A MAGAZINE FOR AIRLINE EXECUTIVES 2004 Issue No. 1

www.sabreairlinesolutions.com T aking your airline to new heights

ON THE ROUTE TO RECOVERY A conversation with … 2004 IssueNo.1 James Hogan, President and CEO, Gulf Air

INSIDE

Industry Showing 19 Signs of Recovery

Low-Cost Carrier Model 38 Continues to Evolve

Recent Breakthroughs 79 in Revenue Management What do you think? proven

Taking your airline to new heights

2004 Issue No. 1 leadership. Publisher See something in Ascend an affiliate of Sabre Holdings Corporation. ©2004 Sabre Inc. All rights reserved. James Filsinger Sabre Airline Solutions 1 E. Kirkwood Blvd. you would like to improve? Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of Southlake, Texas 76092 www.sabreairlinesolutions.com

Editors Stephani Hawkins B. Scott Hunt Like the content and the design?

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Print Manager Shari Stiborek Have an opinion on how

Contributors Raida Abumaizar, Pam Ashley, the magazine could be Hans Belle, Kathy Benson, Erin Bouck, Jack Burkholder, more beneficial? Michael Clarke, Kathryn Crispin, Cameron Curtis, Karen Davis, Karen Dielman, Walter Di Luca, Melodie Estes, Tim Finholt, Becky French, Greg Gilchrist, Masud Hashem, Roland Hollis, Carla Jensen, Craig Lindsey, Apurva Mathur, Michael McCurdy, It’s time for all-out innovation. And it’s time for proven leadership. Mission-criti- Jamie Patel, Michelle Porter, Gary Potter, Kamal Qatato, cal areas require time-tested solutions. Longer than any other company, we’ve Giovanna Rosselli, Michelle Schneider, pushed technology forward to deliver vital systems airlines need to stay ahead, Ron Smalley. We would like to to make the impossible practical. Reader Inquiries If you have questions about this hear from you! publication or suggested topics for Working closely with carriers, we’ve developed a portfolio of flexible, integrated future articles, please send an e-mail Please visit http://www.sabreairlinesolu- solutions that can optimize operations of all airlines — any size, any business to [email protected]. model, anywhere in the world. Address Corrections Please send address corrections via tions.com/survey/Ascend.htm and complete e-mail to [email protected]. Learn how together we can put proven leadership to work for you. Call us at 682 Sabre Airline Solutions, the Sabre Airline 605 1000. Or visit www.sabreairlinesolutions.com. Solutions logo and products noted in italics in a five-minute survey to help us bring you the this publication are trademarks and/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade best aviation industry magazine possible. names are the property of their respective owners. ©2004 Sabre Inc. All rights reserved. Printed in the USA. smart. proven. bankable. contents 12 62 76 profile regional industry products company

Taking its A New Lease The Revolution’s Getting Fit A Higher Faring Well: Air New Putting IT 4 12 38 45 51 62 70 Share on Life Here for Recovery Plane Zealand Revamps its all together Advanced market data and More airlines turn to leasing The low-cost carrier model By maximizing resources, Middle East airlines find Fare Structure A strong user community analysis tools help Mexicana as an option for acquiring continues to evolve with transportation companies distinct ways to meet the Air New Zealand CEO Ralph helps create products more better analyze key markets. new aircraft. new features and customer can take advantage of the unique needs of the region. Norris discusses how the airline’s tailored to the industry. amenities. improving environment. revamped fare structure Iberia Airlines: CRM: Going Beyond a Coming has fueled a turnaround. Channel 6 16 56 76 Focused Strategy for Frequent Flyer Program On the Route Faster than the of Age Surfing 40 48 an Optimistic Future to Recovery speed of Industry Everything Talking Technology A successful CRM program Low-cost carrier ATA Airlines 66 Accessing multiple 79 Strategic planning helps the involves multiple customer Gulf Air CEO James Hogan The new SabreSonic™ passenger stays true to its roots while to Gain channels of distribution With … Barry Smith Spanish flag carrier maintain touch points. discusses how the airline’s solution offers highly flexible also branching out to develop While profitable, Estonian Air through a global distribution Recent breakthroughs continue its leading position. recovery plan has helped it reservations, inventory and a full-service, hub-and-spoke continues to adapt to the system enables airlines to pushing the evolution of The Long Night’s prepare for future growth. departure control functionality. network. new airline landscape. increase their reach. 19 revenue management. 6 Journey into Day After a prolonged period, the airline industry is showing signs of recovery.

Sizing 24 with Tom Klein Group President, Sabre Airline Solutions it Up perspective Airbus and Boeing offer different views for the ’ve been waiting far too long to confidently write profitability even during the most challenging of times. And future of aircraft. about an industry recovery. But having just carriers in the low-cost segment, which continue to help reshape returned from visits to many of you around the the industry with creative new ideas and methods of operation, Leveling the 28 globe, I feel we must embrace optimism while constantly push their business models to include additional Playing Field continuing to work hard to improve the industry customer-friendly touches such as new in-flight entertainment By revamping their business and Iface our challenges head on. Optimism will be welcomed options. models, network carriers by all of our dedicated people working in the industry — those Big challenges remain despite our improved forecasts. There can effectively compete thousands of airline employees who look to their leaders for is a punishing trend in fuel prices with few good hedging options. with low-cost airlines. signs that our great industry will be OK; different yes, but OK! Airports haven’t reduced costs in line with the industry need, and We’ve worked closely with many airlines as they have taken governments continue to be inconsistent regarding consolidation Scoring Points Self Serve: Airlines 10 35 incredible steps to navigate the last three years, and now as the opportunities that appear to be positive for our industry. The with Passengers Increasingly Employ global economy improves and passenger traffic begins to climb, consumer is likely to remain frugal — traveling, but with the Alaska Airline’s enhanced Customer-Enabling Tools airlines will be poised to enter a period of improved performance. expectation of reasonable fares whether for leisure or business loyalty program helps boost Popular customer check-in With early traffic results suggesting a strong 2004, we should see trips. For too many airlines, the return of passengers has not customer satisfaction and tools also help airlines reduce strength in almost all regions of the world. Airlines have done resulted in a return to profitability. We still have our work cut return the airline to profitability. costs and generate revenues. a tremendous amount of restructuring, putting themselves in out for us! position to enjoy the benefits of the improving conditions. To my colleagues around the industry, I can only say “thank 24 We have challenges, which I will get to shortly, but on balance, you” for allowing Sabre Airline Solutions to play a role in your there is reason for optimism. recovery and improvement plans. Our expertise in technology, Carriers such as Gulf Air continue to transform themselves operations research and airline business is a powerful force, by streamlining their operations, developing focused strategic and we have it solely and passionately focused on solving the plans and squeezing out inefficiencies. Under the leadership of problems you face every day. Again, thank you for allowing us James Hogan, a reinvigorated Gulf Air stands ready to take on to serve you. all challengers and maintain its position as a world-class airline. We’ve seen the same type of steps at airlines such as Spain’s Iberia, which by executing a series of strategic three-year plans has changed its operation so it has been able to maintain its profile profile

are able to modify and adapt flight schedules which we feel is much more feasible by har- through reduced maintenance, support, hard- to fit traffic flow patterns. Due to the tool’s nessing the capabilities offered by the market ware and distribution costs. The eMergo solu- ability to identify the most popular routes and data and analysis systems. This would trans- tions give carriers of all sizes access to leading Taking its Share transit points, Mexicana can target the best late to about a US$40 million increase in rev- technology, enabling greater integration possible departure and/or arrival times and enues for us.” among software products by delivering quick- maximize passenger loads. With uncertainty regarding privatization er implementations, lower total cost of owner-

Photo courtesy Mexicana “When we first implemented the for Aeromexico and Mexicana, it is important ship, predictable monthly pricing and fewer Mexicana better analyzes its key markets TransVision analyzer, our users were taken to Mexicana that it remains well entrenched complications than running an onsite system. by utilizing leading market data and aback by all of the features and functionality,” and prepared to compete for market share. Providing analysts with systems that said Zamudio. “Sabre Airline Solutions has “Last year we maintained the same offer more efficient ways of detecting market analysis systems. done a good job of addressing our needs, and market share while other competitors lost 3 trends and changes has helped Mexicana since the last release, our users can export percent to 4 percent in the domestic market make wiser decisions. anything they see on their screens to Excel.” and 2 percent in the Mexico-USA market,” “By using the TransVision analyzer and By Kathy Loveless and Badal Vyas | Ascend Contributors The market analysis tools have already said Zamudio. WiseVision system, we now have reliable helped the airline toward its market share goals. Mexicana has just begun to scratch the numbers, giving our sales representatives ocked in a battle for market share with Last May, the airline implemented the Sabre ® “2003 was a bad year for most of the surface regarding the capabilities offered by the greater negotiation power,” said Zamudio. its largest domestic competitor, TransVision ® traffic flow analyzer and the airlines in Mexico, so it is difficult to evaluate WiseVision system and the TransVision analyzer. “With these systems, we have increased L Mexicana realized it would need to Sabre ® WiseVision ™ sales expansion system Through the use of a new suite of MIDT the results versus previous years,” said Felipe “We are at the beginning of the learning overall confidence in the business decisions make more informed decisions about its key in addition to renewing its contract for the tools, Mexicana has improved its ability Batres, director, statistics and information at curve with the tools, and as we look forward, we make.” a markets to give it an advantage. Sabre ® ProVision SM MIDT processing service. to measure market position and track Mexicana. “However, using the WiseVision we would like to have more powerful users Mexicana and its chief competitor, The implementation of the systems agency performance, which has helped system and the TransVision analyzer have capable of maximizing the functionality offered AeroMexico, contend not only domestically, enabled Mexicana to measure market position the airline maintain its share in key enabled us to maintain the same market share by these systems,” said Felipe Batres. Kathy Loveless is product manager market but on key international routes including and track agency performance, which it was origin and destination markets. that we had in 2002. Our current market share Implemented through the Sabre ® data and analysis, and Badal Vyas is senior Mexico-United States, Mexico-Canada and previously unable to do. domestically in Mexico is 29 percent and in eMergo ® Web-enabled and dedicated network product management specialist at Sabre Mexico-Latin America. With 82 years of con- “The WiseVision system has allowed us the international Mexico-USA market it is 21 solutions, an application service provider delivery Airline Solutions. They can be contacted at tinuous operation and one of the most modern to negotiate new commission agreements time retrieving and compiling data and more percent. We would like to realize a 1 percent method, the market data and analysis systems [email protected] and fleets in the world, Mexicana needed to focus with agencies, track their performance and time making business decisions. Analysis of increase in each of these markets this year, enable Mexicana to realize significant savings [email protected]. on maximizing market share opportunities to greatly increase sales representative efficien- areas such as route performance, passenger protect its position as one of Mexico’s leading cy,” said Luis Zamudio, sales and statistics flow and codeshare evaluation facilitates max- international carriers. manager for Mexicana. imized flight schedules. The system also helps Currently both airlines are owned by The WiseVision system also helps Mexicana view potential market opportunities THE HIGH LEVEL government-controlled holding company CIN- Mexicana sales representatives decrease the in a variety of ways by extracting valuable tran- TRA, Mexico’s main transportation system. time required to analyze and interpret large sit information from MIDT booking transac- News Briefs from Around the Globe However, each is being prepared for privatiza- quantities of market data. By presenting analy- tions. With this insight, the airline analyzes: vıew tion, making it even more important to build sis results in multiple ways to support the Transit-point passenger flows, upon current strengths in the most profitable sales process, the system facilitates produc- Trunk route feeding, markets. tivity and financial savings. Onward traffic flows, Who market,” said Glen Baker, ATA vice from our operations to allow us Identifying areas of potential revenue “Our sales people are amazed by the Time-of-day and day-of-week ATA Airlines president of information systems. to reinvest those resources into increases, improving scheduling and network capabilities and amount of information provid- passenger distribution, “Sabre Airline Solutions has played enhanced services for our passen- planning, maximizing agency sales, and reducing ed by these tools and have noticed a signifi- Route and airline preferences, What commissions became essential for Mexicana. cant difference in the way we operate now Codeshare performance, a major role in helping us offer gers,” said Stan Hula, ATA vice Renewed its agreement for the In 2000, to achieve those goals, versus the products we previously used,” said Cabin and yield distribution. reliable, high-quality air transportation president, planning. “By teaming SabreSonic ™ passenger solution Mexicana placed a newfound emphasis on Zamudio. “The system so far has met every Additionally, monitoring capabilities within services to our more than 10 million with Sabre Airline Solutions consul- point-of-sale decision-support technology and requirement we desired.” the TransVision analyzer enable Mexicana to and engaged Sabre Airline Solutions ™ began using a system to analyze markets. With approximately 100 sales represen- track and evaluate its codeshare agreements. passengers annually. SabreSonic tants — a team with vast airline Consulting to streamline planning and However, the system was not robust enough tatives, the carrier has significantly improved The system provides not only information on Res empowers our service profession- industry knowledge and experience — scheduling processes and improve to meet the airline’s needs. It did not integrate performance with the WiseVision system by its agreements, but also competitive code- als to provide a streamlined travel we look forward to maximizing our with newer operating systems, such as enabling sales representatives to efficiently share agreements as well, giving the carrier a profits through pricing and revenue Windows 2000 or Windows NT, which pre- run queries and reports and create agency strategic advantage during future negotiations. experience to our valued customers.” operational efficiency and capturing management enhancements. sented major challenges for the airline’s ana- groups to determine the number of bookings Mexicana also utilizes the analyzer to The consulting engagement the highest returns on our technology lysts. In addition, the tools were limited in for each agency. determine network utilization. This data-min- Why enabled ATA to identify several areas investments. Having technology is terms of agency data and the different types Mexicana has further leveraged its mar- ing tool provides the carrier with detailed of queries available. Due to these limitations, ket information data tapes purchase with the analysis of origin and destination data. Details “Since we achieved ‘major carrier’ that will differentiate it in the market- only one part of the solution — what Mexicana began researching other market use of the TransVision analyzer in its network such as passenger travel patterns, segment, status in 2000, we have continually place and maximize its profitability. is even more important is making data and analysis tools. management department. The system assists feeder and onward traffic flows, and yield and focused our efforts to streamline “By optimizing our systems sure we have the right strategy in After extensive exploration of available with scheduling and task planning based on cabin class distribution can be found quickly. solutions, Mexicana selected the market data traveler booking trends. By reducing analysis Utilizing the in-depth travel analysis, our operations and sustain the growth and our processes, we intend to place to make the best use of the and analysis tools from Sabre Airline Solutions. time, it also enables analysts to spend less Mexicana’s planning and scheduling analysts we’ve enjoyed even in a constrained wring every dollar of profitability technology.” a

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The key to Iberia’s ongoing success has “been its management’s focused strategy and discipline to implement it, and its desire to ensure it maintains a competitive edge and exceeds its AirlinesIberia customers’ expectations.” FOCUSED STRATEGY FOR AN OPTIMISTIC FUTURE

By staying the course of its strategic plans, Iberia Airlines is poised to continue its recovery and preserve its position as one of Europe’s leading carriers.

By Gary Thompson ithout a doubt, 2003 was a year of great “Iberia decided to adopt a strict policy Ascend Contributor change in the airline industry. But for of cost control long before 2001, the fruits of Iberia Líneas Aéreas de España, the which were demonstrated during the worst national airline of Spain, the year’s crisis the industry has suffered to date,” said Wchanges marked a continuation of its recovery Angel Mullor, consejero delegado for Iberia. and transformation into a commercially suc- “At the same time, operational and financial cessful global airline. flexibility was a key focus for Iberia. The crisis The airline’s ability to weather the storm that has affected the industry over the past has been proven through its financial results of two years has underlined the fact that airlines the past few years. For 2003, Iberia earned a today need to be extremely focused on con- €161 million (US$199 million) operating profit, trolling their costs and planning, while at the and in 2002, Iberia posted an operating profit same time, they need to be more flexible.” of €249 million (US$314 million) and a net prof- Ten years ago, with the liberalization of it of €157 million (US$198 million). Even in the Spanish market, Iberia’s leadership real- Photo courtesy of Iberia Airlines of Iberia Photo courtesy 2001, when the industry suffered its worst ized it would have to adapt to a new airline financial year in history, Iberia turned a €5 mil- industry. In 1994, the airline launched a three- Iberia Airlines, the Spanish national lion (US$6 million) operating profit and a €50 year “Viability Plan,” which featured initiatives carrier, has seen its profits take off million (US$63 million) net profit. to cut costs and reduce holdings in other air- during the past three years, achieving For Iberia, however, recovery was not lines. Following the Viability Plan, the airline operating profits from 2001 through an overnight process. Rather, the foundation launched its first “Director Plan” in 1997 in 2003. Last year, the airline, which is for the profitability the airline has enjoyed conjunction with the full phase-in of the liber- currently in its third three-year strategic recently was poured a decade ago. The key to alization of the air transport industry in the “Director Plan,” earned €4.6 billion Iberia’s ongoing success has been its manage- European Union. (US$5.7 billion) in operating revenues, ment’s focused strategy and discipline to a sign of the carrier’s strength despite implement it, and its desire to ensure it main- the industry’s economic condition. tains a competitive edge and exceeds its cus-

tomers’ expectations. Photo courtesy of Iberia Airlines

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The first Director Plan was highlighted advantage of the planned airport expansions at improvements. Management claims that if air- routes in terms of number of destinations, by finalizing agreements with British Airways Barcelona El Prat — which will open an addi- craft productivity targets are not achieved, number of non-stop flights and daily frequencies. and American Airlines, which led to the found- tional runway this year and a new terminal in capacity will be increased even further than To maintain its position and compete in ing of the oneworld alliance. It also embarked 2005 — and Madrid Barajas — which will add planned through additional wet leasing. such a tough commercial environment, Iberia on a fleet renewal program — moving to the two new runways and a terminal this year. officials recognize that they will need to con- A320 for short- and medium-range flights and This will result in passenger capacity growth tinue their focus and determination to develop the A340 for long-haul flights — and rational- of between 30 percent and 40 percent at Iberia decided to adopt a strict competitive service and prices in domestic ized its route network. As a result of the first Barcelona and Madrid during the next three “policy of cost control long before and European point-to-point routes, maintain a Photo courtesy of Iberia Airlines Director Plan, revenues exceeded the plan by years — much greater than any other major 2001, the fruits of which were competitive cost base on par with low-cost 6.2 percent, and income before taxes was 62 European airport. carriers, and maximize the value of the differ- percent above plan. “Iberia is already the natural ‘bridge’ demonstrated during the worst ent airline-related businesses. The foundation between Europe and Latin America, and the crisis the industry has suffered has been laid, the strategy is in motion and the new expansion reinforces our position,” said to date. At the same time, opera- future is optimistic. a … Iberia continues to maintain a Enrique Donaire, director general of the airline. “leadership position on Europe/Latin “The aggressive growth of the airports in tional and financial flexibility America routes in terms of number Madrid and Barcelona will allow us to dramati- was a key focus for Iberia. cally increase our offerings to Latin America, ” of destinations, number of non-stop while at the same time, offer better facilities Gary Thompson is the Europe-based flights and daily frequencies. for our European connections.” The third Director Plan remains on account director for Iberia Airlines. ” Altogether, Iberia will spend more than course, and Iberia continues to maintain a He can be contacted at €1.5 billion (US$1.9 billion) on aircraft and terminal leadership position on Europe/Latin America [email protected]. In 2000, a second Director Plan began, featuring the airline’s initial public offering, the Part of Iberia Airlines’ strategy for future growth includes taking advantage of sale of Binter Mediterraneo and Binter planned expansions at Barcelona El Prat Airport and Madrid Barajas Airport, both Canarias, and the launch of iberia.com and of which will increase passenger capacity between 30 percent to 40 percent during THE HIGH LEVEL electronic ticketing. The second Director Plan the next three years, much greater than any other major European airport. brought about the strong growth of the air- News Briefs from Around the Globe line’s European market and the development vıew of enhanced customer service plans. Last year, the airline entered a third Director Plan, which aims to reduce costs by 8 Who The systems will help Aeropostal functions that normally took up a lot percent to 10 percent; increase the margin of earnings before interest, taxes, depreciation, Aeropostal integrate its crew and operations areas. of the schedulers’ time in answering

amortization and rent above 19 percent; Sabre Airline Solutions What “Implementation of the AirCrews telephone calls.” and achieve a return on equity of at least 15 suite has benefited Aeropostal by per- The airline also benefited from percent. Implemented the Sabre ® AirCrews ® These targets are within reach given mitting a much greater level of con- the lower total cost of ownership Crew Management suite and the Iberia's 2002 EBITDAR margin of 17.1 percent trol regarding the utilization of our by accessing the suites through Sabre ® AirOps ™ Control suite through (compared with 13.8 percent in 2001) and manpower,” said Capt. Enrique Zerpa, an ASP. ROE of 12 percent. Through the third Director the application service provider deliv- Plan, the airline seeks to achieve these objec- responsible for the coordination and “We do not have the resources ery method, the Sabre ® eMergo ® tives through further cost-cutting initiatives, implementation of the AirCrews suite. to dedicate to the installation of an Web-enabled and dedicated network preserving Iberia's leading position on “By integrating functions between the onsite system operations control Europe/Latin America routes, and making its solutions. As a result of the imple- domestic and European point-to-point routes AirCrews and AirOps suites and the center, but with the eMergo solutions, mentation, Aeropostal has automated profitable. Specific targets include a capacity schedule generated by the Sabre ® we get the technology without the two key functional areas. increase of at least 22 percent over the plan’s AirFlite ™ Schedule Manager, we are expensive upfront hardware costs three-year period, a rise in fleet utilization of 9 Why percent and a 15 percent reduction in costs. able to operate more efficiently. or the ongoing cost to maintain As it continues its recovery, the airline is “With the increased efficiencies in the The Sabre ® AirCrews ® Crew the system,” Piccoli said. “In now back to focusing on growth. Orders for operations and crewing processes, Connection has provided the crews addition, Sabre Airline Solutions A320/A321 aircraft that were put on hold began arriving this year, and it will replace its travelers should encounter less flight with an efficient and low-cost means made accessing the system easy fleet of Boeing 747s with eight A340-600s, Through its series of three-year strategic plans, Iberia Airlines has not taken a delays and cancellations, which then of communicating with the rostering by linking Unix servers to personal which will be assigned on routes to North and quixotic approach to future success. Rather than chasing at windmills like the improves customer satisfaction,” said department to handle such items computers for a graphical user South America. famous Spanish literary character Don Quixote, the airline identified specific Another key element of Iberia’s focused achievable goals and set out to realize them. Licio Piccoli, chief information officer as flight, days off, swaps, requests interface such as the use of a strategy for continued growth is to take full for Aeropostal. for specific duties and many other three-button mouse.” a

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Given Alaska Airlines’ long-standing management solutions for frequent flyer pro- focus on customer service, the Points suite grams. Points International offers a variety of represented a perfect fit. loyalty technology solutions, which can sup- “During the dot-com peak, we were plement an airline’s loyalty program. Points’ Scoring Points with Passengers approached by five companies who had put customer services and consumer programs together wonderful business offer value-added member cases,” said Ardizzone. propositions and strong “They all looked good, financial and marketing Through its recently enhanced frequent flyer program, Alaska Airlines but what attracted us benefits for an airline’s to Points was that the frequent flyer program. increases loyalty and satisfaction among its most valued passengers, CEO, Rob MacLean, The Points International helping the airline return to profitability. really understood loyal- loyalty expansion tools ty marketing and the are available through value of our mile cur- Sabre Airline Solutions. a rency. Some of the By Gisselle Miranda | Ascend Contributor online services were more complicated, but ttracting new customers and taking management team clearly has a deep under- the sale and renewal of airline lounge and pri- the Points concept was Gisselle Miranda care of current passengers is helping standing of loyalty marketing and technology.” vate club memberships online. easy to understand.” is manager of A Alaska Airlines continue its recovery Alaska Airlines, which in 1995 became Because Points integrates seamlessly Sabre Airline partner relationships for from the industry downturn and strengthening the first airline to sell tickets online and in with Alaska Airlines’ loyalty system as a backend Solutions has partnered Points International. For more its position as one of the 1999 became the first airline to implement solution, the carrier boosts loyalty and maintains with Points International information about the Points suite, major carriers in the online check in, began by using The brand image among its Mileage Plan members to provide innovative loyalty contact [email protected] United States. The airline, Points Exchange , which enables and partners with little overhead expenditures. which outlines its dedica- Mileage Plan members to Airline officials said the Points suite of tion to its passengers in a exchange points and miles solutions has been extremely popular with 12-point customer com- among loyalty programs online. customers. mitment statement, has Through The Points Exchange, “Our customers have long enjoyed the +count it up long used technology to Mileage Plan members can ease and convenience of managing their fre- provide amenities that consolidate other loyalty quent flyer account online,” said Ardizzone. 40 Cost in U.S. dollars per minute 1993 Year British Airways’ enhance the travel experi- points into Alaska Airlines’ “Now, the Points suite has opened up several a flight is delayed according to the Air Barbara Harmer became the first ence with the airline and program and also redeem new options that give them the ability to pur- Transport Association. The cost does female supersonic commercial pilot increase the likelihood for the airline’s miles for chase miles needed to redeem an award or not include indirect delay cost such as in the world when she flew the return business. rewards of other programs. transfer miles and points to their Mileage Plan One of Alaska Based on the success of account through the The Points Exchange.” lost revenues for transferring passen- Concorde on March 25 of that year. Airlines’ top customer service The Points gers who missed their connections. initiatives is its frequent flyer pro- Exchange, By using Points products, 21 Age of the youngest female pilot gram, Mileage Plan, which rewards Alaska Airlines, the Alaska Airlines has 16,000 Length in feet of to be hired for a major U.S.-based customers for their loyalty to the airline. The ninth largest carrier in the enabled its customers the longest commercial runway in airline. Duana Robinson was hired by program, launched in 1983, allows passengers United States, decided to to have more flexibility North America and longest instrument Texas International Airlines in February to redeem awards with 15 airlines, Amtrak, deploy other Points solu- with their frequent flyer landing system, or ILS, runway in the 1978 to fly the DC-9. restaurants, car rental agencies, hotels, and tions that facilitated the accounts. By going to All images courtesy of Alaska Airlines other companies offering financial and tele- sale of miles online via the airline’s Web site, world. Denver International Airport com services. alaskaair.com. customers can purchase opened the runway last year. 1935 Year of the first flight In 2001, the airline, continuing its tradi- In 2002, Alaska miles for themselves or of the Douglas DC-3 airliner, the first tion of deploying advanced technology, launched Instant Miles, as a gift for others. The As part of its customer commitment, 165 million Cost in aircraft to make money carrying enhanced the Mileage Plan program by part- which is powered by Points products also Alaska Airlines deploys technology to U.S. dollars that it took to construct passengers rather than mail. It seated nering with Points International, a provider of pointspurchase ™, an enable corporate partners provide amenities for customers, such online loyalty management solutions. application that enables to buy and distribute as check-in kiosks. The airline attributes the 16,000-foot-long runway at Denver 21 passengers. “The Instant Miles program really the airline’s 4 million Mileage Plan miles as its customer service for contributing to International Airport. exploded when we moved it online because Mileage Plan members to an additional incentive. its improved financial performance. 1 million+ Number it’s such a well-designed experience,” said purchase frequent flyer 1998 Year of the first mother/son of passengers who flew across the Ann Ardizzone, managing director of market- miles for themselves or as a gift. And last year, Since implementing the Points applica- over 2002 when it had a net loss of US$118.6 airline pilots. Capt. Joy Klopfer and Atlantic Ocean in 1958, the first ing programs for Alaska Airlines. “Ease of use the airline added Partner Miles online using tion within its loyalty program, Alaska million. First Officer Glenn Klopfer flew their year air passengers surpassed is important to us, and our internal team was pointscorporate ™, a private label service that Airlines has increased incremental growth in In announcing the 2003 results, Alaska able to deploy the Points solutions quickly. We enables partner organizations to buy and dis- revenue and cost savings. In 2003, the airline Airlines’ Chairman and Chief Executive Officer first flight together a year later on a the number of Atlantic steamship also knew that the product would be intuitive tribute Mileage Plan miles. The airline also recorded its first annual profit since 1999, Bill Ayer said the performance helps “confirm the United Airlines Boeing 767. passengers. for our members and partners. The Points plans to add pointsclub ™, which automates earning US$8.8 million, a dramatic improvement preference customers have for our service.”

