2009 Issue 1 - Sabre Airline Solutions

A MAgAzINe for AIrlINe executIves 2009 Issue No. 1 

taking your airline to new heights 

A Clear Vision 

A Conversation With … 

Sean Durfy, Chief Executive 

Officer, WestJet Airlines, 

Page 16. 

8 Japan Airlines takes steps to improve 21 Delta Air Lines/Northwest Airlines merger 44 

its environmental performance 

impacts regional carriers 

Special Section 

Survival 

Guide 

38 

Airlines have three basic options to raise capital

taking your airline to new heights 

2009 Issue No. 1 

editor in chief 

Stephani Hawkins 

Managing editor 

B. Scott Hunt 

Art Direction/Design 

Charles Urich 

contributors 

Khaled Al-Eisawi, Edward Bowman, Stan 

Boyer, Steve Clampett, Dennis Crosby, Jeanette 

Frick, Greg Gilchrist, Carla Jensen, Christine 

Kretschmar, Gordon Locke, Craig MacFarlane, 

Tim Maher, Kazuya Ohta, Dave Roberts, Tim 

Sutton, Jeremy Sykes, Fionna Wee. 

Publisher 

George Lynch 

3150 Sabre Drive 

Southlake, Texas 76092 

www.sabreairlinesolutions.com 

Awards 

2008 Awards for Publication Excellence, 

International Association of Business 

Communicators Bronze Quill and Silver 

Quill, Hermes Creative Award, The 

Communicator Award 



Communicators Bronze Quill 



Communicators Bronze Quill, Silver Quill 

and Gold Quill 



Communicators Bronze Quill, Silver 

Quill and Gold Quill 



Communicators Bronze Quill and Silver Quill 

reader Inquiries 

If you have questions about this publication 

or suggested topics for future articles, please 

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making 

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Asia/Pacific 

David Chambers 

Vice President 

3 Church Street, #15-02 Samsung Hub 

Singapore 049483 SG 

Phone: +65 6511 3210 

E-mail: david.chambers@sabre.com 

europe 

Alessandro Ciancimino 


Via Appia Nuova 990 

00178 Rome, Italy 

Phone: +39 348 3708240 

E-mail: alessandro.ciancimino@sabre.com. 

India/south Asia 

Vish Viswanathan 


187, Royapettah High Road, Flat A-7 

Mylapore 

Chennai, India 

Phone: +1 682 605 4544 

Cell: United States +1 817 312 2830 

Cell: International +91 98404 96765 

E-mail: vish.viswanathan@sabre.com 

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Airline Solutions logo and products 

noted in italics in this publication are 

trademarks and/or service marks of an 

affiliate of Sabre Holdings Corp. All 

other trademarks, service marks and 

trade names are the property of their 

respective owners. ©2009 Sabre Inc. 

All rights reserved. Printed in the USA. 

For more information about 

products and services featured in this 

issue of Ascend, please visit our Web 

site at www.sabreairlinesolutions.com 

or contact one of the following 

Sabre Airline Solutions regional 

representatives: 

latin America 

Kamal Qatato 




Phone: +1 682 605 5399 

Middle east and Africa 

Maher Koubaa 

Regional Head 

77 Rue de la Boetie 

Paris, France 75008 

Phone: +33 1 44 20 7657 

E-mail: maher.koubaa@sabre.com 

North America 

Kristen Fritschel 




Phone: +1 682 605 5335 

E-mail: kristen.fritschel@sabre.com 

Worldwide 

Shane Batt 

Executive Solutions Partner 

Phone: +44 7717 495 129 

E-mail: shane.batt@sabre.com 

Address corrections 

Please send address corrections via 

e-mail to wearelistening@sabre.com.

I 

find the aviation industry’s “try-and-tryagain” 

philosophy to be quite remarkable. 

With it, there are no failures, just 

experiences that lead to greater successes. 

No matter how far back in history you 

go, you’ll find the same level of optimism. 

If you look back to 1799 at Sir George 

Cayley, sometimes known as the “father of 

aerodynamics,” or today at any number of 

airline leaders, they approach aviation with 

buoyancy. No task is beyond reach, and 

there’s always room to expand and improve. 

Doesn’t matter how old this way of thinking 

is, I always find it refreshing and worthy of 

discussion. 

It was 210 years ago that Cayley began 

his crusade to get man off the ground and 

into the air. For 50 years, Cayley designed 

an array of gliders that would help set the 

foundation for the airline industry. Adding to 

Cayley’s work, German engineer Otto Lilienthal 

designed the first glider that could fly a person 

long distances. And physicist and astronomer 

Samuel Langley recognized a power engine 

was necessary to help man fly. 

Based on the studies and experiments 

of Cayley, Langley and Lilienthal, 110 years 

ago the Wright Brothers designed their first 

aircraft. And in 1908, a friend of the Wright 

Brothers became the first passenger of their 

fixed-wing aircraft. 

As I look back on the work of Cayley, 

Langley, Lilienthal and the Wright Brothers, 

it’s apparent they set out to accomplish great 

things, and they did. It took a lot of perseverance, 

trial and error, and setbacks, but they 

didn’t give up. And their enthusiasm clearly 

carries over into the industry we know today. 

What started out as a mission to put 

a human being in the air has progressed 

into an ever-evolving business that brings 

together millions of people from all cor- 

perspective 

with Tom Klein 

Group President, Sabre Airline Solutions/Sabre Travel Network 

ners of the world and creates millions of 

employment opportunities in thousands of 

communities. And it’s only made possible 

by the very people who continue pushing 

the boundaries to secure the future of air 

transportation. 

Air New Zealand, (see pg. 12) for 

example, proactively set forth to reduce 

fuel burn and CO 2 emissions on its longhaul 

flights. During its ASPIRE flight last 

September from Auckland to California, 

the carrier saved nearly 1,200 gallons of 

fuel and reduced CO2 emissions by more 

than 11,200 kilograms using advanced 

flight planning techniques, datalink 

communications and air traffic control 

advancements. 

Japan Airlines (see pg. 8) made 

history in January as the first airline to 

conduct a demonstration flight using 50 

percent biofuel blend and 50 percent Jet-A 

fuel in one of the four engines on a Boeing 

747-300 aircraft. The test flight not only 

reduced CO2 emissions, it also brought 

the airline industry that much closer to 

reducing its dependence on today’s petroleum-based 

fuels. 

These are just two examples of how 

airlines have worked diligently to move 

the industry forward. And we consistently 

see this level of enthusiasm from airlines 

around the world. 

On our cover, WestJet Airlines Chief 

Executive Officer Sean Durfy discusses 

his plans of continuing to grow the airline, 

the recently announced codeshare agreements 

with two of the world’s leading 

airlines and how staying true to its initial 

vision has kept the airline’s foundation 

strong and thriving. He doesn’t hesitate 

or re-think his strategy. He’s identified 

the best course of action, and he’ll move 

forward with grace for the good of his 

airline, the communities it serves and the 

entire industry. 

Likewise, aircraft manufacturers continue 

building innovative aircraft that, during 

the course of the next 20 years, will fill our 

skies with planes that are far more efficient 

than those in service today. Technology 

providers will continue to develop software 

that enables carriers to operate with precision 

and at optimal levels. 

And even the new U.S. administration 

is giving it a run with US$800 million 

earmarked for air traffic control upgrades. 

Albeit it’s US$25 billion short, it’s certainly 

a step in the right direction. All of this is 

possible because of the try-and-try-again 

approach. We’re getting better with each 

try, and we never stop trying. 

I assume that like me, many of you 

have been mentioning to family members, 

friends and colleagues that you are tired of 

hearing and reading nothing but pessimistic 

and bad news. This perspective is one guy’s 

attempt to find the bright side. 

Looking at the airline industry as a 

whole, I’m impressed with the many carriers 

that recognized the trends in demand last 

year and made necessary capacity adjustments 

to help keep the industry healthy. 

What we see time and time again, just 

like in the early days of aviation, is airlines’ 

innate ability to move the industry forward 

with confidence. 

Bravo airline industry … take a bow!

profile 

8 

ascend 

contents 

Japan’s green Machine 

Japan Airlines takes myriad 

sustainable actions to improve its 

environmental performance. 

12 forward leap 

Air New Zealand’s ASPIRE flight 

from Auckland to California saved 

approximately 1,174 U.S. gallons 

of fuel using a Boeing 777-200ER 

aircraft. 

16 A clear vision 

WestJet Airlines explains how it 

stays true to its vision. 

regional 

21 connecting the Dots 

Delta Air Lines and Northwest 

Airlines merger has significant 

impact on some regional carriers. 

24 Aeroflot’s revolution 

Aeroflot Russian Airlines reinvents 

itself through an extensive 

turnaround initiative. 

16 

36 

30 

industry 

26 fleet shuffle 

As a result of aircraft delivery 

delays, carriers around the world 

are forced to improvise until their 

new planes arrive. 

30 cutting up 

Airlines’ revenue management and 

pricing teams can offset the ill 

effects of capacity reductions and 

maximize their potential benefits. 

33 the KIss Principle 

Low-cost carriers are 

implementing traditional airline 

characteristics while network 

carriers remove some 

conventional attributes. 

36 Immense Intelligence 

Airlines can determine a successful 

course, effectively respond to 

change and measure their success 

using business intelligence.

special section 

40 Network checkup 

Airlines can follow basic 

guidelines to ensure the right 

markets are served at the right 

times. 

44 

captital uplifting 

Airlines that need to raise 

capital in a tight credit 

environment have three 

basic options. 

47 saving the Pie 

Choosing the right cooperative 

agreements helps airlines 

effectively compete. 

50 climate change 

Airlines need to prepare for 

new European legislation 

requiring them to report CO2 

emissions. 

Hedging Your 

56 

(Jet fuel) Bets 

Many airlines have come out on 

top after leveraging fuel-hedging 

opportunities, but those that 

hedged too far ahead are paying 

a price. 

looking Back 

60 

for tomorrow 

Despite the most significant 

challenges, some carriers have a 

natural ability to succeed during 

tough times. 

company 

64 the explorer 

Sabre Airline Solutions recently 

acquired Flight Explorer for its 

real-time tracking, reporting 

and display of enroute aircraft 

capabilities. 

sharpening the 

67 e-commerce edge 

The recent acquisition of EB2 

gives Sabre Airline Solutions 

customers a broad range of Web 

options. 

40 

solutions 

70 Brainpower 

Business intelligence solutions 

enable airlines to broaden their 

analysis capabilities to include key 

performance data into their 

business strategies. 

service360°: 

72 

It’s All Around You 

Service360° SM 

Consistent 

Practices comprise five service 

practice areas to ensure airlines 

receive optimum solutions that 

drive the performance of their 

businesses. 

contents 

56 

ascend

y the numbers 

Absolute Change 

Traffic (RPK) or capacity (ASK) — billions 

2008 World traffic 

Source: Sabre Airline Solutions ® Global Demand Dataset 

100 

80 

60 

40 

20 

0 

Traffic % 

Capacity % 

By Chris Spidle and Paul Pederson | Ascend Contributors 

20 

40 

ascend 

North America continues to 

generate the largest share 

of worldwide production, 

accounting for 32 percent of 

global available seat kilometers 

last year. Asia/Pacific and 

Europe were comparable in 

size, and the three regions 

together account for 85 

percent of global capacity. 

} 

traffic And capacity changes 

full year 2008 versus full Year 2007 

2008 capacity Distribution By region (AsKs) 

Latin America 

Middle East 

6% 

Europe 

24% 

Industry North Asia/ Europe Middle Latin Africa 

America Pacific East America 

Percent Change 

2.2% -1.5% 2.8% 2.0% 11.2% 6.1% 5.3% 

2.2% -3.3% 5.1% 1.6% 14.1% 4.2% 4.7% 

6% 3% 

Africa 

North America 

32% 

Asia/Pacific 

29% 

{ 

For the full year 2008, total worldwide 

industry capacity and traffic 

increased. All regions except North 

America increased (the decrease in 

North America was driven by the U.S. 

domestic market). The Middle East 

posted large percentage increases; 

however, this growth occurred on a 

comparatively small base of production.


Traffic (RPK) or Capacity (ASK) – billions 

100 

80 

60 

40 

20 

0 

Traffic % 

Capacity % 


Traffic (RPK) or capacity (ASK) — billions 

20 

40 

100 

80 

60 

40 

20 

20 

40 

0 

Traffic % 

Capacity % 


January 2009 versus January 2008 




-1.8% -6.0% 2.3% -4.4% 5.8% -1.1% 3.3% 

-2.4% -8.9% 1.8% -4.5% 13.2% 1.5% 2.6% 


fourth Quarter 2008 versus fourth Quarter 2007 




-2.7% -7.5% -0.3% -4.0% 11.5% 0.6% 3.0% 

-2.3% -8.7% 2.0% -4.5% 14.0% 2.3% 2.9% 

{ 

{ 

The trend of decreases accelerated in 

some areas such as North America; 

however, the percentage decrease in 

worldwide production for January was 

similar to the fourth quarter. Gains in 

the Middle East began to decrease. 

The trend in traffic and capacity shifted 

from increases to decreases during 

the fourth quarter, with North 

America posting the largest absolute 

decreases. Decreases in North 

America contributed significantly to 

the global decline; however, Europe 

also showed weakness. The Middle 

East continued to post large percentage 

increases on a comparatively 

small base of production. 

Chris Spidle is delivery director of research, analysis 

and modeling and Paul Pederson is an airline 

research principal for Sabre Airline Solutions ® . 

They can be contacted at chris.spidle@sabre.com 

and paul.pederson@sabre.com. 

ascend 

by the numbers

Japan’s green 

Machine 

Among the world’s carriers that are 

serious about improving their environmental 

performance, Japan Airlines takes a 

multitude of sustainable actions. 

By Phil Johnson | Ascend Staff

During an era when environmental and 

greater sustainability issues have evolved 

into top priorities — both in the public mind 

and in the corporate boardroom — certain companies 

in various industries have taken it upon 

themselves to become environmental leaders. 

These companies are boldly asserting 

themselves in all things sustainable, to the extent 

that some of these environmentally conscientious 

companies have established the credibility to help 

set the standards for the environmental discussion, 

at least within their individual industry. 

In the global airline industry today, perhaps 

no carrier more thoroughly exemplifies what it 

means to be an advocate of “green” practices 

and technologies than Japan Airlines. In fact, the 

carrier’s management team has made clear its 

stance that even though the airline industry has 

a critical, positive part in bringing people from 

around the world together for business, pleasure 

and cultural exchange, JAL also understands the 

potentially detrimental impact that air transport 

business operations can have on the global 

environment. 

And regardless of the necessity of every 

business to forge ahead during this period of 

worldwide economic slowdown, JAL nonetheless 

also maintains 100 percent commitment to 

its obligations in relation to sustainability and the 

environment. 

The International Air Transport Association 

has estimated that the global airline industry is 

responsible for generating up to 3 percent of 

the current total man-made segment of climate 

change and that by 2050, there’s a possibility that 

the airline industry’s share of man-made climatechange 

responsibility could grow to as much as 

5 percent. 

Just in terms of carbon dioxide — strongly 

suspected of being one of the key culprits that 

may be causing measurable levels of global 

warming — aviation is estimated to be responsible 

for up to 2 percent of current worldwide 

CO 2 emissions. 

By industry (based on 2005 figures), transportation 

accounts for 20 percent of all CO2 

emissions in Japan, and looking solely at the 

airline industry, flights on Japan’s domestic routes 

account for 4 percent of all emissions in the 

transportation segment and 0.9 percent of all 

emissions generated by Japanese industries. 

“We have to think differently about CO2 

emissions than companies involved in businesses 

with low CO2 emissions,” said JAL President 

and Chief Executive Officer Haruka Nishimatsu. 

“Irrespective of the level of attention being paid 

to the environment by the public, at the JAL 

Group, environmental initiatives must be a core 

management issue, not a peripheral one.” 

So ensuring a healthy and bountiful global 

environment for future generations is fully 

acknowledged by JAL’s executives as one of the 

carrier’s greatest social responsibilities. And for 

more than 15 years, JAL has been implementing 

a variety of measures designed to reduce and 

offset the impact its business activities have on 

the environment. 

Compared with 1990 levels, the JAL 

Group has a goal to cut fuel consumption (and, 

therefore, CO2 emissions) by 20 percent in terms 

of transported capacity by fiscal year 2010. To 

date (since 1990), JAL has achieved a 16 percent 

reduction in fuel consumption in terms of transported 

capacity. 

JAL’s total CO2 emissions in fiscal 2007 

(the year ended March 31, 2008) totaled 15 million 

tons, down 0.77 million tons (or 4.9 percent) 

from the previous fiscal year. For perspective, this 

reduction by 0.77 million tons is approximately 

equivalent to the CO2 annually absorbed by 55 

million Japanese cedars. 

Management realizes that one of the most 

significant ways JAL can slim down its environmental 

footprint is by reducing — or more 

efficiently using — the fuel that powers its aircraft 

(the amount of CO2 emitted is approximately proportionate 

to the amount of fuel consumed). 

For example, on a long-haul international 

flight from Tokyo to London using a four-engine 

Boeing 747-400 with 303 passengers onboard, 

the aircraft’s engines would emit approximately 

356 tons of CO2, whereas using a twin-engine 

Boeing 777-200ER on the same route, with 12 

percent fewer passenger seats, the aircraft’s 

engines would emit almost 33 percent less CO2. 

JAL has therefore already replaced the 

Boeing 747-400 with the more fuel-efficient 

Boeing 777 aircraft on nearly all of its routes from 

Asia to Europe. And the carrier is now also gradually 

replacing the 747 aircraft it uses on its routes 

between Japan and the United States. 

Essential, then, to JAL achieving significant 

CO2-emission cuts is fleet renewal through 

the introduction of more-fuel-efficient aircraft 

equipped with state-of-the-art engines — combined 

with the retirement of older aircraft. Almost 

30 percent of the aircraft in JAL’s fleet have been 

delivered within the past five years as JAL has 

retired 90 older-model aircraft. 

JAL’s substantial investment in new, moreefficient 

aircraft continues, as the carrier still has 

outstanding orders for more than 80 new aircraft, 

including the advanced Boeing 787 equipped 

with GEnx engines, which are General Electric 

engines of next-generation-turbofan design, 

anticipated under normal circumstances to use 

20 percent less fuel than today’s comparable 

aircraft engines. 

Nonetheless, JAL is going even further 

in terms of its fuel-consumption reduction measures. 

The carrier’s planners have estimated that 

trimming just 1 kilogram (or about 2.2 pounds) 

from the weight of each aircraft will cumulatively 

reduce CO2 emissions across the JAL fleet by 76 

tons a year. 

In pursuit of such incremental weight 

reduction, JAL has been looking at its flight operations 

from every conceivable angle to find various 

innovative ways to reduce aircraft weight, even if 

just by a single gram. 

So among other things, JAL has been 

reducing both the weight and numbers of items 

onboard its aircraft, including equipment such 

as galleys, meal carts and trays, and meals and 

magazines. 

Several years ago, JAL introduced lightweight 

porcelain tableware, which is approxi- 

JAl became the first airline to conduct a demonstration flight using a sustainable biofuel, 

which consisted of a blend of 50 percent biofuel and 50 percent traditional Jet-A fuel in one 

of the four Pratt & Whitney Jt9D engines of a Boeing 747-300 aircraft. 

Photo courtesy of JAL 

9 

profile

profile 

10 

mately 20 percent lighter, for meal service in first 

and business class. Also, JAL has made in-flight 

cutlery in economy class — including premium 

economy — 2 grams lighter per item. 

Furthermore, JAL has found it can make 

an individual aircraft 23 kilograms lighter by reducing, 

for example, the number of newspapers and 

magazines carried onboard international flights. 

Through a combination of various methods, JAL, 

on one of its typical 777 aircraft, has managed an 

overall weight reduction of 500 kilograms. 

JAL has also reduced the average weight 

of cargo containers carried onboard its aircraft by 

26 kilograms per unit on international routes, and 

by 14 kilograms per unit on domestic Japanese 

routes. 

Previously, JAL cargo containers have all 

been made of aluminum alloy, but JAL, in fiscal 

year 2007, started using Twintex — a new material 

made of polypropylene and glass fibers — in 

the side panels of the containers. And JAL plans 

to steadily update its multipurpose containers 

on international routes with this material (at this 

point, more than 10 percent of JAL’s containers 

have been replaced with the new lighter 

version). 

The average number of these containers 

in the belly of one of JAL’s 777-300ER aircraft is 

44 (which translates to a total weight reduction, 

with the new material, of 1,144 kilograms), and 

in the belly of one of JAL’s 747-400 aircraft is 

30 (which translates to a total weight reduction, 

with the new material, of 780 kilograms). 

In terms of cargo aircraft, JAL is now 

operating more of its freighters in bare metal, 

saving the weight of paint. In 1992, JAL began 

operating 747 cargo aircraft with unpainted 

exteriors, helping to reduce weight by approximately 

150 to 200 kilograms per aircraft. And 

during fiscal year 2007, JAL took delivery of 

three 767-300F aircraft (all of these aircraft 

arrived and remain unpainted, which in effect 

reduces their weight by approximately 110 

kilograms per aircraft). 

By using hot water to regularly clean the 

jet engines of its large and midsize aircraft, JAL 

has managed to improve engine performance 

by approximately 1 percent. 

Having cleaned half of its aircraft engines 

in this manner, JAL estimates its fleet CO 2 

emissions have been reduced by about 53,000 

tons, which is equivalent to the emissions 

generated by 980 round trips between Tokyo 

and Sapporo (a city world-renowned as the host 

of the 1972 Winter Olympics, located on the 

northern Japanese island of Hokkaido). 

In early 1990, JAL flight crewmembers 

set up a fuel-efficiency committee to explore 

ways of flying in a more eco-friendly fashion. 

This committee has since been reorganized as 

the operations division team, with several members 

meeting every two months to discuss how 

to avoid excessive fuel usage and then communicating 

the results of these discussions to 

fellow flight crews. 

ascend 

JAl capt. Keiji Kobayashi (left), featured with JAl ceo Haruka Nishimatsu, piloted the 

industry’s first demonstration flight using a sustainable biofuel blend in one of the engines 

of a Boeing 747-300 aircraft. 

The team’s findings have led, for example, 

to a decrease in the use of auxiliary power units 

at the airport, more accurate measurement of 

fuel loaded onboard, more optimal timing and 

angle of flap operation, reduced use of reversethrust 

on landing, and turning off one of the four 

engines on 747 aircraft while taxiing. 

APUs onboard the aircraft provide electricity 

for onboard air conditioning and lighting 

while the aircraft is on the ground with the 

main engines disengaged. Since an operating 

APU consumes between 600 and 700 liters 

of fuel per hour, JAL pilots try not to start up 

these power units until shortly before takeoff, 

and they rely on ground power units at the 

airport for electricity and air conditioning. APUs 

generate approximately 1,200 kilograms of CO 2 

per hour, compared to 44 kilograms of CO2 for 

GPUs. 

To work toward greater fuel efficiency, 

the amount of fuel onboard an aircraft must 

be accurately measured. At one time, fuel 

was loaded onboard JAL aircraft in units of 

1,000 pounds (around 450 kilograms), but JAL 

decided to modify the fuel load to 100-pound 

(45-kilogram) units. 

More precise measures of the amount of 

fuel required for safe arrival at each destination 

has allowed JAL to achieve weight savings of 

approximately 400 kilograms per flight. 

In addition, JAL is committed to recycling 

every possible item, from aluminum cans and 

paper to old uniforms. The carrier has even adopted 

a green procurement policy. For example, it 

now only uses in-flight chopsticks that are made 

from certifiable Japanese wood obtained through 

domestic forest-thinning procedures. 

The bulk of paper onboard JAL’s aircraft 

is generally accounted for among the magazines 

offered to passengers, including Skyward, JAL’s 

in-flight magazine, and JEN Guide, JAL’s in-flightentertainment 

guide. Each month, JAL crews 

remove the old copies from all aircraft and replace 

them with new copies. 

Years ago, such waste was generally 

either burned or transported to landfills. In 2004, 

however, JAL at Narita, Kansai, Haneda and 

Fukuoka airports created special project teams 

to address this issue. And as a result, the airline 

introduced new storage carts that make it easier 

to collect magazines within the limited space of 

the aircraft cabin. Today, these airports recycle 

about 600 tons of magazines each year — almost 

equivalent to the maximum takeoff weight of two 

777-200ER aircraft. 

JAL executives have expressed interest 

in exploring ways to reduce reliance on conventional 

fuels, which would again contribute to an 

overall reduction of CO 2 emissions. 

In partnership with Boeing, Pratt & 

Whitney, and Honeywell’s universal oil products 

(a refining technology developer), JAL was the 

first carrier to conduct a demonstration flight 

using a sustainable biofuel refined primarily from 

Photo courtesy of JAL

camelina, an energy crop. This also represented 

the first biofuel demo by an Asian carrier as well 

as the first biofuel demo using Pratt & Whitney 

aircraft engines. 

The demo flight effectively brings the 

airline industry closer to finding a commercially 

viable second-generation biofuel that could help 

reduce the impact of carbon dioxide emissions 

generated by aviation, while also reducing the 

industry’s reliance on traditional petroleum-based 

fuels. The test conducted on Jan. 30 involved 

a blend of 50 percent biofuel and 50 percent 

traditional Jet-A (kerosene) fuel in one of the four 

Pratt & Whitney JT9D engines of a JAL-owned 

Boeing 747-300 aircraft. 

The biofuel component was a mixture 

of three second-generation biofuel feedstocks: 

camelina (84 percent), jatropha (less than 16 

percent) and algae (less than 1 percent). JAL, 

Boeing, Pratt & Whitney, and Honeywell’s UOP 

have committed to the use of second-generation 

biofuel feedstocks that represent more efficient 

and sustainable energy than their first-generation 

predecessors. 

Second-generation biofuel feedstocks, 

such as camelina, jatropha and algae, do not 

compete with natural food or water resources and 

do not contribute to detrimental environmental 

activity such as deforestation. 

The fuel for the JAL demo flight was 

successfully converted from plant-based oil to 

biofuel by Honeywell’s UOP, using proprietary 

hydro-processing technology to complete the fuel 

conversion. To create the 50 percent blend, the 

biofuel was then blended with typical jet fuel. 

Subsequent laboratory testing by Boeing, 

UOP and several independent laboratories verified 

that the blended biofuel meets industry criteria 

for jet-fuel performance. Ground-based jet-engine 

performance testing by Pratt & Whitney of similar 

fuels further established that the biofuel blend 

either meets or exceeds the performance criteria 

in place for commercial aviation jet fuel today. 

At Tokyo’s Haneda Airport, JAL Group 

companies have also been working together with 

the Japan Civil Aviation Bureau and a group of 

other companies in testing biodiesel fuel that has 

been refined from waste tempura oil collected 

from restaurants. 

As part of the trials, JAL has tested the 

novel fuel in one of its tug vehicles, which is most 

commonly used to transport heavy loads around 

the airport and for baggage transportation. In 

using a 50/50 mixture of light oil and biodiesel fuel, 

no modification of the tug was necessary. 

Being a member of a global airline industry 

has also enabled JAL to play some unique roles in 

fostering environmental improvement. Because 

forests theoretically mitigate the effects of such 

challenges as global warming by absorbing CO 2 

emitted through the burning of fossil fuels, JAL 

has supported the Boreal Forest Fire Control 

Initiative and other similar projects. 

With the overall aim of preventing or at 

least effectively containing wildfires through early 

detection, information gathering and analysis, 

JAL’s pilots flying over vast open regions including 

Indonesia, Siberia and Alaska have been reporting 

any fire outbreaks they happen to spot, with more 

than 700 blazes reported in the past six years. 

Since 1993, JAL has also been participating 

in a global-warming observation project, 

monitoring greenhouse gases in the upper atmosphere 

using specially fitted air-sample-collection 

and -measuring equipment. The program now 

involves five JAL aircraft on international routes, 

measuring the CO2 concentration in the upper 

atmosphere. 

The data collected using JAL aircraft are 

helping scientists study and better understand the 

causes and effects of measurable increments in 

global warming and overall climate change. 

And beyond JAL’s own regular air transportation 

activities, the carrier has been supporting 

the Japanese government’s energy-saving “Team 

Minus 6 Percent” initiative by reducing levels of 

office heating during the winter and office cooling 

during the summer, cutting CO2 emissions at 

JAL’s offices in Japan by more than 10 percent 

during the last five years. 

Also in support of the campaign, JAL has 

shown a Team Minus 6 Percent public-information 

video on its domestic flights, making a sincere 

appeal to members of the general public to consider 

ways they use energy in their everyday lives 

and encouraging them to economically use and 

conserve energy in every way possible. 

As company policy, JAL is also applying 

innovative flying and routing techniques including 

tailored arrival and user-preferred route to allow 

its aircraft to arrive at their destinations while 

using the least amount of fuel and producing the 

fewest CO2 emissions in the process. 

Additionally, JAL has instituted a voluntary 

customer carbon-offset program, enabling its 

passengers to purchase credits that are spent 

specifically on environmental procedures that 

effectively offset passengers’ individual measures 

of carbon generation during that particular 

trip. 

Furthermore, JAL’s commitment to finding 

and eventually introducing biofuel alternatives 

to conventional fossil fuels in its aircraft and 

ground vehicles represents a trailblazing effort 

for commercial aviation, essentially helping make 

commercial aviation the first global-transport sector 

to place verifiable sustainability practices in its 

fuel-supply chain. 

All of these and more measures are key 

elements of JAL’s equation to do its part in helping 

substantially improve the global environment. 

“As a symbol of our commitment to the 

environment, we operate an airplane with a green 

tail — and all employees are sharing in the effort 

to accelerate and carry out specific environmental 

activities,” Nishimatsu said. 

In the actions of its top executives and others 

throughout the organization, the JAL Group has 

exhibited a level of determination that may even be 

unique in worldwide corporate business circles to 

seriously combat the possible long-term detrimental 

effects of potentially harmful emissions and to 

leave a much more healthful environment as a 

genuine legacy to future generations. a 

Phil Johnson can be contacted at 

wearelistening@sabre.com. 

