What the Airlines Can Teach You About IT and Business Strategy

CIO — Sometimes it's hard to tell that a business model is broken. Then events startle you to clarity. For instance: The same week in 2007 that Airbus delivered the largest passenger plane ever built (four jet engines, 471 seats), the trade magazine Airfinance Journal, citing the industry's cry for fuel efficiency, hailed the "return of the turboprop," an airplane invented in the 1930s that uses a gas turbine to turn a propeller.

Other times, the revelation comes in numbers. Ten years ago, a barrel of oil was about $16 and flying planes was lucrative. U.S. airlines together made $5.3 billion in 1999, which would be the industry's most successful year ever. Collective net earnings dropped by nearly half to $2.5 billion the following year, leading to five years of losses that began as the dotcom economy burst. Then came the 9/11 terrorist attacks, which grounded planes for three days and scared customers away from the skies for months, even years. Oil, meanwhile, climbed to all-time highs, eviscerating any hope of airline profits. The industry was profitable in 2006 and 2007, but now we're in an economic death spiral that touches virtually all industries in many countries around the world. When the airlines close the books on 2008, they are expected to lose up to $10 billion—twice as much as they made ten years ago.

"You just kind of shake your head," says Carter Stewart, managing director at Trans World Consulting, an airline consulting firm in London. After nine years, several shotgun mergers and a $15 billion federal bailout in 2001, the industry is no better off, he says. There are too many planes flying too many places, producing high demand for expensive jet fuel and, some say, an unwinnable competition. Customers routinely complain that they can't get the flights they want when and where they want them.

So the airlines are trying new tactics, such as cutting flights, hedging fuel costs and offering passengers amenities such as in-flight Wi-Fi. Plus, the so-called "unbundled services model" has some airlines selling everything from pillows to luggage space to meal deals.

But these tactics require technology support—and in few industries is the business model as baked into the IT as in the airlines, says Stewart, who formerly directed project management offices at American Airlines, TWA and London-based Silverjet. Who hasn't stood in front of an agent at the airport, listened to her clack on an unseen keyboard for several minutes—no mouse, no touch screen—only to hear, "I'm sorry, the system won't let me do that"?

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