A MAGAZINE FOR AIRLINE EXECUTIVES
Ta k i n g
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2005 Issue No. 1
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IN THE BLACK
A conversation with …
Joe Leonard, CEO and Chairman, AirTran Airways page 59
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Lufthansa benefits from close-in re-fleeting
Cathay’s cargo business drives revenue
Frontier Airlines enlists strategic partners
Under Control Airlines lose revenue every year through non-ticketed segments. Eliminating these can not only help save money but also open up opportunities for additional income.
By Stan Boyer | Ascend Contributor ome airline executives might be surprised to learn that distribution control plays an important part in revenue maximization for an airline. One of the responsibilities of this area is to ensure that ticketing rules are adhered to with every booking. Theoretically, an airline would like to have only ticketed segments in its reservations system for a particular flight on the day of departure. All non-ticketed segments for the flight represent an unnecessary added cost and potentially lost revenue. The ratio of ticketed segments to total segments, the ticketed segment penetration rate, can indicate how successful an airline is at capturing revenue opportunities. In the best of all possible worlds, airlines would use electronic ticketing almost exclusively, avoid the use of passive segments and enforce ticketing time limits. Airlines that achieve this goal experience a 97 percent to 99 percent ticketed segment penetration rate, which means they have recovered as much revenue as possible from existing booking levels. Most airlines are not so fortunate. Geography, competition and an airlineâ€™s own ticketing policies play a significant role in the determination of a carrierâ€™s ticketed segment penetration rate. Analyses conducted by Sabre Airline Solutions Consulting indicate that most airlinesâ€™ ticketed segment penetration rates range from 50 percent to 85 percent. There are outliers, of course, that fall well below 50 percent. To illustrate how an airline can capitalize on potential revenue recovery opportunities by boosting its ticketed segment penetration rate, consider a carrier that ranges from a low of 55.5 percent in January to 109 percent in December. It is possible to have rates higher than 100 percent because some bookings that
Utilizing Non-ticked Segments Total non-ticketed segments
Percent of non-ticketed segments cancelled and resold
Average segment revenue after taxes and commissions
5% 10% 15%
9,420 18,840 28,261
20% 25% 30%
37,681 47,101 56,521
US$5,652,120 US$7,065,150 US$8,478,180
35% 40% 45%
65,941 75,362 84,782
US$9,891,210 US $11,304,240 US $12,717,270
US$1,413,030 US$2,826,060 US$4,239,090
Ticketed Penetration Rate Penetration rate
Non-ticketed segments reduction
80% 82% 84% 86% 88% 90% 92% 94% 96%
753,616 753,616 753,616 753,616 753,616 753,616 753,616 753,616 753,616
897,162 876,298 856,382
143,546 122,682 102,766
21,882 20,864 19,916
US $88,458 US $84,246 US $80,327 US $76,676
837,351 819,148 801,719
83,735 65,532 48,103
19,031 18,203 17,429
US $73,268 US $70,083 US $67,100
Potential savings US$604,463 TOP: By eliminating non-ticketed segments and reselling even just a portion of them, airlines can recover significant amounts of revenue each year. Although it is unlikely that an airline can recover all of the potential revenue, even recovering only 10 percent can lead to substantial gains. BOTTOM: By increasing its ticketed penetration rate, an airline stands to eliminate unnecessary distribution fees. At a cost of US$3.85 per segment in a GDS, non-ticketed segments generate additional costs. An airline with 753,616 ticketed segments can recoup more than US$600,000 a year by improving its ticketed segment penetration rate from 80 percent to an industry-best standard of 96 percent.
Calculating Ticketed Segment Penetration Jan
Tktd. sgmt. penetration
Using BIDT data combined with TCN data, an airline can calculate its ticketed segment penetration rate. By taking the number of ticketed segments (from TCN data) and dividing it by the number of net bookings (from BIDT data), an airline can determine its penetration rate. Many factors such as geography, competition and an airline’s ticketing policies affect the penetration rate and can cause it to vary month to month.
are made during one month may be ticketed in another. The average for this carrier is 80 percent. If the segments were booked via a global distribution system, for every 2 percent increase in ticketed segment penetration (a reduction of non-ticketed segments), a carrier with about 750,000 ticketed segments could save between US$64,000 and US$88,000 based on eliminated non-ticketed segments at a cost of US$3.85 per segment in a GDS. If the airline could achieve an average penetration rate of near industry best at 96 percent, it could save US$604,463 in annual distribution costs. The cost savings are only part of the story. The airline also has the opportunity to recapture revenue that was lost as a result of seats being returned to inventory in a timely manner. For this example, assume the nonticketed segments that were reduced have been returned to inventory and are available for sale. A sensitivity analysis indicates that if only 10 percent of the segments are resold at a revenue rate of US$150 per segment, then the recovered revenue is US$2,826,060. While it is perhaps unreasonable to assume that the carrier could recover 100 percent of the non-ticketed segments, if the segments are released into inventory early enough in the
booking cycle, a 20 percent goal is realistic and sometimes higher is achievable.
The cost savings are only part of the story. The airline also has the opportunity to recapture revenue that was lost as a result of seats being returned to inventory in a timely manner.
An airline must develop a methodology to measure and track its ticketed segment penetration rate. For GDS bookings, the easiest way to establish a rate is to use a combination of BIDT (GDS invoice detail) and ticket control number data. The total number of coupons issued for the month from the TCN data is divided by the total number of net BIDT
bookings. This division produces a percentage for ticketed segment penetration. Sabre Airline Solutions offers revenue integrity tools (see related article on page 67) that can help airlines develop a robust monitoring program. These tools monitor daily bookings created by travel agents and airline staff to check for ticketing time limits and then process them according to a particular airline’s criteria. Without automated tools, it is very difficult to monitor each PNR that enters an airline’s reservations system as this would require significant human resources. Since BIDT is distributed once per month by the GDS, a distribution control analyst should perform the calculations monthly to measure progress. By eliminating non-ticketed segments, airlines can ensure that they begin to control costs and recover additional revenue that would otherwise be lost. a
Stan Boyer is a partner with Sabre Airline Solutions Consulting. He can be contacted at firstname.lastname@example.org.
+count it up 24 — Number of the world’s top 25 airlines to utilize at least one system within the Sabre
AirFlite ™ Planning and Scheduling Suite.
Published on Dec 8, 2010
45 76 2 0 0 5 I s s u e N o . 1AMAGAZINEFORAIRLINEEXECUTIVES INSIDE page 59 Cathay’s cargo business drives revenue Lufthansa benefits from c...