As part of its environmental sustainability strategy, JAl continues investing in new, 

more-efficient aircraft, such as the Boeing 787, which under normal conditions is estimated 

to burn 20 percent less fuel than current comparable aircraft. 

Photo courtesy of Boeing 

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In response to the many new challenges it’s faced during the past 

few years, Mexicana Airlines has made highly strategic changes to its 

commercial side of the business as well as experienced great success 

from its low-cost subsidiary. 

By Michael Mankowski and Michael Reyes | Ascend Contributors 

Forward 

LEAP 

Air New Zealand embraces innovation in both routing and 

flying techniques to generate significant fuel savings and 

reduced carbon dioxide emissions on a route from New Zealand 

to the United States. 

By Shawn Mechelke | Ascend Contributor

During its economically and environmentally significant flight last september, called AsPIre 1, Air New zealand saved approximately 

1,174 u.s. gallons of fuel and reduced co2 emissions by some 11,218 kilograms. 

Two basic necessities in the global air 

transport industry — saving fuel and 

reducing potentially environmentally 

harmful CO2 emissions — are linked directly to 

greater efficiency. 

And greater efficiency is precisely the 

goal that Air New Zealand has effectively targeted 

in its innovative application of advanced 

routing and flying procedures on its trans- 

Pacific route between New Zealand’s global 

economic hub in Auckland and the California 

coast at Air New Zealand’s North American 

destination in San Francisco. 

Considering the entire process, Air New 

Zealand has helped enable the aviation industry 

to make a leap forward in defining both a 

more environmentally friendly and economic 

means of operating aircraft over long transoceanic 

distances. 

On Sept. 12, Air New Zealand completed 

what is now recognized as an economically 

and environmentally significant flight of a 

Boeing 777-200ER aircraft from Auckland to 

San Francisco. 

Before and during this historically noteworthy 

flight called ASPIRE 1, Air New Zealand 

applied broad capabilities in the areas of 

advanced flight planning techniques, datalink 

communications and air traffic control advancements 

to reap highly impressive results in trip 

fuel savings totaling approximately 1,174 U.S. 

gallons as well as approximately 11,218 kilograms 

in reduced CO 2 emissions. 

Combined concerns revolving around 

global climate change, ongoing measurable 

ozone depletion and the overuse of natural 

resources (as represented by petroleum products) 

have intensified the sense of urgency 

felt by Air New Zealand executives to position 

themselves on the leading edge in identifying 

new operational methods for the carrier’s 

scheduled flights — especially flights across 

the vast distances of the Pacific Ocean. 

In coordination with innovative oceanic 

air traffic procedures, Air New Zealand has 

implemented advanced flight planning techniques 

to set a new standard in trans-Pacific 

travel. 

Air New Zealand determined that approximately 

42 percent of the total fuel savings on 

the Auckland-San Francisco flight is attributable 

to calculations and decisions derived from data 

supplied by Air New Zealand’s flight planning 

system, Sabre ® Dispatch Manager. 

The remainder of the credit for Air 

New Zealand’s significant achievement goes 

primarily to the most advanced air-navigation 

services provided by several government 

agencies, including Airways New Zealand, 

Airservices Australia and the U.S. Federal 

Aviation Administration. 

In incrementally analyzing Air New 

Zealand’s remarkable accomplishment, it’s 

important to examine the flight’s sequential 

process — from preflight stage through takeoff 

and climb, cruise, descent, and finally the 

flight’s landing at San Francisco International 

Airport. 

Air New Zealand uses Dispatch Manager 

to create optimized flight plans, which are then 

sent via datalink communications to an Air New 

Zealand aircraft cockpit’s flight management 

computer. This includes the flight plan itself, 

plus enroute wind and temperature data. 

The carrier is able to analyze historical 

fuel-burn data for each of its individual aircraft 

(compared to what was flight planned) and 

adjust its fuel-burn calculations accordingly for 

each aircraft, including calculation of a performance-deterioration 

allowance. 

To analyze this factor in proper context, 

the airline takes into account that as aircraft 

age, their fuel-burn performance is altered. 

Air New Zealand monitors the fuel-burn performance 

of each of its aircraft on a daily 

basis and makes weekly adjustments in its 

aircraft fuel-burn data. It also considers these 

measures a collective maintenance practice, 

which are followed to produce highly accurate 

flight plans based at least partly on the specific 

expected fuel-burn performance of each individual 

aircraft. 

As another key factor that results in 

highly accurate flight plans, Dispatch Manager 

receives an updated set of worldwide wind 

and temperature forecasts every six hours. Air 

New Zealand flight dispatch officers are then 

able to use these latest wind and temperature 

forecasts in the preflight planning stage to create 

the initial flight plan for any given flight’s 

departure. 

Further augmenting the flight-plan accuracy 

(as based on the most recent six-hourly 

wind and temperature data), Air New Zealand 

maintains various items of direct-operating- 

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cost information in the flight planning system, 

including fuel costs. 

To determine the optimum route and 

altitude for a particular flight, the Air New 

Zealand flight planning engine uses the latest 

wind and temperature information, plus highly 

reliable direct-operating-cost data. The carrier 

then calculates the cost of flight time crossreferenced 

against the cost of fuel and eventually 

arrives at a cost index that will result in the 

minimum total cost for the flight. 

The cost-index data correspond to the 

performance data in the aircraft’s flight management 

computer and provide guidance to 

the flight crew as to the performance profiles 

to use in the climb, cruise and descent flight 

phases. 

As a result, variable cost-index calculations 

can be computed preflight as well as 

while the aircraft is en route — every six 

hours, when wind and temperature updates 

are received. The flight-plan route, winds, 

temperatures and cost-index setting are sent 

to the aircraft’s flight management computer 

via datalink communications. 

In addition to its Dispatch Manager 

flight-planning capability, Air New Zealand uses 

aircraft situation display technology via the 

Sabre ® Flight Explorer ® System to graphically 

view and track a flight’s progress in real time 

while the aircraft is en route from takeoff to 

landing. 

The aircraft situation display, in addition 

to the flight-planning system, can also be used 

to guide Air New Zealand flight dispatchers 

in determining optimum routes by using the 

system’s weather-overlay capabilities plus satellite 

imagery to compare and take into consideration 

graphical forecast weather conditions 

along the route, including potential turbulence 

and icing as well as areas of thunderstorm 

activity in relation to the planned route. 

In addition to the optimization provided 

by the flight planning system, an Air New 

Zealand flight dispatcher can assess the overall 

route and determine if it needs to be adjusted 

at certain points due to locally adverse weather 

conditions. 

All of the factors are in place, then, to 

allow flight planners to take into consideration 

not only a vast array of weather variations that 

can affect a flight, but to allow the planners to 

construct a route with both fuel savings and 

minimal CO2 emissions in mind. And in the 

preflight stage, Air New Zealand uses Dispatch 

Manager to determine the most economical 

flight route — looking to identify a route requiring 

the least amount of fuel and generating the 

lowest CO2 emissions. 

As a key element in this process, Air 

New Zealand defines for the flight a userpreferred 

route, or UPR. UPRs have been 

operational in the South Pacific oceanic airspace 

for a number of years, enabling carriers 

to plan optimized routes based on better flight 

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efficiency in taking advantage of the benefits 

of prevailing wind patterns rather than simply 

being required to fly fixed city/pair routes. 

Fixed routes — whether in the form 

of permanently defined tracks or flex-tracks 

(flex-tracks, effectively, are fixed tracks defined 

daily) — are not essential in the Auckland 

oceanic flight information region (managed by 

the government agency Airways New Zealand 

using its oceanic control system, or OCS) and 

the Oakland flight information region (managed 

by the FAA using its Ocean21 system). 

HiGHlight 

In coordination with 

innovative oceanic 

air traffic procedures, 

Air New Zealand 

has implemented 

advanced flight 

planning techniques 

to set a new standard 

in trans-Pacific travel. 

In the pre-departure phase for Air New 

Zealand’s flight from Auckland to San Francisco 

— using the calculated cost index and the latest 

enroute upper-air wind and temperature forecast 

— the carrier used Dispatch Manager to 

calculate the track between Auckland and San 

Francisco that would most effectively minimize 

fuel usage and emissions. 

This route is the UPR, implementation 

of which requires air traffic control systems 

that are able to support aircraft operating outside 

of predefined airways. With Air New 

Zealand’s OCS and the FAA’s Ocean21 — as 

well as their real-time conflict-probe capabilities, 

which instantly probe for conflicting factors with 

regard to any revision of flight profile — there 

is no requirement for traffic to maintain fixed 

routes in order for air traffic controllers to be 

able to identify conflicts. 

Once calculated, the user-preferred route 

is digitally uplinked to the aircraft, inclusive of 

the wind and temperature data for loading into 

the aircraft flight management computer. The 

fuel saved on this flight through the implementation 

of UPR amounted to approximately 420 

U.S. gallons and UPR was also accountable for 

approximately 4,015 kilograms of reduced CO 2 

emissions (emission reductions and fuel savings 

across the entire flight). 

Other factors in the initial stages of the 

flight also figured into the greater fuel equation. 

In an aircraft’s climb after takeoff, for example, 

there are numerous disparate factors that must 

be balanced to arrive at an optimum operating 

procedure. 

When considering climb power, the use of 

a derate climb power, or a power setting that is up 

to 20 percent below the aircraft’s maximum climb 

power, serves to significantly improve engine life 

potential and thereby lower maintenance costs, 

but the use of derate climb power also effectively 

increases the overall amount of fuel consumed 

during this flight phase. 

Even under the effects of fairly recent higher 

fuel prices, however, the savings to a carrier in 

terms of engine maintenance costs would still 

exceed by more than double the cost of fuel that 

could be saved in this flight phase. Thereby, derate 

climb power has remained Air New Zealand’s 

preferred option. 

Climb speeds on Air New Zealand aircraft, 

incidentally, are set automatically through the 

mechanism of a cost-index factor that is entered 

into the aircraft’s flight management computer. 

And some of the things that figured in later 

during the Auckland-San Francisco flight took on 

even greater significance. Once at cruising altitude, 

for instance, the flight gained an advantage 

through the six-hourly update of the upper air wind 

and temperature forecasts received through the 

flight planning system. A process called dynamic 

airborne reroute procedure, or DARP, is applied in 

effectively re-planning the flight en route. 

On the Air New Zealand flight from 

Auckland to San Francisco, the DARP process 

was completed twice, thereby saving approximately 

70 U.S. gallons of fuel. 

Air New Zealand’s use of DARP commences 

with an aircraft-datalink request for a 

DARP to the Air New Zealand flight dispatch office 

in Auckland. Immediately, the latest wind and 

temperature forecast becomes available, and the 

Air New Zealand flight dispatcher uses Dispatch 

Manager to recalculate the optimum track from 

a predetermined point just ahead of the current 

aircraft airborne position. 

Once calculated, the revised route is 

uplinked to the aircraft for flight crew consideration. 

The crew then downlinks a request for the 

revised route to New Zealand’s oceanic control 

center and, once approved, accepts the revised 

route into the active side of the flight management 

computer. 

Another advanced air traffic procedure that 

now benefits Air New Zealand operations in the 

Pacific oceanic region is 30/30 separation. 

Beginning in 2005, the Airways New 

Zealand and Airservices Australia agencies 

reduced the required separation between aircraft 

in their oceanic airspace to 30 nautical miles 

longitude and 30 nautical miles latitude — the first 

such reduced separation in international airspace

to be implemented globally. Within a year, the FAA 

followed suit with regard to its Pacific airspace. 

Air New Zealand has invested in aircraft 

systems that enable the carrier to obtain approval 

for both RNP10 (which results in 50-nautical-mile 

lateral and longitudinal separation) and RNP4 

(which allows the use of a 30-nautical-mile standard 

in oceanic regions). 

This separation standard is now routinely 

applied on flights between Auckland and San 

Francisco, and 30/30 separation effectively pro- 

vides the Airways New Zealand agency significantly 

increased airspace capacity as well as 

increased route flexibility, thereby enabling an 

overall reduction in fuel burn and CO2 emissions 

from each and every aircraft operating in the 

region. 

Air traffic control’s ability to allow closer 

separation between aircraft therefore also reduces 

the number of times during which aircraft are held 

below the optimum altitude, and on this Air New 

Zealand flight resulted in savings of approximately 

According to Air New zealand, approximately 61 percent of the total fuel savings 

on its AsPIre 1 flight last september were attributed to the carrier’s state-of-the-art 

flight planning system, Dispatch Manager, part of Sabre ® AirCentre Enterprise Operations. 

135 U.S. gallons of fuel and 1,290 kilograms in 

reduced CO2 emissions. 

The crew of the Air New Zealand flight 

was also able to make use of new descent and 

arrival procedures into San Francisco International 

Airport that saved approximately 200 U.S. gallons 

of fuel and 1,912 kilograms in reduced CO2 

emissions. 

Through what is known as a tailored arrival, 

the descent and approach into San Francisco was 

optimized for efficiency. 

Tailored arrival into San Francisco is a 

sophisticated application of a type of emissionsoptimized 

arrival known as a continuous descent 

arrival. CDA allows an aircraft to fly a continuousdescent 

path to land at an airport, instead of the 

traditional step-downs or intermediate-level flight 

operations. 

Using CDA, the pilot initiates descent from 

a high altitude in a near-idle (or low-power) engine 

condition until reaching a stabilization point prior to 

touchdown on the runway. CDA results not only 

in fuel savings and decreased emissions, but also 

significantly reduces noise beyond the airport. 

The tailored arrival then takes the principles 

of the CDA a step further by identifying the most 

beneficial flight path available by integrating all 

known aircraft performance, air traffic, airspace, 

meteorological, obstacle-clearance and environmental 

constraints expected to be encountered 

during the arrival phase. 

So in a broad analysis, the combination of 

Air New Zealand’s desire to pursue a “green” 

approach in the air — combined with state-ofthe-art 

technologies as well as innovative air traffic 

control systems from government agencies, 

Airways New Zealand, Airservices Australia and 

the FAA — made this particular Air New Zealand 

flight something of a high-profile case study, worthy 

of both detailed analysis and emulation. 

And the entire aviation industry appears 

to have taken notice. In a remarkable globally 

significant accomplishment, Air New Zealand has 

effectively demonstrated how to operate aircraft 

over long oceanic distances while creating a 

considerably smaller environmental footprint and 

saving substantial amounts of fuel. 

Today, there are more than 150 flights per 

week connecting New Zealand and Australia to 

the United States and Canada. Based on these 

flights alone, the potential total annual savings are 

in excess of 10 million U.S. gallons of fuel and 

reduced CO 2 emissions of more than 100,000 

tons … simply by following the principles that 

have been established and proven effective by Air 

New Zealand during a memorable flight from 

Auckland to San Francisco. a 

Shawn Mechelke is an operations 

product management director for Sabre 

Airline Solutions®. He can be contacted 

at shawn.mechelke@sabre.com. 

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A 

Clear 

Vision 

A Conversation With … 

Sean Durfy, WestJet Chief Executive Officer

WestJet Airlines 

Photos courtesy of WestJet 

WestJet Airlines, Ltd., has come a long 

way since the days of three aircraft 

flying to five destinations in western 

Canada. Its growing fleet of Boeing Next- 

Generation aircraft now serve cities across 

Canada and the United States, including three 

Hawaiian destinations. It is quickly becoming 

the airline of choice for vacation travel with its 

Caribbean and Mexican destinations. 

Despite a global economy that is currently 

dictating a significant downturn in the 

airline industry, WestJet remains optimistic 

about its expansion plans. 

Yes, it’s been impacted. In February, 

the carrier posted a 45 percent slide in fourthquarter 

earnings to C$40.8 million (US$31.5 

million) as harsh winter weather and waning 

demand for air travel continued to bog down 

its earnings. But Sean Durfy, WestJet chief 

executive officer, is bullish on his airline’s 

expansion plans, which forecasts 5 percent 

growth this year and includes adding eight 

more leased planes to its 77-plane fleet. 

“We’re still growing this airline,” Durfy 

said in a February interview with Canada’s 

Financial Post. “We’re still adding new routes, 

and we’ll continue to grow the WestJet 

Vacations product. We’re taking nine aircraft 

this year, and we have no flexibility on that.” 

During that interview, Durfy said there 

are several initiatives in the works that will 

help fill WestJet’s planes, most of which rely 

on the successful implementation of its new 

reservations system, built by Sabre Airlines 

Solutions ® 

, by the end of the year. 

While that process will likely push the 

launch of WestJet’s new loyalty program into 

the third quarter, it will enable the airline to 

increasingly move to an “à la carte” model, 

where passengers pay for the services they 

desire, such as advance seat selection and 

flexible fares. 

It will also enable the airline to implement 

its recently announced codeshare 

agreements with Southwest Airlines and Air 

France-KLM by the end of the year and during 

the first quarter of 2010, respectively. 

Talks continue with Cathay Pacific 

Airways and several other carriers over the 

potential for further codeshare agreements. 

“I think we will sign up at least one 

more this year for 2010,” Durfy said. 

What is the key to the carrier’s success? 

People, first. At WestJet, a team 

responsible for corporate culture organizes 

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WestJet Airlines employees, through their friendly, professional interaction with customers, 

display firsthand the airline’s emphasis on its award-winning corporate culture and how 

important its employees are to the company’s overall success. 

250 annual events including talks with pilots 

and flight crews to discuss culture and news, 

parties, and town hall meetings. 

Durfy communicates regularly with 

employees to keep them updated. In addition, 

all employees undergo an orientation program 

in which they learn about the importance of 

corporate culture. The company also conducts 

an internal biannual survey called WHY 

(We Hear You) that measures culture and 

safety is just one of five key elements that define WestJet Airlines’ culture, along with 

accountability, fun, friendliness and ownership. 

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employee engagement and encourages feedback 

so leaders can make improvements. 

Durfy ties his success to technology 

as well. In an ad by Microsoft, an announcer 

asks, “So Durf, how do you keep the vision 

alive?” His reply? 

“When we had 200 people, everyone 

said, ‘Ah, you’ll never keep your culture.’ 

Then we went to 1,000 people; they said, 

‘Ah, bet you won’t keep it when you go to 

2,000.’ Then we went to 2,000, and they 

said, ‘Ah, when you get to 5,000, it’s going 

to be a different game.’ Of course, we’re at 

7,500 people, and our culture has never been 

as strong. 

“With 7,500 folks across Canada and the 

United States, you can’t look at everybody’s 

eyes anymore. We now look at technology as 

a strategic driver of the company. If you don’t 

have that, you’re screwed, brother.” 

Durfy has been with WestJet since 

2004, when he joined the airline as executive 

vice president of sales and marketing. He 

was appointed president in September 2005 

and assumed the role of CEO in September 

2007. 

In a recent interview with Lynne Clark 

from Ascend magazine, Durfy shared more 

thoughts about keeping the vision alive. 

Question: on your Web site, 

you call WestJet a different kind of airline. 

What sets WestJet apart from other lowcost 

carriers? 

Answer: First and foremost, it’s 

our people and their commitment to deliver 

a world-class guest experience that sets 

us apart from other airlines and, indeed, 

other companies. Our people are our greatest 

asset. In addition, we have a strong business 

model and low cost structure, which allow 

us to offer our guests great fares and travel 

packages. 

Q: WestJet has been named one 

of canada’s “most admired corporate cultures” 

four times. Describe your corporate 

culture and how it has contributed to the 

company’s phenomenal success. 

A: Our culture is value based and 

driven by our entire workforce in a grassroots 

way by every WestJetter and demonstrated 

equally by our leadership teams. Centered 

around caring, our culture includes elements 

of accountability, safety, fun, friendliness and 

ownership. Pride in ownership and being part 

of this great success story encourages our 

people to make great decisions and contribute 

even further to our performance. 

Q: What would a first-time WestJet 

passenger notice most about his or her 

flight experience? 

A: The first thing they’ll notice is the 

fun and friendly attitude of our WestJetters.

like traditional low-cost carriers, WestJet Airlines operates a single aircraft type, with a fleet 

of 77 Boeing Next-generation 737 planes and plans to grow its fleet by 5 percent this year. 

We get more compliments about our people 

than anything else. From the time our guests 

book their tickets to check-in, the boarding 

lounge and, of course, the flight itself, it’s all 

about delivering a world-class guest experience. 

People also like our new and efficient 

Boeing Next-Generation 737s, our on-time 

performance and, in general, how easy and 

worry-free it is to fly with us. 

Q: Describe a memorable, fun or offthe-wall 

event WestJet hosted for employees 

and/or shareholders. 

A: It would be hard to describe just 

one. In fact, we have over 200 parties and 

events for WestJetters and their families 

every year. Probably one of the most satisfying 

events is our twice-annual profit share parties, 

when WestJetters have an opportunity 

to come together to celebrate and share in 

our success, and leaders enjoy the opportunity 

to personally reward team members for 

their part in our success. 

Q: Your founders based their 

business model on southwest Airlines. 

Describe the similarities and differences of 

the two carriers. 

A: There are many similarities as well 

as some differences. For example, we are 

similar in that we use only one type of aircraft, 

we are dedicated to providing high value at a 

low cost, we’re fun and friendly, and we focus 

on creating an amazing guest experience. 

However, our workforce is much smaller and 

it is non union. 

Q: You have a new codeshare agreement 

with southwest Airlines. How chal- 

lenging will it be to integrate your operations? 

Will it be difficult to differentiate 

your brands? 

A: From day one, we have always 

enjoyed a tremendous relationship with 

our friends at Southwest. For example, our 

respective operations teams have exchanged 

best practices and business process information, 

which has been a significant benefit 

not only from a technical perspective, but 

also in terms of getting to know each other 

and experiencing the cultural “fit” firsthand. 

From a brand perspective, we share many 

of the same values with Southwest and look 

forward to the day when our guests will be 

able to enjoy the full benefits of this new 

arrangement. 

Q: What do you consider when 

evaluating new partners? 

A: Our first priority is a cultural 

fit. How does the potential partner view 

the importance of creating a world-class 

guest experience? What are their organizational 

values, and how do they treat 

their people? Of course, we also evaluate 

critical elements such as technology, 

business processes, etc. At the end of 

the day, any partnership must be mutually 

beneficial and be capable of moving both 

companies forward in their respective 

business strategies. 

Q: How do you balance the need 

to grow with the need to nurture the 

corporate culture that has made you so 

successful? 

A: This is an excellent question. As 

an organization grows, its culture changes 

subtly with each new hire. At WestJet, we 

believe we can maintain our strong corporate 

culture while growing our business, 

and that our culture will grow and evolve 

along with our business. There is a strong 

relationship between the two, and we’re 

resolved to never lose that focus. 

Q: obviously, WestJet has been 

successful because it continues to provide 

safe, friendly and affordable air 

travel. What role has technology played 

in that commitment? 

More than 80 percent of WestJet employees are owners of the airline, which contributes to 

their strong desire and motivation to help build and grow the business. In addition, WestJet 

leaders view all employees as partners, and it’s this team concept that supports the thriving 

carrier. 

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With its fleet of Boeing Next-generation 737-600, 737-700 and 737-800 aircraft, WestJet Airlines operates the most modern fleet in North 

America of any large commercial airline. the aircraft are equipped with more legroom, leather seats and live seatback television. 

A: Technology innovations and partnerships 

have played a significant role in 

our success as much of our core business 

is dependant on technological applications. 

For example, we developed an 

RNP (required navigational performance) 

application, which affords us significant 

fuel savings and increased safety when 

flying approaches. We have brought Sabre 

Airline Solutions onboard to replace our 

reservations system, which will serve 

as a critical foundation for our growth in 

the future. As an aside, we were asked a 

similar question by Microsoft recently, and 

the answer is contained within their new 

series of animated television commercials 

featuring prominent businesses and 

CEOs. We were flattered that we were 

the only Canadian company they chose to 

feature! 

Q: Why has WestJet been so successful 

in an environment that sees airlines 

going out of business every year? 

A: We have an incredibly hardworking, 

dedicated and committed workforce 

of some 7,400 WestJetters, over 

80 percent of whom are owners of the 

company and highly motivated to drive 

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strong business results. We have a sound 

business model, low costs, a strong value 

proposition and, best of all, guests that 

are fiercely loyal to us. Some nine out of 

10 people who fly with us, fly with us over 

and over again. 

Q: What specifically do you 

intend to do to become one of the five 

most successful international airlines 

by 2016? 

A: Overall, we will continue to 

grow and expand in a balanced, measured 

and sustainable way. We will continue to 

focus on creating and delivering an amazing 

guest experience and celebrating our 

incredible culture. Specifically, we will 

look for additional codesharing opportunities 

with other airlines as well as other 

strategic alliances to move our company 

forward. 

Q: What do employees and 

customers say about the WestJet 

experience? 

A: A WestJet customer service 

agent captured her gratitude for flight 

privileges and being part of this great 

team by saying, “Thanks for making the 

country so small and my heart so big.” 

Another WestJetter once said, “After 

years of searching, I’ve finally found my 

home.”Our guests sum up their experience 

with comments such as: “I am well 

aware how important well-trained, caring 

people are to the success of any company. 

Without them, any company will fail. 

Thankfully, WestJet is in good hands.” 

Another guest said, “I am singing your 

praises to everyone I know. Thank you to 

all your great employees.” 

Q: If there is one thing you want 

customers, employees and shareholders 

to know about WestJet, what would 

that be? 

A: We want our customers to know 

that we value their business and genuinely 

enjoy their company. We want our employees 

to know they are valued partners and 

contributors in our success and the keepers 

of our culture. We want shareholders 

to know that we have a strong business 

model, a proven track record, we routinely 

outperform our peers, and we are confident 

that we will continue to achieve our 

goals and create value for our shareholders. 

a

Connecting 

The Dots 

The Delta Air Lines and Northwest Airlines merger has had a significant 

impact on regional carriers — specifically those that no longer partner 

with the new, combined network carrier. 

By Michael Clarke | Ascend Contributor

egional 

22 

The recently completed merger of Delta 

Air Lines and Northwest Airlines has 

created the world’s largest global carrier. 

As part of the terms and conditions of the 

acquisition, the combined airline has agreed to 

maintain its existing hub airports for the foreseeable 

future, including major flight operations 

in Amsterdam, Netherlands; Atlanta, Georgia; 

Cincinnati, Ohio; Detroit, Michigan; Memphis, 

Tennessee; Minneapolis-St. Paul, Minnesota; 

New York City, New York; Salt Lake City, Utah; 

and Tokyo, Japan. 

In addition, the two carriers will continue 

to operate independently during the transition 

process, until they can be merged onto a single 

U.S. Department of Transportation operating 

certificate. This process is anticipated to take 12 

to 18 months to fully complete. In the interim, 

it’s business as usual for the two carriers that, 

together, maintain partnerships with 10 regional 

carriers. 

While three of these carriers are direct 

subsidiaries of the new, combined carrier, Delta 

Air Lines’ relationship with the remaining regional 

carriers is governed by capacity purchase agreements 

that involve a fixed fee for departure or 

cost-plus contract. 

As part of these agreements, regional 

carriers are usually restricted to operate a limited 

number of aircraft below an agreed-upon seat 

capacity and on specific routes through specific 

pilot scope clauses, and they are in effect under 

the strategic control of the network carrier. 

Under these capacity purchase agreements, the 

network carrier assumes all the market risk and 

is responsible for commercial planning, revenue 

management, marketing, sales and distribution 

of the airline product. It usually covers high-risk 

items such as aircraft ownership and insurance 

as well as fuel costs. The regional carrier is 

responsible for operating the flights and ensuring 

the availability of capacity for the network 

airline. 

Leading up to the merger, Delta Air Lines 

had proactively reviewed its existing agreements 

with each regional carrier and opted 

to terminate operations entirely with Big Sky 

Airlines and ExpressJet Airlines as well as significantly 

reduce its dependence on Freedom 

Airlines (subsidiary of Mesa Air Group). While 

Delta Air Lines’ original intent was to remove 

non-beneficial partnerships, it was also able to 

reduce the number of partner carriers and retire 

less-desirable aircraft from its fleet — primarily 

small regional jets (50 seats or less). 

Throughout the course of last year’s 

damaging economic downturn and simultaneous 

escalation of fuel prices, U.S. domestic 

major network carriers started to re-evaluate 

the benefits of regional operations in their 

network systems. While Delta Air Lines’ and 

Northwest Airlines’ review may have been 

accelerated by their pending merger, the 

remaining network carriers also took a hard 

look at their partnerships. 

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In the majority of the cases, the major 

network carrier was able to obtain more-favorable 

capacity purchase agreements as well 

as place a greater level of financial risk on the 

regional carrier. In the end, the stronger regional 

carrier groups such as Republic Airlines and 

SkyWest Airlines were able to re-enforce their 

position as marquee regional partners with their 

existing network partners as well as pick up 

some additional flying lost by smaller and often 

less-financially stable regional airlines. It was 

essentially a matter of the strong getting stronger 

and the weak getting weaker or, in some 

cases, ceasing operations altogether. 

The jury is still out on what will happen to 

the remaining independent regional carriers, but 

many believe that they will either be acquired 

by their stronger counterparts and/or join forces 

together to counteract the negotiating power of 

their network partners. 

As the level of regional carrier operations 

increases for a given network carrier, the thorny 

issue of which ones will fly next-generation 

larger regional aircraft (70 seats or more) surfaces. 

Most network carriers are still restricted 

by scope clauses in their pilot contracts, and 

they have found creative ways to deal with the 

situation by introducing first-class cabins on 

the merger between Delta Air lines and Northwest Airlines, which has created the world’s 

largest airline, has significant benefits for regional partners such as compass Airlines 

operated by Northwest Airlines and comair serving Delta connection. 