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trend. And what fuels it is a host of factors that three represent popular choices among many appeal to airlines striving to refresh their fleet carriers worldwide, and two of those enable without the capital expenditures that accom- carriers to retain the asset in the end. A New Lease on Life pany ownership. One advantage of leasing an aircraft, Operating Lease: No Money Down

similar to leasing an automobile, is that “when A clear advantage of the operating lease is that Sabre Airline Solutions you’re done, you can turn in the keys,” said at the end of the leasing term, the airline Some airlines turn to leasing options when upgrading their fleet, while Eric Jones, manager, communications for the returns the aircraft to the lessor without fur- others purchase aircraft outright hoping to increase the value of their airline. aircraft leasing business of General Electric. ther obligation. Through this conventional “You want a bigger or more modern airplane, method, the airline determines the dates in you can turn it back in. The great thing about which it would like to lease the aircraft, and that is it isn’t your problem. It is our problem. both companies agree on certain aspects of By Stephani Hawkins | Ascend Editor We own it. We have the residual value risk in the contract such as which company will our hands as opposed to you. You can move assume responsibility for maintenance. s airlines around the world take hold down large sums of money to purchase aircraft. There is much debate surrounding on and do what you do best, which is running “Maybe the lessor has some maintenance of the industry’s upturn and continue “If I was starting an airline, instead of the pros and cons of each option, and some an airline.” responsibilities, and you have some mainte- A refining their operations to become investing my equity in buying an asset that is industry experts believe that in the long term, According to Jones, the greatest advan- nance responsibilities,” said Ben-Khedher. more closely aligned with the changed land- going to reduce in value, I would rather keep a some form of leasing will prevail and tradition- tage of leasing, possibly above the financial “You pay a fixed amount per month to lease scape, conserving cash remains a critical part hold of my capital and lease the aircraft,” said al purchasing will become a thing of the past. benefits, is flexibility. the aircraft. At the end of the period of time, it of their revival. Nejib Ben-Khedher, senior vice president of “The way the industry is going, most goes back to them and you have no rights to it.” Keeping their dollars close to the vest, Sabre Airline Solutions Consulting. “Then you airlines are simply not going to own their Through this approach, the leasing com- … the greatest advantage of 46 percent of the world’s top 500 airlines lease have the capital in the bank to use for other equipment,” Ben-Khedher said. “They are “ pany estimates what the value of the aircraft all or portions of their fleet (a 10 percent investments that are going to retain their either going to lease it purely from a third-party leasing, possibly above the will be at the end of the lease and applies a As airlines of all sizes around the world increase from five years ago) rather than laying value, like real estate.” provider and pay only for utilization, or they are financial benefits, is flexibility. profit margin to determine the monthly pay- look to upgrade or grow their fleets, going to set up ‘special purpose vehicles’ — a ” ment, which is likely to be higher than it would more of them are leasing as a more ‘lease-to-own’ option — which protect the be if purchasing the aircraft through traditional cost-effective means of acquiring aircraft asset in the event the carrier goes bankrupt. “When you lease it, you may pay a little financing. However, if the airline is not in a rather than purchasing them outright. I think the period of owning the equipment higher monthly charge, but you get flexibility,” he position to make a sizable down payment or outright, for many airlines, is over.” said. “For example, if there is a downturn or traf- does not qualify for certain types of credit, it “If you want to be known as the world’s On the other hand, there’s the argu- fic curtails, you only have it for two more years. may be more logical to pay the higher month- youngest equipment airline, you lease the ment that owning aircraft sustains the capital Maybe you don’t need that extra airplane. You ly rate to obtain the aircraft. equipment,” Ben-Khedher said. “After five or value of an airline. At least that was true a few can get rid of it — turn it back in and walk away.” Selecting the operating lease, the airline seven years, you just ‘flip’ that piece of equip- years back when specific aircraft types were If leasing really is the better option for is essentially paying for the “utilization of the ment for a newer piece.” in high demand and appreciated with time. the current environment, maybe the more equipment … and a portion of the ‘heavy Airlines knew they could buy an aircraft and appropriate question is: What type of lease is check’ that aircraft is going to have to undergo Finance Lease: Capital Outlay two years later it would be worth more than most fitting for an individual airline? Today, later on,” said Ben-Khedher. While the “finance” or “capital” lease requires Image courtesy Pakistan International Airlines International courtesy Pakistan Image they paid for it. there are a number of possibilities that can be Another appealing aspect for many a down payment, the airline not only shows a In the “old” days, growth in the industry exercised depending on an airline’s financial carriers is the ability to frequently upgrade portion of the airplane as an asset on its books was so high that airplane manufacturers could- situation, credit status and specific needs. But their fleet. during the leasing period, it may save on taxes n’t keep up with demand. But today, as the leading creators of aircraft compete with each other, numerous different aircraft types have come into existence, saturating the market with THE HIGH LEVEL an overabundance of “tin” and driving the value of aircraft downward. News Briefs from Around the Globe “When you have an asset that is intrin- vıew sically going to reduce its value year after year … do you buy it and know that every year the Who Why value of your asset decreases?” Ben-Khedher said. “Or do you lease it? Leasing is about pay- China Eastern Airlines “In our drive to be a major player in of marketing and sales for China ing for utilization of the aircraft instead of paying What the Asian region, this solution will go Eastern. “Overall, we expect to the full price of the aircraft.” Selected the Sabre ® AirFlite ™ a long way to boosting our efficiency, see our top-line revenues increase Pakistan International Airlines is one of the carriers leading the way in obtaining aircraft Weighing the Options Schedule Manager to manage its tighten our accuracy and provide by between 1 percent and 3 percent. through special purpose vehicle lease financing options, which enable the airline to take Leasing didn’t just catch on as a way to offset flight schedules and improve its more decision support in an increas- In today’s challenging environment, ownership of aircraft at the end of the lease term. Last year, the airline obtained more the aftermath of a wounded industry. During than 10 aircraft under special purpose vehicle-based lease financing agreements. the past several years, and perhaps the last profitability across all regional, ingly competitive market,” said Hu, we must focus on proven solutions couple of decades, it has become a growing short-haul and long-haul routes. Zhen Ming, standing deputy director that deliver the desired result.” a

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if it is investing income that would otherwise years ago is something known as a special funds to deploy in outright purchase of aircraft nesspeople, you understand the benefits of The Bottom Line be recorded as profit. And in the end, it still purpose vehicle.” Percentage of because huge investment is required. The SPV improved flying conditions and improved A variety of choices for acquiring aircraft leave has the option of returning the aircraft to the What makes this option so popular for Aircraft Owned Versus Leased raises the funds from the market to purchase prospects for the airline’s finances.” many of the world’s airlines in a favorable posi- leasing company. However, if the contractual government-owned airlines is that in some the aircraft and leases it to us. We pay monthly Through international financing institu- tion to upgrade their fleet using methods that 70% ------residual value of the aircraft is less than what instances, the special purpose vehicle compa- 64% rental installments to the SPV. The title to the tions, last year PIA purchased more than 10 will positively impact their bottom line. 59% 60% ------57% ------the aircraft is actually worth at the end of the ny is developed and owned by the govern- 55% 54% aircraft remains with the SPV until the total aircraft under SPV-based agreements. For government-owned airlines that 50% ------term, the airline has an opportunity to pur- ment; therefore, if the airline fails, the govern- 45% 46% loan installments are paid. At which time we “U.S. Ex-Im Bank is a relatively cheaper place a strong emphasis on showing assets on 41% 43% ------chase the aircraft for the contractual residual. ment still has possession of the asset. If it is 40% 36% take ownership of the aircraft, and they source of financing,” said Saeed. “This financ- the balance sheet, the SPV option likely out- It can then sell the aircraft for a profit, or it can not owned by the government, the SPV-based 30% ------become assets.” ing structure requires creation of an off-shore weighs the others. Privately owned airlines continue to operate the aircraft. Either way, company has reduced risk because it holds 20% ------Two years ago, the airline took the same company (SPV), which leases aircraft to PIA.” that are seeking to obtain new aircraft and are the value of the airline has been increased. the title to the asset until it’s paid in full, 10% ------approach using the Export-Import Bank of the Through Ex-Im Bank-supported funding, not faced with disqualifiers, such as credit Percentage of Units Under this agreement, a key advantage enabling it to sell or lease the aircraft to anoth- 0% ------United States, the U.S. government’s official the airline introduced three Boeing 777- issues, may lean toward SPV-based lease 1999 2000 2001 2002 2003 for the airline is that in addition to taking partial er company if the original lessee defaults. export credit agency, which guarantees term 200ERs into its fleet earlier this year using financing as well for the many benefits it offers. %Leased %Owned ownership of the aircraft, the risks associated financing on soft terms to creditworthy inter- SPV-based lease financing. Five more aircraft Every airline has its own unique set of with aircraft devaluation are of no consequence. national buyers in private and public sectors by in the Boeing 777 family will be purchased circumstances. As with the aviation industry, “The great thing about the finance lease Aircraft Owned and Leased by the Largest Airlines covering 100 percent of the associated com- through this financing structure — two in 2006 aircraft leasing companies and financial institu- from the airline’s point of view, they own a mercial and political risks. and three in 2008. tions have entered a new era with new sur- 12,000 ------portion of it, so it improves the value of the 10,786 10,847 10,540 10,741 10,932 “We’ve had ongoing discussions with “We look forward to providing support roundings. Taking into account the number of company,” Ben-Khedher said. “They do not 10,000 ------the leadership of both Pakistan International for PIA’s purchase of other U.S.-manufactured viable purchasing and leasing options available 8,000 ------have to own the unit outright. They do not 6,905 6,375 Airlines and the Ministry of Finance about how aircraft and engines in the future,” said Ex-Im today, most airlines, regardless of their distinc- 5,983 5,895 5,850 6,000 ------have to take the risks of its value going down 4,557 4,846 5,082 best to structure a possible sale of U.S.-manu- Bank President and Chairman Philip Merrill. tive conditions or geographic location, are well 3,881 4,472 very heavily.” 4,000 ------factured aircraft to PIA,” said James The only disadvantage of leasing through positioned to attain a younger fleet and grow 2,000 ------Lambright, executive vice president of Ex-Im a special purpose vehicle rather than purchasing their operation during the industry’s upswing. a Number of Units The Best of Both Worlds 0 ------Bank during a 2002 speech to the International aircraft outright through traditional financing is 1999 2000 2001 2002 2003 What has become an ideal option for many air- Chamber of Commerce in Karachi, Pakistan. that “the title to the aircraft remains with the Leased Owned Total lines is the ability to acquire aircraft with the “When this transaction is concluded, it will SPV,” Saeed said. “The title reverts to the Stephani Hawkins can be contacted at same safety guarantees that traditional leasing upgrade the quality of PIA’s fleet; and as busi- lessee when the financing is fully repaid.” [email protected]. offers, yet own the aircraft at the end of the The past four years have reflected a growing trend of airlines leasing a larger percentage agreement. A growing trend among govern- of their fleets. While the total number of aircraft flown has remained largely stable, a ment-owned carriers, and a viable choice for greater percentage of the world’s aircraft are now leased, enabling many airlines to privately owned carriers as well, is special pur- cost-effectively upgrade their fleets with more modern, fuel-efficient aircraft. By 2003, hightech pose vehicle-based lease financing where, in almost half of the aircraft flown by the largest airlines were leased rather than owned. some instances, a new company is created specifically to lease aircraft to a particular air- Typically, the SPV-based company is tional export banks and similar lending institu- News on New and Improved Products line that will eventually own the asset. established in another country, and its govern- tions. In 1991, Pakistan International Airlines and Services from Sabre Airline Solutions “Government-owned carriers want to ment receives “hard” cash for the SPV entered into its first SPV-based lease, acquir- see the assets on the books,” Ben-Khedher arrangement. In turn, the airline does not have ing six A310 aircraft under the guarantee of product said. “That way the company has a value. to pay corporate taxes for the SPV, and it European export credit agencies. and provide personalized service to Frequent traveler information, club Governments were always leery of using leas- receives import/export credits from the coun- “SPV is a conduit to raise money for Customer Insight customers. information, value score, customer es because their citizens would say that it’s try in which the SPV exists. financing aircraft,” said Ahmed Saeed, chair- comments, just a ‘paper’ airline. They do not own Alternatively, airlines that qualify can set man and chief executive officer of PIA. description features • Marketing information — Annual trip anything. So what was developed several up SPV-based lease financing through interna- “Airlines normally do not have large surplus Customer Insight, formerly the Customer Flexible access — Agents are provided count, average trip length, Profile System, is a comprehensive rela- real-time access to display, create • Corporate information — Company tional database that collects and stores or modify customer information via name, job title, number of SabreSonic ™ Res or Web services. employees. THE HIGH LEVEL information on a traveler. Through the use The Web service interface enables Single view — Agents are provided a of Customer Insight, an airline will have a News Briefs from Around the Globe access from a wide variety of single view of the traveler throughout simplified method of looking at and relat- applications or devices. the travel experience. When accessed vıew ing data about its customers. Comprehensive data — Expanded through Web services, connectivity to Who Why benefits customer data can be stored including: customer touch-point applications and Airlines. “We are confident that • Personal information — Name, devices is minimized. TransMeridian Airlines sm “We firmly believe that being in the Sabre Connected travel agents Customer Insight provides a central loca- address, phone, e-mail address, Increased productivity — Customer document information, Insight improves the accuracy and What global distribution system will make will take advantage of this tion to store relevant customer informa- •Preferences and policies — Special efficiency of passenger name record Agreed to have its fares distributed our airline even more attractive to the opportunity and offer our tion. Making this information available to service requests and other service creation through the use of structured through the Sabre ® global distribution travel agent community,” said Rob everyday low fares to their airline agents at all customer touch points information, preferred services, data creation, enabling agents to focus a system. Binns, president of TransMeridian customers.” a enables them to recognize each traveler •Airline relationship information — on customer interaction. industry industry

pose a risk of losing sight of the overall program data, but collect information from In the past, airlines in general believed: strategic orientation. every point of contact. Up to now, airlines Loyal customers were more profitable, have segmented passengers based on Miles flown should be the primary measure Does a Frequent Flyer frequent flyer data, and many have found that of loyalty, CRM: Going Beyond a Program Constitute CRM? this limits the ability to have a clear view of Rewards should be redeemed in proportion During the last 10 years, airlines have focused customers. Frequent flyer members, in reality, to the miles accumulated on a customer’s on loyalty marketing to serve and retain cus- may not be the most valuable customers. For account and did not represent the revenue Frequent Flyer Program tomers as evidenced by the boom of frequent example, one U.S.-based carrier discovered that a customer brought in. flyer programs. This trend has been pushed that if it measured its customer base by Given this mindset, airlines discounted by intense competition and limited growth in revenue, the top customers would not be the willingness of a customer to pay more for the total base of potential customers. These determined by mileage. In fact, the top 1,000 a better product or service. As more airlines look to begin CRM initiatives, there are still some programs hardly influenced the overall customers determined by revenue generated Today, an airline’s CRM strategy should misconceptions about what it involves, what it takes and the benefits demand for travel but did affect the choice of 60 percent more income than the top 1,000 be based on new principles: carrier and resulted in carriers improving their customers measured by mileage. Lufthansa Customers who purchase higher fares are it provides. market share. German Airlines had a similar experience more profitable, Recently, loyalty has given way to a and demonstrated that only 4 percent of its Both distance traveled and fare purchased more encompassing approach to maximize “Miles & More” customers accounted for 50 should be factored into a customer-value By Nadja Killisly | Ascend Contributor customer lifetime value. Despite this shift, percent of its revenue. In other words, given measure, some airlines have not approached CRM as a that not every passenger who flies on Customers who are willing to pay more ustomer relationship management, and developing innovative solutions to acquire areas of the organization. It will determine holistic strategy but instead view it as synony- Lufthansa is a member of its frequent flyer for additional benefits should gain status sometimes called CRM, customer or keep the airline’s customers. which applications or services could better mous with the frequent flyer program. program, 96 percent of its top mileage more quickly. C management, customer centricity or Today, many people remain confused support particular customer segments. And A common denominator between tradi- customers generated less than half of the CRM statistics, compiled by Sabre customer-centric management, has been a about what CRM is or is not and what its over- CRM should highlight how each area can tional loyalty programs and CRM is customer airline’s revenue. Airline Solutions, also show that on average “buzz word” in the airline industry for a num- all strategic objectives should be. contribute to the bottom line. As a conse- data, but successful CRM installations gener- Such findings have led airlines to widen only 20 percent of a carrier’s passengers ber of years and will become more prominent quence, CRM for an airline may have different ate far richer data than loyalty programs can the boundaries of their frequent flyer pro- belong to its frequent flyer program. Not hav- as airlines look to it as a way to help recover What is CRM? boundaries and can involve different technolo- provide on their own. One reason is that CRM grams, aligning them more with true CRM ing customer information on the other 80 per- from the challenges of the past few years. But CRM is a strategic business approach that gies depending on its business objectives. systems are not limited solely to loyalty practices. cent eliminates the opportunity for the airline there’s still a lot of confusion about what CRM enables airlines to effectively manage relation- CRM involves building and using cus- to establish contact with these other passen- really is. In fact, the value of CRM tomer data in a smart way. gers for direct marketing purposes and to Good For The Bottom Line and its future is still being debat- Growth of Frequent Flyer Programs Airlines need to develop and use attract additional valuable customers. ed. Even today, many airlines are knowledge about their customers Another difference with frequent flyer Impact of customer relationship management trying to answer fundamental Number of Number of so they can transform what has programs is that CRM involves managing all questions related to the topic — frequent flyer frequent flyer been a transaction into a relation- Increase in revenues by source (percent) Potential improvement relationships with travelers along their jour- Number of programs programs in operating profit, What is CRM, and how tangible ship with travelers, particularly a US$ million per year ney, utilizing the customer data not only to airlines 1998 2004 0.05 0.85 – 2.35 is it? Is having a frequent flyer relationship with those who are 0.3 – 1.2 reward travelers but also influence their Full-service ~250 83 130 2 program the same as CRM? Can most valuable. The data should Large airline 100 – 250 behavior through personalized interactions providers Medium airline2 25 – 60 the investment in CRM be justified not only be used in relation to a Small airline2 15 – 50 via various communication channels. Low-cost 31 3 13 in a cost-cutting environment? particular flight event at the vari- Numerous customer behavior studies carriers (including Change in cost (percent) CRM has been described subsidaries) ous interaction points with the confirm that the choice of airline travelers is 0.5 – 1.1 as many things ranging from data customer, but also in a proactive not only driven by frequent flyer programs but 0.2 – 0.5 0.1 – 0.8 warehousing, campaign manage- manner. This includes possibili- 0 0.1 – 0.3 also by price, schedule, product attributes, ment, even contact management The number of frequent flyer programs has increased dramatically ties for targeting specific cus- 0.2 – 0.4 customer service and individualization. In a and calendar scheduling. While during the last six years as airlines have relied on them to retain tomer segments individually or survey conducted by Jupiter in 2002, 79 per- these can be aspects of a CRM customer loyalty. using the data as an input for 0 cent of travelers said they were less likely to program, none in itself consti- route planning if it shows that ori- Reduced Growth in New Total Reduction Increase in CRM Net make a purchase on the same airline after a churn wallet customers in cost3 marginal implementa- increase tutes CRM. CRM is best understood as a ships with their customers. CRM, like many gin and destination traffic between two cities share1 flight costs4 tion costs dissatisfying customer experience. The survey method of interacting with customers rather potential business strategies, underscores the has reached a level where a direct service 1 Proportion of consumer’s disposable income allotted to single company. also found that proactive customer-service 2 Based on revenue-passenger-kilometers (RPKs), that is number of passengers multiplied by number of kilometers than a product. So why do many people view need for an airline to identify its competitive rather than a transfer connection would be they fly, large airline=76 million to 200 million RPKs; medium=21 million to 75 million; small=5 million to 20 million. efforts would satisfy the 62 percent of passen- 3 Through elimination of waste associated with targeting unprofitable customers. CRM as a set of information technology solu- advantage. profitable. 4 Due to increased business. gers who want to be informed about delays. tions to solve their business issues? Before starting CRM, an airline needs to CRM’s orientation toward changing In addition, the expectations of travel- Perhaps it is because it is easier to look decide what it wants to achieve. Does it want the customer experience and improving ers are growing, and they already expect toward data management and technology to to reduce the time it takes to resolve cus- revenue differentiates it from previous enter- According to the McKinsey Quarterly, an effective CRM program can have a significant rewards such as frequent flyer points or deal with the challenges of the market rather tomer issues? Does it want to increase the prise resource planning, sales force automa- impact on an airline’s revenues by reducing churn, gaining more of a consumer’s spend redemptions, thus reducing their ability to differ- than to address the fundamental strategic number of customers? Does it need to return tion or supply chain management systems and attracting new customers. Depending on the airline’s size, the impact on operating entiate an airline. And business realities such issues. In fact, CRM represents a giant step in to profitability? This is where the strategy that are designed primarily to help reduce profit can range from US$15 million to US$250 million annually. A CRM program can also as fuller planes and better revenue manage- marketing and customer service, and it forces plays a role. A CRM strategy determines what costs and improve efficiency. While CRM increase revenues by up to 2.35 percent, which more than balances the increased costs ment make awards more difficult to redeem, new skill sets, focus and resources on validat- the final objectives are and how customer includes cost reduction potential, these ben- of .1 percent to .8 percent caused by implementation and increases in marginal flight costs. thus reducing the effectiveness of a frequent ing new customer strategies, analyzing trends, information is going to be used by the various efits should not be isolated since this would flyer program.

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Although CRM and frequent flyer customers’ issues and to differentiate itself by CRM initiatives and to justify their expense. programs are interrelated, CRM with its person- implementing better services that offer a new Given the scope of most CRM investments, alized and holistic approach can do much more level of personalized service, especially com- an airline should take a holistic approach and for an airline than a loyalty program by itself. pared with low-cost carriers. consolidate results in various areas to deter- The Long Night’s Journey into Day That’s not to say that low-cost carriers mine the effectiveness of the CRM program. In a Time of Cost Cutting, does don’t have a need for a CRM strategy. Rather than focusing narrowly on specific Investment in CRM Make Sense? Southwest Airlines, for example, a low-cost areas such as revenue optimization or pricing The current challenging economic environ- carrier with few extra amenities, justifiably where there doesn’t appear to be a direct ben- With traffic, profits and demand on the rise, the world’s airline ment and the continued growth of low-cost views itself as customer-service focused. efit from CRM, but instead looking at the over- industry appears to be on its way to brighter days. carriers has put competitive pressure on the Southwest Airlines has repeatedly finished at all performance of the airline, the effective- traditional network airlines, which have the top of airline customer satisfaction ratings. ness of the program can be gauged. responded by focusing almost exclusively on Its strategy is based on a customer-service Customer focus holds the key to cost-cutting measures in order it remain com- approach, maximizing the “people aspect” increased profitability but also presents chal- By B. Scott Hunt and Stephani Hawkins | Ascend Editors petitive. And in a challenging economy, many and making sure issues with travelers are lenges. The promise is clear — better treat- strategic initiatives such as CRM get pushed solved quickly. Southwest is also working to ment of customers will lead to higher prof- f it is truly darkest before the dawn, then acutely, there are rays of hope. According to of course. It’s not like everything is perfect. to the side, and some airlines question collect more customer data and share it itability. A McKinsey investigation of 17 airlines the airline industry certainly stands on the the Air Transport Association of America, an But there’s improvement.” whether the time is right for a CRM initiative. among touch points, creating a single view of in 2003 indicated CRM can improve revenues I cusp of a spectacular sunrise. industry trade group, the U.S. industry’s loss- The improving global economy and Even in the current climate, a CRM the customer in order to offer better service. by between 0.9 percent and 2.4 percent. After After a prolonged period of darkness in es decreased from US$11.3 billion in 2002 to pent-up demand for travel have helped airlines strategy is critical to recovery and future “Customer service causes loyalty that deducting the costs, this still leaves large airlines the industry, many industry experts say that US$5 billion last year. around the world regain their footing. The low- growth because it helps set an airline apart can’t be explained by low prices alone,” said with an annual improvement of US$100 million to they see the first rays of the recovery dawn on “We’re heading in the right direction,” cost segment, which was not impacted to the from its competition. An airline’s price structure, Donna Conover, vice president of customer US$250 million or, for smaller airlines, a US$15 the horizon, with increases in metrics such as said James C. May, chief executive of the ATA degree of some of the network carriers, contin- schedule and product can be duplicated by service at Southwest Airlines. million to US$50 million annual improvement. passenger traffic, load factors and revenue per earlier this year. ues to grow and stim- competitors, but customer data and customer Airlines have struggled with how to However, achieving those results kilometer. In January, the ulate traffic with low insight will allow an airline to understand its effectively measure the returns from their requires more than just additional data and “Positive growth is expected in 2004, ATA reported that rev- Market growth rates are back on fares and by tapping analysis. It requires that the information be with a bounce back of 7 percent to 8 percent enue from passengers “track, load factors are recovering, underserved markets. used to change the way of selling, marketing in international RPKs,” said Giovanni Bisignani, carried was up 5.4 per- and there’s general improvement. Although the recov- Keeping Passengers Happy and serving customers as well as the way the director general and chief executive officer of cent year-over-year, ery appears to be We still need to be cautious, of Reasons for customers’ airline interacts with the customer. The prima- the International Air Transport Association. exceeding analysts’ worldwide, it is pro- downward migration1 (percent) ry reason some CRM efforts don’t deliver the “Our agenda for 2004 is designed to turn this expectations. Most of course. It’s not like everything is gressing at different expected benefits is that the customer-facing positive trend into sustained growth and to the gains came from rates in the three 60–70 30–40 perfect. But there’s improvement. employee is overlooked during the CRM help the industry repair damaged balance international travel, ” regions most dramati- implementation. Having more customer data by sheets.” the ATA said. cally affected by the itself achieves nothing. To be successful, an The International Civil Aviation “We see improvements across the events of the past three years. airline must have an effective strategy and imple- Organization also predicts that traffic, after board comparatively speaking against the pre- Structural Nonstructural factors factors ment the strategy throughout the enterprise. two flat years, will grow this year. The ICAO vious two years,” said Emre Serpen, a senior Asia/Pacific projects traffic will reach 3.1 billion passenger partner with Sabre Airline Solutions As the region least impacted by the industry’s such as change in: Related to Possible issues CRM2 actions A Comprehensive Strategy kilometers performed in 2004, surpassing Consulting. “I would say the recovery hap- downturn, Asia/Pacific has also been the CRM is more than IT or a frequent flyer pro- 2000 levels of 3.017 billion PKPs. The ICAO pened faster than expected. In terms of prof- quickest to begin recovering. • Job • Service • Delays, lost • Identify and proactively luggage apologize to high-value gram. It is a strategy that enables airlines to projects traffic will further increase to 3.3 bil- itability, European and Asian carriers are doing Because the low-cost carrier segment is • Location customers remain competitive today and in the future. lion passenger kilometers performed in 2005. well. Market growth rates are back on track, less developed in Asia/Pacific, the industry is •Personal •Frequent-flyer • Failure to redeem •Provide high-priority Many carriers have already experienced the Even in North America, where impacts load factors are recovering, and there’s gener- more regulated, the region’s economy is doing circumstance program frequent-flyer frequent-flyer points redemption certificates benefits of their CRM initiatives and have of the industry downturn have been felt most al improvement. We still need to be cautious, relatively well and the carriers receive more received a return, understanding that CRM •Product • Dissatisfaction • Initiate changes in with seat design future product design should be considered an investment with •Competitors’ • Sales promotion in •Predict which customers short- and long-term results that follow the offers specific market may defect; offer overall corporate strategic plan. THE HIGH LEVEL appropriate discount The CRM trend will continue to evolve. • Flight •Availability of high- • Ensure sufficient timing, The later airlines start CRM initiatives, the big- demand routes frequency of scheduled News Briefs from Around the Globe flights preferred by ger the gap will be with their competition. 1 high-value customers vıew Choosing fewer or less expensive products or discontinuing use of products. Addressing CRM issues today positions carri- 2 Customer relationship management Source: 2001 McKinsey survey of nine European, five North American and three ers to capitalize on the ongoing recovery and Asia-pacific airlines Who Web. Through the agreement, Why will help airlines manage customers effectively in the future. a American Airlines, Northwest Airlines, Travelocity provides links to By driving people who book their Several issues, according to the McKinsey Quarterly, lead customers to downgrade their Alaska Airlines and Midwest Airlines online check-in from its Web travel on Travelocity to check in via use of an airline’s products. Such downgrading — choosing fewer or less expensive prod- Nadja Killisly manages airline CRM What site as well as in an e-mail the Web, airlines help reduce their ucts or discontinuing using the carrier altogether — can be addressed through an effective strategy and customer relations at customer relationship management program. Sabre Holdings. She can be reached at Partnered with Travelocity to drive message sent to travelers shortly staffing needs at the airport as well as [email protected]. more passengers to check in via the before the day of departure. provide a popular customer service. a

