he Power of Partnering

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1 A Magazine for Airline Executives 2007 Issue No. 2 T t a k i n g y o u r a i r l i n e t o new heights he Power of Partnering A Conversation with Abdul Wahab Teffaha, Secretary General Arab Air Carriers Organization. Special Section Airline Mergers and Consolidation 21 i nside Carriers can quickly recover from irregular operations 46 Singapore Airlines makes aviation history 74 High-speed trains impact Europe s airlines

2 The emergo Solutions Several products in the Sabre Airline Solutions portfolio are available through the Sabre emergo Web access distribution method: Taking your airline to new heights 2007 Issue No. 2 Editors in Chief Stephani Hawkins B. Scott Hunt 3150 Sabre Drive Southlake, Texas Art Direction/Design Charles Urich Design Contributor 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 George Lynch Awards 2007 International Association of Business Communicators Bronze Quill and 2006 International Association of Business Communicators Bronze Quill, Silver Quill and Gold Quill International Association of Business Communicators Bronze Quill and Silver Quill. 2004, 2005 and 2006 Awards for Publication Excellence. Reader Inquiries If you have questions about this publication or suggested topics for future articles, please send an to wearelistening@sabre.com. Quasar passenger revenue accounting system Revenue Integrity option within SabreSonic Res Sabre AirFlite Planning and Scheduling Suite Sabre AirMax Revenue Management Suite Sabre AirPrice fares management system Sabre CargoMax Revenue and Pricing Suite Sabre Loyalty Suite Sabre Rocade Airline Operations Suite Sabre WiseVision Data Analysis Suite SabreSonic Check-in SabreSonic Inventory For additional information about the emergo distribution method, please visit Address Corrections Please send address corrections via to wearelistening@sabre.com. Sabre, Sabre Airline Solutions, the Sabre Airline Solutions logo and products noted in italics in this publication are trademarks and/or service marks of an affiliate of Sabre Holdings Corp. All other trademarks, service marks and trade names are the property of their respective owners Sabre Inc. All rights reserved. Printed in the USA.

3 Sabre Airline Solutions, the Sabre Airline Solutions logo, emergo and go emergo are trademarks and/or service marks of an affiliate of Sabre Holdings Corporation Sabre Inc. All rights reserved. Focus on your core business, let us focus on your IT operations Sabre emergo Web access frees you to do what you do best. It enables you to reprioritize your IT spend and focus on more important tasks. By eliminating on-site systems and associated hardware, software and infrastructure expenses, you can apply more of your budget toward initiatives that drive real value for your airline. To find out how you can drive a faster return on investment and lower your total cost of ownership, go emergo. Call or visit sabreairlinesolutions.com/emergo. smart. proven. bankable.

4 contents industry profile 54 special section 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. 42 The Power of Partnering AACO has helped unite Arab carriers so they can leverage their strengths. Singapore Airlines: 46 A True Pioneer Singapore Airlines makes aviation history by introducing the Airbus A380. It s not Business Class, 49 it s Eos Class Eos offers an extraordinary end-to-end travel experience Recipe for a Merger Under the proper circumstances, airline mergers can be successful. 59 To the Core Some airlines are selling parts of their organizations and getting back to their core competency. 61 Boom and Bust Private-equity companies are taking an interest in airline ownership. 63 A Bold GOL GOL Airlines assumes ownership of Brazilian rival Varig. 21 Bouncing Back Carriers can quickly recover from irregular operations. perspective 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. 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.

5 contents products regional company Disaster Recovery The Sabre Holdings company enhances its disaster recovery program. 66 Maximizing Manpower The right resources and tools help airlines smoothly introduce new aircraft types. 70 Conquering Chaos Robust decision-support tools can help airlines quickly recover from schedule disruptions. 74 Fast Track High-speed trains have a substantial impact on Europe s airlines. 68 The Focal Point Using an ASP gives carriers the technological backing necessary to optimally run their airline 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. 82 Countdown to Beijing Beijing s travel industry is gearing up for the 2008 Olympic Games. 91 Going Private After being purchased, Sabre Holdings can more closely focus on providing state-of-the-art technology. 86 Opening the Skies Open skies between Europe and the United States give carriers more trans-atlantic flying freedom. 91 with Tom Klein 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 Jean- Cyril 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 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

