A Magazine for Executives 2006 Issue No. 2 2006 Issue No. 2 No. Issue 2006

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 the globAl AdvocAte A Conversation With . . . Giovanni Bisignani director general and CEO International Air Transport Association page 38

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Government regulations 6 affect globalization

Latin American carriers 42 grow regionally

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6 38 The Global Red Tape Advocate Progress toward a more global IATA Director General and CEO industry has been affected by Giovanni Bisignani discusses his government regulations and views on greater liberalization other barriers. 25 Globalization: of the air transport industry. Fact and Fiction 10 The Unwritten Globalization in airline information 42 Livin’ La Vida Chapter technology will benefit carriers Buena Several factors must be through development of software Top Latin American carriers considered as Europe looks that is less expensive to own are luring passengers from to deregulate the computer and operate. buses to airplanes. reservations system industry. 28 46 50 16 The Route To Buying Spree No Borders All Thai’d Up Liberalization Global liberalization has fueled an Roberto Kriete, chairman and AirAsia continues expanding Alliances provide an alternative increase in the demand for travel. CEO of Grupo TACA, discusses despite challenges related to its to cross-border airline ownership how his airline has expanded cross-border ownership of its that could set the stage for more 32 Communications: throughout Latin America. Thai-based subsidiary. open skies in the future. A Necessary Exchange Communications play a vital 18 Pushing The role in developing partnerships Boundaries around the world. Has the reality of a deregulated European market met the 34 expectations? Going Global perspective Global expansion can create new 22 Working in a Low-Fare challenges for that must Environment attract new customers. Low-cost airlines have caused traditional carriers to change their 36 revenue management practices Shaping Up and procedures. World scheduled airline passen- ger revenues have increased for the past three years and look to continue.

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recently saw some analysis that calculated that the world’s airlines represent a US$400 billion industry, collec- i tively generating nearly US$3 trillion in economic activity. Without a doubt, airlines remain one of the main global eco- nomic engines, enabling the movement of people and cargo. And, while the current economic impact of airlines is certainly impressive, it could potentially be much higher if we operated in a less-restricted and more global industry. I’m encouraged to see that some steps have been taken toward unshackling our industry — more countries are reaching “open-skies” agreements, some governments have loosened ownership restric- tions for foreign investors and the three main airline alliances are showing the benefits of global partnerships.

ascend 66 contents regional products company

52 Less Shopping. 56 66 At Your More Booking. Turning Profit Service New shopping and pricing Asia/ are growing Carriers will increasingly need functionality helps airlines numbers of passengers, amount interoperable technology in maximize e-commerce. of freight and overall revenues an increasingly global industry. despite high fuel costs. 70 From Distribution 58 Bridging to Merchandizing The Gap More airlines are realizing has deployed the benefits of the high-yield innovative solutions to work with GDS channel. global distribution systems. 74 Talking Technology 60 64 With Dirk Guenther Going Green? Revving Up Cargo and Michael Clarke Efforts to cap the emission of U.S.-based airlines are discover- New technology helps airlines greenhouse gases will have ing that revenue management accomplish large-scale schedule an impact on Europe’s aviation techniquescan help boost changes. industry. performance of cargo operations. 52 with Tom Klein Group President, Sabre Airline Solutions/Sabre Travel Network But much remains to be done. The International Air Transport that Giovanni has shared many of his insights and his vision for the Association estimates that the European Union’s actions cost airlines an industry in our cover story. estimated 5.9 billion (US$7.5 billion) a year. That’s a huge impact, and There are also plenty of examples of airlines — such as TACA it doesn’t even factor in similar results in other regions of the world. and AirAsia — that are following Giovanni’s lead and working to push The costs of inefficiencies inherent in the current system existing limits and force change. These airlines are expanding region- certainly haven’t helped airlines in their recovery efforts. And when ally, managing to work around government restrictions to develop combined with other factors such as record-high fuel prices, the cost of markets in several nations neighboring their home country. governmental involvement becomes an even larger burden. With the need for — and the potential benefits from — more There’s no question that less regulation results in more benefits openness, I believe it will be only a matter of time before we see the — not only for airlines, but for their customers as well. Alfred Kahn, development of a more rational structure to govern the airline industry. the “father of airline deregulation” in the United States, noted that the But it will take constant work on the part of carriers, as well as industry average fare paid between 1976 and 1990 dropped by 30 percent in groups such as IATA, to break down the entrenched resistance that real, inflation-adjusted terms. He noted that deregulated fares have many government officials still tightly hold. been 10 percent to 18 percent lower, on average, than they would Even with all its benefits, globalization doesn’t come without have been under previous regulation. Deregulation also improved pro- challenges. The prospect of a more liberalized industry will heighten ductivity and efficiency, according to Kahn. From 1967 to 1977, competition and put demands on airlines to better market their sched- U.S. airlines filled 52.6 percent of their seats. In the 12 years following ules, sell seats, serve their customers and operate at the utmost levels deregulation, that increased to 61 percent. And now, U.S. airlines are of efficiency. seeing record load factors in excess of 80 percent. The Sabre Airline Solutions ® business and its sister companies, Airlines want more freedom. In 2003, at the 59th IATA annual the Sabre Travel Network ® and Travelocity ® businesses, are ready to general meeting in Washington, D.C., airlines unanimously approved work with airlines around the world to help them prepare themselves to the Washington Declaration, which said liberalization of the air transport take advantage of the opportunities that will develop from a more open industry is essential to its recovery. environment. Given the need for further liberalization, globalization and open- I hope you enjoy reading this issue and find our discussion of this ness in the air transport space, I believe the timing is ideal to focus on crucial topic interesting and informative. such topics in this issue of Ascend. Wishing you smooth skies … I share many of the views of IATA Director General Giovanni Bisignani, who has been a constant voice calling for governments around the world to give airlines more freedom, just as we’ve seen in other industries such as banking and car manufacturing. I am excited

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During the past several years, the airline industry has taken several steps toward becoming a more global industry. Although progress has been made in areas such as alliances and partnerships, government regulations and other barriers still remain.

By Steven D. Leonard | Ascend Contributor

uring the past several years, the air- and goods provides a similar service, if only line industry has taken several steps slightly more complicated and on a different toward becoming a more global scale. industry. Although progress has been made in Globalization in the 21st century is an Dareas such as alliances and partnerships, accepted reality. People move throughout a government regulations and other barriers vast network of airlines to even the most still remain. remote location in hours rather than days. The idea of conducting commerce across Entire industries have been built on transport- a broad geography can be traced to civilizations ing tourists, families and, of course, goods that developed around the Mediterranean and and materials, which are brought from multiple in China as well. As goods or materials became locations to one place for assembly or sub- available in one location and were in demand in assembly and then transported to markets another, they were transported along with the all over the world. As population, globalization people who made the deals. and economic well being has increased, air Business today is conducted in much travel has increased at an even faster rate. the same way, based on supply and demand. Since 1970, as the world population has grown The transportation infrastructure for people by 76 percent, has grown by almost 500 percent. Indeed, the global airline community World Population and Air Passenger Growth continues to be in the midst of unprecedented growth. According to Boeing Research, growth 8,000 patterns driven by economic expansion will mean significant demand for airline capacity 7,000 6,534 during the next 20 years: 6,000 Airline passenger traffic is forecast to grow 5,000 4.8 percent annually. 3,710 The worldwide airline fleet will double to 4,000 35,300 units. Millions 3,000 Almost 26,000 new aircraft will be delivered, 2,022 2,000 20,000 for growth. About 6,500 will replace retiring aircraft. 384 1,000 The freighter fleet will nearly double to 0 3,500 aircraft. 1970 1980 1990 1992 1994 1996 1998 2000 2002 2004 2005 Globalization Defined Globalization has developed because Passengers (millions) Population (millions) of the desire to gain from the exchange of From 1970 to 2005, world population increased by 2.8 billion people, a 76 percent goods and services. It has been an uneven increase, while world passenger traffic increased by 1.6 billion, a 500 percent jump. course. Post World War II, international trade made up less than 10 percent of the

Background Photo by Andrew Hunt/AirTeamImages.com ascend  industry

U.S. economy. Today, that number is nearly 2005 2050 30 percent and still growing. At US$11 trillion, the United States’ gross national product is Rank Land GNP* Rank Land GNP* the world’s largest followed by Japan at US$4.3 trillion, Germany at US$2.0 trillion, the United 1 USA 11,351 1 China 44,453 Kingdom at US$1.6 trillion and China, which 2 Japan 4,366 2 USA 35,165 will undoubtedly overtake the United Kingdom and Germany within the next few years, at 3 Germany 1,966 3 India 27,803 US$1.5 trillion. Clearly, the definition of global- 4 United Kingdom 1,647 4 Japan 6,673 ization is illustrated by the growth in China. The airline industry has played a big part 5 China 1,529 5 Brazil 6,074 in economic globalization, but the industry 6 France 1,455 6 Russia 5,870 itself is still largely a controlled marketplace. More than 2 billion people fly each year 7 Italy 1,212 7 United Kingdom 3,782 generating US$29 trillion in economic value, and more than US$3 trillion worth of cargo is 8 Canada 728 8 Germany 3,603 flown. Without a doubt, airlines have contrib- 9 Spain 655 9 France 3,148 uted mightily to globalization in general. While many barriers have been lowered and some 10 Mexico 642 10 Italy 2,061 eliminated, airlines still operate in an environ- *In billions of U.S. dollars; source: Goldman Sachs ment of controlled competition. The airline The growth in China’s gross national product illustrates the impact of globalization. China, industry was one of the first to conduct its which currently ranks fifth among nations in GNP, is expected to have the world’s largest business globally, but the reality of true avia- economy within 45 years. tion globalization has proven elusive. There are many reasons why airlines are still not full global players. Part of it has to tion and the U.S. Department of Transportation The common aviation area agreement do with national interests and concerns about later withdrew supervision of fare setting represents the first steps toward a single security in various countries. Other reasons — first for charters, then cargo. Pricing regula- European market comprising 35 countries and have to do with the structures established after tion is largely a thing of the past in U.S. inter- 500 million people, according to the European World War II that have proven slow to change. national markets. Union. It would extend the European aviation These market controls or bilaterals — agree- A large number of airlines throughout market beyond the 25 E.U. members to 10 ments between countries that set frequency the world have gone from state to private additional nations comprising eight Southeast of flying, gateways and fares — have largely control. It has been estimated that private European countries, Iceland and . The remained intact since the 1950s. Change, how- investors now control more than 75 percent of formal agreement follows a political agreement ever, has begun bringing several benefits. the airline industry worldwide. The European announced recently. The European Union has Union itself achieved full airline deregulation set 2010 as its goal for implementing the com- Deregulation and Privatization for intra-E.U. service in 1998. Today, the mon aviation area, which aims to harmonize In 1978, the United States deregulated European Union continues to press its mem- safety and security regulations and liberalize its domestic airline industry while its inter- ber states to divest airlines and end subsidies, market access among the 35 nations. national markets remained tightly controlled. and it has also recently announced further Still, some countries consider airlines as The International Air Transport Association set measures. In May, according to Air Transport state or national assets and have strict owner- international fares and rates until 1979 when World, the European Union advanced its aim ship rules in place. While minority ownership the United States withdrew anti-trust protec- to liberalize international air transport, reach- is allowed, operating ownership by foreign ing terms with Singapore to create a single interests has not been approved. In the United European air market by 2010. The “horizontal” States, the provision for U.S. airlines to commit agreement with Singapore, which removes to the Civil Reserve Air Fleet during national nationality restrictions contained in bilateral emergencies has been cited as the primary accords between that country and individual factor for limiting foreign ownership. E.U. member states, is the first the European Cabotage, or the transport of domestic Union has signed with an Asian country. The traffic by a foreign carrier, is also still an issue. deal allows any E.U. airline to operate flights This has been a means of protecting national Sabre Airline Solutions archive between any E.U. nation and Singapore, gives carriers and today is a subject of bilateral Singapore the right to seek further-liberalized agreements whereby the various freedoms aviation agreements with E.U. states and puts allow carriers to transport traffic to, within in place the framework for an eventual open- and through other countries. Some countries skies accord that would remove all restrictions believe there are good reasons to maintain for flights between the European Union and current practices: Singapore. They generally provide some stability in a “This agreement recognizes that airlines very cyclical industry. Recently, Singapore reached a “horizontal” in the [European Union] are not any longer There is the ability to declare standards for agreement with the European Union national airlines,” said European Commission service, safety and security. that removes nationality restrictions, Vice President Jacques Barrot. “This is an In some countries, they help meet economic allowing Europe-based airlines to fly important step in our external aviation policy objectives, especially tourism. from any European country to Singapore. and particularly in our aviation relations with Governments will continue to be strongly the Asia/Pacific region.” involved with airlines. They will want to be

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certain the changes they make are good for Alliances model is being replaced by one that is driven their citizens and will insist on the right to Alliances are powerfully dynamic forces by the market. It is true that international travel intervene if changes are needed. For that rea- in the global airline business. Expansion of is changing more slowly to the new distribu- son, airlines may lag other industries for many markets and regional economic growth are tion model, but the trend is definitely in that more years in reaching global operating driving demand for new and expanded air direction and is another sign that airlines have freedom. services. These alliances are based on mutually learned to use their technologies globally. agreed benefits, which derive from enhanced Alliances without question have moved The Global Economic Network shared revenues and lowered costs through the airline industry closer to globalization The next large-scale change in airline common use of resources. This trend toward through the extension of airline networks and globalization may well be expansion of open- alliances has produced a competition that now through the market knowledge gained from skies policies. Such agreements have been includes carriers that represent virtually every cooperation among the wide range of carri- completed between literally hundreds of coun- region in a global expansion of networked ers working together. The use of Web-based tries and include a wide range of conditions services such as ticketing, transfers tools has accelerated this trend, and the up to and including full and open competition. and frequent-flyer mileage credits. This is all application of sophisticated fleet and network Many of the largest countries have resisted possible because alliance airlines have linked planning, modeling, and market research tools opening their markets in general, but there their computer reservations systems and to the global marketplace has helped airlines is clearly movement in the direction of more harmonized standards. make sound decisions about their network liberal agreements. The three main alliances — , and their partners. The U.S. DOT has said open-skies SkyTeam and — account for 80 agreements lead to expanded demand for percent of world airline capacity as measured Future Developments international aviation service and create new in available seat kilometers and include 19 of In his speech during this year’s IATA business for international air carriers. In addi- the world’s 20 largest airlines, soon to be all 20 annual general meeting, General Secretary tion, the U.S. DOT has argued that open- when JAL joins oneworld next year. Giovanni Bisignani said, “An agreement skies agreements promote increased travel This interesting blend of competition between the [United States] and Europe on and trade, productivity, job opportunities, and within a region among airlines and cooperation open skies would liberalize 105,000 seats each economic growth. They do this by reducing across the broad international marketplace day and set the stage to address ownership. government interference in the commercial is based purely on economic considerations. The European Commission is pushing in the decisions of air carriers, freeing them to pro- Airline planners today use sophisticated right direction. But fear and local politics are vide affordable, convenient and efficient air modeling to determine the benefit from these excuses for the [United States] not to move service for consumers. kinds of agreements just as they plan their forward. Responsible governments anticipate An open-skies agreement allows air own networks and operations forecasting and lead change. The bilateral system served carriers designated by the signatory countries passenger and cargo loads. Technology has us well over 60 years. Now, let’s organize a to make decisions on routes, capacity had the impact of helping airlines understand spectacular US$12 billion retirement party. and pricing and fully liberalizes conditions the global marketplace and where the benefits That is the amount of additional profit that for charters and other aviation activities of operating globally can be found, including it would add to our industry. And the posi- including unrestricted codesharing rights. identifying partners that can add value to the tive impact on the global economy would be Open-skies policies are successful because networked alliance. enormous. The wake-up call: liberalization is they have gone one step closer to airline Not everyone agrees that alliances are long overdue. And if the [United States] and globalization. By allowing air carriers unlimited good for the public because they argue the Europe are not willing to maintain leadership, access to points in the signatory countries networks are not always the most efficient fast-moving India and China are not afraid and unlimited access to intermediate and from a service or price level. The standards to drive change.” beyond points, such agreements provide for international services that airlines created While it is unknown which develop- maximum operational flexibility for airline themselves through IATA permit all member ments will shape airline practices and govern- alliance partners. airlines to publish joint fares and ticketing ment policies in the future, there is strong as well as baggage- interest in continuing to improve efficiency at transfer agreements. airlines and in policies that allow markets to be Airline Alliances Any IATA-approved more open to competition. travel agent is autho- Innovation will continue as airlines apply oneworld SkyTeam Star rized to sell tickets technology and knowledge-based solutions to on any IATA airline, help make them more competitive, to extend Countries 134 149 152 including tickets at a their existing skill base and to bring about single through fare for positive change in the business. Destinations 605 728 842 a multi-airline journey. With profit as the driving motive, airlines’ Given the focus on management has proven it knows how to cost reduction by air- make itself competitive and have overcome Daily Departures 8,151 14,615 15,500 lines today, this has significant obstacles, especially in the recent become an area that past. There is no doubt that globalization will Passengers (millions) 258.3 372.9 425 airlines have sought become a reality that is based on the funda- to change. With the mentals of sound airline management practices Fleet 2,161 2,018 2,800 growing proliferation learned through both hardship and success. a and preference for The rise of global alliances represents a large step in the process self booking and Steve Leonard is a partner in the of globalization of the air transport industry. Combined, the three Web-based reserva- consulting practice for the Sabre Airline ® main alliances account for 80 percent of world airline capacity. tions, ticketing and Solutions business. He can be contacted check-in, the original at [email protected]

ascend  The Unwritten Chapter

Photo by Dreamstime.com The European Commission is considering deregulating the computer reservations system industry in Europe, but there are many reasons why this would be the wrong choice.

A reasonable set of rules remains critical until European airlines divest their ownership stakes in Europe’s largest CRS.

By Bruce Charendoff | Ascend Contributor

nyone contemplating the history of As these marketing and business objec- tion system, Galileo and Worldspan — fully computer reservations systems, also tives inevitably collided, and the carriers that divested their ownership stakes in the CRSs, known as global distribution sys- did not own CRSs found themselves at the removing the major competition concerns and atems, will recognize that the book is divided untender mercy of the handful of competi- logically paving the way for U.S. deregulation, into three chapters. In chapter one, titled tors that did, regulations were fashioned in which occurred on July 31, 2004. “Airline Ownership and Regulation,” all four several countries, including the United States Chapter three, titled “Europe’s Decision,” of the world’s major CRSs were developed and Europe, specifically to temper the anticom- is a work in progress. Regulators in the and owned by major airlines. They were used petitive effects of vertical integration between European Commission are currently consider- initially as potent new marketing tools for their airlines and distribution systems. ing whether to liberalize the E.U. CRS code airline owners and subsequently as vehicles for In chapter two, titled “Airline Divestiture of conduct while Europe’s dominant CRS, distributing multiple carriers’ flights in return and Deregulation,” the airline owners of the , continues to be owned in significant for compensation. three U.S. systems — Sabre ® global distribu- part by /KLM, and . All stakeholders in the European travel industry have a vested interest in the result; the deci- sion will have a major competitive impact on airlines, travel distributors and consumers. The lessons of history and a proper balancing of /Shutterstock.com current interests should lead Europe to main- tain a reasonable, reformed set of CRS rules until airlines divest themselves of their owner- ship interests in Europe’s largest CRS. Photo by Lynn Watson Why Airline Ownership of CRSs Matters When a supplier owns the distribution networks its competitors must access to bring their products or services to market, the pros- pect of competitive havoc looms large. From 19th century oil companies with ownership interests in pipelines and railroads to 21st century telecom companies owning broad- band services, such vertical integration can create insurmountable market barriers if left unchecked. One of the preeminent examples of this phenomenon was (and is) airline owner- ship of computer reservations systems. An airline that owns a CRS has the means and the incentive to skew competition in both the airline and distribution markets. Prior to the Amadeus, which has a market share of 55 percent throughout Europe, has enactment of CRS rules, this discrimination an even larger share in the home markets of its owner airlines: Iberia Airlines, Lufthansa took many forms — from the sledgehammer German Airlines and Air France. In the home markets of its parent of higher booking fees charged to competitor airlines, Amadeus maintains a dominant position. airlines to the more subtle, but quite effective, practice of preferencing screen displays in industry

favor of its own flights. However, of all the GDS Bookings in Germany, France and Spain weapons airline ownership created, the deadli- est was an airline owner’s refusal to participate Total bookings = 99 million in any CRS other than its own. By detonating 100% this weapon of mass destruction, airlines were 91.3% able to lock in their double dominance of airline 90% and distribution markets. 79.5% Consider, for example, the plight of a 80% 77.4% travel agent in , Germany. In choosing a CRS, the agent required access to the fares, 70% schedules and features offered by Lufthansa, Germany’s dominant carrier. When Lufthansa 60% told German travel agents that Amadeus, the system it owns, would be the only system 50% that would have full access to its travel con- Booking share 40% tent, travel agents had no reasonable choice other than Amadeus. CRSs that cannot deliver 30% access to the content consumers demand is neither an efficient nor a useful tool. Once 20% 14.3% Amadeus established itself as the dominant 12.5% CRS, airline competitors seeking to distribute 10% 6.0% 7.5% 7.6% their services in Germany remained dependent 2.4% 0.8% 0.3% 0.4% 0% Germany Spain France

Highlight Amadeus Sabre Galileo Worldspan

While the Internet From July 2005 through June 2006, Amadeus maintained a booking share of more than 75 percent in each of the home markets of its parent airlines — Germany, has emerged as an Spain and France.

important travel the CRS rules was an airline’s ownership of a Group concluded that in light of Amadeus’ mere 5 percent of a CRS — even that relatively continuing airline ownership and the dangers distribution tool, its small amount of ownership was perceived as a of “double dominance” in the airline and distri- threat serious enough to be countered through bution markets, reasonable rules should be penetration in Europe the application of bright-line rules. maintained, particularly the rule requiring non- discriminatory participation by parent carriers European CRS Marketplace Today of a CRS. Based on this finding, in February is still in its infancy. Amadeus and its owners have com- 2004, the European Commission issued an plained about the burdens of the CRS rules and extended regulatory impact statement indicat- have been the lone voices pushing for their ing its continuing concern. on a Lufthansa-owned system to reach travel removal. Of course, these complaints need to Nevertheless, despite all these objec- agents and ultimately consumers. Of course, be measured against the realities of Amadeus tions and the recommendation of its own Lufthansa had every incentive to discriminate GDS shares throughout Europe. The CRS land- consultant, DG-TREN signaled its intention in against these airlines. While the E.U. CRS scape in Europe today remains dominated by October 2005 to scrap the E.C. CRS rules, code of conduct has many features, non- Amadeus, which had 55 percent of last year’s stating that “the risk of competitive abuse discriminatory or mandatory participation is CRS bookings throughout the European Union. of a dominant position initially requiring [the the bedrock principle that as codified has However, the dominant position is even more rules] no longer applies.” As part of a so-called served as an effective deterrent to the anti- dramatic in its parent carriers’ home markets, “better regulation” initiative, the European competitive practices airline owners have where Amadeus boasts a 73 percent share of Commission published a list of more than 1,400 engaged in, without governments and industry the German, 76 percent of the French and 90 regulations that it has deemed “outdated” and participants having to resort to cumbersome percent of the Spanish GDS industry. The CRS “superfluous” and sought approval from the and costly lawsuits. rules are vital to keeping CRS competition alive European Parliament to jettison them as soon Airline ownership has always been the and well in Europe. as possible. The inclusion of the CRS rules on raison d’etre for CRS rules throughout the this list was surprising and, many believe, inap- world. Amadeus remains significantly owned European Commission’s propriate, since key provisions of these rules by Air France/KLM, Iberia and Lufthansa. Distribution Myths remain vitally important safeguards. Together, these airlines own nearly 47 percent The European Commission’s equivalent DG-TREN’s strikingly minimal analysis of Amadeus and retain seats on the board of the U.S. Department of Transportation, was predicated on the incorrect notions that and the all-important compensation commit- known as DG-Energy and Transport, or DG- Amadeus’ ownership and control had changed tee of Amadeus’s newly constituted holding TREN, has been reviewing the E.C. CRS rules dramatically and that U.S. deregulation served company. Among other things, these airlines since 2002. In fact, DG-TREN hired a consul- as an appropriate precedent for Europe to have the ability to veto the annual budget tancy known as the Brattle Group to study the follow. Amadeus has indeed reorganized, but of Amadeus. In the United States prior to CRS rules and make recommendations about its continuing, significant ownership in the deregulation, the trigger for coverage under what should be done. In 2003, the Brattle hands of some of Europe’s largest airlines

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undermines the argument. U.S. deregulation Highlight data and technology that power many top proceeded only after all U.S. carriers fully European Internet sites. divested their interests in the U.S. systems; Finally, DG-TREN has proffered the argu- indeed, the U.S. DOT specifically left open the No travel agent can ment that existing competition law should possibility of re-regulating the industry should be sufficient to discipline today’s market, airline ownership of CRSs once again appear in afford to choose a which is not the case. Competition law chal- the marketplace. lenges, brought in the form of lawsuits, are Additionally, DG-TREN argued, because system that lacks inordinately expensive and take several years the Internet has become an alternate form of to resolve. The subtle behaviors airline own- airline distribution in recent years, the reliance the travel content its ers have employed, such as not providing on CRSs has lessened to a point where rules fare-sale content to competing systems or have become unnecessary. This is a great exag- customers demand. biasing screens against competitor airlines geration of the reality of true travel distribution in key markets, are much better suited to demographics. The majority of European air ex ante rules that provide an immediate bookings are processed through CRSs today, deterrent to such practices than after the and that trend is expected to continue through Only around 3 percent of public Web sites fact litigation that provides a remedy far too 2014. Many Internet bookings, including those fully comply with minimum Web accessi- late to make a difference. CRS rules have made through online travel companies, actually bility standards — a real problem for the accomplished their objective without creating are processed through CRSs. 15 percent of the E.U. population with onerous market distortions. What’s more, according to the European disabilities. Commission, as much of 50 percent of the According to an April study conducted Next Steps citizens of the European Union are effectively by Carl Marcussen, senior researcher for the DG-TREN’s effort to repeal the rules locked out of the Internet entirely and hence Center for Regional and Tourism Research in has not been embraced so far by the other large sectors of the community remain vulner- Denmark, only 12.6 percent of European travel European Commission directorates or in the able to abusive practices by carrier-owned sales are projected to be processed online this European Parliament. As a result of an inter- CRSs. On June 12, the European Commission- year. Of that amount, Marcussen, who holds a service consultation process on this issue, sponsored group i2010 summarized the extent doctorate degree in marketing, estimates that a more thorough impact study is planned to which large segments of the citizenry of 56 percent will represent air travel sales. So, this year, one that is expected to update the the European Union remain locked out of the overall, less than 7.1 percent of European air findings of the Brattle Group report and take Internet completely: travel sales will be made on the Internet this into account the views of stakeholders in Broadband penetration is still only at year. While the Internet has emerged as an the industry. This study, to be conducted by 13 percent of the E.U. population (or about important travel distribution tool, its penetra- an outside consultancy yet to be named, will 25 percent of households), with significant tion in Europe is still in its infancy. Contrary to make recommendations to the commission differences in access between rural and DG-TREN’s summary conclusion, the Internet about how to proceed. urban areas. is not a substitute for CRSs and is certainly not In the European Union, only 10 percent of a basis on which to scrap important regulatory C-FARE’s Effort to Keep persons over 65 use the Internet. protections. Indeed, CRSs actually provide the Reasonable Rules The Coalition for Fair Access to Reser- vations in Europe, or C-FARE, was formed Trends in Online Travel Market in Europe to keep the “mandatory” or “non-discrimi- natory” participation obligation in place for 14% carriers that own a CRS. What this means is 12.6% that the owner carriers would continue to be obligated to participate in the other systems 12% 10.3% on a fair and equal basis. C-FARE’s objec- tives are shared by several influential groups 10% in Europe, including , ECTAA 7.9% (the major European trade 8% association) and BEUC (the major European consumer organization). 6% 5.6% At the same time, there is recognition within C-FARE that some of the CRS rules 4% 3.6% that are currently on the books, which may 2.0% have been justified in the late 1980s, may 2% 1.0% no longer make sense. The coalition is will- 0.3% 0.1% ing to work with the European Commission 0% to identify those provisions that should be 1998 1999 2000 2001 2002 2003 2004 2005 2006 sunset, while securing a firm commitment Source: Carl H. Marcussen, Centre for Regional and Tourism Research, www.crt.dk/trends, April 2006. to keep the bedrock protections in place that remain relevant so long as airline ownership of CRSs exists. Although the European online market for travel has increased during the past The Business Travel Coalition is also a eight years, it still represents only 12.6 percent of the travel spend, meaning founding member of C-FARE. Chairman Kevin traditional travel agents remain the dominant form of distribution. Mitchell said, “There is support in the travel industry for responsible reform of the E.U.

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tion, innovation and consumers are at risk. CRS-owning airlines have the means and the incentive to force travel agents to use their systems by withholding special fares and ser- vices from other systems. No travel agent can afford to choose a system that lacks the travel content its customers demand. With airline ownership and without reasonable CRS rules, higher prices and less innovation and choice have been the inevitable result. For more than 16 years, Europe’s CRS rules have protected the European travel industry against these problems. The principal rule, “non-discriminatory participation,” requires CRS-owning airlines to provide fair and equal treatment to all players. This indispensable rule has stood the test of time. Full deregulation is clearly the wrong choice for the European travel industry and especially for European consumers — so long as airlines own Europe’s dominant CRS. That is why there was a firestorm of opposition As the European Commission considers deregulating global distribution systems in the across the travel industry when DG-TREN sug- European Union, it must be careful that it does not wreck competition and consumer gested in October 2005 that it might take that choice in the process. step. With DG-TREN now looking to an inde- pendent expert to update the Brattle Group analysis, industry participants should be sure CRS code of conduct but not a reckless and review initiatives. The European Parliament to make their views known on this important precipitous deregulation that will do consid- and the consumers it represents deserves policy debate. a erable and irreversible harm to consumers, nothing less than full transparency of process corporations’ data privacy protections and and highly professional, competent analysis.” the competitiveness of the European travel CRSs are the backbone of travel ticket- Bruce Charendoff is senior vice industry sector. BTC calls on the [European ing worldwide. They give consumers and their president for government and external Commission] to subject this proposal to a travel agents the tools to find the lowest fares affairs for the Sabre Holdings® thorough economic impact analysis as it has on the airlines that best meet their needs. business. He can be contacted at pledged to do with all significant regulatory When airlines own and control CRSs, competi- [email protected].

+count it up 5 billion 9 24 Amount in U.S. dollars U.S. domestic Percentage European carriers decreased Percentage of distribution and back- airlines are expected to lose this year, flight operation unit costs from 2001 office costs Europe’s airlines have which has been cut in half by a reduc- to 2004, despite a 63 percent increase reduced from 2001 to 2004 because tion in domestic capacity that returned in fuel during the same period. of the use of advanced technology. some pricing power to U.S. carriers.

1 30 2 billion Number of accidents per every Percentage of the European cost Amount of savings in U.S. dollars the 1.3 million flights by member airlines structure that labor represents, International Air Transport Association of the International Air Transport which is lower than the United States’ has achieved on its US$42 billion bill Association in 2005, representing 33 percent but higher than Asia/Pacific’s for and air navigation costs, less than half the global average 19 percent. which makes up 11 percent of the total and the lowest accident rate ever. cost structure for IATA’s member airlines.

