Sometimes it's hard to tell that a business model is broken. Then events startle you to \n\nclarity. For instance: The same week in 2007 that Airbus delivered the largest passenger \n\nplane ever built (four jet engines, 471 seats), the trade magazine Airfinance Journal, \n\nciting the industry's cry for fuel efficiency, hailed the "return of the turboprop," an \n\nairplane invented in the 1930s that uses a gas turbine to turn a propeller. \n\nMore on CIO.com\nHow to Save an Airline\n\nWhat It Takes to Succeed Now as a CIO\n\nOther times, the revelation comes in numbers. Ten years ago, a barrel of oil was about $16 \n\nand flying planes was lucrative. U.S. airlines together made $5.3 billion in 1999, which \n\nwould be the industry's most successful year ever. Collective net earnings dropped by nearly \n\nhalf to $2.5 billion the following year, leading to five years of losses that began as the \n\ndotcom economy burst. Then came the 9\/11 terrorist attacks, which grounded planes for three \n\ndays and scared customers away from the skies for months, even years. Oil, meanwhile, \n\nclimbed to all-time highs, eviscerating any hope of airline profits. The industry was \n\nprofitable in 2006 and 2007, but now we're in an economic death spiral that touches \n\nvirtually all industries in many countries around the world. When the airlines close the \n\nbooks on 2008, they are expected to lose up to $10 billion\u2014twice as much as they made \n\nten years ago.\n\n"You just kind of shake your head," says Carter Stewart, managing director at Trans World \n\nConsulting, an airline consulting firm in London. After nine years, several shotgun mergers \n\nand a $15 billion federal bailout in 2001, the industry is no better off, he says. There are \n\ntoo many planes flying too many places, producing high demand for expensive jet fuel and, \n\nsome say, an unwinnable competition. Customers routinely complain that they can't get the \n\nflights they want when and where they want them.\n\nSo the airlines are trying new tactics, such as cutting flights, hedging fuel costs and \n\noffering passengers amenities such as in-flight Wi-Fi. Plus, the so-called "unbundled services model" has some airlines \n\nselling everything from pillows to luggage space to meal deals.\n\nBut these tactics require technology support\u2014and in few industries is the business \n\nmodel as baked into the IT as in the airlines, says Stewart, who formerly directed project \n\nmanagement offices at American Airlines, TWA and London-based Silverjet. Who hasn't stood in \n\nfront of an agent at the airport, listened to her clack on an unseen keyboard for several \n\nminutes\u2014no mouse, no touch screen\u2014only to hear, "I'm sorry, the system won't let \n\nme do that"?\n\nMost legacy proprietary reservations systems can't do everything a Web-based booking system \n\ncan do, such as presell an onboard snack to one customer and\u2014at Air Canada \n\nanyway\u2014subtract the cost of that snack for another customer who wants to bring his \n\nown. "Technology is lagging where airlines want to be right now," says Darin Lee, a \n\nconsultant who specializes in the economics of the airline industry at LECG, an economics \n\nconsulting firm.\n\nHow some airline CIOs are grappling with the crisis brings lessons to other IT leaders \n\nfacing near-crippling economics, where major new systems development is being deferred, \n\nlayoffs appear likely and budgets are being starved to conserve cash.\n\nFor example, Southwest Airlines, which used to be known as a no-frills cattle-caller, now \n\nuses technology to provide darn-near luxury services to its customers, such as the ability \n\nto change flights with no fee. Sabre Holdings, which provides reservation systems and other \n\nsoftware and services to Southwest and American Airlines, among hundreds of others, is using \n\ndeft, money-saving ways of handling IT labor issues. And Pinnacle, a low-cost regional \n\ncarrier based in Memphis, Tenn., is finding success by approaching IT as neither a cost \n\ncenter nor a source of innovation but as a risk to be managed.\n\nAll you hear about the alignment of people, process and technology with business strategy is \n\nplaying out\u2014quite painfully\u2014in the airline industry.\n\n"A lot of people questioned my sanity, coming to an airline," says Jeff Dato, who joined \n\nPinnacle as vice president of risk management and IT in 2006. "We're all one bad day from \n\nhaving our doors close," he says of the turbulent industry. Then again, he adds, this \n\nchallenging time "is a wonderful opportunity to make an impact."