Monday, March 26, 2007

WestJet Airlines

From: Ottawa Citizen : 17 May 2006
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WestJet Airlines Ltd.'s new reservation system that will link it with U.S. carriers and travel agencies may cost Canada's second-largest airline $40 million, CEO Clive Beddoe said Tuesday. Our partners' investment will be probably double that, and a lot of that is being spent in India with relatively low labor rates," Beddoe said …. WestJet has spent three years to upgrade its existing system with one that could link the Calgary-based carrier with booking systems of other airlines to expand into their networks

From: Market Wire : 22 December 2006

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WestJet today announced it has extended its agreement with Navitaire for its OpenSkies reservation system through to December 31, 2008. "This agreement with Navitaire will provide us with an upgraded and supported product in OpenSkies," said Sean Durfy, WestJet's President. "… The aiRES reservation system, owned by IBS and marketed by Travelport, will not be released in spring 2007 as was indicated earlier this year.

From: The Beat ~ a travel business newsletter : 10 January 2007
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Canadian carrier WestJet may be forced to write off about $26 million ($30 million CAD) if it fails by May 31 to amend its agreement with Travelport covering the airline's use of the aiRES reservations system developed by IBS Software Services and marketed by Travelport.


Eastman's "Off-the-Wall Comment(s)"© …

How quickly the tide turns.

In the April OTWC … comment dated May 31 … I discussed in some depth the issue confronting airline hosting systems – the past platforms and where the new platforms are headed. That comment was lifted from a thread that originated as part of a discussion of the May 17 WestJet claims to its financial analysts.

In other comments expressed in that thread, I noted …

Ø The project s not only late and over-budget – it is unlikely that WestJet will ever (very important word there – "ever") recover the investment it has made in such a product. Technology is moving too fast and costs are imploding too quickly – for such an all-encompassing investment to be recoverable.

Ø A WestJet strategy of interline and code share would suggest a “going back to the future” approach – which would appear to me as very risky. It would force the airline further into the commodity seat business, inhibit the airline’s ability to sustain its current competitive advantage of quality service at competitive costs, and marginalize yield opportunities with the need to comply with code share partner’s older business process scenarios.

Ø Because one spends more for technology does not mean that the same solution is not available at much lower costs! At 1/10th the price; or even 1/3rd the price – a small and fast growing WestJet competitor can viably compete. More important, technology costs are going to go down month by month! Not year by year – but month by month. Technology is moving that fast.

Ø Even today, various forms of this technology are available from TEG, Radixx, Kinetics, Datalex, and any number of other new technology vendors. It isn’t that the small and/or fast growing airline cannot have this type of technology. It’s that their managements don’t know how or where to look! … I suspect that is what blindsided WestJet. But because WestJet didn’t understand does not mean that WestJet’s competitors will not see it.

The purpose of reconstructing these points made 6-plus months ago is not to say “I told you so” (although there is some satisfaction in that as well) – but rather, it is to introduce a very critical aspect of the thinking process that is virtually institutionalized within senior management(s) of the travel industry … airlines, tour operators, travel agencies, wholesalers, etc.

One has to ask why WestJet initially made the initial decision to move from its already proven innovative OpenSkies hosting environment. OpenSkies was developed by David Neeleman when he was running Morris Air; brought by David to WestJet during his consulting tenure after leaving Southwest; and subsequently used by David when he launched JetBlue. OpenSkies, now owned and marketed by Navitaire, remains the core of the JetBlue hosting environment today.

What sort of management “logic” went into the decision to become a “launch” customer of the aiRes product being marketed by then, Galileo and now, Travelport? As a keen observer of the distribution sector of the travel industry … but a WestJet outsider looking in, just the same … I would posit three major factors led to this decision!

§ GroupThink -- the tendency to make decisions like the people with whom we work most closely.[1]
§ ExpertThink -- the tendency to go along with the tried and true methods of experts.[2]
§ BLT -- or “Be Like Them”; the need to be like somebody else[3]

Most large corporations and certainly all of the large corporate entities in the travel industry – be they airlines, tour operators, or travel agencies – are subject to GroupThink. GroupThink is embedded in the culture of the industry – and solidly locked in place by the long established technology processes that enabled the business to grow and mature over the past 50 years. GroupThink in a start-up evolves when the business hires “industry experienced” staffers to manage and run a rapidly expanding business.

ExpertThink is often spawned by GroupThink. ExpertThink in a business comes about when there is a lack of consensus about how to solve some problem – and the business looks outside of itself to find “experts” in the field that can help. For the most part, those experts are “experts” because they have a long history of implementing or managing the process or problem area as it has existed in the past; of using the “tried and true methods” or “branded products” from the past.

BLT is a two-fold perspective … reflecting the GroupThink mentality of needing to emulate what other “successful” companies in the field are doing; but within the individual(s), the need to be like others. The “Be Like Others” can take on an extended meaning when senior management egos get involved; leading senior leadership to emulate the examples of their peers while lacking either the knowledge or experience to implement a similar solution.

It appears to me that in WestJet’s success and rapid expansion, they recruited experienced staff away from others in the industry. Rather that sustain the GroupThink core that surrounded their start-up efforts, the industry GroupThink quickly prevailed as the airline found itself having to respond to new and quickly evolving challenges.

Industry GroupThink was … and is as I write this … technologically dependent on the historic providers of airline hosting and distribution services – the GDSs. Start-up OpenSkies and its new owner Navitaire became “too small” … “too unresponsive” … “too new an idea” … for the new industry GroupThink values. GroupThink managers wanted something they had experience with and a brand name they could depend on.