14 ascend talking to the travel trade reach the online targeted and measurable travel trade online marketing

Travelmole.com is the leading Benefit from TravelMole.com’s industry reach through our advertising and marketing online community for the travel opportunities based on: and tourism industry with √ a wide-range of cost-effective executions subscribers from 132 countries.AD√ geographical and industry sector targeting √ closely monitored campaign performance √ ability to optimise return on investment We offer advertisers unrivalled online access to practitioners and decision-makers who Online advertising and e-mail marketing use our daily news coverage and analysis to spend continues to grow apace and keep abreast of industry developments. TravelMole.com is always seeking to provide the best opportunities to: Travelmole.com delivers: √ deliver value to our advertising partners √ 2.7 million copies of TravelMole √ bring relevant marketing messages to our eNEWSWIRE distributed globally every audience month (720,000 for UK edition). √ 1.6 million copies of TravelMole contact TravelMole eNEWSWIRE read globally each month (468,000 for UK edition) Contact our sales and marketing advisors for further information on advertising √ 1.4 million page views on TravelMole opportunities to enhance your message WEB SITE every month (537,000 for UK to the travel trade: web site). Thomas Thiollier, Mike Imrie or √ bespoke emails to 100,000 unique Graham McKenzie professional users Tel. +44 0870 438 1045 Ext. 2. Email: [email protected] industry

The Route to Liberalization

With government restrictions limiting cross-border ownership of airlines preventing full mergers, airline alliances have provided an alternative that could set the stage for more open skies in the future. Sabre Airlines Solutions archive Solutions Airlines Sabre By Phil Johnson | Ascend Staff

ne of the most obvious examples of open-skies philosophies in action Otoday is the proliferation of airlines that have joined one of the three primary global airline alliances: Star Alliance, SkyTeam and oneworld. Last year, these three global alliances — as a group — accounted for approximately two-thirds of worldwide airline revenues. Not only that, but alliances are now being formed in various local geogra- phies. And it’s no wonder: Alliances of all types allow airlines to enhance revenue and scope — sometimes significantly — without the necessity of having to commit to further major

financial investments in aircraft and labor. archive Solutions Airlines Sabre And even though global alliances don’t actually constitute open skies per se, they represent the next best thing: greater reach on a worldwide scale, which is precisely what these airlines want to achieve in their global operations. In helping to overcome international bar- riers, both codeshares and alliances essentially promote open skies. By definition, codeshares are bilateral agreements and alliances are multilateral agreements. And although bilateral agreements only provide open skies between the two countries involved, the multilateral effects of the larger airline alliances have been far reaching in moving the industry closer and closer to broader, global open skies. The ultimate alliance relationship between airlines is a merger — or at least an equity tie-in between carriers. Most promi- nent among current global examples is the Air France/KLM relationship, under which Air France has essentially acquired overall control of KLM’s assets. Airline alliances, when all is said and done, are basically forms of coopera- Given the enduring restrictions on the airline industry, global alliances have played tion — and total consummation of that cooper- a key role in helping move toward a more open industry. Since the founding of the first ative relationship would logically be a merger. in 1997, these global entities have allowed member airlines to operate Short of actual financial merger or equity more closely in terms of pricing and scheduling. relationship, however, no other mechanism

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comes as close to projecting a semblance alliances have proven to be effective vehicles therefore legally permitted to share otherwise of true worldwide open skies than the global to allow and encourage this service. confidential competitive data on capacity and airline alliances. In the future, as more airlines Furthermore, in today’s globally com- prices. That allows the airlines to think eco- negotiate cross-border equity relationships with petitive airline environment, instead of carriers nomically and boldly plot strategy as if they other carriers, open-skies barriers between the competing against other carriers, the situation constituted a single, merged airline. nations involved are likely to melt away. has evolved, to a great extent, to a world- A primary continuing sticking point in the Even though the global alliances encom- wide pattern of alliances competing against worldwide movement toward open skies is the pass some of the world’s best-known airline alliances. situation at ’s globally critical Heathrow brands, there are still a number of airlines From a free-trade point of view, alliances Airport. Bilateral trans-Atlantic operations around the globe that are either unaligned or essentially allow airlines to circumvent the re- out of Heathrow between the United States are entering somewhat initial stages of aligning strictions resulting from a bilateral environment and Great Britain are limited to two carriers within regions. (consisting of many small open-skies agree- from each country: , United One of the most recently formed exam- ments between individual countries around Airlines, British Airways and ples of a regional airline alliance is Arabesk the world, which tend to be restrictive), as Airways. in the Middle East, consisting of EgyptAir, opposed to the more-or-less global open-skies This is also a flashpoint in the discus- , Saudi Arabian Airlines, Middle East environment many envision in the future. sions between Britain and the United States Airlines, Yemen Airways, and . And the concept of regional airline alliances is also being carefully considered in Highlight other regions such as South America. The rationale of the regional airline alli- ances is pretty simple: Gain all of the benefits Wherever there’s a viable market that needs of the global alliances, just on a regional scale — but also combine financial resources and to be served — or a greater competitive marketing ingenuity to effectively compete within the region against global players. environment to be fostered on certain routes It’s a promising concept. And it’s also manifested in another offshoot of the alli- — private enterprise will find a way. Airline ance philosophy with AirAsia — which has basically franchised itself separately within Thailand, Malaysia and Singapore by divvy- alliances have proven to be effective vehicles ing up independent AirAsia branches able to operate semi-autonomously as entities in each to allow and encourage this service. of those individual countries. Basically, this arrangement enables AirAsia to get around cross-border ownership restrictions in the vari- Contrast the situation in the airline over U.S. foreign-ownership restrictions that ous nations involved. industry with that in, say, the automotive set the upper limit at 25 percent. Any agree- One of the primary reasons the fran- industry — with Daimler-Benz having merged ment to open up Heathrow will likely include chise/single-country idea is particularly several years ago with Chrysler Corp. to form provisions to continue to restrict foreign own- relevant is because most nations today DaimlerChrysler — or in the banking industry, ership of U.S. carriers, but the negotiations continue to restrict the level of foreign own- with ABN Amro NV of Amsterdam acquiring also revolve around assignment and retention ership allowed in any of the major parts of LaSalle Bank in Chicago, along with other of terminal slots with regard to the various their vital transportation infrastructures, prominent U.S. properties. airlines operating out of Heathrow. Without particularly airlines. Airline industry executives have some- significant expansion of the total number of This is why in the United States, for times complained quite vocally about being slots, the Heathrow situation may possibly example, no foreign entity is legally permitted singled out for worldwide restrictions while be destined to remain a symbol and relic of to own more than 25 percent interest in the companies operating in other huge industries pre-open-skies protectionism for some time publicly traded stock or voting rights of any are allowed to merge almost at will. into the future. U.S.-based airline. Movements are afoot to Yet at least part of the logic behind But from an overall free-trade stand- increase that permissible foreign ownership cross-border airline-merger restrictions lies in point, it’s only logical that both the United to 49 percent, but political as well as national the fact that the airlines are not only directly States and Britain — as well as the greater security issues could short circuit such for- involved in international commerce, but their European Union — should continue to strive eign-ownership expansion ideas from ever capabilities — their preparedness and readi- to find broader means of encouraging com- becoming law. ness to transport thousands of people and petition and economic development. And that Among the upshots may be an exten- goods almost anywhere around the world includes opening up Heathrow. sion of the franchise concept on the parts of — make the airlines strategically critical to their That, after all, is what open-skies agree- foreign-owned airlines such as British-based native countries’ range of options in times of ments — benefiting the ambitious participants Virgin Group, which is investigating the pos- national emergency or natural disaster. among the greater global airline industry, as sibility of lending its name to a U.S.-based A few smaller airline alliances — or well as the worldwide economic community as operation structured to adhere to the U.S. codeshare arrangements — have been granted a whole — are all about. a domestic-ownership requirements. antitrust immunity by certain governmental Wherever there’s a viable market that entities. Antitrust immunity essentially creates needs to be served — or a greater competitive a bilateral relationship that is very similar to environment to be fostered on certain routes an open-skies arrangement — because the Phil Johnson can be contacted at — private enterprise will find a way. Airline airlines involved, with antitrust immunity, are [email protected].

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PUSHING THE BOUNDARIES

Photo by Philippe Noret/AirTeamImages.com

18 ascend industry When the European skies were deregulated beginning 19 years ago, some experts predicted the move would open a world of possibilities for airlines and travelers. Has the reality met the expectations? Photo by Derek Pedley/AirTeamImages.com Derek by Photo

By Richard Castle | Ascend Contributor

ow , British Airways flight 999 to Marseille,” comes the announcement ,N ’ at Charles de Gaulle Airport near Paris, France.“All passengers please proceed to 10.” Fifteen years ago, in a March 1992 article titled “EC Plan to Loosen Air Travel In 1992, British Airways acquired a 49 percent stake in a local German car- Gains Speed: the Sky is Falling in Europe,” rier called Delta Air and renamed it Deutsch BA, one of the first moves by a the International Herald Tribune predicted European flag carrier to take advantage of the newly deregulated airline industry such announcements — a foreign flag car- in Europe. Five years later, BA took a majority stake in Deutsch BA. However, rier flying domestic routes in another country after years of losses, BA sold the airline, which is now known as . — would soon be common. The liberalization of air traffic in the European Union had begun in 1987. By 1992, there was considerable interest in the “third package” of the program, identified Delta Air, a regional airline based at Friedrichshafen, Germany, namely cabotage, or the eighth freedom of the air, that would allow air- as a vehicle for its plans, acquired a 49 percent stake, and renamed it lines of one country to fly domestically within another country. Cabotage Deutsche BA. In 1997, it bought the remaining shares when the final put in a nutshell the broader changes taking place in the European single package of European deregulation permitted British Airways to take a market — companies that had for many years plied their trade within majority stake. In parallel with its efforts in Germany, British Airways and from their home market could compete openly in a completely made similar moves in another major European market — France. In different country. The belief then was that this package would quickly 1992, it bought 49.9 percent of French carrier TAT, completing the increase competition among airlines, thereby delivering a wider choice purchase in 1996. At the same time, the carrier invested £630 million of carriers, lower prices and better service on domestic routes. (US$122 million) in another French carrier, Air Liberte. Those who looked forward to soon enjoying, for example, Nearly 10 years after the deregulation process had started, British Lufthansa’s service on a flight between Rome and Milan, Italy, would Airways had delivered on the early promise of European liberalization be disappointed. Nothing much changed through the mid ’90s. The — it was flying domestically within Germany and France — and com- International Herald Tribune continued to bang the drum in an article peting head to head with Lufthansa and Air France on routes such as in March 1997 to coincide with the completion of the deregulation in Frankfurt-, Germany, which until then had been the preserve of Europe. It lamented that “many airlines still are not fully taking advan- the German national carrier. Would this be the opportunity for British tage of the freedoms they acquired in 1992, such as cabotage rights in Airways to successfully plunder the most lucrative domestic city pairs foreign countries.” of its main competitors? How has the air travel market in Europe changed since 1997? If British Airways considered it important to push the boundaries It’s clear that the changes have been gradual, with false starts, U-turns of European deregulation, there was little appetite to do so from other and experimentation over the years. Only now, nearly 20 years after the major European carriers. Lufthansa started to sell aggressively priced process started, is it becoming clear how the market is developing, and tickets between Marseille and Bordeaux, France, as part of an opera- in such a way that, at the beginning, was not anticipated at all. tion originating in , Germany, but this was about the extent of it. Perhaps the reluctance of the continental European flag carriers to Early Moves by European Flag Carriers follow in the footsteps of British Airways was well founded. Indeed it First attempts to take advantage in a deregulated environment proved to be so. happened early, and they were very much in line with the original The arrival of Rod Eddington as British Airways’ chief executive thinking. British Airways was a prime mover in this respect. In 1992, it officer heralded a major review of the airline’s strategy in Europe.

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Although British Airways’ subsidiaries were cantly more options than they had for many Lessons Learned competing strongly against Lufthansa and Air years. And since then, VLM has expanded What can be deduced from the various France and had a share of close to 40 percent its U.K. domestic flying to include Liverpool, attempts at cabotage during the past 15 years? in the German domestic market, they were England; Jersey and the Isle of Man from From the outset, many said that shortage of generating substantial losses. British Airways London City. slots at major congested in Europe was persuaded that its cabotage experiment would prevent new entrants from entering. had failed. In 2000, Air Liberte and TAT were LCCs Embrace Cabotage But there is no evidence to suggest that sold to the Swissair Group, and after an As VLM built a steady bridgehead at this was in any way a contributor to British unsuccessful attempt to sell Deutsche BA to London City during the early years of the 21st Airways’ problems in Germany and France. It easyJet, British Airways finally closed the door century, domestic flying in other areas was had the necessary slots at major German and on its unhappy experiment to fly domestically moving ahead quickly. In 2001, low-cost car- French airports via its subsidiaries. in Germany in mid 2003 with the sale of its rier Ryanair created its first hub in continental Operating domestically, neither German subsidiary to the Intro Group. Europe in Charleroi, just south of Brussels, Deutsche BA, TAT nor Air Liberte could inte- Belgium, and easyJet was quick to follow. As grate into British Airways’ major Heathrow VLM: a Notable Success of the middle of the year, both Ryanair and hub. As the economics of network carriers are British Airways’ acquisitions in Germany easyJet had 16 bases around Europe. Neither to a large extent based on generating transfer and France represent the only attempt by show any signs that they will slow down traffic, this was always going to be a problem. a major European flag carrier to challenge this expansion. From the start, both low-fare Although British Airways couldn’t make it work another in its home market. And it failed. But, airlines have used these bases to fly domesti- in France or Germany, in a ground-breaking in this decade, there is one notable success- cally as well as abroad — Milan to Naples, Italy, move, is building a transfer hub at ful airline in the traditional/hybrid space and Paris to Toulouse, France. Neither airline would Stansted to create feed from its Manchester its efforts have been remarkable. That airline refer to this flying as cabotage — such an old- and Glasgow services, thereby improving the is VLM, a Belgian airline based in . fashioned term would not fit their style — but chances for profitability. This is important Since its creation in 1992, VLM spent the that is what it is. because it represents a morphing of the tradi- Photo by Danny Hill/WorldAirlineImages/.net Danny by Photo Krupka/Airliners.net Martin by Photo

Manchester Liverpool Amsterdam London City Rotterdam Southampton Antwerp Brussels Jersey Luxembourg

VLM Airlines, based in Brussels, Belgium, capitalized on the deregulated European market to build a hub at the , from which it flies to U.K.-based has discussed setting up 11 destinations in Benelux, the United Kingdom, additional bases of operation in other E.U. Germany and France as well as the crown countries such as Spain and France from dependencies of Jersey and the Isle of Man. which it would fly mainly domestic routes.

’90s predominantly building services from a More recently, Air Berlin has followed, tional low-cost model, which says that airlines variety of airports in Benelux into London City building bases outside Germany, from which should steer clear of transfer traffic because Airport. By mid 2002, it had a sizeable pres- it does some significant domestic flying. of the complexity and cost that it adds to their ence at London’s niche airport. This gave it From London Stansted Airport, it flies to operation, into a more hybrid space. the sound base to take advantage of the liber- Manchester, England, and Glasgow, Critical mass in another’s market can be alized air market. In September 2002, it started — not only competing with British Airways enough to give an airline a chance of succeed- flying several times a day between London City and bmi but also easyJet and Ryanair. And ing. VLM may not expect feed onto its U.K. and Manchester, England. For a small Belgian this pattern looks as though it will continue: domestic routes from the rest of its network, airline, this was a brave and momentous recently, United Kingdom-registered flybe has but as the largest airline operating at London step. Here, finally, was a foreign-registered talked about establishing up to five bases City Airport, it has gradually built a strong airline competing head to head against in either Spain or France, where it might level of awareness that itself adds further British Airways and bmi on the London to station up to 20 aircraft to fly on mainly momentum. The same applies to easyJet and Manchester route, giving customers signifi- domestic routes. Ryanair — it does not take long for the local

20 ascend industry

Highlight element in the mix — in-flight product. Serving full, hot English breakfasts would appear to be a master stroke in linking itself to the … brand recognition is enormously important, local market. In the end, an aggressively low cost base probably guarantees success more than and there is clearly a big risk in exporting any other element. Is dba really that much different in any of the above respects than a brand overseas. its predecessor, Deutsche BA? Yet, in the financial year ending March 31, 2005, dba announced its first profit since creation in 1992. It appears to have a rosy future, with market to become aware of their wide range Maatschappij. A past advertising campaign in 40 next-generation 737s on order and 500 of destinations when they open a new base. the United Kingdom asked, “Do you speak new jobs created, enabled by a profitable Mike Rutter, chief commercial officer at flybe, VLMish?” — a play on its Flemish links — may cost base. understands this, too: “To start with one base well have worked for customers wanting to fly So what of the International Herald [in Spain or Germany] would be irrelevant. to Benelux but is unlikely to resonate with a Tribune’s 1992 prediction that British Airways We’d be picked off too easily, so we’d start Liverpool businessman needing to visit a client would one day compete with Air France with at least two.” in London’s Docklands. between Charles de Gaulle and Marseille? Brand awareness is obviously closely Perhaps it is disappointed this hasn’t happened Creating Brand Awareness linked to distribution strategy. If an airline and likely never will. But it can be satisfied that Increased awareness might be possible wants to sell predominantly via the Web, then it foresaw correctly that there would be com- by adding volume in the hub, but whatever the it can’t rely on travel agents to get its route petition with Air France between Paris and size, brand recognition is enormously impor- network across to potential customers. And the south of France (easyJet to Nice), that it Photo by Tobias Rose/AirTeamImages.com Tobias by Photo of courtesy Photo one world

A shortage of slots at major congested European airports, such as London’s Air Berlin has been building bases of operation outside its home country of Germany in an Heathrow, has been identified as a possible effort to improve its profitability. The airline is building a transfer hub at London’s Stanstead stumbling block to further liberalization Airport to create feed from Manchester, England, and Glasgow, Scotland. of the region’s air transport industry.

tant, and there is clearly a big risk in exporting if the Web is the main sales channel, to what was indeed British Airways that paved the a brand overseas. Even if potential customers extent can the airline rely on the online brand way for this situation via its experimental based in Glasgow have heard of Air Berlin, strength in its home market being replicated acquisitions in the ’90s, and that today we what are the chances they will consider the far from home? Flybe may well be able to sell have a much better idea than we did then of airline for a flight to London — without the 85 percent of its U.K. domestic seats via its what is the likelihood of success for those airline spending vast amounts of communi- Web site, but if it starts flying domestically airlines that desire to challenge others in their cation cash on getting that particular mes- in Spain, it will certainly need the help of the own back yard. a sage across? Non-geographical, non-national global distribution system to distribute its prod- names (easyJet or flybe for example) would uct widely enough to fill those seats. Richard Castle is an account director for be expected to fare better — it’s not surpris- If Air Berlin struggles to generate traf- the Sabre Airline Solutions® business ing that VLM builds brand awareness in the fic from Glasgow or Manchester to London with responsibility for airlines in the United Kingdom based on its acronym rather because of the implication it flies to Germany, United Kingdom and Benelux. He can be than its full name — Vlaamse Luchttransport it demonstrates the importance of another contacted at [email protected].

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Working in a Low-Fare Environment

The arrival of low-cost airlines has created a need for revenue managers at legacy carriers to change their traditional practices and procedures.

By Ana Maria Escobar | Ascend Contributor

any articles have been written demand. Key performance indicators set per- way compared with round-trip fares that are describing the effects that low-fare formance goals and targets. The technological needed to create restrictions used by legacy Mairlines have had on revenue man- and mathematical models that support tradi- carriers. agement practices at legacy airlines — articles tional revenue management function only if Without the usual fare restrictions, book- that describe new and complicated mathemati- and when the basic suppositions of the market ing classes are now dependent on each other cal approaches or those that focus on ways to exist — market and class segmentation and because demand is related to the active fare confront these aggressive new competitors. fare restrictions. that is offered in a given market at any given But scant few have been written about the The world of revenue management is time. In traditional revenue management, fare changes revenue management profession- very different when there are low-fare airlines. classes are independent because they are als have had to make to adapt to this new The fare structures offered by LCCs are simple defined by the restrictions on a given fare, environment. and transparent to consumers. Usually, unre- and they are considered unique. Passengers And such analysis of the revenue man- stricted fares are offered. Most fares are one are attracted to low fares, and they will typi- agement practice falls short when it comes to

practical ways to address the daily challenges Sarosiek/Shutterstock.com Robert by Photo Pedley/AirTeamImages.com Derek by Photo and changing roles revenue management pro- fessionals face. To understand the challenges and trans- formation revenue management professionals have had to confront, it is important to recog- nize the changes the practice itself has under- gone since the arrival of low-cost carriers.

Revenue Management in a Low-Fare Environment Traditional revenue management is based on using market segmentation — segre-

gating business from leisure travelers, and local Scandipix/AirTeamImages.com by Photo Martin/AirTeamImages.com Andy by Photo from connecting passengers. To accompany market segmentation, airlines offer numerous fare products. Fare restrictions are the key ingredient for creating successful inventory compartments that can be used to sell a cus- tomer higher fares when lower priced, limited inventory is sold out. Passenger forecasts that come out of revenue management systems are relatively easy to develop as long as these fundamental premises remain in place. Forecasts remain valid if booking classes are independent of each other and demand is protected by fare restrictions. A few traditional carriers such as , bmi, KLM and have adapted Large amounts of historical data are col- their revenue management systems and processes to the new airline environment lected and used by airlines to develop revenue to compete more effectively with low-cost carriers. In the new environment, revenue management forecasts to establish inventory management analysts must adapt to a lack of fare restrictions, disappearing market allocations. These forecasts assume that past segmentation and low fares. patterns are a good predictor of near-term

22 ascend industry Photo by Renata Fedosova/Shutterstock.com Renata by Photo

Traditional revenue management practices, which are based on segmenting types of passengers — business from leisure, local from connecting — are changing in light of the presence of low-cost carriers, which have simple and transparent fare structures.

cally purchase the lowest fare available, espe- These problems have been and continue ment and across different market types, so cially when there are no differences between to be the focus of studies at universities and managers need to provide clear direction and products. technology institutions. After much ongoing guidance to their staff to standardize proce- Historical information that legacy airlines study and research, they are far from achieving dures to deal with LCCs. Guidelines should not have accumulated to forecast demand may consensus on an optimal solution that could be subject to individual interpretation. Instead, no longer be relevant. New market conditions be applied to legacy airlines encountering LCC they should follow the strategy that the airline created by LCCs can no longer be modeled competition. Further, if academics were to chooses to compete against the LCC. using historical data when LCCs were not in encounter a solution, it could be financially out the market. of reach for many of the world’s airlines. Daily Challenges Against the background of new, low-fare Some airlines — bmi, KLM, United Revenue management can be a hotbed competition with changing market conditions, Airlines and Air Canada, for example — have of controversy within an airline. Decisions traditional revenue management systems and successfully adapted their revenue manage- made in this area are always questioned by processes fall short in optimizing revenues. In ment systems and have developed standard others in the airline, such as the sales team and turn, analysts using these systems and pro- processes to compete in markets against upper management. Under traditional revenue cesses have had to change the way they work LCCs. Unfortunately, there are many airlines management, decisions and results could be in an LCC environment. competing against LCCs with inadequate reve- explained more easily since uncertainty could nue management systems and processes that be explained analyzing historical events and sup- Dealing With Change have budget restrictions preventing them from ported by using revenue management systems. Most revenue management profession- obtaining better tools, changing processes or However, when revenue management als were trained under traditional revenue man- hiring more knowledgeable staff. is impacted by LCCs, inventory allocation agement principles where systems and pro- Meanwhile, revenue management pro- decisions can be difficult to support. Historical cesses were generally reliable and time tested, fessionals still have to confront their day-to-day data loses a lot of its former value. Revenue and were based on accepted approaches for problems and look for inventive ways to opti- management analysts have to turn to their decision making and setting inventory levels. mize revenues. At the same time, they have to creativity, knowledge of mathematics, analysis With low-fare carriers expanding to more address another challenge — facing pressures and understanding of the markets they man- markets and remaining in place as tough com- from management that in turn must account age. They face new situations every day where petitors, legacy revenue management analysts for declining revenues, loss of market share they have to act without all the information were confronted with questions they were and reduction in average fares. they need to make effective decisions. For not equipped to answer. Previous theories Many revenue management staff mem- example, there may be dramatic fare declines and techniques they learned earlier under bers have inadequate backgrounds and training with price levels that barely cover passenger an environment of market segmentation and for the job they are supposed to do. These variable costs. restricted fare products didn’t seem to work in departments are often staffed with person- The tactical decisions and autonomy a low-cost environment. nel coming from central reservations control, that pricing and revenue management depart- The most important challenge they face reservations or sales backgrounds who do not ments historically had to set prices and avail- is to quickly find practical solutions to address have much experience performing the basic ability of seats are now being influenced by and stop revenue erosion caused by dilution analysis needed to examine data and properly upper management. Fundamental, strategic under a changing environment that has: establish inventory levels. discussions between upper management and A lack of fare restrictions, There is a lack of consistency among revenue management staff to decide whether Disappearing market segmentation, analysts on the approach taken to manage their airline should match prices to levels of Low fares. inventory under a competitive LCC environ- their LCC competitors are complex.

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Revenue management analysts should tunity to evaluate the performance of revenue These skills will also help when making deci- reach a consensus with upper management, management analysts and management. But sions under repetitive, stressful situations as and many times, a lack of consensus drives those indicators are no longer valid when there well as detecting new trends that may appear frustration that causes an inability to convince is no demand segmentation since they are to be imperceptible to others. Typically, eco- leaders of the direction revenue management calculated based on the forecast performed by nomics, statistics, finance, math and business should take. traditional revenue management systems. university courses are the best at providing Revenue management analysts must In a low-cost, competitive environ- this background. Communications skills are decide when to close the available inventory ment, the assumptions of market elasticity also essential since it is important to present a of a fare class when it has reached a certain and tightening of inventory that analysts put point of view and gain consensus from peers number of bookings or at a specific number of in place should be measured to determine and management. days before the flight departs. Either approach their effectiveness. This effectiveness is mea- For personal traits, having a positive assumes elasticity of demand to increase rev- sured through basic KPIs used by airlines: attitude combined with a burning desire to enue without losing market share. Elasticity is revenue available per seat kilometer, or RASK, solve problems, face day-to-day challenges, hard to measure since many variables, such as combined with seat factor — the number of and proactively develop ideas and solutions is time of day, fare level, frequent flyer program passengers divided by the number of seats. what many mangers seek regardless of disci- and airline preference, can influence it. The cal- Depending on the relation to the actual perfor- pline. In addition, for revenue management, culation to determine market elasticity requires mance indicator versus the target, analysts can having a high resistance to frustration, being advanced mathematical knowledge to model make adjustments. creative and facing repetitive change is equally different situations. Being realists even though Given the way that revenue management important. Analysts willing to go the extra revenue management analysts on the whole analysts adjust inventory and measure results distance will also go out of the way to learn are analytical, few possess the mathematical in a low-cost environment, revenue manage- the internal, political landscape and work with knowledge and advanced math skills to face ment practice becomes more trial and error others across the organization to implement this challenge and get the job done right. than a consistent mathematical approach. ideas effectively. Under this scenario, adjusting the avail- Well-run departments maintain consis- ability of flights comes back to a very big Ideal Candidate for the Job tent procedures and approaches used by ana- job, manual and tedious, since every flight is What is the profile of an effective rev- lysts to solve problems brought on by LCCs. susceptible to dilution and loss of revenue. enue management analyst who can operate The end result is the ability to review results, Previously, analysts focused solely on flights in today’s competitive, changing environment; develop solutions and more readily take correc- with high revenue opportunity and other flights and what characteristics should management tive actions. a were managed automatically by the revenue look for when hiring staff? management system. The answer is a combination of acquired skills and personal traits. Key Performance Indicators On the skills side, a revenue manage- The other challenge in revenue manage- ment analyst should have a university educa- Ana Maria Escobar is a contractor for ment is how to measure results. In a legacy tion with a concentration of studies in areas the Sabre Airline Solutions® consulting environment, most airlines measure key per- that can be applied to develop a logical, rational practice. She can be contacted at formance indicators of spill and revenue oppor- and analytical approach to solving problems. [email protected]

+count it up 12.5 13 10 Percent reduction in average unit Percentage increase during the last four Percentage of revenue increases for rates for navigation fees for Euro- years of per-passenger costs at Europe’s airlines during each of the last three control states between 2003 and 2006. airports. years.

10 2 billion 14 billion Percentage of increases in fuel effi- Amount in U.S. dollars of the increase Number of passengers safely trans- ciency airlines have committed to in jet fuel refinery margins netted in ported in 2005 by member airlines of the achieving between 2000 and 2010. extra profits for oil companies, which International Air Transport Association. Fuel efficiency in 2005 alone rose by expect to return US$250 billion to 1.8 percent. investors during the next two years.

