Airline Revenue Management Conference Presentations

Millennium Aviation, Inc.CONFERENCE / SPEAKING ENGAGEMENT PRESENTATION PACK

REVENUE MANAGEMENT PRESENTATIONS (UNTIL JANUARY 2014)

Revenue Management in Passenger AirlinesEVOLUTION, TR ANSFORM ATION AND FUTURE D IRECTION

AALBORG SEMINAR IN RM FOR SHIPPING AND M ARI TIME BUSINESSES

C O P E N H A G E N , D E N M A R K , 2 9 J A N U A R Y 2 0 1 4

BY R I C A R D O V. P I LO N

C E O, M I L L E N N I U M AV I AT I O N , I N C .

Topics

Introduction

Purpose and Shortcomings of RM

Transformational Framework

Pillars of Change

Applications and Implications

Conclusions

Revenue ManagementPURPOSE, PRACTICES, SHORTCOMINGS

Practice of Passenger RM (1980)LOGIC

•Purpose• Maximization of revenues

• Profit maximization

•Scope• Air transport only (seat)

• Method• Differential pricing

• Yield management (CAP control)

• Requirements• Segmentation

ASSUMPTIONS

o Independent demand

o GDS distribution

PIONEERS

o American Airlines

o Continental

o British Airways

o Lufthansa

o Cathay Pacific Airways

Passenger RM – Round 2 (1990-2010)EVOLUTION

o Fare transparency undermines fare structure

o Opportunistic low-cost model was born

o Demand is not independent

o Customers are flexible

o Customers will change behavior

o Ancillary revenues as a next tactic

o Branded fare products as value bundles

ASSUMPTIONS

o Customers understand the hybrid logic

o Customers support RM practices

o Ancillary services are a desired product

PIONEERS

o EasyJet / Ryanair

o American Airlines (merchandising)

o Air Canada (branded fares)

RM At A Crossroads

Lessons Learned Shortcomings of Pax Revenue Managemento Customers tolerate – but do not support – RM logic and practices

o Current RM software has a limited functional scope (air fare) and does not work with CRM

o Most ancillary products are perceived as punitive tacticso Checked bag fee, seat selection fee to avoid middle seat, entertainment fee.

o Branded fare products are a representation of the conventional fare rules

o Fare levels are not fully related to the cost of delivering the service, but more to time

o Overall, the RM logic is not communicated, or not communicated well

o Fundamentally, RM is suboptimal because it is imposed

o Strategic opportunity for RM is in democratizing value creation in collaboration with customers

Revenue ManagementTRANSFORMATIONAL FRAMEWORK

Cruising to Profitso Strategic commercial aviation is not about air transportation

o We need to remove the “tubular” or “supplier” mindset

o Derived nature of demand has many substitutes that are not considered o Discretionary: overseas holiday versus building a new home or pool

o Business: value of personal meeting vs air fare vs technology

o In reality the psychology of pricing is around each person’s framework of referenceo Perceived rewards versus perceived sacrifices – Do we understand it?

o Value lies in understanding the purpose of aviation and deriving new products and services

o New products and services can be developed outside the air, car, hotel components

Profit Maximizationo Profit maximization occurs when customer needs/wants are met

o Optimal pricing can work but only around real choice and value

o Today, the airline’s needs are met

o Turn the air transport industry into a commercial service industry built around aviation

o Determine how we can facilitate people and businesses to achieve what is driving travelo Human connections

o Networks

o Identify common interests and interests groups

o Introduce companies, or people to companies

o Use technology as a “glue”

o Use social media as a “platform” for innovation (“democratized” innovation)

o Then look back as to how to integrate the time spent cruising in the skies fits into this

Illustration (Simplified Overview of “Cruising to Profits®” Transformation Methodology and Tools)

ImplicationsAirline Passenger vs CargoBUSINESS-TO-CONSUMER (PAX)

o Personal experience

o Not transactions, but customers

o Overall customer optimization

o Passengers have a role in de-commoditization

o Passengers agree to share personal info

BUSINESS-TO-BUSINESS (CARGO)

o Logistics experience is time/quality/compliance

o Contract optimization

o Value creation and de-commoditization requires:o logistics integration

o facilitating your customer’s business

o industry consolidation

o further deregulation

Reconnect with the purpose of your customer’s business

Conclusionso Revenue Management discipline has been a foundation for profitability revival

o There are opportunities to widen the scope to commercial optimization

o RM, pricing, and marketing science will become a single function

o Important to transform business models and organizations

o Enable change through leadership and execution, technology is secondary

o Requires change management at many levels, but we need to allow customers to drive it.

