ascend_2004_issue2

2004 Issue No. 2A MAGAZINE FOR AIRLINE EXECUTIVES

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

Air France and KLM formEurope’s Largest Airline

The Evolution of Alliances

A Conversation withoneworld, SkyTeamand Star Alliance

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I N S I D E

A N A L L I E D F R O N TA conversation with …

Geoff Dixon, CEO,Qantas Airways

2004 Issue No. 2

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

DesignerJames Frisbie

Contributors Venkat Anganagari, Randal Beasley,Hans Belle, Nejib Ben-Khedher, Kathy Benson, Jack Burkholder,Cameron Curtis, Sally deFina, Karen Dielman, James Filsinger, Brenda Gale, Greg Gilchrist, Gretchen Greene, Jim Haley, Glen Harvell, Kathryn Hayden, Vicki Hummel, Carla Jensen, Craig Lindsey, Patrice Lipson, George Lynch, Michael McCurdy, Matt McLellan, Mona Naguib, Nancy Ornelas, Jenny Rizzolo, Dave Roberts, Sanjay Sathe, Shari Stiborek, Renzo Vaccari, Elayne Vick.

Awards2004 International Association ofBusiness Communicators Bronze Quilland Silver Quill.2004 Awards for Publication Excellence.

Reader InquiriesIf you have questions about this publication or suggested topics forfuture articles, please send an e-mail to [email protected].

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

Sabre Airline Solutions, the Sabre AirlineSolutions logo and products noted in italics inthis publication are trademarks and/or servicemarks of an affiliate of Sabre Holdings Corp.All other trademarks, service marks and tradenames are the property of their respective owners. ©2004 Sabre Inc. All rights reserved. Printed in the USA.

T a k i n g y o u r a i r l i n e t o n e w h e i g h t s

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ince it’s an electionyear here in theUnited States, there’sa lot of focus on the

candidates’ voting records. Thepolitical spin is in full force, witheach candidate declaring hisrecord is being misrepresentedso he doesn’t come out on thewrong side of a popular point of view. So, in the spirit of thetruth, I will lay out my “votingrecord” on alliances.

I didn’t think global airline alliances would ever work. I thought thehunger to expand organically or acquire other airlines was toogreat, and that governments and regulators would make it impossi-ble to have any real success. I believed that the cultural dividescould not be bridged, and that U.S. megas, in particular, wouldhave a difficult time adjusting to any form of alliance “governancemodel,” which is counter to the business techniques developedduring the post-deregulation years of bloody competitive battleswhere major airlines took on each other and the world in head-to-head competition.

Now, I know that at least some of you held or still hold to this view. I, however, have altered my opinion based on the hundredsof examples of alliances that are progressing successfully. So letme share a few of the more whimsical observations that havehelped change my way of thinking.

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The Russian Steps

Aeroflot Russian Airlines leverages technology to adapt to its dramatically changed home country.

Good Neighbors

Two regional airline associations,AACO and AFRAA, employeconomies of scale to help member airlines minimize costsand gain incremental revenue.

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48The French–Dutch Connection

By combining, Air France andKLM have created Europe’s firstairline group and has become theworld’s largest airline.

Uniform Service

To ensure their most valued passengers receive the highestlevels of customer service,alliance members need integratedprocesses and procedures.

Linking Latin America

Latin American alliances, whilesimilar to those in Europe andNorth America, take differentapproaches to adjust to the localenvironment.

The Evolution of Alliances

From codeshare agreements to global alliances, partnershipsbetween airlines continue toprogress, helping to transformthe airline industry.

Carrying the Freight

Following the direction of theindustry's leading passenger air-lines, many cargo operators seekto form strategic partnerships.

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4Spanning the Globe

A discussion with oneworld,SkyTeam and Star Alliancereveals the significant impactglobal alliances have had on theairline industry and the benefitsthey bring to their member carriers.

An AlliedFront

Qantas Airways CEO Geoff Dixon discusses the effectalliances have had and will continue having on his airline and the industry as a whole.

The Next IATA?

Ten carriers formed the European Low Fares AirlineAssociation to ensure govern-ment and industry policy makers understand the importance of the low-cost carrier model.

Declaring Independence?

The breakup of United Airlines and its former regionalfeeder carrier may have laid the foundation for a changingrelationship between majors and regionals.

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62contents

Aligning the Alliance

Jointly implementing new practicesin untapped operational areas can bring dramatic benefits tomembers of global alliances.

Riding the RAIL

Migrating from a wide area networkto the redundant array of Internetlinks could reduce an airline's net-work costs by 40 percent to 50 percent while preserving reliability.

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66A Turn for the Better

Despite several industry barriers, Air Jamaica has discovered ways to reduce costs and improve its financialand on-time performance.

Out of Africa

EgyptAir has developed an extensive turnaround strategy to leverage its natural strengthsand minimize its weaknesses.

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58Britain’s Best Kept Secret?

Eastern Airways, because of itspassion for customer excellenceand “putting the passenger first”mindset, continues to expand itsloyal passenger following.

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

Maintaining the Lead

Sabre Airline Solutions and MxiTechnologies partner to provide anindustry leading, integrated mainte-nance and engineering solution.

Share and CodeShare Alike

The Sabre® AirFlite™ Planning andScheduling Suite enables codeshar-ing airlines to optimally managecomplex schedule distributionprocesses.

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As you stroll through Lufthansa’s corporate campus in Frankfurt,Germany, there’s no mistake that the airline is committed to the Star Alliance and its members. Waving in the wind on polesalong the boulevard are flags representing the alliance members.While Lufthansa is as fierce a competitor and brand builder as any, it is clear that it is willing to share the spotlight with its important strategic alliance partners. I have yet to hear aspeech or major interview with Chief Executive Officer WolfgangMayrhuber or his alliance-zealot predecessor, Juergen Weber,that hasn’t made reference to the importance of the Star Allianceto Lufthansa and its customers. The airline has clearly taken aleadership role, and it has been consistent.

If you visit the Web sites of SkyTeam members, you will see theSkyTeam logo prominently featured next to the airline name atthe top of the home page of most member carriers. SkyTeammembers have chosen to give their alliance prominent billing.

And, speaking of SkyTeam, the recent AirFrance-KLM mergerreminds me of when John Adams, the second president of theUnited States, was responsible for diplomatic relationships withHolland and France during the 1700s. Adams worked tirelessly to understand and overcome the unique views and cultures ofthese two great countries and allies. Well, Air France CEO Jean-Cyril Spinetta and KLM CEO Leo van Wijk are undaunted by their respective company’s cultural differences. They simplybelieve the upside is too large as they come together to form the world’s largest passenger airline. As a result, SkyTeam, often mentioned as “the other alliance,” can now stake a legiti-mate claim to leadership.

And finally, while I am a customer of many of your airlines, I livein Dallas, Texas, which means that many of my trips start withoneworld. As I have traveled around the globe to visit with you, I have experienced marked improvements in service across thealliance, resulting from a better understanding of alliance bene-fits by airline personnel, better access to customer advantagesand more consistent treatment from trip to trip. I have experi-enced it with all the alliances, but most frequently with oneworld.

There’s no question that global airline alliances are continuing tobuild critical mass and are poised to take on new levels of coop-eration and execute on the mission of providing more customerbenefits. The approaches vary, but the consistent view is that thealliance is one prong of each member carrier’s “re-invention plan”and that the financial salvation of the industry may lie, in part, onthe success of these unique global collaborations of competitors.

So, while regulators around the globe have acted as inconsis-tently as I expected they would (although I think they would spinit to say they enabled the success), the sheer will of the airlineindustry and the leadership of a few great CEOs have renderedmy previous view of alliances flat-out wrong. I feel better havingcome clean with you, and I will ask my publisher to provide mewith an Ascend article in an upcoming issue where my currentview is correct!

Sperspective

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Does Sept. 30, 2003, mark the beginningof a new era in the airline industry?Air France and KLM Royal Dutch

Airlines believe it just might.On the date the two airlines announced

they would merge into a single entity, formingEurope’s largest airline and the world’s thirdlargest in terms of passengers carried, officialshailed the agreement as the first step in aneeded industry consolidation.

“We have always been convinced ofthe necessity of consolidation in the airlineindustry,” said Jean-Cyril Spinetta, chairmanand chief executive officer of Air France aswell as the combined organization. “Today, weannounce a combination with KLM that willcreate the first European airline group, whichis a milestone in our industry. This will bringsignificant benefits to customers, sharehold-ers and employees. Capitalizing on the twobrands and on the complementary strengthsof both companies, we should, withinSkyTeam, be able to capture enhanced growthopportunities.”

The combined group will become theworld’s largest airline in terms of revenue,with estimated annual turnover of 19.2 billiona year (US$23.4 billion). The group will alsoserve 226 destinations worldwide with a fleetof about 540 aircraft and employ about106,000. And it will be the world’s largest non-consolidator cargo airline in terms of revenueton kilometers.

By launching the first cross-border air-line merger in Europe, the two carriers mayhave paved the way for other airlines to followsuit, bringing to a close the days when every

country had its own flag carrier. Such a frag-mented industry, with multiple airlines com-peting for the same markets more as a matterof national pride than as a rational businessapproach, is “an inheritance from a formerera,” the two airlines said in announcing theirmerger.

“The need for structural changes andconsolidation in Europe is widely accepted,but has not yet commenced as a consequenceof regulatory and political constraints,” the air-lines said in a statement. “The [merger] is thefirst significant move in this context and willcreate a leading airline group in Europe.”

The airlines said a changing regulatoryframework, with the European Commissiongiven the authority to negotiate open skiesagreements on behalf of all European Unioncountries, has opened the door for a consoli-dation of the continent’s airlines. Experts also

believe a consolidation would benefit otherregions, particularly in North America, wherecompetition among several major carriers hasresulted in excess capacity and, therefore, alack of pricing power.

The two airlines made for logical part-ners. Their route networks overlapped mini-mally. Air France, with its strong network insouthern Europe, fit nicely with KLM, which isstrong in northern and northeastern Europe.Together, the airlines will be able to expandtheir positions in central and eastern Europe.The two airlines also have strong, complemen-tary hub operations at Paris Charles de Gaulleand Amsterdam Schiphol, two efficient opera-tions with room for additional development.

The two airlines, which officially com-bined June 1 following approvals fromEuropean and U.S. regulators, will maintaintheir separate identities under a single holdingcompany, Air France-KLM. Although the indi-vidual airlines will still operate under their cur-rent brands, they will be more closely integrat-ed than airlines in one of the global alliances.

“If commercial alliances have con-tributed over the past years to initiate the first

By Christian Gossel | Ascend Contributor

Through their merger, Air France and KLM have formed one of the world’s largest airlines, potentially taking the first step in reshaping the airline industry.

“We have always been convinced

of the necessity of consolidation

in the airline industry. … This

will bring significant benefits to

customers, shareholders and

employees.”

Consolidation between Air France and

KLM is projected to improve the group’s

combined operating income by 385 mil-

lion to 495 million (US$603 million to

US$469 million) by 2009.

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2004-05 2005-06 2006-07 2007-08 2008-09

Projected Financial Improvements

110-135

220-260

295-370

385-495

65-75

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French–DutchConnection

steps toward consolidation, deeper coopera-tion is now needed to generate significant andsustainable synergies,” according to the air-lines’ statement.

Indeed, Air France and KLM expect theirnew organization to have a positive impact onthe consolidated operating income of at least385 million to 495 million (US$469 million to

US$603 million) by the fifth year of the group’sjoint operations. Airline officials have said 60percent of the financial benefits will be derivedfrom cost savings, the rest from additional rev-enue. The combined group will offer threecore businesses: passenger transport, cargoand maintenance.

Officials expect the financial impact toresult from synergies in several areas:

Sales and distribution — The combinedorganization has an improved global pres-ence and will also be able to offer passen-gers a wider range of products. The groupwill cut costs by coordinating the salesstructures of the two component airlines.Network, revenue management and fleet —By codesharing, harmonizing the flightschedule and optimizing revenue manage-ment policies, the two airlines offer moredestinations and a larger number of moreconvenient connections for passengers.Cargo — Through a more extensive net-work, combined with coordinated freighterplanning, the merged airline can improve itsproduct offering, resulting in a revenueincrease. The group can also reduce coststhrough a more efficient handling of itscargo hubs.Maintenance and engineering — The groupwill jointly purchase spare parts as well ascreate centers of excellence in engineeringand optimize the use of existing M&E plat-forms. The group will also coordinate pro-duction schedules and combine facilities.Information technology — Converging theIT applications used by the individual part-ners will reduce costs.Other — The group will optimize and

industryindustry

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

“Through this innovative partner-

ship with Air France and our

participation in the SkyTeam

alliance, we are confident that

we have secured a sustainable

future for our company.”

Who

Aerolineas Argentinas, ATA Airlines,

Frontier, Aeroflot and Jet Airways

What

Implemented Customer Insight and

Customer Data Delivery capabilities to

enhance service levels and retain passen-

ger loyalty. Features of the SabreSonic™

Passenger Solutions, the new-genera-

tion technology is designed to help

airlines personalize service for their

individual passengers and provide

real-time marketing opportunities.

Why

“With Customer Insight, all of our call

center personnel now have access to the

Aerolineas PLUS frequent flyer infor-

mation,” said Claudia Toldeo, call cen-

ter manager for Aerolineas Argentinas.

“The call center personnel have all the

information needed to make a reser-

vation, provide account balances,

exchange points for tickets and issue

tickets, all without having to transfer

the customer to another area.”

Sean Menke, Frontier’s senior vice

president of marketing said, “One of the

key reasons we chose the SabreSonic

solutions over other competitors was

for the ability it will give us to distin-

guish ourselves through service.” a

Air France-KLM Synergies

Year 3

40

95-130

35

25

20

5-10

220-260

Year 5

100

130-195

35

60-65

50-70

10-30

385-495

Main actions

Harmonizing sales policiesCoordinating sales forcesReducing sales, catering and groundhandling costs

Optimizing networks and schedulesHarmonizing revenue managementOptimizing fleet managementCoordinating management

Optimizing networksCoordinating sales policiesSales cooperation

PurchasingInsourcing of subcontracted workPooling of spares

Gradual converging of IT systems

Joint purchasing

Deemed the world’s largest carrier in terms of revenue, with estimated annual returns of 19.2 billion (US$23.4 billion), industry giant Air

France-KLM, operates a combined fleet of about 540 aircraft, serving 226 destinations around the world.

On May 5, Air France Chairman and CEO Jean-Cyril Spinetta (center left) and KLM

President and Chief Executive Officer Leo van Wijk (center right) celebrate the consolida-

tion of the two airlines during a press conference at the Paris-Charles de Gaulle Airport.

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By leveraging synergies such as shared maintenance operations, combined sales and

marketing strategies, joint purchasing, and cooperative cargo operations, the Air France-

KLM group expects significant financial improvements during the next five years.

Financial improvement(million Euros)

Sales/distribution

NetworkRevenue management Fleet

Cargo

Maintenance

IT systems

Other

TOTAL

Joining an alliance certainly has an impact on customer service — hopefully a positive

one. Many airlines expect that by aligning them-selves with one of the major global alliancesthat their customers will have a seamless,pleasant and comparable travel experience withall member airlines.

Just because several airlines carry thealliance brand, however, doesn’t automaticallyguarantee that improved customer service willbe the outcome when customers of one air-line travel with an alliance partner. In fact, if air-lines are not careful, the experience can actu-ally be less than expected.

Before joining an alliance and placing its

logo on ticket office locations and airportlounges, a carrier should consider the following:

Can it provide the same level and type ofservices as the other members of thealliance?What level of service are the alliance part-ners providing their customers?Do its policies and procedures at all cus-tomer contact points adhere to the stan-dards of other alliance members?Will the alliance partners meet or exceed itscustomer service policies and procedures atall customer contact points?

Consider the following true experiencean elite-tier member had while traveling

around the world on a business-class fareusing three alliance partners.

After two days of continual travel andcustomer visits, the frequent flyer checkedin for a 10-hour flight, where he was involun-tarily downgraded from business to econo-my class.

The situation began during the check-inprocess. While standing in the business-classcheck-in line, he was approached by a cus-tomer service representative who asked if hewas checking bags. After the passenger indi-cated that he was not, the representativeexplained that the traveler could use the airline’sbrand new “express” check-in kiosk. Thinking

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

industry industry

Uniform Service

By Stan Boyer | Ascend Contributor

The experience of a traveler — even the most valuable — can differ signifi-cantly from one alliance member to another unless the member airlineswork together to ensure uniform standards of customer service are appliedthroughout the network.

Who

Jet Airways

What

Entered a five-year agreement to

utilize the SabreSonic ™ Passenger

Solutions. The airline is the first

in India, and one of the first in the

industry, to leverage the new

generation solution for reservations

and passenger management,

including the introduction of both

e-ticketing and Internet booking

services, revolutionizing the Indian

domestic and international market.

Through the agreement, Jet Airways

will also deploy the Sabre ® AirMax ®

Revenue Manager via Sabre ® eMergo ®

Web access, an applications service

provider delivery method. In addition,

the airline selected the Flight

Operating System from Sabre

Airline Solutions to manage its

daily movement control and flight

planning functions.

Why

“It is our intention to have a long-

term and continued relationship

with Sabre Airline Solutions,”

said Wolfgang Prock-Schauer,

chief executive officer for Jet

Airways. “Beyond the value of the

SabreSonic solutions, which includes

the e-ticketing capability with which

we will revolutionize the Indian

marketplace, Sabre Airline Solutions

has an integrated suite of offerings

that can help us automate our

business more smartly and can

help us increase our market share

and profitability.” a

harmonize other activities such as simulatorutilization, joint purchasing of goods andjointly negotiating with vendors such ascaterers and ground handlers, deliveringadditional cost savings.

The combined group also offers severalcustomer benefits, including an expanded net-work, access to shared airport lounges, com-petitive fares and enhanced onboard service.The merged airline may also grow further. Ithas already held discussions about addingItalian flag carrier Alitalia.

Leo van Wijk, president and chief execu-tive officer of KLM and vice chairman ofAirFrance-KLM, said the merger was instrumen-tal for the future success of the Dutch airline.

“KLM has been pointing out the needfor consolidation in light of the challenges fac-ing our industry, and we have not made it asecret we were looking for a strong Europeanpartner,” van Wijk said. “Through this innova-tive partnership with Air France and our partic-ipation in the SkyTeam alliance, we are confi-dent that we have secured a sustainablefuture for our company. Our valuable Schipholhub will be an integral part of the dual-hubstrategy of the new airline group, allowing usto build on what KLM and its staff haveachieved over nearly 85 years.”

The merger also has implications for theSkyTeam alliance — which previously includedfounding member Air France along with

Aeroméxico, Alitalia, CSA Czech Airlines, DeltaAir Lines and Korean Air. With its merger withAir France, KLM became a member ofSkyTeam, which also added KLM’s long-timepartner Northwest, and Continental, whichhad a relationship with Northwest.

The impact of the Air France-KLM merg-er has just begun, but the ripple effect couldhold the promise of creating waves of changefor the airline industry.

Christian Gossel is a Europe-basedaccount director for Sabre AirlineSolutions. He can be contacted at

[email protected].

a

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

China Eastern Airlines

What

Based on recommendations made by

Sabre Airline Solutions Consulting,

the airline will open a centralized

system operations control center in

Shanghai, China, to consolidate its

movement control, flight dispatch,

load planning, crew coordination and

scheduling functions. As part of the

two-year agreement, an SOC expert

from Sabre Airline Solutions will be

assigned to China Eastern Airlines for

the duration of the agreement to

ensure the new facility is optimally

implemented and functioning.

Why

“We are confident we will see

excellent results by implementing

the recommendations made

by our valued Sabre Airline

Solutions partners,” said

Yu-Lin Wu, vice president for

China Eastern Airlines. “We

expect that the new efficiencies

we will achieve through the

operations control consolidation

will heighten our performance

in this highly competitive

marketplace.” a

Initial Three-Year Structure Final Structure

Air France

Current Air Franceshareholders

Current KLMshareholders

Air France – KLM

Listed company100% 100% of economic rights

and 49% of voting rights

36.3% of voting rights

Operating company Operating company

Foundations

KLM

Dutch State

Dutch StateOption

Air France KLM

Current Air Franceshareholders

Current KLMshareholders

Air France – KLM

Listed company100% 100%

Operating company Operating company

14.7%of votingrights

During the first three years as a cooperative airline, the Air France-KLM group will perform under a strategic operating structure outlined

by Air France general shareholders. After the initial three years, the operating structure will be further refined to meet the needs of the

merged airline.

this was fantastic, the traveler proceeded tothe kiosk.

After the airline representative spentseveral minutes attempting — and failing — tohelp check the traveler in using the kiosk, therepresentative made a few phone calls andgave him an economy-class boarding pass.

“I’m sorry, sir,” she said, “but I’ll needto provide you with this economy-class board-ing pass to get you through security. Businessclass appears full; however, there are sevenseats open in first class. Just speak to thelounge representative, and I believe you willbe pleasantly surprised.”

He thanked the representative and pro-ceeded through security to the airline’s lounge.

Upon entering, he approached thecounter and introduced himself, saying, “Thecheck-in counter agent should have called totell you of my dilemma and told me that Iwould be pleasantly surprised.”

The lounge representative replied,“Oh yes, someone did call. Would you likecash or a voucher?” The traveler was takenby surprise. “Cash or a voucher?” heinquired. “Yes,” replied the representative,“our business class is full, and we are offer-ing $300 cash or a $400 voucher for you todowngrade.”

“I was told that I would be pleasantlysurprised and that there were seven seatsavailable in first class,” he said. “Could I haveone of those?”

“We have no first class on this flighttoday,” the lounge agent said. “Would you likecash or a voucher?”

The traveler asked to speak with asupervisor, and related his story. The super-visor, however, said, “I can do nothing at thispoint.” The frequent flyer then asked who had the authority to help his situation, and the supervisor indicated that the manag-er on duty at the gate could help solve the problem.

By this time, the passenger was clearlyirritated, and he knew his preferred airlinewould have handled the situation at the ticketcounter prior to letting him pass through secu-rity. It would not have pushed the responsibili-ty to the gate agent. At the gate, he wasinformed that several first-class-assigned flightattendants had not shown up for work, so theairline decided to fly without first-class service.First-class passengers were downgraded tobusiness and several business-class passen-gers were downgraded to economy. The pas-senger begrudgingly accepted his fate andboarded the aircraft.

The VIP Treatment

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Establishing common customer service policies and procedures among alliance partners will likely result in consistent, high levels of

service, increasing customer loyalty and retaining valuable passengers.

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ce

By Nico Stoman | Ascend Contributor

By coordinating processes, procedures and systems, alliancemembers can ensure that their frequent flyers receive the highest level of service from each of their partners.

Combining frequent flyer programs is one of the main benefits of joiningan alliance. After all, by linking their programs, airlines can significantly expandthe benefits they offer customers — providing access to hundreds of additionaldestinations, opportunities for upgrades on partner airlines and personalizedattention to the most valuable customers.

If only integrated loyalty programs always worked like they’re supposed to.

Frequent flyer programs are designed to increase loyalty toward the air-line and retain valuable customers. Joining an alliance makes it even moreimportant to ensure that all other members recognize high-value passengersand track their activity accurately.

Despite all the technology that has radically reshaped the industry, airlinesstill have difficulty adequately tracking flight activity and recognizing elite statusmembers consistently across the alliance network. Part of the difficulty is thatsuch tracking is not as simple as it sounds. Just because a passenger has flownhundreds of thousands of miles with a single airline in an alliance does notmean that person will automatically be recognized as a valuable customer bythe other alliance members.

What members of an alliance need, therefore, are integrated processesand procedures — as well as the technology that supports them — becausemaintaining a thriving loyalty program requires that all alliance members providethe highest levels of service to the most valued customers of any individual partner.

The issue is magnified because as alliances increasingly synchronize theirschedules in order to expand the number of routes and destinations available,individual passengers are more likely to use several alliance partners to com-plete their journey.

Providing the highest levels of service throughout the alliance must beginat the start, with the booking process. Since travel agents, both online andoffline, still account for a significant amount of reservations, an airline’s reserva-tions procedures and processes should be geared to evaluate these incomingbookings to assess the accuracy of frequent flyer data. The same proceduresshould be in place for bookings that come from partner airlines. Determining thequality of frequent flyer data includes validating the name of the passengeragainst the membership number and updating the customer information withthe traveler’s correct status information.

Because travel agents typically do not include status-level information inthe passenger name record within a global distribution system, an airline musthave systems in place to recognize the traveler and update the PNR with theappropriate frequent flyer information in the proper fields. This will ensure thatthe frequent flyer information is transferred from the airline’s computerizedreservations system to its own departure control system, or to other

The VIP Treatment | Continued on page 12

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Valuair

What

Selected the SabreSonic ™ passenger

solutions to manage its reservations,

pricing, ticketing, reporting and

customer service operations.

Why“After conducting an extensive mar-ket evaluation, the SabreSonic solu-tions clearly stood out as the best

product available on the market tomeet our needs,” said ValuairChairman Lim Chin Beng. “These arethe only solutions available today thatoffer an open-systems architecturethat will enable us to quickly adapt tochanging market demands and busi-ness requirements. The modulararchitecture and performance-focusedpricing of the SabreSonic solutionsare exactly what we need as a low-fare carrier, allowing us to use a vari-ety of distribution channels to offerthe most advanced travel experienceat value-based pricing.

“We found limitations quickly arosewith the reservations system we imple-mented initially and decided to turn tothe market to identify the best solution to meet all our needs, both current andfuture,” he said. “The SabreSonic solu-tions will allow us to expand our reachvia a number of different distributionchannels; facilitate partnerships with our industry members; maintain a lowcost of business; and provide a fast, reliable, modern solution that meetsValuair’s needs including capabilities for e-ticketing, Internet booking andcodeshare agreements.” a

Few would argue that forming an allianceamong airlines is the future of the indus-

try — alliances enable airlines to protect them-selves in a highly volatile climate, where theeconomy is unstable and competition is high.They are also a way to increase revenue.

In Latin America, the trends towardconsolidation and alliances are consistentwith those in Europe and North America.However, they have been developing at aslower rate and with a different emphasis,focusing on building traffic from otherregions as well as leveraging the strength ofthe region’s flag carriers, which have strongties with local governments. Also, somealliances have had better chances to succeedthan others — those with common/sharedgoals in which the partners complement eachother and are willing to work productivelywith each other.

The Latin American Airline Market

Latin America is a growing marketplace. Theregion’s gross national product is increasing,resulting in air travel growing at a constantrate, particularly in markets such as CentralAmerica, Argentina, Chile and Colombia.Today, Latin American countries are consid-ered to be among the fastest growing mar-kets. Tourism between the United States andLatin America and within the region is increas-ing at a rapid rate.

At the same time, leadership has shifted while the market is increasing: NorthAmerican and European carriers such as AirCanada, Iberia Líneas Aéreas de España,American Airlines, Lufthansa GermanAirlines, Continental Airlines and Air Franceare taking advantage of the increase indemand to open new routes to Central andLatin America, where fares and correspond-ing yields are significantly higher, and growtheir market share. Today, European carriers

hold four of the top five market share posi-tions in Latin America, where trans-Atlanticnon-stop capacity has almost doubled duringthe last 10 years.

