Real-Time Solutions Make Your Revenues Take Off

real-time solutions make your revenues take off.

increases can be made through better decisions or added sales Revenue is crucial for any indus- opportunities. From better sched- try, but it is particularly vital for uling with networking alliances or a cash-flow business such as air fleet or schedule changes which transportation where the business offer more capacity potential at is cyclical. Revenue considerations the right time, to post-flight loyalty need to be made at all the points partnership opportunities, there along the airline’s value chain, that are many points in the process includes the marketing and sales that can drive revenue growth. process (See figure 1). Revenue

® Figure 1: Typical airline marketing and sales process

Some Considerations To Grow Your Revenue There are several areas airlines can consider to increase revenues: • Revenue recovery and protection,

• Better schedule, capacity and aircraft utilization, • Incremental income streams,

• Better fares, revenue and inventory management, • Improved cargo revenue management,

• Customer depth and loyalty, • Synergistic business services,

• Customer-centric reservations processing, • Improved passenger loyalty.

2 Better Schedule, Capacity And Aircraft Usage It’s no secret that an efﬁcient network can have The airline was able to consolidate its operations a tremendous positive economic impact on an from three terminals to two and removed 11 airline’s bottom line — but maximizing your opera- airplanes from its schedule while operating the tions is a task that should not be taken lightly. same number of departures.

Within a single hub, for example, there lies a Making The Most Of Your Fleet delicate balance between the efficient use of your resources (crew, fleet, ground personnel, and so Having the correct types of aircraft available to fly on.) and the marketability of your flight schedule your schedules is another important aspect to mak- to passengers. ing the most of your hub operations. (See figure 2.) Fleet planning tools help to distribute the most From de-peaking to close-in re-fleeting, your airline efficient aircraft for each route your airline flies. faces a multitude of options when considering im- provements to its hub operations. With the proper These tools can also help you take advantage of tools in place, you can find these efficiencies and the cost-saving and revenue-boosting practices capitalize on the resulting cost savings. Airlines can of close-in re-fleeting — ensuring that the most reduce excess aircraft fuel burn cost by up to 5 efficient mix of aircraft are assigned in every percent by increasing efficiency on the taxiway. situation.

By implementing one or a combination of the fol- Today, airlines that proficiently re-fleet their lowing solutions you can help make your airline’s schedule at points between two months to seven hub work more efficiently. days before the day of departure can boost profitability by responding to demand fluctuations, Leveling The Peaks which often alters the economic equation in ways that were not apparent at the time the schedule De-peaking the traditional hub-and-spoke struc- was initially published. ture by flattening the arrival and departure banks can reduce taxi time, fuel burn and congestion. Close-in re-fleeting or CIRF, is a concept to real- With today’s automated schedule development locate common flight deck equipment in the tools, your airline can take advantage of more short run by matching capacity to demand at the dynamic schedule structures while reducing the lowest possible cost in order to maximize profits. complexity of its operations in the following ways: Through CIRF, airlines are able to move a smaller gauge aircraft to a flight with less demand in • By spreading flights more evenly throughout place of a larger gauge aircraft that could capture the day, your airline can combine the efficiencies larger-than-expected demand. of a low-cost carrier with the increased number of destinations available through a traditional hub- Industry Applications and-spoke model. Close-in Re-fleeting • According to one major airline, the key to de- Airbus 318/319320/321 peaking is capping the number of aircraft arrivals Airbus 330/340 and departures per minute, never exceeding five movements in any five minutes. Boeing 737 family Boeing 757/767 family • Along with more evenly distributing flights, Boeing (McDonnell Douglas) DC9 family another concept used by low-cost carriers is Boeing (McDonnell Douglas) MD80/87 family standard fixed ground times by uncoupling the Bombardier CRJ-200/700/900 passengers and the airplanes. Bombardier Q-200/300/400

Although de-peaking leads to an increase in pas- Embraer ERJ-135/140/145 senger connect times, a major airline found it was Embraer ERJ-170/175/190/195 still competitive. It has not received any nega- ATR 42/72 tive feedback from customers even though the elapsed time increased. Figure 2: Maximize proﬁts with the right aircraft

3 Why CIRF Is Effective Schedules are generally finalized many weeks in advance of actual operating date. Planning as- sumptions are made based on average historical demand data and are generally made three or more months in advance. Implementing swaps can be a large communications and coordination challenge. Timing is key as swaps must be made in time to sell the additional seats on the incre- Some management teams refer to the concept mental capacity. Maximizing profit results from similarly as “second-chance revenue manage- identifying switches that give the best change in ment” “supply-side revenue management,” or profit (revenue increases, cost decreases or the “demand-driven dispatch,” an MIT term. Regard- combination of the two drive the overall profit less of the label, the practice can have some change). Here is why CRF is effective: surprising and realistic results: • With CIRF, as actual departure dates get • Net gains up to 0.5 percent of revenue base closer, demand is better understood (by date, can be achieved with a rigorous CIRF process, day, flight and cabin, mix and booking class • Documented, annual benefits for existing Sabre expectations by leg) yet capacity assignments Airline Solutions ® customers range from US$2.3 remain fixed by schedule/date range; million (regional) to US$27.3 million (mainline), • Quickly determining equipment changes with- • Close-in re-fleeting has demonstrated the out an automated tool is very difficult. Close-in potential to increase revenues 10 percent to 15 re-fleeting can help by finding a multitude of op- percent on specific strong flights with little or no tions and validating their feasibility; impact on weaker flights, • 5 percent to10 percent of total operations • Direct operating costs may be reduced with swapped typically drive 80 percent of the benefit; little or no revenue impact, • A close-in re-fleeting program can be started • Network profits may be increased substantially slowly with increasing complexity — same day, during certain schedule periods. same hub to multiple day, hub and spoke cross- overs, and minor re-timings. The implementation The kind of airline that is a good candidate for can progress in complexity. CIRF has the following: Effectively Adjusting To Seasonal • High level of common flight deck equipment, Traffic • High “banked” network structure, Seasonal demand changes — holidays and busi- • A large number of flights leaving ness travel — at a hub can make the option of around the same time, out-and-backs from a re-orienting the hub’s bank structure an appealing hub work best, venture. By using automated schedule develop- • Good revenue management data, ment tools, you can take advantage of additional flight and connecting opportunities that such • Reasonable quality demand forecast, with a shifts in seasonal demand may provide. longer booking curve, Additionally, a comprehensive crew management • A good fleet assignment application with good system will maximize the revenue opportunity cost data, of the new schedules by taking advantage of • Feasibility constraints that can be modeled. optimization tools to generate crew schedules,

