the transformer a conversation with … w.douglasparker ...€¦ · the transformer a conversation...

2005 Issue No. 2A MAGAZINE FOR AIRLINE EXECUTIVES

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

Gulf Air’s in-flight servicewins top awards

SAS restructures to better compete

Jet Airways becomes an international carrier

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I N S I D E

T H E T R A N S F O R M E RA conversation with …

W.Douglas Parker,Chairman,President and CEO,US Airwayspage 44

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smart. proven. bankable.

makingcontactTo suggest a topic for a possible future article, change your address or add someone to the mailing list, pleasesend an e-mail message to the Ascendstaff at [email protected].

For more information about products and services featured in this issue of Ascend, please visit our Web site at www.sabreairlinesolutions.com or contact one of the following Sabre Airline Solutions regionalrepresentatives:

Asia/PacificAndrew PowellVice PresidentLevel No. 05-05Technopark Block 750EChai Chee RoadSingapore 469005Phone: +65 9127 6927E-mail: [email protected]

Europe, Middle East and AfricaMurray SmythVice PresidentSomerville House50A Bath RoadHounslow, MiddlesexTW3 3EE, United KingdomPhone: +44 208 814 4540E-mail: [email protected]

Latin AmericaMarcela LizárragaVice President3150 Sabre Dr.Southlake, Texas 76092United StatesPhone: +1 682 605 5333E-mail: [email protected]

North AmericaKristen FritschelVice President3150 Sabre Dr.Southlake, Texas 76092United StatesPhone: +1 682 605 5335E-mail: [email protected]

2005 Issue No. 2

Editors in ChiefStephani HawkinsB. Scott Hunt3150 Sabre Dr.Southlake, Texas 76092www.sabreairlinesolutions.com

Art Direction/Graphic DesignJames Frisbie

Graphic Design ManagerClay Reed

Contributors Hans Belle, Jack Burkholder, MichaelClarke, Vinay Dube, Gretchen Greene,Glen Harvell, Steve Hodges, CarlaJensen, Walt Kochan, Alan Larson,Craig Lindsey, George Lynch, DeborahMagee, Robert Marley, Gary Potter,Darren Rickey and Elayne Vick.

Awards 2005 International Association ofBusiness Communicators Bronze Quill,Silver Quill and Gold Quill.

2004 International Association ofBusiness Communicators Bronze Quilland Silver Quill.

2004 and 2005 Awards for PublicationExcellence.

Reader InquiriesIf you have questions about this publi-cation or suggested topics for futurearticles, please send an e-mail [email protected].

Address CorrectionsPlease send address corrections via e-mail to [email protected].

Sabre Airline Solutions, the Sabre Airline Solutions logo andproducts noted in italics in this publication are trademarksand/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are theproperty of their respective owners. ©2005 Sabre Inc. All rights reserved. Printed in the USA.


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bankableresults.

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ASPire to Leading Technology

Airlines can leverage leadingtechnology through applicationsservice provider models at a fraction of the total cost of ownership.

48Gulf’s Onboard with Top In-Flight Service

Gulf Air boosts in-flight servicewith enhanced amenities such as onboard nannies and chefs.

Back tothe Future

SAS has reorganized to bettercompete in its home markets.

Jet Airways: From Domestic to International

Jet Airways capitalizes onreduced government regulationsto add international service.

The Transformer

CEO Douglas Parker discusseshow the new US Airways hasremade itself into a carrier betterpositioned for long-term success.

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33 Catering to the Bottom Line

Airlines utilize modern technologyto heighten in-flight service,reduce costs and increase revenues.

Forecasting the (Revenue) Future

Accurately forecasting revenueshelps airlines make timely corrective marketing decisionsand enhance cash management.

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Airport Facelifts

Airports around the world aremodifying to meet the changingneeds of their airline customers.

Choosing a Model

Airlines should consider manyfactors when choosing the rightbusiness model.

Crossing the Border

Airlines are pressuring legislatorsto change current governmentalpolicies that limit cross-borderownership.

“Fare”ly Simple

Many traditional network carriersare simplifying fares to offset theaffects of low-cost competition.

InflammatoryFuel

Airlines must take necessarysteps to counteract today’ssharply escalating fuel prices.

Just the (e) Ticket

Airlines will have to modify theiroperations to comply with IATA’selectronic ticket mandate.

Reduced Fleets, Raised Revenue

Many traditional airlines arereducing fleet types to gain oper-ating efficiencies and effectivelycompete with low-cost rivals.

T5: The Gateway to British Airways’ Future

British Airways’ new Terminal 5will boost customer service andemployee morale while gainingoperating efficiencies.

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perspective

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e decided to focus this issue of Ascend on the many waysairlines around the world are embracing a fundamentally

changed and more competitive industry. The changes have manyaspects — low-cost carriers with rising costs, traditional airlines improv-ing their cost structures, the development of new aircraft that opennew markets and the growth of powerful technology that helpsreshape operations. And, there has been much discussion and antici-pation about a possible transformation through industry consolidation.

Our cover Q&A with Doug Parker about the recent merger of USAirways and America West may very well signal the long-awaited

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Talking Technology with Barry Smith

Airlines can better address crew,maintenance and operationalissues through fleet assignmentmodels that incorporate stationpurity.

Supplier Connection

Sabre Holdings has developednew technology to improve theability for travel suppliers, such as airlines, to distribute their content.

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64African Safari: Continent’sCarriers on the Hunt for new Opportunities

Many Africa-based airlines aremodifying their operations toleverage the continent’s growthpotential.

56 Latin Beat

The low-cost/hybrid carrier modelis becoming more prominent inLatin America, changing theregion’s landscape.

Small Companies, Big Business

Delta leverages a valuable growthmarket that provides an additionalrevenue stream.

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

restructuring of the airline industry. For better or for worse, it’s clearlyconsolidation as the new US Airways becomes a much bigger player andthis aggressive move by Doug and his innovative team will surely shakeup the U.S. airline industry.

Coming on the heels of the Air France-KLM merger, the new US Airwaysfeeds the notion that further consolidation will take place. And perhapsalliances will become more tightly woven to create even more consoli-dation and efficiency. So consolidation is happening, isn’t it?

Inevitably, consolidation seems obvious — until you look at other marketchanges that suggest just the opposite: that the airline industry is, infact, fragmenting. To believe that, you have to look at customer trendsand some high-growth markets.

First, traditional network carriers today serve a much smaller percentageof the total market. During the past five years, low-cost carriers havecaptured a significant portion of the market as well as much of the pas-senger growth in Europe and the United States, and more recently inAsia/Pacific.

Another sign of fragmentation is the high volume of start-up carriers inhigh-growth markets. For example, during the past three years in India,private carriers such as Jet Airways have taken more domestic marketshare from the state-owned airlines (Indian Airlines and Air India) — upfrom 48 percent to 58 percent. There are at least a dozen start-up carri-ers in the region, some very well financed, poised to capture the abun-dant growth expected in the market.

So, we have low-cost carriers capturing a large portion of the world’s air-line tickets. We have a slew of new players lining up to capture theirshare of the world’s travelers. Is that enough evidence to swing theargument the other way — to say things are fragmenting?

Add the fact that while global traffic has only realized an annual growthrate of 6 percent, the private aviation sector is growing considerablymore at 20 percent to 25 percent a year.

So what is the right answer?

I believe some much-needed consolidation will benefit the industry ifseen in specific markets around the world. But it’s a mistake if we sim-ply say that the industry is consolidating — it’s too limited a view. Thenumber of customers who buy airline tickets continues to grow, andthey are choosing from a broader range of options, making distincttrade offs between price and convenience, high service and basic trans-portation, and even the specific set of services for which they are will-ing to pay. And they come in greater numbers from powerful, emergingmarkets such as China and India. So, I think the right answer is a bit ofboth — consolidation where it brings efficiency and fragmentation dri-ven by changing customer needs and real distinct differences in airtransportation services.

Opportunities for the industry lie in both areas. While Doug Parker andhis team at US Airways take advantage of their opportunity for success-ful consolidation, other airlines will search for new and innovative waysto tailor their products to meet customers’ needs and capture their fairshare of new markets. At the same time, all of us at Sabre AirlineSolutions will seek to find the most efficient, cost-effective ways tosupport your technology and business needs.

Looks Good, Works Well

Sabre Airline Solutions takes a customer-centric approach to ensure the development of innovative, highly usable softwareapplications.

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al “ Form follows function —

that has been misunderstood. Form and function should be one, joined in a spiritual union.”— Frank Lloyd Wright

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During the last three years, the airline industry has been laser-focused on cost

management. Although airlines have made tremendous strides in reducing

expenditures, they are still not as profitable as they’d like to be, raising the

question of whether the time has come to make revenue generation a larger

part of their transformation plans. Some airline executives from around the

world give their thoughts.

V I E W S F R O M 30,000 feet

“ While we would all like to see revenuesbegin to trend upward, I do not feel thatlow-cost carriers are likely to afford usthat luxury. Bear in mind that the recentfocus on cost management is a deriva-tive of low-cost carriers driving faresdown, and in order to preserve margins,carriers had to attack the cost side ofthe income statement. The truth is thatif you take care of the cost, the revenuewill take care of itself.”

— Paul D. Major, chief executive officer for Bahamasair

“ One of the major questions we shouldbe asking ourselves is, ‘What has driventhis focus on cost management?’ Wehave seen a continual downward pres-sure on fares to the point that manywould wonder if these are commerciallyprofitable. What is the infrastructureand support being afforded to manycarriers that has allowed this situationto develop? Revenue generation issomething all should continually striveand focus on, but all need to be mindfulto avoid a lot of pedaling without actu-ally getting anyplace commercially.”

— Roy Kinnear, head of network revenue management for Gulf Air

“ While there are still some cost dragons to slay, our primary focus [this year] is maximizing revenue per ASK. This is a key driver of a successful business.Ensuring that we deliver the right cock-tail of revenue quality and volume isessential. Market segmentation, shareshift, controls over inventory and pric-ing, and demand-price elasticity areclosely measured today at Gulf Air.”

— James Rigney, head of corporate strategy for Gulf Air

“ It’s high time for the aviation industryleaders to start paying more attention tothe commercial side of airline activities,which for several years suffered consid-erably from numerous cost-reduction campaigns. Keep cutting operationalcosts, if you don’t, you will not survive. But do spend more money on commer-cial activities that could bring you con-siderable profits in quite a short time. Grow, consolidate and care for your commercial teams. Invest in their professionalism and latest technologies.This is the only way to success in thesedifficult days for aviation.”

— Evgueni V. Bachurin, commercial director for Aeroflot Russian Airlines

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“ The cost focus has to continue. Butunless we simultaneously leverage ourstrengths into a revenue premium,where possible, the gap to profitabilitywill never close.”

— Jim Whitehurst, chief network and planning officer for Delta Air Lines

“ British Airways’ recently announcedbusiness plan for the next two years rec-ognizes that the time has come to shiftour emphasis somewhat. The need forany airline to continue to remorselesslydrive down unit costs remains crystalclear. However, safeguarding the long-term health of our business also requiresus to make targeted investments aimedat the revenue side of the profit equation.Accordingly, we are increasing ourinvestment in our people, products, ser-vices and systems capability.”

— Robert Boyle, director of commercialplanning for British Airways

“ Fundamental changes in air transporta-tion are currently redefining both sides of the equation. While Continental rankscompetitively in the top tier in revenue,the productivity and costs continue todemand an immediate focus. Exogenousfactors like oil add another dimension ofunpredictability.”

— Robert Cortelyou, staff vice president ofschedule planning for Continental Airlines

“ I think a tri-focused approach is nownecessary. Yields are continuously com-ing down, pushed by increased capacityarriving into now more deregulatedmarkets, and new, creative ways ofattracting and keeping passengers toimprove RASK through more trafficshould always be part of our daily agen-das. Just as critical, the new capacity iscoming in the low-cost operator format,so network carriers have no other wayof surviving but to adapt by cuttingcosts, becoming more productive and,therefore, more efficient with the sameor fewer resources. I think the real chal-lenge now is how to transform the busi-ness model with permanent cost/rev-enue-effective competitive advantagesthat are hard to replicate by others.”

— Eduardo Lombana, vice president of planning and scheduling and

revenue management for Avianca

“ For sure without taking our eyes off thecost side, airlines have to start thinkingabout the revenue side. We are the onlyindustry not to penalize no shows. Ifevery IATA member airline got an aver-age US$10 fare increase, this would beenough to turn the worldwide negative[financial] result into a positive [result]. Or maybe the US$10 is expended in theduty free before boarding!”

— Alberto Fajerman, senior executive vice president of commercial direction

for Varig Airlines

Much like the airlines that utilize theirfacilities and drive their business, air-ports today are finding it necessary to

continually rethink and retool operations tolower costs and improve efficiency as well ascustomer service. Whether it’s enlarging exist-ing runways or adding new ones, building ter-minals, upgrading facilities and technology,streamlining security procedures, or imple-menting new concepts, these changes areneeded to help airports better support their air-line partners, improve customer service, fosterbusiness development in the communitiesthey serve and strengthen their operations tomeet the challenges of the 21st century.

FacilitiesDespite setbacks in the airline industry in recentyears, the demand for air travel continues togrow. In response to this growth, airports aretransforming their physical infrastructures toefficiently accommodate more passengers andflights. Runway extensions and expansions nowenable major carriers with larger aircraft to serveregional airports once restricted by smaller run-ways and allow international airports to handleadditional capacity. At the same time, theemphasis on frequent, short-haul service hasmeant an upsurge in the number of small air-craft and the need for rapid turnarounds. Forsome airports, building additional runways is

the only answer. Spain’s busiest airport,Madrid Barajas International Airport, plans toopen two new runways, as well as an addition-al terminal, this year. Currently, the airport con-nects more than 25 million passengers a yearfrom the country’s capital city to hundreds ofdestinations worldwide, and the expansion ini-tiative will double its capacity. New runwaysare also under construction in major cities,such as St. Louis, Missouri; Minneapolis,Minnesota; Seattle-Tacoma, Washington;Boston, Massachusetts; Atlanta, Georgia; andBarcelona, Spain.

The need to more efficiently and profi-ciently handle increasing passenger traffic also

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

Airport Facelifts

By Lauren Lovelady | Ascend Staff

Photo by José Valero

necessitates that airports renovate and upgradeterminal facilities to meet the demands oftoday’s more sophisticated travelers. Upscaleretail stores and shopping mall environments,as well as food courts featuring well-knownfranchises, are designed to attract travelers whofind themselves spending an increasing amountof time in airports. Often inter- or intra-terminaltransportation needs to be improved or added,and floor spaces need to be redesigned to allowfor the latest in customer and airline technology.

While it’s usually more cost effective torenovate and upgrade existing facilities than toconstruct new ones, at times, the best solu-tion for increased demand and outdated termi-nals is to break ground. This was the case forthe Dallas/Fort Worth International Airport,which opened its first new terminal this sum-mer since the airport’s initial opening in 1974.International Terminal D is more than twice aslarge as any of the airport’s other four terminalsand is its most customer friendly and techno-logically advanced. All international flightsarrive and depart from the terminal, whichoffers passengers an unprecedented choice of49 internationally and locally renowned dining,

retail and service options. Signs postedthroughout the facility are written in multiplelanguages accompanied by internationally rec-ognized symbols. Even the parking garage isgeared for customer convenience, with signsletting drivers know how many parking spacesare available on each level. The information isupdated throughout the day. The new terminalis part of a US$2.7 billion, five-year capitaldevelopment program at D/FW, which isexpected to pump US$34 billion into the localeconomy and generate 77,000 new jobs duringthe next 15 years.

The continued growth of airline alliancesis also impacting terminal layouts and construc-tion. With a goal of providing seamless service,alliance partners find it’s not only attractive butnecessary that their ticket counters, gates andbaggage service be conveniently located fortheir passengers. In response, airports are real-izing the benefits of placing alliance partners’operations in close proximity and, in somecases, allocating them to a single, jointly oper-ated terminal. Earlier this year, all Star Alliancemembers with operations in Nagoya, Japan,moved from Tokyo Narita Airport to the new

single-terminal Central Japan InternationalAirport (Centrair). Alliance members are locat-ed in the same part of the terminal, and theyshare check-in counters and ticketing facilities.As result, the average minimum connectiontime between international and domesticflights has been reduced to one hour asopposed to up to two hours at Narita, wheremany passengers had to change terminals toconnect to other alliance partners’ flights.

In addition, some airport authorities arenow focusing on transforming not only physi-cal facilities but airspace as well, utilizing simul-taneous approach capabilities in tandem withglobal positioning systems and reduced aircraftseparation minimums.

TechnologyFor travelers, customer service equals efficien-cy. For airlines, as well as airports, efficiencymeans reducing costs and increasing reliability.After all, a single lost bag can ruin a passen-ger’s travel experience and consume manpow-er and revenues. By employing cutting-edgetechnology, airports and airlines can improvetheir operations and give passengers more

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Above and right: The new US$1.2 billionTerminal D at Dallas/Fort Worth InternationalAirport opened July 23. The 2-million-square-foot facility contains room for 40gates, 67 retail and restaurant venues, and a 298-room hotel. The facility, whichwill house six international airlines flying to 38 destinations around the world, is also equipped with Wi-Fi Internet accessand includes a US$6 million art program.Left: The Madrid Barajas InternationalAirport will open two new runways and an additional terminal to help effectivelyaccommodate the more than 25 million passengers who connect through Spain’scapital city. The new 63-gate facility is part of an expansion program that alsoincludes associated taxiways and apronsand a people mover to connect the new terminal with satellite facilities.

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control over their travel experiences. In recent years, self-service check-in

kiosks have become commonplace in manyairports worldwide. Some kiosks allow checkin for a single airline while others are shared bymultiple carriers. Either way, they help airlinesreduce their labor costs while processing thesame or more passengers per hour.

The typical ticket counter is a source offrustration for many travelers, especially fre-quent flyers. Stepping into the airport terminal,a traveler is usually confronted by three or fourlines with 10 to 25 people waiting in each. It ismuch more inviting to see a group of interac-tive, touch-screen check-in kiosks with only asingle person utilizing each station or perhapsopen stations. By swiping a card and answer-ing a few simple questions, travelers can be ontheir way in a matter of minutes. Some self-ser-vice check-in kiosks are now offering upgradeopportunities from coach to business class.

Realizing passengers’ desire to remain intouch with and informed about the world whilestill on the go, airports are redesigning gateswith areas for high-speed wireless Internetservice access. In the future, airlines may haveopportunities to “bundle” services, providingpassengers wireless connections for a small feein the gate area prior to departure using theirticket confirmation numbers as passwords.

To help minimize passenger and aircraftcongestion at gates, more and more airlinesand airport managers are utilizing sophisticatedgate management and planning technology toidentify and assign flights to available gates.These tools help facilitate quick aircraft turn-arounds, resulting in increased opportunitiesfor on-time arrivals and departures on typicaloperational days.

In the area of baggage management, air-ports and their airline partners are experiment-ing with radio frequency identification, or RFID,technology to track bags. According toInternational Air Transport Association esti-mates, a major airline may handle up to 70 mil-lion pieces of baggage a year, and approximately0.7 percent of those bags are mishandled. RFIDtechnology is expected to reduce that numberby 30 percent to 40 percent. The bottom line forairports and airlines is reduced baggage recov-ery costs and reallocation of employees tomore important tasks. For travelers, more reli-able baggage handling equals improved cus-tomer service.

Another potential application for RFIDtechnology involves the service equipment with-in airport terminals. Wheelchairs, catering trolleysand baggage carts are often randomly movedthroughout terminals as flights arrive and depart.With RFID technology in place, needed equip-ment could be promptly identified and relocated.

SecuritySecurity is and, at least in the foreseeablefuture, will continue to be a hot topic for the

travel industry. It is generally viewed by airportand airline personnel, as well as passengers,as a complex, time-consuming and costly —yet necessary — part of today’s travel experi-ence. Efforts to streamline the securityprocess for all parties while maintaining thehighest standards are underway, including aRegistered Traveler Program at Florida’sOrlando International Airport. To participate inthe program, travelers pay US$80 annually fora card that guarantees an exclusive securityline at the airport and no secondary securitychecks. Obtaining a card requires travelers tosubmit for clearance their iris scans, finger-prints and digital photo to the U.S. Departmentof Homeland Security. Similar systems arenow in place in some European airports and ahandful of other U.S. airports.

However, such programs are not with-out controversy as airlines, airports and gov-ernments negotiate how to pay for their enor-mous costs; consumer advocates protest theincreasing intrusion into citizens’ private infor-mation; and tough questions still exist aboutenforcement. In the end, everyone concernedis looking for faster and more cost-effectiveways to identify threatening versus non-threat-ening passengers.

New ConceptsRealizing security is an area with no room forcompromise, airports are looking into newideas for simplifying other aspects of air traveland moving passengers through their facilitiesquickly. One such idea — a low-cost carrier ter-minal — was recently introduced by the CivilAviation Authority of Singapore. Currentlyunder construction, the terminal will notemploy jet bridges. Instead, passengers willwalk short distances on the tarmac to and from

the aircraft, saving time and money. Snackvendors and some retail shops will be availableto passengers in a restricted area, where theywill wait until boarding calls are made for theirflights. Limited seating will be provided forless-mobile passengers. All of this will be pro-vided in a pleasant, efficient environment thatwill be cost effective for both the airport andairlines to operate. In turn, air travel becomesmore convenient and even affordable to anincreasing portion of the population.

For some passengers, though, the costof air travel is only part of the challenge. As theaverage age of the population rises worldwide,airports are looking for better ways to ease thetravel experience for passengers with disabili-ties — ideas that go beyond the scope of thoserequired by governments and airport authori-ties. With the help of a focus group, designersof D/FW’s new Terminal D conceived andimplemented a number of improvements.Differing floor textures help visually impairedtravelers locate where they are in the terminal.Special relief areas in terminals are designed toallow service animals to take a quick breakafter long flights. Security barriers in place toprotect the terminal also define the curb fortravelers with limited vision, and curblesscrosswalks eliminate the need for disabledpassengers to navigate slopes.

Airports of the 21st century will also haveto transform operations and facilities to accom-modate new, modern aircraft, including theAirbus A380. The 555-seat double-deck aircraftwill be the largest in the world when it entersservice next year. It features reduced noiseand emissions levels and wider aisles andseats for passenger comfort, but it alsorequires more space on runways and tarmacsthan aircraft currently in service. To retain andincrease their business, many airports willundoubtedly want to make the changes neces-sary to support the operation of these aircraft.

Change to any degree in any area is notwithout challenges. As populations and com-munities grow, very few airports remain isolat-ed “outside of town.” And as air traveldemand increases and airports expand inresponse, inevitably concerns about increasednoise pollution, vehicle traffic and possiblytaxes will arise. However, more communitiesthan ever are recognizing that airports and air-lines play vital roles in their economic develop-ment. Reliable air service brings new ventures,bolsters existing businesses and drives jobgrowth. In turn, demand for air service contin-ues to grow. In the end, the advantages oftenoutweigh the disadvantages, especially whenairports, airlines and communities work togeth-er to bring about these transformations.

Lauren Lovelady can be contacted [email protected].

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… increasing passengertraffic also necessitatesthat airports renovateand upgrade terminalfacilities to meet thedemands of today’smore sophisticatedtravelers.

HIGH l i gh t

Choosing a Model

Hundreds of airlines around the globe par-ticipate in online travel sites such asTravelocity, LastMinute.com, Expedia

and Orbitz, displaying their fares, destinationsand services to approximately half a billion peo-ple worldwide with Internet access. Even air-lines that don’t subscribe to these travel sitesusually have their own Web sites. With the pro-liferation of information, it’s no wonder today’sconsumers are more savvy and knowledgeablethan ever before. They know what kind of ser-vice they want and expect, which airlines offerit, and what it will cost. The question is: Do air-lines know what their customers want and howto provide it to them at a reasonable price?

Based on amenities offered to travelers,today’s airlines generally fall into three service-level categories:

Low-cost carriers — A surge in passen-ger demand for inexpensive, reliable and

safe service has helped establish low-cost airlines as viable competitors fortoday’s traveler dollars. In general, nofrills — pillows, blankets, movies ormeals — are offered and none areexpected. Overhead costs are kept to aminimum, and air travel is moved in thedirection of mass transportation.Full-service carriers — Demand for busi-ness travel is once again on the rise. Andtravelers who spend countless hours inairports and airplanes are often more thanwilling to pay for upgraded service, includ-ing meals, onboard entertainment andtechnology, and larger, more comfortableseating on aircraft as well as the privacy ofairport lounges.Hybrid carriers — Growing in popularity,these airlines offer lower fares combinedwith services and amenities — which may

be offered complimentary or for a price —such as entertainment, Internet connectiv-ity and meals. Some hybrid carriers offer“buy-on-board” shopping, an emergingtrend in air travel today.

A number of airlines are now experi-menting with and attempting to replicatethe hybrid carrier formula, particularlyonboard shopping. It’s important to remem-ber, though, that trends are usually cyclical.What may seem to be a good idea now maynot be such a good idea two years downthe road. The challenge for airlines, then, isto know their brand — their service reputa-tion, what their customers expect, and theinitial and long-term investments needed toeither maintain or change service levels aswell as passenger expectations. Once anairline has decided its true mission, it canselect the appropriate business model.

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


Low-Cost Carrier: RyanairRyanair's Web site says it all — “FLY CHEAPER.” Known for itsscrappy, unconventional and sometimes controversial style, Europe’sstar low-cost airline books a whopping 98 percent of its reservationsthrough this site. Ryanair’s service focuses on frequency and reliabil-ity at the lowest possible cost. The homepage of its Web site clearlydisplays lists of destinations and fares that can be viewed in 19 lan-guages. In addition, travelers can obtain substantially reduced rateson rental cars, hotel accommodations, travel services and rail ser-vices through the site. If a competitor offers a lower fare on one ofits routes, Ryanair will automatically lower its fare in response.

In addition to being Europe’s low-cost leader, Ryanair alsotakes pride in its on-time performance, customer service and bag-gage-handling records. On average, the airline misplaces less thanone bag per 1,000 passengers — the lowest number of incidents inthe European airline industry. Its passengers and the media havetaken notice as well. In 1998, Ryanair was voted “Airline of the Year”by the Irish Air Transport Users Committee and the “Best ManagedNational Airline” by International Aviation Week. And most recently,Airline Business cited the carrier as the world’s top airline for opera-tional efficiency, punctuality and customer service.

Runway Models | continued on page 11

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


When the decision is made, airlines shouldstrive to maintain that business model asconsistently as possible.

So before deciding to remove the pil-lows and blankets from aircraft, begin chargingpassengers for snacks and meals, and retro-fitting the fleet with personal seatback DVDplayers, consider some issues and challenges.

In GeneralHow will adding, reducing or eliminating aservice or amenity impact the airline’s brand,cost and fare structure? Will it draw morepassengers to the airline or drive business toother carriers? Will the airline’s employeesand passengers perceive it as an upgrade incustomer service or a reduction?Is this type of change appropriate for thecountries and cultures in which the airlineoperates?

Is it conducive to the airline’s fleet types andthe length of each flight? Some older aircrafttypes simply cannot be retrofitted with personalDVD players and Internet connectivity with-out spending millions of dollars. And whilepassengers may not miss pillows and blan-kets on hour-long flights, they’ll certainly belooking for them during trans-Atlantic flights.

Food and Beverage ServiceWith more and more airlines eliminating tradi-tional food and beverage service in favor ofoffering buy-on-board snacks and meals, sev-eral issues must be considered:

Is the airline looking for a way to dramatical-ly reduce costs, while still offering service tothose customers willing to pay for it? If so,charging for meals and snacks may not bethe best solution. Establishing and maintain-ing an in-flight retail operation requires a

great deal of time and investment. There’sthe issue of inventory control. A processmust be put in place to account for all foodand beverages sold by cabin crews andreplenished by vendors at various airports. Inaddition to their other duties, cabin crewsare now responsible for collecting moneyand ensuring it is handled properly, whichmeans additional training. While an airlinemay pat itself on the back for generating anextra half a million dollars last year in rev-enue by selling on-board products, it maynot realize that it costs an additionalUS$750,000 to make it work.Can the airline offer passengers good quali-ty, healthy snacks, meals and beverages atreasonable prices? Armed with the knowl-edge that many airlines have eliminated freefood and beverage service in flight, a num-ber of passengers now choose to purchase

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

food in the terminal to bring onboard. Manypopular food and beverage outlets nowoperate franchises in airports worldwide. Ifpassengers can obtain meals and snacksthey know they like from a reliable establish-ment, why chance paying almost the sameamount for questionable items onboard?

Entertainment and TechnologyTraditionally, in-flight entertainment has consist-ed of movies and recorded television programsmade available to passengers via headsets thatplug into seat arms — sometimes for a smallfee. Advances in technology are now enablingairlines to customize entertainment for passen-gers using seatback DVD players, satellite tele-vision programming, power ports for Internetaccess, and handheld systems that play movies,music videos, TV shows, local and nationalnews, and video games on small screens.

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How does an airline that has the lowest fares from 14 bases to 249 routes through-out 20 European countries also rank No. 1 in customer service while generating a profit? Itis not by providing free gourmet food and beverage service, extravagant business-classseating or frequent flyer perks to its customers, as some might think. Although Ryanair didprovide these services and amenities in the 1980s, when it initially began flying, it decidedchange was necessary. After three years of rapid aircraft and route expansion coupled withintense pricing competition, Ryanair was dealing with substantial losses. FollowingSouthwest Airlines’ low-fares model, Ryanair restructured and re-launched its operationsin 1991, becoming Europe’s first low-cost carrier. Free drinks and meals were scrapped;however, passengers may now purchase them onboard. Business class and the frequentflyer program were eliminated.

Ryanair simplified its fleet so that it consisted of a single aircraft type designed tostreamline and lower the cost of crew training and maintenance. Its current fleet comprisesmore than 100 Boeing 737-800s, with firm orders for 125 more. These next-generation air-craft will enable Ryanair to double in size, carrying more than 70 million passengers by 2012,and will reduce fuel usage by 45 percent per seat. This is especially important becauseRyanair recently guaranteed travelers that it will never apply a fuel surcharge to its low fares.

At the time of its restructuring, Ryanair also changed its operational strategy. Thecarrier began frequent point-to-point service on short-haul routes to secondary and region-al airports with convenient transportation to nearby population centers and travel destina-tions. This transformation continues to benefit Ryanair’s business in numerous ways.Point-to-point operations reduce the opportunities for passengers’ luggage to be lost andtheir connections missed while at the same time, the airline avoids the costs of providingconnecting service for “through” passengers and their luggage. Short-haul routes (theaverage Ryanair flight is 1.2 hours) eliminate the need for the carrier to provide the “frill”services sometimes expected by passengers on longer flights. As well, aircraft utilizationand operational efficiency are at an all-time high. Without the traditional food and beverageservice, less time for clean up and restocking inventory is required between flights. Whencombined with its strategy of operating at less-congested airports, Ryanair has achievedan average 25-minute aircraft turnaround time and established an on-time performancerecord that recently surpassed the best U.S. carriers.

