2007 Issue 2 - Sabre Airline Solutions

2 0 0 7 I s s u e No. 2
A Maga z i n e f o r A i r l i n e E x e c u t i v e s
t a k i n g
y o u r
ai r l i n e
t o
n e w
h e i g h ts
The Power of Partnering
A Conversation with
Abdul Wahab Teffaha,
Secretary General
Arab Air Carriers
Organization.
Special Section
insiDe
Airline Mergers
and Consolidation
21
Carriers can quickly recover
from irregular operations
46
Singapore Airlines makes
aviation history
74
High-speed trains impact Europe’s airlines
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2007 Issue No. 2
Editors in Chief
Stephani Hawkins
B. Scott Hunt
3150 Sabre Drive
Southlake, Texas 76092
www.sabreairlinesolutions.com
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Art Direction/Design
Charles Urich
Design Contributor
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Ben Williams
Contributors
Allen Appleby, Jim Barlow, Edward
Bowman, Jack Burkholder, Mark Canton,
Jim Carlsen-Landy, Rick Dietert, Vinay
Dube, Kristen Fritschel, Peter Goodfellow,
Dale Heimann, Ian Hunt, Carla Jensen,
Brent Johnson, Billie Jones, Maher Koubaa,
Sandra Meekins, Nancy Ornelas, Lalita
Ponnekanti and Jessica Thorud.
Publisher
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Communicators Bronze Quill.
2004, 2005 and 2006 Awards for Publication
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or suggested topics for future articles, please
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contents
8
One Size Fits all
Airlines are making preparations for
the Airbus A380.
Dreamliner set
12 for
Takeoff
The Boeing 777 Dreamliner is
perhaps the aircraft manufacturer’s
most innovative creation.
16 Sport Tourism Soars
Sporting events can drive
significant revenue.
18 Analyze This
Airlines must use three vital
components for effective decision
making.
special section
profile
industry
54
54 Recipe for a Merger
42 The Power of Partnering
Under the proper circumstances,
airline mergers can be
successful.
AACO has helped unite Arab
carriers so they can leverage their
strengths.
59 To the Core
Singapore Airlines:
46 A True Pioneer
Singapore Airlines makes aviation
history by introducing the Airbus
A380.
Some airlines are selling parts of
their organizations and getting
back to their core competency.
61
It’s not Business Class,
49 it’s Eos Class
Eos offers an extraordinary
end-to-end travel experience.
Boom and Bust
Private-equity companies are taking
an interest in airline ownership.
46
63 A Bold GOL
GOL Airlines assumes ownership
of Brazilian rival Varig.
perspective
21 Bouncing Back
Carriers can quickly recover from
irregular operations.
23
The Big Three
Airlines can concurrently cut
costs, generate revenue and
retain customers.
27 Low Cost for the Long Haul
Can low-cost carriers really make
a profit on long-haul flights?
30
Who’s Cheating You?
The right technology can help
airlines fight fraud.
32
Passenger Bill of Rights
Laws regarding flight delays need
to be clear and fair to all parties.
36 Growing Like Wildfire
Emerging countries are
experiencing rapid growth.
39
In Sync
Integration can lower costs, increase
revenue and boost customer loyalty.
ascend
32
I
s consolidation good for the airline industry? It’s a question that seems to be filling more and more of our conversations, yet doesn’t seem to lend itself to an easy answer.
Although we’re talking about consolidation, we haven’t
reached a consensus on how it could impact air transport. Opinions
on the subject are certainly mixed — both inside and outside
the industry — about the benefits of reducing the overall number of airlines. Opponents of airline mergers point to the difficulty
of combining fleets, employees (and associated labor contracts)
and cultures of two airlines. Proponents emphasize the synergies
derived from eliminating duplicate functions, such as maintenance
or corporate functions, while instantly creating a stronger network.
company
regional
products
contents
74
90 Disaster Recovery
66 Maximizing Manpower
70 Conquering Chaos
74 Fast Track
The right resources and tools
help airlines smoothly introduce
new aircraft types.
Robust decision-support tools can
help airlines quickly recover from
schedule disruptions.
High-speed trains have a substantial
impact on Europe’s airlines.
The Sabre Holdings® company
enhances its disaster recovery
program.
73
Virtually There
Airlines should ensure customers
receive up-to-date, real-time flight
information.
79 Musical Chairs
U.S. regional carriers have
become prominent forces.
After being purchased, Sabre
Holdings can more closely focus
on providing state-of-the-art
technology.
68 The Focal Point
Using an ASP gives carriers the
technological backing necessary
to optimally run their airline.
82
91 Going Private
Countdown to Beijing
Beijing’s travel industry is gearing
up for the 2008 Olympic Games.
68
86
Opening the Skies
Open skies between Europe and
the United States give carriers
more trans-Atlantic flying freedom.
with Tom Klein
91
Group President, Sabre Airline Solutions/Sabre Travel Network
U.S.-based industry analyst Ray Neidl has said he’s “not a fan
of airline mergers” because of the various challenges they present.
“They’re very costly and very messy,” he said. But Terry Trippler, another
industry analyst, said “a merger can streamline an entire operation.
“So even though you have fewer seats that you’re offering, you
can lower your prices because your seat cost per mile has dropped,” he said.
A
number
of
other
arguments
for
and
against consolidation focus on the effect on travelers.
“It’s economics 101,” said Jerome Chandler, a contributing editor to Frequent Flyer magazine. “If you have fewer
players in the industry, you are going to have higher fares. It’s
almost inevitable. Mergers are about what’s good for the airlines — not necessarily what’s good for the consumers.”
On the other side, Clyde Prestowitz, president of the
Economic Strategy Institute, has said because of the “unique dynamics of airlines’ networks,” consolidation would lead to “an increase
in competition and more choices for consumers, which is hardly the
doom-and-gloom scenario that some people propose would take place.”
So, what is the answer? In some cases, it depends on
who you’re talking to. Ask someone like Doug Parker or JeanCyril Spinetta, both of whom have overseen successful mergers, and you’d likely hear that consolidation is a good thing. Talk
to some airline executives who’ve struggled to integrate pieces
into a coherent whole, and you might get a different answer.
Regardless, it’s an issue that will not go away any time
soon as evidenced by the amount of activity in the industry. In
recent months, Berlin, Germany-based budget carrier Air Berlin purchased Duesseldorf-based charter operator LTU, making it Europe’s
fourth-largest carrier in terms of traffic. It has also acquired 49
percent of Switzerland’s Belair, and in early 2009, the airline plans
to expand even further when it acquires a 75.1 percent share
of Condor from Thomas Cook. The remaining 24.9 percent share
in the Germany-based no-frills airline will be purchased in 2010.
With the goal of dramatically expanding the market for low-cost,
long-haul travel, AirAsia X recently announced a 20 percent investment by
Virgin Group. Icelandair Group signed a letter of intent to acquire Czech
Republic’s largest private airline, Travel Service. Northwest Airlines will
invest US$213.3 million in its part of TPG Capital’s buyout of Midwest
Air Group, which was previously sought after by AirTran Airways. And
Brazil’s GOL made a bold move when it purchased top competitor Varig.
The list of current and prospective mergers and acquisitions goes
on and on, and it changes frequently, but it’s not just about who’s saying “I do.”
In the right circumstances, mergers can result in a stronger, healthier industry. And our consulting practice can help airlines
determine when it makes sense as well as identify potential partners.
In our special section, we take a look at several issues airlines should consider when choosing a partner — different fleet types, cultures, labor agreements, etc.
And we also examine different types of money-making activity.
We hope you enjoy this issue, and we look forward to visiting
with you again in the coming months.
Wishing you smooth skies …
ascend
by the numbers
Changes in Inter-Asia available seats
have declined from 14 percent in 2004 to 6
percent in 2006, while Intra-Asia service has
slowly risen.
}
Intra-Versus Inter-Asia Service Changes
Year-Over-Year Change in Asia Departing Seats
Intra-Versus Inter-North American Service Changes
{
The pace of growth in available
seats for inter-North American markets
slid from 6.5 percent in 2004 to 2.3 percent in 2006. Intra-North American service declined to -2.5 percent in 2006.
-
Increases in available seats to
destinations outside of Europe (interEurope) have consistently outpaced service changes within Europe (intra-Europe)
during the past three years.
ascend
}
Intra- Versus Inter-Europe Service Changes
by the numbers
2006 Intra-Continental Low-Cost Carrier Profile
Network carriers in Asia
still dominate the top Intra-Asia
markets. As in North America
and Europe, Asia’s aviation environment is rapidly changing. Last
year, more than 130 carriers
served Intra-Asia. Of those, 35
percent were LCCs serving 12
percent of the available seats.
}
Network Versus Low-Cost Carriers
Intra-North American Seat Changes
Inter-North America Capacity Trend
-
}
Intra-Europe service increases are
dominated by low-cost carrier service
changes. All carriers’ pace of growth has
steadily declined during the past three
years.
{
Intra-North
American
service
increases were dominated by low-cost
carriers. Network carrier service changes
steadily declined to -5 percent in 2006.
Intra-Europe Service Changes
Network Versus Low-Cost Carriers
Intra-Europe Capacity Trend
ascend
One Size Fits all
By John Popolizio, Edward Mandell, Rahul Srivastava and Giles O’Keeffe | Ascend Contributors
Whether it’s configured to seat 490 passengers or more than
800, the new Airbus A380 has arrived and airlines that plan
to operate it are making preparations to work it into their
fleet mix.
All photos courtesy of Airbus
8 ascend
industry
S
tarting with the early stages of development in 1994 and through numerous delivery delays, the Airbus A380
“super jumbo” has made its worldwide
promotional tour and route-proving runs, and
its launch customer, Singapore Airlines, has
recently taken the extra-large bird into flight
(see related article on page 46).
Because of its enormous size — carrying between 490 and 550 passengers in
a three-class configuration — the A380 has
been in the spotlight more prominently than
the introduction of any other new aircraft
in history. And future models of the super
jumbo jet are planned to serve more than
800 travelers in a single-class configuration.
The sheer size of this aircraft calls for
changes across the entire aviation industry,
and while some of these changes present
challenges for many of the world’s airlines,
they can be overcome, and those operating
the new aircraft can do so successfully.
Crew Optimization
How many professionals does it take
to fly and serve up to 550 passengers for
flight times of up to 16 hours? The A380
does not fly greater distances than the
Airbus A340-600 or the Boeing 747-400
— approximately 7,500 to 8,000 nautical miles. Because of these range limitations, the current planned utilization for the
A380 is on established routes where extra
capacity is needed or on long-range “flagship” routes. Keeping in mind how carriers
intend to utilize the aircraft, most current
regulations related to crew flight/duty fit
the requirements for carriers operating the
A380 to fly with no major additional restrictions. Flight and cabin crews already fly on
the same non-stop routes as the A380 is
intended.
So what is the issue, and why is
crew optimization a concern? There are
no major issues for flight deck headcount.
The true concern is with cabin crew, which
stems from the increased seating capacity
of the super jumbo. The new aircraft will
likely replace the A340-600 (with maximum
capacity of 380 seats with three classes of
service or 419 seats with two classes) and
the Boeing 747-400 (operating a maximum
of 416 seats and three classes of service
or 480 seats with a single class). At 550
seats, the A380 offers an increased capacity of 33 percent. Based on most federal
regulations, minimum cabin crew requirements are based on one cabin attendant
for every 50 passenger seats (occupied or
not). The A340-600 and Boeing 747-400
utilize an average of 12 to 17 cabin attendants. Given the increased seat capacity
and extra amenities planned by many carriers that will operate the A380, 22 to 27
cabin attendants will be required. This is
Los Angeles, California, Mayor Antonio Villaraigosa welcomes the A380 on its first visit to
the U.S. West Coast following the aircraft’s landing at Los Angeles International Airport on
March 19.
an average addition of eight cabin crew
per flight.
While increased cabin attendants presents challenges, the primary issues for many
of these start-up A380 carriers has been
two-fold:
1.The technical limitations of current systems,
2.Limited frequencies due to the initial delivery stages of the A380’s implementation
into the carriers.
Both these issues put a strain on achieving significant or true optimization.
One solution involves programming changes
that take into account new requirements and
can focus on improving the overall utilization
of crews. Some carriers have looked for
completely new optimization solutions that
can be integrated with their other crewing
modules. Yet others took advantage of this
opportunity created by adding the A380 to
entirely replace their crewing tools across
the board. Either way, a large financial and
manpower investment has taken place to
prepare for the new aircraft.
Technical Limitations
It’s a simple equation — the smaller
the fleet size plus less amount of frequency equals less optimization opportunity.
Because Airbus is only capable of producing 12 to 15 aircraft a year in the initial
stages — there are more than 150 orders
to date, and the delivery schedule in many
cases is staggered — airlines will not have
all their fleet orders in at once to provide
greater opportunity for optimization, meaning A380s will be scattered across the
entire flight schedule, mixed in with the
other heavy, long-range fleet. This problem
is unfortunately unavoidable, causing most
airlines to manage as best they can until
they have added a number of the new
aircraft.
There have been many other challenges on the crewing side, including training issues such as upgrading and backfilling while keeping the airline operationally
sound through the process. And there is
always the issue of safety.
Current technical solutions cannot
account for headcount increases per flight
and/or additional aircraft types. When most
carriers implemented their current optimization systems, they included the maximum
amount of crewmembers the system could
accommodate based on the airline’s specific operation. In most cases, this was
based on the largest or longest-range aircraft, whichever required the most crew
and most stringent restrictions. This created
technical issues with the systems’ capability to produce solutions that incorporate all
aircraft types and allow for true optimization.
In many cases, solutions can identify an
increase in underutilized cabin attendants
without consistent schedules. This increase
is in large part due to the increased hiring on
the cabin side because of the increased crew
demands for the super jumbo.
The solutions vary according to the
carrier and its existing optimization tools.
Limited Frequencies
ascend 9
industry
In March, the A380 visited Hong Kong during its second technical route proving trip to
demonstrate its ability to operate on a continuous schedule representative of standard
commercial service.
No one can deny that travel by air is
the safest mode of transportation. However,
accidents and safety-related incidents can
and will happen. The A380 will be delivered
with many built-in safety features that are
designed to protect the occupants of the
aircraft in the event of an emergency. One
feature is aircraft fire protection.
Airbus has taken the lead to assure
the A380 has the best available fire protection. The new state-of-the-art material
called Glare is now being used by Airbus
as a fire protection feature on the upper
fuselage external panels on the A380. The
U.S. General Accounting Office reports that
normal aircraft aluminum skin can withstand
the penetration of a fire caused after an aircraft accident for up to one minute. Testing
has determined that Glare can withstand
the same fire for up to 15 minutes before
penetration occurs, thus providing for more
occupant fire protection. Studies have been
conducted by government agencies regarding the need to review airport rescue and
fire fighting equipment and the techniques
capable of assisting passengers and crew of
an A380 in trouble. Despite all of the latest
safety features and techniques available, the
nature of probability suggests the Airbus
A380 will not be immune to accidents and
other safety-related incidents that affect the
health and well being of passengers.
The European Aviation and Safety
Agency along with the U.S. Federal Aviation
Administration certified the A380 for up to
853 passengers plus crew. All 853 passen10 ascend
gers plus crew were able to safely evacuate
the aircraft in 78 seconds during certification,
a sobering result when considering an emergency and the need to activate an airline’s
emergency response organization.
Statistics identify that an airline can expect
up to 75 calls per passenger after the airline has
notified the public that it has encountered an
emergency event that may affect the safety of
passengers on a specific flight. An airline’s ERO
may need to handle more than 65,000 enquiries
regarding passengers potentially affected by an
emergency situation in a multi-cultural environment. In the case of multiple emergencies, the
airline must be able to effectively manage the
situation while still being able to operate its
scheduled service.
History has validated the notion of a solid
link between properly managed responses to
an emergency and the protection of assets
and business reputation. The A380 requires
operators to consider new and improved ERO
capabilities using a variety of technological solutions and practices.
Solutions for any airline to handle such
emergencies began with the analysis of the
current state and capabilities of its ERO. The
overall analysis should consider five key points:
1.The airline’s commitment to provide the
highest level of professional response;
2.The airline’s ERO structure, ability and overall knowledge to minimize the impact and
consequences of an emergency;
3.Effective executive controls that are in
place and have been operationally tested
prior to an emergency;
4.ERO alignment with best practices;
5.The airline’s ability to manage the emergency as well as ongoing operations.
A systemic analysis of the ERO
includes the review of various elements such
as structure, human support plans, training, live exercise review, available facilities
and the technology available to support the
airline while it is in crisis mode. The airline’s
ability to respond to the emergency and support ongoing operations during the first hour
(golden hour) after the emergency has been
declared is another key aspect. Typically,
airlines that have well-executed starts during the golden hour can minimize the effect
of the emergency on the total operation as
well as reduce overall recovery time from
the emergency. Plans can be developed to
help bridge the gap between the current
state and the ideal state of readiness for the
ERO. Once these identified areas have been
addressed, the ERO should again test its
procedures and validate the results. It should
become a continuous cycle for the airline.
EROs should adopt standardized practices that help cut costs and achieve balanced
responses to emergencies quickly. Special
attention should be given to codeshare relationships. Recent articles suggest the A380
will be perfect for capacity consolidation on
high-density routes. Operators must also
prepare for excess capacity, which can be
handled on preferential routes through codeshare agreements. Airlines involved in codeshares must consider several factors:
Which airline has the overall responsibility
for the customer?
Which brand is at stake?
Whose values and professional response
will count?
It is a daunting task when considering
all of the elements of an ERO and the need
for an airline to be at its best when it is
affected by an emergency situation.
One thing will always remain clear in
the case of an emergency; the final result
will depend on how well the airline is prepared to handle these serious and potentially
life-altering events.
Enroute Separation
There have been concerns that the jet
blast from the A380 engines could be dangerous to ground vehicles and airport terminal buildings. The A380 produces more wake
turbulence during take off and landing than
existing aircraft types, requiring increased
approach and departure spacing. In 2005,
the International Civil Aviation Organization
recommended separation criteria for the
A380 should be greater than the Boeing
747-400. A working group concluded that
an aircraft trailing an A380 during approach
needs to maintain a separation of six nautical
miles, eight nautical miles and 10 nautical
industry
During this year’s Airbus A380 World Tour 2007, the new super jumbo visited Taipei, China, after stops in Tokyo, Japan, and Sydney,
Australia.
miles respectively for ICAO “heavy, medium
and light” aircraft categories instead of the
traditional spacing of four nautical miles, five
nautical miles and six nautical miles.
Air traffic congestion is rising to an
alarming level. The percentage of delayed
flights is increasing every year, making air
travel more frustrating and time consuming.
Congestion and delays not only discourage
air travel but also reduce productivity and
damage the health of national and world
economies. The critics of the A380 may
argue that the increased separation distance
will lead to reduced capacity of air traffic,
which is already struggling due to capacity
constraints and worsened by the air navigation system’s inability to modernize and
move toward a satellite-based navigation
system.
Diversions
Airlines are often challenged by diversions, and in the instance of the A380, some
situations call for unique planning and action.
For example, an A380 inbound to Memphis,
Tennessee, is advised that there is another
aircraft inbound with a possible gear problem.
The troubled aircraft will be allowed to land
on runway 18C Memphis, which happens
to be the only piece of concrete the A380
can use. The A380 crew discusses the issue
with the airline’s dispatcher, and two options
are suggested: the aircraft with the problem
lands on runway 18C without incident or it
lands on runway 18C and parks there for a
long time. That gives the A380 two choices:
a routine termination at Memphis or a diversion to some other airport.
Not every airport can accept the
A380. An aircraft of this size simply cannot
land at any airport; the runway has to be
approved for that aircraft type, and the entire
airport surface has to be analyzed for clearances, obstacles, load-bearing, etc. There
are several places the A380 will not be able
to taxi without having a possible wing clip
of another aircraft on the nearby runway,
for example. The air carrier has to have the
diversion airport in its operations specifications, which presumes that such things as
ground handling and support equipment,
parking spot or gate, tug, fueling, and catering have been arranged in advance.
Even if all that has been addressed,
there is still the issue of what to do with
550 passengers who are dumped into an
airport and a crew that is out of duty
time for the day. An airline will not have a
reserve crew at that alternate airport, so
passengers are going to have to be put on
other flights, if available, or hotel rooms
will have to be arranged on short notice.
And, if the aircraft diverts from Memphis, it
could very well end up in Dallas, Texas, or
St. Louis, Missouri, or perhaps as far away
as Los Angeles, California. When a Boeing
737 flight diverts from Chicago, Illinois,
to Milwaukee, Wisconsin, the airline can
arrange for busses to take passengers and
luggage back to Chicago. If an A380 has to
divert from Memphis to Dallas, a quick bus
trip for 550 people is not likely.
The A380 is well equipped to land in
very low visibility. It will handle such things
as slippery runways as well as other transport category aircraft. But when the unusual
happens and the only legal runway at the
destination is suddenly unavailable, tactical
decision making may result in large numbers of unhappy passengers. This will be a
rare occurrence, of course, perhaps slightly
less rare at airports that experience disruptive winter storms that cause 30- to 60-minute runway closures for snow removal, with
little advance notice. In those scenarios, it
will be crucial for the airline dispatcher to
negotiate in advance with air traffic control
facilities and airport operators to ensure
that the one piece of concrete that the A380
is capable of using for landing is in a suitable condition when the aircraft arrives. a
John Popolizio, Edward Mandell,
Rahul Srivastava and Giles O’Keeffe
are senior management consultants
for Sabre Airline Solutions ® . They
can be contacted at john.popolizio@
sabre.com, edward.mandell@sabre.
com, rahul.srivastava@sabre.com
and giles.o’keeffe@sabre.com.
ascend 11
industry
Dreamliner
S E T
F O R
T A K E O F F
Some people may have thought Boeing’s best
years as an aircraft trendsetter were long gone
— but those people may have to think again.
By Phil Johnson | Ascend Staff
12 ascend
All photos courtesy of Boeing
D
uring the past several years, various
aerospace analysts hinted that Boeing
Co.’s most prolific era as an innovator and
trailblazer in commercial aircraft may have been
behind it — that the halcyon days of creativity
and imagination that brought the world’s airlines
the Boeing 707, 747, 777 and other popular
models were long past.
But if that were ever really the case, it’s
now time to make way for a throwback to the
days of yore — because Boeing’s latest and
perhaps most innovative commercial aircraft
creation is arriving in the form of the Boeing 787
Dreamliner. And even though Boeing won’t make
its first production 787 delivery until late 2008, it
is taking orders for the new and unique aircraft at
a pace that outdistances any sales achievements
the venerable air-industry manufacturer has ever
accrued (and that’s saying a lot).
How did Boeing manage to gain this success when it had essentially appeared to lose
most of the battles to its mega-European-consortium competitor Airbus in recent years? And
is there really a collection of Boeing 787 features
that are, at bottom line, all that special?
The answer to the second question is
clearly yes.
And the answer to the first question might
be appropriately summed up in a hypothesis
revolving around the fact that Boeing refused to
take its second-place status lying down — even
amid a succession of sudden changes at the
top as well as a corporate headquarters shift to
Chicago, Illinois, from the company’s long-time
operational base in Seattle, Washington, where,
incidentally, most of Boeing’s manufacturing and
many of its marketing operations remain.
What the 787 is in the process of doing
for Boeing may be akin to the mythical phoenix
rising from its charred remains — although it may
be effectively argued that Boeing as a company
never actually sank quite that far.
The Boeing 787 will be the first commercial airliner to comprise as much as 50 percent
ascend 13
industry
composite materials, the significance of which
may be starting to sink in for the world’s
airlines, including the many carriers that have
already placed orders for the 787 in addition
to many more airlines that are still seriously
considering the aircraft.
One of the key things that composites
achieve — as opposed to their primary antecedent, aluminum — is to save potentially
gargantuan percentages of weight. The less
an aircraft weighs, the farther it can fly on
a given quantity of fuel, which affords the
Boeing 787 another couple of advantages:
than building the plane piece by piece from
the ground up.
Among the advantages Boeing will gain
in this “modular” manufacturing approach
will be the capability to build each 787 in
just three days’ worth of final assembly in
contrast to the 10 to 14 days or more that
are normally required for commercial aircraft
of comparable size.
With the advent of the Boeing 787,
passengers figure to be in for the air-travel
ride of their lives. They will be treated to
comforts and amenities they’ve never previ-
On July 8, nearly 15,000 Boeing employees, airline customers, supplier partners and government officials attended a one-hour ceremony in Everett, Washington, to celebrate the unveiling of the Boeing 787 Dreamliner.
much greater range and the promise of
potentially huge savings on fuel costs.
And make no mistake: The unprecedented use of composites in the 787 does
not come at the expense of strength, and
meticulous engineering calculations along
with direct measurements indicate to Boeing
designers that the composite components
are in many ways stronger than their metallic-component predecessors.
Furthermore, manufacturing operations in assembling the Boeing 787 will be
much more “modular” in nature than for any
previous commercial aircraft.
For example, the 787’s final-assembly process that will occur in Everett,
Washington, will primarily involve putting
together modules (in other words, entire
chunks of the aircraft) that themselves have
been manufactured and assembled in a
number of locations around the world, rather
14 ascend
ously dreamed of (but that shouldn’t come
as a total surprise — after all, this is the
“Dreamliner”).
From the largest overhead-storage
bins ever designed — big enough to fit four
roller-type carry-on bags in each bin — to the
largest windows on a commercial aircraft, to
“mood” lighting in the passenger cabin that
will help ease the passage of time aboard
flights to intercontinental destinations, the
aircraft is set up to help each airline that flies
the 787 utterly delight its passengers.
A window-seat passenger will be able
to selectively dim or completely close the
window by pressing a button located directly
beneath the window to “feather” the amount
of light the passenger desires to be streaming in from the outside.
Also, finely filtered interior air and
pressurization at an altitude equivalent of
6,000 feet instead of the common 8,000 feet
are intended to help passengers more easily
cope with the flying experience.
Further in-flight passenger comfort is
enhanced through installation of a sophisticated
software/hardware-control system Boeing calls
“vertical gust suppression” that will automatically adjust outside aircraft surfaces to better
counteract the effects of any turbulence that
may be encountered during a flight.
Environmentally speaking, the Boeing 787
is designed to be by far the quietest aircraft of
its size (or even considerably smaller). From the
quiet-operational efficiencies of its dual engines
to its highly fuel-efficient aerodynamic and other
design characteristics, the 787 is intended to be
the most advanced commercial aircraft ever to
take to the air.
Along with lower fuel usage, the 787 is
designed specifically for lower carbon-dioxide
and other potentially harmful emissions, with
a lessened drag coefficient and lighter components featured throughout the aircraft.
Boeing states that crew-training procedures to achieve full competency in operating
the 787 will encompass just five days beyond
the normal training time for pilots and copilots to
fully qualify to fly and navigate the Boeing 777.
And 787 maintenance — particularly due to
the aircraft’s larger composite parts, as opposed
to many smaller metallic parts — promises to
be simplified and streamlined and therefore less
expensive.
Depending on its specific configuration,
the Boeing 787 is designed to quietly and efficiently fly routes as long as 8,500 nautical miles
— a distance that is expected to open up a number of new nonstop-flight possibilities among the
world’s most-desired destinations for mid-size
commercial aircraft.
And that brings up another important
quesion: Exactly where does the 787 fit among
Boeing’s current coterie of aircraft models?
The 787 will basically be a replacement
for the comparably sized 767, which remains in
production but is likely to fade from the Boeing
manufacturing dossier once 787 assembly ramps
up to full production.
In other words, the 787 is to be Boeing’s
new entry in the “mid-size,” dual-aisle class
of aircraft that carry about 210 to as many as
330 passengers, depending on precise aircraft
configuration (the 787 will be offered in at least
three and probably four or more distinctly different configurations).
Carrying a greater number of passengers
than the 787 is the Boeing 747, which has
achieved distinguished decades of service as the
first globally successful “jumbo” jetliner, defined
as capable of carrying 400-plus passengers.
Also larger than the 787 is the wide-body
Boeing 777, which is designed to carry between
about 300 and 370 passengers, particularly on
long-haul routes.
And smaller than the 787 is Boeing’s
workhorse 737, the narrow-body, single-aisle
industry
aircraft that is an old reliable fixture at a very large
percentage of the world’s airlines, and is variously configured to carry anywhere from about
100 to perhaps 160 or more passengers.
Among all of these aircraft models, the
Boeing 787 is expected to stand out prominently as an environmentally efficient, passenger-pleasing, highly comfortable, mid-size
long-haul aircraft that will connect numerous
attractive worldwide destinations and become
familiar to a multitude of people around the
globe — perhaps more so than any previous
commercial aircraft.
Airlines that have committed to orders for
the Boeing 787 — and total orders have already
Highlight
With the advent of
the Boeing 787, passengers figure to be
in for the air-travel
ride of their lives.
They will be treated
to comforts and
amenities they’ve
never previously
dreamed of ...
Broadcast live via satellite worldwide and webcast, the event introducing the Boeing 787
Dreamliner potentially reached more than 100 million or more viewers.
reached more than 700 aircraft, even though first
production delivery is still close to a year away
— include All Nippon Airways, Qantas Airways,
Virgin Atlantic, Singapore Airlines, Korean Air,
Northwest Airlines, Continental Airlines, Air
New Zealand and Air Canada, among a large
and continually growing number of others.
Boeing, in short, expects the 787 to set a
standard of excellence in all comparative aspects
against which other aircraft models — its own
as well as competitors’ aircraft — will be measured for years to come. a
The Boeing 787 is an all-new, technologically advanced and environmentally progressive airplane, scheduled to enter passenger service in 2008 with Japan’s All Nippon Airways.
Phil Johnson can be contacted at
wearelistening@sabre.com.
ascend 15
Sport Tourism
Soars
industry
Sporting events such as the
Olympic Games and World Cup
tournaments can drive
significant revenue for the
travel and tourism industries.
By Lynne Clark | Ascend Staff
16 ascend
mittee, confirmed the event was a financial
success. Fans spent US$3.82 billion during
the tournament, according to a study by
Mainz University, part of the US$5.18 billion
Photo by shutterstock.com
L
ast year, an estimated 3 million foreign
and national visitors traveled between
June 3 and July 9 on Germany’s highways, railways and airways in their quest
to watch at least one of the 2006 World
Cup tournament matches. Most experienced
smooth travel, clean hotels, and plentiful food
and drinks.
Preparing for the month-long international sporting event took six years at a
cost of US$7.7 trillion. Counted in that cost
were expanded and new roadways around
and between match cities, as well as a
US$900 million multi-level central train station
in Berlin.
Throughout preparations, German
authorities were upbeat about the economic
benefits of the tournament. After five years
of stagnation, the country expected a 1.6 percent increase in its gross domestic product in
2006, with analysts saying a half-percent of
that would be because of the World Cup.
The hotel and catering industry anticipated additional earnings of about US$650
million. An estimated 60,000 jobs were created nationwide, with 20,000 of those remaining after the tournament ended.
One year following the soccer tournament’s opening game, Franz Beckenbauer,
president of the World Cup organizing com-
Millions of sports enthusiasts travel to all corners of the world each year to play the
spectator role in a variety of sporting events. For airlines, airports, rail systems, hotels
and a variety of other travel-related companies, the rush in traffic may require a lot of
preparation, but they may result in sizeable pay offs.
industry
Photo by shutterstock.com
the World Cup is estimated to pump into the
country’s economy through 2008. That will
generate US$1.69 billion in taxes, the study
concluded.
Significant to the international travel
industry, 1.3 million foreign visitors to the
World Cup spent more than US$1.3 billion.
Sport and Tourism Growth
There is much academic debate on how
well host cities fare following completion of
a hallmark sporting event. But even academics agree tourism is a big winner, no matter
where the event takes place.
Sport tourism is a multi-billion dollar
business, one of the fastest-growing areas
of the US$4.5 trillion global travel and tourism industries. A study conducted by Sports
Business Group, LTD indicates that travel
and tourism is expected to be more than
10 percent of the global gross domestic
product by 2011. The economies of cities,
regions and even countries around the world
are increasingly reliant on the visiting golfer
and skier or the traveling football, rugby or
cricket supporter. In some countries, sport
can account for as much as 25 percent of all
tourism receipts, the study reveals. The sport
tourist is at the heart of strategies that spend
tens of millions of dollars on attracting an
Olympic Games or World Cup. Australia spent
US$1.7 billion of government money on the
2000 Olympics and reaped a 10-year legacy
of sport tourism that makes up part of the
US$4.3 billion in added currency bought by
the Games. These flagship events help build
new transport systems, improve airports and
clean up cities — all because the sport tourist
is coming to town.
Corporate Sponsorships Promote
Business Relationships
Opportunities exist for governments
and the private sector to seize the extraordinary opportunity afforded by “mega events”
occurring throughout the world. One of the
most obvious opportunities is through corporate sponsorships.
In the 2000 Sydney Olympics, Qantas
Airways became the “official airline” of the
Games and built brand awareness with its
slogan “The Spirit of Australia.” The slogan
fused seamlessly with the games’ slogan,
“Share the Spirit.”
Like game participants, corporations
must prepare for years to take advantage of
their multi-million dollar sponsorships. They
must work closely with organization planners
developing a partnership that is mutually
beneficial.
When General Electric Co. paid nearly US$200 million in 2003 to become an
Olympic sponsor for the first time, it had an
even bigger goal in mind: the 2008 Summer
Games in Beijing.
Beijing, China, expects to invest nearly US$40 million in preparation for the 2008 Olympic
Games. A good portion of the investment will go toward supporting travel and transportation needs such as building a new airport terminal and subway system.
The hefty sponsorship fee covered
four Olympic Games through 2012, but
GE was particularly interested in playing a
role in Beijing. The Fairfield, Connecticut,
conglomerate sees the Games as an opportunity to showcase its technology and products — from water filtration to lighting and
security systems — in China’s big, rapidly
growing economy.
GE is just one of a pack of global
giants — some Olympic sponsors and some
not — hoping to tap an Olympics-related
building boom to bolster business in China.
Siemens AG and United Technologies Corp.
also view the Olympics as a great chance to
forge new relationships with key Chinese
business and government figures.
Infrastructure Opportunities
Most Games tend to involve major
infrastructure investments. For example,
China is expected to spend at least US$400
billion through 2010 building airports, roads,
water systems and other public-works
projects for its 1.3 billion people. Beijing
expects to spend almost US$40 billion by
the 2008 Summer Games on new stadiums,
subways and a new airport terminal. That is
more than three times Athens’ estimated
US$12 billion infrastructure tab for the 2004
Olympics.
Beyond the Olympics, Shanghai,
China, is expected to spend about US$41
billion to prepare for the 2010 World Expo.
And China’s Guangzhou plans to spend
around US$27 billion for the 2010 Asian
Games.
Barcelona, Spain, is the best example
to illustrate the urban renewal and the explosive increase in number of tourists since the
Olympic Games in 1992: 1,727,610 tourists
in 1991; 2,455,249 in 1993 and 3,149,002
in 2000.
Experts studying the economics of
sport tourism are quick to point out, however,
that benefits must offset costs — and these
are not limited to financial costs, according
to “Economic and Tourism Aspects of the
Olympic Games,” which was published in a
2005 issue of Tourism Review and written
by Limburgs Universitair Centrum, Belgium,
professor Patrick De Groote.
“Any benefits must be seen in the
context of socio-cultural and environmental
impacts involved,” Dr. De Groote said. “If
sport tourism is developed for economic
gain without regard to its other impacts,
there is a very real danger that its true costs
will greatly exceed its economic value. But
well-planned and organized sport tourism,
such as Olympic and World Cup events, can
be a roaring success.” a
Lynne Clark can be contacted at
wearelistening@sabre.com.
ascend 17
industry
Analyze This
Competitive intelligence, robust tools and knowledgeable
analysts are three necessary components successful
airlines should use in effective decision making.
By Khaled Al-Eisawi | Ascend Contributor
18 ascend
tions and civil aviation authorities collect schedulebased statistics such as available seat kilometers
and make them available to their subscribers or
constituents.
Another component of the competitive
product offering is fares. Many airlines that
distribute their products through global distribution systems file their fares with the Airline Tariff
Publishing Company, or ATPCO. Participating
airlines can subscribe to receive competitive fare
information. Airline fares tend to be quite complicated as a result of the volume of fares that
can be filed by an airline for a particular market
and the numerous fare rules. As a result, third-
party providers developed tools to help airlines
understand and track competitive fares. These
tools, such as the Sabre® AirPrice™ fares management system, enable analysts to understand
their own airline’s position with respect to the
competition and take appropriate proactive and
reactive actions.
