IT's Critical Role In Airlines - InformationWeek

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11/11/2001
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IT's Critical Role In Airlines

Carriers turn to technology to boost business and cut costs

On the heels of some of their most dismal earnings ever, several U.S. airlines said last week that they still have too many empty seats. As a result, many are relying on IT to drum up business, improve customer service, and keep a lid on costs.

The crisis has forced airlines to wring the most value possible out of their IT systems-and some might say it's about time. "We're living on our systems and our people right now," says Larry Kellner, president of Continental Airlines Inc., which spends about $180 million a year on IT. As consumers postpone flights and businesses restrict travel, airlines' IT staffs are enhancing scheduling and revenue-management systems to help their companies control costs and maximize revenue. Airlines also are accelerating planned IT projects, such as E-marketing, Web-site, and customer-service initiatives, to keep profitable customers happy and recruit new ones.

Still, the outlook remains uncertain for a troubled industry that's been battered by fallout from September's terrorist attacks. The nine largest airlines in the United States collectively reported net losses of $2.43 billion for the third quarter and operating losses of $3.65 billion. Before Sept. 1, industry analysts were forecasting that U.S. airlines would have about $2 billion in losses this year; now they're predicting losses for the fourth quarter alone will be $3 billion to $4 billion.

Boeing Co. planned to deliver as many as 520 new aircraft next year; that number has dropped to the low 400s. Southwest Airlines Co. said it filled only 63.7% of its seats in October, compared with 70% in October 2000. Northwest Airlines Corp.'s load factor fell to 66.3% from 75.2%, and United Airlines' was down 7.7% to 63.4%. What's worse: The 2000 figures are based on more flights.

United reported the worst results in its history early this month, with $542 million in net losses-after taking in half of the government's $5 billion bailout-for the third quarter. Air Canada last week said it may sell its 121-aircraft regional division to help erase some of its $6.3 billion debt. And America West Holdings Corp. is losing about $2 million a day.

The steep losses are forcing carriers to rethink some long-planned initiatives. Southwest had for months been planning to start service to Virginia's Norfolk International Airport on Oct. 7 and had ordered aircraft from Boeing to support the new route. But after the attacks, Southwest deferred its shipment from Boeing and instead redirected some of its existing planes to Norfolk.

Anne Murray, photo by Brent Humphreys

Southwest Airlines is using IT to achieve its goal of getting people back in the air, Murray says
Right after the attacks, Southwest executives spent a weekend analyzing data in the airline's scheduling and logistics systems to figure out where pilots, crew, and aircraft had ended up after the mandatory grounding. Then they repositioned them as new flight trends emerged. "We had to make quick decisions, and we were able to do that," says Anne Murray, Southwest's senior director of interactive marketing. "It's a good feeling to know that you can move quickly when you have to."

As airlines continue to change flights, logistics and scheduling systems are helping them make decisions. Alaska Airlines Inc. typically creates four flight schedules a year. In the days after Sept. 11, it scrambled to change its flight schedule two to three times a day, says CIO Robert Reeder. The airline, which spends less than $40 million annually on IT, evaluated the frequency of flights and departure times at every airport. "It's something that usually took days, and we've got to do it more quickly, then balance all of that with costs," Reeder says.

The airline also had to consider new security concerns when optimizing routes (see story, p. 39). For instance, passengers must now be at the airport at least two hours before takeoff. If a three-hour car trip can cover the same distance as a 45-minute flight, it might not make sense to keep that flight in service, Reeder says. "We had a lot of smart people trying to sort out the best alternatives measured against a whole array of constraints."

But doing that requires easy access to data, and not everyone had it. So right after the attacks, Reeder's IT team created Web interfaces to give the executives access to the company's Flight Times database, which pulls data from Alaska Airlines' Sabre reservations system and proprietary scheduling and tactical operations applications. Meanwhile, scheduling personnel were given access to the company's Web-hosted crew scheduling software.

