Once the posturing, negotiating and regulatory minefields of airline mergers have been overcome, the hard work begins on integrating IT to help deliver the full potential of the combination
Airline appetites for mergers and consolidation are showing little sign of being sated, evident in a string of high-profile deals in the past year alone. But while the giddy chase of the deal and its completion inevitably attract the headlines, the hard work may continue behind the scenes for years. Integrating information systems is a critical element of mergers, binding relationships and enabling a newly merged airline's business strategy.
There may be some early benefits to garner along the way, but deeper synergies may take considerably longer to pay back - not something non-IT management is always willing to acknowledge.
Whether you are smallish carriers forging a medium-sized business, legacy carriers looking to bootstrap yourselves into a modern airline with new-generation technology or sophisticated aviation behemoths, first priorities are usually to protect revenue streams. This means looking after the frequent flyers and creating a single selling identity for customers - a huge challenge at the best of times.
But some of the most difficult areas that merging businesses have to tackle pertain to corporate cultures, together with the sensitivities and loyalties of their people. Creating an IT team that reflects and supports a newly merged airline and can embrace change in the business is no mean feat and an important element of merger success.
IT merger timescales will vary according to the size and degree of difference between the merging airlines. Timelines are measured in months and years, and if you are really unlucky, the process can be open ended. "Steps to integrate systems start immediately, but we have seen that it can take up to five years and some airlines might never be fully integrated," says Francesco Violante, chief executive at SITA.
IT timelines can have a huge impact on the rest of the business, so the IT team was identified and put in place very early in the process when Spanish low-cost carrier Clickair merged into rival Vueling in 2009. No doubt they benefited from the parallels between the two airlines - young and aggressive with similar objectives - because they were able to merge most of the corporate, commercial and operations systems in about seven months, including initial planning.
"Most business timelines were centred around IT capability," says Vueling IT manager Samuel Lacarta. "Parallel to the IT integration, the businesses mapped out their own merger processes. Clearly, IT meant capability and without business capability, merger synergies would not have been achieved."
Spanish carrier Iberia, which is combining with British Airways under parent company International Airlines Group, has a five-year timescale for merging IT operations, driven by business convergence. Iberia chief information officer Cristina Ortega admits the biggest challenge is the definition phase, saying "time spent in the definition of common business processes delays the adoption of common IT solutions". She is hoping to overcome this by using "third-party methodologies to leverage and speed up the processes' definition".
But large airlines, particularly if they are moving to new technologies as well as merging, have to be prepared for the long haul. This summer, almost seven years after their 2004 merger deal, Air France and KLM will merge on to the same e-ticketing system - the final step in creating a common IT system for passenger sales. The IT merger is not yet complete: Air-France-KLM still has to tackle the revenue management system.
When it comes to deciding which particular system to go with from those run by the merging partners or opting for new technology, you would think the best system would win, but it is not necessarily the first consideration. The decision can be more complex, or even more emotional.
"There may well be some element of the airline that comes out on top and they decide that the new airline entity works with the system it knows and understands, so you have some irrational choices," says Ian Tunnacliffe, Travel Technology Research director.
System capacity is a major criterion as a merged airline will be significantly larger and some systems may be limited in what they can support. Tunnacliffe says: "The crew management system at AirTran manages the crew requirements of an airline with 25 million passengers per year. But at Southwest the management system is doing 125 million passengers per year and maybe if you asked the AirTran system to manage 140 million passengers it would run out of oomph."
With investors keen to see the merged airline make good on commitments for a return, another big driver is costs - contractual and benefiting from synergies as quickly as possible. For Vueling's Lacarta the issues were "scalability, cost and compatibility - and of course, a good dose of human factor management. Mergers are hardly ever staff-friendly, so this was a big part of the project." Synergies are among the key factors for Iberia, which Ortega says are "synergies achievement, response to business demands, integration barriers management".
Moving to a single selling identity in e-commerce and selling systems as quickly as possible is an important consideration, which means merging frequent-flyer programmes, branding the new entity and integrating the passenger service systems. Passenger service system cutovers, often likened to open-heart surgery or brain surgery while the patient is conscious (Airline Business, July 2010), are notoriously risky and stressful. They also typically take up to 18 months after the system decision process, maybe much longer for complex airlines.
So United's decision in May to ditch its move to the Amadeus Altea system in favour of migration to Continental's existing IT system makes a lot of sense in terms of risk mitigation and speeding up the transformation. Since closing the merger deal last October, United Continental Holdings has selected key technology platforms and processes, continuing to integrate self-service capabilities, including introducing new tools on united.com and continental.com.
It has also launched new priority airport services for the two airlines' frequent flyers and premium-cabin customers, aligned check-in and boarding processes and created a single social media channel, @united, plus a new Facebook page.
The company is on course to achieve a single operating certificate during the fourth quarter of 2011 and to migrate to a single reservation system in the first quarter of next year. "The alignment of airport procedures, particularly for our most loyal customers, and the rebranding of our operations at our hometown airport are the newest visible signs of the successful integration of United and Continental," says Jeff Smisek, United's president and chief executive.
