Airline Revenue Management Conference Presentations

Millennium Aviation, Inc.
CONFERENCE / SPEAKING ENGAGEMENT PRESENTATION PACK
REVENUE MANAGEMENT PRESENTATIONS (UNTIL JANUARY 2014)
29 July 2014 COPYRIGHT © MILLENNIUM AVIATION INC. ALL RIGHTS RESERVED

Revenue Management
in Passenger Airlines
EVOLUTION, TRANSFORMATION AND FUTURE DIRECTION
AALBORG SEMINAR IN RM FOR SHIPPING AND MARITIME BUSINESSES
COPENHAGEN, DENMARK, 29 JANUARY 2014
BY RICARDO V. PILON
CEO, MILLENNIUM AVIATION, INC.

Topics
Introduction
Purpose and Shortcomings of RM
Transformational Framework
Pillars of Change
Applications and Implications
Conclusions

Revenue Management
PURPOSE, 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 KLM
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 Management
o 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 tactics
o 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 Management
TRANSFORMATIONAL FRAMEWORK

Cruising to Profits
o 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 reference
o 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 Maximization
o 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 travel
o 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)

Implications
Airline Passenger vs Cargo
BUSINESS-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

Conclusions
o 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 you
Questions?
EVOLUTION, TRANSFORMATION AND FUTURE DIRECTION
AALBORG SEMINAR IN RM FOR SHIPPING AND MARITIME BUSINESSES
COPENHAGEN, DENMARK, 29 JANUARY 2014
BY RICARDO V. PILON
CEO, MILLENNIUM AVIATION, INC.

Ricardo V. Pilon | CEO | Millennium Aviation, Inc.
JDA Software
Pricing & 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?

2.1.

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
Cargo
RM
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
(leg-based)
Pricing
Management
Cargo
RM
Incremental
Improvements
?
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
Cargo
RM
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
Cargo
RM
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
Cargo
RM
Incremental
Improvements
?
Margin
GDP
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
Cargo
RM
Incremental
Improvements
?
Margin
Marketing
Loyalty
Ancillary Revenues
Business
Intelligence (B.I.)
Analytics
Organization
Governance
Change Management
GDP
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*
• 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 MYTH OR MUST? -
ECONFERENCE 2007
SINGAPORE
5 – 6 NOVEMBER 2007 Ricardo Pilon
Millennium 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 CARGO
P & 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 MYTH OR MUST? -
ECONFERENCE 2007
SINGAPORE
5 – 6 NOVEMBER 2007 Ricardo V.Pilon
Millennium Aviation Inc.
Thank You !

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