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By John McCormick  |  Posted 2003-04-01 Print this article Print

Before its industry went into a tailspin, Delta Air Lines invested $1.5 billion in an instant information network to serve customers better and save millions of dollars. Will that be enough to make it the last major airline able to attract price-conscious

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Delta's Nervous System

The Nervous System works like a radio network. Individual stations broadcast changes—a new ticket reservation, a flight delay, a gate change—as they occur. Messaging software supplied by Tibco Software picks up the broadcast and carries it to any station (a local computing system) that is programmed to receive it.

A ticket reservation, for instance, will be broadcast and recorded in Delta's financial systems, its frequent-flier database, and its boarding and flight records, among other places. This way, gate agents, food suppliers, even Delta's chief financial officer know immediately what's going on with any particular Delta flight.

"I call this creating order out of the chaos," Robb says.

This system, Delta believes, is what will give Song a competitive edge over its low-cost rivals.

"We know we can sell cheap fares to Florida," says John Selvaggio, who previously ran Midway Airlines and is now the president of Song. "We just have to do it at a lower cost. What we've done is really leveraged technology more than anything else in order to get that low cost."

This newfangled system is not infallible. On Feb. 18, the day after a storm dumped two feet of snow on New York City, it failed at Kennedy Airport, from which Song will make its inaugural flight. Key pieces of the network, such as terminal kiosks and flight monitors, were not sending messages. Check-in times stretched to more than two hours. Delta says simply that there was a "hardware failure" at the airport. It did not elaborate further.

But the hiccups seem to be rare, allowing Delta to make significant structural improvements to its operation.

Delta is squeezing commissions out of its sales channels, moving toward near-self-service boarding, establishing a frequent-flier program based more on spending than miles flown, and employing its information technology platform to launch new businesses such as Song and a for-profit aircraft maintenance operation.

Charlie Feld, a consultant who served as Delta's CIO in the late 1990s and brought the Delta Nervous System into being, says Delta now has a two- to three-year advantage in information technology over its rivals—a lead that's likely to grow. Given the financial state of American and United, he says, bringing in new information technology "is not even part of their [management] discussions."

As Delta executives look for new ways to cut costs, Delta hopes the Nervous System will provide long-term competitive advantage, maybe as big as the one American held for much of the last half of the 20th century.

American developed the first computerized reservation system, Sabre. From that system came the first "yield management" program, which mined Sabre for buying patterns to determine the optimum pricing for seats; later, the first frequent-flier program, which searched Sabre for repeat passengers; and, the first cheap but nonrefundable fares. Often called one of the first "strategic systems"—an information system that altered the business strategy of a company—Sabre provided such advantage that the U.S. Department of Transportation imposed regulations on all airlines governing how such systems could be used.

Sabre and its competitors are no longer viewed by the airlines as an advantage, their mainframes eclipsed by Internet search-and-sales services that drive down prices of unsold seats.

Today, American does not have its own equivalent of the Delta Nervous System, as passenger Charlie Feld found out on March 18. The consultant was sitting in Dallas on an American flight bound for St. Louis, when the pilot announced the St. Louis airport was shut down.

He called his office and was told American's Web site said his plane was in the air. American's reservation center could not account for the error. American's Executive Platinum Desk information center reported, correctly, that the flight was delayed for an hour.

On his return flight to Dallas, he had a similar experience in St. Louis. American's ticket agent told him his flight was canceled, but American's airport monitors said the plane was boarding.

He ran to the gate. There, he found the agent was right: The flight was canceled.

"American has stovepipes," Feld says, a term for systems that can't talk to each other. "It's not like anyone's lying. You just can't get the same answer [from two places]."

American, although avoiding imminent bankruptcy, says that given the current economic and political environment, it's not out of the woods. It may yet follow United and other carriers into bankruptcy court. Last year the industry lost $10 billion. So the question becomes: Is Delta's digital radio network enough of an edge to ensure Song's success and Delta's long-term survival?

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