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Tunnacliffe said after the collapse, the Airlines are also beginning to change Global Passenger Forecast Summary region’s airlines lowered their pricing to entice their focus, Tunnacliffe said. Comparison of IATA Total Passenger Forecasts passengers back onto their aircraft. “It has appeared that market share has Annual Passenger Growth Rate (percent) 2003 2004 2005 2006 2007 AAGR “They made some very attractive been more important to many airlines than 8% ------Total International -1.1% 6.9% 7.2% 5.6% 5.1% 4.7% fares,” he said. “They got the cabin factors profitability,” he said. “Where I think we’re 6% ------North Atlantic -0.5% 4.7% 6.0% 4.2% 3.9% 3.6% back fairly quickly. The real struggle has been seeing that change is in the new generation 4% ------Trans-Pacific -6.3% 9.4% 8.9% 5.9% 5.3% 4.5% to get the yields back.” of airlines. Those airlines have been resolute 2% ------Europe-Asia/Pacific -3.5% 8.9% 7.9% 6.6% 5.8% 5.0% Tunnacliffe pointed to British Airways on profit; they don’t do stuff unless it’s 0% ------Europe-Middle East -3.1% 7.0% 6.5% 5.8% 5.0% 4.2% reporting in January a 1.1 percent year-over- profitable. That’s the mindset that ought to -2% ------Europe-Africa -0.6% 4.8% 7.0% 5.0% 4.7% 4.1% year increase in traffic in its first and business be spreading.” -4% ------North America-Latin classes as evidence that yields are improving. -6% ------America Caribbean 2.7% 5.7% 7.5% 5.5% 4.9% 5.3% 2000 2001 2002 2003 2004 2005 2006 2007 January 2003 was the last month before the North America Within Asia/Pacific -10.9% 14.0% 10.6% 7.8% 7.2% 5.4% 2000 – 2004 2001 – 2005 (Original) 2001 – 2005 (Revised) Iraq war threat started to affect airline results, The region most impacted has finally begun to Within Europe 3.2% 4.6% 5.7% 4.7% 4.4% 4.5% 2002 – 2006 2003 – 2007 Tunnacliffe said, so to be ahead of that pace show some positive signs of a comeback. Source: IATA Within Latin America/ Caribbean 0.8% 5.3% 6.7% 5.5% 5.2% 4.7% represents a significant achievement. Late last “I don’t know if the dark times have year, BA’s premium traffic was growing by 2.5 passed, but somebody turned up the dimmer Total Domestic 0.4% 3.9% 4.9% 4.4% 3.7% 3.4% Forecast Total Scheduled Passengers percent to 3.5 percent per month. switch a little bit,” said Steve Hendrickson, Total -0.1% 4.9% 5.7% 4.8% 4.2% 3.9% Forecast Growth Rates and Passenger Numbers “Their load factors were up in the pre- senior partner with Sabre Airline Solutions mium classes,” Tunnacliffe said. “BA histori- Consulting. “We’re looking better than we 2002 1,071 545 cally has tended not to discount its premium used to, that’s for sure.” ‘02 to ‘03: -0.1% + Beginning this year and continuing through 2007, passenger traffic is expected to classes very much. When the load factors are The sun began to shine again in the 2003 1,075 538 increase, according to IATA forecasts. The average annual growth rate through 2007, going up in the premium cabin, it’s interpreted North American airline industry during the lat- ‘03 to ‘04: 4.9% + 2004 1,117 575 including the declines in passenger traffic in 2003, shows positive growth worldwide as a very good sign. ter part of 2003, he said. ‘04 to ‘05: 5.7% + of 3.9 percent, led by the intra-Asia/Pacific region. “Obviously that sort of growth rate is “A lot of things caused people to take 2005 1,171 617 unsustainable in the long term, but it illus- their travel dollars and put them on the shelf ‘05 to ‘06: 4.8% + 2006 1,223 651 AAGR revenue from international travel, they have The Centre for Asia Pacific Aviation is trates that the market is coming back quite for a while,” Hendrickson said. “It would ‘06 to ‘07: 4.2% = 3.9% been recovering more rapidly. also optimistic about the region’s recovery. quickly,” he said. appear in the third quarter, people said, ‘hey, 2007 1,268 685 “In terms of profitability, the Asia/Pacific The Centre said 2003 was a “surprisingly A general economic recovery, led by the you know, SARS is gone, the war is over, the 0 500 1,000 1,500 2,000 carriers are in a good position,” said Serpen. “As good” year with traffic levels close to the pre- United States, has fueled traffic on North economy is back, interest rates are low, job Passengers (millions) far as passenger growth, China is very strong, vious year levels despite the impact of severe Atlantic routes, where many of the major losses are tapering — let’s go out there and do Domestic International Southeast Asia is very strong. I think Asia is very acute respiratory syndrome. If the current European carriers generate a significant what we used to do as a family, as a business, Source: IATA optimistic. The mindset is on growth.” momentum is maintained, the Centre said, amount of their profits, said Tunnacliffe, who as an economy.’” Analysts in the region are also optimistic “double-digit traffic growth (is) assured.” projects the regional industry, with a “fair wind One of the brightest spots for North According to global passenger projections from IATA, recovery is expected this year with about the continuing recovery. For 2004, a “year of massive opportuni- and no major incidents” will return to some American carriers has been on international a large bounce back in 2004 and 2005, followed by a return to more traditional levels of ty,” economic conditions are favorable across level of normalcy in two years. routes. growth through 2007. IATA also projects the average annual growth rate for scheduled the region with consumer confidence high and “To have that market recover is very “In North America to some of the inter- international passenger traffic to be 4.3 percent from 2008 to 2017 and an AAGR of 3.4 I don’t know if the dark times have strong gross domestic product growth antici- important to them,” he said. national regions, not only do the second half of percent in domestic passenger traffic during the same time period. “passed, but somebody turned up pated throughout the region, the Centre said. And, Serpen said, because the major ’03 numbers beat out the ’02 numbers, but the dimmer switch a little bit. We’re With effective capacity management growth, European carriers rely more on long-haul inter- the region’s recovery should stay on track. continental traffic, which is less susceptible to looking better than we used to, Srom projected that it will take 12 to 24 low-cost competition, they have been able to that’s for sure. months for the region to make a full recovery, rebound more quickly than their North American THE HIGH LEVEL ” provided that there are no additional setbacks. counterparts, which depend more heavily on He said the carriers are “becoming leaner and revenues from their domestic market. News Briefs from Around the Globe “If you look at traffic statistics that have meaner” taking steps to succeed in a new Some positives have even come out of vıew been released by different companies, industry environment such as restructuring the last few years, analysts said. Carriers are lead directly to increased revenue. our reservations efficiency and the whether they are Qantas, Cathay or Singapore labor deals, revamping fare structures and opening their minds to new ways of doing Who Airlines, you are seeing volume coming back,” thoroughly examining their product. business, embracing ideas many have resisted Phuket Air The airline will also implement the level of services offered to our cus- said Anthony Srom, Melbourne, Australia- He also said the region is “seeing a nice for a long time such as outsourcing some of Sabre ® AirOps ™ Load Manager and tomers with this implementation,” based transport analyst for Goldman Sachs little rebound in business traffic at this point,” their processes to specialty providers who can What the Sabre ® Qik ® business processing said Kanin Phuvastien, senior vice JBWere. “Load factors are beginning to which bodes well for the yields of major carriers. do them more efficiently and cost effectively. Selected the SabreSonic ™ passenger improve. Generally, you are seeing those signs “I think probably every airline CIO in the solutions. president of Phuket Air. “Sabre solution for its reservations and pointing that recovery is underway. If you look Europe western world now is moving very strongly to Why Airline Solutions is also allowing at the investment community, analysts that “It is slow and painful, but the recovery is get rid of proprietary technologies and move departure control. The solution will more extensive distribution options actually cover the Asia/Pacific airline stocks underway,” said Ian Tunnacliffe, U.K.-based to standard technologies,” Tunnacliffe said. help the airline improve distribution “Phuket Air has experienced excep- are saying they’ve upgraded their forecasts for vice president, industry services at META “It is good news because it will ultimately by our participation in a number to travel agencies, create greater effi- tional growth in the first two years profits, so there’s a bit of an anticipation that Group Inc. “Not everyone is recovering at the lead to lowering of cost and improvement of global distribution systems.” a the recovery should continue.” same rate as everyone else.” of efficiency.” ciency in booking capabilities and of operations, and we aim to improve

20 ascend industry industry

Regional Outlook 2003—2007: Broad Factors Affecting Passenger Growth Trends they also, in some cases, eclipse the 2000 Industry experts say there are several announced plans for their own low-cost carrier numbers, so it’s pretty encouraging,” factors that could send the industry back into within a carrier. Others such as Air New Hendrickson said. the dark. Zealand have revamped their pricing structure Trans-Pacific North Atlantic Within Europe Europe-Asia/Pacific In the U.S. to Latin America sector, rev- “In the last few years, you could call it to offer reduced fares. enues are up about 11 percent. In the U.S. to the ‘constant shock syndrome’ where there According to Srom, to compete with Impact of SARS in 2003 Slow recovery from Continued low-cost Poor outlook for the Japanese Sept. 11 event carrier expansion economy Europe market, the revenue per available seat always seems to be an ‘X’ factor you have to low-cost carriers going forward, traditional air- Continued slow econom- mile numbers have passed 2000 levels. Even be cognizant of,” Srom said. “You have poten- lines should ensure that they are “reexamining ic recovery in Japan Expansion of services Impact of SARS in 2003 Competition from high- in domestic travel, which is still lagging well tially SARS, terrorist activity, continued emer- their networks and the profitability of each between North America Increasing expansion of speed train links Strong and quick recovery and Eastern/Central behind 2000 levels, individual part of North America-Southeast Europe Extended European Union Strong Chinese and Vietnamese passenger levels are those networks (as Asia non-stop services will stimulate traffic World Economic Growth Verses Scheduled growth climbing. well as) examine the between Western and International Passenger Growth (percent change) Expected opening of “Year over year products. Are they dif- Vietnam-U.S. route Eastern/Central Europe we’ve turned the cor- 14% ------ferentiated enough in

ner,” Hendrickson 12% ------their market niche?”

Europe-Middle East said. “Coming from 10% ------Beyond restruc-

Serious short-term political and an environment like 8% ------turing to address the North American-Latin Within Asia/Pacific America/Caribbean military concerns the one we’ve just 6% ------challenge from low- Impact of SARS in 2003 experienced, that’s a 4% ------cost carriers, one of Capacity redeployment by U.S. Continuing expansion of Dubai as carriers leading to strong growth regional hub and tourist destination Strong and quick recovery positive thing.” 2% ------the main themes that Much of this 0% ------could continue to fuel in this route area Emergence of Doha hub with Qatar Continuing expansion of China’s growth, he said, is -2% ------a strong recovery still Economic problems in several Latin Airways international traffic fueled by the burgeon- -4% ------remains on the horizon. American countries Anticipated opening of mainland China-Chinese Taipei direct services ing U.S. economy, which -6% ------“The world has Europe-Africa in the third quarter of 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 too many airlines,” Within Latin America/Caribbean 2003 grew by 8.2 per- Tunnacliffe said. “Any Network expansion and fleet renewal by Passenger Growth World Gross Domestic Product Growth Serious economic problems in key largest African carriers cent — “It has been other industry faced markets more than five years Source: IATA with these sort of Some loss of routes due to Sabena and Creation of off-shoot operations by Swissair bankruptcies since we have seen economic conditions, financially stronger carriers in neigh- economic growth of According to IATA statistics, the health of the airline industry continues to mirror that of the natural reaction Political instability in some key markets boring countries that magnitude.” the world economy. From 1990 to 2003, the growth of scheduled international passenger would be consolida- Source: IATA As the economy traffic has reflected the growth of the world economy as measured by gross domestic tion. Airlines would improves, some of the product. Based on improving economic conditions, IATA predicts an “upbeat” forecast for merge. Some airlines According to IATA, airlines in various regions are expected to recover at different rates due to unique circumstances that affect the local pent-up demand for passenger traffic during the next few years. would go bankrupt. industry. While some areas such as Asia/Pacific are bouncing back more quickly, other regions including Europe and North America will travel is being released. Some would be experience slower recoveries due, in part, to their struggling economies. “Companies are saying, ‘OK, it looks like gence of low-cost carriers, potential fuel price acquired. This is very difficult to happen under the markets have stabilized, we know what our increases that could derail the recovery.” the current regulatory environment that the future looks like, let’s go out and face those Of the potential barriers to recovery for airlines operate in, especially internationally. customers and chase those deals,’” he said. major network carriers, the growth of low-cost But I think we have to see that change, and The region’s airlines have also taken airlines presents the biggest challenge. With we have to see the ability of major airlines to THE HIGH LEVEL some other steps to regain health such as low fares and point-to-point route structures consolidate.” focusing on long-haul trunk routes, aggressive- combined with competitive levels of service Still overall, the future looks bright espe- News Briefs from Around the Globe ly pricing their product, attacking inefficiencies and unique amenities, the entire concept of cially compared with the recent past. vıew and rationalizing their fleets. low-cost flying has changed in the minds of “I’m optimistic,” said Tunnacliffe. “I Still, it will take six to eight quarters of many travelers, sending them aboard those think we’re going to see some quite substan- consistent revenue and earnings growth to airlines that bring the most value. tial changes in the way the industry operates Who staff forecasting and planning system, director for JASG. “We visited several return to some semblance of health, “There’s no doubt that the network car- over the next decade. I think we will see some Jardines Aviation Services Group to efficiently manage its resources at Sabre Airline Solutions resource Hendrickson said. riers as we know them are going to have to rationalization as far as the regulatory environ- What Hong Kong International Airport. management customers thoughout “The industry really needs to show remake themselves if the marketplace contin- ment. We will see consolidations in the indus- some earning power and some revenue ues to move the way it has with the low-cost try. When that happens, the industry should Europe and could see similarities Implemented Asia/Pacific’s first new- Why growth momentum before Wall Street is ever carriers bringing products that are of compara- be stronger. Individual airlines will be more with our operations. After an intensive generation, integrated resource man- “JASG required an efficient and cen- going to recapitalize it,” he said. ble quality into the market with much lower profitable. They will be able to invest more in costs,” Hendrickson said. “They can’t just sit technologies that they’re going to need in the ® evaluation, Sabre Airline Solutions agement suite, including the Sabre tralized staff and equipment planning The Future is Still Cloudy there doing what they’ve always done.” coming years.” a was proven to offer the best-of-breed StaffAdmin ™ employee tracking and system for both passenger and ramp Even with the positive signs, “it seems like Even in Asia/Pacific where low-cost car- customized solution for the require- assignment system, the Sabre ® handling that would enable a move we’re always right around the corner from riers are just beginning to make their mark, the something unforeseen that could potentially traditional carriers are having to respond. B. Scott Hunt and Stephani Hawkins can ™ ments of JASG, which was instru- StaffManager automated staff alloca- away from the current non-centralized be another major setback, or at least the fear Carriers such as Qantas Airways, Singapore be contacted at [email protected] and mental in the contract win.” a tion system and the Sabre ® StaffPlan ™ setup,” said David Clymo, finance of such a force,” Hendrickson said. Airlines and Thai International Airways have [email protected].

ascend 23 industry

Congestion Service Patterns one of the four largest air travel markets has Airports and airspace are getting increasingly Flying a larger aircraft is just one way of fight- not had a dramatic increase in the number of congested or even saturated. Increased ing congestion. Airlines could also further frag- city pairs served by nonstop service (the intra- congestion at airports and across available ment their route network by bypassing their U.S. market). The other three top markets airspace will prevent a continued growth in own hubs to offer passengers a more conve- have all grown dramatically — intra-Europe by frequency in a number of large markets that nient nonstop service between secondary 65 percent, Europe to the United States have a high growth in air traffic demand. The cities. Direct services between smaller cities by 60 percent and trans-Pacific by 250 only way to satisfy this demand will be to fly will mean that passengers no longer have to percent. While it’s tempting to throw away larger aircraft across each frequency. But a connect over hubs, which will help reduce the the intra-U.S. data point as an outlier, the Sizing it Up large proportion of these routes are already demand on the large “trunk” routes. Typically, intra-U.S. market has invariably been a lead The philosophies of the two large aircraft manufacturers are reflected in their newest products. Airbus has launched the A380 (left and below center), which will be the world’s largest commercial aircraft when it enters service in 2006. The double-decker, four-aisle aircraft seats 555 passengers in a three-cabin class configuration. The A380's modern technology and economies of scale provide 15 percent lower seat-mile As the two largest commercial aircraft manufacturers present competing costs than today's most efficient aircraft, according to Airbus. Boeing, meanwhile, has focused its efforts on a new, fuel-efficient aircraft, the views of the future for aircraft production, airlines are faced with choosing 7E7 (below left and right), which will be built primarily using composite materials — including the fuselage and wings. The base model of the new Boeing will carry 200 to 250 passengers on routes between 7,800 and 8,300 nautical miles (14,500 to 15,400 kilometers) and is projected the proper strategy for their future fleet. to be 20 percent more fuel efficient than comparably sized aircraft. Boeing expects the aircraft to enter service in 2008.

By Vinay Dube | Ascend Contributor

uring the recent IEA, Future of Air Transport Conference in London, Image courtesy of Airbus Image courtesy of Boeing D both Boeing and Airbus delivered Image courtesy of Boeing their vision of the future of aircraft. The individ- ual presentations each painted a fairly compelling — yet opposing — picture. The stakes for both companies are quite high. Given the long lead time it takes to go from idea to concept to design to delivery, Airbus

On the surface, the battle between “the two aircraft manufacturers flown by the largest aircraft available today, secondary cities have less congested airports, indicator of what’s to come in the global avia- appears to be the A380 versus the the 747, with a capacity of approximately and the air corridors connecting these cities tion industry. Although it’s difficult, if not 430 seats in a typical configuration. With a can accommodate additional services. impossible, to predict what the future will 7E7 — or size versus efficiency. capacity of approximately 550 seats for its Direct service between an origin and hold, there is no doubt that if the number of ” typical configuration, the A380 represents destination is also a convenience that passen- city pairs connected via nonstop services a significant increase in size over the gers crave. Or is it? Official Airline Guide data grows dramatically over the next few years, and Boeing are now effectively determining largest aircraft available today and will help the need for an ultra-large aircraft will their success and failure for the next 10 years satisfy the demand for this special set decrease significantly. or longer. of routes. Airlines need to obtain the On the surface, the battle between the Will the A380 then really help reduce “appropriate mix of aircraft to Operating Economics two aircraft manufacturers appears to be the congestion? Probably not considering that maximize network profitability. Continued pressure on prices, and therefore A380 versus the 7E7 — or size versus efficiency. most large congested airports have less ” on operational costs, needs to be addressed Airbus, however paints the battle as the A380 than 15 percent of their departures served by every airline. Reducing the unit operating plus the A330 plus the A321 versus the 7E7 by aircraft with more than 300 seats. But has shown that the number of city pairs con- cost per passenger is one way of accomplish- and the rest of the Boeing product line, adding then, it’s not about reducing congestion; nected via nonstop services has marginally ing this goal. Flying a larger aircraft with the dimension of operating economics. As air- it’s about serving large-growing markets declined since 2000. For most other indus- reduced unit operational costs will allow lines continue to recover and evaluate their in a congested environment with a larger tries, the last three years of data would be airlines to respond to the continuous down- future fleet needs, they will face a choice aircraft — for many airlines, the A380 extremely relevant in predicting long-term ward pressure on prices. Airbus believes the between the two competing visions of the represents the most logical choice. The only trends, but in the airline industry, the last three A380 will burn at least 15 percent less fuel per future. It’s all a bit confusing, but four underly- question is how large will this demand years likely are not a fair representation of passenger than any other aircraft in the world ing issues will determine the success and fail- for the A380 be given that its mission is market trends. Looking at OAG data for the on a typical long-haul route. While this may be ure of each strategy. very specific? last 17 years shows that since 1985 only the case, larger planes are generally more

Image courtesy of Airbus ascend 25 industry

The interior of the new 7E7, developed in partnership with Teague, a Seattle, Washington- based design firm, incorporates many new elements such as sweeping arches, dynamic expensive to fly than smaller planes even years, we’ve seen airlines rationalize their lighting, larger lavatories, more spacious luggage bins and electronic window shades. Airbus has chosen to step away from though their unit cost per passenger may be fleets in a number of ways. In particular, air- tradition and create something that truly is a lower. For example, even though the A380 lines have gained a substantial advantage in mission-specific aircraft that does not easily fit consumes less fuel per seat as compared to operating costs by purchasing crew-compati- into a step-wise increment of capacity. the 747-400, Boeing estimates it still costs ble aircraft from a single manufacturer. This is The A380 represents a jump of 170 approximately 29 percent more in fuel per trip. the reason Airbus has designed the A380 to seats from the next largest size of plane While the 29 percent statistic is debatable, it is be flown by a common pool of A320, A330 Airbus offers, which means that if a route cur- almost certain that the A380 will consume and A340 pilots. rently operating an A340 is running full, it’s not more fuel than the 747-400 per trip and is only Airlines need to obtain the appropriate obvious that it could be flown by an A380. a viable option to reduce operating costs on mix of aircraft to maximize network profitabili- Most airlines operating an A340 as their largest aircraft today would rather buy a 450- seat aircraft than a 550-seat aircraft to add a degree of versatility to their fleet mix. But if Airbus does not offer such an aircraft and the airline is an “all-Airbus” airline, then it might elect to go a step higher with the 550-seat A380, potentially risking having too large an

Image courtesy of Boeing Image aircraft to serve the route. So what’s the verdict? Is it Airbus or Boeing? Or could it be both? The choice is not necessarily mutually exclusive. As conditions continue to evolve, traffic increases and routes fracture, the aviation industry might require a large aircraft to combat congestion as well as a fuel-efficient, mid-market aircraft to combat the perennial downward pressure of yields. During the next 10 years, the market place will determine the answer. a

Vinay Dube is vice president of the Europe, Middle East and Africa region for Sabre Airline Solutions. Various market factors such as congestion, service patterns, operating economics and He can be contacted at product range will determine whether the Boeing 7E7 (above) or the A380 (below right) [email protected]. Image courtesy of Boeing or both will become the most viable option for the future of international transport. Image courtesy of Airbus

routes that are being flown with large aircraft THE HIGH LEVEL at very high load factors. Capacity of Airbus Fleet While lower operating economics are News Briefs from Around the Globe not central to the A380 argument (although 600 ------500 ------vıew they can’t be ignored), they are the key to Boeing’s 7E7 program. Boeing states that the 400 ------Who the electronic ticketing database with- “First, we'll be able to reduce the 300 ------7E7 will consume 20 percent less fuel than a Philippine Airlines out the cost of building its own sys- costs incurred by processing comparable A330. Airbus doesn’t think so. 200 ------tem. The system also gives the airline paper tickets, and secondly, we’ll be Airbus believes that its new class of A330s can 100 What Number of Seats fly as efficiently as any comparable aircraft. 0 ------the option of interline electronic tick- able to improve efficiency and cus- A330 A340 A380 Given the popularity of the 200-to-250-seat Signed a five-year contract for elec- High Low eting and provides it with connectivity tomer service levels. With this imple- segment, this argument is central to the viability tronic ticketing services across its to all global distribution providers. mentation, we are well placed to facil- of the 7E7 program, and Boeing’s future domestic and international network. depends on its ability to deliver on its promises With 555 seats, the A380 represents a ty. Simplistically, this means that if a route is Why itate electronic document exchange The Sabre Airline Solutions Electronic and/or Airbus’ response in the next few years. significant leap in capacity from Airbus’ operating at a high load factor, an airline might with other airlines whom we have next largest size aircraft, the A340. For consider upgauging aircraft, and if a route Ticketing Hosting tool gives Philippine “The benefits of moving to electronic interline relationships with, fulfilling Product Range airlines wishing to operate a complete is operating at a low load factor, it might Airlines a way to distribute tickets ticketing are twofold,” said Kevin While a low operating cost is an important Airbus fleet, there is a risk of having too consider downgauging. As such, an airline typ- the requirements of some U.S. carriers to electronically and manage the Hartigan-Go, vice president informa- issue for any individual aircraft type, it is not much or too little capacity on a route. ically has a range of aircraft with varying num- support electronic ticketing by 2005.” a the only issue to consider. During the last few bers of seats. activities related to maintaining tion systems for Philippine Airlines.

26 ascend industry industry

unrestricted fares by 40 percent to 70 percent below those of other major carriers, according U.S. Major Air Carriers Have Successfully to the airline. Reduced Product Distribution Costs America West, now the second-largest 19.1% 18.2% 18.2% 18.0% Leveling the Playing Field 18% ------low-fare carrier in the United States, has 17.0% 16.6% 15.8% 16.0% 16% ------15.3% ------improved its financial performance as a result 14.2% of the transformation. In the nine full months 14% ------11.9% following implementation of the new fare 12% ------Revamping their business models enable network carriers to remain 10.1% structure, the airline reported one of the 10% ------competitive and return to profitability despite the growing low-cost segment. ------largest domestic revenue per available seat 8% mile increases among major airlines. 6% ------“America West, like other low-fare car- 4% ------By Emre Serpen | Ascend Contributor riers, continues to experience impressive year- 2% ------over-year gains in market share,” said Scott 0% ------1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 t was a tiny upstart that changed the As these carriers continue to increase low-cost threat because they lack the size, Kirby, executive vice president, sales and mar- Source: U.S. Department of Transportation Form 41 world. Challenging the industry leaders by their reach — in the United States, nearly 80 market reach and production efficiencies keting at America West announcing the 2002 Ioffering low prices and good customer percent of markets are subject to low-cost of major network carriers and the cost results. “Our 26 percent increase in traffic is service, the startup gradually grabbed market competition — the traditional network carriers and utilization advantages of low-cost well in excess of the industry average and is Liverpool/Manchester-Nice Schedule Passenger Traffic share until it became one of the most powerful are being forced to respond. carriers. Some of these carriers have rein- driven by tremendous consumer response to companies in the world. vented themselves as our business-friendly fare structure.” 180,000 ------160,000 ------And what Wal- low-fare airlines with In 2003, America West was one of the easyJet 140,000 ------Mart did to retailing spectacular success. first airlines to return to profitability in the sec- British Airways 120,000 ------in the ‘80s is being Two years ago, ond and third quarters, and it reported a net other echoed in the airline Aer Lingus, the Irish flag income of US$57.4 million for the year. 100,000 ------industry today. carrier, was on the Operating costs for the year per available seat 80,000 ------Companies such verge of bankruptcy as mile declined 2.5 percent despite an 8.5 per- 60,000 ------as Southwest Airlines, it battled with low-cost cent increase in the average fuel price. And, 40,000 ------Ryanair, easyJet, jetBlue, Ryanair. Under the for 2003, the company reported total cash and 20,000 ------Virgin Blue and numer- leadership of Chief investments of US$629.5 million, the highest 0 ------1996 1997 1998 1999 2000 2001 2002 ous others have carved Executive Officer Willie cash balance in the company’s history. an increasingly larger Walsh, the airline has niche for themselves transformed itself into a Exploit Network Advantage Top: Direct distribution offers a way for airlines to dramatically reduce distribution costs. by — like Wal-Mart — successful and prof- Most traditional network and flag carriers In the United States, major carriers have increasingly used their own Web sites as offering low prices and itable low-fare carrier. have an advantage over their low-cost coun- a way to significantly reduce distribution costs. In 2001, distribution costs shrank to just good customer service. Although its yields have terparts because of their extensive network over 10 percent, down from more then 19 percent in 1993. These companies Transparency of pricing and restrictions due to the availability of fare information over dropped by 23 percent, that serves a number of domestic and inter- Bottom: As easyJet showed on its Liverpool/Manchester to Nice routes, serving an have enjoyed the bene- the Internet has fueled a growing trend of reducing complex pricing rules and simpli- its per-kilometer costs national destinations. By lowering costs in underserved market with low costs proves beneficial. The carrier experienced eightfold fits of a lower cost fying fare structures. Such transparencies have also led passengers to expect consis- dropped even more sig- their domestic product, they can feed more growth on the route compared to incumbent carriers. Such a business model has led to structure, in many cases tent and simple pricing rules. For example, Southwest Airlines, which pioneered the nificantly by 35 percent passengers into their more profitable, long- the growth and profitability of low-cost carriers around the world. because they didn’t low-cost carrier model, makes price, rule and availability 100 percent transparent to resulting in a 6.6 percent haul operations. inherit costly labor con- its passengers, who book flights on its Web site, leading other airlines to increase boost in profits to €64 tracts developed under transparency as well. million (US$82 million) a regulated environment in 2002. The airline where profits were virtually guaranteed or Fortunately for network carriers, there aggressively cut overall costs by 30 percent, THE HIGH LEVEL the complex procedures and overhead from are ways they can compete with the growing reducing labor costs by 33 percent and dis- being a government-owned flag carrier. In low-cost carrier segment and continue recov- tribution costs by 51 percent. The lower News Briefs from Around the Globe many cases, the low-cost carriers have also ering in improved economic times. Depending cost structure enabled Aer Lingus to remove vıew chosen to serve secondary cities and on a carrier’s circumstances, there are three price restrictions on trans-Atlantic airports where it costs less to operate. primary ways it can respond: flights and reduce business fares by up to Why With their much lower costs and presence Transform to a low-cost carrier, 60 percent. The successful transformation the Control Center that manages these Who in lower served markets, they are grow- Leverage network advantage, enabled Aer Lingus to start 28 new routes in To increase usability and help improve systems, strengthening their codeshare ing rapidly. Start a low-cost carrier within a carrier. two years. Sabre Airline Solutions Because they offer such low fares, they In March 2002, America West Airlines agent productivity. The enhancements capabilities. The new GUI uses open- have made air travel feasible for a larger num- Becoming a introduced a new pricing structure throughout What include a major revamp of the graphi- systems and Internet technology to ber of people, thereby helping stimulate traf- Low-Cost Carrier its network that significantly reduced one-way Released new enhancements cal user interface to SabreSonic ™ Res simplify the reservations and check-in fic. Many of these carriers also have focused Smaller carriers with high costs and without and unrestricted walk-up fares and eliminated ™ on underserved markets, providing direct ser- the revenue advantage of major network the traditional Saturday night stay require- for its reservations and and SabreSonic Check-In. The com- process, improve airline agent productivity vice to new destinations. carriers are particularly susceptible to the ment. The new structure cut America West’s departure control systems. pany also introduced an upgrade to and enhance customer focus. a

28 ascend industry industry

reduced its distribution costs by US$217 mil- The low-cost subsidiary should not be a pressure on network carriers’ fares and

