Customer Relationship Management in Airlines A Revenue Management Perspective

1. Customer Relationship Management in Airlines A Revenue Management Perspective Shankar Mishra AGIFORS RYM Study Group, Bangkok 2001

2. Outline • CRM Definition & Evolution • CRM Opportunity in Airline Industry • Current Revenue Management View • ABCs of CRM • Revenue Management & ABCs of CRM • The Integrated 3600 View • CRM Goals • Conclusion

3. CRM Definition • CRM is the adoption of customer focusedSales, Marketing and Service Processes • Integration of people, processes, and technologies in a collective effort to: • ACQUIREnew customers through effective marketing campaigns and analytics • BUILDcustomer value over time by understanding their travel needs enough to retain them and enhance the relationship with cross-sell, up-sell opportunity • CARE translates into customer retention. Must be based on informational infrastructure built on business intelligence

4. CRM Evolution • First Generation - Web Presence • One-way relationship • Mostly stand-alone systems • Real-time flight information • Schedule information • Second Generation - Site Integration (Business Intelligence) • Integration with business processes & back-end systems • Feedback from customer profile & history

5. Direct Mail ~ Vendor CRM Products ~ Sabre Appl ~ Vendor non-CRM Products ~ Customer Appl ~ Enterprise Application Integration Channels E-Mail Kiosk Chat Customer QIK/RES Wireless (EAI) CRM Evolution • Third Generation • Customer-centric models

6. CRM opportunities are spread across the entire travel value chain. initiation reservation embarkation conclusion 1 Idea 2 Arrangement 3 Pre-Trip 4 Experience 5 Post-Trip

7. Airline/Passenger Key Touchpoints • Idea/ Need - Research potential destinations, travel options, travel packages • Arrangement - Perform shopping, booking and ticketing for travel • Pre-Trip - Prepare, organize and make final arrangements • Experience - Travel which encompasses air and ground services • Post-Trip - Contact to resolve issues and explore future needs

8. A few of the CRM opportunities being provided include... initiation reservation embarkation conclusion 1 Idea 2 Arrangement 3 Pre-Trip 4 Experience 5 Post-Trip • Response management • Baggage Handling • Thank You campaigns • Traveler feedback and satisfaction • Event notification services • Flight disruption notification & re-accommodation • Agent Customer Handling • Check-in processing • E-mail campaigns • Direct Mail • Smart Search Technology • Integrated banner advertising • Sign-in Messages • Recommendation engine • E-mail delivery of itineraries

9. CRM components are classified by what part of the customer experience they touch. Source: Gartner Group

10. Call Management Personalization Campaign Management E-Service E-Sales Data Mart Arrangement Pre-Trip Experience Post-Trip Idea Proactive & reactive customer interactions • E-mail • Direct Mail • Media Ad • Banner Ad • FQTV Insert • Smart Search Technology • Res. Center • Web Selling • Agent Sign-in Messages • Campaigns based on market and route • E-mail delivery of itineraries • Integrated banner advertising • Event notification • E-mail campaigns • Event notification services • Flight disruption notification & re-accommodation • Airport Services • Baggage Handling • Agent Cust Handling • Web check-in • Response management • FQTV account statement • Baggage Handling CRM Components & Passenger

11. Customer Management Customer CRM Enhancing Travel Experience Agency makes aneducated offer based upon traveler’s history Airline suggests additional options via Sales Manager Airline partners suggest additional options through Sales Manager Agency or traveler checks custom inventory Proactive demand stimulation Traveler can have the inquiry saved for later Traveler enters profile info Traveler buys Traveler has multiple, convenient ways to refine process Next trip - all previously-learned data is used to aid their future planning Inventory is updated, Sales Manager history updated Traveler travels and is motivated to provide feedback via Virtually There Online Online ITIN, destination information via Virtually There Online, traveler profile is updated Airline partneradjusts car pickup time for MVTs on delayed flight Filtered travel and destination suppliers make custom offers via Virtually There Online. Airline proactively accommodates traveler before delayed connecting flight arrives

12. Current Revenue Management View • Maximize total revenue for given capacity • Best estimate of revenue - O&D, Fare-Class, POS based, netted down by commissions/overrides • Majority of revenue management systems are still flight based • Further approximation of revenue used in inventory control • Almost all revenue management business processes are still leg-based • Current inventory control view is still focused on a seat in plane • Vendor-Centric View

13. Current Revenue Management View • Three Scenarios • A Million-mile person books a seat using miles • A corporate booking, using corporate discount, booked in the highest valued inventory unit • A Leisure booking, part of a group, from a tour operator • How Revenue Management would value each person today? • What would be CRM view? • Cost of losing each one of these in future?

14. Need for CRM - Why Now? Emerging technologies are making the management of customer relationships based on value more practical, feasible and cost effective

15. CRM: Maximizing Passenger Value • ABCs of Customer Relationship Management

16. Maximizing Passenger Value: Acquire • Targeting (“Recency & Frequency”) • High Valued Passengers - “not flying” • Business Passengers for Leisure markets • Pushing Distressed Inventory in a targeted manner to acquire • RM decides what to sell and who to sell • Use of Dynamic Pricing to target a market (passenger) segment • Pricing and RM decision to target a particular segment • Target cross-segment migration • Potential for Cross-selling & Up-Selling • Partnerships - Affiliate Networking • Business Process • RM in the background of Passenger touch points

17. Maximizing Passenger Value: Build • Most Analytical Layer • Customer Segmentation - Identify Acquisition & Retention candidate segments • Target passenger segments to push Distressed Inventory • Target for Dynamic Pricing (both acquire & retain) • Predicting Churn targets • Pax Revenue Vs Profitability • Risk and Cost associated with revenue • Spread across multiple distribution channels • Customer Profile Database, PNR Database, Clickstream Data, Passenger DNA • Data mining the combination

