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OCTOBER 2003A MAGAZINE FOR AIRLINE EXECUTIVES
T a k i n g y o u r a i r l i n e t o n e w h e i g h t s
I N S I D E
Traditional carriers launch
low-fare subsidiaries
How airlines weathered
"the perfect storm"
Cathay Pacific Airways’
crisis management process
E X T R E M E A I R L I N E M A N A G E M E N T
A conversation with …
DavidSiegel,CEO, US Airways
real
Optimal performance for airlines and airports
Why do more than 200 airlines around the world choose Sabre Airline Solutions as their technology partner? Because they rely on us to deliver integrated solutions to real-world problems such as operations, crew scheduling and fleet planning.
Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions.www.sabreairlinesolutions.com
OCTOBER 2003
Publisher
James FilsingerSabre Airline Solutions1 E. Kirkwood Blvd.Southlake, Texas 76092www.sabreairlinesolutions.com
Editors
Stephani HawkinsB. Scott Hunt
Designer
James Frisbie
Print Manager
Shari Stiborek
Contributors
Pam Ashley, Nejib Ben-Khedher, HollyBurkholder, Jack Burkholder, Al Comeaux,Cameron Curtis, Melissa Deaton, KarenDielman, Rick Dietert, Walter Di Luca,Vinay Dube, Tim Finholt, Greg Gilchrist,Sam Gilliland, Gretchen Greene, VickiHummel, Brad Laser, Craig Lindsey,Gianni Marostica, Apurva Mathur,Michael McCurdy, Heather Parham,Marcus Pearson, Russ Perkins, MichellePorter, Gary Potter, Jim Quilty, GeorgeSchenck, Cathy Smith, ThomasSondey, Anchawan Sukrachun, JamesSun, Chris Vasiliou, Elayne Vick, CarlaWarren and Gabriel Young.
Reader Inquiries
If you have questions about this publication or suggested topics forfuture articles, please send an e-mail to [email protected].
Address Corrections
Please send address corrections via e-mail to [email protected].
Sabre Airline Solutions, the Sabre AirlineSolutions logo and products noted in italics inthis publication are trademarks and/or servicemarks of an affiliate of Sabre Holdings Corp.All other trademarks, service marks and tradenames are the property of their respective owners. ©2003 Sabre Inc. All rights reserved. Printed in the USA.
T a k i n g y o u r a i r l i n e t o n e w h e i g h t s
56
New Distribution
Paradigms: Controlling
Costs in the Internet Age
Airlines must take specificsteps to maximize the benefitsof online distribution.
Preparing for the
Changing World of
In-Flight Services
Many airlines are embracing“buy-on-board” programs tobetter serve their customers.
Expecting the
Unexpected
Cathay Pacific executive Alan Wong discusses how theairline benefits from its crisismanagement process.
Riding the
Storm Out
Airlines have weathered theso-called “perfect storm” – are the skies now clearing?
Lufthansa “D-Check”s
its Organization
and Processes
A thorough process of examin-ing the airline has helpedLufthansa stay competitive.
26
19
14
10
4
26
Getting Back
on Track
Recently emerging technologyoffers hope to help airlines efficiently recover from off-schedule operations caused by inclement weather,mechanicals and labor actions,saving money and increasingcustomer satisfaction.
72An Inside
Job
Many carriers are looking atcreating a low-cost “carrierwithin a carrier” to more effec-tively compete.
Song Reaches
Top of the Charts
As Delta’s low-cost start-up,Song is helping keep a keymarket profitable.
You’ve Come a
Long Way, bmibaby!
bmi’s low-cost subsidiary ishelping the group defend itshome turf.
Extremely Prepared
for the Future
US Airways CEO David Siegeldiscusses the radical steps hisairline has taken to restructure.
The New Revenue
Reality
Multiple factors are driving airfares downward.
From the
Ground Up
By building its own airports,Bangkok Airways opens new markets.
Turnaround First,
Then Privatize
By first improving operations,flag carriers can better preparethemselves for privatization.
48
46
41
38
31
30
30Asia/Pacific Carriers
Open a Portal
Sixteen carriers have launched the first region-wideonline travel portal.
Capitalizing on
Consolidation
The consolidation of theChinese aviation market has positioned China Easternto become a key player.
65
62From Russia,
With Success
Russian carriers continue to realize substantial growthdespite an industry-widedownturn.
Looking Through the
“Contact” Lens
A new state-of-the-art call center improves customers’ability to contact Gulf Air.
70
67The Winning
Combination
United Airlines takes aggressive steps to maximize revenue and control distribution costs by leveraging winning technology.
75
co
mp
an
y
with Tom Klein Group President, Sabre Airline Solutions
contents
Improving Interline
Electronic Ticketing
New solutions enable airlines to use interline electronic ticketing.
Just Right:
The Resource
Management Systems
An integrated resource management suite can help airlines save up to 25 percent on labor costs.
56
54Web-Enabling
Revenue Management
Remote connectivity offersaccess to advanced technologywith a low cost of ownership.Through a remote connection,Aerolineas Argentinas utilizeskey functionality at a lower cost.
60
ind
ustr
y
reg
ion
al
pro
du
cts
perspective
75 62
here’s little doubt that the past decade in the
airline industry has been one of extremes.
From the lows of the early ’90s to the highs at the end
of the decade and back to the lows of the past few years, the
airline industry has been on a roller coaster ride of ups and
downs that have forced executives to look for radical ways
to adjust to the changing environment.
It reminds me of the new X-treme sports, or X-games,
that have become popular during the past several years.
Young athletes have created new games, new rules and are
taking new risks. More and more, airline executives are practic-
ing “extreme” management. They are challenged to compete
in new arenas, to try things never done before and to take
greater risks.
A willingness to try new ideas and learn, either “failing
fast” or finding success, is a valuable attribute for all of us
in and close to the industry. Airline managers are using
extreme plans and radical decisions to create new realities
in the industry.
Our cover story features Dave Seigel, president and
chief executive officer of US Airways. Dave faced a tremen-
dous challenge bringing US Airways through Chapter 11
bankruptcy proceedings. And he completed the process
more quickly than any other major corporate restructuring
in recent memory.
Dave also drove an incredibly rapid set of strategic initia-
tives including a key codeshare agreement, joining the Star
Alliance and placing a record order for regional jets. Fast?
You bet. Dangerous? Maybe, but I'd call it brilliant despite
the risks. Done before? Not like this. US Airways is setting a
new standard.
All throughout the industry, we see extreme ideas being
tested — be it Lufthansa with its all-business-class trans-Atlantic
service, America West with a new pricing structure or jetBlue
changing the rules in the low-cost segment. We dedicate this
issue to the leaders in the industry who are rapidly driving
innovation and taking risks — those “extreme” leaders who
aren’t afraid to fail in an effort to drive a healthy air trans-
portation industry.
T
The advent of the Internet provides
airlines with the opportunity to make
substantial changes to the way they
distribute their product. Not surprisingly,
some airlines have recently placed more
focus on direct distribution, interacting
directly with travelers and bypassing
intermediaries, such as global distribution
systems and travel agents. Although air-
lines have always possessed this capability
in their reservations centers, Internet-
based distribution has taken the call
center concept further by allowing more
customers to interact with their schedules
and fares than previously possible.
Airline Consumer Direct
Web-based distribution has taken
several forms, and different models con-
tinue to emerge depending on where the
airline operates. In North America and
Europe, airlines tend to favor consumer-
direct models for both published fares
and distressed or “opaque” inventory.
Some have attempted to engage travel
agents with their Web sites as well. While
this model has lowered distribution costs, it
has also had a severe impact on revenue.
The consequences of consumer-direct
distribution include:
Passengers use the increased price
visibility of the direct distribution
channel to find lower fares, reducing
ticket yields,
Travel agencies react to airline direct-
sell competition, obtaining lower fares
for their passengers in order to maintain
viability, again reducing ticket yields,
Airlines incur increased costs to main-
tain Web sites and other direct-distri-
bution channel centers, often displacing
any savings gained by decreased travel
agency commissions.
The bottom line — Web-based,
consumer-direct models often result
in both product dilution and increased
distribution unit costs.
Online Agencies
Another distribution model that has
emerged is the online travel agency. The
online agencies have taken mainly two
forms: published and net-fare retailers
such as Travelocity and distressed
inventory agencies such as Hotwire.
The most recent statistics indicate
that the top six online agencies in North
America now account for about 25 percent
of all travel agency bookings in the region.
What does this mean for airlines?
If they plan to conduct business in the
North American market, they should
include these agencies. For carriers
based outside of North America, these
agencies provide an opportunity to
distribute their product much more
widely and with less effort than setting
up sales teams in individual cities.
The advantages of online agencies
include their widespread use for instant
purchase, resulting in quick inventory
turnover, and the breadth of products
made available to the consumer, such
as vacation packages and fly/drive deals.
However, the downside to using
this distribution channel is that, like other
consumer-direct sites, they draw a num-
ber of hits without resulting in actual
bookings. Depending on an airline’s
connectivity to the Web site or its spon-
soring GDS, this could have a profound
industry
october 2003 5
The growth of the Internet offers airlines more channels to distributetheir product. As airlines increase use of these channels, they can take specific steps to control costs and maximize the benefits of online distribution.
New Distribution Paradigms:
By Stan Boyer | Ascend Contributor
Controlling Costs in the Internet Age
based distribution, require special care
in order to avoid fraud. For this reason,
it is often in the best interest of the
airline to continue to have the travel
agency handle the transaction, thus
relieving the airline of the liability.
Whether this model will work
depends on a host of factors such as
Internet speeds and links throughout
the country, and cost and availability
of security features.
Airlines located where cash payment
is the norm are experimenting with spe-
cial bank accounts for individuals and
corporate clients that will allow the airline
to deduct funds from the account for
the purchase of a Web-based ticket.
Controlling Distribution Costs
Regardless of Channel
Regardless of the channel, airlines
must control distribution costs, which
can range from 2 percent to in excess
of 30 percent depending on several
factors, including markets where they
operate, how they manage currency
exchange rates, whether they treat
incentives as diminution of revenue or
as a cost, which distribution channels
they use, their business relationships
and overall marketing strategies.
Airlines can control costs in direct
channels by focusing on:
Corporate incentives,
Call center and sales office efficiency,
Waitlist control,
Waivers and favors control,
Group management.
For indirect channels, areas for
cost containment include:
Travel agency commissions
and overrides,
Waivers and favors control,
Fraudulent booking and ticketing
practices,
GDS costs,
Communication costs —
SITA, Arinc,
Online agency costs.
Many airlines focus on the costs
of indirect distribution, most notably
electronic distribution via GDSs.
However, if an airline’s reservations
and inventory control are “hosted”
by a service provider, then many of
the same techniques used to control
GDS costs can be applied in the
hosted environment.
How to Control Distribution Costs
Host Record Maintenance
An airline should make use of data mining
tools or robotics to eliminate unproductive
records, such as unticketed bookings,
duplicate bookings and waitlists that the
airline knows will not be cleared. Many
airlines only focus on critical flights, those
at least 85 percent full, but any flight
could contain a substantial number of
these records. These records should be
cancelled far enough in advance in order
to ensure only accurate records on the
day of departure, saving unnecessary
GDS fees.
Inventory Control
Airlines’ desire for flexible product
distribution led to the implementation
of advanced, robust systems to control
inventory. With this flexibility comes
responsibility on the part of the
airline to make the most of each
system through which it distributes
its product.
Within the GDS distribution frame-
work, airlines can control distribution
costs by conducting a monthly review
of the GDS invoice detail, known as
impact on its host reservations system.
Most of the larger online agencies
are attempting to minimize the impact
by reducing the number of hits to the
airline’s host system.
Internet to Agency
For many areas of the world, Internet
penetration remains moderately low, and
thus consumer-direct models are not as
effective. In these markets, some airlines
are creating new models that use the
Internet to connect travel agencies directly
to an airline-sponsored Web site. Why
would an airline choose this route?
The answer to this question lies in
understanding what airlines perceive to
be their largest costs of distribution. In
Brazil, for example, the Real is nearly 3
to 1 against the Euro. If the fare between
São Paulo and Rio de Janeiro is R$600
or about € 200 round trip, the agency
commission is about 7 percent, or € 14,
and the GDS fee is € 8, or 4 percent.
If the currency devalues to 4 to 1
against the Euro — as was the case
in late 2002 — the impact is dramatic.
Because much of the airline’s costs are
in the local currency, the airline leaves
the round trip cost at R$600 or € 150.
The travel agency commission remains
the same at 7 percent, dropping to
€ 10.25. The GDS fee remains constant
in Euros, and now the € 8 fee is equal
to 5.3 percent of the fare.
The benefit is magnified with con-
firmed, passive, waitlisted or duplicate
bookings for which a GDS often charges
a fee. If a traveler has to waitlist for an
earlier flight in the desired fare class,
but is unable to get the fare, and the
travel agency does not cancel the wait-
listed segments in the GDS, then the
GDS costs will now be about € 16 or
10.6 percent of the new fare.
In this case, the electronic cost of
distribution could be more costly than
the travel agent commission. Therefore,
some airlines do not exclude travel
agencies but encourage them to book
directly on the airline’s Web site, leaving
the commission intact. In addition, credit
card transactions, the mainstay of Web-
October 2003 7
industry
Who
Cathay Pacific Airways
What
Renewed its “smartsourcing” con-
tract with Sabre Airline Solutions. The
three-year, multi-million dollar contract
provides Cathay Pacific the full range of
Sabre Airline Solutions' integrated port-
folio, including consulting services.
Why
The smartsourcing contract provides
Cathay Pacific access to new product
releases and participation in Sabre
Airline Solutions’ extensive solutions
user groups. Through the agreement,
first signed in 1997, Cathay Pacific has
accessed and implemented 19 Sabre
Airline Solutions software applications.
“The strategic alliance developed
with Sabre Airline Solutions will help
us keep ahead of the competition,"
said Anthony Yeung, general manager
information management for Cathay.
“This partnership includes both soft-
ware and expertise in a range of areas
including planning and flight schedul-
ing, pricing and revenue management,
flight operations and crew scheduling,
and automated check-in.
“The smartsourcing contract
also assures we have significant
input in further product portfolio
development and enhancement from
Sabre Airline Solutions, ensuring
products that meet our objectives
and technology that helps us remain
at the forefront of the industry,”
he added.
T H E H I G H L E V E Lvıew
The development of the Internet has created more opportunities for airlines to distribute their product more widely and with less effort.
However, new channels can result in product dilution and increased distribution costs. Despite the potential pitfalls, there are ways for
airlines to control distribution costs and maximize the benefits of these new channels.
News Briefs from Around the Globe
industry
by either SITA or Arinc, for which the
airline is charged a per-message fee. In
an attempt to achieve “last seat avail-
ability,” airlines often set their inventory
open/close thresholds too low and send
large volumes of messages without
realizing the potential costs involved.
Of course, for many airlines that
participate at the highest levels of avail-
ability in the GDSs, AVS messaging is
largely unnecessary and is only used
as a back-up mechanism. Unfortunately,
airlines often forget to change their
agreements when they move to higher,
more reliable levels of participation in
the GDSs. One U.S.-based carrier recently
modified all of its AVS agreements, yield-
ing millions of dollars worth of savings.
Web Transactions
Studies have demonstrated that Web
site traffic creates substantially escalated
numbers of transactions to the airline
host system. Although Web-based travel
agencies are working to rectify this issue,
an airline should speak with the agency
to adjust the volume of hits, based on
technology available to the online agency.
For the airline’s own Web site, which
more than likely links directly to its host,
the airline should consider options such
as caching availability for the most
requested city pairs or limiting the
number and types of transactions that
can be performed from the site. These
options must be implemented with care
in order to avoid the perception that the
airline is not providing the best options
to its customers.
Commissions and Incentives
Carriers with a presence in the
United States have mostly eliminated
travel agency commissions, resulting
in lower overall distribution costs via
this channel. However, in lieu of com-
missions, some carriers pay volume- or
revenue-based incentives to agencies.
The structure of the incentive program
must be tightly controlled and inte-
grated across all segments of the
airline’s indirect suppliers, such as
consolidators, tour operators and
corporate accounts.
Sales Office and
Call Center Efficiency
To serve customers better, airlines
allow callers to book with its call center
and receive their tickets via a travel
agency. Where ticketless or electronic
ticketing is common, this practice can
be eliminated. Where paper tickets are
widely used, the practice can lead to
higher distribution costs as the agency
may have to make a “passive booking”
in order to ticket the airline-originated
booking. GDSs offer remedies for this
with tools that allow the agency to
“claim” the airline-originated booking
from the carrier’s host system. Using
this technology, the airline avoids the
cost of the passive booking.
As new channels of distribution
emerge, it is paramount that an airline
understands the costs and revenue
ramifications associated with them.
Only by understanding these issues
can an airline successfully control its
distribution costs. Through the Sabre ®
Global Distribution System, Travelocity
and GetThere, a corporate online booking
tool, Sabre Holdings provides an inte-
grated offering for distributing through
every channel and can assist airlines
with managing the costs of distributing
their product.
Stan Boyer is a director with Sabre
Airline Solutions Consulting.
ascend8
billing information data tapes. Using
tools that are available to analyze this
data, airlines can focus on “unproduc-
tive bookings” such as:
Bookings that have not been cancelled
by a travel agency even after the airline
has sent a message for the agency to
do so,
Bookings that are used for ticketing
purposes only and do not affect airline
inventory but still result in paying a
fee to the GDS,
Waitlist bookings that have not been
cancelled by the airline or the travel
agency.
These bookings must be cancelled
by the travel agency at least 24 hours
prior to the flight to avoid charges. Each
GDS has procedures to work with partic-
ipating airlines to remedy situations
where agencies make fraudulent or
improper use of the system. Two recent
Sabre Airline Solutions clients actually
turned off waitlist functionality, resulting
in more than US$1 million annual savings
each. Such action is justified because
booking curves are very short, and if
the revenue management teams are
performing their responsibilities, the
need for waitlists is greatly diminished.
Many of these same principles apply
in a hosted environment. An airline
may be charged for either message
traffic, reservations made or passengers
boarded. In the case of reservations
made, an airline should cancel as many
unproductive bookings as possible prior
to a flight. The 24-hour rule does not
usually apply here, as is the case with
GDS bookings.
Availability Status Messages
Another area where airlines can
reduce distribution costs is availability
status messages, or AVS messages. These
messages are transmitted to the GDSs
and other airline host systems to indicate
whether a particular booking class of
service is open or closed. An airline must
establish an agreement with each system
to which it wants to send AVS messages.
Several types of agreements are available
to avoid sending unnecessary messages.
Unless the airline has direct connections
to another system, the messages usually
pass through a “clearing house” hosted
Online agencies continue to emerge as a more prominent distribution channel. In North America, the top six online agencies represent
about 25 percent of all travel agency bookings in the region, and they are also gaining influence in Europe and Asia/Pacific.
News Briefs from Around the Globe
Who
US Airways
What
Selected Travelocity to be the
exclusive distributor of hotels, car
rentals and last-minute deals on its
Web site, www.usairways.com.
Why
Hotel inventory provided by
Travelocity to usairways.com will
feature the entire complement of
Travelocity's offerings, including
guaranteed low-priced "Good Buy"
rates. The same is true for car
rentals and last-minute deals.
“Travelocity has forged a
reputation as being very supplier
friendly, and we are looking forward
to a mutually beneficial relationship
with this industry veteran moving for-
ward,” said Steven Tracas, US Airways
vice president of sales and marketing.
“I'm confident our passengers will
notice the added savings and conven-
ience of booking their entire trip on
usairways.com immediately.”
T H E H I G H L E V E Lvıew
In North America today, 40 percent of all bookings are made directly with airlines.
Of the remaining 60 percent of trips booked through travel agents, a fourth are made
through online agencies.
Faced with seeking ways to cut costs,
yet still provide a high level of service
to customers, many airlines — particularly
in the United States — have begun
experimenting with selling meals to
passengers on board their aircraft.
The “buy-on-board” programs —
enabling passengers to purchase
high-quality meals on flights where
no other meal service would typically
be offered — helps offset the cost of
meal service while maintaining, or
even potentially increasing, customer
satisfaction.
In-flight services — traditionally
representing an average of 2 percent to
3 percent of total expenses — have long
been a key differentiator for carriers.
During the past few years, the variety
of business models and strategies asso-
ciated with in-flight service has grown
dramatically to include everything from
premium service to virtually no service
in some of the low-cost carrier models.
In addition, the industry has seen more
and more service strategy volatility
mainly due to the need to help drive
profits in tough economic times.
Carriers such as America West
Airlines, Midwest Airlines, US Airways
and United Airlines have already looked
into buy-on-board programs.
“The concept earned America West
public accolades for its innovativeness,”
said W. Douglas Parker, chairman,
president and chief executive officer
of America West Holdings Corp. “Most
importantly, customer feedback has
been overwhelmingly positive, and we
hope to be able to expand the product.”
The new, and increasingly popular,
buy-on-board trend represents a radical
divergence from previous service models.
The program provides an alternative to
simply reducing services offered to pas-
sengers. The buy-on-board programs
provide airlines another opportunity to
outsource a piece of their operations.
Many carriers are looking to their
catering partners to run all aspects of
these programs for whatever portion
of their schedule/class-of-service combi-
nation they deem applicable. Such
outsourcing activities may even provide
further efficiencies and help control
New “buy-on-board” programs enable airlines to provide quality customer service while boosting revenues and controlling costs.
costs. Traditional catering leaders such
as LSG Sky Chefs and Gate Gourmet
are also establishing themselves as the
leaders in developing buy-on-board
programs for airlines. LSG Sky Chefs
launched its In-flight Café concept earlier
in the year, teaming with recognized,
respected restaurant brands such as
T.G.I. Friday’s ® and Wolfgang Puck.
Since launching In-flight Café, LSG Sky
Chefs has run tests with five major
U.S. airlines and continues to run full-
scale programs for two carriers totaling
nearly 400 flights per day.
“The successful adoption of the
In-flight Café program thus far by airline
customers indicates the growing accept-
ance of the buy-on-board concept as
the new model for in-flight dining in
the United States, as more U.S. airlines
seek ways to offer cost-effective meal
service in coach class,” said Rex Roe,
vice president of design development
for LSG Sky Chefs.
Offering programs such as In-flight
Café in lieu of, or in combination with,
traditional services can prove to be a
very beneficial decision for airlines,
but it also comes with its fair share of
complexity and, in certain cases, may
not vastly decrease the effort needed
to manage such operations.
For such programs, both airlines
and caterers need technology to help
them market the buy-on-board programs,
operate them efficiently, and drive the
largest and most profitable response
from passengers. To facilitate such pro-
grams, airlines need a comprehensive,
integrated system to accomplish pre-
flight, in-flight and post-flight activities.
The ideal system provides a single
tool to manage all planning, operational,
financial and decision-support functions
associated with successful buy-on-board
programs. Some key points of function-
ality to support buy-on-board include:
Environments to support both traditional
and buy-on-board operations as well
as multiple parties’ schedule policy
creation and schedule maintenance.
In addition, these same specifications
and scheduling functionality should
be able to be used as a content man-
agement system to inform passengers
of what will be for sale on their flights,
complete with pricing information as
well as a digital image.
A meal-ordering system that can
automatically segment an airline
schedule by class of service and
provide forecasts for the appropriate
class for both traditional and buy-
on-board services. For buy-on-board
flights, the system should provide
meal “sales” forecasts based on real-
time information from reservations
and departure control systems as
well as past historical sales data. This
system’s meal-ordering functionality
should ensure that the right quantity
of meals are boarded, minimizing
industryindustry
ascend10
Preparing for the Changing World of In-Flight Services
By Jamie Patel and Erin Bouck | Ascend Contributors
Enhancing the traveler experience,
many airlines offer brand-name food
items — such as T.G.I. Friday's ® and
Wolfgang Puck — through buy-on-
board initiatives.
“The concept earned America
West public accolades for its
innovativeness. Most importantly,
customer feedback has been
overwhelmingly positive ….”News Briefs from Around the Globe
Who
Qantas Airways
What
Selected the Sabre ® AirFlite™ suite
of planning and scheduling solutions
to develop the airline’s flight schedules
and improve its profitability across all
the carrier's regional, short-haul and
long-haul routes.
As part of the agreement, Sabre
Airline Solutions will also establish
a regional Center of Excellence to
advise Asia/Pacific-based carriers on
fleet scheduling issues. The Sydney-
based COE will initially aid Qantas in
evaluating the profitability of routes
from an entire network and fleet
perspective and aims to work closely
with other APAC-based carriers.