When it comes to regulation, thedevelopment of open skies agreements hasresulted in Latin America experiencing glob-alization. This has allowed some existing carriers to expand. In addition, the multiplica-tion of alliances between a North and South American carrier is continuing to cre-ate even more pressure on governments inthe region to sign open skies bilateral agree-ments with the United States. The resultsare rewarding: Costa Rica, Chile and ElSalvador are examples of how open skiesagreements have benefited airlines and pas-sengers by allowing carriers such as TACA tobuild a regional network and, in the case ofLAN, earn record profits.

However, there are still some chal-lenges to overcome:

Latin America remains very nationalistic andis characterized by a patchwork of aviationagreements that considerably limit the busi-ness development of its airlines. In fact, theoutdated regulatory systems do more togenerate income for the government thandeveloping airlines. Latin American carriers, which are small andmedium sized, are plagued by high costsand low efficiencies. Therefore, despite thegrowing traffic, Latin America is still experi-encing economical crises and financial diffi-culties. This is evidenced by the economicfleet-size reduction among Latin Americancarriers and the fact that economic turmoiland high jet fuel costs have caused airlinesto struggle to survive. At the same time, pressure is building forairlines to improve safety systems and thequality of service that is expected by globaltravelers.

As these issues are considerable,alliance and consolidation strategies are topicsof critical importance. They are viewed as away to gain strength and survive globalization.

1,600 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,400 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,200 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

800 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

600 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

400 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

200 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Airline

Additional markets served with regional codeshares

Additional markets served with north/south codeshares

Additional markets served with alliance partner codeshares

Additional markets served alone

Sources: market information data tapes,Sabre ® Planet ® profitability forecasting system

Such actions can leave a passengerwondering about the quality of service on air-lines in the alliance and questioning whetherto use the alliance in the future for global travel.

Although an extreme example, it illus-trates the potential cultural differencesbetween alliance members with respect tocustomer service. Alliances should bealigned so that alliance partners support cus-tomers of all member airlines with the samelevel of service.

Keys to solving these issues requireappropriate access to information and clearcommunication within the individual airline,among partners and, most importantly, withthe customer.

In order to reap the benefits of thealliance, all airlines must focus on providing ahigh level of customer service. When joiningan alliance, airlines should consider:

The partners’ customer relationship man-agement capabilities,The customer service philosophies amongpartners,The volume and type of customer com-plaints for each partner, at least at a highlevel,Whether there is a plan to provide solutionsto common customer service issues andthe resulting customer complaints.

With the right customer service policiesand practices in place, customers flyingalliance carriers should receive a consistentlevel of service and experience seamless travel as they move from one partner to the next.

Stan Boyer is a line of businessdirector for Sabre Airline SolutionsConsulting. He can be contacted at

[email protected].

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Linking Latin America

By Marcela Lizárraga and Nadja Killisly | Ascend Contributors

As with most parts of the world, alliances are becoming more prominentand more important in Latin America. However, the region’s alliances aretaking some unique forms to adapt to the local landscape.

13

Codeshare Market Reach

for July 2004

AM CM LA MX RG TA

Ma

rke

ts s

erv

ed

Alliances have provided benefits to

a number of Latin American carriers.

COPA and TACA have highly benefited

from their respective alliances with

Continental and American Airlines.

LAN and Aeroméxico have increased

the number of markets they serve

through the development of numerous

regional codeshare partnerships.

+count it up

The VIP Treatment | Continued from page 10

alliance partners or handling agents, prior to departure to ensure accuratestatus recognition and mileage accrual. This will also assist the check-inagent in matching the passenger’s airline status level with the correspondinglevel of the alliance as a whole.

If the appropriate information is gathered initially during the bookingprocess, all airlines can proactively act upon a traveler’s elite status. If airlineswait until an elite passenger has displayed a membership card, they havemissed an opportunity to provide high-quality customer service.

Some GDSs, such as the Sabre ® global distribution system, store pro-files of an airline’s frequent flyer members, which can help airlines thatdepend on sales from agents who use a particular GDS. Regularly providingthe member’s travel agency of record or the GDS with updated memberinformation can help ensure that frequent flyers automatically receive theappropriate mileage credits. This also helps ensure that the name andaccount number of a frequent flyer will match the airline’s records when areservation is made by an agent utilizing a GDS that stores frequent flyerinformation. The status level, however, must still be added to the PNR by theairline’s system.

Coordination of processes and systems will also eliminate issues suchas passengers trying to “double dip” by accruing miles in more than one pro-gram for a single trip. To prevent such abuse, airlines should have a copy orreceipt of the ticket sold to the customer and a copy of the boarding passprior to retroactively awarding credit. It is important to verify flight activity,especially if supporting documentation is not available.

Equally important is ensuring that passengers do not inadvertentlyreceive credit for flights that were booked but not flown. Preventing unearnedcredits being granted becomes complicated in networks that depend on otherairlines’ handling agents. In such instances, receiving an accurate flight close-out report will facilitate the updating of PNRs prior to the start of the mileageaccrual process.

Joining an alliance opens up a new world of frequent flyermileage/point redemption opportunities, but only if the member airlines havetightly coordinated processes, procedures and systems that allow them toproperly identify and care for their most valuable customers.

Nico Stoman is a senior management consultant with Sabre AirlineSolutions Consulting. He can be reached at [email protected].

2006 — Year the world's

largest passenger jet, the Airbus

A380, will begin operations from

Australia's Melbourne Airport,

which will begin a multi-million-

dollar infrastructure development

in preparation for the double-

decker, 550-seat aircraft.

250,437 — Number of

U.S. dollars, mostly in loose change,

that was left by passengers at airport

security checkpoints during the last

year. The money is collected by

the U.S. Transportation Security

Administration and deposited into

the federal government's general fund.

10,335 — Distance in miles

of the world's longest commercial

flight, which is served by Singapore

Airlines. The 18-and-a-half-hour

inaugural flight between Singapore

and New York City, New York,

carried 181 passengers earlier

this year.

Proliferation of Alliances and

Consolidation in Latin America

Consolidation in the region began with TACA’shighly successful mergers, which resulted inone of the best networks in Latin America.Since TACA began its consolidation program,the number of similar efforts has been increas-ing continuously. Currently, alliances can befound from Mexico to the southernmostpoints of Latin America. Although they takevarious forms, they are mainly driven by the

necessity to head off competition, createeconomies of scale, and increase revenue byexpanding their presence and market share inother regions.

U.S. and European carriers’ expansionin the market has forced Latin American car-riers to focus not only on the cost side butalso on the revenue side. Developing a moreattractive network with U.S. carriers andoffering better customer service has allowedLatin American carriers to become more

competitive, particularly those based incountries that are too small to provide a suf-ficient market to survive.

Although numerous alliances existtoday in the region, they can be categorized intwo ways: geographic (global, regional or inter-regional) or by the level of equity interest.

Global Alliances

A global alliance enables Latin American carri-ers to expand in other continents.Aeroméxico, for example, has been able tooffer routes to France and Italy as a result ofits relationship with Air France and Alitalia. Asof today, only LAN (oneworld), VARIG (StarAlliance) and Aeroméxico (SkyTeam) havejoined this type of alliance, which still does notextensively cover Latin American countries.However, depending on their partners, thesealliances cover a specific region. Star Alliance,for example, covers Brazil extensively throughits member airline VARIG.

The benefits recognized by LatinAmerican carriers when joining a globalalliance include:

Acquisition of world-class experience fromalliance partners,Ability to offer a more comprehensive rangeof services and programs (i.e. lounges),Improved branding,Expansion of the network in a cost-effec-tive manner,Impetus to bring operation to a world-classstandard.

North-South Alliances

One trend in the region has been the develop-ment of north-south alliances — COPA andContinental Airlines, Delta Air Lines andAeroméxico, TACA and American Airlines. Theresults of the alliances are varied. On onehand, they open additional gateways in theUnited States and improve Latin America mar-ket presence there; on the other hand, manyNorth American carriers have been attractedto Latin America because of its growth poten-tial, which could lead to further competition inthe home markets of the region’s carriers.

Despite the fact that COPA, TACA andAeroméxico have been successful with thistype of alliance, other airlines see limitations.Some believe this trend could create tensionamong global alliance members becausethey may compete for the same customersin Latin America.

Some carriers also fear the dominanceof the large North American carriers andbelieve that this type of alliance benefits the

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North American carrier more than its smallerLatin American counterpart, which, theybelieve, would be on more equal footing withEuropean carriers.

Regional Alliances

Latin America is exemplified by the numerousregional alliances that have been developed bysmall, successful airlines that are strong intheir home country, such as LAN.

Regional alliances allow area carriers to:Compete at the regional level and through-out Latin America, Provide services to smaller markets,Reach cities that cannot be served with aspecific fleet type, Increase network reach.

The success of this type of alliance canbe explained by the fact that markets are smalland carriers need to expand regionally in order to

grow. TACA, for example, formed a codesharealliance with Avianca to take advantage of theincreased traffic between Central America andColombia. However, not every country has thesize to have regional alliances and may find itmore difficult to overcome the economic burden.

Alliances by Equity

Finally, as nowhere else, the history ofalliances in Latin America is characterized by

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Most of the leading European carriers that provide service to Latin America increased their available seat miles to the region during the

last six years; therefore, they profited largely from the traffic increase and open skies agreement. Latin American carriers are loosing their

leadership in this market.

3,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between Europe and Latin America

AS

Ms (

mil

lio

n)

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nd

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Air E

uro

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Sw

iss

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Aero

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Air F

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VA

RIG

Ibe

ria

5,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

500 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

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Carrier

2Q1996 2Q2000 2Q2004

Non-Stop ASMs for Top Carriers Between North America and Latin America

AS

Ms (

mil

lio

n)

Air C

an

ad

a

Am

eric

a W

est

La

csa

TA

M

Ala

sk

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Airlin

es

Aero

lineas

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CA

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A comparison of the available seat miles performed in 2003 for non-stop segments

between North American and Latin American carriers demonstrate that North American

carriers (American, Continental, United and Delta) hold four of the seven top positions,

which allowed them to increase their market share in the region.

16,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

14,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

12,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between North America and Latin America

AS

Ms (

mil

lio

n)

Lan

Peru

No

rthw

est

ATA

CO

PA

US

Airw

ay

s

LA

CS

A

Air C

an

ad

a

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a W

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TA

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Delta

Un

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an

a

Am

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an

A comparison of the available seat miles performed in 2003 for non-stop segments

between European and Latin American carriers demonstrate that European carriers (Iberia,

Air France, Lufthansa, KLM and TAP Air Portugal) hold four of the top five, five of the top

seven and seven of the top 10 positions.

10,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

9,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

8,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

7,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

6,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

5,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

4,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

3,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

2,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

1,000 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Carrier

2003 Non-Stop ASMs Per Carrier Between Europe and Latin America

AS

Ms (

mil

lio

n)

La

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LA

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Air E

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Sw

iss

TA

M

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irwa

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Alita

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KL

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RIG

Air F

ran

ce

Iberia

The trend varies for non-stop available seat miles between North America and Latin America. For example, for Latin America-based carriers

such as TACA and Mexicana, ASMs increased. American Airlines maintained its market share gained during the last eight years. Some

United States-based carriers such as United and Continental showed a decrease in the last year.

Ae

orlin

ea

sA

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as

airlines acquiring an equity stake in anothercarrier. LAN, formerly LanChile, started itsexpansion by acquiring almost 57 percent ofLadeco and then merging with Fast Air in1998. Over the course of the next few years,the airline established subsidiaries in Peru,Ecuador and the Dominican Republic.

TACA — by acquiring an equity positionand management control of Aviateca in Guatemala,TACA de Honduras in Honduras, NICA inNicaragua and LACSA in Costa Rica — formedone airline under centralized management. In sodoing, it not only became a regional conglomerate

but also built one of the best networks inCentral America, achieving economies of scale.

Other airlines in the region have alsopursued alliances by acquiring a stake in fellowcarriers. Colombian carrier Avianca resultedfrom a merger of SCADTA and Servicio AeroColombiano. COPA believed that an equityalliance would enable it to move from a smalldomestic airline into a regional hub-and-spokecarrier. Today, 49 percent of COPA is ownedby U.S.-based Continental Airlines and has oneof the region’s more successful hubs. SmallBrazilian-based carrier Ocean Air is looking to

expand its regional network via equity alliance.And Aeropostal has equity in Aerorepublicaand Caribiana.

The announcement in May by a Brazilianinvestor of plans to purchase Avianca confirmsthe region’s growing trend of weaker airlinesconsolidating with larger, more stable carriersin order to grow and survive.

Lessons Learned

The experience of several Latin American car-riers regarding alliances in the region has pro-vided several lessons:

Alliances Bring Benefits

Many carriers believe that alliances providesubstantial benefits in terms of increasing theability to compete at a regional or continentallevel by extending their networks.

During the past several years, allianceshave been developed with various degrees ofsuccess. The region’s most successful havebeen LAN, TACA and COPA:

COPA went from a domestic carrier to asuccessful regional hub operation.TACA’s early move not only resulted in theairline becoming a strong competitor butalso positioned it ahead of the curve in theregion before U.S. carriers began to enterthe market. LAN has become one of Latin America’smost successful airlines.

Clear Goals and Objectives

Alliance partners must not only share a strate-gy and a vision but also common goals and anunderstanding of how they can complementeach other through the partnership.

“Probably the main reason of the suc-cess is that everybody worked toward the goalof being one single carrier in many aspects,”said Guillermo Bran, alliance and interline man-ager at TACA.

COPA is a clear best-practice example.From the beginning, COPA and Continentalshared a vision of establishing hubs in CentralAmerica. Today, Panama is seamlessly connect-ed to Houston, Texas, the Continental gatewayto 31 cities in 20 countries in Latin America.

Alliance Resource Allocation

Alliance relationships are complex. They bringprofit opportunities but also losses if not man-aged correctly. For larger airlines, a carrier needsto have a planning and negotiating team dedicat-ed to managing the process and keeping effortsproductive. Smaller airlines must also takeadvantage of the tools and methodologies usedby larger airlines to simulate the increase in traf-fic that will be gained from the alliance.

TACA’s planning department has run rig-orous financial and market analysis during thecreation phase of the alliance. “We do ananalysis based on different options that arepresent at the current time,” Bran said. “Wethen run financial analysis based on connectiv-ity and market sizes.”

Proactivity

Once airlines have selected their partners,they should actively manage the direction andprocess of the alliance.

“In most cases, Latin American airlinesneed to proactively approach the alliance topresent the case on how there is a mutualbenefit if their airline gets to participate in thatalliance,” said Alfonso Acosta, director ofregional alliances at Mexicana. “Only in a fewcases, the airline will be approached by otherdomestic or regional carriers to develop a part-nership, and in fact, some smaller airlines inthe region do not have a lot of visibility.”

That principle was applied byAeroméxico, which took an active role indeveloping its alliances.

“Aeroméxico, along with Air France and Delta, was a founding member ofSkyTeam and actively works toward the devel-opment and growth of the alliance,” saidNicolas Rhoads, director airline strategy forAeroméxico.

Preferred Models

If the emphasis has been on north-southalliances, more thought is given today to inter-regional alliances, which are seen as the pre-ferred model because of more common politi-cal and economical alignment.

Also, many airlines see equity alliancesbetween Latin American airlines as preferableto the so-called vertical alliance between U.S.and Latin American carriers because they mayrelegate Latin American partners to a sec-ondary role.

Role of Information Technology

IT plays a key role in alliances, including:Providing a seamless experience to the trav-eler when IT is properly integrated,Leveraging IT knowledge and skills amongpartners,Integrating required IT processes, such as incodeshare, commercial, and frequent flyerinteractions and agreements.

Perceived Risks of an Alliance

In addition to the lessons learned, LatinAmerican carriers also recognize a number ofperceived risks when engaging in alliances,such as:

Disagreement among partners,Uneven distribution of revenue sharing andbenefits,Adverse reaction from local governments,Less ability to react to market changes, Less flexibility in managing individual objec-tives and standards, Dilution of the small player in the alliance,Discrepancies in terms of sharing objectives,

Cultural and political differences.Global alliances also include risks:

Exorbitant expense due to IT commonalityrequirements,High cost of participation to fulfill globalalliance standards,The dominance of stronger carriers,Less flexibility in meeting individual objec-tives and standards.

Next Steps

Latin American carriers value the benefitsalliances offer to both the airline and the pas-senger. The region has begun to see openskies agreements signed, and the initialresults provide an indication of the substan-tial benefits they might offer throughout theentire region if it continues to embrace liber-alization. However, some key steps musttake place in order to achieve full potential,such as:

Modernize Latin America’s regional aviationinfrastructure and update its regulatory sys-tems,Embrace alliances as a way to gain accessto lucrative routes to the United States andEurope, Improve management of the partnership.

For partners that already have a part-nership, the challenge is to make it strongerand manage risks. For those that do not yethave an alliance partner, the challenge is toquickly find the right type of alliance. The keysuccess factors include professional man-agement of the process, clear goals andproactive management.

Trends point toward continued consol-idation. Many airlines believe there will be a series of consolidations and alliancesformed during the next few years, leavingthe market dominated by only two or threecarriers, with small carriers focusing onniche markets.

Alliances will also impact markettrends, changing the rules so that competitionmay now be between alliances rather thanairlines alone.

Marcela Lizárraga is vice president of LatinAmerican sales and account management

and Nadja Killisly is a consulting partnerfor Latin America with Sabre AirlineSolutions. They can be contacted at

[email protected] [email protected].

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TAM

TACA

LAN

VARIG

COPA

Aeroméxico

Aeropostal

Mexicana

Avianca

Aerolineas Argentinas

GOL

LAB

Equity alliances

TAM Mercosul 80% share in Transportes Aereos del Mercosul of Paraguay

TACA has equity stakes in TACA (49%), LACSA(10%), AVIATECA (30%) and NICA (49%)

LAN 73.3% share in Aerolinhas Brasileiras, 100%in LanDominicana, 70% in LanPeru, 25% in Florida West International Airways, 45% inLanEcuador, 25% in MAS Air (Mexico)

99% in Nordeste Linhas Aereas Regionais, 97% in Rio Sul Servicos Aereos Regionais, 49% in PLUNA

49% owned by Continental Airlines, 51% by Mota family

Belongs to CINTRA along with Mexicana, Aeroperuand several regional carriers within Mexico

Equity in Aerocontinente, 33% stake inAeroRepublica (Colombia) and a 45% stake in Sol Air (Honduras)

CINTRA 99.95%

94% of SAM Colombia — Owned by FederaciónNacional de Cafeteros 50%, Grupos Valores Bavaria (43.73%), Helicol (4.77%) and InversionesFenecia (6.14%)

92% owned by Grupo Marsans of Spain, 3%employees, 5% government of Argentina

Has stakes held by American International Group (12.5%), Grupo Aurea (87.5%)

48.27% owned by the Bolivian government and50% by a private investor

Regional

Yes

Yes

Yes

Yes

North-South

American Airlines

American Airlines

American Airlines

Continental Airlines

Delta Air Lines

Delta Air Lines

Global Alliances

oneworld

Star Alliance

SkyTeam

Codeshare and inter-regional alliances

Air France, American Airlines, KLM, TAM Mercosul, VARIG, Uair

American Airlines and Air France

Aeroméxico, Alaska Airlines, American Eagle, British Airways, Iberia,LanExpress, LanPeru, TAM Mercosul, Qantas Airways, Florida WestInternational Airways

Air Canada, Alitalia, Aserca Airlines, Mexicana, PLUNA, South African Airways,Spanair, TAM

Commercial with Lufthansa, Aerosur, South African Airways, United Airlines,Nordeste Linhas Aereas Regionais. Codeshare with Cubana de Aviacion (Havana-Panama), Gulfstream International (Florida, Carribean, Bahamas),Mexicana (Mexico-Panama City, Cancun-Panama City), TACA

Air France, Alitalia, CSA Czech Airlines, Delta Air Lines, Japan Airlines , TACA, Korean Air, Atlantic Southeast Airlines (Atlanta-Mexico City, Monterrey and on 14 flights from Dallas/Forth Worth), Continental Airlines (United Statesand Mexico), Aeromar (within Mexico), LAN (Mexico City-Santiago), Mexicana(numerous markets within Mexico, and Mexico City-Santiago and Mexico City-Guadalajara and Mexico City-Oakland), TACA (Mexico City-Lima)

Codeshare with Cubana de Aviacion and Air Europa

Air New Zealand, All Nippon Airways, Iberia, Lufthansa, Scandinavian AirlinesSystem, American Airlines, VARIG, Air Canada , Aeromar and Aeroméxico (within Mexico), Avianca (Mexico City-Bogota), COPA (Mexico City-Panama,Cancun-Panama), commercial agreement with Austrian and Asiana

Codeshares with ACES, Delta Air Lines, LACSA (Guatemala, San Jose and San Salvador to Bogota, Cali and Medallin), Mexicana (Mexico City-Bogota),TACA (Colombia-Central America)

No alliances/codeshares except that Austral Lineas Aereas and AerolineasArgentinas operate as one airline, commercial agreement with Aerosur, Austra Lineas Aereas, Iberia

LAB codeshares with TACA Peru (Santa Cruz-Panama, Mexico City-La Paz) and with TAME Linea Aerea del Ecuador (Quito-Lima, La Paz-Lima)

Alliance Status in Latin America

because it is highly technical, and proper allo-cation requires a substantial understanding ofmarket price elasticity, demand forecasts, pas-senger preferences and several other impor-tant factors.

Building on the SPA, the next layer isthe codeshare agreement. By codesharing,two carriers that operate between city pairsagree to share space on the aircraft of one orboth airlines. By codesharing, airlines increasetheir network. A connection between two air-lines is less desirable than a codesharebetween the same two carriers, and evenglobal distribution systems will display on-net-work connections, including codeshare flights,ahead of off-network connections.

Global alliances typically prefer free-salecodeshare agreements — where each carriercan sell as many seats as are available on theflight without restriction. But all alliances alsouse block space codeshare agreements, inwhich the ticketing airline has a pre-deter-mined maximum number of seats that it cansell on a flight that cannot be sold by the oper-ating airline. Building a codeshare agreementis also complex because schedule connectivi-ty must be agreed upon between the two air-lines and then maintained through successiveschedule, flight time and time zone changeswithin minimum connection times.

The next layer is the marketing alliance,in which two airlines share marketing andsales resources. Two carriers, for example,will link their frequent flyer programs in an“earn-and-burn” relationship where a travelercan earn points on her host airline while travel-ing on the partner airline and can alsoexchange points for flights on the partner air-line. In addition to frequent flyer programs,marketing alliances include sharing salesoffices, joint advertising, cooperative promo-tions, joint distribution through various chan-nels and similar marketing cooperation.Marketing alliances are the genesis of theglobal alliance, and they are a very sophisticat-ed relationship between two airlines.

The outermost layer is the globalalliance, which expands the marketing rela-tionship among multiple carriers that offermarket coverage over a significant portion ofthe world. Global alliances share not onlycommercial resources but also operatingresources, such as airport terminal space,departure and premium lounges, groundequipment, and even maintenance facilities.Because global alliances are built on eachmember generating as much revenue aspossible at the lowest possible unit costs,

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Global alliances have become worldwidebrands. Virtually all frequent internation-

al travelers are familiar with oneworld,SkyTeam and Star Alliance. In fact, theyaccount for more than 60 percent of global aircapacity. Given how prominent they havebecome, it is difficult to remember that glob-al alliances are a relatively recent phenome-non in the aviation industry. The main globalalliances have been active for less than adecade. Before the alliances formed, ofcourse, airlines cooperated extensively onflights, but even codesharing is a fairly recentinnovation that only became prominent with-in the last two decades.

To paraphrase the English philosopherThomas Hobbes, prior to global alliances,worldwide travel was “nasty, brutish andlong.” Individual airlines have lacked trueworldwide coverage since the collapse ofthe first Pan American Airlines more than 20years ago. Even before the ultimate demiseof Pan-Am, the carrier’s network shrankrapidly, and many of its more exotic locationswere extremely difficult to reach. Airlines did

not coordinate schedules; they lacked ticketand baggage transfer agreements, and theydid not share airport facilities. Flying fromMexico City, Mexico, to Karachi, Pakistan, 20years ago, for example, could take days andseveral intermediate stops to switch airlines.Although the development of global alliancesincreased the ease of travel for road war-riors, this was not the main reason theywere formed.

Global alliances developed primarily as away to improve returns for stakeholders byincreasing profitability of member airlines. Byobtaining feeds from other members and shar-ing the revenues of the total ticket prices,members of a global alliance gain access tonew revenues without the associated costs ofcarrying the passengers. Secondly, globalalliances enable their members to shareresources including airport facilities, salesoffices and maintenance facilities, whichreduces unit costs. As a byproduct, the forma-tion of global alliances included benefits forcustomers, such as increased connectivity aswell as a worldwide reduction in average fares

as the different alliances competed for long-distance travelers.

The evolution of these partnerships,which began with basic bilateral agreementsbetween airlines, has added layers like aRussian nesting doll to become a highly inte-grated business relationship.

In the Beginning

Today’s global alliances are only the outermostlayer of the relationships among airlines. Atthe core of the global alliance relationship isthe special prorate agreement, or SPA, whichis essentially a ticketing agreement that estab-lishes a set price to be paid by the ticketing air-line to the operating airline. The SPA alsoestablishes the fare rules and fare-class align-ment that determine how much space a par-ticipating carrier can reasonably expect on theother airline. SPAs are vital because in theirabsence, an airline flying relatively short dis-tances to connect to a long-haul memberwould have little incentive to feed traffic to itspartner. Still, the SPA is generally one of themost difficult negotiation items in an alliance

industry

The Evolution of Alliances

From their early beginnings as basic partnerships between airlines, today’sglobal alliances have evolved into a major force that is helping to reshapethe aviation industry.

By Robert Westgate | Ascend Contributor

During the next few years, carriers will not decide whether they should join an alliance but rather when and how integratedthey want to become in this type of network relationship.

By Shane Batt | Ascend Contributor

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Joining an alliance or developing a codeshare agreement provides several benefits:Access to more extensive distribution channels,Access to frequent flyer programs, Increased pricing power,Possibility of increased feed traffic,Decreased risk for entering new markets.

Therefore, most carriers will develop some form of network partnership; it is just a matter of choosing the right partners and type of agreement.

Sabre Airline Solutions Consulting has developed an alliance checklist from itsvaried alliance development engagements that can assist carriers in developinga successful network partnership and make them aware of issues that can arisewhen evaluating and joining an alliance.

As airlines look to join with new partners, they should:1. Evaluate the carriers under consideration according to:

A. Quantitative factors:i. Type of codeshare (hard or soft block of seats),ii. Value to partner seats,iii. Cost of selling seats,iv. Revenue sharing,v. Inventory coordination/management,vi. Frequent flyer program liability.

B. Qualitative factors:i. Strength of the carrier (name recognition in the market place),ii. Network value (market access and value of those markets),iii. Other carriers’ interest (additional traffic opportunities), iv. Implementation duration (system requirements),v. Regulatory issues (open skies availability),vi. Customer expectations (identifying and managing expectations):

a. Opportunities for frequent flyer members (increased mileage),b. More flights,c. Synchronized schedules,d. Pricing coordination,e. Smooth reservations and ticketing,f. Single check in,g. Streamlined airport procedures,h. Easy connections,i. Product consistency,j. Expanded reservations network,k. Knowledgeable employees.

Joining An Alliance | Continued on page 21

Joining An Alliance

Who

Air Blue

What

Selected the SabreSonic ™ Passenger

Solutions to manage its entire

reservations and departure control

operations. The airline will also

implement the Sabre ® Load Manager

to produce optimal aircraft loading

plans.

