A MAGAZINE FOR AIRLINE EXECUTIVES 2005 Issue No. 2 2 0 0 5 I s s u e N o . 2 Taking your airline to new heights

THE TRANSFORMER A conversation with … W.Douglas Parker, Chairman, President and CEO, US Airways

page 44 w

w INSIDE w . s a Gulf Air’s in-flight service b r

e 33 wins top awards a i r l i n e SAS restructures s o to better compete l 36 u t i o n s

. Jet Airways becomes c o 42 an international carrier m . f d o e s v r k r e a s e m r e s t c i h v g r i r e l s

l making r A o / . d c n n I a s e r k r

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smart. proven. bankable. contents 52 s y t r e l c t i s u f u d o r d o r p n i p

6 Airport 33 Gulf’s Onboard with 48 ASPire to 52 Catering to Facelifts Top In-Flight Service Leading Technology the Bottom Line Airports around the world are Gulf Air boosts in-flight service Airlines can leverage leading Airlines utilize modern technology modifying to meet the changing with enhanced amenities such technology through applications to heighten in-flight service, needs of their airline customers. as onboard nannies and chefs. service provider models at a reduce costs and increase fraction of the total cost of revenues. 9 Choosing ownership. a Model 54 Forecasting the Airlines should consider many (Revenue) Future factors when choosing the right 33 Accurately forecasting revenues business model. helps airlines make timely corrective marketing decisions 15 Crossing and enhance cash management. the Border Airlines are pressuring legislators to change current governmental policies that limit cross-border ownership.

19 “Fare”ly Simple Many traditional network carriers perspective are simplifying fares to offset the affects of low-cost competition.

22 Inflammatory Fuel Airlines must take necessary 36 Back to steps to counteract today’s the Future sharply escalating fuel prices. SAS has reorganized to better compete in its home markets. 25 Just the (e) Ticket 42 Jet Airways: From Airlines will have to modify their Domestic to International operations to comply with IATA’s Jet Airways capitalizes on electronic ticket mandate. reduced government regulations to add international service. 28 Reduced Fleets, Raised Revenue 44 The Many traditional airlines are Transformer reducing fleet types to gain oper- CEO Douglas Parker discusses ating efficiencies and effectively how the new US Airways has compete with low-cost rivals. remade itself into a carrier better positioned for long-term success. 31 T5: The Gateway e decided to focus this issue of Ascend on the many ways to British Airways’ Future W airlines around the world are embracing a fundamentally British Airways’ new Terminal 5 changed and more competitive industry. The changes have many will boost customer service and aspects — low-cost carriers with rising costs, traditional airlines improv- employee morale while gaining ing their cost structures, the development of new aircraft that open operating efficiencies. new markets and the growth of powerful technology that helps reshape operations. And, there has been much discussion and antici- pation about a possible transformation through industry consolidation.

36 Our cover Q&A with Doug Parker about the recent merger of US Airways and America West may very well signal the long-awaited 59 l y Form follows function — a n that has been misunderstood. n a “ o p Form and function should be one, i

g joined in a spiritual union. m e o — Frank Lloyd Wright

r ” c

56 African Safari: Continent’s 59 Latin 64 Talking Technology 69 Carriers on the Hunt for Beat with Barry Smith new Opportunities The low-cost/hybrid carrier model Airlines can better address crew, Many Africa-based airlines are is becoming more prominent in maintenance and operational modifying their operations to Latin America, changing the issues through fleet assignment leverage the continent’s growth region’s landscape. models that incorporate station potential. purity. 62 Small Companies, Big Business 67 Supplier 69 Looks Good, Delta leverages a valuable growth Connection Works Well market that provides an additional Sabre Holdings has developed Sabre Airline Solutions takes revenue stream. new technology to improve the a customer-centric approach ability for travel suppliers, such to ensure the development of as airlines, to distribute their innovative, highly usable software content. applications.

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

restructuring of the airline industry. For better or for worse, it’s clearly Add the fact that while global traffic has only realized an annual growth consolidation as the new US Airways becomes a much bigger player and rate of 6 percent, the private aviation sector is growing considerably this aggressive move by Doug and his innovative team will surely shake more at 20 percent to 25 percent a year. up the U.S. airline industry. So what is the right answer? Coming on the heels of the Air France-KLM merger, the new US Airways feeds the notion that further consolidation will take place. And perhaps I believe some much-needed consolidation will benefit the industry if alliances will become more tightly woven to create even more consoli- seen in specific markets around the world. But it’s a mistake if we sim- dation and efficiency. So consolidation is happening, isn’t it? ply say that the industry is consolidating — it’s too limited a view. The number of customers who buy airline tickets continues to grow, and Inevitably, consolidation seems obvious — until you look at other market they are choosing from a broader range of options, making distinct changes that suggest just the opposite: that the airline industry is, in trade offs between price and convenience, high service and basic trans- fact, fragmenting. To believe that, you have to look at customer trends portation, and even the specific set of services for which they are will- and some high-growth markets. ing to pay. And they come in greater numbers from powerful, emerging markets such as China and India. So, I think the right answer is a bit of First, traditional network carriers today serve a much smaller percentage both — consolidation where it brings efficiency and fragmentation dri- of the total market. During the past five years, low-cost carriers have ven by changing customer needs and real distinct differences in air captured a significant portion of the market as well as much of the pas- transportation services. senger growth in Europe and the United States, and more recently in Asia/Pacific. Opportunities for the industry lie in both areas. While Doug Parker and his team at US Airways take advantage of their opportunity for success- Another sign of fragmentation is the high volume of start-up carriers in ful consolidation, other airlines will search for new and innovative ways high-growth markets. For example, during the past three years in India, to tailor their products to meet customers’ needs and capture their fair private carriers such as Jet Airways have taken more domestic market share of new markets. At the same time, all of us at Sabre Airline share from the state-owned airlines (Indian Airlines and Air India) — up Solutions will seek to find the most efficient, cost-effective ways to from 48 percent to 58 percent. There are at least a dozen start-up carri- support your technology and business needs. ers in the region, some very well financed, poised to capture the abun- dant growth expected in the market. So, we have low-cost carriers capturing a large portion of the world’s air- line tickets. We have a slew of new players lining up to capture their share of the world’s travelers. Is that enough evidence to swing the argument the other way — to say things are fragmenting? industry

VIEWS FROM 30,000 feet During the last three years, the airline industry has been laser-focused on cost management. Although airlines have made tremendous strides in reducing expenditures, they are still not as profitable as they’d like to be, raising the question of whether the time has come to make revenue generation a larger part of their transformation plans. Some airline executives from around the world give their thoughts.

“ While we would all like to see revenues “ While there are still some cost dragons begin to trend upward, I do not feel that to slay, our primary focus [this year] is low-cost carriers are likely to afford us maximizing revenue per ASK. This is that luxury. Bear in mind that the recent a key driver of a successful business. focus on cost management is a deriva- Ensuring that we deliver the right cock- tive of low-cost carriers driving fares tail of revenue quality and volume is down, and in order to preserve margins, essential. Market segmentation, share carriers had to attack the cost side of shift, controls over inventory and pric- the income statement. The truth is that ing, and demand-price elasticity are if you take care of the cost, the revenue closely measured today at Gulf Air.” will take care of itself.” — James Rigney, head of — Paul D. Major, chief executive corporate strategy for Gulf Air officer for Bahamasair

“ It’s high time for the aviation industry “ One of the major questions we should leaders to start paying more attention to be asking ourselves is, ‘What has driven the commercial side of airline activities, this focus on cost management?’ We which for several years suffered consid- have seen a continual downward pres- erably from numerous cost-reduction sure on fares to the point that many campaigns. Keep cutting operational would wonder if these are commercially costs, if you don’t, you will not survive. profitable. What is the infrastructure But do spend more money on commer- and support being afforded to many cial activities that could bring you con- carriers that has allowed this situation siderable profits in quite a short time. to develop? Revenue generation is Grow, consolidate and care for your something all should continually strive commercial teams. Invest in their and focus on, but all need to be mindful professionalism and latest technologies. to avoid a lot of pedaling without actu- This is the only way to success in these ally getting anyplace commercially.” difficult days for aviation.” — Roy Kinnear, head of network — Evgueni V. Bachurin, commercial revenue management for Gulf Air director for Aeroflot Russian Airlines

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“ I think a tri-focused approach is now “ The cost focus has to continue. But necessary. Yields are continuously com- unless we simultaneously leverage our ing down, pushed by increased capacity strengths into a revenue premium, arriving into now more deregulated where possible, the gap to profitability markets, and new, creative ways of will never close.” attracting and keeping passengers to — Jim Whitehurst, chief network and improve RASK through more traffic planning officer for Delta Air Lines should always be part of our daily agen- das. Just as critical, the new capacity is coming in the low-cost operator format, so network carriers have no other way “ British Airways’ recently announced of surviving but to adapt by cutting business plan for the next two years rec- costs, becoming more productive and, ognizes that the time has come to shift therefore, more efficient with the same our emphasis somewhat. The need for or fewer resources. I think the real chal- any airline to continue to remorselessly lenge now is how to transform the busi- drive down unit costs remains crystal ness model with permanent cost/rev- clear. However, safeguarding the long- enue-effective competitive advantages term health of our business also requires that are hard to replicate by others.” us to make targeted investments aimed — Eduardo Lombana, vice president at the revenue side of the profit equation. of planning and scheduling and Accordingly, we are increasing our revenue management for Avianca investment in our people, products, ser- vices and systems capability.” — Robert Boyle, director of commercial planning for British Airways “ For sure without taking our eyes off the cost side, airlines have to start thinking about the revenue side. We are the only industry not to penalize no shows. If “ Fundamental changes in air transporta- every IATA member airline got an aver- tion are currently redefining both sides age US$10 fare increase, this would be of the equation. While Continental ranks enough to turn the worldwide negative competitively in the top tier in revenue, [financial] result into a positive [result]. the productivity and costs continue to Or maybe the US$10 is expended in the demand an immediate focus. Exogenous duty free before boarding!” factors like oil add another dimension of — Alberto Fajerman, senior executive unpredictability.” vice president of commercial direction — Robert Cortelyou, staff vice president of for Varig Airlines schedule planning for Continental Airlines

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Airport Facelifts

Airports around the world are making modifications to runways, terminals, lounges, hangars and other facilities to meet the changing needs of their airline customers.

By Lauren Lovelady | Ascend Staff

Photo by José Valero

uch like the airlines that utilize their Facilities the only answer. Spain’s busiest airport, facilities and drive their business, air- Despite setbacks in the airline industry in recent Madrid Barajas International Airport, plans to Mports today are finding it necessary to years, the demand for air travel continues to open two new runways, as well as an addition- continually rethink and retool operations to grow. In response to this growth, airports are al terminal, this year. Currently, the airport con- lower costs and improve efficiency as well as transforming their physical infrastructures to nects more than 25 million passengers a year customer service. Whether it’s enlarging exist- efficiently accommodate more passengers and from the country’s capital city to hundreds of ing runways or adding new ones, building ter- flights. Runway extensions and expansions now destinations worldwide, and the expansion ini- minals, upgrading facilities and technology, enable major carriers with larger aircraft to serve tiative will double its capacity. New runways streamlining security procedures, or imple- regional airports once restricted by smaller run- are also under construction in major cities, menting new concepts, these changes are ways and allow international airports to handle such as St. Louis, Missouri; Minneapolis, needed to help airports better support their air- additional capacity. At the same time, the Minnesota; Seattle-Tacoma, Washington; line partners, improve customer service, foster emphasis on frequent, short-haul service has Boston, Massachusetts; Atlanta, Georgia; and business development in the communities meant an upsurge in the number of small air- Barcelona, Spain. they serve and strengthen their operations to craft and the need for rapid turnarounds. For The need to more efficiently and profi- meet the challenges of the 21st century. some airports, building additional runways is ciently handle increasing passenger traffic also

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necessitates that airports renovate and upgrade retail and service options. Signs posted single-terminal Central Japan International terminal facilities to meet the demands of throughout the facility are written in multiple Airport (Centrair). Alliance members are locat- today’s more sophisticated travelers. Upscale languages accompanied by internationally rec- ed in the same part of the terminal, and they retail stores and shopping mall environments, ognized symbols. Even the parking garage is share check-in counters and ticketing facilities. as well as food courts featuring well-known geared for customer convenience, with signs As result, the average minimum connection franchises, are designed to attract travelers who letting drivers know how many parking spaces time between international and domestic find themselves spending an increasing amount are available on each level. The information is flights has been reduced to one hour as of time in airports. Often inter- or intra-terminal updated throughout the day. The new terminal opposed to up to two hours at Narita, where transportation needs to be improved or added, is part of a US$2.7 billion, five-year capital many passengers had to change terminals to and floor spaces need to be redesigned to allow development program at D/FW, which is connect to other alliance partners’ flights. for the latest in customer and airline technology. expected to pump US$34 billion into the local In addition, some airport authorities are While it’s usually more cost effective to economy and generate 77,000 new jobs during now focusing on transforming not only physi- renovate and upgrade existing facilities than to the next 15 years. cal facilities but airspace as well, utilizing simul- construct new ones, at times, the best solu- The continued growth of airline alliances taneous approach capabilities in tandem with tion for increased demand and outdated termi- is also impacting terminal layouts and construc- global positioning systems and reduced aircraft nals is to break ground. This was the case for tion. With a goal of providing seamless service, separation minimums. the Dallas/Fort Worth International Airport, alliance partners find it’s not only attractive but which opened its first new terminal this sum- necessary that their ticket counters, gates and Technology mer since the airport’s initial opening in 1974. baggage service be conveniently located for For travelers, customer service equals efficien- International Terminal D is more than twice as their passengers. In response, airports are real- cy. For airlines, as well as airports, efficiency large as any of the airport’s other four terminals izing the benefits of placing alliance partners’ means reducing costs and increasing reliability. and is its most customer friendly and techno- operations in close proximity and, in some After all, a single lost bag can ruin a passen- logically advanced. All international flights cases, allocating them to a single, jointly oper- ger’s travel experience and consume manpow- arrive and depart from the terminal, which ated terminal. Earlier this year, all Star Alliance er and revenues. By employing cutting-edge offers passengers an unprecedented choice of members with operations in Nagoya, Japan, technology, airports and airlines can improve 49 internationally and locally renowned dining, moved from Tokyo Narita Airport to the new their operations and give passengers more P h o t o s b y S c o t t H u n t

Above and right: The new US$1.2 billion Terminal D at Dallas/Fort Worth International Airport opened July 23. The 2-million- square-foot facility contains room for 40 gates, 67 retail and restaurant venues, and a 298-room hotel. The facility, which will house six international airlines flying to 38 destinations around the world, is P

also equipped with Wi-Fi Internet access h o t and includes a US$6 million art program. o c o

Left: The Madrid Barajas International u r t e

Airport will open two new runways and s y o

an additional terminal to help effectively f D a

accommodate the more than 25 million l l a s /

passengers who connect through Spain’s F o r capital city. The new 63-gate facility is t W

part of an expansion program that also o r t h

includes associated taxiways and aprons I n t e

and a people mover to connect the new r n a t

terminal with satellite facilities. i o n a l A i r p o r t

ascend 7 industry

control over their travel experiences. travel industry. It is generally viewed by airport the aircraft, saving time and money. Snack In recent years, self-service check-in and airline personnel, as well as passengers, vendors and some retail shops will be available kiosks have become commonplace in many as a complex, time-consuming and costly — to passengers in a restricted area, where they airports worldwide. Some kiosks allow check yet necessary — part of today’s travel experi- will wait until boarding calls are made for their in for a single airline while others are shared by ence. Efforts to streamline the security flights. Limited seating will be provided for multiple carriers. Either way, they help airlines process for all parties while maintaining the less-mobile passengers. All of this will be pro- reduce their labor costs while processing the highest standards are underway, including a vided in a pleasant, efficient environment that same or more passengers per hour. Registered Traveler Program at Florida’s will be cost effective for both the airport and The typical ticket counter is a source of Orlando International Airport. To participate in airlines to operate. In turn, air travel becomes frustration for many travelers, especially fre- the program, travelers pay US$80 annually for more convenient and even affordable to an quent flyers. Stepping into the airport terminal, a card that guarantees an exclusive security increasing portion of the population. a traveler is usually confronted by three or four line at the airport and no secondary security For some passengers, though, the cost lines with 10 to 25 people waiting in each. It is checks. Obtaining a card requires travelers to of air travel is only part of the challenge. As the much more inviting to see a group of interac- submit for clearance their iris scans, finger- average age of the population rises worldwide, tive, touch-screen check-in kiosks with only a prints and digital photo to the U.S. Department airports are looking for better ways to ease the single person utilizing each station or perhaps of Homeland Security. Similar systems are travel experience for passengers with disabili- open stations. By swiping a card and answer- now in place in some European airports and a ties — ideas that go beyond the scope of those ing a few simple questions, travelers can be on handful of other U.S. airports. required by governments and airport authori- their way in a matter of minutes. Some self-ser- ties. With the help of a focus group, designers vice check-in kiosks are now offering upgrade of D/FW’s new Terminal D conceived and opportunities from coach to business class. HIGHlight implemented a number of improvements. Realizing passengers’ desire to remain in Differing floor textures help visually impaired touch with and informed about the world while travelers locate where they are in the terminal. still on the go, airports are redesigning gates … increasing passenger Special relief areas in terminals are designed to with areas for high-speed wireless Internet allow service animals to take a quick break service access. In the future, airlines may have traffic also necessitates after long flights. Security barriers in place to opportunities to “bundle” services, providing protect the terminal also define the curb for passengers wireless connections for a small fee that airports renovate travelers with limited vision, and curbless in the gate area prior to departure using their crosswalks eliminate the need for disabled ticket confirmation numbers as passwords. and upgrade terminal passengers to navigate slopes. To help minimize passenger and aircraft Airports of the 21st century will also have congestion at gates, more and more airlines to transform operations and facilities to accom- and airport managers are utilizing sophisticated facilities to meet the modate new, modern aircraft, including the gate management and planning technology to Airbus A380. The 555-seat double-deck aircraft identify and assign flights to available gates. demands of today’s will be the largest in the world when it enters These tools help facilitate quick aircraft turn- service next year. It features reduced noise arounds, resulting in increased opportunities more sophisticated and emissions levels and wider aisles and for on-time arrivals and departures on typical seats for passenger comfort, but it also operational days. travelers. requires more space on runways and tarmacs In the area of baggage management, air- than aircraft currently in service. To retain and ports and their airline partners are experiment- increase their business, many airports will ing with radio frequency identification, or RFID, undoubtedly want to make the changes neces- technology to track bags. According to sary to support the operation of these aircraft. International Air Transport Association esti- However, such programs are not with- Change to any degree in any area is not mates, a major airline may handle up to 70 mil- out controversy as airlines, airports and gov- without challenges. As populations and com- lion pieces of baggage a year, and approximately ernments negotiate how to pay for their enor- munities grow, very few airports remain isolat- 0.7 percent of those bags are mishandled. RFID mous costs; consumer advocates protest the ed “outside of town.” And as air travel technology is expected to reduce that number increasing intrusion into citizens’ private infor- demand increases and airports expand in by 30 percent to 40 percent. The bottom line for mation; and tough questions still exist about response, inevitably concerns about increased airports and airlines is reduced baggage recov- enforcement. In the end, everyone concerned noise pollution, vehicle traffic and possibly ery costs and reallocation of employees to is looking for faster and more cost-effective taxes will arise. However, more communities more important tasks. For travelers, more reli- ways to identify threatening versus non-threat- than ever are recognizing that airports and air- able baggage handling equals improved cus- ening passengers. lines play vital roles in their economic develop- tomer service. ment. Reliable air service brings new ventures, Another potential application for RFID New Concepts bolsters existing businesses and drives job technology involves the service equipment with- Realizing security is an area with no room for growth. In turn, demand for air service contin- in airport terminals. Wheelchairs, catering trolleys compromise, airports are looking into new ues to grow. In the end, the advantages often and baggage carts are often randomly moved ideas for simplifying other aspects of air travel outweigh the disadvantages, especially when throughout terminals as flights arrive and depart. and moving passengers through their facilities airports, airlines and communities work togeth- With RFID technology in place, needed equip- quickly. One such idea — a low-cost carrier ter- er to bring about these transformations. a ment could be promptly identified and relocated. minal — was recently introduced by the Civil Aviation Authority of Singapore. Currently Security under construction, the terminal will not Security is and, at least in the foreseeable employ jet bridges. Instead, passengers will Lauren Lovelady can be contacted at future, will continue to be a hot topic for the walk short distances on the tarmac to and from [email protected].

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Choosing a Model

Today, a successful airline can take many different forms, but there are many factors to consider when choosing the right business model.

By Lauren Lovelady | Ascend Staff

undreds of airlines around the globe par- safe service has helped establish low- be offered complimentary or for a price — ticipate in online travel sites such as cost airlines as viable competitors for such as entertainment, Internet connectiv- HTravelocity, LastMinute.com, Expedia today’s traveler dollars. In general, no ity and meals. Some hybrid carriers offer and Orbitz, displaying their fares, destinations frills — pillows, blankets, movies or “buy-on-board” shopping, an emerging and services to approximately half a billion peo- meals — are offered and none are trend in air travel today. ple worldwide with Internet access. Even air- expected. Overhead costs are kept to a A number of airlines are now experi- lines that don’t subscribe to these travel sites minimum, and air travel is moved in the menting with and attempting to replicate usually have their own Web sites. With the pro- direction of mass transportation. the hybrid carrier formula, particularly liferation of information, it’s no wonder today’s Full-service carriers — Demand for busi- onboard shopping. It’s important to remem- consumers are more savvy and knowledgeable ness travel is once again on the rise. And ber, though, that trends are usually cyclical. than ever before. They know what kind of ser- travelers who spend countless hours in What may seem to be a good idea now may vice they want and expect, which airlines offer airports and airplanes are often more than not be such a good idea two years down it, and what it will cost. The question is: Do air- willing to pay for upgraded service, includ- the road. The challenge for airlines, then, is lines know what their customers want and how ing meals, onboard entertainment and to know their brand — their service reputa- to provide it to them at a reasonable price? technology, and larger, more comfortable tion, what their customers expect, and the Based on amenities offered to travelers, seating on aircraft as well as the privacy of initial and long-term investments needed to today’s airlines generally fall into three service- airport lounges. either maintain or change service levels as level categories: Hybrid carriers — Growing in popularity, well as passenger expectations. Once an Low-cost carriers — A surge in passen- these airlines offer lower fares combined airline has decided its true mission, it can ger demand for inexpensive, reliable and with services and amenities — which may select the appropriate business model.

Runway Models More airlines are focusing on customer service whether they are low cost, hybrid or full service. Three leading airlines model how customer service can be a key differentiator.

By Lauren Lovelady | Ascend Staff

Low-Cost Carrier: Ryanair Ryanair's Web site says it all — “FLY CHEAPER.” Known for its In addition to being Europe’s low-cost leader, Ryanair also scrappy, unconventional and sometimes controversial style, Europe’s takes pride in its on-time performance, customer service and bag- star low-cost airline books a whopping 98 percent of its reservations gage-handling records. On average, the airline misplaces less than through this site. Ryanair’s service focuses on frequency and reliabil- one bag per 1,000 passengers — the lowest number of incidents in ity at the lowest possible cost. The homepage of its Web site clearly the European airline industry. Its passengers and the media have displays lists of destinations and fares that can be viewed in 19 lan- taken notice as well. In 1998, Ryanair was voted “Airline of the Year” guages. In addition, travelers can obtain substantially reduced rates by the Irish Air Transport Users Committee and the “Best Managed on rental cars, hotel accommodations, travel services and rail ser- National Airline” by International Aviation Week. And most recently, vices through the site. If a competitor offers a lower fare on one of Airline Business cited the carrier as the world’s top airline for opera- its routes, Ryanair will automatically lower its fare in response. tional efficiency, punctuality and customer service.

Runway Models | continued on page 11

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When the decision is made, airlines should Is it conducive to the airline’s fleet types and great deal of time and investment. There’s strive to maintain that business model as the length of each flight? Some older aircraft the issue of inventory control. A process consistently as possible. types simply cannot be retrofitted with personal must be put in place to account for all food So before deciding to remove the pil- DVD players and Internet connectivity with- and beverages sold by cabin crews and lows and blankets from aircraft, begin charging out spending millions of dollars. And while replenished by vendors at various airports. In passengers for snacks and meals, and retro- passengers may not miss pillows and blan- addition to their other duties, cabin crews fitting the fleet with personal seatback DVD kets on hour-long flights, they’ll certainly be are now responsible for collecting money players, consider some issues and challenges. looking for them during trans-Atlantic flights. and ensuring it is handled properly, which means additional training. While an airline In General Food and Beverage Service may pat itself on the back for generating an How will adding, reducing or eliminating a With more and more airlines eliminating tradi- extra half a million dollars last year in rev- service or amenity impact the airline’s brand, tional food and beverage service in favor of enue by selling on-board products, it may cost and fare structure? Will it draw more offering buy-on-board snacks and meals, sev- not realize that it costs an additional passengers to the airline or drive business to eral issues must be considered: US$750,000 to make it work. other carriers? Will the airline’s employees Is the airline looking for a way to dramatical- Can the airline offer passengers good quali- and passengers perceive it as an upgrade in ly reduce costs, while still offering service to ty, healthy snacks, meals and beverages at customer service or a reduction? those customers willing to pay for it? If so, reasonable prices? Armed with the knowl- Is this type of change appropriate for the charging for meals and snacks may not be edge that many airlines have eliminated free countries and cultures in which the airline the best solution. Establishing and maintain- food and beverage service in flight, a num- operates? ing an in-flight retail operation requires a ber of passengers now choose to purchase

A strong focus on customer service, on-time performance and low fares has earned Ireland-based low-cost carrier Ryanair several prestigious industry awards during the last few years. Most recently, the airline was referred to by Airline Business as the world’s top airline for operational efficiency, punctuality and customer service.

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food in the terminal to bring onboard. Many Runway Models continued from page 9 popular food and beverage outlets now | operate franchises in airports worldwide. If passengers can obtain meals and snacks How does an airline that has the lowest fares from 14 bases to 249 routes through- they know they like from a reliable establish- out 20 European countries also rank No. 1 in customer service while generating a profit? It ment, why chance paying almost the same is not by providing free gourmet food and beverage service, extravagant business-class amount for questionable items onboard? seating or frequent flyer perks to its customers, as some might think. Although Ryanair did provide these services and amenities in the 1980s, when it initially began flying, it decided Entertainment and Technology change was necessary. After three years of rapid aircraft and route expansion coupled with Traditionally, in-flight entertainment has consist- intense pricing competition, Ryanair was dealing with substantial losses. Following ed of movies and recorded television programs Southwest Airlines’ low-fares model, Ryanair restructured and re-launched its operations made available to passengers via headsets that in 1991, becoming Europe’s first low-cost carrier. Free drinks and meals were scrapped; plug into seat arms — sometimes for a small however, passengers may now purchase them onboard. Business class and the frequent fee. Advances in technology are now enabling flyer program were eliminated. airlines to customize entertainment for passen- Ryanair simplified its fleet so that it consisted of a single aircraft type designed to gers using seatback DVD players, satellite tele- streamline and lower the cost of crew training and maintenance. Its current fleet comprises vision programming, power ports for Internet more than 100 Boeing 737-800s, with firm orders for 125 more. These next-generation air- access, and handheld systems that play movies, craft will enable Ryanair to double in size, carrying more than 70 million passengers by 2012, music videos, TV shows, local and national and will reduce fuel usage by 45 percent per seat. This is especially important because news, and video games on small screens. Ryanair recently guaranteed travelers that it will never apply a fuel surcharge to its low fares. At the time of its restructuring, Ryanair also changed its operational strategy. The carrier began frequent point-to-point service on short-haul routes to secondary and region- al airports with convenient transportation to nearby population centers and travel destina- tions. This transformation continues to benefit Ryanair’s business in numerous ways. Point-to-point operations reduce the opportunities for passengers’ luggage to be lost and their connections missed while at the same time, the airline avoids the costs of providing Photo courtesy of Boeing connecting service for “through” passengers and their luggage. Short-haul routes (the average Ryanair flight is 1.2 hours) eliminate the need for the carrier to provide the “frill” services sometimes expected by passengers on longer flights. As well, aircraft utilization and operational efficiency are at an all-time high. Without the traditional food and beverage service, less time for clean up and restocking inventory is required between flights. When combined with its strategy of operating at less-congested airports, Ryanair has achieved an average 25-minute aircraft turnaround time and established an on-time performance record that recently surpassed the best U.S. carriers. Ryanair’s no-frills service also means no reserved seating on its flights. However, passengers are assigned numbers once they complete the check-in process at the airport, and those with earliest check-in times are allowed to board flights first and choose their seats. If a flight is delayed or cancelled, passengers must purchase any food or accommodations on their own. Because it does not overbook flights, Ryanair has greatly reduced the possibility its passengers will be involuntarily denied boarding. In addition, the carrier avoids entering into alliances, believing it should bear total responsibility for its passengers’ travel experiences. Perhaps the best description of Ryanair’s service philosophy is found on the carrier’s Web site as part of its “Passenger Service and Lowest Fares Charter”: “Ryanair believes that any passenger service commitment must involve a commit- ment on pricing and punctuality and should not be confined to less important aspects of ‘service,’ which is the usual excuse the high-fare airlines use for charging high air fares. We believe we can do better. That’s why the Ryanair pricing, punctuality and service com- mitment is a far superior passenger service commitment. We provide all of the essential customer services, but clearly, we do not provide all of the back-up services (‘expensive frills’) that these high-fares carriers promise. But then with our lower prices and better punctuality, 99.9 percent of our passengers won’t need them.”

