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World Low Cost Conference Integrated Commmercial Planning and Control (ICPC) Insert Title of your presentation

Dr Emre Serpen, Executive Vice President


Agenda 1. Introduction and Expectations

9:00 - 9:30

2. Route Planning

9:30 - 10:30

3. Coffe Break

10:30 - 10:50

4. Revenue Management (Integrated Approach)

10:50 - 12:15

5. Measuring Performance (Presentation)

12:15 - 13:00

6. Lunch

13:00 - 14:00

7. Measuring Performance (Facilitation)

1400 - 14:30

8. Coffee Break

14:30 - 14:45

9. Optimising Costs

14:45 - 15:30

10. Expectations Review & Next Steps

15:30 - 16:00

1


Integrated Commercial Planning and Control Session 2 - Integrated Commercial Planning and Control (ICPC) Examine the advantages of integrated revenue planning. Development of budget driven by network and business plan. Need for increased granularity and dynamic management of revenue Integrated revenue planning and management team involving scheduling. Marketing, pricing, revenue management, sales, advertising. Organisation, performance measures and tools that supports ICPC team. The tools and macroâ€&#x;s that facilitates revenue planning. Benefits for airlines Integrate commercial activities through establishment of ICPC teams Develop a forward thinking revenue plan that will maximise revenue. Learn how to have proactive marketing that leverages web, agencies and the business community, ancillary revenues, FFP for off-flight emarketing Benefits for airports Methods used by airlines to improve revenues, joint marketing programs with airlines. Learn how to effectively work with the business community to support lead carriers. Benefits for solution providers Discuss the implications of tools that integrate revenue planning and management of airlines. Understand expectations of airlines and airports from the use of tools. How to improve tools that help airlines an d airports to maximise revenues? 2


Drivers for change and opportunities for revenue improvement Extention and Diversification of the LCC model (increasing competition) •

Geographically – Regionall - Long haul Niche)

Operationally (Web /Onboard shoppinng/Entertainmen)

Changing distribution environment •

GDS New Entrants (GNEs) reduce costs, LCC interline

Online travel agencies

Legacy responses Ancillary revenues Advanced forecasting Improve fare structures Forecast accuracy,

Strategies for price insensitive customers Link strategy to day to day decisions

Increasing complexity •

Network and interline , price competition, excess capacity

Evaluation of ancillary revenue potential

Legacy responses 3


Pricing driven by better understanding of customer preferences

Characteristic

Affordability Fun Travel Experience Reliability Early booking Lower fare class Leisure destinatin Weekend travel Larger group size Books outside work hours

VIE WAW - Length of Stay 30%

25%

% of total pax

Requirements

Availability Frequency Ontime Performance Efficiency Comfort Late booking Higher fare class Frequent flyer member Business destinations Weekday travel Small group size Corporate credit card Books during office hours

Leisure

20%

15%

10%

5%

0% DAY

1

2

3

4

5

6

WE

Days Stay

WAW ROM 80% 70% 60%

% of pax

Business

50% 40% 30% 20% 10% 0% 1

2

3

4

5

6

WE

Stay in Days

5


Understanding Customer Value Proposition Offer customers the ability to purchase the product that meets their needs

6


Legacy Responses


All carriers legacy and low cost are under pressure to increase revenues Booking Change fees: to differentiate between flexible business fares and inflexible leisure fares •

Fees for changing dates and/or routes; some airlines allow name change

Fees for cancellation of one or more sectors and no shows

Reservations fees: to encourage people to book on-line direct •

Charges for Call Centre or Ticket Office: equivalent to agents “service fees”

Charges for use of Credit Cards

Baggage related: as a revenue stream and to discourage excess hold baggage •

Weight related Excess Baggage fees (weight related)

Piece related: Fees for all hold baggage (Ryanair), or for more than one bag (British Airways)

Fees for sports equipment such as skis or bicycles

Fuel: to offset increasing fuel costs Other - extra legroom, priority boarding, seat preference: extra revenue


