Airlines: It makes sense to share

A breakthrough new approach to outsourcing is now available to the airline industry which has the potential to transform performance in this sector, and also act as a leading example to other industries. This report looks at the development of the community IT platform in the airline sector as a pioneering concept capable of delivering not just radical cost savings, but also breakthroughs in differentiation and customer service.

Airlines could use IT to transform themselves and the world economy

Airlines have shown they know how to use IT to modernise in the face of adversity and with new developments such as online booking and e-ticketing, today’s experience of air travel is more touched by IT than ever.

With the next generation of airline IT, the world’s airlines could seriously improve their productivity – not just by cutting costs, but also by improving service quality and fully exploiting new channels. This is no mean feat, but if the global airline business can really transform itself, it could provide a tangible boost to the productivity of the world economy.

Airlines have traditionally pioneered the use of IT and recognised the benefits of sharing computer resources

Airlines have recognised the need to retain customers for the long term – they have begun to think about the travellers complete journey and their past history in order to estimate their future revenue potential. They moved from the narrow Passenger Service Systems (PSS) that emerged in the 1970s to the Customer Management Solutions (CMS) of today.

One of the greatest stumbling blocks for airlines wanting to use IT to drive innovation and differentiation is their legacy systems. Often based on code written over 30 years ago they have acquired much complexity and disorder over that time.

The new generation of airline IT – specifically new generation customer management solutions – can deliver significant value to airlines both in terms of increased process efficiency and also in better customer service. One of the most significant new developments for airlines in developing better customer service and responding to the many business challenges that face them, has been the introduction of sophisticated new outsourcing services, based around a “community platform”. This is the idea that instead of developing their own individual systems for managing customers, airlines should share applications.

Altéa CMS, Amadeus’ Customer Management Solution is a leading example of this approach. Airlines are used to both the idea of outsourcing their computers and data processing to outside suppliers, and also having their individual business applications developed by third parties. The community platform marks a step beyond the outsourcing of an individual company’s applications. It spans both the outsourcing of infrastructure and the outsourcing of tools and applications development. Business applications are developed and hosted by a third party expert and are then “shared” by many companies. Rather than owning the systems themselves, the airlines pay for them on a cost-per-use basis, almost like “renting time” on them.

As airlines deploy the new community-based systems approach, they do more than shrug off expensive legacy systems by outsourcing their IT to a third party. On top of that, participants join their partners and rivals in using an IT platform which is hosted by a third party, but which they all help govern.

Examining the perceived risks of outsourcing

It ought to make sense for airlines to adopt the next generation approach, embodied by the community platform, to outsource their increasingly complicated technology requirements.  Yet we know that certain fears still accompany the outsourcing of IT.

But there is a need to get the risks of outsourcing into proportion. The outsourcing of IT processes or applications can, if it is planned and managed properly, free up clients to be more innovative, not less, allowing top managers from IT director to CEO to concentrate on customer service, the brandbuilding that goes with that, and on business agility.

Fears, it should be remembered, bring their own costs and for many financially strapped airlines, outsourcing is a must – there is no alternative, but they have to do it right.

There is more to inter-firm relations than naked competition

In the past, it was practical to join up the world’s airlines in a way that most industries still struggle to achieve, resulting in the beginning of modern code share and alliance structures. Today’s community platform approach to airline IT arises from those structures.

Why then do people think that cooperation must mean a failure to differentiate one’s offer from those of others? On the contrary, airlines use of a common supplier is likely both to foster fresh competitive strategies, and renew pressure to differentiate.

In the airline business, rivalry has indeed intensified over customer service, sleeping facilities, food quality, cabin design, mileage benefits and brand presence. Despite the impact the Internet has had on airline pricing over the past few years, competitive differentiation across all these dimensions remains undimmed.

IT cannot naively be separated from the content-driven, human activity of management. IT is an integral part of how management is performed and it is an error to rid it of content and people.

While next generation customer management solutions in the airline sector do make much of the nitty-gritty of IT simply part of the furniture, the front end of IT – its interface with staff and travellers – is set, like IT directors, to become more vital to strategy.

A glimmer of light has appeared

Confronting some of the airline sector challenges with the help of IT, may now set an example for other industries to follow. The new generation of airline IT should help provide more time for executives to bring about genuine innovations that enable differentiation and have a durable impact in the long term.

Both outsourcing and shared services contain benefits that go beyond the individual firm. And in the airline sector, the biggest advances for individual airlines, such as e-ticketing, have also been advances enjoyed by all.

Airlines will come to embrace shared systems that both enhance individual competitiveness and advance the interests of the sector more generally. The new generation of airline IT contains more potential than it does danger.

It makes sense to share.

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Written in conjunction with amadeus, this White Paper can be downloaded by clicking on this ‘It makes sense to share‘ link.