CIO 1-on-1 As the technology chief of one of the world's most profitable airlines, Patrick Naef bears the heavy responsibility of ensuring Emirates Group continues to soar to new heights through innovation.
The Swiss IT veteran, who joined Emirates Group in February 2006, has an impressive resume, dotted with key technology positions in a Swiss bank, Hewlett-Packard and Swissair. He holds two Masters degrees, one in computer engineering and another in business administration.
Naef holds two senior vice president positions. One for IT in the Emirates Group; the other at Mercator, the IT division within the Group that provides IT products and services for Emirates Airline and rival carriers, which contribute about 20 percent to Mercator's business.
Despite the events of 9/11, Naef says, the Dubai-based airline has managed to grow its business by more than 20 percent every year, thanks to a sound economy in the United Arab Emirates.
In an exclusive phone interview with ZDNet Asia, Naef discusses the business-IT partnership within Emirates, the company's in-house development strategy, and the barriers to getting the global travel industry to fully adopt e-ticketing. He also shares why he thinks in-flight use of cellphones may not take off after all.
What technology efforts are in the pipeline at Emirates, and what do you deem is most important?
On the infrastructure side, we have a project going on to move most of our applications to Linux. We already have a lot of our business critical applications running on Linux, so we are moving away from proprietary systems. We have identified about 180 applications that we want to move to Linux within six to 12 months.
We've also standardized our infrastructure on blades, and that's going to give us an interesting cost base, because we saw that applications that moved to Linux and blades performed much better. The underlying infrastructure is much more economical than being on AIX or Sun Solaris.
In data communications, airlines are known to be fairly traditional in communicating with outstations. There are a lot of leased lines and data communications protocols, which are fairly expensive with low bandwidth. We are aggressively moving away from these proprietary communication protocols, and will make use of VPN (virtual private network) over the public Internet. That's going to be a big shift which will increase bandwidth and reduce costs dramatically.
The big thing for us now is our new-generation cargo management system, to which we successful cut over a few weeks ago. We spent more than 300 man-years in developing that solution and it's our next big thing to push into the market. We have a long list of leads because there is nothing comparable out there. A lot of carriers still sit on legacy cargo management system which they need to replace.
It's always been a tradition in Emirates to go for in-house developed solutions instead of buying standard ones in the market, because we've had bad experience with some components that we purchased.
Senior vice president at Emirates Group
Naef joined Emirates Group in February 2006. He started his career in IT at a Swiss bank before moving to HP in 1994 where he did consultancy work in IT strategy. In 1997, he moved to Swissair where he was deputy CIO before becoming CIO eventually. After five years at the airline, he joined a Swiss manufacturing industry group called SIG, where he was group CIO. More than two years later, he joined the Zurich Insurance Group before Emirates came knocking.
How do you manage the cost of developing your own applications, as opposed to buying off the shelf?
Interestingly, we have a very attractive cost base particularly because we have access to lower-cost resources. There is tendency to go out and purchase solutions, but there is no fully-integrated IT solution for airlines.
When I was at a manufacturing company in Switzerland, we did everything with SAP. But there's no such thing as an SAP system for airlines or an aviation group like us. If we go for standard solutions, we end up with an enormous patchwork of different technologies and thousands of interfaces to integrate, as we did in the past. My strategy is to get away from that 'best-of-breed' approach of having to manage several different systems.
As there is no integrated system in the market, we have to do it ourselves. We will introduce a service-oriented architecture as the backbone of our development. Whatever system we develop will be fully integrated into that architecture.
How would you rank Emirates among competitors in terms of its maturity in IT adoption?
I think we are well ahead of competitors in terms of automation, that is, how much internal processes are automated. When I look at our in-house developed applications, they are impressive, which is also why a lot of airlines want to purchase our solutions.
Whoever buys our solutions also knows that they are proven, because a big airline like Emirates is using them successfully. We never sell a product that's not used by Emirates.
While selling products to rival airlines, how do you ensure that Emirates stays on top of the pack?
I have established an executive IT steering board where the two presidents and four executive vice presidents from the Emirates Group meet on a regular basis to decide on the strategic direction of IT. We decide on which product to sell in the market, and which ones we do not.
In the past, there have been products which the presidents have decided not to sell, because they want to keep the competitive advantage. But typically, it's only for a period of, say, six to 12 months, if we decide not to sell something to a competitor. That said, we do not just sit back and rest on our laurels. There is a constant innovation cycle going on to improve our systems so as to stay on top of the competition.
Is there any product that you haven't sold to competitors?
Currently, we have one system where a tablet PC is used onboard to access and update information about our customers wirelessly. With information fed from our CRM (customer relationship management) systems, crew members can see on a tablet PC, where each customer sits in a visual manner. They can also see customer preferences and incidents that happened with a particular customer in the past.
