Celebrating 100 Years Of Commercial Aviation And The Future Of Air Travel With Commentary From Sabre Airline Solutions President Hugh Jones

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1 Celebrating 100 Years Of Commercial Aviation And The Future Of Air Travel With Commentary From Sabre Airline Solutions President Hugh Jones By Katie Freeman I Ascend Contributor

3 ASCEND I INDUSTRY Currently, there are 1,932,102,241,635 potential ways to fly from New York s John F. Kennedy International Airport to the London Heathrow Airport, considering the different airlines, cabins, schedules, fares, connections and combinations of airlines. During the past century, commercial aviation has shaped our world as we know it. Air travel has bridged cultures, grown national economies and enabled generations to travel and experience foreign places together. Yet, every day, millions of people board planes without stopping to consider the humble beginnings that have made their trip possible. Few pause to acknowledge the complex technological systems in place to help move them to their destinations safely and on time. As airlines around the world look to innovate and differentiate the passenger experience of the future, it is important to look back at the genesis of the industry, and to consider the possibilities that lie ahead. Ready For Takeoff: Birth Of The Global Airline Industry It all started with a US$400 ticket and 21-mile flight between St. Petersburg and Tampa, Florida. On Jan. 1, 1914, pilot Tony Jannus of St. Petersburg-Tampa Airboat Line chauffeured his first paying passenger, Abram Pheil, the former mayor of St. Petersburg, to Tampa. Pheil had out-bid many others in a highly-publicized auction for the only passenger seat on the aircraft. The flight was a short one only 23 minutes while the plane maintained an average altitude of 15 feet over the open waters of the bay that separated the two cities. Jannus plane was a Benoist XVI, a small two-seater plane with an open cockpit, named after Thomas W. Benoist, the well-known American aviator and aircraft manufacturer. St. Petersburg-Tampa Airboat Line was short-lived, however, and ceased operations when the subsidy that created the airline to boost tourism dissolved three months later. In a time when train travel was the primary mode of transportation, it seemed cavalier, and perhaps even unnecessarily risky, to pay for a flight when a simple train ticket would suffice. This new form of transport had captured the attention of Americans, though, and it was only a matter of time before commercial aviation really took off. The 1920s saw the growth of small, regional airlines in the United States. Airlines such as the Detroit-Grand Rapids Airline shuttled passengers between the two cities (Detroit and Grand Rapids) at the cost of US$35 for a roundtrip ticket. While these first regional airlines saw some success, air mail contracts became the core The Beginning Of Aviation History was made Jan. 1, 1914, when Abram Pheil, the former mayor of St. Petersburg, Florida, became the first passenger aboard a two-seat Benoist XVI aircraft from St. Petersburg and Tampa, Florida. The 23-minute flight was piloted by Tony Jannus of St. Petersburg- Tampa Airboat Line. financial support of commercial aviation in the United States. Legislation was passed in the late 1920s that transferred the Post Office Department s responsibility for air mail service to private companies in support of the budding aviation industry. One year after taking office, President Herbert Hoover passed the U.S. Air Mail Act of 1930, giving the postmaster general authority to consolidate air mail routes. Airmail routes were awarded to three carriers that later evolved into United Airlines [the northern airmail route], Transcontinental and Western Air [the central route] and American Airlines [the southern route]. The end of this decade also saw the introduction of government regulation that dictated routes flown and ticket prices charged paving the way for economies of scale in the 1940s. World War II ushered in a new wave of feasibility and affordability for commercial aviation. During the war, manufacturing plants flourished and were able to create enough parts for aircraft to be mass produced. This evolution led to increased competition between airlines for customers and destination cities. Airports also began to grow in size and number under the airlines mission to transport people from city to city easier than ever before. Change Is In The Air According to IATA s financial forecast in the January 2014 issue of ATW Magazine, the growth of aviation into the US$19.7 billion global industry it is today didn t happen overnight. In 1956, the Union of Soviet Socialist Photo: State Archives Of Florida Republic s (USSR) Aeroflot became the first airline in the world to operate sustained regular jet services. Around the same time, airlines such as British European Airways, United Airlines, Eastern Air Lines, American Airlines and Trans World Airlines also began to operate scheduled domestic and trans-continental jet services, leading to a time of dramatic growth. During this time of immense growth, airlines began to look to systemize their operations in the absence of computerization. But even the best systemization lacked the power needed to automate inventory and reservations management processes. At the time, a single passenger reservation could take up to 90 minutes for a booking agent to complete. In 1952, American Airlines installed the Magnetronic Reservisor, a system of vacuum tubes and a magnetic storage drum that allowed the airline to store seat availability on a centralized platform. Around the same time, Trans-Canada Air Lines (TCA) together with the University of Toronto and Ferranti Computer Systems developed the world s first computerized reservations system, known as the Reservec. Aware of the success of Reservec, in 1960, American Airlines, in partnership with IBM, introduced and installed their own improved passenger reservations system, automating one of the industry s key business areas. The joint venture, called Semi-Automatic Business Research Environment, or SABRE, resulted in the largest civil data processing system in the world. By the end of the decade, 26 ascend