On the demand side, marketing information
data tapes, or MIDT, stood out as one of the most
comprehensive and valuable airline data sources
for competitive intelligence. MIDT contains booking
transactions made by travel agencies connected to
the major GDSs. It has been marketed since 1987
and has gained tremendous popularity since then.
Hub Analysis Based on Schedule Information
8
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2130
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D
uring the last two decades, competitive
data has become a key component of
the decision-making process in the airline
industry. Many airlines developed sophisticated
processes to make both tactical and strategic decisions based on objective assessments of the
competitive landscape. With the rise of low-cost
carriers and alternative distribution channels, visibility into the competitive landscape has changed
significantly, and the traditional competitive data
and tools are no longer sufficient. What are these
traditional competitive data and tools? And what are
airlines doing to overcome the new challenges?
Airline competitive data can be categorized into two categories: supply and demand.
Competitive supply data informs airlines about the
products their competitors offer and at what price.
One common example is schedule data, which
includes information such as destinations, flight
frequencies and timings, and equipment types.
This information is relatively easy to acquire and is
available from several suppliers. Airlines and thirdparty providers have developed tools to analyze
and report on competitive schedule information.
Analyses that prove important from a competitive
perspective include:
Competitors’ schedule strengths and weaknesses,
Network and hub structure,
Block times,
Passenger misconnections,
Codeshares.
In addition to airlines, several aviation entities such as airports, civil aviation authorities and
tourism agencies, have developed an increased
interest in airline schedule data and the tools available to analyze these schedules.
Another way to look at competitive data is
whether it is historical or forward looking. Schedule
information is primarily forward looking. Historical
schedule information tends to be reported by
carriers at a high level along with their traffic and
financial statistics. In addition, some airline associa-
South
North
Airline schedule information can be used to analyze the hub structure of a carrier and depict
directional banks and how well they connect.
industry
Different flavors of the data are available including
historical and forward-looking data as well as daily,
weekly and monthly data. Forward-looking data
includes bookings made in a historical month for
travel later in that month or subsequent months. It
can be invaluable in understanding booking curves
and the impact of schedule and fare changes on
bookings made for future travel. Post-departure
data includes bookings flown in a particular month.
As with many other airline data sources,
several third-party providers developed tools to
cleanse MIDT and provide easy-to-understand,
customizable reports. The raw booking data provided by GDSs is not quite useable since it contains
the entire booking history. Typically, raw bookings
are cleansed from duplicates and cancellations.
Auxiliary data, such as schedule information, is
merged in, the segment streams are put together
and trip-break rules are applied to create originand-destination data. Trip-break rules can vary by
provider, but some of the more common ones
include:
Breaking the itinerary at any station with a
layover greater than a particular threshold (The
threshold can be different between domestic
and international connections.),
Breaking round-trip itineraries or itineraries with
revisited stations,
Breaking circuitous routes.
MIDT does not contain fares or personal
information. Reporting tools, such as the Sabre®
WiseVision™ Data Analysis Suite, enable analysts
to dissect the data and generate reports to facilitate decision making.
MIDT has traditionally been used by two
functional areas in an airline:
1.Sales and marketing. The primary value of
MIDT in this area is its ability to provide detailed
insight into the performance of travel agencies.
In particular, an airline can see how much sales a
travel agency is producing for them versus their
competition. The airline’s share gap can also be
contrasted against the quality of its product and
that of its competitors. All of this information is
extremely useful for setting sales targets and
refining incentives and overrides. The sales force
in the field can also use this information to focus
its effort on underperforming agencies and building new relationships with key agencies.
2.Network planning. The value of MIDT for network planning stems from the fact that it is
a global O&D source of demand data. MIDT
contains a lot of details including departure and
arrival times and dates, flight numbers, connecting points, connecting times, and segment
carriers. Some of the applications of MIDT in this
field include:
Understanding time-of-day and day-of-week
preferences,
Analyzing passenger preference for type of
service (nonstop versus connecting service,
equipment type),
Analyzing service patterns and schedule connectivity in an O&D by carrier,
Estimating market share by carrier,
Airline Fare Management Process
Many airlines that distribute their products through global distribution systems file their fares
with the Airline Tariff Publishing Company, or ATPCO. Participating airlines can subscribe to
receive competitive fare information.
Estimating true O&D market sizes,
Decomposing traffic on flight legs into the
O&Ds it belongs to.
Some of the limitations of MIDT data include:
Mostly, but not totally, global, MIDT data
captures bookings made by travel agents connected to the major GDSs. The penetration
of major GDSs in some areas of the world is
not very high; therefore, MIDT data is missing
significant booking volumes from these countries.
Carrier penetration rates are different depending on the carrier distribution strategy.
Many low-cost carriers are missing.
With carriers promoting direct distribution
channels, there has been a downward drift in
the percentage of traffic booked by agencies
and hence visible in MIDT.
Regional representation varies widely depending on the market penetration by GDSs.
The airline industry has been creative in
overcoming the new challenges in the availability
and comprehensiveness of competitive data. Gaining
visibility into the supply side of low-cost carriers and
online distribution is relatively easier than the demand
side. On the supply side, Web scraping has proven
to be an effective method used to collect schedule
and fare data for carriers that are invisible in other data
sources. Such data is collected on a forward-looking
basis; however, if collected continuously, a historical
database can be built easily. Algorithms have also
been developed to analyze the Web-scraped data
and assist with pricing and revenue management.
For example, an airline can use current data scraped
from its competitors’ Web sites to decide whether to
make inventory modifications based on competitors’
available fares. Specifically, business rules can be
defined to determine conditions for matching fares
for a number of seats, undercut the competition for
a number of seats, or do nothing. The Sabre Airline
Solutions® consulting practice pioneered the application of such techniques with some of its customers
and drove up to 30 percent improvement in revenue
per available seat kilometer in the target markets.
On the other hand, demand poses two challenges: one with traffic and the other with average
fares. Total traffic, including direct and GDS bookings, can be estimated by reconciling GDS bookings
against industry data sources. This reconciliation can
be used to estimate MIDT penetration rates and subsequently apply those penetration rates at the O&D
level to estimate O&D traffic.
ascend 19
industry
Industry data sources are numerous
and come at different aggregation levels.
Very few of these data sources are at the
O&D level. The main premise in reconciling
MIDT data with industry data sources to
estimate penetration rates is to build a hierarchy where the most detailed data sources
are used first. For example, segment statistics are more detailed than airport statistics
and should be used first when available. A
measurement mechanism has to be used
to compare aggregate statistics based on
the estimated data to the reported industry
data at multiple levels. For instance, carrier
revenue passenger miles statistics based
on estimated data can be compared to carrier-reported statistics. Similarly, estimated
airport enplanements can be compared to
airport enplanements reported by airports
or civil aviation authorities. These comparisons provide measures of accuracy of the
estimated data and can be used to refine the
adjustment process. Keeping in mind that
the ultimate estimate is at the O&D level and
with very little actual O&D data, it is hard
to have a direct measure of accuracy of the
O&D demand estimates.
The adjustment methodology described
pertains to a logical and systematic way of
“truing up” MIDT data. The question that
presents itself is what do airlines do for lowcost carriers that are completely (or almost
completely) absent from MIDT? The key
to estimating their traffic is to know their
schedules — specifically the markets they
serve and the capacities they offer in these
markets. Forecasting models can be used to
construct an O&D network for these carriers.
While most LCCs operate simple point-topoint networks, some carry a significant
amount of connecting traffic, albeit almost
entirely on their metal. Aggregate traffic data
for these carriers can be collected and reconciled with other aggregate industry traffic
data to estimate traffic flow on the carrier’s
built itineraries. A quality of service indexscoring methodology can be used to allocate
the traffic in a way that puts more traffic on
nonstops compared to the connecting itineraries. The QSI factors driving this allocation
can be calibrated and tweaked to achieve the
highest possible accuracy.
Some airlines are also collaborating on
their data needs and establishing community
models for sharing data. One of these models is to pool internal O&D demand data of
the member carriers (after removing all sensitive information) and share the combined
data among those carriers. Airlines’ internal
data is generally quite accurate and, if combined with other industry data, can contribute
significantly to the improved accuracy of
demand estimates. Sabre Airline Solutions
has established such data bureaus with several carriers in the Middle East.
20 ascend
Competitive average fares are even
more challenging than traffic estimates but
are as valuable for market and network
studies. Similar to MIDT, several GDSs offer
aggregate airline ticket data with itinerary
details and ticket value information. The data
can be processed into O&D itineraries and
can be a valuable source for competitive average fares by market and carrier. However,
ticket coupon number, or TCN, data has
the same limitations as MIDT in terms of
market penetration and may have additional
challenges with the invisibility of private fares.
Nonetheless, carriers that are well represented
in MIDT data will have good sample sizes in
TCN data that allow for robust estimates of
average fares. Yield curves (average yield versus distance) can be constructed at different
levels to fill in the gaps.
Several attempts have been made to
take a totally different approach for global
demand estimation. One of these approaches
uses gravity models to link passenger demand
to demographic and economic statistics. Such
models can be relatively accurate at estimating propensity to travel under theoretically
“rational and steady-state” conditions. While
such conditions are hard to define, many agree
that the airline environment is so complex
and dynamic and, hence, presents significant
challenges to the accuracy of such models.
The interactions and potential confounding
effects between demand, fares and capacities
in addition to the demographic, economic and
geopolitical factors make it quite challenging to
estimate intrinsic demand.
With all of these challenges, the airline
industry continues to be creative and analytical. Data, tools and knowledgeable analysts
are the three ingredients to successful decision making. Competitive data adds a lot of
value, and the decision makers and analysts
who capitalize on such intelligence will always
be ahead. Airlines will continue to find new
ways to collect competitive information and
develop techniques to best utilize such information. a
Khaled Al-Eisawi is director of
consulting operations for Sabre
Airline Solutions. He can be contacted
at khaled.al-eisawi@sabre.com.
Example of Industry Data Sources
O&D
US DOT DB1B
Segment, Carrier
US DOT T100
Segment
QA
Schedules
UK CCA
Brazil
DAC
Airport, Carrier
Airport
Carrier
IATA ODS
Australia
BTRE
ACI
Web Scraping
Financial
Reports
Country
Regional
Industry Organizations
Publications
Global
Free
Purchased
Airline industry data comes at different levels of aggregation. For example, the
U.S. Department of Transportation DB1 is at the origin-and-destination level while the
Australia BTRE data is at the segment level. Some industry data sources are available
free of charge, while others must be purchased.
industry
Bouncing Back
While airlines can’t control most delays caused by irregular
operations, they can certainly recover with minimized impact
using the right people, processes and technology.
By Rich Coskey | Ascend Contributor
A
irlines in the United States are financially squeezed on both sides of
the profit and loss statement. Unit
revenue is difficult to increase given competition and the addition of capacity, and
controllable costs — such as wages, rents
and what remains of passenger amenities
— have been attacked and reduced. And yet,
with just a few quarters of sporadic industry
profitability, pressure to increase wages
after several rounds of cuts is mounting.
As a result, the cost of airline irregular operations, or IROPs, has come under
greater scrutiny recently because of continued pressure on carrier profitability (on
both the revenue and cost sides), and it is
one of the last operational areas airlines can
directly or indirectly influence.
Types of Flight Delays
On time 73.90%
Air carrier delay 6.79%
Weather delay 0.99%
National aviation system
delay 7.98%
Security delay 0.08%
Aircraft arriving late 7.90%
A Look at Irregular Operations
One of the remaining areas where airlines can achieve further cost savings is in
the management and mitigation of IROPs,
which comprise any flight that doesn’t
operate according to the schedule, resulting in delays, cancellations and/or diversions. The U.S. Bureau of Transportation
Statistics compiles monthly figures, which
are reported by U.S. major carriers, about
the on-time performance of their domestic
operations.
BTS defines a delay as a flight arriving
more than 15 minutes late. Cancellations
and diversions are considered a type of
delay. The BTS assigns delayed flights into
seven categories that airlines can use to
classify their delays:
Air carrier — Delays and cancellations due to
circumstances within the airline’s control (e.g.
maintenance or crew problems, aircraft cleaning, baggage loading, fueling, etc.);
Weather — Extreme weather conditions, such
as blizzards and tornadoes, for which corrective
action cannot be taken;
Cancelled 2.14%
Diverted 0.22%
There are several causes for delays to an airlines’s schedule; however, only a quarter
of irregular operations are within its control.
National aviation system — Non-extreme
weather, airport operations, heavy traffic volume, air traffic control;
Security — Terminal evacuations, aircraft
deplaning/reboarding, and instances where
security lines exceed 29 minutes;
Aircraft arriving late — The follow-on effect of a
late-arriving aircraft;
Cancellations — Flights cancelled for other
reasons;
Diversions — Flights diverted for other reasons.
A fraction less than 6.8 percent of all
domestic flights were delayed for circumstances under the carriers’ control, equating
to about a quarter of all delayed flights.
Airlines also have some influence over delays
caused by the national aviation system (e.g.,
traffic volumes and flight timing). Of the 8
percent in this category, approximately twothirds were due to weather, so non-weatherdelayed flights constituted 2.9 percent of
all flights. As a result, during the past year,
U.S. carriers have had direct or indirect influ-
ascend 21
industry
Flight Volumes Versus On-Time Arrivals
2002
2003
2004
2005
2006
2007
On time
As flight volumes have increased, the number of on-time arrivals has fallen and
continues to fall.
ence on a little more than a third of delayed
flights.
Further, the trend is not encouraging.
Since 2002, as flight volumes have increased,
on-time performance has declined by 11 percentage points.
The Cost of Delays
Delays are obviously not just operational issues. There are impacts to passengers
and employees. The overall impact of IROPs,
however, is to the bottom line. In 2004, Sabre
Airline Solutions® estimated that the weighted
average direct operating cost of 1 minute of
delay was US$40. Factoring in the doubling
of the cost of jet fuel since 2004 and adding
indirect costs, the total cost of a minute delay
can be estimated at approximately US$100.
In addition to tracking the number and
causes of delayed flights, the BTS tracks total
delay minutes. The minutes of “air carrier”
plus the proportion of non-weather-related,
or national aviation system, delays totaled
36.5 million from May 2006 to April 2007.
Using the round figure of US$100 per minute
of delay, domestic IROPs under the direct
or indirect influence of U.S. carriers totaled
approximately US$3.65 billion of cost/lost
revenue for the industry during the last year.
Many delays cause extra down-line delays.
According to the BTS, flights delayed by upline causes comprise 7.9 percent of all delays,
accounting for another 35.7 million minutes.
So each delay prevented up line may eliminate further delays and costs, with industry
total potential savings in the hundreds of
millions or billions of dollars.
Dealing with Irregular Operations
Obviously, not every minute of directly or
indirectly controllable delay can be eliminated from an
22 ascend
airline’s operations. But given the estimated financial
magnitude of the problem, it is clear that nearly every
airline can find thousands, or millions, of dollars in
annual savings with investment in people, processes
and technology to mitigate IROPs. Every airline can
accommodate a certain level of schedule deviation.
Airline managers, staff and crew deal with myriad
unplanned or unexpected events on any given day
of operation. The smooth operation of a carrier anticipates certain levels of weather/ATC, maintenance,
crew or technology events that can be managed
without major disruption to the overall schedule.
IROPs vary in breadth, severity and duration
— from a thunderstorm cell passing over a hub or
focus city to an extreme weather event such as an
airport-closing blizzard or even suddenly implemented
and ever more rigorous and comprehensive security procedures. Airlines are generally well equipped
to manage IROPs up to a certain threshold. But
because not every event can be anticipated, let alone
adequately planned for, there is a point at which
standard operating procedures begin to break down.
However, given the operational and financial impact
of IROPs, airlines have strong incentives to push that
threshold out as far as possible.
Some areas where Sabre Airline Solutions
has assisted clients in mitigating the operational and
financial impact of IROPs include:
Planning — Tighter turn times lead to more aircraft flying time but reduce the buffer for IROPs.
Schedules are planned to maximize revenue but
need to be robust enough to allow for IROPs
recovery. Planning encompasses other dimensions, such as adopting a fleet with common-rating
flight decks and electronic flight bags to maximize
flexibility.
Procedures — The design and proper functioning
of an airline’s system operations control center is critical to IROPs management and recovery. Multiple contingency plans must be created
for anticipated events, and processes must be
detailed to address the unforeseeable. Lines of
authority and decision making must be clearly
defined and followed. IROPs planning and recovery is the ultimate time-sensitive undertaking
— the right people must understand and implement the process. One broad finding that Sabre
Airline Solutions has made with its clients is that
delegating IROPs handling to SOC managers
results in faster and smoother recovery.
Policy — During IROPs, airlines can reconstitute
their schedules for different parameters, for
example, to minimize revenue loss, minimize
passenger misconnects or maximize completion
factor. Each airline’s IROPs recovery objective
must be clearly defined and planned around. Not
every airline has the same objective.
People — Two major constituencies are affected during IROPs: passengers and employees.
Getting passengers to the hub is ineffectual if a
blizzard keeps employees from getting to the airport. Further, knowing where each employee is,
especially eligible flight crew, is critical to recover
the operation. Rapid and accurate communications — to passengers to ease their disruption
and to employees to position them for returning
to full operations — are essential.
Technology — It’s merely a tool to run an
airline’s operations, but in the hands of dedicated and well-trained staff, it is the tool that
helps run operations smoothly on a blue-sky day
and becomes fundamental to recovery during
IROPs. IROPs recovery comprises three dimensions: aircraft, crew and passenger reaccommodation. Even for a small carrier, the mathematical
complexity of solving these three dimensions
simultaneously and quasi-optimally often calls
for a technological solution. Factor in crew and
passenger notification, maintenance scheduling,
effective use of ACARS to send and receive
data, and an integrated suite of applications
makes sense for many carriers.
IROPs recovery is the extreme and most
challenging form of airline operational management. The same people, plans, procedures, policies
and technologies that facilitate a “typical” day of
flying become critical during IROPs. In addition,
given the potential for saving millions of dollars
annually, every airline should examine, and continually re-examine, its methods for anticipating, enduring and recovering from IROPs. The savings from
redeveloping the United States’ aviation infrastructure may be a decade or more away and can be
only partially motivated by airlines, but there are
many actions carriers can take beginning immediately to ensure the impact and cost of their next
IROPs is minimized. a
Rich Coskey is senior management
consultant for Sabre Airline
Solutions. He can be contacted
at rich.coskey@sabre.com.
industry
The Big Three:
Saving Money, Making Money and Keeping Customers
Strategic marketing, advanced technology, superior processes
and world-class service enable airlines to concurrently
cut costs, generate revenue and retain customers.
By Sara Garrison and Gordon Locke | Ascend Contributors
W
hich is most important to an airline: reducing costs, increasing
revenues or enhancing the customer experience? The answer, of course,
is all three — and all at the same time.
That’s the conundrum most airlines consider today as they evaluate their brand,
business model, competitive landscape
and critical path forward. There’s subtlety
and complexity to the answer because
underlying the reduced costs, increased
revenues and enhanced customer experience are new marketing strategies, information technologies and business process
engineering.
Earlier this year, Sabre Airline
Solutions ® surveyed airline executives
from around the world. When asked to
rate the top issues for their airline — those
having the greatest impact from a cost,
revenue or operational standpoint — they
responded that fuel costs, government
regulations and customer loyalty were
their chief concerns. The same executives
were asked to rate the top three significant impediments to new revenue growth,
and most responded that costs associated
with fuel, labor, airport and distribution
were their main stumbling blocks.
Not surprisingly, these results confirm that controlling costs in general is the
overriding concern for airlines. In recent
years, many other industries — such as
banking, consumer electronics, insurance,
telecommunications and utilities — likewise have faced high cost pressures,
and the most successful companies have
pursued cost reduction, revenue generation and customer loyalty programs concurrently. Examples from other industries
provide insight into opportunities for such
simultaneous action.
One of the most costly operations
for check and credit card processing in
banks and other financial services institutions is correcting a transaction — an “asof adjustment” when checks are wrongly
encoded or returned or a “charge back”
when credit card purchases are reversed.
Financial institutions in the United States
have invested significantly in automated
systems during the past decade to speed
these operations. They have streamlined
and re-engineered the business processes
through regulatory and procedural changes, and they have touted enhanced capabilities, such as increased customer self
service and faster transaction speed to
resolution, to their corporate and retail
customers. They’ve realized huge cost
savings, and those savings, as well as the
intangible benefits of increased customer
satisfaction, have accrued year after year.
In fact, automation of the as-of adjustments and charge-back processes has
been the source of many millions — some
claim more than a billion — dollars in
industry savings.
Extending the analogy to airlines,
re-accommodation for missing a flight,
rebooking a cancelled flight or changing an
itinerary is similar to “correcting a transaction.” How can the re-accommodation
process be further automated? Possibly
taking advantage of ubiquitous mobile
telephone platforms to contact customers
and driving down costs while driving up
customer loyalty is the answer. In some
areas, notably Scandinavian countries,
mobile devices are used for effecting payments, suggesting that the “mobile play”
could be more fully integrated into the
complete ticketing process.
In addition to automating laborintensive processes, rationalizing the
automation environment may have both
cost savings and customer satisfaction
benefits. A recent example from a regional
natural gas utility company makes this
point. Six customer service systems in
six states in six regulatory environments
were prohibitively expensive to maintain,
and their complexity and age prevented
enhancements from being applied quickly
and uniformly across the customer base.
The utility company spent two-and-a-half
years and US$30 million to fix this problem. And, as a result, it realized a two-year
payback in lower customer service costs,
which far exceeded business-case projections. Not only that, but switching to a
customer self-service model, previously
a high-risk project estimated at multiple
millions of dollars, is now estimated at
under a million dollars because of the fully
rationalized new technology environment.
As more is known about customers
and their individual patterns of activity, a
customer-centric user experience can be
crafted. For example, the number of flight
options shown to a particular frequent traveler on a Web page can be reduced based
on past travel preferences. In addition,
special discounts can be offered as incentives, reducing the “noise” of information
overload to the customer, increasing the
likelihood of purchase and improving the
look-to-book ratio for the airline’s Web
site. This also presents interesting up-selling and cross-selling opportunities beyond
seat upgrades and other airline products,
such as selling swimwear and beach
towels to summer vacationers heading to
Florida. This is the worldwide Amazon.com
model many people know and enjoy, with
careful recordkeeping of browsing and
buying activities, and predictive statistics
and rules engines to suggest additional
related or similar products.
Returning to financial institutions,
they’ve learned that mining customer data
yields revenue generating “gold” as, for
ascend 23
industry
example, analytics provide cash management for corporations, and monitoring
intra-day activity is offered as a valueadded service. In this way, recomposing
data becomes value generating. As the
data is already available as part of the
business process, it is considered a lowcost/no-cost revenue opportunity. And
given their enormous data repositories,
airlines have similar opportunities.
Airlines can take several steps to cut
costs, realize revenue and delight customers
through strategic marketing, advanced technology and applied business processes.
In looking to other industries that
have faced the same challenges as airlines
— controlling costs, raising revenues and
building customer loyalty — there are several successful approaches, such as sophisticated customer analysis, technology rationalization and modernization, and back-office
process automation. Some of these
approaches can be pursued without significant investment, and others require signifi-
cant investment but return that investment
quickly and completely. Airlines can emulate these other industries and can expect
similar results. a
MARKETING
TECHNOLOGY
BUSINESS PROCESSES
Sara Garrison is senior vice president of
product and solutions development and
Gordon Locke is vice president of airline
solutions and distribution marketing
for Sabre Airline Solutions ® . They can
be contacted at sara.garrison@sabre.
com and gordon.locke@sabre.com.
Employ enhanced insights into customer attributes and behaviors at all
touch points.
Invest in CRM toolkits and enable
streamlined access to detailed customer data.
Statistical analysis and flexible, externalized business rules ensure the right
offers at the right time.
Individualize offers to customers and
customer segments.
Present a “basket of business
services” with the opportunity to
personalize and customize services
dynamically.
Rationalizing the automation environment to a common set of processes
that implement business services and
drives cost savings.
Reduce costs and increase agility in
responding to market opportunities.
Utility services within a service-oriented architecture provide “build-onetime, reuse-many-times” cost savings
that are startling. Integrate disparate
data sources through an enterprise
services bus, and stop writing specialized interfaces.
Shared technical service across airline
processes enable staff to focus on
key differentiators rather than generic
functions.
Offer mobile solutions for sales and
service.
Extend reach through mobile platforms that automatically adapt presentation to devices.
It isn’t just about sending information
via text messages, but using mobile
devices to reach customers wherever
they are and whenever you want. Consider generating advertising revenue
from compatible partners.
Increase customer self service.
(Customers like self-service capabilities, especially if they can get bonus
features.)
Integrate with portal platforms to provide robust capabilities. Design goaloriented, task-driven user experiences.
Costs of the service desk are huge
and are reduced by self service as
customers maintain their own data
and answer their own questions. “Tailored” self service is a loyalty touch
point.
Realize that customers are talking …
to each other, not to the airline.
Use community-of-interest technologies to create networks of experts.
Understand how to listen and not
intrude in the conversation. Become a
part of the “Travel 2.0” process.
Promote reliability and trust …
customer loyalty means revenues.
Without the tried-and-true “’ilities,”
(availability, stability, reliability, extensibility, scalability and others), no one
cares. Plan for “five nines” and mitigate system failures. Use specialized
algorithms and accelerators to speed
response.
Business process is front and center,
and much of the process is tedious, although eventually rewarding. Business
resumption planning is essential.
24 ascend
industry
Executive Minds
Results of a recent survey conducted by Sabre Airline Solutions®
identify top challenges facing airline executives.
W
hat’s on the minds of the world’s top airline executives? A survey conducted recently by Sabre Airline Solutions set out to
determine just that — the main issues facing the industry’s leaders. Nearly 200 surveys were completed by airline executives
at more than 100 leading airlines around the globe. The survey focused on a variety of industry-facing issues, including:
Industry Impact
Fuel costs
94%
Government regulations
Industry Impact
79%
Customer loyalty
Airline management rated several
areas as having the greatest cost, revenue or operational impact. In addition to
fuel costs, government regulations and
customer loyalty, at least half of airline
executives also believe security concerns
(58 percent), labor contracts (55 percent)
and alliances (50 percent) will have a
significant impact.
75%
58%
Security concerns
Labor contracts
55%
Alliances
50%
New entrants
42%
Airline mergers
Airline bankruptcies
34%
0%
20%
34%
40%
60% 80%
100%
Industry Challenges
Fuel costs
91%
Customer loyalty
55%
Government mandates
34%
Environmental impact
25%
Safety
Mergers
Airline executives were asked to
identify the three biggest challenges
facing their airline this year. While fuel
costs were almost universally cited (91
percent), other top issues included customer loyalty (55 percent), government
mandates (40 percent) and security (34
percent).
40%
Security
19%
0%
18%
20%
40%
60% Industry Challenges
80%
100%
ascend 25
industry
Effectiveness of New Revenue Sources
Seat selection
Effectiveness of new Revenue
Sources
On average, four out of 10 airline
managers consider new revenue streams,
such as charging for seat selection, inflight entertainment, meals and comfort
items, to be ineffective. The new revenue
streams scoring the highest for potential
effectiveness include seat selection (35
percent) and in-flight entertainment (34
percent).
In-flight entertainment
(movies, earphones, DVD players)
Meals
In-flight comfort items
(pillows, blankets, etc.)
35%
24%
41%
34%
26%
40%
24%
22%
17%
0%
54%
28%
20%
Effective (top 2 boxes)
40%
Netural
55%
60% 80%
100%
Not effective (bottom 2 boxes)
Industry Revenue Impediments
Fuel costs
91%
Labor costs
44%
Airport costs
43%
Distribution costs
Industry Revenue Impediments
Airline executives also were able
to list the top three biggest revenue
impediments to their airline this year.
Again, fuel costs were seen as the greatest impediment (91 percent) followed by
labor costs (44 percent) and airport costs
(43 percent).
39%
Government regulations
Inability to secure new
routes
Management costs
29%
25%
20%
0%
20%
40%
60% 80%
100%
Change in Carrier Types
Number of low-cost carriers
Change in Carrier Types
While many airline executives
believe there will be an increase in lowcost, regional and long-haul operations by
January 2008, others predict a decrease
for these types. More than two-thirds
of airline executives believe the number
of low-cost carriers will increase and
almost half believe the number of longhaul international carriers will increase.
Fewer — just more than a third of executives — believe the number of regional
carriers will increase.
26 ascend
Will increase
68%
Will decrease
9%
No change
23%
Number of regional carriers
Will increase
37%
Will decrease
26%
No change
38%
Number of international long-haul carriers
Will increase
41%
Will decrease
13%
No change
46%
industry
Low Cost for the Long Haul
Low-cost carriers have transformed the original model
by adding ancillary sales and full-service amenities, but
can they really make a profit on long-haul flights?
By David Li | Ascend Contributor
T
here’s no question the low-cost carrier business model has left a sizeable
imprint on the world’s air transport
industry. More than three decades ago, U.S.based Southwest Airlines started the lowfares phenomenon with a basic desire to get
passengers to their destinations on time and
at the lowest possible prices. Since then, the
LCC pioneer and largest airline in the United
States (based on passengers carried) has
paved the way for others to follow suit. But
it’s not just the LCC business model that has
caught the attention of industry professionals
and airline passengers, it’s the way the model
has evolved over the years. From ancillary
sales to long-haul flights, low-cost carriers are
consistently pushing the envelope and challenging the norm.
Two or three decades ago, the experience of flying on an airplane was part of
the vacation itself. Much like cruise ships,
passengers expected quality service from
airlines. The U.S. regulatory environment prior
to 1978 standardized airline pricing. Thus, air-
The Southwest Way
Simple Product
• No meals
• Narrow seating (greater capacity)
• No seat reservations, one cabin-class configuration, free choice of seats (fewer passenger delays)
• No lounges
Market Positioning
• Private passengers, holiday travelers, price-sensitive business passengers
• Short-distance point-to-point connections with high frequency
• Aggressive marketing (”flying for fun!”)
• Secondary airports
• Competition with all transportation modes (air, rail, automobile)
Low Operating Costs
• Low airport fees and less congestion by flying into secondary airports
• Low costs for maintenance, cockpit training and standby crews owing to homogenous fleet
• High resource productivity: Short waits on ground due to simple boarding processes, short
cleaning periods, versatile and motivated staff
• Lean sales (higher percentage of direct sales: Internet, call centers)
• E-ticketing and check in
Southwest Airlines’ three-pronged business model is relatively straight forward,
with a simple product that is reasonably priced, a strategic marketing plan and minimal
operating costs.
lines could only compete through product differentiation: safety, comfort and schedules.
Southwest Airlines was the exception
when in 1971, the small Texas-based carrier was bound to fly within the confines of
the state. However, because of this inhibition, it was free to set its own pricing.
Hence, the company became very disciplined
and creative at managing costs, generating ancillary revenue and increasing traffic.
The low-cost carrier’s perspective was that
airline travel was a highly elastic commodity,
sold with minimal product differentiation. For
Southwest Airlines, its competition was not
with other airlines, but with ground transportation in Texas.
As a result, Southwest Airlines became
efficient in an area that network airlines had
difficulty with — making money on routes
that had short stage lengths. Network carriers operated short-haul routes at a loss
to feed traffic into their networks and used
oversized fleets in doing so. Their network
structures meant that many short-haul passengers had to fly an additional four to five
hours versus if they were to fly point to point.
Southwest Airlines flew passengers nonstop
between their origin and destination at fares
significantly lower than traditional carriers. It
used smaller capacity and homogenous fleet,
thereby driving efficiency and cost savings.
In recent years, LCCs such as Ryanair
have been innovative in driving ancillary
revenue by eliminating the standard airline
amenities such as food, beverages, blankets
and in-flight entertainment and selling them
to customers during the flight. Traditionally,
these onboard amenities caused wastage
and presented an operation burden for cabin
crew. By charging for these items, LCCs were
not only able to recover the inherent costs
but also create an additional revenue stream.
And while Southwest Airlines doesn’t allow
advanced seat reservations, encouraging pas-
ascend 27
industry
sengers to arrive early at the gate to mitigate
on-time departure delays, some LCCs have
offered advanced seat reservations for a fee.
In addition to onboard sales, LCCs
have been bold about selling their “in-flight
real estate” to advertising agencies. Large
advertisements can be seen on the fuselage
of their airplanes, on the headrests of seats
and on tray rests.
There are other revenue streams that
LCCs have found that cater to their existing customer base such as tour sales and
phone cards. Regardless, ancillary revenue
has increased in its importance and, in some
cases, has accounted for up to 20 percent
of certain LCCs’ annual turnover. As historic
yields and profit margins continue to depreciate, it’s likely that the industry will become
dependent and more innovative in developing
ancillary products and services. In fact, some
carriers may opt to provide free airline seats
as incentives to gain the opportunity for a
sales pitch, much like the hotel and resort
industries.
Revenue and Costs: LCC Versus Network Carrier
Operating Costs:
2006, U.S. cents per seat mile
11.69
2006, U.S. cents per seat mile
3.29
12.49
0.53
11.80
0.32
Advertising
Onboard sales
0.05
0.12
2.17
Ticket sales
10.76
0.84
0.3
Cargo
Others
1.3
0.44
0.43
LCC
Network
Source: IBM analysis
CASM vs. Stage Length 2005
CASM ($ per available seat mile)
NW
US
DL
0.120
TZ
F9
0.080
CO
UA
AA
HP
FL
NK
WN
B6
0.060
0.040
400
600
800
1,000
Stage length (miles)
1,200
1,400
Source: Massachusetts Institute of Technology
At nearly all stage lengths, low-cost carriers have a cost advantage over traditional
network airlines.
28 ascend
Labor
0.85
Landing
0.93
Maintenance
0.10
A/C Rental
2.40
Fuel
0.74
Depreciation
1.52
Others
2.31
0.68
1.43
Network
Though revenue from ticket sales for low-cost carriers is lower than
that of network carriers, other revenue channels such as advertising or ancillary
sales enables LCCs to have an overall unit revenue to be at least 6 percent higher
than network carriers.
0.160
0.100
0.51
0.17
LCC
Unit Costs Versus Stage Lengths for U.S. Network
and Low-Cost Carriers
0.140
5.15
8.92
+6%
Long-Haul, Low-Cost Flights
Conventional thought was that the LCC
model was applicable only on short-haul sectors because medium- and long-haul segments, with the use of wide-body aircraft, had
higher available seat miles that drove down
unit costs. Although Southwest Airlines found
a solution to a profitless operation (short-haul
routes), network airlines had long been operat-
+31%
Revenue:
ing longer hauls and, therefore, dominated the
niche. Furthermore, frequencies on long-haul
sectors were constricted by bilateral agreements, and the routes were reserved for large
flag carriers. Hence, the barriers to entry into
those international markets were much higher
and more difficult for LCCs to penetrate.
However, many regions across the
globe have now adapted an open-skies policy,
which has increased competition tenfold. Now
there’s an emergence of LCCs encroaching
into new sectors by leveraging their low-cost
bases to international destinations.
Low-cost carriers have also acknowledged that while customers may be willing
to put up with a barebones product for one to
three hours, anything beyond might require
a higher level of comfort. Thus, carriers have
now started to appeal to the “value-focused”
customer, an individual who would seek a
product at a level between barebones and
full service. This new push to appeal to
value-focused customers is evident at several
carriers, including jetBlue, which offers free
snacks and live television to its passengers;
Eos and MAXjet’s all-business class, low-fare
trans-Atlantic flights; and Oasis Hong Kong
Airlines’ London, England, and soon to be,
Vancouver, Canada, flights with both busi-
industry
ness and economy cabins that offer a product
slightly lower than that of its key competitors,
but at almost half the fare.
However, it is difficult to quantify how
the marketplace perceives the new valuefocused carrier business model. While jetBlue
has shown success on the short-haul sector,
others have yet to prove profitable on longhaul sectors. Additionally, some low-cost
carriers have experienced difficulties generating profits on medium- and long-haul routes
because:
These routes require a much larger catchment area. In some cases, carriers had not
made a concentrated effort to generate
interline agreements and, instead, relied on
local traffic.
