Revenue Integrity a vital ingredient to good Revenue Management

1. Paul Rose MD Paul Rose Revenue Management Ltd & Chair of A.R.I.G. Revenue Integrity a vital ingredient to good Revenue Management

2. 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.

3. 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

4. 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”

5. 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 ”

6. 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 !

7. 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

8. 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

9. 3 Elements to Revenue Integrity PEOPLE PROCESS BENEFITS SYSTEMS

10. 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

11. 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

12. 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.

13. 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.

14. 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)

15. 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

16. 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

17. 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

18. 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.

19. 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.

20. 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.

21. 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!

22. 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 !

23. 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

24. 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 !

25. 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.

26. 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

27. 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 ! )

28. 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

29. 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.

30. 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 !