to support every passenger interaction

number and populate the reservations

program and customer relations

from shopping for preferred itineraries

agents’ computer screens with cus-

with specialists also handling travel

to the post-travel experience.

tomer-specific data (name, address,

agency queries, baggage inquiries

The Sabre Qik ™ business processing

service preferences) to speed up

and staff travel.

solutions dramatically simplify the

call processing time and enable per-

reservations call process and enable

sonalized service.

and with less training through the

By Raida Abumaizar and Tariq Sultan | Ascend Contributors

by the method with which they are most

measurement of service quality.

agents to operate more productively

Gulf Air opens a new US$40 million call center that will help its customers stay in better contact with the carrier.

language in which they wish to con-

call center channel, streamline

®

Looking Through the “Contact” Lens

Europe, Middle East and Africa

The center’s flexible technology can also be adapted and sized to suit

The new center reflects Gulf Air’s business goals and will enable the airline to provide the world-class customer service expected of a modern

elimination of lengthy keystrokes and

world-class airline. The center is part

format memorization. The real-time

of Gulf Air’s Project Falcon, a three-year

graphical user interface provides

strategic recovery program designed

seamless and simultaneous access to

to revitalize the airline and help it build

data from computerized reservations

on its cultural strengths, history and

systems, the Internet, external data-

strategic partnerships.

bases, telephone and voice recognition

“We are on target with our Project

systems, and facsimile machines.

Falcon recovery to meet our year-end

Mobile services available from Sabre

changing market circumstances with

targets,” said James Hogan, president

Airline Solutions provide an automated

new products and services.

and chief executive of Gulf Air. “Focusing

voice response system that generates

The IP Contact Center leverages

on our objective to be a commercially

cost efficiency for the call center. Gulf

voice-over IP technology and offers

successful, world-class airline, this

ulf Air, the premier pan-Persian

G

technological solutions available for

were scattered across more than 50

currently uses the mobile services

great flexibility in services and in number

bold and disciplined process of change

Gulf carrier owned by the countries

telecommunications and reservations

separate locations, many of which were

for short messaging service and plans

of agents deployed. The solution enables

will continue.”

of Bahrain, Oman and United Arab

service; our staff are enthusiastic and

too small to justify the deployment of

to use voice-over Internet protocol

agents to dynamically connect and work

Emirates, last month opened a US$40

raring to go. Our customers will be

sophisticated technology.

telephony to route calls from around

from any location while providing a

Raida Abumaizar is the Bahrain-based

million World Wide Contact Center,

both surprised and delighted.”

the world into the contact center.

seamless customer experience and

account director for Gulf Air.

quality of service.

which will consolidate all its reservations

By bringing together these opera-

In developing the center, Gulf Air has teamed with leading technology

Interactive voice response, such as

activities, including bookings, ticketing

tions, the airline will be able to centralize

providers, including Public

that provided by the mobile services,

and customer service. Airline officials

the management of its customer rela-

Establishment for Industrial Estates —

enables customers to pre-select the

anticipate that the center will also

tionships, helping the carrier reach

Oman, Omantel, Cisco, Hewlett-Packard

improve sales and customer service.

its goal of becoming more customer-

and Equant. In addition, the center

centric. When fully staffed, the new

also uses several tools from Sabre

head of reservations for Gulf Air, “This

center, located in Muscat, Oman, will

Airline Solutions:

1,266 — Elevation, in feet below

14,219 — Elevation,

new venture will give us the opportunity

employ more than 300 local residents

The Sabre ® Passenger Reservation

sea level, of the I Bar Yehuda Airport

in feet above sea level, of the

to offer all of our customers worldwide

as well as the latest communications

System provides a comprehensive

in Israel, one of the world’s lowest alti-

airport in Bangda, Tibet, one

a consistent, world-class service, around

technology. Before the center opened,

and easy-to-use product suite that

tude airports.

of the world’s highest altitude

the clock. We are using the very best

the airline’s reservations operations

will help increase sales through the

According to Andrew Dawson,

70 ascend

+count it up

The center’s design and technology enable customers to contact the airline

Tariq Sultan is vice president of information technology for Gulf Air.

commercial airports.


company

company Through an integrated airline schedule recovery system, passengers can be automatically notified when they are affected by delays or cancellations, saving them from having to search for their new itinerary.

Getting Back on Track Researchers have developed new solutions to help airlines recover from off-schedule operations.

