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Ecrm The New Frontier: Agifors Revenue Management Symposium CANCUN 2006
Ecrm The New Frontier: Agifors Revenue Management Symposium CANCUN 2006
SM
Executive Summary
The power of the web based channel has changed the air travel purchase process.
Air travel purchases now driven by low touch simple transactions via the web.
Pricing parity in all channels has created partial commoditization of air fares.
Attaining the customers right fare is still too random and highly unpredictable.
Executive Summary
RM process is not interactive with the consumer transaction and purchase path and the current algorithms lack the power to predict the true attainable customer spend.
The future is to create a new robust RM system that can deliver 2-5% in additional incremental revenues incorporating e-commerce and brand power using the web
Segmenting marketable, tradable, and brandable demand within fare class demand and monetizing the opportunities in the purchase path is the driving model.
Truthfully, there are no RM systems to help manage this and the fact is that it takes at least 24 months to develop a system that can adapt to evolving environments
The low fare no fences environment that LCCs drove in the last 48 months is now being addressed after $bils of losses and confusion amongst airline PRM groups
The web purchase phenomena is still in the early growth stage so the need to refine PRM and E-commerce methodologies is still below the corporate radar
35% 30% 25% % Total Revenue 20% 15% 10% 5% 0% Agencies Airline sites
Q4 2004
20% 17% 15% 13% 10% 16% 30% 30% 26% 24%
OTAs
Q4 2005
Other
TMCs
Trends in RM Philosophy
RM Practice and Theories have evolved over time so it is appropriate to anticipate the future and have the right solutions
1996-1999 Develop bid price forecasts/displacements in an O/D world Optimize revenues by managing OD/POS flow/local itins Re-educate organization about RASM/RASK benefits
Improving of the leg based forecasts Measuring effectiveness given capacity Educate organization to maximize benefits 1990-1995
2000-2002 Predict allocation of future fare demand Use historical fare data and EMSRa/b Managing low fares and no fences in an O&D based world Re-educate RM organization/system given the following: How do we improve yields and revenues with what we have got? High loads and high unconstrained low fare demand Industry Over capacity and a collapsed fare structure 2003-2005 Record oil prices drive capacity reductions Web drives transparent fare environment Lowest fare guarantee is the selling model How to increase spend per seat. 2006-2007 Airlines focus on costs and direct sales like LCCs Fixes applied to manage no fences and trade down Fixes to improve OD/POS/local/flow revenue mix Oil prices trigger minor capacity reductions
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Build a website to manage this unknown Auction and distressed inventory models RM Organization still skeptical
9/11 and internet crash change the access landscape Expedia and Travelocity gain momentum. Search engines overpower RM defense mechanisms LCCs adopt this power going 97-100% direct to consumer RM and airline revenue dynamics change forever 2004-2006
100 90
Revenue Improvement Impact Percentage (%)
80 70 60 50 40 30 20 10 0 Pre 1995 1995-2000 2001-2004 2005-2007 2008-2010 Network Impact Brand Impact Sales Impact Pricing Impact RM Impact
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40% 35% 30% % Total Revenue 25% 20% 15% 10% 5% 0% Agencies Airline sites
Q4 2004
5% 20% 15% 24% 20% 16% 15% 25% 34% 30%
OTAs
Q4 2009
Other
TMCs
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A WAY FORWARD
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This area drives the imagination of consumer marketing, RM algorithms, and webbased purchasing behavior.
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Focuses on the web driven customer channel purchase as opposed to the traditional agency driven purchase algorithms which may be critically outdated in the next 5 years
Leverages the combination of brand, utility, and commodity driven consumer marketing/merchandising as opposed to time utility driven pricing and availability
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HOT, UTProb
LFA/LBA, HOT
HOT, UTProb
ECRM DB
Brand-able
Marketable Tradable
B Class
V Class
LFA/LBA, HOT
RM Forecaster
LFA, HOT
RM OPTIMER
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Complete Purchase
20
Bucket Y B Q All
2.1% Opportunity
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