JetBlue and WestJet: A Tale of Two IS Projects In recent years, the airline industry has seen several low-cost, high-efficiency carriers rise to prominence using a recipe of extremely competitive fares and outstanding customer service. Two examples of this business model in action are JetBlue and WestJet. Both companies were founded within the past two decades and have quickly grown into industry powerhouses. But when these companies need to make sweeping IT upgrades, their relationships with customers and their brands can be tarnished if things go awry. In 2009, both airlines upgraded their airline reservation systems, and one of the two learned this lesson the hard way. JetBlue was incorporated in 1998 and founded in 1999 by David Needleman. The company is headquartered in Queens, New York. Its goal is to provide low-cost travel along with unique amenities like TV in every seat, and its development of state-of-the-art IT throughout the business was a critical factor in achieving that goal. JetBlue met with early success, and the airline was one of the few that remained profitable in the wake of the 9/11 attacks. JetBlue continued to grow at a rapid pace, remaining profitable throughout, until 2005, when the company lost money in a quarter for the first time since going public. Undaunted, the airline quickly returned to profitability in the next year after implementing its “Return to Profitability” plan, and consistently ranks at the top of customer satisfaction surveys and rankings for U.S. airlines. Headquartered in Calgary, Canada, WestJet was founded by a group of airline industry veterans in 1996, including Neeleman, who left to start JetBlue shortly thereafter. The company began with approximately 40 employees and three aircraft. Today, the Program: MSPM Class & Section: 2B Course Code & Title: MP 5314 Project Reviews, Assurance & Governance Duration: 06:15 – 08:15 PM (2 hours) Instructor’s Name: M Adil A Kazi Total Marks: Twenty Five (25) Date: Saturday-June 12, 2021 Submission Mode: ONLINE company has 7,700 employees and operates 380 flights per day. Earlier in this decade, WestJet underwent rapid expansion spurred by its early success and began adding more Canadian destinations and then U.S. cities to its flight schedule. By 2010, WestJet held nearly 40 percent of the Canadian airline market, with Air Canada dropping to 55 percent. JetBlue is slightly bigger, with 151 aircraft in use compared to WestJet’s 88, but both have used the same low-cost, good-service formula to achieve profitability in the notoriously treacherous airline marketplace. The rapid growth of each airline rendered their existing information systems obsolete, including their airline reservation systems. Upgrading a reservation system carries special risks. From a customer perspective, only one of two things can happen: Either the airline successfully completes its overhaul and the customer notices no difference in the ability to book flights, or the implementation is botched, angering customers and damaging the airline’s brand. The time had come for both JetBlue and WestJet to upgrade their reservation systems. Each carrier had started out using a system designed for smaller start-up airlines, and both needed more processing power to deal with a far greater volume of customers. They also needed features like the ability to link prices and seat inventories to other airlines with whom they cooperated. Both JetBlue and WestJet contracted with Sabre Holdings, one of the most widely used airline IT providers, to upgrade their airline reservation systems. The difference between WestJet and JetBlue’s implementation of Sabre’s SabreSonic CSS reservation system illustrates the dangers inherent in any large-scale IT overhaul. It also serves as yet another reminder of how successfully planning for and implementing new technology is just as valuable as the technology itself. SabreSonic CSS performs a broad array of services for any airline. It sells seats, collects payments, allows customers to shop for flights on the airline’s Web site, and provides an interface for communication with reservation agents. Customers can use it to access airport kiosks, select specific seats, check their bags, board, rebook, and receive refunds for flight cancellations. All of the data generated by these transactions are stored centrally within the system. JetBlue selected SabreSonic CSS over its legacy system developed by Sabre rival Navitaire, and WestJet was upgrading from an older Sabre reservation system of its own. The first of the two airlines to implement SabreSonic CSS was WestJet. When WestJet went live with the new system in October 2009, customers struggled to place reservations, and the WestJet Web site crashed repeatedly. WestJet’s call centers were also overwhelmed, and customers experienced slowdowns at airports. For a company that built its business on the strength of good customer service, this was a nightmare. How did WestJet allow this to happen? The critical issue was the transfer of WestJet’s 840,000 files containing data on transactions for past WestJet customers who had already purchased flights, from WestJet’s old reservation system servers in Calgary to Sabre servers in Oklahoma. The migration required WestJet agents to go through complex steps to process the data. WestJet had not anticipated the transfer time required to move the files and failed to reduce its passenger loads on flights operating immediately after the changeover. Hundreds of thousands of bookings for future flights that were made before the changeover were inaccessible during the file transfer and for a period of time thereafter, because Sabre had to adjust the flights using the new system. This delay provoked a deluge of customer dissatisfaction, a rarity for WestJet. In addition to the increase in customer complaint calls, customers also took to the Internet to express their displeasure. Angry flyers expressed outrage on Facebook and flooded WestJet’s site, causing the repeated crashes. WestJet quickly offered an apology to customers on its site once it went back up, explaining why the errors had occurred. WestJet employees had trained with the new system for a combined 150,000 hours prior to the upgrade, but WestJet spokesman Robert Palmer explained that the company “encounter(ed) some problems in the live environment that simply did not appear in the test environment,” foremost among them the issues surrounding the massive file transfer. WestJet’s latest earnings reports show that the company weathered the storm successfully and remained profitable, but the incident forced the airline to scale back its growth plans. WestJet has put its frequent flyer program and co-branded credit card, the RBC WestJet MasterCard, on hold, in addition to code- sharing plans with other airlines including Southwest, KLM, and British Airways. These plans would allow one airline to sell flights under its own name on aircraft operated by other airlines. For the time being, WestJet is hoping to return to growth before pursuing these measures. In contrast, JetBlue had the advantage of seeing WestJet begin its implementation months before, so it was able to avoid many of the pitfalls that WestJet endured. For example, they built a backup Web site to prepare for the worst-case scenario. The company also hired 500 temporary call center workers to manage potential spikes in customer service calls. (WestJet also ended up hiring temporary offshore call center workers, but only after the problem had gotten out of hand.) JetBlue made sure to switch its files over to Sabre’s servers on a Friday night, because Saturday flight traffic is typically very low. JetBlue also sold smaller numbers of seats on the flights that did take off that day. JetBlue experienced a few glitches—call wait times increased, and not all airport kiosks and ticket printers came online right away. In addition, JetBlue needed to add some booking functions. But compared to what WestJet endured, the company was extremely well prepared to handle these problems. JetBlue ended up using its backup site several times. However, JetBlue had also experienced its own customer service debacles in the past. In February 2007, JetBlue tried to operate flights during a blizzard when all other major airlines had already canceled their flights. This turned out to be a poor decision, as the weather conditions prevented the flights from taking off and passengers were stranded for as long as 10 hours. JetBlue had to continue canceling flights for days afterwards, reaching a total of 1,100 flights canceled and a loss of $30 million. JetBlue management realized in the wake of the crisis that the airline’s IT infrastructure, although sufficient to deal with normal day-to-day conditions, was not robust enough to handle a crisis of this magnitude. This experience, coupled with the observation of WestJet’s struggles when implementing its new system, motivated JetBlue’s cautious approach to its own IT implementation.

