2. Customer Relationship Management in Airlines A Revenue Management Perspective AGIFORS RYM Study Group, Bangkok 2001 Shankar Mishra

3. 2 AGIFORS RYM Study Group, Bangkok 2001 Outline  CRM Definition & Evolution  CRM Opportunity in Airline Industry  Current Revenue Management View  ABCs of CRM  Revenue Management & ABCs of CRM  The Integrated 360 0 View  CRM Goals  Conclusion

4. 3 AGIFORS RYM Study Group, Bangkok 2001 CRM Definition  CRM is the adoption of customer focused Sales, Marketing and Service Processes  Integration of people, processes, and technologies in a collective effort to: A CQUIRE new customers through effective marketing campaigns and analytics B UILD customer value over time by understanding their travel needs enough to retain them and enhance the relationship with cross-sell, up-sell opportunity C ARE translates into customer retention. Must be based on informational infrastructure built on business intelligence

5. 4 AGIFORS RYM Study Group, Bangkok 2001 CRM Evolution  First Generation - Web Presence One-way relationship Mostly stand-alone systems Real-time flight information Schedule information  Second Generation - Site Integration (Business Intelligence) Integration with business processes & back-end systems Feedback from customer profile & history

6. 5 AGIFORS RYM Study Group, Bangkok 2001 CRM Evolution  Third Generation Customer-centric models Direct Mail E-Mail Wireless Chat QIK/RE S Kiosk

7. 6 AGIFORS RYM Study Group, Bangkok 2001 CRM opportunities are spread across the entire travel value chain. initiation reservationembarkationconclusion 1 Idea 2 Arrangement 3 Pre-Trip 4 Experience 5 Post-Trip

8. 7 AGIFORS RYM Study Group, Bangkok 2001 Airline/Passenger Key Touchpoints  Idea/ Need - Research potential destinations, travel options, travel packages  Arrangement - Perform shopping, booking and ticketing for travel  Pre-Trip - Prepare, organize and make final arrangements  Experience - Travel which encompasses air and ground services  Post-Trip - Contact to resolve issues and explore future needs

9. 8 AGIFORS RYM Study Group, Bangkok 2001 A few of the CRM opportunities being provided include... initiation reservationembarkationconclusion 1 Idea 2 Arrangement 3 Pre-Trip 4 Experience 5 Post-Trip  E-mail campaigns  Direct Mail  Smart Search Technology  E-mail delivery of itineraries  Event notification services  Flight disruption notification & re- accommodation  Agent Customer Handling  Check-in processing  Response management  Baggage Handling  Thank You campaigns  Traveler feedback and satisfaction  Integrated banner advertising  Sign-in Messages  Recommendation engine

10. 9 AGIFORS RYM Study Group, Bangkok 2001 CRM components are classified by what part of the customer experience they touch. Source: Gartner Group

11. 10 AGIFORS RYM Study Group, Bangkok 2001 CRM Components & Passenger Personalization  E-mail  Direct Mail  Media Ad  Banner Ad  FQTV Insert  Smart Search Technology  Res. Center  Web Selling  Agent Sign- in Messages  Campaigns based on market and route  E-mail delivery of itineraries  Integrated banner advertising  Event notification  E-mail campaigns  Event notification services  Flight disruption notification & re- accommodation  Airport Services  Baggage Handling  Agent Cust Handling  Web check-in  Response management  FQTV account statement  Baggage Handling Idea ArrangementPre-TripExperiencePost-Trip Proactive & reactive customer interactions E-Sales E-Service Campaign Management Data Mart Call Management

12. 11 AGIFORS RYM Study Group, Bangkok 2001 CRM Enhancing Travel Experience Agency or traveler checks custom inventory Traveler can have the inquiry saved for later Airline suggests additional options via Sales Manager Traveler buys Inventory is updated, Sales Manager history updated Online ITIN, destination information via Virtually There Online, traveler profile is updated Traveler travels and is motivated to provide feedback via Virtually There Online Customer Management Traveler has multiple, convenient ways to refine process Next trip - all previously- learned data is used to aid their future planning Proactive demand stimulation Traveler enters profile info Agency makes an educated offer based upon traveler’s history Airline partner adjusts car pickup time for MVTs on delayed flight Airline partners suggest additional options through Sales Manager Filtered travel and destination suppliers make custom offers via Virtually There Online. Airline proactively accommodates traveler before delayed connecting flight arrives

