High flying solutions for the air transport industry.

How can an industry continually strive to cut costs and still be expected to provide first-class service? This is the dilemma confronting the airline industry. While air travel is a large and growing industry itself, it is also central to world trade, investment, tourism and global economic growth. The globalization of other industries depends on the air transport and related industries being able to deliver a reliable, yet low cost, array of services at the touch of a button.

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SITA Cuts Costs at Global and Local Levels

By its very nature the air transport industry is based on the kind of global network that today's multinational companies both aim to imitate and utilize. The industry discovered that if it shared its communications facilities, all concerned saved money. The task of coordinating an integrated global communications network fell to the Societe Internationale de Telecommunications Aeronautiques, or SITA, as it is now known. Founded as a cooperative in 1949, SITA provided the first direct communications link between European airports. It is now a 730-member-strong worldwide organization headquartered in Geneva and comprising two main parts, SITA SC and SITA INC. As well as providing services to airlines and airports, it helps companies in related industries such as logistics to achieve savings from the sharing of infrastructure. In fact, it is now the biggest provider of information technology and telecommunications solutions to industries involved in air transport. However, SITA remains committed to its original aim--encouraging the shared use of new technology to help its customers become more cost efficient. It must now respond to new challenges faced by the air transport industry while continuing to cut costs and increase efficiency.

The question remains whether SITA will be able to continue to help the industry reduce expenditures and still provide enhanced services to its customers. The emerging technology used in call centers, assisted by the convergence of telecommunications and computer communications, is an area the industry hopes will provide significant advantages for users and savings for providers. The airline industry is counting on SITA to help it meet these new challenges. So what exactly is the former monopolist, now run as a normal company, doing to ease the worries of its shareholders, the majority of whom are airlines?

SITA's New Strategic Initiatives

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SITA aims to save money not only for the 588 airlines it works with, but also for other companies in the air transport industry, such as global distribution services like Galileo and shipping companies like DHL, which will in turn mean savings of up to 25 percent for airport hubs too. For SITA to achieve these cuts it has to actively seek new ways of working with its customers and if necessary transform itself in order to do so. The company began this process with the restructuring of its global organization two years ago, and is now implementing a series of initiatives to increase revenues across the industry and at the same time, according to SITA SC CEO director-general, Hans-Peter Kohlhammer, transform SITA from a technology network company into a value-added integrated service provider.

Under the banner of 'Transform 2006' SITA has outlined four key objectives that will dramatically change its relationship with the air transport industry. The first is fundamental: to reduce overall communication costs for the industry; the second is for SITA to remain the preferred provider of Travel and Transportation Industry (TTI) communications services; the third is for SITA to build on its community role, working in partnership with industry bodies like the International Air Transport Association (IATA); the fourth and final objective is for SITA to guarantee its customers that it is tenable long-term, and can continue to be of value to its owners.

SITA's objectives are to be realized by five further strategic initiatives. Firstly, in its new role as a communications services integrator SITA wants to take complexity away from its customers. It plans to outsource communications and network applications so that airlines can focus on their core business: service and transportation. Secondly, SITA will expand its range of professional services. Customers, by availing themselves of the new services, can keep costs down and access cutting-edge communications technology. Thirdly, SITA is pioneering a new approach to airport hub networks in a further effort to reduce costs for customers. By consolidating individual 'pipes' connecting local area networks to airlines in the airport network, SITA aims to save customers up to 25 percent on costs. Working in partnership with Equant, part of the France Telecom Group, SITA has flight-tested this kind of integrated airport infrastructure in 50 airports across the world with another 100 to follow by the end of 2005.

