perspective - Sabre Airline Solutions

perspective ... with Hugh Jones
productivity is improved and
customers are fulfilled.
At Sabre Airline Solutions ®,
OR is our lifeline. Our history dates back to 1961, when
American Airlines launched
the first automated real-time
reservations
system
and
introduced Sabre ®. That was a
game-changing time for commercial aviation, and since
then, technology, as a result
of OR, continues to evolve.
History was made again
in the mid-1980s with the
introduction of the first revenue-management system,
another American AirlinesSabre milestone. Regardless
of the business area — pricing, revenue management,
planning and scheduling, flight
operations, fuel optimization,
crew planning, operations
recovery, customer experience management, etc. — OR
is at the forefront, discovering
President, Sabre Airline Solutions
ways for airlines to operate
more efficiently while generating revenue and giving
customers the best possible experience.
Because operations research is a
he commercial airline industry driving force behind some of the most
has been hard at it for a century. successful airlines, we’ve dedicated
The 100-year anniversary was a signifi- our special section to it. There are far
cant milestone that we’ll only encounter too many initiatives underway, as well
once in our lifetimes. Commercial avia- as newly released developments, to
tion started on Jan. 1, 1914, with the cover them all in a single issue of the
first passenger plane — a two-seater magazine, so we’ve narrowed it down
aircraft with an open cockpit. As we to a few areas we thought may appeal
look back over the past 10 decades, to you.
the progress that has been made and
For
example,
we
have
new
the ongoing evolution of air travel is payload-management and turnaroundmind-boggling.
management decision-support modules
There are countless factors that have that can help you achieve optimum
contributed to the success of the airline aircraft turn times and more efficiently
industry. One factor that nears the top transport passengers and crew.
of the list is operations research (OR).
We also talk about ways airlines can
We rely on OR to take complex busi- adopt new customer-centric practices
ness problems, break them down into by more efficiently managing data; how
basic components and solve them in newer data-analysis techniques help airdefined steps by mathematical analysis. lines recover from irregular operations;
This process is essential for airlines, and how the historical picture of airline
giving them the ability to make better, passenger travel can be more precisely
quicker decisions across their organi- constructed.
zation. As a result, time and money
In addition, we are currently
is saved, revenues are increased, developing a Web-based, integrated
T
decision-support prototype for a new
proactive-pricing workflow that can help
airlines determine optimal price levels in
specific markets based on their desired
price ranges for each core fare product.
These developments, all a result of
operations research, have brought us
from a two-seat, open-cockpit aircraft to
a thriving aviation industry that carries
more than 3 billion passengers a year.
The world relies on air transportation,
and while we, as individuals, won’t
be here to see the industry through
another 100 years, the OR work we do
today paves the way for generations to
come.
I hope you enjoy this issue of Ascend,
and I look forward to working with you
as, together, we introduce new developments that foster a promising aviation
future. a
ASCEND I TABLE OF CONTENTS
PROFILE
INDUSTRY
4
The Big Change
Aerolíneas Argentinas’ Revenue
Management Transformation
24
The Sky’s The Limit
Celebrating 100 Years Of
Commercial Aviation And The
Future Of Air Travel
24
8
The Trendsetter
Europe Airpost Sets Trends —
And Achieves Big Results — In
Versatility
29
Fostering Collaboration
Enabling Strong Operational
Performance
14
33
Game On!
A Conversation with John Borghetti, Chief Executive Officer,
Virgin Australia
Revenue Racecar
Revenue Management Plus
Revenue Integrity Equals
Revenue Optimization
Revenue
20 Total
Optimization
Applying Revenue Management
And Insights To Maximize All
Airline Revenue Streams
37
The Journey To EMDs
Facilitating Ancillary Growth
Through Successful EMD
Implementation
4
40
Airline Matrimony
Merging Workforces With
Separate Union Contracts
Special
Prorate Agreements
Are Your Partners Getting The
Better Of You?
44
47
Airline Outsourcing
When, Why And How To
Outsource
52
NPS As A Strategic KPI
Impacts On Customer Centricity
And An Airline’s Bottom Line
55
The Airline Revenue Shift
Strategic Shift From Revenue
Maximization To Revenue
Optimization
60
A Living Vade Mecum
Policies, Processes And
Procedures Are A Company’s
Lifeline
40
ascend
ASCEND I TABLE OF CONTENTS
94
SPECIAL SECTION
64 Operations Research
Laying The Foundation For The
Future Of Airline Technology
SOLUTIONS
Enhancing
94 Situational Awareness
Airlines Can Better Track Their
Aircraft While Complying With
Regulatory Mandates
Cracking The
Crew-Recovery Conundrum
A New Approach To Solving The
Crew-Recovery Problem That
Minimizes Disruption Impacts
70
76
Real-Time HCC Models
Real-time Decision-support Models
For Hub Control Centers 80 Customer Segmentation
Revisiting Customer Centricity
For Better Data Analysis
Getting Your Prices Right
Determining Optimal Price Levels
For Core Fare Products
84
90
8
Market-Size Forecasting
Capturing Patterns And Trends In
Passenger Demand
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THE BIG
CHANGE
Aerolíneas Argentinas’ Revenue
Management Transformation
Aerolíneas Argentinas’ new real-time revenue integrity technology,
implemented as part of its revenue management transformation,
duplicates seats returned to inventory, decreasing inventory speculation and making available more seats to customers. It also supports
more precise revenue management forecasting and reduces noshow and overbooking levels.
By Rafael Martinez, Vice President of Distribution and Revenue
Management for Aerolíneas Argentinas
ASCEND I PROFILE
T
Photo: Shutterstock
The Big Change
he technology transformation we
have undergone in our revenue management department at Aerolíneas
Argentinas permits us to offer competitive pricing and inventory for our
passengers in all of our distribution channels,
generating more revenue for the airline.
This is exactly what I shared with the revenue
management community in May during the
“Successful Business Case of Revenue Integrity
at Aerolíneas Argentinas” presentation at the
AGIFORS conference in Buenos Aires.
It has been five years since the government
of Argentina acquired the airline from its previous
owners and started a strategic transformation
plan to revive it. The transformation plan involved
several key initiatives, including:
A complete fleet renewal,
An extensive technology upgrade,
Network growth focused on our Aeroparque
and Ezeiza hubs in Buenos Aires,
Enhanced products for improved customer
experience,
A significant on-time performance improvement.
Since then, we have expanded our fleet,
adding 70 new planes to the network. We have
increased sales by 100 percent to US$2 billion.
And we have grown our passenger base by
57 percent to 8.4 million, as well as increased
revenue per available seat kilometer (RASK) by
30 percent.
During the transformation, there were considerable investments made to aircraft hangars,
airport facilities, VIP lounges and training simulators. The airline also joined the SkyTeam alliance
in 2012, becoming the first member in South
America and adding 40 new destinations to the
alliance’s network.
Today, Aerolíneas Argentinas serves 36
domestic and 20 international destinations that
include Brazil, Europe, the United States and
the main cities in South America with a fleet of
14 Airbus A330/340, 36 Boeing 737NG and 22
Embraer E190.
A significant piece to this transformation
involved upgrading and/or replacing much of
our technology. As part of our technology overhaul, Aerolíneas Argentinas chose Sabre Airlines
Solutions® as one of our main technology partners to upgrade most of our core systems.
The revenue management technology transformation began in 2011 with the upgrade of
our 10-year-old revenue management system to
the latest version of Sabre AirVision™ Revenue
Manager, followed by the implementation of
SabreSonic® Inventory, Sabre AirVision™ Fares
Manager, Sabre AirVision™ Group Manager and
Sabre AirVision™ Revenue Integrity. In addition,
an end-to-end fare-class realignment was implemented, giving us a unique fare-class structure
in all markets we serve. It was designed to align
with SkyTeam’s requirements.
During the diagnostic phase of the revenue management transformation project,
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A SkyTeam Member In 2012, Aerolíneas Argentinas became the first SkyTeam alliance member in
South America. Its membership added 40 new destinations to SkyTeam’s network.
The proposed new policies were simple
and consistent across all markets we served.
However, they were very strict on ticket time
limits (TTLs), leaving no room for blocked seats.
In the beginning, the proposed TTL policy was
met by significant resistance from stakeholders. However, after its implementation, early
results quickly demonstrated the importance
Photo: SkyTeam
considerable revenue leakages were discovered
in the inventory generated by false or suspicious
bookings. There were also a substantial number
of blocked seats on the inventory for long periods of time due to a flexible ticket time policy.
Lack of reporting and analytical capabilities made
it difficult to find the problems, so improvements
were required in this area as well.
It was clear that we needed advanced technology with real-time capabilities that could push
the passenger name record (PNR) information to
the inventory solution at the end of all transactions to guarantee a cleaner inventory.
Implementing Revenue Integrity in 2012
enabled us to more quickly and thoroughly
identify suspicious and fake PNRs. In addition, the system offered the scalability
required to move to an origin-and-destination
(O&D) revenue management environment
that fit into our long-term strategy.
Along with modernizing our technology, we also re-evaluated our processes
and policies. For example, our long-term
revenue integrity policy was complex and
extremely flexible, to the point that customers were permitted to blocked seats in
advance with no commitment. That clearly
prohibited us from reaching our revenue
potential. Therefore, we decided to shift our
internal processes and policies, moving from
a complex and flexible approach to a strict
and simple one.
Photo: Aerolíneas Argentinas
ASCEND I PROFILE
Considerable Investments As part of its revenue management transformation, Aerolíneas Argentinas made substantial investments to several areas
including aircraft hangars, airport facilities, VIP lounges and training simulators.
6 ascend
Photo: Aerolíneas Argentinas
ASCEND I PROFILE
Airline Recognition Sabre Airline Solutions recognized key members from Aerolíneas Argentinas for
their dedication, partnership and teamwork that helped ensure the success of several project implementations under the revenue management transformation process. From left: Crisitan Denevi, Horacio
Rodriguez, Rafael Martinez and Mauricio Sana.
of maintaining a cleaner inventory, and the stakeholders realized that the availability of more seats
at lower rates was good for everyone.
In addition, cleaner inventory and shorter TTL
enabled us to achieve better forecast accuracy
based on a true reservations curve, as well as
avoid the need to have higher overbooking levels.
The results have been astonishing. After one
year of using the new real-time revenue integrity
technology, seats returned to inventory increased
110 percent, and the no-show rate decreased 33
percent.
Economical results of the first year reflected
an estimated savings of US$30 million on seats
33 Percent No-show Reduction
-33%
3,9
-22%
3,1
2,6
-15%
2011
2012
returned to inventory (half of the savings were
realized since the real-time technology implementation), as well as US$10 million estimated savings
per year on no-show reduction.
We’ve also experienced additional cost savings
that we have not yet quantified, such as a reduction
of global distribution system booking fees from
unproductive bookings, denied boarding compensations and meal wastage generated by no shows.
Another important result was that we duplicated the seats returned to inventory without an
increase in the number of hits to the inventory system. In fact, the message counts have decreased
compared with our previous revenue integrity
technology.
But it is not just the technology that has brought
us this level of success. Another significant
contributor to our real-time revenue integrity implementation was the teamwork displayed between
Sabre Airline Solutions’ experts and Aerolíneas
Argentinas’ revenue management team, as well as
the project methodology we used.
In the beginning, it was a challenge to align
our teams and manage cultural differences, so
we worked on the engagement process and
established common goals and a unique project
methodology to generate trust and partnership. As
a result, we worked hand-in-hand as a united team.
That level of support and partnership drives us to
do even more to improve our airline.
As such, our next initiative will be the implementation of the O&D version of Sabre AirVision™
Revenue Manager, which will help us improve
our inventory optimization at an O&D level on a
network that is connecting an increasing number
of passengers every year through our Aeroparque
and Ezeiza hubs in Buenos Aires.
We knew this type of transformation was
not going to be an easy task. Therefore, in the
early stages, we commissioned external consultants, including Sabre Airline Solutions, Oliver and
Wyman, and Universidad de Buenos Aires, who
spent more than 2,500 hours to help build a sound
strategy, incorporate industry best practices, expedite the transformation process and minimize the
risks related to the significant changes that resulted
from the transformation.
In the end, incorporating new aircraft into the
fleet, investing in the right technology, effectively
training employees to ensure they use the technology to its full potential and aligning processes with
our business strategy turned out to be the best
path forward. This level of transformation was
required for us to secure a strong foothold in the
markets we serve as well as set us up for longterm growth and success. a
2013
No-Show Reduction Aerolíneas Argentinas realized a 33 percent reduction in no-shows after using
Revenue Integrity for one year.
Rafael Martinez can be contacted
at [email protected].
ascend 7
ASCEND I PROFILE
THE
TRENDSETTER
By Phil Johnson | Ascend Staff
Europe Airpost Sets Trends — And Achieves
Big Results — In Versatility
Starting out in the early days of commercial aviation as a
mail carrier based in France, Europe Airpost has become
a successful freight and passenger airline built on the
strength of its track record as a highly versatile carrier in
an intensely competitive environment.
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ASCEND I PROFILE
O
ne of the most innovative
among 21st-century airlines
is Europe Airpost, which has
grown in stature and reputation
throughout its rich history.
The organization that would
eventually evolve into the company now
known as Europe Airpost started out as a
no-frills, less-than-glamorous French-based
mail carrier (although the airline delivered mail
on three continents, an ambitious endeavor at
that early stage of aviation).
Today, Europe Airpost is quite notable
in the industry for its versatility, handling
passenger and charter service, as well as
mail and cargo, with alacrity and a forthright,
“can-do” approach.
“The good utilization rate we can achieve
with the mixed activity gives us better control
on the extra cost margin that we can use to
keep our customers,” said Philippe Lonnoy,
director of flight operations for Europe Airpost.
“They get better rates for all of our services,
and we stay in business.
“We are able to offer our customers [other
airlines and charter operators] an aircraft with
a crew to go ‘anywhere’ in the world on very
short notice. We can also provide an airplane
for a longer period of time for a series of
flights with our guarantee of quality service
— punctuality and reliability — that are well
above standards in the industry.”
Photos: Europe Airpost
A Storied Heritage
The beginnings of the airline that has become
Europe Airpost date back to some of the most
exciting (and relatively primitive) times of commercial air service, when a French carrier named
Compagnie Genérale Aéropostale in 1927 forged
its way into the initial stages of air-delivery of mail
among the continents of Africa, South America
and Europe.
Pilots who were employed by and flew daring
routes for that airline included renowned aviators
Antoine de Saint-Exupéry and Jean Mermoz.
They provided service to destinations in areas
then considered extremely remote in Africa
and South America that had never previously
benefited from air deliveries on a regular basis.
Soon after World War II, the airline became
part of Air France, flying as Société d’Exploitation
Aéropostale, or SEA.
Then in 2000, Europe Airpost — now independent of Air France — began carrying mail for
La Poste, the French national postal service. In
2008, the carrier was acquired by Air Contractors
of Ireland. Following the acquisition, the group
was rebranded as ASL Aviation Group. The
airline continues to operate under the Europe
Airpost name, which it has carried for more than
a decade.
A Solid Record Of Success
With a fleet of 18 airplanes — including
several Boeing 737-300QC (“quick change”)
ascend 9
ASCEND I PROFILE
aircraft — Europe Airpost is a highly versatile carrier specializing in passenger service,
cargo and mail delivery, and contracts its
aircraft to fly for other airlines, as well as
operating charter flights.
But these are not the only indicators of the
leadership and trailblazing approach of Europe
Airpost’s management team. The airline was
the first in France to install the electronic
flight bag (EFB) in its aircraft.
“The EFB is a very complex subject — not
because it is highly sophisticated as such, but
because the expectations many operators
looking at EFBs have are unrealistic,” Lonnoy
said. “The possibilities are not always wellknown, and many dream of an EFB because
it is ‘trendy.’
“If you want to save money in your flight
operations — and if you want to select an
option that will improve safety — you have no
choice but to opt for takeoff and landing performances made real-time with a computer,
whether in the cockpit or remote.
“Once you’ve made that decision and have
reaped the huge savings associated with it,
you now have a computer that you can use
for many other applications.”
Lonnoy believes improving the information
flow between the cockpit and the airline’s IT
system leads to better operations.
“You wonder whether all that paper in
your cockpits really belongs there,” said
Lonnoy. “Getting rid of it and replacing it with
electronic charts and documentation will help
you reduce the weight in the aircraft, guarantee that the painful process of updating all
publications onboard the aircraft will be done
in an automated, controlled and safe manner,
and save on manpower.”
Europe Airpost, in fact, takes pride in its
industry-trendsetting efforts in all aspects of
its business.
“Even though we may not necessarily
be operating the most sophisticated aircraft
fleet, we know that with a good use of smart
technology we can do more, better and often
cheaper,” Lonnoy said. “That is all to the
benefit of our customers.
“Moreover, in our very competitive
environment — and taking into account the
serious constraints that apply when you operate in France — any savings you can make on
your operation, as long as it also contributes
to an improvement in flight safety, must be
implemented.
“A good example of this is the transition
we made 10 years ago to laptop computers for
computing takeoff and landing performances.
Today, this has become very common, but
back then we had to convince the French
aviation authority that we were actually going
to improve efficiency and safety.
“We could actually operate from airports
that had been impossible to reach because
of performance considerations. Then, we also
10 ascend
Cutting Edge Of Technology To guarantee performance, safety, time gain and immediate response,
Europe Airpost developed and implemented an array of innovative tools aboard its aircraft. Among them
are the On board RTTO (Real Time Take Off) system, which maximizes take-off and landing performance; the On board E.D.S FLIGHT PLANNING system, which rationalizes fuel management, air control
information and weather information; and the On board CFR (Captain Flight Report) system, which
increases the reliability of communications in real time on board. In addition, it was the first airline in
France to install the electronic flight bag in its aircraft.
had to decide whether that investment was
worth it. We were the first one in France to
do it.”
The ability to operate so confidently
and profitably has a lot to do with Europe
Airpost’s mix and configuration of aircraft,
Cargo Services Europe Airpost transports myriad cargo, such as general cargo, hazardous materials,
perishables, live animals, mail and parcels, around the world for freight forwarders, airlines, and postal
and express freight operators.
ASCEND I PROFILE
with quick-change passenger/cargo aircraft,
as well as pure cargo airplanes, figuring
prominently in the fleet.
Dealing effectively and efficiently with
such a broad variety of different airplanes
requires both an innovative and insightful
approach.
“Until a couple of years ago, the backbone
of our activity was the carriage of mail at
night,” said Lonnoy. “The utilization rate of
the aircraft was very low. We also understood
that passengers were looking for flights from
the major cities of France outside Paris to
holiday destinations. And that is where our
aircraft were spending the day after the night
flights.
“This is how it started, but things
have changed. And the passenger operation became more and more important
for us, with passengers becoming more
demanding.
“We have a very good knowledge of
cargo operations. We have a good reputation, and we want to keep building on it. But
the passenger activity has also become an
important axis for our development. And we
are now recognized by our business partners among other airlines as a high-priority
and reliable provider.”
A sizable percentage of Europe Airpost’s
business involves charter flights as well as
contract agreements with other airlines that
use Europe Airpost’s aircraft and rely on the
carrier’s expertise in adapting its equipment
and service — sometimes very quickly — to
the needs at hand.
“About half of our aircraft are Boeing 737300QC, which stands for ‘quick change,’”
Lonnoy said. “This unique configuration was
developed by Pemco, an aircraft configuration and conversion specialist, a couple of
years ago. You take a 737, you open up a
large cargo door on the side, you install a
cargo-loading system on the floor, and you
now have a 737 freighter.
“Then you put seats on pallets, you slide
those pallets inside, and you now have a
passenger aircraft. This, of course, is a lot
more complicated, but that’s the idea.
“With a well-trained team, it takes less
than half an hour for a Boeing 737 full of
cargo to be unloaded, reconfigured and
ready to go for a passenger flight.”
Europe Airpost makes itself available
to work with its airline partners to help
improve their operations and availability.
“Airlines with specific short- or mediumterm needs know they can trust us if they
need some help for a given period of time,”
said Lonnoy. “We have had prestigious
customers in the past who needed to find a
provider able to do the work with the same
high standards as the ones they operated.
“We can fill in gaps. This ‘opportunistic
approach’ is not always the easiest thing for
Quick Change Aircraft Europe Airpost operates a fleet of Boeing 737-300QC (quick change) aircraft
that can be easily reconfigured to carry passengers or freight. Its team of highly trained professionals
can unload a full aircraft of cargo and reconfigure it for passenger service in less than 30 minutes.
us to live with. But it has allowed us to build
a reputation and to grow.”
A Focus On Flight Planning
Many of the recent management endeavors at Europe Airpost have revolved around
the carrier’s flight planning operations,
because its former provider stopped offering
that service.
That threw Europe Airpost’s leadership
into overdrive to find a new flight planning
provider.
“We had been surveying the market for
some time already, trying to determine if
the existent flight planning tool was the
most appropriate for our needs,” Lonnoy
said. “Parallel to that initiative, we had gone
through the process of implementing an
electronic flight bag upgrade or EFB2 using a
solution from a longtime provider of Europe
Airpost. They were also offering a solution to
replace our existing flight planning management tool.
“It made good sense to select their product, in view of its integration with the EFB2.
So the upshot is that before the need for a
new flight planning system appeared clearly,
we had a good picture of what the market
could offer. The solution from Sabre Airline
Solutions® was on our short list, but we still
had a lot of research to do at that stage.”
After performing quick but painstakingly
thorough due-diligence to find a new flight
planning system, Europe Airpost, in 2013,
selected Sabre AirCentre™ Flight Plan
Manager, which was implemented in May
2014.
“It is one of the most sophisticated flight
planning systems — if not the most sophisticated flight planning system — that will
enable us to be competitive in a very difficult
environment,” Lonnoy said.
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ASCEND I PROFILE
The decision to select Flight Plan Manager
from among the offerings of a large and competitive marketplace did not come without
an exhaustive search-and-evaluation process.
“For us, considering the resources we
could allocate to that project, our initial
search was extensive and took about a
year,” Lonnoy said. “Then the news broke
that our provider was going to terminate
the service.
“It put us in a very uncomfortable situation, since we knew that quite a few airlines
were going to face the same problem as us,
and that the implementation slots for a new
candidate were going to be hard to secure.”
So Europe Airpost’s management team
redoubled its efforts and established firm
criteria for comparing products.
“We went back to our initial study
and started building from there,” Lonnoy
explained. “At that moment, we had a short
list of four credible potential providers. We
contacted all of them and started running
cost-comparison analysis with all four.”
In its due-diligence efforts, Europe
Airpost had several set requirements: 1)
overall system performance — meaning
reliability and computational accuracy; 2)
12 ascend
cost; 3) customer support and hands-on
assistance throughout implementation of
the new system; and 4) a high level of
automation.
Europe Airpost’s management team finally
secured Flight Plan Manager based on numerous considerations.
“The solution really met all of our requirements,” Lonnoy said. “It is fair to say that the
initial cost scared us at first. But after lengthy
comparisons of routes computed with Flight
Plan Manager versus other systems, we
could validate a very ambitious ROI that was
presented to us.
“Those figures have since then been validated in ‘real life.’
“Also, the outstanding first contact we
had with people from Sabre Airline Solutions
who, from the start, showed they were committed to make such a project a successful
one for them and us really helped us gain
the confidence required to embark on such a
major project.”
Timing, as always, was critical. “Sabre
Airline Solutions could also guarantee the
system would be up and running before the
death of the system that we had in use,” said
Lonnoy. “The high level of automation offered
by Flight Plan Manager enables us to provide
our crews with the best flight plan available
on a given day.
“It’s important to know that beyond the
true and recognized competency of our
people, the tools we put to use contribute to
ensure the legality, as well as the optimization, of a given task. You cannot achieve a
high level of optimization if you rely on human
beings only, but you do not want any system
to push beyond the legal limits, either.
“Our new system helps us achieve dramatic savings while maintaining a very high
level of safety. And we expect it to be able to
work at a high level of automation to optimize
the process of planning a flight, thanks to the
use of modern technology and the interactions of many databases.
“At the end of the day, what we want is an
extremely reliable system that computes optimized flight plans while respecting all rules,
decreasing the workload on flight dispatchers
and helping us save money on each flight.”
An Environmentally Oriented
Organization
In its communications — on its website, as well as in press releases and
ASCEND I PROFILE
Highlight
“For us, considering
the resources we could
allocate to the project,
our initial search was
extensive and took
about a year.”
— Philippe Lonnoy, director of flight operations for
Europe Airpost
briefings throughout its areas of operation
— Europe Airpost meticulously publicizes
its well-demonstrated commitment to
environmentally sustainable operations.
“We are well aware that our sector of
activity has always been targeted as a ‘nonenvironmentally friendly’ one,” said Lonnoy.
“We also understand that our survival, especially when we talk about night-flying and
noise, is directly related to our ability to
minimize our negative impact on the environment and convince people that we do the
utmost to accomplish this.
“Our pilot procedures, the techniques we
develop, the tools we put in place have two
objectives in common: economy and safety.
And when you talk about economy, you end
up targeting the impact on the environment.
“In the past, we had an initiative called
ECO2. That program let us save fuel and,
consequently, reduce the emission of carbon.
“With the implementation of Flight Plan
Manager and the huge momentum it created,
we have decided to launch a new program
called ECO3. We will install software to
help us monitor the effectiveness of the
procedures and measures taken to minimize
fuel consumption and production of CO2.
“In most of our activities, in fact, we try
to measure and minimize our impact on our
environment.”
An Aura Of Sustainable Growth
When all is said and done, Europe Airpost’s
operation often leads the competition by
setting high standards and matching those
standards with superior performance. And
the carrier bases its growth plan on proven
success.
“We need to — and we will — expand,
probably through a progressive renewal of
the fleet, which is a growth mode we have
seen already, and by serving niche markets
like we have always done,” said Lonnoy.
“We have been operating a demanding cargo
network for a demanding customer among
the many airlines and other users of our
services with a high level of expectations for
many years.
“And we think we’ve always met our
objectives. Our know-how and our ‘customer-driven approach’ have contributed toward
building a very positive and well-deserved
image of our airline as real pros. Our customers know that this makes the difference.”
It appears Europe Airpost will continue
making a difference, as its achievements in
earnings and versatility transcend international borders and reverberate in industry
discussions around the globe. a
Phil Johnson can be contacted at
[email protected].
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ASCEND I PROFILE
A Conversation with John Borghetti,
Chief Executive Officer, Virgin Australia
By Dasha Kuksenko | Ascend Contributor
Photos: Virgin Australia
ASCEND I PROFILE
t is a beautiful day in Sydney, Australia, as
we enjoy a breathtaking view of Harbour
Bridge through the big glass windows that
surround the office of Virgin Australia CEO
John Borghetti, or as the industry has lovingly nickname him, “JB.” Everything around
us — Virgin Australia aircraft models and
models of classic cars — shows a man of passion whose energy and vision, coupled with
more than 40 years of industry experience,
transformed Virgin Australia in record time.
During our meeting, Borghetti is telling me
about the “Game Change” and “Game On”
programs that have changed the Australian
aviation landscape.
Going back to where it all began, in August
2000, Sir Richard Branson’s Virgin name
entered Australia’s aviation market with then
low-cost Virgin Blue Airlines, bringing real
competition to the leisure market. The airline
started with one route, two aircraft and a
team of only 200 people. The following year,
it introduced 14 new routes, and within 10
months of its first flight, it welcomed its
1-millionth guest.
For the next several years, the airline
reached numerous milestones. It launched
Pacific Blue, a New Zealand-based leisurefocused international airline. It introduced a
loyalty program. It became the first Australian
airline to offer remote check-in via mobile
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ASCEND I PROFILE
devices, called “Check-Mate.” And it was
awarded Best Low-Cost Airline (Australia/
Pacific) four times by Skytrax.
Fast forward to 2011 when the Virgin
Blue name was changed to Virgin Australia
and the airline was reborn under the leadership of Borghetti. It was more than a name
change and new brand. It was part of the
Game Change Program (a new business
strategy that would change nearly every
aspect of the company) Borghetti introduced
as part of a strategy to reposition the carrier
in the market to become Australia’s airline of
choice. As such, the airline was transformed
from a low-cost carrier to a traditional fullservice airline.
As part of its new business model and
brand identity, the airline introduced Luke
Mangan-inspired menu options and new
uniforms designed by Juli Grbac. It opened
several premium lounges. It also introduced
premium valet at the Sydney and Brisbane
Airports and business-class across its
domestic network, as well as reinvented
its frequent flyer program, Velocity, which
was named best frequent flyer program for
Australian business travelers in the 2011 and
2012 AusBT Awards and pulled down three
Freddie Awards last year for Program of the
Year, Best Redemption Ability and Best Elite
Program.
In addition to these awards and as a result
of its many enhancements under its new
Highlight
“Technical
skills
can be taught, but
character can’t, and I
think that has created a very positive
internal culture.”
— John Borghetti, chief executive officer,
Virgin Australia
brand, since 2011, the airline has received
more than 25 industry awards including:
Skytrax 2014 Best Airline Staff Service
Award (fourth consecutive year),
Australia’s Domestic Business Airline of
the Year for 2013 at the Roy Morgan
Customer Satisfaction Awards,
Customer Experience At The Forefront Customer experience is at the heart of Virgin Australia’s Game
Change transformation. As such, the airline was the first in the Asia-Pacific region to offer a new wireless in-flight entertainment system, enabling customers to stream TV shows, movies and music to their
own mobile devices.