Macro‟s used in the design of airline fare matrix

CLASS BUSINES

ECONOMY

C ÜCRETİ

PROMOSYON GRUP ÜCRETİ ANLAŞMA ÜCRETİ

C J Y B K N E W R Q T M S U P O F I X L A V G H D Z

ÜCRET

FREKANS

250.00 €

100%

100%

7.00 €

257.00 €

200.00 €

80%

80-99%

7.00 €

207.00 €

105.00 €

100%

100%

7.00 €

112.00 €

100.00 €

95%

95-99%

7.00 €

107.00 €

95.00 €

90%

90-94%

7.00 €

95.00 €

90.00 €

86%

86-89%

7.00 €

97.00 €

85.00 €

81%

81-85%

7.00 €

92.00 €

75.00 €

71%

71-80%

7.00 €

82.00 €

65.00 €

62%

62-70%

7.00 €

72.00 €

60.00 €

57%

57-61%

7.00 €

67.00 €

55.00 €

52%

52-56%

7.00 €

62.00 €

50.00 €

48%

48-51%

7.00 €

57.00 €

45.00 €

43%

43-47%

7.00 €

52.00 €

40.00 €

38%

38-42%

7.00 €

47.00 €

35.00 €

33%

33-37%

7.00 €

42.00 €

30.00 €

29%

29-32%

7.00 €

37.00 €

25.00 €

24%

24-28%

7.00 €

32.00 €

20.00 €

19%

19-23%

7.00 €

27.00 €

15.00 €

14%

14-18%

7.00 €

22.00 €

10.00 €

10%

10-13%

7.00 €

17.00 €

5.00 €

5%

5-9%

7.00 €

12.00 €

2.00 €

2%

2-4%

7.00 €

9.00 €

7.00 €

52.00 €

45.00 €

YR+YQ

NET ÜCRET

%

%

100% 81% 100% 96% 85% 87% 82% 73% 64% 60% 55% 51% 46% 42% 38% 33% 29% 24% 20% 15% 11% 8%

100% 80-99% 100% 96-99% 85-95% 87-84% 82-86% 73-81% 64-72% 60-63% 55-59% 51-54% 46-50% 42-45% 38-41% 33-37% 29-32% 24-28% 20-23% 15-19% 11-14% 8-10%


Macro‟s to develop initial inventory allocation according to current and „to be‟ cost profiles, enabling commercial team to execute sale of profitable flights UÇAK KOLTUK SAYISI BEKLENEN DOLULUK BEKLENEN YOLCU SAYISI VARIABLE/CASH COSTS Fuel Maintenance Navigation Airport Landing Catering Ground Handling Flight Crew

NORMAL € 1,922 € 931 € 15 € 347.00 € 542.00 € 904.00 € 787

Cabin Crew

%Nor 35.28% 17.09% 0.28% 6.37% 9.95% 16.59% 14.45% 0.00%

% İND. 35% 13% 0% 6% 8% 5% 12% 0%

€ 5,448

TOPLAM BEKLENEN YOLCU SAYISI

124 Y B K N E W R Q T M S U P O F I X L A V

To be cost profile that is observed at competitors

177 70% 124 İNDİRİMLİ € 1,922 € 708 € 15 € 347 € 436 € 272 € 654 €0

No of seats that must be sold to achieve flight profitability based on current costs

€ 4,355 MALİYET GELİR PROFİT %Nor

112.00 € 107.00 € 95.00 € 97.00 € 92.00 € 82.00 € 72.00 € 67.00 € 62.00 € 57.00 € 52.00 € 47.00 € 42.00 € 37.00 € 32.00 € 27.00 € 22.00 € 17.00 € 12.00 € 9.00 €

67% 66% 64% 63% 61% 59% 56% 53% 46% 38% 28% 20% 14% 10% 7% 6% 4% 3% 2% 1%

€ 5,448 € 6,852 € 1,404 %İnd 68% 67% 67% 66% 66% 65% 62% 59% 55% 48% 37% 27% 19% 14% 10% 7% 5% 3% 2% 1%

