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Revenue Integrity

a vital ingredient to

good Revenue Management

Paul Rose
MD 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
” 5
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 • No-show psgrs


• Incorrect class mix with onward
• Abuse of fare rules. carriage
• Sub MCT • Multiple bookings
on same flight
• Passives.
• Multiple bookings
• Space blocking
on several flights
• Dupe segments
• No names - Groups
• Dupe Names & individuals
• Redundant • Name changes /
waitlists Fake names
• Cross border abuse 7
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

PEOPLE

PROCESS
BENEFITS

SYSTEMS

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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 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

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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. 12
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
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)

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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

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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

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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

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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. 18
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.
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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.

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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!

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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 ! 22
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. 25
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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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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