OCTOBER 2003A 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

I N S I D E

Traditional carriers launch

low-fare subsidiaries

How airlines weathered

"the perfect storm"

Cathay Pacific Airways’

crisis management process

E X T R E M E A I R L I N E M A N A G E M E N T

A conversation with …

DavidSiegel,CEO, US Airways

real

Optimal performance for airlines and airports

Why do more than 200 airlines around the world choose Sabre Airline Solutions as their technology partner? Because they rely on us to deliver integrated solutions to real-world problems such as operations, crew scheduling and fleet planning.

Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions.www.sabreairlinesolutions.com

OCTOBER 2003

Publisher

James FilsingerSabre Airline Solutions1 E. Kirkwood Blvd.Southlake, Texas 76092www.sabreairlinesolutions.com

Editors

Stephani HawkinsB. Scott Hunt

Designer

James Frisbie

Print Manager

Shari Stiborek

Contributors

Pam Ashley, Nejib Ben-Khedher, HollyBurkholder, Jack Burkholder, Al Comeaux,Cameron Curtis, Melissa Deaton, KarenDielman, Rick Dietert, Walter Di Luca,Vinay Dube, Tim Finholt, Greg Gilchrist,Sam Gilliland, Gretchen Greene, VickiHummel, Brad Laser, Craig Lindsey,Gianni Marostica, Apurva Mathur,Michael McCurdy, Heather Parham,Marcus Pearson, Russ Perkins, MichellePorter, Gary Potter, Jim Quilty, GeorgeSchenck, Cathy Smith, ThomasSondey, Anchawan Sukrachun, JamesSun, Chris Vasiliou, Elayne Vick, CarlaWarren and Gabriel Young.

Reader Inquiries

If you have questions about this publication or suggested topics forfuture articles, please send an e-mail to wearelistening@sabre.com.

Address Corrections

Please send address corrections via e-mail to wearelistening@sabre.com.

Sabre Airline Solutions, the Sabre AirlineSolutions logo and products noted in italics inthis publication are trademarks and/or servicemarks of an affiliate of Sabre Holdings Corp.All other trademarks, service marks and tradenames are the property of their respective owners. ©2003 Sabre Inc. All rights reserved. Printed in the USA.

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

56

New Distribution

Paradigms: Controlling

Costs in the Internet Age

Airlines must take specificsteps to maximize the benefitsof online distribution.

Preparing for the

Changing World of

In-Flight Services

Many airlines are embracing“buy-on-board” programs tobetter serve their customers.

Expecting the

Unexpected

Cathay Pacific executive Alan Wong discusses how theairline benefits from its crisismanagement process.

Riding the

Storm Out

Airlines have weathered theso-called “perfect storm” – are the skies now clearing?

Lufthansa “D-Check”s

its Organization

and Processes

A thorough process of examin-ing the airline has helpedLufthansa stay competitive.

26

19

14

10

4

26

Getting Back

on Track

Recently emerging technologyoffers hope to help airlines efficiently recover from off-schedule operations caused by inclement weather,mechanicals and labor actions,saving money and increasingcustomer satisfaction.

72An Inside

Job

Many carriers are looking atcreating a low-cost “carrierwithin a carrier” to more effec-tively compete.

Song Reaches

Top of the Charts

As Delta’s low-cost start-up,Song is helping keep a keymarket profitable.

You’ve Come a

Long Way, bmibaby!

bmi’s low-cost subsidiary ishelping the group defend itshome turf.

Extremely Prepared

for the Future

US Airways CEO David Siegeldiscusses the radical steps hisairline has taken to restructure.

The New Revenue

Reality

Multiple factors are driving airfares downward.

From the

Ground Up

By building its own airports,Bangkok Airways opens new markets.

Turnaround First,

Then Privatize

By first improving operations,flag carriers can better preparethemselves for privatization.

48

46

41

38

31

30

30Asia/Pacific Carriers

Open a Portal

Sixteen carriers have launched the first region-wideonline travel portal.

Capitalizing on

Consolidation

The consolidation of theChinese aviation market has positioned China Easternto become a key player.

65

62From Russia,

With Success

Russian carriers continue to realize substantial growthdespite an industry-widedownturn.

Looking Through the

“Contact” Lens

A new state-of-the-art call center improves customers’ability to contact Gulf Air.

70

67The Winning

Combination

United Airlines takes aggressive steps to maximize revenue and control distribution costs by leveraging winning technology.

75

co

mp

an

y

with Tom Klein Group President, Sabre Airline Solutions

contents

Improving Interline

Electronic Ticketing

New solutions enable airlines to use interline electronic ticketing.

Just Right:

The Resource

Management Systems

An integrated resource management suite can help airlines save up to 25 percent on labor costs.

56

54Web-Enabling

Revenue Management

Remote connectivity offersaccess to advanced technologywith a low cost of ownership.Through a remote connection,Aerolineas Argentinas utilizeskey functionality at a lower cost.

60

ind

ustr

y

reg

ion

al

pro

du

cts

perspective

75 62

here’s little doubt that the past decade in the

airline industry has been one of extremes.

From the lows of the early ’90s to the highs at the end

of the decade and back to the lows of the past few years, the

airline industry has been on a roller coaster ride of ups and

downs that have forced executives to look for radical ways

to adjust to the changing environment.

It reminds me of the new X-treme sports, or X-games,

that have become popular during the past several years.

Young athletes have created new games, new rules and are

taking new risks. More and more, airline executives are practic-

ing “extreme” management. They are challenged to compete

in new arenas, to try things never done before and to take

greater risks.

A willingness to try new ideas and learn, either “failing

fast” or finding success, is a valuable attribute for all of us

in and close to the industry. Airline managers are using

extreme plans and radical decisions to create new realities

in the industry.

Our cover story features Dave Seigel, president and

chief executive officer of US Airways. Dave faced a tremen-

dous challenge bringing US Airways through Chapter 11

bankruptcy proceedings. And he completed the process

more quickly than any other major corporate restructuring

in recent memory.

Dave also drove an incredibly rapid set of strategic initia-

tives including a key codeshare agreement, joining the Star

Alliance and placing a record order for regional jets. Fast?

You bet. Dangerous? Maybe, but I'd call it brilliant despite

the risks. Done before? Not like this. US Airways is setting a

new standard.

All throughout the industry, we see extreme ideas being

tested — be it Lufthansa with its all-business-class trans-Atlantic

service, America West with a new pricing structure or jetBlue

changing the rules in the low-cost segment. We dedicate this

issue to the leaders in the industry who are rapidly driving

innovation and taking risks — those “extreme” leaders who

aren’t afraid to fail in an effort to drive a healthy air trans-

portation industry.

T

The advent of the Internet provides

airlines with the opportunity to make

substantial changes to the way they

distribute their product. Not surprisingly,

some airlines have recently placed more

focus on direct distribution, interacting

directly with travelers and bypassing

intermediaries, such as global distribution

systems and travel agents. Although air-

lines have always possessed this capability

in their reservations centers, Internet-

based distribution has taken the call

center concept further by allowing more

customers to interact with their schedules

and fares than previously possible.

Airline Consumer Direct

Web-based distribution has taken

several forms, and different models con-

tinue to emerge depending on where the

airline operates. In North America and

Europe, airlines tend to favor consumer-

direct models for both published fares

and distressed or “opaque” inventory.

Some have attempted to engage travel

agents with their Web sites as well. While

this model has lowered distribution costs, it

has also had a severe impact on revenue.

The consequences of consumer-direct

distribution include:

Passengers use the increased price

visibility of the direct distribution

channel to find lower fares, reducing

ticket yields,

Travel agencies react to airline direct-

sell competition, obtaining lower fares

for their passengers in order to maintain

viability, again reducing ticket yields,

Airlines incur increased costs to main-

tain Web sites and other direct-distri-

bution channel centers, often displacing

any savings gained by decreased travel

agency commissions.

The bottom line — Web-based,

consumer-direct models often result

in both product dilution and increased

distribution unit costs.

Online Agencies

Another distribution model that has

emerged is the online travel agency. The

online agencies have taken mainly two

forms: published and net-fare retailers

such as Travelocity and distressed

inventory agencies such as Hotwire.

The most recent statistics indicate

that the top six online agencies in North

America now account for about 25 percent

of all travel agency bookings in the region.

What does this mean for airlines?

If they plan to conduct business in the

North American market, they should

include these agencies. For carriers

based outside of North America, these

agencies provide an opportunity to

distribute their product much more

widely and with less effort than setting

up sales teams in individual cities.

The advantages of online agencies

include their widespread use for instant

purchase, resulting in quick inventory

turnover, and the breadth of products

made available to the consumer, such

as vacation packages and fly/drive deals.

However, the downside to using

this distribution channel is that, like other

consumer-direct sites, they draw a num-

ber of hits without resulting in actual

bookings. Depending on an airline’s

connectivity to the Web site or its spon-

soring GDS, this could have a profound

industry

october 2003 5

The growth of the Internet offers airlines more channels to distributetheir product. As airlines increase use of these channels, they can take specific steps to control costs and maximize the benefits of online distribution.

New Distribution Paradigms:

By Stan Boyer | Ascend Contributor

Controlling Costs in the Internet Age

based distribution, require special care

in order to avoid fraud. For this reason,

it is often in the best interest of the

airline to continue to have the travel

agency handle the transaction, thus

relieving the airline of the liability.

Whether this model will work

depends on a host of factors such as

Internet speeds and links throughout

the country, and cost and availability

of security features.

Airlines located where cash payment

is the norm are experimenting with spe-

cial bank accounts for individuals and

corporate clients that will allow the airline

to deduct funds from the account for

the purchase of a Web-based ticket.

Controlling Distribution Costs

Regardless of Channel

Regardless of the channel, airlines

must control distribution costs, which

can range from 2 percent to in excess

of 30 percent depending on several

factors, including markets where they

operate, how they manage currency

exchange rates, whether they treat

incentives as diminution of revenue or

as a cost, which distribution channels

they use, their business relationships

and overall marketing strategies.

Airlines can control costs in direct

channels by focusing on:

Corporate incentives,

Call center and sales office efficiency,

Waitlist control,

Waivers and favors control,

Group management.

For indirect channels, areas for

cost containment include:

Travel agency commissions

and overrides,

Waivers and favors control,

Fraudulent booking and ticketing

practices,

GDS costs,

Communication costs —

SITA, Arinc,

Online agency costs.

Many airlines focus on the costs

of indirect distribution, most notably

electronic distribution via GDSs.

However, if an airline’s reservations

and inventory control are “hosted”

by a service provider, then many of

the same techniques used to control

GDS costs can be applied in the

hosted environment.

How to Control Distribution Costs

Host Record Maintenance

An airline should make use of data mining

tools or robotics to eliminate unproductive

records, such as unticketed bookings,

duplicate bookings and waitlists that the

airline knows will not be cleared. Many

airlines only focus on critical flights, those

at least 85 percent full, but any flight

could contain a substantial number of

these records. These records should be

cancelled far enough in advance in order

to ensure only accurate records on the

day of departure, saving unnecessary

GDS fees.

Inventory Control

Airlines’ desire for flexible product

distribution led to the implementation

of advanced, robust systems to control

inventory. With this flexibility comes

responsibility on the part of the

airline to make the most of each

system through which it distributes

its product.

Within the GDS distribution frame-

work, airlines can control distribution

costs by conducting a monthly review

of the GDS invoice detail, known as

impact on its host reservations system.

Most of the larger online agencies

are attempting to minimize the impact

by reducing the number of hits to the

airline’s host system.

Internet to Agency

For many areas of the world, Internet

penetration remains moderately low, and

thus consumer-direct models are not as

effective. In these markets, some airlines

are creating new models that use the

Internet to connect travel agencies directly

to an airline-sponsored Web site. Why

would an airline choose this route?

The answer to this question lies in

understanding what airlines perceive to

be their largest costs of distribution. In

Brazil, for example, the Real is nearly 3

to 1 against the Euro. If the fare between

São Paulo and Rio de Janeiro is R$600

or about € 200 round trip, the agency

commission is about 7 percent, or € 14,

and the GDS fee is € 8, or 4 percent.

If the currency devalues to 4 to 1

against the Euro — as was the case

in late 2002 — the impact is dramatic.

Because much of the airline’s costs are

in the local currency, the airline leaves

the round trip cost at R$600 or € 150.

The travel agency commission remains

the same at 7 percent, dropping to

€ 10.25. The GDS fee remains constant

in Euros, and now the € 8 fee is equal

to 5.3 percent of the fare.

The benefit is magnified with con-

firmed, passive, waitlisted or duplicate

bookings for which a GDS often charges

a fee. If a traveler has to waitlist for an

earlier flight in the desired fare class,

but is unable to get the fare, and the

travel agency does not cancel the wait-

listed segments in the GDS, then the

GDS costs will now be about € 16 or

10.6 percent of the new fare.

In this case, the electronic cost of

distribution could be more costly than

the travel agent commission. Therefore,

some airlines do not exclude travel

agencies but encourage them to book

directly on the airline’s Web site, leaving

the commission intact. In addition, credit

card transactions, the mainstay of Web-

October 2003 7

industry

Who

Cathay Pacific Airways

What

Renewed its “smartsourcing” con-

tract with Sabre Airline Solutions. The

three-year, multi-million dollar contract

provides Cathay Pacific the full range of

Sabre Airline Solutions' integrated port-

folio, including consulting services.

Why

The smartsourcing contract provides

Cathay Pacific access to new product

releases and participation in Sabre

Airline Solutions’ extensive solutions

user groups. Through the agreement,

first signed in 1997, Cathay Pacific has

accessed and implemented 19 Sabre

Airline Solutions software applications.

“The strategic alliance developed

with Sabre Airline Solutions will help

us keep ahead of the competition,"

said Anthony Yeung, general manager

information management for Cathay.

“This partnership includes both soft-

ware and expertise in a range of areas

including planning and flight schedul-

ing, pricing and revenue management,

flight operations and crew scheduling,

and automated check-in.

“The smartsourcing contract

also assures we have significant

input in further product portfolio

development and enhancement from

Sabre Airline Solutions, ensuring

products that meet our objectives

and technology that helps us remain

at the forefront of the industry,”

he added.

T H E H I G H L E V E Lvıew

The development of the Internet has created more opportunities for airlines to distribute their product more widely and with less effort.

However, new channels can result in product dilution and increased distribution costs. Despite the potential pitfalls, there are ways for

airlines to control distribution costs and maximize the benefits of these new channels.

News Briefs from Around the Globe

industry

by either SITA or Arinc, for which the

airline is charged a per-message fee. In

an attempt to achieve “last seat avail-

ability,” airlines often set their inventory

open/close thresholds too low and send

large volumes of messages without

realizing the potential costs involved.

Of course, for many airlines that

participate at the highest levels of avail-

ability in the GDSs, AVS messaging is

largely unnecessary and is only used

as a back-up mechanism. Unfortunately,

airlines often forget to change their

agreements when they move to higher,

more reliable levels of participation in

the GDSs. One U.S.-based carrier recently

modified all of its AVS agreements, yield-

ing millions of dollars worth of savings.

Web Transactions

Studies have demonstrated that Web

site traffic creates substantially escalated

numbers of transactions to the airline

host system. Although Web-based travel

agencies are working to rectify this issue,

an airline should speak with the agency

to adjust the volume of hits, based on

technology available to the online agency.

For the airline’s own Web site, which

more than likely links directly to its host,

the airline should consider options such

as caching availability for the most

requested city pairs or limiting the

number and types of transactions that

can be performed from the site. These

options must be implemented with care

in order to avoid the perception that the

airline is not providing the best options

to its customers.

Commissions and Incentives

Carriers with a presence in the

United States have mostly eliminated

travel agency commissions, resulting

in lower overall distribution costs via

this channel. However, in lieu of com-

missions, some carriers pay volume- or

revenue-based incentives to agencies.

The structure of the incentive program

must be tightly controlled and inte-

grated across all segments of the

airline’s indirect suppliers, such as

consolidators, tour operators and

corporate accounts.

Sales Office and

Call Center Efficiency

To serve customers better, airlines

allow callers to book with its call center

and receive their tickets via a travel

agency. Where ticketless or electronic

ticketing is common, this practice can

be eliminated. Where paper tickets are

widely used, the practice can lead to

higher distribution costs as the agency

may have to make a “passive booking”

in order to ticket the airline-originated

booking. GDSs offer remedies for this

with tools that allow the agency to

“claim” the airline-originated booking

from the carrier’s host system. Using

this technology, the airline avoids the

cost of the passive booking.

As new channels of distribution

emerge, it is paramount that an airline

understands the costs and revenue

ramifications associated with them.

Only by understanding these issues

can an airline successfully control its

distribution costs. Through the Sabre ®

Global Distribution System, Travelocity

and GetThere, a corporate online booking

tool, Sabre Holdings provides an inte-

grated offering for distributing through

every channel and can assist airlines

with managing the costs of distributing

their product.

Stan Boyer is a director with Sabre

Airline Solutions Consulting.

ascend8

billing information data tapes. Using

tools that are available to analyze this

data, airlines can focus on “unproduc-

tive bookings” such as:

Bookings that have not been cancelled

by a travel agency even after the airline

has sent a message for the agency to

do so,

Bookings that are used for ticketing

purposes only and do not affect airline

inventory but still result in paying a

fee to the GDS,

Waitlist bookings that have not been

cancelled by the airline or the travel

agency.

These bookings must be cancelled

by the travel agency at least 24 hours

prior to the flight to avoid charges. Each

GDS has procedures to work with partic-

ipating airlines to remedy situations

where agencies make fraudulent or

improper use of the system. Two recent

Sabre Airline Solutions clients actually

turned off waitlist functionality, resulting

in more than US$1 million annual savings

each. Such action is justified because

booking curves are very short, and if

the revenue management teams are

performing their responsibilities, the

need for waitlists is greatly diminished.

Many of these same principles apply

in a hosted environment. An airline

may be charged for either message

traffic, reservations made or passengers

boarded. In the case of reservations

made, an airline should cancel as many

unproductive bookings as possible prior

to a flight. The 24-hour rule does not

usually apply here, as is the case with

GDS bookings.

Availability Status Messages

Another area where airlines can

reduce distribution costs is availability

status messages, or AVS messages. These

messages are transmitted to the GDSs

and other airline host systems to indicate

whether a particular booking class of

service is open or closed. An airline must

establish an agreement with each system

to which it wants to send AVS messages.

Several types of agreements are available

to avoid sending unnecessary messages.

Unless the airline has direct connections

to another system, the messages usually

pass through a “clearing house” hosted

Online agencies continue to emerge as a more prominent distribution channel. In North America, the top six online agencies represent

about 25 percent of all travel agency bookings in the region, and they are also gaining influence in Europe and Asia/Pacific.

News Briefs from Around the Globe

Who

US Airways

What

Selected Travelocity to be the

exclusive distributor of hotels, car

rentals and last-minute deals on its

Web site, www.usairways.com.

Why

Hotel inventory provided by

Travelocity to usairways.com will

feature the entire complement of

Travelocity's offerings, including

guaranteed low-priced "Good Buy"

rates. The same is true for car

rentals and last-minute deals.

“Travelocity has forged a

reputation as being very supplier

friendly, and we are looking forward

to a mutually beneficial relationship

with this industry veteran moving for-

ward,” said Steven Tracas, US Airways

vice president of sales and marketing.

“I'm confident our passengers will

notice the added savings and conven-

ience of booking their entire trip on

usairways.com immediately.”

T H E H I G H L E V E Lvıew

In North America today, 40 percent of all bookings are made directly with airlines.

Of the remaining 60 percent of trips booked through travel agents, a fourth are made

through online agencies.

Faced with seeking ways to cut costs,

yet still provide a high level of service

to customers, many airlines — particularly

in the United States — have begun

experimenting with selling meals to

passengers on board their aircraft.

The “buy-on-board” programs —

enabling passengers to purchase

high-quality meals on flights where

no other meal service would typically

be offered — helps offset the cost of

meal service while maintaining, or

even potentially increasing, customer

satisfaction.

In-flight services — traditionally

representing an average of 2 percent to

3 percent of total expenses — have long

been a key differentiator for carriers.

During the past few years, the variety

of business models and strategies asso-

ciated with in-flight service has grown

dramatically to include everything from

premium service to virtually no service

in some of the low-cost carrier models.

In addition, the industry has seen more

and more service strategy volatility

mainly due to the need to help drive

profits in tough economic times.

Carriers such as America West

Airlines, Midwest Airlines, US Airways

and United Airlines have already looked

into buy-on-board programs.

“The concept earned America West

public accolades for its innovativeness,”

said W. Douglas Parker, chairman,

president and chief executive officer

of America West Holdings Corp. “Most

importantly, customer feedback has

been overwhelmingly positive, and we

hope to be able to expand the product.”

The new, and increasingly popular,

buy-on-board trend represents a radical

divergence from previous service models.

The program provides an alternative to

simply reducing services offered to pas-

sengers. The buy-on-board programs

provide airlines another opportunity to

outsource a piece of their operations.

Many carriers are looking to their

catering partners to run all aspects of

these programs for whatever portion

of their schedule/class-of-service combi-

nation they deem applicable. Such

outsourcing activities may even provide

further efficiencies and help control

New “buy-on-board” programs enable airlines to provide quality customer service while boosting revenues and controlling costs.

costs. Traditional catering leaders such

as LSG Sky Chefs and Gate Gourmet

are also establishing themselves as the

leaders in developing buy-on-board

programs for airlines. LSG Sky Chefs

launched its In-flight Café concept earlier

in the year, teaming with recognized,

respected restaurant brands such as

T.G.I. Friday’s ® and Wolfgang Puck.

Since launching In-flight Café, LSG Sky

Chefs has run tests with five major

U.S. airlines and continues to run full-

scale programs for two carriers totaling

nearly 400 flights per day.

“The successful adoption of the

In-flight Café program thus far by airline

customers indicates the growing accept-

ance of the buy-on-board concept as

the new model for in-flight dining in

the United States, as more U.S. airlines

seek ways to offer cost-effective meal

service in coach class,” said Rex Roe,

vice president of design development

for LSG Sky Chefs.

Offering programs such as In-flight

Café in lieu of, or in combination with,

traditional services can prove to be a

very beneficial decision for airlines,

but it also comes with its fair share of

complexity and, in certain cases, may

not vastly decrease the effort needed

to manage such operations.

For such programs, both airlines

and caterers need technology to help

them market the buy-on-board programs,

operate them efficiently, and drive the

largest and most profitable response

from passengers. To facilitate such pro-

grams, airlines need a comprehensive,

integrated system to accomplish pre-

flight, in-flight and post-flight activities.

The ideal system provides a single

tool to manage all planning, operational,

financial and decision-support functions

associated with successful buy-on-board

programs. Some key points of function-

ality to support buy-on-board include:

Environments to support both traditional

and buy-on-board operations as well

as multiple parties’ schedule policy

creation and schedule maintenance.

In addition, these same specifications

and scheduling functionality should

be able to be used as a content man-

agement system to inform passengers

of what will be for sale on their flights,

complete with pricing information as

well as a digital image.

A meal-ordering system that can

automatically segment an airline

schedule by class of service and

provide forecasts for the appropriate

class for both traditional and buy-

on-board services. For buy-on-board

flights, the system should provide

meal “sales” forecasts based on real-

time information from reservations

and departure control systems as

well as past historical sales data. This

system’s meal-ordering functionality

should ensure that the right quantity

of meals are boarded, minimizing

industryindustry

ascend10

Preparing for the Changing World of In-Flight Services

By Jamie Patel and Erin Bouck | Ascend Contributors

Enhancing the traveler experience,

many airlines offer brand-name food

items — such as T.G.I. Friday's ® and

Wolfgang Puck — through buy-on-

board initiatives.

“The concept earned America

West public accolades for its

innovativeness. Most importantly,

customer feedback has been

overwhelmingly positive ….”News Briefs from Around the Globe

Who

Qantas Airways

What

Selected the Sabre ® AirFlite™ suite

of planning and scheduling solutions

to develop the airline’s flight schedules

and improve its profitability across all

the carrier's regional, short-haul and

long-haul routes.

As part of the agreement, Sabre

Airline Solutions will also establish

a regional Center of Excellence to

advise Asia/Pacific-based carriers on

fleet scheduling issues. The Sydney-

based COE will initially aid Qantas in

evaluating the profitability of routes

from an entire network and fleet

perspective and aims to work closely

with other APAC-based carriers.

Why

The AirFlite suite will enable

Qantas to make flight scheduling

decisions from a network-wide

perspective, allocate capacity

according to demand, quickly and

efficiently develop regional, short-haul

and long-haul schedules, and plan

and assess the profitability of proposed

changes to both the existing network

and proposed new routes.