24 ascend By Ian Tunnacliffe | Ascend Contributor

The quickening pace of globalization in the airline information technology industry will have many implications for carriers, including the development of software that is less expensive to own and operate. Photo by Michelle Kennedy

ascend 25 industry Photo by Dinodia Photo Library Photo Dinodia by Photo n the 1980s, Swissair established a trans- action processing facility, or TPF, develop- Iment shop in Malaysia to code EDIFACT interfaces. This was esoteric stuff even within the airline information technology world, and few people took much notice. Twenty years later, and Swissair is sadly no longer operat- ing, but the move to globalize the provision of airline information technology is proceeding apace. Today, there has been much progress made toward the goals of globalization and liberalization. When thinking about globalization in the market for information and communication technology in the airline industry, it is impor- tant to recognize which globalization is being referred to. The airline industry itself is very far from being a global and liberal entity — despite some progress during the last decade or so. On the other hand, the world is becoming decidedly flat for IT vendors. One of the main outcomes of globalization has been the outsourcing of software Airlines won’t be fully global and lib- development, primarily to countries such as India, which offer highly trained eral for many years, if ever. This is a conse- software engineers at lower labor costs than many western countries. quence of the regulatory regime under which they operate, with national authorities erect- ing enormous barriers to consolidation in the share their buying power with smaller ones. international ones distributed reservations ter- industry. There are currently around 60 airlines Reconciling their different perspectives can be minals to travel agents in their markets. By in the world with revenues of more than challenging if not close to impossible. the mid 1990s, the large investments needed US$1 billion out of a total of well over 500 These buying groups may be the three to support a functionally rich, stable and com- carriers. This represents the most fragmented global alliances, which now represent well petitive GDS had resulted in consolidation to of all the major industries, and among the over half of the airline business in the world, the extent that there are now just four GDSs many consequences of this fragmentation or other airline-owned entities such as SITA operating on a worldwide scale and a hand- is that airlines’ buying power for all services, and ATPCO that exist for the sole purpose ful of regional players — mostly in Asia. The including IT, is hugely diluted. Economists of providing a specialist service to the industry concentration of GDSs along with the fact would argue that the largest airline would as a whole. The global distribution systems that they don’t really need to compete with each other for airline business has meant that their prices have increased even when airline Highlight revenues and yields have fallen. GDSs are a special case because they have not really needed to compete for airline Just 10 years ago, the idea of outsourcing business but other suppliers have consoli- dated, too. It used to be common for airlines software development was highly radical. without in-house IT capabilities to buy services from another airline. That business has almost Today, it is completely mainstream. This dried up, with airlines (British Airways, ) either abandoning it altogether or spin- ning off their IT department into a separate has led to a major change in development company (’ Mercator and Lufthansa’s Lufthansa Systems). As a result, the market methodology. for airline IT solutions is gradually becoming more concentrated. Given this background, it’s worth consi- dering some specific consequences of global- buy better solutions, perform better and come were also in this category for the first decade ization and making an assessment of the likely to dominate. This is certainly the thinking at of their existence but have now all been impact: some major carriers. While this may work in sold off — to public owners or a combi- Concentration of airlines leads to a reduction certain geographical segments, it does not nation of private equity and minority airline in opportunity for specialist vendors — hold true for the world as a whole as the shareholders. In the short term, this is unlikely. Cross- regulatory environment prevents significant Technology services are not generally border mergers are still rare and even international mergers. governed by the nationalistic constraints that within jurisdictions there have been very Many airlines have attempted to redress affect airlines and consequently are already few airline mergers. Star Alliance has made the dilution by joining industry groups to more global. Perhaps the best example is illus- some highly publicized deals for common pool buying power. However, for these to trated in the history of the GDS business. In IT services, but as yet the take up has been be truly effective, the largest players have to the 1970s, most major U.S. airlines and many poor. Witness the deal with Amadeus for

26 ascend industry

ing substantial investments in building new products from the ground up, as IBS has Highlight done with its aiRes product. In the hard- ware world, Lenovo of China now owns full product rights to the range of PCs it Technology services are not generally governed used to build as a subcontractor to IBM. It is this move up the value chain by well- by the nationalistic constraints that affect airlines managed and well-financed enterprises in emerging economies that represents the and consequently are already more global. biggest impact of globalization on the air- line IT industry. It may lead to lower prices, although this is uncertain. It will certainly drive significant profits for those capable of ascending the value chain. the so-called “common IT platform.” So seek to acquire and appropriate intellectual Globalization is a fact of life, and there far, none of the Star Alliance airlines have property in the course of development is little sign of its impact diminishing. Airlines migrated to the new platform, and it is by and service delivery. Airlines must ensure themselves are insulated from its most far- no means clear that even Lufthansa will that they retain ownership of their busi- reaching effects. Eventually, this will change take the full Amadeus offering. ness process knowledge or obtain proper but possibly not for years. Technology vendors, Globalization and liberalization lead to recompense if they decide to part with it. on the other hand, are impacted right now. increased pace of technology change at Control of IPR becomes the bargaining chip If outsourcing development to India was airlines — There is also little evidence for in vendor negotiations. radical 10 years ago, in another 10 years it is this proposition. Major advances in airline IT New entrant IT companies will seek to likely that Indian and possibly Chinese firms such as online distribution and self-service move up the value chain — Major IT compa- will control a substantial part of the market for capabilities have been driven by individual nies have outsourced much of their coding IT supply to the industry. The question is who airlines serving their core markets. Many of work to emerging countries, notably India. will own the intellectual property? a the most radical changes have been driven Companies in India will not be content for by low-cost carriers, which almost by defini- much longer with work at the bottom of the Ian Tunnacliffe is a founder and research tion are the least global of all airlines. value chain as this will restrict their ability to director of Research Globalization leads to the outsourcing of add value and drive margin. Already, Indian Ltd., a United Kingdom-based company software development — This is definitely companies have design authority for prod- that specializes in the application of true, and it has the most radical impact of ucts; either by acquiring them from west- information technology to drive value globalization. Just 10 years ago, the idea ern companies such as Kale Consultants in airlines and other companies in the of outsourcing software development was has done with products from former British travel industry. He can be contacted highly radical. Today, it is completely main- Airways subsidiary Speedwing, or by mak- at [email protected]. stream. This has led to a major change in

development methodology. Airline software Prokhorov/iStockphoto.com Andrey by Photo developers traditionally were technicians with deep subject matter expertise who worked closely with business users in their organizations. Today’s developers are likely to be Indian graduates with highly devel- oped software engineering skills but no real knowledge of the business functions they are supporting. The consequence is that formal software development methodolo- gies have become essential to allow skilled programmers without business knowledge to deliver effective products. The transi- tion between the old and new models is very painful for many, but once it has been made, the result should be software that is cheaper to run, maintain and operate. Business processes become key intellectual property — In a world where writing code is the predictable end product of a structured method, that coding process ultimately becomes a commodity. The organizations that own the intellectual property rights in well-documented business processes are the ones that will be most likely to accu- mulate value. Few airline chief executive Computer coding, the result of a structured method, promises to become a commodity officers would consider this when deciding in the technological world. Those companies that protect the intellectual property to outsource, but it is where they must be rights in well-documented business processes will gain an edge. on their guard. Technology companies will

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Buying Spree

Global liberalization has fueled an increase in the demand for travel, causing airlines around the world to order new aircraft in record numbers.

By Jennifer C. Cheung and Peter Berdy | Ascend Contributors

fter several years of declining air- aircraft sales for Boeing and Airbus exceeding markets. Strong economic growth has put plane sales, jet aircraft orders have previous records. And this year appears to be money in the hands of consumers who are Asurged dramatically in response to the another good year for these manufacturers. In lured by low fares to spend a portion of it rebounding global economic environment. Last addition, there are strong order backlogs for on travel. Carriers are aggressively ordering year featured unprecedented growth, with regional jet makers Bombardier and Embraer. aircraft to satisfy projected passenger traffic Several fundamentals provide the impe- needs and retire old airplanes that are getting

Photo courtesy of Boeing of courtesy Photo tus behind these increased orders, including costly to operate in an environment of rising fuel surging traffic and the need to replace aging and higher maintenance costs. While start-up equipment with new, more efficient airplanes. airlines are creating their fleet, established Demand for air travel has increased due to airlines are focusing on fleet expansion and re- globalization and liberalization in emerging newal. The economic pressure of high unit costs

Boeing and Airbus Aircraft Orders

1,200

1,000

800 orders

of

600 Number 400

200

Last year, Boeing launched the 747-8 pro- 0 gram, including the 747-8 Intercontinental 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 passenger airplane and the 747-8 freighter. Year Two carriers, Cargolux and Nippon Cargo Airways, have already announced orders for Airbus Boeing the cargo version of the aircraft. The 747-8 is one of the new aircraft currently under Last year saw a record number of aircraft purchases as Airbus and Boeing development from the main aircraft manu- combined to log more than 2,000 orders, stemming a downward trend facturers, Boeing and Airbus. that began with the industry downturn in 2001.

28 ascend industry Photo courtesy of Airbus of courtesy Photo has driven the need for the operational effi- ciencies that new aircraft and technology offer. Both Airbus and Boeing have been developing new airplanes as well as creating variants of existing models, ranging from the new Boeing 787 and Airbus A350 to the ultra- long range 737-900ER. To take advantage of continued strong growth in cargo, plus address aging cargo fleets, new cargo aircraft have also been under development. In 2005, Boeing launched the 777 freighter as well as a freight- er version of the 747-8 to accompany the pas- senger model. Airbus has not announced any intentions of introducing a mid-size freighter of its own, but is confident with its A380F. The entry of the new, large-capacity freighters is significant on two fronts — the economic life of the oldest freighters is closing, creating the need to replace these aircraft, including the In response to the launch of the new fuel-efficient Boeing 787, Airbus announced plans Boeing 707, McDonnell Douglas DC-8 and at the Farnborough Air Show in July for the A350 XWB, which is scheduled to be available Boeing 747-100; and high-capacity freighters in 2012 and will feature a wider fuselage for extra space and passenger comfort. will be able to consolidate existing service on routes to countries, such as China, where slots are limited. the “trend toward larger regional jet and turbo- A new contender in the RJ market The Regional Jet Market prop aircraft continues, driven by lower fares, is Sukhoi Civil Aircraft, which launched the Embraer and Bombardier have both higher fuel prices and increasingly relaxed pilot Russian Regional Jet program for 75- to 95- seen growth in their 60- to 100-seat capacity scope clauses.” This is seen at Embraer as seat aircraft. The partnership among Sukhoi, jets. Interest has grown for Embraer’s 170/190 well, where at the end of the first quarter, the Boeing, Ilyushin and Yakovlev is aimed primar- family, while Bombardier ties its growth to the company had a firm order of 341 jets, only 21 ily at carriers in Russia with a need for 65- to CRJ700/900 family. According to Bombardier, of which were the smaller ERJs. 90-seat jets. The country’s flag carrier, Russian Airlines, has already placed an order for 30 aircraft. Sukhoi has received more than Distribution by Age of Aircraft 130 orders for the RRJ. The International Air Transport Association’s forecasts for passen- ger traffic in Central and Eastern Europe are rosy, owing in large part to the expansion of 1,600 the European Union and continuous liberaliza- tion of air travel in the region. IATA’s 2005 1,400 to 2009 passenger forecasts show Poland and the Czech Republic with average annual 1,200 growth rates of approximately 10 percent, compared to 5.1 percent within Europe. Low- cost carriers are prevalent in the newest mem- 1,000 bers of the European Union such as Croatia, Bulgaria and Romania, which can now operate aircraft

of 800 unfettered by bilateral agreements between

all member states. Sukhoi will undoubtedly target these emerging carriers as well as oth- 600 Number ers worldwide.

400 Emerging Markets Passenger traffic within Asia has realized 200 tremendous growth owing to strong advances in the gross domestic product of many of the region’s countries and pent-up demand 0 resulting from the severe acute respiratory 1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 >20 syndrome crisis in 2003, the tsunami in late Age in years 2004 and other world events that have hin- dered growth in air travel. China and India are Even with a large number of recent aircraft orders, there remain nearly 1,400 leading the world in aircraft orders, driven by aircraft older than 20 years in the fleets of the world’s airliners — by far the market demands to create a robust domestic largest number. These aircraft will have to be replaced in the coming years network, followed by expansion into additional as their functional life comes to a close. international markets. Insufficient investment in infrastructure in both countries is creat-

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ing roadblocks to further traffic development. Highlight More new airports and runways are needed, along with the capability to manage accompa- nying growth. As traditional airlines continue to be chal- China lenged by the cost effectiveness of low-cost Narrow-bodied aircraft dominate the Chinese market due to the prevalence of short-haul and regional routes. Seizing upon carriers, they will be compelled to seek eco- the growth in traffic in this emerging market, Airbus and Boeing are engaged in fierce com- nomically efficient solutions and consider petition to meet China’s needs for single-aisle, twin-engine aircraft. The China orders reflect the value they can provide their customers. the manufacturers’ overall order book — nar- row-body aircraft represent a majority of 2005 sales for Airbus and Boeing, comprising 83 percent and 58 percent of their respective total orders. it to increase service and develop its Beijing example, after bilateral air service talks between Chinese aviation officials signed a deal hub. The 2005 deal surpassed the estimated the United Kingdom and India governments in worth US$10 billion with Airbus for 150 nar- US$4 billion deal Boeing made with China April 2005, the skies were opened to allow a row-body aircraft in December during a meet- for 70 737NGs the previous month during dramatic increase of service between the two ing between Chinese Prime Minister Wen a visit by President George Bush to Beijing. countries for airlines from both sides. Jiabao and his French counterpart Dominique Airbus’ total sales from China in 2005 were and Indian Airlines had been the only airlines de Villepin. China Aviation Supplies Import 219 aircraft. allowed to operate international routes, but and Export Group, an organization that pur- The current Chinese fleet is dominated lobbied successfully and gained chases aircraft on behalf of airlines in China, by Boeing, which has a market share of rights to fly to London and Singapore in 2005. will distribute the A319s, A320s and A321s, approximately 60 percent. Airbus is target- Lifting regulatory burdens has allowed airlines, to , , China ing to capture at least half of China’s future such as Jet Airways, to refine their business Southern Airlines, , Shenzhen aircraft orders, which it forecasts to be 1,800 models and explore different strategies, which Airlines and . In June, Air China by 2020. ultimately offer more opportunities to passen- announced that it would purchase 24 A320s as In June, the Chinese coastal city of gers. Similarly, in March, Australia and India part of the original 2005 deal, which will enable Tianjin was chosen as the first non-European entered into a bilateral agreement of their own site for an Airbus A320 assembly plant. Airbus to open air services that allow Australian and has other assembly lines in Toulouse, France, Indian airlines to develop commercial partner- 2005 Aircraft Orders and Hamburg, Germany. The A320 will be ships and increase service. the first single-aisle commercial to be Indian airlines committed to more than for Narrow- and produced entirely in China. Airbus said the 200 firm orders for aircraft last year. Among Wide-Body Aircraft Chinese plant will produce four aircraft per the start-up carriers is Delhi-based IndiGo, month by 2011. which announced the purchase of 100 Airbus For many years, Boeing has also invest- A320 aircraft worth US$6 billion at the 2005 1,200 ed in industrial cooperation in China, both as Paris Air Show. In January, Air India purchased a way to reduce costs and attract sales in the 68 aircraft from Boeing, including 18 aircraft 193 region. China has a significant role in the build- for its low-cost start up Air India Express. 1,000 438 ing of many parts and assemblies on Boeing’s This order will revitalize Air India’s aging fleet 918 aircraft. Boeing has training centers in many by replacing older 747-200s and A310s with 800 Chinese cities, including Kunming and Tianjin, new 777s and 787-8s. The order supports Air and has participated in joint ventures for main- India’s plans for growth in long-haul markets. orders tenance, repairs and composite structures. The deal also included an agreement from

of 600

593 Boeing to invest in a regional maintenance, India repair and overhaul base and a pilot training 400 Number Economic liberalization in India has cre- center in India. ated a competitive environment with the emer- 200 gence of low-cost carriers and burgeoning New Aircraft Efficiencies traffic growth. In a country where air travel The surge in aircraft orders is not only was only recently viewed as exclusive and the due to the air travel growth resulting from 0 Boeing Airbus domain of the wealthy, affordable fares have liberalization and trade. Legacy carriers are now persuaded many to take their first flights. investing in fleet modernization to take advan- The growth of the middle class has propelled tage of newer technologies, fuel efficiencies, Wide body Narrow body traffic expansion in the country. In the past improved safety and lower maintenance costs Although Airbus has overtaken decade, the government has begun to lift than those of an older fleet. The economics of Boeing in terms of overall orders, restrictions to allow private airlines to compete new aircraft have increased in attractiveness Boeing retains the lead in the number against the established and state-owned Air with the surge in fuel prices, intensified com- of lucrative wide-body aircraft, such as India and Indian Airlines. petition and reduced profit margins. Airlines the 777 and 787. Bilateral agreements have opened up are considering early aircraft renewal or retire- more routes in India in the past 18 months. For ment to phase out older-generation aircraft in

30 ascend industry Photo by Joseph K.K. Lee/JetPhotos.net K.K. Joseph by Photo light of increases in oil prices. According to Boeing’s long-term forecast, 70 percent of new deliveries are for growth and 30 percent are for replacements. Boeing also estimates that 60 percent of new deliveries during the next 20 years will go to network carriers and about 35 percent to LCCs. As traditional airlines continue to be challenged by the cost effectiveness of low-cost carriers, they will be compelled to seek economically efficient solu- tions and consider the value they can provide their customers. Boeing’s 787 is its answer to the com- pelling need for cost savings. New technolo- gies and materials in the 787 will increase the efficiency of the aircraft by 20 percent while maintaining speeds comparable to today’s The new Guangzhou Baiyun Airport in China is one of three strategic hub airports in the fastest wide-bodied aircraft. Boeing also country along with counterparts in Beijing and Shanghai. The new airports will enable the looked to improve the passenger experience country’s airlines to operate more competitively and develop both domestic and international by increasing humidity, raising cabin pressure markets, possibly increasing demand for new aircraft. while in flight, offering friendlier lighting, creat- ing a spacious cabin interior and increasing window sizes. Boeing’s vision for the future of air travel with Shenzhen and Hong Kong. The creation building more than a dozen airports that meet involves high frequency, point-to-point flights of three strategically located hub airports in international standards. for 200- to 300-seat aircraft, while Airbus’ Guangzhou, Beijing and Shanghai will enable The question a rapid capacity increase philosophy involves taking advantage of hub the country’s airlines to operate competitively poses is whether the infrastructure can sup- structures in the world’s most populous cities and develop their position in both domestic port the coming demands brought on by by flying the 555-seat A380. 2006 and 2010 and international markets. increasing air service. Sufficient maintenance will mark significant milestones with the deliv- The Administration of facilities, airport improvements, crew require- ery of the first A380 and 787, respectively. China has earmarked massive spending for ments and ATC all represent massive chal- airport development, centered on new airports lenges. The viability of the growing airline Airport Development and upgrading existing infrastructure. By 2020, industry abroad will depend, to a large extent, Investments in aviation infrastructure the number of airports should rise to 220 from on accommodating the traffic increase with development go hand in hand with the increase 142 airports today. Commercial aircraft will more than just capacity. in aircraft orders and huge potential for air grow to approximately 4,000 by 2020, up from As increased liberalization and global travel growth. Airport development in emerg- the current 863, according to a CAAC official. expansion continues to fuel more demand for ing markets is contributing to the growth of In India, all of the more than 400 air- travel, airlines and the air transportation infra- the region’s aviation network. One example ports need modernization, updated equipment structure must continue to grow to meet the is Baiyun Airport in Guangzhou, China, which and services, new terminal technologies, and heightened needs. a opened in 2004. Not only does the modern upgraded transport facilities. There has been airport exemplify the economic transformation insufficient funding to support necessary of the country, it also contributes to the goal upgrades. The government is seeking private, Jennifer C. Cheung is a consultant of developing a hub structure on the mainland. foreign investment to improve and build air- and Peter Berdy is a partner for the The Baiyun Airport was designed with a hub port facilities on a build-operate-transfer basis. Sabre Airline Solutions® consulting concept in mind, and its main function will be During the next 20 years, passenger traffic is practice. They can be contacted to operate domestic routes in the developing expected to grow 400 percent and cargo by at [email protected] markets in the Pearl River Delta competing 600 percent. The government is planning on and [email protected].

+count it up

7 70+ 3 billion Percentage of Asia’s economic Number of airlines implementing bar- The amount in U.S. dollars the Inter- growth, excluding Japan, which is coded boarding passes as a result of the national Air Transport Association’s double the world average of International Air Transport Association’s 100 percent electronic ticketing will 3.5 percent. Simplifying the Business initiative. save the industry annually.

ascend 31 industry

Communications: A Necessary Exchange

A sufficient communications infrastructure can play a vital role in enabling airlines to develop partnerships around the world.

By Phil Johnson | Ascend Staff

hen evaluating the potential for Highlight countries in various areas of the Wworld to be able to accept and support airline liberalization and open skies, one of the most fundamental building … overall cost of doing business favors blocks that must be in place involves communications. the connected areas with regard to open-skies And that’s not necessarily communica- tions between and among human beings, agreements, cross-border ownership and although that type of communication is certainly vital. general liberalization of the transportation But the key factor that may promote or hinder the entry of airlines in certain regions industry. into open-skies agreements may well be communication infrastructure that supports not only voice and written messages, but data — the kind of communication that allows And in the world’s remote areas, if com- Speed, data delivery and full global con- ready connectivity in a Web-based world. munications connectivity exists, it may only exist nectivity are all factors that tend to be limited Among the places in which such com- in particular and/or restricted forms, satellite or significantly in an area of less-than-full-com- munication capability is most challenging are Internet connection, with severely limited band- munication capability, which limits the ability those areas generally considered remote cor- width. Especially if there’s little or no competi- of any business in that area to operate glob- ners of the world, such as the many islands in tion to upgrade the infrastructure, there may be ally and, therefore, of any airline operating the vast Pacific region known in such group- no recourse in such a situation but to simply out of that locale to enter into liberalization ings as Polynesia and Micronesia, many of accept what’s available and pay the premium. agreements. the islands of the Caribbean, certain regions

of Africa, polar geographies and other out-of- Lerich/iStockphoto.com Robert by Photo Viisimaa/iStockphoto.com Peeter by Photo the-way areas. These are regions in which the creation of communication infrastructure is a particular challenge. And if and when these areas do become connected, it’s often through a single provider or an extremely small group of provid- ers — at costs that elsewhere would usually be thought of as pretty extravagant (as com- pared to the typically much lower costs found in more competitive environments). In most western areas — as well as in much of the developed east — competition among multiple telephone and other com- munications providers can usually be counted on to drive connectivity costs down. This, in turn, means the overall cost of doing busi- ness favors the connected areas with regard In some regions of the world, such as some Caribbean islands and many countries to open-skies agreements, cross-border in Africa, effective communications are a challenge due to limited infrastructure ownership and general liberalization of the or due to their remoteness. transportation industry.

32 ascend industry

Photo by Alexis Puentes/iStockphoto.com These limited-communication conditions prevail not only in remote areas, but in areas of routine danger due to war and political instability or catastrophic weather occurrences (hurricanes, tornados) or high potential for major geologic events (earthquakes, tsunamis, volcanic eruptions). Each of these types of general disruption can obviously present a new obstacle to the establishment of communication infrastruc- ture. If the infrastructure existed previously and has been destroyed or severely damaged, Photo by Ron Hohenhaus/iStockphoto.com it has to be rebuilt, sometimes completely. Photo by Vladimir Dmitriev/iStockphoto.com And the financial investment required to build, add and enhance infrastructure in these situa- tions is often enormous. Politics can also be a key factor in situations such as those involving totalitarian regimes that maintain tight control over com- munication infrastructure. On the World Wide Web, privacy and other considerations have prompted the fairly routine practice of data encryption. But governments in places such as China and Libya demand non-encryption of data. Once again, such stringent political man- dates can effectively prevent airline liberaliza- tion from ever even being considered, much less implemented. In this era of China’s commercial emer- gence, it seems almost odd to identify a factor that clearly limits a certain part of the advance Photo by Sergei Chumakov/iStockphoto.com of this gargantuan economic engine. That is not, however, to imply that China is anything but fully connected for business in the 21st century. As far as communication infrastruc- ture, connectivity in China is readily available, although expensive due to state ownership and lack of competition. But even in India — the other consensus emerging global economic power — commu- nication infrastructure in the past has been so under-prioritized that Indian authorities today Modern communications technology — such as satellite links, networks and the Internet have been obliged to commit enormous finan- — provide a key resource that could help promote the globalization of the air transport cial investment to rapidly upgrade and modern- industry. A modern communications infrastructure provides a critical, cost-effective link ize that infrastructure. among partners that can maintain the economic justification for developing global General political unrest is another area working relationships. of concern when evaluating a country’s com- munication infrastructure and its ability to inter- act effectively in a global economy. And even political uncertainty effectively limits any par- connections that are critical to any potential unit costs so high that the very economic ticular country’s ability to join in true open-skies upgrading of communication infrastructure. viability of pursuing business relationships in a arrangements, bilaterally or multilaterally. And in these situations, there’s no hope of particular country can be called into question. Cuba, of course, has long been sub- improvement unless and until the government There has to be a fair chance of long-term ject to a controlled economy and U.S. trade decides to commit substantial financial invest- profitability, or the business equation simply sanctions that, taken together, effectively ment to upgrade. doesn’t work. prevent the Cuban populace from sharing in And this again raises the original ques- So airlines are best advised to partner in worldwide economic growth and prosperity. tion: Is communication infrastructure a signifi- areas of political stability and sound, modern A number of airlines fly to and from Cuba, cant factor in promoting or hindering transpor- communication infrastructure. These are bed- but communications connectivity to their tation liberalization, open-skies agreements rock foundations critical to achieving the next Cuban facilities are quite expensive and and cross-border airline ownership? steps of liberalization. a very limited. Obviously, the answer is yes. A modern, Governments in controlled economies fully up-to-date communication infrastructure often own all of the means of improvement, is essential — and an inferior, limited com- Phil Johnson can be contacted at such as the national telephone companies and munication infrastructure can drive prices and [email protected].

ascend 33 industry

Going Global

Many airlines are looking to expand into global markets as the industry becomes more liberalized. However, such expansion can create new challenges for an airline that must market itself and attract new customers.

By Gordon Locke | Ascend Contributor

irlines around the world are seeing the has advanced online booking and where cul- means a heavy pre-launch targeted consumer culmination of many years of effort to ture of consumerism thrives should give pause awareness campaign to drive Web site traffic. Aliberalize international air transport. As to an airline unfamiliar with such practices. In addition, fulfillment costs, payment solutions global flying becomes easier to consider and Conversely, domestic airlines that use pri- and credit card fees can quickly outpace other markets open through the lifting of restrictions, marily Web-based distribution will face new forms of distribution if not orchestrated care- new challenges arise as competition becomes challenges if they give in to the temptation fully. Airlines wishing to expand may feel relief more fierce than ever. of global traffic, either through a partnership from the lifting of restrictions, easing the often In the new global world, airlines may or their own flying. Adding international traf- painful costs of time and resources required discover the hard way that age-old practices of fic requires not only mastering and revisiting just to realize a new expansion opportunity market analysis, fleet optimization, financing indirect distribution methods but also doing and receive permission to serve a new market. or budgeting for new routes may now be the so with a new brand in a new market. It may However, the motives that may have sparked easier part of the equation. Deciding to fly to even constitute an unrecognized business interest in expansion — to better utilize fleet a new international destination, though the model change, catching airlines that under- or increase available seat miles — could yield metrics and numbers may be attractive, brings estimate market penetration and competitive the unexpected result of skyrocketing costs to bear an airline’s ability to practice the art reaction unprepared to make the necessary of sales from calibrating across a mix of and science of consumer marketing outside of adjustments. marketing practices, channels and customer its comfort zone. Additionally, it forces airlines The cost of sales mix can also be elusive segments. already serving global markets to react to a new in some markets. For example, direct online Each region of the world has its unique competitor — forcing strategic shifts in chan- distribution start-up costs in a new market challenges with liberalization. Globalization in nel focus, pricing, brand message and product. the airline industry means the decision to The liberalization efforts underway in the Meyer/iStockphoto.com De Franky by Photo join an alliance or form independent strategic European Union will aim to extend the current partnerships is not easy. Both approaches can 25 E.U. members to 35, creating a market work equally well. In Africa, for example, one close to 500 million people. Barriers to inter- of the fastest-growing aviation markets, the national travel will come down, and airlines opportunity is a mixed blessing. The added of many sizes and business models will go pressure to perform in a growing multina- head to head for market penetration. Airlines tional space with expert consumer marketing will be forced to move beyond their traditional practices, while weighing infrastructure and challenges regarding permits, slots, aircraft safety improvements, is daunting. Add to and passenger market size and adapt to a new that, balancing which types of partnerships to environment that requires the ability to con- form and destination marketing practices can nect better with customers, more quickly and require a new level of sophistication in sales in a sustainable way. Assuming the customer and service practices. It can even be said that metrics are correct, the key component of globalization, at least short term, could be a successful global expansion comes down harmful to African carriers as new external to brand and ensuring it translates to a new brands make themselves more easily present culture or country. This will be an especially in African markets. compelling issue for airlines that will benefit It is not hard for a successful domestic from E.U.’s more open aviation policy with or regional airline, with a strong brand and loyal countries in Asia/Pacific. customer base, to see the lure and caché of Global expansion presents particular Expanding into new global markets a new accessible international city. However, challenges for airlines that rely on multi-chan- requires airlines to master distribution if the foundation of success has merely been nel product exposure such as direct/indirect methods as well as market their brand long-term presence at home with few compet- online and direct/indirect offline distribution. to a new audience in a new area. itors, launching a new route, whether through Deciding to fly to a market where a competitor codeshare or using its own aircraft, brings on

34 ascend industry

a new set of complexities such as commercial Current European Union Members implications, new business practices, localized Austria customer service and operations, legal, and Belgium banking issues. And, after all of those issues Cyprus have been addressed, the brand still may or Czech Republic may not work regardless of what sometimes Denmark appears to be overwhelming reasons to fly. Estonia The breadth of marketing competencies Finland an airline needs to embrace, with globalization France Germany and the threat of competitive entrants at any Greece time, is quite broad. In examining the anatomy Hungary of the process of reaching a new customer, Ireland convincing him or her to buy and fly — and do Italy it again repeatedly — while competing against Latvia a global or network carrier is not for the faint Lithuania of heart. Luxembourg However, the ability to be clever, deliver Malta value, differentiate and connect with a new Poland local customer base — or tap into existing cus- Portugal tomers to fly a new route — can be a satisfying Slovakia Slovenia win. So, while operationally an airline has more Spain options and fewer restrictions, owns clear Sweden slots, has solved fueling needs, and planned The Netherlands turnarounds and ground operations, the mar- The United Kingdom keting department and the distribution model has now become a bigger factor than just a good schedule and a great price. Customers in a new market react to brands and implied value with a vastly different set of cultural nuances. Thus, understanding how to distrib- ute through all channels and having the right brand will determine who is successful in the new world of liberalized air travel. a

The expansion of the European Union from its 25 current members will create a market Gordon Locke is a vice president close to 500 million people. Further liberalization of the European marketplace will lower of marketing for Airline Passenger barriers to international travel, creating an opportunity for airlines of various sizes Solutions for the Sabre Airline ® and business models. Solutions business. He can be contacted at [email protected]

+count it up

189 2005 4.3 million Number of International Air Transport Year the International Air Transport Number in tons of carbon dioxide Association members currently in Association’s work with governments to emissions that were saved last year the IATA Operational Safety Audit establish more direct routes optimized as a result of the International Air process, which is designed to further 300 air routes, eliminated 6.1 million tons Transport Association’s “Go Teams” increase safety in the air transport of carbon dioxide emissions and saved work with member airlines’ opera- industry. US$1.2 billion. tions departments to spread industry best practices. The effort saved US$850 million.

ascend 35 industry

Shaping up

Last year, world scheduled airline passenger revenues surpassed US$400 billion for the first time, continuing an increase that began three years ago and looks to continue.

