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© 2011 Sabre Inc. All rights reserved. [email protected]

A MAGAZINE FOR AIRLINE EXECUTIVES 2011 Issue No. 1

SkyTeam:

Merchandising through GDS gives airlines additional storefront

Strategic commercial planning increases airline revenues

Avianca-TACA merger changed Latin America aviation

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A Conversation With É Leo van Wijk, Chairman, SkyTeam Pg. 10

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

Caring More About You

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Kuwait Airways gained US$26 million in value benefits during the first five months of implementing real-time revenue integrity technology.

Manmade DiamondKuwait Airways makes millions using its new real-time revenue integrity system

By Lynne Bowers-Dodson | Ascend Staff

Manmade Diamond ewelers determine the value of a diamond by examining the “four Cs” — cut, color , clarity and carat. During the next few years, investors will assess the

value of Kuwait Airlines by examining a different set of “four Cs — commitment, competition, capacity and capital improvements. Perhaps these investors will count to its credit the car -rier’s remarkable comeback despite a recent past marked by intense heat and pressure reminiscent of diamond creation.

Diamond FormationWhen asked about the future of his airline in

March 2010, Kuwait Airways Chairman Hamad Abdullatif Al Falah described the carrier as a diamond. A look at the carrier’ s 57-year history bares some striking similarities to one of nature’ s most durable substances.

Diamonds begin their journey as unpretentious elements of carbon. So too, Kuwait Airways had a modest start. In 1954, two local businessmen launched the Kuwait National Airways Company with US$72,979 in start-up capital and a fleet of three Douglas DC-3s. Flight operations began on March 16, 1954, connecting Kuwait City with Abadan, Iran; Beirut, Lebanon; Damascus, Syria; and Jerusalem.

The company was renamed Kuwait Airways Corp. (KAC) the following year as the government acquired a half interest. The route network was expanded throughout the Gulf region with the addition of leased, four -engine V ickers V iscount aircraft in 1958.

The government of Kuwait, which became independent from Great Britain in 1961, bought the remainder of KAC’s shares in May 1962 after the launch of rival T rans Arabian Airways made the competitive situation difficult. The government acquired a controlling interest in T rans Arabian in April 1964 and folded its Douglas DC-6 aircraft into the KAC fleet.

In the meantime, KAC had begun operating its first jet aircraft, de Havilland Comets, in 1962. This allowed the company to venture into Europe with a six-hour nonstop to London. Newer planes, including Hawker Siddeley Tridents and BAC One-Elevens, soon joined the fleet. The One-Elevens were leased off within a couple of years, but the Tridents were successful flying routes in the Middle East.

KAC bought its first Boeing aircraft when it acquired three 707 airliners in November 1968 at a cost of about US$25 million. By 1976, the airline had retired its earlier jets and turboprops and was flying a fleet of eight 707s. Soon the company added midsize Boeing 737s and 727s, one of which was operated exclusively for the government.

KAC received the first of four Boeing 747 jumbo jets in August 1978. The long-range aircraft allowed the airline to extend the London service to New York City as well as start service to Manila in the Philippines. In the 1980s, KAC took delivery

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of four Boeing 727-200s; eight Airbus A310s; one Airbus A300-600; and three Boeing 767-200 ER aircraft.

Diamond InterruptedAccording to science, the carbon that makes

diamonds comes from the melting of pre-existing rocks in the Earth’s upper mantle. There is an abundance of carbon atoms in the mantle. Temperature changes in the upper mantle force the carbon atoms to go deeper where it melts and finally becomes new rock, when the tem-perature reduces. If other conditions such as pressure and chemistry are right, the carbon atoms in the melting crustal rock bond to build diamond crystals.

However, there is no guarantee that these carbon atoms will turn into diamonds. If the temperature rises or the pressure drops then the diamond crystals may melt partially or totally dissolve. For KAC, rising temperatures from the Aug. 2, 1990, invasion by Iraq nearly destroyed the chemistry that was working to turn the carrier into a diamond to be admired throughout the Middle East.