Why
The AirFlite suite will enable
Qantas to make flight scheduling
decisions from a network-wide
perspective, allocate capacity
according to demand, quickly and
efficiently develop regional, short-haul
and long-haul schedules, and plan
and assess the profitability of proposed
changes to both the existing network
and proposed new routes.
“The installation of the AirFlite
suite will enable us to quickly allocate
appropriate capacity according to
consumer demand or during any
short-term disruptions,” said Alan
Joyce, Qantas group general
manager network.
T H E H I G H L E V E Lvıew
product
Reservations and Departure ControlInterface version 2.0.0
descr ipt ionA new graphical user interface for airline
agents to manage reservations and
check-in functions from a single, easy-
to-use tool.
benef i tsThe combined GUI has been designed
to follow natural, intuitive workflows,
streamlining agent processes and
increasing productivity. By eliminating
complex system formats, the GUI enables
agents to offer customers more attentive
service. The easy-to-use design reduces
training time, and the consistent naviga-
tion between reservations and airport
functions significantly reduces the time
for crosstraining. Adopting this com-
bined interface will also ease the
process to upload enhancements and
new versions as they are released.
featuresGraphical seat maps — Allows agents
to view a dynamic cabin map and
quickly identify and assign available
seats to customers.
Enhanced flight check-in functionality
— Increases agent productivity by
expanding the functionality available
on the check-in screen to include the
cabin map, current flight information
and passenger counts.
Consistent, easy-to-use navigation —
In 80 percent of the cases, agent func-
tions are performed within one click
from the homepage. The functions are
mapped to the natural dialog with the
traveler and are equally accessible
with or without a mouse.
Easy-to-read graphical output — Most
system responses are displayed to the
agent as dynamic graphical output
rather than native green screen host
responses. The trip summary window
also provides the ability to display
large amounts of information in an
easy-to-read format.
Integrated customer relationship
management functionality — Agents
are able to quickly identify their fre-
quent travelers and capture additional
information about the traveler.
industry
october 2003 13
News on New and Improved Productsand Services from Sabre Airline Solutions
hightech
industry
waste and maximizing revenue.
Extended data warehouse capabilities
that enable storing and reporting on
retail-based information for a buy-on-
board or gate-boarded environment;
provide decision support to drive
pricing decisions, menu decisions,
market-segment adoption rates and
competitive impacts of other carriers;
and automatic cataloging of sales
information captured in any handheld
technology utilized in the selling
process. It should also manage the
revenue-share process across the vari-
ous parties supporting the buy-on-
board program as well as flight atten-
dant incentive programs and tracking
of overall performance of the crew.
The Sabre ® AirServ ® aircraft provi-
sioning system, which traditionally
enabled an airline to tightly manage
all aspects of its “above the wingtip
provisioning,” is being adapted to
help carriers manage buy-on-board
programs or hybrid environments
including both buy-on-board and
traditional components.
The AirServ
system will
integrate with
many marketing
engines to help
promote buy-on-
board programs
to passengers,
travel agents
and potential
consumers.
Using the mes-
saging delivery
platform avail-
able through
the Sabre ®
VirtuallyThere ®
Web site, airlines
can send direct
marketing
messages to
upcoming
passengers
in a variety of
formats and can
include specific
information
about, and even
photos of, the
meals available
on their upcoming flights. Such messages
can also easily be expanded to allow
pre-purchasing of meals prior to boarding
the flight. On a broader scope, integration
with booking engines such as Travelocity
add further touch points for consumers
as well as opportunities to drive pre-
departure sales. Utilization of existing
functionality in the Sabre ® Global
Distribution System will further expand
awareness of such programs by allowing
direct marketing to another key player,
the travel agent. Targeted messaging
to agents about the programs offered
by carriers as well as any incentives
that might be available can be easily
sent through the existing technology.
Marketing buy-on-board programs
will be crucial to their overall success,
and having a single technology provider
across all avenues ensures a concrete
and standard message is being deliv-
ered regardless of the communication
channel.
As the market for in-flight services
continues to change, the ability for an
airline to adapt will continue to become
more and more vital. Buy-on-board
programs represent a dynamic new
trend that offers airlines the ability to
control costs while providing a desired
service. Utilizing the AirServ system in
conjunction with other tools available
through the Sabre Holdings family will
ensure that airlines and caterers alike
can support any environment from both
an operational and marketing stand-
point. Such flexibility will help manage
costs in any environment, without
having to disappoint passengers.
Jamie Patel is director of dining and
cabin services at Sabre Airline
Solutions. Erin Bouck is the product
manager for the AirServ system.
The graphical user interface for the automated meal ordering service, also known as AMOS, helps airlines easily
manage, streamline and improve their catering operations.
While the global airline industry
struggled with an economic
downturn, the events of Sept. 11, 2001,
in the United States, and the outbreak
of conflicts in Afghanistan and Iraq,
Cathay Pacific Airways managed to
weather the storm. In March, the carrier
announced record profits even in the
face of such challenging conditions.
Weeks later, however, another blow to
the industry dramatically affected the
Hong Kong-based airline. With the
outbreak of severe acute respiratory
syndrome in Asia, Cathay Pacific suddenly
saw travel to and from its home base
plunge. The World Health Organization
issued a travel warning for Hong Kong,
and bookings in its home market
decreased 80 percent. In May, the carrier
averaged 5,500 passengers a day —
a dramatic decrease from the 33,000
a day it carried during the same month
the previous year.
The drop in passenger traffic forced
Cathay to issue its first-ever profit warn-
ing and to take other dramatic steps to
address the crisis and maintain its posi-
tion as one of the world’s preeminent
carriers. In the months following the
outbreak, the carrier reported a rise in
passenger numbers and plans to return
to a full schedule.
Alan Wong, a general manager at
Cathay, discussed how the airline
reacted to the crisis and some of the les-
sons it learned.
Question: Although it’s impossible
to anticipate an event such as the out-
break of SARS, you have a plan in place
to deal with crises. Can you outline
your crisis management process?
Answer: As an airline, we always
have plans to handle flight disruptions.
Our corporate decision is that we use a
response-driven contingency planning
methodology instead of the more com-
monly used scenario-driven method.
This response-driven planning
methodology enables us to avoid having
to write and maintain a library full of
specific plans for specific crisis scenarios.
There are too many potential crises out
there for a modern airline. It also allows
us to clarify our thinking throughout
every level of the company on our core
business functions as well as their deliv-
ery processes — what may be affected,
what needs to be protected.
This method ensures systematic
business continuity planning through-
out all departments and outports, such
as overseas offices, by making use
of a corporate standard planning
template. And it maximizes cost
savings in pooling resources and
manpower by making use of an
integrated, holistic corporate response
infrastructure.
industry
A conversation with Alan Wong,Cathay Pacific Airways
UnexpectedExpecting the
“Our corporate decision is that we
use a response-driven contingency
planning methodology instead of
the more commonly used scenario-
driven method.”
Photo courtesy of Cathay Pacific Airways
Ph
oto
co
urt
esy
of
Cat
hay
Pac
ific
Air
way
s
october 2003 15
Alan Wong, a general manager at
Cathay Pacific, said the airline’s crisis
management process helped it cope
with the severe downturn in traffic
earlier this year.
most effective steps to take? Were there
other options that were not pursued?
A: Dealing with something unknown
like SARS, other than protecting the
health of our passengers and staff, our
first priority has to be the preservation
of the business and jobs. The outbreak
of SARS posted the most challenging
period in our 57-year history.
The measures mentioned were
all necessary to conserve cash and
preserve jobs. The fact that we survived
and are now able to work toward our
recovery is due to our prompt business
decisions, the admirable teamwork
of our staff and management, and our
shareholders' continued confidence
in the company.
Q: Were any of the changes you made
permanent?
A: Operation wise, we were back to
normal by the end of September. The
outbreak of SARS has reinforced our
belief that the aviation industry is very
dependent on the global economic cycle
and is very vulnerable to exogenous
events like 9/11 and SARS. One item
that we can consciously control is cost,
and we will continue to keep a close
watch on it.
Q: Under normal circumstances, key
decisions are made after thorough
discussion and debate. Did the need
to react quickly to a crisis situation
alter the decision-making process?
A: Quick decisions and actions are cru-
cial in handling a crisis. Our established
plans have enabled us to do so. SARS
first became an issue for us on March
16 when we were told that a passenger
that had flown with us to Canada 10
days previously had taken ill. It was
immediately apparent to us that SARS
could have commercial implications
for the airline. Our first concern was to
protect the health of our passengers
and staff. At the time, there were very
limited recommendations for airlines
to deal with the situation, so we devised
our own.
On March 18, we formed our SARS
committee chaired by the director of
service delivery and brought together
representatives from all departments.
Its job was to monitor the situation and
devise, communicate, implement and
evaluate our response from an opera-
tional and communication point of view.
Q: How long do you believe it will take
you to fully recover from the affects of
the SARS outbreak? Do you believe the
recovery process was hastened by hav-
ing a crisis management plan?
A: Passenger numbers are picking up
across the network. However, yield is
low as a result of all the promotional
offers to encourage people to travel
and help to rebuild the tourism industry
in Hong Kong. Full recovery will take
industry
october 2003 17
industry
ascend16
Q: What are the steps involved in it,
and what input and types of informa-
tion do you seek?
A: Basically the crisis management
process involves all departments and
staff at all levels. When a crisis is called,
a crisis team composed of representa-
tives from various departments will be
formed and meet on a regular basis.
The team is chaired by a Cathay director.
Its job is to monitor the situation and
devise, communicate, implement and
evaluate our response from an opera-
tional and communication point of view.
Any information related to the crisis
will be needed. For the SARS outbreak,
we worked closely with the International
Air Transport Association, the Association
of Asia Pacific Airlines, the World Health
Organization, Hong Kong Department of
Health, et cetera, to gather the latest SARS
information. We needed them for decision
making and message development for
both internal and external audiences.
Q: How well did your crisis manage-
ment process address the SARS out-
break? Was it robust enough to handle
such unprecedented changes, or did
you have to adjust it to manage the
magnitude of the situation?
A: SARS is so new that it’s probably
not included in any contingency plan.
Nevertheless, our established plans
are response-driven rather than sce-
nario-driven. We were able to meet the
challenges of the SARS event. Even
though there was no specific plan on
SARS, the generic corporate response
structure was adequate in ensuring
business continuity and dealing with
issues such as impact on personnel.
Q: Have you identified any changes
that you would make to the crisis man-
agement process so that it would work
even better in future crisis situations?
A: The spread of SARS and its impact
on us was so quick that it deepened
our belief in ongoing preparation. Every
group must maintain and update its
plans on a regular and periodic schedule
— it's no good if the plan was updated
12 months ago. Everyone must be
trained according to the plan — it's no
good if the staff doesn’t know how to
use the plan. We also conduct drills and
exercises to ensure efficient execution
of the plan including all levels of staff
from frontline staff to company directors.
Q: During the height of the outbreak,
you took some dramatic steps — cutting
more than 40 percent of daily flights,
parking 22 aircraft, cutting dividend
payments, placing staff on unpaid leave
— how did you identify specifically the
“Even though there was no specific
plan on SARS, the generic corporate
response structure was adequate in
ensuring business continuity and
dealing with issues such as impact
on personnel.”
“Quick decisions and actions are
crucial in handling a crisis. … SARS
first became an issue for us on March
16 … On March 18, we formed our
SARS committee ….”
Once the World Health Organization lifted its travel advisory for Hong Kong,
Cathay Pacific Airways moved to allay fear of travel to the city through its
“Flying without Fear” campaign. Cathay Pacific also worked with other tourism
partners to launch the “We Love Hong Kong” campaign. Such steps have helped the
airline rebound. In August, Cathay Pacific carried 23.9 percent more passengers than
the previous month.
industry
+count it upLess than 2 — Number
of minutes for the world’s shortest
scheduled flight, from Westray to
Papa Westray.
4 — Number of doctorate
degrees held by members of the
Sabre Airline Solutions consulting
team. Team members also hold
15 master’s of business administra-
tion degrees.
7.1 — Percentage of decline
for overall passenger traffic year
on year for the first half of 2003,
according to the International Air
Transport Association.
For nearly three years, various elements have converged to form a “perfect storm” for the airline industry. Addressing some of the causes and effects of the storm will result in changes that will reshape the industry.
Like many spectacular tempests, the
so-called “perfect storm” that hit the
airline industry was preceded by decep-
tively beautiful weather.
Although it may seem like an
eternity has passed, the airline industry
once found itself flying through the
clear skies of relative prosperity as
recently as three years ago. According
to Steve Hendrickson, a partner with
Sabre Airline Solutions Consulting,“
things were calm and sunny” as
recently as 2000.
“The economy was riding high in
’99 and 2000,” he said. “You had your
‘dot.com’ venture capitalists throwing
(around) money, and people were saying,
‘Don’t worry about being profitable, just
generate more eyeballs.’ Of course, we
had Y2K grabbing a lot of activity. Even
into 2000, they were still wrapping up
Y2K projects. Then a lot of those projects
were used as justifications for other
modernization efforts: ‘As long as we’re
going to clean up the code on the two-
digit year, let’s also put a data warehouse
behind this thing.’ So there were a lot
of things helping the economy peak and
even bubble, and we were enjoying the
excesses of that period.”
Signs of Trouble
But in March 2001, a few clouds
started to gather, said Ray Neidl, an
airline industry analyst for Blaylock
& Partners in New York City. Nothing
too alarming — the booming North
American economy began to cool.
Following that, though, the storm clouds
thickened as fuel prices rose and high-
margin business travel slackened, Neidl
said. Meanwhile, he added, airlines
continued to add capacity, and labor
costs in the United States jumped,
sparked in part by an industry-leading
contract United Airlines gave pilots to
win support for its ill-fated merger
attempt with US Airways.
And then came the lightning bolt —
the events of Sept. 11, 2001, when four
commercial aircraft in the United States
were commandeered and crashed into the
two World Trade Center towers in New
York City, the Pentagon in Washington,
D.C., and a field in Pennsylvania.
Dramatic and damaging as it was,
that lightning strike only marked the
storm’s flashpoint. It was followed by
conflicts in Afghanistan and Iraq and
industry
some time. Having a crisis management
plan has definitely helped the company
to manage the crisis in a more structured
way. Very soon, it became clear that the
crisis would break down into three broad
phases with specific focus in each phase.
After taking the necessary measures to
protect our passengers and staff and
cutting costs, we moved quickly from
the response phase to the reassurance
phase in order to allay the fear of
travel because of SARS. We launched
a "Flying without Fear" campaign in
April. Faced with the rapidly declining
local economy, we had to do something
to build confidence and stability among
Hong Kong residents and to get life
back to normal. Together with other
tourism partners in Hong Kong, we
launched the "We Love Hong Kong"
campaign. Once the World Health
Organization removed Hong Kong from
the SARS-infected area list, we rolled
out an aggressive plan to rebuild the
tourism industry in Hong Kong.
Q: As you emerge from the impact of
SARS, have you readjusted your opera-
tions and/or your overall strategy?
A: We are progressively reinstating
more flight frequencies. We were
back to full operation by the end of
September. For destinations such as
London, Melbourne and Auckland,
the frequencies will be even higher than
the pre-SARS level.
Notwithstanding current difficulties,
we will continue with plans to grow our
fleet, develop our network and strengthen
Hong Kong's position as Asia's leading
aviation and logistics hub.
Q: Since Cathay has successfully
survived the SARS crisis, do you think
you are better prepared to handle future
situations that may arise?
A: We are coming through an extremely
difficult period with our company, staff
and product intact. The experience has
given us very good lessons on how to
manage the company during an extremely
difficult business environment. While
we remain vigilant, we believe the expe-
rience we had will help us handle future
situations that may arise.
Q: What key lessons did you learn
from the SARS outbreak and its
affects on your airline?
A: Although SARS created a very
different crisis to one an airline might
normally be prepared for, it nevertheless
highlighted some very fundamental
lessons.
The key lesson is the need to be
prepared. We are always sensitive to
possible threats and a strong sense of
crisis is in our corporate culture. If
we had not identified the possible
implications of SARS early on and
acted to contain them, the outcome
to the company, its staff and sharehold-
ers could have been much worse.
Very important was our ability to
act quickly in the face of crisis, both to
protect the health of passengers and
staff and to make swift decisions in
order to safeguard the business in the
short term and maintain confidence in
the company in the long term.
In times of crisis, people need to be
briefed. Unity among staff and confidence
in the company are essential to ensure
that everyone puts in their best and
moves in the same direction.
Communicating promptly and transpar-
ently to external audiences also helps to
retain people’s confidence in the company.
From our point of view, it was
important that we did not just wait for
help. We provided leadership and took
action to rebuild our own business as
well as support government and industry
initiatives, both to maintain confidence
in air travel and restore vigor to the
tourism industry of Hong Kong.
The steps taken by Cathay Pacific
to address the issue have helped it
make a strong recovery. In August,
Cathay Pacific carried 1,083,011 pas-
sengers, a 23.9 percent increase over
the previous month. Its passenger
load factor climbed 3.2 percent year-
on-year to 85.3 percent, and it carried
70,452 tons of freight, up from 67,340
tons in July.
Riding the Storm Out
By B. Scott Hunt | Ascend Editor
“In times of crisis, people need
to be briefed. Unity among staff
and confidence in the company
are essential ….”
The “perfect storm” that impacted the
airline industry had a dramatic effect
on the financial performance of carriers
around the world. In 2001 and 2002, the
world’s airlines combined to lose nearly
US$25 billion.
“It was just like a perfect storm.
It was a whole bunch of different
things that were coming into play
at the same time … none of
them good.”
october 2003 19
the outbreak of the deadly severe acute
respiratory syndrome in Asia — all of
which combined to keep an already
skittish traveling public at home.
“It was just like a perfect storm,”
Neidl said. “It was a whole bunch
of different things that were coming
into play at the same time … none of
them good.”
The constant piling on of adverse
circumstances seemed to some in the
industry to parallel the ancient story of
the plagues that once afflicted Egypt.
“I hope we don’t have a wave of
locusts,” Northwest Airlines Chief
Executive Officer Richard Anderson
remarked to a reporter during the SARS
outbreak. “We've had war, and we've
had plague, I guess, and we seem to
have sort of one event after another.”
Individually, the elements in the storm
would have each had an impact. Working
in combination, however, they drenched
the industry, flooding it with financial
setbacks during what many call the worst
period in commercial aviation history.
“In my view, it’s the confluence
of several factors aligning in time and
then triggered by some pretty severe
catalysts such as 9/11 that has probably
brought the industry to its knees like it
has,” Hendrickson said. “You can meas-
ure the storm by the damage it’s caused,
and the damage is showing up on the
bottom line and the top line. It’s not just
the bottom line. The revenue line has
fallen apart.”
The Storm’s Effects
The damage report, according to the
International Air Transport Association,
indeed paints a stark picture.
In 2001, seemingly every performance
measure kept by IATA fell: kilometers
flown, aircraft departures, hours flown,
passengers carried, freight tons carried,
passenger kilometers flown, available
seat kilometers and passenger load fac-
tors. The picture didn’t improve much
in 2002. The total number of passengers
carried by IATA members fell another 2.1
percent in 2002, and, on top of that, they
paid less to fly: yields shrank by 0.3 per-
The profitability of airlines during the last 10 years has swung dramatically, ranging
from losses following the first Gulf war to healthy levels in the late ’90s and back to
losses with the start of the “perfect storm.”
industry
ascend20
cent for the year. Kilometers flown, which
had increased by at least 5 percent from
1998 to 2000, dropped 0.5 percent in 2001
and an additional 1.1 percent in 2002.
The financial impact, naturally, was
almost incomprehensible. In 2001-02,
according to IATA, the world’s airlines
combined to lose US$24.7 billion —
more than the gross domestic product
of Nicaragua for the same period.
Nearly three years into the industry’s
perfect storm, analysts have examined
its origins and have found that perhaps
the underlying “meteorological” condi-
tions that set the stage for the turbu-
lence go back well before the first drops
of rain.
The Early Factors
Even during the boom times, there
were underlying problems in the indus-
try, said long-time industry analyst
Nawal Taneja.
“Prior to ’97-’98, the industry was
making gobs of money,” he said. “But
some of the growth, even when times
were good, was profitless growth. Yes,
it was growth, but we were giving the
product away.
“It’s not that these things were not
detected before; it is just that our focus
was not on them,” he continued. “We’re
now more focused on them. We’ve
always known that we have carried
some traffic at below cost. We’ve always
known that we added complexity to our
business, and the complexity that we
added raised the cost. The only difference
is that before we were able to get away
with charging higher fares to a certain
segment of the traffic.”
Other pre-existing conditions also
magnified the effects of the storm.
“The proliferation of low-cost carri-
ers is one of the aspects, and that goes
back quite a bit,” Taneja said. “I would
say that by the early ’90s, they really got
going and really started becoming more
prominent. That’s my definition of the
first event (of the storm).”
Taneja — who has recently
authored two books on the airline indus-
try, “Driving Airline Business Strategies
Through Emerging Technology” and
“Airline Survival Kit: Breaking Out of the
Zero Profit Game” — said the availability
of low-cost carriers on more routes has
given travelers a viable alternative to
the traditional carriers, and they were
well-positioned to draw traffic during
an economic slowdown. Indeed, some
low-cost carriers have continued to earn
profits despite the raging storm.
Another pre-existing factor also
helped magnify the effects of the storm,
Taneja said.
“The development of the Internet
(as a distribution channel) completely
changed the industry,” he said. “It made
fares transparent, that there is a lower
fare available to the business traveler.”
The Internet also revealed the con-
ditions required for a business traveler
to take advantage of lower fares. They
might have to travel to an alternate air-
port where a low-cost carrier is based,
or make a connection as opposed to a
non-stop. But, with the volumes of fare
information available on the Internet,
Taneja said travelers could now make
“a choice based on knowledge they had
gotten” rather than relying on an inter-
mediary who had a vested interest in
steering customers to a higher fare.
With the growth of the Internet as
a distribution channel, practices travelers
developed while shopping online for
the family vacation soon spilled over
to planning corporate travel.
“People flocking to the Internet
learned how to do their comparison
shopping,” Hendrickson said. “I believe
we’re seeing the consumer paradigm
change. I used to accept the US$1,600
fare if I was booking two or three days
in advance of my trip. Today, I find
that unacceptable.”
Of all the elements of the storm,
the development of online distribution
packed the most powerful punch,
industry
october 2003 21
80
70
60
Data from IATA shows that historically, passenger load factors have followed a
consistent pattern that was disrupted by events such as Sept. 11, 2001, and the
outbreak of SARS in early 2003.
The flashpoint of the perfect storm — the
events of Sept. 11, 2001 — compounded
the conditions already facing the aviation
industry, forcing it into perhaps the most
challenging period in its history.
Taneja said, because “the Internet
simply changed travel distribution and
passengers’ behavior.”
Seeking Cover
The response by a thunderstruck
industry to the deluge was swift and
drastic. Thousands of employees were
furloughed, hundreds of aircraft were
parked and marginal routes were cut.
Around the world, governments
attempted to provide some shelter
for airlines. In the United States, the
government put together a package of
US$5 billion in cash and US$10 billion
in loan guarantees to compensate
for the effects of 9/11. Both U.S. and
European governments helped under-
write terrorism insurance for airlines.
After the outbreak of SARS had
subsided, and travel advisories for
affected Asian countries were lifted,
area governments began aggressive
campaigns to bring back tourists.
Even though the airlines themselves
took radical steps to keep their heads
above the rising water, some could not
escape the storm. The fallout included
the failure of weaker airlines and bank-
ruptcy court protection for others seeking
to restructure their businesses.
Those who have survived have
made needed changes, Taneja said.
“The general direction is correct,”
he said. “My only question would be
the speed with which they are moving
and the depth to which they are moving.
Only a few carriers are moving pretty
rapidly and going pretty deeply. Most
are not doing it as quickly or as deeply.”
He also said airlines have not been
quick enough to adopt technology to
assist with making changes.
“Technology, I believe, is not being
utilized to the fullest to help them
restructure,” he said. “I think that it
could not only be an enabler of some
of these changes, but perhaps a driver.
There is no question in my mind that
technology has become much more of
a tool that they can use. And I’m using
technology in the broader sense.
According to IATA, the main traffic and capacity trends — revenue per kilometer,
freight ton kilometers and available ton kilometers — dropped significantly following
the events of Sept. 11, 2001, and again earlier this year after the outbreak of SARS.
News Briefs from Around the Globe
Who
Royal Brunei Airlines and Regional
Express Airlines
What
Successfully implemented the
Sabre ® Traverse™ loyalty management
system to automate their frequent flyer
programs, Royal Skies and Regional
Express Flyer, respectively. The airlines
access the Traverse system via the
Sabre ® eMergo ® Web-enabled and dedi-
cated network solutions, an applications
service provider model that eliminates
the need for costly and complicated in-
house data center infrastructure and
support.