Full-Service Carrier: Emirates Based in Dubai, Emirates delivers the level of service expected from the city that’s the hub of commerce and tourism for the Middle East and home to the world’s first seven-star hotel and richest horse race. Since its first flight in 1985, today’s fastest growing intercontinen- tal airline has received more than 250 international awards, many focusing on the excellence of its services and amenities. One of its slogans, “First Class Whenever You Fly,” reinforces the airline’s commitment to making air travel a luxurious experience for its passengers. Recently, Emirates won “World’s Best Airline In-flight Entertainment” at the World Airline Awards, based on survey responses from more than 1 million people and 85 national- ities. Because Emirates operates many long-haul flights — 77 destinations in 54 countries

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Some airlines offer these amenities for free, while others charge passengers a small to moderate fee. Still, others see little benefit in providing these services due to their fare struc- tures and/or flight lengths. Before deciding to invest in one or more of these entertainment and information systems, airlines should explore their options: Can the existing aircraft in a carrier’s fleet be retrofitted to provide passengers access to the newest in-flight entertainment and tech- nology? Is the airline willing to make what is often a large initial investment to do so? If the expense is too great, should only part of the fleet be retrofitted and, if so, how is that determined? Will enough people want to pay the access fees onboard to eventually recoup the cost? Some passengers don’t mind pay- ing a small fee for such services, but others have already stated that they can see a movie in a theater less expensively than the US$10 to US$12 fees some airlines charge. Although some handheld devices do not require retrofits to operate, there is still the issue of inventory control and maintenance. Should the airline lease or purchase the devices? Who will maintain this technology and approximately how much should an airline expect to pay annually for daily passenger use and the occasional misuse and abuse of the equipment? Once again, there is the issue of cabin crew training. In addition to collecting passenger fees for access to entertainment and tech- nology, should flight attendants then be responsible for knowing how to operate the devices and providing compensation when they don’t meet passengers’ expectations? These challenges require additional training. Airlines should approach the services and amenities they offer to passengers as mar- keting opportunities, not short-term solutions for reducing costs or magic bullets for increas- in Europe, the Middle East, the Far East, Africa, Asia, Australia and New Zealand — in-flight ing revenues. When approached as marketing entertainment is a major focus for the airline. In 1992, it became the first airline in the world opportunities, services can be offered in a way to offer personal televisions in all classes. Today, it is investing nearly US$10 million per air- that connects with passengers in the environ- craft to provide each traveler with the latest personal information, entertainment and com- ment in which they’ve chosen to fly. After all, munications system, featuring 500 channels of the newest movie releases as well as few people would order a hot dog in an movie classics; Disney films for young flyers; and feature films from Arabia, Asia and the upscale restaurant, but they would wait in line Far East. Television channels broadcast comedy, drama, arts and sports, and audio chan- for one at a ballpark. At the same time, most nels feature music from around the world as well as stand-up comedy. There are also ded- people only fly two or three times each year icated movie, fashion, music, comedy and children’s programming for Arabic customers. and often on the same airline. Nothing alien- The carrier’s 40 in-flight games challenge and entertain passengers. For a minimal fee, pas- ates an airline’s passengers more than to be sengers with Wi-Fi equipped laptops can send and receive e-mail from any seat or make provided services one time and then be telephone calls from individual handsets. In-flight entertainment, though, is only part of required to pay for them during the next trip. Emirates’ extensive package of services and amenities. Customers are looking for consistency — deliv- Emirates believes the service it offers on the ground is as important as the service ered at a reasonable cost with efficiency and it offers in the air. Complimentary chauffeur service is available for first- and business-class expertise. a passengers to and from the airport, as well as to and from hotels for travelers with overnight layovers. Recently, this service was offered to first- and business-class cus- tomers flying on one of Emirates’ codeshare partners. For Emirates, alliances with carefully selected airlines give its passengers a wider variety of travel options than the airline could possibly offer on its own.

Lauren Lovelady can be contacted at [email protected].

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For passengers needing visas in advance of travel, Emirates has trained staff in offices worldwide who work with immigration authorities in Dubai to prepare and submit the necessary paperwork and monitor the approval process. At Dubai International Airport, first- and business-class travelers, as well as gold and silver members of Skyward (Emirates’ frequent flyer travel management program) receive the airline’s red-carpet treatment. They are met at curbside by Emirates’ concierge service and ushered to an exclusive check-in lounge equipped with 24 check-in counters, eight of which are dedicated to passengers with only carry-on luggage. After passing through nearby immigration and security checks, these passengers may then relax in Emirates’ luxurious first- or business-class lounges, open 24 hours a day. In addition to offering the traditional complimentary food and bever- ages, these lounges also have catered snacks and hot meals, guest bedrooms with private shower facilities (first class), single occupancy bedrooms with shared bathrooms (business class), massage chairs, designated smoking and non-smoking areas, large plasma television screens, workstations, baby-changing facilities and Skywards service desk. Designated kiosks in the terminal also enable frequent flyers to check their own accounts. To avoid inconveniencing its passengers, many of whom are business travelers, Emirates’ policy is to close boarding gates 15 minutes before departure to help its flights operate on schedule. The airline’s complimentary “Good Morning London” program, an alternative to chauffer service, allows first- and business-class travelers arriving at London’s Heathrow and Gatwick airports to relax in Delta Air Lines’ arrivals lounge at the Le Meridian Hotel. Shower and changing facilities are available as well as a continental breakfast. Passengers traveling to

Photos courtesy of Airbus central London are then given a free one- way first-class ticket to Victoria Station. Once in the air, Emirates’ multilingual cabin crewmembers, comprising more than 95 nationalities, deliver personalized service in all cabin classes of its modern fleet of comfortably equipped Boeing 777s and Airbus A330-200s, A340-300s and A340- 500s. Emirates’ Web site, customized for 35 countries, reveals that its on-board ser- vices and amenities are by no means limit- ed to its in-flight entertainment program. In fact, rather than publishing lists of fares, the airline provides details about its cabin ser- vice; storage space; seat configuration, recline and pitch; and dining and beverage options for all three classes aboard each air- craft type in its fleet. Some of the newer airplanes feature fully enclosed first-class suites with beds, revolutionary lighting to help reset body clocks and minimize jetlag, and room service, allowing passengers to phone the galley to order meals for delivery at their seats at specified times. Sample menus, designed by internationally renowned Above Left: For Emirates, today’s fastest chefs and customized for various destinations and dietary and religious needs, are dis- growing intercontinental airline, in-flight played on the site as well. Business-class menus change frequently to accommodate the entertainment is at the heart of its cus- high percentage of executives who fly on Emirates. The airline’s goal is to ensure that each tomer excellence commitment. More than of its flights is not simply a means of getting from point A to point B but is itself an enjoy- a decade ago, the Dubai-based carrier able experience. became the first airline in the world to Although much of Emirates’ focus is on the executive traveler, the airline also caters offer personal televisions in all classes. to families and travel groups. All aircraft have diaper-changing stations and baby cribs; chil- Above: In addition to its low fares, friend- dren’s programming on in-flight entertainment systems with smaller, brightly colored head- ly service, assigned seating and ticketless sets; and kid-friendly menus that include hamburgers, chicken nuggets, fish sticks, French travel, New York-based jetBlue operates fries, fruit and potato chips. Birthday cakes may even be ordered in advance for children. modern aircraft equipped with leather In addition, Emirates has created Skysurfers for its younger frequent flyers, ages 2 to 16. seats and DirectTV programming for Skysurfers earn and redeem mileage points for free flights, books, toys and trips to Dubai’s each customer as part of its objective of Wild Wadi Water Park, and they have access to a members-only Web site with electronic “bringing humanity back to air travel.” cards, screensavers, travel quizzes and journals, and a mileage calculator.

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Group travel can be a hassle, but Emirates created its Group In another cost-saving move, jetBlue offers only beverages Travel Service to minimize delays and confusion. The service and snacks, even on its longer flights. After talking with air travelers, arranges for advance airport check in, pre-printed boarding passes, the airline found that meal service was the least of their concerns. special baggage tags for easy identification, meals for special reli- Instead, more attention was focused on aircraft boarding and unload- gious or dietary requirements, cabin crewmembers who speak the ing procedures, cabin comfort, and in-flight entertainment. With that group’s language and pre-paid celebratory beverages and chocolates in mind, jetBlue plans to continue growing its current fleet of 77 sin- on most flights. Large groups wishing to sit together in flight may gle-class Airbus A320 aircraft by adding eight A320s and seven request to do so in advance, and Emirates will place headrest tags Embraer E190s (also single class with leather seats) this year. New on each seat, print the group’s menu with a company logo or club aircraft are more reliable and efficient, enabling jetBlue to spend less emblem and take a group photo with the cabin crew. money and time on maintenance and lower its fuel costs. A first in Given the consistency and style in which Emirates’ delivers the U.S. airline industry, all jetBlue aircraft have bulletproof cockpit these services and amenities, it’s not surprising that the airline has a doors and security cameras installed in passenger cabins for loyal customer following, especially among those who log many increased passenger and crew safety. Customers can take virtual miles in flight. In return, Emirates rewards its customers for their loy- tours of the A320s interior and exterior on jetBlue’s Web site. alty with extraordinary, award-winning attention to each aspect of Each aircraft seat is equipped with DirectTV, offering up to 36 their travel experience. channels of live satellite television programming free of charge. On most flights longer than two hours, a selection of movies and fea- Hybrid Carrier: jetBlue Airways tures from Fox InFlight is also available. Travelers can print out pro- Leather seats, live TV and low fares. It’s an unlikely combination for gramming guides from the carrier’s Web site in advance of their a single airline, but one that seems to work for jetBlue Airways. The flights. jetBlue also recently launched an “airplane yoga” program New York, New York-based airline is among a growing number of designed to increase passenger fitness and calm jittery nerves. A carriers carefully studying what air travelers want and then develop- “Crunch Fitness airplane yoga” card is placed in every seatback, ing innovative operational and marketing strategies to fulfill their illustrating easy-to-assume in-flight positions. desires. In fact, jetBlue Chief Executive Officer David Neeleman rou- One of jetBlue’s goals is to ensure getting on its flights is a tinely works in-flight as a member of the cabin crew, asking passen- hassle-free experience. To assist with this endeavor, it encourages gers what they like about the airline and what they would change. customers to check in online for flights via its Web site from their The carrier, which turned a profit within its first year of opera- home or office computers up to 24 hours in advance, but no less tion, describes itself as a “low-fare, low-cost passenger airline, than 90 minutes before their flights. With online check in, travelers which provides high-quality customer service.” It took to the air in can confirm, select or change seat assignments, as well as check 2000 with the goal of “bringing humanity back to air travel.” Its prod- baggage by following detailed instructions. Once at the airport, lug- uct — new planes, leather seats, DirectTV programming for every gage may be taken to the self-service bag drop counter before going customer, low fares and friendly service — is straightforward and through security checkpoints. In addition to traditional ticket coun- described in detail on its Web site, which is its main business driver. ters, jetBlue also has quick check-in stations for customers with only All seats are assigned, all travel is ticketless, all fares are one way carry-on items, or travelers without luggage may use self-service and an overnight stay is never required. kiosks to conveniently print their own boarding passes. To keep distribution costs low, as well as fares, jetBlue Because of its unique service offerings, jetBlue’s name and encourages travelers to make bookings directly via the carrier’s image are big sellers with its passengers. The carrier’s Web site fea- reservations Web site, which lists fares by destination and gives tures an online store and catalog, offering a variety of merchandise step-by-step instructions for completing the process, or by contact- including jetBaby bucket hats, a jetBlue lunch box, T-shirts featuring ing its toll-free telephone number. To further encourage online reser- its tailfin patterns and a laptop travel briefcase. For passengers in a vations, the airline established TruBlue, a flight gratitude program. time crunch, the site also features artist-rendered postcards of vari- Strictly an online program — no cards for customers to lose or state- ous destinations that can be sent via e-mail. JetBlue gift certificates ments to file and no overhead costs for jetBlue — TrueBlue awards may also be purchased online. points to travelers based on the length of their trips. Flights booked Although still a relatively young carrier, jetBlue established a online automatically receive double points. When a customer earns strong foothold in the U.S. airline industry. Based on the Skytrax the total number of points needed for a free trip, notification is pro- 2005 Airline of the Year survey, jetBlue was recently named the vided via e-mail. A recent agreement with American Express also “World’s Best Low-Cost Airline,” and The Wall Street Journal gave it enables travelers to earn points by using the jetBlue card issued by top honors in airline quality. The J.D. Power and Associates Reports the credit card company. 2005 Airline Satisfaction Index Study also recognized jetBlue as the With the exception of its base at John F. Kennedy International top U.S. airline in terms of customer satisfaction. Recognizing its Airport, jetBlue flies primarily to and from less-congested secondary technological achievements, Business Week’s 2005 Annual Design and regional airports with lower operating costs, encouraging higher Awards presented the silver award to jetBlue’s self-service check-in aircraft utilization and quick turnarounds. The airline currently oper- kiosks, and Wired magazine named the airline as one of “The Wired ates 316 flights a day to 32 destinations in 13 states, Puerto Rico, 40 masters of technology and innovation.” It seems jetBlue has the Dominican Republic and The Bahamas. For each of these desti- found a winning combination. a nations, the carrier’s Web site provides dining, accommodation and attraction information, along with security and travel guidelines, including recommended airport check-in times, baggage limitations Lauren Lovelady be contacted at and security screening requirements. wearelistening@sabrcan e.com.

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Crossing the Border

True global consolidation of the airline industry is hindered by current governmental policies that limit cross-border ownership, but pressure to change such regulations could lead to an industry transformation.

By Shane Batt | Ascend Contributor

he airline industry has been reverberat- States; Ford Motor Co. of the United States defunct English automobile manufacturer, ing with calls to ease cross-border own- purchased a controlling interest in both Jaguar Rover. These represent only a few examples of T ership restrictions for the past 12 to 24 and Aston Martin of the United Kingdom and cross-border ownership changes that have months, primarily centered on the issues of Volvo of Sweden; and Germany’s Volkswagen occurred and continue to occur within the investment in U.S.-based airlines. United purchased Bentley Motor Company of the automotive industry. The interesting point Airlines as well as American Airlines and Delta United Kingdom in recent years. Also, recently, regarding cross-border investment in the auto- Air Lines have called to raise the foreign own- Shanghai Automotive Industry Corp. motive industry is that it has remained almost ership limit of U.S. carriers from a maximum of announced its intention to purchase the entirely within the industry — automobile com- 25 percent to the European Union level of 49.9 panies have been purchasing automobile com- percent. In fact, legislation, currently under panies: the process of consolidation. In fact, all review by U.S. legislators, is designed to raise popular examples where cross-border owner- this restriction to E.U. levels. ship restrictions have been eased have result- The primary question facing the industry ed in consolidation, which has been happen- is, “How will the industry change if and when ing in several industries, including banking, cross-border ownership restrictions are oil and gas, pharmaceuticals, hotels, and reduced or eliminated?” This issue is of strate- essentially in every industry where gic importance to an industry that is rapidly restrictions have been removed. maturing while it is struggling financially. Some economists claim that consolida- tion is an inevitable result of the maturity Basic Economics of an industry. They would call consolida- When considering how the airline indus- tion “basic economics” — as goods and try will be impacted by greater flexibility services move from luxuries to commodi- for cross-border equity investment, it is ties, consolidation is one of the basic eco- important to consider the results of nomic patterns that emerge. other industries when similar restric- When automobiles were first produced, tions have been eliminated. There have they were definitely luxuries. Luxury brands been several notable examples of cross- were founded early in the evolution of that border ownership restrictions being industry, and as automobiles moved from luxu- reduced. Perhaps the best known ries to commodities, consolidation of the example, however, has been seen in industry increased. The results have produced the automotive industry. Germany’s economies of scale for automobile manufac- Daimler-Benz purchased a substantial turers and allowed for higher profits while unit interest in Chrysler Corp. of the United prices for cars have remained low. In fact, one P h o

DaimlerChrysler, a truly global company t o c o u r

2005 DaimlerChrysler launches the Crossfire t Global consolidation has already begun to take e s

Roadster, a colborative effort between United States y

root in various businesses, including the automotive o

and European groups. f industry. Companies such as DaimlerChrysler, owned by D a i m

European, U.S. and other international investors, has l e r C

benefited from the ability to attract capital from around the h r y

world. The 142 billion (US$192.3 billion) company provides an s ¤ l e example of the benefits that could be achieved by the airline indus- r try if cross-border ownership restrictions are eased or eliminated.

Copyright © 2005 DaimlerChrysler Corporation.

ascend 15 industry S a b r e A i r l i n e S o l u t i o n s ’ a r c h i v e s

Airline executives are beginning to build stronger relationships with their peers around the world to develop relationships that may prove beneficial if ownership restrictions ease. While some regulators argue that airline consolidation reduces competition, the industry’s financial indica- tors suggest otherwise. Some carriers, such as Cathay Pacific Airways with its interest in Air China, offset the affects of low margins and increase share value by linking with other companies.

measure of the maturity of the industry is relat- the marketplace, many potential mergers and to increase their share value drives carriers to ed to how much consolidation has occurred. acquisitions have been blocked or died under examine consolidation as a way to increase regulatory scrutiny. assets as well as deliver the all-important Consolidation in the Airline Industry While it is possible that some airlines economies of scale that allow for profits to be Consolidation in the airline industry is not a considered investing in others to reduce com- maintained in the face of rapidly rising costs. new occurrence, but one that has been accel- petition, the financial indicators in the industry Consolidation is a process that continues to erating in recent years. Almost every region do not bear this out. Yields have steadily accelerate in the industry despite the restric- of the world is seeing some degree of con- decreased in the industry since the beginning tions on foreign ownership that impact the solidation within the industry. For example, of deregulation in the late 1970s. In fact, yields availability of capital in many regions. America West is merging with US Airways in have decreased at an alarming rate in real the United States (see related article on page terms even though industry costs have History is to Blame 44). Recently, OceanAir in Brazil purchased increased, causing the margins in the industry Airline owners often bemoan that regulators a controlling interest in Colombia’s Avianca. to remain low overall and, as a result, leading put unfair restrictions on the airline industry in Europe’s Air France merged with KLM, and some carriers toward consolidation. several forms including taxation, safety and a union between Lufthansa and Swiss The primary driver of consolidation of the security requirements, and similar regulatory International Air Lines has recently been industry relates to increasing the share value of oversight. It is important, therefore, in consid- approved. Even the Far East is seeing its share constituent companies. Share value in the airline eration of cross-border ownership restrictions of consolidation with Cathay Pacific Airways industry is not driven by dividends since it to examine why taking an interest in Air China while both com- is very rare for most airlines to issue them. governments panies have an interest in Dragonair. Therefore, since investors do not receive an This type of consolidation is not limited income from their airline holdings, they expect to traditional network carriers. Even low-cost to receive value based on the growth in share carriers are consolidating. Europe-based value, which is directly related to both easyJet purchased Go, the former low-cost the increase in assets of airlines as subsidiary of British Airways; and Ryanair pur- well as their delivery of reason- chased Buzz, the former subsidiary of KLM. In able levels of profitability recent months, JetStar Asia announced its (typically a 3 percent to 8 merger with Valuair to form the new Orange percent net margin). Star group of airlines. These are all recent Therefore, the examples of consolidation; however, it’s gone requirement on throughout the history of the industry. One important characteristic of consoli- dation in the airline industry has been the sub- stantial amount of regulatory oversight that has accompanied this process. Because there seems to be a belief among many regulators that the primary purpose of consolidation with- in the industry is to remove competition from

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CNOOC, the Hong Kong-based, but Chinese U.S. majors United Airlines, American controlled, oil giant. In this case, the regulators Airlines and Delta Air Lines have all called questioned whether it was in the strategic for U.S. legislators to raise the foreign interests of the United States to allow Chinese ownership limit of U.S. carriers from a control over such an important commodity as maximum of 25 percent to the European oil. To paraphrase United Kingdom Prime Union level of 49.9 percent, which will Minister Tony Blair, “there is more smoke than increase opportunities for cross-border fire” involved in this particular debate. The ownership in the airline industry. Unocal/CNOOC issue, however, clearly demonstrates that governments feel that it is their responsibility to protect strategic and tac- tical industries that have a defense impact.

Why Lift Ownership Restrictions? a t l e Since governments appear to have a predispo- D d

n sition to maintain restrictions on ownership in a n

a the airline industry, what would induce them to c i r

e ease or lift these restrictions? The primary rea- m

A son ownership restrictions would be eased , d e

t ties directly to the availability of capital for i n

U investment in the industry. Today, a substantial f o

y imbalance in ownership restrictions in different s e t

r venues exists. In the United States, foreign u o c ownership is restricted to 25 percent of an air- s o t line’s total shares. In the European Union, how- o h

P ever, the foreign ownership restriction is 50 percent minus one share. Furthermore, own- may be reticent to ease these rules. In the and the free installation of cargo doors in ership of airlines by other companies within past, most governments considered domestic exchange for the right of the government to the European Union is basically unrestricted airlines as part of their strategic and tactical use the aircraft during times of war. Many of (except for issues related to anti-trust). In Latin defense mechanisms. It is still prevalent in the country’s airlines considered the possibility America, where consolidation of the airline many countries for civil aviation authorities to of a conventional war fairly remote in the late industry is the most advanced, restrictions vary be under the control of the military. 1980s and agreed to the Kraft Program with from country to country, but regulators take a Governments considered airlines important for the belief that the equipment upgrades were very pragmatic view to these restrictions. For three primary reasons: essentially “free money.” example, Oceanair, through its holding compa- An airline’s impact on the economic health At the outbreak of the first Gulf War, ny Synergy Group, a Brazilian-owned company, of the country, however, the carriers’ aircraft were pressed purchased 75 percent of Avianca de Colombia An airline’s availability for transport of critical into military service for carrying materiel and in a deal that was positively courted by military personnel and materiel, personnel into the Middle East, creating a sub- Colombian regulators. Most sovereign entities The possibility that an airline’s equipment stantial history for the strategic and tactical could be used for military purposes. importance of the airline industry to the For example, during the 1980s, the U.S. defense initiatives of countries. Since many Foreign Ownerhip government introduced the “Kraft Program” countries see their defense capabilities inti- Restrictions for Airlines under which airlines received aircraft upgrades mately tied to their domestic-based airlines, their governments have s

been reluctant to e 60 r

release ownership a 50%

h 50 restrictions, which is s 40% g 40

n 33% 33% not entirely unique to i t 30 the airline industry. o 25% v

f 20

Recently, regu- o

t 10 lators in the United n e

States injected sub- c r 0 l e s i y a e n n d r z e n a e g o P

stantial barriers into t i t i t a e a i s r a h n r p t n u B e C U o d the bid for Unocal, the S U v r n a I u

California-based E oil company, by

Various foreign ownership restrictions around the world impact the flow of capital, making it difficult for the airline industry to enjoy the benefits of other industries that have experienced cross- border consolidation.

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have either settled or are moving toward the it is likely that the easing of cross-border own- process of integration is already partially com- European Union model of 50 percent minus ership restrictions will further boost the pleted within global alliances. So, global one share. These varying ownership restric- process of international consolidation. alliances are likely to stimulate a substantial tions, however, impact the flow of capital in Nonetheless, this is not a panacea for troubled amount of equity investment among their the different autonomous venues. carriers, particularly in the United States. members in the event that cross-border own- The aviation industry continues to attract Airlines will have to address the fundamental ership restrictions are eased. Additionally, the capital on a worldwide basis despite the finan- issues affecting their profitability. Labor costs, appeal of global alliances will increase for all cial difficulties experienced by the industry. overhead costs and maintenance expenses are stakeholders — passengers, member airlines Low-cost carriers continue to be the “darlings” just three of the infrastructure-related areas and potential investors — producing a resur- of the aviation investment community due to where U.S. carriers need to make substantial gence in interest among potential new members. their high profits and growth, which result in savings before they become attractive to for- To date, the affects of easing cross-bor- their high share-value growth. However, even eign investment. U.S. carriers have lost a lot of der ownership restrictions appear to be mostly traditional carriers are attracting capital in many their attractiveness for the U.S. capital market. positive for the airline industry. This will not be venues. There have been a series of initial pub- Suddenly making foreign capital available will entirely the case, however. It is likely that reg- lic offerings in the industry in the past 12 not automatically make these airlines more ulatory oversight and restrictions on landing months, most of which have been in regions attractive. First, these airlines will need to suc- rights and airport slots will increase as cross- outside of the United States. In each case, the border restrictions on ownership are eased. For IPOs in the industry have been over-sub- example, when LAN, the Chilean-based airline scribed, where there has been more capital HIGHlight formerly called LanChile, requested landing available than required and owners have been rights in Miami, Florida, for its new subsidiary, able to pick and choose which capital they Despite the recent LanEcuador, U.S. regulators initially declined want. The one location, however, that has the application by stating that LAN’s purchase been bleeding capital for some time is the of LanEcuador was simply a ruse to bypass United States. The country’s carriers have lost trend toward “open- landing-right limitations in the bilateral agree- billions of dollars in share value since 2001, ment between Chile and the United States. and they continue to struggle to find new skies” agreements, LanEcuador was not, in fact, granted landing sources of equity. When there is a strong avail- rights until LAN diluted its ownership of the ability of capital for the airline industry in non- when particular multi- affiliated airline to 45 percent. These aggres- U.S. countries and a distinct shortage of capital sive moves by regulators are liable to increase in the United States, there is a strong pressure national corporations as cross-border ownership restrictions ease. on regulators to ease ownership restrictions. Despite the recent trend toward “open- Momentum is building for eased restrictions in own substantial rights skies” agreements, when particular multi- the United States, and other venues are national corporations own substantial rights in expected to quickly follow. multiple venues, regulators are going to in multiple venues, become increasingly concerned with the ability Brave new World of all market players to compete. Therefore, Assuming that cross-border ownership restric- regulators are going regulatory restrictions related to landing rights tions are eased, changes will be seen in three and even airport slots are liable to increase as primary areas within the airline industry: to become increasingly ownership restrictions reduce. 1. Consolidation in the industry will accelerate. While there may be a substantial long- 2. Global Alliances will increasingly be based concerned with the term impact on the structure of the industry on equity investment. should the cross-border ownership restrictions 3. Regulatory oversight will increase around ability of all market be eased, it is doubtful that these changes will landing rights and airport slots. produce turmoil or upheaval. The changes to While these changes are significant and cross-border ownership will likely lead to an will affect stakeholders, including passengers, players to compete. international stability in the industry but not a airline owners and airline employees, it is dramatic paradigm shift. Struggling carriers will unlikely that these changes will produce not automatically turn healthy with the intro- upheaval within the industry. duction of foreign capital. Instead, these com- There is little doubt that easing the cessfully finish their restructuring efforts. panies will have to correct their structural restrictions on cross-border ownership will Global alliances will play a substantial issues to be attractive to foreign investors who accelerate the process of consolidation within role in increasing this consolidation through have substantial money to invest in the indus- the airline industry. Because regulatory author- direct equity investment among partners in the try. The availability of foreign capital will alarm ities are often concerned about anti-trust alliance. To a great extent, the global alliances some citizens just as globalization continues to impact, consolidation of carriers within a partic- exist to allow a partial “commercial consolida- produce its opponents. ular country is often blocked. For example, it is tion” of the industry that is blocked by current Despite the emotional rhetoric that is nearly impossible to fathom American Airlines foreign ownership restrictions. Global alliances likely to occur, the easing of cross-border own- buying troubled United Airlines — even if are not allowed to take many commercial ership restrictions in the airline industry should American had the available capital — because actions, such as setting common prices that produce a healthier industry that offers better the combined carrier’s domestic dominance would be allowed if global alliances evolved returns for its shareholders and more stability would constitute a monopoly on many routes. into single-company “super carriers.” Global for its stakeholders. a The “easy” consolidations have mostly alliances have produced recognizable global occurred throughout the industry. Meanwhile, brands with common product quality, common Shane Batt is a senior partner with Sabre increased foreign ownership often produces sales and distribution practices as well as com- Airline Solutions Consulting. He can be less issues of an anti-trust nature. Therefore, mon operational approaches. Therefore, the contacted at [email protected].

18 ascend industry

“Fare”ly Simple

Many traditional network carriers are implementing various fare simplifica- tion practices to combat the increasing impacts of low-cost competition.

By Ben Vinod | Ascend Contributor

he rise of low-cost carriers in the late H IGHlight 1990s with aggressive pricing and mar- T keting initiatives has resulted in renewed competition that threatens the very With tickets being sold at various prices for the existence of major U.S. airlines, global pure play and international flag carriers. Today’s low- same product, the assumption of independent cost carriers have viable and sustainable busi- ness models, accounting for more than 20 per- cent of industry capacity. While traditional net- demand for each fare class is no longer true. work carriers have shrunk in size, LCCs are growing at 20 percent per year. With their rapid growth, they now compete directly with tradi- tional U.S. carriers on more than 60 percent of lization and consumer direct distribution. With fare in the market. Over time, as bookings their route networks. their distinct lower-cost-per-seat-mile advan- build up for the flight, the fares are progres- LCCs are known for having a simple, no- tage, airlines such as AirAsia, AirTran Airways, sively increased until flight departure. frills product offering for the price-conscious easyJet, Frontier Airlines, jetBlue, Ryanair and With the absence of restrictions, the customer — high frequency, point-to-point oper- Southwest Airlines, are proactively setting the real-time reservations inventory control envi- ation to secondary airports and low operating fare structure in major markets and rapidly ronment for a low-cost carrier must be dynam- costs with a homogeneous fleet, high fleet uti- altering customers’ valuation of air travel. ic to ensure that target bookings are achieved Most low-cost carriers have a cost per for each fare class. For carriers operating point seat mile ranging from 6.7 U.S. cents to 8.0 to point, the inventory control environment can U.S. cents, which presents a critical issue for be derived from authorization levels and time Unconstrained the world’s traditional carriers that have a limits based on days to departure. In the Demand much higher cost structure. In addition, there absence of time limits, the offline revenue is also little or no barrier for entry of a new low- management process must provide frequent cost airline, which can change the landscape of updates to the real-time reservations inventory competitive fares overnight. control environment. A time-of-day-specific Low-cost carriers also practice a unique limit may also be required for airlines that want 300% brand of revenue management. Some traits to override the selling fare at a specific time 250% that differentiate them from full-service net- (e.g. 9 a.m. versus 2 p.m.). work carriers include: Restriction-free pricing introduces some 200% d One-way fares, fewer fare rules and restric- unique challenges for traditional revenue man- n a 150% tions — Typical restrictions imposed are agement, which assumes that the fare classes m

e refund penalties and ticketing constraints are independent. With tickets being sold at var- D 100% (instant purchase or 72-hour time limit); ious prices for the same product, the assump- therefore, the fare is the primary determi- tion of independent demand for each fare class is 50% nant of the customer segment. no longer true. The demand is dependent or con- 0 Conservative overbooking — No-show rates ditional on the selling fare being offered, which is US$79 US$109 US$129 US$149 US$169 are lower because of ticketing requirements the only determinant of demand for the segment. Fare and most fares are non-refundable, which is When looking at unconstrained demand augmented by the absence of interline expressed as a percentage of capacity by Even though a fare of US$129 would gener- agreements to book denied boarding pas- price, if only a US$129 fare was published ate 100 percent capacity, the total revenue for sengers on alternate carriers. throughout the life of the flight, the total rev- the flight would not be optimal. By offering Fare classes — There are fewer fare classes enue for the flight would not be optimal. By varying fares during the life of the flight, the and smaller fare differences between fare introducing fares above and below the refer- total revenue on the flight can be maximized classes. ence price during the life of the flight, the total with optimal price-driven inventory controls. When a flight is first detailed in the revenue on the flight can be maximized with reservations system, there is a single one-way optimal price-driven inventory controls.

ascend 19 industry

Revenue Management

Sabre Airline Solutions’ archives and Low-Cost Carriers

US$0.15

US$0.12 s t ) s

IND_FarelyM Simple_1.doc o US$0.09 S c A t i r e n p

u US$0.06 s t e n n e i c l (

r US$0.03 i A

US$0.00 l t t t s a e n d n A a s s s y k e a u a t T i l e e e t s a c i i n A i B a a r w w e W n l t w e r h h n e w A i U i a t t j t a r c m A u i n o H r A o S o e N S C U m

Source: Bloomberg Financial Markets A

The high frequency, point-to-point operations to secondary airports With their lower cost per available seat mile, low-cost carriers, such with homogeneous fleets and direct distribution helps low-cost carriers as Southwest and jetBlue, have a clear advantage over many of the offer a simply priced product that appeals to price-conscious customers. traditional carriers they compete against.

