Reference no: EM13767242
Few things in the airline business are more daunt-ing than upgrading to a new reservations system. Do it well, and customers are none the wiser; mess it up, and a carrier risks losing customers and tarnishing its brand. Discount carriers JetBlue Airways Corp. and WestJet Airlines Ltd. both recently switched reservations systems. The differing outcomes are a reminder of how the implementation of new technology can be just as crucial as the technology itself. Despite months of planning, when WestJet flipped the switch on its new system, its Web site crashed repeatedly and its call center was overwhelmed. It took months to re- solve all of the issues. JetBlue, which later upgraded to the same software, smoothed its transition by building a backup Web site and hiring 500 temporary call-center workers. Reservations are at the heart of a customer's relation- ship with an airline. So messing with the reservations sys- tem "is certainly not for the faint of heart," says Rick Zeni, a vice president of JetBlue who led the Forest Hills, N.Y., carrier through its transition. Both WestJet and JetBlue previously used a system de- signed for start-up airlines with simpler needs. As the carriers grew, they needed more processing power to deal with increas- ing numbers of customers. They also wanted additional func- tions, such as the ability to link their prices and seat inventories to other airlines with whom they might wish to cooperate. After studying alternatives, WestJet and JetBlue inde- pendently selected a system offered by Sabre Holdings Corp., a provider of such technology to 300 airlines and owner of Travelocity and other online travel agencies. Jet- Blue says the new system cost about $40 million, including $25 million in capital spending and $15 million in one- time operating expenses. WestJet did not disclose its costs. The system sells seats and collects passenger payments, but it also controls much of the passenger experience: shop- ping on the airline's Web site, interacting with reservation agents, using airport kiosks, selecting seats, checking bags, boarding at the gate, rebooking, and getting refunds for can- cellations. "It has a very big circle of influence and has to integrate with other systems in the airline," says Steve Clam- pett, an executive at Sabre Airline Solutions division. "It's as visible a technology upgrade as in almost any industry." WestJet, which has 88 planes and is Canada's second- largest airline, switched to Sabre in October 2009 after it had shifted to a lighter winter schedule and canceled some flights. A big challenge was the overnight transition of 840,000 files--transactions of customers who had already purchased flights--from WestJet's old reservations server in Calgary to Sabre's servers in Tulsa, Oklahoma. It didn't go well, says Bob Cummings, WestJet's executive vice president of marketing and sales, because the migration required WestJet agents to go through complex steps to process the data. Making matters worse, WestJet didn't reduce the num- ber of passengers on the flights operating after the cutover, nor did it tell customers of its upgrade plans until the day of the switch. "We didn't want to telegraph dates so a competi- tor would put on a big fare sale," Mr. Cummings says. West- Jet's customer loyalty scores tumbled as a result of long waits and booking difficulties. The airline sent apology letters, of- fered flight credits to some customers, and a month later bolstered its call center with temporary staffers in India. "We were in pretty good shape in mid-January from a service perspective," Mr. Cummings says. "But this is a three- to six-month recovery process." He says WestJet re- mains enthusiastic about the new system's potential, which will allow the airline to fulfill its plans to begin cooperating with U.S. and international airlines. JetBlue, which has 151 aircraft, had the benefit of observing WestJet's transition, at WestJet's invitation. JetBlue decided to make its switch on a Friday night because Satur- day traffic tends to be low. It trimmed its schedule that January weekend and sold abnormally low numbers of seats on remaining flights. With WestJet's crashing Web site in mind, JetBlue developed a backup site that it used twice for a few hours. JetBlue also contracted for 500 outside reservations agents. After the switch, in which 900,000 passenger re- cords were moved to Tulsa from Minneapolis, JetBlue routed basic calls to the temporary workers, leaving its own call staff to tackle more complex tasks. The extra agents stayed in place for two months, "one of the wisest invest- ments we made," Zeni says. There were still glitches. Call wait times increased, and not all of the airport kiosks and ticket printers came online right away. JetBlue still must add some booking functions in the future. But having Sabre, says JetBlue CEO Dave Barger, was an important factor in the airline's recent deci- sion to cooperate on some routes in and out of Boston and New York with AMR Corp.'s American Airlines.