Value-focused carriers offer limited frequency on their routes. For example, Oasis
Hong Kong Airlines offers a single daily
flight into London Gatwick while British
Airways and Cathay Pacific Airways offer
three to four daily flights. From a revenue
management standpoint, British Airways
and Cathay Pacific Airways can match the
low fares from Oasis on one of these daily
flights and generate higher yield on the others. In addition, Oasis faces stiff competition
from Virgin Atlantic, Air New Zealand and
Qantas Airways, which also operate the
London-Hong Kong route.
A similar scenario can be drawn with
MAXjet, Eos and Silverjet on their Washington
D.C., and New York trans-Atlantic routes.
AirAsia Flies Long-Haul Routes
Short haul
(1-6 hours)
Ryanair
Kingfisher
jetBlue
AirAsia
Medium haul
(6-10 hours)
Jetstar
Eos
Cathay Pacific
Airways
Oasis Hong Kong
Long haul
(10+ hours)
Non-quality conscious
Price sensitive and
quality conscious
They face competition from American Airlines,
United Airlines and British Airways, which
have higher route frequencies. In addition,
European carriers such as Lufthansa German
Airlines can offer high frequency stopover
Washington D.C.-London
New York-London
Local
29%
Transiting
61%
Transiting
71%
Local
32%
Hong Kong-London
Emirates
Price insensitive and
quality conscious
The marketplace has been apprehensive to showcase a long-haul carrier that specializes in
non-quality-conscious passengers. But with AirAsia’s new long-haul airline, the scenario may
change.
Beyond Point-to-Point Traffic
Local
39%
United
flights through European hubs such as
Amsterdam, Netherlands, and Frankfurt,
Germany.
Nonetheless, the market has room
for a strict non-quality conscious long-haul
carrier. Emirates has mentioned that it
could create an offshoot low-cost airline,
similar to Qantas Airways’ Jetstar Airways,
with its new fleet of Airbus A380s flying
long-haul routes. Likewise, AirAsia has
discussed acquiring a fleet of Airbus A350s
to create a long-haul, low-cost carrier that
would have a two-cabin class configuration. The product level would be lower than
that of Oasis Hong Kong Airlines, but with
much greater emphasis for onboard sales.
While the concept of flying long distances at lower prices is possibly quite
appealing to air travelers; whether or not it
can be done successfully and long term
remains to be seen. a
Transiting
68%
Long-haul travel is dominated by transiting traffic. All markets served by value-focused,
long-haul carriers have a majority of passengers with origins outside of their hubs.
Long–haul, low-cost carriers will need to focus beyond point-to-point traffic and ensure
transiting traffic in their networks.
David Li is a senior management
consultant for Sabre Airline Solutions ® . He
can be contacted at david.li@sabre.com.
ascend 29
An increase in fraud, especially through credit card use, is costing airlines millions
of dollars each year, but the right technology can help control fraudulent activity.
By Tim Maher | Ascend Contributor
A
dvanced technology has played a significant
role in helping airlines throughout the world
reduce operating costs. Self-service checkin kiosks, Internet booking tools, and interactive
voice response solutions not only assist carriers in
their pursuit to achieve greater cost efficiencies,
but also improve customer service and market
differentiation. While most everyone will agree that
technology has overall benefited the airline industry,
there are some areas of concern — one in particular
30 ascend
being how it has increased the amount of fraud
carriers incur.
According to the March 2007 issue of the
Nilson Report, a leading payment systems publication, fraud losses in the United States last year
incurred by issuers of American Express, Discover,
MasterCard and Visa increased to US6.69 cents per
US$100 in purchase volume. When extrapolating
this figure to the US$325 billion in global passenger
airline revenue in 2005, as noted in the July 2006
World Airline Report published by Air Transport
World, the total amount of fraud incurred by the
airline industry would exceed US$217 million. That’s
certainly a figure that should garner a significant
amount of attention within the executive offices
of each airline, but according to a 2006 study by
Deloitte and the International Association of Airline
Internal Auditors, that’s not necessarily the case.
The Deloitte study reported that fraud losses
for carriers has increased fivefold over the previous
industry
five-year period and that while fraud comes
from two sources — internal and external — it
is the external fraud, particularly credit card,
that is more problematic and growing more
rapidly, and accounted for 60 percent of all
external fraud-related losses. The biggest culprit related to the growth of credit card fraud
comes from Web-based transactions. While
virtually every carrier is using the Internet as
an efficient and effective way to market and
sell their services directly to customers across
the globe, it is also exposing them to greater
amounts of fraud. According to the study,
airlines suffer an average loss of greater than
US$1 million annually; however, the alarming
part shows that 65 percent of carriers that participated in the study have no fraud program in
place to detect or report fraudulent transaction
activity.
Given that Web-based transactions are
expected to grow, one can assume the level of
fraud will also escalate. So what measures can
airlines take to better manage fraud, particularly as it relates to their Web site? If an airline
has not implemented a fraud solution, there
are three steps that are a good place to start:
1.Understand how much fraud is costing. An
airline should engage constituents throughout its organization (information technology, security, finance, internal audits, sales/
marketing, etc.) and determine where the
fraud exists, and more specifically, what
it is costing. For example, how does fraud
breakdown per credit card type? What are
the characteristics of the itinerary? Several
items should be reviewed, including:
a. What are the origins and destinations?
b. What are the classes of service?
c. What is the time between booking and
the first leg of the itinerary?
d. What are the credit card numbers?
e. What e-mail addresses are used?
Ancillary costs such as personnel, bank fees
and other expenses that may not be directly
associated with the fraudulent transaction
activity should also be considered. These
costs should be analyzed regularly, just as
all other expenses are monitored. By understanding the total cost of fraud, an airline
can proceed to the second step, which is to
develop a specific plan of action.
2.Develop a fraud plan. Formulating a plan of
action is the most difficult part of implementing a fraud program. Airlines should consider
engaging a fraud management consultant to
assist with developing the plan. Regardless
of whether or not a consultant is involved,
several items should be considered as part
of the plan:
a. Identify fraud tools that are easily accessible:
i. Address verification service is a tool
provided by credit card associations
that enables merchants to validate
that the address provided by the
customer matches the address on
file with the card issuer. This functionality was originally implemented
in the era of mail order/telephone
order sales and has been available in
North America for many years, but is
not necessarily a reliable or effective
tool in today’s virtual world.
ii. Card security code is another tool
provided by credit card associations
that enables merchants to verify that
the cardholder is in possession of a
card by validating with the card issuer
the three- or four-digit numbers that
are separate from the card number.
This functionality was implemented
in the late ’90s as e-commerce was
becoming more mainstream. CSC
has proven to be much more effective in identifying potentially fraudulent sales than AVS.
iii. 3D-Secure is the latest tool provided
by certain credit card associations
as a way to provide greater security
for online shopping. While the programs are commercially known as
“Verified by Visa” and “MasterCard
Secure Code,” they work essentially
the same way. When a consumer
pays with a Visa or MasterCard at
a 3D-Secure-enabled merchant, the
consumer goes through a process
known as a “trust chain” throughout
the transaction, whereby the identity
of the consumer is authenticated
via a passcode that is known only
to the consumer that is on file with
the issuer. One of the most significant benefits associated with 3DSecure is that the liability for fraud
is shifted from the merchant to the
issuer (under a range of conditions).
Earlier this year, Sabre Holdings®
partnered with Eurocommerce, a
Dublin, Ireland-based payment services provider, to jointly offer the
optional functionality of 3D-Secure to
Sabre Airline Solutions® customers.
India’s Kingfisher Airlines recently
implemented 3D-Secure within
SabreSonic® Web as a way to reduce
its exposure to fraud while extending its sales reach into new markets
throughout the world.
b. Investigate the use of a third-party
fraud management solution to screen
all Internet sales. CyberSource, eFunds,
Fair Isaac, Retail Decisions and VeriSign
are just a few examples of companies
that offer such a solution, which scores
a transaction for fraud potential based
on dozens of different variables associated with the sale. Transactions that
score above a certain level are escalated
for alternative processing before the
sale is completed. Merchants have the
capability to adjust the scoring thresholds based on the unique characteristics
of their business model. While there is
a cost associated with these services,
they have touted their ability to reduce
fraud to less than 0.5 percent, which
for some airlines could mean hundreds
of thousands or even millions of dollars
in annual cost savings. Sabre Airline
Solutions is analyzing the value its customers would receive if it partnered
with a third-party fraud management
company.
c. Just as an airline engaged the appropriate constituents across its organization
to understand its cost of fraud, it should
also engage them in development of the
plan. IT security will identify the technical aspects; internal audits will assist
with controls and measures; and finance
will develop the cost/benefit analysis.
Ensuring that effective project management processes and personnel are in
place is also a critical aspect of the plan.
The plan should clearly depict the goals
and objectives of the project.
3.Monitor progress. One of the biggest faux
pas organizations make regarding a fraud
management plan is that after implementation, they do not effectively monitor the
progress to understand whether they are
achieving effective results. All entities that
were part of the planning process should
also be involved in monitoring the progress.
IT security should keep up with new technologies and their implications for fraud,
internal audits should review the internal
controls, finance should analyze the costs
and financial benefits, and sales and marketing should assess the impact to sales and
usability. A periodic review by all parties
must result in the team adjusting strategies
and/or processes to increase effectiveness,
which will ultimately result in reducing the
volume of fraud across a greater volume of
sales.
While an in-depth action plan will certainly assist any business, not just airlines, in
developing a strategy to combat fraud, it is
important to recognize that there is no panacea
for eliminating it. Fraudsters progressively get
more and more sophisticated in their approach
and use technology to increase their effectiveness. However, by taking action, airlines can
effectively manage fraud while simultaneously
increasing sales. a
Tim Maher is an account director for
the Sabre Airline Solutions sales and
account management team. He can be
contacted at tim.maher@sabre.com.
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industry
Passenger Bill of Rights
While regulatory bodies call for strict laws to protect passengers
impacted by flight delays, the laws need to be clear, concise
and fair to both airlines and their customers.
Photo by shutterstock.com
By Michael Clarke | Ascend Contributor
T
he global airline industry is driven in
part by the economic and geopolitical
conditions across the world’s markets.
From many perspectives, it’s considered a
highly cyclical industry varying from record
periods of profitability to times of very poor
financial conditions. This is associated with
wide variations in capital expenditure (such
as aircraft acquisitions) and challenging labor
relationships between management and rank
and file trade unions.
During the last two decades, market
liberalization has been the key focus of many
governing bodies around the world with an
emphasis on relaxing market access restrictions and control over what airlines can do on
a daily basis. As passenger traffic has soared
as a by-product of liberalization, the necessary
infrastructure to support such growth in passenger levels has often been lacking, and this
has resulted in the deterioration of passenger
services and the anticipated level of comfort in
some markets.
During the economic boom associated
with the Internet revolution, U.S. domestic
passenger traffic exploded in the late 1990s
with average passenger load factors exceeding
80 percent on a regular basis. The number of
passenger complaints to the U.S. Department
of Transportation skyrocketed, and the U.S.
Congress started to pay closer attention to the
airline industry, which had been deregulated
two decades prior. Around the same time,
deregulation had taken hold in Europe, and
there was a rapid growth in passenger traffic
as a result of new value-based carriers such as
Ryanair, easyJet and Air Berlin.
In the aftermath of the industry downturn in the early 2000s, world passenger traffic
plunged, and airlines were faced with the
The number of cancelled and delayed
flights in the United States has reached a
record high this year due to U.S. carriers
reporting average load factors that often
surpass 85 percent.
Photo by shutterstock.com
When passenger traffic shot up during the late ’90s with passenger load factors averaging
more than 80 percent, customer complaints to the U.S. Department of Transportation were
also on the rise, causing the U.S. Congress to focus more closely on the airline industry.
32 ascend
challenge of sustaining profitability, containing
costs and maintaining viable operations. With
the sudden decrease in passenger levels,
airlines had some breathing room to support
their remaining passengers, and the legislative
“interest” in the airline industry subsided. As
passenger traffic levels have returned, if not
surpassed, the record level of the late ’90s,
concerns about the supporting infrastructure
(airports, air traffic control systems) have resurfaced as well as the number of consumer
complaints to regulatory bodies.
In the European Union, legislation
became law in 2004 that establishes common
rules on compensation and assistance to passengers in the event of denied boarding and
cancellation or prolonged delays of flights. This
law covers not only regularly scheduled passenger flights, but it also includes charters and
all flights operated by E.U.-registered airlines.
This year, a similar bill of law was
introduced in the U.S. Congress — heavily
influenced by the prevailing market conditions
in the U.S. domestic market. Carriers are
reporting average load factors in excess of
85 percent, and the number of cancelled and
delayed flights are the highest ever recorded.
In parallel, the number of passengers involuntarily bumped and denied boarding has
increased significantly and is the highest since
industry
Photos by shutterstock.com
Three years ago, the European Union passed a law through legislation that requires airlines
to compensate and assist passengers if boarding is denied, a flight is cancelled or a long
delay occurs.
The reduction of “unnecessary slack” in some airlines’ operations in an effort to cut costs
and increase productivity can leave very little room for effective recovery when there’s an
unexpected schedule disruption.
1997. Airline operations are susceptible to
unexpected weather patterns and other types
of irregularities. In their drive to reduce costs
and improve productivity, many carriers have
reduced what was considered unnecessary
slack in their operations, and when something
goes awry, there is very little room for effective
recovery. As a result, passengers disrupted by
a major afternoon thunderstorm or an extensive snowstorm may end up waiting hours, if
not days, to get to their final destination.
The majority of flight delays in the
United States result from network effects
across the system driven by problems in the
national airspace and aircraft routings. When
a weather pattern develops, air traffic control
authorities introduce a traffic management
program depending on the severity of the disruption. This includes, for example, a ground
delay program where all scheduled flights are
metered into an impacted airport and given a
specified arrival time to reduce the demand on
the airport. Alternately, ATC authorities would
prohibit any flights from departing to a given
airport until a prescribed time and/or restrict a
flight from departing until a required airspace
sector is available.
In 2005, an estimated 94 million minutes
of system delays drove more than US$5.9 billion in direct operating costs for U.S. airlines.
Preliminary numbers for 2006 show that on
average 23 percent of all scheduled U.S.
domestic flights were delayed in excess of 15
minutes of their scheduled departure and/or
arrival times. In addition, 2 percent, or one
in 50 flights, were cancelled, and one out of
every 450 scheduled flights was diverted as a
result of schedule disruption.
A similar situation exists in Europe
where one out of three flights is delayed and
one out of 70 is cancelled. A study produced
for the Eurocontrol estimated that airborne
and/or ground delays cost European airlines up
to €5 billion (US$6.9 billion) in 2002.
In June, it is estimated that U.S. domestic airlines cancelled nearly 100,000 scheduled
flights, more than double the number reported
last year. This record number is not unique for
the early summer period, as flight cancellations are up 50 percent for the first half of the
calendar year. Some constituencies within the
industry, particularly pilot unions, argue that
this increased number of cancellations is being
driven by a shortage in crews as a result of the
severe cost cutting during the last five years.
At one major network airline, there were
2,100 flights cancelled in June alone, representing almost six percent of its scheduled
operations. This corresponded to seven times
the number of cancellations experienced by
the carrier in June 2006. Whatever the case
may be, U.S. carriers have been hit hard by
major disruptions during the first half of the
year, ranging from complete airport closures
spanning multiple days as a result of severe
snowstorms to spontaneous afternoon thunderstorm activities that result in large numbers
of diversions to alternate airports.
In many situations, the alternate airports are overwhelmed by the additional aircraft movement and, in some cases, are also
impacted by the same weather system that
causes the diversions from the major hub airports. In some cases, passengers were forced
to wait onboard stranded aircraft in excess
of seven hours as airlines tried feverishly to
recover their operations while observing the
prevailing safety guidelines. As active crewmembers became illegal from duty limitations,
airlines had no choice but to cancel flights and
attempt to rebook the disrupted passengers.
The current state of the U.S. domestic
airline industry has led to the introduction of
the Airline Passenger Bill of Rights Act of 2007
in the U.S. Congress. Unlike previous attempts
in the late 1990s, there is a growing level of
support within the legislative body to pass the
bill and put it into law. Earlier attempts to pass
such a law were derailed by the Air Transport
Association — the primary Washington, D.C.based lobbying group for U.S. airlines. The ATA
and its member airlines established voluntary
guidelines for handling passengers in the aftermath of schedule disruptions. These guidelines
were clear and concise and, at the time, were
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industry
34 ascend
Photos by shutterstock.com
satisfactory to regulatory agencies. However,
in light of how airline passengers were treated
in some high-profile incidents in December
2006, and again in February, the U.S. Congress
decided to revisit the legislation of passenger
rights in the domestic airline industry.
One of the airlines severely impacted
by a schedule disruption decided on its own
accord to introduce its own passenger bill
of rights, and the carrier now compensates
passengers for flight delays, cancellations and
other disruptions that can be attributed to it. To
date, no other airline has taken this approach,
and they still point to their pre-existing customer service plans established in the late ’90s.
The language of the recently introduced bill draws on the established European
legislation and calls for airlines to better
handle passengers and address their needs
in the wake of a schedule disruption. The
bill mandates that all American air carriers
shall abide by several standards to ensure
the safety, security and comfort of their passengers, including:
Establish procedures to respond to all
passenger complaints within 24 hours
and with appropriate resolution within two
weeks;
Notify passengers within 10 minutes of
known diversions, delays and cancellations via overhead announcements in the
airport and on aircraft as well as posting on
airport television monitors;
Establish procedures for returning passengers to the terminal gate when delays
occur so no plane sits on the tarmac for
more than three hours without connecting
to a gate;
Provide for the essential needs of passengers during air- or ground-based delays
of longer than three hours, including food,
water, sanitary facilities and access to
medical attention;
Provide for the needs of disabled, elderly
and special-needs passengers by establishing procedures for assisting with retrieving
baggage and moving passengers from one
area of the airport to another;
Publish and update a list of seriously
delayed flights — those delayed 30 minutes or more at least 40 percent of the
time during a single month — on the
carrier’s Web site;
Compensate bumped passengers or those
delayed due to flight cancellations or postponements of more than 12 hours by a
refund of 150 percent of the ticket price;
Implement a passenger review committee made up of passengers and consumers who would have the formal ability to
review and investigate complaints;
Make lowest fare information, schedules
and itineraries, cancellation policies, and
frequent flyer program requirements avail-
The number of passengers who have been involuntarily bumped and denied boarding
due to unexpected irregularities has increased substantially and is at the highest in 10
years. Some passengers have been stranded for hours, sometimes days, as a result of
irregular operations.
industry
Photo by shutterstock.com
able in an easily accessed location and
updated in real time;
Ensure that baggage is handled without
delay or injury; if baggage is lost or misplaced, the airline shall notify the customer
of baggage status within 12 hours and provide compensation equal to current market
value of the baggage and its contents;
Require that these rights apply equally to all
airline codeshare partners including international partners.
The potential impact of the proposed legislation is unclear in the United States, but take a look
across the pond in the European Union. Since its
introduction in 2004, the E.U. passenger rights law
has been challenged by both established network
carriers and value-based carriers in several courts
and multiple countries. While the bill has survived
all challenges to date, the effectiveness of the
legislation is still unclear. On the surface, the E.U.
legislation calls for airlines to look after their disrupted passengers and arrange alternate means of
transportation for them, and if the airline is at fault,
they may be required by law to pay compensation to
affected passengers. These rules apply to all airlines
— scheduled, charter, full-service or low-cost — and
to all flights departing from airports in the European
Union as well as those arriving within the E.U. and
operated by airlines registered in the E.U.
Passengers who find their flight has been
delayed by more than a few hours, cancelled completely without prior notice or who have been
denied boarding because the airline has too many
passengers for the seats available must be given
immediate assistance by the airline.
Since the passing of the law, the number of involuntary denied passenger boardings has
decreased in the European Union. As part of the
legislation, airlines were required to solicit volunteers
from overbooked flights, similar to the established
procedures in the United States. It is likely that the
decrease in overbooking has resulted from carriers
being more conservative in their overbooking levels.
At the same time, there’s an increase in
the number of passengers missing their scheduled
flights. With the enhanced level of security at
airports, passengers sometimes arrive for check in
with inappropriate travel documents or experience
delays waiting in long security lines. In addition,
with the increased levels of delays, connecting passengers often miss their scheduled flight connection
due to a late inbound arrival. If a passenger misses
his connecting flight, the carrier is not required to pay
compensation to the customer but is mandated to
provide the next available online flight to his destination. The airline is not required to offer passengers
reroute options via other carriers and/or by surface
transportation if there are no alternate flights available on its own aircraft. But with prevailing high
load factors, passengers often end up waiting an
extended period of time for their connecting flights.
When a flight is delayed in excess of two
hours, European airlines are required to compensate
the affected passengers and provide the appropriate level of assistance. In some cases, carriers are
While irregular operations are responsible for delays and missed flights, numerous passengers miss their scheduled flights because they check in with incorrect documentation or
experience delays waiting in long security lines.
unable to provide the required assistance because
of limited resources and/or available accommodation
options, especially at smaller regional or secondary
airports. In a few instances, the required assistance is not spontaneous or not given at all by the
impacted airline. Airlines often try to invoke force
majeure although the regulation does not provide
for such exemptions for flight delays. Under the E.U.
regulation, there is no definition of delay, and there
is no differentiation between the various causes of
disruptions (meteorological conditions, labor unrest/
strike, reduced airport and/or auxiliary services, etc.).
There is, however, some ambiguity in the
law concerning airlines’ obligations for passengers
during prolonged flight delays (beyond 24 hours),
and this has been a major source of consumer
complaints and confusion over the regulation. Since
the level of compensation for prolonged delays is
less than that for a cancelled flight, airlines often try
to designate a cancelled flight as a prolonged delay
so as to reduce the amount of compensation. The
substantially high level of compensation for cancellations has also motivated carriers to often attempt
to invoke extraordinary circumstances in an effort to
be waived from their obligations. Within the regulatory framework, such circumstances include political
instability, meteorological conditions incompatible
with the safe operation of the flight, security threats,
unexpected flight safety considerations, labor unrest
and the downstream impact of prevailing flight
delays resulting from air traffic management restrictions earlier in the day.
By late 2005, the regulatory body cited this
observed abuse of the law and openly warned
airlines not to abuse this component of the legislation and self regulate the number of times they cite
exceptional circumstances as the cause of the flight
cancellation.
In the event of denied boarding and cancellations, the regulation obliges airlines to offer passengers a choice between a refund and alternate
rerouting. In practice, when airlines are unable to
re-accommodate disrupted passengers on their
own and/or partner aircraft, they simply offer the passenger a refund and sometimes leave the passenger
stranded in a remote location away from home. Since
the regulation has been introduced, there has been
better and more effective passenger assistance and
services within the European Union, but substantial
improvement is required for more consistent application of the rules by airlines as well as more consistent
enforcement of the rules by the various national
enforcement bodies in the member states.
Based on external audits sponsored by the
E.U. commission, the limited effectiveness of the
E.U. regulation can be attributed to two main factors:
The text of the regulation is unclear in many areas,
which has enabled carriers to find loopholes in the
requirements and interpret the rules in a way that
minimized their obligation.
Enforcement of the regulation has been ineffective
in many member states as airlines challenge compensation allotments and regulatory bodies are
overwhelmed by the large volume of passenger
complaints.
The effectiveness of the proposed passenger
bill of rights in the U.S. Congress will depend on the
final bill’s composition. As seen from the European
experience, it is essential for the necessary definitions
to be clearly outlined in the document. These include
but are not limited to the definition and scope of a
flight delay, flight cancellation, flight misconnection,
extraordinary circumstances, rerouting alternatives,
and the corresponding levels of compensation and
passenger notification for each situation. Another
aspect that is equally important is the establishment
of an enforcement body responsible for administering
and championing the enacted legislation. Without
such an entity, the passenger bill of rights may simply
end up being yet another law that does not live up to
its high expectations. a
Michael Clarke is principal research
scientist for Sabre Holdings ® . He can be
contacted at michael.clarke@sabre.com.
ascend 35
GROWING like
WILDFIRE
By Phil Johnson | Ascend Staff
Many of the world’s countries, such as China, India,
Indonesia and Russia, are experiencing rapid growth that
is boosting the economy in these emerging markets.
36 ascend
industry
Photos by shutterstock.com
W
ithin the broad scope of 21st-century
global economics, it’s certainly no secret
that rapid growth trends in both China
and India are figuratively setting the commercial
world on fire.
But what about other “nontraditional” markets that are becoming hot items — in places such
as the huge expanse of territory that is Indonesia?
Or in the even greater territorial sprawl of Russia,
or the awakening market economies of Eastern
Europe?
The fact is that if commercial enterprises,
including airlines, intend to maintain the status of
truly serving a “worldwide” clientele, all of these
and other expanding but nontraditional economies
merit serious consideration. And that represents a
sea change in global economics compared to the
past few decades.
It’s not that the trends haven’t been discernible for a few years. It’s more a matter of corporate
planners collectively establishing a priority to adjust
both their outlooks and their greater imaginations
with regard to the world that will evolve in the
coming decades.
“Clearly, what we describe today as ‘emergent’ markets will — in the future — play major
roles in the world economy,” said Dr. Garry Bruton
of the Neeley School of Business at Texas Christian
University. Dr. Bruton is also serving a term as
president of the Asia Academy of Management,
an ambitious Asian economic-management and
education group.
“One of the current predictions,” Bruton
said, “is that the ‘BRIC’ nations — Brazil, Russia,
India and China — will by year 2050 grow to have
larger economies than the G-6, meaning the United
States, the United Kingdom, Japan, Germany,
France and Italy.
“Now, that doesn’t mean per-capita annual
income will be larger among these BRIC nations as
compared to the G-6, but their total economies will
be. And this would definitely represent a major shift
in purchasing power across the world stage.”
Nonetheless, there are various caveats to
be considered in thoroughly evaluating the relative
likelihood of fulfillment of such sweeping global
economic predictions.
“Today, these nations — I’m talking
about Russia, Brazil — are still relatively poor,”
Bruton said. “India and China, despite all of
their current flash and sizzle in the world economic framework, still have per-capita annual
incomes that amount to an equivalent of less
than US$1,000 per person.
“But growth in a number of emerging
economies around the world can’t help but
affect industries such as transportation. A key
part of these nations’ economic growth will
most certainly be increased air travel.”
This air-travel increase within an emerging economy is already on prominent display in
Brazil, where TAM and GOL Airlines have introduced thousands of South Americans to the
convenience of modern flight with innovations
and economy fares as they have outpaced and
Countries such as China, India and Indonesia, with their once-volatile economies, are rapidly
becoming the world’s fastest-growing markets, providing expansion opportunities for the air
transportation industry.
substantively outlasted their Brazilian airline
competitors.
In Eastern Europe, commercial leadership is surfacing in places such as Warsaw
and Prague, as Poland, the Czech Republic,
Hungary, Slovakia and other formerly controlled
economies that were stymied under bygone Soviet
domination are now entering a new era of market
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industry
Photo by shutterstock.com
Russia is one of several expanding nontraditional markets carriers should consider as they
look to maintain their status of a worldwide air transport provider.
possibilities as proud members of the expanded
European Union.
“I tend to be very upbeat on Eastern
Europe,” Bruton said. “I spent some time within
the last couple of years in Poland in a Fulbright
chair for entrepreneurship. These countries are
democracies, which I think is critical to long-term
growth. They’re strong economies — and as parts
of the European Union, the rule of law and other
vital factors will be clear.”
When looking at other emerging economic
points on the globe, a country such as Indonesia
stands out for its uniqueness. This largest Islamicdominant nation in the world also has perhaps the
most challenging logistical picture — with its thousands of miles of territory spread across thousands
of islands in the Indian Ocean.
The Indonesian economy — like that of
many of the former Soviet republics, as well as
Russia itself — will long be bolstered by immense
reserves of oil and gas that are in many instances
just now being tapped through modern technological developments that have made production
of those reserves economically feasible.
Still, any current analysis of global economic
growth potential tends to be drawn like a powerful magnet back to the Indian subcontinent and
mainland China.
“China is investing billions in new airports,”
Bruton said, “because the Chinese know that
this is a key infrastructure investment that will
seriously advance economic growth. And a side
effect of this category of growth is in tourism. The
number of tourists both in and from China is rapidly
expanding.
“I was just in Hong Kong,” he continued.
“Of course, the city is now a special administrative
region of China — and largely, outside of foreign
38 ascend
affairs, Hong Kong is able to administer its own
economy under the stated Chinese principle of
‘one nation, two systems.’
“Today, over half of the tourists to Hong
Kong are mainland Chinese. Without these tourists, Hong Kong would be in an economic depression — but instead, because of the tourists who
come largely from mainland China, Hong Kong is
experiencing rapidly expanding growth.”
There’s obviously enormous potential for
airlines to better serve the teeming populations
of India and China, but in many subtle and some
perhaps-not-so-subtle ways, it won’t be easy.
“In places like India, how individuals book
hotel rooms and reserve flights is much different
than in mature markets like the United States,”
Bruton said. “Internet penetration is much lower,
and the power of certain business groups much
greater.
“How companies such as Sabre Airline
Solutions® reach out to those markets — considering both the company’s need and desire to
maintain reasonable cost while also maintaining the
firm’s high quality — will be difficult.”
And China represents an economic conundrum, with traditional “control” forces pulling and
pushing against much more recently established
“market” forces.
“One of the keys is how to reach these customers,” Bruton said. “The Chinese government
is much more prevalent than the U.S. government
in the economy — and thus, the Chinese government has strong controls over data. In China, the
powers-that-be want that data, and simple things
like airline flights are controlled.
“To serve the Chinese market, a lot of
Western companies have learned that they must
have an actual presence in China. But there are
also issues involved in locating in China. So, the
quandary becomes whether to locate in China,
locate in Hong Kong to obtain protection of law but
still be in China, or to subcontract.”
The opportunity to cash in on the potential
of the economic giant that China represents has
become too strong a draw for many Westernbased companies to resist.
“For academics, one of the great
debates has become whether the newly
dominant Asian economies will just continue
to get bigger or whether calcification will set
in,” Bruton said. “What I mean by ‘calcification’ is the political forces tend to think they
still need to try to control everything. And if
that effect does develop, it would occur when
these nations privatize. They ultimately end
up with some major private firms. But then
the question becomes: After these firms win,
will their nations be willing for them to fail?
“Recall that we heard many of the
same things we’re now hearing about India
and China back in the 1980s about how Japan
was going to rule the world and so on,” he
said. “And I tend to think we actually overestimate some nations.
“I tend to be in the camp that some
nations, such as China, may turn out to be
today’s ‘Internet boom,’” he said. “China
as a nation is growing rapidly, offering great
long-term opportunities, but at the same
time, I see many firms making very unrealistic
decisions about a market that will take time
to fully expand and will not likely continue its
current 9 percent growth rate over the next
50 years.
“Taiwan, Korea and Japan all had
similar levels of growth at a similar level of
development, and they eased off eventually
to more typical growth levels,” Bruton said.
“Additionally, those nations at that time had
developed clear world competitors among
their own companies, which China is largely
yet to do.”
The same could be said of India. But
none of that eradicates the clear potential of
many of today’s most prominent emerging
economies — economies that will inevitably
be reckoned with in the global commercial
and trade picture of the 21st century to some
significant extent.
Precisely how significant is one of
those vital current economic questions. The
answers to those questions will be apparent
within a few very short but economically
exciting decades. a
Phil Johnson can be contacted at
wearelistening@sabre.com.
industry
In Sync
Airlines that leverage integration in the areas of technology,
processes and service experience lower operational and technological
costs as well as boost revenue and customer loyalty.
By Lauren Lovelady | Ascend Staff
T
he successful operation of an airline’s
schedule is one of the most logistically
complex processes. On any given day,
hundreds of known factors, including crew and
aircraft availability and passenger loads, can affect
the schedule, and just as many unknown factors
do, as well. After all, who could have known that
consecutive days of stormy weather in much
of the United States during June and the first
two weeks of July would mean one in three
flights would be delayed and cancellations would
increase 121 percent compared with the same
time period last year. The result: huge headaches
for airlines worldwide that serve the United States
and hundreds of frustrated, displaced passengers.
In situations such as this, communicating the
most up-to-date information to the right people
within an airline in a timely manner is critical. To
achieve this, an airline’s employees and business
processes and the technology supporting them
must be in sync. They must be integrated.
Integration is often defined in technological terms, but it encompasses even more,
including technology foundations, products and
solutions, workflow processes, and customer
services and support. While each area has its
own benefits and merits, the real value comes
in understanding and utilizing all aspects of integration simultaneously. The result for airlines:
better quality decisions, which, in the long run,
can lead to lower operational and technology
costs as well as increased revenues and customer loyalty.
An integrated technology backbone provides a flexible foundation for the integration
of an airline’s systems and the implementa-
tion of those systems into its environment.
For example, a single crew feasibility check
component can be used as the basis for a
number of different applications. Necessary
design changes or defects found during testing
can be corrected one time and the “fix” will
apply to all applications. As a result, the same
component is utilized by a number of different
departments, promoting the integration of business processes across the airline.
An enterprise service bus, or ESB, is
a useful tool for the integration of disparate
technology applications. A scalable and secure
software infrastructure, ESBs enable users to
integrate new and existing applications and
disseminate information without disruption to
systems currently running. Because solutions
do not need to be recoded or redesigned to fit
Operate in Harmony
There are several steps airlines can take and tools they can use to
enhance revenues, cut costs and keep customers coming back.
By Lauren Lovelady | Ascend Staff
W
hile some carriers are greatly
impacted by aging fleets and airport facilities, others find it difficult to execute profitable schedules that
incorporate ever-tightening government and
environmental regulations. Many airlines
also feel the pressure of increased competition and fluctuating fuel costs that often
cut into revenues. Although each carrier
deals daily with a combination of issues
unique to its own operation, there are some
basic business challenges that almost every
airline, at one time or another, must rise to
meet.
How successfully those challenges are
met will depend, in great part, on the ability of
an airline’s functional areas and the systems
supporting them to work together.
ascend 39
industry
Photo by shutterstock.com
In an ideal situation, all of an airline’s
technology tools would be able to seamlessly share data. However, that day has
not yet arrived. Given the constraints of
the “real” world, here are some common
business challenges and solutions available
today that can provide maximum benefit to
an airline and its customers. In addition,
there are examples of integrated products
from Sabre Airline Solutions ® to assist with
these processes.
Increasing Revenues
Communicating in a timely fashion to the right people within an airline is critical to the
overall success of its operations. To do this effectively, the technology used to support the
carrier’s employees and processes must be integrated.
into ESBs, existing applications and data may be
successfully reused.
Although flexible technology foundations,
such as ESBs, undoubtedly reduce development
costs for information technology solutions providers,
the result for airlines is just as beneficial — lower
total cost of ownership, quicker and easier product
implementations, and the ability to react quickly and
effectively to the volatile environments in which they
operate.
Rarely is a decision made during the planning
process or even up to the day of operations in one
area of an airline that somehow does not impact
areas down the line. For airlines to communicate
critical information from one department to another,
their systems must share data. They must “talk.”
A decision made in isolation, without the benefit of
input from other areas and what-if scenarios provided by technology solutions, can lead to loss of
revenues and consumer trust. Integrated data interfaces and business processes are key to effectively
developing a set of solutions in response to rapidly
changing operational environments and service disruptions. Integrated real-time solutions help prevent,
for example, aircraft from being parked at gates for
longer than necessary waiting for available crews or
crews waiting at gates for arriving flights that have
been delayed or gate locations changed. And in the
case of disrupted operations, airlines’ system operations control centers can better decide which flights
to cancel and which to operate when they have
data on forecasted revenues for entire network’s
flights readily accessible. Presenting the necessary
information in a format that is easy to access and
understand is critical for optimal decision making.
For years, solutions providers have offered
best-of-breed systems to assist airlines with a num40 ascend
ber of critical tasks including schedule development,
revenue management, fare pricing, crew scheduling
and flight operations. And what airline would not
want to purchase the best solution it can afford for
the task at hand? But while a best-of-breed system
may provide a marginally better solution for a particular area or task, what happens when another
area needs access to the data to make accurate
decisions? What if the systems are not easily able to
share data? Although flexible technology backbones
may provide some help, in almost every case, airlines underestimate the amount of time, money and
effort they will need to spend to integrate various
applications.
Once the systems have been pieced together, which solutions provider or providers does an
airline contact for customer service and support?
An integrated suite of tools from a single provider,
such as Sabre Airline Solutions® , can provide an
airline with optimal decision support across its entire
network. And that provider can simplify an airline’s
service and support concerns by offering a single
help desk number and integrated business process
and organizational support.
