ATC 2019 Beijing How to Unite Revenue, Personalization and Happy Customers in Harmony Gert Hartmans Data driven pricing of ancillary seating As ancillary income becomes ever more important, more sophisticated approaches are needed to maximize the potential revenue. The presentation will report on recent research results investigating ancillary seating. Using massive data better insight in customer demand was achieved, which could be used for better pricing decisions. Where the scope of ancillary price differentiation can be hindered by the GDS, solutions to achieve full channel coverage will be presented. CARNOC Aviation Trends Conference 2019 Beijing

Background Gert Hartmans ATC 2019 Beijing Background Gert Hartmans 20+ years revenue management systems experience Team lead KLM O&D RM system System implementation & continuous improvement Designing new AF/KL O&D RM system Project initiation & design of demand functionality for an unique O&D system Supported KLM partners Alitalia, Kenya Airways Developed new O&D/seasonality forecast Replaced O&D optimization process functions, added USD 50 million/year Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

KLM focus and developments ATC 2019 Beijing KLM focus and developments Customer Centric, Product Investments Net Promoter Score from 42% to 46% * Happiness Revenue Personali-zation Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing Load Factor 89 % * Profit/employee 16K ** *) Annual report 2018 **) Derived from Annual report 2018

Revenue supported by system investments ATC 2019 Beijing Revenue supported by system investments 2000: implemented O&D system developed by KLM added class closure controls per O&D/POS added exchange bidprice to support JV O&D control 2014: implemented O&D system by Air France/KLM Revenue O&D system improves load factor by balancing access via bidprice controls O&D class closure controls support higher yields Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing *) Annual report 2018 **) Derived from Annual report 2018

Revenue supported by system ownership ATC 2019 Beijing Revenue supported by system ownership OK Class closure controls implemented in less than 4 months Revenue Too little closure sell-up potential Too much closure, reject too much Using only bidprice, low load flights sell at lowest fare Potential exists for sell-up which requires controls on O&D detail level & matching CRS functionality Ownership of system enables customization Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

System can not be a black box on autopilot ATC 2019 Beijing System can not be a black box on autopilot Requirements for system supporting improved revenues Full understanding of design, data and functioning Dedicated team monitoring and developing to improve Tools providing full visibility of inputs/outputs Certified analysts managing with clear strategies (& pricing) Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing *) Annual report 2018 **) Derived from Annual report 2018

System can not be a black box on autopilot ATC 2019 Beijing System can not be a black box on autopilot Example: Autopilot issue from other industry Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

System issues Will share some examples of system issues to avoid ATC 2019 Beijing System issues Will share some examples of system issues to avoid Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

O&D Forecast: Data volumes & testing ATC 2019 Beijing O&D Forecast: Data volumes & testing Testing new O&D forecast during development, it kept rising As new O&Ds not previously booked were added in full Solved by dividing by days possible to book Extensive testing required for development and implementation Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

O&D Forecast: Seasonality ATC 2019 Beijing O&D Forecast: Seasonality When airline management pushes new system while analysts rejected it as: ‘the forecast is completely flat’ Seasonality is key to revenue management Clustering provides aggregation for improved forecast Example real seasonality Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

O&D Forecast: Schedule changes ATC 2019 Beijing O&D Forecast: Schedule changes Schedule changes in O&D affect network demand Schedules will change, and change again Leaving it to analysts to solve is not an option Correct processing schedule changes is critical Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

O&D Forecast: Correcting based on actuals ATC 2019 Beijing O&D Forecast: Correcting based on actuals Common solution to forecast error; correct future forecast based on difference with recent actuals Leads to loss of seasonality, and/or propagating past errors, loss of un-constraining Forecast should not be a black-box, but results traceable to inputs with tools to visualize Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

Sell-up/Overbooking: Results in lower RASK ATC 2019 Beijing Sell-up/Overbooking: Results in lower RASK $ Case of analysts aiming to correct the system Bidprice vector Seats Overbooking Increasing demand in high yield classes with high cancellation rates, leads to adding seats for overbooking, ... demand books lower classes only System needs head-up display & certified staff Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

O&D Optimization: Incorrect Inputs ATC 2019 Beijing O&D Optimization: Incorrect Inputs Case system design hidden error in optimization inputs Design used network value corrected with factor as input for bidprice Factor was based on sum of leg network values leading to both legs have same value Long haul value too low, short haul value to high Corrected by prorating led to RASK improvement +6% Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

Revenue supported by system investments ATC 2019 Beijing Revenue supported by system investments A lot can go wrong assuming RMS autopilot But to achieve possible benefits need: Correct O&D RMS supports evaluating Network value Class closure controls on O&D support sell-up Keep the hands on the wheel and knowledge of processes Revenue Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

Importance people Developing staff with knowledge of ATC 2019 Beijing Importance people Developing staff with knowledge of Revenue management and System development Forecasting Optimization takes time, so need to keep them A dedicated team is required and needs to be closely aligned with RM business and IT Revenue Some background Working at KLM I have more than 20 years revenue management systems experience As Team Lead KLM O&D RM system, a system KLM developed I added sell-up on top of O&D bid-price controls, providing EUR 20 million/year I worked on the design of the new AF/KL O&D RM system, provided leg/O&D design, unique to O&D systems I have supported KLM partner Alitalia where I replaced the SABRE RM system O&D/seasonality forecast, improved RASK Also I supported KLM partner Kenya Airways where I replaced parts of the PROS O&D RM functionality, which added USD 50 million/year Recently I have worked on ancillary seating research, found a potential for EUR 25 million/year by adding differentiation in pricing

ATC 2019 Beijing 7 October 2019 KLM 100 Years gert.hartmans@klm.com