“The installation of the AirFlite

suite will enable us to quickly allocate

appropriate capacity according to

consumer demand or during any

short-term disruptions,” said Alan

Joyce, Qantas group general

manager network.

T H E H I G H L E V E Lvıew

product

Reservations and Departure ControlInterface version 2.0.0

descr ipt ionA new graphical user interface for airline

agents to manage reservations and

check-in functions from a single, easy-

to-use tool.

benef i tsThe combined GUI has been designed

to follow natural, intuitive workflows,

streamlining agent processes and

increasing productivity. By eliminating

complex system formats, the GUI enables

agents to offer customers more attentive

service. The easy-to-use design reduces

training time, and the consistent naviga-

tion between reservations and airport

functions significantly reduces the time

for crosstraining. Adopting this com-

bined interface will also ease the

process to upload enhancements and

new versions as they are released.

featuresGraphical seat maps — Allows agents

to view a dynamic cabin map and

quickly identify and assign available

seats to customers.

Enhanced flight check-in functionality

— Increases agent productivity by

expanding the functionality available

on the check-in screen to include the

cabin map, current flight information

and passenger counts.

Consistent, easy-to-use navigation —

In 80 percent of the cases, agent func-

tions are performed within one click

from the homepage. The functions are

mapped to the natural dialog with the

traveler and are equally accessible

with or without a mouse.

Easy-to-read graphical output — Most

system responses are displayed to the

agent as dynamic graphical output

rather than native green screen host

responses. The trip summary window

also provides the ability to display

large amounts of information in an

easy-to-read format.

Integrated customer relationship

management functionality — Agents

are able to quickly identify their fre-

quent travelers and capture additional

information about the traveler.

industry

october 2003 13

News on New and Improved Productsand Services from Sabre Airline Solutions

hightech

industry

waste and maximizing revenue.

Extended data warehouse capabilities

that enable storing and reporting on

retail-based information for a buy-on-

board or gate-boarded environment;

provide decision support to drive

pricing decisions, menu decisions,

market-segment adoption rates and

competitive impacts of other carriers;

and automatic cataloging of sales

information captured in any handheld

technology utilized in the selling

process. It should also manage the

revenue-share process across the vari-

ous parties supporting the buy-on-

board program as well as flight atten-

dant incentive programs and tracking

of overall performance of the crew.

The Sabre ® AirServ ® aircraft provi-

sioning system, which traditionally

enabled an airline to tightly manage

all aspects of its “above the wingtip

provisioning,” is being adapted to

help carriers manage buy-on-board

programs or hybrid environments

including both buy-on-board and

traditional components.

The AirServ

system will

integrate with

many marketing

engines to help

promote buy-on-

board programs

to passengers,

travel agents

and potential

consumers.

Using the mes-

saging delivery

platform avail-

able through

the Sabre ®

VirtuallyThere ®

Web site, airlines

can send direct

marketing

messages to

upcoming

passengers

in a variety of

formats and can

include specific

information

about, and even

photos of, the

meals available

on their upcoming flights. Such messages

can also easily be expanded to allow

pre-purchasing of meals prior to boarding

the flight. On a broader scope, integration

with booking engines such as Travelocity

add further touch points for consumers

as well as opportunities to drive pre-

departure sales. Utilization of existing

functionality in the Sabre ® Global

Distribution System will further expand

awareness of such programs by allowing

direct marketing to another key player,

the travel agent. Targeted messaging

to agents about the programs offered

by carriers as well as any incentives

that might be available can be easily

sent through the existing technology.

Marketing buy-on-board programs

will be crucial to their overall success,

and having a single technology provider

across all avenues ensures a concrete

and standard message is being deliv-

ered regardless of the communication

channel.

As the market for in-flight services

continues to change, the ability for an

airline to adapt will continue to become

more and more vital. Buy-on-board

programs represent a dynamic new

trend that offers airlines the ability to

control costs while providing a desired

service. Utilizing the AirServ system in

conjunction with other tools available

through the Sabre Holdings family will

ensure that airlines and caterers alike

can support any environment from both

an operational and marketing stand-

point. Such flexibility will help manage

costs in any environment, without

having to disappoint passengers.

Jamie Patel is director of dining and

cabin services at Sabre Airline

Solutions. Erin Bouck is the product

manager for the AirServ system.

The graphical user interface for the automated meal ordering service, also known as AMOS, helps airlines easily

manage, streamline and improve their catering operations.

While the global airline industry

struggled with an economic

downturn, the events of Sept. 11, 2001,

in the United States, and the outbreak

of conflicts in Afghanistan and Iraq,

Cathay Pacific Airways managed to

weather the storm. In March, the carrier

announced record profits even in the

face of such challenging conditions.

Weeks later, however, another blow to

the industry dramatically affected the

Hong Kong-based airline. With the

outbreak of severe acute respiratory

syndrome in Asia, Cathay Pacific suddenly

saw travel to and from its home base

plunge. The World Health Organization

issued a travel warning for Hong Kong,

and bookings in its home market

decreased 80 percent. In May, the carrier

averaged 5,500 passengers a day —

a dramatic decrease from the 33,000

a day it carried during the same month

the previous year.

The drop in passenger traffic forced

Cathay to issue its first-ever profit warn-

ing and to take other dramatic steps to

address the crisis and maintain its posi-

tion as one of the world’s preeminent

carriers. In the months following the

outbreak, the carrier reported a rise in

passenger numbers and plans to return

to a full schedule.

Alan Wong, a general manager at

Cathay, discussed how the airline

reacted to the crisis and some of the les-

sons it learned.

Question: Although it’s impossible

to anticipate an event such as the out-

break of SARS, you have a plan in place

to deal with crises. Can you outline

your crisis management process?

Answer: As an airline, we always

have plans to handle flight disruptions.

Our corporate decision is that we use a

response-driven contingency planning

methodology instead of the more com-

monly used scenario-driven method.

This response-driven planning

methodology enables us to avoid having

to write and maintain a library full of

specific plans for specific crisis scenarios.

There are too many potential crises out

there for a modern airline. It also allows

us to clarify our thinking throughout

every level of the company on our core

business functions as well as their deliv-

ery processes — what may be affected,

what needs to be protected.

This method ensures systematic

business continuity planning through-

out all departments and outports, such

as overseas offices, by making use

of a corporate standard planning

template. And it maximizes cost

savings in pooling resources and

manpower by making use of an

integrated, holistic corporate response

infrastructure.

industry

A conversation with Alan Wong,Cathay Pacific Airways

UnexpectedExpecting the

“Our corporate decision is that we

use a response-driven contingency

planning methodology instead of

the more commonly used scenario-

driven method.”

Photo courtesy of Cathay Pacific Airways

Ph

oto

co

urt

esy

of

Cat

hay

Pac

ific

Air

way

s

october 2003 15

Alan Wong, a general manager at

Cathay Pacific, said the airline’s crisis

management process helped it cope

with the severe downturn in traffic

earlier this year.

most effective steps to take? Were there

other options that were not pursued?

A: Dealing with something unknown

like SARS, other than protecting the

health of our passengers and staff, our

first priority has to be the preservation

of the business and jobs. The outbreak

of SARS posted the most challenging

period in our 57-year history.

The measures mentioned were

all necessary to conserve cash and

preserve jobs. The fact that we survived

and are now able to work toward our

recovery is due to our prompt business

decisions, the admirable teamwork

of our staff and management, and our

shareholders' continued confidence

in the company.

Q: Were any of the changes you made

permanent?

A: Operation wise, we were back to

normal by the end of September. The

outbreak of SARS has reinforced our

belief that the aviation industry is very

dependent on the global economic cycle

and is very vulnerable to exogenous

events like 9/11 and SARS. One item

that we can consciously control is cost,

and we will continue to keep a close

watch on it.

Q: Under normal circumstances, key

decisions are made after thorough

discussion and debate. Did the need

to react quickly to a crisis situation

alter the decision-making process?

A: Quick decisions and actions are cru-

cial in handling a crisis. Our established

plans have enabled us to do so. SARS

first became an issue for us on March

16 when we were told that a passenger

that had flown with us to Canada 10

days previously had taken ill. It was

immediately apparent to us that SARS

could have commercial implications

for the airline. Our first concern was to

protect the health of our passengers

and staff. At the time, there were very

limited recommendations for airlines

to deal with the situation, so we devised

our own.

On March 18, we formed our SARS

committee chaired by the director of

service delivery and brought together

representatives from all departments.

Its job was to monitor the situation and

devise, communicate, implement and

evaluate our response from an opera-

tional and communication point of view.

Q: How long do you believe it will take

you to fully recover from the affects of

the SARS outbreak? Do you believe the

recovery process was hastened by hav-

ing a crisis management plan?

A: Passenger numbers are picking up

across the network. However, yield is

low as a result of all the promotional

offers to encourage people to travel

and help to rebuild the tourism industry

in Hong Kong. Full recovery will take

industry

october 2003 17

industry

ascend16

Q: What are the steps involved in it,

and what input and types of informa-

tion do you seek?

A: Basically the crisis management

process involves all departments and

staff at all levels. When a crisis is called,

a crisis team composed of representa-

tives from various departments will be

formed and meet on a regular basis.

The team is chaired by a Cathay director.

Its job is to monitor the situation and

devise, communicate, implement and

evaluate our response from an opera-

tional and communication point of view.

Any information related to the crisis

will be needed. For the SARS outbreak,

we worked closely with the International

Air Transport Association, the Association

of Asia Pacific Airlines, the World Health

Organization, Hong Kong Department of

Health, et cetera, to gather the latest SARS

information. We needed them for decision

making and message development for

both internal and external audiences.

Q: How well did your crisis manage-

ment process address the SARS out-

break? Was it robust enough to handle

such unprecedented changes, or did

you have to adjust it to manage the

magnitude of the situation?

A: SARS is so new that it’s probably

not included in any contingency plan.

Nevertheless, our established plans

are response-driven rather than sce-

nario-driven. We were able to meet the

challenges of the SARS event. Even

though there was no specific plan on

SARS, the generic corporate response

structure was adequate in ensuring

business continuity and dealing with

issues such as impact on personnel.

Q: Have you identified any changes

that you would make to the crisis man-

agement process so that it would work

even better in future crisis situations?

A: The spread of SARS and its impact

on us was so quick that it deepened

our belief in ongoing preparation. Every

group must maintain and update its

plans on a regular and periodic schedule

— it's no good if the plan was updated

12 months ago. Everyone must be

trained according to the plan — it's no

good if the staff doesn’t know how to

use the plan. We also conduct drills and

exercises to ensure efficient execution

of the plan including all levels of staff

from frontline staff to company directors.

Q: During the height of the outbreak,

you took some dramatic steps — cutting

more than 40 percent of daily flights,

parking 22 aircraft, cutting dividend

payments, placing staff on unpaid leave

— how did you identify specifically the

“Even though there was no specific

plan on SARS, the generic corporate

response structure was adequate in

ensuring business continuity and

dealing with issues such as impact

on personnel.”

“Quick decisions and actions are

crucial in handling a crisis. … SARS

first became an issue for us on March

16 … On March 18, we formed our

SARS committee ….”

Once the World Health Organization lifted its travel advisory for Hong Kong,

Cathay Pacific Airways moved to allay fear of travel to the city through its

“Flying without Fear” campaign. Cathay Pacific also worked with other tourism

partners to launch the “We Love Hong Kong” campaign. Such steps have helped the

airline rebound. In August, Cathay Pacific carried 23.9 percent more passengers than

the previous month.

industry

+count it upLess than 2 — Number

of minutes for the world’s shortest

scheduled flight, from Westray to

Papa Westray.

4 — Number of doctorate

degrees held by members of the

Sabre Airline Solutions consulting

team. Team members also hold

15 master’s of business administra-

tion degrees.

7.1 — Percentage of decline

for overall passenger traffic year

on year for the first half of 2003,

according to the International Air

Transport Association.

For nearly three years, various elements have converged to form a “perfect storm” for the airline industry. Addressing some of the causes and effects of the storm will result in changes that will reshape the industry.

Like many spectacular tempests, the

so-called “perfect storm” that hit the

airline industry was preceded by decep-

tively beautiful weather.

Although it may seem like an

eternity has passed, the airline industry

once found itself flying through the

clear skies of relative prosperity as

recently as three years ago. According

to Steve Hendrickson, a partner with

Sabre Airline Solutions Consulting,“

things were calm and sunny” as

recently as 2000.

“The economy was riding high in

’99 and 2000,” he said. “You had your

‘dot.com’ venture capitalists throwing

(around) money, and people were saying,

‘Don’t worry about being profitable, just

generate more eyeballs.’ Of course, we

had Y2K grabbing a lot of activity. Even

into 2000, they were still wrapping up

Y2K projects. Then a lot of those projects

were used as justifications for other

modernization efforts: ‘As long as we’re

going to clean up the code on the two-

digit year, let’s also put a data warehouse

behind this thing.’ So there were a lot

of things helping the economy peak and

even bubble, and we were enjoying the

excesses of that period.”

Signs of Trouble

But in March 2001, a few clouds

started to gather, said Ray Neidl, an

airline industry analyst for Blaylock

& Partners in New York City. Nothing

too alarming — the booming North

American economy began to cool.

Following that, though, the storm clouds

thickened as fuel prices rose and high-

margin business travel slackened, Neidl

said. Meanwhile, he added, airlines

continued to add capacity, and labor

costs in the United States jumped,

sparked in part by an industry-leading

contract United Airlines gave pilots to

win support for its ill-fated merger

attempt with US Airways.

And then came the lightning bolt —

the events of Sept. 11, 2001, when four

commercial aircraft in the United States

were commandeered and crashed into the

two World Trade Center towers in New

York City, the Pentagon in Washington,

D.C., and a field in Pennsylvania.

Dramatic and damaging as it was,

that lightning strike only marked the

storm’s flashpoint. It was followed by

conflicts in Afghanistan and Iraq and

industry

some time. Having a crisis management

plan has definitely helped the company

to manage the crisis in a more structured

way. Very soon, it became clear that the

crisis would break down into three broad

phases with specific focus in each phase.

After taking the necessary measures to

protect our passengers and staff and

cutting costs, we moved quickly from

the response phase to the reassurance

phase in order to allay the fear of

travel because of SARS. We launched

a "Flying without Fear" campaign in

April. Faced with the rapidly declining

local economy, we had to do something

to build confidence and stability among

Hong Kong residents and to get life

back to normal. Together with other

tourism partners in Hong Kong, we

launched the "We Love Hong Kong"

campaign. Once the World Health

Organization removed Hong Kong from

the SARS-infected area list, we rolled

out an aggressive plan to rebuild the

tourism industry in Hong Kong.

Q: As you emerge from the impact of

SARS, have you readjusted your opera-

tions and/or your overall strategy?

A: We are progressively reinstating

more flight frequencies. We were

back to full operation by the end of

September. For destinations such as

London, Melbourne and Auckland,

the frequencies will be even higher than

the pre-SARS level.

Notwithstanding current difficulties,

we will continue with plans to grow our

fleet, develop our network and strengthen

Hong Kong's position as Asia's leading

aviation and logistics hub.

Q: Since Cathay has successfully

survived the SARS crisis, do you think

you are better prepared to handle future

situations that may arise?

A: We are coming through an extremely

difficult period with our company, staff

and product intact. The experience has

given us very good lessons on how to

manage the company during an extremely

difficult business environment. While

we remain vigilant, we believe the expe-

rience we had will help us handle future

situations that may arise.

Q: What key lessons did you learn

from the SARS outbreak and its

affects on your airline?

A: Although SARS created a very

different crisis to one an airline might

normally be prepared for, it nevertheless

highlighted some very fundamental

lessons.

The key lesson is the need to be

prepared. We are always sensitive to

possible threats and a strong sense of

crisis is in our corporate culture. If

we had not identified the possible

implications of SARS early on and

acted to contain them, the outcome

to the company, its staff and sharehold-

ers could have been much worse.

Very important was our ability to

act quickly in the face of crisis, both to

protect the health of passengers and

staff and to make swift decisions in

order to safeguard the business in the

short term and maintain confidence in

the company in the long term.

In times of crisis, people need to be

briefed. Unity among staff and confidence

in the company are essential to ensure

that everyone puts in their best and

moves in the same direction.

Communicating promptly and transpar-

ently to external audiences also helps to

retain people’s confidence in the company.

From our point of view, it was

important that we did not just wait for

help. We provided leadership and took

action to rebuild our own business as

well as support government and industry

initiatives, both to maintain confidence

in air travel and restore vigor to the

tourism industry of Hong Kong.

The steps taken by Cathay Pacific

to address the issue have helped it

make a strong recovery. In August,

Cathay Pacific carried 1,083,011 pas-

sengers, a 23.9 percent increase over

the previous month. Its passenger

load factor climbed 3.2 percent year-

on-year to 85.3 percent, and it carried

70,452 tons of freight, up from 67,340

tons in July.

Riding the Storm Out

By B. Scott Hunt | Ascend Editor

“In times of crisis, people need

to be briefed. Unity among staff

and confidence in the company

are essential ….”

The “perfect storm” that impacted the

airline industry had a dramatic effect

on the financial performance of carriers

around the world. In 2001 and 2002, the

world’s airlines combined to lose nearly

US$25 billion.

“It was just like a perfect storm.

It was a whole bunch of different

things that were coming into play

at the same time … none of

them good.”

october 2003 19

the outbreak of the deadly severe acute

respiratory syndrome in Asia — all of

which combined to keep an already

skittish traveling public at home.

“It was just like a perfect storm,”

Neidl said. “It was a whole bunch

of different things that were coming

into play at the same time … none of

them good.”

The constant piling on of adverse

circumstances seemed to some in the

industry to parallel the ancient story of

the plagues that once afflicted Egypt.

“I hope we don’t have a wave of

locusts,” Northwest Airlines Chief

Executive Officer Richard Anderson

remarked to a reporter during the SARS

outbreak. “We've had war, and we've

had plague, I guess, and we seem to

have sort of one event after another.”

Individually, the elements in the storm

would have each had an impact. Working

in combination, however, they drenched

the industry, flooding it with financial

setbacks during what many call the worst

period in commercial aviation history.

“In my view, it’s the confluence

of several factors aligning in time and

then triggered by some pretty severe

catalysts such as 9/11 that has probably

brought the industry to its knees like it

has,” Hendrickson said. “You can meas-

ure the storm by the damage it’s caused,

and the damage is showing up on the

bottom line and the top line. It’s not just

the bottom line. The revenue line has

fallen apart.”

The Storm’s Effects

The damage report, according to the

International Air Transport Association,

indeed paints a stark picture.

In 2001, seemingly every performance

measure kept by IATA fell: kilometers

flown, aircraft departures, hours flown,

passengers carried, freight tons carried,

passenger kilometers flown, available

seat kilometers and passenger load fac-

tors. The picture didn’t improve much

in 2002. The total number of passengers

carried by IATA members fell another 2.1

percent in 2002, and, on top of that, they

paid less to fly: yields shrank by 0.3 per-

The profitability of airlines during the last 10 years has swung dramatically, ranging

from losses following the first Gulf war to healthy levels in the late ’90s and back to

losses with the start of the “perfect storm.”

industry

ascend20

cent for the year. Kilometers flown, which

had increased by at least 5 percent from

1998 to 2000, dropped 0.5 percent in 2001

and an additional 1.1 percent in 2002.

The financial impact, naturally, was

almost incomprehensible. In 2001-02,

according to IATA, the world’s airlines

combined to lose US$24.7 billion —

more than the gross domestic product

of Nicaragua for the same period.

Nearly three years into the industry’s

perfect storm, analysts have examined

its origins and have found that perhaps

the underlying “meteorological” condi-

tions that set the stage for the turbu-

lence go back well before the first drops

of rain.

The Early Factors

Even during the boom times, there

were underlying problems in the indus-

try, said long-time industry analyst

Nawal Taneja.

“Prior to ’97-’98, the industry was

making gobs of money,” he said. “But

some of the growth, even when times

were good, was profitless growth. Yes,

it was growth, but we were giving the

product away.

“It’s not that these things were not

detected before; it is just that our focus

was not on them,” he continued. “We’re

now more focused on them. We’ve

always known that we have carried

some traffic at below cost. We’ve always

known that we added complexity to our

business, and the complexity that we

added raised the cost. The only difference

is that before we were able to get away

with charging higher fares to a certain

segment of the traffic.”

Other pre-existing conditions also

magnified the effects of the storm.

“The proliferation of low-cost carri-

ers is one of the aspects, and that goes

back quite a bit,” Taneja said. “I would

say that by the early ’90s, they really got

going and really started becoming more

prominent. That’s my definition of the

first event (of the storm).”

Taneja — who has recently

authored two books on the airline indus-

try, “Driving Airline Business Strategies

Through Emerging Technology” and

“Airline Survival Kit: Breaking Out of the

Zero Profit Game” — said the availability

of low-cost carriers on more routes has

given travelers a viable alternative to

the traditional carriers, and they were

well-positioned to draw traffic during

an economic slowdown. Indeed, some

low-cost carriers have continued to earn

profits despite the raging storm.

Another pre-existing factor also

helped magnify the effects of the storm,

Taneja said.

“The development of the Internet

(as a distribution channel) completely

changed the industry,” he said. “It made

fares transparent, that there is a lower

fare available to the business traveler.”

The Internet also revealed the con-

ditions required for a business traveler

to take advantage of lower fares. They

might have to travel to an alternate air-

port where a low-cost carrier is based,

or make a connection as opposed to a

non-stop. But, with the volumes of fare

information available on the Internet,

Taneja said travelers could now make

“a choice based on knowledge they had

gotten” rather than relying on an inter-

mediary who had a vested interest in

steering customers to a higher fare.

With the growth of the Internet as

a distribution channel, practices travelers

developed while shopping online for

the family vacation soon spilled over

to planning corporate travel.

“People flocking to the Internet

learned how to do their comparison

shopping,” Hendrickson said. “I believe

we’re seeing the consumer paradigm

change. I used to accept the US$1,600

fare if I was booking two or three days

in advance of my trip. Today, I find

that unacceptable.”

Of all the elements of the storm,

the development of online distribution

packed the most powerful punch,

industry

october 2003 21

80

70

60

Data from IATA shows that historically, passenger load factors have followed a

consistent pattern that was disrupted by events such as Sept. 11, 2001, and the

outbreak of SARS in early 2003.

The flashpoint of the perfect storm — the

events of Sept. 11, 2001 — compounded

the conditions already facing the aviation

industry, forcing it into perhaps the most

challenging period in its history.

Taneja said, because “the Internet

simply changed travel distribution and

passengers’ behavior.”

Seeking Cover

The response by a thunderstruck

industry to the deluge was swift and

drastic. Thousands of employees were

furloughed, hundreds of aircraft were

parked and marginal routes were cut.

Around the world, governments

attempted to provide some shelter

for airlines. In the United States, the

government put together a package of

US$5 billion in cash and US$10 billion

in loan guarantees to compensate

for the effects of 9/11. Both U.S. and

European governments helped under-

write terrorism insurance for airlines.

After the outbreak of SARS had

subsided, and travel advisories for

affected Asian countries were lifted,

area governments began aggressive

campaigns to bring back tourists.

Even though the airlines themselves

took radical steps to keep their heads

above the rising water, some could not

escape the storm. The fallout included

the failure of weaker airlines and bank-

ruptcy court protection for others seeking

to restructure their businesses.

Those who have survived have

made needed changes, Taneja said.

“The general direction is correct,”

he said. “My only question would be

the speed with which they are moving

and the depth to which they are moving.

Only a few carriers are moving pretty

rapidly and going pretty deeply. Most

are not doing it as quickly or as deeply.”

He also said airlines have not been

quick enough to adopt technology to

assist with making changes.

“Technology, I believe, is not being

utilized to the fullest to help them

restructure,” he said. “I think that it

could not only be an enabler of some

of these changes, but perhaps a driver.

There is no question in my mind that

technology has become much more of

a tool that they can use. And I’m using

technology in the broader sense.

According to IATA, the main traffic and capacity trends — revenue per kilometer,

freight ton kilometers and available ton kilometers — dropped significantly following

the events of Sept. 11, 2001, and again earlier this year after the outbreak of SARS.

News Briefs from Around the Globe

Who

Royal Brunei Airlines and Regional

Express Airlines

What

Successfully implemented the

Sabre ® Traverse™ loyalty management

system to automate their frequent flyer

programs, Royal Skies and Regional

Express Flyer, respectively. The airlines

access the Traverse system via the

Sabre ® eMergo ® Web-enabled and dedi-

cated network solutions, an applications

service provider model that eliminates

the need for costly and complicated in-

house data center infrastructure and

support.