One of the key challenges is to generate ming, calibrated price-demand curves can be based on soft qualifiers such as access to the the price-demand curve for each price point used in conjunction with available seat invento- Maple Leaf lounge, priority baggage check in, based on the underlying relationship between ry and conditional demand forecast to deter- fare refundability, advance seat selection, fre- demand and price. One way to create this rela- mine the optimal timing and price to be quent flyer miles based on mileage and dollars tionship is to establish a causal relationship offered, subject to business constraints in the spent, and change fees. Each category has a based on historic price points, observed book- market encapsulated as rules. This has a dis- range of one-way fares, with only one selling ings and inventory controls as a function of tinct revenue advantage over a manual rules- fare in each category at a given point in time. days to departure. In addition, buy-up and buy- based revenue management environment American Airlines’ value pricing initiative down behavior as a function of proximity of practiced by many LCCs. With rules, closure of in 1992 to move to a simplified fare structure fares between classes prior to departure can a fare class is linked to a time-based event (e.g. and abolish corporate discounts collapsed be established. A better alternative to tradition- 14 days prior to departure) or a booking when major competitors that had initially al conditional demand forecasting using proba- buildup-based event (e.g. booked load factor matched the airline’s tariff structure quickly retracted. The initiative, which was acknowl- edged by industry analysts as well ahead of its HIGHlight time, prompted then AMR Chairman Robert Crandall to famously remark, “You are only as The dilemma faced by full-service network smart as your dumbest competitor.” Today, to counter the competitive threat airlines is how to effectively compete against from LCCs, fare simplification has been adopted to varying degrees by U.S. majors. However, their low-cost counterparts in key markets. this has not eliminated corporate deals. To combat low-cost competition on its routes, American Airlines introduced a new simplified fare structure to and from Florida in 2004 with bilistic and Bayesian methods is the use of exceeds 60 percent). Sabre ® AirMax ® Low- fewer classes, rules, restrictions and the elim- choice models based on shopping data from Fares Manager, the industry’s first automated ination of Saturday night stays. Earlier this year, online and offline channels. Such models have decision-support system for restriction-free Delta Air Lines introduced a vastly simplified the added advantage of considering the effects pricing controls launched in 2002, employs a fare structure called SimpliFares that’s based of competitor schedules and fares directly dynamic programming algorithm and enables on the recognition that LCCs competed on 70 when demand is estimated. A key process business constraints to be established as rules. percent of the airline’s network. Domestic requirement from revenue management ana- fares were capped at US$499 for coach and lysts is to ensure that fare classes are not Impact on Network Carriers US$599 for first class, Saturday night stays reused across fare ranges when responding to While airlines have realized the need for fare were eliminated and only six to eight fares in a competitor actions. Consistency in the usage simplification, various simplified tariff struc- market were offered. This was an attempt to of fare classes based on predefined fare tures have been considered. For example, Air lure back business travelers who had been ranges is a fundamental requirement for an Canada introduced five broad categories — paying steeply higher full-fare coach prices, accurate calibration of price-demand curves. Tango, Tango Plus, Latitude, Latitude Plus and which only impacts 5 percent of the customer Through the use of dynamic program- Executive Class — each with distinct segments base. Delta controls inventory and hence avail-

20 ascend industry

Dynamics of Restriction-Free Pricing

Cumulative bookings

Class Inventory class closing condition Y US$219 Q Day 69 or after six bookings B US$189 Z Day 55 or after 12 bookings M V Day 34 or after 28 bookings

e US$159 r

a H F US$139 H Day 20 or after 54 bookings V US$119 M Day 13 or after 28 bookings

US$99 Z B Day three or after 80 bookings Q 0 Y At overbooking limit 1 2 3 4 5 6 13 20 27 34 48 55 62 Days to departure

For a low-cost carrier to reach target booking levels in a restriction-free environment requires a very dynamic real-time reservations inventory control environment. For a point-to-point route network, inventory controls can be based on authorization levels and time limits based on days to departure.

ability of SimpliFares with a combination of rev- management process should, therefore, have exceed 10 percent. The difference can be enue management decision support and rules two distinct demand models for forecasting attributed to revenue management analysts for closing fare classes using Sabre® AirMax® traditional fare classes (independent demand) who monitor market conditions and take cor- Revenue Manager. Ultimately, the success of and restriction-free fare classes (dependent rective action that is not modeled in the simu- these fare simplification initiatives depends on demand). The network optimization model lation. Observations indicate that the tradition- whether demand stimulation can be sustained uses both types of demand forecasts as input al expected marginal seat revenue-based algo- and revenue dilution can be contained without along with the associated uncertainty in rithms result in higher load factors, high rev- risking the loss of market share to LCCs. demand to determine the optimal inventory enue dilution and the lowest yield; while the The dilemma faced by full-service net- controls for independent and dependent manual rules-based process results in higher work airlines is how to effectively compete demand fare classes subject to business rules spoilage, lower load factors and the highest against their low-cost counterparts in key mar- that encapsulate business constraints and yield. Low-Fares Manager exploits the sell-up kets. While retaining their traditional fare struc- boundary conditions. behavior implicit in the price-demand curves to ture for flow traffic, these airlines have to com- increase yield (compared to expected marginal pete against LCCs on short-haul routes. To The Value Proposition seat revenue) and higher load factors (com- effectively compete and protect market share, Currently in production at bmi, bmibaby, pared to manual rules). In addition, it enables they have to operate in a hybrid environment. Estonian Air, Copa Airlines, TAM Brazilian airlines to streamline pricing and revenue man- From an inventory control perspective, to oper- Airlines and WestJet, Low-Fares Manager has agement business processes for consistent ate in a hybrid environment, a cabin on a flight played a key role in the migration to a flexible adoption across the operation. a can be viewed as consisting of a virtual parti- pricing structure at these airlines. The tion to accommodate the optimal mix of cus- observed revenue performance improvement tomers on the traditional fare structure in the ranges from 4 percent to 6 percent compared first partition and the optimal mix of passen- to a manual rules-based system. Simulation Ben Vinod is chief innovator for gers who purchase unrestricted fares at vari- validation with data from several airlines has Sabre Airline Solutions. He can be ous prices in the second partition. The revenue shown conclusively that revenue benefits contacted at [email protected]. +count it up

3 hours — Approximate flight 1983 — Year a Rockwell Sabreliner 5,000+ — Number of additional time between Auckland, New Zealand, became the first airplane to cross the flights to and from North America and Sydney, Australia, a decrease from Atlantic Ocean with a pilot guided only last summer compared to the same six to seven hours required in 1940. by a satellite navigation system. period in 2004, according to recent data from OAG.

ascend 21 industry

Inflammatory Fuel

XxxxxxpDisciplined measures to conserve fuel are mandatory in an era where Xxxxxxxxxsharply escalating prices continue to spiral upward.

By Steve Hendrickson and Peter Berdy | Ascend Contributors S a b r e A i r l i n e S o l u t i o n s ’ a r c h i v e s

Crude oil prices have increased 300 percent during the last four years, leading to the belief in the airline industry that perhaps the worst has passed. However, hurricanes Katrina and Rita had a substantial impact on the oil refining industry that may keep crude oil prices, thereby jet fuel prices, on the rise. As of early October, 11 refineries accounting for 18 percent of the United States’ total refinery capacity remained closed because of the damage suffered during the hurricanes.

he abrupt rise in fuel prices during the past jet fuel prices have been rising faster than crude particularly popular target, it remains incum- four years has wreaked havoc on the air- oil, a reflection of the fact that refinery capaci- bent upon airlines to diligently address those Tline industry’s bottom line. The general ty is stretched very thin and competing distil- aspects of fuel expense upon which they can trend toward higher prices has come with such late products sourced from the same middle exert some control. volatility that projecting costs for future plan- barrel section are flourishing in a robust econo- The stakes are undeniable: according to ning activities can prove quite challenging. my despite retail price spikes. The numbers IATA, the airline industry will pay more than Crude oil prices have reached new are startling; the spread between crude oil and US$83 billion for fuel this year. That represents highs, trading above US$70 per barrel recently. jet fuel has risen from US$2.59 per barrel in an increase of US$39 billion over 2004 levels This stands in stark contrast to the lows 2002 to US$11 per barrel in the first half of this and is equal to the gross domestic product of around US$16 per barrel in late 2001. Yet, even year. About one-fifth of the increase in jet fuel New Zealand. Yet, astoundingly, this increase though this represents a 300 percent increase price comes from this widening spread and is somewhat muted by the industry’s move in just four years, perhaps tempting those with about four-fifths is in higher crude prices. toward more fuel-efficient aircraft. The optimistic tendencies to think the worst has Given that many airlines’ profit margins Association of European Airlines, or AEA, likely passed, there still remains much anxiety tend to be razor thin even in the best of years, notes that today’s aircraft are more than 70 about how future trends may unfold. success in the face of uncertain fuel costs percent more fuel efficient than jets of the The International Air Transport Association requires an even greater emphasis on the tight 1960s. Had it not been for efforts to modernize has stated that the industry suffers US$1 billion control of expenses. While many non-fuel fleets during the past decade, the crisis could of additional fuel costs for each US$1 increase in expense items have received much cost-cut- be much worse. The fact is, the price of jet fuel the price of crude oil. To make matters worse, ting attention lately, with labor costs being a has risen so rapidly in the short timeframe

22 ascend industry

HIGHlight … the spread between crude oil and jet fuel has risen from US$2.59 per barrel in 2002 to US$11 per barrel in the first half of this year.

since late 2001 that airlines now face price lev- Taking Action procedures, there are additional, powerful steps els unimaginable only a few years ago. Airlines have taken a variety of steps to they can take toward a proven, more compre- Where will fuel costs go from here? become more fuel efficient, mitigating the hensive fuel conservation program with the Opinions diverge dramatically. For example, an impact of fuel costs on their financial perfor- potential to lower their total fuel bill by millions economist with Morgan Stanley recently mance. These steps have ranged from a com- of dollars. A few of these steps include: indicated his belief that the oil market could bination of changing operating procedures and Fuel purchasing programs, move rapidly toward a severe crash as the using more efficient, new airplanes to making Tankering strategies, world economy slows, alternative energy modifications, such as with blended winglets, Monitoring of over fueling, sources gain popularity and oil speculators to improve their performance. In fact, next- Auditing and examining fuel consumption and grow nervous about a price peak. On the other generation aircraft programs such as Boeing’s usage patterns, side of the issue, a Goldman Sachs report 787, Airbus’ A350 and Bombardier’s C-Series, Aircraft taxiing procedures, issued in March theorized that petroleum mar- are aimed squarely at producing additional effi- Monitoring ground power unit and auxiliary kets were just beginning to reflect an emerg- ciencies in fuel consumption. power unit usage, ing “super-spike” phase that might produce a Increasing fuel efficiencies has enor- Active in-flight monitoring of engine perfor- 1970s kind of price movement, perhaps going mous potential. The industry would save an mance, as high as US$105 per barrel. That scenario estimated US$3.6 billion a year by reducing Requesting direct routings from air traffic assumes that refinery capacity will be unable each flight time by just one minute. The latest control, to keep pace with oil demand from strong AEA report indicates that such savings are Lowering cruise speed, economies in China and the United States, indeed achievable. It points out that US$1 bil- Deploying landing gear later, both of which have seemed undeterred by lion could be saved through a combination of Reducing or eliminating use of reverse thrust higher prices. improved ground, arrival and departure traffic after touchdown, Whatever theory one subscribes to, it flows; route optimization by using direct flight Reducing aircraft weight, including the remains a nearly indisputable fact that airlines routings; and efficiencies in operating proce- amount of free passenger baggage weight, have virtually no control over the spot price dures in coordination with air traffic control. In Adding winglets, they will be asked to pay for fuel. addition, the European Organization for the Trimming and true-up, Consequently, managing fuel expenditures Safety of Air Navigation, or EUROCONTROL, Controlling other factors that drive fuel usage, through the use of carefully controlled con- estimates that minimizing inefficiencies in air such as: sumption and purchasing practices, as well as traffic management systems could further • Flight scheduling, using fuel-efficient aircraft, are their most reduce fuel burn in Europe by up to 12 percent. • Gate assignment and management, effective shields. While most airlines have fuel management • Flight planning.

Crude Oil Versus Jet Fuel

US$30

US$25

US$20 d a e r US$15 p s e c

i US$10 r P US$5

US$0 Jan. 3 Jan. 17 Jan. 31 Feb. 14 Feb. 28 Mar. 14 Mar. 28 Apr. 11 Apr. 25 May 9 May 23 Jun. 6 Jun. 20 Jul. 4 Jul. 18 Aug. 1 Aug. 15 Date Source: Platts

The spread between Los Angeles, California, spot jet fuel and Alaska north crude as measured in U.S. dollars per barrel shows the price of jet fuel has been increasing more rapidly than the cost of crude oil.

ascend 23 industry

Each of these items may seem like com- the U.S. market. Instead, airlines use futures Southwest Airlines has used heating mon sense approaches that any airline has contracts on commodities that are correlated and crude futures contracts and over-the- fully considered. Yet, fuel consumption audits with jet fuel, such as crude or heating oil. counter derivatives to hedge fuel. Financial and related analysis performed by Sabre Airline These instruments may include options, analysts have noted that the carrier’s long- Solutions Consulting during the past two years collars, straddles and swaps. Typically, an air- standing string of profitability might have been has revealed many cases of costly lapses with- line will also trade these instruments using snapped in recent quarters if it had not been in fuel management programs of airlines that several banks to diversify risk and get the best for its fortuitous fuel hedge positions. The air- otherwise believed they were tightly control- price possible. line has used a dynamic mix of call options, col- ling such factors. Oil prices often move in cycles, so many lar structures and fixed-price swap agree- hedging strategies are designed to lock in ments. JetBlue outsources its fuel manage- Fuel Hedging prices at various points of the assumed cycle. ment services to a third-party vendor and Some companies, such as FedEx, can readily Airlines can use a variety of prices and contract hedges by using crude oil option contracts and pass on rising fuel prices to customers. They durations, resulting in a need for sophisticated swap agreements. post fuel surcharges on their Web sites to alert fuel hedge trading models to be successful. On the other hand, most U.S. majors consumers of the effect of fuel cost changes. When oil is at the low end of the cycle, hedge only a small portion of their fuel con- Airlines in some regions have been successful an airline can use a “receive-fixed swap,” sumption. These airlines have engaged in lim- in tacking on fare increases or fuel surcharges which enables it to lock in a low price and also ited fuel hedging lately, which is likely because to ticket prices. However, in many situations, airlines cannot pass along all the costs associ- ated with rising fuel prices due to fierce com- HIGHlight petition and/or weak demand. In the United States, consumers cannot easily identify the … managing fuel expenditures through the use of fuel surcharges in the ticket price. The U.S. Department of Transportation’s advertising carefully controlled consumption and purchasing guidelines direct airlines to include fuel sur- charges in the base price rather than show them as a separate charge. In other countries, practices … are their most effective shields. such as the United Kingdom, fuel surcharges can be viewed as a separate cost of the ticket price. AEA estimated that fuel surcharges cov- ered only half of the actual fuel price increases assumes there is a low likelihood of a price their current cash flows are too tight to finance in Europe during the past year. drop. In the mid-range of the fuel cycle, collars futures margin deposits or options premiums. One way of countering the impact of ris- are used to lock in a specified range of prices. For example, Delta Air Lines began 2004 with ing fuel prices is to profit from a bet on contin- The airline forfeits any potential savings from fuel hedges in place, but it had to close its posi- ued price movements in that direction. This is price declines while hedging against further tions to generate cash for operations. Similarly, typically done through the purchase of forward increases. When oil is at the top of a cycle, United Airlines had its fuel options cancelled or futures contracts for related commodities and “caps” are used to prevent losses from further by its counterpart due to its bankruptcy filing. is commonly referred to as fuel price hedging. appreciation, while giving an airline the oppor- It remains to be seen whether fuel By using fuel hedging, an airline is better tunity to take advantage of price decreases. prices will normalize at current levels, rise even able to predict future expenses and earnings. It higher or retreat to lower rates seen in past may also help increase the confidence of finan- Sabre Airline Solutions’ archives years. But for now, the impact continues to cial markets, which may in turn increase devastate airline balance sheets across the access to capital for such airlines. Yet, airlines industry. Given that spot prices for fuel are that wish to invest in a successful hedging largely beyond an airline’s control, there are strategy face high-priced futures contracts, precious few ways to buffer the financial dam- which are almost inevitable in commodity mar- age of expensive fuel. kets experiencing rapid and prolonged price Methods within the control of airline increases such as those found in petroleum. management teams consist of disciplined Several low-cost carriers, such as easyJet, practices for fuel procurement, loading, con- Southwest and jetBlue, have achieved significant sumption and price risk management. Carriers portions of their continued profitability due to that take serious measures to be best of breed aggressive fuel hedging. Of course, if fuel prices in these practices will be rewarded according- were to reverse course and plummet, such carri- ly. There are many airlines continuing to pros- ers would likely under-perform relative to un- per despite the higher energy prices because hedged carriers, but that is the price for control- of their devotion to these issues. But those that ling a carrier’s exposure to upside pricing risks. do not sharpen their focus on such approaches Jet fuel price hedge strategies can range and implement them diligently will bear the full from very simple to quite complex, and airlines Refinery outages from hurricanes and brunt of any future fuel price spikes that may employ a wide variety of approaches to tightened supply are increasing prices for still be in store for the industry. a achieve their price risk management objec- jet fuel. The price of oil, plus the price paid tives. These may involve not hedging at all or for refining, pushed the cost of a barrel Peter Berdy and Steve Hendrickson are fully hedging using a combination of commod- of jet fuel on the U.S. Gulf Coast to partners for Sabre Airline Solutions ity instruments. Surprisingly, jet fuel deriva- US$124.99, or US$2.98 a gallon, on Sept. Consulting. They can be contacted at tives are not the primary way that airlines 28, according to American Airlines. [email protected] and hedge. In fact, they are not even available in [email protected].

24 ascend industry

Just the (e) Ticket

IATA’s mandate that its members conduct 40 percent of their ticketing electronically by the end of the year and 100 percent by 2007 will require airlines to further modify their operations.

By Gary Millward | Ascend Contributor

f the International Air Transport — those that have adopted e-ticketing to some E-Ticketing Pioneers Association’s top five “simplifying the degree and those that have not. For a number The reality is that “early-adopter” airlines are Obusiness” priorities that were of airlines, meeting the IATA requirements currently faced with as many challenges as the announced in June, moving to 100 percent would appear to be a foregone conclusion. “late developers,” but they are of a different electronic ticketing by 2007 has perhaps Some carriers have implemented e-ticketing as nature. Of course, early adopters have e-ticket- received the most attention. And rightfully so far back as 10 years ago and many have already ing in place for direct and travel agency sales, — the target is tangible and measurable. The introduced interline e-ticketing with several and depending on an airline’s markets, more than initiative has a clear delivery date; IATA has partners. Other airlines that had not intended 90 percent of its ticketing transactions may be even placed a clock on its simplifying the busi- on introducing e-ticketing will need to revise made electronically. Yet there are barriers ness Web site, counting down the days, min- their business plans. Even airlines that are not remaining that have to be overcome to reach utes and seconds to 100 percent e-ticketing. In members of IATA could be affected. The IATA 100 percent e-ticketing, such as developing addition, many travelers are already familiar initiative will apply to any airline that wishes to interline e-ticketing with all partners and integrat- with e-ticketing and have probably used it. distribute tickets to travel agents through an ing with third-party ground handling operations. However, although the initiative and the IATA Billing and Settlement Plan. Interline e-ticketing is receiving a lot of objectives are clear, achieving 100 percent e- Although the benefits of e-ticketing are attention. Early adopters may have as many as ticketing presents varying challenges for air- obvious, the methods to implement it are more 30 interline e-ticketing agreements in place, but lines depending on their current status and complex than their existing business plans allow. according to IATA, only 64 airlines have interline long-term business targets. Regardless of which camp they are in, nearly e-ticketing capability. The focus for interline The results of IATA’s own survey, con- every airline, even those that have a head start on e-ticketing has been concentrated within ducted shortly after the initiative was launched, implementing e-ticketing, still have some work alliances for business reasons and within host show how airlines are divided into two camps remaining to fully comply with the IATA mandate. systems for both business and technical reasons.

By the Numbers Sabre Holdings has already taken steps toward building technology that will help airlines comply with IATA’s electronic ticketing mandate. Statistics show airlines are making progress toward a 100 percent e-ticketing environment.

Sabre Holdings has implement- Res component have now in Airline Reporting Corp. and agency tickets were electronic. ed 58 interline electronic ticket- implemented electronic 40 IATA Billing and Settlement The Interline Electronic ing connections for 34 unique ticketing. Plans, operating in more than Ticketing Hub enables carriers carriers. As of July 20, only 64 airlines 70 countries. operating different EDIFACT More than 30 connections are have implemented interline In June 2004, (the date of versions to implement interline routed through the Interline electronic ticketing; 19 of these IATA’s simplifying the business ticketing. Electronic Ticket Hub, and 27 have only one interline agree- announcement), more than 60 This year, Sabre Airline carriers are connected to the ment activated. percent of tickets issued by Solutions became the first hub. This includes 15 carriers Sabre Travel Network dis- Sabre Travel Network were system provider to implement not hosted in SabreSonic™ Res. tributes electronic ticketing electronic. As of last June, IATA 722h third-party ground Nearly 40 airlines hosted in the for more than 70 airlines more than 70 percent of travel handling. a

ascend 25 industry

HIGHlight To achieve 100 percent e-ticketing, an airline will need to implement one of two IATA standard methods — the interactive or control methods — for third-party ground handling.

An interline environment clearly highlights dif- SabreSonic™ Ticket, which enables airlines to that is lifted during passenger check in. ferences, such as different approaches to open remain on different versions of EDIFACT Electronic ticketing, therefore, requires segments, infant processing and revalidation, while implementing interline e-ticketing. The access to the flight coupon details at the that exist between airlines and the various host hub achieves this by taking the EDIFACT time of check in. For an airline with a depar- reservations systems. Interline e-ticketing is message from one airline and translating it ture control system that is integrated with heavily dependant on interaction between previ- into the format used by another. This its reservations and ticketing system, this is ously stand-alone systems. Airlines have to process enables multiple airlines using dif- not a challenge because all data resides exchange general business requirements, or ferent versions of EDIFACT to interline with- within the system and is easily accessible. GBRs, and agree on procedures. IATA is taking out incurring the cost of making a version Today, many airlines rely on one or steps to standardize GBRs and facilitate the change. In addition, airlines have access to a more third-party ground handling companies process, but airlines will have to be flexible if they diagnostic tool with a user-friendly interface to represent them at a number of airports. plan to have as many electronic ticketing agree- that enables individual or groups of mes- To achieve 100 percent e-ticketing, an airline ments as they have paper agreements today. sages to be viewed. will need to implement one of two IATA There are a number of different EDI- Ground handling raises more issues standard methods — the interactive or con- FACT versions in use, and some airlines still for airlines with e-ticketing abilities that use trol methods — for third-party ground han- use the original 1996 version. To create a different ground handling companies to sup- dling. By using these methods, an airline bilateral interline e-ticketing agreement, both port their airport operations. In a paper tick- can be sure that the flight coupon is valid for airlines must agree on set business rules eting environment, a ground handler travel. As an interim approach, some ground and be on the same version of EDIFACT. requires access to the operating carrier’s handlers have implemented the electronic Sabre Airline Solutions has helped reduce reservations system to ensure the passen- ticket list, or ETL, method whereby using the effort by implementing the Interline ger has a booking, but the passenger’s right the SSR TKNE (electronic ticket number Electronic Ticketing Hub, a component of to board is determined by the flight coupon notification), passengers with electronic

Full-Service Electronic Ticketing

OA interline carriers SSR TKNE

Airline system TKCUAC/ TKC RES Full-Service Electronic Ticketing

FSET Interline DCS working copy RES DCS TKT Others EDIFACT interface Electronic Ticketing Hub Electronic ticketing database

Revenue TKCREQ/ accounting TKC RES TKTREQ TKTRES DCS third-party ground handler

GDS

DCS Electronic ticketing working copy

Sabre Airline Solutions has successfully integrated e-ticketing applications (blue) with an airline’s existing reservations system (green) and then interfaced with external parties (yellow) including interline partners, global distribution systems and ground handlers, enabling an airline to implement electronic ticketing and still remain on its existing reservations system.

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tickets can be identified and checked in. unfortunately, any airline looking at e-ticketing Reporting Corp. and IATA Billing and There is a risk attached to using this method for the first time is likely to be daunted by the Settlement Plan travel agents — is achieved by because the TKNE is only sent at the time of prospect. Information overload and how it connectivity from the host system to the GDS. issuance, and it is not updated if the ticket relates to its own business processes are the Any system provider with an e-ticketing prod- is later changed. Therefore, the potential biggest challenges. The fact remains, howev- uct will need the capability to connect to all exists for a passenger to travel when the er, if an airline wants to retain travel agency GDSs. Failure to do so will result in the airline’s coupon has previously been exchanged or distribution and interline agreements with ability to only sell directly to the consumer refunded. Sabre Airline Solutions was the other airlines, it has to implement e-ticketing. after the IATA deadline because paper tickets first system provider to implement the IATA In addition, if an airline decides its future is in will no longer be available to travel agents. standard for third-party ground handling. direct distribution, it also faces the fact that If an airline utilizes an in-house reserva- (See related article on page 77.) operating a Web site without e-ticketing is tions system or has never implemented e-tick- Following the implementation of airline both inefficient and expensive. To understand eting, the learning curve can be so long that it e-ticketing as well as global distribution system where they are going in the electronic world, may decide that now is the time to explore e-ticketing, interline e-ticketing and any ground airlines first need to consider where they are new reservations systems. It may choose to handling connectivity that is required, the early and where they want to be. search for an e-ticketing application, such as adopter can address any final outstanding In addition to travel agency distribution, Full-Service Electronic Ticketing, a feature of issues. Some of these issues are currently interline agreements and Web sites, airlines the Ticket component, that can be integrated being addressed by IATA committees and should define their ground handling arrange- with its existing host system. include infant e-ticketing, fully open tickets, staff ments and determine whether or not they’re By integrating e-ticketing processes travel, involuntary rerouting procedures and the equipped to adopt the IATA standards. They with its current reservations systems, the air- replacement of miscellaneous charges orders should also determine which changes need to line achieves the benefits of e-ticketing and a and multi-purpose documents with an electronic be made within the company in areas such as system with the capability for travel agency e- MCO. IATA is also addressing government issues revenue accounting and call center processes. ticketing, interline e-ticketing and third-party such as airport access, and immigration and sys- The true beneficiary of the last 10 years ground handling. tem providers continue to invest in solutions of e-ticketing is an airline that is hosted by a Although the path to 100 percent e-tick- that aid the move to an electronic environment. system provider with multiple existing elec- eting presents a number of challenges, the tronic ticketing carriers. For example, an airline fulfillment environment that will be created The New Airlines in Town utilizing SabreSonic™ Res, a component within will have benefits even beyond the widely More than 120 airlines have implemented elec- the SabreSonic™ Passenger Solutions, can publicized cost savings espoused by IATA. tronic ticketing during the past 10 years, and approach the activation of e-ticketing as a stan- The e-ticketing experience for a passenger the recent adopters may expect to face an eas- dard product implementation. After the airline will become so smooth it will be taken for ier transition than the e-ticketing pioneers. This has implemented airline e-ticketing, it will granted. Kiosk usage will increase, and pas- is true because most aspects of the industry quickly be able to activate GDS e-ticketing. sengers will print boarding passes before standards have been tried and tested, but Distribution of electronic tickets — to Airline they leave for the airport. Customer service processes can be streamlined so passengers with involuntary changes will have their tick- ets reissued from a central point, enabling them to check in for their new flights using a kiosk. If passengers make voluntary changes, they again can have their tickets reissued before reaching the airport. Today, the lowest common denominator is the paper ticket; when the paper goes away, the physical limits of the ticket go away with it, and data fields can be repeated or extended without the issue of “space on the ticket.” The key to realizing the full benefits is not to replace the paper limitations with other restric- tions; ticketing applications and revenue accounting will need to be adapted, and carri- ers on older versions of EDIFACT will need to consider upgrading. The move to 100 percent electronic tick- eting will produce considerable benefits to the industry; the key to achieving those benefits is to maintain progress in all areas and address each limiting factor within the technical plat- form that has been chosen. a

The Interline Electronic Ticketing Hub offers a way for airlines to efficiently communicate Gary Millward is a principal in fulfillment and share information with all other airlines in the system rather than building one-to-one marketing for Sabre Airline Solutions. links with each partner airline. He can be contacted at [email protected].

ascend 27 industry

Reduced Fleets, Raised Revenue

Many traditional airlines are re-fleeting to gain the operating efficiencies of fewer aircraft types and effectively compete in markets served by their low-cost counterparts.