Ryanair’s no-frills service also means no reserved seating on its flights. However,passengers are assigned numbers once they complete the check-in process at the airport,and those with earliest check-in times are allowed to board flights first and choose their seats.If a flight is delayed or cancelled, passengers must purchase any food or accommodationson their own. Because it does not overbook flights, Ryanair has greatly reduced the possibilityits passengers will be involuntarily denied boarding. In addition, the carrier avoids entering intoalliances, believing it should bear total responsibility for its passengers’ travel experiences.

Perhaps the best description of Ryanair’s service philosophy is found on the carrier’sWeb site as part of its “Passenger Service and Lowest Fares Charter”:

“Ryanair believes that any passenger service commitment must involve a commit-ment on pricing and punctuality and should not be confined to less important aspects of‘service,’ which is the usual excuse the high-fare airlines use for charging high air fares.We believe we can do better. That’s why the Ryanair pricing, punctuality and service com-mitment is a far superior passenger service commitment. We provide all of the essentialcustomer services, but clearly, we do not provide all of the back-up services (‘expensivefrills’) that these high-fares carriers promise. But then with our lower prices and betterpunctuality, 99.9 percent of our passengers won’t need them.”

Full-Service Carrier: EmiratesBased in Dubai, Emirates delivers the level of service expected from the city that’s the hubof commerce and tourism for the Middle East and home to the world’s first seven-star hoteland richest horse race. Since its first flight in 1985, today’s fastest growing intercontinen-tal airline has received more than 250 international awards, many focusing on the excellenceof its services and amenities. One of its slogans, “First Class Whenever You Fly,” reinforcesthe airline’s commitment to making air travel a luxurious experience for its passengers.

Recently, Emirates won “World’s Best Airline In-flight Entertainment” at the WorldAirline Awards, based on survey responses from more than 1 million people and 85 national-ities. Because Emirates operates many long-haul flights — 77 destinations in 54 countries

Runway Models | continued from page 9

Photo courtesy of Boeing

Some airlines offer these amenities for free,while others charge passengers a small tomoderate fee. Still, others see little benefit inproviding these services due to their fare struc-tures and/or flight lengths. Before deciding toinvest in one or more of these entertainmentand information systems, airlines shouldexplore their options:

Can the existing aircraft in a carrier’s fleet beretrofitted to provide passengers access tothe newest in-flight entertainment and tech-nology? Is the airline willing to make what isoften a large initial investment to do so? If theexpense is too great, should only part of thefleet be retrofitted and, if so, how is thatdetermined? Will enough people want to paythe access fees onboard to eventually recoupthe cost? Some passengers don’t mind pay-ing a small fee for such services, but othershave already stated that they can see amovie in a theater less expensively than theUS$10 to US$12 fees some airlines charge. Although some handheld devices do notrequire retrofits to operate, there is still theissue of inventory control and maintenance.Should the airline lease or purchase thedevices? Who will maintain this technologyand approximately how much should an airlineexpect to pay annually for daily passengeruse and the occasional misuse and abuse ofthe equipment? Once again, there is the issue of cabin crewtraining. In addition to collecting passengerfees for access to entertainment and tech-nology, should flight attendants then beresponsible for knowing how to operate thedevices and providing compensation whenthey don’t meet passengers’ expectations?These challenges require additional training.

Airlines should approach the servicesand amenities they offer to passengers as mar-keting opportunities, not short-term solutionsfor reducing costs or magic bullets for increas-ing revenues. When approached as marketingopportunities, services can be offered in a waythat connects with passengers in the environ-ment in which they’ve chosen to fly. After all,few people would order a hot dog in anupscale restaurant, but they would wait in linefor one at a ballpark. At the same time, mostpeople only fly two or three times each yearand often on the same airline. Nothing alien-ates an airline’s passengers more than to beprovided services one time and then berequired to pay for them during the next trip.Customers are looking for consistency — deliv-ered at a reasonable cost with efficiency andexpertise.


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in Europe, the Middle East, the Far East, Africa, Asia, Australia and New Zealand — in-flightentertainment is a major focus for the airline. In 1992, it became the first airline in the worldto offer personal televisions in all classes. Today, it is investing nearly US$10 million per air-craft to provide each traveler with the latest personal information, entertainment and com-munications system, featuring 500 channels of the newest movie releases as well asmovie classics; Disney films for young flyers; and feature films from Arabia, Asia and theFar East. Television channels broadcast comedy, drama, arts and sports, and audio chan-nels feature music from around the world as well as stand-up comedy. There are also ded-icated movie, fashion, music, comedy and children’s programming for Arabic customers.The carrier’s 40 in-flight games challenge and entertain passengers. For a minimal fee, pas-sengers with Wi-Fi equipped laptops can send and receive e-mail from any seat or maketelephone calls from individual handsets. In-flight entertainment, though, is only part ofEmirates’ extensive package of services and amenities.

Emirates believes the service it offers on the ground is as important as the serviceit offers in the air. Complimentary chauffeur service is available for first- and business-classpassengers to and from the airport, as well as to and from hotels for travelers withovernight layovers. Recently, this service was offered to first- and business-class cus-tomers flying on one of Emirates’ codeshare partners. For Emirates, alliances with carefullyselected airlines give its passengers a wider variety of travel options than the airline couldpossibly offer on its own.

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

central London are then given a free one-way first-class ticket to Victoria Station.

Once in the air, Emirates’ multilingualcabin crewmembers, comprising more than95 nationalities, deliver personalized servicein all cabin classes of its modern fleet ofcomfortably equipped Boeing 777s andAirbus A330-200s, A340-300s and A340-500s. Emirates’ Web site, customized for35 countries, reveals that its on-board ser-vices and amenities are by no means limit-ed to its in-flight entertainment program. Infact, rather than publishing lists of fares, theairline provides details about its cabin ser-vice; storage space; seat configuration,recline and pitch; and dining and beverageoptions for all three classes aboard each air-craft type in its fleet. Some of the newer airplanes feature fully enclosed first-classsuites with beds, revolutionary lighting tohelp reset body clocks and minimize jetlag,and room service, allowing passengers tophone the galley to order meals for delivery

at their seats at specified times. Sample menus, designed by internationally renownedchefs and customized for various destinations and dietary and religious needs, are dis-played on the site as well. Business-class menus change frequently to accommodate thehigh percentage of executives who fly on Emirates. The airline’s goal is to ensure that eachof its flights is not simply a means of getting from point A to point B but is itself an enjoy-able experience.

Although much of Emirates’ focus is on the executive traveler, the airline also catersto families and travel groups. All aircraft have diaper-changing stations and baby cribs; chil-dren’s programming on in-flight entertainment systems with smaller, brightly colored head-sets; and kid-friendly menus that include hamburgers, chicken nuggets, fish sticks, Frenchfries, fruit and potato chips. Birthday cakes may even be ordered in advance for children.In addition, Emirates has created Skysurfers for its younger frequent flyers, ages 2 to 16.Skysurfers earn and redeem mileage points for free flights, books, toys and trips to Dubai’sWild Wadi Water Park, and they have access to a members-only Web site with electroniccards, screensavers, travel quizzes and journals, and a mileage calculator.

Above Left: For Emirates, today’s fastestgrowing intercontinental airline, in-flightentertainment is at the heart of its cus-tomer excellence commitment. More thana decade ago, the Dubai-based carrierbecame the first airline in the world tooffer personal televisions in all classes.Above: In addition to its low fares, friend-ly service, assigned seating and ticketlesstravel, New York-based jetBlue operatesmodern aircraft equipped with leatherseats and DirectTV programming for each customer as part of its objective of “bringing humanity back to air travel.”

Photos courtesy of Airbus

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Group travel can be a hassle, but Emirates created its GroupTravel Service to minimize delays and confusion. The servicearranges for advance airport check in, pre-printed boarding passes,special baggage tags for easy identification, meals for special reli-gious or dietary requirements, cabin crewmembers who speak thegroup’s language and pre-paid celebratory beverages and chocolateson most flights. Large groups wishing to sit together in flight mayrequest to do so in advance, and Emirates will place headrest tagson each seat, print the group’s menu with a company logo or clubemblem and take a group photo with the cabin crew.

Given the consistency and style in which Emirates’ deliversthese services and amenities, it’s not surprising that the airline has aloyal customer following, especially among those who log manymiles in flight. In return, Emirates rewards its customers for their loy-alty with extraordinary, award-winning attention to each aspect oftheir travel experience.

Hybrid Carrier: jetBlue AirwaysLeather seats, live TV and low fares. It’s an unlikely combination fora single airline, but one that seems to work for jetBlue Airways. TheNew York, New York-based airline is among a growing number ofcarriers carefully studying what air travelers want and then develop-ing innovative operational and marketing strategies to fulfill theirdesires. In fact, jetBlue Chief Executive Officer David Neeleman rou-tinely works in-flight as a member of the cabin crew, asking passen-gers what they like about the airline and what they would change.

The carrier, which turned a profit within its first year of opera-tion, describes itself as a “low-fare, low-cost passenger airline,which provides high-quality customer service.” It took to the air in2000 with the goal of “bringing humanity back to air travel.” Its prod-uct — new planes, leather seats, DirectTV programming for everycustomer, low fares and friendly service — is straightforward anddescribed in detail on its Web site, which is its main business driver.All seats are assigned, all travel is ticketless, all fares are one wayand an overnight stay is never required.

To keep distribution costs low, as well as fares, jetBlueencourages travelers to make bookings directly via the carrier’sreservations Web site, which lists fares by destination and givesstep-by-step instructions for completing the process, or by contact-ing its toll-free telephone number. To further encourage online reser-vations, the airline established TruBlue, a flight gratitude program.Strictly an online program — no cards for customers to lose or state-ments to file and no overhead costs for jetBlue — TrueBlue awardspoints to travelers based on the length of their trips. Flights bookedonline automatically receive double points. When a customer earnsthe total number of points needed for a free trip, notification is pro-vided via e-mail. A recent agreement with American Express alsoenables travelers to earn points by using the jetBlue card issued bythe credit card company.

With the exception of its base at John F. Kennedy InternationalAirport, jetBlue flies primarily to and from less-congested secondaryand regional airports with lower operating costs, encouraging higheraircraft utilization and quick turnarounds. The airline currently oper-ates 316 flights a day to 32 destinations in 13 states, Puerto Rico,the Dominican Republic and The Bahamas. For each of these desti-nations, the carrier’s Web site provides dining, accommodation andattraction information, along with security and travel guidelines,including recommended airport check-in times, baggage limitationsand security screening requirements.

In another cost-saving move, jetBlue offers only beveragesand snacks, even on its longer flights. After talking with air travelers,the airline found that meal service was the least of their concerns.Instead, more attention was focused on aircraft boarding and unload-ing procedures, cabin comfort, and in-flight entertainment. With thatin mind, jetBlue plans to continue growing its current fleet of 77 sin-gle-class Airbus A320 aircraft by adding eight A320s and sevenEmbraer E190s (also single class with leather seats) this year. Newaircraft are more reliable and efficient, enabling jetBlue to spend lessmoney and time on maintenance and lower its fuel costs. A first inthe U.S. airline industry, all jetBlue aircraft have bulletproof cockpitdoors and security cameras installed in passenger cabins forincreased passenger and crew safety. Customers can take virtualtours of the A320s interior and exterior on jetBlue’s Web site.

Each aircraft seat is equipped with DirectTV, offering up to 36channels of live satellite television programming free of charge. Onmost flights longer than two hours, a selection of movies and fea-tures from Fox InFlight is also available. Travelers can print out pro-gramming guides from the carrier’s Web site in advance of theirflights. jetBlue also recently launched an “airplane yoga” programdesigned to increase passenger fitness and calm jittery nerves. A“Crunch Fitness airplane yoga” card is placed in every seatback,illustrating easy-to-assume in-flight positions.

One of jetBlue’s goals is to ensure getting on its flights is ahassle-free experience. To assist with this endeavor, it encouragescustomers to check in online for flights via its Web site from theirhome or office computers up to 24 hours in advance, but no lessthan 90 minutes before their flights. With online check in, travelerscan confirm, select or change seat assignments, as well as checkbaggage by following detailed instructions. Once at the airport, lug-gage may be taken to the self-service bag drop counter before goingthrough security checkpoints. In addition to traditional ticket coun-ters, jetBlue also has quick check-in stations for customers with onlycarry-on items, or travelers without luggage may use self-servicekiosks to conveniently print their own boarding passes.

Because of its unique service offerings, jetBlue’s name andimage are big sellers with its passengers. The carrier’s Web site fea-tures an online store and catalog, offering a variety of merchandiseincluding jetBaby bucket hats, a jetBlue lunch box, T-shirts featuringits tailfin patterns and a laptop travel briefcase. For passengers in atime crunch, the site also features artist-rendered postcards of vari-ous destinations that can be sent via e-mail. JetBlue gift certificatesmay also be purchased online.

Although still a relatively young carrier, jetBlue established astrong foothold in the U.S. airline industry. Based on the Skytrax2005 Airline of the Year survey, jetBlue was recently named the“World’s Best Low-Cost Airline,” and The Wall Street Journal gave ittop honors in airline quality. The J.D. Power and Associates Reports2005 Airline Satisfaction Index Study also recognized jetBlue as thetop U.S. airline in terms of customer satisfaction. Recognizing itstechnological achievements, Business Week’s 2005 Annual DesignAwards presented the silver award to jetBlue’s self-service check-inkiosks, and Wired magazine named the airline as one of “The Wired40 masters of technology and innovation.” It seems jetBlue hasfound a winning combination.


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Crossing the Border

T he airline industry has been reverberat-ing with calls to ease cross-border own-ership restrictions for the past 12 to 24

months, primarily centered on the issues ofinvestment in U.S.-based airlines. UnitedAirlines as well as American Airlines and DeltaAir Lines have called to raise the foreign own-ership limit of U.S. carriers from a maximum of25 percent to the European Union level of 49.9percent. In fact, legislation, currently underreview by U.S. legislators, is designed to raisethis restriction to E.U. levels.

The primary question facing the industryis, “How will the industry change if and whencross-border ownership restrictions arereduced or eliminated?” This issue is of strate-gic importance to an industry that is rapidlymaturing while it is struggling financially.

Basic EconomicsWhen considering how the airline indus-try will be impacted by greater flexibilityfor cross-border equity investment, it isimportant to consider the results ofother industries when similar restric-tions have been eliminated. There havebeen several notable examples of cross-border ownership restrictions beingreduced. Perhaps the best knownexample, however, has been seen inthe automotive industry. Germany’sDaimler-Benz purchased a substantialinterest in Chrysler Corp. of the United

States; Ford Motor Co. of the United Statespurchased a controlling interest in both Jaguarand Aston Martin of the United Kingdom andVolvo of Sweden; and Germany’s Volkswagenpurchased Bentley Motor Company of theUnited Kingdom in recent years. Also, recently,Shanghai Automotive Industry Corp.announced its intention to purchase the

defunct English automobile manufacturer,Rover. These represent only a few examples ofcross-border ownership changes that haveoccurred and continue to occur within theautomotive industry. The interesting pointregarding cross-border investment in the auto-motive industry is that it has remained almostentirely within the industry — automobile com-panies have been purchasing automobile com-panies: the process of consolidation. In fact, allpopular examples where cross-border owner-ship restrictions have been eased have result-

ed in consolidation, which has been happen-ing in several industries, including banking,oil and gas, pharmaceuticals, hotels, andessentially in every industry whererestrictions have been removed.Some economists claim that consolida-tion is an inevitable result of the maturityof an industry. They would call consolida-tion “basic economics” — as goods andservices move from luxuries to commodi-

ties, consolidation is one of the basic eco-nomic patterns that emerge.

When automobiles were first produced,they were definitely luxuries. Luxury brandswere founded early in the evolution of thatindustry, and as automobiles moved from luxu-ries to commodities, consolidation of theindustry increased. The results have producedeconomies of scale for automobile manufac-turers and allowed for higher profits while unitprices for cars have remained low. In fact, one

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

By Shane Batt | Ascend Contributor

Global consolidation has already begun to take root in various businesses, including the automotive industry. Companies such as DaimlerChrysler, owned by European, U.S. and other international investors, has benefited from the ability to attract capital from around the world. The ¤ 142 billion (US$192.3 billion) company provides anexample of the benefits that could be achieved by the airline indus-try if cross-border ownership restrictions are eased or eliminated.

DaimlerChrysler, a truly global company

Photo

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lerChrysler

2005 DaimlerChrysler launches the CrossfireRoadster, a colborative effort between United Statesand European groups.

Copyright © 2005 DaimlerChrysler Corporation.

measure of the maturity of the industry is relat-ed to how much consolidation has occurred.

Consolidation in the Airline IndustryConsolidation in the airline industry is not anew occurrence, but one that has been accel-erating in recent years. Almost every region of the world is seeing some degree of con-solidation within the industry. For example,America West is merging with US Airways inthe United States (see related article on page44). Recently, OceanAir in Brazil purchased a controlling interest in Colombia’s Avianca.Europe’s Air France merged with KLM, and a union between Lufthansa and SwissInternational Air Lines has recently beenapproved. Even the Far East is seeing its shareof consolidation with Cathay Pacific Airwaystaking an interest in Air China while both com-panies have an interest in Dragonair.

This type of consolidation is not limitedto traditional network carriers. Even low-costcarriers are consolidating. Europe-basedeasyJet purchased Go, the former low-costsubsidiary of British Airways; and Ryanair pur-chased Buzz, the former subsidiary of KLM. Inrecent months, JetStar Asia announced itsmerger with Valuair to form the new OrangeStar group of airlines. These are all recentexamples of consolidation; however, it’s goneon throughout the history of the industry.

One important characteristic of consoli-dation in the airline industry has been the sub-stantial amount of regulatory oversight that hasaccompanied this process. Because thereseems to be a belief among many regulatorsthat the primary purpose of consolidation with-in the industry is to remove competition from

the marketplace, many potential mergers andacquisitions have been blocked or died underregulatory scrutiny.

While it is possible that some airlinesconsidered investing in others to reduce com-petition, the financial indicators in the industrydo not bear this out. Yields have steadilydecreased in the industry since the beginningof deregulation in the late 1970s. In fact, yieldshave decreased at an alarming rate in realterms even though industry costs haveincreased, causing the margins in the industryto remain low overall and, as a result, leadingsome carriers toward consolidation.

The primary driver of consolidation of theindustry relates to increasing the share value ofconstituent companies. Share value in the airlineindustry is not driven by dividends since it is very rare for most airlines to issue them.Therefore, since investors do not receive anincome from their airline holdings, they expectto receive value based on the growth in sharevalue, which is directly related to boththe increase in assets of airlines aswell as their delivery of reason-able levels of profitability(typically a 3 percent to 8percent net margin).Therefore, therequirement

to increase their share value drives carriers toexamine consolidation as a way to increaseassets as well as deliver the all-importanteconomies of scale that allow for profits to bemaintained in the face of rapidly rising costs.Consolidation is a process that continues toaccelerate in the industry despite the restric-tions on foreign ownership that impact theavailability of capital in many regions.

History is to BlameAirline owners often bemoan that regulatorsput unfair restrictions on the airline industry inseveral forms including taxation, safety andsecurity requirements, and similar regulatoryoversight. It is important, therefore, in consid-eration of cross-border ownership restrictions to examine why governments

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Airline executives are beginning to buildstronger relationships with their peersaround the world to develop relationshipsthat may prove beneficial if ownershiprestrictions ease. While some regulatorsargue that airline consolidation reducescompetition, the industry’s financial indica-tors suggest otherwise. Some carriers,such as Cathay Pacific Airways with itsinterest in Air China, offset the affects oflow margins and increase share value bylinking with other companies.

may be reticent to ease these rules. In thepast, most governments considered domesticairlines as part of their strategic and tacticaldefense mechanisms. It is still prevalent inmany countries for civil aviation authorities tobe under the control of the military.Governments considered airlines important forthree primary reasons:

An airline’s impact on the economic healthof the country,An airline’s availability for transport of criticalmilitary personnel and materiel,The possibility that an airline’s equipmentcould be used for military purposes.

For example, during the 1980s, the U.S.government introduced the “Kraft Program”under which airlines received aircraft upgrades

and the free installation of cargo doors inexchange for the right of the government touse the aircraft during times of war. Many ofthe country’s airlines considered the possibilityof a conventional war fairly remote in the late1980s and agreed to the Kraft Program withthe belief that the equipment upgrades wereessentially “free money.”

At the outbreak of the first Gulf War,however, the carriers’ aircraft were pressedinto military service for carrying materiel andpersonnel into the Middle East, creating a sub-stantial history for the strategic and tacticalimportance of the airline industry to thedefense initiatives of countries. Since manycountries see their defense capabilities inti-mately tied to their domestic-based airlines, their

governments havebeen reluctant torelease ownershiprestrictions, which isnot entirely unique tothe airline industry.

Recently, regu-lators in the UnitedStates injected sub-stantial barriers intothe bid for Unocal, the

California-basedoil company, by

CNOOC, the Hong Kong-based, but Chinesecontrolled, oil giant. In this case, the regulatorsquestioned whether it was in the strategicinterests of the United States to allow Chinesecontrol over such an important commodity asoil. To paraphrase United Kingdom PrimeMinister Tony Blair, “there is more smoke thanfire” involved in this particular debate. TheUnocal/CNOOC issue, however, clearlydemonstrates that governments feel that it istheir responsibility to protect strategic and tac-tical industries that have a defense impact.

Why Lift Ownership Restrictions?Since governments appear to have a predispo-sition to maintain restrictions on ownership inthe airline industry, what would induce them toease or lift these restrictions? The primary rea-son ownership restrictions would be easedties directly to the availability of capital forinvestment in the industry. Today, a substantialimbalance in ownership restrictions in differentvenues exists. In the United States, foreignownership is restricted to 25 percent of an air-line’s total shares. In the European Union, how-ever, the foreign ownership restriction is 50percent minus one share. Furthermore, own-ership of airlines by other companies withinthe European Union is basically unrestricted(except for issues related to anti-trust). In LatinAmerica, where consolidation of the airlineindustry is the most advanced, restrictions varyfrom country to country, but regulators take avery pragmatic view to these restrictions. Forexample, Oceanair, through its holding compa-ny Synergy Group, a Brazilian-owned company,purchased 75 percent of Avianca de Colombiain a deal that was positively courted byColombian regulators. Most sovereign entities

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Various foreign ownership restrictionsaround the world impact the flow of capital, making it difficult for the airlineindustry to enjoy the benefits of otherindustries that have experienced cross-border consolidation.

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have either settled or are moving toward theEuropean Union model of 50 percent minusone share. These varying ownership restric-tions, however, impact the flow of capital inthe different autonomous venues.

The aviation industry continues to attractcapital on a worldwide basis despite the finan-cial difficulties experienced by the industry.Low-cost carriers continue to be the “darlings”of the aviation investment community due totheir high profits and growth, which result intheir high share-value growth. However, eventraditional carriers are attracting capital in manyvenues. There have been a series of initial pub-lic offerings in the industry in the past 12months, most of which have been in regionsoutside of the United States. In each case, theIPOs in the industry have been over-sub-scribed, where there has been more capitalavailable than required and owners have beenable to pick and choose which capital theywant. The one location, however, that hasbeen bleeding capital for some time is theUnited States. The country’s carriers have lostbillions of dollars in share value since 2001,and they continue to struggle to find newsources of equity. When there is a strong avail-ability of capital for the airline industry in non-U.S. countries and a distinct shortage of capitalin the United States, there is a strong pressureon regulators to ease ownership restrictions.Momentum is building for eased restrictions inthe United States, and other venues areexpected to quickly follow.

Brave new WorldAssuming that cross-border ownership restric-tions are eased, changes will be seen in threeprimary areas within the airline industry:1. Consolidation in the industry will accelerate.2. Global Alliances will increasingly be based

on equity investment.3. Regulatory oversight will increase around

landing rights and airport slots.While these changes are significant and

will affect stakeholders, including passengers,airline owners and airline employees, it isunlikely that these changes will produceupheaval within the industry.

There is little doubt that easing therestrictions on cross-border ownership willaccelerate the process of consolidation withinthe airline industry. Because regulatory author-ities are often concerned about anti-trustimpact, consolidation of carriers within a partic-ular country is often blocked. For example, it isnearly impossible to fathom American Airlinesbuying troubled United Airlines — even ifAmerican had the available capital — becausethe combined carrier’s domestic dominancewould constitute a monopoly on many routes.The “easy” consolidations have mostlyoccurred throughout the industry. Meanwhile,increased foreign ownership often producesless issues of an anti-trust nature. Therefore,

it is likely that the easing of cross-border own-ership restrictions will further boost theprocess of international consolidation.Nonetheless, this is not a panacea for troubledcarriers, particularly in the United States.Airlines will have to address the fundamentalissues affecting their profitability. Labor costs,overhead costs and maintenance expenses arejust three of the infrastructure-related areaswhere U.S. carriers need to make substantialsavings before they become attractive to for-eign investment. U.S. carriers have lost a lot oftheir attractiveness for the U.S. capital market.Suddenly making foreign capital available willnot automatically make these airlines moreattractive. First, these airlines will need to suc-

cessfully finish their restructuring efforts.Global alliances will play a substantial

role in increasing this consolidation throughdirect equity investment among partners in thealliance. To a great extent, the global alliancesexist to allow a partial “commercial consolida-tion” of the industry that is blocked by currentforeign ownership restrictions. Global alliancesare not allowed to take many commercialactions, such as setting common prices thatwould be allowed if global alliances evolvedinto single-company “super carriers.” Globalalliances have produced recognizable globalbrands with common product quality, commonsales and distribution practices as well as com-mon operational approaches. Therefore, the

process of integration is already partially com-pleted within global alliances. So, globalalliances are likely to stimulate a substantialamount of equity investment among theirmembers in the event that cross-border own-ership restrictions are eased. Additionally, theappeal of global alliances will increase for allstakeholders — passengers, member airlinesand potential investors — producing a resur-gence in interest among potential new members.

To date, the affects of easing cross-bor-der ownership restrictions appear to be mostlypositive for the airline industry. This will not beentirely the case, however. It is likely that reg-ulatory oversight and restrictions on landingrights and airport slots will increase as cross-border restrictions on ownership are eased. Forexample, when LAN, the Chilean-based airlineformerly called LanChile, requested landingrights in Miami, Florida, for its new subsidiary,LanEcuador, U.S. regulators initially declinedthe application by stating that LAN’s purchaseof LanEcuador was simply a ruse to bypasslanding-right limitations in the bilateral agree-ment between Chile and the United States.LanEcuador was not, in fact, granted landingrights until LAN diluted its ownership of theaffiliated airline to 45 percent. These aggres-sive moves by regulators are liable to increaseas cross-border ownership restrictions ease.

Despite the recent trend toward “open-skies” agreements, when particular multi-national corporations own substantial rights inmultiple venues, regulators are going tobecome increasingly concerned with the abilityof all market players to compete. Therefore,regulatory restrictions related to landing rightsand even airport slots are liable to increase asownership restrictions reduce.

While there may be a substantial long-term impact on the structure of the industryshould the cross-border ownership restrictionsbe eased, it is doubtful that these changes willproduce turmoil or upheaval. The changes tocross-border ownership will likely lead to aninternational stability in the industry but not adramatic paradigm shift. Struggling carriers willnot automatically turn healthy with the intro-duction of foreign capital. Instead, these com-panies will have to correct their structuralissues to be attractive to foreign investors whohave substantial money to invest in the indus-try. The availability of foreign capital will alarmsome citizens just as globalization continues toproduce its opponents.

Despite the emotional rhetoric that islikely to occur, the easing of cross-border own-ership restrictions in the airline industry shouldproduce a healthier industry that offers betterreturns for its shareholders and more stabilityfor its stakeholders.

Shane Batt is a senior partner with SabreAirline Solutions Consulting. He can be

contacted at [email protected].

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Despite the recent trend toward “open-skies” agreements,when particular multi-national corporationsown substantial rightsin multiple venues, regulators are going to become increasinglyconcerned with the ability of all marketplayers to compete.

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T he rise of low-cost carriers in the late1990s with aggressive pricing and mar-keting initiatives has resulted in

renewed competition that threatens the veryexistence of major U.S. airlines, global pureplay and international flag carriers. Today’s low-cost carriers have viable and sustainable busi-ness models, accounting for more than 20 per-cent of industry capacity. While traditional net-work carriers have shrunk in size, LCCs aregrowing at 20 percent per year. With their rapidgrowth, they now compete directly with tradi-tional U.S. carriers on more than 60 percent oftheir route networks.

LCCs are known for having a simple, no-frills product offering for the price-consciouscustomer — high frequency, point-to-point oper-ation to secondary airports and low operatingcosts with a homogeneous fleet, high fleet uti-

lization and consumer direct distribution. Withtheir distinct lower-cost-per-seat-mile advan-tage, airlines such as AirAsia, AirTran Airways,easyJet, Frontier Airlines, jetBlue, Ryanair andSouthwest Airlines, are proactively setting thefare structure in major markets and rapidlyaltering customers’ valuation of air travel.

Most low-cost carriers have a cost perseat mile ranging from 6.7 U.S. cents to 8.0U.S. cents, which presents a critical issue forthe world’s traditional carriers that have amuch higher cost structure. In addition, thereis also little or no barrier for entry of a new low-cost airline, which can change the landscape ofcompetitive fares overnight.

Low-cost carriers also practice a uniquebrand of revenue management. Some traitsthat differentiate them from full-service net-work carriers include:

One-way fares, fewer fare rules and restric-tions — Typical restrictions imposed arerefund penalties and ticketing constraints(instant purchase or 72-hour time limit);therefore, the fare is the primary determi-nant of the customer segment. Conservative overbooking — No-show ratesare lower because of ticketing requirementsand most fares are non-refundable, which isaugmented by the absence of interlineagreements to book denied boarding pas-sengers on alternate carriers.Fare classes — There are fewer fare classesand smaller fare differences between fareclasses.

When a flight is first detailed in thereservations system, there is a single one-way

fare in the market. Over time, as bookingsbuild up for the flight, the fares are progres-sively increased until flight departure.

With the absence of restrictions, thereal-time reservations inventory control envi-ronment for a low-cost carrier must be dynam-ic to ensure that target bookings are achievedfor each fare class. For carriers operating pointto point, the inventory control environment canbe derived from authorization levels and timelimits based on days to departure. In theabsence of time limits, the offline revenuemanagement process must provide frequentupdates to the real-time reservations inventorycontrol environment. A time-of-day-specificlimit may also be required for airlines that wantto override the selling fare at a specific time(e.g. 9 a.m. versus 2 p.m.).

Restriction-free pricing introduces someunique challenges for traditional revenue man-agement, which assumes that the fare classesare independent. With tickets being sold at var-ious prices for the same product, the assump-tion of independent demand for each fare class isno longer true. The demand is dependent or con-ditional on the selling fare being offered, which isthe only determinant of demand for the segment.