\n\nDesigning IT for Customers\n\nAs much as consumers may perceive "the airlines" as a monolithic business\u2014created, it \n\nsometimes seems, to make travel as hellish as possible\u2014each carrier deals with \n\ndifferent IT problems and business problems.\n\nAt US Airways, the CIO \n\nspot has been vacant since Joe Beery left late last year to become SVP and CIO at \n\npharmaceutical company Invitrogen. At Continental Airlines, work recently started to integrate \n\nits reservations, ticketing and other systems with those of the Star Alliance, a network of \n\n21 airlines that share customers. Any difficulties that may arise from the technology \n\nintegration present a "significant" financial risk to Continental, according to documents \n\nthe airline filed with the Securities and Exchange Commission.\n\nMeanwhile, American and United, which have been around for decades, use some technology that \n\nis also decades old. Changing these systems can take a lot of time and requires programmers \n\nto know the proprietary software well, says Raphael Bejar, CEO of Airsavings SA, an airline \n\nIT provider. Even former scrappers like Southwest and JetBlue now have legacy technology that can limit the services they \n\noffer and the ways they can spark revenue, Bejar says. While each carrier has its own \n\nproblems, some issues stretch across companies. Namely, at every airline, everyone from the \n\nCEO down must fight to win customers, while at the same time getting as much revenue as \n\npossible from each one.\n\nSeveral airlines, such as US Airways and United, now charge for pillows, headsets or other \n\nniceties aboard the plane, as well as for services such as checking bags. These items used \n\nto be folded into the cost of a ticket. The idea now is to let customers choose which \n\nproducts to buy, thereby generating new revenue.\n\nFlight attendants and gate agents conduct the transactions in various ways. US Airways, for \n\nexample, is testing handheld devices from Guest Logix to process credit card payments \n\nonboard its planes. The goal is to eliminate cash in flight this year, says Lisa LeCarre, \n\nthe president of the union for US Airways Phoenix-based flight attendants. Selling items on \n\nthe plane rather than at the time of ticketing means that these transactions don't go \n\nthrough US Airways' reservation systems\u2014minimizing the IT work necessary to process \n\nthe purchases.\n\nAir Canada, however, goes further with unbundling, offering a buffet of options for fliers \n\nto buy or reject when booking a ticket. Air Canada built the Web-based system in 2006, \n\nseparate from its traditional reservation service provided by Galileo. A year later, Galileo \n\nbuilt a desktop version to roll out to travel agents so they, too, could access the \u00e0 \n\nla carte products that Air Canada now offers.\n\nCustomers at the airline's website can choose from four levels of options, with goods and \n\nservices ranging in price. For example, passengers can add extra services to their fare, \n\nsuch as prebuying a meal and a snack at a discount. Sometimes, customers can opt for ticket \n\ndiscounts, too.\n\nThe strategy seems to be working for Air Canada. As of last September, ancillary revenue per \n\npassenger totalled $210 million, up $71 million since 2005, according to a company \n\npresentation to investors. And 49 percent of customers choose a ticket fare other than the \n\nlowest available.\n\nTrans World's Stewart predicts that unbundling will be short-lived. The revenue gained from \n\nselling add-on products can't fully compensate for volatile fuel prices raising flight costs \n\nand too many available seats pushing ticket prices down, he says. Plus, modifying legacy \n\nreservation systems across the industry, such as Galileo, Sabre and others, to track all the products available from the airlines and the hundreds of sales combinations will take \n\ntoo long and cost too much, he says.\n\nAn airline bringing the idea to a reservation systems supplier, he says, would probably hear \n\na response that asked for a feasibility study, requirements documentation, a change request \n\nand time for testing. Then the reservation vendor would develop a quote for the job. "All of \n\nthis would take four or five months and nothing's been done yet," he says. "These types of \n\nthings are very slow."