Skyteam: Caring More About You a Conversation with É Leo Van Wijk, Chairman, Skyteam Pg

A MAGAZINE FOR AIRLINE EXECUTIVES 2011 Issue No. 1

Taking your airline to new heights

SkyTeam: Caring More About You A Conversation With É Leo van Wijk, Chairman, SkyTeam Pg. 10

18 Strategic commercial planning 46 Avianca-TACA merger changed Latin 63 Merchandising through GDS gives airlines increases airline revenues America aviation additional storefront

ManmadeKuwait Airways makes millions using its new Diamond real-time revenue integrity system

Kuwait Airways gained US$26 million in value benefits during the first five months of implementing real-time revenue integrity technology.

By Lynne Bowers-Dodson | Ascend Staff ASCEND I PROFILE

Manmade Diamond ewelers determine the value of a diamond by examining the “four Cs” — cut, color , clarity and carat. During the next few years, investors will assess the value of Kuwait Airlines by examining a different set of “four Cs — commitment, competition, capacity and capital improvements. Perhaps these investors will count to its credit the car - rier’sJ remarkable comeback despite a recent past marked by intense heat and pressure reminiscent of diamond creation.

Diamond Formation When asked about the future of his airline in March 2010, Kuwait Airways Chairman Hamad Abdullatif Al Falah described the carrier as a diamond. A look at the carrier’ s 57-year history bares some striking similarities to one of nature’ s most durable substances. Diamonds begin their journey as unpretentious elements of carbon. So too, Kuwait Airways had a modest start. In 1954, two local businessmen launched the Kuwait National Airways Company with US$72,979 in start-up capital and a fleet of three Douglas DC-3s. Flight operations began on March 16, 1954, connecting Kuwait City with Abadan, Iran; Beirut, Lebanon; Damascus, Syria; and Jerusalem. The company was renamed Kuwait Airways Corp. (KAC) the following year as the government acquired a half interest. The route network was expanded throughout the Gulf region with the addition of leased, four -engine V ickers V iscount aircraft in 1958. The government of Kuwait, which became independent from Great Britain in 1961, bought the remainder of KAC’s shares in May 1962 after the launch of rival T rans Arabian Airways made the competitive situation difficult. The government acquired a controlling interest in T rans Arabian in April 1964 and folded its Douglas DC-6 aircraft into the KAC fleet. In the meantime, KAC had begun operating its first jet aircraft, de Havilland Comets, in 1962. This allowed the company to venture into Europe with a six-hour nonstop to London. Newer planes, including Hawker Siddeley Tridents and BAC One- Elevens, soon joined the fleet. The One-Elevens were leased off within a couple of years, but the Tridents were successful flying routes in the Middle East. KAC bought its first Boeing aircraft when it acquired three 707 airliners in November 1968 at a cost of about US$25 million. By 1976, the airline had retired its earlier jets and turboprops and was flying a fleet of eight 707s. Soon the company added midsize Boeing 737s and 727s, one of which was operated exclusively for the government. KAC received the first of four Boeing 747 jumbo jets in August 1978. The long-range aircraft allowed the airline to extend the London service to New York City as well as start service to Manila in the Philippines. In the 1980s, KAC took delivery

