IBM lands $400M services contract with Finnair

To cut costs and improve customer service, Finnish airline Finnair Oyj has granted IBM Corp. a 10- year, US$400 million services contract that calls for IBM to manage the airline’s IT infrastructure and for the creation of a jointly operated technology-development center.

By outsourcing its IT-infrastructure management to IBM, Finnair hopes to rein in IT expenses and be able to focus more on its main business, a Finnair executive said Thursday. Moreover, Finnair also expects that its work with IBM at their technology-development center will help Finnair increase and improve its use of Internet technologies, he said.

“We want to be very competitive in e-business and we want to have more resources for innovation. IT isn’t our core business and we want to release capital for the core business, which is flying, and we want to assure that our IT cost-structure also is competitive,” said Eero Ahola, Finnair’s senior vice president of corporate business development and strategy.

At the technology center, IBM and Finnair will develop and enhance Internet-based airline services, such as letting customers check in using a wireless phone and buy tickets online, Ahola said. Finnair wants to provide a variety of options for dealing with the company, something that it hopes will increase convenience and help the company attract and retain customers.

“E-business for us is radically important because it gives you cost benefits … and a competitive advantage,” he said. “Customer convenience is very important. They can choose either a digital service or the traditional in-person option” for dealing with Finnair.

The airline, for example, already lets customers do wireless check-in, but “we can improve it,” Ahola said. Moreover, Finnair has set a goal to generate over half of its ticket sales via the Internet by 2006, he added. “The reasons why we want to improve our Internet services are service-driven and cost-driven,” Ahola said.

Meanwhile, the outsourcing services will be provided by a joint venture between IBM and Finnair. Finnair’s IT employees, as well as the company’s IT infrastructure, will be switched over to this new company, of which IBM will own 60 percent and Finnair the rest, Ahola said.

The technology-development center will be a separate entity, but, like the joint venture, is also covered under the 10-year umbrella contract, IBM and Finnair executives said. It should be operational in the coming months, Ahola said. Finnair and IBM, based in Armonk, New York, will decide later if they market to other companies the products they develop at the center, he said.

The 10-year contract needs to be approved by the Finnish Competition Authority, he said.

Finnair, based in Helsinki, carried 7.4 million passengers in the year 2000, flies to over 50 international destinations and 21 destinations in Finland, and has a fleet of 59 aircraft.