Flight Explorer for Its Enable Airlines to Broaden Their Markets Are Served at the Right Real-Time Tracking, Reporting Analysis Capabilities to Include Key Times

38 1 Survival Guide Special Section Airlines have three basic options to raise capital raise to options basic three have Airlines 2009 Issue No. 2009 Issue 44

Delta Air Lines/Northwest Airlines merger merger Airlines Lines/Northwest Air Delta impacts regional carriers 21

aking your airline to new heights airline to aking your T

Officer, WestJet Officer,Airlines, WestJet Page 16. A Conversation With … Chief Executive Sean Durfy,

A Clear Vision A Clear

xecut ives Airline E azine for A Mag

Japan Airlines takes steps to improve improve to steps takes Airlines Japan its environmental performance 8

2008 Issue No. 2 making contact Taking your airline to new heights

2009 Issue No. 1 To suggest a topic for a possible For more information about Editor in Chief future article, change your products and services featured in this Stephani Hawkins address or add someone to the issue of Ascend, please visit our Web site at www.sabreairlinesolutions.com Managing Editor mailing list, please send an B. Scott Hunt or contact one of the following e-mail message to the Ascend Sabre Airline Solutions regional Art Direction/Design staff at [email protected]. representatives: Charles Urich

Contributors Khaled Al-Eisawi, Edward Bowman, Stan Boyer, Steve Clampett, Dennis Crosby, Jeanette Frick, Greg Gilchrist, Carla Jensen, Christine Kretschmar, Gordon Locke, Craig MacFarlane, Tim Maher, Kazuya Ohta, Dave Roberts, Tim

Sutton, Jeremy Sykes, Fionna Wee. Asia/Pacific Latin America David Chambers Kamal Qatato Publisher Vice President Vice President George Lynch 3 Church Street, #15-02 Samsung Hub 3150 Sabre Drive 3150 Sabre Drive Southlake, Texas 76092 Southlake, Texas 76092 Singapore 049483 SG www.sabreairlinesolutions.com Phone: +65 6511 3210 Phone: +1 682 605 5399 E-mail: [email protected] Awards Middle East and Africa Europe Maher Koubaa Alessandro Ciancimino Regional Head Vice President 77 Rue de la Boetie 2008 Awards for Publication Excellence, Via Appia Nuova 990 Paris, France 75008 International Association of Business 00178 Rome, Italy Communicators Bronze Quill and Silver Phone: +33 1 44 20 7657 Phone: +39 348 3708240 Quill, Hermes Creative Award, The E-mail: [email protected] E-mail: [email protected]. Communicator Award 2007 Awards for Publication Excellence, North America International Association of Business India/South Asia Kristen Fritschel Communicators Bronze Quill Vish Viswanathan Vice President Vice President 3150 Sabre Drive 2006 Awards for Publication Excellence, 187, Royapettah High Road, Flat A-7 International Association of Business Southlake, Texas 76092 Communicators Bronze Quill, Silver Quill Mylapore Phone: +1 682 605 5335 and Gold Quill Chennai, India E-mail: [email protected] Phone: +1 682 605 4544 2005 Awards for Publication Excellence, Cell: United States +1 817 312 2830 Worldwide International Association of Business Cell: International +91 98404 96765 Shane Batt Communicators Bronze Quill, Silver E-mail: [email protected] Executive Solutions Partner Quill and Gold Quill Phone: +44 7717 495 129 2004 Awards for Publication Excellence, E-mail: [email protected] International Association of Business Communicators Bronze Quill and Silver Quill

Reader Inquiries If you have questions about this publication or suggested topics for future articles, please send an e-mail to [email protected]. Sabre Airline Solutions, the Sabre Airline Solutions logo and products noted in italics in this publication are trademarks and/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are the property of their Address Corrections respective owners. ©2009 Sabre Inc. Please send address corrections via All rights reserved. Printed in the USA. e-mail to [email protected]. perspective

forward with grace for the good of his airline, the communities it serves and the entire industry. Likewise, aircraft manufacturers continue building innovative aircraft that, during the course of the next 20 years, will fill our skies with planes that are far more efficient than those in service today. Technology providers will continue to develop software that enables carriers to operate with preci- sion and at optimal levels. And even the new U.S. administration is giving it a run with US$800 million earmarked for air traffic control upgrades. Albeit it’s US$25 billion short, it’s certainly a step in the right direction. All of this is possible because of the try-and-try-again with Tom Klein approach. We’re getting better with each Group President, Sabre Airline Solutions/Sabre Travel Network try, and we never stop trying. I assume that like me, many of you have been mentioning to family members, find the aviation industry’s “try-and-try- ners of the world and creates millions of friends and colleagues that you are tired of again” philosophy to be quite remark- employment opportunities in thousands of hearing and reading nothing but pessimistic I able. With it, there are no failures, just communities. And it’s only made possible and bad news. This perspective is one guy’s experiences that lead to greater success- by the very people who continue pushing attempt to find the bright side. es. No matter how far back in history you the boundaries to secure the future of air Looking at the airline industry as a go, you’ll find the same level of optimism. transportation. whole, I’m impressed with the many carriers If you look back to 1799 at Sir George Air New Zealand, (see pg. 12) for that recognized the trends in demand last Cayley, sometimes known as the “father of example, proactively set forth to reduce year and made necessary capacity adjust-

aerodynamics,” or today at any number of fuel burn and CO2 emissions on its long- ments to help keep the industry healthy. airline leaders, they approach aviation with haul flights. During its ASPIRE flight last What we see time and time again, just buoyancy. No task is beyond reach, and September from Auckland to California, like in the early days of aviation, is airlines’ there’s always room to expand and improve. the carrier saved nearly 1,200 gallons of innate ability to move the industry forward

Doesn’t matter how old this way of thinking fuel and reduced CO2 emissions by more with confidence. is, I always find it refreshing and worthy of than 11,200 kilograms using advanced discussion. flight planning techniques, datalink It was 210 years ago that Cayley began communications and air traffic control his crusade to get man off the ground and advancements. Bravo airline industry … take a bow! into the air. For 50 years, Cayley designed Japan Airlines (see pg. 8) made an array of gliders that would help set the history in January as the first airline to foundation for the airline industry. Adding to conduct a demonstration flight using 50 Cayley’s work, German engineer Otto Lilienthal percent biofuel blend and 50 percent Jet-A designed the first glider that could fly a person fuel in one of the four engines on a Boeing long distances. And physicist and astronomer 747-300 aircraft. The test flight not only

Samuel Langley recognized a power engine reduced CO2 emissions, it also brought was necessary to help man fly. the airline industry that much closer to Based on the studies and experiments reducing its dependence on today’s petro- of Cayley, Langley and Lilienthal, 110 years leum-based fuels. ago the Wright Brothers designed their first These are just two examples of how aircraft. And in 1908, a friend of the Wright airlines have worked diligently to move Brothers became the first passenger of their the industry forward. And we consistently fixed-wing aircraft. see this level of enthusiasm from airlines As I look back on the work of Cayley, around the world. Langley, Lilienthal and the Wright Brothers, On our cover, WestJet Airlines Chief it’s apparent they set out to accomplish great Executive Officer Sean Durfy discusses things, and they did. It took a lot of persever- his plans of continuing to grow the airline, ance, trial and error, and setbacks, but they the recently announced codeshare agree- didn’t give up. And their enthusiasm clearly ments with two of the world’s leading carries over into the industry we know today. airlines and how staying true to its initial What started out as a mission to put vision has kept the airline’s foundation a human being in the air has progressed strong and thriving. He doesn’t hesitate into an ever-evolving business that brings or re-think his strategy. He’s identified together millions of people from all cor- the best course of action, and he’ll move contents

36 profile regional industry

8 21 26 Japan’s Green Machine Connecting The Dots Fleet Shuffle Japan Airlines takes myriad Delta Air Lines and Northwest As a result of aircraft delivery sustainable actions to improve its Airlines merger has significant delays, carriers around the world environmental performance. impact on some regional carriers. are forced to improvise until their new planes arrive. 12 24 Forward Leap Aeroflot’s Revolution 30 Air New Zealand’s ASPIRE flight Aeroflot Russian Airlines reinvents Cutting Up from Auckland to California saved itself through an extensive Airlines’ revenue management and approximately 1,174 U.S. gallons turnaround initiative. pricing teams can offset the ill of fuel using a Boeing 777-200ER effects of capacity reductions and aircraft. maximize their potential benefits.

16 33 A Clear Vision The KISS Principle WestJet Airlines explains how it Low-cost carriers are stays true to its vision. implementing traditional airline characteristics while network carriers remove some conventional attributes.

36 16 Immense Intelligence Airlines can determine a successful course, effectively respond to change and measure their success using business intelligence.

ascend contents

56 company solutions special section

40 64 70 Network Checkup The Explorer Brainpower Airlines can follow basic Sabre Airline Solutions recently Business intelligence solutions guidelines to ensure the right acquired Flight Explorer for its enable airlines to broaden their markets are served at the right real-time tracking, reporting analysis capabilities to include key times. and display of enroute aircraft performance data into their capabilities. business strategies. 44 Captital Uplifting 67 Sharpening The 72 service360°: Airlines that need to raise E-Commerce Edge It’s All Around You capital in a tight credit The recent acquisition of EB2 Service360°SM Consistent environment have three gives Sabre Airline Solutions Practices comprise five service basic options. customers a broad range of Web practice areas to ensure airlines options. receive optimum solutions that 47 drive the performance of their Saving The Pie businesses. Choosing the right cooperative agreements helps airlines effectively compete. 40 50 climate Change Airlines need to prepare for new European legislation requiring them to report CO2 emissions.

Hedging Your 56 (Jet Fuel) Bets Many airlines have come out on top after leveraging fuel-hedging opportunities, but those that hedged too far ahead are paying a price.

60 Looking Back For Tomorrow Despite the most significant challenges, some carriers have a natural ability to succeed during tough times.

ascend 2008 World Traffic Source: Sabre Airline Solutions® Global Demand Dataset

By Chris Spidle and Paul Pederson | Ascend Contributors

North America continues to 2008 Capacity Distribution By Region (ASKs) generate the largest share of worldwide production, accounting for 32 percent of global available seat kilome- by the numbers Africa ters last year. Asia/Pacific and Latin America Europe were comparable in 6% 3% size, and the three regions Middle East 6% together account for 85 North America percent of global capacity. } 32% Europe 24% Asia/Pacific 29%

Traffic And Capacity Changes Full year 2008 Versus Full Year 2007

For the full year 2008, total world- 100 wide industry capacity and traffic increased. All regions except North 80 America increased (the decrease in North America was driven by the U.S. 60 domestic market). The Middle East posted large percentage increases; 40 however, this growth occurred on a { comparatively small base of produc- 20 tion. bsolute Change A 0

Traffic (RPK) or capacity (ASK) — billions 20

40 Industry North Asia/ Europe Middle Latin Africa America Pacific East America

Percent Change Traffic % 2.2% -1.5%2.8%2.0% 11.2% 6.1% 5.3% Capacity % 2.2% -3.3%5.1%1.6% 14.1% 4.2% 4.7%

ascend numbers the by Traffic And Capacity Changes January 2009 Versus January 2008

100

40 The trend of decreases accelerated in 20 some areas such as North America;

bsolute Change however, the percentage decrease in A 0 worldwide production for January was similar to the fourth quarter. Gains in the Middle East began to decrease.

raffic (RPK) or Capacity (ASK) – billions 20 T

40 Industry North Asia/ Europe Middle Latin Africa { America Pacific East America

Percent Change Traffic % -1.8%-6.0% 2.3% -4.4%5.8%-1.1% 3.3% Capacity % -2.4%-8.9% 1.8% -4.5% 13.2% 1.5% 2.6%

Traffic And Capacity Changes Fourth Quarter 2008 Versus Fourth Quarter 2007

100 The trend in traffic and capacity shift- ed from increases to decreases dur- 80 ing the fourth quarter, with North America posting the largest abso- 60 lute decreases. Decreases in North America contributed significantly to 40 the global decline; however, Europe also showed weakness. The Middle { East continued to post large per- 20 centage increases on a comparatively bsolute Change

A small base of production. 0

Traffic (RPK) or capacity (ASK) — billions 20

40 Industry North Asia/ Europe Middle Latin Africa Chris Spidle is delivery director of research, analysis America Pacific East America and modeling and Paul Pederson is an airline research principal for Sabre Airline Solutions®. Percent Change They can be contacted at [email protected] Traffic % -2.7% -7.5%-0.3% -4.0% 11.5% 0.6% 3.0% and [email protected]. Capacity % -2.3% -8.7%2.0%-4.5% 14.0% 2.3% 2.9%

ascend Japan’s Green Machine Among the world’s carriers that are serious about improving their environmental performance, Japan Airlines takes a multitude of sustainable actions.

By Phil Johnson | Ascend Staff uring an era when environmental and offset the impact its business activities have on Essential, then, to JAL achieving signifi-

greater sustainability issues have evolved the environment. cant CO2-emission cuts is fleet renewal through Dinto top priorities — both in the public mind Compared with 1990 levels, the JAL the introduction of more-fuel-efficient aircraft profile and in the corporate boardroom — certain com- Group has a goal to cut fuel consumption (and, equipped with state-of-the-art engines — companies in various industries have taken it upon therefore, CO2 emissions) by 20 percent in terms bined with the retirement of older aircraft. Almost themselves to become environmental leaders. of transported capacity by fiscal year 2010. To 30 percent of the aircraft in JAL’s fleet have been These companies are boldly asserting date (since 1990), JAL has achieved a 16 percent delivered within the past five years as JAL has themselves in all things sustainable, to the extent reduction in fuel consumption in terms of trans- retired 90 older-model aircraft. that some of these environmentally conscientious ported capacity. JAL’s substantial investment in new, more- companies have established the credibility to help JAL’s total CO2 emissions in fiscal 2007 efficient aircraft continues, as the carrier still has set the standards for the environmental discus- (the year ended March 31, 2008) totaled 15 mil- outstanding orders for more than 80 new aircraft, sion, at least within their individual industry. lion tons, down 0.77 million tons (or 4.9 percent) including the advanced Boeing 787 equipped In the global airline industry today, perhaps from the previous fiscal year. For perspective, this with GEnx engines, which are General Electric no carrier more thoroughly exemplifies what it reduction by 0.77 million tons is approximately engines of next-generation-turbofan design, means to be an advocate of “green” practices equivalent to the CO2 annually absorbed by 55 anticipated under normal circumstances to use and technologies than Japan Airlines. In fact, the million Japanese cedars. 20 percent less fuel than today’s comparable carrier’s management team has made clear its Management realizes that one of the most aircraft engines. stance that even though the airline industry has significant ways JAL can slim down its envi- Nonetheless, JAL is going even further a critical, positive part in bringing people from ronmental footprint is by reducing — or more in terms of its fuel-consumption reduction mea- around the world together for business, pleasure efficiently using — the fuel that powers its aircraft sures. The carrier’s planners have estimated that and cultural exchange, JAL also understands the (the amount of CO2 emitted is approximately pro- trimming just 1 kilogram (or about 2.2 pounds) potentially detrimental impact that air transport portionate to the amount of fuel consumed). from the weight of each aircraft will cumulatively business operations can have on the global For example, on a long-haul international reduce CO2 emissions across the JAL fleet by 76 environment. flight from Tokyo to London using a four-engine tons a year. And regardless of the necessity of every Boeing 747-400 with 303 passengers onboard, In pursuit of such incremental weight business to forge ahead during this period of the aircraft’s engines would emit approximately reduction, JAL has been looking at its flight opera- worldwide economic slowdown, JAL nonethe- 356 tons of CO2, whereas using a twin-engine tions from every conceivable angle to find various less also maintains 100 percent commitment to Boeing 777-200ER on the same route, with 12 innovative ways to reduce aircraft weight, even if its obligations in relation to sustainability and the percent fewer passenger seats, the aircraft’s just by a single gram. environment. engines would emit almost 33 percent less CO2. So among other things, JAL has been The International Air Transport Association JAL has therefore already replaced the reducing both the weight and numbers of items has estimated that the global airline industry is Boeing 747-400 with the more fuel-efficient onboard its aircraft, including equipment such responsible for generating up to 3 percent of Boeing 777 aircraft on nearly all of its routes from as galleys, meal carts and trays, and meals and the current total man-made segment of climate Asia to Europe. And the carrier is now also gradu- magazines. change and that by 2050, there’s a possibility that ally replacing the 747 aircraft it uses on its routes Several years ago, JAL introduced light- the airline industry’s share of man-made climate- between Japan and the United States. weight porcelain tableware, which is approxi- change responsibility could grow to as much as 5 percent. JAL of courtesy Photo Just in terms of carbon dioxide — strongly suspected of being one of the key culprits that may be causing measurable levels of global warming — aviation is estimated to be responsible for up to 2 percent of current worldwide

CO2 emissions. By industry (based on 2005 figures), transportation accounts for 20 percent of all CO2 emissions in Japan, and looking solely at the airline industry, flights on Japan’s domestic routes account for 4 percent of all emissions in the transportation segment and 0.9 percent of all emissions generated by Japanese industries.

“We have to think differently about CO2 emissions than companies involved in businesses with low CO2 emissions,” said JAL President and Chief Executive Officer Haruka Nishimatsu. “Irrespective of the level of attention being paid to the environment by the public, at the JAL Group, environmental initiatives must be a core management issue, not a peripheral one.” So ensuring a healthy and bountiful global environment for future generations is fully acknowledged by JAL’s executives as one of the JAL became the first airline to conduct a demonstration flight using a sustainable biofuel, carrier’s greatest social responsibilities. And for which consisted of a blend of 50 percent biofuel and 50 percent traditional Jet-A fuel in one more than 15 years, JAL has been implementing of the four Pratt & Whitney JT9D engines of a Boeing 747-300 aircraft. a variety of measures designed to reduce and

9 10 profile fellow flight crews. flight fellow discussionsto these com- of results themunicating then and usage fuel excessive avoid to bers meeting every two months to discuss how the operations division team, with several mem- reorganizedasbeen fashion. since committeehas This eco-friendly more a in flying of explore ways to committee fuel-efficiency a up set the Hokkaido). of island Japanese northern on located Olympics, Winter 1972 the of and Sapporo (a city world-renowned as the host emissions Tokyo between trips the round 980 to by generated equivalent is which tons, 53,000 about by reduced been have emissions n hs anr JL siae is le CO fleet its estimates JAL manner, this in percent. 1 approximately by performance engine improve to managed has jetengines ofits large and midsize aircraft, JAL 110 approximately aircraft). per kilograms by weight their reduces effect aircraft in which these unpainted, remain of and arrived (all aircraft of 767-300F delivery took three JAL 2007, year fiscal during And aircraft. per kilograms 200 to 150 mately approxi- unpaintedby weight reduce to withhelping exteriors, aircraft cargo 747 operating began1992,JALpaint. In weightsavingof the metal, bare in freighters its of more operating kilograms). 780 of material, new the with reduction, weight total a to translates (which 30 JAL’sis aircraft747-400of one of belly the in and kilograms), 1,144 of material, new the with reduction, weight total a to translates (which 44 in the belly of one of JAL’s 777-300ER aircraft is lighter new the with version). replaced been contain - JAL’s have of ers percent 10 than more point, internationalon routeswiththis material this(at multipurpose containers its update steadily to theside panels ofthe containers. And JAL plans rialmade ofpolypropylene andglass fibers in— mate- new Twintexa using — started 2007, year fiscal in JAL, but alloy, aluminum of made been routes. kilograms14domesticby unitonper Japanese 26kilograms per unit on international routes, and ofcargo containers carried onboard its aircraft by kilograms. 500 of reduction weight overall on one of its typical 777 aircraft, has managed JAL, methods, anvarious of combination a Through flights. international onboard carried magazines ing, for example, the number of newspapers and an individual aircraft 23 kilograms lighter by reduc- item. per lighter grams 2 — economy premium including — class economy in cutlery in-flight made has JAL Also, class. business and first in service lighter,meal percent for 20 mately ascend In early 1990, JAL flight crewmembers crewmembers flight JAL 1990, early In Having cleaned half of its aircraft engines engines aircraft its of half cleaned Having usingregularlywaterhotByto clean the now is JAL aircraft, cargo of terms In containers these of number average The Previously, containers cargo all JALhave weight average the reduced also has JAL makecanFurthermore, itfound hasJAL 2

generate approximately 1,200 kilograms of CO of kilograms 1,200 approximately generate the at units airportelectricityforconditioning.air and powerAPUs ground on rely they and takeoff, before shortly until units power these up start to not try pilots JAL hour, per liters fuel of 700 and 600 between consumes APU operating the an with Since disengaged. ground engines main the on is aircraft the while lighting and conditioning air onboard for tricity taxiing. while aircraft 747 on engines thrust on landing, and turning off one of the four reverse- of use reduced operation, flap of angle and timing optimal more onboard, loaded fuel of measurement accurate more airport, the at to a decrease in the use of auxiliary power units vr psil ie, rm lmnm as and cans aluminum from item, possible every of flight. savings per kilograms 400 approximately weight achieve to JAL allowed has destination each arrival required safe atfuel for units. (45-kilogram) 100-pound to load fuel the modify to decided of units in JAL kilograms),but 450 (around pounds aircraft 1,000 JAL fuel onboard time, loaded one was At measured. must accurately aircraft an be onboard fuel of amount the GPUs. per hour, compared to 44 kilograms of CO of kilograms 44 to compared hour, per of a Boeing 747-300 aircraft. 747-300 Boeing a of engines the of one in blend biofuel sustainable a using flight industry’sdemonstration first JAL apt. Keiji Kobayashi (left), featured with JAL with featured (left), Kobayashi Keiji Capt. Ps nor te icat rvd elec- provide aircraft the onboard APUs The team’s findings have led, for example, In addition, JAL is committed to recycling recycling to committed is JAL addition, In of amount the of measures precise More efficiency, fuel greater toward work To 2 for for 2

first carrier to conduct a demonstration flight flight demonstration from primarily refined biofuel a sustainable a using conduct to carrier first the refining technology was developer),(a JAL products oil universal Honeywell’s and Whitney, overall reduction of CO of reduction overall tionalfuels,whichwouldagaincontribute an to conven- on reliance reduce to ways exploring in aircraft. 777-200ER equivalent to the maximum takeoff weight of two about 600 tons of recycle magazines each year — almost airports these Today, cabin. aircraft the of space limited the within magazines collect to easier it make that carts storage new introduced addressto thisissue. and result,Andaas theairline Haneda Kansai, teams project special created airportsFukuoka Narita, at JAL however, 2004, In landfills. to transported or burned either copies. new with them crews JAL remove the month, old copies Each from all guide. aircraft entertainment and replace and magazine, in-flight including passengers, to offered isgenerally accounted foramong themagazines procedures. forest-thinning domestic through obtained wood Japanese certifiable from nowonly uses it in-flight example, chopsticks For that policy. are made procurement green a ed paper to old uniforms. The carrier has even adopt- Haruka Nishimatsu, piloted the the piloted Nishimatsu, Haruka CEO n atesi wt Ben, rt & Pratt Boeing, with partnership In JAL executives have expressed interest interest expressed have executives JAL generally was waste such ago, Years aircraft JAL’s onboard paper of bulk The 2 , JAL’sGuide, JEN in-flight- emissions. , JAL’sSkyward,

Photo courtesy of JAL of courtesy Photo profile

Photo courtesy of Boeing 11

a ascend [email protected]. Phil Johnson can be contacted at continues investing in new, new, in investing continues Additionally, JAL has instituted a voluntary voluntary a instituted has JAL Additionally, finding to commitment JAL’s Furthermore, All of are and these key more measures “As a to of the symbol our commitment In the actions of its top executives and oth- L customer carbon-offset program, passengers enabling to its purchase credits that are specifically spent on environmental effectively procedures offset that passengers’ sures individual of carbon generation during mea- that particular trip. and eventually introducing biofuel to conventional fossil alternatives fuels in its aircraft ground and vehicles represents a trailblazing for commercial aviation, essentially helping make effort commercial aviation its the first global-transport in - sec practices sustainability verifiable place to tor fuel-supply chain. helping in part its do to equation JAL’s of elements substantially improve the global environment. environment, we operate an airplane with a green tail — and environmental all employees specific are out sharing carry and in the effort accelerate to activities,” Nishimatsu said. has Group JAL the be organization, the even may that throughout ers determination of level a to exhibited circles business corporate worldwide in unique seriously to combat and the possible long-term detrimen- emissions harmful potentially of effects tal leave a much more healthful genuine legacy to future environment generations. as a - emissions at 2 concentration in the upper 2 emissions in the process. 2 Since 1993, JAL has also been partici- Also in support of the campaign, JAL has As company policy, JAL is also applying The data collected The using data JAL are collected aircraft own regular air transpor And beyond JAL’s more-efficient aircraft, such as the Boeing 787, which under normal conditions is estimated estimated is conditions normal under which 787, Boeing the as such aircraft, more-efficient to burn 20 percent less fuel than current comparable aircraft. As part of its environmental sustainability strategy, JA strategy, sustainability environmental its of part As detection, information gathering includingregions open vast over flying pilots JAL’s and analysis, Indonesia, Siberia and Alaska have been reporting morewith spot, to happen they outbreaks fire any than 700 blazes reported in the past six years. pating in a global-warming observation monitoring greenhouse gases project,in the upper atmo- air-sample-collection fitted specially using sphere and -measuring equipment. The involves program five JAL now aircraft on international routes, measuring the CO JAL’s offices JAL’s in Japan by more than 10 percent during the last five years. shown a Team Minus 6 Percent sincere public-informa- a making flights, domestic its on video tion lives appeal to members everyday of their the in general public energy to use con- they ways sider use and them to economically and encouraging conserve energy in every way possible. innovative flying and routing techniques including tailored arrival and user-preferred route to allow its aircraft to the arrive at producing and their fuel while of destinations amount least the using fewest CO atmosphere. the understand better and study scientists helping causes and effects of measurable increments in global warming and overall climate change. the has carrier been supporting activities, tation energy-saving “Team the Japanese government’s Minus cooling 6 office Percent” and initiative by winter reducing the levels during of heating office during the summer, cutting CO

2 With the overall aim of preventing or at Being a member of a global airline industry As As part of the JAL trials, has tested the At Tokyo’s Haneda Airport, JAL Group Subsequent laboratory testing by Boeing, The fuel for the JAL demo flight was Second-generation biofuel feedstocks, The biofuel component was a mixture The demo flight effectively brings the least effectively containing wildfires through early early through wildfires containing effectively least has also enabled JAL to play some unique roles inroles unique some play to JAL enabled also has Because improvement. environmental fostering of such the effects mitigate theoretically forests challenges as global warming by absorbing CO JAL of fuels, the fossil burning through emitted has supported the Boreal Forest Fire Control Initiative and other similar projects. novel fuel in one of its tug vehicles, which is most around loads heavy to transport used commonly the airport and fuel,biodiesel and oil light for of mixture 50/50 a using baggage transportation. In no modification of the tug was necessary. companies have also been working together with the has Japan that fuel Civil biodiesel Aviation testing Bureau in and companies a other group of been refined from waste tempura oil collected from restaurants. UOP and several independent laboratories verified laboratories independent several and UOP that the criteria meets biofuel blended industry for jet-fuel performance. Ground-based jet-engine performance testing by Pratt & Whitney of similar fuels that further established the biofuel blend criteria performance the exceeds or meets either in place for commercial aviation jet fuel today. successfully converted from plant-based fuel biofuel the oil by UOP, using complete Honeywell’s to to proprietary technology hydro-processing the the blend, 50 create To percent conversion. biofuel was then blended with typical jet fuel. compete with natural food or water resources and and such resources water as or food camelina, natural with jatropha compete and algae, do not do not to contribute environmental detrimental activity such as deforestation. of three second-generation biofuel feedstocks: camelina (84 percent), jatropha (less than 16 percent) and algae (less than Boeing, 1 Pratt & percent). Whitney, and JAL, Honeywell’s UOP second-generation of use the to committed have biofuel feedstocks that represent more efficient and sustainable energy than their first-generation predecessors. airline industry closer to finding a commercially viable second-generation biofuel that could help reduce the impact of emissions carbon dioxide by generated while aviation, also reducing the petroleum-based traditional on reliance industry’s fuels. The test on conducted Jan. 30 involved a blend of 50 percent traditional Jet-A (kerosene) fuel biofuel in one of the four and 50 percent of & Pratt JT9D engines a Whitney JAL-owned Boeing 747-300 aircraft. camelina, an energy crop. This also well representedas carrier Asian an by demo biofuel first the as the first biofuel demo using Pratt & Whitney aircraft engines. In response to the many new challenges it’s faced during the past few years, Mexicana Airlines has made highly strategic changes to its commercial side of the business as well as experienced great success from its low-cost subsidiary.