This undoubtedly led to a need to “review” the current providers.

As an aside, how many of you reading this far … have been here?

The “review” led to selection of “ExpertThink” consultants … who, in turn, recommended “ExpertThink” solution providers. Galileo was at that time … still a leading “ExpertThink” resource. But Galileo was, in fact, also feeling the pressure to evolve its hosting platform from the prevailing legacy environment serving United Airlines – to something that could compete with the new Amadeus product evolving in Star Alliance. So Galileo-come-Travelport used their ExpertThink podium to “sell” their envisioned aiRes solution being built by IBC using low cost technology resources in India.

And how many of your reading this … have been or are here?

So now enters BLT … at the senior management level. Here’s a start-up carrier that has matured to be a competitive factor in the Canadian market; an airline giving its major competitor Air Canada fits! One of its founding consultants … for all practical purposes, a key implementer of the core business foundation of the airline … David Neeleman; has left to launch the even more successful JetBlue. Yet OpenSkies, a perceived problem by the new GroupThink echelon needing an upgrade or replacement justified by the ExpertThink team, is a remaining “link” to the now ex-consultant. What better way to demonstrate that you can be like him … and create a better technology solution by being innovative like him?

GroupThink wants the change … ExpertThink offers an alternative … and senior management, having either the technology knowledge nor relevant product distribution experience – opts to move down the GroupThink/ExpertThink/BLT path.

Conservatively, the out-of-pocket cost to the airline $30 million dollars in “contract extraction” costs plus the $40 to $60 million already spent to get to this point. And that does not consider (a) lost opportunity, (b) cost to upgrade OpenSkies, (c) redundant or duplicate development costs, (d) wasted staff resources, (e) exposed market risks, (f) deflated moral or lost-confidence by staff, or any of a host of other hidden costs.

Please understand … the picture I paint above is a scenario. It is created as an example – to depict in a close-to-real environment with which most of you can relate.

To WestJet’s credit, management regained control – and appear to be moving down a path more applicable to the air travel product that they offer. Whether its Navitaire or some other new technology solution, the issues of industry GroupThink and industry ExpertThink are at least – now being offset by psychological distance in dealing with the distribution problem; a renewed passion in being WestJet it once was; and paying closer attention to the demands of its travelers in lieu of reconstructing a monument to vendor-controlled channel distribution.

So let me ask you – are you allowing the historic travel industry GroupThink to drive your decisions? When you look for information, do you turn to the traditional industry ExpertThink resources? To what extent do you … or your managers … seek to “one-up” their competitive peers with some incremental growth doing what they are doing?

Now don’t take away from this discussion the premise to explore new digital technologies from other industry distribution channels. The problem with that mindset is that people in other industries do NOT have the knowledge or related experience to be able to accurately assess how to meld the new technologies with the existing business processes of the travel community.

Further, GroupThink is critical to successful growth and evolution of any travel business. But GroupThink needs to be channeled and measured by the goals of the company – NOT by what others in the industry are doing! ExpertThink needs to focus on the goals of the company – NOT on what others in the industry are doing. And managers/management need to free themselves from BLT drivers and focus on independently derived solutions that allow the company to adapt existing core competencies to serve the new demand-driven buyer knowledge tenants that the ubiquitous access to instant information allows.
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As I close this set of comment(s) … I remain frustrated and in awe of the vast number of travel industry leaders – individuals, managements, and corporations – that remain inculcated in the processes and thinking of the past; almost immune to what is taking place around them.

The industry is beset by bankruptcy or almost-bankruptcy. For those that have passed through bankruptcy, the recovery plans have come under assault by labor seeking a piece of the “new wealth” … and for that and other embedded business processes, the majority of those quickly find themselves headed back underwater.

Others, carried by reputation and/or brand, continue un-endingly into the financial morass that comes from continue use of people to effect transaction processes that are foisted upon them by the distribution tools of the past.

Many of these companies gloat over their new “classy” front-end GUI web solution – while failing to recognize that the back-office human transaction processing and traditional channel marketing efforts are marginalizing any potential for profit! In fact, for most, effective web marketing tools simply compound the problem – forcing the business to expand their back-office human staffing to deal with the legacy transaction needs of inventory management and financial settlement.

I started this piece with the comment, “The future doesn’t “just happen” … the future is created each day by you and me … by each of us as individuals reacting or responding to the actions or needs of others.” Those “you and me’s” include the people that buy our products … use our services … and come back because the product delivered met or exceeded their expectations.

As noted above, buyers can no longer be “sold” expectations through the vendor-controlled channel distribution solutions of the past. Buyers have access to information … and their own special needs … which, together, become the expectation. The ability to respond to buyer needs with component parts of the buyer’s expectation via the virtual digital world has achieved critical mass – yet few other than Expedia (and more recently Travelocity/Sabre and the new hosting world of Amadeus) have come to recognize what surrounds them. The misguided illusion of the industry’s historic travel distribution GroupThink is less threatening I guess.

[1] “The Innovation Killer” by Cynthia Barton Rabe: Published by AMACOM, a division of American Management Association, International; Copyright 2006 by Cynthia Barton Rabe. www.zerogravitythinker.com
[2] IBID
[3] “Understanding Yourself and Others : An Introduction to Interaction Styles” by Linda V. Berens: Published by Telos Publications; Copyright 2001, 2006 by Linda V Berens, PhD http://www.16types.com/ and http://www.16typesuniversity.com/

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