Multi-Channel Revenue Management Shankar Mishra & Vish Viswanathan AGIFORS RYM Study Group Berlin, 16-19 April 2002.

Multi-Channel Revenue Management

Shankar Mishra & Vish Viswanathan

AGIFORS RYM Study GroupBerlin, 16-19 April 2002

3

Introduction

The Proliferation and Diversification of Distribution Channels appear Irreversible

Online Travel Sites in U.S.January 2002

Sales: $2.3BVisitors: 47.5M

In 2001

Travelocity & Expedia sold $3B worth of Travel Products

4

Online Channel Growth

$31B

$50B

2002 2005

29% Increase over 2001

50% of all travel sales will be from supplier’s own website

13% of all U.S. travel in 2002 will be booked online

5

CRS/GDS

CRS/GDS

CRS/GDS

CRS/GDS

Different Distribution Channels

Airline Inventory

Airline Websi

te

Online Travel Sites

Airline Sales

Online Corporat

e Booking

s

Email Campaign

s

Allotments

Others

6

Channel Characteristics

Emerged as most popular online travel channel

Least Cost, High Visibility

Majority of Demand (not all) coming through may be “Price Sensitive”

Detailed Customer Information Available Reliable Customer Segmentation

Targeted Campaigns in Practice

Airline Website

7

Channel Characteristics

Market Converging to few Dominant Players Travelocity, Expedia, Orbitz

Includes Opaque Sites Priceline, Hotwire

Published & Opaque Fares

Price Sensitive Demand

Online Travel Sites

8

Channel Characteristics

Includes Special Negotiated Price

Low Fare Search Engines

May Include Last Seat Availability

Online Corporate

Others

Auction, Reverse Auction Sites

Negotiated Availability & Price

Effective Demand Stimulation

Low Cost Medium

Email Campaigns

9

Channel Characteristics

Dominance of this channel varies by region

At times ‘Inventory Controls’ are at odds with ‘Sales Allocations’ Depending upon volume/quality, other channels may be

preferred over sales allocations

If Airline Sales is the only channel Maximizing revenue translates to inventory control of sales

allocations

If not Common view of inventory

Airline Sales

10

Is Fare the Only Differentiator?

Airline Inventor

y

Email Campaigns

Airline Sales

OnlineCorporate

OnlineTravel Agencies

Airline WebsiteGroup Demand by Fare

Group Demand by Fare

Fare-Class

Fare-Class

Fare

-Cla

ssFa

re-C

lass

11

Common Inventory View

Common Inventory with Price as only differentiator among channels

Current O&D Revenue Management Model should suffice Availability Decision will be independent of Channel Based on Bid Prices

An extension would be to define product at ODF & Channel level

Still Current O&D Revenue Management Models should suffice Problem size increases due to added dimension

A Bid Price based O&D RM is the First Step

12

And the Solution…

O&D Revenue Management

System

Fare Management

System

Demand Aggregation

Fare Analysis

Email Campaigns

Airline Sales

OnlineCorporate

OnlineTravel Agencies

Airline Website

Physical & Financial Inventory Controls

Data Interface between distribution channels & RM system Demand & Value aggregation to appropriate

level

13

Common Inventory View

Demand StimulationResponse to pricing changes differ by

distribution channel

Differentiation beyond Price

Sell-up within & across channelEffect of sell-up strategies vary by distribution

channel

14

Growing Complexity

Channel Analytics

Dynamic Pricing Module

Ability to create fare promotions dynamically at the point of sale Minimize spoilage without diluting revenue

Gain/Protect Market Share

Personalized Product Definition

Promotions & related Strategic Initiatives by Channel Channel importance for distressed inventory

Using strategic data in forecasting

Better passenger segmentation

15

And the Solution…

O&D Revenue Management

System

Demand Aggregation

Fare Analysis

Email Campaigns

Airline Sales

OnlineCorporate

OnlineTravel Agencies

Airline Website

Physical & Financial Inventory Controls

Dynamic Pricing Module

Fare Management

System

Channel

Analytics

16

Implications of “Airline Sales” Channel

Initial Sales Allocations are set early in the booking process

Closing availability with “open allocation” Not necessarily the preferred option for sales

If Sales Allocation were to be protected? Only option may be to refine “Allocation Mix” on a periodic

basis

Needed Info…

Pax Valuation thru this channel

Channel Performance

17

Value of Growing Complexity

Valuation Module

Performance Measures

Valuation of a passenger thru a particular channel Channel profitability taken into account

Availability Bias can be incorporated

Protection for special offers, sales allocations etc.

A Feedback Loop to Revenue Management System & Processes (Channel Analytics) Performance of promotional campaigns by channel

Value creation linked to strategic initiatives

Performance of “Sales” channel – Observed Vs. Allocation

18

And the Solution…

O&D Revenue Management

System

Demand Aggregation

Fare Analysis

Email Campaigns

Airline Sales

OnlineCorporate

OnlineTravel Agencies

Airline Website

Dynamic Pricing Module

Fare Management

System

Channel

Analytics

PerformanceMeasures

Valuation

Module

Physical & Financial Inventory Controls

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So what’re we saying?

At a macro level airlines should maintain a single view of supply and demand Forecast free value of inventory

Financial Inventory Control, preferably at ODF level is the first step

Exploiting channel characteristics further Maintain market response & product control in each

channel

Linking Pricing & Inventory to channel characteristics

Merging Pricing, Revenue Management & Distribution?

20

The Other Viewpoint

All the channels will have extensive overlap in terms of “Passenger Value”

Let us consider distribution channel as merely “Inventory Access Medium” for Passengers… Understanding passengers with a preferred channel

becomes important

Passenger Value remains the most important decision criteria

Importance of channels is limited to the related cost

Promotions, Strategic Initiatives can be directly linked to passenger segment (broader definition than grouped by distribution channels)

21

Promotions & Strategic Initiatives based on “Passenger Segmentation”

Inventory Controls based on “Passenger Value”

Continuous Tracking of Passenger Profile & Behavior

The Other Viewpoint

Customer-Centric Revenue Management

22

Demand Aggregation

By Pax segment

Fare Analysis

Same Solution?

O&D Revenue Management

System

Dynamic Pricing Module

Fare Management

System

Pax Segme

nt Analyti

cs

PerformanceMeasures

Valuation

Module

Physical & Financial Inventory Controls

Distribution thruPreferred channels

23

System View

RM System must support “Common View of Supply &

Demand”

“Financial Inventory Controls” should be the base

to build upon

Integration of Pricing, Revenue Management & Distribution

Bound by limitations of CRS/GDS – Airline.com may be first step

Fare Management System is no less important than RM System

24

Common Process View

Planning Strategic Initiatives Campaigns & Promotions Customer Segmentation

Valuation Passenger Valuation Market/Flight Valuation Control over all Variables Affecting

Valuation

Operation Critical Flight Handling Tactical Planning Day of Departure Support

Distribution Link between Passenger & CCRM Communication Channel for other

departments (Pricing, Scheduling, etc.)

Migration of revenue management analysts Route Controllers Market Analysts Strategic/Tactical Analysts

25

Conclusion

The Proliferation and Diversification of Distribution Channels appear Irreversible

Can we afford to ignore alternate distribution channels in our RM perspective?

A common look at all channels together may bring us closer to Utopia Integrated Pricing, RM, Distribution

This common look must see both Supply & Demand side

Convergence of Systems & Processes towards customer-centric environment seems to be the next step

You don’t have to beat the bear!!!

Questions?