May 11, 2007
|“We have written off $9 million spent on a new reservations system that may never see the light of day.”
- Virgin Blue CEO Brett Godfrey
IF LOW COST AIRLINES LOSE MILLIONS ON A RESERVATIONS SYSTEM, IS IT NEWS?
Last January Canada’s premier low cost carrier, WestJet, warned shareholders it may write down $30 million invested in a new reservations system purchased from a major airline IT vendor. Because after years of development, the system still cannot be used by Westjet.
In April, Air Transport World magazine reported “the troubles were not over” for the new system. The CEO of another early customer, Virgin Blue, told a press conference “we have written off $9 million spent on a new reservations system that may never see the light of day.”
While the system’s problems have slowly become industry news, we could not find this acknowledged on the websites of either the big name IT vendor or its India-based software development partner. Promotion of the new system citing Westjet as the “launch customer” continues.
Are airline losses of millions of dollars because of an IT vendor news? Novak Niketic says this is not only big news, it is a critical lesson for all airlines.
Why was WestJet planning a change in reservations systems in the first place?
WestJet was looking for a new system in 2003 because it wanted functions its current software, Open Skies, didn’t provide: a website which can display multiple fares, process online changes and sell optional services, and the support of interlining. WestJet, like several other airlines we spoke to that year, was also concerned that Navitaire had turned its development focus from the Open Skies platform to building a Microsoft-based system.
With that concern, WestJet decided to become a customer for “a new product that hasn’t been used by an airline before,” as a WestJet spokesman told the Dow Jones news service. Our guess is WestJet made this decision in part because a big name in the industry is backing the Indian developer.
But the system hasn’t been delivered as agreed?
Apparently not. That’s why WestJet suspended the contract and issued its warning of a potential $30 million loss to shareholders.
This isn’t just big news, we think all airlines can learn some critical lessons from it.
What will WestJet do?
WestJet has extended its agreement to use the Open Skies system with the promise Open Skies will be upgraded to allow for interlining, multiple fare displays and online changes. WestJet told the Dow Jones news service it has no specific date for these upgrades, but they would be “functional well before [the big name vendor's system] would have been up and running.”
That begs a question. Your AirKiosk system has provided all of these functions since the time WestJet was looking for a replacement. Why didn’t WestJet choose the AirKiosk system?
When we spoke to the WestJet team they were intent on owning and maintaining their reservations software at the source-code level. That was a mistake many legacy airlines made, and have spent years reversing. We told the WestJet team this and it was probably not what they wanted to hear in 2003.
But we also don’t think that completely answers the question. Why would an airline turn away from a proven, low-cost solution in order to invest years and millions in something that didn’t exist?
We see every day that airline management continues to be vulnerable to the old school IT mentality that “more expensive must be better.” This plays to the “strengths” of traditional suppliers, they are very expensive.
Even when they don’t deliver…?
We see many big name vendors announce “new systems.” Although we think they are taking tremendous risks with their reputations, we guess they have to.
Traditional suppliers have been hard hit by the rise of low cost carriers and, worse, the desire of traditional carriers to adopt LCC innovations. These suppliers struggle to keep up with the functionality needed for the modern airline model, and they can’t match the cost structure of solutions like the AirKiosk system, which was built for this model.
We see these suppliers buying as much time as they can to try to realign all airlines with a high-cost, complex way of doing business.
What they have on their side are such large marketing and legal budgets that they can dominate every forum and industry organization. Only time will tell if any vendor can afford the remarkable arrogance of selling solutions which do not work at the expense of airline shareholders.
What do airlines do to avoid being raked over the coals?
Air Transport World, April 2007, “Without Reservations”
Globe and Mail, “WestJet reservation system on hold”
Dow Jones, “WestJet Chooses Interim Solution To Maintain Growth”
Canadian Press, “WestJet’s New Reservations System Again Delayed”
WestJet, “WestJet Announces Suspension of [New System] Implementation”
Reuters, “WestJet extends talks on delayed reservation system”