The word upgrade has long been a virtual bogeyman for SAP customers, given the historical pain, time, and cost of moving to a new version of the vendor's ERP software. For some time, SAP has been trying to entice users onto the modern ECC 6.0 through its "enhancement pack" pro- gram, which promises to let users add new features without the pain of a full technical upgrade. Customers can't take advantage of the packs until they move to 6.0. For legacy customers who don't yet wish to upgrade, this means an increase in cost for vendor support, a jump to a third- party maintenance provider--which has its own uncertainties, given ongoing high-profile lawsuits--or a decision to go with no paid support at all. The pack strategy is therefore crucial for SAP, which needs to preserve lucrative maintenance revenue while making life easier for customers and stemming defec- tions to other options, particularly SaaS (software as a service) applications, where upgrades are handled by the vendor. SAP's strategy with the packs "makes a lot of sense," says Tim Ferguson, chief information officer at Northern Kentucky University. "Relatively speaking, compared to previous ways that SAP did this, they're very easy to install." NKU has served as a beta tester for the packs, which helped the school influence SAP to add key features it desired. Although NKU's core SAP functions for billing, pay- roll, and other areas are fairly stable, the systems that touch students each day must evolve regularly, Ferguson says. One of the packs provided a new Web service that allows students to register for classes through their iPhones, for example. "The students that are coming out, this genera- tion, they expect different types of services. We have to change to meet those needs," says Ferguson. SAP's pack strategy is apparently pleasing some cus- tomers, but it still involves some work. "I've mostly heard good things," says Jon Reed, an independent analyst who closely tracks SAP. "But they're not quite as painless as SAP's marketing sometimes presented it." System testing remains a crucial factor, Reed says. "Things break during an on premise implementation and there's a preferred method of handling that, including sandboxing and testing, so when you pull that lever there are no problems. Customers still need to anticipate how it might break their system." But SourceGas, a U.S. natural gas utility, had only one issue when installing the enhancement packs, specifically a problem with the "flexible real estate" functionality in SAP, says Michael Catterall, director of enterprise solutions. The company uses that module to manage information regarding the many property easements and right-of-ways it maintains for its infrastructure around the country. "When we brought up enhancement pack 4, because of how we had it configured, we kind of broke it a little bit," he says. SourceGas plans to "keep watching the enhance- ment packs as they are coming out," Catterall says. "First, we're looking at where we can improve and get more out of modules we put in." Meanwhile, there is the substantial task of getting to ECC 6.0 in the first place. Upgrade expenses can amount to 5085 percent of the original implementation costs, with the price tag varying, depending on factors like the number of integration points and customizations, according to analyst Ray Wang, partner with Altimeter Group. "Ultimately, upgrading makes sense for R/3 customers who are still committed to SAP and want new functionality provided in the packs," says Wang. But those customers potentially have other options these days, in the form of third-party maintenance from companies such as Rimini Street, as well as SaaS applications. Meanwhile, on-demand products from vendors such as Workday, which makes human- resources software, and CRM (customer relationship manage- ment) specialist Salesforce.com are being used by some legacy SAP customers, who are finding that integrating them back to the core ERP system isn't overly difficult, Wang says.
1. In the case, both airlines upgraded to the same application, but approached the upgrade process differently. What were those differences, and how much impact did they have on the outcome of the project?
2. What precautions did the organizations in the case take to prevent software upgrade problems? To what extent do you believe those precautions helped?
3. SAP customers have the choice between upgrading to the most recent version of the application suite or integrating third-party products into their existing infra- structure. What are the advantages and disadvantages of each alternative?