The global financial crisis has been hard on may industry sectors, but arguably few are doing it as tough as the airline industry.
Around the world business and leisure travellers are cutting back on spending, pushing this capital intensive industry, which already operates on slim margins, to take a hard look at cutting back its costs.
On top of the global financial crisis, the airline industry has also had to deal with the record high aviation fuel prices of last year and the recent drop in tourism and business travel brought on by the swine flu epidemic. It all makes for a very tough last 12 months.
However, under the watch of CIO Stephen Tame, Jetstar has successfully turned to IT to not only cut costs, but develop a cost structure that can scale with the business — through good times and bad.
According to Tame, Jetstar embarked on its transformation project mid last year, as an initial response to high fuel prices, by reducing headcount across non operational areas of the business and re-examining its supplier relationships in an effort to ‘variabalise’ its cost model.
“The first thing we did was have a 20 percent cut in head count,” Tame says. “This was a bit of an ask, as I had to come down from seven to five staff. The IT business is 100 percent outsourced already so there’s not much of a team in the first place.”
“We then looked to renegotiate our service contracts — primarily around how we can get better variable costs and how we can reduce some of the service levels. Just because the contract was signed two years ago doesn’t mean we still needed the same service levels today. We trimmed the ‘nice to have’ services and got it down to basics.”
A good example of this philosophy can be seen in Jetstar’s new approach to desktop and notebook support, Tame says, which boils down to spending 15 minutes on trying to fix an issue. If it can’t be resolved in that timeframe, then the PC or notebook is formatted, OS and applications reinstalled, and brought back to its standard settings.
“These days [PCs and notebooks] are a lot more of a commodity item, and our staff know that,” he says. “We actually give admin rights to many of the staff so they can install what they want and need. But with that I give them the responsibility to manage that machine. However, if they do bugger it up, we can always put it back to where it was.”
Tame says he is comfortable with the approach and its assumption that staff already have the expertise, or will be developing it fairly quickly, to manage their own computing environment.
He’s also cognisant of the increased security risks, but has factored this in by concentrating on the Jetstar’s backend and developing ways to build security inside its networks using VPNs.
Tame has also looked to heavily virtualise the company, standardising on Microsoft servers, VMware for virtualisation, Citrix for all application virtualisation, AppSense for managing its Citrix environment, and Wyse terminals for the thin clients.
So far, Tame has moved about 400 machines — across its airport presences, engineering bases, non-head office operations and offshore locations — to thin clients able to access the company’s virtual systems. Staff simply log on via any PC, notebook or thin client to access work applications, e-mail and data.
Next Page: Employee Provisioned Hardware?
Next: Employee Provisioned Hardware?
The next stage, Tame says, is to further roll out virtualisation across the business over the next two years in two stages. Stage one will see the company virtualise about 150 head office PCs and move those users to thin clients. Stage two, and a more radical approach, will be to have every new employee bring their own notebook to the new job and be responsible for its upkeep and maintenance.
“If you consider the PC to be a commodity, then you need to rethink how you run your business in that environment,” Tame says. “We recently developed an SOE or virtual machine using VMplayers for our engineering bases. We don’t care what the laptops are anymore, we just ship that out on 16 gig SD card [Secure Digital Memory Card]. I can see a future where you join a company and they say ‘Congratulations. . . Where’s your laptop? And, by the way, here’s a 16 gig SD card that contains our SOE.’
While not yet fully rolled out, the virtualisation strategy is already paying big dividends, Tame says, with Jetstar’s IT cost and support model changing dramatically. “When Jetstar business started in 2004 IT as a proportion of revenue was 1.6 percent while most of the mainline carriers were running about 3 percent,” he says.
“In 2005 we got down to 1.4; 1.2 in 2006 when we really started looking at virtualisation. In 2007 we got down below 1 percent and in 2008/2009 we got to 0.82 percent. . My objective is to maintain my IT costs below 1 percent which is a top benchmark for airlines.”
Tame says his cost of support at the local airports Jetstar occupies has reduced by 60 percent, maintenance is down by 40 percent, and costs of local systems and servers have reduced by 100 “because I’ve pulled the servers out”. Just as importantly, Jetstar’s IT is consuming 85 percent less power due to the virtualised machines, so therefore there’s less CO2.
As a result of the cost savings achieved in Jetstar’s IT budget, the company has been able to look more towards projects that deliver innovation. One such project is the company’s roll out of SMS boarding passes, slated for later in the year.
Using the service, a passenger who pre-enrols for online or self check-in is e-mailed and SMS-ed their boarding pass 36 hours ahead of their flight. Using optical character recognition technology at Jetstar kiosks based at the airport, the SMS is scanned and a boarding pass is printed. The project increases service levels for customers and cuts costs for Jetstar,
Jetstar has also moved to adopt videoconferencing, setting up a telepresence link between Australia and its Singapore operations in May, and is now looking at a similar set up between Australia and its Vietnam operations.
“We’re also looking at it as facilitator to help run our federated business model,” he says. “For example we are looking at our helpdesk and having it run out of Malaysia. We also have organisations in the Philippines looking at our flight planning and load control works.”
“An issue with separating those things is communication. Our CEO is thinking about that. Bandwidth is pretty cheap these days, so why not have a 24/7 telepresence between all those locations to bring them closer together.”
Despite the potential for telepresence and videoconferencing to undermine the need for air travel, Tame sees no irony in Jetstar’s use of the technology.
“My view is that telepresence does have a role to play, but it doesn’t replace face-to-face meetings,” he says. “It does fill in the gaps between those meetings and significantly enhances the quality of those meetings, but it isn’t like being there on site. It may replace a meeting but not a review or discussion.”