By Vijay Bathija and Peter Berdy | Ascend Contributors

uring the past several years, many tradition- Even sub-fleets with their different com- Today, low-cost carriers are even able to al airlines have tried to adapt their business ponents and configurations create additional offer additional amenities such as leather seats Dby borrowing pages from the low-cost car- demands on an airline — scheduling for specific and satellite television and radio, partly rier handbook. In an attempt to lower costs, some missions, a requirement for different spare because they have lower costs from simplified major network carriers have simplified their busi- parts, maintenance, personnel and training — fleets and the related efficient operations. With ness including reducing their fleet types. Although, which can lead to increases in delays and cancel- savings from more efficient operations, LCCs for the most part, they have not shrunk down to a lations as well as add costs. have been able to attract passengers through single fleet type like many low-cost carriers, by As traditional airlines are pressured to better amenities. reducing their fleets from numerous types to a provide low-cost services, particularly in domes- Traditional network carriers have also handful has brought several benefits, including: tic markets, they should look to use the same tried to simplify their fleet to some extent, but Higher utilization (considering that an extra hour basic criteria as LCCs when selecting fleet either by choice or chance, have only partially of utilization does not cost any more in terms of types, which include selecting aircraft that: succeeded, and continue to operate with com- aircraft ownership — leasing or financing — Provide low-cost service to the short- and plex fleets. higher utilization typically produces incremen- medium-haul markets they serve, tally lower average costs and helps move a car- Deliver reliable, high-frequency schedules, What Fueled Complexity? rier toward higher profitability); Enable quick-turnaround to minimize ground Because the airline industry is a complicated, Increased efficiencies in aircraft rotation time, highly capital-intensive business, almost all car- (fewer aircraft types mean that when aircraft Provide operational flexibility, riers that have been around for many years come to a particular hub or focus airport, they Facilitate and standardize training and support, have complexities that have been added over can be swapped easily, which results in high- Support high-fleet utilization. time. These complexities developed from vari- er utilization); Reduced requirement to invest in spare air- planes, since each spare can cover more oper- ational problems; Shrinking Sub Fleets Increased volume discounts due to purchasing more of the same parts and supplies; 20 Less training for flight crews and eliminating requirements for multiple type ratings for pilots; s

Reduced training for mechanics and ground t 15 e e

support personnel; l f

Reduced inventory of spare parts, which b u

would otherwise be required to support multi- s 10 f

ple fleet types; o r

Fewer maintenance personnel; e b 5

Less training of ground, ramp and technical m u

support personnel; N Faster maintenance repairs and recovery from 0

mechanical problems since mechanics and i r t a a e d n a i s e t e u a i l s h l e t t c e

field personnel are likely to encounter similar i i T A B n r w n r D t i o e h e U r t problems and solutions on a repetitive basis. j A F m u A Continuing to reshape itself into a more effi- o cient operation requires careful evaluation of an air- S 2002 2004 Airline line’s most expensive investment — its fleet. A common thread among LCCs is fleet simplicity, Following the lead of low-cost carriers such as AirAsia and jetBlue, many of today’s tradi- with some carriers using merely one type of aircraft tional airlines are reducing their fleet types to lower costs and gain efficiencies in areas such to serve their entire network; albeit many may have as crew training. multiple sub-fleets within a single fleet type.

28 ascend industry P ous sources, such as: h o t Mergers that resulted in acquiring different o c o u

fleet types from partners, r t e s

Gradual introduction of new aircraft that cre- y o

ated a larger mix than necessary, f B o

New technology, such as winglets that e i n addressed specific requirements of a partic- g ular aircraft type, Weight upgrades for specific missions, such as airplanes to serve high altitude airports or for use with over-water segments, Acquiring used planes from other airlines, resulting in different interior configurations or differences in specifications including weight and performance, Labor requirements, such as crew seats for longer missions that were not required for all aircraft, Work rules that resulted in a cascading effect of moving pilots from the smallest to largest plane when a new fleet type was introduced, Onerous return conditions that forced airlines to keep airplanes for a longer period than desired. Despite the reasons for added complexi- ty, it leads to increased costs. However, taking strategic steps toward proper fleet planning can P significantly reduce costs. In recent years, many h o t airlines addressed the need to streamline their o c o fleets and reduce the number of sub-fleet types. u r t e

Newer carriers have an inherent advantage s y o because they have the ability to take a simplis- f A i r tic approach when planning their fleets, and b u many of the issues causing complexity for more s mature airlines don’t exist with the newcomers.

Varying Capacity by Market An airline needs to determine its ideal fleet requirements based on its network strategy with consideration for commonality, market requirements, aircraft characteristics and its long-term strategy. However, as LCCs have entered the mainstream segment, they have shown that a different fleet does not need to be fitted to every single market to vary total capac- ity. One way to vary capacity is by the number of flight frequencies operated per day or week. For example, 375, 500 or 625 seats can be supplied in a market flown with 125-seat air- craft by scheduling three, four or five frequen- cies. Southwest Airlines, which mostly operates Boeing 737-700s with 137 seats, serves some of the largest domestic U.S. markets. The aver- age market size for Southwest is 2,500 passen- gers per week. Of its markets, 80 percent have a weekly market size greater than 1,000 pas- sengers. Smaller planes allow flexibility for Southwest, even while serving large markets. Simplifying the fleet doesn’t necessarily mean reducing down to only a single type of air- craft. JetBlue has demonstrated that creative plan- ning can help airlines increase from one fleet type Under the traditional low-cost carrier model pioneered by Southwest Airlines, carriers to two without adding too much complexity. typically use a single fleet type to minimize costs associated with training and maintenance. When jetBlue ordered smaller Embraer regional jet Although airlines such as jetBlue have added a second fleet type to reach additional aircraft to complement its fleet of Airbus A320s, it markets, the fleet remains relatively simple compared to many network carriers. ensured that crewmembers would not be required

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to move from one aircraft type to another. For Lower lease costs, Regardless of whether an airline selects example, if a pilot of a larger aircraft leaves the air- New planes may not be available for the car- new or used aircraft, leases or purchases air- line, he or she is generally replaced by a pilot of a rier’s immediate needs, planes, or has more than one fleet type, some smaller aircraft. This results in double training costs Timing and availability of aircraft and replace- effort has been made to simplify its fleet, and — additional training for this pilot as well as for the ment parts, many traditional airlines have reduced the new pilot of the smaller aircraft. By isolating its The airline may already have the fleet type number of fleet types they operate because of fleet types, jetBlue should continue to reap the and is seeking more of the same aircraft, cost pressures and LCC competition. benefits of fleet simplicity even when utilizing two Airlines may already be familiar with mainte- Economic and practical benefits of fleet fleet types. By not basing salary on aircraft type, nance and operation of the used planes they simplicity have forced many carriers to address there’s reduced incentive to move from one plane select. the issue. Start-up carriers may have an advan- type to another, minimizing costly retraining. tage because they can plan in advance to have Another important component of a sim- the type of fleet they want. Many have chosen plified fleet is to examine the tradeoffs Number of Aircraft a single fleet type, gaining the technology bene- between new and used airplanes. New air- fits associated with new aircraft. Network carri- planes typically are more attractive to LCCs Types and Utilization ers, especially those with large numbers of air- than used ones for several reasons, including: planes, have to deal with issues that can be s 12 16 y e Selection of the exact specifications to fit a resolved only over time. They need to have ade- p d

y 14

the airline’s requirements; r quate capital to renew fleet as well as the flexi- t 10 e b Enjoyment of a maintenance “honeymoon” 12 p bility to return older airplanes. u 8 t f period, where the new fleet requires mini- s 10 Even when a decision to simplify an air- a t r e 6 8 c r

mal maintenance attention during its first e line’s fleet is made, it may take years to achieve i l f a

few years of service; f 6 the goal due to capital needs and delivery

4 n o o r The “new car smell,” where a new plane 4 i requirements. However, with adequate plan- t e

2 a can have improved passenger acceptance b ning, a carrier can achieve a simplified fleet.

2 z i l m and likelihood for repeat business; i In an environment where revenues have u 0 0 t i r t a e a d n N U a i s e t e u a i Dependability and reliability that comes with l continued to trend downward and costs are less s h l e t t c e i i T A B n r w n r t D i o e h

new equipment; e controllable, fleet simplification can help reduce U r t j A F m u A Benefits of technology, including meeting or o costs. Carriers focusing on fleet simplification, S surpassing regulatory hurdles such as noise reg- Fleet types whether legacy or low cost, will reap benefits of ulations, improved fuel performance and longer Utilization/airlines/day increased productivity of their assets. a intervals between major maintenance work; Improvement of the morale of employees, The utilization of the aircraft appears to who are likely to be proud of their airline tak- be closely related to the number of fleet ing new planes and may reflect this in their types. Utilization has an inverse relation- Vijay Bathija is director of airline planning attitude toward customers. ship to number of fleet types — the higher and Peter Berdy is a partner for On the other hand, LCCs as well as tra- the number of fleet types, the lower the Sabre Airline Solutions Consulting. They ditional airlines still consider used airplanes for utilization. can be contacted at [email protected] several reasons, including: and [email protected].

+count it up

370,000 — Additional trans- 6,500 — Number of additional 1936 — Year the Douglas DC-3 Atlantic seats available during the flights from the North America low-cost transport planes entered airline service summer of 2005 versus the same sector last summer, representing in the United States. They because the period the previous year. 1.1 million additional seats versus the most widely used airliners in history. same period in 2004.

75 — Percent quieter (20 decibels 80 — Percent Europe plans to reduce 5.9 — Percent growth expected for less) that today’s aircraft are versus air transport-related accident rates by 2020 airfreight companies between 2005 those in the 1960s. They are also 70 through new technology, operational and and 2023, generating the need for percent more fuel efficient. regulatory initiatives, and measures to more than 700 new and 2,400 con- decrease human error. verted freighters, according to Airbus.

30 ascend industry

T5: The Gateway to British Airways’ Future

British Airways’ new Terminal 5 will help transform operations at the airline’s London Heathrow hub, benefiting the airline as well as its passengers by providing more efficient facilities.

By Stephani Hawkins and Lynne Bowers-Clark | Ascend editor and staff

hen British Airways, the United lent to 22 football pitches and its development a main terminal building (T5A) and two satel- Kingdom’s largest international sched- budget nears £3 billion (US$5.5 billion). After 13 lites (T5B and T5C) that will be joined by an W uled airline, opens Terminal 5, or T5, years of planning and the United Kingdom’s underground shuttle train. The main terminal at London’s Heathrow Airport, it will be able to longest public inquiry, lasting almost four years, and satellite T5B will open in March 2008, fol- say with certainty, “there’s no place like home.” the airline has finally broken ground on what lowed by the scheduled opening of satellite The move to a high-tech facility symbol- will soon become its new quarters. T5C three years later. T5A will be designed to izes the airline’s forward-thinking approach to The new terminal, which will be exclu- accommodate mainly short-haul flights, specif- maximizing revenue, reducing costs, optimizing sive to BA, will supplement Heathrow’s four ically targeting business travelers who can’t crew management, operating more modern air- existing passenger terminals, improving the afford to spend much time at the airport, and craft and, most importantly, creating a desirable airport’s ability to utilize existing capacity and the majority of BA’s long-haul flights will be environment for customers and employees. accommodate the world’s most advanced air- operated from the two satellites. “Terminal 5 will open up a whole new trav- craft, such as the Airbus A380, as well as pro- BA’s new home, a glistening new 21st el experience for our customers, and it will viding a new facility capable of serving 30 mil- century gateway in and out of London, will be change the landscape for 20,000 staff working for lion domestic and international passengers per the size of the city’s Hyde Park — five times British Airways at Heathrow,” said Steve Ronald, year — accommodating the equivalent of the the size of T4 — with 175 lifts and 131 escalators manager of T5 customer experience for BA. United Kingdom’s population every 625 days. to help travelers quickly and easily navigate its T5, the biggest planning project — both When T5 opens, BA operations at T1, T3 five floors. Not only will the new facility support in terms of physical size and financial invest- and T4 will be consolidated onto one new cam- a superior travel experience for BA’s customers, ment — ever undertaken by BAA, the company pus. T5, the construction of which is expected the grounds will be eloquently landscaped with that owns and operates Heathrow, is equiva- to consume 37 million man hours, will comprise 20,000 trees, shrubs and ornamental grasses

Graphic illustrations courtesy of British Airways

British Airways’ move to its new state- of-the-art Terminal 5 signifies its futuristic approach to running a cost-effective, revenue-generating operation that offers a desirable environment for customers and employees.

Terminal 5 will be exquisitely landscaped with 20,000 trees, shrubs and ornamental grasses, offering added appeal to British Airways’ passengers.

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that will point travelers inside to an airy expanse reducing journey times, thereby minimizing pos- in control of their journey through the airport.” with large windows that provide a scenic view. sible delays. T5 will also boast two-way taxiways Another top priority for a successful T5 Despite its enormity, planners have said with no cul-de-sacs or runway crossings, a is helping passengers, both arriving and depart- that T5 will be a model of efficiency. Through design that will minimize taxi times. ing, navigate through the terminal by correctly strategic use of self-service technology, cus- As a modern working environment, the posting signs throughout and ensuring there tomers can check in for flights and pre-print airline will introduce more efficient ways of are ample landmarks. boarding passes from the comfort of their own doing business. Working practices, which cur- “Signage is something we are working home. They can also bypass check-in lines by rently vary by Heathrow terminal, will be very hard on with the BAA,” Ronald said. “We utilizing one of the terminal’s many self-service replaced with a single process, and the both want to promote our own branding, but at check-in kiosks. Ronald believes that while the amount of equipment will be reduced and the same time, the ‘way-finding’ must be clear self-service culture is a key aspect to the suc- standardized. New procedures to improve the and simple. We want customers to be confident cess of Terminal 5, every stage of the process management of aircraft stands and the move- that they know where they want to go next. must be supported by British Airways’ staff. ment of ground equipment, baggage and staff “One of the really big changes for arriv- “We want people to be there in case ing passengers is that they will walk across a things go wrong,” he said. “And when we bridge and look down into the baggage hall, open, we will man all the acceptance points. HIGHlight which is big, airy and above ground,” he said. There will always be staff around to help. “That will help them get their bearings. They “Additionally, the exhaustive planning that BA’s new home, a glis- will be able to see exactly where they are, has gone into T5 is designed to ensure that long where they have to get to and, for premium queues are a thing of the past. Ideally, there will tening new 21st centu- passengers, where the arrivals lounge is.” be no more than two or three people waiting to Getting “Fit for 5” presents an enor- use a self-service kiosk at any one time.” mous challenge for BA as it strives for a suc- Simplified airport processes are also ry gateway … will be cessful move to the new terminal. The first crucial to the success of the new facility. phase of Terminal 5 will be completed by Designers have created a facility conducive to the size of the city’s September 2007, followed by six months of a traveler-friendly experience that is faster, scrupulous systems testing, and any changes smoother and simpler, with significantly Hyde Park … with 175 must be introduced by the end of 2006 to reduced connect times. allow ample time for proper incorporation. Today, passengers transferring between lifts and 131escalators A considerable focus remains on prepar- terminals at Heathrow can face significant con- ing the airline’s systems, processes and work- nection times — up to 75 minutes if connect- to help travelers quick- ing practices for the transition. Work teams are ing between T1 and T4. When T5 is complete, already visiting the site to become familiar with travelers who have cleared security can reach the new layout, and the management of termi- even the furthest gate in the main terminal in ly and easily navigate nals 1, 3 and 4 now resides under one person, only six minutes. Those transferring to a satel- a first step in organizing the airline’s personnel lite can catch the underground train that its five floors. in one team for Terminal 5. Employees and departs every 90 seconds. While reduced con- trade unions will also be closely involved in the nect times boost customer service, they also planning process up to the 2008 move in. give BA a competitive advantage. For its customers, Ronald said BA has “One of the main benefits of operating across the terminal will be implemented. For taken a customer-centric approach to all that from a single terminal is that we will not have example, Terminal 5’s state-of-the-art baggage goes into T5 to ensure all customers’ needs to coach passengers between two buildings as system will operate on 18 kilometers of bag- and expectations are met. we do now between T1 and T4,” Ronald said. gage belt that will transport luggage around “We have to make sure that all our ideas “It will cut out double handling and make our the new terminal, and a containerized loading work for our customers,” he said. “We will operation more flexible, while the reduced process will replace the current loose loading take time to test everything first.” transfer times will make us more competitive. cargo system, allowing for more rapid turn For British Airways, the move repre- It’s a much more attractive proposition for our times. sents an exceptional opportunity to grow the customers.” Ronald points out that one of the main airline and modernize Heathrow. The impor- Getting to T5 will be easier, too. It will changes at T5 will be the way passengers and tance of T5 and what it means to the future of have its own sophisticated rail station that will baggage are checked in. BA cannot be underestimated. It signifies a be located beneath Concourse A. The station “The layout of the concourse is going to once-in-a-lifetime opportunity and affords the will include six rail platforms: two for the be quite different than what passengers are airline a chance to build a new Heathrow. London Underground Piccadilly Line extension; used to at Heathrow, and it’s designed to “T5 will give us a superb theater from two for the Heathrow Express extension, and improve and speed the process,” he said. where we can deliver great customer service,” a third pair built for potential future rail expan- “From the self-service check-in kiosks, travel- said Jonathon Counsell, head of Terminal 5 sion. In addition, a bus station and a new dedi- ers will go straight to the baggage drop-off development for British Airways. “It will have a cated spur road will connect directly to the points and then through security. fantastic impact on the traveling public and on main terminal. “We want our customers to progress all the people who work there.” a Consolidating its operations into a single logically through the building, eliminating back- campus at Heathrow also provides logistical flows and cross flows of people getting in each advantages. Flight crews and the majority of others’ way. We will be moving people forward operational staff currently stationed in the at every stage so they flow smoothly through Stephani Hawkins can be contacted at Compass Centre will be based at T5. Crews will the building. Check in, for example, is an obsta- [email protected], be able to report to work, receive their briefings cle to the passenger. We have to make that and Lynne Bowers-Clark can be contacted and board their flights in the same building, process as efficient as possible and put people at [email protected].

32 ascend Gulf Air’s unique approach to Gulf’s Onboard in-flight service has earned the airline top catering awards for with Top In-flight Service two consecutive years.

By Debbi Lyons | Ascend Contributor

Photos courtesy of Gulf Air profile

s Gulf Air, the Middle East airline owned by the Kingdom of Bahrain, Oman and the Emirate of Abu Dhabi,A nears the end of its three-year restruc- turing and strategic turnaround, it has tackled everything from renewing its fleet and network structure to branding and customer service. The turnaround program has already proven successful, creating a dramatic improvement in financial results. A key component of the turnaround has been the airline’s emphasis on in-flight ser- vices. In his role as head of in-flight service, cabin crew and supply management, Michael Kent has added innovative new services such as the Sky Nanny program and in-flight chefs. Gulf Air has also revamped its cabins with new Sky Beds in first and business classes. The programs are paying off: in the latest World Airline Catering Awards, published by Skytrax Research, Gulf Air won first place for both first- and business-class onboard catering on

He said, ‘I want you to come on board to turn“ around all the services of in flight and all the supply services that go to that. — Michael Kent, head of in-flight service, cabin crew and supply management” for Gulf Air long-haul intercontinental flights. But Gulf Air’s London for six months while setting up the want to do,” Kent said. meteoric rise in the rankings was no overnight processes, choosing the caterers and hiring Once the menu for service from the success — it combines concepts from air trav- chefs. He needed that time for the all-impor- new station is designed, the chefs help price it, el’s luxurious past with services that Kent has tant process of recruiting the airline’s 140 determine labor costs and train local catering honed in previous positions at other airlines. chefs who come from diverse backgrounds kitchens to produce the food. The chefs also His experience using onboard chefs at and have impressive credentials — either assist in quality assurance by inspecting food Qantas Airways for food preparation has Michelin starred or experienced as the head of for freshness before accepting it on board. To inspired and served as the launching pad for a five-star hotel or restaurant. The chefs must complete the feedback circle, the chefs are the program’s latest incarnation at Gulf Air. At be creative to work in a space-restricted airline available on board for feedback from the pas- Ansett International, Kent forged new ground galley. They also have to be proficient at mer- sengers about what they did and didn’t like, in menu planning and further developed the chandising because the Gulf Air Inflight Chef and through supervising the off-load process, onboard chef idea. program touches a wide range of onboard ser- they establish appropriate serving sizes. When Gulf Air President and Chief vices, including menu design, product procure- First-class passengers are not the only Executive Officer James Hogan began the ment and service delivery. ones to benefit from the revamping of service. turnaround at Gulf Air, he recruited Kent to bring When planning service for a new mar- Many former first-class cabin crew have some of his innovative ideas to the airline. ket, such as Kuala Lumpur, a group from the moved to business class, and the first-class “He said, ‘I want you to come on board Inflight Chef program visit the location to sam- chefs are training chefs for business class. Not to turn around all the services of in flight and all ple local cuisine. only is the food starting to resemble the old the supply services that go to that,’” Kent “I sent the chefs to Kuala Lumpur to first class but the presentation does as well: recalled Hogan telling him. “‘And I want you to check out the best restaurants, visit the local the service includes new, larger plates and implement the chef concept you had at Ansett.’ markets and street stalls, see what the people taller, stacked food designs. Enhancements in “I said, ‘You want me to turn everything eat, determine their flavors, and talk to other food service are also being made in economy around in six weeks?’ He said, ‘No, I want you to chefs in restaurants as only chefs can do, go to class. For what Kent calls “premier economy get the chef service up and running,’” Kent said. the catering center, see the capability of the class,” Gulf Air is now serving cheese and fruit Kent chose to target a route to catering centers to translate that into what we plates, once a staple of business class.

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Nostalgia for air travel’s past can be seen in the redesigned Gulf Air cabin. The 78-inch bed is among the longest in the world. It also All of the things we’re features a jump seat at the foot of the bed. When the chair is in the upright position, a table folds down and passengers can have din- doing here are memories turned ing for two, just like in a restaurant. “ “All of the things we’re doing here are memories turned into modern, contemporary into modern, contemporary entities. entities,” Kent said. “I still have the picture in my mind of these duvet-type things and bed sheets and big fluffy pillows.” I still have the picture in my mind Gulf Air has also added a new Sky Nanny program. Nannies are not uncommon in the air- line’s home countries. However, nannies may or of these duvet-type things and bed may not travel with their employer or sit in the same fare class as the children. After receiving a complaint about children running wild in first sheets and big fluffy pillows. class, Hogan once again tasked Kent with addressing the issue immediately, this time by putting Gulf Air nannies onboard certain long- — Michael Kent haul flights. After an unsuccessful round of ”

On its long-haul flights, Gulf Air offers a outside recruiting, Kent turned to his own ranks “So why will a caterer come onboard complementary in-flight child care program to staff the program and contacted a prestigious with me to do all the work that we’re asking (left), helping children board as well as pro- nanny training school called Norland College. them to do?” Kent asked. “Because they will viding parents an opportunity to rest and “They said, ‘Oh blimey, love, you’ve got get on-time payment — direct, online, on-time relax. The airline also offers seats that con- the wrong phone number, I think,’” Kent said. payment. And that is a major, major, major vert into Sky Beds (below) in first class with “‘We don’t train airline people; we train the breakthrough for caterers. Because if we’re an 80-inch pitch and 25-inch width and busi- royal courts of England.’” going to do any system, it’s going to be a ness class with 63-inch pitch and 24-inch It took some convincing, but Gulf has win/win for both sides.” width. Both cabins are equipped with in- now entered into an exclusive five-year partner- Gulf Air also looks forward to the launch seat laptop connections and a phone as well ship with the school. The new agreement rais- of its new concierge service later this year. The as access to 42 video and audio channels. es awareness of Norland College in a region service will assist travelers in procuring ser- where many royal families hire nannies. vices on the ground such as hotels and cars Of course, all these improvements in and will use Gulf’s new cabin management service only become real to the passenger system. These services are all part of the effort once the airline can ensure that they will be to provide a unique flying experience and consistently delivered. To do so, Gulf Air has thereby improve yield. invested in its information technology systems “We’d rather be the best than the and processes, including the Sabre ® AirServ ® biggest; we want to be the best of the best,” In-flight Solutions. Kent said. “Most airlines have up to nearly 30 per- If the Skytrax awards are any indication, cent of equipment sitting on the ground around Gulf Air’s in-flight service is well on its way to the globe, if they’re a global airline, at any one being “best of the best.” In the three years time,” Kent said. “Using a ‘push’ system that since he has taken the reins of the in-flight pro- we will introduce with the AirServ solutions, gram, Kent has seen the rankings rise from 78th we can really minimize that holding stuff out in for first class, 56th for business class and 116th for the global market to give us a massive return on economy class to the current rankings of first, investment — money saved on equipment.” first and sixth. Not only that, but this is the sec- Kent also looks forward to the precision ond year in a row that first class has taken the the system will bring to his interactions with top award. Not one to rest on his laurels, Kent caterers. Meal ordering will be more tightly is already making predictions for next year: managed through systems that communicate rankings of first for first class, first for business with the departure control system to give up- class and, yes, first in economy class. a to-the-minute meal requirements. The Sabre ® AirServ ® Billing Manager will create a pro forma invoice for the food service immediately upon the plane’s departure. The Debbi Lyons is marketing manager resulting speed and accuracy of the invoice will for Sabre Airline Solutions dining and improve operations for both the airline and the cabin services. She can be contacted caterer. at [email protected].

ascend 35 BACK TO THE FUTURE SAS has restructured itself to be more flexible Breaking into separate airlines was part of a larger reorganization with a and compete effectively reshaped brand strategy. As part of the restructuring, designed to introduce clearly in its home markets. divided business areas driven by a focus on decentralization and transparency as well as individual responsibility for earnings, the SAS Group split into five core units: By Marco Contento | Ascend Contributor SAS Airline Businesses — The four indi- vidual SAS-branded carriers with hubs FOR SCANDINAVIAN AIRLINES in Copenhagen, Denmark; Stockholm, SYSTEM, WHAT’S OLD IS NEW AGAIN. Sweden; and a regional hub in Oslo, The airline, which formed when sever- Norway, which combine to form the fourth- al local carriers joined forces after World War largest airline group in Europe, carrying 24 II, has in some ways returned to its roots by million passengers with 200 aircraft; once again dividing its operations across its Subsidiary & Affiliated Airlines — home region to become more flexible and Independently operated carriers in which better able to compete. the SAS Group has an ownership stake, In 2004, as SAS continued grappling including Spanair, Blue 1, Widerøe, with the challenges facing the industry, it Estonian Air and airBaltic, which combined divided into four separate airlines — SAS carried 8.6 million passengers last year to Denmark, SAS Sweden, SAS Braathens and 73 destinations using 97 aircraft; SAS International Airlines. The advantage Airline Support Businesses — Companies of establishing four distinct carriers was not including SAS Cargo, SAS Ground only to respond faster to market needs and Services and SAS Technical Services, lead the market with new initiatives rather which account for 21 percent of the oper- than react but also to tailor individual initia- ating revenue of the SAS Group; tives to each individual airline. Airline Related Businesses — Associated Although the individual airlines share organizations including SAS Flight departmental responsibilities in areas such Academy, Jetpak, European Aeronautical as information technology, human resources Group, SAS Business Opportunities and and finance, each division is equipped with SAS Media that generated 2.9 billion SEK its own hub, fleet and crews to: (US$3.8 million) in operating revenue in Reduce complexity for each hub, 2004; Increase efficiency, Hotels — Rezidor SAS, tracing back to Increase transparency, 1960 when SAS opened its first hotel in Allocate dedicated fleets, Copenhagen, which operates 190 hotels in Optimize each hub individually rather than 47 countries under five brands: Radisson, optimizing across the entire network. Country Inn, Cerruti, Park Inn and Regent. Photos courtesy of Ted Fahn and SAS profile

“We started by creating a clearer struc- France and Germany. However, while those “We are releasing capital that can be ture so that each company on its own power three countries have a combined population of used for airline operations, among other pur- can develop its core activities according to the more than 200 million, Scandinavia, including poses, while at the same time we are letting a logic of its own business,” said SAS Group Finland, has slightly more than 24 million. professional property-management company Executive Vice President and Chief Financial Despite the relatively small population, acquire the office properties,” said SAS Chief Officer Gunilla Berg. “You could say that we travelers have a choice of more than 25 airlines Executive Officer Jörgen Lindegaard. are ‘normalizing’ the SAS Group’s structure to offering intra-regional services, not counting Focusing on the core airline business led resemble that of other groups. Giving compa- other international carriers that connect the SAS to expand its ownership interests in other nies their own responsibility for earnings is a region with other markets. With most competi- carriers. In 2002, SAS increased its stake in strategy that has proved successful in other tors offering point-to-point service, they have a Spanair, which it launched in 1986, by an addi- companies even within the group. Clearer significant impact on SAS’s hub-and-spoke net- tional 25 percent, giving it 73.9 percent majority responsibility for earnings is vital but requires a work structure. ownership. The following year, SAS increased well-functioning and integrated management Faced with these challenges, four years its stake to 93.9 percent as it continued to shift model. Such a model is now in place group ago SAS began restructuring its operations. its focus to its airline business by strategically wide.” Although the next three years proved difficult investing in existing and new partners. SAS’s restructuring for the modern airline financially, its turnaround efforts laid the foun- In December 2001, SAS Group acquired environment has some ties to its earliest days dation for its improved performance this year. Braathens, then the dominant player in the when it began as a group of separate airlines. In 2001, the airline established SAS AB, domestic Norwegian market. In mid 2002, SAS The airline traces its roots to 1918 when the new holding company of SAS Group. As a increased its ownership in Widerøe, another a Danish air taxi company, Det Danske result, various divisions and majority-owned local Norwegian carrier, from 63.3 percent to Luftfartselskab, was founded. In 1946, DDL subsidiaries were spun off. SAS sold 285,000 96.4 percent. united with Det Norske Luftfartselskap A/S and square meters of airport properties, such as In late 2003, the airline group acquired Svensk Interkontinetal Lufttrafik AB to form warehouses and hangars, to investors as part 49 percent minority share in Estonian Air, a SAS. After five years of cooperation, the three of a program to free capital. In 2003, the airline Baltic carrier with predominantly local traffic airlines formed a consortium that has lasted sold its properties in Frösundavik, Sweden, as that feeds into SAS’s Scandinavian and long- more than 50 years. part of a sell-and-lease-back agreement. haul networks. Since then, expansion in the With the industry downturn in 2001, how- On the information technology side, Baltic states and Finland has proven important ever, SAS was forced to rethink its structure and SAS sold SMART, the Scandinavian Tour in SAS Group’s positioning in the area, includ- take various measures to transform the compa- Operator Portal, in which it held 95 percent of ing its involvement in airBaltic, Latvia and Air ny. Not only did the airline face financial chal- the shares, to Amadeus in mid 2002. At the Botnia, the wholly owned Finnish company lenges, it also faced increasing competition, par- end of 2003, Scandinavian IT Group, which that was renamed Blue 1 in 2004. ticularly from low-cost carriers. To understand was a large division serving not only SAS but Widerøe, Blue 1 and Braathens play a the magnitude of competition in that region, several other carriers with reservations and significant role in SAS’s strategy by comple- compare Scandinavia with a similarly sized area inventory technology, was sold to Danish CSC, menting its regional networks through the of western Europe. Scandinavia, including which continues to manage all IT requirements addition of new point-to-point routes as well as Finland, has a land mass of a little less than 1.2 of the SAS Group. feeding the airline’s European and long-haul million square kilometers, which is comparable The spin offs were part of the SAS networks. SAS also maintains an ownership to the combined size of the United Kingdom, Group’s decision to focus on its core operations. interest in Spanair. While Spanair has only mar-

Left: As part of the SAS Group’s restruc- turing, it split into five operating busi- nesses — SAS Airline Businesses, Subsidiary & Affiliated Airlines, Airline Support Businesses, Airline Related Businesses, and Hotels — making each group responsible for its own earnings.

