strategic transportation & tourism solutions
World Low Cost Conference Integrated Commmercial Planning and Control (ICPC) Insert Title of your presentation
Dr Emre Serpen, Executive Vice President
Agenda 1. Introduction and Expectations
9:00 - 9:30
2. Route Planning
9:30 - 10:30
3. Coffe Break
10:30 - 10:50
4. Revenue Management (Integrated Approach)
10:50 - 12:15
5. Measuring Performance (Presentation)
12:15 - 13:00
6. Lunch
13:00 - 14:00
7. Measuring Performance (Facilitation)
1400 - 14:30
8. Coffee Break
14:30 - 14:45
9. Optimising Costs
14:45 - 15:30
10. Expectations Review & Next Steps
15:30 - 16:00
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Integrated Commercial Planning and Control Session 2 - Integrated Commercial Planning and Control (ICPC) Examine the advantages of integrated revenue planning. Development of budget driven by network and business plan. Need for increased granularity and dynamic management of revenue Integrated revenue planning and management team involving scheduling. Marketing, pricing, revenue management, sales, advertising. Organisation, performance measures and tools that supports ICPC team. The tools and macroâ€&#x;s that facilitates revenue planning. Benefits for airlines Integrate commercial activities through establishment of ICPC teams Develop a forward thinking revenue plan that will maximise revenue. Learn how to have proactive marketing that leverages web, agencies and the business community, ancillary revenues, FFP for off-flight emarketing Benefits for airports Methods used by airlines to improve revenues, joint marketing programs with airlines. Learn how to effectively work with the business community to support lead carriers. Benefits for solution providers Discuss the implications of tools that integrate revenue planning and management of airlines. Understand expectations of airlines and airports from the use of tools. How to improve tools that help airlines an d airports to maximise revenues? 2
Drivers for change and opportunities for revenue improvement Extention and Diversification of the LCC model (increasing competition) •
Geographically – Regionall - Long haul Niche)
•
Operationally (Web /Onboard shoppinng/Entertainmen)
Changing distribution environment •
GDS New Entrants (GNEs) reduce costs, LCC interline
•
Online travel agencies
Legacy responses Ancillary revenues Advanced forecasting Improve fare structures Forecast accuracy,
Strategies for price insensitive customers Link strategy to day to day decisions
Increasing complexity •
Network and interline , price competition, excess capacity
•
Evaluation of ancillary revenue potential
Legacy responses 3
Pricing driven by better understanding of customer preferences
Characteristic
Affordability Fun Travel Experience Reliability Early booking Lower fare class Leisure destinatin Weekend travel Larger group size Books outside work hours
VIE WAW - Length of Stay 30%
25%
% of total pax
Requirements
Availability Frequency Ontime Performance Efficiency Comfort Late booking Higher fare class Frequent flyer member Business destinations Weekday travel Small group size Corporate credit card Books during office hours
Leisure
20%
15%
10%
5%
0% DAY
1
2
3
4
5
6
WE
Days Stay
WAW ROM 80% 70% 60%
% of pax
Business
50% 40% 30% 20% 10% 0% 1
2
3
4
5
6
WE
Stay in Days
5
Understanding Customer Value Proposition Offer customers the ability to purchase the product that meets their needs
6
Legacy Responses
