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2008 Issue No. 2

A Magazine for Airline Executives

2008 Issue No. 2

t a k i n g

yo u r

a i r l i n e

to

new

h ei g h ts

Leaps and Bounds

A Conversation With Pham Ngoc Minh, President and Chief Executive Officer, Vietnam Airlines, Pg 18.

www . sabre airl ine solutions.com

Special Section Airline Mergers and Consolidation

38

10

American Airlines’ fuel program saves more than US$200 million a year

31

Integrated systems significantly enhance revenue

72

Caribbean Nations rely on air transportation


your

airline

to

n ew

height s

2008 Issue No. 2 Editor in Chief

Stephani Hawkins Managing Editor

B. Scott Hunt

Art Direction/Design

Charles Urich

Contributors

Venkat Anganagari, Jim Barlow, Randal Beasley, Nejib Ben-Khedher, Stephanie Bundick, Jim Carlsen-Landy, Joelle Cuvelier, Greg Gilchrist, Carla Jensen, Malcolm Kass, Suzanne Cottraux, Maher Koubaa, Christine Kretschmar, Gordon Locke, Doug Maher, Gabriele Mariotti, Kyle Moore, Dave Roberts, Kamal Singhee, Jeremy Sykes, Emily Tate, Michelle Williams, John Winstead.

To suggest a topic for a possible future article, change your address or add someone to the mailing list, please send an e-mail message to the Ascend staff at wearelistening@sabre.com. For more information about products and services featured in this issue of Ascend, please visit our Web site at www.sabreairlinesolutions.com or contact one of the following Sabre Airline Solutions regional ­representatives: Asia/Pacific

Publisher

David Chambers Vice President 3 Church Street, #15-02 Samsung Hub Singapore 049483 SG Phone: + 65 6511 3210 E-mail: david.chambers@sabre.com

Awards

Europe

George Lynch 3150 Sabre Drive Southlake, Texas 76092 www.sabreairlinesolutions.com

2008 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill, Hermes Creative Award, The Communicator Award 2007 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill 2006 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill, Silver Quill and Gold Quill 2005 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill, and Gold Quill 2004 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill Reader Inquiries

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

Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation. ©2008 Sabre Inc. All rights reserved. AS-08-10282 0708

T a king

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Murray Smyth Vice President 23-59 Staines Road Hounslow, Middlesex TW3 3HE, United Kingdom Phone: +44 208 538 8631 E-mail: murray.smyth@sabre.com India/South Asia

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Kamal Qatato Vice President 3150 Sabre Drive Southlake, Texas 76092 Phone: +1 682 605 5399 E-mail: kamal.qatato@sabre.com

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See how real-time solutions for customer sales and service generate more revenue and maintain the real value of every customer.

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Get your Customer InfoPac today! www.sabreairlinesolutions.com/customerservice

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. ©2008 Sabre Inc. All rights reserved. Printed in the USA.

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perspective

with Tom Klein Group President, Sabre Airline Solutions/Sabre Travel Network

A

s we have clearly entered a very challenging time from a macroeconomic standpoint, it is interesting to look at some of the dynamics in our industry — like volatile but still very high fuel costs to something like record-breaking aircraft orders and how this environment might impact them both in the near future. I am writing this in early October, and while the financial markets seem far from stable, the price of oil has, for the past several weeks, fallen rapidly, having just dipped below US$70 a barrel for the first time in many months. Thank goodness fuel prices are down a bit since we are seeing a real softness in both current and advanced bookings through September and into early October in most parts of the world. While US$90-a-barrel oil and softening demand is still a lethal combination, the industry may skirt the disastrous effects that seemed likely just weeks ago when there was an almost 50 percent premium on oil. This combination of a slowing economy and high fuel costs are causing airlines to re-look at capacity reductions that they only recently put into place, and many are asking, “Did we do enough? Will we need to take out more?” Many have already pushed toward a bias of reducing available seats and focusing on increasing yield. By the end of the year, 1,029 aircraft will be out of service due to some airlines retiring aircraft and others going out of business. And some carriers that had once envisioned growing their fleets are now abandoning that strategy and only taking delivery of new planes to replace oldergeneration models. What does that mean for Airbus and Boeing who in 2005 recorded record aircraft sales with more than a combined 2,000 orders for a variety of airframes. Just three years ago, experts predicted capacity would grow 20.3 percent by 2010, and airlines seeking additional capacity to meet the anticipated demand

responded accordingly. But just about as quickly as the rising demand made its debut, the economy turned and demand followed suit. During the fourth quarter, global capacity will have dropped 7 percent compared to last year. That’s about 60 million fewer seats for the three-month period. So what does the shift in capacity mean for the two big airframe manufacturers and their airline clientele? Simply put, it may not be “business as usual,” but there will be business. Despite the reduced capacity, the industry still needs new planes. More than 1,450 planes have been ordered so far this year. Airbus has made a large portion of those sales with more than 700 new orders, and Boeing follows closely with more than 620. Of those, the two manufacturers run neck and neck with 315 deliveries for Airbus so far this year and 313 for Boeing. On our cover, we feature Vietnam Airlines, a prime example of a thriving airline with ambitious goals of operating the most advanced, efficient aircraft. Last year, the carrier ordered 10 Airbus A350-900 XWBs and 20 Airbus A321s, which will be delivered during 2014 and 2015. The expanding airline also plans to receive more than 30 Boeing 787-9 Dreamliners between 2013 and 2019. Clearly, business has been reasonably good for the manufacturers. In fact, Airbus anticipates a demand for more than 24,300 new passenger and cargo aircraft between last year and 2027, with an average delivery rate of around 1,215 deliveries a year during the 20-year period. And Boeing is estimating a higher demand of 29,400 for passenger and freight planes during the next two decades. Many carriers have placed orders for new aircraft during the last couple of years, but some airlines didn’t jump on the aircraft-buying bandwagon. While the rest of the world went gangbusters with record orders, very few of

them came from North America. And now, several U.S. carriers are facing competitors with better, more cost-efficient aircraft and are at a disadvantage. So, there is some catching up for these airlines. American Airlines stepped up earlier this year, ordering 26 Boeing 737-800s to replace some of its fuel-guzzling MD-80s, which are 20 percent to 30 percent less fuel efficient than the newer aircraft — certainly that large MD-80 fleet suggests that more options and orders are to come. The carrier also recently announced it would buy as many as 100 Boeing 787 jets for delivery between 2012 and 2020 as part of its initiative to increase the fuel efficiency of its fleet by more than 20 percent by 2020. But it’s a different story for competitor United Airlines. As a result of the rapid decrease in passenger demand and capacity, United Airlines will likely cancel an order for 42 Airbus A319 and A320 aircraft, forfeiting its US$91 million deposit that was put down for the US$2.2 billion deal. There’s no doubt that it’s a tough time for many carriers to bring new aircraft online, especially with a need to cut capacity, but at the same time, these larger carriers can’t afford not to. The industry is geared toward the introduction of a newer, healthier fleet to replace the older planes that, sooner than later, will need to be parked. It’s the only way they will be able to effectively compete. Competition aside, these new aircraft come with an assortment of benefits for airlines. For instance, they have much lower maintenance costs, they are much more fuel efficient and therefore cleaner for our environment. And even better, they offer myriad benefits to passengers, such as more overall space and a deeper sense of security when flying on a new aircraft versus one that has been in service 18-plus years. There’s no question our industry is in need of more modern equipment, and slowly but surely, we’re moving in the right direction. Within the next couple of decades, as Airbus and Boeing have predicted, our skies will be filled with new, much more fuel efficient planes and, as a result, our industry as a whole will be a much healthier one. We hope you enjoy this issue, and we look forward to visiting with you again in the coming months. Wishing you smooth skies … Tom


contents special section

22 Real Time … All The Time

40 Aircraft Shopping Spree

Real-time data integration can enhance customer relationships, increase revenue and resource management, and lower operational costs.

Aircraft manufacturers have experienced record-breaking orders, but several obstacles many hinder the trend.

profile

industry

22

10

Fuel Smart American Airlines’ employeedriven Fuel Smart program saves more than US$200 million in fuel expenses and reduces its CO2 emissions by nearly 2 billion pounds annually.

Redefining 14 Mexicana Airlines

Mexicana Airlines has strategically transformed its commercial business as well as experienced vast success from its low-cost subsidiary.

18

Leaps And Bounds Vietnam Airlines is well poised to support Vietnam’s anticipated passenger traffic growth, which is expected to more than double to 32.4 million by 2020.

Air Berlin Enters New Turboprop Era Air Berlin purchased several Bombardier Q400 turboprop aircraft to combat higher fuel prices and other operating costs.

43

26

Every Brand Counts Creative fare branding can help airlines differentiate products and services.

The Global 28 MRO Challenge

46 Double-Edge Sword

Successful MRO strategies, from total outsourcing to developing inhouse MRO expertise, can have a significant profitability impact.

Because of aircraft delays and other challenges, reaching estimated aircraft orders may be on the lower side of the projected scope for plane makers Airbus and Boeing.

On The Same Wavelength Integrated systems help airlines achieve effectiveness and efficiency throughout their entire range of activity.

31

40

34

Reach For The Stars Only six carriers have achieved the highest level of quality excellence according to Skytrax.

10

59

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contents

regional

products

company

70

Customer-Centricity Challenge Airline leaders should look at their operations from a traveler’s perspective to help ensure superior customer service time and time again.

Regional airlines in the United States may have new opportunities flying 100-seat RJs.

62 Beyond Water Cooler Talk

“Cubeless” software enables airline employees to quickly receive answers to some of their most business-critical questions.

Travel and tourism in the Caribbean makes up nearly 13 percent of its employment and provides revenues of US$57 billion a year.

60

50

Breaking The Mold A recent multi-million-dollar investment by Sabre Airline Solutions® to its suite of airline passenger systems will help significantly increase airline revenues and customer-centric capabilities.

54

Environmental Cool Down A new model computes CO2 emissions with accuracy and consistency to support sustainable travel and tourism.

Rapid Return To 66 The Skies

A complete set of integrated solutions can help an airline quickly recover when its schedule is disrupted by bad weather or other unpredictable causes.

Regionals: 70 AU.S. New Outlook

72 Caribbean Dependency

66

54

ascend


by the numbers

Airline Capacity Changes Fourth Quarter 2008 Versus Fourth Quarter 2007 By Chris Spidle and Paul Pederson, Ascend Contributors

Beginning in the fourth quarter, airlines worldwide have adjusted capacity due to increasing fuel prices and changing economic conditions. This section compares capacity changes, based on system available seat kilometers, for airlines based in each world region.

}

Airline Capacity Comparison — Worldwide System ASKs generated by airlines based in each region

Globally, capacity is down 2.9 percent; however, changes vary significantly by region.

North America Top 10 airlines based in North America — System ASKs Airline

4Q08

4Q07

Change

Percent

American Airlines

66,596,185,843

73,611,502,153

(7,015,316,309)

-9.5%

Delta Air Lines

58,994,351,830

60,887,695,826

(1,893,343,996)

-3.1%

United Airlines

56,319,693,110

63,679,786,346

(7,360,093,236)

-11.6%

Continental Airlines

42,870,232,814

46,276,654,935

(3,406,422,122)

-7.4%

Southwest Airlines

41,383,717,648

40,874,580,692

509,136,955

1.2%

Northwest Airlines

37,153,085,308

37,277,085,661

(124,000,353)

-0.3%

US Airways

32,827,667,489

34,440,355,122

Air Canada

23,933,315,168

24,006,285,638

(72,970,470)

-0.3%

12,977,748,053

13,627,880,954

(650,132,901)

-4.8%

Alaska Airlines

10,770,993,565

11,269,932,265

(498,938,700)

-4.4%

Others

56,181,842,519

65,305,227,584

(9,123,385,065)

-14.0%

440,008,833,346

471,256,987,175

(31,248,153,829)

-6.6%

jetBlue

Group Total

ascend

(1,612,687,633)

-4.7%

{

Airlines based in North America (United States, Canada, Mexico and Caribbean) decreased capacity 6.6 percent. Large U.S. network carriers posted the largest decreases. Just one airline in the top 10, Southwest Airlines, increased capacity. Change in the “Others” category is driven by airlines that ceased operations between 2007 and 2008.


by the numbers Europe Top 10 airlines based in Europe — System ASKs Airline

4Q08

4Q07

Change

Percent

Lufthansa

42,883,664,268

40,553,972,466

2,329,691,803

5.7%

Air France

39,920,182,123

39,229,358,346

690,823,777

1.8%

British Airways

37,118,371,956

39,834,711,101

(2,716,339,145)

-6.8%

KLM

22,039,692,775

20,621,099,552

1,418,593,223

6.9%

Iberia

17,350,173,120

17,674,379,296

(324,206,176)

-1.8%

Virgin Atlantic

13,779,981,283

13,667,567,675

112,413,609

0.8%

easyJet

12,289,155,309

10,145,184,836

2,143,970,473

21.1%

Alitalia

10,866,268,965

12,930,818,769

(2,064,549,804)

-16.0%

Aeroflot

9,588,308,365

8,140,649,562

1,447,658,802

17.8%

Scandinavian

9,103,909,587

9,286,588,258

(182,678,672)

-2.0%

138,004,537,628

149,210,678,452

(11,206,140,824)

-7.5%

352,944,245,378

361,295,008,312

(8,350,762,933)

-4.2%

Others

Group Total

{

Airlines based in Europe decreased capacity 2.3 percent, much less than North America airlines. The gap between large-and medium-sized airlines continued to grow as the top three network airlines — Lufthansa, Air France-KLM and British Airways — mostly grew, while meduim-sized airlines typically shrank. Despite slowing growth plans, many low-cost carriers continue to show year-over-year increases.

Asia Top 10 airlines based in Asia — System ASKs Airline

4Q08

4Q07

Change

Percent

Singapore Airlines

30,248,134,693

29,897,522,948

350,611,745

1.2%

Cathay Pacific Airways

27,830,522,813

24,206,001,385

3,624,551,428

15.0%

Japan Airlines

25,526,794,342

24,528,281,783

998,512,559

4.1%

Korean Air

21,229,645,630

20,565,884,281

663,761,349

3.2%

Thai Airways

20,873,858,885

20,975,944,453

(102,085,568)

-0.5%

Air China

19,848,237,551

20,333,192,080

(484,954,529)

-2.4%

All Nippon Airways

19,005,405,968

19,397,437,809

(392,031,842)

-2.0%

China Southern Airlines

18,613,328,179

21,586,610,182

(2,973,282,003)

-13.8%

Malaysia Airlines

13,359,721,754

14,610,731,602

(1,251,009,848)

-8.6%

China Eastern Airlines

10,791,529,869

18,483,469,302

(7,691,939,433)

-41.6%

142,909,753,924

150,875,151,081

(7,965,397,157)

-5.3%

350,236,963,607

365,460,226,906

(15,223,263,299)

-4.2%

Others

Group Total

{

Airlines based in Asia decreased capacity more than European airlines but less than North American airlines. As in Europe, top airlines posted increases while the next tier of airlines posted decreases.

ascend


by the numbers Middle East Top 10 airlines based in Middle East — System ASKs Airline

4Q08

Emirates

4Q07

Change

Percent

35,287,963,935

30,428,426,662

4,859,537,273

16.0%

Qatar Airways

12,391,630,010

10,556,045,312

1,835,584,698

17.4%

Turkish Airlines

11,495,646,393

9,734,260,710

1,761,385,683

18.1%

Etihad Airways

9,638,198,634

8,457,714,506

1,180,484,128

14.0%

Saudia

7,698,917,508

7,488,455,527

210,461,981

2.8%

Gulf Air

4,906,563,183

4,531,591,289

374,971,894

8.3%

El Al Israel

4,397,144,522

5,566,713,755

(1,169,569,233)

-21.0%

Kuwait Airways

2,684,526,899

2,620,929,384

63,597,515

2.4%

Royal Jordanian

2,411,168,729

2,152,761,037

258,407,693

12.0%

1,524,953,786

1,972,256,018

(447,302,232)

-22.7%

10,673,628,610

11,134,962,307

(461,333,696)

-4.1%

103,110,342,210

94,644,116,507

8,466,225,703

8.9%

Iran Air

Others

Group Total

{

Airlines based in the Middle East posted the strongest growth of any world region — 8.9 percent, a full 11.8 points above the worldwide total change. Emirates, Qatar Airways and Turkish Airlines increased capacity nearly 20 percent.

Oceania Top 10 airlines based in Oceania — System ASKs Airline

4Q08

4Q07

Change

Percent

Qantas Airways

26,503,295,127

26,418,310,247

84,984,880

0.3%

Air New Zealand

9,087,044,297

9,374,556,725

(287,512,428)

-3.1%

Virgin Blue

6,584,533,467

5,354,494,340

1,230,039,127

23.0%

Jetstar Airways

5,681,776,167

5,172,099,924

509,676,243

9.9%

Air Pacific

1,535,103,745

1,286,859,116

248,244,629

19.3%

Air Tahiti Nui

1,186,769,884

1,410,550,973

(223,781,089)

-15.9%

Air Caledonie

578,122,643

539,492,503

38,630,140

7.2%

Tiger Airways Australia

491,452,619

491,452,619

NA

Air Niugini

437,699,476

385,054,359

Regional Express

175,675,103

208,753,208

(33,078,106)

-15.8%

Others

878,874,408

782,457,940

96,416,469

12.3%

53,140,346,937

50,932,629,336

2,207,717,601

4.3%

Group Total

ascend

52,645,117

13.7%

{

Airlines based in Oceania — defined here as Australia, New Zealand and Pacific Islands — posted a 4.3 percent increase in capacity. The two large network carriers, Qantas Airways and Air New Zealand, show flat to slightly down, while LCCs and small airlines typically plan large percentage growth.


by the numbers Central And South America Top 10 airlines based in Central and South America — System ASKs Airline

4Q08

TAM

4Q07

Change

Percent

12,702,039,935

10,855,955,906

1,846,084,029

17.0%

LAN Group

8,210,199,211

7,794,244,769

415,954,441

5.3%

GOL

7,298,153,672

5,694,659,408

1,603,494,263

28.2%

Aerolineas Argentinas

4,664,691,177

5,064,665,625

(399,974,449)

-7.9%

Copa Airlines

3,635,630,598

3,194,895,774

440,734,824

13.8%

Avianca

3,353,020,745

3,166,625,944

186,394,801

5.9%

Taca

2,255,203,575

2,422,121,130

(166,917,555)

Varig

1,837,284,321

2,461,915,372

(624,631,051)

-25.4%

LACSA

1,050,770,619

1,000,872,419

49,898,200

5.0%

Aerosur

504,695,502

172,232,664

332,462,838

193.0%

3,670,444,946

4,582,349,447

(911,904,501)

-19.9%

49,182,134,299

46,410,538,458

2,771,595,841

6.0%

Others

Group Total

{

Airlines based in Central and South America posted the second-strongest growth of any world region, 6 percent. The largest market, Brazil, was very active as airlines backfilled Varig’s reduced capacity.

{

Airlines based in Africa increased capacity by less than 1 percent. Top airline South African shrank roughly in line with worldwide trends, while other airlines in the top five increased capacity.

-6.9%

Africa Top 10 airlines based in Africa — System ASKs Airline

4Q08

4Q07

Change

Percent

South African

8,444,062,973

8,789,159,664

(345,096,690)

-3.9%

Egyptair

6,138,727,918

5,813,019,933

325,707,985

5.6%

Royal Air Maroc

3,193,246,565

3,033,248,965

159,997,599

5.3%

Keyna Airways

3,167,133,022

2,811,601,799

355,531,223

12.6%

Ethiopian Airways

2,886,237,086

2,709,967,552

176,269,533

6.5%

Air Mauritius

2,186,351,796

2,311,685,204

(125,333,408)

- 5.4%

Libyan Arab Airlines

1,437,639,632

600,549,589

837,090,043

139.4%

Tunis Air

1,433,014,516

1,328,208,014

104,806,502

7.9%

Air Austral

999,402,217

1,081,645,177

(82,242,960)

-7.6%

Air Algerie

468,550,417

1,410,599,905

(942,049,489)

-66.8%

10,291,725,492

10,442,169,383

(150,443,891)

-1.4%

40,646,091,632

40,331,855,184

314,236,447

0.8%

Others

Group Total

Chris Spidle is delivery director of research, analysis and modeling and Paul Pederson is an airline research principal for Sabre Airline Solutions®. They can be contacted at christopher.spidle@sabre.com and paul.pederson@sabre.com.

ascend


FUEL SMART

Through its employee-driven Fuel Smart program, American Airlines gains potential savings of more than US$200 million in fuel expenses and reduces its CO2 emissions by nearly 2 billion pounds annually. By Stephani Hawkins | Ascend Editor

10 ascend Photos courtesy of American Airlines


profile

American Airlines’ mechanics take every cost-saving measure to ensure aircraft are flown with utmost efficiency. Regularly cleaning aircraft engines, which improves fuel burn, saves the carrier 3.9 million gallons of fuel a year.

H

ow many airline employees does it take to save 96 million gallons of fuel a year? All of them, as demonstrated by Dallas/ Fort Worth, Texas-based American Airlines. From reservations and cargo representatives to customer service and top management, every employee has the ability to help put a sizeable dent in fuel costs and, in effect, slash carbon dioxide emissions significantly. Like most airlines around the world, American has taken common steps in recent years to preserve fuel, such as using a single engine when taxiing and asking passengers to help keep the cabins cool by lowering the window shades. But in 2005, the carrier took it a step further when it launched Fuel Smart, a fuelconservation program that encourages employees to get involved by submitting conservation ideas to the Fuel Smart team. “Fuel Smart grew out of the first run-up in oil prices in 2004 and 2005,” said American Chairman and Chief Executive Officer Gerard Arpey. “When oil was above US$140 per barrel, we needed Fuel Smart more than ever, but even if oil fell to, say, US$50 a barrel, we’d still want to develop fuel-conservation awareness among every airline employee.” Last year, more than 500 suggestions were submitted by employees, contributing to a US$204 million savings for the airline, which paid an average US$2.12 a gallon for fuel.

Since the start of the program, several fuel-saving initiatives have been implemented: Engine wash program: Periodically cleaning aircraft engines promotes improved fuel consumption, lowers emissions into

the environment and improves the life of the engine. Projected savings — 3.9 million gallons of fuel annually. Replacing catering carts: American Airlines will retire about 19,000 catering carts and purchase newer models that are made with lighter materials, reducing average aircraft weight by 124 pounds. Projected savings — almost 1.9 million gallons of fuel annually. Boeing 737 and 757 winglet installation: The airline added winglets to its Boeing 737s and will do the same on its Boeing 757 fleet. Projected savings — 25 million gallons of fuel annually. American Airlines is also the launch customer for installing winglets on its Boeing 767-300 fleet, which will provide 17 million gallons in annual fuel savings. Valve removal on MD-80 fleet: The carrier has removed a valve that is no longer necessary on MD-80 aircraft. Projected savings — about 70,000 gallons of fuel a year, or about US$151,000 annually. Reduce oil leak check time: The procedure for an MD-80 engine oil leak check took longer than necessary, so the carrier reduced the amount of time the engine runs during the check. Projected savings — between US$50,000 and US$100,000 a year, depending on fuel prices. Removing unnecessary cabin items: The carrier has removed all unnecessary inflight items, such as a serving tray that was no longer being used. Projected savings — 20 gallons of fuel each year for

By adding winglets to certain aircraft, such as the Boeing 737 and Boeing 757, as part of its Fuel Smart program, American Airlines stands to save 25 million gallons of fuel annually.