Transforming the Business Model Plan Results (‘01 — ‘03) lion, or one-third of its total cost-reduction pro- standalone response. Throughout their opera- market share. gram. British Airways is pursuing an aggres- tions, airlines must also aggressively reduce The root cause of the traditional carriers’ sive cost-reduction program seeking to simpli- operating costs, pursue production efficien- disadvantage is not revenue but costs. The Key areas Current New · Reduce costs · ASKs (6%) €190 million to transform Model Model · RPKs (7%) fy its operation and reduce its fares significant- cies and seek to lower unit costs, which would average revenue per available seat kilometer · 17% reduction ly, particularly on short-haul European routes. enable them to reduce their fares. Although for major network carriers is 8.48 U.S. cents Destinations Highly dispersed Focused in ASK · Load factor (11 points) And Aer Lingus revamped its fleet moving to a many industry analysts are skeptical about the compared with 6.09 U.S. cents for low-cost · 2000 staff single-type, the Airbus A320, and revised its prospects of low-cost subsidiaries, they may carriers. But the cost per available seat kilome- · Average Frequency reduction 33% route structure, adding 30 new routes. work provided they can achieve true cost ter for major network carriers is 8.4 U.S. cents (scheduled) yield (-23%) · Remove price Airlines that are working toward trans- advantages and not infringe on the parent air- versus only 4.5 U.S. cents for the low-cost · Cost per Consolidate fleet to restrictions, formation should focus on taking the full line’s network. segment. Despite higher revenue, the higher Fleet Highly mixed types load factor RPK (35%) the extent possible advantage of both cost and reach opportuni- Whether transforming to a low-fare air- costs of network carriers results in razor-thin in trans-Atlantic · Profit (6.6%) Hub vs No hub structure/ Leverage selected flights >80% €64 million ties offered by direct distribution. In the United line, exploiting the advantage of an extensive profit margins. point to point very poor flows flows, and point to point · 60% reduction Kingdom, FlyBE, the nation’s third largest low- network or forming a low-fare subsidiary, airlines Though established network and flag business fare cost carrier, increased its direct distribution are pursuing aggressive transformation pro- carriers have an advantage of longer stage Charter vs Differentiate scheduled Undefined mix Scheduled ops and charter on frequency · 28 new routes from 5 percent to 80 percent within one year grams and reinventing their business model. lengths and larger aircraft, the production effi- in two years by changing its distribution strategy to focus ciency of low-cost carriers makes it difficult for Medium and Market segments Low yield on direct distribution, including much greater Business Transformation them to compete in short-haul routes. low yield · Direct distribution use of its Web site. As low-cost carriers continue to grow And today, low-cost carriers in the rapidly worldwide, they will increasingly put United States are beginning to serve long-haul Carrier Within a Carrier Above: Traditional airlines can become more competitive with their growing low-cost counterparts by transforming their business models. When bmi surveyed a competitive landscape Although there is no single magic formula, there are some things traditional airlines can do in the areas of destinations served, schedule with rising challengers such as Ryanair and Percent of business travelers in premium cabins, frequency, fleet consolidation and market segmentation to reinvent themselves to compete with the new breed of carriers and ensure long- easyJet, it realized it needed to take a radical four quarter moving average term sustainability. step to compete. Its response was to form bmibaby, its low-fare subsidiary that took over 50 ------Right: Facing bankruptcy, Aer Lingus implemented a plan to transform into a low-cost carrier to compete with Ryanair. By reducing costs ------the airline’s entire operations at its Nottingham 45 by 35 percent, the airline earned a €64 million (US$82 million) profit. ------East Midlands Airport home base. The low- 40 cost subsidiary has helped its parent airline 35 ------fend off the low-fare competition. Last year, 30 ------To maintain that domestic feeder net- reduce fares on short-haul routes. However, carriers significantly reduced their distrib- bmibaby helped the parent group carry a 25 ------1995 1996 1997 1998 1999 2000 2001 2002 work, they need to lower their costs to be network carriers can also improve their com- ution costs by 10 percent and more in record 9.4 million passengers. Other carriers competitive on the short-haul routes. There petitiveness within the constraints of existing some instances. — Delta with Song, United with Ted, Air Long-haul Short-haul are ways airlines can reduce costs other than labor contracts by rationalizing their network, By investing in direct channels of distri- Canada with Zip, Singapore with Tiger Airways by focusing on labor. reducing the number of fleet types, improving bution such as its Web site and revising its and Qantas with Jetstar — have developed The traditional carriers are subject to the production planning processes and reduc- commissions, Delta Air Lines reduced its dis- low-fare subsidiaries to maintain market share Flight attendants Pilot productivity rigid labor contracts and larger overheads, but ing distribution costs. tribution costs by US$295 million, or nearly 45 in the new price-driven environment. productivity increase of 7% increase of 10% their response has been consistent: reduce Distribution offers tremendous savings percent of its US$652 million cost-reduction 1,194 costs and complexity as much as feasible and for carriers. Since the mid ’90s, U.S.-based program. Similarly, Continental Airlines 1,200 ------2,250 ------2,203 1,154 2,138 Low cost Majors 1,128 2,100 ------2,030 ------

------1,941 ------1,100 1,075 1,950 Characteristics Characteristics 1,800 ------ASKs/Pilot THE HIGH LEVEL · Point to point · Network 1,000 ------1,650 ------

· Low fare (size/density) ASKs/Flight Attendant 1998 1999 2000 2001 1998 1999 2000 2001 News Briefs from Around the Globe · High asset · Alliance member utilization · Local and flow vıew · Basic service traffic · Full service Who Why · All private Above: As low-cost airlines offer flexible business fares, they cut into a traditional market “From the very beginning, · Some privatized of mainline carriers — the business traveler. A typical European network carrier experienced WestJet “Our primary goal in choosing a Sabre Airline Solutions has Peer group Peer group a drop of more than 20 percent of business travelers in its premium cabins on short-haul flights from 1995 to 2002. What FR, Ryanair AA, American technology partner is to join forces been concerned not only U2, EasyJet UA, United Below: By using integrated production planning and management, AeroMexico has Selected the Sabre Airlines Solutions with an industry provider that is with our current needs, TZ, ATA LH, Lufthansa B6, JetBlue BA, British Airways delivered significant benefits, including a 10 percent productivity improvement for pilots AK, AirAsia JL, Japan Airlines suite of resource management prod- knowledgeable, flexible and adaptable but how these resource DJ, Virgin Blue SQ, Singapore and 7 percent for flight attendants. management technologies WN, Southwest CX, Cathay Pacific ucts to help the airline more effective- and will align its solutions with MU, China Eastern Left: A peer-group analysis conducted by Sabre Airline Solutions Consulting identified DL, Delta ly manage its staffing levels at all its our business goals,” said Dale will fit with our future AF, Air France certain traits of major carriers versus low-cost carriers. airport locations. Tinevez, WestJet director, airports. expansion.” a

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routes. Southwest, jetBlue, AirTran and important; therefore, the carrier can provide Develop strategy 2002 Average Operating Revenue Per Available Seat Kilometer (US$) America West now fly coast to coast, entering low-fare service on short-haul routes to reduce Transformation Solution envelope: Commercial 1 2 markets, schedule 3 objectives strategic intent processes the customary turf of mainline carriers while its costs while continuing to provide higher fleet, fares

14.87 14.62 maintaining significant cost advantages — levels of service on longer routes. jetBlue’s cost per available seat mile on its The establishment of comprehensive, 8 Eight-Step Process to Transformation 4 13.00 ------transcontinental flights is half that of tradition- consistent and measurable transformation Measure benefits, Strategy and Measure 10.58 al carriers. objectives defines the strategic intent of the Operational ------communications 7 process 6 organization 5 10.00 processes 8.89 8.62 8.48 The biggest issue for major carriers is leadership team for the carrier. Executives and mobilization implementation changes 7.50 6.09 labor costs, exacerbated by complicated work should seek to change those areas that are 7.00 ------6.73------6.32 6.25 5.96 5.93 5.65 rules designed to maximize the revenues for ineffective while maintaining those that are 4.98 4.93 4.79 4.73 the workforce, including pilots, cabin crew, time tested and have evolved efficiently The Low-Cost Advantage 4.00 ------ground handling, technical and other aspects through the years. To avoid false starts, the air- LH JL AF BA FR U2 CX DL AA UA DJ MU WN SQ B6 TZ Cost Per Available Seat Mile (U.S. cents) of an airline’s operation. line should discuss its objectives with its 17¢ ------US Airways The situation for major U.S.-based carri- stakeholders to ensure appropriate freedom of 16¢ ------Low cost Majors ers is particularly difficult. If Southwest action, which will enable the leadership team 15¢ ------

Airlines’ labor costs were similar to the five to deliver the new business model. 14¢ ------Delta largest domestic airlines, its costs would have The next step in transformation involves 13¢ ------2002 Operating Cost Per Available Seat Kilometer (U.S. cents) been US$1 billion greater in 2002, and it would strategic market analysis of routes and cus- 12¢ ------Northwest American 14.54 have reported operating losses of almost tomer segments. Much of the growth from 11¢ ------13.62 United US$600 million. Conversely, if the five major low-cost carriers comes through stimulating 10¢ ------Alaska Continential ------12.00 ------domestic airlines had Southwest’s labor costs, new demand and tapping underserved mar- 9¢ AirTran Frontier American West 10.45 operating expenses would have been reduced kets, so assessment of target markets must 8¢ ------Southwest ------Spirit ------8.4------by US$9.8 billion in 2002. be much more holistic and strategic. Through 7¢ 9.00 8.55 ATA 7.45 6¢ ------jetBlue ------7.14 6.94 6.83 4.5 Many airlines around the world are striv- a more open, innovative analysis of traditional 6.17 400 600 800 1,000 1,200 1,400 ------5.76------ing to transform their business quickly and marketing information data tapes data, a carri- 6.00 5.32 5.29 5.21 4.60 4.55 4.00 efficiently. Unlike the many transformation er can examine competitor activities and eval- Average Stage Length (miles)

3.00 ------programs of the ’90s, the conditions forcing uate broader sources of data and information JL LH AF BA AA UA DL U2 FR CX TZ MU DJ WN SQ B6 business transformation are much more in order to create a more robust route net- Top: Through a structured eight-step process, airlines can transform themselves to severe, and the realization has set in among work. Once the market analysis is complete, compete in an altered industry landscape. Low cost Majors board rooms and leadership teams that carri- the airline’s network should be restructured. Bottom: With costs as much as twice as high as those of low-cost competition, major ers must reinvent themselves to ensure long- The carrier should focus its efforts on markets carriers will have to address the discrepancy by transforming their business models to term survival. The extreme circumstances are where it has a competitive advantage, which be more in line with the marketplace. 2002 Profit Per Available Seat Kilometer (U.S. cents) forcing airline management to challenge the for most network carriers includes both status quo and accept changes that may have domestic and regional markets. Long-haul 24.48 first seemed counter intuitive. routes must be analyzed carefully, and where Traditionally, fleet analysis follows in some trade offs by not having the 23.00 ------To truly transform itself, an airline must possible, the carrier should take full advantage network design; however, to reduce operat- optimum-sized aircraft for every market, 20.00 ------focus on its competitive disadvantages and of codeshare agreements to help reduce oper- ing costs through fleet simplification, carri- reduction of the number of different fleet 17.00 ------maximize its natural assets. If a carrier enjoys ating costs. Revamping the current schedule ers should conduct network and fleet analy- types will reduce staff training and mainte------14.00 12.42 strong point-to-point tourist traffic and its will help quickly deliver business results. sis at the same time. While this may result nance costs. 11.00 ------9.66 ------home airport is strategically positioned for 7.92 7.21 7.35 8.00 ------6.66 ------north/south and east/west connecting flows, it ------5.00 3.79 3.76 3.62 3.42 can take advantage of both these strengths. It ------1.31 ------2.00 0.75 could offer direct services for its prime tourist THE HIGH LEVEL -1.00 ------0.36 destinations through a low-fare or charter sub- -4.00 ------sidiary as well as establish a hub operation for News Briefs from Around the Globe -7.00 ------5.92------6.21 ------the main carrier for key business markets, -10.00 ------vıew avoiding the risk of the subsidiaries cannibaliz------11.84 ------13.00 -12.02 ing the main network operation. FR LH CX B6 DJ U2 SQ WN MU BA AF JL TZ DL UA AA Who Why Levels of service also present an oppor- the right technology to get Alitalia Linee Aeree Italiane SPA Low cost Majors tunity for transformation. Many carriers ques- “We needed to get this capability in this done. In addition, their tion whether they should provide full or no- What place quickly,” said Gianni Matassa, end-to-end offering of technology frills service. For price-sensitive, short-haul ® ™ For major carriers, unprofitability is not because they are unable to generate revenue — in routes where the carrier competes with low- Selected the Sabre AirPrice director of pricing, revenue manage- for airline operations ensures fact, the major air carriers earn an average of 2.39 U.S. cents more per available seat kilo- cost airlines, certain amenities such as first- fares management system to help ment systems and operations for that we can have a truly meter than low-cost carriers — but rather because they have higher costs. Major carriers class seating may not be as important to cus- maximize its revenues through Alitalia. “Our previous experience integrated solution — boosting average operating costs of 3.9 U.S. cents more than low-cost carriers. Because of the cost tomers. On long-haul routes where the carrier discrepancy, low-cost carriers average 6.99 U.S. cents more profit. is likely to compete with other established net- the tactical and strategic analysis with Sabre Airline Solutions proved operational productivity and our work carriers, such amenities become more and management of fares. that they had the experience and bottom line.” a

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As part of the transformation, the carri- to “asset sweat,” where airlines sell seats for methods. With this approach, AeroMexico has er must also evaluate its processes. If they are as much as possible until the plane is full. delivered significant benefits, including approxi- too analytical and purely driven by traditional Integrated production planning and mately 10 percent productivity improvements quality of service index techniques, changes management offer significant opportunities for in crew, maintenance and fleet utilization. must be made throughout the organization to cost reduction. Cross-functional commercial Transforming the business model by Self Serve: Airlines Increasingly ensure marketing innovation becomes an inte- and operational teams, including staff from becoming a low-fare carrier, leveraging net- gral part of the evaluation and overall decision- short-term scheduling, operations planning, work advantage or introducing a low-cost making process. Some airlines subsidiary creates significant Employ Customer-Enabling Tools have appointed chief marketing The Efficiency Advantage benefits that can help traditional officers to gain a more innovative network carriers grab and main- and holistic approach to market, tain market share that may oth- Passenger Percent network and fleet analysis to per Employee Ryanair erwise be captured by low-cost As customers come to expect, and demand, self-service check-in tools, rapidly transform these parts of counterparts. As more and more Low Ryanair 9,492 - airlines can also use them to reduce costs and explore new revenue the business. major network carriers revamp In pricing and revenue Med easyJet/GO 5,500 + 73% their business model to adapt to opportunities. Air Berlin 4,200 + 126% management, competitor fares Deutsche BA 3,600 + 163% a changed environment and are essential in defining pricing Germanwings 1,000 + 850% meet the demands of today’s strategies in key markets and travelers, the gap between carri- By Mark Canton | Ascend Contributor High Lufthansa 1,150 + 725% determining where fares must Alitalia 1,096 + 766% er types will decrease, service be reduced to retain market Iberia 996 + 853% levels will become a key differ- oday’s travelers demand service tai- share. Because passengers have British Airways 620 + 1,430% entiator between airlines, and lored to meet their individual needs. come to expect low fares that network carriers will have as T They are comfortable with new tech- are consistent and simplistic, the Because low-cost carriers such as Ryanair operate more efficiently, many opportunities for growth nology and expect airlines to embrace new general trend is to reduce the as shown by the number of passengers boarded per employee, and profitability as those currently and exciting tools to improve customer service

number of fare classes and elim- they have a significant advantage on short-haul routes. enjoying them. a and enhance their travel experience. At the Photo by Mark Canton inate restrictions. same time, airlines are continually striving to Given that even business travelers are resource management and maintenance plan- reduce the cost of processing passengers and shying away from paying high, last-minute ning, work closely together to optimize and providing increased levels of customer ser- walk-up fares, the focus of revenue manage- reduce production costs. Developing such Emre Serpen is a partner with Sabre vice. As traffic recovers, airlines will want to ment should shift from “revenue protection,” a “can-do,” team-oriented structure drives Airline Solutions Consulting. He can be maximize their resources and provide high lev- where seats are held for last-minute travelers, higher levels of performance than traditional contacted at [email protected]. els of service to the additional passengers without substantially increasing staff levels. Airlines are embracing a strong trend toward self-service to accomplish these seem- ingly contradictory hightech objectives. Self-service technologies have been readily adopted News on New and Improved Products in other consumer are- and Services from Sabre Airline Solutions nas — such as banks with automatic teller machines and Internet product benefits banking, and grocery stores providing self- Version 3.0 of the Sabre ® The LiteVision system enables airlines to markets or going with the traditional service check out. ® top market analysis. Airlines are no differ- their airports, with ness and leisure travelers. Internet check in LiteVision personalized minimize data expense, view competitor Increased market analysis — The ent, leveraging this Above: Web check-in tools can provide some already plan- has experienced the most dramatic usage MIDT system information, increase revenue and share, new version doubles the number of automation to perform an easy-to-use process for quick check in. ning deployment of growth, increasing by more than 400 percent and maximize market potential. markets available for analysis to 50 key functions such as a second generation from 2002 to 2003 among both business and description Above right: Self-serve kiosks are at no additional charge. travel planning, flight of hardware and leisure travelers. features popular because they reduce time The LiteVision system helps smaller air- Comprehensive data — Analysts reservations and, now, software. The trend Use of self-service kiosks also contin- travelers spend waiting in lines. lines obtain market information data tapes Enhanced reporting — Airline can use the system to study markets flight check in. is just now starting ues to rise, increasing 20 percent from 2002 to data necessary for making informed deci- analysts now have access to six based on system-wide or regional to spread to Asia 2003. Those most likely to use kiosks or the base reports including year- bookings. Moving to Automation where the major carriers are beginning to Internet for check in are the experienced, fre- sions. Utilizing the system, airlines can over-year and yield class by Increased booking share — The The trend to deploy self-service technology deploy kiosks and other self-service technology. quent travelers. These passengers appreciate extract valuable decision-support informa- competitor. LiteVision system can increase has rapidly accelerated since the late 1990s. However, for those airlines where self- the convenience of self service and are more tion from all major global distribution More flexibility — Airlines now booking share on specific markets Most major U.S.- and European-based airlines service is available and aggressively marketed, likely to repay the airline for that convenience systems’ booking transactions. have the choice of selecting 50 by 7 percent or more. a have installed self-service check-in kiosks at acceptance has increased among both busi- with repeat business.

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The Importance of Revenue opportunities such as selling Kiosk/Web Usage Growth Kiosk/Web Usage Growth Self-Service Technology upgrades during check in, collecting Benefits of Self-Service Technology Leisure Travelers Business Travelers The deployment of self-service technology has applicable fees and selling additional become an important strategy for most air- amenities. Customer service Revenue 25% ------25% ------lines. Kiosks and Internet check in are only One of the key benefits realized through the improvements Cost savings opportunities 20% ------20% ------part of the overall strategy. Self service can implementation of self service is the equitable 15% ------15% ------actually lead to a complete overhaul of the and uniform application of airline policies, Reduced Reduction in the number Possibility ------queuing of staff needed to handle a to sell upgrades 10% 10% day-of-departure process as airlines seek to ensuring that all users adhere to airline and time at check in given number of customers at check in 5% ------5% ------improve efficiencies, reduce costs and retain security procedures during check in. Adding to ------Percentage of Use of Use Percentage 0% Percentage of Use 0% customers. that benefit is the reduction in overall time Improved consistency in Reduction in staff Enforcement of booking Kiosk Internet Kiosk Internet In general, the business benefits of self spent by passengers at airports waiting to applying airline policies required to handle conditions and collection 2003 2002 2003 2002 Source: Forrester’s Consumer Source: Forrester’s Consumer service can be separated into three categories: check in, allowing for a more secure process and following procedures irregular operations of required applicable fees Technographics North American Survey Technographics North American Survey Customer service improvements such as and more satisfied customers. Improved handling Faster passenger Capability to sell add-ons, reducing check-in lines, improving handling of irregular throughput in such as standby fees, More travelers, business and leisure, are using kiosks and the Internet to check in for of irregular operations and automating ser- The New Generation of Self Service operations airport terminals meal/beverage coupons flights. Among leisure travelers, kiosk use has increased almost 10 percent from 2002 to vice recovery processes. Hardware, software and communications 2003, and use of the Internet for check in climbed more than 15 percent. Among business Cost savings including reducing staff infrastructure are key technological compo- Automated service Reduced Release of terminal space travelers, kiosk use increased about 5 percent and Internet check in rose more than 20 required to handle irregular operations nents that must be carefully considered when recovery processes requirement for more profitable use, according to airline policy for airport space i.e. retail or catering percent during the same time period. and reducing the requirement for airport developing a self-service strategy. The first space. generation of self-service kiosks provided Source: Giga Research hardware features similar to those found in the second generation of devices: a colorful In addition to being popular among travelers and a way to differentiate an airline from its touch-screen interface, credit card readers, competition, the use of self-serve technologies, such as kiosks and Internet-based check printers for boarding passes and bag tags. The in, offer opportunities to improve customer service, achieve cost-savings and provide hightech second generation of kiosk devices — such as potential revenue opportunities. those available through the Sabre ® Aerodynamic Traveler ™ passenger processing News on New and Improved Products solutions — are providing additional capability, International Air Transport Association stan- being pursued diligently as airlines seek to and Services from Sabre Airline Solutions including passport readers, biometric inter- dards enable the sharing of kiosk devices by improve service and cut costs. faces and access to different systems such as airlines at a given airport, much as worksta- In addition, the introduction of newer those for customer relationship management tions, printers and gate readers are shared technology such as mobile phones, personal product and frequent flyer data. today at SITA and ARINC shared-system air- digital assistants and improved wireless com- loaded and available space within each the Galley Manager can associate the Much of the increased functionality in ports. This will help eliminate the capital cost munications at airports will open the door for ® ® Sabre AirServ Galley galley and position. The Galley Manager physical tail numbers of each aircraft this new generation of kiosks can be attrib- outlay for kiosk units and communications for even more self-service opportunities. These Manager creates significant efficiencies for airline to the appropriate overview. uted to the use of a “thin-client architecture” airlines, improve space utilization, and provide new devices are now able to leverage the service planners by providing easy-to-use Performance — Provides users with the software distribution methodology. Instead of an additional source of revenue for airport same thin-client architecture to perform airline description ability to manage large volumes of data loading all of the check-in and host interface authorities. Today, there are only a handful of functions, and it’s just a matter of time before tools for creation of the aircraft overview, quickly. The quick desktop performance application software on each device, the soft- CUSS airports — Las Vegas McCarran airlines begin to deploy these new customer The Galley Manager for airline galley loading the galleys and reporting to field enables products to be moved efficiently ware runs in a central environment and is International Airport, Aéroport Nice Côte service tools. provisioning planning is the latest enhance- locations via the Web. around an aircraft and within a galley. accessed via a Web browser application D’Azur and Vancouver International Airport. Security concerns may have an adverse ® ® ment to the Sabre AirServ aircraft provi- features Web-based reporting — Provides installed on each device. This methodology However, this number is expected to increase impact on the adoption of new technologies sioning suite. The Galley Manager offers authorized personnel with access to simplifies the software update process, dramatically as airports strive to regain lost for check in. But industry sources expect a graphical user interface enabling airline Usability — Offers intuitive user inter- reports via the Web with no proprietary improves overall control of the kiosk units and space and look for ways to increase revenue these issues to be addressed in time and the enables the reuse of check-in applications in a opportunities. expansion of self service to continue within inflight service planning departments to faces that model many of the current client software required, always giving manual business processes in place users access to the latest version of variety of environments such as kiosk, Web or the travel industry. a allocate aircraft provisioning based on today. Combined with features such as the product. mobile devices. Future Expectations volume and weight constraints of aircraft “drag-and-drop” placement, automatic Graphical navigation — Utilizes graphi- In fact, recently introduced common- Industry analysts project that in three to five galleys. The first phase of this application weight capacity monitoring, space cal navigation such as form-based use self-service, or CUSS, standards require years, 80 percent of all airlines’ check-in trans- Mark Canton is senior manager of airport was released in January, and additional availability and rich graphical capability, screens for all entries, drop-down lists the deployment of thin-client applications for actions worldwide will be self service. That is products. He can be contacted at operational functionality will continue to these tools make the task of loading and buttons, and on-screen help to use on common-use kiosks. These a monumental goal to achieve, but one that is [email protected] be added in phases throughout the year. the various services easy to manage. efficiently set up loading plans with Illustration — Provides tools that enable increased accuracy. These user inter- benefits the drawing or importation of aircraft faces enable planners to be quickly overviews. Users can assemble galleys trained, freeing them to utilize system +count it up The Galley Manager enables airlines to from a pre-defined set of stencils and functionality that previously had been plan the loading of the aircraft galleys with customize the galley appearance of manually cumbersome to create and Length in feet of the world’s shortest international airport runway — located at the Juancho Yrausquin Airport in automatic monitoring of the weight being each fleet and sub-fleet type. Users of maintain. a 1,312 Saba, Dutch West Indies, which is surrounded by 130-foot cliffs. industry industry

them for the first time attacking someone’s Added Amenities, Added Cost? “Over time, their costs will rise; there’s hub in Philadelphia. I think jetBlue’s plan is Despite adding new features, LCCs still man- no doubt about that,” Jenkins said. good, but I doubt it is the last one. I see age to keep costs well under control in order But because they focus on costs rather other people doing things that are just to continue capitalizing on their core advan- than revenue, analysts said, they will continue The Revolution’s Here as exciting.” tage — low fares. to maintain an advantage. The need to differentiate their product is “I think it is important to note what “The advantage the low-cost guys have driving airlines to alter the LCC model, these airlines are offering and what they are is that they concentrate only on having low Harteveldt said. not offering,” Harteveldt said. “It is really costs,” Jenkins said. “Their low costs trans- As the low-cost carrier segment continues to grow, it also continues to “It’s just like in retailing,” he said. “You putting the emphasis on what the customer late into low fares, which will bring in the rev- fragment as new entrants move away from the traditional model, adding have to figure out what can make you differ- wants. And it is also the type of product that enue. The major carriers for years have con- ent. If you can’t compete on price, do you try does not require a lot of labor. They are ameni- centrated on revenue, and that (chasing addi- new features and customer amenities. to go for location? Do you try to go for product? ties that are incredibly extendable. Once you tional revenue) made them high cost.” “The (major) airlines, by failing to really put it in, there is no variable cost. So they scale stand for anything in terms of their product or at almost zero. Once you put live TV in the The Future By B. Scott Hunt | Ascend Editor serving a particular customer, have only under- plane, it’s there. It’s not like the flight attendant The evolution of the low-cost carrier segment mined their ability to compete effectively has to go and change the channel or has to is far from over. Already this year, ATA has irst-class cabins. Assigned seating. are among the most prominent. And their US$3 per movie, enough for the service to against the low-cost carriers,” Harteveldt change tapes in a video entertainment center. announced it is adding a business class and Trans-continental flights. Growing hubs. growth and, in many cases, ability to maintain break even. said. “If United, American, US Airways, company officials have said publicly that it F In-flight entertainment. Gourmet in- profitability during difficult circumstances has New York-based jetBlue also sent rip- Continental, Northwest or Alaska had really “makes sense” for a low-cost carrier to offer cabin catering services. International destina- caused the industry to reexamine the way it ples through the industry last June when it focused on serving a type of customer rather international service, currently one of the tions. Mixed fleets. operates. According to industry observers, ordered 100 Embraer 190 regional jets with than trying to cover the earth with their last domains of the traditional airlines. Spirit If this sounds like a list of characteristics low-cost carriers have captured about 25 per- options for an additional 100, breaking from service, then perhaps they would have found Airlines has already won governmental that distinguishes the full-service traditional cent of the U.S. market, 15 percent of the the nearly sacrosanct single-fleet-type princi- that people will be more loyal and would pay approval to fly from the United States to 11 network carrier from its low-cost competition, intra-European market, and 30 percent of the ple. This year, AirTran also will begin taking a premium.” countries throughout North America and the think again. More and more low-cost carriers Canadian and Australian markets. deliveries of Boeing 737-700s, complementing The new carriers, Jenkins said, have a Caribbean. And a new low-cost startup, — once also called “no frills” airlines — are But, in the last few years, new entrants its all-Boeing 717 fleet. different mindset when it comes to making RivieraJet, announced it plans to operate on

now adding such features and have, in some in the low-cost arena have also begun to Now, even Southwest has said publicly their product stand out. Photo courtesy of Southwest Airlines trans-Atlantic routes. cases, led the way in offering additional cus- deviate from the Southwest approach. Many that it is looking at possibly adding new fleet “Major carriers differentiated them- And those are only the plans that have tomer amenities. types and in-flight entertainment systems. selves by their networks,” he said. “United’s been announced. Many industry observers believe the What in the name of Herb Kelleher is network dominated in the Orient. American’s “Since 9/11, I have had over 150 differ- low-cost carrier segment is transforming the There is nothing sacred about going on here? network dominated in Latin America. The new ent groups approach me with ideas for new aviation industry and will determine how — “what Southwest does. I really “What you are seeing is an evolution,” guys define their product differently. They airlines,” Jenkins said. “About 100 of these and how quickly — it recovers from the most doubt that in coming up said Henry Harteveldt, vice president of travel define their product as the service you get people, I talked them out of doing it. The 50 challenging period in its history. The low-cost research, with Forrester Research. “It’s kind while you are on the plane. That is a new idea remaining, 30 will not be discouraged, but I segment, however, is currently undergoing with their business plan that of like the evolution we saw in the auto indus- in the airline industry. Before, service was don’t think their plans will survive. The other significant changes itself, and the proliferation God gave it to them on Mount try where a budget car manufacturer like always considered your network.” As the low-cost segment continues to 20, I consider good. Of that, half will get fund- of carriers and variations on the proven low- Sinai and wrote it in stone. Honda has increasingly upgauged the quality With that new mindset, then, the new develop, more low-cost airlines are ed. So, there will be a lot of new airlines in the cost model will undoubtedly affect how the of its products. Airlines are recognizing that breed of carriers are looking for ways to dif- beginning to deviate from the “pure” next three or four years.” It could be deviated from. industry will look in the future. ” you have to do something in today’s market- ferentiate themselves by providing the kind low-cost model first pioneered by With the addition of new carriers, and place. The customer will find a better mouse- of onboard “service” that resonates with Southwest Airlines. with the cost-cutting traditional carriers in a bet- The Origins trap elsewhere and will go away.” their customers. ter position to fight back, competition will inten- In the past few years, carriers in the low-cost low-cost carriers had already broken ranks to “I think an airline has to really under- “What the low-cost airlines are doing is sify in the next few years, Jenkins predicted. segment have begun to deviate from the some degree by offering assigned seating or Making a Difference stand who its core customer is,” said putting in amenities that people appreciate But if the major carriers do not respond “pure” LCC model first developed by flying to major airports. But the low-cost seg- Darryl Jenkins, a professor at Embry-Riddle Harteveldt. “Instead of ‘We serve people in and help create loyalty, but do not require effectively, they could be facing an uphill battle, Southwest Airlines. Southwest has grown to ment’s “shot heard round the world” likely Aeronautical University in Dayton, Florida, Chicago who want to go to these places.’ It human delivery,” he said. Harteveldt said. become the sixth largest U.S. carrier — the came in 2000, when start-up carrier jetBlue said the changes in the low-cost sector has to be more demographic and psycho- Although the added amenities are not dri- “The fact that they are unwilling to second largest in terms of domestic traffic — launched with free live television in every are not surprising and are positive for graphic — ‘We want to serve people who ving huge costs, low-cost carriers still face the invest in these customer-appreciated and cus- and has maintained profitability for 31 consec- seat. From there, the fragmenting of the LCC the industry. have income levels of ‘X’ dollars. They take ‘X’ prospect of rising overhead. In many cases, the tomer-valued products only makes it that utive years by staying true to its formula: model has accelerated rapidly. Frontier “There is nothing sacred about what flights per year.’ There are some people out low-cost carriers have enjoyed a “maintenance much easier for the low-cost carriers to cherry mostly short-haul, point-to-point service from Airlines added live TV to its A319 aircraft. Southwest does,” he said. “I really doubt that there for whom price is extremely important holiday” by flying brand-new aircraft, an advan- pick more and more people away from the net- secondary airports with a single fleet type; no AirTran, already featuring a business-class in coming up with their business plan that God and always will be. There is no getting around tage that will decline as the fleets age. They work airlines,” he said. “Pretty soon, network assigned seating; no in-cabin meals; and cabin, recently announced it will provide free gave it to them on Mount Sinai and wrote it in that. You have to ask yourself, as a busi- also have the benefit of labor pay rates that are airlines will be left only with either the most onboard entertainment that consists of joke- XM Satellite Radio for its passengers. And stone. It could be deviated from. nessperson, do I want to make those people significantly lower than the traditional carriers. mileage-addicted customers or bottom-feeders telling flight attendants and an in-flight magazine. jetBlue has further pushed the envelope by “Product differentiation is good,” he the focus of my business, or do I want to As the start-up carriers mature, that will also put who are just buying strictly on price.” a The model’s success spawned a legion adding XM Satellite as well as additional TV said. “What made Southwest successful is focus on the people who are going to pay me pressure on labor costs. Southwest flight atten- of like-minded carriers around the globe: channels featuring 20th Century Fox movies, they had a good idea, which they never deviat- what I need to be paid, but I am going to give dants, for example, recently picketed the airline Ryanair and easyJet in Europe, Virgin Blue in television shows, sports and news program- ed from. It is good, but not perfect. Southwest them an experience in return that justifies that during contract negotiations as they sought B. Scott Hunt can be contacted at Australia, Gol in Brazil and WestJet in Canada ming. The airline is expected to charge about is having its own evolution right now. We see ticket price?” additional benefits. [email protected].