6 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 Intra-North American ser- {vice declined to -2.5 percent in } Increases in available seats to destinations outside of Europe (inter- Europe) have consistently outpaced service changes within Europe (intra-europe) during the past three years. Intra- Versus Inter-Europe Service Changes

7 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-North American service increases were dominated by low-cost carriers. Network carrier service changes {steadily declined to -5 percent in } 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-Europe Service Changes Network Versus Low-Cost Carriers Intra-Europe Capacity Trend

8 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. 8 All photos courtesy of Airbus

9 industry Starting 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 A or the Boeing 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 A (with maximum capacity of 380 seats with three classes of service or 419 seats with two classes) and the Boeing (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 A and Boeing 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. Technical Limitations 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. 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. Limited Frequencies 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. 9

10 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 passengers 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 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 10

11 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. 11

12 Dreamliner industry SET FOR TAKEOFF 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

13 All photos courtesy of Boeing During 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 13

14 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: 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 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. 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 previously 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 14

15 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 Phil Johnson can be contacted at wearelistening@sabre.com. 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. 15

16 Sport Tourism industry Soars 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 Last 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 committee, 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 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. Photo by shutterstock.com 16

17 industry the World Cup is estimated to pump into the country s economy through 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. Photo by shutterstock.com 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 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 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. 17

18 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 During 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 associations 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, thirdparty 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 + Arrivals - Departures 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. 18

19 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. 19

20 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. 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 Example of Industry Data Sources O&D Segment, Carrier Segment Airport, Carrier Airport Carrier Country Regional Global US DOT DB1B US DOT T100 Free UK CCA Financial Reports Australia BTRE Brazil DAC 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. Web Scraping Industry Organizations Publications Purchased QA Schedules ACI IATA ODS 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. 20

21 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 Airlines 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. 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; Types of Flight Delays 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. 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% 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. 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- 21

22 industry Flight Volumes Versus On-Time Arrivals 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 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 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. 22

23 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 Which 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 23

24 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 significant investment but return that investment quickly and completely. Airlines can emulate these other industries and can expect similar results. a 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. MARKETING Employ enhanced insights into customer attributes and behaviors at all touch points. Individualize offers to customers and customer segments. TECHNOLOGY Invest in CRM toolkits and enable streamlined access to detailed customer data. Present a basket of business services with the opportunity to personalize and customize services dynamically. BUSINESS PROCESSES Statistical analysis and flexible, externalized business rules ensure the right offers at the right time. 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. Offer mobile solutions for sales and service. Increase customer self service. (Customers like self-service capabilities, especially if they can get bonus features.) 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. Extend reach through mobile platforms that automatically adapt presentation to devices. Integrate with portal platforms to provide robust capabilities. Design goaloriented, task-driven user experiences. Shared technical service across airline processes enable staff to focus on key differentiators rather than generic functions. 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. 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

25 industry Executive Minds Results of a recent survey conducted by Sabre Airline Solutions identify top challenges facing airline executives. What 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 Industry Impact 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. Fuel costs Government regulations Customer loyalty Security concerns Labor contracts Alliances New entrants Airline mergers Airline bankruptcies 94% 79% 75% 58% 55% 50% 42% 34% 34% 0% 20% 40% 60% 80% 100% Industry Challenges Fuel costs Customer loyalty Government mandates Security Environmental impact Safety Mergers 91% 55% 40% 34% 25% 19% 18% 0% 20% 40% 60% 80% 100% Industry Challenges 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). 25

26 industry Effectiveness of New Revenue Sources 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). Seat selection In-flight entertainment (movies, earphones, DVD players) Meals In-flight comfort items (pillows, blankets, etc.) 35% 24% 41% 34% 26% 40% 24% 22% 54% 17% 28% 55% 0% 20% 40% 60% 80% 100% Effective (top 2 boxes) Netural Not effective (bottom 2 boxes) Industry Revenue Impediments Fuel costs Labor costs Airport costs Distribution costs Government regulations Inability to secure new routes Management costs 44% 43% 39% 29% 25% 20% 91% 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). 0% 20% 40% 60% 80% 100% 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. Change in Carrier Types Number of low-cost carriers 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% 26