Continental already had such Web interfaces in place to let operations personnel and the executive team see flight schedules, staffing, pilot qualifications, and more. After Sept. 11, the airline relied on three applications originally developed to deal with the closing of a single airport: Operations Solver, which helps operations personnel reschedule flights when airports close; Manpower Solver, which does the same for pilots; and Crew Solver, which handles the flight crews.

In the days after the attacks, programmers modified the apps to handle all airports simultaneously, says CIO and senior VP Janet Wejman. Now, schedulers tell Operations Solver which aircraft are needed at what airports and when, and the application maps out a schedule. Manpower and Crew Solver match personnel to the new schedules. "We saved several million dollars by being able to reschedule the airline so quickly after Sept. 11," Kellner says.

Another airline has accelerated plans to create an automated system to alert flight crews of delays and cancellations, says Lydia Pearce, a Teradata airline industry consultant at NCR Corp. The system, now scheduled for deployment in March, will notify the staff via pagers and later by mobile devices. Because airlines must pay flight crews waiting at airports, the system will save money in salaries.

Meanwhile, as schedules change, airlines are relying on revenue-management systems to analyze timetables, capacity, and passenger demand to determine ticket prices that maximize revenue. In boom times, if certain flights lost money, profitable flights could make up the difference. Now, every dollar on every flight counts.

Before Sept. 11, air traffic was predictable, and airlines typically stored three years' worth of data to project future business. But the attacks have made it all but impossible to estimate how many ticketed passengers will show up. "Yield management basically went out the window," Reeder says.

In the weeks after the attacks, revenue-management analysts adjusted the predictive models to assume that customers who bought tickets after Sept. 11 would fly; those who purchased tickets before Sept. 11 were less likely. That let airlines sell more tickets without fear of overbooking, Teradata's Pearce says.

At Frontier Airlines Inc., the terrorist attacks hurt demand for flights in and out of Boston, New York, and Washington worse than those in the western United States. Frontier adjusted its system in the East to use different models to predict demand and no-shows for each flight. "This isn't an exact science," says David Minnelli, director of pricing and revenue management for the Denver airline.

Maybe not. But for many airlines, revenue-management systems will be the lifeline that determines whether they stay in business. "It's the difference between existing and not," Reeder says.

Like 35 other airlines, Alaska Airlines uses Sabre's AirMax revenue-management system, which combines data on fares that all airlines offer with a particular flight schedule to calculate ticket prices. After Sept. 11, Sabre reprogrammed the system to reflect fluctuating demand and the fact that business travel has rebounded faster than leisure travel.

Earlier this year, Continental rolled out financial applications that provide key details about its performance. Airline managers can analyze the profit of any flight on any given day. Before the attacks, Continental was shifting from monthly to weekly financial reviews. Since Sept. 11, executives have been reviewing the data daily to spot trends and change schedules more quickly to maximize revenue.

Many airlines also are ramping up customer-service and E-marketing projects. Alaska Airlines worked around the clock to launch an automated phone system on Sept. 19, two months ahead of schedule. The airline uses PAR3 Communications software to automatically call passengers to inform them of schedule changes and ask whether they intend to keep their reservations. Since the launch, Alaska Airlines has sent more than 100,000 alerts to customers, freeing reservations staff to book new flights.

Southwest Airlines began last month targeting its frequent fliers with an E-marketing campaign. They receive "featured destination" E-mails that highlight certain cities and include hotel and car rental rates, along with a list of places to visit. The goal is simple, Murray says: Get people back in the air.

A United Airlines initiative also focuses on frequent fliers. In the past, when a top-tier mileage member called to book a seat on a sold-out flight, he or she was turned away. Now, United reservations agents can view revenue-management data, see what percentage of people are expected to show up, and decide whether to sell the important customer a ticket.

As valuable as such efforts are, more aggressive IT deployments may be on hold due to budget constraints. "All IT spending has been cut back in the airline industry," says Henry Hardeveldt, a senior analyst at Forrester Research. "They are doing only what they need do to keep systems running." The question is, will that be enough?

--with Robin Gareiss and Rick Whiting

Photo of Anne Murray by Brent Humphreys

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