Airlines: On Runway, Will Take Off

As one of the most competitive service industry, it seems
logical to expect that the Airlines industry would be at the forefront of
process outsourcing. However, the reality is quite different. Airlines have been
rather conservative in outsourcing processes other than customer interaction and
telemarketing, which are fairly non-core to their operations.

Passenger revenue accounting, which is a high-volume repetitive
work–and hence an ideal process for outsourcing–has, in reality, begun to
get outsourced only in the last 3—4 years. This looks a little puzzling but is
very extremely difficult to explain. The major reason for the resistance to
outsourcing has been the way the process runs in airlines. It is not just that
the process is complex; some of the financial services industry processes are
even more complex. What has acted as a roadblock is the revenue distribution.
While a ticket is issued by an airline, the money that it collects from the
passenger is shared by it with multiple airlines, on which the passenger
undertakes the journey. The involvement of innumerable travel agents does not
make the whole thing any easier either. Also, because of the time required to
learn the processes and comparatively longer payback period, broad-based BPO
companies like IBM, EDS, and ACS, were not so keen on it.

However,
the global recession, especially 9/11, changed all that. Today, even smaller,
regional airlines are looking at outsourcing much more seriously. According to
studies by Gartner and McKinsey, the airline BPO segment is expected to touch Rs
200 crore by 2009.

Airlines BPO is very distinct from all other BPO services. The
most distinguishing features of airlines BPO are the following:

• Offshoring preceded
  outsourcing: Unlike other types of BPO work, the revenue accounting work of
  airlines came to India fairly early, but not on an outsourced basis, due to
  the reasons mentioned above. Both Swissair and Lufthansa came to India
  directly as far back as in 1992, when the phrase BPO had perhaps not been
  coined. British Airways came in 1996, much before the Nasscom-McKinsey
  report of 1999. All the three started as captives. Both AFS (which started
  as a Swissair majority-owned JV), and WNS (the British Airways subsidiary)
  have since evolved to first become shared service centers and then totally
  independent companies.

• Still by and large a
  specialist’s game: Globally, the airlines BPO has been dominated either by
  the airlines’ offshoots or by specialized IT services companies that have
  built an expertise in the airlines industry. While companies like WNS, AFS,
  Aviation Solutions, and RDM are examples of the first category, the latter
  category is represented by companies like Kale Consultants and Navitaire.
  The Emirates offshoot, Mercator is actually an example of both, as it is the
  IT division of the airline. There are a few pure-play companies like Zero
  Octa that target airlines. But all of them, irrespective of their
  background, are niche airlines BPO players. Even among big Indian BPO
  companies, few execute these processes for airlines. In fact, it is fairly
  recently that some big BPO vendors have started looking seriously at this
  opportunity. The most significant airlines BPO contract bagged by a large
  BPO company is the one recently bagged by ACS from US Airways, Southwest
  Airlines, and Alaska Airlines, all US airlines. Most of the others are yet
  to open their account.

• India is at the
  center stage: Almost all big airlines BPO companies are in India. There are
  few other companies that are doing serious BPO work for airlines. Mercator,
  which is there in India in a limited way, is said to be looking at expanding
  fast. ZeroOcta, another such company, is already operating in India,
  according to unconfirmed sources. bpOrbit could not contact both these
  companies. India could well account for more than half of the airlines BPO
  work in the next two years, unlike most other vertical BPOs.

Dissecting the Processes

The typical processes that are outsourced to Indian BPO players in the
airlines vertical are passenger and cargo revenue accounting, remote proration
service and refunds processing. In case of end-to-end revenue accounting for
both passenger and cargo, the process involves stock control to outward billings
to proving management reports. The airlines have flexible delivery options in
that they may send the coupons either as scanned images or in the physical form.
In addition, accessibility to the coupon database and decision support system
enables airlines to draw out any ad hoc reports.

As part of the revenue accounting service, the customer sends
the TCN data to the BPO provider, who in turn accepts the data, completes the
proration using a proration engine (like APEX or COPS from Kale) and returns the
prorated value in a TCN form. This is one of the most complex processes in
airline revenue accounting, primarily for two reasons. First, unlike railways,
airlines do not receive the revenue when a ticket is booked, but only after the
journey is completed. This is because a journey may involve travel across
multiple airways, and subsequently the question of revenue sharing between all
these airlines crops up. For example, a Mumbai—New York flight on a British
Airways ticket may actually end up with a passenger traveling from Mumbai to
Dubai in BA, from Dubai to Amsterdam in KLM, from Amsterdam to Frankfurt in
Lufthansa and finally from Frankfurt to New York in Pan Am. In this case, the
revenue would be shared between all these airlines, depending on the miles
logged in each leg of the journey. For a BPO player, the process becomes even
more complex if most of the airlines involved are not its clients, as there are
often concerns on data sharing.