By Vijay Bathija | Ascend Contributor

ince the air transportation industry’s Worldwide Airline Revenues decline of 2001 and 2002, world airline Srevenues have been increasing again for the past three years. In 2004, total airline 500 revenues increased above the 2000 peak for the first time, and that growth continued last 450 413.3 25.00% year at a very healthy 10 percent. 400 374 Although the airline industry has always 20.00% 328.5 been cyclical, the past few years have been 350 305.5 307.5 306 312.9 even more challenging than the usual down 15.00% 300 cycles. Airline traffic and revenues are suscep- tible to world events, both economic and politi- 250 10.00% cal, and since peaking in 2000, the industry 200 5.00% has endured two main events that led to the U.S. $ (billions) decline in revenues: 150 The events of Sept. 11 caused a decline in 0.00%

100 Percentage of growth rates overall airline traffic and revenues. -5.00% Severe acute respiratory syndrome had sig- 50 nificant downward impact on international -10.00% traffic and revenues, especially in Asia. 0 1999 2000 2001 2002 2003 2004 2005 Some Asian carriers saw almost a 50 per- cent drop in their traffic. The impact of these events led to an eco- Airline revenue Growth rate nomic slowdown around the world. Because business traffic is closely tied to the level of Scheduled airline passenger revenues have increased steadily since 2002. economic activity, airline travel also slowed. In 2004, revenues crossed the previous peak of 2000 and continued the upward However, since 2003, an economic momentum in 2005. recovery started to take shape, and airline revenues have increased correspondingly. “The airline industry has gone through many challenging times,” said Nejib Ben- Worldwide economic recovery after the India is emerging as a growing eco- Khedher, president and managing partner of weakness seen in 2001 and 2002 has included nomic force and is expanding rapidly in the the consulting practice for the Sabre Airline a return of leisure as well as business travel. service sector. A growing middle class and its Solutions® business. “However, we think the Airline industry revenues spiked sharply in 2004 increasing integration with the world economy recovery will continue as people’s need for following the strong volatility of demand from are resulting in rapid expansion of domestic travel continues to grow with globalization and 2001 to 2003. This trend has returned to more and international traffic. India’s domestic traf- economic progress.” stable levels in 2005, and the International Air fic grew by almost 50 percent in 2005 and Factors contributing to the continuing Transport Association forecasts more stable expects to continue growing. With liberaliza- growth of airline revenues include: growth during the next five years. International tion, international traffic is also growing and Worldwide economic recovery, traffic is expected to grow between 5 percent capacity is being added rapidly by Indian and Liberalization and growth of emerging mar- to 6 percent during that period. foreign carriers to meet the growing demand. kets such as India, China and Brazil, Another factor contributing to the Airline traffic in China has shown strong Continued strong growth in the Middle East, growth of airline revenues worldwide is the growth that is expected to continue in the com- Growth of low-cost carriers around the rapid expansion of the airline industry in strong ing years. Since 1990, domestic China traffic world. growth markets such as India, China and Brazil. has grown from less than 20 million to almost

36 ascend 120 million passengers in 2005. According to IATA, international traffic to and from China is also expected to grow 9.6 percent annually during the next five years — one of the highest growth rates in the world. Latin American countries are experi- encing a similar growth trend. Traffic within Latin American countries is being boosted by economic revival within the region, especially Emerging regions, including Latin America, China and India, are showing strong growth in countries such as Brazil and Mexico. in airline traffic that is contributing to the improved performance of airlines serving those Developing countries show stronger areas and helping airline passenger revenues pass US$400 billion for the first time. responsiveness in demand to growth in eco- nomic activity. Business expansion leads to Latin America photo from Sabre Airline Solutions archive; Shanghai-Pudong Airport photo by Andrew Hunt/AirTeamImages.com; Delhi skyline photo by Christine Dedman/Dreamstime.com increased employment and higher disposable income, resulting in new demand, therefore the growth in demand and capacity as well adapting best practices as well to meet this and 2002, which often leads to lower revenue as airline revenues from these regions is surge in demand.” per unit or yield. Worldwide yields significantly expected to continue growing rapidly. The low-cost carrier segment has also reduced in the slow period from the peak of While high oil prices have been a featured strong growth during the last few 2000. Recovery started slightly in 2003 and drag on the industry and economies as a years leading to new market demand. Last year picked up pace in 2004. For the first time in whole, the Middle East is showing strong was a particularly strong growth year for LCCs 2004, the yield of 10.9 cents per revenue traffic growth due to the investment of petro in Asia and Latin America. Asia, in fact, had passenger kilometer was higher than the yield dollars. With the expansion of its population the highest number low-cost carrier start ups in the peak days of 2000. The momentum base and already high levels of income, the in 2005 owing to the rapid liberalization of air continued last year and the yield reached 11.1 Middle East is one of the fastest-growing traffic in the region. The emergence of LCCs in cents per unit. regions in the world. Due to strong trade countries such as India, Malaysia and Brazil has “Airlines are finally seeing improved surplus and desire to divest from depen- boosted traffic in these regions. At the same yield, which will enable them to meet cost pres- dence on oil alone, a significant investment time, the largest LCCs in Europe have contin- sures and improve profitability,” Ben-Khedher is taking place in the region’s tourism and ued their growth path, albeit with some profit- said. “We hope this will continue in the next aviation sectors. ability challenges, resulting in higher share of few years as the industry comes out of one of “Air traffic in the Middle East is poised revenues for the LCC segment as a whole. the most challenging times in history.” to continue to grow during the next few The airline industry has high levels of While the return of yields and revenues years due to strong intra-regional travel as well fixed costs. As revenues vary year to year and is a good story, the industry’s profitability is not as emphasis on tourism and high interest in month to month, airlines do not have the ability as large as it could have been. High fuel costs the region from outside,” Ben-Khedher said. to reduce capacity in the same ratio, leading have taken away the benefit of higher yields, “The airlines in the region are growing and to a decline in traffic, as seen between 2001 causing airlines in many parts of the world to still struggle to maintain profitability. In 2005 alone, the industry, according to IATA, lost Worldwide Airline Passenger Yield/RPK almost US$6 billion. The U.S. airline industry has been most affected, losing US$10 billion in 2005. Europe and Asia did better with profits 11.2 of about US$1.3 billion and US$1.5 billion, respectively. However, these numbers are 11.0 only marginal in relation to total revenues. Fuel prices touched a record high in mid 2006, put- ting a strain on airline budgets. High fuel has 10.8 forced airlines around the world to raise fares and limit capacity increases. 10.6 The industry has been going through a fundamental restructuring and recovery forced 10.4 by lower revenues. In the new landscape, air- U.S. $ (cents) lines are battling increased competition and 10.2 higher fuel costs. Deregulation around the world has brought new players and forced older ones to adapt. But, despite the changes, 10.0 demand for air travel will continue to grow as will industry revenues as air transport 9.8 becomes a basic need to meet demand from 2000 2001 2002 2003 2004 2005 globalization. a

After reaching lows in 2002, the past few years have seen a steady improvement Vijay Bathija is a senior principal in airline passenger yields, reaching 11.1 cents per revenue passenger kilometer in the consulting practice of Sabre last year. Airline Solutions. He can be contacted at [email protected].

ascend 37 The GlobAl AdvocAte

38 ascend A Conversation With... Giovanni Bisignani director general and chief executive officer International Air Transport Association

lmost by definition, the air trans- from 140 nations around the world represent- port industry is global in scope. Ever ing 94 percent of scheduled international traf- since Charles Lindberg crossed the fic. In its role as the voice of the industry, IATA AAtlantic with his single-engine “Spirit of St. has taken an increasingly high-profile position Louis,” airlines have connected people across campaigning for its member airlines, including continents. arguing for increased liberalization. Yet, ironically, air transportation remains Since June 2002, the organization has one of the most protected, regulated, frag- been led by Giovanni Bisignani, the former mented industries in the world. In other busi- chief executive officer and managing director ness sectors, such as banking and the auto of the Italian airline . Prior to assum- industry, globalization has become the rule ing his current role with IATA, Bisignani also rather than the exception. Still, the industry served on the IATA executive committee and that in many ways makes such globalization was chairman of the Association of European possible continues to lag behind. Airlines. He also launched and directed Opodo, For years, the International Air Transport the first European airline-owned online travel Association, the industry’s main advocacy agency, and held high-level positions with organization, has argued for a more liberalized ENI, an energy company, and IRI Group, the approach to . For the most Italian industrial conglomerate. He served as part, air traffic is still regulated through series president of Tirrenia di Navigazione, the largest of bilateral agreements between nations that Italian ferry company, and CEO and manag- limit the number of airlines and flights. Most ing director of SM Logistics, a logistics and countries also restrict ownership of domestic freight-forwarding company partially owned by airlines, requiring majority local control. GE Capital. Governments have also seen the indus- Speaking to the Wings Club in New try as an easy target for taxes, imposing levies York City, New York, earlier this year, Bisignani for everything from security to third-world aid. noted that, “Air transport has never faced The combined effect, IATA argues, of such greater challenges. But these are also oppor- measures serves as an anchor keeping the tunities for the change that our industry des- industry from reaching its potential. perately needs.” Air transportation, once the domain of Recently, he shared his thoughts on the the wealthy, has now become a “mass transit industry’s need for increased openness. system” that carries 2 billion passengers a year. According to IATA, air transport supports Question: In your speech to the US$3 trillion of global economic activity — 8 Wings Club earlier this year, you said, “The percent of the global gross domestic product flags on the tails of our aircraft are sinking — and 29 million jobs despite the artificial bar- the industry.” How is the national character riers imposed on the industry. of airlines adversely affecting the industry? IATA, founded in Cuba in 1945, is the Answer: Airlines are businesses. prime vehicle for inter-airline cooperation in Full stop. Airlines are the US$450 billion heart promoting safe, reliable, secure and economi- of a value chain that contributes US$2.9 trillion cal air services. It has more than 270 members to the global economy. But basic commercial

Photos courtesy of IATA ascend 39 profile

In India, recent policy changes have revitalized the aviation industry, taking it from two state-run airlines to a vibrant industry with more than 10 players in a very short space of

Photo courtesy of IATA time. Aircraft orders placed in 2005 will more than double India’s fleet — testimony that India is aviation’s greatest potential market. Currently only 4 percent of the Indian popula- tion flies each year — equivalent to 40 million passenger journeys. If that expanded to even 25 percent of the population, we would have a market the size of the United Kingdom with 250 million journeys a year. The critical question will be whether we can match policy progress with appropriate infrastructure. The hubs of Delhi and Mumbai need immediate fixes to ease current capacity limitations. And we need to start work on new facilities to meet the demand when today’s aircraft orders are delivered.

Q: The International Civil Aviation Organization set the direction for a staged approach to liberalization in 2003, but you’ve said the follow-up has so far proven disappointing. What needs to happen to get back on track? A: We heard nice words from the Under the direction of Giovanni Bisignani, the International Air Transport Association has Fifth ICAO Air Transport Conference in 2003. long advocated increased openness in the air transportation industry. IATA, which represents Governments agreed a course for progressive more than 270 member airlines around the globe, supports efforts to reduce barriers to a liberalization. Nobody expected — or wanted more global industry. — the world to change overnight. But that cannot be an alibi to do nothing. As we all know, agreement and results are very different things. The question is: how do we move gov- freedoms are critical to further maximize this and Europe is being held hostage. It makes ernments? By shouting politely but loudly with wealth generation. Instead, we are stuck with no sense that two markets so similar — the facts and figures. The benefits of liberalization a 60-year-old set of rules — known as the same dimension, the same level of technology are undeniable. Industries that have liberalized bilateral system — that date from an era when and the same level of development — are still are prospering. national carriers were extensions of foreign struggling to get beyond politics mired in an Look at the telecoms sector. Liberalization policy. Times have changed. obsolete vision of the industry. While there with the freedom to merge and consolidate In 1944, air transport served an elite are still delays, it now appears that we could across borders has seen a 30 percent drop in clientele of 9 million passengers, and the DC-3 be on the verge of an agreement later this real prices to consumers while the industry was the backbone of the fleet. As the industry year. Together, these markets comprise two remains largely profitable. A deregulation of makes preparations for the Airbus A380 and thirds of aviation — 105,000 seats every day. half-measures in the airline industry has seen a Boeing 787, 2.2 billion passengers are expect- A substantive agreement on liberalization and similar drop in consumer prices — but we have ed to fly this year. Air travel is more accessible regulatory convergence would be the water- accumulated over US$40 billion in losses in than ever. We are a different industry, and we shed that the industry has been waiting for. the last five years. Not all of this can be pinned need new rules of engagement. And it would set the stage for a full treatment to the failure to liberalize. But as the industry What freedoms do we need? The free- of ownership rules. struggles to reduce costs and improve effi- dom to serve markets where they exist. The But if the leaders of today are not able to ciency, the lack of basic commercial freedoms freedom to access global capital. And the deliver results, the good news is that leaders has held us back like a boxer trying to fight freedom to merge or consolidate. The future of of tomorrow — China and India — are building with one hand tied behind his back. our industry should be defined by competition a solid foundation. Ending the bilateral system would add and by markets. Most other industries take China offers another model of effec- US$12 billion to airlines’ bottom line, not to these for granted. But in the case of airlines, tive policy coordination. The government is mention the ripple effect throughout the global governments are painfully slow at accepting challenging its carriers to compete globally economy. Over that last five years, that would the need for change. with a staged and transparent approach to have made a tremendous difference to the liberalization. Consolidation is strengthening industry’s financial situation. Q: Why are governments still reluc- the global competitiveness of its carriers. The tant to change? level of investment is also significant to ensure Q: You speak of consolidation. Are A: The role of governments is to antici- there will be sufficient infrastructure to support there too many airlines? pate and lead change. But in air transport, too growth that could see as many as 100 million A: We have some 260 member airlines often the result is to block or delay change. Chinese tourists traveling internationally by and the total number is well over 1,000. What Even an agreement between the United States 2020. other industry is this fragmented? If you look at

40 ascend profile

other strategic industries such as steel, ocean Q: How do governments justify vision for a future industry where airlines can shipping or automobiles, there are only a hand- imposing deep taxes on airlines while at run their business like any other business. It is ful of players and nobody is concerned. But for the same time subsidizing their rail com- the change that our industry needs for sustain- some reason, as soon as two airlines try to do petitors — even though the aviation indus- able profitability. almost anything together, the regulators slow try has been faced with such challenging or stop the process. An industry that competes times? Q: Airlines around the world have globally needs regulators with a global vision. A: It cannot be justified. European rail varying degrees of technology — from There is some good news. Air France and is subsidized by 50 billion (US$64 billion) the latest high-tech systems to those that KLM are delivering some of our industry’s best each year while airlines contribute 5.9 billion still perform functions manually. How does results as a result of merging despite complex (US$7.6 billion). Let me explain the market IATA’s Simplifying the Business initiative and restrictive requirements by governments. distortion in concrete terms. Each journey help with globalization? And the Lufthansa-Swiss partnership looks set by rail in France is subsidized by 7.40 A: Technology knows no borders. The to do the same. But these are the exceptions. (US$9.47), while each journey by air contrib- problem in the past has been the lack of indus- We need to see much more. utes 8.40 (US$10.75) in taxes and charges. try-wide coordination of its implementation. In many cases, air transport competes direct- However, our Simplifying the Business initia- Q: Is security not a concern? A: It is a concern for any government, but it is not a stopper to the liberalization pro- Highlight cess. Golden shares and other such methods can be employed to ensure capacity in times of national emergencies. But even at that, look Air travel is more accessible than ever. at the merchant marine. There are very few national fleets left. But in times of crisis, sup- We are a different industry, and we need plies get to where they are needed by letting markets work. We need to avoid flags of con- new rules of engagement. venience issues that have plagued maritime shipping. Governments must maintain strong roles in safety, security, regulating monopoly suppliers and maintaining a level playing field. ly with high-speed rail. It’s wrong, and we tive demonstrates that a coordinated effort But beyond that, airlines should be treated like must change the image of our industry to can unleash the value of technology across an any other industry. reflect the reality. The 2.2 billion passen- entire industry. Simplifying the Business’ five gers who will travel by air this year are not core projects — 100 percent e-ticketing by the Q: Taxation of the airline industry all millionaires. end of 2007, bar-coded boarding passes, com- has been a major issue in many regions. They are people traveling for business, mon-use kiosks for self-service check-in, radio What are you doing to convince govern- to meet family or enjoy a vacation. There is no frequency identification for aviation and IATA ments to lower the tax burden on airlines? reason why they should be subject to taxation e-freight — increase the convenience of travel A: The most frustrating and baffling schemes akin to alcohol and tobacco. and the ability for airlines to increase efficiency aspect of governments’ approach to aviation on a global basis. None of the technology is over the years has been counter-productive Q: If the airline industry achieves new. Competitive advantage is not an issue, taxation. Airlines generate 29 million jobs that true globalization, what impact do you industry health is. Ultimately, it will save the support 8 percent of global gross domestic foresee that having on the industry? industry US$6.5 billion annually. product. But instead of nurturing the industry A: Full liberalization would lead to a far as an engine for growth, too many govern- more efficient and financially healthy industry Q: What is your vision for the indus- ments see us as a cash cow. — one that maintains affordable travel for try five years from now? There is no better example of this than consumers and continues to deliver global A: Airlines have delivered tremendous the French government’s decision to tax airline economic benefits. It won’t happen overnight. results in the last four years. Non-fuel unit passengers to fund development in poorer But it must define our future. costs decreased by 13 percent. Labor unit countries. The tax came into force in France costs decreased by 33 percent. And distribu- on July 1, and ranges from 1 (US$1.28) to Q: What role are alliances playing in tion costs were slashed by 10 percent. In the 40 (US$51.20) per flight depending on dis- globalization? Can they do more? last two years alone, fuel efficiency improved tance traveled and type of ticket. It is forecast A: Alliances are helping airlines achieve by 5 percent. To help quantify this, the industry to raise 210 million (US$268.8 million) annu- greater network reach and cost reductions fuel bill went from US$40 billion in 2002 to ally for developing countries — a mere 2.5 through joint purchasing initiatives as an US$91 billion last year. We expect the 2006 percent of the French aid budget. example. They are not an excuse to avoid bill to be US$112 billion. The industry is in the No one opposes helping developing liberalization. red. But losses will decrease despite the rise countries. But this tax hurts the very things in fuel prices. it is designed to help. No industry has done Q: In recent years, you’ve lobbied In five years’ time, we need to be deliv- more for development. In Africa, air transport not only for “bilateral open skies” but for ering returns to our investors — regardless of generates employment for 470,000 people “wide-open” skies. How does one differ the price of oil. At the same time, we must adding US$11.3 billion to African GDP. More from the other, and are wide-open skies a maintain our constant focus on improvement importantly, air transport provides transporta- foreseeable part of the air transport indus- in safety, security and environment issues. tion links to areas that would otherwise be try of tomorrow? And we must be further ahead in convincing inaccessible. Making air transport more expen- A: Open skies are bilateral agreements governments of the need for continued sive is akin to biting the very hand that feeds without capacity constraints — an extension change — hopefully in an already liberalized development. of the bilateral system. Wide-open skies are a environment. a

ascend 41 Livin’ La Vida Buena profile Top Latin American carriers TACA, TAM, LAN, Gol and Copa are changing the region’s airline industry through initiatives that are luring passengers from buses to airplanes.

Photo courtesy of TACA

By Lynne Clark | Ascend Staff

any airlines north of Mexico may still be struggling, but strong signs Mof recovery, growth and optimism are visible in Latin America’s previously stag- nant airline industry. Alliances, investments, Photo courtesy of United Airlines new strategies and start-up airlines are show- ing a confidence in the market that has not been seen for some time. The airline industry in Latin American is one of the fastest growing in the world with companies in Brazil, Mexico and Colombia lur- ing scores of passengers off buses and onto planes. Growth has largely been triggered by improvements in the region’s economy and rising per capita income. The number of passengers in the region rose to 76 million in 2005, up 14.4 percent from 2004, according to figures from Aital, a Miami, Florida-based Earlier this year, TACA and United Airlines implemented a codeshare agreement, offering industry association grouping of 29 airlines in United customers access to 18 new destinations in Central and South America and giving Latin America. But while the number of pas- TACA customers access to 192 cities worldwide. sengers is rising, the number of available seats in Latin America expanded only 8.1 percent over the same period. The aviation market in South America TACA Reaches out “Partnering with such a prominent, can best be described as turbulent: carriers Some of the biggest news came high-quality Latin American airline group as recovering from the economic crash of 2001 in June when United Airlines and TACA, TACA both strengthens the value of our still face staggering challenges ranging from a leading commercial aviation consortium service and supports our ability to grow interna- political unrest, shaky local economies and in Latin America, began a codeshare agree- tionally,” said Mike Whitaker, United Airlines’ fluctuating exchange rates to high fees and ment. The partnership opens 18 new Central vice president-alliances, international and taxes, and restrictive legislation. and South America destinations to United regulatory affairs. “Our agreement with TACA Despite these challenges, several Latin customers and gives TACA customers un- enables us to significantly and strategically American airlines made headlines in recent precedented access to 192 cities worldwide. increase the depth and breadth of our service months with announcements of new alliances, TACA serves 35 cities in 19 countries in into Central America for our customers.” fleet acquisitions and cross-border flights sig- the Americas, with hub operations in San Roberto Kriete, TACA’s president of naling an optimistic future for the region’s Salvador, El Salvador; San Jose, Costa Rica; the board and chief executive officer, said, emerging airline industry. and Lima, Peru. “Complementary route networks, shared

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commitment to superior customer service and experience in the industry that dates back to the beginning of the century make TACA and United natural partners in their continuous efforts to improve the customer travel experience. This agreement’s forward- looking approach yields strategic implica- tions that will enable our users to enjoy a worldwide connection and combined frequent Photo by Carlos Yamil Ramos/MyAviation.net flyer benefits.”

Copa Airlines Expands Also in June, , a subsidiary of Copa Holdings, S.A., expanded its fleet with the arrival of three new aircraft, two Embraer 190ARs and one Boeing 737-700 NG, bringing the total number of aircraft in the airline’s fleet to 27. The expanded fleet will accommodate Copa’s route expansion later this year to Trinidad and Tobago, Brazil, the Dominican Republic, Uruguay, and Honduras.

Photo by EDINEY/MyAviation.net “These new routes are part of Copa Airlines’ regional expansion and consolidation plan, which provides our customers a greater number of travel options and convenient con- nections through our ‘Hub of the Americas’ in Panama,” said Jorge Garcia, commercial vice president, Copa Airlines. “Our new flights Panama-based Copa Airlines and Chile-based LAN have become two of the more successful contribute to the growth of commerce and Latin American carriers. Copa increased its fleet by three aircraft, enabling the airline to add service to Trinidad and Tobago, Brazil, the Dominican Republic, Uruguay, and Honduras. tourism in these important cities.” LAN will introduce long-haul service on Boeing 767-300 aircraft to North and South American Copa Airlines is one of the leading pas- destinations. senger airlines in Latin America. Operating from its strategic location in the Republic of Panama, Copa offers more than 90 daily sched- uled flights to 30 destinations in 20 countries in North, Central and South America and the Caribbean. In addition, Copa provides passen- gers with access to flights to more than 120 other international destinations through code- share agreements with and other airlines.

TAM and GOL Cross Borders Photo by Javier Guerrero/AirTeamImages.net In July, Brazilian-based airlines TAM Linhas Aéreas and young start-up GOL Linhas Aéreas Inteligentes both announced cross- border expansion plans to neighboring countries. TAM announced seven new flights, including two international routes, one to Asunción, the capital of Paraguay, and another to Buenos Aires, the capital of Argentina. The announcement came less than a week after TAM signed a memorandum of understanding to buy 37 airplanes from Airbus. Toward the end of 2005, TAM, Brazil’s leading domestic carrier, controlled the market Photo by Javier Guerrero/AirTeamImages.net with a 44 percent share, according to the coun- try’s civil aviation authority, the Departamento de Aviação Civil. TAM flies from São Paulo to major points within Brazil, neighboring coun- Brazilian-based TAM and GOL plan to expand to neighboring countries. In July, GOL tries, France and the United States. Recently, launched two new flights to Argentina, and the airline plans to launch a low-cost carrier the airline has faced stiff competition from in Mexico. TAM recently introduced seven new flights, including routes to Paraguay GOL but remains focused on differentiating and Argentina. itself by appealing to customers with its high levels of service (the red carpet is rolled out

44 ascend profile Sabre Airline Solutions archive Solutions Airline Sabre

LAN Peru, with a hub in Lima, brings thousands of travelers each year to the city and its many attractions such as the cathedral in the Plaza de Amas.

for boarding passengers) and direct flights to a Cintra S.A. The potential market for domestic LAN Airlines is a member of the one- large number of destinations. air travel in Mexico is 50 million passengers a world alliance. It has bilateral commercial South America’s most profitable carrier, year, according to Cintra. agreements with oneworld partners American GOL, announced two new flights to Argentina GOL has partnered with Mexican Airlines, British Airways, Iberia Airlines and in July and continues to make news in Mexico investment group Inversiones y Tecnicas Airways and also with , as it nears the launch of a yet-to-be-named Aeroportuarias S.A. and is working with author- AeroMexico, Mexicana and TAM. One of the low-cost carrier. ities to begin flights in the near future. biggest airlines in Latin America, it posted Since its launch in 2001, analysts agree profits for the fourth quarter of US$47.6 million that GOL has achieved more in five years LAN Goes Premium compared with US$35.2 million for the same than most companies do in decades. The Chilean-based LAN announced in June period the previous year. company’s share price has more than doubled that it was joining other major world carri- Although the airline has not made an since the company went public in June 2004. ers in eliminating by focusing on official statement, tourism and travel maga- It has surpassed most of Brazil’s other more- its “premium business” to be introduced zines as well as Web sites indicate LAN is established air carriers in terms of size and on Boeing 767-300 long-haul flights between considering entering the Brazilian market pos- performance and is now Brazil’s second-larg- North and South America during the second sibly in 2008. est domestic carrier, transporting more than half of 2006. While speaking to the Aviation Club of 1 million passengers per month, mostly busi- LAN Airlines is one of the leading airlines Great Britain in 1998, former United Airlines ness customers. in Latin America and is part of one of the President Jim Goodwin said, “In the world of According to GOL, Mexico is Latin region’s most successful airline service alli- Latin American aviation, nothing works as well America’s second-largest airline market after ances that includes LAN Express, LAN Peru, as a good marriage. As the skies across the Brazil, transporting 30 million passengers per LAN Ecuador, LAN Argentina and LAN Cargo. region open to competition from global carri- year on domestic and international routes. Through its own operations and code- ers, alliances may be the determining factor in The Mexican market seems ripe for share arrangements, LAN serves 15 destina- the success or failure of the region’s domestic GOL’s low-cost strategy aimed at customers tions in Chile, 11 destinations in Peru, nine airlines.” Judging by the headlines, the honey- who normally travel by bus. Mexican airlines destinations in Argentina, two in Ecuador, 20 moon is just beginning for a growing number transport roughly 18 million passengers a year in other Latin American countries, 25 in North of Latin American carriers. a on domestic routes, while an estimated 2.5 America, 10 in Europe and four in the South billion trips are made by highway, according to Pacific. Currently, LAN operates 67 passenger Lynne Clark can be contacted at the government-run airline holding company aircraft and nine dedicated freighters. [email protected].

+count it up

46 225+ billion 5.7 Number of airports implement- Amount in U.S. dollars the International Percentage of the world’s aircraft ing International Air Transport Air Transport Association’s financial fleet that will be replaced during the Association common self-serve systems process annually. next two years, a decrease from the kiosks as part of IATA’s Simplifying 7 percent rates of previous peaks. the Business initiative.

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a conversation with ... Roberto Kriete Chief Executive Officer TACA Airlines

rom its roots dating back to 1931 when was later renamed Transportes Aéreos del it was founded in Honduras, TACA has Continente Americano — TACA. grown significantly throughout its home Shortly after founding TACA, Yerex region. Now, with headquarters in El Salvador launched TACA of El Salvador, beginning the Fand subsidiaries in Peru, Guatemala, Costa airline’s multinational tradition. Rica, Nicaragua and Honduras, TACA has Since the 1950s, the airline has been become an example of an airline that has taken controlled by the Kriete family. At the end of advantage of the new, more open regulatory the ’50s, Ricardo Kriete, a naturalized U.S. environment to develop into one of the largest citizen from El Salvador, purchased 30 percent and most influential airlines in the region. of TACA’s stock. Kriete, who previously was From its three main hubs — San involved in the production of coffee, cotton Salvador, El Salvador; San Jose, Costa Rica; and sugarcane, passed leadership of the airline and Lima, Peru — the airline serves destina- to his son. In 1980, Roberto Kriete, Ricardo’s tions in North America, Central America, South 27-year-old grandson, took the reigns and America and the Caribbean. All together, the began increasing the family’s holdings in TACA various TACA airlines serve 36 destinations in to today’s 98 percent. 19 countries. TACA also has codeshare agree- Roberto Kriete immediately began imple- ments with airlines such as , Iberia and menting his bold vision for the airline, increas- United Airlines to expand its reach. ing the size of the fleet, adding new destina- The airline is also looking to expand fur- tions and investing in other Central American ther with the possible start up of new airlines airlines such as Guatemala’s Aviateca and in other Latin American countries. Honduras’ SAHSA. TACA’s fleet of 30 Airbus aircraft, all Today, Grupo TACA includes six air- from the A320 family, is one of the youngest lines, TACA (El Salvador), Aeronica (Nicaragua), in the region, averaging 4.2 years. The young TACA de Honduras, Aviateca (Guatemala), fleet also is extremely reliable — the airline LACSA (Costa Rica) and TACA Peru. has a 93 percent on-time performance. This year, the airline expects to carry 3.5 million Question: Your airline provides a clear passengers and generate US$800 million in example of the benefits of cross-border sales volume. ownership, but many countries still restrict Since its founding more than 70 years outside investments in domestic airlines. ago, the airline has had a strong regional What needs to happen to make the indus- presence throughout Central America. The try more global? airline was founded by Lowell Yerex, a New Answer: In order to have a truly global Zealand pilot, who arrived in Honduras to join industry, we need to set the basis for a the forces of Gen. Tiburcio Carías. After Yerex free competitive environment where value was injured in battle, he was given a single- for customers, shareholders and the broader engine Stinson aircraft that he used to launch economy can be maximized. Cross-border Transportes Aéreos Centroamericanos, which ownership, although important, is just one of

Photos courtesy of TACA ascend 47 profile Photo by Diego Alonso Romero Alvarado/MyAviation.net Romero Alonso Diego by Photo Q: In 1999, you launched TACA Peru to join the five other airlines in the group. Why is it advantageous to establish local subsid- iaries throughout the region rather than merely launching operations with your cur- rent airlines? A: Airline freedoms establish how airlines based in one country can operate over and in other countries. Given the negotiated airline freedoms in South America, it was mandatory for us to establish, with Peruvian shareholders, a local company if we wanted to have enough flexibility to develop a hub for intra South American flights as well as connecting flights between South America and North America. With an average aircraft age of 4.2 years, TACA operates one of the youngest fleets in Latin America. The carrier’s 30 Airbus aircraft, all from the A320 family, have proven very reliable Q: How is the regulatory climate in the contributing to the airline’s 93 percent on-time performance. region different from other areas that have permitted TACA to expand throughout Central and South America? the many requirements to set up free competi- dynamics and allowing inefficient operations A: With the exception of Europe where they tion, and we hope that in the mid term it will be to survive. CAA regulations are not harmo- already have a unified set of regulations, I don’t substantially eased. nized across countries, increasing complexity see major differences in other regions of the Among other things, we would also like of operations with no increase in safety and world. Nevertheless, we are starting to see to see that: security. serious efforts in Latin America to harmonize 1. Governments stop direct financial aid used the current regulations. More specifically, the to support unprofitable and inefficient carri- Q: Some countries are seemingly hesitant Central American Safety Agency is working ers that ultimately prevent fair competition, to sign open-skies agreements. Why do you closely with each of the Central American civil 2. Civil aviation authorities implement a set think there is still resistance to opening aviation authorities in an attempt to harmonize of consistent and harmonized regulations aviation markets? Do you believe those Central American regulations. Also, Central across countries, eliminating any artificial attitudes will change? American countries are keen on creating a advantage certain operators may have, A: Open-skies agreements only work when single regulatory agency. 3. All participants in the industry (airlines, each of the participant countries can be equally airports and service providers) are treated benefited by similar amounts of traffic and a Q: How difficult it is to manage different equally in the application of competition. similar number of beyond routes granted by airlines in several different countries? How negotiated airline freedoms as well as geo- do you deal with differing rules, regula- Q: What role has Grupo TACA played graphical location; otherwise it only promotes tions, culture, labor rules? Do you manage in helping open markets throughout the an unfair competitive scenario where one of the them centrally or does each subsidiary Americas? countries is benefited at the mercy of the other. have a degree of autonomy? A: We have been deeply interested in serving I believe over time flexibility will contin- A: Operating different airlines in different the three Americas in the best possible way; ue to increase, but there are other issues that countries means we have to abide by different therefore, we have actively supported agree- need to be sorted out first in order to set the sets of rules and regulations, which definitely ments that could help us bring cities together. basis for a fair competitive environment. A key creates complexity, preventing efficiencies to An example from the past is the open-skies necessary issue is to stop the direct financial be generated. We try to centralize as much as agreements between Central American coun- aid that U.S. carriers receive from the govern- possible, but we recognize we cannot operate tries and the United States. A more recent ment through subsidies, loan guarantees and as a single entity. For example, a flight coming example is the bilateral agreement between pension liabilities that have been transferred to from Lima to San Jose and continuing to North Colombia and Costa Rica that we are hoping a government agency. America needs to completely replace its TACA to see signed soon so we can start flying from San Jose to Cali and Medellin. Highlight Q: What government regulations are still creating barriers to a more international industry? We have been deeply interested in serving A: There are three sets of laws and regula- tions that create barriers: the three Americas in the best possible 1. Ownership laws, 2. Route rights, way; therefore, we have actively supported 3. Regulations from civil aviation authorities. Ownership laws in most Latin American countries impose restrictions on airlines’ foreign agreements that could help us bring ownership, preventing free movement of capital and disrupting achievement of cost efficiencies. cities together. Route rights and frequencies are grant- ed by governments, restricting free market

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Peru crew for a LACSA crew. In other words, economic effect but on a global scale, we will Q: What role will technology play in a under current regulations crew interchange- need to have similar conditions, meaning we more open industry? ability is not possible. will need to further deregulate the commercial A: Technology can be seen in two very aspects of the aviation industry. important assets for the business: aircraft and Q: In some countries, you can only main- Moreover, we need to take into account information systems. More sophisticated air- tain a minority ownership position in your that land traffic operations costs are signifi- craft will allow us to fly routes that nowadays subsidiary. What challenges does minority cantly lower than air traffic operations costs; can only be flown through a hub or with bigger ownership pose? therefore, if we want to open new areas, aircraft models. Also, we can expect the next A: Minority ownership can be a governance we have to be able to provide commercially generation of aircraft to have substantially challenge because legally you don’t have abso- attractive products that could generate enough reduced fuel burn, emissions and maintenance lute control over the operations of the com- demand. costs as well as bigger capacity that hopefully pany. Fortunately, that has not been TACA’s Also, during the 1950s, the government will create economies of scale, all of which case. I think we have selected our partners provided the necessary infrastructure to con- will make flying more accessible for the passen- wisely; they recognize our industry knowledge nect remote cities. We would need the same gers and further stimulate traffic. Information and accept our leadership role for running the support to create adequate airport facilities. systems provide us not only more precise and airline. timely data, but also more friendly and direct Q: What areas around the world are the interactions with the ultimate customer, such as Q: What impact would removing restric- most ripe for increased openness and cross- Internet purchase and check-in options, which tions on cross-border ownership have on border ownership of airlines? further reduce distribution and airport costs. the air transport industry? Should they be A: Areas with more hospitable business removed? climates may be better prepared for openness Q: How long do you think it will take to A: Given that the airline industry is intensive and cross-border ownership. Europe is already achieve the necessary degree of openness in fixed assets, adequate capital flows are opening its markets and Latin America will be for air transport to become a truly “global” essential for the business. Removing cross- next. As a matter of fact, Central American industry? border ownership would give airlines free governments are working on a project to A: We have been observing gradual access to the world capital markets and, consider as domestic flights all flights within changes; we are optimistic, and with airlines therefore, it would increase their probability of the region; therefore, eliminating immigration, and governments working together to benefit getting cheaper and more flexible financing. customs, taxes and fees, opening up the the people who use our services, we expect to These benefits would be ultimately transferred market for a much more fluid traffic to develop see more changes at an accelerated pace in to the passengers and the broader economy. tourism. the future. a Photo by Ander Aguirre/AirTeamImages.com Ander by Photo Q: Will the current trend toward more open-skies agree- ments and global alliances lead to a consolidation of airlines throughout the world? A: We have seen both phenom- ena — some airlines, such as KLM and Air France, have con- solidated while others, such as jetBlue and easyJet, have joined the market. I think we could expect the same behavior in the future.