\n\nSouthwest, meanwhile, is using IT in a different way to target customers. Business and IT \n\nstrategists with the company maintain that charging extra for such items as snacks bothers \n\ncustomers. "We don't expect our customers to have to pay for every little service we offer," \n\nsays Jan Marshall, Southwest's CIO. "It's part of flying."\n\nInstead, Southwest is trying to attract passengers by making flying more pleasant. In 2006, \n\nSouthwest executives, seeing the strain the airline industry was enduring, discussed ways to \n\nmaintain market share by improving their customers' experience. One simple question, \n\nMarshall says, set off hot debate and ultimately spawned a major IT project: Should \n\nSouthwest assign seats?\n\nThe airline had historically asked customers to wait at the gate and be seated on a first \n\ncome, first served basis\u2014kind of like lining up for concert tickets. Then it switched \n\nto group boarding; For a while, agents handed out colored boarding cards to each waiting \n\npassenger. Then management wondered whether to refine seat assignments further. \n\nMarketers, technologists and operations specialists alike fanned out at various airports to \n\ntest theories on live customers, then watch their behavior. Such customer anthropology can \n\nmean the difference between wasted and well-spent IT dollars, Marshall says.\n\n"What we discovered was that our customers didn't want assigned seats. They wanted to pick \n\ntheir seats but didn't want to stand in line," she says. "Our people saw that right away \n\nwithout building a prototype system back in headquarters that might have made the wrong \n\nassumptions." However, from this research grew an eight-month project that, at its height, \n\ninvolved more than 500 employees across the company as well as outside contractors.\n\nSouthwest defined three objectives: to assign boarding classes to all ticket holders; to let \n\ncustomers choose to pay $10 or $20 to board early; and to single out Business Select members \n\n(Southwest's elite frequent flyers) to board first. To accomplish these goals Southwest is \n\nreplacing many of its back-end systems with a service-oriented architecture built on SAP \n\nfinancial and HR applications, among other investments.\n\nThe company divided IT workers into about 15 teams to work on the various platforms on which \n\nSouthwest does business. These include its website, the frequent flyer and airport systems, \n\nrevenue reporting, as well as the reservation engine and booking system. "When we roll \n\nsomething out, we roll it out to all our customer touch points," Marshall says.\n\nMarshall declines to say what the project cost. But working many changes to legacy systems \n\nis a burden airlines must shoulder, says Bejar of Airsavings.\n\nUpdating the Legacy Collection\n\nIn the early 1960s, American Airlines and IBM built Sabre and wowed the computing world with \n\nwhat was then the largest real-time corporate data processing system. Sabre became an \n\nindependent, publicly-held company in 2000; today it's a $3 billion private firm with \n\nthousands of customers. The Sabre application remains one of the biggest corporate software \n\nsystems, spanning from mainframe to Java technology.\n\nSabre must support a variety of business models, such as unbundled or traditional ticketing, \n\nand everything in between, because of the variety of customers it serves, says Barry \n\nVandevier, Sabre CIO.\n\nAs Sabre has evolved into an airline IT solutions provider, the company has focused on \n\nseparating business rules from its code. Legacy mainframe environments from Sabre's origins \n\nwere more rigid than today's technology. Sabre has invested heavily in open systems and \n\nnext-generation rules engines. In areas where it still utilizes mainframes, Vandevier can \n\nencapsulate the mainframe logic as a service while using an open system environment or rules \n\nengine to enable the needed flexibility. "This doesn't happen overnight. We've been \n\nleveraging this product for a lot of customers for a long time."\n\nHe is trying to make modifications to the granddaddy Sabre software happen faster by using \n\nagile development techniques. Every two to four weeks, a component is delivered for tire \n\nkicking and criticism from Southwest, American or any other appropriate constituency. "Five \n\nyears ago, that pace and partnership wasn't happening," he says.