Right Top: Many of the key markets that SAS serves are expected to grow signifi- cantly during the next couple of decades, and SAS is positioning itself to take advantage of the increased traffic.

Right Bottom: The SAS Group, which considers the Baltic Sea region its home market with 55 percent market share, also conducts airline operations activities in other regions, as well as other airline- related businesses and hotel operations.

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Graphics courtesy of SAS

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Scandinavian Airlines Business Spanair Widerøe Blue 1 air Baltic Estonian Air

Rezidor SAS, hotels profile

Left: With three members of the Star Alliance (Scandinavian Airlines, Spanair and Blue 1) and three other airlines within its group (Widerøe, airBaltic and Estonian Air), the SAS Group has an extensive network of approximately 1,445 daily departures to 146 destinations. The Group also has companies that support airline operations as well as a hotel operation.

Right: The SAS Group’s strong brand, which includes various travel entities such as airlines, hotels, cargo services, and ground services, enables customers to recognize the SAS Group, even when traveling on an airline that is not a primary user of the SAS master brand, such as Spanair or Blue 1. The SAS master brand signifies efficient, flexible travel solutions and attentive service.

ginal impact on the Scandinavian market, it helps the same period in 2004; the unit cost contribute to the airline’s overall success. SAS decreased an additional 7.5 percent. The new also has a minority participation in Skyways price concept in Sweden alone saw loads for and cooperates commercially with it on its pre- SAS Sweden jump by 11.6 percent. Despite dominantly domestic-Sweden network. rising fuel costs, the SAS Group reported a The airline continued its efforts to successful second quarter when group earn- revamp its business with “Turnaround 2005,” ings (before capital gains and non-recurring a plan to return to profitability, which is expect- items) jumped dramatically to 579 million SEK ed to generate 14 billion SEK (US$1.8 billion) (US$76 million). from 2003 to 2006. By the end of 2004, SAS had successfully implemented changes that What Lies Ahead? will have an impact on earnings of 11.9 billion On the cost side, SAS will continue pursuing SEK (US$1.6 billion), bringing down unit costs productivity increases for its flight crews. SAS by 26 percent compared to the end of 2002. Ground Services and Technical Services are Today, SAS continues to change the way also in the focus to deliver savings. And with it does business. the intended shift to direct sales channels, dis- “The yield stabilization that started at the tribution costs with its global distribution sys- end of the third quarter of 2004 has continued tem partners will also be reviewed. through the first quarter of 2005,” Lindegaard On the product side, changes keep dom- said. “The high oil prices were compensated inating. Following the success of its Nya by fare adjustments. The emphasis now is on Inrikesflyget concept for Sweden, which is improving the cabin factor through capacity based on one-way fares, SAS introduced the adjustments and a more aggressive commer- same for Europe, making it the first huge net- Top: Company officials hope by organizing cial focus. Scandinavian Airlines Denmark and work carrier in Europe to introduce such a rad- its operations into five businesses Scandinavian Airlines International are focusing ical change. positions the SAS group for a successful on development of Copenhagen as a traffic hub. As a result of Turnaround 2005 and its journey with a smooth landing. In Sweden, we launched ‘Nya Inrikesflyget’ (a ongoing restructuring efforts, SAS appears to new domestic concept) at the end of March, be on track to return to profitability after four Bottom: SAS Group management team, which has been a major sales success from consecutive years of losses. a back row from left: John Dueholm, the start with more than 100,000 ticket reser- Scandinavian Airlines Businesses; CEO vations on our new, simplified Web site by the Jörgen Lindegaard; Bernhard Rikardsen, end of April. The other airlines in the SAS Corporate Administration & Support; Front Group have developed as planned and row from left: Gunnar Reitan, Subsidiary strengthened their market positions.” Marco Contento is a & Affiliated Airlines and Hotels, and SAS Group’s total net income improved Europe-based account director for Gunilla Berg, CFO. by approximately 400 million SEK (US$53 mil- Sabre Airline Solutions. He can be lion) in the first quarter of the year compared to contacted at [email protected].

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Jet Airways: From Domestic to International

XxxxxxpAfter strict government regulations forbidding India’s privately owned Xxxxxxxxxcarriers to serve international routes were lifted, Jet Airways swiftly became a successful international airline.

By Apurva Mathur | Ascend Contributor

nyone growing up in India prior to the Mumbai, India-based Jet Airways was 1980s had little choice among locally one of the region’s first private airlines to be Abased airlines. It was either Indian founded. It began commercial operations on Airlines for domestic travel or Air India for inter- May 5, 1993, with a fleet of four Boeing 737- national travel. With a market economy aligned 300s. Since then, the airline has expanded HIGHlight with the Soviet Union, competition was not its fleet by 46 aircraft — Boeing 737- particularly favored by the Indian government, 400/500/700/800 and ATR 72-500s. Jet In the early 2000s, TAJIKISTAN even though India was the largest democracy Airways has been consistently judged India’s TURKMENISTANTURKMENISTANTAJIKISTAN RUSSIA inRUSSIA the world. best domestic airline, and it was the first Indian the government of With the economy not performing to its airline to receive the World Travel Market potential, the government of India decided to Global award. privatize some sectors. The airline sector was The airline, which began international India lifted restric- AFGHANISTANAFGHANISTAN targeted early on, and a limited number of pri- operations to Sri Lanka in March 2004, quickly vate airlines were allowed to operate. Initially, proved that through superior service and effi- tions and allowed they were treated as “air taxis” and not even ciency of operations, it could take on the gov- permitted to publish a schedule. ernment-giant Indian Airlines on domestic private airlines to PAKISTANPAKISTAN IRAN IRAN start limited services Jet Airways First Routes in Southeast Asia to international CHINACHINA G  G  destinations, which O a O a INDIAINDIA VIETNAMVIETNAM presented a complete-

LLAOSAOS MYANMARMYANMAR LAOS ly new challenge for

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CAMBODIA CAMBODIACAMBODIA

Initially, destinations outside the Indian KUALAKUALA subcontinent included Southeast Asia, LUMPURLUMPUR Singapore and Kuala Lumpur. While these SRI LANKASRI LANKA destinations could be serviced by Jet MALAYSIAMMALAYSIAALA Airways’ fleet of Boeing 737 aircraft, the carrier deemed it necessary to become INDONESIA 0 0 500 Km 500 Km INDONESIA familiar with consequential over-water SINGAPSINOREGAPORE operations and international standards. 0 0 500 Mi. 500 Mi.

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routes and be profitable. With a loyal customer First, destinations outside the Indian ating officer for Jet Airways. “It’s a particularly following, Jet Airways quickly became the dar- subcontinent included Southeast Asia, pertinent issue for Jet Airways as we face the ling of the country’s airline industry. Singapore and Kuala Lumpur. While these des- unique challenge of regular fogs in Delhi every One of the early decisions Jet Airways tinations could be served by the airline’s exist- year for two months; hence it is imperative made to become more efficient was to adopt ing Boeing 737 aircraft, Jet Airways needed to that we have the best tools available to man- modern technology to manage its day-to-day familiarize itself with substantial over-water age our flight operations. operations. The airline hired managers who operations and become familiar with interna- “To meet our growing needs — and also were experienced in running an airline and tional standards. After doing a thorough for international routes — we realized we dependent on technology, such as the Flight search, Jet Airways concluded that it needed required a robust, integrated solution that is Operations System, or FOS, from Sabre Airline to modernize its flight operations system to proven in the marketplace, and the AirOps Solutions, to run its daily operations, which meet the challenges of international aviation. suite met all our criteria.” proved pivotal to the airline’s success. Jet FOS had done its part to make Jet Airways an The AirOps suite of operational products Airways quickly became known as the “on- efficient flying machine, and it was time to turn was installed, and Jet Airways’ operations con- time” airline, and business travelers flocked to to something more modern and capable of trollers and dispatchers were trained on the the airline by the throngs. With a faithful follow- complying with extended-range twin-engine system in record time. With the deadline met ing under its belt, the carrier managed to grow operations, or ETOPS, and the International for setting up the systems, Jet Airways’ per- rapidly and become popular in the Indian skies. sonnel focused their efforts on maximizing the Much of making an operationally effi- use of the systems to produce the efficiencies cient airline lies in the availability of information HIGHlight it provided. and access to data to make well-informed deci- Being a modern system built on open- sions. With the distribution capabilities of FOS, systems technology, the AirOps suite provides the airline was able to send and receive infor- With an urgency to an automated, visually intuitive flight display mation about flights and passengers through- and control system to help improve on-time out its network. In fact, customer service was realize optimal speed performance, increase aircraft utilization and so important to Jet Airways that it made spe- minimize operational disruption. cial modifications to FOS to allow more and results, the The quick implementation and opera- detailed information to be input into the sys- tional use of the products meant that Jet tem so every person within the airline who airline once again Airways was able to meet its goal of becoming interacted with customers had access to their a well-regarded international airline. information in a meaningful and timely manner. “This has been one of the best imple- In the early 2000s, the government of turned to its trusted mentations/cutovers … even the user depart- India lifted restrictions and allowed private air- ment has applauded the work done,” Luethi said. lines to start limited services to international information technol- When Jet Airways needed to evaluate destinations, which presented a completely different aircraft types to meets its demands new challenge for the region’s carriers. Even ogy partner to help for international travel beyond Southeast Asia though India is the second-most populous to London and New York, the AirOps suite nation in the world, it is not geographically it meet its aggressive helped make the optimal decisions. vast. Flying east to west or north to south can Another aspect that has helped Jet be accomplished by short-haul, single-aisle air- schedule of starting Airways adapt to the rigors of international avi- craft. The mainstays of most of the airlines in ation is the integration of the AirOps suite with India were either Boeing 737 or Airbus A320 other systems at Jet Airways. Whether it is the aircraft. With the initial set of international des- international reservations and check-in system, tinations limited to neighboring countries in the SabreSonic™ Passenger Soluitons; the revenue Indian subcontinent, this would not present a operations. management system, the Sabre ® AirMax ® problem. Jet Airways was quickly able to adapt Revenue Management Suite; the crewing sys- to international regulations and fly to these tem, Sabre ® AirCrews ® Crew Management destinations with relative ease. Suite; or the air traffic control system, the When government restrictions were AirOps suite seamlessly sends and receives further lifted to allow for long-haul internation- Air Transport Association messaging standards. data that keeps all the systems in synch and al operations, a new set of challenges faced A completely different lingua franca existed for everyone informed. Jet Airways. It needed to quickly transform international operations, and Jet Airways need- Jet Airways has quickly transformed itself from a domestic airline operating in a rel- ed to get well versed in it very quickly. itself into an international carrier with help from atively known environment into a world domi- With an urgency to realize optimal speed a determined management team and sophisti- nated by giants such as British Airways, and results, the airline once again turned to its cated array of modern operational tools. Today, Lufthansa German Airlines and Singapore trusted information technology partner to help because the airline has taken full advantage of Airlines. This called for urgent action on the it meet its aggressive schedule of starting its government’s ease on international service, part of Jet Airways and meant the airline need- international operations. Sabre Airline the region’s travelers have more choices in air ed to not only learn about long-haul operations Solutions consultants, well-versed in interna- travel, and Jet Airways is poised to remain but also quickly decide on and acquire new air- tional operations, guided Jet Airways as it India’s most popular airline. a craft types. learned the ropes of its new environment. While FOS had served Jet Airways well During the engagement, the airline elected to and helped in its success to become the pre- implement the Sabre ® AirOps™ Suite to help mier domestic airline, the carrier needed maximize operational efficiencies. Apurva Mathur is director of flight opera- something even more advanced to help it “There is no doubt flight operations are tions for Sabre Airline Solutions. He can be become an international airline. mission critical,” said Peter Luethi, chief oper- contacted at [email protected].

ascend 43 US Airways’ CEO Doug Pa aka Th rker, e Transformer, swoops in lair from his Arizona to rescue the future o f two airlines, creating a new force for good in the airline industry. profile

A Conversation With … W. Douglas Parker, Chairman, President and Chief Executive Officer, US Airways

hile more of the world’s air- and CEO of America West Holdings Corp. and keting, information systems, and corporate lines are adopting elements America West Airlines in September 2001, has affairs divisions. Before moving to America of the low-cost carrier been with the airline since June 1995. Prior to West, Parker held a variety of financial posi- model to help adapt to a rad- assuming the top spot, the Farmington Hills, tions with Northwest Airlines and American W ically changed industry, the Michigan, native served as the airline’s senior Airlines. Parker recently shared his thoughts new US Airways, formed by the merger of vice president and chief financial officer. His about the changes in the industry and where America West Airlines and US Airways, is duties later expanded to include schedule plan- he believes they will lead. already enjoying the benefits of making the ning and revenue management, sales and mar- Question: How long ago did you start switch. Several years ago, America West looking at a possible merger as a strategy transformed itself from a pure hub-and-spoke Photos courtesy of US Airways for long-term success, and why did you feel carrier to the United States’ largest “low-fare, this was the right direction? full-service” airline by simplifying pricing, elim- Answer: I’ve remarked on several occa- inating Saturday overnight stay requirements sions that consolidation in our industry is and pushing more bookings to its Web site. inevitable, and I always maintained a goal of In 2002, America West became one of America West playing an active and positive the first traditional airlines to implement a sim- role in that process. We looked at a possible plified pricing structure, dramatically cutting deal with ATA last year, and although the the fares for transcontinental trips by, in some pieces didn’t come together in that case, I’m cases, more than 400 percent. Yet the airline proud of our team here because that entire still maintained its valuable customer amenities process showed we weren’t set on growing including lounges, an extensive, award-winning just for growth’s sake or merging just for the frequent flyer program and a first-class cabin. sake of merging. In this case, we’d had some The airline also continued to maintain hubs in early discussions with US Airways folks before Phoenix, Arizona, and Las Vegas, Nevada. their second bankruptcy, but we weren’t going The changes led Entrepreneur magazine to move forward until it made sense for our to name America West the best major airline employees, customers and stockholders. in 2004. The airline’s frequent flyer program, When we felt those conditions were satisfied, FlightFund, has also received InsideFlyer we began to move forward on this with more magazine’s “Freddie Award” for best elite- momentum. level program in the Americas for three con- Q: When looking at potential merger part- secutive years. ners, what was so attractive about combin- Now, the Tempe, Arizona-based airline is ing America West and US Airways? once again poised to take a leading role in A: You’re going to hear the word “comple- reshaping the industry through its recent merg- mentary” a lot from us when we talk about this er with US Airways, which could be the first step merger, and that explains a major part of why in a much anticipated industry consolidation. this merger makes sense. America West’s Together, the two airlines will form the western concentration of routes combined well first national low-cost, hub-and-spoke network with US Airways’ eastern network. The list of carrier, with service to more than 200 interna- As part of its recent merger with cities served by us now totals about 240 — of tional and domestic destinations. The new air- US Airways, the America West Airlines that 240, less than 40 had service by both US line has become the fifth-largest U.S. airline, name and livery will soon become a thing Airways and America West, so there was very operating 361 aircraft. The combination is little overlap. With similar labor costs already in expected to form a financially strong airline of the past. The two airlines, which place, we believe that with additional cost and with US$10 billion in annual revenue. will operate under the US Airways revenue synergies, this is a win/win. Doug Parker, 43, chief executive officer banner, will soon fly aircraft sporting a Q: Mergers in the airline industry have of the combined airline, was a key driver in the been notoriously difficult; how can you suc- transformation of America West Airlines. fresh, new paint scheme for its aircraft. cessfully overcome many of the issues that Parker, who became the chairman, president have plagued prior mergers?

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A: The most difficult area has traditionally America West would have been in five scheme — SimpliFares — something been integrating two cultures. To address that, years, and what areas of your operation America West did more than three years we’ve made it a major priority to engage in would have possibly required changing? ago. What prompted you to take that step honest and open communication with employ- A: A lot of that depends on things out of our well before most other airlines? ees, and that’s only going to increase as the control, such as runaway oil prices and indus- A: It was pretty simple — we understood integration moves forward. I think employees try overcapacity, two things we’re better able what customers were demanding from airlines of both companies understand the various lev- to face as a result of the merger. Absent the and that the post-Sept. 11 world was not just els at which this merger makes sense — chief merger, we were still doing a great job in a another “downturn.” The landscape had per- of which is the fact that the futures for employ- hyper-competitive industry. We earned a mod- manently changed. We thought if we simpli- ees from both companies are going to be est profit in our second quarter and our fied and reduced walk-up fares, the response much brighter and much more stable with the would be overwhelmingly positive from cus- merger than without it. tomers, and it was; it was clearly a revenue- Q: What reaction have you received to the positive move for us. merger both internally and externally? Q: What have been the results of your con- A: The external reaction might be best repre- version to a low-cost, full-service model? sented by the third-party financial endorse- A: Again, our bottom line improved when we ments we’ve received totaling US$565 million embraced the low-cost model. By lowering in new equity and the ATSB’s approval costs in areas that didn’t have a large impact remarks, in which it noted the merger should If you are on customer service, we were able to maintain improve our competitiveness. On the internal “ perks like an award-winning frequent flyer pro- side, I’ve conducted a series of town hall-style gram, first-class cabins, airport clubs, etc. meetings with our employees. The response keeping your eye Customers responded positively, as you’d has overwhelmingly been not just positive but expect they would. actively supportive. Q: How long did it take to fully convert Q: What do you believe will be the biggest on the ball, from a traditional “legacy” carrier to the challenge to uniting the two airlines into a low-cost, full-service model? single entity? A: Well, we were never really a traditional A: I’ve always said it will be integrating two externally, the “legacy” carrier in that we were formed after workforces and the cultures present in each of the industry was deregulated. In fact, we were them. But most things worth doing right aren’t the first founded after deregulation to achieve simple tasks, and this is obviously something work is never major-carrier status. But the period of time in worth doing the right way. We will take our which we transitioned to a simpler, customer- time and strive to over communicate, although friendly pricing structure really began in the I don’t really believe it is possible, in this indus- really complete; aftermath of 9-11. I would even say that it con- try anyway, to over communicate. tinues today. With our merger, we now have Q: You stated that this merger would put another challenge and that is to continue to both airlines in a position of strength and it is always a evolve the merged airline into a successful future growth that neither could achieve low-cost carrier. If you are keeping your eye on separately. How does this merger provide the ball, externally, the work is never really those opportunities? process of complete; it is always a process of continuous A: It allows us to grow without dumping capac- improvement. ity on the industry. In fact, our merger will result Q: Why did you choose to keep some of in the combined fleet totaling about 60 aircraft continuous the features of the traditional carrier, such less than the sum of the two fleets today. That as a first-class cabin, assigned seating and represents a rational merger, and clearly is a hub structure? Would you ever consider more efficient than if both airlines attempted improvement. moving more to a pure low-cost model? to grow to national network scale alone. ” A: We understand customers fly for a variety Q: What kind of impact will this combined of different reasons. Leisure travelers aren’t low-cost, full-service international model the only ones who enjoy low fares. First-class have on the industry? — Doug Parker cabins and the industry’s best elite-level fre- A: Our goal for this merger is to form the quent flyer program are naturally attractive to nation’s first nationwide, full-service, low-cost business travelers, and that provides us with carrier, so I think the largest effect will be that an important source of revenue. As for the hub customers will have a new travel choice that structure, we still think that, by a large margin, will offer them low-cost options on a nation- it’s still the most efficient way to transport pas- wide network that is tied in to a premier fre- sengers across a network that includes major quent flyer program with partnerships that can employees have worked tirelessly to maintain business centers, smaller communities and offer award travel throughout the world. This costs that are among the lowest in the indus- international destinations. merger should raise the bar on what comes try. Rather than speculate what might have Q: What primary challenges did you with a low-fare travel experience. A customer been, I’d rather reiterate that we will continue encounter during the changeover, and how doesn’t typically expect first-class upgrade to build on those strengths and take advantage were they overcome? options, international destinations and clubs, of opportunities that make sense for us as the A: It took place during a very trying time in the but we will deliver all of that and much more. industry evolves. industry. We needed to communicate clearly Q: If you had not been able to find a suit- Q: Delta Air Lines recently generated a lot with employees about the direction we were able merger partner, where do you think of attention with its simplified pricing going. Without their buy in, we could not have

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been successful. With all the negative develop- never faced an environment like the one that Q: If you were going through this transforma- ments going on in the industry at that time, it began in 2001. Lower fares were required to tion again, what would you do differently? was a challenge to ensure a positive message stimulate demand, but we recognized that any- A: Looking back now, I wouldn’t change got out to not only employees, but to our cus- one could publish low fares, but maintaining much about the transformation. In fact, our tomers as well. the low costs necessary to support them was ability to act quickly and effectively is some- Q: What was the overall response from the real key. Once we were able to establish thing I’m very proud of. But, looking back to your shareholders, employees and cus- we could do that successfully, we generated 2001, I think every airline would say they wish tomers to your new business model? the much-needed momentum that prompted they’d hedged more fuel; however at that A: In general terms, most people realized external audiences to continue to tell our story point, we could never have known that we’d changes had to be made. The industry had in a positive way. be faced with fuel costs north of US$60 per barrel. In addition, no one, including us, had the credit rating of Southwest that provided that

Photos courtesy of US Airways hedging ability. We were in survival mode in ‘01 and, frankly, we had to be. Fuel hedging wasn’t at the top of our mind at that point. Q: How did technology help you through the conversion process? A: Technology continues to play an important role. We’ve struck a balance between offering our fares through traditional outlets and also coming up with innovative distribution meth- ods, such as bill me later, gift cards and Web bookings, including travel packages that inte- grate hotel and air in vacation packages. Technology has also been a good partner in our internal communication efforts; we webcast meetings for our employees, and we have a robust employee Web site that is used by our internal customers (employees) to keep them up to date on where the company is going and what role they play. Q: How do you feel the transformation to a low-cost, full-service airline has prepared you for the merger with US Airways? A: We got our costs down to the level they need to be to support consistent low fares. In fact, US Airways mentioned our cost structure as a target during its own restructuring. We couldn’t expect to run the combined airline effectively if we didn’t have our own house in order first. Also, we have learned how to analyze large amounts of data and make decisions quick- ly. In this business, those are also positives. Q: What other changes do you anticipate once the merger is complete? A: You’ll see a new livery, which is the aircraft paint scheme, and you’ll see the typical signs of integration as we combine operations at var- The union between US Airways and ious airports. What’s most exciting is cus- America West Airlines formed the tomers of both airlines are going to see new fifth-largest U.S. airline, serving more destinations available to them — from Hawaii to Europe to the Caribbean. For customers, than 200 domestic and international this is a huge positive. destinations with 361 aircraft. Q: Do you feel your merger with US Airways is the first step of a major industry The combined carrier, which will be restructuring? Do you expect there to be based in Tempe, Arizona, combines additional mergers in the airline industry? US Airways’ strength in the eastern A: I don’t think our merger is necessarily a step in the process. The industry will do what United States with America West’s it has to do to address the problems that are strong presence in the western out there. Capacity will be rationalized one way or another. Some ways of accomplishing that United States. go smoother than others. How it will unfold remains to be seen, and we’ll be watching along with everyone else. a

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ASPire to Leading Technology

Airlines around the world are taking advantage of the benefits of an applications service provider model to access vital decision-support technology at a fraction of the cost of an onsite installation.

By Inna Kizenkova | Ascend Contributor

The eMergo delivery method, which is protected by two firewalls and SSL data encryption, can be accessed remotely via a dedicated network line or the Internet. This distribution method enables airline analysts to access software applications directly from their desktop.

Sabre Airline Solutions’ archives

he vertical integration trend, which The idea was noble, and the executives Fast forward to 2005. The airline market- began in the late 1980s when many air- thought that if they could successfully manage place has changed, and so have the integration T lines enjoyed hefty profits and robust the core business, they could add and manage trends. Nowadays, airlines seek to minimize revenue growth that, in turn, provided abun- several other lines of business as well. And to their losses and stretch diminishing resources. dant resources, led to a desire for simplifica- be fair, not that many reliable, ready-to-use air- Customer-centric initiatives are hot. So when tion. Those were good times for many airline line software products existed in the ‘80s. So, managers have to choose whether to imple- executives who were planning ahead and envi- vertical integration made a lot of sense. ment a customer service-related or pure IT pro- sioning a great future for their airlines. In the 1990s, when supply of airline IT ject, the latter tends to have a lower priority. What they envisioned was information software improved, airlines began shifting However, airlines cannot provide good cus- technology departments fully staffed with IT from writing in-house IT applications to pur- tomer service without smart IT systems. To experts who would write and manage propri- chasing them from experienced airline IT ven- address the need for IT solutions and lack of etary software that would help create and sus- dors, which eliminated the need for internal resources to acquire them, more and more air- tain a competitive advantage in a cutthroat air- developers but still required an IT shop to sup- lines have turned to one of the growing trends line environment. port and manage the software. — an application service provider model.

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PRODUCT DETAILS PRODUCT DETAILS

Tools of the Trade Beyond Solutions There are currently 56 solutions in 14 functional areas The eMergo solutions are available through the Sabre ® eMergo ® Web access environment. more than a way to access technology. There are also several standard services Crew Management Flight Operations Revenue Management that help customers make Sabre ® AirCrews ® Sabre ® Dispatch Manager Sabre ® AirMax ® the most of the applications. Crew Connection Sabre ® Ground Essentials Reporter Sabre ® AirCrews ® Manager Sabre ® AirMax ® Disruption Control Sabre ® Load Manager Group Manager Sabre ® AirCrews ® Sabre ® Movement Sabre ® AirMax ® Leave Manager Manager Revenue Manager Application functionality Immediate product access Sabre ® AirCrews ® Sabre ® ACARS Manager Operations Manager Passenger Revenue Ongoing updates and enhancements User community access and Sabre ® AirCrews ® Fares Management Accounting collaboration Pairing Optimizer Sabre ® AirPrice ™ fares Quasar ™ passenger Sabre ® AirCrews ® management system revenue accounting Infrastructure Procurement Resource Manager Sabre ® AirPrice ™ system Sun and Dell servers with Oracle Sabre ® AirCrews ® Contract Composer Schedule Optimizer Airline Passenger database Dining and Cabin Services Solutions BEA systems WebLogic application server Planning and Scheduling Sabre ® AirServ ® SabreSonic™ Computer Associates Unicenter Sabre ® AirFlite™ Billing Manager Check-in modules: monitoring software Fleet Manager Sabre ® AirServ ® • Kiosk Check-in Cisco Web site load balancing Sabre ® AirFlite™ Cabin Service Manager • Web Check-in Recurring hardware and third-party Profit Manager Sabre ® AirServ ® Catering • Curbside Check-in refresh Sabre ® AirFlite™ Report Generator • Roving Agent Schedule Manager Sabre ® AirServ ® • Gate Reader Data Center Services Sabre ® AirFlite™ Enhanced Scheduler SabreSonic™ 24-hour-a-day, seven-day-a-week SlotManager ™ Sabre ® AirServ ® Res modules: monitoring and support Sabre ® Planet ® Equipment Balancer • Command Data encryption, intrusion detection profitability forecasting Sabre ® AirServ ® • Revenue Integrity system Equipment Forecaster and firewall protection Daily backup of customer data and Sabre ® AirServ ® Resource Management weekly off-site backups Loyalty Management Equipment Manager Sabre ® Streamline™ Security relating to communications, Sabre ® Corporate Sabre ® AirServ ® RosterMaker system Web site, servers, database and Loyalty System Galley Manager Sabre ® Streamline™ applications Sabre ® Traveler Sabre ® AirServ ® StaffAdmin ™ system Loyalty System In-flight Data Analyzer Sabre ® Streamline™ Maintenance and Support Sabre ® AirServ ® StaffManager ™ system Historical application availability Maintenance, Repair and In-flight Sales Manager Sabre ® Streamline™ greater than 99 percent Overhaul Sabre ® AirServ ® Meal StaffPlan ™ system Around-the-clock help desk access Maintenix ® MRO System Ordering Optimizer Standard Sabre Airline Solutions Ramco MRO System Sabre ® AirServ ® Market Data and Analysis services Scheduling Optimizer Sabre ® WiseVision ™ Application and database monitoring Cargo Management Sabre ® AirServ ® Sales Essentials and management Sabre ® CargoMax ™ Specification Manager Sabre ® WiseVision ™ Accounting Manager Network Analyzer Application and data access control and administration Sabre ® CargoMax ™ Sabre ® WiseVision ™ Revenue Manager Sales Analyzer Seamless software updates

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An ASP solution provides the best of model, including: both worlds — leading technology in a simpli- Reservations (according to 59 percent of Acceptance by Region fied IT environment, which enables airline those surveyed), executives to concentrate on their core com- Departure control/check in (58 percent), petencies. An ASP model is a form of out- Cargo reservations (31 percent), Latin sourcing, but it provides an important benefit Frequent flyer programs (26 percent). Asia/ America Pacific — it leaves control of the business decision- When asked which areas are planned to 17% making processes and subject expertise be moved to an ASP model, cargo reservations 20% squarely with the client (an airline, caterer or was the best candidate with 22 percent, followed ground handling organization). by frequent flyer programs with 18 percent. 29% Expanding on the ASP trend is “soft- The ASP model is very simple from an 34% ware as a service,” or SaaS, which empha- airline perspective because its applications and sizes that with an ASP solution, an airline does data are stored by the ASP provider, which per- North not only get an application but also an array of forms all necessary application and database America Europe, Middle additional services. implementation, maintenance, and access East and Asia For Sabre Airline Solutions, providing air- administration work. Thus, its IT efforts and lines with options such as an ASP delivery resources can be redirected and applied to Airlines around the world are adopting method is a top priority. In 2001, the company unique IT initiatives rather than mundane IT the application service provider model. created Sabre ® eMergo ® Web access, an ASP tasks such as procuring and updating hardware Companies using the eMergo delivery solution that offers access to best-of-breed and software, user administration, or database method come from every region of technology while simplifying operations and maintenance. At the same time, airline busi- the globe. reducing the total cost of ownership. ness analysts access applications over the The growing popularity of ASP models is Internet or a dedicated communication line and

H IGHlight To address the need for IT solutions and lack of resources to acquire them, more and more airlines have turned to one of the growing trends — an application service provider model.