With no end in sight for the need to develop
strategic responses to schedule disruptions, airlines
must become adept at anticipating and responding
to the known factors and even the unknown factors
affecting their schedules, for the sake of both the air
travel industry and their passengers. And to accomplish this successfully, integration is key. a
Lauren Lovelady can be contacted
at wearelistening@sabre.com.
There are several steps airlines can
take to increase revenues:
Automate the passing of future average
fare data from the fares management
system to the revenue management
system, enabling better inventory control.
Review and reassign aircraft capacity
allocations closer to the day of operations. Using current demand forecasts
generated by the revenue management
system, the planning and scheduling
system’s capacity optimization tool will
identify opportunities to swap aircraft.
Incorporate competitor fares data into
the forecasting and optimization process based on the exchange of realtime information between the revenue
management and fares management
systems.
Develop pricing strategies based on the
schedule’s strength as dictated by market share data and passenger booking
patterns, in addition to competitor price
comparisons. The goal should be to
provide passengers with the most convenient routes at the most convenient
times priced in a competitive manner.
Track booking activity within the reservations system and respond in real
time by applying advanced inventory
controls based on revenue management data.
Solutions are available to assist with
revenue generation:
Sabre ® AirMax ® Revenue Management
Suite,
Sabre ® AirPrice ™ fares management
system,
Sabre ® AirFlite ™ Planning and Scheduling
Suite,
SabreSonic ® Inventory,
Quasar ™ passenger revenue accounting
system.
Operational Efficiencies
Steps can be taken to lower operational
costs and increase operational efficiency, including:
Find practical ways to improve relationships between functional areas. At any
time, one group may have vital informa-
industry
tion that needs to be shared with other
areas.
Implement decision-support tools that utilize shared data and business logic,
resulting in higher-quality decisions.
Use these tools to create and evaluate
various what-if scenarios, incorporating
necessary constraints, to find optimal
solutions — sometimes within minutes
— to challenges in the planning stage
all the way to day of operations.
Focusing on customers rather than just
passenger name records by enabling
service personnel and travelers to easily access real-time personalized information about itineraries via self-service
kiosk and the Web. Flight delays and
cancellations or even special promotions can be relayed to travelers via
e-mail or phone.
Using advanced operational customer
relationship management to enrich and
Highlight
“Although each carrier deals daily with a
combination of issues unique to its own operation,
there are some basic business challenges that
almost every airline, at one time or another, must
rise to meet.”
Coordinate aircraft rotations and crew
rotations to minimize unnecessary
costs and increase operational reliability.
Exchange data on regularly scheduled
maintenance events between the flight
planning and scheduling system and
the day of operations system to create
optimal aircraft rotations and tail number assignments that are not changed
when the schedule is passed from one
area to the next.
Ensure crew scheduling and operations areas are continually fed realtime information about changes made
to the schedule by the scheduling
department to help minimize operational disruptions.
Software designed to assist in these
areas include:
AirFlite Planning and Scheduling Suite,
Sabre ® AirCrews ® Crew Management
Suite,
Sabre ® AirOps ™ Operations Suite.
Best Travel Experience
Airlines can provide the best possible travel experience so their passengers
feel like valued customers before, during
and after their trips by:
Implementing flexible technology, such
as an enterprise service bus, or ESB,
to increase options for reaching customers at various touch points during
their travel experience.
synchronize the reservations, self-service and departure control environments.
Solutions that can help optimize the traveler experience include:
SabreSonic ® Customer Sales and
Service Solution,
Sabre ® Loyalty Suite,
Sabre ® Virtually There ® Web site,
Sabre ® Inform SM mobile services,
Customer Data Delivery option within
SabreSonic ®Res.
Ideal Technology
Advanced technology is available to
help airlines not only get up and running but
continue down a long-term, successful path,
including:
Start with the essential systems. Depending
on the size and type of operation, the list
may vary, but will likely include technology
tools that assist with flight planning and
scheduling, day of operations, revenue
management, pricing, crew scheduling,
traveler loyalty, revenue accounting, and
reservations and sales.
Add consulting services into the mix to
better optimize the use of these tools in
business processes, enabling the airline to
grow as demand for its services grows.
Focus on saving time and money from
the start. Some solutions providers offer
integrated systems that easily share realtime critical data across multiple functional
areas. In addition, these providers offer
one-stop customer services and assistance.
Products equipped to address these
issues include:
Sabre ® Flight Control Suite or Sabre ®
Rocade ® Airline Operations Suite,
Ramco MRO System,
Sabre ® AirMax ® Revenue Manager,
Sabre ® Traveler Loyalty System,
Quasar passenger revenue accounting
system,
Sabre ® WiseVision ™ Sales Essentials,
SabreSonic Customer Sales and Service
Solution,
AirPrice fares management system.
Unexpected Disruptions
Airlines can do several things to
handle unexpected disruptions due to
weather, mechanical, air traffic control
or security issues while maintaining passenger safety and loyalty:
Utilize proactive decision-support tools
with what-if simulation capabilities to
efficiently recover and reassign aircraft,
crews and passengers.
Minimize passenger frustration and loss
of revenue by sharing data regarding
recovery decisions across all impacted
functional areas.
In addition to revenue and cost data,
incorporate information from the loyalty
system to assess each passenger’s
value to the airline when rebooking.
Products that can help airlines
get back on track after a disruption
include:
AirOps suite, in particular Sabre ® Decision
Manager and Sabre ® Reaccommodation
Manager;
Flight Control Suite or Rocade Airline
Operations Suite;
AirCrews suite.
In addition, Sabre Airlines Solutions
is researching further development and
integration of solutions in the areas of
schedule and passenger forecast data
distribution, pricing and planning capabilities, maintenance program updates, and
dissemination of real-time day-of-operations aircraft movement messages. a
Lauren Lovelady can be contacted
at wearelistening@sabre.com.
ascend 41
The Power of Partnering
A Conversation with Abdul Wahab Teffaha, Secretary
General Arab Air Carriers Organization.
Afriqiyah Airways (2001)
Oman Air (1993)
Air Algerie (1953)
Palestinian Airways (1995)
Air Arabia (2003)
Qatar Airways (1995)
EgyptAir (1932)
Royal Air Maroc (1957)
Emirates (1985)
Royal Jordanian (1963)
Etihad Airways (2003)
Saudi Arabian Airlines (1945)
Gulf Air (1950)
Sudan Airways (1946)
Iraqi Airways (1945)
Syrian Arab Airlines (1946)
Jordan Aviation (2000)
TransMediterranean Airways (1953)
Kuwait Airways (1954)
Tunis Air (1948)
Libyan Airways (1964)
Yemen Airways (1962)
Middle East Airlines (1945)
42 ascend
profile
S
ince its founding in 1965, Beirut,
Lebanon-based Arab Air Carriers
Organization has sought to promote
cooperation among 23 Arab airlines headquartered in the Middle East and Africa and
serve their common interests through service
excellence.
By working to fulfill this mission, the
organization has given the carriers of the
Arab world a stronger voice and a means
to work together. AACO has helped unite
the region’s carriers, enabling them to
work collectively in several business areas,
providing a foundation for future success.
As part of its ongoing efforts to support
and promote the region’s airlines, the organization, which held its 40th annual general
meeting in October, focuses on five key
objectives:
Promote the highest safety standards,
Provide a framework for a better economic environment for airline operations,
Promote high standards of consumerdriven services,
Provide high-quality and cost-effective
framework for human resources development.
Invest in the synergy of interaction among
members through establishment of joint
projects.
The member carriers participate in
several standing committees, devoted to
issues such as fuel and information technology, that provides a forum for exchanging views and discussing issues affecting
the air transport industry.
Since 1996, the organization has been
run by Secretary General Abdul Wahab
Teffaha, who was elected to the top position after serving for several years in the
organization. Teffaha joined AACO as an
assistant tariff analyst after receiving his
post-graduate degree in socio-economic
development and political sociology. He
worked his way up the ranks, becoming
assistant secretary general in 1992.
During his tenure at AACO, Teffaha
helped develop a new strategy for the
organization that gave the member airlines increased bargaining power through
combined negotiations, resulting in better economics for the Arab airlines. The
organization also quickly launched joint
projects, including joint fuel purchasing,
joint ground handling, joint MIDT processing and the establishment of a regional
training center.
But his influence in the industry
has expanded beyond the Arab world.
He was instrumental in helping craft the
International Air Transport Association’s
currency system for pricing airline tickets
and its prorate system for revenue sharing
among airlines. He also was a member of
the team that developed IATA’s strategy
beyond 2000.
Recently, Teffaha visiting with Maher
Koubaa, account director for Sabre Airline
Solutions® to discuss the AACO and its role in
the air transport industry.
Question: What are the major
challenges AACO is helping Arab airlines
address?
Answer: There are challenges
specific to the region and others facing the
entire airline industry. Those that are industry
wide are recognized by everybody — costs
that are beyond the control of airlines such
as fuel prices, over flying, user charges and,
to a certain extent, labor costs. These have
increased tremendously during the past few
years. At the same time, the pressure to
increase revenues is getting greater and
greater, so for the last 30 years, there’s been
a continuous decline in yields and a steady
rise in costs. So a significant challenge for
Arab airlines as well as carriers around the
world is containing costs and driving up revenue while offering a compelling service.
Environmental issues are high on the
agenda as well as safety concerns. And, of
course, there are internal challenges that are
still within the sphere of airlines’ influence.
It’s a matter of remaining creative enough
and innovative enough in terms of product
development, product offerings and product
delivery so the value proposition for the
airlines will continue to be for the customer.
Now these challenges are actually across the
board for all airlines no matter where they are
located.
The specific challenges for the Arab
airlines, in addition to those mentioned, are
basically in three areas:
Deregulation — The Arab world takes,
to great extent, a conservative approach
toward market access. Almost 30 years
after the liberalization of air transport in
the United States and 10 years for Europe,
the Arab world has not kept pace and still
applies a conservative approach toward
market access … toward granting traffic
rights. Working within an environment of
regulatory constraints is not the best environment for the airlines, and I believe all
airlines would want to be able to be free in
terms of offering capacity that meets market demands and changing the dynamics
of how they operate according to market
changes.
Changing the landscape — We are challenged by how to change the landscape
of airline operations from the flag-carrier
concept into a totally business-oriented
concept, while at the same time delivering
on the objectives that the owners have set.
And let’s not forget that most of the Arab
ascend 43
profile
All photos courtesy of Airbus
airlines are still owned by the government
and, therefore, there are strict government
requirements. It’s extremely difficult to be
a commercially oriented, business-oriented
entity and at the same time respond to
demands from the owner, which often
go beyond business sense. For instance,
securing jobs for people isn’t always the priority anymore, serving destinations that are
clearly not of commercial interest, outdated
hiring policies at airports, etc. So I believe it
is a big challenge and it’s something that all
the airlines that are owned by governments,
especially in the developing world, would
feel. The quicker privatization happens, the
quicker airlines will be cut loose from these
shackles of government ownership.
Fragmentation — Until now, the Arab world
has at least one national airline or one airline
in every country — or perhaps even more
than one national airline in every country.
These airlines are serving a number of objectives: one of them is the creation of a new
industry, a tourism industry, putting their
country on the tourism map, promoting businesses and so on. And the airlines are playing a very important role in actually achieving
these goals, like what Emirates did to Dubai,
what Qatar Airways is doing to Qatar, what
Etihad will be doing and is doing to Abu
Dhabi, and so on. But ultimately, I don’t see
that this is going to be the norm in the Arab
world. I believe that ultimately what needs
to happen is a liberalization of capital movement, privatization of the airlines and, therefore, the possibility of consolidation among
Arab airlines, and not only among the Arab
airlines but between the Arab airlines and
maybe some other airlines.
A conversation with
the chief executive
officer of Jet Airways ...
Q: Are you suggesting that Arab
airlines create alliances and/or merge as
a way to address some of the challenges
they face?
A: I am talking about merging rather
than building alliances. With alliances, everybody can accede if they want to. The issue —
airline consolidation — goes beyond alliances.
It’s not only challenging for Arab airlines but
also for the industry as a whole. There are
too many players, too many airlines, too much
over capacity globally, which has been plaguing the industry since it started. The industry
is not being treated as a normal business
and, therefore, is dealing with fragmentation. The existence of so many players does
not allow any of them to achieve optimum
return on investment in terms of economies
of scale and economies of scope. This is
very specific to Arab airlines as well; it is not
about how many airlines or flag carriers each
country has, it needs to be about how airlines
are able to grow (vertically and horizontally)
through organic growth, through expansion,
and through mergers and acquisitions. When
44 ascend
The AACO’s 23 member carriers, including EgyptAir, Gulf Air and Emirates, have
formed several committees to help collectively address critical issues such as
fuel costs and technology.
this happens, airlines will be able to achieve
economies of scale and scope that are not
possible today.
Q: What is the AACO doing to help
its member airlines address some of these
challenges?
A: The AACO is involved in a number
of joint projects that help airlines cut costs in
the areas of fuel, ground handling and network
optimization as well as leveraging our relationship with global distribution systems and
deployment of electronic ticketing. So we have
a large number of joint projects, and all of them
deliver cost efficiencies that were not possible
without the collective work of the airlines.
In the areas of revenue maximization,
customer loyalty and product development,
we were instrumental in bringing a number of
Arab airlines into the area of market information data tapes processing, which provides
better visibility for marketing and market segmentation to be able to respond to customer
needs. In other areas, AACO, through its training center, is contributing to human resource
development, which is extremely needed in
the Arab world.
Our role is to raise awareness about our
member carriers’ major challenges and lobby
for the airlines’ objectives. We provide that
through a network of relations and information
so we can deliver a message we believe needs
to be part of the collective mindset of the Arab
airlines — and give it its rightful priority.
Q: AACO members include a mix of
carriers including network carriers, low-cost
carriers, flag and national carriers. How can
such different kinds of carriers with different objectives and governance models
possibly cooperate under the umbrella of
AACO?
A: Well, it is about creating or identifying the common denominators among airlines.
We don’t, of course, force any airline to cooperate or participate in any projects. What we
do is open the possibilities of participation if
the airline is convinced that a project is good
for it.
On the other hand, no matter whether
a low-cost airline, network airline, flag airline, cost cutting is important. So everybody
benefits from the fuel purchasing program
because you are interested definitely in having a lower fuel bill. So that’s the common
denominator where everybody has an interest.
It doesn’t have to be that everybody needs to
be a participant, but at least we have in every
project a critical mass of airlines that are better
off together dealing with a certain issue rather
than dealing with it individually.
Q: AACO is rated by its members
and industry partners as very successful.
What really makes AACO effective?
A: I think three issues make AACO successful relative to airlines’ concerns:
1.The pragmatism of the objectives and business plans. We don’t look at AACO as merely a trade association. We look at AACO as a
business, and there are stakeholders [who]
need a return on investment. And we deliver
that return on investment, and we try to
make it the maximum return on investment
that we possibly can. We are a business like
any other business, and we deliver value to
our shareholders.
2.The commitment of the stakeholders — the
airlines. We are quite fortunate that airline
executives don’t only feel the value of
the cooperation but also are committed to
profile
year and in 2008. The airline business is very
dynamic, and I am sure that other issues are
going to pop up for us to address.
cooperation. Now there is a culture of cooperation among airlines. And that culture, of
course, was built over a period of time. It
wasn’t built overnight. It was built with hard
work, with credibility, with commitment
from airline executives to make the collective work succeed. Of course, they know
that they are better off with the others than
on their own. It is much easier to do things
individually; it is much harder to do them collectively, but the dividends for the collective
work are greater.
3.The AACO team. I am quite fortunate to
head a team that is dedicated, high spirited
and committed to AACO.
These three areas are what makes
AACO vibrant and relevant to the airlines.
Actually, it is more than relevant; it is important
to the airlines. It is an important tool for the
airlines to achieve better results.
Q: What were this year’s main projects for AACO?
A: We have completed negotiations
on the core reservations, inventory and
departure control systems, and now we need
to work with the airlines according to their
choices on the finalization of that relationship
with the core systems. We are about to finalize negotiations on global distribution system
deployment, and we will deliver by the end
of the year on those two.
We are also extending the coverage of
the Arabesk alliance, including codeshares,
third and forth freedoms, and perhaps talk
to other airlines outside of the region to
start some cooperation arrangements with
them. So, I believe Arabesk is going to be
an area of major work in the next year and
especially after what will happen because of
the interline ticket issue. The bigger airlines
are revisiting the value of their interline partners, and they are determining whether they
want to interline with other airlines based
on their value. That will definitely put a challenge in front of the smaller airlines that will
not make it to the top of the priority list for
bigger carriers. Smaller airlines need more
interline agreements than big carriers or
the alliances. So one of the issues we have
identified and need to work on will include
the help of Sabre Airline Solutions® because
it’s our technical consultant for Arabesk.
We are identifying where the Arab airlines need to have interline partners, which
may continue to be the same ones in place
today but may also change depending on
the wishes of the parties concerned. So
this, I believe is going to be very important
because we will continue to do what we
were doing before to deliver travel possibilities for customers. Of course, there is
the continuation of the other work AACO is
doing. In the airline industry, we always have
something new — now the environment is
Q: What is the AACO doing to promote safety?
A: We’re comfortable with where
we are on safety. AACO members have
excellent safety records. All of them are
also on the IOSA registry or will be by the
end of the year. Some AACO members
have already completed the IOSA, which
is the international operations safety
order from the International Air Transport
Association. It has completed a second
audit because it’s a biannual program.
So we are quite sure our safety record is
very good. During the last four years, we
have had zero accidents, but again, the
improvement of the quality of service and
product development is going to be high
on the agenda as well.
Qatar Airways, Royal Air Maroc and
Royal Jordanian, in conjunction with
20 other AACO member carriers, work
together on joint projects to help boost
operational efficiencies and reduce costs.
on the agenda. We need to see how we
can address that in a way that does not put
everybody in one basket because the Arab
airlines have the youngest fleet anywhere in
the world. Therefore, the Arab airlines’ commitment to the environment is quite obvious,
and we can’t just sit back and be treated
like anybody who did not invest as much in
its fleet renewal and be penalized if there
were some sort of taxes or penalties on fuel
consumption. We invested tremendously in
the technology, and we believe we need to
be treated according to that investment so
people and airlines are encouraged to look
for new technology. So this is also something we’ll address the remainder of the
Q: What changes would you like
to see in the AACO during the next
five years that will help strengthen the
position of your members?
A: I believe its not about changes, it
is more about an evolution of the process
where AACO gets more and more involved
in areas where we haven’t until now been
involved as actively as we were in other
areas. For instance, the technical cooperation area. During 2007, we started to place
high emphasis on the technical cooperation
area. We lacked the resources before, which
resulted immediately in a couple of projects
that are extremely valuable for the airlines
— emergency response and maintenance
and overhaul. We are just starting our focus
on those two areas, and we already have
two agenda issues we will address that will
not only save the airlines millions of dollars,
it will also elevate their emergency response
readiness to much higher levels than today.
The MRO is meant to save money and
provide better inventory management. The
airline industry is quite complex; it is becoming even more complex as it grows and
evolves, and I think AACO needs to evolve
into doing more complex tasks that are now
being done either individually by the airlines
or by AACO but with not the right size and
scope. I see AACO not only as an alliance,
but a highly integrated alliance the airlines
can rely on to do a number of tasks collectively. We have behaved like an alliance; we
actually started collective purchasing for fuel
and other things such as ground handling 10
years before alliances started. But we have
not publicized it as an alliance. The perception of AACO needs to be that this is a tool
we can use collectively to do more. And I
think this is what the way of the future is
going to be.
ascend 45
profile
Singapore Airlines: A True Pioneer
For Singapore Airlines, introducing the Airbus A380 super
jumbo jet into its fleet and making aviation history was a
smooth ride because of its upfront preparations.
By Apurva Mathur | Ascend Contributor
46 ascend
All photos courtesy of Airbus
O
n Oct. 25, Singapore Airlines made
history when it took to the skies with
the new Airbus A380. While bringing
the largest-ever commercial airplane online
seemed effortless from outward appearances,
it took a great deal of cooperation among many
areas across Singapore Airlines’ operations. It
required a strong management team that had
a customer-centric vision. It took years of planning to ensure an all-around smooth entry into
its fleet. And it took a great deal of creativity
and innovation to ensure its A380 service was
unique to the industry.
It’s a true testament to the professionalism associated with Singapore Airlines in
running an organization ready for any and all
of the industry’s biggest challenges. And it is
also a tribute to Airbus, which has introduced
an airplane that looks very different than any
other ever built, but at the same time, if well
managed, can be easily integrated into an
airline’s fleet.
According to Capt. S.L. Leong, deputy
chief pilot of the A380 program for Singapore
Airlines, “The introduction of any new aircraft
type is always challenging; none more so than
the A380. While Airbus has strived to maintain
its “family concept,” the introductions of some
of the innovation on the aircraft, especially
the electronic flight bag, has required new
processes and new ways of doing things. Our
challenge is to minimize any disruptions from
these new processes and ensure a smooth
introduction of this aircraft into service.
Singapore Airlines won’t stop with only
one of the world’s largest aircraft. It has 18
more on order and six on option. In January,
the carrier will take delivery of its second
A380 for its Singapore-London route. The
airline plans to use these 569-ton aircraft on
high-density long-haul routes to airports that
are slot restricted. And although the A380
The first A380 for launch customer Singapore Airlines was painted in Hamburg, Germany, in
preparation for its October delivery.
was designed to accommodate 555 passengers,
Singapore Airlines’ three-class configuration of
the A380 has only 471 seats, giving its customers a spacious, comfortable ride.
While the carrier’s preparations made for
a smooth introduction of the A380, it faced a few
challenges, as expected with any new aircraft.
“The key challenge has been to manage
the shortfall in planned capacity due to the late
delivery of the aircraft,” said Capt. Leong. “By
now, we should have had six A380 aircraft in
operation. The shortfall has been managed primarily by deferring retirement of some Boeing
747-400 aircraft and short-term dry leasing of
aircraft.”
Maintenance has also presented a challenge. The carrier has put together a comprehensive plan to ensure that inventory of
profile
On April 11, the first A380 entered Airbus’ paint hanger in Hamburg, Germany.
The painting of Singapore Airlines’ first A380 took 21 days and used more than 2,200
liters of chromate-free paint.
spare parts is well stocked and maintenance
personnel are performing more checks during aircraft down times in between longer
turn times and in the evenings. Despite the
capacity constraints, true to Singapore Airlines’
efficiency, its operations continue to run with
on-time departures of 92 percent this year, 0.3
points better than last year.
Despite a couple of minor challenges,
the aircraft sports features that are, to date,
exclusive to the A380 (see related article on
page 8).
The weight and balance function on
the A380 is fully automated. This is different
than other aircraft, where the take-off weight
center of gravity is calculated by load control-
lers. The A380 loads the required fuel to obtain
the optimal center of gravity for optimal flight
performance.
There are many new devices that have
been introduced to assist with pilot training on
the A380. The 2-Dimensional Maintenance/
Flight Training Device, or 2-D MFTD, is used to
get a comprehensive integrated training view
of the A380 cockpit. One look at the 2-D MFTD
makes it clear that there is a step function
improvement in the technology that is being
used to train for the A380. Such devices earlier
were used only for familiarizing the crew with
the cockpit, but with the A380, they are used
like a simulator, less the motion and vision.
Thus, crew not only learn the systems but also
the procedures with flying the A380.
Another new device in the cockpit of
the A380, which spans 79.8 meters wingtip
to wingtip and can carry more passengers
than any other aircraft (the wings are so large
that each one can shelter approximately 2,800
people), is the class 3 electronic flight bag.
The onboard information system, or OIS, is
also innovative and different and will provide
aircraft performance computations as well as
a suite of other applications such as eCharts,
eLog Book and Electronic Flight Folder.
Airbus has taken another novel idea
into the design of the keyboard cursor control
unit to allow better interaction between the
pilot and flight management system. The
new system includes a trackball and a qwerty
keypad, enabling cockpit crew the option of
direct point-to-point navigation with the click
of a trackball rather than typing it into the flight
management system.
The new aircraft also is unique with
the mezzanine level of the cockpit. Unlike the
Boeing 747, the only other commercial aircraft
with an upper deck, the cockpit on the A380
is located in between the upper and lower
decks, allowing for easier operations by the
cockpit crew.
Pilot training on the A380 is straightforward and no different than any other aircraft
type, which has a simple design, even though
behind the cockpit is a super jumbo aircraft
with a height of 24.1 meters (equivalent to the
height of five giraffes) and a fuselage length
of 72.7 meters (equivalent to the length of
two blue whales). Singapore Airlines pilots
have undergone a three-week ground school
conversion training course in Singapore followed by four weeks of simulator and aircraft
training at Airbus headquarters in Toulouse,
France. It’s the same amount of training pilots
receive for any other wide-body aircraft, such
as the Boeing 747. Approximately 40 cockpit
crew have undergone training, and Singapore
Airlines will conduct future schooling at its
Singapore training facilities using its A380 full
flight simulator and flight training device.
On the cabin crew side, the story is very
similar in that preparation for the introduction
ascend 47
profile
of the A380 requires preparation no different
from any other new aircraft type into the fleet.
Singapore Airlines plans to have more than
the minimum crew complement required per
government regulation — at least 18 crewmembers. Of course, there are new features
and gadgets on the A380 that are typical whenever a new aircraft is launched, but the training
requirements are not any more complicated for
the cabin crew. There is an extra day of safety
training to enable cabin crew to safely evacuate a double-deck aircraft.
In addition to training and service requirements specific to the new aircraft, realignment
of crew numbers is required to ensure the
correct numbers are trained for various aircraft
types without compromising aircraft recency
(each cabin crewmember can fly a maximum
of three aircraft types in accordance with
Singapore government regulations). For the
entry into service of the first aircraft, about 300
crewmembers were affected. Cabin crew will
continue to be triple fleeted, thus allowing no
major rostering differences for A380-trained
crew.
On the ground, Singapore Airlines had to
prepare its staff to ensure smooth operations
including embarkation and disembarkation of
passengers using direct upper deck access, or
DUDA, a third arm of the gate bridge. Singapore
Airlines Engineering Company, the engineering
arm of SIA, also made preparations to maintain
the A380, training 59 licensed aircraft engineers
and 173 technicians to care for the new aircraft
type. SIAEC has also invested US$16.2 million
in tooling and ground support equipment, and
it built a new hangar with a roof height of 44
meters to accommodate the giant tailfin of the
A380.
Singapore Airlines has undergone all the
preparations and training necessary to successfully operate the A380, but perhaps
most importantly, it has made special provisions to ensure its customers have a memorable, enjoyable experience.
The carrier’s A380 cabin has been
fitted with unique seats to ensure maximum comfort. Panasonic has provided the
latest in-flight entertainment equipment,
giving passengers numerous entertainment
options. And the airline promises a new
product, “Singapore Airlines Suites,” which
it describes as a class beyond first. Its
business class will be modeled on the new
cabin product launched in October 2006, to
worldwide acclaim, which offers a fully flat
bed, a wide sofa-style seat and direct access
from every seat to the aisle in a spacious
one-two-one configuration.
For Singapore Airlines, it was more
than just preparing and training staff to operate a huge aircraft. The carrier has taken this
opportunity to auction its much-sought-after
tickets on its inaugural flight, donating the proceeds to four charities:
Community Chest of Singapore,
Sydney Children’s Hospital, Randwick,
The Children’s Hospital at Westmead in
Sydney,
Médecins Sans Frontières, also known as
Doctors Without Borders.
Singapore Airlines Chief Executive Officer
Chew Choon Seng said the first commercial
A380 flight is a landmark in aviation history as
well as a once-in-a-lifetime experience on an
aircraft that marked a new chapter in air travel.
“While we will celebrate the event, we
also wish to remember the people who are less
fortunate and can be assisted by the charities to
which all the proceeds will go,” Chew said in a
recent press release.
The airline that prides itself to be “the first
to fly the A380,” Singapore Airlines has taken the
challenge head on in a manner that is only
becoming of the carrier. The professionalism and
efficiency with which SIA has approached this
massive undertaking is testament to its focus as
a pioneer in aviation history. a
Apurva Mathur is sales director,
Asia/Pacific for Sabre Airline
Solutions ® . He can be contacted
at apurva.mathur@sabre.com.
+count it up
120 billion
43
2.5 billion
The amount in U.S. dollars the indus-
The number of airlines worldwide now
The amount in U.S. dollars the
try fuel bill is expected to grow in
offering common-use self-service kiosk
International Air Transport Association
2007 (26 percent of operating
technology, and more than 100 airlines
expects the airline industry to profit
expenses at US$61 a barrel) due to
are currently developing CUSS, accord-
in 2007, the first profit since 2000.
growth, hedging at higher prices
ing to the International Air Transport
Europe is expected to achieve the
and an increase in refinery margins,
Association.
largest profit with a projected US$1.5
billion.
according to IATA.
500 million
112 billion
4.8
The amount in U.S. dollars the indus-
The amount in U.S. dollars the industry
Percentage of the average annual
try lost in 2006 as a result of high oil
fuel bill grew (26 percent of operating
growth rate of international
prices, according to the International
expenses at US$66 a barrel) in 2006, an
freight volumes between 2006
Air Transport Association.
increase from US$44 billion (14 percent
and 2011, which is supported by
of operating expenses) in 2003, accord-
economic growth, globalization
ing to IATA.
and trade.
48 ascend
It’s not Business Class,
It’s Eos Class
Eos Airlines pampers its guests with an exceptional
end-to-end travel experience and no crowds
as part of its best-in-class operation.
By Dennis Crosby and Rob Siegel | Ascend Contributors
ascend 49
profile
A
mong heavy competition for the
highly coveted premium passenger in the New York-London
market, one carrier has taken a unique
approach to differentiating its product.
Eos Airlines has created a more efficient, less stressful journey by simply
eliminating the crowds normally seen at
check-in and security areas as well as
airport gates.
The key is in the numbers. The
carrier’s fleet of Boeing 757 aircraft is
configured to only carry 48 guests in
an all-premium-class configuration. This
“By serving fewer guests better, Eos has redefined the premium
long-haul business category,” said Dave
Spurlock, founder of Eos Airlines, when
presented with the 2007 Business Travel
World Awards where Eos was named
Long-Haul Business Airline of the Year.
“We are very pleased to receive this
industry award, which clearly recognizes the renewed spirit, innovation and
service quality Eos has brought to the
marketplace.”
Another aspect that makes a
remarkable difference to those travel-
“Our best-in-class employees, flat-bed suites
and everything else that is necessary for an
extraordinary experience is what ‘Eos Class’
provides … minus the crowd,”
— Jack Williams, Eos CEO
50 ascend
ing on Eos is the terminology the carrier uses. It refers to passengers as
“guests,” and its spacious seats are
called “suites.” It may seem insignificant, but to customers, the unique terminology says a lot about what can be
expected aboard Eos flights.
“One has to travel with Eos to truly
appreciate our category-of-one advan-
All photos courtesy of Eos
equates to a very generous 21 square
feet of personal space for each guest
with a one-to-eight flight attendant/guest
ratio.
“The notion of taking away the
crowds was a simple idea that has led
to a dramatically better guest experience,” said Jim Prebil, senior vice
president and chief information officer for Eos. “We are able to take
responsibility for each and every guest.
We’ve accomplished this while being
the fourth-largest airline in terms of
frequency between New York and
London.”
The benefits of this “uncrowded”
experience, according to Eos Chief
Executive Officer Jack Williams, captures the true essence of what “Eos
Class” is all about.
“Our best-in-class employees, flatbed suites and everything else that is
necessary for an extraordinary experience is what ‘Eos Class’ provides …
minus the crowd,” Williams said. “The
removal of the crowd is what makes
all the other best-in-class services that
much more authentic and pleasurable to
our guests.”
Being one of the airline’s main
attractions, the limited number of guests
it serves for a given flight has also
contributed to its winning top industry
awards and its ranking of “best ontime performer” in the New York-London
market.
tage,” said Roberto Lebron, the airline’s
director of corporate communications.
The trip begins with a curbside
“meet and greet” followed by check
in. From there, each guest is escorted through security and guided to the
airline’s pre-flight lounge, where food,
refreshments and complimentary wireless Internet service is readily available.
This process is so efficient that Eos
makes it possible for its guests to arrive
within 45 minutes of their departure.
Furthermore, the carrier’s boarding time
is typically less than 10 minutes.
Taking advantage of London
Stansted Airport is another key differentiator for the eastbound trip. Generally,
there are no other international arrivals when Eos’ flights arrive at London
Stansted. In merely 25 minutes from
landing, guests can be onboard a train to
the city. Of course, guests may take their
time and elect to enjoy a shower at the
SAS Radisson Hotel, all compliments of
Eos (on qualifying fares). Furthering its
guests’ experience at London Stansted,
Eos recently completed the first phase
of a new lounge facility that boasts
capacity for 75 guests. The second
phase is scheduled to be completed by
the end of the year.
While its offerings are unique and
appealing, exactly how does Eos attract
customers in a market that is dominated
with such heavy competition?
“We’ve had tremendous success
with guest referral and word-of-mouth
advertising,” Lebron said. “Our net pro-
Eos offers elite, contemporary lounge facilities for guests who have layovers or arrive early at
the airport. Its new lounge at London Stansted Airport will accommodate 75 guests.
profile
moter score tracks at 84 percent (higher
than Harley Davidson in terms of companies). It is a fairly regular occurrence for
a guest to cross out the highest rating
of 10 and replace with a 15 on the comment cards, and then go tell all of their
colleagues and friends about their Eos
experience.”
Eos carries more business travelers by far (about an 80/20 mix in
terms of business to leisure) but still
targets the premium leisure traveler.
The carrier’s mix of customers ranges
from seven of the top 10 investment
banks to celebrities in the field of music
and film, athletes, and even members
of the British Royal Family. The average guest, based on Eos’ research, is a
predominantly highly educated, affluent
male who holds a senior-level executive
title. Eos has positioned sales teams in
both the London and New York markets
to target and deliver additional corporate
travelers.
“Currently, we are seeing a 50/50
split between U.S. and U.K. customers,”
Lebron said. “We do market our product
as business class to attract the managed
corporate traveler, but in reality, we’re
much closer to a first-class product. And
while most of our guests travel on Eos for
business purposes, we are continuing to
target the discretionary leisure traveler.”
The price of entry into the transAtlantic market has required Eos to
offer its Club 48 frequent flyer program,
powered by the Sabre ® Traveler Loyalty
System, which offers an impressive list
of redemption possibilities, ranging from
unrestricted black-out dates on Eos (as
well as any major airline) to merchandise
from brands such as Tumi and Harrods.
However, Eos feels its service, quality
and experience is more important than any
loyalty program it could offer.
“Note that Four Seasons doesn’t
have a loyalty program,” Lebron said.
“Brand loyalty is much more being driven
through an outstanding service experience
than to points. It’s the reason 98 percent
of Eos guests are highly likely to return
to Eos.”
Technology has also played a key
role in Eos’ success, according to Prebil.
For example, the carrier relies heavily on
the ability to market and reach distribution
segments better than anyone else.
“Travel management corporations
are a large source of distribution,” he said.
“Sabre ® global distribution system connectivity and Electronic Ticketing [an option
within SabreSonic ® Ticket] has been key
to enabling Eos’ distribution strategy and
has helped contribute to the rapid growth
of our load factor.
“We also made a conscious decision
to utilize the Traveler Loyalty system for our
Club 48 frequent flyer program so more time
can be spent on servicing our guests versus
developing technology. We’re also in the
midst of implementing the Sabre® CrewTrac®
system to assist with our operational efficiency so we continue to maintain our No. 1 ontime performance ranking in the New YorkLondon market. And as we continue our
evaluation of new routes and schedule optimization, Eos is tapping into the expertise of the
Sabre Airline Solutions® consulting team.” a
Dennis Crosby is a sales director and
Rob Siegel is an account director for
Sabre Airline Solutions. They can be
contacted at dennis.crosby@sabre.
com and rob.siegel@sabre.com.
Eos offers each guest a spacious 21 square feet of personal space on its fleet of Boeing 757
aircraft that are configured to carry only 48 passengers.
As part of its all-premium-class service, Eos staffs its aircraft with one flight attendant per
every eight passengers, providing a more personal, gratifying experience for its guests.
ascend 51
Recipe for a Merger
54
Despite the many obstacles accompanying airline
mergers and acquisitions, carriers that rise up to the
challenge often remain the industry’s top players.