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profile every pound of weight removed from an aircraft. MD-80 tailcone manufacturing: The carrier’s maintenance base in Tulsa, Oklahoma, is manufacturing and installing low-drag tailcones on its MD-80 fleet. Producing low-drag tailcones in house, American Airlines achieves a savings of US$205,000 on each tailcone. Projected savings — 1.7 million gallons of fuel annually. The tailcones cost US$240,000, and American can produce them for about US$35,000 each. “The economics was to the point that it just made sense to build them,” said Richard Lyon, supervisor for American Airlines’ Composite Repair Center. In addition, American removed midgalley ovens on its Boeing 767-300 aircraft, reducing the weight of the planes by 235 pounds. It’s using high-speed tractors at Dallas/Fort Worth International Airport and Los Angeles International Airport to tow aircraft from gates to hangars, a potential savings of 9 million gallons of fuel a year. It also received approval from the U.S. Federal Aviation Administration to reduce the fuel reserve carried on trans-Atlantic flights from 10 percent to 5 percent, which will save an estimated US$10.6 million annually. Pinching pennies and squeezing every bit of costs out of its system is nothing new for American Airlines. In the 1980s, former Chairman and Chief Executive Officer Robert Crandall saved the airline US$40,000 a year with his idea to remove a single olive from every passengers’ dinner salad. “The point wasn’t the olive,” Crandall said. “The point was nurturing a cost consciousness among airline managers. Also, it was a forerunner to the more contemporary ideas about value engineering — understanding the relative importance customers assign to elements of service and comparing them to the cost of providing those elements.” Something that small and unnoticeable to passengers has saved millions of dollars for the airline. And Crandall’s legend lives on. Since then, American Airlines has sought to achieve savings that are transparent to its passengers, such as an initiative implemented by the carrier’s mechanics, who were distraught every time they had to throw away a dull drill bit and replace it with a new US$200 bit. Instead, they put their heads together and designed “Thumping Ralph,” a drill-bit sharpener made from a vacuum cleaner belt and a motor from a science project. Thumping Ralph saves the airline as much as US$300,000 a year. The creation of Thumping Ralph was a direct result of requests to employees from 12 ascend

American Airlines’ flight attendants contribute to the Fuel Smart program in several ways, including avoiding storing unnecessary catering items on flights and beginning safety demonstrations on time to prevent departure delays.

American’s management team to bring their cost-savings ideas to the forefront. The carrier’s executives clearly understood that nobody knows its employees’ jobs better than those performing them day in and day out, so they approached the airline’s entire workforce and challenged them to save in every way possible. “Communication lines were suddenly open,” Justin Fuller, an American engineer in Tulsa, Oklahoma, told The Christian Science Monitor, an international daily newspaper, in 2005. “Before, people had ideas, but they didn’t know where to take them. They also thought it wouldn’t make any difference if they did. Now, the groundwork has been laid, so people know where to take their ideas and how to get them implemented.” The Fuel Smart program was established in the same vein. It opens an avenue for employees to really get involved and help their airline fight the uncontrollable battle of rising oil prices. And it’s paid off. Since its inception, employees from all areas within American Airlines have come out of the woodwork, leaving no

stone unturned, to generate countless fuelsaving initiatives. The carrier has identified more than 25 ways its employee groups can help save fuel across nine business areas, including: Customer service — Customer service representatives can alert load planners when passenger counts (including stand-by travelers) change by more than seven passengers, consistently charge for overweight baggage and enter child edits during the check-in process. Ramp service — Ramp employees can avoid making an aircraft stop and wait to be wanded in after arrival, promptly hook up electrical and ground air on arrival, and avoid leaving vehicles or ground equipment idling when not in use. Maintenance — Aircraft mechanics can use ground power to reduce auxiliary power unit usage, tow rather than taxi aircraft when conditions permit, and reduce aircraft weight by removing unnecessary items or replacing items with lighter-weight alternatives. Cargo — Cargo personnel can use lighterweight unit load devices; cancel reservations when it’s determined that reserved


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During 2004/2005 when oil prices really began to spike, American Airlines implemented Fuel Smart, a fuel conservation employee-driven program, which saves the carrier 96 million gallons of fuel a year.

cargo will not arrive; and avoid loading skids that are not attached to the shipment into containers, onto pallets or onto narrow-body aircraft. Flight — Cockpit crew can conserve fuel while on the ground by limiting APU usage, complete time engine start at the end of pushback, and single-engine taxi when safe and operationally possible;

adjust the cost index after departure if the estimated time of arrival differs from the scheduled arrival; update flight plans with new wind, payload and departure information; and follow cruise trim procedures. Flight service — Flight attendants can ask customers to close window shades and open air vents on warm days to keep

To decrease fuel consumption, ramp employees avoid making planes wait to be wanded in as well as promptly hook up electrical and ground air upon arrival. They also shut down any ground equipment while not in use.

the plane cooler for the next departure, avoid storing extra soda cans or catering supplies in extra spaces on the aircraft, indicate any over-provisioning on catering papers and begin safety demonstrations promptly to avoid departure delays. Reservations — Reservations agents can inform customers of baggage weight limits so they can pack accordingly or will be prepared to pay additional charges for overweight baggage. Management — Managers can seek ways to save electricity such as turning off lights after meetings and shutting down computers and monitors during non-business hours, avoid unnecessary business travel, and lead by example and reinforce Fuel Smart suggestions. All employees — The entire employee workforce can flight list as soon as possible when booking non-rev travel and cancel any non-rev flight listings when flight plans change. “One of the reasons Fuel Smart has been so effective is that it has not been topdown, but has very much been a grassroots effort, with everyone — pilots, ramp workers, mechanics, dispatchers, planners and many other work groups — taking responsibility for saving energy,” said Arpey. “And it’s not just been about the ‘big hits’; even small changes in procedures or old habits can yield enormous savings because of the huge scale of our operation.” The Fuel Smart program, as the old adage goes, kills two birds with one stone. With the current pressures on airlines to become more environmentally friendly, the program, in addition to saving millions of dollars for American Airlines, has helped reduce its carbon dioxide emissions footprint by 1.9 billion pounds per year. And that figure will only grow as employees continue finding ways to conserve fuel. Considering that a one-cent increase in a gallon of fuel costs American Airlines an additional US$33 million a year, Fuel Smart has become critical to the airline’s future success. “Focused cost-reduction programs like Fuel Smart have become an essential practice at incumbent airlines like American,” Crandall said. “They need all the help they can get.” a

Stephani Hawkins can be contacted at stephani.hawkins@sabre.com.

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In response to the many new challenges it’s faced during the past few years, Mexicana Airlines has made highly strategic changes to its commercial side of the business as well as experienced great success from its low-cost subsidiary. By Michael Mankowski and Michael Reyes | Ascend Contributors

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s the world’s fourth-oldest airline still in operation, Mexicana de Aviación has seen its share of prosperity and challenges throughout its 86 years of taking to the skies. Today, Mexicana Airlines and its wholly owned low-cost subsidiary, Click de Mexicana, form Mexico’s largest international airline group and the region’s leader between Mexico and the United States. Buoyed by Mexico’s growing economy and geographically positioned next door to the world’s largest economic engine, Grupo Mexicana is poised for great success. Yet despite this enviable position in the global airline industry, Grupo Mexicana has faced some of its toughest challenges in recent years. In addition to the ever-present and constantly growing burden of fuel costs, the entire character of the Mexican marketplace has changed during the last three years. What was a decades-long operating environment of stability for Mexico’s two traditional giants — Mexicana Airlines and rival AeroMéxico — has today become a free-forall of hyper competition.

“For several years now, Mexicana Airlines has been implementing a strict restructuring plan that places particular emphasis on maintaining the quality of services.” — Manuel Borja, chief executive officer,

Mexicana Airlines

Growing Headwinds

Photo by shutterstock.com

As has been the case around the world — from the United States and Brazil to India and nearly anywhere healthy yields existed — new operating models have emerged to challenge traditional carriers that had been flying comfortably for decades. Be it low-cost carriers, niche carriers with specialized concepts such as all-business class cabins or value-focused hybrids, there is no doubt that a new wave of challengers has entered every major air travel marketplace in the world. And Mexico is certainly no different — except perhaps for the speed in which the upstarts have emerged. During the last five years, a rapid loosening of regulatory restrictions governing Mexico’s airlines, coupled with massive foreign investment in a developing economy only growing as trade increased with the United States, led to a boom in new domestic Mexican carriers. To most local residents who are regularly exposed to saturating billboards and airwaves from the streets of Tijuana to Cancun and every major population center in between, the region’s airline names — Avolar, ALMA, Interjet, Volaris, VivaAerobus and a handful of others that have either started flying or have significantly expanded operations since 2005 — are familiar. As one airline chief executive officer famously noted, “The number of airlines operating domestically in Mexico doubled in a year’s time.” With so many new faces competing for traffic, actual domestic capacity grew a staggering 30 percent from 2006 to 2007, which, until now, was unheard of not only in Mexico, but anywhere else in the world. And who is the biggest target of all the newcomers? The established carriers, of course. But beyond the added competition at home, Mexicana Airlines found it was being pressured on all fronts. No strangers to the perils of well-funded

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profile Photos coutesy of Mexicana Airlines

domestically hasn’t been a reaction at all, according to Isaac Volin, Mexicana Airlines’ chief commercial officer. “It should be remembered that Mexicana Airlines launched the country’s first [low-cost carrier] three years ago: Click de Mexicana,” he said. In 2005, Mexicana Airlines’ leadership foresaw big changes ahead and proactively made a bold move, opting to launch Click de Mexicana with a single fleet of all-economy-class Fokker 100s serving selected domestic markets. “Despite difficult market conditions, aggressive competition and high fuel prices, the business model of this subsidiary has proven extremely successful, maintaining a high occupation factor and serving routes punctually and efficiently with 100-seat aircraft in a single ‘Coach Plus’ configuration,” Volin said. Volin, who initially came to Grupo Mexicana as Click’s CEO, is also quick to remind that with a 34-inch seat pitch, the wholly owned LCC boasts the most legroom in the industry. And the Click investment has proved worthwhile, providing Mexicana Airlines with a weapon against all new domestic entrants. The airline that started with 10 Fokker 100 aircraft serving 16 destinations will have 25 F100s serving at least 25 cities by the end of the year.

Redefining Its Commercial Business

Having access to real-time information enables SOC personnel to effectively respond to unexpected schedule disruptions, making it possible for airlines to quickly recover with the least impact on customers. As part of its ongoing, strict restructuring strategy, Mexicana Airlines focuses heavily on maintaining and enhancing the quality of products and services it offers customers. In doing so, the carrier will place deep emphasis on improving its internal processes to ensure the utmost level of service is consistently provided across the entire organization.

competitors with non-legacy business models (and non-legacy costs to match), the major U.S. carriers have consistently been slashing domestic capacity during the last five years to insulate themselves from revenue-eroding domestic price wars. Where did all that capacity end up? Much of it has been shifted to international routes, including many destinations in Mexico, where U.S. network carriers are finding yields to be slightly more resilient than in the domestic United States. So during the course of the last two years, Mexicana Airlines’ management team has been plunged into what nearly amounts to a worst-case scenario: Rapidly expanding domestic capacity (and declining yields) due to airlines such as Interjet, Volaris and Aviacsa; U.S. network carriers fortifying their presence in Mexico with gateway hubs, such as Delta Air Lines’ new “mini” hub in Los Angeles, California, for north/south traffic flow plus increasing Atlanta, Georgia-Mexico service, and Continental’s and American’s large and expanding Mexican networks from George 16 ascend

Bush Intercontinental Airport and Dallas/Fort Worth International Airport, respectively; Alaska Airlines’ continued penetration to Mexico’s beach destinations and entry to Los AngelesMexico City market (Mexicana Airlines’ largest U.S. route); Frontier Airlines’ expansion of Mexico service from Denver, Colorado, and secondary U.S. cities to Cancun; Expanded U.S. LCC service to Cancun (jetBlue, Spirit); AeroMéxico’s initiation of a Buenos Aires route (Mexicana Airlines’ only long-haul international service); Limited slot availability at Mexico City Benito Juarez International Airport for expansion; New passport rules by the U.S. government requiring U.S. citizens to carry a passport for travel to and from Mexico and Canada.

Competing Domestically: Making Things “Click”

What has Mexicana Airlines done to react to its many challenges? Its biggest initiative to compete

Beyond building a low-cost option to compete domestically, Mexicana Airlines recognized the pressing need to completely restructure its commercial strategy to remain competitive globally. “For several years now, Mexicana Airlines has been implementing a strict restructuring plan that places particular emphasis on maintaining the quality of services,” said Mexicana Chief Executive Officer Manuel Borja. “As such, we have chosen to concentrate on improving internal processes.” Faced with an unprecedented combination of market forces jeopardizing the airline’s revenue streams, Mexicana Airlines needed to confront those significant “internal processes” to protect itself going forward. In reinventing its commercial strategy, the carrier chose to build on an asset that any airline around the world would envy: a hub at the center of a city with 20 million people. With a huge source of local demand in the world’s second-largest metropolis, Mexicana Airlines had always focused on bringing travelers to and from Mexico City. But to compete more effectively with large international carriers, the airline decided to double down on its Mexico City hub, with a focus on connecting passengers from its 50 destinations through Mexico City and “aim to add new routes to Europe while holding on to its leading position in the Mexico-U.S. market,” according to Borja. The airline’s management team responded with a three-pronged approach aimed at solidifying its position at Mexico City: A top-down transformation of its revenue management department, Midterm network realignment,


profile Overhaul of its sales and distribution department. Last year, as part of its revenue management transformation and its commitment to establish Mexico City as the premier hub for the region, Mexicana Airlines moved forward with transitioning from a leg-segment revenue management approach to an origin-and-destination revenue management concept. Aiming to accomplish such an impactful move, Volin led the revenue management team and attacked each route, one by one, by creating route game plans: Strategic overview, Specific goals, Market profile (trend analysis, financial performance), Current status and SWOT analysis, New pricing and inventory strategies, Measurable action plan for every route, including goals for local and connecting traffic. This rigorous analytical market approach led to a reversal of revenue trends during the region’s 2007 summer and established a new standard to manage market performance within the department. After the market review process and revenue trend reversal, the revenue management team focused on internal process improvement centered on the new O&D revenue management concept, new pricing procedures and reorganization of the department along functional lines, managing demand, flights and pricing from the region-focused structure. The transformation of the revenue management department lasted seven months and improved the company’s revenue performance by more than US$90 million from the depressed revenue position of early 2007. And just as important, it allowed Mexicana Airlines to avoid the fate of several of its larger competitors north of the border. With the revenue management processes in place to handle increased passenger flows through the Mexico City hub, the next order of business was reworking the entire schedule to maximize the carrier’s revenue in light of the new emphasis on connections as incremental revenue. Beginning with the summer of 2008, the carrier retimed its entire schedule to create more connection possibilities among domestic Mexico, the Untied States, Canada and Latin America. This initiative was not without major challenges. In terms of a global hub, Mexico City is a relatively small, landlocked, slot-restricted airport with little opportunity for future capacity growth. In addition, Mexicana Airlines battles major competitor AeroMéxico at the very same airport, thus minimizing its own opportunities for expansion. Nevertheless, Mexicana Airlines’ planning group reworked the entire schedule to emphasize connecting banks with an expected annual benefit of millions of dollars in purely incremental revenue. By the end of 2007, the carrier also looked to boldly capitalize on its ongoing restructuring by initiating the consolidation of the Mexican aviation market; whereby it submitted a bid to purchase rival AeroMéxico and form a single Mexican international carrier capable of competing with domes-

tic LCCs and the ever-growing international mega carriers. Despite presenting a compelling case to the Mexican aviation authorities, Mexicana Airlines was rejected from participating in the process and eventually withdrew its offer due to anti-competitive issues raised by the government. With the removal of the AeroMéxico offer and its revenue management transformation and network planning adjustments in place, Mexicana Airlines embarked on an overhaul of its sales and distribution department. Over a period of eight months, beginning in November 2007, Mexicana Airlines’ management focused its efforts on all key areas of the organization to align it with industry best practices and enable it to outperform the competition in the new landscape. To achieve this standard, the management team focused on: Defining a new leisure sales strategy for the United States to Mexico’s beach markets, Completing a complete review of its city ticket office distribution network,

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Click’s growth has allowed Mexicana Airlines to redeploy many aircraft to more lucrative international markets ... Increasing direct distribution capabilities by improving mexicana.com’s structure and usability, Conducting a re-examination of the carrier’s longstanding preferred travel agency discount program, Initiating extensive sales training, Completing a comprehensive overhaul of its sales organization to a “flatter” structure with betterdefined accountability, Realigning corporate goals between pricing/ revenue management and sales, Creating a new travel agency incentive structure to better align agency revenue performance with commission payouts this year. To date, the sales department overhaul has resulted in millions of dollars in annual benefits due to quick hits such as organizational streamlining as well as the aggressive redesign of the commission program away from the traditional philosophy of up-front discounts. As Mexicana Airlines continues implementing its overhaul plan, further benefits will be driven by improved business processes for gener-

ating sales revenue while simultaneously controlling the cost of sale.

Charting A New Course

What does the future hold for Mexicana Airlines? While the redesign of the entire commercial strategy will remain an ongoing process, the carrier is already reaping the rewards as it plans for the future. Thanks to the runaway success of Click, the carrier has been able to grow the wholly owned LCC to the point that it is used to replace traditional domestic Mexicana Airlines service in many cities. Click’s growth has allowed Mexicana Airlines to redeploy many aircraft to more lucrative international markets such as Canada, further strengthening its network with new destinations. “Grupo Mexicana is in the process of expanding its presence in the international market,” said Adolfo Crespo, the carrier’s senior vice president of customer service and corporate communications, “with new flights to Calgary and Edmonton in the thriving Canadian province of Alberta, which began in June.” And those new routes to Europe that CEO Manuel Borja referenced? While not yet certain, trans-Atlantic operations would continue to bolster Mexicana Airlines’ international presence as it readies itself for its next big move: repositioning itself in the global industry by joining the oneworld alliance. In April, in a strategic move to further bolster its revenue, Mexicana Airlines, and its Click subsidiary, were formally invited to join oneworld, a process the carrier estimates will take 12 to 18 months to complete, and it is sponsored by partners Iberia Airlines and American Airlines. This development is expected to strengthen Mexicana Airlines’ offering for current and future customers while providing oneworld partners with an expanded network in Mexico and Central America flown by the region’s leading airline. As has been the case around the world, these are turbulent times to run an airline, and Mexico’s entire airline industry has felt the pressure more than others for a variety of reasons. Most importantly, the speed and depth of domestic Mexico’s structural changes were more accelerated than perhaps anywhere else in the world. The rapid liberalization of the country’s air transport market has put tremendous pressure on incumbent carriers to evolve. Mexicana Airlines, reinventing itself with its experienced and nimble management team, has proven willing to adapt based on its bold moves of the last three years. Clearly, the carrier is in it for the long haul, as it is finding new solutions to ensure it not only survives, but prospers in this difficult and dynamic marketplace. a

Michael Mankowski is project manager and senior consultant and Michael Reyes is project manager and management consultant for Sabre Airline Solutions® Consulting. They can be contacted at michael.mankowski@sabre.com and michael.reyes@sabre.com.

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profile Photos courtesy of Vietnam Airlines

A Conversation With … Pham Ngoc Minh, President and Chief Executive Officer, Vietnam Airlines

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ore than five decades ago, Vietnam Airlines began service with a mere five aircraft, which, based on its steady growth and success, was all the foundation it needed. Since then, the thriving Vietnamese carrier, once known as Vietnam Civil Aviation, has grown significantly and continues to do so. Today, it operates 49 aircraft — with plans to expand to 104 aircraft by 2015 — and serves 20 domestic and 41 international destinations. Contributing to the record aircraft orders for the world’s two largest and most prominent plane makers, Airbus and Boeing, Vietnam Airlines last year placed orders for 10 Airbus A350-900 XWBs — scheduled for delivery during 2014 and 2015 — as well as 20 single-aisle Airbus A321s. It also expects to receive more than 30 Boeing 787-9 Dreamliners between 2013 and 2019. The added capacity will support the carrier’s continued progression as well as Vietnam’s anticipated passenger traffic growth, which is expected to more than double to 32.4 million by 2020. Last year, the Vietnam flag carrier provided air transportation for 8 million passengers and brought in US$1.25 billion in revenue. That’s a tremendous leap from the 500,000 passengers it carried and US$50 million it earned annually nearly 30 years ago. And this year, Vietnam Airlines was off to an exceptional start with revenues for the first half of the year of US$728.8 million, a 27 percent increase from the same period last year.

Despite the airline’s many accomplishments and continued evolution, it faces daily challenges such as out-of-control fuel costs, a possible shortage of pilots, government-regulated domestic fares, aircraft delays and steep competition. But these issues won’t keep Vietnam Airlines President and Chief Executive Officer Pham Ngoc Minh from pushing ahead to brighter days for his airline. In addition to its regional subsidiary, Vietnam Air Service Company, and its booming cargo business that moved 115,380 tons of cargo last year (an 8.5 percent increase from the previous year), the airline will launch lowcost VietAir later this year to compete with the region’s budget operators and private start ups. The introduction of the LCC is one of many initiatives Minh and his executive team has underway. A priority, given price restrictions enforced by the local government, is to review and restructure the carrier’s route network based on profitability. Minh, who joined Vietnam Airlines 28 years ago and last year took the reigns as the carrier’s president and CEO, recently visited with KC Teo, regional director for Vietnam, Singapore and Indonesia for Sabre Airline Solutions®, to discuss his methods for maintaining a prosperous business and overcoming many of the concerns facing his airline. Question: Since it began operations in 1956, Vietnam Airlines has truly transformed into an affluent airline, supporting Vietnam’s ever-growing travel and

tourism industries. What are some of the key changes the airline has undergone during the last several decades that has led to such success? Answer: Several key initiatives that contributed to the success of Vietnam Airlines include adopting the latest technology in fleet expansion to have a young and modern fleet, making a strategic investment in major markets of Vietnam’s tourism, and focusing on a strategically developed network of long-haul flights and local and regional connections. The airline is fully ingrained with Vietnamese traditional culture — a distinctive identity — to be differentiated from the rest. Q: What is driving the growth of the travel and tourism industries in Vietnam, such that passenger traffic is expected to more than double by 2020? And what impact will this growth have on Vietnam’s economy and future stability? A: Vietnam is continuously achieving remarkable macroeconomic performances: its annual gross domestic product growth forecast for the next few years is averaging around 7 percent to 8 percent, and foreign trade and foreign direct investment continue to rise sharply. Vietnam is considered a safe destination in the region for tourism and investment, staying untouched by terrorism and tsunami. Our government invests in the development of infrastruc-

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In support of Vietnam’s anticipated passenger traffic growth, which is expected to more than double to 32.4 during the next decade, Vietnam Airlines will expand its fleet from its current 49 aircraft to 104 planes by 2015.

ture and facilities (travel accommodation, airport) while continuing to develop distinctive tourism products. Substantially rising living standards of the people of Vietnam equates to higher demand for travel. Being the second-most popu-

lous country in Southeast Asia (currently around 84 million), Vietnam possesses a great opportunity for development, particularly in the transport industry, which will significantly contribute to the economy’s stability and growth in return.