By Michael D. Clarke | Ascend Contributor here is seemingly no end to the

addresses schedule recovery both in the

hub airports that allow individual airlines

context of an individual carrier and a

to offer passengers alternative itineraries

global alliance. The airline integrated

on their partner carriers. Journey man-

recovery concept incorporates aircraft

agement is based on concepts from the

maintenance routing, crew rescheduling

passenger flow model. The output of the

and the impact of schedule changes

passenger flow model is used to assign

on passenger flow. Integrated recovery

alternative itineraries to disrupted passen-

consists of the schedule recovery model

gers based on a priority list determined

to suggest necessary flight cancellations

by the airline. In practice, airlines may

and delays, the aircraft recovery model

need to offer a passenger an alternative

to assign new aircraft routings, the crew

other than the one that benefits it the

recovery model to assign new crew

most. When a flight is cancelled, the

crewmembers and passenger services.

pairings and the passenger flow model

re-accommodation tool will retrieve

T

US$4.6 million a year.

In the past, decision-support systems

to evaluate the impact on passengers.

passenger name record data from a

airline’s schedule: inclement weather,

the schedule recovery process at many

have been designed to handle one

These models have been developed to be

reservations system, such as the Sabre ®

mechanicals, labor actions, excessive

airlines consists primarily of assigning

resource, concentrating exclusively on

compatible with Sabre Airline Solutions’

Passenger Reservation System, as well

passenger volumes, air traffic control

spare operational aircraft to scheduled

that area without considering auxiliary

an integrated approach is not only bene-

existing portfolio of flight operations

as information on available inventory

issues. With so many potential areas for

flights in order to reduce or eliminate

factors during decision making. Because

ficial during tactical planning but also

and crew management products. The

in replacement flights. The re-accommo-

disruption, it’s amazing that only a small

disruption with the briefest delay. These

they have not been able to consider all

during strategic planning. Based on

research group, using advanced mathe-

dation system prioritizes passengers,

portion — 10 percent in some regions

operational spares are an expensive

factors, such systems have been unable

this, airlines have started to explore

matics, has formulated airline integrated

gives them a revised itinerary, updates

— of an airline’s scheduled revenue

proposition as their utilization is low

to deliver a truly optimum solution,

dynamic scheduling concepts that lever-

recovery to obtain near real-time perform-

their PNRs in the Passenger Reservation

flights are affected by irregularities.

given their requirement to remain in

causing operations control center

age revenue management information

ance for reasonably sized problems.

System or another global distribution

standby mode at the appropriate hub

personnel to shy away from relying

for near-term fleet assignment decisions,

starts running as airlines incur costs

or predominant airport. When faced

on them to help recover from schedule

such as demand driven dispatch.

for lost revenue, crew overtime and pas-

with schedule disruptions, many airlines

interruptions.

senger hospitality, not to mention the

still tackle the situation manually or at

impact of disgruntled passengers. When

best, through a semi-automated process

approach that transcends the typical

the financial impact of disruptions on

using basic rules devised by the experi-

airline’s traditional organizational struc-

the daily operations of a major U.S. net-

enced scheduler. Recent advances in

ture provides the most effective way to

work carrier can exceed US$400 million

mathematical programming and com-

handle schedule recovery. This is based

a year, it is vital that airlines return to

puter processing speed now enable users

on the premise that optimizing in a

the normal schedule as quickly and

to deploy decision-support tools to solve

holistic fashion yields greater results

cost-effectively as possible. Of equal

real-time problems that are time sensi-

than optimizing smaller subsets and

importance is the impact on the carrier’s

tive such as schedule recovery.

subsequently trying to integrate the

factors that can adversely affect an

When disruptions occur, the meter

In the aftermath of irregularities,

brand and customer goodwill, both of which are quite difficult to measure. According to a recent study by the

Researchers believe an integrated

Although progress has been made

Taking Care of the Passenger Re-accommodating passengers

Airline Integrated Recovery

the notification tools of the reservations system. The system would actively

for an individual airline, as well as a

monitor the status of each scheduled

Sabre Airline Solutions has developed

global airline alliance. An alliance’s

flight to ensure that passengers were

a decision-support framework that

system network consists of multiple

not assigned to later flights that were

T H E

airline really is a collection of inter-related networks — aircraft, crew, passengers,

vıew

H I G H

L E V E L

Who

News Briefs from Around the Globe

Why

George Washington University Aviation

in the area of schedule recovery, airlines

freight — all connected by scheduled

Institute and Flight Safety Technologies,

have been slow to embrace optimization-

flights that reside at the core. Events in

airlines can benefit significantly by

based decision-support systems designed

one network will impact the others, thus

reducing the impact of disruptions.