18. Maximizing Passenger Value: Build - Data Analysis • Interaction Analysis • Comparing two segment models - risk to recency • Dependency Analysis • Nesting of one pax segment within other segment • Clustering may be needed to identify dependency • Frequent fliers who haven’t traveled recently • Clustering by corporate accounts/travel agencies • Cross-Segment Migration • High valued passengers have moved down • Clusters by corporate accounts/agencies • Cross-Time Migration • Product Package Analysis

19. Maximizing Passenger Value: Build - Valuation • What if one airline could buy passengers from other airlines? • Who to buy and at what price? • Using passenger profitability to guide marketing • Revenue Management in the background of pax touch points

20. Maximizing Passenger Value: Build - Inventory Control • Forecasting by passenger segment • Origin, Destination, POS, Value, Loyalty Level, Product Packages, Distribution Channel etc. • Passenger State Space • Acquisition (multiple levels possible), Retention, Each Frequent Flier Level etc. • Probability of moving from one state to another • Expected Life Time Value of passenger • Real time Business Intelligence Modules • Airline Resources - capacity at flight/leg/cabin level • Bid Price based inventory control • Availability for each passenger segment

21. Maximizing Passenger Value: Build - 1:1 Revenue Management • Customized Inventory Control & Pricing • Availability bias based on Bid Prices & Passenger expected LTV • Targeted sales promotions • Pushing distressed inventory • Up-Sell & Cross-Sell promotions • The product package view thru partnerships • Hotel, Car Rentals, Golf, Ski etc. • Corporate Promotions • Deals linked to hedging risk • Objective is to consistently increase passenger utility

22. Maximizing Customer Value: Care • Passenger touch point - building loyalty • Predicting and Preventing Churn • Tracking Success Metrics • Tracking response to “Acquire” and “Build” efforts • Tracking movements in segment membership • Closed Loop Solution • Changes to Passenger utility • Track and include in optimization (“Build”) • Communication between RM and Operations • Identification of “high-valued” flights • Pre-removal and Re-accommodation on overbooked flights • DOD Monitoring - Dynamic response to Cancellation and Overbooking

23. CRM: Revenue Management Role • Acquire • Targeted Promotion Sales - passenger segment and markets • Up-Sell and Cross-Sell among Active Loyal • acquisition/stimulation offers for Passive Loyal • Build • Customer Segmentation and related forecasts • Cross-Segment migration probability • Passenger Utility Metrics • Inventory Controls • Care • Tracking performance metrics to refine analytics • Closed Loop solution • Incorporate value created by CRM in PYM decisions

24. CRM: Revenue Management View • Customer-Centric View • Passenger Itinerary & Profitability • Passenger Value to Airline • Distribution Channel Management • Matching channel with profile • Airline websites had 26% increase in traffic year over year compared to 7% for online travel agencies • Availability Conflict, Channel Stealing • Revenue Management Data Support • Schedule • Inventory • Fare Database • PNR Database • Customer Profile Database • Clickstream Data • Business Intelligence Module 3600 View of Passenger

25. Customer Management Customer CRM: The Integrated View Custom Pricing (Acquire/Build) Airline suggests additional options (Build) via Sales Manager Airline partners suggest additional options through Sales Manager Custom Inventory Offer (Acquire/Build) Target Identification (Acquire) Traveler can have the inquiry saved for later Traveler enters profile info Traveler buys Traveler has multiple, convenient ways to refine process Next trip - all previously-learned data is used to aid their future planning (Build) Analytics updated Sales Manager history updated (Care) Traveler travels and is motivated to provide feedback via Virtually There Online (Care) Online ITIN, destination information via Virtually There Online, traveler profile is updated (Care) Filtered travel and destination suppliers make custom offers via Virtually There Online. (Build) Airline proactively accommodates traveler before delayed connecting flight arrives (Care) Airline partneradjusts car pickup time for MVTs on delayed flight (Care)

26. CRM: What’s available today • Broadcasting software for marketing promos • Cross-Selling Capability, Feedback provision Bid Prices based on O&D, POS, Fare-Class • Data Warehousing and Data Mining • Different customer segmentation software based on variety of techniques - Clustering, Decision Trees, Neural Networks etc. • Business Intelligence modules • Distressed Inventory, Dynamic Pricing • Integration with a CRM perspective is needed!!

27. CRM: Short Term Goals • Targeted Promotions & Campaigns • Leverage existing modules (Distressed Inventory, Dynamic Pricing) for Acquisition & Retention • Availability Bias based on existing Revenue Management System • Performance measures to provide feedback • Link to Operations - pre-removal & Re-accommodation for overbooked flights

28. CRM: Long Term Goals • Business Intelligence Module to provide passenger valuation • Revenue Management Optimization models to consider maximizing expected “Value” • Nonlinear Programming problem with modified objective function • Stochastic Dynamic Programming problem (probability of moving from one state to another) • Tracking Passenger Utility • Pricing and Inventory control decisions should consider changes to passenger utility • An Integrated 3600 View

29. Conclusion • A shift from “Vendor-centric” view to “Customer-centric” view is essential for survival • Effective Customer Relationship Management (ABC) is needed to support this view • Revenue Management is the backbone of ABC (Acquire, Build & Care) • From maximizing “revenue” to maximizing “value” • Linking all pax touch-points in an integrated view through Revenue Management • Performance Measures (e.g. pax utility) to provide feedback - Closed Loop Solution

30. Questions?