When looking at unconstrained demandexpressed as a percentage of capacity byprice, if only a US$129 fare was publishedthroughout the life of the flight, the total rev-enue for the flight would not be optimal. Byintroducing fares above and below the refer-ence price during the life of the flight, the totalrevenue on the flight can be maximized withoptimal price-driven inventory controls.

“Fare”ly Simple

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

By Ben Vinod | Ascend Contributor

With tickets being sold at various prices for thesame product, the assumption of independentdemand for each fare class is no longer true.

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Even though a fare of US$129 would gener-ate 100 percent capacity, the total revenue forthe flight would not be optimal. By offeringvarying fares during the life of the flight, thetotal revenue on the flight can be maximizedwith optimal price-driven inventory controls.

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US$79 US$109 US$129 US$149 US$169

Unconstrained Demand

One of the key challenges is to generatethe price-demand curve for each price pointbased on the underlying relationship betweendemand and price. One way to create this rela-tionship is to establish a causal relationshipbased on historic price points, observed book-ings and inventory controls as a function ofdays to departure. In addition, buy-up and buy-down behavior as a function of proximity offares between classes prior to departure canbe established. A better alternative to tradition-al conditional demand forecasting using proba-

bilistic and Bayesian methods is the use ofchoice models based on shopping data fromonline and offline channels. Such models havethe added advantage of considering the effectsof competitor schedules and fares directlywhen demand is estimated. A key processrequirement from revenue management ana-lysts is to ensure that fare classes are notreused across fare ranges when responding tocompetitor actions. Consistency in the usageof fare classes based on predefined fareranges is a fundamental requirement for anaccurate calibration of price-demand curves.

Through the use of dynamic program-

ming, calibrated price-demand curves can beused in conjunction with available seat invento-ry and conditional demand forecast to deter-mine the optimal timing and price to beoffered, subject to business constraints in themarket encapsulated as rules. This has a dis-tinct revenue advantage over a manual rules-based revenue management environmentpracticed by many LCCs. With rules, closure ofa fare class is linked to a time-based event (e.g.14 days prior to departure) or a bookingbuildup-based event (e.g. booked load factor

exceeds 60 percent). Sabre ® AirMax ® Low-Fares Manager, the industry’s first automateddecision-support system for restriction-freepricing controls launched in 2002, employs adynamic programming algorithm and enablesbusiness constraints to be established as rules.

Impact on Network CarriersWhile airlines have realized the need for faresimplification, various simplified tariff struc-tures have been considered. For example, AirCanada introduced five broad categories —Tango, Tango Plus, Latitude, Latitude Plus andExecutive Class — each with distinct segments

based on soft qualifiers such as access to theMaple Leaf lounge, priority baggage check in,fare refundability, advance seat selection, fre-quent flyer miles based on mileage and dollarsspent, and change fees. Each category has arange of one-way fares, with only one sellingfare in each category at a given point in time.

American Airlines’ value pricing initiativein 1992 to move to a simplified fare structureand abolish corporate discounts collapsedwhen major competitors that had initiallymatched the airline’s tariff structure quicklyretracted. The initiative, which was acknowl-edged by industry analysts as well ahead of itstime, prompted then AMR Chairman RobertCrandall to famously remark, “You are only assmart as your dumbest competitor.”

Today, to counter the competitive threatfrom LCCs, fare simplification has been adoptedto varying degrees by U.S. majors. However,this has not eliminated corporate deals. Tocombat low-cost competition on its routes,American Airlines introduced a new simplifiedfare structure to and from Florida in 2004 withfewer classes, rules, restrictions and the elim-ination of Saturday night stays. Earlier this year,Delta Air Lines introduced a vastly simplifiedfare structure called SimpliFares that’s basedon the recognition that LCCs competed on 70percent of the airline’s network. Domesticfares were capped at US$499 for coach andUS$599 for first class, Saturday night stayswere eliminated and only six to eight fares in amarket were offered. This was an attempt tolure back business travelers who had beenpaying steeply higher full-fare coach prices,which only impacts 5 percent of the customerbase. Delta controls inventory and hence avail-

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Revenue Management and Low-Cost Carriers

With their lower cost per available seat mile, low-cost carriers, suchas Southwest and jetBlue, have a clear advantage over many of thetraditional carriers they compete against.

Source: Bloomberg Financial Markets

The high frequency, point-to-point operations to secondary airportswith homogeneous fleets and direct distribution helps low-cost carriersoffer a simply priced product that appeals to price-conscious customers.

Sabre Airline Solutions’ archives

The dilemma faced by full-service network airlines is how to effectively compete againsttheir low-cost counterparts in key markets.

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ability of SimpliFares with a combination of rev-enue management decision support and rulesfor closing fare classes using Sabre® AirMax®

Revenue Manager. Ultimately, the success ofthese fare simplification initiatives depends onwhether demand stimulation can be sustainedand revenue dilution can be contained withoutrisking the loss of market share to LCCs.

The dilemma faced by full-service net-work airlines is how to effectively competeagainst their low-cost counterparts in key mar-kets. While retaining their traditional fare struc-ture for flow traffic, these airlines have to com-pete against LCCs on short-haul routes. Toeffectively compete and protect market share,they have to operate in a hybrid environment.From an inventory control perspective, to oper-ate in a hybrid environment, a cabin on a flightcan be viewed as consisting of a virtual parti-tion to accommodate the optimal mix of cus-tomers on the traditional fare structure in thefirst partition and the optimal mix of passen-gers who purchase unrestricted fares at vari-ous prices in the second partition. The revenue

management process should, therefore, havetwo distinct demand models for forecastingtraditional fare classes (independent demand)and restriction-free fare classes (dependentdemand). The network optimization modeluses both types of demand forecasts as inputalong with the associated uncertainty indemand to determine the optimal inventorycontrols for independent and dependentdemand fare classes subject to business rulesthat encapsulate business constraints andboundary conditions.

The Value PropositionCurrently in production at bmi, bmibaby,Estonian Air, Copa Airlines, TAM BrazilianAirlines and WestJet, Low-Fares Manager hasplayed a key role in the migration to a flexiblepricing structure at these airlines. Theobserved revenue performance improvementranges from 4 percent to 6 percent comparedto a manual rules-based system. Simulationvalidation with data from several airlines hasshown conclusively that revenue benefits

exceed 10 percent. The difference can beattributed to revenue management analystswho monitor market conditions and take cor-rective action that is not modeled in the simu-lation. Observations indicate that the tradition-al expected marginal seat revenue-based algo-rithms result in higher load factors, high rev-enue dilution and the lowest yield; while themanual rules-based process results in higherspoilage, lower load factors and the highestyield. Low-Fares Manager exploits the sell-upbehavior implicit in the price-demand curves toincrease yield (compared to expected marginalseat revenue) and higher load factors (com-pared to manual rules). In addition, it enablesairlines to streamline pricing and revenue man-agement business processes for consistentadoption across the operation.

Ben Vinod is chief innovator for Sabre Airline Solutions. He can be


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Dynamics of Restriction-Free Pricing

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

Days to departure

Cumulative bookings

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Class Inventory class closing condition

Q Day 69 or after six bookings

Z Day 55 or after 12 bookings

V Day 34 or after 28 bookings

H Day 20 or after 54 bookings

M Day 13 or after 28 bookings

B Day three or after 80 bookings

Y At overbooking limit

+count it up3 hours — Approximate flight

time between Auckland, New Zealand,

and Sydney, Australia, a decrease from

six to seven hours required in 1940.

1983 — Year a Rockwell Sabreliner

became the first airplane to cross the

Atlantic Ocean with a pilot guided only

by a satellite navigation system.

5,000+ — Number of additional

flights to and from North America

last summer compared to the same

period in 2004, according to recent

data from OAG.

The abrupt rise in fuel prices during the pastfour years has wreaked havoc on the air-line industry’s bottom line. The general

trend toward higher prices has come with suchvolatility that projecting costs for future plan-ning activities can prove quite challenging.

Crude oil prices have reached newhighs, trading above US$70 per barrel recently.This stands in stark contrast to the lowsaround US$16 per barrel in late 2001. Yet, eventhough this represents a 300 percent increasein just four years, perhaps tempting those withoptimistic tendencies to think the worst haslikely passed, there still remains much anxietyabout how future trends may unfold.

The International Air Transport Associationhas stated that the industry suffers US$1 billionof additional fuel costs for each US$1 increase inthe price of crude oil. To make matters worse,

jet fuel prices have been rising faster than crudeoil, a reflection of the fact that refinery capaci-ty is stretched very thin and competing distil-late products sourced from the same middlebarrel section are flourishing in a robust econo-my despite retail price spikes. The numbersare startling; the spread between crude oil andjet fuel has risen from US$2.59 per barrel in2002 to US$11 per barrel in the first half of thisyear. About one-fifth of the increase in jet fuelprice comes from this widening spread andabout four-fifths is in higher crude prices.

Given that many airlines’ profit marginstend to be razor thin even in the best of years,success in the face of uncertain fuel costs requires an even greater emphasis on the tightcontrol of expenses. While many non-fuelexpense items have received much cost-cut-ting attention lately, with labor costs being a

particularly popular target, it remains incum-bent upon airlines to diligently address thoseaspects of fuel expense upon which they canexert some control.

The stakes are undeniable: according toIATA, the airline industry will pay more thanUS$83 billion for fuel this year. That representsan increase of US$39 billion over 2004 levelsand is equal to the gross domestic product ofNew Zealand. Yet, astoundingly, this increaseis somewhat muted by the industry’s movetoward more fuel-efficient aircraft. TheAssociation of European Airlines, or AEA,notes that today’s aircraft are more than 70percent more fuel efficient than jets of the1960s. Had it not been for efforts to modernizefleets during the past decade, the crisis couldbe much worse. The fact is, the price of jet fuelhas risen so rapidly in the short timeframe

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By Steve Hendrickson and Peter Berdy | Ascend Contributors

Inflammatory FuelDisciplined measures to conserve fuel are mandatory in an era wheresharply escalating prices continue to spiral upward.

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

Sabre

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since late 2001 that airlines now face price lev-els unimaginable only a few years ago.

Where will fuel costs go from here?Opinions diverge dramatically. For example, aneconomist with Morgan Stanley recently indicated his belief that the oil market couldmove rapidly toward a severe crash as theworld economy slows, alternative energysources gain popularity and oil speculatorsgrow nervous about a price peak. On the otherside of the issue, a Goldman Sachs reportissued in March theorized that petroleum mar-kets were just beginning to reflect an emerg-ing “super-spike” phase that might produce a1970s kind of price movement, perhaps goingas high as US$105 per barrel. That scenarioassumes that refinery capacity will be unableto keep pace with oil demand from strongeconomies in China and the United States,both of which have seemed undeterred byhigher prices.

Whatever theory one subscribes to, itremains a nearly indisputable fact that airlineshave virtually no control over the spot pricethey will be asked to pay for fuel.Consequently, managing fuel expendituresthrough the use of carefully controlled con-sumption and purchasing practices, as well asusing fuel-efficient aircraft, are their mosteffective shields.

Taking ActionAirlines have taken a variety of steps tobecome more fuel efficient, mitigating theimpact of fuel costs on their financial perfor-mance. These steps have ranged from a com-bination of changing operating procedures andusing more efficient, new airplanes to makingmodifications, such as with blended winglets,to improve their performance. In fact, next-generation aircraft programs such as Boeing’s787, Airbus’ A350 and Bombardier’s C-Series,are aimed squarely at producing additional effi-ciencies in fuel consumption.

Increasing fuel efficiencies has enor-mous potential. The industry would save anestimated US$3.6 billion a year by reducingeach flight time by just one minute. The latestAEA report indicates that such savings areindeed achievable. It points out that US$1 bil-lion could be saved through a combination ofimproved ground, arrival and departure trafficflows; route optimization by using direct flightroutings; and efficiencies in operating proce-dures in coordination with air traffic control. Inaddition, the European Organization for theSafety of Air Navigation, or EUROCONTROL,estimates that minimizing inefficiencies in airtraffic management systems could furtherreduce fuel burn in Europe by up to 12 percent.

While most airlines have fuel management

procedures, there are additional, powerful stepsthey can take toward a proven, more compre-hensive fuel conservation program with thepotential to lower their total fuel bill by millionsof dollars. A few of these steps include:

Fuel purchasing programs,Tankering strategies,Monitoring of over fueling,Auditing and examining fuel consumption andusage patterns,Aircraft taxiing procedures,Monitoring ground power unit and auxiliarypower unit usage,Active in-flight monitoring of engine perfor-mance,Requesting direct routings from air trafficcontrol,Lowering cruise speed,Deploying landing gear later,Reducing or eliminating use of reverse thrustafter touchdown,Reducing aircraft weight, including theamount of free passenger baggage weight,Adding winglets,Trimming and true-up, Controlling other factors that drive fuel usage,such as:• Flight scheduling,• Gate assignment and management, • Flight planning.

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

Pri

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DateSource: Platts

Jan. 3 Jan. 17 Jan. 31 Feb. 14 Feb. 28 Mar. 14 Mar. 28 Apr. 11 Apr. 25 May 9 May 23 Jun. 6 Jun. 20 Jul. 4 Jul. 18 Aug. 1 Aug. 15

Crude Oil Versus Jet Fuel

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

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Each of these items may seem like com-mon sense approaches that any airline hasfully considered. Yet, fuel consumption auditsand related analysis performed by Sabre AirlineSolutions Consulting during the past two yearshas revealed many cases of costly lapses with-in fuel management programs of airlines thatotherwise believed they were tightly control-ling such factors.

Fuel HedgingSome companies, such as FedEx, can readilypass on rising fuel prices to customers. Theypost fuel surcharges on their Web sites to alertconsumers of the effect of fuel cost changes.Airlines in some regions have been successfulin tacking on fare increases or fuel surchargesto ticket prices. However, in many situations,airlines cannot pass along all the costs associ-ated with rising fuel prices due to fierce com-petition and/or weak demand. In the UnitedStates, consumers cannot easily identify thefuel surcharges in the ticket price. The U.S.Department of Transportation’s advertisingguidelines direct airlines to include fuel sur-charges in the base price rather than showthem as a separate charge. In other countries,such as the United Kingdom, fuel surchargescan be viewed as a separate cost of the ticketprice. AEA estimated that fuel surcharges cov-ered only half of the actual fuel price increasesin Europe during the past year.

One way of countering the impact of ris-ing fuel prices is to profit from a bet on contin-ued price movements in that direction. This istypically done through the purchase of forwardor futures contracts for related commodities andis commonly referred to as fuel price hedging.

By using fuel hedging, an airline is betterable to predict future expenses and earnings. Itmay also help increase the confidence of finan-cial markets, which may in turn increaseaccess to capital for such airlines. Yet, airlinesthat wish to invest in a successful hedgingstrategy face high-priced futures contracts,which are almost inevitable in commodity mar-kets experiencing rapid and prolonged priceincreases such as those found in petroleum.

Several low-cost carriers, such as easyJet,Southwest and jetBlue, have achieved significantportions of their continued profitability due toaggressive fuel hedging. Of course, if fuel priceswere to reverse course and plummet, such carri-ers would likely under-perform relative to un-hedged carriers, but that is the price for control-ling a carrier’s exposure to upside pricing risks.

Jet fuel price hedge strategies can rangefrom very simple to quite complex, and airlinesemploy a wide variety of approaches toachieve their price risk management objec-tives. These may involve not hedging at all orfully hedging using a combination of commod-ity instruments. Surprisingly, jet fuel deriva-tives are not the primary way that airlineshedge. In fact, they are not even available in

the U.S. market. Instead, airlines use futurescontracts on commodities that are correlatedwith jet fuel, such as crude or heating oil.

These instruments may include options,collars, straddles and swaps. Typically, an air-line will also trade these instruments usingseveral banks to diversify risk and get the bestprice possible.

Oil prices often move in cycles, so manyhedging strategies are designed to lock inprices at various points of the assumed cycle.Airlines can use a variety of prices and contractdurations, resulting in a need for sophisticatedfuel hedge trading models to be successful.

When oil is at the low end of the cycle,an airline can use a “receive-fixed swap,”which enables it to lock in a low price and also

assumes there is a low likelihood of a pricedrop. In the mid-range of the fuel cycle, collarsare used to lock in a specified range of prices.The airline forfeits any potential savings fromprice declines while hedging against furtherincreases. When oil is at the top of a cycle,“caps” are used to prevent losses from furtherappreciation, while giving an airline the oppor-tunity to take advantage of price decreases.

Southwest Airlines has used heatingand crude futures contracts and over-the-counter derivatives to hedge fuel. Financialanalysts have noted that the carrier’s long-standing string of profitability might have beensnapped in recent quarters if it had not beenfor its fortuitous fuel hedge positions. The air-line has used a dynamic mix of call options, col-lar structures and fixed-price swap agree-ments. JetBlue outsources its fuel manage-ment services to a third-party vendor andhedges by using crude oil option contracts andswap agreements.

On the other hand, most U.S. majorshedge only a small portion of their fuel con-sumption. These airlines have engaged in lim-ited fuel hedging lately, which is likely because

their current cash flows are too tight to financefutures margin deposits or options premiums.For example, Delta Air Lines began 2004 withfuel hedges in place, but it had to close its posi-tions to generate cash for operations. Similarly,United Airlines had its fuel options cancelledby its counterpart due to its bankruptcy filing.

It remains to be seen whether fuelprices will normalize at current levels, rise evenhigher or retreat to lower rates seen in pastyears. But for now, the impact continues todevastate airline balance sheets across theindustry. Given that spot prices for fuel arelargely beyond an airline’s control, there areprecious few ways to buffer the financial dam-age of expensive fuel.

Methods within the control of airlinemanagement teams consist of disciplinedpractices for fuel procurement, loading, con-sumption and price risk management. Carriersthat take serious measures to be best of breedin these practices will be rewarded according-ly. There are many airlines continuing to pros-per despite the higher energy prices becauseof their devotion to these issues. But those thatdo not sharpen their focus on such approachesand implement them diligently will bear the fullbrunt of any future fuel price spikes that maystill be in store for the industry.

Peter Berdy and Steve Hendrickson arepartners for Sabre Airline Solutions

Consulting. They can be contacted [email protected] and

[email protected].

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Refinery outages from hurricanes andtightened supply are increasing prices forjet fuel. The price of oil, plus the price paidfor refining, pushed the cost of a barrel of jet fuel on the U.S. Gulf Coast toUS$124.99, or US$2.98 a gallon, on Sept.28, according to American Airlines.

… managing fuel expenditures through the use ofcarefully controlled consumption and purchasingpractices … are their most effective shields.

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Of the International Air TransportAssociation’s top five “simplifying thebusiness” priorities that were

announced in June, moving to 100 percentelectronic ticketing by 2007 has perhapsreceived the most attention. And rightfully so— the target is tangible and measurable. Theinitiative has a clear delivery date; IATA haseven placed a clock on its simplifying the busi-ness Web site, counting down the days, min-utes and seconds to 100 percent e-ticketing. Inaddition, many travelers are already familiarwith e-ticketing and have probably used it.

However, although the initiative and theobjectives are clear, achieving 100 percent e-ticketing presents varying challenges for air-lines depending on their current status andlong-term business targets.

The results of IATA’s own survey, con-ducted shortly after the initiative was launched,show how airlines are divided into two camps

— those that have adopted e-ticketing to somedegree and those that have not. For a numberof airlines, meeting the IATA requirementswould appear to be a foregone conclusion.Some carriers have implemented e-ticketing asfar back as 10 years ago and many have alreadyintroduced interline e-ticketing with severalpartners. Other airlines that had not intendedon introducing e-ticketing will need to revisetheir business plans. Even airlines that are notmembers of IATA could be affected. The IATAinitiative will apply to any airline that wishes todistribute tickets to travel agents through anIATA Billing and Settlement Plan.

Although the benefits of e-ticketing areobvious, the methods to implement it are morecomplex than their existing business plans allow.Regardless of which camp they are in, nearlyevery airline, even those that have a head start onimplementing e-ticketing, still have some workremaining to fully comply with the IATA mandate.

E-Ticketing PioneersThe reality is that “early-adopter” airlines arecurrently faced with as many challenges as the“late developers,” but they are of a differentnature. Of course, early adopters have e-ticket-ing in place for direct and travel agency sales,and depending on an airline’s markets, more than90 percent of its ticketing transactions may bemade electronically. Yet there are barriersremaining that have to be overcome to reach100 percent e-ticketing, such as developinginterline e-ticketing with all partners and integrat-ing with third-party ground handling operations.

Interline e-ticketing is receiving a lot ofattention. Early adopters may have as many as30 interline e-ticketing agreements in place, butaccording to IATA, only 64 airlines have interlinee-ticketing capability. The focus for interline e-ticketing has been concentrated withinalliances for business reasons and within hostsystems for both business and technical reasons.

Just the (e) Ticket

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

By Gary Millward | Ascend Contributor

Sabre Holdings has implement-ed 58 interline electronic ticket-ing connections for 34 uniquecarriers.More than 30 connections arerouted through the InterlineElectronic Ticket Hub, and 27carriers are connected to thehub. This includes 15 carriersnot hosted in SabreSonic™ Res.Nearly 40 airlines hosted in the

Res component have nowimplemented electronic ticketing.As of July 20, only 64 airlineshave implemented interlineelectronic ticketing; 19 of thesehave only one interline agree-ment activated.Sabre Travel Network dis-tributes electronic ticketing for more than 70 airlines

in Airline Reporting Corp. and 40 IATA Billing and SettlementPlans, operating in more than70 countries.In June 2004, (the date ofIATA’s simplifying the businessannouncement), more than 60percent of tickets issued bySabre Travel Network wereelectronic. As of last June,more than 70 percent of travel

agency tickets were electronic.The Interline ElectronicTicketing Hub enables carriersoperating different EDIFACTversions to implement interlineticketing.This year, Sabre AirlineSolutions became the first system provider to implementIATA 722h third-party groundhandling. a

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

An interline environment clearly highlights dif-ferences, such as different approaches to opensegments, infant processing and revalidation,that exist between airlines and the various hostreservations systems. Interline e-ticketing isheavily dependant on interaction between previ-ously stand-alone systems. Airlines have toexchange general business requirements, orGBRs, and agree on procedures. IATA is takingsteps to standardize GBRs and facilitate theprocess, but airlines will have to be flexible if theyplan to have as many electronic ticketing agree-ments as they have paper agreements today.

There are a number of different EDI-FACT versions in use, and some airlines stilluse the original 1996 version. To create abilateral interline e-ticketing agreement, bothairlines must agree on set business rulesand be on the same version of EDIFACT.Sabre Airline Solutions has helped reducethe effort by implementing the InterlineElectronic Ticketing Hub, a component of

SabreSonic™ Ticket, which enables airlines toremain on different versions of EDIFACTwhile implementing interline e-ticketing. Thehub achieves this by taking the EDIFACTmessage from one airline and translating itinto the format used by another. Thisprocess enables multiple airlines using dif-ferent versions of EDIFACT to interline with-out incurring the cost of making a versionchange. In addition, airlines have access to adiagnostic tool with a user-friendly interfacethat enables individual or groups of mes-sages to be viewed.

Ground handling raises more issuesfor airlines with e-ticketing abilities that usedifferent ground handling companies to sup-port their airport operations. In a paper tick-eting environment, a ground handlerrequires access to the operating carrier’sreservations system to ensure the passen-ger has a booking, but the passenger’s rightto board is determined by the flight coupon

that is lifted during passenger check in.Electronic ticketing, therefore, requiresaccess to the flight coupon details at thetime of check in. For an airline with a depar-ture control system that is integrated withits reservations and ticketing system, this isnot a challenge because all data resideswithin the system and is easily accessible.

Today, many airlines rely on one ormore third-party ground handling companiesto represent them at a number of airports.To achieve 100 percent e-ticketing, an airlinewill need to implement one of two IATAstandard methods — the interactive or con-trol methods — for third-party ground han-dling. By using these methods, an airlinecan be sure that the flight coupon is valid fortravel. As an interim approach, some groundhandlers have implemented the electronicticket list, or ETL, method whereby usingthe SSR TKNE (electronic ticket numbernotification), passengers with electronic

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DCS third-partyground handler

GDS

OA interlinecarriers

InterlineElectronic

Ticketing Hub

EDIFACTinterface

RES DCS TKT Others

Airline system

Revenueaccounting

DCS Electronic ticketing

working copy

Full-ServiceElectronic Ticketing

FSET

Electronic ticketingdatabase

DCS working copy

SSR TKNE

TKCUAC/TKC RES

TKCREQ/TKC RES TKTREQ

TKTRES

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

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

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Full-Service Electronic Ticketing

tickets can be identified and checked in.There is a risk attached to using this methodbecause the TKNE is only sent at the time ofissuance, and it is not updated if the ticketis later changed. Therefore, the potentialexists for a passenger to travel when thecoupon has previously been exchanged orrefunded. Sabre Airline Solutions was thefirst system provider to implement the IATAstandard for third-party ground handling.(See related article on page 77.)

Following the implementation of airlinee-ticketing as well as global distribution systeme-ticketing, interline e-ticketing and any groundhandling connectivity that is required, the earlyadopter can address any final outstandingissues. Some of these issues are currentlybeing addressed by IATA committees andinclude infant e-ticketing, fully open tickets, stafftravel, involuntary rerouting procedures and thereplacement of miscellaneous charges ordersand multi-purpose documents with an electronicMCO. IATA is also addressing government issuessuch as airport access, and immigration and sys-tem providers continue to invest in solutionsthat aid the move to an electronic environment.

The New Airlines in TownMore than 120 airlines have implemented elec-tronic ticketing during the past 10 years, andthe recent adopters may expect to face an eas-ier transition than the e-ticketing pioneers. Thisis true because most aspects of the industrystandards have been tried and tested, but

unfortunately, any airline looking at e-ticketingfor the first time is likely to be daunted by theprospect. Information overload and how itrelates to its own business processes are thebiggest challenges. The fact remains, howev-er, if an airline wants to retain travel agencydistribution and interline agreements withother airlines, it has to implement e-ticketing.In addition, if an airline decides its future is indirect distribution, it also faces the fact thatoperating a Web site without e-ticketing isboth inefficient and expensive. To understandwhere they are going in the electronic world,airlines first need to consider where they areand where they want to be.

In addition to travel agency distribution,interline agreements and Web sites, airlinesshould define their ground handling arrange-ments and determine whether or not they’reequipped to adopt the IATA standards. Theyshould also determine which changes need tobe made within the company in areas such asrevenue accounting and call center processes.

The true beneficiary of the last 10 yearsof e-ticketing is an airline that is hosted by asystem provider with multiple existing elec-tronic ticketing carriers. For example, an airlineutilizing SabreSonic™ Res, a component withinthe SabreSonic™ Passenger Solutions, canapproach the activation of e-ticketing as a stan-dard product implementation. After the airlinehas implemented airline e-ticketing, it willquickly be able to activate GDS e-ticketing.Distribution of electronic tickets — to Airline

Reporting Corp. and IATA Billing andSettlement Plan travel agents — is achieved byconnectivity from the host system to the GDS.Any system provider with an e-ticketing prod-uct will need the capability to connect to allGDSs. Failure to do so will result in the airline’sability to only sell directly to the consumerafter the IATA deadline because paper ticketswill no longer be available to travel agents.

If an airline utilizes an in-house reserva-tions system or has never implemented e-tick-eting, the learning curve can be so long that itmay decide that now is the time to explorenew reservations systems. It may choose tosearch for an e-ticketing application, such asFull-Service Electronic Ticketing, a feature ofthe Ticket component, that can be integratedwith its existing host system.

By integrating e-ticketing processeswith its current reservations systems, the air-line achieves the benefits of e-ticketing and asystem with the capability for travel agency e-ticketing, interline e-ticketing and third-partyground handling.

Although the path to 100 percent e-tick-eting presents a number of challenges, thefulfillment environment that will be createdwill have benefits even beyond the widelypublicized cost savings espoused by IATA.The e-ticketing experience for a passengerwill become so smooth it will be taken forgranted. Kiosk usage will increase, and pas-sengers will print boarding passes beforethey leave for the airport. Customer serviceprocesses can be streamlined so passengerswith involuntary changes will have their tick-ets reissued from a central point, enablingthem to check in for their new flights using akiosk. If passengers make voluntary changes,they again can have their tickets reissuedbefore reaching the airport.

Today, the lowest common denominatoris the paper ticket; when the paper goes away,the physical limits of the ticket go away with it,and data fields can be repeated or extendedwithout the issue of “space on the ticket.” Thekey to realizing the full benefits is not toreplace the paper limitations with other restric-tions; ticketing applications and revenueaccounting will need to be adapted, and carri-ers on older versions of EDIFACT will need toconsider upgrading.

The move to 100 percent electronic tick-eting will produce considerable benefits to theindustry; the key to achieving those benefits isto maintain progress in all areas and addresseach limiting factor within the technical plat-form that has been chosen.

Gary Millward is a principal in fulfillmentmarketing for Sabre Airline Solutions.

He can be contacted [email protected].

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The Interline Electronic Ticketing Hub offers a way for airlines to efficiently communicateand share information with all other airlines in the system rather than building one-to-onelinks with each partner airline.

During the past several years, many tradition-al airlines have tried to adapt their businessby borrowing pages from the low-cost car-

rier handbook. In an attempt to lower costs, somemajor network carriers have simplified their busi-ness including reducing their fleet types. Although,for the most part, they have not shrunk down to asingle fleet type like many low-cost carriers, byreducing their fleets from numerous types to ahandful has brought several benefits, including:

Higher utilization (considering that an extra hourof utilization does not cost any more in terms ofaircraft ownership — leasing or financing —higher utilization typically produces incremen-tally lower average costs and helps move a car-rier toward higher profitability); Increased efficiencies in aircraft rotation(fewer aircraft types mean that when aircraftcome to a particular hub or focus airport, theycan be swapped easily, which results in high-er utilization); Reduced requirement to invest in spare air-planes, since each spare can cover more oper-ational problems;Increased volume discounts due to purchasingmore of the same parts and supplies;Less training for flight crews and eliminatingrequirements for multiple type ratings for pilots;Reduced training for mechanics and groundsupport personnel;Reduced inventory of spare parts, whichwould otherwise be required to support multi-ple fleet types;Fewer maintenance personnel;Less training of ground, ramp and technicalsupport personnel;Faster maintenance repairs and recovery frommechanical problems since mechanics andfield personnel are likely to encounter similarproblems and solutions on a repetitive basis.

Continuing to reshape itself into a more effi-cient operation requires careful evaluation of an air-line’s most expensive investment — its fleet. Acommon thread among LCCs is fleet simplicity,with some carriers using merely one type of aircraftto serve their entire network; albeit many may havemultiple sub-fleets within a single fleet type.

Even sub-fleets with their different com-ponents and configurations create additionaldemands on an airline — scheduling for specificmissions, a requirement for different spareparts, maintenance, personnel and training —which can lead to increases in delays and cancel-lations as well as add costs.