By Michael Mankowski and Michael Reyes | Ascend Contributors

Forward LEAP

Air New Zealand embraces innovation in both routing and flying techniques to generate significant fuel savings and reduced carbon dioxide emissions on a route from New Zealand to the United States.

By Shawn Mechelke | Ascend Contributor

12 ascend Photo courtesy of Boeing of courtesy Photo profile

During its economically and environmentally significant flight last September, called ASPIRE 1, Air New Zealand saved approximately

1,174 U.S. gallons of fuel and reduced CO2 emissions by some 11,218 kilograms.

wo basic necessities in the global air ozone depletion and the overuse of natural sent via datalink communications to an Air New transport industry — saving fuel and resources (as represented by petroleum prod- Zealand aircraft cockpit’s flight management Treducing potentially environmentally ucts) have intensified the sense of urgency computer. This includes the flight plan itself, harmful CO2 emissions — are linked directly to felt by Air New Zealand executives to position plus enroute wind and temperature data. greater efficiency. themselves on the leading edge in identify- The carrier is able to analyze historical And greater efficiency is precisely the ing new operational methods for the carrier’s fuel-burn data for each of its individual aircraft goal that Air New Zealand has effectively tar- scheduled flights — especially flights across (compared to what was flight planned) and geted in its innovative application of advanced the vast distances of the Pacific Ocean. adjust its fuel-burn calculations accordingly for routing and flying procedures on its trans- In coordination with innovative oceanic each aircraft, including calculation of a perfor- Pacific route between New Zealand’s global air traffic procedures, Air New Zealand has mance-deterioration allowance. economic hub in Auckland and the California implemented advanced flight planning tech- To analyze this factor in proper context, coast at Air New Zealand’s North American niques to set a new standard in trans-Pacific the airline takes into account that as aircraft destination in San Francisco. travel. age, their fuel-burn performance is altered. Considering the entire process, Air New Air New Zealand determined that approx- Air New Zealand monitors the fuel-burn per- Zealand has helped enable the aviation indus- imately 42 percent of the total fuel savings on formance of each of its aircraft on a daily try to make a leap forward in defining both a the Auckland-San Francisco flight is attributable basis and makes weekly adjustments in its more environmentally friendly and economic to calculations and decisions derived from data aircraft fuel-burn data. It also considers these means of operating aircraft over long trans- supplied by Air New Zealand’s flight planning measures a collective maintenance practice, oceanic distances. system, Sabre® Dispatch Manager. which are followed to produce highly accurate On Sept. 12, Air New Zealand com- The remainder of the credit for Air flight plans based at least partly on the specific pleted what is now recognized as an economi- New Zealand’s significant achievement goes expected fuel-burn performance of each indi- cally and environmentally significant flight of a primarily to the most advanced air-navigation vidual aircraft. Boeing 777-200ER aircraft from Auckland to services provided by several government As another key factor that results in San Francisco. agencies, including Airways New Zealand, highly accurate flight plans, Dispatch Manager Before and during this historically note- Airservices Australia and the U.S. Federal receives an updated set of worldwide wind worthy flight called ASPIRE 1, Air New Zealand Aviation Administration. and temperature forecasts every six hours. Air applied broad capabilities in the areas of In incrementally analyzing Air New New Zealand flight dispatch officers are then advanced flight planning techniques, datalink Zealand’s remarkable accomplishment, it’s able to use these latest wind and temperature communications and air traffic control advance- important to examine the flight’s sequential forecasts in the preflight planning stage to cre- ments to reap highly impressive results in trip process — from preflight stage through take- ate the initial flight plan for any given flight’s fuel savings totaling approximately 1,174 U.S. off and climb, cruise, descent, and finally the departure. gallons as well as approximately 11,218 kilo- flight’s landing at San Francisco International Further augmenting the flight-plan accu- grams in reduced CO2 emissions. Airport. racy (as based on the most recent six-hourly Combined concerns revolving around Air New Zealand uses Dispatch Manager wind and temperature data), Air New Zealand global climate change, ongoing measurable to create optimized flight plans, which are then maintains various items of direct-operating-

ascend 13 profile 14 to plan optimized routes based on better flight better on based routes optimized plan to air carriers enabling years, of oceanic number a for space Pacific been South have the UPRs in operational UPR. user- a or flight route, the preferred for defines Zealand New lowest ing the least amount of fuel and generating the flight route — looking to identify a route requir economical most the determine to Manager preflight stage, Air New Zealand uses icat iuto dsly ehooy i the via Sabre technology display situation aircraft flight-planning capability, Air New Zealand uses communications. datalink via computer management flight aircraft’s the to winds, sent are setting route, cost-index and flight-plan temperatures The received. six are updates every temperature — and route wind when en hours, is aircraft as well the as while preflight computed be can tions phases. flight descent and cruise climb, the in use to profiles performance the to as crew flight to the guidance provide and computer agement man- flight aircraft’s the in data performance flight. the for cost total minimum ally arrives at a cost index that will result in the cross- referenced against the cost of fuel and eventu- time flight of cost the calculates then carrier The data. direct-operating-cost reliable highly plus information, temperature and wind New Air latest the the uses engine planning flight, flight Zealand particular a for altitude costs. fuel including system, planning flight the in information cost minimal and savings fuel both with route a construct to planners the allow to but flight, a affect can that variations weather of array vast a only not consideration into take to planners flight allow conditions. at certain points due to locally adverse weather adjusted be to needs it if determine and route New Air an system, Zealand flight dispatcher can assess the overall planning flight the by thunderstorm of route. planned areas the to relation in activity as well as icing and turbulence potential including route, the along conditions weather forecast graphical eration ellite imagery to compare and take into consid- sat- plus system’scapabilities weather-overlay the using by routes optimum dispatchers determining flight in Zealand New Air guide to used be also can system, flight-planning the to to landing. takeoff from route en is aircraft the while time real in progress flight’s a track and view ascend ® s ky lmn i ti poes Air process, this in element key a As n diin o its to addition In calcula- cost-index variable result, a As the to correspond data cost-index The and route optimum the determine To l o te atr ae n lc, hn to then, place, in are factors the of All provided optimization the to addition In addition in display, situation aircraft The

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approximately 4,015 kilograms of reduced of kilograms 4,015 approximately for accountable also was UPR and gallons U.S. 420 approximately to amounted UPR of tation implemen- the through flight this on saved fuel The computer. management flight aircraft the loadingintotemperature foranddata wind the of inclusive aircraft, the to uplinked digitally is be to conflicts. identify to able controllers traffic air for order in fixed routes maintain to traffic for requirement no is there — profileflight of revision any to regard which instantly probe for conflicting factors with New well as their real-time as conflict-probe capabilities, — Air FAA’s Ocean21 the With and OCS airways. Zealand’s predefined of side out- operating aircraft systems support to control able are traffic that air requires which of emissions. and usage fuel Franciscothatwouldmost effectively minimize San andAuckland between track thecalculate used carrier the — cast fore- temperature and wind upper-air enroute — using the calculated cost index and the latest Francisco San to Auckland Zealand’sfrom flight system). Ocean21 its FAAusing the by Oaklandtheflight information region(managed and OCS) or system, control oceanic its using Zealand New Airwaysagencygovernment Aucklandthe the by (managed region in information essential flight oceanic not are — daily) flex-tracks or (flex-tracks,effectively, tracks tracksfixeddefinedare defined permanently of routes. city/pair fixed fly to required being simply than rather patterns wind prevailing of benefits the of advantage taking in efficiency H in trans-Pacifictravel. in standard new a set to techniques planning flight advanced implemented has NewZealand Air procedures,traffic air oceanic innovative with coordinationIn ighlight Once calculated, the user-preferred route implementation UPR, the is route This New Air for phase pre-departure the In form the in whether — routes Fixed ipth Manager Dispatch CO

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such reduced separation in international airspace airspace international in separation reduced miles such nautical 30 to longitude and 30 nautical miles latitude — the first airspace oceanic their in agencies aircraft between Australiaseparation required the reduced Airservices and Zealand separation. 30/30 is region oceanic Pacific the in operations Zealand New Air benefits now manage- flight computer.ment the of side active the into route revised the accepts approved, once and, center control oceanic Zealand’s New to route revised consider ation. crew The crew flight then downlinks for requesta aircraft for the the to uplinked position. airborne aircraft current the of ahead just point predetermined a from track optimum the recalculate to Manager uses dispatcher flight Zealand New Air the and available, becomes forecast temperature and wind latest Immediately, Auckland. thein a for request DARP to aircraft-datalink the Air an New Zealand with flight mences dispatch office approxi- fuel. of gallons U.S. saving 70 mately thereby twice, process completed DARP was the Francisco, San to Auckland route. en flight the re-planning effectively airbornereroute procedure, or DARP, is applied flightin planning system. process the A called through dynamic received forecasts temperature and through the six-hourly update of alti- thetude, cruising upperfor instance, at airthe flight wind Once gained anadvantage significance. greater even duringtheAuckland-San Francisco flight tookon computer.aircraft’smanagement the flight into the through mechanism automatically cost-indexofa factor set that isentered are incidentally, option. preferred Zealand’sNew Air remained has power climb ate der Thereby, phase. flight this in saved be could that fuel of cost the double than more by exceed still maintenance would engine costs of terms in carrier a to savings however,the prices, fuel er phase. flight this during consumed fuelincreases overall amount of the but the use costs, of derate maintenance climb lower power thereby also and effectivelypotential power,serves tosignificantly improve engine life to 20 percent below the aircraft’s maximuma derate climb climb power, or a power setting that is up procedure. optimum operating an at arrive balanced to be must that factors disparate numerous are example, there for takeoff, after climb aircraft’s an In equation. fuel greater the into figured also flight flight). entire the across savings fuel and reductions (emission emissions Beginning in 2005, the Airways New New Airways the 2005, in Beginning that procedure traffic air advanced Another is route revised the calculated, Once com- DARP of use Zealand’s New Air from flight Zealand New Air the On later in figured that things the of some And aircraft, Zealand New Air on speeds Climb Even under the effects of fairly recent high- of use power,the climb considering When the of stages initial the in factors Other Dispatch Dispatch - - profile 15

. 2 CO Sabre ascend a ®. ®. He can be contacted emissions of more than 100,000 emissions. 2 at at [email protected] 2 Shawn Mechelke is an operations CO CO Through what is known as a tailored arrival,tailored a as known is what Through Tailored arrival into San Francisco is a Using CDA, the pilot initiates descent from principlesthe takes then arrival tailored The So in a broad analysis, the combination of And the entire aviation industry appears there Today, are more than 150 flights per The crew of the Air New Zealand flight product management director for Airline Solutions tons … simply by following Airby effective proven and established been have the principles that New Zealand during a Auckland to San Francisco. memorable flight from 135 U.S. gallons 135 of U.S. gallons in fuel and 1,290 kilograms reduced emissions. was Francisco San into approach and descent the optimized for efficiency. sophisticated application of a type of emissions- optimized arrival known as a continuous descent arrival. CDA allows an aircraft to fly a continuous- of the instead at an airport, to land path descent traditional step-downs or intermediate-level flight operations. a high altitude in a (or near-idle low-power) engine toprior point stabilization a reaching until condition only not results CDA runway. on the touchdown in fuel savings and decreased emissions, but also significantly reduces noise beyond the airport. of the CDA a step further by identifying the most flight beneficial path by available all integrating known aircraft performance, air traffic, airspace, meteorological, obstacle-clearance and environmental constraints expected to be encountered during the arrival phase. Air New desire to Zealand’s pursue a “green” approach in the air — the-art combined technologies as well with as innovative air state-of- traf- fic control systems from government agencies, Airways New Zealand, Airservices Australia and the FAA — made this particular Air New Zealand flight something of a high-profile case wor study, thy of both detailed analysis and emulation. to has have Zealand New Air taken notice. accomplishment, In significant a remarkable globally effectively demonstrated how to operate aircraft over long and oceanic footprint distances while environmental smaller creating a considerably saving substantial amounts of fuel. to New and Zealand Australia week connecting are the and Based on States savings United Canada. these annual total potential the alone, flights in of excess 10 of U.S. gallons million fuel and reduced was also able to make use of new descent and to use of able make new descent was also International Francisco San into procedures arrival Airport that saved approximately 200 lons of U.S. fuel and 1,912 gal- kilograms in reduced emissions emissions

CO Enterprise . Operations

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® Air traffic control’s ability to allow closer Sabre vides the Airways nificantly New increased airspace Zealand capacity as agency well as increased sig- route flexibility, thereby overall reduction enabling in fuel burn anand from from each and every aircraft operating in the region. reduces also therefore aircraft between held are separation aircraft which during times of number the below the optimum approximately altitude, of and on this Air savings New in resulted flight Zealand part of eptember were attributed to the carrier’s state-of-the-art state-of-the-art carrier’s the to attributed were eptember S Dispatch Manager, Dispatch Manager, ealand, approximately 61 percent of the total fuel savings savings fuel total the of percent 61 approximately ealand, Z 1 flight last last 1 flight RE PI S This separation standard is standard now routinely This separation Air New Zealand has invested in aircraft flight planning system, According to Air New New Air to According on its A its on applied on flights between Francisco, Auckland and and 30/30 separation San effectively pro- systems that enable the carrier to obtain approval approval obtain to carrier the enable that systems for both RNP10 (which results in 50-nautical-mile lateral and longitudinal (which separation) allows the use and of a 30-nautical-mile stan- RNP4 dard in oceanic regions). to be implemented globally. Within a year, the FAA FAA the year, a Within globally. implemented be to followed suit with regard to its Pacific airspace. A Clear Vision

A Conversation With … Sean Durfy, WestJet Chief Executive Officer WestJet Airlines

estJet Airlines, Ltd., has come a long way since the days of three aircraft Wflying to five destinations in western Canada. Its growing fleet of Boeing Next- Generation aircraft now serve cities across Canada and the United States, including three Hawaiian destinations. It is quickly becoming the airline of choice for vacation travel with its Caribbean and Mexican destinations. Despite a global economy that is currently dictating a significant downturn in the airline industry, WestJet remains optimistic about its expansion plans. Yes, it’s been impacted. In February, the carrier posted a 45 percent slide in fourth- quarter earnings to C$40.8 million (US$31.5 million) as harsh winter weather and waning demand for air travel continued to bog down its earnings. But Sean Durfy, WestJet chief executive officer, is bullish on his airline’s expansion plans, which forecasts 5 percent growth this year and includes adding eight more leased planes to its 77-plane fleet. “We’re still growing this airline,” Durfy said in a February interview with Canada’s Financial Post. “We’re still adding new routes, and we’ll continue to grow the WestJet Vacations product. We’re taking nine aircraft this year, and we have no flexibility on that.” During that interview, Durfy said there are several initiatives in the works that will help fill WestJet’s planes, most of which rely on the successful implementation of its new reservations system, built by Sabre Airlines Solutions®, by the end of the year. While that process will likely push the launch of WestJet’s new loyalty program into the third quarter, it will enable the airline to increasingly move to an “à la carte” model, where passengers pay for the services they desire, such as advance seat selection and flexible fares. It will also enable the airline to imple-

Photos courtesy of WestJet of courtesy Photos ment its recently announced codeshare agreements with Southwest Airlines and Air France-KLM by the end of the year and during the first quarter of 2010, respectively. Talks continue with Cathay Pacific Airways and several other carriers over the potential for further codeshare agreements. “I think we will sign up at least one more this year for 2010,” Durfy said. What is the key to the carrier’s success? People, first. At WestJet, a team responsible for corporate culture organizes

ascend 17 profile 18 employees to keep them updated. In addition, meetings. hall town and parties, news, and culture discuss to crews flight and pilots with talks including events annual 250 ascend important its employees are to the company’ssuccess. the overall to are employees its important displayfirsthand theairline’s emphasis onitsaward-winning corporate culture andhow WestJetAirlines employees, through their friendly, professional interaction with customers, accountability, fun, friendliness and ownership. and friendliness accountability,fun, S afetyisjust oneoffive keyelements that define WestJet Airlines’ culture, along with uf cmuiae rglry with regularly communicates Durfy (We Hear You) that measures culture and and culture measures that You) Hear (We con - WHY called survey also biannual internal an ducts company The culture. corporate of importance the about learn they which in all employees undergo an orientation program thoughts about keeping the vision alive. vision the keeping about thoughts from 2007. September in CEO of role the assumed and He 2005 September marketing. in president and appointed was sales of president vice executive as airline the joined he when 2004, brother.”screwed, you’re that, have company.the of don’tdriver you strategic If a as technology at look now We anymore. eyes everybody’s at look can’t you States, United strong. as been never has culture our and people, 7,500 at we’re course, Of game.’ going different a it’s be they 5,000, to to and get you 2,000, when to ‘Ah, said, went we to go Then you when 2,000.’ it keep won’t said, you they bet people; ‘Ah, 1,000 culture.’ to your went we keep Then never you’ll ‘Ah, said, vision reply? His alive?” the keep you do how Durf, “So asks, announcer an Microsoft, by ad an In well. as improvements. make can leaders so back feed- encourages and engagement employee u ad redy tiue f u WestJetters. our of attitude friendly and fun her or experience? flight his about most notice passenger performance. our to further even ute contrib- and decisions great make our to people encourages story success great this of part being and ownership in Pride ownership. and friendliness fun, safety, accountability, of Centered elements includes culture teams. our caring, around leadership our by equally demonstrated and WestJetter every by way grassroots a in workforce entire our by driven company’ssuccess. phenomenal the to contributed has it how and culture corporate your Describe times. four tures” of packages. travel and fares great guests our offer allow to us which structure, cost low and model business strong a have we addition, In indeed, asset. and, airlines other other companies. Our people are our greatest sets from that apart experience us guest world-class a deliver to commitment their and people our carriers? cost low- other from apart WestJet sets What airline. of kind different a WestJet call you anada’s “most admired corporate cul- corporate admired “most Canada’s magazine, Durfy shared more more shared Durfy magazine, Ascend Question: Clark Lynne with interview recent a In since WestJet with been has Durfy “With 7,500 folks across Canada and the everyone people, 200 had we “When technology to success his ties Durfy The first thing they’ll notice is the is notice they’ll thing first The A: Q: and based value is culture Our A: Q: it’s foremost, and First Answer: What would a first-time WestJet first-time a would What WestJet has been named one one named been has WestJet

yu Wb site, Web your On profile 19 ascend bviously, WestJet has been What do you consider when O How do you balance the need Q: A: Our first priority is a cultural Q: A: This is an excellent question. As Q: of the same values with Southwest and look forward to the day when our guests able will to be enjoy the full arrangement. benefits of this new evaluating new partners? fit. How does the potential partner view the importance of creating a world-class guest experience? What are nizational their values, - orga and how do they treat their people? Of course, we also ate critical - evalu elements such as technology, business processes, etc. At the the end day, any of partnership beneficialmust be mutually and be capablecompanies of moving forwardboth business strategies. in their respective to grow with thecorporate culture that has made you so need to nurturesuccessful? the changes culture its grows, organization an subtly with each new hire. Atbelieve we WestJet,can maintain our strong corpo- we rate culture while growing our business, and that our culturealong will with growour business.and evolverelationship There is a strongbetween resolved to never lose that thefocus. two, and we’re successful because it continues to provide safe, friendly and travel. affordable What air role has technologyin that commitment? played A: From day one, we have always More than 80 percent of WestJet employees are owners of the airline, which contributes to contributes which airline, the of owners are employees WestJet of percent 80 than More WestJet addition, In business. the grow and build help to motivation and desire strong their leaders view all employees as partners, this and team it’s concept that supports the thriving carrier. lenging will it be to integrate your operations? Will it be your difficult brands? to differentiate enjoyed a tremendous our friends at relationship Southwest. For with example, respective our operations teams have exchanged best practices and business process information, which has been not a only significant from benefit a also technical in terms perspective, of getting but to know each other and experiencing the cultural “fit” firsthand. From a brand perspective, we share many -

Southwest Airlines. Southwest Airlines. How chal- Your founders based their Describe a memorable, fun or off- or fun memorable, a Describe agree- codeshare new a have You Q: A: There are many similarities as well Q: A: It would be hard to describe just Q: ike traditional low-cost carriers, WestJet Airlines operates a single aircraft type, with a fleet a fleet with type, aircraft a single operates Airlines WestJet carriers, low-cost traditional ike of 77 Boeing Next-Generation 737 planes and plans to grow its fleet by 5 percent this year. L as some differences. For aircraft, of type one only example, use we that in similar we are we are dedicated to providing high value at a lowcost,we’re funandfriendly,focus andwe on creating an amazing However, our workforce guest is much smaller experience. and it is non union. the-wall event WestJet hosted for employ- for hosted WestJet event the-wall ees and/or shareholders. ment with business model on Describe the similarities and differences of the two carriers. one. In fact, we have overevents 200 for parties and WestJetters and every Probably year. one of the most their satisfy- families par share profit twice-annual our is events ing We We get more compliments about our people than anything else. From the time our guests book their tickets to check-in, lounge and, the of course, boardingthe flight itself, it’s all about delivering a world-class guest experience. People also like our new and efficient Boeing Next-Generation 737s, our performance on-time and, in general, how worry-free it easyis to fly with us. and ties, when WestJetters have an opportunity to come together to celebrate our and success, share and leaders in enjoy the opportunity to personally reward team members for their part in our success. profile 20 the only Canadian company they chose to to were chose we they feature! company that Canadian only flattered the and were We businesses CEOs. prominent featuring commer cials television animated of series new their within contained is answer a the asked in were we growth serve similar question aside, by Microsoft recently, our andan As for will future. the foundation which critical a system, as our reservations replace to onboard Solutions Airline when flying approaches. We have brought safety increased an and savings significantfuel us developed affords which we application, performance) navigational example, (required RNP For applica technologicaltions. on dependant business in core is our role of much as significant success a our played have nerships company and highly motivated to drive drive to the motivated of highly owners and are whom company of percent over WestJetters, 80 7,400 some of force work- committed and dedicated working, lines going out of business every year? every business of out going lines air sees that environment an in cessful ascend America of any large commercial airline. commercial large any of America Withitsfleet ofBoeing Next- Q A: Technology innovations and part- e ae n nrdby hard- incredibly an have We A: : Why has WestJet been so suc- so been WestJet has Why G eneration737-600, 737-700 and737-800 aircraft, WestJet Airlines operates themost modern fleet inNorth Sabre Sabre he aircraft are equipped with more legroom, leather seats and live seatback television. seatback live and seats leather legroom, more with equipped are aircraft The - - -

and over again.over and 10 people who fly with us, fly with us over of out nine Some us. to loyal that fiercely are guests all, of value best strong and, a proposition costs, low sound a model, have We business results. business strong forward. company our move to other alliances as strategic will well as airlines we other with ties Specifically, opportuni - codesharing additional for look culture. incredible our celebrating and experience guest to ing continue amaz- will an delivering and creating We on focus way. measured sustainable and balanced, a in expand and grow 2016?by airlines international successful most five the of one become to do to intend em y aig “hns o mkn the great making for this “Thanks saying, of by team part flight being for and gratitude privileges her captured agent WestJet the about experience? say customers Q: Q: to continue will we Overall, A: A WestJet customer service service customer WestJet A A: ht pcfcly o you do specifically What What do employees and and employees do What

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If there is one thing you want you thing one is there If Connecting The Dots The Delta Air Lines and Northwest Airlines merger has had a significant impact on regional carriers — specifically those that no longer partner with the new, combined network carrier.

By Michael Clarke | Ascend Contributor he recently completed merger of Delta In the majority of the cases, the major The jury is still out on what will happen to Air Lines and Northwest Airlines has network carrier was able to obtain more-favor- the remaining independent regional carriers, but Tcreated the world’s largest global car- able capacity purchase agreements as well many believe that they will either be acquired rier. As part of the terms and conditions of the as place a greater level of financial risk on the by their stronger counterparts and/or join forces acquisition, the combined airline has agreed to regional carrier. In the end, the stronger regional together to counteract the negotiating power of maintain its existing hub airports for the fore- carrier groups such as Republic Airlines and their network partners. seeable future, including major flight operations SkyWest Airlines were able to re-enforce their As the level of regional carrier operations in Amsterdam, Netherlands; Atlanta, Georgia; position as marquee regional partners with their increases for a given network carrier, the thorny Cincinnati, Ohio; Detroit, Michigan; Memphis, existing network partners as well as pick up issue of which ones will fly next-generation Tennessee; Minneapolis-St. Paul, Minnesota; some additional flying lost by smaller and often larger regional aircraft (70 seats or more) sur- regional New York City, New York; Salt Lake City, Utah; less-financially stable regional airlines. It was faces. Most network carriers are still restricted and Tokyo, Japan. essentially a matter of the strong getting stron- by scope clauses in their pilot contracts, and In addition, the two carriers will continue ger and the weak getting weaker or, in some they have found creative ways to deal with the to operate independently during the transition cases, ceasing operations altogether. situation by introducing first-class cabins on

process, until they can be merged onto a single Bombardier of courtesy Photo U.S. Department of Transportation operating certificate. This process is anticipated to take 12 to 18 months to fully complete. In the interim, it’s business as usual for the two carriers that, together, maintain partnerships with 10 regional carriers. While three of these carriers are direct subsidiaries of the new, combined carrier, Delta Air Lines’ relationship with the remaining regional carriers is governed by capacity purchase agreements that involve a fixed fee for departure or cost-plus contract. As part of these agreements, regional carriers are usually restricted to operate a limited number of aircraft below an agreed-upon seat capacity and on specific routes through specific pilot scope clauses, and they are in effect under the strategic control of the network carrier. Under these capacity purchase agreements, the network carrier assumes all the market risk and is responsible for commercial planning, revenue management, marketing, sales and distribution

of the airline product. It usually covers high-risk Airlines Northwest of courtesy Photo items such as aircraft ownership and insurance as well as fuel costs. The regional carrier is responsible for operating the flights and ensuring the availability of capacity for the network airline. Leading up to the merger, Delta Air Lines had proactively reviewed its existing agreements with each regional carrier and opted to terminate operations entirely with Big Sky Airlines and ExpressJet Airlines as well as significantly reduce its dependence on Freedom Airlines (subsidiary of Mesa Air Group). While Delta Air Lines’ original intent was to remove non-beneficial partnerships, it was also able to reduce the number of partner carriers and retire less-desirable aircraft from its fleet — primarily small regional jets (50 seats or less). Throughout the course of last year’s damaging economic downturn and simultane- ous escalation of fuel prices, U.S. domestic major network carriers started to re-evaluate the benefits of regional operations in their network systems. While Delta Air Lines’ and Northwest Airlines’ review may have been The merger between Delta Air Lines and Northwest Airlines, which has created the world’s accelerated by their pending merger, the largest airline, has significant benefits for regional partners such as Compass Airlines remaining network carriers also took a hard operated by Northwest Airlines and Comair serving Delta Connection. look at their partnerships.