Why

Royal Brunei — “We want to

reward our Royal Skies members with a

full range of features and benefits

through new partnerships and multi-

faceted promotions and awards. The

Traverse system has enabled us to do

all this and more, and we are extremely

pleased with the positive feedback from

our customers from the date Royal

Skies was launched,” said Hj Omar Ali

Hj Mohd Daud, director of marketing at

Royal Brunei.

Regional Express — “With the

addition of the Traverse system, we will

be able to provide our Regional Express

Flyer members with greater customer

service than we could previously," said

Hans Van Pelt, chief information officer

at Regional Express, a domestic

regional carrier in Australia with 1,500

flights per week. “The ASP interface

also enables us to eliminate the burden

of maintaining a costly infrastructure to

support our loyalty program; now we

have an effective customer self-man-

aged program completely online.”

T H E H I G H L E V E Lvıew

industry

Airplanes are technology (as well as)

information technology and technology

such as mobile communications.

“I think the most fundamental

part of all of this is information —

having access to information in almost

real-time in a very pervasive manner,”

he said. “There should be one unified

view of this information available

across the board.”

The cost of investing in technol-

ogy, he said, will pay off for airlines.

“In the long run, (the cost) is minute

compared to the benefits it can provide,

assuming you are willing to capitalize

on that benefit. You do not just need

a new system, but you need a new

culture.”

By investing in technology and

making necessary changes, airlines can

position themselves to stand on solid

ground when the sunny skies return,

Taneja said.

A Changed Environment

While the worst may have passed,

the storm lingers. According to IATA,

overall passenger traffic for the first

half of 2003 was 7.1 percent below 2002

levels. And capacity remained signifi-

cantly down, led by the Asia/Pacific

region (a decrease of 27.2 percent)

and North America (12.5 percent).

Yet, the end of the storm may be

in sight.

“Now, I see a rainbow,” Neidl said.

“I’m looking for an improved economy.

I’m looking for cost cutting to really take

effect later on this year or early next year.

I’m looking maybe for even some con-

tinued reduced capacity by the major

carriers. All those things combined,

I’m looking for the industry to return to

profitability maybe in the third quarter

of next year.”

But, even after it subsides, the

severity and duration of the storm will

have lasting effects.

“The industry has changed,” Neidl

said. “The Internet makes it easier to

shop. The low-cost carriers are really

gaining significant market hold, and the

big carriers are never going to be able

to get the revenue premium they

had before.”

Some of the changes have had

immediate impacts. Following the events

of 9/11, increased security — and its

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“Technology, I believe, is not being

utilized to the fullest to help them

restructure. I think that it could

not only be an enabler of some

of these changes, but perhaps a

driver. There is no question in

my mind that technology has

become much more of a tool that

they can use.”

Heightened airport security has put another

burden on airlines as they have struggled

to cope during the perfect storm. According

to IATA, new security regulations cost

airlines US$5 billion in 2002.

accompanying costs — have directly

impacted airlines.

“The extra security that is needed

at airports now has done two things,”

Taneja said. “One, it has raised costs.

The other one is simply having to show

up at the airport a lot earlier to make a

flight. Short-haul travel is going to be

(particularly) impacted. If you are only

traveling from Cleveland to Chicago,

and you have to show up an hour and

a half early on each end, that’s going

to add a lot more time.”

But there are other long-lasting

results as well.

According to Hendrickson, the

industry “might be looking at climate

change here.”

“Take fare transparency,” he said.

“Initially the airline industry thought it

was a great idea; bypass the global

distribution system, give customers

the ability to use online bookings,

avoid commissions, lower distribution

costs. But at the same time, they

introduced the start of a revolution,

which brought comparison shopping

and completely emphasized price. That

genie has come out of the bottle and

will not go back in. There’s no way

you’re going to reverse that trend,

so that’s here to stay.”

Hendrickson also noted that,

historically, there was a strong rela-

tionship between GDP and industry

revenues. During the past few years,

however, that relationship seems to

have been broken.

“That strikes me as something that

may not be cyclical,” Hendrickson said.

“That might be a fundamental change

in the way this economy looks at the

value of air travel. It’s a pretty startling

change. That’s what I think is most

alarming. We can always fight over

share, but if the economy is switching

its view of travel as a facilitator of

commerce to something else, then

we’ve got some real problems.”

Taneja agreed the look of the indus-

try has been irreversibly changed. The

severity of the storm revealed underlying

conditions in the industry that could no

longer be ignored, he said.

“I don’t think we’re ever going back

to the way we were,” he said. “I’m not

saying that airlines will continue to lose

money at the rate they are forever and

ever and ever. They will turn around.

But in order for them to turn around,

they are going to have to change their

business models significantly.

“If you are a traditional legacy

carrier, the change will be more drastic

and dramatic,” he said. “But even the

new paradigm airlines are going to

have to change.”

Traditional carriers will “have to

reduce their costs and not just labor

costs,” he said, but also will have “to

pick very carefully the customers that

they want to serve.”

“If you decide you are going after

a kind of customer, that will determine

what your scope is going to be and

the type of network and the type of

fleet and the type of customer service

and onboard products and so on,”

he said.

For low-cost carriers, increasing

competition among themselves —

and from revamped traditional carriers

— will force them to change as well,

he said.

“Their competitive advantage is

low cost,” Taneja said. “If the legacy

carriers reduce their costs and approach

the low-cost carrier, then the latter may

have to go even lower. And, second,

they are going to have to differentiate

among themselves. AirTran, for exam-

ple, offers two classes of service and

flies into more conventional airports.”

Differentiation will also be the

key to regaining pricing power,

Taneja said.

“One way you get to a commodity

business is if you don’t set up differenti-

ated products and services,” he said.

“But, if there is a difference, then you

A drop in available ton kilometers across the Asia/Pacific, North American and European

marketplaces reflected the events that had a dramatic impact on the industry, according

to IATA.

would be able to charge for it. But

even when you do, the price has to

reflect, to some extent, the perceived

value that a person is willing to pay

for the feature. The feature has to be

something the customer wants to buy.

Second, it has to have a reasonable

value for that customer.”

The low-cost carriers, which today

are better capitalized and better man-

aged than ever, will continue to drive

change in the industry, particularly

in pricing.

“A lot of us find it a little counter

intuitive to fly on a ticket one day with

a briefcase in our hand and pay some

astronomical price and fly on the week-

end and get it for a fraction of that,”

Hendrickson said. “Imagine if you went

to buy a notebook, and the store looked

at whether or not you were in a business

suit. ‘This is a businessman, let’s make

the price $2.’ But you come in with your

kids at back-to-school time, and you

get the same notebook for 99 cents.

You’d be furious. That’s essentially the

type of system airlines had worked

long and hard to perfect, but it won’t

work anymore.

“What the low-cost carriers are

doing is coming into markets, and they

are not using those restrictions,”

Hendrickson said. “So, carriers’ ability

to fence off the business segment is

gone, plus passengers have the expecta-

tion that they shouldn’t have to pay the

higher fares anymore.”

Despite the pressures of the past few

years, airlines can take solace in that

having survived the worst, they’ll be

better equipped to succeed in the future.

“I think that airlines that survive

the storm are going to be stronger

and profitable and are going to do

very well,” Taneja said. “It’s not like

demand for air transportation and

services has disappeared. Those that

survive are going to find the optimal

mix to provide a reasonable return to

shareholders, reasonable wages to

employees and reasonable fares to

customers.”

A downturn in the airline industry began in early 2001 with a decline in revenue

passenger kilometers, according to statistics from IATA. The declining performance

plummeted in late 2001 and again in early 2003.

industry

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industry

october 2003 25

Although the effects of the perfect

storm continue to linger, there are

positive signs on the horizon, analysts

say. Analysts predict that some airlines

will return to profitability in 2004.

The term “D-check” is nothing new

to the airline industry. At every

airline, each aircraft must eventually

undergo this extensive maintenance

procedure in which it is completely

overhauled — systematically disassem-

bled and scrutinized piece by piece.

But the Lufthansa Group has taken

the “D-check” concept and applied it

throughout the organization, a radical

approach to ensure the airline maintains

its leadership position in the industry.

Launched in early 2001, the “D-check

— Maintaining Leadership” program

helped the company avoid an operational

loss following the events of Sept. 11,

2001, and helped the Lufthansa Group

post a € 718 million (US$814 million)

operating profit in 2002. When the

program was launched, prior to the

extreme turbulence in the industry,

company officials projected that the

program would generate € 1 billion in

benefits by the end of 2003.

Company officials said this program

will help the airline secure its position

for the future.

“Lufthansa finds itself in a much

better position than most competitors,”

said Juergen Weber, the group’s former

chief executive officer who launched the

program. “The D-check program will

ensure that it remains that way.”

Through the enterprise-wide pro-

gram, the processes and procedures of

all business divisions are meticulously

examined to measure performance

and seek ways to improve quality, cut

costs and identify potential procedural

improvements. The objective of the

program is to increase the efficiency

and effectiveness of the airline by

making it lean, nimble and first rate.

“Saving is important now, but saving

alone is not the future,” Weber said. “We

must at the same time invest in our prod-

ucts for tomorrow to maintain our lead.”

Under the direction of the new chief

Under the direction of Wolfgang

Mayrhuber, chief executive officer of

Lufthansa, the airline has embarked

upon a program to thoroughly

analyze its operations.

industry

october 2003 27

Lufthansa “D-Check”s its Organization and Processes

“Saving is important now, but

saving alone is not the future.

We must at the same time invest

in our products for tomorrow to

maintain our lead.”

“Lufthansa finds itself in a much

better position than most com-

petitors. The D-check program

will ensure that it remains

that way.”

By Hanjo Krause | Ascend Contributor

Through a program designed to thoroughly examine its operations,the Lufthansa Group is positioning itself for the long haul.

Photo by Gerd Rebenich/Lufthansa

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strategic course of the airline during the

past decade helped Lufthansa successfully

master the challenges of the industry

during the past few years.

“Pioneering spirit and innovative

strength are important pillars in our

success,” Mayrhuber said. “Investments

in product quality, therefore, are invest-

ments for our passengers and in the

future of Lufthansa.”

Lufthansa’s innovation spans across

its various subsidiaries, including LSG

Sky Chefs, the world’s largest in-flight

services company, and Lufthansa Cargo.

In October 2001, the catering group

launched eLSG.SkyChefs, the first total

e-business solution provider to the airline

catering industry. The service, which utilizes

the Sabre ® AirServ ® aircraft provisioning

system to optimize the provisioning process,

helps airlines realize up to a 10 percent

reduction in their operational catering

costs by automating and integrating

their in-flight catering process. Last year,

eLSG.SkyChefs introduced its automated

meal ordering service, called AMOS. The

service enables airlines to automate,

manage, streamline and improve their

catering operations, potentially reducing

annual meal overages by 5 percent.

Lufthansa Cargo implemented its

eBooking tool to allow airfreight cus-

tomers to submit bookings electronically

24 hours a day. The cargo division also

implemented a revenue management

tool, the Sabre ® CargoMax™ Revenue

Manager, to prepare the division for the

next phase of growth in the cargo busi-

ness. Lufthansa’s passenger airline uses

the Sabre ® AirFlite™ Fleet Manager

to support its more refined schedule

planning and tactical short-term capacity

adjustment processes. The tool allows

Lufthansa to re-assign aircraft in order

to optimize varying capacity needs

across the network. Combined, these

tools help Lufthansa effectively respond

to unexpected events, protect yields and

adjust to fluctuating demand.

More than ever, a global network

carrier such as Lufthansa must focus on

competition, quality, cost management,

creative innovation, customer service

and changing market conditions. But, as

Weber noted when passing the baton,

success relies on a committed, forward-

thinking team and the right tools.

“Under (Mayrhuber’s) leadership,

Lufthansa will remain ready for change

and will develop its strength such as

vigilance, speed and choice of the right

tools,” Weber said.

Hanjo Krause is Sabre Airline Solutions’

Germany-based account

director for Lufthansa.

executive, Wolfgang Mayrhuber, the

airline is doing just that. It has pursued

high technology to differentiate itself

from its competition. From the begin-

ning of 2004 on, Lufthansa will become

the world’s first airline to provide in-

flight broadband Internet connectivity

on its long-haul fleet. The airline will

equip 80 aircraft — including Boeing

747-400s, and Airbus A340s and A330s

— with the Internet service, provided

by Connexion by Boeing.

“The Internet is being given wings

and will enable the mobile business

traveler to make better use of his or

her flying time,” said Mayrhuber in

announcing the new service.

Through this service, called FlyNet,

the airline provides carrier information,

news, weather, stock market data and

destination information through a free

portal. And passengers can also pay a

fee to use the service to surf the Internet

or connect with their offices’ secure

intranet or e-mail server via a virtual

private network.

In June, the airline equipped its

seven lounges at its Frankfurt hub with

wireless Internet access, and it plans to

expand the service to its 55 lounges at

30 locations worldwide.

“Reliable communications have

become an important competitive edge

in the age of global economic relations,

particularly for business travelers,”

Mayrhuber said.

He said through the wireless connec-

tions, Lufthansa is offering its passengers

“a service that makes the lounges

worldwide into mobile offices.”

Lufthansa said the Internet connectiv-

ity adds a communication dimension to its

lounges, which already provide options

for entertainment and relaxation.

These innovations build on Lufthansa’s

history of pioneering dynamic methods

of doing business to keep itself at the

forefront of the industry. The constant

october 2003 29

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ascend28

“Pioneering spirit and innovative

strength are important pillars in

our success. Investments in

product quality, therefore, are

investments for our passengers

and in the future of Lufthansa.”

Lufthansa Cargo, which uses the CargoMax Revenue Manager, carries cargo to nearly

500 destinations around the world. In addition to its 14 MD-11s and eight Boeing 747-

200s, Lufthansa Cargo has access to the freight capacities of more than 300 Lufthansa

passenger aircraft.

Through its organizational “D-Check” program, Lufthansa German Airlines, which

uses the AirFlite Fleet Manager to support its more refined schedule planning and

tactical short-term capacity adjustment processes, is gaining altitude in a

competitive marketplace.

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It may not be a case of “if you can’t beat

’em, join ’em.” But several traditional

airlines, faced with increasing competi-

tion from low-cost carriers, have begun

looking at ways to re-deploy their

assets, incorporating elements of the

low-cost model in their own “carrier-

within-a-carrier” startups.

With low-cost carriers now control-

ling nearly a quarter of the U.S. market

– and a growing percentage in Europe

and Asia/Pacific as well – traditional car-

riers have been forced to take extreme

measures to deal with the growing

threat. The low-cost carriers have put

tremendous pressure on traditional

network carriers to cut costs in order

to compete with the LCCs and match

their discount fares.

Traditional airlines have fought

back by reducing labor costs, develop-

ing “rolling” hubs and simplifying

their fleets. But none of those steps

match the radical approach of those

With 30 percent of its traffic coming

from Florida, Delta Air Lines defi-

nitely wanted to protect its market share

in a vital area.

Long the state’s dominant carrier,

Delta faced the growing presence in

Florida of low-cost carriers such as

Southwest, AirTran and jetBlue. Fending

off the upstarts, however, posed a chal-

lenge. Historically, yields in Florida were

low and, with low-cost carriers entering

the market, were actually spiraling even

further downward. The Atlanta, Georgia-

based carrier knew it had a lot at stake if

it didn’t find a radical way to meet the

demands of the changing market in its

own backyard.

The carrier looked at several

options. It could follow the lead of other

airlines and pull out of Florida. It could

maintain the status quo, continuing to

lose money and hoping to make it up in

stronger markets. Or, ideally, it could

find a way to rejuvenate its Florida

routes and make money.

The third option led to the concept

of Song, Delta’s low-cost “carrier within

a carrier.”

On April 15, Song took to the skies

with its maiden voyage from New York

City, New York, to West Palm Beach,

Florida. The airline, which provides

direct service from the northeast to key

Florida leisure destinations, also

recently added service between Atlanta

and Las Vegas, Nevada.

When the concept of a new, low-

cost airline was introduced to Delta

employees, it was welcomed with

tremendous support and cooperation,

said John Selvaggio, president of Song.

industry

october 2003 31

industry

ascend30

By Stephani Hawkins | Ascend Editor

Back in 2001, officials with bmi, the

second largest carrier in the United

Kingdom, predicted someone would

eventually bring a low-cost carrier to the

airline’s East Midlands Airport home base.

So, they thought, why not do it

themselves?

“It became fairly clear to us that our

home base here in the Midlands was ripe

for a low-cost airline,” said Tony Davis,

managing director of bmibaby. “It had

all the attributes for an airport that a

low-cost carrier would identify as being

attractive. Really, the decision for us was

if we as a company had to start setting

up our own low-cost carrier mindful of

some of the pitfalls that people like British

Airways with Go and some of the U.S.

carriers had with their own ‘light brand.’

Could we set up a low-cost airline and

learn from some of the mistakes before

someone actually came into our home

base airport and attempted to do that?”

In the summer of 2001, bmi began

planning its new low-cost operation, but

those plans were put on hold after the

events of Sept. 11 of that year. As

expected, however, a low-cost airline,

Go, announced that December it would

begin operations at East Midlands.

“Because we had laid a lot of the

groundwork, we were actually able to

announce our own low-cost airline within

three days of Go announcing it was

coming here,” Davis said. “The immedi-

ate reaction to Go’s announcement was

that we would stand and fight.”

Although a radical move by a full-

service carrier, Davis said the decision

for bmi to start a low-cost operation

made perfect sense.

carriers that have started their own

low-cost airline.

Despite a checkered history of such

offshoots, in the past couple of years, sev-

eral airlines have launched, or announced

plans for, low-cost subsidiaries. Air Canada

has launched Tango and Zip. Qantas is

now examining the possibility of launch-

ing a domestic low-cost carrier. United

Airlines recently announced it will

launch a new low-cost operation from

its Denver hub beginning in February.

The low-cost operation, currently code-

named Starfish, will begin by serving

five destinations with a fleet of four

Airbus A320 aircraft. And Delta, with

Song, and bmi, with bmibaby, have

used their low-cost subsidiaries

to aggressively compete in their

dominant markets.

Although some consider such

endeavors risky, early returns have been

positive for Delta and bmi, who show

that, perhaps, such a new venture is

not quite the flight of fancy many peo-

ple once believed. Although they share

similarities – including drawing upon

the resources of the parent airline –

they also have key differences in the way

they operate. While both have a single

fleet type, Song uses larger 757s com-

pared to bmibaby’s 737s. Song also has

maintained the pay scale of the parent

airline while bmibaby forged complete

new labor agreements. Each also offers

different amenities to its customers.

While their approaches to their

low-cost carrier startup differ somewhat,

both Delta and bmi are committed

to using their new subsidiaries to

compete strongly against the low-cost

competition.

By Stephani Hawkins and B. Scott Hunt | Ascend Editors

By B. Scott Hunt and

Stephani Hawkins | Ascend Editors

AnInsideJob

continued on page 32 continued on page 35

Song Reaches Top of the Charts

You’ve Come a Long Way, bmibaby!

only work on a bigger plane if we were

able to fill the seats.”

Although the 757s cost about 30

percent more to operate than the 737-

200s, they have nearly 70 percent more

seats. If Song could fill the extra seats,

it would more than offset the additional

operating costs, and Song would come

out on top.

“If you feel you can make the rev-

enue side of the equation work, you’ll

come out ahead,” said Selvaggio. “True,

you’re going to have about a 30 percent

higher operating cost, but you’ve got

an opportunity to make 70 percent

more revenue.”

The structural savings allowed Song

to maintain the same employee pay scales

as its parent company, from where it

drew the majority of its employees.

“Many of our flight attendants

make more money now than they did

when they flew for the mother airline,

but they’re working more flights and

more hours,” Selvaggio said. “We’ve

changed the methodology in the struc-

ture of how people get paid, but it

encourages them to fly more. And the

same thing with our ground employees

— they’re paid the same, but they’re

working more flights in their eight-hour

shift, so there’s potential to earn more

money. Our pilots are on the same pay

scale as Delta pilots as well, but the pay

rates are just a byproduct of the way we

schedule the airplanes; they’ll (pilots)

have more productive flying.”

In addition to its fleet and pay struc-

ture, Song has incorporated other changes

to the traditional low-cost model.

Unlike many independent low-cost

airlines, Song offers its passengers

SkyMiles from its parent company’s

frequent flyer program.

“That’s a big advantage over our

competition,” Selvaggio said. “We’ll

meet the competitive fares of anybody,

and on top of that, we offer rewards for

flying with us.”

Song also offers other amenities

to differentiate itself from its low-cost

competitors.

“We have a minimum pitch of 33

inches between our all-leather seats that

are equipped with personal video moni-

tors incorporating touch-screen technology

and credit card ‘swipe’ capability,” he

said. “Our passengers have access to

live, all-digital satellite television pro-

gramming, digitally streamed MP3

audio programming, pay-per-view pro-

gramming and an array of video games.

And to top it off, we offer buy-on-board

snacks and meals.”

Passengers can purchase meals

onboard, including freshly made sand-

wiches, salads and wraps; healthy

snacks such as yogurt, breakfast bars

and juices; old standards such as chips

and candy; and top-shelf cocktails —

Cosmopolitans, Martinis and Mimosas.

“People hate airline food, but they

still love to eat,” Selvaggio said. “And

people will eat no matter what the airline

offers them. So we said, ‘Suppose we

offered food our passengers would

actually enjoy.’ With that, we decided to

stock brands people recognize and like,

and we give our customers the option

to buy on board if they so desire.

Selling brand-name food products

on its flights meets the needs of Song’s

core customers — females between the

ages of 34 and 56 — who typically want

a better quality of food, especially for

their kids.

“We realize that women are a very

fast growing component of all travel,”

Selvaggio said. “In terms of leisure

travel, they book about 75 percent, and

they book about 90 percent of Internet

and family vacation travel as well.

Having a strong presence in Florida —

a high vacation destination — we chose

to target females in that age group.”

industry

october 2003 33ascend32

Every department assisted in setting up

the new operation.

“I think people were in the mood to

do something different and build a win-

ner, and everybody wanted to be part of

the team,” Selvaggio said. “So while it

was a challenge in that we were always

up against the media and Wall Street

saying it couldn’t be done, we found

that there were more optimists in the

world, and fortunately, a lot of them

work for Delta.”

In creating a new low-cost carrier,

Delta learned from its experience with

its earlier carrier within a carrier, Delta

Express, which started in the late ’90s

connecting airports in the northeast

United States to Florida.

“We had a pretty strong position in

Florida, and we weren’t making money

the way it was being served, so we

decided to find a way to lower costs,”

said Selvaggio.

“Our costs kept going up,” he

added. “Delta Express had been serving

our Florida markets since 1996, well

before low-cost carriers moved in there.

Over time, the cost structure had really

increased. Cabin crew and ground labor

costs increased and maintenance costs

on its 737-200s rose dramatically.”

Forming Song, therefore, “wasn’t

a matter of swapping a few aircraft and

calling it Delta Express version 2.0,”

Selvaggio said. “We had to create an

entirely new airline with a brand of its

own.”

Starting a carrier within a carrier

was much simpler in many ways than

it would have been for an independent,

Selvaggio said, in large part due to the

resources available from the parent

company.

Because it is an offshoot of a well-

established brand, the carrier wasn’t

burdened with a large capital outlay or

the need to purchase or lease several

new aircraft and bid on new airport

slots. Those were all advantages the

parent airline passed down.

“That’s why we are flying 36 aircraft

rather than a handful or less,” Selvaggio

said. “We’ve moved very quickly. We

have airport facilities. We have trained

staff. We have all those things available to

us. We didn’t have to start from scratch,

get a certificate and try to launch this

airline without all the necessities.”

Yet, Song also needed to become a

completely different product than its

parent company, Selvaggio said.

“You get the lower cost structure

by reducing ground time and getting

full utilization out of your fleet by sched-

uling more flights per day on the same

airplane,” said Selvaggio. “If you can

get four flights a day rather than three

out of a single aircraft, you’re generat-

ing additional revenue with that

resource, and at the same time, you’re

getting better utilization of your people

and your airports.

“It doesn’t cost more to lease the

aircraft or the gates,” he added. “And

in most cases, you don’t need additional

staff. It’s just that they have less down-

time in between flights. So we found we

could do this at very low marginal costs

while putting more seats into the market

place, and that’s how we drove our cost

structure down — we simply optimize

the use of our assets.