16 ascend
Outstanding Customer Service at the 2013
Customer Service Institute of Australia
(CSIA) Awards,
Best Airline for Children by Out & About
with Kids during the 2013 Best of Family
Travel Readers Choice Awards,
Domestic Airline of the Year for 2012 at the
Roy Morgan Customer Satisfaction Awards,
Best Airline and Best Staff Service in the
2012 Skytrax World Airline Awards.
One of many actions that contribute to Virgin
Australia’s success is its consistent engagement
with its customers and its drive to provide
innovative products and services, as well as the
best possible customer experience for all of its
guests. The airline delivers quality service by
facilitating and monitoring customer feedback to
continually improve the customer experience. It
engages with guests in numerous ways including
a guest-relations team, its websites, the Velocity
Frequent Flyer program, social media channels, market-based research and focus groups,
the in-flight magazine, touchpoints throughout a
guest’s journey and the Guest Contact Centre.
Providing a superior guest experience
merely scratches the surface of what’s behind
this exceptional airline. Virgin Australia partners
with a number of organizations to help improve
the lives of less-fortunate members of the
communities it serves. One of the more notable
organizations is the Starlight Foundation, an
Australian charity that brightens the lives of
seriously ill and hospitalized children, and their
families, throughout Australia. Virgin Australia
flies Starlight children and their families across
its domestic network to a range of popular
tourist destinations.
The airline is also committed to environmental
sustainability. It operates a young, fuel-efficient
fleet, with an average of 4.9 years. It supports
the development of biofuels in several ways,
including working with the aviation industry and
biofuel supply chain on shared issues, as well
as engaging and supporting promising biofuels
projects. In addition, Virgin Australia embarked
on Australia’s first government-certified airline
carbon offset program.
In 2010, when Borghetti was appointed
Virgin Australia’s chief executive officer, the
airline was forever changed. With more than
four decades of experience in the aviation sector, he has held a number of senior positions at
Qantas. Prior to leaving the airline in 2009, he
was the airline’s executive general manager
for six years. During his four years with Virgin
Australia, he has taken significant actions to put
the airline on a new path that will see it well
into the future.
During my visit with Borghetti, he went into
greater detail about the airline’s Game Change
Program and its current Game On Program, as
well as several other aspects that will lead the
airline into the future.
Question: In 2010, you implemented a
new business strategy — the Game Change
ASCEND I PROFILE
A Positive Culture The key to maintaining a motivated team of professionals is Virgin Australia’s philosophy that technical skills can be taught, but character can’t. So it focuses on hiring people with a lot
of passion and energy, as well as a can-do attitude, who can be trained in specific job functions, which
has created a positive internal culture across the business.
Program. How did you come up with this
concept? What were the primary objectives of
the strategy?
Answer: When I look back at Virgin Blue, as
it was known in 2010, it was a successful airline.
As a brand, it identified with budget leisure travel
— and did so very well.
But toward 2010, aviation in Australia had
changed enormously. There were new players
in the market and Virgin Blue no longer had the
right cost structure to compete in the budgetmarket segment. So it was very clear that we
had to change the model in order to grow and
succeed well into the future.
So when I joined the airline in May 2010, I
introduced what became known as the “Game
Change Program.” The strategy was built on a
number of pillars: to ensure our capacity was
closely aligned to profitability; to grow our share
of the Australian corporate business from 10
percent to 20 percent; to maintain our strong
presence in the leisure market and to enhance
our strong brand in Australia and overseas.
Q: Now that the program has been successfully executed, what type of results have you
received from the program?
A: The Game Change Program has been very
positive not only for our airline but for Australia
as well. By providing Australian travelers with
a choice for the first time in over a decade, we
have delivered benefits to the local economy by
lowering airfares, by creating new jobs, and we
have also played a part in supporting inbound
tourism by growing and investing in our domestic network and our international alliances. This is
one of the most important things we can do for
our country as an airline.
Now looking at our business, we are in a far
more resilient position than we were in 2010.
We have increased our share of revenue from
the corporate and government sector to well
beyond our target of 20 percent, and we have
diversified our revenue mix with the launch of
our regional operations and through the acquisition of 60 percent of Tiger Australia.
Q: You have moved on to what is referred
to as the Game On phase of the Game Change
Program. What is the premise of this phase?
The first phase of the Game Change Program
was about laying the foundation for the airline’s
transformation. Game On is about taking our
strengths to the next level, while making sure
we stay agile to adapt to any changes in the
market.
There are really five key areas of the Game
On phase. The first is the three-year business
efficiency program, which is aimed at delivering
gains of around US$400 million by the end of the
financial year 2015. This will make sure we have
a sustainable cost advantage in the future.
The second is Velocity Frequent Flyer. With
4 million members and counting, this remains
a key growth opportunity for our business, and
we continue to look for ways to optimize the
program with our partners and members.
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The third is our access to global markets, as
this is another key way to drive revenue growth
for our business.
The fourth is to further enhance the customer experience through innovation in-flight
and on the ground by continuing to introduce
new product and service initiatives.
And the fifth is our people. Everything we
do will always be underpinned by our service
excellence, as this continues to be our key
differentiator in the airline industry.
Q: How has your airline’s recent business
transformation, including the Game Change
Program, changed the organizational culture?
A: Our airline has maintained a strong culture
over the years — we have a very motivated
team of passionate people.
I think an important part of this is recruitment. We would rather employ someone with
a lot of energy, passion and a can-do attitude
than someone who has 10 degrees. Technical
skills can be taught, but character can’t, and I
think that has created a very positive internal
culture.
Q: Virgin Australia continues to enhance its
customers’ on-ground and in-flight experience
though new product and service offerings.
What are some new products and services
you’ve introduced during the last year? What
other steps do you take to ensure a positive
experience for your guests?
A: The customer experience has been at
the heart of our transformation. In fact, when I
look at our airline today, I can’t single out one
element of the customer journey that hasn’t
changed, except for our people.
Lounges have been a key focus for us as
we know how important they are to corporate
travelers. Since 2011, we have opened five
new locations and transformed our lounges in
Sydney, Melbourne and Brisbane.
We have also become the first airline in
the Asia-Pacific region to offer a new wireless
in-flight entertainment system, which allows
customers to stream television shows, movies
and music straight to their own device.
We have recently changed the way we
conduct customer research to make sure that
it influences our decision-making on an even
more regular basis. Whether it’s major product
changes or service attributes on the frontline,
this research makes sure we stay on brief and
if we’re down on any key metric, what we need
to focus on.
Q: With more than 40 years of experience in
the Australian aviation market, how do you see
the commercial airline landscape in this country
evolving during the next decade?
A: In my 40 years in aviation, I can’t recall
one year where there hasn’t been some sort
of shock to the industry — from oil price spikes
to weather events. This industry operates on
uncertainty, and we’ll continue to see that over
the next 10 years.
When it comes to our airline, the future is
very bright.
A New Brand Until 2011, Virgin Australia had operated under several different national and international brands (Virgin Blue, V Australia, Polynesian Blue and
Pacific Blue), which was confusing to customers and hard on brand equity. After much strategizing, the new Virgin Australia brand was born, along with a
new aircraft livery.
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ASCEND I PROFILE
Virgin Australia Regional Airlines After acquiring Skywest Airlines last year, Virgin Australia unveiled its new regional airline operation with Virgin Founder
Sir Richard Branson and Virgin Australia Chief Executive Officer John Borghetti. Based in Perth, Virgin Australia Regional Airlines operates more than 30 aircraft to more than 40 destinations.
Up until now, it has really been about laying
the groundwork. In less than five years, our airline
has completely transformed, and we are now
ideally positioned to take advantage of future
opportunities.
While I can’t reveal our exact plans, I can say we
will continue to be led by our passion for customer
service, our drive to challenge the status quo and
commitment to serving travelers across Australia.
Q: Virgin Australia has been referred to as having one of the largest virtual networks in the world.
What does this mean?
A: A key aim of our Game Change Program
strategy was to create a network that gave us
global coverage.
We chose to do it through bilateral alliances
with strategic airline partners so we could build a
global network specific to Virgin Australia and its
customers.
So now we have a global network that can fly
our guests to more than 450 destinations around
the globe and earn frequent flyer points and status
credits in the process.
Q: Naturally, technology plays a big role in the
effective operations of an airline. What are the
key technology enablers that support your airline
strategy?
The implementation of the SabreSonic® CSS is
a prime example of how technology has strengthened our business.
It has significantly improved our access to
global markets, expanded the airline’s interline and codeshare revenue potential and
enhanced the customer experience.
This has helped drive increased penetration
in the higher-yielding corporate and government market segment, and we expect it will
continue to strengthen our revenue mix and
have a positive impact on returns.
We also use a range of customer service
technologies, such as in the Guest Contact
Centre and across our sales functions, which
are key to delivering exceptional service
throughout the entire travel journey.
Q: What do you consider your biggest
personal success during your time with Virgin
Australia?
A: As you can imagine, we have overcome
so many obstacles in our journey. Let’s not
forget, when we first announced our Game
Change Program, the general reaction was that
it could never be done, and look at us today.
There are many reasons for our team to feel
an enormous sense of pride.
But I have to say, one of my proudest
achievements to date has been the rebrand of
our airline operations.
Up until 2011, the airline had been operating
under both national and international brands:
Virgin Blue, V Australia, Polynesian Blue and
Pacific Blue, which was a confusing customer
proposition.
I knew early on that this needed to change,
but what lay ahead was no easy task. We had to
convince Virgin management that it was the right
way forward, right down to the last detail on the
new aircraft livery.
It took a great deal of persuasion over the
course of many months, over multiple time
zones until Richard [Branson] said so aptly to me
one day, “screw it, let’s do it,” and the rest is
history. Our last plane will be painted in the Virgin
Australia livery in January next year.
Q: What is your leadership philosophy, and
how does that tie to the future of Virgin Australia?
A: A leader’s role is to provide a clear and
consistent vision, to inspire and, importantly, to
create hope. From there — the leader needs to
provide the tools to empower everyone throughout the business to deliver on that vision. a
Dasha Kuksenko can be contacted
at [email protected].
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A
irlines’ revenue streams have
evolved significantly during
the last decade. Less than 10
years ago, maximizing revenue involved the optimization
of ticket sales across an airline’s network — with some
basic, and often manual, consideration for
the impact of group bookings, corporate
travel and perhaps, codeshare bookings.
Today, airlines generate revenue from
numerous sources, including bag and
preferred seating fees, as well as the
merchandising of a wide variety of goods
and services before, during and after a passenger’s flight. These additional revenue
streams can contribute up to 30 percent of
total revenue for an airline, depending on
its business model.
In this environment of increasingly
diverse revenue potential, the channels
through which customers gain access to
airline products continue to expand. Travel
agents and airline call centers continue to
play a key role in distribution, as do airline
websites and online travel agencies — now
supplemented with new merchandising
and retailing capabilities at airport ticket
counters, kiosks, gates and inflight.
Empowered by the amazing capabilities of today’s tablets and smartphones,
flyers demand instantaneous access to
travel information, including the ability to
purchase airline services around the clock,
while on the go.
In addition to providing the capability to
deliver more information and products to
customers than ever before, these new
distribution points also generate tremendous volumes of data from and valuable
insights about the travelers who use them.
Travel providers, which began collecting
data and understanding their customers
when frequent flyer loyalty programs were
introduced in the 1980s, now find they
are challenged to collect, process and
consume all of this new data and put it
to meaningful use. Therefore, the key
to creating a competitive advantage for
airlines in the 21st century will be their
ability to consolidate data and insights
regarding total revenue production and
rapidly react to competitors in the dynamic
marketplace to improve their overall revenue performance.
Imagine the potential advances in
revenue optimization, retailing and customer service as airlines incorporate highly
granular customer information about what,
when, where, why and how customers
book and travel — through real-time data
feeds — into the decision-support processes of the future.
Traditionally, airlines have used the concept of “booking classes” to segment
customers and cluster and differentiate
revenue streams for analytical purposes,
filing fares, forecasting demand, optimizing
networks, setting inventory controls and
managing distribution channels. Additionally,
most of today’s reporting and analytic tools
rely too heavily on booking classes as
they aggregate passenger and revenue
information for strategic assessment and
for business performance analysis. This is
necessary but far from sufficient for true
and granular customer segmentation.
Beyond the core revenue stream associated with the sale of seats at various fare
levels, newer revenue sources, such as bag,
premium seating and other ancillary service
fees, and codeshare and alliance partner
contributions, have been largely managed
manually or without significant automation,
with limited science driving forecasting and
optimization. Moving forward, the most
successful airlines will be those that harness the power of real-time customer,
partner and competitive data within their
decision-support solutions, adapt business
processes and align the entire organization
in a way that ensures the rich information
available from each customer is leveraged
to offer the right goods and services at the
right touchpoint, at the right time and the
right price.
As the industry transforms and a larger
portion of total revenues flow from sources
other than the sale of airplane seats at
base fares, airlines must become adept at
managing these revenue streams beyond
the natural silos that exist within their
organizations and transform themselves
into retailers.
Total revenue optimization, or TRO — the
approach used by Sabre Airline Solutions ®
to help airlines generate maximum revenues from all possible sources — is not
a single mega-revenue management solution. Rather TRO provides a framework
for airlines to face challenges in today’s
environment and embrace business processes and solutions to utilize new, more
detailed real-time sources of information. It
also helps ensure new business analytics
capabilities enable pan-organizational decision making and strategy development.
TRO ensures revenue-management
solutions consider the total value of each
potential customer (versus simply the
value of the base fare) to provide accurate,
state-of-the-art forecasting and optimization logic in the market that is aware of the
potential revenue impacts from a vast array
of codeshare and partnership options.
It also leverages science and revenue
maximization techniques that have been
The Total Revenure Optimization Continuum
Paradigm Shift The TRO continuum depicts the evolution of airline revenue management. In this
illustration, the horizontal axis (quadrants 1 and 2) represents the evolution of traditional revenue
management of seats during the past 20 years, including the sophisticated decision science for
forecasting and optimizing leg-segment and O&D models and variations thereof. The vertical axis
illustrates the transformation of this paradigm aligned with airline retailing and the need to forecast and optimize all relevant revenue streams, including ancillaries, codeshares and partnerships.
The ability to deliver on this from a process and systems automation perspective — with the
sophisticated decision science needed, embedded revenue analytics, reporting and visualization,
integration with the rest of commercial planning, as well as empowerment of executives, managers and analysts with real-time actionable insights — represents a paradigm shift referred to as
total revenue optimization.
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ASCEND I INDUSTRY
honed over the past two decades to
ensure optimal pricing and availability for
new or enhanced ancillary products that
an airline may choose to offer.
TRO will be enabled as visionary carriers move beyond the reliance on booking
classes to cluster demand for forecasting
and optimization. Airlines will be able to
move down the TRO continuum utilizing advanced analytical capabilities and
expanded data sets across sales, reservations, revenue management, pricing and
revenue accounting.
In summary, TRO requires that an
airline considers and manages all revenue sources; employs the best possible
pricing, revenue-management and inventory solutions; tightly integrates processes
starting with planning through distribution
and revenue accounting; and supports
the entire enterprise with wholly capable
revenue analytics. TRO will also demand
change management to drive the needed
transformation of people, processes and
systems.
How does Sabre Airline Solutions
enable TRO moving forward, and ensure it
is positioned to evolve as airlines continue
to adapt to the ever-changing competitive
and technological landscape?
First, and most importantly, the underlying technology for decision-support and
analytical systems must be engineered to
take advantage of new data feeds, such
as real-time PNR data, and capable of processing and storing exponentially larger
data volumes than today’s solutions. The
backbone for decision-support and analytical tools must be capable of consuming
and providing data quickly — approaching
real-time.
This infrastructure must be designed
for ultimate flexibility, so clever, new
products and services introduced to the
market can integrate with existing data,
tools and analytics. Decision-support tools
will inevitably evolve in their application for ancillary revenue streams, and
new data will trigger ideas for operations
research experts.
Second, data transformation techniques
will empower accurate, real-time revenue
awareness for both revenue management
and down-line systems. Strategies will
be more accurate and more successful
as revenue-management teams consider
a more complete picture of the revenuegenerating capabilities of their airlines’
networks. Enhanced revenue analytics
will power key performance metrics that
are honed and updated more frequently
to provide the ability to rapidly sense and
respond to changing market dynamics and
competitive actions.
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A modernized core data infrastructure
and advanced data-management capabilities provide the foundation that enables
the modernization of the forecasting
and optimization science that Sabre
Airline Solutions invented 25 years ago.
More complete, holistic data enables a
360-degree view into an airline’s revenuegenerating capabilities and empowers
advanced modeling techniques, such as
customer-choice modeling and enhanced
no-show forecasting based on booking
behavior.
Finally, an airline’s revenue analysts
are ultimately the critical component in
TRO. They are the frontline stakeholders,
Highlight
TRO
provides
a
framework for airlines
to face challenges in
today’s environment
and embrace business processes and
Therefore, revenue analysts must
focus their efforts on specific activities
that drive value, rather than actions that
may compromise the accuracy of revenue optimization. Revenue-management
tools should be process driven and guide
analysts to the most effective interaction with decision-support models. User
interfaces should steer workflows that
are relevant to the situations that trigger critical situation identifiers. They
should deliver new data and modeling
capabilities such as revenue-opportunity
models, incorporated into “what-if” scenario evaluations that provide immediate
feedback on the impact of their actions
on revenue performance.
With these considerations, the user
interface empowers solid decision making
and allows new users to quickly become
productive, which again moves the airline
further down the TRO continuum.
The challenge facing airlines today
is the optimization of every source of
revenue. To do so, the industry must
effectively analyze and practically utilize
the large volume of data now available.
Total revenue optimization is the new
paradigm that will enable visionary airlines to capture, aggregate, analyze,
forecast and optimize all of their relevant
revenue streams and maximize these,
while ensuring analyst, manager and
executive empowerment through actionable insights. a
solutions to utilize
new, more detailed
real-time sources of
information.
ensuring the enterprise generates as
much revenue as possible. The proliferation of new revenue streams, an
increasingly
dispersed
distribution
environment, more personalized (and
therefore more complex) customer
interactions and a focus on customer
centricity make the revenue management
function more challenging than ever on
those responsible for stewarding airline
revenues.
Darren Rickey is vice president
of marketing and solutions
management for Sabre Airline
Solutions. He can be contacted at
[email protected]. You can
also follow him on Twitter @revdaz.
Celebrating 100 Years Of Commercial Aviation And The Future
Of Air Travel With Commentary From Sabre Airline Solutions
President Hugh Jones
By Katie Freeman I Ascend Contributor
ASCEND I INDUSTRY
Ready For Takeoff: Birth Of The
Global Airline Industry
It all started with a US$400 ticket and
21-mile flight between St. Petersburg and
Tampa, Florida. On Jan. 1, 1914, pilot Tony
Jannus of St. Petersburg-Tampa Airboat Line
chauffeured his first paying passenger, Abram
Pheil, the former mayor of St. Petersburg,
to Tampa. Pheil had out-bid many others in
a highly-publicized auction for the only passenger seat on the aircraft.
The flight was a short one — only 23 minutes — while the plane maintained an average
altitude of 15 feet over the open waters of
the bay that separated the two cities. Jannus’
plane was a Benoist XVI, a small two-seater
plane with an open cockpit, named after
Thomas W. Benoist, the well-known American
aviator and aircraft manufacturer.
St. Petersburg-Tampa Airboat Line was
short-lived, however, and ceased operations
when the subsidy that created the airline to
boost tourism dissolved three months later.
In a time when train travel was the primary
mode of transportation, it seemed cavalier,
and perhaps even unnecessarily risky, to pay
for a flight when a simple train ticket would
suffice. This new form of transport had captured the attention of Americans, though, and
it was only a matter of time before commercial
aviation really took off.
The 1920s saw the growth of small, regional airlines in the United States. Airlines such
as the Detroit-Grand Rapids Airline shuttled
passengers between the two cities (Detroit
and Grand Rapids) at the cost of US$35 for a
roundtrip ticket.
While these first regional airlines saw some
success, air mail contracts became the core
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Photo: State Archives Of Florida
C
urrently,
there
are
1,932,102,241,635 potential ways to fly from New
York’s John F. Kennedy
International Airport to the
London Heathrow Airport,
considering the different airlines, cabins,
schedules, fares, connections and combinations of airlines.
During the past century, commercial aviation has shaped our world as we know it. Air
travel has bridged cultures, grown national
economies and enabled generations to travel
and experience foreign places together.
Yet, every day, millions of people board
planes without stopping to consider the
humble beginnings that have made their trip
possible. Few pause to acknowledge the
complex technological systems in place to
help move them to their destinations safely
and on time. As airlines around the world look
to innovate and differentiate the passenger
experience of the future, it is important to look
back at the genesis of the industry, and to
consider the possibilities that lie ahead.
The Beginning Of Aviation History was made Jan. 1, 1914, when Abram Pheil, the former mayor
of St. Petersburg, Florida, became the first passenger aboard a two-seat Benoist XVI aircraft from St.
Petersburg and Tampa, Florida. The 23-minute flight was piloted by Tony Jannus of St. PetersburgTampa Airboat Line.
financial support of commercial aviation in the
United States. Legislation was passed in the
late 1920s that transferred the Post Office
Department’s responsibility for air mail service
to private companies in support of the budding
aviation industry.
One year after taking office, President
Herbert Hoover passed the U.S. Air Mail Act of
1930, giving the postmaster general authority
to consolidate air mail routes. Airmail routes
were awarded to three carriers that later
evolved into United Airlines [the northern airmail route], Transcontinental and Western Air
[the central route] and American Airlines [the
southern route]. The end of this decade also
saw the introduction of government regulation
that dictated routes flown and ticket prices
charged — paving the way for economies of
scale in the 1940s.
World War II ushered in a new wave
of feasibility and affordability for commercial
aviation. During the war, manufacturing plants
flourished and were able to create enough parts
for aircraft to be mass produced. This evolution
led to increased competition between airlines
for customers and destination cities. Airports
also began to grow in size and number under
the airlines’ mission to transport people from
city to city easier than ever before.
Change Is In The Air
According to IATA’s financial forecast in the
January 2014 issue of ATW Magazine, the
growth of aviation into the US$19.7 billion
global industry it is today didn’t happen overnight. In 1956, the Union of Soviet Socialist
Republic’s (USSR) Aeroflot became the first
airline in the world to operate sustained regular
jet services. Around the same time, airlines
such as British European Airways, United
Airlines, Eastern Air Lines, American Airlines
and Trans World Airlines also began to operate
scheduled domestic and trans-continental jet
services, leading to a time of dramatic growth.
During this time of immense growth,
airlines began to look to systemize their operations in the absence of computerization. But
even the best systemization lacked the power
needed to automate inventory and reservations management processes. At the time, a
single passenger reservation could take up to
90 minutes for a booking agent to complete.
In 1952, American Airlines installed the
Magnetronic Reservisor, a system of vacuum
tubes and a magnetic storage drum that
allowed the airline to store seat availability
on a centralized platform. Around the same
time, Trans-Canada Air Lines (TCA) together
with the University of Toronto and Ferranti
Computer Systems developed the world’s first
computerized reservations system, known as
the Reservec.
Aware of the success of Reservec, in
1960, American Airlines, in partnership
with IBM, introduced and installed their
own improved passenger reservations
system, automating one of the industry’s
key business areas. The joint venture,
called Semi-Automatic Business Research
Environment, or SABRE, resulted in the
largest civil data processing system in
the world. By the end of the decade,
ASCEND I INDUSTRY
Aviation In The 1920s In the 1920s, Detroit-Grand Rapids Airline, founded by engineer and businessman William Bushnell Stout, offered round-trip fares of US$35 per passenger from the Ford Airport in
Dearborn, Michigan, one of the first modern airports in the world.
Deltamatic, DATAS, Apollo and PARS were
all computerized reservations systems that
were up and running.
The industry experienced another dramatic shift in the United States in 1978
when the Airline Deregulation Act was
signed. Deregulation brought decreased
barriers to market entry, increased competition among airlines and an explosion of
lower fares for consumers.
By the early 1980s, the SABRE system
could store 1 million fares and Sabre
Decision Technologies (Sabre Airline
Solutions ® predecessor) and other technology companies were beginning to
understand the optimization necessary to
help airlines make better, faster decisions
to run their day-to-day operations.
“Bob Crandall’s vision of leveraging
technology and operations research (OR)
principles to improve American Airlines is
still at the core of Sabre Airline Solutions
today,” said Hugh Jones, the technology
company’s president. “We relied on OR to
build some of our first core solutions such
as Revenue Manager when we first implemented it at American Airlines in 1985. We
continue to use our understanding of the
science of revenue management and our OR
principles to enable our company to bring
numerous sophisticated decision-support
solutions to market.”
Virtual consolidation and codesharing also
changed the landscape of the airline industry
in the 1990s. While the history of codeshare
agreements actually goes back to the 1960s,
Qantas began using the term “codesharing”
in 1990 when it joined with American Airlines
to offer flights between Australia and the
United States.
Jones contends that these early agreements led to more widespread partnerships
as the industry moved into the next century.
“Born out of these early codeshare agreements, we have seen the growth of airline
alliances and the desire from airlines to
provide a seamless customer experience
across more O&Ds,” he said. “Airlines today
are achieving this through networked loyalty
programs and initiatives that align the checkin and in-flight experience across partners.
It was a novel idea to sell seats on another
airline’s metal, and I think we can all look
back and agree that this was a revolutionary
turning point for our industry.”
The Arrival Of Airline Dot Com
American Airlines’ Magnetronic Reservisor In 1952, American Airlines made history when it introduced the Magnetronic Reservisor, a system that enabled the airline to store seat availability on a centralized platform.
The industry continued to struggle into the
mid-1990s with giving customers the capability to make their own bookings. Pressure
increased when many leading brands began
developing websites as a result of the
growth of the Internet.
“Early products such as EAASY Sabre [for
individual travelers] and Commercial Sabre
[for corporate travelers] were created in the
1980s with the idea of putting the power
of booking flights into the hands of corporate and leisure travelers,” Jones said. “As
we know, consumers eventually embraced
online travel agencies like Travelocity and
Expedia, and they prevailed against other
similar products in the market. However, this
was just the beginning of a revolution in
our industry in terms of airlines taking a
customer-centric view to make the booking process easier and more accessible.”
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other airlines to address the varying needs of
different traveler segments.”
Photo: Frontier Airlines
The Future Of Air Travel
A Leader In Branded Fares The 2000s were a time of significant growth and evolution of airline
ancilaries and branded fares. Frontier Airlines is known as an early innovator with its AirFairs pricing
structure, offering flexibility and a variety of items that best suit the needs of individual customers.
In December 1995, Alaska Airlines became
the first U.S.-based carrier to sell a ticket over
the Internet.
“I think you have to acknowledge the
importance of the emergence of the Web
and self-service channels and the birth of
eCommerce in our industry,” said Jones.
“The first step taken by Alaska Airlines may
have seemed insignificant in 1995, but it is
monumental when you consider that business
and leisure travelers are predicted to spend
upwards of US$110 billion online at airlines in
2016 in the U.S. alone. The direct distribution
channel is critical to airlines, and I think it is
important to credit the early trailblazers.”
As more travel suppliers and consumers
headed online, many airlines anticipated the
connectivity demands and joined together
to create the OpenTravel Alliance (OTA). The
first OTA messages were exchanged in 2001,
which enabled travel suppliers and distributors
to speak the same electronic language. This
made trade between suppliers and distributors
easier, and it ushered in a new wave of online
products aimed at aggregating and selling
travel products online.
After this, it didn’t take long for airlines to
figure out that there were profits to be made
by tailoring their air and non-air products to
meet the needs of different traveler segments.
The 2000s saw a huge increase in the growth
and evolution of ancillaries and branded fares.
Frontier Airlines is cited as one of the early
innovators of branded fares with its AirFairs
pricing approach, consisting of four fares:
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Basic, Economy, Classic and Classic Plus. A
2013 report by Ideaworks suggests that about
35 percent of passengers choose Classic
or Classic Plus fares, the most expensive
products, contributing to a 22 percent revenue
increase for the airline.
“Since Frontier’s successes, other carriers
have also begun to realize that the airline
industry is not a “one-size-fits-all” service
industry anymore,” said Jones. “Various business models have proliferated around the
globe, and many carriers are adopting a
multi-model mentality that allows them to
serve varying segments with different brands
as part of a single networked family.
“The backbone of these new family strategies is that carriers can retain the brand equity
of each individual branded line, without corroding the value of their mother brand in the
minds of their customers,” Jones explained.
“Lion Air is one of my favorite examples.
Since the airline began in 1999, it has continued to evolve and has recently grown its
global network to include four subsidiary carriers that operate as part of the Lion Air family.
Together, Batik Air [a premium carrier serving
East Asia], Wings Air [its domestic feeder],
and Malindo Air and Thai Lion Air [low-cost
carriers in the Malaysian and Thai markets]
allowed the airline to capture growth in the
attractive markets as part of its segmentation
strategy.”
Moving forward, Jones believes that,
“Success will be defined by an airline’s
ability to forge the right partnerships with
Airlines have the opportunity to transform
their current role as a commoditized provider
of transportation to a more profitable one in
which they become a partner that helps customers through the entire lifecycle of their
journey. To get there, airlines must focus on
driving customer loyalty and improving the customer experience to undo the damage done by
years of severe cost-cutting measures.
“I think what we will see is airlines leveraging existing and emerging technologies, best
practices pioneered in other industries and the
wealth of data travelers produce to increase
revenues by providing a better customer
experience at lower costs, thereby improving
return on investment,” Jones explained. “All
airlines, regardless of segment, will look to
leverage technology to define and provide new
services that appeal to their target customers
and improve the customer experience.”
High-end, full-service carriers such as Etihad
and Emirates continue to unveil in-flight amenities such as private suites and on-demand
entertainment that raise the bar in terms
of balancing luxury and price in high-value
customer classes.
Jones highlighted that even low-cost carriers realize the potential technology has for
improving the customer experience.