Why

“As a start-up carrier, Air Blue needed

a flexible passenger management

solution capable of adapting to the

future changes in the marketplace,”

said Tariq Chaudhary, chief executive

officer of Air Blue. “The SabreSonic

solutions give us the competitive

advantage we needed and the

functionality to respond to future

market changes whilst delivering a

solution with bankable results.” a

alliances, several trends point to an evolutionthat will change the impact these businessrelationships have on the aviation industry.While global alliances have already had a sig-nificant impact on the airline industry, theycontinue to evolve along with the changingbusiness environment.

Future Alliance Trends

As global alliances mature, certain trends areappearing that will affect their viability as wellas their members, competition and passen-gers. These trends can be split into four categories:

Equity participation — Global alliances areincreasingly expanding the financial relation-ships between their members.Regulatory framework — Government regu-lations are changing the landscape of globalalliances.“Lite” partnerships — Global alliances arebecoming more selective about how andwhen they allow new members to join.Procurement partnering — Global alliancesare only now beginning to understand thepotential they possess to reduce unit coststhrough common procurement practices.Alliance members will increasingly use thispotential to drive favorable supplier rates.

Each of these trends is impacting globalalliances but will have greater affects in the future.

Equity participation is evolving alongwith global alliances. The merger of Air Franceand KLM Royal Dutch Airlines (see related arti-cle on page 4) is the most prominent exampleof evolving equity participation. Air France wasable to use European Union free-trade regula-tions to purchase a majority stake in KLM,which will now participate in SkyTeam as a fullmember in cooperation with Air France. Bothoneworld members American Airlines andBritish Airways owned minority stakes inIberia at one time, and other global alliancemembers share equity.

In addition, Star Alliance members wereasked to provide loans to United Airlines tosustain its capital requirements during its bank-ruptcy reorganization. The U.S. government iscurrently considering a bill to loosen foreignownership regulations on airlines in line withthe ownership regulations of the EuropeanUnion. Easing foreign ownership regulations inother industries (notably, automobile manufac-turing) has led directly to consolidation withinthe sector, and this is a trend that appears setto continue within the aviation sector.

It is doubtful that global alliances willevolve into single mega-carriers due to the high

cost of capital and the enormous capitalrequirements that such ventures wouldrequire. Still, it is possible that alliance partnerswill increasingly tie each other together withequity participation to strengthen their relation-ships and provide better alignment. Ultimately,however, the level of equity participationamong global alliance members will be restrict-ed by the existing regulatory framework.

The regulatory framework is changing

rapidly — anti-trust legislation is increasinglybeing used on the global stage in order to fur-ther political agendas. As trade disputes eruptbetween the North America Free TradeAssociation and the European Union coun-tries, for example, regulatory agencies areincreasingly using global aviation as the testingbed for new regulation.

Despite the desire among passengersfor greater flexibility and more services from

industry

ascend 21

member airlines share resources whereverpossible. Global alliances are increasinglynegotiating common agreements with man-ufacturers, maintenance providers and simi-lar vendors.

Emergence of Global Alliances

Because of their complexity, it is little won-der that global alliances are a fairly recentdevelopment. In fact, they probably wouldnot have evolved at all if not for the deregu-lation of the industry that is, even now, aprocess that is not complete globally. Prior toderegulation, airlines had a built-in profit mar-gin that meant they could survive withoutmuch difficulty. Prior to deregulation, mostairlines were government owned (or at leastpartially government owned) and were oper-ated as public utilities.

Deregulation, however, changed theindustry dramatically.

Deregulation caused airlines to com-pete in ways that had never previously beenrequired. To continue to operate, airlines need-ed to find new ways of operating that wouldgive them more access to revenues at lowerunit costs. The volatile business environmentthat resulted from deregulation led to thedevelopment of global alliances.

Although global alliances generally ben-efit their members, there are advantages anddisadvantages to participation. For some air-lines, membership in a global alliance hasmeant the difference between solvency andinsolvency. Both Iberia and Aer Lingus benefit-ed from oneworld membership during theirsuccessful restructurings. And United Airlinesand American Airlines also benefited from theprotection they received from their participa-

tion in global alliances during their financial dif-ficulties. Global alliances, however, also havedisadvantages:

Their competition has generally acceleratedthe reduction in global yields as they com-pete for long-haul passengers,They can restrict the rapid growth of mem-bers that must cooperate with partnersbefore expanding capacity in markets,Their increased requirements for commontechnologies and common planning andoperating practices can restrict fast-moving

partners, which are slowed by their less-sophisticated partners.

Despite the disadvantages, most air-lines would credit their alliance membershipwith substantial financial benefits. And, moreimportantly, global alliances make individualairlines more competitive.

Alliances have a significant impact oncompetition because they often have exemp-tions from anti-trust regulations that allowmembers to dominate certain markets.Alliance members can also share market infor-mation, discuss common pricing, coordinatecapacity and schedules, and even discusscompetitive actions taken in markets.Increasingly, airlines that are members of glob-al alliances have significant advantages overtheir competitors that are not.

The impact of alliances on passengershas also been significant. Long-haul passen-gers favor global alliances because of theadvantages they offer, including:

Electronic ticketing that is easy to changefrom any participating carrier,Through-baggage checking and boardingpass generation across alliance membersand the use of common facilities at airports,Participation in frequent flyer programs withtruly global reach,Lower prices for long-haul travel,Common quality standards among members.

These significant benefits have little, ifany, downside to customers other than thepossible increase in fares that results from areduction in competition.

Global alliances are in their adolescenceand, like teenagers, they are “subject tochange without notice.” While there is nocrystal ball to determine the future of global

industry

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Today’s global alliances are, like an

onion, several layers thick. To function

properly, alliances depend on series of

agreements between airlines to establish

the relationships that make the whole

a functioning entity

Joining An Alliance | Continued from page 19

2. Prepare for issues that could have a significant impact:A. Business issues:

i. Governance (establish bilateral agreements in key areas),ii. Organization (appoint key officials to manage agreement),iii. Safety, quality and security (develop and sign safety, quality andsecurity commitments),iv. Brand and advertising (set and adhere to guidelines),v. Communication (coordinate product offering and announcements),vi. Signage (install co-branded signage for product identification),vii. Training (perform training for front-line staff to ensure consistentcustomer service).

B. Operational issues:i. Revenue management (implement unified practices),ii. Sales (provide training for promotion and sales changes),iii. Reservations (ensure systems have functionality to interface withcodeshare partners),iv. Web site (update to include codeshare partner(s), including FAQs),v. Airports (identify and address key issues at terminal and airportfacilities),vi. Customer care (manage passenger correspondence and addresscodeshare customer issues at the same level of service as partner carriers),vii. Frequent flyer program (estimate and manage program growth),viii. In-flight products (perform product audit across alliance and negotiate with suppliers for discounts based on codeshare/alliancerelationship),ix. IT and financial systems (audit and adjust system to address newrelationship and communications needs).

3. Ensure that a partnership plan is implemented successfully by evaluating: A. Network plan (develop a long-term, detailed passenger estimate foreach carrier and identify route and market phasing plan),B. Transition plan (establish internal resource estimates and communica-tion plan that supports implementation and codeshare benefits),C. Implementation plan (develop external plan that supports the jointcodeshare implementation),D. Post-implementation tune-up.

Robert Westgate directs the planning and operations line of business for Sabre Airline Solutions Consulting.

He can be contacted at [email protected].

Who

Air China

WhatSelected Sabre Airline Solutions

Consulting to conduct an extensive

gap analysis of its airline planning and

scheduling, pricing, and data ware-

housing operations to help identify

inefficiencies and implement industry

best practices in those key areas.

Why“We are very confident that such a

thorough examination of our business

by the consulting team at Sabre

Airline Solutions will prove invaluable

in addressing where we are in our

business and where we want to be,”

said Jian Xiong Huang, deputy general

manager of information technology

for Air China. “Once we have the

report, we can allocate IT funds

accordingly and target specific

business issues with expertly

recommended solutions.” a

Global Alliance

Marketing

Alliance

Code-share

Special

Prorate

agreement

Alliance Structure

Expanding network reach. Providing seam-less services across airlines. Generating

incremental revenue. Reducing costs. Foryears, large passenger airlines have knownabout the benefits of membership in a globalalliance. Now, more and more cargo airlinesare discovering the same thing.

About five years ago, the cargo divi-sions of Star Alliance members LufthansaGerman Airlines, Scandinavian AirlinesSystem and Singapore Airlines began lookingfor ways to create a cooperative airfreightgroup to provide some of the same types

of services they received from their passen-ger alliance.

Building on those discussions, in April2000, Lufthansa Cargo, SAS Cargo and SingaporeAirlines Cargo launched the New Global Cargoalliance, now known as the WOW alliance, whichhas since been joined by Japan Airlines Cargo.Five months later, the cargo divisions of sever-al SkyTeam alliance members — AeroméxicoCargo, Air France Cargo, Delta Air Logisticsand Korean Air Cargo — also joined togetherto form the SkyTeam Cargo alliance. CSACargo and Alitalia Cargo later joined the alliance.

The cargo alliances help airlines “meetthe demand for rapid deliveries to all parts ofthe world,” according to an article in SASCargo’s Cargotimes.

“[A]irfreight companies have recog-nized that they must create global networks,”the article said. “The new economy has madecooperation essential. No single airfreightcompany has a reasonable chance of meetingthe needs of all customers.”

By joining together, the members of theWOW alliance can provide customers a com-bined fleet of 43 freighters and the belly

industry

ascend

Carrying the Freight

23

global alliances, elected officials are oftenincreasing anti-trust scrutiny. While theEuropean Union and NAFTA are on oppositesides of the debate, they are not the only regulatory bodies impacting global alliancestoday. Many countries are signing open skiesagreements, which foster global alliance rela-tionships because they remove bilateral restric-tions to capacity and frequency of air service.

Meanwhile, the E.U. requirement toremove country designators from third-coun-try bilaterals is meeting resistance from non-E.U. countries as well as countries that do notbelong to a large trade pact such as NAFTA. Inrecent discussions between a Japanese and aEuropean airline, the issue of bilateral restric-tions was broached with the Japanese govern-ment, which said that it would not allow theEuropean carrier to operate to Japan becauseits ownership was not majority held in theEuropean country in which it was based.

Such issues could, for example, causeproblems for airlines such as KLM, a Dutchcompany whose majority ownership will be inFrance. Certainly, as global alliances becomemore pervasive and complicated, the regulato-ry environment will also become more thorny.This added complexity might make more limit-ed participation in a global alliance attractive.

As global alliances become more com-plex, a trend toward “lite” membership couldaccelerate. Under lite agreements, an airlinebecomes an associate member of a globalalliance to obtain most of the benefits of par-ticipation without the requirements of fullmembership.

In the SkyTeam’s associates program,for example, a full member may sponsor anairline for the associates program throughwhich it only participates on certain routesand with certain restrictions while receivingaccess to common resources such as fre-quent flyer links, branding and promotion.This form of lite membership is desirable for

both the current alliance members as well asnew associates. Existing members canobserve the business practices of associatemembers without fully committing to part-nership. The associate members can easetheir way into the alliance without having tomake all of the necessary business and tech-nical changes at once.

Lite participation will also certainly entailfewer regulatory issues than full membership.The risk, however, is that lite membership maylead to a two-tier structure where the morejunior members of the alliance have fewerbenefits and more burdens than the full mem-bers. For example, CSA Czech Airlines, asmaller carrier, is a full member of SkyTeamwhile Malev, a partner of CSA that is actuallyslightly larger than the Czech airline, may onlybe allowed to enter SkyTeam as an associatemember. Such lite memberships should bewatched carefully to see if they evolve suc-cessfully for all participants.

The final alliance trend is toward pro-curement partnering. When global allianceswere first formed, one of the envisioned ben-efits was the purchasing power memberswould enjoy. For the most part, however,these advantages have not been a significantcontributor to profitability of individual airlines.This lack of impact may soon change. Whenoil was around US$20 a barrel, airlines had lit-tle incentive to enter large procurement part-nerships for fuel.

Purchasing economies that could berealized through procurement partnering aresmall at US$20 per barrel. Today, oil, at morethan US$40 per barrel, is considerably higher,and procurement partnering among alliancemembers becomes much more attractive.Other procurement partnering is already takingplace with manufacturers, maintenanceproviders, ground handlers, catering compa-nies and similar suppliers, and it is a trend thatis sure to grow.

Global alliances will continue to evolveas business conditions change. Some of theevolution will benefit members and some willnot. One rule of evolution, of course, is “sur-vival of the fittest.”

Unraveling Global Alliances

Perhaps the most worrying characteristic ofglobal alliances is that they are not easy tounravel. Alliance members share manyresources: commercial, financial, operationaland technical. While sharing resources is oneof the primary benefits, it also exposes aweakness. What happens when a primarymember of an alliance dissolves? Several largemembers of global alliances are struggling forfinancial stability. The failure of any of thesecarriers would have a profound impact on thehealth of its alliance partners.

When the Wings alliance led bySwissair unraveled, the ripple effects impact-ed all members. Although more of a regionalthan a global alliance, the fate of Wings illus-trates the effect of the collapse of a keyalliance member. Wings was devastated bythe failure of its anchor carrier. Almost all ofthe former members of the Wings alliancehave gone out of business or suffered financialhardship following the collapse of Swissair.With rising fuel prices, dropping yields andincreasing competition, it is difficult to imaginethat all of the troubled carriers will survive,threatening the health of the current alliances.

Global alliances improve the passengerexperience and benefit member airlines. Evenwith the challenges they face, global alliancescan look forward to a healthy future — even ifindividual members continue to struggle.

Shane Batt is a partner with Sabre AirlineSolutions Consulting. He can be contacted

at [email protected].

a

industry

ascend22

+count it up700 million — Euros per

day, according to the International Air

Transport Association, that aviation

contributes to the tourism industry

in Europe, creating considerable

employment in the aircraft and

engine manufacturing industries.

12 — Percent of possible fuel savings

the European Organisation for the Safety

of Air Navigation, or EUROCONTROL,

estimates could be generated by minimiz-

ing the inefficiencies in air traffic manage-

ment systems, according to the

International Air Transport Association.

3 — Number of doctors who delivered

a baby aboard a KLM flight from

Amsterdam to Chicago Aug. 18. The

Jordanian woman and her healthy baby

daughter were taken to a local hospital

in Newfoundland, Canada, where the

aircraft made an emergency landing.

Like their passenger counterparts, global cargo alliances, although still in the early going, have potential to help reshape the airfreight industry.

By Mukundh Parthasarathy | Ascend Contributor

Phot

o co

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sy o

f Lu

ftha

nsa

Car

go

work of alliance members, cargo alliancesdeliver a better product to customers. The alliances also allow their members to consolidate ground sales and marketinginfrastructures.

The alliances are gaining acceptance inthe industry — last year, the Asia Freight andSupply Chain awards even created a new cat-egory for best air freight alliance, won byWOW in 2003 and 2004.

In addition to the large alliances, manycargo divisions are, like their counterparts onthe passenger side, exploring individual linkswith specific partners through codeshareagreements. Smaller airlines are creating suchlinks with larger international carriers to pro-vide worldwide coverage. Air Jamaica Cargo,for example, has formed alliances with 13 air-lines and four major trucking companies.There are also numerous individual relation-ships. JAL Cargo and American Airlines Cargohave a strong relationship as do BritishAirways and Qantas Airways. And there stillexist some relationships outside the globalalliance framework, such as SkyTeam Cargomember Korean Air Cargo’s alliance withWOW member SAS Cargo.

Although positioned to become moreimportant in the industry, cargo alliances stillface a number of challenges to their operation.

One of the key steps for a successfulcargo alliance is to create a unified “store-front” that coordinates pricing and selling at aglobal level, leading to cargo transported underthe alliance brand rather than that of an individ-ual airline. To do so, however, is complicated

by differing information technology systems,corporate and national cultures, and varyingcargo services.

Alliance members must standardizepricing, as well as product offerings and lev-els of service. Individual airlines must alsoharmonize their similar products — expressdelivery, for example — so that packagesmove seamlessly through the network. They also must set up a mechanism to deter-mine how to split the revenue generatedfrom a shipment that involves multiplealliance members.

One promising development that mayassist cargo carriers in addressing these chal-lenges is that developing technology is emerg-ing — such as cargo reservations, revenueaccounting and claims managment — that canhelp airlines integrate their cargo operations.Standardizing IT platforms will enable the indi-vidual carriers to more efficiently coordinateoperations as well as communicate with eachother. Consistent standards will help the cargoalliances offer a unified service.

Although still in the early developmentalphase, cargo alliances likely will play anincreasingly important role in the future offreight transport.

Mukundh Parthasarathy is in the cargoproduct marketing group at Sabre Airline

Solutions. He can be contacted [email protected].

a

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Comair

What

Selected the Sabre ® AirCrews ®

Operations Manager to efficiently

track flight crew. Included in the

agreement is the Sabre ® AirCrews ®

Crew Connection, which will provide

increased benefits to Comair’s flight

crewmembers, enabling them to

review work schedule changes and

perform trip trades automatically

online.

Why

“With the implementation of

Operations Manager, Comair will

have quicker, more reliable access to

information about all aspects of our

crew operations,” said Pat Ryan,

director of crewmember services.

“Partnering with Sabre Airline

Solutions will have a positive impact

on daily operations at Comair,

providing us with improved opera-

tional reliability while maintaining

a level of cost effectiveness that

a carrier our size needs.

“We expect Comair to benefit

from the increased operational flexi-

bility granted by the proven system,”

he said. a

capacities of more than 760 passenger air-craft. Together, the alliance’s network compris-es 523 destinations in 103 countries on fivecontinents. Similarly, the SkyTeam Cargoalliance members combine to provide morethan 8,217 daily flights serving 512 destina-tions in 114 countries using more than 1,200aircraft. Also, by seamlessly coordinating theirnetworks, alliances can drastically reduce theamount of time — in some cases by severalhours for an urgent delivery — required totransport freight.

Joining an alliance “will lead to exten-sive advantages for our customers andstrengthen our market position into the

future,” said Peter Grølund, general manag-er of SAS Cargo, when WOW was launched.“A stand-alone model is no longer sustain-able if we are to offer customers the ser-vices they demand.”

Although they are relatively new, andinclude just a handful of members, the glob-al cargo alliances will have a dramatic impacton how freight is transported. Airline indus-try observers say they expect the cargoalliances to grow and new alliances to formin the coming years. The current alliancesthemselves still have plenty of room to grow.WOW, for example, currently lacks a NorthAmerican partner. And neither WOW nor

SkyTeam Cargo has a member from SouthAmerica or Africa.

Several large cargo airlines, includingAmerican Airlines Cargo, United AirlinesCargo, British Airways World Cargo as well ascargo-only airlines such as Polar Air Cargo,continue to keep their options open. Some air-lines have remained on the sidelines due tothe degree of integration required by member-ship in a successful cargo alliance.

Despite such gaps, the cargo alliancesrepresent a response to the demands of thecurrent marketplace. By providing extendedglobal networks that can better handleexpress shipments and by utilizing the net-

industry industry

Rapid recovery — Crew schedulers candevelop a solution quickly, resolvingboth pairings and crew, and then targetthe most efficient resolution to a particu-lar type of disruption.Cost savings — Disruption-related costs,such as lost short-term revenues causedby cancelled and delayed flights anddecreased customer satisfaction andloyalty that may have a long-termimpact on an airline’s brand, can beminimized through efficient disruptionrecovery.Smart integration — While offeringdirect integration with other products inthe Crew Management Suite, DisruptionControl can also interact with other crewoperations systems.Efficient deployment — UtilizingDisruption Control, crew schedulers cananalyze various solutions as scenariosprior to implementation, ensuring that a solution adequately addresses thedesired needs without causing additionalproblems to crew operations.Cross-functional integration —Integration with other Sabre AirlineSolutions recovery products providesairlines with the necessary tools to produce recovery solutions in the areasof crew, aircraft and passengers.

features

Automated solutions — Once a crewtracker receives updated flight informa-tion, Disruption Control provides anautomated solution to a particular disruption based on data provided by the crew tracker.Deadheading or positioning of crew —The system considers all flight legs avail-able for deadheading, utilizing a uniquedeadhead-selection logic to select a subset of all deadheads to be includedin the development of a solution.Graphical user interface — The system’suser-friendly interface enables a crewtracker to quickly create a solution scenario by specifying the inputs andrecovery parameters, which control thetype of crew and flights chosen for thesolution.Recovery parameters — With the recovery parameters defined, the systemprovides a list of affected and candidatecrewmembers, which can be reviewed bythe crew tracker to determine whether toinclude or remove crew from the solution.Multiple scenarios — At any time, therecovery parameters can be changed in Disruption Control so an alternative solution can be considered. a

product

Sabre ® AirCrews ®

Disruption Control

descr ipt ion

AirCrews Disruption Control is an

industry-leading system designed to

help airlines overcome crew schedule

disruptions quickly so crewmembers

are able to return to regular operations

with minimal schedule interruption.

benef i ts

The system lessens the economic impact

of unexpected costs to airlines and

prevents significant revenue loss during

times of irregular operations. By integrating

the capabilities of Disruption Control with

those of the Sabre ® AirCrews ® Crew

Management Suite or the Sabre ® Flight

Control Suite, the system provides several

benefits enabling airlines to competently

manage both flight schedule and crew

disruptions:

News on New and Improved Productsand Services from Sabre Airline Solutions

hightech

The world’s top 50 cargo airlines

transported 125,299 million freight ton

kilometers in 2003, of which 95,010

million FTKs were handled by the top

20 cargo airlines.

The top 20 airlines for internationalfreight traffic in 2003.(in millions of scheduled freightton kilometers)

1. FedEx 13,3202. Lufthansa 7,2603. Korean Air 6,8964. UPS 6,7325. Singapore Airlines 6,6816. Cathay Pacific Airways 5,1977. Air France 4,8758. China Airlines 4,7279. EVA Air 4,71310. Japan Airlines 4,38811. Cargolux 4,34812. British Airways 4,19413. KLM 4,08514. Northwest Airlines 3,00115. Emirates 2,58616. Asiana 2,56617. American Airlines 2,55518. United Airlines 2,38819. Nippon Cargo 2,32120. Air China 2,177

Leading Cargo Airlines

Source: International Air Transport Association

industry

ascend 27

Phot

o co

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new

orld

Photos courtesy of SkyTeam

Photos courtesy of Star Alliance

T he past decade has seen the rise of the major international airline alliances —

Star Alliance, oneworld and SkyTeam. From the start, alliances have offered

their members key benefits, such as the ability to offer customers access to more

destinations around the world and the ability to redeem frequent flyer miles on a

number of carriers.

Certainly, the alliances have already had a significant impact on the industry and will

likely continue to do so in the future. Ascend magazine asked representatives of the

three main alliances to answer a few questions about the affect they’ve had, and the

changes they will continue to make.

Spanning the Globe

as in raising revenues, and we know there ismore work we can be doing in this arena.Star Alliance: Emerging technologiescontinue to play an important role.

For example, together with three of ourmember carriers, we are working on a com-mon IT platform project that will revolutionizethe industry by replacing current systems withone technology platform based on industry-leading products and state-of-the-art technolo-gy for passenger services systems. The initia-tive will have the flexibility to admit othermembers of the Star Alliance network at alater date. Driving the effort is the desire toimprove customer service, significantly lowerdistribution costs and dramatically increasethe speed of delivering new products to market.

We’re also developing Star Alliance self-service check-in units and will be launchingtrue multilateral interline electronic ticketing —a product that features common and sharedbusiness processes and messaging verses amyriad of bilateral solutions — in 2004.

Overall, Star Alliance views technology as keyto putting customers more in control of theirtravel experience and airlines more in controlof their passenger boarding costs.

Additionally, Star Alliance is looking atother initiatives to reduce costs for the mem-ber carriers, including managing the purchaseof commodity items.Q: Is membership in an alliance key to sur-

vival for the existing traditional carriers?

oneworld: Carriers — and not just legacycarriers — are certainly recognizing the bene-fits that come from being a member of analliance.

Today, 19 of the world’s 20 biggest air-lines are already part of one of the big threegroupings or talking about joining. Smaller air-lines, too, have seen what a global alliance cando for them.

But, of course, becoming a member of analliance cannot in itself be the key to survival.It can certainly help, but airlines must also ensuretheir own houses are in order if they are to prosper.

Star Alliance: Membership in analliance is an important strategy for traditionalcarriers; indeed it is a key element in their tran-sition to new, more profitable business mod-els from both a revenue and cost-saving per-spective.SkyTeam: Airline alliances are key to pro-viding customers with the most travel options.For a traditional hub-and-spoke airline to bestserve its customers, global alliances open theworld for travelers and allow them to offermore destinations and greater frequencies.Q: How does your alliance differ from the

other two?

SkyTeam: SkyTeam is the youngest ofthe global airline alliances, having formed in2000, but has the most momentum. This fall,we added three new carriers — ContinentalAirlines, KLM Royal Dutch Airlines andNorthwest Airlines — resulting in a new nine-member alliance.

In addition, we differentiate ourselvesfrom other airline alliances with our emphasis

industry

ascend 29

Question: What are the advantages of

being a member of your alliance?

Star Alliance: On the customer side,member airlines can significantly enhancetheir product offering by providing access toan unsurpassed global network of over 14,000daily flights to 755 destinations in 132 coun-tries, better flight connections, alliance-widefrequent flyer benefits, lounge access and pri-ority baggage.

For the member airlines, the improvedoffering brings more passengers and gener-ates more revenue.

Additionally, Star Alliance has initiated avariety of projects — in areas such as fleetcoordination, the joint purchasing of mediaadvertising, third-party services and fuel aswell as the collocation and consolidation offacilities at airports across the network — thatreduce costs for member carriers. We havealso generated savings as the result of infor-mation technology sourcing via alliance-wideframe agreements for high-cost IT spenditems such as wide area network services andtechnology platforms.oneworld: oneworld provides our mem-bers with benefits and value that no airline canprovide or achieve on its own or working bilat-erally with other carriers.

This flows from the opportunity toincrease and protect revenues through theadditional services and products oneworldenables them to offer — a wider route net-work, and more opportunities for frequentflyer program members to earn and redeemrewards, use lounges and enjoy priority ser-vice in more parts of the world, etc. It alsocomes from fare products and sales offeringsthat no single airline can offer on its own.

Added to that are the substantial oppor-tunities we have provided our partners toreduce their costs.

Members of oneworld have generatedadditional value totaling many billions of U.S.dollars under the alliance’s umbrella.

With margins in this industry so tight,that’s more than a welcome contribution.SkyTeam: SkyTeam is designed for thepassenger from the ground up, with anexcellent core network and the best growthpotential of any alliance. Membership inSkyTeam will present an airline with signifi-cant opportunities, including an enhancedposition in response to competitive challengeswithin its region of the world and develop-ment of global cargo service. In order to sat-isfy the needs of today’s traveler, airlinesmust continue to extend and diversify their

products and services. SkyTeam will providecustomers with the benefits and advantagesthey want.Q: You’ve already achieved many benefits

from partnering, such as expanding the

reach of member airlines and sharing fre-

quent flyer programs. What untapped ben-

efits can be gained as your alliance contin-

ues to evolve?

SkyTeam: We are developing a strategicplan that includes many areas of cost syner-gies, including co-locations at ticket officesand within airports and joint purchasing of air-craft components and fuel. SkyTeam has ten-dered 40 joint fuel purchases during the lastthree years.

We are looking at joint aircraft purchasesas part of our long-term fleet strategy anddeveloping strategic specifications.

oneworld: Global alliances were createdoriginally as marketing and sales tools for air-lines to help partners increase and protecttheir revenues by providing additional servicesand products to their customers.