ASCEND I INDUSTRY Aviation In The 1920s In the 1920s, Detroit-Grand Rapids Airline, founded by engineer and businessman William Bushnell Stout, offered round-trip fares of US$35 per passenger from

The industry experienced another dramatic shift in the United States in 1978 when the Airline Deregulation Act was signed.

4 ASCEND I INDUSTRY Aviation In The 1920s In the 1920s, Detroit-Grand Rapids Airline, founded by engineer and businessman William Bushnell Stout, offered round-trip fares of US$35 per passenger from the Ford Airport in Dearborn, Michigan, one of the first modern airports in the world. Deltamatic, DATAS, Apollo and PARS were all computerized reservations systems that were up and running. The industry experienced another dramatic shift in the United States in 1978 when the Airline Deregulation Act was signed. Deregulation brought decreased barriers to market entry, increased competition among airlines and an explosion of lower fares for consumers. By the early 1980s, the SABRE system could store 1 million fares and Sabre Decision Technologies (Sabre Airline Solutions predecessor) and other technology companies were beginning to understand the optimization necessary to help airlines make better, faster decisions to run their day-to-day operations. Bob Crandall s vision of leveraging technology and operations research (OR) principles to improve American Airlines is still at the core of Sabre Airline Solutions today, said Hugh Jones, the technology company s president. We relied on OR to build some of our first core solutions such as Revenue Manager when we first implemented it at American Airlines in We continue to use our understanding of the science of revenue management and our OR principles to enable our company to bring numerous sophisticated decision-support solutions to market. Virtual consolidation and codesharing also changed the landscape of the airline industry in the 1990s. While the history of codeshare agreements actually goes back to the 1960s, Qantas began using the term codesharing in 1990 when it joined with American Airlines to offer flights between Australia and the United States. Jones contends that these early agreements led to more widespread partnerships as the industry moved into the next century. Born out of these early codeshare agreements, we have seen the growth of airline alliances and the desire from airlines to provide a seamless customer experience across more O&Ds, he said. Airlines today are achieving this through networked loyalty programs and initiatives that align the checkin and in-flight experience across partners. It was a novel idea to sell seats on another airline s metal, and I think we can all look back and agree that this was a revolutionary turning point for our industry. The Arrival Of Airline Dot Com American Airlines Magnetronic Reservisor In 1952, American Airlines made history when it introduced the Magnetronic Reservisor, a system that enabled the airline to store seat availability on a centralized platform. The industry continued to struggle into the mid-1990s with giving customers the capability to make their own bookings. Pressure increased when many leading brands began developing websites as a result of the growth of the Internet. Early products such as EAASY Sabre [for individual travelers] and Commercial Sabre [for corporate travelers] were created in the 1980s with the idea of putting the power of booking flights into the hands of corporate and leisure travelers, Jones said. As we know, consumers eventually embraced online travel agencies like Travelocity and Expedia, and they prevailed against other similar products in the market. However, this was just the beginning of a revolution in our industry in terms of airlines taking a customer-centric view to make the booking process easier and more accessible. ascend 27