22 ascend regional 23

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®. He can be contacted contacted be can He ®. a The combined airline will at at [email protected]. Regional carriers aligned with Delta Air Within the context of a global airline alli- ines ceased operations operations ceased ines solutions in airline operations for L Airline Solutions Airline Michael Clarke is director of optimization optimization of director is Clarke Michael multiple trans-Atlantic service from all of all hub its from service trans-Atlantic multiple airports beyond the major European gateways of its alliance partners. For example, if a traveler chooses to fly from Düsseldorf, Nice, France, he would have to Germany, fly through New or or Atlanta. York Lines are well positioned to reap the benefits of being associated with the largest world’s carrier. However, it remains to be seen how Delta AirLines’ executes on its which will overall include how strategic to effectively plan, balance competing hub airports, manage the flow of passengers and aircraft throughout regional its network sys- multiple its manage and collaborate tem, effective make and ultimately operations, airline the to and sustain drive decisions renewal fleet efficiencies of its massive global network. ance, the number the of of destinations served by attractiveness the the dictate will players main alliance network to the business community and a serve to ability The public. traveling general the diverse range of destinations in terms of market distance and customer demand will mean that regional carriers will have an important role to play in connecting the domestic network. dots across the U.S. ExpressJet Airlines. Compass Airlines – 36 Mesaba Airlines – 53 Pinnacle Airlines – 133 Regional Partner (Number Of Assigned Aircraft/On Order) Atlantic Southeast Airlines (SkyWest) – 161 Atlantic Southeast Airlines (SkyWest) Chautauqua (Republic) – 37 Comair – 141 Freedom Airlines (Mesa) – 42 Pinnacle – 16 Shuttle America (Republic) – 15 Airlines – 91 SkyWest Sky Airlines and Currently, Currently, Northwest Airlines operates The future role of regional airline - opera Delta Air Lines has designated Atlanta Delta Air Lines Major Network Airline Northwest Airlines Prior to its merger with Northwest Airlines, Delta Air Air Delta Airlines, Northwest with merger its to Prior with regional partners Big continue its partnerships with 10 of its existing regional operators. Series aircraft as the replacement aircraft for the the for aircraft replacement the as aircraft Series sizeable DC-9 fleet. approximately 65 DC-9 aircraft, down from a high of more than 100 aircraft before the nomic eco- downturn and sky-rocketing fuel prices. The introduction of newer fuel-efficient and aircraft much in its more domestic operations could fundamentally change its current route structure. maintain to tions in decision the U.S. domestic its system goes without Lines, Air Delta For saying. its re-enforce only will hub airports major seven need for a strong, efficient regional aircraft fleet and network structure. For any network high-frequency provide carrier must it successful, be to connections between airport hubs so it can flow passengers to the appropriate gateway for their international destinations. to gateways international major as Cincinnati and Europe and Latin America; New as York a gateway to Europe and beyond; and Los Minneapolis-St Paul Angeles, and Tokyo as primary gate- airports hub remaining The to Asia/Pacific. ways will continue to play an active role of in domestic the passengers and flow potentially provide alternate gateways to various regions in will service The world. need for the high-frequency call for smaller capacity aircraft that can support hub-to-hub flying, especially between the closely located hubs of Detroit and Cincinnati on the one hand and Memphis and Atlanta on the other hand. It’s impractical for Delta Air Lines to offer - Prior to the merger, Northwest Airlines In general, the airline community has two two has community airline the general, In The The lingering issue of who will fly the Other carriers have simply opted to opted have have simply carriers Other However, However, the new Delta Air Lines’ inher The only caveat is that these aircraft Embrace the family of regional jets and assign assign and jets regional of family the Embrace their flying as dictated by pilot contracts, Preserve the status quo and order next-generation narrow-body aircraft that will be produced by Airbus and Boeing.

had established had a established new — subsidiary Compass Airlines — to fly a fleet of CRJ-900s from Embraer Bombardier its E-175 three main hub and were used to operations these Initially, airports. supplement its mainline operations, but it was apparent to those in the industry that Compass Airlines was a feeding ground for gaining the necessary experience with the direction which to decide mid-range carriers regional to larger to go with the It DC-9 replacement. has often leading the of one as press the in reported been contenders for launching the Bombardier CRJ ited fleet of aging yet Airlines’ dependable Douglas Northwest DC-9s will end, and soon only time will tell how Air Delta Lines reach their will replace them. purchasing options: larger regional and CRJ-1000 jets Bombardier E195, — Embraer E190, such as the — C-Series Bombardier proposed will continue Embraer until major network carriers first and address foremost the scope clause issue as part of their pilot contract negotiations and decide fleet narrow-body their with go will they which direction replacement plans. the larger aircraft flown in house by their union- ized crewmembers and benefit from the other cost savings some of in to, having 70 from a capacity more seat in homogeneous ranging fleet are but include savings These seats. 110 cases, products in-flight of purchasing the to limited not and services, procurement of equipment, ground engine maintenance and spares, and, support in some cases, joint flight attendant training. many of the larger aircraft that offer service that on service in first-class some parallels essence the mainline aircraft. While narrow-body some will argue that the larger and more seats are there primarily for marketing purposes, spacious cabins to these happens what tell will time only either to aircraft allocate to free are carriers when the main operations or regional partners. manufacturers are manufacturers in no hurry to launch these venerable the to sell continue as they programs Boeing Next-Generation 737s and A320 the family of aircraft. Airbus For some airlines, however, the deadline and/or need narrow-body aircraft to is order fast new approaching, and they have been forced, in some to ingly, order cases additional aircraft from the current unwill- of generation narrow bodies. In since addition, are most not pilot contracts yet up for renewal at the top business it’s major carriers, network as usual for now. Aeroflot’s Revolution

A thorough examination of Aeroflot Russian Airlines through an extensive turnaround exercise has helped the carrier reinvent itself and once again become a top player in the world’s air space.

By Barbara Childs and Luc Lachoix | Ascend Contributors regional 25

a ascend . They can be Group Manager Revenue Manager Sabre Airline Solutions. com and [email protected]. Even after completing training phas- “For example, analysts were trained to to trained were analysts example, “For After undergoing significant growing Aeroflot’s revenue management team revenue management team Aeroflot’s “The rewards are concrete, and the Sabre Airline ’ Solutions consultants contacted at barbara.childs@sabre. at contacted is an airline consulting principal for Revenue Manager and Sabre Airline Solutions Airline Sabre Barbara Childs is an account director for new business processes with an empha- an with processes business new for sis on systems address performance adjustmentsissues,” Dmitry said. and “Over howa period of time, they received toaddi- tional training and well hands-onas mentoring support.” assistance as es, many systems users remained skepticaland old practices were still widespread. To create confidence among ees, these employ- conducted tests on markets selected using flights new practices and and tions. applica- When the team measured high-yield spill during high seasons and low-yieldduring spill off-peak clearly that periods, the new revenue management results method showed increased Organizational buy-in. revenue. The result? use The New Aeroflot serving Russian airlines and Luc Lachoix pains, Aeroflot today is reaping the rewardsof improved work processes, a more anced bal- work load,reporting relationships. In addition, the andcar better teams and rier reports significantly healthier revenues, which it attributes to the revenue - manage ment intervention. Aeroflot Last expe- year, rienced a net revenue gain of 10 percent, or US$145 million, using and its revenue management practices. It now looks forward success to by capitalizing expanding on ment revenue capabilities this manage- and refining technology asit relates to point-of-sale control and origin- and-destination revenue management. experienced a revolutionfirst successful was It years. short offew a just its practices in because the carrier had executive commitment and its ongoing support.carrier Second, wasthe persistent were and extremely team dedicated. members Third, there and was continues to be ongoing collaboration between Aeroflot’s revenue management team and new revenue management positions Aeroflot to environment face the challenges of today’s environment and to reach superior commercial performance,” Dmitry said.

- ® ® ® Sabre Sabre and the Revenue Manager,

® System, and then it began tack-

eaps Begin With Baby Group Group Manager ™ L AirMax ®

A look at the carrier’s revenue - man “Close analysis of all these issues The commercial turnaround proj- Aeroflot’s commercial turnaround Based on the team’s findings, it was ® A benchmark system should mented be imple- to measure translate issues performance into actionable practices, and Department boundaries should be examined and clarified, A “culture be adopted of to develop accountability performance” of ownership the and commercial results by all team members. should The company must develop market-based teams comprising employees who would embrace ownership and accountability, New processes must adhere of use the leveraging while practices best to industry existing revenue management solutions, iant

ling people and by organizational training the airline’s challenges staff ing and them show- data-based results. Employees attended pricing and ment revenue workshops manage- wheretheory they learned behind received thehands-on training. the technology and then — the airline financial performance. would focus on improving agement in 2004 showed it had a long way to go to adopt industry best practices, processes and tools. But perhaps the biggest challenge was convincing the then 81-year- old organization’s executive team culture that and a leadership if shiftit was to was become essentiala premier 21st century. airline in the AirPrice AirMax G Steps caused apprehension among staff department members who change would saw need just to happen how if was to Aeroflot become much a competitive newsaid airline,” Dmitry. “The natural tendency prefer is status to quo. People defensive were about naturally learning new and technologies processes as well as responsibilities.” assuming new ect team upgraded to newer versions of Sabre projectteam first tackled the more objective challenges of change: processes as reportswell asand measures. It began by initiatinga broad review of and revenue other management commercial distribution, practices. revenue Pricing, integrity, commercial planning and sales processes were all thor oughly evaluated. In looked addition, closely at the how Aeroflot’s team systems, were helping achieve industry performancestandards and commercial objectives. determined that:

- - ® Sabre Airlines Solutions Airlines Sabre hen it comes to Aeroflot, the old adage,can’t“You teach an old dog new tricks,” is far from the truth. To To help leverage this opportunity, Aeroflot’s transformation can also be In addition, the carrier began upgrad- The remarkable revenue gains can be Aeroflotsignificanthasseena financial Since the 1991 dissolution of the

to develop and turnaround implement project, in a consultants which commercial a worked team closely revenue management department and iden- of with Aeroflot’s tified four key areas — processes, organization, people, and reports and measures Dmitry worked with worked Dmitry attributed to forward thinking Gorbatov, the carrier’s by director of Dmitry revenue management. The becoming Russian more highly marketentry competitive of both low-cost carriers and network from was carriers, and Aeroflot needed to redesign its business plan. Dmitry recognized an oppor tunity to considerablyrevenue management improve practices, organization and Aeroflot’srevenue gain performance. ing its fleet of western-built aircraft, which today includes 52 AirbusA321 A319, jet A320 planes and Europe as for well as short-haul11 Airbus A330 planes for Boeinglong-haul routes. 767 flights and two in attributed to a number of things. Beginning in early 2000, Aeroflot itself as one of safest the and world’s most began redefining reliable airlines, hiring rebranding consultants for project that a includedand uniformsnew forlivery flight attendants as well as a promotional campaign launched in 2003. improvement during the past several years, both in earnings and number of passengerscarried. Last year, Aeroflot increased scope the of its work by 13.5 previous percent over year, the carrying nearly passengers 9.3 million (5.7 3.6 millionmillion domestic), which is higher than international the industry-average and indicators. Despite50 the percent increase incompany’s fuelincome has expenses,grown by more thethan 26 percent. USSR, Aeroflot from a has state-ownedsemi-privatized been airline bureaucracy that transformedthe ranks most profitable among into in the world. a The rier car operates scheduledfrom Sheremetyevo passenger International flights destina- 96 serving countries 52 to Moscow Airport in tions in Russia, Middle East and North America. Africa, Asia, Europe, the

This 85-year-old airline has lots of tricks up its sleeve. Just ask the people who make up Russian-based Aeroflot, one of the old- est airlines in the world. Founded in 1923, warplanes re-equipped flying began Aeroflot domestically and internationally to - destina tions in Germany. W Fleet Shuffle

Aircraft manufacturers have been pleasantly bombarded during the last few years with record orders, but the two main aircraft makers, Airbus and Boeing, continue to struggle with seriously delayed delivery schedules, leaving carriers around the world to improvise until their new aircraft arrive. Additionally, sales for regional plane makers Bombardier and Embraer continue to climb. Especially popular are the larger airframes, with record orders for the stretched CRJ series and E-jets, but similar to the larger aircraft, it’s uncertain when these orders will be fulfilled.

By Michael Clarke | Ascend Contributor Photo courtesy of Bombardier of courtesy Photo

26 industry

Photo courtesy of Airbus 27 ascend USA Today found that This situation has created a strong demand demand strong a created has situation This On the regional front, Embraer and A recent study by the Olympic celebrations subsides, the subsides, the carriers Olympic celebrations remain eager to receive their aircraft. As a stop- gap to the these for aircraft orders delays, ANA supplemental and place to JAL forced have been as as well postpone aircraft B767-300 venerable the retirement of existing B767s in its operating fleet. In addition, Airbus has benefitted from an increased demand for its A330 series competing A350s come online. until the in resulted has which types, equipment these for higher leasing costs and residual values, delayed cargo carriers Asian conversion many time, programs, same the At and schedules. revised flight have elected to replace their aging B747-400s with twin-engine aircraft, Japan from routes most On especially B777-300s. the capacity similar- to North America, the B777-300 is becoming the of not aircraft replacing only choice, B747s to are which but converted being also MD-11s, freighter operations. Bombardier have seen the continued interest in their product lines, especially in larger airframes, with record orders for the E-jets and stretched turboprop CRJ Series. In advanced addition, there for has been a healthydemand the in resurgence aircraft with some major network carriers reintro- ducing turboprop operations in their service. As scheduled a fallout to the run up in fuel there prices,has been a noticed reduction in smaller jet with aircraft operations, many network carriers opting to park their 50-seat regional jets. In return, (ranging jets regional larger to upgrading are they turboprop to downgrading seats), 100 to 70 from operations or exiting the given market altogether. some major airports experienced more than a 30 percent reduction in operations year Nonetheless, over regional aircraft year. manufacturers also - - ast carriers, has slowed its growth plans as it as plans growth its slowed has carriers, ast E By far, northern Asia airlines have been Asia airlines northern By far, Ultimately, Ultimately, numerous factors centered In both the B787 and A380 programs, Qatar, along with other prominent Middle Middle prominent other with along Qatar, awaits the arrival of wide-body aircraft such as the Airbus A350. riers have been forced to entirely postpone their launch date. the Launch by most the delays. B787 impacted customers ANA and JAL in Japan anticipated taking deliveries of their during first the first time half batch in of aircraft new 2008. the of Some receive to Chinese aircraftexpected car riers for the in While Olympics summer the Beijing. disappointment from the missed opportunity to showcase the new advanced aircraft as part of which resulted in a significant delay in the Boeing around Boeing the in the delay construction significant a in of resulted which the aircraft frame, 787 program. The 787 now has delivery date an anticipated three years later than planned. Adding originally to Boeing’s woes was an unex- pected and prolonged strike union, which more or less by shut down production its machinist Airbus has also had its own share late oflast year. of the ultra-large the with introduction setbacks, A380 aircraft severely impacting the the availability on of work to resources design and engineering A350 program to compete against Boeing. aggressive product development timelines and were delivery negatively pected impacted manufacturing challenges that resulted by in unex- multiple rounds of part redesigns and/or reworks. In many cases, partially constructed aircraft idle sat along to the way effective assembly and lines efficient an out until figure could engineers resolve the problems. Ultimately, the B787 and A350, competing along with the A380, will be delays these but right, own in their aircraft great have had impact on tremendous fleet planning departments around the been world. forced to Carriers delay the launch have of new the routes, retirement of aging and less-efficient aircraft types, and, in some cases, newly established car - - With these new technologies and con- The introduction of the new wide bodies The introduction External factors such as the rapid increase increase rapid the as such factors External As of January, Boeing racked up a healthy healthy a up racked Boeing January, of As uring the last manufacturers five have the enjoyed record Granted, orders years, globe. the across major airlines from aircraft

struction techniques came the risk of uncertainty. uncertainty. of risk the came techniques struction Adding to this risk, a decision was made to out- source a larger portion of the airframe construction to key partners manufacturing across the an added level of introducing complexity globe, in the logistics and distribution arena. mance and airframe construction Boeing believed that techniques. the was opportunity ripe to develop and mass produce the world’s first commercial passenger aircraft using advanced composite materials, which offered significant weight savings that would in turn lead to more consumption of fuel in terms operating efficient the with Experiences impact. environmental and increasing use of composite the materials airframe, along with the decades-long use of across such materials in military and business jet con- for the launching foundation provided struction, the next-generation of wide-body aircraft. promised the utilization of the latest - technologi cal advances, especially around engine perfor in the price of jet fuel (especially during 2008),the passing of the agreements, continued U.S.-European the the and approval open-skies Atlantic of North the anti-trust across the partner ships to added only alliances airline global in growth newly serve to aircraft new for demand of frenzy be to seemed There markets. city-pair conceived no end in sight for the record orders of aircraft at the two leading aircraft manufacturers. backlog backlog of more than Airbus while ordered, 3,700 787s Boeing 913 aircraft amazing with an enjoys a backlog of 478 3,715 of its aircraft, recently launched including Airbus A350 extra- wide-body aircraft. The prevailing demand efficient wide-body for aircraft and the route-map evolving structure created demand for fleet new types with enhanced and operating range. When mission first introduced to capability the airline community, there in unparalleled excitement the industry for was the a level Boeing 787 and competing of Airbus A350 aircraft. Carriers saw traffic passenger the opportunity international of flow to the change fundamentally through bypassing congested gateways such as F. John York’s New and Airport Heathrow London more and offering Airport International Kennedy direct scheduled services to/from secondary markets.

distribution of these orders has been focused on focused been has orders these of distribution the rapidly growing Indian domestic market and aggressively expanding Middle Eastern carriers. U.S. domestic network carriers, still from recovering the fallout of geopolitical situations and declining economic conditions, have been slow in new ordering to aircraft replace aging fleets of narrow-body aircraft and first-generation twin wide-body aircraft. D industry 28 culture will take time to complete, this has not not has stopped Delta Air Lines from making some this imme- complete, to time take will culture integrationseparatetheof airline operations and allocationand equipmentof types.Although the completelyLinesAirto rethinkfleetitsplanning Delta residual the allowed has Airlines Northwest recentlycompleted merger of Delta Air Lines and aircraft. narrow-body next-generation Georgia,Central Atlanta, toSouthandAmerica in using its base home its from served routes of number the substantially increased has carrier the markets in Europe and Western Africa. In addition, routes from JFK International seasonal and year-round Airportnew many introduced toit secondary and B757s, its of majority the to winglets add to particularly operations, North Atlantic.across the Lines opted Delta Air international for ployed rede- but parked not were B757-200s, especially 2008. of quarter fourth the removedfromU.S.thedomestic systemduring aircraft) number voluntarily of the was terms of equivalentofone major network carrier’s fleet (in anynewsubstantial aircraft orders. making effect,In retire- without thefleet narrow-body the aging of ment accelerate to decided carriers tions, reduc- flight the with conjunction In timetable. the reductionsnumbertheinscheduledof drastic flights made in prices fuel escalating and passenger demand network in reduction major marked year, a facing last airlines quarter second the During MD-80s. and B737-300s the as such craft air narrow-body older by flown flights scheduled schedules, notonly intheamount flight ofregional in flying but reduction also significant a been materialize. finally orders these of percentage what tell will time only carriers, mainline the with as aircraft backlog, but of level record a enjoy ascend delays, which have had an immense effect on the carriers’ fleet planning departments. planning fleet carriers’ the on effect immense an had have which delays, 787 Boeing the by impacted significantly been have ANA, as such Asia, northern in Carriers In the midst of all these changes, the the changes, these all of midst the In aircraft, narrow-body larger the of Some Within the U.S. domestic market, there has - delays.spitethissetback,Inof still itintends to to5 percent, percent a direct 8 result from of year the aircraft this rate delivery growth its forecasted reduced has WestJet example, value-based For many carriers. of favorite workhorse B737 the produces which Boeing, at prolonged strike machinist the by impacted were plans growth from accepted the manufacturers. tails new with In other air them cases, replace older intended and sell craft to opt did some fleets, operating their reduce significantly not did carriers low-cost not most While were downturn. economic the — to immune WestJet jetBlue, and Airways, Airlines AirTranSouthwest — carriers low-cost time. of period a for challenging remain definitely will type aircraft which using and hub which from served network.tem Deciding whichmarketshould be sys- its in has now it airports hub of number large challengeone DeltaLinesAirfaces today the is to Michigan, Nonetheless, beyond). and Asia northern in Detroit, cities from (mainly operations byNorthwest Airlines to enhance its international inherited its launch B787 order, originally placed somuch sothat thecarrier isnowreconsidering — route given a for type aircraft ideal the allocate cursedverydiversewitha fleet thatallows to it network. its in aircraft regional of use increased the aging and fleets of retirement the with reconciliation fleet a of process the in was Lines Air Delta Airlines, Airlines flights. Before the merger with Northwest Northwest scheduled flying are crews Lines Air Delta by operated being B767-400s and 300s B767- and flights, scheduled Lines’ Air Delta on deployed Northwest being now by are crewmembers operated Airlines A330-300s and B747- the 400s as such Aircraft changes. fleet diate vn h vnrbe ot American North venerable the Even and blessed both is Lines Air Delta Now,

- Photo courtesy of Boeing of courtesy Photo it receives new aircraft on order, its ultimate goal goal ultimate order,its on aircraft new receives it As week. a times three California, Francisco, San Angeles and Los providesservice, service to it daily of instead but Americas, the for plans sion aircraft. ordersfor current and next-generation collectively, wide-body because, large percentage a holdthey outstanding the plans of growth their slow to forced been have Qatar and Etihad Emirates, A320. and narrow-body Boeing 737NG aircraft beyond the advanced of generation to subsequent the develop manufacturers aircraft encouraging strongly are carriers network major U.S. many as situation addition, it’s become somewhat of a wait-and-seelack of collateral and resources to secure them.havenotplaced In thenecessary orders due aircraft to the new U.S. of need in many are that carriers that domestic is lining silver only The aircraft. these to happens what tell will time only so ers, carri- Indian from are orders backlog narrow-body Today,routes. al outstanding the of portion large a internation- and regional on aircraft wide-body and narrow- next-generation their redeploy to opted travel. to passengers’ impact on its willingness andtions condi- economic global in downturn rapid the of excess capacity in the domestic market as a result pete in the ever-changing landscape. com- effectively to subsidiaries low-cost create to to acquire Air Sahara and Air Deccan, respectively, (JetAirways and Kingfisher Airlines) carriers private leading havetwo the elected and India, Air into leading government-owned merged two been The carriers have mode. accelerated an in lation major players as India experiences market deregu- record-breaking of consolidation anticipated the the come has growth with tandem In continent. sub- the in the service passenger commercial of face changed fundamentally and has domestically internationally, both carriers, India-based for year.this percent 7 to percent 3 by fleet its 136aircraft. Inaddition, of itfleet plans operating tofurther an with reduce 2008 end to new) two aircraft and B737recently (three used five sold has and B737s 36 delivery deferred of thehas strategy. continuing growth AirTran Airwaysits support to E-190s Embraer accept to continues it aircraft and has opted to sell some older A320s as Minnesota. Paul, St. Minneapolis- and Colorado, Denver, as such kets mar established recently in opportunities growth the impacted aircraft capacity to support attractive reallocate to how and trim flightsroutes and to currentits system determine network to which plans for the year and has been actively reviewing aircraft. 120 to aircraft 77 rent cur the from fleet operating its grow ultimately Emirates has opted to continue its expan- its continue to opted has Emirates fast-growing East, Middlecarriers the In Similar to U.S. carriers, India’s carriers have consolidation, this is all there of spite In Inthe international arena, the rapid growth new on delivery the slowed has JetBlue growth its reduced has Airlines Southwest - - industry

Photo courtesy of Embraer 29

- Sabre

ascend -190s to -190s E . He can be contacted ® mbraer mbraer E a at at [email protected].

Airline Solutions Airline As the world economy recovers from its cur solutions in airline operations for Michael Clarke is director of optimization 98 The percentage of accurate baggage handling of the 2.25 billion bags airlines handle According each year. the 2 percent of to mishandled IATA, bags leave 48 million passengers dis- appointed each year. that result from recent market liberation and open- will skies agreements. levels traffic cargo and passenger recession, rent to increase need the see will airlines and traffic recover, increasing the serve to as schedules flight their decisions planning fleet demand. future The continued growth of global airline influence alli- will ances and strategies their marketing reconcile alliances realign key markets. -

Although the immediate future for the global global the for future immediate the Although Regardless of the future trends in fuel prices,

he economic downturn has also impacted low-cost carriers, such as jetBlue, which has has which jetBlue, as such carriers, low-cost impacted also has downturn economic he T accept to continuing while aircraft A320 Airbus older its sell to opted support its growth plans. not exist today, according to Boeing. 2027 The year in which 82 percent of the industry’s fleet will be aircraft that do the B777 for international operations and has used used has and Nonetheless, the airline is operations committed to the use of international for B777 the them to replace older B747-400s. airline industry remains uncertain, one thing remains valid carriers and — lines, there will production the off be rolling a residual aircraft demand for new the reap to that have taken the necessary steps during the eco- positioned will well be There will downturn resources. nomic acquired newly the of benefits be rationalization in to the Indian have and will Middle East mar carriers network major U.S. and kets, face the reality of obtaining new aircraft to improve their operational efficiency and reduce fuel costs. eitherexpenses fuel their control actively can airlines markets through new pursue fuel to hedging flexibility more-efficient and/or aircraft. In addition, these new aircraft the operating carriers modern, give will

up it

count Qantas Airways has also introduced the The prolonged delay of the A380 program The percentage of estimated annual growth rate for aircraft in service between the years 2007 and 2027, according to Boeing. 3.2 + A380 on its high-volume routes to routes A380 on Los Angeles its with high-volume Australia, Melbourne, and Sydney two both the from opted between has service daily Airlines offering of goal Singapore the Interestingly, pairs. city to reintroduce A330s into its operating fleet, replacing some B777s on regional routes that were used almost a decade ago to replace the older A330s. also had a substantial impact on Singapore Airlines, the global launch customer of the equipment type. In many cases, the carrier was increase frequency temporarily and/or maintain forced to either A380.the for slated routes on operations B747-400 the to reduce plans Airlines Singapore Ultimately, of number B747 in its its and fleet supplement the introduced has operations with Singapore B777, Emirates, to A330 Similarly and A380 aircraft. Tokyo A380 Airport, on high-frequency, high-volume routes Heathrow from London to airport base its Sydney Australia’s and Airport International Narita Airport. is to offer daily service in all markets and, in some some in and, markets all in service daily offer to is cases, increase it to twice on depending market daily offers demand. Emirates or even more, service to most continents with extended-rangeoperations with the B777-200LRs to able São Brazil, and finally Paulo, was Houston, Texas. As Emirates one A380, of the for the launch customers to deploy the aircraft type on high-frequency, high- volume routes to London plays Heathrow Airport Emirates John and F. Kennedy airlines, International Airport. profitable most As one world’s the ofand market Australia to Europe the in role major a and plans to frequency serve to has increase aggressive continue as well as market this in service and Etihad are as a Emirates of major heels feeder the On of traffic continent. into the Indian sub- Qatar Airlines, which share a similar large order of wide-body aircraft and the desire to rival the larger neighbor in fleet size and network structure. shutterstock_19254766 1 4/23/09 11:53 PM

Last year’s global capacity cuts, with more on the horizon, can have extensive ramifications for an airline, specifically in the area of revenue optimization. However, revenue management and pricing teams can offset the ill effects of capacity reductions and maximize their potential benefits by implementing strategies designed to effectively manage the new demand levels.