Photo courtesy of Bombardier 

Photo courtesy of Northwest Airlines

many of the larger aircraft that offer service that 

in some essence parallels first-class service on 

the mainline narrow-body aircraft. While some 

will argue that the larger and more spacious 

seats are there primarily for marketing purposes, 

only time will tell what happens to these cabins 

when carriers are free to allocate aircraft to either 

the main operations or regional partners. 

Other carriers have simply opted to have 

the larger aircraft flown in house by their unionized 

crewmembers and benefit from the other 

cost savings of having a more homogeneous 

fleet ranging in seat capacity from 70 to, in some 

cases, 110 seats. These savings include but are 

not limited to the purchasing of in-flight products 

and services, procurement of ground support 

equipment, engine maintenance and spares, and, 

in some cases, joint flight attendant training. 

The lingering issue of who will fly the 

larger regional jets — such as the Embraer 

E190, Embraer E195, Bombardier CRJ-1000 and 

proposed Bombardier C-Series — will continue 

until major network carriers first and foremost 

address the scope clause issue as part of their 

pilot contract negotiations and decide which 

direction they will go with their narrow-body fleet 

replacement plans. 

In general, the airline community has two 

purchasing options: 

Embrace the family of regional jets and assign 

their flying as dictated by pilot contracts, 

Preserve the status quo and order next-generation 

narrow-body aircraft that will be produced 

by Airbus and Boeing. 

The only caveat is that these aircraft 

manufacturers are in no hurry to launch these 

programs as they continue to sell the venerable 

Boeing Next-Generation 737s and the Airbus 

A320 family of aircraft. For some airlines, however, 

the deadline and/or need to order new 

narrow-body aircraft is fast approaching, and 

they have been forced, in some cases unwillingly, 

to order additional aircraft from the current 

generation of narrow bodies. In addition, since 

most pilot contracts are not yet up for renewal 

at the top major network carriers, it’s business 

as usual for now. 

However, the new Delta Air Lines’ inherited 

fleet of aging yet dependable Northwest 

Airlines’ Douglas DC-9s will soon reach their 

end, and only time will tell how Delta Air Lines 

will replace them. 

Prior to the merger, Northwest Airlines 

had established a new subsidiary — Compass 

Airlines — to fly a fleet of Embraer E-175 and 

Bombardier CRJ-900s from its three main hub 

airports. Initially, these operations were used to 

supplement its mainline operations, but it was 

apparent to those in the industry that Compass 

Airlines was a feeding ground for gaining the 

necessary experience with the mid-range to 

larger regional carriers to decide which direction 

to go with the DC-9 replacement. It has often 

been reported in the press as one of the leading 

contenders for launching the Bombardier CRJ 

Series aircraft as the replacement aircraft for the 

sizeable DC-9 fleet. 

Currently, Northwest Airlines operates 

approximately 65 DC-9 aircraft, down from a 

high of more than 100 aircraft before the economic 

downturn and sky-rocketing fuel prices. 

The introduction of newer and much more 

fuel-efficient aircraft in its domestic operations 

could fundamentally change its current route 

structure. 

The future role of regional airline operations 

in the U.S. domestic system goes without 

saying. For Delta Air Lines, its decision to maintain 

seven major hub airports will only re-enforce its 

need for a strong, efficient regional aircraft fleet 

and network structure. For any network carrier 

to be successful, it must provide high-frequency 

connections between airport hubs so it can flow 

passengers to the appropriate gateway for their 

international destinations. 

Delta Air Lines has designated Atlanta 

and Cincinnati as major international gateways to 

Europe and Latin America; New York as a gateway 

to Europe and beyond; and Los Angeles, 

Minneapolis-St Paul and Tokyo as primary gateways 

to Asia/Pacific. The remaining hub airports 

will continue to play an active role in the flow 

of domestic passengers and potentially provide 

alternate gateways to various regions in the 

world. The need for high-frequency service will 

call for smaller capacity aircraft that can support 

hub-to-hub flying, especially between the closely 

located hubs of Detroit and Cincinnati on the 

one hand and Memphis and Atlanta on the other 

hand. It’s impractical for Delta Air Lines to offer 

Major Network 

Airline 

Delta Air Lines 

Northwest Airlines 

multiple trans-Atlantic service from all of its hub 

airports beyond the major European gateways 

of its alliance partners. For example, if a traveler 

chooses to fly from Düsseldorf, Germany, or 

Nice, France, he would have to fly through New 

York or Atlanta. 

Regional carriers aligned with Delta Air 

Lines are well positioned to reap the benefits of 

being associated with the world’s largest carrier. 

However, it remains to be seen how Delta Air 

Lines’ executes on its overall strategic plan, 

which will include how to effectively balance 

competing hub airports, manage the flow of passengers 

and aircraft throughout its network system, 

collaborate and manage its multiple regional 

airline operations, and ultimately make effective 

fleet renewal decisions to drive and sustain the 

efficiencies of its massive global network. 

Within the context of a global airline alliance, 

the number of destinations served by the 

main players will dictate the attractiveness of the 

alliance network to the business community and 

the general traveling public. The ability to serve a 

diverse range of destinations in terms of market 

distance and customer demand will mean that 

regional carriers will have an important role to 

play in connecting the dots across the U.S. 

domestic network. a 

Michael Clarke is director of optimization 

solutions in airline operations for Sabre 

Airline Solutions®. He can be contacted 

at michael.clarke@sabre.com. 

Regional Partner (Number Of 

Assigned Aircraft/On Order) 

Atlantic Southeast Airlines (SkyWest) – 161 

Chautauqua (Republic) – 37 

Comair – 141 

Freedom Airlines (Mesa) – 42 

Pinnacle – 16 

Shuttle America (Republic) – 15 

SkyWest Airlines – 91 

Compass Airlines – 36 

Mesaba Airlines – 53 

Pinnacle Airlines – 133 

Prior to its merger with Northwest Airlines, Delta Air lines ceased operations 

with regional partners Big sky Airlines and expressJet Airlines. the combined airline will 

continue its partnerships with 10 of its existing regional operators. 

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23 

regional

Aeroflot’s 

Revolution 

A thorough examination of Aeroflot Russian Airlines through an extensive 

turnaround exercise has helped the carrier reinvent itself and once again 

become a top player in the world’s air space. 

By Barbara Childs and Luc Lachoix | Ascend Contributors

When it comes to Aeroflot, the old 

adage, “You can’t teach an old dog 

new tricks,” is far from the truth. 

This 85-year-old airline has lots of tricks up 

its sleeve. Just ask the people who make 

up Russian-based Aeroflot, one of the oldest 

airlines in the world. Founded in 1923, 

Aeroflot began flying re-equipped warplanes 

domestically and internationally to destinations 

in Germany. 

Since the 1991 dissolution of the 

USSR, Aeroflot has been transformed 

from a state-owned bureaucracy into a 

semi-privatized airline that ranks among 

the most profitable in the world. The carrier 

operates scheduled passenger flights 

from Sheremetyevo International Airport in 

Moscow to 52 countries serving 96 destinations 

in Russia, Africa, Asia, Europe, the 

Middle East and North America. 

Aeroflot has seen a significant financial 

improvement during the past several years, 

both in earnings and number of passengers 

carried. Last year, Aeroflot increased the 

scope of its work by 13.5 percent over the 

previous year, carrying nearly 9.3 million 

passengers (5.7 million international and 

3.6 million domestic), which is higher than 

the industry-average indicators. Despite the 

50 percent increase in fuel expenses, the 

company’s income has grown by more than 

26 percent. 

The remarkable revenue gains can be 

attributed to a number of things. Beginning 

in early 2000, Aeroflot began redefining 

itself as one of the world’s safest and most 

reliable airlines, hiring consultants for a 

rebranding project that included new livery 

and uniforms for flight attendants as well as 

a promotional campaign launched in 2003. 

In addition, the carrier began upgrading 

its fleet of western-built aircraft, which 

today includes 52 Airbus A319, A320 and 

A321 jet planes for short-haul flights in 

Europe as well as 11 Boeing 767 and two 

Airbus A330 planes for long-haul routes. 

Aeroflot’s transformation can also be 

attributed to forward thinking by Dmitry 

Gorbatov, the carrier’s director of revenue 

management. The Russian market was 

becoming more highly competitive from 

entry of both low-cost carriers and network 

carriers, and Aeroflot needed to redesign its 

business plan. Dmitry recognized an opportunity 

to considerably improve Aeroflot’s 

revenue management practices, organization 

and revenue gain performance. 

To help leverage this opportunity, 

Dmitry worked with Sabre Airlines Solutions ® 

to develop and implement a commercial 

turnaround project, in which a team of 

consultants worked closely with Aeroflot’s 

revenue management department and identified 

four key areas — processes, organization, 

people, and reports and measures 

— the airline would focus on improving 

financial performance. 

A look at the carrier’s revenue management 

in 2004 showed it had a long way 

to go to adopt industry best practices, processes 

and tools. But perhaps the biggest 

challenge was convincing the then 81-yearold 

organization’s executive team that a 

culture and leadership shift was essential 

if it was to become a premier airline in the 

21st century. 

giant leaps Begin With Baby 

steps 

Aeroflot’s commercial turnaround 

project team first tackled the more objective 

challenges of change: processes as well as 

reports and measures. It began by initiating 

a broad review of revenue management 

and other commercial practices. Pricing, 

distribution, revenue integrity, commercial 

planning and sales processes were all thoroughly 

evaluated. In addition, the team 

looked closely at how Aeroflot’s systems, 

were helping achieve industry performance 

standards and commercial objectives. 

Based on the team’s findings, it was 

determined that: 

The company must develop market-based 

teams comprising employees who would 

embrace ownership and accountability, 

New processes must adhere to industry 

best practices while leveraging the use of 

existing revenue management solutions, 

A benchmark system should be implemented 

to measure performance and 

translate issues into actionable practices, 

Department boundaries should be examined 

and clarified, 

A “culture of performance” should 

be adopted to develop ownership and 

accountability of the commercial results 

by all team members. 

“Close analysis of all these issues 

caused apprehension among department 

staff members who saw just how much 

change would need to happen if Aeroflot 

was to become a competitive new airline,” 

said Dmitry. “The natural tendency is to 

prefer status quo. People were naturally 

defensive about learning new technologies 

and processes as well as assuming new 

responsibilities.” 

The commercial turnaround project 

team upgraded to newer versions of 

Sabre ® 

AirMax ® 

Revenue Manager, Sabre ® 

AirMax ® 

Group Manager and the Sabre ® 

AirPrice System, and then it began tackling 

people and organizational challenges 

by training the airline’s staff and showing 

them data-based results. Employees 

attended pricing and revenue management 

workshops where they learned the 

theory behind the technology and then 

received hands-on training. 

“For example, analysts were trained to 

use Revenue Manager and Group Manager 

for new business processes with an emphasis 

on systems adjustments and how to 

address performance issues,” Dmitry said. 

“Over a period of time, they received additional 

training and hands-on assistance as 

well as mentoring support.” 

Even after completing training phases, 

many systems users remained skeptical 

and old practices were still widespread. To 

create confidence among these employees, 

Sabre Airline Solutions’ consultants 

conducted tests on selected flights and 

markets using new practices and applications. 

When the team measured high-yield 

spill during high seasons and low-yield spill 

during off-peak periods, results showed 

clearly that the new revenue management 

method increased revenue. The result? 

Organizational buy-in. 

the New Aeroflot 

After undergoing significant growing 

pains, Aeroflot today is reaping the rewards 

of improved work processes, a more balanced 

work load, and better teams and 

reporting relationships. In addition, the carrier 

reports significantly healthier revenues, 

which it attributes to the revenue management 

intervention. Last year, Aeroflot experienced 

a net revenue gain of 10 percent, 

or US$145 million, using Revenue Manager 

and its revenue management practices. It 

now looks forward to capitalizing on this 

success by expanding revenue management 

capabilities and refining technology as 

it relates to point-of-sale control and originand-destination 

revenue management. 

Aeroflot’s revenue management team 

experienced a revolution of its practices in 

just a few short years. It was successful first 

because the carrier had executive commitment 

and its ongoing support. Second, the 

carrier was persistent and team members 

were extremely dedicated. Third, there was 

and continues to be ongoing collaboration 

between Aeroflot’s revenue management 

team and Sabre Airline Solutions. 

“The rewards are concrete, and the 

new revenue management environment 

positions Aeroflot to face the challenges of 

today’s environment and to reach superior 

commercial performance,” Dmitry said. a 

Barbara Childs is an account director 

serving Russian airlines and Luc Lachoix 

is an airline consulting principal for 

Sabre Airline Solutions. They can be 

contacted at barbara.childs@sabre. 

com and luc.lachoix@sabre.com. 

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25 

regional

26 

Fleet Shuffle 

Aircraft manufacturers have been pleasantly bombarded during the last 

few years with record orders, but the two main aircraft makers, Airbus 

and Boeing, continue to struggle with seriously delayed delivery schedules, 

leaving carriers around the world to improvise until their new aircraft 

arrive. Additionally, sales for regional plane makers Bombardier and 

Embraer continue to climb. Especially popular are the larger airframes, 

with record orders for the stretched CRJ series and E-jets, but similar to 

the larger aircraft, it’s uncertain when these orders will be fulfilled. 

By Michael Clarke | Ascend Contributor 

Photo courtesy of Bombardier

During the last five years, major aircraft 

manufacturers have enjoyed record orders 

from airlines across the globe. Granted, the 

distribution of these orders has been focused on 

the rapidly growing Indian domestic market and 

aggressively expanding Middle Eastern carriers. 

U.S. domestic network carriers, still recovering 

from the fallout of geopolitical situations and 

declining economic conditions, have been slow 

in ordering new aircraft to replace aging fleets 

of narrow-body aircraft and first-generation twin 

wide-body aircraft. 

As of January, Boeing racked up a healthy 

backlog of more than 3,700 aircraft with an 

amazing 913 Boeing 787s ordered, while Airbus 

enjoys a backlog of 3,715 aircraft, including 

478 of its recently launched Airbus A350 extrawide-body 

aircraft. The prevailing demand for 

efficient wide-body aircraft and the evolving 

route-map structure created demand for new 

fleet types with enhanced mission capability 

and operating range. When first introduced to 

the airline community, there was a level of 

excitement unparalleled in the industry for the 

Boeing 787 and competing Airbus A350 aircraft. 

Carriers saw the opportunity to fundamentally 

change the flow of international passenger traffic 

through bypassing congested gateways such as 

London Heathrow Airport and New York’s John F. 

Kennedy International Airport and offering more 

direct scheduled services to/from secondary 

markets. 

External factors such as the rapid increase 

in the price of jet fuel (especially during 2008), 

the passing of the U.S.-European open-skies 

agreements, the approval of anti-trust partnerships 

across the North Atlantic and the continued 

growth in global airline alliances only added to the 

frenzy of demand for new aircraft to serve newly 

conceived city-pair markets. There seemed to be 

no end in sight for the record orders of aircraft at 

the two leading aircraft manufacturers. 

The introduction of the new wide bodies 

promised the utilization of the latest technological 

advances, especially around engine performance 

and airframe construction techniques. 

Boeing believed that the opportunity was ripe 

to develop and mass produce the world’s first 

commercial passenger aircraft using advanced 

composite materials, which offered significant 

weight savings that would in turn lead to more 

efficient operating in terms of fuel consumption 

and environmental impact. Experiences with the 

increasing use of composite materials across 

the airframe, along with the decades-long use of 

such materials in military and business jet construction, 

provided the foundation for launching 

the next-generation of wide-body aircraft. 

With these new technologies and construction 

techniques came the risk of uncertainty. 

Adding to this risk, a decision was made to outsource 

a larger portion of the airframe construction 

to key manufacturing partners across the 

globe, introducing an added level of complexity 

in the logistics and distribution arena. 

Ultimately, numerous factors centered 

around the construction of the aircraft frame, 

which resulted in a significant delay in the Boeing 

787 program. The 787 now has an anticipated 

delivery date three years later than originally 

planned. Adding to Boeing’s woes was an unexpected 

and prolonged strike by its machinist 

union, which more or less shut down production 

late last year. Airbus has also had its own share of 

setbacks, with the introduction of the ultra-large 

A380 aircraft severely impacting the availability of 

engineering and design resources to work on the 

A350 program to compete against Boeing. 

In both the B787 and A380 programs, 

aggressive product development and delivery 

timelines were negatively impacted by unexpected 

manufacturing challenges that resulted in 

multiple rounds of part redesigns and/or reworks. 

In many cases, partially constructed aircraft sat 

idle along the assembly lines until engineers 

could figure out an efficient and effective way to 

resolve the problems. Ultimately, the B787 and 

competing A350, along with the A380, will be 

great aircraft in their own right, but these delays 

have had tremendous impact on fleet planning 

departments around the world. Carriers have 

been forced to delay the launch of new routes, 

the retirement of aging and less-efficient aircraft 

types, and, in some cases, newly established carriers 

have been forced to entirely postpone their 

launch date. 

By far, northern Asia airlines have been 

impacted the most by the B787 delays. Launch 

customers ANA and JAL in Japan anticipated 

taking deliveries of their first batch of aircraft 

during the first half of 2008. Some Chinese carriers 

expected to receive the new aircraft in time 

for the summer Olympics in Beijing. While the 

disappointment from the missed opportunity to 

showcase the new advanced aircraft as part of 

the Olympic celebrations subsides, the carriers 

remain eager to receive their aircraft. As a stopgap 

to these aircraft delays, ANA and JAL have 

been forced to place supplemental orders for the 

venerable B767-300 aircraft as well as postpone 

the retirement of existing B767s in its operating 

fleet. In addition, Airbus has benefitted from an 

increased demand for its A330 series until the 

competing A350s come online. 

This situation has created a strong demand 

for these equipment types, which has resulted in 

higher leasing costs and residual values, delayed 

cargo conversion programs, and revised flight 

schedules. At the same time, many Asian carriers 

have elected to replace their aging B747-400s 

with twin-engine aircraft, especially the similarcapacity 

B777-300s. On most routes from Japan 

to North America, the B777-300 is becoming 

the aircraft of choice, replacing not only B747s 

but also MD-11s, which are being converted to 

freighter operations. 

On the regional front, Embraer and 

Bombardier have seen the continued interest in 

their product lines, especially in larger airframes, 

with record orders for the E-jets and stretched 

CRJ Series. In addition, there has been a healthy 

resurgence in the demand for advanced turboprop 

aircraft with some major network carriers reintroducing 

turboprop operations in their scheduled 

service. As a fallout to the run up in fuel prices, 

there has been a noticed reduction in smaller jet 

aircraft operations, with many network carriers 

opting to park their 50-seat regional jets. In return, 

they are upgrading to larger regional jets (ranging 

from 70 to 100 seats), downgrading to turboprop 

operations or exiting the given market altogether. 

A recent study by USA Today found that 

some major airports experienced more than a 30 

percent reduction in operations year over year. 

Nonetheless, regional aircraft manufacturers also 

Qatar, along with other prominent Middle east carriers, has slowed its growth plans as it 

awaits the arrival of wide-body aircraft such as the Airbus A350. 

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Photo courtesy of Airbus 

27 

industry

industry 

28 

carriers in northern Asia, such as ANA, have been significantly impacted by the Boeing 787 

delays, which have had an immense effect on the carriers’ fleet planning departments. 

enjoy a record level of aircraft backlog, but as 

with the mainline carriers, only time will tell what 

percentage of these orders finally materialize. 

Within the U.S. domestic market, there has 

been a significant reduction in flight schedules, 

not only in the amount of regional flying but also 

scheduled flights flown by older narrow-body aircraft 

such as the B737-300s and MD-80s. During 

the second quarter last year, major network 

airlines facing a marked reduction in passenger 

demand and escalating fuel prices made drastic 

reductions in the number of scheduled flights in 

the timetable. In conjunction with the flight reductions, 

carriers decided to accelerate the retirement 

of aging narrow-body fleet without making 

any new substantial aircraft orders. In effect, the 

equivalent of one major network carrier’s fleet (in 

terms of the number of aircraft) was voluntarily 

removed from the U.S. domestic system during 

the fourth quarter of 2008. 

Some of the larger narrow-body aircraft, 

especially B757-200s, were not parked but redeployed 

for international operations, particularly 

across the North Atlantic. Delta Air Lines opted 

to add winglets to the majority of its B757s, and 

it introduced many new year-round and seasonal 

routes from JFK International Airport to secondary 

markets in Europe and Western Africa. In addition, 

the carrier has increased substantially the number 

of routes served from its home base in Atlanta, 

Georgia, to Central and South America using its 

next-generation narrow-body aircraft. 

In the midst of all these changes, the 

recently completed merger of Delta Air Lines and 

Northwest Airlines has allowed the residual Delta 

Air Lines to completely rethink its fleet planning 

and allocation of equipment types. Although the 

integration of the separate airline operations and 

culture will take time to complete, this has not 

stopped Delta Air Lines from making some imme- 

ascend 

diate fleet changes. Aircraft such as the B747- 

400s and A330-300s operated by Northwest 

Airlines crewmembers are now being deployed 

on Delta Air Lines’ scheduled flights, and B767- 

300s and B767-400s being operated by Delta 

Air Lines crews are flying scheduled Northwest 

Airlines flights. Before the merger with Northwest 

Airlines, Delta Air Lines was in the process of a 

fleet reconciliation with the retirement of aging 

fleets and the increased use of regional aircraft in 

its network. 

Now, Delta Air Lines is both blessed and 

cursed with a very diverse fleet that allows it to 

allocate the ideal aircraft type for a given route — 

so much so that the carrier is now reconsidering 

its inherited B787 launch order, originally placed 

by Northwest Airlines to enhance its international 

operations (mainly from Detroit, Michigan, to 

cities in northern Asia and beyond). Nonetheless, 

one challenge Delta Air Lines faces today is the 

large number of hub airports it now has in its system 

network. Deciding which market should be 

served from which hub and using which aircraft 

type will definitely remain challenging for a period 

of time. 

Even the venerable North American 

low-cost carriers — AirTran Airways, jetBlue, 

Southwest Airlines and WestJet — were not 

immune to the economic downturn. While most 

low-cost carriers did not significantly reduce their 

operating fleets, some did opt to sell older aircraft 

and replace them with new tails accepted 

from the manufacturers. In other cases, intended 

growth plans were impacted by the prolonged 

machinist strike at Boeing, which produces the 

B737 workhorse favorite of many value-based 

carriers. For example, WestJet has reduced its 

forecasted growth rate this year from 8 percent 

to 5 percent, a direct result of the aircraft delivery 

delays. In spite of this setback, it still intends to 


ultimately grow its operating fleet from the current 

77 aircraft to 120 aircraft. 

Southwest Airlines has reduced its growth 

plans for the year and has been actively reviewing 

its current system network to determine which 

routes and flights to trim and how to reallocate 

the impacted aircraft capacity to support attractive 

growth opportunities in recently established markets 

such as Denver, Colorado, and Minneapolis- 

St. Paul, Minnesota. 

JetBlue has slowed the delivery on new 

aircraft and has opted to sell some older A320s as 

it continues to accept Embraer E-190s to support 

its continuing growth strategy. AirTran Airways 

has deferred the delivery of 36 B737s and has 

recently sold five B737 aircraft (three used and 

two new) to end 2008 with an operating fleet of 

136 aircraft. In addition, it plans to further reduce 

its fleet by 3 percent to 7 percent this year. 

In the international arena, the rapid growth 

for India-based carriers, both domestically and 

internationally, has fundamentally changed the 

face of commercial passenger service in the subcontinent. 

In tandem with the record-breaking 

growth has come the anticipated consolidation of 

major players as India experiences market deregulation 

in an accelerated mode. The two leading 

government-owned carriers have been merged 

into Air India, and the two leading private carriers 

(Jet Airways and Kingfisher Airlines) have elected 

to acquire Air Sahara and Air Deccan, respectively, 

to create low-cost subsidiaries to effectively compete 

in the ever-changing landscape. 

In spite of all this consolidation, there is 

excess capacity in the domestic market as a result 

of the rapid downturn in global economic conditions 

and its impact on passengers’ willingness 

to travel. 

Similar to U.S. carriers, India’s carriers have 

opted to redeploy their next-generation narrow- 

and wide-body aircraft on regional and international 

routes. Today, a large portion of the outstanding 

narrow-body backlog orders are from Indian carriers, 

so only time will tell what happens to these 

aircraft. The only silver lining is that many U.S. 

domestic carriers that are in need of new aircraft 

have not placed the necessary orders due to the 

lack of collateral and resources to secure them. In 

addition, it’s become somewhat of a wait-and-see 

situation as many U.S. major network carriers are 

strongly encouraging aircraft manufacturers to 

develop the subsequent generation of advanced 

narrow-body aircraft beyond the Boeing 737NG 

and A320. 

In the Middle East, fast-growing carriers 

Emirates, Etihad and Qatar have been forced to 

slow their growth plans because, collectively, 

they hold a large percentage of the outstanding 

orders for current and next-generation wide-body 

aircraft. 

Emirates has opted to continue its expansion 

plans for the Americas, but instead of daily 

service, it provides service to Los Angeles and 

San Francisco, California, three times a week. As 

it receives new aircraft on order, its ultimate goal

is to offer daily service in all markets and, in some 

cases, increase it to twice daily or even more, 

depending on market demand. Emirates offers 

service to most continents with extended-range 

operations with the B777-200LRs to São Paulo, 

Brazil, and Houston, Texas. As one of the launch 

customers for the A380, Emirates was finally able 

to deploy the aircraft type on high-frequency, highvolume 

routes to London Heathrow Airport and 

John F. Kennedy International Airport. As one of 

the world’s most profitable airlines, Emirates plays 

a major role in the Europe to Australia market and 

has aggressive plans to increase frequency and 

service in this market as well as continue to serve 

as a major feeder of traffic into the Indian subcontinent. 

On the heels of Emirates are Etihad and 

Qatar Airlines, which share a similar large order of 

wide-body aircraft and the desire to rival the larger 

neighbor in fleet size and network structure. 

The prolonged delay of the A380 program 

also had a substantial impact on Singapore Airlines, 

the global launch customer of the equipment type. 

In many cases, the carrier was forced to either 

temporarily increase frequency and/or maintain 

B747-400 operations on routes slated for the A380. 

Ultimately, Singapore Airlines plans to reduce the 

number of B747 in its fleet and supplement its 

operations with B777, A330 and A380 aircraft. 

Similarly to Emirates, Singapore has introduced the 

A380 on high-frequency, high-volume routes from 

its base airport to London Heathrow Airport, Tokyo 

Narita International Airport and Australia’s Sydney 

Airport. 

Qantas Airways has also introduced the 

A380 on its high-volume routes to Los Angeles 

from both Sydney and Melbourne, Australia, with 

the goal of offering daily service between the two 

city pairs. Interestingly, Singapore Airlines has opted 

to reintroduce A330s into its operating fleet, replacing 

some B777s on regional routes that were used 

almost a decade ago to replace the older A330s. 

+count it up 

3.2 

The percentage of estimated annual 

growth rate for aircraft in service 

between the years 2007 and 2027, 

according to Boeing. 

the economic downturn has also impacted low-cost carriers, such as jetBlue, which has 

opted to sell its older Airbus A320 aircraft while continuing to accept embraer e-190s to 

support its growth plans. 

Nonetheless, the airline is committed to the use of 

the B777 for international operations and has used 

them to replace older B747-400s. 

Although the immediate future for the global 

airline industry remains uncertain, one thing remains 

valid — there will be a residual demand for new 

aircraft rolling off the production lines, and carriers 

that have taken the necessary steps during the economic 

downturn will be well positioned to reap the 

benefits of the newly acquired resources. There will 

be rationalization in the Indian and Middle East markets, 

and U.S. major network carriers will have to 

face the reality of obtaining new aircraft to improve 

their operational efficiency and reduce fuel costs. 

Regardless of the future trends in fuel prices, 

airlines can actively control their fuel expenses either 

through fuel hedging and/or operating modern, 

more-efficient aircraft. In addition, these new aircraft 

will give carriers the flexibility to pursue new markets 

2027 

The year in which 82 percent of the 

industry’s fleet will be aircraft that do 

not exist today, according to Boeing. 

that result from recent market liberation and openskies 

agreements. 

As the world economy recovers from its current 

recession, passenger and cargo traffic levels will 

recover, and airlines will see the need to increase 

their flight schedules to serve the increasing traffic 

demand. The continued growth of global airline alliances 

will influence future fleet planning decisions as 

alliances reconcile their marketing strategies and 

realign key markets. a 

98 

Michael Clarke is director of optimization 

solutions in airline operations for Sabre 

Airline Solutions ® . He can be contacted 

at michael.clarke@sabre.com. 

The percentage of accurate baggage 

handling of the 2.25 billion bags 

airlines handle each year. According 

to IATA, the 2 percent of mishandled 

bags leave 48 million passengers disappointed 

each year. 

ascend 

Photo courtesy of Embraer 

29 

industry

shutterstock_19254766 1 4/23/09 11:53 PM 

Last year’s global capacity cuts, with 

more on the horizon, can have extensive 

ramifications for an airline, specifically in 

the area of revenue optimization. 

However, revenue management and 

pricing teams can offset the ill effects of 

capacity reductions and maximize their 

potential benefits by implementing 

strategies designed to effectively 

manage the new demand levels. 

By Lindsay Millward | Ascend Contributor 

CUTTING UP

Last year, the airline industry saw the most 

dramatic cuts in capacity since 9/11, with 

promises of more to come. As oil prices 

continued to soar up to an eventual peak of 

US$147 a barrel, airline executives saw no 

option but to take drastic action — reducing 

capacity. The belief was the action would 

result in lower costs and that removing seats 

would sustain or even boost ticket prices, leading 

to an increase in yields. 

“The events allowed for needed capacity 

reductions that wouldn’t have happened otherwise,” 

said Robert Crandall, former chairman and 

chief executive officer of AMR Corp.’s American 

Airlines, during the 2008 Airline Strategy Summit in 

London. “It is this ruthless reduction in seats that 

will preserve ticket prices and margins and thus 

ensure that a few carriers survive.” 