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and lost revenues; Seats Returned By Sabre AirVision Revenue Seizure by Iraq of one dozen of the airline’ s 20 Integrity For Kuwait Airways In 2010. planes, and another three owned by the Kuwaiti government (several of these planes were 500,000 destroyed in the war); A spare parts inventory valued at US$150 mil- 450,000 lion confiscated by the Iraqis; A loss of US$133 million in the 1990-91 fiscal 400,000 years. Six of KAC’s Airbuses survived the invasion and 350,000 were flown to Iran during the occupation. Following the war, KAC filed an insurance claim for US$694 300,000 million for loss of the planes; however , Lloyd’s of London limited its payout to US$300 million, its 250,000 maximum for a single event. The dispute between KAC and Iraqi Airways (IAC) continues today and is 200,000 the longest-running commercial case in the history of the English courts. Nearly 12 years of previous decisions have 150,000 been dismissed by higher courts due to a series of findings of perjury and fraud against IAC. KAC 100,000 now holds judgments totaling nearly US$1.2 billion against IAC and US$83.5 million against the State 50,000 of Iraq. 1,047,809 seats During the first four full months of using Sabre Revenue Integrity , SriLankan Airlines returned more than a million seats to sales. 0 “Adámas” April May June July Aug. Sept. Oct. Nov. Dec. The name “diamond” is derived from the ancient Greek “adámas,” which can be interpreted as “unbreakable.” During the invasion, and despite Duplicate Bookings Fictious Names Redundant Itinerary Ticket Firming the odds, KAC adopted an unbreakable posture. The carrier conducted operations from a tem- Solving Real Problems Revenue Integrity solves business problems for Kuwait Airways such as ticket porary base in Cairo even while its homeland was time limits, fake names, duplicate bookings, and fake or duplicate ticket numbers. under occupation. Half of its employees, including then-Chairman Ahmad Hamad al-Mishari, had been out of the country during the invasion. of four Boeing 727-200s; eight Airbus A310s; one US$1.6 billion in losses due to damage to the KAC was operating a fleet of nine aircraft imme- Airbus A300-600; and three Boeing 767-200 ER carrier’s fleet, computer reservations system diately after the war; all but one of these planes aircraft.

Diamond Interrupted According to science, the carbon that makes 100 diamonds comes from the melting of pre-existing rocks in the Earth’s upper mantle. There is an abundance of carbon atoms in the mantle. 80 Temperature changes in the upper mantle force the carbon atoms to go deeper where it melts and finally becomes new rock, when the tem- 60 perature reduces. If other conditions such as pressure and chemistry are right, the carbon atoms in the melting crustal rock bond to build 40 diamond crystals.

However, there is no guarantee that these % Availability carbon atoms will turn into diamonds. If the 20 temperature rises or the pressure drops then the diamond crystals may melt partially or totally dissolve. For KAC, rising temperatures from the Aug. 2, 1990, invasion by Iraq nearly destroyed 0 the chemistry that was working to turn the carrier 120 75 45 30 20 8 4 0 0 into a diamond to be admired throughout the Middle East. Days before departure In the seven months following the invasion, Airliner W orld reported that more than 85 per - Before using Revenue Integrity Using real-time Revenue Integrity Demand for seats cent of KAC’ s assets were destroyed or stolen. Among devastating wartime loses reported by Real-Time Revenue Integrity Real-time Revenue Integrity achieves significant results over other the Financial Times: revenue integrity robots.

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had been out of the country during the invasion, according to the Financial Times. Reservations and maintenance operations were shifted to outside facilities. Following the seven-month-long Gulf W ar, a Kuwait Airways spokesperson summed up the carrier’s intent: “Kuwait Airways aims to re-establish its network to reach more than 47 countries around the globe with a firm commitment to providing the finest service and comfort to passengers while continuing to rank safety as one of our highest priorities.” With that, the carrier began a massive rebuilding