By Lindsay Millward | Ascend Contributor

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Photo by shutterstock.com 31 In some markets, no action will be required. Expand — Low market share but high yield, whereby product segmentation could minimize dilution.

What is the current strategy for this market? This This market? this for What action has the competitor taken so far? strategy current the is What is based on market type: Do the high-yield fares go high enough? Are there sufficient opportunities price up-sell increments of to encourage size a sonable rea- among the fare classes?

sessed given a capacity cut. These factors include include factors These cut. capacity a given sessed price market sensitivity, segmentation, seasonality, market performance, market share, capacity share, decreases As capacity competition. and schedule in a the market, needs to structure pricing be In economic fundamental accordingly. reviewed theory of supply and demand, supply would result the in an increase in the reduction price that of can be charged for goods. in However, the current economic climate, given the diminishing demand and the reduction in companies’ corporate travel budgets, pricing analysts need to be even smarter in formulating strategies based on the characteristics of their markets. exists structure pricing Where a comprehensive and competition is minimal, agement the system revenue should given the man- the optimize fare availability controlling thereby those flights, cuts in more decreased However, competitivecapacity. capacity drastic more seen have that markets to be need questions certain carriers, by multiple answered: Strategy Capacity declines have not been seen glob- far-reaching have cuts capacity Commercially, Typically, Typically, the pricing strategy for a market has forecasted a fall of US$36 billion in revenues in revenues billion a of US$36 fall to a drop forecasted has saw which decreases downturn, last the forecasted to have compared Others billion. agreed have US$1 all of but degrees, severe more or lesser that the airline industry is facing challenging years. one 2008 of of its quarter most fourth the Comparing however. ally, America North dis- clear a is there 2007, of and quarter fourth the fashion, versus typical In European while regionally. cuts, tinction drastic most the tempered made more a has implemented have carriers Asian decrease. The Middle East, Australasia to continue and see a South meanwhile, America, marked increase in available seat percent, 4.3 kilometers, percent and up 6.0 percent, by respectively. 8.9And while North America capacity is down overall, Southwest Airlines bucks the trend increase in with available seat miles. a slight are areas few and airline, an across repercussions When optimization. than more revenue affected this type of change occurs, revenue management and pricing departments need to respond appropri- and gained.be should that benefits the maximize to ately management revenue steps tactical are There be can that strategies and take can teams pricing implemented to effectively manage demand levels. these new Pricing is based on various factors that need to be reas- - Early signs of a slowing economy started of started signs Early a economy slowing Although the action was taken as a result ofresult a as taken was action the Although “The events allowed for needed capac-

ast year, the airline industry ast saw year, the most dramatic cuts in capacity since 9/11, with promises of more to come. As oil prices

A softening of the global economy has caused load factors to decrease, and airlines have been dramatically cutting capacity in response to minimize the number of empty seats. to snowball with banks and financial institutions to with institutions banks and snowball financial providing crisis point and reaching governments and followed, huge bailout packages. The inevitable travel cuts in corpo- leisure and budgets travel rate demand Numerous softened predictionsnoticeably. to the impacts on made been the have revenue industry. The International Air Transport Association oil prices, which have since itdeclined significantly, appears the right decision was made for an unex- pected reason — the abrupt softening of demand. Whether the decision was good luck or good judg- comehave not could decreases capacity the ment, at a better time. wise,” said Robert Crandall, former in chairman and American Summit of AMR Corp.’s officer Strategy executive chief Airline 2008 the during Airlines, London. “It is this ruthless reduction in seats that will preserve ticket prices and margins and ensure that a few carriers survive.” thus ity reductions that wouldn’t have happened other

continued to soar up to an eventual US$147 peak of a barrel, airline option executives but saw to take no drastic action — capacity. reducing The belief was result in lower costs the and that removing seats action lead- prices, ticket boost would even or sustain would ing to an increase in yields. L Maintain — High yield and market share, Reduction in the aircraft size but maintenance side capacity and traffic-trend statistics. The airline’s offering the potential to improve yield and of the same schedule — Here, the analyst historical data may provide insight from periods defend share. needs to consider whether there is now more where different frequencies or capacities were Opportunistic — Low market share and low opportunity for up sell on this market. If capacity operated. Competitor fare data can give valuable yield, but opportunities exist to develop traf- is significantly cut across the operating carriers, guidance to competitor strategies following the fic and yield. assuming there is not still surplus capacity and capacity changes and, with the right tools, the Yield — High market share but low yield, demand remains stable, the yields could be analyst could choose to automatically remain in line presenting the potential to improve the traf- expected to increase. with the competitions’ fares until the new demand fic mix. Cancelling a flight but continuing to operate the levels have become apparent and the situation has Does this strategy still hold true given the route — In this scenario, the analyst needs to stabilized. industry reduced capacity, or does it need redefining? review the competitions’ schedule offering to How can pricing reach the latest strategic objec- estimate how much demand will move to the Overbooking Strategy tive? competitors’ flights and how much will move When overbooking far in advance to com- to other departures on that day. Factors to be pensate for cancellations and no shows, discount- Demand Forecasting considered include the historical passenger mix ed fare classes are usually made available. When Typical revenue management systems fore- on the cancelled flight. If the passengers were significantly decreasing capacity, there is a risk cast demand on an unconstrained basis, allowing primarily price-sensitive leisure passengers, they of insufficient seats remaining for higher yielding the system to respond automatically to adjustments can be retained by ensuring availability of com- passengers booking later. Typically, overbooking on to capacity; however, where capacity is reduced petitive fares on the remaining schedule. lower-capacity aircraft or lower-frequency routes, across multiple airlines on a market or entire Cancelling a route — The key consideration here even as a percentage value, will decrease because flights/routes are cancelled, passenger demand is the impact on other markets. Cancelling a there is less room for error. Following a capacity can be significantly affected. The prime concern route may result in: reduction, overbooking strategies and levels must for an inventory analyst in this situation is how the Redirection of connecting traffic through an be reviewed. The revenue management system schedule offered to the passenger has changed. Is alternative hub, will automatically adjust the overbooking levels, there less frequency? Has the capacity reduced to A significant reduction in connecting traffic but the analyst needs to be aware of flights with a level where flights are now expected to sell out? formerly travelling on that leg, which may no potential for high-yield spill, look for up-sell opportu- How can this demand be recaptured across other longer be served, nities and adjust the strategies (including maximum departures? And how can the inventory analyst An increase in traffic to a nearby airport. permissible levels) accordingly. determine what kind of demand adjustments need Various data sources can assist the inven- to be made in the revenue management system? tory analyst in determining how capacity changes Group Management An analyst needs to consider a number of possible may impact the market demand. MIDT data can In times of capacity reductions, it becomes scenarios and factors: provide guidance to market size and share, along- ever more critical to maximize the profitability of

Photo by shutterstock.com by Photo group traffic. When capacity is at a surplus, group demand is often a way of filling empty seats, but in times of reduced availability, group traffic competes for space against individual passengers often con- tributing higher revenue. Recommending alternate routings at a competitive price to a destination city that is in close proximity to the requested destination city can retain group demand in the airline network and prevent loss of market share. Decision support to recommend a group fare can ensure each group accept/reject decision is based on an accurate demand forecast for individual passengers. While capacity cuts are inevitable and quite necessary for many carriers around the world, those implementing strategic revenue management and pricing practices are in a stronger position to make up revenue from the lost seats and come away with a much healthier bottom line. a

Lindsay Millward is a revenue management In times of reduced demand, there are several factors an airline must consider such as product marketing lead for Sabre Airline reducing aircraft size, cancelling a flight or cancelling a route. Solutions®. She can be contacted at [email protected].

32 ascend The KISS Principle Low-cost carriers from all corners of the world are incorporating characteristics from the traditional airline model, such as codeshare agreements and frequent flyer programs, to more effectively compete. And at the same time, established network carriers are stripping away some of their conventional attributes and implementing low-cost carrier strategies for the same reason.

By Lynne Clark | Ascend Staff

ISS — or “Keep it simple, stupid”— is Analysts say the moves make sense. ing in a new breed of hybrid carriers. These the empirical principle that most sys- While Southwest Airlines has long domi- hybrids, according to a 2007 study by Sabre Ktems will work best if they are kept nated the low-cost field, economic pressure Airline Solutions®, are more numerous than simple rather than made complex. It’s also is forcing changes previously not considered traditional LCCs (see related article on page the principle behind a business strategy that including wide-ranging cuts to its workforce 23 of Ascend 2008 Issue No. 1 via www. has made low-cost carriers pose a serious and expansion beyond its tried-and-true for- sabreairlinesolutions.com). Of the 123 bud- threat to traditional full-service airlines. mula of point-to-point service and simple get carriers the study examined, 59 per- But in today’s economic environment fare structures. cent offered products and services that of over capacity, fluctuating fuel prices and “We are continuing to look for ways strayed beyond the sphere of a pure low- growing worldwide economic recession, to expand our network through interna- cost model. even the most dedicated KISS advocates tional codeshare partnerships, and we are Adopted practices include interna- are acquiescing to a 21st-century spin on excited to team up with Volaris to offer our tional routes, using the global distribution KISS — “Keep It Simple And Smart.” Smart customers access to attractive Mexican des- system, codeshare agreements, connect- meaning that many of today’s LCCs are tinations,” Bob Jordan, Southwest Airlines ing services, multiple fares available at straying from their no-frills roots by adopting executive vice president of strategy and any time, advanced ticketing procedures, some strategies typical of network carriers planning, said in a November press release. multiple aircraft types, multiple classes of such as offering frequent flyer programs “Volaris has a stellar reputation for being a service, interline agreements and long-haul and entering into codeshare and interline highly efficient airline with a dedication to destinations. agreements as well as joining other types customer service, which makes it a natural Only 41 percent of the airlines studied of alliances. These alliances are possible, fit for Southwest Airlines. remained pure LCCs, selling point-to-point in part, to nimble new technologies that “We recently announced our deci- routes on one-class travel, using simple accommodate changing business models. sion to enter the international market with fares, with no codeshare, on the same Canadian carrier WestJet, and we will con- aircraft type. Love And KISS tinue to work diligently to broaden our inter- The hybrid carriers are profitable and After nearly 40 years of uninter- national codeshare service even further,” popular. In 2007, these airlines flew 64 rupted profit making, Southwest Airlines, Jordan said. percent of passengers looking for budget the world’s most successful proponent of Commenting on the WestJet agree- air travel. KISS, introduced complexity into its busi- ment, one industry blogger said, “This little The research identified easyJet, ness model when it announced last year two agreement with an almost-unknown (out- Germanwings, Norwegian Air Shuttle, new codeshare agreements. In June, the side of Canada) airline and Southwest could bmibaby, KD Avia, Centralwings, Blue Dallas Love Field-based carrier announced be the beginning of a worldwide network of Panorama Airlines and Flybaboo as hybrid an agreement with Canadian low-cost car- budget flights, which the flying public has airlines now along with Southwest Airlines, rier WestJet to codeshare on cross-border overwhelmingly decided is the future of jetBlue Airways, WestJet, AirTran Airways, flights beginning late this year. In November, commercial aviation.” Virgin Blue and GOL Linhas Aéreas it announced plans to enter a codeshare Inteligentes. agreement with Mexican airline Volaris. Hybrids Emerging To Keep It The LCC segment is one of the most Under both new agreements, Southwest’s Simple And Smart competitive in the airline industry, and this Web site will become a distribution channel The drastic change in attitude toward has spurred many pure LCCs to explore new for existing WestJet and Volaris flights. In codeshares at Southwest Airlines has cap- ways of evolving their businesses to remain addition, the carriers most likely will coop- tured the attention of low-cost carriers competitive and sustainable. For many, this erate on frequent flyer programs, ground worldwide, many of which have modeled has meant adopting some full-service car- handling and cargo. themselves after Southwest Airlines, result- rier business practices to help grow their

ascend 33 Photos courtesy of Airbus of courtesy Photos passenger bases and expand their reach in the marketplace, although they have often added their own twist on how these business practices are implemented.

Blue Meets Green JetBlue Airways and Aer Lingus put a twist on traditional codeshare agreements when they announced in 2007 “the world’s first tie up between two international low- industry cost carriers.” The innovative partnership is a Web-based alliance that enables Irish and U.S. customers to book a single reservation between Ireland and more than 40 continental U.S. destinations, connecting through jetBlue Airways’ home base at New York’s John F. Kennedy International Airport. When the tie up was announced, Aer Lingus and jetBlue Airways stressed their agreement did not go quite as far as traditional alliances because there was no codesharing deal to allow them to sell seats on one another’s planes as if they were their own. The partnership is also not an interline arrangement because there is no pro-rate agreement. Instead, the two carriers are simply combining their cheapest one-way Internet fares with each carrier receiving its portion of the ticket. The carriers transfer bags, something many low-cost carriers refuse to do, but they claim transfer costs are minimal because they operate at adja- cent terminals at JFK.

Virgin Blue: 10 Alliances And Counting At its inception in 2000, Virgin Blue did not have interline or marketing alliances with any other airline. But after the collapse of its domestic competitor Ansett, the low-cost carrier began the first of many alliances by signing a codeshare agreement with United Airlines. The agreement allowed United Airlines’ customers to fly from the United States to any of Virgin Blue’s Australian destinations that United Airlines did not already serve. In 2006, in an effort to be more competitive with rival Qantas Airways, Virgin Blue expanded cross-carrier relationships, forming frequent flyer agreements with Emirates, Hawaiian Airlines and Malaysia Airlines. The same year, Virgin Blue announced a plan to operate up to seven flights a week to the United States using California’s Los Angeles International Airport or San Francisco International Airport, saying that the route was needed to make the airline as profitable as possible. After three years of negotiations between U.S. and Australian regulators, an open-skies agreement emerged giving Virgin Since 2002, Virgin Blue has taken advantage of interline and codeshare agreements to Blue’s long-haul spin-off, V Australia, permis- expand its reach and more effectively compete. It first partnered with United Airlines, and sion for 10 flights a week between Sydney most recently, it has entered into an interline arrangement with Vietnam Airlines, bringing Airport and LAX, which the carrier began its codeshare and interline agreements to 10. operating earlier this year.

34 ascend industry 35

ascend Requirements [email protected]. a Sabre Airline Solutions, suggests Lynne Clark Lynne can be contacted at For an airline, regardless of its busi- Today, many airlines have their own IT Regardless of the form an airline agree- Philip principal Wang, management con- compatibil- system of kind this “Without Reservations and ticketing systems — Do the systems enable free sell and e-ticketing? interline Revenue accounting systems — Can they settlement billing interline of type the handle that both partners want to use? Check-in systems — Does the check-in system handle interline through check-in? Web sites — Do both airlines’ reserve display, and ticket Web codeshare flights sites and multi-leg interline travel itineraries portals and each partner Web site? on top Agreements Agreements And IT ness model or strategic just as partnerships, important to have it robust computer is systems as it is to Creating have a modern flight fleet. information, schedules, making reservations, providing offering electronic ticketing, fare effectively passenger managing check-in, or giving changing credit for frequent a impossible flyer booking without miles are sophisticated information technology. systems that are unique to them, even though tasks are similar. However, when they act in concert, in an alliance, for example, the use of different hardware and software by individual member airlines poses major problems, making it time consuming, expensive and complex for them to achieve their common goals. ment takes — codeshare, or alliance, joint interline venture — look decision for makers synergies in should network, business systems and compatibility to avoid an historically partnerships. airline past of record track dismal Network and business compatibility tions are evalua- relatively simple when compared to the complexities of systems integration. sultant for that before airlines enter into an agreement, analyz- by compatibility IT evaluate should they ing four key operating systems: 1. 2. 3. 4. ity, the partnership can become very costly in terms of investment and Wang said. lost opportunity,” - oneworld membership, more Lucrative business from international American Airlines lost its status as Airline economists predict other size- Across the pond, merger mania and “Low cost doesn’t mean low fares,” OpenSkies is unique in that it com- Iberia is another example of a net- January,In theEuropean Commission demand and if that continues, it is fair to say say to fair is it continues, that if and demand we will see more consolidation.” business travelers is forcing strong international alliances. the world’s largest airline last yearmerger with of the Delta Air Lines Airlines. An alliance by and rivals United Airlines Northwest and Continental Airlines is putting additionalpressure on American Airlines. able U.S. airlines could possibly make head- lines with mergers Airways, this year Southwest including Airlines, Airlines and USjetBlue Airways. Northwest low-cost subsidiaries are taking off. British Airways is in recently talks launched with its Iberia own Last and budget June, carrier. has OpenSkies made flight its using a single Boeing inaugural 757 transferred from British Airways’ fleet. The flight demonstrated that British Airways more was than taking doing advantage of test- was It the agreement. open-skies E.U.-U.S. recent ing a new business model low-costby structureapplying the of a more upscale product. budget carrier to a Willie Officer Executive Chief Airways British Walsh told reporters. “There is a lower cost base, still but a it’s premium product.” bines the perks of — including a traditional carrier legroom and slimmed-down electrical staffing expensive outlets benefits levels, and a chance to fewer — sim- plify with complex operatingentrenched systems in flagship that carriers. to attract budget-minded arecorporate travel- The idea is ers who don’t wantamenities of the front cabin. to give up all of the work carrier adopting airline. its In 2006, own the Spanish budget flag bought carrier an 80 percent where it stake directed all of in its short-distance Clickair Madrid, its from those except passengers, Spain, hub. The airline has been successful, say experts, efforts because of to keep Clickair’s mentality Iberia — length. at arm’s — and its network gave conditional clearance for closer ties between Iberia, Clickair and Spain-based Barcelona, Vueling. Vueling, named 2006 in among Europe’s best low-cost car riers, startedenhance restructuring profitability.and Clickair in Last 2007merger July, announced to create to Vueling a planscarrier to better for tackle equipped a stiff costs. full competition and high fuel - Respond Carriers X “As we are in a recession that is While low-cost carriers are borrowing A series of strategic investor relation- AirAsia, Asia’s largest low-fare, no- “This agreement with Vietnam Airlines Airlines Vietnam with agreement “This Most recently, Virgin Blue announced In November 2007, Virgin Blue Network AirAsia becoming worse, there is going impact to on be air an travel,” said Brucebankruptcy Zirinsky, attorney a who spoke to ers report- about the state December. of “There the is industry last already shrinking some moves from books, network carrier network play- carrierssome low-cost carrier strategies are themselves incorporatingin hopes of remaining competitive. ships has put AirAsia X ground, on solid allowing financial it original Australian to Gold expand Coast Airport beyond destinations. The carrier its has secured rights to land in China, Koreafuture expansion and plans west that Asia, include the India, Middle with East and expansion Europe. Its was European confirmed when executives in announced the December launch of direct service flights from KualaLondon, whichLumpur began in Marchto and operates five times a week. frills airline, pioneered low-cost traveling in the region. It was also the region’s first air line to implement fully ticketlessunassigned travel seats.and In January further2007, AirAsia demonstrated when its it affiliated pioneer with AirAsia thinking known as FlyAsianXpress), X a long-haul, low- (previously cost carrier to cover destinations more than four hours in Malaysia. Lumpur, flight duration from Kuala brings the number of Virgin Blue codeshare and interline agreements to 10,” said Virgin Blue Chief Executive Officer Brett Godfrey. “It’s a significant new means Virgin Blue guests will now have the association as it option of convenient travel to one of Asia’s most interesting and popular destinations. We are pleased reputable to carrier such as be Vietnam Airlines, partneringtooffer more choice for leisure with and business a travelers.” an interline Airlines, agreement which with from allows Melbourne and Sydney Vietnam to passengers Ho Chi Minh City, Vietnam, then transfer toeasily to any of fly the 41 international and 18 domestic destinations served by Vietnam Airlines. announced announced an interline deal tional with carrier Garuda Indonesia, interna- offering easy transfer from a domestic Virgin Blue flight to an international Garuda service departing from Australia’s Perth, Melbourne,or Darwin. Sydney Immense Intelligence Business intelligence capabilities enable companies to determine a successful course, effectively respond to change and measure their success based on a mix of current and historic data.

Michael Embry | Ascend Contributor industry 37 . -

® a ascend Sabre Sabre Holdings Of BI [email protected]. architecture and development manager for He can be contacted at michael. While many businesses are at the New areas of investigation include The overriding point to consider for As a BI application expands to include Two other options that exist for BI Future Michael Embry is business intelligence The early stages of adoption capabilities, of traditional BI others havemore advanced begun methods as to the BI deploytry indus- and business requirements continue to develop. To understand your business, is important it to be able to report happened on what in the these past things and happened. analyze capabilities. BI these provide can tools analysis why reporting and predic- reliable make to able being However, busi- certain under happen will what of tions ness conditions and being able to influence the outcome of business/customer - interac tion is also an important as such processes BI capabilitycertain by provided be that can data mining and predictive analytics. operational BI andmanagement. business Operational BI performancetional uses BI tradi- methods, concepts and report and analyze near real-time data. This, tools to of course, requires access to real-timefeeds datathat can require different dataand source ETL methods. management Business is considered performance a next-gener ation BI solution that integrates a broader scope of a company’s data, includingtransactions, human sales resource information, financial data and any other relevant business data. investment in business intelligence development is that BI processes are an integral part of business improvement and business success. management, process many aspects of reporting, analysis, dashboards, data visualization, etc., dor’s BI tools may one not provide the “best in ven- class” for all aspects of the requirements. However, trying to integrate and different manage tools from be multiple more vendorsthan some may companiesto attempt. are willing application development include open-source tools (such newer as Jaspersoft and Pentaho) and programmatic development (using Java, Visual Studio or other - program ming languages). Both of these alternativesto using require developers with different skill levels traditional BI man- for requirements support different and tool suites aging the BI products. may - ools T As these questions continue to The most commonly used data As can be surmised from Gartner’s Capturing data is the first key to an Do those demographics and - characteris tics differ based on the - origin-and-desti nation cities?

Business Intelligence How Does It Work? arise, more in-depth is required, analysis which leads of to theanalyze more as well data data as different to ways to analyzeand view the information generated. reporting tool is MicrosoftExcel Excel, is but an since independent desktop tool, presents it many deployment most challenges, of which can be overcome by using business intelligencedeveloped for data reporting and analysis. toolsThe BI tools (for example, specifically SAP-Business Objects, IBM-Cognos, etc.), in conjunction with the DW system, MicroStrategy, can be architected to ment, test provide and develop- production environments where processes can ensure information quality (completeness, be implemented toaccuracy consistency, and timeliness). classification of analysis, information more delivery thanbe required one and to accommodate BI every busi- solutionness may need. Eventool though may be one agoal cannot enterprise goal, be achieved because of in pre- manyvious purchase cases, decisions, this business independence, unit cost capabilities. restrictions or tool effective business intelligence solution. Thetransaction systems used to run the business (shopping, point of check-in, sale, etc.) provide passenger data sources for BI systems. Data is usually collectedwarehouse system using inextract/transform/ a data load, or ETL, processes. The tions transforma- are used to make apply the data business more understandable rules from a business to rather than technical tive. perspec- It is important that these data house ware- systems are on separate infrastructures database from the online transaction processing systems because of the differ ent tuning, processing and data requirements. retention Usingwarehouse method an (where enterprisedata all is collected required data the in one data system) management providesto provide “one version features of the reporting and analysis. A representative truth” list required for of DW vendors includes Oracle, IBM-DB2, Microsoft-SQL Server and Teradata. A new andinteresting entrant into this DW space is data warehouse appliances, which Netezza, includes Greenplum Network, Oracle and Teradata. DATAllegro, Microsoft- - - - This list is indicative of the different So So what exactly is business intel As with any type of industry, busi-

nterprise business intelligence what’s going showson in your business and helps plan business strategy, react

- demograph flyer frequent the were What ics of the passengers? What were the advanced-purchase char Why would the number change of passengers last month month last year? versus the same acteristics?

aspects of BI. There are two primary egories: cat- reporting and BItools analysis.have been used for reporting, Traditional which usually identifies what has happened in the past. For example, it is important to know how many passengers there were yester ligence? According to Forrester Research, Inc., BI is a cesses, set of architectures methodologies, that pro- transform and rawand useful technologies information. data And Gartner, into Inc., breaks meaningful it down even BI further into by information separating delivery Information and analysis. delivery includes dashboards, ad reporting, hoc query Office and automation. Microsoft Analysisanalytical processing, covers advanced online tion, visualiza- predictive analytics, data mining and scorecarding. day, last week and last month can This generated. was revenue as much how well as pas- of number the compare to expanded be sengers last month versus the same month the previous year. then generates further questions such as: This type of reporting nessintelligence systems can be effectively applied to the travel and airline businesses. BI systems can help in many areas including cost control, customer revenue enhancement, engagement/satisfaction marketing and effectiveness. While systems (online transaction processing) transaction are needed to perform business functions and capture data from those transactions, BI is required to understand transactions theand the contexteffectiveness of busi- of the ness decisions as well as to provide insight into planning for the future. to changes and monitor the course success. of business, you can During only know what direction and how fast you’re going in relation to where you are and where you’vebeen. That is a fundamental concept behindthe use of business intelligence systems, whichcan be extremely beneficial to airlines that utilize them from providers designedspecifically for the air transportrelated article industryon page 70). Even though (see BI incorporates a lot of technology, the business view of BI is most busi- your critical in on because going if what’s know don’t you ness, you may be going out of business. E Network Checkup Climate Change 40 Airlines must often evaluate their 50 Beginning in 2012, all airlines route network — determining operating to Europe will be

when to add a new route, required to report CO2 emissions when to discontinue a route or and will have emissions limits. when to change the frequency Airlines need to prepare now on a route. Following some to ensure they comply with the basic guidelines is key to new legislation. making sure the right markets are served at the right times.

Capital Uplifting Hedging Your

44 An industry downturn has left 56 (Jet Fuel) Bets many airlines struggling to raise Many carriers exercised fuel capital in a credit-tight environ- hedging opportunities and ment, but three basic options came out on top during the last exist for those that need capital. few years when oil prices shot through the roof. But those who hedged too far into the future are paying a pretty severe price today.

Saving The Pie Looking Back For 47 Choosing the right coopera- 60 Tomorrow tive agreements helps airlines compete without “getting their Even in times of economic dif- collective lunches eaten.” ficulty, certain carriers seem to have a knack for making the best of their situations. And they set the bar high for everyone. SPECIAL SECTION

Survival Guide Network Checkup Airlines must often evaluate their route network — determining when to add a new route, when to discontinue a route or when to change the frequency on a route. Following some basic guidelines is key to making sure the right markets are served at the right times. By Mark Hess and Kathy Turney | Ascend Contributors

40 irlines live and die by the strength of their network. Therefore, they need Ato relentlessly ensure that their routes maintain an acceptable return for their investment. With this in mind, airlines should always seek ways to strengthen their networks through the addition and deletion of routes as well as strong codeshare relationships. Deciding which changes are beneficial can be very difficult, if not impossible, to determine completely. There are many factors that go into this type of decision and, unfortunately, many of the drivers are constantly changing. With such a huge economic impact on the airline, the decision to change service must be examined in detail with a process that is dynamic enough to stay ahead of the changes in the marketplace. Knowing this, the ever-important task remains in deciding how or when to change the network. Fortunately, there are some universal guidelines to follow when making network modifications.

