The secret life of airlines

AS THE screens froze and then went blank at Virgin Blue's check-in counters around Australia on Sunday morning, the glitch did more than ground the travel plans of 50,000 people for a couple of days. Unintentionally, the breakdown exposed the secret life of airlines.

These days, they are not what they seem. Increasingly, airlines are fronts for a maze of private companies that do the unglamorous stuff, from loading bags and cleaning the toilets, to the glossier roles of front-of-house check-in and boarding duties, and plenty in between.

These companies provide meals and snacks, run IT systems to sell you tickets online, and to run the call centres that take your calls. (Customers who call discount airlines' help numbers invariably end up in Asian call centres, where the labour is cheap and English is taught in schools.) Some even lease aircraft that come with their own pilots and crew from an aircraft leasing company or even a rival airline.

Airlines don't disclose this, not willingly, anyway. Indeed, there's little reason to, not when everything is running as it should. It is only when things come unstuck, as they did for Virgin Blue this week, that the public gets a glimpse of the behind-the-scenes operations that enable passengers to fly halfway around the country in one of humanity's most complex machines for prices that can be as low as the cost of taxi to the airport.

These modern airline machinations include the phenomena of outsourcing and unbundling each the opposing face of the airline business coin. With outsourcing, airlines look at ways of cutting costs to the bone so they can offer fares cheaper than competitors or provide a better return to shareholders. They do this by finding specialist companies that can offer new or better ways of doing things.

By unbundling, airlines pan for revenue gold beyond the face value of the fare; that is, charging separately for all the other things on offer food, drinks, priority seating and boarding, bigger baggage allowances, penalty fees and so on.

But outsourcing and unbundling can fail spectacularly and this came as a shock to the tens of thousands of travellers around the country's airports on Sunday and Monday who had simply bought a ticket for a plane flight, only to find people in airline uniforms didn't have a clue what had gone wrong and what was to be done about it and when.

The "staff" may have been wearing the satin neck ties and embroidered shirts of an airline but some weren't airline employees at all. Some are actually on the payroll of companies that those outside the aviation industry have probably never heard of. These are the aero services companies, such as Aero-Care, Menzies Aviation and Toll Dnata that offer so-called "above the wing" services such as counter, check-in and lounge staff for airlines, and/or "ramp" services that include baggage-handling, replenishing stores on board and cleaning planes.

"They [travellers] don't know. The training is identical, the uniforms are identical, they're audited to the same standard, there's no perceivable difference to the travellers," says Aero-Care's general manager, Glenn Rutherford, about the staff he contracts to airlines.

"Statistically, based on the performance reports that we do, we do it at least as well as they [airlines] do it," Rutherford says.

Aero-Care, which began by cleaning corporate planes in 1992, now employs about 1400 people to do above-the-wing and ramp duties. It deploys about 700 counter staff to Virgin Blue terminals in Canberra, Darwin, Cairns, Gold Coast and Townsville, to all of Tiger Airways', to SkyWest and to a lesser extent for Jetstar.

"They [Aero-Care] are the experts in ground-handling in Australian aviation, and also with their economies of scale, it's more efficient," says Tiger Airways Australia spokeswoman Vanessa Regan.

"It's striking the right balance of providing us the expertise in that area and providing us with the cost efficiencies across the country we need."

Others, such as IT "solutions" companies Amadeus and Navitaire, spruik their computerised reservations, check-in, boarding and baggage systems to airlines.

As as it turned out, Virgin blamed Navitaire for Sunday's reservations meltdown. Never heard of it? It is a subsidiary of Accenture, itself a reincarnated management consulting offshoot of the former chartered accounting firm Arthur Andersen.

Navitaire, whose head office is in Minneapolis in the US, specialises in providing IT programs to airlines. It has an outpost in Sydney. It declined a request for an interview.

Navitaire runs Virgin Blue's computerised bookings, reservations, check-in and boarding systems. It also is contracted to do the same job for Virgin's rival Jetstar.

Virgin Blue's new chief executive, John Borghetti, is believed to prefer Amadeus, the system his former employer, Qantas, uses.But Amadeus has not been without its share of check-in and baggage dramas either.

Aero-Care's Rutherford defends how his staff handled Virgin's crisis this week.

"That particular scenario was the biggest single failure you could have as an airline. It's happened with other airlines around the world. Our staff are trained in the full corporate emergency response plan, as all airline staff are," he says.

