The major alliance groups are each taking different approaches as they try to balance the need for IT integration against potential divorce.
When United Airlines' chairman Gerald Greenwald announced the planned alliance with Delta Air Lines, he pointed to IT as one of the major hurdles that would determine how soon such a plan could become a reality. Greenwald estimated it would take '. . . at least four or five months' to make the software changes necessary for the two airlines to codeshare and reciprocate on each other's frequent flier programmes.
Five months is a long time in today's alliance-obsessed industry. 'That kind of delay just to get two systems talking - you have to figure that will become unacceptable for airlines in the future,' remarks one IT expert.
But airlines all around the world are having to grasp the same nettle. As the various alliances fall into place, the IT vendors are watching them closely to see the patterns that will emerge as they seek to overcome their IT problems so they can provide what they are promising - seamless service for the passenger - and perhaps cut costs at the same time.
It is a tiptoe game for many, not just because this is uncharted territory, but also because most carriers - even if they will not admit to it in the first flush of excitement of a partnership - are keeping a nervous eye on the exit door. 'The willingness of airlines to share all of their data with their alliance partners is still very reserved,' observes a consultant at a large industry vendor. 'They regard it as carrying a high degree of risk in the event that the fair-haired maiden turns out to be no longer fair-haired. The best example is the British Airways and US Airways partnership - undoing that took a lot of work. So airlines want to know how they will unwind the spaghetti.'
But a complete commitment to a common IT platform may be what ultimately differentiates one alliance from another, so there is great interest in how far each of the current alliances is prepared to go. Most attention is focused now on the Star and Northwest Airlines/KLM/Continental Airlines alliances because each group is in the decision-making process about how to approach its IT needs. There is also much speculation about how American Airlines and British Airways will tackle this issue if their proposed alliance survives regulatory investigation.
Northwest is confident that its alliance will be the first to put in place a single IT platform across each of the partner airlines and believes this will give it a valuable competitive edge over other alliances. Northwest's vice- president of distribution planning, Al Lenza, says a final decision to go with a common platform should be made by the end of July and that the system will be in place within 18 to 24 months of that decision.
The service provider is expected to be Worldspan, in which Northwest has a 32 per cent stake. Lenza feels there is 'no question' about this outcome, even though Continental has an IT service contract with EDS. 'Continental and Worldspan are having discussions now,' says Lenza. 'For an alliance group to be truly successful and fulfil a seamless service 100 per cent, a single system is a must. We have spent a lot of time and investment along with KLM to bridge the systems and we do as much for the customer as possible. But it's still double the work to do what we what we could do in one go if we were on the same system.'
Lenza says the benefits of a single system will be considerable and immediate in terms of both cost savings and in providing seamless service across the partner airlines. He admits it calls for a deep level of trust by each partner to take this step, but says this already exists with KLM. 'With Continental, as with any new alliance partner, it will take time to build that level of trust, but the benefits to the alliance of being on a single system are a major consideration here.'
IT vendors agree that, if Northwest does succeed in crafting a common platform for its partners, the pressure will be on other alliances to do the same. That decision could prove to be the catalyst that pushes Star Alliance members to think as one, from an IT point of view.
The Star airlines have been debating their IT options for almost a year. IT experts who have been advising in some of those negotiations say progress has been slowed by the unwillingness of any individual carrier to dominate or be dominated by another. 'They are still struggling with their decision-making processes,' says one vendor. 'They will eventually reach a solution like any committee - but you know what they say about committees and camels.'
Yet the committee is inching forward. The airlines have called this project Starnet and are believed to have agreed to an Internet-based system that will sit outside each airline's existing IT platform, providing a common interface into which each can "plug and play". The common interface would be invisible so that each member carrier would continue to use its own system with its own language. Requests for proposals to IT vendors to create and maintain this system, known as a "middleware" platform, are expected to be released in the third or fourth quarter of this year. But some major questions have first to be resolved, including who defines the platform and who pays for it.
Industry experts see the merits of what the Star members are trying to achieve. Most notably, such a system should allow a reasonably high degree of seamless service across the alliance, while also offering each airline a comfortably clear and clean exit strategy. But some argue that such a democratically designed system will always be a compromise solution with attendant drawbacks. 'The airline that has the best and most powerful reservation system should take the lead here, but I cannot see either Lufthansa or United giving up their own reservation systems,' notes Leo Dowling, marketing manager for airlines at Sita. 'This might seem boring at one level, but it's so fundamental. If they don't get on with it, the glue of the alliance will disappear.'
Critics also question whether the route that Starnet appears to be taking can ever lead to a totally seamless service, and point out that there are few opportunities for cost savings. If anything, there may be extra costs as the Star airlines will, in effect, be paying for an additional IT platform while continuing to maintain their own systems.
One potential alliance that stands to score highly on IT, even though this has happened by default, is the American Airlines/US Airways partnership. This alliance remains loosely defined, with a reciprocal frequent flier programme and purchase cooperation being the only declared commitments. But the two airlines possess a powerful IT tool - although not necessarily a tool that every alliance will want to risk wielding - as both outsource their IT to Sabre. Effectively, they already share a truly common platform.
'The American/US Airways solution will clearly drive more revenue benefits - it goes straight to the bottom line,' says Ninan Chacko, senior vice-president global services at Sabre. 'It's also a no-brainer for them to codeshare and provide truly seamless service because they are on the same system and speak the same language. The American/US Airways alliance, from an IT point of view, is hands-down the strongest. That's nirvana.'
This IT oneness, of course, was more stumbled upon than sought after. The Sabre Group became a separate entity from American in 1996, but remains a majority owned subsidiary of AMR and has an outsourcing contract with American worth some $3.3 billion over 10 years. Last year, US Airways signed a multi-billion dollar, 25-year IT outsourcing contract with Sabre. With Cathay Pacific also in Sabre's outsource portfolio, it is tempting to ponder the alliance possibilities.
What has most IT vendors furrowing brows, however, is how American and British Airways will bridge their technology gaps. Not surprisingly, Chacko thinks British Airways will look westward. 'British Airways has its own system now, but I think ultimately the decision would be to rationalise. The importance of IT to alliances is not new - the most savvy business guys putting together these deals have enough understanding of IT to appreciate that. But the different approaches to the same problem - do you all go on the same system or do you put Bandaid on what you have? - that's new,' says Chacko. 'The pros and cons of both arguments are valid. In Star you have to look at the dynamics of the partners. It is not underpinned by any one strong member. With American and British Airways, the culture is arguably closer and there is a closer business rule.'
Not everyone agrees, however, that British Airways will automatically sign up with Sabre. 'I would think that BA management might have a rather strong position on what they are willing to give up and what they are not willing to give up. We hear that their system is superior on the ground and is more sensitive to different cultures than the American system,' says one vendor.
Some feel that the level of commitment needed to move to a Sabre-type single platform would be one step too far for many carriers. 'Many airlines will and should keep their reservation and frequent flier systems independent,' says Ahmet Erenli, director of programme management, air travel, at Siemens Business Services. 'I would not put up my system to Sabre because it would make a divorce impossible.' Sita's Dowling also thinks that many of the world's top 20 airlines will be more inclined to pass over Sabre in their search for alliance IT solutions. 'There is still that umbilical cord to American. Some say they are willing to live with that; others are saying "no",' he says.
That might change if, as Sabre claims, the benefits of a single system prove to be financially and operationally overwhelming. But, for now, it appears that the Northwest alliance group will be the one setting the pace of this race to IT unity.
Source: Airline Business