“On the opposite end of the spectrum, you
have easyJet (known for its no-frills approach)
who is also innovating to improve the customer experience. EasyJet uses technology to
speed processes, ranging from self-service to
aircraft maintenance.”
Taking these steps will allow airlines to
improve both their return on investment and
the passenger experience, all through the
booking process, the airport and in-flight.
“As people around the industry start to
think about the next century in aviation, we
can’t forget our primary purpose — to make
it easier to travel,” said Jones. “Air travel is a
huge driver of the global economy, and it will
continue to contribute job creation and infrastructure improvements in the years to come.”
“Sabre Airline Solutions has been fortunate
to play an important role in commercial aviation
over the last century,” Jones said. “Looking to
the future, we are committed to providing
continual improvement and investment as our
customers look to succeed against rising competition in a battle to own the customer
journey.” a
Katie Freeman is a solution
marketing partner for Sabre Airline
Solutions. She can be contacted
at [email protected].
By Manolo Centeno I Ascend Contributor
Enabling Strong Operational Performance
“A System View: The Strategic Value Of Operations,” which appeared in Ascend 2014, Issue No. 2,
explains how airlines can add value through operations. The topic can be further addressed by delineating
the capability of an airline to encourage growth in operational value through collaboration among
multi-faceted departments within its business structure.
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L
ike any well-run business, an
airline must always strive to
better its financial margin. One
way to improve that margin is
through operational efficiency.
“A System View: The Strategic
Value Of Operations” discussed ways in which
operational factors can contribute substantially
to the budget-savvy carrier’s bottom line.
At first glance, adding strategic value
through operations may not seem like
an easy task, but it can be encouraged
through collaboration among an airline’s
various departments.
Operations research shows that most
airlines are established on a multi-commodity network structure. In other words,
an airline is basically a set of different
and somewhat diverse networks, including
passengers, aircraft, crews, cargo and
baggage, working to achieve a common
objective: to transport passengers from
one geographic point to another in the
most efficient manner.
And all of these different networks are
firmly rooted in a single input: the airline’s
schedule.
Because airlines are such complex
entities to manage, many different departments have been created to deal with
each facet. For example, inventory control
handles schedule changes on the airline’s
reservations systems. Crew management
plans the most optimal schedules for pilots
and flight attendants that comply with
negotiated labor and mandated aeronautical regulations.
These examples represent just a couple
of the functions performed by multiple
teams throughout an airline’s organization
to keep each department synchronized
with the published airline schedule.
In addition to these defined departments,
airlines also apply various technologies to
achieve their strategies and manage their
day-to-day business procedures.
The bottom line is airlines encompass
numerous extremely complex systems
that require highly structured organizations and depend heavily on technology to
support their operations.
In this intense business environment,
enhancing opportunities for and strongly
encouraging collaboration enables airlines
to become more effective and competitive.
Organizational Specialization: The
First Constraint
A solid organizational structure is absolutely necessary to successfully guide
the organization and execute an airline’s
strategy.
Specialization is also necessary, since
each airline department handles specific
business issues, including such highly
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diverse functions as revenue management,
maintenance, scheduling and ancillaries.
Each airline department must be aligned
with the strategy, and key performance
indicators (KPIs) should be applied to track
the carrier’s performance.
Rules and responsibilities are clearly
defined. Organizational charts are carefully
and logically drawn. Communication must
follow strict lines of command.
In fact, good communication is a given
when there is sound and competent leadership, which is a necessity because the
higher communication and other relevant
issues are pushed within the organization, the more diluted any given business
problem becomes. This leads to greater oversight and regulation, as well as
burgeoning processes, roles and KPIs,
effectively bogging down
the airline’s
entire operation.
Business processes and operations
continue and must be effectively handled
regardless of the complex business issues
facing upper managers and executives.
Therefore, competent leadership and clear
communication are critical at all levels of
the organization.
To further complicate matters, the interdependencies between and among many
departments are intense, though necessary, since different departments require
inputs and outputs from one another to
function effectively.
While specialization is necessary, it can
also be a source of day-to-day difficulties,
including ineffective collaboration, if it is not
managed correctly.
In the aforementioned article, one of
the topics was suboptimal solutions, which
encompass a range of less-than-satisfactory
approaches. These, in turn, can reduce
performance and/or increase costs. In fact,
organizational specialization can be one of
the main drivers of local optimal solutions
(in other words, focusing only on a small
and relatively familiar portion of the problem), instead of global optimal solutions.
Examples of local optimal solutions
are easy to find and identify: scheduling attempts to maximize revenue without
understanding the impact on the operation;
maintenance unilaterally decides to open
a base in a given city, because the move
is cost-effective from the department’s
standpoint; or an airport authority offers
incentives but, in turn, requires a carrier
to fly aircraft with different capacities that
might not make economic sense in order to
take advantage of them.
These types of suboptimal decisions
drive costs upward.
So how can departments that are specialized by necessity make decisions that are
globally optimal rather than beneficial for
just one group and thereby reduce overall
costs?
Basically, members of a particular department need to understand the functions and
responsibilities of other departments, as
well as the impact each has on every other
one and the organization as a whole.
Well-known business analyst Yves
Morieux recently addressed this topic. His
example focused on an automobile designer
who placed a cable where it was extremely
difficult to reach. Morieux pointed out that if
and when the cable needed to be repaired,
an auto-shop mechanic would have to
remove the engine to access the cable.
This, in turn, would adversely affect the productivity of repair shops, thereby increasing
the cost because it took longer to fix.
Clearly, the designer did not think through
the entire process. Instead, he focused
simply on finding a solution to fit his own
needs, not about how the solution would
inevitably affect down-line processes. Most
likely, placing the cable in this location
was the most cost-effective solution from
a design standpoint, which fulfilled his
objective.
Similarly, an airline’s scheduling department decided to fly a new fleet type to a
new destination without understanding the
process necessary to prepare the destination airport to service that particular aircraft
model. The airport division struggled to
acquire tow bars and the correct groundsupport equipment. In addition, all relevant
personnel had to be trained to handle this
new airplane type.
If some measure of collaboration among
the airline’s departments had been in place
— and the person driving the changes had
understood the impact on all departments
involved — the true cost of flying this particular fleet type to this specific destination
could have been calculated and evaluated in
advance. The result would be a smoother,
easier implementation.
The question then becomes: How can
members of one department learn what the
other departments do? And how can that
understanding be more fully and practically
put to use?
Morieux has proposed a simple answer:
Integrators are needed to connect different
departments. In the airline environment,
the process of integration is referred to as
“integrated planning.”
Integrated Planning:
Understanding The Impact Of
Collaboration
Airlines follow a very predictably linear
and sequential planning process.
The first step is the network planning
process, in which the airline decides the
markets to serve during different specific
ASCEND I INDUSTRY
The Value Of Collaboration Identifying the big blocks of business processes associated with making a schedule work is the first step in understanding the
value of collaboration. The scheduling team drives the activities of many departments within an airline. Therefore, listening and collaborating with its stakeholders enables the scheduling team to achieve a robust and effective schedule.
timeframes, say five years, 10 years and
so on.
Once the network planning phase has
been completed, the scheduling planning
phase begins. This phase extends from the
current year to approximately three months
prior to the date the flight is scheduled
to begin service. During this phase, the
network plan is converted to an executable
schedule.
The short-term scheduling group then
takes ownership of the schedule and begins
to manage any changes that occur close to
the day of departure. These changes might
include a decrease in demand in a given
market due to a pandemic disease a month
prior to schedule operation.
Finally, the schedule is given to the
operations group for execution.
Airlines that approach these processes
in a collaborative fashion tend to be more
effective and productive, thereby lowering
costs through not only greater productivity
but also through greater efficiency.
Collaboration is necessary to communicate the proposed schedule to different
stakeholders to review and assess its impact
on their department.
Although the scheduling group technically “owns” the schedule, other stakeholders
contribute valuable input, as they are responsible for executing the schedule. Therefore,
a compromise between scheduling and
other stakeholders must be achieved.
The advantages of this approach include:
Detection of otherwise-unforeseen issues
during each planning phase (network,
scheduling, short-term scheduling, operations and other phases).
Quantifiable financial impact of the proposed schedule, resulting from stakeholder contributions that facilitate schedule
completion.
Early resolution of stakeholder issues in
the process, thereby providing stability to
the schedule.
Realistically, there are also potentially
negative issues with the integrated planning
processes. These may include:
A cumbersome planning process due to a
lack or unavailability of optimal processes
or IT tools during each phase.
The inability of the airline to respond
quickly to market conditions, especially if
schedule changes are made close to the
day of departure.
The unwillingness of the scheduling
department to share the proposed schedule with other departments in an attempt
to guard its commercial and competitive
value. Such risk can be effectively mitigated by granting schedule access only
to designated employees in each department.
Effective integrated planning requires several complex business processes supported by
numerous IT applications.
The pertinent stakeholders and realistic timelines are critical. Going deeper into management
for leadership and execution is a positive factor for
individual departments, but not for the creation of
a map for integration and dependencies, which
must fulfill organizational goals.
The mapping and distribution of processes
among stakeholders can be of great value. Based
upon behavioral observation, it’s fairly typical for
airlines to understand their business as it plays out
through all of these dynamics. But the processes
are often not fully established and documented.
Leadership, therefore, must work to create a culture in which each department
understands what the others do, and how
they interact to further the overall collaborative process.
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Effective Collaboration Collaboration also has to happen at the individual business-process level. For example, regarding the crew-management process,
effective collaboration between the training and pilot/cabin bases is necessary to make pairings and create a roster. If pre-assigments are incorrect or not
provided, the airline will have an infective crew plan.
Integrated planning is not a one-time
exercise. It is effectively a “rolling” planning process that can be achieved at both
the strategic and tactical levels.
If the airline succeeds in furthering its
planning agenda, all the departments will
eventually begin to exhibit a new level of
situational awareness as they understand
how the process works and how they
impact the system.
To achieve truly effective operations
planning, airlines must have strong processes, highly appropriate and effective
IT, and perhaps most importantly, the
integrators.
How To Integrate The Integrators
Ideally, the role of integrating processes
and properly analyzing schedule changes is
the responsibility of the planners for each
stakeholder group (maintenance, airport, crew,
system operations control, etc.). The planners
should be in constant communication with the
scheduling department and be able to convey
to the senior leadership of their respective
departments the impact of these schedule
changes, potential alternatives and ways to
mitigate the impact of the changes.
32 ascend
It is a good practice to involve the
finance experts supporting the department during the planning or analysis of
schedule proposals. The finance team
can provide advice, quantify the expected
financial impact and subsequently, adjust
the financial forecast fairly quickly once a
scheduling decision has been made.
When the financial impact of the
proposed schedule changes has been thoroughly analyzed, objective and data-driven
communication with other stakeholders is
essential.
Airlines structure their operational planning
groups in a variety of ways. For example,
some carriers’ planning groups report directly
to each department. Other airlines have a
centralized operations planning group and
utilize a matrix approach to attach planning
resources to each of the divisions.
This approach is actually similar to that
of any other department, such as finance or
human resources.
When properly executed, integrated planning may appear to be a rather large endeavor,
and sometimes it is. However, the alternative
— that is, operating without an intentional
effort at integrated planning and internal
collaboration — is also costly in terms of
productivity, employee morale and, ultimately,
financial performance.
“The true battle is not with your competitors,” Morieux said. “The real fight is against
ourselves.”
Give collaboration a chance to improve airline performance, and analyze the positive
results. Those results may well be evident in
significantly better financial numbers. a
Manolo Centeno is senior principal
and practice leader for the operations
consulting group at Sabre Airline
Solutions. He can be contacted at
[email protected].
Revenue Management Plus Revenue Integrity Equals
Revenue Optimization
Airlines need to combine strong capabilities in
revenue management and revenue integrity to
achieve optimal revenue results. Much like a
well-tuned racecar, the improvement
in performance can be stunning.
By Paul Reynolds | Ascend Contributor
ASCEND I INDUSTRY
E
very airline should seriously consider if its revenue management
methods are established to most
effectively reap optimal revenues
from traffic-influencing events,
such as World Cup soccer and
other major sporting series, or annual holidays.
If a carrier’s revenue management strategies are outdated or its staffing has gone
through more than one turnover cycle, there
is most likely ample opportunity for considerable improvement via both updated
technology and enhanced business processes within the burgeoning practice known as
revenue integrity.
Revenue integrity offers some of the
industry’s most refined tools to best guarantee that revenue management is maximizing
potential airline returns when the time is
opportune.
Or to put it another way, keeping an
airline’s revenue optimization working at
peak efficiency and harmony is critical and
well worth evaluating prior to huge specialevent opportunities in the coming months
and years.
Perhaps the best way to describe the relationship between revenue integrity, revenue
management and revenue optimization is
to use the analogy of a racecar. The fastest
racecars are engineered and designed to
have near-perfect harmony among all their
components.
Applying strong downforce causes a
racecar to travel faster around corners, but
slower on the straights (due to the “drag”
effect on speed resulting from the heavy
downforce).
To deliver the fastest laps around the
race course, the mechanics and engineering
team must find the precise point of harmony
between the racecar’s key components.
And this same logic applies quite readily
to revenue management and optimization, in
that the demand forecast is as vital to revenue
optimization as the drag factor is to a racecar. If
the demand forecast is accurate — taking the
analogy a step further — the “driver,” in this
case, squeezes out the critical extra speed for
peak performance.
But what happens if the demand forecast is
not accurate?
In that scenario, revenue optimization is compromised, just as the speed of a racecar becomes
much too slow when downforce is overused.
Race teams measure the improvements relating to their attempts at better harmonization in
terms of seconds-saved-per-lap.
And it’s basically the same approach for an
airline.
Typically, significantly improving the harmonization of revenue management and revenue
integrity, for example, can reduce the number
of passenger no-shows by between 10 percent and 30 percent.
34 ascend
People
Processes
Systems
People, Processes And Systems Revenue management and revenue integrity, working together
with the right people, processes and systems, enable airlines to achieve the highest level of revenue
optimization.
This level of improvement can lead to
a considerable increase in load factors on
departure (the number of passengers actually flown as a percentage of total aircraft
capacity), as well as revenue increases due
to the combined effects of a reduction in
revenue leakage and an improved class mix
in each cabin.
Success is achieved by finding the point
of harmony for revenue optimization — balancing revenue management and revenue
integrity at both the strategic and tactical
Revenue Optimization: Four Key Business
Practices Of Revenue Management
• Management of discount allocation
(Market segmentation and pricing)
• Management of Inventory
• Management of Overbooking
• Management of Group Traffic
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levels in the same way the racecar mechanics and engineers balance speed around
corners and speed on the straights.
To further evaluate the racecar analogy,
let’s look at the core components of both
revenue management and revenue integrity
as a model.
The Constituent Parts
Like a racecar, revenue management
has components of people, processes and
systems.
The combination of people and processes
results in two additional key components:
policies and decisions. So with systems,
there are five key components. Likewise,
revenue integrity actually consists of these
same components, all of which impact revenue optimization.
Revenue integrity has the tools to enforce
the policies and strategies devised in revenue management. Unfortunately, revenue
integrity is far too often dismissed as simply
another transactional tool and basically a
robot program that cancels airline bookings.
(A revenue integrity robot program is one
that runs automatically, sweeping through
the live booking records and checking each
booking against specific conditions defined
in the fare rules. When it finds a violation, the robot program takes a corrective
action. For example, it can send the travel
agent who owns the booking a message,
or it can simply cancel the booking as being
non-compliant.)
But that is a false judgment. Revenue
integrity is an extremely important strategic
function for enhancing revenue optimization. And the critical nature of harmonizing
revenue integrity activities with revenue
management cannot be overstated. The
robot programs are actually the mechanism
— at the transactional level — for enforcing
delivery of the strategy.
Therefore, the key to success is designing
the robot programs to maximize the application of the revenue optimization strategy.
Working Together
It’s important to understand how the two
disciplines — revenue management and revenue integrity — work together at both the
strategic and tactical levels. In other words,
although revenue management sets the strategy, revenue integrity must be designed to
align with the strategy so when the robot
programs run at the tactical level, they are
reinforcing the intended strategy.
Looking at the revenue management and
revenue integrity disciplines component by
component, the primary revenue management business practices encompass pricing
strategy, inventory strategy, business plans
and overall commercial planning. All are
critical.
For example, if the revenue management
strategy for a given traffic flow (journey) is to
maximize price (because volume is already
strong), revenue integrity must ensure its
robot programs actually enforce the pricing
illegal bookings, thus releasing the seats for
legitimate sales.
Clarity of terms and conditions, as well as
a willingness to enforce them, are crucial.
And these vital factors further emphasize
Three Key Strategic Objectives
Of Revenue Integrity
• Improving the quality of airline inventory and demand forecast
• Supporting inventory control
• Supporting group evaluation
• Supporting route strategies and tactical levels
• Raising load factor by supporting more accurate overbookings
• Improving revenue optimization by enforcing fare rules that drive
market segmentation
• Supporting discount allocation
• Recovering all due funds on each PNR
• Supporting pricing activity at strategic and tactical levels
• Reducing airline GDS fees by avoiding unnecessary charges
• Cleaning up all dead bookings (bookings made by agents or
customers, but when customers do not intend to actually travel)
• Including HL (a booking that has been waitlisted) and HX (the
booking has been canceled) segments
strategy, so when the revenue integrity robot
cancels a booking for noncompliance with the
fare rule it was sold against, the robot returns
the seats to be resold at a time when there
is significant demand for the higher-priced
seats. Returning seats after the target market
has finished its usual buying pattern is a serious failure and loses revenue for the airline.
Then on the other side of the equation,
at the transactional level, revenue integrity
is the process of using robot programs to
protect an airline’s seat inventory from misuse. Unless the revenue integrity robot is
synchronized with the revenue management
strategy, a less-than-optimum outcome is
achieved. In the previous example, the target market had already booked. They were
either not sold or sold at a lower price than
intended by the strategy. Thus, revenue was
not optimized.
The revenue management and revenue
integrity staffs must not only work together
to ensure that the core strategy is mutually
understood, but they must also define how
that strategy and its constituent parts need
support from the design of the revenue
integrity robot program.
The robot programs then enforce the
airline’s terms and conditions and remove
the absolute necessity that revenue management and revenue integrity be harmonized
correctly.
The racecar analogy then holds true when
delineating the basics of revenue management and revenue integrity, which must
work together seamlessly.
In this context, revenue management is
the “parent” function, in which pricing and
inventory strategies are set. It’s where the
business plans are developed and commercial planning occurs.
It’s imperative, however, that the revenue
integrity tools are designed to match and
enforce the revenue management policies.
An airline must ensure that the revenue
integrity robot program enforces the actual
fare rules that apply, rather than basing robot
actions on sweeping generalizations. If an
airline, for example, cancels a booking on
the basis of a fare rule other than the one
that actually applies, it risks being found in
breach of contract. Remember, each booking
is against the specific conditions in the fare
rules that relate to that specific price. It is
bad practice to generalize rules for revenue
integrity robot programs.
The scenario above, then, provides a
fairly simple example in which lack of
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harmony between revenue management
and revenue integrity can cause problems — similar to the “drag” issue in the
racecar analogy.
Examining each of the four key revenue management business practices in
turn yields a logical understanding of the
importance of harmonization with revenue integrity. The technique specifically
covers the five components identified in
the model — that is, people, processes
(and thus, policies and decisions) and
systems.
Inventory management and design are
heavily dependent on the accuracy of
the demand forecast, which is critical for
revenue optimization.
Revenue integrity is intended to clean
up as much uncertainty as possible in
each flight’s demand forecast to enable
finely tuned decisions on class mix and
overbooking.
Achieving Optimum Results
Specialized software, such as Sabre
AirVisionTM Revenue Integrity, can help make
a significant difference in demand-forecast
accuracy by ensuring the revenue-integrity
rules are targeting the biggest issues. In
doing so, revenue integrity software and
policies should determine exactly when the
canceled seats are returned to inventory so
as to maximize the potential for reselling
those seats.
A good real-life example is an airline that
was already an advanced user of revenue
integrity to boost revenue optimization.
Personnel at the carrier closely analyzed
when the revenue integrity robot was actually canceling the seats. They compared that
information with the demand patterns in the
booking curve, while also calculating statistical probability of reselling the returned seats.
The positive results (approximately US$5
million a year) enabled the airline to change
its fare rules so the seats found to be in violation of the fare rules were returned much
earlier with a 40 percent probability of being
resold, instead of the original zero percent
probability, which missed the target market.
Such a sophisticated level of fine-tuning
can help a carrier effect a “step” change
Return More Seats To Inventory During Peak Demand
Before using Sabre AirVision Revenue Integrity
Using the real-time solution
Demand for seats
Real-Time Revenue Integrity The black line shows how many unsold seats are available as an airline
approaches the departure date of a flight. The red line shows how typical revenue integrity processes
canceled bookings for customers who will not travel, thereby returning those seats to availability. The
typical revenue integrity processes run overnight as a batch job. However, Revenue Integrity processes
run in real time and the green line displays how much more availability is created, thus allowing the
airline to increase its revenue by selling seats that would otherwise have been empty on departure. The
shaded area is the extra revenue value created by using Revenue Integrity.
36 ascend
in its bottom-line revenue integrity benefits
and, perhaps even more importantly, lead
to further improvement in load factors on
flights that often (or even almost always) go
full (for example, raising load factors from
99.1 percent to 99.8 percent).
In the area of discount allocation, revenue integrity robot programs can determine
which fare rules actually apply in the various
markets at any given time and ensure the
revenue integrity robot programs are properly designed to enforce these specific fare
rules, in line with the revenue management
strategy.
Once again, accuracy — in addition to
the timing of returned seats to inventory —
can contribute quite powerfully to revenue
optimization.
Ensuring the highest levels of synchronization or harmony is an excellent way to
boost a carrier’s revenue optimization, even
if its performance is already strong.
Revenue management evaluations require
accurate demand forecasts, as well as reliable yield forecasts (based on expected
prices minus cost-of-sale expenses).
The accuracy of these forecasts — and
the coordination between revenue management and revenue integrity — contribute
significantly to revenue optimization.
The racecar analogy remains appropriate, because the harmony between revenue
management and revenue integrity, first at
the strategic level, then at the tactical and,
finally, at the transactional level, is critical
for maximizing the revenue optimization
strategy.
Just as a racecar can underperform if it is
not tuned and balanced correctly, an airline’s
revenue optimization strategy may underperform if the harmony between revenue
management and revenue integrity is not
created and nurtured. a
Paul Reynolds is a principal consultant
for Sabre Airline Solutions ®. He can be
contacted at [email protected].
By Noorani Ali and Elisa Lizarralde, Ascend Contributors
ASCEND I INDUSTRY
I
n this era of personalized
experiences and access to information, airline customers are
making choices regarding the
products and services for which
they are willing to pay. According to the 2013
Yearbook of Ancillary Revenue, ancillaries
have more than doubled from US$13.5 billion
in 2009 to US$31.5 billion in 2013, and they
make up nearly 40 percent of total revenue
for some low-cost carriers.
Full-service carriers also saw their share
of ancillary revenue per passenger grow with
“smart” products and aggressive marketing
targeted to capture their customers’ interest.
In response to this growing trend, many
airlines have begun leveraging information
gleaned from EMDs in real time — both to
improve the customer experience and loyalty,
as well as boost profitability.
Analyzing this incredible trend, there are at
least a couple of primary explanations for the
growing ancillary trend:
Low-cost carriers that offer unbundled pricing and à la carte services make up a quarter
of the global capacity. Some of these carriers have been remarkably innovative in
developing and introducing enticingly affordable “weekend” and “getaway” deals to
the growing middle-class population while
recuperating their revenue by strategically
pricing their ancillary products and services.
The once-rigid lines of differentiation
between low-cost carriers and network
carriers have become blurred, partially due
to the expanded international reach of
low-cost carriers. This makes it difficult for
traditional network carriers to distinguish
themselves from their low-cost competitors. In addition, as part of the unbundling
movement, many traditional network carriers began charging fees for various popular
items, such as baggage, seat selection and
meals, that had previously been part of the
fare.
The introduction of EMDs facilitated the
latter — charging for bags, seats, meals,
etc. — by increasing operational efficiencies,
because now airlines can sell ancillaries at
the same time as the ticket sale and track the
ancillary and additional revenue. They have
also enabled additional distribution channels
for these products and services and fostered
technological innovations to provide greater
customer experience through incremental
product offerings.
Not surprisingly then, most of the world’s
leading airlines have invested substantial
resources to convert their non-database ancillary documents to EMDs, which can be
accessed, purchased and tracked in real time
by airline passengers.
The transition to EMDs is an involved process similar to the industry’s migration from
paper flight coupons to electronic ticketing
using virtual coupon records (VCRs), which
had an impact on all major departments within
an airline.
In recent years, the consulting team at
Sabre Airline Solutions® has worked with
several airlines to help develop their ancillary
strategies and analyze the impact on their
business as they transition to EMDs, ensuring
the necessary elements for this transformation are present across the airline. Based on
this experience, there are several key aspects
of a successful EMDs transition, including:
Ancillary strategy,
Organizational structure/aligned incentives,
Communication,
Simplify and standardize,
Avoid false promises.
Ancillary Strategy
Airlines realize that brand integrity and
passenger experience are critical to customer
loyalty. However, many carriers still rush to
introduce ancillary products without first carefully studying and thoroughly understanding
how these products align with their brand
and their impact on each individual’s travel
experience.
Often, the race to introduce ancillary products and services is a response to economic and
competitive factors. Under such circumstances,
an airline may offer an overwhelming number
and variety of choices to its passengers, hoping
something will catch their attention.
The ease of marketing and selling ancillary
products via EMDs has enabled carriers to
more quickly launch a product without thinking
through the implications of brand alignment
with the products offered. For example, if a
luxury airline starts selling drinks onboard, it
likely diminishes its brand and tarnishes its
reputation as a luxury carrier.
In fact, some major carriers involved with
the introduction of ancillaries have now come
full circle, from bundling ancillary products and
services, to unbundling them, and then finally
to offering something of a hybrid solution. To be
successful, ancillary strategies must be created
with the customer’s needs, as well as the carrier’s corporate brand, in mind.
Photo: Shutterstock
Organizational Structure/Aligned
Incentives
Unbundling Movement Several traditional network carriers charge fees for a variety of items such as
baggage, seat selection and meals. The unbundling of these ancillary items has made it difficult to differentiate between network carriers and their low-cost rivals.
38 ascend
Some airlines already have a solid organizational structure in place, encompassing product
development, alignment, implementation, and
tracking and monitoring functions. These carriers only have to review their current resources
to ensure the expansion of ancillary products
and services can be supported by current
resources (or additional resources can be added
to support the growing revenue line).
Generally, these airlines have well-established product offerings with aligned incentives
across all groups. They know their passengers
and, in turn, their loyal customers understand
the carrier’s rules and product policies.
In addition, all airline departments know
how to sell these products, and they have
standard operating procedures in place to
respond during severe operational disruptions.
ASCEND I INDUSTRY
On the other hand, many carriers simply
add the ancillary product implementation as
an additional task to one of the departments
without clearly establishing processes and
procedures to strategize, create, coordinate,
implement and track new product offerings.
In such cases, carriers do not realize any
significant revenue benefits from implementing EMDs.
Developing appropriate organizational
structure does not always mean employing additional people. Sometimes it means
re-evaluating and redistributing workload
more effectively, as well as utilizing human
resources more productively and eliminating
redundancies within the current organization.
Once the organizational structure has been
defined, it is critical for all employees to work
toward the same objectives based on the
airline’s strategic mission and vision.
In many instances, various departments
within an airline have disparate and sometimes conflicting goals. A call-center agent, for
example, may be incentivized based almost
exclusively on the number of calls he or she
handles to minimize costs, pushing an agent
to solely focus on the number of calls handled
rather than revenue generated by each call.
Meanwhile, the sales organization is given
incentives to increase revenue, expecting
agents to push more products during their
calls to maximize revenue. However, this
method extends the length of calls and
reduces the total number of calls handled in
the same period.
Depending on the reporting structure, the
contact center and sales leaders may be
working toward opposing goals.
While each department within an airline
can have different goals and corresponding
key performance indicators (KPIs), alignment
across the organization is critical. Additionally,
an agent incentive structure should also
include some measurement and accountability in reaching these goals.
Communication
One of the most critical factors in the development and implementation of a successful
ancillary strategy via EMDs is communication.
Change can be a difficult, complex process, especially in highly regulated industries
such as air transportation. Thus, regular, direct
communication regarding impending changes
as a carrier moves to EMDs is vital. If employees understand the purpose and benefits
of the proposed changes, not only will they
collaborate, in many instances they will help
drive the changes.
Unfortunately, customer-facing employees
are sometimes the last to be informed of procedural or technological changes. However,
these employees are the critical link between
an airline and its customers. They often have
a better understanding of customers’ needs
and expectations, as well as their carriers’
operational limits. Early inclusion of frontline
employees in the communications process is
vital for a successful EMDs implementation.
Moreover, honest, timely and open communication within an organization is necessary
to ensure that alignment is maintained and
adjustments to the strategy can be made in
a timely manner as challenges in the move
toward EMDs arise.
Simplify And Standardize
Opening additional distribution channels
is another way carriers are trying to boost
their ancillary revenue. This requires effective
internal communication and agent training
around policies, as well as a clear strategy
for pricing and selling. Sometimes carriers
intentionally establish different product policies based on various channels.
For example, a passenger checking in for
a flight within 24 hours of departure time
could select a seat for free through an online
check-in channel, while another passenger
purchasing a ticket within 24 hours of departure through the call center may be forced to
pay a seat-selection fee.
While such tactics of differentiated pricing
are valid, the actual implementation of those
policies should be weighed against potentially
reduced operational efficiency for the airline
and almost-guaranteed consumer confusion,
not to mention angst and dissatisfaction.
