Americans Budget Stays Airborne

American Airlines keeps its IT budget steady amid economic turbulence.

Monte Ford
At the end of last year, as American Airlines Inc. CIO Monte Ford (pictured left) prepared to present his proposal for a flat 2003 budget to the companys board of directors, even some of his top lieutenants feared the worst: hearty laughter from Chairman and CEO Donald Carty, followed by orders to cut IT spending.

IT managers had good reason to be concerned. Even before the outbreak of hostilities in Iraq—and the return of the publics air travel jitters—the worlds largest airline was facing what Carty called "a treacherous time for our company." American—whose parent company is AMR Corp.—lost $2 billion last year, and Carty has said the company needs to slash operating costs by $2 billion, following $2 billion in cuts last year. To get there, Carty has pressed employees for 25 percent pay cuts and the government for financial relief.

It represents nothing less than an endorsement of Ford and his team, then, that AMRs board approved the CIOs request for no cuts in IT spending this year. And Americans management has stuck to that commitment, even through the companys recent close encounter with Chapter 11 bankruptcy protection. (American declined to say how much it spends annually on IT, but industry analysts put the figure at well over $200 million, based on industry averages.)

Fords success at keeping Americans IT budget from being gored can be attributed, at least in part, to a decision by American to employ a portfolio management approach to IT budgeting. (For more on Americans portfolio management approach, see story.)

But, said Ford, the biggest reason American continues to invest in IT, even while it cuts back in other areas, is Cartys conviction that, at least in the airline industry, IT is still the best vehicle for reducing operating costs while also satisfying customers.

The major focus of Americans sustained IT investment is on refining and expanding customer self-service opportunities—online, at airport kiosks and through voice recognition systems—and taking paper out of key, costly business processes. The reason for focusing on customer self-service is obvious, said Ford. It allows American not only to put customers in control but also to substantially cut transaction costs.

Like American, other airlines are investing in customer self-service applications, hard times in the travel industry notwithstanding. Delta Air Lines Inc., for example, plans to roll out an additional 400 self-service kiosks in airports this year, said CIO Curtis Robb, in Atlanta. Delta, however, cut its IT budget 10 percent this year, Robb said.