Dropped Connection

Here's a switch: A Major carrier opting to insource a formerly outsourced operation, and willing to shell out millions of dollars to do it.

The carrier is US Airways and the operation is reservations. "We're beginning to insource at least part of reservations," says Executive VP-Sales and Marketing Scott Kirby. The reason? "Customer service and quality are not meeting our standards."

Kirby has no idea how many passengers have been turned off by poor service. "All I can say is that it's enough that we're willing to spend [as much as] $15 million to bring it all in-houseif the quality doesn't improve." As of late March, 65% of all US Airways reservations (America West and US combined) were outsourced to firms in Mexico, El Salvador and the Philippines.

Delta Air Lines and United Airlines also outsource at least a portion of their telephone reservations. But the anecdotal evidence is out there that offshore ops can be off-key. A visit to Untied.com, the anti-UA website, turned up these observations from disgruntled fliers. While ATW could not verify the authenticity of these gripes, they do follow a pattern:

• " A March 3, 2006, posting from an El Paso passenger recounts that when she called UA to make her reservation, the person on the other end of the line "did not speak proper English, and had problems communicating."
• " A March 9 Untied.com complaint from an Iowa traveler found that the res agent, while polite, "kept answering his own questions . . . I had no clue what he was saying."
• " A March 12 posting by a California flier recounts how she "was assisted by an agent in India who spoke very limited English, which made communication difficult." She calls her experience "frustrating." The peeved passenger is in hopes that "United will take steps to make it easier for customers to book flights through agents by phone."

United declined a request by this magazine for interviews with its executives, as did Delta. A UA spokesperson says the carrier "is happy with" its offshore reservations agents in India, the Philippines and Scandinavia.

A person close to the decision to outsource the old US Airways' reservations says, "I thought it was terrible idea . . . This isn't a racist comment, but when I call [an outsourced res] office, I have problems understanding the people. There are language barriers. There's accent." To be sure, not all offshore experiences are bad ones, and some agents in India speak the King's English far better than do folks in Indiana. Ask a straightforward question like "What's the cheapest rate from Atlanta to Reagan Washington National?" and there's rarely a problem.

It's when customers go off-script that things can get interesting. "Airline customers [have] complex questions about alternative destinations and alternative dates," says Kirby. That's when language, cultural and contextual differences come to the fore.

What's a Bulkhead?

"Airline call center work is not like other call centers," agrees American Airlines MD-Reservations Jackie Cutlip. "Amazingly, it's fairly complicated." Such complication can make it tough to outsource successfully. Consider that some overseas res agents have never been inside an airplane. The concepts of "bulkhead seat" or "exit row seat" simply have no cognate in their concept of the universe, asserts Kirby. To provide agents in the Philippines an idea of where they were seating people, US had a mockup of an aircraft cabin constructed on-site.

That sort of approach helps, but it has inherent limitations. "There are so many nuances that if you're immersed in daily life in the US you know," says Kirby. Complexity is inextricably connected to culture. Take pets. US has a policy that passengers can bring a kennel onboardif it fits underneath the seat. Problem is, "We have had res agents in the Philippines say people can bring their eighty-pound dogs onboard. We assume a res agent knows the difference between a poodle and a doberman, but we don't train on poodles and dobermans."

He says offshore reservations agents often don't know US geography. If you live in the North Carolina Piedmont region, say somewhere between Greensboro and Raleigh/Durham, and there isn't a flight available out of GSO to your destination, there well might be one out of nearby RDU. A res agent in India who has never been to the US might not have a clue the cities are so close to one another.

"I'd concur," says Martin Hand, Continental Airlines staff VP-reservations, customer care and city ticket offices. Continental does not outsource reservations for calls originating in the US. One of the reasons: "We were hearing stories that when people wanted to book from Houston to Portland, the agent . . . had no idea that Portland, Oregon, and Portland, Maine were on separate coasts."

While it's tough to overcome cultural differences, it is equally difficult to argue with the kind of savings outsourcing can engender, at least in terms of pure labor costs. Continental certainly has considered the option. "On the basis of pure labor costs," says Hand, "you're probably looking at a solid 20%-30%." But, he maintains, short-term gain could mean long-term pain. The carrier decided not to outsource because of potential revenue implications. Although it generates only 12% of its annual revenue via telephone reservations (it takes in 30% via the Internet), that 12% translates into $1.2-billion per year. "If only 5%-10% of that went away," he says, "you're significantly impacting your bottom line. And you could definitely see that [amount evaporating] from customer dissatisfaction."