Q: Some have compared the opening of the air travel indus- try to the development of the interstate highway system in the United States during the 1950s, which helped fuel economic growth by opening previously remote areas. What will need to happen for the aviation industry to achieve Grupo TACA has expanded through- the same results on a global TACA of courtesy Photo out Central and South America by scale? investing or launching airlines in A: The interstate highway sys- several countries. Today, Grupo TACA tem is only regulated regarding includes five airlines in addition to issues related to safety and secu- its El Salvador-based TACA: Aeronica rity, such as maximum permitted (Nicaragua), TACA de Honduras, speed. However, there are no Aviateca (Guatemala), LACSA (Costa controls over the commercial Rica) and TACA Peru. aspects of the highway traffic. If we expect to see a similar

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All Thai’d Up

AirAsia, Malaysia’s pioneering low-cost carrier, has begun expanding its successful low-cost carrier model throughout the region despite encountering difficulties related to its cross-border ownership of its Thai-based subsidiary.

By Shane Batt | Ascend Contributor

irAsia has a history of being an industry the Singaporean government. Shin Corp. sold as the December 2004 tsunami or even innovator. The airline pioneered the for an unprecedented US$1.85 billion, which military action), the national interests of Alow-cost carrier model in Malaysia and, caused an outcry from opposition party politi- Thailand might be superseded by the inter- in the process, disproved much of the collec- cos who claimed that Shinawatra’s position as ests of the foreign owners. tive wisdom regarding the way that the avia- prime minister caused the transaction to pro- Foreign ownership would mean that profits tion industry works in the region. For example, ceed more smoothly than it otherwise would are taken off-shore from Thailand — The when Internet penetration in Malaysia was have occurred. Meanwhile, Shin Corp. owned media maintained that the loss of profits below 15 percent of the population, AirAsia 50 percent of Thai AirAsia with the remaining might somehow result in a worsening of insisted that passengers would buy their tick- 49 percent owned by AirAsia in Malaysia. With the economy or foreign exchange rates ets over the Internet — and AirAsia has the 96 percent sale of Shin Corp. to Temasek as profits are repatriated to foreign busi- certainly been proven correct with more than Holdings, Thai AirAsia effectively had a for- nesses. 50 percent of its tickets booked and purchased eign ownership of 74 percent following the Foreign ownership might result in a loss of through this channel. transaction. tourism in Thailand — The media stoked When critics maintained that the Thai regulators moved quickly and fears that foreign owners of Thai AirAsia Malaysian success of AirAsia could not be threatened to revoke Thai AirAsia’s air opera- might somehow change the flight sched- duplicated in the region, the carrier’s chief tors certificate because of the violation of the ule to make Thailand less desirable as a executive officer, Tony Fernandez, showed foreign ownership rule. The regulators cited tourist destination in favor of Malaysia and that the model translated well; first with Thai AirAsia and now with Indonesia AirAsia. Furthermore, when critics said that the low- Highlight cost carrier model would not work in interna- tional markets, AirAsia proved them wrong by serving several international routes profitably “ The ownership problems faced by and is even planning on expanding into China later this year. Thai AirAsia involve all of the best With this successful history of innova- tion, it is somewhat surprising that AirAsia themes of a thriller novel …” and its affiliate, Thai AirAsia, reached a regula- tory roadblock earlier this year that threatened to result in Thai AirAsia losing its operating license. This roadblock was related to foreign ownership of airlines — maybe one of the hot- not only the regulations, but also dredged up Singapore, the governments of the effec- test issues facing the industry today. fears about foreign ownership to justify their tive owners of the airline. The ownership problems faced by Thai zeal in enforcing the ownership rule. The fears While a media scrum proceeded to call AirAsia involve all of the best themes of a were separated into three categories that for the removal and indictment of the Thai thriller novel — international politics, media were pounced on by the media, which in turn prime minister, AirAsia, the Malaysian-based involvement, billionaire businessmen and directly impacted the stability of the govern- parent of Thai AirAsia, noticed that its share claims of corruption. The problems began ment in Thailand: price was impacted badly. The regulators gave in late January when the family of Thailand Foreign ownership would impact the Thai AirAsia just two weeks to resolve its own- Prime Minister Thaksin Shinawatra, a billion- national security of Thailand — The media ership issues or its AOC would be revoked. aire businessman, decided to sell its holdings maintained that a foreign owner of a In February, the AirAsia companies in Shin Corp., a Thailand-based corporation, Thailand-based airline might mean that dur- had their second round of disputes with the to Temasek Holdings, the investment arm of ing times of national emergency (such Thailand regulators. To resolve the owner-

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ship issue, Shin Corp. created what is widely owned company because of the citizenship to bar the question of foreign ownership from believed to be a proxy-corporation in Thailand of the principal owner of record, Sittichai. being voted on by the Senate during the 2007 called Asia Aviation Company. According to the The Department of Business Development, judicial year that began Oct. 1. registration filed with the Commerce Ministry however, continues to press its investigation In statements that match the fears fos- in Thailand, Asia Aviation Company is owned as to whether Sittichai’s ownership is real or if tered by the press earlier this year in Thailand, 51 percent by Sittichai Veerathummnoon and it is just a front to allow Thai AirAsia to retain U.S. senators pointed out concerns about 49 percent by Shin Corp. Therefore, since Asia its majority Thai ownership. The media has foreign ownership and national security, loss Aviation Company is a majority Thailand-owned effectively lost interest in the issues now that of profits, loss of jobs and similar concerns. Photo by Simon Wilson/AirTeamImages.com Simon by Photo

Thai AirAsia, the Thailand-based affiliate of Malaysia-based pioneering low-cost carrier AirAsia, was threatened with losing its operating certificate due to questions regarding foreign ownership. Thailand authorities eventually verified that local investors controlled more than 50 percent of the affiliate airline.

company, then the effective foreign ownership the supposed fears about foreign ownership These were the same concerns that ultimately of Thai AirAsia is again below the 50 percent have died down. So, at least for now, the issue scuttled the Dubai Ports purchase of P&O, threshold allowed by the regulators. of foreign ownership of Thai AirAsia appears to operator of U.S.-based ports, in April. So, The regulators initially doubted the verac- have generated more smoke than fire. ultimately the issue of foreign ownership of ity of the ownership by Sittichai, however, The solution to this Thailand ownership Thai AirAsia has implications across the airline since he appeared to have very little experi- dilemma, however, has not addressed the industry and not just Southeast Asia. ence with the airline or investment industries. fundamental problems facing segments of the The good news throughout this strange In fact, although Sittichai had some experience industry starved for capital that can be effec- mix of business and politics has been that in logistics with DHL, at the time of the forma- tively resolved by increased foreign ownership. AirAsia and its affiliate Thai AirAsia have not tion of Asia Aviation Company, Sittichai was While there is a glut of capital for investment been adversely affected in a commercial sense. engaged in a human resources consultancy in the airline industry in many venues, where These carriers continue to grow and prosper company. Furthermore, when consumer advo- “irrational exuberance” is governing invest- despite the controversy regarding their own- cates attempted to contact the headquarters of ment in start-up carriers in countries through- ership. At the Farnborough Airshow in July, Asia Aviation Company, they found that it was out the Middle East, the Indian sub-continent, AirAsia altered its recent order for 100 Airbus an empty office. Finally, it was determined that Southeast Asia and China, the North America A320 aircraft. Before Farnborough, AirAsia’s Sittichai was, in fact, a university friend of the aviation industry particularly is starving for capi- deal with Airbus was for 60 firm orders and 40 CEO of Thai AirAsia — who holds the remain- tal. Glen Tilton, CEO of United Airlines, among options for A320 aircraft. During Farnborough, ing 1 percent ownership of the airline. This many other industry executives has repeatedly however, the carrier upped its order to 100 prompted another Thai regulatory agency, the asked for an easing in the foreign ownership firm orders plus an additional 30 options. Department of Business Development, to call rules that currently limit active foreign owner- Clearly, Tony Fernandez intends the again for the revoking of Thai AirAsia’s AOC. ship of U.S.-based airlines to 25 percent. AirAsia group of companies to grow and pros- The regulators stated that they would The issue of foreign ownership is the per throughout the region. Despite the owner- strenuously investigate the matter, but very little largest obstacle in the negotiations between ship controversy of the AirAsia group of com- appeared to occur throughout the remainder of the United States and the European Union (see panies, the AirAsia history of innovation and February and into the following months. This is related article on page 6) on a new open-skies success continues to show positive results in when competitors of Thai AirAsia jumped into bilateral agreement that many carriers on both Southeast Asia. a the fray claiming that authorities were dragging sides of the Atlantic claim are critical to their their feet due to concerns about a backlash financial success. The Bush administration from the prime minister’s governing party. wants legislation passed that will increase for- The final chapter of this melodrama eign ownership from 25 percent to 49 percent, Shane Batt is a partner with the has yet to be written. The Thailand Aviation the percentage that is allowed under European consulting practice for the Sabre Department has stated that it is satisfied Union regulations. On July 27, however, the Airline Solutions® business. He can be that Asia Aviation Company is a Thailand- Senate Appropriations Committee voted 19-6 contacted at [email protected].

ascend 51 products LESS SHOPPING. Less Shopping, More Booking MORE BOOKING. Photo by Stefan Klein/iStockphoto.com

More travelers are going online to shop for travel, making it necessary for airlines to maintain a user-friendly Web site that provides up-to-date capabilities that facilitate customer purchases.

By Rebecca Robinson | Ascend Contributor

uccess in today’s airline industry requires as well as the way airlines conduct business. maximizing the online channel, streamlin- Consumers are increasingly more travel savvy Sing business operations for cost efficien- and demanding, and airlines are increasingly cies and staying in front of the competition. focused on the online direct distribution chan- Having leading consumer shopping and pricing nel to help reduce their overall costs. tools, critical components for any airline, can According to the 2006 SITA and Airline help accomplish all three. The right shopping Business airline information technology trends and pricing tools ensure enhanced customer survey, 28 percent of worldwide airline pas- satisfaction while supporting revenue and sengers now book travel online compared to revenue management goals. The right tools just 20 percent last year. This means that of enable consumers to see the breadth of the the 2 billion airline passengers worldwide, 560 product offered while still being able to eas- million use the Internet to book travel. ily find their desired itinerary and fare. They Consumers are not only booking online also enable an airline to control the shopping in record numbers, but they are comparison A variety of new shopping and display so that it presents the flight and fare shopping to make sure they find the best deal. options that support revenue goals. The right According to a 2005 PhoCusWright study, tools enable an airline to accomplish these 39 percent of travelers in the United States pricing functionality available through tasks cost effectively. shopped at least three Web sites before making a purchase. The good news for air- SabreSonic Shop enables airlines to Maximize the Online Channel lines is that, despite the need for comparison The rapid growth of the Internet has shopping, travelers are still making most of maximize their e-commerce initiatives. changed the way consumers shop for air travel their bookings on supplier sites. In the United

52 ascend LESS SHOPPING. Less Shopping, More Booking MORE BOOKING.

A variety of new shopping and pricing functionality available through SabreSonic Shop enables airlines to maximize their e-commerce initiatives. ing-class inventories. These enhanced features enable airlines to differentiate their Web sites by providing a unique shopping experience that satisfies shoppers and drives bookings directly to the airline’s Web site. While finding the lowest fare and being able to view multiple options is critical to cus- tomer satisfaction, the ability to do this while

Photo by Chris Pollack/iStockphoto.com maximizing revenue potential is of utmost importance. The merchandising solutions from An airline’s Web site should offer customers the flexibility to find the desired route, flight the Shop component enable airlines to opti- and seat for their journey. By providing such options, customers are more likely to return mize the online display by controlling which to the site for future travel purchases. flight options (based on price, schedule or other criteria) are pushed to customers. Since merchandising rules can be added, deleted States, supplier Web sites capture about 56 with confidence that it is the best place to or updated in real time, SabreSonic Shop percent of total online sales, according to find the lowest fares. Proven low-fare search merchandising functionality also optimizes the JupiterResearch. technology within SabreSonic Shop finds more use of the online sales channel by enabling As more and more travelers turn to the low fares than any global distribution system. an airline to more rapidly react to changes in Internet for comparison shopping and booking, Based on a recent study by Topaz International, the marketplace and respond to competitive and as airlines look to reduce their booking this low-fare search technology finds the low- pressures. costs, it becomes essential for carriers to have est fare among all GDSs by an aggregate total Combined, these new features help a state-of-the-art Web site. The continuous of more than 9 to 1. And when finding the airlines improve the efficiency of their online innovation in retailing and merchandising from lowest fare, the Shop component also deliv- channel. For example, a leading North American the Sabre Airline Solutions ® business enables ered an average of approximately 50 percent airline cut its look-to-book ratio by 50 percent airlines to maximize their use of the online more in savings, meaning an airline can be within a few months of implementing the new channel. sure its customers will find the lowest fares SabreSonic Shop on its Web site. With SabreSonic™ Shop, a component on its site — a critical component to creating of the SabreSonic ™ Passenger Solutions, car- “stickiness” for an airline’s Web site since the Streamline Business Operations riers can be confident they have leading-edge majority of travelers comparison shop. There is tremendous pressure for all air- shopping capabilities necessary to direct book- Finding the lowest fare is paramount, lines to reduce their costs wherever possible ings to their own Web site and to satisfy the but travelers also want choice. Consumers by improving productivity, streamlining opera- needs of demanding travelers who want to want the opportunity to choose the optimal tions and creating efficiencies. The growth of ensure they are getting the best fare for their flight, route and seat for their needs. Providing low-cost carriers coupled with increased fuel desired itinerary. SabreSonic Shop provides a breadth of options ensures that consumers costs and high labor costs all contribute to leading low-fare search technology, advanced will likely return to a carrier’s Web site every the growing complexity in the airline business shopping features and merchandising solu- time they shop for travel, confident in finding and the need to drive down other costs while tions — all the tools required to meet travelers’ the right flight at the right price. SabreSonic optimizing passenger yield. needs, reduce cost per booking and compete Shop can provide hundreds of low-fare options, According to a recent International Air with other travel retailers. enabling an airline to display its full schedule. Transport Association study, despite rising fuel Finding the lowest fare is fundamental. Travelers can comparison shop across dates, costs, nearly 45 percent of surveyed airlines Travelers must shop an airline’s Web site cities, times of day, class of service and book- managed to reduce total input costs from

+count it up

2.5 million 7.6 3 trillion Number of eliminated minutes Percentage international passenger Amount in U.S. dollars of global of flight time as a result of the traffic grew in 2005, which is slightly economic activity the air transport International Air Transport higher than the historical average. industry supports, representing Association’s “Save a Minute” 8 percent of global gross domestic campaign. The effort saved product and 29 million jobs. 1.5 million tons of carbon dioxide emissions and US$300 million.

54 ascend products

Evolve With the Industry W RLD With travelers’ increasing demands for WIDE/AIR price transparency, it is becoming more and more difficult for airlines to raise their base HOME MY PROFILE SPECIALS CUSTOMER SERVICE ABOUT US fees. Instead, airlines are looking to charge User ID travelers fees for optional services, effectively Your Request: unbundling amenities that traditionally had been PIN Las Vegas, NV (LAS) to Hong Kong (HKG) included in the underlying fares. Examples of Departing Wed, Mar 8 these services, which may be associated with START IN Returning Thu, Mar 16 1 Adult a fee or surcharge, include form of payment, reserved seats, or meals, resulting in more Remember my Select Travel Dates: complex air pricing. FF Number Return Date The recent implementation of automated ® 10-Mar 11-Mar 12-Mar 13-Mar 14-Mar 15-Mar 16-Mar fuel surcharges (YQ/YR) by the Sabre Holdings 5-Mar $1344 $1414 $1325 $1455 $1325 $1414 $1308 business is a perfect example of this trend in action. YQ/YR surcharges are available globally 6-Mar $1455 $1308 $1325 $1344 $1344 $1308 $1414 FLIGHT INFO to all users of the Sabre GDS as well as Sabre 7-Mar $1308 $1325 $1276 $1344 $1276 $1455 $1455 Airline Solutions and are filed by more than 230 8-Mar $1455 $1414 $1325 $1325 $1344 $1414 $1414 airlines today. Sabre Holdings will continue to

or 9-Mar $1344 $1325 $1308 $1414 $1414 $1276 $1308 enable the automation of fees and surcharges Departure Date to help airlines recover costs for services ren- $1414 $1308 $1455 $1344 $1325 $1455 10-Mar dered, which will soon provide automation of 11-Mar $1325 $1414 $1455 $1308 $1325 credit card surcharges, ticketing fees, optional service fees and baggage fees. By working closely with carriers on the cutting edge of this trend, Sabre Holdings is jointly working Offering features such as the Flexible Date Matrix, SabreSonic Shop gives customers toward industry-standard approaches as well the flexibility they desire and encourages them to purchase their travel direct through as addressing unique needs or effectively an airline’s Web site. The Shop component enables airlines to present fares that best establishing standards where none exist. match their customers’ needs. With fully automated rules and sophisti- cated technology, SabreSonic Shop can easily adapt to new industry practices and new pric- March to June, with nearly 60 percent expect- tion channel is essential. The direct fare-filing ing strategies. As ATPCO and SITA enhance ing to see no change or lower total input costs capability is integrated with the SabreSonic automated categories or develop new func- during the next year. This cost-containment Shop automated loading procedures. tions, and as carriers adopt new pricing strate- mindset is now pervasive and will govern most SabreSonic Shop is introducing rede- gies, the Sabre GDS and rule automation will aspects of the industry for the foreseeable signed fare and rule displays to create efficien- continue to address those evolving needs. future. cies in the reservations office. Airlines often Airlines are increasingly approaching have different objectives, and one solution State-of-the-art Technology vendors to introduce new tools to facilitate does not always meet everyone’s needs. These new capabilities are available on direct communication of fare and schedule With redesigned fare and rule displays in the state-of-the-art shopping and pricing plat- information. In the case of fare information, SabreSonic Shop, each airline will have the form from Sabre Airline Solutions, a brand it may be cost driven, but it often results ability to select its own display preferences. new shopping and pricing platform built from from a need to rapidly introduce and quickly The new displays combine standard features the ground up that enables a far greater array remove fares at a pace that traditional tools will with new capabilities and conform to industry- of capabilities than what has traditionally been not accommodate. Direct fare-loading tools standard rules text and category numbering. available. More rapid and targeted fare filing, achieve this goal and give an airline the ability The redesigned displays are more concise and new pricing functionality, and advanced shop- to selectively choose where those fares are provide more information on one screen. Rule ping capabilities are all a result of the new made available, providing a critical balance displays now use industry-standard text and platform. In addition to new and advanced between Web-based and GDS fare data. Direct can support multiple languages, translating to capabilities, the new shopping and pricing Fare Loading, a feature of SabreSonic Shop, increased efficiency while making it easier for system enables greater flexibility, accuracy helps ensure fares are accessible in all desired reservations agents to find the exact informa- and stability. distribution channels. tion they need. The proven technology from Sabre Direct Fare Loading permits the cre- The Sabre ® Group Management Tool Airline Solutions and the Sabre Travel Network ® ation of units of work that define the fares, is a comprehensive inventory product that business meets the needs of all airline busi- routes and conditions surrounding fares being automates processing of a group of blocked ness models — online or call center, small or offered, including the intended viewership seats, further helping achieve revenue man- large, domestic or international, point-to-point, for those fares. Direct Fare Loading creates agement goals. The Group Management or hub-and-spoke. a a user-friendly interface to input data while Tool enables travel agencies to request, sell ensuring the content conforms to industry and manage blocked space automatically standards, reducing the number of issues that through the Sabre ® global distribution system. may be encountered when filing fares under Furthermore, this tool supports airline inven- Rebecca Robinson is manager, more traditional means. As business models tory controls, enabling airlines to efficiently air communications for Sabre adapt to the fast-paced world, the need to rap- manage their group space and to minimize Holdings. She can be contacted at idly create and remove fares from the distribu- inventory spoilage. [email protected].

ascend 55 regional

Turning Profit

Even in times of high-fuel costs, airlines in Asia/Pacific are showing remarkable strength, growing numbers of passengers, amount of freight and overall revenues.

By Andrew Powell and Melvin Tan | Ascend Contributors

ropelled by sustained strong passen- heart of the airline business. If airlines get the taking a total approach to fuel cost manage- ger growth, the Asian aviation market network, schedules and fleet assignment right, ment. Tight procurement processes, modern Pcontinues to remain robust despite chal- they create tangible business benefits in terms weight and balance systems, and flight plan- lenges of high fuel prices, higher interest rates of operating profit. ning techniques can all reduce fuel costs. and geo-political risks. The Association of Revenue management is another area Other innovative strategies are being Asia Pacific Airlines stated that the traffic its that continues to grab boardroom members’ deployed to manage costs and optimize share- member airlines carried in the first half of the attention due to the opportunity for quick holder return. In Australia, for example, Qantas year grew 5.1 percent year over year, resulting return on investment. Optimizing an airline’s Airways is replacing or enhancing its full-ser- in passenger load factor rising 3.6 percent to revenue management processes is no longer vice offering to many markets with its low-cost 74.6 percent. in the exclusive domain of the more advanced subsidiary, Airways. It can be quicker However, what is often taken for grant- and leading carriers in Asia. By delivering the and easier to transfer activity into a new car- ed is the fact that the Asia/Pacific aviation Sabre ® AirMax ® Revenue Manager via Sabre ® rier than change an existing carrier. Airlines landscape is perhaps less homogenous than in eMergo ® Web access, an applications service that can drive the right changes the fastest are Europe and North America. provider delivery model, and adding capability winning in Asia. A great diversity in economic growth to manage low fares, Revenue Manager is Cargo also plays a key role in airline and income, coupled with geographical and becoming an essential part of the application profitability in the region. Although most political boundaries heavily influenced by water portfolio of start-up, regional, new-world and Asian countries are connected by land, the boundaries, create pockets of niche aviation flag carriers alike. During the past 18 months, continental road and rail freight options are markets. For example, Indonesia, the most the Sabre Airline Solutions ® business has pro- limited. Dragonair Cargo, a subsidiary of Hong populous Southeast Asian country, is an archi- vided Revenue Manager to carriers as diverse Kong-based carrier Dragonair, is a good exam- pelago of 17,508 islands straddling the equa- as Skywest Airlines, Virgin Blue, JAL and ple of the strength of the air cargo market tor. This creates unique challenges for carriers Kingfisher Airlines. in Asia. The airline currently operates six serving that market when compared to those Higher fuel costs are also driving great- freighters, and it will add another five that serve a country with a large land mass er refinement of processes that impact this dedicated Boeing 747 freighters by the end such as India. specific expense. Sabre Airline Solutions is of 2008. Photo by Tim de Groot/AirTeamImages.com de Tim by Photo Profitability is King As is the case in all regions, high fuel prices and strong competition means that Asian carriers have the same focus on profit- ability. Interestingly perhaps, in the developing regions of Asia, growth in revenue is generally not the challenge — the challenge is to ensure that costs are not growing faster than revenue. It is clear that this focus on profitability is translated into information technology-ori- ented projects. Asian airlines continue to spend money on information technology, but the trend points to projects that have the stron- gest return on investment with the shortest is one of several carriers, including Kingfisher Airlines, Skywest Airlines payback periods and the lowest risk profiles. and Virgin Blue, that use Revenue Manager to help optimize their revenue management For example, recently announced net- processes. Airlines, including start-ups, regionals, new-world and flag carriers alike are work planning and hub optimization projects at increasingly using decision-support technology as an integral part of their revenue , Air China and Japan Airlines are management practices. getting approved because they strike at the

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There is a greater awareness that this to consolidate in a single terminal will result in in Asia, such as Malaysia, Philippines, Thailand, particular area has been underserved from an IT Star Alliance passengers not having to transfer China and India also have a low unit cost of solutions perspective. Having developed an end- terminals while connecting on their flights, labor; therefore, the competitive advantage to-end suite of applications for cargo carriers, making travel on Star Alliance carriers more of LCC-style labor agreements and work prac- Sabre Airline Solutions expects significant activity attractive. tices becomes less significant. in the coming years because carriers want cargo More and more, Asian carriers are draw- Furthermore, it can be difficult and time reservations, revenue accounting and revenue ing on the advanced hub and network deci- consuming for a new carrier to gain access to management solutions from a single vendor. sion-making techniques that were forged in tightly controlled intra-Asia international routes Asian carriers reported an aggregate the United States and Europe. Airlines are such as Singapore/Kuala Lumpur, Malaysia, airline industry net profit of US$2.1 billion developing more defined banks in their core while the larger and more open trunk routes in 2005, according to the International Air hubs and are relying on advanced applica- in Asia are already served by many network Transport Association. As such, Asia continues tions such as the Sabre ® AirFlite™ Schedule carriers, often with wide-body aircraft. For to be the most profitable airline region, and Manager to analyze passenger connections. example, the Bangkok, Thailand/Singapore and that trend is forecast to continue for at least Airports and tourism authorities are increas- Bangkok/Hong Kong markets are currently the next two years. ingly relying on online reporting tools from served by 10 carriers and 13 carriers, respec- Sabre Airline Solutions for detailed analysis tively. It is tough for a new entrant to make a Competing Asian Regional Hubs of market behavior. The competition between profit in these markets. Since trading first began in Southeast hubs in Asia is intensifying and quickly becom- Instead, start-up carriers in Asia have Asia, Singapore has built a foundation on the ing more sophisticated. adopted their own hybrid models to gain Photo by Ahmad faizal Yahya/Dreamstime.com faizal Ahmad by Photo Patton/iStockphoto.com Jon by Photo

Several Asian airlines have announced network planning and hub optimization projects because by enhancing their network, schedules and fleet assignments, airlines can create measurable business benefits, such as improved operating profits. hub concept, and Changi New-World Carriers: a competitive advantage in their respective is celebrating 25 years as a leading Asian The “Hy-Low” Effect in Asia markets. Virgin Blue, a self-styled “new-world aviation hub. However, incumbent leaders The success of pure-play low-cost car- carrier,” is a classic example. Operating on such as Singapore’s Changi Airport and Hong riers in more mature markets such as Europe low-cost operational fundamentals such as Kong International Airport are facing increasing and North America has largely depended on quick turnaround times and competitive labor levels of competition in Asia. very specific market conditions including open agreements, the carrier also offers some full- Across the region, airlines, airports and access to desired routes, gaining advantage service frills such as business lounges and governments are working closely together to via revolutionary labor agreements, lower-cost loyalty programs. Similarly, India’s new entrant build and strengthen aviation hubs. The flow secondary airports, and high levels of credit Kingfisher Airlines offers premium products effect on local tourism and economy from a card and Internet adoption. and services while maintaining competitive successful hub is tremendous with supporting Only a handful of markets in Asia have operational practices and multi-channel distri- industries such as maintenance, hotels and similar fundamentals. AirAsia and new play- bution including global distribution systems. taxis all benefiting. ers such as have demonstrated that Several Asian LCCs such as AirAsia, Jetstar With its position as a more natural there is opportunity for a pure LCC business and Lion Air are also opting for a multi-channel geographical center in Asia and a strategically model in the domestic markets of Malaysia distribution strategy including GDSs. sound decision to centralize all airline activity in and Korea. The domestic market in Japan also Certain parts of Asia are not suited for a a single airport, Bangkok’s new Suvarnabhumi has the characteristics to support a pure LCC pure European/U.S. LCC model for at least the Airport is well placed to attract a greater share model although slot constraints at key domes- medium term. Instead, competitive Asian carri- of regional connecting passengers. tic airports such as Tokyo’s Haneda Airport will ers will continue to develop their own mix of And the concept of hubbing is not be a limitation. airline practices to meet the requirements of restricted just to carriers in Asia. The SkyTeam It is harder to find the same conditions price-sensitive passengers in the particular alliance is creating a hub at Guangzhou, elsewhere in the region, and 68 percent of Asia markets to which they have access. a China’s Baiyun Airport. This will give the new (from a gross domestic product perspective) is Baiyun Airport a boost in its challenge to classified as developing. From a population Andrew Powell is Asia/Pacific regional Hong Kong International Airport as the hub perspective, a staggering 93 percent of Asia is vice president and Melvin Tan is Asia/ for the southern region of China. This year, classified as developing. Most Asian countries Pacific regional marketing manager for the Star Alliance, too, has hubbed its member have a low usage of the Internet and/or credit Sabre Airline Solutions. They can be airlines into a single terminal at the Tokyo, cards, so the concept of selling tickets directly contacted at andrew.powell@sabre. Japan, Narita International Airport. This move via the Web is difficult or impossible. Markets com and [email protected].

ascend 57 regional

Bridging the Gap

Rapidly growing Kingfisher Airlines, looking to increase its reach in the travel agency channel in the India market, implemented innovative solutions to enable the airline to work with global distribution systems.