Why
Royal Brunei — “We want to
reward our Royal Skies members with a
full range of features and benefits
through new partnerships and multi-
faceted promotions and awards. The
Traverse system has enabled us to do
all this and more, and we are extremely
pleased with the positive feedback from
our customers from the date Royal
Skies was launched,” said Hj Omar Ali
Hj Mohd Daud, director of marketing at
Royal Brunei.
Regional Express — “With the
addition of the Traverse system, we will
be able to provide our Regional Express
Flyer members with greater customer
service than we could previously," said
Hans Van Pelt, chief information officer
at Regional Express, a domestic
regional carrier in Australia with 1,500
flights per week. “The ASP interface
also enables us to eliminate the burden
of maintaining a costly infrastructure to
support our loyalty program; now we
have an effective customer self-man-
aged program completely online.”
T H E H I G H L E V E Lvıew
industry
Airplanes are technology (as well as)
information technology and technology
such as mobile communications.
“I think the most fundamental
part of all of this is information —
having access to information in almost
real-time in a very pervasive manner,”
he said. “There should be one unified
view of this information available
across the board.”
The cost of investing in technol-
ogy, he said, will pay off for airlines.
“In the long run, (the cost) is minute
compared to the benefits it can provide,
assuming you are willing to capitalize
on that benefit. You do not just need
a new system, but you need a new
culture.”
By investing in technology and
making necessary changes, airlines can
position themselves to stand on solid
ground when the sunny skies return,
Taneja said.
A Changed Environment
While the worst may have passed,
the storm lingers. According to IATA,
overall passenger traffic for the first
half of 2003 was 7.1 percent below 2002
levels. And capacity remained signifi-
cantly down, led by the Asia/Pacific
region (a decrease of 27.2 percent)
and North America (12.5 percent).
Yet, the end of the storm may be
in sight.
“Now, I see a rainbow,” Neidl said.
“I’m looking for an improved economy.
I’m looking for cost cutting to really take
effect later on this year or early next year.
I’m looking maybe for even some con-
tinued reduced capacity by the major
carriers. All those things combined,
I’m looking for the industry to return to
profitability maybe in the third quarter
of next year.”
But, even after it subsides, the
severity and duration of the storm will
have lasting effects.
“The industry has changed,” Neidl
said. “The Internet makes it easier to
shop. The low-cost carriers are really
gaining significant market hold, and the
big carriers are never going to be able
to get the revenue premium they
had before.”
Some of the changes have had
immediate impacts. Following the events
of 9/11, increased security — and its
industry
ascend22
“Technology, I believe, is not being
utilized to the fullest to help them
restructure. I think that it could
not only be an enabler of some
of these changes, but perhaps a
driver. There is no question in
my mind that technology has
become much more of a tool that
they can use.”
Heightened airport security has put another
burden on airlines as they have struggled
to cope during the perfect storm. According
to IATA, new security regulations cost
airlines US$5 billion in 2002.
accompanying costs — have directly
impacted airlines.
“The extra security that is needed
at airports now has done two things,”
Taneja said. “One, it has raised costs.
The other one is simply having to show
up at the airport a lot earlier to make a
flight. Short-haul travel is going to be
(particularly) impacted. If you are only
traveling from Cleveland to Chicago,
and you have to show up an hour and
a half early on each end, that’s going
to add a lot more time.”
But there are other long-lasting
results as well.
According to Hendrickson, the
industry “might be looking at climate
change here.”
“Take fare transparency,” he said.
“Initially the airline industry thought it
was a great idea; bypass the global
distribution system, give customers
the ability to use online bookings,
avoid commissions, lower distribution
costs. But at the same time, they
introduced the start of a revolution,
which brought comparison shopping
and completely emphasized price. That
genie has come out of the bottle and
will not go back in. There’s no way
you’re going to reverse that trend,
so that’s here to stay.”
Hendrickson also noted that,
historically, there was a strong rela-
tionship between GDP and industry
revenues. During the past few years,
however, that relationship seems to
have been broken.
“That strikes me as something that
may not be cyclical,” Hendrickson said.
“That might be a fundamental change
in the way this economy looks at the
value of air travel. It’s a pretty startling
change. That’s what I think is most
alarming. We can always fight over
share, but if the economy is switching
its view of travel as a facilitator of
commerce to something else, then
we’ve got some real problems.”
Taneja agreed the look of the indus-
try has been irreversibly changed. The
severity of the storm revealed underlying
conditions in the industry that could no
longer be ignored, he said.
“I don’t think we’re ever going back
to the way we were,” he said. “I’m not
saying that airlines will continue to lose
money at the rate they are forever and
ever and ever. They will turn around.
But in order for them to turn around,
they are going to have to change their
business models significantly.
“If you are a traditional legacy
carrier, the change will be more drastic
and dramatic,” he said. “But even the
new paradigm airlines are going to
have to change.”
Traditional carriers will “have to
reduce their costs and not just labor
costs,” he said, but also will have “to
pick very carefully the customers that
they want to serve.”
“If you decide you are going after
a kind of customer, that will determine
what your scope is going to be and
the type of network and the type of
fleet and the type of customer service
and onboard products and so on,”
he said.
For low-cost carriers, increasing
competition among themselves —
and from revamped traditional carriers
— will force them to change as well,
he said.
“Their competitive advantage is
low cost,” Taneja said. “If the legacy
carriers reduce their costs and approach
the low-cost carrier, then the latter may
have to go even lower. And, second,
they are going to have to differentiate
among themselves. AirTran, for exam-
ple, offers two classes of service and
flies into more conventional airports.”
Differentiation will also be the
key to regaining pricing power,
Taneja said.
“One way you get to a commodity
business is if you don’t set up differenti-
ated products and services,” he said.
“But, if there is a difference, then you
A drop in available ton kilometers across the Asia/Pacific, North American and European
marketplaces reflected the events that had a dramatic impact on the industry, according
to IATA.
would be able to charge for it. But
even when you do, the price has to
reflect, to some extent, the perceived
value that a person is willing to pay
for the feature. The feature has to be
something the customer wants to buy.
Second, it has to have a reasonable
value for that customer.”
The low-cost carriers, which today
are better capitalized and better man-
aged than ever, will continue to drive
change in the industry, particularly
in pricing.
“A lot of us find it a little counter
intuitive to fly on a ticket one day with
a briefcase in our hand and pay some
astronomical price and fly on the week-
end and get it for a fraction of that,”
Hendrickson said. “Imagine if you went
to buy a notebook, and the store looked
at whether or not you were in a business
suit. ‘This is a businessman, let’s make
the price $2.’ But you come in with your
kids at back-to-school time, and you
get the same notebook for 99 cents.
You’d be furious. That’s essentially the
type of system airlines had worked
long and hard to perfect, but it won’t
work anymore.
“What the low-cost carriers are
doing is coming into markets, and they
are not using those restrictions,”
Hendrickson said. “So, carriers’ ability
to fence off the business segment is
gone, plus passengers have the expecta-
tion that they shouldn’t have to pay the
higher fares anymore.”
Despite the pressures of the past few
years, airlines can take solace in that
having survived the worst, they’ll be
better equipped to succeed in the future.
“I think that airlines that survive
the storm are going to be stronger
and profitable and are going to do
very well,” Taneja said. “It’s not like
demand for air transportation and
services has disappeared. Those that
survive are going to find the optimal
mix to provide a reasonable return to
shareholders, reasonable wages to
employees and reasonable fares to
customers.”
A downturn in the airline industry began in early 2001 with a decline in revenue
passenger kilometers, according to statistics from IATA. The declining performance
plummeted in late 2001 and again in early 2003.
industry
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industry
october 2003 25
Although the effects of the perfect
storm continue to linger, there are
positive signs on the horizon, analysts
say. Analysts predict that some airlines
will return to profitability in 2004.
The term “D-check” is nothing new
to the airline industry. At every
airline, each aircraft must eventually
undergo this extensive maintenance
procedure in which it is completely
overhauled — systematically disassem-
bled and scrutinized piece by piece.
But the Lufthansa Group has taken
the “D-check” concept and applied it
throughout the organization, a radical
approach to ensure the airline maintains
its leadership position in the industry.
Launched in early 2001, the “D-check
— Maintaining Leadership” program
helped the company avoid an operational
loss following the events of Sept. 11,
2001, and helped the Lufthansa Group
post a € 718 million (US$814 million)
operating profit in 2002. When the
program was launched, prior to the
extreme turbulence in the industry,
company officials projected that the
program would generate € 1 billion in
benefits by the end of 2003.
Company officials said this program
will help the airline secure its position
for the future.
“Lufthansa finds itself in a much
better position than most competitors,”
said Juergen Weber, the group’s former
chief executive officer who launched the
program. “The D-check program will
ensure that it remains that way.”
Through the enterprise-wide pro-
gram, the processes and procedures of
all business divisions are meticulously
examined to measure performance
and seek ways to improve quality, cut
costs and identify potential procedural
improvements. The objective of the
program is to increase the efficiency
and effectiveness of the airline by
making it lean, nimble and first rate.
“Saving is important now, but saving
alone is not the future,” Weber said. “We
must at the same time invest in our prod-
ucts for tomorrow to maintain our lead.”
Under the direction of the new chief
Under the direction of Wolfgang
Mayrhuber, chief executive officer of
Lufthansa, the airline has embarked
upon a program to thoroughly
analyze its operations.
industry
october 2003 27
Lufthansa “D-Check”s its Organization and Processes
“Saving is important now, but
saving alone is not the future.
We must at the same time invest
in our products for tomorrow to
maintain our lead.”
“Lufthansa finds itself in a much
better position than most com-
petitors. The D-check program
will ensure that it remains
that way.”
By Hanjo Krause | Ascend Contributor
Through a program designed to thoroughly examine its operations,the Lufthansa Group is positioning itself for the long haul.
Photo by Gerd Rebenich/Lufthansa
Ph
oto
by
Ro
lf B
ewer
sdo
rf/L
uft
han
sa
strategic course of the airline during the
past decade helped Lufthansa successfully
master the challenges of the industry
during the past few years.
“Pioneering spirit and innovative
strength are important pillars in our
success,” Mayrhuber said. “Investments
in product quality, therefore, are invest-
ments for our passengers and in the
future of Lufthansa.”
Lufthansa’s innovation spans across
its various subsidiaries, including LSG
Sky Chefs, the world’s largest in-flight
services company, and Lufthansa Cargo.
In October 2001, the catering group
launched eLSG.SkyChefs, the first total
e-business solution provider to the airline
catering industry. The service, which utilizes
the Sabre ® AirServ ® aircraft provisioning
system to optimize the provisioning process,
helps airlines realize up to a 10 percent
reduction in their operational catering
costs by automating and integrating
their in-flight catering process. Last year,
eLSG.SkyChefs introduced its automated
meal ordering service, called AMOS. The
service enables airlines to automate,
manage, streamline and improve their
catering operations, potentially reducing
annual meal overages by 5 percent.
Lufthansa Cargo implemented its
eBooking tool to allow airfreight cus-
tomers to submit bookings electronically
24 hours a day. The cargo division also
implemented a revenue management
tool, the Sabre ® CargoMax™ Revenue
Manager, to prepare the division for the
next phase of growth in the cargo busi-
ness. Lufthansa’s passenger airline uses
the Sabre ® AirFlite™ Fleet Manager
to support its more refined schedule
planning and tactical short-term capacity
adjustment processes. The tool allows
Lufthansa to re-assign aircraft in order
to optimize varying capacity needs
across the network. Combined, these
tools help Lufthansa effectively respond
to unexpected events, protect yields and
adjust to fluctuating demand.
More than ever, a global network
carrier such as Lufthansa must focus on
competition, quality, cost management,
creative innovation, customer service
and changing market conditions. But, as
Weber noted when passing the baton,
success relies on a committed, forward-
thinking team and the right tools.
“Under (Mayrhuber’s) leadership,
Lufthansa will remain ready for change
and will develop its strength such as
vigilance, speed and choice of the right
tools,” Weber said.
Hanjo Krause is Sabre Airline Solutions’
Germany-based account
director for Lufthansa.
executive, Wolfgang Mayrhuber, the
airline is doing just that. It has pursued
high technology to differentiate itself
from its competition. From the begin-
ning of 2004 on, Lufthansa will become
the world’s first airline to provide in-
flight broadband Internet connectivity
on its long-haul fleet. The airline will
equip 80 aircraft — including Boeing
747-400s, and Airbus A340s and A330s
— with the Internet service, provided
by Connexion by Boeing.
“The Internet is being given wings
and will enable the mobile business
traveler to make better use of his or
her flying time,” said Mayrhuber in
announcing the new service.
Through this service, called FlyNet,
the airline provides carrier information,
news, weather, stock market data and
destination information through a free
portal. And passengers can also pay a
fee to use the service to surf the Internet
or connect with their offices’ secure
intranet or e-mail server via a virtual
private network.
In June, the airline equipped its
seven lounges at its Frankfurt hub with
wireless Internet access, and it plans to
expand the service to its 55 lounges at
30 locations worldwide.
“Reliable communications have
become an important competitive edge
in the age of global economic relations,
particularly for business travelers,”
Mayrhuber said.
He said through the wireless connec-
tions, Lufthansa is offering its passengers
“a service that makes the lounges
worldwide into mobile offices.”
Lufthansa said the Internet connectiv-
ity adds a communication dimension to its
lounges, which already provide options
for entertainment and relaxation.
These innovations build on Lufthansa’s
history of pioneering dynamic methods
of doing business to keep itself at the
forefront of the industry. The constant
october 2003 29
industry
ascend28
“Pioneering spirit and innovative
strength are important pillars in
our success. Investments in
product quality, therefore, are
investments for our passengers
and in the future of Lufthansa.”
Lufthansa Cargo, which uses the CargoMax Revenue Manager, carries cargo to nearly
500 destinations around the world. In addition to its 14 MD-11s and eight Boeing 747-
200s, Lufthansa Cargo has access to the freight capacities of more than 300 Lufthansa
passenger aircraft.
Through its organizational “D-Check” program, Lufthansa German Airlines, which
uses the AirFlite Fleet Manager to support its more refined schedule planning and
tactical short-term capacity adjustment processes, is gaining altitude in a
competitive marketplace.
Ph
oto
by
Ger
d R
eben
ich
/Lu
fth
ansa
Ph
oto
by
Ste
fan
Wild
hir
t/Lu
fth
ansa
Ph
oto
by
Wer
ner
Krü
ger
/Lu
fth
ansa
It may not be a case of “if you can’t beat
’em, join ’em.” But several traditional
airlines, faced with increasing competi-
tion from low-cost carriers, have begun
looking at ways to re-deploy their
assets, incorporating elements of the
low-cost model in their own “carrier-
within-a-carrier” startups.
With low-cost carriers now control-
ling nearly a quarter of the U.S. market
– and a growing percentage in Europe
and Asia/Pacific as well – traditional car-
riers have been forced to take extreme
measures to deal with the growing
threat. The low-cost carriers have put
tremendous pressure on traditional
network carriers to cut costs in order
to compete with the LCCs and match
their discount fares.
Traditional airlines have fought
back by reducing labor costs, develop-
ing “rolling” hubs and simplifying
their fleets. But none of those steps
match the radical approach of those
With 30 percent of its traffic coming
from Florida, Delta Air Lines defi-
nitely wanted to protect its market share
in a vital area.
Long the state’s dominant carrier,
Delta faced the growing presence in
Florida of low-cost carriers such as
Southwest, AirTran and jetBlue. Fending
off the upstarts, however, posed a chal-
lenge. Historically, yields in Florida were
low and, with low-cost carriers entering
the market, were actually spiraling even
further downward. The Atlanta, Georgia-
based carrier knew it had a lot at stake if
it didn’t find a radical way to meet the
demands of the changing market in its
own backyard.
The carrier looked at several
options. It could follow the lead of other
airlines and pull out of Florida. It could
maintain the status quo, continuing to
lose money and hoping to make it up in
stronger markets. Or, ideally, it could
find a way to rejuvenate its Florida
routes and make money.
The third option led to the concept
of Song, Delta’s low-cost “carrier within
a carrier.”
On April 15, Song took to the skies
with its maiden voyage from New York
City, New York, to West Palm Beach,
Florida. The airline, which provides
direct service from the northeast to key
Florida leisure destinations, also
recently added service between Atlanta
and Las Vegas, Nevada.
When the concept of a new, low-
cost airline was introduced to Delta
employees, it was welcomed with
tremendous support and cooperation,
said John Selvaggio, president of Song.
industry
october 2003 31
industry
ascend30
By Stephani Hawkins | Ascend Editor
Back in 2001, officials with bmi, the
second largest carrier in the United
Kingdom, predicted someone would
eventually bring a low-cost carrier to the
airline’s East Midlands Airport home base.
So, they thought, why not do it
themselves?
“It became fairly clear to us that our
home base here in the Midlands was ripe
for a low-cost airline,” said Tony Davis,
managing director of bmibaby. “It had
all the attributes for an airport that a
low-cost carrier would identify as being
attractive. Really, the decision for us was
if we as a company had to start setting
up our own low-cost carrier mindful of
some of the pitfalls that people like British
Airways with Go and some of the U.S.
carriers had with their own ‘light brand.’
Could we set up a low-cost airline and
learn from some of the mistakes before
someone actually came into our home
base airport and attempted to do that?”
In the summer of 2001, bmi began
planning its new low-cost operation, but
those plans were put on hold after the
events of Sept. 11 of that year. As
expected, however, a low-cost airline,
Go, announced that December it would
begin operations at East Midlands.
“Because we had laid a lot of the
groundwork, we were actually able to
announce our own low-cost airline within
three days of Go announcing it was
coming here,” Davis said. “The immedi-
ate reaction to Go’s announcement was
that we would stand and fight.”
Although a radical move by a full-
service carrier, Davis said the decision
for bmi to start a low-cost operation
made perfect sense.
carriers that have started their own
low-cost airline.
Despite a checkered history of such
offshoots, in the past couple of years, sev-
eral airlines have launched, or announced
plans for, low-cost subsidiaries. Air Canada
has launched Tango and Zip. Qantas is
now examining the possibility of launch-
ing a domestic low-cost carrier. United
Airlines recently announced it will
launch a new low-cost operation from
its Denver hub beginning in February.
The low-cost operation, currently code-
named Starfish, will begin by serving
five destinations with a fleet of four
Airbus A320 aircraft. And Delta, with
Song, and bmi, with bmibaby, have
used their low-cost subsidiaries
to aggressively compete in their
dominant markets.
Although some consider such
endeavors risky, early returns have been
positive for Delta and bmi, who show
that, perhaps, such a new venture is
not quite the flight of fancy many peo-
ple once believed. Although they share
similarities – including drawing upon
the resources of the parent airline –
they also have key differences in the way
they operate. While both have a single
fleet type, Song uses larger 757s com-
pared to bmibaby’s 737s. Song also has
maintained the pay scale of the parent
airline while bmibaby forged complete
new labor agreements. Each also offers
different amenities to its customers.
While their approaches to their
low-cost carrier startup differ somewhat,
both Delta and bmi are committed
to using their new subsidiaries to
compete strongly against the low-cost
competition.
By Stephani Hawkins and B. Scott Hunt | Ascend Editors
By B. Scott Hunt and
Stephani Hawkins | Ascend Editors
AnInsideJob
continued on page 32 continued on page 35
Song Reaches Top of the Charts
You’ve Come a Long Way, bmibaby!
only work on a bigger plane if we were
able to fill the seats.”
Although the 757s cost about 30
percent more to operate than the 737-
200s, they have nearly 70 percent more
seats. If Song could fill the extra seats,
it would more than offset the additional
operating costs, and Song would come
out on top.
“If you feel you can make the rev-
enue side of the equation work, you’ll
come out ahead,” said Selvaggio. “True,
you’re going to have about a 30 percent
higher operating cost, but you’ve got
an opportunity to make 70 percent
more revenue.”
The structural savings allowed Song
to maintain the same employee pay scales
as its parent company, from where it
drew the majority of its employees.
“Many of our flight attendants
make more money now than they did
when they flew for the mother airline,
but they’re working more flights and
more hours,” Selvaggio said. “We’ve
changed the methodology in the struc-
ture of how people get paid, but it
encourages them to fly more. And the
same thing with our ground employees
— they’re paid the same, but they’re
working more flights in their eight-hour
shift, so there’s potential to earn more
money. Our pilots are on the same pay
scale as Delta pilots as well, but the pay
rates are just a byproduct of the way we
schedule the airplanes; they’ll (pilots)
have more productive flying.”
In addition to its fleet and pay struc-
ture, Song has incorporated other changes
to the traditional low-cost model.
Unlike many independent low-cost
airlines, Song offers its passengers
SkyMiles from its parent company’s
frequent flyer program.
“That’s a big advantage over our
competition,” Selvaggio said. “We’ll
meet the competitive fares of anybody,
and on top of that, we offer rewards for
flying with us.”
Song also offers other amenities
to differentiate itself from its low-cost
competitors.
“We have a minimum pitch of 33
inches between our all-leather seats that
are equipped with personal video moni-
tors incorporating touch-screen technology
and credit card ‘swipe’ capability,” he
said. “Our passengers have access to
live, all-digital satellite television pro-
gramming, digitally streamed MP3
audio programming, pay-per-view pro-
gramming and an array of video games.
And to top it off, we offer buy-on-board
snacks and meals.”
Passengers can purchase meals
onboard, including freshly made sand-
wiches, salads and wraps; healthy
snacks such as yogurt, breakfast bars
and juices; old standards such as chips
and candy; and top-shelf cocktails —
Cosmopolitans, Martinis and Mimosas.
“People hate airline food, but they
still love to eat,” Selvaggio said. “And
people will eat no matter what the airline
offers them. So we said, ‘Suppose we
offered food our passengers would
actually enjoy.’ With that, we decided to
stock brands people recognize and like,
and we give our customers the option
to buy on board if they so desire.
Selling brand-name food products
on its flights meets the needs of Song’s
core customers — females between the
ages of 34 and 56 — who typically want
a better quality of food, especially for
their kids.
“We realize that women are a very
fast growing component of all travel,”
Selvaggio said. “In terms of leisure
travel, they book about 75 percent, and
they book about 90 percent of Internet
and family vacation travel as well.
Having a strong presence in Florida —
a high vacation destination — we chose
to target females in that age group.”
industry
october 2003 33ascend32
Every department assisted in setting up
the new operation.
“I think people were in the mood to
do something different and build a win-
ner, and everybody wanted to be part of
the team,” Selvaggio said. “So while it
was a challenge in that we were always
up against the media and Wall Street
saying it couldn’t be done, we found
that there were more optimists in the
world, and fortunately, a lot of them
work for Delta.”
In creating a new low-cost carrier,
Delta learned from its experience with
its earlier carrier within a carrier, Delta
Express, which started in the late ’90s
connecting airports in the northeast
United States to Florida.
“We had a pretty strong position in
Florida, and we weren’t making money
the way it was being served, so we
decided to find a way to lower costs,”
said Selvaggio.
“Our costs kept going up,” he
added. “Delta Express had been serving
our Florida markets since 1996, well
before low-cost carriers moved in there.
Over time, the cost structure had really
increased. Cabin crew and ground labor
costs increased and maintenance costs
on its 737-200s rose dramatically.”
Forming Song, therefore, “wasn’t
a matter of swapping a few aircraft and
calling it Delta Express version 2.0,”
Selvaggio said. “We had to create an
entirely new airline with a brand of its
own.”
Starting a carrier within a carrier
was much simpler in many ways than
it would have been for an independent,
Selvaggio said, in large part due to the
resources available from the parent
company.
Because it is an offshoot of a well-
established brand, the carrier wasn’t
burdened with a large capital outlay or
the need to purchase or lease several
new aircraft and bid on new airport
slots. Those were all advantages the
parent airline passed down.
“That’s why we are flying 36 aircraft
rather than a handful or less,” Selvaggio
said. “We’ve moved very quickly. We
have airport facilities. We have trained
staff. We have all those things available to
us. We didn’t have to start from scratch,
get a certificate and try to launch this
airline without all the necessities.”
Yet, Song also needed to become a
completely different product than its
parent company, Selvaggio said.
“You get the lower cost structure
by reducing ground time and getting
full utilization out of your fleet by sched-
uling more flights per day on the same
airplane,” said Selvaggio. “If you can
get four flights a day rather than three
out of a single aircraft, you’re generat-
ing additional revenue with that
resource, and at the same time, you’re
getting better utilization of your people
and your airports.
