Canadian Airlines

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Canadian Airlines

• Reservations about Its Future

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Case Scenario

• This case describes the situation Canadian
  Airlines found itself in during the early 1990s
  when they desperately needed to successfully
  implement the American Airlines SABRE system in
  their operations. Only by implementing this
  system would Canadian Airlines obtain the cash
  infusion they desperately needed to remain an
  independent airline.
• The primary focus of this case is on project
  management not on the low-level, day-to-day
  details, but on the high-level questions of how
  to bring two very different organizations
  together and how to organize one of the largest
  systems transitions projects in history.

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Why Choose the Canadian Airlines Case?

• No industry has provided so clear and public an
  example of evolving strategic use of IT as the
  international airline industry.
• This is a different kind of outsourcing case
  where two mid-sized firms have completely given
  up the capacity to innovate through systems.

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Suggested Study Questions

• 1. What is Canadas position in the airline
  industry?
• 2. What are core IT issues facing the two
  airlines?
• 3. How important is a good reservation system?
• 4. Do you agree with the Ottawa court?

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FIVE COMPETITIVE FORCES MODEL
Threats
Bargaining power
N
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A. How important is the reservation system to
the airline industry and what is its impact to
shape competition? (Appendix for its
pre-background)

• Frontier had to fight to have their flights
  displayed on the UA reservation system. Only
  legal action allowed them to prevail. The denial
  of the co-host status meant on Frontiers
  connections were not included in the system.
• Monopoly prices are charged by UA to Frontier.
• Screen bias problems exist where Frontier flights
  are displayed less favorably than US.

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Frontier Case (cont.)

• UA has instant insight on loading data on
  Frontier flights, which travel agents will favor
  Frontier, etc.
• Ninety-five percent rule forces travel agents to
  use a single reservation system so the screen
  bias in Apollo would be widely effective.
• Special value added features like printing
  boarding passes only work for UA flights.
• UA controls and delays the timing of
  communicating Frontier fares to travel agents.
• UA incorrectly signals that Frontier flights are
  sold out when in fact they are not.

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B. Discuss potential problems of
ElectronicCommerce and why disinterested
information providers have a real advantage.

• The following factors softened the impact on
  using CRS (res.) as weapons
• public pressure
• competition from other reservations systems
• threat of law suits
• It is too costly to develop its own system and to
  include global flight data.
• AA has a 150 million a year profit from selling
  SABRE services to its customers.

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C. Discuss the current state of play in the
Canadian Airline industry.

• 1. What is Canadas position in the airline
  industry?
• 2. What are core IT issues facing the two
  airlines?
• 3. How important is a good reservation system?
• 4. Do you agree with the Ottawa court?

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Airlines Organization Chart and their Airline
Reservation Systems (CRS/res)
N
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Airlines Organization Chart and their Airline
Reservation Systems (CRS/res)
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1. What is Canadas position in the airline
industry?

• It handles only 2 of the worlds passengers.
• It is an East/West airline with perhaps 12
  profitable cities in the southern part of Canada.
• It faces intense U.S.A. competition where U.S.A.
  airlines have a huge advantage because of their
  hubs where they can, for example, easily transfer
  somebody from Calgary to San Francisco while
  staying on the same airline. The Canadian Airline
  obviously do not have this connection facility.

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What is Canadas position in the airline
industry? (Cont.)

• The industry has shrunk from 7 airlines to 2
  airlines. By 1992 both were under extreme profit
  pressures with Canadian Airlines having lost more
  than a billion dollars in the last three years.
  Their financial viability was genuinely in doubt.
• Canadian authorities key objective is to
  preserve competition inside Canada and,
  therefore, want two Canadian airlines to exist.
  It is clear, however, that this competition needs
  not exist on international routes where, in fact,
  the two airlines do not complete.

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2. What are core IT issues facing the two
airlines?

• Two major players
• SABRE
• 109 global terminals handling 60,000 transactions
  per day
• achieve 50 market share in Toronto and much less
  in the rest of the country
• has not evolved to handle bilingual interactions,
  i.e., English and French

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• Gemini
• uses United Airlines Apollo software
• operates largest private telecommunications
  network in Canada and employs 700 people
• co-owned by Canadian Airlines and Air Canada
• Therefore, it represents a formidable barrier to
  Americans expansion inside Canada.
• In order to get significant revenue growth out of
  Canada, American Airlines needs to find a way to
  disarm Gemini.

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Canadian Airlines Specific Situations

• Employees fearing for the very survival of the
  airline and thus, their jobs, are willing to give
  significant wage concessions.
• Gemini, fearing for its very survival, doesnt
  want to surrender Canadian Air to American Air
• Reasonably aggressively price, moving from Gemini
  to SABRE, would save Canadian Air 25 million
  per year
• Merger with Air Canada is not a possibility
  because of the Federal Government

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The Bottom is ...

• Canadian Air wanting to survive, would be happy
  to sign a favorable contract to American Airlines
  combined with the significant American cash
  infusion and an employee wage cut.
• Air Canada, neutralized by the government, can do
  nothing but swallow hard and maintain their
  relationship with Gemini.
• The real losers in all of this, of course, are
• the staff at Gemini who must operate under a
  small scope

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FIVE COMPETITIVE FORCES MODEL
Threats
Bargaining power
N
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3. How important is a good reservation system?

• Outsourcing vs. strategic weapon
• Competition (competitor) vs. cooperation
  (partner)
• airlines reservation system
• crew scheduling
• hotel reservation system
• car rental
• restaurant
• shopping
• its internal IS such as accounting, data
  processing, communication services, operations
  planning, pricing, and management capability
• and more ...

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4. Do you agree with the Ottawa court?

• YES/ NO

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Conclusions

• The competition between AA and UA is very helpful
  in keeping the worst of the Frontier abuses from
  happening in Canada.
• This is a different kind of outsourcing case
  where two mid-sized firms have completely given
  up the capacity to innovate through systems.
• As opposed to the Internet and the world of
  E-markets, this is an intriguing case about how
  AA and UA starting with their own international
  reservations, have now turned them into major
  profit centers which in reality need not be
  associated with their founding airlines.

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Conclusions (cont.)

• Canadian spends 20-25 million less to run its
  business now that AMR will be handling its IT.
• Savings from the services were not the driving
  force behind the deal, explained a spokesman for
  PWA, We are able to ride on Americans coat
  tails in development.
• From AA perspective, the deal allowed American to
  expand into the information services market for
  Canadian, it was a question of survival. The deal
  has ensured its future at least for the next two
  or three years.

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Worldwide Airlines Reservation Systems and
Foretelling Geminis Future
AA expects to receive about C120 million
annually for the duration of 20 year contract
Canadian Air receives C246 million through the
AMR deal plus other services
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Turbulence in the Domestic Market

• Jean-Jacques Bourgeault, Air Canadas COO
• air Canadas position remains that Canada should
  have only one flag carrier abroad, but two
  competing domestic airlines.
• The merger option is not off. We havent given
  up. Anyone who knows about the airline industry -
  unless youre an executive at Canadian or a
  politician, tends to agree that there is no room
  for two international airlines in this country.
  Even if the AMR-PWA deal works out, eventually
  well be back to tackling the problem. When In
  two years? In three.? In five.? As long as Canada
  remains Canada, theres one airline too many and
  were going to keep fighting until one of us
  loses, and I dont think thats (going to be)
  Air Canada.

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