38 ascend ascend 39 industry On the Route to RECOVERY A CONVERSATION WITH … JAMES HOGAN, PRESIDENT AND CEO, GULF AIR

hen the board of Gulf Air met at the end of W 2002, after facing more than a year of crisis, conflict and economic chaos, it stood at a crossroads. But rather than throwing up their hands in the face of daunting challenges, board members took the bold step to launch an ambitious three- Photo courtesy of Gulf Air of Gulf Photo courtesy year strategic recovery plan. The plan, named Project Falcon after the carrier’s emblem, represents a plan that will “restore Gulf Air to its position as one of the world’s leading airlines,” according to the official announcement of the project.

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Photo courtesy of Gulf Air Hogan recently discussed Project However, I believe the numbers speak Falcon, the changes it has brought and the for themselves. The losses are down by 50 prospects for the future. percent, in line with our first year’s target. The Question: You’re half way through success of this customer-centric strategy is evi- your three-year recovery plan. Are you dent in increased customer confidence and on track with where you expected to be at higher passenger numbers. In 2003, we achieved

this point? Photo courtesy of Gulf Air record passenger numbers and, in August, Answer: In terms of the three-year plan, record figures for the 53 years of operation. we undertook to reduce the losses to BD20 Q: What have been the greatest challenges million (US$53 million) by the end of 2003, and the biggest successes of the plan? breaking even in 2004 and returning to prof- A: On its own, the process of turning an itability in 2005. airline is a significant challenge, but it should The first year of the program has been be seen against the global context of the pre- one of unprecedented change and innovation sent airline and aviation industry, which since at Gulf Air, resulting in a strengthened financial Sept. 11, 2001, has faced problems of its own, position and much higher market visibility. including a nervous and depressed travel mar- We have met our financial target for the ket, heightened security, regional tensions and first year, achieving a 50 percent decrease in conflict, and also SARS. our losses from BD40.6 million (US$108 mil- As part of the airline’s efforts to develop its brand in conjunction with Project Falcon, Gulf Air The ever-changing and dynamic market lion) in 2002, and our balance sheet is much recently unveiled a new livery for its four types of passenger aircraft: A340-300, A320-200, demands corporate flexibility and the ability to more robust. However, more importantly, we A330-200 and the 767-300E. The airline serves more than 60 destinations around the world. respond intuitively as changes occur. This can have done everything we said we would, only be achieved from a position of fiscal astounding even the greatest skeptics, who strength and product confidence. The chal- believed we would not be able to achieve We have implemented stricter fiscal the long-term, enduring success of the change. lenge of Project Falcon is to achieve this flexi- even half of what we set out to achieve. discipline and procedures to regulate corporate Q: What are the goals of Project Falcon? bility and freedom. In a challenging year, affected by region- governance alongside more efficient business How will you measure the success of the Another challenge we face is marketing al tensions, the war in Iraq and the damaging processes, and product and service innova- program? the region in which we operate. While the severe acute respiratory syndrome, a year in tions geared at serving our customers better. A: The stated aim of Project Falcon is to region has cultural richness, natural beauty and, which most airlines have been downsizing and The three-year plan is evidence of a turn Gulf Air into a world-class airline that most importantly, unique Arabian hospitality, cutting capacity, we have achieved positive commitment that goes beyond a quick fix that operates on a commercially successful basis. these assets are largely unknown in the rest of growth with record passenger figures. would not be sustainable in the future. That is The success of the strategy to date can be the world and are more often than not obscured Q: Had you not implemented this plan, why we have invested significant amounts in measured in our stronger financial position in the mass of negative publicity on the region- where would Gulf Air be today? the numerous and diverse initiatives, including and increased market visibility. We have sur- al tensions. It is part of our challenge to dispel A: In May 2002, when the board approved a the new livery, the rebranding process, the prised the industry and the market by the these incorrectly held perceptions and market further capital injection and initiated the worldwide contact center, the new lounge, a speed and scope of change in the first year. this region, specifically our owner states. process to formulate and implement a restruc- state-of-the-art information technology infrastruc- We have met all our objectives and delivered The greatest success of the plan to date Under the leadership of James Hogan, chief executive officer of Gulf Air, the airline has turing strategy, the airline was all but written ture, improved training programs, and product on all the elements of the plan we undertook has been the return of our customers, who are embarked on an ambitious three-year recovery plan — Project Falcon — designed to off. The bold scope and nature of the mea- and service enhancements. These will ensure to implement in 2003. central to our business. maintain the airline’s position as a world-class carrier in the Middle East region. The plan sures we have implemented during 2003 have includes brand development, fleet reconstruction, network restructuring, alliance member- contributed to our continued existence and ship and enhanced customer service. improved position. The cumulative effects of the growing THE HIGH LEVEL and increasingly competitive market in which At the time the Project Falcon plan was In the first year of the plan, Gulf Air, we operate regionally and the general state of News Briefs from Around the Globe approved, Gulf Air President and Chief founded in 1950, established its new corpo- the global airline industry would undoubtedly vıew Executive James Hogan said it was “one of rate identity; launched Gulf Traveller, an have spelt a death knell for Gulf Air as it was FliteTrac system. These products optimization costs," said Alain Bergeron, the most comprehensive and important docu- all-economy, full-service subsidiary; and intro- at the beginning of 2002. Who ® ments the airline has ever compiled.” duced a five-star chef service in its first-class Q: Why was it necessary to have a recov- Bangkok Airways will be integrated with the Sabre flight control director at Bangkok The pillars of the recovery plan include cabin as well as the Gulf Air Sky Nanny, a pro- ery plan that takes three years? AirOps ™ Load Manager, which Airways. “With the introduction of brand development, fleet reconstruction, net- fessional childcare service on long-haul flights. A: Although we have managed to achieve a What Bangkok Airways implemented this latest Sabre Airline Solutions work restructuring, alliance membership and It also introduced self-service check-in kiosks great deal in one year, there is obviously still Selected the Sabre ® Flight Control enhanced customer service. The plan also con- and service to several new destinations, which work to be done in our aim to be a world-class at the beginning of 2003. product suite, we are once again able suite for small, medium-sized and tains a strong focus on profitability and improving required it to expand its fleet by leasing six airline and achieve profitability. Why to integrate with our in-house tech- cost structures. As part of the plan, the airline’s aircraft. And in this, the second year of the Experience has shown that real change low-cost airlines to create a system nologies in order to improve our effi- owners — the nations of Abu Dhabi, Bahrain and plan, Gulf Air, which serves more than 45 is not an overnight process. If it is to be more operations control center. The airline “Bangkok Airways aims to have a sys- Oman — injected BD90 million (US$238 million) cities in 34 countries and is considered the than cosmetic (on the surface), it has to occur ciencies. All this while still adhering to is implementing the Sabre ® AirOps ™ tem operations control center, which into the airline, reaffirming their commitment only true pan-Gulf carrier, expects to break at every level within the organization, and this government and airline guidelines.” a to Gulf Air as their national carrier. even financially. is a slower, sometimes painful process. Dispatch Manager and the Sabre ® will improve our yield and lower our

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The renewed customer confidence and we are positioned to take advantage of the ferentiated needs of the multi-segmented record passenger numbers in a difficult travel improving marketplace. market in which we operate. and tourism market demonstrate that our Q: How does your recovery plan help dif- Q: Does Project Falcon position you for efforts to address customer requirements are ferentiate you from your competition? the long term, or do you envision a need to being recognized and experienced. A: Project Falcon made provisions for a reevaluate and develop a new plan at the Getting Fit for Recovery Q: How much does Project Falcon rely on rebranding program designed to create a unique project’s conclusion? enabling technology to aid your recovery? niche for us. Implemented in April 2003, the A: Change is a continuous process, and it A: Technology plays a vital role in facilitating redefined brand is based on Arabian hospitality would be naïve at the end of three years to our customer-centric vision. We have a strong, and values, and in moving forward, it is our aim believe that we “have arrived.” While the Leading optimization tools help several transportation companies get in visionary IT team, which is supported by glob- to differentiate ourselves from our competitors three-year plan was designed to attain very shape for the industry’s upswing. al technology partners and some of the finest by building on our strong cultural, geographic specific goals, we will continuously evaluate software and hardware available in the market. and historic links with the region. The plan will our strategy and evolve in response to the cur- The past year has seen our suite of elec- also ensure that we strengthen and consolidate rent requirements of the market and its various tronic products and services enhanced by the our position as a strong regional player. segments and customers to remain relevant. By Jim Haley and Brad Laser | Ascend Contributors introduction of the region’s first electronic Q: You announced that you planned to In short, Project Falcon is updated on a check-in kiosks at the airports in Bahrain, Abu lease several aircraft as part of Project regular basis to ensure that we always have a n the past few years, a combination of growing the number of employees. With defi- location with certain employees. When signifi- Dhabi, Dubai and Oman. Other innovative services Falcon. Will leasing as opposed to buying three-year plan. world events that no one could ever pre- nite signs of recovery occurring in the latter cant changes to the method, flight schedule or we have recently added include worldwide aircraft play a bigger role in your recovery? Q: How does Project Falcon prepare you I dict undoubtedly caught the transporta- half of 2003, the focus for this year is to get fit. other factors arise, it is time to conduct a new traveler notification via short message service A: Not necessarily. Fleet and network expan- for unforeseen industry challenges? tion industry off guard, resulting in the elimina- study. Maximizing the financial benefits of the and the downloadable electronic timetable. sion are linked to the requirements of our cus- A: By creating flexibility and freedom, tion of thousands of jobs worldwide. Shaping Up StaffPlan system requires a committed budget Technological innovation reached its tomers, and in meeting these needs, we will through good corporate governance, strict fis- During such difficult times, transporta- How does a company begin to get fit as it for future studies. highpoint in September when the region’s first do whatever is commercially beneficial and cal disciplines and streamlined business tion companies that utilized nimble staff relates to planning headcount at an airport The U.S. Transportation Security Admin- worldwide customer contact center was viable for the airline. processes, we can respond more effectively management tools had a competitive advan- operation? The answer is pure and simple: go istration falls in this section of the continuum. opened in Oman. Endorsing our commitment Until we conclude our aircraft evalua- to the dynamics of the market and to any tage by helping them adjust staffing levels and back to the basics and look for refinement. Essentially created from scratch in the after- to employing and empowering owner-state tion, aircraft leasing will meet our incremental unforeseen industry or global challenges. optimizing remaining personnel. Such tools The heart of resource management planning is math of the events of Sept. 11, 2001, the TSA nationals, the staff hired to implement the first capacity requirements. Q: How has Project Falcon positioned you are not only beneficial under these extreme the source data — input rules, guidelines and quickly hired employees with little strategic stage of the contact center are all Omani citi- Q: How do innovative steps such as to succeed in the future? conditions but can standards — used planning of resources. The initial goal was sim- zens. When it is fully operational, the center launching Sky Nanny and Gulf Traveller fit A: The progress of change and the visible also prove advanta- to drive work require- ply to have all U.S. airports secure. As costs will employ about 300 people. into the recovery plan? results have inspired people and given them geous when coping How does a company begin to ments. The ultimate continued to rise, the funding of this depart- Q: How has Project Falcon positioned you A: They are indicative of two things. In the confidence in our ability to win. This confi- with the cyclical ups “get fit as it relates to planning goal is developing ment became a key congressional concern. to take advantage of the emerging industry first instance, they represent the spirit of inno- dence and belief will be vital ingredients in our and downs of the headcount at an airport operation? and maintaining engi- In late 2002, the TSA selected resource recovery? vation in the airline, but more importantly they future success. industry as well as neered labor standards management systems from Sabre Airline A: We are better equipped in every way to demonstrate our commitment to our cus- Q: How will the airline of five years from shifting circumstances. The answer is pure and simple: that are as close to Solutions and installed them at the 159 TSA move forward into the next phase of our strat- tomers. The various product and service inno- now differ from the airline today? Changes to com- go back to the basics … real life as possible. hub airports to optimize a workforce of more egy and the prevailing market. We are ener- vations are designed to surprise and delight A: Gulf Air will be a commercially successful, pany rules, government ” The Sabre ® than 50,000. The StaffPlan system has assist- getic and bold, and coupled with our strength- our diverse customers and to create a memo- world-class airline providing service that is policy mandates and StaffPlan ™ staff fore- ed in determining the correct allocation and ened financial position and committed staff, rable travel experience while meeting the dif- based on the values of Arabian hospitality. a competitive pressure happen frequently, and casting and planning system and optimization requirements at the airport level, resulting in many times abruptly. Typically, there is little or modules from the Sabre ® AirCrews ™ Crew impressive savings. The impact has reportedly no time to evaluate the current situation Management suite can provide the informa- been a 12 percent reduction in labor costs, because it’s always a constantly moving tar- tion necessary to develop the optimal saving the government and U.S. taxpayers THE HIGH LEVEL get. Although speed and accuracy is always resource management plan. The magnitude of more than US$200 million annually. Today, the important to long-range planning, it has improvement will vary depending on where a TSA is actively engaged in conducting time News Briefs from Around the Globe become even more crucial to have this capa- company is on a planning continuum. studies throughout major U.S. airports to vıew bility. Immediate identification of staffing inef- Near one end of the continuum are further reduce costs. ficiencies is required to stay a step ahead. companies taking a minimalist approach to Companies on the other end of the Many transportation companies have had to planning. They have not developed standards spectrum typically have a staff of industrial airline to react quickly to situations scenarios,” said Knok Abhiradee, Who fight during the last few years to keep their based on time and motion studies, and experi- engineers who understand the need for updat- Thai Airways International such as competitor activity and president of Thai Airways. “With heads above water. Long-range planning was ence is the main guideline for future planning. ed standards via work sampling techniques changes in crew rosters and flight the AirCrews suite, Thai will be able pushed aside to focus on remaining solvent Therefore, they are only able to utilize the and have conducted such studies in the past. What for the next month. basic features of the StaffPlan system. The They are likely applying their work standards cancellations. to respond quickly to a variety of Selected the Sabre ® AirCrews ® Crew For companies that weathered the first step to getting fit is to begin observing the to the various models available in the StaffPlan Why situations with minimal impact to storm and are “right sized” for the new operation. Once there is an understanding of system. However, with all the changes during Management suite to address all our customers and simultaneously economy of 2004, the focus has begun to the operation and determination of the best the past three years, those standards may phases of its crew management oper- “Our aim is to implement a world- shift. There are numerous indicators that, at methods, then the company should conduct need to be updated. Major changes affecting benefit the crew through better ations from long-term crew resource class crew management solution that worst, the economy has stabilized, and there’s studies to observe and time required tasks. the aviation industry have resulted in the need pairing and supporting work even talk about a true recovery. Transportation This is not just a one-time event. Whenever for new studies: planning through day-of-operations is able to support decision-making preferences.” a companies are wisely recognizing how to observations are taken, it is a snapshot Flight schedule retiming/restructuring — crew tracking. The system enables the capabilities based on a number of grow their businesses without significantly of what happened at a certain time, day and This can range from a changing mix of

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domestic versus international flights to tim- tickets in the industry, these alternatives are process provide users with the necessary Optimizer, Schedule Optimizer and Operations of more flights with a lowered requirement for crew days could be integral in helping ing of peak activity at a hub operation or also becoming increasingly attractive to details to make the most cost-effective and Manager — in conjunction with the Sabre ® additional cockpit crew. Aeropostal by increasing its flight capacity changing aircraft types. There may also be travelers. New ground support equipment, efficient decisions in a timely manner. Qik ® business processing solutions, which, As an airline begins its road to financial and taking advantage of the dynamic indus- new opportunities for handling other carri- for example, has features that can improve Before the TSA began the task of according to FAMS officials, improved the growth, it cannot afford to place less impor- try environment that currently exists in ers during certain times of the day when methods, eliminate work or decrease the launching operations to provide passenger and agency’s ability to schedule and deploy its air tance on the attributes that were fundamental South America. significant downtime exists. Companies tak- number of required units. baggage screening at all major U.S. airports, a marshal workforce. to its original success. It must take advantage “Implementation of the AirCrews suite ing advantage of this situation are cashing in Most companies probably fall some- similar ramp up had already occurred within Another user of the AirCrews suite, of tools that will enable it to solidify its intrin- has benefited us by permitting a much greater on a classic method of increasing revenue where in the middle of the planning spectrum. the Federal Air Marshal Service. As a result of Korean Air, regained the growth and prosperi- sic values, such as safety, customer service level of control regarding the utilization of our with no additional costs. Regardless of the level of detail used for plan- the events of Sept. 11, 2001, the U.S. presi- ty it had enjoyed prior to the outbreak of and on-time performance. As a part of an manpower,” said Capt. Enrique Zerpa, who Company policies — If for no other reason ning the operation, there is always room for dent and Congress authorized a dramatic severe acute respiratory syndrome and the ongoing fleet overhaul that Korean Air has coordinated the implementation of the than government-mandated changes in improvement. expansion of the FAMS mission and workforce strict regulatory environment that developed been implementing for the past few years, AirCrews suite for Aeropostal. security policies, airlines have been forced The ultimate result of getting fit is due to the impending threat of terrorism. The new aircraft are replacing older ones. With the In-flight resource optimization and the to change to their own rules. For example, greater confidence in a company’s plan. Planning continuum utilization of the AirCrews optimization tools addition of this newer fleet comes the com- ability to ensure the high level of performance passengers cannot expect to arrive 10 min- Collecting data, analyzing the results and cal- enables Korean Air to plan for growth with plexity of ensuring that all of its pilots are in the area of core business principles are both utes prior to departure at most large airports culating standards will not guarantee head- minimal additions in cockpit crew. Primarily, it trained on the newest features and functional- important results achieved through the use of High level Detailed with and still make the flight. In fact, those hav- count savings, but it will improve the cost experience- engineered has found many ways to minimize the ity. With the use of the AirCrews suite, Korean the AirCrews system. ing checked luggage may be hard pressed accuracy of all StaffPlan system headcount based labor standards resources required for its flights, especially Air is able to easily plan for and ensure com- With the use of the optimization tech- to make an international flight if they arrive analyses and provide valuable airport operation long-haul flights. For some flights operated by pletion of these important training sessions. nology from Sabre Airline Solutions, less than two hours before departure. knowledge. There may also be side benefits Korean Air, flying times can vary by a few Now, due to the increased schedule sta- Aeropostal, FAMS, Korean Air and the TSA Another area to consider is expanding the such as prompting ideas on new ways to hours on each leg of the trip due to wind cur- bility enjoyed through the use of the AirCrews have all positioned themselves for continued variety of shifting standards to create more reduce overtime, increase cross utilization of rents and other conditions. Before it began uti- optimization tools, Korean Air has a variety of growth and success in 2004 and beyond. flexibility. This can include a larger selection the workforce and eliminate waste. lizing the AirCrews suite, Korean Air would options to choose from, and its crew sched- As the industry enters the financial of shift lengths, days-on/days-off patterns Companies that focus on planning and maxi- The magnitude of improvement of an regularly schedule the maximum amount of ulers are less likely to change these critical recovery phase, it is important for transportation and the full-time/part-time mix. mizing the potential of their employees will be airline’s airport operations depends on cockpit crew possible for both legs of its training sessions in order to ensure that flights companies to ensure that adequate planning Passenger type — The passenger mix is an ready for recovery. where the company falls on the planning longer flights, such as Seoul to Anchorage, are properly staffed. In the past, Korean Air for optimal growth occurs before implementa- important factor when developing standards. continuum. The ultimate goal is achiev- Alaska, because developing a manual pairing was sometimes forced to change some of tion begins. With labor remaining one of the Business people who frequently travel, A Fit Staff ing engineered labor standards that solution with just the optimal number of crew these training duties to cover unstable sched- most expensive costs to airlines today, the have no checked luggage and use the In addition to optimizing airport labor are as close to real life as possible. for each segment proved too complicated. ules. The ability to not only grow on the road optimization of crew and staff resources, Internet to check in for a flight have little resources, similar solutions are required by air- Due to the optimization discovered with to financial recovery, but to do so without sac- whether on the ground or in the air, remains a contact with airport agents; however, infre- lines to maximize the productivity of in-flight that culminated in the hiring, training and the use of these new tools, crew schedulers rificing any of the essential standards that an top priority. a quent leisure travelers headed for a fun des- crew resources as the industry enters this deploying of thousands of new air marshals by were able to cut down on the number of pilots airline was built upon, is integral in this phase tination may not be savvy to the latest travel period of financial recovery and growth. In July 1, 2002. The AirCrews suite, specifically it had to use for these types of flights, while of the industry cycle. Jim Haley is on the product marketing trends and may actually look forward to hav- recent years, airlines have looked for ways to the Pairing Optimizer and Schedule Optimizer, maintaining the industry-accepted legal and Another airline on the move, Aeropostal, team for crew management solutions, and ing airline personnel pay special attention to cut labor costs to stay lean during the down were instrumental in assisting the FAMS in safety requirements. The airline is now able to implemented the AirCrews suite in September Brad Laser is a product manager for their needs. Other characteristics include surge in the global economy. As the environ- this critical endeavor. spread a smaller number of pilots among the and within one month had already increased resource management products at Sabre domestic versus international passengers ment begins to change and opportunities for When the FAMS was first directed to same number of flights flown previously. This the efficiency of its crew operations by Airline Solutions. They can be contacted at (specifically those requiring additional secu- growth become more of a reality, these air- expand its mission and operations, it was lowered headcount for its current flight capac- decreasing the number of crew days required [email protected] and rity measures) and the size of a group trav- lines are beginning to search for ways to using a manual system to schedule air mar- ity enables Korean Air to plan for the addition by almost 6 percent. The realized savings in [email protected]. eling together. increase the number of flights flown while shals for flight duty. This system was quickly Technology improvements — New technol- keeping incremental crew additions to a mini- overwhelmed as the number of air marshals ogy can be seen in many areas of the air- mum. Many airlines utilize the AirCrews suite and flights grew, leading to the concern that port, and those that are most prevalent are to assist with reaching these growth goals. air marshals were being scheduled inconsis- THE HIGH LEVEL the new check-in options, such as self-ser- The end-to-end integration of the suite, from tently for flight duty. In June 2002, the FAMS vice kiosks and Internet check in. With the planning to day of operations, and consistency replaced its manual system with three mod- News Briefs from Around the Globe ever-increasing adoption rate of electronic and seamless flow of data throughout the ules from the AirCrews suite — the Pairing vıew Who Why benefiting from the operational effi- “Changing our reservations system is ciencies and introduction of new fea- Eastern Airways +count it up a very big decision, but it’s the right tures, such as e-ticketing, that the What one,” said Bryan Huxford, chairman integrated system will bring. In addi- Selected the SabreSonic ™ of Eastern Airways. “We now have tion to its leading passenger systems, 3 million Number of 1 Number of types of rose named for the 5,286 Number of daily load passenger solution for its the opportunity to shift focus from the Sabre Airline Solutions has a proven passengers in the next 24 hours that Boeing 777, believed to be the first airplane plans for weight and balance that are will board 42,300 flights on Boeing to have a rose named after it. The rose, deep generated in the Sabre ® AirOps ™ Load passenger reservations, systems we are using to managing track record of successful large-scale jetliners — traveling to nearly every purple/red with a citrus-like fragrance, was Manager and the Sabre ® Flight check-in and load-planning our airline and delivering high value system migrations, so we are confident country on earth. developed in Olympia, Washington. Operating System. systems. to our customers. We look forward to our conversion will be a smooth one.” a products

Faster than the speed of

New, flexible passenger solution offering from Industry Sabre Airline Solutions gives airlines the ability to adapt and grow in the future.