Adding Flights The goal to increase profits is usually dependent on the strength of the airline’s network. The question then arises, how does an airline identify flights to add and then judge if the flight is beneficial? There are several factors to consider before adding a flight. Before proceeding too far, the airline must verify that it has proper authority to add the flight. Restrictions exist between most countries limiting new service into a country and, depending on the location, domestic restrictions may exist as well. In addition, an airport may have its own constraints such as slots or heavy congestion that may influence a new route opportunity. However, the question remains, assuming the authority exists and the airport can support the new service, how are opportunities identified and then measured for profitability? One of the more common ways to identify opportunities is through the use of marketing information data tapes, or MIDT, which will identify how traffic has historically flowed between origins and destinations. Additionally, it allows the comparison of month-over-month and year-over-year data to establish trends. When using MIDT data, an airline should keep in mind that the data is based on bookings not actual flown passengers. Many airlines have processes in place to adjust the booking data to an estimation of traffic data by incorporating other data sources into the process. When using MIDT data, it is also helpful to pair the nonstop capacity with the origin and destination. This gives a feel for the traffic in the market as well as for the capacity in the nonstop market. Markets with far more traffic than nonstop capacity are likely to be good opportunities. If a carrier does not have access to MIDT, there are other ways to help identify opportuni-

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AirFlite ™

rft Manager, Profit FCO-MAD-LIS FCO-MAD-LIS FCO-MAD Itinerary qik eiiin f e fnne em is terms finance key appropriate: of definition quick a the network, there needs to be a clear under clear a be to needs there network, the Removing markets. of types these of repercussions unanticipated the with coping after market the of out drop to tend companiesstrategy. Years these later, corporate the against goes but profitably casts fore- that market a enter will company a often, too All strategy. corporate the consider should established. being is flight the as level this reachlonger, to or months, six to three flight the take may it factor, load percent 73 a predicts forecast a If period. “ramp-up” a airline.Additionally, marketstypicallynewhave (providing S-curve limitedservice market)ain working against the the with especially significant traffic, capture to difficult be will it share, seat low a With realistically. share market the represent to adjusted this be to if needs share understand seat to implications fare with along competitor the against offered service of type the consider should airline an method, asan indicator of potential load factor. With this that use and market new the in share seat the calculate to is way One market. thea of potential judge to ways still are there is owned, not model forecasting sophisticated a if even

l ohr ot nt cone fr n DOC in etc.). costs, for administrative (overhead, accounted not costs other all plus DOC are FAC, or costs, allocated Fully depreciation. or payments lease aircraft Direct operating costs, or DOC, are VOC plus etc.). catering, fuel, example, (for plane the flying by solely to driven costs strict refer VOC, or costs, operating Variable eoe icsig acln flights, canceling discussing Before hn osdrn dltn fihs from flights deleting considering When As new markets are evaluated, airlines airlines evaluated, are markets new As € € Fare 1,200 1,200 € 500 Flights Segment Contribution € 1,700 € € € 450 500 750 - neig h dfnig airleriine’s defending the entering from competition preventing) not (probably delaying of benefit actual the measure to used from encroaching); however, caution should be competition (discourage for measures threshold VOC defensive the below is that flight a work effect. An airline might choose to operate the network, resulting in an overall positive net- to contribution significant make but basis VOC a on lose might flight the cases, some In VOC. negative a with operate to flight the allow to reason a is there unless condition short-term a be only should this however, basis; VOC a on seasonality, where the flight might lose money aircraft. the and sales fare as grounding such instances, be will There simply off better be may airline the or term long the for VOC their eliminated. be to needs route or flight the a if determine out will that weighing factors many in analyst the assist help will understanding overall can- this is Having flight celled? a if alternative only or best airplane the the parking Is aircraft? sell or return to option an there Is deployed? be can aircraft the where opportunities better or new there Are flight. particular a operates longer no it if aircraft the with done be will what on standing te arie my noe s el especially well, as that invoke flights may airlines of other cancellations any monitor important to is It contribution. network total as account into well as growth future and positioning strategic taking basis, rather long-term short-term a than on measured be should this Again, network. the in place its maintain to threshold VOC the to addition in threshold the unit), then each route should pass the DOC sell or lessor the to it return (either aircraft an VOC. negative consistent a is there when In general, all routes should be covering be should routes all general, In If an airline has the ability to dispose of dispose to ability the has airline an If System Contribution € € € 2,900 1,200 1,200 € 500

€ territory special section 43

a . They can ® be contacted at mark.hess@sabre. Sabre Airline Solutions com and [email protected]. Kathy Turney is Kathy Turney a senior consultant Mark Hess is delivery manager and An important principle, the S-curve, There is an old saying that “you can’t scratched been just has surface the While for example is niche markets. Perhaps an airline offers weekend service to a tourist destination that does not require or warrant daily service. if However, the airline targets business traffic, the goal should be to have daily service or, if less than daily, at least at similar levels as its competition. comes into play when an airline offers sparse service in a market. as One the might airline adds airline frequency, its an expect if traffic case, this share In that proportionally. increases has 10 percent of the may expect flights 10 percent of the traffic, but in this is a market, it not the case. The S-curve, named for its S-like shape, demonstrates that if a carrier has fewer frequencies in a market than its it competitors, gets less than its Conversely, fair if a share carrier has of will an it market, a advantage in the frequencies over in traffic. competition its get a disproportionate amount of traffic. Hence, frequency becomes an issue in most markets service. daily for strive should airline an why and If an airline is going to operate with less-than- daily service, it is competitions’ important nonstop service to essential and also is It analyze levels. frequency remain competitive the at to note that while the S-curve is a crucial tool, there are exceptions. Studies have indicated that the S-curve effect can be altered with the presence of a low-cost carrier in the market. fix what you don’t know particularly is broken.” true This for is airlines their network. They need to constantly monitor when analyzing routes against historical performance as as well expected performance. It is all too easy for a competitor to “slip” into a market and steal share before an airline realizes it. This is especially true in connecting markets. Markets, as well as individual routes, should be examined on a weekly basis by many areas such as network, scheduling, revenue management sales. and All groups have important insight on the overall performance of routes as well as new opportunities. It is only when all these groups work in unison that those optimal results can be achieved. on should network airlines changes, evaluating whenknowledge general of foundation this use evaluating optimal network performance.

Frequency While it would be ideal if most of the If a route is identified as a candidate With a forecasting model in place, the In most cases, the goal would be to ighlight ... airlines should always seek ways to strengthen their networks through the addition and deletion of routes as well as strong codeshare relationships. H flights covered their fully allocated costs, this is rarely the case. have flights at In all different profitability general, levels. airlines However, the will network must contain enough routes that are profitable on a fully basis allocated to cover all expenses. the airline’s for cancellation, airlines should understanding, fully before service the remove not rush to and hopefully fixing, the situation. If a flight is losing money on a VOC basis, carriers should avenues alternative through it improve to strive sales strategies, management revenue as such initiatives and codeshare flight covers its agreements. VOC, the airline should not be If a satisfied. Rather, it should desperately search for ways to cover the flights DOC. recaptured recaptured by the airline, the overall impact of the cancellation may not be beneficial to the airline even if it is losing on a any VOC case, the basis. airline has In to have a full picture lost be may who passengers connecting the of by cancelling a flight. In addition, for carriers with codeshare partners, it understand the is impact of important the cancellation to on the codeshare relationship as well. analyst can measure the amount of traffic that through or network the on recaptured be might network the prior partner’s to the cancellation. Adjusting offer daily service in a given market. There are that this does not hold certain times, however, true. If the traffic airline’s base is constrained, for example, based on an island where growth is limited or in an area with a limited population that travels, large enough to support the daily service. Another market may not be - €500 €750 €1,250 €750 of 1,200 for €1,200 450 allocated €1,200 fare, with Profit Manager enables an When a route is being considered for Using this example, assume a pas- Another consideration in analyzing routes analyzing in consideration Another all markets as well as passengers are lost and how many can be recaptured on the network via other gateways or codeshare partners. If a flight is cancelled that provides feed significant to the airline’s network and cannot be cancellation, it is extremely helpful to measure the network effect with and without the flight or route in place. airline to simulate the and after performance the cancellation. before It is understand that in addition important to the local market to that may be lost, there may be other markets that will be lost as well. Using model, it a is easy to determine how many over forecasting senger is traveling Rome-Madrid on a fare and another passenger is traveling Rome- Madrid-Lisbon on a the fare being allocated to the Rome-Madrid portion and the to remaining € the Madrid-Lisbon portion. revenue The for segment Rome-Madrid would be (€500 from the local The passenger). Rome-Madrid-Lisbon the from passenger plus system revenue for the Rome-Madrid market requires adding the beyond revenue (€450 in this example) to the segment revenue giving €1,700 system revenue contribution from the Rome-Madrid segment. If a flight is being - can disap- certainly will revenue segment its celed, pear (€1,250 in this case). More the than system revenue (€1,700) likely, will also be lost unless the airline has sufficient capacity and schedules to recapture the Rome-Lisbon passengers via other services. For the ing connect- Rome-Madrid-Lisbon passenger who pays be will revenue system the €1,200, both the Rome-Madrid segment as well as the do accountants While segment. Madrid-Lisbon not like the use of system the for important is it counting, double is revenue, it that arguing analyst to understand the segment revenue as well as the total system revenue a segment or flight will contribute. This can help justify the cancellation or protection of a flight or route in the network. is to understand the segment revenue as well to makes route the contribution revenue the as the rest of the network. When discussing passenger revenue, two categories are generally used: segment revenue or system For revenue. example, a passenger who travels Rome, from Italy, to Lisbon, Portugal, via Spain, contributes Madrid, revenue to both the Rome- Madrid segment as well as the Madrid-Lisbon segment while a local passenger from Rome- Madrid will only Rome-Madrid segment. contribute directly to the codeshare codeshare partners. Other airline cancellations airline’s an to traffic increase or decrease could network, therefore, it’s critical that the airline understands from where its connecting traffic is coming.

Capital Uplifting An industry downturn has left many airlines struggling to raise capital in a credit-tight environment, but three basic options exist for those that need capital.

By Shane Batt | Ascend Contributor

ctober 2007 was the last month when the shutterstock.com courtesy Photo global economy was growing. Because the Oairline industry is the first to notice a downturn, it has just completed one of the most difficult calendar years in history of commercial aviation. Last year, the aviation industry suffered during the first two-thirds of the year from skyrocketing fuel prices, only to succumb to a sharp reduction in demand as soon as fuel prices began to ease. Now, airline executives increasingly worry about capital availability and its effect on the survival — not just the growth — of their companies. During these times of uncertainty, there are things airlines can do to raise capital to secure their future, but first it’s necessary to examine the financial crisis and its effect on commercial aviation as well as the ways in which airlines are raising capital under the new financial reality. To begin this examination, it is first necessary to look back at the relatively happy days of 2007. In retrospect, and despite severe structural difficulties, 2007 was a better year for commercial aviation than most years. Fuel prices were high, but crude oil prices had not yet passed US$100 a barrel, as they did last year, and the average jet fuel price for 2007 was less than US$75 a barrel. Share prices were high, and there was substantial investment interest in the aviation sector from a wide variety of sources. 2007 will be remembered (among other ways) as the year in which private equity made many inroads into the aviation sector. Because airlines were attractive to investors, banks also courted airlines by providing a high availability of credit facilities. At one point during 2007, a government-owned airline that had never published profits attracted bids for privatization that were more than 60 times the airline’s earnings before interest, taxa- tion, depreciation and amortization, or EBITDA. By comparison today, airlines are attracting on average four to five times EBITDA for privatization, but only if they have a history of profitability. The collapse of several major financial institutions last year, including Northern Rock, had a During 2007, capital was substantially available large impact on airlines’, whose asset values rapidly dropped, and they began to look less from a variety of sources, and airlines employed attractive for new credit or extensions of existing credit. these sources to go on an aircraft shopping spree.

44 ascend special section 45 - - ascend Typically, airlines do Typically, not fail due to losses of So during the first quarter of the year, The manufacturers, which had all increased obligations,their address also and survive To Each of these methods of raising capital Equity injections are increasingly becoming becoming increasingly are injections Equity Equity injections — Take on additional owners or Equity injections — Take ways in debt obtain more funds from existing owners, additional on Take — facilities Debt that solve capital the requirements airline’s without increasing its survival risks, of — assets airlines Existing liquidation Asset can be liquidated to increase cash availability.

fuel and currency hedging, but capital availability PDPs availability but capital those hedging, as fuel and currency just restrictive increasingly became began to come due. As a airlines failed worldwide last year. result, more than 30 to became of cash it of an absence 2008, because fail of they end profit; the By obligations. their pay clear that the world was in a global financial crisis, and demand for on back cut air as travel companies and plummeted both consumers individual was crisis travel financial to the save of on impact expenses. full As the airlines 2009, stumbled into as in economy the real to be factored beginning companies worldwide began massive layoffs. airlines find themselves in a precarious situation. First, there are virtually no credit facilities available to airlines able under still are equity the cash strong very current with financial Airlines conditions. to limited are carriers these but credit, to acquire the during a few apparent fairly elite examples. increasingly Reduced was demand that for travel on air pressure putting further is 2009 of quarter first cash management by airlines. Quite simply, most airlines lack cash. Furthermore, all of the purchases made in 2007 require PDP payments during 2009, and don’t have many the to airlines capital pay these obligations. production quotas, are beginning because cancellations the to are airlines cannot see and deferrals pay order cancellations Order PDPs. their expected to increase through the year. Therefore, the manufacturers will be required to slow production and reduce the number of in planned deliveriesreduction This year. next into and year this for production quotas will be reflected in layoffs by the largest manufacturers, which will further exacer bate the financial crisis. does How capital. raise to need desperately airlines basic three have They an airline raise capital, circumstances? however, under these financial cur rent financial new the under capital raising for options reality that is expected to continue for some time, including: Equity Injections produces its own opportunities and challenges. the current financial crisis. Earlier this year, Qantas Qantas undercapital raise to airlines of year, choice preferred the this Earlier crisis. financial current the Airways and SAS Scandinavian Airlines announced their to intentions perform a additional “rights issue” to issue to owners increase their their common from shares. Many right companies the the of retain percentage upon agreed an to up — shares -

Airlines were caught in the middle of At the same time, crude oil prices hit a Last year, several major banks failed includ- failed banks major several year, Last ighlight Airlines that own their aircraft, facilities and other assets are more attractive to financial institutions because they have real assets that might be attached by the lenders in the event of default. H of of Nevada. Many more large banks, such BradfordBank, Barclays Stanley, Morgan Citibank, as and of Bank Scotland Royal HBOS, and Bingley, huge to required bailouts Corus keep Financial, from collapsing. The U.S. Government promised US$700 billion in bank bailouts and even began to distribute these funds. this increasingly deep banking crisis. First, asset values dropped rapidly, and this meant that their balance sheets suffered, and airlines look less for began attractive new credit or to even the extension of existing in of light policies the credit their credit had tightened lines. Banks that CDO impact found that their liquidity was greatly affected. The poor liquidity in the financial system time a at occurred meant that many existing revolving credit facilities this of All serviced. be not could when airlines needed cash the most. record US$147 a barrel last JetKero was July, selling for meaning more than thatUS$220 a bar with rel. needed to Airlines themselves protect began began to fail. Defaults of CDOs provided real data on the very was default rate, facilities these and with banks exposure their soon that found do that rules governance have Banks significant. not allow them to risk high levels of exposure on in CDOs investments bad Unfortunately, debts. greatly increased the exposure when of it became had clear banks banks that CDOs, on the and, expected default than higher rate much was new loans providing until curtail to immediately they could reduce their exposure. ing Northern Rock, Bear Mutual, Stearns, IndyMac, Washington First Integrity Financial, Bank, Hume ANB Bank, Douglas First National Bank, Heritage Bank and First National Bank - Then 2008 dawned with increasingly bad Then, in mid-September 2007, there was there 2007, in Then, mid-September Simply put, mortgage companies in the Massive orders for aircraft were agreed Despite the huge capital commitments that financial news. Stock markets around the world began to see downturns and struggling banks a Collapse bank Kingdom. run United the in lender on mortgage Northern Rock, the the by by averted Rock fifth-largest was of funds only narrowly of Northern injections through 2007 of end the Bank of England. Equity markets around the world began a downturn as concerns over bank liquidity began to surface. The downturn was just ning, however. begin- United States and United Kingdom were - increas ingly offering credit-debt swaps that cards allowed mort- credit off pay to use gage holders could they to trade facilities equity in credit their homes for and or mortgages new finance with along other swaps, lifestyle credit-debt improvements. structured into put then These were facilities, debt other CDOs that, in theory, had a very low default rate. In fact, the default rates of the CDOs were so low Therepredicted. be only could rates default the that was no actual data on the default rate for CDOs. Financial institutions throughout the world invested in these high-yielding CDOs believing default rate was very low. that their American airlines. Additionally, future delivery slots slots South and East Middle the delivery India, by China, upon future Additionally, airlines. American for aircraft were valuable, ily available so from financial credit institutions to was fund the manufacturer-required read- pre-delivery payments, or PDPs. While the manufacturers provided - substan tial discounts on new aircraft in an if consideration the vast ofindividual example, For orders, PDP percentages aircraft. of were price list the off paid list aircraft’s price was US$100 million, it might a of bulk be part as million US$60 as low as for sold the PDPs of 40 around Nevertheless, purchase. percent needed to be paid on the list price so air aircraftpurchased airlines upon, agreed being were with confidence because capital was widely available. By the end of 2007, however, early signs of trouble in the capital markets arose. Late that year, there were concerns about the stability extended of banks. over- In August 2007, the BNP largest bank in Paribas, three France, discontinued it funds had set up on based selling investment The lenders. mortgage U.S. from debt mortgage BNP Paribas funds had invested in debt collateralized obligations, or CDOs, increasing financial which instruments produce designed that are to rates take growth complex advantage high-asset of equity for asset owners. during 2007, and Airbus was just behind in record Boeing record in achieved behind just was record Airbus and 2007, sales than during more was of This 1,413 aircraft. 1,364 plus with aircraft (Boeing sales new combined the than higher aircraft 800 previousthe 2006, in aircraft new for orders Airbus) orders aircraft more 1,600 about and year, record than the average sales year this decade. the cover to million US$40 find to need would lines PDPs of that single unit instead of US$24 million. special section 46 stantial credit worthiness. One of the ways of interested in lending to airlines that show sub- still are banks Many cases. some in however, true, not is This facilities. credit their increase to banks convincing today time difficult very ahave airlines Most bonds. corporate of ance issu- the through or loans additional on taking include can which facilities, debt through is Debt considered. fully care- be should transactions of types these requirements, of capital airline’s way an popular addressing a While is equity risky. cash considered increasing be conditions, cial finan- current the under investments especially can, making that before and issues restrictions control ownership consider to has airline an in invest to like would who investor equity private ownership a So, owners. percent non-European by 49 of maximum only a allow however, regulations, Union European airline. national Czech in the CSA, interested in is investing it that Airlines announced Russian recently Aeroflot maximums. ship owner foreign violates often it that is ever, 2008. and 2007 during profits massive made that states up oil-producing richest the set by Funds Sovereign from availability especially still — is there 2007, marketplace to the compared in available less equity much private is there While exchange. associated stock its from it de-listing by “private” company equity look the take then actively and equity private private can for company court public to a where is equity through confidence. investor undermines further which trading, share suspend to requirement rights the the produced This announced. be before could issue sell to decided therefore, and,conditions these under drop would value its but capital, existing necessary shareholders felt that their own share raise quickly to price lower the at institutions financial the to issue rights the then-selling made Airways Qantas the price. a over — share reduction a substantial US$2 at investors issue financial rights to its making be would carrier trading the consecutive two days). Investors became aware of rumors that over percent rapidly 10 to than due more fell (shares values share issue declining rights its of announcing advance in shares its of trading suspend fraught also is risk. with it capital, raising of way a good like looks this While capital. much-needed in bring will that investors additional solicit to ownership of percentage owners’ the dilute to owners have pre-granted the right to the airlines their address immediate to capital requirements. — Essentially, the shares existing outstanding ascend h scn mto o riig capital raising of method second The h polm ih rvt eut, how- equity, private with problem The capital obtaining of way different A to had Airways Qantas example, For Facilities - Ultimately, the sale of assets can reduce reduce can assets of sale the Ultimately, resources. cash generate to companies tion airport ground handling companies and even distribu- facilities, catering facilities, maintenance their selling are airlines example, For businesses. non-core Similarly, liquidating are requirements. airlines cash their fund to assets “hard” similar headquarter and hangars their buildings, as such assets other ing back. lease and sell to aircraft have don’t airlines meaning decade, last the throughout aircraft of purchasing of instead leasing selected carriers Many capital. slots, buildings, non-core businesses sell and other assets to raise can airlines Similarly, sale. the from value com- cash the receiving aircraft leasing after same the a back lease to then and them pany sell can aircraft their own that Airlines ongoing requirements. its capital fund to cash into asset an verts con- essentially airline an where liquidation, the current economic climate is through asset Asset sector. aviation the to loans provide traditionally that banks affecting crunch credit the of because form of raising capital will be popular this year this that expected is it airlines, to bonds rate corpo- of cost high the Despite business. the in ownership equity an into converted be can under certain circumstances (such as default), that, bonds” That “convertible sell equity. can airlines is, into “convertible” be to need easily be can that bondsthe or default of event the in liquidated assets by have backed bonds be the to that substantial means provide This security. to have bonds airlines corporate today, through funds substantial attract To bonds. corporate with associated probably is loans. of types airlines other than greater for bonds cost corporate the of that means This attracted. be not would investors the or bonds, corporate of the purchasers the to rate interest attractive extremely an provide must airline The loan. a obtain to banks of instead investors to going airline issues corporate bonds, it is essentially an When facilities. debt through capital raising to approach fall-back institutions. a are financial bonds Corporate from loans attract to assets Sovereign than better even loans. often are guarantees the back will government that their owners from guarantees ereign default. of event the in lenders the by attached be might that assets real have they because institutions to financial attractive more are assets other and facilities aircraft, their own that airline Airlines rich. the asset is because ratio debt/equity have low to a is worthiness credit demonstrating Increasingly, therefore, airlines are sell- are airlines Increasingly,therefore, The final method of raising capital under collateral of matter the also is There sov- obtain can airlines some Similarly, Liquidation

the year.the ence relief from this financial crisis by the end experi- likely will worldwide real airlines year, ing the of recovery challeng- another be will economy.this While the stimulate further then will which airlines, to availability capital more allow will sector aviation the in growth quarters calendar before most Renewed other sectors. business two recovery onstrated travel industries. other most Therefore, of ahead up picks clients. new and existing nues, most businesses have to travel to meet reve- their Toincrease performance. revenue their to turn to have then all costs economicdiscretionary tightened an have that are Companies airlines enabler. because is This to businesses recession. a first of out way the lead and improve the however, also, are They downturn. economic an of impact the long. very wait to have won’t survivors these however, importantly, More downturns. economic future weather to able financial this from quagmire stronger, arise moreprofitableandbetter will survivors The industry.the throughout observed currently is what than resilient more and stronger much pete effectively. The survivors are going to be com- to enough low are costs unit their that of their long-term structural issues and ensure many solve will organizations leaner become however.situation, this in inherent news good some is There gations. obli- their meet to struggling are airlines and availability, capital affecting is control, airlines can’t which crisis, economic current The airlines doesn’t appear to look very promising. needs. capital ate sell immedi- their increasingly fund to 2009 throughout assets will they wall,” the airlines to as “go Nonetheless, capital. raising for airlines most for resort last the much pretty is liquidation asset that means This value. sic intrin- their these to compared little selling very for assets be fact, in liquidates may, that today assets airline an So, their value. below notional much are that rates for selling are assets liquidity, of lack a is there Because assets years. many in than value Furthermore, lower a have today future. the in to lenders attractive less even airline and the sheet make may balance airline’s the of value the In the past, airlines have typically dem- typically have airlines past, the In feel to businesses first the are Airlines to restructure that carriers the First, capital-hungry for outlook industry The a

Saving The Pie Choosing the right cooperative agreements helps airlines compete without “getting their collective lunches eaten.”