Q: You recently compared your airline to Philippine Airlines and Malaysia Airlines and stated that your mission is to become more like Cathay Pacific Airways, Singapore Airlines or Thai Airways International. What initiatives have you put in place to achieve this objective? A: We have firm plans to expand and modernize our fleet: 104 and 150 aircraft by 2015 and 2020, respectively, including Boeing 787, Airbus A350, Boeing 777, Airbus A321 and Airbus A320. We will continue to improve services as well as maintain our current network with convenient schedules and continue to expand and add new international and domestic destinations. From now to 2020, we’ll ensure the average growth rates of 12 percent per year. We’ll sustain more than 30 percent of the market share of international tourists flying to and from Vietnam and over 55 percent of the domestic market share. We’ll continue to satisfy all requirements for an international airline as an International Air Transport Association member, with a long-term strategy focused on safety, service quality and efficiency. Q: With your recent aircraft orders, your fleet will nearly double during the next several years raising concerns about a shortage of pilots to operate these aircraft. What is your strategy for ensuring there are enough trained pilots for these additional aircraft as they arrive? A: Our main objectives include offering attractive opportunities and good working environments to pilots (both foreigners and Vietnamese), setting up a pilot training center in Vietnam, recruiting students for pilot training, and employing simulation equipment to shorten training time. We will also enhance cooperation with international partners to train pilots. Q: Do you have similar concerns about staffing your aircraft with flight attendants or ground personnel? If so, how will you address these personnel issues? A: We will address these staffing concerns by offering a good working environment, leveraging recruitment from different trusted sources for training and enhancing cooperation with international partners to train flight attendants.

In August, Vietnam Airlines President and Chief Executive Officer Pham Ngoc Minh (right) and Tom Klein, Group President of Sabre Airline Solutions® and Sabre Travel Network® signed two multi-million dollar deals for the carrier to receive advanced technology including SabreSonic® Customer Sales & Service.

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Q: Last year, your fuel expenses represented 24 percent of your total operating costs, and this year it will likely more than double. What steps are you taking to offset these additional costs to help protect your bottom-line results for the year? A: We are taking numerous steps to protect our bottom line, including: Restructuring and rationalizing our international and domestic flight network by adjust-


profile A: Apart from the United States, we are considering opening new routes such as Ho Chi Minh City/Hanoi, Vietnam-London; Ho Chi Minh City/Hanoi-Shanghai/Beijing, China; Ho Chi Minh City-Mumbai, India; Ho Chi Minh City-Brisbane, Australia; and Ho Chi Minh City-Doha, Qatar. Q: In addition to codeshare agreements, what are your thoughts about possibly joining one of the three global alliances? A: Vietnam Airlines doesn’t currently belong to any airline alliance but has been in discussions with SkyTeam. Vietnam Airlines currently codeshares with founding SkyTeam member Korean Air as well as China Southern Airlines, which joined last year.

In addition to expanding its fleet to support the rapid air transportation growth in its home country, Vietnam Airlines also takes steps to ensure its passengers travel in comfort. Its reclining seats geared with high-tech amenities sets the airline apart from many of its competitors.

ing flight schedules based on in-depth market analysis, imposing flexible fare policies and optimizing capacity utilization to increase sales of passenger and cargo; intensifying the route efficiency research and analysis to support the operations and management; Encouraging measures to increase revenue in all business sections and subsidiaries of the corporation; Reviewing overall investment plans — Cutting down and deferring investment projects; Strictly controlling the workforce — Postponing new recruitment except experts for long-term service, restructuring workforce to increase productivity; applying 42 working hours a week policy; adjusting and rationalizing salary structure; and developing a reward system for economical practices; Taking drastic measures to cut costs and increase savings with specific criteria such as a fuel-saving program; adjusting customer services that minimized affects on service quality; cutting down 10 percent to 20 percent regular costs on all items; and developing programs for efficiency in maintenance and repair of aircraft, engines and spare parts inventory.

Q: What long-term results do you expect to realize with the launch of your low-cost carrier, VietAir? And what impact do you believe the start-up LCC will have on your current competition? A: The LCC will generate new traffic. Generally, the LCC and legacy [carriers] will focus on different market segments and support each other to better serve market demand.

Q: There appears to be a hardship on domestic routes because the local government sets your fares. What are you doing to convince the government that this regulation will have a significant, negative impact on your balance sheet if rates aren’t adjusted to reflect the high fuel costs? If the fares aren’t adequately adjusted and the government doesn’t allow the proposed fuel surcharge, what are your options to keep from losing money on domestic routes? A: As of Aug. 15, our government has allowed airlines to collect a fuel surcharge on domestic routes. Vietnam Airlines is a network carrier and our financial result is calculated on the whole network performance (some routes may themselves make losses, but they contribute greatly to the whole network). We are also very much aware of our mission as the national flag carrier: to contribute to the stability and growth of the country. There will be an appropriate time when adequate adjustments will be made by the government. Q: Next year, you plan to operate your own flights to the United States that are currently being operated through your codeshare agreement with American Airlines. What additional U.S. routes are you considering? A: Presently, we are still on course with our plan to launch service between Ho Chi Minh City, Vietnam, and Los Angeles, California. After that, we will study the possibility of directly operating to another destination in the United States. Q: You have codeshare agreements with a number of other carriers worldwide. Which other international routes are you considering operating on your own?

Q: Technology is often essential in helping an airline evolve and prosper. How has technology helped your airline succeed? What role do you feel technology will play in the future growth of Vietnam Airlines? A: Adopting the latest technology has helped Vietnam Airlines ensure safety, service quality and efficiency as well as refresh its image as a young, modern airline. In the future, technology will remain our key component to move forward and stay competitive. Q: With a continuing need to cut costs, how can your employees help reduce costs and save money for their airline? What type of employee initiatives do you have or are you considering implementing to help control costs? A: No airline would be successful without its employees’ commitment and contributions toward the company’s goals, especially in this crisis period of the airline industry. At Vietnam Airlines, apart from different training provided, by inspiring a very ambitious vision and expansion plan from top management to employees, utilizing technology at work, with fine-tuned working procedures, implementation of rationalized salary structure, and reward system for productivity and economical practices, our employees are highly motivated to dedicate themselves to the comprehensive cost-saving program in all business processes of the airline. Q: With recent aircraft orders, a startup LCC, talk of purchasing a freighter if the need arises and the many other future plans you’ve outlined, you’re obviously in it for the long haul. Where do you see your airline in five to 10 years, and how will you get there? A: With firm orders for latest-technology aircraft, a clear vision and other ambitious expansion plans, we are confident and ready to move forward and remain among the top three airlines in our region in terms of business scope and competitive capacity. Above all, the growing young and modern fleet will be the key component to get us there. a

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Real-time data integration across an airline’s respective businesses enables it to more effectively carry out business initiatives that can enhance customer relationships, boost revenue and resource management, and shrink operational costs. By Scott Healy | Ascend Contributor

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information about dynamic customer purchasing behavior and preferences is a critical factor in turning around the declining perceptions toward air carriers.

Solution: A Single View Of The Customer

As airlines work diligently to differentiate from a service perspective and build brand loyalty, a single view of the customer is important to clearly understand buying habits and how he or she responds to service changes, pricing and special promotions. But this is not a small technical task. To achieve this single view, airline personnel throughout the organization need access to passenger name records, customer profiles and other information in real time. Offering customized services is impossible without the historical context of a customer’s dealings with the airline. Equally important is the most current information in the customer’s profile, current and planned purchases, profitability, and the impact his or her requests or needs may have in terms of the airline’s profits. Therefore, an airline that employs a central data warehouse using historical and near real-time data together enables accurate and timely decision making to improve customer relationships in three key ways: Mitigate service disruption — Airline employees can mitigate the impact of service disruption, such as a cancelled flight, in a timelier manner using up-to-date passenger information. Target customers more precisely — Targeted marketing campaigns can be designed based on information that the customer

has asked for/looked at but has not yet purchased. Build brand loyalty — Real-time access to a single customer view can facilitate other proactive services to high-value customers. Recognizing that a frequent flying executive didn’t receive an upgrade, for instance, a gate agent can continue to build loyalty with that customer by quickly issuing coupons for free drinks, meals or a discount off the next flight.

Managing Revenue For A Perishable Service

The airplane seat is unique since it represents a highly perishable service. While revenue is contingent on selling seats prior to a specific time, after that time, those spots cannot generate revenue. An airline incurs a cost for an individual seat whether it is occupied or not. Once the aircraft door is closed, that unoccupied seat has zero value. The additional challenge in managing perishable services in the airline industry is that the highest yield in revenue comes just before inventory value drops to zero. Last-minute flight tickets are priced much higher than the tickets purchased months in advance. Typically, airlines adjust the inventory level available in each class (price) category at specific time intervals before the flight, in an attempt to increase the margins and the revenue as the price sensitivity decreases for travelers that are inflexible on flight dates. Therefore, close monitoring of the rapidly fluctuating supply and demand and the resulting timely demand re-forecasting are Photo by shutterstovk.com

he airline industry is facing a host of external and internal challenges, now and in the coming years. External events and trends, such as skyrocketing fuel costs, economic uncertainty, intense competition and consolidation, and ever-present concern of terrorism have caused enduring changes in how airlines conduct business, such that airline executives are constantly assessing how to do more to stay aloft, and in the end, remain profitable. Within the industry, airlines have undergone major restructuring and continue to struggle to win and maintain customer loyalty. Low-cost carriers, such as Southwest Airlines in the United States, Ryanair in Europe, as well as a host of Asian carriers, have disrupted the pricing power of major network airlines and are pushing them to compete and stop the flow of red ink, or face the consequences of their stakeholders: merger, takeover or perhaps eventual bankruptcy. There are certainly no lack of hurdles in the path of making an airline successful in today’s global economy and geopolitical landscape. One big hurdle the more nimble and forward-looking corporations are trying to address is the enormous data challenges facing today’s modern airline business. From their early days, airlines developed information systems to deal with the complexities of their business across several critical areas, such as reservations, maintenance and engineering, crew scheduling, aircraft capacity planning, flight scheduling, fuel requirements, seat inventory, airfare pricing, food/beverage, frequent flyer programs, and numerous other functions. These systems have enabled airlines to process huge data volumes to support multimillion-dollar business decisions. However, as difficult economic conditions continue, and technology innovations emerge, airlines also need information technology infrastructures that support thousands of the “thousand-dollar” business decisions faced on a daily basis by operational staff. The past several years have been a struggle for airlines. To survive and grow, they must continue to take innovative approaches to effectively answer their unique business challenges. To do so, every airline must: Build customer loyalty, Manage revenue effectively for a perishable service, Reduce operational costs.

Building Customer Loyalty

The airline industry has reached an age of diminishing customer loyalty. The current situation is grimly stated in a Forrester research study that shows 29 percent of business travelers are actively disloyal to any one travel provider. Earning customer mindshare and brand loyalty requires personalized offerings and simplified online purchasing processes. Complete, accurate and timely

Because an airline sustains a cost for an individual seat whether it is occupied or not, managing revenue for this perishable service is of critical importance.

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industry Photo by veer.com

Real-time access to a single customer view enables airline personnel to offer specific services to high-value travelers, helping build loyalty and retain the most important customers.

critical for optimizing the revenue for perishable services. This is a common, yet difficult, data management conundrum for which airline IT departments invest large sums of financial and human capital, using existing, legacy systems and tools to solve — yet they struggle to succeed.

Solution: Real-Time Demand Analysis For Revenue Management

By leveraging real-time information, airlines can recalculate class-of-service inventory levels based on sales thresholds instead of the less-profitable pre-set time intervals system prior to the flight. This gives airlines the opportunity to capture incremental revenue when demand is unexpectedly high. It also provides the opportunity to spur incremental sales when demand decreases. The clear advantage is that an enterprise data warehouse or revenue management system that has access to real-time booking information enables identification of any unusual demand trends. By delivering these unexpected changes in customer purchasing behavior in real time to the revenue management system, airlines can recalculate inventory levels based on the event (observed unusual sales activity) versus a static scheduled date, allowing for dynamic inventory adjustment. Near instantaneous information access also enables carriers to respond to competitors’ pricing changes with more accurate analysis. When a competitor makes a price adjustment, airlines typically react by making their own pricing change based on assump24 ascend

tions and historical data. By having real-time information on how competitors’ pricing is impacting current demand, the airline can assess the competitive threat more accurately. Using outdated information can result in the airline responding either too strongly or leaving money on the table by not responding aggressively enough.

Reducing Operational Costs

The airline business is inherently very expensive when considering the high capital and operational expense needed to run operations, including the costs of planes, fuel, labor and related infrastructure, which are massive. Proper utilization of aircraft and management of labor and fuel costs enables airlines to operate more efficiently. Through the years, airlines have worked with IT providers to develop systems to help control and manage these expenses. Access to real-time data can help drive costs down even further.

Solution: Real-Time Decision Support For Operational Efficiency

Managing these infrastructure challenges and keeping costs down begins with identifying the expenses that can be controlled or acting quickly to mitigate cost increases caused by market conditions. By having concurrent access to different functions such as crew scheduling, airlines can benefit tremendously from an expense and employee morale perspective because crew assignments can be optimized based on overall fleet demand. After monthly work

schedules are distributed, schedule disruptions and crew member illnesses cause changes to the hours and number of trips flown by a crew member. Decisions made by operations personnel in staffing flights have a great impact on operational efficiency and crew member satisfaction. If a more-rested crew is located in another region, for instance, the airline must then fly them to the city needed instead of selling those tickets to customers and collecting the additional revenue. By maintaining real-time visibility into the number of hours flown as well as the desired trip trades of crewmembers, the operational flight scheduler can assist operations personnel in making these staffing decisions. Airlines are also looking at their IT infrastructures for operational cost reductions to improve profitability. The key factor in improving profitability for airlines is to lower IT costs while improving IT effectiveness. To handle the three identified business challenges, airlines’ chief information officers face several technology challenges that must be resolved to enable carriers to compete in the future. Legacy systems for most major airlines were built around the mainframe. While highly effective for many years, these systems are a source of many of these challenges, including: Overcoming a batch-oriented infrastructure, Keeping up with the rate of change in technology, Having the scalability required for doing business on the Internet.

Escaping The Batch World

The airline industry was an early pioneer of automating data movement between systems through batch processing. Having originated from mainframes that were very expensive to operate, batch processing was once the only economically feasible option for migrating transactions to an offline analytical environment. This distributed the computing resources and enabled the execution of commands without human intervention. While batch processing has worked well for decades, tremendous data growth, high costs and unrelenting demand for more immediate data access has rendered it ineffective in many environments. Continuing to live in the batch world is a liability for airlines seeking operational excellence because of their constant demand for business-critical data. For these environments, batch processing has outlived its usefulness because operations no longer run 9 a.m. to 5 p.m. High degrees of latency caused by moving large amounts of data with today’s shrinking batch windows will continue to adversely affect IT’s ability to support the airlines’ customer-related initiatives. Knowing the needs of their business now and in the near future, airline executives should challenge technology providers to move beyond batch processing and share data across the enterprise in near real time to enable timely and accurate decision making.


industry Solution: Real-Time CDC Technology Decreases Data Latency

Some change data capture, or CDC, technologies provide continuous, real-time feeds of changed data to the enterprise data warehouse or operational data store and eliminate the batch window while decreasing data latency. With their transformation capabilities, they can be used to directly load a data warehouse from the source production system. Some real-time CDC vendors can also work with existing extract, transform, load, or ETL, tools, which enable airlines to continue to use their existing ETL processes while decreasing data latency to minutes or seconds. While not a complete overhaul, this helps eliminate batch-window dependency through capturing changed data in real time and delivering that data to the ETL tool instead of directly loading the data warehouse in real time.

Migrating And Consolidating Legacy IT Systems

Because of their highly specialized applications and demanding performance requirements, airlines have deployed transaction processing facility, or TPF, systems across several business areas, many of which have not changed much in the last 15 to 20 years. These legacy systems remain in use because their high performance and high availability capabilities hold considerable value to airline operations. As airlines look to modernize their IT operations, it is possible to retain the value of stability and performance inherent in a TPF system by moving to a mixed-platform solution. A mixed-platform solution combines TPF mainframe systems, traditional open systems

tingencies among systems and the ability to verify data among the systems.

and service-oriented architecture to create a flexible, accessible solution with a highavailability core. Regardless of the modernization strategy, significant amounts of airline data are held in specialized TPF systems, making it difficult to migrate to other systems. Migrating from legacy IT systems — even if it is to newer and more efficient technology — can present difficulties for any business. The “rip-and-replace” migration model introduces great risk into the IT strategy, not to mention the cost involved. The process can be especially disruptive when factoring in the airlines’ relentless availability demands.

Scaling Systems To Meet The Demands Of Online Shoppers

The advent of online travel Web sites created high look-to-book ratios. This ratio is defined by the amount of time spent looking up and sorting through flight possibilities compared to the time spent actually booking travel. Inevitably, as that look-to-book ratio continues to affect system performance, degradation and availability issues occur either through sluggish response times or — even worse — error messages. When competitor Web sites or other options are just a click away, availability issues can lead to lost business. To support increased performance and uptime, airlines can either add more expensive production database and server infrastructure, or offload or partition that lookup-type activity to other lower-cost systems.

Solution: High Availability Solutions Enable Migration/Consolidation and “Hot Standby” Without Downtime

Migrating applications, such as pricing systems, from traditional mainframes to open or mixed-platform systems requires a phased migration approach with high availability solutions that will minimize any downtime to the business. Airlines need to invest in high availability data migration solutions that eliminate database downtime during these projects as well as for upgrades and maintenance activities. Deploying these technologies that offer real-time, bidirectional data movement provides critical data synchronization between source and target systems and can eliminate any planned downtime. Rather than continuing to delay a migration to open or mixed-platform systems, airlines can evaluate high-availability technology solutions that offer live (also known as “hot”) standby capability that provides failback con-

Solution: Database Tiering Helps Boost Performance As Demand Grows

Photo by veer.com

A recent industry study found that 29 percent of business travelers are disloyal to any one travel provider. Complete, precise and timely data about active customer purchasing behavior and preferences is essential in turning around the declining perceptions about airlines.

Because Web-based travel booking is here to stay, airlines need to support these systems that have high look-to-book ratios while keeping IT costs from spiraling out of control. Database tiering can help this effort by enabling airlines to scale out their growing databases to open, less expensive IT infrastructures. It helps offload the burden of highperforming production systems since these lower-cost databases and servers can be kept synchronized with the production systems and be used for read-only access by users looking for that travel bargain or last-minute flight. The airline industry faces some significant business and technical challenges both within and outside its control. Implementing long-term solutions to these industry issues will depend upon the ability of all parties across the airline industry to think beyond current business practices and to implement innovative processes that leverage real-time information. By taking advantage of real-time data integration across their respective businesses, airlines place themselves in a better position to execute business initiatives that can build (or repair) customer relationships, improve revenue and resource management, and reduce operational costs. Airline executives, crewmembers, operations personnel and customers alike can agree that at no time in the history of the industry are these technology issues of a more critical nature than now. a

Scott Healy is vice president of industry solutions for GoldenGate Software. He can be contacted at shealy@goldengate.com.

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Every Brand Counts Branding fares may be a key component to the success of airlines around the world … perhaps even the “ticket” for survival. As airlines face greater competition than ever before, compounded by numerous other uncontrollable external challenges, creative fare branding can help them differentiate their products and services. By Mike Llewellyn | Ascend Contributor

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raditionally, offering the lowest fare has been the best, if not the only, way for airlines to get their product noticed by customers. Carriers have long looked for a means to compete elsewhere, particularly as the number of low-fare airlines rises, and many are increasingly turning to branded fares. The concept of branded fares is simple. It involves the collapse of 26 traditional inventory classes into powerful, customer-focused brands with memorable brand names and product attributes. Along with these simplified brand names comes consumer clarity regarding differentiated services that each of these fare brand segments offer, enabling customers to select the offering that best meets their needs. Think of a world where airlines could: Brand their fares consistently and seamlessly across all points of sale, Distinguish services in fare brands that, in turn, create customer value, Increase sales of higher-yield fares, where customers could choose those higher fares, Create revenue streams that would further promote long-term success. The idea of creating branded fares or fare families is certainly not new to the marketplace, with a number of carriers offering branded fares in direct channel distribution. Fare branding enables clarity within what many consider to be a complete maze of confusion — air pricing. More importantly, it offers a means to differentiate in a land where differentiation is difficult, at best. Today’s travelers have expectations of service offerings, and most of them clearly understand the difference between coach, business and first class, but fare branding offers something not limited to cabin distinction, enabling airlines to create differentiation within a cabin, where appropriate. Imagine the power of a brand that gives airlines the ability to bundle services such as: Unique mileage and other loyalty perks, 26 ascend

Fare refundability, Change fees, Baggage allocations, Advanced seat assignment, In-flight services, Lounge access. Bundling these soft ancillary services provides customers with the information needed to make the right purchasing decisions across a variety of elements, rather than a myopic focus on the fare. These bundled ancillary services are actually those items that create distinction for a branded fare family. The creation of this branded fare grouping, that may include ancillaries offered within the bundle or sold separately from the bundle, is an excellent way to create a strong value proposition for airline customers. For the first time, they can really understand what their “fare” offers them. Travelers can much more closely relate to a brand called “premium,” and that brand offers them a refundable fare, advanced seat selection, lounge access and perhaps specialized customer service numbers. A clear bundle of services offered within a branded fare enables customers to make the choices that better reflect their unique travel needs. The use of a simplified and fully flexible fare brand structure powerfully emphasizes the desirability of higher fare brand features. Consider a carrier that has established several unique branded fare tiers — DreamFare, DreamFlex, Aspire, AspirePlus and VisionElite. The DreamFare tier contains the lowest fares and, likewise, it has minimal airline products and services such as limited or no mileage awards, no advanced seat selection, and check-in options limited to kiosk or Web only. But with the top-tier brand, VisionElite, the traveler receives no charge for changes, a 200 percent mileage bonus award, a fully refundable fare, two checked bags free of additional charges, day-of-departure lounge access and a “more-leg-room” coach seat. The customer

can now easily discern the product line differentiation, rather than simply two airfares — a high one and a low one. The thought of collapsing the traditional 26 booking classes into several brands certainly makes sense to savvy air shoppers, enabling them to rapidly gain confidence in their shopping experiences, since the offering creates clear choices. Graphical displays that include an easy-to-follow branded matrix provide feature and price clarity that has previously been missing from the shopping process. Travelers can now view one simple matrix to compare fare features, empowering them to make the right purchase decision based on their travel requirements. Arming customers with this branding information allows them to see the value in premium services offered and, in turn, enables carriers to increase revenue, all while providing travelers with the products and services they want and consciously choose to pay extra to receive. Once brands are established in all distribution channels, customers quickly embrace the ease and clarity of branded fare shopping and, in fact, will shop for specific brands by name, demonstrating the brand equity that can be established by the airline. Now that travelers see the brands they desire, consumer marketing campaigns can highlight the benefits of selecting higher-yield brands. These targeted campaigns can refocus consumer attention on features, benefits and flexibility of the premium brand tiers as well as provide a platform for airlines to compete for the most cost-conscience travelers, offering a value proposition consistent with competitors that may offer only simplified products and fare structures. This provides the opportunity to compete on more than just airfare, highlighting an airline’s distinct services over and above the basic product and low-fare offerings. Although merchandising is emerging as a priority for many airlines around the globe, the entire practice is somewhat nascent. Not all brand-


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Adding to the power of a brand is the ability to display the brand distinctions in a fully graphical matrix presented during the shopping process, making it easy for airline customers to make the choice that best fits their travel needs.

ing strategies are created equal. Balancing revenue for the airline and value for its customers can be a difficult task. Creating clear differentiation across the fare families also requires deep thought. Distribution, technical and infrastructure issues complicate the affect on airline business processes, especially within operations. That is certainly understandable, as the full implications of fulfillment and operational impacts are not always clear. Because of the magnitude associated with this type of transformation, carriers often seek consultants for assistance. Sabre Holdings® delivers a suite of products and capabilities that enable airlines to differentiate, brand, market and merchandise fares. Fully integrated branding and enhanced shopping displays offer airlines the ability to establish and market their branded fares structure, using whichever channel they choose to make their products available for sale — online, offline, direct, indirect, corporate or leisure. The complete end-to-end solution allows shopping for fare families while enabling airlines to efficiently deliver the appropriate products and services. Through these bundled solutions, airlines can maximize their revenue opportunities by: Enabling quick, low-cost changes as airlines respond to market needs,

Maintaining competitive pricing with the potential for a competitive advantage over airlines without a similar strategy, Offering higher-yielding premium branded fares, Creating fare families to represent service offerings and differentiate higher fare classes, Distributing merchandising strategy across indirect channels to maximize incremental revenue opportunities while creating a consistent customer experience regardless of channel, Increasing customer value and loyalty by enabling customers to select the products and services that best meet their needs. Qantas Airways has been instrumental in changing fare structures for the airline industry and providing desirable options for customers. It was the first carrier to implement this dynamic branded fares technology, setting it apart from its main competitors. “Qantas is pleased to be the launch partner for the new, innovative branded fares technology,” said Peter Kelly, general manager of distribution strategy and planning for Qantas Airways. “Qantas Airways has been on the leading edge of changing the way airlines sell fares. By providing clarity to travelers around the differences they can expect when purchasing fares across our different ‘fare families,’ this ground-breaking new capability allows us to more effectively communicate the

Qantas Airways value to Sabre Connected S M travel agents and their customers.” These continue to be challenging times for airlines and the aviation industry as a whole. It is increasingly clear that as fuel costs continue to dramatically rise, finding other revenue sources are mandatory. With record industry pressures on cost containment and increasingly price-sensitive customers, airlines continually search for strategies that will drive incremental revenue, reduce costs and allow differentiation in a commoditized marketplace. It is in this environment that many airlines have pursued, with many more driving toward, the introduction of branded fares to provide creative, new revenue sources while also further building their brands in the eyes of customers. Branded fares create unique, powerful merchandising opportunities that will change the way consumers shop for travel. Branding fills the gap left by low fares in the competitive marketplace, and targeted campaigns help airlines increase fare yields, providing revenue opportunities that well may account for a year marked by success and profitability. a

Mike Llewellyn is marketing manager of ancillary services for Sabre Holdings. He can be contacted at mike.llewellyn@sabre.com.