Refunds processing involves following the guidelines that the
airline has provided to the customer at the time of purchase and ensuring that
the amounts being refunded are correct. All such transactions are also governed
by various regulatory or corporate mandates. Due to the complexities involved in
approving or denying the refund claim and determining the amount payable, this
process is by and large a skill-based manual process. In addition, players like
WNS and Mercator are involved in large-scale CRM processes.

The Players

Despite the fact that airlines have been slow in outsourcing, many
India-based companies have impressive list of clients. While WNS, which started
as a British Airways captive center has added nine more smaller- and
medium-sized clients, AFS, till recently a Swissair venture, has five airline
clients. Kale Consultant also has four clients. RDM India, a JV of Lufthansa and
the Bird Group, which started by offering services to parent company Lufthansa,
has also started offering services to other airlines. Air India, India’s own
international carrier, inspired by this wave, has started a captive customer
interaction center in India to serve global customers. Most of these facilities
are located at Mumbai, with the exception of RDM, which is located at Gurgaon.

WNS has emerged as the No. 2 BPO company in India, next only to
Wipro Spectramind. Out of its total revenue of $33.5 million in 2002—03, about
$30 million is estimated to have come from airlines BPO. British Airways
accounts for about 35 percent of its revenues. That makes it probably the
biggest independent airlines BPO company in the world. It is the only company in
the group that goes beyond revenue accounting and is truly positioned as an
end-to-end airlines BPO service provider. Of late, it is even trying to
reposition itself as a broad-based BPO company. The company is owned by Warburg
Pincus and management which bought it out from British Airways. The company,
with facilities at Mumbai and Pune, is about 2,500-people strong.

AFS started as a 75:25 JV between Swissair and TCS. In May 2003,
the Swissair stake was bought over by TCS and the company is now a subsidiary of
TCS. The company offers a range of services extending from airline revenue
accounting services, traffic accounting, cargo revenue accounting, passenger
interline billing, navigation support, level-1 h/w support, and frequent flyer
program administration. It is now looking beyond the airlines segment and trying
to target the broad spectrum of the hospitality industry. Apart from the
airlines, its other customers include Sabena, Malmoe Aviation, Loyalty Gate and
Unit Pool, among others. The company has about 500 people.

Time and again, Airlines and CRS systems have to deal with
dissatisfied customers complaining of inconvenience caused to them due to
erroneous information about their travel arrangements. Neglected so far, these
rejected issues have become a cause for concern for leading international
airlines. RDM India, which is a joint venture between Lufthansa Commercial
Holding and Bird Group, provides solutions and support in these areas. Its
facility at Gurgaon employs close to 300 people.

Mumbai-based Kale Consultants is an odd man considering that it
is not an airlines offshoot. Kale is a case study in how focus can help a
company to win. It has leveraged its expertise, client relationships, and brand
name in the airlines IT solutions to start offering BPO services. With an
operation of the size of 250 people, the processes currently outsourced to Kale
includes products for passenger revenue accounting, proration, sales audit,
cargo operations, cargo ground handling, cargo revenue accounting and decision
support systems. Its list of customers includes Air Luxor, Canada North and
Qatar Airways. Some of its IT clients that could be potential BPO clients
include South African Airways, Kenya Airways, Continental Airways, Garuda
Indonesia, and Asiana Airlines. It has branded its BPO services as Managed
Process Services (MPS).

Mercator, the IT division of the Emirates Group, also runs its
BPO operations from Mumbai. It recently expanded this call-center facility at
Mumbai to handle the US customers and therefore increased its manpower from 80
to 150. Its offerings include airline financial solutions, air cargo solutions,
frequent flyer solutions, emergency response solutions, and destination
management solutions, among others. Apart from Emirates, its other major
customers include Air New Zealand, Olympic Airways, Philippine Airlines, Qantas,
Singapore Airlines, SriLankan, and Virgin Atlantic.

ON THE WEB WNS www.wnsgroup.net   AFS www.airlinefinancial.com RDM  www.rdmindia.com Kale Consultants www.kaleconsultants.com Mercator www.mercator.co.ae ZeroOcta www.zeroocta.com

Apart from these specialists, none of the broad BPO companies
like Wipro Spectramind, Daksh, EXL, HCL, GTL, Hinduja TMT, and ICICI Onesource
are offering services to this vertical. The scenario is not likely to change in
the near future. Many of them could enter through generic services like customer
service and telemarketing.

The Challenges

Though BPO companies generate huge revenue from this vertical but their
concerns are more than the airline industry is facing right now. Prominent among
them is the availability of skilled manpower to run their businesses. Since it
is a niche vertical, BPO companies require professionals who have hands-on
experience in this sector. Currently, BPO players recruit fresh professionals
and train them. The prime reason behind this is that professionals who have
experience in the airline industry don’t want to join BPO companies because of
the stumpy salary and odd working hours.

Nevertheless, looking at the potential and current market trend,
the future for this niche segment looks quite promising.

Rajneesh De