What’s the point of buying and maintaining a sophisticated system and overriding it for the wrong reasons? There isn’t one…..
‘Cut fares, our load factors are unacceptable’. Sound familiar?
It might if you work closely with an airline chief executive. These guys often have out-sized personalities and when they don’t see the results they expect, they demand action. Of course this is completely understandable and, in certain circumstances, acceptable.
CEO-directed RM system intervention can quickly become ‘revenue mismanagement’. This happens when increasingly sophisticated and highly accurate forecast and optimisation RM systems that are designed to maximise profitability across a complex network of flights, are capriciously overridden. In this case, ‘action’ could actually translate into self-defeating sub-optimisation – offering too many low fare seats, driving a fare war or unnecessary dilution.
Here are two things to consider
- Airlines may experience oscillating performance in response to senior executive direction. RM opens up inventory to chase load factor and then, dissatisfied with yield, swings back to close off low fare inventory – only to be dissatisfied with load factor again.
- At different times, CEO’s may focus on one dimension of performance – yield or load factor or market share or full fare mix or ancillary. However, RM should be designed around total revenue.
Inventory control intervention
Similarly, RM Inventory Control analysts may override the system regularly based on their individual ‘judgement’. They may have tremendous experience with their markets that directs them to ‘open’ this flight or ‘close’ that flight because the system isn’t conforming to their extensive experience with that market. But again, this becomes counter-productive if the system, in fact, recognises market changes that the analyst has missed or if the system has identified a revenue opportunity that has not been fully exploited historically. In general, many airline markets today often do not conform to long-established ‘experience’.
Two things to consider:
- Markets see frequent changes both in demand and competitive supply; demand responds to new innovative marketing and pricing initiatives to new entrants, new airline products and new aircraft types.
- RM systems are designed to analyse statistical trends, making literally millions of calculations nightly. Recommended allocations are based on complex optimisation routines across thousands of daily flights and dozens of fare classes. In rapidly changing markets, ‘market experience’ is often less valuable than broader system understanding.
Liability versus asset?
The RM system, when overridden based on a misunderstanding or a missed market opportunity, becomes more of a liability than an asset – hence mismanaged RM.