As traditional airlines are pressured toprovide low-cost services, particularly in domes-tic markets, they should look to use the samebasic criteria as LCCs when selecting fleettypes, which include selecting aircraft that:

Provide low-cost service to the short- andmedium-haul markets they serve,Deliver reliable, high-frequency schedules,Enable quick-turnaround to minimize groundtime,Provide operational flexibility,Facilitate and standardize training and support,Support high-fleet utilization.

Today, low-cost carriers are even able tooffer additional amenities such as leather seatsand satellite television and radio, partlybecause they have lower costs from simplifiedfleets and the related efficient operations. Withsavings from more efficient operations, LCCshave been able to attract passengers throughbetter amenities.

Traditional network carriers have alsotried to simplify their fleet to some extent, buteither by choice or chance, have only partiallysucceeded, and continue to operate with com-plex fleets.

What Fueled Complexity?Because the airline industry is a complicated,highly capital-intensive business, almost all car-riers that have been around for many yearshave complexities that have been added overtime. These complexities developed from vari-

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

Reduced Fleets, Raised Revenue

By Vijay Bathija and Peter Berdy | Ascend Contributors

Following the lead of low-cost carriers such as AirAsia and jetBlue, many of today’s tradi-tional airlines are reducing their fleet types to lower costs and gain efficiencies in areas suchas crew training.

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Shrinking Sub Fleets

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ous sources, such as:Mergers that resulted in acquiring differentfleet types from partners,Gradual introduction of new aircraft that cre-ated a larger mix than necessary,New technology, such as winglets thataddressed specific requirements of a partic-ular aircraft type,Weight upgrades for specific missions, suchas airplanes to serve high altitude airports orfor use with over-water segments,Acquiring used planes from other airlines,resulting in different interior configurationsor differences in specifications includingweight and performance,Labor requirements, such as crew seats forlonger missions that were not required forall aircraft,Work rules that resulted in a cascading effectof moving pilots from the smallest to largestplane when a new fleet type was introduced,Onerous return conditions that forced airlines tokeep airplanes for a longer period than desired.

Despite the reasons for added complexi-ty, it leads to increased costs. However, takingstrategic steps toward proper fleet planning cansignificantly reduce costs. In recent years, manyairlines addressed the need to streamline theirfleets and reduce the number of sub-fleet types.Newer carriers have an inherent advantagebecause they have the ability to take a simplis-tic approach when planning their fleets, andmany of the issues causing complexity for moremature airlines don’t exist with the newcomers.

Varying Capacity by MarketAn airline needs to determine its ideal fleetrequirements based on its network strategywith consideration for commonality, marketrequirements, aircraft characteristics and itslong-term strategy. However, as LCCs haveentered the mainstream segment, they haveshown that a different fleet does not need to befitted to every single market to vary total capac-ity. One way to vary capacity is by the numberof flight frequencies operated per day or week.

For example, 375, 500 or 625 seats canbe supplied in a market flown with 125-seat air-craft by scheduling three, four or five frequen-cies. Southwest Airlines, which mostly operatesBoeing 737-700s with 137 seats, serves someof the largest domestic U.S. markets. The aver-age market size for Southwest is 2,500 passen-gers per week. Of its markets, 80 percent havea weekly market size greater than 1,000 pas-sengers. Smaller planes allow flexibility forSouthwest, even while serving large markets.

Simplifying the fleet doesn’t necessarilymean reducing down to only a single type of air-craft. JetBlue has demonstrated that creative plan-ning can help airlines increase from one fleet typeto two without adding too much complexity.When jetBlue ordered smaller Embraer regional jetaircraft to complement its fleet of Airbus A320s, itensured that crewmembers would not be required

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Under the traditional low-cost carrier model pioneered by Southwest Airlines, carriers typically use a single fleet type to minimize costs associated with training and maintenance.Although airlines such as jetBlue have added a second fleet type to reach additional markets, the fleet remains relatively simple compared to many network carriers.

Photo

courtesyof

Boeing

Photo

courtesyof

Airbus

to move from one aircraft type to another. Forexample, if a pilot of a larger aircraft leaves the air-line, he or she is generally replaced by a pilot of asmaller aircraft. This results in double training costs— additional training for this pilot as well as for thenew pilot of the smaller aircraft. By isolating itsfleet types, jetBlue should continue to reap thebenefits of fleet simplicity even when utilizing twofleet types. By not basing salary on aircraft type,there’s reduced incentive to move from one planetype to another, minimizing costly retraining.

Another important component of a sim-plified fleet is to examine the tradeoffsbetween new and used airplanes. New air-planes typically are more attractive to LCCsthan used ones for several reasons, including:

Selection of the exact specifications to fitthe airline’s requirements;Enjoyment of a maintenance “honeymoon”period, where the new fleet requires mini-mal maintenance attention during its firstfew years of service; The “new car smell,” where a new planecan have improved passenger acceptanceand likelihood for repeat business;Dependability and reliability that comes withnew equipment;Benefits of technology, including meeting orsurpassing regulatory hurdles such as noise reg-ulations, improved fuel performance and longerintervals between major maintenance work;Improvement of the morale of employees,who are likely to be proud of their airline tak-ing new planes and may reflect this in theirattitude toward customers.

On the other hand, LCCs as well as tra-ditional airlines still consider used airplanes forseveral reasons, including:

Lower lease costs,New planes may not be available for the car-rier’s immediate needs,Timing and availability of aircraft and replace-ment parts,The airline may already have the fleet typeand is seeking more of the same aircraft,Airlines may already be familiar with mainte-nance and operation of the used planes theyselect.

Regardless of whether an airline selectsnew or used aircraft, leases or purchases air-planes, or has more than one fleet type, someeffort has been made to simplify its fleet, andmany traditional airlines have reduced thenumber of fleet types they operate because ofcost pressures and LCC competition.

Economic and practical benefits of fleetsimplicity have forced many carriers to addressthe issue. Start-up carriers may have an advan-tage because they can plan in advance to havethe type of fleet they want. Many have chosena single fleet type, gaining the technology bene-fits associated with new aircraft. Network carri-ers, especially those with large numbers of air-planes, have to deal with issues that can beresolved only over time. They need to have ade-quate capital to renew fleet as well as the flexi-bility to return older airplanes.

Even when a decision to simplify an air-line’s fleet is made, it may take years to achievethe goal due to capital needs and deliveryrequirements. However, with adequate plan-ning, a carrier can achieve a simplified fleet.

In an environment where revenues havecontinued to trend downward and costs are lesscontrollable, fleet simplification can help reducecosts. Carriers focusing on fleet simplification,whether legacy or low cost, will reap benefits ofincreased productivity of their assets.

Vijay Bathija is director of airline planningand Peter Berdy is a partner for

Sabre Airline Solutions Consulting. Theycan be contacted at [email protected]

and [email protected].

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Number of Aircraft Types and Utilization

+count it up370,000 — Additional trans-

Atlantic seats available during the

summer of 2005 versus the same

period the previous year.

6,500 — Number of additional

flights from the North America low-cost

sector last summer, representing

1.1 million additional seats versus the

same period in 2004.

1936 — Year the Douglas DC-3

transport planes entered airline service

in the United States. They because the

most widely used airliners in history.

75 — Percent quieter (20 decibels

less) that today’s aircraft are versus

those in the 1960s. They are also 70

percent more fuel efficient.

80 — Percent Europe plans to reduce

air transport-related accident rates by 2020

through new technology, operational and

regulatory initiatives, and measures to

decrease human error.

5.9 — Percent growth expected for

airfreight companies between 2005

and 2023, generating the need for

more than 700 new and 2,400 con-

verted freighters, according to Airbus.

The utilization of the aircraft appears to be closely related to the number of fleettypes. Utilization has an inverse relation-ship to number of fleet types — the higherthe number of fleet types, the lower theutilization.

W hen British Airways, the UnitedKingdom’s largest international sched-uled airline, opens Terminal 5, or T5,

at London’s Heathrow Airport, it will be able tosay with certainty, “there’s no place like home.”

The move to a high-tech facility symbol-izes the airline’s forward-thinking approach tomaximizing revenue, reducing costs, optimizingcrew management, operating more modern air-craft and, most importantly, creating a desirableenvironment for customers and employees.

“Terminal 5 will open up a whole new trav-el experience for our customers, and it willchange the landscape for 20,000 staff working forBritish Airways at Heathrow,” said Steve Ronald,manager of T5 customer experience for BA.

T5, the biggest planning project — bothin terms of physical size and financial invest-ment — ever undertaken by BAA, the companythat owns and operates Heathrow, is equiva-

lent to 22 football pitches and its developmentbudget nears £3 billion (US$5.5 billion). After 13years of planning and the United Kingdom’slongest public inquiry, lasting almost four years,the airline has finally broken ground on whatwill soon become its new quarters.

The new terminal, which will be exclu-sive to BA, will supplement Heathrow’s fourexisting passenger terminals, improving theairport’s ability to utilize existing capacity andaccommodate the world’s most advanced air-craft, such as the Airbus A380, as well as pro-viding a new facility capable of serving 30 mil-lion domestic and international passengers peryear — accommodating the equivalent of theUnited Kingdom’s population every 625 days.

When T5 opens, BA operations at T1, T3and T4 will be consolidated onto one new cam-pus. T5, the construction of which is expectedto consume 37 million man hours, will comprise

a main terminal building (T5A) and two satel-lites (T5B and T5C) that will be joined by anunderground shuttle train. The main terminaland satellite T5B will open in March 2008, fol-lowed by the scheduled opening of satelliteT5C three years later. T5A will be designed toaccommodate mainly short-haul flights, specif-ically targeting business travelers who can’tafford to spend much time at the airport, andthe majority of BA’s long-haul flights will beoperated from the two satellites.

BA’s new home, a glistening new 21stcentury gateway in and out of London, will bethe size of the city’s Hyde Park — five timesthe size of T4 — with 175 lifts and 131 escalatorsto help travelers quickly and easily navigate itsfive floors. Not only will the new facility supporta superior travel experience for BA’s customers,the grounds will be eloquently landscaped with20,000 trees, shrubs and ornamental grasses

T5: The Gateway to British Airways’ Future

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

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

Terminal 5 will be exquisitely landscapedwith 20,000 trees, shrubs and ornamentalgrasses, offering added appeal to BritishAirways’ passengers.

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

Graphic illustrations courtesy of British Airways

that will point travelers inside to an airy expansewith large windows that provide a scenic view.

Despite its enormity, planners have saidthat T5 will be a model of efficiency. Throughstrategic use of self-service technology, cus-tomers can check in for flights and pre-printboarding passes from the comfort of their ownhome. They can also bypass check-in lines byutilizing one of the terminal’s many self-servicecheck-in kiosks. Ronald believes that while theself-service culture is a key aspect to the suc-cess of Terminal 5, every stage of the processmust be supported by British Airways’ staff.

“We want people to be there in casethings go wrong,” he said. “And when weopen, we will man all the acceptance points.There will always be staff around to help.

“Additionally, the exhaustive planning thathas gone into T5 is designed to ensure that longqueues are a thing of the past. Ideally, there willbe no more than two or three people waiting touse a self-service kiosk at any one time.”

Simplified airport processes are also crucial to the success of the new facility.Designers have created a facility conducive toa traveler-friendly experience that is faster,smoother and simpler, with significantlyreduced connect times.

Today, passengers transferring betweenterminals at Heathrow can face significant con-nection times — up to 75 minutes if connect-ing between T1 and T4. When T5 is complete,travelers who have cleared security can reacheven the furthest gate in the main terminal inonly six minutes. Those transferring to a satel-lite can catch the underground train thatdeparts every 90 seconds. While reduced con-nect times boost customer service, they alsogive BA a competitive advantage.

“One of the main benefits of operatingfrom a single terminal is that we will not haveto coach passengers between two buildings aswe do now between T1 and T4,” Ronald said.“It will cut out double handling and make ouroperation more flexible, while the reducedtransfer times will make us more competitive.It’s a much more attractive proposition for ourcustomers.”

Getting to T5 will be easier, too. It willhave its own sophisticated rail station that willbe located beneath Concourse A. The stationwill include six rail platforms: two for theLondon Underground Piccadilly Line extension;two for the Heathrow Express extension, anda third pair built for potential future rail expan-sion. In addition, a bus station and a new dedi-cated spur road will connect directly to themain terminal.

Consolidating its operations into a singlecampus at Heathrow also provides logisticaladvantages. Flight crews and the majority ofoperational staff currently stationed in theCompass Centre will be based at T5. Crews willbe able to report to work, receive their briefingsand board their flights in the same building,

reducing journey times, thereby minimizing pos-sible delays. T5 will also boast two-way taxiwayswith no cul-de-sacs or runway crossings, adesign that will minimize taxi times.

As a modern working environment, theairline will introduce more efficient ways ofdoing business. Working practices, which cur-rently vary by Heathrow terminal, will bereplaced with a single process, and theamount of equipment will be reduced andstandardized. New procedures to improve themanagement of aircraft stands and the move-ment of ground equipment, baggage and staff

across the terminal will be implemented. Forexample, Terminal 5’s state-of-the-art baggagesystem will operate on 18 kilometers of bag-gage belt that will transport luggage aroundthe new terminal, and a containerized loadingprocess will replace the current loose loadingcargo system, allowing for more rapid turntimes.

Ronald points out that one of the mainchanges at T5 will be the way passengers andbaggage are checked in.

“The layout of the concourse is going tobe quite different than what passengers areused to at Heathrow, and it’s designed toimprove and speed the process,” he said.“From the self-service check-in kiosks, travel-ers will go straight to the baggage drop-offpoints and then through security.

“We want our customers to progresslogically through the building, eliminating back-flows and cross flows of people getting in eachothers’ way. We will be moving people forwardat every stage so they flow smoothly throughthe building. Check in, for example, is an obsta-cle to the passenger. We have to make thatprocess as efficient as possible and put people

in control of their journey through the airport.”Another top priority for a successful T5

is helping passengers, both arriving and depart-ing, navigate through the terminal by correctlyposting signs throughout and ensuring thereare ample landmarks.

“Signage is something we are workingvery hard on with the BAA,” Ronald said. “Weboth want to promote our own branding, but atthe same time, the ‘way-finding’ must be clearand simple. We want customers to be confidentthat they know where they want to go next.

“One of the really big changes for arriv-ing passengers is that they will walk across abridge and look down into the baggage hall,which is big, airy and above ground,” he said.“That will help them get their bearings. Theywill be able to see exactly where they are,where they have to get to and, for premiumpassengers, where the arrivals lounge is.”

Getting “Fit for 5” presents an enor-mous challenge for BA as it strives for a suc-cessful move to the new terminal. The firstphase of Terminal 5 will be completed bySeptember 2007, followed by six months ofscrupulous systems testing, and any changesmust be introduced by the end of 2006 toallow ample time for proper incorporation.

A considerable focus remains on prepar-ing the airline’s systems, processes and work-ing practices for the transition. Work teams arealready visiting the site to become familiar withthe new layout, and the management of termi-nals 1, 3 and 4 now resides under one person,a first step in organizing the airline’s personnelin one team for Terminal 5. Employees andtrade unions will also be closely involved in theplanning process up to the 2008 move in.

For its customers, Ronald said BA hastaken a customer-centric approach to all thatgoes into T5 to ensure all customers’ needsand expectations are met.

“We have to make sure that all our ideaswork for our customers,” he said. “We willtake time to test everything first.”

For British Airways, the move repre-sents an exceptional opportunity to grow theairline and modernize Heathrow. The impor-tance of T5 and what it means to the future ofBA cannot be underestimated. It signifies aonce-in-a-lifetime opportunity and affords theairline a chance to build a new Heathrow.

“T5 will give us a superb theater fromwhere we can deliver great customer service,”said Jonathon Counsell, head of Terminal 5development for British Airways. “It will have afantastic impact on the traveling public and onall the people who work there.”

Stephani Hawkins can be contacted [email protected],

and Lynne Bowers-Clark can be contactedat [email protected].

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BA’s new home, a glis-tening new 21st centu-ry gateway … will bethe size of the city’sHyde Park … with 175lifts and 131escalators to help travelers quick-ly and easily navigateits five floors.

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Gulf ’s Onboardwith Top In-flight Service

Gulf Air’s unique approach to

in-flight service has earned the

airline top catering awards for

two consecutive years.

By Debbi Lyons | Ascend Contributor

Photos courtesy of Gulf Air

A s Gulf Air, the Middle East airlineowned by the Kingdom of Bahrain,Oman and the Emirate of Abu

Dhabi, nears the end of its three-year restruc-turing and strategic turnaround, it has tackledeverything from renewing its fleet and networkstructure to branding and customer service.The turnaround program has already provensuccessful, creating a dramatic improvementin financial results.

A key component of the turnaround hasbeen the airline’s emphasis on in-flight ser-vices. In his role as head of in-flight service,cabin crew and supply management, MichaelKent has added innovative new services suchas the Sky Nanny program and in-flight chefs.Gulf Air has also revamped its cabins with newSky Beds in first and business classes. Theprograms are paying off: in the latest WorldAirline Catering Awards, published by SkytraxResearch, Gulf Air won first place for both first- and business-class onboard catering on

long-haul intercontinental flights. But Gulf Air’smeteoric rise in the rankings was no overnightsuccess — it combines concepts from air trav-el’s luxurious past with services that Kent hashoned in previous positions at other airlines.

His experience using onboard chefs atQantas Airways for food preparation hasinspired and served as the launching pad forthe program’s latest incarnation at Gulf Air. AtAnsett International, Kent forged new groundin menu planning and further developed theonboard chef idea.

When Gulf Air President and ChiefExecutive Officer James Hogan began theturnaround at Gulf Air, he recruited Kent to bringsome of his innovative ideas to the airline.

“He said, ‘I want you to come on boardto turn around all the services of in flight and allthe supply services that go to that,’” Kentrecalled Hogan telling him. “‘And I want you toimplement the chef concept you had at Ansett.’

“I said, ‘You want me to turn everythingaround in six weeks?’ He said, ‘No, I want you toget the chef service up and running,’” Kent said.

Kent chose to target a route to

London for six months while setting up the processes, choosing the caterers and hiringchefs. He needed that time for the all-impor-tant process of recruiting the airline’s 140chefs who come from diverse backgroundsand have impressive credentials — eitherMichelin starred or experienced as the head ofa five-star hotel or restaurant. The chefs mustbe creative to work in a space-restricted airlinegalley. They also have to be proficient at mer-chandising because the Gulf Air Inflight Chefprogram touches a wide range of onboard ser-vices, including menu design, product procure-ment and service delivery.

When planning service for a new mar-ket, such as Kuala Lumpur, a group from theInflight Chef program visit the location to sam-ple local cuisine.

“I sent the chefs to Kuala Lumpur tocheck out the best restaurants, visit the localmarkets and street stalls, see what the peopleeat, determine their flavors, and talk to otherchefs in restaurants as only chefs can do, go tothe catering center, see the capability of thecatering centers to translate that into what we

want to do,” Kent said.Once the menu for service from the

new station is designed, the chefs help price it,determine labor costs and train local cateringkitchens to produce the food. The chefs alsoassist in quality assurance by inspecting foodfor freshness before accepting it on board. Tocomplete the feedback circle, the chefs areavailable on board for feedback from the pas-sengers about what they did and didn’t like,and through supervising the off-load process,they establish appropriate serving sizes.

First-class passengers are not the onlyones to benefit from the revamping of service.Many former first-class cabin crew havemoved to business class, and the first-classchefs are training chefs for business class. Notonly is the food starting to resemble the oldfirst class but the presentation does as well:the service includes new, larger plates andtaller, stacked food designs. Enhancements infood service are also being made in economyclass. For what Kent calls “premier economyclass,” Gulf Air is now serving cheese and fruitplates, once a staple of business class.

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“He said, ‘I want you to come on boardto turn around all the services of in flight andall the supply services that go to that.”— Michael Kent, head of in-flight service, cabin crew and supply management for Gulf Air

Nostalgia for air travel’s past can be seenin the redesigned Gulf Air cabin. The 78-inchbed is among the longest in the world. It alsofeatures a jump seat at the foot of the bed.When the chair is in the upright position, atable folds down and passengers can have din-ing for two, just like in a restaurant.

“All of the things we’re doing here arememories turned into modern, contemporaryentities,” Kent said. “I still have the picture inmy mind of these duvet-type things and bedsheets and big fluffy pillows.”

Gulf Air has also added a new Sky Nannyprogram. Nannies are not uncommon in the air-line’s home countries. However, nannies may ormay not travel with their employer or sit in thesame fare class as the children. After receivinga complaint about children running wild in firstclass, Hogan once again tasked Kent withaddressing the issue immediately, this time byputting Gulf Air nannies onboard certain long-haul flights. After an unsuccessful round of

outside recruiting, Kent turned to his own ranksto staff the program and contacted a prestigiousnanny training school called Norland College.

“They said, ‘Oh blimey, love, you’ve gotthe wrong phone number, I think,’” Kent said.“‘We don’t train airline people; we train theroyal courts of England.’”

It took some convincing, but Gulf hasnow entered into an exclusive five-year partner-ship with the school. The new agreement rais-es awareness of Norland College in a regionwhere many royal families hire nannies.

Of course, all these improvements in service only become real to the passengeronce the airline can ensure that they will be consistently delivered. To do so, Gulf Air has invested in its information technology systems and processes, including the Sabre ® AirServ ®

In-flight Solutions.“Most airlines have up to nearly 30 per-

cent of equipment sitting on the ground aroundthe globe, if they’re a global airline, at any onetime,” Kent said. “Using a ‘push’ system thatwe will introduce with the AirServ solutions,we can really minimize that holding stuff out inthe global market to give us a massive return oninvestment — money saved on equipment.”

Kent also looks forward to the precisionthe system will bring to his interactions withcaterers. Meal ordering will be more tightlymanaged through systems that communicatewith the departure control system to give up-to-the-minute meal requirements.

The Sabre ® AirServ ® Billing Manager willcreate a pro forma invoice for the food serviceimmediately upon the plane’s departure. Theresulting speed and accuracy of the invoice willimprove operations for both the airline and thecaterer.

“So why will a caterer come onboardwith me to do all the work that we’re askingthem to do?” Kent asked. “Because they willget on-time payment — direct, online, on-timepayment. And that is a major, major, majorbreakthrough for caterers. Because if we’regoing to do any system, it’s going to be awin/win for both sides.”

Gulf Air also looks forward to the launchof its new concierge service later this year. Theservice will assist travelers in procuring ser-vices on the ground such as hotels and carsand will use Gulf’s new cabin managementsystem. These services are all part of the effortto provide a unique flying experience andthereby improve yield.

“We’d rather be the best than thebiggest; we want to be the best of the best,”Kent said.

If the Skytrax awards are any indication,Gulf Air’s in-flight service is well on its way tobeing “best of the best.” In the three yearssince he has taken the reins of the in-flight pro-gram, Kent has seen the rankings rise from 78th

for first class, 56th for business class and 116th foreconomy class to the current rankings of first,first and sixth. Not only that, but this is the sec-ond year in a row that first class has taken thetop award. Not one to rest on his laurels, Kentis already making predictions for next year:rankings of first for first class, first for businessclass and, yes, first in economy class.

Debbi Lyons is marketing manager for Sabre Airline Solutions dining and cabin services. She can be contacted

at [email protected].

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On its long-haul flights, Gulf Air offers acomplementary in-flight child care program(left), helping children board as well as pro-viding parents an opportunity to rest andrelax. The airline also offers seats that con-vert into Sky Beds (below) in first class withan 80-inch pitch and 25-inch width and busi-ness class with 63-inch pitch and 24-inchwidth. Both cabins are equipped with in-seat laptop connections and a phone as wellas access to 42 video and audio channels.

— Michael Kent

“All of the things we’re doing here are memories turned into modern, contemporary entities. I still have the picture in my mind of these duvet-type things and bedsheets and big fluffy pillows.”

FOR SCANDINAVIAN AIRLINESSYSTEM, WHAT’S OLD IS NEW AGAIN.

The airline, which formed when sever-al local carriers joined forces after World WarII, has in some ways returned to its roots byonce again dividing its operations across itshome region to become more flexible andbetter able to compete.

In 2004, as SAS continued grapplingwith the challenges facing the industry, itdivided into four separate airlines — SASDenmark, SAS Sweden, SAS Braathens andSAS International Airlines. The advantageof establishing four distinct carriers was notonly to respond faster to market needs andlead the market with new initiatives ratherthan react but also to tailor individual initia-tives to each individual airline.

Although the individual airlines sharedepartmental responsibilities in areas suchas information technology, human resourcesand finance, each division is equipped withits own hub, fleet and crews to:

Reduce complexity for each hub,Increase efficiency,Increase transparency,Allocate dedicated fleets,Optimize each hub individually rather thanoptimizing across the entire network.

Breaking into separate airlines waspart of a larger reorganization with areshaped brand strategy. As part of therestructuring, designed to introduce clearlydivided business areas driven by a focus ondecentralization and transparency as well asindividual responsibility for earnings, theSAS Group split into five core units:

SAS Airline Businesses — The four indi-vidual SAS-branded carriers with hubs in Copenhagen, Denmark; Stockholm,Sweden; and a regional hub in Oslo,Norway, which combine to form the fourth-largest airline group in Europe, carrying 24million passengers with 200 aircraft;Subsidiary & Affiliated Airlines —Independently operated carriers in whichthe SAS Group has an ownership stake,including Spanair, Blue 1, Widerøe,Estonian Air and airBaltic, which combinedcarried 8.6 million passengers last year to73 destinations using 97 aircraft;Airline Support Businesses — Companiesincluding SAS Cargo, SAS GroundServices and SAS Technical Services,which account for 21 percent of the oper-ating revenue of the SAS Group;Airline Related Businesses — Associatedorganizations including SAS FlightAcademy, Jetpak, European AeronauticalGroup, SAS Business Opportunities andSAS Media that generated 2.9 billion SEK(US$3.8 million) in operating revenue in2004;Hotels — Rezidor SAS, tracing back to1960 when SAS opened its first hotel inCopenhagen, which operates 190 hotels in47 countries under five brands: Radisson,Country Inn, Cerruti, Park Inn and Regent.

SAS has restructured itself to be more flexible and compete effectively in its home markets.

By Marco Contento | Ascend Contributor

BACK TOTHE FUTURE

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“We started by creating a clearer struc-ture so that each company on its own powercan develop its core activities according to thelogic of its own business,” said SAS GroupExecutive Vice President and Chief FinancialOfficer Gunilla Berg. “You could say that weare ‘normalizing’ the SAS Group’s structure toresemble that of other groups. Giving compa-nies their own responsibility for earnings is astrategy that has proved successful in othercompanies even within the group. Clearerresponsibility for earnings is vital but requires awell-functioning and integrated managementmodel. Such a model is now in place groupwide.”

SAS’s restructuring for the modern airlineenvironment has some ties to its earliest dayswhen it began as a group of separate airlines.

The airline traces its roots to 1918 whena Danish air taxi company, Det DanskeLuftfartselskab, was founded. In 1946, DDLunited with Det Norske Luftfartselskap A/S andSvensk Interkontinetal Lufttrafik AB to formSAS. After five years of cooperation, the threeairlines formed a consortium that has lastedmore than 50 years.

With the industry downturn in 2001, how-ever, SAS was forced to rethink its structure andtake various measures to transform the compa-ny. Not only did the airline face financial chal-lenges, it also faced increasing competition, par-ticularly from low-cost carriers. To understandthe magnitude of competition in that region,compare Scandinavia with a similarly sized areaof western Europe. Scandinavia, includingFinland, has a land mass of a little less than 1.2million square kilometers, which is comparableto the combined size of the United Kingdom,

France and Germany. However, while thosethree countries have a combined population ofmore than 200 million, Scandinavia, includingFinland, has slightly more than 24 million.

Despite the relatively small population,travelers have a choice of more than 25 airlinesoffering intra-regional services, not countingother international carriers that connect theregion with other markets. With most competi-tors offering point-to-point service, they have asignificant impact on SAS’s hub-and-spoke net-work structure.

Faced with these challenges, four yearsago SAS began restructuring its operations.Although the next three years proved difficultfinancially, its turnaround efforts laid the foun-dation for its improved performance this year.

In 2001, the airline established SAS AB,the new holding company of SAS Group. As aresult, various divisions and majority-ownedsubsidiaries were spun off. SAS sold 285,000square meters of airport properties, such aswarehouses and hangars, to investors as partof a program to free capital. In 2003, the airlinesold its properties in Frösundavik, Sweden, aspart of a sell-and-lease-back agreement.

On the information technology side,SAS sold SMART, the Scandinavian TourOperator Portal, in which it held 95 percent ofthe shares, to Amadeus in mid 2002. At theend of 2003, Scandinavian IT Group, whichwas a large division serving not only SAS butseveral other carriers with reservations andinventory technology, was sold to Danish CSC,which continues to manage all IT requirementsof the SAS Group.

The spin offs were part of the SASGroup’s decision to focus on its core operations.

“We are releasing capital that can beused for airline operations, among other pur-poses, while at the same time we are letting aprofessional property-management companyacquire the office properties,” said SAS ChiefExecutive Officer Jörgen Lindegaard.

Focusing on the core airline business ledSAS to expand its ownership interests in othercarriers. In 2002, SAS increased its stake inSpanair, which it launched in 1986, by an addi-tional 25 percent, giving it 73.9 percent majorityownership. The following year, SAS increasedits stake to 93.9 percent as it continued to shiftits focus to its airline business by strategicallyinvesting in existing and new partners.

In December 2001, SAS Group acquiredBraathens, then the dominant player in thedomestic Norwegian market. In mid 2002, SASincreased its ownership in Widerøe, anotherlocal Norwegian carrier, from 63.3 percent to96.4 percent.

In late 2003, the airline group acquired49 percent minority share in Estonian Air, aBaltic carrier with predominantly local trafficthat feeds into SAS’s Scandinavian and long-haul networks. Since then, expansion in theBaltic states and Finland has proven importantin SAS Group’s positioning in the area, includ-ing its involvement in airBaltic, Latvia and AirBotnia, the wholly owned Finnish companythat was renamed Blue 1 in 2004.

Widerøe, Blue 1 and Braathens play asignificant role in SAS’s strategy by comple-menting its regional networks through theaddition of new point-to-point routes as well asfeeding the airline’s European and long-haulnetworks. SAS also maintains an ownershipinterest in Spanair. While Spanair has only mar-

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

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

Right Bottom: The SAS Group, whichconsiders the Baltic Sea region its homemarket with 55 percent market share,also conducts airline operations activitiesin other regions, as well as other airline-related businesses and hotel operations.

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Graphics courtesy of SAS

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Scandinavian Airlines BusinessSpanairWiderøeBlue 1air BalticEstonian Air

Rezidor SAS, hotels

ginal impact on the Scandinavian market, it helpscontribute to the airline’s overall success. SASalso has a minority participation in Skywaysand cooperates commercially with it on its pre-dominantly domestic-Sweden network.