to assist with real-time planning. The

the solution can only be truly optimized

For an airline with operational costs

resistance stems from a variety of fac-

by addressing the impact of each indi-

of US$70 per minute with 1,500 flights

tors ranging from the complexity of the

vidual planning problem on other areas.

per day, cutting one minute of delay per

underlying problem to the intricacies

During the last 15 years, airlines have

flight per day can save US$38 million

necessary to recover from the disrup-

identified the need to become more

schedule system, a module within the

a year, the study showed. Further, if an

tion. Airlines have traditionally been

integrated, sharing information and

Sabre Flight Control suite for small- ,

regional airline based at Dulles,

airline can avoid one diversion per week,

divided into functional groups based

decision making across the organization.

medium-sized and low-cost airlines, to

Virginia, has experienced rapid growth

it could save from US$1.1 million to

on a particular resource such as aircraft,

It has become evident to airlines that

meet its pilot training requirements.

while at the same time introducing new

72 ascend

passengers of their new schedule using

during schedule irregularities is critical

The research group supporting

sub-optimal solutions. In essence, an

Solutions on the Horizon

system, and then electronically notifies

Atlantic Coast Airlines

What Selected the Sabre CrewClass training ®

The module helps optimize pilot

regional jet aircraft to its fleet. The PC-

training scheduling to maximize utiliza-

based CrewClass module, which inte-

tion of training resources while mini-

grates seamlessly with other modules

mizing the time that pilots are unavail-

of the Flight Control suite, has greatly

able for productive flying assignments.

streamlined the training scheduling

Atlantic Coast, a fast-growing

process.


company

company already cancelled. Based on centralized

both the AirOps suite and the Flight

user-defined, taking into consideration

planning and decision making, while

Control suite.

variables such as booking class (high-

The Sabre ® AirOps ™

leveraging the benefits of local, decen-

versus low-yield), down-line connections,

tralized action, the integrated recovery

Reaccommodation Manager optimally

passenger profile (unaccompanied

method brings together the best of both

re-assigns passengers whose flights

minors), frequent-flyer-tier level,

worlds. In effect, decisions made at the

have been disrupted. The system

ticketing status, boarding pass status

airport would be driven by the central-

or others depending on the airline’s

ized airline operations control center

preference.

The Winning Combination United Airlines successfully utilizes multiple Sabre Travel Network distribution products to maximize revenue-generating opportunities and manage distribution costs.

such that a global approach is taken

Pushing Technology Forward

to re-accommodate passengers.

Most technology solutions in sched-

The Tools for the Job

By Erin Buth | Ascend Contributor

ule recovery focus mainly on optimizing

The Sabre Airline Solutions product

the disrupted schedule by minimizing

development teams in conjunction with

operational disruption. Although helpful,

t’s no secret that the airline industry

At the highest connectivity level, United

this approach seldom considers the

I

United aggressively distributes

the research group have been working

is experiencing pressures due to the

tickets and targets sales through chan-

is provided with a wide range of services

closely together to develop the fully

commercial variables in formulating

difficult economic environment and the

nels that produce the highest revenue.

to market and sell flight and fare infor-

integrated schedule recovery system.

the optimized solution. An optimized

resulting changes in consumer behavior

Participating in the Direct Connect

mation to approximately 56,000 Sabre

Availability option enables United to offer

Connected SM travel agents around

distribution costs is a key “ Lowering component of our strategic plan to reduce expenses. ”

its customers access to all published

the world.

As a precursor to the final integrated recovery product, decision-support functionality has been incorporated into several products, including the Sabre ® AirOps ™ Control suite, the Sabre ®

The airline integrated recovery model incorporates various departments within an airline to develop a more optimal solution to recover from schedule disruptions.