Although the action was taken as a result of 

oil prices, which have since declined significantly, it 

appears the right decision was made for an unexpected 

reason — the abrupt softening of demand. 

Whether the decision was good luck or good judgment, 

the capacity decreases could not have come 

at a better time. 

Early signs of a slowing economy started 

to snowball with banks and financial institutions 

reaching crisis point and governments providing 

huge bailout packages. The inevitable cuts in corporate 

travel budgets and leisure travel followed, and 

demand softened noticeably. Numerous predictions 

have been made on the revenue impacts to the 

industry. The International Air Transport Association 

has forecasted a fall of US$36 billion in revenues 

compared to the last downturn, which saw a drop 

of US$1 billion. Others have forecasted decreases to 

lesser or more severe degrees, but all have agreed 

that the airline industry is facing one of its most 

challenging years. 

Capacity declines have not been seen globally, 

however. Comparing the fourth quarter of 2008 

versus the fourth quarter of 2007, there is a clear distinction 

regionally. In typical fashion, North America 

has made the most drastic cuts, while European and 

Asian carriers have implemented a more tempered 

decrease. The Middle East, Australasia and South 

America, meanwhile, continue to see a marked 

increase in available seat kilometers, up by 8.9 

percent, 4.3 percent and 6.0 percent, respectively. 

And while North America capacity is down overall, 

Southwest Airlines bucks the trend with a slight 

increase in available seat miles. 

Commercially, capacity cuts have far-reaching 

repercussions across an airline, and few areas are 

more affected than revenue optimization. When 

this type of change occurs, revenue management 

and pricing departments need to respond appropriately 

to maximize the benefits that should be gained. 

There are tactical steps revenue management and 

pricing teams can take and strategies that can be 

implemented to effectively manage these new 

demand levels. 

Pricing strategy 

Typically, the pricing strategy for a market 

is based on various factors that need to be reas- 

sessed given a capacity cut. These factors include 

price sensitivity, market segmentation, seasonality, 

market performance, market share, capacity share, 

schedule and competition. As capacity decreases 

in a market, the pricing structure needs to be 

reviewed accordingly. In fundamental economic 

theory of supply and demand, the reduction of 

supply would result in an increase in the price that 

can be charged for goods. However, in the current 

economic climate, given the diminishing demand 

and the reduction in companies’ corporate travel 

budgets, pricing analysts need to be even smarter 

in formulating strategies based on the characteristics 

of their markets. 

In some markets, no action will be required. 

Where a comprehensive pricing structure exists 

and competition is minimal, the revenue management 

system should optimize those flights, 

thereby controlling the fare availability given the 

decreased capacity. However, in more competitive 

markets that have seen more drastic capacity cuts 

by multiple carriers, certain questions need to be 

answered: 

Do the high-yield fares go high enough? 

Are there sufficient price increments of a reasonable 

size to encourage up-sell opportunities 

among the fare classes? 

What action has the competitor taken so far? 

What is the current strategy for this market? This 

is based on market type: 

Expand — Low market share but high yield, 

whereby product segmentation could minimize 

dilution. 

A softening of the global economy has caused load factors to decrease, and airlines have been dramatically cutting capacity in response to 

minimize the number of empty seats. 

Photo by shutterstock.com 

31 

industry

industry 

32 

Maintain — High yield and market share, 

offering the potential to improve yield and 

defend share. 

Opportunistic — Low market share and low 

yield, but opportunities exist to develop traffic 

and yield. 

Yield — High market share but low yield, 

presenting the potential to improve the traffic 

mix. 

Does this strategy still hold true given the 

reduced capacity, or does it need redefining? 

How can pricing reach the latest strategic objective? 

Demand forecasting 

Typical revenue management systems forecast 

demand on an unconstrained basis, allowing 

the system to respond automatically to adjustments 

to capacity; however, where capacity is reduced 

across multiple airlines on a market or entire 

flights/routes are cancelled, passenger demand 

can be significantly affected. The prime concern 

for an inventory analyst in this situation is how the 

schedule offered to the passenger has changed. Is 

there less frequency? Has the capacity reduced to 

a level where flights are now expected to sell out? 

How can this demand be recaptured across other 

departures? And how can the inventory analyst 

determine what kind of demand adjustments need 

to be made in the revenue management system? 

An analyst needs to consider a number of possible 

scenarios and factors: 

Reduction in the aircraft size but maintenance 

of the same schedule — Here, the analyst 

needs to consider whether there is now more 

opportunity for up sell on this market. If capacity 

is significantly cut across the operating carriers, 

assuming there is not still surplus capacity and 

demand remains stable, the yields could be 

expected to increase. 

Cancelling a flight but continuing to operate the 

route — In this scenario, the analyst needs to 

review the competitions’ schedule offering to 

estimate how much demand will move to the 

competitors’ flights and how much will move 

to other departures on that day. Factors to be 

considered include the historical passenger mix 

on the cancelled flight. If the passengers were 

primarily price-sensitive leisure passengers, they 

can be retained by ensuring availability of competitive 

fares on the remaining schedule. 

Cancelling a route — The key consideration here 

is the impact on other markets. Cancelling a 

route may result in: 

Redirection of connecting traffic through an 

alternative hub, 

A significant reduction in connecting traffic 

formerly travelling on that leg, which may no 

longer be served, 

An increase in traffic to a nearby airport. 

Various data sources can assist the inventory 

analyst in determining how capacity changes 

may impact the market demand. MIDT data can 

provide guidance to market size and share, along- 

In times of reduced demand, there are several factors an airline must consider such as 

reducing aircraft size, cancelling a flight or cancelling a route. 

ascend 


side capacity and traffic-trend statistics. The airline’s 

historical data may provide insight from periods 

where different frequencies or capacities were 

operated. Competitor fare data can give valuable 

guidance to competitor strategies following the 

capacity changes and, with the right tools, the 

analyst could choose to automatically remain in line 

with the competitions’ fares until the new demand 

levels have become apparent and the situation has 

stabilized. 

overbooking strategy 

When overbooking far in advance to compensate 

for cancellations and no shows, discounted 

fare classes are usually made available. When 

significantly decreasing capacity, there is a risk 

of insufficient seats remaining for higher yielding 

passengers booking later. Typically, overbooking on 

lower-capacity aircraft or lower-frequency routes, 

even as a percentage value, will decrease because 

there is less room for error. Following a capacity 

reduction, overbooking strategies and levels must 

be reviewed. The revenue management system 

will automatically adjust the overbooking levels, 

but the analyst needs to be aware of flights with 

potential for high-yield spill, look for up-sell opportunities 

and adjust the strategies (including maximum 

permissible levels) accordingly. 

group Management 

In times of capacity reductions, it becomes 

ever more critical to maximize the profitability of 

group traffic. When capacity is at a surplus, group 

demand is often a way of filling empty seats, but in 

times of reduced availability, group traffic competes 

for space against individual passengers often contributing 

higher revenue. Recommending alternate 

routings at a competitive price to a destination 

city that is in close proximity to the requested 

destination city can retain group demand in the 

airline network and prevent loss of market share. 

Decision support to recommend a group fare can 

ensure each group accept/reject decision is based 

on an accurate demand forecast for individual 

passengers. 

While capacity cuts are inevitable and quite 

necessary for many carriers around the world, 

those implementing strategic revenue management 

and pricing practices are in a stronger position 

to make up revenue from the lost seats and come 

away with a much healthier bottom line. a 

Lindsay Millward is a revenue management 

product marketing lead for Sabre Airline 

Solutions ® . She can be contacted at 

lindsay.millward@sabre.com.

The KISS Principle 

Low-cost carriers from all corners of the world are incorporating characteristics 

from the traditional airline model, such as codeshare agreements and frequent flyer 

programs, to more effectively compete. And at the same time, established network 

carriers are stripping away some of their conventional attributes and implementing 

low-cost carrier strategies for the same reason. 

By Lynne Clark | Ascend Staff 

KISS — or “Keep it simple, stupid”— is 

the empirical principle that most systems 

will work best if they are kept 

simple rather than made complex. It’s also 

the principle behind a business strategy that 

has made low-cost carriers pose a serious 

threat to traditional full-service airlines. 

But in today’s economic environment 

of over capacity, fluctuating fuel prices and 

growing worldwide economic recession, 

even the most dedicated KISS advocates 

are acquiescing to a 21st-century spin on 

KISS — “Keep It Simple And Smart.” Smart 

meaning that many of today’s LCCs are 

straying from their no-frills roots by adopting 

some strategies typical of network carriers 

such as offering frequent flyer programs 

and entering into codeshare and interline 

agreements as well as joining other types 

of alliances. These alliances are possible, 

in part, to nimble new technologies that 

accommodate changing business models. 

love And KIss 

After nearly 40 years of uninterrupted 

profit making, Southwest Airlines, 

the world’s most successful proponent of 

KISS, introduced complexity into its business 

model when it announced last year two 

new codeshare agreements. In June, the 

Dallas Love Field-based carrier announced 

an agreement with Canadian low-cost carrier 

WestJet to codeshare on cross-border 

flights beginning late this year. In November, 

it announced plans to enter a codeshare 

agreement with Mexican airline Volaris. 

Under both new agreements, Southwest’s 

Web site will become a distribution channel 

for existing WestJet and Volaris flights. In 

addition, the carriers most likely will cooperate 

on frequent flyer programs, ground 

handling and cargo. 

Analysts say the moves make sense. 

While Southwest Airlines has long dominated 

the low-cost field, economic pressure 

is forcing changes previously not considered 

including wide-ranging cuts to its workforce 

and expansion beyond its tried-and-true formula 

of point-to-point service and simple 

fare structures. 

“We are continuing to look for ways 

to expand our network through international 

codeshare partnerships, and we are 

excited to team up with Volaris to offer our 

customers access to attractive Mexican destinations,” 

Bob Jordan, Southwest Airlines 

executive vice president of strategy and 

planning, said in a November press release. 

“Volaris has a stellar reputation for being a 

highly efficient airline with a dedication to 

customer service, which makes it a natural 

fit for Southwest Airlines. 

“We recently announced our decision 

to enter the international market with 

Canadian carrier WestJet, and we will continue 

to work diligently to broaden our international 

codeshare service even further,” 

Jordan said. 

Commenting on the WestJet agreement, 

one industry blogger said, “This little 

agreement with an almost-unknown (outside 

of Canada) airline and Southwest could 

be the beginning of a worldwide network of 

budget flights, which the flying public has 

overwhelmingly decided is the future of 

commercial aviation.” 

Hybrids emerging to Keep It 

simple And smart 

The drastic change in attitude toward 

codeshares at Southwest Airlines has captured 

the attention of low-cost carriers 

worldwide, many of which have modeled 

themselves after Southwest Airlines, result- 

ing in a new breed of hybrid carriers. These 

hybrids, according to a 2007 study by Sabre 

Airline Solutions ® , are more numerous than 

traditional LCCs (see related article on page 

23 of Ascend 2008 Issue No. 1 via www. 

sabreairlinesolutions.com). Of the 123 budget 

carriers the study examined, 59 percent 

offered products and services that 

strayed beyond the sphere of a pure lowcost 

model. 

Adopted practices include international 

routes, using the global distribution 

system, codeshare agreements, connecting 

services, multiple fares available at 

any time, advanced ticketing procedures, 

multiple aircraft types, multiple classes of 

service, interline agreements and long-haul 

destinations. 

Only 41 percent of the airlines studied 

remained pure LCCs, selling point-to-point 

routes on one-class travel, using simple 

fares, with no codeshare, on the same 

aircraft type. 

The hybrid carriers are profitable and 

popular. In 2007, these airlines flew 64 

percent of passengers looking for budget 

air travel. 

The research identified easyJet, 

Germanwings, Norwegian Air Shuttle, 

bmibaby, KD Avia, Centralwings, Blue 

Panorama Airlines and Flybaboo as hybrid 

airlines now along with Southwest Airlines, 

jetBlue Airways, WestJet, AirTran Airways, 

Virgin Blue and GOL Linhas Aéreas 

Inteligentes. 

The LCC segment is one of the most 

competitive in the airline industry, and this 

has spurred many pure LCCs to explore new 

ways of evolving their businesses to remain 

competitive and sustainable. For many, this 

has meant adopting some full-service carrier 

business practices to help grow their 

ascend 33

industry 

passenger bases and expand their reach in 

the marketplace, although they have often 

added their own twist on how these business 

practices are implemented. 

Blue Meets green 

JetBlue Airways and Aer Lingus put a 

twist on traditional codeshare agreements 

when they announced in 2007 “the world’s 

first tie up between two international lowcost 

carriers.” The innovative partnership is 

a Web-based alliance that enables Irish and 

U.S. customers to book a single reservation 

between Ireland and more than 40 continental 

U.S. destinations, connecting through 

jetBlue Airways’ home base at New York’s 

John F. Kennedy International Airport. 

When the tie up was announced, 

Aer Lingus and jetBlue Airways stressed 

their agreement did not go quite as far as 

traditional alliances because there was no 

codesharing deal to allow them to sell seats 

on one another’s planes as if they were their 

own. The partnership is also not an interline 

arrangement because there is no pro-rate 

agreement. Instead, the two carriers are 

simply combining their cheapest one-way 

Internet fares with each carrier receiving 

its portion of the ticket. The carriers transfer 

bags, something many low-cost carriers 

refuse to do, but they claim transfer costs 

are minimal because they operate at adjacent 

terminals at JFK. 

virgin Blue: 10 Alliances And 

counting 

At its inception in 2000, Virgin Blue did 

not have interline or marketing alliances with 

any other airline. But after the collapse of its 

domestic competitor Ansett, the low-cost 

carrier began the first of many alliances by 

signing a codeshare agreement with United 

Airlines. The agreement allowed United 

Airlines’ customers to fly from the United 

States to any of Virgin Blue’s Australian destinations 

that United Airlines did not already 

serve. 

In 2006, in an effort to be more competitive 

with rival Qantas Airways, Virgin Blue 

expanded cross-carrier relationships, forming 

frequent flyer agreements with Emirates, 

Hawaiian Airlines and Malaysia Airlines. 

The same year, Virgin Blue announced 

a plan to operate up to seven flights a week 

to the United States using California’s Los 

Angeles International Airport or San Francisco 

International Airport, saying that the route 

was needed to make the airline as profitable 

as possible. After three years of negotiations 

between U.S. and Australian regulators, an 

open-skies agreement emerged giving Virgin 

Blue’s long-haul spin-off, V Australia, permission 

for 10 flights a week between Sydney 

Airport and LAX, which the carrier began 

operating earlier this year. 

34 ascend 

since 2002, virgin Blue has taken advantage of interline and codeshare agreements to 

expand its reach and more effectively compete. It first partnered with united Airlines, and 

most recently, it has entered into an interline arrangement with vietnam Airlines, bringing 

its codeshare and interline agreements to 10. 

Photos courtesy of Airbus

In November 2007, Virgin Blue 

announced an interline deal with international 

carrier Garuda Indonesia, offering easy 

transfer from a domestic Virgin Blue flight 

to an international Garuda service departing 

from Australia’s Perth, Melbourne, Sydney 

or Darwin. 

Most recently, Virgin Blue announced 

an interline agreement with Vietnam 

Airlines, which allows passengers to fly 

from Melbourne and Sydney to Ho Chi Minh 

City, Vietnam, then transfer easily to any of 

the 41 international and 18 domestic destinations 

served by Vietnam Airlines. 

“This agreement with Vietnam Airlines 

brings the number of Virgin Blue codeshare 

and interline agreements to 10,” said Virgin 

Blue Chief Executive Officer Brett Godfrey. 

“It’s a significant new association as it 

means Virgin Blue guests will now have the 

option of convenient travel to one of Asia’s 

most interesting and popular destinations. 

We are pleased to be partnering with a 

reputable carrier such as Vietnam Airlines, 

to offer more choice for leisure and business 

travelers.” 

AirAsia x 

AirAsia, Asia’s largest low-fare, nofrills 

airline, pioneered low-cost traveling in 

the region. It was also the region’s first airline 

to implement fully ticketless travel and 

unassigned seats. In January 2007, AirAsia 

further demonstrated its pioneer thinking 

when it affiliated with AirAsia X (previously 

known as FlyAsianXpress), a long-haul, lowcost 

carrier to cover destinations more than 

four hours in flight duration from Kuala 

Lumpur, Malaysia. 

A series of strategic investor relationships 

has put AirAsia X on solid financial 

ground, allowing it to expand beyond its 

original Australian Gold Coast Airport destinations. 

The carrier has secured rights to 

land in China, Korea and west Asia, with 

future expansion plans that include India, 

the Middle East and Europe. Its European 

expansion was confirmed in December 

when executives announced the launch of 

direct service flights from Kuala Lumpur to 

London, which began in March and operates 

five times a week. 

Network carriers respond 

While low-cost carriers are borrowing 

some moves from network carrier playbooks, 

network carriers are incorporating 

some low-cost carrier strategies themselves 

in hopes of remaining competitive. 

“As we are in a recession that is 

becoming worse, there is going to be an 

impact on air travel,” said Bruce Zirinsky, a 

bankruptcy attorney who spoke to reporters 

about the state of the industry last 

December. “There is already shrinking 

demand and if that continues, it is fair to say 

we will see more consolidation.” 

Lucrative business from international 

business travelers is forcing strong international 

alliances. 

American Airlines lost its status as 

the world’s largest airline last year with the 

merger of Delta Air Lines and Northwest 

Airlines. An alliance by rivals United Airlines 

and Continental Airlines is putting additional 

pressure on American Airlines. 

Airline economists predict other sizeable 

U.S. airlines could possibly make headlines 

with mergers this year including US 

Airways, Southwest Airlines, Northwest 

Airlines and jetBlue Airways. 

Across the pond, merger mania and 

low-cost subsidiaries are taking off. British 

Airways is in talks with Iberia and has 

recently launched its own budget carrier. 

Last June, OpenSkies made its inaugural 

flight using a single Boeing 757 transferred 

from British Airways’ fleet. The flight demonstrated 

that British Airways was doing 

more than taking advantage of the recent 

E.U.-U.S. open-skies agreement. It was testing 

a new business model by applying the 

low-cost structure of a budget carrier to a 

more upscale product. 

“Low cost doesn’t mean low fares,” 

British Airways Chief Executive Officer Willie 

Walsh told reporters. “There is a lower cost 

base, but it’s still a premium product.” 

OpenSkies is unique in that it combines 

the perks of a traditional carrier 

— including oneworld membership, more 

legroom and electrical outlets — with 

slimmed-down staffing levels, fewer 

expensive benefits and a chance to simplify 

complex operating systems that are 

entrenched in flagship carriers. The idea is 

to attract budget-minded corporate travelers 

who don’t want to give up all of the 

amenities of the front cabin. 

Iberia is another example of a network 

carrier adopting its own budget 

airline. In 2006, the Spanish flag carrier 

bought an 80 percent stake in Clickair 

where it directed all of its short-distance 

passengers, except those from its Madrid, 

Spain, hub. The airline has been successful, 

say experts, because of Clickair’s 

efforts to keep Iberia — and its network 

mentality — at arm’s length. 

In January, the European Commission 

gave conditional clearance for closer ties 

between Iberia, Clickair and Barcelona, 

Spain-based Vueling. Vueling, named in 

2006 among Europe’s best low-cost carriers, 

started restructuring in 2007 to 

enhance profitability. Last July, Vueling 

and Clickair announced plans for a full 

merger to create a carrier better equipped 

to tackle stiff competition and high fuel 

costs. 

Agreements And It requirements 

For an airline, regardless of its business 

model or strategic partnerships, it is 

just as important to have robust computer 

systems as it is to have a modern fleet. 

Creating flight schedules, providing fare 

information, making reservations, offering 

electronic ticketing, effectively managing 

passenger check-in, changing a booking 

or giving credit for frequent flyer miles are 

impossible without sophisticated information 

technology. 

Today, many airlines have their own IT 

systems that are unique to them, even though 

tasks are similar. However, when they act in 

concert, in an alliance, for example, the use of 

different hardware and software by individual 

member airlines poses major problems, making 

it time consuming, expensive and complex 

for them to achieve their common goals. 

Regardless of the form an airline agreement 

takes — codeshare, alliance, interline 

or joint venture — decision makers should 

look for synergies in network, business and 

systems compatibility to avoid an historically 

dismal track record of past airline partnerships. 

Network and business compatibility evaluations 

are relatively simple when compared to 

the complexities of systems integration. 

Philip Wang, principal management consultant 

for Sabre Airline Solutions, suggests 

that before airlines enter into an agreement, 

they should evaluate IT compatibility by analyzing 

four key operating systems: 

1. Reservations and ticketing systems — Do 

the systems enable free sell and interline 

e-ticketing? 

2. Revenue accounting systems — Can they 

handle the type of interline billing settlement 

that both partners want to use? 

3. Check-in systems — Does the check-in system 

handle interline through check-in? 

4. Web sites — Do both airlines’ Web sites 

display, reserve and ticket codeshare flights 

and multi-leg interline itineraries on top 

travel portals and each partner Web site? 

“Without this kind of system compatibility, 

the partnership can become very costly in 

terms of investment and lost opportunity,” 

Wang said. a 

Lynne Clark can be contacted at 


ascend 35 

industry

Immense 

Intelligence 

Business intelligence capabilities enable companies to determine a 

successful course, effectively respond to change and measure their 

success based on a mix of current and historic data. 

Michael Embry | Ascend Contributor

Enterprise business intelligence shows 

what’s going on in your business and 

helps plan business strategy, react 

to changes and monitor success. During 

the course of business, you can only know 

what direction and how fast you’re going in 

relation to where you are and where you’ve 

been. That is a fundamental concept behind 

the use of business intelligence systems, 

which can be extremely beneficial to airlines 

that utilize them from providers specifically 

designed for the air transport industry (see 

related article on page 70). Even though BI 

incorporates a lot of technology, the business 

view of BI is most critical because if 

you don’t know what’s going on in your business, 

you may be going out of business. 

As with any type of industry, business 

intelligence systems can be effectively 

applied to the travel and airline businesses. 

BI systems can help in many areas including 

cost control, revenue enhancement, 

customer engagement/satisfaction and 

marketing effectiveness. While transaction 

systems (online transaction processing) are 

needed to perform business functions and 

capture data from those transactions, BI is 

required to understand the context of the 

transactions and the effectiveness of business 

decisions as well as to provide insight 

into planning for the future. 

So what exactly is business intelligence? 

According to Forrester Research, 

Inc., BI is a set of methodologies, processes, 

architectures and technologies 

that transform raw data into meaningful 

and useful information. And Gartner, Inc., 

breaks it down even further by separating 

BI into information delivery and analysis. 

Information delivery includes reporting, 

dashboards, ad hoc query and Microsoft 

Office automation. Analysis covers online 

analytical processing, advanced visualization, 

predictive analytics, data mining and 

scorecarding. 

This list is indicative of the different 

aspects of BI. There are two primary categories: 

reporting and analysis. Traditional 

BI tools have been used for reporting, which 

usually identifies what has happened in the 

past. For example, it is important to know 

how many passengers there were yesterday, 

last week and last month as well as 

how much revenue was generated. This can 

be expanded to compare the number of passengers 

last month versus the same month 

the previous year. This type of reporting 

then generates further questions such as: 

Why would the number of passengers 

change last month versus the same 

month last year? 

What were the frequent flyer demographics 

of the passengers? 

What were the advanced-purchase characteristics? 

Do those demographics and characteristics 

differ based on the origin-and-destination 

cities? 

As these questions continue to 

arise, more in-depth analysis of the data 

is required, which leads to more data to 

analyze as well as different ways to analyze 

and view the information generated. 

How Does It Work? 

Capturing data is the first key to an 

effective business intelligence solution. The 

transaction systems used to run the business 

(shopping, point of sale, passenger 

check-in, etc.) provide data sources for BI 

systems. Data is usually collected in a data 

warehouse system using extract/transform/ 

load, or ETL, processes. The transformations 

are used to apply business rules to 

make the data more understandable from 

a business rather than technical perspective. 

It is important that these data warehouse 

systems are on separate database 

infrastructures from the online transaction 

processing systems because of the different 

tuning, processing and data retention 

requirements. Using an enterprise data 

warehouse method (where all required 

data is collected in one system) provides 

the data management features required 

to provide “one version of the truth” for 

reporting and analysis. A representative list 

of DW vendors includes Oracle, IBM-DB2, 

Microsoft-SQL Server and Teradata. A new 

and interesting entrant into this DW space is 

data warehouse appliances, which includes 

Netezza, Greenplum Network, Microsoft- 

DATAllegro, Oracle and Teradata. 

Business Intelligence tools 

The most commonly used data 

reporting tool is Microsoft Excel, but since 

Excel is an independent desktop tool, it 

presents many deployment challenges, 

most of which can be overcome by using 

business intelligence tools specifically 

developed for data reporting and analysis. 

The BI tools (for example, SAP-Business 

Objects, IBM-Cognos, MicroStrategy, 

etc.), in conjunction with the DW system, 

can be architected to provide development, 

test and production environments 

where processes can be implemented to 

ensure information quality (completeness, 

consistency, accuracy and timeliness). 

As can be surmised from Gartner’s 

classification of information delivery and 

analysis, more than one BI solution may 

be required to accommodate every business 

need. Even though one enterprise 

tool may be a goal, in many cases, this 

goal cannot be achieved because of previous 

purchase decisions, business unit 

independence, cost restrictions or tool 

capabilities. 

As a BI application expands to include 

many aspects of reporting, analysis, dashboards, 

data visualization, etc., one vendor’s 

BI tools may not provide the “best in 

class” for all aspects of the requirements. 

However, trying to integrate and manage 

different tools from multiple vendors may 

be more than some companies are willing 

to attempt. 

Two other options that exist for BI 

application development include newer 

open-source tools (such as Jaspersoft and 

Pentaho) and programmatic development 

(using Java, Visual Studio or other programming 

languages). Both of these alternatives 

to using traditional BI tool suites may 

require developers with different skill levels 

and different support requirements for managing 

the BI products. 

the future of BI 

While many businesses are at the 

early stages of adoption of traditional BI 

capabilities, others have begun to deploy 

more advanced methods as the BI industry 

and business requirements continue to 

develop. To understand your business, it 

is important to be able to report on what 

happened in the past and analyze why 

these things happened. BI reporting and 

analysis tools can provide these capabilities. 

However, being able to make reliable predictions 

of what will happen under certain business 

conditions and being able to influence 

the outcome of business/customer interaction 

is also an important capability that can 

be provided by certain BI processes such as 

data mining and predictive analytics. 

New areas of investigation include 

operational BI and business performance 

management. Operational BI uses traditional 

BI methods, concepts and tools to 

report and analyze near real-time data. This, 

of course, requires access to real-time data 

feeds that can require different data source 

and ETL methods. Business performance 

management is considered a next-generation 

BI solution that integrates a broader 

scope of a company’s data, including sales 

transactions, human resource information, 

financial data and any other relevant business 

data. 

The overriding point to consider for 

investment in business intelligence development 

is that BI processes are an integral 

part of business management, process 

improvement and business success. a 

Michael Embry is business intelligence 

architecture and development 

manager for Sabre Holdings ® . 

He can be contacted at michael. 

embry@sabre-holdings.com. 

ascend 37 

industry

40 

44 

47 

Network checkup 

Airlines must often evaluate their 

route network — determining 

when to add a new route, 

when to discontinue a route or 

when to change the frequency 

on a route. Following some 

basic guidelines is key to 

making sure the right markets 

are served at the right times. 

capital uplifting 

An industry downturn has left 

many airlines struggling to raise 

capital in a credit-tight environment, 

but three basic options 

exist for those that need capital. 

saving the Pie 

Choosing the right cooperative 

agreements helps airlines 

compete without “getting their 

collective lunches eaten.” 

50 

56 

60 

climate change 

Beginning in 2012, all airlines 

operating to Europe will be 

required to report CO 2 emissions 

and will have emissions limits. 

Airlines need to prepare now 

to ensure they comply with the 

new legislation. 

Hedging Your 

(Jet fuel) Bets 

Many carriers exercised fuel 

hedging opportunities and 

came out on top during the last 

few years when oil prices shot 

through the roof. But those 

who hedged too far into the 

future are paying a pretty severe 

price today. 

looking Back for 

tomorrow 

Even in times of economic difficulty, 

certain carriers seem 

to have a knack for making 

the best of their situations. 

And they set the bar high for 

everyone.

SPECIAL SECTION 

Survival 

Guide

40 

Network 

Checkup 

Airlines must often evaluate their route network — 

determining when to add a new route, when to 

discontinue a route or when to change the frequency 

on a route. Following some basic guidelines is key 

to making sure the right markets are served at the 

right times. 

By Mark Hess and Kathy Turney | Ascend Contributors

Airlines live and die by the strength of 

their network. Therefore, they need 

to relentlessly ensure that their routes 

maintain an acceptable return for their investment. 

With this in mind, airlines should always 

seek ways to strengthen their networks 

through the addition and deletion of routes as 

well as strong codeshare relationships. 

Deciding which changes are beneficial 

can be very difficult, if not impossible, to 

determine completely. There are many factors 

that go into this type of decision and, unfortunately, 

many of the drivers are constantly 

changing. With such a huge economic impact 

on the airline, the decision to change service 

must be examined in detail with a process 

that is dynamic enough to stay ahead of the 

changes in the marketplace. Knowing this, the 

ever-important task remains in deciding how 

or when to change the network. Fortunately, 

there are some universal guidelines to follow 

when making network modifications. 

Adding flights 

The goal to increase profits is usually 

dependent on the strength of the airline’s 

network. The question then arises, how does 

an airline identify flights to add and then 

judge if the flight is beneficial? There are 

several factors to consider before adding a 

flight. Before proceeding too far, the airline 

must verify that it has proper authority to add 

the flight. Restrictions exist between most 

countries limiting new service into a country 

and, depending on the location, domestic 

restrictions may exist as well. In addition, an 

airport may have its own constraints such as 

slots or heavy congestion that may influence a 

new route opportunity. However, the question 

remains, assuming the authority exists and the 

airport can support the new service, how are 

opportunities identified and then measured for 

profitability? 