4 which ensures efficient deployment of crew at Varying Capacity By Market minimum cost while maintaining flight reliability An airline needs to determine its ideal fleet Zone 1 and schedule integrity. requirements based on its network strategy with A major airline has claimed that its fleet manager consideration for commonality, market require- Zone 2 tool has enabled it to be more flexible than any ments, aircraft characteristics and its long-term other large airline. As a result, it was able to accom- strategy. However, as low-cost carriers have modate an additional 62,900 passengers in one Zenteredone 3 the mainstream segment, they have month who otherwise would not have been able to shown that a different fleet does not need to be fly. Now the airline is better prepared for crises and fitted to every single market to vary total capacity. can accommodate changing customer demand with One way to vary capacity is by the number of much more flexibility and on short notice. flight frequencies operated per day or week. For example, 375, 500 or 625 seats can be supplied Reduced Fleets, Raised Revenues in a market flown with 125-seat aircraft by sched- During the past several years, many traditional uling three, four or five frequencies. airlines have tried to adapt their business by bor- rowing pages from the low-cost carrier hand- You Don’t Have To Get To Just One book. In an attempt to lower costs, some major Type To Be Effective network carriers have simplified their business Simplifying the fleet doesn’t necessarily mean including reducing their fleet types. Although, for reducing to only a single type of aircraft. (See the most part, they have not shrunk to a single figure 3.) One low-cost carrier has demonstrated fleet type like many low-cost carriers, by reducing that creative planning can help airlines increase their fleets from numerous types to a handful has from one fleet type to two without adding too brought several benefits, including: much complexity. When this airline ordered • Increased efficiencies in aircraft rotation smaller Embraer regional jet aircraft to comple- (fewer aircraft types mean that when aircraft ment its fleet of Airbus A320s, it ensured that come to a particular hub or focus airport, they crewmembers would not be required to move can be swapped easily, which results in higher from one aircraft type to another. For example, if utilization); a pilot of a larger aircraft leaves the airline, he or she is generally replaced by a pilot of a smaller • Reduced requirement to invest in spare aircraft. This results in double training costs airplanes and an inventory of spare parts, which — additional training for this pilot as well as for would otherwise be required to support multiple the new pilot of the smaller aircraft. By isolat- fleet types; ing its fleet types, this airline should continue to • Increased volume discounts due to purchasing reap the benefits of fleet simplicity even when more of the same parts and supplies; utilizing two fleet types. By not basing salary on aircraft type, there’s reduced incentive to move • Less or reduced training for flight crews, from one airplane type to another, minimizing mechanics and ground-support personnel; costly retraining. • Fewer maintenance personnel, and faster maintenance repairs and recovery from mechani- 12 16 cal problems since mechanics and field personnel 14 are likely to encounter similar problems and solu- 10 tions on a repetitive basis. 12 8 As traditional airlines are pressured to provide 10 low-cost services, particularly in domestic 6 8 markets, they should look to use the same basic 6 4 criteria as low-cost carriers when selecting fleet 4 types, which include selecting aircraft that: 2 2 • Provide low-cost service to the short- and

Number of ﬂeet sub types 0 0 Utilization aircraft per day medium-haul markets they serve, Thai • Deliver reliable, high-frequency schedules, Delta United AirAsia JetBlue Frontier

• Enable quick turnaround to minimize ground American Southwest time, Fleet types • Provide operational flexibility, Utilization/airlines/day • Facilitate and standardize training and support, Figure 3: Simplying fleet doesn’t mean reducing to only • Support high-fleet utilization. one type of aircraft.

5 Build A Solid Foundation For Achieving Revenue Sustained growth in the face of such fierce competition primarily involves three systems: fares management, revenue management and inventory. It seems straightforward, but tackling ever-changing consumer and market demands without all three being able to rapidly evolve and Even when a decision to simplify an airline’s work together will limit success. fleet is made, it may take years to achieve the goal due to capital needs and delivery require- Fares Management ments. However, with adequate planning, a Look for an application that enables analyz- carrier can achieve a simplified fleet. In an ing/managing fare products (public, private, environment where revenues have continued constructed, Cat. 25/35, Internet); is rules based to trend downward and costs are less con- (with easy modifications and monitoring); and can trollable, fleet simplification can help reduce support footnotes (definition, changes). Look for costs and ensure higher levels of revenue. one that facilitates: Carriers focusing on fleet simplification, • Competitive and historical analysis, whether legacy or low cost, will reap benefits of increased productivity of their assets. • Single and mass changes, • Scope assessment, Better Fares, Revenue And • Codeshare and alliance participation, Inventory Management • Analyst work flows and utilization monitoring. Revenue management is no longer a luxury; it is A good fares management system can signifi- a necessity. It is critical to successfully develop cantly increase an airline’s revenues by acceler- and implement the right fares and strategies to ating the airline’s response to competitive fare maximize revenue. initiatives and providing the analyst with a means to manage the network, not just the markets. Airlines across the world, regardless of business model, are finding they need to compete Airline analysts state that effective use of in varying environments, managing revenues for automated pricing systems can offer a revenue different types of traffic through different sales improvement of approximately 1 percent to 2 channels. (See figure 4.) percent. 6 Managing revenues in a traditional environment — Flight leg/segment or O&D

