Revenue Integrity
a vital ingredient to
good Revenue Management
Paul RoseMD 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.
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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
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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”
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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 ”
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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 !
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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
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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
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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
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Revenue Integrity - benefits
Booking StageIncreased Revenue resulting from:
Higher quality booking data
Better Revenue Management forecasts
Improved seat factors
Reduced cancellations and no-shows
Less need to overbook
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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.
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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. 13
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Why implement Revenue Integrity solutions ?Why implement Revenue Integrity solutions ?
GDS being overpaid by as much as 15%GDS being overpaid by as much as 15%Airline X operates Airline X operates = 50 flights per day= 50 flights per day
Capacity 150 seats Capacity 150 seats = 7,500 seats pd= 7,500 seats pd
Average LF 70% Average LF 70% = 5,250 seats.= 5,250 seats.
No-shows @ 15%No-shows @ 15% = 800 passengers= 800 passengers
Using average GDS chargeUsing average GDS charge = $4 = $4
GDS charge for no-shows GDS charge for no-shows = $3,200 p.d.= $3,200 p.d.
Annual cost of no-showsAnnual cost of no-shows = = $1.2M p.a.$1.2M p.a.
Average industry no-shows are 15% (AEA)Average industry no-shows are 15% (AEA)
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Why implement Revenue Integrity solutions ?Why implement Revenue Integrity solutions ?
No-shows necessitate overbooking.No-shows necessitate overbooking.Airline X operatesAirline X operates = 50 flights per day= 50 flights per day
Oversold FlightsOversold Flights = 5 (10%) pd= 5 (10%) pd
OffloadsOffloads = 25 (5 per flight)= 25 (5 per flight)
CompensationCompensation = $150 per pax= $150 per pax
= $3,750 pd= $3,750 pd
= = $1,350,000$1,350,000 pa pa
It’s far better to use RI than to continually overbookIt’s far better to use RI than to continually overbook
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Why implement Revenue Integrity solutions ?Why implement Revenue Integrity solutions ?
The Revenue Opportunity is SignificantThe Revenue Opportunity is SignificantAirline X operatesAirline X operates = 50 flights per day= 50 flights per dayAverage capacityAverage capacity = 150 seats= 150 seatsNumber of ‘Number of ‘closed’closed’ flights flights = 5 (10%)= 5 (10%)Average ‘Average ‘closed’closed’ flight LF flight LF = 90%= 90%Number of empty seatsNumber of empty seats = 180 pd= 180 pdAverage yieldAverage yield = $250= $250Lost revenueLost revenue = $18,750 pd= $18,750 pdLost revenueLost revenue = = $6,825,000 pa$6,825,000 pa
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Why implement Revenue Integrity solutions ?Why implement Revenue Integrity solutions ?
Revenue Integrity can be a very low Revenue Integrity can be a very low investment with a very high R.O.I.investment with a very high R.O.I.
Typical airline benefits Typical airline benefits = 3% of revenue= 3% of revenue• Return on investmentReturn on investment = At least 20:1= At least 20:1
• Some airlines getting Some airlines getting >300:1>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.
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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.
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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.
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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!
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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 !
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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
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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 !
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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.
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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
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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 ! )
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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
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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.
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