Low cost airlines are cost –cutting champions...but, are they doing enough?

It is taken as granted that low cost airlines are ruthless cost-cutters. But, is this really the case when it comes to IT systems and processes? Right, IT may not account for the largest share of operational costs, yet, in a fiercely competitive environment where every cent of savings counts, it is surprising how many airlines are missing out on opportunities to become more efficient. At Newshore we often come across such situations, that can often be addressed by answering these three simple questions:

Are you able to reduce the number of calls to your PSS?

Some PSS, such as Navitaire’s NewSkies, base their charges on the number of calls you make on the system. One of the key parameters in this business model is the “look-to-book ratio”, that is the number of calls you make on the systems in relation to the number of real bookings.

Very often the “look-to-book” ratio goes throw the roof, this is because of, both, meta-search engines constantly scrapping websites to get the latest price updates, and, on the other hand, the more widespread use of tools that allow consumers to search prices for a wide range of dates. In both cases this results in a massive number of calls to the PSS system.

The most efficient solution to limit the look-to-book ratio is to keep data on an external “cache” server. The key here is to keep the update frequency of this server high enough for data and prices to be up to date, but low enough to reduce the look-to-book ratio and bring it down to acceptable levels. For example, by adopting this strategy, at Newshore we have achieved reductions of over 50% in our clients’ look-to-book ratio.

Are you unnecessarily over-using Premium services?

For example, a product-centric company will allocate most of its resources and its best developers to create better code or roll out new features. They may view professional services and support as a necessary evil. Good products may come with scarce and expensive support.

And while no one denies that product quality is important, there are so many different processes in an airline, from key functions like the Internet Booking Engine, that require deep specific knowledge, to commodity features. The scope for working with a range of technology suppliers is usually quite large and, very often sourcing externally and locally can deliver significant cost reductions without compromising in quality or reliability. Sourcing from external providers can also deliver additional benefits in the form of more freedom of choice, which often translates into lower costs.

Our experience has shown us that the best results can come from a three-pronged sourcing strategy:

  • “Premium” services, restricted to essential tasks that are intimately related to the product
  • “Specialized” services, provided by firms that are know the airline industry, its processes and its technologies inside out and are able to address airlines’ multiple technological needs over the long term at a competitive cost. Newshore would be in this segment.
  • “Commodity” services, that relate to basic features that can be handled by suppliers with no specific airline industry knowledge.

 

What is your strategy for Internet Booking Engine evolution?

Last, but not least, it is important to have a strategy to adapt your booking platforms to the fast evolving nature of the airline industry.

Some PSS suppliers, such as Navitaire, constantly roll out new add-ons and features to deal with evolving industry and technology trends, like reporting, big data, etc.

While in-house product extensions can be a good option, why not check out alternative options, such as compatible solutions developed by third party suppliers or, even, in-house?

Matters such as functional adequateness, maintenance costs, supplier hold-up issues, etc. must be put into perspective. At Newshore we have participated in projects where three different alternatives have been considered. Third party or in-house solutions have often turned out to be the best option.

As you can see, there is not a single way to achieve a significant reduction on your technology costs without compromising on quality or reliability. Asking oneself the key questions early on and coming up with comprehensive long-term IBE strategy that is flexible enough to accommodate the potential long terms growth of your airline can unlock noticeable efficiency improvements on the IT front. A welcome addition to the tool set that helps you stay atop the ultra-competitive air travel market.