All carriers legacy and low cost are under pressure to increase revenues Booking Change fees: to differentiate between flexible business fares and inflexible leisure fares •
Fees for changing dates and/or routes; some airlines allow name change
•
Fees for cancellation of one or more sectors and no shows
Reservations fees: to encourage people to book on-line direct •
Charges for Call Centre or Ticket Office: equivalent to agents “service fees”
•
Charges for use of Credit Cards
Baggage related: as a revenue stream and to discourage excess hold baggage •
Weight related Excess Baggage fees (weight related)
•
Piece related: Fees for all hold baggage (Ryanair), or for more than one bag (British Airways)
•
Fees for sports equipment such as skis or bicycles
Fuel: to offset increasing fuel costs Other - extra legroom, priority boarding, seat preference: extra revenue
Macro‟s used in the design of airline fare matrix
CLASS BUSINES
ECONOMY
C ÜCRETİ
PROMOSYON GRUP ÜCRETİ ANLAŞMA ÜCRETİ
C J Y B K N E W R Q T M S U P O F I X L A V G H D Z
ÜCRET
FREKANS
250.00 €
100%
100%
7.00 €
257.00 €
200.00 €
80%
80-99%
7.00 €
207.00 €
105.00 €
100%
100%
7.00 €
112.00 €
100.00 €
95%
95-99%
7.00 €
107.00 €
95.00 €
90%
90-94%
7.00 €
95.00 €
90.00 €
86%
86-89%
7.00 €
97.00 €
85.00 €
81%
81-85%
7.00 €
92.00 €
75.00 €
71%
71-80%
7.00 €
82.00 €
65.00 €
62%
62-70%
7.00 €
72.00 €
60.00 €
57%
57-61%
7.00 €
67.00 €
55.00 €
52%
52-56%
7.00 €
62.00 €
50.00 €
48%
48-51%
7.00 €
57.00 €
45.00 €
43%
43-47%
7.00 €
52.00 €
40.00 €
38%
38-42%
7.00 €
47.00 €
35.00 €
33%
33-37%
7.00 €
42.00 €
30.00 €
29%
29-32%
7.00 €
37.00 €
25.00 €
24%
24-28%
7.00 €
32.00 €
20.00 €
19%
19-23%
7.00 €
27.00 €
15.00 €
14%
14-18%
7.00 €
22.00 €
10.00 €
10%
10-13%
7.00 €
17.00 €
5.00 €
5%
5-9%
7.00 €
12.00 €
2.00 €
2%
2-4%
7.00 €
9.00 €
7.00 €
52.00 €
45.00 €
YR+YQ
NET ÜCRET
%
%
100% 81% 100% 96% 85% 87% 82% 73% 64% 60% 55% 51% 46% 42% 38% 33% 29% 24% 20% 15% 11% 8%
100% 80-99% 100% 96-99% 85-95% 87-84% 82-86% 73-81% 64-72% 60-63% 55-59% 51-54% 46-50% 42-45% 38-41% 33-37% 29-32% 24-28% 20-23% 15-19% 11-14% 8-10%
Macro‟s to develop initial inventory allocation according to current and „to be‟ cost profiles, enabling commercial team to execute sale of profitable flights UÇAK KOLTUK SAYISI BEKLENEN DOLULUK BEKLENEN YOLCU SAYISI VARIABLE/CASH COSTS Fuel Maintenance Navigation Airport Landing Catering Ground Handling Flight Crew
NORMAL € 1,922 € 931 € 15 € 347.00 € 542.00 € 904.00 € 787
Cabin Crew
%Nor 35.28% 17.09% 0.28% 6.37% 9.95% 16.59% 14.45% 0.00%
% İND. 35% 13% 0% 6% 8% 5% 12% 0%
€ 5,448
TOPLAM BEKLENEN YOLCU SAYISI
124 Y B K N E W R Q T M S U P O F I X L A V
To be cost profile that is observed at competitors
177 70% 124 İNDİRİMLİ € 1,922 € 708 € 15 € 347 € 436 € 272 € 654 €0
No of seats that must be sold to achieve flight profitability based on current costs
€ 4,355 MALİYET GELİR PROFİT %Nor
112.00 € 107.00 € 95.00 € 97.00 € 92.00 € 82.00 € 72.00 € 67.00 € 62.00 € 57.00 € 52.00 € 47.00 € 42.00 € 37.00 € 32.00 € 27.00 € 22.00 € 17.00 € 12.00 € 9.00 €
67% 66% 64% 63% 61% 59% 56% 53% 46% 38% 28% 20% 14% 10% 7% 6% 4% 3% 2% 1%
€ 5,448 € 6,852 € 1,404 %İnd 68% 67% 67% 66% 66% 65% 62% 59% 55% 48% 37% 27% 19% 14% 10% 7% 5% 3% 2% 1%
€ 4,355 € 6,302 € 1,947
Var KTHY
Var Best
2 2 3 3 3 5 6 12 15 17 15 10 7 5 3 3 2 2 2 1
1 1 1 1 1 5 5 8 12 20 17 15 9 7 5 3 3 2 2 2
118
120
Nor.Yolcu
İnd.Yolcu
118
120
NOR.GEL. 224 € 214 € 285 € 291 € 276 € 410 €
432 804 930 969 780 470 294 185 96 81 44 34 24 9
€ € € € € € € € € € € € € €
6,852 €