€ 4,355 € 6,302 € 1,947

Var KTHY

Var Best

2 2 3 3 3 5 6 12 15 17 15 10 7 5 3 3 2 2 2 1

1 1 1 1 1 5 5 8 12 20 17 15 9 7 5 3 3 2 2 2

118

120

Nor.Yolcu

İnd.Yolcu

118

120

NOR.GEL. 224 € 214 € 285 € 291 € 276 € 410 €

432 804 930 969 780 470 294 185 96 81 44 34 24 9

€ € € € € € € € € € € € € €

6,852 €

İND.GEL. 112 107 95 97 92 410 360 536 744 1,140 884 705 378 259 160 81 66 34 24 18

€ € € € € € € € € € € € € € € € € € € €

6,302 €

No of seats that must be sold to achieve flight profitability based on to be costs


Evaluate options in defining seat allocation per bucket to maximise flight profitability, test the effect of cost reductions 25 20

20 17

15

17 15

15 12

15

Var Nor

12

10

10

5

6 5

5 2 1

0

Y

3 1

2 1

B

K

3 1

N

Var Best

9 7

8

7 5

5 3

3 1

E

W

R

Q

T

M

S

U

P

O

F

3

3 2

I

2

X

2

L

2 1

A

V

25 20 15 Var Nor 10

Var Best

5 0

Y

B

K

N

E

W

R

Q

T

M

S

U

P

O

F

I

X

L

A

V


Measurement of Pricing Results supports improved pricing decisions Recommended Measures to introduce for Pricing

Sample Report from Other Airline

Overall: Net Revenue and Yield PAX Capacity Load Factor Total Rev (EUR) Revenue / PAX (EUR) RASK (EUR cent) C/Mix

Net Revenue

Average Net Revenue per Passenger

Average Net Revenue per RPK

Absolute, compared to Target, or compared to last year Name Steve Fletcher Month Apr-07 Area of Responsibility Sales Areas USA & Canada, KSA Routes NYC JED

Revenue

Last Year Target Actual

Last 4 weeks 2006 vs. 2005 2006 2005 2,786 2,785 4,790 4,820 58% 58% 551,936 521,228 198.11 187.16 15.24 14.30 21.0% 25.5%

Booking Class Distribution last 4 weeks 2006 vs. 2005

100% 90% NYC RUH

IAD JED

IAD RUH

YTD

Jan

Feb

80% Mar

Apr

70% 60%

c- Low eco b- High eco a- High yield

50% 40%

% Act v. Last Year % Act v. Target Passengers

Last Year Target Actual

30% 20% 10% 0%

% Act v. Last Year % Act v. Target

Pax total last 4w 2006 T

ASKs

Last Year Target Actual % Act v. Last Year % Act v. Target

Rev/Pax

Last Year Target Actual % Act v. Last Year % Act v. Target

Rev/ASK

Last Year Target Actual % Act v. Last Year % Act v. Target

Delta (%) 0% -1% 1% 6% 6% 7% -18%

Pax total last 2005


Identify improvement opportunities in Pricing and Revenue Management processes, methods, organisation and measures

Diagnosis

Solution Development

Testing & Evaluation

Market and Revenue Share versus Expected Market Segmentation : use of Fare Rules and Booking classes

Implementation Support

Improved Revenue Results

Development of detailed processes and working methods Liaise with systems suppliers

Effective use of systems, tools and data

Hands on and class-room training

Organisation structure and interaction with Sales, Airports

Coaching

Processes and working methods

Review and Assessment of results KPIs & Performance Management

“Use of time� analysis

There is some overlap between Pricing and Revenue Management Strategy and Tactics module where the focus will be on outcomes


Example Pricing and Revenue Management Diagnostic Illustration – Analysis of Fare Structures and Use of RBD‟s

Interviews and Data collection on current fare structure and use of booking classes Market segmentation – reason for travel, point of sale. Existing Clientreports showing breakdown of current revenue mix and trends over time. Competitor analysis – schedules, product and pricing strategy. Competitor Fares – current fares; published, net, point to point and connecting; selected monitoring of competitor pricing using Client staff to gather data over a two week period

Analysis of fare usage is important to understand where there are potential opportunities: • Mismatch between actual yield and published fares: abuse or pro-ration issues? • Fares in wrong class, Overlap of RBD‟s, Over or under use of RBD‟s • Exchange rate impacts? Inconsistent fare conditions? • Poor inventory controll, Revenue Leakage ?