Flight Control suite for small- , mediumsized and low-cost airlines and the Sabre

solution considers factors such as passenger mix (high- versus low-yield passengers) on re-directed flights, degree of competition on the route (passengers’ choice of airlines) and route and flight profitability. As these

fares, including Web fares, through the

United’s use of MIDT is another

travel agency channel. The Direct Connect

effective tool that sharpens its competi-

Availability option also helps United gain

tive edge, maximizes market potential,

market share in routes where there is

develops meaningful sales incentive

new scheduling concepts are embraced

and attitude toward travel. Although

heavy competition and sensitivity to

plans and improves overall operations.

user-defined criteria such as frequent

by decision-support vendors and sub-

airlines around the world are acutely

price. This approach increases its sales

MIDT provides United with vital sales

The AirOps and Flight Control suites

flyer status, fare paid or class of travel,

sequently airlines, they will improve

aware of the need to lower costs and

opportunities and reduces the time it

intelligence including sales sources and

include a real-time flight operations

prioritizing the passenger list based on

the existing business processes and

increase revenue, United Airlines is

takes for travel agents and consumers

its position in the marketplace relative

management and movement control

calculated values to create alternative

practices. Schedule disruptions cannot

particularly focused on improving its

to shop for and purchase United’s best

to the competition. This tool provides

system designed to monitor an airline’s

itineraries. The system’s automated

be eliminated, but they can be optimally

bottom line by using advanced tech-

deals. The three-year option also reduces

key transaction data enabling United to

operations and provide alerts for potential

alert process notifies passengers of

managed. As researchers continue

nology to achieve its goals.

maintenance and operating constraint

their new itinerary. Because the system

to push technology, airlines will have

A component of its successful strat-

violations. The AirCrews system includes

simplifies the process of moving

more sophisticated tools to minimize

egy has been to utilize a variety of Sabre

a day-of-operations module designed to

misplaced passengers and minimizes

the effects — and costs — associated

Travel Network products to effectively

assist crew trackers with managing the

schedule changes, customer service

with irregular operations. The future

manage ticket distribution and other

impact of schedule changes and disrup-

and loyalty is enhanced. And automat-

mission of the airline operations

operating costs as well as capitalize on

tions on crew scheduling. Sabre Airline

ing the re-accommodation process

research community will be to deliver

revenue-generat-

Solutions has introduced the Sabre ®

also reduces costs. At the core of

next-generation scheduling and plan-

ing opportunities.

AirOps™ Decision Manager — a decision-

Sabre Airline Solutions’ suite of pas-

ning tools that meet the prevailing

Turnkey solutions

support tool that incorporates the sched-

senger re-accommodation tools is the

needs of the industry and offer further

contributing to

ule recovery, aircraft recovery and pas-

Passenger Reservation System. The

opportunities for improved efficiencies,

this strategy

senger flow models. The system helps

system provides the necessary flexibility

enhanced productivity and increased

include the Sabre ® Direct Connect

airlines find new aircraft assignments

to accommodate passengers by flight

attention to the impact on the airline’s

Availability

that have the least impact on the current

leg or origin and destination. This

passengers.

keting information data tapes from the

fee for the next three years. Through

schedule and are maintenance feasible.

enables airlines to take the passenger’s

Sabre Global Distribution System and

the program, United receives discounted

Sabre Travel Network, Aggregate TCN,

It is available as a supplemental product

entire itinerary into consideration

Sabre ® Aggregate Ticket Control Number.

booking fees in exchange for participat-

United now has insight to the full spec-

SM

—Three-Year Option, mar-

®

Michael Clarke is a research

Photos courtesy of United Airlines

values each passenger according to

AirCrews ™ crew management system.

®

Through the Direct Connect Availability — Three-Year Option, United Airlines offers its customers access to all published fares, including Web fares, through the travel agency channel.

United’s cost of ticket distribution by

analyze booking levels and competitive

providing it with a fixed, discounted

market share. Utilizing the latest innovation from

for Sabre AirOps™ Movement Manager

when selecting alternative flights for

ing at the highest level in the Global

trum of fares and the prices consumers

as well as the Sabre ® FliteTrac system

re-accommodation. The automated

the research group supporting

Distribution System and providing

are willing to pay for any given itinerary.

and can be seamlessly integrated with

process is entirely table-driven and

Sabre Airline Solutions.

access to its full fares and content.

