IT outsourcing, by its very nature, involves risk, especially when the vast majority of a business’s revenue is driven through IT-enabled services. This did not, however, deter Europe’s leading low-cost airline EasyJet, from handing over responsibility for its mission-critical infrastructure.
Despite generating a staggering 98% of its revenues through its website, which at peak times can take up to $4 million an hour, EasyJet entrusts the delivery of its website, ticket reservation and flight operations systems, wide area network and email, to utility IT infrastructure provider Savvis, following the announcement of a five-year, multi-million dollar deal in October.
But the airline is not naïve. As Richard Warley, international managing director at Savvis explains, EasyJet has negotiated a contract in which the service provider assumes a large part of the business risk involved in running the airline’s infrastructure. “This meant entering into a billing arrangement that allows us to charge them on a ‘per-seat-booked’ basis. Instead of a fixed fee, we charge a variable fee based on the number of seats booked in one month,” says Warley. This per-transaction fee, he adds, is “unbelievably small”.
While acknowledging the risk, Savvis believes the arrangement also builds-in a great incentive for it to provide a high-quality service. That differs markedly from many fixed-cost and service level agreement-based outsourcing models which only incentivise outsourcers to not provide a poor service. For EasyJet, the variable cost contract allows the airline to scale its IT costs with the business by transforming its IT infrastructure into an on-demand service, says Warley.
“So this allows our customers to take IT for a period of time in the quantity they require; like a light switch, you turn it on when you do want it and off when you don’t.”
Utility outsourcing, however, is not ideal for everyone, he adds. In the case of EasyJet, it was the predictability of the business that made it possible to implement the per-seat pricing model successfully. “The seasonality of the business is predictable: they know, for instance, that January is going to be their biggest month because people are going to come back after Christmas depressed and will book their summer holiday.”
Having such long-term cycles has allowed EasyJet to commit to the utility computing model which, according to Andy Caddy, head of IT services at EasyJet, the airline will expand as part of the organisation’s “long-term strategy” to reduce costs. But as well as reduced costs, adds Warley, the contract provides “a form of insurance that you wouldn’t get if you did it internally.”