Marketing: Good relations

Madrid
Source:
This story is sourced from Airline Business
Subscribe today »

good relations caption ab w445


Carriers are once again pushing customer relationship management to the top of the agenda as a way to boost revenues. A study by Unisys Transportation Consulting on behalf of Arab carriers points the way forward.

The industry continues to walk the tightrope of cost reduction, pressure from new entrants and the need to generate more revenue at a time of falling yields. Add increased demand from customers to be treated as individuals to this mix and the scene is set for one of the next big changes to the business – the introduction of new-generation “customer-centric” core passenger solutions.

It is likely that 2006 will see the industry reach a tipping point – the year when a significant number of carriers commit to move away from their legacy core solutions for reservations, inventory and departure control systems. Early adopters like bmi, British Airways, Garuda, Lufthansa, Qantas, Qatar Airways and United Airlines have already decided to move – many others will quickly follow – or risk being left at a competitive disadvantage.

The industry last talked seriously about the next phase of interacting more intimately and effectively with its customers in the late 1990s, a rare time of relative prosperity for airlines worldwide. At that point, the natural limitations of customer loyalty programmes had been reached and airlines searched for ways of increasing revenue through retaining and attracting new customers.

Some carriers started to look at using Customer Relationship Management (CRM) tools to understand their customers better. The principle is to bring together various sources of information held about passengers and data-mine this information to understand customers better. This is often a tough task, as in many airlines customer data is held in as many as 30 different databases.

The main challenges faced were data integration and the limitations imposed by legacy core passenger systems. However, work on this potentially beneficial development halted abruptly in the wake of the industry crisis that began in 2001 as carriers concentrated instead on restructuring and cost reduction.

airline core systems - links ab w445
Airlines that fail to rise to the challenge risk being left at competitive disadvantage © Phil Holmes

Now that relative stability and prosperity is beginning to return, the thoughts of airline strategists are once again turning to the relationship with the customer. The issue is how to restart this effort and simultaneously deliver further cost savings and meet ever more aggressive productivity improvement targets?

It is with this demanding target in mind that Unisys Transportation Management Consulting was commissioned in the second half of 2005 by the Arab Air Carriers Organization (AACO) and several of its member airlines in the Arab world to help define a strategy and future requirements for core passenger solutions. While the detailed contents remain confidential, the study, together with other research performed by Unisys, provided insight and conclusions that should be relevant to airlines worldwide as they develop their future core passenger systems strategies.

Putting the customer at the core of an airline’s thinking consists of implementing strategies and processes that define the business around the end-to-end customer experience and by which a valued customer is defined, recognised and given high quality service. Valued customers are the ones carriers cherish, retain and form long-term relationships with, based on the total profitability of that passenger. This is a key difference between the CRM solutions being considered in the late 1990s: “Customer-Centric” is not just data-mining – it means changing the whole way in which airlines will interact with and serve their customers.

Most legacy IT systems are unable to support such a vision. The research found that they suffer from a high reliance on the technology provider (software and mainframe hardware), high operational costs, complex integration issues with external systems and solutions, limited support of multiple distribution channels, customer information limited to PNRs (passenger name records) and frequent flyer programmes (FFP) and old-style Graphical User Interfaces (GUIs), among others.

The greatest challenge carriers face is the speed of adoption of the latest core passenger systems. These systems are at the centre of airline strategy and operations (see graphic 1 right), as they manage the data that supports all airline functions and processes. Other systems that surround the core, such as revenue management, booking engines and customer loyalty solutions, are rapidly evolving and will need similar attention.

Discussions with airlines highlighted that legacy core systems that airlines rely on today suffer from severe limitations like:

■ varying support for interline services;

■ lack of real-time information on carrier websites;

■ few workflow management functions;

■ loose integration among reservation, inventory, departure control systems and frequent-flyer programmes;

■ expensive add-on modules;

■ tight ties to global distribution systems (GDS);

■ lack of consistent customer information; and

■ a high and inflexible cost base.

Additionally, many carriers still operate an outdated IT infrastructure, centred upon green screen terminals and X.25 communication protocol. Even though the legacy solutions place limitations on airlines, as they are core systems and touch on many essential business processes, the prospect of changing to a new solution provider may be daunting. Clearly the business case for change needs to be compelling to make migration to a new product worthwhile – particularly if this also entails moving to a new supplier.

Consultations with airlines produced long lists of functional requirements that clearly indicate how much airlines desire and are willing to move forward. Carriers expect next-generation core systems will have many enhanced competitive features (see graphic 2 above). In tandem, they expect these advanced features and functionality at far lower cost than their current solutions.

So, the industry wants and needs new solutions at lower costs and naturally expect a lot from them to make the legacy-to-new generation migration worthwhile. Today, full service airlines either run their own in-house systems or they use hosted solutions, such as those provided by Lufthansa Systems, Amadeus/Air France, Sabre, SITA, Mercator, Cendant and Worldspan. Four of the main providers have announced their plans for new generation products – Lufthansa Systems FACE, Amadeus Altéa, Sabre’s Sabresonic and SITA’s Horizon – but how well will they address airline requirements and how close are they to delivering them to the market?