project. It ordered 17 new aircraft worth US$1.44 Airways billion delivered in 1996. These included two new Boeing 747s to replace the old ones. KAC lost buildings as well as aircraft during the occupation. Construction of a new US$37 million, two-story headquarters began in 1993, and the Photo: Kuwait airline moved into it in 1998. New hangars also were erected. The cost of rebuilding the ground US$26 Million Kuwait Airways realized significant gains during its first five months of using Revenue infrastructure was reported at up to US$250 million Integrity. by Airline Business. Capacity exceeded demand in the Mideast air 20 percent will be reserved for state-run institu- sold to paying guests when there is demand for travel market during the 1990s, setting up intense tions, them. Real-time handling of the revenue integrity competitive pressure. In response, KAC developed 5 percent will be distributed free to Kuwaiti air - discipline ensures that maximum value benefits are limited alliances with other regional carriers such lines employees. gained by the airline. as Syrian Airlines, Middle East Airlines, Cyprus In an interview with Marcopolis last March, The flexibility of creating and defining the pro- Airways and Thai International. Chairman Hamad Abdullatif Al Falah said, “Kuwait cess rules in the solution enables airlines to focus In addition, the Kuwaiti government instituted Airways is a diamond, and whoever buys with on generating maximum value. Airlines can tailor an open-skies policy in 2006, and since then has Kuwait Airways will be a winner. We have the best processes to any attribute in the PNR down to the signed open-skies agreements with the United pilots, engineers, technicians and training center point of sale and segment-related information to States, Singapore, Cambodia, Myanmar, Laos, that serve many Arab countries. ensure that: Brunei, Thailand, Austria, Poland, Georgia, the “Kuwait Airways is ahead of our competitors Revenue leakage is kept to a minimum, Czech Republic, Kyrgyzstan, Finland and Iceland. with regard to all of these aspects. Kuwait Airways No-shows are reduced, New market conditions have birthed new com- is at the end because our aircraft are older and Variation in no-shows is less volatile. petitors. The airline that once held a monopoly in smaller in number. If we have a bigger number of The actual conditions for finding problem Kuwait now competes against newcomer Jazeera aircraft we can offer more destinations and with bookings are separate from the actions taken on Airways. newer aircraft we will be more competitive and we those bookings. This gives the airline more control can capture more of the market.” through process automation management rather Diamond Mining Kuwait is clearly taking positive steps to improve than a simple robotic script. As the airline is in full Today, KAC operates a fleet of 22 aircraft, its infrastructure and technology , which is key to control of its revenue integrity processes through mostly Boeing 777-200 ER, Boeing 747-400M, boosting revenue for all its carriers. Last November, Web clients, the carrier can change and create Airbus A340-300, Airbus A330-200, Airbus A320- the government signed a contract to equip Kuwait processes to solve revenue leakage business 200 and Airbus A300-600R. The airline plans to with a new air traffic control system. In addition, problems. include more aircraft in its fleet, bringing the total it is developing a new terminal at KIA and new “We were going through a major problem of to 80 by 2012. airports are under construction to support the no shows, which led to a huge number of seats Before the invasion, Kuwait Airways enjoyed growing aviation market. spoilage,” said Hisham Alsuraye, Kuwait Airways’ a reputation for excellent in-flight service. As the To help with capacity improvements, Kuwait senior expert for pricing and revenue management. flag carrier of a Muslim country, KAC did not offer Airways has contracted with Calidris (since pur - “It affected our profitability by 7 percent to 10 alcoholic drinks, and meals were prepared accord- chased by Sabre Airline Solutions®) via a partnership percent on the network. Not only has it increased ing to Halal dietary principles. with Mercator to provide a real-time revenue integ- our profitability on the network by freeing resalable Current Kuwait Airways Chairman Hamad rity system. Sabre® AirVisionTM Revenue Integrity seats, but it has also decreased manpower. We Abdullatif Al Falah believes the carrier can regain was implemented in April 2010. During the first highly recommend the system for implementing its reputation with an influx of investment capital five months, it delivered value benefits to the airline real-time revenue integrity.” spurred by privatization. The Kuwaiti parliament from release of seats to the tune of US$26 million. Kuwait Airways continues to leverage technol- agrees and last year approved a budget that Revenue Integrity removes bad bookings from ogy — such as modern aircraft and advanced IT will transform the state-owned carrier into a the airline’s inventory to help ensure that seats are systems — as part of its strategy to stake a claim private entity called Kuwait Investment Authority not occupied by false bookings from fake names, as one of the world’s most successful airlines. a (KIA) with a number of local and international duplicate bookings and non-ticketed bookings stakeholders: (enforcing ticket time limits). Performing analysis 35 percent will be sold at auction to foreign or in real time means that all new and changed local investors, bookings are pushed to the solution at the end 40 percent will be sold to Kuwaiti citizens at an of the transaction. This ensures that the airline’ s Lynne Bowers-Dodson can be contacted Photos: LAN initial public offering, inventory is as clean as possible and seats can be at [email protected].

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