Business Travel Show Europe Kick Off, 23 February,
Global Travel Risk Summit Europe, April 2023,
3rd Annual Sustainable Business Travel Summit
Many airlines are changing their business models and with more now fighting for the centre ground, successful revenue management has become critical. The move has been a slow but perceptible move away from being an outright legacy or low cost carrier to a "hybrid" model which includes aspects of both.
This can be seen in how, for example, Vueling, a Spanish low cost carrier, uses the GDSs while BA announced last week it was to charge for booking seats in advance. Or how easyJet is increasingly aiming to attract business travellers while many legacy airlines have adopted the standard offering of an LCC, one way unrestricted fares.
Flybe, a major UK domestic airline, happily describes its model as hybrid, taking the best practices from the legacy and low cost carriers.
But this shift in model is having a major effect on the industry. The centre ground has become more crowded, making the battle for passengers even more intense. Airlines are increasingly fighting for the same passengers whose numbers, at least for the duration of the recession, have dropped. It is a ruthless environment.
It is a crucial fight where revenue management has become an essential weapon. If it is handled successfully, it can make the difference between profit or loss, survival or extinction.
Alessandro Ciancimino, regional vp for Europe for Sabre Airlines Solutions, said: "It is getting very dense out there. It is very competitive. If you can get 1.2% extra revenue here and 1.2% extra revenue there - that is the name of the game. Airlines are looking for any opportunity to empower their revenue side."
Revenue management is not new but it has become increasingly critical for airlines. It is the primary tactic that airlines use to increase their revenue. According to the latest figures from Sabre, revenue management accounts for 44% of new revenue while ancillary services produce just 11%.
To sharpen their revenue management skills companies like Sabre are providing increasingly sophisticated tools, like its newly enhanced SabreSonic Customer Sales and Service (CSS) module.
Traditionally, an airline's analysts have based their often crucial decisions on revenue management on historic data, Mr Ciancimino said. "This was often based on what happened a year ago. That's okay in mature market where year on year there is not a lot of change.
"But I don't see these markets anywhere now," he said. Airlines of all different models are coming in and out of routes much more quickly now. "So you cannot rely on historic data. It might be worthless. You need more revenue management in real time."
Airlines needed to decide which customers they were aiming for, to know what the opposition was doing and offering not only on routes but often also on individual flights.
He gave as an example the London-Rome route. BA could be, on say the 8am flight, up against another legacy carrier but on, say the 1pm flight, it could be in competition with an LCC. Fares offered by BA would need to take into account these differing factors.
"You need to be able to effectively compete," Mr Ciancimino said. "You might need a different nesting structure of your fares. You might need a structure to be competitive with a legacy carrier and another one to be competitive with an LCC. You will need a solution which is flexible enough to compete with these different models. To do this you will need to integrate and merge your revenue management solution with your inventory solution and your reservation solution. It needs to be integrated so you can respond quickly."
Formerly, airline analysts would work overnight on strategies for the next day. "Now you need to do this during the day."
But there is also a range of factors beyond the control of the analysts. Ben Druce, director of revenue and pricing for Westjet, said it was not just obvious things like an outbreak of swine flu or SARS but things like the weather. He said if the weather forecast for a weekend was good, demand would increase for flights to seaside resorts or if a snow storm was likely to shut road, again demand might suddenly rise.
With more airlines looking to raise revenue by charging for ancillary services, this was another area where revenue management would come into play. This had to be integrated with revenue from other sources. But there was another danger here, Mr Ciancimino said. "If you start unbundling, you have to be sure you do not do anything that will damage the product, like charging for access to lounges or for checked-in baggage while you keep your fares low.
"If you are not able to sell ancillary services, all you do is keep your yield but not stop its dilution. You have to make sure it gives customers value. It has to be a revenue booster, not a diluter," he said.
New tools will also help airlines to increase revenue in another way. Mr Ciancimino calls this aspect of the CSS "customer-centricity." Passenger Name Record (PNR) is what he calls the "core" of an airline's revenue system.
"PNR provides a lot of useful and powerful data. But a key part of it is that airlines could not use the data effectively. It came in such a form that they could not use it or make it available at any customer touch point."
"One of the solutions that the CSS offers is a customer profile - not just the frequent flyer bit, that is just part of it.
"But by enabling the airline to continuously update it at any time the customer flies or contacts a touch point. For example, if an airline lost a customer's bag, that information will be stored so that when he next booked, the airline would know and perhaps could offer him an upgrade as a way of apology."
It goes further as it enables airlines to identify particular customers. Again an example: if there is a customer whom the airline particularly values, he or she might be offered a fare which other customers do not get.
"The key point is that the tool is giving that ability to the airline," he said.
In the battle for revenue, it is likely to be small things as well as big ones that affect a customer's choice and therefore an airline's revenue.