The potential of alliances to help reducecosts only came to the forefront during themarket softening ahead of 9/11. Since then,there has been as much of a focus, or evenmore, on how airlines can improve their effi-ciency by working together.

We’ve made some impressive strides inthis direction, saving hundreds of millions ofU.S. dollars through joint purchasing of itemsranging from fuel and aircraft spare parts totowels and plastic glasses and by cooperatingin many other areas.

We feel there is as much scope to con-tribute on the cost-savings side of the equation

industry

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Possessing more international

presence than any other global

alliance, oneworld serves a total

of 135 territories, offering its

travelers a 575-destination network

with access to nearly 400 airport

lounges worldwide.

The 15 members of the Star Alliance,

which was formed in 1997, provide

access to 772 airports in 133 countries

as well as 575 lounges around the world.

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systems. This is a mandatory requirement ofmembership as it to enables carriers deliverthe oneworld customer proposition.

Consistent delivery of customer service(customer recognition, seamless journey andtransfers, global support, more opportunitiesfor frequent flyer program members to earnand redeem miles, etc.) is seen as an impor-tant oneworld differentiator.

An example of how well our systemsconnect is that oneworld will be the first ofthe global alliances to offer interline e-ticket-ing between all partners, on track for com-pletion by the end of this year, far ahead ofour competitors.SkyTeam: Currently, our IT systemsare integrated to allow our passengers toaccrue frequent flyer miles on everySkyTeam coded flight and redeem mileagefor awards on any SkyTeam operated flight.In addition, our systems are enabled for a

single check in, meaning passengers receiveboarding passes and baggage transfers formulti-leg international itineraries at the startof their trips.Star Alliance: From the outset, it wasclear to Star Alliance that developing count-less bilateral connections among the mem-ber carriers’ varying IT systems would not bean efficient solution. Instead, we opted toseamlessly integrate business functionalitieswithout conducting system integration. Forthis, Star Alliance developed StarNet, a mid-dleware platform and network infrastructurethat connects key member carrier systems.StarNet, in addition to providing the basicssuch as through check in across the alliance,enables Star Alliance to provide flight infor-mation on any member carrier’s flight atcheck in, and it also allows customers tobook award travel on any member carrierwith one phone call.

Q: As airlines continue to automate, what

plans do you have for increased future inte-

gration of IT systems among your member

airlines?

Star Alliance: The common IT platform,as was mentioned before, will be a breakthroughin this area, and each carrier will have the optionof participating in the future. Additionally, wewill continue to develop and leverage StarNetto deliver new products and services to thecustomers and our member airlines.oneworld: While using a single platformcan deliver advantage by making it simpler todevelop common business processes, whereappropriate, and a consistent approach todelivering the customer proposition at thesame time facilitating quicker and less costlyfunctional changes, the cost of moving plat-forms, in terms of business change apart fromanything else, is very significant and notundertaken lightly. Over time, we anticipatemore convergence to take place as opportuni-ties present themselves.SkyTeam: Right now, SkyTeam isfocused on ensuring that passengers of ourthree newest member airlines, Continental,KLM and Northwest, receive all of our 10 cus-tomer benefits. As part of the new memberintegration process, all carriers are investigat-ing ways to collaborate further. For example,SkyTeam intends to start interline electronicticketing next year to customers traveling viaany member airline.Q: How has your alliance transformed since

it began?

SkyTeam: Since SkyTeam’s launch four

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Jet Airways

What

In a move to modernize its operational

systems, the airline selected the

Sabre ® AirOps ™ Suite, which is

designed to monitor daily flight

movements and assist operations

controllers in making informed

decisions regarding all aspects of

flight operations. The suite will

enable the airline to drive improve-

ments in on-time performance,

maintenance and disruption costs.

Why

“There is no doubt flight operations is

mission critical,” said Peter Luethi,

chief operating officer for Jet Airways.

“It is a particularly pertinent issue for

Jet Airways as we face the unique

challenge of regular fogs in Delhi,

India, every year for two months;

hence, it is imperative that we have

the best tools available to manage

our flight operations. To meet

our growing needs — and also for

international routes — we realized we

required a robust, integrated solution

that is proven in the marketplace,

and the AirOps suite met all our

criteria.” a

industry

on passenger services and benefits. SkyTeamis the first alliance built around customerneeds. SkyTeam has the best hubs in key mar-kets where 80 percent of the world’s trafficflies: Atlanta, No. 1 in the world; Paris-Charlesde Gaulle, No. 1 in Europe; Incheon, the onlyAsian hub with room to grow; Mexico City, No.1 in Latin America; and more importantly, cus-tomers are able to earn and redeem frequentflyer miles on any SkyTeam operated flight.Star Alliance: Overall, the StarAlliance network features more flights, tomore destinations, more often. We have alsoled the way in developing products that easetravel for international passengers. All of thisled to Star Alliance being voted the best airlinealliance in 2003 by customers, in a SkyTrax pollof more than 30,000 frequent flyers, as well asby influential publications Business Travelermagazine (United States) and BusinessTraveller magazine (United Kingdom).

Being founded more than seven yearsago, Star Alliance has accumulated a wealth ofexperience, which has transformed it into amore mature and effective organization. Infact, a dedicated project and brand manage-ment organization has been installed inFrankfurt, Germany, to coordinate and supportmember carriers in the development and deliv-ery of new products, services and a host ofcost-saving initiatives.oneworld: It starts with the quality of ourmembers. We believe we have the highestquality carriers in each region on board — interms of their customer service and overallsoundness.

How can we justify that bold claim? It isa fact that oneworld was the only alliancewhose members collectively reported profitsfor 2003.

Our partners also regularly win moreawards than their counterparts in the othertwo groupings combined. For example,oneworld members accounted for four of thesix 2004 Airline Strategy Awards presented inJuly by leading industry magazine AirlineBusiness. The top prize, for executive leader-ship, has remained since its inception in 2002in the hands of oneworld partners. Our eightcarriers took five top places in the 2004 OAGAirline of the Year Awards.

These and the other awards oneworldcarriers have won are a reflection of the excel-lent customer service and value they offer —from the flat beds most of them provide intheir long-haul premium cabins to the attrac-tive fares they market.

They also work well together as an alliance.

The oneworld alliance itself was namedthe World’s Leading Airline Alliance in themost recent World Travel Awards, whichdescribes itself as the travel industry’s No. 1awards scheme, based on votes cast by80,000 travel agency professionals from morethan 200 countries.

The oneworld alliance offers a widerrange of alliance fares than all the competitioncombined, earning hundreds of millions ofU.S. dollars a year for our partners.

We are committed to customer serviceleadership and innovation. We are on track tobe the first alliance with interline e-ticketingamong all member airlines by the end of 2004,providing greater convenience to our cus-tomers and saving scores of millions for ourmember airlines.

A number of the benefits that we’vehad in place since the launch of our alliancemore than five years ago have only recentlybeen offered by our competitors.

We are now looking further ahead at how we can work together to make

journeys across our alliance networksmoother still.

We are also different in our overallmembership philosophy. We are not just par-ticularly choosey about who we invite to join,but we are also determined to keep the num-bers of our partners to a manageable numberof high-quality carriers who can work welltogether.

This all results in financial contributionsto our members that, we believe, stand anycomparisons with our competitors.Q: How extensively are the IT systems of

your member airlines integrated?

oneworld: Five oneworld carriers (BritishAirways, Qantas, Iberia, LAN and Finnair) areconverging around a single passenger servicesystem while American Airlines is hosted onanother and Cathay Pacific and Aer Lingusmaintain their own in-house PSS systems.Comprehensive links have been developedbetween these platforms and among the carri-ers’ in-house revenue accounting, frequent flyerprogram management and business intelligence

industry

ascend30

With the entrance of newcomers

Continental Airlines, Northwest

Airlines and KLM, the SkyTeam

alliance serves 341 million passengers

a year to 658 global destinations

in more than 130 countries and

provides access to almost 400

lounges worldwide.

The “Star Alliance Visit Japan Campaign,”

launched earlier this year, has helped

boost travel to Japan by about 30 percent

year over year.

Star member All Nippon Airways earlier

this year received its first Boeing 777-300ER,

the first ANA aircraft to have mobile Internet

and e-mail service.

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one of the country’s most affluent regionswith promising growth opportunities. As ChinaSouthern’s main base, Guangzhou is also a keytransportation center in southern China. Thenew Guangzhou Baiyun International Airport,which opened earlier this month, will comple-ment SkyTeam’s strong hub network and fur-ther expand the alliance’s Asian offerings.China Southern is also preparing a new facilityin Beijing to serve customers.

Last year, SkyTeam announced that it isdeveloping an associate member concept thatwill allow smaller, regional carriers to join theSkyTeam network and provide customers withaccess to even more destinations around theworld. As we finalize this concept, we willhave several associate members to announce.Q: What criteria do you use to determine

which new carriers to invite to join your

alliance?

SkyTeam: As with all decisions, newmember invitations are discussed among theGoverning Board and agreed upon by unani-mous consent. Each new member must meeta stringent set of requirements prior to receiv-ing an invitation for membership.Star Alliance: They must be qualitycarriers with outstanding safety and servicereputations that enhance our network, productand service offering.oneworld: Any new recruit has to pass sixmembership benchmarks. They must:

Broaden and deepen our alliance’s networkin strategic world regions,Offer a high-quality product and service

levels consistent with the existing oneworldmembers,Enjoy strong brand awareness,Maintain high operational standards,Add value to both the alliance’s customersand its existing partners,Contribute positively to oneworld’s “man-ageable nature.”

Q: How involved is the process of joining

your alliance?

oneworld: Once it has been elected onboard as a member designate, any new recruitmust be able to offer the full range ofoneworld services and benefits before it canjoin. What this involves is spelled out in whatwe call our delivery requirements document.

One of our existing carriers will act as asponsor, to provide guidance and assistance tothe new recruit in this process, with our cen-tral alliance team supporting the overall pro-gram.

How involved this all is depends on howaligned the new recruit is with oneworld’s poli-cies, procedures and processes.SkyTeam: SkyTeam membershiprequirements comprise numerous factorsincluding customer service, safety levels andtechnology adaptability. All new membersmust live up to the alliance’s customer servicestandards and provide a consistent, high levelof quality for their passengers everywherethey fly.Star Alliance: There are a number oftechnical requirements that must be met;however, as agreed with our member carriers,

details on matters of governance cannot bedisclosed.Q: Are the current alliances the first step

in a worldwide airline consolidation?

Star Alliance: The benefits that comewith membership in an alliance, both in termsof increased revenue and reduced costs, cre-ate significant value and reduce the need forconsolidation.oneworld: Undoubtedly. But alliances willstill be able to provide big, consolidated air-lines with benefits and value that they cannotachieve on their own — the ability to workwith other carriers to earn more revenue andreduce costs.SkyTeam: There are several political andeconomic hurdles that must be resolvedbefore industry consolidation can occur.Alliances, however, provide the benefits ofcooperation by allowing members to improvetheir market positioning, reach new destina-tions, enhance customer service and enjoycost savings and knowledge sharing.

Yet, an alliance is only as strong as itsmembers. SkyTeam continues to move for-ward, generating great value for our cus-tomers and member airlines.Q: Do you anticipate any low-cost carriers

will ever join one of the existing major

alliances?

SkyTeam: A key element of theSkyTeam global network is the hub-and-spoke system, which provides unparalleledconnectivity and an outstanding method forcustomers to travel using members of the

industry

ascend 33

years ago, the alliance has shown significantgrowth. During this growth period, we havemaintained our customer focus by expandingflight options through our strong network of airport hubs, providing exclusive services to recognize frequent business travelers and make them feel special, and enhancingthe quality of service across all its member airlines.Star Alliance: We have grown as anetwork, maintained our position of leadershipin the industry and matured as an organization.As a result, we can more quickly develop newproducts while at the same time reap the bene-fits of synergies and resulting cost reductions.oneworld: We’ve doubled in size — ourfounding four members have been joined byfour others.

At the same time, our focus hasexpanded to many areas beyond the servicesand benefits we offer to passengers as ourmembers have rightly wanted to increase thevalue they gain from the alliance.Q: How does the current international reg-

ulatory environment affect the continued

development of alliances?

oneworld: Judging by some of their rul-ings on alliances recently, the regulators seemto take on board more nowadays the benefitsthat alliances can offer customers. The keyissue here is that all alliances are treated fairlyand equally.

SkyTeam: SkyTeam members have acommonly held position about the necessity tohave a unique set of rules pertaining to openskies. How the rules are applied is key. As analliance, we need to maintain the current openskies agreements.Star Alliance: The Star Alliance net-work has always operated successfully withinthe regulatory framework of the various agen-cies across the globe and will continue to doso in the future.Q: What are your plans for future expan-

sion — do you plan to invite new airlines

into your alliance?

Star Alliance: We continue to evalu-ate our network and hope to expand it in thoseareas of the world where we feel the need forgreater presence. With the integration of bothSouth African Airways and TAP Air Portugal in2005, we will substantially improve the qualityof our network, especially in Europe, Africaand Latin America, and offer a total of morethan 15,000 daily departures to 833 destina-tions in 152 countries. By implementing ourregional member concept, Star Alliance willfurther enhance its network presence intomore markets. This will occur in Finland onceour first regional carrier, Blue1, joins. Ofcourse, both China and India remain as two ofthe key markets that are of great interest to us.oneworld: Where they can add benefit toour customers and existing members, we will

certainly invite airlines to join us. Our member-ship door is very definitely not closed.SkyTeam: Because SkyTeam’s missionis driven by customer needs, we continue toconsider a select number of airlines that willexpand the reach and benefits for our cus-tomers around the globe.

As mentioned above, this fall, we addedthree new carriers — Continental Airlines,KLM Royal Dutch Airlines and NorthwestAirlines.

In May, SkyTeam signed an agreementwith Aeroflot as a preliminary step in the newmember process. The agreement outlinesAeroflot’s intentions to undertake exclusivediscussions to become a part of SkyTeam. Inthe last five years, Aeroflot has made signifi-cant progress as far as its Russian domesticnetwork, renewal and improvement of itsfleet, its in-flight product and hub at MoscowSheremetyevo. Today, Aeroflot is undergoinga process that will ensure it will meetSkyTeam requirements in terms of quality ofservice and organization so that it can effec-tively join our alliance.

In August, SkyTeam signed an agree-ment with China Southern Airlines, laying thegroundwork for the airline to officially join thealliance — an event to occur once ChinaSouthern fulfills SkyTeam’s requirements forquality standards. China is one of the fastestgrowing aviation markets and Guangzhou is

industry

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Korean Air

What

Selected the Sabre ® AirCrews ® Crew

Management Suite to improve cabin

crew efficiencies and support end-to-

end crew management needs as a

part of an “innovative excellence”

strategy. During the last six years, the

airline has relied on the tracking and

scheduling capabilities of the suite to

help manage its cockpit crew. Utilizing

the entire AirCrews suite will enable the

carrier to effectively manage all

aspects of its crew management

operations.

Why

“The AirCrews suite has delivered

excellent results in the management

of our cockpit crew, from long-term

crew resource planning through day-

of-operations crew tracking,” said

S.M. Lee, vice president of information

technology for Korean Air. “With the

AirCrews suite, we can always be sure

of the efficient deployment of crew at

the minimum cost while maintaining

flight reliability and schedule integrity.

“By extending the AirCrews

suite to our cabin crew, we will be

able to further improve operational

efficiency and lower crew-related

costs,” Lee continued. “Our staff will

greatly benefit from the technology

from Sabre Airline Solutions, including

innovative tools like team rostering

and the Sabre ® AirCrews ® Crew

Connection. The technology will also

act as a catalyst for us to continue our

quest for innovative excellence.” a

The three main global airline alliances, together, comprise more than

35,000 daily departures — oneworld with 7,526, SkyTeam with 14,320

and Star alliance with more than 14,000.

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same alliance from their departure city to anylocation in the world. A majority of theworld’s low-cost carriers focus on point-to-point travel and thus would not enhance ourglobal network. However, several membershave relationships with low-cost carriers,and those relationships benefit our passen-gers since most are both business andleisure travelers.Star Alliance: The business modelsand product lines of network carriers andlow-cost carriers are not compatible, particu-larly when you consider that global accessand network connectivity are fundamentalparts of our business.oneworld: They already have.

Aer Lingus has transformed itself into alow-cost carrier since it joined oneworld fouryears ago. The no-frills subsidiaries of someother legacy carriers who are members of othergroupings are also affiliates of those alliances.

Some low-cost carriers offer a betterlevel of service and network than some oftheir traditional counterparts. As they grow fur-ther, more are likely to see that global alliancecan provide them with benefits while stillenabling them to maintain their cost focus.Q: Do you think the membership of

alliances will remain stable for the most part,

or do you ever expect to see movement of

members from one alliance to another? Is

there anything to prevent member airlines

from moving to another major alliance?

oneworld: Companies in shipping formedalliances long before airlines. That industry hasshown that the more members you have in analliance, the less stable it becomes. That isone reason why oneworld has maintained ourmembership at manageable levels.

Some alliances have already lost mem-bers. For example, Canadian Internationalwas forced to leave oneworld when the airline

was taken over by Air Canada. So there may well be some further movement, but thecore membership is likely to remain stable.SkyTeam: Members of the SkyTeamalliance have strong ties with each other, andmany member carriers have relationships witheach other that have spanned decades, datingto before the alliance was formed.

The foundation of a successful allianceis its ability to maximize and maintain benefits

for member airlines — helping membersoffer a better product for their customers,develop their business, benefit from costsavings, etc. During the past four years,SkyTeam has proven its ability to do justthat, making it an attractive allianceprospect for many carriers. As stated previ-ously, SkyTeam continues to consider newmembers in key regions, such as SoutheastAsia and South America. In addition, the

alliance is implementing an associate member program and expects to announcethe first SkyTeam associate members next year.Star Alliance: A membership in StarAlliance needs to be a win-win situation forthe carrier and the alliance as a whole. Inother words, as long as a member carriersees the value of being in the alliance, therewill be no need to move elsewhere. a

ascend 35

industry

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoAir Andaman

What

Selected the SabreSonic ™ Passenger

Solutions to power its regional growth

strategy by providing a reliable,

scalable and flexible information

technology solution that will enable

the carrier to adapt quickly as its

business model evolves.

Why“In the first year of operation, Air

Andaman is expecting significant pas-

senger volumes due to interline and

codeshare partnerships we have

established, and we are forecasting

significant year-over-year growth in

passengers boarding,” said Dean

Mills, president of Air Andaman.

“To support this future growth, we

selected the SabreSonic solutions as

it is a best-of-breed solution with the

most advanced functionality of any

on the market. We recognize that the

reservations and departure control sys-

tems are the core of all our opera-

tions, and we’re confident the

SabreSonic solutions will help us

reduce operational costs, improve

efficiency and enhance our customer

service.” a

Finland’s Blue1 will become

the first regional carrier to join

the Star Alliance thanks to spon-

sorship by its parent company,

SAS, a current member

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Cathay PacificHong Kong

LOT Polish AirlinesWarsaw, Poland

British AirwaysLondon, England

Aer LingusDublin, Irelannd

FinnairHelsinki, Finland

American AirlinesFort Worth, Texas, USA

Air New ZealandAuckland, New Zealand

QantasSydney, Austrlia

AlitaliaRome, Italy

Scandinavian AirlinesStockholm, Sweden

Thai AirwaysBangkok, Thailand

Singapore AirlinesSingapore, Singapore

All Nippon Airways (ANA)Tokyo, Japan

AustrianVienna,Austria

SkyTeam

Star Alliance

oneworld

IberiaMadrid, Spain

Air France-KLMParis, France and Amsterdam,

The Netherlands

Northwest AirlinesSt. Paul, Minnesota, USA

CSA Czech AirlinesPrague, Czech Republic

Continental AirlinesHouston,Texas, USA

industry

LANSantiago, Chile

AeroméxicoMexico City, Mexico

Delta Air LinesAtlanta, Georgia, USA

Korean AirSeoul, South Korea

United AirlinesChicago, Illinois, USA

Air Canada Montreal, Quebec, Canada

US Airways Arlington, Virginia, USA

VARIGRio de Janeiro, Brazil

bmiDerby, United Kingdom

LufthansaFrankfurt, Germany

SpanairPalma de Mallorca, Spain

Asiana AirlinesSeoul, South Korea

Members of oneworld, SkyTeam and Star

Alliance have headquarters in 32 cities

around the world.

+count it up1942 — Year Ellen Church became the world's first flight attendant. Prior to becoming a flight attendant for United Airlines,

Church served in World War II as an on-board nurse, providing medical care for wounded soldiers.

An Allied Front

ascend 37

A Conversation

With … Geoff Dixon,

CEO Qantas Airways

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I n the past few years, airlines around the world have increasingly

worked together to expand their reach and provide additional

services for customers. From basic codeshare agreements through

its more extensive airline association with oneworld, Qantas has

formed relationships that enable it to increase revenues as well as

customer service.

and different operating environments?A: This was really not as difficult as it mightappear. By operating as a small, cohesivegroup, oneworld is able to operate by consen-sus while striving for enhanced services andcustomer benefits collectively. New membersare unable to enter oneworld unless they canmeet all of the alliance’s deliverables immedi-ately, which offers a highly effective serviceguarantee. Q: What kind of standards and contractu-al requirements are involved with formingan effective alliance?A: To become a member of oneworld, youmust meet set standards and requirements. Ifyou can’t, you are not admitted. This givesoneworld very solid performance platforms.Q: What role does technology play in integrating the alliance members? Howimportant is it for partnering airlines to usesimilar information technology?A: It is not necessary to achieve completeintegration of members’ IT platforms, but IT is an important part of customer service deliv-ery and continues to be a strong focus of the alliance. Technology has produced defini-

tive enhancements like e-ticketing andQuickCheck self-service kiosks as well as pro-ducing cost savings and additional customerservice benefits.Q: How has the oneworld alliance evolvedover the years?A: The oneworld alliance has grown froman already strong base involving partnerswith a clear understanding of how thealliance would work, and this path has beenadhered to throughout its history. Thealliance began with four airlines and has nowgrown to eight.Q: Where do you see the alliance going in the future? Will the alliance expand further? How do you think alliances willshape the future of the industry and serveas a possible foundation for consolidation?A: China is an obvious area for expansion.There may be other opportunities else-where. However, any new membershipmust enhance the alliance before it will beaccepted.

Structurally, the airline industry isheading toward consolidation. However, thepace has been slower than many of us would

like, and global alliances have been a veryeffective mechanism for bringing airlinestogether in the interim. How the alliancesrespond as airlines begin to integrate theiractivities more fully is one of the challengesthey will face. Q: Airlines also have relationships withvendors, service providers, distributionpartners. How important and strategic arethose relationships? A: All of Qantas’ business relationships are,of course, very important to us, and we try toachieve mutually beneficial outcomes with allof our service providers and clients.Q: What advice would you give to airlineexecutives who are considering joining analliance?A: It is vital to adequately explore whatalliance will suit their company’s objectives byanalyzing the real substance of the allianceand ensuring this matches their individualgoals. Alliances do deliver significant benefits,but new members need to ensure their busi-nesses are prepared to commit the resourcesand time that alliances need to make themtruly effective. a

As the world’s second oldest airline,Qantas is no stranger to forming strategicalliances. In fact, as far back as 1931, Qantasformed its first link — with Imperial Airways, apredecessor of British Airways — when it car-ried mail to Darwin as part of an experimentalAustralia-United Kingdom service.

In recent years, Qantas has continuedto leverage the benefits of strategic alliances.In 1998, Qantas teamed with AmericanAirlines, British Airways and Cathay PacificAirways to launch the oneworld alliance,which today also includes Iberia Líneas Aéreasde España, LAN, Finnair, Aer Lingus and 17related regional carriers. Through the alliance,Qantas provides its customers access to morethan 575 destinations around the world, morethan quadrupling the 138 destinations Qantasoffers alone.

Qantas, recently named the best airlinein the Asia/Pacific region at the 2004 OAGAirline of the Year Awards, has also looked tostrengthen ties with its trans-Tasman counter-part, Air New Zealand.

Geoff Dixon, who was named chiefexecutive officer of Qantas in March 2001,has been at the airline since 1994 and in histenure has had responsibility for all commer-cial activities, including worldwide sales andmarketing, network development, revenuemanagement, fleet planning, cabin crew,customer service, product development andairline alliances. He recently discussed

Qantas’ perspective on how alliances haveimpacted, and will continue to affect, his air-line and the airline industry.Question: As a founder of theoneworld alliance, what led Qantas to joinforces with other airlines?Answer: Entry into the oneworldalliance followed naturally from Qantas’deepening bilateral relations with fellowoneworld founding members British Airwaysand American Airlines.

To meet Qantas’ aspirations as a globalairline, it was important to explore the oppor-tunities offered by a global alliance with strongpartners.Q: How have you been able to measurethe success you’ve gained by joining theoneworld alliance? How has the oneworldalliance strengthened Qantas?A: The oneworld alliance has become estab-lished as the premium global alliance, andQantas has benefited from this through bothbilateral and multilateral partnership arrange-ments under the oneworld umbrella.Q: Where do you believe your airlinewould be today if it had not joinedoneworldA: Clearly, Qantas would have looked at otheralliance opportunities. But we are very happywith the decision we made. The oneworldalliance has been good for Qantas and so, Imight add, has Qantas for oneworld.Q: What are some of the greatest chal-

lenges you face with your fellow alliancemembers? How are you resolving them?A: The aviation sector as a whole is facingrapid and sustained change and there aremany challenges for the industry. Externalevents including Sept. 11, severe acute respi-ratory syndrome, Iraq, threats of terrorism,high fuel prices, and the continuing impact andthreat of low-cost carriers are all significantchallenges to be faced both as individual air-lines and collectively by alliance groups.Airlines must be progressive and innovative to meet and overcome these challenges. Akey objective is to increase efficiency andreduce costs.Q: In what ways are you integrated withthe other oneworld carriers? Do you fore-see the alliance becoming more integratedin the future?A: Of all the alliance groups, oneworld hasplaced a lower priority on integration, prefer-ring multilateral solutions only when they addvalue and placing greater emphasis on bilater-al and inter-carrier relationships.

A key factor in the success of oneworldis the maintenance of members’ individualentities. The alliance remains a grouping ofeight successful airlines focused on growingtheir own networks and meeting their cus-tomers’ requirements successfully.Q: How difficult was it to form an allianceinvolving carriers from different countriesfacing different government regulations

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Commissioner for Transport and Energy andthe Commissioner for Competition at theEuropean Commission.

Influence Airport and Aircraft ManufacturersIn recent times, Ryanair has stated that itsfuture aircraft might not have window blindsor seats back pockets and that its seats mightnot recline. It has also suggested that passen-gers might not be allowed to check in luggage.While some of these statements by Ryanairare made to highlight its low-fare image, oth-ers are quite real and could be leading indica-tors of aircraft to come. Although ELFAA hasnot stated this explicitly in its charter, it couldalso work collectively to influence the futuredesign of aircraft and airports to better suit thelow-fare operating model.

ELFAA may also work to influence air-ports. Singapore recently announced that itwould build a separate low-fare airline terminalto support the growing popularity of the seg-ment in the Asia/Pacific region. WhileSingapore is the first to announce this publicly,a number of European airports are seriouslycontemplating a similar move.