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Photo by Shutterstock.com

The Global MRO Challenge

Globally, every carrier’s approach to maintenance, repair and overhaul has a major profitability impact. Successful MRO strategies run the gamut from total outsourcing to developing in-house MRO expertise, then adapting and marketing that expertise as an outsourcing profit center — providing MRO service on other carriers’ airframes and components. By Allan Bachan | Ascend Contributor 28 ascend


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he segment of the global airline industry involving maintenance, repair and overhaul is ever so important, and there are diverse coping mechanisms employed today. MRO of aircraft, including the airframe and aircraft components, is quite an expensive business. Depending on aircraft age, type and the maintenance program being applied, costs can range from US$300 to US$1,800 per flight hour. Additionally, it is estimated that there is a supply-chain inventory of US$44 billion to support the global commercial airline fleet of 17,000 aircraft. Aerostrategy estimates that the annual global commercial aviation market amounts to a total of more than US$40 billion today. Any individual airline — anywhere in the world — averages between 12 percent and 15 percent of its total annual expenditures on MRO. For U.S. airlines, these figures mean that MRO represents the third-highest expenditure after fuel (approximately 26 percent) and labor (approximately 23 percent). Maintenance items are typically packaged into four “letter” checks: “A” check is generally due every 30 days — or between 300 and 600 hours of flying. The “A” check can normally be performed on an overnight visit or within a 12-hour ground-time slot. “A” checks are often segmented, and completion of all segments usually culminates in a “C” check becoming due. “B” check happens about every six to eight months and is an inspection check that fits between “A” and “C” checks. The “B” check usually satisfies requirements of the “A” check,

as well, and it is normally accomplished in one to two days. “C” check occurs approximately every 12 to 18 months — or between 3,600 and 6,000 flight hours. The “C” check is considered a “heavy” check and requires significant dismantling of the aircraft, which can take from four to 15 days to complete. “C” checks typically take place in a maintenance hangar, or they are performed by an MRO supplier. “D” check is generally due every six to seven years — or 15,000 to 18,000 flight hours — and downtime ranges from 10 to 30 days, or occasionally even more. Different carriers apply many different approaches to these letter checks. Some carriers may have four segments of C checks and 12 A checks. Other carriers can have 12 C checks and six A checks. The type of aircraft and which frequency of tasks is packaged into these checks will determine what is included, how often and how many segments. Possibilities from among which to choose for MRO are broad and varied: A carrier can perform all of its own MRO, or it can outsource all of it. Probably most common, however, is the carrier that applies a combination of performing portions of its own MRO, and also selectively outsources certain MRO functions that make better economic sense being completed by an external party. Of course, any outsourced MRO provider must be carefully monitored, since the ultimate responsibility for satisfying frequency requirements as well as overall accuracy of work performed and aircraft safety lies with the airline itself.

Photo courtesy of American Airlines

Applying the right blend of MRO services, whether in-house maintenance operations or outsourcing to external providers, varies from carrier to carrier, depending on what makes the most economic sense. Many low-cost airlines outsource the majority of their MRO needs, while some larger network carriers, such as American Airlines, run about 80 percent of their maintenance operations in house.

Nonetheless, in an era of critical airline cost reduction whenever and wherever possible, outsourcing MRO can bring huge benefits not only in cost savings, but in MRO performance by suppliers with more expertise and reliable experience than usually can be economically provided by any individual carrier on its own account. MRO providers can be specialist suppliers or — more and more commonly today — competitor airlines, which are able to turn their MRO shops into substantive profit centers by actively seeking maintenance contracts with other airlines. A carrier may choose to develop and maintain MRO capability only up to a particular level, and outsource all other MRO work. Younger carriers, for example, might only have capabilities to manage the A check, the most basic checks of airframe and equipment. On the other hand, mature carriers can often develop capabilities to perform more-complex maintenance such as nondestructive testing, borescopes and landing-gear changes, with the incentive being to considerably reduce the cost of these notoriously expensive tasks (especially when done in the field rather than at an MRO center). So, for the mature carrier, the potential cost savings are well worth the investment. Within the global airline industry, more than 70 percent of components maintenance is outsourced. For most carriers, investment in capabilities and facilities to handle components maintenance is not economically justifiable. But there must also always be sufficient spares to be able to sustain continued operations when unserviceable units enter the repair cycle. So a lot of newer carriers either contract for total support with the original equipment manufacturer or with approved overhaul suppliers. This approach of total care and service packages is an emerging trend. Other carriers may specialize in one or two MRO areas and exchange MRO services with another supplier or operator for additional types of service. For instance, one carrier may service another’s wide-body aircraft in exchange for narrow-body service. Or carriers may offer each other Boeing repairs in exchange for Airbus repairs. Similarly, radio components may be serviced by one operator, and instruments may be serviced by another. Such synergies can be very cost-effective, helping keep a carrier’s maintenance skill sets focused and investment in facilities low. Wheels, brakes, batteries and headsets are often the first classes of components a newer carrier gains expertise in servicing, as these are generally high-turnover, high-consumption components, and they must always be available. In both the components- and airframerepair businesses, carriers should strive to “lock in” labor rates and fixed-cost agreements around agreed-upon turn times with suppliers, thus making associated costs much more predictable.

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industry Photo by shutterstock.com

Aircraft maintenance, repair and overhaul is the third-highest expense for airlines; therefore, it’s critical that each carrier determines the most cost-effective way to maintain planes, whether conducting the service in house, outsourcing all of it or, most commonly, a combination of the two.

Of course, with any outsourcing agreement, there are risks because airlines have ultimate responsibility for the safety and airworthiness of their aircraft, and they must be diligent in overseeing the suppliers that provide such services. Fortunately, however, the airline industry is strictly regulated and, as a result, published standards must be met by each and every MRO supplier. All MRO suppliers worldwide must meticulously follow quality-approved procedures. And regular, frequent audits ensure compliance. There are approximately 4,200 U.S. Federal Aviation Administration-approved facilities in the United States alone and about 700 additional FAA-approved facilities in 70 other countries. Oversight of these repair stations is frequently delegated to local regulatory bodies, and that level of oversight is then audited by the FAA at least once a year. Even carriers that are mature enough to do most of their own MRO work — and are also doing a thriving third-party MRO business — commonly outsource at least some MRO work to those they consider to offer greater advantages. For example, FedEx and Southwest Airlines have never found it necessary to develop heavy-maintenance capability or the ability to perform extensive C and D checks that can require 30 ascend

a number of days and considerable aircraft disassembly and reassembly. Yet these are two of the most profitable airlines in the world, with extremely high reliability and safety records. Other carriers, such as American Airlines, manage up to 80 percent of their own MRO operations large and small. These carriers — also, to one extent or another, including Northwest Airlines, Delta Air Lines and United Airlines — may run thriving MRO businesses themselves, but still outsource some 20 percent of their own needs. American Airlines, long noted for its maintenance expertise, and Lufthansa are prime examples of carriers that perform extensive MRO for many of the world’s airlines. Also globally renowned for its vast and sophisticated MRO capabilities is Singapore Airlines. Regardless of the maintenance approach and practice by any particular airline, MRO represents a highly labor-intensive activity. The key in MRO operations is being able to use labor effectively to better control MRO-labor costs. Quintessential assets of any maintenance organization are people skills, the “approvals-andcapability” list (that is, being approved to perform vital MRO functions) and first-rate facilities. Managing and maintaining these resources to the optimum degree is the best MRO-profit strategy any airline or maintenance specialist can adopt.

But, of course, there are many other MRO approaches that can also bear fruit in the costsensitive carrier’s global context. Outsourcing in geographic regions with lower labor costs — but without sacrificing quality — is a strategy that many carriers strive to adopt, but not all can economically achieve. Yet it’s a developing phenomenon that the most economical, reliable outsourcing services of certain types are found in specific global regions, such as, in general, wide-body maintenance expertise in Asia, narrow-body maintenance in Latin America and engine maintenance in North America and Europe. As carriers may approach their MRO challenges with open minds, they must also maintain a diligent, stringent commitment to demand the very best results. Only then can a carrier rest assured that its MRO is being performed to the utmost quality standards, but at the extremely elusive “lowest possible cost” in achieving that high-quality result. a

Allan Bachan is MRO solutions director for Sabre Airline Solutions®. He can be contacted at allan.bachan@sabre.com.


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On The Same Wavelength Integrated systems as well as business processes can enable airlines globally to achieve effectiveness and efficiency throughout their entire range of activity — resulting in significant competitive advantage and enhanced revenue potential. By Phil Johnson | Ascend Staff and Lalita Ponnekanti | Ascend Contributor

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combination of untimely impacts have converged in the aviation industry — from rising fuel costs and government mandates to growing information technology expenses and increased international flying — requiring airline executives to more closely examine systems and business process integration. The age-old approach to choosing a religion of best-in-class or best-of-suite buying is going by the wayside. The industry is seeing a straightforward need to simply reduce complexity, increase flexibility and pull in what has typically been a long road to return on investment and lower cost of ownership for IT systems and software. For airlines to win in a new world of nimble business models and anxious customers and investors, they must understand the facets of integration. They must also focus on flying and rely increasingly on their core group of responsible partners for ensuring people, processes and systems act as one. In addition, there are distinct issues that can be mitigated in operations, commercial, customer sales and service areas of an airline, with superior synchronization of solutions, data and business processes. Tackling only one part of the equation will not be enough to do battle with the impacts the industry is witnessing. Airlines striving to succeed under these challenging economic circumstances need to make full use of every advantage — and integrated systems are key. In its simplest definition, “integration” involves bringing various components together to form a whole. So a genuinely integrated airline environment requires the right business processes to properly make use of the tools, the appropriate support structure and the enabling underlying technology. Integrated systems are essential to allow Sue, an airline revenue analyst, to effi-

ciently and effectively do her job, maximizing her airline’s revenue opportunities. The same integrated systems enable

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While integrated systems bring substantial benefits to airlines and the professionals using them, passengers also reap the benefits of a fully integrated airline. Ian, an operations manager working in a major airline’s system operations control center, to more effectively perform his job of keeping the airline schedule running smoothly, even when day-to-day conditions sometimes conspire against it. And integrated systems are also what enable airlines of every size, shape and description to best serve the interests of their loyal customers such as Priya, who frequently flies to destinations around the world on business as well as pleasure. With market conditions and technology continually changing, integration may never be complete. But the applicable tools, experience, support and technical leadership that are available today — and those that will be

available tomorrow — can be adapted with the business environment, enabling airlines around the world to become more agile. Integrated information systems can provide today’s airlines capabilities that may have hardly been dreamed of previously, yet those capabilities are within airlines’ grasp if they work with a carefully selected vendor to address relevant business needs. Possible advantages of a fully integrated airline can best be explored through the eyes of Sue, Ian and Priya. Sue, an airline revenue analyst, uses all of her professional skills in planning flights — sometimes up to a year in advance, right up to departure. Successful revenue planning demands meticulous analysis to maximize the airline’s revenue opportunities. Integrated systems can help provide Sue much of the realtime information she needs in this long-term process. For example, she knows it’s always essential on competitive routes to stay as informed as possible about a competitor’s fares as well as current market conditions. Being unaware of competitive moves in the marketplace can cost Sue’s airline a lot of money. What if Sue, however, were working with integrated systems in this ultra-competitive environment in which access to competitive fares could help her dynamically alter revenue decisions and either display, alert or create automated response actions for routes across the airline’s markets? Not only that, but could she benefit from integrated systems that would help her re-optimize inventory on a real-time basis? Consider a group booking that has been confirmed for the holiday season: Such information can drastically affect revenue decisions, and having access to the information is vital to Sue’s revenue analysis role.

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industry Photo by shutterstock.com

Dynamic communication through integrated systems can provide a revenue analyst with the very latest data needed to make the best decisions for her airline.

And integrated tools are just part of the picture — they’re important in providing up-to-the-minute information, but Sue has to apply all of her own professional expertise to properly use that data. This is also where an experienced vendor and business partner can be invaluable. As a revenue analyst, Sue must understand how to set inventory controls, given schedule changes that potentially upgrade or downgrade aircraft types within the airline’s fleet on various routes. She concentrates on booking the right passengers in the right seats, such as loyalty-club passengers or last-minute travelers looking for bargains on the Internet. In properly performing her job, Sue is entrusted to maximize the airline’s revenue opportunities on a flight, and those opportunities are constantly changing as the flight departure date gets closer and closer. Only through the sharing of common data elements can she truly maximize the flight’s revenue, because only the latest information can help in making optimal decisions. A full flight with the right revenue mix results from Sue’s capability to assimilate and analyze the data at hand. Dynamic communication through integrated systems can provide her with the very latest data she needs to make the right decisions for her airline. Now that the airline’s revenue management function is working at optimal 32 ascend

levels, what about day-to-day operations and the SOC function? Ian, the airline’s operations manager, when combining his expertise with superior integration across the carrier’s range of solutions, is also equipped to optimally manage its operations side of the business. On a “normal” day when flights are departing on time, passengers are making their connections, the aircraft fleet is up to date regarding maintenance, and crew and ground personnel are where they need to be, Ian’s job may appear rather routine. In his operations management role, he coordinates operations on the day of departure to make sure everything runs smoothly. But when irregular operations develop due to weather or mechanical delays, Ian must be able to react quickly to help get things back on track. Irregular operations occur every time a single aircraft is unable to depart its gate on time due to last-minute developments. And these unanticipated events can rapidly become much larger if there’s a massive weather system that shuts down any given major airport for a period of time. Either way, Ian must work diligently to get the airline back on its routine schedule, because every irregular incident ripples through an airline’s system with a multiplier effect. And every minute that an airline schedule is disrupted costs the airline immense amounts of money due to canceled flights, reac-

commodating passengers or reassigning aircraft (see related article on page 64). Every flight has a necessary crew assignment, which is based on preferences and pairings decided in advance according to labor rules and agreements. So when flights are affected by schedule changes, those labor rules and agreements still have to be accounted for when reassigning crews to help get the airline’s flight schedule back together. The same principle applies to ground personnel at the airport. Any flight that comes in has to be served by the correct number and types of personnel at the gate to handle arriving passengers, their baggage and aircraft preparation for its next route. And when irregular operations occur, those ground personnel must be reassigned and rescheduled according to flight delays and cancellations. Appropriate tail assignment of aircraft to serve specific routes is also vital to recovering from irregular operations. The aircraft must have the correct capacity, range and equipment to fly the route. Additional primary concerns revolve around fuel and fuel price. Any opportunity to save fuel must be taken into account when making tail assignments and plotting or adjusting routes during a recovery operation. There are also the obvious effects of irregular operations on passengers who may need to be shifted to another of the airline’s flights, or even to be accommodated by rebooking with an alliancepartner airline. It’s possible for Ian or others in operations to perform all of these tasks by hand, but how long will that take? Integrated tools and business processes can help speed up the necessary adjustments by significant measures — significant enough to save the airline millions of dollars by getting everything back on schedule in a much quicker timeframe. Ian’s task is largely to streamline and minimize the effects of mechanical delays, gate congestion or developing adverse-weather conditions. He must also be able to maximize the airline’s revenue opportunities, and that sometimes means limiting the dilution of planned revenue that is threatened by every increment of delay or flight cancellation, which alters the schedule due to irregular circumstances. It is Ian’s responsibility to manage the disruptions effectively so they don’t spill over into tonight’s schedule — or even into tomorrow’s schedule — costing the airline significant amounts of revenue.


industry But if Ian is able to work with integrated systems, sharing information that can change every split second among all the disparate functions of the airline, he has tools that can help him work effectively to overcome even the greatest of delays that can quickly spread throughout his airline’s route system when irregular operating conditions develop. While integrated systems bring substantial benefits to airlines and the professionals using them, passengers also reap the benefits of a fully integrated airline. As an airline passenger, Priya has traveled around the world and accumulated many frequent-flyer miles and loyalty points with her favorite airline. She travels for both business and pleasure, and she enjoys traveling. However, she doesn’t like to be burdened by hassles when flying globally. That’s one of the reasons she appreciates the treatment she’s accustomed to getting from her favorite airline. That particular airline is able to treat Priya like the favored customer she is through its implementation of integrated systems. Because of integrated systems, the airline always has Priya’s personal preferences on hand, whether she books via telephone, over the Internet or she has last-minute schedule changes at the check-in counter at any airport around the world. Integrated systems enable the airline to keep on record and immediately call up Priya’s personal traveling data, ensuring it properly accommodates her as one of its best customers at every opportunity. It’s essential that the airline provides a consistency of quality customer service for Priya — as well as for every other highly valued customer — so it wins and retains her loyalty through all the years she travels. For example, Priya recently visited Canada for a business conference, and when departing Toronto after the conference, she went online to book herself on one of her favorite airline’s alliance partners, which provided service to Vancouver, Canada. From Vancouver, her latest business assignment necessitated a flight to Hong Kong. Once again, even though all of her flights on this particular leg of her trip were on her favorite airline’s alliance partners, because of integrated-system connections, her vital traveling preferences were always available and flawlessly accommodated by the airlines she flew.

On another trip, when weather conditions caused a several-hour delay in Priya’s departure for her next destination, her airline provided her with a pass to the airline’s VIP lounge at the airport at which she was temporarily grounded. And when her flight was close to boarding, Priya received a courtesy reminder on her cell phone so she had plenty of time to pack up her laptop computer and get down to the gate before her flight’s departure. The only way Priya’s favorite airline was able to provide her these privileged conveniences was through integrated systems — always making valuable passenger information available and usable at a moment’s notice to treat the airline’s loyal customers the way they expect (and deserve) to be treated. So Priya’s passenger experience is always consistent — and consistently superb. It’s a function of an airline that Highlight

Airlines striving to succeed under these challenging economic circumstances need to make full use of every advantage — and integrated systems are key.

makes excellent use of integrated systems to help it know and understand its customers, as well as their needs. When an airline truly knows its passengers and has critical customer information stored within its integrated systems, it can identify touch points at which it might, for instance, offer attractive special merchandising opportunities during the customers’ visit to its Web site. This might include giving a customer an opportunity to upgrade to a better seat at a reasonable fee or to reserve extras such as a rental car or a leisure excursion for use during the trip. All successful businesses understand that it’s forever of paramount importance to treat their customers

right. Taking that fundamental concept all the way through its logical reasoning, of course, it’s of paramount business importance to treat all customers right. The personalized passenger experience that Priya enjoys would not be possible without integrated systems and business processes — the same systems and processes that enable Sue as a revenue analyst and Ian as an operations manager to excel at their jobs. In fact, many things Sue does — due to integrated systems and processes — affect Ian, and many things Ian does affect Sue. And both Sue and Ian help make Priya’s passenger experience even more satisfying. There is no canned answer in providing any particular business solution. Every business situation demands individual analysis and studied consideration before recommending and implementing a desired solution. But the right solution will always involve the right tool combinations, the right business processes and the right services to properly support a successful business conclusion. It’s very much like assembling a giant jigsaw puzzle — but a puzzle in which all the pieces are not necessarily perfectly sized and shaped. And it is an airline’s responsibility, in partnership with its trusted business consultants, to make sure the pieces fit. The power of integrated systems is huge. And the capability of an airline — in company with a well-selected partner with a comprehensive set of integrated solutions — to attain positive businessbuilding results through diligent pursuit of integrated-systems advantages can genuinely prove of substantial long-term benefit. a

Phil Johnson can be contacted at wearelistening@sabre.com. Lalita Ponnekanti is product marketing principal for business and operations planning at Sabre Airline Solutions ®. She can be contacted at lalita. ponnekanti@sabre.com.

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Photo by Shutterstock.com

REACH FOR THE STARS

Airlines around the world aspire to uphold the utmost quality in the products and services they offer, but when put to the test by London-based Skytrax, only six carriers have achieved the highest level of quality excellence. By Stephani Hawkins | Ascend Editor

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industry Photo courtesy of Airbus

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Five-star award recipient Malaysia Airlines has recently launched its MH campaign, which stands for Malaysian hospitality, one of its 125 customer value proposition initiatives. The campaign captures the true spirit of Malaysia Airlines where all of its customers are treated as special guests.

personalization of service, in-flight entertainment, and consistency among staff. “The agenda is based on frontline product and service audit studies that we have conducted for the airline industry during the last 19 years and is well recognized by carriers as representing a fair and full quality assessment format,” said Skytrax Chief Executive Officer Edward Plaisted. “This is best underwritten by the fact that Skytrax specializes 100 percent in this market aspect, and the life of everyone working in our organization revolves around breathing, measuring and evaluating frontline airline standards.”

