A MAGAZINE FOR AIRLINE EXECUTIVES 2004 Issue No. 2 T a k i n g y o u r a i r l i n e t o n e w h e i g h t s AN ALLIED FRON T A conversation with … Geoff Dixon, CEO, Qantas Airways INSID E Air France and KLM form 4 Europe’s Largest Airline 18 The Evolution of Alliances A Conversation with oneworld, SkyTeam 26 and Star Alliance © 2009 Sabre Inc. All rights reserved. [email protected] company company tainly present a challenge for an industry so the smooth flow of passengers between significant impact on airline profitability. affected by the volatility of the global econo- alliance partners. Because airline planning is often a matter of my. But, by developing new practices in the Competitive positioning for an airline seeking profitability, shifts in demand should Aligning the Alliance untapped areas of planning and scheduling, generally involves assigning resources to mar- affect the relative attractiveness of markets revenue management, passenger service, and kets to maximize expected profit. Each carrier and change individual airline plans. Timetable operations, airlines can further take advantage in the alliance has the same objective and con- coordination helps maximize the benefits of of alliance membership. straints. Without accurately accounting for the demand share shift created by the alliance. By more tightly aligning their operations in areas such as planning and alliance traffic, an individual airline could allo- Relatively small changes in the timetables of scheduling, revenue management, and passenger service and operations, Planning and Scheduling cate an aircraft with insufficient capacity, all alliance carriers will increase the quality of individual members of an airline alliance can further cut costs as well as To be most effective in schedule planning, air- thereby generating passenger spill in a given alliance service. On a more subtle level, this line alliance partners should have a common O&D market that could be competitively coordination can also maximize the portion of realize additional incremental revenue. view of: served by the alliance. Alliance membership traffic retained in the alliance when demand Alliance objectives, creates a new variable — how significantly exceeds capacity. This requires an O&D view Market size, should a given airline’s market position be of passenger spill and recapture. By Michael Clarke and Abdoul Sylla | Ascend Contributors Passenger preferences, modified to take advantage of alliance demand Schedule coordination within the Revenues, and revenue opportunities? alliance results in potential demand increase. n recent years, global alliances have Yet, there is still plenty of work left to be The foundation for some of the coming Operating costs. Alliances also should coordinate fleet assign- I evolved from simple marketing partner- done before airlines reap the full benefits of changes is already in place. With schedule Since individual airlines are not likely to ments to ensure that capacity is in place to ships to more integrated entities striving to alliance membership. Although necessary coordination, codesharing and joint pricing, relinquish control of planning and scheduling Without accurately accounting accommodate this demand. achieve operational synergies as well as mutu- technologies already exist, airlines have been alliance members have begun the process of to a centralized alliance group in the near The fleet assignment process for each “for alliance traffic, an individual al cost reduction. hesitant to take this final step toward full inte- integrating their operations. But there remain future, each airline must be capable of com- partner, or for the alliance, must be sensitive Already, alliances have helped their gration of planning and scheduling operations, several untapped areas for future growth, municating key information to fellow alliance airline could allocate an aircraft to the flow of passengers within each airline member airlines generate additional revenue, in part because of the potential for unexpect- including greater coordination of airline plan- members during the planning process. By opti- with insufficient capacity, there- and alliance network. This requires that control costs and deliver incremental value for ed changes in the alliance composition and ning, marketing and operations. By establish- mizing the alliance’s scheduling processes, demand and revenue forecasts used in fleet by generating passenger spill in a their customers. Individual airlines are begin- prevailing competitiveness between partner ing new business practices that maximize the partner airlines can effectively coordinate their assignment consider the flow of traffic across ning to realize the economies of scale offered carriers for high-end passengers. Secondly, interests of each airline, the interests of the timetables and take advantage of alliance mar- given O&D market that could multiple partners. It also requires that the by membership in one of the main global some aspects of schedule coordination are alliance are also advanced. In such situations, ket presence and the resulting market share be competitively served by the capacity optimization process is also sensitive alliances — facility sharing at key airports, restricted by regulatory constraints as well as an airline’s individual agenda has to be aligned shift it creates. to this O&D flow. alliance. common information technology systems, and established contractual work rules. with that of the global alliance. By doing so, Doing so involves the alliance compet- ” common data repositories and joint purchas- As the global alliances continue to each member airline is better off due to its itive position (rather than airline competitive Revenue Management ing programs. Alliances also provide key cus- develop, each member airline faces the chal- cooperation with other partners, and the position) in origin-destination markets in By maximizing the flow of revenue through tomer service benefits such as an increased lenge of making the necessary cultural evolu- alliance is enhanced due to the participation of terms of service frequency, quality and The potential impact can be a 1 percent the network, alliances boost the income of network, seamless travel through tools such tion and business process transition that will every member. timetable coordination to ensure that the to 2 percent increase in market share for a individual members. The revenue manage- as interline electronic ticketing, and shared fre- ensure the success of alliances’ combined The new business practices should alliance provides quality online service. It given O&D market. A demand increase of 1 ment process is complex for an airline alone, quent flyer benefits and lounges. operations. encourage long-term relationships, which cer- also involves capacity allocation to ensure percent across multiple markets can have a much less for an alliance. But, in essence, THE HIGH LEVEL THE HIGH LEVEL vıew News Briefs from Around the Globe vıew News Briefs from Around the Globe Who negotiated fare contracts. Why Who analysis and flexibility. In addition, Randy Laser, vice president Sabre Travel Network With the automated solution, “We are committed to providing Aloha Airlines the airline has implemented the for Aloha Airlines. “We gain airlines file published fares and rules quality fare information, enhancing ® ™ What What Sabre PC AirFlite flight scheduling performance-enhancing capa- via Airline Tariff Publishing Company efficiency and guaranteeing fares that Will utilize the Sabre ® AirMax ® system to improve the carrier’s air- bilities without having to resort Released enhanced capabilities for the using the Category 25 fare by rule are auto-priced and auto-ticketed in Revenue Management Suite and the craft utilization. to costly infrastructure upgrades. Sabre ® Air Pricing suite that fully process to attach corporate discount the Sabre GDS,” said John Stow, Sabre ® AirPrice ™ fares management By choosing the eMergo delivery automate fare by rule capability. The formulas and client-specific fare rules president of Sabre Travel Network. system through Sabre ® eMergo ® Web Why model, we avoid major upfront global solution for Category 25 pro- to the fares they file. The Sabre® global “This development allows more access, an applications service “These products will enable Aloha costs and better position vides airlines the ability to automati- distribution system then accepts the accurate and quicker filings, decreasing provider delivery method, to leverage to grow, streamline our operations ourselves to focus resources cally accept and process discounted ATPCO Fare by Rule feeds, automati- the agent workload and the presence an integrated solution for pricing and compete effectively,” said on our core operations.” a fares and further simplifies complicated cally calculating the appropriate fare. of human error.” a company company tainly present a challenge for an industry so the smooth flow of passengers between significant impact on airline profitability. affected by the volatility of the global econo- alliance partners. Because airline planning is often a matter of my. But, by developing new practices in the Competitive positioning for an airline seeking profitability, shifts in demand should Aligning the Alliance untapped areas of planning and scheduling, generally involves assigning resources to mar- affect the relative attractiveness of markets revenue management, passenger service, and kets to maximize expected profit. Each carrier