13. 12 AGIFORS RYM Study Group, Bangkok 2001 Current Revenue Management View  Maximize total revenue for given capacity  Best estimate of revenue - O&D, Fare-Class, POS based, netted down by commissions/overrides  Majority of revenue management systems are still flight based Further approximation of revenue used in inventory control  Almost all revenue management business processes are still leg-based  Current inventory control view is still focused on a seat in plane Vendor-Centric View

14. 13 AGIFORS RYM Study Group, Bangkok 2001 Current Revenue Management View  Three Scenarios ¶A Million-mile person books a seat using miles ·A corporate booking, using corporate discount, booked in the highest valued inventory unit ÌA Leisure booking, part of a group, from a tour operator  How Revenue Management would value each person today?  What would be CRM view? Cost of losing each one of these in future?

15. 14 AGIFORS RYM Study Group, Bangkok 2001 Need for CRM - Why Now? Emerging technologies are making the management of customer relationships based on value more practical, feasible and cost effective

16. 15 AGIFORS RYM Study Group, Bangkok 2001 CRM: Maximizing Passenger Value  ABCs of Customer Relationship Management

17. 16 AGIFORS RYM Study Group, Bangkok 2001 Acquire Maximizing Passenger Value: Acquire  Targeting (“Recency & Frequency”) High Valued Passengers - “not flying” Business Passengers for Leisure markets Pushing Distressed Inventory in a targeted manner to acquire  RM decides what to sell and who to sell Use of Dynamic Pricing to target a market (passenger) segment  Pricing and RM decision to target a particular segment Target cross-segment migration Potential for Cross-selling & Up-Selling  Partnerships - Affiliate Networking  Business Process RM in the background of Passenger touch points

18. 17 AGIFORS RYM Study Group, Bangkok 2001 Build Maximizing Passenger Value: Build  Most Analytical Layer  Customer Segmentation - Identify Acquisition & Retention candidate segments Target passenger segments to push Distressed Inventory Target for Dynamic Pricing (both acquire & retain) Predicting Churn targets Pax Revenue Vs Profitability  Risk and Cost associated with revenue Spread across multiple distribution channels  Customer Profile Database, PNR Database, Clickstream Data, Passenger DNA Data mining the combination

19. 18 AGIFORS RYM Study Group, Bangkok 2001 Build - Data Analysis Maximizing Passenger Value: Build - Data Analysis  Interaction Analysis Comparing two segment models - risk to recency  Dependency Analysis Nesting of one pax segment within other segment Clustering may be needed to identify dependency Frequent fliers who haven’t traveled recently  Clustering by corporate accounts/travel agencies  Cross-Segment Migration High valued passengers have moved down  Clusters by corporate accounts/agencies  Cross-Time Migration  Product Package Analysis

20. 19 AGIFORS RYM Study Group, Bangkok 2001 Build - Valuation Maximizing Passenger Value: Build - Valuation  What if one airline could buy passengers from other airlines? Who to buy and at what price?  Using passenger profitability to guide marketing Revenue Management in the background of pax touch points

21. 20 AGIFORS RYM Study Group, Bangkok 2001 Build - Inventory Control Maximizing Passenger Value: Build - Inventory Control  Forecasting by passenger segment Origin, Destination, POS, Value, Loyalty Level, Product Packages, Distribution Channel etc.  Passenger State Space Acquisition (multiple levels possible), Retention, Each Frequent Flier Level etc. Probability of moving from one state to another  Expected Life Time Value of passenger Real time Business Intelligence Modules  Airline Resources - capacity at flight/leg/cabin level  Bid Price based inventory control Availability for each passenger segment

22. 21 AGIFORS RYM Study Group, Bangkok 2001 Build - 1:1 Revenue Management Maximizing Passenger Value: Build - 1:1 Revenue Management  Customized Inventory Control & Pricing Availability bias based on Bid Prices & Passenger expected LTV  Targeted sales promotions Pushing distressed inventory Up-Sell & Cross-Sell promotions The product package view thru partnerships  Hotel, Car Rentals, Golf, Ski etc.  Corporate Promotions Deals linked to hedging risk  Objective is to consistently increase passenger utility