To the Core
59
While some carriers are merging and/or expanding
their businesses, others, such as SAS, are selling
parts of their organizations and getting back to their
core competency of running a passenger airline.
Boom and Bust
61
A number of private-equity companies are taking
an interest in airline ownership to help make
the sometimes-struggling carriers better as
well as boost the value of what they own.
A Bold GOL
63
ascend
In one of its patented straightforward
business moves, GOL Airlines assumes
ownership of Brazilian rival Varig.
SPECIAL SECTION
Airline Mergers
and Consolidation
special report
Recipe for a Merger
Despite the many obstacles accompanying airline
mergers and acquisitions, carriers that rise up to the
challenge often remain the industry’s top players.
By Peter Berdy | Ascend Contributor
T
he appetite for mergers and acquisitions
seems insatiable in the airline industry.
Companies link up in different ways imaginable, from joint ventures and cross-financing
to friendly acquisitions and hostile takeovers.
Whether airlines are in poor financial shape
or good condition, the lure to acquire seems
irresistible.
Yet mergers and acquisitions have a
mixed track record. They are highly visible in the
media and expensive to consume. They divert
attention away from running the core business,
and they don’t always work. They are newsworthy because of the association with corporate
and personal survival, the potential drama surrounding layoffs, and the closures that often
accompany acquisitions … not to mention the
possible loss of identity of a known brand.
On the other hand, there have been
showcase examples of success in the air-
line industry, such as Air France/KLM and US
Airways/America West.
Across all industries, more than 75 percent of mergers do not produce intended
benefits, according to Booz Allen Hamilton’s
2002 “Airline Merger Integration: Take-Off
Checklist.” Common reasons for failure include
a collision of management styles, complexity of
tasks to make a merger work and differences
between corporate cultures.
Selected Merger and Acquisition Examples
Concept
Full merger
Owner
Target or example
Lufthansa
Swiss
Notes
100% ownership, retain Swiss brand
Partial acquisition
SAS
Spanair, bmi, Air Greenland
Partial Ownership: 95% Spanair,
20%-bmi; 37.5%-Air Greenland
Cathay Pacific
DragonAir
Mixed ownership
Airways
Ownership: 100% DragonAir,
17% Air China. Potential 3-way among Cathay, Air China and DragonAir
Hostile takeover
AirTran Airways
Midwest Airlines
Cross-border expansion
LAN
LAN Argentina, LAN Peru,
New Varig
Private equity
Texas Pacific
Ryanair, Iberia Group
Joint venture
Virgin
Air Jamaica Global play
Air One
Alitalia
Provide financing to acquire shares or set-up airline in non-home country
Private equity firm investing in
different airlines
Transfer LHR slots, operate Jamaica UK as a codeshare
Restructure and expand flag airline
Several merger and acquisition opportunities, ranging from full and partial ownership to joint ventures and hostile takeovers, have
airlines around the world taking risks to secure their future.
54 ascend
special report
Photo by shutterstock.com
The key to a successful merger is to take the top attributes of each airline and merge into a single large, healthy operation. The teaming up of
US Airways and America West combines the best aspects of a low-cost carrier and a full-service airline.
“What’s good for investors, shareholders
and management may not be good for others,”
said analyst Kevin Mitchell of the Business
Travel Coalition. “Lots of employees will be
laid off, and customers can look forward to 20
percent to 30 percent price hikes and several
years of customer-service misery.”
But according to US Airways Chief
Executive Officer Doug Parker, you can take
the best of each company and merge into one,
large, healthy, successful operation.
“US Airways is the product of several successful mergers, most recently the combination
of America West and US Airways,” Parker said.
“Working together, we have blended employees and cultures to create a new standard in the
industry, which combines the best attributes of
a low-fare carrier and a full-service airline.”
And the story was much the same for
Air France and KLM. When the two carriers
merged in 2004, they took a similar approach
and utilized the strengths of both companies to
build a thriving airline.
“The new entity has the potential to
develop powerful synergies,” Air France/KLM
Chairman and CEO Jean-Cyril Spinetta said at
the time of the merger. “The complementary
nature of the two airlines, which will each retain
their brands and unique values, will ensure that
the new group is more attractive for passengers,
as they will gain access to an enhanced offering
and create substantial shareholder value.”
Why Join Forces?
The most powerful reason for a merger
or an acquisition is to create shareholder
value. This may be accomplished in several
ways, including:
Offering an immediate financial premium:
Providing existing shareholders in the company to be acquired a premium as a financial incentive to do a deal.
Leveraging economies of scale: Reducing
costs by eliminating duplicate departments
or operations.
Increasing market share: Combining to
generate greater overall revenue than each
company could generate on its own.
Cross selling: Acquiring and selling complementary products and services to boost
revenues.
Exploiting synergies: Making better use
of both airlines’ resources to lower costs
and boost revenues — an acquisition can
uncover value that should exist through
scale, such as increased network connectivity, improved aircraft utilization, expanded market coverage, combined frequent
flyer programs and increased purchasing
power.
Leveraging tax opportunities: Using the target airline’s tax write offs to improve the
bottom line.
Business diversification: Expanding to related
businesses (maintenance, repair and overhaul; cargo businesses; travel agencies) as a
hedge against changing market conditions.
Geographical diversification: Circumventing
regulatory hurdles by purchasing a company
already in business in a new geographic area,
which also gives airlines the ability to compete more effectively on a global basis.
Transferring resources: Redistributing and
combining scarce resources such as slots,
airplanes and technology.
Selling undervalued assets: Releasing value
by spinning off business units, which can also
be used to pay for acquisition of other businesses.
Vertical integration: Acquiring part of a supply
chain and benefiting from joint resources and
lowering costs.
Additional potential benefits for airlines
include:
Strengthening the home market and attracting the business-customer segment,
Providing a network that offers multiple routing choices to expand network coverage and
time-of-day choices as well as more connections to customers,
ascend 55
special report
Photo by shutterstock.com
Reducing overlapping flights,
Integrating frequent flyer programs to offer
customers more ways to earn and redeem
miles,
Expanding alliance membership,
Improving the fleet through simplification and
modernization,
Reducing costs by integrating airport operations and lowering costs of procurement and
financing.
Challenges
Regardless of the size of the carrier,
its business model or route network, there
are always challenges that must be successfully addressed to make a merger or acquisition work well. The most common obstacles
airlines face when merging or acquiring another
carrier include:
Inadequate due diligence of the target business, resulting in a lack of understanding
the true state of the company about to be
acquired. This may lead to overpaying for
the company and misjudging financial performance capabilities once the company is
acquired.
Losing focus on running the core business
during the process of the acquisition or
merger. The process can be lengthy and
intense, requiring full-time attention and
executive management participation. During
this time, executives can easily lose focus of
their main priority — running the day-to-day
business.
Underestimating labor complexities that arise
from negotiating changes to union work
rules, existing labor laws and the difficulties
of integrating workforces. The risks range
from the potential for labor disruptions to
paying a steep price for labor peace. There
are often imbalances in pay and work rules
that need to be dealt with as well as the
need to create harmony across different
companies that may share the same unions.
Financial considerations, such as how deep
the pockets need to be to pay for integration
and cover unanticipated costs. There is the
potential of a financial shortfall related to
overestimating the value of synergies and
achieving the actual financial performance
that was projected in the business plan as
well as pressures coming from competitors
trying to take advantage during the transition
period. There’s also unit revenue pressure
with the expectation that the combined entity should have greater capability to increase
fares or control inventory.
Technology issues ranging from inheriting
legacy systems, in- and out-sourced functions, and mismatches in capability and delivery. Technology touches all aspects of the
airline’s business as well as the customer
experience. Improper integration and cutover
of systems have serious adverse affects on
operations and customer satisfaction.
56 ascend
The combined America West and US Airways operate under a single brand offering everyday,
simple low fares to more than 225 destinations around the world.
Gaps between targets set in the business
plan and actual performance once the acquisition takes place. The plan needs to be stress
tested to consider the affects of poaching
by competitors (such as entering markets,
running fare sales or offering jobs to key
personnel) as well as a potential migration of
loyal customers who are sometimes forgotten along the way. These sensitivity tests are
important to evaluate the potential downside
if key assumptions fail to materialize.
Cultural challenges. Differences between
corporate cultures, political challenges and
language barriers are hurdles that need to
be overcome. The company could be a
poor business fit if these are not addressed
upfront.
Management’s capability to deliver. Mergers
and acquisitions spur management to develop overambitious visions and plans that could
lead to failure to deliver bottom-line results.
Executives who have never been through
a merger or acquisition find they may have
underestimated the resources, talent and
time required to successfully complete a
deal.
While an acquisition may look easy on
paper, the trick is how to actually integrate
operations successfully and to really achieve
lower costs while avoiding service disruptions
and even improving operational performance.
Decisions can easily become politicized over
items such as who flies in certain markets,
which employees stay or go, and who pays
for different costs that are incurred during the
transition.
With all the challenges inherent in mergers and acquisitions, there is also a list of best
practices to address certain issues:
Perform adequate due diligence; understand
the financial state of affairs of the company
to be acquired, learn how the airline currently
runs its business, and identify the leaders and
potential detractors.
Start well before the deal is closed, and allow
sufficient time to achieve integration of the
acquired airline.
Assess the fit of the airline to be acquired,
and determine if this company provides real
benefits (expanding services to customers,
providing market coverage to broaden the
base of customers and enabling economies
of scale) and offers real efficiencies for the
combined entity.
After developing the strategic vision of the
combined entity, airline executives should
move to tactical steps on the transaction
structure and integration plan. They should
identify how the structure will take place and
prepare a realistic timetable for the acquisition.
Appoint a leadership team that’s sole job is to
work on the acquisition and implement the
business plan. In addition, determine who
will manage professionals, such as bankers,
consultants and attorneys, during the acquisition process who are needed for the transaction. Determine how to use these external
resources efficiently and effectively, and have
them commit to timelines and deliverables.
The leadership team must develop a detailed
integration plan with key activities and work
special report
Understand the cultural and environmental
differences of the two companies, and
develop a plan to harmonize. Determine
how to preserve key elements of employee pride, history and brand value of the
acquired company as a transition to a new
state of evolution rather than positioning
it as a company that has just conquered a
competitor to drive them out of business.
would reinforce the need for consolidation.
They wanted to take advantage of changes
about to take place the in political climate
and economic environment that were on the
horizon. This included the advent of a single
European aviation market, preparation for likely
open skies between the European Union and
United States, and opportunities resulting from
enlargement of the European Union.
Highlight
“Regardless of the size of the carrier, its
business model or route network, there are
always challenges that must be successfully
addressed to make a merger or acquisition
work well.”
Air France/KLM Success
Air France/KLM announced intentions to
merge in 2003 and completed the transaction
in 2004. Following the announcement, the carriers followed their plan and have outperformed
financial expectations. In 2004, these two major
flag airlines combined, creating the largest
airline in terms of passenger revenue with a
combined turnover of approximately €20 billion
(US$27.4 billion).
What was the rationale for their merger?
They recognized that a single E.U. market
They had a clear vision of what to offer
customers and shareholders: a solid financial
company, providing superior customer service,
the willingness of management to extract value
from synergies while at the same time preserving their identities, brands and value.
Air France/KLM also saw opportunities in
cargo operations as well as in the maintenance,
repair and overhaul business. Their combined
networks also provided extensive coverage of
major global cargo flows to create the largest
cargo revenue turnover in the world. They
Photo by shutterstock.com
tasks to be completed. It needs to describe
how they will get the job done, who is
responsible for which tasks and when those
tasks are to be completed. The leadership
team should also identify critical success
factors, determine how to measure performance, build a communications plan and
create reporting structures.
Specify how processes and functions will be
integrated and what systems and resources
will be needed. Set priorities, with the
intent of realizing expected benefits quickly.
Areas likely to produce early financial results
include procurement, pricing, revenue management, sales and distribution. These
should be followed by benefits derived from
network and schedule changes and operations consolidation.
Review ways to reduce complexity and
simplify operations. This includes harmonizing fleet through a reduction of airplane
types, reducing the number of suppliers
and parts, and identifying specific synergies
that should provide cost savings, including
consolidating overhead and sharing facilities
such as airport counters and gates.
Measure and evaluate synergies realized by
the merger or acquisition and compare the
actual performance to the plan.
Establish controls and processes to resolve
problems that may arise from the acquisition, especially in operations, to avoid crippling interruptions or staff defections.
Communication must be consistent and frequent to deliver management’s goals, objectives and timetable for specific targeted
audiences. A communication plan should
include different employee groups at both
airlines as well as separate communication
plans for investors, airports, government
and regulatory agencies, suppliers and partners, and the press.
Address existing relationships with partners,
vendors and suppliers in terms of communicating the transaction, and identify what
they should expect from you and you from
them. Be sure critical suppliers are paid on
time, and identify how to address past liabilities the acquired company may have.
Look at the customer’s point of view and
see how to make customers benefit from
the onset. To retain and expand business
with existing and acquired customers, consider using promotions, special events, fare
sales, frequent flyer program bonuses and
similar activities linked to the acquisition.
Address labor concerns early on to avoid
resource issues. Identify and communicate
the overall plan, specifically what is expected of each of the labor groups. Answer
questions concerning critical labor items
such as if there will be job cuts, work rule
changes, trade offs and other issues that
will be of high concern to employees of
each airline.
While KLM and Air France continue to operate under their own brands, their merger three
years ago has enabled the combined group to develop powerful synergies and provide a
more attractive passenger airline.
ascend 57
special report
viewed expansion as a MRO provider to their
existing customer base of other airlines since
they had Airbus and Boeing capabilities and
had good relationships with original equipment
manufacturers.
The companies had complementary networks and foresaw benefits to an enlarged
SkyTeam alliance. Previously, KLM was not a
full member of SkyTeam. At the time of the
merger, the carriers had 101 long-haul destinations, including 31 common destinations, 43
unique destinations for Air France and 27 for
KLM. They recognized their hub airports as
assets that could be leveraged to propel further
revenue management harmonization; improving fleet utilization, coordinated management.
Estimated synergies: €100 million (US$137
million),
Cargo: Network optimization, commercial
alignment, support services. Estimated synergies: €35 million (US$48 million),
Maintenance: In sourcing, procurement, pooling spares and stock; creation of “center of
excellence.” Estimated synergies: €60 million to €75 million (US$82 million to US$103
million),
Information technology: Convergence of systems. Estimated synergies: €50 million to
Highlight
“A well-designed airline merger or acquisition can produce superior results, including
returns to shareholders and benefits to
consumers, despite the complexities of integrating two businesses.”
expansion. At the time of their merger, 75
percent of long-haul flights in Europe were concentrated in 10 European hubs, with four hubs
providing more than half those flights (Paris,
France; Amsterdam, Netherlands; Frankfurt,
Germany; and London, England). Air France’s
hub in Paris at Charles de Gaulle and KLM’s
hub in Amsterdam Schiphol are among the
E.U.’s largest hubs. The carriers knew their
two airports allowed for network expansion
while other large hub airports had capacity
constraints.
The carriers effectively communicated
passenger benefits — such as a larger choice
of routes and destinations, more seats at lower
fares, and more attractive frequent flyer programs
— to the public and their customer bases.
They took advantage of synergies and
developed a timetable to achieve them smoothly.
A recap of the actions the carriers undertook and
estimated annual value of synergies produced
by the fifth year is based on a 2003 presentation entitled, “Creating Europe’s Leading Airline
Group.” The airlines worked strategically in several key areas to secure their future together,
including:
Sales: Coordinate sales structures; sales
cost improvements; handling and catering.
Estimated synergies: €100 million (US$137
million),
Network, scheduling and revenue management: Network and schedule optimization;
58 ascend
€70 million (US$69 million to US$96 million),
Procurement: Cost reduction. Estimated synergies: €10 million to €30 million (US$14
million to US$41 million).
The carriers estimated 60 percent of total
synergies would come from cost savings. Of
the total improvement projected for operating
earnings, half was to come from internal costs,
a quarter from external cost savings, and a
quarter from network adjustments and fleet
rationalization.
The merger structure and organization covered areas of interest to key stakeholders, and it
was to be a publicly listed holding company with
two operational airlines. The structure preserved
two brands and identities and was designed
to operate with simplicity. Both airlines were
to maintain their operating licenses, transport
certificates and traffic rights. They were to be
managed by cooperative governance, with Air
France appointing the chairman and CEO and
KLM vice chairman of the board and KLM CEO.
They used a strategic management committee
to govern the implementation, which consisted
of an equal number of members of both carriers.
The committee was responsible for network and
hub coordination, fleet and investment strategy,
and alliance and partnership strategy. Each airline
would be responsible for its own commercial and
operating management, including airworthiness
and flight safety, human resources, and product
delivery. Corporate governance of each airline
would include representation from its partner
airline.
The financial transaction provided a premium to KLM shareholders that included benefits from the restructuring plan that was already
underway at the time of the merger. It also
enabled KLM shareholders to benefit from future
synergies and growth opportunities as well as
be shareholders in a significantly stronger group.
For Air France shareholders, their financial benefit
included gains from annual synergies derived in
the first year and large potential upside from
expected financial synergies in future years.
There was a three-year timetable to enable
a smooth transition and allow time to secure
regulatory permissions and traffic rights. On
the regulatory front, the carriers needed antitrust clearance from the European Commission,
the U.S. Department of Justice and the French
Commission des Privatizations et des Transferts.
They indicated creation of greater opportunities for employees and worked with labor
groups on harmonization.
Air France/KLM acquisition activities
also focused on their customer base. They
publicized a larger overall network, linking two systems with schedule enhancements and frequencies between hubs. They
enhanced service to home markets with
greater frequencies, offered frequent flyer
benefits to earn and claim rewards in either
program, and provided lounge access in both
airlines’ networks to eligible customers of
either airline. They announced electronic
ticketing and offered attractive fares as well
as special promotional fares. Through schedule coordination, they offered customers
connections via Paris or Amsterdam, which
offered more choices of routings and timeof-day travel.
A well-designed airline merger or
acquisition can produce superior results,
including returns to shareholders and benefits to consumers, despite the complexities
of integrating two businesses. There are
significant hurdles that need to be overcome
to integrate two airlines, and a smooth ride
is not assured.
Airlines are a service industry, requiring cooperation of employees who are in
direct contact with customers and operate
the day-to-day business. An appropriate labor
strategy and implementation is essential to
secure employee buy in and obtain cooperation to ensure satisfactory operational performance. a
Peter Berdy is a partner for Consulting
and Solutions Delivery at Sabre Airline
Solutions ® . He can be contacted
at peter.berdy@sabre.com.
special report
Fuel-Saving Systems
To the Core
While some carriers are merging and/or expanding their businesses,
others, such as SAS, are selling parts of their organizations and getting
back to their core competency of running a passenger airline.
By Phil Johnson | Ascend Staff
Photo by shutterstock.com
A
t a time of tremendous flux in the global
airline industry — with a number of airlines looking to establish more-aggressive growth opportunities through alliances or
mergers and acquisitions — it’s interesting
to observe the actions of some airlines in
what may eventually prove to be either
shrewd strategic positioning or simple reprioritizing within the worldwide transportation
picture.
Stockholm-based SAS Group, for
example, has recently made several moves
that seem to signal a “drawing in” or focus
specifically on serving greater Scandinavia
along with adjacent areas of northern
Europe — deemphasizing other regions that
have traditionally been served by a broaderbased SAS family of affiliates.
SAS President and Chief Executive
Officer Mats Jansson recently announced
that SAS intends to shed its interest in
Spanair as well as its substantial shares of
bmi and Air Greenland.
So, while many airlines are looking
to increase their size and reach through
mergers, SAS has taken a different course.
But what underlies this decision? After all,
every business analyst understands that
nothing in the world of the transportation
and travel industries happens in a vacuum.
And Jansson — in tandem with other top
company executives — most certainly
envisions a greater strategic direction
behind SAS’s business moves.
Could SAS be completely out of
synch with its counterparts in the greater
global airline industry? Indeed, could SAS
be out of synch with a whole lot of successful companies in other industries? Or
could SAS — on the contrary — actually
be a trailblazer?
The reality is that no one will know
the answer for several years. Just as
there are logical reasons many airlines are
looking to combine with others, there are
SAS Group has elected to shed some of its external operations to better focus on serving
greater Scandinavia along with adjacent areas of northern Europe — putting less emphasis
on other regions that have typically been served by SAS affiliates.
likely as many sound economic arguments
for paring down operations so a company
can claim to be operating as a proverbial
“lean, mean, fightin’ machine.”
SAS management says it is further
evaluating whether to hang on to other
ancillary parts of its business — having
recently sold off SAS Flight Academy.
That evaluation includes parts of the business such as SAS Technical Services
and SAS Ground Services, either or both
of which could follow the way of the
Flight Academy and be spun off or sold
outright.
Or those parts of the business may
simply be reorganized and retained in
house.
And the entire process may be subordinated in what would be the much
larger move of preparing SAS to join with
another carrier (Finnair is a logical rumored
partner) or be absorbed into an even larger
consortium.
Comparing SAS’s actions (and proposed actions) to those of prominent companies in other industries could help provide insight into the carrier’s motivations.
Stock analysts on both sides of the
Atlantic have long been only too ready and
willing to recommend bundling and ditching portions of a business that are either
notably different from a company’s core
economic emphasis or are seen to be performing poorly. Or, significantly, are seen
to have a more-than-even chance of performing much better as separate entities.
These business-partitioning and -parting exercises usually occur as either spin
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special report
Photo by shutterstock.com
offs, which are often accompanied by initial
public offerings, or sales to other companies whose businesses are at least theoretically more closely aligned with the entities’
interests.
To look at one of the most prominent
companies in global business over the past
hundred-plus years, one need only observe
some of the various ownership stakes that
have gone together to make up the current
version of General Electric Co.
Over the span of many decades,
General Electric has actually been directly
involved in the airline industry through its
state-of-the-art aircraft engines and electronics, as well as airline financing with its GE
Aviation Financial Services.
But in this case, zero in on a few other
pieces among the many that comprise GE at
this stage of the 21st century and how those
pieces may be logically apportioned in the
near future.
GE is one of the most successful
conglomerates the business world has
ever seen, with assets and expertise in
such diverse areas as electricity, lighting, medical imaging, factory automation,
finance, entertainment, aerospace, railroad
locomotives … and the list goes on.
Today’s business analysts are nonetheless prone to recommend the separation of business functions into different
better-focused spin-off companies, and
GE is not immune to receiving this type of
advice.
As part of its initiative to more closely focus on its core competency of running its passenger
airline, SAS plans to divest its interest in Spanair as well as its substantial shares of bmi and
Air Greenland.
of GE’s present business units — including
those analysts have conveniently pointed
out as prime candidates — is a foregone
conclusion.
How does all of this relate to SAS
and other airlines around the world that are
continually trying to make their businesses
operate more efficiently?
“I’ve always been of the mind that if
somebody can run a business better than
we can, we will sell it.”
— Jeffrey Immelt, GE chairman and CEO
Not long ago, for example, GE did spin
off its hefty mortgage and life insurance
arm into a separate company now known
as Genworth Financial, and GE is also in the
process of selling its formidable but slowermoving plastics business.
Now, analysts are calling loudly for GE
to shed its high-profile NBC Universal entertainment sector as well as its real-estate
division.
“I’ve always been of the mind that if
somebody can run a business better than we
can, we will sell it,” GE Chairman and CEO
Jeffrey Immelt recently said, although Immelt
was simultaneously cagey and cautious not
to tip his hand that the divestiture of any
60 ascend
Actually, there are more similarities
than might at first seem apparent.
Like upper management at GE, the
corporate executives at SAS and other
admirably managed airlines are trying to
think strategically while acting tactically to
optimize their positions within the scope of
their day-to-day as well as long-term business interests.
Does SAS management look at the
overall transportation landscape and see
some major moves that seem to afford
better current capability to enhance the
airline’s profit potential as well as its laborrelations outlook (which, of course, are by
no means mutually exclusive)?
Or is SAS signaling that it’s perfectly willing to make any number of key
changes to emerge more attractive as a
partner — either for a merger or as a buyout
candidate?
The vital answers to these and many
other intriguing questions, in fact, should
become much more abundantly apparent in
the days, weeks and months to come.
But one thing will never vary: Airlines,
such as SAS, operate under the same business pressures and forces as a corporation
of the worldwide stature of GE — and
neither SAS nor GE nor any other company
will ever be immune to those pressures and
forces.
More than one industry observer
along with many within the companies
themselves have noted that under its present economic structure, Europe has quite a
few more national airline companies than
are necessary to adequately, efficiently
and competitively serve the total European
travel market.
So those with an interest — particularly in merging with or acquiring all or parts
of airlines, or just an airline’s publicly traded
stock — need to keep a sharp eye out for
airlines sending what could be diverse messages. a
Phil Johnson can be contacted at
wearelistening@sabre.com.
special report
Boom and Bust
A number of private-equity companies are taking an interest
in airline ownership to help make the sometimes-struggling
carriers better as well as boost the value of what they own.
By Phil Johnson | Ascend Staff
Photos by shutterstock.com
C
onsidering the preponderance of buzz
— including multiple rumors as well
as actual offers of various companies
bidding to acquire all or portions of different
airlines around the world — it’s not surprising that some of the speculation centers on
private-equity firms.
More specifically, certain private-equity
firms such as TPG Capital, which, along with
Silver Lake Partners, recently took Sabre Holdings®
private, appear to be very interested in moving
deeper into airline ownership.
And while it may seem farfetched for some
traditionally “non-airline” companies to move their
airline holdings up to majority stakes or even
outright ownership, in TPG’s case, the airline connection is fairly obvious.
David Bonderman, who co-founded Texas
Pacific Group (now TPG Capital) in the early ‘90s,
has a history of being involved in airlines stretching
back to his association with Continental Airlines,
shepherding the once-distressed carrier out of
bankruptcy to become one of today’s strongest
international players.
More recently, TPG Capital also moved to
acquire the catering arm of the former Swissair,
and Bonderman himself has served for a number
of years as chairman of the board of Ireland-based
discount carrier Ryanair.
“Not every private-equity firm is willing to
touch the airline industry,” said Stan Block, Ph.D.,
a finance professor at Texas Christian University’s
Neeley School of Business. Among Block’s specialties is the study of corporate mergers and
acquisitions.
“In many ways, airlines operate in a ‘boomand-bust’ industry,” Block said. “And in terms
of coming into the airline industry, it really does
require a very special talent — it takes somebody
like Bonderman, who has had the experience
and knows how to turn an airline around. It’s
interesting because Bonderman is not one who
gets hubris or thinks because he’s done something well previously, he can do something else.
He’s a hardnosed business guy, and he under-
Texas Pacific Group, which was co-founded by David Bonderman, former Continental Airlines
chief executive, has explored the possibilities of acquiring several airlines including Qantas
Airways and was recently backed by British Airways to bid on Alitalia, for which it later withdrew.
stands the airline industry well enough to want to
participate.”
So what exactly is involved when assessing TPG or any other “non-airline” company
looking to get further involved with airlines? Is it
a trend?
Really, it depends on how any particular
company’s moves are interpreted by analysts who
may or may not have all of the facts at their disposal. Earlier this year, TPG explored agreements
to aquire Australia’s Qantas Airways and Alitalia,
although both efforts were unsuccessful.
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special report
And it was recently reported that TPG is
being backed by British Airways in a bid to acquire
Iberia. British Airways itself, in fact, has been
rumored as a potential takeover target upon the
occasion of a significant increase in BA shares
owned by investment brokerage Goldman Sachs,
already a major BA stockholder.
What might be the motivation of privateequity firms to be so involved among airlines?
“These private-equity interests are not
‘nice guys,’ per se,” Block said. “They’re ‘good’
guys — they’re efficient guys who make companies better, but they’re not trying to do anybody
a favor. They want to increase the value of what
they own. In any company, there’s a tendency for
activities to be continued because of personalities
and tradition and so forth. But once a firm like
TPG comes in, they’re starting from a clean board.
They’re looking to see what works and what
doesn’t work.
“So they’re going to reallocate for things
that are unnecessary, that are not cutting costs,
that are not making the operation more efficient,”
Block said. “That’s their objective — because they
want to maximize the value of the company.”
Buying aircraft and leasing them to various
airlines as highly valuable commodities is another
major way a number of private-equity interests are
becoming more heavily involved in the airline business as a whole.
And there’s even been some speculation
that the major delivery-service companies — FedEx
and UPS, for example — might consider moves to
acquire airlines. It does not, however, necessarily
require as much imagination to detect the logic in
that type of prospective combination, since FedEx
and UPS are already major global airlines in and of
themselves, albeit not on a passenger basis.
Airlines — in times of major cost cutting
and emerging efficiencies — also tend to divest
themselves of any “non-core” properties that are
extraneous to the primary business of safely flying
and connecting people among their chosen global
destinations.
“I think this goes all the way back to Braniff,
and maybe even further than that,” Block said,
Photos by punchstock.com
In addition to private-equity firms that are taking an interest in the air transport industry,
delivery-service companies such as FedEx and UPS may consider moves to acquire airlines.
62 ascend
referring to Braniff Airlines, a once-highflying carrier
that went bust in the 1980s. “Braniff was heavily
into the hotel industry, and it got them in trouble. I
think what you see in the airline industry is: It’s an
industry that tends to go to extremes. We know
that at certain points in time, an airline is highly
prosperous; at other points in time, it operates
almost out of desperation.
“And what happens, just going back to
the classic Braniff case, when they’re making tremendous profits and have more money than they
seem to know what to do with — and this is also
true of the oil industry and other industries as well
— they tend to give themselves too much credit.
They may say, ‘We’re doing so well, we could take
on other industries and spread our brilliance into
those industries.’ So what will happen is that when
they’re at the peak of profitability, they will enter
other activities — just spreading their good will and,
supposedly, their superior management.
“Then when things change, those are the
very things they need to jettison. They can’t be
tying up capital there — they can’t be taking those
huge losses, particularly if they’re not diversified
away from the travel industry. And the problem
with things like hotels is that when the airline industry is going poorly, chances are other components
in the travel industry are going poorly as well. So
there is a strong desire to jettison things like hotels
and other extraneous business. And just take the
example of when an airline that’s had to declare
bankruptcy goes into the bankruptcy court, about
the last thing a trustee or judge wants to talk about
— in trying to keep the airline flying — is to keep its
other activities going.”
Indeed, not all airlines struggle as much as
others during lean times. But the extent to which
an airline’s economics become distressed can be
a key measure of the type of bargain a potential
buyer might accrue through an acquisition.
And once a private-equity firm or another
non-airline company acquires an airline, its longerterm objectives may be very clear.
“They’re only likely to move in where they
see two things: potential and inefficiencies,” said
Block. “What I mean is the potential to be much
better, and inefficiencies that can be eliminated to
maximize the value of the company and maximize
its profitability.”
And therein lies the true potential value
of the interest non-airlines have shown in getting into the airline industry in a very big way:
improvement in efficiency and profitability,
which in the long run can only help the entire
industry grow stronger. a
Phil Johnson can be contacted at
wearelistening@sabre.com.
special report
A Bold GOL
In one of its patented straightforward business moves, GOL
Airlines assumes ownership of Brazilian rival Varig.
By Phil Johnson | Ascend Staff
B
fly to various highly desirable destinations in Europe and North America.
And while yesterday’s heavily debtburdened Varig was not making active
use of very many of its coveted São
Paulo slots, under GOL’s ownership,
Varig figures to be flying regularly to
places including London, England; Paris,
France; Milan, Italy; Madrid, Spain; and,
of course, to Frankfurt, Germany, which
Varig has continued to serve from Brazil’s
Rio de Janeiro and São Paulo.
Also in the near future, Varig is
expected to make regularly scheduled
round trips from Brazil to New York, New
York; Miami, Florida; and Mexico City,
Mexico, in North America, as well as
serve South American destinations including Santiago, Chile; Bogota, Colombia;
Caracas, Venezuela; and Buenos Aires,
Argentina, in addition to numerous highdemand Brazilian destinations besides
Varig’s scheduled arrivals and departures at São Paulo and Rio.
Sabre Airline Solutions Archives
razil’s GOL Airlines has sustained
its well-established reputation as
a growing industry force by boldly
acquiring the assets of its previously
struggling Brazilian competitor Varig for
approximately US$275 million in cash
and stock.
Not only is GOL’s plan to maintain
separate operations and executive staffs
heading up the two primary branches
of its airline business — GOL and Varig
— but in theory, at least, the two will
essentially continue to compete against
each other, although their business models vary significantly and, therefore, the
customer demographic each pursues is
distinctly different.
The primary objective for the GOL
brand is to economically provide the
opportunity to experience the pleasures
and efficiencies of air travel to the
“everyman” passenger among Brazil’s
(and much of greater South America’s)
potential traveling public.
For the Varig brand, on the other
hand, the objective may be a little more
difficult to characterize. Varig is Brazil’s
traditional international air carrier with
a proud and storied history dating back
to 1927, but in recent years it has been
rocked by operating inefficiencies and
steep costs that in 2005 sent the airline
into bankruptcy.
In 2006, Varig was bought by
Brazilian consortium Volo de Brasil along
with private-equity investors and Varig’s
own logistics/cargo arm, VarigLog. In
fact, among the key assets GOL has
received in acquiring Varig are the industry-respected capabilities of VarigLog.
Through the Varig transaction, GOL
has also acquired lots of other business
advantages, including Varig’s valuable
slots at Brazil’s São Paulo-Guarulhos
International Airport that can be used to
Brazil-based GOL made a bold move earlier this year when it acquired assets of its struggling
competitor, Varig, for approximately US$275 million. The airline plans to operate separately,
and both carriers will keep their executive staffs.
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special report
Sabre Airline Solutions Archives
Through the Varig acquisition, GOL has obtained several other business advantages, such as
Varig’s slots at São Paulo-Guarulhos International Airport that can be utilized to serve numerous attractive destinations in Europe and North America.
Under current plans, the Varig fleet
— which had been carved down to a virtual skeleton complement of 17 aircraft,
a number barely capable of maintaining
viable operations — is to be doubled by its
GOL ownership to 34.
More specifically, those 34 aircraft
are to consist of 20 efficiently configured
and maintained Boeing 737s, plus an
additional 14 of Boeing’s longer-haul 767
As part of the deal, GOL has assumed
approximately US$45 million in Varig debt,
but GOL obviously sees many exciting
potential advantages in its future with
Varig that may thoroughly outdistance the
costs within a relatively short timeframe.
In one of GOL’s early press releases explaining its reasoning behind the
acquisition, its chief executive officer
Constantino de Oliveira Jr. said, “With
“With this acquisition, Brazil will maintain
an important flag in global aviation, the
industry will benefit from an increase in
jobs and demand will be better served.”
— Constantino de Oliveira Jr., GOL chief executive officer
aircraft for intercontinental routes.
And although it is GOL’s intention to
have Varig operate under many low-cost
parameters as established by GOL — and
to benefit from further efficiencies of scale
between the two branded carriers — Varig
still differentiates itself from GOL with two
travel classes (business and coach) and its
“Smiles” frequent flyer program, which is
and will remain a Varig-exclusive feature.
64 ascend
this acquisition, Brazil will maintain an
important flag in global aviation, the industry will benefit from an increase in jobs
and demand will be better served.
“We will work so our companies
become the Brazilian carriers of choice
for both domestic and international
passengers.”
In this context, among the salient
items Oliveira was undoubtedly think-
ing about were the non-Brazilian airline
companies, particularly Chile’s LAN,
which had been seriously evaluating
the potential of acquiring Varig (and
prior to GOL’s deal for Varig, Brazil’s
No. 1 international airline TAM was also
speculated to be weighing a Varig bid).
Obviously, GOL’s preemptive
acquisition kept Varig under Brazilian
ownership and enhanced Varig’s capability to help strengthen Brazil’s international economic hand in the coming
years.
But it did much more than that.
One of the great questions regarding
international air travel in the early 21st
century is whether hard-nosed, relatively frugal economic principles can be
applied to allow a truly low-cost carrier
to succeed on a global scale.
GOL would like to find out — and
some analyst speculation has it that the
carrier would like to try spreading its
own intercontinental wings to Europe
and North America, among other worldwide destinations.
Perhaps the operations of Varig
— particularly in Varig’s coach cabin,
which should most closely resemble
operations under GOL’s single-cabin
principle — could prepare the intercontinental path for GOL to launch a
broader worldwide schedule within the
next several years.
