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.
At American, enhancing customer self-service options is forcing significant IT infrastructure investments and organizational changes. Until recently, Americans three major self-service channels, aa.com, kiosks and voice recognition, were managed by different groups and used different application logic. That meant not only high maintenance costs but also confusion among customers, who had to navigate different business processes on different American platforms.
Ford set out to end the confusion, first by bringing management of all the customer channels under Vice President for Customer Technology John Samuel. To gain more control, Ford brought management of aa.com and a few other IT functions that had been outsourced back in-house. (American still outsources about 80 percent of its IT operations, mostly to Electronic Data Systems Corp. and IBM Global Services.)
American is also building a common set of customer self-service application logic that can be deployed behind each communication channel. Developed in Java 2 Platform, Enterprise Edition and deployed on application servers from Art Technology Group Inc., the logic has already been deployed at aa.com.
To further enhance customer service and cut costs, Fords team has been revamping legacy systems. In a project dubbed AACoRN (American Airlines Customer Relationship Network), for example, American has replaced the dumbfounding character-based screens used by reservation agents with a GUI.
Americans IT organization has also spearheaded initiatives that could lower costs industrywide. Fords team, for example, has pressured and cajoled other carriers to support interairline e-ticketing, in some cases building interfaces between its own and other carriers reservation systems. American recently announced that all domestic carriers connecting to its network have fallen in line with the interairline e-ticketing initiative.
Not all of Americans IT-driven initiatives have been focused on customer service. Fords team continues to enhance Jetnet, the major American employee portal rolled out 18 months ago. The portal attracts 40,000 log-ins per day by employees, who can do everything on the secure site from updating their benefits to booking free travel.
Cartys decision to continue investing in such initiatives is paying off. American estimates Jetnet has saved it $8 million. The company saved $1.2 million on self-service benefits enrollment alone, said Andrew Watson, vice president for e-business, in Fort Worth, Texas. Meanwhile, the AACoRN project has cut reservation agent talk time by an average of 13 percent.
But American has a long way to go. Although the company had managed to cut its per-seat-mile operating expenses by 5.3 percent between the fourth quarter of 2001 and the fourth quarter of last year, Americans costs are still about 30 percent above those of competitor Southwest Airlines Co.
Still, said Watson, American is determined—with the help of IT—to continue to narrow the gap.
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