Since ancillary products are filed with business rules for the purpose of EMDs ticketing,
even the entire exercise of filing product
pricing presents an excellent opportunity for
airlines to evaluate their existing products
and services with policies and procedures
for relevancy. They should eliminate ancillary offerings that are no longer relevant to
their business and standardize policies and
procedures whenever and wherever possible.
Simple and standardized policies are easier
to communicate, understand and remember,
both by airline employees and customers.
Passengers are more likely to fly a carrier they
perceive as honest and fair as opposed to one
whose policies are confusing and assumed to
be unfair.
by providing a refund to the passenger.
However, in the worst-case scenario, the
carrier may lose the passenger’s business
completely.
Because EMDs are live documents
attached to a passenger’s journey, it is
intimately tied to an airline’s operation.
Particularly during a situation of irregular
operations, a carrier must have stable operational procedures and robust business
processes in place to successfully handle
EMDs and its impact on the guest experience. An inability to handle such situations
may result in substantial revenue loss as well
as negative media and publicity.
An Airline’s Lifeline
Ancillary revenue has become a lifeline
for today’s competitive airlines. Due to the
International Air Transport Association’s
industry mandate, carriers are rapidly moving
toward EMDs, which has eased and significantly reduced the time it takes them to
market, sell and monitor ancillary offerings.
However, the migration of airlines to this
new ticketing functionality involves more
than simply filing prices on a database.
Changing the “how” should be followed by
a series of internal discussions regarding the
“what,” “to whom,” “for how much,” as
well as the “where.”
Such discussions provide a unique opportunity for carriers to examine the current
strategy as well as tactical practices and
procedures to help determine who they are
and where they want to be long term within
the aviation landscape. a
Avoid False Promises
When a carrier introduces an array of
ancillary products and services to increase
revenue, it must be able to successfully
deliver these ancillary offerings. Failing to
effectively execute an ancillary strategy may
be perceived by unhappy customers as false
promises.
For instance, a passenger who has paid
for priority baggage delivery will not accept
reasons such as a broken conveyor belt, an
employee work stoppage or an equipment
change. In the best-case scenario, the carrier
may only lose revenue from this product
Noorani Ali is a principal consultant and
Elisa Lizarralde is a senior consultant
for Sabre Airline Solutions. They can
be contacted at noorani.ali@sabre.
com and [email protected].
ascend 39
By Jeffrey Schuyler I Ascend Contributor
Merging Workforces With Separate Union Contracts
Airline mergers are never simple. In particular, a number
of issues revolve around combining diverse labor groups
and their leadership so a merged carrier can advance and
employees thrive in a new, rapidly changing environment.
ASCEND I INDUSTRY
42 ascend
experience and meticulously counting their years
of service.
US Airways, in fact, has continued to address
issues stemming from the combination of the pilot
lists from its last merger, in which America West
Airlines actually acquired the carrier formerly known
as US Airways and subsequently adopted the US
Airways brand for the joint entity.
The pilot lists of America West and the former
US Airways had to be integrated, and labor issues
surrounding American and US Airways pilot-seniority questions are very familiar. Today, US Airways is
developing a formula to integrate its pilot list with
that of American Airlines.
Still, questions abound: When considering a
merger, how should airline leadership approach the
inevitable merged-labor-group situation? Is there any
way to avoid negative labor fallout from a merger?
Or is there a “right” way to approach an airline
merger that can actually anticipate and help “fix”
labor difficulties before they occur?
The answer to the last question is “probably
not.” However, there are some “best-practices”
principles dealing with airline mergers that can help
make the entire process less painful.
Three primary keys to an effective airline merger
with regard to labor are a well-defined game plan,
a solid communications plan and strong leadership
that is able to bring these factors together for the
ultimate benefit of the merged airlines’ various
employee groups.
And it is important to remember from the start
that the only part of an airline merger that generally
happens overnight is the announcement.
For all remaining aspects of the merger, perseverance and consistency in communication are
probably the most important factors the merged
airline’s leadership team must concentrate on and
must get right, working diligently step-by-step to
gain and sustain the confidence of all labor groups
and individual employees.
If effective communication is not established
and carefully nurtured, most employees will not
be incentivized to remain with the newly merged
airline. But if management gains the confidence and
respect of the merged workforce — through clear
and honest communications — the foundation of a
successful merger will be firmly established.
Some good examples of best practices can be
found among the numerous issues currently being
addressed by the newly formed American Airlines
leadership team.
New American Airlines chief executive officer
Doug Parker makes it a point to communicate,
holding quarterly meetings with the airline’s union
leaders.
“It gives you exposure to those directly running
the company,” said Association of Flight Attendants
(AFA) President Roger Holmin, whose union represents former US Airways flight attendants. “I can
dial any one of them, and they’ll take my call. Or
if they’re unavailable, they’ll return it. There is no
chest-pounding going on.”
That’s a huge advantage for the new American
Airlines, as opposed to the former company. In the
past, American’s labor relations have bordered on
dismal. Parker acknowledges his intentional reach
to all employee groups to establish a more positive
approach.
“Whatever happened in previous years resulted
in an airline that couldn’t achieve its potential because
the management-labor relations had gotten so bad,”
Parker said in a stunningly frank assessment of
American’s labor history. “It’s really nice to be
moving forward on those relationships. There’s a lot
of work ahead, but I think there is so much you can
do when everybody is excited and working together
that you can’t do when they’re not.”
Photo: Allied Pilots Association
A
irline mergers have become
increasingly common in a 21st-century marketplace in which change is
constant, and “business as usual”
is simply not an option.
Competitors grow stronger and more advanced
through mergers. Other carriers feel they must
follow suit to maintain a competitive advantage in
the rapidly evolving business environment.
Naturally, when carriers merge, friction occurs
among employee groups.
Often, key issues revolve around basic work
rules and seniority status, as well as numerous other
factors commonly detailed in labor agreements.
Problems are almost unavoidable when various
work groups within a merged airline are represented
by different unions.
Enormous labor difficulties can be triggered by
the slightest insinuation from the groups represented. Finding solutions that satisfy the combined
work groups can be one of the most challenging
aspects of a merger and its after-effects, which can
literally last years after the deal has been completed.
Labor issues resulting from airline mergers are
common domestically, but they can transcend
international borders. For example, there have been
major mergers during the past couple of decades
involving Air France and KLM, South American carriers LAN (Chilean-based) and TAM (Brazilian-based),
and the acquisition of Air Jamaica by Caribbean
Airlines.
Within the same country, labor issues may
be further exacerbated when former rivals, once
intensely competitive, merge. For example, when
Air Canada finally acquired its fiercely independent
competitor Canadian Airlines in 2000, they combined workforces — to quote an industry source
who worked very closely with many employees
from both airlines — that “have never been known
to be fond of each other.”
Today, Air Canada flies on successfully, but full
integration of disparate workforces has been a
challenge.
Recent combinations of workforces among
major U.S.-based airlines have, of course, centered
on the merger of Northwest Airlines and Delta Air
Lines to form the new Delta Air Lines; the integration of Continental into United Airlines; and most
recently, the ongoing merger of US Airways with
American Airlines.
These transitions all entailed major labor issues
that had to be addressed and, eventually, must be
resolved. This process always takes time — time
measured not just in months, but usually in years.
A case in point: The combination of US Airways
and American Airlines involves two completely
diverse groups of pilots represented by distinctly
different pilot unions. The Allied Pilots Association
represents American Airlines pilots, while the US
Airline Pilots Association does so for US Airways
pilots.
One of the salient issues involves pilot seniority and how to fairly distinguish the pilots from
each group when measuring and evaluating their
Airline Management And Union Reps Meet Prior to the merger between American Airlines and US
Airways last December, former secretary-treasurer of the Allied Pilots Association, Scott Shankland,
left, along with APA President Capt. Keith Wilson, met with American Airlines CEO Doug Parker and
American Airlines Chairman Tom Horner to discuss the merger of the two airlines.
Photo: American Arlines
ASCEND I INDUSTRY
New Airline, New Aircraft, More Pilots The merger between American Airlines and US Airways is
already showing extreme signs of success. The combined airline, which operates under the American
Airlines brand, turned a profit of US$402 million during the first quarter. The airline has 500 new aircraft
on order, and it will take delivery of its first Boeing 787 Dreamliner later this year. During the next five
years, the airline expects to hire 1,500 new pilots.
approach to labor are aircraft mechanics, ground
workers (including baggage handlers), pilots,
flight attendants and, potentially, gate agents,
should they decide to unionize.
Dealing with such a diverse collection of
labor entities will require patience, wisdom, fairness, diplomacy and quite a bit of compromise.
Photo: LATAM
But when talking about labor, every group
has its own special interest. And it’s unlikely
that everyone will be satisfied. That’s human
nature, and it’s exactly what drives each union
to attempt to achieve the best contracts and
benefits for its membership.
Among the groups the new American
Airlines will have to satisfy with a more positive
Creating Employee Opportunities Unlike many airline mergers, when LAN and TAM merged in 2012,
forming the LATAM Airlines Group, their primary goal was not to lower costs by reducing staff. Because
there is minimal duplication between LAN and TAM operations, a main objective is to grow and create
more opportunities for employees.
Is this range of entities so disparate that
coming to a consensus of approaches and
attitudes — especially when different unions
represent different segments of the same
employee group — impossible?
No. However, bringing the multiple groups to
a consensus won’t be easy. It would have been
difficult before the merger, and it will be even
more so after the deal has taken place.
Carriers around the globe fully and cogently
understand that their labor-relations teams will
be tested. And when airlines merge, labor
relations and union negotiations become even
more challenging, with greater complexity and
degrees of difficulty at every point in the
process.
In anticipation of potential mergers, some
airlines’ labor groups have intentionally taken
proactive measures to protect themselves.
Such was recently the case with Alaska
Airlines’ unionized clerical and office employees, who took specific steps to guarantee their
union would be involved in any potential merger
the carrier might contemplate with one of its
larger rivals.
Again, the keys to any airline’s success
when moving into a merger are open, honest
communications and solid leadership, with a
flexible and innovative game plan that, when
the original plan seems to be faltering, a series
of well-thought out and rehearsed back-up plans
are ready to launch.
Communication from both airline leadership
and union leadership must be truthful and, at
times, frank. People’s lives and livelihoods are
at stake when a merger occurs. Be honest with
employees. If they need to explore new career
paths, do everything possible to be truthful, as
well as nurture and encourage them.
As well, communication with employees
who will be the cogs that enable the merged
airline to run smoothly and serve the carrier’s
loyal and appreciative customers should be
done with integrity.
Conversely, the fruits of dishonesty cannot
be measured except in catastrophic personnel results. Diverse unions, like the airline
employees they represent, must receive the
quality and quantity of information necessary
to work together to help shape a merged carrier that meets the objectives set forth by the
leadership.
The cooperation and direct involvement of
labor unions — and the employees they represent — are absolutely critical to the success of
any merger. Customer service, and subsequently customer satisfaction, suffer when
employees of the same company cannot overcome differences and work together. a
Jeffrey Schuyler is a senior management
consultant for Sabre Airline Solutions®. He can
be contacted at [email protected].
ascend 43
Special Prorate
Agreements
Are Your Partners Getting the Better of You?
Following a specific special prorate agreement (SPA) methodology can produce between 3 percent and 5 percent revenue gains
for airlines. Without SPAs, carriers are at risk of losing significant
revenue to a partner airline.
Sp
e
Ag cia
re l Pr
em o
en rate
t
By Judy Peluso I Ascend Contributor
ASCEND I INDUSTRY
t
he rapid growth of so many carriers into previously unreachable
or financially untenable markets
around the globe has likewise led
to expansive volumes of partner
agreements. These agreements
were created in the spirit of
meeting complementary business
needs, driving volume and revenues in a
mutually profitable exchange.
However, the overall net positive corporate sentiment and spirit wrapped into
such agreements often overlooks revenue risks. Eventually, some partnerships
become net negative over time but remain
on the books because of various internal
pressures from an airline’s own alliance
and sales teams.
The last thing a carrier needs to worry
about in today’s economic environment
is how its partners are benefitting at
its expense. Therefore, airlines need a
mechanism and firm discipline in place to
actively monitor SPAs and champion their
best-practice management.
Perhaps the primary purpose for entering into an SPA is to gain incremental
revenue. Airlines need to find better ways
to expand their networks without incurring
a greater spend on capital. As a carrier sets
up agreements, it can complement its own
network by introducing new routes, targeting low-load flights to stimulate traffic
through discounted prorates, choosing the
appropriate fare-class mapping to protect
inventory and providing the right fare levels for customers based on competition. It
is essential, however, that carriers choose
partners cautiously, entertaining agreements that are mutually beneficial and
profitable.
Generally, the top five prorate agreements, based on revenue contribution, for
any carrier can produce up to 40 percent of
total SPA revenue, and the top 25 agreements can cover as much as 80 percent.
Diminishing returns, however, begin to set
in when a carrier continues introducing
new agreements, due to internal and/
or political pressure, that do not produce
incremental revenue. Often these agreements are with smaller or non-essential
carriers.
In addition, today’s marketplace is already
full of cannibalization. Therefore, airlines
need to be careful that when sharing their
metal with networks across the globe that
they are not participating in this problem.
A suggested methodology for setting
up an SPA includes resources — people,
systems and data — and related steps that
should be taken to ensure a quality agreement is reached with the desired outcome
of more traffic at acceptable yields. More
in-depth steps with a suggested strategy
Building An SPA
Strategy and
Identification
Analysis and
Negotiation
Validation and
Decision
Distribution and
Verification
Monitoring and
Evaluation
Information
People
Systems and Data
Policies
Communication
Steps To Maximum Benefits Several steps need to be taken to build a comprehensive special prorate
agreement that ensures an airline can extract the maximum benefit from an SPA contract.
Recommended SPA Practice
SPA and/or alliance
teams create or receive
the SPA proposal
Senior management reviews and
approves proposal.
Upon approval, the
SPA team executes
proposal.
SPA
Lifecycle
Pricing and
revenue management review
proposal for revenue opportunities
and prevailing
market fares
Revenue
accounting reviews
proposal
SPA Lifecycle A specific lifecycle is recommended for creating an SPA. It involves four main steps:
creating a proposal, proposal review by pricing and revenue management, proposal review by revenue
accounting and proposal approval by senior management. Once these steps have been completed, the
SPA team can execute the agreement.
ascend 45
ASCEND I INDUSTRY
and tactics are the next level that should be
reviewed and determined.
Recommended Practice
Following an SPA Lifecycle is a recommended practice for creating an SPA that
includes four key tenets:
1.The SPA and/or alliance teams create the
proposal or receive it from their airline
partners.
2.The pricing and revenue management
departments review the proposal draft for
revenue opportunities and prevailing market fares.
3.The proposal is then reviewed by revenue
accounting.
4.Once the proposal has been finalized and
approved by upper-level management,
the SPA team executes the agreement.
SPA Revenue Benefits
Improved agreements
to enable carrier XX to
retrain more revenue
US$2.5
US$3.3
US$2.4
US$3.1
SPA Advantages
SPAs provide many advantages for the
partners involved. Primarily, they can help
improve market share for an airline while
increasing its market presence. For example,
more destinations can be offered to customers through an agreement between two
carriers versus those an individual airline
may be able to offer solely with its existing
network.
SPAs provide precious incremental revenue that complements a carrier’s revenue
provided through its own service. Without
this agreement in place, an airline can only
fly passengers to destinations it serves.
The agreement enables an airline to serve
additional passengers that have connected
from other airlines onto their own aircraft to
improve their traffic base. The incremental
traffic can prove valuable in traditionally
lower load-factor markets or during off-peak
travel times. Moreover, and probably most
important to gaining market share, the carrier becomes more competitive with better
fares and inventory availability.
SPAs Versus Alliances
SPAs are sometimes confused with alliances. A carrier can have an SPA with
another carrier but not necessarily be part
of an alliance with that carrier. Airlines that
are knowledgeable about SPAs recognize
the revenue benefit and may create an SPA
with an airline that might be considered a
competitor under different circumstances.
However, if the airlines choose to form
an alliance, the SPA is usually a primary
element of the partnership and is often the
first agreement completed when forming or
joining an alliance.
During the past 15 years, the expansion
of alliances and joint ventures has taken the
partnership concept to a whole new level of
cooperation. In fact, governments often provide airline partners with anti-trust immunity,
46 ascend
Benefits in $US Millions
Enhanced analysis and
performance monitoring to improve
decision making
Improved strategy and
tactics to drive incremental revenue
Improve processes
and manpower to be
more proactive
US$11.3 Million In Revenue Revenue benefits for a typical airline totaling US$11.3 million in improvements have been classified into four categories: improved agreements, enhanced analysis and performance monitoring, improved strategy and tactics, and improved processes and resources.
enabling them to coordinate pricing, revenue
management and scheduling.
This makes it much more difficult for
competitors that choose to operate autonomously. However, the traditional interline
agreement or SPA offers the airlines a
way to improve network reach and gain
incremental traffic, if managed correctly,
as the potential customer pie is still large
enough, even for airlines that are not part of
an alliance.
SPA Support
Consultants that specialize in airline partnerships can help carriers identify potential
partnership opportunities that will expand
their global reach. Working with airline partners, consultants complete a holistic review
of carriers’ existing SPAs, recommend
enhancements to drive better (lower-cost)
passenger distribution channels, suggest
improvements to current contracts and
further align existing pricing and revenue
management priorities.
SPAs are an increasingly natural part of
an airline’s strategic growth plan. It is also
a natural tendency in the negotiated pricing
space for contracts, the negotiation process, and pricing and revenue management
elements specific to SPAs to erode over
time, creating less than desirable revenues
and contractual deficiencies. This necessitates periodic review of terms to maintain
competitiveness and ensure contracts are
still mutually beneficial to the parties involved.
The consulting approach should include a
comprehensive review of major agreements
that focus on improvements in:
Class mapping;
Fare-filing strategies;
Settlements (including fuel surcharges, processes and strategies related to the negotiation of agreements);
Market analysis and partner pricing monitoring;
Contract elements.
The analysis should focus on in-depth
revenue-performance, identification of missing
SPA contract terms and recommendations for
improving revenue management and pricing
functions, as they relate to partner agreements,
to maximize revenue benefits.
Carriers that have followed these recommendations have experienced revenue gains of
between 3 and 5 percent of total SPA revenue
directly related to improvements in processes
and strategy, contract terms, and pricing and
revenue management functions. a
Judy Peluso is a principal consultant
in revenue management for Sabre
Airline Solutions ®. She can be
contacted at [email protected].
Airline Outsourcing
When, Why And How To Outsource
By Saleema Khan I Ascend Contributor
Many airlines outsource parts of their business to any
number of third-party vendors for numerous reasons.
When building an outsourcing strategy in any area of its
operations, an airline, in addition to calculating the possible financial rewards or cost savings, must account for
several factors that can potentially impact the customer
experience, such as service levels and product offerings.
ASCEND I INDUSTRY
A
The Rationale
There are many reasons an airline may
consider outsourcing. The most obvious
is to reduce costs by transferring an
operation to a third party that can more
efficiently handle the operation based on
its economies of scale and lower labor
costs. Other benefits have been identified,
such as tighter control of budget through
predictable costs and greater access to
innovation and thought leadership. An airline may also need to outsource due to the
lack or unavailability of in-house resources.
In the past, virtually all of an airline’s
operations were considered “core,” since
they were performed in-house. Airlines in
the 1940s expanded from the ground up,
and the option to outsource did not exist.
The level of outsourcing has increased
in the airline industry since deregulation,
coupled with the fact that airlines’ operating costs have increased significantly over
time.
Outsourcing requires an airline to determine its core operations and turn non-core
functions over to a third party. However, an
airline may have difficulty separating core
and non-core operations. Further compounding the issue is that different airlines
often have differing views of what they
consider to be core operations. Numerous
carriers, such as American Airlines and
United Airlines, have outsourced their
reservations functions, deeming these
non-core operations. However, Frontier
Airlines considers its reservations call center a core operation.
When considering whether to outsource, an airline must decide if the
operation under consideration would be
48 ascend
Photo: Shutterstock
irlines are continuously
evaluating ways to obtain
operational and organizational
efficiencies while simultaneously achieving some form of
cost reduction.
Outsourcing, the process of assigning
a company’s business processes to an
external agency to enhance its service
quality, drive innovation and lower labor
costs, may allow airlines to more effectively achieve their strategic objectives by
transferring some or all of their functions
to a third party.
Given the high fixed costs associated
with running an airline, in particular fullservice long-established carriers, keeping
expenses to a minimum is even more
critical in comparison with other industries.
Outsourcing, if used effectively, can afford
airlines economic benefits by potentially
lowering operating costs such as employee compensation and benefits, as well as
recruiting and training expenses.
Outsourcing Call Centers Call centers are often outsourced by airlines. One advantage is that most
third-party vendors provide 24-hour-a-day service, enabling customers to seek assistance any time,
regardless of their geographic locations.
better off, in terms of efficiency, costs and
expertise, being managed by a third party.
If a third party is able to perform the operation at a superior level and at a lower cost
than the airline could do in-house, then
there is likely justification for outsourcing
the operation.
Call centers, airport services, aircraft
maintenance and ground handling are the
functions most commonly outsourced to
companies specializing in these types
of services. Cost savings are primarily
achieved through the use of cheaper contracted labor rather than an airline’s own
Maintaining Service Levels Passenger check-in is one of many areas within an airline where there are
high volumes of customer contact. Ensuring service levels are maintained is a key consideration when
looking to outsource these areas.
Photo: Frontier Airlines
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Taking Care Of Customers Frontier Airlines chooses to have all customer-contact functions, such as call centers, conducted by its own staff. The airline
believes that because employees have a stake in the company, they will provide better customer service than a third-party vendor.
employees. In most instances, airlines
must pay not only employee salaries but
ancillary benefits such as travel privileges,
health benefits and retirement plans. The
key consideration for an airline is to ensure
its service levels are maintained given
the high volume of customer contact that
occurs in many of these operations, such
as passenger check-in.
Impact Of Outsourcing
Outsourcing is primarily used to enable
companies to generate greater revenue
recognition and provide an added competitive differentiator. No matter the reason it
is undertaken, outsourcing can impact the
quality of products and services, either
positively or negatively.
For example, call center response times
may either increase or decrease. If an
outsourced call center does not operate 24
hours a day, for instance, the result would
be slower response times overall, an undesirable impact. In addition, outsourcing can
also improve or worsen customer service.
Advantages And Disadvantages
To better understand the potential
impact of outsourcing on an organization, it
is essential to evaluate the pros and cons
of doing so.
The Pros
The pros of outsourcing may include:
Greater revenue realization and enhanced
return on investment,
Lower labor costs and increased economies
of scale,
Broader knowledge base for better innovation,
Greater focus on core competencies rather
than routine activities,
Increased speed and improved quality of
product/service delivery,
Reduced cash outflow for an airline and optimized resource utilization,
The ability to offer customers access to call
-center agents or customer-service representatives 24 hours a day, regardless of their
geographic location.
Several examples highlight how some
airlines benefit from their outsourcing
strategies.
For instance, a British Airways subsidiary in India employs 1,200 workers
to handle back-office operations for its
parent company, as well as for nine airlines outside of its organization. These
operations include maintaining frequent
flyer programs, managing ticket processing and handling revenue accounting. The
subsidiary is saving the company almost
US$25 million a year in direct costs and has
expanded its services to include ticketing
work for the other airlines.
Qatar Airways outsourced one of its
non-core activities, revenue accounting, to
further focus on its core function, flying. It
opted to work with a service vendor that
provided revenue-accounting software as
well as processing services. By outsourcing its revenue-accounting function, Qatar
Airways has improved profitability and
overall efficiency. The airline benefits from
well-defined service-level agreements;
high-quality processing software; thorough
documentation of its business processes;
regular steering group meetings and communications; and access to detailed data
for analysis.
The Cons
Of course before any decision on outsourcing is made, an airline should consider
the possible disadvantages as well:
Possible loss of control over a non-core business process,
Problems related to product/service quality,
Sluggish response times coupled with slow
issue resolution,
Shortcomings in performance versus the
airline’s expectations,
Lower than expected realization of benefits
and results,
Issues pertaining to language barriers,
Dissatisfied customers coupled with
enraged employee unions.
Because of the risks associated with
outsourcing, some airlines choose to
keep both core and non-core operations
in-house. For example, Frontier Airlines
maintains its call centers with its own
staff. According to an article written by
Network World’s Dan Twing, the airline
prefers its operations involving customer
contact not be outsourced. In fact, its leaders believe outsourcing often has negative
financial repercussions.
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ASCEND I INDUSTRY
“Customer service is better when an
employee with a stake in the game
is interacting with customers,” said a
Frontier spokesperson. “Such personalized attention can make a big difference
in customer experience, which will translate into revenue and goodwill.”
Cathay Pacific also retains its own
staff at the airports it serves in Australia
and New Zealand. The carrier believes
that the quality and service standards set
by the company can only be effectively
offered and maintained by its own staff.
This is achieved through the ongoing
training of employees regarding the airline’s operational and service standards.
Cathay Pacific sees the crucial role customer-client interface plays and believes
outsourcing this role would compromise
service levels, leading to potential customer dissatisfaction.
In addition, there are often significant
challenges for airlines that outsource
operations to companies in foreign countries. Differences in local cultures and
customs, as well as language barriers,
may not be evident until an airline tries
to interact with a third party outside its
home country.
Data security is also a concern. Airline
bookings contain a substantial amount of
personal data, including passport details
and personal contacts, which could
potentially be used to commit crimes
such as identity theft. For instance, critics of outsourcing offshore call centers
to countries in Asia argue that there is
the potential for misuse of personal data,
thereby compromising one’s privacy and
destroying financial credibility.
Considerations
Outsourcing, with its many aspects
and implications, is a challenge for any
organization. Airlines that outsource
customer-service operations, in particular, must continually evaluate contracted
third-parties to ensure they monitor and
maintain agreed upon service standards.
Third-party staff should be thoroughly
trained in all aspects of outsourced
operations, including key business processes, to become proficient in all areas.
This minimizes the potential for servicelevel inconsistencies from a consumer
perspective.
The basic airline product itself — transportation and accompanying services
provided from point A to point B — is
highly perishable. For example, once a
seat has flown empty on a specified
date at a specified time, it can never be
recovered. It is, therefore, critical that
careful planning be part of the proposed
outsourcing of any service involving
50 ascend
client contact. If a customer experiences
what he or she perceives as substandard
service, an airline may lose the customer
to a competitor that appears to provide a
consistently higher level of service.
In certain instances, the benefits of
outsourcing are not conclusive, meaning
they can’t be measured. However, it is
Highlight
A carefully devised
outsourcing
strat-
egy allows airlines
to meet operational,
financial and organizational objectives
more effectively.
still critical for an airline to continually
assess the success of its outsourcing
strategies. While financial considerations
are often given top priority, an airline
should carefully evaluate whether there
is a strong business case to outsource.
The airline needs to keep in mind that
outsourcing may have a negative impact
on both operational and organizational
levels. Therefore, an outsourcing strategy should span well beyond financial
considerations.
“Outsourcing is increasingly pursued
by organizations as a quick-fix, cost-cutting maneuver rather than an investment
designed to enhance capabilities, expand
globally, increase agility and profitability,
or bolster competitive advantage,” said
Stephanie Overby, senior editor of CIO
Magazine.
Outsourcing shouldn’t be viewed as
a quick fix to a symptom of a deeper
problem. Rather, it should be seen as an
investment that positions an airline for
future growth and success.
The Strategy
A carefully devised outsourcing strategy allows airlines to meet operational,
financial and organizational objectives
more effectively. Developing a sound
strategy requires a cost-benefit analysis
that considers financial expenditures,
quality expectations and relationship
risks. The steps for developing an outsourcing strategy include:
1: Define Organizational Objectives
The goal may be to get a start-up
off the ground. Alternatively, an airline
may be well-established and focused on
reducing operating costs and improving
profitability. Regardless of the business
model or intention, defining organizational objectives sets the foundation for
the overall outsourcing strategy.
2. Pinpoint Reasons For Outsourcing
Accessing tools and skills not available
in-house, reducing operational costs and
accelerating organizational change are
just a few reasons why an airline may
choose to outsource a portion of its
operation. Building a business case is the
foundation of an outsourcing strategy.
The business case should help validate
the need for third-party resources and
provide direction to the airline regarding
the most beneficial types of partnerships.
3. Evaluate Quality Needs
Establish quality standards by talking with customers and holding internal
meetings to develop a list of customer
expectations and necessary qualities.
4. Outline A Plan For Achieving
Organizational Goals
An airline may be in the process of
offering new services to existing customers or expanding its range of services
to attract new customers. The detailed
strategy it develops might include hiring
outside consultants or third-party vendors
or training in-house personnel to effectively deliver these services.
5. Contact Vendors And Service
Providers
Finding the right partner takes a great
deal of time and research, so an airline
should contact specific qualified vendors and service providers early in the
process to help narrow down prospective outsourcing partners. Three areas of
particular importance include:
Cost estimates — Gather cost estimates early in the process to aid in
conducting cost-benefit analyses and
competitive pricing studies.
References — Thoroughly check references to ensure the quality and consistency of services provided. Airlines
ASCEND I INDUSTRY
Internal Costs Of Outsourcing When considering outsourcing options for airline maintenance, airlines should consider the financial side from an internal
perspective. For example, in-house staff will need to oversee outsourcing contracts. This often involves investment of time, as well as equipment and travel
expenses.
should speak to other organizations
that have partnered with the vendor or
service provider.
Distribute quality requirements —
Outside vendors and consultants
should receive a clear explanation of
an airline’s expectations, both verbally
and in writing.