\n\nThe challenge is broader than making changes to accommodate unbundled product offerings. \n\nGetting the airlines' IT teams and Sabre's people to work in lockstep is key to delivering \n\nany enhancements in time to capitalize on them, Vandevier says. That starts at the top.\n\nFor example, Vandevier has a dedicated team that he considers an extension of Southwest's IT \n\ndepartment to handle change requests or new reservation features. Marshall and Vandevier \n\ntalk through what has to happen technologically and managerially on both sides. Every month, \n\nthey review in detail the projects underway.\n\nBut CIOs talking doesn't mean any real work gets done, Vandevier jokes, so he likes to have \n\nSabre IT people on a given project connect with counterparts at Southwest more than he is in \n\ntouch with Marshall. "Interaction at all levels is critical," he says, interlocking his \n\nfingers to show how tight he wants the teams.\n\nSouthwest builds its own Web applications. But when the time arrives to build interfaces \n\nbetween Southwest.com's back-end software and Sabre's reservation system, Vandevier's staff \n\nsteps up.\n\nWith any IT project, Vandevier carefully considers to which country he assigns the work. In \n\n2003, 85 percent of Sabre's workforce was in the United States. By 2006, it was 45 percent. \n\nThe migration was planned to take advantage of deep skills available for lower pay offshore. \n\n"We're pushing for more efficiency," he says.\n\nIT work can occur in any of the countries, but each has a specialty. In Poland, where many \n\non staff have earned master's degrees in computer science, Sabre employees concentrate on \n\nserving growing business in the Asia-Pacific region (although they also serve other \n\nregions). In India, Sabre's slant is data warehousing and business intelligence. Buenos \n\nAires is where Sabre focuses on marketing applications; a short time difference\u2014two \n\nhours between it and Sabre's Dallas offices\u2014make meetings convenient.\n\nIn the United States is where strategic planning of new products and services and caretaking \n\nof the Sabre reservation system, among other tasks occur. Ongoing work includes converting \n\nmajor Sabre products to open systems technology. Such projects include the newer SabreSonic \n\nCustomer Sales and Service customer relationship management system, as well as GetThere, an \n\napplication big companies use internally to book business travel.\n\nDevelopment for a single project is usually confined to one or two locations. Any more than \n\nthat makes it hard to coordinate, and project managers can lose track of who's doing what \n\nwhen, Vandevier says. To help, Sabre recently built a social networking site named Cubeless, \n\nto help far-flung IT staff get to know each other and pose technology or business questions \n\nbroadly across the company. All 9,000 employees have a profile page to populate with \n\npictures and personal and professional details. The travel agencies using Sabre and internal \n\ncall centers are on Cubeless, too.\n\nDistributing the workforce may complicate logistics but is a good financial hedge, Vandevier \n\nsays. Treating IT overall as a risk to hedge, in fact, can help CIOs react more nimbly to \n\nchange.\n\nIT Through Reality Glasses\n\nPinnacle Holding is no American or Southwest or even an ATA. The $790 million Pinnacle runs \n\ntwo regional carriers that fly customers around 35 states and Canada for Delta, Northwest \n\n(its former parent company) and other big names. But this small airline is taking bold steps \n\nto manage IT more flexibly and more cost-effectively, so it's easier to change course with \n\nthe business climate. Namely, Pinnacle approaches IT as a risk to be managed and one that \n\ncan help mitigate risks in other parts of the company. At Pinnacle, IT is not a cost to be \n\nborne or a magical savior that transforms.\n\nSenior executives at Pinnacle are "extremely conservative," says Dato, the vice president of \n\nrisk management and IT. He was hired in 2006 to help the company manage IT risks and those \n\ninherent in being a growing airline in a chaotic economy. Dato joined Pinnacle after \n\nconsulting there for about five months, from KPMG. "I'm not a technologist," he points out. \n\n"I'm in risk and operational efficiency."