“It doesn’t cost more to lease the
aircraft or the gates,” he added. “And
in most cases, you don’t need additional
staff. It’s just that they have less down-
time in between flights. So we found we
could do this at very low marginal costs
while putting more seats into the market
place, and that’s how we drove our cost
structure down — we simply optimize
the use of our assets.
“We knew that to get the utilization
we needed, we had to turn them (air-
planes) faster, which meant we wouldn’t
be able to offer some of the amenities,
such as pre-departure cocktails or special
boarding privileges, that Delta’s frequent
flyers were getting,” Selvaggio said. “We
needed to be different from our mother
company. That was very important since
we were going to offer an all-coach
product on a bigger airplane.”
As a member of the Delta family,
the new airline had to maintain a certain
level of service to keep the overall com-
pany’s reputation intact. Initially, many
people thought Song would be a “less-than-
Delta” product, which, Selvaggio said, is
what most offshoot carriers have been.
“It’s always been less than the
mother brand,” Selvaggio said. “And
we decided that our new operation was
going to be different from, but not less
than, our parent operation.”
In starting the new airline, Delta
replaced the 737-200s on many of its
Florida routes with Song’s 757s, which
have a lower unit cost but also have
more seats to fill.
“Changing out aircraft types was
part of a strategy to create a low-cost
airline,” Selvaggio said. “And we knew
if we were going to do this, we better
have a pretty good brand because we
were going to have to drive a lot more
revenue, and the low-cost model would
“We had to create an entirely new
airline with a brand of its own.”
“We have a motto, ‘Song was
founded by optimists and built
by believers.’ And the people
on my staff are definitely the
optimists, and we created a
nation of believers.”
Song employees sport stylish uniforms
and accessories created by designers
Kate and Andy Spade. Female flight
attendants take to the skies in Kate Spade
uniforms while male employees
wear “Jack Spade” created by Andy.
Under the leadership of President John
Selvaggio, Song has helped Delta Air
Lines reassert its dominance in the
Florida market.
continued from page 30
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All of the amenities designed to
benefit passengers make flying enjoy-
able again, Selvaggio said.
“The airline business used to be
exciting and romantic,” he said. “We
have made our planes safe, clean, on
time and affordable, but we’ve kind of
lost the romance along the way. So
we’ve strived to get that back by intro-
ducing an airline with a more unique
flavor than the ‘traditional’ types.
“If we can give our passengers
choices of things to do while on our
flights, it will make their experience
that much better,” he said.
That mindset is also what led to the new
carrier’s identity, a name that “embraced
lots of choices,” Selvaggio said.
The airline wanted an identity com-
pletely different from that of any other
airline – a light-hearted name with flair
that was easy to remember yet had
meaning behind it.
“Just about every airline has a name
that pretty much ties to geography, such
as American, United, Continental,
Eastern, Western, Delta and so on,”
Selvaggio said. “We decided that if
we could get out of that space and not
be like every other airline, we could go
anywhere we wanted.”
While in search for the perfect
name, the carrier came across many
options that were musical in nature, and
after sifting through some 600 options,
Song stood out.
“Everyone has a favorite song,”
Selvaggio said. “And when you think of
your favorite song, you get a smile on
your face. That’s how we want our pas-
sengers to come to us and that’s how
we want them to leave … with a smile.”
According to Selvaggio, music is a
universal language that can “calm a lot
of beasts,” so the carrier plays music
on its jetways, Web site and airplanes.
In keeping with its motif, the carrier asks
employees to use musical metaphors
whenever possible, and even at its
headquarters, conference rooms are
referred to as studios.
“In fact, in staying within a musical
lexicon, we ‘auditioned’ our employees,”
he said. “We hired people for attitude —
they had to be willing to use their person-
ality, have a little fun, make someone’s
day and simply be there.
“We try to keep the spirit of a musical
environment,” Selvaggio said. “It keeps
things a little lighter for our employees,
who we call our talent, by the way, and
that transfers to our passengers.”
With capacity up about 50 percent
year over year in its Florida markets and
load factors on the rise — between 70
percent and 77 percent — Song has cer-
tainly achieved the goal of returning this
part of Delta’s network to profitability. In
September, the airline announced it had
carried its one-millionth passenger in
less than six months of operations.
“We’re taking back our territory, but
we’re not giving (our product) away,”
Selvaggio said. “Our ticket values are
improving every month, and I think it’s
remarkable that we’ve been able to add
that much capacity without sacrificing
load factors or ticket value.
“We have a motto, ‘Song was
founded by optimists and built by believ-
ers,’” he added. “And the people on my
staff are definitely the optimists, and we
created a nation of believers.”
“The U.K. was at the forefront of
the low-cost airline development in
Europe,” he said. “It became clear to us
that it was going to become increasingly
difficult to compete against low-cost air-
lines if they started expanding outside
their London hubs.
“If we didn’t adjust our model, we
would effectively end up in a position
where the bmi business at East Midlands
Airport was unsustainable,” he said.
In setting up the low-cost carrier,
Davis said bmi transferred several 737s
from its fleet and incorporated traditional
low-cost philosophies, such as a point-
to-point route network, a single cabin, a
single fleet type, half-hour turnarounds,
distribution nearly exclusively through
the Internet and foregoing interline
agreements.
“We took a very, very, very strict view
of either it was low cost or it wasn’t,” he
said. “And we resisted the temptation
to end up with a hybrid. I think some of
the companies that have struggled are
the ones where the hybrid solution is
preferred because it is perhaps not as
challenging to set up.”
To further maintain cost controls, all
employees of bmibaby work under sep-
arate contracts with terms and conditions
more in line with a low-cost operation.
The airline also provides different bene-
fits, such as its own profit-sharing plan,
separate from the parent.
Davis said the current condition of
the industry helped convince employees
to “modify the way we work to replicate
the operating properties of a low-cost
airline.”
“To some extent Go helped us in
this because Go came into our backyard
and said, ‘We are going to take you
on in your home base and effectively
destroy the business you’ve built up
over 35 years at this airport,’” he said.
“It was easy for us on that basis, going
to our staff (with the idea) that unless
we approached this with a radical solu-
tion the alternative would be that we
could not compete.
“I think people understood that we
as an industry have to change the way
we were going to operate in order to
continue to grow our business,” he said.
“We’re creating jobs because we’re car-
rying a lot more passengers now than
we did when the assets were deployed
differently. What we’re trying to do with
our employee group is manage growth
and not manage decline, which would
have been the scenario potentially if
we hadn’t created a low-cost carrier.
bmibaby is experiencing significant
growth at a time when the industry is
contracting.
“So, it’s really a case of saying, ‘Do
you want to be involved in something
that’s growing and has the potential to
be successful or do you want to take
your chances with the old model, which
in these particular airports is not looking
as strong as it had been historically.’”
The new model has proved to be
a success. In June, bmibaby carried a
record 266,035 passengers, a 153 per-
cent increase year on year. It broke that
record again in July, and in August, the
airline broke the 300,000 mark. The carrier
also helped the performance of the
group. In July, the bmi group, which
also includes bmi regional, set a record
by carrying 905,000 passengers —
285,000 of which was carried by
bmibaby — the first time the group
exceeded the 900,000 mark.
After only 18 months, bmibaby
became the largest airline in the
october 2003 35
industry
“We’ve tried to adopt the philosophy
of under-promising and over-
delivering where historically
airlines have often over-promised
and under-delivered.”
Tony Davis, the managing director of bmibaby, has seen the airline grow tremendously
since it began service in 2002. The airline anticipates carrying 3 million passengers this year.
“The airline business used to be
exciting and romantic. We have
made our planes safe, clean, on
time and affordable, but we’ve
kind of lost the romance along
the way. So we’ve strived to get
that back by introducing an airline
with a more unique flavor than
the ‘traditional’ types.”
continued from page 31
For its single-fleet type, Song chose the Boeing 757, a larger aircraft than the
Boeing 737 used by many low-cost carriers. The larger aircraft have a lower unit
cost because they have 70 percent more seats.
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+count it up 10 — Number of languages spoken
by members of the Sabre Airline
Solutions consulting team.
300 — Number of contracts
signed with Sabre Airline Solutions
during 2002.
Midlands, surpassing British Airways,
which has since slipped to third behind
British European. With the phenomenal
growth at East Midlands, 300 percent
year on year, bmibaby now carries more
passengers than the parent carrier ever
did when it served the airport.
“The growth of bmibaby is very
encouraging,” said Sir Michael Bishop,
chairman of bmi. “We anticipate carry-
ing up to 3 million passengers in the
current year, firmly establishing
bmibaby as an important operation in
the ‘no-frills’ market and the third
largest operator in the sector.”
The key to setting up a successful
low-cost carrier within a carrier, Davis
said, was convincing everyone through-
out the organization that “this has to be
a different company.”
“You cannot just paint the airplanes
and hope that this will function as a sep-
arate operating model,” he said. “We had
to get buy in from the very top that said
this is a different airline. It can benefit
from a lot of the history, experience and
financial stability of the parent company,
but it has to conduct itself on a like-to-
like basis with its primary competitor.”
Another key, Davis said, involves
changing the way airlines view them-
selves and their product.
“The biggest thing we have learned
is to stop thinking of ourselves as being
a special type of business,” Davis said.
“We’re in the retail business. We sell
seats. Other people sell books or groceries.
I think for a long time airlines tried to
convince themselves that we were a
special case, a special kind of business.
But in reality, when you get back to it,
successful airlines are the ones that come
through to the core product. We’re selling
a commodity. We no longer view our
business as the ‘Come fly with me’ 1960s
glamour jet travel. It’s mass transportation.”
In setting up a carrier within a car-
rier, bmi officials worked to make sure
the new low-cost operation would not
siphon traffic from the full-service or
regional airlines. The three airlines in
the group have been able to differentiate
their product to serve different segments
of the traveling market, Davis said.
Although bmi began at East
Midlands Airport, the parent no longer
offers flights there. The parent airline
has concentrated on London’s Heathrow
Airport, where it is the second largest
carrier with about 14 percent of the take-
off and landing slots. And bmibaby,
which doesn’t even fly to London, has
concentrated on its bases at East
Midlands, Cardiff and Manchester.
“bmibaby is competing against the
traditional charter airlines and the low-
cost airlines, so we go to Spain, Prague,
Belfast — high-volume, leisure markets,”
he said. “Whereas bmi is focusing on
Heathrow, and our regional business is
developing key business routes from
Scotland, Manchester and Leeds/Bradford.
“The three airlines within bmi each
have a particular cost base, market pres-
ence and a consumer proposition,” he
continued. “Really, we have the best
opportunity now to make sure we put
the right vehicle into the right market,
ensuring we can compete effectively
against whoever else is incumbent in
those markets.”
Although incorporating many low-
cost principles, bmibaby’s ties to a
larger group have caused it to modify
some aspects of the low-fare model.
“We are looking to offer a slightly
higher level of service than that of some
of our competitors,” Davis said, “partly
because we are part of a group and
have other companies that use the same
name. As part of a family, you have to
at least uphold a level of presentation
that’s acceptable to the whole family.”
While offering low fares, Davis said
bmibaby’s enhanced level of service
includes extras such as assigned seating
rather than asking passengers to “make
a fairly desperate dash toward the airplane
to secure a seat” and giving passengers
industry
ascend36
industry
an extra allowance to bring a laptop
computer on board.
“The fares are still low, much lower
than they historically have been on some
routes,” he said. “But the level of service
you get is perhaps a little bit better than
you are expecting. We’ve tried to adopt
the philosophy of under-promising
and over-delivering where historically
airlines have often over-promised and
under-delivered.”
Davis said there are other benefits
of having ties to a large international
carrier. The carrier inherited aircraft
without having to purchase them. It
leverages the expertise of the group’s
management, pilots and engineers. It
works with the parent company in areas
such as training and safety. It uses the
economies of scale from making pur-
chases in conjunction with the parent
airline. It also benefits from ties to a
strong, well-established brand such as
bmi, which has received more than 50
industry awards since 1990, including
repeated recognition as the best domes-
tic airline in the United Kingdom.
Most importantly, Davis said being
part of a larger airline group gives
bmibaby the ability to grow at a much
faster rate than it would have as an
independent. With access to trained
pilots and crew, aircraft, financial
resources and know-how, bmibaby
has significant advantages over a pure
start-up, he said.
“We are experiencing 400 percent
growth year on year because we are
part of a group,” he said. “We’ve gone
from three airplanes in March of 2002 to
13 today. I don’t believe we could have
done that as a complete startup. I don’t
know that as a startup in this country we
would have been able to fly 13 aircraft
in 18 months.”
Building off the bmi brand has
also helped create awareness for the
new airline.
“We’ve gone from zero to 3 million
passengers a year in an 18-month time
scale. And to have penetrated the mar-
ket sufficiently against some fairly big
competitors like easyJet and Ryanair
without at least some awareness of our
parent company would have cost a lot
more in advertising spend,” Davis said.
“Our expectation would have been that
it would have been quite difficult for us
as a new company to hold our own. But
because we’ve got the history and sup-
port, and we believe we’re offering a
much better product, we’re finding that
the people who might have migrated
are actually sticking with us.”
Because of the benefits of its asso-
ciation with bmi, the low-cost offshoot
incorporated the parent company’s
name into its own to give customers
the “security and knowledge” that the
airline was not a fly-by-night operation
while building a separate identity that
people “felt an affinity to and an under-
standing of,” he said.
“I think initially there was quite a lot
of surprise within the industry that we’d
go with a name like bmibaby,” Davis
said. “It was a bold step, which airlines
are not particularly good at doing —
taking a marketing idea, not just trading
on nationality or geographic location,
and trying to come up with something
that, if nothing else, is memorable.”
No matter how memorable the
name, Davis said he knows that contin-
ued success will depend on how well
the carrier sticks to its low-cost model.
“Really, it’s a lean, compact business
model, which is all about volume, high
occupancy, high utilization and making
sure every flight is as full as you can
possibly make it,” he said. “People talk
about target load factors. You should
be aiming to fill every flight, every seat.
There’s no, ‘We’ll accept 65 percent load
factors’ anymore.”
bmibaby employees have separate labor
contracts from the parent organization,
with terms and conditions more in line
with a low-cost carrier. The separate
contracts represent one of the methods
the carrier utilizes to manage costs.
From its initial three Boeing 737s,
bmibaby in 18 months has expanded
to 13 aircraft serving more than 25
destinations throughout Europe.
““We are experiencing 400 percent
growth year on year because we
are part of a group. We’ve gone
from three airplanes in March of
2002 to 13 today. I don’t believe
we could have done that as a com-
plete startup.”P
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aby
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It is probably a large understatement
to say that the 19 months that David
Siegel has led US Airways have been
eventful. In March 2002, when he
assumed the helm of the airline after
leaving his post as chief executive offi-
cer of Avis Rent A Car System, Siegel
faced a daunting task — reinvigorating
an airline seeking to reposition itself
to better compete in a radically trans-
formed industry.
Facing continued losses in the after-
math of the events of Sept. 11, 2001, US
Airways, the seventh largest airline in
the United States, began seeking ways
to improve liquidity, increase revenues
and reduce its costs, which, at the time,
were among the industry’s highest. As
the pressure to restructure mounted, the
airline in August 2002 filed for Chapter
11 bankruptcy protection, which
shielded the airline from creditors, giv-
ing it time to reorganize. Through the
bankruptcy process, the airline was able
to successfully restructure itself — “we
looked at our strengths and weaknesses
and devised a way to leverage our
strengths and turn our weaknesses into
assets,” Siegel said. A US$240 million
equity investment from the Retirement
Systems of Alabama Holdings LLC, and
a US$1 billion loan, US$900 million of
which was guaranteed by the U.S. Air
Transportation Stabilization Board, gave
US Airways the liquidity it needed.
Modified labor agreements with the
airline’s unionized employees helped
significantly reduce costs. Through
bankruptcy, the airline also was able
to address other key issues, such as
achieving the distress termination of the
defined benefit pension plan for its pilots,
which was underfunded by US$2.5 billion,
and replace it with a defined contribution
plan to supplement the Pension Benefit
Guaranty Corp. payout.
In March, as scheduled, US Airways
completed its “fast track” emergence
from bankruptcy. Now, the rejuvenated
airline, which earlier this year was
ranked first in the annual Airline Quality
Rating, is aggressively competing.
Under Siegel, the airline announced
the ambitious purchase of 170 regional
jets from Bombardier and Embraer. US
Airways signed codesharing agreements
with Lufthansa German Airlines and
United Airlines and was approved to
join the Star Alliance. These measures
significantly impacted the airline’s bottom
line. In the second quarter, the airline
reported a net income of US$13 million,
industry
october 2003 39
A conversation with David Siegel, president and chiefexecutive officer of US AirwaysPrepared for the Future
Extremely
“In March, as scheduled, US Airways
completed its ‘fast track’ emergence
from bankruptcy.”US Airways has seen its operations take
off after rapidly completing a corporate
restructuring.
Photo courtesy of US Airways
Ph
oto
by
Der
ek P
edle
y
Lately, most airlines have focused
their attention on cutting operating
costs, in many cases as a survival strat-
egy. Indeed, several carriers have found
significant internal opportunities to
reduce expenses, improve efficiencies
and lower overall unit costs. For others,
cost pressures from external factors
such as oil prices, airport security pro-
grams and various forms of government
taxation have proven more difficult, if
not impossible, to manage or influence.
But the sudden focus on belt tight-
ening is merely one of the most visible
reactions to an unprecedented shift in
the industry’s passenger revenue equa-
tion. This “new revenue reality” is driving
nearly all of the industry’s current efforts
to effect dramatic change.
In the U.S. domestic market, total
demand as a percentage of nominal gross
domestic product fell by more than 26
percent from 2000 to 2002. Historically,
the industry’s revenues maintained a
fairly tight correlation with the broader
economy, but clearly, something has
changed in that relationship. Contributing
to this historic drop is the near disap-
pearance of premium-fare levels histori-
cally paid by most business travelers.
The two-tiered revenue model of old
is rapidly deteriorating, bringing fare
levels toward a new, less stratified mix
of price points.
The Big Fall
To understand how revenues and
average fares fell so far so quickly is to
understand the basic remixing of ticket
prices being sold to travelers. The mar-
ket for trips between the east and west
coasts of the United States provides a
startling example of this phenomenon.
This corridor is characterized by a large
set of long-haul origin and destination
markets, which use numerous competing
mid-continent hubs. For example, the
Boston, Massachusetts, to Portland,
Oregon, market has no nonstop flights,
but there are more than 50 daily con-
necting choices possible in each direc-
tion via 18 hub operations offered by
seven operating carriers (and even more
if codeshare offerings are included).
This type of journey, through
any of the largely undistinguishable
connecting points, has come to typify
the commodity nature of such routes.
Up to 2000, significant portions of
the market paid vastly differing fares,
which reflected strong market segmen-
tation. However, in the past two years,
the price spreads have begun to disap-
industry
october 2003 41
The New Revenue Reality
industry
ascend40
compared to a net loss of US$248 million
for the year-previous period.
Siegel, who also previously served
as an executive with Continental Airlines,
including president of the Continental
Express subsidiary, recently discussed
US Airways’ successes in preparing for
the future.
Question: It appears US Airways
was able to successfully use the bank-
ruptcy process to restructure the airline.
Would you consider bankruptcy suc-
cessful for your airline? What were the
benefits? Were there any drawbacks?
Answer: When I made the decision
to join US Airways, I realized that the
company needed to permanently reduce
its costs and restructure, ideally outside
of bankruptcy. However, the responsible
path to take was one that prepared us
for the option of reorganization under
the protection of Chapter 11. Our plan
was well thought-out, and we were
committed to a fast-track emergence.
As I’ve said many times before, when
we came to the conclusion that we had
to execute our plan with a Chapter 11
filing, we jumped into the pool to swim
some laps, get in shape and then get
out. And while we had some difficult
challenges along the way, we remained
on track. Bankruptcy reorganization is
effective for reducing costs, but there
are many gut-wrenching decisions that
are part of the process.
Q: If “necessity is the mother of inven-
tion,” what innovative new thinking has
emerged at your airline to overcome
perhaps the most challenging conditions
in the history of the airline industry?
A: We are focused on proven strategies
and tactics. We said we needed marketing
alliances, and we have done that. Our
alliance with United Airlines is already
very successful, and we’ve begun our new
international agreement with Lufthansa.
Early in 2004, we will join the world’s
leading airline partnership, the Star
Alliance. We also needed regional jets
to improve our service to the dozens
of smaller cities that we serve. We
secured financing earlier this year and
announced an order for almost 200
planes that have started arriving and
will continue through 2006.
Q: Speaking of your purchase of
regional jets from Bombardier and
Embraer, what led to this decision?
A: One of the key elements of our reor-
ganization plan was to generate additional
revenue through a substantial increase
in regional jet flying. We couldn’t afford
not to take that step.
Q: What role will these new aircraft
play in strengthening your airline?
What kind of impacts will adding so
many new aircraft have on your airline?
A: The new RJs will serve three main
purposes. They will allow us to replace
turboprop aircraft that customers prefer
less than jet aircraft; initiate service to
new “thin” demand markets that even-
tually could grow to warrant mainline
aircraft; and re-deploy current mainline
flying that does not need larger aircraft
to other markets that do require more
capacity, such as the Caribbean. We are
already phasing out turboprops.
However, we believe there will continue
to be limited uses for turboprops in our
system, especially to very small markets.
Q: The current conditions of the
industry have led many airlines to
“think outside the box.” Is this just
a reaction to extreme circumstances,
or do you believe this will become a
vital part of the culture of the industry
in the future?
A: We have been thinking outside the
box for the last 19 months since I got
here, completing a fast-track reorganiza-
tion under Chapter 11 protection. It has
made US Airways a more competitive
airline with US$1.9 billion lower annual
costs, reduced debt and a well-regarded
business plan. Undoubtedly, the take-
away is that any business initiative
requires consensual participation by
all stakeholders and total commitment
by every employee in the organization.
With the recent plane orders and expan-
sion plans announced by Southwest,
AirTran and jetBlue, it is abundantly
clear that low-cost competition will
only grow. So now, every mature
carrier including US Airways, needs
to deal with this new reality.
Q: With all the changes you’ve made,
are there more to come? How different
will the US Airways of 2005 be from
the airline of today?
A: We have a history as a strong busi-
ness carrier during the week, and we are
now exploring new ways to deploy our
fleet for the different kinds of demand
we’re seeing on weekends. We’ve nearly
doubled our weekend service to the
Caribbean, from 40 weekday flights to 75
on Saturdays. Clearly, a reinvigorated
economy will ultimately determine when
corporate and individual customers
change their current buying behavior
and, by extension, some of the moves
we make. We just need to stay focused
and execute our plan.
Multiple factors, including the rise of low-cost carriers, fare transparency and diminished passenger segmentation, have put an irreversible downward pressure on airfares.
By Steve Hendrickson | Ascend Contributor
The average fare among coast-to-coast journeys fell more than 25 percent from the
third quarter of 2000 to the third quarter 2002 leading to a drop in revenues of about
29 percent even though the market overall experienced only a 4 percent traffic decline.
Under the leadership of Siegel, US
Airways has formed alliances with
Lufthansa and United, been accepted
into the Star Alliance and announced
the purchase of 170 regional jets from
Bombardier and Embraer.
Ph
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way
s
pear, moving the industry further toward
a commodity market price structure.
The average fare among coast-to-
coast journeys fell more than 25 percent
from the third quarter of 2000 to the third
quarter of 2002. Most strikingly, the
volume of passengers at the discount
end of the market (US$350 or below
each way) actually increased slightly,
while premium-fare passengers (above
US$350 each way) decreased by nearly
half. Without those relatively small
volumes of premium tickets, revenues
plunged by about 29 percent even
though the market overall experienced
only a 4 percent traffic decline. Although
the third quarter of this year saw unit
revenues start to improve, those trends
were primarily driven by historically
high load factors made possible by the
cumulative effect of widespread capacity
reductions. Unfortunately, there are few,
if any, signs of a fundamental reversal in
the disappearance of premium fares in
the industry.
A Confluence of Factors
It is difficult to blame a single cause
for the collapse of the traditional revenue
model. Rather, the drop appears to reflect
a unique combination of factors all
coming into the equation at roughly
the same time — what some have called
a “perfect storm” hitting the industry.
At a high level, these factors include:
General economic deceleration,
Increased presence of lower-cost
suppliers,
Fare transparency and Internet-based
consumerism,
Diminished passenger segmentation
in pricing.
As it turns out, each of these issues
has serious negative implications for
total industry revenues on its own, but
these issues have proven especially
harmful when interacting together.
Only one of these, the economy, has
much hope of reversing its impact.
The others may well be here to stay.