6. Calculate The Financial Impact
As with any business decision, the
critical step of weighing financial implications is imperative. For example, contract
maintenance costs need to be considered. In-house personnel must oversee
outsourcing contracts, which may involve
an investment of time, equipment and
travel expenses.
7. Explore Legal Implications
An airline’s lawyers, whether on
retainer or in-house, need to examine tax
laws, contract language, data-protection
responsibilities and other factors relevant
to the industry and workplace before an
outsourcing agreement is signed.
8. Examine Relationship Risks
Current relationships between an
airline and its employees, customers
and other third-party vendors may be
impacted when a decision is made and
the transition undertaken to outsource
specific operations. Airlines should take
care to nurture these relationships to
ensure wise decisions are made and
morale does not plummet.
Internal relationships — Outsourcing
any portion of the responsibilities of the
airline’s in-house staff should always
be accompanied by an explanation.
Communicate openly with employees
to avoid misunderstandings and boost
employee morale. Clearly outline the
impact of the transition to employees
and their anticipated roles as a result
of the outsourcing agreement.
Customer relationships — Evaluate
relationships with customers to determine how they will be affected by the
outsourcing plans. Once these details
have been worked out, communicate
changes with customers, as necessary,
to ensure a smooth transition.
When researched and executed correctly, an airline’s transition to and
utilization of outsourcing can significantly
contribute to its bottom line and drive
brand value and recognition. a
Saleema Khan is a senior consultant for
Sabre Airline Solutions ®. She can be
contacted at [email protected].
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NPS
Net Promoter Score
AS A
Strategic
KPI
By Dr. Benjamin Quaiser I
Ascend Contributor
Impacts On Customer
Centricity And An
Airline’s Bottom Line
As a business strives for higher
accountability of its marketing
actions, different key metrics
are proven to link investments
to company profit. One such
metric, the Net Promoter
Score® (NPS®), is a simple but
effective tool for
measuring customer centricity
and predicting
100 %
revenue growth.
NPS plays an
important role in
aligning a company with the
real needs of
customers.
ASCEND I INDUSTRY
C
ompanies in any kind of market,
industry or region face an old but
nevertheless ongoing challenge
when it comes to marketing investments: Do they really pay off?
In times of growing competition, liberalization of markets and changing
customer wishes — not only, but in particular,
in the airline industry — the key to differentiation lies in offering customers valuable, tightly
calculated, exceptional services and products.
However, in contrast to fare decreases and
network adjustments, the impact of investments in better services and new product
features are not obvious. Because new
services usually do not capture customers’
attention until they are experienced firsthand,
their impact on buying decisions is not readily
visible.
In addition, to receive maximum effectiveness, investments in services should be
accompanied by appropriate brand image, corporate communication and, most importantly,
a suitable employee response. The interdependency of these factors makes it extremely
tricky to forecast specific profit increases for
single investments.
As a consequence, top management is
cautious about investing in service improvements (e.g., accurately evaluating the
positive effects of a better seat pitch),
product adjustments (e.g., making changes
to the catering concept) or brand polishing
(e.g., launching a social media campaign).
Possible effects are not straightforward,
resulting in a high rejection rate for such
investment decisions.
On the contrary, the short-term effects of
cost cutting, price promotions or schedule
changes are easy to summarize for executives, so they prefer to make these types of
decisions in these areas of business.
Keeping this major obstacle in mind, however, it is crucial that customer-centricity
efforts, as well as any kind of investments
to meet customers’ expectations for a more
differentiated service, pass a critical litmus
test in a company: Can the assumed positive
outcomes to the bottom line be proven by
financial accountable key metrics?
As long as marketing managers do not share
a common language with the finance department and are reluctant to use these metrics, or
key performance indicators (KPIs), they will lose
influence in the company and will be excluded
from the decision-making process.
A KPI that is capable of evaluating financial
outcomes of specific investments to fulfill customer needs is essential when facing today’s
tight budgets in the airline industry. Furthermore,
accountability is critical when managers are
provided with the big picture of their decisions.
Executives are aware of numerous metrics, such as customer satisfaction, customer
loyalty and perceived value, that try to establish
a link between customer perception and a company’s ability to profitably grow. The use of these
measures is based on the same assumption:
Services that are designed to be based on a high
customer orientation lead to increased customer
satisfaction, which results in higher customer
loyalty.
The reason for this causality lies in the fact
that if a company has a high proportion of
loyal customers, these customers exhibit several
favorable behaviors that financially benefit the
company. Examples of favorable behaviors are
the willingness to pay higher prices, forgive
service failures to some extent and recommend
the airline to other people.
As management has learned from these
findings, the practice of measuring customer
satisfaction is broadly employed in all industries
and all competing companies. Thus, today’s
managers are well aware of how their products
and services meet, exceed or fall below the specific customer expectations for their company’s
offerings.
This knowledge is fundamental when managers want to know how their decisions are
perceived by the market. It is a requirement
companies must fulfill as they strive for success.
However, measuring customer satisfaction alone
is not sufficient for maintaining a successful
company as it lacks two things: A forward-looking perspective and incorporation of competitor
actions.
For example, customers may be satisfied
with the current service level. More specifically,
they like how the airline treats them at the boarding gate. But what happens if the airline plans
to change its boarding procedure in such a way
that premium customers get a faster track into
the aircraft and regular customers have to wait
for a while? Based on satisfaction indicators
alone, we neither can forecast the appreciation
or depreciation in both customer segments, nor
can we evaluate the impact on customer loyalty
and, thereby, on customer revenue.
Similarly, assume the airline does not change
the boarding procedure at all, but its major competitor does. Can management determine what
will happen to the bottom line? Unfortunately,
when merely looking at current satisfaction
levels, they cannot.
Because most companies do not have a
monopolistic position in the markets they
serve, competitive actions and investments
directly influence what customers expect from
a particular service. With respect to the given
example, if a competitor implements the outlined new boarding process, expectations of
premium customers even toward the focal
airline rise. As a result, although the focal
airline has not changed its boarding process,
customer satisfaction with its current procedure decreases, customers become less loyal,
and profits will drop.
ascend 53
Photos: Shutterstock
ASCEND I INDUSTRY
Ensuring Customer Satisfaction Airlines constantly face growing competition and changing customer
demands. Therefore, it is essential to offer customers valuable, unique products and services that stand
out above the competition. NPS gives airlines the ability to measure customer centricity to ensure they
give customers exactly what they want and need, when they want and need it.
Thus, a KPI that incorporates not only past
customer experience but has a forward-looking
perspective, as well as a view of competitive offerings, would be highly beneficial to companies.
With such a measure, every activity
toward higher customer centricity could be
linked to the financial effects on the company’s bottom line.
Net Promoter Score (NPS) is a sound
answer to this call for a comprehensive measure. Because NPS asks customers how likely
it is that they will recommend an airline to
Predicting Revenue Growth Via NPS The Net Promoter Score is an effective tool airlines can use to
predict revenue growth. In addition, it can help augment budgets in specific areas such as customer
service, service excellence and employee training.
54 ascend
others, a forward-looking perspective on future
behavior is given. In addition, as customers
usually have only a distinct and limited relevant
set of companies they consider for a specific
service, NPS gives a good view on how a service and company performs in a market.
NPS has demonstrated its usefulness
throughout different industries and markets. An increase in NPS significantly
drives revenue growth. By linking revenue
potential to investment decisions, a real
return-on-investment analysis can be conducted. This gives managers a reasonable
basis for making decisions. Furthermore, as
NPS is capable of proving positive effects
on a company’s bottom line, it can augment
budgets in the areas of customer service,
service excellence and employee training.
A company’s NPS scores can be compared with market average levels, as well
as with specific competitor scores, giving
managers a big-picture view of how their
services are positioned in the market. This
tells which service features customers value
and which are not considered as important.
Based on this NPS evaluation, over-funded areas can be scaled back and thereby
freed money should be invested in areas
that lag behind. A financial tradeoff between
different investment options can be done
by forecasting the effects on NPS and,
thereby, on profit.
However, managers that plan to implement NPS as a strategic KPI should consider
doing this on a comprehensive level across
the entire company, not only for marketing or customer service. Because NPS
enables airlines to see any decision and any
service encounter from their customers’
perspective, all respective employees and
managers should concentrate their efforts
solely on actions to increase NPS.
Using NPS, a company can align any
activity, any brand, any service and/or any
employee behavior to the real needs of
customers — a strategy that will definitely
pay off. a
Dr. Benjamin Quaiser’s previous research
and practice concentrated on customer
loyalty, service recovery and marketing
accountability. He works as an airline
consultant and was previously vice
president of customer interaction and
services for airberlin.He can be contacted
at [email protected].
By Bijan Fazal | Ascend Contributor
THE AIRLINE
REVENUE SHIFT
Strategic Shift From Revenue Maximization To Revenue Optimization
Airlines aim to shift their business focus from revenue maximization
to revenue optimization. In doing so, accompanying strategic areas,
including customer experience, inventory management, customer
communications and business intelligence, will land them substantial
revenue results.
ASCEND I INDUSTRY
S
ince the advent of flight early
in the last century, the airline
business has flown farther
and further than most people
in the industry could have
predicted. During the past
few decades, the focus has been on network building, revenue management, fleet
modernization, passenger comfort/safety,
operational efficiency, distribution channels, passenger service solutions, alliances
and global air hubs.
While those areas are clearly still critical
to an airline’s success, the encompassing
business goal is shifting from revenue
maximization (the principle of achieving
incremental unit price for the next seat
sold) to revenue optimization (the concept
of achieving additional unit revenue from
a combination of seat and high-margin
services), with the introduction of new
revenue streams, particularly ancillary, or
optional services, fueled by modern technology solutions.
As a result, customer ease and experience are becoming increasingly important
during operational service delivery and
recovery. The effective management of
finite optional services inventory, coupled
with seat inventory, can generate optimal
revenue-management results. Airline merchandising requires mobile e-commerce
and customer communication platforms
for presentation and acceptance of offers.
Revenue generation from optional services
requires decision-support solutions relying
on business intelligence.
With that in mind, going forward, airlines should focus on five strategic areas,
including:
Revenue optimization,
Customer services,
Inventory management,
Customer communications,
Business intelligence.
The core product offered by airlines
is evolving. The era of unbundling flightrelated passenger services with the aim
of reducing the seat price prevails, along
with the size and comfort of a seat, to
a competitive level among airlines with
varying cost structures (keeping in mind
that the tax burden as a portion of the total
fare paid by a passenger is not decreasing).
The business foresight from this evolution of airline product and price can be
best encapsulated as revenue optimization.
Airline business is now focused on the
balance between yield of a seat and yield
of optional services — those offerings
that can be uncoupled from a low-yielding
seat and provided at a higher yield, including inflight meals, entertainment, onboard
communications and comfort.
Commercial cargo has been swapped
for paid passenger baggage. However,
passengers who pay for services expect a
quality product — fulfillment of the airline’s
promise of a timely delivery of the exact
product to the right passenger on the right
flight. As a result, airlines are focused on
investing in passenger-service and groundhandling solutions, as well as on-board
aircraft technologies, to effectively sell and
fulfill optional services. Service delivery
and recovery, in case of flight changes/
cancellations, become even more important for retaining customer loyalty.
Low fares will fill airplane seats, but the
essential business question is, “how much
more revenue can an airline make per
passenger by offering optional services”?
In some cases, basic human necessities,
such as drinking water, become an optional
paid service. In other cases, it is based on
passenger demand for extra comfort or
added convenience.
While key business strategies such as
personalized pricing and product packaging are not new to established retail and
e-commerce companies, they are gaining popularity in the airline industry, and
airlines stand to gain significant additional
revenue by building strategies around
these optional products and services.
Personalized Pricing
Personalization has a big dependency
on Big Data. A passenger’s travel shopping pattern and choices, whether on the
Web or through indirect channels, can
be tracked and recorded. However, they
cannot be easily associated if the same
passenger begins a new travel search.
Today, airlines have profiles of loyalty
program members, as do travel distributors
of their corporate travelers. The profile
From Revenue Maximization To Revenue
Optimization
revenue optimization
customer services
Revenue Optimization
Airlines have long sought to maximize
revenue through a balance of yield (business sense) and load factor (tactical sense)
drivers with the aid of logical decision
support provided by revenue-management
systems (strategic sense). This method
has been applied to the inventory of seats
available on a particular flight (time of day,
market pair) and fleet (aircraft type), and
depended on the comparative propensity
of passengers to pay more for a similar
seat on the same flight. At times, revenue
maximization has extended to cargo carried
on passenger aircraft, such as mail, flowers
and fragile artifacts, using a balance of
yield and load factor between passengers
and commercial cargo (other than passengers’ belongings).
56 ascend
inventory management
customer communication
business intelligence
Sustainable Revenue-generating Concepts As airlines shift from revenue maximization to revenue
optimization, a focus on revenue optimization, customer services, inventory management, customer
communication and business intelligence, will result in significant revenue outcomes.
ASCEND I INDUSTRY
concept provides basic elements that construct biographic information, trip purpose,
cabin preference, previous destinations
and meal choices, to name a few. The
profiles are available for a small population
of passengers who are less seat-price sensitive and more likely to purchase optional
services with less risk of switching airlines.
However, they do not represent the entire
spectrum of demand that is seat-price sensitive and less likely to pay for unbundled,
optional services to keep the total trip cost
low.
Personalized pricing may not be as useful to loyal passengers because they are
often rewarded with an abundance of free
optional services, such as cabin upgrades,
priority boarding with carpeted lanes and
airport lounge access, as are corporations
that receive travel-program rebates for
regularly flying a preferred airline. This
type of passenger will make a “mileage
run” just to retain a certain loyalty program
membership status.
Airlines need to focus on building personas for their passengers. Personas would
circumscribe profiles and enhance them
with “choice” elements based not on a
history of seat selection but on optional
service selections as identification markers. A persona is then equal to biographic
profile plus choice markers.
Going forward, airlines should evaluate how to incentivize all passengers to
participate in a travel program that allows
them to build custom trips or travel experiences. Using this information, airlines
would offer pricing based not only on need
(the seat itself) but also on aspiration (a
better seat) and desire (optional services
in addition to the seat). One example is
an ultra-low-cost airline in which all its
passengers are loyalty program members
through the pre-requisite means of signing
up as a member before being able to book
a trip.
Most airlines only utilize the first or second
choice as their business model. Destination
services are offered separately and after the
flight package selection is complete.
While these may appear to be dynamic
offers, in practicality, they are static, discounted offers. The only personal element
is the hotel or car services available at
a passenger’s selected flight destination.
However, affordability is usually the driver,
not the match between a hotel brand/class
or car type/size and a passenger’s need or
profile.
Airlines should consider dynamic offers
based on personalization using personas;
however, dynamic offers can also be created
independent of personalization.
The first strategy involves pre-paid
subscription bundles, in which optional services’ packages are offered to customers
ahead of a purchased flight or applicable
for any future flight.
Travel products are packaged by airlines
with the help of other travel suppliers,
distributors and technology solution providers. With the exception of personalized
family vacation packages, products are
offered individually with optional add-ons.
Today, airlines offer static bundles, or a
pre-set menu of choices.
The first choice is a basic seat offering,
and personalization takes the form of preset, standard choices of optional services.
The second choice comprises a predetermined seat with services included
to form flight packages at different fare
levels. Fare differentials are based on the
number of services provided in addition to
the seat.
Photo: Shutterstock
Product Packaging
Human Interaction Preferred Flight disruptions create angst for customers. Many airlines manage their
irregular operations via e-notifications to customers’ mobile devices. Due to limited re-booking functionality through airport kiosks, customers prefer human interaction as they look for reassurance that they
are receiving the next best travel option to their destination.
ascend 57
ASCEND I INDUSTRY
The second strategy removes fareclass dependency (from 26 to as many
as the number of seats available on a
flight) — each seat to be a bundle. Seat
packages to vary by seat characteristics
such as location on the aircraft, size and
features (e.g. power port, full recline)
and amenities (e.g. optional services
not attached to a seat, such as Internet
access, meals and tablet entertainment).
Seat packages can be optimized based
on market, flight and cabin. For instance,
an early morning weekday flight to a
metropolitan city would likely carry business passengers who may want a seat
that comes with a power port, premium
coffee, Wi-Fi and a newspaper. On the
other hand, passengers on an overnight
transcontinental flight would likely want
to sleep, and therefore, a reclining middle-seat package with a pillow, blanket,
premium headphones and warm milk
with cookies is preferable.
Customer Services
Today, the correct reference for
passenger services is actually “customer services,” because the retailing of
optional services allows non-passengers
to purchase non-flight-related services
using airline loyalty rewards. Volumes
have been written about airline customer service; however, airlines need
to institute business strategies in the
areas of customer ease and customer
experience.
Customer Ease
Several technology solutions have been
developed to facilitate quicker customer
processing online on individual airline
websites, onsite at the airport or onboard
the aircraft. Automatic check-in, mobile
boarding passes, electronic boarding gate
processes, bag valet services and customer preference lists on tablets carried
by flight attendants are a few of these
solutions. While these solutions improve
utilization of an airline’s staff and aircraft,
they also help customers navigate the
journey more easily.
In the past, optional services were
included in the seat fare, and customer
expectation was mediocre, as long as
airlines flew them to their intended destination — safely and on time. As more
optional services are unbundled from the
seat fare and separate fees charged for
each, the higher the expectation by customers that airlines will not only provide
a specified service, but also provide quality service. Therefore, service delivery
throughout the customer journey will
become an even more important aspect
of airline business.
58 ascend
Customer Experience
The intended consequence of automation is operational efficiency, but the
unintended consequence is fewer human
touchpoints between an airline and its
customers. Therefore, when service is
not delivered as expected, it becomes a
customer-experience issue. Unfortunately,
many airlines do not have adequate service-recovery strategies in place.
Flight changes, including delays and
cancellations, are big stress points for
customers. Today, irregular operations
are managed through e-notifications to
customers’ mobile devices, and limited rebooking functionality is available at airport
kiosks. However, many passengers prefer
to use phone banks or speak directly
to agents because they believe human
reassurance is necessary to ensure they
receive the next best travel option to their
destinations.
Tomorrow, the emphasis will be on
service-recovery improvements involving
the re-booking of seats, as well as the
transfer of equivalent optional services
purchased to substitute flights. Airlines
need to determine how to quantify the
value (track, measure and report) of providing improved customer experience to
justify investment in passenger-service
technologies and in charging additional
fees for increasingly optional services.
First, having the customer profile stored
can help match the passengers’ preferences when a recovery scenario is being
developed and executed. Second, having
new technologies, such as, on-board connectivity, in-flight communication system
(IFE) or flight attendant mobile devices
can push the recovery problem during
a flight instead of after the passenger
arrives, hence, improving the overall customer experience.
Today, seat amenities, along with
onboard and airport experiences, have
been streamlined and standardized among
codeshare and alliance partners. Soon,
customers will demand service equivalency across airline partners. The services
a customer purchases from one airline
should be the same type and promised
level of services delivered throughout
the journey, even if it happens to be on a
partner airline. Keep in mind that service
equivalency is defined as a “close match”
and not a “close substitution.”
Inventory Management
A seat is a finite and perishable product.
To date, airlines have mastered the art (or
science) of inventory, yield and revenue
management of seats to optimize capacity
with demand and reduce spoilage. The
desired outcome is a price gradient in
which each passenger pays a bit more
than the other on the same flight. There
are challenges in applying these principles
across revenue-share or equity-based
global alliances. Each alliance partner may
attach a different value to its seat product,
even though the inventory-management
system used may be from the same technology provider, and anti-trust immunity is
given to collaborate on price and capacity.
To address this, an improved alliance
revenue-management system can equate
seat value across partner airlines by
Highlight
Airlines should consider dynamic offers
based on personalization using personas;
however,
dynamic
offers can also be created independent of
personalization.
homogenizing fare classes or removing
dependency on them by creating comparable product packages that include a seat
with optional services.
Airlines have been managing the creation
and merchandising of optional services
without an inventory-management system
for these services. Some technology providers are developing an inventory system
to handle optional services, while other
providers are refining existing revenuemanagement systems that link to the
inventory systems.
Today, the strategy is to sell “infinite”
services — defined as optional services
that can be supplied to cover demand
without shortage or additional unit cost
to produce more, such as bag carriage,
Wi-Fi access and ticket change fees. For
example, if every passenger on a flight
checked a bag, the airline would still
be able to carry all bags on the same
aircraft and flight as the passengers. No
ASCEND I INDUSTRY
modification to the aircraft is required, and
baggage handling/screening infrastructure
and staff are already in place. Of course,
airlines have carried bags before, but now
they are charging fees for doing so without incurring a significant, incremental
cost burden.
Selling infinite services circumvents
the need for an inventory system. A
uniform price is applied for every checked
bag regardless of market, flight time or
aircraft hold capacity, to compensate for
the fact that this type of service cannot be
“revenue managed.” Some airlines offer
service-fee waivers for specific passenger
types, such as airline-endorsed credit
card holders or loyalty members, or for an
advance purchase of services (i.e. before
the day of departure). These waivers are
price discounts, not price gradients, and
they do not lead to revenue maximization.
Moreover, minimal to no investment is
required in passenger-service systems,
as infinite optional services are usually
offered through direct distribution channels, sold via existing sales/reservations
platforms and staff, and fulfilled by established departure control/ground handling
systems at the airport. To reiterate, these
services already existed and were being
offered, but the difference now is they
carry a fee — a pure example of unbundling services from the seat fare.
A services-inventory management system is required to offer and sell “finite”
services, defined as those services that
decrement inventory each time a unit
is sold and will always be in short supply to demand due to incremental unit
cost for producing and delivering them.
Examples are onboard meals and handheld
entertainment devices. A services-inventory-management system is critical to
create a virtual store shelf and offer units
of services at various prices based on
demand by market and flight. Seat packages can also be created by associating
finite services with seat inventory by
flight.
Delivery of finite services becomes
essential, as reservations platforms have
to match passengers with the services
they purchased, and departure control
systems have to identify the passenger
services purchased and their flight for
fulfillment. This can be done with a single
passenger receipt that combines seat
and services purchased. Today, these are
separate processes, on separate validating
documents such as electronic tickets and
associated electronic miscellaneous documents, respectively.
Service recovery is paramount due
to inherent operational constraints. For
example, when an aircraft change happens,
services purchased on the original flight
may either be inequivalent or unavailable
to be delivered on a substitute flight. A
re-booking solution needs to be able to
synthesize seats and service options for
passengers in case of trip interruptions.
Customer Communications
Airlines communicate with passengers
to provide special fares, purchase confirmations, check-in reminders, destination service
offers, boarding pass delivery, flight changes,
loyalty program statements and much more.
Communication solutions are pivotal for merchandising both seats and services.
Today, email is the primary mode for preand post-departure communications. Text
alerts are used on the day of departure to
convey flight- or gate-change notifications.
These are one-way short messages (SMS)
that provide essential information only and are
insufficient for sending personalized offers in a
single message block.
Instead, a text message can be used to
provide seat-related (e.g. upgrades) or service-related (e.g. meal selection) offers, which
are effective on the day of departure when
passengers are captive at the gate waiting to
board their flights. The key is that passengers
must have the capability to respond to the
offers using two-way functionality that exists
today and is used for appointment confirmations in other industries.
When a passenger “opts in,” as a loyalty
program member or has an active passenger name record (PNR) during the trip, the
airline has a profile containing the method
of payment. The airline can send a single or
multiple-choice offer to a passenger. If the
offer or choice is accepted, it is processed,
including payment, and confirmation is sent
back to the passenger. The airline’s systems
must be linked with its merchandising engine
platform to then deliver the purchased service. The same communications method can
be used by the airline’s travel partners, such
as hotels, rental car companies and airport
retailers.
The future communication strategy
is a two-way multimedia message (MMS)
between the airline and its passengers.
Today, this mode of communication is not
used in travel merchandising; however, an
application is being developed to address
this business need. Pictorial messages are
visually appealing and alluring for seat and
service offers, such as a reclining seat or an
appetizing meal. This is a revenue-generating
concept for tomorrow.
Business Intelligence
With the development of a serviceinventory-management system, data and
analytics become instrumental for revenue
managers as they decide on the best method
for optimizing revenue between seats and
services.
Today, historical booking curves and predictive modeling help determine the price of any
given inventory of seats on any given day
before departure. Such business-intelligence
solutions for revenue management of optional
services are in development.
Decision-support solutions are needed to
map services purchased by passengers on
flights. Product offers are currently independent of seat placement, but when offering a
combined seat and service package, a revenuemanagement system will require input data
that provides passenger seat assignments on
flights, the services they purchased, the price
they paid and their personas. The output will
be revenue optimization of seat and service
packages by flight, market and aircraft fleet.
The airline business today is at a juncture.
Revenue-generating strategies involving seatdifferentiation products and finite optional
services are yielding positive results to the
bottom lines of most airlines. Other airlines are
quick followers, and the entire air transportation industry is realizing a boost in operating
margins.
However, the industry will reach an equilibrium, and operating costs will creep in. For
tomorrow, airlines can benefit by focusing on
the five strategic areas — revenue optimization,
customer
services,
inventory
management, customer communications and
business intelligence — to enable sustainable
revenue-generating concepts. a
Bijan Fazal is managing principal
of Orange Skies, a consultancy that
provides foresight in travel and
transportation, as well as partners with
Sabre Airline Solutions ® on airline
business strategy and travel technology
solutions. He can be contacted at
[email protected].
ascend 59
A Living
Vade Mecum
By Jorge Luis Nunez I Ascend Contributor
Policies, Processes
And Procedures
Are A Company’s
Lifeline
Vade mecum is a
handbook or guide
that is kept constantly
at hand for reference.
In the case of an airline,
the vade mecum represents
a set of manuals outlining
policies, processes and procedures to ensure everyone across
the organization is in compliance
with industry and government
regulations, as well as corporate
bylaws. Without them, airlines
may be vulnerable to liabilities, such as monetary fines,
work accidents and customer
dissatisfaction.
ASCEND I INDUSTRY
P
olicies are everywhere, from
the governments of countries
around the world down to the
members of a family. Policies
guide the decisions that entities make to accomplish the
objectives they have set. Therefore, policies are fundamental as they guide actions.
In an organization, policies typically
set the standards for acceptable behavior
and business practices. They provide the
framework for an organization’s entire
operation.
In the airline industry, many policies are
mandatory and are designed and enforced
by regulatory agencies. By establishing
their policies in accordance with those of
regulatory authorities, airlines ensure that
all employees companywide understand
what they need to do, how they need to
do it and the purpose of doing it, which, in
turn, results in compliance with mandatory
regulations.
Policies are the basis for the next step,
which is the creation of the business processes. A business process is a sequence
of related and structured activities that support the production of a specific service or
product for customers. The process flow
provides employees with an accurate guide
to create and deliver the products and services an airline expects to offer its customers.
Having created the policies and processes, the next step is to develop procedures
that describe how a product is created or
a service is executed, which can be further
broken down and documented in the form of
work instructions.
Companies, such as airlines, need formal
documentation clearly outlining policies, processes and procedures. This documentation,
or vade mecum, gives employees guidance
and insight into the company’s philosophy
and provides a clear framework for how they
should function in their respective roles.
Using well-structured, well-defined
written policies saves time and money by
alleviating the pressure on managers to constantly monitor employees’ performance and
enabling them to focus on other managerial
priorities. With this in mind, it is of utmost
importance that an organization enforces the
use of these documents and follows them
as a business best practice.
An organization should have specific
manuals — in electronic and/or written format — that provide employees with easy
access to accurate information, such as
booking, ticketing, payment, and check-in
and boarding policies and procedures. The
manuals must be clear and concise enough
to foster its daily use within the organization.
Because changes to policies and procedures are frequently made to adjust to
an organization’s needs or comply with
new or revised regulations, maintaining and
updating the manuals has become a daily
activity. Therefore, it is important to have
dedicated resources, such as the training
department, corporate communications or
the help desk division, who are responsible
for this activity.
Highlight
Using
tured,
well-strucwell-defined
written policies saves
time and money by
alleviating the pressure of managers to
constantly
monitor
employees’
perfor-
mance and enabling
them to focus on other
managerial priorities.
Furthermore, revised policies, processes
and/or procedures must be communicated
to employees impacted by the changes.
For minor changes, an email message or
discussion during staff meetings may be
sufficient. More complex revisions may
require additional training to ensure a clear
understanding and correct application of
the update.
Regardless of who is responsible for the
manuals, subject matter experts from different areas across the organization should
be involved in their maintenance, since they
have the knowledge to create and update
the information for their respective areas.
While primarily used for orientation
and training, the manuals should be easily accessible, providing employees with
a tool they can leverage to learn specific
processes and execute procedures.
Regulations manuals provide numerous
benefits to an airline, ensuring that:
Clear guidelines are readily available to
help employees understand their roles
and responsibilities;
Consistency is prevalent companywide
to ensure proper handling of any event,
product or service;
Disciplinary actions are taken for noncompliance with mandatory policies, processes and/or procedures;
Everyone associated with the company, such as employees, contractors and
vendors, adheres to laws imposed by
authorities, as well as bylaws set forth
by the company;
Customers receive the products and services promised.
A company’s policies, processes and procedures manuals are crucial in maintaining
efficiency, consistency and communication
across the entire organization.
Consistency generally drives efficiency.
By doing things the same way every time,
employees eventually guarantee a standard
delivery of products and/or services at any
point of customer contact. This boosts productivity and frees employees to focus on
other important functions. Consistency helps
employees and customers know what to
expect and how to better respond when
faced with any number of situations, such
as:
Which forms of payment are accepted,
The types of rewards a frequent customer
is entitled to receive,
How to effectively manage a complaint.
According to URGO consulting, more than
50 percent of organizations now have written policies and procedures. Because all
organizations can benefit from manuals that
support their strategies and clearly outline
regulatory policies, the percentage seems
somewhat low.
