Jetstar CIO cuts IT costs by 6% yearly

Jetstar CIO Stephen Tame is asked to cut IT infrastructure costs by 6 per cent year-on-year. In fact, it’s one of his key performance indicators as CIO of the Qantas-owned, low-cost airline.

Speaking at the recent CIO Summit in Melbourne, Tame told attendees he “accepts the fact” that he needs to drive down technology costs.

“I’ve got to be smarter, I’ve got to have different technology, I’ve got to challenge the way things are – I’ve got to have different supply agreements, I’ve got to drive down my unit cost,” he said.

“These days, that’s not hard, the cost of running server infrastructure three years ago is actually a lot more expensive than the cost of running server infrastructure today, and replacing it gives you a better outcome.

“But in addition to that, I need to continue to drive investment in my business; so if I’m driving down [IT] costs by 6 per cent year-on-year, I turn around to my business and say ‘I should be investing 6 per cent year-on-year.”

“Because if I’m not improving the process, I am going backwards,” he said.

Jetstar’s benchmark target of IT spend in Australia and New Zealand is 1.1 per cent of total revenue. The airline reported earnings before interest and taxes (EBIT) of $138 million for the financial year ending June 20, 2013.

This was down 32 per cent, which “reflected the competitive domestic market and additional start up loess in Jetstar Japan and Jetstar Hong Kong,” according to the Qantas financial results for FY13.

The best low cost carriers (LCCs) are operating in the 1 per cent to 1.5 per cent range and others are as high as 2.7 per cent, Tame said.

Tame said that once the percentage of revenue spent on IT is set, it “becomes a matter of managing that position.”

“My IT mix is different to most airlines. I probably spend more on hardware and telecommunications than I do on internal resources, so I’ve got my mix differently.

“The reason why I spend more on hardware and telecoms is primarily because I have virtualized most of my technologies so you need more network spend. I’m delivering cloud services in to Japan, Hong Kong and Singapore and Vietnam. So I need to spend more in that particular space but it significantly reduces my internal management costs,” he said.

Tame and his team deliver all IT to Jetstar Australia and New Zealand for 1.1 per cent of total revenue, deliver a complete IT service for Jetstar Hong Kong and Japan, as well as “mandated” back-end systems for Jetstar Asia.

“That means that I am an external IT service provider because these companies aren’t owned by us entirely – these are minority shareholdings,” the CIO said.

“It’s all aligned to revenue….which is quite scary, if the revenue falls, what do you do?” he says. But even though it’s challenging, it does drive the correct behaviour.

“I’m keeping an eye on the business revenues and I’m looking at how I can try and line up with those things. If the business revenues start looking like they are taking a dive, then I start looking at what programs I need to start constricting,” he said.

“So my IT delivery model is very much aligned to where the organisational thinking is,” he added.