Enabling airlines to liberate themselves from the “clutches” of

decades-old legacy systems

Interview with V K Mathews, Chairman and Managing Director, IBS Group

By Airline Information Correspondent

India’s IBS Software Services, an established company when it comes to offering new generation IT solutions to the travel, transportation and logistics (TTL) industry, recently celebrated its 10th anniversary.

IBS is currently charting out an aggressive growth strategy, following General Atlantic LLC’s recent investment worth US$60 million in the company.

On the plans going forward, V K Mathews, Chairman and Managing Director, IBS Group said the company is planning to shortly set up two new development centers in India, outside Kerala. His vision is to grow IBS into a Rs.1000 crores (US$248 million) company by 2010.

“IBS will continue to stay focused in the TTL sector. As far as the air transportation industry is concerned, we remain committed to develop next generation products and services that can help the industry through this phase of aggressive growth and fierce competition. With our innovative next generation products for passenger services, cargo services, flight operations and crew management, destination and leisure management, we believe that we are uniquely positioned to serve the industry through this exciting phase,” said Mathews.

“IBS also plans to add two more lines of business - Ocean Transportation Management and Surface Transportation Management to make our offerings more comprehensive to the TTL sector,” he said.

In an interview with Airline Information’s Ritesh Gupta, ahead of eConference 2007 to be held in Singapore on 5-6 November, Mathews shared info on operations of his company, how critical issues such as how simplified business process can result in cost reduction and complex business processes can be simplified through new generation systems, and much more. Excerpts:

AI’s Ritesh Gupta: How do you assess progress made by IBS Software Services with its offerings in the aviation sector (especially in passenger services and flight operations)?

VK Mathews: IBS has made significant contributions to the industry by offering a next generation technology platform to support the core process areas of the air transportation industry, be it passenger services, cargo services, flight operations or destination and leisure management. We have been able to give airlines viable and inevitable options to liberate themselves from the “clutches” of decades-old legacy systems that were built and developed over the last 40 years.

Ritesh Gupta: As a provider of IT solutions to the travel industry, what new trends have you witnessed especially in the passenger services arena? What according to you is driving these trends in the aviation industry?

VK Mathews: Three major factors are influencing the industry – i) significant growth worldwide, with strong demand growth in Asia ii) changing customer expectations and iii) new-generation airlines, redefining airline business models.

Airlines are under severe pressure to reduce their cost of operation and improve efficiencies. The industry is witnessing explosive growth, especially triggered by Asian economies. Hundreds of new airlines are emerging every year.

Customers expecting a better overall experience without increases in costs – purchase options, on-board choices, in-flight entertainment, and airport facilities. Customer relationship management and customer loyalty management would be redefined.

IBS solutions are intended to assist airlines in all these areas, by offering them new-generation solutions that retain the business agility to meet the changing needs of an evolving market.

Ritesh Gupta: Earlier this year, RAK Airways had chosen PSS aiRES in addition to TopAir. How do you think IBS is an advantageous position when it comes to offering functional enhancement solutions for passenger systems and operations?

VK Mathews: IBS has products that address all the process areas of airline business. TopAir is the airline operations management solution whereas aiRES is the passenger services system addressing reservations, departure control, and fares and ticketing.

The true value addition of IBS is that we can tailor standard products to provide solutions that exactly fit airlines’ requirements, because IBS is also a software services company. Software Services (system integration, customization and even building bespoke solutions) is a major line of business of IBS. Airline customers see this as a differentiating strength of our offering.

Ritesh Gupta: Last year during eConference in Muscat, IBS highlighted how simplified business process can result in cost reduction and complex business processes being simplified through new generation systems. To what extent do you think airlines are accepting and functioning on such processes? Also, what is critical when it comes to accepting the change from ‘airline operator’ to that of ‘service owner’?

VK Mathews: Very interesting questions. Let me answer the first.

Typically, the low cost carriers (LCC) belong to the former category where the processes are relatively simple. They offer point-to-point operations, sales through the airline’s website or online travel agents (OTAs), basic onboard services and so on. LCCs have thus been able to demonstrate high cost efficiencies, operating in local markets.

Full services carriers (FSCs) have come under severe pressure from LCCs and to compete they have to simplify their complex processes. In fact, both LCCs and FSCs are growing more dependant on sophisticated systems to manage their business models. And these models will continuously evolve, and that too faster in the coming days. IT is going to be the key to such rapid evolution.

As to your second question, the change from an “Airline Operator” to “Service Owner” is an inevitable yet gradual, process change. Essentially, as airlines grow, they have to break down operational areas into separate companies or profit centers to drive up efficiency, through economies of scale. Many big airline companies have created subsidiary companies to manage catering operations, ground handling, cargo operations, airport operations and so on. These companies not only provide services to the parent company, but offer similar services to other airlines too.

For such a model to work, the industry needs systems that can either interface with all such (component) service provider systems, or an integrated system which implements SOA (Service Oriented Architecture) that can be used by various service providers to provide an integrated product to the traveler.

