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Supply chain has it
To outsiders, the airline business can seem baffling with its tiered fare structure, high fixed costs and load-juggling challenges. Rapp says Southwest co-founder Herb Kelleher summed up the industry best, telling him, "You understand commodities. Flying people from one place to another at a low cost is a commodity."
In other words, it's all about supply chain efficiencies. For an airline, that means planes leave the gate on schedule or the heavy hourly operating costs can eat into the bottom line. "One of the best ways of being a low-cost airline is being an on-time airline," Rapp says.
Keeping things simple helps. Last year, for instance, Frontier converted its fleet from Boeings to two types of Airbuses. This move allows crew training to be standardized, reduces maintenance complexity and spare-parts inventory, and makes scheduling more efficient.
According to Forrester, maintenance accounts for anywhere from 8% to almost a quarter of an airline's total costs. And a grounded plane can eat up $4,800 an hour in lost revenue.
The real engine that drives this industry isn't in the airplanes but in the software -- namely MRO. It's responsible for scheduling repairs, predicting inventory needs and tracking the history of parts for years, which is important for compliance with Federal Aviation Administration regulations. "MRO is as critical as the reservation system for an airline," says Forrester's Harteveldt. "Airplanes are the factory of an airline. It's a huge logistics and supply chain challenge. These days an airplane is really a series of servers with wings."
Picking the right MRO system can be a boon for efficiency, which is something Frontier learned the hard way.
Just five years ago, the company's CFO selected AuRA's MRO system, which had been developed for the military. Frontier was the first commercial airline to deploy it. But the software didn't fit the business processes well. "The old system was picked because it was the cheapest at the time," says Carolan. The company invested but didn't establish proper training, process or buy-in. "They just bought a tool and said, 'Use it.' Not understanding the business process caused a lot of chaos," she says. And Rapp adds: "The old system was an absolute dry hole. We were drilling deeper and spending more money and not getting any return at all. Our MRO system was a very significant investment that we had to throw away."
So Rapp decided to scrap the old system and invest in a new one by Trax. It promises to substantially reduce inventory levels as well as streamline business processes and boost productivity. The Trax project kicked off in May, and the first phase will go live in November.
The Internet was another area where Frontier lagged the industry; the airline was leaving money on the table. Every time a Frontier passenger books a ticket via a third-party website, the commission increases the cost of the booking by 25 times. Yet its own underpromoted site didn't offer any incentives for customers to buy directly. Almost two-thirds of Frontier's customers bought tickets from other sites. In comparison, Southwest moves two-thirds of its tickets over its website, while JetBlue Airways sells 80% through that channel.
In May, Frontier launched a new website, the final touch on an infrastructure remediation project that started when Frontier converted its reservation and ticketing system from EDS to Sabre early last year. Surf on Frontier's website today, and you'll see a photo of a plane with a wildcat on the wing -- one of several animals adorning the carrier's fleet. You'll also see a box with a low-fare guarantee. The company promises 2,500 bonus miles to anyone who finds a lower fare on another site, and it offers other perks, such as double miles for booking on the airline site. Frontier aims to sell half its reservations from the site within a year. "There's a huge order of magnitude [in] savings if we can drive more people through that channel," says Rapp. "The website was just sort of out there by itself, [but] now it's part of the differentiation of our brand."
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