23. 22 AGIFORS RYM Study Group, Bangkok 2001 Care Maximizing Customer Value: Care  Passenger touch point - building loyalty  Predicting and Preventing Churn  Tracking Success Metrics Tracking response to “Acquire” and “Build” efforts Tracking movements in segment membership  Closed Loop Solution Changes to Passenger utility  Track and include in optimization (“Build”) Communication between RM and Operations  Identification of “high-valued” flights  Pre-removal and Re-accommodation on overbooked flights  DOD Monitoring - Dynamic response to Cancellation and Overbooking

24. 23 AGIFORS RYM Study Group, Bangkok 2001 CRM: Revenue Management Role  Acquire Targeted Promotion Sales - passenger segment and markets Up-Sell and Cross-Sell among Active Loyal acquisition/stimulation offers for Passive Loyal  Build Customer Segmentation and related forecasts Cross-Segment migration probability Passenger Utility Metrics Inventory Controls  Care Tracking performance metrics to refine analytics Closed Loop solution  Incorporate value created by CRM in PYM decisions

25. 24 AGIFORS RYM Study Group, Bangkok 2001 CRM: Revenue Management View  Customer-Centric View Passenger Itinerary & Profitability Passenger Value to Airline  Distribution Channel Management Matching channel with profile Airline websites had 26% increase in traffic year over year compared to 7% for online travel agencies Availability Conflict, Channel Stealing  Revenue Management Data Support Schedule Inventory Fare Database PNR Database 360 0 View of Passenger Customer Profile Database Clickstream Data Business Intelligence Module

26. 25 AGIFORS RYM Study Group, Bangkok 2001 CRM: The Integrated View Custom Inventory Offer (Acquire/Build) Traveler can have the inquiry saved for later Airline suggests additional options (Build) via Sales Manager Traveler buys Analytics updated Sales Manager history updated (Care) Online ITIN, destination information via Virtually There Online, traveler profile is updated (Care) Traveler travels and is motivated to provide feedback via Virtually There Online (Care) Customer Management Traveler has multiple, convenient ways to refine process Next trip - all previously- learned data is used to aid their future planning (Build) Target Identification (Acquire) Traveler enters profile info Custom Pricing (Acquire/Build) Airline partner adjusts car pickup time for MVTs on delayed flight (Care) Airline partners suggest additional options through Sales Manager Filtered travel and destination suppliers make custom offers via Virtually There Online. (Build) Airline proactively accommodates traveler before delayed connecting flight arrives (Care)

27. 26 AGIFORS RYM Study Group, Bangkok 2001 CRM: What’s available today  Broadcasting software for marketing promos Cross-Selling Capability, Feedback provision Bid Prices based on O&D, POS, Fare-Class  Data Warehousing and Data Mining Different customer segmentation software based on variety of techniques - Clustering, Decision Trees, Neural Networks etc.  Business Intelligence modules Distressed Inventory, Dynamic Pricing  Integration with a CRM perspective is needed!!

28. 27 AGIFORS RYM Study Group, Bangkok 2001 CRM: Short Term Goals  Targeted Promotions & Campaigns  Leverage existing modules (Distressed Inventory, Dynamic Pricing) for Acquisition & Retention  Availability Bias based on existing Revenue Management System  Performance measures to provide feedback  Link to Operations - pre-removal & Re- accommodation for overbooked flights

29. 28 AGIFORS RYM Study Group, Bangkok 2001 CRM: Long Term Goals  Business Intelligence Module to provide passenger valuation  Revenue Management Optimization models to consider maximizing expected “Value” Nonlinear Programming problem with modified objective function Stochastic Dynamic Programming problem (probability of moving from one state to another)  Tracking Passenger Utility Pricing and Inventory control decisions should consider changes to passenger utility  An Integrated 360 0 View

30. 29 AGIFORS RYM Study Group, Bangkok 2001 Conclusion  A shift from “Vendor-centric” view to “Customer-centric” view is essential for survival  Effective Customer Relationship Management (ABC) is needed to support this view  Revenue Management is the backbone of ABC (Acquire, Build & Care)  From maximizing “revenue” to maximizing “value”  Linking all pax touch-points in an integrated view through Revenue Management  Performance Measures (e.g. pax utility) to provide feedback - Closed Loop Solution

31. 30 AGIFORS RYM Study Group, Bangkok 2001 Questions?