İND.GEL. 112 107 95 97 92 410 360 536 744 1,140 884 705 378 259 160 81 66 34 24 18
€ € € € € € € € € € € € € € € € € € € €
6,302 €
No of seats that must be sold to achieve flight profitability based on to be costs
Evaluate options in defining seat allocation per bucket to maximise flight profitability, test the effect of cost reductions 25 20
20 17
15
17 15
15 12
15
Var Nor
12
10
10
5
6 5
5 2 1
0
Y
3 1
2 1
B
K
3 1
N
Var Best
9 7
8
7 5
5 3
3 1
E
W
R
Q
T
M
S
U
P
O
F
3
3 2
I
2
X
2
L
2 1
A
V
25 20 15 Var Nor 10
Var Best
5 0
Y
B
K
N
E
W
R
Q
T
M
S
U
P
O
F
I
X
L
A
V
Measurement of Pricing Results supports improved pricing decisions Recommended Measures to introduce for Pricing
Sample Report from Other Airline
Overall: Net Revenue and Yield PAX Capacity Load Factor Total Rev (EUR) Revenue / PAX (EUR) RASK (EUR cent) C/Mix
•
Net Revenue
•
Average Net Revenue per Passenger
•
Average Net Revenue per RPK
•
Absolute, compared to Target, or compared to last year Name Steve Fletcher Month Apr-07 Area of Responsibility Sales Areas USA & Canada, KSA Routes NYC JED
Revenue
Last Year Target Actual
Last 4 weeks 2006 vs. 2005 2006 2005 2,786 2,785 4,790 4,820 58% 58% 551,936 521,228 198.11 187.16 15.24 14.30 21.0% 25.5%
Booking Class Distribution last 4 weeks 2006 vs. 2005
100% 90% NYC RUH
IAD JED
IAD RUH
YTD
Jan
Feb
80% Mar
Apr
70% 60%
c- Low eco b- High eco a- High yield
50% 40%
% Act v. Last Year % Act v. Target Passengers
Last Year Target Actual
30% 20% 10% 0%
% Act v. Last Year % Act v. Target
Pax total last 4w 2006 T
ASKs
Last Year Target Actual % Act v. Last Year % Act v. Target
Rev/Pax
Last Year Target Actual % Act v. Last Year % Act v. Target
Rev/ASK
Last Year Target Actual % Act v. Last Year % Act v. Target
Delta (%) 0% -1% 1% 6% 6% 7% -18%
Pax total last 2005
Identify improvement opportunities in Pricing and Revenue Management processes, methods, organisation and measures
Diagnosis
Solution Development
Testing & Evaluation
Market and Revenue Share versus Expected Market Segmentation : use of Fare Rules and Booking classes
Implementation Support
Improved Revenue Results
Development of detailed processes and working methods Liaise with systems suppliers
Effective use of systems, tools and data
Hands on and class-room training
Organisation structure and interaction with Sales, Airports
Coaching
Processes and working methods
Review and Assessment of results KPIs & Performance Management
“Use of time� analysis
There is some overlap between Pricing and Revenue Management Strategy and Tactics module where the focus will be on outcomes
Example Pricing and Revenue Management Diagnostic Illustration – Analysis of Fare Structures and Use of RBD‟s
Interviews and Data collection on current fare structure and use of booking classes Market segmentation – reason for travel, point of sale. Existing Clientreports showing breakdown of current revenue mix and trends over time. Competitor analysis – schedules, product and pricing strategy. Competitor Fares – current fares; published, net, point to point and connecting; selected monitoring of competitor pricing using Client staff to gather data over a two week period
Analysis of fare usage is important to understand where there are potential opportunities: • Mismatch between actual yield and published fares: abuse or pro-ration issues? • Fares in wrong class, Overlap of RBD‟s, Over or under use of RBD‟s • Exchange rate impacts? Inconsistent fare conditions? • Poor inventory controll, Revenue Leakage ?
