Flying Higher with SAP: the amazing story of a Russian airline
Dov Bursztin, Senior Airlines Solutions Architect
EMEA FS Travel & Transportation Hub
You are invited for a free flight with me on one of our major airlines customers’ new aircraft. Let’s call this new aircraft SAP. The route that will be covered in this special flight is the customer IT roadmap. We will take off from the main hub, we will cruise at normal altitude, we will face some thunder storms, but eventually we will land safely, not far away from our departure airport.
Just to take off again to start the roadmap to excellence.
As all the legends begin, it was past midnight. Outside, the snow was piling up. But in the restaurant it was warm and cozy, when 2 CEO’s have used a napkin to sign the perfect deal: The airline will implement the SAP airlines business solutions portfolio. SAP will boost the airline business to new altitudes, to become the best airline in the region.
Contract negotiations have started immediately. The scope was quite ambitious, targeting a “big bang” Go Live with a door to door solution, covering the SAP MRO industry specific solution, Human Capital Management, Inventory Management and Procurement, Finance and Control and a BI layer that will include the BO Business Planning and Consolidation application.
However, a short time after starting the implementation projects, the real challenges have surfaced out, mainly:
· Supporting the local regulatory requirements in key areas like contracts management, invoice verification and the basic accounting rules (GAAP and IFRS) that have to be met on top of complying with the unique airlines accounting practice (mainly the airlines Chart of Accounts and Revenues Recognition). Some of the main business processes have never been implemented before in an airline.
· The interfaces requirements: The need to implement a lot and quite complex interfaces with legacy systems like flight operations, reservations and ticketing, departure control, revenues accounting and many more.
· The daunting challenge of providing a smooth Go Live that will be transparent to the business: “No flight will be delayed or cancelled due to the SAP migration”.
So the project main goal has changed from “flying higher” to “business as usual”, with a focus on having a successful Go Live.
The airline and me
The initial scope has included the SAP DIMP IS MRO solution. My first involvement with the customer was as a MRO (M&E) solutions architect.
The second time I came there was to design the interfaces with the MRO legacy system, as the technical Department has decided to keep it. The decision was to manage the technical stock in SAP, but Maintenance Planning and Execution will be carried out in the legacy system.
However, in my third visit to Russia, my mission was completely different: There was an urgent need to help the customer to plan and manage the “Cutover” process: This is quite common in “Green Fields” situation that the customer is not capable to fulfill its commitments and to manage the “Cutover” process, including the User Acceptance Tests and Data Migration.
My role was to manage the detailed cutover plan (a MS project file with thousands of activities!).
A strong program manager from BTS was assigned to work full time with the customer and SAP program management teams to ensure the full governance of the total program.
And when the weekly follow on meetings are presided by the CEO and CIO of the customer, a failure was not an option.
Cruising at normal altitude
To make a long story short, the airline is running better with SAP. An excellent job was done in building a robust “Financial Backbone”, integrated with inventory management and procurement (including the management of the “sophisticated “fuel supply chain”). On top of it, the “classical” Route Profitability Analysis solution was implemented in CO PA, integrated with the BPC “Route Profitability Budgeting” solution.
Incremental improvements are released regularly, and the solution was already rolled out to another airline that was acquired by our customer.
So, our customer is ready now to take the big jump forward that will make him the best airline in the region, as promised by the SAP CEO. My role now is to suggest the Roadmap to excellence.
Flying (much) higher with SAP innovative solutions for airlines
We have tried to sign a “Value partnership” contract with our customer, promoting our “Value Management” methodology. However, these ideas don’t bode well with the customer “just do it” culture.
So I have looked at the strategy and mission statements in the airline annual financial reports, where I’ve found the “low hanging fruits”, with two focal points:
· “Network Profitability Analysis”
· Implement the SAP Commodity Procurement Rapid-Deployment Solution (with Treasury Management Integration to support Jet Fuel cash flow hedging).
What is Network Profitability
• Network Profitability examines the performance of the flight as a component of the network. It takes into account that hub-and-spoke systems accommodate high traffic of connecting passengers who use connecting flights in order to get from the origin to the destination of their journey (O&D Itinerary).
• Consequently, Network Profitability should also consider the up-line and down-line costs and revenues of the connecting flights on top of the “on Board” costs and revenues that are measured for “Route profitability”.
The Network Performance Management
• The airline strategic goal is to create a “truly global airline with a dominant position in the consolidated Russian marketplace, leadership in the CIS , and a major role within the partner alliance and the wider global aviation industry as the operator of an efficient transit hub linking Europe and Asia”:
• The main principles of developing the network are concentrating on the most profitable market segments and increasing convenient transfer options. The Company is dedicated to creating a competitive transportation hub that is comparable with those of leading European airlines in terms of both capacity and service quality.
• Developing the regional transportation segment includes use the major airports in Russia as hubs.
• To support this vision, our customer will definitely need sophisticated network planning tools and a robust solution to measure the effectivity of the network operations. Though we can’t propose a substitute to the network planning tools that are available in the market, we can do a better job in terms of analyzing the actual performance of the network and running “what if” simulations (the network planning tools have only a crude profitability models)..
• The proposed Network Profitability Analysis solution will be built upon the Route profitability solution that was already implemented, sharing all the basic costs and revenues figures (PAX and cargo).
Fuel price management as an end to end solution
Aircraft fuel costs has accounted for more than 30% of the bulk of operating costs. Our customer has already using SAP to optimize the fuel supply chain, taking advantage of the different prices of fuel in different airports (“Tankering”). Fuel budgeting is managed in BPC. However, the requirement to protect the cash flows against the volatility of the fuel prices and currency exchange rates (both) is still valid.
Our key messages to the customer are:
• Currently, risk management methods and tools like hedging are not applied systematically, but this should change. Definitely, the airline needs system support for jet fuel hedging and SAP can provide for this!
• Our focal point is that hedging should be managed as an integral part of the e2e fuel management scenario. The logistic part has been already provided for. What is missing is an integrated hedge management system that will advice the airline on how much to hedge and how (selection of instruments, decide on indices and rates) – identifying the best way to protect the projected cash flow against the fluctuations in the jet fuel market prices!
• As stipulated in the airline Accounting Policies, Hedging should not be used for speculations (gambling)
Taking Off – Take two
The Aircraft is ready. Its airworthiness has been declared. The roadmap is loaded to the flight navigation system. The cockpit crew is taking its seats. Boarding is to be announced any minute…