Revenue Management Round Up

Theodore C. Botimer, Ph.D. Continental Airlines

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

Pricing & Revenue Management

Round Em Up

Pricing & Revenue Management

Get me a rope so I can lasso them dogies

- Cyrus Brunger

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

Pricing & Revenue Management

. . . the Whole Pricing Function

Published Pricing Off-Tariff Pricing Revenue (Yield) Management Function Back End Commission Levels Corporate Discounts Certificate Discounts

Pricing & Revenue Management

Rope, Throw and Brand Em

Pricing & Revenue Management

Unconstrained? Yall dont get that till I take this here rope from around yer neck!

- Ezekial Belobaba

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

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

Pricing & Revenue Management

Bring a Map of the Wilderness

Pricing & Revenue Management

What in tarnation is a Logit Model? Fetch me a trail map, tenderfoot!

- Jebediah Hopperstad

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

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

Pricing & Revenue Management

Run the Wagons in a Circle, Hold the Enemy at Bay

Pricing & Revenue Management

If we run the wagons, well run off them polecats!

- Mergatroid Boyd

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

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

Pricing & Revenue Management

Ranch Hands and Trail Bosses

Pricing & Revenue Management

Bring me 12 of your finest hands and fresh horses for the posse. Tonight, we ride!

- Festus Weatherford

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)

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

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

Pricing & Revenue Management

Learn from the Natives

Pricing & Revenue Management

I told Josiah not to eat that mushroom. Now hes one dead city slicker.

- Elijah Phillips

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

Pricing & Revenue Management

Send a Scout Ahead to Warn of Impending Danger

Pricing & Revenue Management

This scouting is dirty business. Every time I see smoke, something bad happens!

- Ebenezer Ratliff

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

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

Pricing & Revenue Management

Iron Horses, Horseless Carriages, and Flying Machines

Pricing & Revenue Management

Les bontemps ne roulent pas sans ailes

- Auguste-Robuste Cherrier

Pricing & Revenue Management

This wagon stinks. Id like to rustle me up a flyin machine and a pretty co-pilot

- Augustus Robustus Cherrier

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

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?

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)