Review of published information on the competing solutions indicates that, at this time, Lufthansa Systems and Amadeus (who have both signed up several airlines for their new solutions) and Sabre appear to have the most advanced plans and clearest views for their next generation solutions. They have established upgrade paths from current to new generation/open source systems, offering solutions that are based around customer-centred databases. These include the concept of customer value as a key feature, as well as multi-language GUIs, alliance capabilities, advanced workflow features, origin and destination revenue management, extensive reporting capabilities and business intelligence, among others. SITA has announced Horizon, but while this product includes new modules, publicly available data does not confirm the planned usage of “new technology” nor a new customer centric architecture. Mercator, Worldspan and Cendant have yet to announce their plans.

With so many new products coming to the market how can airlines assess the hype against the reality? What is really new? What will satisfy future requirements? Which solutions are, in reality, re-packaged legacy products? A number of test questions may help carriers decide:

■ Will the next generation solution continue to use mainframe technology in its architecture or will it run on servers?

■ Will the new solution be centred on an Operational Customer Database that provides a single source of customer data that services operational systems and processes for use in the other modules of the core system?

■ Will it provide a consistent view of the customer, and a consistent view of the airline?

■ When will the complete new solution really be ready?

■ Will it satisfy your functional requirements?

■ Will it deliver enhanced competitive features?

■ Will it radically reduce user classroom time?

Practical examples of where carriers might expect to see some real differences between legacy and next generation solutions are in the creation of codeshares, which should be self-administered; the easy retrieval of customer data such as in the case of a major outbreak of avian flu; and re-accommodating the most valuable customers first in the case of irregular operations.

Having confirmed which products are available, we recommend that carriers should base their decisions on three key elements: the need for a next generation solution and the functionality required; the availability of their desired solution; and the timeframe in which this decision has to be taken.

Once the decision has been taken to move to a next generation solution, carriers need to consider whether to go for a hosted solution or go for self-hosting. The final selection will be dependent on the most economically advantageous offer, but our recommendations are found in box 1 (see page 56).

A further option may exist for carriers to group together where they have similar needs – such as alliances or regional groupings based on common activity, culture or language – and arrange to provide the solution tailored to their business needs. This may take the form of a carrier that currently has an in-house legacy core solution, hosting a next generation core solution and then providing it to other airlines in the region or alliance partners. Alternatively, the carrier grouping could collectively take a next generation solution such as Unisys AirCore and arrange for it to be hosted, perhaps by a local IT hosting company.

Whichever delivery method is selected, next generation core solutions should enable airlines to achieve substantially lower costs per passenger boarded as well as opening the door to other cost saving and revenue generating opportunities.

So, if you are an airline running on a legacy solution, what should you do now?

■ Confirm your needs and commercial aspirations and how these fit with your overall IT strategy;

■ Review available new generation core solution options and how they fit with your strategic timetable;

■ Consider how you will want them to be delivered (hosted vs self-hosted);

■ Enter into detailed discussions and negotiations with a limited number of potential providers;

■ Select and sign contract for new solution;

■ Review and plan changes in business processes;

■ Implement new solution and changed business processes.

The introduction of new generation “customer-centric” core passenger solutions should, if executed well, redefine the way airlines serve and interact with their customers; transform core business processes; enable airlines to generate more revenue from their customers through targeted marketing and improved customer retention strategies; and achieve all of this at a lower cost.

If our predictions are correct – and early signs are encouraging – then 2006 will be the year that large sections of the industry take important decisions about core passenger solutions. Airlines that fail to rise to this challenge risk being left at a serious competitive disadvantage. ■

MARK DARBY / LONDON AND GIOVANNI SIMONE / MADRID

A definition of customer-centric

What is meant by new-generation “customer-centric” core passenger solutions? New generation means solutions that have been developed using new “open source” programming languages; run on customer-selected, non-proprietary servers – not mainframe technology; are easily customisable/configurable by the end-user airline; and are intuitive and easy to use by airline staff. This should reduce airline costs through lower user charges and increased staff productivity.

“Customer-centric” means solutions that enable airlines not only to understand their customers better – but most importantly also deliver a better, more customised service that will really increase the perception of added value to the customer. These should help airlines increase their revenues through more focused marketing and higher levels of customer satisfaction.

Core passenger solutions include IT systems that handle reservations, inventory, departure control systems, load control, seat allocation, ticketing, etc.

customer centric define ab w445

About the authors

Mark Darby is the managing partner of Unisys Transportation Consulting practice. He has over 25 years of air transport industry experience since he started his career at Laker Airways. Prior to joining Unisys he was with IBM, Deloitte and SH&E. Giovanni Simone is a manager in Unisys Transportation Consulting Practice. Having started his career at Alitalia, Giovanni subsequently joined Booz Allen and AT Kearney before moving to Unisys. For more information visit www.unisys.com/transportation and www.aaco.org.