By Holly Burkholder | Ascend Contributor

s the airline industry continues to carriers will increasingly require flexibility from SabreSonic solution, airlines can choose from processing. Considered a breakthrough in hub for cost-effective, efficient connectivity capable of managing every facet of an airline’s transform, airlines will need high-per- their systems. As their business models any combination, or all, of seven primary com- yield management, this system — either a to e-ticketing partner airlines. reservations and departure control environ- forming reservations and departure evolve, airlines need to keep the longer view ponents: fully integrated hosted component or a SabreSonic ™ Web — A complete, fully host- ment. As part of this migration, Sabre Airline A ™ control functionality with the flexibility to in mind with systems that can offer maximum SabreSonic Res — Advanced reservations Unix-based, stand-alone component — pro- ed online booking system enables airlines to Solutions took a phased re-platforming adjust to changing circumstances and new scope and scale to accommodate future management capabilities enable airlines to vides real-time transaction processing 24 efficiently display and sell products over the approach, making new technology seamlessly technologies. The new SabreSonic ™ passen- growth and model changes. Our open-sys- efficiently grow revenue and manage every hours a day, seven days a week. Internet as well as those of selected partner available to airlines. With more functionality on ger solution has been designed to give airlines tems approach provides this flexibility to air- channel of distribution. The offering SabreSonic ™ Command — A first in the airlines, car and hotel providers. an open-systems platform than any other of all sizes and business models not only cru- lines across the travel experience from shop- includes the industry’s leading online book- industry, this Web-based tool enables air- Alternatively, airlines using an in-house reservations system, the SabreSonic solution, cial capabilities but also the ability to anticipate ping to fulfillment.” ing engine, and shopping, ticketing and lines to quickly react to changes in the mar- system or third-party reservations provider can currently used by more than 100 airlines change and adapt quickly. Keeping flexibility in the forefront, air- codeshare capabilities all managed from a ketplace by managing and configuring the supplement their tools with four of the seven around the world, offers a single suite of For more than 40 years, Sabre Airline lines can utilize the entire suite of open-sys- single, easy-to-use graphical user interface. entire system from one location. highly sought-after, innovative components unmatched passenger management solutions. Solutions has provided the industry with leading tems functionality or select stand-alone com- SabreSonic ™ Check-In — Leading departure SabreSonic ™ Shop — This component fea- available through the SabreSonic solution: The sophisticated shopping and pricing func- reservations technology, and the SabreSonic ponents to enhance in-house or third-party control capabilities facilitate efficient pas- tures advanced shopping and pricing capa- SabreSonic Inventory, tionality was most recently migrated to the solution represents the new generation of this reservations systems. Airlines that rely on senger processing both on and off airport bilities for all distribution channels. Airlines SabreSonic Shop, open-systems platform. functionality. Built on an open-systems plat- Sabre Airline Solutions for their reservations grounds, streamlining operations and have the flexibility to offer customers both SabreSonic Ticket, Several options within the SabreSonic form, the solution opens the door for airlines and departure control functionality can imple- enhancing the customer travel experience. fare-led and itinerary-led shopping options, SabreSonic Web. solution components have already been to seamlessly integrate new functionality and ment the SabreSonic solution as a single, fully Capabilities include check-in, re-accommodation as well as the ability to price complex itiner- As stand-alone components built on migrated to an open-systems platform: technology as they become available. integrated passenger suite, realizing the finan- and automated fee collection capabilities all aries involving multiple carriers and segments. open-systems technology, these tools seam- Agent Sales Report — A robust agent ticket- “The SabreSonic solution represents a cial and strategic benefits of working with a managed from a single, easy-to-use GUI. SabreSonic ™ Ticket — State-of-the-art elec- lessly integrate directly with any reservations ing activity reporting and reconciliation tool, high-performing passenger solution that pro- single partner. In addition, a single solution SabreSonic ™ Inventory — Advanced inven- tronic ticketing functionality eliminates the system. Customer Data Delivery — A tool that trans- vides carrier-specific flexibility,” said Gianni gives airlines an accurate, real-time view of tory management capabilities such as serial, need to build costly systems for electronic A few years ago, as an industry first, the forms data into a structured format enabling Marostica, president of Airline Passenger passenger information across all customer virtual and continuous nesting enable origin ticket distribution and database mainte- process of migrating key operational systems analytics and reporting, Solutions at Sabre Airline Solutions. “In touch points, enhancing customer service lev- and destination-based inventory manage- nance. Using this component, airlines can to an open-systems platform began in an Customer Data Warehouse — A relational today’s market and projecting into the future, els and boosting productivity. With the ment, replacing outdated leg and segment connect to a universal electronic ticketing effort to provide affordable, futuristic solutions database used to store trip information used

48 ascend ascend 49 products regional

The SabreSonic Solution … Smart.Proven.Bankable. A Higher Plane

Smart Flexibility Proven Performance Bankable Results Facing unique circumstances, Middle East carriers are bucking The SabreSonic solution fits airlines The SabreSonic solution is Powerful capabilities deliver global trends by adding service to satisfy customer demand and of all sizes, in all stages of growth, backed by the highest opera- bankable results, with airlines in all regions of the world, utiliz- tional excellence rating in the increasing total revenue by up to boost market share. ing any business model. industry. 10 percent and reducing total costs by up to 40 percent. It can be implemented as a single, Airlines drive product develop- By Nejib Ben-Khedher and Shane Batt | Ascend Contributors fully integrated solution or as ment, ensuring the solution stand-alone components that is continually enhanced to deliver only the desired functionality. anticipate evolving needs. ver since 1325 when Ibn Battuta, the Western Europe and North America has been The downside to this high level of renowned 14th century Arab adventurer, substantially down since 2001, and flow traffic growth is that Middle Eastern airlines compete Airlines can easily configure Unmatched support services E embarked on his famous 75,000-mile across the hubs of the region has also declined. for market share using capacity — the most the entire system from a single, available 24 hours a day, seven journey from Tangiers to India, the Middle East During this period, however, economic and expensive method. When they increase easy-to-use Web-based tool to days a week keep airlines run- has had a rich history of international travel. political circumstances have helped intra- capacity, market size increases through mar- quickly react to changes in the ning at full speed. That history continues today for a region at the regional traffic increase by more than 15 percent. ket stimulation, which is not sufficient to ben- marketplace. crossroads between the east and the west. The region’s economies have grown rapidly efit all the carriers in the region. Instead, More large-scale system The area and its aviation industry are based on increased oil revenues from higher stronger airlines gain market share, and weak- The open-systems architecture migrations have been growing and continue to develop despite volatil- er carriers struggle. Since many of the weaker enables airlines to easily adopt successfully performed by ity caused by changing geopolitical conditions. Period of Spill carriers are government owned, it is unlikely and integrate new technologies Sabre Airline Solutions than Although Middle Eastern airlines have that they will disappear. Instead, they will with their existing in-house or any other company in the been on a roller-coaster ride for the past three Maximum booking level C become more desperate for cash and will cut third-party systems. history of aviation. years, since January 2000 they have consis- Capacity B fares to maintain market share, leading to rev- tently out-performed the world average for Bookings at departure A enue dilution and harder times for everyone. The robust, open-systems cus- traffic and capacity growth. Cumulatively, traf- The Middle East aviation marketplace is tomer relationship management fic growth in the region has averaged more driven by four primary characteristics that are

platform ensures consistency than 12.5 percent since January 2000, sur- Bookings held rapidly changing the airline environment: across all customer touch points passed only by the growth of traffic in Latin The introduction of new low-cost airlines, by enabling the integration of For more information, visit America (13.8 percent). The impact of restrictive bilateral conditions, 180 8 3 0 reservations and check-in informa- www.sabresonic.com or During the same period, capacity Highly volatile demand and extreme seasonality, Days before departure tion with an airline’s CRM systems. www.sabreairlinesolutions.com. growth has been substantial. Middle Eastern The reemergence of high service levels. carriers increased capacity by 11.3 percent since January 2000, primarily through fleet Due to the booking patterns of most The Allure of Low Cost renewal and expansion. This capacity growth flights in which cancellations occur after The low-cost model has become attractive has been among the world’s highest. Despite the maximum booking level is reached, a for launching new airlines and for transform- for post-travel analytics, new technology is further leveraged to help “I'm pleased to see that Sabre Airline these encouraging numbers, there is a danger market can be “constrained” by capacity ing national carriers in the Middle East. Customer Insight — A comprehensive rela- airlines reduce their costs. Our experience has Solutions is continuing to invest in its suite of that carriers are increasing capacity too quick- even with load factors below 100 percent. Governments wishing to increase tourism and tional database that collects and stores shown that airlines utilizing our passenger products and services,” said Andy Dawson, ly and may have to allow it to become better stimulate economic growth are quick to invest information on travelers for real-time opera- management solutions can achieve up to 40 head of worldwide reservations for Gulf Air. aligned with demand. crude oil prices, encouraging the region’s resi- in airlines claiming to be low cost. Investors tional use. percent cost savings.” “Gulf Air has to compete for business, and In the first half of 2003, capacity to and dents to travel. (Paradoxically, this increase in allured by the promise of double-digit return While modernization and flexibility rep- As the migration to an open-systems using leading-edge technology is essential to from the Middle East was down by 6.5 per- oil prices has also raised the costs of air travel on equity find investing in low-cost airlines resent key elements of state-of-the-art reser- platform continues, additional components do that. We have a commitment from Sabre cent while traffic was down 5.4 percent. and lowered the profit expectations of Middle attractive when the rest of the equity market vations and departure control functionality, will be added to the modular offering. Airlines Airline Solutions that it will deliver industry- Beginning in June, however, there was a rapid Eastern airlines.) From a political and social shows only marginal returns. This phenome- affordability makes possible the implementa- currently using the SabreSonic solution drive leading capabilities to support our efforts, and resurgence of demand, and the region’s carri- standpoint, citizens of the Middle East find it non is especially true in the Arabian Gulf. The tion of such technology for most, if not all, airlines. new enhancements, which are released quar- the launch of the SabreSonic solution is clear ers reacted by significantly increasing the more convenient to visit other countries within United Arab Emirates alone recently granted “By leveraging the open-systems terly. In an ongoing effort to anticipate trends evidence of executing on that commitment.” a number of seats available. During August the region compared to traveling to the West. licenses to four start-up low-cost carriers. approach, we are able to provide a new gener- and changes in technology, Sabre Airline alone, passenger traffic grew more than 10.1 A number of initiatives across the region have Arabian Gulf investment in low-cost air- ation solution at a price that airlines can afford, Solutions invests millions of dollars annually in Holly Burkholder is marketing percent and capacity grew 6.1 percent year simplified visa procedures to attract local lines is a new trend that has resulted from the aiding carriers as they reign in all costs,” the product portfolio, ensuring that airlines communications manager for Airline over year. tourism. This intra-regional traffic growth is increased economic prosperity of the region. Marostica said. “We provide leading technolo- always have access to systems based on a Passenger Solutions. She can be contacted This growth has been concentrated new for the area and is sparking increased Traditional Arab investment in the region has gy at the right price, and once in place, the cutting-edge infrastructure. at [email protected]. primarily on intra-regional traffic. Traffic from investment in the regional airline industry. concentrated on service industries with much

50 ascend ascend 51 regional regional

higher financial returns such as the banking Operational Characteristics increase tourism and diversify their economies Demand Volatility and Seasonality and insurance sectors. Since the region’s Because low-cost carriers are primarily domes- by introducing new air travel capacity. This BEY — DXB Seasonality of Demand Passenger demand in the region is highly increased economic prosperity is oil-revenue tic — or at least operate in a common aviation new-found largesse with air operator certifi- volatile due to highly variable seasonality. 40,000 ------based and subject to cyclical results, the equi- environment under open skies — airlines in the cates and routes will allow new entrants into 37,186 While demand is high on an average basis 35,000 ------ty currently available in the region for invest- Middle East would likely need to restrict their markets that are high yield. Therefore, new 31,259 compared to capacity, it is clumped into peri- ment in airlines is somewhat tenuous. If this operations to specific geographical areas to carriers will be able to pick and choose from 30,000 ------ods, making the application of capacity more 24,339 24,734 24,551 25,000 ------investment does not result in expected eliminate international landing and navigation the characteristics of low-cost airlines. 21,510 22,352 difficult and creating a classic dilemma: 19,756 ------growth and income, then the prospects for fees required for true international flights. 20,000 17,344 For a carrier to win sufficient market share, 14,953 15,000 ------13,332 ------future investment in the aviation sector within Fleet commonality, a characteristic of The Impact of Restrictive 10,892 11,999 it must have a consistent capacity presence Passengers the Middle East will probably decline. In order low-cost carriers because it maximizes utiliza- Bilateral Agreements 10,000 ------and schedule regularity. to ensure success, the low-cost carriers in the tion of equipment, personnel and maintenance Despite substantial growth of the region’s avi- 5,000 ------Because demand is so variable, however, region will have to generate high profits on a resources, is possible, but it does not enable ation sector, many markets remain under- 0 ------consistent capacity will sometimes be too Oct-02 Nov-02 Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 low cost base. airlines to serve smaller markets or those served due to restrictive bilateral agreements little or too much. Low-cost carriers in the area will have to requiring greater range. and prohibitive taxation. In an effort to In order to address this, airlines must com- match the overhead of similar carriers in To minimize costs, low-fare carriers gen- increase capacity, governments are investing CAI — JED Seasonality of Demand mit a smaller amount of capacity when Europe and North America, where the stage erally offer limited service options. Because in airport and airspace infrastructure. At the demand is low and a larger amount of length adjusted unit costs are between 2.1 most passengers in the region expect higher same time, however, they are increasing taxes 120,000 ------capacity when demand is high. 98,996 and 3.5 U.S. cents per available seat kilometer. levels of service than are provided on “no- and landing and navigation fees, and they 100,000 ------This variable capacity violates the first 80,469 79,225 80,000 ------73,018------Maintaining costs at this level requires an air- frills” carriers, eliminating service options is are maintaining restrictive bilateral agree- 65,894 requirement for winning sufficient market 56,708 60,000 ------54,343------line to have a large number of seats over liable to lower passenger satisfaction. And, ments designed to protect local markets for 40,569 share. ------33,484 40,000 28,692 which to split the fixed and indirect costs. This due to limited demand and to the large national carriers. 23,514 Part of the reason for demand volatility

Passengers 18,257 17,150 means new low-cost airlines in the region amount of baggage on many flights, high fre- Market stimulation refers to increased 20,000 ------in the region is easy to understand given the must fly larger aircraft over shorter distances quency and short turn times would be difficult traffic resulting from introducing capacity in an 0 ------range of political events in the past four to five Dec-02 Jan-03 Feb-03 Mar-03 Apr-03 May-03 Jun-03 Jul-03 Aug-03 Sep-03 Oct-03 Nov-03 Dec-03 and turn the aircraft more times each day, for Middle Eastern airlines to achieve. origin and destination market. The introduction years. Each security alert, military action or bit increasing the glut of capacity and further of non-stop capacity tends to increase demand of political tension affects demand. diluting revenue. Corporate Characteristics for air travel because the demand is con- As the Beirut to Dubai and Cairo to Jeddah markets demonstrate, demand in the Middle A second reason for demand volatility is Also, many characteristics of low-cost A high equity base will ensure low-cost carri- strained by available capacity. East region is highly seasonal and is influenced by several occasions such as religious seasonal, but not just related to the 12-month airlines are out of reach for new Middle East ers’ debt to equity ratio remains low. But many Governments wishing to protect local holidays, Ramadan, the Hajj and similar events. Even secular events such as the Dubai Gregorian calendar. The lunar Muslim calendar carriers because of their market and geograph- Middle Eastern airlines suffer from a low equi- carriers with low load factors maintain restric- shopping festival are driving substantial changes in demand. shifts about 11 days each year. Specific events ical position. ty base, and there is little possibility, short of tive bilateral conditions designed to keep that greatly impact demand — religious holi- privatization, that these airlines can increase capacity low, allowing yields to be high days, Ramadan, the Hajj — result in profound Commercial Characteristics their equity bases to levels required to operate enough to support the operation of national regional hubs) is a model for improved bilat- few European destinations while every changes in market demand. Increasingly, sec- Whereas most low-cost carriers minimize dis- a low-cost airline. New entrants are remark- carriers. National carriers argue that relaxing eral conditions. Still, this relaxation is not airline in Europe would obtain reciprocal ular events such as the Dubai shopping festi- tribution costs by relying on direct channels of ably well capitalized — at least during the plan- bilateral agreements will allow too much enough. The recent position of the European rights in Bahrain. Undoubtedly, the Middle val drive substantial changes in demand. The distribution such as their own Web sites, ning stage — but actually producing the capacity to enter the marketplace, driving Union with regard to bilateral negotiations East region would be better served by an 13-month seasonality of the Beirut to Dubai Middle Eastern airlines rely on sales through required equity for a startup may be more down yields. As yields decrease, the amount should be a caution to the region. Under open skies agreement among its regional market clearly illustrates this volatility. the more expensive travel agency and tour problematic than it appears. of government support necessary to maintain European Union regulations, bilateral agree- member states and a similar policy of collec- The demand in August 2003 was more operator channels. This is unlikely to change in While low-cost carriers maximize tech- the national carriers increases. ments with third-party countries will be cen- tive bargaining between the Middle East than three times greater than the demand in the near future due to a relatively low penetra- nology to reduce manpower needs, the effect Due to stimulation, however, restrictive tralized in Brussels on behalf of all member region as a whole and larger blocs such as November 2002. Also, the March through May tion of the Internet, and any forced change on in the Middle East would be limited because bilateral conditions are more often liable to states. Therefore, a small country such as the European Union and the North America 2003 figures reflect the Iraq war’s affect on behalf of an airline would likely lead to reduced of the already low labor costs. Another way restrict the growth of the aviation sector Bahrain may negotiate and obtain rights to a free trade zone. market demand. During the lowest month market share and the strengthening of competi- low-cost carriers control labor costs is through instead of protect the local carrier. A good tors that rely on traditional distribution models. performance-based compensation for their example is the rapid growth of Dubai as an Also in the traditional low-cost model, employees, but this would have a limited O&D. Despite the growth of capacity in and carriers operate high-frequency, shuttle-type effect in the Middle East without the imple- out of Dubai, many O&Ds are substantially THE HIGH LEVEL operations between network points to capture mentation of the other low-cost carrier attributes. underserved. maximum market demand. But in the Middle Therefore, while attractive for existing The growth of Dubai as a hub and as an News Briefs from Around the Globe East, all but a handful of high-density routes and new entrants in the Middle East to consider O&D is a clear example to governments vıew are too small to accommodate such opera- the low-cost model, the realities of the region throughout the region. Spending more on Who Why tions. Like other low-cost carriers, airlines in tend to discount it as a viable alternative. infrastructure will not necessarily produce the Dale Moss, director of sales world- the Middle East can simplify pricing rules, but But, airlines in the region do not need to “next Dubai.” Governments that consider the British Airways, Virgin Atlantic, British Airways — “This innovative wide at British Airways. “By making this will require a greater knowledge and uti- be low cost in order to be successful. Due to relaxation of restrictive bilateral conditions can Ryanair and easyJet lization of available revenue management existing bilateral conditions, airlines in the find an easy way to increase growth in the avi- program helps us significantly lower all our published fares available technologies. Another tenet of the low-cost region have become accustomed to high ation sector without requiring significant out- What our distribution costs, while ensuring through the Sabre ® global distribution model, exclusive point-to-point operations, yields and market exclusivity. As demand for lays of capital to improve infrastructure. Added their seats to the GetThere that Sabre Connected SM travel agents system, we are making agents as would make Middle Eastern airlines vulnerable air travel increases in the region, government The recently signed open skies agree- to competition and susceptible to the region’s authorities are becoming more liberal in grant- ment between Singapore and the United Arab online corporate travel reservations automatically have access to the full competitive as any of our other sales periodic political instability. ing licenses and routes. Governments want to Emirates (home of Dubai and Abu Dhabi, two system range of British Airways fares,” said and distribution channels.” a

52 ascend regional regional

(November 2002), demand per day in the tect their yields during times of low demand to competitors to lower the cost of travel through the market place increases. The region is O&D market was 363 passengers, about two avoid a huge increase in the effective price of a no-frills approach. Capacity and Demand to/from Beirut, January 2003 — December 2003 growing, but the largest carriers in the region round trips of a single-aisle aircraft. In travel during the high season. Since Middle In the Middle East, the exact opposite is are forced to compete every day for the high- 1,200 ------August 2003, the demand per day was 1,200 East carriers need to maintain the highest occurring. Traditional carriers are increasing 1,107 value premium passengers. Not all carriers can passengers, about five round trips of a single- annual yields as possible, they must have service levels, and low-cost carriers are start- prosper in the Middle Eastern marketplace aisle aircraft. higher yields during the low season to allow ing with higher service levels than their 1,000 ------where share shift is the primary way of main- Beirut to Dubai is not the only market in lower yields during the high season. The chal- Western counterparts. Carriers such as Gulf 873 taining profitability, but this does not mean the Middle East that demonstrates this volatil- lenge becomes keeping yields higher during Air have added chefs on board their premium 800 ------that carriers will fail and remove capacity. ity. The extremely volatile seasonality the low season. service flights. The airline has added self-ser- 600 ------569 ------between Jeddah, Saudi Arabia and Cairo, vice kiosks, short messaging service and sim- 528 Hope for the Future 507 496 Egypt, also makes it difficult to plan capacity. The Reemergence of Service ilar technologies to enhance the travel experi- The Middle East marketplace is a fascinating 383 During August 2003, the demand was more As carriers in the Middle East struggle to main- ence. And Gulf Air has improved lounges and 400 ------366------example of the brutal effects of aggressive 289 300 than five times greater than the low month of tain yields during the low season, they are check-in facilities throughout its stations and competition. The carriers are fighting strength April 2003, a month with no Islamic holidays increasingly trying to attract premium passen- has re-branded itself to draw attention to its 200 ------160 ------with strength in a marketplace that has unique 60 that coincided with security concerns in Saudi gers. Premium passengers, including business new, high-quality service standards. 0 34 challenges. Some of the carriers in the region Arabia during the height of the Iraq war. travelers, tend to have lower seasonality than Doha-based Qatar Airways has upgrad- 0 ------will prosper while others will inevitably decline. BAH CAI DXB JED KWI MCT RUH This demand volatility is not likely to sig- non-premium passengers. Therefore, several ed its fleet and facilities, Beirut-based Middle The Middle Eastern aviation market- Daily Capacity Daily Demand nificantly change. Carriers that best accommo- carriers in the region are experimenting with East Airlines has dramatically improved its place is at a critical crossroads. A few years of date the variability of demand will earn the increasing service levels to attract and main- product, and Dubai-based Emirates airline con- geopolitical stability along with continued highest profits. Accommodating this demand tain higher-yield passengers. tinues to provide a very high-quality product. Capacity and Demand to/from Dubai, January 2003 — December 2003 regional growth should allow for Darwinian can involve increasing capacity or reducing dis- While this is not specific to the Middle Nearly every carrier in the region is updating evolution — survival of the fittest. If, however, count seat availability. East, it is contrary to the trend that has devel- its service to increase the value of its product. 2,500 ------events continue to reduce market demand, 2,246 2,190 With such highly seasonal demand, it is oped in North America and Western Europe, Carriers risk a significant amount when the investments in service improvement that somewhat inevitable that yields will be highly where the prevailing notion is that passengers they increase service levels. This risk is partic- 2,000 ------1,871------1,885 ------have been made by the region’s carriers may seasonal as well. During periods of low will not pay extra for increased service. ularly great when they have renewed their 1,645 1,592 mean that all carriers have difficulty. The avia- demand, prices will fall and during periods of Therefore, cost-cutting exercises have fleets to increase service. Unit costs are rising 1,500 ------tion marketplace in the Middle East must high demand, prices will rise. Because the reduced passenger service levels to increase among the carriers that are increasing their 1,107 remain strong because there are few alterna------944 ------volatility of demand in the Middle East is so profitability. The traditional carriers in North service, and it is yet to be determined whether 1,000 873 tives for travel throughout the region, a vast 763 730 high, it becomes important for carriers to pro- America are emulating their low-cost carrier these increased service levels will allow yields 621 650 area that encompasses large tracts of desert ------439 ------459 ------500 379 and offers limited transportation infrastructure. Solving the dilemma of Middle East avi- 0 ------ation will not be simple, but there is hope in AMM BAH BEY CAI JED KWI MCT RUH regional cooperation. Today, largely due to Daily Capacity Daily Demand hightech choice as well as cultural issues, no Middle Eastern airline participates in a global alliance. The rapid rate of growth of Dubai as an origin and destination illustrates bilateral condi- Airlines throughout the Middle East would do News on New and Improved Products tions are more often liable to restrict the growth of the aviation sector instead of protect well, however, to cooperate among them- the local carrier. Despite the rapid growth of capacity in and out of Dubai, many O&Ds selves through virtual alliances or vertical inte- and Services from Sabre Airline Solutions from Dubai are substantially underserved. gration, both of which are trends for similar regional entities in other locations. The com- product mon cultural ties of Middle Eastern carriers a structured method of inputting manual to remain sufficiently high. If carriers are causing a capacity glut that reduces yields. should be a bonus to cooperation, not a hin- activity including the ability to easily unable to attract high-value premium travelers, Therefore, the very benefits that these carriers drance. The Arab Air Carriers Organization Agent Sales Report document details into an agent’s sales integrate manual document details they can suffer substantial financial difficulties. hope to achieve from increased service may plays a strong role in bringing Middle Eastern report ensures all agent ticketing activity description into an agent’s sales report and In addition, the susceptibility of the region to indirectly force their profitability to remain low. carriers together. More and more, the success is recognized. provides seven unique reports — demand volatility increases the level of risk There is no easy answer to this dilem- of the aviation marketplace in the region will The Agent Sales Report is a comprehen- features sales summary, detailed report, associated with increasing service. ma. On one hand, carriers that do not increase be based on the ability of the AACO to operate sive reporting and reconciliation tool that accounting report, credit card report, To reduce the impact of higher service service levels will lose market share among as a catalyst for bringing the disparate regional tracks all agents’ ticketing activity, improv- Enhanced analysis of ticketing activity — tax report, station summary report costs, Middle Eastern airlines are flying their premium passengers. These carriers, howev- interests together in a manner that promotes ing the integrity of revenue recognition for Designed using a relational database, and station manager report. new aircraft more often, splitting fixed operating er, will maintain a lower cost base, which the health of the region’s air travel industry. a that airline. Agent Sales Report enables ticketing Increased productivity — The costs and indirect costs over a greater amount could help them weather hard financial times. activity reports to be created dynamical- Agent Sales Report enables an of flying, lowering unit costs, which should On the other hand, carriers that increase their benefits ly. Once individual agent and station agent to void and reactivate voided increase profits. Yet profits may not rise as service level will drive up unit costs that may Nejib Ben-Khedher is senior vice manager reports have been closed, items directly from the agent’s unit costs fall if yields fall as well. While carri- not be covered by increased retention of pre- president, and Shane Batt is a partner of The Agent Sales Report provides an airline a data feed is generated to an airline’s sales report. Additionally, a supervisor ers try to increase yields by introducing higher mium demand. Sabre Airline Solutions Consulting. easy access to any ticketing transaction revenue accounting system. can access view details on a particular service, it requires them to fly their aircraft The result is that the carriers in the They can be contacted at type stored in the database. Interactivity Comprehensive data — The Agent item by selecting an item from the more, placing more capacity in the market- Middle East are fighting for market share of [email protected] and between reports and the introduction of Sales Report offers expanded ticketing summary report. a place — even during times of low demand — the premium passengers even as the size of [email protected].

ascend 55 regional

COMING of AGE

Photo courtesy of ATA Airlines Airlines of ATA Photo courtesy While staying true to its low-cost carrier tradition, ATA Airlines has built a high-quality, full-service hub-and-spoke network.

By Steve Hendrickson | Ascend Contributor

keptics say it can’t be done. While tradi- added to the credibility of its emerging brand, tional thinking famously asserts that that it is hard to single out any one as being S people can’t have their cake and eat it the preeminent breakthrough. Rather, what too, airline strategists are nearly as unanimous becomes apparent is that the confluence of in saying that you can’t have a full-service, these improvements is what has set ATA on a hub-and-spoke-oriented network airline and new, clearer course for successful growth. low operating costs. But try telling that to the One initiative was to improve operational 7,200 employees of Indianapolis, Indiana- dependability. So, when ATA rejuvenated its based ATA Airlines. Their defiance of the con- fleet and committed to a new terminal and gates ventional wisdom is at Chicago Midway Photo courtesy of ATA Airlines propelling the carrier Airport, management toward a brighter, laid the infrastructure stronger future amid groundwork to make the ever-changing U.S. that happen. Passen- air travel market. gers demanded conve- As the 10th nience and comfort, so largest U.S. airline, the carrier responded ATA is the smallest with electronic tick- of the so-called ets, assigned seating, majors, defined by online check-in, in- the U.S. Department flight entertainment, of Transportation as along with an increas- having US$1 billion or ingly popular frequent more in annual pas- flyer program. senger revenue. But The convenience despite being the tini- of its Web site has est within that cate- George Mikelsons, who founded ATA been another initiative gory, the magnitude Airlines in 1972 as a charter service, welcomed by passen- of the carrier’s growth continues to lead the airline, which gers, but one that has and evolution has has grown to become the 10th largest helped the airline keep been nothing short of scheduled U.S. airline. distribution costs down gargantuan. as well. Using its Web-based booking engine in tandem with The Airline that Could SabreSonic ™ Res, the online bookings accept- There have been so many incremental ed through the company’s Web site now com- enhancement initiatives accomplished by ATA prise nearly 40 percent of all ATA reservations. in recent years, efforts that have further ATA has steadily improved service-pattern quality to give business travelers the frequency they desire. Beyond that, the flight network was broadened through the 1999 acquisition of a regional carrier, Chicago Express Inc., which now serves 14 destinations as a feed