Certainly, the airline today directly
experiences the advantages of international operations within South America,
but its ambitions — after all, GOL was
only founded with a total of six aircraft
in 2001, and under current orders will
have more than 150 aircraft by the end
of 2012 — seem limitless.
Consider the additional fact that
not long before announcement of the
Varig acquisition, GOL had established
codesharing with TAP Portugal — basically prying open a significant conduit
into the European market through which
GOL could begin figuratively dipping its
toes in the trans-Atlantic water.
With the Varig deal, GOL has
fundamentally incinerated all barriers
to its full intercontinental air travel
participation. Yet the eventual form
into which that participation will evolve
remains an intriguing mystery.
Suffice it to observe at this point
that GOL’s Varig arm is going to be a
real and substantial presence in intercontinental air travel. And regardless
of its own low-cost business model,
GOL is going to be — at the very least
— on the minds of airline thinkers and
planners throughout the Americas and
Europe, not to mention those in the
special report
Photo by shutterstock.com
vast Asia/Pacific regions that could
also be dimly visible in GOL’s future.
For now, owning Varig will do, but
what’s next for GOL? What new parameters is this young South American
upstart establishing for the industry?
Judging by GOL’s history, the
answers will probably be big and brash.
And lots of the carrier’s worldwide
competitors may be left wondering why
they didn’t have the nerve and foresight to be so audacious first. a
Phil Johnson can be contacted
at wearelistening@sabre.com.
Despite its fallback in 2005 when Varig, Brazil’s network international airline, filed bankruptcy, the carrier’s brand is still strong, dating back to 1927, and the acquisition by GOL will
likely secure a future for the struggling airline.
+count it up
70
3 million
4,650
The number of airports the
The number of passengers that will
The number of shipments of spare
International Air Transport
board 42,300 flights on Boeing jetliners
parts Boeing will send to airline
Association expects to have com-
in the next 24 hours, carrying them to
customers worldwide in the next 24
mon-use self-service kiosk technol-
nearly every country on earth.
hours.
ogy, or CUSS, by the end of 2007,
resulting in annual airline savings
of US$1 billion at 40 percent market
penetration and an average industryper-check-in savings of US$2.50.
5.3
Percentage of the average annual
growth rate of domestic passenger
demand, which is expected to grow
from 1.37 billion passengers in 2006
to 1.77 billion in 2011. The increase is
fueled by expansion in the Indian and
Chinese domestic markets.
5.1
Percentage of the average annual growth
rate of international passenger demand,
which is expected to rise from 760 million passengers in 2006 to 980 million in
2011. This will be lower than the 7.4 per-
24
The number of hours millions of travelers, hikers and boaters will find their
way home using the global positioning
system designed and built by Boeing.
cent AAGR recorded during 2002-2006,
largely due to slightly slower global
economic growth.
ascend 65
products
Maximizing Manpower
An effective resource plan and the right tools to support it enable
airlines to smoothly introduce new aircraft types into their fleet mix.
By Michelle Willams | Ascend Contributor
F
leet expansions are always an exciting
time for an airline. But introducing a
new fleet into the operation opens up
a whole new task list of things to consider,
especially from a crewing perspective.
When Singapore Airlines chose the
Airbus A380 (see related article on page
8), there’s no doubt it had to consider the
impact on its crewing operations. However,
utilization of a disciplined approach and solid
tools can make changing fleet numbers and
demands a smooth exercise for the entire
crew and airline.
Traditionally, airlines have a designated
group of employees who regularly examine
the crew workforce plan, or “manpower”
plan. When examining the plan, carriers
answer a variety of questions, such as:
1. Where do I have a shortfall of crew?
2. Where do I have an excess of crew?
3. What duties, training classes and leave
plans can be adjusted to decrease shortages?
4. When should I hire new crew?
5. From what crew groups should I move
resources?
These questions may be accessed
daily or monthly. Therefore, in terms of daily
operations, if the carrier has a shortage of
crew on a given day, it can quickly determine
what duties can be moved around. The
granularity of the manpower plan varies
depending on the amount of information
available. Of course, the accuracy of the
plan is also significantly greater closer to
the day of operations and less accurate
further out.
Utilizing tools such as the Sabre ®
AirCrews® Resource Manager can assist an
airline in aggregating this wealth of information as well as analyzing and presenting
it to a crew planner for consideration and
decision making.
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A traditional approach to examining a
manpower plan is to look at three basic categories: Availability (supply of crew), requirements (demand for the crew) and balance.
Once the balance is calculated, the crew planner will study a variety of additional statistics
and make several recommendations of how to
smooth out the balance against the different
categories.
Planning these resources should be
examined within a given segregated crew
group. For example, at Singapore Airlines, it
is critical to examine its Boeing 747 captains
separate from its Boeing 777 captains. Due to
crew qualifications and other requirements,
may be able to operate the Boeing 747 and
777 and the Airbus A320. Also, the movement
toward a common cockpit for some airlines is
increasing the complexity of this analysis in
the flight deck group as well.
Calculating Availability
The availability of crew involves
information such as total headcount, contribution of different types of crew (the
contribution from a particular part-time
crew group), movement out of and into
the group, and situations that make a
crew unavailable for a given period of
time. Combining this information gives
Highlight
When Singapore Airlines chose the Airbus
A380, there’s no doubt it had to consider
the impact on its crewing operations.
the available Boeing 747 crew resources
are typically the only ones qualified to fulfill
Boeing 747 crew requirements. Segregating
the crew becomes increasingly complicated
when crewmembers can operate a variety of
fleets, and the combinations are not necessarily the same among the crew members.
For instance, at Singapore Airlines, cabin crew
can have qualifications on up to three different
aircraft types. However, there are not necessarily common group qualifications, and there
are overlaps. For example, one crew may be
able to operate the Boeing 777 and 747 as
well as the Airbus A340, while another crew
an analyst a starting point to determining
the total available crew group. Resource
Manager calculates the value on a given
day:
Initial headcount plus crew moving in
(new hires, transfers in, promotions in),
Crew moving out (retirements, terminations, transfers out, promotions out),
Unavailable crew (long-term leave, down
time for crew, transitional training).
Considering this information gives
the basic availability of the crew. Resource
Manager is able to easily aggregate this
information from all operational, leave and
products
Photo courtesy of Airbus
training information available within the
database.
Calculating Requirements
Calculating requirements is considerably
more complicated than calculating available
resources. Requirements rely on more forecasting, hence, introducing a greater degree
of error. When calculating requirements, an
analyst should consider a variety of information such as the planned operational schedule;
training plans; and days-off, leave and reserve
requirements. Schedule requirements can be
derived from a planned pairing set, an operational schedule or even a basic aircraft plan.
Training requirements should consider items
such as recurrent training plans for the crew,
instructor requirements and other ad hoc training requirements. Leave requirements should
consider issues such as the annual leave plan,
allocated leave for the crew and expected sick
rates.
Typically, a combination of actual
known data (such as the leave bank
for the crew) and forecasted information
(such as a sick bank) are considered in calculating this value. When using Resource
Manager, this value is calculated on a
given day as “Schedule + Days Off +
Training + Reserve + Leave.” Similar to
the availability calculation, Resource
Manager easily aggregates this information from the database. Tools such as
Resource Manager also make it easy to
evaluate different alternatives within the
flying schedule. Analysts may consider
different pairing or schedule options. All
of these can have an impact on the final
requirements, and hence, the final balance
for the crew.
Balance and Statistics
The balance of available resources
and the requirements on these resources
is a key starting number for an airline.
From these figures, carriers can evaluate
the trends of their resources and determine the best movement and placement
of these crewmembers.
Applying to the new Fleet
So given the challenge of incorporating a new fleet into the department,
a reliable resource plan provides a strong
starting point for an analyst to determine
how to best incorporate the new fleet. The
analyst can answer questions such as: What
crew resource groups would be the best
to convert or promote into this new fleet?
Taking the surplus from one group and
applying it to the new group and schedule is
one option an airline can use when staffing
a new fleet. A reliable manpower plan can
also answer a key question as to how many
crew the department should hire.
The A380’s India visit in May included a multi-day stopover in Mumbai for airport compatibility trials.
Along with determining how many
employees to hire or move between groups,
an airline needs to also determine when
the crew should be trained. “Just-in-time”
manufacturing should be applied to the
crew resource movement. Training should
be conducted with the introduction of the
new fleet type. As new fleet demand grows
throughout the schedule (due to the arrival
of new aircraft), the airline can continue
to add crew to training classes. The key is
to maximize the utilization of the available
crew resources across the schedule. This
will reduce any overhead costs from having
too many available crewmembers without
enough flying, or aircraft unable to fly due
to unavailable crew.
Once a reliable manpower plan
is agreed upon, the airline incorporates
the new aircraft type into its fleet mix.
Crewmembers can be chosen for the new
fleet, training classes can be added and
scheduled, and all other down-line activities
can begin.
The plan should be regularly re-evaluated and compared to the current status
of the airline. Once new crewmembers are
hired, training has begun or more accurate
schedules have been received, analysts
should re-evaluate the plan and make any
necessary adjustments. This process protects utilization of resources and aids the
airline in staying aligned with the objective
to bring the new aircraft online.
One of the challenges of the crew
planner is to collect all the key information required in the manpower plan. At
many airlines, this information sits within different departments and systems,
and it must be manually collected and
input into a spreadsheet or another tool.
However, when the crewing department
is managed with a common database,
the information can easily be collected
and analyzed. Resource Manager makes
updating the plan a simple task. As the
latest information becomes available in
the database, the analyst can request a
refresh on the plan, which produces reliable figures to determine the appropriate
course of action. Resource Manager can
also make suggestions to the timing of
the training plan and how to manage the
new resource group with items such as
leave plans and recurrent training plans.
Overall, a reliable manpower plan
can assure a successful introduction of
new aircraft types in an airline’s fleet.
The manpower planning process should
be conducted regularly within the airline
environment. a
Michelle Williams is a principal in the
airline operations product area for Sabre
Airline Solutions ® . She can be contacted
at michelle.williams@sabre.com.
ascend 67
products
The Focal Point
Using an application service provider delivery method enables
airlines to focus on their core business while having the
technological backing necessary to optimally run their airline.
By Emily Tate | Ascend Contributor
F
Lowers Total Cost of Ownership
By eliminating many of the upfront
costs associated with running an application, ASPs can decrease the overall
amount being spent on airline-specific
68 ascend
applications. Servers do not have to be purchased and third-party software licenses
do not have to be obtained. Hardware typically must be refreshed every three to four
years, adding more to the total cost over
the life of an application. In addition, ASP
providers can typically run more than one
instance of an application simultaneously,
achieving economies of scale that internal
IT departments cannot attain.
Beyond the physical hardware infrastructure needed, using an ASP also reduces the number of personnel that must be
dedicated to monitoring and maintenance
— an expense that can greatly increase
costs but is necessary to maintain stability.
By reducing the amount of support needed,
ASP providers can often lower the total
cost of ownership between 20 percent and
50 percent over a locally installed solution.
Photo by shutterstock.com
rom a young age, children learn to recognize things that belong together and
things that don’t. When looking at an
apple, an orange and a carrot, many children
understand that the carrot is not a fruit like the
others. With businesses, it can be easy to lose
sight of this basic fundamental and try to focus
on things that don’t fit within the core function
of the company. Looking at an airplane, a pilot,
a passenger and a database server, it becomes
clear that some aspects of running an airline
should demand greater focus from airline
executives than others.
Information technology is constantly
becoming more sophisticated, providing
better optimization tools and functionality.
While it may be appealing in an age of
intense competition, with this sophistication comes IT complexity. Many of the
best solutions in the marketplace require
significant investment in hardware, thirdparty software and other IT resources. At
the same time, airline IT departments are
seeing reduced budgets and finding that too
much time is being spent on tactical projects rather than focusing on driving value.
To maintain focus on their core business, airlines must find a way to get
the benefits of these technology solutions
while minimizing the increase in IT burden.
One way to achieve this is to utilize an
application service provider model, in which
an application resides on the servers of a
different company and is accessed via the
Internet or a secure, dedicated communications line. Using an ASP can reduce IT costs
for an airline as well as provide other benefits that can improve the bottom line.
When critical incidents caused by hardware or software malfunction occur, it’s vital to get
back online as quickly as possible so airline professionals, such as pilots, as well as passengers, are not negatively impacted. Running solutions remotely via an ASP can reduce resolution time by 55 percent versus applications that were locally installed.
products
Photo by shutterstock.com
Carriers using an application service provider delivery method to operate valuable information technology solutions can better focus on their
core competency of running an airline. Through the ASP environment, solutions can be implemented and maintained outside of an airline’s
local data center.
Allows for Scalable Solutions
As airlines grow, hardware capacity
can become an issue. The loads placed on
servers can become too high, requiring the
IT department to purchase more expensive
hardware and further increasing the cost to
monitor and maintain equipment.
With an ASP solution, capacity can
be increased with the airline’s growth
much more easily. The spike in costs that
can be seen when the applications are
hosted in an airline’s local environment is
greatly reduced as the ASP is responsible
for maintaining enough capacity to keep
the airline’s system running smoothly in
production.
Lowers Fixed-Cost Base
The airline industry is highly cyclical
and high fixed-cost bases can make slower
times extremely difficult. Having to maintain the overhead costs associated with a
full data center and all of the hardware and
third-party software licenses significantly
increases the fixed costs of an airline.
In an ASP model, these fixed costs
are turned into variable costs with predictable pricing, providing more flexibility in
slower times and making costs easier to
shed if needed.
Simplifies Internal IT
With a locally installed solution, the
airline’s internal IT group must spend time and
money keeping the applications in production.
Vendor-provided applications may use third-
party software that requires additional training
and familiarization for the airline’s staff. Using
an ASP solution, significant time can be saved
so this group is not burdened with the day-today operation of complex systems. An ASP
provider owns the responsibility of keeping the
applications running in an acceptable manner,
including:
Installing maintenance releases and patches,
Monitoring systems to ensure they are functioning properly,
Upgrading hardware and third-party software,
Troubleshooting issues — whether hardware or application related,
Maintaining the most recent version of the
airline-specific application.
Reduces Operational Impacts
Unplanned downtime for a critical
application can be very costly for an airline. Loss of productivity and disruption of
operations as well as resources required
to get the issues fixed can greatly impact
the bottom line.
According to research done on the
Sabre ® eMergo ® Web access ASP solution,
the number of critical/high-impact service
incidents was about 33 percent less for
a hosted application than for a locally
installed application over a 10-month
period. With data center experts on site
whose sole responsibility is to minimize
incidents caused by hardware and software malfunctioning, the environment is
kept in a more stable condition than most
airlines can achieve themselves.
In addition, when the critical incidents did occur, the resolution time
for applications hosted on the eMergo
platform was 55 percent lower than for
applications that were locally-installed.
Through monitoring and on-site staff, the
problems can be diagnosed and solved
more quickly, getting the applications
back in productive mode faster.
Airlines will always require sophisticated software to meet their complex
business needs. Like a child choosing the
carrot from a fruit bowl, airline executives must recognize that supporting IT
applications requires a different skill set
to operate effectively. Using an ASP
delivery method, valuable solutions can
be implemented outside of the airline’s
local data center, enabling them to focus
on their core business — running an airline. a
Emily Tate is senior product manager
for Sabre Airline Solutions ® . She can be
contacted at emily.tate@sabre.com.
ascend 69
Sabre Airline Solutions Archieves
Conquering Chaos
By Dave Roberts, Tom Samuel and Kamal Singhee | Ascend Contributors
Robust decision-support tools can help airlines quickly recover
from unexpected schedule disruptions, keeping passengers
satisfied rather than frustrated and disgruntled.
W
eather. Storms. Air traffic control.
Mechanicals.
Delays.
Misconnections. Cancellations.
Disruptions. Off-schedule operations.
Irregular operations. These words or
phrases bring forth travel woes and frustrated, annoyed, hungry passengers who
feel more like prisoners than customers.
It’s a story that has become increasingly
common in the airline industry.
From the start, irregular operations
have been on the scene in aviation. The
very first scheduled flight by the Wright
brothers had to be cancelled due to a
mechanical problem during take off. It
70 ascend
took three days to correct the problem
and complete the first powered flight on
Dec. 17, 1903.
But that was 1903 — before the
technology revolution and automation
kicked into high gear. Major advances
have been made in aviation technologies that include jet aircraft with multiple
redundant back-up systems, and sophisticated weather forecasting and alerting
systems to warn of impending problems.
In addition, automated airline planning and
tracking systems ensure the most complex flights are matched with necessary
resources.
All of these advancements and modern systems have not alleviated the delays
that still occur, and flight schedules continue to be affected by many different
factors. Despite modern developments,
the number of delayed flights has recently
been on the rise in the United States, and
the length of delays has increased.
“Ultimately this is a numbers game,”
Don Dillman, managing director of system
operations control for American Airlines,
told the Fort Worth Star Telegram.
Dillman, who is also a pilot, oversees the airline’s cavernous operations
center in Fort Worth, Texas, which moni-
products
tors and directs every American Airlines
flight in the world. When storms assault
the network, he said, “it literally becomes
a math issue.”
Airlines want to minimize the extent
of irregular operations for a couple of
reasons:
The disruption to their passengers and
the inconvenience it causes — in the
short term, not getting home in time,
and in the long term, goodwill toward
the airline. While many irregular operations, such as weather delays, are
unavoidable from an airline’s view, how
the airline responds to these disruptions
is critical in maintaining passenger support.
The impact on an airline’s bottom line
since irregular operations add considerable expenses as the airline attempts to
return to normalcy.
For many years, airline leaders have
thought that they could only be reactive to
problems that cause off-schedule operations. They have sought new methods
to handle disruptions and minimize their
impact. Many plans called for holding
spare aircraft in reserve or having spare
crewmembers standing by just in case
they may be needed. Each of these
proved to be very expensive and not as
effective as desired.
During the early years of aviation,
the only solutions were based on human
endeavors (manual) and, in most cases,
were handled by each individual airport
independently of other airports in an airline’s system. In the mid 1960s, airlines
began to consolidate the oversight of their
day of operations into a central location in
one of their major cities. These system
operations control centers consisted of
staff members responsible for overseeing
the operations of the airline from a macro
view.
Even with this consolidation, the
airline was still based on a manual operation. With the advent of computers and
information technology, the manual system shifted to automation during the
next 30 to 40 years, enabling the airline’s
SOC staff to have better control over
the day of operations as well as flights,
aircraft, crews and passengers. Reaction
to problems was more exact, quicker and
involved multiple airports at the same
time.
Today, irregular operations are a
very hot topic among airline leaders as
well as the traveling public. Passengers
are demanding that airlines better handle
irregular operations while minimizing, if
not eliminating, the impact on them. The
belief is that today’s technology should be
able to handle any set of circumstances.
The Sabre® Rocade® Crew Management System offers easy access to view the status of
flight crew in a live environment, showing warnings for any legality items, training issues,
travel and hotel bookings as well as make amendments to the working patterns that are
required to keep the operation on time and on schedule.
At the forefront of airline automation for day of operations and the management of its SOC with its movement
control and crew management solutions,
Sabre Airline Solutions ® is addressing
the root causes of irregular operations
and has developed new tools to enable
airlines to minimize the impact of offschedule operations.
These solutions address passenger needs when flights are cancelled,
delayed or diverted while helping airlines
develop and execute a recovery plan to
return to normalcy at the earliest possible
moment.
Decision Support
Aircraft, flight crews and passengers are the primary components affected by irregular operations that must be
addressed to return an airline to its schedule. Sabre ® Decision Manager considers
aircraft maintenance routings, crew connection assignments, passenger originand-destination itineraries, operational
constraints (air traffic slots, airport slots,
curfews, gates, weather alerts) and relevant market considerations (coverage, revenue, equipment requirements). Decision
Manager has been developed to seamlessly integrate with Sabre ® Movement
Manager, the Sabre ® FliteTrac ® system
and Sabre ® Rocade ® Airline Operations
Suite and suggests flight delays, cancellations, equipment swaps and diversions
to quickly and effectively recover from a
schedule disruption.
An effective schedule recovery system has to consider aircraft maintenance,
crew scheduling, passenger itinerary, airport resource allocation and network operational constraints to accurately accord
typical decision making within an airline.
Decisions to cancel or delay a scheduled flight have to be based on the bottom-line benefit to the airline. It’s not
just important to consider the number
of passengers on the aircraft but also
what revenue contribution comes from
the flight. In addition, an airline controller has to consider all possible solutions
including potential equipment substitutions and dynamic flight schedule adjustments. Such decision-making procedures
require timely access to passenger itinerary data in conjunction with aircraft and
crew assignments.
Because Decision Manager derives
all requirement data directly from the
centralized flight operations database,
suggestions proposed by the system will
adhere to prevailing operating conditions
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products
The Sabre® Rocade® Commercial Planning System is used to construct, optimise, analyze and review future schedules. The application communicates through various media to other parties having an interest in the schedule, and it is the basis for all work taking place in the Sabre®
Rocade® Crew Management System and the Sabre® Rocade® Airline Operations Suite.
and restrictions. For example, if a particular airport is unable to support operations
of a specific aircraft type, Decision Manager
does not assign this aircraft type to operate
into the given airport. Of course, the solution
generated by the decision-support system
will depend on the integrity and accuracy of
the data stored in the centralized database.
If an aircraft’s minimum equipment list is not
updated after a scheduled maintenance event,
Decision Manager may inadvertently prevent
the aircraft from being assigned to a specific
flight with special operational requirements. As
such, the successful deployment of Decision
Manager will dictate a well-established data
management procedure.
One of the benefits of implementing
a decision-support system such as Decision
Manager is establishing consistent decision
making across the airline. In many cases, individual airline controllers make split decisions
that have a significant impact on the carrier’s
profitability. By standardizing the decision-making process, managers can be confident that
the optimum decision was made based on
suggestions provided by Decision Manager.
Reaccommodation
Sabre® Reaccommodation Manager
enables airlines to optimally reaccommodate
passengers who have been displaced due
to flight cancellations, delays or diversions.
To accomplish this, the system values each
72 ascend
passenger according to an airline-defined customer relationship management index. Airlines
may define the value of the passenger based
on various criteria such as fare paid, class of
travel, frequent flyer status, miles flown (to
recognize high-mileage travelers that may be
traveling on a free ticket), passengers on international connections, unaccompanied minors
or passengers traveling with infants. The CRM
index is used to prioritize passengers to effectively create alternative itineraries that address
passenger needs while enabling the airline to
minimize disruption-related costs such as hotel
expenses, passenger compensation and interline fees. Next, the itineraries are rebooked
and passengers are notified via an automated
alerting process.
The system is designed to create a
rebooking solution based on the list of disrupted flights provided. The overall strategic
business objective of a passenger re-accommodation system is to build solutions where
an airline can meet customers’ needs and contractual obligations while minimizing the overall
cost impact due to schedule disruptions.
Reaccommodation Manager simplifies
the process of moving disrupted passengers
and minimizes schedule changes, resulting in
improved customer service. Benefits include:
Optimized reaccommodation of passengers
based on user-defined rules,
Increased customer loyalty by taking care of
premium customers,
Reduced cost by automating the reaccommodation process.
Reaccommodation Manager provides
real-time integration with a flight operations
and movement control system, such as
Movement Manager and Decision Manager.
Through this integration, passenger coordinators have access to the latest schedule in real
time including schedule manipulations made
by operations controllers.
Reaccommodation Manager can be
deployed as a standalone solution or integrated
with a flight operations and movement control
system, such as Movement Manager.
Decisions that consider all aspects of an
airline’s operations (resources, costs and revenue) ensure a constant focus on minimizing
passenger disruptions and protecting profitability. In addition, the ability to make quick yet
accurate operations decisions will enable airlines to maintain their competitive market
position. a
Dave Roberts is senior principal,
Tom Samuel is product director and
Kamal Singhee is product manager
for airline operations for Sabre
Airline Solutions. They can be
contacted at dave.roberts@sabre.com,
thomas.samuel@sabre.com and
kamal.singhee@sabre.com.
products
Virtually There
With the flux of passengers using wireless technology and mobile
devises, airlines should leverage technology to make sure their
customers receive up-to-date, real-time flight information.
By Bobby Thoms | Ascend Contributor
K
eeping travelers up to date with necessary trip information is vital to a
successful loyalty strategy. Today’s
online-savvy travelers are equipped with
the latest wireless technology and mobile
devices, and they expect immediate communication regarding their travel plans.
With Sabre ® Virtually There ® mobile
services, an airline can provide personalized travel information to its most valued
customers 24 hours a day, seven days a
week. In addition to all the components of
a traveler’s itinerary, airlines can send realtime information about flight schedules,
gate and terminal assignments, airport
security checkpoint wait times, Mapquest ®
driving directions and maps, up-to-theminute weather forecasts, and destination information. Additionally, travelers can
e-mail their itineraries as well as sign up for
flight alert notifications and local city guide
and restaurant information.
Expanded Reach
Virtually There mobile services
enable airlines to connect with their customers throughout the entire trip, creating an enriched and differentiated experience. When the airline provides access to
the Virtually There mobile services site,
travelers recognize the value-added service that creates competitive differentiation, customer retention and satisfaction.
Additionally, travelers enjoy increased convenience and efficiency and the ability to
connect with other business colleagues,
family and friends with respect to their
personal travel plans and details delivered
in real time via Virtually There mobile
services.
Using advanced technology such as Virtually There mobile services, a carrier can offer roundthe-clock tailored travel information to its most valued customers. Through the tool, airlines
can send real-time information to passengers about schedule changes and gate assignments
as well as their full itineraries.
Time Savings
Virtually There mobile services deliver
anytime, anywhere access to flight notification alerts. These services notify travelers
if there are any interruptions with respect
to flight delays, cancellations, terminal and
gate changes and itinerary trip reminders. Notifications are specified based on
traveler preference and can be delivered
via SMS text message, e-mail or voicemail
directly to the mobile device. As a result,
customer service phone calls are reduced
while enhancing a traveler’s experience and
satisfaction.
Mobile Site Benefits
Virtually There mobile services offer
airlines several benefits, including:
Reduced costs associated with delivering
itinerary-related documents such as delivery charges,
Reduced costs associated with providing
post-booking information,
Increased customer loyalty and traveler
experience reach,
Ensured travelers’ personal information is
secure and confidential.
Having the ability to contact customers about their itineraries and posting it to
an updated mobile services site is one of
many critical aspects of a customer loyalty
strategy. The Virtually There mobile services
site offers customers a sense of security
while reducing costs for the airline. a
Bobby Thoms is a product marketing
principal for Sabre Holdings ® . He can be
contacted at bobby.thoms@sabre.com.
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Fast Track
High-speed train lines, because of their ability to
competitively serve the same routes as some carriers,
have had a substantial impact on Europe’s airlines.
By Michael Clarke | Ascend Contributor
E
74 ascend
that was once the largest air route worldwide based on the number of passengers
boarded. Today, the two major United
Kingdom network carriers that serve the
London-Paris route have substantially
reduced the number of scheduled flights
in the market.
Recently, high-speed railways of several countries, including Austria, Belgium,
France, Germany, Switzerland and the
Netherlands, joined forces with Eurostar
and Thalys to create Railteam — a new marketing alliance to better compete against
other modes of transportation, specifically
Photo courtesy of RailEurope
urope, France in particular, has been
at the forefront of the development
of regularly scheduled advanced
high-speed rail passenger service. Since
the early 1970s, France has developed a
comprehensive rail network that leverages
existing rail tracks and has led to the establishment of dedicated high-speed tracks.
This has, in turn, led to improved service
quality, with higher average speeds and
increased frequency of service.
Within the French domestic market, high-speed rail commands a leading
market share. In some city pairs, rail
service accounts for more than 90 percent of the shared community passenger
service (rail, air, bus). This phenomenon
has gradually spread across continental
Europe, and similar rail networks now
exist in Germany, Spain, Belgium and the
Netherlands. Naturally, this has created a
powerful competitor for air travel, especially in short- to medium-haul markets
with flying times less than three hours.
Within the last decade, we have
seen the introduction of cross-border
high-speed networks with Eurostar (ParisLondon) and Thalys (Paris-Brussels) providing regularly scheduled service from
France to neighboring countries. Today,
the Thalys service dominates the Paris to
Brussels market, and there are no longer
scheduled airline flights between to the
two cities. Eurostar has managed to gain
a substantial market share (65 percent)
in the London to Paris market, a city pair
Rival of many airlines in Europe, Thalys, also known as the red train, links Paris to
Amsterdam, Brussels, Cologne and Dusseldorf. At a speed of 186 miles per hour, 18 Thalys
trains per day take passengers from Paris to Brussels in under 90 minutes.
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Photo courtesy of RailEurope
Austria, Belgium, France, Germany, Switzerland, the Netherlands and other countries with
high-speed railways aligned with Eurostar and Thalys to create Railteam — a new marketing
alliance to aggressively compete against other forms of transportation, specifically air travel.
air travel. The goal is to develop a centralized Web site that will enable travelers to
view timetables and published fares, and in
one streamlined process purchase tickets
for travel across the entire rail network
(from one end of Europe to the other).
Since deregulation of air travel within
Europe, competition between established
airlines and developing high-speed rail
networks has been heavily influenced by
emerging value-based carriers such as easyJet and Ryanair. In many cases, these newbreed airlines offer competitive scheduled
flights from primary and secondary airports
that are able to compete against both network carriers and burgeoning high-speed
rail networks. The success of high-speed
rail in most markets can be attributed to
many factors, one of which is convenience.
The ability to provide fast and convenient
service to and from the city center is very
attractive to business travelers, especially
when the population density is centered
around the city center. This is true of many
of the French TGV, Trains a Grande Vitesse,
lines, the German ICE, Inter-City Express,
lines, the Paris-London Eurostar and the
Paris-Brussels Thalys passenger services.
At the same time, the rapid growth of
value-based carriers in many parallel markets (relative to existing high-speed lines)
is attributed to the gradual dispersion of
populations outside city limits. This is particularly true in the leisure market, where
that’s clear, the level of competition among
established network airlines, growing valuebased carriers, existing rail services and
yet-to-be-determined rail competitors will
be beneficial to the traveling public.
Proponents of each mode of transportation (air travel and rail service) often
highlight the underlying level of public subsidies and special arrangements such as
tax exemptions on fuel charges that influence the success of a given transportation system. While these debates continue
to rage on, the competition between air
travel and high-speed rail service will only
intensify in the coming years. The ultimate
winner will depend on many factors including but not limited to convenience, cost of
travel, comfort, connectivity, conscience,
congestion (airspace and airport), competition and cooperation. These factors, in turn,
influence passenger behavior and preferences and will dictate the preferred mode
of transportation.
Travelers’ preferences will vary
depending on the primary purpose of the
trip. Since most business passengers do
not pay directly for their trips, they place
a greater emphasis on travel time, reliability and comfort as well as the ability
to work enroute. On the other side of
the spectrum, leisure passengers tend to
be more cost sensitive and are willing to
compromise on convenience for a better
ticket price. However, most passengers
still prefer air travel unless there is a
compelling advantage of journey time
and total travel cost. This is especially
Highlight
“Eurostar has managed to gain a substantial market share (65 percent) in the
London to Paris market, a city pair that
was once the largest air route worldwide
based on the number of passengers
boarded.”
travelers from areas such as the Midlands
in the United Kingdom now have the choice
of using convenient air service from secondary airports to major cities across Europe
such as Paris, Amsterdam, Frankfurt and
Brussels. It is unclear today what the pending deregulation of international passenger
rail services will bring in 2010, but one thing
true of passengers traveling on same-day
return trips. It is imperative that airlines
and rail transport companies understand
why people decide on a given mode of
transportation so they can better match
(or at least try to meet) the quality of
service anticipated and demanded by the
traveling public.
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Convenience, Congestion,
Conscience
There are many aspects to the notion
of convenience when looking at each travel
mode including travel time, frequency of
service, schedule reliability, network connectivity and accessibility to the corresponding gateway (airport or station). Even
if the main transportation is quick, if it is
hard to get to, passengers may not consider
it as a viable option and choose to use the
travel mode that, on the surface, appears
less attractive.
When considering travel time, travelers often look at both the actual time spent
on the transportation itself as well as the
additional time required for the entire journey including:
1.Access time — The time in advance necessary for a passenger to leave the point
of origin until reaching the airport or train
station,
2.The egress time — Time between arrival
at the intended transportation point and
the passenger’s final destination,
3.The wait or transfer time (if required),
4.Terminal time — Time required for
check in, security checks, immigration
and customs (if required).
The frequency of service looks at
both the number of departures by time
period as well as the distribution of
departures across a given day. The ability
to use a direct routing without transfers
will be more attractive to travelers, an
important reason why some value-based
carriers have been able to effectively
compete in some markets against network carriers and the burgeoning highspeed rail services.
Schedule reliability is important to
both rail and air travelers, and it’s more
important because of increased congestion at airports and within the air space.
The strong growth in air travel during
the last couple of years has resulted in
increased capacity problems at major
European airports and network congestion throughout Europe’s air traffic control
network. As a result, the number and pro-
Comparative Journey Times Versus Rail Market Share
Paris – Bruxelles 310 km
As rail travel time increases,
rail market share decreases
95
Madrid – Seville 471 km
Paris – Lyon 430 km
85
Rome – Bologne 358 km
Rail market share (%)
75
Paris – Marseille 783 km
65
London – Paris 400 km
London – Brussels 340 km
55
Stockholm – Gateburg 455 km
Paris – Amsterdam 540 km
45
Rome – Milan 560 km
35 1.0 1.5
2.0
2.5
3.0
3.5
Travel time (hours)
4.0
4.5
5.0
Source: International Union of Railways
In European, high-speed rail commands the dominant market share for origin-destination markets with travel times less than two hours. Rail market share is driven
by overall travel time and not necessarily the distance traveled between the city
pairs. High-speed rail networks with higher average speeds are able to attract more
passengers from air travel.
76 ascend
pensity of delayed flights has increased
substantially, and so has the level of
frustration for airline passengers.
The issue of congestion is more
pronounced at major hub gateways such
as London Heathrow Airport, and this
has enabled value-based carriers to offer
more reliable air service from secondary
airports and effectively compete against
both network carriers and high-speed
rail. According to figures from the United
Kingdom’s civil aviation authority, airline
on-time performance at London’s major
airports average 70 percent. In contrast,
Eurostar’s punctuality in 2006 was more
than 90 percent, much better than airline
competitors on both the London-Paris
and London-Brussels routes.
Similar on-time performances have
been observed in the Spanish domestic market, where high-speed AVE, or
Alta Velocidad Española, trains run with
90 percent promptness. Until now, the
Eurostar covered the 250-mile distance
between downtown London and downtown Paris in two and a half hours without any additional ground transportation.
But recently, this travel time was further
reduced to two hours and 15 minutes
with the opening of the new international rail station at London’s St. Pancras.
Travel times from London’s city center
to Brussel’s city center is less than two
hours.
Many passengers are frustrated
with the hassle factor associated with
increased security measures. They simply find it more convenient, less stressful
and easier to travel by rail when possible. The quality of the travel experience
offered by rail is now seen by many passengers as more attractive because they
require less access and egress time, and
they are able to work while enroute in a
more comfortable environment.
It is also important not to overlook
the role of environmental concerns in
consumers’ decision making. Most travelers tend to believe that high-speed rail
is friendlier to the environment when
compared to air travel. By providing
faster services, railway companies hope
that the rising environmental concerns
will drive more passengers to rail travel.
Recent surveys of the traveling public have identified that concern over
the environmental impact of travel is
rising, but it is still not a key factor
for passengers when they make their
travel booking. For the time being, cost
of travel and convenience (speed, frequency, reliability and accessibility) are
the dominant factors in making the final
decision on what mode of transportation
to choose.
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Photo courtesy of RailEurope
Since it began operations three years
ago, Eurostar has more than doubled
the total number of passengers traveling (by air and rail) between London and
Paris/Brussels. On routes across Europe
with two-hour rail travel time or less, the
high-speed rail dominates a 90 percent
market share.
As the attractiveness of high-speed
rail increases in Europe, it could potentially lead to a reduction in the number of
short-haul flights across the continent. In
reality, the majority of scheduled flights
in Europe are short haul (45 percent
less than 500 kilometers) and revolve
around the current economic center of
the European Union (the zone between
London, Paris, Frankfurt and Amsterdam).
As a result, the continued growth and
development of high-speed rail in these
Paris-Marseille air/rail market. Within four
years of operations, the market share
of rail increased to 65 percent and by
2006, rail commanded almost 70 percent
market share. This in turn led to easyJet
abandoning its Paris-Marseille flights as
it could not effectively compete with the
TGV.
