The in-flight catering industry is looking on with a mixture of fascination and horror at the recent Delta Air Lines deal to hand over its entire catering and related services portfolio to e-gatematrix. Delta's 12-year contract with the GateGourmet subsidiary is the launch pad for the first dedicated cateringe-marketplace, and offers a glimpse at what e-commerce promises an industry that has to date been slow to enter the b2b (business-to-business) world.
e-gatematrix may be the first catering b2b solution to unveil its colours and name a customer, but others will soon follow. For instance, Lufthansa Group subsidiary LSG Sky Chefs, and SITA, the latter in collaboration with software specialist Inflair and Calibre, are preparing their own products.
It was Delta, however, that set the initial ball rolling two years ago when it began to seek ways to improve productivity and reduce costs at its in-flight catering operation. Indeed, Delta managers even questioned how much the food service operation was really a core part of the airline's business. Added to this was the daunting complexity of running a catering operation at a carrier the size of Delta.
"With 140 worldwide catering stations and a need to serve 117 million customers on an annual basis, Delta has huge, complex service delivery requirements," explains Vicky Stennes, managing director for in-flight customer service with the Atlanta-based major. Stennes is candid about Delta's performance in this area. "As we went through processing mapping we found a lot of process redundancies, antiquated procedures and internal efficiencies."
The end result meant Delta was slow to introduce new concepts, as it was driven by the need to deliver its food on a daily basis, rather than take a more strategic approach. The company, therefore, wanted to change and, without a preconceived model in mind, asked GateGourmet and LSG for ideas. Some form of strategic relationship would be involved, but Delta wanted them to think freely about possible solutions, says Stennes.
Not surprisingly, both came back with proposals that took over virtually the whole of the food delivery chain, from helping in menu design, buying and supplying food, invoicing, and inventory through to managing equipment. But it was the b2b dimension that GateGourmet brought with e-gatematrix that convinced Delta to sign on their dotted line, states Stennes.
Driving cost out of the supply chain was important, but it was not the only factor in taking this direction. "It is not about job losses or about squeezing suppliers, but about having the technology to support our new infrastructure and improving the end product for our customer," she says.
e-gatematrix platform
GateGourmet formed e-gatematrix with i2 Technologies, the Dallas-based firm that developed TradeMatrix, an electronic business tool already deployed in the telecommunications and automotive fields. TradeMatrix will powerthe e-gatematrix marketplace which will provide a network for airlines, manufacturers, caterers, cleaners, distributors and suppliers.
While the product can be used simply as a platform for buying and selling elements of the in-flight product, it is the power to provide a single contact point for everything that gets GateGourmet and Delta excited. In essence, what Delta is doing is outsourcing more of its in-flight service than any airline has previously done. Stennes insists that, while the concept is untried in catering, it is proven in many other industries, and there is no reason why it should not work in this one. Delta has not arrived at this decision lightly: it performed six months of rigorous internal analysis before presenting its proposition to potential catering partners, and then had to sell the idea to top directors.
The worry for airline catering managers about this approach is loss of control. But Delta will have definitive involvement in the design of the catering product. Clear quality standards are already being drawn up, says Stennes. This is being done jointly with e-gatematrix. "The mutual trust of a strong partnership is important in all of this," she adds.
The bottom-line benefits to Delta are impressive on paper. When the partnership is fully up and running by the end of next year, the contract with e-gatematrix will guarantee Delta annual savings of $40 million on its on-board services' annual operating budget of approximately $650 million, says Stennes. There will be a two-year transition to full use of the b2b platform, and Delta's only real investment will be to provide connections between the platform and the airline's operating systems.
At GateGourmet, the aim is to open up a huge outsourcing market. "If this works the way we believe it will, GateGourmet will become a Sfr5 billion ($2.9 billion) company three years down the line," says president Henning Boysen, who is confident other airlines will soon follow Delta's lead. Buttressing his point, he says another major carrier, as well as Swissair and Sabena, is thinking of joining.
Boysen says that e-gatematrix will offer a whole menu of services to attract new customers. Some airlines, he says, will emulate Delta in taking the entire package, while others will use it as a purchasing medium, and some suppliers will use it as a market place.
LSG does not intend to be left out of the b2b arena. Although it lost out on the Delta work, the company is determined to respond quickly, and has formed a company with subsidiary Sky Chefs in the US as the basis for its b2b market place. "We are the industry leader and should create the industry standard," says LSG Holding chairman Helmut Woelki. Talks are under way with potential technical partners, he says, predicting that the product should be rolled out in late 2001 or early 2002.
Airlines are watching Delta's leap with immense interest - they want to see evidence that the experiment provides tangible benefits. "The jury is still out," says Adrian Ort, catering services manager at Cathay Pacific. "There is potential, we are just not sure what the potential is yet."
"It is a challenge to what has always been seen as an airline head office activity," believes Tony King, general manager of catering at British Airways. "You can dip in and out of it, or take a modular approach, so it has some attractions. But you need to be sure that b2b can do as well, and better, than the airline to make a sufficient return."
Airline initiatives
Although they are waiting to see how ventures like e-gatematrix work out, the major carriers are adding catering procurement into b2b ventures like AirNewco and aeroXchange. In a further development, e-gatematrix and AirNewco are already talking about potential collaboration.
While understanding the business motives which drive GateGourmet and LSG to tap into the b2b world, independent caterers are very cynical about their efforts, says Jeremy Clark, director of Inflair. His firm, which supplies software to many of these caterers, has teamed with SITA and Calibre to develop an independent and global b2b market place for the catering industry.
He doubts whether the GateGourmet-style product will be available to the whole industry, or angled towards the customer base of the platform owner - although Boysen insists e-gatematrix will be neutral and open to all.
Rob Rowe, e-services business manager at SITA, says his company and Inflair are developing a product offering a universal standard to address the needs of the whole industry. For instance, an exclusively Internet-based solution will not work everywhere because of the unreliability of telephone lines in some parts of the world. SITA/Inflair will be backed up by SITA networks where the Internet is not available, says Rowe.
SITA and Inflair argue they are taking a holistic view of the market. "The industry needs something that glues together the various parties in the business without being biased to one or the other," says Clark.
In catering, as elsewhere, the e-commerce race has well and truly started. GateGourmet is first off the line with e-gatematrix, but it is still early days. Most airlines are still working out how e-commerce will fit into their catering strategy, and which market place has the right ingredients.
Source: Airline Business