56 56 ascend ascend 57 regional But, as we reached a higher “frequency level in several key The destination list has grown to include nearly Thus, ATA’s new, clarified brand cities, we began to see economies all the major domestic business markets as promise has been telling passengers to expect of scale working to our advantage … well as keeping a large set of leisure points “An Honestly Different Airline.” certainly on the cost side, but also including eight spots throughout the The subtext of that new brand message Caribbean and Latin America plus three air- has focused on the most appealing features of on the revenue side. ports in the Hawaiian Islands. the company’s high quality, low-cost business ” The expanded flight offerings’ impact model, including: on ATA’s market-share trends have been Low, everyday leisure fares; carrier branded as ATA Connection. ATA was encouraging, especially within the critical No advance purchase or minimum quick to upgrade the regional airline’s original sphere of Midway Airport and the Greater stay requirements; fleet of 19-seat J-31 aircraft to Saab 340 aircraft Chicago market. In fact, ATA now boards near- Business (walk-up) fares that never seating 32 passengers, improving passenger ly 50 percent of Midway’s total passenger exceed US$299 for a one-way acceptance. enplanements and about 11 percent of the domestic trip; Still, other aspects of network growth overall combined total for both Chicago area Advanced seat assignments; have taken the form of additional service to airports. Among all the things that have taken Change fees well below Hawaii from the West Coast and new trans- shape during ATA’s coming of age, the ado- industry norms; continental nonstop flights between San lescent growth spurt of its Midway hub may No fees for same-day standby; Francisco, California, and New York City. stand as one of the most important mile- Unused tickets that retain their But, above all, and amazingly at times, stones yet. But milestones have been in original value; the airline continues to maintain its low-cost abundant supply at ATA in recent times, and New planes that maximize philosophy through all of they all seem to be fitting together nicely as reliability, on-time performance these service additions part of a disciplined growth and maturation and comfort; and enhancements. process. Self-service and curbside check in With such a powerful “Given all the developments at ATA at many airport locations; combination coming over the past several years, it really made A modern, comfortable and convenient together — full service sense to communicate, more clearly than hub facility at Midway Airport. at low costs — the air- ever, our extraordinary value proposition to ATA is making the right moves to con- line has found a secret passengers,” said John Happ, senior vice tinue its upward path; however, to fully for success. president of marketing for ATA. “We’re appreciate the airline’s strategic direction and reminding people that they can have a great really comprehend how far it has come in Low-Cost flying experience without paying the premium recent years, it is helpful to understand its Emphasis Pays Off fares that many of the traditional major airlines origins. The story, as it turns out, began If nothing else, ATA’s might demand.” very modestly. Photo and graphic courtesy of ATA Airlines roots as a charter carrier imbued it with an efficien- “It took us a cy-driven culture that has From its hub at Chicago Midway Airport, ATA Airlines flies nonstop to 33 destinations while to grow our carried over into its throughout North America and the Caribbean with its fleet of aircraft (above right) that service to where THE HIGH LEVEL scheduled business. And includes the Boeing 737-800, 757-200 and 757-300. In 2003, the airline reported its first full- our expenses could clinging to its low-cost year profit since 1999, earning US$15.8 million. be leveraged effec- News Briefs from Around the Globe advantage has been job tively,” said Stan vıew No. 1. Today, the company’s unit costs are The newer aircraft have helped dramati- Hula, ATA’s vice president of market planning. lower than any other U.S. major airline, with its cally improve operational dependability, on- “But, as we reached a higher frequency level planning and management tools axsResource capabilities, we can bet- cost per available seat mile consistently near or time performance and passenger comfort. in several key cities, we began to see Who below 7 U.S. cents. Even Southwest Airlines, Also, the current mix of aircraft features a economies of scale working to our advantage Sabre Airline Solutions offered to airlines and ground ter help airlines and ground handlers famous for its rock-bottom cost levels, has not higher degree of fleet commonality, providing … certainly on the cost side, but also on the handlers worldwide. reduce airport handling costs through been able to keep CASM as low as ATA. operational advantages that simplify training, revenue side.” What Why more efficient planning, administra- Part of the secret, to be sure, is ATA’s support services and spare parts. But flying The airline reached critical mass in sev- Acquired EDS’ axsResource Airport relatively long average stage length, which is young, efficient, large planes on long missions eral markets where its former service patterns tion and deployment of personnel,” Resource Management Solutions The axsResource tools bring new the longest in the U.S. domestic industry. is not the only strategy keeping ATA’s low-cost were thin or even nonexistent. And the mar- said Tom Klein, group president, Another factor is that its fleet has, on average, carrier title safe. kets ranking highest in ATA’s route structure product line. The addition of these capabilities to the resource manage- Sabre Airline Solutions. “We are also more seats per departure than any other Favorable, yet fair, agreements with its are now business-oriented markets rather new capabilities, furthered by the ment suite including acceleration domestic U.S. major airline. In addition, the air- labor groups have provided the airline with than vacation hotspots. fulfilling our mission to help airlines company’s travel and transportation to a Web-based delivery platform, line invested heavily in a fleet renewal pro- flexible work rules and competitive pay scales Indeed, the service buildup has cast a succeed by offering technology, gram during the last few years, replacing its crucial for success in today’s changed eco- very different look on ATA’s schedule, making market alliance with EDS, broadens increased focus on airport staffing products and services to address the Boeing 727-200 fleet with 737-800 and 757- nomic environment. And as ATA has expanded it more attractive to passengers in general, but Sabre Airlines Solutions’ already com- capabilities and enhanced internation- 300 aircraft, a move that gives it the youngest its flight schedule, it has been able to achieve to business travelers in particular. The relatively issues that are key to their challenges prehensive airport resource manage- al features to meet global market average aircraft age among majors in the U.S. real economies of scale with its hard-working low frequency flight patterns offered several in the current market.” a marketplace. employees. years ago have been beefed up substantially. ment system suite of airport resource demands. “By adding the

58 ascend regional regional

Humble Beginnings: Just 18 years ago, in 1986, ATA first has also quickly become a competitor that structure to maximize the revenue and opera- A man, a plane and a dream tested the waters in the intensely competitive other airlines can no longer afford to ignore. Then and Now: tional performance of its eventual 15 Midway In 1972, Capt. George Mikelsons founded arena of scheduled service, initiating regular Plus, with its evolving hub at Midway Airport The Top 10 ATA Mainline Nonstop Markets by Weekly Departures Airport gates. The new architecture will unfold an air travel club called Ambassadair in flights between Indianapolis and Fort Myers, at the core of its network, ATA has been inex- Scheduled Scheduled later this year. Indianapolis and acquired a single Boeing 720 Florida. While ATA would continue its industry- orably involved in a brutal, four-way battle for departures departures The growing set of origin and destina- aircraft to conduct charter flights to vacation leading role within the charter category, expan- market position in Chicago with rivals United Rank March 1998 per week per day tion markets served via ATA’s connecting com- destinations for his growing membership sion in the scheduled segment would ulti- Airlines, American Airlines and Southwest 1 Chicago Midway — Orlando, FL 24 3.4 plexes at the Midway Airport hub has lead it to base. Six years later, as the airline industry mately become its new focal point and prima- Airlines. The smallest and least known of that 2 Chicago Midway — St. Petersburg, FL 24 3.4 pursue more sophisticated revenue manage- was deregulated, Ambassadair doubled its ry engine for growth going forward. group, ATA has been firmly focused on using 3 Honolulu — Maui, HI 16 2.3 ment approaches designed to increase the fleet by adding a second B-720. its competitive strengths and overcoming its 4 Chicago Midway — Phoenix, AZ 15 2.1 financial performance of the overall network. Mikelsons, still at the helm today as the Finding a Base weaknesses, while never underestimating its 5 Chicago Midway — Ft. Lauderdale, FL 14 2.0 Databases, software tools, process improve- chairman, president, chief executive officer for Scheduled Operations foes. But, it would seem that competitive 6 Indianapolis, IN — Ft. Myers, FL 14 2.0 ments and staff additions are all part of the and majority shareholder of ATA’s holding com- There were many forays into various markets pressures have only forced the airline to 7 Chicago Midway — NYC (JFK) 14 2.0 push to ensure prices are set where they will pany, recalled the early days fondly. during the early years of ATA scheduled ser- mature more rapidly and for the better. 8 Chicago Midway — Los Angeles, CA 14 2.0 boost sales to their maximum. “We had a lot of fun, and I was just too vice as the company showed its willingness to 9 Chicago Midway — Ft. Myers, FL 14 2.0 By the end of the year, the airline will darn stubborn back then to think about the long explore potentially profitable opportunities in Major Challenges Still to Come 10 Indianapolis, IN — St. Petersburg, FL 13 1.9 wrap up an aircraft reconfiguration program odds against success,” he said. “And we were this area. After a period of experimentation With all that ATA has accomplished in its mat- Scheduled Scheduled and roll out a recently announced new busi- working so hard to make things go, we never and learning the key differences between uration process during the past several years, departures departures ness-class cabin, a product developed with the had time to think about the possibility of failure.” charter and scheduled market dynamics, the exciting things still lie ahead. The airline is not Rank March 2004 per week per day assistance of Sabre Airline Solutions That early “can-do” attitude has remained carrier initiated scheduled service from ready to rest on its laurels. 1 Chicago Midway — NYC (LGA) 50 7.1 Consulting, designed to further enhance ATA’s a hallmark of ATA’s culture to this day. Midway Airport in 1992. This airport selection One challenge to ATA’s continued 2 Chicago Midway — Newark, NJ 38 5.4 value proposition to the business traveler. By 1981, ATA, now established as a would eventually form the foundation for ATA’s growth trajectory was tackled recently when 3 Chicago Midway — Minneapolis/St. Paul, MN 37 5.3 Low-priced fare add-ons are intended to make common-air carrier, was able to offer public scheduled flight network and become a strate- the company refinanced approximately 4 Chicago Midway — Los Angeles, CA 33 4.7 this a great bargain for those road warriors charters and soon acquired a fleet of eight gic linchpin in its growth plans. By 1999, the US$235 million in senior notes related to air- 5 Chicago Midway — San Francisco, CA 33 4.7 needing to be as productive as possible while Boeing 707s. Subsequently, a holding compa- Midway Airport hub operations had helped craft debt that were to come due this year and 6 Chicago Midway — Denver, CO 32 4.6 in transit. ny structure (now ATA Holdings Corp.) was drive ATA’s annual revenues past the US$1 bil- in 2005. Various note exchange programs and 7 Chicago Midway — Dallas/Fort Worth, TX 32 4.6 ATA also recently began studying the trans- implemented for Ambassadair, ATA and any lion mark, making it the newest major airline in lease restructurings were developed to allevi- 8 Chicago Midway — Orlando, FL 28 4.0 Atlantic corridor with an eye toward launching future subsidiaries. The company continued the United States. ate what could otherwise have created the 9 Chicago Midway — Charlotte, NC 25 3.6 scheduled flights to Europe by 2005 or 2006. to grow aggressively and, by 1985, had risk of a troubling cash crunch. The restructur- 10 Chicago Midway — Washington, D.C. (Reagan) 25 3.6 Between its scheduled and charter service, become the largest charter carrier in North Big Airline, Big Challenges ing paves the way for more growth from a the airline already flies nearly 20 percent of its America, boasting a fleet that included The kind of dramatic growth exhibited by ATA financially healthier posture. overall capacity to international destinations. L-1011s capable of covering high volume, would normally cause enough headaches by Never content with its progress in the ATA’s Share of Midway Airport and Chicago Overall Enplanements Longer term, the company will consider distant vacation markets from major U.S. cities itself to challenge any management team, but ongoing battle for market position in the a fleet replacement strategy for the L-1011. or carrying troops on far-flung military air with nearly 2 percent of U.S. market sched- Midway and Greater Chicago marketplace, 50% ------While the scheduled service side of the com- charter missions overseas. uled available seat miles last year, the airline ATA has recently redesigned its hub schedule 45% ------pany has been growing at a breakneck pace,

40% ------ATA is still the No. 1 military air charter and Share of MDW 35% ------commercial charter carrier in the industry and

30% ------is committed to maintaining that position. It is,

THE HIGH LEVEL 25% ------after all, part of the original heritage of the

20% ------company and a positive contributor to overall

News Briefs from Around the Globe 15% ------financial performance. Share of Chicago (MDW+ORD) 10% ------Perhaps the biggest question surrounding

vıew ------5% ATA’s future deals with what domestic growth Who Why 0% ------opportunities it plans to focus on beyond its our passengers having checked potential at Midway Airport, which will reach its 4Q97 4Q99 4Q00 4Q02 4Q95 4Q98 2Q00 2Q02 4Q93 2Q94 4Q94 2Q95 4Q96 2Q97 2Q98 2Q93 2Q99 2Q01 4Q01 2Q96 4Q92 Sun Country Airlines “Our customers needed relief from in for their flights at suncountry.com 2Q03 maximum gate capacity in a couple of years. But Enplanements What the longer lines at the Humphrey in just the first two weeks of one thing seems certain, it will likely amount to aggressive growth taking place somewhere, ® Successfully implemented the Sabre Terminal (at the Minneapolis-St. Paul availability. The improvements Top: ATA Airlines has achieved critical mass in several markets where former service and it will certainly include the low-cost carrier Aerodynamic Traveler ™ Web Check- International Airport),” said Mark at the gates have enhanced the patterns were thin or even nonexistent. And the markets ranking highest in ATA’s route value orientation combined with super-serving in and the Sabre ® Aerodynamic Ondrey, director of information efficiency of our airport staff structure, such as New York City and Los Angeles, are now business-oriented markets customers a high-quality product that has made rather than vacation hotspots, such as Orlando, Florida, and Maui, Hawaii. ATA successful in the past. a Traveler ™ Gate Reader. The airline will technology for Sun Country. activities, and we’ve received Bottom: The expanded flight offerings’ impact on ATA’s market share trends have been access the tools through the Sabre ® “The collaborative efforts of Sabre extremely positive passenger encouraging, especially within the critical sphere of Midway Airport and the Greater ® Steve Hendrickson is a senior eMergo Web-enabled and dedicated Airline Solutions and the Sun feedback, making this implemen- Chicago market. The growth at its Midway hub, where it now controls almost half of all partner with Sabre Airline Solutions enplanements, has been one of the airline’s most important milestones. network solutions, an application Country staff have already paid tation a true win-win for Consulting. He can be contacted at service provider delivery method. off, with more than a third of everyone involved.” a [email protected].

ascend 61 regional FaringWell AIR NEW ZEALAND Competition regulators on REVAMPS ITS FARE STRUCTURE both sides of the Tasman have rejected the alliance. However, the airlines have appealed these decisions and will argue A Conversation with Ralph Norris, managing director their case later this year. and chief executive officer, Air New Zealand Air New Zealand officials have argued that the alliance is All photos courtesy of Air New Zealand necessary to “ensure the future of Air New Zealand as part of a viable and globally ir New Zealand has had a remark- Airline officials attributed much of its competitive airline industry.” able reversal of fortune in the past financial success to “changes in the airline’s Norris recently discussed three years. business model that underpin that perfor- the changes the airline has mance.” made and how those changes AAfter the demise of its Australian-based Among the changes introduced as part As part of its in-flight customer ameni- are positioning the airline to subsidiary, Ansett, in 2001, the airline was on of a new strategic business plan, Air New ties, Air New Zealand’s cabins support adapt to the new world of com- the brink of closing its Zealand completely personal entertainment options such mercial aviation. doors until it received a re- revised its domestic and as portable DVD players. Question: Why did capitalization package from trans-Tasman pricing struc- Air New Zealand recently the New Zealand govern- tures to simplify and lower revamp its domestic fare ment, which is now the fares, repositioned its structure? majority shareholder. long-haul international ser- Answer: Simply because But any thoughts vice and purchased new we needed to ensure that Air that the airline’s biggest A320 aircraft. The airline New Zealand remained com- challenges were behind it also introduced a number petitive against other airlines. were quickly dispelled. Like of customer-service initia- Not only was Qantas already the rest of the industry, it tives, such as enhanced aggressive in the market, we was suddenly confronted online booking, improved were facing the entry of sever- with the impact of terror- frequency, faster check in al low-cost carriers, such as ism, war and disease — and boarding, and is now Pacific Blue, Australia’s Virgin with a resulting significant looking to improve border Blue international brand. drop in revenue. processing on international Q: Other than lowering Industry observers flights, provide better fares, what changes — such wondered if Managing Ralph Norris has led Air New recognition of loyalty and as with aircraft types, cater- Director and Chief Executive Zealand through the develop- add new in-flight offerings. ing or cabin classes — have Officer Ralph Norris had ment of a new strategic plan The airline is also making you made in your domestic taken on mission impossi- that included completely revising changes to its crew uni- service? ble when he was appoint- its domestic and trans-Tasman forms and will introduce a Air New Zealand has upgraded its fleet A: One major change is the ed in February 2002. pricing structures. new uniform with “a more by purchasing new A320 aircraft, which commitment to the upgrading Under Norris’ stew- contemporary stylish look are configured to include 138 seats in of our fleet. We will retire six ardship, Air New Zealand has quickly accom- [to] be reflective of our Kiwi culture” in the their economy-class cabins (left). 737-300s, which will be plished what many of its competitors have been next 18 months. replaced with A320s. Five of unable to achieve — a return to healthy profits. In December 2002, the airline announced these A320s are already in ser- In the 2003 fiscal year, it earned NZ$220 another key component of its long-term strat- vice, with another 10 on order. We also have million (US$150 million) in net profit before egy: a proposed alliance with Qantas Airways options with Airbus to add a further 20 A320s. taxes and unusual items and also had an of Australia. The alliance would see Qantas Other changes include the introduction operating cash flow of NZ$523 million eventually own up to 22.5 percent of the New of Express Class on domestic routes, which (US$363 million). Zealand flag carrier. has radically transformed our business.

62 ascend ascend 63 regional regional

groups before any changes were implement- we discovered that the provision of meals was changes such as Express Class and Tasman A: We require a joint venture to improve the ed to ensure that changes were to be done not a requirement by our passengers, if that Express. We knew that these changes were platform that supports the business. Both air- the right way. One of the key things that came meant fares would be lower. sustainable and based around profitability and lines will be appealing the decision in their from those focus groups was that there was Q: How has business and leisure traffic robust performance. respective countries, Qantas in May and Air no requirement for business class on the short between Australia and New Zealand been New Zealand in July. domestic routes. Express Class allowed us to impacted by Tasman Express, the revised Q: Why do you think regulators initially focus on customer requirements, which offer trans-Tasman pricing structure? This is a business that is tough, resisted the alliance? passengers value and face-to-face service. A: We fly 1.5 million passengers per year on “and the value that needs to A: Regulators do not understand the speed

Photo courtesy of Air New Zealand of Air Photo courtesy Q: How has lowering fares with Express the trans-Tasman route. This is a reasonable be provided to customers of change in international aviation. This is a Class impacted your finances? figure for us, and it’s one we have seen business that is tough, and the value that A: Express Class has been a significant plat- increase by 15 percent. Again, this is signifi- has risen. needs to be provided to customers has form for our growth in passenger numbers cant. This is a very competitive route for Air ” risen. The new technology, more efficient while also improving our productivity. For New Zealand as there are 13 other carriers fly- Q: What do you believe would have been aircraft, it all costs, but it all benefits the cus- example, our passenger figures have ing the Tasman. We knew business-class cus- the fate of Air New Zealand without the tomer. If we look around the world, many air- increased 40 percent (compounded) since the tomers liked options, so we kept full meals fare restructuring of Express Class and lines are seeking mergers: KLM and Air introduction of Express Class, while during the and newspaper service. While in economy, we Tasman Express? France, Iberia and British Airways, Lufthansa same time Internet sales for domestic tickets offer light meals and beverage service. A: Air New Zealand could not have contin- and European airlines. If first-class aviation has gone from 3 percent to 45 percent. Q: What goals did you have with Tasman ued. We created significant changes to infrastructure is required, it needs to be Further, at the airport we have introduced self- Express? Has the new fare structure improve productivity, and we needed a plat- done through greater scale, such as through check-in kiosks, which are used by up to 50 achieved them? form to remain competitive to new entrants, in mergers and alliances. The last thing the Response to Air New Zealand’s revised fare structure has helped the airline reach new percent of passengers. This is a huge reduc- A: The main goal was to have a model that particular low-cost carriers. industry needs is to become unattractive to heights. As a result of implementing its Express Class, passenger figures increased tion in distribution and staff costs. enabled our operation to run at a low cost but Q: Given the success of the new fare investors because airlines will not be able to 40 percent during the past 14 months. The airline also launched a similar program, Q: What has been the reaction by New was also price competitive. Most airlines usu- structure on domestic and trans-Tasman raise capital to reinvent and meet the needs Tasman Express, on flights between New Zealand and Australia, which led to a Zealanders to the new, low-fare Express ally cut fares without cutting costs, which of routes, why do you still want to form an of the customer. It’s especially important in passenger increase of 15 percent following its introduction. Class domestic service? course means yields will suffer. We made alliance with Qantas? this part of the world, as we need that infra- A: The response has been very positive, structure to survive. which is reflected in our compounded passen- Q: How have you changed your strategy Express Class is a one-class service with A: Express Class has transformed Air New ger numbers — up 40 percent from 14 months for long-haul international flights? excellent customer service and light refresh- Zealand. We’ve found that we have new peo- ago. What we found in focus groups was that A: We are very focused on long-haul flights, ments, usually on flights of 40 to 60 minutes. ple flying as the cost is less prohibitive, which customers were prepared to trade off certain but we do not aim to be all things to all people. Q: How has Express Class impacted busi- includes people flying for business purposes. things for lower fares. For example, as many of Our long-haul fleet is relatively young; it is the ness and leisure travel? We conducted extensive customer focus our domestic routes are just 40 to 60 minutes, configuration — from a passenger’s view — that is out of date. We currently have a tradi- tional configuration and have made a decision Photo courtesy Air New Zealand to upgrade to state-of-the-art configuration — THE HIGH LEVEL including our 747-400s — with lie-flat beds in business class, in-seat entertainment in both News Briefs from Around the Globe business-class and economy-class cabins, and vıew the replacement of our 767-300 fleet. Q: What other changes have you made to Who Why your overall strategy in order to compete sions quickly is more important than effectively in the new airline environment? Qantas Airways, Aeroflot The more powerful calibration tool ever,” said Amr Junaid, systems pro- A: We have very much focused on our peo- Air New Zealand offers more than 470 domestic flights per day, serving 25 New Zealand ple, who were on their knees staring bankrupt- Russian Airlines, AeroMexico provides features such as an ject leader of commercial planning communities. The airline, which operates a total of 89 aircraft, also serves more than 20 cy in the face. Our focus was to improve their and Gulf Air enhanced market-size estimation and network development for Gulf Air. international routes, including London, Tokyo, Honolulu and Los Angeles. The airline is morale in the belief that the company can be What method that improves leg-level fore- “With the new calibration tool offered upgrading its long-haul aircraft to include lie-flat beds and in-seat entertainment. successful because of the people standing behind it. a Upgraded to a new calibration cast accuracy, a utility that enables by the Sabre ® AirFlite ™ suite of plan- tool for the Sabre ® AirFlite ™ Profit users to determine which itineraries ning and scheduling solutions, we Manager designed to enhance in a market will be built, and a utility can reduce the time it takes to gather forecasting of airline passenger that enables users to choose a flight market calibration information and +count it up demand, traffic, revenue and leg and quickly see which inbound concentrate more on analyzing that data and making decisions that allow costs. The tool, a graphical user and outbound connections are valid. 140 Number of passengers who flew on the inaugural Singapore Airlines flight from Los Angeles to Singapore in interface-based add on, streamlines “In today's extremely competi- us to introduce more profitable routes February. The 16-hour flight and its 18-and-a-half-hour return represent the longest scheduled commercial flight in the world the calibration of market information. tive global market, making right deci- and schedules.” a at 7,937 nautical miles. regional

Everything to Gain Estonian Air remained profitable during some of the industry’s lowest points, but the carrier still realizes the need to make major adjustments in order to adapt to a changed marketplace.

By Tim Ricketts | Ascend Contributor

mid a rapidly transforming This year, the carrier plans to add a fifth air- a profit for the third consecutive year. Estonian industry, the past year also craft to its single fleet of Boeing 737-500s. Air, which earned a net profit of €5.2 million marked a period of great change The airline, owned in part by Scandinavian (US$6.6 million) in 2003, more than doubling for Estonian Air. Airlines (49 percent), the Estonian govern- its €2.5 million (US$3.2 million) net result of the ment (34 percent) and Cresco Ltd., an previous year, carried 410,652 passengers for AIn recent months, the national carrier of the year, a 30 percent increase over the previous the Republic of Estonia added four destina- year, and maintained an average load factor of tions, leased an additional aircraft, introduced Our new and considerably lower 59 percent, five points higher than in 2002. a revamped low-fare structure and launched “prices have changed flying to an Erki Urva, president of Estonian Air, an ambitious information technology invest- affordable, down-to-earth mode attributed much of the growth to the airline’s ment program, which have helped the 13-year- new low-fare structure, which was introduced old carrier maintain profitability despite the of traveling for our customers in on all its routes in 2003 and features one-way struggles of the industry. Estonia and abroad alike. fares as low as €45 (US$56) to Hamburg, “Changes in products offered were ” Stockholm, Moscow, Oslo and other similar aimed at responding to changed customer destinations and approximately €65 (US$81) to needs and values,” said Leela Lilleorg, vice Estonian investment bank (17 percent), Frankfurt, Paris and Amsterdam. president commercial for Estonian Air. derives 85 percent of its income from sched- “Our new and considerably lower prices “Finding cost-efficient ways of conducting our uled passenger operations, 6 percent from have changed flying to an affordable, down-to- daily business does give the solid platform to charter operations, 3 percent from cargo and earth mode of traveling for our customers in enable that.” 6 percent from other services. Estonia and abroad alike,” Urva said. In 2003, the airline began service to Even while undergoing dramatic “Estonian Air has proven that an airline can Paris, Oslo, Berlin and Amsterdam, growing changes, Estonian Air grew its passengers car- offer prices comparable with bus, train and its network to 12 destinations in Europe. ried and load factors and managed to carve out ferry fares and still maintain profitable operation Photo courtesy of Estonian Air courtesy of Estonian Photo

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“Estonian Air has proven that an

airline can offer prices comparable Photo by Jennifer Knoeber with bus, train and ferry fares and still maintain profitable operation and development. Aviation in the entire world has changed forever, and Estonian Air has been successfully following these changes.”

and development. Aviation in the entire world has changed forever, and Estonian Air has been successfully following these changes.” To help administer its new fare structure, the airline installed the Sabre ® AirMax ™ Revenue Manager, which features a restriction-free pricing model that enables airlines to forecast demand Estonian Air, founded in 1991 when the country regained its independence after the fall of in a restriction-free the Soviet Union, has positioned itself to take advantage of its home county’s entry into pricing environment the European Union this month. EU membership, which promises to increase passenger and determine the traffic to and from the country, will make it easier for people throughout Europe to travel best fare levels to use to the historic cities of Estonia and experience their old-world charm. for each flight. The installation of the Revenue Manager By revamping its fare structure and is part of the airline’s investing in IT, Estonian Air, headquartered in strategic IT investment the nation’s historic capital city of Tallinn, has program, launched in also prepared itself to take advantage of the first quarter of dynamic changes in its home country. This 2003 in order to help it By revamping its fare structure month, Estonia, located on the Baltic Sea adapt to the new mar- and the Gulf of Finland, bordering Russia and “and investing in IT, Estonian Air, ketplace, which has Latvia, fully enters the European Union, a seen the expansion of headquartered in the nation’s move expected to further boost a robust low-cost carriers and historic capital city of Tallinn, economy built since the country gained the retrenchment of independence following the collapse of the has also prepared itself to take traditional airlines. Soviet Union. The country has also begun Estonian Air realized advantage of dynamic changes preparations to adopt the Euro as its nation- that enhancing its IT in its home country. al currency in 2007. could give it a compet- ” As EU membership will make it easier itive advantage by increasing efficiency, Headquartered in Tallinn, the capital for more people to discover the scenic thereby reducing costs and further of Estonia, Estonian Air serves 12 desti- beauty of Estonia, a country featuring islands, improving profitability. nations in Europe with its fleet of four forests and lakes, the airline expects The airline, looking to improve its Boeing 737-500s (right) and will add its fortunes to continue to improve. The airline reservations and related IT systems as well a fifth 737-500 this year. already anticipates continued passenger as reduce costs, has also implemented the growth this year, adding new routes and increas- SabreSonic ™ passenger solution for reserva- ing frequencies to existing destinations. a tions and departure control functionality, the Sabre ® Aerodynamic Traveler ™ Self-Service Tim Ricketts is the Sabre Airline Solutions Kiosk and the Sabre ® Aerodynamic Traveler ™ account director for Estonian Air. Gate Reader to efficiently process passen- He can be contacted at

gers at the airport. Photo and illustration courtesy of Air Estonia [email protected].