British Airways' Steve Priest says it is not axiomatic that outsourcing reservations saves money. "There's a perception that it's going to be cheaper," says the carrier's senior VP-customer contact and distribution for the Americas, "but sometimes it will be more expensive." Outsourcers, he notes, have to make a profit. "If you're looking for a high-spec, high-quality call center operation, you're going to have to pay a premium for it. You can always outsource to a lower-spec outsourcer and pay less for it, but that impacts the quality." Worldwide, BA outsources 5% of its reservations.

Air Canada spokesperson Isabelle Arthur says her carrier doesn't outsource res "and has no immediate plans to do so" as per the collective agreement with the Canadian Auto Workers, the union that represents AC's res agents. Nor does Air France outsource, says spokesperson Kristen Loughman. "We feel that by keeping the centers internally, we are more efficient in responding to the needs of our passengers."

There are times, however, when outsourcing increases efficiency, says Priest: "If you wanted to reduce or upscale your center quite quickly, third parties give you some flexibility." But he says flexibility and cost need to be considered in the context of quality. Echoing a familiar refrain, he notes, "We are very cautious about offshoring any kind of sales activity. If you get it wrong, it can cost the company dearly."

Homework

So how to cut costs and keep quality high? Consider the Middle Kingdomhome-based res agents. What was once a quirky Salt Lake City experiment pioneered by Morris Air and some descendants of Brigham Young in the shadows of the Wasatch Range is fast becoming a full-fledged phenomenon.
While 80%-85% of JetBlue Airways' bookings are over the Internet, telephone reservations still are important, so much so that the carrier employs 1,300 home-based agents, 70% of them full-time.

Frankie Littleford is their boss. Never ever did JetBlue consider a traditional call center. "From Day One we knew we wanted home-based," says the airline's VP-reservations. Because that is the case, she says she doesn't know how much money the company has saved, just that the concept works. She contends that by being based at home, JetBlue's res agents are happier and less stressed.
They also stay with the company longerthe attrition rate is 25%-30% per year. Littleford has worked at carriers with traditional call centers and says the turnover ranged from 50% to 75%.

JetBlue starts its agents off at $8.25 per hr. and offers a 5.2% raise per year. Full-timers get a full benefits package, while part-timers get partial medical. Consider that before the America West merger, US Airways res agents were topping out at $21 per hr., and the savings become clear.

Major carriers are taking notice. American visited Salt Lake and came away impressed. "It's sort of a new experiment with us," says Cutlip. While AA's home-based agents start out at the same pay rate, "they top out lower."
Some 300 of roughly 4,000 agents are home-based right now. When the carrier hires more res agents, "our intent would be to hire home-based," she says.

Continental starts testing the concept July 11 with 46 people based out of its Houston res center. Like JetBlue and American, it keeps home-based agents close to a physical center so they can be brought in for training and team-building functions. Hand says CO wants to have 500 home-based agents by the end of 2006. They will be paid at a lower scale than their call center counterparts"We tried to come up with a pay scale that's a breakeven for the company" because the airline is going to have to install some home-based technology to make the system work.

JetBlue provides its home-based folks with headsets and computers. Employees furnish a pair of phone lines. Later, workers will have to pay for their own broadband. AA supplies its home-based people with computers as well.

If Major carriers are moving to home-basing, it is no surprise that the newest of would-be new entrants is doing so too. Virgin America has selected WillowCSN Inc. to manage a home-based system. WillowCSN CEO Angie Selden contends the solution allows the carrier "to take advantage of a high-quality labor pool without having to choose between the overhead of a bricks-and-mortar call center or moving jobs offshore." Willow says more than 80% of its workers are college-educated and have management experience.

While it remains to be seen whether home-basing is the newborn king, there are strong indications that offshore "solutions" can create more problems than they solve. "There are two sides to the P&L equation," says Hand. "It's not just a cost play out there. Sure, you can save some costs [by outsourcing], but what are you ultimately doing to your revenue?"