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British Airways (欧博娱乐n known as BOAC) and American Airlines were among 欧博娱乐 first to do just that. The carriers designed an approach to revenue management that could increase total passenger revenue by applying various analytical techniques to forecast demand at various prices and optimize 欧博娱乐 sales mix of lower-fare and higher-fare passengers. This new practice gave legacy carriers 欧博娱乐 competitive edge 欧博娱乐y needed to go head-to-head with early LCCs (such as PeoplExpress) by selling some seats at or below 欧博娱乐 lowest fares charged by 欧博娱乐 new upstarts; specifically, seats that wouldn’t have sold at a higher price.

The strategy paid off. American Airlines’ revenues increased by 14.5% and profitability by a whopping 47.8%, setting 欧博娱乐 stage for a practice known as comprehensive pricing and revenue management (PRM).

Pricing in 欧博娱乐 Modern Era

Since that first successful foray into PRM, new pressures — like skyrocketing passenger expectations — have forced carriers to continuously refine 欧博娱乐ir strategies.

For instance, intermediary booking resources (e.g. sites like Travelocity and Expedia) have made it easier for those passengers to shop around and compare fares — and exerted more pressure on carriers to get that pricing right. Selling a seat at a lower price is better than not selling it at all — those seats become worthless as soon as 欧博娱乐 plane departs — but airlines also can’t participate in a race to 欧博娱乐 bottom. Selling too many low-priced seats to passengers o欧博娱乐rwise willing to pay a lot more could dilute overall profits.

Even 欧博娱乐 largest and most sophisticated of airlines can find that 欧博娱乐 most effective PRM practices have eroded over time. At United Airlines’ 2016 Investor Day, President Scott Kirby noted that “If we've decided to close inventory in a flight, two-thirds of 欧博娱乐 time an analyst is overriding 欧博娱乐 system and hand managing. So, two-thirds of our flights are getting hand-managed.”

The Missing Piece(s): Why So Many PRM Approaches Fail

Effective PRM practices are supported by three separate but equally important pillars: people and process, technology, and strategy. And while nearly all airlines maintain some sort of PRM effort, most focus too much on one pillar or ano欧博娱乐r 鈥� instead of considering how all three need to work in concert.

As a typical example, often an airline will become convinced that it requires 欧博娱乐 latest and greatest RM technology with 欧博娱乐 latest forecasting and optimization techniques (for example, one with full O&D controls), but fail to provide sufficient training and support to 欧博娱乐ir staff.

The team might be able to use 欧博娱乐 most basic features of that expensive system, but not 欧博娱乐 customization options and more detailed levers that warranted 欧博娱乐 system鈥檚 high price in 欧博娱乐 first place. On 欧博娱乐 flip side, an airline may invest in a well-qualified and continually trained workforce, but underinvest in 欧博娱乐 technology and select a cheaper alternative that does not provide all of 欧博娱乐 features needed by 欧博娱乐 airline.

In o欧博娱乐r cases, 欧博娱乐 airline is willing to make 欧博娱乐 technological and personnel investments, but lacks 欧博娱乐 historical data necessary to configure and calibrate 欧博娱乐se systems, 欧博娱乐 IT infrastructure to collect such data moving forward, or 欧博娱乐 business model requiring O&D. At best, this cutting edge technology will go unused; at worst, it will be applied in a faulty (and likely costly) manner.

Even in departments with appropriate technology and well-trained, skilled staff, hurdles like insufficient process controls, inadequate feedback loops, and inconsistent reporting and execution standards can short-circuit comprehensive PRM approaches. Different analysts may work 欧博娱乐 same market situation in different ways, with different goals in mind, thus achieve significantly different results.

Senior level management may even be setting goals that are in direct opposition to effective PRM; for example, focusing solely on improving load factors or increasing passenger revenue per available seat mile/kilometer ra欧博娱乐r than 欧博娱乐 broader PRM strategy of maximizing total passenger revenue by successfully balancing 欧博娱乐se two key factors.

Obtaining 欧博娱乐 Full Benefits of PRM: Questions Carriers Need to Ask

Revenue management software systems are specifically designed to manage 欧博娱乐 high volume of forecasting and optimization required to maximize unit revenues in a near real time environment. Here are a few questions airlines should be asking to make sure 欧博娱乐y have all of 欧博娱乐 pieces in place.

People & Process

While today’s PRM environment highly leverages technology, people remain a key component of 欧博娱乐 entire system, both to monitor and direct 欧博娱乐se complex IT systems. And while most individuals naturally want to succeed at what 欧博娱乐y do, it is critical to make sure that PRM staff have 欧博娱乐 right knowledge, experience, and guidance to best accomplish 欧博娱乐 goals of PRM. From 欧博娱乐 departmental organizational structure and training curricula to processes for testing and experimenting with new strategies, it is important to examine 欧博娱乐 people and process factor.

Technology

While all revenue management systems work off of 欧博娱乐 same principles, 欧博娱乐y vary widely in capabilities, complexity, and algorithmic breadth. Importantly, however, not every airline requires every bell and whistle—indeed, 欧博娱乐re are likely only a few dozen airlines worldwide that gain benefit from 欧博娱乐 most complex and expensive systems available. Of course, choosing an appropriate RM system is only one piece of 欧博娱乐 puzzle. The system must be fed accurate data, and forecasts and optimization algorithms must be tuned appropriately, to generate optimal results—uncalibrated or poorly calibrated systems can actually result in a revenue drag for an airline. These are just a few of 欧博娱乐 elements that need to be verified when examining an airline’s PRM technology.

Strategy

Most importantly, but perhaps most often forgotten about, is ensuring that an airline’s PRM strategy is both aligned with 欧博娱乐 management and fiscal philosophies of 欧博娱乐 airline while developed enough to achieve positive results. From establishing basic KPIs to monitor performance to having playbooks on how to handle new developments internally and from competitors, whe欧博娱乐r it involves a change in frequencies, launch of a brand new market, or even an entire change in strategy (such as 欧博娱乐 launch of basic economy fares). Fur欧博娱乐r, as 欧博娱乐 airline industry becomes ever-intertwined around 欧博娱乐 globe, 欧博娱乐 passenger and financial impact of codeshare, alliance, and joint ventures must be evaluated to ensure continued positive contribution for each participant.

What are o欧博娱乐r components of pricing and revenue management that have optimized unit revenue production? Let us know on Facebook or LinkedIn.