Aggregate TCN is the only source for

®

74 ascend

and development lead in

october 2003

75


company competitive fare data allowing United

how United’s advance sales compare

products to accomplish this while

to monitor its own pricing initiatives

to that of the competition. The data

continuing the highest level of service

against what its competitors are selling

is invaluable for making decisions on

to our customers.”

in the same markets. The system pro-

pricing promotions and viewing how

vides airlines with all ticketing activity

the market is selling.

in the Global Distribution System

“Lowering distribution costs is a

By utilizing multiple tools, United

making contact Optimal performance for airlines and airports

To suggest a topic for a possible

has been able to maximize revenue-

future article, change your address

generating opportunities and manage

or add someone’s name to the mail-

excluding passenger personal data,

key component of our strategic plan

distribution costs, enabling it to sustain

ing list, please send an e-mail mes-

corporate, agency and commission-

to reduce expenses,” said Greg Taylor,

long-term cost benefits.

sage to the Ascend staff at

related elements. The system is an

senior vice president of planning for

affordable element of marketing

United. “We saw the opportunity to

research that provides insight into

use a variety of Sabre Travel Network

wearelistening@sabre.com. Erin Buth is a sales marketing manager for Sabre Travel Network.

For more information about products and services featured in this issue of Ascend, please visit our Web site at www.sabreairlinesolu-

T H E

vıew

H I G H

tions.com or contact one of the fol-

L E V E L

lowing Sabre Airline Solutions

News Briefs from Around the Globe

regional representatives: Asia/Pacific

Who

Why

Mike Baldwin Senior Vice President

American Airlines, Continental

American — “Lower distribution

Airlines, Delta Air Lines, Northwest

costs plus broader availability of our

Macenczak, Delta’s senior vice president,

Airlines, United Airlines

fares to the largest subscriber base

sales and distribution. “The program

means Sabre DCA is a real winner

also allows us to further reduce distri-

for American,” said Craig Kreeger,

bution costs and reflects our confidence

American's vice president-sales.

in the value of the Global Distribution

“Innovative solutions for today’s

System and its operating efficiencies as

Direct Connect Availability SM — Three-

marketplace make Sabre Travel

a high-yield channel.”

Year Option, which commits the carriers

Network our preferred GDS provider.”

What Elected to participate in the Sabre ®

to a three-year term at the highest level

Continental — “Providing travelers

lished and Web-only fares,” said Lee

Northwest — “Participating in the

proven

Level 9, Phillips Building 15 Blue Street North Sydney NSW 2060 Australia Phone: 61 2 8923 5230 E-mail: mike.baldwin@sabre.com Europe, Middle East and Africa Vinay Dube

Sabre DCA Three-Year Option enables

Vice President

of participation in the Sabre ® Global

the maximum level of customer serv-

us to meet the important goal of low-

23-59 Staines Road

Distribution System in exchange for a

ice is the highest priority for us,” said

ering distribution costs while serving

Somerville House

reduced booking fee rate that is fixed

Jim Compton, senior vice president

travelers through multiple channels,”

Hounslow, Middlesex

for three years. As part of the agreement,

of marketing for Continental Airlines.

said Al Lenza, vice president of distri-

TW3 3HE, United Kingdom

the airlines will provide all published

“This program improves our ability

bution and e-commerce with Northwest

Phone: 44 20 8814 4540

fares, including fares they sell through

to do that by offering customers access

Airlines. “This new initiative demon-

E-mail: vinay.dube@sabre.com

their own or third-party Web sites, to

to all published fares, including Web

strates Northwest’s efforts to make all

all users of the Global Distribution

fares. It also helps us meet a key

our publicly available fares and content

System, including more than 56,000

business objective to further reduce

available where it is economically

Sabre Connected SM online and offline

distribution costs. We recognize the

viable for us to do so.”

travel agencies. The program now

effectiveness of the Global Distribution

includes bookings made in the United

System, which offers one of the highest

tomers with a full range of our fares in

States, U.S. Virgin Islands, the

yielding channels.”

a cost-effective manner for all parties,

Caribbean and Europe.

United — “It will provide our cus-

Delta — “Through this new partner-

while allowing us to significantly reduce

ship, we will give our customers added

our distribution costs at the same time,"

flexibility, choice and convenience through

said Greg Taylor, United Airlines’ senior

broader multi-channel access to our pub-

vice president-planning.

The Americas Walter Jacobs

These are unprecedented times in the air transport industry. But there’s one thing you can count on. Sabre Airline Solutions will be here, providing innovative technology solutions for your toughest challenges. Just as we have through five decades — in good times and in bad — for more than 200 airlines worldwide. Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions. www.sabreairlinesolutions.com

Vice President 1 E. Kirkwood Blvd. Southlake, Texas 76092 United States Phone: 817 264 7657 E-mail: walter.jacobs@sabre.com


w w w. s a b r e a i r l i n e s o l u t i o n s . c o m


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