February 6, 2003 - reprinted with permission from Aviation Daily

An Airline Comeback In 2003: Strategies To Consider

By Tom Klein, Group President, Sabre Airline Solutions

While most of us are happy to put 2002, one of the most painful years in the history of the airline industry, behind us, we must brace ourselves for another very tough year in 2003 — in some ways a year that will challenge us more than the past 12 months.

The economic and global security realities faced by the industry have enabled airlines to take bolder actions and higher risks. That should prove to be a long-term positive for airlines, which have had difficulty keeping capacity and complexity in check. The focus on simplification is absolutely real at carriers of all sizes and indifferent to business models — full-service network or low-cost point-to- point carrier.

This year will be particularly trying for those of us who supply and serve the industry. There will be no “business as usual” in 2003. Airlines will make dramatic adjustments, and we will either enable the change or become a victim of it.

Our clients at Sabre Airline Solutions, more than 200 airlines worldwide, want clear, short-term returns on investment and a quantifiable competitive advantage. Success in four key areas will be critical to airlines in 2003.

The first is designing and implementing new processes for simplified operations. Last year, most airlines embraced the notion of simplification as a key to success. Simplifying in our industry means taking a broad view of end-to-end processes as opposed to individual events.

One example is an e-ticket, which certainly results in a more efficient process than a paper ticket. But if we look at the end-to-end e-ticket process, we still see a myriad of complexity required over the “life” of the ticket. Is it easy to reach simplicity in this area? No. But technology, business process change and the industry’s willingness to take risks will result in a better end-to-end model.

The second challenge is to have a scheduling and fleet planning strategy that optimizes earnings. Schedule adjustments can be made in a relatively short period of time. Fleet simplification, on the other hand, is not so easy. Carriers have diverse routes that require varied capabilities, and driving fleet simplification without serious short-term impact to your financial performance is difficult.

One example from a scheduling perspective is that carriers have to make tough decisions on “strategic/must-fly routes” — generally loss leaders — flown for the benefit of the network, due to competitive pressure, for frequent flyer appeal, or a variety of other reasons. Again, this is easier said than done for an industry where market share and market presence are so important.

Third, revenue management practices have to adjust to the blended-channel world. Airlines have done a super job of driving the online channel of distribution. The results of the shift to the Internet have clearly placed pressure on yields as leisure and business travelers alike purchase lowfare, distressed inventory.

The transparency of pricing may have also created a psychological challenge as business traveler confidence in the value they receive has been bludgeoned by the view that low-fare options are just a click away.

For many carriers, an upgrade to industry best practice in revenue management will yield huge results.

For revenue management leaders, incremental improvement is the ultimate challenge in a world some believe will have a simplified fare structure, while others believe pricing will be true “bid/ask per transaction,” no matter how air travel is ultimately purchased.

Restoring consumer confidence in the ability to find the air travel product that best suits their needs at a fair price must be addressed within the revenue management and pricing strategy.

Finally, individual airlines will be challenged to deliver improved results in 2003.

Getting stable footing and a mid-term strategy in place was acceptable to investors and other constituents in 2002. Seeing improved results, tactical execution, and sustained change are the expectations for 2003. For those of us who provide products and services to the industry, execution, innovation, return on investment, and delivery will be the things that will be valued by our customers, constant values in a changing world.