The airline continued its efforts torevamp its business with “Turnaround 2005,”a plan to return to profitability, which is expect-ed to generate 14 billion SEK (US$1.8 billion)from 2003 to 2006. By the end of 2004, SAShad successfully implemented changes thatwill have an impact on earnings of 11.9 billionSEK (US$1.6 billion), bringing down unit costsby 26 percent compared to the end of 2002.

Today, SAS continues to change the wayit does business.

“The yield stabilization that started at theend of the third quarter of 2004 has continuedthrough the first quarter of 2005,” Lindegaardsaid. “The high oil prices were compensatedby fare adjustments. The emphasis now is onimproving the cabin factor through capacityadjustments and a more aggressive commer-cial focus. Scandinavian Airlines Denmark andScandinavian Airlines International are focusingon development of Copenhagen as a traffic hub.In Sweden, we launched ‘Nya Inrikesflyget’ (anew domestic concept) at the end of March,which has been a major sales success fromthe start with more than 100,000 ticket reser-vations on our new, simplified Web site by theend of April. The other airlines in the SASGroup have developed as planned andstrengthened their market positions.”

SAS Group’s total net income improvedby approximately 400 million SEK (US$53 mil-lion) in the first quarter of the year compared to

the same period in 2004; the unit costdecreased an additional 7.5 percent. The newprice concept in Sweden alone saw loads forSAS Sweden jump by 11.6 percent. Despiterising fuel costs, the SAS Group reported asuccessful second quarter when group earn-ings (before capital gains and non-recurringitems) jumped dramatically to 579 million SEK(US$76 million).

What Lies Ahead? On the cost side, SAS will continue pursuingproductivity increases for its flight crews. SASGround Services and Technical Services arealso in the focus to deliver savings. And withthe intended shift to direct sales channels, dis-tribution costs with its global distribution sys-tem partners will also be reviewed.

On the product side, changes keep dom-inating. Following the success of its NyaInrikesflyget concept for Sweden, which isbased on one-way fares, SAS introduced thesame for Europe, making it the first huge net-work carrier in Europe to introduce such a rad-ical change.

As a result of Turnaround 2005 and itsongoing restructuring efforts, SAS appears tobe on track to return to profitability after fourconsecutive years of losses.

Marco Contento is a Europe-based account director for Sabre Airline Solutions. He can be


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

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

Top: Company officials hope by organizingits operations into five businesses positions the SAS group for a successfuljourney with a smooth landing.

Bottom: SAS Group management team,back row from left: John Dueholm,Scandinavian Airlines Businesses; CEOJörgen Lindegaard; Bernhard Rikardsen,Corporate Administration & Support; Frontrow from left: Gunnar Reitan, Subsidiary & Affiliated Airlines and Hotels, andGunilla Berg, CFO.

Anyone growing up in India prior to the1980s had little choice among locallybased airlines. It was either Indian

Airlines for domestic travel or Air India for inter-national travel. With a market economy alignedwith the Soviet Union, competition was notparticularly favored by the Indian government,even though India was the largest democracyin the world.

With the economy not performing to itspotential, the government of India decided toprivatize some sectors. The airline sector wastargeted early on, and a limited number of pri-vate airlines were allowed to operate. Initially,they were treated as “air taxis” and not evenpermitted to publish a schedule.

Mumbai, India-based Jet Airways wasone of the region’s first private airlines to befounded. It began commercial operations onMay 5, 1993, with a fleet of four Boeing 737-300s. Since then, the airline has expanded its fleet by 46 aircraft — Boeing 737-400/500/700/800 and ATR 72-500s. JetAirways has been consistently judged India’sbest domestic airline, and it was the first Indianairline to receive the World Travel MarketGlobal award.

The airline, which began internationaloperations to Sri Lanka in March 2004, quicklyproved that through superior service and effi-ciency of operations, it could take on the gov-ernment-giant Indian Airlines on domestic

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XxxxxxpXxxxxxxxxAfter strict government regulations forbidding India’s privately owned carriers to serve international routes were lifted, Jet Airways swiftlybecame a successful international airline.

Jet Airways: From Domestic to International

By Apurva Mathur | Ascend Contributor

Initially, destinations outside the Indiansubcontinent included Southeast Asia,Singapore and Kuala Lumpur. While thesedestinations could be serviced by JetAirways’ fleet of Boeing 737 aircraft, the carrier deemed it necessary to becomefamiliar with consequential over-wateroperations and international standards.

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In the early 2000s, the government ofIndia lifted restric-tions and allowed private airlines to start limited servicesto international destinations, whichpresented a complete-ly new challenge forthe region’s carriers.

HIGH l i gh t

routes and be profitable. With a loyal customerfollowing, Jet Airways quickly became the dar-ling of the country’s airline industry.

One of the early decisions Jet Airwaysmade to become more efficient was to adoptmodern technology to manage its day-to-dayoperations. The airline hired managers whowere experienced in running an airline anddependent on technology, such as the FlightOperations System, or FOS, from Sabre AirlineSolutions, to run its daily operations, whichproved pivotal to the airline’s success. JetAirways quickly became known as the “on-time” airline, and business travelers flocked tothe airline by the throngs. With a faithful follow-ing under its belt, the carrier managed to growrapidly and become popular in the Indian skies.

Much of making an operationally effi-cient airline lies in the availability of informationand access to data to make well-informed deci-sions. With the distribution capabilities of FOS,the airline was able to send and receive infor-mation about flights and passengers through-out its network. In fact, customer service wasso important to Jet Airways that it made spe-cial modifications to FOS to allow moredetailed information to be input into the sys-tem so every person within the airline whointeracted with customers had access to theirinformation in a meaningful and timely manner.

In the early 2000s, the government ofIndia lifted restrictions and allowed private air-lines to start limited services to internationaldestinations, which presented a completelynew challenge for the region’s carriers. Eventhough India is the second-most populousnation in the world, it is not geographicallyvast. Flying east to west or north to south canbe accomplished by short-haul, single-aisle air-craft. The mainstays of most of the airlines inIndia were either Boeing 737 or Airbus A320aircraft. With the initial set of international des-tinations limited to neighboring countries in theIndian subcontinent, this would not present aproblem. Jet Airways was quickly able to adaptto international regulations and fly to thesedestinations with relative ease.

When government restrictions were further lifted to allow for long-haul internation-al operations, a new set of challenges facedJet Airways. It needed to quickly transformitself from a domestic airline operating in a rel-atively known environment into a world domi-nated by giants such as British Airways,Lufthansa German Airlines and SingaporeAirlines. This called for urgent action on thepart of Jet Airways and meant the airline need-ed to not only learn about long-haul operationsbut also quickly decide on and acquire new air-craft types.

While FOS had served Jet Airways welland helped in its success to become the pre-mier domestic airline, the carrier neededsomething even more advanced to help itbecome an international airline.

First, destinations outside the Indiansubcontinent included Southeast Asia,Singapore and Kuala Lumpur. While these des-tinations could be served by the airline’s exist-ing Boeing 737 aircraft, Jet Airways needed tofamiliarize itself with substantial over-wateroperations and become familiar with interna-tional standards. After doing a thoroughsearch, Jet Airways concluded that it neededto modernize its flight operations system tomeet the challenges of international aviation.FOS had done its part to make Jet Airways anefficient flying machine, and it was time to turnto something more modern and capable ofcomplying with extended-range twin-engineoperations, or ETOPS, and the International

Air Transport Association messaging standards.A completely different lingua franca existed forinternational operations, and Jet Airways need-ed to get well versed in it very quickly.

With an urgency to realize optimal speedand results, the airline once again turned to itstrusted information technology partner to helpit meet its aggressive schedule of startinginternational operations. Sabre AirlineSolutions consultants, well-versed in interna-tional operations, guided Jet Airways as itlearned the ropes of its new environment.During the engagement, the airline elected toimplement the Sabre ® AirOps™ Suite to helpmaximize operational efficiencies.

“There is no doubt flight operations aremission critical,” said Peter Luethi, chief oper-

ating officer for Jet Airways. “It’s a particularlypertinent issue for Jet Airways as we face theunique challenge of regular fogs in Delhi everyyear for two months; hence it is imperativethat we have the best tools available to man-age our flight operations.

“To meet our growing needs — and alsofor international routes — we realized werequired a robust, integrated solution that isproven in the marketplace, and the AirOpssuite met all our criteria.”

The AirOps suite of operational productswas installed, and Jet Airways’ operations con-trollers and dispatchers were trained on thesystem in record time. With the deadline metfor setting up the systems, Jet Airways’ per-sonnel focused their efforts on maximizing theuse of the systems to produce the efficienciesit provided.

Being a modern system built on open-systems technology, the AirOps suite providesan automated, visually intuitive flight displayand control system to help improve on-timeperformance, increase aircraft utilization andminimize operational disruption.

The quick implementation and opera-tional use of the products meant that JetAirways was able to meet its goal of becominga well-regarded international airline.

“This has been one of the best imple-mentations/cutovers … even the user depart-ment has applauded the work done,” Luethi said.

When Jet Airways needed to evaluatedifferent aircraft types to meets its demandsfor international travel beyond Southeast Asiato London and New York, the AirOps suitehelped make the optimal decisions.

Another aspect that has helped JetAirways adapt to the rigors of international avi-ation is the integration of the AirOps suite withother systems at Jet Airways. Whether it is thereservations and check-in system,SabreSonic™ Passenger Soluitons; the revenuemanagement system, the Sabre ® AirMax ®

Revenue Management Suite; the crewing sys-tem, Sabre ® AirCrews ® Crew ManagementSuite; or the air traffic control system, theAirOps suite seamlessly sends and receivesdata that keeps all the systems in synch andeveryone informed.

Jet Airways has quickly transformeditself into an international carrier with help froma determined management team and sophisti-cated array of modern operational tools. Today,because the airline has taken full advantage ofits government’s ease on international service,the region’s travelers have more choices in airtravel, and Jet Airways is poised to remainIndia’s most popular airline.

Apurva Mathur is director of flight opera-tions for Sabre Airline Solutions. He can be


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With an urgency torealize optimal speedand results, the airline once againturned to its trustedinformation technol-ogy partner to help it meet its aggressiveschedule of startinginternational operations.

HIGH l i gh t

US Airways’ CEO Doug Parker, aka The Transformer, swoops in from his Arizonalair to rescue the future of two airlines, creating a new force for good in the airline industry.

While more of the world’s air-lines are adopting elementsof the low-cost carriermodel to help adapt to a rad-ically changed industry, the

new US Airways, formed by the merger ofAmerica West Airlines and US Airways, isalready enjoying the benefits of making theswitch. Several years ago, America Westtransformed itself from a pure hub-and-spokecarrier to the United States’ largest “low-fare,full-service” airline by simplifying pricing, elim-inating Saturday overnight stay requirementsand pushing more bookings to its Web site.

In 2002, America West became one ofthe first traditional airlines to implement a sim-plified pricing structure, dramatically cuttingthe fares for transcontinental trips by, in somecases, more than 400 percent. Yet the airlinestill maintained its valuable customer amenitiesincluding lounges, an extensive, award-winningfrequent flyer program and a first-class cabin.The airline also continued to maintain hubs inPhoenix, Arizona, and Las Vegas, Nevada.

The changes led Entrepreneur magazineto name America West the best major airline in 2004. The airline’s frequent flyer program,FlightFund, has also received InsideFlyermagazine’s “Freddie Award” for best elite-level program in the Americas for three con-secutive years.

Now, the Tempe, Arizona-based airline isonce again poised to take a leading role inreshaping the industry through its recent merg-er with US Airways, which could be the first stepin a much anticipated industry consolidation.

Together, the two airlines will form thefirst national low-cost, hub-and-spoke networkcarrier, with service to more than 200 interna-tional and domestic destinations. The new air-line has become the fifth-largest U.S. airline,operating 361 aircraft. The combination isexpected to form a financially strong airlinewith US$10 billion in annual revenue.

Doug Parker, 43, chief executive officerof the combined airline, was a key driver in thetransformation of America West Airlines.Parker, who became the chairman, president

and CEO of America West Holdings Corp. andAmerica West Airlines in September 2001, hasbeen with the airline since June 1995. Prior toassuming the top spot, the Farmington Hills,Michigan, native served as the airline’s seniorvice president and chief financial officer. Hisduties later expanded to include schedule plan-ning and revenue management, sales and mar-

keting, information systems, and corporateaffairs divisions. Before moving to AmericaWest, Parker held a variety of financial posi-tions with Northwest Airlines and AmericanAirlines. Parker recently shared his thoughtsabout the changes in the industry and wherehe believes they will lead. Question: How long ago did you startlooking at a possible merger as a strategyfor long-term success, and why did you feelthis was the right direction?Answer: I’ve remarked on several occa-sions that consolidation in our industry isinevitable, and I always maintained a goal ofAmerica West playing an active and positiverole in that process. We looked at a possibledeal with ATA last year, and although thepieces didn’t come together in that case, I’mproud of our team here because that entireprocess showed we weren’t set on growingjust for growth’s sake or merging just for thesake of merging. In this case, we’d had someearly discussions with US Airways folks beforetheir second bankruptcy, but we weren’t goingto move forward until it made sense for ouremployees, customers and stockholders.When we felt those conditions were satisfied,we began to move forward on this with moremomentum.Q: When looking at potential merger part-ners, what was so attractive about combin-ing America West and US Airways?A: You’re going to hear the word “comple-mentary” a lot from us when we talk about thismerger, and that explains a major part of whythis merger makes sense. America West’swestern concentration of routes combined wellwith US Airways’ eastern network. The list ofcities served by us now totals about 240 — ofthat 240, less than 40 had service by both USAirways and America West, so there was verylittle overlap. With similar labor costs already inplace, we believe that with additional cost andrevenue synergies, this is a win/win.Q: Mergers in the airline industry havebeen notoriously difficult; how can you suc-cessfully overcome many of the issues thathave plagued prior mergers?

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profile

A Conversation With … W. Douglas Parker, Chairman, President and

Chief Executive Officer, US Airways

As part of its recent merger with US Airways, the America West Airlinesname and livery will soon become a thing

of the past. The two airlines, which will operate under the US Airways

banner, will soon fly aircraft sporting afresh, new paint scheme for its aircraft.

Photos courtesy of US Airways

A: The most difficult area has traditionallybeen integrating two cultures. To address that,we’ve made it a major priority to engage inhonest and open communication with employ-ees, and that’s only going to increase as theintegration moves forward. I think employeesof both companies understand the various lev-els at which this merger makes sense — chiefof which is the fact that the futures for employ-ees from both companies are going to bemuch brighter and much more stable with themerger than without it.Q: What reaction have you received to themerger both internally and externally?A: The external reaction might be best repre-sented by the third-party financial endorse-ments we’ve received totaling US$565 millionin new equity and the ATSB’s approvalremarks, in which it noted the merger shouldimprove our competitiveness. On the internalside, I’ve conducted a series of town hall-stylemeetings with our employees. The responsehas overwhelmingly been not just positive butactively supportive.Q: What do you believe will be the biggestchallenge to uniting the two airlines into asingle entity?A: I’ve always said it will be integrating twoworkforces and the cultures present in each ofthem. But most things worth doing right aren’tsimple tasks, and this is obviously somethingworth doing the right way. We will take ourtime and strive to over communicate, althoughI don’t really believe it is possible, in this indus-try anyway, to over communicate. Q: You stated that this merger would putboth airlines in a position of strength andfuture growth that neither could achieveseparately. How does this merger providethose opportunities?A: It allows us to grow without dumping capac-ity on the industry. In fact, our merger will resultin the combined fleet totaling about 60 aircraftless than the sum of the two fleets today. Thatrepresents a rational merger, and clearly ismore efficient than if both airlines attemptedto grow to national network scale alone.Q: What kind of impact will this combinedlow-cost, full-service international modelhave on the industry?A: Our goal for this merger is to form thenation’s first nationwide, full-service, low-costcarrier, so I think the largest effect will be thatcustomers will have a new travel choice thatwill offer them low-cost options on a nation-wide network that is tied in to a premier fre-quent flyer program with partnerships that canoffer award travel throughout the world. Thismerger should raise the bar on what comeswith a low-fare travel experience. A customerdoesn’t typically expect first-class upgradeoptions, international destinations and clubs,but we will deliver all of that and much more.Q: If you had not been able to find a suit-able merger partner, where do you think

America West would have been in fiveyears, and what areas of your operationwould have possibly required changing?A: A lot of that depends on things out of ourcontrol, such as runaway oil prices and indus-try overcapacity, two things we’re better ableto face as a result of the merger. Absent themerger, we were still doing a great job in ahyper-competitive industry. We earned a mod-est profit in our second quarter and our

employees have worked tirelessly to maintaincosts that are among the lowest in the indus-try. Rather than speculate what might havebeen, I’d rather reiterate that we will continueto build on those strengths and take advantageof opportunities that make sense for us as theindustry evolves.Q: Delta Air Lines recently generated a lotof attention with its simplified pricing

scheme — SimpliFares — somethingAmerica West did more than three yearsago. What prompted you to take that stepwell before most other airlines?A: It was pretty simple — we understoodwhat customers were demanding from airlinesand that the post-Sept. 11 world was not justanother “downturn.” The landscape had per-manently changed. We thought if we simpli-fied and reduced walk-up fares, the responsewould be overwhelmingly positive from cus-tomers, and it was; it was clearly a revenue-positive move for us.Q: What have been the results of your con-version to a low-cost, full-service model?A: Again, our bottom line improved when weembraced the low-cost model. By loweringcosts in areas that didn’t have a large impacton customer service, we were able to maintainperks like an award-winning frequent flyer pro-gram, first-class cabins, airport clubs, etc.Customers responded positively, as you’dexpect they would.Q: How long did it take to fully convertfrom a traditional “legacy” carrier to thelow-cost, full-service model?A: Well, we were never really a traditional“legacy” carrier in that we were formed afterthe industry was deregulated. In fact, we werethe first founded after deregulation to achievemajor-carrier status. But the period of time inwhich we transitioned to a simpler, customer-friendly pricing structure really began in theaftermath of 9-11. I would even say that it con-tinues today. With our merger, we now haveanother challenge and that is to continue toevolve the merged airline into a successfullow-cost carrier. If you are keeping your eye onthe ball, externally, the work is never reallycomplete; it is always a process of continuousimprovement. Q: Why did you choose to keep some ofthe features of the traditional carrier, suchas a first-class cabin, assigned seating anda hub structure? Would you ever considermoving more to a pure low-cost model?A: We understand customers fly for a varietyof different reasons. Leisure travelers aren’tthe only ones who enjoy low fares. First-classcabins and the industry’s best elite-level fre-quent flyer program are naturally attractive tobusiness travelers, and that provides us withan important source of revenue. As for the hubstructure, we still think that, by a large margin,it’s still the most efficient way to transport pas-sengers across a network that includes majorbusiness centers, smaller communities andinternational destinations.Q: What primary challenges did youencounter during the changeover, and howwere they overcome?A: It took place during a very trying time in theindustry. We needed to communicate clearlywith employees about the direction we weregoing. Without their buy in, we could not have

profile

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“If you are keeping your eye

on the ball,externally, thework is never

really complete; it is always aprocess of continuous

improvement.”— Doug Parker

been successful. With all the negative develop-ments going on in the industry at that time, itwas a challenge to ensure a positive messagegot out to not only employees, but to our cus-tomers as well. Q: What was the overall response fromyour shareholders, employees and cus-tomers to your new business model?A: In general terms, most people realizedchanges had to be made. The industry had

never faced an environment like the one thatbegan in 2001. Lower fares were required tostimulate demand, but we recognized that any-one could publish low fares, but maintainingthe low costs necessary to support them wasthe real key. Once we were able to establishwe could do that successfully, we generatedthe much-needed momentum that promptedexternal audiences to continue to tell our storyin a positive way.

Q: If you were going through this transforma-tion again, what would you do differently?A: Looking back now, I wouldn’t changemuch about the transformation. In fact, ourability to act quickly and effectively is some-thing I’m very proud of. But, looking back to2001, I think every airline would say they wishthey’d hedged more fuel; however at thatpoint, we could never have known that we’dbe faced with fuel costs north of US$60 perbarrel. In addition, no one, including us, had thecredit rating of Southwest that provided thathedging ability. We were in survival mode in‘01 and, frankly, we had to be. Fuel hedgingwasn’t at the top of our mind at that point.Q: How did technology help you throughthe conversion process?A: Technology continues to play an importantrole. We’ve struck a balance between offeringour fares through traditional outlets and alsocoming up with innovative distribution meth-ods, such as bill me later, gift cards and Webbookings, including travel packages that inte-grate hotel and air in vacation packages.Technology has also been a good partner in ourinternal communication efforts; we webcastmeetings for our employees, and we have arobust employee Web site that is used by ourinternal customers (employees) to keep themup to date on where the company is going andwhat role they play.Q: How do you feel the transformation toa low-cost, full-service airline has preparedyou for the merger with US Airways?A: We got our costs down to the level theyneed to be to support consistent low fares. Infact, US Airways mentioned our cost structureas a target during its own restructuring. Wecouldn’t expect to run the combined airlineeffectively if we didn’t have our own house inorder first. Also, we have learned how to analyzelarge amounts of data and make decisions quick-ly. In this business, those are also positives. Q: What other changes do you anticipateonce the merger is complete?A: You’ll see a new livery, which is the aircraftpaint scheme, and you’ll see the typical signsof integration as we combine operations at var-ious airports. What’s most exciting is cus-tomers of both airlines are going to see newdestinations available to them — from Hawaiito Europe to the Caribbean. For customers,this is a huge positive.Q: Do you feel your merger with USAirways is the first step of a major industryrestructuring? Do you expect there to beadditional mergers in the airline industry?A: I don’t think our merger is necessarily astep in the process. The industry will do whatit has to do to address the problems that areout there. Capacity will be rationalized one wayor another. Some ways of accomplishing thatgo smoother than others. How it will unfoldremains to be seen, and we’ll be watchingalong with everyone else. a

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profile

Photos courtesy of US Airways

The union between US Airways andAmerica West Airlines formed the

fifth-largest U.S. airline, serving morethan 200 domestic and international

destinations with 361 aircraft. The combined carrier, which will be based in Tempe, Arizona, combines

US Airways’ strength in the easternUnited States with America West’s

strong presence in the western United States.

T he vertical integration trend, whichbegan in the late 1980s when many air-lines enjoyed hefty profits and robust

revenue growth that, in turn, provided abun-dant resources, led to a desire for simplifica-tion. Those were good times for many airlineexecutives who were planning ahead and envi-sioning a great future for their airlines.

What they envisioned was informationtechnology departments fully staffed with ITexperts who would write and manage propri-etary software that would help create and sus-tain a competitive advantage in a cutthroat air-line environment.

The idea was noble, and the executivesthought that if they could successfully managethe core business, they could add and manageseveral other lines of business as well. And tobe fair, not that many reliable, ready-to-use air-line software products existed in the ‘80s. So,vertical integration made a lot of sense.

In the 1990s, when supply of airline ITsoftware improved, airlines began shiftingfrom writing in-house IT applications to pur-chasing them from experienced airline IT ven-dors, which eliminated the need for internaldevelopers but still required an IT shop to sup-port and manage the software.

Fast forward to 2005. The airline market-place has changed, and so have the integrationtrends. Nowadays, airlines seek to minimizetheir losses and stretch diminishing resources.Customer-centric initiatives are hot. So whenmanagers have to choose whether to imple-ment a customer service-related or pure IT pro-ject, the latter tends to have a lower priority.However, airlines cannot provide good cus-tomer service without smart IT systems. Toaddress the need for IT solutions and lack ofresources to acquire them, more and more air-lines have turned to one of the growing trends— an application service provider model.

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

ASPire to Leading Technology

By Inna Kizenkova | Ascend Contributor


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

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products

Application functionality Immediate product accessOngoing updates and enhancementsUser community access and collaboration

Infrastructure ProcurementSun and Dell servers with OracledatabaseBEA systems WebLogic applicationserverComputer Associates Unicenter monitoring softwareCisco Web site load balancingRecurring hardware and third-partyrefresh

Data Center Services24-hour-a-day, seven-day-a-weekmonitoring and supportData encryption, intrusion detectionand firewall protectionDaily backup of customer data andweekly off-site backupsSecurity relating to communications,Web site, servers, database andapplications

Maintenance and SupportHistorical application availabilitygreater than 99 percentAround-the-clock help desk accessStandard Sabre Airline Solutions servicesApplication and database monitoringand managementApplication and data access controland administrationSeamless software updates

Beyond SolutionsThe eMergo solutions aremore than a way to access technology. There are alsoseveral standard services that help customers make the most of the applications.

Crew ManagementSabre ® AirCrews ®

Crew ConnectionSabre ® AirCrews ®

Disruption ControlSabre ® AirCrews ®

Leave ManagerSabre ® AirCrews ®

Operations ManagerSabre ® AirCrews ®

Pairing OptimizerSabre ® AirCrews ®

Resource ManagerSabre ® AirCrews ®

Schedule Optimizer

Planning and SchedulingSabre ® AirFlite™

Fleet ManagerSabre ® AirFlite™

Profit ManagerSabre ® AirFlite™

Schedule ManagerSabre ® AirFlite™

SlotManager ™

Sabre ® Planet ®

profitability forecastingsystem

Loyalty ManagementSabre ® Corporate Loyalty SystemSabre ® Traveler Loyalty System

Maintenance, Repair andOverhaul

Maintenix ® MRO SystemRamco MRO System

Cargo ManagementSabre ® CargoMax ™

Accounting ManagerSabre ® CargoMax ™

Revenue Manager

Flight OperationsSabre ® Dispatch ManagerSabre ® Ground ManagerSabre ® Load ManagerSabre ® MovementManagerSabre ® ACARS Manager

Fares ManagementSabre ® AirPrice ™ faresmanagement systemSabre ® AirPrice ™

Contract Composer

Dining and Cabin ServicesSabre ® AirServ ®

Billing ManagerSabre ® AirServ ®

Cabin Service ManagerSabre ® AirServ ® CateringReport GeneratorSabre ® AirServ ®

Enhanced SchedulerSabre ® AirServ ®

Equipment BalancerSabre ® AirServ ®

Equipment ForecasterSabre ® AirServ ®

Equipment ManagerSabre ® AirServ ®

Galley ManagerSabre ® AirServ ®

In-flight Data AnalyzerSabre ® AirServ ®

In-flight Sales ManagerSabre ® AirServ ® MealOrdering OptimizerSabre ® AirServ ®

Scheduling OptimizerSabre ® AirServ ®

Specification Manager

Revenue ManagementSabre ® AirMax ®

Essentials ReporterSabre ® AirMax ®

Group ManagerSabre ® AirMax ®

Revenue Manager

Passenger RevenueAccounting

Quasar ™ passenger revenue accounting system

Airline PassengerSolutions

SabreSonic™

Check-in modules:• Kiosk Check-in• Web Check-in• Curbside Check-in• Roving Agent• Gate ReaderSabreSonic™

Res modules:• Command• Revenue Integrity

Resource ManagementSabre ® Streamline™

RosterMaker systemSabre ® Streamline™

StaffAdmin ™ systemSabre ® Streamline™

StaffManager ™ systemSabre ® Streamline™

StaffPlan ™ system

Market Data and AnalysisSabre ® WiseVision ™

Sales EssentialsSabre ® WiseVision ™

Network AnalyzerSabre ® WiseVision ™

Sales Analyzer

Tools of the TradeThere are currently 56 solutions in 14 functional areas available through the Sabre ® eMergo ® Web access environment.

PRODUCT DETAILS PRODUCT DETAILS

An ASP solution provides the best ofboth worlds — leading technology in a simpli-fied IT environment, which enables airlineexecutives to concentrate on their core com-petencies. An ASP model is a form of out-sourcing, but it provides an important benefit— it leaves control of the business decision-making processes and subject expertisesquarely with the client (an airline, caterer orground handling organization).

Expanding on the ASP trend is “soft-ware as a service,” or SaaS, which empha-sizes that with an ASP solution, an airline doesnot only get an application but also an array ofadditional services.

For Sabre Airline Solutions, providing air-lines with options such as an ASP deliverymethod is a top priority. In 2001, the companycreated Sabre ® eMergo ® Web access, an ASPsolution that offers access to best-of-breedtechnology while simplifying operations andreducing the total cost of ownership.

The growing popularity of ASP models is

supported by the views of many IT consultingcompanies and professionals. Research fromInternational Data Corp. indicates that industry-specific, customer relationship managementand human resources applications are themost likely to be delivered via an ASP model.IDC estimated that global spending on ASPsoftware last year totaled US$4.2 billion, con-stituting 39 percent growth compared to 2003.IDC is also forecasting a steady 21 percentincrease in annual ASP spending reaching anestimated US$10.7 billion in 2009. Specificallyto the eMergo distribution method, the num-ber of customers increased by 65 percent in2004 compared to 2003, reflecting the trend ingrowing popularity of an ASP. Today, 84 globalcustomers combine for 169 instances ofaccessing software solutions via the eMergoenvironment.

Airlines are following suit according tothe 2004 Airline IT Trends Survey, adminis-tered by Airline Business magazine and SITA to109 senior IT executives from top airlines. Thesurvey revealed that only 10 percent of partici-pants indicated that their airlines have notmoved any systems to an ASP model.According to the survey, several areas withinan airline’s operations have moved to an ASP

model, including:Reservations (according to 59 percent ofthose surveyed),Departure control/check in (58 percent), Cargo reservations (31 percent), Frequent flyer programs (26 percent).

When asked which areas are planned tobe moved to an ASP model, cargo reservationswas the best candidate with 22 percent, followedby frequent flyer programs with 18 percent.

The ASP model is very simple from anairline perspective because its applications anddata are stored by the ASP provider, which per-forms all necessary application and databaseimplementation, maintenance, and accessadministration work. Thus, its IT efforts andresources can be redirected and applied tounique IT initiatives rather than mundane ITtasks such as procuring and updating hardwareand software, user administration, or databasemaintenance. At the same time, airline busi-ness analysts access applications over theInternet or a dedicated communication line and

get all the necessary information and decision-support tools to maximize the airline’s potential.

An ASP solution is scalable. When an air-line experiences traffic variance, its manage-ment will have the benefit of not worryingabout where to find resources to expand thesystem. As a rule, ASP vendors build amplecapacity into the systems to allow for growingdemand, meeting the scalability needs ofmany airlines. According to the InternationalAir Transport Association, international passen-ger traffic continues to grow — revenue pas-senger kilometers grew 8.8 percent during thefirst half of the year compared to the sameperiod in 2004, increasing the demand placedon applications.

An ASP delivery method also simplifiesan airline’s financial operations because soft-ware costs are easy to forecast since they con-sist of a one-time implementation and monthlyfees that can be either metric-based or flat.Metric-based fees can be tied to passengersboarded, aircraft, departure, employee num-bers, etc. With metric-based fees, an airlinepays exactly for what it uses and does notoverpay for extra capacity.

Another benefit of a centrally hostedASP solution is the ease of application admin-

products

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

HIGH l i gh t

Acceptance by Region

Airlines around the world are adopting the application service provider model.Companies using the eMergo deliverymethod come from every region of the globe.