Revenue Management Best Practices
Revenue focus •
Build load factor don‟t chase load factor
Customer focus •
Recognize and understand market and market segmentation
Strategic focus •
Market share - Customer image/brand perception - Market protection
Appropriate systems •
RM system matches the business model- Fare - Network structure
Appropriate fare structure •
Number of fare classes and Variation
Appropriate inventory control •
RM consistent with Res, IC matches business
Managed rules based methodologies ( •
Market research, commercial objectives
Dynamic programming •
LCC optimization
Advanced forecasting •
Price sensitivity
Effectiveness of fare structures Forecast accuracy, Appropriate systems and optimisation The LCC Challenge = price insensitivity Ability to link strategy to decisions •
At the flight levet – route-corporate levels 15
Revenue management CSF‟s Organized work flow •
Critical flight monitoring •
•
Appropriate critical flight rules
Competitive fare monitoring •
Decision making policy and framework
•
Appropriate forecast influencing
•
Appropriate performance and advance booking reporting
•
Seasonal preparation
•
Event preparation
•
Advance booking reporting
•
Advance forecast reporting
•
Spillage and spoilage trending
•
Market share versus capacity share
•
Revenue per ASK trending
16
Evaluation performance measures used in Pricing and Revenue Management and provide recommendations
An example of how a leading Latin American Carrier improved its revenues through a commercial change management program 1. 2. 3.
Worked with promotions Opened economic classes Unsold group blocks released AM YOY Change in RASK
30%
MEXVSA
MEXVER
MEXTIJ
MEXPVR
MEXMTY
MEXMID
MEXMIA
LAXMEX
HMOMEX
GDLTIJ
GDLMEX
BJXLAX
0%
ACAMEX
10%
GDLLAX
20%
CUNMEX
% Change, 2002 to 2003
1. Kept fare differential with competitors 2.Fine tuned pax mix
Q1 Q2 Q3
-10%
Excellent results
-20%
Improvement of revenue during project
-30% Market
Syste m Tota l Flights Tota l Passe ngers Tota l Capacity Loa d Fa ctor Tota l Reve nue RASK Ave rage Fa re
Managed ManagedFlights’ Flights’LF LF should be approx. 90% should be approx. 90% Low Yield Spill High Yield Spill Overb ook ing Levels Low Overb ook ing Levels High
Posted PostedFlights’ Flights’ LF LF should shouldbe be approx. approx.95% 95%
Ma na ge d Flights Ma na ge d Flight - % of TTL Ma na ge d Flights' LF Poste d Flights Poste d Flights - % of TTL Poste d Flights' LF De nied Boa rdings DBs per 1000 pa x Ma na ge d/Posted Flights
2226 171434 272927 62.8%
2174 163862 264816 61.9%
2140 170296 261146 65.2%
2129 165571 260323 63.6%
2155 157237 263648 59.6%
2144 155198 262129 59.2%
2109 158447 257723 61.5%
Significant knowledge development Adopt PRM policies and procedures Adopt performance measures Excellent teamwork with sales
441 19.8% 82.5% 91 4.1% 91.5% 283 1.65 4.8
395 18.2% 82.3% 73 3.4% 94.3% 165 1.01 5.4
406 19.0% 82.4% 68 3.2% 92.1% 242 1.42 6.0
352 16.5% 82.8% 62 2.9% 95.9% 155 0.94 5.7
320 14.8% 79.0% 39 1.8% 91.0% 108 0.69 8.2
369 17.2% 78.7% 50 2.3% 91.7% 130 0.84 7.4
418 19.8% 78.7% 57 2.7% 89.2% 195 1.23 7.3
Effective use of RM tool
Objective is to enable better integration and interaction of commercial departments for optimal contributions and increased revenues
The objective of ICPC is to maximise revenues through improved practices, methods and also behaviours of the commercial team There should be regular interaction between Network Planning and Revenue Management (Pricing and RM) •
Pricing analysts should be provided with the outputs of the network optimisation solutions including route level expected passenger forecast, load factor and yield forecasts
•
Network management department should be provided feedback with route and O/D level yield performance
Network Planning, Pricing and Revenue Management analysts should interact regularly during • •
The Revenue Planning Process, and The Revenue Delivery (Steering) Process
The Process Design should identify key Interface Points and a timetable to facilitate effective integration of network and revenue management •
In many Network Airlines, this includes regular, datadriven meetings of the “Control Tower” during Planning and Steering phases.
