Presentation on theme: "Revenue Integrity a vital ingredient to good Revenue Management"— Presentation transcript:
1 Revenue Integrity a vital ingredient to good Revenue Management Paul RoseMD Paul Rose Revenue Management Ltd&Chair of A.R.I.G.
2 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.
3 My background BA 1970-’94 mostly RM. VAA 94-97 implemented first RMS. Rejoined BA ’ RMO&D, Oneworld RM projects, BA’s RM & RI spokesmanCreated A.R.I.G.Since 2001 M.D. of PR RM Ltd, clients:-A.R.I.G. – Chairman only independent RI organisation.SITA, IATA, CALIDRISindependent RM ConsultingAcademia - Gerona University, Spain
4 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”
5 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 ”
6 Sources of the problemAccidental 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 !
7 The range of the problem Unticketed PNRsIncorrect class mixAbuse of fare rules.Sub MCTPassives.Space blockingDupe segmentsDupe NamesRedundant waitlistsCross border abuseNo-show psgrs with onward carriageMultiple bookings on same flightMultiple bookings on several flightsNo names - Groups & individualsName changes / Fake names
8 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 wastageLower seat access for customers
9 3 Elements to Revenue Integrity PEOPLEPROCESSBENEFITSSYSTEMS
10 Revenue Integrity - benefits Departure StageLower costs resulting from:Reduction in GDS & DBC chargesReduced catering costs and airport charges from delayed flights due MCTs.Improved Customer satisfaction from:Less offloads & downgradesEarlier seat assignment at booking and check-in
11 Revenue Integrity - benefits Booking StageIncreased Revenue resulting from:Higher quality booking dataBetter Revenue Management forecastsImproved seat factorsReduced cancellations and no-showsLess need to overbook
12 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.
13 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.
14 Why implement Revenue Integrity solutions ? GDS being overpaid by as much as 15%Airline X operates = 50 flights per dayCapacity 150 seats = 7,500 seats pdAverage LF 70% = 5,250 seats.15% = 800 passengersUsing average GDS charge = $4GDS charge for no-shows = $3,200 p.d.Annual cost of no-shows = $1.2M p.a.Average industry no-shows are 15% (AEA)
15 Why implement Revenue Integrity solutions ? No-shows necessitate overbooking.Airline X operates = 50 flights per dayOversold Flights = 5 (10%) pdOffloads = 25 (5 per flight)Compensation = $150 per pax= $3,750 pd= $1,350,000 paIt’s far better to use RI than to continually overbook
16 Why implement Revenue Integrity solutions ? The Revenue Opportunity is SignificantAirline X operates = 50 flights per dayAverage capacity = 150 seatsNumber of ‘closed’ flights = 5 (10%)Average ‘closed’ flight LF = 90%Number of empty seats = 180 pdAverage yield = $250Lost revenue = $18,750 pdLost revenue = $6,825,000 pa
17 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 revenueReturn on investment = At least 20:1Some airlines getting >300:1
18 Different approaches to RI Manual checks at checkpoint:Advantages are better than nothing and possibly low cost dependant upon location.DisadvantagesLeaves speculative bookings in place for long periods.Higher cost than systematic approach.Creates very irregular booking curve demand in RM system.
19 Different approaches to RI Systematically at checkpoints :AdvantagesLower costs over time.More reliable than human resourceDisadvantagesLeaves speculative bookings in place for long periods.Creates irregular booking curve demand in RM system.
20 Different approaches to RI Daily on whole bookings databaseRemoves 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.
21 Different approaches to RI Real time, every PNR at time of creation or amendmentRemoves illegitimate bookings almost immediatelySmoothes 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 SaleThe ultimate solution!
22 Sporadic checks by airports, Res staff or RM does more harm than good. R.I. recommendationsSporadic 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 !
23 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 ASPCreate a dedicated focus within RMTake a standard approach as much as possible, minimise exceptionsAutomate as much as possible
24 New entrants to R.I. Sell the benefits to get them on-side. Communicate with Sales and advise what you are intending to doSell 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 !
25 LCC ImpactsTraditional 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 servicesAll require R.I. Processes to be re-evaluated.
26 A.R.I.G.= Airline Revenue Integrity Group Launched as a initiative to spread knowledge, share benefits in 1998 by BACrusade to clean up the industryNon competitive issue for all carriersFacilitate best practice- share experiences and knowledgeCleanse industry problems to improve results
27 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 ! )
29 SummaryRevenue 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 costsCleansing data improves RM system results, which aren’t even estimated in the benefits figures.Reduces costsEasy to sell to both Senior Management and staff.
30 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 !