27 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 There 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 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. 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, airlines 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- 27

28 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 Revenue: 2006, U.S. cents per seat mile % LCC Network Source: IBM analysis Advertising Onboard sales 0.05 Ticket sales Cargo Others Operating Costs: 2006, U.S. cents per seat mile 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 LCC +31% Network Labor Landing Maintenance A/C Rental Fuel Depreciation Others Unit Costs Versus Stage Lengths for U.S. Network and Low-Cost Carriers CASM ($ per available seat mile) WN FL CASM vs. Stage Length ,000 1,200 1,400 At nearly all stage lengths, low-cost carriers have a cost advantage over traditional network airlines. US F9 NK Stage length (miles) NW DL HP AA TZ B6 CO UA Source: Massachusetts Institute of Technology 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 operating 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- 28

29 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. Beyond Point-to-Point Traffic New York-London Local 39% Local 32% Transiting 61% AirAsia Flies Long-Haul Routes Short haul (1-6 hours) Medium haul (6-10 hours) Long haul (10+ hours) 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 Local 29% Ryanair AirAsia Jetstar Non-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. Transiting 71% jetblue Kingfisher Oasis Hong Kong Price sensitive and quality conscious Eos United Cathay Pacific Airways Emirates Price insensitive and quality conscious 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 Hong Kong-London 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. 29

30 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 Advanced 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 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 30

31 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 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 3D- Secure 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. 31

32 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. By Michael Clarke Ascend Contributor The 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 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. Photo by shutterstock.com 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. 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 Photo by shutterstock.com 32

33 industry 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 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. Photos by shutterstock.com 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 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 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 33

34 industry 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. Photos by shutterstock.com 34

35 industry 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. Photo by shutterstock.com 35

36 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

37 industry Within 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 Photos by shutterstock.com 37

38 industry 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 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 Photo by shutterstock.com 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. 38

39 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 implementation 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 While 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. 39

40 industry 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 number 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. 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 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- 40

41 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. Highlight 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. 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 or phone. Using advanced operational customer relationship management to enrich and 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. 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. 41

42 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

43 profile Since 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 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 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 43

44 profile 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 A conversation with the chief executive officer of Jet Airways... 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. 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 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. All photos courtesy of Airbus 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 44

45 profile 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 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 year and in The airline business is very dynamic, and I am sure that other issues are going to pop up for us to address. 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. 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. 45

46 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 On 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 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 All photos courtesy of Airbus 46

47 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 controllers. 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 47

48 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 The amount in U.S. dollars the industry fuel bill is expected to grow in 2007 (26 percent of operating expenses at US$61 a barrel) due to growth, hedging at higher prices and an increase in refinery margins, according to IATA. 43 The number of airlines worldwide now offering common-use self-service kiosk technology, and more than 100 airlines are currently developing CUSS, according to the International Air Transport Association. 2.5 billion The amount in U.S. dollars the International Air Transport Association expects the airline industry to profit in 2007, the first profit since Europe is expected to achieve the largest profit with a projected US$1.5 billion. 500 million The amount in U.S. dollars the industry lost in 2006 as a result of high oil prices, according to the International Air Transport Association. 112 billion The amount in U.S. dollars the industry fuel bill grew (26 percent of operating expenses at US$66 a barrel) in 2006, an increase from US$44 billion (14 percent of operating expenses) in 2003, according to IATA. 4.8 Percentage of the average annual growth rate of international freight volumes between 2006 and 2011, which is supported by economic growth, globalization and trade. 48

49 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 49

50 profile Among 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 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. 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 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 traveling 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 advantage, 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. All photos courtesy of Eos 50

51 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 trans- Atlantic 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 York- London 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. 51

52 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. 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. 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. A Bold GOL In one of its patented straightforward business moves, GOL Airlines assumes ownership of Brazilian rival Varig.