“We knew that to get the utilization

we needed, we had to turn them (air-

planes) faster, which meant we wouldn’t

be able to offer some of the amenities,

such as pre-departure cocktails or special

boarding privileges, that Delta’s frequent

flyers were getting,” Selvaggio said. “We

needed to be different from our mother

company. That was very important since

we were going to offer an all-coach

product on a bigger airplane.”

As a member of the Delta family,

the new airline had to maintain a certain

level of service to keep the overall com-

pany’s reputation intact. Initially, many

people thought Song would be a “less-than-

Delta” product, which, Selvaggio said, is

what most offshoot carriers have been.

“It’s always been less than the

mother brand,” Selvaggio said. “And

we decided that our new operation was

going to be different from, but not less

than, our parent operation.”

In starting the new airline, Delta

replaced the 737-200s on many of its

Florida routes with Song’s 757s, which

have a lower unit cost but also have

more seats to fill.

“Changing out aircraft types was

part of a strategy to create a low-cost

airline,” Selvaggio said. “And we knew

if we were going to do this, we better

have a pretty good brand because we

were going to have to drive a lot more

revenue, and the low-cost model would

“We had to create an entirely new

airline with a brand of its own.”

“We have a motto, ‘Song was

founded by optimists and built

by believers.’ And the people

on my staff are definitely the

optimists, and we created a

nation of believers.”

Song employees sport stylish uniforms

and accessories created by designers

Kate and Andy Spade. Female flight

attendants take to the skies in Kate Spade

uniforms while male employees

wear “Jack Spade” created by Andy.

Under the leadership of President John

Selvaggio, Song has helped Delta Air

Lines reassert its dominance in the

Florida market.

continued from page 30

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All of the amenities designed to

benefit passengers make flying enjoy-

able again, Selvaggio said.

“The airline business used to be

exciting and romantic,” he said. “We

have made our planes safe, clean, on

time and affordable, but we’ve kind of

lost the romance along the way. So

we’ve strived to get that back by intro-

ducing an airline with a more unique

flavor than the ‘traditional’ types.

“If we can give our passengers

choices of things to do while on our

flights, it will make their experience

that much better,” he said.

That mindset is also what led to the new

carrier’s identity, a name that “embraced

lots of choices,” Selvaggio said.

The airline wanted an identity com-

pletely different from that of any other

airline – a light-hearted name with flair

that was easy to remember yet had

meaning behind it.

“Just about every airline has a name

that pretty much ties to geography, such

as American, United, Continental,

Eastern, Western, Delta and so on,”

Selvaggio said. “We decided that if

we could get out of that space and not

be like every other airline, we could go

anywhere we wanted.”

While in search for the perfect

name, the carrier came across many

options that were musical in nature, and

after sifting through some 600 options,

Song stood out.

“Everyone has a favorite song,”

Selvaggio said. “And when you think of

your favorite song, you get a smile on

your face. That’s how we want our pas-

sengers to come to us and that’s how

we want them to leave … with a smile.”

According to Selvaggio, music is a

universal language that can “calm a lot

of beasts,” so the carrier plays music

on its jetways, Web site and airplanes.

In keeping with its motif, the carrier asks

employees to use musical metaphors

whenever possible, and even at its

headquarters, conference rooms are

referred to as studios.

“In fact, in staying within a musical

lexicon, we ‘auditioned’ our employees,”

he said. “We hired people for attitude —

they had to be willing to use their person-

ality, have a little fun, make someone’s

day and simply be there.

“We try to keep the spirit of a musical

environment,” Selvaggio said. “It keeps

things a little lighter for our employees,

who we call our talent, by the way, and

that transfers to our passengers.”

With capacity up about 50 percent

year over year in its Florida markets and

load factors on the rise — between 70

percent and 77 percent — Song has cer-

tainly achieved the goal of returning this

part of Delta’s network to profitability. In

September, the airline announced it had

carried its one-millionth passenger in

less than six months of operations.

“We’re taking back our territory, but

we’re not giving (our product) away,”

Selvaggio said. “Our ticket values are

improving every month, and I think it’s

remarkable that we’ve been able to add

that much capacity without sacrificing

load factors or ticket value.

“We have a motto, ‘Song was

founded by optimists and built by believ-

ers,’” he added. “And the people on my

staff are definitely the optimists, and we

created a nation of believers.”

“The U.K. was at the forefront of

the low-cost airline development in

Europe,” he said. “It became clear to us

that it was going to become increasingly

difficult to compete against low-cost air-

lines if they started expanding outside

their London hubs.

“If we didn’t adjust our model, we

would effectively end up in a position

where the bmi business at East Midlands

Airport was unsustainable,” he said.

In setting up the low-cost carrier,

Davis said bmi transferred several 737s

from its fleet and incorporated traditional

low-cost philosophies, such as a point-

to-point route network, a single cabin, a

single fleet type, half-hour turnarounds,

distribution nearly exclusively through

the Internet and foregoing interline

agreements.

“We took a very, very, very strict view

of either it was low cost or it wasn’t,” he

said. “And we resisted the temptation

to end up with a hybrid. I think some of

the companies that have struggled are

the ones where the hybrid solution is

preferred because it is perhaps not as

challenging to set up.”

To further maintain cost controls, all

employees of bmibaby work under sep-

arate contracts with terms and conditions

more in line with a low-cost operation.

The airline also provides different bene-

fits, such as its own profit-sharing plan,

separate from the parent.

Davis said the current condition of

the industry helped convince employees

to “modify the way we work to replicate

the operating properties of a low-cost

airline.”

“To some extent Go helped us in

this because Go came into our backyard

and said, ‘We are going to take you

on in your home base and effectively

destroy the business you’ve built up

over 35 years at this airport,’” he said.

“It was easy for us on that basis, going

to our staff (with the idea) that unless

we approached this with a radical solu-

tion the alternative would be that we

could not compete.

“I think people understood that we

as an industry have to change the way

we were going to operate in order to

continue to grow our business,” he said.

“We’re creating jobs because we’re car-

rying a lot more passengers now than

we did when the assets were deployed

differently. What we’re trying to do with

our employee group is manage growth

and not manage decline, which would

have been the scenario potentially if

we hadn’t created a low-cost carrier.

bmibaby is experiencing significant

growth at a time when the industry is

contracting.

“So, it’s really a case of saying, ‘Do

you want to be involved in something

that’s growing and has the potential to

be successful or do you want to take

your chances with the old model, which

in these particular airports is not looking

as strong as it had been historically.’”

The new model has proved to be

a success. In June, bmibaby carried a

record 266,035 passengers, a 153 per-

cent increase year on year. It broke that

record again in July, and in August, the

airline broke the 300,000 mark. The carrier

also helped the performance of the

group. In July, the bmi group, which

also includes bmi regional, set a record

by carrying 905,000 passengers —

285,000 of which was carried by

bmibaby — the first time the group

exceeded the 900,000 mark.

After only 18 months, bmibaby

became the largest airline in the

october 2003 35

industry

“We’ve tried to adopt the philosophy

of under-promising and over-

delivering where historically

airlines have often over-promised

and under-delivered.”

Tony Davis, the managing director of bmibaby, has seen the airline grow tremendously

since it began service in 2002. The airline anticipates carrying 3 million passengers this year.

“The airline business used to be

exciting and romantic. We have

made our planes safe, clean, on

time and affordable, but we’ve

kind of lost the romance along

the way. So we’ve strived to get

that back by introducing an airline

with a more unique flavor than

the ‘traditional’ types.”

continued from page 31

For its single-fleet type, Song chose the Boeing 757, a larger aircraft than the

Boeing 737 used by many low-cost carriers. The larger aircraft have a lower unit

cost because they have 70 percent more seats.

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+count it up 10 — Number of languages spoken

by members of the Sabre Airline

Solutions consulting team.

300 — Number of contracts

signed with Sabre Airline Solutions

during 2002.

Midlands, surpassing British Airways,

which has since slipped to third behind

British European. With the phenomenal

growth at East Midlands, 300 percent

year on year, bmibaby now carries more

passengers than the parent carrier ever

did when it served the airport.

“The growth of bmibaby is very

encouraging,” said Sir Michael Bishop,

chairman of bmi. “We anticipate carry-

ing up to 3 million passengers in the

current year, firmly establishing

bmibaby as an important operation in

the ‘no-frills’ market and the third

largest operator in the sector.”

The key to setting up a successful

low-cost carrier within a carrier, Davis

said, was convincing everyone through-

out the organization that “this has to be

a different company.”

“You cannot just paint the airplanes

and hope that this will function as a sep-

arate operating model,” he said. “We had

to get buy in from the very top that said

this is a different airline. It can benefit

from a lot of the history, experience and

financial stability of the parent company,

but it has to conduct itself on a like-to-

like basis with its primary competitor.”

Another key, Davis said, involves

changing the way airlines view them-

selves and their product.

“The biggest thing we have learned

is to stop thinking of ourselves as being

a special type of business,” Davis said.

“We’re in the retail business. We sell

seats. Other people sell books or groceries.

I think for a long time airlines tried to

convince themselves that we were a

special case, a special kind of business.

But in reality, when you get back to it,

successful airlines are the ones that come

through to the core product. We’re selling

a commodity. We no longer view our

business as the ‘Come fly with me’ 1960s

glamour jet travel. It’s mass transportation.”

In setting up a carrier within a car-

rier, bmi officials worked to make sure

the new low-cost operation would not

siphon traffic from the full-service or

regional airlines. The three airlines in

the group have been able to differentiate

their product to serve different segments

of the traveling market, Davis said.

Although bmi began at East

Midlands Airport, the parent no longer

offers flights there. The parent airline

has concentrated on London’s Heathrow

Airport, where it is the second largest

carrier with about 14 percent of the take-

off and landing slots. And bmibaby,

which doesn’t even fly to London, has

concentrated on its bases at East

Midlands, Cardiff and Manchester.

“bmibaby is competing against the

traditional charter airlines and the low-

cost airlines, so we go to Spain, Prague,

Belfast — high-volume, leisure markets,”

he said. “Whereas bmi is focusing on

Heathrow, and our regional business is

developing key business routes from

Scotland, Manchester and Leeds/Bradford.

“The three airlines within bmi each

have a particular cost base, market pres-

ence and a consumer proposition,” he

continued. “Really, we have the best

opportunity now to make sure we put

the right vehicle into the right market,

ensuring we can compete effectively

against whoever else is incumbent in

those markets.”

Although incorporating many low-

cost principles, bmibaby’s ties to a

larger group have caused it to modify

some aspects of the low-fare model.

“We are looking to offer a slightly

higher level of service than that of some

of our competitors,” Davis said, “partly

because we are part of a group and

have other companies that use the same

name. As part of a family, you have to

at least uphold a level of presentation

that’s acceptable to the whole family.”

While offering low fares, Davis said

bmibaby’s enhanced level of service

includes extras such as assigned seating

rather than asking passengers to “make

a fairly desperate dash toward the airplane

to secure a seat” and giving passengers

industry

ascend36

industry

an extra allowance to bring a laptop

computer on board.

“The fares are still low, much lower

than they historically have been on some

routes,” he said. “But the level of service

you get is perhaps a little bit better than

you are expecting. We’ve tried to adopt

the philosophy of under-promising

and over-delivering where historically

airlines have often over-promised and

under-delivered.”

Davis said there are other benefits

of having ties to a large international

carrier. The carrier inherited aircraft

without having to purchase them. It

leverages the expertise of the group’s

management, pilots and engineers. It

works with the parent company in areas

such as training and safety. It uses the

economies of scale from making pur-

chases in conjunction with the parent

airline. It also benefits from ties to a

strong, well-established brand such as

bmi, which has received more than 50

industry awards since 1990, including

repeated recognition as the best domes-

tic airline in the United Kingdom.

Most importantly, Davis said being

part of a larger airline group gives

bmibaby the ability to grow at a much

faster rate than it would have as an

independent. With access to trained

pilots and crew, aircraft, financial

resources and know-how, bmibaby

has significant advantages over a pure

start-up, he said.

“We are experiencing 400 percent

growth year on year because we are

part of a group,” he said. “We’ve gone

from three airplanes in March of 2002 to

13 today. I don’t believe we could have

done that as a complete startup. I don’t

know that as a startup in this country we

would have been able to fly 13 aircraft

in 18 months.”

Building off the bmi brand has

also helped create awareness for the

new airline.

“We’ve gone from zero to 3 million

passengers a year in an 18-month time

scale. And to have penetrated the mar-

ket sufficiently against some fairly big

competitors like easyJet and Ryanair

without at least some awareness of our

parent company would have cost a lot

more in advertising spend,” Davis said.

“Our expectation would have been that

it would have been quite difficult for us

as a new company to hold our own. But

because we’ve got the history and sup-

port, and we believe we’re offering a

much better product, we’re finding that

the people who might have migrated

are actually sticking with us.”

Because of the benefits of its asso-

ciation with bmi, the low-cost offshoot

incorporated the parent company’s

name into its own to give customers

the “security and knowledge” that the

airline was not a fly-by-night operation

while building a separate identity that

people “felt an affinity to and an under-

standing of,” he said.

“I think initially there was quite a lot

of surprise within the industry that we’d

go with a name like bmibaby,” Davis

said. “It was a bold step, which airlines

are not particularly good at doing —

taking a marketing idea, not just trading

on nationality or geographic location,

and trying to come up with something

that, if nothing else, is memorable.”

No matter how memorable the

name, Davis said he knows that contin-

ued success will depend on how well

the carrier sticks to its low-cost model.

“Really, it’s a lean, compact business

model, which is all about volume, high

occupancy, high utilization and making

sure every flight is as full as you can

possibly make it,” he said. “People talk

about target load factors. You should

be aiming to fill every flight, every seat.

There’s no, ‘We’ll accept 65 percent load

factors’ anymore.”

bmibaby employees have separate labor

contracts from the parent organization,

with terms and conditions more in line

with a low-cost carrier. The separate

contracts represent one of the methods

the carrier utilizes to manage costs.

From its initial three Boeing 737s,

bmibaby in 18 months has expanded

to 13 aircraft serving more than 25

destinations throughout Europe.

““We are experiencing 400 percent

growth year on year because we

are part of a group. We’ve gone

from three airplanes in March of

2002 to 13 today. I don’t believe

we could have done that as a com-

plete startup.”P

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It is probably a large understatement

to say that the 19 months that David

Siegel has led US Airways have been

eventful. In March 2002, when he

assumed the helm of the airline after

leaving his post as chief executive offi-

cer of Avis Rent A Car System, Siegel

faced a daunting task — reinvigorating

an airline seeking to reposition itself

to better compete in a radically trans-

formed industry.

Facing continued losses in the after-

math of the events of Sept. 11, 2001, US

Airways, the seventh largest airline in

the United States, began seeking ways

to improve liquidity, increase revenues

and reduce its costs, which, at the time,

were among the industry’s highest. As

the pressure to restructure mounted, the

airline in August 2002 filed for Chapter

11 bankruptcy protection, which

shielded the airline from creditors, giv-

ing it time to reorganize. Through the

bankruptcy process, the airline was able

to successfully restructure itself — “we

looked at our strengths and weaknesses

and devised a way to leverage our

strengths and turn our weaknesses into

assets,” Siegel said. A US$240 million

equity investment from the Retirement

Systems of Alabama Holdings LLC, and

a US$1 billion loan, US$900 million of

which was guaranteed by the U.S. Air

Transportation Stabilization Board, gave

US Airways the liquidity it needed.

Modified labor agreements with the

airline’s unionized employees helped

significantly reduce costs. Through

bankruptcy, the airline also was able

to address other key issues, such as

achieving the distress termination of the

defined benefit pension plan for its pilots,

which was underfunded by US$2.5 billion,

and replace it with a defined contribution

plan to supplement the Pension Benefit

Guaranty Corp. payout.

In March, as scheduled, US Airways

completed its “fast track” emergence

from bankruptcy. Now, the rejuvenated

airline, which earlier this year was

ranked first in the annual Airline Quality

Rating, is aggressively competing.

Under Siegel, the airline announced

the ambitious purchase of 170 regional

jets from Bombardier and Embraer. US

Airways signed codesharing agreements

with Lufthansa German Airlines and

United Airlines and was approved to

join the Star Alliance. These measures

significantly impacted the airline’s bottom

line. In the second quarter, the airline

reported a net income of US$13 million,

industry

october 2003 39

A conversation with David Siegel, president and chiefexecutive officer of US AirwaysPrepared for the Future

Extremely

“In March, as scheduled, US Airways

completed its ‘fast track’ emergence

from bankruptcy.”US Airways has seen its operations take

off after rapidly completing a corporate

restructuring.

Photo courtesy of US Airways

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Lately, most airlines have focused

their attention on cutting operating

costs, in many cases as a survival strat-

egy. Indeed, several carriers have found

significant internal opportunities to

reduce expenses, improve efficiencies

and lower overall unit costs. For others,

cost pressures from external factors

such as oil prices, airport security pro-

grams and various forms of government

taxation have proven more difficult, if

not impossible, to manage or influence.

But the sudden focus on belt tight-

ening is merely one of the most visible

reactions to an unprecedented shift in

the industry’s passenger revenue equa-

tion. This “new revenue reality” is driving

nearly all of the industry’s current efforts

to effect dramatic change.

In the U.S. domestic market, total

demand as a percentage of nominal gross

domestic product fell by more than 26

percent from 2000 to 2002. Historically,

the industry’s revenues maintained a

fairly tight correlation with the broader

economy, but clearly, something has

changed in that relationship. Contributing

to this historic drop is the near disap-

pearance of premium-fare levels histori-

cally paid by most business travelers.

The two-tiered revenue model of old

is rapidly deteriorating, bringing fare

levels toward a new, less stratified mix

of price points.

The Big Fall

To understand how revenues and

average fares fell so far so quickly is to

understand the basic remixing of ticket

prices being sold to travelers. The mar-

ket for trips between the east and west

coasts of the United States provides a

startling example of this phenomenon.

This corridor is characterized by a large

set of long-haul origin and destination

markets, which use numerous competing

mid-continent hubs. For example, the

Boston, Massachusetts, to Portland,

Oregon, market has no nonstop flights,

but there are more than 50 daily con-

necting choices possible in each direc-

tion via 18 hub operations offered by

seven operating carriers (and even more

if codeshare offerings are included).

This type of journey, through

any of the largely undistinguishable

connecting points, has come to typify

the commodity nature of such routes.

Up to 2000, significant portions of

the market paid vastly differing fares,

which reflected strong market segmen-

tation. However, in the past two years,

the price spreads have begun to disap-

industry

october 2003 41

The New Revenue Reality

industry

ascend40

compared to a net loss of US$248 million

for the year-previous period.

Siegel, who also previously served

as an executive with Continental Airlines,

including president of the Continental

Express subsidiary, recently discussed

US Airways’ successes in preparing for

the future.

Question: It appears US Airways

was able to successfully use the bank-

ruptcy process to restructure the airline.

Would you consider bankruptcy suc-

cessful for your airline? What were the

benefits? Were there any drawbacks?

Answer: When I made the decision

to join US Airways, I realized that the

company needed to permanently reduce

its costs and restructure, ideally outside

of bankruptcy. However, the responsible

path to take was one that prepared us

for the option of reorganization under

the protection of Chapter 11. Our plan

was well thought-out, and we were

committed to a fast-track emergence.

As I’ve said many times before, when

we came to the conclusion that we had

to execute our plan with a Chapter 11

filing, we jumped into the pool to swim

some laps, get in shape and then get

out. And while we had some difficult

challenges along the way, we remained

on track. Bankruptcy reorganization is

effective for reducing costs, but there

are many gut-wrenching decisions that

are part of the process.

Q: If “necessity is the mother of inven-

tion,” what innovative new thinking has

emerged at your airline to overcome

perhaps the most challenging conditions

in the history of the airline industry?

A: We are focused on proven strategies

and tactics. We said we needed marketing

alliances, and we have done that. Our

alliance with United Airlines is already

very successful, and we’ve begun our new

international agreement with Lufthansa.

Early in 2004, we will join the world’s

leading airline partnership, the Star

Alliance. We also needed regional jets

to improve our service to the dozens

of smaller cities that we serve. We

secured financing earlier this year and

announced an order for almost 200

planes that have started arriving and

will continue through 2006.

Q: Speaking of your purchase of

regional jets from Bombardier and

Embraer, what led to this decision?

A: One of the key elements of our reor-

ganization plan was to generate additional

revenue through a substantial increase

in regional jet flying. We couldn’t afford

not to take that step.

Q: What role will these new aircraft

play in strengthening your airline?

What kind of impacts will adding so

many new aircraft have on your airline?

A: The new RJs will serve three main

purposes. They will allow us to replace

turboprop aircraft that customers prefer

less than jet aircraft; initiate service to

new “thin” demand markets that even-

tually could grow to warrant mainline

aircraft; and re-deploy current mainline

flying that does not need larger aircraft

to other markets that do require more

capacity, such as the Caribbean. We are

already phasing out turboprops.

However, we believe there will continue

to be limited uses for turboprops in our

system, especially to very small markets.

Q: The current conditions of the

industry have led many airlines to

“think outside the box.” Is this just

a reaction to extreme circumstances,

or do you believe this will become a

vital part of the culture of the industry

in the future?

A: We have been thinking outside the

box for the last 19 months since I got

here, completing a fast-track reorganiza-

tion under Chapter 11 protection. It has

made US Airways a more competitive

airline with US$1.9 billion lower annual

costs, reduced debt and a well-regarded

business plan. Undoubtedly, the take-

away is that any business initiative

requires consensual participation by

all stakeholders and total commitment

by every employee in the organization.

With the recent plane orders and expan-

sion plans announced by Southwest,

AirTran and jetBlue, it is abundantly

clear that low-cost competition will

only grow. So now, every mature

carrier including US Airways, needs

to deal with this new reality.

Q: With all the changes you’ve made,

are there more to come? How different

will the US Airways of 2005 be from

the airline of today?

A: We have a history as a strong busi-

ness carrier during the week, and we are

now exploring new ways to deploy our

fleet for the different kinds of demand

we’re seeing on weekends. We’ve nearly

doubled our weekend service to the

Caribbean, from 40 weekday flights to 75

on Saturdays. Clearly, a reinvigorated

economy will ultimately determine when

corporate and individual customers

change their current buying behavior

and, by extension, some of the moves

we make. We just need to stay focused

and execute our plan.

Multiple factors, including the rise of low-cost carriers, fare transparency and diminished passenger segmentation, have put an irreversible downward pressure on airfares.

By Steve Hendrickson | Ascend Contributor

The average fare among coast-to-coast journeys fell more than 25 percent from the

third quarter of 2000 to the third quarter 2002 leading to a drop in revenues of about

29 percent even though the market overall experienced only a 4 percent traffic decline.

Under the leadership of Siegel, US

Airways has formed alliances with

Lufthansa and United, been accepted

into the Star Alliance and announced

the purchase of 170 regional jets from

Bombardier and Embraer.

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pear, moving the industry further toward

a commodity market price structure.

The average fare among coast-to-

coast journeys fell more than 25 percent

from the third quarter of 2000 to the third

quarter of 2002. Most strikingly, the

volume of passengers at the discount

end of the market (US$350 or below

each way) actually increased slightly,

while premium-fare passengers (above

US$350 each way) decreased by nearly

half. Without those relatively small

volumes of premium tickets, revenues

plunged by about 29 percent even

though the market overall experienced

only a 4 percent traffic decline. Although

the third quarter of this year saw unit

revenues start to improve, those trends

were primarily driven by historically

high load factors made possible by the

cumulative effect of widespread capacity

reductions. Unfortunately, there are few,

if any, signs of a fundamental reversal in

the disappearance of premium fares in

the industry.

A Confluence of Factors

It is difficult to blame a single cause

for the collapse of the traditional revenue

model. Rather, the drop appears to reflect

a unique combination of factors all

coming into the equation at roughly

the same time — what some have called

a “perfect storm” hitting the industry.

At a high level, these factors include:

General economic deceleration,

Increased presence of lower-cost

suppliers,

Fare transparency and Internet-based

consumerism,

Diminished passenger segmentation

in pricing.

As it turns out, each of these issues

has serious negative implications for

total industry revenues on its own, but

these issues have proven especially

harmful when interacting together.

Only one of these, the economy, has

much hope of reversing its impact.

The others may well be here to stay.

General Economic Deceleration

While economists on Wall Street

debate how to describe recent economic

conditions, employers and consumers on

Main Street largely agree that the good

times came to a rather abrupt halt about

three years ago. And, that downturn was

really felt in early 2001, many months

before the tragic events of Sept. 11

gave the industry another push in the

wrong direction.