SITA's final two initiatives involve voice services and IP (Internet Protocol). New, improved voice services and IP convergence are shaping up to fundamentally change the way airlines and their customers contact each other. The industry is taking advantage of the fall in prices for IP services, and increased reliability of VoIP (Voice over IP). Call centers, for example, plan to add multimedia technologies to their services over a shared network infrastructure. Webenabled call centers can take calls from potential customers browsing the Internet. Simply by pressing a 'call me' button customers are able to speak directly to an agent via VoIP telephone SITA has introduced Cisco Systems' and Hewlett-Packard's IP technology, a vast improvement over earlier versions, which had a reputation for being both risky and, worst of all, costly. A related initiative is SITA's 'IP Everywhere,' intended to hasten the industry-wide adoption of IP. The company reported that significant progress was made throughout 2004.

Competition Leads to Partnership

The increasing competition in the airline industry that forces companies to constantly cut costs is partly due to the transfer of airline ownership from state to private sector. SITA benefited from government departments' spending habits but must now operate in a far more budget-conscious age. Deregulation in the EU has also opened the skies for flights between member states. These factors, coupled with company budget restraints and the rise of low-cost carriers, have led airlines to constantly seek to slash prices.

One response to this cutthroat environment is for airlines to form strategic alliances and partnerships such as Star Alliance. In a move likely to end in virtual oligopoly, call center agents may have to take reservations for all members of the alliance. SITA's symbiotic partnership with data communications giant Equant brings similarly mutual benefits. SITA's customers have a need and Equant is able to provide a solution. SITA holds licenses to operate as a provider nearly everywhere and Equant operates under the SITA name in over 100 countries. SITA is not, however, a shareholder, although SITA SC's CEO, Dr. Kohlhammer, sits on the Equant board. SITA pays a rate for bandwidth and negotiates a price every year. It does have a right to veto over the use of this bandwidth because it would have an impact on SITA's ability to deliver services.

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Technological Solutions

The issue of bandwidth is crucial for airlines hoping to take advantage of the progress made in call center technologies. The convergence of telecommunications and computer communications means that airlines installing web-enabled call centers need to invest in integrated networks that can carry the increased bandwidth. Airlines are banking on customers being more likely to purchase tickets online to offset the cost of extra bandwidth. It is hoped that the move to web-enabled call centers will improve customer service and also that cheap Internet phone calls will ease some of the financial burden of replacing existing technologies and infrastructure. If the price for increased bandwidth becomes cheaper, more airlines will be able to join the network.

SITA is dedicated to using advanced technology to help customers cut costs while still maintain utility. For example, in the case of bandwidth delivered to customers at each airport, it can move bandwidth around to meet their individual needs. Other carriers tend to place a customer on one bandwidth, with no option for change. For example, at Narita, SITA has 100Mbps of bandwidth available. If a major user like JAL has a project requiring 11Mbps but has only contracted for 10Mbps, then SITA looks at the statistical profiles of spare bandwidth and other users, and can reorganize some additional bandwidth for JAL without impacting other users.

This type of approach, achieved without a quantum leap in technology, has allowed SITA to predict another $60 million of savings this year. "We are the experts of telecommunications," claims Dr. Kohlhammer. "It's our responsibility to the airlines. We have to be progressive, and we have to find new solutions. Those solutions might not be high-flying, but they help us to cut costs again."

SITA is fortunate to be able to rely on SITA INC, the IT arm of the organization, to perform some of the expensive maintenance and service work, ensuring that the latest IT solutions and applications are integrated with the network without jeopardizing cost cutting.

SITA's Call Center Solution

Airlines that manage to integrate their web applications with their call centers stand to gain an advantage over competitors. This will require airlines to restructure their call centers. SITA not only provides call center support for users but also provides infrastructure and information about how to run calls. As customers emerge and create demand, it may even provide the actual call center itself. As part of the airlines' strategy to move customers to the less cost-intensive environment of the Internet, SITA is working to create call centers used by more than one airline. Customers are greeted by a representative of the airline whose number they dial, although, in fact, the same people are taking calls for all airlines.

SITA set up a pilot site in Cairo. European customers who call the center are neither aware of its location nor experience any language problems. The success of the pilot site led SITA to establish call center services for Japan Airlines at its UK headquarters. The new call center consolidates flight reservation and frequent flyer services for all of Europe, utilizing SITA's network and Nortel interactive voice response (IVR) technology. JAL customers can use the service to speak to an operator in Japanese, or one of five European languages, from any of nine countries, for the price of a local call.

