Revenue Integrity a vital ingredient to good Revenue Management Paul Rose MD Paul Rose Revenue Management Ltd & Chair of A.R.I.G.

Content Revenue Integrity - Sources, range and result of problems. A Revenue Integrity programme and the benefits. How a carrier can implement Revenue Integrity. A.R.I.G. Summary.

My background BA 1970-’94 mostly RM. VAA 94-97 implemented first RMS. Rejoined BA ’97 - 2000 RM O&D, Oneworld RM projects, BA’s RM & RI spokesman Created A.R.I.G. Since 2001 M.D. of PR RM Ltd, clients:- A.R.I.G. – Chairman only independent RI organisation. SITA, IATA, CALIDRIS independent RM Consulting Academia - Gerona University, Spain

Revenue Leakage is the problem! Revenue leakage is: “the difference between the revenue that airlines expect from bookings and the amount they eventually actually receive”

Definition of Revenue Integrity Providing robustness of reservations by ensuring that travel is undertaken within the conditions of the sale. BY - Removing those reservations that create unnecessary additional costs and which reduce saleable inventory space to an airline’s clients. OR more simply put:- “Ensuring that the right passengers, fly on the right flight, at the right time, at the right fare ”

Sources of the problem Accidental revenue abuse from badly trained staff at travel agencies and airlines. Airline originated from unintentional process problems e.g. Misconnections. The largest single problem is deliberate revenue system abuse from creative travel agents or customers !

The range of the problem Unticketed PNRs Incorrect class mix Abuse of fare rules. Sub MCT Passives. Space blocking Dupe segments Dupe Names Redundant waitlists Cross border abuse No-show psgrs with onward carriage Multiple bookings on same flight Multiple bookings on several flights No names - Groups & individuals Name changes / Fake names

Results of these problems Increased No-shows & late cancellations, 30-40% on some routes. Unreliable R.M. data. = Forecasting error. Abuse of Pricing rules causing revenue leakage. Unnecessary distribution costs i.e. GDS charges. Unnecessary meal wastage Lower seat access for customers

3 Elements to Revenue Integrity PEOPLE PROCESS BENEFITS SYSTEMS

Revenue Integrity - benefits Departure Stage Lower costs resulting from: Reduction in GDS & DBC charges Reduced catering costs and airport charges from delayed flights due MCTs. Improved Customer satisfaction from: Less offloads & downgrades Earlier seat assignment at booking and check-in

Revenue Integrity - benefits Booking Stage Increased Revenue resulting from: Higher quality booking data Better Revenue Management forecasts Improved seat factors Reduced cancellations and no-shows Less need to overbook

Revenue Integrity benefits Increase customer access through removal of fictitious PNRs , hence improving revenue result. Reduces on departure No-shows and late cancellations. Reduces over forecasting. Stabilises data quality and R.M. results. Reduces costs elements to operation e.g. GDS costs, Catering wastage, overstaffing etc.

No-shows stabilisation Can you ever eradicate no-shows ? NO ! Removing large fluctuations is the aim of RI e.g. average no-shows may only be 15%, BUT there could be variance of 7% one week versus 23% another week! RI enables the outliers to be removed and averages lowered e.g. constant 10% no-shows with variance between 8% - 12% = 10% average. A RMS likes data consistency which helps forecasting resulting in Spill and Spoilage reductions.

Why implement Revenue Integrity solutions ? GDS being overpaid by as much as 15% Airline X operates = 50 flights per day Capacity 150 seats = 7,500 seats pd Average LF 70% = 5,250 seats. No-shows @ 15% = 800 passengers Using average GDS charge = $4 GDS charge for no-shows = $3,200 p.d. Annual cost of no-shows = $1.2M p.a. Average industry no-shows are 15% (AEA)

Why implement Revenue Integrity solutions ? No-shows necessitate overbooking. Airline X operates = 50 flights per day Oversold Flights = 5 (10%) pd Offloads = 25 (5 per flight) Compensation = $150 per pax = $3,750 pd = $1,350,000 pa It’s far better to use RI than to continually overbook

