revenue integrity

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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3 Elements to Revenue Integrity

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PEOPLE

PROCESS

SYSTEMS

BENEFITSBENEFITS

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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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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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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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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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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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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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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http://www.arigroup.org/

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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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 !

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revenue integrity

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