By Stan Boyer and Jenny Rizzolo | Ascend Contributors Photo courtesy of Kingfisher of courtesy Photo hen Kingfisher Airlines, one of the fastest-growing carriers in India, Wlaunched operations last year, it focused largely on online distribution of its product. The airline created online booking capabilities for both travelers and travel agents, but it quickly discovered such a strategy had its limits, particularly given the nature of its market. In India, most airline tickets are sold by travel agencies using a global distribution system. To increase its distribution as well as be displayed alongside competitors as travel agents booked flights, airline executives real- ized they needed to adjust their strategy to incorporate the agency channel. In most areas of the world, airlines

and agencies operate in a bank settlement Library Photo Dinodia by Photo plan environment with its traditional sale and report methodology. In a standard BSP envi- ronment, the traditional sale and report meth- odology works well because the International Air Transport Association has created online reports for agencies for both paper and elec- tronic ticketing. The traditional sales reporting methodol- ogy, however, does not work well in areas where there is no BSP or only limited BSP capa- bilities, such as the domestic market in India. Initially, Kingfisher Airlines, which has quickly grown to offer 100 flights a day to nearly 20 cities in India, developed a cus- tom system capable of setting credit limits for agencies, enabling them to issue tickets — with Web-based statements issued at pre- When Kingfisher Airlines realized it needed to better utilize travel agents to distribute its determined settlement periods. This reversal product in the India domestic market, it adjusted its strategy and processes to incorporate of the traditional BSP model worked well for distribution through traditional global distribution systems. the Indian marketplace, but it would have to be recreated to enable Kingfisher Airlines to work through GDSs. Some IATA agents were not members of To meet these challenges, Kingfisher Specifically, Kingfisher Airlines’ custom BSP for the domestic market. Airlines staff worked with its key technology system would have to be redeveloped to The airline was 100 percent ticketless (and provider, the Sabre Airline Solutions® business, accommodate several conditions: 98 percent paperless), to implement the SabreSonic® Res hosting solu- The airline wanted to permit travel agen- The Indian government requires airlines tion to permit working through GDSs. As part cies to use a GDS to book seats and to calculate and pay a tax on agency of creating a solution for Kingfisher Airlines, issue tickets. commissions. the Sabre Airline Solutions team repurposed

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nectivity levels in GDSs, it can control agencies’ ability to book and ticket once the credit limit is reached using controls in SabreSonic Res.

IATA/BSP Agencies The IATA/BSP agencies will report through the newly implemented BSP. Because of an Indian government requirement that air- lines must pay a tax on agency commissions, and the fact that BSP has decided not to calcu- late this tax, the team had a choice to make. It could either enhance the Quasar™ passenger revenue accounting system to calculate the tax on commission and create invoices or it could allow the Corporate Loyalty system to act as a front end for the revenue accounting system. The team chose the latter solution due to flex- ibility and time-to-market concerns.

Completing the Bridge With this solution in place, BSP HOT files are uploaded to the Corporate Loyalty system fortnightly, the tax on commission is calculated and the transactions are combined with the other agency groups’ transactions to create a combined HOT-like file that is then As part of a solution to permit Kingfisher Airlines to distribute through global distribution transmitted to the Quasar system, thus com- systems, Sabre Airline Solutions utilized functionality from the Sabre Corporate Loyalty pleting the bridge. System to provide travel agencies with a credit limit that would enable agents to sell Kingfisher Airlines migrated to the new tickets using their account — a key requirement in a market with limited bank settlement plan capabilities. system two weeks early in July 2006. The innovative solution created by the Sabre Airline Solutions team can be utilized by nearly any functionality in the Sabre® Corporate Loyalty joint venture partner with the Sabre Holdings® airline in the world. a System that had been originally designed for business, the team rolled out a solution called corporations. The system offered several fea- ETAT, which is an electronic version of the tures that proved useful, including the ability airline’s own ticket stock. Two GDSs are pres- Stan Boyer is delivery director for the to create statements and invoices because the ently able to support this product. consulting practice at Sabre Airline system was designed to accept feeds from an The GDSs provide a daily ticket sales file Solutions and Jenny Rizzolo is the product airline’s revenue accounting system. that is uploaded to the Corporate Loyalty sys- specialist for corporate loyalty. They The combined team divided the solution tem, which then updates the agency credit lim- can be contacted at stan.boyer@sabre. into three parts, each aimed at a specific travel its. Since the airline is participating at high con- com and [email protected]. agency group:

Non-IATA agencies that would use Agency Dreamstime.com by Photo Portal module of SabreSonic™ Web, IATA agencies that were not a part of the fledgling domestic BSP, IATA/BSP agencies.

Non-IATA Agencies For non-IATA agencies, the team linked SabreSonic™ Web to the Corporate Loyalty system by providing each agency an inter- active account or credit limit in the loyalty system. Agents can sell tickets using their credit limit form of payment, which is dynami- cally updated with each ticket transaction. The agency has the ability to view daily transactions via SabreSonic Web so there are no surprises at settlement time.

Non-BSP IATA Agencies This group of agencies needed a non- Travel agencies remain the largest channel for airlines to distribute their product in India. BSP e-ticketing solution that would work with Kingfisher Airlines adapted its business model to utilize this channel and better compete their respective GDSs. Thanks to work that with other airlines. had already been performed by Abacus, a

ascend 59 Going Green?

GOING GREEN?

By Christine Kretschmar | Ascend Contributor

The European Union’s efforts to cap the emission of greenhouse gases will have an impact on

Plane photo by JupiterImages Corporation the aviation industry. regional

ompanies outside the travel industry Highlight are increasingly concerned about cli- C mate emissions and energy use. Many employers offer incentives to employees who In all, aviation is only responsible for carpool, ride their bike to work or use public transportation. There’s also growing accep- tance of environmental factors in corporate 3 percent of global carbon dioxide emissions procurement policies, everything from office paper to materials used in manufacturing. while contributing 8 percent to global gross

Travel Industry and Green Policies domestic product. Despite the overall trend, the travel industry — especially airlines — has been slow to address its environmental impact. Although responsible and sustainable tourism is in- sparked discussions within the region’s airline The parliament’s vote will strongly influ- creasingly on the agendas of social and envi- industry. ence legislation being drafted by the European ronmental activists and even some govern- On July 5, members of the European Commission and scheduled to be debated later ments, up until now, corporations in the indus- Parliament voted in favor of the immediate this year. The emissions trading scheme is try have been slow to “greening” themselves, introduction of a tax on jet fuel for flights within due to be introduced in 2008, but commission particularly in North America. the 25-member states of the European Union. officials admit it could be delayed until 2010. But sentiment is growing to include The charge would double the cost of millions Although the report, drafted by Lucas, airlines in efforts to address the production of flights on budget airlines. a member of the Greens/EFA party, is non- of greenhouse gases. “Airlines must pay the It also accepted a recommendation for binding, it sends a strong political message at environmental price,” said Caroline Lukas, a a special emissions trading scheme for the a moment when the commission is drafting a U.K. member of the European Parliament. aviation industry, which would see airlines legislative proposal to include aviation in the Photo by Maciej Noskowski/iStockphoto.com Maciej by Photo Corporation JupiterImages by Photo GOING

Although many other industries con- GREEN Brown/iStockphoto.com Robert by Photo ? tribute more to global pollution than aviation, airlines are coming under increasing scrutiny for their effect on the environment. Air travel accounts for 3 percent to 5 percent of global emissions of greenhouse gasses, and the European Parliament announced plans to cap the greenhouse gas emissions of airlines.

Air travel currently accounts for 3 per- buying permits to cover their output of carbon E.U. emissions trading scheme, due before cent to 5 percent of carbon emissions. The dioxide. year end. greenhouse gases generated by air travel are The GreenSkies Alliance, a coalition of International aviation is currently not cov- relatively small compared with many other environmental groups that opposes the growth ered by the Kyoto Protocol on climate change, environmentally damaging human activities. of aviation, said passengers would have to but as its emissions are projected to grow in The Intergovernmental Panel on climate pay up to 20 (US$37.27) per flight, or 40 the coming years, this issue is causing concern change estimates that power stations, for (US$74.53) round trip to cover the cost of among environmentalists, especially as the example, contribute 25 percent to the global purchasing just the carbon dioxide permits low-cost airline sector booms in Europe. emission of carbon dioxide. However, aviation for flights within Europe. A jet fuel tax and an The Kyoto Protocol, a historic agree- is the fastest-growing cause of global warm- environmental tax would push ticket prices ment to cut greenhouse gas emissions, was ing, and by 2020, it is estimated to be the up even further, but the costs are harder to reached in December 1997 in Kyoto, Japan. single-biggest contributor to global warming. quantify. Industrial nations agreed to reduce their col- Flights within Europe alone are on course to “The huge European Parliament major- lective emissions of six greenhouse gases double by 2020 and triple by 2030. ity shows that [members] overwhelmingly — including carbon dioxide — by 5.2 percent This issue is taken seriously by the recognize that air transport’s greenhouse gas from 1990 levels between 2008 and 2012. European Union. Its plan to cap the green- emissions are out of control, and urgent action The Kyoto Protocol was endorsed by 160 house gas emission of airlines — including to control them is long overdue.” said Jeff countries and went into force on Feb. 16, carriers that fly to Europe — has recently Gazzard of the GreenSkies Alliance. 2005. The European Union committed to a

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cut of 8 percent and the United States to tion,” he said. “The result is that some of 1. Air transport was excluded from Kyoto 7 percent. The United Kingdom has committed Europe’s biggest offenders are getting off and the industry is doing nothing about itself to a 12.5 percent reduction, although it lightly.” environmental issues — “Domestic avia- has also set its own domestic target of a 20 Sylviane Lust, director of the International tion is included in Kyoto,” Bisignani said. percent reduction in carbon dioxide by 2010 Air Carrier Association, also criticized the E.U. “International air transport was excluded and a 60 percent reduction by 2050. Domestic proposal. but with a commitment to find a solu- aviation is covered by the national targets set in “Any approach to aviation and the envi- tion through ICAO by the 2007 Assembly. Kyoto, but international aviation is not covered ronment [that] calls for the simultaneous intro- Airlines took environmental performance because of difficulties in deciding how the emis- duction of taxes on aviation fuel, VAT on airline seriously long before Kyoto. Over the last sions should be allocated among countries. tickets, environmental charges at airports and 40 years, emissions per passenger kilome- Article 2.2 of the Kyoto protocol requests emissions trading scheme totally ignores eco- ter have decreased by 70 percent.” that the United Nations’ International Civil nomic realities,” Lust said. “Moreover, the 2. Air transport is a major source of green- Aviation Organization work to reduce or limit recommendation to set up a separate ETS house gas emissions — “Air transport global warming emissions from aviation. scheme for aviation is totally unrealistic.” contributes a small part of global [carbon IACA said the measures supported by dioxide] emissions — 3 percent,” he said. Aviation Industry’s Criticism Parliament should undergo deeper analysis to “By contrast, the air transport industry sup- Airlines such as easyJet and flybe have determine what would be the consequences ports 8 percent of global economic activity. spoken out against criticism concerning air- on the European economy, jobs and the gen- Even if all air travel stopped, the result is lines, especially low-cost carriers, having an eral quality of life of European citizens. only a 2 percent global improvement in [car- effect on climate change and therefore pos- The International Air Transport bon dioxide] emissions. But the impact on sibly contributing to global warming. Association, the airline industry lobbyist, said global economies would be disastrous.” EasyJet demands in a recent press air transport is an environmentally responsible 3. Air transport is the most polluting form of transport — “Airline fuel efficiency improved 20 percent in the last decade, nearly 5 percent over the past two years alone,” Bisignani said. “Today’s modern aircraft consume on average 3.5 liters per

Photo courtesy of flybe 100 passenger kilometers. This is similar to a small compact car but with six times the speed. Next-generation aircraft — the Boeing 787 and Airbus A380 — are target- ing fuel efficiencies below 3 liters per 100 passenger kilometers.” 4. Air transport is getting a free ride by not paying tax on fuel — “Air transport pays entirely for its own infrastructure — a US$42 billion annual bill,” he said. “Airlines pay when they land, when they Photo courtesy of easyJet fly and when they park. This is com- pletely different from both road and rail. On top of that, air transport is a cash cow for many governments. In Europe, every rail journey is subsidized between 2.40 and 7.40 (US$3.05 and US$9.42). But every air journey contributes between 4.60 and European carriers such as easyJet and flybe have defended the air transport industry against 8.40 (US$5.85 and US$10.69) in govern- charges that airlines, particularly low-cost carriers, have negatively impacted the environ- ment revenues and avoided expenditure.” ment and possibly contributed to global warming. 5. Air transport growth is not sustainable — “Air transport is essential. Air transport brings people to business, products to release an “end of hysterical persecution of industry. Air transport contributes to the sta- markets, tourists to holiday destinations, airlines over environment.” bilization of greenhouse gas emissions in the and unites families and friends around “Calling for more taxes on air travel atmosphere by continuously increasing fuel the world. In short, air transport made is sloppy thinking — in itself, this just puts and carbon efficiency. In 2005 alone, airlines’ the global village a reality,” Bisignani said. more money into the pockets of governments carbon dioxide emissions dropped 1.8 per- “Eighty percent of aviation emissions are and discriminates against the poorest in soci- cent per 100 revenue ton kilometers. During related to flights over 1,500 kilometers for ety who, until recently, were priced out of the last decade, efficiency improved by 20 which there is no alternative mode of trans- the sky,” said easyJet Chief Executive Andy percent. In all, aviation is only responsible for port.” Harrison. “Crucially, and most importantly, 3 percent of global carbon dioxide emissions IATA identified its strategy on the envi- it doesn’t benefit the environment. Contrary while contributing 8 percent to global gross ronment to achieve maximum benefit with to the views of many, aviation is not the domestic product. a globally consistent approach, Bisignani environment’s biggest enemy — not today and The environment is among aviation’s said. IATA’s strategy consists of four core not tomorrow. top challenges, according to IATA. Giovanni principles: “Too much of the debate has been Bisignani, director general and CEO of IATA, 1. “Technology is key. Lighter materials and based upon inaccurate and one-sided informa- identified five “myths” that need clarification: more efficient engines have driven prog-

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among other aspects, aims to reduce per pas- senger waste by 2 percent per year, according to Andrew Sentence, British Airways’ chief economist and head of environmental affairs. Still, Sentence said corporations and individual business travelers must take a more proactive approach to monitoring greenhouse gases. “While we’re happy to help, if you are Photo by Darryl Sleath/Dreamstime.com relying on the airline community to do it all, it’s not a particularly good way forward,” he said. Visitors to British Airways’ Web site will find a link to Climate Care, an organization that invests in sustainable energy projects and helps travelers calculate the carbon dioxide emissions from their flight. For instance, the Climate Care calculator (www.co2.org) esti- mates a return flight from London to Singapore produces 3.04 tons of carbon dioxide and sug- Some scientists claim that the contrails from an aircraft’s engines contribute to global gests a £19.79 (US$36.87) donation to offset warming because they help trap heat in the same way as clouds. Some estimates show the pollution. The problem is that the calculator that contrails represent half of the aviation industry’s impact on the climate. is based on the carbon output of older, less fuel-efficient Boeing 747s and Airbus A340s so is not reflective of the emissions output by ress so far. Now it is time for governments Aircraft contrails enhance the green- newer aircraft currently in operation or those to ensure that oil companies invest in house effect because they trap heat in the coming soon, such as the 787 Dreamliner, research on alternative fuel sources. same way as clouds. During the day, their which is 20 percent more fuel efficient than 2. “Infrastructure and operations must be a warming effect is not as pronounced because older-generation aircraft. part of the solution. Airlines are on track they reflect sunlight back into space, which In June, the Sabre Travel Network ® with their voluntary commitment to reduce helps to keep the planet cool. This means business introduced a product that enables emissions by 10 percent between 2000 and contrails are responsible for about half of the business travel agencies to produce reports for 2010. Governments and air traffic service aviation industry’s impact on climate. their corporate customers about the environ- providers must contribute as well. Globally, Scientists monitored air traffic over the mental impact of the flights they are booking. optimized air traffic procedures could deliver United Kingdom and determined that, although The Sabre ® global distribution system is the 12 percent greater efficiency. one in four flights occurred between 6 p.m. most used GDS by the 50 leading corpo- 3. “Taxes are not the answer. They do noth- and 6 a.m., those flights contributed 60 per- rate travel management companies in the ing for the environment, and they kill the cent to 80 percent of the warming attributed United Kingdom, and the greenhouse emis- economic social benefits that air transport to contrails. Winter flights had more effect sion report is compatible with both the Turbo brings. We must find a solution that does than those in the summer, contributing 50 Sabre ®desktop application and the MySabre™ not limit airlines’ ability to invest in new percent of the warming despite providing only agent booking portal, the two booking tools technology. 22 percent of traffic. connecting travel agents to the system. Each 4. “Emissions trading may be a part of the solu- “Aircraft currently only have a small report is divided into four sections detailing tion, but it must be a global solution agreed effect on climate,” Forster said. “However, the number of air segments booked over a through ICAO. We are in the process to the fact that the volume of air traffic is set to given period, the distance flown, the relative achieve a result for the 2007 Assembly. grow rapidly in coming years makes it impor- amount of fuel burned expressed in kilograms There is no time to get distracted with local tant to investigate the effects of contrails on and liters, the relative number of kilograms or regional schemes that will be less effec- our climate.” of carbon dioxide produced as a result, and a tive than a global solution.” Shifting all U.K. night flights to the day- breakdown of the other greenhouse gasses “Environmental responsibility is a pillar time would save the equivalent of 2.5 percent produced. The reports can be prepared by of our industry alongside safety and security,” of the U.K.’s annual carbon dioxide emissions, department, cost center, segment type or date. Bisignani said. “We are the safest form of he said. With such focus on emissions and their transport because of global standards and Nicola Stuber, a meteorologist at impact on the environment, the attention on harmonization. The same approach is needed Reading University, said the warming effect global warming will not soon fade. In the to deliver the best results on environment of contrails was roughly the same as that coming years, the debate surrounding the issues.” caused by the carbon dioxide emitted from an issue promises to become even more heated, aircraft’s engines. and the airline industry will likely be chal- Tackling the Environment Impact lenged to further the steps it has already taken A report recently published by Piers Companies With Green Policies to help meet targets to reduce greenhouse Forster, environmental scientist at the Some companies have already taken gas emissions. a University of Leeds, demonstrated that a action to support an environmental-friendly nationwide ban on night flights would signifi- program. cantly reduce the aviation industry’s impact on Since September 2005, British Airways’ Christine Kretschmar is regional marketing the climate. This study showed that the warm- customers have had the option of paying a manager for Europe, the Middle East and ing effect of aircraft is much greater when fee designed to offset the effect planes have Africa for the Sabre Airline Solutions® flying in the dark because of the effects of the on the environment. The initiative is part of business. She can be contacted at condensation trails they leave. a broader climate change campaign, which, [email protected].

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Revving up Cargo

For years, U.S.-based airlines have used revenue manage- ment techniques to maximize income from passengers. Now, more airlines are discovering that similar methods can be as equally effective on the cargo side of the business.

By Bill Rathert | Ascend Contributor

uring the 1980s, a slew of upstart Airlines began to adopt systems that regardless of how many seats might be avail- airlines turned the U.S. domestic could accurately forecast demand for seats able at that price. Dmarket on its head. Airline deregula- on a given flight. Through the use of highly Although most U.S.-based airlines tion, which was given life in 1978, created sophisticated computer modeling, analysts quickly realized the benefits of revenue the opportunity for all manner of new airlines could determine the demand for each price management for passenger operations, to spring up and challenge the older, estab- bucket on a particular flight and adjust them the story in the cargo area has been quite lished carriers. The survivors, collectively as a flight filled up approaching the departure different. While revenue management known as the legacy carriers, responded date. Adjustments could be made for sea- became standard practice for passenger by developing a new practice — revenue sonality, time of day, competitive situation, revenue, cargo operations continued to be management — that enabled them to historical patterns and many other variables. handled in the same manner they had prior match the low fares of new rivals while still Perhaps the most potent weapon was the fact to deregulation. maximizing revenue from each passenger that the rules on advertising allowed airlines segment. to promote their lowest fares to the public, Cargo is Different Traditional wisdom tells us that cargo is

Photo by Scandipix/AirTeamImages.com by Photo archive Solutions Airline Sabre a different animal — “Boxes don’t complain; they never need an in-flight meal.” The fact of the matter is that cargo has always been the misunderstood and unglamorous step-child of the airline industry. Change comes slow to the cargo industry, and the up-and-comers in airline management may not always be well- versed in cargo operations. According to conventional wisdom, demand for cargo is inelastic. In fact, cargo demand is merely different from passenger demand in some significant ways. Cargo trav- els either by air or ground. It may be flown on either a freighter or passenger aircraft with different flight numbers and different capacity configurations. The many choices of modes and routes present different flight and truck capacities, different loading requirements and multiple handling costs at each connection. Finally, air cargo shipments are one way only, unlike the usual round trips for passengers. This contributes to uneven distribution of Cargo operations are becoming a more cargo demand. important source of revenue for many The traditional network of cargo sales airlines, which are beginning to employ people and freight forwarders didn’t lend itself revenue management techniques first to revenue management. If you weren’t the employed to manage passenger operations lowest priced provider, many sales people to maximize cargo income. feared that agents could always ship with another airline. For the better part of 20 years,

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many U.S. airlines failed to see the potential flight taking into account historical booking cargo customers. Some carriers dedicate large in incorporating revenue management tech- patterns, load factors, seasonality and other percentages of their available capacity to allot- niques into their cargo operations, even those variables. The result is an incremental gain ments to certain customers, yet there may be combined carriers with a healthy investment in available capacity. Assuming that demand no penalties in place if these customers fail in air freight. exists for cargo on the flight, the airline can to deliver the expected amounts on a given The downturn in airline profitability that sell the resulting additional capacity, thereby flight. Depending on the arrangement and the began in 2001, and which continues in the increasing revenues. market, this may preclude the carrier from U.S. market, has caused airlines to seek every After taking into account the true avail- selling additional, or higher yielding, cargo on a given flight. Over time, this can be extremely costly. A strong method of monitoring the allotted space, its usage and yields is clearly an advantage. Regular management of the allot- ment process enables the carrier to reward customers who generate the highest returns and prove the most reliable in meeting their allotments. Finally, there is the issue of bid price management, or revenue management, which requires a good deal more finesse than the other techniques for raising cargo revenues. Through sophisticated modeling of demand, and the analysis of rate/density mix, revenue management programs can accurately predict Screen Shot the demand for various prices and products on a given flight or route. Price segmentation is simple to understand when the reason is (requested) tied to the perception of a premium service. For example, when there is a guarantee to place the cargo on the next flight out, there is a natural understanding of the need for pre- mium pricing. However, cargo has been slow By viewing the Flight Workbench, a feature of the Sabre® CargoMax™ Revenue Manager, to adopt the concept that there are different analysts can manage future capacity by monitoring booking activity and changing levels of demand for a specific flight and that recommended overbooking levels, allotments and flight profiles in real time. different prices may be applied to the same flight as they are for seats in the passenger cabin. This is also tricky for the sales person opportunity to trim costs and create additional able capacity, the next technique used in reve- who fears the loss of market share if his or her revenue. In the cargo world, this pressure is nue management is overbooking. As a general price isn’t the lowest level possible. They must especially noticeable for the combined carri- rule, flights rarely go out with everything that be taught to trust the revenue management ers, that are now under pressure to produce was booked on the plane. Most times, there system so they learn to sell to the level of true increased revenues and yield from cargo. is no penalty for the shipper that fails to show demand and not always to the lowest possible up with some or all of the booked cargo. Once hurdle price. Revenue Management for Cargo again, powerful algorithms are used to predict Cargo is 20 years behind the passenger There are a handful of revenue man- just how much the airline should overbook side of the business in adopting revenue man- agement techniques that may be employed each flight. agement. Many carriers are only now begin- individually, in groups or as a suite to increase If the system stops booking at the physi- ning to embrace some of the available tech- revenues and yields from cargo. First, and cal capacity of the plane, then the resulting niques in cargo revenue management. perhaps easiest to grasp, is optimization of drop off of actual tendered cargo shown would However, with fuel prices unlikely to return to available capacity. Each flight has a variable result in the plane going out with available historic levels, pressure for non-passenger amount of capacity available to accommodate space. To counteract this tendency, most car- revenue will continue to lead airlines to seek freight. It is variable in the sense that factors riers tend to overbook by some factor. optimization tools that can generate greater such as fuel loads, passenger and bag counts, If the overbooking factor used is too cargo revenues and yields. Tools, such as the company material and weather can influence low, the result may be that there is still avail- Sabre ® CargoMax ™ Revenue and Pricing Suite the precise amount of payload that is available able space at departure. If the factor were give airlines the capability to perform cargo to carry cargo. Cargo capacity is three dimen- set too high, some of the cargo would have revenue management and maximize income sional, viewed in terms of weight, volume and to be offloaded, potentially incurring penal- from this segment of the business. In many number of fixed container positions (for wide- ties, and certainly adding costs for additional ways, this is the dawn of an era. Cargo has body aircraft). Depending on the density of the handling and storage. Using highly specialized earned its seat at the table, and will play an freight, stacking efficiency and aircraft restric- programs that optimize overbooking based increasingly important role in feeding the bot- tions, either the weight or the volume capacity on show-up rates and historical patterns, the tom line of the combined carriers. a can present a booking limit, making the flight overbooking factors can be optimized, again volume or weight critical. To take advantage creating additional capacity without adding to Bill Rathert is a sales director for of every last bit of available remaining space the fleet size. Sabre Airline Solutions specializing in (either by volume or weight), sophisticated pro- Another way to add to revenues is to cargo solutions. He can be contacted grams forecast the available capacity for each better manage the allotments made to regular at [email protected].

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Photo by Jan Stadelmyer/Shutterstock.com Jan by Photo

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By Tony Brice | Ascend Contributor

y now, the positive effects of air trans- vides interim advantages since it allows a new port liberalization have been well docu- venture to begin operating sooner rather than mented and, for the most part, appear later. In fact, interoperability might provide to be generally accepted. The findings significant temporary advantages even in situ- of recent studies cite traffic growth resulting in ations where one company’s technology will job growth and subsequent increases in gross eventually be phased out in favor of another’s domestic product for the country pairs technology. involved. For not only the air transport industry but The economic benefits of alliances, also virtually any industry where business-to- cross-border ownership and open-skies agree- business integration is a necessity, improved ments are often obvious but so, too, are methods of achieving interoperability are wel- the resulting technology-related challenges. come. New options for achieving interoperabil- Today’s world is, and will remain for the ity are now available thanks to the emergence foreseeable future, technically heterogeneous. of “services.” In a relatively short period of For all but a few of the newest air transport time, the range of services has grown quickly companies, it’s likely that the current technical from those designed for “internal-use only” environment is a combination of old and new to controlled, “private” Web services to open Marino/Shutterstock.com by Photo as well as proprietary and open source. In application programming interfaces, or APIs. many instances, production system environ- Each new type of service has evolved, to some ments are simply reflections of how a com- degree, based on the knowledge and experi- pany and its technology vendors have evolved ence gained from the earlier phase. Perhaps through generations of hardware and software more importantly, however, each also evolved platforms, applications enhancements and to address new categories of users and busi- industry-mandated changes. ness opportunities. The disadvantages of technical complex- How do new approaches to interoper- ity are all too familiar to anyone who has ever ability help the air transport industry chart its By connecting to Web services, airlines can been charged with leading a large multi-com- way through liberalization? To answer that, it access a range of technology, opening new pany integration effort. The high-level objec- may be useful to look briefly at how services opportunities to facilitate interoperability. tive is clear. The sooner participants in any have evolved as a means of predicting where new venture can shift their focus away from they are going. technical challenges and onto the real business J2EE. These early efforts facilitated interoper- opportunity — profitably transporting passen- Services — Past and Present ability within a given execution environment, a gers or cargo — the greater the likelihood of Much of the momentum toward servic- step forward for many companies at the time. success. The technology imperative in most es is the result of companies having embraced Unfortunately, this approach fell short in that cases is to quickly and efficiently complete the the potential of service-oriented architecture. it made interoperability with components out- work required to make two or more dissimilar The idea of SOA was first proposed in 1996 by side the environment a comparatively daunting systems work with one another in a prescribed Gartner analysts Roy W. Schulte and Yefim V. task. manner. Natis. Prior to the currently accepted definition In the last three to four years, develop- of SOA as a software design principle, the ments in the software industry have driven the Technology Integration: move toward it as a concept had actually been first true wave of service orientation. Within the Long Wait underway for several years. In its early forms, air transport and many other industries where Increasingly, these business needs however, it was implemented through object, legacy systems are prevalent, there are two result in placing a premium on interoperability. procedure or message orientation in a way that major categories of drivers — the need to Even if participants desire some other level of tied it too closely to specific execution environ- replace older systems and the need to enable integration as an end state, interoperability pro- ments, such as CORBA, COM/DCOM and new innovation.

ascend 67 company Photo by JDaniela Andreea Spyropoulos/iStockphoto.com Andreea JDaniela by Photo Photo by Yuri Arcurs/Shutterstock.com Yuri by Photo Arcurs/Shutterstock.com Yuri by Photo

front of a desktop computer. Instead, they are

Photo by iStockphoto.com by Photo using their personal digital assistant, phone or laptop computer. The need to access a context-related business function can happen The recent trend toward self-service continues to grow, particularly through anytime, anywhere. personal user interfaces, which are increas- The ultimate benefit of any SOA effort ingly available on the Web. Evolving devis- is in how well its implementation promotes es such as the next generation of mobile the design of applications that rely on loosely phones provide access to context-related coupled services, each of which is designed to business functions that can be accessed serve a discrete business function. This makes anytime, anywhere. SOA, properly implemented, the perfect fit for multiple clients and multiple channels.