Managing revenues in markets with low-cost/low-fare competitors

Maximize Managing revenues in an Revenues ultra-competitive environment

Managing group revenues

Managing revenues across sales and distribution channels

Figure 4: Maximizing revenue requires use of best practices in integrating pricing, revenue management and inventory.

Revenue Management The value proposition of a good revenue management tool should facilitate: advanced fare qualiﬁcation rules,

• Efficient traffic flow across the network, • Shared cabin inventory,

• Retained market share without diluting rev- • Sense and respond capability to real-time enues, market changes with easy-to-use, searchable • Compensating for cancellations and no- business rules, shows by overbooking, • Simple integration with top revenue • Limiting sales to low-revenue customers to management, fares and departure control preserve space for higher-revenue customers, systems,

• Accepting low-revenue customers when • Multiple inventory control structures across higher-revenue demand is less than aircraft the network — serial, parallel, mixed, hybrid, capacity, O&D,

• Redirecting low-revenue customers to • Point-of-sale control ranging from the flights with lower load factors, thereby mini- regional to travel agency level of detail, mizing spilled passengers, • Business rules that support complexity and • Supporting mixed networks with a tradi- rapid changes, tional and low-cost carrier model, • High volume 24 x 7 availability and sell/can- • Effectively managing groups to minimize cel transaction processing, displacement and maximize profit. • Vertically and horizontally scalability based on configuration requirements, Inventory • Guaranteed uptime with a fault-tolerant Look for a real-time inventory tool that is (pref- server. erably) an open-systems design, has flexible processing and will support: A well-defined inventory approach can improve both traffic and yield by up to 2 percent • Accurate availability displays in a high look- by capturing price-sensitive demand (mostly to-book ratio environment, leisure) outside business booking curve and • Full O&D capabilities including support of improving business yields via inventory clo- the bid price curve, interline pro-ration and sure inside the business booking curve.

7 controls based on bookings, schedule changes and cancellations,

• A single point of fare information via the fare management application providing accurate, up- to-date fares to ATPCO and the revenue management and inventory systems,

• Support of multiple nesting structures across systems, including serial mixed, parallel, virtual, continuous and bid price curve, enabling the creation of an inventory control strategy on a market-by-market basis. Be Flexible And Competitive Fare Distributors SITA Traditional revenue management sets optimal ATPCO inventory controls based on historical ﬂown trafﬁc Competitive Web fares data and does not consider what the competitor’s availability is. Competitive revenue management is getting easier to perform and is a framework that enables decision making based on competitive availability. Competitors might know how to react faster to a price change and how they would respond before an airline has even considered the change.

QL2, FareChase, AgentWare and many other companies scrape fares from Web sites and can offer input feeds back to an airline. Ignoring such Points of Sale providers may not be an option forever, and off- Figure 5: Real-time revenue management tariff fares in some markets aren’t getting easier to predict. The system should incorporate competitor Strive For Real-Time Revenue fares data into the forecasting and optimi- Management zation process based on the exchange of real-time information between the revenue Real-time revenue management is providing up- management and fares management systems. dated optimal inventory controls close to real time An airline should develop pricing strategies based on conditions in the marketplace. based on the schedule’s strength as dictated As shown in ﬁgure 5, driving integration (technol- by market share data and passenger booking ogy and business process) across fares man- patterns. The goal should be to provide pas- agement, revenue management and inventory sengers with the most convenient routes at systems, with as close to real-time interfaces as the most convenient times priced in a com- possible, provides beneﬁts such as: petitive manner.

• Real-time inventory alerts between the inven- It’s a fact — more accurate fares and controls tory and revenue management system that can drive additional revenues and protection of trigger re-optimizations and update inventory existing revenues through fare qualification.

8 Once technical integration has been achieved, that Sabre Airline Solutions® has received. business processes and logic need to be estab- Based on these observations, Sabre Airline So- lished to leverage the full revenue impacts. Ques- lutons suggests that focusing on these six areas tions need to be considered, such as: of improvement will drive increased market • How frequent are the fare updates to the share and revenue growth. (See figure 7) revenue and inventory systems? Forecasting — Based On Consumer Prefer- • How will loyalty tier and/or group traffic be ences And Attributes supported? This involves a forecasting approach that follows • What and which inventory controls will be the consumer demand process — a top-down re-optimized by which markets? approach that provides insight into market de- Business processes need to be integrated to lever- mand and consumer preferences, such as: age the value of the technical integration between • Displacement time, elapsed time, competitor the systems. Quite often, outside help is benefi- schedules/fares, aircraft type, restrictions, and cial, and the design should not be taken lightly. so on,

Respond To The Consumer • First-choice demand, • Improved estimates of recapture, upsell and Regardless of the market and carrier size, airlines price elasticity. are voicing similar concerns and needs for ways to drive, or protect, revenue, and much of this feed- For airlines whose demand is predominantly back is in response to consumer action. Figure 6 consumer direct, calibration of the choice model below references some of these trending concerns will be from PNR data.