The complete process for ranking airlines is based on thorough, hands-on research conducted by Skytrax. Once the company has gathered and verified all quality assessments for the set criteria, an airline becomes eligible for ranking. Because the criterion is specific to airline customers’ needs and expectations, and a large portion of the scoring comes directly from customer feedback, standards for achieving five-star ranking are quite high. “Five-star ranking is the pinnacle for which we have set some fairly stringent quality requirements,” Plaisted said. “In broad terms, the fivePhoto courtesy of Airbus

surefire way to win customer trust and loyalty is to ensure every customers’ experience, time and time again, is nothing less than exceptional. That’s a lot of people to please day in and day out, but that’s what it takes. It’s every airline’s goal, but amazingly, only six airlines around the world, according to Skytrax, currently excel. Asiana Airlines, Cathay Pacific Airways, Kingfisher Airlines, Malaysia Airlines, Qatar Airways and Singapore Airlines have all earned five-star status from Skytrax, the leading quality advisors to global airlines and airports. That’s not to say no other airline provides exceptional customer service, but when analyzing more than 400 airlines, these were the only six that met the criteria for Skytrax’s five-star ranking, the most recognized and prestigious global award to honor airline product and service quality excellence. Established in 2000, the star ranking program offers airline members a range of competitive performance analysis studies and a full rating breakdown. The program applies an internationally recognized evaluation system to assess a broad range of quality standards put forth by airlines. Five-star status recognizes those at the forefront of products and services achievement, generally setting trends that other carriers aim to follow. For Qatar Airways — the Middle East’s industry leader by virtue of being a step ahead of the rest — some of its most valuable attributes that contribute to its five-star status include fully flat first-class sleeper beds with mattress enhancers for added comfort as well as the largest seat pitch and biggest individual television entertainment screens across all cabins on long-haul routes. But that’s only a fraction of what makes the carrier shine above some if its main competitors. The balance of superior products and its customer-devoted staff are necessary to reach the high accolade from Skytrax. “Qatar Airways was awarded five stars in a number of categories such as onboard catering, cabin staff service, staff attitude and friendliness, lounge facilities, transfers, and also on the overall amenities and services relating to first class,” Qatar Airways Chief Executive Officer Akbar Al Baker told New Delhi, India-based The Tribune Online. “The five-star ranking and our achievement in the popular Airline of the Year survey demonstrates that we are being acknowledged as one of the best airlines by the airline industry and by the traveling public.” A full star ranking determination examines more than 800 different areas of product and service delivery for each airline, including core airport and onboard functions such as long-haul business- and first-class service, staff grooming and presentation, assistance for families and children, check-in services, Internet/WiFi options, service efficiency, staff enthusiasm and attitude, dining options and food quality, washroom/aircraft cleanliness, seat comfort, priority boarding processes,

Seoul, South Korea-based Asiana Airlines has upheld its Skytrax five-star ranking for two consecutive years. The carrier excelled in the categories of business and economy class on its long-haul routes as well as in the areas of staff grooming and assisting families and children.

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industry Photos courtesy of Airbus

Cathay Pacific Airways, according to loyal customers, excels in every category across its organization, including areas such as on-time performance, baggage handling, customer service and in-flight amenities. The Asian carrier is one of six to hold the five-star airline title.

India’s Kingfisher Airlines, which refers to its customers as guests, credits its five-star status to its staff’s consistent ability to deliver high standards of service efficiency — in a sincere and charming manner that makes the airline stand out from the rest.

Qatar Airways, the third carrier in the world to achieve five-star status from Skytrax, offers fully flat first-class sleeper beds, the largest seat pitch and the biggest individual television entertainment screens across all cabins on long-haul routes.

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star ranking is awarded when an airline meets our criteria of product and service delivery quality targets; is able to deliver these standards on a steady basis; and has some individual strength, identity, flair, ‘Wow’ factor, etc., that we consider sets an airline apart — and above its peers.” For instance, a repeat Cathay Pacific Airways customer highly recommends the Hong Kong-based carrier, touting that its service across the board is excellent, time after time. “Be warned! Cathay Pacific is not like other airlines! They depart and land on time,” James P. Zaworski said about his carrier of choice in an online forum. “This is unusual in my experience of flying. Here in Asia, efficiency and punctuality are the rule, not the exception. “I have been completely impressed with the in-flight services offered by Cathay Pacific,” he said. “I have flown economy class each time and have been treated as if in first class. The staff of stewards and stewardesses is kind and cordial and friendly. They make you feel very welcome and they cater to any need you have, and no request is too much. “In addition, my bags were never lost in my eight different flights using Cathay Pacific, and the bags were always waiting for me, undamaged and on time, when I got to the baggage claim area,” Zaworski said. The six airlines that currently hold fivestar status are located in Asia/Pacific and the Middle East. But airlines in other regions of the world, such as North America and Europe, have the same opportunities to achieve the highest ranking. “There is nothing to exclude an airline in Europe, North America, South America or any other region of the world from achieving five-star ranking,” Plaisted said. “We’ll work with any airline around the world to help them meet their goals of providing the highest level of products and services quality for their customers.” Regardless of a carrier’s location, Skytrax must maintain such a strict approach because when it awards a five-star ranking, it not only puts the airline’s reputation up for scrutiny, but its own reputation and credibility are on the line as well. It has to maintain complete confidence that a five-star airline lives up to the expectations of the award. Therefore, the company keeps a close eye on all five-star award recipients’ quality fluctuations and spikes. Skytrax also uses a similar measuring system to determine lower-ranking levels — four-star, three-star, two-star and one-star. Each reduction level reflects a set of product or service delivery criteria an airline has been unable to achieve, particularly when inconsistencies exist. “We cannot award a five-star rating when an airline might be delivering top-level quality on eight out of 10 experiences,” Plaisted said. “We have to seek as near perfection as can be expected for the top tier. It is a customer-facing industry based around human service, and for that reason, we know that 100 percent consistency and total


industry Photo courtesy of Airbus

Singapore Airlines, one of six carriers to earn five-star status, also achieved the overall 2007 Airline of the Year title for the quality of its economy- and premium-class services. The carrier, which flies more passengers every year than the entire population of Singapore, was recognized for its exceptional food and friendly flight attendants as well as quality excellence in several other categories.

perfection will never be achieved by any airline in the world. But those that achieve a five-star rating must come close.” An airline that offers a five-star product (seating, catering, airport services, in-flight entertainment) but fails to deliver in the service area, or if top-quality service is delivered time and time again but the product is inconsistent or incomplete, the carrier earns only a four-star ranking. And as the inconsistencies increase, the status is reduced. “The Star Ranking awards are based upon the ‘total’ travel experience an airline delivers to its customers,” Plaisted said. “Ranking is not about whether caviar is served in first class or inflight entertainment offers 100 different channels — it is the service experience that counts. The friendliness or efficiency of staff on the ground and onboard flights are major elements behind good service, but in a five-star ranking, we look for service standards that you can describe as being truly special.” Today, the largest group of airlines falls within the three-star ranking, which conforms to an industry average of acceptable products and services standards. “We spend a lot of time discussing our rating system with airlines that believe their threestar rating should be upgraded to four-star status, but in the end, they understand the importance of creating a true balance of product and service quality to determine the ranking,” Plaisted said. That doesn’t mean the door is closed to carriers that want to achieve a higher ranking; it’s

quite opposite. Skytrax works with many airlines to help them identify their weaknesses so they can make changes to achieve and maintain higher ratings. “For some airlines, the catalyst between four- and five-star ranking may be based on delivering a better quality product, or it may be reliant on increasing service consistency or, quite possibly, it may require the introduction of a new product,” Plaisted said. “For others, the improvement of frontline staff service standards may be the feature for change. It tends to be very different from one airline to the next.” While reaching five-star status posses challenges for many carriers, it also comes with some pretty significant, worthwhile benefits. According to Plaisted, the biggest benefit for an airline is the exclusivity of the five-star ranking. With the ongoing exceptional service and product delivery that’s required to achieve this ranking level — contributing to customer satisfaction — five-star airlines naturally benefit. “Airlines achieving five-star ranking benefit both internally and externally,” he said. “Internally, it’s used as a daily measure to which their service staff must perform and to ensure product quality always meets customers’ expectations. And externally, an airline will generally want to publicize the five-star ranking award, largely because they know that it is a unique and globally recognized sign of quality assurance toward their past, present and future customers. “Finally, to an airline achieving five-star status, it is their opportunity to stand up and

shout about their achievement; to demonstrate to existing and potential customers that they have reached this level,” he said. Plaisted said one of the greatest attributes and strengths of the ranking program is that Skytrax does nothing to encourage airlines to achieve five-star status. “The global recognition of the star ranking program is now such that airlines will come to us to establish exactly how they can try to meet the required quality criteria and to understand the complexity and requirements,” he said. “As a quality-based program, it has to remain something that is developed and nurtured within the internal operations of each individual airline. They need to want to achieve five-star status and determine if the right culture and attitude will work in their organization. We deal directly with airline presidents, chairmen and CEOs around the world, with the knowledge, experience and understanding that they can only develop a true five-star culture by having 100 percent involvement from top to bottom of the management and service chains.” Malaysia Airlines Managing Director and CEO Idris Jala acknowledges that all employees across the organization, from top executives to customer-facing staff, strives to always put their best foot forward — not only to maintain fivestar status, but most importantly, to constantly achieve the high service standards their customers deserve. “This award is indeed a timely recognition of our employees’ continuous commitment towards maintaining superior standards in product and services delivery to our customers, both in flight and on the ground,” he told Qantas Business Travel. “The competition in the airline industry will continue to intensify,” he said. “Therefore, it is imperative that Malaysia Airlines maintains its high level of product and service quality so Malaysia Airlines continues to retain its premium customer business.” Like the six carriers that have achieved five-star status, airlines around the world aim to bring the best possible experience to their customers, and while there are many options carriers can use to measure the effectiveness of their product and service standards, reaching five-star status for some airlines gives added assurance that their current practices are aligned with customers’ expectations. “Being recognized by Skytrax is an honor,” said Vijay Mallya, Kingfisher Airlines chairman and CEO. “It is gratifying to see that our approach of providing our guests with a delightful and unique flying experience has been recognized.” a

Stephani Hawkins can be contacted at stephani.hawkins@sabre.com

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Aircraft Shopping Spree 40

Aircraft manufacturers have experienced recordbreaking orders during the last couple of years, but a decrease in capacity, the need to hold onto operating cash because of fuel costs and production delays with new next-generation aircraft could impact the trend.

Air Berlin Enters New Turboprop Era 43

Innovative low-cost carrier Air Berlin has purchased a number of Bombardier Q400 turboprop aircraft, laying out an alternative strategy to combat higher fuel and other operating costs.

Double-Edge Sword 46

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While the two major aircraft manufacturers, Boeing and Airbus, expect to reach projected aircraft orders this year, the orders may be on the lower side of the plane makers’ projected scope.


SPECIAL SECTION

Record Aircraft Orders

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Aircraft Shopping Spree

Aircraft manufacturers have experienced record-breaking orders during the last couple of years, but a decrease in capacity, the need to hold onto operating cash because of fuel costs and production delays with new next-generation aircraft could impact the trend.

By Lynne Clark | Ascend Staff

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special report

Photo courtesy of Boeing

With current orders for passenger aircraft through 2011 and delivery dates rapidly approaching, delays of the next-generation Boeing 787 Dreamliner pose less of a concern for the manufacturer’s investors, who are focusing more intently on the impact today’s oil prices will have on current and future orders.

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n 2005, airlines worldwide went on a shopping spree based on industry assumptions that by 2010 a seating capacity of more than 3.1 million seats would grow 20.3 percent. Fleet planners placed record orders for more than 2,000 aircraft with manufacturers Boeing and Airbus, notably for the fuel-efficient 787 Dreamliner and the Airbus A380 models. At that time, the International Air Transport Association was predicting industry profits of US$4 billion. But at its 2008 annual meeting in Istanbul, Turkey, in June, IATA Chief Executive Officer Giovanni Bisignani forecast industry losses

Rival Embraer, the world’s fourth-largest aircraft maker, said its first-quarter profit more than tripled after deliveries jumped 80 percent. The company delivered 45 airplanes during the quarter and reported backlogs totaling a record US$20.3 billion by the end of March. “The prospects for the company are good,” said Caio Pereira Dias, an analyst with Banco Santander SA in São Paulo, Brazil, before earnings were released. “It increased its orders backlog, and I don’t see a risk of a wave of cancellations due to the airlines’ crisis.”

of US$6.1 billion this year if the average price of oil remained at US$135 a barrel for the rest of the year. Oil prices hit an all-time high of US$147.27 a barrel on July 11, roughly doubling during the past year. IATA said the combination of high fuel prices, a U.S. recession and accelerated deliveries of aircraft ordered at the peak of the economic cycle but delivered during a slowdown meant the outlook for 2008 was “clouded by the perfect storm.” The last perfect storm churned as the result of the Sept. 11 terrorist attacks and restructuring fallout. “Adding to the downward pressures on revenue growth from the U.S. recession will be the acceleration in aircraft deliveries in 2008 and 2009,” IATA said.

Production Delays

New Aircraft, Fewer Passengers

At a time when aircraft deliveries will rise from 1,041 in 2007 to 1,281 in 2008, Bisignani said traffic growth in the industry at best would be 3.9 percent this year, down from a growth of 5.9 percent last year. The two largest mainline aircraft manufacturers — Boeing and Airbus — broke all sales records in 2007. Their combined total of 2,754 net orders worth US$321 billion beat the previous high of 2,057 set in 2006. Regional aircraft manufacturers also saw a surge in orders for next-generation, eco-friendly models. One in every three commercial flights worldwide is on regional jets, and Bombardier aircraft have become the backbone of many operations. The company recently has seen a sharp increase in demand for its 20- through 149-seat C-series and Q-400 turboprop aircraft. In May, the company released figures that anticipate demand by 2027 to reach 12,900 new aircraft, valued at approximately US$528 billion. Photo courtesy of Airbus

Although Airbus has achieved record-breaking orders for the Airbus A380 Superjumbo and other aircraft during the last couple of years, elevated fuel prices and tightening credit for many airlines may contribute to a slow down of future orders.

Brian Pierce, IATA chief economist, told reporters at a December conference that airlines had done a better job of managing capacity during the current cycle than in the past. But a flurry of recently announced capacity cuts and aircraft delivery deferrals has investors worried if airlines will have the money to buy more planes for a long while. “It’s a point of concern, but nothing unexpected,” Boeing CEO James McNerney told analysts on May 21 when asked about the consolidation of airline capacity as the result of the oil run-up. The problem for Airbus and Boeing isn’t too few customers — it’s getting planes off their production lines fast enough to meet demand. Even as new orders slow, passenger jets are mostly sold out through 2011 or even later. Both companies have wrestled to get new models to the airlines lining up to buy them. In May, Boeing pushed back the inaugural flight for its much-anticipated 787 Dreamliner, delaying the test flight until the end of the second quarter because of supply chain problems and slow progress on the assembly line. A September machinist strike further delayed production, and a new production schedule has not been released. Airbus’ flagship A380 superjumbo has been delayed as well, and the company had to redesign its planned competitor to the Boeing 787, the Airbus A350. The delays aren’t the only challenge facing these larger aircraft makers. Cathay Pacific Airways, Qantas Airways and Ryanair have parked planes, reduced capacity and/or deferred aircraft orders due to a decline in air travel in some of the world’s highest-traveled markets. “There’s no question it’s a difficult situation,” Randy Tinseth, vice president of marketing for Boeing’s commercial airplane division told the Chicago Tribune in June. The manufacturer’s investors are more concerned with today’s oil prices and the impact they’ll have on current and future orders than with the delays of the Boeing 787 Dreamliner.

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special report

Delays: Good News For Some Airlines

The delays are good news for some airlines struggling to enhance liquidity and defer debt obligations. John Leahy, chief operating officer for Airbus, warned last January that rising oil and tightening credit could mean that the interest of airlines in — and their ability to pay for — new planes could drop off. “In this kind of market, it’s not just about booking orders anymore,” he said. “You also have to be able to manage your order book. There’s a good chance that some airlines won’t be able to take delivery of all these aircraft.” The dire predictions came true just months after Leahy’s comments. In March, India reported a steep fall in air traffic growth, from a 2007 yearly average of more than 30 percent to 11.5 percent last January and February. Budget airline SpiceJet responded and, earlier this year, returned two Boeing 737s it was leasing. Deccan Air and Kingfisher Airlines sold delivery spots and also delayed delivery of previous orders. Southwest Airlines cut 20 unproductive routes last year and doesn’t plan to add capacity for the rest of the year. It will take delivery of 14 aircraft next year, compared to the 23 previously ordered. For 2010, Southwest will have 22 airplanes on firm delivery with options to buy, down from 34. It intends to buy 29 aircraft this year, but it will get rid of 22 other airplanes, for a net growth of seven planes, unless other airlines’ shrinkage provides growth opportunities, in which case it may hold onto some of the 22 it plans to offload. In May, jetBlue said it would put off buying 21 new Airbus jetliners for four to five years. It said it would take delivery of nine Airbus A320s this year and sell the same number by the end of the year. AirTran Airways also announced it would

defer delivery on 18 Boeing 737s by about four years. Also in May, the Centre for Asia Pacific Aviation said it expected Virgin Blue to follow Quantas Airways and retire or cancel the delivery of new aircraft. “In the face of escalating fuel costs, we believe it is essential to take a more financially conservative approach to managing our business,” jetBlue CEO Dave Barger said in a statement to reporters. “The aircraft deferrals we announced today will help us further moderate our growth rate in 2009 and beyond, which will enhance liquidity and defer debt obligations.” Independent aviation consultant Michael Boyd agrees a deferral strategy makes sense. “Most of those planes were meant for expansion,” he told the Associated Press in May. “You don’t expand at US$4-a-gallon jet fuel. When you have a downturn, not taking on the debt and the problems with new airplanes, that’s a good move.” Although many airlines are scaling back their expansion plans, some airlines are looking at new aircraft to replace their aging fleet. American Airlines CEO Gerard Arpey told reporters they are looking at both the Boeing 787 and the competing Airbus A350. “We continue to look very carefully at the 787 and the A350, and frankly, the Boeing production delays have given us more time to make a decision.” American has also cut U.S. capacity and is retiring 85 older jets because of staggering fuel costs and slowing demand.

Delays Bad For Some Carriers

Boeing said its 787 Dreamliner is perfectly positioned for a world of pricy petroleum. The plane will use 20 percent less fuel than today’s Photo courtesy of Boeing

Supply chain issues and a machinist strike have caused Boeing to delay the inaugural flight of its 787 Dreamliner and, as a result, won’t deliver the first plane later this year as originally planned.

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models because of its lighter-weight composite fuselage and other advances. Airbus states the A380 will also use 20 percent less fuel and will fly quieter, cheaper and more environmentally friendly than the Boeing 747. The U.S. Department of Transportation estimates that the Boeing 767, a plane that began service in 1982 and is used by many U.S. carriers on trans-Atlantic flights, burns an average of US$3,946 worth of fuel and oil per hour during a 3,000 mile flight, or US$17.85 per passenger hour, based on an average 221 seats. By contrast, a new Airbus A330 used by Air France and other European carriers burns and average US$15.72 per passenger hour, about 12 percent less, under comparable conditions. The newer the fleet, the lower the total cost of operations. Older planes cause airlines to spend more on parts and maintenance. Big jets must undergo major checkups every six to eight years that costs an average US$1.5 million and keeps the plane grounded for up to a month, according to Adam Pilarski, senior vice president of the Avitas aviation consulting firm in Chantilly, Virginia. To avoid that, some foreign airlines such as Emirates replace their planes after five or six years. So it comes as no surprise that some airlines are counting the days when they can replace old gas guzzlers with new eco-friendly models. For them, delays could mean the difference between declaring bankruptcy and staying in business. Northwest Airlines, which is merging with Delta Air Lines, has 18 Dreamliners on firm order with options for more. When Boeing announced earlier rounds of 787 delays, CEO Douglas Steenland expressed his disappointment. “Given the price of fuel, the impact and consequences of the delays has gotten greater.” Peter Morris, chief economist of Ascend, a London aviation consulting firm, believes high fuel prices have benefited aircraft manufacturers. “You could argue that high fuel prices are one of the best things to happen to the aircraft manufacturing industry,” he said. “When you look at the large sums of money spent on fuel, at least on long-haul [flights], the arguments in favor of re-fleeting become pretty obvious. The alternative — raising ticket prices in a weakening environment for air travel — is probably a losing proposition.” a

Lynne Clark can be contacted at wearelistening@sabre.com.


Air Berlin Enters New Turboprop Era

Innovative low-cost carrier Air Berlin has purchased a number of Bombardier Q400 turboprop aircraft, laying out an alternative strategy to combat higher fuel and other operating costs. By Phil Johnson | Ascend Staff


special report

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the 76-seat aircraft on Air Berlin’s shorter European routes and use them to replace Fokker 100 jets as they become retired. “These quiet and comfortable turboprops will allow us to round off our fleet at the lower-capacity end,” said Air Berlin Chief Executive Officer Joachim Hunold in a news release issued earlier this year. “We intend to use the Q400s mainly on shorthaul flights where the passenger volume is not sufficient for us to operate jets. This should result not only in a noticeable reduction in costs, but will also allow us to make an active contribution in terms of protecting the environment, as the CO 2 emissions of the Q400 per seat are considerably lower

Photo courtesy of Bombardier

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ward in a highly cost-conscious operational environment. The newest turboprops accomplish this remarkable feat of fuel savings while cruising at what most industry observers view as a pretty decent speed — up to perhaps a little more than 400-nautical-miles an hour — which makes one of these modern turboprops quite viable to economically serve routes of approximately 400 to 500 nautical miles or less. These are a few of many reasons for Air Berlin’s highly strategic order of Bombardier turboprop aircraft. The Q400s are actually to be leased by Air Berlin to its partner LGW, which would then operate

Photo courtesy of Air Berlin

or three decades, Air Berlin has established standards in low-cost airline service — not just in Europe, but in the many locations around the world in which the dynamic airline operates. And today, the second-largest Germanbased airline (behind Lufthansa) continues its trendsetting ways. The LCC, which operates several different Airbus, Boeing and Fokker jet aircraft models, has placed firm orders and holds additional options for a number of Q400 turboprop aircraft from Canadian manufacturer Bombardier Aerospace. During the first half of 2009, Air Berlin is scheduled to accept delivery of an initial 10 Bombardier Q400 turboprop aircraft, with options to purchase 10 more. The original 10-aircraft order is estimated to be worth approximately US$267 million, but if the 10 options are exercised and add-on items are purchased, the value of the entire deal may eventually top US$540 million. In an era that’s generally been dominated by jet aircraft orders from mega suppliers Boeing and Airbus as well as regional jet aircraft orders from Bombardier and Embraer, where does the newly minted turboprop popularity fit into the bigger picture? And why now, when it seemed that airlines were more or less shunning turboprops as recently as 10 to 15 years ago? Complete answers to these questions may be somewhat more complex, but the larger sphere of reasoning really comes down to costs relating to a couple of different primary items. First, the modern turboprop includes many features its predecessors did not, such as running quieter with less overall aircraft vibration and associated noise, resulting in greater comfort for passengers. Yet, even the immense improvements in turboprop features and capabilities have not caused turboprop price increases to inflate to the level of its jet aircraft rivals. Furthermore, particularly in today’s environment, an additional major cost factor relates directly to fuel, as in the earnest, expressed desire of every airline to save expenses whenever and wherever possible by burning less of it. And especially due to the efficiencies that are now designed into turboprop aircraft of all shapes and sizes, the turboprop uses considerably less fuel per distance traveled than any comparably sized jet aircraft. In fact, reliable industry estimates place today’s most efficient turboprop fuel savings compared to similarly sized new, fuel-efficient jet aircraft at 30 percent. That’s the type of opportunity for significant savings that airlines such as Air Berlin desperately need to identify and, if possible, take advantage of to move for-

German-based Air Berlin is scheduled to receive 10 Bombardier Q400 turboprop planes during the first half of next year with options to buy 10 more.


special report

lage. These devices are called active-tuned vibration absorbers, or ATVAs, and they’re mounted directly on the fuselage frame. The ATVAs essentially produce counter-vibrations of their own, which are, in this case, good vibrations. And the ATVAs’ counter-vibrations effectively act to cancel out the “bad” or original vibrations, thus resulting in much less (if any) vibration and noise reaching each individual passenger, promoting overall passenger comfort. Air Berlin joins airlines around the world including Horizon Air, Qantas Airways, Royal Jordanian Airlines, Croatia Airlines, Frontier Airlines and airBaltic in employing the latest mode of turboprops on many shorter routes on which regional jets simply cannot favorably compare in terms of operating costs. The Q400 flies fast enough — configured, in this case, to carry 76 passengers (which represents a higher number of passengers than many of its regional-jet competitors) — and operates in a reasonable, relatively short-distance range while promising better return on investment due to significantly lower fuel usage and greater efficiencies in many other operational categories. That seems like the kind of “sure bet” few airlines could resist making, although the appeal of comparable jet aircraft — regional or otherwise — will probably never completely go away. Study after study

during previous years and eras in the airline industry has shown that passengers simply prefer jets. But if savings in operational costs are great enough to help minimize necessary fare increases, even the most skeptical turboprop passengers may eventually climb aboard the bandwagon that has ushered in a new generation of successful turboprops, featuring technology that rivals the latest and greatest jet aircraft engineering advances and saving significant measures of fuel as well as other operational expenditures. “The selection of the Q400 aircraft by Air Berlin, a leading-edge and profitable LCC, is recognition of the significant cost benefit this aircraft brings to LCCs,” said Steven Ridolfi, president of Bombardier Regional Aircraft. “The Q400 offers outstanding performance and economics.” Air Berlin aims to address a number of issues with its new turboprop aircraft. “The Q400 aircraft offers the combination of passenger capacity and comfort, speed, economy of operation and environmental compatibility that we require,” Hunold said. a

Phil Johnson can be contacted at wearelistening@sabre.com. Photo courtesy of Bombardier

than those of the Fokker 100. In comparison with jets, the flying times on short-haul flights will only be very slightly longer. Since our cooperation partner LGW will be operating these aircraft for us, there will not be an increase in the complexity of our fleet, either.” Financial advantages in using the newer turboprop technology stem from efficiencies Bombardier promotes in its Q400 design. Bombardier marketing literature eagerly informs prospective airline customers that the “Q” stands for “quiet,” and that the Q400 is known as “the Quiet One.” This “quietness” factor is not just due to greater efficiency in the aircraft’s Pratt & Whitney state-of-the-art engines. The Q400’s propellers themselves are of significantly advanced design, featuring six longer blades made of composite material, giving the plane superior lift and propulsion even while the propeller blades rotate at a slower speed than that which was commonly associated with the prop technology of earlier eras. Bombardier has cleverly engineered the Q400 with propellers mounted farther out on the wings, thus somewhat dampening that particular noise source by the simple design of locating it farther away from passengers’ ears. Even more impressive is the manner in which Bombardier explains that it has gotten a better handle on aircraft vibration, which has been an age-old source of passenger complaints and epithets toward previous generations of turboprops — among choice, unloving passenger descriptions of the turboprop genre in general — as “eggbeaters.” No longer, says Bombardier — for the company’s scientific thinkers, working closely with key suppliers, have developed a fascinating method designed to minimize vibration and its accompanying noise. Over the years, the greatest vibration problem in turboprops, according to meticulous studies, has stemmed from the pressure pulses generated by the aircraft’s spinning propellers. Those pulses would, in turn, beat a steady pattern through the air currents against the aircraft’s fuselage, causing both noise and passenger discomfort from a constant hum of vibration. On Bombardier’s Q400, a uniquely designed noise-and-vibration-suppression system, or NVS, essentially cancels out the vibration and noise effects that would otherwise be felt and heard by passengers. How? Through nuclear-age computer analysis, which takes vibration as well as propeller-speed readings in real time and converts them into signals to devices installed at strategic locations in the fuse-

The addition of Bombardier Q400 turboprop aircraft into its fleet provides a blend of passenger comfort, speed, efficiency and environmental sustainability for Air Berlin.