Revenue Management Best Practices

Revenue focus •

Build load factor don‟t chase load factor

Customer focus •

Recognize and understand market and market segmentation

Strategic focus •

Market share - Customer image/brand perception - Market protection

Appropriate systems •

RM system matches the business model- Fare - Network structure

Appropriate fare structure •

Number of fare classes and Variation

Appropriate inventory control •

RM consistent with Res, IC matches business

Managed rules based methodologies ( •

Market research, commercial objectives

Dynamic programming •

LCC optimization

Advanced forecasting •

Price sensitivity

Effectiveness of fare structures Forecast accuracy, Appropriate systems and optimisation The LCC Challenge = price insensitivity Ability to link strategy to decisions •

At the flight levet – route-corporate levels 15


Revenue management CSF‟s Organized work flow •

Critical flight monitoring •

Appropriate critical flight rules

Competitive fare monitoring •

Decision making policy and framework

Appropriate forecast influencing

Appropriate performance and advance booking reporting

Seasonal preparation

Event preparation

Advance booking reporting

Advance forecast reporting

Spillage and spoilage trending

Market share versus capacity share

Revenue per ASK trending

16


Evaluation performance measures used in Pricing and Revenue Management and provide recommendations


An example of how a leading Latin American Carrier improved its revenues through a commercial change management program 1. 2. 3.

Worked with promotions Opened economic classes Unsold group blocks released AM YOY Change in RASK

30%

MEXVSA

MEXVER

MEXTIJ

MEXPVR

MEXMTY

MEXMID

MEXMIA

LAXMEX

HMOMEX

GDLTIJ

GDLMEX

BJXLAX

0%

ACAMEX

10%

GDLLAX

20%

CUNMEX

% Change, 2002 to 2003

1. Kept fare differential with competitors 2.Fine tuned pax mix

Q1 Q2 Q3

-10%

Excellent results

-20%

Improvement of revenue during project

-30% Market

Syste m Tota l Flights Tota l Passe ngers Tota l Capacity Loa d Fa ctor Tota l Reve nue RASK Ave rage Fa re

Managed ManagedFlights’ Flights’LF LF should be approx. 90% should be approx. 90% Low Yield Spill High Yield Spill Overb ook ing Levels Low Overb ook ing Levels High

Posted PostedFlights’ Flights’ LF LF should shouldbe be approx. approx.95% 95%

Ma na ge d Flights Ma na ge d Flight - % of TTL Ma na ge d Flights' LF Poste d Flights Poste d Flights - % of TTL Poste d Flights' LF De nied Boa rdings DBs per 1000 pa x Ma na ge d/Posted Flights

2226 171434 272927 62.8%

2174 163862 264816 61.9%

2140 170296 261146 65.2%

2129 165571 260323 63.6%

2155 157237 263648 59.6%

2144 155198 262129 59.2%

2109 158447 257723 61.5%

Significant knowledge development Adopt PRM policies and procedures Adopt performance measures Excellent teamwork with sales

441 19.8% 82.5% 91 4.1% 91.5% 283 1.65 4.8

395 18.2% 82.3% 73 3.4% 94.3% 165 1.01 5.4

406 19.0% 82.4% 68 3.2% 92.1% 242 1.42 6.0

352 16.5% 82.8% 62 2.9% 95.9% 155 0.94 5.7

320 14.8% 79.0% 39 1.8% 91.0% 108 0.69 8.2

369 17.2% 78.7% 50 2.3% 91.7% 130 0.84 7.4

418 19.8% 78.7% 57 2.7% 89.2% 195 1.23 7.3

Effective use of RM tool


Objective is to enable better integration and interaction of commercial departments for optimal contributions and increased revenues