One of the more common ways to identify 

opportunities is through the use of marketing 

information data tapes, or MIDT, which 

will identify how traffic has historically flowed 

between origins and destinations. Additionally, 

it allows the comparison of month-over-month 

and year-over-year data to establish trends. 

When using MIDT data, an airline should keep 

in mind that the data is based on bookings 

not actual flown passengers. Many airlines 

have processes in place to adjust the booking 

data to an estimation of traffic data by incorporating 

other data sources into the process. 

When using MIDT data, it is also helpful to 

pair the nonstop capacity with the origin and 

destination. This gives a feel for the traffic in 

the market as well as for the capacity in the 

nonstop market. Markets with far more traffic 

than nonstop capacity are likely to be good 

opportunities. 

If a carrier does not have access to MIDT, 

there are other ways to help identify opportuni- 

41


42 

ties. First, using the airline’s own historical 

data to identify trends in the market can give 

valuable insight. If single-plane service to a point 

via another point exists and the beyond point 

has been growing, then perhaps the beyond 

point now warrants its own nonstop service. 

Additionally, airlines often have intelligence 

from their sales organizations of opportunities. 

While this insight is extremely helpful, they 

should beware that the sales manager may be 

a little too optimistic about opportunities in their 

own region and certainly other groups within 

the airline should give input on the opportunity. 

Another external data source that can often be 

free or inexpensive to obtain is population and 

census data for given cities. While a growing 

population can indicate opportunities, it is often 

more relevant to look at non-agricultural business 

growth — the type of business that funds 

lucrative business passengers. 

Often, opportunities exist between linking 

the airline’s network with codeshare partners’ 

networks. This usually increases traffic 

for both airlines. Additionally, having partners 

as well as the airline’s internal sales force 

trying to sell seats usually ensures a higher 

success rate. 

Also, airlines should consider infrastructure 

that may allow unique opportunities that 

competitors find difficult to match. Obviously, 

one of the recent changes in the industry is the 

performance of aircraft. With newer-generation 

aircraft, markets that previously suffered without 

nonstop service due to stage length are 

now within range of new airplanes. 

After identifying an opportunity, the 

potential new service needs to be evaluated for 

profitability. Hence, the opportunity needs to be 

forecast. If the airline owns a forecasting tool, 

such as the Sabre ® AirFlite Profit Manager, 

then this is an easy task to perform. However, 

FCO-MAD Segment 

MAD-LIS Segment 

Total 

even if a sophisticated forecasting model is 

not owned, there are still ways to judge the 

potential of a market. One way is to calculate 

the seat share in the new market and use that 

as an indicator of potential load factor. With this 

method, an airline should consider the type of 

service offered against the competitor along 

with fare implications to understand if this 

seat share needs to be adjusted to represent 

the market share realistically. With a low seat 

share, it will be difficult to capture significant 

traffic, especially with the S-curve (providing 

limited service in a market) working against the 

airline. Additionally, new markets typically have 

a “ramp-up” period. If a forecast predicts a 73 

percent load factor, it may take the flight three 

to six months, or longer, to reach this level as 

the flight is being established. 

As new markets are evaluated, airlines 

should consider the corporate strategy. All too 

often, a company will enter a market that forecasts 

profitably but goes against the corporate 

strategy. Years later, these companies tend to 

drop out of the market after coping with the 

unanticipated repercussions of these types of 

markets. 

removing flights 

Before discussing canceling flights, 

a quick definition of key finance terms is 

appropriate: 

Variable operating costs, or VOC, refer to 

strict costs driven solely by flying the plane 

(for example, fuel, catering, etc.). 

Direct operating costs, or DOC, are VOC plus 

aircraft lease payments or depreciation. 

Fully allocated costs, or FAC, are DOC plus 

all other costs not accounted for in DOC 

(overhead, administrative costs, etc.). 

When considering deleting flights from 

the network, there needs to be a clear under- 

standing on what will be done with the aircraft 

if it no longer operates a particular flight. Are 

there new or better opportunities where the 

aircraft can be deployed? Is there an option to 

return or sell aircraft? Is parking the airplane 

the best or only alternative if a flight is cancelled? 

Having this overall understanding will 

help assist the analyst in weighing out the 

many factors that will determine if a flight or 

route needs to be eliminated. 

In general, all routes should be covering 

their VOC for the long term or the airline may 

be better off simply grounding the aircraft. 

There will be instances, such as fare sales and 

seasonality, where the flight might lose money 

on a VOC basis; however, this should only be 

a short-term condition unless there is a reason 

to allow the flight to operate with a negative 

VOC. In some cases, the flight might lose on a 

VOC basis but make significant contribution to 

the network, resulting in an overall positive network 

effect. An airline might choose to operate 

a flight that is below the VOC threshold for 

defensive measures (discourage competition 

from encroaching); however, caution should be 

used to measure the actual benefit of delaying 

(probably not preventing) competition from 

entering the defending airleriine’s€ territory 

when there is a consistent negative VOC. 

If an airline has the ability to dispose of 

an aircraft (either return it to the lessor or sell 

the unit), then each route should pass the DOC 

threshold in addition to the VOC threshold to 

maintain its place in the network. Again, this 

should be measured on a long-term rather 

than short-term basis, taking into account 

strategic positioning and future growth as well 

as total network contribution. It is important 

to monitor any cancellations of flights that 

other airlines may invoke as well, especially 

Segment And System Revenue Contribution For Set Passengers 

Local Passenger 

Connecting Passenger 

Connecting Passenger 

Itinerary Fare Segment Contribution System Contribution 

FCO-MAD 

€500 

FCO-MAD-LIS €1,200 

FCO-MAD-LIS €1,200 

€500 

€750 €1,200 

€450 

When examining a flight for cancellation, it is important to understand how revenue is allocated to the routes and how much 

will be retained with the cancellation. 

ascend 

€500 

€1,200 

€1,700 €2,900

codeshare partners. Other airline cancellations 

could decrease or increase traffic to an airline’s 

network, therefore, it’s critical that the airline 

understands from where its connecting traffic 

is coming. 

Another consideration in analyzing routes 

is to understand the segment revenue as well 

as the revenue contribution the route makes to 

the rest of the network. When discussing passenger 

revenue, two categories are generally 

used: segment revenue or system revenue. 

For example, a passenger who travels from 

Rome, Italy, to Lisbon, Portugal, via Madrid, 

Spain, contributes revenue to both the Rome- 

Madrid segment as well as the Madrid-Lisbon 

segment while a local passenger from Rome- 

Madrid will only contribute directly to the 

Rome-Madrid segment. 

Using this example, assume a passenger 

is traveling Rome-Madrid on a €500 

fare and another passenger is traveling Rome- 

Madrid-Lisbon on a €1,200 fare, with €750 of 

the fare being allocated to the Rome-Madrid 

portion and the remaining €450 allocated 

to the Madrid-Lisbon portion. The segment 

revenue for Rome-Madrid would be €1,250 

(€500 from the local passenger plus €750 

from the Rome-Madrid-Lisbon passenger). The 

system revenue for the Rome-Madrid market 

requires adding the beyond revenue (€450 in 

this example) to the segment revenue giving 

€1,700 system revenue contribution from the 

Rome-Madrid segment. If a flight is being canceled, 

its segment revenue will certainly disappear 

(€1,250 in this case). More than likely, 

the system revenue (€1,700) will also be lost 

unless the airline has sufficient capacity and 

schedules to recapture the Rome-Lisbon passengers 

via other services. For the connecting 

Rome-Madrid-Lisbon passenger who pays 

€1,200, the system revenue will be €1,200 for 

both the Rome-Madrid segment as well as the 

Madrid-Lisbon segment. While accountants do 

not like the use of system revenue, arguing 

that it is double counting, it is important for the 

analyst to understand the segment revenue as 

well as the total system revenue a segment or 

flight will contribute. This can help justify the 

cancellation or protection of a flight or route in 

the network. 

When a route is being considered for 

cancellation, it is extremely helpful to measure 

the network effect with and without the flight 

or route in place. Profit Manager enables an 

airline to simulate the performance before 

and after the cancellation. It is important to 

understand that in addition to the local market 

that may be lost, there may be other markets 

that will be lost as well. Using a forecasting 

model, it is easy to determine how many overall 

markets as well as passengers are lost and 

how many can be recaptured on the network 

via other gateways or codeshare partners. If 

a flight is cancelled that provides significant 

feed to the airline’s network and cannot be 

recaptured by the airline, the overall impact of 

the cancellation may not be beneficial to the 

airline even if it is losing on a VOC basis. In 

any case, the airline has to have a full picture 

of the connecting passengers who may be lost 

by cancelling a flight. In addition, for carriers 

with codeshare partners, it is important to 

understand the impact of the cancellation on 

the codeshare relationship as well. 

With a forecasting model in place, the 

analyst can measure the amount of traffic that 

might be recaptured on the network or through 

the partner’s network prior to the cancellation. 

HiGHlight 

... airlines should 

always seek ways 

to strengthen their 

networks through the 

addition and deletion 

of routes as well as 

strong codeshare 

relationships. 

While it would be ideal if most of the 

flights covered their fully allocated costs, this 

is rarely the case. In general, airlines will 

have flights at all different profitability levels. 

However, the network must contain enough 

routes that are profitable on a fully allocated 

basis to cover all the airline’s expenses. 

If a route is identified as a candidate 

for cancellation, airlines should not rush to 

remove the service before fully understanding, 

and hopefully fixing, the situation. If a flight is 

losing money on a VOC basis, carriers should 

strive to improve it through alternative avenues 

such as revenue management strategies, sales 

initiatives and codeshare agreements. If a 

flight covers its VOC, the airline should not be 

satisfied. Rather, it should desperately search 

for ways to cover the flights DOC. 

Adjusting frequency 

In most cases, the goal would be to 

offer daily service in a given market. There are 

certain times, however, that this does not hold 

true. If the airline’s traffic base is constrained, 

for example, based on an island where growth 

is limited or in an area with a limited population 

that travels, the market may not be 

large enough to support daily service. Another 

example is niche markets. Perhaps an airline 

offers weekend service to a tourist destination 

that does not require or warrant daily service. 

However, if the airline targets business traffic, 

the goal should be to have daily service or, if 

less than daily, at least at similar levels as its 

competition. 

An important principle, the S-curve, 

comes into play when an airline offers sparse 

service in a market. One might expect that 

as the airline adds frequency, its traffic share 

increases proportionally. In this case, if an airline 

has 10 percent of the flights in a market, it 

may expect 10 percent of the traffic, but this is 

not the case. The S-curve, named for its S-like 

shape, demonstrates that if a carrier has fewer 

frequencies in a market than its competitors, 

it gets less than its fair share of the traffic. 

Conversely, if a carrier has an advantage over 

its competition in frequencies in a market, it will 

get a disproportionate amount of traffic. Hence, 

frequency becomes an issue in most markets 

and why an airline should strive for daily service. 

If an airline is going to operate with less-thandaily 

service, it is important to analyze the 

competitions’ nonstop service and remain at 

competitive frequency levels. It is also essential 

to note that while the S-curve is a crucial tool, 

there are exceptions. Studies have indicated 

that the S-curve effect can be altered with the 

presence of a low-cost carrier in the market. 

There is an old saying that “you can’t 

fix what you don’t know is broken.” This is 

particularly true for airlines when analyzing 

their network. They need to constantly monitor 

routes against historical performance as well 

as expected performance. It is all too easy for 

a competitor to “slip” into a market and steal 

share before an airline realizes it. This is especially 

true in connecting markets. Markets, as 

well as individual routes, should be examined 

on a weekly basis by many areas such as network, 

scheduling, revenue management and 

sales. All groups have important insight on the 

overall performance of routes as well as new 

opportunities. It is only when all these groups 

work in unison that those optimal results can 

be achieved. 

While the surface has just been scratched 

on evaluating network changes, airlines should 

use this foundation of general knowledge when 

evaluating optimal network performance. a 

Mark Hess is delivery manager and 

Kathy Turney is a senior consultant 

for Sabre Airline Solutions ® . They can 

be contacted at mark.hess@sabre. 

com and kathy.turney@sabre.com. 

43 

special section

Capital Uplifting 

An industry downturn has left many airlines struggling to raise capital in 

a credit-tight environment, but three basic options exist for those that 

need capital. 

By Shane Batt | Ascend Contributor 

October 2007 was the last month when the 

global economy was growing. Because the 

airline industry is the first to notice a downturn, 

it has just completed one of the most difficult 

calendar years in history of commercial aviation. 

Last year, the aviation industry suffered during 

the first two-thirds of the year from skyrocketing 

fuel prices, only to succumb to a sharp reduction in 

demand as soon as fuel prices began to ease. 

Now, airline executives increasingly worry about 

capital availability and its effect on the survival — 

not just the growth — of their companies. 

During these times of uncertainty, there 

are things airlines can do to raise capital to secure 

their future, but first it’s necessary to examine the 

financial crisis and its effect on commercial aviation 

as well as the ways in which airlines are raising 

capital under the new financial reality. To begin this 

examination, it is first necessary to look back at the 

relatively happy days of 2007. 

In retrospect, and despite severe structural 

difficulties, 2007 was a better year for commercial 

aviation than most years. Fuel prices were high, 

but crude oil prices had not yet passed US$100 

a barrel, as they did last year, and the average jet 

fuel price for 2007 was less than US$75 a barrel. 

Share prices were high, and there was substantial 

investment interest in the aviation sector from a 

wide variety of sources. 

2007 will be remembered (among other 

ways) as the year in which private equity made 

many inroads into the aviation sector. Because 

airlines were attractive to investors, banks also 

courted airlines by providing a high availability of 

credit facilities. At one point during 2007, a government-owned 

airline that had never published profits 

attracted bids for privatization that were more than 

60 times the airline’s earnings before interest, taxation, 

depreciation and amortization, or EBITDA. 

By comparison today, airlines are attracting 

on average four to five times EBITDA for privatization, 

but only if they have a history of profitability. 

During 2007, capital was substantially available 

from a variety of sources, and airlines employed 

these sources to go on an aircraft shopping spree. 

44 ascend 

the collapse of several major financial institutions last year, including Northern rock, had a 

large impact on airlines’, whose asset values rapidly dropped, and they began to look less 

attractive for new credit or extensions of existing credit. 

Photo courtesy shutterstock.com

Boeing achieved record sales of 1,413 aircraft 

during 2007, and Airbus was just behind in record 

new sales with 1,364 aircraft. This was more than 

800 aircraft higher than the combined (Boeing plus 

Airbus) orders for new aircraft in 2006, the previous 

record year, and about 1,600 more aircraft orders 

than the average sales year this decade. 

Massive orders for aircraft were agreed 

upon by China, India, the Middle East and South 

American airlines. Additionally, future delivery slots 

for aircraft were valuable, so credit was readily 

available from financial institutions to fund the 

manufacturer-required pre-delivery payments, or 

PDPs. While the manufacturers provided substantial 

discounts on new aircraft in consideration of 

the vast individual orders, PDP percentages were 

paid off the list price of aircraft. For example, if an 

aircraft’s list price was US$100 million, it might be 

sold for as low as US$60 million as part of a bulk 

purchase. Nevertheless, the PDPs of around 40 

percent needed to be paid on the list price so airlines 

would need to find US$40 million to cover the 

PDPs of that single unit instead of US$24 million. 

Despite the huge capital commitments that 

were being agreed upon, airlines purchased aircraft 

with confidence because capital was widely available. 

By the end of 2007, however, early signs of 

trouble in the capital markets arose. Late that year, 

there were concerns about the stability of overextended 

banks. In August 2007, BNP Paribas, 

the largest bank in France, discontinued three 

investment funds it had set up based on selling 

mortgage debt from U.S. mortgage lenders. The 

BNP Paribas funds had invested in collateralized 

debt obligations, or CDOs, which are complex 

financial instruments designed to take advantage 

of high-asset growth rates that produce increasing 

equity for asset owners. 

Simply put, mortgage companies in the 

United States and United Kingdom were increasingly 

offering credit-debt swaps that allowed mortgage 

holders to trade equity in their homes for 

credit facilities they could use to pay off credit cards 

or finance other lifestyle improvements. These 

credit-debt swaps, along with new mortgages and 

other debt facilities, were then put into structured 

CDOs that, in theory, had a very low default rate. 

In fact, the default rates of the CDOs were so low 

that the default rates could only be predicted. There 

was no actual data on the default rate for CDOs. 

Financial institutions throughout the world invested 

in these high-yielding CDOs believing that their 

default rate was very low. 

Then, in mid-September 2007, there was 

a bank run on Northern Rock, the fifth-largest 

mortgage lender in the United Kingdom. Collapse 

of Northern Rock was only narrowly averted by 

the end of 2007 through injections of funds by the 

Bank of England. Equity markets around the world 

began a downturn as concerns over bank liquidity 

began to surface. The downturn was just beginning, 

however. 

Then 2008 dawned with increasingly bad 

financial news. Stock markets around the world 

began to see downturns and struggling banks 

began to fail. Defaults of CDOs provided real 

data on the default rate, and banks soon found 

that their exposure with these facilities was very 

significant. Banks have governance rules that do 

not allow them to risk high levels of exposure on 

bad debts. Unfortunately, investments in CDOs 

greatly increased the exposure of banks and, 

when it became clear that the default rate was 

much higher than expected on CDOs, banks had 

to immediately curtail providing new loans until 

they could reduce their exposure. 

Last year, several major banks failed including 

Northern Rock, Bear Stearns, Washington 

Mutual, IndyMac, First Integrity Bank, ANB 

Financial, Hume Bank, Douglas National Bank, 

First Heritage Bank and First National Bank 

HiGHlight 

Airlines that own their 

aircraft, facilities and 

other assets are more 

attractive to financial 

institutions because 

they have real assets 

that might be attached 

by the lenders in the 

event of default. 

of Nevada. Many more large banks, such as 

Citibank, Morgan Stanley, Barclays Bank, Bradford 

and Bingley, HBOS, Royal Bank of Scotland and 

Corus Financial, required huge bailouts to keep 

from collapsing. The U.S. Government promised 

US$700 billion in bank bailouts and even began to 

distribute these funds. 

Airlines were caught in the middle of 

this increasingly deep banking crisis. First, asset 

values dropped rapidly, and this meant that their 

balance sheets suffered, and airlines began to 

look less attractive for new credit or even the 

extension of existing credit lines. Banks that 

had tightened their credit policies in light of the 

CDO impact found that their liquidity was greatly 

affected. The poor liquidity in the financial system 

meant that many existing revolving credit facilities 

could not be serviced. All of this occurred at a time 

when airlines needed cash the most. 

At the same time, crude oil prices hit a 

record US$147 a barrel last July, meaning that 

JetKero was selling for more than US$220 a barrel. 

Airlines needed to protect themselves with 

fuel and currency hedging, but capital availability 

became increasingly restrictive just as those PDPs 

began to come due. As a result, more than 30 

airlines failed worldwide last year. 

Typically, airlines do not fail due to losses of 

profit; they fail because of an absence of cash to 

pay their obligations. By the end of 2008, it became 

clear that the world was in a global financial crisis, 

and demand for air travel plummeted as both 

individual consumers and companies cut back on 

travel to save on expenses. As airlines stumbled 

into 2009, the full impact of the financial crisis was 

beginning to be factored in the real economy as 

companies worldwide began massive layoffs. 

So during the first quarter of the year, 

airlines find themselves in a precarious situation. 

First, there are virtually no credit facilities available 

to airlines under the current financial conditions. 

Airlines with very strong cash equity are still able 

to acquire credit, but these carriers are limited to 

a few fairly elite examples. Reduced demand for 

air travel that was increasingly apparent during the 

first quarter of 2009 is further putting pressure on 

cash management by airlines. Quite simply, most 

airlines lack cash. Furthermore, all of the purchases 

made in 2007 require PDP payments during 2009, 

and many airlines don’t have the capital to pay 

these obligations. 

The manufacturers, which had all increased 

production quotas, are beginning to see order 

cancellations because the airlines cannot pay 

their PDPs. Order cancellations and deferrals are 

expected to increase through the year. Therefore, 

the manufacturers will be required to slow production 

and reduce the number of planned deliveries 

for this year and into next year. This reduction in 

production quotas will be reflected in layoffs by the 

largest manufacturers, which will further exacerbate 

the financial crisis. 

To survive and also address their obligations, 

airlines desperately need to raise capital. How does 

an airline raise capital, however, under these current 

financial circumstances? They have three basic 

options for raising capital under the new financial 

reality that is expected to continue for some time, 

including: 

Equity injections — Take on additional owners or 

obtain more funds from existing owners, 

Debt facilities — Take on additional debt in ways 

that solve the airline’s capital requirements without 

increasing its survival risks, 

Asset liquidation — Existing assets of airlines 

can be liquidated to increase cash availability. 

Each of these methods of raising capital 

produces its own opportunities and challenges. 

equity Injections 

Equity injections are increasingly becoming 

the preferred choice of airlines to raise capital under 

the current financial crisis. Earlier this year, Qantas 

Airways and SAS Scandinavian Airlines announced 

their intentions to perform a “rights issue” to 

increase their common shares. Many companies 

retain the right from their owners to issue additional 

shares — up to an agreed upon percentage of the 

ascend 

45 

special section


outstanding existing shares — to address their 

immediate capital requirements. Essentially, the 

owners have pre-granted the right to the airlines 

to dilute the owners’ percentage of ownership 

to solicit additional investors that will bring in 

much-needed capital. While this looks like a 

good way of raising capital, it is also fraught 

with risk. 

For example, Qantas Airways had to 

suspend trading of its shares in advance of 

announcing its rights issue due to rapidly 

declining share values (shares fell more than 

10 percent over two consecutive trading 

days). Investors became aware of rumors that 

the carrier would be making its rights issue 

to financial investors at US$2 a share — a 

substantial reduction over the then-selling 

price. Qantas Airways made the rights issue 

to the financial institutions at the lower price 

to quickly raise necessary capital, but its 

existing shareholders felt that their own share 

value would drop under these conditions and, 

therefore, decided to sell before the rights 

issue could be announced. This produced the 

requirement to suspend share trading, which 

further undermines investor confidence. 

A different way of obtaining capital 

through equity is to court private equity 

where a public company can actively look 

for private equity and then take the company 

“private” by de-listing it from its associated 

stock exchange. While there is much less 

private equity available in the marketplace 

compared to 2007, there is still availability 

— especially from Sovereign Funds set up 

by the richest oil-producing states that made 

massive profits during 2007 and 2008. 

The problem with private equity, however, 

is that it often violates foreign ownership 

maximums. Aeroflot Russian Airlines 

recently announced that it is interested in 

investing in CSA, the Czech national airline. 

European Union regulations, however, only 

allow a maximum of 49 percent ownership 

by non-European owners. So, a private equity 

investor who would like to invest in an airline 

has to consider ownership restrictions and 

control issues before making investments 

that can, especially under the current financial 

conditions, be considered risky. While 

increasing cash equity is a popular way of 

addressing an airline’s capital requirements, 

these types of transactions should be carefully 

considered. 

Debt facilities 

The second method of raising capital 

is through debt facilities, which can include 

taking on additional loans or through the issuance 

of corporate bonds. Most airlines have a 

very difficult time today convincing banks to 

increase their credit facilities. This is not true, 

however, in some cases. Many banks are still 

interested in lending to airlines that show substantial 

credit worthiness. One of the ways of 

46 ascend 

demonstrating credit worthiness is to have 

a low debt/equity ratio because the airline 

is asset rich. Airlines that own their aircraft, 

facilities and other assets are more attractive 

to financial institutions because they have real 

assets that might be attached by the lenders 

in the event of default. 

Similarly, some airlines can obtain sovereign 

guarantees from their government 

owners that will back the loans. Sovereign 

guarantees are often even better than assets 

to attract loans from financial institutions. 

Corporate bonds are a fall-back approach to 

raising capital through debt facilities. When an 

airline issues corporate bonds, it is essentially 

going to investors instead of banks to obtain 

a loan. The airline must provide an extremely 

attractive interest rate to the purchasers of 

the corporate bonds, or the investors would 

not be attracted. This means that the cost 

of corporate bonds for airlines is probably 

greater than other types of loans. 

There is also the matter of collateral 

associated with corporate bonds. To attract 

substantial funds through corporate bonds 

today, airlines have to provide substantial 

security. This means that the bonds have 

to be backed by assets that can be easily 

liquidated in the event of default or the bonds 

need to be “convertible” into equity. That 

is, airlines can sell “convertible bonds” that, 

under certain circumstances (such as default), 

can be converted into an equity ownership in 

the business. Despite the high cost of corporate 

bonds to airlines, it is expected that this 

form of raising capital will be popular this year 

because of the credit crunch affecting banks 

that traditionally provide loans to the aviation 

sector. 

Asset liquidation 

The final method of raising capital under 

the current economic climate is through asset 

liquidation, where an airline essentially converts 

an asset into cash to fund its ongoing 

capital requirements. Airlines that own their 

aircraft can sell them to a leasing company 

and then lease back the same aircraft 

after receiving the cash value from the sale. 

Similarly, airlines can sell buildings, slots, 

non-core businesses and other assets to raise 

capital. Many carriers selected leasing instead 

of purchasing of aircraft throughout the last 

decade, meaning airlines don’t have aircraft 

to sell and lease back. 

Increasingly, therefore, airlines are selling 

other assets such as their headquarter 

buildings, hangars and similar “hard” assets 

to fund their cash requirements. Similarly, 

airlines are liquidating non-core businesses. 

For example, airlines are selling their maintenance 

facilities, catering facilities, airport 

ground handling companies and even distribution 

companies to generate cash resources. 

Ultimately, the sale of assets can reduce 

the value of the airline’s balance sheet and 

may make the airline even less attractive to 

lenders in the future. Furthermore, assets 

today have a lower value than in many years. 

Because there is a lack of liquidity, assets are 

selling for rates that are much below their 

notional value. So, an airline that liquidates 

assets today may, in fact, be selling these 

assets for very little compared to their intrinsic 

value. This means that asset liquidation is 

pretty much the last resort for most airlines 

for raising capital. Nonetheless, as airlines 

“go to the wall,” they will increasingly sell 

assets throughout 2009 to fund their immediate 

capital needs. 

The industry outlook for capital-hungry 

airlines doesn’t appear to look very promising. 

The current economic crisis, which airlines 

can’t control, is affecting capital availability, 

and airlines are struggling to meet their obligations. 

There is some good news inherent in 

this situation, however. 

First, the carriers that restructure to 

become leaner organizations will solve many 

of their long-term structural issues and ensure 

that their unit costs are low enough to compete 

effectively. The survivors are going to be 

much stronger and more resilient than what 

is currently observed throughout the industry. 

The survivors will arise from this financial 

quagmire stronger, more profitable and better 

able to weather future economic downturns. 

More importantly, however, these survivors 

won’t have to wait very long. 

Airlines are the first businesses to feel 

the impact of an economic downturn. They 

are also, however, the first businesses to 

improve and lead the way out of a recession. 

This is because airlines are an economic 

enabler. Companies that have tightened all 

discretionary costs then have to turn to their 

revenue performance. To increase their revenues, 

most businesses have to travel to meet 

existing and new clients. Therefore, travel 

picks up ahead of most other industries. 

In the past, airlines have typically demonstrated 

recovery two calendar quarters 

before most other business sectors. Renewed 

growth in the aviation sector will allow more 

capital availability to airlines, which will then 

further stimulate the recovery of the real 

economy. While this will be another challenging 

year, airlines worldwide will likely experience 

relief from this financial crisis by the end 

the year. a

Saving 

The Pie 

Choosing the right cooperative agreements 

helps airlines compete without “getting their 

collective lunches eaten.” 

By Lynne Clark, Ascend Staff and 

Thomas Bertram and Philip Wang, Ascend Contributors


In their book, “Co-Opetition,” authors 

Adam Brandenburger and Barry Nalebuff 

say co-opetition “explains how to compete 

without destroying the pie and how 

to cooperate without getting your lunch 

eaten.” 

It’s fair to say that since the dawn 

of the 21st century, economic conditions 

have nibbled away at the pie known as the 

airline industry. From 2001 to 2005, network 

carriers lost more than US$33 billion, while 

four of them entered and exited bankruptcy. 

More recently, in 2006 and 2007, the airline 

industry returned to modest profitability only 

to confront rapidly increasing fuel costs and 

renewed losses last year. 

The recent economic downturn and the 

long-term downward trend in fares create a 

challenging environment for revenue generation 

that has even affected previously immune 

low-cost carriers. In January, Southwest 

Airlines reported a net loss of US$56 million, 

compared with a profit of US$111 million a 

year earlier. 

Macroeconomic troubles — such as the 

recent tightening credit market and housing 

slump — have generally served as early indicators 

of reduced airline passenger demand. 

These are the challenges that have spurred a 

wave of airline partnership agreements with 

one objective in mind — to achieve sustainable 

profitability without partner entities getting 

their collective lunches eaten. 

Sustained profitability depends on a 

carrier’s ability to increase revenues and 

reduce costs. And one of the most effective 

ways to increase revenue and reduce cost is 

cooperation with other carriers. Cooperation 

among airlines comes in many forms, and the 

benefits include: 

Network expansion with minimal or small 

resource investment, 

Increased airline presence in regions not 

located in their home market, 

Incremental revenue support for specific 

markets that cannot be profitably served by 

the airline alone, 

Higher volume interline sales through 

shared Internet and open-systems opportunities, 

Preferential screen display through global 

distribution systems and Internet channels, 

Reduced network costs by higher utilization 

of resources, 

Increased passenger loyalty. 

complexity Drives Partnership type 

Airline partnerships are defined by their 

degree of complexity, cohesiveness, potential 

benefits and strategic impacts. An interline 

ticketing agreement can be a multilateral 

or special proration agreement, depending 

on whether the International Air Transport 

48 ascend 

Association standard proration or special proration 

is used. 

