Struggling airlines scrutinize IT projects

As they struggle to survive an economic downturn that’s being exacerbated by the war in Iraq, U.S. airlines are taking an increasingly demanding look at return on investment and “transformational” benefits before funding IT projects.

Already trying to recover from US$18 billion in losses since the Sept. 11 attacks, the airlines now face the prospect of losing another $10 billion and tens of thousands more jobs if the war in Iraq lasts longer than expected, according to the International Air Transport Association. As a result, the pressure on airline IT departments to prove the ROI and cost-reduction benefits of new IT projects has never been greater, according to some industry executives.

For example, America West Airlines Inc. has always focused on ROI before funding new IT projects. But “the rigors, constraints and milestones that you have to meet to move forward with new programs have now become much more intense,” said Joe Beery, CIO at America West in Tempe, Ariz. “We’ve constrained the projects to the highest ROI you can imagine.”

America West has increased deployment of service kiosks and recently rolled out a wireless system for “roving gate agents” at Baltimore/Washington International Airport at far less cost than expanding the number of ticket counters.

Monte Ford, CIO at American Airlines Inc. in Fort Worth, Tex., said IT projects that aren’t focused on increased productivity, customer self-service and Internet functionality have been “slowed down” at the airline. American has also delayed projects that “simply add granularity to systems that already exist,” he said.

However, Ford said, American differs from some other airlines in its approach to ROI. “Many IT departments spend time stewing over ROI numbers that will justify their existence,” he said. “Not at American. My staff and I implemented a portfolio management approach to all IT projects nearly two years ago, and it took the guesswork out of determining which projects to work on.”

American’s approach to portfolio management divides all IT projects into categories that are aligned with the company’s business objectives. “As a result, we can quickly see which projects will have immediate impact on the business versus projects with long-term payback,” Ford said. That way, “there is no need for knee-jerk reactions to financial circumstances.”

Atlanta-based Delta Air Lines Inc. hasn’t backed away from new IT projects. But it has also refocused on ROI and projects that offer clear benefits to the bottom line.

“We’re focusing on those projects that enhance Delta’s core business processes, infrastructure and productivity and have an ROI of 12 to 18 months,” said Betsy Talton, a Delta spokeswoman.

Through what Talton called “transformation” projects, Delta plans to realize nearly US$1 billion in savings this year as part of a company-wide, profit-improvement initiative designed to save $2.5 billion by the end of 2005. Many of the changes being implemented are technology-driven, said Talton.

For example, this year Delta will deploy more than 400 self-service kiosks at 81 airports, bringing its total to more than 800 throughout its domestic system.

Gary Kelly, chief financial officer at Dallas-based Southwest Airlines Co., said that the carrier is also focusing on projects that will improve customer service and overall efficiency, but he added that overall IT budgets and head count will likely remain flat for the next two to three years.

Southwest recently introduced automated boarding passes, kiosks and automated bag tags, said Kelly.

Ron Kuhlmann, vice-president of the R2A transportation management consulting unit of Unisys Corp., said many airlines are burdened by back-end systems that are more than 20 years old. And while many have expressed interest in replacing those systems with modern, open architectures, doing so would require infrastructure overhauls that none of them can afford right now, he said.