Airlines that have not yet documented
their policies, processes and procedures are
vulnerable. They are putting their businesses,
employees and even passengers at risk.
Why take chances? a
Jorge Luis Nunez is a reservations and
direct sales principal consultant for
Sabre Airline Solutions ®. He can be
contacted at [email protected].
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ASCEND I SPECIAL SECTION
64 Operations Research
Since the late 1950s, Operations Research (OR) has
helped the worldwide airline
industry continually transform
itself to effectively compete in
the marketplace and match the
services airlines provide with
increasingly complex consumer demands. In the process,
OR has saved airlines millions
of dollars, improved their operational efficiency and equipped
them to generate additional incremental revenues.
70 Cracking The Crew-
Recovery Conundrum
Harsh storms in the northeastern
United States played havoc with
schedules, severely disrupting airline
traffic during the winter of 201314. As the future unfolds, there
are newer and more efficient data-analysis and optimization techniques that can help carriers rePassport
To Freedom
cover from irregular
operations in
a much quicker timeframe.
76 Real-time HCC Models
New turnaround-management and
payload-management
decisionsupport models address airlines’
needs to make real-time decisions
that optimize aircraft turn times
and more efficiently transfer passengers, luggage and crew.
The Value And Necessity Of Operations Research
Keep Your Eyes Open
80 Customer Segmentation
Airlines are ready to adopt new
customer-centric practices —
supported by efficient data management and enabled by operations research and analytics.
62 ascend
84 Getting Your
Prices Right
A Web-based, integrated decision-support prototype for a
new “proactive-pricing” workflow is currently being developed that has potential to help
airlines determine optimal price
levels in markets subject to an
airline’s desired price ranges for
each core fare product.
90 Market-Size
Forecasting
For decades, determining the actual passenger numbers for a past
time period was difficult, which
made it nearly impossible to accurately forecast future demand.
Now that the historical picture
of airline passenger travel can be
more precisely constructed, established modeling methods yield
more accurate predictions.
SPECIAL SECTION
ASCEND I SPECIAL SECTION
Operations Research
By Ben Vinod | Ascend Contributor
Laying The Foundation For The
Future Of Airline Technology
Since the late 1950s, Operations Research (OR) has helped the
worldwide airline industry continually transform itself to effectively compete in the marketplace and match the services airlines provide with increasingly complex consumer demands. In
the process, OR has saved airlines millions of dollars, improved
their operational efficiency and equipped them to generate additional incremental revenues.
ASCEND I SPECIAL SECTION
I
n 2013 alone, the world’s airlines
carried more than 3 billion passengers and directly employed
more than 8.7 million people. In
fact, if the aviation industry were
a country, it would rank 21st in
the world in terms of gross domestic
product (GDP), generating US$606 billion
in GDP last year. By 2026, the industry is
forecast to contribute US$1 trillion to the
world GDP.
While these facts are impressive and
the economic impact clearly significant,
the airline industry worldwide has continually struggled to transform itself over
the years to remain relevant and reliable.
In doing so, operations have become
more complex in response to an increasingly competitive marketplace and a rise
in customer expectations.
The introduction of the “jet age” in the
1950s moved the airline industry from
a novelty for a few elite passengers to
a viable mode of transportation for the
general public. The transition ignited an
explosion in the number and utilization of
scarce and expensive resources, including
aircraft, crew and airport facilities, over
the decades and accelerated the need for
airlines to effectively and efficiently plan
and manage these dynamic assets in a
continually fluctuating environment.
To handle this level of complexity,
airlines began developing and using tools
and techniques to model this volatile environment and subsequently, the impact
of changes and resource utilization on
various scenarios. Some carriers established their own operations research (OR)
groups, which have saved millions of dollars over the years, to lead this initiative.
In 1961, a handful of OR professionals
from five airlines formed the foundation
of The Airline Group of the International
Federation of Operational Research
Societies (AGIFORS). Dedicated to the
advancement and application of OR within
the airline industry, to date, AGIFORS has
more than 2,800 members representing
over 500 airlines, aircraft manufacturers and aviation-related companies and
universities.
That same year, another landmark
achievement was realized when the OR
department at American Airlines, from
which Sabre ® was launched, introduced
the first automated real-time reservations
system and subsequently began hosted
reservations services for carriers on a
massive scale, laying the groundwork
for the future of technology in the airline
industry. After airline deregulation in 1979
under the administration of President
Jimmy Carter, advanced decision-support applications were developed and
deployed for travel suppliers, such as airlines, hotels, rental car agencies, and rail
and tour operators, to help them remain
competitive and boost their bottom lines.
The Rise Of OR
OR first attracted large-scale recognition in the mid-1980s when a small
group of American Airlines’ OR professionals, now part of Sabre, developed
the world’s first yield-management (or
“revenue management,” as it is called
today) system at the request of Robert
L. Crandall, the airline’s former chairman
and chief executive officer. Discount carrier PEOPLExpress threatened the very
existence of American Airlines with its
deeply discounted tickets, which undercut major carrier fares by 50 percent to
70 percent. The airline needed a strategic
and tactical weapon to counter this competitive threat.
Left with no choice but to match
the low fares, Crandall relied on yield
management to control the availability
of these deeply discounted fares. In the
absence of yield-management controls,
PEOPLExpress sold all seats at deeply
discounted prices, which were not enough
to support the airline’s cost structure
over the long run. By September 1986,
PEOPLExpress was gone. It failed for two
reasons: rapid uncontrolled expansion
of the fleet and the absence of yieldmanagement controls.
“We were a vibrant, profitable company from 1981 to 1985, and then we
tipped right over into losing US$50 million a month,” said Donald Burr, chairman
and CEO of PEOPLExpress, in 1986.
“We were still the same company. What
changed was American’s ability to do
widespread yield management in every
one of our markets. We had been profitable from the day we started until
American came at us with Ultimate Super
Saver fares. That was the end of our run
because they were able to underprice
us at will and surreptitiously. There was
nothing left to defend us.”
In the following years, OR professionals have used techniques such
as mathematical modeling, stochastic
processes, deterministic and stochastic
large-scale network-optimization models,
data analytics, algorithms, statistical
analysis, machine learning and decision
sciences to solve complex challenges
in all aspects of consumer travel. As
a result, significant progress has been
made in the areas of flight scheduling, pricing, revenue management, crew
Crew Management And Flight Operations
Technology
More than 100,000 crewmembers,
10 percent on-time performance improvement
US$200 million a year in crew cost savings
More than 6,700 aircraft managed
5.7 million flights annually
Reduced delay costs by US$15 million annually
Significant Crew Cost Savings The crew management solutions suite from Sabre optimally plans
and tracks the daily schedules of more than 100,000 crewmembers, improves on-time performance by
more than 10 percent and provides crew cost savings in excess of US$200 million annually. In addition,
the flight operations suite manages more than 6,700 aircraft and 5.7 million flights annually, improves
on-time performance by 10 percent and reduces delay costs by US$15 million a year.Significant Crew
Cost Savings.
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ASCEND I SPECIAL SECTION
planning, airline operations, flight planning, staff planning and cargo.
OR In Action
A common trait of OR-led projects
is the application of scientific methods
to solve complex problems involving a
large number of decision variables. The
process begins by quantifying the business objectives that need to be achieved
subject to the operational and business
constraints that must be met. An abstraction of the problem is then developed
in mathematical terms and solved with
a range of techniques, such as linear
or non-linear optimization, stochastic
processes, etc. OR projects are data
intensive, and special efforts are made to
ensure data quality and accuracy.
The Shopping Experience
When a customer plans a trip, the
first step is to explore available travel
options to and from the desired destination. This shopping process requires
the generation of outbound and inbound
schedules, which involves selecting a set
of relevant itineraries from thousands of
available options and pricing them based
on real-time availability of seat inventory. Conservatively, a single shopping
request may require the evaluation of
more than 100 million schedule and fare
combinations within seconds to arrive at
an answer.
According to a study by Topaz
International, Sabre’s Air Traffic Shopping
Engine was 15 times more likely to find
a lower fare than two other leading companies. Besides low-fare efficacy, Sabre’s
shopping diversity — the ability to display
a selection of itineraries based on departure time, elapsed time, non-stops versus
connections, interline and carriers —
relies on sophisticated consumer-choice
models to select itineraries that meet
customers’ needs.
To enable airline shopping for customers utilizing various selling channels, such
as travel agencies, online travel agencies
(OTAs) or individual airline websites,
Sabre deploys a combination of fare-,
availability- and schedule-led algorithms.
The shopping infrastructure now has 700
million fares that are updated hourly, 300
million fare rules, 50 million active availability records and 5 million schedules
and can support 20 million shopping
queries per day and 550 shopping queries
per second at peak times.
Airline Pricing And Revenue
Management
Today’s fare-management systems
eliminate latency and improve accuracy
66 ascend
of the fare-filing process through fare distributors, ATPCo and SITA. The timely and
accurate distribution of fares generates
an estimated US$1billion in incremental
revenue annually for airlines.
When availability and prices are determined during the shopping process,
revenue-management solutions generate
4 percent to 8 percent in incremental
revenues for an airline by selling the right
seat to the right customer at the right
price at the right time. The natural evolution of leg/segment revenue management
was the introduction of origin-and-destination (O&D) revenue management to
effectively manage connecting traffic for
network carriers by Sabre in 1987 with
virtual nesting controls and subsequently
with more granular continuous-nesting
(“bid-price”) controls.
This area continues to be refined
with more sophisticated models such
as consumer-choice-based, network
revenue-management
demand
and
optimization technologies that jointly
consider upsell and cross-flight recapture
effects to optimize traffic flow through
an airline’s network. These models are
especially critical with restriction-free
or lightly restricted tariffs advocated by
many low-cost carriers.
Schedule Optimization
To ensure an airline’s offer best
matches demand for travel, evolving solutions optimize the schedule by combining
advanced consumer-choice models to
characterize consumer preferences, such
as departure time, elapsed time and carrier preference, with large-scale network
optimization models. Network-planning,
flight-scheduling and capacity-allocation
applications from Sabre generate an estimated US$8.5 billion annually for airlines
by scheduling 3 trillion available seat
kilometers (ASK) for approximately 80
percent of the world’s top 100 airlines.
Today, schedule-management solutions with decision-support capabilities
can support all facets of the scheduledevelopment process, including analysis
of codeshare partners’ networks, from
schedule creation 5 years in advance until
the day of departure.
For airlines with multiple fleet types
and capacities, capacity allocation models determine the optimal allocation of
aircraft types to flights based on demand
forecast, revenue and operational costs.
The resulting aircraft assignments are feasible with respect to down line processes,
such as crew scheduling, maintenance
planning and airport operations.
Close-in Re-fleeting Benefits
1 percent to 1.4 percent higher revenues
0.5 percent to 0.7 percent increased
load factors
Higher yields of 2.1 percent
Close-in Re-fleeting Revenue Benefits The consulting team at Sabre Corporation has conducted studies with several airlines that practice close-in re-fleeting. Results show that airlines can achieve between
a 1 percent and 1.4 percent increase in revenues, higher load factors of 0.5 percent to 0.7 percent and
increased yields of approximately 2.1 percent.
ASCEND I SPECIAL SECTION
Collectively, the advanced network
planning, flight scheduling and capacity allocation applications generate more
than 5 percent to 8 percent in incremental revenues over traditional processes
employed by airlines.
Re-fleeting
Another potential source of revenue
improvements for an airline results from
close-in re-fleeting, the process of
adjusting fleet assignments based on
tactical demand forecasts by flight leg
and revenue estimates from revenue
management. These factors are used
by fleet assignment models to improve
network revenue performance.
Close-in re-fleeting is gaining acceptance in schedule planning and operations
due to its potential benefits. Consulting
studies at Sabre with airlines adopting
close-in re-fleeting have shown that the
approach results in higher revenues (1
percent to 1.4 percent), load factors
(0.5 percent to 0.7 percent) and yields
(approximately 2.1 percent).
Flight Planning And Fuel
Optimization
Consider these statistics:
Today, approximately 33 percent of an airline’s operating costs are spent on fuel, up
from 13 percent in 2001.
The airline industry worldwide generates
around 2 percent of manmade CO2 emissions.
Jet aircraft currently in service are 70 percent more fuel efficient per seat kilometer
than those in the 1960s.
By 2020, net aviation carbon emissions will
be one-half those of 2005.
The Carbon-Neutral Growth 2020 initiative
caps CO2 emissions at 2020, even as demand
for air service continues to grow.
While airlines have long sought to find
the most efficient ways to utilize their
most expensive asset, aircraft, there is
now a focus on doing so in a manner that
is eco-friendly, as well. Today’s multivariable flight planning systems generate
optimal flight plans that minimize operating costs by 1 percent to 7 percent and
optimize fuel burn, which, in turn, means
reduced carbon emissions.
The model developed by Sabre calculates emissions for a flight based on
carrier, aircraft type and seating configuration. The detailed aviation carbon
calculator is capable of providing emissions information to carriers at a higher
level of accuracy than before. Additionally,
by integrating data and workflow with
airport systems, flight dispatchers are
provided with data visualization and visual
validation of options and selections.
Crew Planning And Flight
Operations
These two areas utilize some of the
most sophisticated optimization models
available today to effectively solve complex problems involving thousands of
interdependent variables in the areas of
crew pairing, crew rostering and aircraft
movement control, resulting in improved
on-time performance, reduced operating
costs and increased aircraft utilization.
Crew pairing and rostering are largeset partitioning optimization problems
that cannot be solved to optimality in
polynomial time. For example, for a large
fleet type to minimize excess pay and
credit, the number of potential crew
pairings can run into 1,015, while the
crew rostering problem, which can have
thousands of crew and tens of thousands
of pairings, can run into 1,025 variables,
prompting the need for intelligent heuristics to solve the problem that is close to
optimal.
The crew management solutions suite
from Sabre optimally plans and tracks
the daily schedules of more than 100,000
crewmembers, improves on-time performance by more than 10 percent and
provides crew cost savings in excess
of US$200 million annually. As well,
the flight operations suite manages over
6,700 aircraft and 5.7 million flights annually, improves on-time performance by
10 percent and reduces delay costs by
US$15 million annually.
Flight Disruptions
In the United States, an average of 23
percent of flights are subject to a range
of disruptions that result in long travel
times for passengers. In many cases,
these disruptions are beyond an airline’s
control and are a result of weather conditions or increasing congestion in the
national airspace.
Adopting a “wait-and-see” attitude
often leads to poor decisions and
extended delays for customers. On the
other hand, some airlines have become
ultra-conservative in their decision making, cancelling large numbers of flights
to avoid recent government penalties
associated with prolonged tarmac delays
— US$27,500 per passenger for ground
delays in excess of three hours from the
gate. In addition, such disruptions can
wreak havoc on crew schedules when
duty time-limit rules, which apply after
arrival at the gate, stipulate crewmembers have exceeded their legal time to
operate a flight.
There are three components to this
challenging problem — passenger reaccommodation, aircraft recovery and crew
recovery. Thus, solutions developed to
help airlines effectively manage disruptions must address these three issues
with the goal of minimizing passenger
inconvenience and restoring operations
as quickly as possible.
However, before passengers can be
reaccommodated, a new schedule must
be generated and aircraft, crew, gates and
ground staff reassigned using modeling
and advanced decision-support solutions.
A passenger reaccommodation model
developed by Sabre receives schedule
change and disrupted flight information
and evaluates each passenger’s itinerary
based on an airline-defined passenger
list that prioritizes passenger attributes
such as unaccompanied minors, frequent
flyer status, fare paid and class of travel.
Passengers are rebooked and notified
by an automated alerting process that
strives to accommodate highly valued
Highlight
From airline planning
to daily operations, OR
enables
products
and
services that offer unique
value propositions and
return on investment by
minimizing costs and/or
maximizing revenue.
customers first, retain brand loyalty and
minimize passenger inconvenience.
In 2012 during Hurricane Sandy,
Sabre’s passenger reaccommodation
model recommended optimal rebooking
solutions for more than 71,000 reservations from Oct. 28-30, for JetBlue and
WestJet. The reaccommodation solution
automates the entire rebooking process,
which significantly reduces the amount
of manual work required by reservations
and airport crewmembers, allowing them
to provide more personalized service to
customers during an irregular operations
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ASCEND I SPECIAL SECTION
event. Since implementing this solution, JetBlue has realized a measurable
increase of positive comments in customer satisfaction surveys. Additionally,
JetBlue estimates a 25 percent reduction
in call volumes at its reservations call centers, which allows its agents to continue
to provide superior customer service,
even during operational disruptions. The operations recovery system takes
the disrupted flight schedule, operational constraints (airport curfews, gate
limits, air traffic control flow management programs, equipment restrictions
and weather restrictions) and data on
all available aircraft and crewmembers
to generate a proposed recovery plan,
including a revised flight schedule, as
well as revised fleet and crew assignments. The proposed plan is as close as
possible to the original flight schedule,
while accounting for scheduled crew
assignments and passenger itineraries.
Crewmembers are reassigned based
on a revised flight schedule generated
by a schedule recovery decision-support
tool or manually. Disruptions are resolved
at the crewmember level, and alternative
solutions proposed with respect to crew
availability, crew preference and cost
are factored into the complex decisionmaking process.
Airport Operations
OR has also helped airlines improve
efficiency in the area of airport operations,
specifically, in the creation of decision-support tools for the planning and management
of resources at gates and on the ground and
utilization of terminal staff.
Recently, Sabre developed a prototype
Hub Control Center to address recovery at
a hub airport when the inbound flights are
delayed. The model finds the most efficient
solution to address violations associated
with aircraft turns, connecting passengers
and cargo. Results with airline data indicate
a savings of 2 percent to 5 percent in flight
delay costs while minimizing overall passenger inconvenience.
Ancillary Products
Historically, the airline industry, while
vital to global commerce, has struggled to
maintain profitability. In recent years, the
industry has moved to a more sustainable
business model that allows consumers to
pay for ancillary products they value, while
enabling airlines to reduce the costs associated with providing services that some
consumers would not choose to buy. An
early enabler of this new business model,
Sabre developed the capability for airlines
to merchandise and charge separate fees
for key services. 68 ascend
Republic Airlines was the first to utilize
this capability, in the form of paid-selection
for seats with improved legroom. Other
airlines, including JetBlue, also employed
these tools, which were introduced before
the industry was ready for long-term solutions and industry standards, to market and
sell their enhanced legroom or preferredseating products. More recently, Sabre worked with US
Airways to launch “ChoiceSeats,” the airline’s pre-paid seat-offer program. Sabre
has moved to industry-standard solutions to
ensure airlines can broadly and readily adopt
these technologies to drive this relatively
new business model.
OR Continues Innovation
Within the past five years, OR has made
increasingly significant advances in support
of the airline industry and related businesses. These include:
Network planning applications that maximize demand flow in the network by
retiming flights to/from a hub, determining optimal codeshare opportunities and
suggesting new markets to enter, as well
as frequency of operation. Of particular
interest is a unique optimization tool that
explicitly models upsell and recapture.
Hotel shopping algorithm that optimizes
screen displays with a calibrated consumerchoice model to maximize market share
and conversion rates.
The first O&D revenue opportunity model
for dependent demands.
The first airline decision-support pricing
model that recommends optimal tariff
structures to achieve a desired traffic
mix.
Consumer preference-driven air shopping
display algorithm that delivers a single
itinerary back to the consumer based on
a desired schedule, carrier and fare.
Fare forecasting that predicts when fares
will rise or fall by market.
Gate assignment model that considers
multiple objectives and constraints while
maximizing overall assignment quality.
Tactical maintenance planning model that
uses tail assignments as input and distributes maintenance events among available
blocks for each tail number to maximize
aircraft utilization.
Hub control model to support airport
operations for payload and turnaround
management.
to manipulate or interrogate with standard
methods or tools.
OR models are typically data intensive
and the OR practice has always processed
and generated large volumes of data. OR
techniques are a horizontal enabler for
many of the Big Data value propositions
that support revenue generation, improve
conversion rates, enhance process efficiency, refine customer experiences,
generate target offers and enhance customer service.
A partial list of Big Data applications and
actions powered by OR techniques Sabre
is currently investing in include:
Dynamic inventory alerts and availability
that reflect prevailing competitive market conditions to generate incremental
revenues;
Pricing opportunity model to fine-tune
airline pricing strategy;
Machine-learning algorithms to predict
when air fares will increase or decrease
in key markets;
Twitter data for sentiment analysis, lead
generation and variable manning at airports on day of departure;
Recommend alternate flight plans based
on advanced weather data.
As in past decades, OR will continue to
lay the foundation for the future of airline
technology, enabling airlines to focus on a
seamless travel experience for their customers. From airline planning to daily
operations, OR enables products and services that offer unique value propositions
and return on investment by minimizing
costs and/or maximizing revenues. a
Big Data And OR
Lately, there has been quite a bit of
discussion about Big Data and how this data
— structured and unstructured — should be
captured and leveraged to produce a competitive advantage. Essentially, Big Data
are data sets that are too large or complex
Ben Vinod is senior vice president and
chief scientist for Sabre. He can be
contacted at [email protected].
ASCEND I SPECIAL SECTION
Sabre’s Operations Research Footprint
Key contributions in revenue management from Sabre include:
First yield-management system for the airline industry launched (American Airlines)
First virtual-nesting system for O&D control launched (American Airlines)
First continuous-nesting system for O&D control (Club Med and Holiday Inn)
Single largest deployment of O&D to control US$50 billion of seat inventory for US Airways and American Airlines
in November 1998
First component-based open-systems version of real-time inventory for O&D control (outside of a traditional reservations TPF/ALCS environment) (Air France)
First low-cost carrier yield-management solution (bmi)
First consumer-choice-modeling-based demand-forecast model to generate tactical forecasts for revenue management in 2007 (GOL)
Highlights of some of the key historical contributions from Sabre include:
World’s first revenue-management system
World’s first large-scale crew-planning model
World’s first O&D revenue-management system with virtual nesting
World’s first hurdle-rate-based (“bid price”) inventory controls for all North American properties of Holiday Inn
Worldwide
World’s first crew-pairing system with long-haul crew augmentation and down ranking (Singapore Airlines)
World’s first O&D revenue-management system with continuous-nesting controls (bid-price controls) and 100 percent
polling (all flights on O&D control)
Deployment of Primal-Dual algorithm for crew pairing, crew rostering, ground staff rostering and crew recovery
World’s first O&D fleet-assignment model deployed (SAS)
Modeling of restriction-free (dependent demand) and lightly restricted tariffs for revenue management
First deployment of the dependent-demand model (British Midland)
World’s first demand-forecast model based on consumer preferences (consumer-choice model) deployed (GOL)
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ASCEND I SPECIAL SECTION
Cracking The Crew-Recovery Conundrum
By Chunhua Gao | Ascend Contributor
A New Approach To Solving
The Crew-Recovery Problem
That Minimizes Disruption
Impacts
Harsh storms in the northeastern United States played havoc
with schedules, severely disrupting airline traffic during the winter of 2013-14. As the future unfolds, there are newer and
more efficient data-analysis and optimization techniques that
can help carriers recover from irregular operations in a much
quicker timeframe.
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T
hroughout time since the early days
when commercial flying began,
the causes of disruptions in airline
schedules have been many and
varied. But particularly harsh winter
storms that severely affected traffic
of all types in the northeastern United States
made January 2014 the worst month for flight
disruptions in recent history.
According to masFlight (a prominent
aviation operations data warehouse and Big
Data analytics platform), airlines operating
in the United States suffered heavy impact
from the storms — canceling approximately
49,000 flights in January and delaying an
additional 300,000 flights.
Best guesses and calculations placed
airline losses in January 2014 that were
directly attributable to the brutal winter
weather in a broad but undeniably costly
range of between US$75 million and
US$150 million.
A significant part of the storm cost
was spent in the documented process of
rerouting flight crews — and paying crew
overtime wages.
Considering operational losses caused by
delays alone, Airlines for America (A4A —
formerly ATA, the Air Transport Association
of America) has estimated full-year 2012
incremental crew costs for U.S. passenger
airlines at US$1.5 billion. Clearly, crew
operational efficiency during disruptions
has an extremely critical economic impact
on airlines.
Furthermore, due to the complexities of
crew scheduling, restrictive legalities and
real-time mandates, crew schedule recovery is one of the most difficult problems
that must be solved in the entire realm of
operational recovery.
Currently, the crew-recovery process
is heavily dependent on human experience and judgment, even though those
hands-on figures and calculations can
be highly constrained in terms of cost
effectiveness.
During the January 2014 winter storms,
airlines in the northeastern United States
were affected the most, with an extremely
high percentage of canceled flights.
This semi-disastrous weather situation
resulted in an utterly overwhelming volume of manual work by crew-services
experts to process the cancellation package and repair the crews’ schedules.
Clearly, a powerful automated and
optimized crew-recovery tool is in high
demand to reduce workload and substantial economic losses.
Traditional Crew-Recovery
Approaches
An airline crew’s published roster line
includes a series of assigned pairings,
plus other items such as administrative
ground activity, training, leave and so
forth.
A pairing is a sequence of duties that
starts and ends at a crew base. The duties
in a pairing, each of which represents
roughly a day’s worth of flying, are separated by periods of rest, and are composed
of a sequence of flights. A crew’s published
roster line is the output and ultimate result
from the crew-planning stage.
During the day of operations, disruptions
such as inclement weather, mechanical
problems, ground delays and crew unavailability make it impossible to carry out the
scheduled plan.
The primary goal of crew recovery is to
repair disrupted roster lines while making
sure all flights have the crews needed to
operate them and return the airline back to
normal operations as quickly and efficiently
as possible.
Crew disruptions are usually addressed
through application of the following tactics:
Use crewmembers who are on reserve
or standby — In addition to regular fly-
Crew Recovery Solution Sabre AirCentreTM Recovery Manager (Crew) is built on an advanced IT infrastructure and a user-friendly application interface. The
crew recovery solution obtained from solving the optimization problem can be displayed nicely by showing both input and modified schedules for each crew.
It can provide an intuitive view of how disrupted crew schedules are repaired, as well as how reserve, move-up crew and repositioning flights/limos are used
to help with the recovery.
72 ascend
ASCEND I SPECIAL SECTION
ing crews, most airlines maintain additional
crews that can be called out during irregular
operations.
Deadhead (reposition) crews — Airlines can
use their own or other airlines’ flights to
reposition crews back to the base or to their
next flight. When ground transportation is
available for nearby airports, limo or shuttle
service can also be used for repositioning.
Swap flying among disrupted and non-disrupted crewmembers — To recover from
the disruption, it is often necessary to use
crewmembers who were not initially affected by the disruption. A non-disrupted regular
crew is called a move-up crew.
There are few disruption-management
tools available in the industry, and many
airlines are still manually applying recovery tactics (such as those described) for
crew recovery.
Detailed guidelines and procedures may
be developed to help with the manual process. And different airlines have different
crew-recovery guidelines. Furthermore,
even within the same airline — and guided
by the same procedures — different “crew
trackers” (those who solve the disrupted
crew problem) can come up with different
ways to repair the disrupted crew schedule, which causes inconsistencies.
An automated disruption-management
tool that combines the strengths of both
operations research and the computing
system figures to be best for dealing
effectively with these highly combinational circumstances.
However, the crew-recovery problem still
represents an extremely challenging conundrum due not only to its combinational
nature, but also to the complex business
settings and real-time airline requirements
when recovering from irregular operations.
Among the automated crew-recovery
tools applied within airlines or in academic
studies, some use a “buy-time” approach.
As the name of this approach indicates, the
near-term disruptions that have occurred in
a crew’s current duty or pairing are given
top priority and repaired first. This buys the
airline time to deal with more of the disruption issues at a later time — including those
potential new issues that have been created
while fixing the near-term disruptions.
Other tools apply a two-step approach —
that is, to repair the disrupted pairings first,
and assign the newly created pairings to
the crews’ roster lines later. When repairing
the disrupted pairings, the airline’s scope
of attention is across the entire disruption
period. Thus, the two-step approach is different from the buy-time approach, and is
based on a different problem-decomposition
strategy.
All these described approaches, although
practical, lack a holistic view of the crewrecovery problem, which can result in
unsatisfying crew-recovery solutions, with
additional uncovered flights or unrepaired
crews.
An inefficient crew-recovery solution will
induce further flight delays, extra cancellations and inevitably high disruption costs.
Advanced Problem Solving
With traditional crew-recovery approaches, airlines still struggle to recover from
disruptions in the crew department.
Some airlines have one or two automated
crew-recovery tools installed but find them
difficult to put to practical use due to the
large gap between system capability and
realistic requirements.
More than a decade ago, Sabre Airline
Solutions ® started out with a different focus
to solve the hugely complex crew-recovery
problem — beginning with a customer
Faster And Comprehensive Crew Recovery
Holistic Optimization Approach To Crew Recovery A simulated Hurricane Sandy disruption scenario was created based on real airline data that involved
two days east coast shutdown in the United States. It comprises more than 600 cancelled flights and more than 900 disrupted crew schedules. Using the
holistic optimization approach, within reasonable time, all crew schedules were back on plan in less than 3 days with more than 99 percent open-flight coverage and disrupted crew-recovery rate.
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ASCEND I SPECIAL SECTION
council to help define the primary objectives and the important business rules
and requirements related directly to crew
recovery.
In addition to the technology company’s
research group, academic institutes, such as
the Georgia Institute of Technology, joined the
team to evaluate and experiment with different
solutions options.
With a thorough understanding of business
requirements and complexities, the combined
team set forth to develop a holistic crewrecovery approach that leverages simultaneous
pairing and roster recovery (as compared, for
example, to the two-step approach, which
addresses only one aspect at a time).
A holistic approach affords a carrier the
opportunity to take a broader view of the crewrecovery problem, as well as more accurately
addresses the elusive yet central objective of
minimizing the impact of disruptions on an
airline’s crew operations.