Even though frequent flyer program 

cooperation is often agreed to along with 

codeshare or alliance agreements, carriers 

sometimes enter into this kind of partnership 

without a codeshare or alliance program in 

place. Codeshare agreements come in many 

different types including block seats, free sale 

or tactical-level joint ventures. The alliance 

can be regional or global. A joint venture is 

the highest level of inter-airline partnership in 

terms of cohesiveness but not necessarily in 

scale and complexity compared to entering a 

large global alliance. 

Carriers must have well-defined priorities 

before deciding the type of agreement 

that matches the outcome they most desire. 

Agreements are either tactical or strategic 

and accomplish different goals including: 

Maximizing profit, 

Maximizing revenue, 

Maximizing growth, 

Minimizing cost, 

Minimizing implementation efforts and 

investment. 

Generally, tactical types of partnerships 

generate quicker results but have smaller 

impacts with less effort. Strategic partnerships 

have larger and more long-term impacts. 

But the implementation of strategic partnerships 

takes longer to implement, requires 

more capital and effort, and poses bigger 

challenges and risks. 

For example, if an airline’s top priority 

is to maximize profits quickly, joining a global 

alliance may not be the best choice. Instead, 

the airline should consider implementing a 

partial network codeshare with separate airlines 

that target underperforming sectors. 

In deciding potential partners, airlines 

will use industry data, such as market information 

data tapes, and decision-support tools, 

such as the Sabre ® AirFlite Profit Manager, 

to estimate the effect of linking up with different 

carriers. It is impossible to forecast the 

profitability of a comprehensive codeshare 

using a spreadsheet or simple forecasting tool. 

Airline partnerships are defined by their degree of complexity, cohesiveness, 

potential benefits and strategic impacts. Interline ticketing agreements represent the 

simplest level of cooperation, and joint ventures are the most cohesive and complicated. 

Mergers, combining two entities into one, are beyond the scope of cooperation.

compatibility considerations 

Once the potential partnership type 

is identified, airlines should examine how 

well they will work in conjunction with one 

another. Three key areas for evaluation 

include: 

1. Network compatibility, 

2. Business compatibility, 

3. System compatibility. 

To examine these issues, decision 

makers should evaluate potential partners 

by asking several questions in each of the 

key areas: 

Network compatibility 

Coverage — Will the partnership enlarge 

market reach to meet the demand? 

Connectivity — How well will flights connect 

at hubs of all partners? 

Capacity share — Will the joint capacity 

dominate the local trunk market? 

Business compatibility 

Service levels and branding — If the partner 

is a low-cost carrier, does its services 

match those of a premium carrier or vice 

versa? 

Corporate culture — How entrenched is 

the culture, and how easily will it accommodate 

a partners culture? 

Products — What cabin classes, in-flight 

services and frequent flyer programs 

does the potential partner offer? 

Financial stability — Is the airline willing 

to take on a troubled partner? What will 

it cost? 

system compatibility 

Reservations and ticketing systems — 

Does the partner system enable free sell 

and interline e-ticketing? 

Revenue accounting system — Can the 

potential partner handle the type of interline 

billing system the operating carrier 

handles? 

Check-in systems — Can the potential 

partner handle interline through checkin? 

Web sites — Does the partner system 

have the ability to display, reserve and 

ticket codeshare flights and multi-leg 

interline itineraries in top travel portals 

and partner Web sites? 

When integrating information technology 

systems with other carriers, the 

key is to use the right systems that work 

well and directly impact the customer. The 

primary integration point is with the passenger 

services systems. A reservation 

made by a marketing airline must be present 

in the inventory from the operating carrier’s 

system. Items such as frequent flyer 

traveler numbers, seat assignments and 

special service requests need to be present 

and synchronized in both the operating 

and marketing carriers’ systems. The best 

method for doing this is using one of the 

four industry standard codeshare options 

that have been developed for electronic 

communication between airline reservations 

systems. The other best practice from 

a customer perspective is frequent traveler 

miles. Best practice is to consistently send 

data feeds to and from loyalty systems. 

Newer and more open systems also 

help attract partners because the implementation 

will be easier, faster and less 

expensive. These types of systems also 

often mean more sales opportunities and 

better customer service. 

revenue sharing 

Once a potential partner is analyzed, 

it should be determined how revenue will 

be shared. Rather than using the standard 

IATA prorate methodology, most airlines 

in a codeshare arrangement will create a 

HiGHlight 

It’s fair to say that 

since the dawn of the 

21st century, economic 

conditions have 

nibbled away at the 

pie known as the 

airline industry. 

special prorate agreement with their partner 

carrier. This enables more flexibility 

in determining how the revenue will be 

split among partners. An analysis of an 

SPA should take into account the potential 

new traffic from the codeshare and the 

potential displacement of passengers and/ 

or revenue on the existing flights. 

The key to success in setting up an 

SPA is that there is fairness and balance. 

An airline needs to balance the potential 

revenue displacement of carrying a codeshare 

passenger in a busy market with 

the additional opportunity of adding an 

additional codeshare passenger in a more 

lightly traveled market. In short, SPAs need 

to be beneficial to both partners. 

Once the SPA has been finalized, the 

next step is to determine how the booking 

classes will be aligned between the carriers. 

Each operating carrier is responsible 

for managing its own inventory, so when 

the marketing carrier requests a seat on 

the operating carrier, the operating carrier 

needs to know how to tell the marketing 

carrier if the seat is available or not. 

The process is handled using translation 

tables set up in the reservations 

system. Each operating carrier reviews the 

prorate agreement to determine where it 

will point the marketing carrier’s booking 

classes to its own. Ideally, the revenue 

received by the operating carrier in a booking 

class from the codeshare passenger 

should be the same as the revenue the 

operating carrier would expect from its 

own customers. 

effect on the traveling Public 

Generally, airline agreements have 

a positive impact on the traveling public. 

Passengers have more choices of flights 

and itineraries to reach the same destination. 

If the partnership does its job, 

travelers will find a seamless integration 

between carriers from booking to check-in 

to post-flight services. 

While partnerships get the kinks out, 

however, travelers may be confused by different 

flight numbers for the same flights 

displayed on airport screens and heard in 

announcements. In addition, frequent flyer 

numbers may not be automatically credited 

by partners, and passengers may have 

to manually fax the document to partner 

airlines. 

However, airline executives are betting 

that customers will endure the shortterm 

hardships when they realize the result 

will be far more travel choices within an 

alliance than they would have with an individual 

airline. 

It’s the travel choices that will ultimately 

drive more brand loyalty to both the 

airline and the alliance. a 

Lynne Clark can be contacted 

at wearelistening@sabre.com. 

Thomas Bertram and Philip Wang 

are consultants for Sabre Airline 

Solutions ® . They can be contacted 

at thomas.bertram@sabre.com 

and philip.wang@sabre.com. 

ascend 

49 

special section

50 

CLIMATE 

CHANGE 

Beginning in 2012, all airlines operating to Europe 

will be required to report CO 2 emissions and will 

have emissions limits. Airlines need to prepare now 

to ensure they comply with the new legislation. 

By Peter Berdy | Ascend Contributor

The alarm of global warming and climate 

change has taken a top spot on the 

European Union’s agenda for several years. 

The challenge has been heightened further by 

the need to upgrade the European Union’s 

power grids and energy infrastructure to replace 

aging electricity and gas networks in the face 

of soaring increases in energy demand. While 

some of the money from new E.U. directives will 

be spent on renewable energy sources, most will 

be spent on electricity produced by fossil fuels. 

This raises concerns that Europe is locking itself 

into decades of dependence on non-renewable 

fuels rather than laying the foundation for a lowcarbon 

future. 

Against the background of the economic 

slump, the European Parliament passed a new 

climate and energy package last December 

including a revised emissions trading system, or 

E.U. ETS. In addition to setting tougher targets 

to lower greenhouse gases, for the first time, 

the European Union also included aviation in 

E.U. ETS. 

e.u. emissions changes 

The recent legislation passed by the 

European Union created legally binding targets 

for the year 2020: 

Cut greenhouse gas emissions by 20 percent, 

Establish a 20 percent share for renewable 

energy, 

Improve energy efficiency by 20 percent. 

It also: 

Confirms a 10 percent target for renewable 

energy sources in transportation, 

Fixes criteria for biofuel sustainability to support 

biofuels that have no negative environmental 

impact, 

Reconfirms the European Union’s commitment 

to move to a 30 percent reduction in 

emissions if other developed countries make 

similar commitments. 

The idea behind tightening the emissions 

cap over time is that it should lead to a scarcity 

of emission allowances. (An allowance entitles 

a company to emit one ton of carbon dioxide or 

an amount of any other greenhouse gas with 

an equivalent global warming potential during a 

specified period.) This should drive up the price 

of polluting, which should then incentivize companies 

to invest in clean technologies that pay 

off within several years rather than continuing to 

purchase emissions allowances. 

emissions trading system 

E.U. ETS is the world’s largest greenhouse 

gas emissions trading system. It has been 

in place since January 2005, and now it covers 

more than 11,000 energy-intensive installations 

representing about 2 billion tons of CO2 emissions, 

nearly half of the European Union’s total 

greenhouse gas emissions. 

E.U. ETS is a “cap-and-trade” system. 

Using E.U. ETS, policy makers set a limit or cap 

ascend 

51


on their total level of CO2 emissions based on 

agreed-upon targets covering a span of several 

years (called trading periods). The targets are 

aimed at reducing global warming. 

E.U. ETS emission allowances for individual 

participants in the system (such as companies 

with polluting installations) are granted for 

several consecutive year periods. This is done 

to neutralize changes in CO2 emission levels 

that may occur due to extreme weather events 

such as harsh winters or very hot summers. The 

first trading period ended in 2007. The current 

trading period, called the second trading period, 

also corresponds to the Kyoto Protocol’s first 

commitment period, where the European Union 

is required to make an 8 percent commitment to 

reduce emissions compared to a 1990 baseline. 

During the second ETS trading period, the emissions 

cap is set at about the same levels for 

each year. 

During the second trading period, once 

the cap has been set, E.U. member states 

establish individual national allocation plans that 

determine their total level of ETS emissions. 

These plans must be approved by the E.U. 

Commission, and they show how allowances 

will be issued to participants of the system. The 

total number of issued allowances must be consistent 

with member states’ individual emission 

reduction targets under the European Union’s 

agreement for the Kyoto Protocol. 

The national allocation approach has been 

criticized and will be sunset during the third trading 

period. The national allocation approach has 

generated significant differences in allocation 

rules and creates incentives for member states 

to favor home industries. To address these problems 

and replace national allocation plans, there 

will be a single European Union-wide cap starting 

in 2013, and allowances will be allocated on the 

basis of coordinated rules. The move toward 

union-wide free allocation rules gives new E.U. 

member states the ability to auction more allowances 

for industrial installations and introduce a 

means to redistribute them. 

linking ets With other schemes 

Around the World 

The E.U. ETS also allows the use of offset 

credits from outside the European Union to help 

reduce global emissions. E.U. ETS recognizes 

credits generated by the Kyoto Protocol’s project-based 

mechanisms — Joint Implementation 

and the Clean Development Mechanism — as 

being equivalent to emission allowances. Joint 

Implementation allows companies in countries 

with a Kyoto target, namely developed 

countries, to undertake projects in other developed 

countries, which reduce their emissions 

of greenhouse gases. The Clean Development 

Mechanism allows companies in developed 

countries to implement project activities that 

reduce emissions and contribute to sustainable 

development in countries without a Kyoto target 

(developing countries). Key elements of the CDM 

52 ascend 

project include voluntary participation; achieving 

sustainable development; real, measurable and 

long-term reductions; and that the benefits must 

be “additional.” 

Linking E.U. ETS with these Kyoto mechanisms 

creates additional incentives for E.U. businesses 

to invest in emission reduction programs 

in developing countries, using environmentally 

friendly technologies to achieve sustainable 

development. 

The CDM projects are potentially eligible 

to receive credits called certified emission 

reductions, or CERs. JI projects create credits 

known as emission reduction units, or ERUs. 

The European Union recognizes these credits as 

being equivalent to emission allowances (1 EUA 

= 1 CER = 1 ERU) and allows them to be traded 

under the scheme. 

The ETS is open to linking with compatible 

greenhouse gas emission trading schemes 

with other countries that have ratified the Kyoto 

Protocol. It is foreseen that each side would 

agree to recognize allowances issued by the 

other, thereby expanding the market for emissions 

trading. 

Through the link to the Kyoto mechanisms, 

E.U. ETS facilitates investments in emission-saving 

projects in developing countries. Supporters 

of E.U. ETS also hope it can be eventually linked 

up with other carbon markets, in particular in the 

United States. 

The E.U. ETS revisions in December 

still allow the use of offset credits from outside 

the European Union, but this amount 

remains below half of the reduction effort to 

Euros per ton of CO 2 

ecx euA futures contract 

December 2009 settlement 

Jan/08 

Feb/08 

Mar/08 

Apr/08 

May/08 

Jun/08 

Jul/08 

ensure a sufficient level of emission reductions 

take place inside the European Union. 

compling With e.u. ets 

ETS participants with polluting installations 

must have a permit from their national 

authority for emissions of greenhouse gases 

controlled by the Kyoto Protocol. They must also 

be able to demonstrate they can monitor and 

report emissions to obtain their permit. A permit 

is different from emissions allowances. A permit 

sets out the emissions monitoring and reporting 

requirements for an installation, whereas allowances 

are the tradable unit. 

Participants that are required to participate 

in ETS receive emission allowances from their governments. 

These allowances total to the member 

state’s national level. Participants are given the right 

to emit CO2 volumes at facilities in these countries 

up to a level specified each year. At the end of 

each year, participants must surrender allowances 

equivalent to their emissions. A certain number of 

allowances are given free of charge, allowing levels 

of CO2 emissions to occur without any cost. 

To meet their emissions requirements, participants 

may buy and sell allowances with others, 

and liquid markets have developed to facilitate this 

trading activity. Participants can engage in trading 

credits by purchasing and selling allowances. One 

allowance gives the holder the right to emit one 

metric ton of CO2 or the equivalent amount of 

another greenhouse gas. The cap on the total number 

of allowances creates value in the market. 

At the end of each year, participants are 

required to ensure they have enough allowances 

Aug/08 

Sep/08 

Oct/08 

Nov/08 

Dec/08 

Jan/09 

Feb/09 

emissions futures contracts are traded on several exchanges and can be bought and sold by 

anyone. the contracts can be purchased to pay for shortages when a participant in e.u. ets 

pollutes above its allowance. A futures contract gives the holder the right to buy or sell an 

e.u. allowance at a certain date in the future and at a preset price. ecx euA futures contracts 

allow participants to lock in prices for delivery of carbon emission allowances for future dates.

to account for their actual emissions. They have the 

flexibility to buy additional allowances on the open 

market, and they may sell any excess allowances 

generated from reducing their emissions below 

their allocation. Participants that have not produced 

enough allowances to cover their emissions have 

to pay a fine of €100 (US$133) per ton for each 

excess ton emitted. This process becomes an 

incentive to reduce emissions such as investing 

in more efficient technology or using less carbonintensive 

energy. 

Participants are required to monitor and 

report emissions according to a plan approved by 

the regulator of each member state. After each 

calendar year, participants must surrender allowances 

equivalent to their verified CO2 emissions 

in that year. These allowances are then cancelled 

so they cannot be used again. Participants with 

surplus allowances can sell or save them for next 

year (within one trading period). 

Participants must report their CO2 emissions 

after each calendar year following E.U. monitoring 

and reporting guidelines. These reports have to be 

checked by an independent verifier using criteria 

in the ETS legislation. Participants with emission 

reports that are not verified as satisfactory are not 

allowed to sell allowances until a revised report is 

approved by a verifier. 

the carbon Market 

The buying and selling of allowances takes 

place on an open market, providing a flexible 

means for participants to comply with their emissions 

requirements. 

Participant companies can cost-effectively 

manage their emissions where emission allowances 

can be traded in the marketplace. 

Companies can access the market to buy 

allowances to meet their compliance requirements 

or to sell surplus allowances in several ways: 

Trade allowances with other companies in the 

system, 

Buy or sell allowances from intermediaries 

(banks and specialist traders), 

Use a broker to find other buyers and sellers of 

allowances, 

Join one of the exchanges that list carbonallowance 

products. 

E.U. ETS does not specify how or where 

trading in allowances should take place. Companies 

and other participants in the market trade directly 

with each other or buy and sell via a broker, 

exchange or any other type of market intermediary 

that has sprung up to take advantage of this 

significant new market. 

A whole range of new businesses has 

emerged in Europe as a result of the E.U. carbon 

market: carbon traders, carbon finance and carbon 

management specialists, and carbon auditors and 

verifiers. New financial products such as carbon 

funds have entered the market as well. 

The size of emissions trading is impressive. 

In the first half of 2008 versus the first half of 2007, 

the global emissions market grew more than 40 

percent, worth around €38 billion (US$50 billion). 

E.U. ETS comprised 70 percent of that global 

market. 

The carbon market itself was worth about 

€89 billion (US$118 billion) last year, up 84 percent 

versus 2007. The carbon market for 2009 is 

projected to be €113 billion (US$150 billion), up 

27 percent from last year, according to a report by 

London-based firm New Carbon Finance. 

Growth in the carbon marketplace during 

2008 came from higher carbon prices and greater 

transaction volume — about 4 billion emissions 

permits changing hands, 42 percent more than 

in 2007. Trade in European Union allowances, or 

EUAs, accounted for €71 billion (US$94 billion), or 

about 80 percent of the overall total. 

The EUA futures contract on the European 

Climate Exchange peaked at about €30 (US$40) in 

July, before recessionary pressure brought prices 

down to around €15 (US$20) by year’s end. Prices 

have continued to drop, and they reached a low 

of €8 (US$10) in early February. These low prices 

make it more economical to build new coal-fired 

power stations than to invest in renewable energy 

and smart infrastructure. 

Including Aviation In e.u. ets 

The new legislation passed on E.U. ETS last 

December affects aviation directly in the last year 

of the second trading period (2012) and the entire 

third period, which lasts eight years, from 2013 to 

2020. During the third trading period, the cap will 

change each year to meet the target of reducing 

CO2 by 20 percent over a baseline. The starting 

point of this line is the average of allowances to be 

issued by member states for the second trading 

period, plus adjustments to reflect the broadened 

scope of the system starting in 2013. 

The legislation passed in December adds 

aviation in its greenhouse gas emissions allowance 

within the European Commission. The reason for 

including aviation in E.U. ETS is because total E.U. 

greenhouse gas emissions fell by 3 percent from 

1990 to 2002, while emissions from international 

aviation in the European Union increased by almost 

70 percent. Aviation has grown at high rates relative 

to other sectors, putting CO2 emissions from 

airlines on the charts. 

Even though there has been significant 

improvement in aircraft technology and operational 

efficiency, this has not been enough to neutralize 

the effect of increased traffic, and the growth in 

emissions is projected to continue. Within Europe, 

commercial aviation is expected to double by 

2020. 

To address these problems, the European 

Union will pursue three complementary streams 

related to aviation: research and development for 

“greener” technology, modernized air traffic management 

systems, and market-based measures, 

namely ETS. 

research And Development for 

greener technology 

Joint technology initiatives, such as Clean 

Sky, are research initiatives that bring together E.U.- 

funded projects and major industrial stakeholders 

in aeronautics and aerospace to move important 

technologies closer to market. 

Modernizing Air traffic Management 

systems 

The Single European Sky legislation reforms 

the way air traffic management is organized in 

Europe. This requires a modernization of the air 

traffic management systems in Europe. The Single 

European Sky ATM Research, or SESAR, initiative 

is the technological component of Single European 

Sky. One of its objectives is to reduce emissions by 

10 percent per flight. 

The Atlantic Interoperability Initiative to 

Reduce Emissions, or AIRE, is a cooperative program 

between the European Union and the U.S. 

Federal Aviation Administration to coordinate two 

major programs on air traffic control infrastructure 

modernization, SESAR in Europe and NextGen in 

the United States. 

AIRE will make it possible to speed up 

the application of new technologies and operational 

procedures, which will have a direct impact 

in the short and medium term on greenhouse gas 

emissions. The measures include “smooth” or 

“reduced engine” approaches, which will enable 

noise and exhaust gas emissions to be reduced 

during landing. Experiments have shown substantial 

savings in fuel and CO2 and nitrogen oxide 

emissions. The European Union and the FAA have 

close involvement of partners from the industry 

such as Airbus and Boeing; airlines such as Air 

France-KLM, SAS, Delta Air Lines and FedEx; and 

aviation navigation service providers in Ireland, 

Sweden and Portugal. 

other Actions 

Other actions are being taken on renewable 

energy, such as biofuels as a renewable 

energy source for use in aviation. Renewables can 

contribute to security of supply, sustainability and 

competitiveness. A binding target of a 20 percent 

share of renewable energies in overall E.U. energy 

consumption by 2020 was agreed upon by the 

European Council in 2007, with a 10 percent binding 

minimum target to be achieved by all member 

states for the share of biofuels in E.U. transportation 

fuel consumption by 2020. 

e.u. ets starting Point for Airlines 

From 2012 on, all flights to and from 

E.U. airports will be covered by E.U. ETS. This 

includes E.U.-based airlines as well as airlines 

that are not part of the European Union. 

As with other participants in E.U. ETS, 

airlines will need to surrender emissions allowances 

for each ton of CO2 they produce. 

Airlines will also be able to apply for free allocations 

of allowances at the start of the reporting 

period by submitting verified activity data for a 

baseline year. Like other industries, airlines will 

be able to sell allowances they don’t need on 

the market. They will have to buy allowances 

if their emissions are higher or use emission 

ascend 

53 

special section


credits from clean energy projects in developing 

countries. 

In 2012, the number of emissions allowances 

allocated to aviation will be capped at 97 

percent of the baseline period. Emissions allowed 

by the European Union will be 3 percent below 

the average annual European aviation emissions 

for the baseline period of 2004 to 2006. From 

2013 and beyond, this cap will be reduced to 95 

percent below the baseline. This is based on the 

overall E.U. target of reducing emissions by 20 

percent below 1990 greenhouse gas emissions. 

Initially, 85 percent of these pollution permits 

would be handed out to airlines for free 

based on benchmarking during a baseline period, 

with the remaining 15 percent allocated by auctioning, 

where airlines will have to pay market 

rates for allowances. Unlimited auctioning would 

be introduced as of 2013. 

Airlines would also be able to buy allowances 

from other sectors, such as power generation, 

which are already covered by the E.U. ETS, to 

factor in current high growth levels in the aviation 

sector, should this occur as forecast. 

Each aircraft operator flying in or out of 

the European Union will be assigned to a single 

member state that will be responsible for ensuring 

compliance with the requirements of the 

legislation. Member states will be responsible 

for the aircraft operators to which they issued an 

operating license and for the aircraft operators 

whose emissions in 2006 were mostly attributable 

to that member state. 

The list of airlines and operators was 

released in February and was developed along 

with EUROCONTROL, the international organization 

responsible for European air traffic manage- 

Millions of Tons of C0 2 

ment. The commission will update the list by 

February each year to include aircraft operators 

that have subsequently performed an aviation 

activity as defined in the legislation. 

National oversight means that countries 

with busiest airports, such as Britain, France and 

Germany, are likely to prosper the most. Britain 

would oversee almost 800 carriers and operators 

of corporate flights. This includes American 

Airlines, United Airlines and Emirates, as well as 

Wal-Mart. France would oversee more than 500 

carriers and operators including FedEx and the 

Coca–Cola Company. Germany would oversee 

almost 400 carriers and operators including Delta 

Air Lines and UPS. 

Airline Monitoring, reporting And 

verification 

Monitoring, reporting and verification are 

crucial to the functioning of the E.U. ETS and key 

to its environmental effectiveness. 

There are two important elements to 

monitoring, reporting and verification for aviation’s 

inclusion in the E.U. ETS: 

MRV of ton-kilometer data — When airlines 

apply for their free allowances, they will have to 

submit verified ton-kilometer data for their aviation 

activities for a reference year. To apply for 

free allowances before 2012, operators need 

to monitor their ton-kilometers in the benchmark 

year 2010. The amount of allowances for 

2012 will be established at 97 percent of this 

baseline using applications of airlines in 2010. 

Operators need to submit their monitoring plan 

by July 2009 to cover 2010. The monitoring 

plan needs to be approved by the administering 

member state’s regulating authority. This is the 

verified c02 emissions from ets Installations 2005 

Aviation emissions are comparable to other e.u. ets sectors with the exception of combustion 

installations such as utilities, which produce much higher levels of co 2 emissions. 

54 ascend 

Other 

only time to submit ton-kilometer data, and the 

only reason to do so is to apply for free allowances. 

MRV of annual emissions — Throughout each 

compliance year, airlines will have to monitor 

their emissions and then submit a verified 

emissions report at the end of the year. Based 

on these verified emissions reports, airlines 

must surrender allowances to cover their emissions. 

timeline 

Now that the legislation has been adopted, 

the European Union recently published a preliminary 

list of airlines and their administering member 

states. Guidelines on monitoring, reporting 

and verification should be published by mid year. 

By the second half of the year, airlines 

must submit monitoring plans to their administering 

member state’s authority. To get free 

allocations during the first year, each airline must 

submit its plan to monitor its ton-kilometer data 

by mid-2009. Approved monitoring will then be 

implemented in 2010. By March 2011, airlines 

need to apply to their member state authority to 

obtain free allocation. They will do this by submitting 

their verified ton-kilometer data for 2010. 

By September 2011, the European Commission 

will calculate the allocation benchmark using the 

2010 verified data. This data will establish how to 

allocate allowances among various operators that 

they will use during 2012. By the end of 2011, the 

European Commission should publish allocation 

of free allowances. Then the trading period for 

airlines will start in 2012. 

The International Air Transport Association 

said the system will cost the industry at least 

€3.5 billion (US$4.4 billion) each year to comply. 

In addition, there is no certainty the money collected 

by governments would be used to combat 

climate change. 

“There is no requirement to invest the 

money in the environment,” an IATA spokesperson 

told the International Herald Tribune in 

February. “Governments have carte blanche to 

put the money towards the general collection.” 

Whether applying E.U. ETS on aviation will 

make airlines actually reduce CO 2 is to be determined. 

Technology improvements and reductions 

in capacity are already underway, without E.U. 

ETS. Overflying the European Union is an option 

as well. Otherwise, airlines will simply have to pay 

the price of emissions and will likely pass the cost 

to consumers. a 

Peter Berdy is a consultant for Sabre 

Airline Solutions ® . He has written about 

transportation emissions and developed 

the company’s enterprise-wide emissions 

models for air, car, hotel and rail. He can 

be contacted at peter.berdy@sabre.com.

Red Flags And Flowers 

By Peter Berdy | Ascend Contributor 

As with all controversial legislation, the revisions 

to E.U. emissions trading system have brought 

forward vocal opponents and proponents. 

Environmental organizations have been 

lobbying for a focus on renewable energies 

and energy efficiency in the transition to a lowcarbon 

economy. Industries are calling for the 

development of a firm legislative framework to 

safeguard future investment in cleaner energies, 

as well as phase out subsidies for inefficient 

plants, appliances, vehicles and buildings, 

and for fossil fuel use and nuclear power 

installations. 

Proponents of renewable energies and 

other clean technologies argue the moment is 

ripe for a paradigm shift, where the entire energy 

system, including key infrastructures, needs 

to be re-examined. The European Renewable 

Energy Council believes the renewables sector 

could deliver more than 20 percent of the 

European Union’s energy needs by 2020 if 

member states continued to invest in new 

technologies. 

Opinions on the topic of aviation emissions 

trading run the gamut, and several officials, 

from government agencies to standalone 

organizations, have no reservations about 

standing by their convictions and beliefs. 

“the long-term stable framework is 

key for future development.” 

— EREC Secretary General Christine Lins 

“A very substantial investment (public 

and private) will be required to progress 

toward the 20 percent greenhouse gas 

emission reduction target.” 

— European Commission Energy and Transport 

“A massive clean technology push 

will create ‘thousands of new businesses 

and millions of jobs in europe.’” 

— E.U. Executive President José Manuel Barroso 

“recent fallout in global financial markets 

has raised doubts whether a recession is 

the right moment to spend huge sums on 

clean technology investments that may only 

pay off in several years’ time, rather than 

spending on short-term stimulus and job 

preservation programs. too stringent a co2 

reduction regime would not make sense in 

light of competitiveness and employment 

concerns.” 

— German Chancellor Angela Merkel 

“there is a fundamental tension 

between using international trading in the 

ets to lower the cost of meeting the e.u.’s 

targets and expecting the ets to send sufficient 

price signals to drive the low-carbon 

power investment needed to reach the 

e.u.’s objectives.” 

— Nick Mabey, founding director of British 

think tank E3G and former U.K. Prime 

Minister’s strategy unit advisor 

“the e.u.’s renewable energy directive 

creates a positive investment climate 

for a more long-term development of its 

industries.” 

— The European Solar Thermal Industry Association 

“the directive would allow the wind 

power industry to expand to meet an 

increasing share of european electricity 

needs.” 

— The European Wind Energy Association 

“Auctioning emissions allocations will 

both generate revenues for governments and 

are also needed to address climate change. 

for example, last November, the u.K. government 

held its first auction in the e.u. 

ets. More than 4 million allowances were 

auctioned at a price of ₤16.15 (us$24) raising 

₤54 million (us$80 million) and were 

four times oversubscribed. Auctioning 

is viewed as more efficient than giving away 

allowances for free. Auctioning ensures 

businesses take into account the cost of 

carbon and creates incentives to change 

behavior and reduce energy consumption. 

“the new e.u. legislation indicates 

that this revenue source should be used to 

tackle climate change and suggests that 

member states should now use at least half 

of their auctioning revenues on measures 

to combat climate change. unfortunately, 

this is not obligatory.” 

— U.K. Department of Environment, Food and 

Rural Affairs 

E.U.’s CO2 Emissions 

Guidelines for Res 

Systems 

The European Union has issued CO2 

emissions guidelines for all types of reservations 

systems. Although there is no specific 

requirement to provide information about CO2 

emissions to passengers, the European Union 

encourages this practice. 