General Economic Deceleration
While economists on Wall Street
debate how to describe recent economic
conditions, employers and consumers on
Main Street largely agree that the good
times came to a rather abrupt halt about
three years ago. And, that downturn was
really felt in early 2001, many months
before the tragic events of Sept. 11
gave the industry another push in the
wrong direction.
Today’s environment contrasts
dramatically with that of the 1999-2000
“economic bubble.” During the bubble,
a combination of Y2K initiatives and
speculative Internet ventures drove a
technology-based boom that pushed
many business travelers onto airplanes
in pursuit of high value, mission critical
industry
ascend42
product Control Center version 2.0— for reservations anddeparture control
descr ipt ionThe Control Center is a new graphical
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the Sabre ® Passenger Reservation
System, the Sabre ACS™ airport
check-in system and the Sabre ACSI™
international airport check-in system
from a single Web-based tool. The first
phase of this interface was released in
January, and functionality will continue
to be added in phases.
benef i tsThe Control Center enables airlines to
focus on managing their operations
rather than the systems they are using.
Control Center creates significant effi-
ciencies for system administrators by
providing easy-to-use tools for system
configuration, table maintenance and
management reporting.
featuresWeb-based — Authorized administra-
tors are able to access this tool via
the Web with no proprietary client
software required and will, therefore,
always have the latest version of the
product at their fingertips.
Graphical navigation —
Administrators utilize graphical navi-
gation such as form-based screens for
all entries, drop-down lists and buttons,
and on-screen help, to efficiently set
up their partition with increased accu-
racy. This not only enables adminis-
trators to be quickly trained, but it
also frees them to utilize system func-
tionality that was previously too cum-
bersome to set up and maintain.
Direct
control —
Administrators
are less reliant
on Sabre Airline
Solutions person-
nel for set-up
tasks, giving them
the ability to
quickly adjust to
changes in the
marketplace.
Single tool —
Administrators
will be able to
configure both the reservations and
departure control systems from a
single tool increasing consistency
between systems and in turn
improving customer service.
industry
deals. Back then, it was almost consid-
ered shameful for a dot.com company
to show a profit. Venture capital urged
the rapid development of alliances and
other cyberspace deals to build “eyeball
share,” earnings be damned. High
demand Web programmers jumped
from contract to contract at higher and
higher rates, and technocrats every-
where jetted around to strike the next
deal — a perfect environment for selling
premium-priced walk-up tickets. The
economy encouraged travelers not
to worry about saving a few hundred
dollars on airfare by driving to a smaller
airport or taking a connecting flight for
less than the nonstop.
Increased Presence of
Lower-Cost Suppliers
The coming of age of low-cost carri-
ers during the past few years has intro-
duced another major dynamic to the
market’s revenue picture. These airlines
have brought low fares into the market-
place in aggressive ways much like
early LCCs. However, unlike some of
the failed upstarts in prior decades,
the newest genre of LCCs have largely
avoided many of the pitfalls that ren-
dered their predecessors unable to stay
the course.
Thin capital structures have been
News on New and Improved Productsand Services from Sabre Airline Solutions
hightech
TOP: Historically, the airline industry’s revenues maintained a fairly tight correlation
with the broader economy, but in the past few years this relationship has changed.
BOTTOM: In the U.S. domestic market, total demand as a percentage of nominal
gross domestic product fell by more than 26 percent from 2000 to 2002.
+count it up280 — approximate number
of airlines that are members of
the International Air Transport
Association. The IATA members com-
bine for more than 95 percent of all
international scheduled air traffic.
2.9 trillion — Number of
passenger kilometers flown in 2002,
according to the International Civil
Aviation Organization. The number is
expected to rise to 3.1 trillion in 2004.
1910 — Year of the first major
international conference on interna-
tional air law code. The meeting, in
Paris, was attended by delegates from
18 European nations and established
several of the governing principles
of aviation.
7.3 — Percent of growth for
freight traffic during the first half of
2003, according to the International
Air Transport Association.
10 — Number of people who
have held the title of Secretary
General of the International Civil
Aviation Organization. Taïeb Chérif
of Algeria became the 10th leader
in the ICAO’s 59-year history when
he assumed leadership of the
organization on Aug. 1.
more conscious of potential travel budget
savings, in turn fueling more bargain
hunting and lower price expectations.
Diminished Passenger
Segmentation in Pricing
The bi-modal distribution of fares
previously seen in a given market was
made possible by using fare restrictions
as “fences” to segregate buyers of seats
based on their respective economic utility.
Through a mixture of requirements such
as advance purchases, roundtrip travel,
Saturday-night stays and non-refund-
ability, the basic fare structure across
the industry allowed for price discrimi-
nation by passenger market segment.
To the extent that competitors were
well-behaved within a price leadership
model, this structure allowed the indus-
try to become increasingly reliant on
a revenue mix that pushed business
travelers to higher and higher fares
while leisure fare levels remained
largely unchanged.
The widening gap became a prime
opportunity for LCCs to break from
the fare rules model and create a new
value proposition for those passengers
previously paying premium fares. Now,
in the United States, LCCs (and match-
ing traditional carriers) are offering
unrestricted walk-up fares from coast
to coast that are far lower than they
were formerly, in many cases never
exceeding US$299 each way. New
passenger behavior is emerging as
passengers are increasingly weaned
away from advance purchase habits
amid new confidence that affordable
fares can be found closer to their travel
dates. For many carriers, the booking
curve is now shifting closer in and
having a dilutive effect on yields for
close-in ticket sales. The result has been
to radically redefine the revenue value
of the business passenger market seg-
ment and to reduce overall revenues
available to the industry.
A New Revenue Reality?
It’s reasonable to expect the econ-
omy to regain strength at some point
in the future. There are already nascent
signs of a rebound, and many believe
that the extremely low-interest-rate
environment will induce economic
expansion. However, the Japanese
economy has had such an interest-rate
environment for some time without
the desired impact on the economy.
Time will tell, but eventually the U.S.
economy can be expected to recover
and help lead the global economy
back toward a healthier trajectory.
As for other dynamics, there is
ample reason to believe that the world
has changed forever. The competitive
advantages of low operating costs
will ensure that a new tier of carriers
with lower breakeven price levels will
remain a marketplace reality. The new
air travel consumerism stimulated by
Internet bookings and fare transparency
is a trend that will only grow stronger
over time. And market segmentation
through the widespread use of restric-
tive “fare fences” will not likely regain
its earlier popularity among suppliers
and may not find tolerance among a
traveling public that has a new set of
purchase price expectations. A new
revenue reality has arrived, and it will
greatly challenge those airlines that
do not aggressively rethink their strate-
gies and techniques for managing
within it.
Steve Hendrickson is a partner with
Sabre Airline Solutions Consulting.
industryindustry
replaced with well-financed business
plans. Fleet plans have focused on newer,
more efficient models rather than
low-priced used equipment. Management
teams are still lean but are often popu-
lated by more experienced managers
than in years past. Software systems and
decision-support tools, once practical only
for major airlines with large in-house
information technology departments,
are now available to LCCs, giving them
leading-edge technology at cost-effective
prices. And LCC strategies have evolved
to the realization that, if they stick to
their strengths and avoid the temptation
to be all things to all travelers or grow
too fast, they can maintain their success
story. All of this has allowed LCCs to
drive price levels down to a point where
their cost structures can survive or even
thrive, but higher-cost traditional carriers
will be faced with unsustainable losses.
As profits accrue for these LCCs, they
will become increasingly prominent,
creating unavoidable competitive impli-
cations for fare structures.
Fare Transparency and Internet-
Based Consumerism
Travelers’ rapid acceptance of self-
service booking engines and fare searches
has unleashed a new set of expectations
into the market. The fundamental interface
between a passenger and an airline’s seat
inventory has been radically changed.
Gone is the 20-question interview
conducted over the phone with a travel
agent or airline reservations agent.
With the Internet, passengers have a
new sense of empowerment to find the
bargain they believe they deserve.
Easy, side-by-side comparisons have
led to a “shop-till-you-drop” mentality
among travelers — “if the fare isn’t low,
you don’t have to go.” All of this new-
found fare transparency has, of course,
only magnified the impact of LCC fare
offerings during this period. Likewise, it
has helped business passengers under-
stand how much premium they were
previously paying for that prime-time
nonstop or other preferred service
attribute. Now, travelers are armed with
information to evaluate the relative
cost/benefit tradeoffs represented in their
array of ticket options. And the softer
economy has made their companies
News Briefs from Around the Globe
Who
Bangkok Airways, Siem Reap
Airways International, Transportes
Aeromar, Aero Continente
What
In June, the four airlines cut over
to the Sabre ® Passenger Reservation
System. All four cutovers were accom-
plished in less than one hour with less
than a 1 percent error conversion rate
and without disruption to the carriers’
operations.
Why
Bangkok Airways — The carrier
gained immediate access to “market-
leading reservations and departure
control capability” as well as electronic
ticketing services, said Ping na Thalang,
Bangkok Airways vice president of
information systems. The conversion,
which also involved its Siem Reap
commuter carrier, will also help the
airline’s domestic and international
expansion program.
“We believe that Sabre Airline
Solutions offers an excellent product
and overall value and a range of tech-
nology interfaces that enables Bangkok
Airways to continue building its own
applications around the host system,”
Ping na Thalang said.
Transportes Aeromar — The conver-
sion equips the airline with a comprehen-
sive solution for customer processing
and service from initial contact to post-
travel support. It also upgrades visibility
for the carrier's offerings among local
and regional travel agents.
“Our migration will enhance our
position as a leader in Mexican regional
aviation by delivering a consistent
executive world-class product,” said
Ami Lindenberg, executive vice presi-
dent and chief financial officer for
Transportes Aeromar.
Aero Continente — The conversion
offers more comprehensive functionality,
lower cost of ownership of its technol-
ogy systems, access to new sources of
revenue and better management of its
sales channels and partnerships.
“The agreement with Sabre Airline
Solutions satisfies a demand among
regional operators who wanted a more
efficient connection with the airline
systems of Aero Continente,” said
Milagros Zevallos, commercial director
for the airline.
T H E H I G H L E V E Lvıew
success,” said Prasarttong-Osoth, the
driving force behind the decision to
build the airports.
By several standards, the airports
have proven successful. Bangkok
Airways now operates 40 flights a day
from Samui to five destinations. The
nearly 200-acre (.8 square kilometer)
airport has also substantially cut travel
time to the island. Before it was built,
travelers from Bangkok spent 14 hours
traveling by rail, bus and ferry to reach
Ko Samui. The airport, with its low-rise
palm-thatched roofs and tropical
gardens, has also been honored for
its architectural design and environ-
mental awareness.
At the Sukothai airport, Bangkok
Airways is already expanding the length
of the runway, from 2,100 meters to
2,400 meters, to better accommodate its
fleet of 717 jets. Since gaining customs
status, the 800-acre (3.2 square kilome-
ter) airport has become Bangkok
Airways’ northern hub, providing easy
access to the northern Thai capital of
Chiang Mai as well as Luang Prabang,
Laos; Pagan, Myanmar; Siem Reap,
Cambodia; and Kunming, China. The air-
port, built for 500 million baht (US$12
million), incorporates the latest air traffic
control, weather monitoring and safety
technology. And it, too, has an award-
winning design, featuring traditional
Thai architecture. Its soaring roofs and
tropical gardens earned the airport the
nation’s “Outstanding Architect Award.”
The airline, which is hosted in the
Sabre ® Passenger Reservation System,
also just opened a 435-acre (1.74 square
kilometer), 700 million baht (US$17
million) airport in Trat, the easternmost
province of Thailand between the
Cambodian border and the Gulf of
Thailand. The airport is conveniently
located near the tropical island of Koh
Chang, previously reachable from
Bangkok only after a five-hour drive
and a ferry trip to the island. With the
airport, the journey from Bangkok has
been cut to 45 minutes. As with its
other two airports, Bangkok Airways
constructed the Trat airport to reflect
the local people, their culture and the
environment.
Bangkok Airways’ unique combi-
nation of airline and airport ownership
has not only distinguished itself from
other airlines, but has also helped the
regions where its airports are located
improve business links and boost
tourism, providing an economic stimu-
lus to these areas.
Hans Belle is vice president of marketing,
Asia/Pacific for Sabre Airline Solutions.
industry
ascend46
From the Ground Up
Back in the 1980s, Bangkok Airways
identified an untapped opportunity
to bring visitors to the beautiful, though
still largely undiscovered, Thai island
of Ko Samui. But there was one small
problem.
The island, located off the south-
eastern coast of the country in the
Gulf of Thailand, lacked an adequate
commercial airport.
Rather than wait for local officials to
remedy the situation, Bangkok Airways
took a radical approach — it built the
airport itself. Instead of waiting for the
opportunity to open a new market and
help build the area into a popular tourist
destination, the airline in 1989 opened
its 800 million baht (US$19 million) air-
port on the northern end of the island.
That was the first of three airports
the airline, which serves 13 destinations
in five countries with its fleet of 13
Boeing 717 and ATR72-200 aircraft, built
to expand its operations to underserved
areas throughout the country. The Samui
airport venture proved so successful,
the airline opened its second airport, at
Sukhothai in central Thailand, in 1996,
and a third, Trat in eastern Thailand, in
March. The airline has since added new
customs, immigration and passenger
terminal facilities at Samui and Sukothai
to gain customs status, opening the
doors to direct international flights.
Bangkok Airways, which traces
its roots back to 1968 when it began as
an air taxi service called Sahakol Air,
attempts to serve cities with rich cultures
and historically significant sites that are
not easily accessible to the everyday
traveler. Building the three airports rein-
forces the airline’s commitment to not
only build the local tourism industry
but also promote local heritage, said
Dr. Prasert Prasarttong-Osoth, president
and chief executive of Bangkok Airways.
“The (airport) project was conceived
with a view of complementing the
government’s regional economic devel-
opment policies while offering tourists
another choice destination to tempt them
to Thailand and the region, and on both
counts, we have every expectation of
Bangkok Airways’ unique business model, combining airline and airport ownership, delivers growth for itself and its home regions.
By Hans Belle | Ascend Contributor
“The (airport) project was conceived
with a view of complementing the
government’s regional economic
development policies while offering
tourists another choice destination
to tempt them to Thailand and the
region, and on both counts, we have
every expectation of success.”
By building airports in unserved areas, such as Samui, above, and Sukhothai, right,
Bangkok Airways has been able to grow as well as provide an economic engine for the
regions it serves.
Ph
oto
s co
urt
esy
of
Ban
gko
k A
irw
ays
the “hub” point for the two carriers
will be in the strategic investor’s home
country. At the very least, the strategic
investor will insist that the national car-
rier use competitive business practices,
eliminating the various “socio-economic
routes” and “foreign policy routes” the
national carrier operates.
Another pitfall comes from the deci-
mation of the former national carrier’s
large employee base to reduce costs,
thus reducing tax revenues and increas-
ing the need for social services. Finally,
protective fares and scheduling practices
will be eliminated. The strategic investor
will insist that fares obey market forces,
which means that routes protected from
fare increases may become much more
expensive for passengers.
A likely result of strategic investor
privatization is making air travel more
elite and reducing the transportation
infrastructure, which can cause severe
political problems in developing countries.
Widely Held Ownership
In a second privatization method –
the “widely held ownership” model –
the government offers shares of the
national airline on the open market
while restricting individual ownership to
ensure government control is maintained.
This model, on the surface, appears to
resolve many of the issues associated
with a strategic investor. Through widely
held ownership, the government main-
tains the controlling stake in the carrier
and can ensure that it maintains control
over finances, flight scheduling, employ-
ment and fares. Many governments
have passed legislation to limit foreign
ownership. But the widely held owner-
ship model also has pitfalls.
The main problem with widely
held ownership is that governments
sell their stake in their national carriers
for well under their true market value.
Governments often give away the
october 2003 49
industry
ascend48
Turnaround First, Then Privatize
Many countries that still own their
national airlines are examining
privatization. Most of these countries
are considering such an extreme step
because they are struggling economi-
cally, and a bloated national carrier
makes a politically charged privatization
target. Because national carriers are
usually among a country’s most promi-
nent companies and often the only ones
with an international presence, they are
perceived to have a substantial value
that can be leveraged by the govern-
ments to generate capital.
While airlines generate significant
cash, they operate on very small mar-
gins and therefore frequently require
capital injections from their owners to
update assets and cover losses, which
only serves to make them more attrac-
tive for privatization. Many countries
must make the difficult decision to re-
capitalize an ailing national carrier or
to build hospitals, schools and roads.
Therefore, many countries, particularly
developing ones, are actively moving
to privatize their national carriers.
Governments in Latin America
and the Far East have led the way
in privatizing their national carriers.
For the remainder of the developing
world, the government continues
to own all or most of the national
carriers and are actively examining
privatization.
The Strategic Investor
Many of these countries, however,
rush into privatization without consider-
ing the best option. The quickest model
for privatization is through a “strategic
investor” where a country sells a major-
ity portion of its national carrier to a
“white knight” private carrier with a
good reputation. The idea is that the
government will receive a large payoff,
and the private carrier’s culture will rub
off on the national carrier, improving the
country’s transportation infrastructure.
The country loses a national carrier but
gains much needed capital and obtains
a better airline for its citizens.
Both Belgium and Portugal used
this model when they sold their national
carriers to a strategic partner, Swissair.
Similarly, Air Afrique sold a portion of
its airline to Air France to raise capital.
The strategic investor theory sounds
good on paper, but the reality often is
much different. The list of failures using
this approach is much greater than the
list of successes. Some carriers have
received the expected benefits from
this model: Air Lanka under the partial
ownership of Emirates Airlines and the
“Lan” carriers, including LanEcuador,
LanPeru and LanDominicana, under
LanChile.
Unfortunately, few airlines as suc-
cessful as Emirates and LanChile are
actively acquiring interests in national
carriers. Most strategic investors
today are interested only in acquiring
a national carrier’s assets at very low
rates and without substantial conditions.
The strategic investor model offers
some unanticipated pitfalls. The white
knights can be corporate raiders – airlines
wishing to expand in a cost-effective
manner by acquiring less stable com-
petitors to strip them of their primary
assets and routes, relegating them to
colonial feeder status. When a strategic
investor talks about “schedule and prod-
uct alignment,” it often plans to relegate
the national carrier to second-tier status.
One of the primary benefits of own-
ing an airline is that it generates a sub-
stantial amount of cash – often foreign
currency. Countries should consider the
effect on their own economies when the
bulk of the foreign currency generated
by their national carrier is channeled
through the country of the strategic
investor. The loss of foreign exchange
can result from schedule and product
alignment because, almost invariably,
There are plenty of pitfalls for a state-owned airline preparing for privatization. But a comprehensive turnaround program can minimize the risk and prepare the carrier for the private sector.
By Shane Batt | Ascend Contributor
A carrier with US$500 Million in annual revenues can reap more than US$164 Million in revenue benefits within two-and-a-half years by
employing the turnaround model.
“Many countries must make
the difficult decision to
re-capitalize an ailing national
carrier or to build hospitals,
schools and roads.”
industry
october 2003 51
industry
ascend50
cial position of the national carrier
improves, two pressures arise. First,
government sources pressure the
national carrier to take actions that are
counter-productive to its future success.
The national carrier, for example, will
be instructed to increase employment,
increase services on socio-economic
routes or give employees raises, which
will make the government popular
but will seriously impact the long-term
viability of the national carrier. Second,
factions will argue whether the govern-
ment should immediately liquidate the
national carrier or end privatization
discussions. When the financial position
of the carrier has improved, the govern-
ment must demonstrate its support for
continuing the turnaround process by
providing the national carrier with suffi-
cient breathing room to ensure its own
long-term survival.
The “hands-off” approach, however,
often proves impossible for the national
government to implement. If the carrier’s
turnaround is cut short before the assets,
services and personnel have been
upgraded, the carrier’s long-term viability
will still be in question. For the turnaround
model to succeed, the national govern-
ment must show enough patience to
allow the carrier to proceed through
financial improvement; asset upgrade,
service improvement and personnel
upgrade. Once the turnaround has
been accomplished, the government
will have a strong and valuable asset
to privatize.
Improving Financial Position
On the surface, improving a carrier’s
finances appears to be the hardest task.
In practice, however, the true challenge
is staying on course after the carrier’s
financial position has improved. Improving
the financial position of the national
carrier first requires concentration on
revenue production. Any financial prob-
lem can be solved by increasing revenues,
as long as revenue production outpaces
cost increases. Therefore, the turnaround
process should concentrate first on
revenue production.
Revenue is much easier to increase
than costs are to decrease. Because an
airline’s five highest costs are labor, fuel,
maintenance, aircraft ownership/lease
and customer service, these areas would
have to be targeted to achieve substan-
tial and quick cost savings. National
carriers, however, cannot easily reduce
any of these areas.
Reducing labor costs adversely
impacts employees. Because they
are typically government employees,
national governments are hesitant to
reduce their pay. Reducing fuel by more
than a few percent usually requires
decreased flying, which results in lower
revenues. Maintenance costs generally
cannot be reduced by double-digit levels
without fleet renewal, and national
carriers generally do not have sufficient
funds or capital to renew their fleets
quickly. Aircraft ownership/leases can
only be reduced by paying off loans
or renegotiating leases. Most national
airlines lack resources to pay off loans,
and leasers are becoming less receptive
to negotiating reduced lease rates.
And customer service reductions tend
to reduce revenues, which should
be protected if the airline is to turn-
around properly.
Airlines, therefore, should focus
on containing the growth of costs while
increasing revenues. Most carriers can
contain costs if they concentrate on their
indirect fixed costs and lower the growth
of their direct operating costs.
Revenue production can be increased
for most national carriers by focusing
on all factors that influence revenues.
Frequently, carriers assign revenue-
influencing factors to a variety of different
middle managers who do not cooperate
extensively. The lack of cooperation
impacts the carrier’s competitiveness
in hidden but significant ways. The
national carrier to a wide base of investors
without gaining substantial returns for
the remainder of their citizens who are
not shareholders. Governments don’t
privatize their national carriers because
they are well-run, highly profitable entities.
Except in regions such as the European
Union, where legislation requires priva-
tizing national carriers, most countries
privatize because their national carriers
are bloated and inefficient. Since these car-
riers are generally unprofitable, the share
price of stock will be lower than its
potential market value. The minority
investor buys shares for income or for
growth, neither of which are high with
national carriers. So, demand for shares
stays low, the price stays low and
majority ownership shifts from the gov-
ernment to investors at very low prices.
Of course, using widely held ownership
reduces the government’s responsibili-
ties for future equity injections, but the
former national carrier still has the same
problems it did prior to privatization. In
a few years (or even a few months) fol-
lowing privatization, the new owners
start looking to raise much-needed capi-
tal and soon turn to a strategic investor
or ask for a government investment.
By using the widely held ownership
model, the government can inadvertently
promote the excesses of a strategic
investor without reaping the significant
capital advantages.
It may appear that privatization is
doomed; however, it’s an important step
needed for most of today’s national car-
riers to survive in the highly competitive
international marketplace. Privatization
must protect the national interests of the
country as well as develop strong com-
petitors. The best way to privatize is
through the “turnaround” model.
Turnaround
The turnaround model prepares
the national carrier for privatization by
making it profitable and competitive.
Carriers that have sustainable profitability
can fund their own capital requirements,
enabling them to use widely held own-
ership or a strategic investor without
governments giving away ownership at
bargain prices. The turnaround model
improves the national carrier at all levels
to ensure it is competitive and profitable
before privatization occurs. By demon-
strating sustainable profitability, the
carrier ensures that there is no urgency
associated with privatization, and therefore
it can take place in a controlled manner.
A strategic investor is kept in line
because the rising share price of the
profitable national carrier discourages
its dismantling. Similarly, widely held
ownership is strengthened because
minority investors are attracted to the
growth of the national carrier’s share
price, which will continue to grow: a
form of self-fulfilling prophecy. Most
importantly, as a result of the turn-
around, the national carrier is strong
enough to operate without governmental
assistance, the transportation infrastruc-
ture of the country is maintained and
assured, and the benefits of nationalized
ownership, such as socio-economic
routes, lower fares and currency bene-
fits, remain intact.
Implementing the
Turnaround Model
In principle, it is not difficult to use
the turnaround model. The national
carrier, with the help of its government,
proceeds through a steady process of
rapid improvement to position itself
for a strong privatization push. The
turnaround begins by improving the
national carrier’s financial position. Once
the financial position of the national car-
rier has improved, its surplus funds are
invested in three primary areas: operating
assets, provision of service and personnel.
Once the financial position has
improved, governmental support is
required. In most cases, when the finan-
Throughout the developing world, nearly half of the airline equity is government
owned, and in some regions, such as Africa, the Caribbean and the Middle East,
there’s tremendous opportunity for privatization.
