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Financing solution helps transform major data operation
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Data is everything
Financing helps transform data management at Airlines Reporting Corporation.
How does an organization without significant capital, in an industry
under substantial financial pressure, manage to acquire the latest data
warehousing and mining technology and software—and upgrade twice
more in four years? Further, how does this organization end up with a
world-class data management operation in a dual-operating environment?
Paul Romine, vice president of technology services for Airlines Reporting
Corporation (ARC) puts it succinctly, “Data is everything.”
In fact, data is the very core of ARC, described as the “information
hub of the travel industry.”
Every time an airline ticket is purchased through any one of more than
20,000 travel agencies—whether it’s a small local office or
a major player like American Express, Orbitz or Travelocity—ARC
quickly captures the details of that transaction, along with all flight
information. It is the company’s responsibility to report those
flight details to the respective airline, obtain payment from the travel
agency or company and reimburse the airline. ARC also issues paper tickets,
if needed, and provides ongoing transactional reporting to the airlines
and travel agencies.
Privately held, ARC is owned by 12 of the major domestic airlines. “Our
structure enables the airlines to deal with just one source for information
about tickets issued and sold—and payment for them,” says
Alfred Altschul, ARC vice president for financial services and chief financial
officer. “Similarly, U.S. agents and travel offices have a single
contact for payments and a reliable resource that relays their customers’
flight information to the carriers.”
In 2000, ARC set out to transform its capabilities and reach a whole
new level of information management. The company’s goal was realized
through a collaborative effort combining technology from Teradata and
financing from GE. The result, according to Romine, is now a “solid,
mutually beneficial partnership,” with Teradata and GE Capital Solutions,
the long-time financing partner for NCR, Teradata’s parent company.
Recognizing the need for change
Clearly, ARC is at the center of the action, handling huge amounts of
data, in a mission-critical role for the travel industry. ARC is by far
the largest such operation in the world and the only one in the United
States. Servicing 147 airlines and railroads and more than 20,000 travel
agencies and corporate travel departments, ARC handles 190 million transactions
per year worth close to $70 billion.
Established as a cost-sensitive service operation rather than a revenue
base, ARC has always had limited assets and working capital. While the
airline industry has been under enormous financial pressure for several
years, it has, at the same time, become far more information-driven. In
2000, within this squeeze, ARC’s senior management saw major opportunities
to drive down costs both internally and for the airlines—and greatly
enhance the company’s reporting capabilities with the right data-management
platform.
“We needed to substantially expand our technological capabilities,”
recalls Altschul. “Our requirements had clearly exceeded the potential
of our current system. Data warehousing and mining would help us cut costs,
be more productive—and provide new avenues of service to our owners
and participating carriers and agents. But it would cost millions of dollars,
which we didn’t have. The big question was ‘Can we finance
this?’ ”
The one-stop solution
The answer to Altschul’s question, as it turned out, came in a
single package, along with the best data-management solution. As Romine
and his technology team reviewed competitive options, Teradata came to
the forefront.
“Back then, their 10-node data warehousing system and data-mining
software was exactly what we needed,” Romine notes. “The total
cost of ownership was impressive because the system was self-managing
in many ways, so wouldn’t have to commit as many resources to operate
it.”
He adds, “One of Teradata’s biggest selling points was scalability.
With some systems, when you double your database size, you literally have
double the number of people required to maintain it. We can take our database
to infinite levels with the Teradata system, with the same team in place.
That’s a huge plus, given our mandate to control costs.”
As Jan Brown, solution sales specialist for Teradata, outlined his equipment
and software proposal to ARC, he also had a powerful sales tool in his
back pocket—financing partner GE Capital Solutions, with whom Teradata
has a close working relationship.
As Altschul explored potential financing options, Brown introduced him
to GE relationship manager Jim Murray. “The unique relationship
between Teradata, NCR and GE proved to be very beneficial,” says
Altschul. “Jim made every effort to understand our business and
financial situation. GE clearly wanted to make this deal work. And they
came back with a flexible and extremely competitive financing proposal.”
Fast forward four years.
Upgrades
Not only was ARC able to acquire the 10-node Teradata solution in 2001,
the flexible lease structure has also enabled the company to upgrade to
faster, more powerful systems twice since then—once in 2003 and
again in 2005.
“This represents the largest acquisition in our history,”
explains Altschul. “And we fund it out of our daily operating budget,
without any payments or guarantees from our owners. These systems have
literally transformed the way we work, cut substantial costs, established
a new profit center—and created major new efficiencies and productivity
improvements.”
“Two complete ‘floor sweeps’ since 2001—each
time to higher-performance systems, at the same or lower cost. We never
would have been able to do that if the first system was on our books,”
says Romine. “The overall benefits and cost savings these acquisitions
have generated for ARC, our owners and our customers have been enormous.”
