Continental’s a B2B Believer

The airline is looking for big savings from a B2B marketplace.
Joseph RadiganNovember 14, 2000

Continental Airlines launched its E-tickets program five years ago, and the Houston airline now sells 54 percent of its tickets this way. Once the company has fully ramped up its sales of electronic tickets, it hopes to save upwards of $500 million a year.

But while the savings from E-tickets are considerable, they’re only part of the picture: The airline believes there’s still plenty of automation to be done in its other daily operations, and that’s a big reason why it’s joining forces with the other major airlines in an E-commerce B2B marketplace, AirNewco.

Lawrence Kellner, the Houston company’s chief financial officer, said Continental can’t yet estimate the true extent of the savings it hopes to realize from its participation in the B2B exchange.

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“We just don’t know the math yet,” he said. But he also noted, “We’re not looking in any way, shape, or form to work our suppliers harder to get a savings for us and a loss for them.” Rather, he’s primarily hoping that the B2B initiatives will lower the company’s internal costs of managing its payables with suppliers.

The E-ticket program has already helped lower Continental’s cost of distributing tickets. Ticket distribution costs are roughly 15 percent of the $9.2 billion in expenses the company is projected to spend for all of 2000. Through E-tickets, Kellner hopes to see that percentage cut by at least a third.

Continental probably won’t be able to send all of the savings to its bottom line, but Kellner said the savings will help the company keep its retail ticket prices in line with its rivals, which have instituted E-ticket programs of their own.

“We think we’ll pass on some of the savings to consumers,” he said.

When it comes to other areas, it may not be so easy to wring out costs.

“In areas like jet fuel, you’re not going to see staggering savings,” he said. “If we spend $1.25 billion per year on jet fuel, the savings are not going to be 5 percent. It’s already a highly automated process.”

While the company may not be able to improve the efficiency in purchasing jet fuel, Kellner believes there are plenty of areas that are ripe targets for improving efficiency.

Consider that Continental processes almost 70,000 invoices per month, a good many of which are for no more than a few hundred dollars, Kellner said. It’s difficult to come up with an accurate average cost for the actual processing and handling of each invoice, partly because there’s such a wide variation in the degree of scrutiny devoted to each invoice. For example, considerable time will be spent on a payment for electrical spare parts or other components that are important to airline safety. But orders for commodity goods like the napkins, peanuts, and plastic utensils handed out on almost every flight get approved relatively quickly.

Still, the company has been determined to slash the costs of pushing paper through its accounts-payable department. Four years ago, the company instituted a purchasing-card program with Citigroup that has cut the processing costs for most of its low-ticket items under $1,000. Since this past summer, when the program became mandatory for the company’s staff, nearly 18,000 payments a month at an average cost of $1,000 are being made through it.

“It took four years to go from the start to where it is now,” Kellner said. “It ramped up very slowly until we figured out all the systems’ issues.”

Kellner figures that AirNewco will also take some time before it gets fully up and running.

“I expect it to come up on a somewhat limited basis,” he said. “My whole vision is to get some stuff up and running in the first or second quarter. Then let’s see how it works.”

“This is a mutliyear process,” he remarked. “It will take a year or two to get the basic program to work, and then we’ll just keep expanding the stuff that’s included in it.”

“All were trying to do is make sure the time on both of sides of the process is spent on the things we want,” Kellner added. “Most of the challenges facing our business are just about getting good information.”

If the B2B marketplace improves airlines’ information about the goods and services they purchase every day, it will have met one of its most important goals.