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special report

Double-Edge Sword While the two major aircraft manufacturers, Boeing and Airbus, expect to reach projected aircraft orders this year, the orders may be on the lower side of the plane makers’ projected scope.

By Lynne Clark | Ascend Staff

F

leet planners worldwide are having the same conversations many families today are having when faced with higher fuel prices. Do they replace the old gas-guzzlers with newer, more fuel-efficient models? The answer for both groups depends on how cash strapped they are. Global aviation is in crisis, with more than 20 airlines going bankrupt since the start of the year. But while soaring fuel costs are expected to send the airline

industry into a collective loss of as much as US$6 billion this year, those same fuel costs are also forcing many carriers to consider buying new planes to help them retire older models. “This crisis is a bit of a two-edge sword,” Airbus Chief Operating Officer John Leahy told the Seattle Post-Intelligencer in June. Both U.S.-based Boeing and Europe’s Airbus say they still expect to hit earlier planesales projections for 2008, though the orders

may end up coming in at the lower end of the companies’ projected ranges. Airbus’ delivery of 453 jetliners in 2007 surpassed its previous year’s total by 19. Delivery rates this year will reach 34 aircraft from its Airbus A320 single-aisle family each month, along with eight Airbus A330 and A340 wide bodies monthly and one Airbus A380 approximately every 30 days. In its first quarter ending in March, the Boeing Company reported 115 aircraft Photo courtesy of Airbus

While Airbus orders may end up on the lower end of its projections for the year, the aircraft manufacturer this year will deliver, on average, 34 aircraft from its Airbus A320 single-aisle family each month as well as eight Airbus A330 and A340 wide bodies monthly and one Airbus A380 approximately every 30 days.

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deliveries, up from 106 deliveries during the same time last year. Most of the deliveries were for 737 next-generation aircraft, followed by 777, 747 and the 767 models. The company expects to deliver between 475 and 480 new aircraft by the end of the year. Analysts for Boeing attribute the current upswing in airplane orders to the aviation market’s growing geographic and business model diversity. These factors have been able to successfully counteract demand cycles driven typically by U.S. and European network carriers. The record number of orders during the past three

35 percent compared to May 2007. Asia/ Pacific accounts for the largest share of new orders with plans for another 2,755 aircraft, according to the OAG. The Middle East is showing the largest year-on-year increase at 145 percent (458 more aircraft on order than a year ago), followed by Latin America and the Caribbean with an increase of 52 percent representing 174 more aircraft. Driving demand in these areas is growing economic output. In 1970, China and India accounted for only 5 percent of the world economy in terms of purchasing power, and all of Asia operated

Highlight

Both U.S.-based Boeing and Europe’s Airbus say they still expect to hit earlier plane-sales projections for 2008, though the orders may end up coming in at the lower end of the companies’ projected ranges.

Underserved Markets Lead The Charge

Globally, there were more than 8,200 aircraft on order in May, a rise of just over

only 5 percent of the global commercial airplane fleet, according to figures from Boeing. By 2000, the combined economies of India and China had grown to 17 percent of the global economy, on par with the economic output of Europe. North America

Photo courtesy of Boeing

years has been driven largely by low-cost carriers and requirements from emerging economies. By 2017, North America will be responsible for less than one-third of new airliner deliveries, while China will be approaching 20 percent, predict aviation consultants with the Boyd Group. Yet as deliveries loom, worldwide demand is slowing. The Official Airline Guide released figures in May that showed growth in Europe has slowed from 5 percent last year to 2.6 percent for the same period this year. U.S. airlines contracted also, offering 1.5 percent fewer domestic flights this May than last. Flights to and from Europe were more robust, up 9 percent and 5.2 percent, respectively, as airlines expanded focus on more lucrative long-haul international markets. The slowdowns were biggest in China and India. Chinese airlines scheduled 153,000 domestic flights in May, up just 4.3 percent year over year. Indian growth was down nearly half, from 24.8 percent growth in May 2007 to 12.9 percent this year.

and Europe together still operated 71 percent of the world’s commercial fleet, but Asia’s share of the fleet had grown to 17 percent. Projections for the year 2012 show China’s share of the global economy pulling ahead of Europe’s to match the United States’ share at 18 percent. India and China together will generate more than a quarter of the world’s total economic output. Asia’s share of the world’s commercial airplane fleet will become equal to Europe’s share at 24 percent. Demand for airplanes will be shared more evenly between three major economic regions, rather than just two, Boeing statistics show. In the Middle East, local carriers and airports are undergoing massive capacity expansion plans thanks to the removal of market restraints instituted more than a half century ago to protect usually inefficient national airlines. “What we are witnessing is a change of seismic proportions, not merely an evolution that can be tracked by traditional measures,” said Peter Harbison, executive chairman of the Centre for Asia Pacific Aviation, who addressed attendees at the Inaugural Middle East Aviation Outlook Summit held in Abu Dhabi in February. “We will see not only the rapid fire growth of locally based airlines,” he said. “We will also see major foreign airlines establish in the Middle East in order to use it as a springboard for their future development. Under the emerging regulatory regimes, this will be possible, where it was not before.” “The geographic location of Abu Dhabi and the region as a whole, situated

During Boeing’s first quarter, the aircraft manufacturer reported 115 aircraft deliveries, up from 106 during the first quarter 2007. The majority of the orders were for the 737 next-generation model.

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special report

between the major economies of the east and west has helped drive the huge increase in demand for passenger and cargo capacity,” said Khalifa M. Al Mazrouei, chairman of the Abu Dhabi Airports Company, at the Middle East Outlook Summit.

Europe And North America Lagging

When even the world’s largest airline in terms of international passengers, Ryanair, warns that fuel costs will wipe out its operating profit next year, it is clear these are exceptional times for the airline industry. Still, Ryanair took delivery of 16 Boeing aircraft through May. Those deliveries are

among a total of 45 delivered to European customers this year including Air France, Air Europa, KLM Royal Dutch Airlines, Pegasus Airlines, SkyEurope, SunExpress, Turkish Airlines and TUI. Airbus deliveries during May included all four members of the A320 family. One A318 was received by LAN Airlines, six A319s went to CIT Leasing (for Avianca), Boutsen Aviation, Hamburg International, easyJet, Germanwings and a private customer. Lufthansa German Airlines received two Airbus orders in May — a wide-body A330 and an A340-600 jetliner. Finnair also took delivery of an A340-300. Through May, Boeing had received 10 2008 commercial aircraft orders for European

carriers, including Air France (four 777-300 ERs), Blue Air (two 737-800s and 737-900 ERs) and SAS (one 737-800). Orders for Airbus during May included Air France’s order for 12 A320s and six A321s, adding to the major Airbus fleet of this carrier. Other single-aisle aircraft orders included two A320s for British Airways. In addition, Lufthansa ordered two A330300s. In North America, Boeing orders were anemic January through May. Boeing received only 43 orders from three U.S. carriers. American Airlines placed an order for one 737-800. Continental ordered 20 737700s and six 777-200ERs, while Southwest placed orders for 17 737-700s.

According to the Official Airline Guide, worldwide demand is slowing, thereby potentially impacting current and future aircraft orders. The greatest impact lies in China and India. China grew by only 4 percent from May 2007 to May 2008, and India’s growth was down almost half, from 24.8 percent to 12.9 percent year over year.

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Boeing delivered 61 aircraft to North American carriers including Air Canada, AirTran Airways, Alaska Airlines, Continental Airlines, Delta Air Lines, Southwest Airlines and WestJet. Through May, North American total aircraft orders for Airbus aircraft families were 1,228 and 901 deliveries were scheduled. U.S. airline fleets are some of the oldest in the world — an average of 18.5 years old at Northwest Airlines; about 15 years at American Airlines; almost 14 years at United Airlines and Delta Air Lines; and about 10 years at Continental Airlines. During the next decade, major U.S. airlines are facing a potentially crippling bill running more than US$100 billion to upgrade their aging fleets, according to industry experts at the aviation consultant group Ascend. They say airlines face being stuck with old aircraft for years to come because they currently do not have enough firm orders to replace them. Order backlogs at Boeing and Airbus means there is unlikely to be any quick fix.

“Given the state of the U.S. airline industry, who is going to pay for these aircraft?” asked Chris Tarry, a British aviation consultant quoted in a recent BusinessWeek.com article. “The manufacturers won’t want to provide financing.” Despite the gloomy economic setting, at least one analyst is optimistic. Joe D’Cruz, a management professor at the University of Toronto, said Canadian airlines are in “reasonably good shape.” “In Canada, the industry is insulated by a couple of things,” D’Cruz told CTV.ca in June, noting that the overall Canadian economy is in better shape than its American counterpart. “We don’t have the intense [airline] competition,” he said. “There is competition, but the airlines refrain from destructive competition. [And they] seem to pass on increases in high oil prices to travelers. They are hurting, but they are not in a disastrous shape.” D’Cruz said that even in the United States, there have been much worse times for the industry.

“For example, after the dot-com bust in the 1990s — when business travel was the main profit engine of the industry — that era was much worse than the current era,” he said. Soaring fuel costs, grounding of planes by some airlines and declining capacity will likely have a substantial impact on the world’s largest aircraft manufacturers, even if they reach their expected aircraft orders for the year. a

Lynne Clark can be contacted at wearelistening@sabre.com.

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company

Breaking The Mold A recent multi-million-dollar investment by Sabre Airline 速 Solutions to its suite of airline passenger systems will help significantly build airline revenues and customercentric capabilities as well as support a move to a more modern, innovative technology platform. Parag Sanghvi | Ascend Contributor

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company

H

ow does an airline remain profitable and position itself for long-term growth in an environment where fuel prices have well exceeded US$100 a barrel and may spike again at any time? This has become the quintessential question facing airline executives today. While every airline will have a unique approach to dealing with this marketplace challenge, sustainable airline success is becoming increasingly connected to two fundamental business capabilities: knowing every customer better than your competitors do and using this insight to optimize revenue and deliver differentiated service efficiently. Current reservations and departure control systems have not been designed to fully deliver the capabilities that have taken on increased importance in today’s environment. On Sept. 8, Sabre Airline Solutions announced a major, multi-million-dollar investment in its SabreSonic® Passenger Solutions to dramatically build airline revenues and customer-centric capabilities as well as move to a modern, future-proof technology platform. The SabreSonic solutions, the leading reservations and departure control technology that today serves more than 100 global airlines, delivers comprehensive airline capabilities ranging from reservations, inventory, check-in, shopping and pricing, ticketing, and online booking engine functionality to help airlines operate profitably. Leveraging the latest service-oriented architecture and an open, standards-based environment, the SabreSonic solutions are evolving further to deliver more of the specialized capabilities that airlines need for long-term growth. In recognition of the many advances associated with this investment, the SabreSonic solutions have adopted a new name: the SabreSonic ® Customer Sales & Service solutions, or SabreSonic CSS. The focus is on delivering the two needed attributes for airline success today: revenue centricity and customer centricity. Unique among aviation suppliers, Sabre Airline Solutions has developed both revenue-centric and customer-centric airline performance scales that help airlines visualize and define what these often intangible concepts mean. These scales itemize specific functionality airlines have available to them to improve their revenue-generation and customer-focus capabilities. Currently, every airline possesses some of these capabilities, but other capabilities such as advanced revenue management may be viewed as “next-stage” opportunities for many. By specifying the functionality airlines can use to improve their overall performance, from more routine activities to highly sophisticated ones, carriers can

gauge for themselves where they are on the revenue-centric and customer-centric continuums. From there, they can identify opportunities to implement additional capabilities that will let them become even more revenue and customer centric. Today, the SabreSonic solutions continue to successfully meet the needs of diverse leading airlines throughout the world. The further modernization of this technology will build on this success partly as an evolution, partly as an expansion and partly as a transformation based on the introduction of revolutionary new capabilities. The existing SabreSonic solutions plan remains intact, and new investment is supplementing the community model currently in place, and other areas within the SabreSonic portfolio will continue to progress as planned. Existing customers are well positioned to absorb the new functionality as it becomes available, without any migration risk. New customers will be able to employ unique capabilities that deliver solution versatility and depth, so a carrier is not limited by system constraints as it evolves its business model to achieve its business goals. SabreSonic CSS offers three major solution bundles that directly address the revenue and customer-centric capabilities that will help airlines thrive: SabreSonic® CSS Inventory and Revenue Management,

SabreSonic® CSS Merchandizing, SabreSonic® CSS Customer Centricity. SabreSonic CSS Inventory and Revenue Management leverages Sabre Airline Solutions’ industry-leading experience with advanced inventory and revenue management algorithms. It is flexible enough to accommodate third-party revenue management systems, but delivers even better performance through the Sabre® AirMax® Revenue Management Suite. The solution offers several key benefits, including: The ability for airlines to perform advanced revenue management, Sensitivity to fare/schedule changes, Competitive revenue management, Revenue management for traditional and one-way fares, Customer revenue management.

SabreSonic CSS Inventory And Revenue Management

Advanced revenue management coupled with competitive and customer revenue management will enable airlines to offer optimized fares that more closely match a traveler’s value calculation for the trip. For example, if a customer needs to fly roundtrip between London, England, and Hong Kong, China, and would comfortably pay US$2,500 for that ticket, but the airline has a discounted fare in the marketplace for only US$2,000, the revenue management

The SabreSonic CSS Customer Performance Scale helps airlines answer the question: what does it mean to be “customer centric”? The scale helps airlines identify precise, tangible activities they can perform to improve customer centricity.

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company capabilities could automatically determine whether any other competitors are currently offering a fare below the US$2,500 threshold. If competitors have already exhausted their supply of discounted fares, SabreSonic CSS Inventory and Revenue Management would be advanced enough to automatically pull the US$2,000 fare from available inventory and replace it with the higher fare amount. This alone would yield a 25 percent net improvement in collected revenue. Using this advanced technology, airlines will be able to recapture money that today is left on the table and do so in a manner that equates the final price offered with the value the customer will derive from the purchase. Customers will remain happy and airlines will become more profitable.

SabreSonic CSS Merchandizing

Merchandising refers to the airline’s ability to push the right product offering to the right customer at the right price at the right time in any given channel, whether it be online, at a call center, through a GDS, or at check-in at the airport via a kiosk. SabreSonic CSS Merchandising offers the industry’s only true multi-channel merchandising control panel. Airlines will have the

ability to improve their rates of upsell and cross sell in all channels and optimize revenue across their distribution networks. As significantly, airlines will be able to make customers aware of product and service offerings that they will value and may be happily willing to pay for, which they may not have otherwise considered. In doing so, they will increase overall customer satisfaction because travelers will be receiving exactly what matters to them and what they value. Nothing more, nothing less. SabreSonic CSS Merchandising delivers two key capabilities: The ability to sell ancillary services, such as in-flight services, preferred seating and comfort amenities; The ability to offer branded fare families. Branded fares are based on the principle of simplifying an airline’s offering into branded fare categories that bundle attributes travelers want, with a branded fare that most accurately reflects what they desire in terms of service and product offering (see related article on page 26). This represents an important economic opportunity for an airline by enabling the upsell to higher fare categories based on specific services that the traveler values. For example, if a

customer selects the lowest branded fare category based on price, but then is advised that he can obtain a pre-reserved seat, meal and other amenities if he purchases the next-higher branded fare category, he may be inclined to do so because that offering more accurately matches his preferences at a palatable incremental price. In offering branded fares, once again the airline is matching its offering to customer perceptions of value and, in the process, creates a more satisfied customer while helping deliver more bottom-line revenue. Both SabreSonic CSS Inventory and Revenue Management and SabreSonic CSS Merchandising can have an appreciable effect on an airline’s revenue outlook. Advanced revenue management has the potential to create up to a 5 percent improvement in revenue for the carrier, while merchandising may produce an incremental 5 percent to 8 percent revenue increase.

SabreSonic CSS Customer Centricity

In addition to providing revenue enhancement functionality, SabreSonic CSS also offers significant customer-cen-

Airlines can have a holistic view of each passenger through an integrated customer profile and a customer value score available at all customer touch points. Using an airline-configurable, natural-language rules engine, airlines can segment their customers and differentiate service and product offerings according to their own unique strategies and preferences.

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company

The SabreSonic CSS Revenue Performance Scale helps airlines answer the question: what does it mean to be “revenue centric”? Airlines can determine where they are on the revenuecentric continuum and, especially, identify specific areas of opportunity for them to improve their revenue-centric position.

tricity benefits. SabreSonic CSS Customer Centricity builds on the elements of a central customer profile and an airline configurable value score calculator that helps the airline view its traveler base through the lens of customer value to the airline. It then uses that value score to optimize revenue and deliver efficient and appropriate service

that can be used to feed the revenuecreating aspects of SabreSonic CSS as well as inform decisions about service delivery and prioritization of customers in actions such as reaccommodation. The beauty of the SabreSonic CSS customer value score calculator is that it is airline configurable via natural language commands, so the airline

Highlight

The focus of the whole reservations and departure control system will shift from being passengername-record based to customer-profile based.

across all customer touch points. The focus of the whole reservations and departure control system will shift from being passenger-name-record based to customer-profile based. The knowledge the airline accrues about the traveler over time will give unique insight into preferences, predispositions and a holistic traveler view

decides what it considers a high-value customer based on its market strategy, and it has the flexibility to change valuation rules as the landscape shifts and markets evolve. The customer-centric aspects of SabreSonic CSS will impact all three areas of importance for an airline: growing rev-

enue, reducing costs and improving customer experience. The customer profile and value score calculator help the airline more effectively perform revenue management and merchandising activity vis-à-vis the traveler. On the cost side, airlines can identify their most valuable customers and dedicate expensive service resources such as airport staff to them, while automating all other customers at much lower costs through self-service capabilities such as airport kiosks and online check-in. From a customer experience standpoint, airlines will have a single view of the customer across all touch points. If, for example, the airline lost a traveler’s bag on a prior trip, it can acknowledge the mistake and compensate for it on the current trip, safeguarding the traveler’s loyalty and making the traveler feel valued and at the center of the airline’s considerations, rather than disappointed and bitter. The decision to build out SabreSonic CSS through a service-oriented architecture utilizing an enterprise service bus yields flexibility, inter-operability and what has been called platform transcendence, letting airlines use technology platforms that are best suited for particular jobs. For highvolume transaction processing, such as ticketing and departure control, airlines can benefit from a mainframe-based TPF core upgraded with the latest zTPF software that in effect allows the mainframe to manifest properties traditionally associated with open systems. For other functionality that is best served by open systems, the service oriented architecture allows seamless interchange of data across the entire enterprise and enables the complete infrastructure to work as a single, high-performing unit. Today’s airline environment is perhaps more challenging than at any other time in history. Sabre Airline Solutions continues its decades-long commitment to the commercial aviation industry and the people who keep it moving. Many Sabre Airline Solutions employees come from airline backgrounds and have an emotional investment in seeing airlines succeed in the face of mounting economic pressures. SabreSonic CSS is the product of minds devoted to making airlines successful. With its revenue-centric and customer-centric capabilities, SabreSonic CSS provides airlines with the capabilities they need to not only survive, but to prosper in a brave new world of economic disruption and opportunity. a

Parag Sanghvi is director of strategic solutions marketing for Sabre Airline Solutions. He can be contacted at parag.sanghvi@sabre.com.

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Environmental Cool Down A new model computes CO2 emissions with accuracy and consistency to support sustainable travel and tourism. By Peter Berdy | Ascend Contributor

C

arbon dioxide is the mean, evil molecule of our time. Belching out from vehicle exhausts, smokestacks and power plants, it is the biggest contributor to global warming. Yet CO2 is not a pollutant. It is a natural component of the atmosphere, needed by plants to carry out photosynthesis. The problem is volume: there is a lot more of it in the industrial age, and it makes our planet temperature rise just enough to cause big problems. For aviation, carbon dioxide is the most important greenhouse gas, or GHG, accounting for about 99 percent of aviation GHG emis-

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sions according to the United Nations Framework Convention on Climate Change reported in April 2005. In fact, everything related to emissions is usually translated into CO2 equivalent, making it the benchmark for emissions, and placing a focus on carbon dioxide. Aviation emissions come from the combustion of jet fuel. When burned in a jet engine, fuel is converted into heat, CO2, water vapor and some particulates. Corporations and individuals concerned about measuring their impact on the environment have come to Sabre Holdings® as a leader in the

travel industry to better understand the detail of their emissions for air travel, whether that travel is for business reasons or personal ones. In an effort to respond to its customers’ needs, Sabre Holdings identifies emissions at two instances: at the time a booking is made and after travel has occurred. This is not a small task — there are hundreds of millions of bookings made through different distribution channels within the Sabre® global distribution system. As the world’s largest distributor of travel information, Sabre Holdings calculates and reports carbon dioxide emissions for air travel with dedi-


company cation and diligence. Until the day comes when all airlines report their own emissions, Sabre Holdings will provide this information to all of its customers with the following principles: provide complete, reliable, accurate and consistent data and be transparent to the way it measures and reports carbon dioxide emissions.