Fraud Prevention
Ticketing fraud has always been a significant problem and financial drain
on the airline industry. ARC’s dedicated fraud detection team, utilizing
TeraMiner software’s sophisticated data-mining capabilities, has
been able to assemble information faster, perform complex statistical
sampling and rapidly identify potential fraudulent trends.
That’s allowed ARC to pursue and prevent fraudulent activities
much more aggressively. The result: a substantial reduction in fraud losses
to the airline industry compared to previous years, adding up to millions
of dollars per year over the past five years. Says Altschul, “Our
fraud prevention success continues to exceed our expectations—and
we couldn’t have done it without the Teradata platform. And with
each upgrade, we’ve been able to refine and accelerate the process.”
Paper reduction
ARC used to print and distribute weekly, paper-based reports to the airlines
and thousands of travel agents and departments. Today, the company provides
virtually 100% Web-based reporting. That’s eliminated the need for
tons of paper, dramatically reduced shipping costs and created numerous
internal operating efficiencies, such as freed-up storage, labor and space.
Previously, even if a ticket was issued electronically, a paper-based
auditor’s coupon was still printed and stored. ARC developed an
application with the Teradata system and software that warehoused the
information on the coupon and virtually eliminated the need for a printed
version. That saved the cost of printing hundreds of millions of these
coupons, while electronically meeting the documentation needs of airlines,
travel agents and the traveling public.
Backup and recovery protection
“Until 2005, we were paying a huge amount each year for a backup
and recovery contract, since we couldn’t afford a second system,”
explains Romine. “With Teradata’s new systems becoming more
powerful and cost-effective each year, we realized we could upgrade to
a new system, using our leasing flexibility—and also use the money
we were paying for that contract to finance another identical platform.”
So in its 2005 floor sweep, ARC upgraded the existing system in the
Louisville, KY, location to a new 6-node Teradata 5400 system with 22
terabytes storage. At the same time, ARC created a dual-active operating
environment with the installation of a second 5400 system at its Arlington,
VA, headquarters.
Continues Romine, “If one fails for any reason, the other can handle
our entire workload without any interruption in our operations. Now, instead
of a piece of paper that cost tens of thousands of dollars, we have a
world-class backup and recovery system.”
Space and utility savings
“Data center space is expensive, especially if you have to expand,”
he adds. Though much faster and more powerful, ARC’s 2005 upgrade
takes up half of the space as the original configuration in 2001. And,
in terms of consumables, like electricity and air conditioning, it costs
ARC much less today to operate both new systems than it cost to run the
original system.
New data products
One of the most exciting developments resulting from ARC’s ability
to acquire the most current Teradata systems has been the creation and
marketing of new data products to a broader customer base.
As Romine explains, “We always knew our data was valuable, but
we had no way to leverage it beyond our settlement reporting. Now we take
all the transactional data we collect and load it into the Teradata system,
where we can tailor it into products that help customers analyze their
markets and their business more effectively.”
ARC does not sell products with passengers’ personal information.
Many of the products provide comprehensive market-share data, while aggregating
data to protect competitively sensitive information. For example, one
city is running an advertising campaign in several other target cities
to attract tourism. ARC’s data can quickly tell that city whether
its advertising efforts are working. Or an advertising campaign may be
so successful attracting visitors from City A that it makes sense to shift
more of the budget to City B—or take a different approach for that
market.
ARC and its Teradata systems are quickly becoming the back-end reporting
system and analytical engine for the travel industry. They are aggressively
developing innovative new data products to provide to their airline owners,
travel agents and travel departments—and entirely new customers,
such as cities and airports. Not only does this contribute to ARC’s
bottom line, it also helps customers be more productive and profitable—a
big benefit for the travel industry. The vision is for these activities
to eventually fund the cost of the entire data-management operation. And
maybe even turn a profit.
Financing technology
ARC is realizing the tremendous power of leasing in a technology environment.
And every two or three years, the company will be able to upgrade to faster,
more powerful data-management platforms, likely at a lower monthly cost.
With technology changing and improving as rapidly as it is, does it ever
make sense to purchase? Many companies who can easily afford to purchase
are discovering they can leverage the beneficial impact of new technology
much more effectively through leasing, as ARC is doing today.
Romine observes, “Even if we had the resources, we wouldn’t
buy this equipment. You don’t need to own it to take full advantage
of its potential.”
“When we installed the first Teradata system, our primary goals
were to cut down on paper use and ticket fraud,” concludes Altschul.
“In the past five years, we have so far exceeded our expectations
that it’s hard to imagine. Each subsequent upgrade brings us further
along—and we’re not done yet. We never could have accomplished
this without leasing and the true partnership ARC has built with Teradata
and GE.” T
© Teradata Magazine-June 2006
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