Why implement Revenue Integrity solutions ? The Revenue Opportunity is Significant Airline X operates = 50 flights per day Average capacity = 150 seats Number of ‘closed’ flights = 5 (10%) Average ‘closed’ flight LF = 90% Number of empty seats = 180 pd Average yield = $250 Lost revenue = $18,750 pd Lost revenue = $6,825,000 pa

Why implement Revenue Integrity solutions ? Revenue Integrity can be a very low investment with a very high R.O.I. Typical airline benefits = 3% of revenue Return on investment = At least 20:1 Some airlines getting >300:1

Different approaches to RI Manual checks at checkpoint: Advantages are better than nothing and possibly low cost dependant upon location. Disadvantages Leaves speculative bookings in place for long periods. Higher cost than systematic approach. Creates very irregular booking curve demand in RM system.

Different approaches to RI Systematically at checkpoints : Advantages Lower costs over time. More reliable than human resource Disadvantages Leaves speculative bookings in place for long periods. Creates irregular booking curve demand in RM system.

Different approaches to RI Daily on whole bookings database Removes illegitimate bookings quickly. Smoothes forecast demand curves in RM system. Reduces number of transactions as only new bookings or changes handled. 24 x 7 x 365 capability.

Different approaches to RI Real time, every PNR at time of creation or amendment Removes illegitimate bookings almost immediately Smoothes forecast demand curves in RM system. Reduces number of transactions as only new bookings or changes handled. 24 x 7 x 365 capability and at Point of Sale The ultimate solution!

Sporadic checks by airports, Res staff or RM does more harm than good. R.I. recommendations Sporadic checks by airports, Res staff or RM does more harm than good. Distorts passenger demand forecasts. Distorts No-show data, which can lead to offloads, downgrades or empty seats. Distorts cancellation data which also leads to offloads, downgrades or empty seats. Distorts yield data. Either do RI consistently or do nothing !

New entrants to R.I. Primary decision, determine if you wish to :- Outsource problem to a total service provider. Purchase software from a solutions provider. Opt for an ASP Create a dedicated focus within RM Take a standard approach as much as possible, minimise exceptions Automate as much as possible

New entrants to R.I. Sell the benefits to get them on-side. Communicate with Sales and advise what you are intending to do Sell the benefits to get them on-side. e.g. Freeing up more seats for Sales to sell ! Versus “We are going to cancel many PNRS in your Sales area !” Identify exceptions - e.g. special markets, deals etc. ( Illustrates why RM need to control all deals centrally ) Analyse the benefits and communicate especially on your R.O.I !

LCC Impacts Traditional carriers under attack from low cost carriers, price fences falling:- Sat night min stay. Round trip high fares replaced with low cost one way combinable fares. Name changes / Itin changes permitted at a charge. Direct sell & Web based sales increased massively. Selling additional add-on services All require R.I. Processes to be re-evaluated.

A.R.I.G.= Airline Revenue Integrity Group Launched as a initiative to spread knowledge, share benefits in 1998 by BA Crusade to clean up the industry Non competitive issue for all carriers Facilitate best practice- share experiences and knowledge Cleanse industry problems to improve results

A.R.I.G. focus Improve data quality to reduce No-shows. Raise awareness of R.I. opportunity, ROI etc. Provide a stage to software vendors for system solutions. Serves as a pressure group. Work with GDSs to reduce R.I. problems at source. (Prevention being better than cure ! )

A.R.I.G Website www.arigroup.org featuring :- Outputs from previous meetings - minutes, presentations, articles. ARIG membership and contact details Shared documentation. Software suppliers Discussion database Industry news Future event details

Summary Revenue Integrity is a relatively low cost investment with a high R.O.I. Very high R.O.I achievable, e.g. one carrier produces benefits of $70Mp.a. for >$0.4M costs Cleansing data improves RM system results, which aren’t even estimated in the benefits figures. Reduces costs Easy to sell to both Senior Management and staff.

Summary Easy to implement with quick easily identifiable R.O.I. Not a competitive issue airlines should work together to share knowledge and establish best practices. JOIN ARIG !