Treatment of Air TravelLow-cost carriers are responsible for a mas-sive shift in the way people view air travel. Nomore is it only for those who can afford to paymore to get somewhere faster; it is simply away of getting from point A to point B — amode of transportation that everyone can rea-sonably expect to take several times duringtheir lives. The ELFAA, therefore, contends

that governments and other regulatory author-ities should treat air travel like any other modeof mass transportation — such as buses, fer-ries or trains. ELFAA sites the recently pro-posed passenger compensation legislation,which applies only to air transportation, andthe fact that governments subsidize a smallerpercentage of security costs for air transporta-tion than for other modes of mass transport astwo key examples of modal discrimination.ELFAA argues that these and other discrimina-tory practices put aviation at a competitive dis-advantage compared to other modes of trans-portation.

Certainly, a number of these issues are not unique to low-fare airlines. TheInternational Air Transport Association hasfiled similar complaints with the European gov-erning bodies; however, ELFAA argues eachaspect of a case with a particular focus on low-fare airlines. Some issues such as the passen-ger compensation legislation, the harmoniza-tion of pilot hours and the subsidies providedby publicly owned airports have an exaggerat-ed effect on low-cost carriers. For example,the fixed sum of money payable to passen-gers in the case of cancellations is significant-ly higher for low-fare airlines as a percentageof fare than it might be for other types of carriers. In some cases, this might even beseveral times more than the fare paid by thepassenger.

A natural question arising from suchissues is why don’t low-fare airlines bandtogether with IATA to tackle some of theseissues jointly? And, to a certain extent they do.But to a large degree, low-fare airlines do not

want to associate with IATA or any of its mem-ber airlines. In fact, forming ELFAA can beseen, in part, as a response to IATA — a wayfor low-fare airlines to legitimize their exis-tence with regulatory authorities as well asreinforce the idea that the low-fare airlines rep-resent the future of the industry and shouldhave a bigger role in shaping the legislationand mandates that govern the industry.

And therein lies the irony. If the low-farebusiness model is the way of the future, willall European airlines in five to 10 years be partof ELFAA? And over time, will the “E” inELFAA be dropped as the association extendsaround the world? Is this the next IATA? Forthose who think that notion is absurd, it shouldbe noted that the forerunner of IATA, theInternational Air Traffic Association, wasfounded in The Hague in 1919 as a solelyEuropean venture. (Pan American was the firstnon-European airline to join the association in 1939.)

No matter what the future may hold, itis likely that the 11 members of ELFAA willsoon be joined by several more and that as thelow-fare model proliferates to other regions ofthe world, ELFAA might evolve into a moreinternational organization.

Vinay Dube is vice president of the Europe,Middle East and Africa region for Sabre

Airline Solutions. He can be contacted [email protected].

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industry

Low-cost carriers, or low-fare airlines, arethe fastest growing segment of the airline

industry. According to some projections, suchairlines will carry up to 50 percent of all air traf-fic by 2010. Despite their robust businessmodel and extreme popularity with con-sumers, low-fare airlines have long believedthat government and air transport industry pol-icy makers have not acknowledged the centralrole they have played in the growth of air trav-el demand during the last five to 10 years. Infact, low-fare airlines in Europe believe thatrecently proposed legislation is overly punitiveto their business model and will be detrimen-tal to the development of a strong and com-petitive European aviation industry. Initially,European discount carriers tried to individuallyinfluence policy makers with little success,and they finally decided to band together tojointly command more clout and visibility.

In January, 10 European low-fare airlines formed the European Low FaresAirline Association to represent the specificviews and interests of its constituent airlines.Today, ELFAA has 11 member airlines fromnine European countries — Transavia/BasiqAir(Netherlands), Air Berlin (Germany), Sverigeflyg(Sweden), Volareweb (Italy), Flybe (UnitedKingdom), SkyEurope (Slovakia), Sterling(Denmark), Ryanair (Ireland), Hapag-LloydExpress (Germany) and WIZZ Air (Hungary) —carrying approximately 49 million passengers,or roughly 15 percent of all intra-European traffic.

While the organization is still in its infancy,it already has a clear set of policies and inter-ests that it lobbies for passionately.

Passenger Compensation LegislationThe European Union has passed legislation,which takes effect in February, that wouldforce all airlines to compensate passengers for

denied boardings, long delays and cancella-tions. The E.U. Regulation on Air PassengerCompensation requires airlines to pay a fixedamount to passengers — the cost of hotelaccommodations, meals, drinks, taxis, phonecalls, etc. — for cancellations, denied board-ings and long delays, even when the event isout of the airline’s control. ELFAA supportslegislation that benefits passengers but saysthe magnitude of the required compensationis disproportionate to the face value of thetickets and further complains about being heldaccountable for disruptions beyond airlines’control, such as weather or air traffic controldelays. Earlier this year, ELFAA filed a casewith the London High Court challenging thisregulation because it did not have the standingto refer the case directly to the EuropeanCourt of Justice. In July, the London HighCourt referred the case to the ECJ, which hasnot yet issued a ruling.

Incentives from Publicly Owned AirportsIn February, the E.U. commission ruled that nopublicly owned airport could provide incen-tives to attract traffic from other airports in the

larger catchment area. Regional airports allover the world have, for some time, providedincentives to attract airlines in a fairly unbiasedmanner — they are willing to offer incentivesto not just low-fare airlines but to any airlinewilling to serve the airport with a direct ser-vice. Airports offer such incentives based onthe idea that non-stop service is extremelyinstrumental in the economic development ofthe demographical area they serve. Incentivesattract airlines, therefore speeding up this eco-nomic development. ELFAA argues that theE.U. ruling is bad for the consumer and willeventually cause a sharp increase in fares toand from such airports.

Harmonizing Pilot HoursEarlier this year, an E.U. civil aviation proposalcalled for, among other things, the harmoniza-tion of pilot hours. The proposal limited flighttime and detailed requirements for rest andother safety and technical issues. ELFAA sup-ports proposals that make air travel safer, butit argues that these proposed changes do notincrease air safety but rather severely impactoperational efficiency. It has asked the regula-tory authorities to set standards that promotesafety and security but yet provide enoughflexibility to support multiple business andoperational models.

State Aid and Benefits for Flag CarriersELFAA is concerned that the national airlinesof Europe will receive state aid in a mannerthat is inconsistent with the legislation responsible for the liberalization of theEuropean aviation sector. ELFAA is particularly concerned with the flag carriers of the newE.U. member states but does not discount this practice in non-European countries as well. It has raised this issue with both the

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The Next IATA?The European Low Fares Airline Association, launched in January to represent the specific views and interests of its constituent airlines, mayevolve along with its members to become increasingly influential within the airline industry.

By Vinay Dube | Ascend Contributor

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoSabre Airline Solutions

WhatLaunched SabreSonic ™ Inventory,

an advanced inventory management

solution that leverages open-systems

technology to ensure revenue integrity

through real-time application of inventory

controls while addressing the dramatic

growth of flight availability requests. The

ability to evaluate reservations requests

in real time and maximize total revenue

of the entire flight network through the

Inventory component is considered a

breakthrough in revenue management.

Why

“Airlines are faced with increasingly

bargain-minded online shoppers,

which is driving down yields and

increasing processing costs,” said

Gianni Marostica, president of Airline

Passenger Solutions for Sabre Airline

Solutions. “We developed the

Inventory component to address

the challenges airlines face from

the impact of these trends.” a

A tlantic Coast Airlines didn’t intend tobecome the focus of attention in the

regional airline industry.Until two years ago, the carrier was con-

tent to continue providing regional feeder traf-fic for its long-time partner, United Airlines.

But in December 2002, United filed forbankruptcy and sought to restructure its con-tracts with regional partners. Under its fee-for-departure agreement, common in the UnitedStates, ACA was guaranteed a set income foreach flight regardless of the number of pas-sengers on board. When United proposedrevising the agreement to significantly reducecompensation, ACA officials said their handwas forced.

“We would still be a fee-for-departurecarrier had United chosen to honor our con-tract, and we would still be (flying for United)for the next six or seven years,” said JeffPollack, senior director of market planning forIndependence Air. “We negotiated with themfor many months, probably eight or nine,understanding that our partner was in pain andwe were going to have to assume some ofthat pain as well and be good partners. Wewere willing to do that. But as the level of thatpain and the level of what United expected toget out of the deal became more obvious, wehad to just weigh that against what otheropportunities we had.

“At some point, the scales tipped, andwe said what United is offering just does notprovide the same risk/return value that inde-pendence does,” he said. “The unique riskinherent in partnering with a company in bank-ruptcy outweighed the security of a fee-for-departure model.”

So in June 2003, Atlantic Coast, literally,declared its “Independence.” A year later, the

rebranded airline officially took to the skies asIndependence Air, flying its fleet of 50-seatCRJs to 22 initial destinations.

The decision, however, did not comewithout a bit of separation anxiety.

“Without a doubt, it was not a snap deci-sion,” Pollack said. “But all things considered,we’re pretty pleased with where we are. Wethink we’ve built a really strong customer base,and we’re beginning to develop our brand.”

Steve Hendrickson, a partner withSabre Airline Solutions Consulting, said leavingthe security of guaranteed, though reduced,revenue for the uncertainty of a stand-alone,low-cost airline made sense.

“ACA took a good hard look in the mir-ror and said, ‘This is just going to hammer ourvaluation. We’re not serving our shareholders.Is there a better way to go about this?’”Hendrickson said. “Certainly, one could have

argued, ‘Let’s go and see if we can move someof our capacity to other fee-per-departure pro-grams.’ But, frankly, there was a pretty well-supplied pipeline of other regionals offering todo that for other carriers. Ultimately, theydecided that maybe there was an opportunityto become the next big success story.”

Although it may have been a logicalmove, breaking away and launching a stand-alone airline is a decision that is being watchedthroughout the industry.

“The jury’s out, and everybody is wait-ing to see how they’ll do,” Hendrickson said.“You sort of have the servant rising up againstthe master.

“It has some risk, but what doesn’t?”he asked. “The other alternatives have risk aswell without much upside. That’s a more pru-dent bet for the company to make than signingup for another round with United. You could be

industry

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Declaring Independence?

Facing reductions in its fee-for-departure contract with United Airlines,Atlantic Coast Airlines decided to part ways and transform itself into a separate low-cost carrier. Could the launching of Independence Air be the “shot heard ‘round the industry” indicating a changed relationshipbetween network carriers and their regional affiliates?

By B. Scott Hunt and Stephani Hawkins | Ascend Editors in Chief

42

The top five major U.S. airlines operate 11 hubs. Of those, regional partners fly half or more of the daily departures and operate 25 percent to 54 percent of the hub seats at those airports.

Total overall % of hub departures % of hub seatshub carrier branded operated by operated by

Major carrier Hub departures per day regional partner(s) regional partner(s)

Continental CLE 216 79% 54%Delta DFW 258 79% 55%United IAD 264 77% 53%Delta CVG 573 73% 47%US Airways PIT 350 71% 40%Delta SLC 315 70% 39%Northwest MEM 213 60% 39%US Airways PHL 350 52% 26%Continental IAH 482 51% 25%Continental EWR 310 50% 26%US Airways CLT 443 50% 25%

Who’s Hub is it Anyway?

Source: OAG June 2004 flight schedules.

signing up at a lower profit margin only to goback into bankruptcy with them a year or twodown the road.”

Watching CloselyWhether or not Independence Air will gener-ate a wave of imitators is subject to debate.

“I don’t see a trend coming out of it,”said Shane Batt, also a partner with SabreAirline Solutions Consulting. “There are only ahandful of carriers that are large enough thatcan duplicate that behavior.”

ACA was unique in that it held the rightsto all of its gates at Washington Dulles

International Airport, where it fed traffic intoUnited’s hub. Independence Air is now basingits core operation at Dulles. ACA also had out-standing cash reserves, a savvy and experi-enced executive team, and in-house expertisein marketing and planning.

“We have some extremely uniqueresources in place here that have allowed usto do what we want to do,” Pollack said. “I’mnot sure many other regionals could realistical-ly try what we’re trying. But I think there’s a lotof interest, and I think people will learn a lotfrom what we’re doing.”

Still, Independence could be on the

forefront of a dramatic industry change if itachieves its goals.

“If Independence is successful andbuilds up a market presence and shows prof-itability — which is a big ‘if’ — then otherregional carriers would probably be moreenthusiastic about embracing that model,”Batt said. “But if it is not, if it is unsuccessfuland goes to the wall, then what choice doregional carriers have?”

Debby McElroy, president of theRegional Airline Association, an organizationrepresenting 51 regional airlines that combinefor 97 percent of the regional airline traffic in

Currently serving 40 cities, Independence Air plans to expand its network to 50 destinations with 350 flights a day, making WashingtonDulles International Airport the largest low-fare hub in the United States in terms of total departures.

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoATA Airlines

WhatSelected the Sabre ® Streamline ™

Resource Management Suite to

increase its operational efficiency by

optimally planning and allocating

employee resources.

Why“We wanted a complete resource

management system that could help

us plan and manage employee

resources,” said Doug Yakola, vice

president of station operations for ATA.

“The solution had to be flexible and

adaptable not only to address our cur-

rent needs, but also our future business

goals. Our primary goal was to find

a partner that had the experience

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the United States, also said members of herorganization are taking a wait-and-seeapproach before possibly following inIndependence Air’s footsteps.

“Independence Air is being closelymonitored by all the regional carriers, so itssuccess could change the viewpoint of manycarriers, and they may seriously consider anindependent operation, but I am not awarenow that there are large numbers of regionalcarriers that are considering doing the samething,” she said.

Regional carriers aren’t the only specta-tors closely watching the developments withIndependence Air, she said.

“Independence is not only competingwith the regional carriers, but they are com-peting with some of the limited-service carri-ers, like AirTran, and with some of the

major carriers like USAirways and Delta,”she said. “I thinkmany people in theindustry are watchingIndependence Air.”

A ChangingIndustryThe transformation of ACA to Indepen-dence Air is oneaspect of a regionalairline industry that is undergoing signifi-cant change. Evenwhat constitutes a“regional carrier” isunder revision.

“Our old definitions of what a regionalcarrier are have kind of been reshaped,”Hendrickson said. “Regional carriers havegrown out of their traditional mold. You usedto be able to point to a carrier that had pro-pellers on its airplanes and say, ‘That’s aregional airline.’ You used to be able to saythey’re not going to fly anything more than350 miles, maybe 500 at the utmost.”

Today, regional carriers fly jet aircraft on longer and longer routes. Although still

in flux, the definition of a regional carrier “is probably in today’s world a carrier that oper-ates airplanes at or below 70 seats,”Hendrickson said.

As regional airlines have outgrownthose old definitions, they have also changedthe relationship with their larger airline part-ners, he said.

A Revised Relationship?Regardless of how Independence fares, it willlikely affect the relationship between majorcarriers and their regional partners.

Hendrickson said future agreementsbetween major airlines and their regional part-ners might be structured so that the major air-line controls not only the marketing of itsregional partner but also some of its keyresources. He pointed to the example ofNorthwest, which controls the gates and air-craft of its regional partners such as MesabaAirlines.

“For Mesaba to break away fromNorthwest is almost impossible because itwould lose its gates and its airplanes,”Hendrickson said. “Not that it couldn’t try togo out and get more gates and more airplanes,but it makes it much harder to revolt.

“United allowed ACA to control twovital elements, which were gates at the huband aircraft,” he said. “All it had to do was adda marketing infrastructure and stir — not tobelittle what it’s gone through because it didhave to recommercialize the airline.”

For years, many in the industry havedebated whether it is better for majors to owntheir regional partners. In recent years, somemajor airlines have considered selling all orpart of their regional subsidiaries in order togenerate much-needed cash. Hendricksonsaid ownership is unnecessary — as long asthe agreements are structured in such a wayas to prevent an Independence-type move.

“You don’t want to spin them off andwind up losing the value of the feed,” he said.“With a well-structured, protective agree-ment, you can still, as the marketing carrier,enjoy the benefits of a codesharing relation-ship with regional operators, and you don’thave to own them to get that.”

McElroy agreed there is “a mixture ofopinion in the industry” on regional ownership.

“Some carriers believe it is not neces-sary to own their regional partner and havespun them off,” she said. “There are othersthat have stated in the past that for now, theyare going to keep their regionals.”

In fact, Batt said, the issue regardingownership of regional partners has beenaround for years, and actually lies at the heartof the Independence issue.

Underlying Causes“The perception is that Independence issomething that is brand new,” Batt said. “It isnot. This phenomenon has been happening fora while. The mechanism that triggered theIndependence Air situation is a mechanism

that has been playing itself over and over againsince deregulation. You have a small partnerthat is a capacity provider. It gets to a certainlevel and the amount that the mainline carrieris paying to the regional operator grows highenough that something has to occur.

“The difference is, in the past, whatnormally happened was that the mainline car-rier, in order to increase its assets, would pur-chase the smaller carriers,” he said. “But nowthey don’t have the money to purchase thesmaller carriers. They have to increase theirprofitability by lowering their costs. So, theyare going to ask their regional partners tolower their margins.”

And as the network carrier strugglesfinancially and faces competition on its majorroutes, it turns to its regional partners for addi-tional relief.

“ACA was continuing to prosper andgrow, and its cost structure was a lot lower,”Batt said. “United wanted to renegotiate thefees because it was losing money while ACAwas making a bundle off of the relationshipbecause it was insulated from revenue anddemand fluctuations.”

The issue is not limited to United andACA, he said.

“More of these (regional) carriers aregrowing to such a level that they are a majorexpense for the mainline carriers,” Batt said.“And as they become a larger expense, theyare generating more earnings. Then the main-line carriers are saying, ‘Hold on a second

here. You are making higher earnings while weare losing money’ Then they say, ‘Let’s rene-gotiate the agreement.’”

The issue of disagreement betweenmajors and their regional partners also standsto become more pronounced given thechanges many major carriers are making tobecome more cost efficient.

As carriers de-peak their hub opera-tions, for example, they will conduct morepoint-to-point flying, squeezing out regionalcarriers from these markets. The increasedpoint-to-point service resulting from a de-peaked hub also has major carriers looking tofly the smaller aircraft that will be only slightlylarger than regional jets.

“You will see a divestiture in the main-line carriers of capacity,” Batt said. “They willget rid of their bigger units and fly less hub tohub. As they do that and bring in 100- to 120-seat jets to operate those routes, the regionaloperators will have fewer routes.”

Meanwhile, regional carriers are lookingto fly larger aircraft, increasing the number ofmarkets in which they can compete with majorcarriers. Independence Air, for example, hasadded Airbus 319s to its fleet, and regional carrier Chautauqua Airlines recently beganadding 50 Embraer 170 aircraft, which seat 70 to78, to add additional capacity for United.Previously, the airline flew Embraer 135, 140and 145 aircraft with between 37 and 50 seats.

One issue currently slowing this compe-tition concerns the scope clauses in many

industryindustry

“Independence is not only

competing with the regional

carriers, but they are com-

peting with some of the

limited-service carriers, like

AirTran, and with some of

the major carriers like US

Airways and Delta.”— Debby McElroy,

President

Regional Airline Association

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoAir Tahiti Nui

WhatSigned a five-year contract for

the SabreSonic ™ Passenger

Solutions to help manage its

end-to-end reservations and

departure control operations,

as well as manage the airline’s

new electronic ticketing

capabilities.

Why“We are entering an exciting phase at

Air Tahiti Nui with the future expansion

of our flight services to New York and

Sydney and the move to adopt e-tick-

eting standards across our network,”

said Nelson Levy, chief operating offi-

cer for Air Tahiti Nui. “In line with this

operational expansion, we required

the information technology support,

functionality and commitment from

the most experienced vendor in the

market and turned to the expertise of

Sabre Airline Solutions after an

exhaustive six-month evaluation. We

are 100 percent confident in the services

and capabilities of the SabreSonic ™

solutions, and we are looking forward

to leveraging the new capabilities of

the passenger management suite and

the added e-ticketing capability to

support our expanded operations.” a

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoAir One

WhatEntered a multi-year agreement to utilize

the SabreSonic™ Passenger Solutions to

boost its reservations, check-in and Web

capabilities. As part of the agreement,

Air One has access to an integrated

package of performance-enhancing

and decision-support tools as well as

the Sabre ® global distribution system.

flexibility we need to quickly adapt to

growth and new business models in

the future. This technology integrates

with its decision-support software to

keep a keen focus on operational

excellence while driving out costs and

improving our revenues, all in a rapid-

growth environment. During the

course of our evaluation, there was

no other company that could provide

the power of this combination.” a

Why“Our growth goals are aggressive,

and we need an aggressive technology

partner,” said Air One Chief Executive

Officer Lino Bergonzi. “Our business

strategy is based on offering convenient

and efficient service, and the agree-

ment with Sabre Airline Solutions is a

key element of our strategy. The

SabreSonic solutions have the tech-

nology we need now and provide the

“If you pay enough of a premium, peo-ple are willing to give up control of their owndestiny,” he said. “But when that premiumgoes away, all of a sudden people want tounderstand and be in control of their destiny.”

Pollack said he believes the fee-for-departure model “has got some fundamentalflaws to it.”

“For an airline getting paid the fee, it’s agreat place to be,” he said. “From the otherside, it’s hard to (encourage) that carrier, whoyou are basically paying a ‘cost-plus’ deal tomaintain their cost structure. It’s really not apartnership anymore when you start talkingabout a fee-for-departure deal. All the respon-sibility goes on the major, and that’s reallywhat they said they wanted, but it’s an expen-sive way to do business.”

Batt said he also expects the fee-for-depar-ture model to continue with some modifications.

“Most likely, the fee-for-departuremodel will remain, although (major carriers)will want the regional carriers to accept lessreward because they have less risk,” he said.

The major carriers will also likelyattempt to decrease the costs associated withfeeder service by increasing competition forregional flying.

“If I am a major airline and I have somenew flying, I am going to have a bid processand say, ‘OK, everybody, give me your bestoffers to do this flying,’” McElroy said. “If Ihave multiple partners, I have more opportuni-ty to get the best cost.”

In the same way, some regional carriersare looking to expand by providing service for

a number of different partners.“Many of them are looking to diversify

and grow their business,” she said. “They rec-ognize that they have to continue to expand asa way to increase revenue and enhance share-holder value and to continue to provide opportu-nities for growth for their employees. Carriershave been aggressive in seeking new partnersand expanding their business with existing part-ners. It’s a logical business strategy.”

Around the WorldThe changes for regional carriers are more pro-nounced in North America, where the fee-for-departure relationship predominates. In muchof the rest of the world, most of the majorscontinue to take an equity stake in their region-al partners in order to directly influence theiroperation.

“They (major carriers) set the schedule.They set the prices. They handle the sales anddistribution. And the regional carrier provideslift,” Batt said. “They are simply a capacityprovider, and they receive the prorated rev-enue from the passengers on their planes.

“It is, ‘We are to going to purchase aportion of you and have a marketing relation-ship, but we are going to also take a couple ofseats on your board of directors and have asymbiotic relationship,” he continued. “Wetell you what to do because we are bigger,wiser, and we own a portion of you.”

Looking to the FutureWith the industry’s eyes trained onIndependence Air, many will be interested to

see if the carrier successfully transforms itselffrom a regional feeder to a stand-alone airline.

And according to the early results,Pollack said, it’s so far, so good.

Within a month after its launch of inde-pendent operations, Independence Airincreased the number of departures and num-ber of passengers carried. It continues to addcapacity, with the Airbus 319s coming on linein November. And it also continues to add des-tinations and routes, with plans to grow itshub and make Dulles the largest low-fare hubin America, eventually serving 50 destinationswith 350 flights a day.

“The competitive environment is onethat I think everybody is struggling with rightnow,” Pollack said. “But the results in manyaspects have just been wonderful.”

If the airline continues to grow andexpand, it might find itself leading a charge ofindependent regional airlines.

“Should we have the success webelieve we’re going to have here, it’sinevitable that other people will try to follow,”Pollack said. “Whether others can successfullyfollow remains to be seen. There aren’t awhole lot of successful airline business plansout there, so the ones that are successful tendto get emulated often, though not necessarilyaccurately.”

B. Scott Hunt and Stephani Hawkins canbe reached at [email protected] and

[email protected].

a

industry

union contracts that dictate the size of aircraftthat can be flown by majors and its regionalpartners.

Because regional airlines have a lowercost of operation, they can better fill the 90- to110-seat niche, McElroy said, and therefore,her organization would like to see scope claus-es removed so regional airlines can help theirpartners “match the right size airplane to theright market.”

Scope clauses, she said, are “an anachro-nistic, artificial restriction on the market.”

Fee-For-DepartureAs the changing industry impacts the relation-ship between majors and regionals, it couldalso affect the fee-for-departure arrangementscommon in North America. The fee-for-depar-ture agreements evolved as major carrierssought to exert more influence over theirregional partners.

In the days of regulation, major carriersand their much smaller regional partners main-tained a “more or less symbiotic relationship,”Hendrickson said, with joint fare agreementsand joint bag agreements on a bilateral basisas well as a “really crude form of sharing traf-fic and revenues.”

Over the years, airlines developed moreformal codeshare arrangements of linking withregional carriers, and the partners developed aform of revenue proration to settle accounts.Such agreements, however, failed to providethe network carriers with the regional trafficthey needed for their hubs.

“The way in which regionals behaved

was somewhat self-serving and not always for the betterment of the overall combinednetwork,” Hendrickson said. “In those days, (regional airlines) kept all the revenuefrom a local passenger. Often, even relativelyhigh-fare connection passengers did not produce enough revenue, after subtracting the majors’ prorated share of the ticket value,to overcome the alternative value the regionalcould get from even a discounted local passenger.

“This is the force behind the majorswanting to reinvent the relationships with theregionals,” he said. “Basically, they were say-ing, ‘These guys, because they control theirinventory, pricing and scheduling, they haveshown a tendency to do their own revenueoptimization by showing preference towardthe carriage of local passengers and to avoidall but the richest of the connecting passen-gers. That’s contrary to what we’re trying toaccomplish as a major network carrier.

“‘If we just opened the inventory a littlebit more for connections, we would see atremendous amount of revenue and traffic onour network,’” he said.

To encourage regional airlines to carryconnecting traffic, the major carriers began topay the regional partners a set fee that cov-ered expenses and provided a profit margin inexchange for taking over scheduling and pricing.

In the fee- for-departure model ,Hendrickson said, the major carriers took theposition that “rather than sharing risks andrewards in the marketplace with our regionalpartners, let’s throw that model out and put in

place a different model that would basicallysay that you are now risk free.”

“We’ll refocus your company to do vir-tually nothing of a commercial nature and vir-tually everything of an operational nature,” hesaid. “This will get your cost levels down. Wewill give you a schedule and tell you when andwhere to fly. We’ll price your inventory. We’lldo the inventory management. And for lettingus do all this and for accepting this new busi-ness model, we will pay you the cost of thedeparture, plus a modest, but guaranteed,margin on top of that.”

The Changing Business ModelGiven the struggles of the major network car-riers, the fee-for-departure model is undergo-ing changes, McElroy said.

“We have seen those relationshipsevolve in a number of ways,” she said.“Obviously, they (regional carriers) have beenasked to accept lower compensation. Theyhave been asked to accept longer periods foradjustment. In some cases, the contractsused to be adjusted every quarter, every sixmonths or every year; now, they are longer.There is less of a variable that allows forincreases in costs whether they are airport orfield related. It is absolutely correct to say thatthe regional carriers have been asked, like allother partners to the major, to sharpen theirpencils, to be more efficient and to providelower costs.”