Growth of the supported by the views of many IT consulting get all the necessary information and decision- companies and professionals. Research from support tools to maximize the airline’s potential. eMergo Solution International Data Corp. indicates that industry- An ASP solution is scalable. When an air- specific, customer relationship management line experiences traffic variance, its manage- and human resources applications are the ment will have the benefit of not worrying 200 most likely to be delivered via an ASP model. about where to find resources to expand the s

r IDC estimated that global spending on ASP system. As a rule, ASP vendors build ample e 160 s

m software last year totaled US$4.2 billion, con- capacity into the systems to allow for growing

n Average of 2 applications o t o

i stituting 39 percent growth compared to 2003. demand, meeting the scalability needs of s t 120 u a c

c IDC is also forecasting a steady 21 percent many airlines. According to the International i f l o p increase in annual ASP spending reaching an Air Transport Association, international passen- p

r 80 a e estimated US$10.7 billion in 2009. Specifically ger traffic continues to grow — revenue pas- b r o

m to the eMergo distribution method, the num- senger kilometers grew 8.8 percent during the 40 u ber of customers increased by 65 percent in first half of the year compared to the same N 2004 compared to 2003, reflecting the trend in period in 2004, increasing the demand placed 0 2001 2005 growing popularity of an ASP. Today, 84 global on applications. Timeline customers combine for 169 instances of An ASP delivery method also simplifies Accounts Applications accessing software solutions via the eMergo an airline’s financial operations because soft- environment. ware costs are easy to forecast since they con- After realizing the value of the eMergo Airlines are following suit according to sist of a one-time implementation and monthly environment from their initial experience, the 2004 Airline IT Trends Survey, adminis- fees that can be either metric-based or flat. more than 30 percent of those using the tered by Airline Business magazine and SITA to Metric-based fees can be tied to passengers solution have selected additional applica- 109 senior IT executives from top airlines. The boarded, aircraft, departure, employee num- tions. In 2001, the sales ratio for the survey revealed that only 10 percent of partici- bers, etc. With metric-based fees, an airline eMergo solution was one application per pants indicated that their airlines have not pays exactly for what it uses and does not customer, but this has increased dramati- moved any systems to an ASP model. overpay for extra capacity. cally in the last four years. According to the survey, several areas within Another benefit of a centrally hosted an airline’s operations have moved to an ASP ASP solution is the ease of application admin-

50 ascend products

HIGHlight Based on the breadth of the ASP portfolio and number of clients, Sabre Airline Solutions is the leading provider of airline software products via an ASP model.

istration. When an airline has several branches, growing popularity of ASP solutions, many IT synching, updating, and loading data and busi- vendors began offering hosting services to ness rules has to be repeated at each individ- Customer Segments their airline clients. Based on the breadth of ual location. With an ASP solution, everything the ASP portfolio and number of clients, Sabre is kept in a single hosted database so all those Airline Solutions is the leading provider of operations are performed once and everyone airline software products via an ASP model. Mega 4% accesses the same information. 8% Non-airlines Currently, the eMergo environment consists of In addition to simplifying operations, 56 applications. ASP applications come with a slew of other Large 2% An airline deciding whether to go with important benefits. Low total cost of ownership an ASP offering or an on-site installation has to is one of them. The total cost of ownership of Medium 21% consider several factors such as its need for a licensed application consists of vendor’s fees cash conservation, length of payback period, (implementation, license and maintenance) 35% pricing/budgeting predictability, ability to scale, plus the cost of hardware and third-party soft- IT department efficiency, etc. Because each ware to run such applications. The total cost of 30% airline’s situation is unique, there is no easy ownership of an ASP application consists of Very small way to tell which delivery method is more ben- Small implementation and monthly fees. Since an eficial to a particular airline without a compre- ASP vendor has greater bargaining power with hensive analysis. But it pays off knowing and hardware and third-party software providers, it comparing different delivery options to arrive can buy the necessary infrastructure at deeper Originally, the eMergo solution was creat- at one that will help airlines simplify and maxi- discounts that are passed onto airlines. In gen- ed to help smaller airlines gain access to mize their potential. a eral, accessing a Sabre Airline Solutions appli- technology that was only available to larg- cation via the eMergo environment can save er airlines. However, airlines and other an airline between 40 percent and 70 percent industry-related companies of all sizes Inna Kizenkova is a marketing analyst for in total cost of ownership. have chosen the eMergo solution. Sabre Airline Solutions. She can be The ASP model is here to stay. Observing contacted at [email protected].

+count it up

15 — Number of separate flights a 250 — Number of direct flights from 2.2 million — Number of traveler would take from Mt. Pleasant Paris, France, to other cities around the passengers estimated to travel across in the Falkland Islands to Wasu, Papua- world, making it the top global city for non- the Tasman this year, a significant New Guinea, which is thought of as stop flights. Paris is followed by London increase compared to 1,461 passengers the world’s most difficult air route. with 242, Frankfurt with 237, Amsterdam traveling the same route in 1940. with 192 and Moscow with 185.

1 billion — Increase to the 2,100 — Range in nautical miles of 238,000 — Number of square industry’s costs, in U.S. dollars, for the ERJ-195, the largest aircraft in Embraer’s feet in Bombardier’s new, high-volume every US$1 increase in the price of oil. E-Jets family, which has the capacity for aircraft parts distribution warehouse, 118 seats. located at the Chicago O’Hare International Airport.

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Catering to the Bottom Line

Airlines exploit sophisticated technology to heighten in-flight service while driving down costs and increasing revenues.

By Debbi Lyons | Ascend Contributor

hen costs rise faster than fares, air- The systems use integrated menu plan- Some airlines are altering or eliminating lines need methods to reign in spend- ning and future flight schedules rather than his- traditional services in which the value to the W ing. But how can a carrier reduce its torical requirements to drive savings. In addi- customer is not as high as the cost. Airlines, in-flight spending without affecting passenger tion, inventory balancing automates the trans- such as American Airlines, Delta Air Lines and satisfaction? Some innovative airlines are fer of surplus goods among catering kitchens Northwest Airlines, are removing pillows and streamlining their in-flight services while keep- to avoid unnecessary purchases of products. blankets from most domestic and some inter- ing passenger value high through creative cost The AirServ solutions can be easily integrated national flights. The Wall Street Journal report- control, joint marketing ventures and providing with an airline’s purchasing system. The sys- ed in February that American Airlines will save certain in-flight services for passenger pur- tem identifies when additional inventory is more than US$600,000 per year through this

H IGHlight Some airlines are altering or eliminating traditional services in which the value to the customer is not as high as the cost … TheWall Street Journal reported in February that American Airlines will save more than US$600,000 per year through this move.

chase. The Sabre® AirServ ® In-flight Solutions required and, based on the airline’s purchasing move. An American Airlines spokesperson told can help transform an airline’s dining and cabin agreement, automatically places the order. The Journal that many of the airline’s seats services to a more cost-effective operation Another cost-cutting measure airlines have adjustable headrests for passengers and that still provides a high level of customer care. can take advantage of is the reduction of meal that the move will result in reduced stocking overages. If managed correctly, this process is and aircraft cleaning costs. Creative Cost Control invisible to the customer but very visible on the Menu and ingredient changes can also Many airlines realize cost savings by running bottom line. Sabre ® AirServ ® Meal Ordering quickly improve the bottom line. Using Sabre ® leaner catering and cabin operations. Optimizer can be deployed as a stand-alone AirServ ® In-flight Data Analyzer enables airlines Automated inventory management can help a application or in conjunction with other sys- to evaluate the effect of menu and ingredient carrier optimize the amount of in-flight-related tems within the AirServ solutions. changes in advance through what-if scenario inventory carried in reusable items, such as The system uses real-time passenger modeling. This analytical tool consists of a sep- trays, plates and glasses. data and existing special meal requirements in arate database and a reporting interface that When deployed to automatically calcu- combination with statistical smoothing models enables airline personnel to run a number of late airline equipment needs, Sabre® AirServ ® that encompass no-show and go-show rates, pre-defined reports as well as unlimited ad hoc Equipment Forecaster uses the future sched- upgrade trends and policies, cabin curtain queries. ule to determine product needs by station, movement, and other factors to predict the Still, other airlines are finding efficien- advising catering professionals of the right necessary number of meals to be boarded for cies in streamlining their financial processes. amounts of inventory to order and stock. each class of service. This can reduce meal Sabre ® AirServ ® Billing Manager, an automated When used together with Sabre® AirServ ® overage levels to between 1 percent to 4 per- pricing and invoice audit solution, can adminis- Equipment Balancer and Sabre® AirServ ® cent and generate significant returns for air- ter 100 percent of an airline’s catering invoices. Equipment Manager, airlines can dramatically lines. In addition, the Meal Ordering Optimizer Caterers adjust the services being provided reduce the number of days they stock invento- is a completely automated, self-learning tool through a Web-enabled application so airlines ry, dropping it drastically — in some cases that can greatly reduce the resources neces- consistently pay only for services that have from as many as 30 days to only 10 days of sary to determine appropriate figures for both actually been provided at contractually agreed back-up stock at a station. the airline and the catering vendor. on prices.

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Airlines around the world have decreased companies — it increases the airline’s customer routes. The airline predicts a savings of between catering spend by up to 3 percent through service level, and it gets the supplier’s name US$20 million and US$30 million per year with automated pricing verification and by up to and products in front of a desired target audience. the move from complimentary economy service. 3 percent through automated invoice auditing. United has also begun offering goodie Air Canada has expanded its “Hospitality Caterers also benefit from the tech- bags to passengers on its premium coast-to- Service” buy-on-board offerings to all flights in nology because it results in fast, reliable coast nonstop service between New York, North America that last between 1.5 and 4.5 invoice payments. New York, and Los Angeles or San Francisco, hours. And several other airlines are consider- ing the move to food for purchase. Meals for purchase are subject not only to the traditional danger of spoilage but also raise the question of whether or not airlines are satisfying the most passengers possible at the highest revenue. The AirServ solutions buy-on-board module can help determine the number of meals to carry through a variant of meal fore- casting algorithms, which use prior purchasing behavior and passenger bookings to predict sales. In addition, the AirServ solutions may also be applied to opportunities for passengers to purchase meals during booking or check in. The buy-on-board module may be operated alone or in conjunction with other AirServ solu- tions functionality, for airlines that offer a hybrid of free and for-purchase food services. As onboard sales and food-for-purchase programs ramp up, handheld devices by com- panies such as Bristol Office Machines’ Clue Trader are becoming more sophisticated to remain aligned with airlines’ needs. Another major provider of mobile data technology, Abanco, has recently announced a partner for onboard credit card sales through its handheld devices. The handheld devices enable airlines to download updates to stock levels and allow Catering Report features an online interface where caterers can update service requirements passengers to pay with credit cards for for a given flight. The adjusted items and quantities become a pro forma invoice for flight onboard items. Orlando, Florida-based AirTran catering. Airways is ceasing to accept cash for alcoholic beverages, placing a new focus on credit card sales so flight attendants no longer have to Joint Marketing Ventures California. In addition to other amenities, pre- solicit change from other passengers. In-flight departments have access to a very mium-service passengers receive gift bags All of these innovative techniques are valuable asset: the airline’s customers. Some from New York-based Madison and Mulholland directed toward one simple goal — providing airlines are bringing services to their cus- containing items such as skin care, travel high-level service to passengers while lower- tomers at little or no cost through joint market- accessories and discounts on luxury items. ing expenses for airlines. From driving down ing ventures with companies that want access Some recent promotions include special gift operational costs and reducing inventory and to this asset, especially business- and first- bags honoring the Academy Awards ® and meal overages to what-if scenario analysis for class customers. As a cost-saving measure, Valentine’s Day. future service changes, the AirServ solutions many airlines have reduced the distribution of provide the necessary insight and automation. amenity kits — complimentary bags of items, Buy on Board No matter what an airline’s strategy, these such as body lotion, eye masks, earplugs and Airlines in North America and the United state-of-the-art systems give the carrier control socks for long-haul passengers. However, two Kingdom are continuing to add or expand food- over its entire onboard products and services U.S.-based carriers (Continental Airlines and for-purchase programs. Some airlines are experience. a United Airlines) have introduced “goodie bringing their programs in house, replacing bags” that may soon take their place. These their external caterer management. complimentary gift bags feature items such as American Airlines launched its self-man- fragrance, skin care, books and gourmet aged buy-on-board program in February and desserts at low or no cost to the airline. recently expanded the hours during which it is In February, Continental Airlines began available — 5 a.m. to 9 p.m. daily — on more than offering goodie bags by Premier Bags to first- 650 domestic routes. The airline now offers six class customers on transcontinental flights from different sandwiches for US$5 and a US$3 Newark, New Jersey, to four West Coast cities. snack box, and it plans to offer morning varieties. Debbi Lyons is marketing manager for The marketing partner will provide a new selection Northwest Airlines serves snacks and Sabre Airline Solutions dining and cabin of items every quarter. The agreement benefits sandwiches at similar prices on all flights with- services. She can be contacted at both the airline and the consumer product in the United States and some of its foreign [email protected].

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Forecasting the (Revenue) Future

Airlines can forecast revenues with considerable accuracy to help make timely corrective marketing actions and enhance cash management.

By Peter Berdy and Ana Maria Escobar | Ascend Contributors

ow more than ever, banks, lenders, stantly, is used to calibrate and initialize the special tables that link the fare basis code to shareholders and other stakeholders revenue management tool and as an input for the net fare value. Nare eager to find answers about the forecasting demand. In the revenue manage- To correct these imperfections and use future state of airline finances — just like exec- ment system, this data usually gets cleansed the data for forecasting, TCN needs to be com- utives who run the airlines. Prior to dramatic to remove outliers and any unusual activity. pared with historical revenue accounting data swings in the oil market, management had The revenue management tool also requires to establish a relationship and create adjust- been able to predict costs within a fair amount fare data for the discount allocation process. ment factors at different levels of detail of accuracy. However, that capability has rarely Depending on the system and airline, fare data depending on the forecasting need. TCN also been the case for revenues, especially passen- used for the revenue management system can needs to be adjusted for known pricing activity ger revenue. be taken from several sources, such as histor- that may occur during the period of the future Yet, airlines have the capability to fore- ical data, published fares, weighted average forecast. cast revenues with accuracy by using revenue fare by booking class, and origin and destina- management techniques to successfully fore- tion. Therefore, it may not reflect the actual Tools cast, track and calibrate close-in passenger rev- fare paid by the customer. Revenue management tools, such as the sys- enues covering a future period of approximate- TCN, which contains a lot of valuable tems within the Sabre ® AirMax ® Revenue ly three months, which is the crucial timeframe data and is usually current, is the second data Management Suite, contain powerful software for taking fare, sales and marketing actions. source. It contains both passenger counts and used for maximizing total revenue by setting The capability to accurately forecast fares for ticketed passengers. TCN data com- inventory controls at a defined level — flight, close-in revenue enables airlines to get prises information from tickets that have been departure date, cabin and booking class. The advance notice to see if they are tracking to issued for use during future travel periods. It forecast and optimization can be completed by their revenue plan, and the information can be can also be used to estimate the final average leg, segment, or origin and destination level. used to take timely corrective marketing fare for a future period. This estimated average The tools require calibration, including identify- actions as well as for cash management. final fare combined with the passenger ing and setting parameters, such as season demand forecast from the revenue manage- assignments and calendars, to ensure quality Methodology to Project Revenue ment system will result in forecast revenues. data is used and accurate fares are properly Typically, an airline’s revenue management To estimate the final average fare for a fed into the system. team is equipped with data and tools to get future period, it is necessary to create a refer- Each revenue management system specific and important tasks completed: set- ence fare curve using historical TCN data. This uses different statistical models to forecast ting the proper inventory levels (booking class- curve is used to establish the change that demand. For flights with similar behavior, mod- es) to optimize passenger revenue and estab- takes place in the average fare over time; the els create a correlation between time and the lishing overbooking levels. This work is con- curve uses the historical relationship of the booking process. The booking activity for ducted by a staff of trained analysts who are average fare for tickets sold prior to a baseline future flights is then combined with the mod- focused on setting detailed inventory and over- period and compares it with the final average els to predict the final demand. booking levels as a matter of their day-to-day fare in the same baseline period. Typically, the forecast demand is only job responsibilities. By using this curve, the historical fare used to establish inventory levels by booking By using all three components — data, variation can be applied for future months and class and overbooking levels. Revenue man- tools and a trained team — an airline has the assumes they will display similar behavior as in agement tools have not been used to forecast resources necessary to develop accurate fore- the past. The methodology takes the current revenues for airlines. However, airlines can casting for passenger revenue for the near term. snapshot of the TCN average fare and applies readily use the output from revenue manage- the factor from the average fare curve based on ment systems to forecast passengers, which, Data the number of days to the final forecast period. when linked to a good fare source, can pro- The data itself is of key importance. There are A key factor to consider, however, is that duce an accurate revenue forecast. two data sources that are often readily avail- TCN does not include data from certain distrib- Like all forecasting models, the output able at an airline and can be used for forecast- ution channels. Also, for groups and wholesale from revenue management systems will con- ing revenue. They are passenger booking data travel, fares on the ticket are bulk fares, which tain errors, presenting the need for the tool to and ticket control number data, which includes are different than the actual net fare received be adjusted and benchmarked against recent the fare value. by the company. Therefore, some TCN data historical information. The error will be larger Booking data, which is updated con- needs to be matched to the net fare through when using the forecast at a detailed level,

54 ascend products

such as by flight, by day. The error will be ically composed of like markets that are should be objective so errors, issues or items smaller when there is a group of flights or at an grouped together, such as those in a similar that are discovered can be freely discussed and entity level with a large group of similar flights. geographical region or those that share com- reviewed internally before presenting it to exec- The measurement of this error enables airlines mon passenger characteristics such as discre- utives. The internal review of the forecast to adjust the forecast provided by the tool and tionary markets. should include pricing and revenue manage- more accurately estimate passenger demand. Airlines can also validate the revenue ment personnel as well as members of the air- forecast by using adjusted TCN data containing line’s sales team. Topics of discussion during Trained Staff passengers and fares. The validation data is the internal meeting will likely cover changes in Application of analytical skills is the final and grouped by entity and is used to create two consumer and competitor behavior and possi- most important aspect of forecasting passen- reference curves — a historical passenger ble reasons to explain changes in the forecast. ger revenue. Trained revenue management curve and a historical average fare curve. The For the executive review, there should analysts know what is going on in their creation and use of the passenger curve is sim- be a hierarchical process that analyzes the assigned markets or region. In addition, they ilar to the average fare curve. The actual aver- monthly revenue forecast on a system level, develop a good feel for trends and usually age fare and ticketed passengers from TCN then on an entity basis and more rarely on a refine their skills over time. are compared with the historical curves as an market level. The review should include a com- parison to the prior week’s estimates to see how the forecast is changing, explaining varia- Average Fare Curve tions between estimates. Often, the weekly forecast is bench- marked against a baseline, such as the airline’s monthly revenue budget. A simple spread-

103% sheet can be used to show the latest forecast e

r results and maintain a running history. The a f

l executive review also needs to be conducted a

n in an open-minded discussion as a process of i f 102% f discovery as new activities unfold in the air- o

e line’s business. g

a The weekly update should point out sev- t

n eral factors, including demonstrations that the e 101% c

r level of accuracy is within acceptable tolerance e

P levels. As the weekly review process contin- ues, it will become more accurate and is likely 100% to be relied on with consistency. 07 14 21 28 35 42 49 When the revenue forecast flashes Days prior to departure signs indicating changing conditions, whether these are based on seasonality, economic Specific adjustment factors are used to develop the final revenue forecast. Assuming the events or market action by the airline or its fare 30 days before departure is US$200, the estimated average fare will be US$196 competitors, airlines can be prepared to (US$200/1.02). This curve will vary by market and season. respond. The forecast can also be used as an indicator to signal possible needs for fare and sales actions, and it can also be used to track There are certain market facts that a rev- adjustment to estimate final passenger rev- results of these activities. enue management tool does not recognize enue; the validation process does not use the In addition, the revenue forecast can be since it works with historical data. Some exam- revenue management forecast demand but expected to change as it is being tracked over ples include a new entrant, recent fare sales or instead uses TCN data to forecast passengers. time. This does not mean original estimates special events that did not occur in the past. These two forecasts produce separate were incorrect; there may be good reasons The analyst adjusts the demand to establish results on different levels (by segment from why the revenue estimate has changed, such the proper booking class levels for that specif- the revenue management tool and by entity as fare sales and competitive actions that can- ic occasion. Frequently, analyst adjustments using TCN), and they can be prepared rapidly. not be foreseen. The key is to provide an accu- are based on market knowledge rather than on If the comparison of the detailed forecast pro- rate revenue estimate and accompany it with numerical data or statistics. duced by the revenue management tool and explanations of the variance. Simply put, if it When analysts adjust demand, they are the validation forecast are similar, the forecast can be measured, it can be managed. also modifying the output of the system. This should be reasonably accurate. Comparing the Utilizing forecasts should provide a good is an important element since the output is forecasts will point out differences that can be early warning system. The forecast can pro- used to forecast the revenue of the company. adjusted to get weekly forecast consistency. vide insights and can be used as a guide for By using well-trained and focused analysts, the decisions affecting revenue. a forecast should contain greater accuracy. Using the Revenue Forecast Once committed to the revenue forecasting Validating the Revenue Estimate process, which should be updated weekly, air- Peter Berdy is a partner and Using revenue management systems to fore- lines can use it as a tool to measure and man- Ana Maria Escobar is a pricing and cast passengers by market, combined with age the business as well as a source to provide revenue management specialist for adjusted TCN fares by market, will provide a information to the board of directors, investors Sabre Airline Solutions Consulting. total passenger revenue estimate. The rev- and lenders. They can be contacted at enue forecast can be grouped into different A process needs to be in place that mea- [email protected] and levels, such as an entity basis. An entity is typ- sures the quality of the forecast. This process [email protected].

ascend 55 AFRICAN SAFARI CONTINENT’S CARRIERS ON THE HUNT FOR NEW OPPORTUNITIES

Many Africa-based airlines are modifying their operations to leverage the continent’s growth potential.

By Maher Koubaa | Ascend Contributor

nvestors and corporations including air- These carriers are conquering the African ing their business plans to conquer or regain a lines are beginning to take great interest sky by establishing new commercial strategies prominent position in the African market. in the African continent, with its many and/or alliances and partnerships, reflecting a But several questions still remain: Why is areas for growth potential. more attractive African marketplace. the African market becoming more attractive? I Like their counterparts in Europe and the Several carriers such as British Airways, Are Africans traveling more within and outside Gulf, airlines based in North and South Africa Lufthansa German Airlines, Air France/KLM, the continent? Is there a more prosperous and seek opportunities to position themselves in Kenya Airways, South African Airways, Royal Air secure business environment? Are regional and the African sky, which was historically restrict- Maroc, Afriqiyah Airways, Emirates, Air Algérie, small companies able to withstand pressure from ed or limited to major or flag carriers. Tunisair and Air Senegal International are tun- major network alliances? Is there a possibility

56 ascend regional

that Africans from north to south can agree on ed 15 percent. Capacity expansion was at 10 Maghreb (Northwest Africa) as well as Europe, building strategic alliances or commercial part- percent, resulting in passenger load factors the Middle East and North America. Departing nerships to combat this pressure? averaging 65 percent. Casablanca, today the national flag carrier flies The region’s carriers hope the changing A similar growth pattern was observed directly to Mauritania, Senegal, Ivory Coast, local industry conditions will mark the end of recording a substantial transversal traffic Guinea, Mali, Gabon and Niger. the onerous trip conditions that require pas- increase among African countries that previ- The multiplication in flights offered and sengers traveling from one African region to ously had no trade links. greater frequencies have made it possible to another to connect through Europe. The increase in traffic and demand is not procure substantial improvement in traffic for Last year, the continent’s international the only reason for the attractiveness of this Royal Air Maroc. passenger traffic in terms of revenue passen- continent. Africa is still protected from the ills The number of passengers transported ger kilometers rose approximately 10 percent of the North American and European market- to Senegal increased by more than 61 percent. and cargo recorded strong growth that exceed- places, such as reduced yields, industry con- The same increase was reported for the Ivory

Operating its fleet of Airbus A320s, Afriqiyah Airways flies to 14 destinations from its Tripoli hub. The airline’s destina- tions are linked, through its home base, to several European cities, including Paris, Brussels, Geneva and London.

London Brussels Geneva Paris

Tripoli

Photo courtesy of Airbus Ouagadougou Royal Air Maroc acts as a strategic and Niamey Khartoum technical advisor in an initiative to launch Bamako N’djamena Cotonou several new central African carriers for six Lagos Abidijan of the region’s states. Accra Lome

HIGHlight solidation, capacity reduction and the incursion Coast. For other markets, the growth regis- of low-cost operators. tered between 10 percent and 26 percent. There is a significant Yield is relatively high in Africa despite The activity recorded showed a jump of general impressions, and elasticity is low. 120 percent from 2000 to 2004 — a growth of amount of revenue A significant amount of African demand 25 percent a year, reaching a turnover of 550 is being spilled; African carriers attempt to million MAD (US$62 million) last year. serve more destinations with fewer pieces of In 2004, transit traffic departing Africa improvement available equipment. via the Casablanca hub increased by more than There is a significant amount of revenue 55 percent compared to 2003. if the African carriers improvement available if the African carriers Passengers coming from and heading to improve business practices, which represents Africa via the hub to the Maghreb, Europe and improve business prac- an opportunity for the region and for individual North America represented 60 percent of the carriers. airline’s traffic, up 10 percent from the previ- tices, which represents The current condition of the African mar- ous year. With the Casablanca hub, this perfor- ket represents an opportunity for local carriers mance places the carrier in international com- an opportunity for to penetrate these underserved and undevel- petition with other European hubs. oped markets. To offer a world network departing Africa, Royal Air Maroc signed a codeshare the region and for Royal Air Maroc agreement with Emirates for continued flights Recently, Royal Air Maroc reported record traf- to Dubai. Royal Air Maroc also has a codeshare individual carriers. fic in Africa thanks to boosting flights on that agreement with its subsidiary Air Senegal continent by up to 25 a week. The Royal Air International. The codeshares have helped the Maroc network to Africa is centered on the airline expand beyond Dakar using Air Senegal Casablanca, Morocco, hub as a platform for International and from major African markets transit from other parts of the continent to the to Dubai via Emirates.

ascend 57 regional

After launching its low-cost carrier, passengers, the airline has interline and code- African airlines have limited operations Atlas-blue, and successfully creating Air share agreements with several European air- to the Middle East and Asia, which may Senegal International, Royal Air Maroc contin- lines to ensure passengers get to their destina- account for the presence of many foreign car- ues its efforts to establish a series of new cen- tions in comfort and with less difficulty. In riers attempting to fill the void in this growing tral African carriers under the provisional hold- Africa, candidate destinations include Entebbe, market. There is also a need to form partner- ing company Air Cemac International. Uganda; Lusaka, Zambia; Douala, Cameroon; ships among African airlines or in association The project involves establishing airlines Nairobi, Kenya; and Kano, Nigeria. In Europe, with Middle East or Asian carriers to increase for six Central African states: Chad, Cameroon, potential destinations include Amsterdam, The operations to this rapidly developing market. the Central African Republic, Congo, Equatorial Netherlands; Rome, Italy; Manchester, Despite the signing of a number of open Guinea and Gabon. The initiative is being pur- England; and Vienna, Austria. The airline is also skies agreements between some African sued by the economic arm of these states, considering complementary cities in the states and the United States, operations to the known as CEMAC, with Royal Air Maroc acting Middle and Far East. United States are limited, resulting in most as a strategic and technical advisor. The ven- passengers still transiting through Europe. ture will cover domestic operations within the Today, there are significant opportunities for CEMAC countries, services between the coun- HIGHlight cooperation among African carriers to develop tries and the immediate surrounding African the U.S. market via some African hubs. states, plus intercontinental routes. African airlines must be restructured and Carriers that have put repositioned to take advantage of these oppor- Afriqiyah Airways tunities. Carriers that have put in place com- Afriqiyah, the old name of North Africa, means in place commercial mercial structures and strategies in tune with African in Arabic. Afriqiyah Airways is a young the rapidly changing operating environment are airline working to create a pan-African network, structures and strate- already reaping substantial benefits. linking Africa to the world. The carrier chose to Rather than working in isolation, African compose its logo and identity theme using the gies in tune with the carriers need to build alliances among them- numbers 9-9-99, denoting the proclamation of selves to withstand the pressure from interna- the African Union by the African Heads of rapidly changing tional alliances. They should also jointly exploit State Summit held on Sept. 9, 1999. future growth opportunities, taking advantage Afriqiyah Airways operates a fleet of of the lucrative African markets. One of the Airbus A320s on its 15 destinations. The operating environment objectives of the African Airlines Association is African destinations include Lome, Togo; to increase the cooperation among the carriers Cotonou, Benin; Abidjan, Ivory Coast; are already reaping while promoting the development of safe, eco- Niamey, Niger; N’djamena, Chad; Bamako, nomical and efficient air transport services. Mali; Khartoum, Sudan; Ouagadougou, Burkina substantial benefits. Other than collective procurement, a concept Faso; Accra, Ghana; and Lagos, Nigeria. The such as Arabesk — an Arab Air Carriers African cities are linked through the Tripoli hub Organization initiative to develop a collective to European cities, including Paris, France; network for member airlines — may be beneficial Brussels, Belgium; Geneva, Switzerland; and for these carriers to provide better service to the London, England. Collective Network and Route African traveler. Most of these carriers comple- For the past two years, Afriqiyah Airways Development ment each other, and the real competition comes recorded a year-over-year traffic increase There is need for African airlines to develop from network carriers. None of the carriers rep- exceeding 25 percent, mainly due to its attrac- routes to additional destinations while consoli- resent an excellent fit for an alliance. Cooperation tive connections and better trip conditions. dating their networks. among the region’s carriers will be a plus. a Building on its expansion success, Currently, most operations to South Afriqiyah Airways plans to expand its opera- America are routed through Europe. Direct Maher Koubaa is an account director for tions to more prominent African and European flights through some African hubs should facil- the Europe, Middle East and Africa region destinations and to consolidate routes using itate trade with these valuable partners in for Sabre Airline Solutions. He can be larger aircraft. To facilitate travel needs for its South America. contacted at [email protected].

