Opinion: After America West acquired US Airways, the two companies had to figure out a way to combine their reservation systems. A combination of outsourcing and 'insourcing' was the answer.
The turbulence from the acquisition of US Airways
by America West Airlines
last month has reached the IT level, as the airlines begin to combine their reservation systems. US Airways had been operating on the SABRE reservation system, while America West had been on the SHARES system. The combined airline will standardize on SHARES.
"Its a huge effort. Its a monumental effort on the IT side," said Joe Beery, CIO of US Airways, as the combined entity is known. Beery came from the America West side, however, and is putting that airlines stamp on things. The switchover from SABRE to SHARES will take 12 to 15 months, said Beery. In the thick of things is outsourcing giant EDS,
which had been providing the infrastructure for both the SABRE and the SHARES systems.
"Large real-time systems that do millions of transactions a year, there is always the risk of losing records as you merge a couple of systems. We and the client are aware of the issues," said Jim Dullum, U.S. transportation industry vice president for EDS.
Beerys charter is to carry out the corporate mission to make the bankrupt US Airways a low-cost carrier like America West claims it has made itself. Beery plans to achieve this goal through a hybrid approach to sourcing: Some work will be done in-house; some will be outsourced. America West aims to spread its SHARES-based apps and GUI, which were developed in-house, to the US Airways side. "Because we own that front end, we can create a more efficient process," said Beery.
While reservation systems must be handled by specialized providers, the rest of IT is better done in-house, Beery said. "Application support, systems support, desktop support, HR, payroll, financial systems, reporting and accounting can best be done in-house. America West had those things and was operating in a low-cost model. So our tendency will be to insource those things," said Beery. EDS has been handling those tasks at US Airways.
Beery said the combined IT budgets for both airlines was $250 million per year and the IT budget at the merged airline will be lower by approximately $100 million per year. Since EDS has been handling the work for both companies, it stands to lose a chunk of revenues. But Beery said he and EDS are on the same page. "EDS will get less money from the combined company. They understand we are a low-cost carrier, and theyve worked with us in the past. They want to be part of a successful airline going forward," said Beery.
Dullum said EDS, which does $1 billion in airline work annually, plans to implement more customer-friendly features at US Airways, such as enabling travelers to use PDAs to check in. Airline maintenance will also rely more on wireless technology, he said.
Out and About
Want to try offshoring? Go ahead, but you might want to adjust your expectationssignificantly. A recent study found that first-year savings from offshoring will likely be elusive or even nonexistent. Paul Schmidt, head of global service delivery at TPI and who worked on the study with Arcon Group, found that only three years into an offshore arrangement are cost savings realized. The study also found that 20 percent of initial productivity estimates were twice the actual initial productivity realized.
He raised another sobering point: "If your labor arbitrage is 50 percent of onshore, then your ultimate costs will be the same as onshore." Thats because offshore providers typically use twice as many people as onshore providers. Equally sobering: Customer satisfaction is no greater with offshore providers.
In one particularly ironic observation, TPI found that experienced companies have lower and more realistic expectations about productivity than do those just beginning to offshore. But the more experienced companies are far more likely to get better returns than newcomers. Nonetheless, said Schmidt, those who stick with offshoring do reap significant returns once they reach the five-year mark, at which point they are likely to expand their efforts.
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