Today’s environment contrasts

dramatically with that of the 1999-2000

“economic bubble.” During the bubble,

a combination of Y2K initiatives and

speculative Internet ventures drove a

technology-based boom that pushed

many business travelers onto airplanes

in pursuit of high value, mission critical

industry

ascend42

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check-in system and the Sabre ACSI™

international airport check-in system

from a single Web-based tool. The first

phase of this interface was released in

January, and functionality will continue

to be added in phases.

benef i tsThe Control Center enables airlines to

focus on managing their operations

rather than the systems they are using.

Control Center creates significant effi-

ciencies for system administrators by

providing easy-to-use tools for system

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featuresWeb-based — Authorized administra-

tors are able to access this tool via

the Web with no proprietary client

software required and will, therefore,

always have the latest version of the

product at their fingertips.

Graphical navigation —

Administrators utilize graphical navi-

gation such as form-based screens for

all entries, drop-down lists and buttons,

and on-screen help, to efficiently set

up their partition with increased accu-

racy. This not only enables adminis-

trators to be quickly trained, but it

also frees them to utilize system func-

tionality that was previously too cum-

bersome to set up and maintain.

Direct

control —

Administrators

are less reliant

on Sabre Airline

Solutions person-

nel for set-up

tasks, giving them

the ability to

quickly adjust to

changes in the

marketplace.

Single tool —

Administrators

will be able to

configure both the reservations and

departure control systems from a

single tool increasing consistency

between systems and in turn

improving customer service.

industry

deals. Back then, it was almost consid-

ered shameful for a dot.com company

to show a profit. Venture capital urged

the rapid development of alliances and

other cyberspace deals to build “eyeball

share,” earnings be damned. High

demand Web programmers jumped

from contract to contract at higher and

higher rates, and technocrats every-

where jetted around to strike the next

deal — a perfect environment for selling

premium-priced walk-up tickets. The

economy encouraged travelers not

to worry about saving a few hundred

dollars on airfare by driving to a smaller

airport or taking a connecting flight for

less than the nonstop.

Increased Presence of

Lower-Cost Suppliers

The coming of age of low-cost carri-

ers during the past few years has intro-

duced another major dynamic to the

market’s revenue picture. These airlines

have brought low fares into the market-

place in aggressive ways much like

early LCCs. However, unlike some of

the failed upstarts in prior decades,

the newest genre of LCCs have largely

avoided many of the pitfalls that ren-

dered their predecessors unable to stay

the course.

Thin capital structures have been

News on New and Improved Productsand Services from Sabre Airline Solutions

hightech

TOP: Historically, the airline industry’s revenues maintained a fairly tight correlation

with the broader economy, but in the past few years this relationship has changed.

BOTTOM: In the U.S. domestic market, total demand as a percentage of nominal

gross domestic product fell by more than 26 percent from 2000 to 2002.

+count it up280 — approximate number

of airlines that are members of

the International Air Transport

Association. The IATA members com-

bine for more than 95 percent of all

international scheduled air traffic.

2.9 trillion — Number of

passenger kilometers flown in 2002,

according to the International Civil

Aviation Organization. The number is

expected to rise to 3.1 trillion in 2004.

1910 — Year of the first major

international conference on interna-

tional air law code. The meeting, in

Paris, was attended by delegates from

18 European nations and established

several of the governing principles

of aviation.

7.3 — Percent of growth for

freight traffic during the first half of

2003, according to the International

Air Transport Association.

10 — Number of people who

have held the title of Secretary

General of the International Civil

Aviation Organization. Taïeb Chérif

of Algeria became the 10th leader

in the ICAO’s 59-year history when

he assumed leadership of the

organization on Aug. 1.

more conscious of potential travel budget

savings, in turn fueling more bargain

hunting and lower price expectations.

Diminished Passenger

Segmentation in Pricing

The bi-modal distribution of fares

previously seen in a given market was

made possible by using fare restrictions

as “fences” to segregate buyers of seats

based on their respective economic utility.

Through a mixture of requirements such

as advance purchases, roundtrip travel,

Saturday-night stays and non-refund-

ability, the basic fare structure across

the industry allowed for price discrimi-

nation by passenger market segment.

To the extent that competitors were

well-behaved within a price leadership

model, this structure allowed the indus-

try to become increasingly reliant on

a revenue mix that pushed business

travelers to higher and higher fares

while leisure fare levels remained

largely unchanged.

The widening gap became a prime

opportunity for LCCs to break from

the fare rules model and create a new

value proposition for those passengers

previously paying premium fares. Now,

in the United States, LCCs (and match-

ing traditional carriers) are offering

unrestricted walk-up fares from coast

to coast that are far lower than they

were formerly, in many cases never

exceeding US$299 each way. New

passenger behavior is emerging as

passengers are increasingly weaned

away from advance purchase habits

amid new confidence that affordable

fares can be found closer to their travel

dates. For many carriers, the booking

curve is now shifting closer in and

having a dilutive effect on yields for

close-in ticket sales. The result has been

to radically redefine the revenue value

of the business passenger market seg-

ment and to reduce overall revenues

available to the industry.

A New Revenue Reality?

It’s reasonable to expect the econ-

omy to regain strength at some point

in the future. There are already nascent

signs of a rebound, and many believe

that the extremely low-interest-rate

environment will induce economic

expansion. However, the Japanese

economy has had such an interest-rate

environment for some time without

the desired impact on the economy.

Time will tell, but eventually the U.S.

economy can be expected to recover

and help lead the global economy

back toward a healthier trajectory.

As for other dynamics, there is

ample reason to believe that the world

has changed forever. The competitive

advantages of low operating costs

will ensure that a new tier of carriers

with lower breakeven price levels will

remain a marketplace reality. The new

air travel consumerism stimulated by

Internet bookings and fare transparency

is a trend that will only grow stronger

over time. And market segmentation

through the widespread use of restric-

tive “fare fences” will not likely regain

its earlier popularity among suppliers

and may not find tolerance among a

traveling public that has a new set of

purchase price expectations. A new

revenue reality has arrived, and it will

greatly challenge those airlines that

do not aggressively rethink their strate-

gies and techniques for managing

within it.

Steve Hendrickson is a partner with

Sabre Airline Solutions Consulting.

industryindustry

replaced with well-financed business

plans. Fleet plans have focused on newer,

more efficient models rather than

low-priced used equipment. Management

teams are still lean but are often popu-

lated by more experienced managers

than in years past. Software systems and

decision-support tools, once practical only

for major airlines with large in-house

information technology departments,

are now available to LCCs, giving them

leading-edge technology at cost-effective

prices. And LCC strategies have evolved

to the realization that, if they stick to

their strengths and avoid the temptation

to be all things to all travelers or grow

too fast, they can maintain their success

story. All of this has allowed LCCs to

drive price levels down to a point where

their cost structures can survive or even

thrive, but higher-cost traditional carriers

will be faced with unsustainable losses.

As profits accrue for these LCCs, they

will become increasingly prominent,

creating unavoidable competitive impli-

cations for fare structures.

Fare Transparency and Internet-

Based Consumerism

Travelers’ rapid acceptance of self-

service booking engines and fare searches

has unleashed a new set of expectations

into the market. The fundamental interface

between a passenger and an airline’s seat

inventory has been radically changed.

Gone is the 20-question interview

conducted over the phone with a travel

agent or airline reservations agent.

With the Internet, passengers have a

new sense of empowerment to find the

bargain they believe they deserve.

Easy, side-by-side comparisons have

led to a “shop-till-you-drop” mentality

among travelers — “if the fare isn’t low,

you don’t have to go.” All of this new-

found fare transparency has, of course,

only magnified the impact of LCC fare

offerings during this period. Likewise, it

has helped business passengers under-

stand how much premium they were

previously paying for that prime-time

nonstop or other preferred service

attribute. Now, travelers are armed with

information to evaluate the relative

cost/benefit tradeoffs represented in their

array of ticket options. And the softer

economy has made their companies

News Briefs from Around the Globe

Who

Bangkok Airways, Siem Reap

Airways International, Transportes

Aeromar, Aero Continente

What

In June, the four airlines cut over

to the Sabre ® Passenger Reservation

System. All four cutovers were accom-

plished in less than one hour with less

than a 1 percent error conversion rate

and without disruption to the carriers’

operations.

Why

Bangkok Airways — The carrier

gained immediate access to “market-

leading reservations and departure

control capability” as well as electronic

ticketing services, said Ping na Thalang,

Bangkok Airways vice president of

information systems. The conversion,

which also involved its Siem Reap

commuter carrier, will also help the

airline’s domestic and international

expansion program.

“We believe that Sabre Airline

Solutions offers an excellent product

and overall value and a range of tech-

nology interfaces that enables Bangkok

Airways to continue building its own

applications around the host system,”

Ping na Thalang said.

Transportes Aeromar — The conver-

sion equips the airline with a comprehen-

sive solution for customer processing

and service from initial contact to post-

travel support. It also upgrades visibility

for the carrier's offerings among local

and regional travel agents.

“Our migration will enhance our

position as a leader in Mexican regional

aviation by delivering a consistent

executive world-class product,” said

Ami Lindenberg, executive vice presi-

dent and chief financial officer for

Transportes Aeromar.

Aero Continente — The conversion

offers more comprehensive functionality,

lower cost of ownership of its technol-

ogy systems, access to new sources of

revenue and better management of its

sales channels and partnerships.

“The agreement with Sabre Airline

Solutions satisfies a demand among

regional operators who wanted a more

efficient connection with the airline

systems of Aero Continente,” said

Milagros Zevallos, commercial director

for the airline.

T H E H I G H L E V E Lvıew

success,” said Prasarttong-Osoth, the

driving force behind the decision to

build the airports.

By several standards, the airports

have proven successful. Bangkok

Airways now operates 40 flights a day

from Samui to five destinations. The

nearly 200-acre (.8 square kilometer)

airport has also substantially cut travel

time to the island. Before it was built,

travelers from Bangkok spent 14 hours

traveling by rail, bus and ferry to reach

Ko Samui. The airport, with its low-rise

palm-thatched roofs and tropical

gardens, has also been honored for

its architectural design and environ-

mental awareness.

At the Sukothai airport, Bangkok

Airways is already expanding the length

of the runway, from 2,100 meters to

2,400 meters, to better accommodate its

fleet of 717 jets. Since gaining customs

status, the 800-acre (3.2 square kilome-

ter) airport has become Bangkok

Airways’ northern hub, providing easy

access to the northern Thai capital of

Chiang Mai as well as Luang Prabang,

Laos; Pagan, Myanmar; Siem Reap,

Cambodia; and Kunming, China. The air-

port, built for 500 million baht (US$12

million), incorporates the latest air traffic

control, weather monitoring and safety

technology. And it, too, has an award-

winning design, featuring traditional

Thai architecture. Its soaring roofs and

tropical gardens earned the airport the

nation’s “Outstanding Architect Award.”

The airline, which is hosted in the

Sabre ® Passenger Reservation System,

also just opened a 435-acre (1.74 square

kilometer), 700 million baht (US$17

million) airport in Trat, the easternmost

province of Thailand between the

Cambodian border and the Gulf of

Thailand. The airport is conveniently

located near the tropical island of Koh

Chang, previously reachable from

Bangkok only after a five-hour drive

and a ferry trip to the island. With the

airport, the journey from Bangkok has

been cut to 45 minutes. As with its

other two airports, Bangkok Airways

constructed the Trat airport to reflect

the local people, their culture and the

environment.

Bangkok Airways’ unique combi-

nation of airline and airport ownership

has not only distinguished itself from

other airlines, but has also helped the

regions where its airports are located

improve business links and boost

tourism, providing an economic stimu-

lus to these areas.

Hans Belle is vice president of marketing,

Asia/Pacific for Sabre Airline Solutions.

industry

ascend46

From the Ground Up

Back in the 1980s, Bangkok Airways

identified an untapped opportunity

to bring visitors to the beautiful, though

still largely undiscovered, Thai island

of Ko Samui. But there was one small

problem.

The island, located off the south-

eastern coast of the country in the

Gulf of Thailand, lacked an adequate

commercial airport.

Rather than wait for local officials to

remedy the situation, Bangkok Airways

took a radical approach — it built the

airport itself. Instead of waiting for the

opportunity to open a new market and

help build the area into a popular tourist

destination, the airline in 1989 opened

its 800 million baht (US$19 million) air-

port on the northern end of the island.

That was the first of three airports

the airline, which serves 13 destinations

in five countries with its fleet of 13

Boeing 717 and ATR72-200 aircraft, built

to expand its operations to underserved

areas throughout the country. The Samui

airport venture proved so successful,

the airline opened its second airport, at

Sukhothai in central Thailand, in 1996,

and a third, Trat in eastern Thailand, in

March. The airline has since added new

customs, immigration and passenger

terminal facilities at Samui and Sukothai

to gain customs status, opening the

doors to direct international flights.

Bangkok Airways, which traces

its roots back to 1968 when it began as

an air taxi service called Sahakol Air,

attempts to serve cities with rich cultures

and historically significant sites that are

not easily accessible to the everyday

traveler. Building the three airports rein-

forces the airline’s commitment to not

only build the local tourism industry

but also promote local heritage, said

Dr. Prasert Prasarttong-Osoth, president

and chief executive of Bangkok Airways.

“The (airport) project was conceived

with a view of complementing the

government’s regional economic devel-

opment policies while offering tourists

another choice destination to tempt them

to Thailand and the region, and on both

counts, we have every expectation of

Bangkok Airways’ unique business model, combining airline and airport ownership, delivers growth for itself and its home regions.

By Hans Belle | Ascend Contributor

“The (airport) project was conceived

with a view of complementing the

government’s regional economic

development policies while offering

tourists another choice destination

to tempt them to Thailand and the

region, and on both counts, we have

every expectation of success.”

By building airports in unserved areas, such as Samui, above, and Sukhothai, right,

Bangkok Airways has been able to grow as well as provide an economic engine for the

regions it serves.

Ph

oto

s co

urt

esy

of

Ban

gko

k A

irw

ays

the “hub” point for the two carriers

will be in the strategic investor’s home

country. At the very least, the strategic

investor will insist that the national car-

rier use competitive business practices,

eliminating the various “socio-economic

routes” and “foreign policy routes” the

national carrier operates.

Another pitfall comes from the deci-

mation of the former national carrier’s

large employee base to reduce costs,

thus reducing tax revenues and increas-

ing the need for social services. Finally,

protective fares and scheduling practices

will be eliminated. The strategic investor

will insist that fares obey market forces,

which means that routes protected from

fare increases may become much more

expensive for passengers.

A likely result of strategic investor

privatization is making air travel more

elite and reducing the transportation

infrastructure, which can cause severe

political problems in developing countries.

Widely Held Ownership

In a second privatization method –

the “widely held ownership” model –

the government offers shares of the

national airline on the open market

while restricting individual ownership to

ensure government control is maintained.

This model, on the surface, appears to

resolve many of the issues associated

with a strategic investor. Through widely

held ownership, the government main-

tains the controlling stake in the carrier

and can ensure that it maintains control

over finances, flight scheduling, employ-

ment and fares. Many governments

have passed legislation to limit foreign

ownership. But the widely held owner-

ship model also has pitfalls.

The main problem with widely

held ownership is that governments

sell their stake in their national carriers

for well under their true market value.

Governments often give away the

october 2003 49

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ascend48

Turnaround First, Then Privatize

Many countries that still own their

national airlines are examining

privatization. Most of these countries

are considering such an extreme step

because they are struggling economi-

cally, and a bloated national carrier

makes a politically charged privatization

target. Because national carriers are

usually among a country’s most promi-

nent companies and often the only ones

with an international presence, they are

perceived to have a substantial value

that can be leveraged by the govern-

ments to generate capital.

While airlines generate significant

cash, they operate on very small mar-

gins and therefore frequently require

capital injections from their owners to

update assets and cover losses, which

only serves to make them more attrac-

tive for privatization. Many countries

must make the difficult decision to re-

capitalize an ailing national carrier or

to build hospitals, schools and roads.

Therefore, many countries, particularly

developing ones, are actively moving

to privatize their national carriers.

Governments in Latin America

and the Far East have led the way

in privatizing their national carriers.

For the remainder of the developing

world, the government continues

to own all or most of the national

carriers and are actively examining

privatization.

The Strategic Investor

Many of these countries, however,

rush into privatization without consider-

ing the best option. The quickest model

for privatization is through a “strategic

investor” where a country sells a major-

ity portion of its national carrier to a

“white knight” private carrier with a

good reputation. The idea is that the

government will receive a large payoff,

and the private carrier’s culture will rub

off on the national carrier, improving the

country’s transportation infrastructure.

The country loses a national carrier but

gains much needed capital and obtains

a better airline for its citizens.

Both Belgium and Portugal used

this model when they sold their national

carriers to a strategic partner, Swissair.

Similarly, Air Afrique sold a portion of

its airline to Air France to raise capital.

The strategic investor theory sounds

good on paper, but the reality often is

much different. The list of failures using

this approach is much greater than the

list of successes. Some carriers have

received the expected benefits from

this model: Air Lanka under the partial

ownership of Emirates Airlines and the

“Lan” carriers, including LanEcuador,

LanPeru and LanDominicana, under

LanChile.

Unfortunately, few airlines as suc-

cessful as Emirates and LanChile are

actively acquiring interests in national

carriers. Most strategic investors

today are interested only in acquiring

a national carrier’s assets at very low

rates and without substantial conditions.

The strategic investor model offers

some unanticipated pitfalls. The white

knights can be corporate raiders – airlines

wishing to expand in a cost-effective

manner by acquiring less stable com-

petitors to strip them of their primary

assets and routes, relegating them to

colonial feeder status. When a strategic

investor talks about “schedule and prod-

uct alignment,” it often plans to relegate

the national carrier to second-tier status.

One of the primary benefits of own-

ing an airline is that it generates a sub-

stantial amount of cash – often foreign

currency. Countries should consider the

effect on their own economies when the

bulk of the foreign currency generated

by their national carrier is channeled

through the country of the strategic

investor. The loss of foreign exchange

can result from schedule and product

alignment because, almost invariably,

There are plenty of pitfalls for a state-owned airline preparing for privatization. But a comprehensive turnaround program can minimize the risk and prepare the carrier for the private sector.

By Shane Batt | Ascend Contributor

A carrier with US$500 Million in annual revenues can reap more than US$164 Million in revenue benefits within two-and-a-half years by

employing the turnaround model.

“Many countries must make

the difficult decision to

re-capitalize an ailing national

carrier or to build hospitals,

schools and roads.”

industry

october 2003 51

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ascend50

cial position of the national carrier

improves, two pressures arise. First,

government sources pressure the

national carrier to take actions that are

counter-productive to its future success.

The national carrier, for example, will

be instructed to increase employment,

increase services on socio-economic

routes or give employees raises, which

will make the government popular

but will seriously impact the long-term

viability of the national carrier. Second,

factions will argue whether the govern-

ment should immediately liquidate the

national carrier or end privatization

discussions. When the financial position

of the carrier has improved, the govern-

ment must demonstrate its support for

continuing the turnaround process by

providing the national carrier with suffi-

cient breathing room to ensure its own

long-term survival.

The “hands-off” approach, however,

often proves impossible for the national

government to implement. If the carrier’s

turnaround is cut short before the assets,

services and personnel have been

upgraded, the carrier’s long-term viability

will still be in question. For the turnaround

model to succeed, the national govern-

ment must show enough patience to

allow the carrier to proceed through

financial improvement; asset upgrade,

service improvement and personnel

upgrade. Once the turnaround has

been accomplished, the government

will have a strong and valuable asset

to privatize.

Improving Financial Position

On the surface, improving a carrier’s

finances appears to be the hardest task.

In practice, however, the true challenge

is staying on course after the carrier’s

financial position has improved. Improving

the financial position of the national

carrier first requires concentration on

revenue production. Any financial prob-

lem can be solved by increasing revenues,

as long as revenue production outpaces

cost increases. Therefore, the turnaround

process should concentrate first on

revenue production.

Revenue is much easier to increase

than costs are to decrease. Because an

airline’s five highest costs are labor, fuel,

maintenance, aircraft ownership/lease

and customer service, these areas would

have to be targeted to achieve substan-

tial and quick cost savings. National

carriers, however, cannot easily reduce

any of these areas.

Reducing labor costs adversely

impacts employees. Because they

are typically government employees,

national governments are hesitant to

reduce their pay. Reducing fuel by more

than a few percent usually requires

decreased flying, which results in lower

revenues. Maintenance costs generally

cannot be reduced by double-digit levels

without fleet renewal, and national

carriers generally do not have sufficient

funds or capital to renew their fleets

quickly. Aircraft ownership/leases can

only be reduced by paying off loans

or renegotiating leases. Most national

airlines lack resources to pay off loans,

and leasers are becoming less receptive

to negotiating reduced lease rates.

And customer service reductions tend

to reduce revenues, which should

be protected if the airline is to turn-

around properly.

Airlines, therefore, should focus

on containing the growth of costs while

increasing revenues. Most carriers can

contain costs if they concentrate on their

indirect fixed costs and lower the growth

of their direct operating costs.

Revenue production can be increased

for most national carriers by focusing

on all factors that influence revenues.

Frequently, carriers assign revenue-

influencing factors to a variety of different

middle managers who do not cooperate

extensively. The lack of cooperation

impacts the carrier’s competitiveness

in hidden but significant ways. The

national carrier to a wide base of investors

without gaining substantial returns for

the remainder of their citizens who are

not shareholders. Governments don’t

privatize their national carriers because

they are well-run, highly profitable entities.

Except in regions such as the European

Union, where legislation requires priva-

tizing national carriers, most countries

privatize because their national carriers

are bloated and inefficient. Since these car-

riers are generally unprofitable, the share

price of stock will be lower than its

potential market value. The minority

investor buys shares for income or for

growth, neither of which are high with

national carriers. So, demand for shares

stays low, the price stays low and

majority ownership shifts from the gov-

ernment to investors at very low prices.

Of course, using widely held ownership

reduces the government’s responsibili-

ties for future equity injections, but the

former national carrier still has the same

problems it did prior to privatization. In

a few years (or even a few months) fol-

lowing privatization, the new owners

start looking to raise much-needed capi-

tal and soon turn to a strategic investor

or ask for a government investment.

By using the widely held ownership

model, the government can inadvertently

promote the excesses of a strategic

investor without reaping the significant

capital advantages.

It may appear that privatization is

doomed; however, it’s an important step

needed for most of today’s national car-

riers to survive in the highly competitive

international marketplace. Privatization

must protect the national interests of the

country as well as develop strong com-

petitors. The best way to privatize is

through the “turnaround” model.

Turnaround

The turnaround model prepares

the national carrier for privatization by

making it profitable and competitive.

Carriers that have sustainable profitability

can fund their own capital requirements,

enabling them to use widely held own-

ership or a strategic investor without

governments giving away ownership at

bargain prices. The turnaround model

improves the national carrier at all levels

to ensure it is competitive and profitable

before privatization occurs. By demon-

strating sustainable profitability, the

carrier ensures that there is no urgency

associated with privatization, and therefore

it can take place in a controlled manner.

A strategic investor is kept in line

because the rising share price of the

profitable national carrier discourages

its dismantling. Similarly, widely held

ownership is strengthened because

minority investors are attracted to the

growth of the national carrier’s share

price, which will continue to grow: a

form of self-fulfilling prophecy. Most

importantly, as a result of the turn-

around, the national carrier is strong

enough to operate without governmental

assistance, the transportation infrastruc-

ture of the country is maintained and

assured, and the benefits of nationalized

ownership, such as socio-economic

routes, lower fares and currency bene-

fits, remain intact.

Implementing the

Turnaround Model

In principle, it is not difficult to use

the turnaround model. The national

carrier, with the help of its government,

proceeds through a steady process of

rapid improvement to position itself

for a strong privatization push. The

turnaround begins by improving the

national carrier’s financial position. Once

the financial position of the national car-

rier has improved, its surplus funds are

invested in three primary areas: operating

assets, provision of service and personnel.

Once the financial position has

improved, governmental support is

required. In most cases, when the finan-

Throughout the developing world, nearly half of the airline equity is government

owned, and in some regions, such as Africa, the Caribbean and the Middle East,

there’s tremendous opportunity for privatization.

By making improvements throughout its operations, a US$1 billion airline with 70

aircraft serving domestic and international routes can achieve cumulative financial benefits

in excess of US$164 million by the end of the two-and-a-half year turnaround process.

industry

october 2003 53

industry

ascend52

just as important as the core foundation

systems, and the national carrier should

ensure that it has a reasonable strength

in decision-support systems including

revenue management, flight scheduling

and crew planning. Asset renewal is

expensive, but it will ensure that the

carrier has a sound infrastructure for

privatization.