58 ascend The low-cost/hybrid carrier model has begun to take root in Latin America, forever changing the region’s industry.

By Marcela Lizárraga | Ascend Contributor

he low-cost principle has made its way ment leases and distribution) are either in U.S. the original low-cost model and adapted it to to Latin America, and in some count- dollars or euros. Nevertheless, against all odds, fit local conditions. In general, low-cost/hybrid ries in the region, it has already set some airlines are doing all the right things not carriers are characterized by flying from sec- interesting industry standards. only to survive in this unforgiving industry but ondary, less-congested and less-expensive air- Latin America’s airline business is noted to achieve amazing results and set the leading ports. In contrast, most Latin American LCCs for being overregulated, overpriced and strong- paths for others to follow. generally fly from primary domestic or interna- ly government subsidized. It’s a region where What is so special about their business- tional airports, as most countries in this region airlines’ revenues are driven by local and deval- es, and what are they doing differently than in lack necessary infrastructure to have alternate uated currencies, and main costs (fuel, equip- the past? Latin American carriers have taken options. One thing is for certain, they’re flying

ascend 59 regional

to a new “Latin beat,” closely evaluating their and tradition. the region is that they must maintain a high strategies and successfully lowering their Building a strong brand; level of service to attract local travelers. Taking operational costs. Incorporating best practices that fit market into consideration that main competitors for Low-cost and hybrid carriers are gaining strategies; targeted high-density markets are first-class a foothold in Latin America as they are around Defining clear segments; bus services with top-of-the-line equipment the world. The financial performance of GOL, Targeting travelers directly in high-density, manufactured by Mercedes-Benz and Volvo, for example, the leading low-cost carrier in the underserved markets; the airlines must maintain a high level of region, compares favorably with other leading amenities. These competitors account for LCCs around the world, such as Ryanair, jetBlue, Ticketing more than 98 percent of potential travelers in Southwest Airlines and WestJet. During the Adopting a strong e-ticketing program despite those markets, which is a significant opportunity first half of the year, GOL added nine aircraft low overall penetration in Latin America; for low-cost/hybrid carriers to pursue new busi- and four new destinations. The airline also ness and look for creative ways to attract announced plans to help launch an LCC in Check in these passengers. The opportunity definitely Mexico. Globally, statistics show that in 2001 Keeping the process simple and easy; exists; it’s just a matter of being able to operate low-cost/hybrid carriers accounted for 6 per- Providing several self-service options, such at a low enough cost to lure the demand, cent of worldwide available scheduled flights. as on-line or kiosk check in; specifically from cost-conscious leisure travelers Today, penetration has reached 12 percent and and small- to medium-size corporations that accounts for more than 15 percent of all avail- Distribution would often use other means of transportation. able seats; one in every eight scheduled flights Reaching high-end travelers through Internet- Quality is not only measured by the level globally is from a low-cost or hybrid airline. driven or own-agency portal sales: of in-flight services, but also in every area of • Latin American airlines are striving to customer service that can help retain a current The Simpler the Better achieve up to 80 percent booking rate on passenger or attract a new one. The Latin beat Latin American low-cost/hybrid carriers have their Web sites. is evident from the moment the customer adopted the same middle name as their coun- Continuing to challenge traditional global dis- makes a reservation, whether online or in per- terparts in the United States and Europe — tribution systems: son, by the simplicity of the process and by the simple — and they are taking that notion to the • Local airlines maintain minimum to no Latin-American touch — focusing on providing limit in every way they can in areas including: presence on GDSs. customers with exceptional service through • They engage in creative alliances and solu- the entire travel experience. Fleet tions with GDS partners. Image is also an important element that Migrating to or starting operations with a reflects quality. Some airlines, such as TAM single, modern fleet type, providing substan- Cabin configuration with its unique image of in-flight personnel, tial economies of scale and efficiencies in Operating a single class of service as a gen- have made a trademark of their image, paying areas such as maintenance, crew, training eral rule for domestic routes; utmost attention to details that equate to high costs and fuel optimization; standards — spending months training cabin Maximizing the use of aircraft: Outsourcing personnel how to present themselves and ser- • During the first quarter, GOL Linhas Using third-party experts for areas such as vice passengers. Aéreas Inteligentes, ranked last year by call center, ground handling, information Airline Business as the most profitable air- technology or any other service that can be Crossing the Border line in the world, reported an average utiliza- more efficiently and effectively managed Mexico, like Brazil, has the right market ele- tion of 14 hours per day, among the highest externally; ments for a low-cost carrier, and some airlines publicly reported worldwide. and new investors are tapping into this oppor- • LAN reported up to 17 hours per day for Frequent flyer programs tunity. Click, which emerged from AeroCaribe freighters last year. Taking a “one-solution-does-not-fit-all” as the LCC offshoot of Mexicana, has recently • TAM Brazilian Airlines has significantly approach: taken off and promises to lead the way — if, of increased utilization of its fleet, operating its • Some airlines, such as GOL, elect not to course, it is able to truly maintain a low-cost aircraft more than 11 hours per day in have a FFP. operation while still keeping connections with August, up from 10.6 hours in the second • Some, such as LAN and Click, offer FFPs Mexicana. quarter and 8.7 hours in the second quarter through their alliance partnerships. Other quasi LCCs in Mexico, such as of 2004. • Some carriers, such as TAM, have a very Avianca, AeroCalifornia, Aeromar and Azteca, strong program. will have to pay special attention to their strat- Fare structure egy and cost structures to stimulate demand Offering significantly lower fares (attractive Asset utilization and continue to compete effectively. enough to shift travelers) than traditional Stimulating demand to increase load factors; Mexico is opening doors to new airlines; Turning aircraft quickly; entrants, enabling international carriers to Allowing minimum to no overbooking; Employing strategic, targeted maintenance; enter this land of interesting opportunity. Implementing efficient ground processes; These entries will finally create a more healthy Network competition in a country where traditional car- Operating direct, point-to-point service; Finances riers (Mexicana and Aeromexico) dominate Trading publicly in the United States as well more than 70 percent of the market. Benefits Marketing as the local country to increase financial from these new entrants will not only be mea- Marketing straightforwardly with visible and strength (i.e., TAM and GOL). sured in terms of lower fares, more options tangible differentiation: and frequencies, but they will also help stimu- • In May, TAM implemented a new market- Quality is Key late domestic economy and tourism, making it ing strategy focusing on the principles of A visible differentiator of low-cost and hybrid more attractive to travelers to fly within nationality, leadership, competitive pricing carriers in Latin America from those outside of Mexico, since today it may be cheaper to fly

60 ascend regional

Photos courtesy of Airbus and Boeing

Top Latin American carriers such as Copa, LAN, TACA and TAM are leading a resurgence of the region’s air transportation industry.

abroad than domestically. It is estimated that Expansion Plans or add frequencies to existing ones. In their air traffic in Mexico could increase to 50 million Low-cost/hybrid carriers in Latin America are quest to expand, some airlines are reaching passengers per year from the current 18 million. here to stay, and they plan to grow, either unprecedented agreements to fly domestic GOL is not the only carrier with plans to domestically or within the Latin American routes within countries previously impossible enter the Mexican market; others are already region. Such is the case with GOL in Brazil, to penetrate (as Grupo Marsan’s Aerolineas del lined up. El Salvador-based TACA recently with plans to double capacity by the end of Sur entered Chile in late 2004, LAN is now able announced alignment with strong Mexican 2009 to expand within Brazil, and the airline is to fly within Argentina, and GOL and TACA are investors, including Televisa, Mexico’s largest also exploring opportunities to start business serving Mexico). This has already resulted in television company and businessman Carlos and export its successful model in other high- significant growth; reports show an intra-mar- Slim, to launch low-cost carrier Vuela density countries such as Mexico. ket increase of almost 12 percent in revenue Compañía de Aviación. LCC/hybrids are also looking into strength- passenger kilometers in May, 25.1 percent ABC Interjet, as Vuela, plans to take off at ening their intra-Latin American alliances to higher than the same period last year. the end of the year from Toluca, an airport about expand their horizons, and LAN’s rapid expan- Airlines, especially in Brazil, have adopt- 40 miles from Mexico City, Mexico, which has sion in the region continues to challenge other ed their models and have experienced very the potential to attract affluent travelers. airlines to fly to new skies in neighbor countries good results attracting customers from exist- ing airlines and creating new demand. Carriers such as TAM and GOL have demonstrated it can be done, even in one of the most regulat- ed countries in the world. Industry Benchmarks — 2Q051 Capacity and Network Expansion An excellent plan of action, focus to seg- ment the market they want to tackle and t s Number of Flights/Day unstoppable leaders with a great team to exe- e RPK (MM) t r i e w e Operating a J h cute, as well as strong financial support, are u

t +12.2% t l n s L u a B +11.8% 350

e Aircraft t O y o key elements necessary to succeed in these e W

R 312 S G j (monthly average) underexploited Latin American markets. EBITDAR (US$ MM) 3122 5712 1,318 266 1292

% The results and best practices set by EBITDAR (US$ MM) 37.1% 34.4% 19.6% 19.7% 13.4% 3 .

2 2 2 7 Net Income (US$ MM)155 331 409 30 –26 5 some Latin American carriers, such as LAN, % +14.3% + 6 Net Income Margin 18.4% 20.0% 7.0% 2.2% –2.7% 32 260 . 4 TAM, GOL, Aerolineas Argentinas and Copa, EPS Growth3 20.0% 15.0% 10.0% 20.0% 20.0% 3 + which are now flying with a Latin beat, are set- P/E 20054 (x) 13.4 20.3 24.6 91.3 27.3 28 P/E 20064 (x) 11.2 17.8 23.3 51.2 18.4 ting industry standards and achieving world- 22 5 ASK (MM)

PEG Ratio (x) 0.6 1.2 2.3 1.1 0.8 % wide recognition. 5 .

5 Taking into consideration Latin American 4 +13.1% 1. LTM June ’05 (GOL, SouthWest, jetBlue, and WestJet); + LTM March ’05 (Ryanair) gross domestic product, disposable income, 2. Translated to U.S. Dollars at average rate and significant price differences between land %

US$1.00 = R$2.729, 1.242, and CAD$1.2787 4 .

= 9 and air transportation, Latin American carriers 3. 5-year EPS Growth—SourceC Yahoo Finance 4 4. P/E = At Stock Price as of July 29 and EPS supplied + have to fly as cost efficiently as possible to be by First Call able to sustain discounted prices. 5. 2006 P/E divided by 5-year projected EPS growth The new way of flying at a Latin beat is here to stay, and it will be fascinating to see how strong the beat becomes. a The financial performance of GOL, Latin Despite operating in one of the most America’s leading low-cost carrier, is in regulated countries in the region, GOL line with other leading LCCs around the continues to rapidly increase revenue, globe, indicating that GOL has successfully daily departures, available seat miles and adapted the low-cost model to the Latin aircraft utilization. With plans for contin- American marketplace. ued growth, the LCC expects to double Marcela Lizárraga is vice president of Latin capacity by the end of 2009. American sales and account management for Sabre Airline Solutions. She can be contacted at [email protected].

ascend 61 SMALL COMPANIES BIG B US

By developing a relationship with small and medium businesses, Delta Air Lines has tapped into a valuable growth market, providing an additional revenue stream.

By Rick Dietert | Ascend Contributor or years, Delta Air Lines used its thriving Realizing it could capitalize on this SkyMiles individual loyalty program to niche market, Delta decided to launch a free Fmaintain repeat business, particularly corporate loyalty program, called SkyBonus®, from high-yield business travelers. And it that would build brand loyalty among com- had also successfully built contracts with panies that spend less than US$500,000 a numerous large corporations. But Delta real- year in travel with Delta. The carrier first ized it had a gap — the thousands of small launched the program in 1999 in Europe and medium companies that, combined, because corporate booking tools had not spend significant amounts of money on yet become popular there and the carrier travel each year. So, Delta decided to target also wanted to increase its market share in this niche by creating a hybrid of its loyalty the region’s business segment. and corporate programs tailored specifically The program, subsequently expanded for these smaller businesses. to the United States, has proven successful, Although many large companies had airline officials said. Today, more than installed online corporate booking tools that 25,000 companies in 13 countries partner enabled their employees to search for the with the airline in the SkyBonus® program. lowest available fare or special negotiated The SkyBonus program is designed to fares with specific airlines, Delta realized a reward a company that encourages its large portion of smaller companies lacked employees to travel on Delta flights. As the such technology despite, in many cases, hav- company’s employees travel on the airline, ing substantial travel budgets. These small to the company accrues points based on the mid-sized companies didn’t have the volume value of the flown revenue that can be of business travel to negotiate the special redeemed for future travel or benefits by the discounts available to large corporations, company’s employees or clients. Meanwhile, and they also could not justify the expense of the individual traveler continues to earn specialized corporate booking solutions. individual frequent flyer miles for each trip. I NESS

Although, in effect, Delta pays double Reporting capabilities to show user activ- points for such trips, the airline benefits by ity by company or country/market, increasing higher-margin business travel. Communicating special promotions by e- Because business travelers typically mail message or short message service, spend more than leisure travelers, if Delta Marketing messages by country/market can attract and retain customers from these via application text or iFrames with exter- smaller companies, it more than offsets the nal content. cost of providing redeemable points to both The Corporate Loyalty system, which the company and the individual. is integrated with Delta’s corporate Web site, SkyBonus points can be redeemed for keeps track of all points/credits allocated to 19 different types of awards including free the companies participating in the SkyBonus tickets, flight upgrades, Crown Room Club® program. The participating companies gen- memberships, Silver Medallion® program erally specify a program administrator who is status and in-flight courtesy coupons. Delta responsible for checking their account status also allows SkyBonus members to purchase and determining how their tickets through their preferred channel — the points/credits are traditional or online travel agents or on the air- redeemed, which is also line’s Web site, delta.com — using the com- handled through the pany’s unique SkyBonus number. And, by system. The system, aligning with these growing companies, Delta which supports multi- can form a relationship that has the poten- ple languages includ- tial to expand as these companies increase ing English, French, their travel expenditures. As such compa- German, Italian, Spanish, nies add employees, more traffic is steered Portuguese, Hungarian toward Delta. And if some of the companies and double byte lan- increase their travel budgets significantly, guages such as Chinese they could qualify for corporate accounts. and Japanese, also To ensure that it could be run effi- provides tools for Delta ciently and cost effectively, Delta sought personnel to adminis- leading technology to manage the ter the business rules SkyBonus program. Delta selected the and Web content. Delta Air Line’s SkyBonus Sabre ® Corporate Loyalty System, a robust According to Delta officials, using the corporate loyalty pro- Web-based application that manages the Corporate Loyalty system has kept the cost gram, powered by the entire corporate loyalty program. Some of of running the SkyBonus program to a min- Corporate Loyalty system, the basic features of the application include: imum, enabling the airline to recoup its provides smaller compa- Managing company profiles, including investment in the system quickly. By nies with an easy-to-use, enrollment and traveler profiles, enabling Delta to align with growing com- Web-based graphical user Providing customers access to their panies, the system provides the foundation interface for redeeming accounts so they can view their current for a program that offers a valuable revenue 19 different types of balance, stream. a frequent flyer awards. Calculating points based on actual net flown revenue from processed tickets, Rick Dietert is an account director for Tracking of points/credits received and Sabre Airline Solutions. He can be redeemed by each corporation, contacted at [email protected]. company

Talking Technology With … BARRY SMITH, CHIEF SCIENTIST, SABRE HOLDINGS Robust Airline Fleet Assignment

fleet assignment model, or FAM, is Through fleet assignment models that incorporate used by many airlines to match aircraft A to flights to maximize operating profit. Two prominent carriers — American Airlines station purity — limiting the number of fleets that and Delta Air Lines — have reported that the use of fleet assignment models can increase serve each station — airlines can better address crew, annual profits by more than US$100 million. Fleet assignment models are part of a multi- maintenance and operational issues. step process that creates an airline’s operating plan, refines it and ends with its execution. The quality of the plan and the profitability of an air- original plan. The cost of recovering from Airline Fleet Assignment Modeling line can be further improved if fleet assign- schedule disruptions is affected by the The airline fleet assignment problem has been ment models anticipate and produce solutions opportunities to swap aircraft and/or crew. a topic of academic and industrial interest since favorable to subsequent planning and opera- Commonality in fleet types serving each sta- at least 1955. The most basic model maxi- tional processes. The processes affected by tion increases the opportunities for swaps mizes airline operating profit subject to a few fleeting decisions include: and can increase airline dependability and constraints, including: Crew scheduling — Fleet assignment solu- reduce the cost of disruptions. Cover — Every flight leg must be assigned tions that include fleets serving a smaller Initial fleet assignment formulations did exactly one fleet type, number of stations with greater frequency not anticipate the impact of fleeting solutions Balance — Aircraft cannot appear or disap- provide more flexibility for crew assignment on the subsequent planning and operational pear in the network, and can reduce crew costs. processes. Our research group at Sabre Plane count — For each fleet, the total num- ber of aircraft on the ground or in the air at any point in time cannot exceed the total HIGHlight available. While fleet assignment models added By imposing purity and reducing aircraft disper- significant profit to American and Delta, the model scope was initially limited to the capaci- sion in the network … carriers can save up to ty planning process. Significant improvements have been made to make fleet assignment US$30 million a year. solutions more maintenance and crew friendly. These fleet assignment formulations typ- ically assume that the schedule will be flown as planned, which rarely happens. Airline opera- Aircraft maintenance — Airlines must pro- Holdings developed an approach to address tions are frequently disrupted by unplanned vide equipment, spare parts and qualified the crew, maintenance and operational issues events such as airport capacity reductions due mechanics to operate various aircraft types through station purity, limiting the number of to weather, ATC delays and mechanical prob- at each station; limiting the diversity of air- fleets that can serve each station. This makes lems. And changing conditions such as varying craft serving each station can reduce main- the FAM problem harder to solve, but working demand can result in airlines choosing to alter tenance costs. with our academic partners, we developed a the schedule. Depending on the number and Operations — Airline schedules are rarely computational approach that is efficient severity of disruptions, a significant percentage operated exactly as planned, and airline oper- enough to incorporate station purity into large of airline flight operations can be affected. For ations are disrupted by weather, mechanical FAM problems. The solutions achieved with example, in December 2000, 33 percent of all and air traffic control problems. As a result, this approach are robust relative to crew plan- U.S. flight arrivals were delayed by more than aircraft and crews are reassigned from the ning, aircraft maintenance and operations. 15 minutes.

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By imposing purity and reducing aircraft dispersion “in the network, we estimate that U.S. domestic carriers can save up to US$30 million a year.”

A plan that is optimal with respect to hub connectivity, resulting in operations with purity provides more opportunities for crew expected conditions may not be optimal or fewer cancellations and delays. move-ups and swaps at the spokes. Since fam- even feasible in actual operation. Fleet assign- Most recently, we have pursued station ilies are defined as crew compatible, there is no ment solutions can affect the time and cost purity as a method to increase FAM solution reduction in flexibility by having purity at the required to return to planned operations. We quality. family rather than at the fleet level. To support have supported research efforts at the routine and ad hoc maintenance, airlines must Massachusetts Institute of Technology to Station Purity ensure ground equipment compatibility and develop an aircraft routing model that encour- Station purity limits the number of fleets serv- stock spare parts as well as have appropriately ages overlapping routes in the solutions so air- ing a given station. Airlines can impose purity qualified mechanics for each equipment type craft have more swap opportunities in the by fleet or family. A family is defined as fleets serving a station. There are many systems, event of an operational disruption. Partnering that are crew compatible. For example, 737- parts and procedures common to fleets within with MIT, we supported the development of a 300 and 737-800 are crew compatible and are a family. Since purity reduces the number of strategy to layer the schedule into relatively contained in the same 737 family. families serving the typical spoke station, there independent sets of flights so operational dis- Imposing purity provides benefits in plan- is a corresponding reduction in parts and main- ruptions can be dealt with in one layer without ning, operations, maintenance and capacity tenance costs. One U.S. major carrier estimat- spreading to others. These robust solutions swapping. From a planning perspective, purity ed that it cost approximately US$500,000 per significantly reduce passenger delays and dis- at a spoke provides more flexibility in crew year to add a family type to a station. Some air- ruptions compared to traditional fleet assign- scheduling; there are more outbound options lines swap equipment to match capacity to ment solutions. We also supported research at for each inbound crew. As a result, the addition- demand. This is typically done within crew-com- Georgia Tech to develop a FAM formulation to al costs associated with long layovers and dou- patible families. Purity at the family level does increase operational robustness by reducing ble overnights can be reduced. In operations, not reduce flexibility relative to capacity swaps. The impact of purity on the dispersion of Impact of Purity on fleets within the network can directly reduce costs. By having a more pure fleet distribution, U.S. Domestic Schedule airlines can reduce the number of stations a particular type of aircraft serves; thereby

180 reducing the number of stations that have to 160 be equipped to serve that type of aircraft.

d 140 e

v Bringing Purity to the FAM r 120 e

s 100 Station purity makes fleet assignments more s

n 80 difficult to solve. For large cases, adding purity o i

t 60 to the typical FAM problem can increase run- a t 40 times by a factor of five. We developed the S 20 station decomposition approach to make fleet 0 assignment models more efficient with respect 737 FJT 727 ATR 757/767 MD80 RJ to purity. Station decomposition takes advan- Fleet: Base Pure tage of the hub-and-spoke structure of typical traditional airline flight networks. In some net- The Boeing 737 fleet serves 120 stations in the base FAM solution. By imposing station works, almost all flights operate either to or purity, it can be reduced to 63, meaning that 57 fewer stations need to be equipped to from a small number of hubs. If we remove the handle 737 aircraft. There are 57 fewer stations where 737 crews can get stranded due hubs in a pure hub-and-spoke network, the net- to operational problems. The reduction is even greater for ATR fleet. work decomposes into separated spoke sta- tions, each with its own set of flights. Because

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the number of flights operating to and from any spoke is a small part of the full schedule, deter- Interested in Learning More? mining fleeting solutions for each spoke is rela- tively easy. We refer to each feasible solution for Additional information about fleet assignment issues a spoke as a fleeting plan. A solution to the full can be found in several references, including: network fleet assignment problem is a collection of plans (one for each spoke) that satisfies air- craft count and flow balance at the hub. In large “Applying Integer Linear Programming to the Fleet Assignment Problem” problems, station decomposition can reduce by J. Abara, Interfaces, Vol. 19, No. 4, page 20-28, 1989. FAM runtimes by 98 percent. This approach received the Best Technical Paper award at the “Approaches to Incorporating Robustness into Airline Scheduling” by Y. Ageeva, 2004 AGIFORS symposium in Singapore. master’s thesis, operations research center, Massachusetts Institute of Technology, 2000. Value of Purity Station purity provides benefits in both planning “Flight String Models for Aircraft Fleeting and Routing” by C. Barnhart, and operation. We estimated the benefits of N. L. Boland, L. W. Clarke, E. L. Johnson, G. L. Nemhauser and R. G. Shenoi, purity in maintenance and crew planning. By Transportation Science, Vol. 32, No. 3, page 208-220, 1998. imposing purity and reducing aircraft dispersion in the network, we estimate that U.S. domestic “Maintenance and Crew Considerations in Fleet Assignment” by L. W. Clarke, carriers can save up to US$30 million a year. C. A. Hane, E. L. Jonhson, G. L. Nemhauser, Transportation Science, Vol. 30, We solved the crew pairing problem for base No. 3, page 249-260, 1996. and pure fleet assignment solutions. We found that excess pay-and-credit was reduced from “The Aircraft Routing Problem” by R. Ferguson and G. B. Dantzig, Aeronautical 26 percent to 4 percent by station purity, result- Engineering Review, Vol. 14, No. 4, 1955. ing in savings of approximately US$100 million per year. Added to the US$30 million profit “Degradable Airline Scheduling” by L. Kang, doctoral dissertation, operations increase from savings in maintenance costs, research center, Massachusetts Institute of Technology, 2003. an overall profit increase of US$130 million per year will be achieved. Purity is profitable in “Airline Industry Metrics” by K. M. Mead, U.S. Department of Transportation planning alone. Improved operations due to Memorandum, CC-2003-048, 2003. purity will provide additional benefits in terms of costs and customer service. “Topics in Airline Operations” by J. M. Rosenberger, doctoral dissertation, indus- Fleet assignment modeling has been an trial and systems engineering, Georgia Institute of Technology, 2001. important part of the airline planning process for more than 20 years. Models and systems have “Advances in the Optimization of Airline Fleet Assignment” by R. A. Rushmeier improved by considering the down-line planning and S. A. Kontogiorgis, Transportation Science, Vol. 31, No. 2, page 159-169, and operational impact of their solutions. The 1997. research and development has not slowed down. We are currently working with “Robust Airline Fleet Assignment” by C. Smith, doctoral dissertation, industrial researchers at the University of Illinois at Urbana- and systems engineering, Georgia Institute of Technology, 2004. Champaign to develop a process to integrate air- craft routing and crew scheduling into fleet “Coldstart: Fleet Assignment at Delta Air Lines” by R. Subramanian, R. P. assignment models. This work is promising in Scheff, J. D. Quillinan, D. S. Wiper, D. S. and R. E. Marsten, Interfaces, Vol. 24, terms of increasing profit by reducing crew No. 1, page 104-120, 1994. costs. In the near future, we can expect to see several applications of robustness in airline scheduling and planning systems. a

+count it up

1970 — Year the first jumbo jet, 160 — Number of new discount carri- 12 — Percent of the more than 2.27 the Boeing 747, entered airline service. ers around the world being tracked by the million scheduled flights around the Official Airline Guide that could start oper- world that are operated by discount ations within the next 18 months. airlines.

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Supplier Connection

Sabre Holdings Web services brought the power of open standards to front-end connectivity in 2004. Now Sabre Holdings has developed similar new technology to improve the ability for travel suppliers, such as airlines, to distribute their content.

By Todd Richmond | Ascend Contributor

nyone who has ever gone shopping solutions for some suppliers based on these During the latter part of the ‘80s and into knows it’s all about content. If a mer- protocols. Additionally, the WAC complex pro- the early 1990s, suppliers began focusing on stan- Achant doesn’t have what its consumers vided the basis for adopting newer standard dard formats for exchanging data. EDIFACT initia- are looking for, they are less likely to return. network protocols emerging at the time. In the tives and the work of governing bodies, such as Travel consumers are no different; if anything, early 1980s, X.25 became a prominent stan- Passenger and Airport Data Interchange and the they are becoming even more demanding with dard and began to be accepted and implement- International Air Transport Association, forged the the continued surge in online shopping behavior. ed by many suppliers, driven by the need for way for normalized, well-accepted messaging. Traditional travel content suppliers, such increased performance and flexibility and the Sabre Holdings invested heavily in a new as airlines, hotels and car rental companies, broad reach of the SITA network. supplier connectivity infrastructure — the host are changing as well. They are moving toward more modern and open-technology standards for loading their data into systems such as SabreSonic ™ Passenger Solutions and the Sabre ® global distribution system. The newer protocols are easier to work with and require fewer development resources on the part of the airline’s information technology staff to implement. In addition, these traditional suppli- ers have been joined by a host of new entrants including low-cost start-up airlines, rail carriers and cruise lines, all eager to have their travel Airlines, hotels, car rental agencies and products made available in Sabre Holdings’ sys- other travel content suppliers are moving tems. As with the more traditional suppliers, toward more advanced, open-technology these new players prefer modern Web-based standards for loading data into global connectivity standards, such as extensible distribution systems. Sabre Holdings’ new markup language, or XML, that offer increased supplier connectivity infrastructure pro- flexibility and reduced time to market. vides a full product suite to help airline, Sabre Holdings’ history of supplier con- travel agency, car and hotel partnerships nectivity spans several decades, with periodic better serve their customers. advances meeting the needs of changing tech- nologies over time. The solutions adopted have evolved from older network protocols and bandwidth to newer, widely accepted network implementations. Following the era of the 1970s, prominent protocols in the airline industry were very pro- S

prietary in nature and highly specialized. These a b r were often referred to in Société Internationale e A i r de Télécommunications Aéronautiques, or l i n e

SITA, specifications such as P1024A and S o l P1024B (wire-level protocols for mapping air- u t i o line ticketing data to various host systems). n s ’ a

First-generation supplier connectivity focused r c h i on these solutions. The world access complex, v e or WAC, environment continues to provide s

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ticketing, passenger through check in and pas- XML interfaces can be developed and imple- senger name record claim processing. mented compared to legacy protocols. One of While HCC and CTS continue to provide the driving forces behind this change is the HIGHlight a high level of service, the growth of the OpenTravel Alliance, a governing body, of Internet combined with the ever-decreasing which Sabre Holdings is a contributing mem- Sabre Holdings’ cost of Web hosting and network connectivity ber, charged with developing specifications for has created a desire for smaller suppliers to the use of XML throughout the travel industry. history of supplier provide access to their content over the public Another force for change in supplier con- Internet. nectivity is the move toward distributed, open connectivity spans Today, newer channels of information systems for core distribution and reservations are rapidly augmenting the traditional EDIFACT services. These new platforms already power channels for supplier content. In addition to the many of the components within the several decades, with high-volume, point-to-point connectivity provid- SabreSonic solutions and will eventually com- ed by HCC and CTS, there is a need for lower- pletely replace the mainframes that power the periodic advances volume widely dispersed content access using Sabre system. With this change comes newer Internet-standards-based formats for increasing pressure to provide open interfaces meeting the needs data exchange such as XML. XML exchanges to access supplier content. To address this are increasingly overtaking EDIFACT as the need, Sabre Holdings has created the supplier of changing tech- preferred means for data and function descrip- side gateway, its latest technology investment tion as XML becomes the dominant form of in supplier access. nologies over time. electronic data exchange across all facets of IT Tied into the IT company’s integrated including the transportation industry. The pri- computing environment, supplier side gateway mary reason for this is the ease with which serves as an integration access point for open-

Sabre Airline Solutions’ archives

standards protocol access. It will not only pro- More advanced information channels vide the basis for both reservations and distrib- are rapidly changing the traditional ution applications to access traditional content EDIFACT channels for supplier content. using new formats, but it also allows new The supplier side gateway, Sabre Holdings’ types of content to be integrated at the point of latest technology expenditure in supplier sale, something that is becoming increasingly access, serves as an integration point important to airlines as they move toward offer- for open-standards protocol access and ing dynamically created travel packages to cus- provides the basis for both reservations tomers via their Web sites. Supplier side gate- and distribution applications to retrieve way will provide the infrastructure to enable conventional content using modern this capability and facilitate the transformation configurations. The supplier side gateway to merchandising by providing the ability to also enables fresh content to be integrated apply filtering rules, transaction orchestration at the point of sale, a concept that is and messaging transformations at the connec- becoming progressively more important tivity layer along with buffering of supplier to carriers as they move toward providing requirements for message formats and com- dynamically created travel packages to munication protocols. travelers using their Web sites. Ultimately, supplier side gateway will enable Sabre Holdings to retire the legacy WAC complex while retaining HCC/CTS for EDIFACT connectivity as long as that is required. It will enable the company to invest communications complex, or HCC — to sup- the additional cost savings into additional port EDIFACT and launch a new generation of enhancements of the supplier connectivity applications for real-time, direct-connect pro- infrastructure. a cessing, such as availability and sell functions. Today, the HCC and its successor, the com- mon translation service, provide a full product Todd Richmond is vice president of suite for travel agency traffic and airline, car strategic architecture for Sabre Holdings. and hotel partnerships alike. Product features He can be contacted at include popular functions, such as electronic [email protected].