"The effort of the staff, and the commitment that they made . . .many of them worked extensive shifts, many came back from leave and worked on their days off to satisfy Virgin Blue's guests as best they could with the limited resources that were available when the entire reservations system failed.

But questions are being asked why an airline would want to entrust mission-critical systems and customer liaison to outsiders? The answer is because its saves money, opens the airlines to new skills or ways of doing business, and because rivals, more or less, are doing the same thing.

And in the race to offer the most competitive fares in the marketplace, there's one airline that has made an art form out of outsourcing and unbundling the low cost-carrier.

A decade ago, the low-cost, no-frills airline was barely on the radar. In 2001, no-frills airlines accounted for only 1.1 per cent of seats on flights in the Asia Pacific region. This soared to almost 16 per cent market share last year. It's even higher elsewhere in the world: almost 33 per cent in Europe, and 28 per cent in both North America and Latin America,

Before 2000, there were 36 low-cost carriers in the world; by last year that had grown to 126. And no-frills airlines continue to be the fastest-growing airlines in the world.

According to the Centre for Asia Pacific Aviation, they share several characteristics: low fares are the expected norm, with sporadic ultra-low sale fares. The tickets are sold predominantly through the internet or via call centres (for an extra handling fee).

The low-cost carrier tends to use a single type of aircraft (for simplicity in pilot and engineer training, and maintenance). Their seats are tightly packed to maximise passenger numbers and their planes fly almost non-stop, with fast turnarounds in ports.

In addition, they sometimes use secondary airports in cities, such as Avalon outside Melbourne.

And, of course, there are no frills included in the ticket price and you pay extra for services you once would have got for free: booking by phone with a person, a seat selection, early boarding, extra knee-room seats, ticket changes or cancellation, checked baggage, oversized bags, overweight bags, fragile goods.

And once on board, you'll be paying for food, drinks, entertainment channels or video screen devices, blankets, and newspapers.

And it doesn't stop there. Pioneering Irish low-cost carrier Ryanair has even suggested charging a pound to spend a penny in a plane's toilet, and replacing seats with "stand-ups".

All these unbundled payments are accounted for as "ancillary revenue" in airlines' accounts, Tony Fernandes, the chief executive of Air Asia, one of the most aggressive unbundlers, reckons he has struck gold through these extra fees. Indeed, he has even exceed his own target of extracting another $13.40 from each passenger. "We have unearthed a gushing revenue stream that can boost our bottom line and also serve as a buffer to rising fuel prices," he says.

ELSEWHERE, Air Asia X charges "processing fee(s)" for a variety of services including $45 for an infant seat, $45 for a changing a flight, a $30 booking fee for tickets sold at sales offices, airports and call centres, $40 to pick your own extra-knee-room seat, and $43 to upsize the baggage limit to 30 kilograms. And that is even before you get to the inflight food and drinks.

In comparison, Tiger Airways charges $50 (prepaid online) for 25 kilograms of checked baggage, $60 for checked sports equipment, $6 for priority boarding, $7.20 for a plastic card payment fee. Jetstar has its own schedule of fees, too.

All of this, of course, has revolutionised flying by cutting the starting price and thereby opening air travel to people who previously couldn't afford it. Tiger Airways Australia makes no apology for charging for all the "extras".

"It's about striking the right level of service for our customers without impacting our fares," says Vanessa Regan.

"We're about encouraging people to do it themselves to save themselves more money: book it yourself. . . rather than go through the call centre to save yourself a charge.

"We're a commercial business yes, we're here to make money, but we're also here to provide the lowest fares for our customers.

"We have to have full planes to continue to grow and make money," she says.

It's a sentiment shared by Virgin Blue, which is in a deliberate transition from a discount carrier to a fuller service airline offering lounges, a loyalty scheme and a revamped business-class to chase the lucrative corporate dollar that Qantas enjoys.

"We want to provide the level of service that people desire, so people can choose to eat, choose to drink. The way we structure it is that people can buy the level of service that they want to enjoy," says Virgin Blue spokesman Colin Lippiatt.

"There are some who just want to get from A to B, and there are some who are quite happy to pay for a little bit of extra comfort . . . space, priority check-in, larger baggage allowance, food and beverages and lounge access."

When you're at the end of a bulging human conga line going nowhere, about to miss the flight to your best friend's wedding, take a look at your ticket. How much did you pay for it? If it's at the low end of the scale, should you be accepting a share of the blame?

You, knowingly or unknowingly, have bought in to the low-cost world of the outsourced, unbundled airline. Is there anything to complain about or did you get exactly what you paid for?