The fundamental fix that could save your organization substantial revenue
So, what teams are involved with a successful airline offer?
Airfare pricing is handled by not just one, but two departments at an airline. When they work together, airlines are successful and profitable. What we find in our work with over 100 airlines around the world, however, is that these groups do not effectively communicate—and that costs airlines substantial amounts of money each year.
Revenue Management groups at most airlines consist of a Yield Management (YM) team, who analyzes historical data and current market conditions to set optimal airline prices availability, and a separate team, Pricing, who monitors the market and builds the fare products according to market conditions. Pricing and YM are interlinked and depend on each other’s data and information for successful revenue management.
Pricing concentrates on the competitive nature of the airline business, but because it depends on inventory established by YM to be sold, Pricing teams should be in constant communication with YM. Awareness of the ins and outs of YM as a core Revenue Management discipline is key for pricing strategies to be comprehensive and successful. Since the method and software chosen by YM to forecast and optimize inventory allocation will impose on and sometimes limit pricing, there is a crucial requirement for pricers to understand the capabilities, limitations, and imperatives of their YM counterparts.
Meanwhile, YM analysts should be aware of the high-level strategy Pricing applies in their markets. Yield Management’s main role is to properly forecast demand for each flight and each origin and destination (OD) pair. This forecast is the main data feed for inventory optimization. One of the key metrics for YM is intrinsic in its name—yield, a measurement of revenue that is related to the prices of the fares sold. People working each day on forecast and inventory should be up to date on core products, lowest sales, lowest main advanced purchase products, key corporate programs, and other strategic specialty pricing like groups, cruises, and tours. These products will affect YM forecasting adjustments such as overrides.
In the same spirit, Marketing and other soft-skilled departments can no longer work independently of the Revenue Management department. Today, a journey, its price point, associated conditions of sale, and additional features such as meals and entertainment are all part of transforming the airfare purchasing process to a more retail-like process where a customer can choose an experience, not just a price point. Marketing was long considered a soft practice that Revenue Management actors witnessed but did not influence. These times are not only over, but the trend of branding fares and the rise of the product management approach to build successful branding mean that tight collaboration between Revenue Management and Marketing departments is crucial.
There is no way around it: Teams need to be well-rounded
Airline commercial organizations benefit when teams are knowledgeable and cooperative; some of the first advantages are better revenue optimization and lowered risks. Without communication, you could be selling out flights before reaching the highest yielding section of their booking curve, or not seeing the results of a sale because the corresponding inventory is unavailable. Staff could be wasting time sorting through unexpected performance results and missing opportunities to fill flights around holidays and special events. These are only some of the costly and time-consuming challenges airline Revenue Management departments face, but there are solutions ahead.
If your teams understand each others’ processes, interdependencies, and business drivers, and if they’re clear on ownership, responsibility, and accountability they can be ready to collaborate on branded fares, NDC, and dynamic pricing.
Are you able to convey key information within your Revenue Management groups in an efficient and timely manner? Can you afford to let essential material slip away from your staff and leadership, losing competitive advantage, market share, and potential revenue? Will your current know-how sustain you through accelerated industry changes?
ATPCO Consulting meets with airlines of all sizes and network types everywhere planes fly. Even though these interdependencies might seem obvious, we often notice a gap in communication between these key groups and standard processes that limits the proper level of up-to-date knowledge. A third-party audit of your teams’ processes, communication flow, responsiveness, and change management readiness could give you the information you need to implement quick fixes and longer-term changes necessary for growth.
Ready to build a healthier and more cooperative Revenue Management team? Contact ATPCO Consulting.