“CRS should be encouraged to provide 

in the future easily understandable information 

about CO2 emissions and fuel consumption of 

the flight,” the European Parliament stated last 

September as part of the code of conduct for 

computerized reservations systems in relation 

to CO2 emissions. “This could be shown via 

average fuel consumption data per person in 

litre/100km and average CO2 emissions per 

person in g/km and could be compared with 

data of the best alternative train/bus connection 

for journeys of less than five hours.” 

ascend 55 

special section

Hedging Your 

(Jet Fuel) Bets 

Many carriers exercised fuel hedging opportunities and came 

out on top during the last few years when oil prices shot 

through the roof. But those who hedged too far into the 

future are paying a pretty severe price today.. 

By Shane Batt | Ascend Contributor

From January 2005 until last September, 

jet fuel was the single biggest expense 

of any airline. It was a larger expense 

than maintenance, passenger service and 

even the costs of labor. Before 2005, fuel 

prices were 10 percent to 15 percent of an 

airline’s operating costs. Since January 2005, 

fuel prices have fluctuated between 25 percent 

and 40 percent of an airline’s operating 

costs. Then, in September, the price of jet 

fuel began to fall rapidly in line with the cost 

of crude oil on the world market. 

In mid-July, crude oil reached a peak 

of US$147 a barrel for Brent Crude, but just 

eight weeks later, oil was selling for less 

than US$60 a barrel. In September, the price 

of crude oil dropped even further and earlier 

this year fell below US$35 a barrel. 

Given the significant dip in jet fuel, 

airline chief financial officers should be 

extremely pleased that their highest single 

expense has dropped by about 70 percent, 

right? Well, it’s not a simple “yes” because 

many airlines had engaged in fuel hedging 

and had “bet” on the wrong expectation 

that crude oil prices would continue to be 

high. When crude oil prices dropped, many 

airlines that were highly hedged lost a great 

deal of money. 

While fuel price was a major driver of 

last year’s poor aviation financial performance, 

fuel hedges are a major driver of poor aviation 

financial performance this year. 

The impact of fuel hedging is even more 

bizarre than it sounds. If an airline had strong 

financial performance and good credit in 2008, 

then it engaged in good risk management and 

hedged fuel with a strong hedging policy that 

protected against the rise of fuel prices. This is 

what “good” airline CFOs did to protect their 

financial performance. 

Airlines with poor financial performance 

and insufficient credit lines could not afford to 

hedge fuel, so they carried a great burden of 

risk. The CFOs of these “poor” airlines worried 

about the viability of their businesses as 

fuel prices skyrocketed because they had little 

protection against the unbridled rise of their 

largest expense. This was also reflected in the 

profit and loss of the airlines and in their share 

prices if they were publicly traded. 

Strong hedging airlines, such as 

Southwest Airlines, made millions of dollars 

of profit from their hedging positions last year. 

Similarly, airlines with strong hedging policies 

saw their share prices retain value in a highly 

volatile market because their risk management 

portfolio was strong. All prudent CFOs who 

had available capital or credit facilities invested 

in fuel hedges during 2008 for their 2009 

and even 2010 fuel requirements, carefully 

protecting for the expectation that crude oil 

would continue to rise … even above US$200 

a barrel. 

Much to the happiness of consumers, 

the CFOs that hedged against fuel price 

increases were wrong. So, the “good” airlines 

with strong financial performance and good 

credit lines have lost large amounts of money 

on their hedges, while the struggling airlines 

that were unable to afford fuel hedges have 

“won” because fuel prices have dropped by 

about 70 percent. The “good” airlines are taking 

large reductions in their profits, while the 

“poor” airlines are improving their profitability. 

This is one of the great reversals in financial 

performance in the history of aviation. Since 

fuel hedging will have such a large impact on 

airline financial performance this year and next, 

it is important to understand more about it. 

Some CFOs would now call fuel hedging 

“gambling” because of their current plight, but 

this is not really an accurate definition of the 

process. Fuel hedging is a form of risk management 

designed to protect against the fear 

of volatile fuel prices. When oil is perceived to 

be increasing, then fuel hedging becomes an 

During the last couple of years, when fuel prices climbed to astronomical levels, fuel accounted for 25 percent to 40 percent of an airline’s 

operating expense, up from 10 percent to 15 percent prior to January 2005. those that weren’t in a financial position to leverage fuel-hedging 

opportunities suffered tremendously, while others didn’t survive. 

ascend 


57 

special section


58 

important way to protect an airline’s financial 

performance. 

Airlines can hedge many different commodities. 

For example, most airlines hedge 

“JetKero,” which is kerosene used as jet fuel. 

Similarly, however, airlines can hedge crude oil 

or hedge the “crack spread” — the difference 

in price per barrel of crude oil and the price 

per barrel of a commodity such as JetKero. 

When oil is pumped from the ground at the 

well, transported, refined, stored and then 

distributed, these costs add to the price of the 

crude oil and affect the price of end products 

such as JetKero. 

This difference in price is reflected in the 

crack spread. In addition, the demand for end 

products, such as petrol, fuel oil and heating 

oil, all vary throughout the year, adding further 

volatility to the crack spread. 

Just in terms of the commodities, airlines 

have a choice of hedging JetKero, crude 

oil or the crack spread. Commodity hedging is 

only part of the hedging story, however. Since 

most of the costs of an airline are in U.S. dollars 

(jet fuel, aircraft purchases and leasing, 

and most maintenance costs), airlines outside 

of the United States or even U.S. carriers with 

large expenses outside of the United States 

also need to consider hedging currency risk. 

Similarly, during volatile economic times, 

airlines need to hedge interest rate risk to protect 

against variable rate credit facilities and 

future loan requirements. Finally, carriers flying 

into the European Union increasingly need to 

consider hedging carbon credits to address 

their future expansion needs under the soonimplemented 

carbon offset program. Clearly, 

airline hedging policies are complex because 

they can involve jet fuel, crude oil, the crack 

spread, currency risk, interest rate risk and 

carbon credits. 

To make matters a little more interesting, 

there are also different forms of hedging, 

which are essentially different strategies for 

controlling financial risk. Rather than examining 

all of the forms of financial hedging, 

many of which are quite complex, it’s ideal to 

concentrate on the different forms of hedging 

related to JetKero — the most important form 

of hedging for most airlines. There are three 

principal forms of JetKero-hedging financial 

instruments: 

Self hedging — When an airline purchases 

JetKero at a particular price in the amount 

that the airline will consume, 

Fixed-price risk hedging — When an airline 

hedges against a specific future price of 

JetKero, 

Floating-price risk hedging — When an airline 

hedges against a volatile floating price 

of JetKero. 

Self hedging is the simplest form of 

jet-fuel hedging for an airline. With this type of 

hedging, an airline pays a fuel supplier a fixed 

price for the future delivery of a percentage of 

the airline’s jet fuel needs. The airline is said 

to “swap” the volatile fuel price for a fixed 

price that is known. Thus, self hedging is also 

known as a “simple JetKero swap.” 

Frequently, airlines will make public 

statements such as, “65 percent of our fuel 

needs for 2009 are hedged at US$85 a barrel.” 

Simply stated, this means that the airline has 

agreed to buy 65 percent of its expected 2009 

consumption of fuel at the price of US$85 

a barrel for JetKero. The requirement for 

most airlines to be experts at hedging really 

originated with the rise of fuel prices in late 

2004. Therefore, most small- and mediumsized 

airlines with hedging policies use this 

basic approach, which is also the one that has 

the biggest downside risk from a drop in fuel 

prices. 

During the U.S. summer of 2008, simple 

JetKero swaps reached US$180 a barrel. A 

carrier that locked in a significant portion of 

its 2009 consumption in July 2008 at US$180 

In eight short weeks, beginning last July, crude oil plummeted from a high of us$147 a barrel for Brent crude to less than us$60 a barrel. 

And while the dip brought much-needed relief to many airline cfos around the world, those who participated in long-term hedging, counting 

on the oil prices to continue to climb, have taken a significant loss. 

ascend 

Photo by shutterstock.com

a barrel would be paying US$128 a barrel of 

jet fuel premium over the current (early this 

year) jet fuel spot price of US$52 a barrel. 

(Remember that the price of jet fuel is always 

higher than the price of crude oil by the amount 

of the crack spread.) Luckily, most airlines 

were very wary about buying US$180 a barrel 

simple JetKero swaps last July. Nonetheless, 

several airlines now suffer from having locked 

in simple JetKero swaps at US$105 a barrel to 

US$135 a barrel. 

Most airlines are still imposing fuel 

surcharges today, despite the low cost of jet 

fuel on the open market, precisely because 

they have simple JetKero swaps that are 

significantly higher than the current market 

price of jet fuel. Meanwhile, “poor” airlines 

that could not hedge last year are able to 

lower and even eliminate fuel surcharges at 

the expense of their competitors. 

Larger airlines have a longer track 

history of fuel hedging, so they frequently 

use the more sophisticated fixed-price risk 

hedging strategy, where the airline is not 

fixing its price for fuel, it is protecting itself 

against a rising (or falling) fuel price. The 

airline buys a financial instrument called a 

“fuel future” that allows it to buy fuel in 

the future at a “strike price.” Fuel futures 

are essentially insurance policies and are, in 

fact, handled by financial institutions instead 

of fuel suppliers. 

For example, an airline could buy a 

fixed-price risk hedge for a strike price of 

US$100 a barrel and might pay about US$10 

a barrel for this hedge. If the price of jet fuel 

subsequently went up to US$120 a barrel, 

then the airline would exercise the hedge 

to buy fuel at the strike price for US$100 a 

barrel. The airline would thus pay the strike 

price plus the cost of the hedge (US$10 a 

barrel) for an effective maximum price of 

US$110 a barrel, even though jet fuel was 

selling on the open market for US$120 a 

barrel. 

Using the same hedge (strike price = 

US$100 a barrel for a hedge cost of US$10 

a barrel), if the market price for jet fuel 

drops to US$80 a barrel, the airline would 

not exercise the hedge against the strike 

price and would pay an effective US$90 a 

barrel (US$80 a barrel at market price plus 

US$10 a barrel paid for the hedge). Using 

this hedging strategy, an airline could limit 

its exposure to rising jet fuel prices while 

not being overly hurt in the event that fuel 

prices dropped. Also, the airline could limit 

its exposure even more by watching fuel 

and fuel future prices and selling its futures 

accordingly. 

For example, if fuel prices are increasing, 

then the value of the future increases 

as well. So, if the airline bought futures for 

more than its required consumption, it could 

buy fuel at the strike price to meet its needs 

and sell the remaining fuel futures at a profit. 

However, if the airline bought futures at a 

level greatly exceeding its consumption and 

the price of fuel dropped below the strike 

price, then the carrier’s average price paid 

per barrel would increase to cover the market 

price plus the non-exercised hedges. 

This may sound like a more complicated 

approach to risk management — and 

it is — but large carriers with strong financial 

managers could afford to mitigate their 

risks in this more sophisticated fashion. 

Fuel futures are an asset, so fixed-price risk 

hedging not only affects the profitability of 

the airline (profit and loss), it also affects the 

balance sheet of the airline. 

The last type of fuel hedging, floatingprice 

risk hedging, is the most sophisticated 

form of commodity hedging, but will gain 

substantial utilization this year because of 

uncertainty about world fuel prices. While 

fuel prices are low today because of the current 

economic crisis, most airline CFOs are 

uncertain about the impact of world events 

on jet fuel prices. 

The Organization of the Petroleum 

Exporting Countries, or OPEC, is imposing 

production quotas to drive up crude oil 

prices, there continues to be wars in regions 

that produce crude oil and terrorism is still 

a worldwide concern. All of these issues 

could cause a rapid increase in crude oil 

prices with an associated impact on jet fuel 

prices. A floating-price fuel hedging is a risk 

management strategy that protects against 

rising and falling jet fuel prices concurrently. 

When an airline purchases a floating-price 

risk hedge, it buys an insurance policy that 

will protect it against a wildly fluctuating 

price that either goes very high or very low. 

An example of this type of swap can be seen 

in a recent quote for Singapore delivery of 

JetKero between February and December 

for US$57 to US$90 per barrel. This floatingprice 

risk hedge would cost an airline about 


For reference, the fixed-price risk 

hedge for 2009 delivery was concurrently 

US$69 a barrel at a hedge price of US$9 

a barrel. The US$57 to US$90 per barrel 

floating-price risk hedge states that the 

strike price for fuel is US$57 a barrel with 

unlimited protection at market prices above 


An airline buying this hedge could 

watch fuel prices carefully and use this hedge 

to manage its downside and upside risk. For 

example, if the price of fuel throughout the 

remainder of the year stays below US$57 a 

barrel, the airline would pay the market price 

plus US$16 a barrel. This would be a higher 

price than would be paid for the unexercised 

fixed-price risk hedge of market price plus 

US$9 a barrel. In fact, the floating-price risk 

hedge would cost more than the fixed-price 

risk hedge as long as the market price stays 

below US$64 a barrel. 

Between a market price of US$64 

and US$73 a barrel, the floating-price risk 

hedge becomes more attractive than the 

fixed-price risk hedge. If the market price of 

fuel rises even higher than US$73 a barrel 

(US$57 a barrel strike price plus the cost 

of US$16 a barrel price of the hedge), the 

value of both the floating-price risk hedge 

and the fixed-price risk hedge become very 

attractive because the airline can sell the 

valuable fuel future. Because the fixed-price 

risk hedge costs less than the floating-price 

risk hedge, however, it is more valuable as 

the market price increases than the floatingprice 

risk hedge as long as the market price 

is between US$78 a barrel and US$90 a barrel 

(the US$69 a barrel strike price plus the 

US$9 a barrel price of the hedge). 

Should the market price, however, 

be more than US$90 a barrel, the floatingprice 

risk hedge becomes much more valuable 

because it has “unbounded protection” 

above US$90 a barrel. This floating-price risk 

hedge is a more complicated approach to 

risk management, but it is attractive under 

the current market conditions of possible 

high fuel price volatility. 

If last year is remembered by airlines 

as the “year of outrageous fuel prices,” this 

year may well be remembered by some 

airlines as the “year we lost our shirts with 

fuel hedges.” 

It is ironic that airlines with the best 

risk management portfolios last year are suffering 

from those decisions this year. Early 

last year, very few economists could have 

predicted the impact of the credit crunch, 

worsening liquidity and failing banks that 

would be the hallmark of the remainder of the 

year. Despite the bad results of hedging for 

some airlines during 2009, hedging of fuel, 

currency, interest rates and carbon credits 

will gain more momentum in airlines in the 

future. Airlines will either become more 

sophisticated at handling these financial 

instruments or will continue to be adversely 

affected by financial market volatility. 

The future of the airline industry may 

well be related to the level of sophistication 

that airlines can gain at financial market 

engineering from managing these hedges. 

Hedging isn’t gambling, it is, in fact, a gamble 

for airlines not to hedge. a 

Shane Batt is executive solutions partner 

for Sabre Airline Solutions ® . He can be 

contacted at shane.batt@sabre.com. 

ascend 

59 

special section

60 

Looking Back For Tomorrow 

Even in times of economic difficulty, certain carriers seem to have a knack for 

making the best of their situations. And they set the bar high for everyone. 

By Phil Johnson | Ascend Staff 

The airline industry will always pose challenges 

to carriers striving to achieve 

profitability year after year. And some of 

those challenges come in the form of adverse 

economic circumstances that no one can accurately 

predict, but everyone has to address and 

overcome. 

There was, for instance, the severe economic 

slowdown resulting from the terrorist 

attacks of 9/11, and there have been tsunami, 

typhoons and hurricanes as well as major 

worldwide or regional health scares such as 

severe acute respiratory syndrome, or SARS. 

And now, the world’s airlines face a global economic 

bloodletting — the full extent of which 

is yet to be determined. 

Nonetheless, a very select few carriers 

seem to have the ability to survive critical challenges 

… and even thrive in times of economic 

turmoil and uncertainty. 

Among those carriers, for example, is 

Southwest Airlines, which long ago established 

a standard of low-cost excellence that many 

envy but few have been able to successfully 

emulate. 

But other carriers around the world are 

blazing their own trails to success in spite of 

sometimes-adverse circumstances, and it’s 

useful to carefully analyze how they’ve done it. 

If nothing else, there may well be something 

to learn from those carriers — something that 

could prove of future value to another carrier 

during difficult times. 

Besides Southwest Airlines, some other 

carriers that have exhibited remarkable resiliency 

in spite of difficult circumstances are 

Etihad Airways, which maintains its headquarters 

in Abu Dhabi, United Arab Emirates; LAN 

Airlines, headquartered in Santiago, Chile; TAM 

Airlines, headquartered in São Paulo, Brazil; 

and WestJet Airlines Ltd., headquartered in 

the western Canadian business hub of Calgary, 

Alberta, Canada. 

WestJet, in fact, is often mentioned 

along with Southwest Airlines as a carrier that 

ascend 

has found similar success using a low-cost 

strategy. Extending the two carriers’ similarities, 

they’ve announced plans to establish 

codesharing between them (and at the same 

time, Southwest Airlines is moving toward 

codesharing with Mexican low-cost carrier 

Volaris). 

Incremental moves such as these codeshares 

(see related article on page 47), of 

course, serve to strategically extend these 

carriers’ brand reach throughout much of North 

America. And in terms of potential for growth 

under uncertain economic circumstances, the 

“incremental,” meticulously measured growth 

strategies are often the approaches that prove 

to be the wisest and most sustainable over the 

long term. 

The shareholders of public companies, 

after all, expect and demand at the very least 

an incremental return on their investments. 

And codesharing among like-minded, cost-conscious 

but highly service-oriented carriers such 

as Southwest Airlines, WestJet and Volaris 

allows these carriers to achieve incremental, 

measured growth without requiring any of 

the carriers to make a huge investment in 

infrastructure. 

Looking at the bigger picture, then, 

what are some of the common factors that 

have enabled carriers such as Etihad in the 

Middle East, LAN and TAM in South America, 

and WestJet and Southwest Airlines in North 

America to not only survive but fundamentally 

prosper, regardless of the extraordinarily difficult 

obstacles that all carriers come up against 

in challenging and volatile economic times? 

While it’s impossible to broad brush 

each carrier with single strokes that link their 

individual strategic moves to one another, 

there are some larger generalities that seem 

to be fairly common among them (as well as 

among select highly successful companies in 

every industry). 

The first characteristic of success is 

dynamic leadership. No company shines eco- 

nomically without a healthy dose of leadership 

that is inclined to think innovatively and, after 

careful and thoughtful analysis, act decisively. 

Another characteristic to be found scattered 

broadly among these successful carriers 

is a willingness to “break the mold” — even a 

historically successful mold — to achieve positive 

results by differentiating themselves from 

their competition. Just because “nobody else” 

has ever done something doesn’t mean it’s a 

bad idea. But it must still be carefully evaluated 

for financial viability — and to make sure it 

lines up with the carrier’s business model and 

service promise to its customers. And only at 

that point, the carrier may proceed, with caution, 

but also without hesitation. 

In somewhat the same vein, another 

characteristic of success is these carriers’ 

application of a “no-fear” principle — they 

appear to have no fear when it comes to doing 

what they believe is right even if it’s different 

from what the rest of the industry is doing. 

In other words, there’s no fear to venture 

into business territory that these carriers feel 

— based on their thoroughly researched and 

thought-out business assumptions — may 

prove to be very fruitful. 

A fourth success characteristic among 

these tenaciously forward-thinking carriers is 

a basic institutional awareness that nobody 

in the industry holds a “silver bullet.” This 

principle basically means there’s no substitute 

for hard work and an optimistic 

approach — service with a smile and working 

with a “fun” perspective, but the fun must 

be accompanied by an ultimate willingness 

to work extremely hard to overcome every 

obstacle and outpace every competitor. 

Fifth among these carriers’ successful 

characteristics is the ability of each carrier 

to take its situation, whatever the specifics, 

and make the best of it. It may be easy to 

complain that budgets are short and means 

are lacking, but whatever situation prevails, 

these successful carriers have managed to

turn it into an overall positive and come out 

on top. 

One more characteristic of all of these 

successful carriers is a fundamental realization 

that they live, breathe and compete each and 

every day in a service industry — and that 

industry first, foremost and always is all about 

the customer. 

“It’s a customer-centric model that 

they have been able to build,” said Kannan 

Ramaswamy, Ph.D., a professor of management 

at Thunderbird School of Global Management 

in Glendale, Arizona, who specializes in aviation 

strategy research. 

“Among the things using this customercentric 

model means is that when I am incurring 

cost, I don’t automatically assume that it 

can be passed along to the customer,” said 

Ramaswamy. “And that, in turn, means that 

even though I’m differentiating my product, I’ll 

have to keep my costs in check in order to be 

able to afford the ability to give the customer a 

good experience. In the most basic terms, I need 

to be able to give my customer more for less. 

“So this is all about the customer experience 

— and Southwest [Airlines] is a very good 

example,” he said. 

Some of the techniques Southwest 

Airlines has been able to successfully apply 

over the years — such as flying a single aircraft 

type — are aimed directly at keeping its costs 

of doing business reasonably low to be able 

to pass lower fares on to its fiercely loyal 

customers. 

Again, however, situations arise that 

affect every airline, yet every carrier doesn’t 

necessarily handle those situations advantageously. 

In that case, what’s the difference that 

opens up avenues to success? 

“As an industry, there are always challenges,” 

said James Hogan, chief executive 

officer of Etihad Airways, in a March 2007 interview 

with the Australian Broadcasting Corp. 

“There are so many factors out of our control, 

whether it’s SARS, tsunami, war, fuel.” 

All these things have presented significant 

challenges that have affected every carrier 

that operates where these factors have been 

present. And, as Hogan said, “We’re in a business 

where there are so many variables that 

can take you off track.” 

Still, Hogan, who was formerly CEO 

of Bahrain-based Gulf Air, fully realizes that 

Etihad has the ability to seize certain advan- 

Despite many serious challenges facing the airline industry during the last decade, Abu 

Dhabi-based etihad Airways stands out as being one of the world’s most prominent airlines 

that continues to weather the storm. 

Photo courtesy of Airbus 

tages if it chooses. And in a presentation to the 

Wings Club in New York City, New York, last 

September, Hogan explained the basics of the 

Etihad approach. 

“The ‘magic three’ factors of location, 

investment and vision have combined to create 

an opportunity never seen before in the 

industry,” he said. “In less than 10 years, Abu 

Dhabi, Doha and Dubai have gone from serious 

players in regional aviation to major players on 

the global stage. 

“Abu Dhabi’s location offers an ideal 

position from which to set off to the rest of 

the world, placed perfectly between East and 

West. Indeed, if you were going to launch a 

new global airline, there are few better places 

you could choose.” 

In addition to geographic positioning, 

equipment type presents another critical factor 

in Etihad’s ability to succeed year after year. 

“Another important catalyst is the investment 

we have made in new equipment — and 

particularly in the latest aircraft technology,” 

Hogan said. “The new breed of long-haul and 

ultra-long-haul aircraft make nonstop travel 

from our region to all four corners of the world 

a comfortable and convenient reality. 

“Because we are ‘new’ carriers [Etihad 

only started flying in 2003], we are able to 

invest in modern, efficient and environmentally 

friendly aircraft, with none of the ‘legacy’ 

issues affecting the more-established industry 

players today. 

“And finally, we have vision: the vision 

of Abu Dhabi’s leadership not just in creating 

a travel hub, but in developing a focal point for 

the wider aviation industry — all part of the 

ongoing effort to diversify our economy in the 

future.” 

In the same speech, Hogan addressed 

several other questions about issues Etihad 

has faced during its mounting successful climb 

to prominence. 

“Let me explode a few urban myths,” 

Hogan said. “We do not receive government 

subsidies or guarantees, and neither do we 

benefit from free or discounted airport and fuel 

costs. We hedge fuel. We borrow money from 

financial markets. There are no ‘free kicks.’ 

“Our shareholders — the investors of 

this region — demand accountability, a return 

on investment and a well-run business. And we 

have a real and genuine commercial mandate 

— a mandate that will see us break even over 

the coming years despite heavy investment in 

new aircraft and on new routes.” 

Those routes include some of the most 

exciting possibilities in the world of air transportation 

today, such as one-stop trips from 

Australia through Abu Dhabi to London, or the 

same single stop from Australia to New York. 

The globally central location of the Middle 

East — and the massive investment in aviation 

infrastructure that is occurring there — provide 

Etihad a solid foundation to achieve multiple 

ascend 

61 

special section


62 

south American carriers lAN and tAM have plowed through the industry’s many obstacles 

with powerful leadership, a strong financial foundation, a true customer focus and a sound 

service promise. 

ascend 

Photos courtesy of Airbus 

business goals, but those goals can only be 

reached through a bold determination to follow 

through. 

Likewise, TAM Airlines in Brazil and LAN 

Airlines in Chile have constructed successful 

corporate experiences based on solid management 

and innovative leadership, sound financial 

underpinnings, a customer-centric model and 

a service promise that sees these carriers 

striving to deliver genuine, memorable value to 

each and every customer on every trip. 

TAM, for example, has been the recipient 

of a steady pattern of lavish industry 

praise for superior delivery on its customerservice 

promise, which fits right in with the 

carrier’s own internally developed mandates 

that the company refers to as “pillars of 

action”: management excellence, technicaland-operational 

excellence and, quite logically, 

service excellence. 

Having won a decades-long battle 

against national carrier Varig for Brazilian 

superiority (debt-riddled Varig was bought by 

low-cost Brazilian carrier GOL Linhas Aéreas 

Inteligentes a couple years ago), TAM now 

stands as South America’s largest airline and 

has announced its intention to join the global 

Star Alliance (essentially replacing Varig, 

which was dropped from the Star Alliance in 

2006). 

And similarly to TAM, LAN has concentrated 

on setting a consistent standard of 

excellence, steadily building its brand among 

the South American countries in which it 

has sunk deep roots, and the airline effectively 

has extended its reach globally not only 

through its membership in oneworld, but 

also through codeshares with specific oneworld 

partners including American Airlines 

and British Airways. 

LAN also maintains codeshares with 

other prominent carriers such as Alaska 

Airlines, AeroMéxico and Mexicana. And, 

not insignificantly, LAN has an ongoing codesharing 

relationship with TAM — once again 

illustrating that an incremental codeshare 

strategy, partnering with like-minded, highly 

reputable companies, can be hugely beneficial 

beyond its relatively minimal cost. 

Both LAN and TAM have also established 

sound, realistic plans for a future in 

which a return to reasonable, incremental, 

measured growth is not simply hoped for … 

it’s inevitable. 

But, first things first — and in an industry 

that had already significantly downsized its 

capacity to deal with fuel prices that appeared 

to be going nowhere but up, air carriers 

in general are now positioned much more 

favorably to be able to ride out the current 

economic maelstrom that threatens to devour 

other industries. 

That doesn’t excuse any carriers from 

the necessity to think creatively and act innovatively 

— always looking toward the best

ways to bring strategic logic to bear on every 

business decision, large and small. 

“In strategy, we talk about ‘blue-ocean’ 

thinking, which is basically thinking outside the 

box,” Ramaswamy said. “This is a business 

model that says you have to be creative in 

what you offer and how you offer it. 

“And there are several questions we 

suggest companies should be asking,” said 

Ramaswamy, who has conducted extensive 

studies of several carriers including Singapore 

Airlines. “One of those questions is, ‘Where did 

we fail?’ This revolves around the fact that we 

tend to take things for granted — meaning we 

tend to believe that the drivers that drive performance 

in an industry are static. 

“We say, ‘Industry has always done A, B 

and C — so in order to succeed today, I should 

also be doing A, B and C.’ This is basically the 

‘herd’ mentality. But the important question 

we should be asking ourselves is: Are we really 

testing the assumptions? Are we evaluating the 

perceived wisdom of the industry? Or are we 

just following for the sake of following? 

“Another question is: What can we do 

without? What can we do without that my 

industry takes for granted? And at the same 

time, you ask yourself: What are some additional 

factors we can add to the mix that others have 

not thought about? 

“Here’s where Southwest [Airlines] and 

some of these other companies gained some 

key advantages in things like flight frequencies, 

offering people a low-cost fare with more flights 

and more choices in flying from Point A to Point 

B. That’s what customers want: on-time arrival, 

and the service experience you can provide. And 

in that regard, always treat your customers with 

the utmost respect. 

“Each of these elements is very critical.” 

During its three-and-a-half-plus decades of 

stellar performance, Southwest Airlines has, in 

fact, managed to create a business model that is 

universally admired not just within aviation circles 

but in the greater business community. What 

is now broadly recognized as “the Southwest 

Airlines model” is not just airline-focused, it’s 

people-focused. 

To be sure, the Southwest Airlines model 

is based on common sense — and that common 

sense, as well as ever-present good humor, has 

been easy to detect through Southwest Airlines’ 

leadership from original boss and co-founder 

Herb Kelleher through current Southwest Airlines 

CEO Gary Kelly. 

In between, Jim Parker occupied the 

Southwest Airlines CEO’s chair, and Parker has 

since written a book entitled, Do the Right 

Thing: How Dedicated Employees Create Loyal 

Customers and Large Profits. 

In a January 2008 interview with the 

Fort Worth Star-Telegram, Parker said, “It’s so 

common these days for companies to say that 

people are their most important asset. But they 

don’t really believe it, because they don’t really 

give their employees the chance to feel like 

they’re part of something meaningful. 

“That’s something we always tried to 

do at Southwest [Airlines],” Parker said. “And 

the reality is that people who enjoy their work 

are going to do a better job than people who 

don’t.” 

Parker went on to heap effusive praise 

on Southwest Airlines’ “front-line” leadership. 

“Most companies don’t really realize 

that the most critical area of leadership is the 

front line,” Parker said. “That’s where a company 

most interacts with its own employees 

and the public. 