By making improvements throughout its operations, a US$1 billion airline with 70
aircraft serving domestic and international routes can achieve cumulative financial benefits
in excess of US$164 million by the end of the two-and-a-half year turnaround process.
industry
october 2003 53
industry
ascend52
just as important as the core foundation
systems, and the national carrier should
ensure that it has a reasonable strength
in decision-support systems including
revenue management, flight scheduling
and crew planning. Asset renewal is
expensive, but it will ensure that the
carrier has a sound infrastructure for
privatization.
Along with asset renewal, the
national carrier must improve its cus-
tomer service to meet international
standards. Many national carriers offer
excellent service, but frequently, these
carriers fall behind more aggressive
competitors in areas such as in-flight
entertainment, interior appointments,
lounge facilities and catering quality.
Passengers have come to expect a high
level of service at a very low price. The
move toward upgraded first and busi-
ness classes on world-class carriers
such as Singapore Airlines, Cathay
Pacific Airways and British Airways
show that international carriers must
concentrate on passenger service and
comfort. For those national carriers
that offer less than competitive service
today, money will also have to be spent
on service training and staff renewal.
Service upgrades, however, often result
in higher customer satisfaction and
ultimately higher revenues. But realizing
returns on investment in service takes
significant time. A lack of investment
in service upgrades, though, will be
detrimental to the long-term viability
of a national carrier contemplating
privatization.
While upgrading other infrastruc-
ture, the carrier should ensure that its
staff – which often expects the worst
from privatization because of its perceived
impact on job security and pay – is prop-
erly prepared for future privatization.
Properly preparing staff members for
the changes that will impact their jobs
is necessary so that labor actions don’t
become the inevitable byproduct of
privatization. Investment in training is
the first major step. Professional train-
ing provides staff with viable skills that
translate to job security. Operational
and service-related staff require frequent
training to ensure that their skills are
maintained to appropriate international
levels. In addition, professional training
for business staff in analysis, sales,
marketing, revenue management, flight
scheduling and similar industry skills is
a good investment in the carrier’s future
and its employees. Most importantly,
management training should be pro-
vided at all levels to ensure a smooth
management migration from a govern-
ment-owned to a free-market carrier.
In addition to training, merit-based
promotion and placement should
be implemented even if the carrier’s
government ownership rules must be
changed. Merit-based promotion and
placement ensures that the most quali-
fied staff rise quickly thus invigorating
the management of the carrier. Finally,
along with the other personnel initia-
tives should be a complete examination
and restructuring of staff compensation.
The new pay scale should be consistent
with market conditions in the country
and with international standards. As the
staff becomes more effectively skilled,
its value in the international marketplace
increases, and the national carrier will
need to adjust compensation to ensure
the staff will remain throughout the
privatization process.
The complete turnaround process
requires less than two-and-a-half years –
one for financial improvements and 12
to 18 months for infrastructure improve-
ments. During the final six months
of the turnaround, the government
can proceed with steps necessary to
privatize the carrier.
While the turnaround model
requires more time to implement than
the strategic investor or widely held
ownership models, the outcome of
privatization should be much more
stable. The consulting group at Sabre
Airline Solutions specializes in helping
airlines turn around their operations
to prepare for privatization, helping
produce viable carriers that become
sources of national pride – even if
they are not owned by their national
governments.
Shane Batt is a partner with Sabre
Airline Solutions Consulting.
primary factors influencing revenue
include pricing, inventory control, flight
scheduling, sales, distribution, branding
and loyalty, advertising and promotion,
and public relations. By using the
latest marketing techniques to tie these
revenue-influencing factors together,
the national carrier will undoubtedly
increase revenue, more than offsetting
the slightly increased costs.
Without impacting the operational
integrity of the carrier, cost containment
should begin in key areas such as crew
planning and scheduling, fuel purchas-
ing and consumption, flight planning,
budget control, capital expenditure
control, and maintenance. Cost contain-
ment should be geared toward reducing
expenditures where possible as long as
dependability and service standards are
not lowered. Throughout this period,
it will be important to watch cash man-
agement. Carriers with limited financial
resources must ensure that their cash
reserves are sufficient to cover the
increased operating costs that result
from growing revenues. By containing
costs and increasing revenues, however,
the financial position of the carrier should
improve noticeably within a period of
less than six months.
Typical Approach to Financial
Improvement
Implementing a turnaround involves
six main steps:
1. Initial assessment — A commer-
cial, financial and operational evaluation
of the airline identifies major issues and
assesses and evaluates the corresponding
impact and potential for improvement,
2. Quick hits — Identification of
issues that are relatively easy and quick
to resolve and have a substantial impact
on an airline’s performance,
3. Process improvement — Aligning
business processes, performance meas-
urements and decision-support tools
with the corporate strategy,
4. Training — Instructing staff on
new, improved business processes
and practices,
5. Consolidation — Implementation
and consolidation of new business
processes within the airline environment
and culture,
6. Tracking and enhancing —
Monitoring airline and process perform-
ance and enhancing as necessary.
The largest value derives from the
process improvement phase, but the
financial benefits begin during the quick
hits phase. Revenue increases drive
the most benefits during the quick hits
period, but cost containment is impor-
tant because it allows profits to increase
at a faster rate.
Applying Improvements
Using the turnaround model, the
national carrier can generate substantial
improvements in its financial position
within one financial year. Taking short-
term gains, however, should be resisted
until the turnaround process is complete.
During the first 30 months of a turnaround
implementation, the airline should
increase annual revenues by at least
8 percent, producing a substantial war
chest of capital for the airline’s long-term
improvement. The complete turnaround
process, however, involves improve-
ment of assets, service and personnel.
Improving the assets of the carrier
involves renewing some or all of its
primary operating resources including
aircraft, facilities and technology. By
operating newer aircraft, the national
carrier can reduce its operating costs,
improve its image and marketability,
and provide a higher level of service
to its passengers. Renewal doesn’t
require purchasing aircraft. Operating
and financial leasing are viable options
for the national carrier turning around
its operations. Facilities – particularly
customer service areas, but also offices,
maintenance and outstation facilities –
must also be kept up-to-date so that no
substantial capital resources are needed
for at least five years following privatization.
Finally, technology must be kept
current because airlines today require the
assistance of computerized systems. Core
systems such as reservations, departure
control, flight operations, and mainte-
nance and engineering systems must
be modernized and deployed properly
to allow for significant expansion as the
carrier prospers. Business systems are
The turnaround process involves six main steps that flow seamlessly from one to another.
The largest value derives from the process improvement phase, but the financial benefits
begin during the quick hits phase.
Improving an airline’s financial status involves a three-pronged attack, which will
help prepare the airline to set the stage for successful privatization.
product
ascend
All unique carrier requirements can
be supported with the initial connection
to the hub. Once a carrier is connected,
access is available to all other linked
carriers through selective or universal
activation.
A vast array of diagnostic tools in
the hub gives carriers the ability to more
closely monitor interline traffic. These
tools enable carriers to set notification
thresholds through a graphical user
interface. For example, if a link goes
down and error messages are gener-
ated, an e-mail notification is sent noti-
fying the carrier. Before the inception of
these tools, someone physically had to
discover such incidents.
A number of airlines have carrier-to-
carrier interline connectivity through the
Sabre ® Passenger Reservation System:
Alaska Airlines,
Aloha Airlines,
America West Airlines,
American Airlines,
ATA Airlines,
Continental Airlines,
Delta Air Lines,
Finnair,
Hawaiian Airlines,
LanChile,
Midwest Airlines,
Northwest Airlines,
United Airlines,
US Airways.
The Interline Electronic Ticketing
Hub also enables IET connectivity
between two carriers not hosted within
the Passenger Reservation System. Until
now, at least one of the carriers was
required to be hosted in the system.
Another key tool that helps airlines
adapt to electronic commerce, the Sabre
Airlines Solutions Electronic Ticket
Hosting product enables a carrier to stay
hosted on its existing system while
acquiring the ability to issue electronic
tickets and retain those records within
the electronic ticketing database.
This solution eliminates both the
need for carriers to build a costly system
to distribute tickets electronically and the
activities related to maintaining the elec-
tronic ticketing database. The product not
only delivers electronic ticketing capability
but also the increasingly valuable option
of interline electronic ticketing connectivity.
The electronic ticketing solution
provides airlines the most cost-effective
and efficient solution for issuing, refund-
ing, exchanging and settling all transac-
tion types. Additionally, the product pro-
vides functionality to expand electronic
ticketing for the host carrier as well as
its interline partners. This solution deliv-
ers substantial cost savings to the airline
while simultaneously enhancing cus-
tomer service and increasing relation-
ships with its global interline partners.
“The benefits of moving to elec-
tronic ticketing are two-fold — first, we’ll
be able to reduce the costs incurred by
processing paper tickets, and second,
we’ll be able to improve efficiency and
customer service levels,” said Kevin
Hartigan-Go, vice president information
systems of Philippine Airlines. “With
this implementation, we are well placed
to facilitate electronic document
exchange with other airlines with whom
we have interline relationships, fulfilling
the requirements of some U.S. carriers
to support e-ticketing by 2005.”
Darren Henley is a senior product
manager for Sabre Airline Solutions.
+count it up53.33 — Seconds required
by a team from the Metropolitan
Police to pull a British Airways 747
a distance of 100 meters at Heathrow
Airport in London: a world record,
according to the Guinness Book of
World Records.
22,370,000 — Number
of kilometers flown by Fred Finn
as of June, the most air kilometers
flown by an individual, according to
the Guinness Book of World Records.
The U.K. resident also holds
the record for most number of
supersonic flights as a passenger
with 718.
2,646 —Number of minutes
required to circumnavigate the world
using scheduled flights, by David
Springbett in 1980, to set a world
record. During that time, he covered
37,124 kilometers (23,068 miles).
54
product
Electronic ticketing solutions enable
airlines to improve business
processes and reduce ticketing costs. As
more airlines mandate the use of paper-
less processes, interline capabilities
become critical. Implementing interline
electronic ticketing increases the market
opportunity by enabling multi-carrier
itineraries. Responding to this need,
Sabre Airline Solutions has developed
the Interline Electronic Ticketing Hub to
streamline interline implementations.
Interline electronic ticketing gives a
carrier the ability to seamlessly transfer
coupons to its interline partners and to
streamline revenue accounting
processes by expediting revenue recon-
ciliation and reducing the process of
scanning paper documents. During
irregular operations, IET facilitates the
transfer of coupons to alternative flights
on other airlines.
In the past, each IET implementa-
tion has been a unique and customized
project requiring a dedicated link con-
necting each bilateral airline. The project
can be complex; implementing all carri-
ers can be a lengthy process.
The Interline Electronic Ticketing
Hub is a multilateral product that virtu-
ally eliminates the necessity for individ-
ual bilateral carrier implementations.
With this new product, all participating
airlines are linked to a reciprocal inter-
line electronic ticketing system.
The hub verifies agreements
between an inbound carrier and the
receiving carrier and transforms this
ticket into a neutral message using the
receiving carrier’s maps and rules.
The hub is not just a routing mech-
anism; it supports and translates, if nec-
essary, all EDIFACT releases and ver-
sions. If carriers implementing an IET
connection utilize different EDIFACT ver-
sions, the hub will translate those mes-
sages into a format the receiving carrier
can process. This translation process
eliminates extensive development that
was once required for carriers to estab-
lish the interline connection.
Improving Interline Electronic Ticketing
Two new solutions enhance airlines’ ability to better develop and utilize electronic interline agreements.
By Darren Henley | Ascend Contributor
Many airlines, such as the fictional airline ZZ, currently build individual bilateral connections with each of their interline partners.
However, with the new Interline Electronic Ticketing Hub, all participating airlines are linked to a reciprocal system that routes and
translates ticketing messages.
“The benefits of moving to electronic
ticketing are two-fold — first,
we’ll be able to reduce the costs
incurred by processing paper
tickets, and second, we’ll be able
to improve efficiency and customer
service levels.”
optimal shifts/rosters to ensure
adequate coverage to perform the
required work, yielding labor savings
of up to 25 percent.
Once the system has determined the
optimal coverage level to perform the
required work, the final step is to allo-
cate tasks to those schedules/rosters.
This is performed by the Task
Assignment module, which takes
into consideration the drive and
walk times between job functions.
Through the use of liner program-
ming, integer programming and
constraint-theory mathematics, the
StaffPlan system develops the best
possible solution — one that cannot be
matched by an analyst alone. Without
such optimization, it is difficult, if not
impossible, to measure how close a
proposed staff schedule is to the ideal
solution. The StaffPlan system also
enables an airline to make intelligent
trade-offs between conflicting objectives
such as determining whether to use
part-time employees versus full-timers
in terms of cost and shift coverage.
The StaffPlan system enables ana-
lysts to perform “what-if” analysis to
evaluate multiple operational scenarios
and determine the impacts to the busi-
ness prior to the implementation of any
new staffing strategies. Some of the key
benefits of the StaffPlan system include:
Improved ability to achieve consistent
staffing levels,
Ability to identify and explain seasonal
variations in staffing levels,
Reduced time required to identify and
plan staffing,
Ability to set proper staffing levels.
Administration
During the administrative phase,
usually six months up to the day of
operations when planning occurs for
the next season, an airline takes the
forecasted staff plan and determines
daily staffing needs based on resource
availability.
The Sabre ® StaffAdmin™ employee
tracking and assignment system creates
and stores work and attendance rules. It
helps administrators assign the appropri-
ate personnel to the work-level require-
ments established in the StaffPlan system.
In addition, using the StaffAdmin system
helps airport resource administrators
more efficiently handle schedule prepa-
ration, vacation and overtime planning,
and shift coverage. It also reduces the
time spent on attendance tracking and
administering training updates, freeing
administrators to perform other addi-
tional job functions and improving their
overall utilization. The entire employee
administrative process is streamlined,
providing decision support for workforce
planning and scheduling in a paperless
environment. It is designed to ensure
that airlines optimally manage adminis-
trative tasks for their employees. Airlines
commonly achieve up to a 20 percent
improvement in administrative staff
utilization through paperwork reduction
and increased employee involvement in
data entry. Cost reductions of up to 15 per-
cent associated with errors in the recon-
ciliation process related to payroll and
time and attendance can also be realized.
The Internet has provided a powerful
means for employees to proactively
manage their own schedules and work
assignments. The StaffAdmin system
Gate agents are in place right on time
to handle check-in for a flight. An
airplane is refueled, serviced and ready
to push back for an on-time departure.
Baggage has been transferred from
the terminal to the airplane and loaded
without delay. A fresh flight crew is in
position ready for takeoff.
For an airline, the optimal use of
employees is not only essential to
improving performance and customer
service, but it also saves money.
Having the right people in the right
place, however, is not always as easy as
it sounds. The effective management of
ground handling and passenger services
staff is a complex, yet critical, aspect of
an airline’s operations. Flight delays,
cancelled services, holidays, labor actions
and absenteeism — to name a few — arise
on a daily basis and can have a tremen-
dous impact if not managed optimally.
In addition to the unpredictable
nature of the industry, airlines also now
must address heightened security provi-
sions and increased competition, all of
which are forcing changes in how
resources are planned, administered
and managed in real time.
Although complex, efficient staffing
is not impossible.
By breaking down
the process into
phases, and
automating each
phase, airlines can
make the best possi-
ble use of their
resources.
The three
main phases of
the resource man-
agement process
are planning,
administration
and day-of-
operations.
Planning
During the planning phase, usually
six months to one year out, airlines
determine the work requirements gener-
ated from their planned flight schedule.
Using the Sabre ® StaffPlan™ staff
forecasting and planning system, airlines
can employ automated decision support
to produce optimized forecasts and plans
for staffing levels required by a given
flight schedule.
Determining the optimal staffing
levels using the StaffPlan system includes
three steps:
The system uses industry-leading
algorithms to determine the work
demand required for a flight schedule,
work parameters, engagement stan-
dards, historical and forecast loads,
and quality targets.
Once the work demand is produced,
the system’s patent-pending shift
scheduler algorithm determines
product
october 2003 57
Just Right: The Resource Management Systems
product
ascend56
Through the use of Sabre Airline Solutions’ integrated resource management tools, airlines can yield labor savings up to 25 percent by ensuring that the right people are in the right place at the right time.
By Kamal J. Qatato | Ascend Contributor
The StaffPlan system, left, and the StaffAdmin system, center, help
airline schedulers build work requirements and assign adequate
personnel at airport locations. The StaffManager system, right,
takes real-time flight movement data and maximizes the deployment of resources, yielding up to 15 percent improvement in overtime
labor costs. The three systems are integrated to provide airlines optimal resource management capabilities.
incorporates an employee self-service
kiosk, enabling employees to complete
paperless transactions related to shift
trades and schedule checks as well as over-
time and vacation requests over the Web
from home or another remote location.
Benefits of implementing the
StaffAdmin system include:
Producing rosters and daily staffing
sheets,
Vacation planning and administration,
Tracking employee accrual accounts,
Providing employee access via a
self-service kiosk,
Tracking employee training and quali-
fication information,
Importing and exporting data to human
resources systems,
Open report writing,
Incorporating a time and attendance
interface.
Day-of-Operations
The day-of-operations
phase considers real-time
operational requirements
and resource availability for
deployment in the field.
The Sabre ®
StaffManager™ automated
staff allocation system helps
an airline respond in real
time to events that may
disrupt the schedule. Even
on a seemingly ideal day,
there will likely be changes
to flight schedules and times that require
staffing adjustments. The StaffManager
system takes real-time flight movement
data and maximizes the deployment of
resources based on their availability,
location in the airport and qualifications.
The StaffManager system dramatically
improves the fluidity and movement of
resources during an operation by giving
an analyst specific areas to concentrate
on — proactively managing the excep-
tions in the operations rather than
spending precious time identifying
where those operational exceptions
are. Airlines using the StaffManager
system have yielded up to 15 percent
improvement in overtime labor costs by
being able to identify areas in which
resources can be more effectively utilized
prior to aircraft arrival and departure.
The StaffManager system is seam-
lessly integrated with both the StaffAdmin
and StaffPlan systems. It takes daily
staffing employee schedules from the
StaffAdmin system on a real-time basis,
including any anomalies to the planned
rosters, eliminating the need for face-to-
face employee roll call. Most importantly,
to complete the resource management
business process cycle, airlines are now
able to use real-time historical data
as an input to the planning process,
namely the StaffPlan system, to identify
trends against the previous operational
plan to improve future plans.
The StaffManager system has
a simple-to-navigate graphical user
interface that provides detailed flight,
resource and operational alert informa-
tion. All data in each of three viewable
windows is configurable to the business
unit or workgroup for which the analyst
is responsible, ensuring complete focus
on that business area.
The key benefits of the StaffManager
system include:
Maximized productivity,
Early problem identification,
Measured and tracked employee
performance,
72-hour moving window of flights
and tasks,
Views for flight, task and alert
information,
Secured access through various
security levels,
Link to time and attendance
badge-in data.
It’s All About Efficiencies
With modern decision-support
tools, airlines no longer must rely on
using past staffing plans as a
basis for future schedules.
Relying on past plans can
result in a repeat of previous
shortcomings. Having the
right people, in the right
place, at the right time is key
to successful resource man-
agement. Scheduling several
different functional areas to
service aircraft while on the
ground is a complex business
process that undoubtedly
challenges airlines to develop
cost-effective ways to manage their
resources. Without a suite of tools to
guide the planning, administrative and
real-time business processes in resource
management, airlines will never achieve
operational efficiencies that will yield
tremendous cost savings yet maximize
customer service.
Kamal Qatato is director of the resource
management and passenger processing
product suites at Sabre Airline Solutions.
product
ascend58
History has proven the truth
of the axiom that “extreme
times call for extreme
measures.”
During the most extreme time in
the history of the aviation industry, the
weeks and months following the events
of Sept. 11, 2001, airlines were forced to
take drastic action to stay afloat. One of
those measures involved making painful
staffing cuts and furloughing employees.
During this time, many airlines —
including Northwest Airlines, America
West Airlines and Continental Airlines —
relied on their resource management
tools from Sabre Airline Solutions to
help determine the best course of action,
identify the areas to cut and to make the
optimum use of the remaining personnel.
Continental Airlines used the
Sabre ® SaffPlan™ staff forecasting
and planning system to help adjust its
staffing levels to match the dramatic
reduction in the demand for travel.
Using the system, Continental’s
resource planning team quickly evalu-
ated its manpower needs, matching
changes to its flight schedule at little
cost to the airline.
Patrick O’Neill, senior manager,
resource planning and field engineering
for Continental, said the StaffPlan system:
Enabled Continental to analyze the
financial impact of modifying staffing
without compromising clean, safe and
reliable service. The program param-
eters allowed the airline to cross-uti-
lize workgroups and adjust targeted
service goals.
Performed financial analysis of multi-
ple staffing scenarios, allowing the
executive management team to make
accurate and timely decisions.
“We continue to utilize the StaffPlan
system to efficiently manage more than
85 percent of our domestic agents in our
airport services division,” O’Neill said.
Northwest Airlines also benefited
from the StaffPlan system in the after-
math of 9/11.
“We knew our customers would
be very slow to come back to flying
after the terrorist attacks, and we had
to reduce our flight schedule and
resources accordingly,” said Jeff
Benjamin, manager of staffing and
planning for Northwest. “It was impor-
tant to quickly determine the correct
staffing levels for ground operations
to support the new flight schedule.
Additionally, we faced unknown load
factors and the requirement to do new
shift bids to make sure we had the
appropriate staff on each shift to meet
our performance requirements.
“The StaffPlan system was the right
tool,” he added. “We were able to pull
in a new flight schedule, run it with
multiple load factor assumptions and
get a shift bid output that would assist
our operational managers to efficiently
re-allocate a smaller staff to reduced
flight activity. We presented this analysis
to our executive team within the aggres-
sive timeframe committed, and they
were able to make informed decisions
regarding staffing risks associated with
a variety of load factor assumptions.
The StaffPlan system allowed us to
turn this analysis around in a few days,
which would have been impossible
otherwise.”
Kevin Bauerle, manager of customer
service finance at America West, said the
benefits of using the decision-support
tools from Sabre Airline Solutions came
in two stages.
“Immediately after 9/11, we were
able to electronically receive the new
schedule with the new level of operations
and quickly run the StaffPlan system
to determine the appropriate full-time
employees,” he said. “In conjunction
with receiving the schedule, our capac-
ity planning group provided us with new
forecasted load factors to account for
additional reductions in flying.
“In the months after 9/11, we ran a
number of scenarios using adjusted
arrival curves and contact ratios to attempt
to model the impact of the security direc-
tives implemented by the Transportation
Security Administration.”
THE Right Tool IN TOUGHTIMES
Integrated resource management
tools help airlines coordinate staffing
needs through the long-term planning,
in-season planning and day-of-opera-
tion phases, reducing costs and
improving staff utilization.
Web-Enabling Revenue Management
ascend60
Since operating an airline today
requires focus on where and how to
spend resources — financial and physical
assets as well as personnel — Aerolineas
Argentinas sought to find a cost-effective
and efficient way to upgrade its revenue
management system.
Aerolineas Argentinas found a way
to do so by moving to an application
service provider model, which gives the
airline access to the most up-to-date
software without incurring the additional
costs of obtaining and maintaining new
hardware and software.
For more than five years, the airline
used the Sabre ® AirMax™ Revenue
Manager to help it maximize yields and
efficiently control its inventory across
its route network, which includes 34
domestic and 19 international destina-
tions. To effectively run the system, the
airline purchased the required sophisti-
cated hardware. As the airline evaluated
the new, feature-enhanced Revenue
Manager, it realized that its hardware
had become outdated. To upgrade to
the desired functionality would have
also required a further investment in
equipment unless the airline could find
an alternative.
Faced with investing in additional
hardware to support the new software,
the airline began considering other options
and evaluated the Sabre ® eMergo ®
Web-enabled and dedicated network
By migrating its revenue management software to an application service provider model, Aerolineas Argentinas has access to increased functionality at a lower total cost of ownership.