20%

LatinAmerica

Europe, MiddleEast and Asia

Asia/Pacific

NorthAmerica

34%

17%

29%

20052001Timeline

Nu

mb

ero

fcu

sto

mer

so

rap

plic

atio

ns

200

160

120

80

40

0

Growth of the eMergo Solution

Average of 2 applications

Accounts Applications

After realizing the value of the eMergoenvironment from their initial experience,more than 30 percent of those using thesolution have selected additional applica-tions. In 2001, the sales ratio for theeMergo solution was one application percustomer, but this has increased dramati-cally in the last four years.

istration. When an airline has several branches,synching, updating, and loading data and busi-ness rules has to be repeated at each individ-ual location. With an ASP solution, everythingis kept in a single hosted database so all thoseoperations are performed once and everyoneaccesses the same information.

In addition to simplifying operations,ASP applications come with a slew of otherimportant benefits. Low total cost of ownershipis one of them. The total cost of ownership ofa licensed application consists of vendor’s fees(implementation, license and maintenance)plus the cost of hardware and third-party soft-ware to run such applications. The total cost ofownership of an ASP application consists ofimplementation and monthly fees. Since anASP vendor has greater bargaining power withhardware and third-party software providers, itcan buy the necessary infrastructure at deeperdiscounts that are passed onto airlines. In gen-eral, accessing a Sabre Airline Solutions appli-cation via the eMergo environment can savean airline between 40 percent and 70 percentin total cost of ownership.

The ASP model is here to stay. Observing

growing popularity of ASP solutions, many ITvendors began offering hosting services totheir airline clients. Based on the breadth ofthe ASP portfolio and number of clients, SabreAirline Solutions is the leading provider of airline software products via an ASP model.Currently, the eMergo environment consists of56 applications.

An airline deciding whether to go withan ASP offering or an on-site installation has toconsider several factors such as its need forcash conservation, length of payback period,pricing/budgeting predictability, ability to scale,IT department efficiency, etc. Because eachairline’s situation is unique, there is no easyway to tell which delivery method is more ben-eficial to a particular airline without a compre-hensive analysis. But it pays off knowing andcomparing different delivery options to arriveat one that will help airlines simplify and maxi-mize their potential.

Inna Kizenkova is a marketing analyst forSabre Airline Solutions. She can be


a

+count it up15 — Number of separate flights a

traveler would take from Mt. Pleasant

in the Falkland Islands to Wasu, Papua-

New Guinea, which is thought of as

the world’s most difficult air route.

250 — Number of direct flights from

Paris, France, to other cities around the

world, making it the top global city for non-

stop flights. Paris is followed by London

with 242, Frankfurt with 237, Amsterdam

with 192 and Moscow with 185.

2.2 million — Number of

passengers estimated to travel across

the Tasman this year, a significant

increase compared to 1,461 passengers

traveling the same route in 1940.

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1 billion — Increase to the

industry’s costs, in U.S. dollars, for

every US$1 increase in the price of oil.

2,100 — Range in nautical miles of

the ERJ-195, the largest aircraft in Embraer’s

E-Jets family, which has the capacity for

118 seats.

238,000 — Number of square

feet in Bombardier’s new, high-volume

aircraft parts distribution warehouse,

located at the Chicago O’Hare

International Airport.

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

HIGH l i gh t

Customer Segments

Originally, the eMergo solution was creat-ed to help smaller airlines gain access totechnology that was only available to larg-er airlines. However, airlines and otherindustry-related companies of all sizeshave chosen the eMergo solution.

8%4%Non-airlines

Very small

Medium

Small

35%21%

30%

2%Large

Mega

W hen costs rise faster than fares, air-lines need methods to reign in spend-ing. But how can a carrier reduce its

in-flight spending without affecting passengersatisfaction? Some innovative airlines arestreamlining their in-flight services while keep-ing passenger value high through creative costcontrol, joint marketing ventures and providingcertain in-flight services for passenger pur-

chase. The Sabre® AirServ ® In-flight Solutionscan help transform an airline’s dining and cabinservices to a more cost-effective operationthat still provides a high level of customer care.

Creative Cost ControlMany airlines realize cost savings by runningleaner catering and cabin operations.Automated inventory management can help acarrier optimize the amount of in-flight-relatedinventory carried in reusable items, such astrays, plates and glasses.

When deployed to automatically calcu-late airline equipment needs, Sabre® AirServ ®

Equipment Forecaster uses the future sched-ule to determine product needs by station,advising catering professionals of the rightamounts of inventory to order and stock.When used together with Sabre® AirServ ®

Equipment Balancer and Sabre® AirServ ®

Equipment Manager, airlines can dramaticallyreduce the number of days they stock invento-ry, dropping it drastically — in some casesfrom as many as 30 days to only 10 days ofback-up stock at a station.

The systems use integrated menu plan-ning and future flight schedules rather than his-torical requirements to drive savings. In addi-tion, inventory balancing automates the trans-fer of surplus goods among catering kitchensto avoid unnecessary purchases of products.The AirServ solutions can be easily integratedwith an airline’s purchasing system. The sys-tem identifies when additional inventory is

required and, based on the airline’s purchasingagreement, automatically places the order.

Another cost-cutting measure airlinescan take advantage of is the reduction of mealoverages. If managed correctly, this process isinvisible to the customer but very visible on thebottom line. Sabre ® AirServ ® Meal OrderingOptimizer can be deployed as a stand-aloneapplication or in conjunction with other sys-tems within the AirServ solutions.

The system uses real-time passengerdata and existing special meal requirements incombination with statistical smoothing modelsthat encompass no-show and go-show rates,upgrade trends and policies, cabin curtainmovement, and other factors to predict thenecessary number of meals to be boarded foreach class of service. This can reduce mealoverage levels to between 1 percent to 4 per-cent and generate significant returns for air-lines. In addition, the Meal Ordering Optimizeris a completely automated, self-learning toolthat can greatly reduce the resources neces-sary to determine appropriate figures for boththe airline and the catering vendor.

Some airlines are altering or eliminatingtraditional services in which the value to thecustomer is not as high as the cost. Airlines,such as American Airlines, Delta Air Lines andNorthwest Airlines, are removing pillows andblankets from most domestic and some inter-national flights. The Wall Street Journal report-ed in February that American Airlines will savemore than US$600,000 per year through this

move. An American Airlines spokesperson toldThe Journal that many of the airline’s seatshave adjustable headrests for passengers andthat the move will result in reduced stockingand aircraft cleaning costs.

Menu and ingredient changes can alsoquickly improve the bottom line. Using Sabre ®

AirServ ® In-flight Data Analyzer enables airlinesto evaluate the effect of menu and ingredientchanges in advance through what-if scenariomodeling. This analytical tool consists of a sep-arate database and a reporting interface thatenables airline personnel to run a number ofpre-defined reports as well as unlimited ad hocqueries.

Still, other airlines are finding efficien-cies in streamlining their financial processes.Sabre ® AirServ ® Billing Manager, an automatedpricing and invoice audit solution, can adminis-ter 100 percent of an airline’s catering invoices.Caterers adjust the services being providedthrough a Web-enabled application so airlinesconsistently pay only for services that haveactually been provided at contractually agreedon prices.

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

Catering to the Bottom Line

By Debbi Lyons | Ascend Contributor

Some airlines are altering or eliminating traditional services in which thevalue to the customer is not as high as the cost … TheWall Street Journalreported in February that American Airlines will save more thanUS$600,000 per year through this move.

HIGH l i gh t

Airlines around the world have decreasedcatering spend by up to 3 percent throughautomated pricing verification and by up to 3 percent through automated invoice auditing.Caterers also benefit from the tech-nology because it results in fast, reliableinvoice payments.

Joint Marketing VenturesIn-flight departments have access to a veryvaluable asset: the airline’s customers. Someairlines are bringing services to their cus-tomers at little or no cost through joint market-ing ventures with companies that want accessto this asset, especially business- and first-class customers. As a cost-saving measure,many airlines have reduced the distribution ofamenity kits — complimentary bags of items,such as body lotion, eye masks, earplugs andsocks for long-haul passengers. However, twoU.S.-based carriers (Continental Airlines andUnited Airlines) have introduced “goodiebags” that may soon take their place. Thesecomplimentary gift bags feature items such asfragrance, skin care, books and gourmetdesserts at low or no cost to the airline.

In February, Continental Airlines beganoffering goodie bags by Premier Bags to first-class customers on transcontinental flights fromNewark, New Jersey, to four West Coast cities.The marketing partner will provide a new selectionof items every quarter. The agreement benefitsboth the airline and the consumer product

companies — it increases the airline’s customerservice level, and it gets the supplier’s nameand products in front of a desired target audience.

United has also begun offering goodiebags to passengers on its premium coast-to-coast nonstop service between New York,New York, and Los Angeles or San Francisco,

California. In addition to other amenities, pre-mium-service passengers receive gift bagsfrom New York-based Madison and Mulhollandcontaining items such as skin care, travelaccessories and discounts on luxury items.Some recent promotions include special giftbags honoring the Academy Awards ® andValentine’s Day.

Buy on BoardAirlines in North America and the UnitedKingdom are continuing to add or expand food-for-purchase programs. Some airlines arebringing their programs in house, replacingtheir external caterer management.

American Airlines launched its self-man-aged buy-on-board program in February andrecently expanded the hours during which it isavailable — 5 a.m. to 9 p.m. daily — on more than650 domestic routes. The airline now offers sixdifferent sandwiches for US$5 and a US$3snack box, and it plans to offer morning varieties.

Northwest Airlines serves snacks andsandwiches at similar prices on all flights with-in the United States and some of its foreign

routes. The airline predicts a savings of betweenUS$20 million and US$30 million per year withthe move from complimentary economy service.

Air Canada has expanded its “HospitalityService” buy-on-board offerings to all flights inNorth America that last between 1.5 and 4.5hours. And several other airlines are consider-ing the move to food for purchase.

Meals for purchase are subject not onlyto the traditional danger of spoilage but alsoraise the question of whether or not airlinesare satisfying the most passengers possible atthe highest revenue.

The AirServ solutions buy-on-boardmodule can help determine the number ofmeals to carry through a variant of meal fore-casting algorithms, which use prior purchasingbehavior and passenger bookings to predictsales. In addition, the AirServ solutions mayalso be applied to opportunities for passengersto purchase meals during booking or check in.The buy-on-board module may be operatedalone or in conjunction with other AirServ solu-tions functionality, for airlines that offer ahybrid of free and for-purchase food services.

As onboard sales and food-for-purchaseprograms ramp up, handheld devices by com-panies such as Bristol Office Machines’ ClueTrader are becoming more sophisticated toremain aligned with airlines’ needs. Anothermajor provider of mobile data technology,Abanco, has recently announced a partner foronboard credit card sales through its handhelddevices. The handheld devices enable airlinesto download updates to stock levels and allowpassengers to pay with credit cards foronboard items. Orlando, Florida-based AirTranAirways is ceasing to accept cash for alcoholicbeverages, placing a new focus on credit cardsales so flight attendants no longer have tosolicit change from other passengers.

All of these innovative techniques aredirected toward one simple goal — providinghigh-level service to passengers while lower-ing expenses for airlines. From driving downoperational costs and reducing inventory andmeal overages to what-if scenario analysis forfuture service changes, the AirServ solutionsprovide the necessary insight and automation.No matter what an airline’s strategy, thesestate-of-the-art systems give the carrier controlover its entire onboard products and servicesexperience.

Debbi Lyons is marketing manager forSabre Airline Solutions dining and cabin

services. She can be contacted [email protected].

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Catering Report features an online interface where caterers can update service requirementsfor a given flight. The adjusted items and quantities become a pro forma invoice for flightcatering.

Now more than ever, banks, lenders,shareholders and other stakeholdersare eager to find answers about the

future state of airline finances — just like exec-utives who run the airlines. Prior to dramaticswings in the oil market, management hadbeen able to predict costs within a fair amountof accuracy. However, that capability has rarelybeen the case for revenues, especially passen-ger revenue.

Yet, airlines have the capability to fore-cast revenues with accuracy by using revenuemanagement techniques to successfully fore-cast, track and calibrate close-in passenger rev-enues covering a future period of approximate-ly three months, which is the crucial timeframefor taking fare, sales and marketing actions.

The capability to accurately forecastclose-in revenue enables airlines to getadvance notice to see if they are tracking totheir revenue plan, and the information can beused to take timely corrective marketingactions as well as for cash management.

Methodology to Project RevenueTypically, an airline’s revenue managementteam is equipped with data and tools to getspecific and important tasks completed: set-ting the proper inventory levels (booking class-es) to optimize passenger revenue and estab-lishing overbooking levels. This work is con-ducted by a staff of trained analysts who arefocused on setting detailed inventory and over-booking levels as a matter of their day-to-dayjob responsibilities.

By using all three components — data,tools and a trained team — an airline has theresources necessary to develop accurate fore-casting for passenger revenue for the near term.

DataThe data itself is of key importance. There aretwo data sources that are often readily avail-able at an airline and can be used for forecast-ing revenue. They are passenger booking dataand ticket control number data, which includesthe fare value.

Booking data, which is updated con-

stantly, is used to calibrate and initialize therevenue management tool and as an input forforecasting demand. In the revenue manage-ment system, this data usually gets cleansedto remove outliers and any unusual activity.The revenue management tool also requiresfare data for the discount allocation process.Depending on the system and airline, fare dataused for the revenue management system canbe taken from several sources, such as histor-ical data, published fares, weighted averagefare by booking class, and origin and destina-tion. Therefore, it may not reflect the actualfare paid by the customer.

TCN, which contains a lot of valuabledata and is usually current, is the second datasource. It contains both passenger counts andfares for ticketed passengers. TCN data com-prises information from tickets that have beenissued for use during future travel periods. Itcan also be used to estimate the final averagefare for a future period. This estimated averagefinal fare combined with the passengerdemand forecast from the revenue manage-ment system will result in forecast revenues.

To estimate the final average fare for afuture period, it is necessary to create a refer-ence fare curve using historical TCN data. Thiscurve is used to establish the change thattakes place in the average fare over time; thecurve uses the historical relationship of theaverage fare for tickets sold prior to a baselineperiod and compares it with the final averagefare in the same baseline period.

By using this curve, the historical farevariation can be applied for future months andassumes they will display similar behavior as inthe past. The methodology takes the currentsnapshot of the TCN average fare and appliesthe factor from the average fare curve based onthe number of days to the final forecast period.

A key factor to consider, however, is thatTCN does not include data from certain distrib-ution channels. Also, for groups and wholesaletravel, fares on the ticket are bulk fares, whichare different than the actual net fare receivedby the company. Therefore, some TCN dataneeds to be matched to the net fare through

special tables that link the fare basis code tothe net fare value.

To correct these imperfections and usethe data for forecasting, TCN needs to be com-pared with historical revenue accounting datato establish a relationship and create adjust-ment factors at different levels of detaildepending on the forecasting need. TCN alsoneeds to be adjusted for known pricing activitythat may occur during the period of the futureforecast.

ToolsRevenue management tools, such as the sys-tems within the Sabre ® AirMax ® RevenueManagement Suite, contain powerful softwareused for maximizing total revenue by settinginventory controls at a defined level — flight,departure date, cabin and booking class. Theforecast and optimization can be completed byleg, segment, or origin and destination level.The tools require calibration, including identify-ing and setting parameters, such as seasonassignments and calendars, to ensure qualitydata is used and accurate fares are properlyfed into the system.

Each revenue management systemuses different statistical models to forecastdemand. For flights with similar behavior, mod-els create a correlation between time and thebooking process. The booking activity forfuture flights is then combined with the mod-els to predict the final demand.

Typically, the forecast demand is onlyused to establish inventory levels by bookingclass and overbooking levels. Revenue man-agement tools have not been used to forecastrevenues for airlines. However, airlines canreadily use the output from revenue manage-ment systems to forecast passengers, which,when linked to a good fare source, can pro-duce an accurate revenue forecast.

Like all forecasting models, the outputfrom revenue management systems will con-tain errors, presenting the need for the tool tobe adjusted and benchmarked against recenthistorical information. The error will be largerwhen using the forecast at a detailed level,

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

Forecasting the (Revenue) Future

By Peter Berdy and Ana Maria Escobar | Ascend Contributors

such as by flight, by day. The error will besmaller when there is a group of flights or at anentity level with a large group of similar flights.The measurement of this error enables airlinesto adjust the forecast provided by the tool andmore accurately estimate passenger demand.

Trained StaffApplication of analytical skills is the final andmost important aspect of forecasting passen-ger revenue. Trained revenue managementanalysts know what is going on in theirassigned markets or region. In addition, theydevelop a good feel for trends and usuallyrefine their skills over time.

There are certain market facts that a rev-enue management tool does not recognizesince it works with historical data. Some exam-ples include a new entrant, recent fare sales orspecial events that did not occur in the past.The analyst adjusts the demand to establishthe proper booking class levels for that specif-ic occasion. Frequently, analyst adjustmentsare based on market knowledge rather than onnumerical data or statistics.

When analysts adjust demand, they arealso modifying the output of the system. Thisis an important element since the output isused to forecast the revenue of the company.By using well-trained and focused analysts, theforecast should contain greater accuracy.

Validating the Revenue EstimateUsing revenue management systems to fore-cast passengers by market, combined withadjusted TCN fares by market, will provide atotal passenger revenue estimate. The rev-enue forecast can be grouped into differentlevels, such as an entity basis. An entity is typ-

ically composed of like markets that aregrouped together, such as those in a similargeographical region or those that share com-mon passenger characteristics such as discre-tionary markets.

Airlines can also validate the revenueforecast by using adjusted TCN data containingpassengers and fares. The validation data isgrouped by entity and is used to create tworeference curves — a historical passengercurve and a historical average fare curve. Thecreation and use of the passenger curve is sim-ilar to the average fare curve. The actual aver-age fare and ticketed passengers from TCNare compared with the historical curves as an

adjustment to estimate final passenger rev-enue; the validation process does not use therevenue management forecast demand butinstead uses TCN data to forecast passengers.

These two forecasts produce separateresults on different levels (by segment fromthe revenue management tool and by entityusing TCN), and they can be prepared rapidly.If the comparison of the detailed forecast pro-duced by the revenue management tool andthe validation forecast are similar, the forecastshould be reasonably accurate. Comparing theforecasts will point out differences that can beadjusted to get weekly forecast consistency.

Using the Revenue ForecastOnce committed to the revenue forecastingprocess, which should be updated weekly, air-lines can use it as a tool to measure and man-age the business as well as a source to provideinformation to the board of directors, investorsand lenders.

A process needs to be in place that mea-sures the quality of the forecast. This process

should be objective so errors, issues or itemsthat are discovered can be freely discussed andreviewed internally before presenting it to exec-utives. The internal review of the forecastshould include pricing and revenue manage-ment personnel as well as members of the air-line’s sales team. Topics of discussion duringthe internal meeting will likely cover changes inconsumer and competitor behavior and possi-ble reasons to explain changes in the forecast.

For the executive review, there shouldbe a hierarchical process that analyzes themonthly revenue forecast on a system level,then on an entity basis and more rarely on amarket level. The review should include a com-parison to the prior week’s estimates to seehow the forecast is changing, explaining varia-tions between estimates.

Often, the weekly forecast is bench-marked against a baseline, such as the airline’smonthly revenue budget. A simple spread-sheet can be used to show the latest forecastresults and maintain a running history. Theexecutive review also needs to be conductedin an open-minded discussion as a process ofdiscovery as new activities unfold in the air-line’s business.

The weekly update should point out sev-eral factors, including demonstrations that thelevel of accuracy is within acceptable tolerancelevels. As the weekly review process contin-ues, it will become more accurate and is likelyto be relied on with consistency.

When the revenue forecast flashessigns indicating changing conditions, whetherthese are based on seasonality, economicevents or market action by the airline or itscompetitors, airlines can be prepared torespond. The forecast can also be used as anindicator to signal possible needs for fare andsales actions, and it can also be used to trackresults of these activities.

In addition, the revenue forecast can beexpected to change as it is being tracked overtime. This does not mean original estimateswere incorrect; there may be good reasonswhy the revenue estimate has changed, suchas fare sales and competitive actions that can-not be foreseen. The key is to provide an accu-rate revenue estimate and accompany it withexplanations of the variance. Simply put, if itcan be measured, it can be managed.

Utilizing forecasts should provide a goodearly warning system. The forecast can pro-vide insights and can be used as a guide fordecisions affecting revenue.

Peter Berdy is a partner and Ana Maria Escobar is a pricing and revenue management specialist for Sabre Airline Solutions Consulting.

They can be contacted [email protected] and

[email protected].

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Specific adjustment factors are used to develop the final revenue forecast. Assuming the fare 30 days before departure is US$200, the estimated average fare will be US$196(US$200/1.02). This curve will vary by market and season.

Days prior to departure

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nvestors and corporations including air-lines are beginning to take great interestin the African continent, with its manyareas for growth potential.

Like their counterparts in Europe and theGulf, airlines based in North and South Africaseek opportunities to position themselves inthe African sky, which was historically restrict-ed or limited to major or flag carriers.

These carriers are conquering the Africansky by establishing new commercial strategiesand/or alliances and partnerships, reflecting amore attractive African marketplace.

Several carriers such as British Airways,Lufthansa German Airlines, Air France/KLM,Kenya Airways, South African Airways, Royal AirMaroc, Afriqiyah Airways, Emirates, Air Algérie,Tunisair and Air Senegal International are tun-

ing their business plans to conquer or regain aprominent position in the African market.

But several questions still remain: Why isthe African market becoming more attractive?Are Africans traveling more within and outsidethe continent? Is there a more prosperous andsecure business environment? Are regional andsmall companies able to withstand pressure frommajor network alliances? Is there a possibility

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A F R I C A NS A F A R ICONTINENT’S CARRIERS ON THE

HUNT FOR NEW OPPORTUNITIES

By Maher Koubaa | Ascend Contributor

Many Africa-based airlines are modifying their operations

to leverage the continent’s growth potential.

I

that Africans from north to south can agree onbuilding strategic alliances or commercial part-nerships to combat this pressure?

The region’s carriers hope the changinglocal industry conditions will mark the end ofthe onerous trip conditions that require pas-sengers traveling from one African region toanother to connect through Europe.

Last year, the continent’s internationalpassenger traffic in terms of revenue passen-ger kilometers rose approximately 10 percentand cargo recorded strong growth that exceed-

ed 15 percent. Capacity expansion was at 10percent, resulting in passenger load factorsaveraging 65 percent.

A similar growth pattern was observedrecording a substantial transversal trafficincrease among African countries that previ-ously had no trade links.

The increase in traffic and demand is notthe only reason for the attractiveness of thiscontinent. Africa is still protected from the illsof the North American and European market-places, such as reduced yields, industry con-

solidation, capacity reduction and the incursionof low-cost operators.

Yield is relatively high in Africa despitegeneral impressions, and elasticity is low.

A significant amount of African demandis being spilled; African carriers attempt toserve more destinations with fewer pieces ofequipment.

There is a significant amount of revenueimprovement available if the African carriersimprove business practices, which representsan opportunity for the region and for individualcarriers.

The current condition of the African mar-ket represents an opportunity for local carriersto penetrate these underserved and undevel-oped markets.

Royal Air Maroc Recently, Royal Air Maroc reported record traf-fic in Africa thanks to boosting flights on thatcontinent by up to 25 a week. The Royal AirMaroc network to Africa is centered on theCasablanca, Morocco, hub as a platform fortransit from other parts of the continent to the

Maghreb (Northwest Africa) as well as Europe,the Middle East and North America. DepartingCasablanca, today the national flag carrier fliesdirectly to Mauritania, Senegal, Ivory Coast,Guinea, Mali, Gabon and Niger.

The multiplication in flights offered andgreater frequencies have made it possible toprocure substantial improvement in traffic forRoyal Air Maroc.

The number of passengers transportedto Senegal increased by more than 61 percent.The same increase was reported for the Ivory

Coast. For other markets, the growth regis-tered between 10 percent and 26 percent.

The activity recorded showed a jump of120 percent from 2000 to 2004 — a growth of25 percent a year, reaching a turnover of 550million MAD (US$62 million) last year.

In 2004, transit traffic departing Africavia the Casablanca hub increased by more than55 percent compared to 2003.

Passengers coming from and heading toAfrica via the hub to the Maghreb, Europe andNorth America represented 60 percent of theairline’s traffic, up 10 percent from the previ-ous year. With the Casablanca hub, this perfor-mance places the carrier in international com-petition with other European hubs.

To offer a world network departingAfrica, Royal Air Maroc signed a codeshareagreement with Emirates for continued flightsto Dubai. Royal Air Maroc also has a codeshareagreement with its subsidiary Air SenegalInternational. The codeshares have helped theairline expand beyond Dakar using Air SenegalInternational and from major African marketsto Dubai via Emirates.

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There is a significantamount of revenueimprovement availableif the African carriersimprove business prac-tices, which representsan opportunity for the region and for individual carriers.

HIGH l i gh t

Royal Air Maroc acts as a strategic andtechnical advisor in an initiative to launchseveral new central African carriers for sixof the region’s states.

N’djamenaKhartoum

LagosLomeAccraAbidijan

Bamako

Tripoli

Brussels

Geneva

London

Paris

Ouagadougou Niamey

Cotonou

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

Photo courtesy of Airbus

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After launching its low-cost carrier,Atlas-blue, and successfully creating AirSenegal International, Royal Air Maroc contin-ues its efforts to establish a series of new cen-tral African carriers under the provisional hold-ing company Air Cemac International.

The project involves establishing airlinesfor six Central African states: Chad, Cameroon,the Central African Republic, Congo, EquatorialGuinea and Gabon. The initiative is being pur-sued by the economic arm of these states,known as CEMAC, with Royal Air Maroc actingas a strategic and technical advisor. The ven-ture will cover domestic operations within theCEMAC countries, services between the coun-tries and the immediate surrounding Africanstates, plus intercontinental routes.

Afriqiyah AirwaysAfriqiyah, the old name of North Africa, meansAfrican in Arabic. Afriqiyah Airways is a youngairline working to create a pan-African network,linking Africa to the world. The carrier chose tocompose its logo and identity theme using thenumbers 9-9-99, denoting the proclamation ofthe African Union by the African Heads ofState Summit held on Sept. 9, 1999.

Afriqiyah Airways operates a fleet ofAirbus A320s on its 15 destinations. TheAfrican destinations include Lome, Togo;Cotonou, Benin; Abidjan, Ivory Coast;Niamey, Niger; N’djamena, Chad; Bamako,Mali; Khartoum, Sudan; Ouagadougou, BurkinaFaso; Accra, Ghana; and Lagos, Nigeria. TheAfrican cities are linked through the Tripoli hubto European cities, including Paris, France;Brussels, Belgium; Geneva, Switzerland; andLondon, England.

For the past two years, Afriqiyah Airwaysrecorded a year-over-year traffic increaseexceeding 25 percent, mainly due to its attrac-tive connections and better trip conditions.

Building on its expansion success,Afriqiyah Airways plans to expand its opera-tions to more prominent African and Europeandestinations and to consolidate routes usinglarger aircraft. To facilitate travel needs for its

passengers, the airline has interline and code-share agreements with several European air-lines to ensure passengers get to their destina-tions in comfort and with less difficulty. InAfrica, candidate destinations include Entebbe,Uganda; Lusaka, Zambia; Douala, Cameroon;Nairobi, Kenya; and Kano, Nigeria. In Europe,potential destinations include Amsterdam, TheNetherlands; Rome, Italy; Manchester,England; and Vienna, Austria. The airline is alsoconsidering complementary cities in theMiddle and Far East.

Collective Network and RouteDevelopmentThere is need for African airlines to developroutes to additional destinations while consoli-dating their networks.

Currently, most operations to SouthAmerica are routed through Europe. Directflights through some African hubs should facil-itate trade with these valuable partners inSouth America.

African airlines have limited operationsto the Middle East and Asia, which mayaccount for the presence of many foreign car-riers attempting to fill the void in this growingmarket. There is also a need to form partner-ships among African airlines or in associationwith Middle East or Asian carriers to increaseoperations to this rapidly developing market.

Despite the signing of a number of openskies agreements between some Africanstates and the United States, operations to theUnited States are limited, resulting in mostpassengers still transiting through Europe.Today, there are significant opportunities forcooperation among African carriers to developthe U.S. market via some African hubs.

African airlines must be restructured andrepositioned to take advantage of these oppor-tunities. Carriers that have put in place com-mercial structures and strategies in tune withthe rapidly changing operating environment arealready reaping substantial benefits.

Rather than working in isolation, Africancarriers need to build alliances among them-selves to withstand the pressure from interna-tional alliances. They should also jointly exploitfuture growth opportunities, taking advantageof the lucrative African markets. One of theobjectives of the African Airlines Association isto increase the cooperation among the carrierswhile promoting the development of safe, eco-nomical and efficient air transport services.Other than collective procurement, a conceptsuch as Arabesk — an Arab Air CarriersOrganization initiative to develop a collectivenetwork for member airlines — may be beneficialfor these carriers to provide better service to theAfrican traveler. Most of these carriers comple-ment each other, and the real competition comesfrom network carriers. None of the carriers rep-resent an excellent fit for an alliance. Cooperationamong the region’s carriers will be a plus.

Maher Koubaa is an account director forthe Europe, Middle East and Africa region

for Sabre Airline Solutions. He can be contacted at [email protected].

a

Carriers that have putin place commercialstructures and strate-gies in tune with therapidly changing operating environmentare already reaping substantial benefits.

HIGH l i gh t

he low-cost principle has made its wayto Latin America, and in some count-ries in the region, it has already set

interesting industry standards.Latin America’s airline business is noted

for being overregulated, overpriced and strong-ly government subsidized. It’s a region whereairlines’ revenues are driven by local and deval-uated currencies, and main costs (fuel, equip-

ment leases and distribution) are either in U.S.dollars or euros. Nevertheless, against all odds,some airlines are doing all the right things notonly to survive in this unforgiving industry butto achieve amazing results and set the leadingpaths for others to follow.

What is so special about their business-es, and what are they doing differently than inthe past? Latin American carriers have taken

the original low-cost model and adapted it to fit local conditions. In general, low-cost/hybridcarriers are characterized by flying from sec-ondary, less-congested and less-expensive air-ports. In contrast, most Latin American LCCsgenerally fly from primary domestic or interna-tional airports, as most countries in this regionlack necessary infrastructure to have alternateoptions. One thing is for certain, they’re flying

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

By Marcela Lizárraga | Ascend Contributor

to a new “Latin beat,” closely evaluating theirstrategies and successfully lowering theiroperational costs.

Low-cost and hybrid carriers are gaininga foothold in Latin America as they are aroundthe world. The financial performance of GOL,for example, the leading low-cost carrier in theregion, compares favorably with other leadingLCCs around the world, such as Ryanair, jetBlue,Southwest Airlines and WestJet. During thefirst half of the year, GOL added nine aircraftand four new destinations. The airline alsoannounced plans to help launch an LCC inMexico. Globally, statistics show that in 2001low-cost/hybrid carriers accounted for 6 per-cent of worldwide available scheduled flights.Today, penetration has reached 12 percent andaccounts for more than 15 percent of all avail-able seats; one in every eight scheduled flightsglobally is from a low-cost or hybrid airline.