Along with asset renewal, the

national carrier must improve its cus-

tomer service to meet international

standards. Many national carriers offer

excellent service, but frequently, these

carriers fall behind more aggressive

competitors in areas such as in-flight

entertainment, interior appointments,

lounge facilities and catering quality.

Passengers have come to expect a high

level of service at a very low price. The

move toward upgraded first and busi-

ness classes on world-class carriers

such as Singapore Airlines, Cathay

Pacific Airways and British Airways

show that international carriers must

concentrate on passenger service and

comfort. For those national carriers

that offer less than competitive service

today, money will also have to be spent

on service training and staff renewal.

Service upgrades, however, often result

in higher customer satisfaction and

ultimately higher revenues. But realizing

returns on investment in service takes

significant time. A lack of investment

in service upgrades, though, will be

detrimental to the long-term viability

of a national carrier contemplating

privatization.

While upgrading other infrastruc-

ture, the carrier should ensure that its

staff – which often expects the worst

from privatization because of its perceived

impact on job security and pay – is prop-

erly prepared for future privatization.

Properly preparing staff members for

the changes that will impact their jobs

is necessary so that labor actions don’t

become the inevitable byproduct of

privatization. Investment in training is

the first major step. Professional train-

ing provides staff with viable skills that

translate to job security. Operational

and service-related staff require frequent

training to ensure that their skills are

maintained to appropriate international

levels. In addition, professional training

for business staff in analysis, sales,

marketing, revenue management, flight

scheduling and similar industry skills is

a good investment in the carrier’s future

and its employees. Most importantly,

management training should be pro-

vided at all levels to ensure a smooth

management migration from a govern-

ment-owned to a free-market carrier.

In addition to training, merit-based

promotion and placement should

be implemented even if the carrier’s

government ownership rules must be

changed. Merit-based promotion and

placement ensures that the most quali-

fied staff rise quickly thus invigorating

the management of the carrier. Finally,

along with the other personnel initia-

tives should be a complete examination

and restructuring of staff compensation.

The new pay scale should be consistent

with market conditions in the country

and with international standards. As the

staff becomes more effectively skilled,

its value in the international marketplace

increases, and the national carrier will

need to adjust compensation to ensure

the staff will remain throughout the

privatization process.

The complete turnaround process

requires less than two-and-a-half years –

one for financial improvements and 12

to 18 months for infrastructure improve-

ments. During the final six months

of the turnaround, the government

can proceed with steps necessary to

privatize the carrier.

While the turnaround model

requires more time to implement than

the strategic investor or widely held

ownership models, the outcome of

privatization should be much more

stable. The consulting group at Sabre

Airline Solutions specializes in helping

airlines turn around their operations

to prepare for privatization, helping

produce viable carriers that become

sources of national pride – even if

they are not owned by their national

governments.

Shane Batt is a partner with Sabre

Airline Solutions Consulting.

primary factors influencing revenue

include pricing, inventory control, flight

scheduling, sales, distribution, branding

and loyalty, advertising and promotion,

and public relations. By using the

latest marketing techniques to tie these

revenue-influencing factors together,

the national carrier will undoubtedly

increase revenue, more than offsetting

the slightly increased costs.

Without impacting the operational

integrity of the carrier, cost containment

should begin in key areas such as crew

planning and scheduling, fuel purchas-

ing and consumption, flight planning,

budget control, capital expenditure

control, and maintenance. Cost contain-

ment should be geared toward reducing

expenditures where possible as long as

dependability and service standards are

not lowered. Throughout this period,

it will be important to watch cash man-

agement. Carriers with limited financial

resources must ensure that their cash

reserves are sufficient to cover the

increased operating costs that result

from growing revenues. By containing

costs and increasing revenues, however,

the financial position of the carrier should

improve noticeably within a period of

less than six months.

Typical Approach to Financial

Improvement

Implementing a turnaround involves

six main steps:

1. Initial assessment — A commer-

cial, financial and operational evaluation

of the airline identifies major issues and

assesses and evaluates the corresponding

impact and potential for improvement,

2. Quick hits — Identification of

issues that are relatively easy and quick

to resolve and have a substantial impact

on an airline’s performance,

3. Process improvement — Aligning

business processes, performance meas-

urements and decision-support tools

with the corporate strategy,

4. Training — Instructing staff on

new, improved business processes

and practices,

5. Consolidation — Implementation

and consolidation of new business

processes within the airline environment

and culture,

6. Tracking and enhancing —

Monitoring airline and process perform-

ance and enhancing as necessary.

The largest value derives from the

process improvement phase, but the

financial benefits begin during the quick

hits phase. Revenue increases drive

the most benefits during the quick hits

period, but cost containment is impor-

tant because it allows profits to increase

at a faster rate.

Applying Improvements

Using the turnaround model, the

national carrier can generate substantial

improvements in its financial position

within one financial year. Taking short-

term gains, however, should be resisted

until the turnaround process is complete.

During the first 30 months of a turnaround

implementation, the airline should

increase annual revenues by at least

8 percent, producing a substantial war

chest of capital for the airline’s long-term

improvement. The complete turnaround

process, however, involves improve-

ment of assets, service and personnel.

Improving the assets of the carrier

involves renewing some or all of its

primary operating resources including

aircraft, facilities and technology. By

operating newer aircraft, the national

carrier can reduce its operating costs,

improve its image and marketability,

and provide a higher level of service

to its passengers. Renewal doesn’t

require purchasing aircraft. Operating

and financial leasing are viable options

for the national carrier turning around

its operations. Facilities – particularly

customer service areas, but also offices,

maintenance and outstation facilities –

must also be kept up-to-date so that no

substantial capital resources are needed

for at least five years following privatization.

Finally, technology must be kept

current because airlines today require the

assistance of computerized systems. Core

systems such as reservations, departure

control, flight operations, and mainte-

nance and engineering systems must

be modernized and deployed properly

to allow for significant expansion as the

carrier prospers. Business systems are

The turnaround process involves six main steps that flow seamlessly from one to another.

The largest value derives from the process improvement phase, but the financial benefits

begin during the quick hits phase.

Improving an airline’s financial status involves a three-pronged attack, which will

help prepare the airline to set the stage for successful privatization.

product

ascend

All unique carrier requirements can

be supported with the initial connection

to the hub. Once a carrier is connected,

access is available to all other linked

carriers through selective or universal

activation.

A vast array of diagnostic tools in

the hub gives carriers the ability to more

closely monitor interline traffic. These

tools enable carriers to set notification

thresholds through a graphical user

interface. For example, if a link goes

down and error messages are gener-

ated, an e-mail notification is sent noti-

fying the carrier. Before the inception of

these tools, someone physically had to

discover such incidents.

A number of airlines have carrier-to-

carrier interline connectivity through the

Sabre ® Passenger Reservation System:

Alaska Airlines,

Aloha Airlines,

America West Airlines,

American Airlines,

ATA Airlines,

Continental Airlines,

Delta Air Lines,

Finnair,

Hawaiian Airlines,

LanChile,

Midwest Airlines,

Northwest Airlines,

United Airlines,

US Airways.

The Interline Electronic Ticketing

Hub also enables IET connectivity

between two carriers not hosted within

the Passenger Reservation System. Until

now, at least one of the carriers was

required to be hosted in the system.

Another key tool that helps airlines

adapt to electronic commerce, the Sabre

Airlines Solutions Electronic Ticket

Hosting product enables a carrier to stay

hosted on its existing system while

acquiring the ability to issue electronic

tickets and retain those records within

the electronic ticketing database.

This solution eliminates both the

need for carriers to build a costly system

to distribute tickets electronically and the

activities related to maintaining the elec-

tronic ticketing database. The product not

only delivers electronic ticketing capability

but also the increasingly valuable option

of interline electronic ticketing connectivity.

The electronic ticketing solution

provides airlines the most cost-effective

and efficient solution for issuing, refund-

ing, exchanging and settling all transac-

tion types. Additionally, the product pro-

vides functionality to expand electronic

ticketing for the host carrier as well as

its interline partners. This solution deliv-

ers substantial cost savings to the airline

while simultaneously enhancing cus-

tomer service and increasing relation-

ships with its global interline partners.

“The benefits of moving to elec-

tronic ticketing are two-fold — first, we’ll

be able to reduce the costs incurred by

processing paper tickets, and second,

we’ll be able to improve efficiency and

customer service levels,” said Kevin

Hartigan-Go, vice president information

systems of Philippine Airlines. “With

this implementation, we are well placed

to facilitate electronic document

exchange with other airlines with whom

we have interline relationships, fulfilling

the requirements of some U.S. carriers

to support e-ticketing by 2005.”

Darren Henley is a senior product

manager for Sabre Airline Solutions.

+count it up53.33 — Seconds required

by a team from the Metropolitan

Police to pull a British Airways 747

a distance of 100 meters at Heathrow

Airport in London: a world record,

according to the Guinness Book of

World Records.

22,370,000 — Number

of kilometers flown by Fred Finn

as of June, the most air kilometers

flown by an individual, according to

the Guinness Book of World Records.

The U.K. resident also holds

the record for most number of

supersonic flights as a passenger

with 718.

2,646 —Number of minutes

required to circumnavigate the world

using scheduled flights, by David

Springbett in 1980, to set a world

record. During that time, he covered

37,124 kilometers (23,068 miles).

54

product

Electronic ticketing solutions enable

airlines to improve business

processes and reduce ticketing costs. As

more airlines mandate the use of paper-

less processes, interline capabilities

become critical. Implementing interline

electronic ticketing increases the market

opportunity by enabling multi-carrier

itineraries. Responding to this need,

Sabre Airline Solutions has developed

the Interline Electronic Ticketing Hub to

streamline interline implementations.

Interline electronic ticketing gives a

carrier the ability to seamlessly transfer

coupons to its interline partners and to

streamline revenue accounting

processes by expediting revenue recon-

ciliation and reducing the process of

scanning paper documents. During

irregular operations, IET facilitates the

transfer of coupons to alternative flights

on other airlines.

In the past, each IET implementa-

tion has been a unique and customized

project requiring a dedicated link con-

necting each bilateral airline. The project

can be complex; implementing all carri-

ers can be a lengthy process.

The Interline Electronic Ticketing

Hub is a multilateral product that virtu-

ally eliminates the necessity for individ-

ual bilateral carrier implementations.

With this new product, all participating

airlines are linked to a reciprocal inter-

line electronic ticketing system.

The hub verifies agreements

between an inbound carrier and the

receiving carrier and transforms this

ticket into a neutral message using the

receiving carrier’s maps and rules.

The hub is not just a routing mech-

anism; it supports and translates, if nec-

essary, all EDIFACT releases and ver-

sions. If carriers implementing an IET

connection utilize different EDIFACT ver-

sions, the hub will translate those mes-

sages into a format the receiving carrier

can process. This translation process

eliminates extensive development that

was once required for carriers to estab-

lish the interline connection.

Improving Interline Electronic Ticketing

Two new solutions enhance airlines’ ability to better develop and utilize electronic interline agreements.

By Darren Henley | Ascend Contributor

Many airlines, such as the fictional airline ZZ, currently build individual bilateral connections with each of their interline partners.

However, with the new Interline Electronic Ticketing Hub, all participating airlines are linked to a reciprocal system that routes and

translates ticketing messages.

“The benefits of moving to electronic

ticketing are two-fold — first,

we’ll be able to reduce the costs

incurred by processing paper

tickets, and second, we’ll be able

to improve efficiency and customer

service levels.”

optimal shifts/rosters to ensure

adequate coverage to perform the

required work, yielding labor savings

of up to 25 percent.

Once the system has determined the

optimal coverage level to perform the

required work, the final step is to allo-

cate tasks to those schedules/rosters.

This is performed by the Task

Assignment module, which takes

into consideration the drive and

walk times between job functions.

Through the use of liner program-

ming, integer programming and

constraint-theory mathematics, the

StaffPlan system develops the best

possible solution — one that cannot be

matched by an analyst alone. Without

such optimization, it is difficult, if not

impossible, to measure how close a

proposed staff schedule is to the ideal

solution. The StaffPlan system also

enables an airline to make intelligent

trade-offs between conflicting objectives

such as determining whether to use

part-time employees versus full-timers

in terms of cost and shift coverage.

The StaffPlan system enables ana-

lysts to perform “what-if” analysis to

evaluate multiple operational scenarios

and determine the impacts to the busi-

ness prior to the implementation of any

new staffing strategies. Some of the key

benefits of the StaffPlan system include:

Improved ability to achieve consistent

staffing levels,

Ability to identify and explain seasonal

variations in staffing levels,

Reduced time required to identify and

plan staffing,

Ability to set proper staffing levels.

Administration

During the administrative phase,

usually six months up to the day of

operations when planning occurs for

the next season, an airline takes the

forecasted staff plan and determines

daily staffing needs based on resource

availability.

The Sabre ® StaffAdmin™ employee

tracking and assignment system creates

and stores work and attendance rules. It

helps administrators assign the appropri-

ate personnel to the work-level require-

ments established in the StaffPlan system.

In addition, using the StaffAdmin system

helps airport resource administrators

more efficiently handle schedule prepa-

ration, vacation and overtime planning,

and shift coverage. It also reduces the

time spent on attendance tracking and

administering training updates, freeing

administrators to perform other addi-

tional job functions and improving their

overall utilization. The entire employee

administrative process is streamlined,

providing decision support for workforce

planning and scheduling in a paperless

environment. It is designed to ensure

that airlines optimally manage adminis-

trative tasks for their employees. Airlines

commonly achieve up to a 20 percent

improvement in administrative staff

utilization through paperwork reduction

and increased employee involvement in

data entry. Cost reductions of up to 15 per-

cent associated with errors in the recon-

ciliation process related to payroll and

time and attendance can also be realized.

The Internet has provided a powerful

means for employees to proactively

manage their own schedules and work

assignments. The StaffAdmin system

Gate agents are in place right on time

to handle check-in for a flight. An

airplane is refueled, serviced and ready

to push back for an on-time departure.

Baggage has been transferred from

the terminal to the airplane and loaded

without delay. A fresh flight crew is in

position ready for takeoff.

For an airline, the optimal use of

employees is not only essential to

improving performance and customer

service, but it also saves money.

Having the right people in the right

place, however, is not always as easy as

it sounds. The effective management of

ground handling and passenger services

staff is a complex, yet critical, aspect of

an airline’s operations. Flight delays,

cancelled services, holidays, labor actions

and absenteeism — to name a few — arise

on a daily basis and can have a tremen-

dous impact if not managed optimally.

In addition to the unpredictable

nature of the industry, airlines also now

must address heightened security provi-

sions and increased competition, all of

which are forcing changes in how

resources are planned, administered

and managed in real time.

Although complex, efficient staffing

is not impossible.

By breaking down

the process into

phases, and

automating each

phase, airlines can

make the best possi-

ble use of their

resources.

The three

main phases of

the resource man-

agement process

are planning,

administration

and day-of-

operations.

Planning

During the planning phase, usually

six months to one year out, airlines

determine the work requirements gener-

ated from their planned flight schedule.

Using the Sabre ® StaffPlan™ staff

forecasting and planning system, airlines

can employ automated decision support

to produce optimized forecasts and plans

for staffing levels required by a given

flight schedule.

Determining the optimal staffing

levels using the StaffPlan system includes

three steps:

The system uses industry-leading

algorithms to determine the work

demand required for a flight schedule,

work parameters, engagement stan-

dards, historical and forecast loads,

and quality targets.

Once the work demand is produced,

the system’s patent-pending shift

scheduler algorithm determines

product

october 2003 57

Just Right: The Resource Management Systems

product

ascend56

Through the use of Sabre Airline Solutions’ integrated resource management tools, airlines can yield labor savings up to 25 percent by ensuring that the right people are in the right place at the right time.

By Kamal J. Qatato | Ascend Contributor

The StaffPlan system, left, and the StaffAdmin system, center, help

airline schedulers build work requirements and assign adequate

personnel at airport locations. The StaffManager system, right,

takes real-time flight movement data and maximizes the deployment of resources, yielding up to 15 percent improvement in overtime

labor costs. The three systems are integrated to provide airlines optimal resource management capabilities.

incorporates an employee self-service

kiosk, enabling employees to complete

paperless transactions related to shift

trades and schedule checks as well as over-

time and vacation requests over the Web

from home or another remote location.

Benefits of implementing the

StaffAdmin system include:

Producing rosters and daily staffing

sheets,

Vacation planning and administration,

Tracking employee accrual accounts,

Providing employee access via a

self-service kiosk,

Tracking employee training and quali-

fication information,

Importing and exporting data to human

resources systems,

Open report writing,

Incorporating a time and attendance

interface.

Day-of-Operations

The day-of-operations

phase considers real-time

operational requirements

and resource availability for

deployment in the field.

The Sabre ®

StaffManager™ automated

staff allocation system helps

an airline respond in real

time to events that may

disrupt the schedule. Even

on a seemingly ideal day,

there will likely be changes

to flight schedules and times that require

staffing adjustments. The StaffManager

system takes real-time flight movement

data and maximizes the deployment of

resources based on their availability,

location in the airport and qualifications.

The StaffManager system dramatically

improves the fluidity and movement of

resources during an operation by giving

an analyst specific areas to concentrate

on — proactively managing the excep-

tions in the operations rather than

spending precious time identifying

where those operational exceptions

are. Airlines using the StaffManager

system have yielded up to 15 percent

improvement in overtime labor costs by

being able to identify areas in which

resources can be more effectively utilized

prior to aircraft arrival and departure.

The StaffManager system is seam-

lessly integrated with both the StaffAdmin

and StaffPlan systems. It takes daily

staffing employee schedules from the

StaffAdmin system on a real-time basis,

including any anomalies to the planned

rosters, eliminating the need for face-to-

face employee roll call. Most importantly,

to complete the resource management

business process cycle, airlines are now

able to use real-time historical data

as an input to the planning process,

namely the StaffPlan system, to identify

trends against the previous operational

plan to improve future plans.

The StaffManager system has

a simple-to-navigate graphical user

interface that provides detailed flight,

resource and operational alert informa-

tion. All data in each of three viewable

windows is configurable to the business

unit or workgroup for which the analyst

is responsible, ensuring complete focus

on that business area.

The key benefits of the StaffManager

system include:

Maximized productivity,

Early problem identification,

Measured and tracked employee

performance,

72-hour moving window of flights

and tasks,

Views for flight, task and alert

information,

Secured access through various

security levels,

Link to time and attendance

badge-in data.

It’s All About Efficiencies

With modern decision-support

tools, airlines no longer must rely on

using past staffing plans as a

basis for future schedules.

Relying on past plans can

result in a repeat of previous

shortcomings. Having the

right people, in the right

place, at the right time is key

to successful resource man-

agement. Scheduling several

different functional areas to

service aircraft while on the

ground is a complex business

process that undoubtedly

challenges airlines to develop

cost-effective ways to manage their

resources. Without a suite of tools to

guide the planning, administrative and

real-time business processes in resource

management, airlines will never achieve

operational efficiencies that will yield

tremendous cost savings yet maximize

customer service.

Kamal Qatato is director of the resource

management and passenger processing

product suites at Sabre Airline Solutions.

product

ascend58

History has proven the truth

of the axiom that “extreme

times call for extreme

measures.”

During the most extreme time in

the history of the aviation industry, the

weeks and months following the events

of Sept. 11, 2001, airlines were forced to

take drastic action to stay afloat. One of

those measures involved making painful

staffing cuts and furloughing employees.

During this time, many airlines —

including Northwest Airlines, America

West Airlines and Continental Airlines —

relied on their resource management

tools from Sabre Airline Solutions to

help determine the best course of action,

identify the areas to cut and to make the

optimum use of the remaining personnel.

Continental Airlines used the

Sabre ® SaffPlan™ staff forecasting

and planning system to help adjust its

staffing levels to match the dramatic

reduction in the demand for travel.

Using the system, Continental’s

resource planning team quickly evalu-

ated its manpower needs, matching

changes to its flight schedule at little

cost to the airline.

Patrick O’Neill, senior manager,

resource planning and field engineering

for Continental, said the StaffPlan system:

Enabled Continental to analyze the

financial impact of modifying staffing

without compromising clean, safe and

reliable service. The program param-

eters allowed the airline to cross-uti-

lize workgroups and adjust targeted

service goals.

Performed financial analysis of multi-

ple staffing scenarios, allowing the

executive management team to make

accurate and timely decisions.

“We continue to utilize the StaffPlan

system to efficiently manage more than

85 percent of our domestic agents in our

airport services division,” O’Neill said.

Northwest Airlines also benefited

from the StaffPlan system in the after-

math of 9/11.

“We knew our customers would

be very slow to come back to flying

after the terrorist attacks, and we had

to reduce our flight schedule and

resources accordingly,” said Jeff

Benjamin, manager of staffing and

planning for Northwest. “It was impor-

tant to quickly determine the correct

staffing levels for ground operations

to support the new flight schedule.

Additionally, we faced unknown load

factors and the requirement to do new

shift bids to make sure we had the

appropriate staff on each shift to meet

our performance requirements.

“The StaffPlan system was the right

tool,” he added. “We were able to pull

in a new flight schedule, run it with

multiple load factor assumptions and

get a shift bid output that would assist

our operational managers to efficiently

re-allocate a smaller staff to reduced

flight activity. We presented this analysis

to our executive team within the aggres-

sive timeframe committed, and they

were able to make informed decisions

regarding staffing risks associated with

a variety of load factor assumptions.

The StaffPlan system allowed us to

turn this analysis around in a few days,

which would have been impossible

otherwise.”

Kevin Bauerle, manager of customer

service finance at America West, said the

benefits of using the decision-support

tools from Sabre Airline Solutions came

in two stages.

“Immediately after 9/11, we were

able to electronically receive the new

schedule with the new level of operations

and quickly run the StaffPlan system

to determine the appropriate full-time

employees,” he said. “In conjunction

with receiving the schedule, our capac-

ity planning group provided us with new

forecasted load factors to account for

additional reductions in flying.

“In the months after 9/11, we ran a

number of scenarios using adjusted

arrival curves and contact ratios to attempt

to model the impact of the security direc-

tives implemented by the Transportation

Security Administration.”

THE Right Tool IN TOUGHTIMES

Integrated resource management

tools help airlines coordinate staffing

needs through the long-term planning,

in-season planning and day-of-opera-

tion phases, reducing costs and

improving staff utilization.

Web-Enabling Revenue Management

ascend60

Since operating an airline today

requires focus on where and how to

spend resources — financial and physical

assets as well as personnel — Aerolineas

Argentinas sought to find a cost-effective

and efficient way to upgrade its revenue

management system.

Aerolineas Argentinas found a way

to do so by moving to an application

service provider model, which gives the

airline access to the most up-to-date

software without incurring the additional

costs of obtaining and maintaining new

hardware and software.

For more than five years, the airline

used the Sabre ® AirMax™ Revenue

Manager to help it maximize yields and

efficiently control its inventory across

its route network, which includes 34

domestic and 19 international destina-

tions. To effectively run the system, the

airline purchased the required sophisti-

cated hardware. As the airline evaluated

the new, feature-enhanced Revenue

Manager, it realized that its hardware

had become outdated. To upgrade to

the desired functionality would have

also required a further investment in

equipment unless the airline could find

an alternative.

Faced with investing in additional

hardware to support the new software,

the airline began considering other options

and evaluated the Sabre ® eMergo ®

Web-enabled and dedicated network

By migrating its revenue management software to an application service provider model, Aerolineas Argentinas has access to increased functionality at a lower total cost of ownership.

By David Endicott | Ascend Contributor

Quasar™ passenger revenue

accounting system,

Sabre ® Aerodynamic Traveler™

Gate Reader,

Sabre ® Aerodynamic Traveler™

Roving Agent Check-in,

Sabre ® AirCrews™ crew

management system,

Sabre ® AirMax™ Revenue

Manager,

Sabre ® AirOps™ Load Manager,

Sabre ® AirOps™ Movement

Manager,

Sabre ® AirOps™ Dispatch

Manager,

Sabre ® AirPrice™ fares

management system,

Sabre ® AirServ ® aircraft

provisioning system,

Sabre ® CargoMax™ Revenue

Manager,

Sabre ® CargoMax™ Accounting

Manager,

Sabre ® LiteVision ® personalized

MIDT system,

Sabre ® Planet ® profitability

forecasting system,

Sabre ® StaffAdmin™ employee

tracking and assignment system,

Sabre ® StaffManager™ automat-

ed staff allocation system,

Sabre ® StaffPlan™ staff forecast-

ing and planning system,

Sabre ® TransVision ® traffic flow

analyzer,

Sabre ® Travelcard Pro™ billing

and marketing information

access system,

Sabre ® Traverse™ loyalty

management system,

Sabre ® WiseVision™ sales

expansion system.

solutions, an ASP delivery method.