Through the customer council mentioned
above, three critical objectives were identified:
Minimizing the time to get all crew back on
plan,
Minimizing the total number of off-plan operations,
Minimizing the total number of crew reassignments.
Each objective addresses a unique aspect
of the disruption impact. The objectives can
74 ascend
be applied individually or in combination,
with different weight factors for each according to business needs.
Along with the primary objectives, this
approach also incorporates other controls and
costs to define the preferences of one solution
over another. In Sabre Airline Solutions’ real-life
test cases, for example, repositioning penalties
were added to manage deadhead and ground
travel, crew-usage penalties were implemented
to control the tradeoff between reserves/standbys and move-up crew, and controls were
developed to restrict instances of whether
“non-fly” activities (e.g., training, days off, etc.)
can be replaced by “fly” assignments (e.g.,
operating a flight or repositioning).
Throughout the design of the holistic
approach, many other realistic situations
and requirements were put into play so the
crew-recovery decision-support tool would be
flexible, capable and powerful.
Deadhead limits, for example, can be
enforced to control the maximum number of
seats taken by repositioning crew on each
flight, while standby limits can be added to
restrict reserve usage (and to thereby prevent
reserve shortages in the future).
In accordance with real-life airline practices,
crews can be located at a temporary base during specific time periods, or have pairings start
and end at co-terminal stations. For reserve
crew, some airlines have order-of-assignment
rules to determine which crewmembers should
be assigned new pairings.
Every extension, enhancement and addition
to the business requirements entails one extra
level of complexity in building mathematical
models and solving the problem.
To capture all government, contractual and
airline rules, it’s essential to build a separate
and flexible rules engine, and to make sure
the problem-solving engine can be seamlessly
integrated with that rules engine.
All these factors make the optimization
engine extremely configurable and flexible,
enabling the solution of both pilot and flight
attendant recovery problems for different airlines, despite different rules.
The configurability, flexibility and capability
to support realistic business requirements are
critical factors in determining whether an automated decision-support tool can be adopted in
solving real-life airline day-of-operation problems
and solving them in a holistic manner.
This new, holistic view of crew recovery
leads to advanced problem-solving techniques.
Applying Operations Research
Methodology
Crew recovery is an optimization problem
that aims at minimizing the disruption impacts
by using all allowed recovery tactics to repair
disrupted roster lines while making sure all
flights have the crews needed to operate them.
ASCEND I SPECIAL SECTION
In most cases, the options for recovering
crew are innumerable — typically, there could
be hundreds of crew on reserve or standby,
tens of thousands of repositioning choices and
several thousand non-disrupted crewmembers.
If a mathematical model were designed
to take into account all these alternatives,
the model would be overwhelmingly massive and complex. Considering the time and
hardware constraints, solving the problem
would be both impractical and computationally intractable.
It is critical to design the right operations
research methodology and techniques to
intelligently determine the right scope of
the problem — so as to generate quality
solutions in a realistic timeframe.
An important aspect of how the right
scope of the problem must be defined is
the concept of a recovery window, which
is a time interval that dictates the horizon
within which the mathematical model will
be permitted to make modifications to crew
assignments. The model generates assignments that have continuity with the rosters
before and after the recovery window.
Another aspect of how the right scope of
the problem must be defined is the selection
of proper repositioning choices, non-disrupted crew and other crew on reserve and
standby.
These problem-reduction techniques
serve to seriously limit the potential explosion in numbers of alternatives, while at the
same time retaining all of the ideal candidate
recovery solutions.
Even after the reduction, the crew-recovery problem can still be vast. Therefore,
special care must be applied in modeling
and solving such large-scale optimization
problems as those involved in crew recovery.
A mathematical optimization model is
formulated containing a set of decision variables, an objective function and a set of
constraints that define the feasible region of
the decision variables. The decision variables
in this crew-recovery model are valid assignments through the recovery window for each
crew.
The objective function is to minimize
the total crew-assignment costs, which are,
among other things, a weighted sum of the
three primary business objectives.
The primary constraints include the coverage requirements for operating flights, as
well as for each crew to have one valid
assignment.
Typically, this is a model with more decision variables than constraints.
To solve an optimization problem is to find
values for the decision variables that achieve
the optimal or near-optimal objective-function
value.
In most cases, it is impractical to cope
with all possible crew assignments directly
via a single, all-inclusive model. Therefore,
Sabre Airline Solutions has developed a new
operations research method for decomposing and solving this complex large-scale
problem.
In solving such models, a delayed-columngeneration method based on Dantzig-Wolfe
Decomposition is a suitable algorithm. In
general, the algorithm iteratively solves a
restricted master problem and its corresponding pricing problems.
The restricted master problem uses a
much smaller subset of feasible crew assignments as decision variables. And the dual
optimal solution, which is derived from solving the restricted master problem, is used
in the pricing problems to generate better
crew assignments for constructing the next
restricted master problem.
This mathematical process must be
repeated until no better crew assignments
can be found (indicating, in mathematical
terms, the arrival at an optimal solution to
the crew recovery problem).
To overcome the potential convergencespeed issue, which is typically found in a
column-generation algorithm, Sabre Airline
Solutions collaborated with Georgia Tech and
adopted the primal-dual subproblem method,
which was originally developed by Georgia
Tech mathematicians.
On that basis, Sabre Airline Solutions has
developed its own delayed-column-generation approach, utilizing the power of both the
primal-dual subproblem and Dantzig-Wolfe
Decomposition.
The resultant algorithm has a dualimprovement step at each iteration and
generates a large number of suitable columns at each iteration (instead of just a few
good columns, as in most calculations that
are based more directly on the Dantzig-Wolfe
Decomposition).
In this manner, the number of iterations needed to reach optimality is greatly
reduced, thus speeding up the process and
opening the door to being able to solve even
larger problems.
Ideal Crew-Recovery Solution
A progressive crew recovery tool is
essential in quickly absorbing disruptions
and reducing their impact. A recovery tool
needs to demonstrate fast response times,
the ability to take into consideration a wide
variety of recovery tactics and the capability
to handle all kinds and magnitudes of disruptions. The crew-recovery tool should also
solve large disruption scenarios, as well as
effectively manage day-to-day operational
disruptions.
Applying cutting-edge operations research
advancements, Recovery Manager (Crew)
uses a holistic optimization approach to
solve complex crew-recovery problems. It
leverages simultaneous pairing and roster
recovery and provides airlines with superior recovery solutions. With this approach,
directly deployable crew rosters can be
generated, greatly improving an airline’s
response time to disruptions and reducing
operational costs.
The holistic approach can handle a broad
range of disruption scenarios that can be as
small as an open flight or pairing assignment
dropped by a sick crew, or they can be as
large as major airport shutdowns.
In short, the operational efficiency gained
through the holistic, optimization-based
crew-recovery solution enables airlines to
gain a competitive edge in the marketplace
— and to better serve their customers,
which is the ultimate goal and achievement
of all airline procedures. a
Chunhua Gao is a lead operations
research analyst for Sabre Airline
Solutions. She can be contacted
at [email protected].
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Real-time Decision-support
Models For Hub Control
Centers
New turnaround-management and payload-management
decision-support models address airlines’ needs to make
real-time decisions that optimize aircraft turn times and
more efficiently transfer passengers, luggage and crew.
Real-Time HCC Models
By Dong Liang | Ascend Contributor
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ASCEND I SPECIAL SECTION
l
n a past article of Ascend (2012,
Issue No. 1, “Common Ground:
In The Air”), the author, Sergey
Shebalov, explains how to bring
together an operations control
center (OCC) and a hub control
center (HCC) through common IT support.
Based on that work, the operations research
team at Sabre Airline Solutions® has developed advanced decision-support models as
a prototype that addresses airlines’ needs to
make timely decisions related to turnaround
management and payload management.
A new turnaround-management model
optimizes the schedule for tasks required
to turn around an aircraft at the hub for
its next flight. Likewise, the new payloadmanagement model optimizes transfers of
passengers, luggage and crews.
These two models, developed by the
operations research team at Sabre Airline
Solutions, demonstrate that their capabilities can be leveraged to provide real-time
decision support based on computational
results.
HCC/OCC Responsibilities
The OCC and HCC develop their own
operational plans for an airline’s daily
operations.
The OCC focuses on an airline’s overall
network management. It is fully responsible
for short-term planning, tracking and recovering the flight and crew schedule, as well
as tail/maintenance assignment.
The HCC is responsible for ground
tasks at a hub station, such as reallocating
the gate, reassigning ground tasks and
reaccommodating passengers. It can also
suggest limited changes of the flight schedule (e.g., delay a flight for 10 minutes). If the
OCC’s decisions overlap those of the HCC,
the HCC communicates suggested changes
to ensure both groups are aligned. This
level of communication is essential to solve
disruptions to daily operations.
HCC Decision-Support System
Photo: Shutterstock
I
Real-Time HCC Models
Airlines have spent years building decision-support systems for OCCs. Now, it has
become extremely important for airlines
to review the overall hub management
function to improve passenger experiences
(e.g., lowering the chance of delays and
stranding passengers at an airport) and
reduce costs, such as those caused by
delays and passenger reaccommodation.
The ideal HCC decision-support system
consists of several functional modules,
such as schedule management, turnaround
management, payload management and
resource management. When implementing
such a system, airlines can take advantage
of their existing systems. Many airlines
already have tools for schedule management
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ASCEND I SPECIAL SECTION
and resource management (e.g., staff- and
gate-planning systems). Therefore, they can
focus more intently on turnaround management and payload management and build
individual decision-support models for each
functional area.
Both models can work in a hub-control environment, so multiple tasks can
be automatically generated for resource
management. In addition, focusing on individual modules just one time provides an
evolutionary way for airlines to build their
integrated HCC systems. It is less risky and
requires a relatively small investment.
Turnaround-Management Model
Turnaround management focuses on
tasks and processes associated with the
turn of an aircraft. Aircraft turnaround starts
when an aircraft arrives at the gate (chockson moment) and ends when the aircraft
leaves the gate (chocks-off moment).
Tasks must be completed between the two
moments and follow a specific order. For
example, passenger boarding cannot start if
passenger disembarking is still in progress.
The turnaround-management decisionsupport model helps ground-service
coordinators at the HCC intervene when a
disruption occurs during the process of a
HCC Decision-Support System
turnaround. It can find the optimal way to
minimize the total cost of the turnaround
and meet the turnaround duration by rearranging tasks, such as cancelling a specific
task or speeding up a task (reducing the
time to complete the task).
The model determines the start and end
time of each task, and it recognizes critical
tasks as those that cannot be delayed
without causing further disruption. Based
on this, ground-service coordinators at the
HCC can assign additional staff, as well as
reschedule and restrict task sequences.
The decision-support model enumerates
all possible options for each task, and each
option for one task corresponds to one
combination of start times and end times.
For example, cabin cleaning can begin at
10 a.m. and end at 10:15 a.m., or start at
10:05 a.m. and end at 10:15 a.m. There
is a cost associated with each option. The
model, therefore, choses one option for
each task and minimizes the total cost of
the turnaround.
To find a solution quickly, the model
only considers reasonable options for each
task. In practice, the discrete start time and
duration can be counted in distinct time
units, such as minutes rather than seconds,
which can reduce the number of options.
Meanwhile, by establishing a precedence
relationship between tasks, the airline can
obtain the earliest start time and latest end
time of each task and further reduce the
number of options. Moreover, it can design
turnaround templates, such as a small set
of feasible turnaround durations like 25, 35
or 45 minutes, for one aircraft to restrict the
number of feasible options.
The operations research team at Sabre
Airline Solutions tested its turnaround-management model with one example having
51 tasks. Each task was allowed to speed
up to 50 percent of its originally planned
duration. The decision-support model considered thousands of options for all tasks
and found the optimal solution in less than
one second. This level of real-time decision
support helps an airline quickly determine
whether or not it is feasible to make a
shorter turnaround and how to rearrange
tasks.
Payload-Management Model
Four Core Modules The HCC decision-support system consists of four modules. Schedule management is responsible for tracking flight operations during the day and reacting to disruptions. Turnaround
management focuses on tasks and processes associated with turning an aircraft. Payload management
handles passengers, luggage and cargo connections violations. Resource management works in a hubcontrol environment so multiple tasks can be automatically generated for airport resources.
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Payload management handles entity
(i.e., passengers, baggage, crew and tail)
connections. The payload-management decision-support model helps HCC controllers
fix connection violations by automatically
reviewing multiple recovery options.
For example, if a particular passenger
connection is disrupted due to late arrival
of an inbound flight, the model will check
whether fast transfer or ramp transfer
options are available. If these options do
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OCC And HCC System Communication Flows
The operations research team at Sabre Airline
Solutions tested the model with one example
having 19 connection violations. There were six
outbound flights associated with these connections. The model considered the combination of
all options for connection (e.g., allowing misconnection, normal transition and fast transition),
as well as options for delaying outbound flights.
It took less than one second for the model
to find the optimal solution. Thus, this model
can provide real-time decision support for HCC
controllers in the recovery procedure.
Future Opportunities
The OCC And The HCC Must Communicate Instantaneous information exchange between an airline’s
operations control center and its hub control center is essential. In daily operations, both OCC operations data updates, such as flight schedule changes, and the HCC tracking system can trigger violations
and warning messages (e.g., passenger misconnections, ground tasks running overtime, etc.), which
drive the HCC decision-support system to fix violations by accessing all required information. Once that
occurs, changes by the decision-support system will feed back to the OCC.
The payload-management and turnaroundmanagement models provide real-time decision
support for HCCs. Airlines can use them to
implement both turnaround and payload management for the HCC.
The two models can also be further enhanced
by adding resource constraints to facilitate
resource-management decisions.
For example, when tasks are sped up in
turnaround management, an airline should consider the availability of ground resources. When
more factors are considered in the decisionsupport model, better solutions can be obtained.
Both models will be able to integrate with
resource-management models, whereby all
decisions will be made simultaneously and
improve the decision quality. a
enumerates all recovery options, including
outbound flight delays, as well as connections for passengers and payload for
each violation. There is a cost associated
with each recovery option, and the model
can support a complicated cost structure
to reflect the reality. Thus, the model
can help HCC controllers find the most
cost-efficient way to recover connection
violations.
Dong Liang is principal operations
research analyst for Sabre Airline
Solutions. He can be contacted
at [email protected].
not resolve the issue, it will evaluate recovery options such as an outbound flight
delay within threshold, reaccommodation
on a later host flight, reaccommodation
on another airline’s flight or an overnight
stay. The total cost for all these options
is considered, and the best solution is
automatically selected.
Given a set of connection violations,
the decision-support model identifies and
According to the U.S. Travel Association, the
average age for business travelers is
45.9 years old.
Traveling households earn more than non-traveling households, according to the U.S. Travel
Association. In 2012, the median household
income for domestic leisure travelers was
The majority (26 percent) are aged 45 to
54; 20 percent are 55 to 64; 24 percent are
35-44; 19 percent are 25 to 34; and four
percent are 18 to 24 years of age. Only 7
percent are 65+.
Count
it up
Interesting facts and
figures in the airline
industry.
US$62,500.
For business travelers, the median household income was US$87,500. This compares to US$52,800 for the general U.S.
population.
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CUSTOMER SEGMENTATION
By Sergey Shebalov | Ascend Contributor
Revisiting Customer Centricity For Better Data Analysis
Airlines are ready to adopt new customer-centric practices —
supported by efficient data management and enabled
by operations research and analytics.
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ASCEND I SPECIAL SECTION
Photo: Shutterstock
l
n the airline industry — which quite
appropriately emphasizes customer
service as a hallmark of the successful carrier — a customer-centric
approach always makes good economic and business sense.
Security and government regulations have
effectively provided airlines a potentially
key advantage, which is represented by the
expansive volume and depth of information
that has been gathered about customers.
Over the years, airlines have collected
and stored large amounts of detailed data
describing the demographic, social, economic and behavioral characteristics of their
customers.
But because of the complexity of data
management and the challenges created by
the sheer immensity of available data, the
value of that data has not even yet been
completely unlocked.
Therefore, airlines need records and
decision-support systems that focus on
customer centricity. Advanced reservations,
profitability, evaluation and revenue management systems must use customer-choice
modeling in designing optimal policies for
airlines’ planning and operational processes.
Over the past several years, Sabre Airline
Solutions® has invested quite significantly in
these types of advanced systems, as well as
in data-management technology.
For example, platforms for real-time
PNRs management, travel-shopping data
and aggregated customer information allow
relatively easy access to a variety of data
sources. They also enable the next steps
in automation and optimization of business
processes currently used by airlines, as well
as creation of new opportunities for carriers
to generate revenue and better serve their
customers.
To create a coherent 360-degree view of
customer data available to airlines, Sabre
Airline Solutions has introduced the concept
of a trip lifecycle, which consists of four main
stages:
Planning — Customers at this stage
haven’t yet begun looking for travel
options, and, therefore, they haven’t
revealed any of their attributes. An airline can identify segmentation of historical bookings and prompt customers
to choose a particular trip by sending
relevant suggestions based on their travel
history, or by advertising characteristics
of an offer that is particularly attractive for
these specific customers. If, for example,
a carrier determines strong economic
or ethnic community ties between two
regions, it can develop a schedule that
ensures favorable connection opportunities.
Shopping — Customers have now submitted requests and revealed a few sim-
ple attributes such as origin, destination
and duration of a trip, as well as the
channel the customers book through, the
schedule or price sensitivity, etc. Based
on these attributes, an airline can allocate
a request to a particular segment, and
guide customers toward the most attractive offers for that segment. These offers
can be related to the primary trip choice
(or, in case that trip is not available, to
a secondary trip choice) and to ancillary
services that match recommendations
for that segment. Customers might be
offered an alternative destination within
the same trip theme, or an opportunity
to enhance their travel experience with
an upgrade or extended stay at a leisure
destination.
Pre-flight — Customers have already
booked a trip and have, therefore,
revealed many more attributes. They also
have well-defined travel plans. Placing
these customers into well-defined segments helps airlines cross sell ancillary
products and services. A family flying
to Alaska for a 10-day trip, for example,
is likely to respond to a car rental offer,
while a couple visiting New York on a
weekend might be interested in theater
tickets.
Post-departure — Customers have
checked in and started their trip, or have
already completed it. These customers
can be segmented not only on their trip
attributes, but also on their experience.
Segment information can be used to
better serve them during the trip, or to
manage their feedback afterward. Gate
agents can be given access to this information so they can be more efficient in
handling disruption situations. Connecting
passengers can be offered services at
an airport, ranging from assistance in
shopping to providing expedited transfers
to ensure that a tight connection is not
missed. Passengers who experienced a
disruption or baggage mishandling might
be approached afterward with compensation options so they will be more likely to
remain loyal to the airline in the future.
Travelers — during the course of their
entire trips — are going through the stages
described, with the post-departure stage
eventually turning back into the planning
stage, during which customers reapply their
travel experience (recent and otherwise) in
preparing for their next trip, thus completing
the full 360-degree circle of the trip lifecycle.
Interaction between an airline and a customer at any one of the stages should not
be limited to the data related directly to that
stage only.
By supplementing and supporting the
decision-making process with customer data
collected throughout all trip stages, airlines
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ASCEND I SPECIAL SECTION
will be able to better match their services with
travelers’ expectations, and thereby be more
efficient and profitable.
Customer Segmentation And The
Cluster Approach
Customer segmentation is an important
concept in any service industry because it
allows the identification of clusters of customers who are interested in similar levels of
service — so additional targeted offers can be
created.
For years, airlines have used artificial rules
such as advance-purchase restrictions, refundability, booking classes, etc., to create these
clusters.
In a new approach, airlines can leverage
numerous data sources and create flexible
methodology combining those sources to bring
to life the most complete picture of an airline’s
customer base.
The full range of data sources might include
PNR databases, loyalty-program information,
corporate-sales records, sales and promotions
history, ancillary-services records, social-network statistics and other sources.
Once data points are aggregated — and
the data’s consistency is verified — the airline
can apply various clustering algorithms implemented in a segmentation analyzer to optimally
partition all customers into clusters so elements
of each cluster are as similar to each other as
possible, while the clusters themselves are
separated.
A segmentation analyzer provides tracking as
well as analyzing capabilities.
Characteristics of each cluster, such as
the revenue it provides, the typical advancepurchasing behavior of its population, social
activity, trip length, etc., can be monitored and
compared across different markets or times.
A segment-transition matrix, for example,
can provide visibility into changes in segment
mix over time, and can be used to evaluate an
impact of promotion campaigns, introductions
of a new service and other customer-centric
business practices.
It is important to differentiate between trip
segmentation that identifies the PNR phenotypes an airline serves, as opposed to consumer
segmentation that works on what is commonly
labeled a “customer DNA” level.
The fundamental difference between the
PNR phenotype and customer DNA is in the
respective level of granulation.
While the PNR phenotype primarily identifies
a purpose and attributes of an “anonymous”
trip, customer DNA is directly associated with
a specific traveler and includes the history of all
trips the customer has taken.
A business traveler making a day trip or a
family with children traveling for a two-week
summer vacation, for example, are PNR phenotypes — while Raj, who has made multiple U.S.
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domestic trips during the past year using his
student discount, has a customer DNA.
These segmentation types can then be used
in both tactical applications that support realtime interaction with an individual customer and
strategic planning tools focusing on processes
and practices relevant for a large part of an
airline network, customer community or long
operational period.
And these applications can be used in product design, promotion management, revenue
analytics, customer evaluation and retail practice, in addition to other areas.
Next, let’s look at a few examples of how
information about customers at the different stages of the trip lifecycle can be used
to improve efficiency, enhance revenue and
further the customer connection and overall trip
satisfaction.
Targeted Network Planning And
Scheduling
An airline’s planning and scheduling department is responsible for creating a schedule
— the primary product airlines offer to their
customers.
Decisions that are made by this department
include selection of the markets the carrier
will serve, the frequency of service and the
departure times for individual flights.
Today, these decisions usually rely on average passenger demand for each flight. But it
is certainly no business secret that most of an
airline’s profit is generated by premium traffic.
A recent industry study presented at
AGIFORS showed, for example, that while
only 14 percent of passengers travel between
the United States and Europe in first class and
business class, those two classes accounted
for almost half of the revenue generated on
these routes.
The same study predicted steady growth for
premium traffic over the next several years at
3.5 percent annually.
Customers who fly first class and business
class have specific preferences and exhibit
behavior that is decidedly different from an
average economy traveler.
The schedules that best fit each of these
different types of customer are therefore different, as well. Demand for premium cabin,
for example, is typically much lower than average on weekends, but morning and afternoon
peaks are more pronounced.
To recognize and properly identify these patterns, airlines need to switch from flight-level to
cabin-level demand forecasting.
Historical PNR information represents customers in the planning stage. In particular, it
contains the booking class that can be mapped
into the specific cabin. And it, thereby, allows
the carrier to identify the typical demand split
among first, business, premium economy and
economy for each flight.
This approach serves to help improve not
only network planning and scheduling, but also
fleet planning and capacity allocation because
these processes determine cabin configurations
so they directly affect the amount of premium
traffic an airline can accommodate.
Sales And Promotions
Travelers at the shopping stage are actively
looking for travel options. And one of the
mechanisms for an airline to capture these
customers is through sales and promotions.
Airlines apply these practices widely to
stimulate demand and generate significant
additional revenue.
But decision support based on data analysis
in this area is still rudimentary. Significant
opportunity can be found in better understanding of the effect of these tactics on customer
behavior and optimized selection of markets,
time periods and fares for which a promotion
is active.
First, historical booking performance should
be evaluated with respect to the impact a
Complete Customer View A customer segmentation analyzer provides tracking, alerting and analytics
capabilities, giving airlines a complete picture of the customer communities they serve.
ASCEND I SPECIAL SECTION
North
AmericaTo/From
Percent of Premium
Passengers
Percent of Premium
Revenue
Fare Ratio
(Premium/Economy)
Africa
10.6%
36.7%
4.9
Asia/Pacific
10.8%
35.5%
4.6
Europe
12.2%
44.2%
5.7
Middle East
14.3%
42.6%
4.4
North America
3.8%
8.0%
2.2
South America
5.4%
15.3%
3.2
Importance Of Premium Travel A significant part of an airline’s revenue is generated by premium
traffic. A recent study conducted by Sabre Airline Solutions showed, for example, that while only 12
percent of passengers travel between the United States and Europe in first and business class, they
contributed almost half of the revenue generated on these routes.
promotion had on markets on sale, other markets that can be affected by redistribution of
demand and customer segments that were
targeted by the promotion.
Second, promotions should be calibrated
from both a demand-elasticity and a demandstimulation perspective to enable what-if analysis.
Finally, optimal promotion design that accounts
for revenue dilution, advertising and distribution
costs, regulatory restrictions and combined revenue opportunity is suggested by an optimization
engine and adjusted by analysis according to the
airline’s corporate objectives and marketing
strategies.
Accurate Overbooking
Now let’s look closely at an example of how
information about customers in the pre-flight
stage can be used to improve performance.
One of the standard practices airlines use to
secure additional revenue is overbooking. And
the most important component in a successful
overbooking mechanism is the accuracy of the
no-show forecast.
Today, most airlines use historical information about flight performance to predict the
difference between the number of bookings
made for a flight and the number of passengers
who will actually be present at flight departure.
Customer Segmentation Framework
Additional Targeted Offers Customer segmentation is a framework that utilizes multiple data sources
and enables a variety of application in different areas of an airline’s commercial practice. It enables airlines to identify clusters of customers who are interested in specific levels of service so they can create
additional targeted offers.
But at any point prior to departure, extremely
rich and relevant information is available in
PNRs that have already been created for a flight
for which the carrier is trying to zero in on an
as-accurate-as-possible overbooking level.
Based on close analysis of the characteristics
of these PNRs, the airline can estimate their
“survival” probability.
In a recent study, Sabre Airline Solutions
used a regression-trees algorithm that analyzes
up to 40 different PNR attributes. The results
indicated that the PNR no-show forecast was
up to 7 percent more accurate than the aggregate flight-level approach.
This increment of improvement can directly
result in airlines being able to sell approximately
1 percent more tickets on full flights without
increasing the risk of denied boardings.
Similar methodology can be used in revenue
integrity, onboard provisioning, cargo revenue
management and other processes that require
an accurate passenger boarded count.
Adoption of this approach should quite properly be expected to drive additional benefits
through consistency of information in various
business areas.
Operations Research: An
Accomplished Past, A Promising
Future
Since the early 1960s, operations research
has been helping the airline industry optimize
performance. During the past 10 to 15 years,
customer centricity has become one of the
leading concepts in developing automated
decision-support systems.
Recent changes in data-management technology have provided airlines access to data
describing consumer preferences on a much
more detailed level.
Now airlines have an opportunity to make
full use of all these advances in data analytics
and operations research to further improve their
planning and operations practices, as well as to
provide better service to their customers.
The overall result is a major win/win: significant revenue enhancement opportunities for
the airline, and a more customized and satisfying travel experience for it customers. a
Sergey Shebalov is director of
operations research for Sabre Airline
Solutions. He can be contacted at
[email protected].
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ASCEND I SPECIAL SECTION
Getting Your Prices Right
By Joakim Kalvenes, Yingying Kang and Richard Ratliff | Ascend Contributors
Determining Optimal Price
Levels For Core Fare Products
A Web-based, integrated decision-support prototype for a new
“proactive-pricing” workflow is currently being developed that has
potential to help airlines determine optimal price levels in markets
subject to an airline’s desired price ranges for each core fare product.
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ASCEND I SPECIAL SECTION
Photo: Shutterstock
O
ne of the most important
aspects of managing an airline is setting
the right price levels for the target market
segments. When setting fares for an
upcoming season, airline pricing analysts
typically create a wide variety of fare
products with different restrictions and
refundability to divide customers into traveler segments such as business (willing
to pay more for flexibility, ability to book
close to departure and desirable flight
times) and leisure (more price sensitive
but can book farther in advance and on
less desirable flights).
Then the price levels for these different fare
products must span a wide range to provide
high prices on peak flights (and strong-demand
dates of the season) but also discount fares
that are low enough to generate sufficient
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ASCEND I SPECIAL SECTION
demand to fill seats on off-peak flights (and
low-demand dates of the season).
This segmentation and multiplicity of fare
products helps airlines obtain higher total
revenue. However, managing these fares creates ongoing challenges to ensure that current
prices are consistent with the airline’s pricing
strategy and are marketplace competitive.
Like any business, market prices in the
airline industry change continually. Even if an
airline initially does a good job of designing the
right fare products and correctly setting price
levels, airline pricing analysts have the ongoing
work of continuously monitoring their competitor price levels and making required updates to
products and price levels.
This competitor positioning is particularly
important in the information-rich travel industry. Referring to the strong degree of price
competition in the industry, Robert Crandall
(former president and chairman of American
Airlines) in a 1992 issue of Time Magazine
remarked: “This industry is always in the grip
of its dumbest competitors!”
Unfortunately, the sheer volume of changes
in airfares (millions of published fares change
daily) necessitate that the overwhelming focus
of the airline pricing analyst workflow is on
matching competitor fares. This information is
further detailed in “Pricing decision support:
Optimising fares in competitive markets,” 2009
Journal of Revenue and Pricing Management,
Vol. 8, Issue 4, authored by B. Vinod, R. Ratliff
and C.P. Narayan. Focusing exclusively on
reactive pricing means that, over time, an
airline’s price levels may drift away from the
right prices needed to maximize revenue.
To help airlines find the right price levels,
Sabre Airline Solutions® is working on a Webbased, integrated decision-support prototype
for a new “proactive-pricing” workflow that
does not exist in most airlines today.
