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Sky's the limit for airline's outsourcing

National Airlines, an upstart Las Vegas-based airline, is betting that outsourcing its IT services will help it hit the jackpot.

An upstart Las Vegas-based airline is betting that outsourcing its IT services will help it hit the jackpot.

Backed by $50 million in startup capital, including $15 million from Vegas-based Harrah's Entertainment and Rio Hotel & Casino, National Airlines plans its first flight in April, initially offering nonstop service to hubs in Chicago, New York, Los Angeles, and San Francisco.

Supporting every trip, however, will be a raft of Internet-based technologies, managed by outsourcers.

While National Airlines was drafting its IT business plan last year, Tim Stanley, the vice president of National's information services, decided outsourcing was the best way to control costs and meet the firm's Web-centric needs.

So the airline farmed out building and support for the company's intranet, extranet, and data warehouse to USWeb/CKS. It also handed over management of its key financial, maintenance, purchasing, and inventory applications to the Santa Clara, California-based Web consulting firm.

National's start-up business model is unique within an established airline industry scrambling to build on decades-old computer systems and leverage new technology to stay competitive. With an IP network to communicate with its business partners, a subscription to an online weather service pilots will use for up-to-the-minute weather reports, and an intranet employees will tap for daily flight data, National is free of any legacy systems baggage.

"I much prefer to yell at USWeb when [a system] goes down and everyone screams," jokes Stanley, a former Intel team developer who joined National last October after working with the airline as a project consultant. "It lets us focus on the obscure stuff."

"The new companies are ripe for outsourcing because they don't have any sacred cows to hang on to," said Meredith McCarty, an analyst at Framingham, Massachusetts-based research firm International Data Corporation. IDC expects the Internet operations market--which includes development, implementation, and maintenance of a corporate site--to grow more than three-fold from $1 billion this year to $3.6 billion in 2002.

Driving that quick growth will be a lack of in-house e-commerce skills and the desire to get applications up and running quickly, McCarty said.

On its end, National Airlines set up a three-pronged agreement with USWeb, including time and materials consulting to help assess their needs, a fixed-price deal to build the site, and a contract to integrate and host the airline's applications for a monthly fee over three years. The firm is investing $2.5 million toward leasing much of its hardware, partnering with Dell and MicroAge to provide 300 PCs in ten of the airline's far-flung offices. The company's telecommunications and data network management will remain in-house.

Stanley's outsourcing plan fits the overall business strategy of National Airline's chairman and founder Michael Conway, who cofounded America West Airlines. To help run the airline at operating costs between 45 to 70 percent below other carriers, National is handing over its reservation services, airframe and engine overhauls, catering, ground crews, materials management, and training to subcontractors.

By outsourcing, Stanley is able to keep his IT staff, for now, at four full-timers and several contracted professionals who are in charge of troubleshooting.

Two USWeb/CKS employees also work at National several days a week. Rosenbluth International will handle reservations, accessing fare and rules information from the National Airlines intranet. USWeb/CKS will manage the firm's Microsoft Exchange applications that provide email and group messaging to employees, as well as AS/400 applications used to track purchasing, inventory, and parts.

Offloading that work, Stanley can focus on a technology strategy to help the airline better compete in a brutal market, including working on applications that help forecast demand, analyze competitive fares, monitor booking and sales activities, and adjust prices on the fly.

"It's been a wild ride," Stanley said of his past months with the company. But the work has paid off. National toasted the arrival of the first of eight aircraft a week ago Friday.

And National, which has taken over the name of the now-defunct U.S. subsidiary of PanAm, plans to go public within a year.