Anil Sondhi, executive director of IT for Air India, knows all too well the headaches that delays creating a single airline identity for passengers can bring. When Air India merged with domestic Indian Airlines in 2007, they were on different PSS systems with very little IT in Indian Airlines. It was an opportunity to go for new-generation technology when they merged to a common seamless ticketing system. They were some way down the tendering process, when a procedural problem meant the process had to start again in 2009.
"When we had two codes we lost a lot of confidence in the travelling public's mind," says Sondhi. "They had to go to different booking offices because the systems would not talk to each other." Air India had signed an agreement to join Star Alliance by the time it agreed to migrate to its current SITA Horizon PSS in April last year with the intention of cutting over in a whistle-stop 300 days. The merged carrier began operating on a single code in February.
"There were huge challenges - one side had some bit of an advantage, but on the domestic side IT was rather primitive, so to bring them to our level where we had a new-generation system provided by SITA was a huge refresh of hardware. So a big investment at a time where the airline was not doing particularly well in terms of financial results," says Sondhi. And the secret behind this successful cutover? A comprehensive request for proposals totalling 1,060 pages.
Creating a team
Getting systems to work together is only half the equation; the other is uniting the people into one team, which can create even more challenges for the technology merger. "Quite often the merger involves major competitors - for example Air India/Indian Airlines, SN Brussels/Virgin Express - which leads to strong egos and emotional concerns with staff on each side," says Ursula Silling, founder and chief executive of XXL Solutions. "This can lead to long debates and implementation periods due to resistance and emotional positions rather than pragmatic decision-making. It can significantly prolong the process."
For Edouard Odier, executive vice-president information systems, Air-France-KLM, the most challenging element of the merger between Air France and KLM was creating a common IT team that was "willing and happy to work with the combined Air France-KLM spirit, not Air France or KLM". Initially the two airline IT teams worked in parallel, with Air France developing the merged frequent-flyer system and KLM working on the merged internet check-in.
The second step was for the business to get one story from IT, which happened three years ago when the two IT teams combined, working across four IT sites and three data centres in France and The Netherlands.
"We created a G7 team of seven managers who gave example to others, three from KLM and four from Air France, who showed very quickly they were not from Air France or KLM, sharing information and showing they can work together very well. We enlarged this team with 70 senior managers," says Odier, adding it was a matter of leadership and keeping things simple. "We tried to put in place an organisation that I could explain to my hairdresser and for each IT centre you have to create a future for them."
Inevitably there will be a significant impact on the business ethos of the combined companies, which can be a positive benefit of the merger. "SITA has witnessed IT teams that are energised by the merger and see it as an exciting new challenge," says Violante.
Odier agrees that Air France-KLM has benefited from developing a new way of working, saying Air France used to be more like an army, whereas the Dutch were used to working in a more consensual way. "We still have two different styles, but we are getting used to the way the other works. The Dutch help us improve our management style and when we make decisions with them, we understand that they have to discuss it and we know the benefits that we get by being patient."
So amid the high-octane pressures of the big systems cutovers are there any easy wins in the IT merger game? While nothing is ever straightforward, there are some no-brainers around enhanced buying power, supplier consolidation, contract simplification and some centralised services.
"Typically, non-core systems with low risk, centralised applications, rather than throughout the company and lower impact would be relatively straightforward," says Silling, adding that "these applications typically include revenue management, staff travel, revenue accounting, cargo systems, flight operations, crew planning".
There are even jobs that can be shelved until the merged airline is much further down the line with its integration. "If the two historically have operated different aircraft types, in the short term they will maintain separate operations of the fleet, which means that there is no immediate need to merge crew scheduling and MRO systems. You can plan to do that over an extended period, "says Tunnacliffe.
Benefits and synergies
What about the much-vaunted benefits and synergies? You have to be prepared for the long haul - Odier says it will take another two or three years for all the synergies to kick in at Air France-KLM. Tunnacliffe agrees there are seldom quick wins from IT synergies, observing: "The industry has a slightly sad track record of non-IT management believing IT synergies are easier to achieve than they actually are."
Nevertheless, Sondhi at Air India has seen benefits kicking in more immediately in some areas of the business. "Web sales have gone up 250% since cutover. We are assessing how much is additional revenue, but it is a huge saving because earlier people were going through booking agents and GDS Our load factors are up 6-8% on international flights. The domestic side has been set back by the 10-day pilot strike, but we are still operating at 75% on the domestic network," he says. Over at Iberia, in the immediate term, Ortega is looking for costs savings and sharing best practice. "In the long term, strong leadership in IT technologies specialised in airline business," she says.
Often underestimated, however, is the benefit from showing visible changes, ensuring both merged entities feel acknowledged, says Silling. "The best of both worlds, in terms of resources and technology developments, could be achieved if solutions and approaches are chosen on these terms."