In Spain, the AVE has a leading
market share in the air/rail/road traffic on
the popular Madrid-Seville route. The success of the Eurostar and Thalys service
to/from France has led many carriers to
discontinue or significantly reduce their
operations on these air routes. Since
starting operations in November 2004,
Eurostar has more than doubled the total
number of passengers traveling (by air and
rail) between London and Paris/Brussels.
On routes within a two-hour rail travel
time, it has been consistently observed
across Europe that high-speed rail can
command a 90 percent market share.
The recent introduction of the TGV East
line connecting Paris to eastern France
and neighboring countries will see rail
travel times reduce by half, if not more
in the coming months. Currently, the rail
trip from Paris to Strasbourg takes four
hours, and once it’s reduced to two hours
and 20 minutes, it’s anticipated that the
high-speed rail service will initially gain
75 percent market share and ultimately
reach 90 percent market share.
As new high-speed tracks are introduced across the continent, traffic routes
that were once considered inaccessible
to high-speed rail service will develop,
Highlight
“As the attractiveness of high-speed rail increases
in Europe, it could potentially lead to a reduction
in the number of short-haul flights across the
continent.”
travel markets could arguably help reduce
the environmental impact of air travel in
Europe.
Competition
The ability of high-speed rail to
effectively compete with air travel is
most evident in the French domestic
travel market. Before the introduction
of the TGV Mediterranean in 2001, rail
held only 22 percent of the combined
and air travel will potentially decrease,
depending in part on the role the rail service plays in the given market.
The level of competition between
rail and air services in short- to mediumdistance markets is heavily influenced
by the presence of low-cost carriers. In
some cases, air travel is cheaper as well
as faster than rail travel. As the competition between high-speed rail and shorthaul air travel intensifies, rail companies
have started to coordinate their timetables, and the amount of connecting traffic
has increased substantially. For example,
the number of passengers transferring
from Eurostar to the TGV network has
increased almost 40 percent this year. At
the same time, many value-based carriers
have been forced to reduce their ticket
prices to remain competitive with these
rail services and maintain their high load
factors for profitability.
Many network carriers have abandoned their short-haul markets that compete directly with high-speed rail, and
British Airways went as far as selling
the majority of its short-haul network to
value-based flybe.
Despite the success of high-speed
rail, airlines (both established network and
new value-based carriers) are still able to
effectively compete with rail service by
offering a wide range of ticket prices that
are, in some cases, a fraction of the rates
for rail tickets to the same destinations.
In some European markets, air travel continues to dominate. From 1995 to 2004,
air transport within the European Union
(intra-E.U. and in each domestic market)
experienced nearly a 50 percent increase
as a result of deregulation and the rapid
growth of value-based carriers. In 2005,
the total number of passengers carried
on domestic air travel amounted to more
than 160 million, representing almost a
quarter of all air travel in Europe.
In markets where high-speed rail
networks have not been fully established, the corresponding airports have
seen immense growth since air travel
deregulation. Air transport is able to
quickly establish operations and react
immediately to new passenger demand
situations. Among the 30 airports handling the largest passenger volumes
in 2005, Madrid Barajas International
Airport served 19.5 million domestic passengers, Paris-Orly Airport served 15.6 million, Barcelona Airports served 13.1 million
and Rome Fiumicino Airport served 12.1
million.
Madrid-Barcelona represents the largest air travel market within the European
Union, with 4.3 million passengers carried
on more than 60 scheduled flights per day in
each direction. In this particular origin-destination market, the high-speed rail network
is still under construction, and it is anticipated that a highly contested competition will
eventually develop between the existing air
travel shuttle services and high-speed rail.
Today, air fares offered by established network carriers between Madrid and
Barcelona are relatively high because this
market primarily comprises price-insensitive
business traffic. In addition, the number of
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regional
During the last 10 years, cross-border high-speed rail services, such as Thalys from Paris to
Brussels, has increased significantly, providing regularly scheduled service from France to
neighboring countries. Because the Thalys service dominates the Paris to Brussels market,
scheduled airline flights on this route no longer exist.
scheduled flights has been previously constrained by limited infrastructure (terminals
and slots) at Madrid Barajas International
Airport, which was addressed last year with
the opening of a new state-of-the-art passenger terminal.
The growing presence of valuebased carriers at these high-volume
airports w i l l i n f l u e n c e t h e u l t i m a t e
i m p act of high-speed rail on air travel
t o a nd from these airports. Only time
w i l l tell wh ich travel mode will prevail,
d i c t a te d in part by passenger choices.
Collaboration
The impact of high-speed rail
o n air trave l in Europe is, however,
a t w o-sided story. In one situation,
t h e y are fierce competitors, while in
t h e o ther, th ey are partners providi n g e ffective and efficient inter-modal
t r a n s p ortation options to the traveling
p u b lic. T he le vel of cooperation varies
from simply coexistence at a comm o n location to outright codesharing
a n d coordinating alliance services that
enable seamless transfers between
each mode of transportation. Since
t h e introduction of high-speed rail, an
78 ascend
impor t a n t e mp h a s i s h a s b e e n p l a c e d
on ne t w o r k c o n n e c t i v i t y , w i t h a l a r g e
number of existing European highspeed r a i l n e t w o r k s h a v i n g a c c e s s t o
prima r y i n t e r n a t i o n a l a i r g a t e w a y s i n
c o r re s p o n d i n g c o u n t r i e s . P a s s e n g e r s
are gi v e n t h e o p p o r t u n i t y t o p u r c h a s e
end-to - e n d j o u r n e y s a c r o s s a i r t r a v e l
and ra i l u s i n g a s i n g l e t i c k e t a s w e l l a s
the c o n v e n i e n c e o f d i r e c t c o n n e c t i o n
at the a i r p o r t .
I n ma j o r a i r p o r t s , s u c h a s P a r i s
Charles
de
Gaulle
International
Airpo r t , A m s t e r d a m A i r p o r t S c h i p h o l
and F r a n k f u r t A i r p o r t , t h e t r a n s f e r p a t h
from a f l i g h t a r r i v a l t o a t r a i n d e p a r t u r e
is mo r e o r l e s s e q u i v a l e n t t o a f l i g h t to-flig h t c o n n e c t i o n .
High-speed rail is able to expand
the ef f e c t i v e c a t c h me n t a r e a o n a n a i r port ba s e d o n t h e p r e mi s e t h a t t i me ,
not di s t a n c e , i s t h e p r i ma r y a s p e c t o f
airpor t a c c e s s . T h e c o n t i n u e d s u c c e s s
of bot h e x i s t i n g a n d f u t u r e c o l l a b o r a tion be t w e e n h i g h - s p e e d r a i l a n d a i r
travel w i l l d e p e n d o n t h e n e g o t i a t e d
tariff s t r u c t u r e a n d s t r e a ml i n e d p a s senger connection services. If the
negot i a t e d t a r i f f s t r u c t u r e i s b a s e d o n
t r a v e l d i s t a n c e , s i mi l a r t o t h e e x i s t i n g
structure in the airline industry, the
h i g h - s p e e d r a i l f e e d er s e r v i c e s m a y b e
placed at a commercial disadvantage
i n t e r m s o f t h e i r c or r e s p o n d i n g c o m pensation. This could discourage them
f r o m p l a y i n g a n o v er a l l b e n e f i c i a l r o l e
i n a n i n t e r - mo d a l e n v i r o n m e n t .
Si n c e a l o c a l r a i l p a s s e n g e r w o u l d
most likely end up paying more than
a connecting air passenger, the rail
service could limit the number of
connecting air passengers. With the
p e n d i n g i n t r o d u c t i on o f t h e r e c e n t l y
signed open-skies agreement between
t h e Eu r o p e a n U n i o n a n d t h e U n i t e d
States, it is anticipated that highspeed rail will play an increasing role
to provide connecting service from
secondary markets to major connected
hub airports with established transAt l a n t i c s e r v i c e s . A t t h e s a m e t i m e ,
i t ’ s u n k n o w n h o w t he d e v e l o p m e n t o f
additional direct trans-Atlantic flights
to and from secondary airports will
i mp a c t p a s s e n g e r l e v e l s a t t h e s e h u b
airports.
The future coexistence of highspeed rail and air travel within the
intra-European market will depend on
several external factors including
established and proposed regulations
as well as the development and
i mp r o v e me n t o f s u pp o r t i n g i n f r a s t r u c tures. The recent introduction of
Eu r o p e a n U n i o n r eg u l a t i o n o n f l i g h t
delays and cancellations in conjunction with increasing competition from
h i g h - s p e e d r a i l ma y u l t i m a t e l y e n c o u r age and/or force network carriers to
f u l l y a b a n d o n s h o r t -h a u l f l i g h t s t h a t
c a n b e b e t t e r s e r ve d b y h i g h -s p e e d
r a i l . A s e a c h E u r o p ea n c i t y m o d e r n i z e s
i t s p r i ma r y r a i l s t a t i o n s a n d f u r t h e r
improves connectivity between the
complementary high-speed rail networks and local transportation networks, both the competition and the
c o l l a b o r a t i o n b e t w ee n h i g h -s p e e d r a i l
and air travel will only intensify in the
coming years. a
Michael Clarke is principal research
scientist for Sabre Holdings ® . He can be
contacted at michael.clarke@sabre.com.
regional
Musical Chairs
Next-generation regional carriers have advanced from once-junior
operators to prominent forces within the U.S. air transport industry.
By Michael Clarke | Ascend Contributor
O
Under these capacity purchase agreements, network carriers assume all the market
risk and are responsible for commercial planning, revenue management, marketing, sales
and distribution of the airline product, and they
generally assume high risk items such as aircraft ownership and insurance as well as fuel
costs. The regional carrier operates the flight
and ensures the availability of capacity for
the major airline. In their glory days, regional
carriers were able to command target operation margins ranging from 10 percent to 15
percent under most CPAs, which were usually
re-evaluated on an annual basis.
Within the last decade, regional carriers
that were once wholly owned and/or managed
by an individual network carrier now have the
freedom to operate flights for multiple partners. This change in policy and operations was
not easily achieved but was an outgrowth of
Photos by shutterstock.com
nce considered secondary players in the
U.S. domestic airline system, regional
airlines have evolved to become powerhouses that now play a major role in overall
network operations. The global airline industry
is heavily impacted by external geopolitical and
economic forces that drive its very existence
and shape the prevailing environment for efficient and profitable operations.
As U.S. network carriers tried in earnest
to deal with the aftermath of terrorist attacks,
economic downturns and the dramatic rise
in fuel prices, regional carriers were given a
greater role in shaping airlines’ networks. And
when major network carriers began focusing
on more lucrative international routes, they
worked with their regional partners to counter
not only the rise in fuel costs but also the
advent of low-cost carriers that now have
a significant presence. In this ever-changing landscape, the relationship between network carriers and their regional partners have
evolved from being one of a dominant master
and subservient subject to one of business
partners sharing a common goal of maximizing
profitability through cost-effective and efficient
operations.
The relationship between network and
regional carriers is typically governed by a
capacity purchase agreement, or CPA, that
usually involves a fixed fee for departure or
cost-plus contract. Under the bylaws of these
agreements, regional carriers were restricted
to operate a limited number of aircraft below
an agreed seat capacity and on specific routes
through specific pilot scope clauses, and they
were, in effect, under the strategic control of
the network carrier. When the dominant carriers increased the number of outsourced lowerdensity routes to regional subsidiaries, the
regional airlines’ profitability increased since
they were guaranteed a given profit margin in
light of the prevailing market conditions.
Regional carriers have risen above their underdog stereotype to become some of the industry’s most prominent players. Mesa Airlines, Continental Airlines, Northwest Airlines and
Delta Air Lines all rely on their regional carriers to maintain a successful operation.
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Regional Airline Group Flying Assignment
regional Airline
Network Partner (Percent of operating revenue)
ExpressJet
Continental Airlines (70%)
Mesa Airlines
Delta Air Lines (20%)
ExpressJet Brand (10%)
Delta Air Lines (17%)
Mesa/Go! (6%)
United Airlines (36%)
US Airways (41%)
Pinnacle Airlines
Continental Airlines (12%)
Northwest Airlines (70%)
United Airlines (8%)
US Airways (12%)
Republic Airlines
American Airlines (9%)
Continental Airlines (14%)
Delta Air Lines (30%)
Frontier Airlines (3%)
SkyWest Airlines
United Airlines (20%)
US Airways (24%)
Delta Air Lines (65%)
United Airlines (35%)
Midwest Airlines (new)
Source: Company Reports
The percentage of operating revenue the mega-regional carriers receive from each
network carrier is based on their current contract agreements.
the challenging negotiations between network
carriers facing bankruptcy reorganization and
regional carriers eager to preserve their high
level of profitability. As a result of these contract
negotiations and concessions, regional carriers
won the right to seek new flying opportunities,
diversify their operations and have much more
control over their future fortune.
During the reorganization process, network carriers such as Delta Air Lines, Northwest
Airlines, United Airlines and US Airways put
out almost all of their existing regional flying for
bidding, and other regional airlines were quick
to compete for the contracts. Regional carriers were forced to accept lower profit margin
targets (less than 10 percent) on new contracts
or face the complete loss of flying for a given
network carrier. In addition, some regional
carriers were required to share in the risk of
fuel and insurance costs. As a result, many
network carriers now have multiple regional
partners serving multiple airports within their
system network.
Although most regional aircraft assignment decisions have been driven by economic
80 ascend
needs, network carriers also consider the impact
of labor relations at the regional carrier. Since most
regional carriers enjoy very flexible and favorable
work rules, their cockpit crews are able to fly
more time than their network carrier counterparts.
Regional carriers that maintain a low cost structure
and are not unionized often win more contracts for
flying from network carriers.
In light of the labor relationship breakdown
and subsequent three-month pilot strike at Comair
in Cincinnati, Ohio, in early 2001, network carriers
started to re-evaluate the sole regional carrier
reliance at major hub airports. As one of the largest regional carriers in Delta Air Lines’ network,
the shutdown of Comair severely impacted its
operations at its secondary hub and resulted in lost
market share. In the aftermath of this prolonged
strike, Delta Air Lines chose to fully diversify its
regional operations at all of its existing hub airports,
including Atlanta, Georgia; Cincinnati; Dallas/Forth
Worth, Texas; New York, New York; and Salt Lake
City, Utah. Other network carriers subsequently followed this strategy to prevent the same dilemma.
During the bankruptcy process, Delta Air
Lines used its freedom to reallocate existing air-
craft and new aircraft deliveries among regional
partners, driven, in part, by economics as well
as labor considerations. As pilot unions at the
mainline carrier started allowing more large-sized
(less than 76 seats) regional aircraft, Comair was
prevented from receiving these aircraft.
As network airlines exerted their pressure on regional carriers, some regional carriers
devised creative ways to circumvent the agreedupon restrictions. Since most capacity purchase
agreements were specific to a given carrier and
operating certificate, regional carriers such as Mesa
Airlines and Republic Airlines simply set up holding
companies that either acquired another existing
regional carrier and/or started a new subsidiary to
fly for another major network carrier. In effect, the
cozy relationships between network and regional
carriers have given way to very competitive contract negotiations and agreements.
This phenomenon is now common in
the marketplace, and there have emerged five
major regional carrier powerhouses that dominate
the U.S. domestic system — ExpressJet, Mesa
Airlines, Republic Airlines, Pinnacle Airlines and
SkyWest Airlines. As regional carriers tried to diversify their portfolio of operations, network carriers
pursued a similar strategy to the point that some
network carriers now coordinate regional flying by
seven partners, and some regional carriers fly for
six different network carriers.
Regional carriers that once focused their
operations on a specific geographical region of
the country were now faced with multiple hub
operations and often a diverging fleet with multiple
equipment types. With this change in operating
conditions came increased infrastructure costs as
well as greater pilot training needs and associated
costs. Nonetheless, many regional carriers have
figured out the correct formula to make this new
paradigm work for them and maintain profitability
at acceptable margins.
Changes in the working relationship
between major network carriers and their regional
partners were also complemented by changes in
the overall ownership structure of the regional carriers. In some cases, such as Continental Airlines
with ExpressJet and Delta Air Lines with Atlantic
Southeast Airlines, the regional subsidiary was
partially or fully divested via an initial public offering
or a complete sale to another regional carrier. In
other cases, such as Northwest Airlines, the major
network carrier decided to secure complete ownership of some of its regional partners (Mesaba
Airlines) and at the same time set up an entirely
new regional carrier (Compass Airlines) to fly larger
regional jets. Each business decision has been
driven by the desire to achieve lower operating
costs and better terms and conditions under the
capacity purchase agreements between major
network carriers and their regional partners.
The strength of the new-generation megaregional carrier was demonstrated during the
bankruptcy of US Airways when two regional
carriers — Air Wisconsin and Republic Airways
— each invested US$125 million in the major
regional
Regional Partners for Major Network Carriers
U.S. network carriers partner with several regional airlines that serve a variety of
routes using anywhere from one to nearly 300 of the regional carriers’ aircraft.
network carrier in exchange for guaranteed flying
once the network carrier emerged from bankruptcy protection. At the time, Air Wisconsin
was on the verge of losing its partnership agreement with United Airlines as they could not
agree on favorable terms for the capacity
purchase agreements.
A similar fate occurred with Atlantic
Coast Airlines, which decided to fly as
an independent carrier and later failed
and went out of business entirely. As
part of its agreement with US Airways,
Republic Airways assumed the operations of the recently formed MidAtlantic
Airways and took over its entire young
fleet of Embraer 170 E-jets.
Today, these airlines play an integral part of US Airways’ regional network,
whose regional aircraft fleet size almost
equals that of the mainline fleet.
Regional carriers that once relied on
their network partners to finance new aircraft acquisitions are now in a position to
purchase their own aircraft outright and
dictate with which network carriers they
partner. While they are still restricted
by scope clauses, regional airlines have
found creative ways to introduce larger
jets such as installing multiple service
cabins onboard.
The growth of the U.S. regional
carrier sector during the last decade
has been phenomenal, with six carriers
achieving “major” status as defined by
the U.S. Department of Transportation.
These include American Eagle, Comair,
ExpressJet, Mesa Air Group, Republic
Airways and SkyWest Airlines. An airline
is considered a major carrier if its annual
operating revenue exceeds US$1 billion.
As network carriers continue to
offload more domestic flying to their
regional partners, this elite group of
mega-regional carriers will continue to
grow and further play a substantial role in
shaping the future of the U.S. domestic
airline network. U.S. regional carriers
transport in excess of 100 million passengers annually and account for an estimated 12.5 percent of the available seat
miles in the domestic network. What is
unclear today, however, is which regional
carrier will be aligned with which network
carrier as each sector continues to pursue the most favorable capacity purchase
or pro-rate agreement that meets their
operational goals. a
Michael Clarke is principal research
scientist for Sabre Holdings ® . He can be
contacted at michael.clarke@sabre.com.
ascend 81
MONTHS
DAYS
HOURS
Countdown
to Beijing
By Lynne Clark | Ascend Staff
Beijing’s travel and transportation industries, including airlines, airports,
hotels, ground services and government agencies, are gearing up for next
year’s Olympic Games.
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I
n the Chinese culture, certain numbers
are believed by some to be lucky based
on the Chinese word in which the
number name sounds similar. Because
of the supposed auspicious properties of
certain numbers, some people spend large
sums of money for lucky numbers for their
phones, addresses and bank accounts.
Chinese officials are banking on the
number eight — which in Chinese sounds
similar to the words for fortune, prosper
and wealth — to lend its mystical qualities
to making the XXIX Olympiad an unparalleled success. Held in Beijing, the “One
World, One Dream” Games will begin
Aug. 8, 2008, at precisely 8:08 p.m. The
country will play host to participants in
28 sports, 38 disciplines and 302 events
during the 18-day competition, taking
place at venues across the country including Beijing, Qingdao, Tianjin, Shanghai,
Shenyang, Qinhuangdao and Hong Kong.
When China won its Olympic bid in
2001, it seemed to outsiders that it would
take more than luck to accomplish the
ambitious plans to bring the “ancient”
city up to modern standards expected by
an estimated 800,000 foreign and 1 million domestic visitors. One year away, is
it ready?
Beijing Capital International
Airport
Testing, Testing
The Beijing Olympics in 2008 and
Shanghai World Expo in 2010 are expected to attract an unprecedented number
of overseas visitors to China. To make
sure the country is prepared, the CAAC
is holding two rehearsals aimed to give
airports, airlines and air traffic control the
knowledge to work together and support
each other better.
The first rehearsal in late June
involved eight major airlines, the Beijing
Capital International Airport and the
Northeast China Air Traffic Control Bureau.
Overall, the airport and airlines received
“satisfactory performance” marks for
guaranteeing flight safety.
Beijing Capital International Airport
got high marks also for good traffic management around terminals. Air China,
Hainan Airlines and Shenzhen Airlines
scored best among the eight Chinese airlines on service, etiquette and the level of
English spoken by their flight attendants.
On the list for improvements were
better allocation of carousels for delivering luggage and improved visibility from
the airport terminal buildings. Also, the
airport was called upon to improve emergency plans due to large-scale weatherrelated flight delays already reported this
summer.
“The capacity to deal with emergencies should be given particular attention in
next year’s practice when more airports
will be involved,” said Yang Guoqing,
CAAC deputy director, in a July 7 edition
of People’s Daily Online.
The Beijing Capital International
Airport has also recently tested its three
runways in the configuration designed for
the Olympics. The CAAC has contracted
with the Boeing Company to conduct a
study of the operating mode for the three
runways and comparing it with the Atlanta
International Airport.
Computer simulation modeling and
analysis will help maximize the efficient
operation of the two old and one newly
constructed runways.
Photo by shutterstock.com
Fifteen years ago, air travel in China
was characterized by dark, dingy and
smoky air terminals, long lines, no food
service, and bus rides to board aircraft
parked on remote tarmacs. Even the
country’s main airport, Beijing Capital
International Airport, serviced only an
average 100 flights a day.
Today, it’s the second-busiest airport in Asia and ninth-busiest worldwide.
In 2006, it served 48,501,102 passengers
and moved 1,028,908 metric tons of
cargo. It is home to the world’s largest
airport terminal, the newly constructed
Terminal 3. The dragon-shaped superstructure stands seven stories high and
spans 2.4 miles. If all goes as planned,
35,000 workers will have erected Terminal
3 in a record-breaking rate of just more
than two years. Terminal 3 will provide
the airport an additional 66 jetways, 120
gates and a number of remote parking
bays.
Terminal 3 is a lavish example of
China’s commitment to becoming an
aviation power in 20 years. The General
Administration of Civil Aviation, or CAAC,
the top regulator for civil aviation in China,
is spearheading this great effort. Chinese
Minister of Civil Aviation Yang Yuanyuan
has made China’s aviation ambitions clear
on various occasions.
“China will migrate from an ‘aviation
giant’ to a world-class ‘aviation power’
in 20 years,” Yang said at the China
Civil Aviation Development Forum held in
Beijing last May.
To help it achieve aviation power
status, the CAAC’s air traffic control
plan for the 2008 Games call for many
other improvements to Beijing Capital
International Airport. These include
upgrading existing facilities as well as
building two new radar navigators and a
series of signal processing systems for
communication and weather observation.
The plan also calls for new air routes linking China with Mongolia and the Republic
of Korea. In addition, new routes linking
Beijing and Shanghai and south China’s
Guangzhou city will open soon to alleviate
busy air traffic between Beijing and east
China.
The 2008 Summer Olympics, which is expected to drive significant business for the travel
and transportation industries, will begin in August at the Beijing National Stadium in Beijing,
People’s Republic of China.
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Photo by shutterstock.com
in Atlanta, Georgia, last year for a conference on how to prepare for the Olympics.
Of particular concern was security.
“The art of airport security is having force without presence,” said Mario
Diaz, the Atlanta airport’s deputy general
manager during the conference. “Security
was not in the face of the passengers and
did not include armed soldiers.”
Based on talks with Atlanta officials,
Beijing airport authorities consulted with
security experts in Sydney and Israel. In
addition, they have invited security experts
including the president of the European
Aeronautic Defense and Space Co. EADS
N.V., to come to Beijing and offer advice
on improving security for the 2008 Games.
Based on their findings, the Beijing airport
plans to increase its security staff to 5,000
and will employ an estimated 800 police
officers.
Skies Busy Over China
The National Aquatics Centre for the 2008 Olympic Games in Beijing is the designated venue
for swimming, diving and synchronized swimming competitions. With the anticipation of
thousands of spectators, the centre offers 6,000 permanent seats and 11,000 temporary
seats.
Vertical Air Space
Last year, flight delays in China
topped passengers’ complaint list.
Industry insiders said air traffic control
was a major reason for the delays. Under
pressure from the CAAC, the state-run air
traffic control department was ordered to
come up with a plan to make better use of
the airspace, increase air traffic flow and
reduce flight delays.
In May, the CAAC announced that
later this year China will reduce the vertical
air space between aircraft. Called reduced
vertical separation minimum, or RVSM, it
shortens the space between aircraft from
2,000 feet (610 meters) to 1,000 feet (305
meters), allowing the number of layers of
aircraft flying between 29,000 feet (8,841
meters) and 41,000 feet (12,500 meters)
to be increased from seven to 13.
“We can make better use of the airspace, increase air traffic flow and reduce
flight delays,” said Wang Changshun,
CAAC’s deputy director, in a May issue of
China Daily. “It is good news for travelers
who will have to spend less time sitting in
cabins waiting for aircraft to take off.”
Adoption of the measure means
that local airlines will have to equip their
aircraft with specially certified altimeters
and autopilots.
Tardy Airlines Targeted
The CAAC is pursuing another measure to set up an air control region in
84 ascend
Beijing before the end of this year, with
terminals shared by both the military
and the civil aviation department. The
International Air Transport Association,
which helped the Athens, Greece, and
Sydney, Australia, organizers with air traffic control during these recent Games,
said it would do the same with Beijing.
Also receiving attention prior to the
Olympics are habitually tardy airlines. In
late June, Beijing’s Capital International
Airport issued a notice that said domestic
flights missing arrival times by more than
50 percent of the time or accumulating
more than 20 departure delays will be
listed and publicized every month and
issued a yellow warning, according to the
China Daily.
For its part, the airport has committed to improving monitoring systems and
ground services. A plan to shorten takeoff intervals, including rearrangement of
boarding gates, has been implemented,
and the airport’s computer system has
been updated. Also, two inspection lanes
will be added to speed passenger clearance and more customs officers fluent in
foreign languages have been hired.
Olympic-Sized Security
Beijing Capital International Airport
officials turned to planners at HartsfieldJackson Atlanta International Airport for
advice on security and operations plans.
Some 30 Chinese aviation officials met
Backed by the country’s burgeoning
economy, expanded U.S.-Chinese bilateral
agreements and the pre-Olympics effect,
aviation news has buzzed with rumors of
new alliances, aircraft purchases, routes
and bidding wars.
Beginning March 28, United Airlines
began daily flights to Beijing following its
win of the coveted direct link to the city.
The win was a victory in a hard-fought battle among Northwest Airlines, Continental
Airlines and American Airlines. Battles are
likely to resume based on an expanded
civil aviation agreement reached in May
by U.S. Secretary of Transportation Mary
Peters and Yang Yuanyuan. The agreement more than doubles the number of
daily passenger services between the
United States and China by 2021.
Starting this year, the new agreement will allow for 13 new daily services
operated by U.S. carriers to and from
China within five years. One new daily
service will be added in 2007 and 2008,
four new daily services in 2009, three
more daily services in 2010, and two new
daily services in 2011 and 2012 for a total
of 23 per day. Under the current agreement, U.S. airlines today can operate only
10 daily services into Beijing, Shanghai
and Guangzhou.
In addition, this agreement will allow
the United States to designate five U.S.
carriers to operate to China. The deal also
will provide U.S. cargo carriers with virtually unfettered access to Chinese markets
by lifting all government-set limits on the
number of cargo services and cargo carriers serving the two countries by 2011.
Peters also stated that, as part of
the agreement, U.S. and Chinese officials
have committed to resume negotiations in
regional
Photo by shutterstock.com
China Eastern Airlines Corp. Ltd.
recently reached an agreement allowing Singapore Airlines to buy a stake in
the mainland carrier. Buying into China
Eastern Airlines will give Singapore
Airlines a sizeable share of the domestic
travel market in China, in which China
Eastern Airlines has a 40 percent share.
Additionally, Singapore Airlines will have
access to China Eastern Airlines’ fleet
of 202 aircraft and intensive domestic
and international networks from China.
Olympic Hotels and Hot Venues
Guests visiting the National Grand Theater during the 2008 Olympic Games in Beijing must
pass a security check similar to those conducted at the airport, with bag scanners and walkthrough metal detectors.
2010 to establish a timetable to achieve
the mutual objective of full liberalization.
Following are just a few of the many
developments in the skies over China
spurred by new bilateral agreements and
economic opportunities:
Oct. 1, using a 211-seat Boeing 767300. The Shanghai-Toronto service
also increased daily service during
summer peak and will continue as
a three-day-a-week service for the
2007-2008 winter schedule.
“We can make better use of the airspace, increase
air traffic flow and reduce flight delays.”
— Wang Changshun, deputy director for the Civil Aviation Administration of China
Dragonair announced in June that it
would strengthen its services to a
number of major destinations in mainland China, with Chongqing and Xian
seeing a rise in frequencies to daily,
while services to Fuzhou will double
to 14 a week. The number of flights to
Bussan — Dragonair’s latest destination, launched in January — recently
rose from three a week to daily.
Air Canada doubled its daily BeijingVancouver service and increased its
Shanghai-Toronto non-stop flights in
July. The added Beijing-Vancouver daily
flight operated between July 2 and
Qantas Airways announced plans
to launch twice weekly MelbourneShanghai
service
beginning
in
March, with two-class Airbus A330
aircraft fitted with Qantas Airways
Skybeds in business class, operating from Shanghai on Mondays and
Fridays. Also in March, the carrier
will offer 10 return services a week
to China — five between Sydney and
Shanghai, two between Melbourne
and Shanghai, and three between
Sydney and Beijing. It will also offer
two codeshare services with China
Eastern Airlines.
Early this year, Beijing Olympic
Games organizing committee signed
with 113 star-grade hotels and 253 nonstar grade hotels in Beijing to provide
accommodations for next year’s Olympic
Games. As soon as the information of
these signed hotels was published, the
majority of the rooms were booked,
according to a June issue of China
Hospitality News. Up to 70 percent of
the 113 star-grade hotels will be used
to house Olympic officials, government
officials, sponsors and referees. The
remaining 30 percent will be available
to individual bookers. Despite the limited supply of Olympic hotels, individual
tourists can choose to stay at serviced
apartments or rent a house from Beijing
citizens, many of whom have already
realized this big opportunity to make
money.
Organizers announced in June that
the rowing and shooting venues are
complete and 10 more will be complete
by the end of the year. Many of the venues, including an 80,000-seat stadium,
14 gyms and other sports facilities, an
athlete’s village and an international
exhibition center will be located at the
Olympic Park, providing world-class
sports, recreation and civic facilities for
the people of Beijing long after the 2008
Games.
“These investments will not only
ensure that Beijing’s readiness and infrastructure to host the 2008 Games are
second to none, but will also permanently improve the quality of life of
Beijing’s 12 million citizens,” said Liu
Jingmin, vice mayor of Beijing and
spokesman for the Beijing 2008 Olympic
Games bid committee. “The Olympic bid
is already helping to create a better,
greener and more livable Beijing. We
invite the people of the world to see the
new Beijing.” a
Lynne Clark can be contacted at
wearelistening@sabre.com.
ascend 85
Opening the Skies
regional
The recent open-skies agreement between Europe and the
United States will give carriers more trans-Atlantic flying
freedom and travelers more choices at better fares.
By Lynne Clark | Ascend Staff
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“The freedom to travel is often underestimated, but it is
a value that lies at the core of democracy. ... one which
we should always protect, promote and preserve.”
— U.S. Transportation Secretary Mary Peters
A
agreements or none at all. The United
States and the European Union have
agreed to begin second-stage negotiations on further liberalization within 60
days of application of the agreement.
According to a May report published
by the U.S. Department of Commerce,
International Trade Administration, the
new agreement contains several major
provisions:
Open skies between the United States
and the European Union and all its 27
member states;
Broader entry into cooperative marketing arrangements for codesharing,
franchising and leasing;
Creation of a cooperative joint committee to further airline deregulation;
Guarantees for U.S. investors to participate as minority shareholders in
any majority-E.U.-owned airline (effectively including minority shares of
state-owned firms);
Investment in U.S. airlines: Restatement
of U.S. policy (25 percent legislated
cap on voting equity, 25 percentminus-one-share regulatory cap on
non-voting equity); the United States
will consider foreign requests to hold
larger shares of non-voting equity,
including combinations in which the
Photo by shutterstock.com
fter negotiating for 11 years,
European Union and United
States transportation officials
gathered in Washington, D.C., on April
30 to sign a comprehensive, first-stage
U.S.-E.U. transportation agreement. The
open-skies agreement was a decisive
step toward an open and completely
liberalized trans-Atlantic aviation market. With this agreement, said U.S.
Transportation Secretary Mary Peters,
“the honeymoon in Paris, [France], the
business trip to Dublin, [Ireland], or the
family reunion in Naples, [Italy], will be
cheaper, easier and within the reach of
more Americans and Europeans than
ever before. And people from every E.U.
country will enjoy these same benefits
when they buy that trip to Disneyland or
Washington, D.C.”
Put simply, open-skies agreements
remove regulatory limits on the number
of carriers a country may designate, the
number of flights, the routes flown and
the type of aircraft an airline may use.
Open routing provisions that permit
unlimited flights between the parties
also allow carriers to continue flights on
to third-country markets. While removing barriers to market entry and service,
the agreements affirm the critical operations of civil aviation, such as safety
and security. The arrangement covers
operations by scheduled and charter
operators, for passenger and all-cargo
services.
The Agreement
The new agreement, which will be
provisionally applied beginning March
30, 2008, dismantles the patchwork
of agreements that has limited transAtlantic air service since World War II.
It extends ,open-skies, principles to 11
E.U. countries, including Greece, Ireland,
Spain and the United Kingdom, where
the United States has had restrictive
Unlimited entrance to the United Kingdom, specifically London Heathrow Airport, the busiest
point in the European Union and currently limited to two U.S. carriers, is one of several benefits of the new open-skies agreement between the European Union and the United States.
ascend 87
regional
total of voting and non-voting equity
exceeds 50 percent;
The ability for E.U. carriers to route
flights between any E.U. member state
and the United States without touching
the home country’s “community carriers” (for example, a Lufthansa German
Airlines flight can go from Paris to the
United States without having to pass
through Germany);
U.S. agreement that purchase by an E.U.
carrier or investor of a controlling share
in a carrier (passenger or cargo) from
third countries that have open-skies
agreements with the United States
— such as Switzerland, Liechtenstein,
Photo by shutterstock.com
Photo by shutterstock.com
members of the European Common
Aviation Area, Kenya or African countries — would not jeopardize the
acquired airlines’ rights to operate in
the United States;
Authorization for E.U. carriers (scheduled and charter, passenger and cargo)
to carry certain “Fly America” traffic,
except for the U.S. Department of
Defense;
For E.U. cargo carriers, the ability to
route flights between third-party states
and the United States without touching the home country and between
the United States and members of the
European Common Aviation Area.
The ITA report also outlines specific benefits that accrue to the air services
sector under the new agreement:
A unified set of rules governing air services arrangements across the E.U.,
replacing multiple national-level air
services agreements for passenger
and air cargo routes served by U.S.
operators;
Potential simplification of the existing
passenger and cargo operating relationships, including competition-law
issues, in the non-open-skies E.U.
countries, helping to rationalize the
industry further (for example, more
choices in partnership or co-branding
relationships, broader selection of passenger and cargo hubs) and improve
operational efficiency;
Unrestricted access to the United
Kingdom and especially London
Heathrow Airport, the busiest point in
the European Union and currently limited to American Airlines and United
Airlines among U.S. carriers.
Carriers Jockey for Position
The new open-skies agreement between the European Union and the United States will
allow airlines in those regions to serve some of the world’s most traveled airports, such as
London Gatwick Airport and John F. Kennedy International Airport, that were previously off
limits.
88 ascend
For airlines, stakes in the coming
rules change are high. Trans-Atlantic
air traffic between Europe and the
United States is expected to increase
by 55 percent during the next five years.