By Lynne Clark, Ascend Staff and Thomas Bertram and Philip Wang, Ascend Contributors special section 48 I n hte te nentoa Ar Transport Air International the depending whether agreement, on proration multilateral a special be or can agreement interline An ticketing impacts. strategic and benefits degree of complexity, cohesiveness, potential omplexity Drives Partnership Partnership Drives Complexity benefits include: benefits among airlines comes in many forms, and the Cooperation carriers. other with cooperation is cost reduce and and revenue increase to ways revenues effective most the increase of one And costs. reduce to ability carrier’s eaten. lunches collective their ting get- entities partner without profitability able sustain- achieve to — mind in objective one with agreements partnership airline of wave a spurred have that challenges the are These demand. passenger airline reduced of cators indi- early as served generally have — slump housing and market credit tightening recent a million earlier. year US$111 of profit a with compared Southwest million, US$56 of loss January,net a reported Airlines In carriers. low-cost tion that has even affected previously immune genera- revenue for a environment challenging create fares in trend downward long-term year.last losses renewed and costs fuel increasing rapidly confront to only profitability modest to returned airline industry the 2007, and 2006 in recently, More bankruptcy. exited and while entered them of billion, four US$33 than more lost carriers network 2005, to the 2001 From as industry. known airline pie the conditions at away economic nibbled century,have 21st the of lunch your eaten.” getting without cooperate how and to pie the destroying without pete ascend

a c-ptto “xlis o t com- to how authors “explains co-opetition say “Co-Opetition,” Nalebuff Barry and Brandenburger Adam book, their n Increased passenger loyalty.passenger Increased resources, of tion utiliza- higher by costs network Reduced chan Internetnels, and systems distribution global through display screen Preferential through tunities, sales oppor open-systems and Internet interline shared volume Higher alone, airline the specific markets that cannot be for profitably served by support revenue Incremental market, home their in located not regions in presence airline Increased investment, resource small or minimal with expansion Network Airline partnerships are defined by their utie poiaiiy eed o a on depends profitability Sustained Macroeconomic troubles — such as the The recent economic downturn and the dawn the since that say to fair It’s T ype - - gemns r ete tcia o strategic including: goals or different accomplish and tactical either are Agreements desire. most they outcome the matches that agreement of type the deciding before orities alliance. global large a entering to compared complexity and scale in necessarily not but cohesiveness of terms in is partnership inter-airline of level highest venture the joint A global. alliance or regional The be can ventures. joint tactical-level or sale free seats, block including types different in many in program come agreements Codeshare place. alliance or codeshare a without carriers partnership of kind this agreements, into enter sometimes with alliance along or to agreed codeshare often is cooperation used. is ration pro- special or proration standard Association

Mergers,combining twoentities into one, arebeyond thescope ofcooperation. complicated. and cohesive most the are ventures joint and cooperation, of level simplest the represent agreements ticketing Interline impacts. strategic and benefits potential complexity, cohesiveness, of degree their by defined are partnerships Airline Minimizing cost, Minimizing growth, Maximizing revenue, Maximizing profit, Maximizing ares ut ae eldfnd pri- well-defined have must Carriers program flyer frequent though Even such as the as such mation data tapes, and decision-support tools, infor market as such data, industry use will sectors. underperforming target that lines air separate with codeshare a network partial implementing consider should airline the Instead, choice. best the be not may alliance global a joining quickly, profits maximize to is bigger poses risks. and and challenges effort, and requires capital implement, more to longer takes ships partner strategic of implementation the But partner Strategic ships have larger and more effort. long-term impacts. smaller less have with impacts but results quicker generate rftblt o a opeesv codeshare tool. forecasting simple or spreadsheet a comprehensive using a of profitability the forecast to impossible is It carriers. ferent dif- with up linking of effect the estimate to

Minimizing implementation efforts and and efforts investment. implementation Minimizing n eiig oeta prnr, airlines partners, potential deciding In priority top airline’s an if example, For partnerships of types tactical Generally, Sabre ®

AirFlite ™

Profit Manager, Profit - - - - special section 49

ascend Sabre Airline a raveling Public T . They can be contacted ® The and and [email protected]. Lynne Clark can be contacted at [email protected]. [email protected]. at at [email protected] at [email protected] are are consultants for On Thomas Bertram and Philip Wang Solutions The process is handled using trans- Generally, airline agreements have While partnerships get the kinks out, However, airline executives are bet- It’s the travel choices that will ulti- Effect classes will be aligned between the - carri ers. Each operating carrier is responsible for managing its ownthe marketing inventory, carrier requests so a when seat the operating on carrier, the operating carrier needs to know how carrier if the seat is to available or not. tell the marketing lation tables set up system. Each operating carrier reviews the in the reservations prorate agreement to determine where it will point the marketing carrier’s booking classes to its own. received by the operating Ideally, carrier in a - book the revenue ing class from the codeshare should passenger be the operating same as carrier the own customers. revenue would the expect from its a positive impact on the traveling public. Passengers have moreand choices itineraries to of flightstination. reach If the the same partnership travelers des- does will its find job, a seamless integration between carriers from booking to check-in to post-flight services. dif- by confused be may travelers however, ferent flight numbers displayedfor the onsame airportflights announcements. In screensaddition, frequent flyer and heard credited automatically be not may numbers in by partners, and to passengers manually may fax the have document to airlines. partner ting that customers will endure the short- result the realize they when hardships term will be far morealliance than they would have with an indi- travel choices vidual airline. within an mately drive more brand loyalty toairline and the alliance. both the Sharing Newer and more open systems also The key to success in setting up an has been finalized, the Once the SPA Once a potential partner is analyzed, ighlight It’s fair to say that that say to fair It’s since the dawn of the economic 21st century, conditions have the at away nibbled the as known pie airline industry. H and marketing carriers’ systems. The best method for doing this four is industry using standard codeshare one options of thatthe have been communication developed between from airline practice best forother The systems. tions reserva- electronic traveler frequent is perspective customer a send consistently to is practice Best miles. data feeds to and from loyalty systems. help attract partners because the mentation imple- will be expensive. easier, These types faster of systems often and mean also more less sales opportunities and better customer service. Revenue special prorate agreement with their partner carrier. Thisin determining enables more howsplit the flexibility among revenue partners. SPA should will take Aninto be account analysisnew the potential traffic of an frompotential displacement of passengers and/ the codeshare or revenue on the existing flights. and the SPA is that there is fairness and balance. An airline needs revenue to displacement of balance carrying a code- the share potential passenger the in additional a opportunity busy of additional codeshare passenger market adding in a more an with need SPAs short, In market. traveled lightly to be beneficial to both partners. next step is to determine how the booking it should be determined how revenue will be shared. Rather than IATAusing the prorate standard methodology,in a codeshare arrangement most will create a airlines - - Considerations ompatibility Compatibility C Compatibility When integrating information tech- To To examine these issues, decision Once the potential partnership type Web Web sites — Does the partner system have the ability to display, reserve and ticket codeshare interline flights itineraries andand partner inWeb sites? top multi-leg travel portals line billing system the operating carrier handles? Check-in systems — partner handle Can interline the through check- potentialin? Revenue accounting systeminter of type the handle partner potential — Can the Reservations and sell free enable system partner the Does ticketing systems and interline e-ticketing? — Financial stability — Is to thetake on a airlinetroubled partner? What will willing it cost? Products — What cabin classes, in-flight services and frequent does flyer the potential partner offer? programs Corporate culture — How- accom it will easily how and culture, the entrenched is modate a partners culture? Service levels and branding — If the part- the If — branding and levels Service services its does carrier, low-cost a is ner match those of a premium carrier or vice versa? Connectivity — How well will flights con- flights will well How — Connectivity nect at hubs of all partners? Capacity share — Will dominate the thelocal trunk market? joint capacity Coverage — Will the partnershipmarket reach to meet the demand? enlarge Network compatibility, Network compatibility, Business compatibility, System compatibility.

System Business Network ompatibility Compatibility nology systems with other key carriers, is to the use the wellright and directlysystems impactthat theworkprimary customer. integration point The is with the passenger services made by a marketing airline systems.must be pres- A car operating the from inventory the in ent reservation rier’s system. rier’s Items such as frequent flyer traveler numbers, special service seat requests need to assignments be - pres ent and andsynchronized in both the operating makers should evaluate by potentialasking severalpartners questionskey areas: in each of the is identified, airlines should examine how well they will work in conjunction another. with Three one key areas include: for evaluation 1. 2. 3. CLIMATE CHANGE Beginning in 2012, all airlines operating to Europe

will be required to report CO2 emissions and will have emissions limits. Airlines need to prepare now to ensure they comply with the new legislation.

By Peter Berdy | Ascend Contributor

50 he alarm of global warming and climate change has taken a top spot on the TEuropean Union’s agenda for several years. The challenge has been heightened further by the need to upgrade the European Union’s power grids and energy infrastructure to replace aging electricity and gas networks in the face of soaring increases in energy demand. While some of the money from new E.U. directives will be spent on renewable energy sources, most will be spent on electricity produced by fossil fuels. This raises concerns that Europe is locking itself into decades of dependence on non-renewable fuels rather than laying the foundation for a low- carbon future. Against the background of the economic slump, the European Parliament passed a new climate and energy package last December including a revised emissions trading system, or E.U. ETS. In addition to setting tougher targets to lower greenhouse gases, for the first time, the European Union also included aviation in E.U. ETS.

E.U. Emissions Changes The recent legislation passed by the European Union created legally binding targets for the year 2020: Cut greenhouse gas emissions by 20 percent, Establish a 20 percent share for renewable energy, Improve energy efficiency by 20 percent. It also: Confirms a 10 percent target for renewable energy sources in transportation, Fixes criteria for biofuel sustainability to support biofuels that have no negative environmental impact, Reconfirms the European Union’s commitment to move to a 30 percent reduction in emissions if other developed countries make similar commitments. The idea behind tightening the emissions cap over time is that it should lead to a scarcity of emission allowances. (An allowance entitles a company to emit one ton of carbon dioxide or an amount of any other greenhouse gas with an equivalent global warming potential during a specified period.) This should drive up the price of polluting, which should then incentivize companies to invest in clean technologies that pay off within several years rather than continuing to purchase emissions allowances.

Emissions Trading System E.U. ETS is the world’s largest greenhouse gas emissions trading system. It has been in place since January 2005, and now it covers more than 11,000 energy-intensive installations representing about 2 billion tons of CO2 emissions, nearly half of the European Union’s total greenhouse gas emissions. E.U. ETS is a “cap-and-trade” system. Using E.U. ETS, policy makers set a limit or cap

ascend 51 on their total level of CO2 emissions based on project include voluntary participation; achieving ensure a sufficient level of emission reduc- agreed-upon targets covering a span of several sustainable development; real, measurable and tions take place inside the European Union. years (called trading periods). The targets are long-term reductions; and that the benefits must aimed at reducing global warming. be “additional.” Compling With E.U. ETS E.U. ETS emission allowances for indi- Linking E.U. ETS with these Kyoto mecha- ETS participants with polluting installa- vidual participants in the system (such as com- nisms creates additional incentives for E.U. busi- tions must have a permit from their national panies with polluting installations) are granted for nesses to invest in emission reduction programs authority for emissions of greenhouse gases several consecutive year periods. This is done in developing countries, using environmentally controlled by the Kyoto Protocol. They must also

to neutralize changes in CO2 emission levels friendly technologies to achieve sustainable be able to demonstrate they can monitor and that may occur due to extreme weather events development. report emissions to obtain their permit. A permit such as harsh winters or very hot summers. The The CDM projects are potentially eligi- is different from emissions allowances. A permit first trading period ended in 2007. The current ble to receive credits called certified emission sets out the emissions monitoring and reporting

special section trading period, called the second trading period, reductions, or CERs. JI projects create credits requirements for an installation, whereas allow- also corresponds to the Kyoto Protocol’s first known as emission reduction units, or ERUs. ances are the tradable unit. commitment period, where the European Union The European Union recognizes these credits as Participants that are required to participate is required to make an 8 percent commitment to being equivalent to emission allowances (1 EUA in ETS receive emission allowances from their gov- reduce emissions compared to a 1990 baseline. = 1 CER = 1 ERU) and allows them to be traded ernments. These allowances total to the member During the second ETS trading period, the emis- under the scheme. state’s national level. Participants are given the right

sions cap is set at about the same levels for The ETS is open to linking with compat- to emit CO2 volumes at facilities in these countries each year. ible greenhouse gas emission trading schemes up to a level specified each year. At the end of During the second trading period, once with other countries that have ratified the Kyoto each year, participants must surrender allowances the cap has been set, E.U. member states Protocol. It is foreseen that each side would equivalent to their emissions. A certain number of establish individual national allocation plans that agree to recognize allowances issued by the allowances are given free of charge, allowing levels

determine their total level of ETS emissions. other, thereby expanding the market for emis- of CO2 emissions to occur without any cost. These plans must be approved by the E.U. sions trading. To meet their emissions requirements, par- Commission, and they show how allowances Through the link to the Kyoto mechanisms, ticipants may buy and sell allowances with others, will be issued to participants of the system. The E.U. ETS facilitates investments in emission-sav- and liquid markets have developed to facilitate this total number of issued allowances must be con- ing projects in developing countries. Supporters trading activity. Participants can engage in trading sistent with member states’ individual emission of E.U. ETS also hope it can be eventually linked credits by purchasing and selling allowances. One reduction targets under the European Union’s up with other carbon markets, in particular in the allowance gives the holder the right to emit one

agreement for the Kyoto Protocol. United States. metric ton of CO2 or the equivalent amount of The national allocation approach has been The E.U. ETS revisions in December another greenhouse gas. The cap on the total num- criticized and will be sunset during the third trad- still allow the use of offset credits from out- ber of allowances creates value in the market. ing period. The national allocation approach has side the European Union, but this amount At the end of each year, participants are generated significant differences in allocation remains below half of the reduction effort to required to ensure they have enough allowances rules and creates incentives for member states to favor home industries. To address these problems and replace national allocation plans, there ECX EUA Futures Contract will be a single European Union-wide cap starting in 2013, and allowances will be allocated on the December 2009 Settlement basis of coordinated rules. The move toward union-wide free allocation rules gives new E.U. member states the ability to auction more allowances for industrial installations and introduce a means to redistribute them. 2

Linking ETS With Other Schemes Around The World The E.U. ETS also allows the use of offset credits from outside the European Union to help reduce global emissions. E.U. ETS recognizes credits generated by the Kyoto Protocol’s project-based mechanisms — Joint Implementation

and the Clean Development Mechanism — as Euros per ton of CO being equivalent to emission allowances. Joint Implementation allows companies in countries with a Kyoto target, namely developed countries, to undertake projects in other devel- Jan/08 Feb/08Mar/08 Apr/08 May/08 Jun/08 Jul/08 Aug/08 Sep/08 Oct/08 Nov/08 Dec/08 Jan/09 Feb/09 oped countries, which reduce their emissions of greenhouse gases. The Clean Development Emissions futures contracts are traded on several exchanges and can be bought and sold by Mechanism allows companies in developed anyone. The contracts can be purchased to pay for shortages when a participant in E.U. ETS countries to implement project activities that pollutes above its allowance. A futures contract gives the holder the right to buy or sell an reduce emissions and contribute to sustainable E.U. allowance at a certain date in the future and at a preset price. ECX EUA futures contracts development in countries without a Kyoto target allow participants to lock in prices for delivery of carbon emission allowances for future dates. (developing countries). Key elements of the CDM

52 ascend special section 53 ascend they produce. 2 and nitrogen oxide 2 For Airlines raffic Management T Starting Point Other actions are being taken on renew- From 2012 on, all flights to and from As with other participants in E.U. ETS, The Single European Sky legislation reforms reforms legislation Sky European Single The The Atlantic Initiative Interoperability to AIRE will make it to possible speed up ETS Airlines will also be able to apply for free alloca- free for apply to able be also will Airlines reporting the of start the at allowances of tions period by submitting verified activity data for a will airlines industries, other Like year. baseline be able to sell allowances they don’t need on the market. They will have to buy allowances if their emissions are higher or use emission Systems Other Actions E.U. Modernizing Air funded projects and major industrial stakeholders stakeholders industrial major and projects funded in aeronautics and aerospace to move important technologies closer to market. emissions. The European Union and the FAA have have FAA the and Union European The emissions. from of the industry partners involvement close such and FedEx; as and Lines Airbus Air Delta and SAS, Boeing; airlines France-KLM, such as Air aviation navigation service providers Sweden and Portugal. in Ireland, energy source for use in aviation. Renewables can can able Renewables energy, aviation. in use such for source as energy and biofuels sustainability as of supply, a to security contribute renewable energy E.U. competitiveness. A overall binding in target of a 20 energies percent renewable of share by 2020 was upon consumption agreed by the European Council in 2007, with a 10 percent binding minimum target to be achieved by all member states for the share of biofuels in E.U. transportation fuel consumption by 2020. E.U. airports will be covered by E.U. ETS. This includes E.U.-based airlines as well as airlines that are not part of the European Union. allow- emissions surrender to need will airlines ances for each ton of CO the the way is in air management organized traffic Europe. This requires a modernization of traffic management systems in Europe. The Single the initiative air SESAR, or Research, ATM European Sky Single European of by component emissions technological reduce to the is is objectives its of One Sky. 10 percent per flight. Reduce Emissions, or AIRE, is a cooperative program between the European Union and the U.S. Federal Aviation Administration infrastructure to coordinate control two traffic air on programs major in NextGen and in Europe SESAR modernization, the United States. the application of new technologies gas tional procedures, which and will greenhouse on have opera- a term direct impactmedium and short the in emissions. The measures include “reduced “smooth” engine” approaches, or which will enable to be reduced gas emissions and exhaust noise during landing. Experiments stantial have savings in fuel and CO shown sub- - or or 30 (US$40) in in (US$40) 30 F € emissions from 2 ETS E.U. 71 billion (US$94 billion), or € 113 billion (US$150 billion), up 15 (US$20) by year’s 15 end. (US$20) Prices by year’s € € echnology T The legislation passed in December adds in passed December The legislation Even though there has been significant To address these problems, the European Joint technology initiatives, such as Clean The new legislation passed on E.U. ETS last Growth in the carbon marketplace during The EUA futures contract on the European The carbon market itself was worth about 8 (US$10) in early February. These low prices prices low These February. early in 8 (US$10) by 20 percent over a baseline. The starting 2 € esearch And Development Development And esearch 89 billion (US$118 billion) last year, up 84 per Greener R Including Aviation Including In Aviation point of this line is the average of allowances to be trading for the second states by member issued broadened the reflect to adjustments plus period, scope of the system starting in 2013. allowance emissions gas greenhouse its in aviation within the European Commission. The reason for including aviation in E.U. ETS is because total E.U. greenhouse gas emissions fell by 3 percent from 1990 to 2002, while emissions from international almostby increased Union European the in aviation 70 percent. Aviation has grown at high rates rela- tive to other sectors, putting CO airlines on the charts. operational and technology aircraft in improvement to neutralize enough been not has this efficiency, in and the growth traffic, of increased the effect emissions is projected to continue. Within Europe, commercial aviation is expected 2020. to double by streams complementary three will pursue Union related to aviation: research and development for “greener” technology, modernized air traffic management systems, and market-based measures, namely ETS. Sky, are research initiatives that bring together E.U.- together bring that initiatives research are Sky, of the second trading period (2012) and the entire December affects entire the aviation and directly in (2012) the last period year trading to second the 2013 of from years, eight lasts which period, third will cap the period, trading third the During 2020. of reducing target the to meet year each change CO July, before recessionary pressure brought prices prices brought pressure recessionary before July, down to around cent versus 2007. The carbon market for 2009 is 2009 for market carbon The 2007. versus cent by report a projected to to according be year, last from percent 27 London-based firm New Carbon Finance. 2008 came from higher carbon prices and greater — volume about 4 transaction emissions billion permits changing hands, 42 percent in more 2007. Trade than in European Union allowances, or EUAs, accounted for about 80 percent of the overall total. Climate Exchange peaked at about have continued to drop, and they reached a of low new coal-fired to build energy it economical make more renewable in invest to than stations power and smart infrastructure. E.U. ETS comprised 70 market. percent of that global € emissions emissions emissions emissions 2 2 38 billion (US$50 billion). € 100 (US$133) per ton for each each for ton per (US$133) 100 € Participants must report their CO their report must Participants Participants are required to monitor and The size of emissions trading is impressive. A whole range of new businesses has E.U. ETS does not specify how or where ETS not E.U. does specify Companies can access the market to buy the market can access Companies Participant companies can cost-effectively can companies cost-effectively Participant The buying and selling of allowances takes takes allowances of selling and buying The Carbon Market Join one of the allowance products. exchanges that list carbon- Use a broker to find other buyers and sellers of allowances, Trade allowances with other companies in the companies other with allowances Trade system, Buy or sell (banks allowances and specialist traders), from intermediaries

in that year. These allowances are then cancelled cancelled then are allowances These year. in that with so be they cannot Participants used again. surplus allowances can sell or save them for next year (within one trading period). after each calendar year following E.U. monitoring monitoring E.U. following year be to calendar each have after reports These guidelines. reporting and criteria using verifier by an independent checked emission with Participants in the ETS legislation. is reports that are report not verified a as revised satisfactory until are not allowances sell to allowed approved by a verifier. report emissions according to a plan approved by each of After state. each the member regulator calendar year, participants must surrender allowances equivalent to their verified CO to account for their actual emissions. They have the the have They emissions. actual their for open the account on to allowances additional buy to flexibility allowances excess any sell may they and market, generated from reducing their emissions their allocation. Participants that have not produced have below emissions their cover to allowances enough to pay a fine of excess ton This emitted. process becomes an such as investing to emissions reduce incentive in more efficient technology or using less carbon- intensive energy. The In the first half of 2008 versus the first half of 2007, 40 than more grew market emissions the global percent, worth around market: carbon traders, carbon finance and carbon carbon and emerged in Europe finance as a carbon result of the traders, E.U. carbon carbon market: management specialists, and carbon auditors and verifiers. New financial products such as funds have entered the market carbonas well. trading in allowances should take place. Companies Companies place. take should allowances in trading directly trade market in the participants other and with each other or exchange or buy any other and type of sell market intermedi- ary via that has a sprung up broker, to take advantage significant new market. of this allowances to meet their compliance requirements requirements compliance their meet to allowances or to sell surplus allowances in several ways: manage their emissions where emission ances can be traded in the marketplace. - allow place place on an open market, a providing flexible means for participants to comply with their emissions requirements. special section 54 in epnil fr uoen i tafc manage- traffic air European for responsible tion organiza - international the EUROCONTROL, with developed along was February and released in state. member that to able attribut- mostly were 2006 in emissions whose aircraft operators the for operating and license responsible be forthe aircraft the will operators towhich states of they issued an Member requirements legislation. the with compliance ing ensur for responsible be will that state member Europeanthe Unionassignedwillsinglebe a to forecast. as occur sector,this should aviation the in levels growth high current in factor to ETS, E.U. the already covered by are which generation, power as such sectors, other from es 2013. of as introduced be market would auctioning Unlimited pay allowances. for to rates have will airlines where tioning, auc- by allocated percent 15 remaining the with period, baseline a during benchmarking on based free for airlines to out handed be wouldmits emissions. gas greenhouse 1990 below percent reducing emissions 20overall target of E.U. by percentbelow thebaseline. This is From based onthe 2006. to 2013and 2004 beyond, this cap of will bereduced period to95 baseline the for emissions aviation European annual average the below percent 3 be will Union European the by allowed Emissions period. baseline the of percent ances allocated aviation 97 capped to at be will developing in countries. projects energy clean from credits ascend tion installations such as utilities, which produce much higher levels of levels higher much produce which utilities, as such installations tion other to comparable are Aviationemissions

Millions of Tons of C02 V erified h ls o arie ad prtr was operators and airlines of list The of out or in flying operator aircraft Each Airlines would also be able to buy allowanc- per pollution these of percent 85 Initially, allow- emissions of number the 2012, In C02 Emissions From E.U - - inclusion in the E.U. ETS: E.U. the in inclusion monitoring, reporting and verification for aviation’s effectiveness. environmental its to crucialto the functioning of the E.U. ETS and key V Monitoring, Airline Air Lines and UPS. and Lines Air Delta including operators and carriers 400 oversee almost would Germany Company. the and Coca–Cola FedEx including operators and carriers Wal-Mart.Francewould oversee morethan500 Airlines,United Airlines American andEmirates, includes well This asas opera- flights. corporate and of tors carriers 800 almost oversee would Germany, prosper most. likely Britain the to are withbusiest airports, such asBritain, France and aviation legislation. an the in defined as activity performed subsequently have that include aircraft operators toFebruary year each by list the update commission will The ment. sectors with the exception of combus- of exception the with sectors ETS

erification member state’s regulating authority. Thisplan isneeds to be theapproved by the administering monitoring The 2010. cover to 2009 July by plan monitoring their submit to need Operators 2010. in airlines of applications using baseline this of percent 97 at established be will 2012 for allowances of amount bench- The 2010. year mark the in ton-kilometers their monitor to need operators 2012, before allowances free for Toyear.apply reference a for activities tion avia- their for data ton-kilometer verified submit airlines When apply for — their data free allowances, ton-kilometer of they willMRV have to Installations ETS hr ae w iprat lmns to elements important two are There verificationMonitoring, reporting are and ainl vrih mas ht countries that means oversightNational CO eporting And And Reporting Other 2 emissions. emissions. 2005 make airlines actually reduce CO reduce actually airlines make collection.” general the towards money the put to blanche carte have “Governments February. spokes- the IATA told an person environment,” the in money change. climate combat to used be would governments by collected money the certainty no is there addition, In least at industry the € cost will system the said for 2012. in period start will airlines trading the Then allowances. free of European Commission publish should allocation they will use during 2012. By the that operators endvarious among ofallowances allocate 2011, the 2010verified data. This the data using will benchmark establish allocation the how calculate to will 2010. Commission European for the 2011, September data By ton-kilometer verified their ting submit- by this do will They allocation. free obtain needapplyto theirto member state authority to airlines 2011, March By 2010.implemented in mid-2009. Approvedby monitoring be data then will ton-kilometer its monitor to plan its submit free must airline each year, first get the during allocations To authority. admin - state’s their member to istering plans monitoring submit must year. reporting mid by published be should verification and monitoring, on Guidelines states. ber mem- administering their and airlines of list nary prelimi- a published recently Union European the to consumers. to cost the pass likely will and emissions of price the as well. Otherwise, airlines will simply have to pay E.U. ETS. without Overflying underway, theEuropean already Unionoption anis are capacity in mined. Technology improvements and reductions T

imeline 3.5 billion (US$4.4 billion) each year to comply. to year each billion) (US$4.4 billion 3.5 sions. emis- their cover to allowances surrender must airlines reports, emissions verified these on year.Based the of end the at report verifiedemissions a submit then and emissions their monitor to have will airlines year, compliance each Throughout — emissions annual of MRV ances. allow- free for apply to is so do to reason only only time to submit ton-kilometer data, and the thecompany’s enterprise-wide emissions be contacted at [email protected] contacted be transportation emissions and developed developed and emissions transportation modelsfor air, car, hotel and rail. He can AirlineSolutions Whetherapplying E.U. ETS on aviation will the invest requirement to no is “There TransportAir International Association The airlines year, the of half second the By adopted, been has legislation the that Now Peter Berdy is a consultant for for consultant a is Berdy Peter a in Tribune Herald International ® . He has written about about written has He . 2 is to be deter be to is Sabre Sabre - special section 5555

2 2 ascend nfortunately, Unfortunately, emissions per 2 E.U. legislation indicates emissions and fuel consumption of 2 emissions. “This could be shown via

four times oversubscribed. Auctioning oversubscribed. times four “The new

“CRS should be encouraged to provide The European Union has issued CO 2 — U.K. Department of Environment, Food and — U.K. Department of Environment, Food and Rural Affairs E.U.’s CO2 Emissions E.U.’s Guidelines for Res Systems is viewed as more efficient than giving away giving than efficient more as viewed is allowances for free. businesses Auctioning take into ensures account the carbon cost and of creates incentives to behavior and reduce energy consumption. change that this revenue source should be used to tackle climate change and half least at use now should states suggests member that of their auctioning revenues on measures to combat climate change. this is not obligatory.” the flight,” the European Parliament stated last stated Parliament European the flight,” the September as part of the code of conduct for computerized reservations systems in relation to CO person in g/km and could be compared with data of the best alternative train/bus connection for journeys of less than five hours.” emissions guidelines for all types of reservations systems. Although there is no requirement specific to provide information about CO emissions to passengers, the European Union encourages this practice. in the future easily understandable information about CO average fuel consumption data per person in litre/100km and average CO

2 CO E.U. .’s E.U.’s U.K. gov- ETS to send suf- oo stringent a T uropean electricity $24) raising(US$24) 16.15 E ₤ $80 million) and million) $80 were US .’s E.U.’s renewable energy direc- here is a fundamental tension T “The directive would allow the wind “Auctioning emissions allocations will “ “The

. . More than 4 million allowances were 54 million ( million 54 — The European Wind Energy Association — The European Solar Thermal Industry Association — German Chancellor Angela Merkel reduction regime would not make sense in light of competitiveness and employment concerns.” needs.” ETS of price a at auctioned power industry to increasing expand share to of meet an and governments for revenues generate both are also needed to address climate change. For example, last November, the ernment held its first auction in the tive creates a positive investment climate for a more long-term development industries.” of its “Recent fallout in global financial markets has raised doubts whether a recession the is right moment to spend huge sums only on may that investments technology clean pay off in several years’ time, rather than spending on short-term stimulus and job preservation programs. between using international trading in the ETS to lower the cost of meeting the ficient price signals to drive the low-carbon power investment needed objectives.” E.U.’s to reach the targets and expecting the — Nick Mabey, founding director of British founding director of British — Nick Mabey, think tank E3G and former U.K. Prime strategy unit advisor Minister’s ₤ - - Europe.’” Ascend Contributor

“A massive clean technology push “A very substantial investment (pub- “The long-term stable framework is Proponents Proponents of renewable energies and Opinions on the topic of aviation emis- Environmental Environmental organizations have been

By Peter Berdy |

Red Flags And Flowers E.U. Executive President José Manuel Barroso Manuel José President Executive E.U. — — European Commission Energy and Transport — EREC Secretary General Christine Lins will create ‘thousands of new businesses and millions of jobs in lic and private) will be required to progress toward the 20 emission reduction target.” percent greenhouse gas key for future development.” other other clean technologies argue the moment is ener entire the where shift, paradigm a for ripe sions trading run the gamut, and several offi- to standalone agencies from government cials, organizations, have no standing by their convictions and beliefs. reservations about lobbying for a focus on and energy efficiency in the transition to a low- renewable energies carbon economy. Industries are calling for the to framework of a firm legislative development safeguard future investment in cleaner ener gies, as well as phase out subsidies for ineffi- cient plants, appliances, vehicles and buildings, and for fossil fuel installations. use and nuclear power needsinfrastructures, key including system, gy to be re-examined. The European Renewable Energy Council believes the renewables sector could deliver more than 20 percent of the European Union’s energy needs member by states 2020 continued if to technologies. invest in new As with all controversial legislation, the revisions the legislation, controversial all with As to E.U. emissions trading system have brought forward vocal opponents and proponents. Hedging Your (Jet Fuel) Bets Many carriers exercised fuel hedging opportunities and came out on top during the last few years when oil prices shot through the roof. But those who hedged too far into the future are paying a pretty severe price today..