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Looks Good, Works Well

Taking a user-centric approach and applying a set of standard design principles ensures the development of innovative, highly usable software applications.

By J. Alan Baumgarten | Ascend Contributor

enowned architect Frank Lloyd Wright said Benefits of User-Centered Design It can boost productivity, enabling users to it best: “Form follows function — that has User-centered design may seem like it requires perform tasks quickly. Rbeen misunderstood. Form and function a lot of additional time and effort. On the con- It can increase job satisfaction. should be one, joined in a spiritual union.” trary, this process is more efficient and ulti- It looks more professional and aesthetically A building architect seeks to create unity mately more cost effective, which can make appealing. between the form of a structure and the many the software more affordable. By understand- It is more engaging. human activities or functions it must accom- ing the needs of end users early on and factor- modate. This is the foundation of organic archi- ing them into the architecture and design of an tecture — that the union of form and function application initially, programmers spend less Defining User Experience defines the experience of those who occupy time developing unnecessary or unwanted Consider a device that can be used every day: the building. functionality, reworking confusing interfaces, a can opener, a clock radio, a cellular phone, a The same concept applies to information and struggling to create the right look and feel. gasoline pump. If a user of these products technology, which is designed to accommodate Well-designed software provides a num- experiences confusion, difficulty, frustration or the information-based activities of users. The ber of benefits for airlines: annoyance, it’s a strong indication of a failed software interface is where human/computer It requires less training and far less time on product — the result of bad design, bad usabil- interaction occurs — the digital equivalent to walls the phone with technical support. ity, or both. However, if the user experience is and floors. And in defining the user experience, It integrates well with the user’s environment. simple, effortless, natural and intuitive, the instead of “form and function,” information archi- It delivers better results because it fits the product designer or engineer has followed the tects use the terms “design” and “usability.” processes required to complete the task. principles of user-centered design.

Apple excels in the marketplace through excellent design and excellent usability. Form follows A usable design is an important element function — that of the success of any product, whether a “ toaster or a software application. One of the has been misunder- most successful new products to be introduced stood. Form and in recent years, Apple’s iPod, has shown the value of having a simple, intuitive design that function should joins form and function, enabling users to be one, joined in maximize its usefulness. Identifying end users and understanding their needs is critical to the t a spiritual union. n u

H design and development of robust technology. e t t e v — Frank Lloyd Wright Y y ” b o t o h P

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good. Excellent usability means the product HIGHlight works well and meets real user needs. “Looks good, works well” is the mantra of the new Creating user-centered software is often a user experience team at Sabre Airline Solutions. It defines the goal of achieving the “spiritual recursive process, not a linear one. union” alluded to by Frank Lloyd Wright. Software that Looks Good The principles of good design pre-date soft- Ironically, good usability tends to be design is the essence of branding or differenti- ware development by several centuries. Even transparent. Users are task oriented, meaning ating one product from another. While design the Gutenberg Bible had a user interface. The they’re more focused on the task at hand than for design’s sake can sometimes interfere with media may have evolved through the years — the tool or method they use. For instance, usability, the best design can improve usability from stone and canvas to paper and now light when starting a car, the driver turns the key by making controls more visible and informa- — but designers are still interested in the and the car starts; the driver doesn’t give a tion easy to locate and read. same principles: second thought to the ease of the action The most successful consumer products Composition — Involves rhythm, balance, despite the enormous complexity of today’s pair excellent usability with outstanding design. weight, proportion, consistency, harmony, automobile engines. It’s only when the car fails One example is Apple’s iPod, which combines organization and emphasis; to start that the engine gets the driver’s com- a sleek compact design, intuitive user interface, Color — Used to create visual interest, plete attention. Even then, it’s not so much the excellent sound quality and generous storage establish mood or tone, draw attention, engine they’re concerned with as the problem capacity — all the qualities consumers want. apply emphasis, and denote relationships of being unexpectedly stranded. iPod wasn’t the first portable music player on (designers must be aware that color some- Good usability may not always stand the market, but excellent design, a simple inter- times has certain social connotations that out, but good design more than makes up for face and user-centered features quickly made it can differ among cultures); it. Design breathes life into a product, making the best-selling device of its kind. Type — Includes font selection, size and it more appealing and more memorable. Good Excellent design makes a product look style, capitalization, color, and spacing con-

Old GUI uses space less efficiently and gray background lacks visual appeal.

New design offers a colorful GUI that is user friendly and boosts productivity by providing easy navigation.

The new Web framework features two levels of navigation near the top of the screen, freeing up additional application space below. This has enabled developers to design more robust Web-based applications without negatively impacting usability.

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siderations; align with identical real-world systems. For The first goal of the user experience Graphics — Concerns the appropriate use of example, a digital paint program uses tools team is to determine exactly who the end visual elements to convey information rather and icons designed to imitate a painter’s stu- users are, which is not always readily appar- than just text or numerical data. dio (airbrush, pencil, eraser, etc.) even ent. The team must understand users’ work- Few programmers, brilliant as they may though no real paint is used. related tasks, their level of experience and be, have formal training in graphic design, and Feedback — The system should show users training, attitudes, and discourse (vernacular or many are not up to speed on the intricacies of the status of the system and let them see, specialized vocabulary). The team must also applying design principles in user interfaces. hear or know of changes immediately. understand conditions in the workplace, such The simple fact is that programmers don’t Navigation — The interface should let users as time constraints, noise levels, and available have time to earn four-year graphic design know where they are in the system and hardware and software. degrees when they’re focusing on learning what other options are available. Input from user interviews and observa- complex languages and methodologies in a Consistency — Design, colors, buttons, tions are compiled into a single document — a rapidly evolving field. As an unfortunate but graphics, fonts and all visual elements “persona” — which is a detailed profile of a predictable result, software interfaces are should remain consistent (e.g., don’t use typical (not necessarily average) user. The per- often bland, uninteresting, unmemorable and four different shapes and colors for a submit sona acts as a sanity check, a measure by difficult to use. button, and make sure it always appears in which all other design and development deci- The simple solution is collaboration. the same relative place). sions are validated. Product development teams at Sabre Airline Memory — Users should not be required to As the user experience team collabo- Solutions work closely with interaction designers remember data, settings or special com- rates with product development teams, it first to ensure that user interfaces adhere to the prin- mands from one screen to the next; rather, attempts to reconcile the user requirements ciples of good design and follow the prescribed look and feel defined by corporate style guide- lines (or the guidelines for a particular airline). HIGHlight Recently, the team completed work on a Web framework, which is essentially a collec- Excellent design makes a product look good. tion of reusable components with pre-defined behaviors that share a common look and feel. Excellent usability means the product works Product teams that use the framework don’t have to worry about design because the styles and graphic standards are already defined, well and meets real user needs. enabling developers to spend more time ensuring robust functionality of the software. There are several applications within the Sabre Airline Solutions product portfolio that use the they should be enabled to view, recognize defined in the persona with the functional and Web framework, including Sabre ® AirMax ® and select what they need. business requirements defined by customers, Group Manager, Sabre® CargoMax™ Revenue Effort — Only the minimum number of product managers and stakeholders. Once a Manager, Sabre® WiseVision ™ Sales Analyzer, steps should be required to complete a common understanding of how an application Sabre® AirPrice ™ fares management system, process; at the same time, the interface needs to operate exists, the team can begin Sabre® AirMax ® Revenue Manager, Sabre® should not be unnecessarily crowded and designing interfaces that meet the many func- Reaccommodation Manager and Sabre® complicated just to save one or two steps. tional requirements and adhere to the 10 prin- AirCrews ® Operations Manager. More are in Design — Design elements should facilitate ciples of usability. User feedback is solicited development. functionality, enhance the visibility of impor- along the way, and, if possible, formal usability A similar framework is in place for Swing tant elements, ensure readability and reflect tests of working prototypes are conducted; it’s interfaces, which are more traditional applica- the brand image. Design must never over- better to know early in the process where tions installed on a client machine rather than whelm the interface or interfere with usability. users are experiencing difficulties so they can hosted on the Web. They include Sabre ® Recovery — Users must be able to easily be addressed prior to product release. Movement Manager, Sabre ® AirFlite™ Schedule recognize, diagnose and recover from errors. Product development and the user Manager, Sabre ® AirCrews ® Disruption Control, Error prevention — Whenever possible, the experience is an ongoing, iterative cycle. The Sabre ® AirCrews ® Pairing Optimizer, Sabre ® system should prevent users from perform- team continually monitors user feedback, AirCrews ® Resource Manager, Sabre ® AirCrews ® ing actions that would result in an error. tracks user success, validates assumptions Schedule Optimizer and Revenue Manager. Help — System help is immediately avail- about end users and establishes new recom- able, and the program is well documented; mendations for making Sabre Airline Solutions Software that Works Well wherever possible, help should be given in software look good and work well. Usability has become an industry buzzword in context with program functions (i.e., direc- Frank Lloyd Wright had it right a century the past few years thanks to the efforts of sea- tions are given along the way). ago — form and function are one. And through soned researchers such as Alan Cooper and Creating user-centered software is often its “looks good, works well” approach, Sabre Jakob Nielson, who have identified and docu- a recursive process, not a linear one. Like a Airline Solutions is committed to developing mented a number of interaction design princi- written composition, each new iteration — well-designed, user-friendly applications that ples. The Sabre Airline Solutions user experi- each draft of the software — is a learning lead the industry. a ence team consolidated the wide body of process that brings developers closer to the industry research into a set of 10 principles or ideal solution. Nevertheless, much of the heuristics that guide the planning, design and development curve can be circumvented by J. Alan Baumgarten is a senior interaction evaluation of product suites. starting with a clear understanding of the end designer for the user experience team at These principles include: user, usually through a series of interviews and Sabre Airline Solutions. He can be Metaphor — The electronic system should on-site observations. contacted at [email protected].

ascend 71 THE HIGH LEVEL vıew News Briefs from Around the Globe

Asia/Pacific changing market forces. The suite provides “Due to the increased competition, advanced planning and scheduling technol- Air Malta is embracing revenue manage- Japan Airlines Group, the third- ogy that combines core functions such as ment as a way of improving its profitability largest airline group in the world and the scheduling, profitability forecasting and while reducing costs,” said Joe Cappello, largest in Asia/Pacific, selected Sabre ® analysis, fleet assignment, and slot man- chief operating officer for Air Malta. AirMax ® Revenue Manager to manage rev- agement through a seamless integration “Having enjoyed the benefits of other enues from its international operations. with shared interfaces and database Sabre Airline Solutions technologies and, Revenue Manager, a flexible, new-gener- information. The airline also will employ in particular, the SabreSonic™ Passenger ation solution, enables effective revenue consulting services from Sabre Airline Solutions, we are confident that the rev- management by recommending optimal Solutions to assist with product implemen- enue management solution will provide us inventory controls at either the flight-leg tation and network planning, providing a with a real competitive advantage in the and segment level or the origin-and-desti- total solution that will help Air China rapid- marketplace. nation level. It incorporates a comprehen- ly realize the benefits of the AirFlite suite. The bundling of systems and con- sive range of decision-support processes, “Modeling passenger demand and sulting services, aimed at achieving a including data collection, forecasting, over- market behavior within the Chinese avia- quick assimilation of the technology solu- booking, optimization, alerting and perfor- tion market has typically been a challenge tions into our business environment by mance measurement, and reporting. in the past, but Sabre Airline Solutions has aligning our business processes with “We are thrilled by the prospect of demonstrated its knowledge and experi- industry best practices, will deliver posi- the gain in top-line revenues by moving ence in this area,” said Jian Xiong Huang, tive results from the early stage of the sys- to Revenue Manager,” said Kei Hirai from deputy general manager of information tems’ implementation.” marketing planning and passenger informa- technology for Air China. “We are confi- tion technology promotion for Japan Airlines. dent the AirFlite suite will enable us to Aeroflot Russian Airlines suc- “We are excited about the good fit the better forecast and enhance our decision- cessfully migrated to the SabreSonic™ solution has with Japan Airlines’ business making abilities. Sabre Airline Solutions Passenger Solutions, the industry’s first requirements and the revenue benefits it will is also able to offer us an end-to-end new-generation reservations and passen- offer from its advanced functionality, flex- approach, incorporating the AirFlite suite ger management solution. In addition, the ibility, scalability and integration capabilities. and best-practice industry consulting.” airline’s affiliated travel agencies will utilize We went through a comprehensive selec- a customized version of the Sabre ® global tion process involving a simulation analy- Europe/Middle distribution system, an end-to-end distrib- sis and a proof of concept, and the solution East/Africa ution offering that significantly advances met our needs in the best possible manner.” the state of travel for the carrier and for AirMalta selected three components Russia within the region and worldwide. Air China selected the Sabre ® AirFlite™ of the Sabre ® AirMax ® Revenue Management “Aeroflot’s objective for the future Planning and Scheduling Suite to enhance Suite to help it effectively compete against is to continue making use of the most its ability to schedule flights and react to the growing competition in the region. advanced and efficient technologies that exist in the industry,” said Evgueni optimize our schedule across our entire net- “AACO is very pleased to work with Bachurin, commercial director for Aeroflot. work to ensure we fly the most reliable and Sabre Airline Solutions in establishing this “For this reason, we chose Sabre Airline profitable schedule possible. Implementing model that improves the linkages between Solutions’ technology package. Sabre these tools in conjunction with utilizing the networks of six of our key members,” [Airline Solutions] provides more flexibility Sabre Airline Solutions’ consulting services said Abdul Wahab Teffaha, secretary gen- in the areas of air travel reservations, sales means we will substantially improve our eral of AACO. “Arabesk is an innovative and ticketing than any other offering cur- capabilities in the short term, helping us initiative that will strengthen the compet- rently available while at the same time increase revenue and decrease costs.” itiveness of our members as a whole and ensuring maximum efficiency from both provide better connectivity for travelers travel agents and the airline’s sales offices. The Arab Air Carriers throughout the world and within the region. In addition, the new technology offers a Organization and Sabre While many of the airlines involved in this variety of new functions that will benefit Airline Solutions, in close coor- alliance were competing with each other, Aeroflot and travel agencies and will help dination with six Arab airlines, are study- larger, more powerful airlines and alliances to improve customer service.” ing the creation of a new groundbreaking were being established and set to grow. alliance. “With the creation of Arabesk, these Iberia Líneas Aéreas de EgyptAir, Gulf Air, Middle East Airlines, airlines intend to cooperate and compete España, Spain’s leading airline, will Oman Air, Royal Jordanian Airlines and directly with larger carriers/alliances with a implement four key components from the Saudi Arabian Airlines are participating in combined network while still competing Sabre ® AirFlite™ Planning and Scheduling the study to create “Arabesk,” the first air- with each other for passengers based on a Suite, giving the airline a comprehensive line alliance that coordinates the schedules competitive pricing policy. Passengers will network management and scheduling solu- of six close competitors. The goal of cre- therefore be attracted to Arabesk because of tion. As part of the arrangement, the air- ating this pan-Arab alliance is to provide its network coverage and competitive prices. line will also utilize Sabre Airline Solutions’ financial benefits that the carriers could not This is a truly smart solution to a real problem consulting services to help improve its hub achieve individually. that has eluded resolution by the industry.” structure and transform the business to Through the alliance, the airlines can exploit the new technology solutions. provide better separation of services, The Americas “By implementing Sabre Airline reduce the duplication of capacity, link net- Solutions’ network management and works and destinations, generate market GoJet Airlines, subsidiary of Trans scheduling suite, we will have comprehen- demand through improved customer con- States Holdings, selected Sabre Airline sive, integrated planning and scheduling nectivity, and maximize capacity through Solutions’ flight operations tools for crew capabilities for everything from hub design route sharing and rationalization. The com- management, flight planning and dispatch, and fleet analysis to route profitability analy- bined network of the six carriers totals and operations control and flight following. sis and rotation generation,” said Jose more than 5,000 departures each week GoJet, a new U.S. regional airline that will Bolorinos, head of network management at and spans from North America to the Far serve the St. Louis, Missouri, area will utilize Iberia Airlines. “These tools will allow us to East, giving vast potential to the alliance. five leading components from the Sabre ® THE HIGH LEVEL vıew News Briefs from Around the Globe

Flight Control Suite, including the Sabre ® increase performance and reliability, and factors in our decision included the modern CrewPlan ® system, the Sabre ® CrewQual ® further leverage the technology strengths information technology architecture and system, the Sabre ® CrewTrac ® system, the of its information technology partner. advanced technology of the Maintenix sys- Sabre ® FliteTrac™ system and the Sabre ® “Sabre [Airline Solutions] has the tem, its ability to manage all levels of main- Dispatch Manager. right technology and the right industry tenance, and the expertise and high level “Trans States Airlines has long relied IQ to meet our needs,” said Tom Nealon, of service we have consistently received on Sabre Airline Solutions’ Flight Control chief information officer for Southwest from Sabre Airline Solutions.” suite, so when we founded GoJet Airlines, Airlines. “Our partnership [with Sabre we wanted to ensure it had the same smart Airline Solutions] allows us to offer our cus- Continental Airlines selected solutions to ensure a successful launch,” tomers low fares that are easy to find.” Travelocity Partner NetworkSM, Travelocity’s said Rick Leach, president of Trans States private label booking business, to be the Holdings. “These tools have proven to be Hawaiian Airlines selected Sabre sole supplier of hotel content for the air- valuable decision-support solutions that will Airline Solutions as its maintenance and line’s Web site, continental.com. The new enable us to run an efficient, reliable airline.” engineering provider through the technol- status builds upon Travelocity’s current role ogy company’s partnership with Mxi as exclusive provider of last-minute deals Southwest Airlines signed a Technologies. The airline will utilize the for the airline’s Web site. seven-year agreement with Sabre Airline Maintenix ® MRO System, which will replace “We have worked with Travelocity Solutions that promises the airline innova- Hawaiian Airlines’ current M&E solution — for several years and have always been tive and cost-effective technology. The new the Sabre ® Maxi-Merlin™ maintenance, engi- satisfied and confident in the products that technology will continue to give Southwest neering and inventory system — and will the Travelocity Partner Network provides customers access to convenient and low- be implemented as a hosted application our customers,” said John Slater, manag- cost ways to plan, book and implement through Sabre ® eMergo ® Web access, an ing director distribution and e-commerce their travel plans. Southwest will use a cus- applications service provider distribution at Continental. “The Travelocity network tomized passenger management solution method. The eMergo environment offers an has the ability to secure differentiated hotel for its reservations system and customer economical way to access the comprehen- rates that we feel will provide our cus- interactions at the airport. The new agree- sive functionality of the Maintenix system tomers on continental.com some of the ment replaces the previous contract signed and other products in the Sabre Airline best deals in the travel industry.” in 1998, creating a more strategic relation- Solutions portfolio, lowering the total cost ship with Sabre Airline Solutions and set- of ownership for Hawaiian Airlines. GetThere, the world’s leading online ting Southwest’s infrastructure for its reser- “We selected the offering following corporate travel reservations provider, vations system technology in place as the a competitive bid process involving a due expanded its Web Connect solution,comple- airline plans for the future. The decision diligence assessment and an intensive five- menting its already comprehensive access to focus more of its operations on technol- day product demonstration,” said Charles to a variety of flight options. GetThere ® Web ogy from Sabre Airline Solutions enables Nardello, vice president of maintenance and Connect now provides corporate travelers Southwest to eliminate disparate systems, engineering for Hawaiian Airlines. “Key choices from more than 50 domestic and international travel Web sites, including many Airways. “We were impressed with Sabre Airline Solutions recent- major airline sites, U.S. low-cost airlines such the customer-focused features that the ly added 10 new clients to its growing air- as AirTran Airways and jetBlue Airways, SabreSonic solutions provide, but even ports consulting practice. The latest addi- and CanJet, a Canada-based low-fare airline. more importantly, that we could have it in tions demonstrate the company’s com- The expansion of GetThere Web place within months rather than years.” mitment to investing in airport consulting, Connect enables corporate travelers to Shamus Byrne, sales and marketing which has achieved more than 70 percent compare fares, whether from one or mul- director for EuroManx said, “The SabreSonic growth since 2002. tiple global distribution systems, a com- solutions are clearly the industry’s most The consulting group at Sabre Airline pany’s negotiated rates program, or airline advanced solution — and its flexibility and Solutions welcomed several new inter- and other travel Web sites, providing travel- component approach make it affordable as national customers, including Transport ers with the confidence that they are see- well. This combination provides EuroManx Canada, Tourism Australia, Brussels ing a wider range of fares on every booking. possibilities that otherwise would not be International Airport, Budapest Ferihegy “We have always focused on provid- available. We are looking forward to realiz- International Airport and Toronto Pearson ing companies the travel options they need ing the return on investment and customer International Airport, to its portfolio. These whether they are from any GDS, the Web satisfaction that the solutions will bring.” organizations are now utilizing Sabre Airline or other sources that offer distinct value Hans Van Pelt, chief executive officer Solutions’ analytical capabilities to refine to customers,” said Bev Heinritz, general of OzJet said, “We are entering a highly their competitive intelligence and market- manager of GetThere. “Enhancing GetThere sophisticated and competitive marketplace ing abilities. These airports are also able to Web Connect further expands the options in Australia, and we know our survival leverage the company’s position as one of travelers now can see from both domestic depends on a combination of the right busi- the industry’s leading air service develop- and international airlines, providing comfort ness model, the right people and the very ment consulting organizations. that they are viewing a very comprehen- best technology that will allow us to offer Several new clients building on Sabre sive set of fares.” the best service to our customers. After an Airline Solutions’ fast-growing domestic extensive evaluation of what was available airports practice include: Melbourne Around the World in this region, we chose the SabreSonic International Airport (Florida), Lynchburg solutions because they met all our needs Regional Airport (Virginia), Abraham Lincoln EuroManx, Afriqiyah over the alternate offerings. They are the Capital City Airport (Illinois), Lancaster Airways and OzJet have chosen only solutions available today that offer an Regional Airport (Pennsylvania) and Laurel- the SabreSonic™ Passenger Solutions, the open-systems architecture that will enable Hattiesburg Regional Airport (Mississippi). industry’s first new-generation solution us to quickly adapt to changing market The consulting team will provide these ready for installation. demands and business requirements. airports with air service development and We knew we wanted a more robust, Through the modular architecture and per- marketing services, and in some cases, the flexible solution than what we saw with formance-focused pricing, the SabreSonic team has already been successful in secur- other carriers in this region,” said Capt. solutions offer us maximum scope and scale ing new air services for these clients. a Sabri S. Abdallah, chairman of Afriqiyah to accommodate our future growth plans.” hightech

Product and reduces paperwork. It also presents Features effective support to manage discrepancy Ramco MRO System The Ramco MRO System offers numer- resolution so assets are cost effectively ous features within key areas, including: returned to revenue-generating services. Description Technical bulletin administration — Benefits The system’s advanced engineering The Ramco MRO System helps airlines The Ramco MRO System offers significant change management component admin- increase aircraft availability, decrease oper- benefits to airlines, including the ability to isters and manages complex modifica- ating costs, increase employee productiv- manage: tion projects. ity, monitor regulatory compliance, optimize inventory levels and procurement process- Maintenance planning for aircraft, Component management — The sys- es, and enhance customer service levels. engines and components — task/job card tem’s robust capabilities track the ser- with features such as Electronic Sign-off, vice life, movement and maintenance The system provides products developed history of serialized parts. It supports for the aviation market with a Web-cen- Engineering and technical records, unlimited levels of hierarchical defini- tric and model-based infrastructure. It is Aircraft operation, such as an electronic tion of assemblies and subassemblies, scalable for various fleet types and sizes flight bag, down to individual parts within an aircraft. with pre-built and personalized features Materials, including warehouse, procure- and built-in workflow, which reacts to Flight operations — Flight assign- ment and supply chain management of proactive triggers set for events and alert ment and aircraft routing functions in aircraft and non-aircraft parts, notifications. the system enable airlines to associate

Outsourcing of repair activities, warranty, weekly and monthly flight plans and The Ramco MRO System, which can be part loans and rentals with features such create route sheets for various aircraft delivered over the Internet and remotely as bar-coding and radio frequency iden- in their fleets. The electronic flight bag accessed through the Sabre ® eMergo ® tification device support, essential tool kit helps flight crew to Web access, offers comprehensive work direct critical tasks on board. management capabilities along with Human resources, including training parts, skills and tools tracking for both records and certification credentials, Reliability management — Aircraft routine and non-routine tasks. Overnight and component reliability management Sales of materials and services, and pre-flight checks can be executed functions provide elaborate reliability with ease in line stations. The system’s Financial functions, including accounts analysis and reporting as well as trend Electronic Signature feature complies payables, accounts receivables and gen- capabilities, enabling airlines to fulfill with the e-signature regulatory mandate eral ledger. regulatory requirements with ease. New and Improved Products and Services from Sabre Airline Solutions

Materials — The system manages air- Product ground handler capabilities, reduce costs lines’ inventory, procurement, repair with an advanced electronic ticketing oper- Ground Handling for ordering and shipment functions, ation and communicate between depar- Electronic Ticketing, enabling them to manage multi-site ture control systems, removing the depen- an option of warehouses and drive stock replenish- dency on the internal system. SabreSonic™ Ticket ment through centralized or decentral- ized procurement policies. Benefits

MRO sales management — The sys- The option offers significant benefits to Description tem’s extensive facilities administer airlines: the complete sales process, including Ground handling raises many operating Support for different departure control inquiries, quotes and orders, which issues as to how multiple airlines can effec- systems, drive work execution for an airline’s tively communicate electronic ticketing A high level of security in electronic customer aircraft and components. data and provide consistent customer ticket usage, service. IATA Resolution 722h defines two Human resource management — methods of processing data in a ground- Ability to outsource ground handling The system enables airlines to keep handling environment — control and operations, track of their employees’ skills, licens- interactive. es, utilization and efficiency. Time-man- Support for electronic ticketing agement functions in the system pro- The control method requires ground han- distribution. vide much-needed decision support for dlers to obtain control of the electronic planners, facilitating availability deter- ticket and send flown coupon status mination and shift assignments to updates to the operating carrier. The inter- ensure smooth completion of work at active method enables airlines to retain Features hangar floors and component shops. control of the electronic ticket and requires The option has several features, such as: ground handlers to communicate all flight Financials management — With a Provides a standard solution based on coupon updates. sophisticated financial component, the IATA Resolution 722h, Ramco MRO System is possibly the Sabre Airline Solutions supports both data Utilizes existing EDIFACT standards only aviation application that provides processing methods through its Ground for data transmission, complete financials capability covering Handling for Electronic Ticketing solution. payables, receivables, fixed assets and The option provides added value by Enables departure control systems to general accounting. enabling airlines to extend their existing handle go-show situations. a Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation. ©2005 Sabre Inc. All rights reserved. proven Call usat+16826051000.Orvisitwww.sabreairlinesolutions.com. Learn howtogetherwecanputprovenleadership toworkforyou. any size,businessmodel,anywhereinthe world. integrated solutionsthatcanoptimizeoperations ofallairlines— Working we’vedevelopedaportfolioofflexible, closelywithcarriers, systems airlinesneedtostayahead,maketheimpossiblepractical. other company, we’vepushedtechnologyforwardtodelivervital Mission-critical areasrequiretime-testedsolutions.Longerthanany Andit’s timeforproven leadership. It’s timeforall-outinnovation. leadership. . f d o e s v r k r e a s e m r e s t c i h v g r i r e l s

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Southlake, Texas 76092 S www.sabreairlinesolutions.com Asia/Pacific Art Direction/Graphic Design Andrew Powell James Frisbie Vice President Level No. 05-05 Graphic Design Manager Technopark Block 750E Clay Reed Chai Chee Road Contributors Singapore 469005 Phone: +65 9127 6927 Hans Belle, Jack Burkholder, Michael E-mail: [email protected] Clarke, Vinay Dube, Gretchen Greene, Glen Harvell, Steve Hodges, Carla Jensen, Walt Kochan, Alan Larson, Europe, Middle East and Africa Craig Lindsey, George Lynch, Deborah Murray Smyth Magee, Robert Marley, Gary Potter, Vice President Darren Rickey and Elayne Vick. Somerville House 50A Bath Road Awards Hounslow, Middlesex 2005 International Association of TW3 3EE, United Kingdom Business Communicators Bronze Quill, Phone: +44 208 814 4540 Silver Quill and Gold Quill. E-mail: [email protected] 2004 International Association of Business Communicators Bronze Quill Latin America and Silver Quill. Marcela Lizárraga Vice President 2004 and 2005 Awards for Publication 3150 Sabre Dr. Excellence. Southlake, Texas 76092 Reader Inquiries United States Phone: +1 682 605 5333 If you have questions about this publi- E-mail: [email protected] cation or suggested topics for future articles, please send an e-mail to [email protected]. North America Kristen Fritschel Address Corrections Vice President Please send address corrections 3150 Sabre Dr. via e-mail to [email protected]. Southlake, Texas 76092 United States Phone: +1 682 605 5335 Sabre Airline Solutions, the Sabre Airline Solutions logo and products noted in italics in this publication are trademarks E-mail: [email protected] and/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are the property of their respective owners. ©2005 Sabre Inc. All rights reserved. Printed in the USA. smart. proven. bankable. A MAGAZINE FOR AIRLINE EXECUTIVES 2005 Issue No. 2 2 0 0 5 I s s u e N o . 2 Taking your airline to new heights

THE TRANSFORMER A conversation with … W.Douglas Parker, Chairman, President and CEO, US Airways

page 44 w

w INSIDE w . s a Gulf Air’s in-flight service b r

e 33 wins top awards a i r l i n e SAS restructures s o to better compete l 36 u t i o n s

. Jet Airways becomes c o 42 an international carrier m