Question 1:

1. Identify and evaluate the key risk factors of the projects for upgradation of reservation systemsof WestJet and JetBlue. Did industry powerhouses make right decision on investing in large-scale IT overhaul (mission critical applications)? What in your opinion could have been a betterstrategy with lesser risks, optimal cost and time counts with assurance to stakeholders’expectations and long-term returns?

Modern Industries manufactures a variety of computer parts and accessories in a rapidly changing technological environment. At year-end 2004, it reported the following comparative information regarding inventories.

The 2004 income statement reflected cost of sales of 3,165 million. In the operating activities section of the statement of cash flows, the 8 million decrease in inventories was added to net income. Notes to the financial statements included the following:

• Inventories are reported at the lower of cost (first-in, first-out) or market. If the cost of the inventories exceeds their market (replacement) value, a writedown to market value is taken currently.

• The company participates in a highly competitive industry that is characterized by rapid changes in technology, frequent introductions of new products, short product life cycles, and downward pressures on prices and margins.

Required Answer the following questions related to Modern Industries’ inventories.

A. Describe the nature of each of the three inventories listed on the balance sheet. When does each become an expense?

B. Why is the inventory decrease added to net income on the statement of cash flows?

C. Many U.S. corporations use the LIFO inventory method to save income taxes. Why might a computer industry manufacturer like this firm decide to use FIFO instead? Explain.