5 ASCEND I INDUSTRY other airlines to address the varying needs of different traveler segments. A Leader In Branded Fares The 2000s were a time of significant growth and evolution of airline ancilaries and branded fares. Frontier Airlines is known as an early innovator with its AirFairs pricing structure, offering flexibility and a variety of items that best suit the needs of individual customers. In December 1995, Alaska Airlines became the first U.S.-based carrier to sell a ticket over the Internet. I think you have to acknowledge the importance of the emergence of the Web and self-service channels and the birth of ecommerce in our industry, said Jones. The first step taken by Alaska Airlines may have seemed insignificant in 1995, but it is monumental when you consider that business and leisure travelers are predicted to spend upwards of US$110 billion online at airlines in 2016 in the U.S. alone. The direct distribution channel is critical to airlines, and I think it is important to credit the early trailblazers. As more travel suppliers and consumers headed online, many airlines anticipated the connectivity demands and joined together to create the OpenTravel Alliance (OTA). The first OTA messages were exchanged in 2001, which enabled travel suppliers and distributors to speak the same electronic language. This made trade between suppliers and distributors easier, and it ushered in a new wave of online products aimed at aggregating and selling travel products online. After this, it didn t take long for airlines to figure out that there were profits to be made by tailoring their air and non-air products to meet the needs of different traveler segments. The 2000s saw a huge increase in the growth and evolution of ancillaries and branded fares. Frontier Airlines is cited as one of the early innovators of branded fares with its AirFairs pricing approach, consisting of four fares: Photo: Frontier Airlines Basic, Economy, Classic and Classic Plus. A 2013 report by Ideaworks suggests that about 35 percent of passengers choose Classic or Classic Plus fares, the most expensive products, contributing to a 22 percent revenue increase for the airline. Since Frontier s successes, other carriers have also begun to realize that the airline industry is not a one-size-fits-all service industry anymore, said Jones. Various business models have proliferated around the globe, and many carriers are adopting a multi-model mentality that allows them to serve varying segments with different brands as part of a single networked family. The backbone of these new family strategies is that carriers can retain the brand equity of each individual branded line, without corroding the value of their mother brand in the minds of their customers, Jones explained. Lion Air is one of my favorite examples. Since the airline began in 1999, it has continued to evolve and has recently grown its global network to include four subsidiary carriers that operate as part of the Lion Air family. Together, Batik Air [a premium carrier serving East Asia], Wings Air [its domestic feeder], and Malindo Air and Thai Lion Air [low-cost carriers in the Malaysian and Thai markets] allowed the airline to capture growth in the attractive markets as part of its segmentation strategy. Moving forward, Jones believes that, Success will be defined by an airline s ability to forge the right partnerships with The Future Of Air Travel Airlines have the opportunity to transform their current role as a commoditized provider of transportation to a more profitable one in which they become a partner that helps customers through the entire lifecycle of their journey. To get there, airlines must focus on driving customer loyalty and improving the customer experience to undo the damage done by years of severe cost-cutting measures. I think what we will see is airlines leveraging existing and emerging technologies, best practices pioneered in other industries and the wealth of data travelers produce to increase revenues by providing a better customer experience at lower costs, thereby improving return on investment, Jones explained. All airlines, regardless of segment, will look to leverage technology to define and provide new services that appeal to their target customers and improve the customer experience. High-end, full-service carriers such as Etihad and Emirates continue to unveil in-flight amenities such as private suites and on-demand entertainment that raise the bar in terms of balancing luxury and price in high-value customer classes. Jones highlighted that even low-cost carriers realize the potential technology has for improving the customer experience. On the opposite end of the spectrum, you have easyjet (known for its no-frills approach) who is also innovating to improve the customer experience. EasyJet uses technology to speed processes, ranging from self-service to aircraft maintenance. Taking these steps will allow airlines to improve both their return on investment and the passenger experience, all through the booking process, the airport and in-flight. As people around the industry start to think about the next century in aviation, we can t forget our primary purpose to make it easier to travel, said Jones. Air travel is a huge driver of the global economy, and it will continue to contribute job creation and infrastructure improvements in the years to come. Sabre Airline Solutions has been fortunate to play an important role in commercial aviation over the last century, Jones said. Looking to the future, we are committed to providing continual improvement and investment as our customers look to succeed against rising competition in a battle to own the customer journey. a Katie Freeman is a solution marketing partner for Sabre Airline Solutions. She can be contacted at katie.freeman@sabre.com. 28 ascend

A conversation with David Siegel, CEO, US Airways

A MAGAZINE FOR AIRLINE EXECUTIVES OCTOBER 2003 T a k i n g y o u r a i r l i n e t o n e w h e i g h t s E X T R E M E A I R L I N E M A N A G E M E N T A conversation with David Siegel, CEO, US Airways