Options For Modeling CO2 Emissions

When closely examined, there were three options to develop the capability to estimate aviation emissions. Sabre Holdings’ choices were to use emissions reported by airlines, use a thirdparty supplier of a “carbon calculator” or develop its own emissions estimates with a model. Upon investigation, there was a lack of consistency of CO2 reporting by airlines, and many don’t even report at all. There is no requirement for airlines to report their emissions. Fuel consumption, the basis for determining carbon dioxide emissions, is not made available by airplane manufacturers. (Engine manufacturers report fuel consumption for the different components of landing and take off during certification. However, they do not report fuel consumption during cruise.) Currently, several airlines provide estimates of CO2 emissions on their Web sites. Some of those use calculators developed by third parties, a few provide emissions based on their own data, others provide an indication of emissions (such as for a short or long trips) without specifying an individual’s travel, and many have not taken steps to show emissions at all. In other words, the industry lacks a consistent approach to reporting CO2 emissions. The International Civil Aviation Organization released a model aimed at addressing these concerns about the same time the International Air Transport Association released guidelines on emissions modeling. IATA’s document, “Aviation Carbon Offset Programmes Guidelines And Toolkit,” which was issued in May, describes an approach for setting up an offset program that could be used for airlines as part of their drive to reduce CO2 emissions. During the course of these worldwide efforts, there have been several models developed for estimating aviation emission inventories for global aviation, such as SAGE (from U.S. Federal Aviation Administration), CORINAIR (European Union), and AERO2k. Elements of these models and their output were of interest for potential use in modeling. Both IATA and ICAO use CORINAIR Emissions Inventory Guidebook to estimate fuel consumption, which in turn, is multiplied by a factor to convert fuel burned into CO2. However, CORINAIR is outdated, and models about 50 of the more than 250 commercial airplanes. The use of analogies is required to estimate fuel consumption for newer aircraft types. According to IATA, “The CORINAIR database does not contain fuel burn data for all existing aircraft types and so-called ‘equivalent’ types may have to be used as a substitute to

approximate the estimated fuel burn for scheduled aircraft types.” In an example from ICAO, “To model a B737, CORINAIR contains two choices of older models, the B737-100 and B737-400. City pair routes that operate mainly newer, more fuelefficient B737 models (B737-600/700/800/900), CORINAIR would overestimate the fuel burn and CO2 production.” As a result of this problem, Sabre Holdings’ emissions model uses other sources including FAA-SAGE, which covers most aircraft types and does not rely on CORINAIR to model fuel consumption for all types. When examining third-party vendors, Sabre Holdings found the vendors’ carbon calculators often had incomplete data or elements for computing carbon dioxide emissions correctly and made too many assumptions about aviation. There were overall concerns about their capability to model emissions on the scale of millions of bookings that are made through the Sabre GDS. After evaluating its own capability to model emissions, Sabre Holdings chose to build its own model for estimating carbon dioxide emissions based on its ready access to extensive aviation databases, emissions models and their output; enormous computer resources; a deep knowledge of the airline industry; and a commitment to get the job done correctly. The task included an emissions model that could be applied with consistency and accuracy that will estimate CO2 emissions for an individual traveler on a specific flight as well as ensure the model can address enormous volumes of travel bookings.

Getting The Job Done

The project began with a thorough review of research that has already been done on aviation emissions, which included a large volume of excellent research data and resources, mostly from material sponsored and developed through efforts by the United Nations and supporting institutions. Research has been conducted by scientists around the world who contribute to U.N. efforts. In addition, aviation regulatory agencies, such as the International Civil Aviation Organization, Eurocontrol, NASA and the U.S. Federal Aviation Administration, have been involved in modeling emissions. For example, the Committee on Aviation Environmental Protection of the ICAO has formed several working groups to address aviation environmental emissions.

Available Resources

After finishing the background review, the next step was to examine which resources and data were readily available to develop Sabre Holdings’ emissions model. After digging deeper, a repository of data and tools to use for constructing the model was developed. The toolkit behind Sabre Holdings’ emissions model include:

Intergovernmental Panel on Climate Change: Reference manuals, containing guidelines on methodology for aviation; ICAO: An extensive engine emissions exhaust databank covering almost every jet engine in use today; Eurocontrol: Base of Aircraft Data, or BADA, that contains performance tables on air speed, rate of climb and descent, and fuel flow at various flight levels for specific airplane types (is also used as inputs for other models); E.U. Environment Agency: CORINAIR, a model to estimate pollutants for specific equipment types for emissions modeling; U.S. FAA: Output from SAGE, the System for Assessing Aviation’s Global Emissions, and EDMS model, the Emissions and Dispersion Modeling System, which have data that can be used for determining emissions formulas for various equipment types; U.S. Department of Transportation: Output from its Form 41 database for cargo ton miles and passenger ton miles by aircraft type; U.S. Environmental Protection Agency: Conversion factors useful for converting units; Existing models required some assumptions because of a lack of specific scientific data or to keep the complexity of emissions modeling within manageable limits. Typical assumptions made by existing models included: Standard atmospheric conditions and no consideration of winds, Flights with a standard payload and no fuel tankering, No consideration of delays and holdings, Simplified routing and trajectory modeling, No aircraft and engine deterioration, which takes place as aircraft age. Assumptions made for Sabre Holdings’ model followed those general assumptions. In addition, to evaluate the effect of CO2 related to passenger travel, cargo from the equation for passenger emissions was removed because airlines have two types of payload — passenger related (including passenger weight and weight of bags) and cargo. The idea behind removing cargo is that each payload category is responsible for its share of emissions. The following information was required to develop Sabre Holdings’ emissions model: Details about all scheduled flights worldwide, including origin-destination, airline and equipment type, Airline specific, including average seats per airplane type, Detailed data on emissions for all aircraft in scheduled service, Estimates of unit fuel consumption by aircraft type.

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company be. In other words, take the estimated volume of CO2 emissions of a trip and multiply it by the going rate for a ton of CO2. The emphasis on global warming is to reduce CO2 emissions overall. However, this is already taking place in commercial aviation. There have been ongoing reductions in emissions due to more advanced engines and airplane design.

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Economics is driving change as well — the high price of jet fuel is forcing airlines to ground older planes that consume more fuel. There is also work in progress to make improvements in air traffic control and air traffic management as well as airlines and aircraft manufacturers changing their operational procedures:

DC-10 Versus Airbus 330 C02 Emissions Per Seat

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All these items were located or developed and then placed in the toolkit. There were hundreds of numbers to analyze with statistical analysis and correlation just to develop the core elements for the model. Once the model was complete and ready for testing, the emissions output was tested against several sources, including airline Web sites for specific flight segments, output from ICAO, E.U. and FAA models. In addition, fuel consumption data for specific aircraft available from selected Sabre Holdings airline clients was benchmarked. The model has the capability to estimate emissions for any commercial flight by estimating fuel consumption for specific airplane type, and then it converts fuel consumption into carbon dioxide. Finally, it divides the carbon dioxide for the flight by the number of seats to estimate CO2 emissions for an individual passenger’s journey. Knowing that the CO2 for a seat on a flight can be measured, test emissions for a short- and long-distance trip can be examined looking at the emission for two different aircraft — an older and new aircraft — on these routes to compare the differences in their emissions. When examining a 500-mile flight operated with a DC-9 and comparing CO2 emissions per seat to a next-generation Boeing 737, the DC-9 produces about 100 kilograms of CO2 per seat, twice the amount produced by the Boeing 737. Similarly, when looking at a 5,000-mile trip operated with a DC-10 compared to an Airbus A330, the CO2 per seat for the DC-10 is about 750 kilograms versus 500 for the A330.

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The CO2 emissions per seat for the DC-10 on a 5,000-mile flight is 750 kilograms compared to only 500 kilograms of CO2 emissions per seat for the Airbus A330.

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DC-9 Versus Boeing 737-900 C02 Emissions Per Seat

Solving CO2 Issues

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kilograms of Co 2

Addressing the problem of reducing carbon dioxide emissions from aviation falls on the shoulders of specific groups, including government agencies that set targets to reduce emissions and devise mechanisms to enforce and pay for the reductions; manufacturers that are working on designing more efficient airplanes and engines; and the airlines and supporting infrastructure (air traffic control and airports) involved in modifying operating procedures to reduce fuel consumption. For individual consumers, information about carbon dioxide emissions can be useful to understand the order of magnitude of their own emissions when they travel, and also for comparison for emissions with other modes of transportation. However, most travel is conducted by air due to large distances where other types of transportation can be considerably more time consuming, and comparisons may not be relevant. Since the volume of CO2 emissions can be identified, one way to understand the potential effects are to look at commodity markets where CO2 is traded and monetize emissions to get an idea of what the cost of emissions might

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DC-9

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When comparing CO2 emissions on a 500-mile trip, a Boeing 737-900 produces about 50 kilograms per seat versus the DC-9, which produces twice as much at about 100 kilograms per seat.


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Radiative Forcing (Watts per square meter)

Radiative Forcing

The current level of scientific understanding for key individual radiative forcing elements indicates that while the effects produced by CO2 and certain elements appear to be well known, the scientific understanding of the impact of many other elements on global warming ranges from medium to very low.

An index called radiative forcing index, or RFI, is used for comparing the effect of different agents causing climate change, notably CO2. It is used to compare two different time periods. Radiative forcing can be used to look at the effects of all historic aviation emissions and

for long-term projections. However, it does not examine the influence of a single flight. One misconception is that aviation CO2 is more damaging because it is emitted at high altitudes. According to the Intergovernmental Panel on Climate Change, CO2 has a long

For air navigation service providers, this includes efficient use of airspace, developing shortest feasible routes, reducing inefficiency in current flight patterns, taking advantage of prevailing climate conditions, changing the way flights are routed and examining separation, developing continuous descent approaches, and improving terminal management. For airlines, this includes careful fleet planning, using aircraft best suited for particular routes, optimizing aircraft speed; limiting use of the auxiliary power units; reducing weight; and optimizing altitude selection, speed and flap settings. For manufacturers, this means working on technology improvements for airframe and engine design as well as possible use of alternate fuels. Sabre Holdings has built a model to estimate CO2 emissions for air travel to provide this information with consistency and accuracy. The model reports CO2 emissions only, since carbon dioxide is the most important greenhouse gas. It will not monetize the emissions estimates or apply factors such as radiative forcing due to variability and uncertainty.

The aviation industry has a history of reducing emissions with more efficient aircraft, engines and improved operating procedures. It has taken responsibility for continuing to reduce emissions out of economic necessity, and it will continue to do so in the future. Further steps to reduce aviation emissions are already underway, including better air traffic management as well as engine and airframe manufacturers that are making improvements to reduce fuel consumption with technology and airlines that are working to optimize how they operate. Sabre Holdings continues to support the efforts aviation has made to improve its impact on the environment, and it will continue to work with its customers to promote tools that will assist them to promote sustainable travel and tourism. a

Peter Berdy is a consultant for Sabre Airline Solutions® and developer of Sabre Holdings’ emissions model. He can be contacted at peter.berdy@sabre.com.

atmospheric residence time (about 100 years); therefore, it becomes well mixed throughout the atmosphere. The effects of emissions from aircraft at altitude are indistinguishable from the same quantity of CO2 emitted by any other source, according to the IPCC Summary for Policymakers on Aviation and the Global Atmosphere, 1999 section 2. Many scientists now consider that radiative forcing (or a simple multiplier) is not the correct metric to model the effects of aviation. As Professor Keith Shine from the Department of Meteorology at the University of Reading wrote on carbon offset schemes in a letter to the Guardian early last year: “The issue of RFI is a really fractious one, and most of those that have researched it have concluded that it is a horrible misapplication of science and misusing something that was presented in an IPCC report in 1999 (Towards Greener Skies: The Surprising Truth About Flying And The Environment — easyJet, 2007). “Carbon dioxide has an atmospheric lifetime of more than 60 years and becomes well mixed during this period regardless of where the emission occurred,” said Robert Sausen, head of the department of atmospheric dynamics at the Institute of Atmospheric Physics of the German Aerospace Center. “Hence, CO2 emissions from aviation have the same effect as emissions from other sources” (ICAO Environmental Report, 2007, page 123). Sabre Holdings’ emissions model measures CO2 but does not consider radiative forcing.

Why Does Co2 Weigh So Much? CO2 emissions from air travel are related to fuel consumption. A gallon of jet fuel weighs about 6.7 pounds. So how can jet fuel produce 21 pounds of the greenhouse gas, carbon dioxide, when it is burned in an airplane’s engines? Jet fuel is mostly chains of carbon and hydrogen atoms. A carbon atom has an atomic weight of 12, and each oxygen atom has a weight of 16, giving each single molecule of CO2 an atomic weight of 44 (12 from carbon and 32 from oxygen). To calculate the amount of CO2 produced from a gallon of jet fuel, the weight of the carbon in the gasoline is multiplied by 44 divided by 12 or 3.7. Since gasoline is about 90 percent carbon and 10 percent hydrogen by weight, the carbon in a gallon of jet fuel weighs about 6 pounds (90 percent of 6.7 pounds). Multiply the weight of the carbon (6 pounds) by 3.7, which equals 21 pounds of CO2. The number used by ICAO and IATA to convert jet fuel into CO2 is 3.157. Sources: http://www.fueleconomy.gov/Feg/ co2.shtml and Aviation Carbon Offset Programmes IATA Guidelines And Toolkit, May 2008.

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Introducing a


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Sabre Airline Solutions, SabreSonic and the Sabre Airline Solutions logo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation. ©2008 Sabre Inc. All rights reserved. AS-08-10502 1008

• Interactive customer value scoring

Future proof your airline with SabreSonic CSS SabreSonic ® CSS is the industry’s most powerful revenuegenerating customer sales and service solution. By enabling airlines to uniquely value every passenger, SabreSonic CSS creates a new intersection for customer value and revenue growth. From reservations, inventory and departure control to online direct, loyalty, revenue management and more, SabreSonic CSS easily adapts to your ever-changing business needs with a future-proof technology platform. See how a complete view of your customers opens new windows to revenue. Start your airline’s future today with SabreSonic CSS.

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Customer-Centricity Challenge When protecting your airline’s most valuable asset — customers — it’s critical to step back and look at your operation through the eyes of a traveler to ensure your airline remains aligned with customers’ needs and expectations.

By Ascend Staff

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the incline, in steady state compared to this time last year, in a decline or most concerning, have customers disappeared from the radar completely? List the airline attributes that provide value according to the customer. How many customers have valid e-mail addresses and have indicated that they would like to hear from you? Are your marketing campaigns and surveys customer centric? Are they provid-

ing value to the customer and to your airline? Equipped with in-depth knowledge of your airline’s various customer segments and their associated attributes, buying behaviors, customer value algorithms, campaign effectiveness and an understanding of your customer’s perspective of real value, you are ready for the vacation hat and sunglasses. Challenge yourself to keep your real job on the shelf and experience your airline through the customer’s eyes. Photo by shutterstock.com

urely, you, an airline executive, deserve a vacation every once in a while. It’s your turn to take a breather, sit back, reflect and relax. However, if you lean toward being the stereotypical executive, it just isn’t in your makeup to turn off your work. If you fall into that category, then why not take the customercentricity challenge? What a perfect opportunity to exchange your airline executive hat for the very ordinary customer hat and, of course, sunglasses. To be prepared for the customer-centricity challenge, you’ll want to reacquaint yourself with the airline customer: Who are your customers? The best way to understand your customers is to check the customer data repository. How many of your customers are current loyalty members? What percentage of customers are actually redeeming loyalty miles/points for travel? How are the miles/points sourced? By travel or credit card purchases? How many customers have preferred car and hotel vendors? Of those customers who have provided preferred vendors, how many have provided associated loyalty programs? How many customers have provided service preferences when traveling on your airline? How does your airline compute customer value today? Glance at the number of customers your data repository contains and where they fall using customer value as the differentiator. What is the current buying pattern for each customer type? Are purchases on

To ensure an airline is completely aligned with its customers’ needs and expectations, airline executives should periodically step back and take a look at the overall operation from the customers’ perspective.


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Logging your expectations prior to a trip and tracking your own encounter is an effective way to determine the type of experience your customers can expect from your airline.

rapidly resolve issues, make improvements and assure overall quality of products and services. Customer Experience Manager improves customer satisfaction, increases customer loyalty and retention, and ultimately enhances and sustains revenue. Clearly, your customers are your most valuable asset. Gathering every possible bit of data about your customers and understanding how to effectively use it to enhance their end-to-end travel experience is one of the simplest ways to differentiate your products and services from your competitors and reap the benefits of obtaining and maintaining a loyal customer following. So sit back, enjoy your vacation and know your airline is in good hands with the most valuable, integrated technology in the industry. a

For additional information about SabreSonic Customer Sales & Service solutions, please contact John Winstead, SabreSonic ® Res product director for Sabre Airline Solutions at john.winstead@sabre.com.

Photo by shutterstock.com

Journal your expectations prior to your trip and then track your unique travel events and your own customer experience. Chances are good that you will have an average customer experience, but pay close attention as your experience evolves, and try to determine if what you are experiencing has any weight on your loyalty to the airline. What is the probability of retaining you as a customer? Knowing and understanding your customer is simple when utilizing the SabreSonic ® Customer Sales & Service solution’s fully integrated customer-centric portfolio. (see related article on page 50).This advanced technology provides the capability to identify and recognize your customers, collect and distribute customer information for operational decisions, and provide a holistic view of your customers to aid your airline in fulfilling its customer promises. The Customer Insight option within SabreSonic® Res, the industry’s first true operational customer profile, provides a continuous flow of passenger information throughout your airline’s disparate operational systems. Customer Insight, accessible through Web services, stores complete customer information, including destinations, service and seat preferences as well as historical customer experience data. This information, along with an actionable customer value score is available at all customer service points, enabling customer-facing staff and automated passenger processes to better serve and understand customers as well as respond to service experiences. This customer-centric approach enables

your airline to shift focus from merely processing passengers to providing travelers with personalized customer service throughout their journey. The Customer Data Delivery option offers detailed travel pattern information through passenger trip data. The data includes advance booking information on all active trip records created by your airline, travel distributors and other airlines, delivering only the data elements relevant to your airline’s business needs and at a frequency determined by your airline. The customized delivery of travel patterns and behavior information can be used to improve customer service, optimize revenues and provide the foundation for additional marketing opportunities. The Sabre ® Traveler Loyalty System presents a scalable frequent flyer program that tracks frequent flyer accounts, manages bonuses and awards, offers promotional capabilities, and provides reports for marketing analysis. The system gives the precise level of service, security and convenience your passengers expect while offering opportunities to reduce costs associated with servicing loyalty program members. Sabre ® Customer Experience Manager, an integral customer management solution, provides the means to continuously monitor customer interactions. Customer feedback is directly routed to those accountable, enabling your airline to

Carriers that don’t take the necessary steps to see their operations through the eyes of travelers are less likely to meet customer expectations and achieve a loyal customer following.

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Beyond Water Cooler Talk Airlines and other businesses can leverage virtual community networking opportunities through “cubeless� software, which enables employees to quickly receive answers to some of their most business-critical questions. By Erik Johnson | Ascend Contributor

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irst we clicked. Next we surfed. Then we Googled. Now we’re building communities. By now, this term for connecting with others in a virtual world has crept into our everyday vocabulary, thanks to Web sites such as MySpace and Facebook. And if you thought that virtual community networking was just for looking up long-lost friends, think again. Already, it has proven to be a very effective business networking tool through Web sites such as LinkedIn, a business-oriented networking site that allows registered users to post resumes and maintain a list of personal online connections with other friends and colleagues. While many business people have been exposed to this virtual networking environment on a personal level to help them become the next-generation sales 2.0 salesperson, according to lead analysts, the next benefactor is the enterprise 2.0. “Today’s enterprise Web 2.0 market is small but growing,” said an analyst with Cambridge, Massachusetts-based Forrester Research. “While the spending by enterprise-class companies — firms with 1,000 or more employees — will touch US$764 million in 2008, the collected expenditure on social networking — RSS, wikis, blogs, mashups, podcasting and widgets — will

grow at a compound annual rate of 43 percent during the next five years.” So what does that mean for airlines and virtually any other types of business? It means that they are looking for ways to bring their employees together and share information in a new, boundless environment that was once served by the water cooler. As many airlines and the businesses they partner with have grown into global enterprises, their employees are now dispersed on multiple continents, multiple remote locations — in the office, on the road and in the home. While it definitely has cost- and time-saving advantages, the dispersed workforce has made it more difficult for companies to collaborate, aggregate and dispense critical business knowledge while keeping a real-time pulse on the operations of the business. New research shows the financial and opportunity cost of a dispersed workforce. For example, recent research from Framinghan, Massachusetts-based IDC indicated that up to 30 percent of a knowledge worker’s time is spent searching for information — at an average cost of US$18,000 per year for each employee. This data begs the question of whether or not enterprises have become too global.

Photo by shutterstock.com

Global companies that have employees spread around the world can take advantage of technology that enables collaboration and knowledge sharing via a virtual environment with unlimited access.

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Sabre Travel Studios within Sabre Holdings ® asked this very question of its own employees and discovered a need to engage each other in a new kind of water cooler talk. It discovered that this new collaboration shouldn’t take place in the limited confines of a conference room or even in an Internet meeting. This building of community and sharing of employee knowledge needed to take place in a virtual environment, with no cubes, no conference rooms and no restrictions on access. This new sense of community was born in the cubeless world, bringing to life the community-building system for companies — appropriately named cubeless. What is cubeless? Simply stated, it’s an online community platform solution that enables a company to tap into the collective intelligence of its employees. The system harnesses the untapped skills and knowledge of employees to more quickly and efficiently bring together the right people, information and resources necessary to answer questions and solve business challenges. At the core of cubeless is a powerful, proprietary relevance engine that ensures that questions being asked or information being sought by employees are proactively delivered directly to those in the company who are most likely to have the answers or need the information. The more questions and answers

Employees, no matter where they work, can quickly and easily gain knowledge about an array of topics through a virtual environment, saving time and money for them and the companies they support.

provided, the smarter the system gets at matching the right people with the right situations. In addition, an easy-to-use browsing tool and a full-feature search engine enables users to find exactly what Photo by shutterstock.com

In previous years, it was common for employees to huddle around the water cooler to have myriad business discussions. But today’s global companies have personnel stationed in all corners of the world, making many of these in-person conversations a thing of the past.