Expressed Concerns From Airline Management: Suggest A Need For

“With price transparency in the online era, customers are very sensitive to the selling fare in the market when they shop … yet our Forecasting based on demand forecast models do not explicitly consumer preferences consider our competitors ....”

“We are faced with intense competition from low-cost carriers in more than 80 percent of our domestic and regional markets … we need Fare simpliﬁcation a new revenue management system ….”

“Customer segmentation … beyond the fare classes … is required to get closer to the cus- Alternate segmenta- tomer … on our Web site and for marketing tion/product branding campaigns.”

“We require the capability to unbundle our products and differentiate our content through the agency channel … have a capability to pro- Merchandising tools mote upsell, cross sell and display our product attributes ….”

“We control billions of dollars worth of seat inventory annually … yet true availability —– the end product of revenue management is being compromised … with inaccuracies Accurate availability that impacts customer satisfaction and our bottom line .…”

Figure 6: Current airline concerns 9 system to support both simultaneously in certain aspects of a network is needed to protect and compete for revenues.

Alternate Segmentation/Branded Products No two customers are equal, but many are alike. Segmenting them successfully can ensure repeat travel, deeper spend and higher levels of satisfaction. Knowledge of the traveler Accurate can help make more insightful decisions during Availability the sales and operational processes. Getting closer to the customer requires an understand- Pro-active Consumer ing of the data and an investment in a data Pricing preferences, warehouse. Airlines should attempt to capture attributes and track: • Purchase value/lifetime value,

Product Fare • Recency, frequency, monetary and tenure, Undundling simplification • Profile characteristics to fulfill specific mar- Alternate keting objectives. Segments/ Being able to offer and adapt a brand of fares product offered by amenities is dependent on an Branding airline’s infrastructure and ability to support all of the following: Figure 7: The continuing evolution of revenue • Operational data — PNR, ticket data, management is focused on the consumer and these six areas. • Customer profile data — name, address, e-mail,

Fare Simplification — The Low-Cost Carrier • Demographic data — age, income, location, Revolution And How Restriction-Free Pricing • Customer preference data — propensities, Has Evolved attitudes, behaviors, Traditional revenue management forecasts • Business KPIs — key metrics and continuous demand by fare class and determines optimal feedback. allocations against available capacity. Each fare is independent and governed by a set of restric- Product Unbundling — Ancillary Revenues tions. In a pure low-cost carrier model, fare And Its Impacts classes are not independent, and management Unbundling of airline products is becoming a should forecast demand depending on the cur- reality. Some airlines are experimenting in the rent fare class that is open. Fares have the same distribution of a variety of in-flight products identical restrictions. and services (such as pre-paid seats, bag- The blending of the two is known as the “hybrid” gage check, meals, entertainment) based on fare structure. Multiple fares are filed with identi- customer insight. Other airlines are focusing on cal restrictions while others may remain restric- selling optional flexibility with the use of their tion free. The ability of a revenue management fares (upsell/rule buster).

10 The “a la carte” pricing strategies enable online customers to choose or decline such product attributes instead of what the customer is willing to pay. as seat assignments, meals, checked baggage and Airlines need to re-evaluate pricing and revenue frequent ﬂyer mileage accrual. management processes. There is a unique As ancillary revenues grow, it is important to opportunity to generate incremental revenues forecast the consumption of ancillary revenues by with optimal pricing. Strategic and tactical pricing customer segment and booking class. should be considered.

Consideration of the impacts of product branding Strategic pricing (fullﬁlls long-term objectives and and unbundling on revenue management, reserva- greater uncertainty) includes: tions and distribution include: • Price leadership and implementation of a sound • Demand forecasting (at the brand level), pricing strategy,

• Web displays and GDS/reservations impacts for • Evaluation and recommendation of a new tariff the differentiated content, structure (all fares) for the market,

• Ability to track inventory at the product brand • Proactive pricing based on customer willingness level, to pay and prevailing competitive market conditions. • Pricing of attributes (based on customer willingness to pay), The time window for strategy pricing is 12 months from day of departure to three months prior. • Revenue accounting (ability to track and capture fees from the PNR/VCR). Tactical pricing (fulfils immediate objectives with limited uncertainty) includes: (See figure 8) Proactive Pricing — Adopting An Intelligent Approach To Competitor Fare Actions And Fare • Active monitoring of competitor fares to ex- Initiatives ecute “smart matching,” Pricing, long forgotten, is a key enabler of incremen- • Evaluation and recommendation of a smart tal revenues. Traditional airline pricing is limited to response based on a competitor’s specific action competitor fare monitoring and matching based on (fare specific) and on quality of service and/or rules. Traditional revenue management has always prevailing fares. focused on what the supplier is willing to accept The time window is three months to day of operation.

6 months - 3 months 3 months - days Time y t n i a t r e c Strategic Tactical n U

f o

l e v e L

Figure 8: The time window for pricing

11 However, amid the complexities, airlines need to seek ways and partners to improve the accuracy of online and ofﬂine availability displays by using:

• O&D availability that caches by point of sale, providing a better, more proﬁtable objective,

• A proxy for availability that will mirror the logic resi- dent in an airline’s host CRS, reducing unconﬁrmed segment responses, or UCs,

• A combination of O&D availability and a proxy Accurate Seat Availability — Alignment With that would then drive incremental revenues and cost Revenue Management Value Proposition reductions for an airline. The history of how to properly reflect seat avail- Potential Gains ability has shown numerous advancements in technology and logic. Today, the transformation of What is the likely value of improved pricing, revenue availability is happening “live.” The airline industry management and inventory controls? Industry experts is figuratively changing the tires while the car is have determined commonly accepted averages for going 100 kilometers per hour, and there is a long the benefits of real-time revenue management. list of other dynamics in play. (See figure 9.)