Mange Tak! Thank youQuestions?EVOLUTION, TR ANSFORM ATION AND FUTURE D IRECTION

AALBORG SEMINAR IN RM FOR SHIPPING AND M ARI TIME BUSINESSES

C O P E N H A G E N , D E N M A R K , 2 9 J A N U A R Y 2 0 1 4

BY R I C A R D O V. P I LO N

C E O, M I L L E N N I U M AV I AT I O N , I N C .

Ricardo V. Pilon | CEO | Millennium Aviation, Inc.

JDA SoftwarePricing & RM Conference, London, 23 March 2010

Business & Revenue Model Optimization

- From RM to Holistic Marketing Science-Driven Profitability Maximization -

• Introduction

• RM Today

• Role of RM (today)

• Scope of “RM” (potential)

• Case Study

• Approach

• Process over Technology

• Conclusions

Agenda

If The Airline Industry Were A Sport,

Which Would It Be?

Revenue Management Evolves – Or Does It?

Dependent vs.

Independent Demand

Evolution

Capacity Control

Yield Management Revenue Management(leg-based)

O & D Revenue Management

Pricing

Management

Incremental

Improvements(forecast / optimize)

Margin

Scope• Air Transport Component Only

• Perishable Capacity

• Limited Segmentation

• Pricing and Unbundling/Rebundling

• Evolution From Revenue to Margin

Dependent vs.

Independent Demand

Capacity Control

Yield Management Revenue Management

(leg-based)

Pricing

Management

Incremental

Improvements

(forecast / optimize)

Margin

Value Chain• Is Air Transport what we are?

• Is Air Transport what we do?

Dependent vs.

Independent Demand

Capacity Control

(leg-based)

Pricing

Management

Incremental

Improvements

Margin

Air Transport

Airport Airport

Surface Surface

What Business Are We In?

Dilemma• What is RORO, i.e. the Return on

Revenue Optimization?

• How does Revenue Optimization

perform under:

• Fundamental industry changes?

• Evolving business models?

• Core assumptions in RO undermine

RO opportunities

• What is the future of Revenue

Optimization as we know it?

Optimizing Converging Functions – The Answer?

Perspective• What is core role of the business?

• What drives demand for:

• Passenger air transport?

• Cargo space?

• RO is part of larger business

optimization exercise:

• Marketing

• Loyalty

• Ancillary Revenues

• Business Intelligence / Analytics

• Core Business Model

Puzzle

• Do we have all the pieces of the

puzzle or process?

Case Study

• Tier 1 carrier, multi-hub network

• G2 – RM system

• RMS constraints pollutes

initiatives

• Conflict:

• Marketing

• RM + pricing

• Business strategy

• Initiative:

• Full strategic planning process

review

Beyond RM

Dependent vs.

Independent Demand

Capacity Control

(leg-based)

Pricing

Management

Incremental

Improvements

Margin

Marketing

Loyalty

Ancillary Revenues

Business

Intelligence (B.I.)Analytics

Core Business Model “Code”

Considerations

Dependent vs.

Independent Demand

Capacity Control

(leg-based)

Pricing

Management

Incremental

Improvements

Margin

Marketing

Loyalty

Ancillary Revenues

Business

Intelligence (B.I.)

Analytics

Behavioral Trends

Global Financial Markets

Discretionary Income Trends

Competitive Response

Currency X-Rates

Trade Flows

Interest Rates

Change

Dependent vs.

Independent Demand

Capacity Control

(leg-based)

Pricing

Management

Incremental

Improvements

Margin

Marketing

Loyalty

Ancillary Revenues

Business

Intelligence (B.I.)

Analytics

Organization

Governance

Change Management

Behavioral Trends

Global Financial Markets

Discretionary Income Trends

Competitive Response

Currency X-Rates

Trade Flows

Interest Rates

BMO• Can a solution encapsulate all these

factors in supporting business model

optimization?

• Review of business systems

• Conclusion:

• Process over technology

Value Chain(e.g.Cargo)

• RO should consider supply chain:

• Shippers

• Freight Forwarders

• Consignees

• Global Trade Flows

Reality• Revenue Optimization cannot

correct flawed business models

• Businesses can thrive without

automated revenue optimization

• Maximized profitability cannot be

achieved without a sustainable

business model and an aligned

• BROS require commercial

intelligence as primary step (B.I.)

* = Business and Revenue Optimization System

Conclusion• Know one’s self

• Know thy business

• Know your wider business and role

• Know your core “code”

• Establish the strategic plan

• Establish the change plan

Conclusion-2• Revenue Optimization has to be

taken out of isolation

• Business model and processes will

drive solution requirements

• Path is unclear as to approach

• Only incremental steps are feasible

• Flexibility in supporting evolving

needs are paramount

• Change is great! You go first!!

Conclusion• What is your game plan?

