Revenue Management Round Up

1. Revenue Management Round Up Theodore C. Botimer, Ph.D. Continental Airlines

2. Pricing & Revenue Management Wild West Tales Applied to RM • Integrating Pricing and Yield Management can be like pioneering in the Old West • Wild West lessons apply directly to the integration of Pricing & Yield Management • Descendents of Wild West heroes may have chosen to pursue RM careers • Wild West heroes often had long, interesting first names and quotable quotes

3. Pricing & Revenue Management Round ‘Em Up

4. Pricing & Revenue Management “Get me a rope so I can lasso them dogies” - Cyrus Brunger

5. Pricing & Revenue Management Integrate the Pricing Function . . . • Pricing is Pricing . . . all must be coordinated • Airlines need to understand what is selling • Internal coordination is vital to understanding • Increasingly important to unify Pricing effort with greater diversity of distribution channels • Pricing must understand discounting as well • additional commission/override programs • coupon/corporate discounting

6. Pricing & Revenue Management . . . the Whole Pricing Function • Published Pricing • Off-Tariff Pricing • Revenue (Yield) Management Function • Back End Commission Levels • Corporate Discounts • Certificate Discounts

7. Pricing & Revenue Management Rope, Throw and Brand ‘Em

8. Pricing & Revenue Management “Unconstrained?Y’all don’t get that till I take this here rope from around yer neck!” - Ezekial Belobaba

9. Pricing & Revenue Management Take Ownership of the Price Point • Stop the blame game • Take politics out of the equation (P vs. YM) • Create an internal “balance of power” • Internal efficiency results from ownership • Coordination of Pricing and YM • leads to better Pricing: know when not to match • leads to better YM: know when demand shifts • leads to better revenue performance

10. Pricing & Revenue Management Example: Latin Holiday Program • Fully cooperative effort • Shared ownership of result • Common responsibility • Effective teamwork • Expanded knowledge base • Unified front for dealing with other groups • Result: Ability to implement a very complex and high profile program more effectively

11. Pricing & Revenue Management Bring a Map of the Wilderness

12. Pricing & Revenue Management “What in tarnation is a Logit Model? Fetch me a trail map, tenderfoot!” - Jebediah Hopperstad

13. Pricing & Revenue Management Have a Plan, Know the Goals • Understand what works well now • Identify what does not work as well • Develop a plan to improve and coordinate • Do not be afraid to revise the plan • New territory is met regularly • Keep in line with good airline economics • Efforts should be coordinated to reach goals • Clear vision of impacts helps results

14. Pricing & Revenue Management Organizational Plan • Devise an organizational plan with room for analysts/managers to progress within group • Provide interesting analyst/manager career opportunities in Pricing as well as YM • The organizational plan needs to allow for development of both Pricing and YM skills • Analysts skilled in both areas are scarce, design the organization to cross-train people

15. Pricing & Revenue Management Run the Wagons in a Circle, Hold the Enemy at Bay

16. Pricing & Revenue Management “If we run the wagons, we’ll run off them polecats!” - Mergatroid Boyd

17. Pricing & Revenue Management Database Coordination • Market Value Process uses live fare information to determine OD fare values • Database linking can make this information more precise (particularly TCN data) • PNR Data Warehouse technology can help to provide weighted fare information • Weighted fare information can provide the baseline for incorporating fares in forecasts

18. Pricing & Revenue Management Systems Adjustments • Systems must adapt to new environment • Yield Management systems already strong • Pricing systems tend to be simple relational databases for reactive implementation • Improvement of Pricing systems may provide the best return on investment • Easiest form of Pricing and YM systems coordination - Forecasting inputs

19. Pricing & Revenue Management Ranch Hands and Trail Bosses

20. Pricing & Revenue Management “Bring me 12 of your finest hands and fresh horses for the posse. Tonight, we ride!” - Festus Weatherford

21. Pricing & Revenue Management Staffing • Good staffing is crucial • Good training is equally critical • combats high turnover problem • provides a strong recruiting advantage • Revenue Management can be staffed to: • training future company leaders • stabilize pricing and inventory control function • attempt to do both (true success in training)

22. Pricing & Revenue Management Winning Qualities • Communication ability • Systems know-how • Knowledge base - company and industry • International understanding (where needed) • Difficult to find in one individual • Harder to keep that individual around • Cannot overemphasize role of training

23. Pricing & Revenue Management Most Important Integration Tool • Managers and Analysts! • Good communication strengthens revenue control of the airline • Systems only make things more efficient • Simple improvements yield big dividends • YM analysts need to understand where the fares are located to control their flights

24. Pricing & Revenue Management Learn from the Natives

25. Pricing & Revenue Management “I told Josiah not to eat that mushroom. Now he’s one dead city slicker.” - Elijah Phillips

26. Pricing & Revenue Management Bring YM Analysis to Pricing • Yield Management analysts have access to a great deal of data (spill, most notably) • Pricing has been primarily reactive • Understanding spill and good mathematical analysis leads to better pricing decisions • Particularly in Off-Tariff Pricing • Allocate YM analysis resources to Pricing

27. Pricing & Revenue Management Send a Scout Ahead to Warn of Impending Danger

28. Pricing & Revenue Management “This scouting is dirty business. Every time I see smoke, something bad happens! ” - Ebenezer Ratliff

29. Pricing & Revenue Management Share Pricing Info with YM • Pricing information is vital to the forecast • Full system integration is not needed to gain forecasting benefits • Communication within the new department can improve forecasts and protections • Pricing analysts can tell YM analysts about major fare actions or bucket jumps

30. Pricing & Revenue Management Forecasting Inputs • A case for Fare Class Stratification? • Can communicate in a meaningful way • “Local fare dropped a bucket” • Can apply in Network OD framework, but it is more difficult due to greater information • Focus on major flow markets to limit data • Manual analog to OD forecasting

31. Pricing & Revenue Management Iron Horses, Horseless Carriages, and Flying Machines

32. Pricing & Revenue Management “Les bontemps ne roulent pas sans ailes” - Auguste-Robuste Cherrier

33. Pricing & Revenue Management “This wagon stinks. I’d like to rustle me up a flyin’ machine and a pretty co-pilot” - Augustus Robustus Cherrier

34. Pricing & Revenue Management Origin to Destination Control • OD Control and Pricing are both OD based • Network OD Control and Pricing would seem to go hand in hand • Major concern: YM performance ownership • Danger in OD world, need for prioritization • Which markets are the focus? • Probably the non-stops • Maybe non-stops and major flows

35. Pricing & Revenue Management Full Systems Integration Idea • Advance Pricing systems analysis • Pricing decisions support needs resource and analytical attention (airlines & vendors) • Collect relevant data (Data Warehouse) • Develop a fare dependent demand forecast • Does this provide a good alternative path for revenue optimization?

36. Pricing & Revenue Management Conclusions • Integrating Pricing & YM improves function • Systems coordination stands as the next great advance in the integration • Data Warehouse information provides infrastructure for future models to be built • Manual steps provide good short run benefits • Business process must be restructured to meet desired goals (still much to be done)