Crew members can also enter customer information during the flight. As soon as the plane touches the ground, that information is synchronized with our servers. So, if we spilled coffee on a customer, the cabin crew will have that information about the same customer the next time he flies. That's quite a fancy application which helps the cabin crew serve our prime customers better. A lot of airlines have heard about it, and have asked if we would sell it.
But we spent a lot of money developing the application. It's currently a key competitive advantage and we're not going to sell it. But 12 months from now, we should have advanced again. By then, we would be ready to sell.
Vendors in the IT industry these days preach about aligning business with IT. Is there anything that frustrates you in efforts to cement the business-IT partnership?
That is the key focus of one of our change initiatives. We are currently being seen as just another IT supplier rather than the IT organization of the Group. We have sort of drifted away from the [Group's] business, in which business units have started to build their own IT teams. That is something that we want to change.
In the past few years, business units have gone out to purchase IT solutions without checking if they fit into the overall IT infrastructure. That gives us a hard time today in trying to manage those 'best-of-breed' components and different technologies. We want to drive standardization and reduce the complexity of our IT infrastructure.
The direction is that we want to have a central IT organization in the Group, which manages all IT aspects. We don't want go into a federated approach where there are CIOs in every individual business unit. We feel that we are more effective and agile, if we can manage IT centrally.
Through standardization, we can become more flexible and scaleable to support the growth of the Group. That's one of the key pillars of our IT strategy.
A SITA survey last year indicated the airline industry is moving in two speeds with regard to technology adoption. What do you think needs to be done to get the entire industry on the same speed, since much of the industry’s success depends on interconnectivity?
I don't believe it will be possible to bring the industry up to the same speed because the markets are different. For instance, if you look at e-ticketing, we can be 100 percent on e-ticketing now. But in markets like Pakistan, nobody uses e-tickets. The travel agents all use paper tickets. So, it's not something that we, as an airline, can drive because the market is not ready.
Another aspect is e-business. In the U.S and Europe, a huge percentage of ticket bookings are done online. In this part of the world, it's a single-digit percentage of the overall number of bookings. It's not because the systems are not there; it's because the market is not ready since a large portion of the population don't have Internet access at home. So, they'll want to walk into a travel agency and purchase a paper ticket rather than go online. In different parts of the world, there will be differences in how IT can be applied in the markets you're in.
Despite this, IATA (International Air Transport Association) has mandated that by 2007, all airline tickets issued have to go electronic. Do you think that will materialize?
To be honest, I don't believe it will be possible globally. Most airlines will be ready with the systems, but the markets will not. You can't expect every travel agent in Mongolia to be fully on e-ticketing. It simply won't happen.
Some carriers and regulators are tinkering with the idea of allowing in-flight use of mobile phones. Do you think that should be allowed?
Personally, I don't believe there is a big case for allowing people to use mobile phones during a flight. For me, being on a long-haul flight, I don't want to be disturbed by phone calls because it gives me time to just think and switch off.
I also don't believe people are particularly keen on using phones in a plane. Today every long-haul plane has handsets where you can make calls in your seat. During my time at Swissair, we spent millions because there was a business case to put phones into each individual seat. We thought we could share revenues with the telco providers, but it never happened because nobody was using those phones onboard. So, a few years later, we ripped them all off because it was too heavy to carry all that equipment.
Having said that, I think there is a demand for getting phone connections into planes. But I'd rather see it being driven by things like Blackberrys, for instance. That is also what SITA is doing with their OnAir initiative. It's not enabling the use of mobile phones, but using the GSM network to do data transfers. That's going to a big market because you can offer business travelers the ability to send and receive e-mails with their Blackberrys. We are seriously considering that because we already have the infrastructure that allows Web mail access and updates of football results from the World Cup.
Where do you see the Global Distribution System (GDS) heading, given that more airlines, particularly low-cost carriers, are selling direct to customers over the Internet?
In the past, there have been several attempts to bypass the GDS. Some of them were successful, but most were not. I see more and more business being moved away from the GDS. We also have initiatives going on to bypass the GDS and use more direct links into our reservation system.
But today, the GDS providers such Amadeus and Sabre offer far more than just distribution services. In particular, Amadeus has become a very strong provider of full-fletched airline solutions. The big carriers that are hosted on Amadeus don't have their own reservation systems anymore. While the distribution business of the GDS providers gets eroded, you'll see new businesses coming up where they play a strong role.
As for the low-cost carriers, I believe they will need to participate in some common distribution channels sooner or later, because having their own distribution channel doesn't give them access to the market they need. The very big ones like Ryanair will probably survive on their own, but the smaller low-cost carriers will need to depend on some global distribution infrastructure.