And that might lead to more regionalrevolt, Pollack said, and more carriers lookingto follow Independence Air’s lead.

industry

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Philippine Airlines

What

Selected SabreSonic ™ Ticket as a

stand-alone component, taking advan-

tage of its flexibility to move quickly to

complete e-ticketing capabilities. The

interline hub offering provides con-

nectivity between carriers without the

need for separate bilateral agreements,

saving US$2 to US$6 per ticket.

Why

“The Ticket component provides the

perfect solution for us,” said Kevin

Hartigan-Go, vice president of

information systems for Philippine

Airlines. “We want to achieve the cost

savings of moving to a paperless

process, but do not want to have

to build and host a separate system

to do so, nor desire to change our

current reservations system. The

component approach of SabreSonic

Ticket provides the flexibility to do

exactly what we want when we want

to move to a paperless environment

while adding another positive

customer service element as well.” a

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Ethiopian Airlines

What

Signed a three-year agreement to

utilize the Sabre ® AirFlite™ Schedule

Manager to help develop a more

efficient schedule while improving the

utilization of aircraft and providing

customers with more flight options.

The airline will also use the Sabre ®

AirFlite™ Profit Manager to effectively

manage its earnings.

Why

“As a critical link from Africa to the

rest of the world, it is vital that we

can offer our customers as flexible

a schedule as possible,” said Henock

Woubishet, director of marketing

information systems for Ethiopian

Airlines. “We chose to work with

Sabre Airline Solutions because its

industry-proven flight scheduling

product can do just that. Moreover,

it is our firm belief that further

implementation of Profit Manager

will give us a solid return on invest-

ment by keeping a close check on

our profitability.” a

inventory control and distribution. In connec-tion with the IT push, in 1997 Aeroflot imple-mented systems from Sabre Airline Solutionsto automate and streamline its operations.

In 2001, to continue updating its IT,Aeroflot selected Sabre Airline Solutions as itsprimary technology partner, gaining access toa wide range of leading technology that wouldnot only bring the carrier’s operations up tospeed, but also lay the foundation for futuregrowth and expansion. Airline officialsbelieved choosing a single, primary technologypartner would provide functional, integration,commercial and contractual benefits thatwould help it update its systems to accommo-date the growth in the Russian marketplace.

In selecting a primary technology part-ner, Aeroflot officials said they chose SabreAirline Solutions “because of its insight andsuccessful track record of working with globaland regional airlines.”

“The breadth of the offering from SabreAirline Solutions provides an integrated solu-tion across all of our operations. In fact, webelieve the technology solution it has pack-aged for Aeroflot offers benefits that areunmatched in the industry,” said SergeyKiryushin, Aeroflot’s chief information officer.“This smart technology means improvements

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

profile

F or most of its 80-year history, AeroflotRussian Airlines didn’t have to worryabout keeping up with the trends

impacting the world’s aviation industry.As the state-run flag carrier for the

Soviet Union, Aeroflot, launched in 1923,merely was tasked with providing affordabletransportation across the vast expanse of theSoviet Union, a country of 865 million squaremiles, linking the nation’s major cities as wellas serving remote areas previously connectedonly by rail.

But the fall of communism, and theintroduction of market forces, dramaticallychanged Russia and its most well-known air-line, forcing the carrier to adjust in order to sur-vive and compete on the international stage.Now, as Russia continues to experience dra-matic economic growth, travel in the countryis soaring, and Aeroflot is working hard tokeep pace.

The Russian economy has been grow-ing at a rate of 4 percent to 8 percent in recentyears, inflation has slowed, and travel isreflecting the surge. Russian airline travel isexpected to continue to grow both regionallyand internationally. The growth of Russian airtravel during the next six years is forecasted toincrease 60 percent to 100 percent. Someexperts predict that the number of passengersboarded in Russia will grow from 28 millionlast year to 100 million by 2015.

Airline officials realized that maintainingAeroflot’s position as the leading Russian air-line would take a drastic overhaul of its opera-tions, particularly its information technology.

For 70 years, as the state-run airline of acommunist nation, Aeroflot, unlike many otherfree-market airlines, neglected to focus ondevelopment of IT. Throughout the SovietUnion, business IT development was not a pri-

ority. About a decade ago, with the moveaway from communism, the country beganmoving quickly to catch up and now has one ofthe fastest-growing IT industries in the world.Much like its home country, Aeroflot has alsomade IT development a priority. As the airlineentered the fast-changing international mar-ketplace, Aeroflot officials realized that theyneeded to change quickly to keep pace withtheir technologically advanced competitors.

In 1997, Valery Okulov assumed the postof chief executive officer of the airline andmoved quickly to incorporate modern businessapproaches, including adding technology. Thenew CEO brought in external expertise to add anew dimension to his management team,recruiting executives from the highly dynamicRussian banking industry and bringing in indus-try expertise from foreign airlines.

The new executive team focused onimproving the basics — the network and air-line fleet were rationalized and service wasemphasized. External consultants assistedwith strategy development.

As part of Okulov’s strategy, Aeroflotalso began using IT to help move to the nextlevel of efficiency, embracing practices suchas revenue management, fares management,

profile

ascend

The Russian Steps

The new 21st century Aeroflot, by leveragingadvanced technology, is emerging as a dynamic and progressive national flag carrier, reflecting the major changes taking place in Russia today.

By Jeremy Sykes | Ascend Contributor

48

Aeroflot’s 11

The solutions Aeroflot has selected include:

SabreSonic ™ Passenger Solutions,

Sabre ® AirMax ® Revenue Manager,

Sabre ® AirMax ® Group Manager,

Sabre ® AirFlite ™ Profit Manager,

Sabre ® AirFlite ™ Fleet Manager,

Sabre ® AirFlite ™ SlotManager ™,

Sabre ® PC AirFlite ™ flight scheduling system,

Sabre ® AirPrice ™ fares management system,

Sabre ® AirPrice ™ Contract Composer,

Sabre ® WiseVision ™ sales expansion system,

Sabre ®ProVision sm MIDT processing service.

Who

AirTran and jetBlue

What

Updated their system operations

control centers with new browser-

based modules for its operations

control and crew tracking systems. The

modules, part of the Sabre ® FliteTrac ™

and the Sabre ® CrewTrac ® systems,

can provide remote access to these

applications using Sabre ® FliteTrac ™

Web and Sabre ® CrewTrac ® Web.

Why

AirTran — “FliteTrac ™ Web exhibits

the capabilities needed to manage our

complex operations,” said Jim Tabor,

general manager of operations perfor-

mance for AirTran. “FliteTrac Web

replaced every functional area of the

old system and brought new functions

into the field station’s toolkit. Our field

stations can now link via the Web to

get estimated arrival and departure

times, station profile information, and

integrated log entries.

“FliteTrac Web meets our needs

very well,” Tabor continued. “The

instantaneous ‘link and sync’ keeps

our field stations and customers

better informed. We have seen major

improvement during irregular

operations in our ability to keep

everyone on plan.”

JetBlue — “The two products will

benefit jetBlue by streamlining

internal communications and

reducing reliance on telephone

and teletype communications,”

said Tom Rinow, director of system

operations for jetBlue. “As jetBlue

continues to grow and expand

its route structure, station-specific

communication will become even

more important. FliteTrac Web

will provide the kind of detailed

information that targets and is

tailored to each specific city.” a

From top: Valery Okulov, Aeroflot chief executive officer; Evgueni Bachurin,Aeroflot commercial director; and SergeyKiryushin, Aeroflot chief information officer.

“Aeroflot was determined to get

the most advanced and effective

technologies in the industry.

It is for this reason we chose

the Sabre Airline Solutions

technology package.”

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As part of its new information technology program, Aeroflothas selected a bundle of 11 decision-support tools in keyoperational areas such as planning and scheduling, faresmanagement, crew management, dining and cabin ser-vices, and reservations.

profile

ascend 51

Global alliances and individual partnershipsare not the only kinds of relationships

that benefit airlines.Around the world, regional airline orga-

nizations have developed to not only promoteregional cooperation but also to assist mem-bers with their operations, share ideas abouthow to cope with a changing industry environ-ment, and provide education and training formembers.

As they developed, these regional asso-ciations also realized they could assist mem-bers by helping them bargain for products andservices or by acting on behalf of all membersin order to secure better bulk rates from ven-dors. Today’s associations go beyond theiroriginal purpose by uniting to form collectivebargaining consortiums focused on collabora-tion and attaining cost-effective solutions fromvendors and suppliers.

Two regional associations — the ArabAir Carriers Organization and the AfricanAirlines Association — are leading examples ofhow neighboring airlines can work together tobenefit themselves.

Pan-Arab PartnersThe Arab Air Carriers Organization has been aregional consortium pioneer. Since its found-ing in 1965, the organization has worked to

fulfill its mission “to promote cooperationamongst Arab airlines and to serve their com-mon interests through service excellence.”

The organization, formed within theframework of the Arab League of States, nowincludes 20 airlines. The organization’s main objectives include:

Promoting thehighest safetystandards,Providing a frame-work for a bettereconomic environ-ment for airlineoperations, Promoting highstandards of con-sumer-driven services,Providing a high-quality and cost-effectiveframework for human resources develop-ment,Investing in the synergy of interactionbetween members through establishmentof joint projects.

Continuously working to study andupdate the needs of the airlines it represents,AACO is part of an emerging new breed ofpartnerships. The AACO Industry PartnershipProgram, for example, helps create a mutuallybeneficial environment for airlines and othercompanies. The program attracts carefullyselected world-leading companies and pro-vides them with exclusive access to its spe-

cialized airline forums. The IndustryPartnership Program enables these companiesto build relationships with AACO members.

AACO’s leading role among the Arab air-lines provides fertile ground for future in-depth

cooperation and success stories. The AACOairline consortium strives to enable Arab air-lines to better understand and respond to theirnational markets, allowing them to expandtheir share and services. AACO’s committees,formed from subject matter experts frommember airlines, meet regularly to shareinsights, examine industry trends and deter-mine market needs. These committees invitevendors to present their products and thenevaluate the product’s features and matchthem with airlines’ needs.

AACO joint projects entail more thanvolume discounts and extend into the qualityof service as well as the common require-ments of AACO member airlines. All AACO

to our operations and that means betterresults to our bottom line and improved ser-vice to our customers.”

Through its IT partnership, Aeroflotselected advanced tools for its market dataand analysis, fares management, flight opera-tions, planning and scheduling, and revenuemanagement. Earlier this year, Aeroflotexpanded the agreement again, adding com-ponents from the SabreSonic ™ PassengerSolutions for reservations, departure controland Web shopping. The open-systems archi-tecture of the SabreSonic solutions providesAeroflot with leading functionality and the flex-ibility to integrate new technology. The agree-ment also will provide Russian travel agencieswith full access to the Sabre ® global distribu-tion system, giving them the ability to directlybook air travel, car rentals, cruises, tours andrail travel worldwide.

“Aeroflot was determined to get themost advanced and effective technologies inthe industry,” said Evgueni Bachurin, commer-cial director for Aeroflot. “It is for this reason

we chose the Sabre Airline Solutions technol-ogy package. Its solutions are the only onesthat will provide both flexibility for our clients’selling, booking and ticketing air travel, as wellas maximizing productivity for agents. In addi-tion, the new technology will provide manynew features both for Aeroflot and for travelagents as well as for our passengers.”

Although the airline’s move to incorpo-rate advanced IT represented a culturechange, it proved successful, helping Aeroflotimprove its financial performance from annuallosses of US$100 million in 1998 to profits ofUS$100 million by 2002. The changes havehelped Aeroflot take advantage of the coun-try’s continued economic stability, generatingafter tax profits of US$113 million on revenuesof US$1.5 billion in 2003.

Last year, the airline carried 6 millionpassengers, a far cry from its Soviet heyday ofthe 1970s when it transported more than 100million as the world’s largest airline. ButAeroflot’s passenger traffic is growing steadi-ly, and the airline has aggressive plans to dou-

ble traffic in the next five years.The airline is poised to take another

large step by joining the SkyTeam alliance inNovember 2005, positioning it to resume itsplace among the world’s pre-eminent airlines.With SkyTeam’s various operational and ITrequirements, Aeroflot continues to rely on itschosen IT partner, placing its primary systemsin the hands of Sabre Airline Solutions, whichwill help the airline prepare to enter the globalalliance.

Through innovative leadership, takingbold initiatives and by relying on a strong, sta-ble technology partner, Aeroflot has taken thenecessary steps to shake off the shackles ofits communist past and transform itself into aleading, modern airline.

Jeremy Sykes is Sabre AirlineSolutions’ head of sales for the Europe,

Middle East and Africa region. He can becontacted at [email protected].

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

profile

Good Neighbors

By Badal Vyas | Ascend Contributor

Regional associations enable member airlines to collaborate by sharingexpertise, interacting with each other and leveraging purchasing power.

“The AACO airlines have

realized the need to take

action and have begun

introducing new revenue-

growing techniques.”— Abdul Wahab Teffaha,

secretary general, AACO

Photo courtesy of AACO

Who

bmi

What

Selected the Sabre ® AirPrice ™ fares

management system to boost

profitability through tactical and

strategic analysis and management of

fares. The system will streamline

bmi’s process of tracking daily

changes to industry fares by

maintaining all Airline Tariff

Publishing Company published

fares in a common database,

enabling the carrier to retrieve

both published and unpublished

fares by origin and destination.

Why“We are very pleased to be

implementing the AirPrice system,

which will complement other Sabre

Airline Solutions products currently in

use,” said Adrian Parkes, commercial

director for bmi. “We look forward to

reaping the benefits of a fully

automated pricing solution.” a

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Partnering with a single IT provider gives Aeroflot access to a broad portfolioof advanced decision-support toolsdesigned to meet its current and future objectives.

+count it up230 — Length in feet of the Russian Antonov AN-124-100, the world's largest regularly operated cargo plane. The aircraft has a

wingspan of 240 feet; it weighs 175,000 kilograms (385,800 pounds) when empty and can carry a total payload of 120,000 kilograms

(265,000 pounds). The aircraft's 24-wheel landing gear allows it to kneel down, which significantly reduces loading and unloading times.

port services to, from, within and throughAfrica and to study problems connected tothe region’s industry,

To foster closer commercial and technicalcooperation among African air transportenterprises, To serve as common forum to articulate theviews of member airlines on common mattersand problems and defend such interests.

Today, it represents its members, notonly for issues related to IATA, but also inapproaching vendors to obtain volume

discounts. Because not all of AFRAA’s mem-bers are always interested in similar techno-logical and operational solutions for their

respective airlines,AFRAA negotiates onbehalf of interestedcarriers. The associa-tion either approach-es vendors to attainan approximate costbased on differentvolume levels (suchas traffic volume ortransaction volume),or it first identifiesmember airlines thatare interested in a

particular service and then contacts possiblevendors of that service.

AFRAA also works with airlines toestablish their priorities for the next few yearsto consolidate requirements prior to approach-ing potential vendors. Member airlines aregrouped according to their specific needs. Inaddition, AFRAA member airlines are orga-nized into workgroups to discuss specificproduct/project areas of interest to those air-lines. AFRAA then invites specific proposalsfrom vendors on behalf of the different work-groups or task forces. These proposals areevaluated by AFRAA before a recommenda-tion is made to the member airlines. The asso-ciation then compares the various offers/pro-

posals from vendors based on several criteriasuch as how they fit the requirements, theircost and service level agreements, and con-tract flexibility. Through this approach, AFRAAgets a consensus from the workgroups or taskforces on the optimal product/service offer forthe specific group of airlines.

Both AACO and AFRAA use several cri-teria to determine if they have selected themost cost-effective solution for their mem-bers, including post evaluation, feedback fromusers and ongoing monitoring of applicationusage by member airlines. These organizationsclosely monitor the results as well as maintainan ongoing relationship with service providers.The strongest factor, however, is direct feed-back from member airlines following each pro-ject and the strong support emerging projectsreceive from the member airlines.

Badal Vyas is a senior product management specialist for Sabre Airline

Solutions. More information about AACO and AFRAA can be found atwww.aaco.org and www.afraa.org.

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profile

“[AFRAA] offers forums through

which member airlines meet,

develop and consolidate a common

approach to key issues in the avia-

tion industry.”— Christian E. Folly-Kossi,

Secretary General, AFRAA

Photo courtesy of AFRAA

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Aeroflot Russian Airlines

What

Selected the SabreSonic ™ Passenger

Solutions, which includes passenger

reservations, a Web site that enables

potential travelers to shop and book

travel on Aeroflot, and airport check-

in functionality as well as a number of

other key passenger service capabili-

ties. The comprehensive offering also

will provide Russian travel agencies

with full access to the Sabre ® global

distribution system, which is the first

to provide the ability to directly book

travel worldwide including airlines,

car rental agencies, cruises, tour oper-

ators and rail outside of Russia.

Why

“Aeroflot was determined to get the

most advanced and effective technolo-

gies in the industry,” said Evgueni

Bachurin, commercial director for

Aeroflot. “It is for this reason we

chose the Sabre Airline Solutions

technology package. Their solutions

are the only ones that will provide

flexibility for our clients’ selling, book-

ing and ticketing airline travel as well

as maximize productivity for agents.

In addition, the new technology will

provide many new features both for

Aeroflot and travel agents as well as

our passengers.” a

members participate in at least one of theorganization’s joint projects, which group carri-ers by similar interests and needs. These jointprojects provide a framework for a better eco-nomic environment for member airlines.

“The AACO airlines have realized theneed to take action and have begun introduc-ing new revenue-growing techniques,” saidAbdul Wahab Teffaha, secretary general ofAACO.

One key way AACO has helped meet itsmembers’ strategy and revenue-generationneeds is by providing them market informationanalysis tools. Through these tools, the mem-ber airlines are better able to examine theirmarkets for opportunities to increase shareand, therefore, earn incremental revenue.

AACO helped several of its membersobtain tools from the Sabre ® Data AnalysisSolutions suite, which provides market datainformation to help AACO carriers make time-ly and fact-based operational and commercialdecisions. In October 2002, five AACO mem-bers — Kuwait Airways, Middle East Airlines,Royal Jordanian Airlines, Saudi Arabian Airlinesand Yemen Airlines — selected the Sabre ®

ProVision sm MIDT processing service and theSabre ® WiseVision ™ sales expansion system.The successful usage of these tools by theseAACO members has generated interest byother fellow member carriers.

One of AACO’s most prominent carri-ers, Gulf Air, also relies on the entire Data

Analysis suite. In addition to using theProVision service and the WiseVision system,Gulf Air also uses the Sabre ® TransVision® traf-fic flow analyzer to manage its routing structure.

“As our airlines grow and their net-works expand, a clear understanding of pas-senger flows in and between new marketsbecomes important,” Teffaha said. “SabreAirline Solutions has provided the AACO carri-ers with market systems and services thatrespond to the true needs of the carriers, and,in more than one respect, revolutionize theway business is done within the AACO carriers.

“The process of decision making in allaspects — such as market competition, com-mercial conditions and network scheduling —is now based on facts,” he continued. “Theversatility and user-friendliness of the systemsensures that correct decisions can now bemade at every level and at all locations insidethe member airlines.”

The ProVision service helps AACOmember airlines interpret transactions fromthe global distribution systems into meaningfulinformation and provides essential competitorinformation to help make timely and fact-based operational and commercial decisions.The WiseVision system graphically presentsmarket analysis results to support the salesprocess and provides users the ability for ad hoc query analysis. It also offers officeautomation capabilities that can save time andmoney while pursuing winning opportunities

quickly and reliably using the Internet.“The (tools) have helped the AACO car-

riers as a whole to be more proactive,” Teffahasaid. “Efforts are being directed towards cost-effectively achieving tactical goals, and theygo hand in hand with the airlines’ strategy.”

The African ConnectionAnother regional organization, AFRAA, alsoprovides a framework for its member airlinesto work together to share ideas to improveoperations, interact with peers and also seekways to jointly reduce costs. AFRAA, officiallyfounded in 1968, traces its beginnings to earli-er in the decade when several African coun-tries gained independence and formed nation-al airlines. The Africa-based carriers beganmeeting informally in conjunction with theInternational Air Transport Association annualgeneral meeting. Realizing they had much incommon and could collectively present theunique needs of the region during IATA meet-ings, the African carriers formed AFRAA,which today includes more than 40 membersfrom 31 African countries.

The organization, according to ChristianE. Folly-Kossi, “offers forums through whichmember airlines meet, develop and consoli-date [a] common approach to key issues in[the] aviation industry.”

AFRAA has three main objectives: To promote the development of safe, reliable, economical and efficient air trans-

profile

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

British Airways and Qantas Airways

What

Successfully implemented the

latest release of Sabre ® AirFlite ™

SlotManager ™, enabling their flight

schedulers and slot portfolio managers

to efficiently request and maintain

their slot portfolios.

Why

British Airways — “Our slots are very

valuable assets, and it is critical that

we get the best use out of them,” said

Robert Moran, slots and schedules

coordination manager, fleet and

network planning for British Airways.

“The SlotManager system provides

decision-support capabilities that will

help us identify opportunities. In

addition, using the system lets us

manage our slot portfolio from a single

centralized database, providing

multi-user access to the slot team.”

Qantas Airways — “We need

to produce slot requests quickly

and accurately,” said Hope

Antzoulatos, manager of long-haul

schedule development for Qantas.

“Using the SlotManager system

as an integrated part of the Sabre ®

AirFlite ™ Planning and Scheduling

Suite enables us to generate slot

data for initial submissions and

will allow us to make changes

directly from the schedules main-

tained in Sabre ® AirFlite ™ Schedule

Manager.” a

Sabre Airline Solutions to help airlines achievebusiness benefits through the application ofadvanced information technology to mainte-nance,” said Matthew Tobin, vice president ofmarketing and alliances for Mxi Technologies.“We are honored to have the Maintenix sys-tem as Sabre Airline Solutions’ new M&Eoffering, and we are excited about SabreAirline Solutions’ unique ability to offer thesystem through a hosted ASP option.”

Sabre Airline Solutions will also providetraining for the system as well as around-the-clock customer support though its help deskand customer support Web site.

A reliable M&E system has becomevital for airlines in the new cost-consciousenvironment. Current industry estimatesshow that 9 percent to 13 percent of an air-line’s operating cost is attributed to the main-tenance of its fleet and represents about 20percent of the total workforce. An efficient,advanced, easy-to-use system for an airline’smaintenance, repair and overhaul operationshelps it control costs by minimizing the effectsof disruptions caused by unforeseen mainte-nance and by optimizing the productivity ofM&E personnel.

The system, built on a modern architec-ture, provides advanced capabilities such asautomated workflow, electronic signaturesand support for portable wireless devices.

A uniquely designed role-based system,the Maintenix system seamlessly fulfills thecontinuum from line maintenance to heavymaintenance and component repair throughits six interconnected components:

Line maintenance —Offers maintenancecontrol, line stationplanning and sched-uling, and executionof line maintenancew o r k , a s s i s t e dthroughout by real-time diagnostics andprognostics and linediscrepancy manage-ment capabilities,Heavy maintenance— Includes visitplanning, productionplanning and control,and execution ofheavy maintenance work including heavycheck templates and progress monitoringfor in-maintenance activities,Shop maintenance — Provides shop con-trol, production planning and execution ofshop maintenance work for both compo-nent and complex assembly shops, drivenby up-to-the-minute visibility of materialrequirements,Maintenance engineering — Features main-tenance program definition and manage-ment, organization modeling, configurationmanagement, record keeping, reliabilityanalysis, and engineering support for main-tenance including recommended correctiveactions and engineering authorizations,Material management — Supports themaintenance process through comprehen-sive management of data for tracked and

serialized parts, demand planning, fulfill-ment, material requisitions, asset induction,quality control, warranty, warehouse man-agement, and material routing,Fleet management — Facilitates advancedplanning and business intelligence intendedto improve visibility into all aspects of theorganization and proactively develop effi-cient and effective procedures and policies.

Specifically designed to handle the uniquecomplexities of aviation maintenance, repairand overhaul, the Maintenix system helps air-lines achieve value in five key areas:

Increased aircraft availability,Improved maintenance visit planning,Reduced inventories and improved supplychain management,Improved maintenance efficiencies,Reduced delays and cancellations.

“The Maintenix system will take ouroffering in the maintenance and engineeringareas to a new level with the kind of smarttechnology we strive to bring our customers— technology that simplifies the process andprovides near-term cost savings,” said SteveClampett, president of Airline Products andServices for Sabre Airline Solutions. “A Web-enabled user interface and an Oracle-basedplatform make the Maintenix system easy toaccess and easy to use. This combination ofaccess and relational database capability isparticularly important because the mainte-nance of an airline falls within many differentdisciplines, crossing many different systems,and in fact, can be an even greater challengefor airlines to manage than their reservationssystems.”

Allan Bachan is product manager of maintenance and engineering products

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

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products

ascend 55

F or years, many of the world’s leadingairlines have relied on the Sabre ® Maxi-Merlin ™ maintenance, engineering and

inventory system to minimize maintenancecosts while still ensuring the safety of passen-gers and crew. But, when the time came toenhance it for the future, a leading systemavailable through a strategic partnership

offered the promise of more quickly meetingthe needs of airlines.

The Maxi-Merlin system, which hasbeen installed at more than 40 airlines, pro-vides robust functionality that led it, in 2001, tobe rated in a study by Cap Gemini Ernst &Young as the No. 1 aviation maintenance andengineering system based on the number ofaircraft managed by the system as well as thenumber of installations.

In 2002, however, Sabre AirlineSolutions began looking toward the future andfurther enhancing the product, including revis-ing its architecture, migrating to open struc-tured query language, or SQL, and Java andmoving the system’s database from Adabas toOracle. Although the Maxi-Merlin system con-tinues to provide the necessary functionalityfor the industry, the system needed to bebrought in line with the direction of otherSabre Airline Solutions products. As initialwork began on the enhancements, however,company officials realized it could take up tofive years to complete the enhancements.

While Sabre Airline Solutions will contin-ue to support the Maxi-Merlin system untilcustomers are ready to migrate, the companydecided that to quickly meet the changingneeds of the industry required a more immedi-ate solution — finding a strategic partner that

could provide the missing pieces to completea comprehensive M&E solution.

After thoroughly evaluating potentialpartners, Mxi Technologies, a leader in aviationmaintenance management software, wasselected. Earlier this year, the two companiesestablished an alliance that would enable themto combine their strengths to provide an indus-try-leading M&E offering.

Through the alliance, the companies willjointly market Mxi’s Maintenix ® MRO system.The tool — selected by leading aviation companiesincluding Delta Air Lines, KLM Royal Dutch Airlines,Qantas, Boeing, Rolls-Royce, Dassault, BombardierAerospace, Executive Jet Management, LockheedMartin’s F-35 JSF program and the U.S. Navy —provides an all-inclusive tool that delivers inte-grated functionality for maintenance, engi-neering, materials and fleet management.

By partnering with Ottawa, Canada-based Mxi, Sabre Airline Solutions offers air-lines a leading M&E system that is fully inte-grated with the other products in its portfolio,such as the Sabre ® AirOps ™ Suite and theSabre ® Flight Control Suite. By integratingwith flight operations tools, the Maintenix sys-tem provides personnel in an airline’s systemoperations control center with centralized,real-time access to critical data to make thebest, unbiased decisions for an airline.

The Maintenix system can also beaccessed via Sabre ® eMergo ® Web access, anapplications service provider delivery methodthat reduces the cost of ownership. Byaccessing the system remotely via an ASP, air-lines avoid the up-front costs and maintenanceof installing the hardware and software on site.