By David Endicott | Ascend Contributor
Quasar™ passenger revenue
accounting system,
Sabre ® Aerodynamic Traveler™
Gate Reader,
Sabre ® Aerodynamic Traveler™
Roving Agent Check-in,
Sabre ® AirCrews™ crew
management system,
Sabre ® AirMax™ Revenue
Manager,
Sabre ® AirOps™ Load Manager,
Sabre ® AirOps™ Movement
Manager,
Sabre ® AirOps™ Dispatch
Manager,
Sabre ® AirPrice™ fares
management system,
Sabre ® AirServ ® aircraft
provisioning system,
Sabre ® CargoMax™ Revenue
Manager,
Sabre ® CargoMax™ Accounting
Manager,
Sabre ® LiteVision ® personalized
MIDT system,
Sabre ® Planet ® profitability
forecasting system,
Sabre ® StaffAdmin™ employee
tracking and assignment system,
Sabre ® StaffManager™ automat-
ed staff allocation system,
Sabre ® StaffPlan™ staff forecast-
ing and planning system,
Sabre ® TransVision ® traffic flow
analyzer,
Sabre ® Travelcard Pro™ billing
and marketing information
access system,
Sabre ® Traverse™ loyalty
management system,
Sabre ® WiseVision™ sales
expansion system.
solutions, an ASP delivery method.
“The eMergo solutions team provided
us with a total-cost-of-ownership analysis
that showed the financial benefits that
could result if Sabre Airline Solutions
owned and managed the information
technology infrastructure required to
operate the Revenue Manager,” said
Alberto Chehebar, chief information offi-
cer for Aerolineas Argentinas. “Once all
the costs are considered, it is clear that
Sabre Airline Solutions can operate the
environment much more efficiently. On
top of that, the solution provided simpli-
fied, predictable pricing.
“With the eMergo solution, we
simply pay a flat monthly fee without
having to make any further investment
decisions,” Chehebar said.
As part of the upgrade to version
5.3 of the Revenue Manager, the airline
receives several key benefits, including:
An origin-and-destination process
mode that provides industry-leading
revenue management tools,
The ability to migrate from a manu-
ally intensive to a more automated
inventory control framework,
A migration from virtual nesting
revenue management controls to
true origin and destination controls
using a bid-price-based continuous
nesting framework.
The functionality of the new system
helps Aerolineas Argentinas maximize
its revenues by selectively accepting
and rejecting reservations requests by
O&D based on the value of the customer.
To ensure the airline received the
maximum benefits from the new version
of the system, the consulting team at
Sabre Airline Solutions helped train the
airline’s revenue management depart-
ment and presented the group with
ways to maximize revenue and the best
processes to support the system.
Aerolineas Argentinas recognized
the value of a hosted solution as a way
to achieve higher service levels in a more
cost-effective manner as compared to
operating the entire IT infrastructure
itself. A lower total cost of ownership,
however, was not the only benefit of
using the eMergo solution for its revenue
management software. Through the
eMergo environment, for example,
Aerolineas Argentinas receives automatic
product upgrades, which are installed
on the host systems and automatically
made available for customer access.
“The migration to the eMergo
environment, as well as the application
upgrade, involved very little effort from
our IT department,” Chehebar said.
By selecting the eMergo remote
access option, Aerolineas Argentinas’
personnel can focus on the key element
of their jobs, ensuring they meet the goal
of managing the airline’s growth.
David Endicott is vice president
for the eMergo solutions.
product product
For more information about the eMergo solutions, contact Jim Quilty,
director of marketing for the eMergo solutions, at 817 264 2906, or send
an e-mail message to [email protected].
The Simple SolutionsMore than 40 airlines worldwide utilize one or more of the following
applications via the Sabre® eMergo® Web-enabled and dedicated
network solutions:
News Briefs from Around the Globe
Who
Vinci Airport Services
What
Selected Sabre Airline Solutions’
resource management systems —
the Sabre ® StaffPlan™ staff forecasting
and planning system, the Sabre ®
StaffAdmin™ employee tracking and
assignment system, and the Sabre ®
StaffManager™ automated staff alloca-
tion system — to improve the manage-
ment of personnel across its worldwide
operations.
Under the agreement, Vinci Airport
Services, the world's leading independ-
ent provider of aviation services for
the aviation industry, will implement
the resource management tools for
its global airport operations at approxi-
mately 100 locations worldwide.
Vinci Airport Services operates as
Worldwide Flight Services in the North
American market.
Why
“At Worldwide, we have long dif-
ferentiated ourselves with the service
we provide to our airline customers and
their passengers. Implementing Sabre
Airline Solutions’ suite of resource
management tools will allow us to
further separate ourselves from our
competitors by delivering that same
high level of service at even lower
costs,” said Jean-Francois Gouedard,
president and chief executive officer
of Vinci Airport Services and Worldwide
Flight Services. “From our largest
stations with over 3,000 personnel to
many of our smallest operations, we
expect to improve our personnel utiliza-
tion through Sabre Airline Solutions’
tools, servicing more customers with
the lowest personnel cost possible.”
T H E H I G H L E V E Lvıew
Sixteen of the leading Asia/Pacific
carriers are putting their footprint
on e-commerce in the region.
With travelers in Asia/Pacific
following the U.S. trend of booking
travel online, the carriers have collec-
tively launched an online portal called
“ZUJI,” a Mandarin Chinese word that
loosely translates as “footprint.” The
site, which is a joint venture between
the Asia/Pacific carriers and Travelocity,
a Sabre Holdings company, is the only
one-stop site dedicated to Asia/Pacific
travelers. The site — which offers
inventory from thousands of airlines,
hotels and rental car companies —
enables travelers to easily search and
book the best values on flights, hotels
and rental cars.
ZUJI, which offers the region’s
most sophisticated online airfare search
engine, aims to become a world-class
Web site by providing its customers
with an efficient, user-friendly environ-
ment to plan and purchase travel online.
ZUJI draws upon Travelocity’s tech-
nology and experience in the U.S. market
and shares its resources across a large
geographic region. Chief Executive
Officer Scott Blume is focused on one
goal — making ZUJI the preeminent
online travel site in Asia/Pacific.
“Ours is the only online travel
portal with a regional network in
Asia/Pacific whose core business is
travel bookings in real time,” he said.
“To date, the ZUJI network comprises
customized, local language sites in
Australia, Singapore, Taiwan and Hong
Kong — allowing us access to over 30
million Internet users — with more sites
to come.
“We have taken world-leading tech-
nology and customized the offerings to
local markets,” he said. “This gives us
considerable benefits in terms of cost
of development and the ability to drive
revenue from that development across
multiple countries in the region. We
expect that by the end of 2004, almost
10 percent of travel bookings will be
made online in Asia/Pacific, and we
intend to be the leading portal in this
space in our part of the world.”
One of ZUJI’s unique strengths is
its ability to quickly bring special deals
and content to market.
“We offer an extremely compelling
proposition for our suppliers,” Blume
said. “We e-mail our members travel
deals that are tailored to match specific
interests, and we can mine our member
database to reach travelers who have
searched for specific destinations and
contact them directly with customized
and personalized e-mails. We can also
offer site real-estate promotional space
— all within a 24-hour timeline. It’s a
short, sharp way of moving product.
Additionally, through our distribution
alliances with Yahoo! and ninemsn,
we can access between 20 to 25 million
Internet users throughout Asia/Pacific
each month. It’s a very fast and effective
method of bringing deals to market.”
Sam Gilliland, president and chief
executive officer of Travelocity, agreed
speed to market is a key benefit to the
airlines that provide content for the site.
“It is exciting to see how the airlines
are embracing ZUJI as a competitive
tool with its ability to bring fares to
market quickly,” he said.
ZUJI, headquartered in Singapore,
conducted a soft launch with Web sites
in Australia and its home country in
2002. A full marketing push began in
August to build awareness and increase
the membership base. Even before the
push, however, the portal added sites
october 2003 63
Asia/Pacific Carriers Open a Portal
regionalAsia/Pacific
By Frank Fotea and Hans Belle | Ascend Contributors
Leading Asia/Pacific carriers team with Travelocity to launch the first region-wide online travel portal — ZUJI.
“We expect that by the end of 2004,
almost 10 percent of travel bookings
will be made online in Asia/Pacific,
and we intend to be the leading
portal in this space in our part of
the world.”
Scott Blume, chief executive officer for ZUJI, is positioning the Asia/Pacific travel portal, powered by Travelocity, to take advantage
of a growing trend in the region toward online booking.
A user-friendly graphical user interface makes it easy for travelers
to access the content of the ZUJI Web site, which includes
thousands of airlines, hotels and car rental companies.
One of the many exciting features of the portal is the Flight
Guru, which provides a host of search options for flights,
including alerting passengers of free stopovers and enabling
passengers to pre-select seats on certain flights.
Ph
oto
co
urt
esy
of
ZU
JI
regional
october 2003 65
As the worldwide airline industry
continues to undergo dramatic
changes, many experts and analysts
have spoken of a need for carriers to
consolidate their operations to increase
competitiveness.
While airline consolidation remains
largely an abstraction for much of the
world, in China it is already a reality.
Three years ago, the Civil Aviation
Administration of China announced
that it would merge 10 of the nation’s
airlines into three roughly equal groups
in order to strengthen the domestic
industry. Each group would be centered
on one of the nation’s three main carri-
ers: Air China, China Eastern Airlines
and China Southern Airlines.
Now, with its consolidation largely
complete, a restructured China Eastern
Airlines is poised to further raise its
profile on the international aviation
landscape and also to take advantage
of events such as China’s entry into the
World Trade Organization.
Through consolidation with China
Northwest Airlines and Yunnan Airlines,
Shanghai-based China Eastern has
“set off for a new future,” company
officials said.
Before the consolidation, the “huge
number, small size and lack of core competi-
tiveness” of the nation’s multiple domestic
carriers hampered the growth of China
Eastern and other Chinese airlines, the
company said. Consolidation has helped
China Eastern “achieve rapid expansion,
implement its business diversification
strategy and form new mainstay lines
of business, thus becoming the new
starting point for future expansion.”
Consolidating with two smaller
carriers has given the combined airline
the resources to compete more effectively.
As a result of the consolidation, China
Eastern has approximately 40 percent
of the domestic Chinese aviation mar-
ket. The combined China Eastern group
controls ¥47.3 billion (US$5.7 billion) in
assets, including 142 aircraft. The group
also has a combined 25,000 employees,
and it serves destinations throughout
China as well as Asia, Europe, America
and Australia.
By 2005, thanks to consolidation,
the airline predicts it will have 180 large-
and medium-sized passenger and cargo
aircraft generating ¥24 billion (US$2.9
billion) in revenue.
in late 2002 in Taiwan and Hong Kong,
and it is looking to add sites in Korea,
Malaysia, Brunei and New Zealand in
the next several months. ZUJI officials
said the response to the soft launch
indicated that Asian markets are ready
to embrace online travel. Once the
effects of the conflict in Iraq and the
outbreak of severe acute respiratory
syndrome diminished, the portal’s book-
ing levels quickly increased, exceeding
pre-SARS levels.
“We’re seeing more and more trav-
elers choosing to book and buy flight,
hotel and car rental content from ZUJI,
and we anticipate that this trend will
continue,” Blume said. “We’ll soon
reveal a new hotel booking path, which
has been designed and developed in
conjunction with Abacus. We have a
dedicated commitment to constantly
improving the site and ensuring our
customers have the best technology
and travel tools in Asia/Pacific.
“We are not only actively building
a regional network, but a strong and
compelling brand, which features our
‘Travel Guru’ personality,” Blume said.
“We’re experiencing consistent growth
in all of our markets.”
ZUJI’s travel tools are designed to
enhance the customer experience. Its
“Price Guru” tool is a customized fea-
ture that allows members to select five
preferred destinations and to be notified
via an automated e-mail message or on-
site updates when a flight to a specific
destination meets a pre-set price criteria.
This gives ZUJI members the advantage
of being the first to know about inven-
tory-controlled promotional deals.
“The outcome is ‘win-win,’” Blume
said. “Our members learn of deals to
places they are interested in traveling
to, and suppliers have access to a
targeted audience.”
Combining the expertise of the
region’s leading airlines and Travelocity
enabled ZUJI to overcome a number
of challenges, including the region’s
multiple languages, currencies and local
laws. ZUJI worked with Travelocity’s
Sydney-based development center to
create country-specific sites in native
languages using local currency with
secure transactions through VeriSign
Payflow. To date, ZUJI offers sites in
three languages (including two varia-
tions of Chinese) utilizing four Asian
currencies. ZUJI also has adapted to
the local markets, which have different
levels of development and infrastructure
to support e-commerce, such as the
penetration levels of credit cards and
costs of Internet access.
The state-of-the-art net fare booking
engine, powered by Travelocity, was also
developed specifically for the region.
Gilliland said the partnership holds
great promise for the future.
“Travelocity pioneered the online
travel space, and we have more than
seven years’ experience in the world’s
most competitive online travel market —
the United States,” he said. “We have
learned that success in this industry
is driven by continuous investment in
technology and the customer experience,
focused marketing and distribution,
and great value content. ZUJI has
these ingredients.”
The unequaled ZUJI sites built by
Travelocity have met the unique needs of
the Asia/Pacific marketplace. Travelocity
quickly realized it could not merely
transplant technology and business
systems from the United States without
finding innovative ways to address the
region’s unique landscape. ZUJI, with
the knowledge and support of the
region’s leading airlines and unmatched
technology from Travelocity, is uniquely
positioned to meet the challenges of
providing online service to the region’s
traveling public.
Frank Fotea is Travelocity’s
vice president Asia/Pacific.
Hans Belle is vice president of
marketing, Asia/Pacific
for Sabre Airline Solutions.
regional
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Capitalizing on Consolidation
Sweet SixteenSixteen leading Asia/Pacific airlines have
joined with Travelocity to form ZUJI, a
one-stop travel portal for the region:
All Nippon Airways
Cathay Pacific Airways
China Airlines
EVA Airways
Garuda Indonesia
Dragonair
Japan Airlines
Japan Air System
Malaysia Airlines
Northwest Airlines
Philippine Airlines
Qantas Airways
Royal Brunei Airlines
SilkAir
Singapore Airlines
United Airlines
By Hans Belle and
Peter Wu | Ascend Contributors
After its merger with two smaller airlines, a larger, more competitive China Eastern Airlines looks to draw on its new strengths to become a more dynamic factor in the world airline industry.
“We are not only actively building
a regional network, but a strong
and compelling brand ….”
“The outcome is ‘win-win.’ Our
members learn of deals to places
they are interested in traveling
to, and suppliers have access to
a targeted audience.”
Executives from China Eastern Airlines and Sabre Airline Solutions announce an
agreement for the airline to use the technology provider’s flight operations suite
to help integrate its airline operations center.
Asia/Pacific
“As a result of the consolidation,
China Eastern has approximately
40 percent of the domestic Chinese
aviation market.”
While much of the airline industry
continued struggling in 2002 to
cope with the lingering effects of the
severe economic downturn, Russian air
transportation bucked the trend thanks
to an expanding economy that enabled
more travelers to take to the skies.
For the second consecutive year,
Russian carriers overall reported profits
as well as growth in the numbers of
passengers boarded. For the year,
revenues per kilometer in the Russian
market were up 7 percent to US$64.5
billion, passengers boarded increased
6 percent to 26.5 million and cargo
volume increased 3 percent.
The positive trend is also expected
to continue — the country’s Civil Aviation
State Services says the aviation crisis
in Russia is over, projecting that the
industry in 2003 will grow between 5
percent and 10 percent, continuing to
build on the about 10 percent growth
in 2002.
So, how have the Russian carriers
managed to excel during a time when
the rest of the industry has battled to
keep its head above water?
One of the main advantages
enjoyed by Russian carriers is the
country’s continuing emergence into
a free marketplace. After years of
stagnation under the Soviet-planned
economy and a decade of adjusting to
a free market, real incomes of Russians
are increasing and the Russian middle
class is growing.
The continued move toward an
open economy gives Russia an underde-
veloped market with enormous potential.
Analysts estimate the potential Russian
air travel market at 90 million passengers
boarded, although only 26.5 million, just
29 percent of the total potential market,
were boarded in 2002. Because air travel
is still seen as somewhat of a luxury
in Russia, many people have yet to
discover its convenience. Yet, the average
middle-class Russian has similar prefer-
ences for travel as his or her Western
European counterpart, indicating that
the growth of this segment will likely
mean an increasing demand for travel,
particularly air transportation.
The move to a free economy
caused an explosion in the number of
carriers operating in Russia. However, the
past few years have seen consolidation
within the industry — the number of
airlines declined from a high of 393 in
1994 to 235 in 2002 — as some airlines
acquired smaller carriers, some went
bankrupt and some were unable to meet
more stringent licensing requirements
implemented by the country’s Civil
Aviation State Services. In 2002, the
five largest airlines controlled 48 percent
of the market and the top 25 carriers
controlled 80 percent.
66
regional
ascend
China Eastern said it sees the
merging of the Chinese aviation indus-
try as an opportunity to “build an air
transportation system of core competi-
tiveness; realize rapid, sustained and
healthy growth; improve market com-
petitiveness quickly; fully participate
in international competitions; and
establish a world-recognized brand
in the air transportation industry.”
As part of its growth strategy, China
Eastern plans to improve the profitability
of its home Shanghai marketplace.
The airline also plans to concentrate
domestically on Shanghai, Beijing and
Guangzhou while further developing the
Xian and Kunming markets. The airline
also plans to strengthen international
routes and develop cargo transport lines
in Hong Kong as well as other parts of
Asia, Europe and the United States.
The airline group also plans to
pursue a diversification strategy that
incorporates importing/exporting,
financial services, hotels and tourism,
and air catering.
As it prepares itself to compete
domestically and internationally, China
Eastern plans to standardize its fleet
planning, marketing strategies, services,
training and maintenance across the
organization.
In conjunction with its new stan-
dardization strategy, the China Eastern
group has invested in new technology,
including decision-support tools to
help integrate its systems operation
control center.
China Eastern announced in April
that it would integrate its flight opera-
tions into an airline operations center
in order to improve efficiency, improve
communications among departments
and enhance the airline’s ability to
respond to irregular operations.
Captain Wu, Yu Lin, senior vice
president at China Eastern, said the inte-
grated AOC will streamline operations,
enabling the airline to compete more
effectively in the consolidated Chinese
aviation marketplace.
“Our ultimate aim is to reduce
reporting lines in order to drive cost
reduction,” Wu said. “We expect
this to be achieved by the continued
improvement of our operations
and the reduction in our aircraft
utilization costs.”
The AOC will integrate the airline’s
flight scheduling, flight planning,
crew rostering, payload and dispatch
departments, which will work seam-
lessly through an integrated suite of
software provided by Sabre Airline
Solutions, including Sabre ® AirOps™
Movement Manager, Sabre ® AirOps™
Dispatch Manager and Sabre ® AirOps™
Load Manager.
By using integrated systems, China
Eastern will streamline data entry,
data management and data integrity,
resulting in superior operational control.
Before integration, China Eastern main-
tained several systems, which often
resulted in the duplication of tasks to
accommodate each individual tool.
Integration will also benefit the airline
during irregular operations, helping
it efficiently return to its published
schedule as quickly and cost-effectively
as possible.
The operational heart of the airline,
the AOC includes the airline’s movement
control, flight planning, flight tracking,
load planning, meteorological function
and data integration departments.
Announced in April, the contract
with China Eastern Airlines brings to
five the number of carriers in the region
utilizing Sabre Airline Solutions for
integrated operations centers. Other
carriers include Cathay Pacific Airways,
China Southern Airlines, Air New
Zealand and Virgin Blue.
Hans Belle is vice president of
marketing, Asia/Pacific.
Peter Wu is a Beijing-based account
director for Sabre Airline Solutions.
regional
october 2003 67
Europe, Middle East and
Africa
From Russia, With Success
Despite an industry-wide downturn, a growing market and innovative practices have helped Russian carriers maintain growth and profitability.
By Inna Kizenkova | Ascend Contributor
As Russia continues to emerge into
a more open economy, the nation’s
airliners are benefiting from the change.
For the year, revenues per kilometer
in the Russia market are up 7 percent,
passengers boarded are up 6 percent
and cargo volume is up 3 percent.
As part of a government-ordered consolidation, China Eastern Airlines joined with two
other carriers — China Northwest Airlines and Yunnan Airlines — to form one of the
three largest carriers in China.
“The continued move toward an
open economy gives Russia an
underdeveloped market with
enormous potential.”
But beyond the natural market
growth, Russian carriers have
excelled by taking aggressive and
innovative approaches to expand their
businesses.
Many of the nation’s leading air-
lines have targeted financially troubled
but strategically positioned airlines
for takeover, enabling them to grow
through mergers and acquisitions.
Siberia Airlines, for example, increased
its passengers boarded by 41 percent
— to 2.69 million — in 2002 in part
by acquiring Moscow-based Vnukovo
Airlines. The rest of the industry
increased its passengers boarded
by only 6 percent. Siberia, founded
in 1992, also has signed interline
agreements with British Airways
and Japan Air System.
One of the largest domestic
airlines in the Russian Federation,
Siberia has also taken steps to
improve its customer service,
increase aircraft utilization and
boost its on-time performance.
The airline, which in the first half
of 2003 increased its flights by 8 percent
and carried 18.4 percent more passen-
gers, offers amenities such as free
transportation from the airport to
downtown Moscow for passengers
on certain flights. Such efforts helped
the airline become the first Russian
carrier to earn a Flight International
Aerospace Award for corporate strategy,
which recognizes companies for alliances,
mergers, restructuring programs and
other business strategies that have
reshaped or revitalized the industry,
turned around a company or opened
significant new markets.
The airline also modified its ticket
return and change policy to be more
customer-focused, introducing a less
restrictive policy regarding exchanges
and returns of tickets for trips in Russia
and the Commonwealth of Independent
States. For example, certain tickets that
are popular among business and sum-
mer leisure travelers can be returned
up to three hours prior to departure
with only a 15 percent fee rather than
the standard 25 percent. This policy is
aimed at increasing the loyalty of leisure
travelers during the highest demand
season. To also appeal to frequent
flyers, the airline launched Sky Seven,
an incentive program for loyal repeat
customers offering points that can be
used for free flights, service upgrades
and other benefits.
Although the Russian market
presents several obstacles to the
standard low-cost carrier model — the
lack of fuel-efficient aircraft, secondary
airports and Internet ticket sales —
Siberia is looking to fill the low-cost
niche by offering no-frills, short-haul
flights for lower fares ranging from
US$10 for economy class to US$80
for business class.
The airline has begun experimenting
with no-frills service on its 40-minute
Nizhny-Novgorod to Moscow flight,
targeting business travelers who usually
make the 420-kilometer journey by train.
The airline expects to earn US$1million
annually from the route.
Along these same lines, the airline
is trying to boost its load factors through
innovative programs, including a special
offer of US$5 tickets from Nizhny-
Novgorod to Moscow for passengers
connecting there to one of Siberia’s
international flights.
The airline whose name
was synonymous with air
travel in Russia during the days
of the Soviet Union, Aeroflot
Russian Airlines, has also taken steps
to capitalize on the growing desire for
air travel. As a flagship carrier for the
nation, Aeroflot still has the largest
overall market share at 21 percent. The
airline, established in 1994 as the
successor to the Soviet airline
formed in 1923, inherited a large
fleet, customer base, brand equity and
network from its predecessor. But this
was a mixed blessing.
The fleet was outdated, with
the majority of aircraft unable to meet
International Civil Aviation Organization
technical standards, and the airline’s
reputation for safety and customer serv-
ice lagged its western counterparts.
Aeroflot, however, recently
launched a US$250 million fleet renova-
tion initiative, including the addition
of several western jets. By December
2005, Aeroflot’s fleet will include 18
Airbus A319/A320s, nine Boeing 767s
and 50 Russian-made aircraft. And the
airline is also revamping its network
to be more efficient. In the days of the
Soviet Union, the government would
greatly subsidize unprofitable routes
regional
simply to maintain an international
presence. Faced with fierce competition,
Aeroflot has cut the most unprofitable
routes, even though it resulted in a
drop of 342,000 passengers. Despite
that drop, the airline’s profits actually
increased from US$8.6 million in 2001
to US$74.2 million in 2002, and the
airline projects a US$100 million profit
for 2003.
The airline also projects its load
factor will increase from 68.8 percent
in 2002 to 70 percent. Aeroflot Deputy
General Director Lev Koshlyakov has
said the carrier expects passenger
numbers in 2003 to rise about 5 percent,
a total of 250,000 to 260,000. He also
said that in addition to restructuring
the fleet and reducing lease costs, the
airline’s next step would be to use
more economic planes to reduce
spending on fuel.
In addition to renovating its
fleet and route network, the airline’s
long-term strategy includes:
Reducing aircraft leasing costs,
Adding and enhancing information
technology,
Optimizing its resources,
Rebranding the airline,
Improving customer service.
And the airline, which plans to join
the Sky Team global alliance this year,
is even using its frequent flyer program,
Aeroflot Bonus, to reward travel agents
who book flights on the airline.
