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Published by: Khaled Alaswad on Nov 15, 2011
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Revenue Management Round Up

Theodore C. Botimer, Ph.D. Continental Airlines

Pricing & Revenue Management

Wild West Tales Applied to RM
• Integrating Pricing and Yield Management can be like pioneering in the Old West • Wild West lessons apply directly to the integration of Pricing & Yield Management • Descendents of Wild West heroes may have chosen to pursue RM careers • Wild West heroes often had long, interesting first names and quotable quotes

Pricing & Revenue Management

Round „Em Up

Pricing & Revenue Management “Get me a rope so I can lasso them dogies” .Cyrus Brunger .

• • • • Pricing is Pricing . all must be coordinated Airlines need to understand what is selling Internal coordination is vital to understanding Increasingly important to unify Pricing effort with greater diversity of distribution channels • Pricing must understand discounting as well – additional commission/override programs – coupon/corporate discounting . .Pricing & Revenue Management Integrate the Pricing Function . . . .

. the Whole Pricing Function • • • • • • Published Pricing Off-Tariff Pricing Revenue (Yield) Management Function Back End Commission Levels Corporate Discounts Certificate Discounts .Pricing & Revenue Management . .

Throw and Brand „Em .Pricing & Revenue Management Rope.

Ezekial Belobaba .Pricing & Revenue Management “Unconstrained? Y‟all don‟t get that till I take this here rope from around yer neck!” .

Pricing & Revenue Management Take Ownership of the Price Point • • • • • Stop the blame game Take politics out of the equation (P vs. YM) Create an internal “balance of power” Internal efficiency results from ownership Coordination of Pricing and YM – leads to better Pricing: know when not to match – leads to better YM: know when demand shifts – leads to better revenue performance .

Pricing & Revenue Management Example: Latin Holiday Program • • • • • • • Fully cooperative effort Shared ownership of result Common responsibility Effective teamwork Expanded knowledge base Unified front for dealing with other groups Result: Ability to implement a very complex and high profile program more effectively .

Pricing & Revenue Management Bring a Map of the Wilderness .

Pricing & Revenue Management “What in tarnation is a Logit Model? Fetch me a trail map.Jebediah Hopperstad . tenderfoot!” .

Pricing & Revenue Management Have a Plan. Know the Goals • • • • Understand what works well now Identify what does not work as well Develop a plan to improve and coordinate Do not be afraid to revise the plan – New territory is met regularly – Keep in line with good airline economics • Efforts should be coordinated to reach goals • Clear vision of impacts helps results .

Pricing & Revenue Management Organizational Plan • Devise an organizational plan with room for analysts/managers to progress within group • Provide interesting analyst/manager career opportunities in Pricing as well as YM • The organizational plan needs to allow for development of both Pricing and YM skills • Analysts skilled in both areas are scarce. design the organization to cross-train people .

Hold the Enemy at Bay .Pricing & Revenue Management Run the Wagons in a Circle.

Mergatroid Boyd .Pricing & Revenue Management “If we run the wagons. we‟ll run off them polecats!” .

Pricing & Revenue Management Database Coordination • Market Value Process uses live fare information to determine OD fare values • Database linking can make this information more precise (particularly TCN data) • PNR Data Warehouse technology can help to provide weighted fare information • Weighted fare information can provide the baseline for incorporating fares in forecasts .

Forecasting inputs .Pricing & Revenue Management Systems Adjustments • Systems must adapt to new environment • Yield Management systems already strong • Pricing systems tend to be simple relational databases for reactive implementation • Improvement of Pricing systems may provide the best return on investment • Easiest form of Pricing and YM systems coordination .

Pricing & Revenue Management Ranch Hands and Trail Bosses .

Festus Weatherford . Tonight.Pricing & Revenue Management “Bring me 12 of your finest hands and fresh horses for the posse. we ride!” .

Pricing & Revenue Management Staffing • Good staffing is crucial • Good training is equally critical – combats high turnover problem – provides a strong recruiting advantage • Revenue Management can be staffed to: – training future company leaders – stabilize pricing and inventory control function – attempt to do both (true success in training) .

Pricing & Revenue Management Winning Qualities • • • • • • • Communication ability Systems know-how Knowledge base .company and industry International understanding (where needed) Difficult to find in one individual Harder to keep that individual around Cannot overemphasize role of training .

Pricing & Revenue Management Most Important Integration Tool • Managers and Analysts! • Good communication strengthens revenue control of the airline • Systems only make things more efficient • Simple improvements yield big dividends • YM analysts need to understand where the fares are located to control their flights .

Pricing & Revenue Management Learn from the Natives .

Pricing & Revenue Management “I told Josiah not to eat that mushroom. Now he‟s one dead city slicker.” .Elijah Phillips .

most notably) • Pricing has been primarily reactive • Understanding spill and good mathematical analysis leads to better pricing decisions • Particularly in Off-Tariff Pricing • Allocate YM analysis resources to Pricing .Pricing & Revenue Management Bring YM Analysis to Pricing • Yield Management analysts have access to a great deal of data (spill.

Pricing & Revenue Management Send a Scout Ahead to Warn of Impending Danger .

something bad happens! ” .Ebenezer Ratliff .Pricing & Revenue Management “This scouting is dirty business. Every time I see smoke.

Pricing & Revenue Management Share Pricing Info with YM • Pricing information is vital to the forecast • Full system integration is not needed to gain forecasting benefits • Communication within the new department can improve forecasts and protections • Pricing analysts can tell YM analysts about major fare actions or bucket jumps .

Pricing & Revenue Management Forecasting Inputs • • • • A case for Fare Class Stratification? Can communicate in a meaningful way “Local fare dropped a bucket” Can apply in Network OD framework. but it is more difficult due to greater information • Focus on major flow markets to limit data • Manual analog to OD forecasting .

and Flying Machines . Horseless Carriages.Pricing & Revenue Management Iron Horses.

Pricing & Revenue Management “Les bontemps ne roulent pas sans ailes” .Auguste-Robuste Cherrier .

Augustus Robustus Cherrier . I‟d like to rustle me up a flyin‟ machine and a pretty co-pilot” .Pricing & Revenue Management “This wagon stinks.

Pricing & Revenue Management Origin to Destination Control • OD Control and Pricing are both OD based • Network OD Control and Pricing would seem to go hand in hand • Major concern: YM performance ownership • Danger in OD world. need for prioritization • Which markets are the focus? – Probably the non-stops – Maybe non-stops and major flows .

Pricing & Revenue Management Full Systems Integration Idea • Advance Pricing systems analysis • Pricing decisions support needs resource and analytical attention (airlines & vendors) • Collect relevant data (Data Warehouse) • Develop a fare dependent demand forecast • Does this provide a good alternative path for revenue optimization? .

Pricing & Revenue Management Conclusions • Integrating Pricing & YM improves function • Systems coordination stands as the next great advance in the integration • Data Warehouse information provides infrastructure for future models to be built • Manual steps provide good short run benefits • Business process must be restructured to meet desired goals (still much to be done) .

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