Environment Capability/Revenue Lever Incremental Revenue (%)

G Fare management 1% - 2% N

I Overbooking 2% - 3%

N Discount allocations/restriction free-pricing 3% - 4% N O&D revenue management/network RFP 1% - 2% A

L Group control 0.5% - 1% P

Point of sale control — fare adjustments, fare 1% - 3% by POS, off-tariff control and channel control Flexability/adapability of inventory controls 1% - 2%

N by market O

I Advanced fare qualiﬁcation rules/product rules 0.5% - 1% T Interline proration (% based on interline trafﬁc) 0.5% - 1% U Customer-centric availability 0.5% - 1% C

E Alternative to cached availability — Reduction in prevailing UC’s

X true last-seat availability for shopping E requests from Sabre ® channels Dynamic packaging through distribution channels 1% with true last-seat availaility

Figure 9: Gains with improved pricing, revenue management and inventory controls

12 The fundamental value proposition of revenue management does not change. However, certain things are evolving. Customer-centric revenue management is driving forecasting based on consumer a “hip hop” grandma who teaches her teen- traits and preferences. Simpliﬁed pricing is here to age grandson how she stays “in the know” stay with the emergence of low-cost carriers. while traveling with Virtually There. After just a In an attempt to get closer to the customer, few days it was the most viewed travel-related airlines are contemplating alternative segmenta- video. A Valuecruncher valuation estimates an tion strategies to manage seat inventory. Brand average of 15 billion YouTube videos will be recognition and product unbundling are gaining in streamed worldwide per month in 2008 increas- signiﬁcance. ing to 50 billion per month in 2012.

Accurate availability based on the competitive Social network members present an opportu- landscape and stated marketing objectives is on nity for buyers of travel-related services. There the radar of most leading airlines, and price lead- seems to be no sign of the growth of such ership is increasingly being viewed as a competi- groups slowing. Airlines and other travel-related tive weapon. Revenue management, customer suppliers would do well to consider how they relationship management and how products are might use such sites to drive brand and market distributed are converging. The continuing evolu- share with new revenue opportunities. tion of revenue management can be a win-win proposition for both the consumer and the airline. Broaden Your Distribution Mix Balancing channels and understanding true Customer Depth And costs are critical to increasing revenue. You can maximize your competitive advantage and Loyalty — Reaching New unlock market potential by ﬁnding the right dis- Markets tribution mix that can yield some unique Growing the customer base is not a new concept, opportunities including: but there are few new ways to do it and a need to • Maximizing the availability of your prod- reconsider some old ones. uct for all trip types

The Power Of Social Networking Considering the reasons for travel by your consumers is essential when determining the Social networking is growing — exponentially right distribution mix. From corporate travel — and many travel companies are just now to last-minute weekend getaways, custom- considering its potential. A bad or great travel ers’ needs and reasons for travel weigh heav- experience and the Internet are what make viral ily on the channels they will use to purchase marketing powerful. Blogs help spread the word the product. By offering the right product at lightning speed. Members of these networks through the right channel, you can ensure the are inﬂuencing travel purchases if not making the ability to reach the right customer through all purchases directly. And that’s why: channels is maximized.

• More airlines could consider marketing within • Expanding the reach of your product the existing popular and growing social networks. Not only does the right distribution mix en- • Airlines should use social networks to ap- sure that the right product will be available to peal to different age groups. Such sites are no the right customers when they need it, but a longer limited to the teenagers from MySpace, distribution mix that includes content in the Facebook, Pizco and Tagged, but to seniors on right multi-channel mix can help maximize your Eons, businesspeople on networking sites such product reach. The acquisition of new custom- as LinkedIn and Plaxo, and even hobbists such as ers in regions outside your home market is aid- photographers with Flickr. Collectively, there are ed by the global power of an indirect channel more than 50 million potential customers daily. such as a GDS through efﬁcient and effective The Sabre®Virtually There® Web site posted a product distribution without the hidden costs YouTube video in November 2007 that features associated with more direct methods.

13 A preference should be given to the use of a single customer record throughout the travel chain, which will enable consistent recognition of the valued alliance passenger and record customer events throughout the travel process from ticketing, check-in, ﬂight departure, post departure and mileage accrual. The single customer record virtually eliminates the risk of not providing the customer beneﬁts that each frequent traveler expects and the suppliers, the history they need.

Alliances, Codesharing and Synchronized data will also be a welcome result of a single customer record, simplifying the Interlining reconciliation of codeshare flights, easing the Alliances with carriers that complement your complexity of schedule changes and signifi- network have long been a way to gradually cantly reducing any revenue management risk by increase the customer base and revenue while eliminating the need to balance various sources avoiding unnecessary costs through competition of inventory. on the same routes. With the recent development in Open Skies, new opportunities provide new Optimizing Your Slots revenue possibilities such as: A viable item for revenue consideration might • Alliance services — New Open Skies regula- be slot swapping or slot leasing to other airlines, tion might change the alliance landscape, possibly generating revenues that were impossible to dramatically. When considering your alliance consider before. Slots represent the key to a options, look for an integrated alliance solution network’s revenue potential, and Open Skies that will work throughout and beyond the travel has provided a new opportunity to consider the service chain, satisfying all of the status benefits (greater) revenue potential possible through tem- essential to the chosen alliance affiliation. porary swaps and sharing or leasing to others.