53 SPECIAL SECTION Airline Mergers and Consolidation

54 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 The 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 airline 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 Owner Target or example Notes Full merger Lufthansa Swiss 100% ownership, retain Swiss brand Partial acquisition SAS Spanair, bmi, Air Greenland Partial Ownership: 95% Spanair, 20%-bmi; 37.5%-Air Greenland Mixed ownership Cathay Pacific DragonAir Ownership: 100% DragonAir, Airways 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, Provide financing to acquire shares or New Varig set-up airline in non-home country Private equity Texas Pacific Ryanair, Iberia Private equity firm investing in Group different airlines Joint venture Virgin Air Jamaica Transfer LHR slots, operate Jamaica UK as a codeshare Global play Air One Alitalia 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

55 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, 55

56 special report 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. 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 Photo by shutterstock.com 56

57 special report 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. 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. Highlight Air France/KLM Success Air France/KLM announced intentions to merge in 2003 and completed the transaction in 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 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. 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. 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 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. Photo by shutterstock.com 57

58 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 Highlight 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; 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 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. 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. 58

59 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 At 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 Photo by shutterstock.com 59

60 special report 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. 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 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. 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. Jeffrey Immelt, GE chairman and CEO 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. Photo by shutterstock.com 60

61 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 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. Considering 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 understands 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. Photos by shutterstock.com 61

62 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 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 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. Phil Johnson can be contacted at wearelistening@sabre.com. 62

63 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 Brazil 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 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. 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. Sabre Airline Solutions Archives 63

64 special report 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 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. 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 Sabre Airline Solutions Archives 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 thinking 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 64

65 special report 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 Photo by shutterstock.com 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 The number of airports the International Air Transport Association expects to have common-use self-service kiosk technology, or CUSS, by the end of 2007, resulting in annual airline savings of US$1 billion at 40 percent market penetration and an average industryper-check-in savings of US$ 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 The increase is fueled by expansion in the Indian and Chinese domestic markets. 3 million The number of passengers that will board 42,300 flights on Boeing jetliners in the next 24 hours, carrying them to nearly every country on earth. 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 This will be lower than the 7.4 percent AAGR recorded during , largely due to slightly slower global economic growth. 4,650 The number of shipments of spare parts Boeing will send to airline customers worldwide in the next 24 hours. 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. 65

66 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 Fleet 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. 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, Highlight 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 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 When Singapore Airlines chose the Airbus A380, there s no doubt it had to consider the impact on its crewing operations. 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 66

67 products 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. Photo courtesy of Airbus 67

68 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 From 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. 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 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 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. 68

69 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 thirdparty 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. 69

70 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. Weather. 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 took three days to correct the problem and complete the first powered flight on Dec. 17, 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- 70

71 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 71

72 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 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. 72

73 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 Keeping 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 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. 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, or voic 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 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. Bobby Thoms is a product marketing principal for Sabre Holdings. He can be contacted at bobby.thoms@sabre.com. 73

74 regional 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 Europe, 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 (Paris- London) 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 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 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. Photo courtesy of RailEurope 74

75 regional 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 easy- Jet 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 Highlight 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 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 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. Photo courtesy of RailEurope 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. 75

76 regional 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, Comparative Journey Times Versus Rail Market Share Rail market share (%) Paris Bruxelles 310 km Madrid Seville 471 km Paris Lyon 430 km London Paris 400 km Rome Bologne 358 km London Brussels 340 km As rail travel time increases, rail market share decreases Paris Marseille 783 km Travel time (hours) Stockholm Gateburg 455 km Paris Amsterdam 540 km Rome Milan 560 km 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. 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 propensity 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. 76

77 regional 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 Highlight 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 Photo courtesy of RailEurope 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, 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. 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 77