Ritesh Gupta: During our conference last year, it was felt that out of any amount spent on new system applications, at least 50% will go towards testing and integrating with parts of the old system. So, only 50% or less will actually go towards new solutions. Under such scenario, what do you recommend to potential clients to optimize their budgets and invest in cutting-edge IT solutions?

VK Mathews: In preparation for the massive growth in a fiercely competitive market place, airlines have to decide to move towards next generation systems to succeed. Investing in IT has to be seen as part of investing in transforming the airline business model.

"Essentially, as airlines grow, they have to break down operational areas into separate companies or profit centers to drive up efficiency, through economies of scale."

Ritesh Gupta: With reference to outsourcing IT solutions, last year an expert mentioned that all in-house IT will be outsourced by 2012 and all services will be provided by the airline’s IT partner, meaning cost structures are based on the chosen application modules and by Passengers Boarded. What’s your viewpoint on this?

VK Mathews: Going forward, one of the key strategies for the airlines would be to reduce fixed costs and have variable costs linked to business revenues, where possible. This would give airlines the capability to respond effectively to changing market conditions on which they have no control (e.g. SARS, Iraq War and so on).

IT outsourcing will help airlines address this to some extent, but we should not forget that IT accounts for only a small percent of the airline’s overall costs. IT outsourcing primarily means that airlines will hand over most part of their IT operations to IT companies, which can increase efficiency and bring about cost reduction through economies of scale. Outsourcing also allows airlines to focus on their core business and on activities that are differentiating. IT outsourcing will see more traction in the days to come.

Ritesh Gupta: What are critical areas of IT outsourcing as of now and where do you think the industry is headed in next couple of years?

VK Mathews: IT outsourcing for the aviation industry is still very much at the operations level and is very horizontal, meaning that companies outsource data centre operations, desktop services and so on.

The true value addition will come when the IT outsourcing becomes vertically oriented. In other words, an airline company should be able to work with a vendor who specializes in providing solutions and services so that outsourcing becomes value adding than just cost containment; such outsourcing services could include application development, maintenance and even replacement. This is the direction of IT outsourcing in the coming years.

Ritesh Gupta: Considering the spate of new airlines especially in markets like India, do you think such airlines are in an advantageous position as they don’t have to replace legacy mainframe system environments with new and modern open architecture based systems?

VK Mathews: Yes, new airlines have this advantage, very much so. Existing airlines have the advantage of knowing the industry, but will have to quickly upgrade their technology platforms. Also, they need to up skill their people; replacing systems is easy, but changing the mindset of people is difficult and is even more important.

Ritesh Gupta: Airlines especially in mature markets have built their direct connect interfaces based on Open Travel Alliance XML specifications. To what extend do you think airlines have managed to lower distribution costs?

VK Mathews: In mature markets, airlines have been able to reduce their distribution costs bypassing intermediaries where possible and taking the product directly to the customer. What is still not fully appreciated however is that the aim should be consider the airlines’ sales costs as a whole rather than just a few components. Over the years, distribution costs have been shifting wholly or partially from one to another - travel agency commission to GDS fees to OTA commission to internet booking fee and so on. Overall airlines have succeeded in reducing their sales costs, considering that we are now offering different things to the customer.

Ritesh Gupta: Recently, Air Canada became the first airline to use the desktop solution to distribute its products and services. This was made possible by a new application developed by Galileo, which utilises Air Canada’s direct-connect application programming interface (API) platform called “AC2U” and integrates Air Canada’s web only content with content from Galileo’s GDS. How do you assess such developments in the context of changing relationship between airlines and GDS?

VK Mathews: I am not fully aware of what AC and Galileo have done together on this front, but GDSs are trying to reinvent and reengineer themselves to value add, considering the changing paradigm of airline product distribution. This is a good move since both the GDSs and the airlines are benefited by such innovative approaches and solutions.

Ritesh Gupta: How has IBS benefited from its relationship with Travelport? Going forward, how do you intend to leverage the expertise of IBS and Travelport?

VK Mathews: Our biggest benefit as partners is that we could bring aiRES to market, as probably the only product which is designed and fully engineered as a truly next generation PSS. aiRES today is the most functional, technologically advanced LCC system in the market place. Later versions are under development and the aiRES Elite version will be launched in March 2008, which should meet the requirements of the regional carriers. The full service version, aiRES Eclipse, should come out in 2009-10. Between IBS and Travelport, we are giving the airline industry the much needed option and choice.

Ritesh Gupta: How important do you think are accompanying applications like Revenue integrity and profound Revenue Management applications including Point of Sale and Bid Pricing?

VK Mathews: Such associated applications are very important, and in the next generation system scene, such functionality could actually get bundled into the PSS system itself.

Ritesh Gupta: How do you assess the developments in the area of payment, especially ePayment?

VK Mathews: ePayment is getting refined as new payment modes and channels evolve. However, when it comes to interline settlements, the complexities still exist.

Senior Publication Staff:

Frank Socha - Chief Technical Advisor/Editor

Roger Williams - Creative Director/Associate Editor

Ritesh Gupta - Senior Correspondent

Christopher Staab - Business Development & Advertising

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