COLIN BAKER LONDON
The airline alliances are tackling the complex task of aligning their information technology strategies. But how far should they go and what tools should they use?Anyone looking for an insight into the depth of an airline alliance, could do a lot worse than examine its approach to IT strategy. While most carriers enter an alliance signed up to the concept of further IT integration, just how far they are actually prepared to go beyond the initial hand-shake is often dictated by corporate politics rather than technology.
The instability inherent in the alliance concept s is one of the main reasons for a cautious approach. "No one is going for total integration. This is a step too far," says Peter Heath, president global enterprise at IT provider SITA. There is no rush towards even partial integration either. "Airlines have been extremely cautious. Speed is not the priority," confirms Lois McKeon, global airline marketing executive at IBM.
Getting agreement among all member airlines on a common IT strategy has been a major stumbling block. "Airlines tend to want to keep options open - not all airlines have the same resources available and may be reluctant to change," Heath comments. "They also have their own distinct operations apart from the alliance and are responsible to shareholders and governments. Further deregulation will be necessary before we see these barriers dropping."
There are a few examples, generally found in the more established alliances, of full or nearly full integration. An obvious example is Swissair and Sabena, where most IT applications are carried out on a joint basis. Although they may not be as close as these two sister airlines yet, KLM and Northwest have also integrated much of their IT requirements, and continue so to do .
The two largest global alliances are a long way from achieving this level of integration. Interestingly, the Star Alliance and oneworld have chosen different IT strategies, very much influenced by the wider political picture at play within the two groups.
To put it simply, Star has opted for a multi-user system standing outside the legacy systems of the member airlines. This system, known as StarNet, was launched in September last year and uses Internet Protocol (IP) as a cross platform communication tool between Star carriers. oneworld, on the other hand, has more of a bilateral approach. Communication between the Sabre and Amadeus computer reservation systems used respectively by American Airlines and British Airways is clearly a high priority for the two alliance leaders.
IT observers suggest that there could be an advantage in the flexibility offered by the StarNet concept compared with the bilateral approach. However, few are prepared to judge too quickly. "It is important to note that there is no one perfect business model," warns McKeon at IBM.
StarNet launch
The 15 airlines in the Star Alliance launched StarNet in September. This IP-based system acts as a multi-user communication tool, separate to the IT systems operated by the individual airlines, but enabling all member airlines to talk to each other. In effect, the system translates the information in one airline's computer system and displays it on the terminal of another.
"The information request from one airline is translated into a common language at a gateway before it is sent on StarNet to another member carrier," says Tim Moore, chief information officer at Star. "There it is transformed at another gateway into the language used by that airline's computer systems. The reply travels back the same way."
Going for a stand-alone communication platform rather than a fully integrated approach obviously makes it easier for an airline to disentangle itself from Star should they decide to leave the alliance. Few carriers are willing to take the leap to full integration given the innate instability built into the alliance system.
However, Moore points out that by using a system which stands outside the existing IT systems of member airlines, carriers do not have to replace their existing systems, with all the expense and complication this entails: "If we had decided as a group to switch to a single system, the conversion costs for 15airlines would have been $2 billion," Moore says.
Airline IT experts do warn, however, that this so-called middleware (software which allows different IT systems to communicate with one another) does not offer a complete solution. Heath warns: "Although middleware is a very flexible solution, alliances need more than just glue that goes between applications. They need new applications that house data and provide value that can be transferred using middleware, which enables users to have access to any connecting systems, including those in other industries."
Heath points out that the legacy systems are "resilient and mark major long-term investments", and that by using data repository and translation tools, it is still possible to update to an "e-business-enabled" enterprise. "Middleware offers a cost-effective route forward to make the best use of the new and the old," he says. The main contractor for StarNet is in-house IT arm Lufthansa Systems, together with Dublin-based Eland Technologies providing the software.
Regional approach
Star has gone further than any of its rivals in achieving scale, and is now concentrating on scope or depth of alliance participation. To achieve this, the alliance is consolidating its alliance operations around regional centres, based on the Americas, Europe and Asia. Through this approach, Star hopes to achieve closer integration of IT systems in the three regions - a task which might otherwise have been impossible on a world scale at this point in the history of airline consolidation. Star insiders admit that getting agreement between United Airlines and Lufthansa on a common revenue management system is unlikely, with each side loath to relinquish its own solution.
So, for the meantime, consolidation will be along regional lines, with United taking the lead in the Americas, while Europe's Star members are grouped around Lufthansa.
In Europe, the Austrian Airlines group moved swiftly onto a Lufthansa IT platform once it had decided to leave the rival Qualiflyer Group in favour of Star. The changeover, led by Lufthansa Systems, began at Austrian almost as soon as the alliance switch had been announced. British Midland too is moving over to Lufthansa IT this year having become the alliance's newest member last summer.
