Cheap Frills

First came Southwest: no frills. Then JetBlue: a few more frills. Now Virgin America: low fares, deluxe service and a new approach to IT.

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All told, Maguire estimates he’s saved the company $500,000 in his first six months on the job and says he “will” save the company $2 million a year “with the way we’re building, managing and operating our systems.”

But, cautions Forrester’s Harteveldt, “[Virgin America] will have to make sure that [these technologies] will support them—not just when they start up with a handful of planes, but in theory when they have 100 or more airplanes. You don’t date technology in the airline industry; you marry it.”

Next-Gen Reservations

One of the most important systems Virgin America will be walking down the aisle with is its reservations system. These systems are the central nervous system of any air carrier. Despite the name, they handle not only passenger reservations but also inventory control, fares and ticketing, schedules, baggage and interface with departure control functions. And they touch every other system an airline runs on, from flight operations to Web-based booking engines. “[Reservations] can have an impact on everything from what you pay your pilots to FAA-mandated maintenance,” Harteveldt says.

Established carriers tend to operate on robust legacy systems such as Sabre or Shares (both supported today by EDS).

But these feature-rich systems run on mainframes and are expensive to maintain and difficult to customize. Younger, low-cost carriers, such as Airtran and JetBlue, have opted for Open Skies from Navitaire, a less expensive and much more basic Web-based reservations system. What both systems have in common is that, like all software that’s been around for a while, the airlines that run on them face the challenge of upgrades or switching to new systems.

“Advances in tech have given the new airlines the ability to provide as robust a reservation system as something that previously would have been only available through a Sabre,” says The Boyd Group’s Sieber. “And as these newer systems become more evolved, they also give management the ability to do some incredible data mining that will enable them to make better business decisions.”

Virgin’s new reservations system is called Aires. Development was funded by travel giant Cendant and is being developed by Indian software developer IBS. The system is built on open architecture standards with a database layer, an application layer and a Web services layer. “It’s fast, flexible and amazingly configurable,” says Maguire. “We can run the business the way we want to instead of being dictated to by Sabre or Navitaire.” In essence, Aires offers Virgin a hybrid solution—one with the extended functionalities available in a Sabre system on a lower-cost platform. “If an airline wants to install an extra premium economy section, they can easily make those changes. It’s designed to interface well with kiosks and Web booking engines,” says Harteveldt. “It’s easy to operate, easy to train on and easy to manage.”

Brian Clark, vice president of planning and sales, led the deal with Aires before Maguire joined the team. “When I was at US Airways, I was involved in the cutover from an old reservations system to Sabre, and I have a huge amount of respect for what technology can do for us,” Clark says. “From a business perspective, new systems like this are fantastic because [they] allow us more flexibility than older systems. We can grow without limitation.” Down the road, Aires could allow Virgin to integrate with travel partners, offering customers the ability to check in for a flight when they check out of a hotel or reserve a rental car when they check in for a flight.

The only other customers signed on with Aires are Virgin Blue in Australia and WestJet, a low-cost Canadian carrier, so Virgin America will have a first-mover advantage stateside. Of course, it will also assume first-mover disadvantages.

“You’ve heard the old saying, no CIO ever got fired for buying IBM? Well, no airline CIO would ever be dismissed for going with Sabre,” says Harteveldt. “There’s always risk with a new product that’s just proving itself. There will be hiccups,” he predicts.

No one knows that better than Maguire. “If [Aires] doesn’t work, we don’t fly,” he says, just back from a late summer trip to Delhi, India, to check on the system’s progress. His mission there was twofold. “First off, I wanted to build a relationship with the developers, let them know who I am, how I think, what my expectations are. I wanted to meet them face-to-face and talk to them about how critical this is to us,” Maguire says. “I also went over there to talk to their VPs about where we were with the implementation and changes we’d like to see before going into production. And how they will support us on a 24/7 basis once we’re in production.” It went well, he says.

But everyone’s expecting some turbulence with the implementation. “The reservation system presents the highest risk to the business,” says Maguire. The Aires system infrastructure has multiple layers of redundancy to minimize unscheduled outages. But to minimize risk overall, Maguire’s team is working closely with Cendant to ensure that performance, stability and scalability are more than adequate to meet Virgin America’s load requirements.

“Sabre is a great product, and they’ve spent millions of dollars putting lots of makeup on that old technology,” says Pawlowski. “But they’ve pushed it as far as they can, and it’s time to start thinking about what’s next.”

Ready for Takeoff?

As of September, Maguire and his team had turned on the first big piece of the network and had the data center and its monitoring tools up and running. HR, finance and flight operations applications were live. “The only thing left is the reservations system and our production website,” Maguire says, knowing those are two critical pieces of the puzzle. The goal was to have them both in production by the end of this year.

Virgin America is planning to begin flying early next year, after it receives approval from both the Department of Transportation and the Federal Aviation Administration (see “Flight Delays,” Page 68), and most industry watchers expect a successful takeoff. “They’re flying a very competitive route, and it’ll be stiff competition,” says John Kasarda, director of The Frank Hawkins Kenan Institute of Private Enterprise at the University of North Carolina. “But Virgin America will come off the blocks capturing a portion of the market and doing very well.”

“Virgin America has an advantage right out of the gate because of the brand, which will get people on the first time,” says The Boyd Group’s Sieber. “The question is, do they have a product that can compete long term? That remains to be seen. At one time Pan Am had the most recognized brand in the industry, and that didn’t keep them out of trouble.

“Don’t get me wrong,” Sieber continues, “if I were starting an airline, I’d certainly want to have that brand advantage.

“But I’d still use my ex-wife’s money.”

What’s also up in the air is how the competition will respond. Legacy carriers, which have finally figured out that they can’t compete on price, may be forced to improve the service that they’ve whittled away over the past five years. Some, like Delta, may put their emphasis elsewhere, like the Chinese market, leaving the domestic routes largely to the low-cost carriers.

JetBlue, no longer the new kid on the block, may invest further in the customer experience. Its wholly owned subsidiary recently won a Federal Communications Commission auction for a very hot commodity—a slice of radio airwaves devoted to air-to-ground communication—that, if it gains approval by the FAA, could enable the company to provide Wi-Fi in the sky.

“It’ll be interesting to see how JetBlue responds,” says Harteveldt. “If Virgin sells meals on board, will JetBlue sell meals on board? If they go to a two-class service offering, will JetBlue go to a two-class service offering? JetBlue has marched to its own drum for six years, but you can’t ignore the competition.”

In fact, Virgin America has gotten many of its best ideas from its soon-to-be rivals, including what Pawlowski insists must be a guiding principle if the airline is to succeed: “Don’t over-promise or under-deliver. You look at Southwest, they under-promise and over-deliver. Or look at JetBlue—there are a lot of fans here of JetBlue. We can learn from those airlines.

“It’s a bit of a challenge because there are going to be expectations with a Virgin brand. But we hope to compete on value, the ability to customize the customer experience, and the bells and whistles of the more established airlines. Hopefully that adds up to a differentiated product that people will embrace.”

Senior Editor Stephanie Overby can be reached at soverby@cio.com.

Copyright © 2006 IDG Communications, Inc.

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