Revenue Integrity
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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. 2
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 3
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”
4
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 ”
5
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 !
6
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 7
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 8
3 Elements to Revenue Integrity PEOPLE
PROCESS
BENEFITS
SYSTEMS
9
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 10
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
11
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.
12
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% noshows with variance between 8% - 12% = 10% average. • A RMS likes data consistency which helps forecasting resulting in Spill and Spoilage reductions. 13
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) 14
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
15
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
16
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
17
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.
18
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. 19
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.
20
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!
21
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 !
22
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 23
New entrants to R.I. 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 ! 24
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 reevaluated.
25
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
26
A.R.I.G. focus • Improve data quality to reduce Noshows. • 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 ! ) 27
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 28
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.
29
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 !
30
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. 2
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 3
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”
4
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 ”
5
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 !
6
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 7
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 8
3 Elements to Revenue Integrity PEOPLE
PROCESS
BENEFITS
SYSTEMS
9
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 10
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
11
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.
12
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% noshows with variance between 8% - 12% = 10% average. • A RMS likes data consistency which helps forecasting resulting in Spill and Spoilage reductions. 13
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) 14
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
15
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
16
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
17
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.
18
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. 19
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.
20
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!
21
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 !
22
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 23
New entrants to R.I. 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 ! 24
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 reevaluated.
25
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
26
A.R.I.G. focus • Improve data quality to reduce Noshows. • 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 ! ) 27
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 28
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.
29
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 !
30