One of the nation’s oldest airlines,
dating back 70 years, Pulkovo Aviation
Enterprise increased its passengers
boarded by more than 2 million, 10.2
percent, in 2002. The airline, 100 per-
cent owned by the federal government,
uses only Russian-built aircraft and is
the largest airline in the northwestern
region of the country. The enterprise,
which also operates Pulkovo Airport
in St. Petersburg, offers a special
“transfer” program for its customers
traveling across Russia and abroad.
Participants receive a 20 percent to 40
percent discount for domestic flights
and up to 30 percent discount on
international flights connecting
through the airline’s hub at the
Pulkovo Airport.
As the Russian airlines have
adapted to the rough and tumble airline
industry, they have taken great strides
toward becoming globally competitive.
The nation’s carriers are taking the
industry’s best practices and giving
them a Russian flavor, customizing
them to meet their unique needs.
Their growth during the past two years
reflects their experience, knowledge
and determination to win in the Russian
market and be a significant player
on a worldwide scale.
Inna Kizenkova is a member of the
Sabre Airline Solutions Marketing
Strategy and Services group.
regional
ascend68
Russia
Siberia Airlines is experimenting with
a low-cost offering on its Nizhny-
Novgorod to Moscow flights. The
airline expects to earn US$1 million
annually from the route.
News Briefs from Around the Globe
Who
Chicago Express
What
Successfully introduced a system to
enable online preferential bidding for
more than 200 flight crewmembers.
Crews submit scheduling preferences
via the Internet each month. These pref-
erences are entered in a proprietary lex-
icon and can include specific days off,
generic days off (weekends, for exam-
ple), specific trip assignments, generic
assignments (long trips, short trips or
specific layover cities) or daytime con-
siderations (no early starts or late
returns).
Why
Using the PC-based preferential
bidding system, a part of the Sabre ®
Flight Control suite for small- , medium-
sized and low-cost airlines, Chicago
Express ensures that crews are
assigned duties to which they are fully
qualified and which do not conflict with
other non-flying activities, such as train-
ing and vacations. The introduction of
preferential bidding is part of an overall
plan for automating Chicago Express’
systems operations control functions
using the Flight Control suite.
“Preferential bidding has been a
useful tool in our continuing commit-
ment to improving on crewmembers’
quality of life while enhancing our oper-
ational efficiency,” said Captain Scott
Hall, vice president of operations for
Chicago Express.
T H E H I G H L E V E Lvıew
+count it up 1,266 — Elevation, in feet below
sea level, of the I Bar Yehuda Airport
in Israel, one of the world’s lowest alti-
tude airports.
14,219 — Elevation,
in feet above sea level, of the
airport in Bangda, Tibet, one
of the world’s highest altitude
commercial airports.
regional
call center channel, streamline
processes and automate manual
tasks. The system is the industry’s
only fully integrated solution designed
to support every passenger interaction
from shopping for preferred itineraries
to the post-travel experience.
The Sabre ® Qik™ business processing
solutions dramatically simplify the
reservations call process and enable
agents to operate more productively
and with less training through the
elimination of lengthy keystrokes and
format memorization. The real-time
graphical user interface provides
seamless and simultaneous access to
data from computerized reservations
systems, the Internet, external data-
bases, telephone and voice recognition
systems, and facsimile machines.
Mobile services available from Sabre
Airline Solutions provide an automated
voice response system that generates
cost efficiency for the call center. Gulf
currently uses the mobile services
for short messaging service and plans
to use voice-over Internet protocol
telephony to route calls from around
the world into the contact center.
Interactive voice response, such as
that provided by the mobile services,
enables customers to pre-select the
language in which they wish to con-
verse with the reservations staff and
enable the call to be directed to a
suitably qualified representative
according to the nature of the call.
The mobile services also dynamically
monitor all transactions, including
recording of all calls, to facilitate
measurement of service quality.
Computer telephony integration
enables the contact center system to
recognize the customer’s telephone
number and populate the reservations
agents’ computer screens with cus-
tomer-specific data (name, address,
service preferences) to speed up
call processing time and enable per-
sonalized service.
The center’s flexible technology
can also be adapted and sized to suit
changing market circumstances with
new products and services.
The IP Contact Center leverages
voice-over IP technology and offers
great flexibility in services and in number
of agents deployed. The solution enables
agents to dynamically connect and work
from any location while providing a
seamless customer experience and
quality of service.
The center’s design and technology
enable customers to contact the airline
by the method with which they are most
comfortable, whether telephone, e-mail,
Web chat or SMS. The airline anticipates
that the bulk of contacts will be made
by telephone during the first few years
of operation, although it anticipates
other forms will eventually become
more prominent.
The contact center will support
Gulf Air, Gulf Traveler (the all-economy,
full-service subdivision of Gulf Air),
Gulf Air Holidays, the frequent flyer
program and customer relations
with specialists also handling travel
agency queries, baggage inquiries
and staff travel.
The new center reflects Gulf Air’s
business goals and will enable the
airline to provide the world-class cus-
tomer service expected of a modern
world-class airline. The center is part
of Gulf Air’s Project Falcon, a three-year
strategic recovery program designed
to revitalize the airline and help it build
on its cultural strengths, history and
strategic partnerships.
“We are on target with our Project
Falcon recovery to meet our year-end
targets,” said James Hogan, president
and chief executive of Gulf Air. “Focusing
on our objective to be a commercially
successful, world-class airline, this
bold and disciplined process of change
will continue.”
Raida Abumaizar is the Bahrain-based
account director for Gulf Air.
Tariq Sultan is vice president of
information technology for Gulf Air.
Looking Through the “Contact” Lens
ascend70
Gulf Air, the premier pan-Persian
Gulf carrier owned by the countries
of Bahrain, Oman and United Arab
Emirates, last month opened a US$40
million World Wide Contact Center,
which will consolidate all its reservations
activities, including bookings, ticketing
and customer service. Airline officials
anticipate that the center will also
improve sales and customer service.
According to Andrew Dawson,
head of reservations for Gulf Air, “This
new venture will give us the opportunity
to offer all of our customers worldwide
a consistent, world-class service, around
the clock. We are using the very best
technological solutions available for
telecommunications and reservations
service; our staff are enthusiastic and
raring to go. Our customers will be
both surprised and delighted.”
By bringing together these opera-
tions, the airline will be able to centralize
the management of its customer rela-
tionships, helping the carrier reach
its goal of becoming more customer-
centric. When fully staffed, the new
center, located in Muscat, Oman, will
employ more than 300 local residents
as well as the latest communications
technology. Before the center opened,
the airline’s reservations operations
were scattered across more than 50
separate locations, many of which were
too small to justify the deployment of
sophisticated technology.
In developing the center, Gulf Air
has teamed with leading technology
providers, including Public
Establishment for Industrial Estates —
Oman, Omantel, Cisco, Hewlett-Packard
and Equant. In addition, the center
also uses several tools from Sabre
Airline Solutions:
The Sabre ® Passenger Reservation
System provides a comprehensive
and easy-to-use product suite that
will help increase sales through the
Europe, Middle East
and Africa
Gulf Air opens a new US$40 million call center that will help its customers stay in better contact with the carrier.
By Raida Abumaizar and Tariq Sultan | Ascend Contributors
“Before the center opened, the
airline’s reservations operations
were scattered across more than
50 separate locations, many of
which were too small to justify
the deployment of sophisticated
technology.”
Ph
oto
co
urt
esy
of
Gu
lf A
ir
As part of its initiative to increase customer service, Gulf Air, the flag carrier of Bahrain, Oman and the United Arab Emirates, has
consolidated its reservations activities into a single call center.
an integrated approach is not only bene-
ficial during tactical planning but also
during strategic planning. Based on
this, airlines have started to explore
dynamic scheduling concepts that lever-
age revenue management information
for near-term fleet assignment decisions,
such as demand driven dispatch.
Airline Integrated Recovery
The research group supporting
Sabre Airline Solutions has developed
a decision-support framework that
addresses schedule recovery both in the
context of an individual carrier and a
global alliance. The airline integrated
recovery concept incorporates aircraft
maintenance routing, crew rescheduling
and the impact of schedule changes
on passenger flow. Integrated recovery
consists of the schedule recovery model
to suggest necessary flight cancellations
and delays, the aircraft recovery model
to assign new aircraft routings, the crew
recovery model to assign new crew
pairings and the passenger flow model
to evaluate the impact on passengers.
These models have been developed to be
compatible with Sabre Airline Solutions’
existing portfolio of flight operations
and crew management products. The
research group, using advanced mathe-
matics, has formulated airline integrated
recovery to obtain near real-time perform-
ance for reasonably sized problems.
Taking Care of the Passenger
Re-accommodating passengers
during schedule irregularities is critical
for an individual airline, as well as a
global airline alliance. An alliance’s
system network consists of multiple
hub airports that allow individual airlines
to offer passengers alternative itineraries
on their partner carriers. Journey man-
agement is based on concepts from the
passenger flow model. The output of the
passenger flow model is used to assign
alternative itineraries to disrupted passen-
gers based on a priority list determined
by the airline. In practice, airlines may
need to offer a passenger an alternative
other than the one that benefits it the
most. When a flight is cancelled, the
re-accommodation tool will retrieve
passenger name record data from a
reservations system, such as the Sabre ®
Passenger Reservation System, as well
as information on available inventory
in replacement flights. The re-accommo-
dation system prioritizes passengers,
gives them a revised itinerary, updates
their PNRs in the Passenger Reservation
System or another global distribution
system, and then electronically notifies
passengers of their new schedule using
the notification tools of the reservations
system. The system would actively
monitor the status of each scheduled
flight to ensure that passengers were
not assigned to later flights that were
companycompany
ascend72
Getting Back on Track
There is seemingly no end to the
factors that can adversely affect an
airline’s schedule: inclement weather,
mechanicals, labor actions, excessive
passenger volumes, air traffic control
issues. With so many potential areas for
disruption, it’s amazing that only a small
portion — 10 percent in some regions
— of an airline’s scheduled revenue
flights are affected by irregularities.
When disruptions occur, the meter
starts running as airlines incur costs
for lost revenue, crew overtime and pas-
senger hospitality, not to mention the
impact of disgruntled passengers. When
the financial impact of disruptions on
the daily operations of a major U.S. net-
work carrier can exceed US$400 million
a year, it is vital that airlines return to
the normal schedule as quickly and
cost-effectively as possible. Of equal
importance is the impact on the carrier’s
brand and customer goodwill, both of
which are quite difficult to measure.
According to a recent study by the
George Washington University Aviation
Institute and Flight Safety Technologies,
airlines can benefit significantly by
reducing the impact of disruptions.
For an airline with operational costs
of US$70 per minute with 1,500 flights
per day, cutting one minute of delay per
flight per day can save US$38 million
a year, the study showed. Further, if an
airline can avoid one diversion per week,
it could save from US$1.1 million to
US$4.6 million a year.
In the aftermath of irregularities,
the schedule recovery process at many
airlines consists primarily of assigning
spare operational aircraft to scheduled
flights in order to reduce or eliminate
disruption with the briefest delay. These
operational spares are an expensive
proposition as their utilization is low
given their requirement to remain in
standby mode at the appropriate hub
or predominant airport. When faced
with schedule disruptions, many airlines
still tackle the situation manually or at
best, through a semi-automated process
using basic rules devised by the experi-
enced scheduler. Recent advances in
mathematical programming and com-
puter processing speed now enable users
to deploy decision-support tools to solve
real-time problems that are time sensi-
tive such as schedule recovery.
Solutions on the Horizon
Although progress has been made
in the area of schedule recovery, airlines
have been slow to embrace optimization-
based decision-support systems designed
to assist with real-time planning. The
resistance stems from a variety of fac-
tors ranging from the complexity of the
underlying problem to the intricacies
necessary to recover from the disrup-
tion. Airlines have traditionally been
divided into functional groups based
on a particular resource such as aircraft,
crewmembers and passenger services.
In the past, decision-support systems
have been designed to handle one
resource, concentrating exclusively on
that area without considering auxiliary
factors during decision making. Because
they have not been able to consider all
factors, such systems have been unable
to deliver a truly optimum solution,
causing operations control center
personnel to shy away from relying
on them to help recover from schedule
interruptions.
Researchers believe an integrated
approach that transcends the typical
airline’s traditional organizational struc-
ture provides the most effective way to
handle schedule recovery. This is based
on the premise that optimizing in a
holistic fashion yields greater results
than optimizing smaller subsets and
subsequently trying to integrate the
sub-optimal solutions. In essence, an
airline really is a collection of inter-related
networks — aircraft, crew, passengers,
freight — all connected by scheduled
flights that reside at the core. Events in
one network will impact the others, thus
the solution can only be truly optimized
by addressing the impact of each indi-
vidual planning problem on other areas.
During the last 15 years, airlines have
identified the need to become more
integrated, sharing information and
decision making across the organization.
It has become evident to airlines that
Researchers have developed new solutions to help airlines recover from off-schedule operations.
By Michael D. Clarke | Ascend Contributor
Through an integrated airline schedule
recovery system, passengers can be
automatically notified when they are
affected by delays or cancellations,
saving them from having to search for
their new itinerary.
News Briefs from Around the Globe
Who
Atlantic Coast Airlines
What
Selected the Sabre CrewClass training
schedule system, a module within the
Sabre ® Flight Control suite for small- ,
medium-sized and low-cost airlines, to
meet its pilot training requirements.
Why
The module helps optimize pilot
training scheduling to maximize utiliza-
tion of training resources while mini-
mizing the time that pilots are unavail-
able for productive flying assignments.
Atlantic Coast, a fast-growing
regional airline based at Dulles,
Virginia, has experienced rapid growth
while at the same time introducing new
regional jet aircraft to its fleet. The PC-
based CrewClass module, which inte-
grates seamlessly with other modules
of the Flight Control suite, has greatly
streamlined the training scheduling
process.
T H E H I G H L E V E Lvıew
company
ascend74
It’s no secret that the airline industry
is experiencing pressures due to the
difficult economic environment and the
resulting changes in consumer behavior
and attitude toward travel. Although
airlines around the world are acutely
aware of the need to lower costs and
increase revenue, United Airlines is
particularly focused on improving its
bottom line by using advanced tech-
nology to achieve its goals.
A component of its successful strat-
egy has been to utilize a variety of Sabre
Travel Network products to effectively
manage ticket distribution and other
operating costs as well as capitalize on
revenue-generat-
ing opportunities.
Turnkey solutions
contributing to
this strategy
include the Sabre ® Direct Connect
Availability SM —Three-Year Option, mar-
keting information data tapes from the
Sabre ® Global Distribution System and
Sabre® Aggregate Ticket Control Number.
United aggressively distributes
tickets and targets sales through chan-
nels that produce the highest revenue.
Participating in the Direct Connect
Availability option enables United to offer
its customers access to all published
fares, including Web fares, through the
travel agency channel. The Direct Connect
Availability option also helps United gain
market share in routes where there is
heavy competition and sensitivity to
price. This approach increases its sales
opportunities and reduces the time it
takes for travel agents and consumers
to shop for and purchase United’s best
deals. The three-year option also reduces
United’s cost of ticket distribution by
providing it with a fixed, discounted
fee for the next three years. Through
the program, United receives discounted
booking fees in exchange for participat-
ing at the highest level in the Global
Distribution System and providing
access to its full fares and content.
At the highest connectivity level, United
is provided with a wide range of services
to market and sell flight and fare infor-
mation to approximately 56,000 Sabre
Connected SM travel agents around
the world.
United’s use of MIDT is another
effective tool that sharpens its competi-
tive edge, maximizes market potential,
develops meaningful sales incentive
plans and improves overall operations.
MIDT provides United with vital sales
intelligence including sales sources and
its position in the marketplace relative
to the competition. This tool provides
key transaction data enabling United to
analyze booking levels and competitive
market share.
Utilizing the latest innovation from
Sabre Travel Network, Aggregate TCN,
United now has insight to the full spec-
trum of fares and the prices consumers
are willing to pay for any given itinerary.
Aggregate TCN is the only source for
company
october 2003 75
The Winning Combinationalready cancelled. Based on centralized
planning and decision making, while
leveraging the benefits of local, decen-
tralized action, the integrated recovery
method brings together the best of both
worlds. In effect, decisions made at the
airport would be driven by the central-
ized airline operations control center
such that a global approach is taken
to re-accommodate passengers.
The Tools for the Job
The Sabre Airline Solutions product
development teams in conjunction with
the research group have been working
closely together to develop the fully
integrated schedule recovery system.
As a precursor to the final integrated
recovery product, decision-support
functionality has been incorporated into
several products, including the Sabre ®
AirOps™ Control suite, the Sabre ®
Flight Control suite for small- , medium-
sized and low-cost airlines and the Sabre ®
AirCrews™ crew management system.
The AirOps and Flight Control suites
include a real-time flight operations
management and movement control
system designed to monitor an airline’s
operations and provide alerts for potential
maintenance and operating constraint
violations. The AirCrews system includes
a day-of-operations module designed to
assist crew trackers with managing the
impact of schedule changes and disrup-
tions on crew scheduling. Sabre Airline
Solutions has introduced the Sabre ®
AirOps™ Decision Manager — a decision-
support tool that incorporates the sched-
ule recovery, aircraft recovery and pas-
senger flow models. The system helps
airlines find new aircraft assignments
that have the least impact on the current
schedule and are maintenance feasible.
It is available as a supplemental product
for Sabre ® AirOps™ Movement Manager
as well as the Sabre ® FliteTrac system
and can be seamlessly integrated with
both the AirOps suite and the Flight
Control suite.
The Sabre ® AirOps™
Reaccommodation Manager optimally
re-assigns passengers whose flights
have been disrupted. The system
values each passenger according to
user-defined criteria such as frequent
flyer status, fare paid or class of travel,
prioritizing the passenger list based on
calculated values to create alternative
itineraries. The system’s automated
alert process notifies passengers of
their new itinerary. Because the system
simplifies the process of moving
misplaced passengers and minimizes
schedule changes, customer service
and loyalty is enhanced. And automat-
ing the re-accommodation process
also reduces costs. At the core of
Sabre Airline Solutions’ suite of pas-
senger re-accommodation tools is the
Passenger Reservation System. The
system provides the necessary flexibility
to accommodate passengers by flight
leg or origin and destination. This
enables airlines to take the passenger’s
entire itinerary into consideration
when selecting alternative flights for
re-accommodation. The automated
process is entirely table-driven and
user-defined, taking into consideration
variables such as booking class (high-
versus low-yield), down-line connections,
passenger profile (unaccompanied
minors), frequent-flyer-tier level,
ticketing status, boarding pass status
or others depending on the airline’s
preference.
Pushing Technology Forward
Most technology solutions in sched-
ule recovery focus mainly on optimizing
the disrupted schedule by minimizing
operational disruption. Although helpful,
this approach seldom considers the
commercial variables in formulating
the optimized solution. An optimized
solution considers factors such as
passenger mix (high- versus low-yield
passengers) on re-directed flights,
degree of competition on the route
(passengers’ choice of airlines) and
route and flight profitability. As these
new scheduling concepts are embraced
by decision-support vendors and sub-
sequently airlines, they will improve
the existing business processes and
practices. Schedule disruptions cannot
be eliminated, but they can be optimally
managed. As researchers continue
to push technology, airlines will have
more sophisticated tools to minimize
the effects — and costs — associated
with irregular operations. The future
mission of the airline operations
research community will be to deliver
next-generation scheduling and plan-
ning tools that meet the prevailing
needs of the industry and offer further
opportunities for improved efficiencies,
enhanced productivity and increased
attention to the impact on the airline’s
passengers.
Michael Clarke is a research
and development lead in
the research group supporting
Sabre Airline Solutions.
By Erin Buth | Ascend Contributor
United Airlines successfully utilizes multiple Sabre Travel Network distribution products to maximize revenue-generating opportunities and manage distribution costs.
“Lowering distribution costs is a key
component of our strategic plan to
reduce expenses.”
The airline integrated recovery model
incorporates various departments
within an airline to develop a more
optimal solution to recover from
schedule disruptions.
Through the Direct Connect Availability — Three-Year Option, United Airlines offers
its customers access to all published fares, including Web fares, through the travel
agency channel.
Ph
oto
s co
urt
esy
of
Un
ited
Air
lines
company
competitive fare data allowing United
to monitor its own pricing initiatives
against what its competitors are selling
in the same markets. The system pro-
vides airlines with all ticketing activity
in the Global Distribution System
excluding passenger personal data,
corporate, agency and commission-
related elements. The system is an
affordable element of marketing
research that provides insight into
how United’s advance sales compare
to that of the competition. The data
is invaluable for making decisions on
pricing promotions and viewing how
the market is selling.
“Lowering distribution costs is a
key component of our strategic plan
to reduce expenses,” said Greg Taylor,
senior vice president of planning for
United. “We saw the opportunity to
use a variety of Sabre Travel Network
products to accomplish this while
continuing the highest level of service
to our customers.”
By utilizing multiple tools, United
has been able to maximize revenue-
generating opportunities and manage
distribution costs, enabling it to sustain
long-term cost benefits.
Erin Buth is a sales marketing manager
for Sabre Travel Network.
News Briefs from Around the Globe
Who
American Airlines, Continental
Airlines, Delta Air Lines, Northwest
Airlines, United Airlines
What
Elected to participate in the Sabre ®
Direct Connect Availability SM — Three-
Year Option, which commits the carriers
to a three-year term at the highest level
of participation in the Sabre ® Global
Distribution System in exchange for a
reduced booking fee rate that is fixed
for three years. As part of the agreement,
the airlines will provide all published
fares, including fares they sell through
their own or third-party Web sites, to
all users of the Global Distribution
System, including more than 56,000
Sabre Connected SM online and offline
travel agencies. The program now
includes bookings made in the United
States, U.S. Virgin Islands, the
Caribbean and Europe.
Why
American — “Lower distribution
costs plus broader availability of our
fares to the largest subscriber base
means Sabre DCA is a real winner
for American,” said Craig Kreeger,
American's vice president-sales.
“Innovative solutions for today’s
marketplace make Sabre Travel
Network our preferred GDS provider.”
Continental — “Providing travelers
the maximum level of customer serv-
ice is the highest priority for us,” said
Jim Compton, senior vice president
of marketing for Continental Airlines.
“This program improves our ability
to do that by offering customers access
to all published fares, including Web
fares. It also helps us meet a key
business objective to further reduce
distribution costs. We recognize the
effectiveness of the Global Distribution
System, which offers one of the highest
yielding channels.”
Delta — “Through this new partner-
ship, we will give our customers added
flexibility, choice and convenience through
broader multi-channel access to our pub-
lished and Web-only fares,” said Lee
Macenczak, Delta’s senior vice president,
sales and distribution. “The program
also allows us to further reduce distri-
bution costs and reflects our confidence
in the value of the Global Distribution
System and its operating efficiencies as
a high-yield channel.”
Northwest — “Participating in the
Sabre DCA Three-Year Option enables
us to meet the important goal of low-
ering distribution costs while serving
travelers through multiple channels,”
said Al Lenza, vice president of distri-
bution and e-commerce with Northwest
Airlines. “This new initiative demon-
strates Northwest’s efforts to make all
our publicly available fares and content
available where it is economically
viable for us to do so.”
United — “It will provide our cus-
tomers with a full range of our fares in
a cost-effective manner for all parties,
while allowing us to significantly reduce
our distribution costs at the same time,"
said Greg Taylor, United Airlines’ senior
vice president-planning.
T H E H I G H L E V E Lvıew
Optimal performance for airlines and airports
These are unprecedented times in the air transport industry. But there’s one thing you can count on. Sabre Airline Solutions will be here, providing innovative technology solutions for your toughest challenges. Just as we have through five decades — in good times and in bad — for more than 200 airlines worldwide.
Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions. www.sabreairlinesolutions.com
proven
makingcontactTo suggest a topic for a possible
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ing list, please send an e-mail mes-
sage to the Ascend staff at
For more information about prod-
ucts and services featured in this
issue of Ascend, please visit our
Web site at www.sabreairlinesolu-
tions.com or contact one of the fol-
lowing Sabre Airline Solutions
regional representatives:
Asia/Pacific
Mike Baldwin
Senior Vice President
Level 9, Phillips Building
15 Blue Street
North Sydney NSW 2060
Australia
Phone: 61 2 8923 5230
E-mail: [email protected]
Europe, Middle East and Africa
Vinay Dube
Vice President
23-59 Staines Road
Somerville House
Hounslow, Middlesex
TW3 3HE, United Kingdom
Phone: 44 20 8814 4540
E-mail: [email protected]
The Americas
Walter Jacobs
Vice President
1 E. Kirkwood Blvd.
Southlake, Texas 76092
United States
Phone: 817 264 7657
E-mail: [email protected]
www.sabreair l inesolut ions.com