By Shane Batt | Ascend Contributor special section

Photo by shutterstock.com 57 ascend Much to the happiness of consum- hedging fuel call now would CFOs Some had available capital or credit facilities invested in fuel hedges during and 2008 even for 2010 their fuel protecting 2009 requirements, for carefully the expectation that crude would continue to rise … even oil above US$200 a barrel. ers, the CFOs that hedged against fuel price increases were wrong. So, the “good” airlines with strong financial performance and credit lines have good lost large amounts of money on their hedges, while the struggling airlines that were unable to afford fuel hedges “won” have because fuel prices have dropped by about 70 percent. The “good” airlines are taking large reductions in their profits, while the “poor” airlines are improving their profitability. This is one of the great reversals in performance financial in the history of aviation. Since fuel hedging will have such a large impact on next, and year this performance financial airline it is important to understand more about it. but plight, current their of because “gambling” this is not really an accurate definition of the process. Fuel hedging is a form of risk agement man- designed to protect against the fear of volatile fuel prices. When oil is perceived to be increasing, then fuel hedging becomes an - Those that in weren’t a financial position to leverage fuel-hedging While fuel price was a major driver of more even is hedging fuel of impact The Airlines with poor financial performance Strong hedging airlines, such as last year’s last poor year’s aviation financial performance, fuel hedges are a major driver of poor aviation financial performance this year. bizarre than it sounds. If an airline had strong financial performance and good credit in 2008, then it engaged in good risk management and hedged fuel with a strong hedging policy that is This prices. fuel of rise the against protected what “good” airline CFOs did to protect their financial performance. and insufficient credit lines could not afford to hedge fuel, so they carried a great burden of risk. The CFOs of these “poor” airlines wor ried about the viability of their businesses as fuel prices skyrocketed because they had little protection against the unbridled rise of largest expense. This was also reflected in their the profit and loss of the airlines and in their share prices if they were publicly traded. Southwest Airlines, made millions of of dollars profit from their hedging positions last year. Similarly, airlines with strong hedging policies saw their share prices retain value in a highly management risk their because market volatile portfolio was strong. All prudent CFOs who - Given the significant dip in jet fuel, In mid-July, crude oil reached a peak

rom January 2005 until last September, jet fuel was the single biggest expense of any airline. It was a larger expense

opportunities suffered while tremendously, others survive. didn’t During the last couple of years, when fuel prices climbed to astronomical levels, fuel accounted for 25 percent to 40 percent of an airline’s airline’s an of percent 40 to percent 25 for accounted fuel levels, astronomical to climbed prices fuel when years, of couple last the During operating expense, up from 10 percent to 15 percent prior to January 2005. airline chief extremely financial pleased that officers their expense highest has dropped should by single about 70 percent, be right? Well, it’s not a simple “yes” manybecause airlines had engaged and in had fuel “bet” hedging on that the crude wrong oil expectation prices high. would When continuecrude oil to prices be airlines dropped,that were highly hedged lost manya great deal of money. of US$147 a barrel for Brent Crude, but just eight weeks later, oil than US$60 a was barrel. In September, selling the price for of crude oil dropped lesseven further and earlier this year fell below US$35 a barrel. cent and 40 percent of an airline’s operating costs. Then, in September, the price of jet fuel began to fall rapidly in line with the cost of crude oil on the world market. than maintenance, passengereven the service costs of and labor.prices were Before 10 2005,percent to fuel 2005, January 15Since costs. operating airline’s percent of an fuel prices have fluctuated between 25 per F special section 58 also need to consider hedging currency risk. currency hedging consider to need also States United the of outside expenses large with carriers U.S. even or States United the of outside leasing, airlines costs), maintenance most and and purchases aircraft fuel, (jet lars dol- U.S. in are airline an of costs the of most story,however.Since hedging the of part only is hedging Commodity spread. crack the or oil crude JetKero, hedging of choice a have lines spread. crack the to volatility further year,adding the throughout vary all oil, heating and oil fuel petrol, as such products, end for demand the addition, In spread. crack JetKero. as such products end of price the affect and oil crude then and the of price the to add costs these distributed, stored refined, transported, the at well, ground the from pumped is JetKero. oil as When such commodity a price of the barrel and per oil crude of barrel per price in difference the — spread” “crack the hedge or Similarly,however, oil crude hedge can airlines hedge fuel. jet as used kerosene is which “JetKero,” airlines most example, For modities. performance. financial airline’s an protect to way important ascend ontheoil prices tocontinue toclimb, have taken significanta loss. Andwhile thedip brought much-needed relief tomany airline of high a from plummeted oil July,crude last beginning weeks, short eight In ut n em o te omdte, air commodities, the of terms in Just This difference in price is reflected in the com- different many hedge can Airlines - rnia frs f eKr-egn financial instruments: JetKero-hedging of forms principal three are There airlines. most for hedging of form important most the — JetKero to related hedging of forms different the on concentrate hedging, financial to of ideal it’s complex, quite are which forms of many the of exam- all than ining Rather risk. financial controlling for strategies different essentially are which hedging, of forms different also are there ing, and risk credits. carbon rate interest risk, currency crack spread, the oil, crude fuel, jet involve can they because complex are policies hedging airline Clearly, program. offset carbon implemented soon- the under address needs expansion future to their credits carbon hedging consider to need increasingly Union European the into and future loan requirements. Finally, carriers flying facilities credit rate variable against tect pro- to risk rate interest hedge to need airlines

egs gis a pcfc uue rc of price future JetKero, specific a against hedges airline an When — hedging risk Fixed-price consume, will airline the that amount the in price particular a at JetKero purchases airline an When — hedging Self o ae atr a ite oe interest- more little a matters make To Similarly, during volatile economic times, CFO s arounds theworld, those whoparticipated inlong-term hedging, counting $147 a barrel for Brent for barrel a US$147 its 2009 consumption in July 2008 at US$180 at 2008 of July in consumption portion 2009 its significant a in locked A that barrel. carrier a US$180 reached swaps JetKero prices. fuel in drop a from risk downside biggest the this has that one the also is use which approach, basic policies hedging with medium- airlines and sized small- most Therefore, late in 2004. prices fuel of rise the with really for originated hedging at requirement experts be The to airlines JetKero. most US$85 for of barrel price a the at fuel of consumption 2009 expected its of percent 65 buy to agreed has airline the that means this stated, Simply fuel needs for 2009 are hedged at US$85 a barrel.” our of percent “65 as, such statements swap.” JetKero “simple a as known fixed also is hedging a self Thus, known. for is that price price fuel volatile the “swap” to said is airline The needs. fuel jet airline’s the of percentage a of delivery future the for price fixed a supplier fuel a pays airline an hedging, of type this With airline. an for hedging jet-fuel

of JetKero. of price floating volatile a against hedges line air an When — hedging risk Floating-price rude to less than less to Crude During the U.S. summer of 2008, simple public make will airlines Frequently, of form simplest the is hedging Self $60 a barrel. barrel. a US$60

- Photo by shutterstock.com by Photo special section 59 -

ascend . He can be ® a Sabre Airline Solutions contacted at [email protected]. Between a market price of US$64 Should the market price, however, If last year is remembered by airlines It is ironic that airlines with the best The future of the airline industry may for Shane Batt is executive solutions partner risk hedge as long as the market price stays below US$64 a barrel. and US$73 a barrel, hedge the becomes floating-price more attractive risk fixed-price risk hedge. If than the market price of the fuel rises even higher than US$73 a barrel (US$57 a barrel strike price plus of US$16 the a cost barrel price of the hedge), value the of both the and floating-pricethe fixed-price risk hedge become very risk hedge attractive because the valuable fuel future. Because the fixed-price airline can sell risk the hedge costs less than the floating-pricerisk hedge, however, it is morethe market price increases than the floating- valuable as price risk hedge as long as the market price is between US$78 a barrel and US$90 a bar rel (the US$69 a barrel strike US$9 a pricebarrel price of the hedge). plus the be more than US$90 a barrel, the floating- price risk hedge becomes much more valuable because it has “unbounded protection” above US$90 a barrel. This floating-price risk hedge is a more complicated approach risk management, to but it is attractive under the current market conditions of high fuel price volatility. possible as the “year of outrageous fuel prices,” this year may well airlines be as the “year remembered we lost our byfuel shirts hedges.” with some - suf are year last portfolios management risk fering from those decisions this year. Early last year, very few economistspredicted the could impact of have the credit worsening crunch, liquidity and failing wouldthehallmarkbe banks theremainderof theof that Despite year. the bad results of hedging for some airlines during 2009, hedging of fuel, currency, interest rates and will gain more carbon momentum in airlines creditsin the future. Airlines will sophisticated either become more at instruments or will continue to be handlingadversely these affected by financial market volatility. financial well be related to the level of sophisticationthat airlines can gain engineering from at managing financial these hedges. market Hedging isn’t gambling, it is, in fact, a gam- ble for airlines not to hedge. - - This may sound like a more compli- The last type of fuel hedging, floating- The Organization of the Petroleum For reference, the fixed-price risk An airline buying this hedge could and sell the remaining fuel futures at a - prof if the airline bought futures at a it. However, level greatly exceeding its consumption and the price of fuel dropped below the price, strike then the carrier’s average price paid per barrel would increase to cover the mar ket price plus the non-exercised hedges. cated approach to risk management — and itis — but large carriers with strong financial managers could afford risks to in mitigate this their Fuel more futures are sophisticated an asset, fashion. so fixed-price hedging risk not only affects the profitability of the airline (profit and loss), it also affects the balance sheet of the airline. price risk hedging, is the most sophisticated form of commodity hedging,substantial utilization but this year will because gain of uncertainty about world fuel prices. cur the of While because today low are prices fuel rent economic crisis, most airline uncertain CFOsabout the impact are of world events on jet fuel prices. Exporting Countries, or OPEC, ing production is quotas impos- to driveprices, there up continues crudeto be wars in oilregions that produce crude oil and a terrorism worldwideis still concern. could All cause of a these prices rapidwith issuesan associated impact on jet fuel increase in prices. A floating-price fuel crudehedging is a risk oil management strategy that protects against rising and falling jet fuel prices concurrently. When an airline purchases a floating-price risk hedge, it buys an insurance policy that will protect it against a price that either goes very high or wildly very low. fluctuating Anexample of this type of swap can be seen in a recent quote for Singapore delivery of JetKero between February and December floating- This barrel. per US$90 to US$57 for price risk hedge would cost an airline about US$16 a barrel. hedge for 2009 deliveryUS$69 a was barrel at concurrently a hedge a price barrel. of The US$9 US$57 to floating-price US$90 risk per barrel hedge strike states price for that fuel is US$57 the a barrel unlimited with protection at market prices above US$90 a barrel. watchfuelpricescarefully thisusehedgeand to manage its downside and upside risk. For example, if the price of fuel throughout the remainder of the year stays below barrel,US$57 the a airline would pay the market price plus US$16 a barrel. This would be a higher unexercised the for paid be would than price fixed-price risk hedge of US$9 a marketbarrel. In fact, the floating-price risk price plus hedge would cost more than the fixed-price For example, if fuel prices are increas- Using the same hedge (strike price = For example, an airline could buy a Larger airlines have a longer track Most airlines are still imposing fuel ing, then the value of as well. theSo, if the futureairline bought futures for increases could it consumption, required its than more buy fuel at the strike price to meet its needs US$100 a barrel for a hedge costa of US$10 barrel), if drops the to US$80 market a barrel, the price airline not would for exercise jet the fuel hedgeprice and against would the pay strike anbarrel effective(US$80 a US$90 barrel a at US$10market a price barrelplus paid this for hedging strategy, the an airline hedge). could limit Using its exposure to rising jet fuel prices not being while overly hurt in the event that fuel prices dropped. Also, the airline could limit its exposure even more by and watching fuel future fuel prices and selling its accordingly. futures fixed-price risk hedge for a strike US$100 price a barrel of and might pay about US$10 fuel jet of price the If hedge. this for barrel a subsequently went up to US$120 a barrel, then the airline would to buy fuel exerciseat the strike price for theUS$100 a hedge barrel. The airline would thus pay pricethe strikeplus the cost of barrel) the for hedge an (US$10 effective a maximum US$110 price a of barrel, even thoughselling jet on fuel the was open market barrel. for US$120 a history of fuel hedging, use so the they more frequently sophisticated hedging fixed-price strategy, where risk the airline fixing is its price for fuel, not it is protecting itself against a rising (orairline buys falling) a financial fuel instrument called price. “fuel a The future” that allowsthe future at it a “strike to price.” buy Fuel futures are fuelessentially insurance in policies and are, instead institutions financial by handled fact, in of fuel suppliers. surcharges today, despite the low cost of jet jet of cost low the despite today, surcharges fuel on the open market, precisely because they have simple JetKero swaps significantly higher that than the are current market price of jet fuel. Meanwhile, “poor” that airlines could not hedge last year are lower and even eliminate able fuel surcharges at to the expense of their competitors. a barrel would be paying US$128 a barrel jet of fuel premium over the current (early year) this jet fuel spot price (Remember that the price of of jet fuel is always US$52 a amount the by oil crude barrel. of price the than higher of the crack spread.) were very wary about Luckily, buying US$180 a barrel most airlines simple JetKero swaps last July. Nonetheless, several airlines now suffer from having locked in simple JetKero swaps at US$105 a barrel to US$135 a barrel. Looking Back For Tomorrow

Even in times of economic difficulty, certain carriers seem to have a knack for making the best of their situations. And they set the bar high for everyone.

By Phil Johnson | Ascend Staff

he airline industry will always pose chal- has found similar success using a low-cost nomically without a healthy dose of leadership lenges to carriers striving to achieve strategy. Extending the two carriers’ simi- that is inclined to think innovatively and, after Tprofitability year after year. And some of larities, they’ve announced plans to establish careful and thoughtful analysis, act decisively. those challenges come in the form of adverse codesharing between them (and at the same Another characteristic to be found scat- economic circumstances that no one can accu- time, Southwest Airlines is moving toward tered broadly among these successful carriers rately predict, but everyone has to address and codesharing with Mexican low-cost carrier is a willingness to “break the mold” — even a overcome. Volaris). historically successful mold — to achieve posi- There was, for instance, the severe eco- Incremental moves such as these code- tive results by differentiating themselves from nomic slowdown resulting from the terrorist shares (see related article on page 47), of their competition. Just because “nobody else” attacks of 9/11, and there have been tsunami, course, serve to strategically extend these has ever done something doesn’t mean it’s a typhoons and hurricanes as well as major carriers’ brand reach throughout much of North bad idea. But it must still be carefully evaluated worldwide or regional health scares such as America. And in terms of potential for growth for financial viability — and to make sure it severe acute respiratory syndrome, or SARS. under uncertain economic circumstances, the lines up with the carrier’s business model and And now, the world’s airlines face a global eco- “incremental,” meticulously measured growth service promise to its customers. And only at nomic bloodletting — the full extent of which strategies are often the approaches that prove that point, the carrier may proceed, with cau- is yet to be determined. to be the wisest and most sustainable over the tion, but also without hesitation. Nonetheless, a very select few carriers long term. In somewhat the same vein, another seem to have the ability to survive critical chal- The shareholders of public companies, characteristic of success is these carriers’ lenges … and even thrive in times of economic after all, expect and demand at the very least application of a “no-fear” principle — they turmoil and uncertainty. an incremental return on their investments. appear to have no fear when it comes to doing Among those carriers, for example, is And codesharing among like-minded, cost-con- what they believe is right even if it’s different Southwest Airlines, which long ago established scious but highly service-oriented carriers such from what the rest of the industry is doing. a standard of low-cost excellence that many as Southwest Airlines, WestJet and Volaris In other words, there’s no fear to venture envy but few have been able to successfully allows these carriers to achieve incremental, into business territory that these carriers feel emulate. measured growth without requiring any of — based on their thoroughly researched and But other carriers around the world are the carriers to make a huge investment in thought-out business assumptions — may blazing their own trails to success in spite of infrastructure. prove to be very fruitful. sometimes-adverse circumstances, and it’s Looking at the bigger picture, then, A fourth success characteristic among useful to carefully analyze how they’ve done it. what are some of the common factors that these tenaciously forward-thinking carriers is If nothing else, there may well be something have enabled carriers such as Etihad in the a basic institutional awareness that nobody to learn from those carriers — something that Middle East, LAN and TAM in South America, in the industry holds a “silver bullet.” This could prove of future value to another carrier and WestJet and Southwest Airlines in North principle basically means there’s no sub- during difficult times. America to not only survive but fundamentally stitute for hard work and an optimistic Besides Southwest Airlines, some other prosper, regardless of the extraordinarily dif- approach — service with a smile and working carriers that have exhibited remarkable resil- ficult obstacles that all carriers come up against with a “fun” perspective, but the fun must iency in spite of difficult circumstances are in challenging and volatile economic times? be accompanied by an ultimate willingness Etihad Airways, which maintains its headquar- While it’s impossible to broad brush to work extremely hard to overcome every ters in Abu Dhabi, United Arab Emirates; LAN each carrier with single strokes that link their obstacle and outpace every competitor. Airlines, headquartered in Santiago, Chile; TAM individual strategic moves to one another, Fifth among these carriers’ successful Airlines, headquartered in São Paulo, Brazil; there are some larger generalities that seem characteristics is the ability of each carrier and WestJet Airlines Ltd., headquartered in to be fairly common among them (as well as to take its situation, whatever the specifics, the western Canadian business hub of Calgary, among select highly successful companies in and make the best of it. It may be easy to Alberta, Canada. every industry). complain that budgets are short and means WestJet, in fact, is often mentioned The first characteristic of success is are lacking, but whatever situation prevails, along with Southwest Airlines as a carrier that dynamic leadership. No company shines eco- these successful carriers have managed to

60 ascend special section 61 ascend “The ‘magic three’ factors of location, “Abu Dhabi’s location offers an ideal In addition to geographic positioning, - invest the is catalyst important “Another “Because we are ‘new’ carriers [Etihad “And finally, we have vision: the vision In the same speech, Hogan addressed “Let me explode a few urban myths,” “Our shareholders — the investors of Those routes include some of the most tages if it chooses. And in a presentation to the the to presentation a in And chooses. it if tages Wings Club in New York City, New York, last Hogan explained September, the basics of the Etihad approach. investment and vision have combined to create an opportunity never seen before he industry,” said. in “In less than 10 years, the Abu serious from gone have Dubai and Doha Dhabi, players in regional aviation to major players on the global stage. position from which to set off to the the world, placed rest perfectly between of East and West. Indeed, if you were going to launch new global a airline, there are few better places you could choose.” equipment type presents another critical factor ability in to Etihad’s succeed year after year. ment we have made in — new equipment and particularly in the latest aircraft technology,” Hogan said. “The new breed of long-haul and ultra-long-haul aircraft make from our region to all four corners of the world nonstop travel a comfortable and convenient reality. only started flying in 2003], invest we in are able modern, to efficient and tally friendly aircraft, environmen- with none of the ‘legacy’ issues affecting the more-established industry players today. of Abu Dhabi’s leadership not just in creating a travel hub, but in developing a focal point for the wider aviation industry — all ongoing effort part to diversify our economy of in the the future.” several other questions about issues climb successful mounting its during faced has Etihad to prominence. Hogan said. “We do not receive government subsidies or guarantees, and neither fuel and airport discounted or free from benefit do we costs. hedge We fuel. borrow We money from financial markets. There are no ‘free kicks.’ this region — demand accountability, a return we And business. well-run a and investment on have a real and genuine commercial mandate — a mandate that will see us break even over the coming years despite heavy investment in new aircraft and on new routes.” exciting possibilities in the world of air transportation today, such as one-stop trips Australia through Abu Dhabi from to London, or the same single stop from Australia to New York. The globally central location East — and the massive investment in aviation of the Middle — provide there is occurring that infrastructure Etihad a solid foundation to achieve multiple Photo courtesy of Airbus - Some of the techniques Southwest Again, however, situations arise that “As an industry, there are always chal- All these things have presented signifi- Still, Hogan, who was formerly CEO Airlines Airlines has been able to aircraft single a flying as such — years the over successfully apply type — are aimed directly at keeping its costs of doing business reasonably low to be to able pass lower fares customers. on to its fiercely loyal affect every airline, yet every carrier necessarily doesn’t handle those that difference the situations what’s case, that In geously. advanta- opens up avenues to success? lenges,” said James Hogan, inter chief 2007 March a in Airways, Etihad of executive officer view with the Australian Broadcasting “There are so Corp. many factors out of our control, SARS, fuel.” whether tsunami, it’s war, carrier every affected have that challenges cant that operates where these factors have been present. And, as Hogan said, “We’re in a business where there are so many variables that can take you off track.” of Bahrain-based Gulf Air, fully Etihad has realizes the that ability to seize certain advan- - tihad Airways stands out as being one of the world’s most prominent airlines airlines prominent most world’s the of one being as out stands Airways tihad E “Among the things using this customer- - experi customer the about all is this “So “It’s “It’s a customer-centric model that One One more of characteristic all of these Despite many serious challenges facing the airline industry during the last decade, Abu Abu decade, last the during industry airline the facing challenges serious many Despite Dhabi-based that continues to weather the storm. centric model means is that when I am incur good very a is [Airlines] Southwest and — ence example,” he said. they they have been able to managementof professor a Ph.D., Ramaswamy, build,” said Kannan at Thunderbird School of in aviation Global who specializes Arizona, in Glendale, Management strategy research. ring cost, I don’t automatically assume can that be it passed along to the Ramaswamy. customer,” said “And that, in even turn, my though I’m I’ll product, differentiating means that have to keep my costs in check in order to be a to able to the give the ability afford customer need I terms, basic most the In experience. good to be able to give my customer more for less. successful carriers successful is a realization fundamental that they live, breathe and compete each and every day in a industry first, service foremost and industry always is — all the aboutcustomer. and that turn it into an overall positive on and top. come out special section 62 ascend service promise. service sound a and focus customer true a foundation, financial strong a leadership, powerful with S outhAmerican carriers L ANand T

AMhave plowed through theindustry’s many obstacles Photos courtesy of Airbus of courtesy Photos vatively — always looking toward the best best the toward looking always — vatively inno- act and creatively think to necessity the industries. other current the economic maelstrom out that threatens to devour ride more to able much be carriers to positioned favorably air now up, are but general in nowhere going be to capacity to deal with fuel prices that appeared its downsized significantly already had that try it’sinevitable. … for hoped simply not is incremental, growth reasonable, measured to return in future a a which for plans realistic sound, lished cost. minimal relatively its beyond cial benefi- hugely be can companies, reputable codeshare highly like-minded, incremental with partnering strategy, an that illustrating again once — TAM with relationship sharing And, code- ongoing an has LAN insignificantly, Mexicana. not Alaska and as AeroMéxico such Airlines, carriers prominent other Airlines American Airways. British and including partners world specific with codeshares through also in membership its through effec- airline only not globally reach its extended has tively the it and roots, which deep in sunk has countries American South the among brand its building steadily excellence, of standard consistent a setting on centrated 2006). in Alliance Star the Varig,from dropped was which replacing (essentially Alliance Star al glob- the join to intention its announced has and airline America’slargest South as now stands TAM ago), years couple a Inteligentes Aéreas Linhas GOL carrier Brazilian Brazilian low-cost for Varig by bought was Varig (debt-riddled superiority carrier national against logi- quite excellence. cally,service and, excellence of and-operational “pillars technical- as excellence, management to action”: refers company the that mandates developed internally own carrier’s the with in right fits industry which promise, service lavish customer- its of on delivery superior pattern for praise steady a of ent trip. every on customer every and each carriers these sees striving to deliver genuine, memorable value to that promise service a and model customer-centric a underpinnings, ment and innovative leadership, sound financial manage- solid on based experiences corporate successful constructed have Chile in Airlines through. be reached throughabolddeterminationtofollow only can goals those but goals, business That doesn’t excuse any carriers from from carriers any excuse doesn’t That indus - an in and — first things first But, estab- also have TAM and LAN Both with codeshares maintains also LAN con- has LAN TAM, to similarly And battle decades-long a won Having recipi- the been has example, TAM,for Likewise, TAM Airlines in Brazil and LAN ol, but oneworld, one- special section 63

- - - - ascend a [email protected]. Phil Johnson can be contacted at It’s It’s all reflected in the service prom- “That’s why I think carriers have to “And you have to decide: What’s Yet when competition abounds, cer These are the carriers that will be But in the longer run, Southwest “A customer-centric business model “You will never see that happen ing with Southwest [Airlines]. [Airlines] Southwest and these other successful riers car are going of throughsecurity and the loads and sameof the that issuesdelays — — butall their face. still,And they’re able to make theyfun of have themselves.” a smile on ise, a promise that says entitled to the reap the benefits of an apprecia- customer is tion and respect that only customer-centric businesses are willing toevery day. apply on the job go back to the basics,” Ramaswamy said. busi- of kind what understand to have “They ness model they’ve put in place and what the components of the business model are. They need to respect intelli- the customer’s gence and treat the customer with respect. your vision in terms of how to you’re be going able to differentiate yourself are people instances, many In marketplace? in the selecting their airlines simply don’t becausehave a choice.” they tain carriers consistently prevail. And those are the carriers with vision, with determination, with insightful and innovative leader ship, and with employees who understand that the customer is their true boss. pacesetters long into the bright future of air transportation worldwide. Airlines, WestJet, TAM, LAN, handfulEtihad and of a other carriersknow that around they are on the an exciting, world innovative journey toward a future that holds the broad possibility of becoming even successful. more And that’s the type of corporateconfidence that can be observed as a les- son to many other companies — in multipleindustries — as the future unfolds. means attention to customer feel comfortable and going out of detail — their making way to help the customers,” Ramaswamysaid. “And if you compare that of withmost well, done necessarily carriersnot have that them treat people like cattle. - And those individuals include both cus- “The bottom line should be a conse- “And I’m paraphrasing, but he said “I think it makes a lot of sense. And Obviously, several of the world’s pre- known been long has Airlines Southwest It says, more pointedly, that Southwest “That’s “That’s something we always tried to Parker went on to heap effusive praise “Most companies don’t really realize “We always put a lot of focus on our Perhaps, then, it would be most logical riers such as service, of culture a Southwest is — Etihad and LAN TAM, Airlines, WestJet, combined with a capability to see the value of every individual within the bigger picture. tomers and employees, because every vidual’s experience is indi- truly critical in a people- driven business such of sense as true a in — world the around travelers the movement of giving and receiving fair and genuine value. quence of good business decisions you make — it should not be the driver it [Airlines], Southwest “For said. Ramaswamy of decisions,” goes all the way back to Herb Kelleher, when he was running the company. something like, ‘If I take care of my employees really well, the employees assumption will is take that care the well. of Because I cannot be taking care of every my customers employees my on relying I’m myself, customer to do that.’ it also illustrates the amount of effort that required is to make that work.” mier carriers are making it work. Among other things, it simply proves that working hard truly can be fun, and for these successful carriers, the fun is most evident at the bottom line. bases it which upon humor self-effacing the for much of its advertising. The carrier neither of making is fun of itself afraid nor of its entire industry. And that says a lot about its greater corporate psyche. Airlines is a carrier that’s psychologically comfortable in its own corporate skin. And occa- sionally, the carrier may fail. Its fuel when losses recent to led fact, in fuel-hedging strategy, prices nosedived. give give their employees the chance to feel they’re part of something meaningful. like do at Southwest [Airlines],” Parker said. “And the reality is that people who enjoy their work are going to do a better job than people who don’t.” on Southwest Airlines’ “front-line” leadership. that the most critical area of leadership is the front line,” Parker said. “That’s where a company most interacts with its own employees and the public. front-line leaders and their understanding their mission of and role,” he said. have “You to focus on the value of the individual — at every level — and make it part of your culture.” to conclude that the real key to success of the air carriers that usually seem to find it — car - Do the Right In In a January 2008 interview with the In In between, Jim Parker occupied the To be sure, the Southwest Airlines model model Airlines Southwest the sure, be To “Each of these elements is very critical.” ofdecades three-and-a-half-plus its During “Here’s “Here’s where Southwest [Airlines] and “Another “Another question is: What can we do “We say, ‘Industry has always done A, B done always has ‘Industry say, “We “And “And there are several questions we “In strategy, we talk about ‘blue-ocean’ Fort , Parker Worth said, Star-Telegram so “It’s common these days for companies to say that they But asset. important most their are people really don’t they because it, believe really don’t Thing: How Dedicated Employees Create Loyal Customers and Large Profits. Southwest Airlines CEO’s chair, and Parker has since written a book entitled, is based on common sense — and that common common that and — sense common on based is sense, as well as ever-present good hashumor, been easy to detect through Southwest Airlines’ leadership from original Airlines Southwest current boss through Kelleher Herb and co-founder CEO Gary Kelly. stellar performance, Southwest Airlines has, Southwest stellar in performance, is that model business a create to managed fact, circles aviation within just not admired universally but in the greater business community. is What now broadly recognized as “the Airlines Southwest model” is not just it’s airline-focused, people-focused. some some of these other companies gained some key advantages in things like flight frequencies,flights more with fare low-cost a people offering and more choices in flying from Point A to Point B. That’s what customers want: And on-time arrival, provide. can you experience service the and with customers your treat always regard, that in the utmost respect. without? without? What can we do industry takes without for that additional granted? some And are my What at yourself: ask the you time, same factors we can add to the mix that others have not thought about? and C — so in order to succeed today, I should also be doing A, B and C.’ This is the basically ‘herd’ mentality. But the we Are really is: ourselves important be asking we should question testing the assumptions? Are we evaluating the perceived wisdom of the industry? Or are we just following for the sake of following? suggest suggest companies should be asking,” Ramaswamy, said who has conducted studies of several extensive carriers including Singapore did ‘Where is, questions those of “One Airlines. we around the fail?’ This revolves fact that we tend to take for — things granted we meaning tend to believe that the drivers that drive perfor mance in an industry are static. thinking, which is basically thinking outside the outside thinking is basically which thinking, box,” Ramaswamy said. “This is a business model that says you have to what you offer and how you offer it. be creative in ways ways to bring strategic logic to bear on every business decision, large and small. The Exp lo r e r

Sabre Holdings ® recently acquired Flight Explorer ®, the leading provider of commercial aircraft situation display, or ASD, solutions providing real-time tracking, reporting and display of enroute aircraft.