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and who they require when they need those resources the most. The benefits of cubeless are limitless, but first and foremost, cubeless builds a strong sense of company culture. It’s an inclusive style of technology that allows for internal networking and placement of a face and personality to names and titles. Cubeless also provides an easy-to-use application for capturing, storing and making internal knowledge easily accessible from within a single place in real time. It also minimizes new-hire ramp time, reduces communication lag time between employees, drives collaboration across organizations and encourages innovation by enabling users to contribute, post and act on new concepts. Most of all, cubeless is fun and easy to use. Because networking systems are most valuable when adopted by the largest group of users possible, cubeless was designed specifically to be a system that employees look forward to using every day. It aims to provide value to the organization in a manner sometimes transparent to the user. The pictures and personal sticky notes employees can leave for each other make cubeless a system users quickly embrace and provide a platform that employees value. Because it is easy to use, cubeless delivers value to just about any department within an organization, from sales


products and human resources to logistics and accounting. All of these departments can share best practices and answer business-critical questions from across the organization. Even specialized groups, such as aircraft mechanics, can benefit from cubeless as employees post the latest inspection information or can help direct each other to corporate policy as well as internal or external resources. Cubeless is also a good tool to use if an airline’s corporate communications team is looking for success stories to profile in its employee publication. They could simply post a question throughout the organization using cubeless. Or if a vice president was attending an industry conference in another city and needed to plan a special customer dinner during this conference, cubeless presents a great resource for discovering what other sales professional in the organization found to be the best restaurants in that area for hosting customer events. Perhaps human resources plans to roll out and track a new walking program for employees and wants to set up teams for a little friend-

Network ® and Sabre Airline Solutions ® businesses. “For those folks that the road is as much their office as where their desk is, getting information they know they can trust is simply invaluable. “Cubeless facilitates this collaboration so the road warrior business traveler can quickly, easily and even automatically get advice from people within their company that do what they do, have the same travel policies and have been in the same locations providing their best resource for getting input about their trip. It can be anything from finding out about services to help support their business trip in a location others have visited and which nearby restaurants are open all night for a quick bite to verifying that a hotel they want to stay in has dependable, fast wireless Internet access and a gym that is open early in the morning.” This licensed software is provided to airlines and other businesses as a service; therefore, most of the implementation and maintenance responsibly for the cubeless system resides with Sabre Holdings. It is hosted behind a

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The benefits of cubeless are limitless, but first and foremost, cubeless builds a strong sense of company culture.

ly competition. Cubeless would enable employees around the world to stay connected with their teams. The ability to manage complex data and present relevant and usable information to the end user is in the DNA of all Sabre Holdings solutions, and its developers utilized this history and success to ensure that the information collected by the cubeless system is easily translated into action and results. This type of solution proves to be especially relevant to airline and travel companies, most of which have large and largely dispersed workforces. “Cubeless enables you to connect and benefit from the collective experience and expertise of your fellow travelers or colleagues,” said Tom Klein, executive vice president for Sabre Holdings and group president of the Sabre Travel

secure firewall to ensure that only the company’s employees have access to the information on its installation of cubeless. Sabre Holdings has a history of securely maintaining mission-critical corporate information and will leverage this capability in the cubeless system. Sabre Holdings launched the first cubeless community for its own internal use, calling the intranet-based tool SabreTown. Within three months of installation, 65 percent of its employees completed an online profile. On average, 90 percent of all questions asked within the community receive the first response within the first 24 hours (60 percent receive the first answer in less than an hour), and each question posed to the community receives an average of nine responses, often with respondents building on each other’s answers. In addition,

more than 300 groups have been formed since the launch of SabreTown. “In our own installation of cubeless, I have been amazed by the quantity and breadth of stories we receive every week, letting us know how someone has been helped by our cubeless system, SabreTown,” Klein said. “It seems every week another group of individuals finds new ways for SabreTown to help them work smarter.” In one recent example, a group within Sabre Holdings needed to find an Italian translator for an upcoming customer visit. Before they spent the money to hire a translator, they posted the need to SabreTown. Within a day, they found an employee, located within the same office building, who spoke fluent Italian and was honored to have the opportunity to help the company with his unique skill. The same week, an employee needed to get a file that was important to her job ported from one format to another, but didn’t know how. The original file format was not supported by the company, so in this case the help desk couldn’t assist. She posted the question to the community and received several how-to responses, including one employee from a nearby department who volunteered to help walk her through the process, giving her access to the file and saving her countless hours of trial-and-error or the cost of going outside the company. Cubeless was officially released to the marketplace on June 2. In future releases, cubeless will also continue to add deeper functionality in areas most used for business purposes, including richer opportunities to rate and recommend restaurants, hotels and activities in any city for business or leisure purposes as well as additional ways for employees across the organization to help each other work better. And, maybe, even have a little fun while they are at it. a

Erik Johnson is general manager of cubeless for Sabre Travel Studios. He can be contacted at erik.johnson@sabre.com.

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Rapid Return To The Skies When an airline’s schedule is disrupted by bad weather or other unpredictable causes — resulting in irregular operations — avoiding unacceptable additional costs by getting back on schedule as quickly as possible is crucial. Sabre Airline Solutions® offers a complete suite of integrated tools designed specifically for rapid recovery. By Phil Johnson | Ascend Staff and Tom Samuel | Ascend Contributor

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t’s 8:30 a.m. on a crisp, clear day. A major airline’s flights have been departing as scheduled, with only a few minor delays at several airports that have not amounted to more than a couple of minutes each with no impact to the rest of the day’s schedule. Flights are arriving on time at all airports as well, taxiing to their assigned gates, deplaning passengers and unloading baggage. But managers in the airline’s system operations control center continue to monitor the presence of a large weather system that seems to be temporarily stalled out to the west of one of the major airports it serves. The weather system could, however, begin moving rapidly again at any time — potentially interrupting operations. When managing an airline’s SOC, even when flight schedules are running smoothly, airline operations personnel are rarely complacent. They know from experience that a

significant disruption requiring irregular operations management is only a few mechanical delays or a sudden thunderstorm away. In this case, it turns out that the major weather system begins moving rapidly east during the day, and operations at the airline’s major airport in the storm’s path have to be shut down for two hours. For a major airline, a two-hour disruption can impact 250 or more flights that are dispatched worldwide. And a shutdown of two hours can mean even more complications for an airline with shorthaul, high-frequency service — especially if much of the service touches the directly affected airport. A temporary outage of operations at just one of an airline’s main airports initiates a domino effect throughout its flight schedule because a flight that is delayed two hours or even three to four hours (or canceled) at one airport causes that equipment as well as those passengers and

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products crew members not to arrive in a timely fashion at connecting points within the airline’s network. Passengers and crews miss flights at connecting airports. Aircraft are not available to fly other scheduled routes. Some aircraft fail to make it to scheduled maintenance destinations, which could cause a required implementation of costly ferry operations — flying the aircraft without passengers to its mandatory maintenance location. All of these cascading, costly effects continue to accumulate until the airline’s entire global, national or regional flight structure can be put back on schedule. In this instance, what should the airline do with all of its affected flights? What should it do with its displaced crews? What should it do with impacted passengers? The responsibility to get back on schedule quickly can become overwhelming as the cost of an operational disruption increases exponentially with time. When irregular operations occur, the foremost objective of an airline is to curtail unacceptable costs that will rapidly increase as the irregular operations continue. The primary overriding goal is to return the airline to its routine schedule as quickly as possible — particularly dealing with the major issues of disruption in aircraft movement throughout its route system, crew assignments and passengers

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Passengers will need to be reaccommodated quickly and costeffectively and notified of changes to their travel itineraries. who are justifiably adamant in wanting to get to their destinations on time or shortly thereafter. SOC personnel will need to determine which flights to cancel, delay or reroute to enable the fastest and cheapest overall recovery. Aircraft must be re-routed not just in accordance with required passenger and cargo destinations, but also with a keen awareness of any individual aircraft’ss onboard equipment and capabilities to fly to the particular destination and using a particular route. Photo by shutterstock.com

A two-hour disruption can impact 250 or more global flights for a large carrier. This type of shutdown can lead to additional problems for an airline with short-haul, high-frequency service — especially if much of the service touches the directly affected airport. Photo by shutterstock.com

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Crew will need to be reassigned and quickly notified of any changes to their work schedules. Also, the entire network supporting the crew operations, such as hotels, taxi operations and reservations for positioning tickets, all need to be updated in a timely fashion. In addition, with everincreasing security and immigration regulations, it’s critical to have a system that can send the correct crew information to the correct station and make updates as changes occur. Passengers will need to be reaccommodated quickly and cost-effectively and notified of changes to their travel itineraries. Airlines around the world, of every size and business model, use advanced and specialized tools from Sabre Airline Solutions ® to manage their regular operations and quickly recover from irregular operations. The airline operations portfolio includes three fully integrated solutions that manage aircraft and crew operations: Sabre ® AirOps ™ Operations Suite and Sabre ® AirCrews ® Crew Management Suite, Sabre ® Flight Control Suite, Sabre ® Rocade ® Airline Operations Suite. Experts from Sabre Airline Solutions work with individual airlines to recommend the optimum airline operations suite that best fulfills their specific business needs. Any of these systems enable SOC personnel to effectively monitor and manage an airline schedule, aircraft, maintenance requirements, crew and passengers within the operations arena. The airline operations system is the core solution in the SOC, and it is used by SOC controllers to manage airline operations during normal and irregular operations as well as to communicate the latest schedule, aircraft and crew information in real time to all dependent systems and people. Sabre Airline Solutions also offers sophisticated operations recovery tools that are fully integrated with each of the airline operations systems. During an irregular operation, such as the one described, airlines can use Sabre ® Recovery Manager, which is designed specifically to help get back to the planned schedule as soon as possible. Recovery Manager uses sophisticated optimization algorithms to suggest schedule changes, re-route aircraft as required and repair crew assignments while ensuring that no operational constraints or crew work rules are violated. The recovery solution can be reviewed by SOC personnel and published to the specific airline operations system used by the carrier. The system communicates the changes to all dependent


products Photo by shutterstock.com

When inclement weather has the potential to cause significant delays throughout an airline’s entire route system, a complete suite of integrated solutions is the only recourse for rapid recovery.

Photo by shutterstock.com

A temporary outage of operations at just one of an airline’s main airports initiates a domino effect throughout its flight schedule, potentially causing severe delays and preventing passengers and crew members from arriving in a timely fashion at connecting points within the airline’s network.

systems, such as the airline reservations system, as well as to all impacted personnel such as gate agents and crew. As flight schedules are adjusted to aid in the recovery process, new schedule information can be communicated in real time to Sabre ® Dispatch Manager, which would alert dispatchers of a need to create and file new flight plans. Dispatch Manager can generate flight plans using sophisticated variable cost index algorithms to minimize fuel, ensuring a continued focus on a cost-effective recovery. Sabre ® Reaccommodation Manager helps airline personnel effectively manage displaced passengers. The solution provides viable options for rebooking passengers either on the disrupted airline or another airline, taking into consideration all passenger-prioritization factors such as bookings by loyalty points as well as the type of ticket each individual passenger holds. This level of passenger detail not only minimizes lost revenue due to the displacement, it also promotes customer loyalty. Sabre Airline Solutions’ sophisticated, integrated offerings are an essential part of rapid recovery — along with veteran airline employee expertise — in helping airlines save potentially millions of dollars that could otherwise be lost as the day goes on and normal operations have yet to be restored. In an age in which costs are increasingly critical to profitable airline operations, the integrated Sabre Airline Solutions offerings are specifically designed to save on fuel costs, delay and cancellation costs, incremental costs due to off-plan crew schedules, and passenger compensation and reaccommodation costs while constantly focusing on a quick recovery. Regardless of where an airline is based, what business model it uses, its size or types of aircraft operated, Sabre Airline Solutions’ integrated operations systems can help swiftly recover from any irregular operation, no matter how significant. a

Tom Samuel is director of flight operations solutions for Sabre Airline Solutions®. He can be contacted at thomas. samuel@sabre.com. Phil Johnson can be contacted at wearelistening@sabre.com.

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U.S. Regionals: A New Outlook Regional airlines are feeling the pain as major carriers reduce flying on 50-seat regional jets. But pending resolution of labor issues, regional airlines in the United States may have new opportunities flying 100-seat RJs.

By Lauren Wolters and Chris Spidle | Ascend Contributors

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uring a time when major U.S. network carriers are cutting costs at every turn, including reducing or, in some cases, completely eliminating the use of their regional partners, these regionals must become more innovative to survive. There are risks — those of leaving the bad “known” for the possibly worse

“unknown” — for these smaller operators. But if they are nimble and clever, by inventing a new role for themselves because their old one that now depends on 50-seat RJs is shrinking fast, the door to greater opportunities may open — opportunities to profitably avoid shrinking by finding new business models. Photo courtesy of Eclipse Aviation

The next-generation 100-seat Bombardier CRJ1000 regional jet has 38 signed orders and options in those contracts for an additional 23 aircraft and is scheduled to enter into service next year.

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Regional airlines have for decades been an important link with the air transportation system across the United States. Since deregulation of the airline industry in 1978 and the founding of the Essential Air Service, these carriers have connected people across the region, bringing travel and tourism to smaller cities and communities. They have been responsible for virtually anyone to get from their local runway to the largest cities around the world. The critical role of regional airlines has not diminished during the past 30 years. Rather, the role of these carriers has grown in both size and importance. “The entrepreneurial spirit of regional carriers has propelled meteoric growth from humble beginnings before deregulation to a large share of the U.S. airline industry today,” said Shane Batt, vice president and global solutions partner for Sabre Airline Solutions ®. “Regional carriers are now a core, integral part of airline networks. Regionals have grown beyond their domestic roots and now serve Canada, Mexico and the Caribbean with a modern fleet of more than 1,000 mostly jet aircraft.” Last year, regional airlines carried more than 158 million passengers, and that number continues to increase year over year, even as costs have risen and service has been reduced, highlighting the importance of regional airlines and the dependence of the communities they serve on them. The regional airline segment has been one of the most innovative and chameleonlike airline segments. Many of these carriers have matured their fleets from prop planes to regional jets to meet the ever-growing demand for regional air service. Currently, 70 percent of airports nationwide receive scheduled air service


regional Photo courtesy of Embraer

solely from regional airlines, accounting for more than 442 airports in the continental United States, Hawaii and Alaska. In addition, 140 rural communities are reached only by a single regional airline that operates with some subsidies from the Essential Air Service of the U.S. Department of Transportation. Historically, regional airlines served airports that were either unreachable by larger jets or had low traffic density and were therefore unprofitable for major airlines. But the answer to the question of when to use a major or regional airline has also been influenced by cost issues. When labor rates at majors climbed in 2000, fuel was inexpensive, and it was cheaper for majors to push flying to their regional affiliates, driving significant growth for these smaller operators. However, now that fuel costs have soared to painful levels and majors have lowered their labor rates, the scales are tilted back. On a per-seat basis, regional jets are comparatively fuel inefficient and possess higher operating costs, so major airlines have more incentive to take advantage of the lower cost per seat of flying full Boeing 737s infrequently in smaller markets rather than offering frequent 50- or 70-seat regional jet service. As the latter cost shift began to occur, capacity began to shift back to the majors — capacity they are now cutting. Also, as traditional airlines shrink their own capacity due to rising fuel costs, they are also reducing use of their regional partners. This shift is redefining the market for regional airlines and, possibly, changing the way they operate. But now the cost see-saw could shift again. With new, larger regional jets on the horizon — offering better fuel efficiency and lower overall operating costs — there could be new opportunities for regional airlines, assuming labor issues can be resolved. As of July, Bombardier had received 39 signed orders for its CRJ1000, a 100seat regional jet and extension of the CRJ900, with options in those contracts for an additional 23 jets. The first of these are expected to be in service next year. Bombardier’s market analysis indicates the manufacturer will deliver more than 6,300 new 100- to149-seat regional jets by 2027 as well as 6,100 new 60- to 99-seat aircraft and 500 new 20- to 59-seaters. Clearly, Bombardier has identified huge potential for larger regional jets. “We anticipated the need for larger regional aircraft when we introduced the CRJ700 regional jet in 1997 and the CRJ900 regional jet in 2000,” said Bombardier Aerospace President and Chief Operating Officer Pierre Beaudoin in a press release last year announcing the launch of the

The 100-seat Embraer E-190/195 regional jet, a direct competitor of Bombardier’s CRJ1000, also competes directly with the Airbus A319 and Boeing’s 717 and 737.

new CRJ1000. “These aircraft are now the backbones of many airline fleets worldwide. Today, with the CRJ1000 aircraft, Bombardier continues to build on its ongoing commitment to product innovation. The CRJ1000 regional jet combines the proven platform, reliability and flexible cabin configurations of its predecessors, with its closest competitor having up to 15 percent higher trip cash operating costs.” With the better economics of flying larger jets fewer times a day, capacity regional airlines added earlier this decade may need to change, and the 100-seat RJ adds an additional and potentially helpful option to the menu. The CRJ1000 competes with Embraer’s E-190/195, which is a 100-seat regional jet in service at airlines such as jetBlue. These aircraft compete directly with Airbus’ A319 and Boeing’s 717 and 737, both of which are staples of many fleets at major airlines. The larger-seat-capacity RJs that operate with greater efficiency will likely heighten regional carriers’ ability to more effectively compete, thereby becoming more appealing to their larger airline partners.

During these unpredictable times for the airline industry, never has it been more critical for U.S. regional carriers to innovate and adapt to keep their share of smaller markets. They need to rethink their entire operating structure. And only those regional airlines that can change and lower their costs will survive. a

Lauren Wolters is the Americas regional marketing manager and Chris Spidle is delivery director of research, analysis and modeling for Sabre Airline Solutions®. They can be contacted at lauren.wolters@sabre.com and christopher.spidle@sabre.com.

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CARIBBEAN DEPENDENCY Travel and tourism is essential to the well being of the Caribbean economy, making up nearly 13 percent of its employment and bringing in annual revenues of US$57 billion. By Lauren Wolters | Ascend Contributor

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nown for its white sand beaches and crystal-clear waters, the Caribbean has always been a favorite vacation destination of travelers around the globe. A new study by the World Travel and Tourism Council projects a 2008 increase in travel and tourism to the Caribbean of 2.3 percent, and it estimates that growth to average 3.2 percent a year from 2009 to 2018. This would bring the total number of annual Caribbean visitors to more than 48 million. According to the WTTC study, the Caribbean is the most dependent region globally on travel and tourism, accounting for 12.9 percent of the region’s employment and US$57 billion in yearly revenue. The Caribbean relies on travel and tourism, and the aviation industry is responsible for bringing more than 54 percent of those tourists to the islands. The remaining balance of tourists comes from cruise ships, and many of them use air transportation to bring them to port. Thus, airlines

account for 19.5 million tourists of the projected 35.6 million total visitors. Caribbean airlines have the same concerns as global carriers, but they have to face amplified affects. The rising cost of fuel affects not only the airlines in the Caribbean but also the prices of every import. Since the islands don’t produce many goods themselves, they rely on air transportation to import goods as well as export their natural resources, such as sugarcane in the Bahamas, which has driven up the costs of almost all goods in the Caribbean. Furthermore, as Caribbean carriers act as feeders and regional carriers for the larger United States, European and Latin American carriers, the effect of reduced routes and higher ticket prices on the larger carriers is felt strongly. For example, hurricane season can have devastating effects on the travel and tourism industry in the Caribbean — affecting more than 2 million jobs throughout the Caribbean. In most cases, Caribbean airlines are responsible for the safe return of travelers to the mainland and must bear the cost, an impossible expense for them to endure in this world of higher fuel prices as well as reduced and overbooked flights.

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regional Photo by shutterstock.com

Because the Caribbean Islands don’t produce many goods, they rely on air transportation to import goods as well as export their natural resources, such as sugarcane in the Bahamas.

Not only do Caribbean carriers face these amplified affects, they also must deal with the challenges of seasonality. As high fuel prices negatively impact the profit of an airline on an annual basis, it

is unclear if the revenues generated from the high season will offset the projected losses from the low season. The price sensitivity of the market adds another dimension of complexity.

With Caribbean carriers, the focus is not on the bottom-line success of an airline but rather the economic viability of 23 individual countries and the millions who reside in these island nations. These carriers, however, are in a unique position to not only serve leisure travelers but also have a direct affect on their local economy. Through their stable operations, Caribbean carriers can ensure that tourists continue to arrive in the islands and keep providing valuable tourist income for the Caribbean economy. Sabre Airline Solutions Ž currently provides customer sales and services technology to Air Jamaica, Bahamasair, Caribbean Airlines and Cayman Airways as well as some flight operations solutions. These flexible, scalable and reliable solutions enable the airlines to react quickly to the needs of their customers and provide the highest level of customer service. Though no one can predict what will happen with fuel prices or how the current hurricane season will unfold, it is clear that Caribbean carriers play a vital and important role in the travel and tourism industry in their territory, and its economy will be greatly affected should the region’s airlines encounter financial difficulties. a

Lauren Wolters is the Americas regional marketing manager for Sabre Airline Solutions. She can be contacted at lauren.wolters@sabre.com. Photo by shutterstock.com

Travel and tourism is critical to the welfare of the Caribbean, accounting for 13 percent of employment and contributing US$57 billion in annual revenues.

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2008 Issue No. 2 Editor in Chief

Stephani Hawkins Managing Editor

B. Scott Hunt

Art Direction/Design

Charles Urich

Contributors

Venkat Anganagari, Jim Barlow, Randal Beasley, Nejib Ben-Khedher, Stephanie Bundick, Jim Carlsen-Landy, Joelle Cuvelier, Greg Gilchrist, Carla Jensen, Malcolm Kass, Suzanne Cottraux, Maher Koubaa, Christine Kretschmar, Gordon Locke, Doug Maher, Gabriele Mariotti, Kyle Moore, Dave Roberts, Kamal Singhee, Jeremy Sykes, Emily Tate, Michelle Williams, John Winstead.

To suggest a topic for a possible future article, change your address or add someone to the mailing list, please send an e-mail message to the Ascend staff at wearelistening@sabre.com. For more information about products and services featured in this issue of Ascend, please visit our Web site at www.sabreairlinesolutions.com or contact one of the following Sabre Airline Solutions regional ­representatives: Asia/Pacific

Publisher

David Chambers Vice President 3 Church Street, #15-02 Samsung Hub Singapore 049483 SG Phone: + 65 6511 3210 E-mail: david.chambers@sabre.com

Awards

Europe

George Lynch 3150 Sabre Drive Southlake, Texas 76092 www.sabreairlinesolutions.com

2008 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill, Hermes Creative Award, The Communicator Award 2007 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill 2006 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill, Silver Quill and Gold Quill 2005 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill, and Gold Quill 2004 Awards for Publication Excellence, International Association of Business Communicators Bronze Quill and Silver Quill Reader Inquiries

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

Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation. ©2008 Sabre Inc. All rights reserved. AS-08-10282 0708

T a king

making contact

Murray Smyth Vice President 23-59 Staines Road Hounslow, Middlesex TW3 3HE, United Kingdom Phone: +44 208 538 8631 E-mail: murray.smyth@sabre.com India/South Asia

Vish Viswanathan Vice President 187, Royapettah, High Road, Flat A-7 Mylapore Chennai, India Phone: +1 682 605 4544 Cell: United States +1 817 312 2830 Cell: International +91 98404 96765 E-mail: vish.viswanathan@sabre.com Latin America

Kamal Qatato Vice President 3150 Sabre Drive Southlake, Texas 76092 Phone: +1 682 605 5399 E-mail: kamal.qatato@sabre.com

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Maher Koubaa Regional Head 77 Rue de la Boetie Paris, France 75008 Phone: +33 1 44 20 7657 E-mail: maher.koubaa@sabre.com North America

Kristen Fritschel Vice President 3150 Sabre Drive Southlake, Texas 76092 Phone: +1 682 605 5335 E-mail: kristen.fritschel@sabre.com

See how real-time solutions for customer sales and service generate more revenue and maintain the real value of every customer.

Worldwide

Shane Batt Global Solutions Partner Phone: +44 7717 495 129 E-mail: shane.batt@sabre.com

Get your Customer InfoPac today! www.sabreairlinesolutions.com/customerservice

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. ©2008 Sabre Inc. All rights reserved. Printed in the USA.

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2008 Issue No. 2

A Magazine for Airline Executives

2008 Issue No. 2

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Leaps and Bounds

A Conversation With Pham Ngoc Minh, President and Chief Executive Officer, Vietnam Airlines, Pg 18.

www . sabre airl ine solutions.com

Special Section Airline Mergers and Consolidation

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American Airlines’ fuel program saves more than US$200 million a year

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Integrated systems significantly enhance revenue

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Caribbean Nations rely on air transportation


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