68 ascend ascend 69 company company PUT TING The User Community Working Together to Shape Product Direction

By Dave Roberts, Sanjay Sathe and he contract has been signed, the software solution installed and working, Elayne Vick Being a member of a user community offers several benefits for airlines: and the information technology provider and the airline are celebrating. Now Ascend Contributors By working closely with the IT provider, users can ensure that the product solves real- what? This could be a major crossroads for the relationship with the parties world issues. either going their separate ways or working even more closely together. I T It provides a forum for representatives from airlines of different sizes, from different Ideally, the moment the contract is signed is the beginning — not the end — regions, using different operating models, to provide feedback, making for more robust of the relationship. After the product is installed, an airline can become a A LL systems. Tmember of a larger community of product users, which provides an opportunity for the rela- Members have an opportunity to interact with their peers to learn how they use systems tionship to further grow and prosper. to tackle various challenges. With this goal in mind, an IT provider and its user community should work as a team Working closely with the IT provider enables users to help shape future product direction after implementation to improve and expand the horizon of the software solutions. Through TOGE THER to meet changing industry needs. an active user community, the old adage of two heads being better than one is taken to the The constant flow of information helps improve the usability of the product as well as next level as the members work together to enhance the soft- ensure it contains the necessary functionality to solve industry ware for the common good of the whole. challenges. The user community brings together experts from the IT Communication improves between the provider and the airline’s provider and actual users of the solution to continually exchange The relationship between an airline a product that meets their needs analysts. ideas about the product and how it can best fit the needs of air- Beginning with its first product — the computerized reser- lines. A successful user community should meet regularly to and its IT provider shouldn’t end now and in the future, they can vations system — Sabre Airline Solutions has teamed with its ensure a constant flow of communication. Design meetings, technology users to develop strong user communities that work focus groups and users’ conferences held throughout the year once the contract is signed. By draw upon the expertise of fellow closely together. The model has been copied across the product bring the community together to address specific product and portfolio, customized to fit the unique needs of each community. industry issues. The community also provides an avenue for infor- participating in a user community, professionals to better leverage And, where appropriate, user communities work together across mal discussion among members throughout the year. Having con- product lines to help push integration. stantly improving products and savvy users maximizes the bene- airlines not only ensure they have the products they use. Two user communities — passenger solutions and flight fits of the tools, which is a key to reaping the financial benefits operations — provide ideal examples of the ways airlines can bene- that will help airlines return to, or further increase, profitability. fit from participating in a user community with their IT provider. a

Airline Passenger Solutions FlightOps Community The Original User Community Continues to Set the Pace Meeting the Complex Needs of a Vital Operational Area

or Aldo Borg, head seat control and “We have long been feeling the first decades, the administration of the products nce aviation officials decided to all because airlines worked closely with the them before they take effect. Through vari- distribution for Air Malta, being part of tremors of deregulation and keen competi- has evolved into a well-defined community decrease airway congestion by flight operations product team to prepare for ous organized events throughout the year F a larger community of airlines provides tion especially from the low-cost carriers,” he governance structure and process to ensure O reducing the vertical separation the new government mandate. such as design committees, focus groups reassurance in a turbulent industry. said. “Our joining the user community is facil- the collective priorities of airlines are reflect- between aircraft, airlines realized they would In fact, during a 2001 focus group, air- and users’ conferences, airlines are able to “We’ve been implored to think globally itating us in reviewing our business model ed in product plans. need an enhancement to comply with the lines identified the new RVSM as their top help shape future product generations. and act locally,” he said. “This brings to mind and adapting to a radically different world.” “Having been with Sabre Airline new reduced vertical separation minimum, or product enhancement request, and it was Since the inception of the product our forming part of the Sabre Airline Solutions Formed more then 25 years ago, the Solutions for 10 years and participated in previous RVSM. Well before going into effect, howev- introduced within months, giving airlines suite, both the flight operations team at community. The fact that we form part of user community for Airline Passenger customer-focused events, the new gover- er, the updated RVSM guidelines were incor- plenty of time to update their procedures Sabre Airline Solutions and system users some 100 airlines gives me, at least, the Solutions includes representatives from more nance process is an improvement,” said porated into Sabre Airline Solutions’ flight before the new rules were in place. have realized the value of working together. strong feeling of being part of a big, large than 100 airlines from 23 countries around Monica Ornellas, director of information tech- operations suite of products. Members of the Such cooperation between airlines and For more than seven years, the flight opera- group of airlines. We interact quite frequently the world who help define product strategy nology at Hawaiian Airlines. “Events are flight operations community were able to the flight operations product team ensures tions user community has benefited from a also among airlines of the same region for the for the reservations, inventory and departure successfully comply with the revised RVSM that products stay ahead of the curve, antici- benefit of the community. control systems. During the past three continued on page 72 on time and with a reliable tracking program — pating industry changes and incorporating continued on page 73

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continued from page 70 name record, the reservations system created Putting ITAllTogether continued from page 71 a new PNR in the host partition rather than scheduled in advance allowing us to plan inserting the new itinerary in the original PNR. symbiotic relationship. Sabre Airline Solutions ahead and increase our number of partici- Because of that, the airline did not have all relies on product users to validate the func- pants. Events are structured and focused to the information contained in the original PNR. tionality of the product and its adaptability to Photo by Elayne Vick

address both global and regional challenges. Cyprus Airways recommended an Sabre Airline Solutions the changing environment. The product users | FlightOpsCommunity

And, whenever possible, processes have enhancement that would eliminate this situa- | Airline Passenger Solutions in turn rely on Sabre Airline Solutions to pro- been made available to us online, making par- tion and avoid the auto-cancellation of these vide the technical expertise to develop lead- ticipation convenient.” records as not ticketed. After a vote by the ing solutions to make their jobs easier. The guiding principles of the Airline Airline Passenger Solutions community, the “User group meetings have enabled Passenger Solutions community governance enhancement was included in the 2004 prod- our airline to preview new functionality place a strong emphasis on airline involve- uct plan. before it’s finalized in the product,” said Tom

ment and input by: Throughout the year, airlines come Putting IT All Together Powell, manager of operations control at Gulf Involving them in defining and setting together at various events to help provide Attendees at a recent Airline Passenger Air. “We are able to make recommendations product priorities, recommendations about product direction and Solutions users’ event enjoyed an at that point that will make the product more Incorporating their deep industry knowl- discuss ways to better utilize the products. evening of socializing at the Lone Star efficient and usable. In addition, as a group, edge and expertise, Four primary forums facilitate collaboration Park horse track in Grand Prairie, Texas. we must agree on the direction of the prod- Ensuring regional needs are met through among members of the user community: ucts by establishing priorities for develop- leadership of local airlines, Customer conferences — A forum for air- ment. The group participation has proved Leveraging a shared-systems environment. lines and the Airline Passenger Solutions Online conferences conducted four times very beneficial to us in terms of operational By helping shape the future product team to discuss product plans and industry a year to keep members of the community efficiency and cost reduction.” direction, the members of the user community needs, gather input from airlines about updated about quarterly enhancements. The interaction across the user com- play a vital role in making sure products con- their product and service needs, conduct Product working groups — Community munity leads to direct improvements in the tinually evolve to meet their changing needs. roundtable discussions about industry meetings designed to discuss existing and product. Input from a focus group led to the During the annual flight operations users’ conference in Dallas, Texas, last year, eight Last year, Cyprus Airways had an idea trends, hold interactive product demonstra- proposed functionality in detail, share and implementation of a safety feature in the attendees won a drawing in which they received an aerial tour of Dallas aboard a vin- for a way to improve the reservations system. tions, and interact with representatives identify requirements for new and Sabre ® AirOps ™ Movement Manager that tage WWII-era DC-3. More than 80 representatives from more than 35 airlines around The airline noted that when a travel agent from other airlines. enhanced functionality, review designs for helped curtail inadvertent disruptions in oper- the world attended the seventh annual event. rebooks an itinerary on a canceled passenger Reservations review net conferences — upcoming enhancements or new develop- ations. The introduction of the concept ment, and conduct product demonstrations. of authorization created user access levels Advisory board — A leadership meeting to such as “no access,” “read only” and everyone would benefit by pooling ideas community reviews pertinent and relevant discuss and review strategic product direc- “read/write,” which ensured that only desig- and experiences. trends in the industry that are of interest to tion and set regional priorities. During the nated users could change specific data. As the product suite grew, additional the entire group. This time together enables annual gathering, the 12 airline members, product-specific user groups, or focus groups airlines to exchange information and ideas representing all regions, discuss product Evolution of the Flight as they are known today, were formed at the among the many attendees that represent

Sabre Airline Solutions Sabre Airline and service strategies. Operations User Community request of airlines. These various groups other airlines, different geographic locales “As a part of the Airline Passenger The original flight operations user communi- began to meet concurrently at a single, pre- and different products. Solutions community, Jet Airways is able to ty was formed when it became clear that selected location, an event that has grown to The number of attendees at focus interact with other airlines and understand much could be gained by working together become the annual flight operations and groups and users’ conferences has grown from how various products have been deployed in to determine the direction the product crew management users’ conference. seven or eight in the beginning to more than global markets with different practices,” said should take, and users and the flight During the flight operations and Gaurang Shetty, vice president of marketing operations product team soon realized that crew management users’ conference, the continued on page 75 for Jet Airways. “It also provides a forum for airlines to discuss industry problems that are similar in nature across markets and seek solutions from Airline Passenger Solutions in THE HIGH LEVEL a cost-effective manner.” Keith Smith, vice president of IT services News Briefs from Around the Globe for Air Jamaica, also said the user community vıew provides an excellent forum for his airline to Who Why help shape future product direction. functions. The engagement will “As a hosted customer, it is important EgyptAir Consultants from Sabre Airline focus on improving the effectiveness for Air Jamaica to have some influence over What the direction, technology choices and application Solutions will work with the of the carrier’s network planning Sabre Airline Solutions employees demonstrate the Sabre ® eMergo ® Web-enabled and enhancements,” he said. “We do this in a Signed a consulting agreement airline to improve financial and and scheduling; pricing and dedicated network solutions during a regional planning session in Bangkok, Thailand, few ways, all of which we have found bene- to help enhance its business perfor- business performance through revenue management; and last year. Delegates from eight Asia/Pacific carriers attended. Similar events were held ficial to us such as regular involvement in the for the Americas and Europe/Middle East/Africa. mance and develop management hands-on tactical changes and sales, marketing and distribution continued on page 74 expertise in key areas. improvement in core commercial processes. a

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continued from page 72 that includes tips on how to more efficiently opment groups. The product plan is compiled Putting ITAllTogether continued from page 73 Through joint meetings, community use passenger solutions, answers to fre- throughout the year and submitted to all air- members share their needs and agree on a quarterly net conferences, attendance and quently asked questions, updates on product lines in the user community in June for their 100 at the users’ conferences. At present, priority system to direct the annual develop- participation in the regional planning work- development, the latest information on input. Airlines then vote on their top product- Sabre Airline Solutions has focus groups ment of the product, helping determine how shops, and participation in the global advisory upcoming events and training classes, and enhancement priorities. representing flight planning and dispatch, best to direct investment dollars. board. This level of participation helps to discussion of industry issues. Voting on the product plan is conclud- movement control, and crew management. During the past several years, the Photo by Elayne Vick | FlightOpsCommunity

improve our perception of the organization The key to a successful product devel- ed by July, and regional meetings are held | Airline Passenger Solutions Because the focus groups, chaired by elected focus groups have taken on different shapes and its ability to both meet our long-term opment community is a collaborative process thereafter. The projects with the most votes airline representatives, are designed to be and appearances to accommodate different needs and resolve our immediate concerns that results in clear, relevant product direc- are considered global needs and become top administered by the airline user community, a industry and user needs. Today, in addition to when they occur.” tion. By gaining access to innovation and priorities in the product plan. All other pro- formal charter has been developed to outline the users’ conference, many of the focus Outside of these meetings, members thought-leadership from airlines around the jects receiving votes are divided by regions, the flight operations group procedures. The groups meet at least twice a year and are of the user community have several commu- world, and by spreading the cost of enhance- and the regional meetings — for Asia/Pacific; focus group charter describes its specific attended by the majority of airline users that

nications opportunities. The customer sup- ment across the community, each airline Europe, Middle East and Africa; North America; Putting IT All Together objectives and goals: participate in the maintenance program. port Web site provides 24-hour-a-day, seven- secures innovative, industry-leading capabili- and Latin America and the Caribbean — “The users’ group exists to enhance “The focus group concept provides an day-a-week access to: ties at reduced costs. establish local priorities that will be funded the performance of the (flight operations opportunity, as part of the wider flight plan- Seven members of the flight operations Product information, Customer participation is key in the regionally. Each region has 10 percent of the products) and provide a means for communi- ning user community, to be able to influence steering committee led an interactive Product plans, annual product planning process, which has overall budget to spend on local projects. cating product functionality within the indus- the strategic direction and development of discussion during the users’ conference. Overviews of upcoming enhancements, been in place for more than six years. Product A final list of global and regional pro- try. Through this formal organization, the the (Sabre ® AirOps ™) Dispatch Manager,” Enhancement rollout schedule, plans are created annually for all of the core jects is presented to the governing advisory product development process will receive said David Forbes-Dawson, flight dispatch Documentation, applications within Airline Passenger board for its approval. The final global and vital input from all members. The objective of manager for Air New Zealand, who has been The goal of the user community — to Information about upcoming and past Solutions to guide investments for the com- regional product plan is completed and dis- the group is to steer the product develop- a member of the flight planning focus group meet the needs of airlines — has been events and supporting materials, ing year. The product plan is evaluated each tributed to customers in early December. ment to meet the needs of the industry.” since its inception. “Also, it's a great opportu- achieved through the exchange of industry Training information and curricula, year through an iterative process of discus- Product plan progress is reviewed through- nity to network with other Dispatch Manager information and the sharing of ideas to Help desk, sions and reviewed with customers at both out the year at several community forums. users sharing ideas, problems and solutions.” expand each product. Because aircraft and Electronic submission and review the global and regional levels. In addition to the product plan, there Complementing the focus groups, associated technology change rapidly, gov- of service requests, Airline Passenger Solutions gathers are opportunities to pursue private or joint design committees are newly formed groups ernment flight regulations change rapidly Resolutions guide, information for the product plan from multiple development. Because many carriers want to that meet quarterly to review Sabre Airline also. To remain legal, airlines must adhere Frequently asked questions. sources including direct input from the user pursue products and services to differentiate Solutions’ integration of its flight operations to these regulations or face grounding

Members of the user community also community, data on product issues received themselves, they can initiate private develop- Photo by Roland Hollis products into a common database and look and by government inspectors. The flight opera- receive The Airline Passenger Solutions by the help desk, and feedback from Sabre ment or joint development on an exclusive or feel for system operations control centers. tions user community shares this information Insider, a bimonthly electronic newsletter Airline Solutions account directors and devel- non-exclusive basis. These quarterly meetings are held in person and works with Sabre Airline Solutions to The community continues to grow and or via an Internet-based conference. During ensure software modifications are timely evolve, and recent improvements include these meetings, users make recommenda- and accurate. a online submission of new ideas, weighted tions about the direction of the next generation voting for carriers based on carrier size and of flight operations solutions and provide feed- regional planning sessions. back about the integration effort. Dave Roberts is director of flight opera- Based on airline feedback, there will be One of the most critical functional areas tions, and Elayne Vick is a marketing

Sabre Airline Solutions Sabre Airline two rounds of regional planning sessions this During the users’ conference, partici- of an airline, flight operations plays a key role advisor for Sabre Airline Solutions. year in place of an annual global users’ con- pants enjoyed an evening social event in making sure flights remain as close to sched- They can be contacted at ference. Although the objectives and agenda at a local flight museum. ule as possible, in compliance with legal and [email protected] and are similar to that of the users’ conference, contractual obligations, and safe for departure. [email protected]. the planning sessions enable airlines to work more closely with other carriers in their region to prioritize region-specific product needs. The user community enables the THE HIGH LEVEL customers’ voice to be heard, ensuring that products are customer-driven and meet the News Briefs from Around the Globe needs of a dynamic market. a vıew Who airline’s operations personnel readily operations manager for duo Airways. duo Airways monitor the status of flights in “All too often software packages fail What line with business and regulator to deliver against expectations. The requirements. FliteTrac system is an exception Representatives from various airlines team up to try to solve the mystery presented Sanjay Sathe is Airline Passenger Installed the Sabre ® FliteTrac system to this industry norm — not only at the Mystery Dinner Theater in the Dallas, Texas, area. The trip to the dinner Solutions’ director marketing strategy and to facilitate the airline’s business and Why theater was a nice change of pace from the productive users’ community meetings product governance at Sabre Airline does it deliver what we wanted, it held earlier that day. Solutions. He can be contacted at regulatory requirements for monitor- “We are extremely impressed with does more.” a [email protected]. ing flight status, which will help the this product,” said Richard King,

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Channel Surfing

A global distribution system can play a key role in an airline’s Photo courtesy of Delta Air Lines cost-effective recovery by providing access to multiple channels of distribution throughout the world.

By Jason Toothman | Ascend Contributor

s airlines look to take advantage of the Today, successful airlines rely on a full worldwide, with travelers in more than 115 recovering economy and the increases suite of distribution products, from basic countries purchasing their travel through the A in demand for travel, it’s crucial that reservations to the latest and most technolog- system during the past year. The system, they maximize sales opportunities, especially ically advanced connectivity systems, as well relied on by more than 430 airlines to distrib- for high-yield passengers. as revenue maximization and cost manage- ute pricing and product, is used by more trav- Airlines can capitalize on the economic ment tools. el service professionals and consumers for upturn by increasing their reach real-time schedules and other trav- and driving their sales and el-related information than any marketing efforts. By doing other GDS. so, they expose consumers to The market share leader in their product and enable them to North America (45 percent), Latin interact in real time, effectively America (53 percent) and Delta Air Lines, which is participating in the Direct Connect Availability — Three-Year Option, a program that lowers booking fees in positioning their product at the Asia/Pacific (52 percent), the exchange for access to all fares, finds value in a global distribution system’s operating efficiencies as a high-yield channel. A GDS, by providing point of sale. Sabre system provides many distri- access to travel agents around the world, can also provide tools to help manage costs, boost customer loyalty and achieve sales goals. One of the most effective bution options including: ways of accomplishing these Direct Connect Availability — goals is by offering the product Maximizes sales and yields through a global distribution sys- through interactive reserva- tem that provides access to trav- tions between the GDS and THE HIGH LEVEL el agencies worldwide. Studies airlines, enabling seamless, have shown that the travel real-time access to inventory, News Briefs from Around the Globe agency channel continues to pro- Basic Booking Request — vıew duce travelers who generate the Enables carriers with limited most revenue for airlines. By distribution needs to achieve expanding reach and marketabili- Thousands of travel agents worldwide rely on the Sabre global extended market reach with a Who Awards+Plus members with greater cus- Through the ASP delivery ty, an airline can maintain a com- distribution system to book travelers on airlines. Being included low-frills tool that automates Pakistan International Airlines tomer service than we could previously,” method, PIA eliminates the need petitive advantage. Beyond pro- in such systems can help airlines increase their market reach. booking and scheduling, said Alamzeb Afridi, general manager, for costly onsite implementation. viding a suite of revenue-generat- Claim It — Enables subscribers What ing and cost-saving products and services, Carriers of all sizes, competing in all to drive down client handling costs by pro- marketing support systems for PIA. “The Traverse system's ASP Enhanced its Awards+Plus frequent partnering with a leading GDS helps deliver markets and geographic locations, have recog- cessing an airline-created booking without “The partner profile and management interface relieves us of the burden of flyer program with the Sabre ® sales where an airline cannot afford to provide nized the tremendous sales opportunities having to call the airline directly, aspects of the system enable us to add maintaining a costly infrastructure to its own staff as well as provide access and vis- gained by utilizing multiple distribution outlets. Electronic Ticketing — Generates substan- Traverse ™ loyalty management sys- ibility to key travel service providers. A GDS that reaches many different channels tial savings and customer convenience by new partners and functionality to the support our loyalty program,” Afridi tem. PIA utilizes the Traverse system “Distributing through the Sabre ® global such as full-service corporate, online travel providing computerized storage of passen- Awards+Plus program, increasing the continued. “Now we can maintain our as a Sabre ® eMergo ® Web-enabled distribution system has allowed HMY Airways agencies, leisure specialists, general travel gers’ entitlements to travel, enabling the benefits and value of the program for entire program online. This type of to extend our distribution reach by gaining arrangers, wholesalers and consolidators, sup- airline to dispense with the costly manage- and dedicated network solution, an access to nearly 60,000 connected travel plier portals, cruise and tour companies, and ment of paper ticket documents. our members. In addition, the Traverse automation is critical for PIA in our applications service provider model. agents,” said Jeffery Chu, vice president of consortium operators increases an airline’s The Sabre system provides many system provides greater efficiency for key international cities. Accessing strategy and planning for HMY Airways, one of sales and marketing opportunities allowing it products to reduce costs and increase efficien- Why our agents in terms of time required for these capabilities via the Web helps 40 airlines around the world that signed new to take advantage of multiple revenue streams. cies within other critical areas of an airline participating agreements for the Sabre sys- Participating in the Sabre system such as alliance management. The Sabre ® “With the addition of the Traverse processing member information and us better perform in today's highly tem in the past year. provides access to 60,000 travel agencies Alliance Manager is designed to help airlines system, we will be able to provide the ability to perform other duties.” competitive airline industry.” a

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Talking Technology With BARRY SMITH, CHIEF SCIENTIST, SABRE HOLDINGS

Photo courtesy HMY Airways HMY Photo courtesy The Continuing Evolution of Revenue Management

Despite the latest advancements, the practice of revenue management is far from mature. Recent breakthroughs show that using customer choice models will further improve the field of revenue management.

uring the past 30 years, we’ve seen and seats sold. This indicates what customers forecasts at the market level are more accu- revenue management evolve with purchased, but not what they actually wanted. rate than those made at the individual itinerary D changing airline business opportuni- Estimating spilled demand, recapture and up- fare level and customer preferences are rela- ties from overbooking to discount allocations sell are examples of inferring what customers tively stable. HMY Airways, a Vancouver, Canada-based international airline founded in 2002, recently decided to distribute its inventory through the to origin and destination control and beyond. wanted. But these tend to be used to modify Garrett van Ryzin, a professor of private Sabre global distribution system to extend its distribution reach to nearly 60,000 travel agents worldwide. HMY, which stands for “harmo- I’ve heard from some airlines a belief that our booking-based view of the market and enterprise at Columbia University in New York ny,” operates scheduled flights from Vancouver to Toronto, Los Angeles and Las Vegas as well as charter flights to vacation destinations in O&D is the ultimate approach to revenue man- don’t provide much insight into the underlying City, New York, and Kalyan Talluri, a professor Cancun, Puerto Vallarta and Mazatlan in Mexico with its fleet of Boeing 757 aircraft. agement and that there are no significant ben- demand in a market. Ideally, we’d like to know of economics and business at the Universitat efits beyond current state-of-the-art systems. I customer preferences for price, product quali- Pompeu Fabra in Barcelona, Spain, have believe we are about to enter a new era of rev- ty, screen placement and promotion. These developed an approach to incorporating cus- leverage marketing agreements within the controlling costs will remain a primary focus. fixed for three years in exchange for providing enue management that takes advantage of preferences are the foundation for customer tomer preferences directly into revenue man- distribution channel. To help control distribution costs and provide access to all fares including Web and promo- new customer data choice models that agement forecasting and optimization models The Sabre system, which provides stable, long-term pricing, many airlines took tional fares. and modeling. While tell us the relative and have shown significant theoretical bene- the most comprehensive content with avail- “The program … allows us to further current revenue man- I believe we are about to enter demand for any product fits. I believe that these models will be in pro- ability to more than 1 million city pairs, has reduce distribution costs and reflects our con- agement systems “a new era of revenue management (itinerary/fare combi- duction use in the next several years. The program … allows us to fur- recently been enhanced to include additional fidence in the value of the Sabre system and provide significant that takes advantage of new nation) in a market. Why haven’t we done this before? functionality: “ther reduce distribution costs and its operating efficiencies as a high-yield chan- benefits, future rev- Customer choice Collecting data to observe customer shopping customer data and modeling. Interactive Air — Enables the fastest book- reflects our confidence in the value nel,” said Lee Macenczak, vice president sales enue management models simplify the behavior has been very difficult in the past. In ing process between airlines, and distribution for Delta Air Lines. a systems and the busi- ” forecasting process particular, we need to know what people Inventory Manager — Efficiently processes of the Sabre system and its ness processes they by linking together asked for, what options they saw and what high-value shopping and reduces data pro- operating efficiencies support can become significantly simpler and the demand for the products in a market. they did. Access to this data has been difficult cessing costs, ” more productive by shifting our focus more Today, we track bookings and forecast due to the volume of transactions and the Group Management Tool — Automates the Jason Toothman is a senior marketing toward the customer. demand for individual itineraries and classes impact of the required data collectors on the manual process for booking groups and advantage of the Sabre ® Direct Connect analyst in airline distribution at Sabre separately. Every forecast must be adjusted to performance of reservations systems. This blocks of inventory. Availability SM — Three-Year Option in 2003, Travel Network. He can be contacted at A Customer Focus reflect demand changes at the market level type of data is more accessible from online As airlines continue their recovery, which offers a reduced booking fee rate that is [email protected] The development of revenue management caused by schedule, price or availability. This is sources including online travel agencies, air- has provided incremental benefits to airlines not only complex but can easily introduce line Web sites and next-generation shopping by controlling seat inventory at finer levels of inconsistencies in forecasts and controls. By platforms such as Sabre Airline Solutions’ detail. Because revenue management sys- forecasting at the market level and mapping to SabreSonic ™ Shop. In addition to the detailed +count it up tems are focused on inventory, the increase in the individual product, we ensure consistency. shopping data, we can also observe overall control granularity has caused revenue man- These forecasts automatically incorporate the shopping performance. The labs group sup- agement systems to become more complex impacts of schedule, price and availability. So porting Sabre Airline Solutions is developing 40 billion Number of U.S. 19,971 Number of flight plans 50,000+ Number of cockpit and more challenging to monitor and control. the effect of closing or opening a fare class on reports to answer questions such as, “How ® ™ dollars paid annually by airlines to generated per day in the Sabre AirOps and cabin crewmembers around the Let me explain how a customer view can help. one flight can be reflected in the demand and often do I show up on low-fare search airport and air navigation service Dispatch Manager and the Sabre ® Flight world who are managed by the Sabre ® Airline revenue management is based inventory controls for other related flights. engines?” or “How often do I have the best providers, according to IATA. Operating System. AirCrews ® crew management system. on the analysis and forecasts of reservations Forecasting accuracy also improves because service or lowest fare in the market?”

ascend 79 company Talking Technology With | BARRY SMITH, CHIEF SCIENTIST, SABRE HOLDINGS making Simplifying Systems accumulated change in bookings or availabil- office and Web site sales by selling toward contact Incorporating customer data can simplify sys- ity. In this way the processing and updates profit. For example, suppose we have a tems as well as the models used to forecast. are directed to flights and situations that request that can be satisfied by one of two The overall design and flow of revenue man- provide an opportunity for revenue improve- flights. While both flights are wide open and all To suggest a topic for a possible future agement systems have not changed signifi- ment rather than an arbitrary calendar. We fares are available, one has a higher likelihood article, change your address or add some- cantly in the past 20 years. We collect data know that more frequent forecasting and re- of eventually selling out; it now has a higher smart one’s name to the mailing list, please send from the reservations system in the off-peak optimization significantly improves revenue bid price. The net profit associated with any an e-mail message to the Ascend staff at times and then race to complete database management performance. In this frame- sale is the fare minus the bid price. If an early- [email protected]. updates, forecasting, optimization and report- work, real-time monitoring and optimization booking customer is indifferent, then we can ing processes before the revenue manage- become practical. increase profit by displaying the flights in a solutions. For more information about products and services featured in this issue of Ascend,

ment staff arrives the next morning. This way that encourages booking the flight with an affiliate of Sabre Holdings Corporation. ©2004 Sabre Inc. All rights reserved. tends to drive hardware requirements for this Other Benefits the lower bid price. please visit our Web site at www.sabreairli- off-line processing and limits the collection Having a customer view will not only improve The objective of revenue management nesolutions.com or contact one of the and modeling to specified reading days. revenue management performance, it has sig- is typically to adjust price to match demand to following Sabre Airline Solutions regional Tracking customer shopping involves a lot nificant benefits in related marketing functions supply of seats. Revenue management fore- Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service marks of representatives: of data. Fortunately, forecasting and optimization of pricing, scheduling and distribution. casts can also be used to help match supply to models don’t need all the details, only the Revenue management and inventory demand in two ways. First, revenue manage- Asia/Pacific customer preferences. Customer preferences are control were developed to micromanage a rel- ment forecasts and optimization are integrated Chris Vasiliou relatively stable and don’t need to be recali- atively static pricing structure to match with the schedule planning process in the Senior Vice President Level 9, Phillips Building brated every day. So, customer shopping cali- demand to supply. Customer choice models origin and destination version of the Sabre ® 15 Blue Street bration does not need to run the daily processing can help markets that are inefficiently or incon- AirFlite ™ Fleet Manager. This ensures that loop. This, combined with the elimination of sistently priced. Talluri has done some ground- capacity is assigned where it is most prof- North Sydney NSW 2060 the bottom-up detailed forecasting, allows us breaking work to demonstrate how to use cus- itable. Second, revenue management fore- Australia to consider several areas of simplification: tomer preferences to design the right mix of casts and optimization can help by making Phone: 61 2 8923 5230 We can reduce data storage. Revenue man- products in your markets. While Talluri’s work changes in aircraft assignments late in the E-mail: [email protected] agement systems store data associated helps capture the opportunities with a static booking process. Because demand forecasts with inventory controls and bookings. In an pricing structure, unfortunately there is no sin- get more accurate closer to departure, this Europe, Middle East and Africa inventory-based view, we need to summa- gle right answer to airline pricing. The best approach, typically known as demand-driven Vinay Dube rize booking activity by flight and reading price for any request depends on who is ask- dispatch, has been shown by Boeing at the Vice President date. As forecasts are made at finer levels ing, what they are asking for and what the Massachusetts Institute of Technology to 23-59 Staines Road of detail, booking and cancellation events other options available are. Airline pricing is increase airline profitability by up to 5 percent. Somerville House become less frequent and the storage riddled with inconsistencies such as non-stops There is academic research underway to build Hounslow, Middlesex requirements increase. Storing the summa- priced lower than competitor connections and schedules that include many swap opportunities. TW3 3HE, United Kingdom rized data now requires significantly more connecting service priced higher than your What makes a solution “smart”? Patented algorithms? Phone: 44 20 8814 4540 E-mail: [email protected] space than storing the details (actual reser- own non-stops. These inconsistencies cannot The Future of Revenue Management Intuitive interfaces? Open-systems architecture? vations). While we may need the summa- be avoided with a static fare structure. The Revenue management has provided increas- rized data for reporting and monitoring, it is solution is dynamic pricing. Given a shopping ing benefits through various stages of devel- Absolutely. But what’s really smart are solutions that North America not necessary for customer-based forecast- request, we estimate the likelihood of selling opment during the past 30 years. Today’s sys- help you overcome your challenges and deliver results. Greg Gilchrist ing and optimization models. any product shown to an agent or customer tems and business processes are the most Senior Vice President 1 E. Kirkwood Blvd. We can target revenue management pro- and adjust dynamically priceable fares to effective ever. But, rather than thinking we are By working closely with carriers worldwide, we’ve cessing to where it is most valuable. Since increase expected profitability. If this approach nearing the end of the revenue management Southlake, Texas 76092 we only need booking information, we can is implemented in conjunction with the revenue evolution, I believe that we have reached the developed a portfolio of flexible, integrated solutions United States reduce the cost and improve performance management system to avoid displacement, mid-point of its development. The next steps that can optimize operations for all airlines — any size, Phone: 817 264 7947 by feeding data to the revenue management then any adjustment can provide incremental will take us in the direction of business and any business model, anywhere in the world. E-mail: [email protected] system as events occur (booking, cancella- profitability. Dynamic pricing does not yet technical sophistication rather than complexity. tion, price change, availability change) exist, but we are working hard to make this With revenue management processes based Latin America through a publish/subscribe framework. a reality. on the customer preferences, future revenue Learn how we can work together to create smart Marcela Lizárraga Forecasts and optimization models can be Customer choice information can also management organizations and systems can solutions for your airline. Call us at 682 605 1000. Vice President triggered by events or rules associated with improve the performance of reservations be much simpler and more effective. a Or visit www.sabreairlinesolutions.com. 1 E. Kirkwood Blvd. Southlake, Texas 76092 United States Phone: 817 264 6967 +count it up 30,000+ Number of 45,000+ Number of E-mail: [email protected] crewmembers who have their crewmembers worldwide whose smart. proven. bankable. schedules generated through the pairings are generated using the Sabre ® AirCrews ® Schedule Optimizer. Sabre ® AirCrews ® Pairing Optimizer.