The proactive-pricing prototype is used to
determine the optimal price levels in a market
subject to overall market share targets and
desired price ranges for each of the airline’s
core fare products (along with other practical constraints). It helps airlines answer the
business question, “What is the right price to
charge”?
While reactive pricing focuses on a
response to a specific fare action by a competitor, strategic pricing is a proactive business
process to file new price levels for a market
based on the desired pricing objectives and
constraints in the presence of competition.
Strategic pricing should encompass a general structure that captures the key analysis
operations, automates those activities and provides an optimized pricing strategy. It should
aid pricing analysts in developing an effective
pricing strategy that takes into account interdependent factors, past trends, current market
conditions and pricing goals.
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The proposed approach to strategic pricing
works by considering historical revenue associated with a previous fare season, including
the observed fare levels, sales volumes and
market share. Non-linear optimization models
are then used against that historical season to
find improved prices that would have increased
the airline’s revenue outcome.
Multi-fare Price Approach
Higher Revenues Via Multi-fare Approach Airlines typically use multi-fare product differentiation to
extract greater revenues than a single-price strategy can provide. Comparing the demand curves in the
two figures above, it is clear that the multi-fare approach (top) provides higher total revenue. In these
figures, revenue = price x demand.
ASCEND I SPECIAL SECTION
These models consider price elasticity to
help users better estimate the sales and revenue impacts of fare changes together with
business constraints and various competitiveresponse scenarios in determining the best
solution. The results of the analysis can be
used to help make decisions about upcoming
seasonal fare levels.
The microeconomic theory underlying strategic pricing models is not complicated. The
basic principles are:
1.If price increases, sales quantities go down.
If price decreases, sales quantities will go
up.
2.If relative prices change, quantities will shift
to the airline with a relative price decrease.
3.If demand is price elastic, the airline will
increase revenue by lowering price and
receiving a larger than proportionate
increase in volume. If demand price is
inelastic, the airline will increase revenue
by raising price and receiving a smaller than
proportionate reduction in volume.
The above holds true if there are no capacity constraints and the amount of the price
change is small.
Non-price factors are another important
consideration (e.g. airline brand loyalty, flight
frequency and timing, on-time performance,
etc.). Rather than estimate all these factors
separately, Sabre Airline Solutions has developed a proprietary approach that indirectly
estimates the importance that customers place
on the non-price effects based on observed
airline prices and market share. For the strategic-pricing decision, this approach is possible
because the only factor being varied is the
price itself (not the schedule or other factors).
When optimizing fare levels, numerous
practical considerations exist that constrain
the strategic pricing solution. Examples of
such constraints include:
Airline Strategic-Pricing Decision Support
Expects to helps airlines set the right
price levels for an upcoming season.
Together, with recommended price
changes, should provide estimated
revenue changes under a range of
different competitor responses (a first
step toward applying game theory in
practice for airline pricing).
Should consider other basic constraints
such as:
Target price ranges for different fare
products,
Price elasticity (sensitivity of demand to
price),
Practical constraints on the degree of
the price changes that can be made,
Available seats for the upcoming
season (from airline capacity and revenue management availability).
1.Preserving the existing price differentials
(fare ratios) between the various fare products in a market (for price consistency),
2.Limiting the degree of price change to
stay within user-specified upper and lower
bounds.
Such bounds are important because setting
prices too high may create an undesirable
price image with respect to the competition,
whereas setting them too low may result in
lost margins, price wars and eventual brand
erosion.
Another constraint to consider is revenuemanagement availability across a season; it is
needed in fare optimization to avoid making
price drops that would over-stimulate demand
relative to the available capacity.
In our experience, based on work conducted with Prof. Guillermo Gallego at Columbia
University, the microeconomic model is further
enhanced by considering another important
tool known as game theory (the study of
mathematical models of conflict and cooperation between intelligent rational decision
makers). For this discussion, we will refer to
the airline being optimized as the host airline.
We propose a few basic assumptions:
1.Airlines behave rationally. That is, if they can
take an action that benefits them, they will
do so. The objective function for airlines is to
maximize revenue.
2.We use a “conjectural variation” model,
which means that the host airline optimization is based on making our best guess at
the response of other airlines to any fare
changes we make. If the host’s guess is
accurate, it is called a consistent conjecture.
3.Competitors respond in a manner known as
“bounded rationality,” meaning that if prices
are changed, the competitor response will
be in the same direction of the change
(ranging somewhere within a “no match,”
“full match” or “partial match” continuum).
Cases where competitor response is the
opposite of the host price change (e.g. they
increase prices in response to a price drop)
are not considered.
4.Since we are dealing with proactive price
changes, the host airline moves first. Other
airlines will respond to the host airline’s
move.
Based on the above assumptions, it is
possible to use the microeconomic model to
estimate the revenue impact of fare changes
for both the host airline and the competition.
However, one of the first lessons learned
by airline pricing analysts in practice is that it is
often difficult to predict competitor responses
to fare actions. Thus, a crucial aspect of any
proactive pricing-decision-support tool is to
evaluate the expected outcomes under a range
of different possible competitor responses.
Using our strategic-pricing framework in
practice, we have found it useful to summarize
the optimization model results in the following
ascend 87
ASCEND I SPECIAL SECTION
Game Theory Considerations in Strategic Price
Optimization
Standard Competitive Optimization Strategies
1
2
Find optimal
new fares and
revenue based
on user-defined
competitor
match
Find new
revenue based
on 0%
competitor
matching of
new fares
3
4
Find new
revenue based
on 100%
competitor
matching of
new fares
Find optimal
fare for
competitors
based on new
fares
5
Find new
revenue based
on matching
competitors
new fares
Method For Determining The Right Prices The pricing analyst reviews each of the competitive results
to find the projected outcomes under each competitive scenario. Then, the analyst evaluates the results
according to the likelihood of each scenario arising in practice. Finally, the analyst decides which price
changes to make, considering all risks and rewards.
manner. The optimization model is solved once
for the “most likely” case (i.e., the conjectural
variation in which the host airline has made its
best guess with respect to another airline’s
response). This provides a base case result to
compare against other, alternative competitor
responses, providing:
Most likely — Presents what will happen if
the host picks optimal prices based on the
conjectural variation, and the host airline
happens to be correct (i.e., under consistent
conjectures).
Competitor no match — Represents what
happens if the host airline picks optimal
prices based on the conjectural variation but
is wrong about other airlines’ responses,
and the other airlines do not match the host
fare change at all.
Competitor full match — Represents what
happens if the host airline picks optimal
prices based on the conjectural variation but
is wrong about other airlines’ responses,
and the other airlines fully match the host
fare change.
Competitor optimal — Represents what
happens if the host airline picks optimal
prices based on the conjectural variation but
Price Elasticity
Price elasticity (denoted Ep) is an economic measure that describes
how demand changes with respect to prices. It is usually a negative
number because price increases lead to demand drops (and vice versa).
For example, if Ep = -1.2, then a -1 percent price reduction results in an
estimated 1.2 percent increase in demand. Ep varies by market, and airline revenue-accounting data is usually used to estimate it. Ep is used
to classify the demand type as follows:
Price inelastic demand (-1 < Ep < 0): implies that demand is relatively
insensitive to price changes (e.g. business customer segments), and
revenue increases if price is increased.
Unit elastic demand (Ep = -1): a -1 percent reduction in price results
in a 1 percent increase in demand.
Price elastic demand (Ep < -1): implies that demand is price
sensitive (e.g. leisure-customer segments), and revenue decreases if
price is increased.
88 ascend
is wrong about other airlines’ responses. In
this scenario, other airlines choose prices
according to what is known in game theory
as a “best-response model” to maximize
their revenue given the host airline’s new
prices. This is what rational competitors
would do.
Three-round match — Represents what
happens if: 1) the host optimizes its prices,
2) the competitor responds optimally, and
3) the host matches competitor responses.
This type of three-round behavior is commonly observed in practice.
Other possible scenarios could also be
constructed, but the idea is to show how
the expected revenue of the price changes
would vary under a wide range of potential
competitor responses. Understanding how the
revenue changes depending on the competitive scenario is important for pricing analysts
to gauge the risk of a proposed price move.
A successful strategic-pricing model should
provide a programmatic approach to current
manual processes used by airline pricing
analysts and executives. It should also provide
automated parameter estimation to facilitate
setting values for items such as price elasticity,
fare bounds, competitive match factors, etc.
With these parameters, models can be used
to identify potential opportunities to fine-tune
price levels and estimate revenue performance
across a range of possible competitor responses. Ultimately, these tools facilitate proactive
pricing moves while maintaining their market
constraints and policies.
In our applications experience, we have
found that when these microeconomic and
game-theoretic tools are applied to historical
results, most markets show at least some
benefit from fare optimization. The estimated
revenue impacts vary by market and season,
but in practice, it is typical to find opportunities
ranging from ½ percent to 3 percent additional
revenue.
Model-based decision-support tools are also
useful in helping rank different markets in
terms of expected revenue improvement so
pricing analysts can spend most of their time
Fewer adults are traveling with children,
according to the U.S. Travel Association. In
2012,
26 percent
of domestic leisure travelers traveled with
children under the age of 18 (408.5 million
trips) compared with 2008, when 31 percent
of adults traveled with children (466.2 million trips).
and energy on the ones with the highest
expected benefit.
Proactive pricing strategy is a new challenge to airlines to provide better insights on
the impact of price change to customers,
partners and competitors. Decision-support
tools facilitate analysis and free up pricing
analysts from tedious manual work so they can
spend more valuable resources on analyzing
various scenarios, making more insightful decisions and generating incremental revenues for
airlines. a
Joakim Kalvenes is vice-president
of operations research consulting,
Yingying Kang is a principal of
operations research consulting
and Richard Ratliff is a senior
research scientist for Sabre Airline
Solutions. They can be contacted
at [email protected],
[email protected] and
[email protected].
Count
it up
Interesting facts and
figures in the airline
industry.
According to ATAG, aviation is responsible for
12 percent
of CO2 emissions from all transports
sources, compared to 74 percent from
road transportation.
The average age of leisure travelers is
47.5 years old,
according to the U.S. Travel Association.
Mature travelers comprise 36 percent
of leisure travel volume (18 percent are
65+; 18 percent are 55 to 64 years).
Nearly two in 10 (19 percent) are 45 to
55; 17 percent are 35 to 44; 20 percent
are 25 to 34; and 8 percent are 18 to
24 years old.
ascend 89
Market-Size Forecasting
By Prashanth Sriram | Ascend Contributor
Capturing Patterns And Trends In Passenger Demand
For decades, determining the actual passenger numbers for a past time
period was difficult, which made it nearly impossible to accurately forecast future demand. Now that the historical picture of airline passenger
travel can be more precisely constructed, established modeling methods
yield more accurate predictions.
ASCEND I SPECIAL SECTION
O
ne of the fundamental inputs
to any commercial planning
study at an airline is the
demand expected in each
of the origin-and-destination
(O&D) markets involved. For
example, a long-term fleet
acquisition plan requires an estimate on the
growth outlook of airline demand in the region.
A network plan involving the introduction of a
new route requires a demand estimate on all
key O&D markets flowing on the proposed
route.
Knowing whether a particular market is
going to grow at 5 percent or 10 percent per
year can lead to completely different strategic
decisions.
There are several dimensions to the
required forecast, which depend on the nature
of the study. For example, in a typical network
planning study, the question asked may be,
“How many passengers will fly from city A to
city B in December 2014?” Or possibly, “What
is the minimum year-over-year growth rate that
is confidently expected for passenger demand
from country A to country B in winter 2014?”
A few dimensions to consider include:
Time Horizon: Are the numbers required for
the next season? The next year? How about
five years ahead?
Geography: In which part of the world will
the numbers be used?
Granularity: Are the numbers needed for
a region as a whole? For a specific pair of
countries? Or even a specific O&D market?
Confidence: Is an expected forecast or a
conservative forecast required?
In terms of ordering a study, it is common to
ask a leading question followed by a slightly different follow-up question to make an informed
business decision. For example, perhaps the
growth forecast for the next season is the
leading question, and a longer-term outlook
is the follow-up question. However, the data
set and forecasting methodology can change
considerably when one of these dimensions is
altered, resulting in long lead times between
ordering the study and receiving the results.
Modern Data Sources
Traditionally, Marketing Information Data
Tapes (MIDT) provide the primary data source
for an O&D view of any market covering all
airlines. However, MIDT only covers airline
bookings done through a global distribution
system (GDS). With the growing focus on
direct distribution channels and the rise of
low-cost carriers (LCCs), the percentage of
global airline bookings that go through GDS
channels has been steadily dropping at roughly
1.2 percent each year for the last three years.
Therefore, if someone is only looking for a
growth percentage number, forecasting using
MIDT will yield the wrong answer. Applying a
correction factor to account for the drop
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ASCEND I SPECIAL SECTION
in MIDT penetration is not straightforward,
because the drop in penetration is not uniform.
Short-haul markets, for instance, may see a
greater drop than long-haul markets, and the
entrance of an LCC can result in an abrupt drop
that is difficult to model.
This leads to an even more fundamental
question: Do we know the true market
demand at any given point in the past?
Fortunately, this question is important
enough that several concerted efforts have
been made in the industry to generate the
right answer. For example, Global Demand
Data, offered by Sabre Airline Solutions ®,
uses proprietary algorithms to estimate the
true picture of airline passenger demand
using a variety of data sources collected
from around the world.
As a result, solving the problem of
market-size forecasting becomes a lot
more palatable. Given the historical marketdemand pattern over a period of time, is
it possible to forecast the demand for a
future period? This fits neatly into an established field of analytics called time-series
forecasting.
Passenger Demand For Germany-Russia January
2009 – December 2012
150
100
50
0
2009
Time-Series Forecasting
Challenges
Time-series forecasting techniques have
been researched for decades, as have
advances in handling huge amounts of
data and the algorithms that provide a true
92 ascend
2011
2012
2013
Seasonality Pattern For Germany-Russia
4000
2000
0
-2000
2009
Time-Series Forecasting
A time series is simply a series of data
points measured at regular time intervals.
Time-series forecasting encapsulates a
number of techniques well explored in business and academic literature, which help
identify the underlying pattern in the series
and extrapolate it.
In a typical scenario involving time-series
forecasting of O&D passenger demand, the
seasonality in the demand — an underlying,
repeating pattern of increase or decrease
in demand that is characteristic of a region
at a particular time of the year — is first
identified. Once the seasonality in the
demand has been identified, the demand
can be adjusted to account for this particular
season.
The demand series that remains — known
as the deseasonalized data — is highly
revealing. The trend in the demand over the
years will now be a lot more visible.
The final step involves separating the
trend from the noise and modeling it in a
way that can be forecasted.
This, in a nutshell, is time-series forecasting, and it is very popular because of its
intuitive and visual nature. Both the seasonality and the trend reveal insights into the
market, and analysts and decision makers,
as a result, tend to be on the same page.
2010
2010
2011
2012
2013
Deseasonalized Passenger Demand For GermanyRussia January 2009 – December 2012
150
100
50
0
2009
2010
2011
2012
2013
Forecasted Passenger Demand For Germany-Russia
January 2013 – October 2013 (in red), overlay on actual
demand (in gray)
200
150
100
50
0
2009
2010
2011
2012
2013
2014
Steps To Time Series Forecasting To effectively conduct time series forecasting, an airline must first,
visualize the historical demand followed by identifying the recurring seasonality pattern, deseasonalizing
the demand, observing the underlying trend and finally modeling and extrapolating the trend.
ASCEND I SPECIAL SECTION
Multiplicative Seasonality As Observed For
Australia-Spain
6
4
2
0
2009
2010
2011
2012
2013
Multiplicative Seasonality As demand increases, the seasonality pattern grows with the demand
rather than repeating with the same strength. This phenomenon is known as “multiplicative seasonality.”
picture of historical demand. However, there
are a number of complications that need to
be addressed — made all the more difficult
if the intention is to automate time-series
forecasting to work on several thousand
country pairs or thousands of markets in the
world, with differing properties.
One type of complication that can arise
is multiplicative seasonality, a situation
in which the degree of seasonal variation in the data increases (and decreases)
with the trend. The more typical seasonal
variation that remains static while the trend
increases or decreases is called additive
seasonality.
Another example is the handling of
unusual events that skew the travel pattern
temporarily. For instance, the eruption of
the volcano in Iceland in April 2010 left
a sizeable dent in traffic in Europe. If the
seasonality for Europe is naively extracted
without accounting for the disruption in
April 2010, demand for that month will
inevitably be underestimated.
By now, it should be evident that demand
patterns vary dramatically for different
markets around the world. Developing
automated techniques that are flexible and
advanced enough to accurately forecast
demand can present quite a challenge.
Accuracy
The operations research team at Sabre
Airline Solutions is developing an automated market-demand forecasting tool and in
the process has gleaned valuable insights
and promising preliminary results. The
team processed demand data at various
levels of aggregation, fitted the demand
series against Global Demand Data up to
December 2012, forecasted 10 months
into the future and validated it against
actual data from the Global Demand Data
system. The metrics used were:
MAPE = “Mean Absolute Percentage
Error” = Weighted Average of Absolute
Value of [(Forecast – Actual) / Actual ]
MPE = “Mean Percentage Error” =
Weighted Average of [(Forecast – Actual)
/ Actual ]
As expected, the greater the degree
of aggregation, the better the forecast.
Also, the forecast is more accurate for the
top markets (or countries or region pairs).
Both observations indicate that while there
are high-level statistical patterns that are
predictable, there is some volatility at a
deeper level that is driven by daily business decisions and the economic forces
of demand and supply. Some examples
include:
An airline introduces a non-stop flight in
a market historically served only by connections, and the market size jumps.
An airline slashes fares in a market in
response to competition. This starts a
price war in the market, and the market size increases as air transport pulls
demand away from other modes of
transport.
A country experiences a recession and
domestic market demand plummets.
Given the various possibilities by which
a market can change unexpectedly, these
metrics are reasonably good. The path of
improvement, however, leads into challenging and uncharted territory.
potentially be incorporated into the model,
including:
Economic variables, such as gross
domestic product, which may present
challenges including:
Availability for the countries in question,
Sufficient number of quarterly data
points,
Reliable forecast of the economic
variable is needed to forecast the
market demand.
Published airline schedules, which may
present challenges such as:
Schedules represent the leg view and
no easy way is available to convert
the schedule to an O&D model,
Future airline schedules are reliable
only up to a certain number of months.
The forecast quality can also be improved
by taking into account factors that humans
intuitively know, but the computer does
not. For example, markets involving Libya
were under-forecasted because the model
didn’t know the country had recovered from
the war.
Forecasting Framework
Thanks to advances in data management
and processing, the industry has come a
long way from the days when no one knew
how many passengers flew which airline
on which route at a given point in the past.
While the question of, “What happened?”
has been satisfactorily answered, “What
will happen?” is now a priority.
There is a need in the industry for a
framework to forecast O&D market sizes
under different input parameters, and it is
an active area of research that is picking up
momentum. As with several other advances
in the industry, this effort is enabled by data
quality, quantity and ease of computation,
which was previously difficult to obtain. a
Advanced Research
To account for the volatility in smaller
markets, it is possible to introduce input
variables or features into the model. In
other words, forecast the market demand
as a function of some factors that could
Prashanth Sriram is operations
research team lead for Sabre Airline
Solutions. He can be contacted at
[email protected].
ascend 93
Enhancing
Situational Awareness
Drill-down
capabilities
By Nicholas Hoffmann, Tom Samuel
and Mark Daniels I Ascend Contributors
Independent
infrastructure
Triggers
Airlines Can Better Track Their
Aircraft While Complying With
Regulatory Mandates
Photos: Shutterstock
Airlines can improve situational awareness of their aircraft,
gain operational efficiencies and reduce costs while also
complying with current and upcoming government mandates
for Automatic Dependent Surveillance-Broadcast (ADS-B)equipped aircraft and ground vehicles.
ASCEND I SOLUTIONS
Several well-known leaders in the aerospace
and telecommunications industries, such
as Boeing, Honeywell, Lockheed Martin,
SpaceX and Exelis, are working together
to deploy global, space-based, networkleveraging Iridium NEXT satellites. However,
this project has not yet been completed.
Due to these constraints, airlines are forced
to collect data from various sources and then
find ways to consolidate/aggregate and evaluate it, using certain tools, to improve situational
awareness.
Furthermore, expanding or enhancing an
airline’s situational awareness to include new
aircraft, airspace or airports can be quite
expensive and/or the necessary data difficult
to obtain.
In response to the challenges now facing airlines, Plane Finder and Sabre Airline
Solutions® have partnered to create a powerful
combination that enables airlines to achieve
higher situational awareness, as well as
make better decisions to improve operational
efficiency and reduce costs. The combined
solution:
Uses Automatic Dependent SurveillanceBroadcast (ADS-B), an outbound radio signal
broadcast from suitably equipped aircraft
and vehicles. The ADS-B broadcast transponder integrates with aircraft avionics and
navigation systems to transmit unencrypted
data such as aircraft identifier, coordinates,
heading and altitude.
Is relatively inexpensive to expand compared with other solutions.
Solves the problem of data aggregation.
High-quality data is combined with appropriate software that enables rapid and intelligent decision making across an airline’s
operations environment.
Aircraft tracking data from Plane Finder
has been incorporated into Sabre AirCentre™
Flight Explorer and Sabre AirCentre™ Surface
Manager.
Flight Explorer and Surface Manager are
already equipped with high-quality, diverse
weather data, thus bringing together key data
sources into a single graphical interface to give
airlines optimal situational awareness, as well
as a visual alerting tool.
Flight Explorer performs checks on all
incoming data to ascertain validity and plausibility of position reports and other data elements.
Each incoming data feed has a different level
of trust, depending on the source (such as air
traffic control, an airline, a technology partner,
etc.). If multiple sources of position information are available, the data is cross-checked,
and the best data source is used.
Surface Manager adds an additional level of
situational awareness because in addition to
tracking airborne traffic, it also tracks surface
traffic.
The safety, management and environmental
advantages gained by tracking aircraft using
Photos: Shutterstock
A
ircraft are an airline’s
most expensive asset.
They carry an airline’s
most important assets
— passengers and/or
cargo, as well as crew.
Knowing where an aircraft is at any given time (aircraft tracking) is
an important airline objective. Knowing more
about the environment in which the aircraft
is operating (situational awareness) — such
as other aircraft in the vicinity and weather
patterns in the area — is also key.
When airlines achieve optimal situational
awareness, they can make sound decisions
that enhance the passenger experience (such
as avoiding turbulence), reduce costs (such as
choosing the most cost-effective flight plan
based on current and forecasted weather, and
airspace/airport/runway congestion or closure
data) and increase on-time performance (such
as monitoring airport surface or ground traffic
to optimize gate management and departure/
arrival slots).
Airlines understand the need to achieve
optimal situational awareness, and they make
significant investments to track their aircraft
in the air and on the ground, as well as to
enhance their situational awareness. They
outfit their aircraft with ACARS equipment
to be able to track them and subscribe to
government-provided data that tracks actual
or planned aircraft positions in certain parts
of the world. They also subscribe to near-realtime data for weather and airspace/airport
conditions.
However, the current methods used for
overall situational awareness are limited for
various reasons:
ACARS-based monitoring systems only
allow an airline to see its own ACARSequipped aircraft — not all aircraft in a
certain area, whether on the ground or in
the air. While other systems can be used
for aircraft tracking, they, too, only allow an
airline to see its own aircraft.
Government agencies, such as the U.S.
Federal Aviation Administration (FAA) and
Australia Air Services (ASA), provide realtime in-flight aircraft position data for all aircraft operating in their airspace. This allows
airlines to see their own and other aircraft
operating in the airspace, but they are geographically limited to the country providing
the data. The Central Flow Management
Unit (CFMU) feed from Eurocontrol provides planned aircraft positions, but not
actual aircraft positions.
Government surface tracking feeds, such
as the ASDE-X data feed from the U.S.
FAA, is limited to certain airports. Other
companies allow airlines to track aircraft at
any airport, but there are significant costs
associated with deploying hardware at
many airports.
ADS-B have long been understood. As a result,
authorities across the globe have mandated
for ADS-B technology to be deployed in the
coming years, including:
United States — Effective Jan. 1, 2020, any
aircraft operating in airspace where a Mode
C transponder is required today will also be
required to carry an ADS-B Out transmitter.
Europe — Aircraft with a weight above 5,700
kg or a maximum cruise speed exceeding
250 knots will be mandated in two phases.
Aircraft manufactured after Jan. 8, 2015, will
be required to have ADS-B Out installed and
older aircraft must be retrofitted by Dec. 7,
2017, to operate IFR in E.U. airspace.
Australia — Since 2013, a mandate has
been in place for all aircraft operating at or
above FL290. Future mandates, according
to Aircraft Electronics Association, include:
2014 — Instrument flight rules (IFR)
forward fit: Any aircraft that is first registered on or after Feb. 6, 2014, and is
operated under the IFR must carry serviceable ADS-B transmitting equipment.
2016 — IFR for Western Australia: On
and after Feb. 4, 2016, any aircraft that
is operated under the IFR in airspace
that is Class A, B, C or E and within the
arc of a circle that starts 500 nautical
miles true north from Perth aerodrome
and finishes 500 nautical miles true east
from Perth Airport must carry serviceable ADS-B transmitting equipment.
2017 — All IFR aircraft: On and after
Feb. 2, 2017, any aircraft that is first
registered before Feb. 6, 2014, and is
operated under the IFR must carry serviceable ADS-B transmitting equipment.
ADS-B is a core component of air traffic
management programs such as NextGen and
SESAR.
Airlines are already making sizable investments in ADS-B technology via the equipment
cost added to each new aircraft or by retrofitting existing fleets.
ADS-B will ultimately be implemented as
both an outbound (ADS-B Out) and inbound
(ADS-B In) service for both aircraft and airport ground vehicles. ADS-B Out is expected
to bring significant benefits in situational
awareness due to improved accuracy and datagathering capabilities in comparison with the
aging radar-based systems currently used.
ADS-B In is a logical progression from
an outbound service (ADS-B Out) that will
ultimately deliver visualizations of surrounding
traffic, terrain, weather and flight information
to the cockpit. While ADS-B In is extremely
important, it is in the beginning stages of
development and is not yet encompassed by
the global ADS-B Out mandates.
Plane Finder has a global ADS-B receiver
network that includes well in excess of 1,000
high-quality receivers, and that number continues to grow. As mandates approach, this
ascend 95
ASCEND I SOLUTIONS
Real-time Aircraft Tracking Using the Plane Finder ADS-B network, aircraft can be tracked in real time
across large geographic areas (including entire contries and continents) such as Europe.
network is tracking an ever-increasing number
of ADS-B-equipped aircraft.
A Plane Finder ADS-B receiver system consists of:
A best-in-class ADS-B receiver made to Plane
Finder specifications, including GPS/MLAT,
A custom-made 1090MHz antenna with
high-quality coax cable and fittings,
A low-power decoder that connects the
receiver to the Plane Finder servers via the
Internet.
All that is required is Internet access, a
single power supply and suitable locations to
mount one or more antennas.
Plane Finder and Sabre Airline Solutions can
work with airlines to deploy ADS-B receiver
networks in response to the operational and
planning needs of airlines, particularly at
airports.
The core requirements for an ADS-B gateto-gate tracking solution are:
Aircraft and/or ground vehicles must be
equipped with ADS-B transponders (Mode
S for greatest accuracy with modes A and C
supported by multilateration, or MLAT).
Routes/high altitude aircraft must have one
or more ADS-B data receivers within range
of the transponder — up to 200 miles
depending on antenna position, terrain and
aircraft altitude.
Airports/ground traffic must have one or
more ADS-B data receivers in close proximity — typically within or overlooking the
airport.
As stated previously, one advantage of
ADS-B is that it is relatively simple to gather
ADS-B data in comparison to current radar
systems. The Plane Finder data network, for
ADS-B Tracking On The Ground Airlines can track aircraft movement as they taxi on the ground using
ADS-B, as displayed at London’s Heathrow Airport.
96 ascend
example, began in 2009 as a crowd-sourced
service (individuals with ADS-B receivers who
provide data) before evolving into a combined
crowd-source and professional network that
now includes sophisticated custom-made
equipment, including feed redundancy in many
key locations.
For the airline industry, this means that
an airport can be quickly “lit up” (or airport
surface tracking enabled) for ADS-B data without waiting for government action. This data
can quickly enhance the capability of Surface
Manager at that location. Similarly, routes can
be quickly covered within Flight Explorer by
the deployment of strategically placed ADS-B
receivers. Plane Finder and Sabre Airline
Solutions can work with airlines to deploy
ADS-B receivers to meet operational demands.
In short, airlines need real-time situational
awareness data to make sound operational
decisions. Outdated or delayed data makes
predicting, planning and execution difficult.
Receiving timely position reports from aircraft
while en route or on the ground helps paint a
current picture for airline decision makers.
In addition, aircraft, crew and gate utilization can all be improved by better situational
awareness through current data. Incorporating
ADS-B data into a visualization tool along with
other relevant data sources, such as weather,
supports improved operational efficiency in
many ways, including:
Fuel consumption can be reduced by
metering departures at congested airports
or optimizing flight paths around hazardous
weather.
Disruptions, such as diversions, can be
managed better (or avoided completely) by
understanding the location of aircraft in relation to other traffic.
Deicing operations can be streamlined by
reducing the deicing wait time.
Taxi times can be reduced by monitoring
the departure queue.
Ultimately, airlines utilizing the ADS-B system not only reduce costs, but provide their
customers with a better overall travel experience, as well. a
Nicholas Hoffmann is a product manager
and Tom Samuel is a solutions director
for Sabre Airline Solutions. They can
be contacted at nicholas.hoffmann@
sabre.com and tom.samuel@sabre.
com. Mark Daniels is chief executive
officer for Plane Finder. He can be
contacted at [email protected].