• Codesharing — Look for a vendor that offers an easy conﬁguration tool to ease codeshare ac- Revenue Recovery And tivations and maintenance processes by enabling Protection an airline to create and maintain all applicable codeshare tables in one place. Don’t overlook the Stop Revenue Leakage need to support both block-space and free-sale A sound revenue integrity program is required agreements and all four IATA options, that way for a successful revenue management pro- you have the capability to codeshare with anyone. gram. While vigorously pursuing growth and • Interlining — An essential business element cost-containment opportunities, many carriers these days. Finding an interline electronic ticketing overlook one of the most attractive sources hub vendor that enables 100 percent e-ticketing, of revenue growth — a low-risk, high-reward reducing the costs of interlining and partnering revenue integrity strategy. Airlines that have with other carriers while enabling full compliancy instituted a broad organizational focus on with the IATA e-ticketing mandate, is a basic must. stemming revenue leakage have seen imme-

14 diate beneficial results, typically improving their revenue by 1 percent. Revenue Accounting A successful revenue integrity program consists A good revenue accounting audit tool is essential of implementing automated tools and constantly to enforcing fare rules and providing manage- monitoring reservations activity for compliance ment oversight. Can airline accounting handle with policy, across all distribution channels, with e-ticketing, interline e-ticketing or your interline appropriate follow up in a timely manner. weekly settlement? Can it easily access and A good revenue integrity program benefits all report revenue data across numerous dimen- airlines regardless of size or reservations system. sions? Can it accurately account for unearned Centered on a flexible, robotic application, a good revenues associated with ticket sales and earned revenue integrity program enables an analyst to revenues associated with ticket use? If not, then: rapidly identify and eliminate non-revenue-gener- • Ensure the system has the ability to build audit ating bookings, obtain a truer picture of available queues to look for violations for monies not duly inventory closer to departure and convert truly collected on the airline’s behalf. It should be able unsold items into revenue. to work with published and unpublished fares, Identifying and eliminating non-revenue-generating support timing rules, commissions, payables and bookings obtains a truer picture of available inven- unreported sales. tory closer to departure. Non-productive bookings in • Avoid repetitive loss with accounting tools that your airline reservations system are generated either recover revenues from mistakes and protect from through negligence or fraudulent activity by travel future deceptions. agents and/or airline employees and are generally time consuming to identify. • Conduct revenue accounting audits regularly, whether internally or outsourced, then adjust As an example, manually finding and enforcing based on the findings. ticketing time limits, handling passive segments and managing duplicate segments and PNRs can be • Align the system’s and department’s process- fairly inefficient and cost prohibitive for many carriers. es with marketing, inventory and sales. Through appropriate processes and tools, a revenue • Track ancillary revenues by flight based on department can effectively improve its operations, usage. customer retention, user productivity and revenue. As more and more airlines push branded fares, Revenue integrity management solutions take appro- the revenue fulfillment and financial settlement priate measures to convert unsold inventory into rev- becomes more complicated and relies on the revenue-producing inventory and ensure data integrity enue accounting system to manage it. By using a across all GDSs. Carriers — regardless of size or the good revenue accounting system, an airline can passenger reservations system — that utilize such expect revenue recoveries from audits likely to tools gain valuable benefits in several key areas: exceed 1 percent of its annual revenue compared

• Detecting and optimizing less-proﬁtable bookings, to manual systems. The availability of market intelligence information can provide additional • Reducing and normalizing overbooking, ﬁnancial gains of up to 3 percent of an airline’s • Eliminating inventory spoilage, annual revenue.

• Ensuring consistency of fares and availability across GDSs, Incremental Income • Improving forecasting and scheduling. Streams Revenue integrity management tools ensure that Ancillary Revenues passengers travel within the conditions applied to their tickets, and the costs of such tools are generally A large variation of ancillary services are offered very affordable and offer an instant and high return on within the industry. Some airlines are experiment- investment. ing with in-ﬂight products and services (such as

15 Some airlines are choosing to market all of the respective air and non-air content in an a la carte fashion, while others are choosing to group fares into “branded” labels with each group having more privileges. The first strategy offers potentially more revenue while the second secures greater fare variability and incremental pre-paid seats, baggage check, meals, entertain- revenue pre-trip. ment) based on customer insight. Other airlines are focusing on selling optional flexibility with the To properly implement an “unbundled” sales use of their fares (upsell/rule buster). strategy, consideration needs to be given to several sales processes and applications: An independent survey conducted by Leflein Associates in January 2006 showed that many • Make it easy. Unbundle and sell additional travelers would pay for extra perks such as more services and products pre-flight, in-flight and overhead bin space and in-flight Internet access. post-flight. These include pre-paid seats, insur- ance, parking, limo, baggage forwarding, meals, Airlines appear to be using one or more forms of (additional) checked baggage, entertainment, “user-defined bundles” such as: wireless access and service fees. Provide the • Air extras that include the distribution of a necessary integration at points of sale enabling variety of in-flight-related products such as pre- a consistent traveler experience. Ensure ease paid seats, checked baggage, meals and enter- of payment, credit cards or joint loyalty/credit tainment. cards.

• Optional flexibility with fares, such as branded • Be everything to everyone. Match cus- fare groupings and displays, up-sell to higher fares tomer demand and unbundle but also retain and rule-breaker purchases. influence over the purchase, such as exposure • A combination of complementary services to a set of “branded” fare classes that market offered from partners/suppliers. the airline to various types of travelers. The simplified structure can increase sales by both The unbundling of airfares is best described as revenue yield and volume. Use specific branded a means to separate products and capabilities in fare classes throughout all distribution channels such a way as to enable an airline to differenti- for faster adoption. ate, brand, market and merchandise its fares and value-add services within its controlled and • Let logic dictate. Consider crafting some connected point-of-sale applications. This strategy simple workflow rules to aid agents at points has created a new “merchandising” concept that of sell and check-in to know what would be the can be applied across any point of sale, which most successful upsell — a higher “branded offers airlines new and creative ways to connect fare grouping,” meals at certain times, an ame- with the consumer by offering more than just the nities kit for evening flights, morning paper for seat at the point of purchase, while producing a red-eye, restaurant meal voucher with ample higher yields for the airline. preflight time and so on.