The Simpler the BetterLatin American low-cost/hybrid carriers haveadopted the same middle name as their coun-terparts in the United States and Europe —simple — and they are taking that notion to thelimit in every way they can in areas including:

FleetMigrating to or starting operations with asingle, modern fleet type, providing substan-tial economies of scale and efficiencies inareas such as maintenance, crew, trainingcosts and fuel optimization;Maximizing the use of aircraft: • During the first quarter, GOL LinhasAéreas Inteligentes, ranked last year byAirline Business as the most profitable air-line in the world, reported an average utiliza-tion of 14 hours per day, among the highestpublicly reported worldwide.• LAN reported up to 17 hours per day forfreighters last year.• TAM Brazilian Airlines has significantlyincreased utilization of its fleet, operating itsaircraft more than 11 hours per day inAugust, up from 10.6 hours in the secondquarter and 8.7 hours in the second quarterof 2004.

Fare structureOffering significantly lower fares (attractiveenough to shift travelers) than traditional airlines;Allowing minimum to no overbooking;

NetworkOperating direct, point-to-point service;

MarketingMarketing straightforwardly with visible andtangible differentiation:• In May, TAM implemented a new market-ing strategy focusing on the principles ofnationality, leadership, competitive pricing

and tradition.Building a strong brand;Incorporating best practices that fit marketstrategies; Defining clear segments;Targeting travelers directly in high-density,underserved markets;

Ticketing Adopting a strong e-ticketing program despitelow overall penetration in Latin America;

Check in Keeping the process simple and easy;Providing several self-service options, suchas on-line or kiosk check in;

DistributionReaching high-end travelers through Internet-driven or own-agency portal sales:• Latin American airlines are striving toachieve up to 80 percent booking rate ontheir Web sites.Continuing to challenge traditional global dis-tribution systems:• Local airlines maintain minimum to nopresence on GDSs.• They engage in creative alliances and solu-tions with GDS partners.

Cabin configurationOperating a single class of service as a gen-eral rule for domestic routes;

OutsourcingUsing third-party experts for areas such ascall center, ground handling, informationtechnology or any other service that can bemore efficiently and effectively managedexternally;

Frequent flyer programsTaking a “one-solution-does-not-fit-all”approach:• Some airlines, such as GOL, elect not tohave a FFP.• Some, such as LAN and Click, offer FFPsthrough their alliance partnerships.• Some carriers, such as TAM, have a verystrong program.

Asset utilizationStimulating demand to increase load factors;Turning aircraft quickly;Employing strategic, targeted maintenance; Implementing efficient ground processes;

FinancesTrading publicly in the United States as wellas the local country to increase financialstrength (i.e., TAM and GOL).

Quality is KeyA visible differentiator of low-cost and hybridcarriers in Latin America from those outside of

the region is that they must maintain a highlevel of service to attract local travelers. Takinginto consideration that main competitors fortargeted high-density markets are first-classbus services with top-of-the-line equipmentmanufactured by Mercedes-Benz and Volvo,the airlines must maintain a high level ofamenities. These competitors account formore than 98 percent of potential travelers inthose markets, which is a significant opportunityfor low-cost/hybrid carriers to pursue new busi-ness and look for creative ways to attractthese passengers. The opportunity definitelyexists; it’s just a matter of being able to operateat a low enough cost to lure the demand,specifically from cost-conscious leisure travelersand small- to medium-size corporations thatwould often use other means of transportation.

Quality is not only measured by the levelof in-flight services, but also in every area ofcustomer service that can help retain a currentpassenger or attract a new one. The Latin beatis evident from the moment the customermakes a reservation, whether online or in per-son, by the simplicity of the process and by theLatin-American touch — focusing on providingcustomers with exceptional service throughthe entire travel experience.

Image is also an important element thatreflects quality. Some airlines, such as TAMwith its unique image of in-flight personnel,have made a trademark of their image, payingutmost attention to details that equate to highstandards — spending months training cabinpersonnel how to present themselves and ser-vice passengers.

Crossing the BorderMexico, like Brazil, has the right market ele-ments for a low-cost carrier, and some airlinesand new investors are tapping into this oppor-tunity. Click, which emerged from AeroCaribeas the LCC offshoot of Mexicana, has recentlytaken off and promises to lead the way — if, ofcourse, it is able to truly maintain a low-costoperation while still keeping connections withMexicana.

Other quasi LCCs in Mexico, such asAvianca, AeroCalifornia, Aeromar and Azteca,will have to pay special attention to their strat-egy and cost structures to stimulate demandand continue to compete effectively.

Mexico is opening doors to newentrants, enabling international carriers toenter this land of interesting opportunity.These entries will finally create a more healthycompetition in a country where traditional car-riers (Mexicana and Aeromexico) dominatemore than 70 percent of the market. Benefitsfrom these new entrants will not only be mea-sured in terms of lower fares, more optionsand frequencies, but they will also help stimu-late domestic economy and tourism, making itmore attractive to travelers to fly withinMexico, since today it may be cheaper to fly

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abroad than domestically. It is estimated thatair traffic in Mexico could increase to 50 millionpassengers per year from the current 18 million.

GOL is not the only carrier with plans toenter the Mexican market; others are alreadylined up. El Salvador-based TACA recentlyannounced alignment with strong Mexicaninvestors, including Televisa, Mexico’s largesttelevision company and businessman CarlosSlim, to launch low-cost carrier VuelaCompañía de Aviación.

ABC Interjet, as Vuela, plans to take off atthe end of the year from Toluca, an airport about40 miles from Mexico City, Mexico, which hasthe potential to attract affluent travelers.

Expansion PlansLow-cost/hybrid carriers in Latin America arehere to stay, and they plan to grow, eitherdomestically or within the Latin Americanregion. Such is the case with GOL in Brazil,with plans to double capacity by the end of2009 to expand within Brazil, and the airline isalso exploring opportunities to start businessand export its successful model in other high-density countries such as Mexico.

LCC/hybrids are also looking into strength-ening their intra-Latin American alliances toexpand their horizons, and LAN’s rapid expan-sion in the region continues to challenge otherairlines to fly to new skies in neighbor countries

or add frequencies to existing ones. In theirquest to expand, some airlines are reachingunprecedented agreements to fly domesticroutes within countries previously impossibleto penetrate (as Grupo Marsan’s Aerolineas delSur entered Chile in late 2004, LAN is now ableto fly within Argentina, and GOL and TACA areserving Mexico). This has already resulted insignificant growth; reports show an intra-mar-ket increase of almost 12 percent in revenuepassenger kilometers in May, 25.1 percenthigher than the same period last year.

Airlines, especially in Brazil, have adopt-ed their models and have experienced verygood results attracting customers from exist-ing airlines and creating new demand. Carrierssuch as TAM and GOL have demonstrated itcan be done, even in one of the most regulat-ed countries in the world.

An excellent plan of action, focus to seg-ment the market they want to tackle andunstoppable leaders with a great team to exe-cute, as well as strong financial support, arekey elements necessary to succeed in theseunderexploited Latin American markets.

The results and best practices set bysome Latin American carriers, such as LAN,TAM, GOL, Aerolineas Argentinas and Copa,which are now flying with a Latin beat, are set-ting industry standards and achieving world-wide recognition.

Taking into consideration Latin Americangross domestic product, disposable income,and significant price differences between landand air transportation, Latin American carriershave to fly as cost efficiently as possible to beable to sustain discounted prices.

The new way of flying at a Latin beat ishere to stay, and it will be fascinating to seehow strong the beat becomes.

Marcela Lizárraga is vice president of LatinAmerican sales and account management

for Sabre Airline Solutions. She can becontacted at [email protected].

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regional

Photos courtesy of Airbus and Boeing

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

Industry Benchmarks — 2Q051

EBITDAR (US$ MM) 3122 5712 1,318 266 1292

EBITDAR (US$ MM) 37.1% 34.4% 19.6% 19.7% 13.4%Net Income (US$ MM)1552 3312 409 30 –262

Net Income Margin 18.4% 20.0% 7.0% 2.2% –2.7%EPS Growth3 20.0% 15.0% 10.0% 20.0% 20.0%P/E 20054 (x) 13.4 20.3 24.6 91.3 27.3P/E 20064 (x) 11.2 17.8 23.3 51.2 18.4PEG Ratio5 (x) 0.6 1.2 2.3 1.1 0.8

1. LTM June ’05 (GOL, SouthWest, jetBlue, and WestJet); LTM March ’05 (Ryanair)

2. Translated to U.S. Dollars at average rate US$1.00 = R$2.729, C=1.242, and CAD$1.2787

3. 5-year EPS Growth—Source Yahoo Finance4. P/E = At Stock Price as of July 29 and EPS supplied

by First Call5. 2006 P/E divided by 5-year projected EPS growth

Capacity and Network Expansion

jetB

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uth

west

Ryan

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GO

L

West

Jet

Number ofOperating

Aircraft(monthly average)

22

28

32+14.3%

+45.

5%

The financial performance of GOL, LatinAmerica’s leading low-cost carrier, is in line with other leading LCCs around theglobe, indicating that GOL has successfullyadapted the low-cost model to the LatinAmerican marketplace.

Despite operating in one of the most regulated countries in the region, GOL continues to rapidly increase revenue, daily departures, available seat miles andaircraft utilization. With plans for contin-ued growth, the LCC expects to doublecapacity by the end of 2009.

350312

+12.2%

260

+34

.6%

Flights/Day

+57.

3%

RPK (MM)

+11.8%

ASK (MM)

+13.1%

+49

.4%

or years, Delta Air Lines used its thrivingSkyMiles individual loyalty program tomaintain repeat business, particularly

from high-yield business travelers. And ithad also successfully built contracts withnumerous large corporations. But Delta real-ized it had a gap — the thousands of smalland medium companies that, combined,spend significant amounts of money ontravel each year. So, Delta decided to targetthis niche by creating a hybrid of its loyaltyand corporate programs tailored specificallyfor these smaller businesses.

Although many large companies hadinstalled online corporate booking tools thatenabled their employees to search for thelowest available fare or special negotiatedfares with specific airlines, Delta realized alarge portion of smaller companies lackedsuch technology despite, in many cases, hav-ing substantial travel budgets. These small tomid-sized companies didn’t have the volumeof business travel to negotiate the specialdiscounts available to large corporations,and they also could not justify the expense ofspecialized corporate booking solutions.

Realizing it could capitalize on thisniche market, Delta decided to launch a freecorporate loyalty program, called SkyBonus®,that would build brand loyalty among com-panies that spend less than US$500,000 ayear in travel with Delta. The carrier firstlaunched the program in 1999 in Europebecause corporate booking tools had notyet become popular there and the carrieralso wanted to increase its market share inthe region’s business segment.

The program, subsequently expandedto the United States, has proven successful,airline officials said. Today, more than25,000 companies in 13 countries partnerwith the airline in the SkyBonus® program.

The SkyBonus program is designed toreward a company that encourages itsemployees to travel on Delta flights. As thecompany’s employees travel on the airline,the company accrues points based on thevalue of the flown revenue that can beredeemed for future travel or benefits by thecompany’s employees or clients. Meanwhile,the individual traveler continues to earnindividual frequent flyer miles for each trip.

S M A L L

BIG

By developing a relationship with small and mediumbusinesses, Delta Air Lines has tapped into a valuablegrowth market, providing an additional revenue stream.

C O M PA N I E S

B U S

By Rick Dietert | Ascend Contributor

F

Although, in effect, Delta pays doublepoints for such trips, the airline benefits byincreasing higher-margin business travel.

Because business travelers typicallyspend more than leisure travelers, if Deltacan attract and retain customers from thesesmaller companies, it more than offsets thecost of providing redeemable points to boththe company and the individual.

SkyBonus points can be redeemed for19 different types of awards including freetickets, flight upgrades, Crown Room Club®

memberships, Silver Medallion® programstatus and in-flight courtesy coupons. Deltaalso allows SkyBonus members to purchasetheir tickets through their preferred channel —traditional or online travel agents or on the air-line’s Web site, delta.com — using the com-pany’s unique SkyBonus number. And, byaligning with these growing companies, Deltacan form a relationship that has the poten-tial to expand as these companies increasetheir travel expenditures. As such compa-nies add employees, more traffic is steeredtoward Delta. And if some of the companiesincrease their travel budgets significantly,they could qualify for corporate accounts.

To ensure that it could be run effi-ciently and cost effectively, Delta soughtleading technology to manage theSkyBonus program. Delta selected theSabre ® Corporate Loyalty System, a robustWeb-based application that manages theentire corporate loyalty program. Some ofthe basic features of the application include:

Managing company profiles, includingenrollment and traveler profiles,Providing customers access to theiraccounts so they can view their currentbalance,Calculating points based on actual netflown revenue from processed tickets,Tracking of points/credits received andredeemed by each corporation,

Reporting capabilities to show user activ-ity by company or country/market,Communicating special promotions by e-mail message or short message service,Marketing messages by country/marketvia application text or iFrames with exter-nal content.

The Corporate Loyalty system, whichis integrated with Delta’s corporate Web site,keeps track of all points/credits allocated tothe companies participating in the SkyBonusprogram. The participating companies gen-erally specify a program administrator who isresponsible for checking their account statusand determining howthe points/credits areredeemed, which is alsohandled through thesystem. The system,which supports multi-ple languages includ-ing English, French,German, Italian, Spanish,Portuguese, Hungarianand double byte lan-guages such as Chineseand Japanese, alsoprovides tools for Deltapersonnel to adminis-ter the business rulesand Web content.

According to Delta officials, using theCorporate Loyalty system has kept the costof running the SkyBonus program to a min-imum, enabling the airline to recoup itsinvestment in the system quickly. Byenabling Delta to align with growing com-panies, the system provides the foundationfor a program that offers a valuable revenuestream.

Rick Dietert is an account director for Sabre Airline Solutions. He can be


a

Delta Air Line’s SkyBonuscorporate loyalty pro-gram, powered by the Corporate Loyalty system,provides smaller compa-nies with an easy-to-use,Web-based graphical userinterface for redeeming 19 different types of frequent flyer awards.

I N E S S

A fleet assignment model, or FAM, isused by many airlines to match aircraftto flights to maximize operating profit.

Two prominent carriers — American Airlinesand Delta Air Lines — have reported that theuse of fleet assignment models can increaseannual profits by more than US$100 million.Fleet assignment models are part of a multi-step process that creates an airline’s operatingplan, refines it and ends with its execution. Thequality of the plan and the profitability of an air-line can be further improved if fleet assign-ment models anticipate and produce solutionsfavorable to subsequent planning and opera-tional processes. The processes affected byfleeting decisions include:

Crew scheduling — Fleet assignment solu-tions that include fleets serving a smallernumber of stations with greater frequencyprovide more flexibility for crew assignmentand can reduce crew costs.

Aircraft maintenance — Airlines must pro-vide equipment, spare parts and qualifiedmechanics to operate various aircraft typesat each station; limiting the diversity of air-craft serving each station can reduce main-tenance costs. Operations — Airline schedules are rarelyoperated exactly as planned, and airline oper-ations are disrupted by weather, mechanicaland air traffic control problems. As a result,aircraft and crews are reassigned from the

original plan. The cost of recovering fromschedule disruptions is affected by theopportunities to swap aircraft and/or crew.Commonality in fleet types serving each sta-tion increases the opportunities for swapsand can increase airline dependability andreduce the cost of disruptions.

Initial fleet assignment formulations didnot anticipate the impact of fleeting solutionson the subsequent planning and operationalprocesses. Our research group at Sabre

Holdings developed an approach to addressthe crew, maintenance and operational issuesthrough station purity, limiting the number offleets that can serve each station. This makesthe FAM problem harder to solve, but workingwith our academic partners, we developed acomputational approach that is efficientenough to incorporate station purity into largeFAM problems. The solutions achieved withthis approach are robust relative to crew plan-ning, aircraft maintenance and operations.

Airline Fleet Assignment ModelingThe airline fleet assignment problem has beena topic of academic and industrial interest sinceat least 1955. The most basic model maxi-mizes airline operating profit subject to a fewconstraints, including:

Cover — Every flight leg must be assignedexactly one fleet type,Balance — Aircraft cannot appear or disap-pear in the network, Plane count — For each fleet, the total num-ber of aircraft on the ground or in the air atany point in time cannot exceed the totalavailable.

While fleet assignment models addedsignificant profit to American and Delta, themodel scope was initially limited to the capaci-ty planning process. Significant improvementshave been made to make fleet assignmentsolutions more maintenance and crew friendly.

These fleet assignment formulations typ-ically assume that the schedule will be flown asplanned, which rarely happens. Airline opera-tions are frequently disrupted by unplannedevents such as airport capacity reductions dueto weather, ATC delays and mechanical prob-lems. And changing conditions such as varyingdemand can result in airlines choosing to alterthe schedule. Depending on the number andseverity of disruptions, a significant percentageof airline flight operations can be affected. Forexample, in December 2000, 33 percent of allU.S. flight arrivals were delayed by more than15 minutes.

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Talking Technology With …BARRY SMITH, CHIEF SCIENTIST, SABRE HOLDINGS

Robust Airline Fleet Assignment

By imposing purity and reducing aircraft disper-sion in the network … carriers can save up toUS$30 million a year.

HIGH l i gh t

Through fleet assignment models that incorporate

station purity — limiting the number of fleets that

serve each station — airlines can better address crew,

maintenance and operational issues.

A plan that is optimal with respect toexpected conditions may not be optimal oreven feasible in actual operation. Fleet assign-ment solutions can affect the time and costrequired to return to planned operations. Wehave supported research efforts at theMassachusetts Institute of Technology todevelop an aircraft routing model that encour-ages overlapping routes in the solutions so air-craft have more swap opportunities in theevent of an operational disruption. Partneringwith MIT, we supported the development of astrategy to layer the schedule into relativelyindependent sets of flights so operational dis-ruptions can be dealt with in one layer withoutspreading to others. These robust solutionssignificantly reduce passenger delays and dis-ruptions compared to traditional fleet assign-ment solutions. We also supported research atGeorgia Tech to develop a FAM formulation toincrease operational robustness by reducing

hub connectivity, resulting in operations withfewer cancellations and delays.

Most recently, we have pursued stationpurity as a method to increase FAM solutionquality.

Station PurityStation purity limits the number of fleets serv-ing a given station. Airlines can impose purityby fleet or family. A family is defined as fleetsthat are crew compatible. For example, 737-300 and 737-800 are crew compatible and arecontained in the same 737 family.

Imposing purity provides benefits in plan-ning, operations, maintenance and capacityswapping. From a planning perspective, purityat a spoke provides more flexibility in crewscheduling; there are more outbound optionsfor each inbound crew. As a result, the addition-al costs associated with long layovers and dou-ble overnights can be reduced. In operations,

purity provides more opportunities for crewmove-ups and swaps at the spokes. Since fam-ilies are defined as crew compatible, there is noreduction in flexibility by having purity at thefamily rather than at the fleet level. To supportroutine and ad hoc maintenance, airlines mustensure ground equipment compatibility andstock spare parts as well as have appropriatelyqualified mechanics for each equipment typeserving a station. There are many systems,parts and procedures common to fleets withina family. Since purity reduces the number offamilies serving the typical spoke station, thereis a corresponding reduction in parts and main-tenance costs. One U.S. major carrier estimat-ed that it cost approximately US$500,000 peryear to add a family type to a station. Some air-lines swap equipment to match capacity todemand. This is typically done within crew-com-patible families. Purity at the family level doesnot reduce flexibility relative to capacity swaps.

The impact of purity on the dispersion offleets within the network can directly reducecosts. By having a more pure fleet distribution,airlines can reduce the number of stations aparticular type of aircraft serves; therebyreducing the number of stations that have tobe equipped to serve that type of aircraft.

Bringing Purity to the FAMStation purity makes fleet assignments moredifficult to solve. For large cases, adding purityto the typical FAM problem can increase run-times by a factor of five. We developed thestation decomposition approach to make fleetassignment models more efficient with respectto purity. Station decomposition takes advan-tage of the hub-and-spoke structure of typicaltraditional airline flight networks. In some net-works, almost all flights operate either to orfrom a small number of hubs. If we remove thehubs in a pure hub-and-spoke network, the net-work decomposes into separated spoke sta-tions, each with its own set of flights. Because

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0737 FJT 727 ATR 757/767 MD80 RJ

Impact of Purity on U.S. Domestic Schedule

Fleet: Base Pure

The Boeing 737 fleet serves 120 stations in the base FAM solution. By imposing station purity, it can be reduced to 63, meaning that 57 fewer stations need to be equipped to handle 737 aircraft. There are 57 fewer stations where 737 crews can get stranded due to operational problems. The reduction is even greater for ATR fleet.

Sta

tio

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

the number of flights operating to and from anyspoke is a small part of the full schedule, deter-mining fleeting solutions for each spoke is rela-tively easy. We refer to each feasible solution fora spoke as a fleeting plan. A solution to the fullnetwork fleet assignment problem is a collectionof plans (one for each spoke) that satisfies air-craft count and flow balance at the hub. In largeproblems, station decomposition can reduceFAM runtimes by 98 percent. This approachreceived the Best Technical Paper award at the2004 AGIFORS symposium in Singapore.

Value of PurityStation purity provides benefits in both planningand operation. We estimated the benefits ofpurity in maintenance and crew planning. Byimposing purity and reducing aircraft dispersionin the network, we estimate that U.S. domesticcarriers can save up to US$30 million a year.We solved the crew pairing problem for baseand pure fleet assignment solutions. We foundthat excess pay-and-credit was reduced from26 percent to 4 percent by station purity, result-ing in savings of approximately US$100 millionper year. Added to the US$30 million profitincrease from savings in maintenance costs,an overall profit increase of US$130 million peryear will be achieved. Purity is profitable inplanning alone. Improved operations due topurity will provide additional benefits in termsof costs and customer service.

Fleet assignment modeling has been animportant part of the airline planning process formore than 20 years. Models and systems haveimproved by considering the down-line planningand operational impact of their solutions. Theresearch and development has not sloweddown. We are currently working withresearchers at the University of Illinois at Urbana-Champaign to develop a process to integrate air-craft routing and crew scheduling into fleetassignment models. This work is promising interms of increasing profit by reducing crewcosts. In the near future, we can expect to seeseveral applications of robustness in airlinescheduling and planning systems. a

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“Applying Integer Linear Programming to the Fleet Assignment Problem”by J. Abara, Interfaces, Vol. 19, No. 4, page 20-28, 1989.

“Approaches to Incorporating Robustness into Airline Scheduling” by Y. Ageeva,master’s thesis, operations research center, Massachusetts Institute ofTechnology, 2000.

“Flight String Models for Aircraft Fleeting and Routing” by C. Barnhart, N. L. Boland, L. W. Clarke, E. L. Johnson, G. L. Nemhauser and R. G. Shenoi,Transportation Science, Vol. 32, No. 3, page 208-220, 1998.

“Maintenance and Crew Considerations in Fleet Assignment” by L. W. Clarke,C. A. Hane, E. L. Jonhson, G. L. Nemhauser, Transportation Science, Vol. 30,No. 3, page 249-260, 1996.

“The Aircraft Routing Problem” by R. Ferguson and G. B. Dantzig, AeronauticalEngineering Review, Vol. 14, No. 4, 1955.

“Degradable Airline Scheduling” by L. Kang, doctoral dissertation, operationsresearch center, Massachusetts Institute of Technology, 2003.

“Airline Industry Metrics” by K. M. Mead, U.S. Department of TransportationMemorandum, CC-2003-048, 2003.

“Topics in Airline Operations” by J. M. Rosenberger, doctoral dissertation, indus-trial and systems engineering, Georgia Institute of Technology, 2001.

“Advances in the Optimization of Airline Fleet Assignment” by R. A. Rushmeierand S. A. Kontogiorgis, Transportation Science, Vol. 31, No. 2, page 159-169,1997.

“Robust Airline Fleet Assignment” by C. Smith, doctoral dissertation, industrialand systems engineering, Georgia Institute of Technology, 2004.

“Coldstart: Fleet Assignment at Delta Air Lines” by R. Subramanian, R. P.Scheff, J. D. Quillinan, D. S. Wiper, D. S. and R. E. Marsten, Interfaces, Vol. 24,No. 1, page 104-120, 1994.

Interested in Learning More?

Additional information about fleet assignment issues can be found in several references, including:

+count it up1970 — Year the first jumbo jet,

the Boeing 747, entered airline service.

160 — Number of new discount carri-

ers around the world being tracked by the

Official Airline Guide that could start oper-

ations within the next 18 months.

12 — Percent of the more than 2.27

million scheduled flights around the

world that are operated by discount

airlines.

Anyone who has ever gone shoppingknows it’s all about content. If a mer-chant doesn’t have what its consumers

are looking for, they are less likely to return.Travel consumers are no different; if anything,they are becoming even more demanding withthe continued surge in online shopping behavior.

Traditional travel content suppliers, suchas airlines, hotels and car rental companies,are changing as well. They are moving towardmore modern and open-technology standardsfor loading their data into systems such asSabreSonic ™ Passenger Solutions and theSabre ® global distribution system. The newerprotocols are easier to work with and requirefewer development resources on the part ofthe airline’s information technology staff toimplement. In addition, these traditional suppli-ers have been joined by a host of new entrantsincluding low-cost start-up airlines, rail carriersand cruise lines, all eager to have their travelproducts made available in Sabre Holdings’ sys-tems. As with the more traditional suppliers,these new players prefer modern Web-basedconnectivity standards, such as extensiblemarkup language, or XML, that offer increasedflexibility and reduced time to market.

Sabre Holdings’ history of supplier con-nectivity spans several decades, with periodicadvances meeting the needs of changing tech-nologies over time. The solutions adopted haveevolved from older network protocols andbandwidth to newer, widely accepted networkimplementations.

Following the era of the 1970s, prominentprotocols in the airline industry were very pro-prietary in nature and highly specialized. Thesewere often referred to in Société Internationalede Télécommunications Aéronautiques, orSITA, specifications such as P1024A andP1024B (wire-level protocols for mapping air-line ticketing data to various host systems).First-generation supplier connectivity focusedon these solutions. The world access complex,or WAC, environment continues to provide

solutions for some suppliers based on theseprotocols. Additionally, the WAC complex pro-vided the basis for adopting newer standardnetwork protocols emerging at the time. In theearly 1980s, X.25 became a prominent stan-dard and began to be accepted and implement-ed by many suppliers, driven by the need forincreased performance and flexibility and thebroad reach of the SITA network.

During the latter part of the ‘80s and intothe early 1990s, suppliers began focusing on stan-dard formats for exchanging data. EDIFACT initia-tives and the work of governing bodies, such asPassenger and Airport Data Interchange and theInternational Air Transport Association, forged theway for normalized, well-accepted messaging.

Sabre Holdings invested heavily in a newsupplier connectivity infrastructure — the host

Supplier Connection

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

By Todd Richmond | Ascend Contributor

Airlines, hotels, car rental agencies andother travel content suppliers are movingtoward more advanced, open-technologystandards for loading data into global distribution systems. Sabre Holdings’ newsupplier connectivity infrastructure pro-vides a full product suite to help airline,travel agency, car and hotel partnershipsbetter serve their customers.

Sabr e

Airline

Solutions’

ar chives

communications complex, or HCC — to sup-port EDIFACT and launch a new generation ofapplications for real-time, direct-connect pro-cessing, such as availability and sell functions.Today, the HCC and its successor, the com-mon translation service, provide a full productsuite for travel agency traffic and airline, carand hotel partnerships alike. Product featuresinclude popular functions, such as electronic

ticketing, passenger through check in and pas-senger name record claim processing.

While HCC and CTS continue to providea high level of service, the growth of theInternet combined with the ever-decreasingcost of Web hosting and network connectivityhas created a desire for smaller suppliers toprovide access to their content over the publicInternet.

Today, newer channels of informationare rapidly augmenting the traditional EDIFACTchannels for supplier content. In addition to thehigh-volume, point-to-point connectivity provid-ed by HCC and CTS, there is a need for lower-volume widely dispersed content access usingnewer Internet-standards-based formats fordata exchange such as XML. XML exchangesare increasingly overtaking EDIFACT as thepreferred means for data and function descrip-tion as XML becomes the dominant form ofelectronic data exchange across all facets of ITincluding the transportation industry. The pri-mary reason for this is the ease with which

XML interfaces can be developed and imple-mented compared to legacy protocols. One ofthe driving forces behind this change is theOpenTravel Alliance, a governing body, ofwhich Sabre Holdings is a contributing mem-ber, charged with developing specifications forthe use of XML throughout the travel industry.

Another force for change in supplier con-nectivity is the move toward distributed, opensystems for core distribution and reservationsservices. These new platforms already powermany of the components within theSabreSonic solutions and will eventually com-pletely replace the mainframes that power theSabre system. With this change comesincreasing pressure to provide open interfacesto access supplier content. To address thisneed, Sabre Holdings has created the supplierside gateway, its latest technology investmentin supplier access.

Tied into the IT company’s integratedcomputing environment, supplier side gatewayserves as an integration access point for open-

standards protocol access. It will not only pro-vide the basis for both reservations and distrib-ution applications to access traditional contentusing new formats, but it also allows newtypes of content to be integrated at the point ofsale, something that is becoming increasinglyimportant to airlines as they move toward offer-ing dynamically created travel packages to cus-tomers via their Web sites. Supplier side gate-way will provide the infrastructure to enablethis capability and facilitate the transformationto merchandising by providing the ability toapply filtering rules, transaction orchestrationand messaging transformations at the connec-tivity layer along with buffering of supplierrequirements for message formats and com-munication protocols.

Ultimately, supplier side gateway willenable Sabre Holdings to retire the legacyWAC complex while retaining HCC/CTS forEDIFACT connectivity as long as that isrequired. It will enable the company to investthe additional cost savings into additionalenhancements of the supplier connectivityinfrastructure.

Todd Richmond is vice president of strategic architecture for Sabre Holdings.

He can be contacted [email protected].

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Sabre Holdings’ history of supplierconnectivity spansseveral decades, withperiodic advancesmeeting the needs of changing tech-nologies over time.

HIGH l i gh t

More advanced information channels are rapidly changing the traditional EDIFACT channels for supplier content.The supplier side gateway, Sabre Holdings’latest technology expenditure in supplieraccess, serves as an integration point for open-standards protocol access andprovides the basis for both reservationsand distribution applications to retrieveconventional content using modernconfigurations. The supplier side gatewayalso enables fresh content to be integratedat the point of sale, a concept that isbecoming progressively more important to carriers as they move toward providingdynamically created travel packages totravelers using their Web sites.


Renowned architect Frank Lloyd Wright saidit best: “Form follows function — that hasbeen misunderstood. Form and function

should be one, joined in a spiritual union.”A building architect seeks to create unity

between the form of a structure and the manyhuman activities or functions it must accom-modate. This is the foundation of organic archi-tecture — that the union of form and functiondefines the experience of those who occupythe building.