Implement a new “Revenue Planning & Delivery” process Revenue Revenue Budget Budget Annual Shared Sharedtargets targets --Pricing, Pricing,YM YMand and Sales Sales
Revenue Revenue Delivery DeliveryPlan Plan Seasonal Revenue RevenuePlan Plan Workshops Workshops Output Output==Numbers Numbers ++Actions Actions
Monitoring Monitoring
Action Action
Daily, Weekly, Monthly RM RM&&Sales Sales review review variation variationvs vsplan plan -agree actions -agree actions
Joint Jointactions actions agreed agreed&& coordinated coordinated
Forecast Forecast Monthly Airline AirlineExec ExecTeam Team Understands Understands where where Revenue Revenueis isgoing going
Department Short term schedule and a/c adjustments
Network & Scheduling Product
Support Pricing Promotions
Marketing & Advertising Yield Management
Targets for R/ASK by Route, Overbooking
Tariffs & Pricing
Targets for Revenue and Yield by Market. Pricing Strategy. Pricing Policy & Guidelines.
Route and Market Joint Planning Sessions to decide actions required to meet targets.
Set and review seat availability versus new bookings, schedule
Request capacity changes. Adjust seat availability and overbooking
Input to forecast
Monitor market and competitors fares. Identify Price Opportunities
Approve & file new fares.
Input to forecast
Input to IATA
Sales & Distribution
Targets for Revenue by Market. Agents targets
Monitor market and competitor actions – price, product, promotion. Agent performance.
Communicate new fares & product. Manage agents.
Input to forecast
Finance
Budget Creation
Revenue Accounting
Revenue Accounting
Create Forecast
Improve communication channels and working procedures between Pricing and Sales will form part of the solution Collection of structured feedback from sales with enhanced competitive information (published, net, group fares) Key events with revenue maximisation opportunities in key markets Consultative meetings and workshops with the design of fares
Facilitated Session Opportunities for Improving the Revenue ICPC opportunities
Breakout Groups or Plenum Discussion
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Integrated Revenue Planning and Control (ICPC) AIRLINES 1. What are the challenges associated with Revenue Growth 2. Legacy response to fare families 3. Revenue Planning process – weekly plan managed rolling forward basis & participation 4. Revenue Management Improvements – best practices 5. Alignment with distribution channels – low cost on GDS ? 6. Performance measurements and friendly competition 7. Leveraging tools, PRM methods, 8. Looking at the routes to maximise the secondary revenue sources,: ancillary revenues, co-branding --cargo etc
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Integrated Revenue Planning and Control (ICPC) AIRLINES 1. What are the challenges associated with Revenue Growth 2. Legacy response to fare families 3. Revenue Planning process – weekly plan managed rolling forward basis & participation 4. Revenue Management Improvements – best practices 5. Alignment with distribution channels – low cost on GDS ? 5. Performance measurements and friendly competition 6. Leveraging tools, PRM methods,
25
Integrated Revenue Planning and Control (ICPC) AIRPORTS 1. What can airlines learn on Pricing and revenue Management from Airports – methods tools 2. Demand based pricing for airports – idea too far ? 3. Levels of service ?
IT companies
1. What are the low cost airline requirements for IT providers from Pricing and revenue management solutions.
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