16 • Document, analyze and explore. Track what is tried and who buys it. Group similar ancillary products and suggest similar ones to travelers with past purchases.

• Be creative. Offer daily newspaper, amenities kit Better Web Site Marketing And (toothbrush, eye mask), pillows and blankets, laptop Partnerships power, postcard services. Look for things that might have a long or infinite shelf life and store easily. If Many airlines have foreseen the benefits of a historical data supports that a particular flight will Web site for customer self-service — reduced have an unavoidable low load factor, consider selling call volumes for reservations call centers and the guaranteed privacy of a vacant seat adjacent direct sales — but few have completely seized to the traveler. An airline has yet to partner with a the broad possibilities for revenue generation mail order movie vendor such as the United States’ beyond basic booking requests and loyalty status. NetFlix or European vendors such as MovieMail, Increased services mean increased visibility, hits MovieMile or Keeno to create an easy and current to the Web site and brand recognition. Americans movie rental option within domestic markets. now buy more travel online than off-line. Specifi- Consideration needs to be given to how “unbundled” cally in the United States, 2007 was the first year to make a flight based on the brand and what types in which more travel was purchased online than of additional services an airline wants to be known off-line, according to a PhoCusWright Consumer for. But whatever the reasonable mix selected, the Travel Trends Survey. The study said 51 percent ability to up sell customers additional levels of service of U.S. travel was booked online in 2007, and and/or amenities has proven to be a very profitable it projected that percentage to increase to 56 revenue strategy for many carriers, and more impor- percent in 2008 and 60 percent in 2009. (See tantly, customers are repeatedly requesting it. figure 10.)

Note: 2007-2009 ﬁgures projected, ﬁgures have been revised from previous editions; APAC and Europe projections not available at press time. Source: PhoCusWright’s U.S. Online Travel Overview Seventh Edition

Figure 10.

17 other services is available through various points of sale such as the Web, ticket counter locations, city ticket ofﬁces and reservations/call centers.

• Pay-for-performance search,

• Rationing Web-exclusive products,

Harness The Internet • Popular culture events, The Internet puts tremendous power into the • Contests and games — Promote your business hands of marketers, offering a medium for imme- or services while providing chances to win prizes, diate interaction with customers and the ability to • Viral marketing — Facilitate and encourage gain instant feedback and adjust selling strategies people to voluntarily pass along a marketing mes- on the ﬂy. sage,

Five key areas stand out as critical to online mar- • Guerilla marketing — Generate inexpensive or keting success: free publicity through various creative ways,

• Growing site trafﬁc, • Teaser campaigns — Entice customers to look • Converting lookers to bookers, for special offerings,

• Understanding travelers’ interaction with a site • Public-awareness campaigns — Contribute to through Web analytics, the community by partnering with a cause while increasing brand awareness, • Using online advertising and e-mail. • Direct mail — Target your customers with Successful Strategies For Growing speciﬁc offers through the mail, Site Trafﬁc • Online communities and social networks.

As in ﬁgure 11, by developing an online marketing Partnerships forged with other vendors in the strategy that incorporates online marketing best travel chain such as car rental agencies and practices and complements your traditional market- hoteliers can provide cross marketing of discount ing efforts, you can create a plan that is in line with coupons and shared loyalty programs. your airline’s overall comprehensive strategy by By jointly promoting other partners’ products, an offering the following: airline retains a revenue split of the proceeds. • Online discount coupons — Promote visits and Online credit accounts also allow airlines to retain bookings on the Web site through targeted promo- what would be refunded amounts for future pur- tional discount coupons redeemable only through chases, ensuring a return Web site booking and the online channel. Airlines can also track customer greater sales potential. usage and utilize data for future promotions.

• Online credit accounts — Offer an online elec- Strategies For Turning Shoppers tronic alternative to credit cards or cash with a travel Into Buyers bank solution. Travelers retain electronic flight cred- Numerous strategies exist for converting shop- its in an individual or corporate travel bank account. pers to buyers. Four specific techniques can help Accessibility to credits for payment of flights and improve the look-to-book ratio:

18 • Increase qualified traffic, research on what works and what doesn’t. Some of the findings say banner ads can: • Improve the shopping experience, • Offer the opportunity to track customer interac- • Close sales, tion with the advertising effort. This is a very • Encourage repeat buyers. effective form of advertising, and the added value of being able to truly interact with the customer Know Site Visitors makes it even more attractive. Key questions that need to be answered by Web • Target marketing campaigns based on traveler site analytics include: history as well as the history of the traveler’s • What brought the customer to the site? Web-site interaction. Deliver the right message to • How did the customer enter the site? the right traveler at the right time.

• What paths were taken while on the site? • Provide cross-sell and upsell opportunities. Offer a car or hotel partner add-on or up sell a • What led to a booking? customer to a higher class of service. • How long did the customer spend on the site? Banner advertising is an extremely powerful tool • If a purchase was not made, when did the that should be maximized in the overall online customer abandon the site? marketing and revenue strategy. It is critical not to judge the success of banner advertising by the Online Advertising click-through activity alone since the increase in Entire books have been written on the topic of awareness levels is directly tied to the volume of online banner advertising including compiled banner advertising displayed.