Thank you

Ricardo V. Pilon

rpilon@millavia.com

Ph. 514.295.1275

www.millavia.com

Integrating CRM and RM- A M Y T H O R M U S T ? -

ECONFERENCE 2007

SINGAPORE

5 – 6 NOVEMBER 2007 Ricardo PilonMillennium Aviation Inc.

Agenda

◦ Trends in CRM and RM

◦ Conflicting Objectives of CRM and RM

◦ Aligning the two Fields

◦ The Potential of Customer Relationship Revenue Management

◦ Potential Benefits

◦ Conclusions

Loyalty Management – Airline Industry

◦ Few evidence of true loyalty found (Accenture, 2006)

◦ Loyalty is predominantly “to the loyalty program”

◦ Loyalty can be impacted by external factors (e.g. airports)

◦ Increased “loyalty” in parallel to increased shopping

◦ Huge liability has led to promotions, new partners

◦ Tier levels and benefits stimulate captivity, i.e. it works

◦ FFPs now used for analytics-driven CRM

Trends in CRM and RM

CRM◦ From FFP CRM CEM

◦ Profiling, analytics

◦ Deep segmentation

◦ Touch point integration

◦ Choice-based offering

RM◦ Simplification of pricing

◦ Value-based offering

◦ À la carte

◦ Unbundling

◦ Subscription-based

Objectives of CRM and RM

CRM◦ Facilitating life-time loyalty for

repeat business and revenue growth

RM◦ Optimize revenues for maximized

profitability

Methodologies

CRM◦ Value bundles of benefits◦ Redemption opportunities◦ Discretionary products◦ Integration◦ Standardization◦ Analytics and BPR◦ Focus on customer differences

RM◦ Manipulating product availability

(mix)◦ AU controls on differentiated and

undifferentiated products(yieldable vs. priceable)

◦ O.R.-based modeling ◦ Decision-tree and choice-based

modeling

Conflicting Objectives

CRM◦ Focus on individuals

◦ Focus on long-term

RM◦ Focus on market segments

◦ Transactional-level focus

Wherein lies other Conflict?

Current and new redemption policies

“Loyalty” is often driven by lowest fare

Product availability would depend on the individual requesting the product + customer value, including the propensity of ancillary spend

Thus, customer-centric RM would be discriminatory at the product availability level

Some Thoughts

Can one forecast propensity for ancillary spend?

Can one predict individual travel?

Is eCommerce not the enabler of “CR2M”?

What if the customer enters through different channels (price parity issues) and/or cannot be identified?

Do FFP spin-offs conflict with CRM objectives?

Aligning CRM and RM

eCommerce as the facilitator◦ Booking engines◦ Upselling (add-on)◦ Cross-selling (alternatives)◦ Selling upgrades◦ Subscription-based offering based on profiling

Enhanced RM modeling integrated with RES and CRM

Manipulating the mix of offers and prices based on individual customers

Case: Air Cargo Loyalty Context

◦ Cargo is driven by one-to-one relationships

◦ Carrier preferences might outweigh price pressures

◦ Loyalty driven by:(Advantex, 2007)

◦ Price 67%

◦ Access to capacity 13%

◦ Reliability (service-level) 9%

◦ Ease of dealing with carrier 7%

◦ Other (security, etc.) 2%

(Agifors Annual Symposium 2007, Pilon, R., Bangkok, Thailand, 3 October 2007)

Future Directions of Cargo Pricing & RM

INTEGRATIONAIR CARGOP & RM

Ability to better monitor business

performance and plan business tactics

Ability to further align pricing, capacity control,

sales and marketing

Ability to use systems with increased and

smart computing power

Increasing Margins

(Agifors Cargo & RM, Pilon, R., Jeju Island, South Korea, May, 2007)

Case: Air Cargo Loyalty Context◦ Cargo RM and CRM is driven by:

◦ Customer value

◦ Shipment value (yield, revenue)

◦ Integration leads to customer and shipment value based bid price

◦ Access to capacity is manipulated by shuffling dates and itineraries, and reshuffling bookings

◦ “Global local-based pricing” depending on network performance

The Debate◦ Who should drive CR2M?

◦ Should marketing be restructured into an integrated team?

◦ Are there intermediate approaches, i.e.:

◦ Analytics and profiling

◦ Estimating willingness to pay, and ancillary $

◦ Estimating product utility

◦ Redesigning the sales process?

Conclusions◦ CRM has delivered real benefits

◦ RM has delivered real financial gains

◦ With new technology and computing power, a real opportunity exists for “CR2M”

◦ An active dialogue should continue on further integration

Integrating CRM and RM

- A M Y T H O R M U S T ? -

ECONFERENCE 2007

SINGAPORE

5 – 6 NOVEMBER 2007 Ricardo V.PilonMillennium Aviation Inc.

Thank You !

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