From Good to Great: Extreme The initial driver for much of the air nectivity component, such as EDIFACT, where Interoperability transport industry was the need to reengineer there was little or no justification for change. It is important not to confuse the benefit older applications to reduce costs, deliver new Another driver, no less important for of SOA with the value of SOA. The value is functionality or, as it turned out in many proj- the air transport industry over the long term, derived from the interoperability of services ects, both. In some instances, entire applica- is the trend toward self service. This is espe- independent of the underlying platform and tions have been rewritten as composite rather cially true on the Web where personal user programming language. In a truly SOA-compli- than monolithic applications. This afforded the interfaces, both portal and non-portal style, ant environment, the definition of the service opportunity to also deliver each discreet com- continue to emerge. A growing number of proj- interface (the part with which an application ponent as a service. In other cases, selected ects benefit tremendously from the reuse of interacts) hides the language-specific aspects aspects of an application were rewritten, typi- business logic across multiple user types and of the service. This is what enables the use cally those supporting either user-facing trans- methods of access. User types include leisure of a service independent of development actions or external applications requiring new and business customers, agents, vendors, and technologies and platforms, such as Java, functionality via a service interface. The partial other new business partners. All user types .NET, etc. rewrites often involved “wrapping” remaining are as likely to be at home, in a hotel, in an air- Even in situations where services have legacy functionality in a way that left it service port or on an airplane as they are to be in their been implemented for internal use only, this enabled. An example would be a legacy con- office. They are also increasingly not sitting in has provided significant advantages. Because almost all technology environments that have evolved over a number of years are hetero- Highlight geneous, the deployment of services has provided the opportunity to develop a new generation of applications — those that lever- Airlines and their service providers are, in age advances in hardware, software and devel- opment methodologies. some cases, a few years into building and/or Each new type of service that has emerged in recent years has led to new oppor- reengineering systems to be SOA compliant. tunities to ease interoperability efforts. The first — internal use services — has garnered the bulk of the industry’s attention to date and The benefits of these efforts, executed has led to significant streamlining of integra- tion processes within each enterprise including properly, will be ongoing. its service provider network. Indirectly, the benefits also extend to users of applications that rely on these services.

68 ascend company © [email protected] © The second type, primarily Web services, has led to new opportunities to extend each enterprise. Through Web services, trusted relationships with valuable business partners manifest themselves in the sharing and reuse of selected service-based capabilities. The third type, the open application pro- gramming interfaces preferred by an emerging global community of developer/entrepreneurs, is the newest and, thus far, most underused. In addition to creating the greatest levels of interoperability, such APIs hold the most prom- ise for delivering innovative new applications. Opportunities range from mobile self-service capabilities to creative ways of leveraging social interaction in Web 2.0 (see sidebar). Airlines and their service providers are, in some cases, a few years into building and/or reengineering systems to be SOA compliant. The benefits of these efforts, executed prop- erly, will be ongoing regardless of whether the work is the result of new system devel- opment, simplification initiatives or to lay a foundation for future innovation that is fast Web 2.0, the second generation of services on the Web, is defined by several key and affordable. characteristics and components — such as wikis, blogs, really simple syndication, The real key to maximizing the benefits mobility, microformats — that differentiate it from earlier uses of the Internet. of service orientation well into the future, however, is to envision how services will sup- port the social and business environment the industry is speeding toward … not just the world airlines are living in today. a Web 2.0 Tony Brice is director of emerging “I can’t tell you what it is … but I know it when I see it!” technologies in the labs group for the Sabre Holdings® business. He can be This is a typical answer to the question, “What is Web 2.0?” In the absence of contacted at [email protected]. any “official” definition, it seems only fitting that the characteristics of Web 2.0 be quoted straight from Wikipedia, itself a Web 2.0 phenomenon: Photo by Jeffrey Smith/iStockphoto.com Jeffrey by Photo “The term Web 2.0 refers to a second generation of services available on the World Wide Web that lets people collaborate and share information online. In contrast to the first generation, Web 2.0 gives users an experience closer to desktop applications than the traditional static Web pages.”

While the definition of a Web 2.0 application is still hotly debated, it is gener- ally accepted that a Web 2.0 Web site would exhibit some basic characteristics, including:

The site should not act as a “walled garden” — It should be easy to get data in and out of the system.

Users usually own their data on the site and can modify it at their convenience.

Mainly Web-based — Most successful Web 2.0 applications can be used almost entirely through a Web browser: this is commonly referred to by the phrase “net- work as platform.”

Data returns should be dynamic rather than static, changing depending on vari- ables associated with the user’s query (keywords, location).

An “architecture of participation” that allows users to add value to the application as they use it. With more mobile, wireless access to the Internet through laptop computers Some social networking aspects. and other devices, Web services can be accessed remotely rather than strictly — From Wikipedia, “the free encyclopedia” from the office.

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From Distribution to Merchandising With … Ladislav LeTtovsky, senior principal, new business development, Sabre Holdings

The Full Costs of Airline Distribution

As airlines examine the full costs of online distribution, more are seeing the benefits of the high-yielding GDS channel.

usiness models change and evolve. Airlines can now leverage the GDS to Higher Fares Through the GDS? Take the business relationship between add value to their businesses beyond tradi- GDSs produce higher average fares, with Btraditional airlines and their new entrant tional distribution models. Factor in the value yield premium of up to 20 percent, compared counterparts. Traditional airlines have histori- of real-time point-of-sale information and to airlines’ own direct channels. What is elusive cally had an interdependent relationship with decision-support tools that GDSs have been about this statement is in the understanding of global distribution systems. During the last developing, and it becomes clearer as to why how. There are a multitude of contributing fac- few years, these airlines have also considered many of the most innovative airlines are revisit- tors, but three key ones include: GDS distribution as a transactional expense to ing the value that the GDS can create for them. Because it is their core business, GDSs be avoided with vigor. Contrast these airlines To understand the change in thinking, have invested in developing technology and with the value-focused or low-cost airlines we need to dig deeper than the high-level support models required to make booking that built their business models with very little sound bites quoted in the media that talk about the airline product convenient and efficient GDS reliance. In somewhat of a reversal of higher fares and convenience. But what does for customers who exhibit a propensity to thinking, these airlines are reconsidering the that really mean? purchase higher average fares. benefits of a multi-channel sales strategy that

includes GDSs. Beilliard/AirTeamImages.com Stephane by Photo David Neelman, chief executive officer of jetBlue Airways, recently said his airline is “looking seriously” at participating in GDSs. At the Merrill Lynch Global Transportation Conference in June, Neeleman said jetBlue was missing out on business by not being in corporate travel departments’ booking sys- tems. He acknowledged that when jetBlue participated in the Sabre ® global distribution system, which it reentered in August, the aver- age fares booked through the GDS were higher than those booked directly with the airline.

Why the Change in Thinking? What these airlines and others have realized is that the GDSs have also evolved, fueled by: Changes in ownership structure, Significant investments in open-systems After pulling out of all global distribution systems, jetBlue in August reentered both the technology, Sabre global distribution system and the Galileo GDS. David Neelman, jetBlue chief execu- Deregulation in previously regulated tive officer, said returning to GDSs would enable his airline to attract more corporate travel. markets.

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The airlines with the most advanced and arguably “ most successful direct Internet strategies are realizing that segments of online customer procurement can be expensive in many ways.”

As a result of aggregating multi-channel It’s Also About Cost of development, support and infrastructure, global demand, GDSs have gained unique Recent comments about the value of their cost per booking is a fraction of the GDS insight into understanding customer buy- the GDS reveal a shifting perspective. The booking fee. But one element of cost that is ing behavior, allowing them to ensure their airlines with the most advanced and arguably consistently absent from these discussions are investments meet optimal market needs. most successful direct Internet strategies are the costs of search engine optimization. Any The high volume of aggregated demand is realizing that segments of online customer pro- airline pursuing an Internet-direct strategy has a meaningful factor in helping optimize an curement can be expensive in many ways. We to commit resources to this optimization to be airline’s selling price. Low demand usually have briefly discussed the lower average yields successful. equals low price. potentially arising from a primarily direct distri- An entire article could be written about Today, most individual airlines cannot bution strategy, but what other costs exist? this element of a direct Web site strategy, but aggregate the same levels of demand or afford Consider almost all airlines are pursu- for the purposes of this discussion, we will to invest in technology at the sustained levels ing a direct-distribution strategy via their own address one sub-component of search engine required to meet the complete travel needs of Web sites. These airlines uniformly report that optimization: search engine advertising based the entire customer base. when they calculate all of the allocated costs on keyword search. In this model, the Web site owner pays for the assurance of being included when an Internet shopper enters a specific keyword Average Yield Premium of GDS Agencies into the search engine. Since pricing is deter- vs. Supplier Direct mined by a public, open bidding system, there is theoretically no limit to what a Web site owner would pay for the “right” keyword and top placement. The most successful models are employed by companies such as Yahoo! and Google. 10 Keyword search costs do not seem to get a lot of visibility in relationship to the overall cost of distribution. This is likely due to where the expense accountability resides 20 within the airline organization. In some airlines, these expenses are bundled into their overall marketing and advertising spend, making it difficult to allocate to an expense per booking. 19 In other airlines, it resides in their interactive marketing expenses and is often given a fixed budget amount. Today’s reality is that a small 0% 5% 10% 15% 20% 25% percentage of airline bookings are actually acquired as a result of keyword searches, so the cost-per-booking impact is relatively small Low-cost carrier Value-focused carrier Hub-and-spoke carrier when averaged across all direct bookings. Global distribution systems have invested in developing technology and support models necessary to make booking the airline product convenient. It is the most What’s the Point? efficient distribution channel, with yield premiums of up to 20 percent compared For most airlines, the expense is man- to an airline’s own direct channels. ageable today, but there are potential implica- tions for the future.

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The average Internet shopper will visit at least one airline Web site, an online travel agency and a meta search site before making a purchase.

Looking at recently observed samples who will likely buy their cheapest fare. The predicted 60 percent increase in availability of airline keyword search bid prices ranging next time this consumer purchases — if there requests during a four-year period. from a low of US$0.30 to a high of US$2.01, is a next time — he or she will probably need Four years ago, agencies had a 82.4 some interesting analysis emerges. These bid to be reacquired at a similar expense. Today, percent share of the market with a look- prices mean that an airline would be charged that is on a small percentage of airline book- to-book ratio of 12. Combining the agency rates somewhere in that range every time an ings, but in the future this expense exposure figures with an online share of 17.6 percent Internet shopper clicked on one of the airline’s will surely grow. with its look-to-book ratio of 200 resulted keywords. Another perspective is that some airlines in an overall look-to-book ratio of 45.1 for Our analysis of click-through rates cap their keyword search expense through a every booking. shows an average conversion rate into actual fixed budget. What is the impact of that fixed This year, as the online share is esti- bookings of 3.37 percent, meaning a booking cap? What happens to Web site generated mated to reach 32 percent, the overall look-to- acquired in this manner could cost an airline demand and unique visitors? What is the value book ratio will increase to 72.2. And that rate between US$8.90 and US$59.64 per booking of lost sales because the airline wasn’t includ- will continue to climb as online market share — a lot steeper than the average booking fee ed in the shoppers’ search after the keyword grows. from a GDS. search budget was spent? What will the next four years bring The airline response to this is usually An airline may consider a best-case sce- in terms of growth when you consider the — and on the surface rightly so — that the nario in which the consumer bypasses search increased use of online robotics and meta- expense is justified since it helps them build engines to directly access multiple airline and search engines such as Kayak and Mobissimo? direct relationships with potentially loyal repeat agency sites to shop and possibly purchase Taking a cue from PhoCusWright, we can customers in the belief that this customer the inventory. reasonably expect the average Internet shop- acquisition cost goes down over time. This last point highlights another per to shop at least one airline Web site, For that to be true, Internet shoppers potentially hidden cost — the expense of one online travel agency and possibly a meta would have to be airline or site loyal and the shopping request itself. Customer shop- search site with no qualification on the number somewhat price insensitive, and airlines ping activity on Web channels is much of redundant requests made. Shopping vol- would have to invest in having the best less productive than comparable shopping umes will continue to increase in absolute vol- site usability in the industry. Current industry activity by professional travel agents through ume and in transaction complexity. GDSs are research indicates that only a very small per- a GDS. built to manage these types of volumes in a centage of airlines and consumers validate Low-fare search and city-pair availability cost-effective, efficient manner. On the airline these criteria. transactions are two of the largest transactional side, there is potentially a large cost burden According to PhoCusWright, an indepen- expenses for computer reservations systems. looming, and we haven’t even discussed the dent travel, tourism and hospitality research By moving a larger percentage of a carrier’s impact on availability errors of these increased firm, the average consumer shops between distribution into Web channels, its look-to-book airline direct shopping volumes. three and four Web sites before making a ratio will increase, and increases in low-fare purchase decision. and availability transactional expenses should The GDS as a Marketing Tool? What is conceivably happening is that be expected. The GDS has moved beyond just dis- airlines are spending up to five times the aver- Data from AGIFORS revenue and tribution into providing advanced marketing age GDS booking fee to attract a consumer yield management study group in June 2003 tools. One area that airlines can now leverage

72 ascend company Photo by Renee Lee/iStockphoto.com Renee by Photo Yuill/Shutterstock.com Mark by Photo

To retain online shoppers, airlines need to invest in having the best site usability, often leading to a higher cost of making a sale than that of a traditional global distribution system. is the significant investment that GDSs have expanded marketing and sales capabilities of porate sales outlets, resulting in more than a made in providing visibility into real-time shop- GDS distribution in new ways. 9 percent improvement in load factor on tar- ping and purchasing behaviors. By muting the Recently, a North American airline was geted routes. breadth of GDS distribution, some airlines are struggling to penetrate the corporate mar- GDSs continue to offer the core value losing some of this visibility. Certainly these ket. By connecting to the efficient Sabre they always have; combining that foundation airlines get data on the purchasing propensities GDS, it immediately was able to expose its with changes in regulation, investment in within their own inventory and flight schedule, inventory to corporations on a global basis. open-systems technology and new market- but they lose visibility into how their product is The Sabre GDS is an integrated component driven tools, many airlines are seeing GDSs in shopped versus competitors. This can lead to of many of the world’s largest corporate a new light. These airlines are partnering with “blind spots” in pricing and inventory manage- travel departments and corporate travel man- GDSs to create new sales and marketing ment decision making. agement firms. Additionally, this airline uti- opportunities in ways that were not possible in Airline executives who are rethinking lized decision-support tools from the Sabre the past. a their distribution and sales strategies recognize Holdings ® business that enabled it to put some or all of the direct strategy consid- targeted offerings — above and beyond its full Ladislav Lettovsky can be contacted erations and are beginning to leverage the content commitment — in front of specific cor- at [email protected].

+count it up

26 441 billion 10 Average percentage of tax paid The amount of expenses in U.S. dollars The amount in U.S. dollars it costs on a US$200 ticket in the United the world’s airlines incurred during to process a paper ticket versus the States, the same rate taxed for the first half of 2006, a US$32 billion US$1 it costs to process an electronic alcohol and tobacco, costing increase from the previous year. ticket. Members of the International airlines US$15.8 billion. Air Transport Association issued 315 million paper tickets during the past year.

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Talking Technology With … Dirk Guenther and Michael Clarke, principal Research Scientists, Sabre Holdings New Technology to Better Automate Schedule Generation

A new solution can help airlines accomplish large-scale schedule changes that result in the most profitable possible outcome.

he global airline industry has been trans- The identification of possible schedule formed into a rapidly changing landscape changes and their incorporation into the T with new competitors entering markets existing schedule is done manually. Analysts and other competitors leaving markets or do not have time to evaluate all possible changing service frequencies on very short schedule changes. Hence, they may miss notice. Airlines need to constantly evaluate some profitable schedule changes. the changes in competitors’ schedules and, if Running schedule evaluation tools on an necessary, adjust their own schedules accord- overbuilt schedule leads to erroneous ingly. Schedule adjustments may range from a demand estimates. The errors increase with simple flight re-timing over a change in service the amount overbuilding. Consequently, frequency to a complete hub or even network only small incremental changes can be restructuring. evaluated with reasonable accuracy. Today, airline schedulers have tools, The problem size that can be solved by such as Sabre ® AirFlite™ Profit Manager and Fleet Manager in drop mode efficiently is the Sabre ® Planet ® profitability forecasting sys- limited. Heavily overbuilt schedules cannot tem, to measure schedule profitability. These be solved. tools are used in concert with fleet assign- Several iterations between the schedule ment models such as the Sabre ® AirFlite™ evaluation tool and fleet assignment models Fleet Manager to aid in the schedule design are necessary to arrive at the final schedule. process. We conceived and are developing the These procedures have led to the devel- Sabre ® AirFlite™ Network Manager to auto- opment of new product features such as mate the schedule design process and over- the incremental mode in Profit Manager and come current procedural limitations. Network the drop support mode in Fleet Manager Manager will consist of two functional compo- that support the schedule-design process. nents: the structure optimizer and the timing The incremental mode in Profit Manager esti- optimizer. The structure optimizer will deter- mates the impact of schedule changes on mine fleet size, service frequencies and bank profitability. The drop mode in Fleet Manager composition that maximize schedule profit- enables a scheduler to pass an overbuilt ability. The timing optimizer will determine schedule to the system. Fleet Manager flight times that maximize profit. The structure assigns fleets to as many flights in the and the timing can be used independently for schedule as possible and automatically long-term schedule structure planning and deletes the least profitable flights. The cur- large-scale re-timing, respectively. When used rent approach works well for small schedule together, the two optimizers will produce a fully changes. However, there are several limita- timed schedule with a new schedule structure. tions when it comes to large-scale schedule Network Manager can be used in a changes, including: variety of scenarios from large-scale sched-

74 ascend company

Network Manager can be used in a variety of scenarios “from large-scale schedule re-timing exercises, service frequency optimization and bank restructuring to hub redesign and even clean-sheet scheduling.”

ule re-timing exercises, service frequency Network Manager Work Flow optimization and bank restructuring to hub redesign and even clean-sheet scheduling. In this context, Network Manager can also deter- Schedule characteristics: mine optimal fleet sizes. Alternately, Network • Hub-bank structure Manager can be used to evaluate codesharing • Non-stop city pairs • Curfews agreements between airlines to determine • Input schedule (optional) viable and desirable routes across the com- bined airline networks. • Service frequency targets Structure Optimizer Flight-leg • Marketshare targets generation • Fleet size ranges/targets The structure optimizer takes two types of inputs: one to determine schedule options Schedule evaluation parameters: and the other that determines schedule • Itinerary construction parameters Itinerary generation profitability. Scheduling options are defined • Other airline schedules • Passenger preference parameters by the hub/bank structure, desired fleet sizes, potential services, curfews, service frequency Market-plan and market share constraints. Schedule profit- generation ability is computed using other airline sched- ules, passenger preference parameters and Schedule Market-plan itinerary construction parameters. The inputs evaluation selection are processed in four phases: leg generation, itinerary generation, market-plan generation Optimized and market-plan selection. The first phase is schedule executed only once at the beginning of the process, the other two phases are executed iteratively until a final schedule has been Network Manager evaluates a schedule based on its characteristics as well as found. certain parameters. The schedule inputs are processed in phases that lead to The leg-generation phase produces a final optimized schedule. the set of all possible flight legs that can be considered during schedule development. Alternately, all feasible flight legs can be The itinerary set forms the basis of no further improvement is observed in two provided as an input to the solution process. market plans, which define the airline’s service consecutive iterations. A new schedule is Once leg generation is completed, Network pattern for a given market and the associated obtained at the end of each iteration. If the Manager generates, for each market, all pos- demand, market share and revenue. Network initial schedule satisfies all constraints, then sible passenger itineraries. In this context, Manager generates several market plans for all following schedules also satisfy the con- Network Manager uses the connection build- each market. The final schedule is constructed straints. Otherwise, the first iterations are ing parameters and other airline schedules by selecting one market plan for each market. used to arrive at a schedule that satisfies all provided by the user. Network Manager can Plan selection is driven by overall schedule constraints. also read as input a set of itineraries generated profitability and restricted by plane count, by a third-party tool. This is useful if itinerary service frequency, and market share targets Timing Optimizer generation and pruning involves rules that are and constraints. Benchmark studies have shown the not captured by the internal itinerary generator Market-plan generation and market- structure optimizer is well suited to optimize within Network Manager. plan selection are executed iteratively until the structure of the schedule. However, it is not

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Schedule Design Process very efficient when it comes to flight re-timing. In particular, the small difference in flight tim- ing yields a large number of scheduling options Input schedule for each market plan. The timing optimizer was designed to solve the re-timing problem more efficiently. It executes the same solution phases as the structure optimizer: leg genera- Manual schedule tion, itinerary generation market-plan genera- Overbuilt schedule tion, and market-plan selection. However, it is based on a different market-plan definition. Leg generation requires the current Profit Manager run of schedule and re-timing windows. A set of re- overbuild schedule Demand estimates timing points is generated for each re-timing window and flight copies are generated for each of the points. The copies, together with Fleet Manager the original flights, form the set of potential in drop mode flights for the final schedule. Alternatively, the Fleet schedule analyst can provide Network Manager with the set of potential flight legs directly. The itinerary generation process is the same as Schedule evaluation the one described for the structure optimizer. As with the structure optimizer, the user has the option to provide the set of all itineraries directly as input. During market-plan generation, the tim- Schedule acceptable? ing optimizer treats all itineraries that repre- If no, enter next iteration sent the same sequence of original flights as one itinerary. Hence, one market plan corresponds to many service patterns, and service-pattern selection is moved to the plan-selection stage. The plan-generation and Designing an optimum schedule is an iterative process that involves several plan-selection phases are executed iteratively steps that incorporate an evaluation of a potential schedule and its profitability. until no improvement is observed over two consecutive iterations. A working prototype of the timing opti- mizer is still being built. However, first results on a weekly schedule with about 1,900 flight legs indicate an upside of up to 3 percent of base revenue. Moreover, the problem can be solved within two hours.

Benchmark Studies The structure optimizer has been bench- marked on a variety of schedules and sce- narios. The first benchmarks were done on a weekly base schedule containing 1,800 flight legs. The carrier was operating one major and one secondary hub. The objective of the first study was to change service frequencies and timing to maxi- mize expected profit. Fleet size and bank-hub structures remained unchanged. The structure optimizer was able to increase profit by 1.8 percent of base revenue. Our second study focused on building out the secondary hub to a major hub and establishing a new secondary hub. In this study, the fleet size remained fixed, but the Network Manager utilizes “incremental mode” functionality similar to Profit Manager. Such hub-bank structures of all three hub stations functionality enables schedulers to analyze incremental changes to a schedule to determine were altered. The resulting schedule showed the most beneficial adjustment, for example, whether eliminating a Bangkok-Perth flight to a profit of 5.3 percent above that of the base add another flight makes financial sense. While Profit Manager focuses on comparing one schedule. set of changes, as seen here in its Profitability Explorer module, Network Manager generates Another benchmark was performed on a and evaluates multiple sets of changes. 900-flight daily schedule. This study was done in cooperation with the consulting practice

76 ascend company Photo by Colin Work/AirTeamImages.com Colin by Photo at the Sabre Airline Solutions ® business. The objective was to redesign the bank structure of one of the two hubs. This was the first study in which fleet size was also variable. Network Manager produced a schedule that improved profitability by 10 percent of base revenue. Moreover, Network Manager made recommendations regarding the carrier’s fleet composition. The carrier acted on the rec- ommendations and increased its number of regional jets substantially. In another benchmark study, Network Manager was used to modify the structure of only one hub while keeping flights not touching the hub unchanged. The objec- tive was to reduce the hub’s activity by 30 percent. Network Manager output was com- pared to a schedule produced by schedule planners using the traditional approach. The system’s output schedule met all the require- ments and matched the planner’s schedule in profitability with minor differences in A benchmark study of Network Manager indicated the tool can re-time a schedule to maxi- service frequencies. mize passenger flows across the network, helping reduce passenger delays. The latest benchmark was concerned with clean-sheet scheduling. In this scenario, Network Manager started only with bank- All Network Manager benchmarks per- believe that the tool has a lot of potential in the hub structure, fleet-size restrictions, a list formed to date have shown that the tool can market place in a variety of schedule optimiza- of non-stop city pairs and service frequency produce high-quality schedules. In addition, tion and planning scenarios. a restrictions that reflected strategic object- benchmarks proved that system can be used ives and operational constraints. Network not only to restructure and re-time a schedule Manager was again able to produce a schedule but also to do clean-sheet scheduling as well Michael Clarke can be contacted of the same quality as a schedule produced as fleet planning. Equally important, Network at [email protected], and in several weeks of planning using the tradi- Manager enables planners to reduce time from Dirk Guenther can be contacted tional approach. several weeks to a few days. Therefore, we at [email protected].

Optimizing Schedule Changes

Description Schedule Characteristics Profit Increase Run Time

• Weekly Optimize service frequency for fixed-bank structure • 1,800 legs 1.8% 2 hours and fleet size • 1 major hub and 1 secondary hub

• Weekly Establish one additional major and a secondary hub • 1,800 legs 5.3% 5 hours with fixed fleet size • 1 major hub and 1 secondary hub

• Daily Optimize bank structure of one of two hubs • 900 legs 10% 11 hours and fleet size • 2 hubs

• Daily Reduce fleet size activity at one of three hubs • 5,000 (1,000 variable) legs 1.5% 6 hours with remaining schedule fixed • 3 hubs

• Weekly Clean-sheet scheduling with variable fleet-size • 1,500 legs No base 10 hours and service-frequency targets • 1 major hub and 1 secondary hub

By using new automation tools, airlines can quickly conduct large-scale rescheduling exercises that result in a more profitable schedule.

ascend 77 T H E H I G H level vıew News Briefs from Around the Globe

Asia/Pacific The airline will also employ significant Sabre® AirFlite™ Codeshare Manager and consulting services from the Sabre Airline Sabre® AirFlite™ Budget Manager. Solutions consulting practice to ensure the “In today’s challenging environment, we comprehensive adoption and utilization recognize the strategic importance of focus- of this technology, providing a total solution ing on proven solutions that deliver desired that will help JAL realize the full benefits of results,” said Flg. Off. Apinan Sumanaseni, the suite. THAI’s president. “As the national carrier, “At Japan Airlines, we are aiming to cre- THAI recognizes the importance of efficient ate an airline group with enhanced customer and effective flight network planning. To sup- appeal and a fundamentally strong business port the network management plan, which is China Eastern Airlines model,” said Shunichi Saito, JAL chief infor- the key area in an airline business, we have mation officer. “We are committed to con- to be equipped with the highest technology China Eastern Airlines, one of the leading stantly listening to the needs of our custom- for a complete network planning system. carriers in China, has signed a four-month ers, and we refine our offering to meet and [The] Sabre Airline Solutions planning and contract with the Sabre Airline Solutions® exceed those needs in the most efficient way. scheduling suite will enable us to boost our consulting practice to implement best practice To do that, we must be able to quickly make decision-making capabilities and help increase network planning and flight scheduling for the changes to our schedules and effectively our bookings revenue whilst decreasing our carrier. As the leading provider of software integrate our network so that the customer operating costs.” and services to the airline industry from enjoys fast itineraries to desired destinations planning through execution, the consulting at preferred times of day.” practice will leverage its industry leadership to support China Eastern Airlines in the areas of schedule optimization, network analysis and slot analysis. “With this engagement, China Eastern Airlines will maximize its current network Pakistan International and schedule profitability, increase its aircraft Airlines utilization and be in prime position to take Thai Airways International full advantage of future market growth and Public Company Limited Pakistan International Airlines, Pakistan’s opportunities,” said Zhen-Ming Hu, general national carrier, has selected Sabre ® manager, airline planning and international Thai Airways International Public Company WiseVision™ Sales Essentials, an industry- affairs for China Eastern. “As we approach Limited has chosen the Sabre® AirFlite™ leading tool that helps airlines extract valuable the 2008 Beijing Olympics and 2010 Shanghai Planning and Scheduling Suite to maximize decision-support information from global dis- World Expo, it is critical that we invest in total network profitability by optimizing its tribution systems. Sales Essentials will help world-class services to maximize our global network and fleet structures. In a two-phased PIA understand its true market position and opportunities.” approach, Thailand’s leading carrier will imple- competitors’ strengths. The system will also ment several modules from the AirFlite suite, provide the airline with valuable information including Sabre® AirFlite™ Schedule Manager, about agency activity, helping strengthen its Sabre® AirFlite™ Profit Manager, Sabre® AirFlite™ marketing initiatives to shift and capture new Fleet Manager, Sabre® AirFlite™ SlotManager, market share. Photo by JupiterImages Corporation JupiterImages by Photo

Japan Airlines

Japan Airlines, Asia’s leading airline group, has selected the Sabre® AirFlite™ Planning and Scheduling Suite to optimize its scheduling development process from planning to dis- tribution. By implementing the latest version of the AirFlite suite, JAL will integrate core functions such as scheduling, profitability fore- casting and analysis, fleet and network opti- mization, and slot management to enhance revenues and reduce operating costs.

78 ascend “Sales Essentials will benefit PIA on chairman and CEO. “While traditional GDSs strategic decisions on our international routes several fronts,” said Alamzeb Afridi, general remain the industry’s most effective and and also enables calibration and maintenance manager of marketing support systems for profitable channel of sales and distribution, we of network planning tools such as the Sabre® PIA. “It will help us drive our network expan- definitely intend to grow our business through AirFlite™ Profit Manager.” sion goals into new markets, maximize our the intelligent use of multiple distribution revenue potential by providing clarity and channels. Sabre [Holdings], with its unrivalled depth to our agency distribution channel in presence in every channel of travel sales both our existing and planned new markets, and distribution, remains a strong distribution enhance business processes and increase partner for us.” efficiencies surrounding our sales and plan- ning departments. In short, it will not only help us achieve several of our key goals but also position us among the leading carriers in Asia.” Virgin Blue Airlines

Virgin Blue Airlines has selected the Sabre® AirMax® Revenue Management Suite to meet Pakistan International Airlines has Air China its expanding revenue management require- extended its distribution agreement with the ments. The airline will realize significant ben- Sabre Travel Network ® business for an addi- Air China, the largest commercial airline in efits through improvement of its inventory tional five years. As part of the agreement, China, signed an agreement with Sabre Airline management and revenue forecasting using it has upgraded its participation in the Sabre® Solutions to provide marketing and analytical the AirMax suite. In particular, Virgin Blue will global distribution system to the Sabre® Direct technology to analyze booking information to utilize the capabilities of the Sabre® AirMax® Connect Availability SM offering, the highest support the carrier’s marketing, sales, stra- Low-Fares Manager, which is seamlessly level of connectivity, giving agents access to tegic network and planning decisions. This integrated with the Sabre® AirMax® Revenue real-time information about an airline’s last- agreement is the first contract in China for Manager, providing the industry-best frame- seat availability and fares. The Pakistani carrier market information data tapes tools, which work for revenue management decision sup- is also implementing added-value products analyze global distribution system bookings. port in a hybrid fare environment comprising from Sabre Travel Network, including e-ticket- Air China will process its MIDT data through both traditional and less-restricted fares. ing capability for Sabre Connected SM travel the Sabre® WiseVision™ Data Services to turn agents in U.S. and Canadian markets, with large volumes of complex booking transac- other markets to follow shortly, and the Sabre® tions from GDSs into mission-critical com- Claim It SM feature, which enables travel agen- petitor information that can be used to make cies to take ownership of, or claim, passenger timely and fact-based operational decisions. name records created by the airline, directly “With access to processed global MIDT from the Sabre GDS. data through Data Services, Air China will have Jet Airways “[The] Sabre Holdings® business, as a clear view of total market demand and true a whole, has successfully transcended the market share in key international markets,” Jet Airways, the domestic market leader traditional relationship between GDS oper- said Qui Feng, deputy general manager of in India, has chosen Sabre® AirFlite™ ator and airline, which was based solely network and revenue management for Air Schedule Manager and Sabre® AirFlite™ on distribution,” said Tariq Kirmani, PIA’s China. “This information is critical to support Fleet Manager to enhance its flight plan- ning and scheduling decision-making capabili-

Photo by JupiterImages Corporation JupiterImages by Photo ties. Schedule Manager enables Jet Airways to tightly manage its flight schedule and codeshare flights — an essential requirement in today’s international aviation environment. Fleet Manager enables Jet Airways to opti- mally allocate its fleet to meet close-in mar- ket demand and choose the best routes and flights to improve total network profitability. “Making informed decisions around flight scheduling is an essential part of any air- line — and Jet Airways is no exception,” said Anthony D’sa, general manager of planning for Jet Airways. “Using Schedule Manager, we will be able to build, visualize, edit and dis-

ascend 79 T H E H I G H level vıew News Briefs from Around the Globe Photo by Eric Gustafson/Shutterstock.com Eric by Photo tribute our flight schedules more quickly and use the Rocade Crew Management easily than before. In fact, as we look to sig- System to plan and track crew scheduling nificantly expand our fleet and network desti- throughout its entire operations, including nations over the next two years and beyond, 50 aircraft and more than 3,000 crew we will be using these new applications and members. Sabre Airline Solutions will also processes from Sabre Airline Solutions to bet- provide professional services and ongo- ter optimize our network.” ing support for during the implementation and for a period of at least five years. “The Rocade [Crew Management System] offers an optimal mix of rich func- tionality, yet is easily accessible and highly advanced in terms of automation and optimi- Jeju Air zation,” said Markus Christl, project manager for Austrian Airlines. “At the same time, Jeju Air has signed an agreement for the main- the Rocade [Crew Management System] tenance, repair and overhaul solution offered is very robust and provides a truly user- through the recently established global alli- friendly graphical interface superior to any ance between Sabre Airline Solutions and other alternative we evaluated. With the Ramco. Jeju Air, Korea’s first regional airline, crew Web portal, we will be able to com- is a new low-cost carrier based on the Korean municate more efficiently and allocate island of Cheju. This MRO system will enable our resources more accurately according to the airline to efficiently maintain and engi- individual crew preferences.” neer its fleet to achieve optimal utilization of resources, outstanding performance and a decrease in costs. “The Ramco MRO System provided by Sabre Airline Solutions will help us reduce operational and overhead costs,” said Yong Ho Kim, advisor to the chief executive officer Gulf Air for Jeju Air. “At the same time, the application helped us develop our strategic business will enable us to optimize inventory, increase Gulf Air has realized financial benefits of more plan. This was a challenging task given the operational performance and aircraft avail- than US$30 million during an 18-month period changes we were facing. Their practical ability, and improve overall business process with the help of the consulting practice from approach, coupled with our experienced team, efficiency. We look forward to the multiple Sabre Airline Solutions. The “no gain, no fee” helped us develop the way forward for the benefits offered by this system.” consulting engagement involved changes in next decade.” five areas of the airline’s operation. The con- sultants used Sabre Airline Solutions products to help the airline market its schedule, sell Europe/Middle East/ tickets, serve its customers and operate more Gulf Air will soon be added to the efficiently. Interline Electronic Ticketing Hub, a mod- Africa “We are delighted with the results of ule within SabreSonic™ Ticket. The Middle our ‘no gain, no fee’ partnership with Sabre Eastern carrier is expected to go live during Airline Solutions,” said James Hogan, presi- the third quarter of this year. It will join 57 dent and chief executive of Gulf Air. “It has other airlines already e-ticketing with Sabre been able to deliver real value in several key Airline Solutions through the hub. areas of our operation. The module is one part of the two- “Most consultants provide remote year, full-service electronic ticketing project strategic input, where success or failure is Sabre Airline Solutions is undertaking for Austrian Airlines mostly intangible,” he continued. “Sabre Gulf Air. Other elements include enabling Airline Solutions, however, was prepared to e-ticketing through the airline’s own direct Austrian airlines, the flag carrier of Austria, put its money where its mouth is, dive into booking channels (online and city ticket selected the Sabre® Rocade® Crew Manage- the heart of our business and get its hands offices), as well as through each of the ment System, a next-generation crew dirty. The results speak for themselves. five major GDSs and with third-party ground management solution. The carrier will [The] Sabre Airline Solutions consultants also handlers.