“We look forward to working with

products

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Maintaining the Lead

Sabre Airline Solutions and Mxi Technologies have formed an alliance tooffer the aviation industry an integrated, fully supported maintenance andengineering solution.

54

Mxi Technologies uses modern platforms that meet the standards and expectations of for-ward-looking organizations. To meet the goals of scalability and platform independence,the Maintenix system has been built as an “n tier” system compliant with the Java 2Enterprise Edition specification.

A comprehensive maintenance and engineering system delivers integrated functionalityfor maintenance, engineering, materials and fleet management through six intercon-nected modules.

Maintenix System Architecture

Line maintenance

Maintenancecontrol

Line stationplanning

Line maintenanceexecution

Diagnosticsand prognostics

Maintenanceengineering

Maintenanceprogrammanagement

Configurationand recordsmanagement

Reliabilityanalysis

Engineeringsupport

Materialsmanagement

Demandmanagement

Materialreceipt

Warehousemanagement

Fleet management

Advancedplanning

Businessintelligence

Heavy maintenance

Heavy maintenancevisit planning

HMproductionplanning and control

Heavy maintenanceexecution

Shop maintenance

Shop maintenancecontrol

Shop productionplanning

Shop maintenanceplanning

Maintenix Database

External LDAPsecurity server

External applications

Thick clientinterface

Webinterface

Support andadmin. data XML routingBaseline

maintenancemodel

Transactions

Business objectives(Enterprise Java Beans)

Maintenixadapters(XML processing)

Security administration XML messages

Maintenix System Product Map

Through its alliance with Mxi Technologies, Sabre AirlineSolutions delivers industry-leading, integrated maintenance and engineering solutions, increasing safety and efficiency forairlines around the world.

By Allan Bachan | Ascend Contributor

numbers onto the new schedule. In a tradition-al codeshare arrangement, where airlinesshare services beyond a gateway, a tool suchas the Sabre ® AirFlite ™ Codeshare Managercan automate the overwhelming task ofassigning flight numbers. The tool will careful-ly analyze both the passenger connection rulesand the underlying agreement to ensure thatthe correct passenger origin and destinationcombinations are continuously served.

Partnerships where the networks over-lap or where nearly every flight in the networkis shared with a partner require a more power-ful tool to forecast the overall network prof-itability. This analysis is performed prior toflight number assignment to choose the opti-mal set of flights to apply to the codeshareroute. A forecasting tool, such as the Sabre ®

AirFlite ™ Profit Manager, is needed to predictthe share of traffic flowing from the codesharenetwork onto the mainline services and canquantify the profitability benefit of each code-share service. Since time is limited betweenthe moment the partner schedule is receivedand the codeshare schedule must be distrib-uted, these tools will improve the codeshareselection process.

In the distribution solution engineeredfor the Star Alliance, it was important for one partner to be responsible for selecting

codeshare flights. The major alliances use dif-ferent strategies for assigning responsibility,but they all have one carrier empowered to make the decisions and keep the distribu-tion process flowing smoothly. In manycases, the operating carrier or marketing car-rier is responsible for its individual flightsrather than empowering one partner for allshared flying.

Once the task of flight selection andflight number assignment is complete, the dis-tribution task shifts to the efficient data prepa-ration of the codeshare schedule for externaldistribution. The timing is critical to coordinatethe external release of schedule data at thesame time as the partner carrier. The schedulesystem must read and store the appropriatedata from the partner’s SSIM to reattach theinformation for external distribution about thecodeshare relationship. If an alliance partneroffers dinner and a movie, then its codesharepartners must also show this information ontheir codeshare service for competitive reasons.

Not all commercial data can be derivedfrom a partner’s SSIM. A tool must apply theproper traffic restrictions to meet the market-ing goal of the codeshare as well as remaincompliant with all governmental regulations.Additionally, the PRBDs are important to a dis-tribution strategy. In some cases, a carrier’s

PRBDs must be derived from both a partner’scabin offering and its PRBDs so bookings canmap to the appropriate category in the hostglobal distribution system. The ScheduleManager can preserve all of the aspects of thepartner’s schedule and apply the required datain an automated process. It can even derivethe appropriate PRBDs using the partner’soffering. This automated process can extendthe time available for analysis on the scheduleknowing the clerical work will be easy andaccurate.

With the appropriate automated sys-tems in place, the codeshare analyst canevolve from a clerical position coordinatingdata entry to a strategic position empoweredto maximize the profitability of the codesharerelationship. As technology continues toevolve, the industry must embrace alliancesworking together to maximize the profitabili-ty of the combined network. The effectivecommunication and distribution of code-share data is the first step in this industryevolution.

Kevin Stupfel is a product manager for theplanning and scheduling group at SabreAirline Solutions. He can be contacted at

[email protected].

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products

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The codeshare revolution has pushed theschedule distribution departments at many

airlines to the brink. Not only has the volumeof data increased exponentially, but also theincreased complexity of codeshare relationshipsrequires greater analysis to extract the maxi-mum value from each partnership. Airlines havestruggled to find automated solutions that sim-plify the problem, but they usually resort toadditional resources to manage the demandsof publishing an accurate and timely schedule.

Today’s airline landscape has forced thedistribution strategies of just 10 years ago tochange drastically. Historically, codeshareagreements were commuter franchisearrangements using a shared designator.Without duplicate legs to worry about, distrib-ution was as straightforward as tacking thecommuter schedule to the end of the mainlinetimetable. The birth of duplicate legs addedcomplexity to the distribution, requiring carriersto update their codeshare schedules in a coor-dinated manner with their partners’ updates.

The current challenge facing many air-lines is far more then just a clerical distributionproblem. The codeshare agreement of yester-day, when airlines extended their networksbeyond a gateway, no longer meets the needsof airline planners. Today, partners operate inthe same home geographic region, causingnetwork analysis to be pushed to a new levelof sophistication. With the complexity andrapid development of codeshares, manual pro-cessing is no longer an adequate solution.

While the surge of codeshare flights inoverlapping networks is a relatively new con-cept, the technology that has supported themajor alliances for years is already capable ofsupporting the complex analytical and distribu-tion needs created by these agreements. Asuite of tools can help automate the scheduledistribution process, ensuring that airlines real-

ize the maximum benefits from their code-share relationships. The Sabre ® AirFlite ™

Planning and Scheduling Suite, for example,has been modified specifically for the distribu-tion needs of partners in the Star Alliance, andthe experience can be applied to any code-share relationship as well.

The distribution strategy begins withthe exchange of industry-standard schedulefiles. Chapter 7 of the Standard SchedulesInformation Manual, or SSIM, is the mostwidely accepted and should be easily created

and used by all partners. A graphical scheduleediting tool, such as the The Sabre ® AirFlite ™

Schedule Manager, can easily read any part-ner’s SSIM and display the information for theanalyst to examine. Like Schedule Manager,systems should be able to retain all of thecommercial information, such as passengerreservations booking designators and in-flightservice indicators, to be used later in the distri-bution process.

The tricky part of processing a partner’sschedule is mapping the codeshare flight

products

ascend

Share and CodeShare AlikeCodeshare agreements and alliance memberships can multiply the complexity of an airline’s schedule distribution process. But the use ofadvanced technology, such as the Sabre® AirFlite™ Planning and Scheduling Suite, can optimize the process.

By Kevin Stupfel | Ascend Contributor

56

benef i ts

Utilizing Low-Fares Manager, airlines can

better manage costs and generate revenue

through the system’s ability to calculate

the price of each seat while remaining

competitive.

features

Reliable forecasting — Incorporatingadvanced algorithms, Low-FaresManager considers data specific to thelow-fares environment, resulting in morereliable forecasting that better estimateslow-fare demand.

Restriction-free pricing — The systemenables carriers to continue effectivelymanaging their revenues by accepting or rejecting passenger bookings basedon their overall revenue contributions.Graphical user interface — With the system’s easy-to-use interface, analystscan adjust and override settings such as demand values, fare curves and class-open and class-close timing.Customer buying behavior — Low-Fares Manager estimates customer buying behavior, enabling airlines to adjust inventories and prices in response to demand to generate maximum revenue. a

product

Sabre ® AirMax ® Low-FaresManager

descr ipt ion

AirMax Low-Fares Manager is the

industry’s first revenue management

solution designed for highly competitive

low-cost markets. It delivers enhanced

modeling techniques that help airlines

effectively minimize revenue dilution due

to passenger buy-down behavior.

News on New and Improved Productsand Services from Sabre Airline Solutions

hightech

Gantt charts with an easy-to-use graphical user interface enable airline analysts to quicklyand effectively evaluate and modify their flight schedules, minimizing disruptions andreducing costs.

“By benchmarking our excess baggageand unaccompanied minor charges against thecompetition, we have now increased thesefees, resulting in additional revenues to the air-line,” she said. “Also, with the addition of newtechnology, we are able to monitor our collec-tions on a daily basis. This enhancementmakes sure we keep our eyes on the ball con-stantly. Giving immediate feedback to ourfront-line team is a great motivator when itcomes to getting the job done.”

Many other operational and commercialareas identified as areas where performancecould be improved:

Crew planning — The team put in placeimproved crew scheduling practicesdesigned to ensure optimum coverage ofpilots and copilots while focusing on costreduction. “We are now using the [Sabre ®]AirCrews ® [Crew Management Suite] opti-mization process for planning projects andcrew pairing,” said David Banmiller, execu-tive vice president and chief operating offi-cer of Air Jamaica. “An additional benefit

from the tool and procedures we now use isto inform crews on changes in their sched-ule patterns.”Maintenance — The airline experiencedhigher than usual technical problems result-ing in flight delays during the peak summerseason. “We identified a straightforwardsolution tied to spares support and properadjustment of inventory levels to alleviatethe problem,” said Capt. Lloyd Tai, seniorvice president of technical services for AirJamaica.

In heavy maintenance, the technicalteam realized the airline was performing

certain maintenance tasksearlier than was recommend-ed by the aircraft manufactur-er. “The team introduced pro-cedures to reduce mainte-nance costs by extendingtime between maintenancevisits and improved the over-all efficiency of the mainte-nance schedule,” Tai said.

Commercial — The teamidentified that revenue benefitscould be realized through acombination of performancemonitoring to identify whereaction should to be taken in

areas such as pricing, and by putting in placenew procedures to firm flights and controldiscount seat offerings.

“By working in partnership with travelagencies and creating structured sales incen-tives, as well as managing distribution channelcosts, the airline will realize a combination ofadditional revenues and cost savings,” saidJohn Lewis, Air Jamaica’s executive vice pres-ident and chief revenue officer.

The airline also enlisted the help of theconsulting team to re-launch its frequent flyerprogram, 7th Heaven, to increase service aswell as better monitor the program.

“The re-launch will enable us to expand7th Heaven to better serve existing airline andnon-airline participants, offering us the capabil-ity to extend promotions as well as manageand track success of the program,” said MikeGoing, Air Jamaica’s senior vice president ofmarketing and sales. “We are excited that itwill offer broader customer appeal and bringnew membership.”

As a result of the consulting study, theairline identified substantial measurable bene-fits resulting from new revenues or cost sav-ings that were identified during the project. Toachieve these benefits, the airline plans toclosely follow the recommendations thatemerged from the consulting study.

“The airline is ramping up new proce-dures and following those already in place in commercial and operational areas,” saidChris Zacca, Air Jamaica’s chief executive officer. “Each department is aligned to deliverresults. We expect to see these benefits fully attainable for the foreseeable future andare counting on their contribution to the bot-tom line.”

Peter Berdy is a partner and EdBowman is a principal of managementconsulting for Sabre Airline Solutions

Consulting. They can be contacted at [email protected] and [email protected].

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regional

T ravelers who call the headquarters of AirJamaica are among the first to get an

inkling of the new spirit at Air Jamaica.Greeting its customers with, “Welcome to thenew Air Jamaica,“ the Kingston-based airlineshows its commitment to becoming a top-notch carrier.

The new attitude reflects a changedenvironment at Air Jamaica, which hasembraced the spirit of a turnaround in its finan-cial performance despite continuing obstaclessuch as rising fuel prices, stiff competitionfrom U.S.-based major airlines and fickle con-sumers looking for the least-expensive vacation.

While the airline has been supportedpartly by the Jamaican government, whichcontinues to own a stake in the company, the

onus is clearly on the airline’s managementteam to improve its financial performance.

Because Air Jamaica has a small manage-ment team responsible for overseeing the entireoperation, the airline decided to bring in a teamof technical experts to independently diagnosedifferent aspects of the company to identify

ways to improve its financial performance. “We wanted to identify practical cost

savings and revenue generating opportunitiesacross the company as the first step in puttingtogether real, workable solutions that wouldhave a payback that could show benefitsquickly,” said Keith Smith, vice president ofinformation technology for Air Jamaica.

Smith, who led the initiative, said AirJamaica selected Sabre Airline Solutions’ tech-nical consulting team, which had been usedpreviously by the airline to develop a programto improve on-time performance. The team

was now tasked with examining the spectrumof commercial and operational areas to identi-fy potential cost-saving and revenue-generat-ing opportunities. After a diagnostic review,the consulting team discovered that changesin the airline’s processes and procedures couldreduce costs and increase revenues as well as

add new elements the airline lacked such astools and techniques to manage and measureperformance.

“In the area of purchasing, we had pro-cedures in place with vendors, but we werenot following them,” Smith said. “The (con-sulting) work revealed that by simply followingour own guidelines, we could reduce and con-trol our spending to produce strong savings inthis area.”

Sue Rosen, the airline’s vice presidentof customer service, said the new proceduresquickly generated results.

regional

ascend

A Turn for the BetterA spirit of renewal at Air Jamaica, one of the Caribbean’s largest airlines,has the airline on track for improved financial performance.

58

By Peter Berdy and Ed Bowman | Ascend Contributors

“We expect to see

these benefits fully

attainable for the

foreseeable future

and are counting on

their contribution to

the bottom line.”— Chris Zacca,

CEO, Air Jamaica

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T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Lufthansa German Airlines

What

Began offering special corporate fares

through Travelocity Business that give

corporations competitively significant

discounts on fares for coach, business

and first class flights.

Why“Travelocity Business has an excellent

understanding of the unique needs of

corporations and their travelers,” said

Mathias Friess, director of sales, North

America for Lufthansa. “Lufthansa

is eager to welcome Travelocity

Business customers onboard, where

they can experience everything from

all-business class, Executive Jet

service to FlyNet — the first-ever,

broadband Internet in flight.” a

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Unique customer amenities,such as hot meals and unlimited complimentarychampagne, wine and beer on every flight, keepswith Air Jamaica’s new spirit that has helped with the airline’s positivefinancial turnaround.

plays of online travel agencies such asTravelocity and Expedia. Additionally, majoronline connecting markets have now filedfares and more competitive offline fares canbe offered. EgyptAir also introduced advancedrevenue management procedures and estab-lished a centralized group desk to handlegroup reservations, which represent a majorportion of the airline’s business.

Besides improved availability on theWeb and in global distribution systems, salesand field office personnel were trained on thenew pricing and revenue management strate-gies and sales approaches to support the rede-fined distribution strategy. Also, refinedprocesses to monitor booking information datatapes/market information data tapes were rec-ommended to align agency payments withactual productive bookings.

The introduction of a 24-hour call center,which is slated to open this month, will furtherenhance accessibility for reservations. Thiswill help to not only increase sales but alsoincrease satisfaction levels with betterresponse to customer enquiries.

Turning it AroundBy redesigning its network so as to optimizeperformance, EgyptAir:

Improved its Cairo hub connections fromAfrica to Europe and the Middle East,Restructured 13 low-performing stations,Eliminated tag flights and focused on thelargest non-stop markets,Implemented consistent flight times to allmajor markets,Increased utilization of aircraft resources,Built alliances to extend its reach.

As a result of these changes, Egypt is projected to become an important gateway for Africa to Europe and Africa to Middle Easttraffic. With the realignment of the networkand improved connectivity, both flow trafficand total traffic are expected to grow about 30 percent and 24 percent respectively duringthe next four years, resulting in improved profitability.

In addition to network adjustments,EgyptAir also made several downline changes,including:

Better availability of published fares,Availability of seats and fares in online trav-el agencies, Initiatives to establish a ticket sales Web site, Implementation of a five-year comprehen-sive performance strategy, More efficient summer schedule,Cairo hub and fleet plan recommendations,New published fares significantly extendingEgyptAir’s offering in the marketplace,Changes in the airline’s revenue manage-ment paradigm and practices,Redefined distribution strategy,Focused sales team training, Station audit checks with recommendationsfor changes,Knowledge transfer in key areas.

All of these changes, developed in con-junction with the consulting team, helped tosignificantly increase profitability and positionEgyptAir as a major player in the region forcontinued future growth.

Vijay Bathija is a principal consultant with Sabre Airline Solutions

Consulting. He can be contacted [email protected].

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regional

EgyptAir has always had the ingredients forsuccess — it is the flag carrier of one of

the most populous nations in the Middle East,a country with an impressive history and cul-ture that annually draws thousands of visitors;it operates one of the youngest and mostmodern fleets of aircraft in the world; and it isstrategically positioned among Europe, Africaand the Middle East.

Yet, officials of the Cairo, Egypt-basedairline believed EgyptAir was not fully utilizingthese natural advantages to reach its fullpotential as one of the region’s leading airlines.

“When we looked at our operation, werealized we were not getting fair marketshare,” said Eng. Mohammed Hassan, advisorto the chairman of EgyptAir. “We also believedthat we could improve our pricing, sales anddistribution operations so that we didn’t missrevenue opportunities.”

Given the desire to improve its opera-tions, EgyptAir officials began to thoroughlyexamine the airline, enlisting the help of SabreAirline Solutions Consulting to identify areaswhere the airline could improve.

The airline asked the consulting team toassess the current environment and develop acomprehensive turnaround strategy to helpEgyptAir capitalize on its natural strengths andminimize its weaknesses.

Taking a Hard Look“Sabre Airline Solutions consultants werefocused on our needs and took the time tounderstand our specific issues before propos-ing a solution,” Hassan said. “Then, the teamworked closely with EgyptAir to implementthat solution.”

Working with the consulting team,EgyptAir prepared a holistic turnaround plan.

The team started with an analysis of the air-line’s strengths, weaknesses, opportunitiesand threats — known as a SWOT analysis.Through the analysis, the team developed acomprehensive strategy to address the air-line’s weaknesses and take advantage of itsopportunities.

“Through the SWOT analysis, we wereclearly able to see where we could make dra-matic, immediate improvements to our air-line,” Hassan said.

One element of the turnaround strategyinvolved developing a new network schedulethat optimized aircraft deployment and helpedthe carrier reach profitability. Networkredesign was supplemented by a new strate-gy of codeshare alliances and by implementingbest practices for pricing, revenue manage-ment, and sales and distribution.

To extend EgyptAir’s reach, the consult-ing team analyzed potential codeshare part-ners throughout different regions and deliv-ered a report showing the maximum benefitsof implementing a new codeshare strategy.For example, a codeshare agreement withAustrian Airlines was enhanced to benefit bothparties. The new codeshare strategy enabled

EgyptAir to increase service to Vienna, Austria,on Austrian Airlines’ code and begin providingdaily service between the two partners. Inaddition, through Vienna, EgyptAir passengerswould have more frequent service to moreEuropean destinations such as Stockholm,Sweden. The airline also examined its code-share agreements in Asia, and as a result,EgyptAir is working to develop new codesharepartners in the region.

To implement the network redesignstrategy, the consulting team used the Sabre ®

AirFlite ™ Fleet Manager, the Sabre ® AirFlite ™

Schedule Manager and the Sabre ® AirFlite ™

Profit Manager to optimize EgyptAir’s net-work. The consultants used the joint approachof running the planning tools and showing thecontinuous improvement results over variousiterations to reach the optimum solution. Thisprocess, which took two months, resulted inan optimal network that focused not only onnetwork profitability but also customer conve-nience. As a result, EgyptAir improved serviceto major markets such as North Africa and theGulf region while also streamlining servicesfrom Europe to popular beach destinationssuch as Sharm-El-Sheikh.

“We were very excited to see howmuch revenue we could generate by simplyrevamping our network,” Hassan said. “Bydoing so, we were able to ensure that weenhanced the utilization of our aircraft andoptimized passenger flows.”

Based on its analysis, the consultingteam estimated that EgyptAir could improveresults by US$40 to US$50 million a year if theright changes were made.

The positive effects of the networkredesign consulting work were furtherenhanced by internal process changes in pric-ing and revenue management that incorporat-ed industry best practices.

In terms of pricing, the new automatedfare filing process the airline introducedenables it to appear prominently in the dis-

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Out of AfricaAs EgyptAir revamps its operations and route network, it stands to play a big role in traffic from Africa to Europe and the Middle East.

By Vijay Bathija | Ascend Contributor

60

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Southwest Airlines

What

Joined the Travelocity Partner

Network sm, making Travelocity the

exclusive supplier of cruises for

Southwest Airlines. Travelocity will

provide cruise content to Southwest

Airlines via its Web site,

www.southwest.com, providing

Southwest Airlines a best-in-class

cruise product for its customers.

Why

“We continue to bring our customers

the best products, the best service and

the best values, which is why we chose

to partner with Travelocity and its rich

offering of leading cruise brands,” said

Kevin Krone, Southwest Airlines’ vice

president of interactive marketing. “We

look forward to fostering a significant

cruise relationship with Travelocity —

one that is mutually beneficial for each

company as well as our mutual part-

ners in the cruise industry.” a

200 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

150 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

100 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

50 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

0 --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

Projected Cumulative NPV formedium carriers

2005 2006 2007 2008Mill

ion

s (U

.S. d

olla

rs)

As a result of revamping their opera-tions, airlines like EgyptAir have the potential to realize significant financial benefits.

As part of its recent turnaround strategy, EgyptAir created a new network schedule andimplemented an innovative codeshare plan, helping increase network profitability andcustomer convenience.

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ir

A sk most passengers travelingthrough London’s Heathrow orGatwick airports about EasternAirways, and it’s likely they

haven’t yet heard of the growing regional car-rier based at England’s Humberside Airport.Indeed, you might find the same is true amongtravelers at some regional airports throughoutthe United Kingdom. But ask one of the grow-ing number of passengers who’ve flownEastern, and they’ll tell you that it might be thebest kept secret among U.K.-based airlines.

Although the airline actively promotesitself through its Web site, advertisements in

regional press and Spectator magazine, radiospots, and contests and promotions, the air-line also benefits from word of mouth testimo-nials from its growing legion of converts.

“Many of our passengers fly with us ona regular basis, and if we deliver good servicethen they are keen to recommend us to theirfriends and colleagues,” said Bryan Huxford,Eastern’s chairman.

ascend 63ascend62

His business partner agreed. “That’sthe best marketing campaign I could hope for,”

said Richard Lake, chief executive officer ofthe airline.

The up-and-coming airline anticipatescarrying nearly 500,000 passengers this yearon its 650 weekly flights, and it has developeda loyal following because it incorporates a different mindset from many other “new-generation” airlines.

When Lake and Huxford, longtime busi-ness partners, reorganized the airline in 1997,they could have followed the path of mostnew start-ups and adopted a variation of thelow-cost model. But they choose a slightly dif-ferent route.

The joint owners said they have a pas-sion about customer service that is rare inthese days when the low-cost carrier is king.And their view is reflected in everythingEastern does, from its onboard amenities toits outstanding operational performance. It allcomes back to putting the passenger first.

The experience of an Eastern Airwaysflight might shock those who’ve grown accus-tomed to bare-bones service on domesticflights. The amenities on Eastern include freesnacks and refreshments on all flights and aglass of champagne on even some of the air-line’s shortest flights. Eastern also offers

Britain’s Best Eastern Airways, a successful regional carrier based in the United Kingdom, sets

“Eastern Airways is all about

service. It’s important we

recognize that the passenger

is a person and not a number.”— Richard Lake, chief executive

officer, Eastern Airways

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Kept Secret?itself apart by providing customer amenities and keeping service at its core.

By Marcus Pearson | Ascend Contributor

airline, which operates entirely in a ticket-less environment, is looking to add addition-al features, such as installing self-servicekiosks.

Providing welcome amenities and servingroutes no one else does leads to one thing —when you talk to Eastern’s passengers, theylike to think of the airline as their little secret,almost like a club that they invite good friendsto join, said Huxford, who had been associat-ed with the airline since 1973 after coming

from the retail sector of the electrical anddomestic appliance field.

One thing is clear, as Eastern contin-ues to thrive and profit in today’s volatile air-line industry, it is unlikely to remain a secretfor much longer. Last year saw the airlineawarded the 2003-2004 Airline of the YearSilver Award. In accepting the award,Huxford said, “This is about our team — all350 of them — who’ve made our growth pos-sible with their dedication, enthusiasm and

commitment. It also shows that an airline canbe a success as a niche player offering quali-ty business services.”

As Eastern continues to grow and gainrecognition, it has positioned itself to becomethe niche player that everyone is watching.

Marcus Pearson is a London-basedaccount manager for Sabre AirlineSolutions. He can be contacted at

[email protected].

a

some of the same benefits as larger carrierssuch as fast-track processing at LeedsBradford and Southampton. The airline’s char-ter service offers customers added featuressuch as VIP meals, hot towels and a full bar.The airline will even brand the aircraft with thechartering company’s identity if desired.

But all the steps Eastern takes have thesame underlying motivation — to add value tothe customer.

“If it doesn’t add value, then why do it?"Lake asked. “Eastern Airways is all about ser-vice. It’s important we recognize that the pas-senger is a person and not a number.”

Huxford and Lake, having experiencedfirst-hand what they described as “the bitter-ness of bad service” on other airlines, wantedEastern to stand apart.

The airline’s service provides a value tocustomers that they are willing to pay for, Lakeand Huxford said. The airline sets its fares sothat it can “charge appropriately for the job,”Lake said, enabling the airline to provideincreased service, yet without overcharging.

The airline’s point-to-point network,which links most of the regions of the UnitedKingdom, enables businesspeople to “createtheir business” throughout the country, saidLake, who was a former merchant navy offi-cer, mining engineer and film producer beforehe took on the task of running an airline. Therevamped Eastern began with a single routebetween Humberside and Aberdeen. The air-line next added a route between Aberdeenand Norwich and then Aberdeen and EastMidlands. In March 2003, the airline rapidly

expanded again, taking over seven routesfrom British Airways Citiexpress. Today, itserves 17 destinations throughout the UnitedKingdom.

When it re-launched, Eastern beganwith a single Fairchild Metro 23 turboprop. In

1999, the airline added an 18-seat Jetstream32 and a nine-seat Jetstream 31. In the fol-lowing years, the airline continued to add toits fleet. Today, Eastern Airways operates afleet of 22 aircraft — a mixture of Jetstream 31, Jetstream 41, Embraer ERJ145 and Saab2000. Eastern’s strategy of developingroutes other carriers have ceased to operateworks because the airline initially substitutessmaller, “right-sized” aircraft and then growsfrequency.

“We are always looking for opportuni-ties for new routes and new frequencies,”Huxford said. “But this is done after a carefulconsideration of the suitability of the aircraft tothe route.”

Even with its focus on service, Eastern,which maintained profitability during the indus-try downturn of the past few years, still man-ages to control costs. For its 2002 fiscal year,the airline reported profits of £2.2 million(US$4 million) on revenues of £47 million(US$86 million), an increase of nearly 125 per-cent over the previous year’s profit of£984,000 (US$1.8 million).