“We always put a lot of focus on our 

front-line leaders and their understanding of 

their mission and role,” he said. “You have to 

focus on the value of the individual — at every 

level — and make it part of your culture.” 

Perhaps, then, it would be most logical 

to conclude that the real key to success of the 

air carriers that usually seem to find it — carriers 

such as Southwest Airlines, WestJet, 

TAM, LAN and Etihad — is a culture of service, 

combined with a capability to see the value of 

every individual within the bigger picture. 

And those individuals include both customers 

and employees, because every individual’s 

experience is truly critical in a peopledriven 

business such as the movement of 

travelers around the world — in a true sense of 

giving and receiving fair and genuine value. 

“The bottom line should be a consequence 

of good business decisions you make 

— it should not be the driver of decisions,” 

Ramaswamy said. “For Southwest [Airlines], it 

goes all the way back to Herb Kelleher, when 

he was running the company. 

“And I’m paraphrasing, but he said 

something like, ‘If I take care of my employees 

really well, the assumption is that the 

employees will take care of my customers 

well. Because I cannot be taking care of every 

customer myself, I’m relying on my employees 

to do that.’ 

“I think it makes a lot of sense. And 

it also illustrates the amount of effort that is 

required to make that work.” 

Obviously, several of the world’s premier 

carriers are making it work. Among other 

things, it simply proves that working hard truly 

can be fun, and for these successful carriers, 

the fun is most evident at the bottom line. 

Southwest Airlines has long been known 

for the self-effacing humor upon which it bases 

much of its advertising. The carrier is afraid 

neither of making fun of itself nor of its entire 

industry. And that says a lot about its greater 

corporate psyche. 

It says, more pointedly, that Southwest 

Airlines is a carrier that’s psychologically comfortable 

in its own corporate skin. And occasionally, 

the carrier may fail. Its fuel-hedging 

strategy, in fact, led to recent losses when fuel 

prices nosedived. 

But in the longer run, Southwest 

Airlines, WestJet, TAM, LAN, Etihad and a 

handful of other carriers around the world 

know that they are on an exciting, innovative 

journey toward a future that holds the 

broad possibility of becoming even more 

successful. And that’s the type of corporate 

confidence that can be observed as a lesson 

to many other companies — in multiple 

industries — as the future unfolds. 

“A customer-centric business model 

means attention to detail — making the 

customer feel comfortable and going out of 

their way to help customers,” Ramaswamy 

said. “And if you compare that with carriers 

that have not necessarily done well, most of 

them treat people like cattle. 

“You will never see that happening 

with Southwest [Airlines]. Southwest 

[Airlines] and these other successful carriers 

are going through the same issues 

of security and loads and the delays — all 

of that — but still, they have a smile on 

their face. And they’re able to make fun of 

themselves.” 

It’s all reflected in the service promise, 

a promise that says the customer is 

entitled to reap the benefits of an appreciation 

and respect that only customer-centric 

businesses are willing to apply on the job 

every day. 

“That’s why I think carriers have to 

go back to the basics,” Ramaswamy said. 

“They have to understand what kind of business 

model they’ve put in place and what 

the components of the business model are. 

They need to respect the customer’s intelligence 

and treat the customer with respect. 

“And you have to decide: What’s 

your vision in terms of how you’re going 

to be able to differentiate yourself in the 

marketplace? In many instances, people are 

selecting their airlines simply because they 

don’t have a choice.” 

Yet when competition abounds, certain 

carriers consistently prevail. And those 

are the carriers with vision, with determination, 

with insightful and innovative leadership, 

and with employees who understand 

that the customer is their true boss. 

These are the carriers that will be 

pacesetters long into the bright future of air 

transportation worldwide. a 



ascend 

63 

special section

The Explorer 

Sabre Holdings ® recently acquired Flight Explorer ® , the 

leading provider of commercial aircraft situation display, or 

ASD, solutions providing real-time tracking, reporting and 

display of enroute aircraft. 

By Chris Zanardi | Ascend Contributor

“The addition of Flight 

Explorer, with its outstanding 

flight tracking 

and airspace monitoring 

capabilities, to our comprehensive 

portfolio of 

solutions positions us to 

be the unique provider of a 

fully integrated, world-class 

flight planning and aircraft 

tracking solution,” 

— Steve Clampett, president of Airline 

Products and Solutions, Sabre Airline Solutions 

Last September, Flight Explorer and 

its industry-leading solutions became 

part of Sabre Airline Solutions ® , the 

world’s leading provider of integrated 

solutions and services for airlines, airports 

and other air transportation-related 

businesses. 

With only a personal computer and 

access to the Internet, customers can use 

the Flight Explorer solution to manage and 

track all of their aircraft, anywhere in the 

world. Flight Explorer also goes beyond 

just flight tracking, incorporating multiple 

data feeds, dynamic weather overlays, 

situational alerts, and predictive weather 

and air traffic tools to make it an essential, 

reliable flight operations management 

tool. 

Flight Explorer was first introduced 

in 1997, and it immediately gained recognition 

as the premiere real-time flight 

tracking and management system in the 

industry. It’s the world’s leading aircraft 

situation display in terms of performance, 

value, reliability, sales and reputation. 

Flight Explorer provides its ASD services 

to more than 800 corporate customers 

with an installed base of more than 

2,300 systems. Its corporate customers 

include: 

85 percent of the U.S. Federal Aviation 

Administration’s collaborative decision 

making, or CDM, participants; 

85 percent of North American major 

airlines including Northwest Airlines, 

American Eagle Airlines, Air Canada, 

jetBlue, US Airways and Continental 

Airlines; 

17 of the top 20 regional airlines; 

80 percent of the Air Transport 

Association membership; 

The top five cargo carriers including 

FedEx, UPS, Airborne Express, TNT 

Express and DHL Express; 

International carriers such as British 

Airways, Copa Airlines and Aer Lingus; 

The 12 largest executive jet operators 

including NetJets, Flight Options, 

Gulfstream and Bombardier; 

Major airports including Hartsfield- 

Jackson Atlanta International Airport, 

Chicago O’Hare International Airport, 

New York Port Authority, Los Angeles 

International Airport and Miami 

International Airport; 

More than 200 corporate flight departments, 

air charter operators and fixed 

-base operators. 

Flight Explorer’s success is based 

on a solid, technical approach that provides 

a high level of security and reliability 

to meet the stringent requirements 

of a 24/7 airline operation, the FAA, 

the U.S. Department of Defense and 

airports, combined with a robust architec- 

ascend 

65

company 

66 

Flight Explorer enables airlines to add layers to the display for a true picture of what may be 

impacting their operation. filtering and zooming enables analysts to limit the display to a 

specific flight or set of flights that may require particular focus due to current conditions. 

Flight Explorer enables airlines to track aircraft anywhere in the world. Both Atc radar 

data and AcArs information is used to graphically display aircraft in real time so an airline 

always knows the locations of its aircraft. 

ascend 

ture that Flight Explorer enables airlines to 

add layers to the display for a true picture 

of what may be impacting their operation. 

Filtering and zooming enables analysts 

to limit the display to a specific flight or 

set of flights that may require particular 

focus due to current conditions. enables 

quick development of new services and 

solutions to meet the needs of clients 

throughout the world 

“The addition of Flight Explorer, 

with its outstanding flight tracking and 

airspace monitoring capabilities, to our 

comprehensive portfolio of solutions positions 

us to be the unique provider of a 

fully integrated, world-class flight planning 

and aircraft tracking solution,” said Steve 

Clampett, president of Airline Products 

and Solutions for Sabre Airline Solutions. 

“We have enjoyed a strong working relationship 

with Flight Explorer for many 

years and are now proud to make them a 

part of Sabre Airline Solutions.” 

The Flight Explorer solution, which 

will also be available to global aviation 

customers as a stand-alone solution, will 

be fully integrated with Sabre Airline 

Solutions’ dispatch management solution, 

Dispatch Manager. The integrated 

solution will provide airlines the technology 

they need to access critical, real-time 

operational information and world-class 

flight plan optimization, helping pre-empt 

delays, among other benefits. 

The combined solution will leverage 

the powerful graphic components and 

proactive alerting capabilities of Flight 

Explorer with the robust flight planning 

capabilities of Dispatch Manager to help 

airlines choose the most efficient, costeffective 

flight plan. 

Later this year, Flight Explorer and 

Sabre Airline Solutions will launch Airspace 

Flow Manager, a tool that will give airlines 

or general aviation an opportunity to reap 

the benefits offered by the integration of 

collaborative decision making tools into 

the Flight Explorer ASD. Prior to flight 

departure, Airspace Flow Manager will 

proactively alert the airline if its flights are 

going to be affected by any traffic management 

initiative, analyze the impact of 

the initiative and help the airline explore 

its options. Airspace Flow Manager is 

expected to significantly improve on-time 

performance, aircraft utilization and fuel 

efficiencies across carriers and general 

aviation. a 

Chris Zanardi is a senior solutions 

partner for Sabre Airline 

Solutions. He can be contacted 

at chris.zanardi@sabre.com.

Sharpening The 

E-Commerce Edge 

Sabre Holdings ® recently acquired EB2 to enhance airlines’ 

e-commerce capabilities by providing a vast range of Web options. 

By Phil Johnson | Ascend Staff

company 

68 

The revenue-generating potential of an 

airline’s e-commerce channel may very 

well become even more significant considering 

the level of uncertainty in worldwide 

economics. 

Sabre Holdings’ acquisition of 

e-commerce specialist EB2 brings new 

vigor to SabreSonic ® Web, a component of 

SabreSonic ® Customer Sales & Service. The 

expanded set of advanced Web-based tools 

gives airlines a leading edge. 

The London-based e-commerce unit 

specializes in developing, customizing and 

hosting Internet booking engines for online 

travel booking, simplifying direct sales to 

the corporate, agency and individual traveler 

segments alike. 

Historically, EB2 has staked a solid 

reputation as a top supplier of e-commerce 

solutions, infrastructure and services to a 

broad range of global carriers. 

The EB2 acquisition represents an 

important part of Sabre Holdings’ pledge to 

provide forward-looking technologies that 

enable carriers to maximize e-commercechannel 

revenues with flexible, cost-effective, 

reliable solutions. 

The capabilities and expertise of EB2 

are being integrated into SabreSonic Web 

(with products to be developed up to two 

years earlier than previously scheduled). 

Current customers of Sabre Airline 

Solutions ® as well as the newly acquired 

clients from EB2 — including AeroMéxico, 

Transaero, RegionalLink, S7 Airlines, Brussels 

Airlines, Air Malta, Belavia, Brindabella 

Airlines, Olympic Airlines and Gulf Air — will 

benefit from the new capabilities of the 

enhanced SabreSonic Web. 

Planning and integration activities are 

underway to accelerate e-commerce capabil- 

+count it up 

49 

The percentage of safety improvement 

in the air transport industry 

during the last 10 years, according 

to the International Air Transport 

Association. At the end of 2008, the 

industry hull loss rate was 0.81 per 

million sectors flown. 

ascend 

ities through a service-oriented, rules-based 

architecture, enabling both Sabre Airline 

Solutions and its customers to quickly adapt 

to new business processes. This is in addition 

to providing merchandising capabilities 

based on up-sell, cross-sell and ancillaryproduct 

Web offerings. Online direct Web 

services are also being introduced to leverage 

and control airline content for third-party 

and airline use as well as plug-in adaptors 

enabling activity by payment service providers 

and third-party content. 

The new version of SabreSonic Web, 

planned for rollout by year end, will leverage 

several key differentiators such as flexible 

calendar-search displays with targeted shopping 

experiences adapted to suit individual 

markets. Providing a range of calendarbased 

shopping experiences optimizes an 

airline’s look-to-book conversion rates. 

New screen designs planned for 

SabreSonic Web include dual-display shopping 

as well as matrix shopping and a merchandising 

framework that provides carriers 

the ability to configure sets of products and 

other associated features for each of their 

fare families. Airlines can configure products 

and features related to specific fare families 

by market using an online administration 

interface or customize by the individual carrier’s 

philosophy, mission, service promise, 

direction and innovative ideas. 

Also included are customer up-sell 

opportunities, enabling the sale of highervalue 

products through fully configurable 

business rules that determine the most 

opportune moment to offer up-sell opportunities 

to online customers. In addition, 

cross-sell emphasis offers appropriate ancillary 

products to the right customers at the 

right times. 

10 

The percentage of improvement in 

fuel efficiency and CO2 emissions 

International Air Transport Association 

member airlines achieved in 2006, four 

years ahead of the 2000-2010 goal. 

All of these customer-specific capabilities 

are dependent upon accurate, up-todate, 

customer profiles available to call up at 

any customer interface. It’s a necessity for 

carriers to be able to take full advantage of 

the SabreSonic CSS capabilities. 

Sabre Airline Solutions advancement 

through the EB2 acquisition represents a 

truly significant achievement — with the 

company now possessing the industry’s 

most powerful Internet booking-engine 

capabilities. 

Existing SabreSonic Web customers 

will be migrated to the new version of 

SabreSonic Web during the next 18 to 24 

months. 

In joining SabreSonic CSS, EB2 has 

brought — in addition to its quality portfolio 

of airline customers — an extremely high 

level of processing capability at more than 

2.6 million transactions annually. 

EB2’s employees in the United 

Kingdom and Australia are being assimilated 

into existing Sabre Airline Solutions offices, 

and the EB2 development center in the 

Philippines will be maintained as a new 

Sabre Airline Solutions office location. 

Overall, with the addition of EB2, a 

highly robust offering of SabreSonic CSS 

has grown even more robust — leading to a 

more exciting future for many airlines around 

the world. a 

483 



The number of aircraft deliveries last 

year by Airbus (30 more than 2007), a 

new record for the Toulouse, Francebased 

aircraft manufacturer.

Sabre Airline Solutions, SabreSonic and the Sabre Airline Solutions logo are trademarks and/or service marks of an affi liate of Sabre Holdings Corporation. ©2008 Sabre Inc. All rights reserved. AS-08-10555 1108 

Introducing a powerful, new 

window to your future. 

® 

Future proof your airline with SabreSonic CSS 

SabreSonic ® CSS is the industry’s most powerful revenue-generating customer 

sales and service solution. By enabling airlines to uniquely value every 

passenger, SabreSonic CSS creates a new intersection for customer value and 

revenue growth. From reservations, inventory and departure control to online 

direct, loyalty, revenue management and more, SabreSonic CSS easily adapts 

to your ever-changing business needs with a future-proof technology platform. 

See how a complete view of your customers opens new windows to revenue. 

Start your airline’s future today with SabreSonic CSS. 

www.sabresonic.com

Brainpower 

Business intelligence solutions 

from Sabre Airline Solutions ® 

enable airlines to broaden their 

analysis capabilities to include 

key performance data into 

their business strategies. 

By Michael Askew | Ascend Contributor

Many airlines currently rely on SabreSonic ® 

Customer Sales & Service to manage transactional 

passenger reservations data that 

enables them to book and manage travel for their customers. 

However, significant benefits can be realized 

by moving beyond solving transactional problems to 

creating a customer sales and service solution. 

To gain the most from a CSS solution, insights 

into how an airline’s business is performing are essential. 

Leveraging Sabre Airline Solutions’ rich travel 

industry knowledge and layering powerful business 

intelligence systems on top of CSS data, SabreSonic 

CSS offers flexible analysis capabilities so airlines can 

incorporate valuable performance insights into their 

business strategy. 

The Business Intelligence option of SabreSonic ® 

Res provides such insights. And one of the first of several 

planned new Business Intelligence capabilities is 

now available — Essential Analytics, a reports module 

offering flexible analytics. One of the most important 

actions airlines can take to maximize revenue opportunities 

is to first understand which booking sources, 

distribution channels and markets are driving bookings. 

With this information, carriers can enhance distribution 

channels and relationships, identify less-effective 

sources, and adjust their marketing and distribution 

strategies. Essential Analytics provides these insights 

and more, enabling airlines to analyze booking trends 

and identify effective sales and marketing initiatives. 

SabreSonic CSS leverages Sabre Airline 

Solutions’ industry knowledge and strengths in reservations 

data management to deploy new business 

intelligence capabilities to its SabreSonic CSS customers. 

Essential Analytics, an interactive Web-based 

analytical and intelligence reporting solution, leverages 

leading business intelligence (see related article on 

page 36) and analytical data management technologies, 

enabling SabreSonic CSS customers to measure 

the performance of their various distribution channels, 

including airline reservations agents, airline Web sites 

and global distribution systems. 

The CSS concept represents the best opportunity 

for airlines to develop customer-focused solu- 

tions and revenue generation in every distribution 

channel, helping them realize their revenue goals. 

Essential Analytics and its planned enhancements are 

integral components to helping airlines achieve the 

value of the CSS approach. The Business Intelligence 

environment and Essential Analytics give airlines of all 

sizes around the globe the ability to: 

Analytically view top sources and markets — 

Airlines can evaluate the top sources of their 

bookings (GDS, airline direct and interline bookings) 

and the top travel markets based on user-selected 

dates. With backward- and forward-looking booking, 

market and last-minute cancellation reports, 

they have insight into areas that may require 

change. 

Measure and target incremental market opportunities 

— The flexibility of the analytic tool provides 

a variety of ways to drill into business bookings 

performance — more easily than was possible 

before — enabling airlines to measure and target 

incremental market opportunities within their network 

and distribution channels. 

Graphically present analysis results — Airlines 

can quickly select the desired report parameters 

to create a variety of reports. The various report 

views include tabular, drilldown and graphic formats 

as well as year-over-year comparative views 

to highlight how bookings are performing this year 

compared to last year. 

Access a cost-effective reports solution online — 

Because Essential Analytics is a hosted solution, 

airlines can realize significant cost savings in the 

areas of hardware and third-party software, system 

implementation, support personnel, data storage, 

and ongoing monitoring and maintenance. With 

Sabre Airline Solutions managing the application 

environment, airlines can focus on their core business 

rather than internal information technology 

operations. 

Essential Analytics helps focus on historical 

and forward-looking reservations booking details 

(travel booked up to 331 days into the future and as 

far back as two years) through a wide range of airline- 

carriers can examine the main sources of their bookings and the top travel markets 

based on user-selected dates. With a variety of historical and forward-looking booking, market 

and last-minute cancellation reports, they have insight into areas that may need to be adjusted. 

specific filters such as booking class, travel cities and 

booking source (including direct booking channels 

such as reservations centers and Web sites). 

Airlines generate hundreds of thousands, in 

some cases millions, of data points used in the reporting 

and analysis process. Flexible report parameters 

help isolate and focus on only the level of report output 

detail that is relevant to a specific business question. 

For example, for a particular timeframe, it is easy 

to narrow the bookings performance report output 

to highlight details such as the number of bookings 

that are being driven through an airline’s Web site(s), 

reservations center or a particular GDS. 

Summary booking reports provide access 

to simplified booking reports for creating a quick 

snapshot of bookings performance with some 

additional built-in drilldown capabilities and graphic 

summary representations such as pie charts and 

bar charts. These reports also include top markets 

and top booking source reports for identifying an 

airline’s top 20 markets or booking sources for the 

selected time period. 

Additional detailed booking reports provide 

the ability to analyze even more detailed report 

outputs and support the export of report output to 

comma-separated value, or CSV, format for import 

into Excel or a local database for further manipulation 

by power users. The option supports analysis 

by booking date or travel date and identifies the key 

sources of last-minute cancellations that impact an 

airline’s available inventory. In addition, it provides 

year-over-year, quarter-over-quarter and month-overmonth 

outputs to support comparative analysis. 

Essential Analytics is available to airlines 

using SabreSonic Res, and it leverages Microsoft 

Internet Explorer Web browser version 6.x or higher. 

It also provides preliminary, unaudited booking 

and market data for directional and trending analytics 

based on a snapshot of the current state of a 

carrier’s bookings in SabreSonic Res. The reports 

provide the airline with a preliminary unaudited 

view into its booking and channel performance as 

well as trends during that critical timeframe when 

the airline is typically waiting days or weeks before 

fully adjusted audited revenue accounting-based 

statistics become available. 

Essential Analytics complements other 

technology from Sabre Airline Solutions, such as 

the Quasar System for revenue accounting, or 

the airline’s own in-house or third-party passenger 

revenue accounting system. 

Additional business intelligence product 

enhancements such as revenue analytics and an 

executive dashboard are also planned this year as 

part of an overall strategy to help airlines drive profitability 

insights and provide an at-a-glance view of 

critical business metrics. a 

Michael Askew is a SabreSonic CSS 

product marketing manager for Sabre 

Airline Solutions. He can be contacted 

at michael.askew@sabre.com. 

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71 

solutions

it’s all around you 

Service360° SM 

consistent practices, from Sabre Airline Solutions ® , 

comprises five service practice areas intended to ensure carriers 

around the world receive top-quality software that steers the 

performance of their businesses. 

By Parag Sanghvi | Ascend Contributor 

SM

In 1965, Gordon Moore, co-founder of 

Intel, the integrated semiconductor chip 

manufacturer, introduced his law that 

the number of transistors per square 

inch on integrated circuits doubles every 

year. Over time, the definition evolved 

slightly, and today, data density doubles 

roughly every 18 months. This trend is 

expected to continue for at least another 

two decades. 

An important consequence of 

Moore’s Law is that the amount of computing 

power available to help drive business 

productivity has grown exponentially 

during the last several decades. Software 

that optimizes use of such computing 

power has become ubiquitous and has 

enabled significant advances in all aspects 

of modern commercial activity, including 

commercial aviation. 

A curious outcome of all this progress 

has been that often times business 

software capabilities far exceed the 

capacity of their owners to use them to 

maximum effect. As a result, companies 

make significant capital investments in 

purchasing software from which they are 

only realizing fractional value. A US$1 

million investment may be only delivering 

US$750,000 worth of value. 

Sabre Airline Solutions is well aware 

of the importance of airlines getting 

full value from the software solutions 

they use. In the past, this awareness 

was manifested through activity such as 

investments in best-in-class graphical user 

interfaces, superior training models and 

periodic regular customer “health checks” 

that identified areas of sub-optimization. 

Today, the company has taken this philosophy 

to the next level. 

Project 

Initiation 

In January, Sabre Airline Solutions 

introduced Service360° practices, its 

unique framework of five service practice 

areas designed to ensure airlines receive 

superior solutions that drive the performance 

of their businesses. Service360° 

practices represent how Sabre Airline 

Solutions drives tangible business value, 

ensures full adoption and provides a consistent 

experience across the industry’s 

leading portfolio of airline software solutions. 

Its focus is on measuring its success 

not only by traditional means such as 

market share but also by how much value 

customers receive from the solutions they 

purchase from Sabre Airline Solutions. 

Service360° practices consist of 

five delivery and customer care practice 

areas: 

Solution consulting — A consultative 

approach to identifying opportunities, 

recommendations and business 

processes that ensures solution performance 

and realization of business 

value; 

Solution delivery — A proven process 

that ensures a consistent delivery experience 

focused on business value and 

solution adoption, resulting in improved 

business performance for the airline; 

Knowledge transfer — Extensive training 

and education resources to provide 

airlines and other air transport-related 

companies with deep solutions expertise 

that maximizes the results across 

their businesses; 

Customer community — 

Comprehensive solution access, collaboration 

and networking via leading user 

conferences and the Sabre ® Community 

Portal; 

Implementation And Support Model 

Interactive 

Pilot 

Solution 

Adoption 

Project 

Transition 

Customer 

Care 

using the implementation and support lifecycle, Sabre Airline Solutions professionals can 

help customers realize a project’s value from initiation through completion and help ensure 

they deliver consistent, repeatable service that enhances productivity, reduces implementation 

timelines, requires fewer customizations and supports customer goals. 

Customer care — Proven customer 

care disciplines infused with deep subject 

matter and technical expertise, to 

support ongoing business value realization 

after implementation; available 

24 hours a day, 365 days a year, both 

online and offline. 

Service360° practices apply across 

the full breadth of Sabre Airline Solutions’ 

portfolio and provide a unifying effect that 

makes steady delivery of service not only 

possible but likely. The key is to approach 

customer care and delivery with the intent 

of driving consistency, efficiency, predictability 

and effectiveness. 

These ideals are sustained by specific 

programmatic models. Three in particular 

worth exploring further include: 

implementation and support lifecycle, 

Sabre ® Airline University, and customer 

value measurement. 

The implementation and support 

lifecycle is a structured approach to 

implementation and support of each solution 

across the Sabre Airline Solutions 

portfolio. It improves business processes 

and value, it helps build collaboration 

and team-oriented attitudes between 

Sabre Airline Solutions employees and 

its customers’ employees, and it promotes 

honoring of budget and schedule 

commitments. The implementation and 

support lifecycle resides under the solution 

delivery practice area of Service360° 

practices and consists of five formalized 

stages: project initiation, interactive pilot, 

solution adoption, project transition and 

customer care. 

By following this prescribed methodology, 

Sabre Airline Solutions employees 

are able to improve value realization for 

customers from initiation of a project 

through maturity. Clear, articulated steps 

are outlined that enable the company’s 

professionals to deliver consistent, repeatable 

service that improves productivity, 

shortens implementation timelines, drives 

fewer customizations and focuses on customer 

business objectives. 

A second important innovation 

under Service360° practices is the Sabre 

Airline University. Accessed via the single 

interface of the Sabre Community Portal, 

all training information for customers 

becomes available online, regardless of 

learning format. Sabre Airline University 

lives under the knowledge transfer practice 

area of Service360° practices and consists 

of a centralized source for training 

and reference resources for the specific 

solutions a carrier uses. In addition to providing 

access to resources that promote 

solution adoption and usage, Sabre Airline 

University includes certification capabilities 

that help ensure employees have 

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73 

solutions

solutions 

74 

mastered material they need to effectively 

do their jobs. 

The pervasive nature of the Internet 

means airline employees can gain realtime 

access to training resources anywhere 

in the world at any time. Questions 

can be resolved more quickly, employees 

become more empowered to problem 

solve, and costs can be reduced for items 

such as travel and incidentals. Sabre 

Airline University leverages the realization 

that in today’s fast-paced business world, 

perhaps the most important resource of all 

is time, and getting meaningful information 

into the hands of airline employees 

in a relevant timeframe can mean the difference 

between success and failure. The 

Sabre Airline University has a rich trove 

of solution information as well as interactive 

learning activities that help airline 

employees become proficient at managing 

software capabilities in a timely manner. 

A third advancement is customer 

value measurement. One of the key focus 

areas of Service360° practices is ensuring 

Sabre Airline Solutions’ systems drive 

tangible business value for customers. It 

is impossible to gauge how much value 

a solution has created without having a 

formalized, methodical approach to value 

measurement. Under Service360° practices, 

a common diagnostic process for all 

tools in the suite is available to the delivery 

manager to evaluate value creation 

from the starting baseline for that particular 

customer. The delivery manager works 

closely with the customer’s employees 

to complete diagnostic information that 

forms a foundation for ongoing value 

measurement. 

+count it up 

100 

The percentage of e-ticketing 

achieved by IATA member airlines, 

an annual cost savings of more than 

US$3 billion, according to IATA. 

ascend 

The most important aspect of this 

is that it has a weighting measure to take 

into account the importance of a particular 

criterion to the customer. For example, 

rather than indicating that a value creation 

should be examined exclusively from one 

angle or another, the airline provides input 

on what is most important to it, and the 

final measure of value reflects the airline’s 

preferences. The ability to include 

a comparison of before/after or product 

versus product is provided, and results are 

validated and made credible. Customer 

inputs are straightforward and easy to 

understand. 

Value measurement can help an 

airline confirm and communicate through 

the ranks the real impact of software 

purchases on the operation. Opportunities 

for improvement can be highlighted and 

successes can be heralded. Most importantly, 

the return on investment becomes 

easier to articulate, and progress toward 

strategic goals can be monitored. 

Among the types of results the 

value measurement program has documented 

are: 

The use of Sabre ® AirFlite Profit 

Manager at one airline generated 

US$3.9 million in one year, 

Confirmation of an 11 percent incremental 

revenue gain (equating to more 

than US$271 million) during a 12-month 

period from the Sabre ® AirMax ® 

Revenue Manager at another airline, 

Reduced reaction time to competitor 

fare actions by 72 percent year over 

year with introduction of the Sabre ® 

AirPrice System for fares management 

for a third carrier. 

29 

The percentage of increase in traffic 

that would result from a simulation 

of full liberalization of the United 

States-United Kingdom market under a 

Comprehensive First Step Air Service 

Agreement between the United States 

and the European Union, according to 

InterVISTAS-ga2 . 

The biggest benefit of value measurement 

is perhaps the control and visibility 

it provides to an airline management 

team. With this control, better decisions 

can be made that ultimately lead to 

improved profitability. 

The choice of the name Service360° 

practices for the coordinated program of 

five service practice areas was deliberate. 

Sabre Airline Solutions recognized 

that business activity only has value and 

meaning if customers realize benefit from 

its solutions, and Service360° practices 

helps convey that the customer is always 

at the center. 

In today’s challenging economic 

environment, it is not enough for an airline 

to install the best software solutions to 

realize positive business results. Unless 

there is a coherent, integrated approach 

to implementation and customer support 

by the technology partner, even the best 

solutions can fail to deliver on their promise. 

The industry is littered with examples 

of lofty ambitions that never materialized 

due to implementation and usage deficiencies. 

Sabre Airline Solutions recognizes 

that economic value can be created for 

customers simply by ensuring that the 

solutions are implemented and being used 

as designed. a 

2011 

The year by which air service liberalization 

in Egypt could increase the 

gross domestic product by 12 percent, 

adding 260,000 full-time jobs, according 

to InterVISTAS-ga2 . Additionally, 

the total GDP for all sectors would 

increase by 1.8 percent.

Sabre Airline Solutions, Sabre AirCentre and the Sabre Airline Solutions logo are trademarks and/or service marks of an affi liate of Sabre Holdings Corp. ©2009 Sabre Inc. All rights reserved. AS-09-10824 0309 

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2009 Issue 1 - Sabre Airline Solutions

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