78 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 will influence the ultimate impact of high-speed rail on air travel to and from these airports. Only time will tell which travel mode will prevail, dictated in part by passenger choices. Collaboration The impact of high-speed rail on air travel in Europe is, however, a two-sided story. In one situation, they are fierce competitors, while in the other, they are partners providing effective and efficient inter-modal transportation options to the traveling public. The level of cooperation varies from simply coexistence at a common location to outright codesharing and coordinating alliance services that enable seamless transfers between each mode of transportation. Since the introduction of high-speed rail, an important emphasis has been placed on network connectivity, with a large number of existing European highspeed rail networks having access to primary international air gateways in corresponding countries. Passengers are given the opportunity to purchase end-to-end journeys across air travel and rail using a single ticket as well as the convenience of direct connection at the airport. In major airports, such as Paris C h a r l e s d e G a u l l e I n t e r n a t i o n a l Airport, Amsterdam Airport Schiphol and Frankfurt Airport, the transfer path from a flight arrival to a train departure is more or less equivalent to a flightto-flight connection. High-speed rail is able to expand the effective catchment area on an airport based on the premise that time, not distance, is the primary aspect of airport access. The continued success of both existing and future collaboration between high-speed rail and air travel will depend on the negotiated tariff structure and streamlined passenger connection services. If the negotiated tariff structure is based on travel distance, similar to the existing structure in the airline industry, the high-speed rail feeder services may be placed at a commercial disadvantage in terms of their corresponding compensation. This could discourage them from playing an overall beneficial role in an inter-modal environment. Since a local rail passenger would most likely end up paying more than a connecting air passenger, the rail service could limit the number of connecting air passengers. With the pending introduction of the recently signed open-skies agreement between the European Union and the United 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 trans- Atlantic services. At the same time, it s unknown how the development of additional direct trans-atlantic flights to and from secondary airports will impact passenger levels at these hub 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 improvement of supporting infrastructures. The recent introduction of European Union regulation on flight delays and cancellations in conjunction with increasing competition from high-speed rail may ultimately encourage and/or force network carriers to fully abandon short-haul flights that can be better served by high-speed rail. As each European city modernizes its primary rail stations and further improves connectivity between the complementary high-speed rail networks and local transportation networks, both the competition and the collaboration between high-speed rail 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. 78

79 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 Once 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. 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 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. Photos by shutterstock.com 79

80 regional Regional Airline Group Flying Assignment regional Airline Pinnacle Airlines 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 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%) 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%) United Airlines (20%) US Airways (24%) SkyWest Airlines Delta Air Lines (65%) United Airlines (35%) Midwest Airlines (new) Source: Company Reports 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 aircraft 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 80

81 regional Regional Partners for Major Network Carriers 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 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. Michael Clarke is principal research scientist for Sabre Holdings. He can be contacted at michael.clarke@sabre.com. 81

82 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. 82

83 regional In 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 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. 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. 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. Photo by shutterstock.com 83

84 regional 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. 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 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 Hartsfield- Jackson Atlanta International Airport for advice on security and operations plans. Some 30 Chinese aviation officials met Skies Busy Over China 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 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 Peters also stated that, as part of the agreement, U.S. and Chinese officials have committed to resume negotiations in 84

85 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. 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 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: 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 Beijing- Vancouver service and increased its Shanghai-Toronto non-stop flights in July. The added Beijing-Vancouver daily flight operated between July 2 and Oct. 1, using a 211-seat Boeing The Shanghai-Toronto service also increased daily service during summer peak and will continue as a three-day-a-week service for the 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 Qantas Airways announced plans to launch twice weekly Melbourne- Shanghai 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. Olympic Hotels and Hot Venues 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. 85

86 Opening regional the Skies 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 86

87 regional 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 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. 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 The Agreement The new agreement, which will be provisionally applied beginning March 30, 2008, dismantles the patchwork of agreements that has limited trans- Atlantic 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. 87

88 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, 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. 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 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 88

89 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 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 percent between Vancouver, Canada, and Phoenix, Arizona, according Photo by shutterstock.com 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 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. Lynne Clark can be contacted at wearelistening@sabre.com. 89

90 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 It 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 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 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 Sabre Airline Solutions Archives 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 Recovery 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 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. Sally West is a senior principal in the enterprise operations area of Sabre Holdings. She can be contacted at sally.west@sabre.com. 90

91 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. Highlight 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 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 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. 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 91

92 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 opportunity 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 Highlight 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 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 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 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 92