Eastern uses a number of methods tocontain costs — for example, stockpilinginventory of spare parts because it can buythem in bulk at significant discounts. All this adds up to a carefully managed approachthat Huxford and Lake believe drives theirbusiness forward. The airline, which utilizesthe SabreSonic TM Passenger Solutions for its reservations functions, also relies on information technology to help contain costs and operate more efficiently. The

regionalregional

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Placing a strong emphasis on service excellence, Eastern Airways has successfully balanced exceptional customer amenities with reason-able fares, resulting in a rapidly growing customer base and continued profitability.

Who

Continental Airlines

What

Implemented the Sabre ® Group

Management Tool, a new system to

help airlines automate the agency

group booking process. The system

automates the sale and management

of group or block airline reservations,

increasing efficiencies for both

agencies and airlines and enhancing

carriers’ inventory control.

Why“In order to reduce costs, we needed

to eliminate manual processes and

increase the efficiency of our group

desk and reservations department,”

said John C. Slater, managing director

of distribution planning for Continental

Airlines. “In addition, we wanted to

improve revenues by minimizing

spoiled inventory, so we needed a

system that automates the sale of

group or block space while providing

inventory control. We’ve found that

Sabre Travel Network’s Group

Management Tool does both. Not only

does it automate the process, but it

returns all unsold inventory to us at a

predefined time based on our uniquely

defined business requirements.” a

Ph

oto

co

urt

esy

of

Eas

tern

Air

way

s

Photo courtesy of Eastern Airways

“Many of our passengers fly with

us on a regular basis, and if we

deliver good service, then they

are keen to recommend us to

their friends and colleagues.”— Bryan Huxford, Chairman,

Eastern Airways

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Mexicana Airlines

What

Selected the Sabre ® TransVision ®

traffic flow analyzer and the Sabre ®

WiseVision ™ sales expansion system

to maximize cost-savings opportunities,

gain market share, improve schedules

and optimize commissions disburse-

ments to travel agencies.

Why

“Providing employees with systems

that offer more efficient ways of

detecting market trends and changes

has helped Mexicana make wiser

decisions,” said Sergio Allard,

executive vice president of sales

and marketing for Mexicana. “By

using the TransVision analyzer

and the WiseVision system, we

now have reliable numbers, giving

our sales representatives greater

negotiation power. With these sys-

tems, Mexicana has increased overall

confidence in the business decisions

we make and has allowed Mexicana

to negotiate new commission agree-

ments with agencies, track their per-

formance and greatly increase sales

representative efficiency.” a

In recent years, global alliances haveevolved from simple marketing partner-

ships to more integrated entities striving toachieve operational synergies as well as mutu-al cost reduction.

Already, alliances have helped theirmember airlines generate additional revenue,control costs and deliver incremental value fortheir customers. Individual airlines are begin-ning to realize the economies of scale offeredby membership in one of the main globalalliances — facility sharing at key airports,common information technology systems, andcommon data repositories and joint purchas-ing programs. Alliances also provide key cus-tomer service benefits such as an increasednetwork, seamless travel through tools suchas interline electronic ticketing, and shared fre-quent flyer benefits and lounges.

Yet, there is still plenty of work left to bedone before airlines reap the full benefits ofalliance membership. Although necessarytechnologies already exist, airlines have beenhesitant to take this final step toward full inte-gration of planning and scheduling operations,in part because of the potential for unexpect-ed changes in the alliance composition andprevailing competitiveness between partnercarriers for high-end passengers. Secondly,some aspects of schedule coordination arerestricted by regulatory constraints as well asestablished contractual work rules.

As the global alliances continue todevelop, each member airline faces the chal-lenge of making the necessary cultural evolu-tion and business process transition that willensure the success of alliances’ combinedoperations.

The foundation for some of the comingchanges is already in place. With schedulecoordination, codesharing and joint pricing,alliance members have begun the process ofintegrating their operations. But there remainseveral untapped areas for future growth,including greater coordination of airline plan-ning, marketing and operations. By establish-ing new business practices that maximize theinterests of each airline, the interests of thealliance are also advanced. In such situations,an airline’s individual agenda has to be alignedwith that of the global alliance. By doing so,each member airline is better off due to itscooperation with other partners, and thealliance is enhanced due to the participation ofevery member.

The new business practices shouldencourage long-term relationships, which cer-

company

Aligning the AllianceBy more tightly aligning their operations in areas such as planning andscheduling, revenue management, and passenger service and operations,individual members of an airline alliance can further cut costs as well asrealize additional incremental revenue.

By Michael Clarke and Abdoul Sylla | Ascend Contributors

tainly present a challenge for an industry soaffected by the volatility of the global econo-my. But, by developing new practices in theuntapped areas of planning and scheduling,revenue management, passenger service, andoperations, airlines can further take advantageof alliance membership.

Planning and SchedulingTo be most effective in schedule planning, air-line alliance partners should have a commonview of:

Alliance objectives, Market size, Passenger preferences, Revenues,Operating costs.

Since individual airlines are not likely torelinquish control of planning and schedulingto a centralized alliance group in the nearfuture, each airline must be capable of com-municating key information to fellow alliancemembers during the planning process. By opti-mizing the alliance’s scheduling processes,partner airlines can effectively coordinate theirtimetables and take advantage of alliance mar-ket presence and the resulting market shareshift it creates.

Doing so involves the alliance compet-itive position (rather than airline competitiveposition) in origin-destination markets interms of service frequency, quality andtimetable coordination to ensure that thealliance provides quality online service. Italso involves capacity allocation to ensure

the smooth flow of passengers betweenalliance partners.

Competitive positioning for an airlinegenerally involves assigning resources to mar-kets to maximize expected profit. Each carrierin the alliance has the same objective and con-straints. Without accurately accounting foralliance traffic, an individual airline could allo-cate an aircraft with insufficient capacity,thereby generating passenger spill in a givenO&D market that could be competitivelyserved by the alliance. Alliance membershipcreates a new variable — how significantlyshould a given airline’s market position bemodified to take advantage of alliance demandand revenue opportunities?

The potential impact can be a 1 percentto 2 percent increase in market share for agiven O&D market. A demand increase of 1percent across multiple markets can have a

significant impact on airline profitability.Because airline planning is often a matter ofseeking profitability, shifts in demand shouldaffect the relative attractiveness of marketsand change individual airline plans. Timetablecoordination helps maximize the benefits ofthe demand share shift created by the alliance.Relatively small changes in the timetables ofall alliance carriers will increase the quality ofalliance service. On a more subtle level, thiscoordination can also maximize the portion oftraffic retained in the alliance when demandexceeds capacity. This requires an O&D viewof passenger spill and recapture.

Schedule coordination within thealliance results in potential demand increase.Alliances also should coordinate fleet assign-ments to ensure that capacity is in place toaccommodate this demand.

The fleet assignment process for eachpartner, or for the alliance, must be sensitiveto the flow of passengers within each airlineand alliance network. This requires thatdemand and revenue forecasts used in fleetassignment consider the flow of traffic acrossmultiple partners. It also requires that thecapacity optimization process is also sensitiveto this O&D flow.

Revenue ManagementBy maximizing the flow of revenue throughthe network, alliances boost the income ofindividual members. The revenue manage-ment process is complex for an airline alone,much less for an alliance. But, in essence,

company

“Without accurately accounting

for alliance traffic, an individual

airline could allocate an aircraft

with insufficient capacity, there-

by generating passenger spill in a

given O&D market that could

be competitively served by the

alliance.”

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Who

Sabre Travel Network

What

Released enhanced capabilities for the

Sabre ® Air Pricing suite that fully

automate fare by rule capability. The

global solution for Category 25 pro-

vides airlines the ability to automati-

cally accept and process discounted

fares and further simplifies complicated

negotiated fare contracts.

With the automated solution,

airlines file published fares and rules

via Airline Tariff Publishing Company

using the Category 25 fare by rule

process to attach corporate discount

formulas and client-specific fare rules

to the fares they file. The Sabre® global

distribution system then accepts the

ATPCO Fare by Rule feeds, automati-

cally calculating the appropriate fare.

Why“We are committed to providing

quality fare information, enhancing

efficiency and guaranteeing fares that

are auto-priced and auto-ticketed in

the Sabre GDS,” said John Stow,

president of Sabre Travel Network.

“This development allows more

accurate and quicker filings, decreasing

the agent workload and the presence

of human error.” a

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

WhoAloha Airlines

WhatWill utilize the Sabre ® AirMax ®

Revenue Management Suite and the

Sabre ® AirPrice ™ fares management

system through Sabre ® eMergo ® Web

access, an applications service

provider delivery method, to leverage

an integrated solution for pricing

analysis and flexibility. In addition,

the airline has implemented the

Sabre ® PC AirFlite ™ flight scheduling

system to improve the carrier’s air-

craft utilization.

Why

“These products will enable Aloha

to grow, streamline our operations

and compete effectively,” said

Randy Laser, vice president

for Aloha Airlines. “We gain

performance-enhancing capa-

bilities without having to resort

to costly infrastructure upgrades.

By choosing the eMergo delivery

model, we avoid major upfront

costs and better position

ourselves to focus resources

on our core operations.” a

company

ascend68

alliance. Since bid prices change with time,some history of the changes for all partnersmust be maintained in order to adequatelyshare revenues. This could prove a costlyexercise unless bid prices are directly incorpo-rated into passenger name records or globaldistribution systems directly perform the rev-enue sharing functions.

Other issues, such as booking cancella-tions and third-party proration agreements,have to be addressed as well. In dynamic pro-ration, if an alliance member has a special pro-ration agreement with an outside airline, rev-enue sharing becomes a complex issue. Therevenue split between alliance members is notfixed, making it impossible to guarantee a min-imal revenue to a third-party airline. For re-book-ings, the entire itinerary must be reevaluatedeven if only one leg is cancelled. Undoubtedly,this will have some implication on the revenueaccounting systems of partner airlines.

Passenger Service and OperationsThe market-share premium benefit of alliancesis based on the customer perception that thealliance’s service is of higher quality and relia-bility than interline travel. Delivering on thispromise requires alliance partners to coordi-nate their business processes prior to depar-ture, as well as their operations, to providehigh service reliability throughout the passen-ger journey. Prior to departure, customer infor-mation must be coordinated and passenger

journeys will require improved communica-tions and greater sharing of data among carri-ers. From the passenger’s view, this meansseamless handling among alliance partnersand transparent re-accommodation during off-schedule operations, which requires a highlevel of data sharing or common data in termsof flight following, customer information and

availability. It also requires that an airline com-municate its recovery process with its partners.

The dependability of an alliance networkand its underlying ability to recover from dis-ruptions in a minimal amount of time to facili-tate the flow of passengers and/or cargoshould be a primary focus. As they grow,alliances will face new challenges in the

company

revenue management for alliances mustaccount for the flow of passengers amongpartners through an O&D approach. Because itis unlikely that alliance members will relinquishcontrol of their revenue management process-es, business rules must be established toallow each partner to maximize its interestswhile also helping alliance partners.

Current revenue management facili-tates communication and cooperation amongpartners. Leading carriers are moving to anO&D control structure using bid prices, whichrepresent the free-market value of a seat onany future flight. A fare exceeding the bid priceprovides a net benefit to the carrier whereas afare below bid price represents an opportunity

cost — this seat could have been sold at ahigher fare later. Bid prices are used to controlavailability — a booking request valued higherthan bid price is accepted, a request valuedlower than bid price is rejected. For carriersusing bid prices, the benefits have been due toan improved control of bookings by O&D.Availability for a market class is tied to thevalue of the request rather than the availabilityin a bucket of many potential requests.

Bid prices can provide an even greaterbenefit for alliances. They represent an individ-ual carrier’s view of inventory value. Multiplecarriers using bid prices are able to value theirown inventory as well as their partners’ inven-tory in terms of a common currency, whichprovides significant operational benefits. Inparticular, alliance partners don’t need to main-tain additional business processes and/or sys-tems to make effective revenue managementdecisions. Imbalances in supply and demandbetween partners on flights with split invento-ry can be resolved by trading seats at a fairvalue — the current bid price. The availabilityof booking requests involving multiple alliancepartners can be determined based on thevalue to the alliance, which will facilitate thesale of long-haul, high-value traffic.

Because this approach will maximizealliance revenue, specific operating rules mustbe put into place so that no carrier incurs a rev-enue penalty on any booking transaction. Thisshould include a method of dynamic revenueproration to ensure that every alliance bookingtransaction is either revenue neutral or rev-enue positive for every participating alliancecarrier. In this way, the alliance appears tomake effective revenue management deci-sions even without a centralized alliance rev-enue management group.

Dynamic proration introduces new chal-lenges, such as risk of gaming and determin-ing bid-prices for carriers that do not use bid-price controls in their revenue management.For example, it will be necessary to obtainpseudo bid prices from seat availability andapplicable fares for all carriers within the

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

Integrated Operations

Decision-support systems

Crew planningand tracking

Crew planningand trackingAirline

operationscontrol center

Airline A

Airlineoperations

control centerAirline BMaintenance

and inventoryMaintenanceand inventory

Alliance centralizedoperations database

Passengername records

Flightfollowing

Seatavailibility

Loadplanning

Integrated Revenue ManagementAirline 1 Airline 2

Inventory management

Distribution DistributionOverbooking

Optimization OptimizationForecast

Revenueaccounting

Pricingdata

Schedulingdata

Alliancedatabase

Integrated Scheduling

Demandestimation

Scheduleconstruction

Slot management Distribution

Carrier 1

Carrier 2

Integrated scheduling requires that alliance members put all their resources in a pool anddevelop an alliance schedule, which would be flown by individual members. Demand esti-mation is done out of an alliance data warehouse, and the demand model calibration isperformed by a single team for the entire alliance. Similarly, the schedule construction,slot management and schedule distribution are performed by the alliance or teams fromindividual carriers. At this stage of integration, one would envision a downline integrationof the alliance’s other business units.

Integrated operations control entails the global alliance maintaining a centralized operationsdatabase that contains up-to-date information on flight schedules (times, seat availability),active PNRs and operational data necessary for load planning, flight planning and flightfollowing. Individual airlines are responsible for their own operational decisions undernormal conditions, while decisions about off-schedule operations are driven by allianceobjectives. By sharing a common methodology and decision-making framework, effectivedecisions are made such that the operational integrity of the global alliance is preserved.

Integrated revenue management involves an alliance team performing all revenue man-agement functions. A forecast server using data from all carriers provides demand data to a revenue mix module, which in turn supplies bid prices and gradients for all allianceflights. The revenue mix module receives input from all carriers, allowing them to set poli-cies such as for overbooking, denied boarding or oversales compensation. The inventorymanagement module is also centralized and assumes that the alliance members are in the process of achieving a better integration of their operations.

Who

Sabre Airline Solutions

What

Acquired Stockholm, Sweden-based

RM Rocade, which develops and sells

software solutions to airlines for com-

mercial planning, crew management

and operations control. Currently,

more than 60 airlines use the RM

Rocade Integrated Suite, including

FlyDBA, Air Atlanta, MyTravel, Cyprus

Airways, Austrian Airlines, Icelandair,

BA Citiexpress, and other carriers in

the European market. RM Rocade also

has a significant presence in Asia and

other regions with customers such as

Air China and Kuwait Airways.

Why

“Sabre Airline Solutions has made

it possible for small, medium-size

and low-cost carriers to operate

in new ways through the use of

accessible technology,” said Tom

Klein, group president for Sabre

Airline Solutions/Sabre Travel

Network. “In the last four years, this

has included launching the most suc-

cessful Web-based applications

access in the industry through Sabre ®

eMergo ® Web access, our application

service provicer offering, and adding

PC-based scheduling and operations

software through the acquisition of

David R. Bornemann Associates in

2001. The RM Rocade integrated suite

of products is another extension of

this strategy and portfolio.” a

“Leading carriers are moving to

an O&D control structure using

bid prices, which represent the

free-market value of a seat on

any future flight.”

S trong alliances require active communica-tion — not just between people but also

between systems via high-speed, cost-effec-tive networks. Until recently, such networkswere something of a contradiction in terms —it was difficult for a network to achieve highspeed at a reasonable cost. But, new enablingtechnologies becoming available today arehelping resolve the performance dilemma.

One exciting development involves theredundant array of Internet links, or RAIL,which connects an end point via multiple net-works. New technology tools are being devel-oped and deployed to manage routing of mes-sages over the RAIL, enabling airlines to com-municate more cheaply or rapidly.

Research indicates that a migrationstrategy that moves an airline off of a widearea network in favor of the RAIL would resultin a 40 percent to 50 percent annual savingson network costs while maintaining reliability.Qualcomm, the inventor of the code divisionmultiple access wireless telephone standard,and an early adopter of RAIL technology,

saved as much as 50 percent a year on its net-work costs by switching from frame toInternet service provider links. And, roundtriptime (entry and response) was reduced byalmost a third.

The development of RAIL technologyduring the past two years has caused manyinformation technology officials to rethink theirposition on networks.

As recently as late 2002, ForresterResearch spoke with IT directors about their

wide area network strategies and found thatthey intended to continue with costly framerelay and dedicated links as their primary WANservice. Why? Reliability. Of those surveyed,47 percent had no plans to change. Of those,33 percent did not consider the Internet as asuitable replacement for a WAN — 17 percentconsidered the technology too new and risky,and another 17 percent said moving to theInternet wasn’t necessary.

Two years ago, very few businesseswere making the leap to route control — tech-nology that searches the Internet and makesrouting decisions based on either performanceor price based upon message priority. Mostresisted the change, citing the uncertainties ofnew technologies.

When asked about multi-homing (con-necting one location via multiple providers forgreater reliability), approximately half of the IT directors questioned said they used orplanned to use it, but most still had no plans toreplace their existing WAN with the Internet.As one participant in the study said, “Who are

company

Riding the RAIL

By Gary Potter | Ascend Contributor

Sabre Holdings Labs is working on breakthrough technology to help airlines significantly reduce the cost of communicating among alliancemembers by using the redundant array of Internet links.

recovery of irregular operations. The mainchallenge comes from each partner having itsown system operations control center with dif-ferent strategies and methods of functioning.It is imperative that highly coordinated com-munication exists among the various airlineoperations control centers, or AOCC, to findsolutions beneficial to the entire alliance system.

As airlines expand their joint operations,pursuing collaborated operational decisions,especially in the event of a schedule disrup-tion, becomes more important. Day-of-opera-tions decisions should encompass all aspectsof the business, which will be affected byirregular events such as passenger re-accom-modation, aircraft routing, crew tracking andrecovery, and ground resource management.In the long term, alliances may develop a cen-tralized global AOCC, which would be respon-sible for monitoring and coordinating all opera-tional decisions within the alliance.Alternatively, each AOCC should be able tohandle decisions related both to its own fleetand that of its partners. There may also be sig-nificant benefits of collaborating during thestrategic phase of operations, including suchissues as joint maintenance planning.

The introduction of advanced decision-support systems within the AOCC will drive

airlines to further coordinate their operationsand decision-making procedures. During theinitial phases of decision-support deployment,airlines will continue to make decisions inde-pendently, but they will use the same dataacross the entire alliance. Unilateral decisionmaking would be transmitted within thealliance using the established channels ofcommunications. The ultimate alliance AOCCwould be responsible for making real-timedecisions for all airlines that are part of theglobal alliance.

Alliances are evolving, and in order tosustain growth and profitability, it will becomeimperative that members share demand andoperational information, explore opportunitiesfor sharing resources (e.g., slots at congestedairports), and rationalize revenue managementprocesses. Standardized planning procedureswill bring consistency, even when airlines havedissimilar levels of ability, experience and suc-cess in the marketplace. The research groupthat supports Sabre Airline Solutions is activelyresearching the impact of alliances on revenuemanagement business processes. In addition,the schedule recovery decision-support frame-work developed by the research group has beendesigned specifically to incorporate alliance con-siderations in passenger re-accommodation andschedule changes. The research group is alsoworking with planning and scheduling systemsto develop new market share models that willleverage online shopping capabilities and helpdetermine true O&D market demands.

Michael Clarke and Abdoul Sylla are principal research scientists in

the Sabre Holdings technology office. They can be contacted at

[email protected] and [email protected].

a

company

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

“… a migration strategy that

moves an airline off of a

wide area network in favor

of the RAIL would result in

a 40 percent to 50 percent

annual savings …”

Who

Frontier, Spirit Airlines, Aeroméxico,

Japan Airlines and Qantas

WhatMade special business travel discounts

available through Travelocity Business,

the first Internet full-service corporate

travel agency to offer all of its customers

business travel discounts on the airline.

The discounts are designed specifically

for business travelers, including dis-

counts on refundable and non-refund-

able tickets, without the restrictions of

leisure discounts, such as Web fares.

Why

“Frontier is focused on providing the

right mix of price and flexibility to

both leisure and business travelers,”

said Sean Menke, senior vice president

of marketing for Frontier Airlines.

“Travelocity has always been an

excellent partner, and now working

with Travelocity Business, we are able

to enhance our reach into the business

travel market, offering even more

flexibility to complement the wide

range of value-added programs we

currently offer the business traveler.”

Marc Cavaliere, vice president of

sales and distribution for Spirit

Airlines, said, “Spirit Airlines has

quickly emerged as an affordable

option and maintains a high level

of quality and flexibility, which is

attractive to budget-conscious busi-

ness travelers. Travelocity Business

continues to focus on offering the

most complete range of options to

business travelers, including discount-

ed fares that offer them the flexibility

to deal with changes in travel, and

Spirit Airlines is an excellent addition

to this program.” a

Who

Qantas Airways

What

Has gone live with release

10 of Sabre ® AirFlite ™ Schedule

Manager and Sabre ® AirFlite™

Profit Manager, providing

automation of the airline’s flight

scheduling and route evaluation

processes.

Why“I have been very pleased with the

smooth introduction that Sabre

Airline Solutions has achieved with

Schedule Manager,” said David

Round, manager network systems

and communication for Qantas.

“As the first airline to go live with

the new system version, we were

expecting some initial problems,

but we have been impressed with

the system and support we have

received from the staff at Sabre

Airline Solutions.” a

“The dependability of an alliance

network and its underlying abili-

ty to recover from disruptions in

a minimal amount of time to

facilitate the flow of passengers

and/or cargo should be a prima-

ry focus. As they grow, alliances

will face new challenges in the

recovery of irregular

operations.”

you going to call when there’s a problem, 1 800 INTERNET?”

In 2002, Forrester Research concludedthat companies would remain on their privateWANs. With concerns about privacy and relia-bility, very few companies were ready to makethe move to multi-homing, although the studydid find such technology was gaining wideracceptance as companies hedged their posi-tions by relying on multiple network providers.Yet, while interested in route control, notmany companies were willing to leave thecomfort of their private networks and makethe leap to the new technology.

Now, fast forward to 2004, multi-hom-ing has gained acceptance as well as intro-duced new challenges. Companies havebought into the idea that using multiple carri-ers at varying price points makes a lot ofsense. Unfortunately, in a multi-homing sce-nario, border gateway protocol, or BGP, thebasic routing mechanism for directing Internettraffic to its destination via the shortest route,does not balance price with speed. Wheneverything runs smoothly, traffic is sent vianatural routing. But when bottlenecks appearas throughput increases and routing changesare made, low-priority traffic is likely routedover high-cost circuits because BGP is unableto determine whether it is more important forthe message to be sent quickly or less expen-sively. This continues until the bottleneckclears or throughput decreases.

But the new tools available to managerouting over the RAIL are addressing thecost/speed equation while still providing

sufficient reliability. Multi-homing solved the reliability challenge presented on open/publicnetworks, offering performance comparableto WAN.

The tools combine routing objectives(price vs. speed) and policies (priority of mes-sage) with live data taken from probes on theInternet. The probes, small applicationsdeployed on Internet routers, collect end-to-end network measurements such as bit rates,latencies, etc. in real time through a combina-tion of endpoint flow collection and trace prob-ing. Specific Internet protocol addresses areidentified and verified as valid for the businessgoals of meshing message priority with its cor-responding price and speed of delivery.

Once IP addresses are verified, rawmeasurement data are collected from theprobes and analyzed at the enterprise level.Network paths are measured to show laten-cy, which can impact response time, andloss, which affects data integrity. These raw

measurements are used to establish trans-port delay or behavior of low-level protocols.When these measurements are applied to aseries of metrics, the models can determinethe correct path for network application traf-fic. And via a series of ongoing iterations, themodels are continuously verified until adjust-ments are necessary due to business-ruleviolation.

Control points for adjustments areusually the edge routers — they connect theWAN links. Adjustments are sometimes nec-essary to increase availability, improve per-formance or reduce costs by measuring cur-rent performance and comparing it againstcontinually validated metrics.

And finally, today’s tools include somesort of reporting mechanism. Reports includeavoided networks, selected network includinglatency statistics as well as status and logmessages, measurements that show howwell each network serves the various applica-tions, and a utilization summary for billing.

Sabre Holdings Labs, which usesapplied technology to create business oppor-tunities through innovation, is working withSabre Airline Solutions to define a strategy fordeploying RAIL solutions in the airline environ-ment. The Labs team, which holds nine patentswith 20 pending, is continuing to explore waysto deploy these networking tools.

Gary Potter is senior director for researchand development projects for Sabre

Holdings Labs. He can be contacted [email protected].

a

company

T H E H I G H L E V E Lvıew News Briefs from Around the Globe

“Sabre Holdings Labs, which

uses applied technology to create

business opportunities through

innovation, is working … to

define a strategy for deploying

RAIL solutions in the airline

environment.”

WhoCathay Pacific Airways

WhatRenewed its contract for two key

products — Sabre ® Dispatch Manager

and Sabre ® Movement Manager — to

help strengthen the airline’s position as

a leading global hub and the gateway

to mainland China.

Why“We recently expanded our

commitment to the region by resuming

flights to the Chinese mainland, so

now more than ever, we need reliable,

cutting-edge IT solutions that will

enable us to maintain superior ser-

vice,” said Capt. John McCormick,

general manager of operations for

Cathay Pacific Airways. “Sabre

Airline Solutions’ technology plays

an integral role in our daily business

operations and provides the proven

foundation we need to maximize

organizational success.” a

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What makes a solution “smart”? Patented algorithms?Intuitive interfaces? Open-systems architecture?Absolutely. But what’s really smart are solutions thathelp you overcome your challenges and deliver results.

By working closely with carriers worldwide, we’ve developed a portfolio of flexible, integrated solutionsthat can optimize operations for all airlines — any size,any business model, anywhere in the world.

Learn how we can work together to create smart solutions for your airline. Call us at 682 6051000. Or visit www.sabreairlinesolutions.com.

smart. proven. bankable.

smartsolutions.

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please send an e-mail message to the

Ascend staff at [email protected].

For more information about products

and services featured in this issue of

Ascend, please visit our Web site at

www.sabreairlinesolutions.com or contact

one of the following Sabre Airline Solutions

regional representatives:

Asia/Pacific

Chris Vasiliou

Senior Vice President

Level 9, Phillips Building

15 Blue Street

North Sydney NSW 2060

Australia

Phone: 61 2 8923 5230

E-mail: [email protected]

Europe, Middle East and Africa

Vinay Dube

Vice President

23-59 Staines Road

Somerville House

Hounslow, Middlesex

TW3 3HE, United Kingdom

Phone: 44 20 8814 4540

E-mail: [email protected]

North America

Graham Whitmarsh

Vice President

3150 Sabre Drive

Southlake, Texas 76092

United States

Phone: +1 682 605 5769

E-mail: [email protected]

Latin America

Marcela Lizárraga

Vice President

3150 Sabre Drive

Southlake, Texas 76092

United States

Phone: +1 682 605 5333

E-mail: [email protected]

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www.sabreair l inesolut ions.com