The same concept applies to informationtechnology, which is designed to accommodatethe information-based activities of users. Thesoftware interface is where human/computerinteraction occurs — the digital equivalent to wallsand floors. And in defining the user experience,instead of “form and function,” information archi-tects use the terms “design” and “usability.”

Benefits of User-Centered DesignUser-centered design may seem like it requiresa lot of additional time and effort. On the con-trary, this process is more efficient and ulti-mately more cost effective, which can makethe software more affordable. By understand-ing the needs of end users early on and factor-ing them into the architecture and design of anapplication initially, programmers spend lesstime developing unnecessary or unwantedfunctionality, reworking confusing interfaces,and struggling to create the right look and feel.

Well-designed software provides a num-ber of benefits for airlines:

It requires less training and far less time onthe phone with technical support.It integrates well with the user’s environment.It delivers better results because it fits theprocesses required to complete the task.

It can boost productivity, enabling users toperform tasks quickly. It can increase job satisfaction. It looks more professional and aestheticallyappealing. It is more engaging.

Defining User ExperienceConsider a device that can be used every day:a can opener, a clock radio, a cellular phone, agasoline pump. If a user of these productsexperiences confusion, difficulty, frustration orannoyance, it’s a strong indication of a failedproduct — the result of bad design, bad usabil-ity, or both. However, if the user experience issimple, effortless, natural and intuitive, theproduct designer or engineer has followed theprinciples of user-centered design.

Looks Good, Works Well

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By J. Alan Baumgarten | Ascend Contributor

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

Apple excels in the marketplace through excellent design and excellent usability.

“Form follows function — that has been misunder-stood. Form and function should be one, joined in a spiritual union.”— Frank Lloyd Wright

A usable design is an important element

of the success of any product, whether a

toaster or a software application. One of the

most successful new products to be introduced

in recent years, Apple’s iPod, has shown the

value of having a simple, intuitive design that

joins form and function, enabling users to

maximize its usefulness. Identifying end users

and understanding their needs is critical to the

design and development of robust technology.

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Ironically, good usability tends to betransparent. Users are task oriented, meaningthey’re more focused on the task at hand thanthe tool or method they use. For instance,when starting a car, the driver turns the keyand the car starts; the driver doesn’t give asecond thought to the ease of the actiondespite the enormous complexity of today’sautomobile engines. It’s only when the car failsto start that the engine gets the driver’s com-plete attention. Even then, it’s not so much theengine they’re concerned with as the problemof being unexpectedly stranded.

Good usability may not always standout, but good design more than makes up forit. Design breathes life into a product, makingit more appealing and more memorable. Good

design is the essence of branding or differenti-ating one product from another. While designfor design’s sake can sometimes interfere withusability, the best design can improve usabilityby making controls more visible and informa-tion easy to locate and read.

The most successful consumer productspair excellent usability with outstanding design.One example is Apple’s iPod, which combinesa sleek compact design, intuitive user interface,excellent sound quality and generous storagecapacity — all the qualities consumers want.iPod wasn’t the first portable music player onthe market, but excellent design, a simple inter-face and user-centered features quickly made itthe best-selling device of its kind.

Excellent design makes a product look

good. Excellent usability means the productworks well and meets real user needs. “Looksgood, works well” is the mantra of the newuser experience team at Sabre Airline Solutions.It defines the goal of achieving the “spiritualunion” alluded to by Frank Lloyd Wright.

Software that Looks GoodThe principles of good design pre-date soft-ware development by several centuries. Eventhe Gutenberg Bible had a user interface. Themedia may have evolved through the years —from stone and canvas to paper and now light— but designers are still interested in thesame principles:

Composition — Involves rhythm, balance,weight, proportion, consistency, harmony,organization and emphasis;Color — Used to create visual interest,establish mood or tone, draw attention,apply emphasis, and denote relationships(designers must be aware that color some-times has certain social connotations thatcan differ among cultures);Type — Includes font selection, size andstyle, capitalization, color, and spacing con-

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

Creating user-centered software is often a recursive process, not a linear one.

HIGH l i gh t

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

New design offers a colorful GUI that is user friendly andboosts productivityby providing easynavigation.

siderations;Graphics — Concerns the appropriate use ofvisual elements to convey information ratherthan just text or numerical data.

Few programmers, brilliant as they maybe, have formal training in graphic design, andmany are not up to speed on the intricacies ofapplying design principles in user interfaces.The simple fact is that programmers don’thave time to earn four-year graphic designdegrees when they’re focusing on learningcomplex languages and methodologies in arapidly evolving field. As an unfortunate butpredictable result, software interfaces areoften bland, uninteresting, unmemorable anddifficult to use.

The simple solution is collaboration.Product development teams at Sabre AirlineSolutions work closely with interaction designersto ensure that user interfaces adhere to the prin-ciples of good design and follow the prescribedlook and feel defined by corporate style guide-lines (or the guidelines for a particular airline).

Recently, the team completed work on aWeb framework, which is essentially a collec-tion of reusable components with pre-definedbehaviors that share a common look and feel.Product teams that use the framework don’thave to worry about design because the stylesand graphic standards are already defined,enabling developers to spend more timeensuring robust functionality of the software.There are several applications within the SabreAirline Solutions product portfolio that use theWeb framework, including Sabre ® AirMax ®

Group Manager, Sabre® CargoMax™ RevenueManager, Sabre® WiseVision ™ Sales Analyzer,Sabre® AirPrice ™ fares management system,Sabre® AirMax ® Revenue Manager, Sabre®

Reaccommodation Manager and Sabre®

AirCrews® Operations Manager. More are indevelopment.

A similar framework is in place for Swinginterfaces, which are more traditional applica-tions installed on a client machine rather thanhosted on the Web. They include Sabre ®

Movement Manager, Sabre ® AirFlite™ ScheduleManager, Sabre® AirCrews® Disruption Control,Sabre ® AirCrews ® Pairing Optimizer, Sabre ®

AirCrews® Resource Manager, Sabre® AirCrews®

Schedule Optimizer and Revenue Manager.

Software that Works WellUsability has become an industry buzzword inthe past few years thanks to the efforts of sea-soned researchers such as Alan Cooper andJakob Nielson, who have identified and docu-mented a number of interaction design princi-ples. The Sabre Airline Solutions user experi-ence team consolidated the wide body ofindustry research into a set of 10 principles orheuristics that guide the planning, design andevaluation of product suites.

These principles include:Metaphor — The electronic system should

align with identical real-world systems. Forexample, a digital paint program uses toolsand icons designed to imitate a painter’s stu-dio (airbrush, pencil, eraser, etc.) eventhough no real paint is used. Feedback — The system should show usersthe status of the system and let them see,hear or know of changes immediately.Navigation — The interface should let usersknow where they are in the system andwhat other options are available.Consistency — Design, colors, buttons,graphics, fonts and all visual elementsshould remain consistent (e.g., don’t usefour different shapes and colors for a submitbutton, and make sure it always appears inthe same relative place). Memory — Users should not be required toremember data, settings or special com-mands from one screen to the next; rather,

they should be enabled to view, recognizeand select what they need. Effort — Only the minimum number ofsteps should be required to complete aprocess; at the same time, the interfaceshould not be unnecessarily crowded andcomplicated just to save one or two steps.Design — Design elements should facilitatefunctionality, enhance the visibility of impor-tant elements, ensure readability and reflectthe brand image. Design must never over-whelm the interface or interfere with usability.Recovery — Users must be able to easilyrecognize, diagnose and recover from errors.Error prevention — Whenever possible, thesystem should prevent users from perform-ing actions that would result in an error. Help — System help is immediately avail-able, and the program is well documented;wherever possible, help should be given incontext with program functions (i.e., direc-tions are given along the way).

Creating user-centered software is oftena recursive process, not a linear one. Like awritten composition, each new iteration —each draft of the software — is a learningprocess that brings developers closer to theideal solution. Nevertheless, much of thedevelopment curve can be circumvented bystarting with a clear understanding of the enduser, usually through a series of interviews andon-site observations.

The first goal of the user experienceteam is to determine exactly who the endusers are, which is not always readily appar-ent. The team must understand users’ work-related tasks, their level of experience andtraining, attitudes, and discourse (vernacular orspecialized vocabulary). The team must alsounderstand conditions in the workplace, suchas time constraints, noise levels, and availablehardware and software.

Input from user interviews and observa-tions are compiled into a single document — a“persona” — which is a detailed profile of atypical (not necessarily average) user. The per-sona acts as a sanity check, a measure bywhich all other design and development deci-sions are validated.

As the user experience team collabo-rates with product development teams, it firstattempts to reconcile the user requirements

defined in the persona with the functional andbusiness requirements defined by customers,product managers and stakeholders. Once acommon understanding of how an applicationneeds to operate exists, the team can begindesigning interfaces that meet the many func-tional requirements and adhere to the 10 prin-ciples of usability. User feedback is solicitedalong the way, and, if possible, formal usabilitytests of working prototypes are conducted; it’sbetter to know early in the process whereusers are experiencing difficulties so they canbe addressed prior to product release.

Product development and the userexperience is an ongoing, iterative cycle. Theteam continually monitors user feedback,tracks user success, validates assumptionsabout end users and establishes new recom-mendations for making Sabre Airline Solutionssoftware look good and work well.

Frank Lloyd Wright had it right a centuryago — form and function are one. And throughits “looks good, works well” approach, SabreAirline Solutions is committed to developingwell-designed, user-friendly applications thatlead the industry.

J. Alan Baumgarten is a senior interactiondesigner for the user experience team at

Sabre Airline Solutions. He can be contacted at [email protected].

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Excellent design makes a product look good.Excellent usability means the product works well and meets real user needs.

HIGH l i gh t

Asia/Pacific

Japan Airlines Group, the third-

largest airline group in the world and the

largest in Asia/Pacific, selected Sabre ®

AirMax ® Revenue Manager to manage rev-

enues from its international operations.

Revenue Manager, a flexible, new-gener-

ation solution, enables effective revenue

management by recommending optimal

inventory controls at either the flight-leg

and segment level or the origin-and-desti-

nation level. It incorporates a comprehen-

sive range of decision-support processes,

including data collection, forecasting, over-

booking, optimization, alerting and perfor-

mance measurement, and reporting.

“We are thrilled by the prospect of

the gain in top-line revenues by moving

to Revenue Manager,” said Kei Hirai from

marketing planning and passenger informa-

tion technology promotion for Japan Airlines.

“We are excited about the good fit the

solution has with Japan Airlines’ business

requirements and the revenue benefits it will

offer from its advanced functionality, flex-

ibility, scalability and integration capabilities.

We went through a comprehensive selec-

tion process involving a simulation analy-

sis and a proof of concept, and the solution

met our needs in the best possible manner.”

Air China selected the Sabre® AirFlite™

Planning and Scheduling Suite to enhance

its ability to schedule flights and react to

changing market forces. The suite provides

advanced planning and scheduling technol-

ogy that combines core functions such as

scheduling, profitability forecasting and

analysis, fleet assignment, and slot man-

agement through a seamless integration

with shared interfaces and database

information. The airline also will employ

consulting services from Sabre Airline

Solutions to assist with product implemen-

tation and network planning, providing a

total solution that will help Air China rapid-

ly realize the benefits of the AirFlite suite.

“Modeling passenger demand and

market behavior within the Chinese avia-

tion market has typically been a challenge

in the past, but Sabre Airline Solutions has

demonstrated its knowledge and experi-

ence in this area,” said Jian Xiong Huang,

deputy general manager of information

technology for Air China. “We are confi-

dent the AirFlite suite will enable us to

better forecast and enhance our decision-

making abilities. Sabre Airline Solutions

is also able to offer us an end-to-end

approach, incorporating the AirFlite suite

and best-practice industry consulting.”

Europe/MiddleEast/Africa

AirMalta selected three components

of the Sabre® AirMax® Revenue Management

Suite to help it effectively compete against

the growing competition in the region.

“Due to the increased competition,

Air Malta is embracing revenue manage-

ment as a way of improving its profitability

while reducing costs,” said Joe Cappello,

chief operating officer for Air Malta.

“Having enjoyed the benefits of other

Sabre Airline Solutions technologies and,

in particular, the SabreSonic™ Passenger

Solutions, we are confident that the rev-

enue management solution will provide us

with a real competitive advantage in the

marketplace.

The bundling of systems and con-

sulting services, aimed at achieving a

quick assimilation of the technology solu-

tions into our business environment by

aligning our business processes with

industry best practices, will deliver posi-

tive results from the early stage of the sys-

tems’ implementation.”

Aeroflot Russian Airlines suc-

cessfully migrated to the SabreSonic™

Passenger Solutions, the industry’s first

new-generation reservations and passen-

ger management solution. In addition, the

airline’s affiliated travel agencies will utilize

a customized version of the Sabre ® global

distribution system, an end-to-end distrib-

ution offering that significantly advances

the state of travel for the carrier and for

Russia within the region and worldwide.

“Aeroflot’s objective for the future

is to continue making use of the most

advanced and efficient technologies that

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

exist in the industry,” said Evgueni

Bachurin, commercial director for Aeroflot.

“For this reason, we chose Sabre Airline

Solutions’ technology package. Sabre

[Airline Solutions] provides more flexibility

in the areas of air travel reservations, sales

and ticketing than any other offering cur-

rently available while at the same time

ensuring maximum efficiency from both

travel agents and the airline’s sales offices.

In addition, the new technology offers a

variety of new functions that will benefit

Aeroflot and travel agencies and will help

to improve customer service.”

Iberia Líneas Aéreas deEspaña, Spain’s leading airline, will

implement four key components from the

Sabre ® AirFlite™ Planning and Scheduling

Suite, giving the airline a comprehensive

network management and scheduling solu-

tion. As part of the arrangement, the air-

line will also utilize Sabre Airline Solutions’

consulting services to help improve its hub

structure and transform the business to

exploit the new technology solutions.

“By implementing Sabre Airline

Solutions’ network management and

scheduling suite, we will have comprehen-

sive, integrated planning and scheduling

capabilities for everything from hub design

and fleet analysis to route profitability analy-

sis and rotation generation,” said Jose

Bolorinos, head of network management at

Iberia Airlines. “These tools will allow us to

optimize our schedule across our entire net-

work to ensure we fly the most reliable and

profitable schedule possible. Implementing

these tools in conjunction with utilizing

Sabre Airline Solutions’ consulting services

means we will substantially improve our

capabilities in the short term, helping us

increase revenue and decrease costs.”

The Arab Air Carriers Organization and SabreAirline Solutions, in close coor-

dination with six Arab airlines, are study-

ing the creation of a new groundbreaking

alliance.

EgyptAir, Gulf Air, Middle East Airlines,

Oman Air, Royal Jordanian Airlines and

Saudi Arabian Airlines are participating in

the study to create “Arabesk,” the first air-

line alliance that coordinates the schedules

of six close competitors. The goal of cre-

ating this pan-Arab alliance is to provide

financial benefits that the carriers could not

achieve individually.

Through the alliance, the airlines can

provide better separation of services,

reduce the duplication of capacity, link net-

works and destinations, generate market

demand through improved customer con-

nectivity, and maximize capacity through

route sharing and rationalization. The com-

bined network of the six carriers totals

more than 5,000 departures each week

and spans from North America to the Far

East, giving vast potential to the alliance.

“AACO is very pleased to work with

Sabre Airline Solutions in establishing this

model that improves the linkages between

the networks of six of our key members,”

said Abdul Wahab Teffaha, secretary gen-

eral of AACO. “Arabesk is an innovative

initiative that will strengthen the compet-

itiveness of our members as a whole and

provide better connectivity for travelers

throughout the world and within the region.

While many of the airlines involved in this

alliance were competing with each other,

larger, more powerful airlines and alliances

were being established and set to grow.

“With the creation of Arabesk, these

airlines intend to cooperate and compete

directly with larger carriers/alliances with a

combined network while still competing

with each other for passengers based on a

competitive pricing policy. Passengers will

therefore be attracted to Arabesk because of

its network coverage and competitive prices.

This is a truly smart solution to a real problem

that has eluded resolution by the industry.”

The Americas

GoJet Airlines, subsidiary of Trans

States Holdings, selected Sabre Airline

Solutions’ flight operations tools for crew

management, flight planning and dispatch,

and operations control and flight following.

GoJet, a new U.S. regional airline that will

serve the St. Louis, Missouri, area will utilize

five leading components from the Sabre ®

Flight Control Suite, including the Sabre®

CrewPlan® system, the Sabre® CrewQual ®

system, the Sabre® CrewTrac® system, the

Sabre ® FliteTrac™ system and the Sabre ®

Dispatch Manager.

“Trans States Airlines has long relied

on Sabre Airline Solutions’ Flight Control

suite, so when we founded GoJet Airlines,

we wanted to ensure it had the same smart

solutions to ensure a successful launch,”

said Rick Leach, president of Trans States

Holdings. “These tools have proven to be

valuable decision-support solutions that will

enable us to run an efficient, reliable airline.”

Southwest Airlines signed a

seven-year agreement with Sabre Airline

Solutions that promises the airline innova-

tive and cost-effective technology. The new

technology will continue to give Southwest

customers access to convenient and low-

cost ways to plan, book and implement

their travel plans. Southwest will use a cus-

tomized passenger management solution

for its reservations system and customer

interactions at the airport. The new agree-

ment replaces the previous contract signed

in 1998, creating a more strategic relation-

ship with Sabre Airline Solutions and set-

ting Southwest’s infrastructure for its reser-

vations system technology in place as the

airline plans for the future. The decision

to focus more of its operations on technol-

ogy from Sabre Airline Solutions enables

Southwest to eliminate disparate systems,

increase performance and reliability, and

further leverage the technology strengths

of its information technology partner.

“Sabre [Airline Solutions] has the

right technology and the right industry

IQ to meet our needs,” said Tom Nealon,

chief information officer for Southwest

Airlines. “Our partnership [with Sabre

Airline Solutions] allows us to offer our cus-

tomers low fares that are easy to find.”

Hawaiian Airlines selected Sabre

Airline Solutions as its maintenance and

engineering provider through the technol-

ogy company’s partnership with Mxi

Technologies. The airline will utilize the

Maintenix ® MRO System, which will replace

Hawaiian Airlines’ current M&E solution —

the Sabre® Maxi-Merlin™ maintenance, engi-

neering and inventory system — and will

be implemented as a hosted application

through Sabre ® eMergo ® Web access, an

applications service provider distribution

method. The eMergo environment offers an

economical way to access the comprehen-

sive functionality of the Maintenix system

and other products in the Sabre Airline

Solutions portfolio, lowering the total cost

of ownership for Hawaiian Airlines.

“We selected the offering following

a competitive bid process involving a due

diligence assessment and an intensive five-

day product demonstration,” said Charles

Nardello, vice president of maintenance and

engineering for Hawaiian Airlines. “Key

factors in our decision included the modern

information technology architecture and

advanced technology of the Maintenix sys-

tem, its ability to manage all levels of main-

tenance, and the expertise and high level

of service we have consistently received

from Sabre Airline Solutions.”

Continental Airlines selected

Travelocity Partner NetworkSM, Travelocity’s

private label booking business, to be the

sole supplier of hotel content for the air-

line’s Web site, continental.com. The new

status builds upon Travelocity’s current role

as exclusive provider of last-minute deals

for the airline’s Web site.

“We have worked with Travelocity

for several years and have always been

satisfied and confident in the products that

the Travelocity Partner Network provides

our customers,” said John Slater, manag-

ing director distribution and e-commerce

at Continental. “The Travelocity network

has the ability to secure differentiated hotel

rates that we feel will provide our cus-

tomers on continental.com some of the

best deals in the travel industry.”

GetThere, the world’s leading online

corporate travel reservations provider,

expanded its Web Connect solution,comple-

menting its already comprehensive access

to a variety of flight options. GetThere® Web

Connect now provides corporate travelers

choices from more than 50 domestic and

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

international travel Web sites, including many

major airline sites, U.S. low-cost airlines such

as AirTran Airways and jetBlue Airways,

and CanJet, a Canada-based low-fare airline.

The expansion of GetThere Web

Connect enables corporate travelers to

compare fares, whether from one or mul-

tiple global distribution systems, a com-

pany’s negotiated rates program, or airline

and other travel Web sites, providing travel-

ers with the confidence that they are see-

ing a wider range of fares on every booking.

“We have always focused on provid-

ing companies the travel options they need

whether they are from any GDS, the Web

or other sources that offer distinct value

to customers,” said Bev Heinritz, general

manager of GetThere. “Enhancing GetThere

Web Connect further expands the options

travelers now can see from both domestic

and international airlines, providing comfort

that they are viewing a very comprehen-

sive set of fares.”

Around the World

EuroManx,AfriqiyahAirways and OzJet have chosen

the SabreSonic™ Passenger Solutions, the

industry’s first new-generation solution

ready for installation.

We knew we wanted a more robust,

flexible solution than what we saw with

other carriers in this region,” said Capt.

Sabri S. Abdallah, chairman of Afriqiyah

Airways. “We were impressed with

the customer-focused features that the

SabreSonic solutions provide, but even

more importantly, that we could have it in

place within months rather than years.”

Shamus Byrne, sales and marketing

director for EuroManx said, “The SabreSonic

solutions are clearly the industry’s most

advanced solution — and its flexibility and

component approach make it affordable as

well. This combination provides EuroManx

possibilities that otherwise would not be

available. We are looking forward to realiz-

ing the return on investment and customer

satisfaction that the solutions will bring.”

Hans Van Pelt, chief executive officer

of OzJet said, “We are entering a highly

sophisticated and competitive marketplace

in Australia, and we know our survival

depends on a combination of the right busi-

ness model, the right people and the very

best technology that will allow us to offer

the best service to our customers. After an

extensive evaluation of what was available

in this region, we chose the SabreSonic

solutions because they met all our needs

over the alternate offerings. They are the

only solutions available today that offer an

open-systems architecture that will enable

us to quickly adapt to changing market

demands and business requirements.

Through the modular architecture and per-

formance-focused pricing, the SabreSonic

solutions offer us maximum scope and scale

to accommodate our future growth plans.”

Sabre Airline Solutions recent-

ly added 10 new clients to its growing air-

ports consulting practice. The latest addi-

tions demonstrate the company’s com-

mitment to investing in airport consulting,

which has achieved more than 70 percent

growth since 2002.

The consulting group at Sabre Airline

Solutions welcomed several new inter-

national customers, including Transport

Canada, Tourism Australia, Brussels

International Airport, Budapest Ferihegy

International Airport and Toronto Pearson

International Airport, to its portfolio. These

organizations are now utilizing Sabre Airline

Solutions’ analytical capabilities to refine

their competitive intelligence and market-

ing abilities. These airports are also able to

leverage the company’s position as one of

the industry’s leading air service develop-

ment consulting organizations.

Several new clients building on Sabre

Airline Solutions’ fast-growing domestic

airports practice include: Melbourne

International Airport (Florida), Lynchburg

Regional Airport (Virginia), Abraham Lincoln

Capital City Airport (Illinois), Lancaster

Regional Airport (Pennsylvania) and Laurel-

Hattiesburg Regional Airport (Mississippi).

The consulting team will provide these

airports with air service development and

marketing services, and in some cases, the

team has already been successful in secur-

ing new air services for these clients. a

Product

Ramco MRO System

Description

The Ramco MRO System helps airlines

increase aircraft availability, decrease oper-

ating costs, increase employee productiv-

ity, monitor regulatory compliance, optimize

inventory levels and procurement process-

es, and enhance customer service levels.

The system provides products developed

for the aviation market with a Web-cen-

tric and model-based infrastructure. It is

scalable for various fleet types and sizes

with pre-built and personalized features

and built-in workflow, which reacts to

proactive triggers set for events and alert

notifications.

The Ramco MRO System, which can be

delivered over the Internet and remotely

accessed through the Sabre ® eMergo ®

Web access, offers comprehensive work

management capabilities along with

parts, skills and tools tracking for both

routine and non-routine tasks. Overnight

and pre-flight checks can be executed

with ease in line stations. The system’s

Electronic Signature feature complies

with the e-signature regulatory mandate

and reduces paperwork. It also presents

effective support to manage discrepancy

resolution so assets are cost effectively

returned to revenue-generating services.

Benefits

The Ramco MRO System offers significant

benefits to airlines, including the ability to

manage:

Maintenance planning for aircraft,

engines and components — task/job card

with features such as Electronic Sign-off,

Engineering and technical records,

Aircraft operation, such as an electronic

flight bag,

Materials, including warehouse, procure-

ment and supply chain management of

aircraft and non-aircraft parts,

Outsourcing of repair activities, warranty,

part loans and rentals with features such

as bar-coding and radio frequency iden-

tification device support,

Human resources, including training

records and certification credentials,

Sales of materials and services,

Financial functions, including accounts

payables, accounts receivables and gen-

eral ledger.

Features

The Ramco MRO System offers numer-

ous features within key areas, including:

Technical bulletin administration —

The system’s advanced engineering

change management component admin-

isters and manages complex modifica-

tion projects.

Component management — The sys-

tem’s robust capabilities track the ser-

vice life, movement and maintenance

history of serialized parts. It supports

unlimited levels of hierarchical defini-

tion of assemblies and subassemblies,

down to individual parts within an aircraft.

Flight operations — Flight assign-

ment and aircraft routing functions in

the system enable airlines to associate

weekly and monthly flight plans and

create route sheets for various aircraft

in their fleets. The electronic flight bag

essential tool kit helps flight crew to

direct critical tasks on board.

Reliability management — Aircraft

and component reliability management

functions provide elaborate reliability

analysis and reporting as well as trend

capabilities, enabling airlines to fulfill

regulatory requirements with ease.

hightech

Materials — The system manages air-

lines’ inventory, procurement, repair

ordering and shipment functions,

enabling them to manage multi-site

warehouses and drive stock replenish-

ment through centralized or decentral-

ized procurement policies.

MRO sales management — The sys-

tem’s extensive facilities administer

the complete sales process, including

inquiries, quotes and orders, which

drive work execution for an airline’s

customer aircraft and components.

Human resource management —

The system enables airlines to keep

track of their employees’ skills, licens-

es, utilization and efficiency. Time-man-

agement functions in the system pro-

vide much-needed decision support for

planners, facilitating availability deter-

mination and shift assignments to

ensure smooth completion of work at

hangar floors and component shops.

Financials management — With a

sophisticated financial component, the

Ramco MRO System is possibly the

only aviation application that provides

complete financials capability covering

payables, receivables, fixed assets and

general accounting.

Product

Ground Handling forElectronic Ticketing,an option of SabreSonic™ Ticket

Description

Ground handling raises many operating

issues as to how multiple airlines can effec-

tively communicate electronic ticketing

data and provide consistent customer

service. IATA Resolution 722h defines two

methods of processing data in a ground-

handling environment — control and

interactive.

The control method requires ground han-

dlers to obtain control of the electronic

ticket and send flown coupon status

updates to the operating carrier. The inter-

active method enables airlines to retain

control of the electronic ticket and requires

ground handlers to communicate all flight

coupon updates.

Sabre Airline Solutions supports both data

processing methods through its Ground

Handling for Electronic Ticketing solution.

The option provides added value by

enabling airlines to extend their existing

ground handler capabilities, reduce costs

with an advanced electronic ticketing oper-

ation and communicate between depar-

ture control systems, removing the depen-

dency on the internal system.

Benefits

The option offers significant benefits to

airlines:

Support for different departure control

systems,

A high level of security in electronic

ticket usage,

Ability to outsource ground handling

operations,

Support for electronic ticketing

distribution.

Features

The option has several features, such as:

Provides a standard solution based on

IATA Resolution 722h,

Utilizes existing EDIFACT standards

for data transmission,

Enables departure control systems to

handle go-show situations. a

New and Improved Products and Services from Sabre Airline Solutions

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©20

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It’s time for all-out innovation. And it’s time for proven leadership. Mission-critical areas require time-tested solutions. Longer than any other company, we’ve pushed technology forward to deliver vital systems airlines need to stay ahead, to make the impossible practical.

Working closely with carriers, we’ve developed a portfolio of flexible, integrated solutions that can optimize operations of all airlines — any size, any business model, anywhere in the world.

Learn how together we can put proven leadership to work for you. Call us at +1 682 605 1000. Or visit www.sabreairlinesolutions.com.

provenleadership.


makingcontactTo suggest a topic for a possible future article, change your address or add someone to the mailing list, pleasesend an e-mail message to the Ascendstaff at [email protected].

For more information about products and services featured in this issue of Ascend, please visit our Web site at www.sabreairlinesolutions.com or contact one of the following Sabre Airline Solutions regionalrepresentatives:

Asia/PacificAndrew PowellVice PresidentLevel No. 05-05Technopark Block 750EChai Chee RoadSingapore 469005Phone: +65 9127 6927E-mail: [email protected]

Europe, Middle East and AfricaMurray SmythVice PresidentSomerville House50A Bath RoadHounslow, MiddlesexTW3 3EE, United KingdomPhone: +44 208 814 4540E-mail: [email protected]

Latin AmericaMarcela LizárragaVice President3150 Sabre Dr.Southlake, Texas 76092United StatesPhone: +1 682 605 5333E-mail: [email protected]

North AmericaKristen FritschelVice President3150 Sabre Dr.Southlake, Texas 76092United StatesPhone: +1 682 605 5335E-mail: [email protected]

2005 Issue No. 2

Editors in ChiefStephani HawkinsB. Scott Hunt3150 Sabre Dr.Southlake, Texas 76092www.sabreairlinesolutions.com

Art Direction/Graphic DesignJames Frisbie

Graphic Design ManagerClay Reed

Contributors Hans Belle, Jack Burkholder, MichaelClarke, Vinay Dube, Gretchen Greene,Glen Harvell, Steve Hodges, CarlaJensen, Walt Kochan, Alan Larson,Craig Lindsey, George Lynch, DeborahMagee, Robert Marley, Gary Potter,Darren Rickey and Elayne Vick.

Awards 2005 International Association ofBusiness Communicators Bronze Quill,Silver Quill and Gold Quill.

2004 International Association ofBusiness Communicators Bronze Quilland Silver Quill.

2004 and 2005 Awards for PublicationExcellence.

Reader InquiriesIf you have questions about this publi-cation or suggested topics for futurearticles, please send an e-mail [email protected].

Address CorrectionsPlease send address corrections via e-mail to [email protected].

Sabre Airline Solutions, the Sabre Airline Solutions logo andproducts noted in italics in this publication are trademarksand/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are theproperty of their respective owners. ©2005 Sabre Inc. All rights reserved. Printed in the USA.


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2005 Issue No. 2A MAGAZINE FOR AIRLINE EXECUTIVES


Gulf Air’s in-flight servicewins top awards

SAS restructures to better compete

Jet Airways becomes an international carrier

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T H E T R A N S F O R M E RA conversation with …

W.Douglas Parker,Chairman,President and CEO,US Airwayspage 44

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the transformer a conversation with … w.douglasparker ...€¦ · the transformer a conversation...

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