Complex Solutions

The biggest challenge facing the air transport business is cost cutting. Profits are far lower than in other industries. So airlines try to cut costs, increase efficiency, and improve service. Faced with these demands, airlines have joined forces under the SITA banner, and found that sharing infrastructure keeps prices down.

SITA SC is the only global communication services integrator working solely for the travel and transportation industry. It is assisted by SITA INC, its sister company and provider of solutions and applications. The company must now be able to offer the industry increasingly complex solutions for its communications needs. To maintain its reputation as air transport industry communications specialists, SITA draws on the expertise of companies like Equant, Cisco Systems, and Hewlett-Packard.

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The intense pressure to reduce its customers' costs led SITA to restructure in 2003, transforming itself from a monopolist into a modern business. This made huge internal savings possible and also provided the impetus to push forward new strategic initiatives designed to save money in other ways. The company is becoming less focused on providing technology networks and more interested in providing integrated value-added services. It remains committed to its original aim of helping the industry share infrastructure, only now this means sharing bandwidth and even call centers. The convergence of telecommunications and computer communications and the rise of Internet Protocol (IP), which SITA is working to make standard across the globe, will also greatly reduce the industry's overall communications costs. The technology may have changed since 1949, when SITA was founded, but its key strategic objective remains the same; to help the air transport industry save money.

RELATED ARTICLE: The Asia-Pacific Region

The sky's the limit for SITA's growth

SITA, with regional headquarters in Singapore, places great importance on its relationship with Japan, the largest economy in Asia. SITA SC, its communications services arm, counts among its board members Shunichi Saito, an executive officer at JAL, and ANA is another important customer.

Japan is sometimes though of as a difficult place to do business, but SITA has not found this to be true. In the past Japanese companies may have been unwilling to outsource services to companies in which they did not hold shares, but today they are eager to outsource IT services. Even though JAL has its own IT subsidiary, SITA has been able to take on consulting and infrastructure elements of its business, saving the airline money.

In Japan, SITA manages some of its own services and subcontracts others. Its subcontractors include Equant, and SITA INC. In terms of business development and consulting, SITA has local people on the ground, who are supplemented by experts from Singapore and Hong Kong. The company does not see Japan as different in the provision of services. The main task is to transfer data and voice from one place to another, and this requires the same techniques in Japan as in other countries.

But Japan is only one country in a region holding ever-greater importance for the air transport industry. SITA ended last year with a record amount of business in the Asia-Pacific region. One reason was that the restructuring of the company's worldwide organization, started in 2003, has led to a flatter, more responsive managerial chain. There are now only four levels of management, making it easier for customers to gain access to the company's decision makers. This is reflected in an impressive 98.9 percent level of customer retention for the Asia-Pacific region.

Another boost to regional profits resulted from introducing flexible and low-cost IP-based networks to replace expensive 'legacy' networks. According to the 2005 Airline IT Trends Survey, conducted by SITA and industry magazine Airline Business, over 70 percent of airlines in the Asia-Pacific region anticipated that their systems and sites would be IP-enabled by the end of the year.

The restructuring has impressed upon management that SITA must operate like any other company. SITA SC CEO Hans-Peter Kohlhammer claims today's ultracompetitive business environment "keeps him awake, and focused on what he can do to make the company better." The director-general of the largest part of the SITA Group now aims for 2 percent profit. So in addition to remarkable price reductions across legacy and IP connections, a further US$20 million has also been shared amongst shareholders and customers, which Asia-Pacific, as the company's new growth area, will clearly have benefited from.

This year SITA expects revenues from Asia-Pacific to exceed US$200 million, which would be more than North America's contribution to gross revenues. SITA SC provided its parent company with US$940 million last year, US$182.2 million of which came from business in Asia. In Asia-Pacific, the sky's the limit for SITA.--J.C.