Pull Push

Off Site • Search engine marketing • Popular culture events Driving site trafﬁc • Pay-per-performance search • Rationing Web-exclusive products

• Contests and games

• Viral marketing

• Guerilla marketing

• Teaser campaigns

• Public-awareness campaigns

• Targeted e-mail and direct mail campaigns

• Banner advertisements

• Partnership offers

On Site • Easy navigation and advanced search • Online coupons Driving conversion, functionality • Online communities purchase and loyality • Real-time targeted offers using visitor data and frequent ﬂyer data

Web Analytics • Weekly site analysis meetings • Evaluation of partnership participation • Monitor contribution margin per quadrant • Monitor revenue per click and margin per click

Figure 11: You can develop an online marketing strategy that incorporates best practices and complements your traditional marketing activities.

19 level, thereby increasing revenue while maximizing proﬁt and improving customer relationships. These tools need to focus on several areas:

• Capacity planning — Accurately knowing the capacity available for sale at the beginning of the booking period is critical so demand is not spilled or turned away, which in turn increases revenue. Benchmarking and post-implementation measurement of beneﬁts from capacity planning by using the right tools can improve revenue up to 5 percent.

By expanding the vision of Web sites’ purpose • Allotment management — How much space beyond seat inventory, airlines can increase should be allocated to a station or customer based on their marketing potential and drive incremental revenue, usage, type of cargo and so on. Allocating revenues. Offering a complete, fully hosted online space to the right station or customer and consider- booking system lets airlines display and sell their ing the possibilities of satisfying allocations among products, as well as those of partner airlines, car multiple routes considering network effects helps and hotel companies, in an efficient manner over increase revenue from allotment sales by up to 4 the Internet. Customers have direct access to percent. these products any time, any where in a single • Pricing guidelines — Determine minimum accept- location, and the buying history can be captured. able prices (or hurdle prices) to sell cargo based on flight capacity, demand, service level desired, rate and Improved Cargo Revenue density of cargo. Carrying the right freight mix in terms Management of rate and density maximizes the revenue and contribution from the three-dimensional cargo capacity. By Air cargo is increasingly becoming an important using the right tools, benchmarking measurements of source of revenue for airlines across the globe. revenue benefits show increases of up to 6 percent. On an average, the revenue from cargo is 13 The extent of revenue benefits depend on a number percent of the total air traffic revenue and up to of key factors such as the level of sophistication of 40 percent for some airlines. As the demand for current revenue management method, business air cargo increases, it is vital for airlines to capture process alignment with the applications, data quality as much of a market share as possible and carry and availability, product acceptance at all levels within the right type of cargo within the constraints of the cargo organization, and users believing and using the network to increase revenue and maximize the system. profitability. A focus on better cargo management and improved The success of an air cargo operation can be processes will provide incremental benefit without impacted by a number of factors including: additional costs. • Lengthy unproductive processes, • Untimely flight schedule updates, Tangential Business • Inaccurate data availability, Services • Uninformed and inconsistent decision making. In the past few years, many carriers have Airlines require automated decision-support tools analyzed their situations and pulled back from to help manage cargo operations at an optimal having subsidiary services that may have

20 ERP vendors, to corporate/management restructur- ing. Consider their track record and fee structures wisely. With the right empowerment, data access posed a distraction from their core businesses. and a forum to communicate findings, outside con- Some have downsized their IT staff, and oth- sulting is usually well worth the expense. ers have outsourced entire business functions Some consulting firms will offer to put something to another vendor. on the line through a risk/reward engagement In a time where focus is paramount, there are where a significant portion of the firm’s payment some carriers that may still be served well to con- is contingent on measurable success. Under such sider offering their business services to others. engagements, customers reward the consulting Such services can include: group by sharing profitability reached above defined thresholds. The client rewards the firm for taking the • Check-in operations, risk that the customer would not receive the stated • Marketing assistance in home markets for a business benefits. network partner carrier, Airline planning, revenue management, sales and • Baggage handling, distribution, alliances, merchandising or any idea to • Catering, explore additional revenues streams, recovery or protection from growing competition are all valuable rea- • MRO or other ramp functions, sons to seek outside review on an occasional basis. • Contracting for other’s call center operations, Operational and industry conditions and customer • Revenue accounting. demands are constantly changing so an airline’s perspective needs an occasional review as well. Offering these type of services can help airlines secure revenue streams from non-core business opportunities. As long as an airline performs these Ready For Revenues functions well, has the necessary bandwidth and has To Take Off? interested carriers in non-competing markets, it’s a win-win possibility worth considering. Many of the topics presented are not new ideas. Sometimes consideration for one might simply be Care needs to be given to any decisions to divest based on timing or other factors. Regular strategic resources to non-core business, but occasionally and tactical planning in which management can opportunities present themselves for revenue gains if focus on away from their daily operations will offer they can be recognized. previous ideas a new chance for consideration. Whether it is combining smart outside consulting Occasional Outside assistance, better tools or sharper decision making Review for existing functions or new operations, airlines can drive their revenues up. Discipline to always look Everyone has heard of the inability to recognize prob- for new ways and the need to make timely deci- lems or improvement areas when the perspective is sions are the main ingredients for success. too close or when absorbed in daily operations. Reflec- tion and a fresh perspective is rarely a waste of time We’re Here To Help but rather a unique opportunity to consider new ideas. If you would like to explore any of the ideas Outside consultants come in all shapes and sizes, discussed in more detail, we would be happy to from specialty firms to Enterprise Resource Planning meet with you.

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