93 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 Sarbanes- Oxley, 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. 93

94 t h e h i g vıew h l e v e l News Briefs from Around the Globe 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 Maxi- Merlin 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 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 94

95 [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 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 Photo by shutterstock.com Photo by shutterstock.com percent of all tickets issued worldwide through the Sabre global distribution system are now electronic, up from 80 percent in June 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, Olt- Ostfriesische 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 Airline Solutions 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. 95

96 t h e h i g vıew h l e v e l News Briefs from Around the Globe Southwest Airlines 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 based on a number of scenarios, said Kevin Russell, manager of cargo revenue management for Southwest Airlines. 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 distribution 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 Photo by shutterstock.com 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. Latin America Aerolitoral Aerolitoral, the regional airline of Aeromexico, in looking for ways to reduce costs in the face of the appreciation of the peso and increased competition on its routes to the United States, has selected the Ramco MRO System from Sabre Airline Solutions to efficiently maintain and engineer its fleet. By implementing the Ramco MRO system, Aerolitoral will be able to achieve optimal utilization of resources, improve performance 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 inventory, said Cesar Garcia, Aerolitoral s vice president of maintenance and engineering. Combined with the ability to ensure safety and regulatory compliance, the MRO solution will allow us to become more cost efficient and compete even more effectively in the Latin 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 availability, both 96

97 by flight leg and segment. It anticipates significant incremental revenue as a result. Revenue Manager features a comprehensive range of decision-support processes including data collection, forecasting, overbooking, optimization, alerting, and performance measurement and reporting. Revenue Manager tested best in the area of forecasting and operations research, said Roland Jaggi, Aegean s head of revenue management and pricing. Sabre [Airline Solutions] will provide comprehensive support 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 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 North African carrier has also signed with lastminute.com, sister company to Sabre Airline Solutions, to have the car hire section of the carrier s Web 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 jupiterimages.com Royal Air Maroc will use Sabre AirFlite Schedule Manager to develop flight schedules that best meet customer needs, while Sabre AirFlite Profit Manager will help it analyze 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 automatically generates crew rosters that meet crew legality rules, including governmental and regulatory requirements, airport restrictions, crew training and licensing, airline-specific requirements, and individual crew preferences. Sabre Airline Solutions has the technology we need now and provides the flexibility we need to adapt quickly to growth and new business models in the future, said Mohamed Diane, chief information officer for Royal Air Maroc. Their decision-support software will enable us to drive out costs and grow revenue, all while maintaining operational excellence in a rapid growth environment. Photo by shutterstock.com 97