The objective of ICPC is to maximise revenues through improved practices, methods and also behaviours of the commercial team There should be regular interaction between Network Planning and Revenue Management (Pricing and RM) •

Pricing analysts should be provided with the outputs of the network optimisation solutions including route level expected passenger forecast, load factor and yield forecasts

Network management department should be provided feedback with route and O/D level yield performance

Network Planning, Pricing and Revenue Management analysts should interact regularly during • •

The Revenue Planning Process, and The Revenue Delivery (Steering) Process

The Process Design should identify key Interface Points and a timetable to facilitate effective integration of network and revenue management •

In many Network Airlines, this includes regular, datadriven meetings of the “Control Tower” during Planning and Steering phases.


Implement a new “Revenue Planning & Delivery” process Revenue Revenue Budget Budget Annual Shared Sharedtargets targets --Pricing, Pricing,YM YMand and Sales Sales

Revenue Revenue Delivery DeliveryPlan Plan Seasonal Revenue RevenuePlan Plan Workshops Workshops Output Output==Numbers Numbers ++Actions Actions

Monitoring Monitoring

Action Action

Daily, Weekly, Monthly RM RM&&Sales Sales review review variation variationvs vsplan plan -agree actions -agree actions

Joint Jointactions actions agreed agreed&& coordinated coordinated

Forecast Forecast Monthly Airline AirlineExec ExecTeam Team Understands Understands where where Revenue Revenueis isgoing going

Department Short term schedule and a/c adjustments

Network & Scheduling Product

Support Pricing Promotions

Marketing & Advertising Yield Management

Targets for R/ASK by Route, Overbooking

Tariffs & Pricing

Targets for Revenue and Yield by Market. Pricing Strategy. Pricing Policy & Guidelines.

Route and Market Joint Planning Sessions to decide actions required to meet targets.

Set and review seat availability versus new bookings, schedule

Request capacity changes. Adjust seat availability and overbooking

Input to forecast

Monitor market and competitors fares. Identify Price Opportunities

Approve & file new fares.

Input to forecast

Input to IATA

Sales & Distribution

Targets for Revenue by Market. Agents targets

Monitor market and competitor actions – price, product, promotion. Agent performance.

Communicate new fares & product. Manage agents.

Input to forecast

Finance

Budget Creation

Revenue Accounting

Revenue Accounting

Create Forecast


Improve communication channels and working procedures between Pricing and Sales will form part of the solution Collection of structured feedback from sales with enhanced competitive information (published, net, group fares) Key events with revenue maximisation opportunities in key markets Consultative meetings and workshops with the design of fares


Facilitated Session Opportunities for Improving the Revenue ICPC opportunities

Breakout Groups or Plenum Discussion

23


Integrated Revenue Planning and Control (ICPC) AIRLINES 1. What are the challenges associated with Revenue Growth 2. Legacy response to fare families 3. Revenue Planning process – weekly plan managed rolling forward basis & participation 4. Revenue Management Improvements – best practices 5. Alignment with distribution channels – low cost on GDS ? 6. Performance measurements and friendly competition 7. Leveraging tools, PRM methods, 8. Looking at the routes to maximise the secondary revenue sources,: ancillary revenues, co-branding --cargo etc

24


Integrated Revenue Planning and Control (ICPC) AIRLINES 1. What are the challenges associated with Revenue Growth 2. Legacy response to fare families 3. Revenue Planning process – weekly plan managed rolling forward basis & participation 4. Revenue Management Improvements – best practices 5. Alignment with distribution channels – low cost on GDS ? 5. Performance measurements and friendly competition 6. Leveraging tools, PRM methods,

25


Integrated Revenue Planning and Control (ICPC) AIRPORTS 1. What can airlines learn on Pricing and revenue Management from Airports – methods tools 2. Demand based pricing for airports – idea too far ? 3. Levels of service ?

IT companies

1. What are the low cost airline requirements for IT providers from Pricing and revenue management solutions.

26


Integrated Commercial Planning and Control