\n\nA risk-based approach to technology is the successor to managing IT as a portfolio of \n\ninvestments, says Jim Sutter, principle at The Peer Consulting Group and a former technology \n\nexecutive at Xerox and Rockwell. That is, instead of balancing IT projects, CIOs should \n\nthink purely as business executives, partnering with a peer to lobby for a given project \n\nwithin the overall priorities of the company. Being focused on risk means emphasizing how a \n\nproject will prevent mistakes that the company might otherwise make, Sutter advises. \n\nOne of the first conversations Dato had with C-level executives was about the nature of \n\nrisk. Some is allowable; but some specific risks shouldn't go unchecked. "There's good risk \n\nand bad risk, like cholesterol," he says.\n\nOn the bad side, for three years after its spin-off, former parent Northwest was Pinnacle's \n\nonly customer. The deal precluded Pinnacle from flying for anyone else. Pinnacle \n\nrenegotiated in 2006, settling on an agreement that cut its revenue from Northwest by about \n\nhalf but left it free to fly for competing airlines. Diversifying customers is key to \n\nmanaging financial and operational risk, he says.\n\nNow an example from the "good risk" category. Pinnacle's board requires Dato to provide \n\nmetrics showing why it should fund IT requests. Board members want the usual: estimated \n\ncosts and returns expressed financially and operationally. But they also want a narrative \n\nexplanation of how the numbers will be achieved. Telling a story at a human level makes the \n\nrisk calculation more tangible, he says. To that end, in 2007 Dato built a case for a new \n\nWeb-based training system.\n\nGround crews, pilots and flight attendants come to Memphis, Tenn., headquarters regularly to \n\nrefresh safety, mechanical and other training. What the board didn't know, Dato says, was \n\nthat this travel amounted to 60,000 nights per year in hotel stays. A training management \n\nsystem from Plateau Systems that Dato proposed would provide online access to most courses, \n\nsaving one to three nights of travel per person, per year and "hundreds of thousands of \n\ndollars." The board could have elected to spend the project money on other things, Dato \n\nsays. But the numbers and anecdote together helped convince them to spend it on the IT work \n\nand avoid the greater financial risk of bringing employees to headquarters for training.\n\nOverall, Dato is evaluating Web replacements for nearly all of Pinnacle's software, which \n\nwas a mix of various applications from different vendors, none of which was built to work \n\ntogether. By midyear, most systems will be Web-based, some hosted offsite in \n\nsoftware-as-a-service configurations, he says. The list of systems includes financials, \n\nhuman resources and aviation maintenance, among others.\n\nLawson's Human Capital Management suite, for example, replaces a group of legacy systems \n\nused for managing job applicants' data. Pinnacle HR employees had to enter data manually and \n\ngenerate 29 pieces of paperwork for each job seeker, according to Lawson. Being able to \n\naccess this information online, along with employee personnel records and training \n\ncertifications, cuts Pinnacle's compliance risk, Dato says. "Our world is heavily regulated. \n\nWe needed this information more available and more complete for audits."\n\nFortunately for Pinnacle, with most of this spade work completed in 2007 and 2008, Dato and \n\nhis 30 IT staff will ride through 2009 and into 2010 tweaking and strengthening controls. \n\nThey won't have to scratch their eyes out trying to figure out which necessary IT projects \n\nto defer as cash dries up, the way many CIOs\u2014in the airline industry and \n\nelsewhere\u2014will spend the coming year.\n\nEach of these airlines hopes it's making the right business, and therefore technology, \n\nchoices. But no one will know for sure until the recession abates (one hopes) and customers \n\naccept or rebuff the new products, consultant Lee says.\n\n"Airlines have been through a number of recessions, it's true. But this is not your \n\ngarden-variety recession," he says. It's deep and it's global, he says, which means few, if \n\nany, bright spots for the aviation industry. But anyone, in the airline business or not, who \n\nstands still will get plowed under, adds Bejar.\n\n"There are two types of technology people," he says. There are those who say that this is \n\nthe right time to invest to prepare for upcoming growth. And there are those who won't do \n\nanything, waiting for the crisis to end. "Those," he says, "are the ones who tend to \n\ndisappear."