6 ways to bring precision to Revenue Management


NB: This is an article by Tom Bacon for Eye for Travel

Today it is possible to cut the data in so many different ways, but now is the time to go deeper, writes Tom Bacon

‘Precision’ medicine is a new branch of medicine based on analysis of the underlying DNA.  Researchers are finding that effective cancer treatment, for example, may be more based on the underlying DNA than based on where in the body the cancer is found.

Historically, doctors have categorised cancer by organ – lung, pancreas, colon – but new research suggests that categorisation by DNA may be more relevant for effective treatment. Rather than prescribe similar treatment for all colon cancers, doctors might prescribe treatment based on the unique DNA – which may actually be in common for different organs.

Likewise, we need ‘precision’ RM. We are accustomed to monitoring bookings by date and by market. This allows us to identify new demand patterns associated with holidays or with markets subject to new competition. On a more micro basis, we construct alerts to show when specific flights hit a certain load factor threshold or exhaust a certain inventory allocation.

These are certainly important. But there may be other factors that likewise merit attention – or that better mirror the underlying cause, like ‘precision’ medicine. Cutting the data in new ways may help identify other, potentially real underlying, patterns that can improve forecasts and inventory allocations.

Let’s take a look now at some of the ways you can manage revenue more precisely.

1. Point-of-sale precision

Obviously, one large underlying demand element is point-of-sale. A competitor’s improved schedule or sales focus can cut across all origins & destinations (O&D) in a single point-of-sale. A successful initiative by a competitor could potentially have a 5% impact across a point of sale, which may not be a big enough red flag in any one O&D. Consider this:

New York point-of-sale is a major arena for competition among American, United, and Delta, as well as jetBlue.

Delta and Seattle are battling in Seattle – where Delta is building a new hub – but both will need Seattle point-of-sale to succeed. Rather than simply view certain Seattle flights, the demand for which can be any point of sale, focus on performance by point of sale is important on its own.

2. Customer Level Precision

Our largest corporate customers are critical to our success. Rather than lose a corporation’s total travel budget – which may have obvious results in certain markets — even a lessening of support can be an issue. Focusing on the top customers helps align RM and sales efforts.

3. Fare type precision

How is Delta’s new ‘basic economy’ fare doing? Is demand remaining strong? What ancillary revenue is associated with this fare? Strong – or weak – demand for a specific fare can cut across all markets and flights. Overall booking weakness could be due to certain fares not selling well.

4. Analyst level precision

Analysts are charged with intervening with the forecast “when appropriate.” Thus, it makes sense to measure forecast accuracy – and the value of individual analyst intervention. An even more micro view might be how each analyst managed to improve results by adjusting demand during a recent national event or holiday period.

5. Market segment precision

Bookings may be weak for a specific demographic or psychographic market segment. How is performance for ‘road warriors’ doing year over year? How is performance for families with small children? RM can collaborate with marketing on segment-based analysis.

6. Customer-level precision

The industry has spoken much of personalised e-merchandising based on insights gained from customer-specific search history, social media interaction, and actual travel selections.  Ultimately, like DNA for cancer, airlines will need to monitor customer-level RM performance:  which personalised offers had the most success? How would a change in the offer increase conversion rates?

Big data allows us to cut the data in new ways. We need to apply this new capability and apply ‘precision’ RM to analysis of performance and trends. We all understand RM performance is complex and is the culmination of many factors. We need to let our systems go deeper than flight, and market- metrics and tap into more micro factors that may, in fact, have more causative relationship to our results.

Tom Bacon has been in the airline business for 25 years. He is now an industry consultant in revenue optimisation. Read more from Tom Bacon

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