By Chris Zanardi | Ascend Contributor “The addition of Flight ast September, Flight Explorer and Explorer, with its out- its industry-leading solutions became standing flight tracking L part of Sabre Airline Solutions®, the world’s leading provider of integrated and airspace monitoring solutions and services for airlines, airports and other air transportation-related capabilities, to our com- businesses. With only a personal computer and prehensive portfolio of access to the Internet, customers can use the Flight Explorer solution to manage and solutions positions us to track all of their aircraft, anywhere in the world. Flight Explorer also goes beyond be the unique provider of a just flight tracking, incorporating multiple data feeds, dynamic weather overlays, fully integrated, world-class situational alerts, and predictive weather and air traffic tools to make it an essen- flight planning and aircraft tial, reliable flight operations management tool. tracking solution,” Flight Explorer was first introduced in 1997, and it immediately gained rec- — Steve Clampett, president of Airline ognition as the premiere real-time flight Products and Solutions, Sabre Airline Solutions tracking and management system in the industry. It’s the world’s leading aircraft situation display in terms of performance, value, reliability, sales and reputation. Flight Explorer provides its ASD services to more than 800 corporate customers with an installed base of more than 2,300 systems. Its corporate customers include: 85 percent of the U.S. Federal Aviation Administration’s collaborative decision making, or CDM, participants; 85 percent of North American major airlines including Northwest Airlines, American Eagle Airlines, Air Canada, jetBlue, US Airways and Continental Airlines; 17 of the top 20 regional airlines; 80 percent of the Air Transport Association membership; The top five cargo carriers including FedEx, UPS, Airborne Express, TNT Express and DHL Express; International carriers such as British Airways, Copa Airlines and Aer Lingus; The 12 largest executive jet operators including NetJets, Flight Options, Gulfstream and Bombardier; Major airports including Hartsfield- Jackson Atlanta International Airport, Chicago O’Hare International Airport, New York Port Authority, Los Angeles International Airport and Miami International Airport; More than 200 corporate flight departments, air charter operators and fixed -base operators. Flight Explorer’s success is based on a solid, technical approach that provides a high level of security and reliability to meet the stringent requirements of a 24/7 airline operation, the FAA, the U.S. Department of Defense and airports, combined with a robust architec-

ascend 65 company 66 ascend always knows the locations of its aircraft. its of locations the knows always airline an so time real in aircraft display graphically to used is information ACRS and data enablesExplorer Flight airlines totrack aircraft anywhere intheworld. Both A specific flight or set of flights that may require particular focus due to current conditions. current to due focus particular require may that flights of set or flight specific impactingtheir operation. enablesExplorer Flight airlines toaddlayers tothedisplay fortruea picture ofwhat maybe F ilteringandzooming enables analysts tolimit thedisplay toa TC radar

ouin t me te ed o clients of needs world the throughout the meet to solutions quick enables conditions. current to due focus particular require may that flights of set or flight specific a to display analysts the limit enables to zooming and Filtering picture true a for operation.their impacting be may what of display the to layers add ture that part of part a them make to proud now are and years with tionship Products rela- working strong a enjoyed have “We Airline of for Solutions and Steve president said a solution,” Clampett, of tracking planning aircraft provider flight and unique world-class the integrated, be fully to us tions and our tracking posi- solutions of to portfolio comprehensive flight capabilities, monitoring airspace outstanding its with effective flight plan.flight effective cost- efficient, most the planning choose airlines flight of robust capabilities and the with components of Explorer capabilities graphic alerting proactive powerful the world-class benefits.other among delays, and pre-empt helping optimization, plan flight information operational real-timecritical, access to need they ogy technol- the integrated airlines provide will The solution Manager. Dispatch tion, with Solutions’ aviation integrated global fully be to will solution, stand-alone available a as customers be also will collaborative decision making tools into into tools making the decision collaborative reap to of integration the by opportunity offered benefits an the aviation general or airlines give will that tool a Flow Manager, Sabre Airline Solutions will launch efficiencies across carriers and general general and carriers fuel and aviation. across utilization efficiencies aircraft on-time improve performance, significantly to expected options. its explore airline the help and initiative the of impact the analyze initiative, management traffic any by affected be to going proactively alert the airline if its flights are departure, lgt Explorer Flight Te diin of addition “The The ae ti year, this Later leverage will solution combined The Chris Zanardi is a senior solutions solutions senior a is Zanardi Chris development of new services and and services new of development .” Solutions.” Airline Sabre enables airlines to to airlines Flight enables Explorer Solutions a solution, which which solution, Explorer Flight will will Manager Flow Airspace ipth aaeet solu- management dispatch at [email protected]. [email protected]. at is is Manager Flow Airspace to help help to Manager Dispatch o many for Explorer Flight partner for for partner Sabre Airline Solutions. Airline Sabre . He can be contacted contacted be can He . S. ro t flight to Prior ASD. and and Explorer Flight lgt Explorer , Flight Sabre Airline Airline Sabre Sabre Airline Airline Sabre Airspace Flight

Sharpening The E-Commerce Edge

Sabre Holdings® recently acquired EB2 to enhance airlines’ e-commerce capabilities by providing a vast range of Web options.

By Phil Johnson | Ascend Staff company 68 T SabreSonic -omre pcait B big new brings to vigor EB2 specialist e-commerce economics. worldwide in uncertainty of level the sidering underway to accelerate e-commerce capabil- the of capabilities new enhanced the Brindabella from benefit Belavia, will — Air Gulf and Airlines Malta, Olympic Airlines, Air Airlines, Brussels S7 Airlines, RegionalLink, Transaero, AeroMéxico, including — EB2 from clients (with products to be developed up to two two to up scheduled). previously than developed earlier years be to products (with into integrated being are solutions. reliable tive, cost-effec- flexible, with revenues e-commerce- channel maximize to carriers enable that technologies forward-looking provide of part important a to services carriers. global of range broad and infrastructure solutions, e-commerce of supplier top a as reputation alike. segments to traveler sales individual and agency corporate, the direct simplifying booking, travel online for engines booking Internet hosting and customizing developing, in specializes edge. leading a airlines gives tools Web-based advanced of set expanded Solutions ascend + million sectors flown. sectors million per 0.81 was rate loss hull industry the 2008, of end the At Association. TransportAir International the to according years, 10 last the during industry transport air the in ment improve- safety of percentage The 49 well become even more significant con- significant more even become well very may channel an e-commerce airline’s of potential revenue-generating he aqiiin of acquisition Holdings’ Sabre Planning and integration activities are activities integration and Planning urn csoes of customers Current EB2 of expertise and capabilities The an represents acquisition EB2 The solid a staked has EB2 Historically, unit e-commerce London-based The count SabreSonic ® as well as the newly acquired acquired newly the as well as SabreSonic Web. SabreSonic ®

. The Service. & Sales Customer ’ pledge to to pledge Holdings’ Sabre ®

Web

, a component of component a , arSnc Web SabreSonic it Sabre Airline Airline Sabre up ers and third-party content. third-party and ers adaptors plug-in provid- as service payment by activity enabling well as use airline and age and control airline content for third-party lever to introduced being also are services Web direct Online ancillary- offerings. Web and product cross-sell up-sell, on based capabilities merchandising providing to tion addi- in is This processes. business new to adaptquickly to customers its and Solutions both enabling architecture, rules-based service-oriented, a through ities lary products to the right customers at the the at customers times. right right the to products lary addition, In ancil- appropriate offers emphasis cross-sell customers. online to oppor tunities up-sell most offer to the moment determine opportune configurable that fully rules business through products higher- value of sale the enabling opportunities, ideas. innovative and direction promise, service mission, philosophy, rier’s administration car individual the by online customize or interface an using market by families fare specific to related features and products configure can Airlines families. fare their of each for features associated and other products of sets configure to ability the carriers provides that framework chandising mer a and shopping matrix as well as ping shop- dual-display include Web SabreSonic rates. airline’sconversion anlook-to-book optimizes calendar- experiences of shopping range based a Providing individual suit markets. to adapted experiences ping calendar-search displays with targeted shop- flexible as such differentiators key several leverage will end, year by rollout for planned fuel efficiency and CO and efficiency fuel in improvement of percentage The 10 years ahead of the 2000-2010 goal. 2000-2010 the of ahead years four 2006, in achieved airlines member Association Transport Air International The new version of version new The lo nldd r csoe up-sell customer are included Also for planned designs screen New 2 emissions SabreSonic Web, SabreSonic ar Airline Sabre - - - - the world. the around airlines many for future exciting more a to leading — robust more even grown has of offering robust highly new a as location. office Solutions Airline Sabre maintained the be in will center Philippines development EB2 the and existing into assimilatedbeing are Australia and Kingdom than more at annually.transactions million 2.6 high capability extremely processing of an — level customers airline portfolio of quality its to addition in — brought 24 to of 18 version months. next new the during the Web to SabreSonic migrated be will booking-engine Internet capabilities. powerful industry’s the most possessing the now with a company — represents achievement significant acquisition truly EB2 the through the of advantage full take to able be to carriers for necessity a It’s interface. customer any date, customer profiles available to call up at up-to- accurate, upon dependent are bilities 483 based aircraft manufacturer.aircraft based Toulouse,the for France- record new a 2007), than more (30 Airbus by year last deliveries aircraft of number The capabilities. CSS SabreSonic vrl, ih h adto o E2 a EB2, of addition the with Overall, United the in employees EB2’s joining In Existing advancement Solutions Airline Sabre capa- customer-specific these of All

a Phil Johnson can be contacted at contacted be can Johnson Phil offices, Solutions Airline Sabre customers customers Web SabreSonic , EB2 has has EB2 CSS, SabreSonic [email protected]. arSnc CSS SabreSonic

Introducing a powerful, new window to your future.

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SabreSonic ® CSS is the industry’s most powerful revenue-generating customer sales and service solution. By enabling airlines to uniquely value every passenger, SabreSonic CSS creates a new intersection for customer value and revenue growth. From reservations, inventory and departure control to online direct, loyalty, revenue management and more, SabreSonic CSS easily adapts to your ever-changing business needs with a future-proof technology platform.

See how a complete view of your customers opens new windows to revenue.

Sabre Airline Solutions, SabreSonic and the Sabre Airline Solutions logo are trademarks and/or service marks of an afﬁ liate of Sabre Holdings Corporation. ©2008 Inc. All rights reserved. AS-08-10555 1108 Sabre Airline Solutions, SabreSonic and the Solutions logo are trademarks and/or service marks of an afﬁ Start your airline’s future today with SabreSonic CSS.

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AS-08-10555_SabreSonicCSS_OA_1108.indd 1 10/8/08 10:21:57 AM Brainpower

Business intelligence solutions from Sabre Airline Solutions ® enable airlines to broaden their analysis capabilities to include key performance data into their business strategies.

By Michael Askew | Ascend Contributor solutions 71

Sabre ascend SabreSonic CSS SabreSonic . He can be contacted contacted be can He . a . The reports SabreSonic . Res reports The at at [email protected]. Sabre Airline Solutions, as such System for revenue accounting, or

Michael Askew is a ™ product marketing manager for Airline Solutions Airline Airlines generate hundreds of thousands, in of thousands, hundreds generate Airlines access provide reports booking Summary provide reports booking detailed Additional is Analytics Essential to available airlines Essential Analytics complements other Additional business intelligence product SabreSonic Res, and it leverages Microsoft Quasar specific filters such as booking class, travel cities and booking source (including direct booking such as reservations centers and Web sites). channels - report the in used points data of millions, cases some ing and analysis process. Flexible report parameters help isolate and focus on only the level of report output detail that is relevant to a specific business - ques tion. For example, for a particular timeframe, it is easy bookings of to number the as narrow such the bookings details performance report outputhighlight to that are being driven through an Web airline’s site(s), reservations center or a particular GDS. a quick for creating reports booking to simplified graphic and snapshot capabilities of drilldown bookings built-in performance additional with and as charts pie such some representations markets summary top include also reports These charts. bar an identifying for the reports for source booking top and sources booking or markets 20 top airline’s selected time period. to output the report ability of export to the analyze support and even outputs more detailed report comma-separated value, or format CSV, for import into Excel or analysis a local database for supports further manipula- option The users. power by tion an impact keythe identifies and that date travel or date booking by cancellations last-minute of sources it provides In addition, inventory. available airline’s month-over- and quarter-over-quarter year-over-year, month outputs to support comparative analysis. using Internet Explorer Web browser version 6.x booking or high- unaudited preliminary, provides It also er. and market data for directional and trending analyt- a of state current the of a on snapshot based ics carrier’s bookings in provide the airline with view a when into its booking preliminary timeframe and channel performance ascritical unaudited that during trends as well the airline is typically waiting days or weeks before accounting-based revenue audited fully adjusted statistics become available. technology from the the airline’s own in-house or third-party passenger revenue accounting system. an and analytics as revenue such as enhancements year this planned also are dashboard executive profit- drive airlines help to strategy overall an of part ability insights and provide an at-a-glance view of critical business metrics.

Business Intelligence Essential Analytics helps focus on histori- can quickly select the desired report parameters Graphically parameters report present desired the analysis select quickly results can — Airlines to create a views variety of reports. The comparative various reportviews include tabular, year-over-year drilldown as well and as graphic mats for to highlight how bookings are performing this year — online solution compared to last year. reports a cost-effective Access Because Essential Analytics is a hosted solution, airlines can realize significant cost savings systemsoftware, in third-party and hardware of areas the With implementation, support personnel, data maintenance. and storage, monitoring ongoing and Sabre Airline application the Solutions managing environment, airlines can focus on their core business rather than internal information technologyoperations. Analytically view top and — sources markets Analytically Airlines can evaluate the bookings)interline and direct airline (GDS, bookings top sources of and the top theirtravel markets based on user-selected dates. With backward- and forward-looking - book ing, market and last-minute cancellation reports, they into have areas that insight may require change. Measure and target incremental market opportunities — The flexibility of the analytic tool providesa variety of ways was possible than — to easily more drill into performance business bookings before — enabling airlines to measure and target incremental market opportunities within their network and distribution channels.

tions and revenue generation in every distribution in distribution every generation and revenue tions channel, helping them the realize achieve their areenhancements planned its and Analytics Essential revenue airlines goals. to helping all of components integral airlines give Analytics value of the CSS approach. The Essential and to: ability the environment globe the around sizes cal and forward-looking reservations booking details (travel booked up to 331 days into the future and as far back as two years) through a wide range of airline-

- - ® ® cus- SabreSonic SabreSonic SabreSonic Sabre Airline SabreSonic CSS Service to manage - trans

& capabilities is Business Intelligence capabilities Sabre Airline Solutions’ rich travel customers to measure measure to SabreSonic customers CSS option of option Intelligence Business Customer Sales actional passenger reservations data that any airlines currently rely on The CSS concept represents the best oppor SabreSonic CSS leverages The To gain the most from a CSS solution, insightsTo

arriers can examine the main sources of their bookings and the top travel markets markets travel top the and bookings their of sources main the examine can arriers

C based on user-selected dates. With a variety of historical and forward-looking booking, market market booking, forward-looking and historical of variety a With dates. user-selected on based and last-minute cancellation reports, they have insight into areas that may need to be adjusted. tunity for airlines to develop customer-focused solu- analytical and intelligence reporting solution, leverages leverages solution, reporting tomers. Essential Analytics, an intelligence interactive Web-based and on article related analytical (see intelligence business leading page 36) and analytical data sites management Web gies, enabling technolo- airline agents, the performance of reservations their various distribution channels, airline including and global distribution systems. Res provides such insights. And one of the first of several planned new tunities is to first understand which booking sources, distribution channels and markets are driving bookings. With this information, carriers can insights enhance distribution tion and these channels distribu- and marketing relationships, their provides identify less-effective adjust and Analytics sources, trends booking Essential analyze to strategies. airlines enabling more, and and identify effective sales and marketing initiatives. business new deploy to Solutions’ industry management knowledge data and strengths in ervations res- intelligence capabilities to its now available — Essential Analytics, a reports module module reports a Analytics, Essential — available now offering flexible analytics. One of the most important actions airlines can take to maximize revenue oppor offers flexible analysis capabilities so airlines can can airlines so capabilities analysis flexible offers CSS incorporate valuable performance insights into their business strategy. industry knowledge and layering powerful business intelligence systems on top of CSS data, into how an airline’s business is performing are essen- are performing is business airline’s an how into tial. Leveraging tomers. However, significant benefits can be realized realized be can benefits cus- their for travel manage and book to them enables to significant problems However, tomers. transactional solving beyond moving by creating a customer sales and service solution. M SM

it’s all around you

Service360° SM consistent practices, from Sabre Airline Solutions®, comprises five service practice areas intended to ensure carriers around the world receive top-quality software that steers the performance of their businesses.

By Parag Sanghvi | Ascend Contributor solutions 73

- Sabre ascend Service360° Sabre Airline Sabre Airline practices and con- and practices Sabre Airline Solutions’ Sabre Airline Solutions Sabre Airline University Sabre Community Portal, Service360° Airline , University and customer Sabre Airline Solutions employees

Service360° practices is the The implementation and support method- prescribed this following By A second important innovation Service360° practices apply across These ideals are sustained by spe- ® Customer Customer care — Proven customer care disciplines infused with deep sub- ject matter and technicalsupport ongoing business value real- expertise, to ization after implementation;24 hours available a day, 365 daysonline and offline. a year, both

sists of a centralizedand reference resources for source the specific pro- to addition In uses. carrier a solutions for training viding access to solution adoption and usage, resources that promote University includes certification capabilities that help ensure employees have value measurement. lifecycle isimplementation and support of each solu- a tion structured across the portfolio. approach It improves toand business value,processes and it helps team-oriented Sabre Airline build Solutions collaborationits attitudes employees customers’ employees, and motes and between it honoring pro- ofcommitments. budget and Thesupport schedule lifecycle resides implementation under the solution delivery practice area of and practices and consistsstages: project initiation, interactive pilot, of five solution formalized adoption, customer care. project transition and ology, are able to improve value realization customers for from initiation through of a maturity. project Clear,are outlined articulated that repeat- enable consistent, deliver stepsto professionals the company’s able service that improves shortens productivity, implementation timelines,fewer customizations and focuses on cus- drives tomer business objectives. under Airline University. Accessed via the singleinterface of the all training information becomes for available online, customers regardless learning of format. lives under the knowledge transfer prac- of area tice the full breadth of that effect unifying a provide and portfolio makes steady delivery possible but The oflikely. key is to approach service not only intent the with delivery and care customer of driving consistency, efficiency, predict- ability and effectiveness. cific programmatic models. Three in par ticular worth exploring implementation further include: and support Sabre lifecycle,

- - - Care Community Service360°

® Customer Sabre Airline Sabre Sabre Airline Solutions Sabre Airline . Solutions Project Service360° practices, its Transition In January, Service360° practices consist of Customer community — Comprehensive solution access, collaboration and networking via leading user conferences and the Solution consulting — A consultative approach to identifying opportunities, recommendations andprocesses that ensures solution per business Solution delivery — A proven process that ensures a consistent delivery experience focused on businesssolution value adoption,and resultingbusiness performance for the airline; in improved Knowledge transfer — Extensive training and education resources to provide airlines and other air companies transport-relatedwith deep solutions exper formance and realizationvalue; of business tise that maximizes the results across their businesses; Portal;

Sabre Airline Solutions professionals can introduced introduced unique framework of fiveareas servicedesigned practice to superior ensure solutions airlines that drive receive the mance perfor of their businesses. practices represent how Solutions drives tangible business value, ensures full adoption and provides a consistent experience leading portfolio across of airline software - solu the tions. industry’s Its focus is on measuring its cess suc- not only by traditionalmarket means sharesuch as but also they solutions the from receive customers by how much value purchase from five delivery andareas: customer care practice Solution Adoption Pilot Interactive Implementation And Support Model Project Initiation Sabre Airline Solutions Airline Sabre is well aware A curious outcome of all this prog- An important consequence of

n 1965, Gordon Moore, co-founder Intel, of the integrated semiconductor manufacturer, introduced chip his law that Using the implementation and support lifecycle, ensure help and completion through initiation from value implementation a project’s realize reduces customers help productivity, enhances that service repeatable consistent, deliver they timelines, requires fewer customizations and supports customer goals. of the full importance value from they the of software use. solutions airlineswas In manifested through activity the such getting as user graphical best-in-class in investments past, this interfaces, awareness superiorperiodic trainingregular customer models “healththat identified checks” areas and of sub-optimization. Today, the company has taken losophy this to the next level. phi- ress has been ness that software often times capabilitiescapacity busi- far of exceed their the maximum effect. owners As a result, to companies usemake them significant to purchasing capital software fromonly investments which realizingthey in are million fractionalinvestment may US$750,000 worth of value. be value. only delivering A US$1 Moore’s Moore’s Law is that the amount of com- puting power available to help drive - busi ness productivity has grownduring exponentially the last severalthat decades. optimizesSoftware power has use become of ubiquitous aspects all in advances significant enabled and such has computingof modern commercialcommercial aviation. activity, including the number inch on integrated of circuits doubles every transistorsyear. Over per time,slightly, and today, square data the density doubles roughly definition every 18 months. evolved This expected to continue trend for at least is another two decades. I solutions 74 forms a foundation for ongoing value value ongoing for foundation measurement. a employees that forms information customer’s diagnostic complete the to with closely worksmanager customer. delivery lar The creation value particu- that for baseline starting the from evaluate to manager ery all deliv- for the to available is suite the process in tools diagnostic common a tices, value a to Under having approach measurement. without methodical value created formalized, much has how solution gauge a to impossible is drive It customers. for value business systems tangible Solutions’ Airline Sabre focus key the of areas of One measurement. value airline help managing manner.timely a in at capabilities that software proficient become activities employees learning tive trove interac- as well rich as information solution of a The has University failure. Airline and Sabre success between employees ference airline of dif- the mean can timeframe relevant hands a in the into tion informa- meaningful getting all and of time, is resource important most the perhaps world, business today’sfast-paced in that realization incidentals. the and leverages University Airline travel items for as reduced such be can costs problem and to solve, empowered more become employeesquickly, Questions more resolved be time. can any at any- world the resources in where training to real- access gain time can employees airline means jobs.their do mastered material they need to effectively ascend + US$3 billion, according to IATA.to according billion, US$3 than more of savings cost annual an IATAby achieved airlines, member e-ticketing of percentage The 100 tid dacmn i customer is advancement third A Internetthe of nature pervasive The count practices is ensuring ensuring is practices Service360° Service360°

it up Sabre Sabre prac- au maueet rga hs docu- are: mented has program measurement value toward progress and monitored. be can goals strategic articulate, to easier becomes investment on return the tantly, impor Most heralded. be software can successes and of highlighted be can improvement impact Opportunities for operation. real the on the purchases through ranks communicate the and confirm to airline easy and straightforward understand. are Customer inputs credible. made and validated include product versus product to is provided, or and results are before/after ability of comparison The a air the preferences. the and reflects line’s it, value to of measure important final most is what on one from angle or another, exclusively the airline provides input examined creation be value a should that indicating than example, rather For customer. the to criterion take to measure into account the importance of a particular weighting a has it that is InterVISTAS-ga to according Union, European the and States United the between Agreement Service Air Step First Comprehensive a under market Kingdom States-United United the of liberalization full of tion simula- a from result would that fic traf- in increase of percentage The 29

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a Service360° 2 . Additionally,. Service360° Service360° practices practices -

- promise delivered

Introducing Sabre AirCentre, the industry’s leading operations solution that helps deliver your promise.

Every ticket you sell is a contract. And managing the pieces that go into meeting those commitments is no easy task.

That’s why you need Sabre ® AirCentre TM Enterprise Operations, so you can deliver your promise across your entire airline — ﬂ ight, crew, ground and maintenance — all at the lowest operating cost. Plus, its ﬂ exible technology platform adapts to your ever-changing business needs. That’s our promise to you!

Sabre Airline Solutions, Sabre AirCentre and the Sabre Airline Solutions logo are trademarks and/or service marks of an afﬁ liate of Sabre Holdings Corp. ©2009 Inc. All rights reserved. AS-09-10824 0309 Sabre Airline Solutions, AirCentre and the Solutions logo are trademarks and/or service marks of an afﬁ See the many ways Sabre AirCentre delivers. Visit sabreaircentre.com today.