80 ascend Photo by Eric Gustafson/Shutterstock.com Eric by Photo prise agreement with Sabre Airline Solutions. “By choosing state-of-the-art products Through this agreement, Penauille Servisair [from Sabre Airline Solutions], we eliminated will implement the Sabre® Streamline™ the need to build costly systems for electronic Resource Management Suite, providing world- ticket distribution, database management and class management of staff resources across online booking,” said Nadir Atash, president its global station network for the benefit of of Ariana Afghan Airlines. “These cost-saving its airline customers worldwide. With more measures are important as Ariana begins a than 21,000 employees, Penauille Servisair new era in its history.” has immense scale and diversity in opera- tions. Implementation of the Streamline suite will enable the company to consistently plan, roster, administer and manage its global work- force. Through consistency of execution and incorporation of best practices, the product

Photo by Rafa Irusta/Shutterstock.com Rafa by Photo suite will enable Penauille Servisair to operate Aeroflot Russian Airlines with stronger cost controls and higher prof- its while offering its customers world-class Aeroflot Russian Airlines utilized airline alliance ground-handling services. services and technology from Sabre Airline “Sabre Airline Solutions was selected Solutions to help meet the stringent technical because of its ability to service customers requirements of SkyTeam membership, which across multiple regions and the Streamline the airline recently attained. suite’s ability to address diverse local re- In preparation for the project, Sabre quirements,” said Denis Lawn, senior vice Airline Solutions delivered online booking; president of global operations support for CTO automated booking; and e-ticketing capa- Penauille Servisair. “The flexibility and robust bilities, self-service airport check in, and intra- nature of the system provides a solution airline CRM. It also provided new technology that can be configured and tailored to the and services for passenger departure control regional needs of each station. There are at Aeroflot’s home airport, Sheremeteyvo in significant efficiencies to be gained by Moscow. During this phase, all of Aeroflot’s adopting a centralized methodology and reservations records were switched from its “E-ticketing is one of many initiatives system to manage resources. We anticipate previous technology to the SabreSonic solu- Gulf Air has been working toward with our improvements in administrative efficiency tions. More than 300,000 passenger records technology partner, Sabre Airline Solutions, and resource accuracy. After an intensive were moved successfully in 31 minutes: more for simplifying travel processes and enhanc- evaluation, Sabre Airline Solutions proved than 10,000 records a minute. ing our customers’ experience,” said Jalal to be the clear choice to offer the best AlQassab, vice-president of information tech- solution.” nology for Gulf Air. “We are delighted with our achievements in host and GDS e-ticketing. With the activation of [the Interline Electronic Ticketing Hub] we progress further toward our Alitalia goal of achieving 100 percent e-ticketing by the end of 2007.” Alitalia, the Italian flag carrier, will use revenue integrity products from Sabre Airline Solutions, as well as its consulting practice, to stem mil- lions of dollars of revenue leakage each year. It Ariana Afghan Airlines has also extended and upgraded its use of the Sabre® AirMax ® Revenue Manager. Ariana Afghan Airlines has chosen the Alitalia will use two components of the SabreSonic™ Passenger Solutions for its res- SabreSonic solutions to cut down on revenue ervations, electronic ticketing and Web site leakage. The Sabre® SmartFlow™ tool kit will bookings capabilities. The SabreSonic solu- enable the airline to quickly create robotic Penauille Servisair tions will enable Ariana to compete in the processes that interface with global distribu- global marketplace with a suite of new-gen- tion systems, airline host systems, databases, Penauille Servisair, one of the world’s leading eration, high-performance passenger man- e-mail servers and Web services. Examples ground-handling agents has signed an enter- agement products. of usage include revenue integrity processing,

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direct reservations outlets and its Web site, .com, will now be available to European travel agency customers of Sabre Travel Network. “Because of its presence in every avail- able channel of travel sales and distribution, we view Sabre [Travel Network] not just as a Photo by JupiterImages Corporation GDS operator but as a key business partner who can add value to our product distribution globally and, very specifically, right here in Europe,” said Bart Vos, KLM’s vice-president of e-commerce and distribution.

waitlist management, disruption management The implementation follows Sterling’s acqui- notification and down-line segment cancel- sition last year of Maersk. As a main step in lation. this implementation project, the company The second component, Sabre® GDS has replaced Lufthansa Systems’ Netline with Domodedovo Airlines and Analysis, gives Alitalia the ability to evalu- the Sabre® Rocade® Airline Operations Suite City Star Airlines ate fares and availability data on each GDS designed to meet the needs of the low-cost to ensure these reflect accurately the actual sector. Sterling has traditionally used the Russia’s Domodedovo Airlines and City Star fares in its reservations system. This will Rocade suite, while Maersk implemented Airlines in Scotland have begun distributing eliminate unnecessary credit memos and help Netline in 2004. through the Sabre GDS. City Star is based in address traveler and travel agency dissatisfac- “We evaluated and benchmarked both , with routes to and tion caused by inaccurate pricing. systems,” said Christian Balling, Sterling proj- in Norway. “Combined with the hands-on consult- ect manager. “Greater automation and flex- ing expertise that Sabre Airline Solutions ibility were the Rocade suite’s most significant was able to offer, we’re confident that these differentiating features.” products will help stem revenue leakage,” said Gianni Matassa, Alitalia’s director of rev- enue management and distribution. “This is a classic example of the way the wider Sabre [Airline Solutions] business is adding value to SN Brussels its relationship with us — over and above the traditional distribution function.” KLM Royal Dutch Airlines SN Brussels, Belgium’s flagship carrier, has signed a multi-year full-content agreement KLM Royal Dutch Airlines has signed a multi- with Sabre Travel Network. The deal gives year full-content agreement with Sabre Travel Sabre Connected travel agencies access to Network. The deal will give Sabre Connected the same fares and availability offered through agents in Europe full access to the airline’s the carrier’s direct reservations outlets, includ- entire range of published fares and inventory, ing flySN.com. with no distribution surcharge. It is in addition Four airlines in the Europe, Middle Sterling Airlines A/S to KLM’s existing and ongoing global partici- East and Africa region have upgraded their pation in the Sabre GDS. connection to the Sabre GDS. Aegean Sterling Airlines A/S, the Danish low-cost car- All the fares KLM makes generally avail- Airlines, Helios Airways, Airways rier, has recently implemented and cut over to able through any GDS are available globally and Afriqiyah Airways are all now utilizing operational and decision-support technology in the Sabre GDS. This deal builds on that the Sabre® Direct Connect Availability SM offer- from Sabre Airline Solutions to streamline its relationship — ensuring that additional fares ing, the highest level of participation in the business processes and realize cost savings. and availability offered through the airline’s Sabre GDS.

82 ascend In addition to distribution through the Low-Fares Manager, which will help maximize forward to opening a new chapter in this Sabre GDS, Yemenia Airways and Afriqiyah the carrier’s revenue potential through more relationship and providing maximum value to Airways also use operational and decision- accurate forecasting and robust inventory con- Sabre [GDS] subscribers, including access to support products from Sabre Airline trols. The system will be delivered via Sabre® all fares.” Solutions. eMergo® Web access, an applications service Jim Compton, executive vice president provider delivery method. of marketing for Continental Airlines, said, Aviacsa will operate Revenue Manager “We are pleased to provide Sabre [GDS] sub- Arabesk Group in a flight leg and segment processing mode. scribers with access to our full-content offer- In particular, Aviacsa will be able to utilize the ing through this agreement. Continental has The founding members of the Arabesk Group, capabilities of Low-Fares Manager seamlessly been a strong advocate for change on distribu- a commercial cooperation initially involving integrated within Revenue Manager, provid- tion efficiency through the GDS channel. This seven , have formalized ing the industry-best framework for revenue new agreement will help us to make additional their relationship. This is the culmination of management decision support in a hybrid fare progress towards that goal.” a year of preparation, during which the con- environment comprising both traditional and sulting practice for Sabre Airline Solutions less restricted fares. assisted the carriers in studying the viability “Our existing relationship with Sabre of the project. Airline Solutions and the success we’ve had Articles of cooperation have been with its software applications played a vital adopted that set out the ways in which the role in our decision to implement Revenue founding members will work together for Manager,” said Daniel Martinez, commercial mutual benefit. They include sections on gov- director for Aviacsa. “The system’s flexibility, ernance, membership criteria, dispute resolu- scope and inventory control capabilities are tion, commercial activity, operations, financial unmatched in our market and will enable us to Sabre Airline Solutions obligations and ongoing construction of the effectively compete.” and Worldspan, L.P. group. “I am pleased to have [the] Sabre Airline Sabre Airline Solutions and Worldspan, L.P. Solutions consulting [practice], together with have jointly implemented a new message rout- our organization, play an important role in North America ing technique that streamlines communica- developing this intra-regional cooperation,” tions links between the global travel industry’s said Abdul Wahab Teffaha, secretary general two leading interline e-ticketing hub providers. of the regional representative body, the Arab Previously, connections between car- Air Carriers Organization. “The chief execu- riers operating on different host systems tives from the seven launching carriers dem- required a unique communications link. The onstrated their clear support of the concept new “hub-to-hub” connection means mes- and removed all hurdles to bring it to fruition. sage routing between carriers is now handled The cooperation is already yielding benefits at the application level rather than creating a for the individual carriers and is demonstrating Alaska Airlines and distinct communication layer for each interline that this is a good path for the future, as well Continental Airlines connection. as providing value-added service to the travel- In an environment where carriers are ers through better market coverage.” Alaska Airlines and Continental Airlines signed laboring to meet the International Air Transport new five-year, full-content agreements with Association mandate for 100 percent elec- Sabre Travel Network and the Travelocity ® tronic ticketing by the end of 2007, this comes business. Through the agreement with Sabre as a welcome development. The benefit for Latin America Travel Network, the full content of the airlines’ carriers is the ability to activate interline elec- fares and inventory will be available to sub- tronic ticketing projects with more of their scribers of the Sabre GDS, including online valued airline partners. Many carriers are in and offline travel agencies. This includes pub- the process of evaluating long lists of interline lished fares that the airlines sell through any partners and making business decisions about third-party Web site and through their own which partners will be included in interline Web sites and reservations offices. electronic ticketing plans. Faster activation “Alaska Airlines is pleased to continue capabilities will enable carriers to include Aviacsa our long-standing relationships with Sabre more interline partners as they move to elec- Travel Network and Travelocity,” said Steve tronic ticketing. Aviasca recently selected the Sabre® AirMax® Jarvis, vice president of sales and customer “One hundred percent - Revenue Manager, including the Sabre® AirMax® experience for Alaska Airlines. “We look ing by 2007 makes travel more convenient

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for consumers and more efficient for airlines is so much better than the generic ‘rubber friendly front-end access to both carriers’ by leveraging existing technologies,” said stamp’ of approval that used to be the norm,” reservations and airport check-in applications. Tom Murphy, IATA senior vice president of said Mary Bleakley, director of travel services The Sabre® Qik® Business Processing Solutions industry distribution financial services. “But at the American Bar Association. “Having and the Sabre® Qik® Developer Tool will be we must speed up the implementation of the compliance information so professionally used to design and implement a graphical interline electronic agreements. If we don’t, documented makes it easier for the ABA to user interface that helps make operations at airlines will limit their ability to work together speed up payment for trips we’ve taken to Caribbean Star and Caribbean Sun more cost to deliver and profit from a global network. I fulfill government contracts and grants.” effective by reducing user training expenses am delighted to see innovation being brought and increasing productivity. to speed up this process. The new approach The Qik solutions will give both air- eases cooperation between hub providers and lines the ability to create highly customized should accelerate implementing interline elec- user access to real-time host systems, data- tronic agreements. It’s good for consumers bases, peripheral devices and other informa- and for airlines. And it’s just what IATA would tion sources through a highly flexible graphical expect from its Simplifying the Business pre- user interface. The Developer Tool will give ferred vendors and partners.” the airlines flexibility to customize and inte- Federal Aviation grate new technology and business proce- Administration dures without requiring proprietary computer programming experience. The Federal Aviation Administration has cho- “We’ve taken some major steps in sen the Sabre® Streamline™ Resource Manage- recent weeks to raise our customer care ment Suite to automate the scheduling of U.S. services to world-class levels,” said William air traffic controllers. The contract award has E. “Skip” Barnette, president and CEO of Travelocity Business an initial value of just under US$200,000 and Caribbean Star and Caribbean Sun. “From a potential total award value of US$20 million simplified pricing to our new call center with Travelocity Business implemented a program over the term of the agreement. expanded language capabilities, Caribbean designed to help those who travel on govern- The Streamline suite enables the FAA Star and Caribbean Sun are putting the needs ment business more easily comply with the to create air traffic controller shift schedules of our customers first with renewed vigor. Fly America Act and get reimbursed for their and rosters and improve administrative staff Working with Sabre Airline Solutions is the lat- trips. utilization. There are approximately 15,000 est step in this process. The Qik solutions and The Fly America Act, enacted in 1958, air traffic controllers across the United States Developer Tool create a myriad of efficiencies requires that international air travel paid for by who will be scheduled using the Streamline specifically designed to benefit our customers the U.S. government be flown on U.S. flag suite upon full implementation. — everything from purchasing tickets, to the carriers in order for travelers to be reimbursed. The Streamline suite will also enable the check-in process and boarding passengers The rule applies both to government workers FAA to meet the stated mission of its 10-year are enhanced by these tools, creating a more and government contractors whenever travel strategy for the air traffic controller workforce, pleasant travel experience for our passengers.” is financed by federal government funds. The “meeting the needs of the system, staffing legislation does provide for special excep- the right number of controllers in the right tions, such as allowing use of a foreign carrier place at the right time.” when it is determined to be necessary. But the exceptions can be complicated and are often difficult for travelers to understand in order to make a compliant booking. Now, companies that use Travelocity Delta Air Lines has signed a new seven- Business can have their employees contact year, full-content agreement with Sabre Travel a Travelocity Business agent to handle all the Network. Through the agreement, all Delta complexities of researching, analyzing and published fares and inventory will be available booking government-related travel. The agent Caribbean Star Airlines for subscribers of the Sabre GDS, includ- takes time to confirm that each segment of and Caribbean Sun Airlines ing online and offline travel agencies, as the trip meets government standards and well as corporate customers of Sabre Travel documents the details of each segment within Caribbean Star Airlines and Caribbean Sun Network. the traveler’s itinerary for easier reconciliation Airlines, sister carriers that combine to oper- In addition to the Sabre Travel Network and reimbursement. ate the largest and most modern fleet in the agreement, Delta also signed a new marketing “The Travelocity Business personalized Caribbean, and Sabre Airline Solutions entered agreement with Travelocity and a participation and detailed approach to government travel into an agreement to create customized, user- agreement with Site59 ® from Travelocity.

84 ascend “This agreement further supports Around the World world. The deals are with Macquarie Airports, Delta’s restructuring efforts, including our Turin International Airport, Singapore Changi goal to effectively manage our distribution International Airport, and 12 French and Swiss costs,” said Lee Macenczak, Delta’s executive properties. vice president of sales and customer service. The contract with Macquarie involves “We are committed to providing multiple market analysis solutions designed to assist distribution options that are both preferred by air service development at Aeroporti di Roma, our customers and offer attractive economics Brussels International Airport, Sydney Interna- to Delta.” tional Airport and Copenhagen International Airport. “In its drive continually to improve airline marketing at its properties, Macquarie Airports Sabre Airline Solutions and has studied the market for airport-relevant Sabre Travel Network market analysis solutions for over a year,” said Hans Mitterlechner, associate director of Sabre Airline Solutions and Sabre Travel Macquarie’s investment group. “We have con- Network have issued electronic ticketing cluded that Sabre [Airline Solutions] market Island Air selected the Sabre® Flight Control updates for their businesses. Eighty percent analysis and reporting capabilities represent Suite, enabling the recently independent air- of all tickets issued worldwide through the the most comprehensive and user-friendly line to operate competitive schedules that Sabre GDS are now electronic, and 122 air- offer available.” serve passenger demand while meeting dis- lines offer e-ticketing for Sabre Connected Sabre Airline Solutions consulting prac- patch requirements and overcoming disrup- travel agencies. Meanwhile, 57 airlines are tice has seen significant growth worldwide tions to schedules. now using the SabreSonic™ Ticket Interline in 2005, achieving a more than 50 percent Components of the Flight Control Electronic Ticketing Hub to facilitate e-ticket- increase in revenue year-over-year. This marks suite include the Sabre® FliteTrac® system ing with partner carriers. the third consecutive year of growth for the with solutions for movement control, and IATA’s Simplifying the Business strategy consulting unit, with engagements more than Sabre®CrewTrac ® and Sabre® CrewQual® calls for 100 percent e-ticketing by the end of tripling since 2002. systems for crew management. The suite, 2007. Collectively, Sabre Travel Network air- The consulting engagements in designed for airlines from start-up to mid- and line customers broke through the 80 percent 2005 revolved around significant industry large-size carriers, is ideally suited for Island barrier in March, meaning that now only one trends tied to cost control and revenue per- Air’s needs. in five tickets issued through the Sabre GDS formance. Airline clients’ consulting needs “From paper to computer in less than is paper. were particularly related to turnaround 30 days, these new systems have allowed us and restructuring, revenue management, to achieve a new level for our flight operations development of airline alliances and airline and crew management offices through auto- planning. In addition, Sabre Airline Solutions mation,” said Rob Mauracher, Island Air CEO. Sabre Airline Solutions consulting prac- consultants established a world-leading “We are very pleased with the cooperation tice has followed its strong growth in 2005 practice in airline planning this past year. from Sabre [Airline Solutions] in moving us to by signing 15 contracts in the first quarter a new tier.” this year with airport operators around the Worldwide Carriers and Technology

South African Airways, Pakistan International Airlines, Gulf Air, , Cyprus Airways, Malev Hungarian Airlines, , Portugalia and SpanAir have become the latest carriers to implement electronic ticketing through the Sabre GDS. Sabre Travel Network has now released Photo by Christophe Testi/Shutterstock.com e-ticketing in 72 countries, including 29 in Europe, the Middle East and Africa. Cyprus, Bahrain, Oman, Qatar, United Arab Emirates, Kuwait, Lebanon and Egypt are the latest additions. a

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Product process, reduces the number of errors tation with alternate solutions for long- associated with generating and sending term planning, Sabre AirFlite Planning SSIM slot request messages and monitors slot status. Accurately forecast the profitability of and Scheduling Suite, the schedule and use the results for real version 2005 Enhanced what-if capabilities — The decision support, which is essential to suite enables schedulers to create and effi- the redesign of scenario support, ciently evaluate multiple schedule alterna- Description: tives, which enables them to analyze more Provide a comprehensive rule-based en- scenarios. Multiple schedulers can simul- gine to add all commercial elements to the Sabre® AirFlite™ Planning and Scheduling taneously update the same flight schedule schedule, for example, traffic restrictions, Suite, version 2005, offers an integrated, while ensuring that two changes cannot be terminal codes and meal information. multi-user, decision-support environment to contradictory. optimize the entire scheduling development Sabre ® AirFlite™ Fleet Manager — process from planning to distribution. The Increased data storage and security — A strategic tool that enables an airline to system helps schedulers view, update, evalu- The AirFlite suite offers improved data stor- evaluate various options to improve the prof- ate, optimize and distribute flight schedules. age and secured access through a cen- itability of its existing schedule and evaluate It seamlessly combines advanced planning tral repository of all schedule and sched- new marketing opportunities for the genera- and scheduling functions such as schedule ule-related information. System security tion of a new schedule. Enhancements to optimization, slot management and network is available at a schedule level, enabling Fleet Manager include: profitability forecasting and analysis in a fully multiple levels of schedule access. integrated solution — all within a single data- Ability to optimize schedules of longer base and application interface. Improved flight schedule administration time periods up to an entire season, — The suite provides convenient sched- ule administration functionality to create, A richer constraint palette including Benefits: import, export, copy, delete, compare and schedule design considerations such as merge flight schedules. consistency and service limits, The AirFlite suite optimizes the flight schedul- ing development process and offers several Enhanced modeling of passenger spill benefits, including: Features: and recapture effects,

Superior flight schedule visualization The AirFlite suite seamlessly combines core Capacity to estimate revenue and traffic — The suite’s integrated platform enables flight scheduling functions such as sched- at a fare-class level, schedulers to view and evaluate flight sched- uling, profitability forecasting and analysis, ules in a multi-user environment via multiple fleet assignment, and slot management with Usability improvements such as the graphical displays used together to give a shared interfaces and database information. ability to archive and upload entire complete schedule representation: aircraft This level of integration improves system constraint sets and cost scenarios, flow, station activity and flight display. performance and accuracy and reduces development efforts, resulting in a flexible, sta- Modeling enhancements to improve Improved flight schedule updating — ble and efficient tool that runs on multiple plat- performance. The suite provides easy and fast updating forms. Core modules within the suite include: of flight schedule data. The key is flexibility Sabre ® AirFlite™ Profit Manager and performance, enabling large structural Sabre® AirFlite™ Schedule Manager — Evaluates the profitability of a given changes to be as easy as a single day change. — Enables an airline to develop flight schedule to assist in strategic, long-range schedules that meet customer needs. planning and identifying strengths or weak- Optimized decision support — The AirFlite Using this system, an airline can increase nesses within a carrier’s schedule, quan- suite offers integrated tools to forecast total its profitability by enhancing the flight tifying the impact a particular schedule network profitability, develop optimal route schedule development process. The latest may have. Version 2005 of Profit Manager and network structures, and identify the version of Schedule Manager has been includes several enhancements: optimal fleet size and mix. enhanced to: Flexible report generator redesigned for Comprehensive slot management — Provide better schedule scenario capa- usability and consistency with Schedule The suite streamlines the slot request bility to allow analysts easier experimen- Manager report generator,

86 ascend New and Improved Products and Services from Sabre Airline Solutions

The aircraft flow view of Schedule Manager graphically displays lines of flying for individual aircraft in a schedule. The display also enables analysts to use an Excel-like editor to view and edit a flight, such as TG 971, and to change the routing of aircraft with drag-and-drop swapping.

Data loader for Profit Manager data, Sabre ® AirFlite™ SlotManager system discrepancies, and airport planning for — Enables an airline to manage and track stand planning and passenger flow, Memory and run-time improvements, its slot rights at Federal Aviation Admini- stration and International Air Transport Asso- Supports slots for smaller aircraft and Advanced filter capabilities (ability to ciation slot-coordinated airports, streamlin- those with fewer seats, build queries), ing the slot request process, reducing the number of errors associated with generating Offers a manual matcher to manually add Global edit of combined host and other and sending SSIM slot request messages, unused historic slots, airline schedules, and monitoring slot status. The latest ver- sion of the SlotManager system: Offers read, write and administrative Ability to define cost hierarchies, access control for slot data, Produces several new reports for year- Semi-automated calibration with integra- round analysis, schedule-change analy- Provides view mode filtering that limits tion between Profit Manager and the sis, what-has-moved analysis, weekly display and manipulation of data to dates calibration tool. matrix, coordinator meetings, station and days of interest. a

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Product Minimize data expense — By only viewing data, Sales Essentials provides both post- data associated with your selected target departure and advance booking data. The Sabre WiseVision markets, data expense is reduced. This system can house up to 25 months of enables sales representatives to be more post-departure data for year-over-year and Sales Essentials, efficient, spending more time focusing on booking-trend analyses. Utilizing the Internet, version 2006 their accounts and less time analyzing large the application provides timely, accurate amounts of data. market data without incurring additional hardware, software or other information Description: View competitor information — Analysts technology infrastructure costs. can view and analyze market share by Sabre® WiseVision™ Sales Essentials offers a airline across all yield classes or within spe- Ease of use — The system’s feature screens cost-effective solution for smaller airlines and cific yield classes. Knowing the competitive and reports are easy to use. For new users, those that are new to the use of market infor- strength of an airline in a market serves as context-sensitive assistance is available to mation data tapes data. The system helps air- the basis for all planning and marketing strat- guide them through the various reporting line analysts extract valuable decision-support egies and activities. features and options. The intuitive system information from global distribution systems’ design enables quick adoption into an airline booking transactions. It also delivers competi- Increase revenue and share — By access- with few training requirements. tive booking information in a user-defined or ing various agencies’ booking information, system-generated list of 50 important mar- airlines can focus on accounts with the most Top-market performance evaluation kets. Using Sales Essentials, analysts can also potential to positively shift market share. — The “top markets” report provides an view the activity of all agencies booking in Airlines can increase revenue by shifting overview of an airline’s performance in all those 50 markets, providing valuable data for competitive high-yield bookings in specific of its key markets. The report is a valu- airline sales and marketing departments. markets. able resource that helps airlines analyze performance at a high level and monitor Maximize market potential — Sales performance on a monthly basis to ensure Benefits: Essentials assists an airline’s network plan- sustained or improved market share. ning department to identify markets with MIDT data adds significant value to several expansion possibilities. Quality of Index data — Sales Essentials core operations in an airline, including sales contains QSI data used to estimate the and marketing, network planning, pricing, and share an airline should have in a market. revenue management. The system offers Features: The QSI model estimates target airline mar- numerous benefits: ket share based on passenger preference Sales Essentials offers timely, worldwide for various schedule attributes of the host access, empowering smaller airlines to proac- airline’s itineraries and competitive service tively seek ways to increase revenue or react in any given market. to poorly performing agencies and markets. Primary system features include: Market-level competitive analysis — The system provides reports for detailed Access to MIDT data — For smaller air- market-level analyses such as the “market- lines and those new to the use of MIDT by-airline” report that enables analysts to Photo by Carolina K. Smith, M.D./Shutterstock.com Photo by Rafael Cordero/Airliners.net

88 ascend New and Improved Products and Services from Sabre Airline Solutions

Sales Essentials presents market-share information in an easy-to-use table, enabling analysts to extract valuable decision-support data from GDS booking transactions. Analysts can also view the activity of all agencies booking in 50 key markets.

view market share by airline in a specific (as market share) of individual agencies or the system. When this option is selected market. regional groups of agencies in key markets. for a report, Sales Essentials automatically generates and e-mails the report to user- Market-level agency analysis — The Report display options — Sales Essentials specified recipients after every monthly data system assists sales managers in iden- enables analysts to view any report in a tabular load. The analyst no longer has to log into ti-fying underperforming agencies in key or graphical format. They can also convenient- the system to retrieve or e-mail the report. markets that the sales force can use ly switch or toggle between the two options to provide incentives to targeted agencies to view the report in the desired format. Run offline — The run offline feature to positively shift bookings to the host increases user productivity by facilitating airline. Report templates — Report templates, multi-tasking. With this feature, analysts can a convenient, timesaving feature, are pre- generate reports in the foreground and back- Point-of-sale analysis — Agency loyalty to formatted reports analysts can save in the ground at the same time. Sales Essentials an airline in a market varies widely by agen- system and reuse at any time to quickly gen- saves these reports for 30 calendar days, cy location. The “point-of-sale” report lets erate reports. In addition, the feature’s auto- offering convenient access at any time dur- managers view the booking performance run option provides an automatic trigger for ing this timeframe. a

ascend 89 Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation. ©2006 Sabre Inc. All rights reserved. proven Call us at +1 682 605 1000. Or visit www.sabreairlinesolutions.com. visit Or 1000. 605 682 +1 at us Call you. for work to leadership proven put can we together how Learn world. the in anywhere model, business any size, any — airlines all of operations optimize can that solutions integrated flexible, of portfolio a developed we’ve carriers, with closely Working practical. impossible the make to ahead, stay to need airlines systems vital deliver to forward technology pushed we’ve company, other any than Longer solutions. time-tested require areas Mission-critical innovation. all-out for time It’s leadership. And it’s time for proven leadership. proven for time it’s And

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, A Magazine for Airline Executives 2006 Issue No. 2 2006 Issue No. 2 No. Issue 2006

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 the globAl AdvocAte A Conversation With . . . Giovanni Bisignani director general and CEO International Air Transport Association page 38

www.sabreairlinesolutions.com I N s I D e

Government regulations 6 affect globalization

Latin American carriers 42 grow regionally

AirAsia overcomes challenges 50 to its Thai-based subsidiary