Washington, D.C.-based aviation consultant Jon Ash told USA Today recently that
Heathrow is the “cash cow” carriers are
hoping to milk. That’s because in the 12
months ended in February, the average
fare from the United States to London
Heathrow Airport was 29 percent higher
than that from the United States to
London Gatwick Airport. Clearly, stakes
are high for carriers that are making
major investments to take full advantage
of deregulation. Already, there have
been numerous reports relating to the
new open-skies agreement:
Delta Air Lines is scrambling for
operating rights at London Heathrow
Airport so it can launch service from
regional
Highlight
“If history is an accurate barometer, investments
made by carriers hoping to profit from open skies
agreements are a good bet.”
its Atlanta, Georgia, base as soon as
the treaty takes effect.
Virgin Atlantic Airways is studying
new flights from six European cities. If launched, the carrier would
start the routes out of the John F.
Kennedy International Airport and
Newark International Airport, where it
now flies. Possibilities include Madrid,
Zurich and Milan, Italy.
Continental Airlines hopes to launch
Heathrow service from its Houston,
Texas, base before summer 2008.
Immediately after the open-skies
agreement in March, Aer Lingus
announced plans to launch service
this year to three new U.S. cities: San
Francisco, California; Orlando, Florida;
and Washington, D.C. The Irish carrier
had the authority for the service but
didn’t use it until deregulation was on
the horizon.
United Airlines and British carrier bmi
are seeking final approval from U.S.
regulators to expand their codesharing
partnership. Passengers would be able
to visit United’s Web site and buy one
ticket to get to their final European
destination.
History Confirms Open Skies
are Profitable
If history is an accurate barometer,
investments made by carriers hoping to
profit from open skies agreements are
a good bet. After the 1995 adoption of
the U.S.-Canada trans-border air services agreement, one-year traffic jumped
146.4 percent between Vancouver,
Canada, and Phoenix, Arizona, according
Photo by shutterstock.com
Virgin Atlantic Airways is considering operating new flights from six European cities as
a result of the recent open-skies agreements between the United States and Europe. If it
moves forward with these plans, it will begin the routes out of the Newark International
Airport and the John F. Kennedy International Airport.
to figures gathered by the ITA. Similarly,
travel between Toronto, Canada, and
Minneapolis, Minnesota, jumped 55.3
percent in the first year after the U.S.Canada agreement.
The joint commitments on the part
of the United States and the European
Union to launch second-stage negotiations in 2008 holds open the possibilities
for even greater commercial opportunities in the future. Further liberalization of
traffic rights and additional possibilities
of investments abroad is a next step.
“This agreement will bring many
concrete benefits, and it will bring
change,” said European Transport
Commissioner Jacques Barrot in remarks
during the signing ceremony. “Even
before the signature, different players in
the European industry have been staking out their position in preparation for
a new era. Partners on different sides
of the Atlantic are considering how to
develop further their cooperation.
“Financial institutions, in particular,
are looking for progress that ensures aviation has the same investment and trading opportunities as other industries.”
Looking ahead, he said the United
States and European Union must address
air transport emissions and the cost of
“green technologies” as well as better
air traffic control.
“We must also now work together
more closely than ever on safety and
security,” Barrot said. “We need to protect our citizens when they fly, but we
must not make their journey unbearable
with uncoordinated security measures.
So there is a lot of work to do, but with
this deal, we are giving ourselves an
excellent basis for future work. Aviation
is essential to trans-Atlantic trade, and
with this agreement, aviation takes its
place as an example of what the European
Union and the United States can achieve
together. Now we must press on with
our work to ensure that aviation continues to lead the way.” a
Lynne Clark can be contacted at
wearelistening@sabre.com.
ascend 89
company
Disaster Recovery
Sabre Holdings® enhances its disaster recovery program
using the Cherokee Data Center — the only tier-4 facility
available to the travel and transportation industries.
By Sally West | Ascend Contributor
I
t would be difficult to find anyone who has
not heard of the recent natural disasters
and political upheavals that have impacted
corporations worldwide. As a result, many corporations are reviewing their disaster recovery
plans and making enhancements. And Sabre
Holdings is no exception.
The company’s disaster recovery program consists of extensive processes designed
to protect mission-critical systems and data
in the event of natural or man-made disasters. This program has successfully protected
Sabre Holdings’ systems and the continuity of
its customers’ operations and data for more
than 35 years. And now, the company has
implemented an additional layer of protection
to ensure its customers’ systems function
without significant disruption at all times by
utilizing a second data center facility, the EDS
Cherokee Data Center in Tulsa, Oklahoma.
The disaster recovery program includes
two primary areas: disaster avoidance and
disaster recovery.
Disaster Avoidance
disaster recovery program is built upon these
traits with detailed task plans and redundant critical systems at the Cherokee Data Center.
The facility is designed to survive natural
disasters and bomb blasts, and it continues to
operate without on-site staff. The only tier-4
facility available to the travel and transportation
industries, it will withstand F5 tornados with
winds of up to 300 miles per hour and storm
movement of up to 70 miles per hour. It can also
withstand blast threats to the building of up to
500 pounds of TNT.
Disaster avoidance includes the restoration and recovery from major impacts. It
includes hardened data facilities, redundancies, extensive back-up procedures and
operations expertise. It also utilizes a
tier-4 (comprising multiple active power
and cooling distribution paths, has redundant components, and is fault tolerant,
providing 99.995 percent availability) data
center site with physical security providing
active monitoring against intrusion. This
tiered approach can sustain operation during severe weather and natural disasters.
The primary data center provides two or
more service (power and cooling) distribution paths for redundancy at the subsystem level, and the facility is designed
to eliminate points of failure and supports
24 hour-a-day, 365 day-a-year availability.
A minimum of two copies of each record
is written to the databases, and network
communication lines are redundant. The
Disaster Recovery
Sabre Airline Solutions Archives
The Tulsa-based EDS Cherokee Data Center is the only tier-4 facility available to the travel
and transportation industries. Operating without an on-site staff, the disaster recovery facility is designed to withstand natural disasters and bomb blasts.
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Sabre Holdings has production-capable
systems located in the Cherokee Data Center.
Ongoing captures of production systems, application configurations and databases are copied
from the primary data center to this data center
as part of the disaster recovery solution. A full
network infrastructure is in place as well, and
all operational support can be conducted from
an alternate site. Testing of this solution is performed at least once a year and includes using
operational support from the alternate location.
With both the extensive processes, use of
two tier-4 data centers and redundant production
capable systems, Sabre Holdings has the ability
to minimize system disruption to support its customers’ critical business functions. The company
is committed to continuously improve its disaster
recovery capabilities, and using the EDS Cherokee
Data Center is yet another step to preserve and
protect its customers’ vital operations. a
Sally West is a senior principal in the
enterprise operations area of Sabre
Holdings. She can be contacted
at sally.west@sabre.com.
company
Going Private
After being purchased by two dominant investment firms, Sabre
Holdings® can focus more closely on its long-term goals of
providing state-of-the-art technology solutions to its customers
without the severe pressures of a publicly traded company.
By Phil Johnson | Ascend Staff
S
abre Holdings, having been purchased
and taken private by Silver Lake Partners
and TPG Capital, continues to offer the
same world-renowned service and innovative
ideas to its many global clients — but as a
private company, its overriding objective is to
offer even more.
And its clients have every reason
to expect more from the company that
has spawned many of the most popular
features in global travel service over the
years.
endorsement of our business model, our
industry leadership and the hard work and
dedication of our talented people around
the world.”
Becoming a private company, Sabre
Holdings gains a considerable degree
of flexibility in developing and offering
options to its worldwide array of clients.
“Sabre Holdings has a remarkable
track record of pioneering and delivering best-in-class technology solutions for
the global travel industry,” said Greg
Highlight
“For Sabre Holdings, being a private company
and having private-equity parents such as TPG
Capital and Silver Lake Partners may well prove
an advantage of immense proportions — particularly to the company’s worldwide multitude of
customers and business associates.”
“After a thorough assessment,
we concluded that this transaction represents a compelling outcome for our
shareholders, customers and employees,”
said Sabre Holdings Chairman and Chief
Executive Officer Sam Gilliland. “We look
forward to a strong future, partnering with
two preeminent investment firms that are
closely aligned with our strategy and longterm objectives. This transaction is a clear
Mondre, a managing director of Silver
Lake Partners. “We look forward to working with the members of Sabre Holdings’
talented management team as they continue to deploy technology as a source of
competitive advantage and value-add for
customers.”
No significant changes have occurred
in the company’s executive management
team, and none are anticipated.
“Sabre Holdings is well positioned to
continue innovating,” said Karl Peterson, a
partner at TPG Capital. “And we’re excited
by the opportunity to invest in Sabre
Holdings given its leadership position in
travel technology and distribution, and
the strength of Travelocity ® and the company’s other leading online brands. We
look forward to helping Sabre Holdings
management profitably build upon this
very strong franchise.”
Its
headquarters
remains
in
Southlake, Texas, and although Sabre
Holdings is no longer a publicly traded
company, it will continue to post periodic
financial updates on its Web site.
“The advantage to Sabre Holdings of
being private is that it’s no longer under
the extreme pressure of being a publicly
traded company,” said Stan Block, Ph.D.,
a finance professor at Texas Christian
University’s Neeley School of Business
and a keen observer of mergers and
acquisitions.
“When you’re a publicly traded company, you’re under tremendous pressure
for short-term performance,” Block said.
“And by that, I mean the next quarter’s
earnings report. As a public company,
a large percentage of your attention is
focused 30 to 60 to 90 days into the
future. And if you don’t make your numbers, if you don’t make your goals for the
quarterly report, you tend to be punished
in the financial markets.
“And what happens in that case
— when you’re a public company — is
you lose your vision of where you want
to be three to five years from now,” he
continued. “You’re too worried about 60
to 90 days. So instead of making the type
of plans that would allow you to grow and
prosper and meet and adjust to changing
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company
Sabre Airline Solutions Archives
Southlake, Texas-based Sabre Holdings, which was recently purchased and taken private by two dominant investment firms — Silver Lake
Partners and TPG Capital, will continue to offer it’s worldwide client base the highest possible levels of service and innovation.
competition, you’re worried about whether you’re going to hit that US$1.20 in 60
days, or you’re going to unfortunately
come in at US$1.18 and be punished by
your stock price going down 10 percent.”
Interestingly, one of the bestknown private-equity firms in the world,
Blackstone Group LP, recently put itself
at least partially on the public market with
an enormously successful initial public
offering.
“There’s an old saying that every
private company wants to be public, and
every public company wants to be private,” said Block. “And there’s some truth
to that.
“But what it boils down to is that
only about 10 percent to 20 percent of
companies that do go public are really successful and happy that they went public.
Those are the ones that make Bill Gates
and others multi-billionaires,” he said.
“On the other hand, the great majority
that find themselves public — the 80 percent to 90 percent — they find themselves
under tremendous pressure. Often, they
find themselves at a stock value less than
what they initially went public for, and
they’re disappointed they ever made that
move. So being public is an opportunity to
hit a home run — but it’s also an oppor92 ascend
tunity to come out way behind in the late
innings.
“Being private now, Sabre Holdings
has the opportunity to concentrate more
on the future. Now, the people running the
company are not looking just 60 to 90 days
private market — Burger King, MGM,
Neiman Marcus,” said Block. “So TPG is
what I would call a ‘generalist,’ not necessarily specializing in a given industry. For
example, TPG right now — along with
Goldman Sachs — is looking at taking TXU
Highlight
“Sabre Holdings is well positioned to continue
innovating ... We look forward to helping Sabre
Holdings management profitably build upon this
very strong franchise.”
— Karl Peterson, TPG Capital, partner
down the road, they’re looking one year,
three years, five years down the road with
a plan to enhance their operation.”
Then there’s a whole other area of
discussion related to the companies that
bought and took Sabre Holdings private:
TPG Capital and Silver Lake Partners.
“TPG has tremendous experience
taking companies from the public to the
Energy Corp. private. And TPG has the
expertise among its management people.
When they take a company private, quite
often it’s with the intention of the company being private for, perhaps, three years
— and then maybe bringing the company
back to the public market.
“But the only way they can do that
successfully is by making it a much better
company
Sabre Airline Solutions Archives
never been happier just to get around
Sarbanes-Oxley. So definitely, the additional capital that can be invested by
private-equity firms is important to the
future of the private company, but also
the capability to not have the extreme
supervision of the U.S. Securities and
“This transaction
is a clear endorsement of our business
model, our industry
leadership, and hard
work and dedication of our talented
people around the
world.”
— Sam Gilliland, Sabre Holdings,
chairman and chief executive officer
— Sam Gilliland, Sabre Holdings, chairman and chief executive officer
company than it was before — and this means
taking a hard look at all of the operations and
improving them,” he said. “They know they
can go in and improve costs and make Sabre
Holdings a more efficient operation in providing
solutions for its customers. And they’re able to
do this without the severe pressure of being
public: They’re not worried about next quarter
— they’re worried about taking steps that are
going to make the company much better in the
longer term.”
Silver Lake Partners has accumulated a
history somewhat different from TPG — but
also quite favorable to future prospects of Sabre
Holdings.
“Unlike TPG, Silver Lake’s people specialize in information technology,” Block said.
“Their expertise is very specifically in information technology and the area Sabre Holdings is
in. So the two companies taking Sabre Holdings
from public to private have the right combination
— a good combination for Sabre Holdings.”
Another obvious advantage of having
savvy private-equity ownership is the ability of
that ownership to invest substantially in business growth and improvements.
“The ability to invest considerable
amounts of capital is certainly a significant
factor,” Block said. “But I would also add that
being a private company affords Sabre Holdings
another advantage in terms of freedom from
Sarbanes-Oxley, which is a very tough law that
was passed in the early part of the decade.
While the intentions behind Sarbanes-Oxley
may have been good and pure and forthright,
this law — when you’re a public company
— makes it much more difficult to present
your financial situation without potential
liability to stockholders.
“And it’s certainly something public companies fear and private companies
can basically ignore,” he said. “I happen
to be on the board of a public company that has gone private, and we’ve
Exchange Commission with SarbanesOxley, which a lot of people now feel is
counterproductive.”
For Sabre Holdings, being a private company and having private-equity
parents such as TPG Capital and Silver
Lake Partners may well prove an advantage of immense proportions — particularly to the company’s worldwide multitude of customers and business
associates. a
Phil Johnson can be contacted
at wearelistening@sabre.com.
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News Briefs from Around the Globe
Photo by shutterstock.com
North America
Caribbean Airlines
Caribbean Airlines signed an agreement
with Sabre Airline Solutions ® to provide
a new system for its maintenance, repair
and overhaul applications, which will be
delivered via Sabre ® eMergo ® Web access.
Caribbean Airlines chose the Ramco MRO
System because of “its time to market,
product superiority, hosting and the fact
that Sabre Airline Solutions will be a
single vendor for all our operations and
MRO solutions,” said Capt. Ian Brunton,
executive vice president of operations for
Caribbean, the national airline of Trinidad
and Tobago.
Caribbean Airlines’ predecessor,
BWIA, had been using the Sabre ® MaxiMerlin ™ maintenance, engineering and
inventory system for the last 24 years. It
opted to use the Ramco MRO system as
the upgrade to the Maxi-Merlin system.
“After 24 years on the Maxi-Merlin
system, we recognized immediately that
combining Sabre Airline Solutions’ proven
track record with the Ramco MRO system’s
extra functionality would be a winning system for us,” Brunton said. “In addition,
the eMergo solutions delivery process
ensured we would be up and running right
away, which was vital to us. It supports
our quest to be self sustaining and a profit
center in our MRO operations.”
Aloha Airlines
Aloha Airlines has turned to Sabre Airline
Solutions ® to assist the Honolulu-based
carrier’s continuing efforts to improve
its bottom line and secure a competitive advantage. Bracing for expansion,
Aloha Airlines has asked Sabre Airline
Solutions to provide four technology solutions — the Sabre ® Flight Control Suite,
the Sabre ® Streamline ® StaffPlan ™ system,
the Quasar™ passenger revenue accounting system and the Sabre ® Qik ® Business
Processing Solutions — all of which are
designed to either reduce an airline’s operating costs or improve revenues.
“Now more than ever, it’s vital that
Aloha Airlines invests in technology to
streamline our operations and to maximize
the use of our resources,” said Aloha
94 ascend
Airlines CIO Mike Malik. “Sabre [Airline
Solutions’] proven technology will create
the efficiencies we need to allow us to be
successful in today’s competitive airline
environment.”
Midwest Airlines
Midwest Airlines is the launch customer
for new merchandising technology from
Sabre Travel Network ® , which introduced
another merchandising first through its
distribution merchandising suite. The suite
will enable airlines to differentiate and sell
premium airline seats in a coach-class aircraft cabin. The Milwaukee-based carrier
will use the new merchandising capability in conjunction with the addition of its
Signature seating — its two-by-two seating option with exceptional legroom — on
its MD - 80 aircraft. As part of Midwest’s
continuing rollout of its long-term strategic
plan, the airline’s all-coach-class cabin will
feature both Signature and Saver seating, beginning with flights on the MD - 80
aircraft and continuing next year on its
Boeing 717 fleet.
According to Scott Dickson, senior
vice president and chief marketing officer
for Midwest Airlines, the new technology
enables the airline’s valued customers to
make personal choices based on seating
preference and cost.
“Sabre [Travel Network] has been
innovative and creative in its development
of solutions that support Midwest’s initiatives to provide the flexibility our customers want,” he said.
“We have enjoyed a long-term partnership with Sabre [Travel Network]” said
Alex Yarmulnik, chief information officer for
Midwest Airlines. “They understand what
airlines need to be competitive. They have
proven, reliable technology with solid integration capabilities, which provide Midwest
with operational efficiencies and cost savings.”
AirTran Airways
AirTran Airways is serving as the launch
partner for new technology developed as
part of the ongoing evolution of the Sabre ®
global distribution system.
AirTran Airways is launching XML connectivity. The airline — for the first time
— has the ability to provide enhanced services through the GDS, giving Sabre Travel
Networks’ vast network of corporate and
leisure customers a distinct advantage.
Photo by shutterstock.com
Sabre Airline Solutions
better shopping experience for agents and
travelers that can result in increased sales
for airlines using the new solution.
Enhanced fare quote and availability that
incorporates airlines branded fares into Sabre
GDS displays, enabling them to merchandize
through the GDS the attributes of their products in a manner consistent with their marketing strategies. On the MySabre™ agent
booking portal, agents can quickly review
those attributes on the interactive display,
and with one click, they can view summaries
used to easily compare attributes across carriers’ different fares.
Sabre Travel Network
According to Sabre Travel Network ® , 90
percent of all tickets issued worldwide
through the Sabre ® global distribution system are now electronic, up from 80 perPhoto by shutterstock.com
“[The] new XML connectivity is a big
win for AirTran Airways because we’re highly
focused on our ability to leverage a variety of distribution channels and capitalize on our investments in XML — just two of the things that our
partnership with Sabre [Travel Network] helps
us accomplish,” said Kevin Healy, vice president of planning, AirTran Airways. “Together,
we’ve provided travel agents the ability to sell
AirTran Airways’ unique products, view our
seat maps and communicate frequent traveler
information, all through the efficiency of the
Sabre GDS.”
XML connectivity enables reservations
capabilities and enhanced services, such as
interactive seat maps, frequent flyer numbers
and pre-reserved seats for carriers whose
reservations systems don’t fully support traditional communication protocols used for GDS
connectivity. This provides improved capabilities for carriers participating in the Sabre GDS
and a platform to enable distribution of carriers
that haven’t previously participated in GDS
systems.
Other enhancements include:
Next-generation availability that enables the
Sabre system to house a real-time representation of an airline’s true inventory, which
reduces response time and provides more
accurate last-seat availability, ultimately providing more accurate available fare information when agents search across a large
number of itinerary options. This creates a
cent in June 2006. And 161 airlines have
implemented e-ticketing in the Sabre GDS,
up from 122 late last year.
Condor, Corsair, Ethiopian Airlines,
KD Avia, Malev Hungarian Airlines, OltOstfriesische Lufft and Royal Jordanian
have become the latest carriers to implement e-ticketing through the Sabre GDS.
While 161 airlines worldwide offer
e-ticketing through the Sabre GDS, its
sister company, Sabre Airline Solutions ® ,
is working closely with many airlines to
ensure they will be compliant with the
International Air Transport Association’s
100 percent electronic ticketing mandate.
SabreSonic ® Ticket enables an airline to
distribute electronic tickets both through
its own sales channels and through travel
agencies, check in passengers with electronic tickets and issue interline electronic
tickets.
Sabre ® eMergo ® Web access, the industry’s
largest application service provider hosting platform, is being utilized by more than
100 airlines around the globe because it
provides them flexibility to deploy a number of operational programs to address
the needs of a constantly changing travel
marketplace.
The eMergo delivery method is a
complete solution that includes application
delivery, hardware and third-party software,
management of that software, data storage, help desk support, and maintenance
releases. It enables airlines to access and
employ more than 60 of the Sabre Airline
Solutions ® products via the Internet, saving them as much as 60 percent in upfront
costs over local installation of the same
solutions.
“No one — absolutely no one — has
been able to duplicate the success of the
eMergo delivery method,” said Vinay Dube,
vice president, marketing solutions for Sabre
Airline Solutions. “Airlines have adopted this
unique solution, far surpassing the adoption
rates of any other industry provider.”
The eMergo delivery method goes
beyond a traditional ASP model because it
provides a one-vendor solution for airlines:
one point of contact, one business relationship, one complete solution for hosting as
well as a single price point for its applications.
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Southwest Airlines Cargo selected Sabre ®
CargoMax™ Revenue Manager to help
increase efficiency, cargo revenue and profitability. Revenue Manager is an integrated,
comprehensive solution that supports the
end-to-end cargo revenue management
needs of an airline.
“We are constantly seeking ways to
improve our efficiency and processes, and
Revenue Manager will help us meet those
objectives,” said Matt Buckley, senior director of cargo for Southwest Airlines. “While
delivering the excellent customer service for
which we are known, Revenue Manager will
help us increase revenue, specifically through
more effective cargo space management.”
“Our aim is to implement a worldclass revenue management solution that is
able to support decision-making capabilities
News Briefs from Around the Globe
based on a number of scenarios,” said Kevin
Russell, manager of cargo revenue management for Southwest Airlines.
of planning and sales for Virgin America.
“This important distribution channel will
allow us to more efficiently and broadly
distribute fares for our San Francisco,
New York, Los Angeles, Washington,
D.C., and Las Vegas routes.”
Virgin America
Virgin America, the U.S.-based low-fare
next- generation airline, signed a multiyear distribution agreement with Sabre
Travel Network ® that will enable the airline’s fares and inventory to be made
available to all Sabre Connected SM travel
agents worldwide.
The Sabre Travel Network distri bution agreement with Virgin America
makes all airlines’ fares available to Sabre
Connected travel agencies and corporations worldwide.
“We are delighted to be a part
of the Sabre ® global distribution system
channel,” said Brian Clark, vice president
Latin America
Aerolitoral
Photo by shutterstock.com
A ero litoral, the re g ion al air line of
Aeromexico, in looking for ways to
reduce costs in the face of the apprecia tion of the peso and increased competi tion on its routes to the United States,
has selected the Ramco MRO System
from Sabre Airline Solutions ® to effi ciently maintain and engineer its fleet.
By implementing the Ramco MRO sys tem, Aerolitoral will be able to achieve
optimal utilization of resources, improve
per formance and decrease costs.
“Aerolitoral decided to migrate to
Sabre Airline Solutions and the Ramco
MRO system because we recognized
the potential to reduce our direct and
overhead costs and optimize inventor y,”
said C esar G arcia, Aerolitoral’s vice
president of maintenance and engineering. “Combined with the abilit y to ensure
safet y and regulator y compliance, the
MRO solution will allow us to become
more cost efficient and compete even
more effectively in the L atin American
marketplace.”
Europe, the Middle
East and Africa
Aegean Airlines
Aegean Airlines, the fast- growing, privately owned Greek carrier, signed a
major revenue management contract with
Sabre Airline Solutions ® . This follows a
similar decision by Swiss no -frills carrier flybaboo.com to use Sabre ® AirMax ®
Revenue Manager to help meet expanding
revenue management requirements.
Aegean will use the product to
control seat price and availabilit y, both
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Photo by jupiterImages.com
site powered by Holiday Autos. This
lastminute.com - owned car rental broker
already powers the car hire section of
Atlas Blue, the no -frills carrier owned
by Royal Air Maroc.
Photo by shutterstock.com
by flight leg and segment. It anticipates
signific ant incremental revenue as a
result. Revenue M anager features a
comprehensive range of decision - sup por t processes including data collection,
forecasting, overbooking, optimization,
aler ting, and per formance measurement
and repor ting.
“Revenue Manager tested best in
the area of forecasting and operations
research,” said Roland Jaggi, Aegean’s
head of revenue management and pric ing. “Sabre [Airline Solutions] will pro vide comprehensive suppor t to Aegean
in the course of the implementation
and post go - live period so that Aegean
maximizes the benefits from the use of
the system.”
Royal Air Maroc will use Sabre ®
AirFlite ™ Schedule Manager to develop
flight schedules that best meet cus tomer needs, while Sabre ® AirFlite ™ Profit
Manager will help it analy ze strengths or
weaknesses in its flight timings and the
financial impact of individual timetable
changes.
The crew management deal sees
Royal Air Maroc using the Sabre ® Rocade ®
Crew Management System to generate optimal crew pairings, automatically
generating rosters and tracking daily
crew operations. The system generates
cost- effective crew pairings and auto matically generates crew rosters that
meet crew legalit y rules, including gov ernmental and regulator y requirements,
airpor t restrictions, crew training and
licensing, airline - specific requirements,
and individual crew preferences.
“Sabre Airline Solutions has the
technology we need now and provides
the flexibilit y we need to adapt quickly
to grow th and new business models in
the future,” said Mohamed Diane, chief
information officer for Royal Air Maroc.
“Their decision - suppor t sof t ware will
enable us to drive out costs and grow
revenue, all while maintaining opera tional excellence in a rapid grow th envi ronment.”
Royal Air Maroc
Royal Air Maroc signed a multi - million
dollar deal with Sabre Airline Solutions ®
for products to help plan and improve
flight scheduling. Another deal has been
signed for crew management products.
The Nor th African carrier has also
signed with lastminute.com, sister com pany to Sabre Airline Solutions, to have
the car hire section of the carrier’s Web
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hightech
Product
Sabre® Ground Assist
Description:
Gro u n d A s s i st, t h e S a b re A i rl i n e
Solutions ® passenger processing solu tion for ground handling comp anies,
p rov i d es c o m p rehensi ve su p p o r t fo r
p as sen g er h and lin g , p as sen g er selfser v ic e and weig ht- and - b al anc e pro c e s ses . T he d e p ar ture c o ntro l sys tem provides one of the most rapid
resp o nse times in the industr y and
d e li ve r s unsu r p a s se d re li a b ili t y an d
stabilit y. T hese feature - rich passenger
self- ser vice products are International
A ir Transp or t A s so c iation c omp liant ,
helping ground handlers streamline the
c he ck- in p ro c es s an d re du c e c ost s .
A nd the load planning applic ation sup p o r t s in d ustr y - st an d ard fun c ti o n alit y
and ex ternal messaging — a must for
ground handling companies.
Benefits:
By utilizing the Ground Assist solution,
improvements in customer processing
and load control c an provide several
operational benefits:
Pas senge r Proc e s sing
Enhanced airpor t passenger process ing — Industr y - standard check- in and
boarding functionalit y lets ground han dlers of fer superb passenger- process ing automation and c apabilities to their
airline clients.
A d h e re n c e to c o n t r o l a u t h o r i t y
requirements — Users c an be sure that
the depar ture process complies with
loc al and destination - specific securit y
requirements.
Reduced operational costs — Providing
self- ser vice options to individual travel ers re duc es the nee d for ad ditional
airpor t staf f and enables grow th at a
lower cost.
98 ascend
Optimized staf f utilization — Enhanced
traveler- processing options enable staf f
to improve ser vice to customers outside
of the traditional ticketing and check- in
counters.
Simplified deployment — C onstrained
by resource availabilit y, traditional airpor t automation deployment depends
on loc ation - specific conditions for suc cess. T he Ground Assist solution simpli fies applic ation deployment and mainte nance through an applic ation ser vice
provider approach, ensuring uniformit y
across the operational net work.
Increased revenue oppor tunities —
Faster passenger check in and shor ter
lin e s in c re a s e t r ave l e r s at is fa c t i o n ,
resulting in repeat business.
maximum planning weights, and per formance limit weights. T he fuel plan data
lists all per tinent information for each
of the aircraf t fuel tanks.
Provide
efficient
I ATA - s t a n d a r d
worksheet — L o ad p l anners c an use
online sc reens to enter all weight d at a
for flight s. Weight- and - b al anc e inform ati o n is then c al cul ate d b ase d o n
airc raf t t y p e.
Inc re ase d pro duc ti v it y — Users c an
e asil y and s afel y work more flight s p er
shif t. A single user c an c onduc t lo ad
p lanning for multip le flight s simult ane ousl y. T he result: p l anners have b een
ab le to work as m any as 2 0 flight s p er
eight- hour shif t.
Load Control
Features:
Improved weight calculations — Weight
information is retrieved for checked in passengers and baggage, allocating
weight according to passenger t ype.
User- defined parameters enable special
weights for specific groups, seasons of
the year and load t ypes.
T he G round A ssist solution prov id es
a f u l l y f u n c t i o n a l h o s te d d e p a r t u re
c ontrol and lo ad p lanning system that
prov id es c omp lete su p p or t for g round
handling ac tiv ities:
Increased fuel savings by optimizing
center of gravit y — The load control
option can considerably reduce an aircraft’s fuel consumption by optimizing
the ideal trim through the automated
tools provided in the weight- and - balance
program. This can result in improved
fuel savings for airline clients.
T he D C S host solution provides indus tr y - standard passenger processing fea tures for flight check in and boarding.
Suppor t for industr y mandates, I ATA
compliance for e -ticketing and BCBP,
ex ternal messaging, securit y require ments, and other obligations guaran tees compliance with all airpor t han dling needs.
Automation of impor tant processes
— The load control system automatically
plans the payload for optimal center of
gravit y through the auto - deadload func tionalit y. It also automatically receives
and formats messages while distributing payload and down - line messages.
Exceptionally easy to use, the system
displays impor tant aler ts and valida tions.
Display of vital information — Data
displayed online about loading aircraf t
in c lu d es p l anne d an d re q uire d fu el,
De par ture Control
Check- in St af f — T he solution includes
a grap hic al user inter fac e that simp li f i e s c o m p l ex , m u l t i - s te p p ro c e s s e s
an d c o m p l etel y elimin ates the ne e d
for st af f to memorize c omp lex host
for m at s. T his re duc es training re quire m ent s , keystrokes an d in p u t er ro r s ,
enab ling st af f at the c he ck- in c ounter
to prov id e exc eptional customer serv ic e.
P asseng er self- ser v ic e to ols — T he
p a s s e n g e r- p r o c e s s i n g s o l u t i o n p r o -
New and Improved Products and Services from Sabre Airline Solutions
el er c he c k- in an d b o ard in g p ro c es s ,
ena b ling g round handlers to prov id e
a premium level of customer ser v ic e.
A d d ressing the nee d for ef fe c ti ve and
ef ficient customer ser v ic e, these so lu tions d eli ver valu a b le traveler- pro c ess ing to ols to ground handler st af f:
Offering a state-of-the-art combination of Web browser and PDA technologies, the Roving Agent module
provides airport staff with real-time
wireless, portable access to the airline’s host reservations and departure
control systems. Designed to supplement existing airport positions, the
module enables airport staff to service customers away from traditional
ticket and gate counters.
The Check-in Tab provides a quick and easy passenger check-in method with comprehensive
features within one view. Agents can view available seats, change seats, issue boarding
passes and bag tags and many other essential functions all by selecting the row number of
the passenger.
The Gate Reader module is integrated with the graphical user interface,
processing boarding documents and
cards to verify traveler information
including flight, date, origination,
and traveler name and seat number.
It automates the boarding process,
enabling a more accurate accounting
of boarded travelers. This automation
provides a more accurate closeout
of flights, reduces flight delays and
improved operational efficiency.
Load Planning
v id es a full set of self- ser v ic e check- in
to ols that emp ower travelers w ith the
a bilit y to p er for m multip le func tions
rel ate d to their jour neys. A c c essib le
b oth w ithin and out sid e the air p or t
env ironment , these to ols enab le travel ers to p er for m func tions other w ise han dle d by air p or t st af f, such as o bt aining
a valid b o arding entitlement , changing
a se at assignment or c onfir ming flight
st atus.
S elf- ser v ic e k iosk m o dule — T his
solution provides p assengers with a
c o nve nie nt , e a sy - to - u se se l f - se r v i c e
check- in option that enables them to
per form routine travel functions with out the involvement of airpor t staf f.
T he module provides a broad content
base determined by the handler, thus
providing travelers w ith qu alit y cus tomer ser vice. T he applic ation is I ATA
C U S S c o m p li ant , ensur in g fl ex i b ilit y
and integration w ith most CU S S k iosk
p lat for ms.
We b check- in mo dule — T he mo d ule disp lays traveler itineraries, sup p o r t s flig ht c he c k- in fun c tio ns , p ro v id es interac ti ve se at m a ps, verifies
flight st atus and g enerates b o arding
p asses, w hic h c an b e printe d from the
customer ’s c omputer.
A i r po r t S t a f f Too l s
T he st af f to ols emp ower air p or t st af f
to handle multip le fac et s of the trav -
The load control option helps maximize
payload while creating the optimal center of gravity based on aircraft operational data. The system addresses all
concerns of load planning personnel,
incorporating automation to provide a
consistent, accurate and straightfor ward way to perform required weightand-balance tasks:
Load Manager provides the capabilities of a centralized load planning
system offered by expensive mainframe computers, but with a more
flexible user-friendly interface. The
solution may be deployed as a locally-installed system or hosted by
Sabre Airline Solutions and delivered
via Sabre ® eMergo ® Web access.  a
ascend 99
Helping you better market,
sell, serve and operate — from
planning through execution.
market
We help you plan how to best offer your schedules
to customers and generate the most revenue.
• Cargo management
• Fares management
• Inventory
management
sell
• Revenue
management
• Schedule
development
We help you determine the best distribution channel
to sell tickets to customers.
• Booking engines
• Business process
management
• Channel distribution
serve
• Loyalty management
• Revenue accounting
• Revenue integrity
management
• Customer relationship • Reservations
management
• Shopping
• Market data
• Ticketing
and analysis
We help you make the experience easier for your
customers throughout the travel process.
• Customer notification
and trip information
• Customer processing
operate
We help you manage daily operations to efficiently
fly your schedules.
• Crew management
• Dining and cabin
services
• Flight operations
• Ground support
• Maintenance,
repair and overhaul
• Resource
management
• Schedule
distribution
smart. proven. bankable.
making
contact
To suggest a topic for a possible
future article, change your address or
add someone to the mailing list, please
send an e-mail message to the Ascend
staff at wearelistening@sabre.com.
For more information about products
and services featured in this issue
of Ascend, please visit our Web site
at www.sabreairlinesolutions.com
or contact one of the following
Sabre Airline Solutions regional
­representatives:
Asia/Pacific
Andrew Powell
Vice President
3 Church Street
Samsung Hub #15-02
Singapore 049483
Phone: +65 6511 3210
E-mail: andrew.powell@sabre.com
Europe, Middle East and Africa
Murray Smyth
Vice President
Somerville House
50-59 Staines Road
Hounslow, Middlesex
TW3 3HE, United Kingdom
Phone: +44 208 814 4540
E-mail: murray.smyth@sabre.com
Sabre Airline Solutions and the Sabre Airline Solutions logo are trademarks and/or service
marks of an affiliate of Sabre Holdings Corp. ©2007 Sabre Inc. All rights reserved.
Latin America
Kamal Qatato
Vice President
3150 Sabre Drive
Southlake, Texas 76092
United States
Phone: +1 682 605 5399
E-mail: kamal.qatato@sabre.com
North America
Kristen Fritschel
Vice President
3150 Sabre Drive
Southlake, Texas 76092
Phone: +1 682 605 5335
E-mail: kristen.fritschel@sabre.com
If you would like to advertise in Ascend,
please send an e-mail message to
wearelistening@sabre.com.
Cert no. SW-COC-002360