“The eMergo solutions team provided

us with a total-cost-of-ownership analysis

that showed the financial benefits that

could result if Sabre Airline Solutions

owned and managed the information

technology infrastructure required to

operate the Revenue Manager,” said

Alberto Chehebar, chief information offi-

cer for Aerolineas Argentinas. “Once all

the costs are considered, it is clear that

Sabre Airline Solutions can operate the

environment much more efficiently. On

top of that, the solution provided simpli-

fied, predictable pricing.

“With the eMergo solution, we

simply pay a flat monthly fee without

having to make any further investment

decisions,” Chehebar said.

As part of the upgrade to version

5.3 of the Revenue Manager, the airline

receives several key benefits, including:

An origin-and-destination process

mode that provides industry-leading

revenue management tools,

The ability to migrate from a manu-

ally intensive to a more automated

inventory control framework,

A migration from virtual nesting

revenue management controls to

true origin and destination controls

using a bid-price-based continuous

nesting framework.

The functionality of the new system

helps Aerolineas Argentinas maximize

its revenues by selectively accepting

and rejecting reservations requests by

O&D based on the value of the customer.

To ensure the airline received the

maximum benefits from the new version

of the system, the consulting team at

Sabre Airline Solutions helped train the

airline’s revenue management depart-

ment and presented the group with

ways to maximize revenue and the best

processes to support the system.

Aerolineas Argentinas recognized

the value of a hosted solution as a way

to achieve higher service levels in a more

cost-effective manner as compared to

operating the entire IT infrastructure

itself. A lower total cost of ownership,

however, was not the only benefit of

using the eMergo solution for its revenue

management software. Through the

eMergo environment, for example,

Aerolineas Argentinas receives automatic

product upgrades, which are installed

on the host systems and automatically

made available for customer access.

“The migration to the eMergo

environment, as well as the application

upgrade, involved very little effort from

our IT department,” Chehebar said.

By selecting the eMergo remote

access option, Aerolineas Argentinas’

personnel can focus on the key element

of their jobs, ensuring they meet the goal

of managing the airline’s growth.

David Endicott is vice president

for the eMergo solutions.

product product

For more information about the eMergo solutions, contact Jim Quilty,

director of marketing for the eMergo solutions, at 817 264 2906, or send

an e-mail message to jim.quilty@sabre.com.

The Simple SolutionsMore than 40 airlines worldwide utilize one or more of the following

applications via the Sabre® eMergo® Web-enabled and dedicated

network solutions:

News Briefs from Around the Globe

Who

Vinci Airport Services

What

Selected Sabre Airline Solutions’

resource management systems —

the Sabre ® StaffPlan™ staff forecasting

and planning system, the Sabre ®

StaffAdmin™ employee tracking and

assignment system, and the Sabre ®

StaffManager™ automated staff alloca-

tion system — to improve the manage-

ment of personnel across its worldwide

operations.

Under the agreement, Vinci Airport

Services, the world's leading independ-

ent provider of aviation services for

the aviation industry, will implement

the resource management tools for

its global airport operations at approxi-

mately 100 locations worldwide.

Vinci Airport Services operates as

Worldwide Flight Services in the North

American market.

Why

“At Worldwide, we have long dif-

ferentiated ourselves with the service

we provide to our airline customers and

their passengers. Implementing Sabre

Airline Solutions’ suite of resource

management tools will allow us to

further separate ourselves from our

competitors by delivering that same

high level of service at even lower

costs,” said Jean-Francois Gouedard,

president and chief executive officer

of Vinci Airport Services and Worldwide

Flight Services. “From our largest

stations with over 3,000 personnel to

many of our smallest operations, we

expect to improve our personnel utiliza-

tion through Sabre Airline Solutions’

tools, servicing more customers with

the lowest personnel cost possible.”

T H E H I G H L E V E Lvıew

Sixteen of the leading Asia/Pacific

carriers are putting their footprint

on e-commerce in the region.

With travelers in Asia/Pacific

following the U.S. trend of booking

travel online, the carriers have collec-

tively launched an online portal called

“ZUJI,” a Mandarin Chinese word that

loosely translates as “footprint.” The

site, which is a joint venture between

the Asia/Pacific carriers and Travelocity,

a Sabre Holdings company, is the only

one-stop site dedicated to Asia/Pacific

travelers. The site — which offers

inventory from thousands of airlines,

hotels and rental car companies —

enables travelers to easily search and

book the best values on flights, hotels

and rental cars.

ZUJI, which offers the region’s

most sophisticated online airfare search

engine, aims to become a world-class

Web site by providing its customers

with an efficient, user-friendly environ-

ment to plan and purchase travel online.

ZUJI draws upon Travelocity’s tech-

nology and experience in the U.S. market

and shares its resources across a large

geographic region. Chief Executive

Officer Scott Blume is focused on one

goal — making ZUJI the preeminent

online travel site in Asia/Pacific.

“Ours is the only online travel

portal with a regional network in

Asia/Pacific whose core business is

travel bookings in real time,” he said.

“To date, the ZUJI network comprises

customized, local language sites in

Australia, Singapore, Taiwan and Hong

Kong — allowing us access to over 30

million Internet users — with more sites

to come.

“We have taken world-leading tech-

nology and customized the offerings to

local markets,” he said. “This gives us

considerable benefits in terms of cost

of development and the ability to drive

revenue from that development across

multiple countries in the region. We

expect that by the end of 2004, almost

10 percent of travel bookings will be

made online in Asia/Pacific, and we

intend to be the leading portal in this

space in our part of the world.”

One of ZUJI’s unique strengths is

its ability to quickly bring special deals

and content to market.

“We offer an extremely compelling

proposition for our suppliers,” Blume

said. “We e-mail our members travel

deals that are tailored to match specific

interests, and we can mine our member

database to reach travelers who have

searched for specific destinations and

contact them directly with customized

and personalized e-mails. We can also

offer site real-estate promotional space

— all within a 24-hour timeline. It’s a

short, sharp way of moving product.

Additionally, through our distribution

alliances with Yahoo! and ninemsn,

we can access between 20 to 25 million

Internet users throughout Asia/Pacific

each month. It’s a very fast and effective

method of bringing deals to market.”

Sam Gilliland, president and chief

executive officer of Travelocity, agreed

speed to market is a key benefit to the

airlines that provide content for the site.

“It is exciting to see how the airlines

are embracing ZUJI as a competitive

tool with its ability to bring fares to

market quickly,” he said.

ZUJI, headquartered in Singapore,

conducted a soft launch with Web sites

in Australia and its home country in

2002. A full marketing push began in

August to build awareness and increase

the membership base. Even before the

push, however, the portal added sites

october 2003 63

Asia/Pacific Carriers Open a Portal

regionalAsia/Pacific

By Frank Fotea and Hans Belle | Ascend Contributors

Leading Asia/Pacific carriers team with Travelocity to launch the first region-wide online travel portal — ZUJI.

“We expect that by the end of 2004,

almost 10 percent of travel bookings

will be made online in Asia/Pacific,

and we intend to be the leading

portal in this space in our part of

the world.”

Scott Blume, chief executive officer for ZUJI, is positioning the Asia/Pacific travel portal, powered by Travelocity, to take advantage

of a growing trend in the region toward online booking.

A user-friendly graphical user interface makes it easy for travelers

to access the content of the ZUJI Web site, which includes

thousands of airlines, hotels and car rental companies.

One of the many exciting features of the portal is the Flight

Guru, which provides a host of search options for flights,

including alerting passengers of free stopovers and enabling

passengers to pre-select seats on certain flights.

Ph

oto

co

urt

esy

of

ZU

JI

regional

october 2003 65

As the worldwide airline industry

continues to undergo dramatic

changes, many experts and analysts

have spoken of a need for carriers to

consolidate their operations to increase

competitiveness.

While airline consolidation remains

largely an abstraction for much of the

world, in China it is already a reality.

Three years ago, the Civil Aviation

Administration of China announced

that it would merge 10 of the nation’s

airlines into three roughly equal groups

in order to strengthen the domestic

industry. Each group would be centered

on one of the nation’s three main carri-

ers: Air China, China Eastern Airlines

and China Southern Airlines.

Now, with its consolidation largely

complete, a restructured China Eastern

Airlines is poised to further raise its

profile on the international aviation

landscape and also to take advantage

of events such as China’s entry into the

World Trade Organization.

Through consolidation with China

Northwest Airlines and Yunnan Airlines,

Shanghai-based China Eastern has

“set off for a new future,” company

officials said.

Before the consolidation, the “huge

number, small size and lack of core competi-

tiveness” of the nation’s multiple domestic

carriers hampered the growth of China

Eastern and other Chinese airlines, the

company said. Consolidation has helped

China Eastern “achieve rapid expansion,

implement its business diversification

strategy and form new mainstay lines

of business, thus becoming the new

starting point for future expansion.”

Consolidating with two smaller

carriers has given the combined airline

the resources to compete more effectively.

As a result of the consolidation, China

Eastern has approximately 40 percent

of the domestic Chinese aviation mar-

ket. The combined China Eastern group

controls ¥47.3 billion (US$5.7 billion) in

assets, including 142 aircraft. The group

also has a combined 25,000 employees,

and it serves destinations throughout

China as well as Asia, Europe, America

and Australia.

By 2005, thanks to consolidation,

the airline predicts it will have 180 large-

and medium-sized passenger and cargo

aircraft generating ¥24 billion (US$2.9

billion) in revenue.

in late 2002 in Taiwan and Hong Kong,

and it is looking to add sites in Korea,

Malaysia, Brunei and New Zealand in

the next several months. ZUJI officials

said the response to the soft launch

indicated that Asian markets are ready

to embrace online travel. Once the

effects of the conflict in Iraq and the

outbreak of severe acute respiratory

syndrome diminished, the portal’s book-

ing levels quickly increased, exceeding

pre-SARS levels.

“We’re seeing more and more trav-

elers choosing to book and buy flight,

hotel and car rental content from ZUJI,

and we anticipate that this trend will

continue,” Blume said. “We’ll soon

reveal a new hotel booking path, which

has been designed and developed in

conjunction with Abacus. We have a

dedicated commitment to constantly

improving the site and ensuring our

customers have the best technology

and travel tools in Asia/Pacific.

“We are not only actively building

a regional network, but a strong and

compelling brand, which features our

‘Travel Guru’ personality,” Blume said.

“We’re experiencing consistent growth

in all of our markets.”

ZUJI’s travel tools are designed to

enhance the customer experience. Its

“Price Guru” tool is a customized fea-

ture that allows members to select five

preferred destinations and to be notified

via an automated e-mail message or on-

site updates when a flight to a specific

destination meets a pre-set price criteria.

This gives ZUJI members the advantage

of being the first to know about inven-

tory-controlled promotional deals.

“The outcome is ‘win-win,’” Blume

said. “Our members learn of deals to

places they are interested in traveling

to, and suppliers have access to a

targeted audience.”

Combining the expertise of the

region’s leading airlines and Travelocity

enabled ZUJI to overcome a number

of challenges, including the region’s

multiple languages, currencies and local

laws. ZUJI worked with Travelocity’s

Sydney-based development center to

create country-specific sites in native

languages using local currency with

secure transactions through VeriSign

Payflow. To date, ZUJI offers sites in

three languages (including two varia-

tions of Chinese) utilizing four Asian

currencies. ZUJI also has adapted to

the local markets, which have different

levels of development and infrastructure

to support e-commerce, such as the

penetration levels of credit cards and

costs of Internet access.

The state-of-the-art net fare booking

engine, powered by Travelocity, was also

developed specifically for the region.

Gilliland said the partnership holds

great promise for the future.

“Travelocity pioneered the online

travel space, and we have more than

seven years’ experience in the world’s

most competitive online travel market —

the United States,” he said. “We have

learned that success in this industry

is driven by continuous investment in

technology and the customer experience,

focused marketing and distribution,

and great value content. ZUJI has

these ingredients.”

The unequaled ZUJI sites built by

Travelocity have met the unique needs of

the Asia/Pacific marketplace. Travelocity

quickly realized it could not merely

transplant technology and business

systems from the United States without

finding innovative ways to address the

region’s unique landscape. ZUJI, with

the knowledge and support of the

region’s leading airlines and unmatched

technology from Travelocity, is uniquely

positioned to meet the challenges of

providing online service to the region’s

traveling public.

Frank Fotea is Travelocity’s

vice president Asia/Pacific.

Hans Belle is vice president of

marketing, Asia/Pacific

for Sabre Airline Solutions.

regional

ascend64

Capitalizing on Consolidation

Sweet SixteenSixteen leading Asia/Pacific airlines have

joined with Travelocity to form ZUJI, a

one-stop travel portal for the region:

All Nippon Airways

Cathay Pacific Airways

China Airlines

EVA Airways

Garuda Indonesia

Dragonair

Japan Airlines

Japan Air System

Malaysia Airlines

Northwest Airlines

Philippine Airlines

Qantas Airways

Royal Brunei Airlines

SilkAir

Singapore Airlines

United Airlines

By Hans Belle and

Peter Wu | Ascend Contributors

After its merger with two smaller airlines, a larger, more competitive China Eastern Airlines looks to draw on its new strengths to become a more dynamic factor in the world airline industry.

“We are not only actively building

a regional network, but a strong

and compelling brand ….”

“The outcome is ‘win-win.’ Our

members learn of deals to places

they are interested in traveling

to, and suppliers have access to

a targeted audience.”

Executives from China Eastern Airlines and Sabre Airline Solutions announce an

agreement for the airline to use the technology provider’s flight operations suite

to help integrate its airline operations center.

Asia/Pacific

“As a result of the consolidation,

China Eastern has approximately

40 percent of the domestic Chinese

aviation market.”

While much of the airline industry

continued struggling in 2002 to

cope with the lingering effects of the

severe economic downturn, Russian air

transportation bucked the trend thanks

to an expanding economy that enabled

more travelers to take to the skies.

For the second consecutive year,

Russian carriers overall reported profits

as well as growth in the numbers of

passengers boarded. For the year,

revenues per kilometer in the Russian

market were up 7 percent to US$64.5

billion, passengers boarded increased

6 percent to 26.5 million and cargo

volume increased 3 percent.

The positive trend is also expected

to continue — the country’s Civil Aviation

State Services says the aviation crisis

in Russia is over, projecting that the

industry in 2003 will grow between 5

percent and 10 percent, continuing to

build on the about 10 percent growth

in 2002.

So, how have the Russian carriers

managed to excel during a time when

the rest of the industry has battled to

keep its head above water?

One of the main advantages

enjoyed by Russian carriers is the

country’s continuing emergence into

a free marketplace. After years of

stagnation under the Soviet-planned

economy and a decade of adjusting to

a free market, real incomes of Russians

are increasing and the Russian middle

class is growing.

The continued move toward an

open economy gives Russia an underde-

veloped market with enormous potential.

Analysts estimate the potential Russian

air travel market at 90 million passengers

boarded, although only 26.5 million, just

29 percent of the total potential market,

were boarded in 2002. Because air travel

is still seen as somewhat of a luxury

in Russia, many people have yet to

discover its convenience. Yet, the average

middle-class Russian has similar prefer-

ences for travel as his or her Western

European counterpart, indicating that

the growth of this segment will likely

mean an increasing demand for travel,

particularly air transportation.

The move to a free economy

caused an explosion in the number of

carriers operating in Russia. However, the

past few years have seen consolidation

within the industry — the number of

airlines declined from a high of 393 in

1994 to 235 in 2002 — as some airlines

acquired smaller carriers, some went

bankrupt and some were unable to meet

more stringent licensing requirements

implemented by the country’s Civil

Aviation State Services. In 2002, the

five largest airlines controlled 48 percent

of the market and the top 25 carriers

controlled 80 percent.

66

regional

ascend

China Eastern said it sees the

merging of the Chinese aviation indus-

try as an opportunity to “build an air

transportation system of core competi-

tiveness; realize rapid, sustained and

healthy growth; improve market com-

petitiveness quickly; fully participate

in international competitions; and

establish a world-recognized brand

in the air transportation industry.”

As part of its growth strategy, China

Eastern plans to improve the profitability

of its home Shanghai marketplace.

The airline also plans to concentrate

domestically on Shanghai, Beijing and

Guangzhou while further developing the

Xian and Kunming markets. The airline

also plans to strengthen international

routes and develop cargo transport lines

in Hong Kong as well as other parts of

Asia, Europe and the United States.

The airline group also plans to

pursue a diversification strategy that

incorporates importing/exporting,

financial services, hotels and tourism,

and air catering.

As it prepares itself to compete

domestically and internationally, China

Eastern plans to standardize its fleet

planning, marketing strategies, services,

training and maintenance across the

organization.

In conjunction with its new stan-

dardization strategy, the China Eastern

group has invested in new technology,

including decision-support tools to

help integrate its systems operation

control center.

China Eastern announced in April

that it would integrate its flight opera-

tions into an airline operations center

in order to improve efficiency, improve

communications among departments

and enhance the airline’s ability to

respond to irregular operations.

Captain Wu, Yu Lin, senior vice

president at China Eastern, said the inte-

grated AOC will streamline operations,

enabling the airline to compete more

effectively in the consolidated Chinese

aviation marketplace.

“Our ultimate aim is to reduce

reporting lines in order to drive cost

reduction,” Wu said. “We expect

this to be achieved by the continued

improvement of our operations

and the reduction in our aircraft

utilization costs.”

The AOC will integrate the airline’s

flight scheduling, flight planning,

crew rostering, payload and dispatch

departments, which will work seam-

lessly through an integrated suite of

software provided by Sabre Airline

Solutions, including Sabre ® AirOps™

Movement Manager, Sabre ® AirOps™

Dispatch Manager and Sabre ® AirOps™

Load Manager.

By using integrated systems, China

Eastern will streamline data entry,

data management and data integrity,

resulting in superior operational control.

Before integration, China Eastern main-

tained several systems, which often

resulted in the duplication of tasks to

accommodate each individual tool.

Integration will also benefit the airline

during irregular operations, helping

it efficiently return to its published

schedule as quickly and cost-effectively

as possible.

The operational heart of the airline,

the AOC includes the airline’s movement

control, flight planning, flight tracking,

load planning, meteorological function

and data integration departments.

Announced in April, the contract

with China Eastern Airlines brings to

five the number of carriers in the region

utilizing Sabre Airline Solutions for

integrated operations centers. Other

carriers include Cathay Pacific Airways,

China Southern Airlines, Air New

Zealand and Virgin Blue.

Hans Belle is vice president of

marketing, Asia/Pacific.

Peter Wu is a Beijing-based account

director for Sabre Airline Solutions.

regional

october 2003 67

Europe, Middle East and

Africa

From Russia, With Success

Despite an industry-wide downturn, a growing market and innovative practices have helped Russian carriers maintain growth and profitability.

By Inna Kizenkova | Ascend Contributor

As Russia continues to emerge into

a more open economy, the nation’s

airliners are benefiting from the change.

For the year, revenues per kilometer

in the Russia market are up 7 percent,

passengers boarded are up 6 percent

and cargo volume is up 3 percent.

As part of a government-ordered consolidation, China Eastern Airlines joined with two

other carriers — China Northwest Airlines and Yunnan Airlines — to form one of the

three largest carriers in China.

“The continued move toward an

open economy gives Russia an

underdeveloped market with

enormous potential.”

But beyond the natural market

growth, Russian carriers have

excelled by taking aggressive and

innovative approaches to expand their

businesses.

Many of the nation’s leading air-

lines have targeted financially troubled

but strategically positioned airlines

for takeover, enabling them to grow

through mergers and acquisitions.

Siberia Airlines, for example, increased

its passengers boarded by 41 percent

— to 2.69 million — in 2002 in part

by acquiring Moscow-based Vnukovo

Airlines. The rest of the industry

increased its passengers boarded

by only 6 percent. Siberia, founded

in 1992, also has signed interline

agreements with British Airways

and Japan Air System.

One of the largest domestic

airlines in the Russian Federation,

Siberia has also taken steps to

improve its customer service,

increase aircraft utilization and

boost its on-time performance.

The airline, which in the first half

of 2003 increased its flights by 8 percent

and carried 18.4 percent more passen-

gers, offers amenities such as free

transportation from the airport to

downtown Moscow for passengers

on certain flights. Such efforts helped

the airline become the first Russian

carrier to earn a Flight International

Aerospace Award for corporate strategy,

which recognizes companies for alliances,

mergers, restructuring programs and

other business strategies that have

reshaped or revitalized the industry,

turned around a company or opened

significant new markets.

The airline also modified its ticket

return and change policy to be more

customer-focused, introducing a less

restrictive policy regarding exchanges

and returns of tickets for trips in Russia

and the Commonwealth of Independent

States. For example, certain tickets that

are popular among business and sum-

mer leisure travelers can be returned

up to three hours prior to departure

with only a 15 percent fee rather than

the standard 25 percent. This policy is

aimed at increasing the loyalty of leisure

travelers during the highest demand

season. To also appeal to frequent

flyers, the airline launched Sky Seven,

an incentive program for loyal repeat

customers offering points that can be

used for free flights, service upgrades

and other benefits.

Although the Russian market

presents several obstacles to the

standard low-cost carrier model — the

lack of fuel-efficient aircraft, secondary

airports and Internet ticket sales —

Siberia is looking to fill the low-cost

niche by offering no-frills, short-haul

flights for lower fares ranging from

US$10 for economy class to US$80

for business class.

The airline has begun experimenting

with no-frills service on its 40-minute

Nizhny-Novgorod to Moscow flight,

targeting business travelers who usually

make the 420-kilometer journey by train.

The airline expects to earn US$1million

annually from the route.

Along these same lines, the airline

is trying to boost its load factors through

innovative programs, including a special

offer of US$5 tickets from Nizhny-

Novgorod to Moscow for passengers

connecting there to one of Siberia’s

international flights.

The airline whose name

was synonymous with air

travel in Russia during the days

of the Soviet Union, Aeroflot

Russian Airlines, has also taken steps

to capitalize on the growing desire for

air travel. As a flagship carrier for the

nation, Aeroflot still has the largest

overall market share at 21 percent. The

airline, established in 1994 as the

successor to the Soviet airline

formed in 1923, inherited a large

fleet, customer base, brand equity and

network from its predecessor. But this

was a mixed blessing.

The fleet was outdated, with

the majority of aircraft unable to meet

International Civil Aviation Organization

technical standards, and the airline’s

reputation for safety and customer serv-

ice lagged its western counterparts.

Aeroflot, however, recently

launched a US$250 million fleet renova-

tion initiative, including the addition

of several western jets. By December

2005, Aeroflot’s fleet will include 18

Airbus A319/A320s, nine Boeing 767s

and 50 Russian-made aircraft. And the

airline is also revamping its network

to be more efficient. In the days of the

Soviet Union, the government would

greatly subsidize unprofitable routes

regional

simply to maintain an international

presence. Faced with fierce competition,

Aeroflot has cut the most unprofitable

routes, even though it resulted in a

drop of 342,000 passengers. Despite

that drop, the airline’s profits actually

increased from US$8.6 million in 2001

to US$74.2 million in 2002, and the

airline projects a US$100 million profit

for 2003.

The airline also projects its load

factor will increase from 68.8 percent

in 2002 to 70 percent. Aeroflot Deputy

General Director Lev Koshlyakov has

said the carrier expects passenger

numbers in 2003 to rise about 5 percent,

a total of 250,000 to 260,000. He also

said that in addition to restructuring

the fleet and reducing lease costs, the

airline’s next step would be to use

more economic planes to reduce

spending on fuel.

In addition to renovating its

fleet and route network, the airline’s

long-term strategy includes:

Reducing aircraft leasing costs,

Adding and enhancing information

technology,

Optimizing its resources,

Rebranding the airline,

Improving customer service.

And the airline, which plans to join

the Sky Team global alliance this year,

is even using its frequent flyer program,

Aeroflot Bonus, to reward travel agents

who book flights on the airline.

One of the nation’s oldest airlines,

dating back 70 years, Pulkovo Aviation

Enterprise increased its passengers

boarded by more than 2 million, 10.2

percent, in 2002. The airline, 100 per-

cent owned by the federal government,

uses only Russian-built aircraft and is

the largest airline in the northwestern

region of the country. The enterprise,

which also operates Pulkovo Airport

in St. Petersburg, offers a special

“transfer” program for its customers

traveling across Russia and abroad.

