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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

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revenue management round up

Revenue Management Round Up

Theodore C. Botimer, Ph.D.

Continental Airlines

wild west tales applied to rm

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
integrate the pricing function

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
the whole pricing function

Pricing & Revenue Management

. . . the Whole Pricing Function
  • Published Pricing
  • Off-Tariff Pricing
  • Revenue (Yield) Management Function
  • Back End Commission Levels
  • Corporate Discounts
  • Certificate Discounts
take ownership of the price point

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
example latin holiday program

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
have a plan know the goals

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
organizational plan

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
database coordination

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
systems adjustments

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
staffing

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)
winning qualities

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
most important integration tool

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
bring ym analysis to pricing

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
share pricing info with ym

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
forecasting inputs

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
this wagon stinks i d like to rustle me up a flyin machine and a pretty co pilot

Pricing & Revenue Management

“This wagon stinks. I’d like to rustle me up a flyin’ machine and a pretty co-pilot”

- Augustus Robustus Cherrier

origin to destination control

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
full systems integration idea

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?
conclusions

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)