In the seven months following the invasion, Airliner W orld reported that more than 85 per -cent of KAC’ s assets were destroyed or stolen. Among devastating wartime loses reported by the Financial Times:

US$1.6 billion in losses due to damage to thecarrier’s fleet, computer reservations system

and lost revenues;Seizure by Iraq of one dozen of the airline’s 20planes, and another three owned by the Kuwaiti government (several of these planes were destroyed in the war);A spare parts inventory valued at US$150 mil-lion confiscated by the Iraqis; A loss of US$133 million in the 1990-91 fiscalyears.Six of KAC’s Airbuses survived the invasion and

were flown to Iran during the occupation. Following the war, KAC filed an insurance claim for US$694 million for loss of the planes; however , Lloyd’s of London limited its payout to US$300 million, its maximum for a single event. The dispute between KAC and Iraqi Airways (IAC) continues today and is the longest-running commercial case in the history of the English courts.

Nearly 12 years of previous decisions have been dismissed by higher courts due to a series of findings of perjury and fraud against IAC. KAC now holds judgments totaling nearly US$1.2 billion against IAC and US$83.5 million against the State of Iraq.

“Adámas”The name “diamond” is derived from the

ancient Greek “adámas,” which can be interpreted as “unbreakable.” During the invasion, and despite the odds, KAC adopted an unbreakable posture.

The carrier conducted operations from a tem-porary base in Cairo even while its homeland was under occupation. Half of its employees, including then-Chairman Ahmad Hamad al-Mishari, had been out of the country during the invasion.

KAC was operating a fleet of nine aircraft imme-diately after the war; all but one of these planes

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Seats Returned By Sabre AirVision Revenue Integrity For Kuwait Airways In 2010.

1,047,809 seats During the first four full months of using Sabre Revenue Integrity , SriLankan Airlines returned more than a million seats to sales. 0

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Fictious NamesDuplicate Bookings Redundant Itinerary Ticket Firming

Solving Real Problems Revenue Integrity solves business problems for Kuwait Airways such as ticket time limits, fake names, duplicate bookings, and fake or duplicate ticket numbers.

Real-Time Revenue Integrity Real-time Revenue Integrity achieves significant results over other revenue integrity robots.

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had been out of the country during the invasion, according to the Financial Times. Reservations and maintenance operations were shifted to outside facilities.

Following the seven-month-long Gulf W ar, a Kuwait Airways spokesperson summed up the car-rier’s intent: “Kuwait Airways aims to re-establish its network to reach more than 47 countries around the globe with a firm commitment to providing the finest service and comfort to passengers while continuing to rank safety as one of our highest priorities.”

With that, the carrier began a massive rebuilding project. It ordered 17 new aircraft worth US$1.44 billion delivered in 1996. These included two new Boeing 747s to replace the old ones.

KAC lost buildings as well as aircraft during the occupation. Construction of a new US$37 million, two-story headquarters began in 1993, and the airline moved into it in 1998. New hangars also were erected. The cost of rebuilding the ground infrastructure was reported at up to US$250 million by Airline Business.

Capacity exceeded demand in the Mideast air travel market during the 1990s, setting up intense competitive pressure. In response, KAC developed limited alliances with other regional carriers such as Syrian Airlines, Middle East Airlines, Cyprus Airways and Thai International.

In addition, the Kuwaiti government instituted an open-skies policy in 2006, and since then has signed open-skies agreements with the United States, Singapore, Cambodia, Myanmar, Laos, Brunei, Thailand, Austria, Poland, Georgia, the Czech Republic, Kyrgyzstan, Finland and Iceland.

New market conditions have birthed new com-petitors. The airline that once held a monopoly in Kuwait now competes against newcomer Jazeera Airways.