Participants receive a 20 percent to 40

percent discount for domestic flights

and up to 30 percent discount on

international flights connecting

through the airline’s hub at the

Pulkovo Airport.

As the Russian airlines have

adapted to the rough and tumble airline

industry, they have taken great strides

toward becoming globally competitive.

The nation’s carriers are taking the

industry’s best practices and giving

them a Russian flavor, customizing

them to meet their unique needs.

Their growth during the past two years

reflects their experience, knowledge

and determination to win in the Russian

market and be a significant player

on a worldwide scale.

Inna Kizenkova is a member of the

Sabre Airline Solutions Marketing

Strategy and Services group.

regional

ascend68

Russia

Siberia Airlines is experimenting with

a low-cost offering on its Nizhny-

Novgorod to Moscow flights. The

airline expects to earn US$1 million

annually from the route.

News Briefs from Around the Globe

Who

Chicago Express

What

Successfully introduced a system to

enable online preferential bidding for

more than 200 flight crewmembers.

Crews submit scheduling preferences

via the Internet each month. These pref-

erences are entered in a proprietary lex-

icon and can include specific days off,

generic days off (weekends, for exam-

ple), specific trip assignments, generic

assignments (long trips, short trips or

specific layover cities) or daytime con-

siderations (no early starts or late

returns).

Why

Using the PC-based preferential

bidding system, a part of the Sabre ®

Flight Control suite for small- , medium-

sized and low-cost airlines, Chicago

Express ensures that crews are

assigned duties to which they are fully

qualified and which do not conflict with

other non-flying activities, such as train-

ing and vacations. The introduction of

preferential bidding is part of an overall

plan for automating Chicago Express’

systems operations control functions

using the Flight Control suite.

“Preferential bidding has been a

useful tool in our continuing commit-

ment to improving on crewmembers’

quality of life while enhancing our oper-

ational efficiency,” said Captain Scott

Hall, vice president of operations for

Chicago Express.

T H E H I G H L E V E Lvıew

+count it up 1,266 — Elevation, in feet below

sea level, of the I Bar Yehuda Airport

in Israel, one of the world’s lowest alti-

tude airports.

14,219 — Elevation,

in feet above sea level, of the

airport in Bangda, Tibet, one

of the world’s highest altitude

commercial airports.

regional

call center channel, streamline

processes and automate manual

tasks. The system is the industry’s

only fully integrated solution designed

to support every passenger interaction

from shopping for preferred itineraries

to the post-travel experience.

The Sabre ® Qik™ business processing

solutions dramatically simplify the

reservations call process and enable

agents to operate more productively

and with less training through the

elimination of lengthy keystrokes and

format memorization. The real-time

graphical user interface provides

seamless and simultaneous access to

data from computerized reservations

systems, the Internet, external data-

bases, telephone and voice recognition

systems, and facsimile machines.

Mobile services available from Sabre

Airline Solutions provide an automated

voice response system that generates

cost efficiency for the call center. Gulf

currently uses the mobile services

for short messaging service and plans

to use voice-over Internet protocol

telephony to route calls from around

the world into the contact center.

Interactive voice response, such as

that provided by the mobile services,

enables customers to pre-select the

language in which they wish to con-

verse with the reservations staff and

enable the call to be directed to a

suitably qualified representative

according to the nature of the call.

The mobile services also dynamically

monitor all transactions, including

recording of all calls, to facilitate

measurement of service quality.

Computer telephony integration

enables the contact center system to

recognize the customer’s telephone

number and populate the reservations

agents’ computer screens with cus-

tomer-specific data (name, address,

service preferences) to speed up

call processing time and enable per-

sonalized service.

The center’s flexible technology

can also be adapted and sized to suit

changing market circumstances with

new products and services.

The IP Contact Center leverages

voice-over IP technology and offers

great flexibility in services and in number

of agents deployed. The solution enables

agents to dynamically connect and work

from any location while providing a

seamless customer experience and

quality of service.

The center’s design and technology

enable customers to contact the airline

by the method with which they are most

comfortable, whether telephone, e-mail,

Web chat or SMS. The airline anticipates

that the bulk of contacts will be made

by telephone during the first few years

of operation, although it anticipates

other forms will eventually become

more prominent.

The contact center will support

Gulf Air, Gulf Traveler (the all-economy,

full-service subdivision of Gulf Air),

Gulf Air Holidays, the frequent flyer

program and customer relations

with specialists also handling travel

agency queries, baggage inquiries

and staff travel.

The new center reflects Gulf Air’s

business goals and will enable the

airline to provide the world-class cus-

tomer service expected of a modern

world-class airline. The center is part

of Gulf Air’s Project Falcon, a three-year

strategic recovery program designed

to revitalize the airline and help it build

on its cultural strengths, history and

strategic partnerships.

“We are on target with our Project

Falcon recovery to meet our year-end

targets,” said James Hogan, president

and chief executive of Gulf Air. “Focusing

on our objective to be a commercially

successful, world-class airline, this

bold and disciplined process of change

will continue.”

Raida Abumaizar is the Bahrain-based

account director for Gulf Air.

Tariq Sultan is vice president of

information technology for Gulf Air.

Looking Through the “Contact” Lens

ascend70

Gulf Air, the premier pan-Persian

Gulf carrier owned by the countries

of Bahrain, Oman and United Arab

Emirates, last month opened a US$40

million World Wide Contact Center,

which will consolidate all its reservations

activities, including bookings, ticketing

and customer service. Airline officials

anticipate that the center will also

improve sales and customer service.

According to Andrew Dawson,

head of reservations for Gulf Air, “This

new venture will give us the opportunity

to offer all of our customers worldwide

a consistent, world-class service, around

the clock. We are using the very best

technological solutions available for

telecommunications and reservations

service; our staff are enthusiastic and

raring to go. Our customers will be

both surprised and delighted.”

By bringing together these opera-

tions, the airline will be able to centralize

the management of its customer rela-

tionships, helping the carrier reach

its goal of becoming more customer-

centric. When fully staffed, the new

center, located in Muscat, Oman, will

employ more than 300 local residents

as well as the latest communications

technology. Before the center opened,

the airline’s reservations operations

were scattered across more than 50

separate locations, many of which were

too small to justify the deployment of

sophisticated technology.

In developing the center, Gulf Air

has teamed with leading technology

providers, including Public

Establishment for Industrial Estates —

Oman, Omantel, Cisco, Hewlett-Packard

and Equant. In addition, the center

also uses several tools from Sabre

Airline Solutions:

The Sabre ® Passenger Reservation

System provides a comprehensive

and easy-to-use product suite that

will help increase sales through the

Europe, Middle East

and Africa

Gulf Air opens a new US$40 million call center that will help its customers stay in better contact with the carrier.

By Raida Abumaizar and Tariq Sultan | Ascend Contributors

“Before the center opened, the

airline’s reservations operations

were scattered across more than

50 separate locations, many of

which were too small to justify

the deployment of sophisticated

technology.”

Ph

oto

co

urt

esy

of

Gu

lf A

ir

As part of its initiative to increase customer service, Gulf Air, the flag carrier of Bahrain, Oman and the United Arab Emirates, has

consolidated its reservations activities into a single call center.

an integrated approach is not only bene-

ficial during tactical planning but also

during strategic planning. Based on

this, airlines have started to explore

dynamic scheduling concepts that lever-

age revenue management information

for near-term fleet assignment decisions,

such as demand driven dispatch.

Airline Integrated Recovery

The research group supporting

Sabre Airline Solutions has developed

a decision-support framework that

addresses schedule recovery both in the

context of an individual carrier and a

global alliance. The airline integrated

recovery concept incorporates aircraft

maintenance routing, crew rescheduling

and the impact of schedule changes

on passenger flow. Integrated recovery

consists of the schedule recovery model

to suggest necessary flight cancellations

and delays, the aircraft recovery model

to assign new aircraft routings, the crew

recovery model to assign new crew

pairings and the passenger flow model

to evaluate the impact on passengers.

These models have been developed to be

compatible with Sabre Airline Solutions’

existing portfolio of flight operations

and crew management products. The

research group, using advanced mathe-

matics, has formulated airline integrated

recovery to obtain near real-time perform-

ance for reasonably sized problems.

Taking Care of the Passenger

Re-accommodating passengers

during schedule irregularities is critical

for an individual airline, as well as a

global airline alliance. An alliance’s

system network consists of multiple

hub airports that allow individual airlines

to offer passengers alternative itineraries

on their partner carriers. Journey man-

agement is based on concepts from the

passenger flow model. The output of the

passenger flow model is used to assign

alternative itineraries to disrupted passen-

gers based on a priority list determined

by the airline. In practice, airlines may

need to offer a passenger an alternative

other than the one that benefits it the

most. When a flight is cancelled, the

re-accommodation tool will retrieve

passenger name record data from a

reservations system, such as the Sabre ®

Passenger Reservation System, as well

as information on available inventory

in replacement flights. The re-accommo-

dation system prioritizes passengers,

gives them a revised itinerary, updates

their PNRs in the Passenger Reservation

System or another global distribution

system, and then electronically notifies

passengers of their new schedule using

the notification tools of the reservations

system. The system would actively

monitor the status of each scheduled

flight to ensure that passengers were

not assigned to later flights that were

companycompany

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Getting Back on Track

There is seemingly no end to the

factors that can adversely affect an

airline’s schedule: inclement weather,

mechanicals, labor actions, excessive

passenger volumes, air traffic control

issues. With so many potential areas for

disruption, it’s amazing that only a small

portion — 10 percent in some regions

— of an airline’s scheduled revenue

flights are affected by irregularities.

When disruptions occur, the meter

starts running as airlines incur costs

for lost revenue, crew overtime and pas-

senger hospitality, not to mention the

impact of disgruntled passengers. When

the financial impact of disruptions on

the daily operations of a major U.S. net-

work carrier can exceed US$400 million

a year, it is vital that airlines return to

the normal schedule as quickly and

cost-effectively as possible. Of equal

importance is the impact on the carrier’s

brand and customer goodwill, both of

which are quite difficult to measure.

According to a recent study by the

George Washington University Aviation

Institute and Flight Safety Technologies,

airlines can benefit significantly by

reducing the impact of disruptions.

For an airline with operational costs

of US$70 per minute with 1,500 flights

per day, cutting one minute of delay per

flight per day can save US$38 million

a year, the study showed. Further, if an

airline can avoid one diversion per week,

it could save from US$1.1 million to

US$4.6 million a year.

In the aftermath of irregularities,

the schedule recovery process at many

airlines consists primarily of assigning

spare operational aircraft to scheduled

flights in order to reduce or eliminate

disruption with the briefest delay. These

operational spares are an expensive

proposition as their utilization is low

given their requirement to remain in

standby mode at the appropriate hub

or predominant airport. When faced

with schedule disruptions, many airlines

still tackle the situation manually or at

best, through a semi-automated process

using basic rules devised by the experi-

enced scheduler. Recent advances in

mathematical programming and com-

puter processing speed now enable users

to deploy decision-support tools to solve

real-time problems that are time sensi-

tive such as schedule recovery.

Solutions on the Horizon

Although progress has been made

in the area of schedule recovery, airlines

have been slow to embrace optimization-

based decision-support systems designed

to assist with real-time planning. The

resistance stems from a variety of fac-

tors ranging from the complexity of the

underlying problem to the intricacies

necessary to recover from the disrup-

tion. Airlines have traditionally been

divided into functional groups based

on a particular resource such as aircraft,

crewmembers and passenger services.

In the past, decision-support systems

have been designed to handle one

resource, concentrating exclusively on

that area without considering auxiliary

factors during decision making. Because

they have not been able to consider all

factors, such systems have been unable

to deliver a truly optimum solution,

causing operations control center

personnel to shy away from relying

on them to help recover from schedule

interruptions.

Researchers believe an integrated

approach that transcends the typical

airline’s traditional organizational struc-

ture provides the most effective way to

handle schedule recovery. This is based

on the premise that optimizing in a

holistic fashion yields greater results

than optimizing smaller subsets and

subsequently trying to integrate the

sub-optimal solutions. In essence, an

airline really is a collection of inter-related

networks — aircraft, crew, passengers,

freight — all connected by scheduled

flights that reside at the core. Events in

one network will impact the others, thus

the solution can only be truly optimized

by addressing the impact of each indi-

vidual planning problem on other areas.

During the last 15 years, airlines have

identified the need to become more

integrated, sharing information and

decision making across the organization.

It has become evident to airlines that

Researchers have developed new solutions to help airlines recover from off-schedule operations.

By Michael D. Clarke | Ascend Contributor

Through an integrated airline schedule

recovery system, passengers can be

automatically notified when they are

affected by delays or cancellations,

saving them from having to search for

their new itinerary.

News Briefs from Around the Globe

Who

Atlantic Coast Airlines

What

Selected the Sabre CrewClass training

schedule system, a module within the

Sabre ® Flight Control suite for small- ,

medium-sized and low-cost airlines, to

meet its pilot training requirements.

Why

The module helps optimize pilot

training scheduling to maximize utiliza-

tion of training resources while mini-

mizing the time that pilots are unavail-

able for productive flying assignments.

Atlantic Coast, a fast-growing

regional airline based at Dulles,

Virginia, has experienced rapid growth

while at the same time introducing new

regional jet aircraft to its fleet. The PC-

based CrewClass module, which inte-

grates seamlessly with other modules

of the Flight Control suite, has greatly

streamlined the training scheduling

process.

T H E H I G H L E V E Lvıew

company

ascend74

It’s no secret that the airline industry

is experiencing pressures due to the

difficult economic environment and the

resulting changes in consumer behavior

and attitude toward travel. Although

airlines around the world are acutely

aware of the need to lower costs and

increase revenue, United Airlines is

particularly focused on improving its

bottom line by using advanced tech-

nology to achieve its goals.

A component of its successful strat-

egy has been to utilize a variety of Sabre

Travel Network products to effectively

manage ticket distribution and other

operating costs as well as capitalize on

revenue-generat-

ing opportunities.

Turnkey solutions

contributing to

this strategy

include the Sabre ® Direct Connect

Availability SM —Three-Year Option, mar-

keting information data tapes from the

Sabre ® Global Distribution System and

Sabre® Aggregate Ticket Control Number.

United aggressively distributes

tickets and targets sales through chan-

nels that produce the highest revenue.

Participating in the Direct Connect

Availability option enables United to offer

its customers access to all published

fares, including Web fares, through the

travel agency channel. The Direct Connect

Availability option also helps United gain

market share in routes where there is

heavy competition and sensitivity to

price. This approach increases its sales

opportunities and reduces the time it

takes for travel agents and consumers

to shop for and purchase United’s best

deals. The three-year option also reduces

United’s cost of ticket distribution by

providing it with a fixed, discounted

fee for the next three years. Through

the program, United receives discounted

booking fees in exchange for participat-

ing at the highest level in the Global

Distribution System and providing

access to its full fares and content.

At the highest connectivity level, United

is provided with a wide range of services

to market and sell flight and fare infor-

mation to approximately 56,000 Sabre

Connected SM travel agents around

the world.

United’s use of MIDT is another

effective tool that sharpens its competi-

tive edge, maximizes market potential,

develops meaningful sales incentive

plans and improves overall operations.

MIDT provides United with vital sales

intelligence including sales sources and

its position in the marketplace relative

to the competition. This tool provides

key transaction data enabling United to

analyze booking levels and competitive

market share.

Utilizing the latest innovation from

Sabre Travel Network, Aggregate TCN,

United now has insight to the full spec-

trum of fares and the prices consumers

are willing to pay for any given itinerary.

Aggregate TCN is the only source for

company

october 2003 75

The Winning Combinationalready cancelled. Based on centralized

planning and decision making, while

leveraging the benefits of local, decen-

tralized action, the integrated recovery

method brings together the best of both

worlds. In effect, decisions made at the

airport would be driven by the central-

ized airline operations control center

such that a global approach is taken

to re-accommodate passengers.

The Tools for the Job

The Sabre Airline Solutions product

development teams in conjunction with

the research group have been working

closely together to develop the fully

integrated schedule recovery system.

As a precursor to the final integrated

recovery product, decision-support

functionality has been incorporated into

several products, including the Sabre ®

AirOps™ Control suite, the Sabre ®

Flight Control suite for small- , medium-

sized and low-cost airlines and the Sabre ®

AirCrews™ crew management system.

The AirOps and Flight Control suites

include a real-time flight operations

management and movement control

system designed to monitor an airline’s

operations and provide alerts for potential

maintenance and operating constraint

violations. The AirCrews system includes

a day-of-operations module designed to

assist crew trackers with managing the

impact of schedule changes and disrup-

tions on crew scheduling. Sabre Airline

Solutions has introduced the Sabre ®

AirOps™ Decision Manager — a decision-

support tool that incorporates the sched-

ule recovery, aircraft recovery and pas-

senger flow models. The system helps

airlines find new aircraft assignments

that have the least impact on the current

schedule and are maintenance feasible.

It is available as a supplemental product

for Sabre ® AirOps™ Movement Manager

as well as the Sabre ® FliteTrac system

and can be seamlessly integrated with

both the AirOps suite and the Flight

Control suite.

The Sabre ® AirOps™

Reaccommodation Manager optimally

re-assigns passengers whose flights

have been disrupted. The system

values each passenger according to

user-defined criteria such as frequent

flyer status, fare paid or class of travel,

prioritizing the passenger list based on

calculated values to create alternative

itineraries. The system’s automated

alert process notifies passengers of

their new itinerary. Because the system

simplifies the process of moving

misplaced passengers and minimizes

schedule changes, customer service

and loyalty is enhanced. And automat-

ing the re-accommodation process

also reduces costs. At the core of

Sabre Airline Solutions’ suite of pas-

senger re-accommodation tools is the

Passenger Reservation System. The

system provides the necessary flexibility

to accommodate passengers by flight

leg or origin and destination. This

enables airlines to take the passenger’s

entire itinerary into consideration

when selecting alternative flights for

re-accommodation. The automated

process is entirely table-driven and

user-defined, taking into consideration

variables such as booking class (high-

versus low-yield), down-line connections,

passenger profile (unaccompanied

minors), frequent-flyer-tier level,

ticketing status, boarding pass status

or others depending on the airline’s

preference.

Pushing Technology Forward

Most technology solutions in sched-

ule recovery focus mainly on optimizing

the disrupted schedule by minimizing

operational disruption. Although helpful,

this approach seldom considers the

commercial variables in formulating

the optimized solution. An optimized

solution considers factors such as

passenger mix (high- versus low-yield

passengers) on re-directed flights,

degree of competition on the route

(passengers’ choice of airlines) and

route and flight profitability. As these

new scheduling concepts are embraced

by decision-support vendors and sub-

sequently airlines, they will improve

the existing business processes and

practices. Schedule disruptions cannot

be eliminated, but they can be optimally

managed. As researchers continue

to push technology, airlines will have

more sophisticated tools to minimize

the effects — and costs — associated

with irregular operations. The future

mission of the airline operations

research community will be to deliver

next-generation scheduling and plan-

ning tools that meet the prevailing

needs of the industry and offer further

opportunities for improved efficiencies,

enhanced productivity and increased

attention to the impact on the airline’s

passengers.

Michael Clarke is a research

and development lead in

the research group supporting

Sabre Airline Solutions.

By Erin Buth | Ascend Contributor

United Airlines successfully utilizes multiple Sabre Travel Network distribution products to maximize revenue-generating opportunities and manage distribution costs.

“Lowering distribution costs is a key

component of our strategic plan to

reduce expenses.”

The airline integrated recovery model

incorporates various departments

within an airline to develop a more

optimal solution to recover from

schedule disruptions.

Through the Direct Connect Availability — Three-Year Option, United Airlines offers

its customers access to all published fares, including Web fares, through the travel

agency channel.

Ph

oto

s co

urt

esy

of

Un

ited

Air

lines

company

competitive fare data allowing United

to monitor its own pricing initiatives

against what its competitors are selling

in the same markets. The system pro-

vides airlines with all ticketing activity

in the Global Distribution System

excluding passenger personal data,

corporate, agency and commission-

related elements. The system is an

affordable element of marketing

research that provides insight into

how United’s advance sales compare

to that of the competition. The data

is invaluable for making decisions on

pricing promotions and viewing how

the market is selling.

“Lowering distribution costs is a

key component of our strategic plan

to reduce expenses,” said Greg Taylor,

senior vice president of planning for

United. “We saw the opportunity to

use a variety of Sabre Travel Network

products to accomplish this while

continuing the highest level of service

to our customers.”

By utilizing multiple tools, United

has been able to maximize revenue-

generating opportunities and manage

distribution costs, enabling it to sustain

long-term cost benefits.

Erin Buth is a sales marketing manager

for Sabre Travel Network.

News Briefs from Around the Globe

Who

American Airlines, Continental

Airlines, Delta Air Lines, Northwest

Airlines, United Airlines

What

Elected to participate in the Sabre ®

Direct Connect Availability SM — Three-

Year Option, which commits the carriers

to a three-year term at the highest level

of participation in the Sabre ® Global

Distribution System in exchange for a

reduced booking fee rate that is fixed

for three years. As part of the agreement,

the airlines will provide all published

fares, including fares they sell through

their own or third-party Web sites, to

all users of the Global Distribution

System, including more than 56,000

Sabre Connected SM online and offline

travel agencies. The program now

includes bookings made in the United

States, U.S. Virgin Islands, the

Caribbean and Europe.

Why

American — “Lower distribution

costs plus broader availability of our

fares to the largest subscriber base

means Sabre DCA is a real winner

for American,” said Craig Kreeger,

American's vice president-sales.

“Innovative solutions for today’s

marketplace make Sabre Travel

Network our preferred GDS provider.”

Continental — “Providing travelers

the maximum level of customer serv-

ice is the highest priority for us,” said

Jim Compton, senior vice president

of marketing for Continental Airlines.

“This program improves our ability

to do that by offering customers access

to all published fares, including Web

fares. It also helps us meet a key

business objective to further reduce

distribution costs. We recognize the

effectiveness of the Global Distribution

System, which offers one of the highest

yielding channels.”

Delta — “Through this new partner-

ship, we will give our customers added

flexibility, choice and convenience through

broader multi-channel access to our pub-

lished and Web-only fares,” said Lee

Macenczak, Delta’s senior vice president,

sales and distribution. “The program

also allows us to further reduce distri-

bution costs and reflects our confidence

in the value of the Global Distribution

System and its operating efficiencies as

a high-yield channel.”

Northwest — “Participating in the

Sabre DCA Three-Year Option enables

us to meet the important goal of low-

ering distribution costs while serving

travelers through multiple channels,”

said Al Lenza, vice president of distri-

bution and e-commerce with Northwest

Airlines. “This new initiative demon-

strates Northwest’s efforts to make all

our publicly available fares and content

available where it is economically

viable for us to do so.”

United — “It will provide our cus-

tomers with a full range of our fares in

a cost-effective manner for all parties,

while allowing us to significantly reduce

our distribution costs at the same time,"

said Greg Taylor, United Airlines’ senior

vice president-planning.

T H E H I G H L E V E Lvıew

Optimal performance for airlines and airports

These are unprecedented times in the air transport industry. But there’s one thing you can count on. Sabre Airline Solutions will be here, providing innovative technology solutions for your toughest challenges. Just as we have through five decades — in good times and in bad — for more than 200 airlines worldwide.

Times like these demand fresh thinking. Proven, ROI-based solutions. And a technology partner that can not only see the future, but can help you reach it. Times like these demand Sabre Airline Solutions. www.sabreairlinesolutions.com

proven

makingcontactTo suggest a topic for a possible

future article, change your address

or add someone’s name to the mail-

ing list, please send an e-mail mes-

sage to the Ascend staff at

wearelistening@sabre.com.

For more information about prod-

ucts and services featured in this

issue of Ascend, please visit our

Web site at www.sabreairlinesolu-

tions.com or contact one of the fol-

lowing Sabre Airline Solutions

regional representatives:

Asia/Pacific

Mike Baldwin

Senior Vice President

Level 9, Phillips Building

15 Blue Street

North Sydney NSW 2060

Australia

Phone: 61 2 8923 5230

E-mail: mike.baldwin@sabre.com

Europe, Middle East and Africa

Vinay Dube

Vice President

23-59 Staines Road

Somerville House

Hounslow, Middlesex

TW3 3HE, United Kingdom

Phone: 44 20 8814 4540

E-mail: vinay.dube@sabre.com

The Americas

Walter Jacobs

Vice President

1 E. Kirkwood Blvd.

Southlake, Texas 76092

United States

Phone: 817 264 7657

E-mail: walter.jacobs@sabre.com

www.sabreair l inesolut ions.com