98 hightech Product Sabre Ground Assist Description: Ground Assist, the Sabre Airline Solutions passenger processing solution for ground handling companies, provides comprehensive support for passenger handling, passenger selfservice and weight-and-balance processes. The departure control system provides one of the most rapid response times in the industry and delivers unsurpassed reliabilit y and stability. These feature-rich passenger self-service products are International Air Transport Association compliant, helping ground handlers streamline the check-in process and reduce costs. And the load planning application supports industry-standard functionality and external messaging a must for ground handling companies. Benefits: By utilizing the Ground Assist solution, improvements in customer processing and load control can provide several operational benefits: Passenger Processing Enhanced airport passenger processing Industry-standard check-in and boarding functionality lets ground handlers offer superb passenger-processing automation and capabilities to their airline clients. Adherence to control authority requirements Users can be sure that the departure process complies with local and destination-specific security requirements. R e d u c e d o p e r a t i o n a l c o s t s P r o v i d i n g self-service options to individual travelers reduces the need for additional airport staff and enables growth at a lower cost. Optimized staff utilization Enhanced traveler-processing options enable staff to improve ser vice to customers outside of the traditional ticketing and check-in counters. Simplified deployment Constrained by resource availability, traditional airport automation deployment depends on location-specific conditions for success. The Ground Assist solution simplifies application deployment and maintenance through an application service provider approach, ensuring uniformity across the operational network. Increased revenue opportunities Faster passenger check in and shorter lines increase traveler satisfaction, resulting in repeat business. Load Control I m p r o v e d w e i g h t c a l c u l a t i o n s W e i g h t information is retrieved for checkedin passengers and baggage, allocating weight according to passenger type. User-defined parameters enable special weights for specific groups, seasons of the year and load types. Increased fuel savings by optimizing center of gravity 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. Automation of important processes The load control system automatically plans the payload for optimal center of gravity through the auto-deadload functionality. It also automatically receives and formats messages while distributing payload and down-line messages. Exceptionally easy to use, the system displays important alerts and validations. Display of vital information Data displayed online about loading aircraft includes planned and required fuel, maximum planning weights, and performance limit weights. The fuel plan data lists all pertinent information for each of the aircraft fuel tanks. P rov i d e ef ficient I ATA - standard worksheet Load planners can use online screens to enter all weight data for flights. Weight-and-balance information is then calculated based on aircraft type. Increased productivity Users can easily and safely work more flights per shift. A single user can conduct load planning for multiple flights simultaneously. The result: planners have been able to work as many as 20 flights per eight-hour shift. Features: The Ground Assist solution provides a fully functional hosted departure control and load planning system that provides complete suppor t for ground handling activities: Departure Control The DCS host solution provides industry-standard passenger processing features for flight check in and boarding. Support for industry mandates, IATA compliance for e-ticketing and BCBP, external messaging, security requirements, and other obligations guarantees compliance with all airport handling needs. Check-in Staff The solution includes a graphical user interface that simplifies complex, multi - step processes and completely eliminates the need for staff to memorize complex host formats. This reduces training requirements, keystrokes and input errors, enabling staff at the check-in counter to provide exceptional customer service. Passenger self- ser vice tools The passenger-processing solution pro- 98

99 New and Improved Products and Services from Sabre Airline Solutions The staff tools empower airport staff to handle multiple facets of the traveler check-in and boarding process, enabling ground handlers to provide a premium level of customer service. Addressing the need for effective and efficient customer service, these solutions deliver valuable traveler-processing tools to ground handler staff: 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. vides a full set of self- ser vice check- in tools that empower travelers with the ability to per form multiple functions related to their journeys. Accessible both within and outside the airport environment, these tools enable travelers to per form functions other wise han - dled by airpor t staff, such as obtaining a valid boarding entitlement, changing a seat assignment or confirming flight status. Self-service kiosk module This solution provides passengers with a convenient, easy-to - use self- ser vice check-in option that enables them to perform routine travel functions without the involvement of airport staff. The module provides a broad content base determined by the handler, thus providing travelers with quality customer service. The application is IATA CUSS compliant, ensuring flexibilit y and integration with most CUSS kiosk platforms. Web check-in module The module displays traveler itineraries, supports flight check-in functions, provides interactive seat maps, verifies flight status and generates boarding passes, which can be printed from the customer s computer. Airport Staff Tools Load Planning 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 straightforward 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 99

100 Helping you better market, sell, serve and operate from planning through execution. market sell serve operate We help you plan how to best offer your schedules to customers and generate the most revenue. Cargo management Fares management Inventory management Loyalty management Revenue accounting Revenue integrity management We help you determine the best distribution channel to sell tickets to customers. Booking engines Business process management Channel distribution Customer relationship management Market data and analysis We help you make the experience easier for your customers throughout the travel process. Customer notification and trip information Customer processing 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 Revenue management Schedule development Reservations Shopping Ticketing Resource management Schedule distribution smart. proven. bankable.

101 making contact To suggest a topic for a possible future article, change your address or add someone to the mailing list, please send an 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 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 Phone: andrew.powell@sabre.com Europe, Middle East and Africa Murray Smyth Vice President Somerville House Staines Road Hounslow, Middlesex TW3 3HE, United Kingdom Phone: 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 Sabre Inc. All rights reserved. Latin America Kamal Qatato Vice President 3150 Sabre Drive Southlake, Texas United States Phone: kamal.qatato@sabre.com North America Kristen Fritschel Vice President 3150 Sabre Drive Southlake, Texas Phone: kristen.fritschel@sabre.com If you would like to advertise in Ascend, please send an message to wearelistening@sabre.com. Cert no. SW-COC

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