Diamond MiningToday, KAC operates a fleet of 22 aircraft,

mostly Boeing 777-200 ER, Boeing 747-400M, Airbus A340-300, Airbus A330-200, Airbus A320-200 and Airbus A300-600R. The airline plans to include more aircraft in its fleet, bringing the total to 80 by 2012.

Before the invasion, Kuwait Airways enjoyed a reputation for excellent in-flight service. As the flag carrier of a Muslim country, KAC did not offer alcoholic drinks, and meals were prepared accord-ing to Halal dietary principles.

Current Kuwait Airways Chairman Hamad Abdullatif Al Falah believes the carrier can regain its reputation with an influx of investment capital spurred by privatization. The Kuwaiti parliament agrees and last year approved a budget that will transform the state-owned carrier into a private entity called Kuwait Investment Authority (KIA) with a number of local and international stakeholders:

35 percent will be sold at auction to foreign orlocal investors, 40 percent will be sold to Kuwaiti citizens at aninitial public offering,

20 percent will be reserved for state-run institu-tions,5 percent will be distributed free to Kuwaiti air -lines employees.In an interview with Marcopolis last March,

Chairman Hamad Abdullatif Al Falah said, “Kuwait Airways is a diamond, and whoever buys with Kuwait Airways will be a winner. We have the best pilots, engineers, technicians and training center that serve many Arab countries.

“Kuwait Airways is ahead of our competitors with regard to all of these aspects. Kuwait Airways is at the end because our aircraft are older and smaller in number. If we have a bigger number of aircraft we can offer more destinations and with newer aircraft we will be more competitive and we can capture more of the market.”

Kuwait is clearly taking positive steps to improve its infrastructure and technology , which is key to boosting revenue for all its carriers. Last November, the government signed a contract to equip Kuwait with a new air traffic control system. In addition, it is developing a new terminal at KIA and new airports are under construction to support the growing aviation market.

To help with capacity improvements, Kuwait Airways has contracted with Calidris (since pur -chased by Sabre Airline Solutions®) via a partnership with Mercator to provide a real-time revenue integ-rity system. Sabre® AirVisionTM Revenue Integrity was implemented in April 2010. During the first five months, it delivered value benefits to the airline from release of seats to the tune of US$26 million.

Revenue Integrity removes bad bookings from the airline’s inventory to help ensure that seats are not occupied by false bookings from fake names, duplicate bookings and non-ticketed bookings (enforcing ticket time limits). Performing analysis in real time means that all new and changed bookings are pushed to the solution at the end of the transaction. This ensures that the airline’ s inventory is as clean as possible and seats can be

sold to paying guests when there is demand for them. Real-time handling of the revenue integrity discipline ensures that maximum value benefits are gained by the airline.

The flexibility of creating and defining the pro-cess rules in the solution enables airlines to focus on generating maximum value. Airlines can tailor processes to any attribute in the PNR down to the point of sale and segment-related information to ensure that:

Revenue leakage is kept to a minimum, No-shows are reduced,

Variation in no-shows is less volatile.The actual conditions for finding problem

bookings are separate from the actions taken on those bookings. This gives the airline more control through process automation management rather than a simple robotic script. As the airline is in full control of its revenue integrity processes through Web clients, the carrier can change and create processes to solve revenue leakage business problems.

“We were going through a major problem of no shows, which led to a huge number of seats spoilage,” said Hisham Alsuraye, Kuwait Airways’ senior expert for pricing and revenue management. “It affected our profitability by 7 percent to 10 percent on the network. Not only has it increased our profitability on the network by freeing resalable seats, but it has also decreased manpower. We highly recommend the system for implementing real-time revenue integrity.”

Kuwait Airways continues to leverage technol-ogy — such as modern aircraft and advanced IT systems — as part of its strategy to stake a claim as one of the world’s most successful airlines. a

Lynne Bowers-Dodson can be contacted at [email protected].

US$26 Million Kuwait Airways realized significant gains during its first five months of using Revenue Integrity.

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