The European Star partners are looking to streamline the access rules for their frequent-flyer programmes, providing what Thierry Antinori, executive vice-president sales at Lufthansa, describes as a "one kitchen, several restaurants" approach. There are also moves towards common frequent-flyer programmes in third countries where there is no incumbent Star airline, with plans to use France as a testing ground. These plans are on hold for the time being, however.
The European Star partners are also looking to move towards a common system of revenue tracking - an area in which it has been difficult for alliances to reach agreement in the past. Antinori says the European Star partners aim to replace their existing revenue tracking system with the best on offer from the five airlines.
The younger SkyTeam alliance, led by Delta Air Lines and Air France (together with Korean Air, Aeromexico and CSA Czech Airlines) still has a team looking at how the new grouping will handle future IT strategy. This team is evaluating whether to go for the StarNet-type multi-lateral approach or a oneworld-type bilateral operation. As one SkyTeam insider put it: "This is the $64 million question." SkyTeam is understandably reticent to give details as talks near a crucial stage.
What is clear is that co-operation between alliance partners is set to increase. That view was strongly supported by findings from last year's Airline IT Trends Survey, the annual research carried out by Airline Business and SITA among the world's top 150 carriers (see Special Report August 2000). That suggested that 59% of carriers currently share IT applications and systems with alliance partners and another 26% planned to within two years. Notably European carriers take the lead with 70% already sharing IT with partners compared to 25% for North America and 40% in Asia.
Another factor which could ease the path towards alliance integration is the rapid progress being made towards Internet Protocols by the major groups, especially in North America. However, it also makes it easier for airlines to leave an alliance too -described by one industry commentator as the "hop-in, hop-out" approach. IBM's McKeon notes that pre-nuptial agreements are the norm when carriers join an alliance: "Carriers are looking at the exit provisions as a condition of entry."
The trends survey also shows where the alliance preoccupations lie. Reservations, check-in and frequent flyer systems emerged as the clear leaders in current and future alliance integration plans. However, airlines are reticent when it comes to more sensitive areas such as revenue or customer relationship management. Although there are moves to forge links on frequent flyer schemes, carriers are loath to share information such as financial arrangements with high-level (ie corporate) customers.
Up to standard
While nearly all major carriers are moving towards IP, second- and third-tier airlines are having to make a dash to ensure that their IT systems are compatible with those of the global alliances with which they wish to link. IT vendors such as Sabre now have less expensive packaged solutions ready to bring these carriers up to speed. For example, through its Gabriel reservation service, SITA is helping CSA Czech Airlines bring its IT systems up to SkyTeam standards or at least to ensure they can communicate.
All carriers are keen to ensure that their investments are made to last. "The technology is complicated and moving quite fast," says Heath. Airlines are keen to ensure that the technology which they invest in does not become outmoded too quickly, so ability to update is important.
Some of the newer technologies, such as those involving WAP (wireless application protocol) phones, have been developed by individual carriers and there has, thus far, been little effort at alliance homogenisation. "This is partly because of their newness. Airlines are keen to make their own stamp," says McKeon. However, she predicts that over time alliances will work closer on these new technologies as they become more confident that their relationships will stand the test of time. She notes that there are already a number of joint kiosk operations.
One area where airlines are focusing on increased collaboration is inter-line e-ticketing. SITA and the International Air Transport Association (IATA), for instance, are developing a common e-ticketing system, which is being beta-tested by a number of carriers. oneworld is also looking closely at this issue.
Close enough
The smaller-scale alliances have already gone a long way down the road towards full integration. KLM and Northwest, who have now been partners for the best part of a decade, have clearly gone further than in integrating operations across the Atlantic and the same is true in IT. Due to the lack of other major alliance partners, the co-operation has almost by definition been bilateral rather than multi-user.
The two carriers are indeed looking at the possibility of a single fully integrated IT platform, although this scenario is, at the very least, a few years away. In the medium term, the two carriers are looking at possible improvements to the existing systems.
Take the example of a passenger travelling from Düsseldorf to Salt Lake City on a KLM/Northwest ticket. KLM could track their progress from initial flight to Amsterdam right through to the final destination. However, if the passenger were to take another internal flight with Northwest in the USA, they would no longer appear on KLM's management information systems. So the passenger would not get loyalty rewards or other service benefits. Both airlines are seeking a way to rectify this.
Swissair and Sabena have more or less fully integrated their IT systems along with their business. Other members of the Qualiflyer group too are now using, or moving toward, the PARS platform for passenger and inventory needs supplied by SAir subsidiary, Atraxis.
However, these smaller alliances are still a long way from achieving the truly global heights reached by the likes of Star. The latter on the other hand, having achieved scale, is concentrating on increasing the depth of co-operation. And now that BA has abandoned the KLM merger talks, it may be a good time to improve the level of IT integration with oneworld partners - especially given rival SkyTeam's plans.
Source: Airline Business
