05 Dec CIO Leadership Series: Alex Yarmulnik and IT lift Midwest Airlines
Milwaukee, Wis. – In many ways, this is a period of transition for Midwest Airlines, but the change is not entirely due to the pending acquisition of Midwest Air Group by Midwest Air Partners, an affiliate of TPG Capital, for $450 million.
The airline, having survived the rocky aftermath of Sept. 11, has been in an information technology transition since the arrival of Alex Yarmulnik, which could shape the business every bit as much as could new ownership.
Until the merger is finalized, which should occur in the next few months, it will be business as usual for Yarmulnik, vice president and chief information officer for the airline.
Yarmulnik joined Midwest Airlines in 1999 to improve the company’s IT capabilities, and align technology to support a rapidly changing airline industry. It’s a job that is still in progress, with many technologically-based business drivers completed but many others still to be accomplished.
Under Yarmulnik’s direction, the organization is more reliant on the Internet as a communications vehicle, and therefore has adopted Internet technologies like software-as-a-service and virtual private network connectivity, which is typical of companies that need secure electronic communications between geographically dispersed locations.
The company website, in fact, is an example of how technology is driving growth. In 1999 and 2000, Midwest’s website accounted for about four percent of its revenue, but now generates more than 30 percent of its annual revenue (which has almost doubled in that time span).
Yarmulnik attributes much of it to the addition of functionality that made it easy for the customer to do business with Midwest. The interaction includes integrating the website with Midwest’s loyalty program, which offers the ability to redeem frequent flyer miles and find the best deal on fares, and offering services like web check-in and loading flight schedules onto PDAs.
On the cost side, the airline deploys technology to optimize several business processes, including revenue management, pricing, and crew scheduling. Recent years have brought investments in wireless communications, enabling dispatchers to send critical information to pilots, or allowing mechanics to obtain engine performance data and access systems right from the aircraft.
Technology also has created business opportunity. After the Sept. 11 terrorist attacks, the United States Postal Service devised very rigid technology requirements in which carriers had to scan all mail several times before it was delivered, and exchange the data with the postal service in real-time electronic data interchange. As a result, many airlines got out of the mail-carrying business, but Midwest viewed the regulations as a revenue driver rather than an impediment.
In the airline business, where innovation and differentiation are keys to survival – Midwest Airlines CEO Tim Hoeksema likes to say “differentiate or die” – and where business was scarce in the challenging years after Sept. 11, mail delivery “created an opportunity for us,” Yarmulnik said.
Midwest has taken advantage of enough opportunities to get back on the growth path, reporting $664 million in 2006 revenue, a 27 percent increase sales over the previous year.
“We definitely had to change a few things in the past seven years to stay in business,” Yarmulnik said, “and technology is a huge enabler for advancing innovation.”
Fleet seat
And the technology beat goes on with new strategic initiatives. Earlier this year, Midwest Airlines announced that it will reconfigure the seats in its McDonnell Douglas 80 fleet, and technology will have a role in making it happen. Midwest has added 12 two-by-two seats to that fleet, and customers are able, through the Internet or at the counter on the day of the flight, to purchase the two-by-two seats for an additional charge.
The main technology change will come when Midwest reconfigures its Boeing 717 fleet next summer, and 40 percent of the aircraft will consist of two-by-two seats and the rest will be three-by-two seats. Since customers will be able to upgrade at the time of the purchase, Midwest’s technical challenge is to keep all the seats – two-by-two and three-by-two – as part of the coach class and treat this particular seat selection as an “ancillary service.”
According to Yarmulnik, most of the global distribution and reservation systems are not capable of making this distinction; only Northwest Airlines has attempted this with its isle seats. To enable this feature, Midwest has to change virtually every system – reservations, inventory, departure control, revenue management, pricing, and self-service check in.
Midwest also is looking into a new generation of flight operating systems that have very sophisticated flight planning capabilities. This potentially could provide Midwest with millions of dollars in fuel savings, and fuel is the largest cost facing airlines today – even bigger than labor costs.
Fighting the mid-sized blues
With an IT staff under 50 people, the mid-sized company is challenged with acquiring technology at affordable prices, which pertains to vendor management and vendor relations. Lacking the volume to gain economies of scale, it’s difficult for mid-sized companies to gain leverage when they are negotiating with large technology vendors.
To mitigate that, Midwest is trying to work with vendors to build value-added relationships. One example is Midwest’s partnership with Sabre, which provides the technology for its flight reservation system. Midwest may not be Sabre’s largest customer, but the airline is helping it develop capabilities it does not have, and market them to other airlines.
In reconfiguring its 717 fleet of aircraft to adjust the seating configuration, Midwest is working with Saber to enhance its global distribution system. It’s a symbiotic relationship where Saber will come up with the functionality the airline needs, test it with Midwest, and then package it to other airlines. Midwest has done this for M80s, and will start on the 717 aircraft in mid 2008.
“We will be the first Sabre customer, if not the first airline in U.S. to be able to do that,” Yarmulnik said.
Nimble management
Yarmulnik has more than 20 years of IT experience to bring to bear on these projects, including software and infrastructure development, project and vendor management, security, and strategic planning.
Prior to joining the airline, Yarmulnik was director of applications development for Saks, Inc., the department store chain formally known as Carson Pirie Scott. He also spent eight years with e-Funds Corp., a provider of e-funds transfer software and hosting solutions, and he spent seven years as an adjunct faculty member in the computer science department at Lakeland College.
He holds a bachelor’s degree in computer science and business administration from Seton Hall University and an MBA from Marquette University.
It was professional schooling, however, that shaped his approach to large IT implementations. Midwest Airlines tries to make sure that its initiatives are not technology initiatives, but business initiatives with technology as an enabler. With this mindset, the project sponsor, business product owner, and the team, itself, are identified early in the game.
Yarmulnik also practices agile project management, which compels him to define objectives and, more importantly, success, and to define deliverables in terms of business processes rather than in technological terms. Under the guise of the 80-20 rule, he believes it’s essential to develop a laser-sharp focus on the benefits component of projects, and to integrate project teams to include all stakeholders – IT, impacted business areas, and internal audit.
To increase the likelihood of project success, he tries to ensure they are short in duration, they are completed in multiple phases, and they employ proof of concept and prototypes.
This philosophy was developed as he learned two key lessons from past IT implementations. Those lessons are to make sure that IT and business have the same definition of “success,” which should be defined up front; and to understand that no two implementations are alike.
“Even though some of them might look similar, they are not,” he stated. “You always have different dynamics, different people, vendors, constraints, technology, business owners as well as company culture and political climate. Just because something worked in the past this way, does not always mean it will work this way in the future.
“You need to recognize the patterns, but managing by patterns is dangerous.”