Airline Revenue Management: Maximizing Customer Experience Through Demand Management

     

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Revenue management is not just about higher fares. Some view revenue management as a zero-sum game pitting spreadsheet-armed analysts against unsuspecting customers, where airlines develop complex algorithms to get as much out of passengers as possible.

Ideally, revenue management eliminates any “consumer surplus.” Although this has never been the case – revenue managers work hard to expand demand with lower fares – and increasingly, revenue management is applying its analytical rigor to other functions in an effort to better create and manage demand.

Marketing and revenue management have always worked closely together to create demand. As airline executives demand ROI on virtually all expenditures, marketing has turned to revenue management to help analyze, quantify, and project the benefits of coordinated marketing initiatives.

CRM, similarly, has tapped into revenue management statistical analysis and segmentation to revamp loyalty programs and develop more personalized CRM campaigns. In turn, CRM has influenced revenue management – should revenue management treat all customers the same? CRM typically calculates “customer lifetime value,” which projects the long-term value of different customers – customers who frequently travel at high full fares versus customers who travel much less frequently. Most revenue management systems still would not distinguish between customers willing to pay equal fares for a specific flight but customer lifetime value suggests that revenue management can become more strategic and less transactional, less tactical, by identifying high value passengers and insuring they aren’t turned away.

In most of these cases, revenue management roles remain highly tactical. However, as revenue management aligns more closely with customer experience, it's becoming more strategic, increasingly concerned about longer-term demand management.

As revenue management analytics extend to customer experience, new metrics are added to revenue management’s scorecard of unit revenue (RASK) and load factor. New metrics include net promoter scores, a measure of customer satisfaction common across many consumer industries. Although I helped compute this at one airline – and other similar metrics around customer experience – I did not apply the same analytics around this metric that I did unit revenue. I did not use the metric to “manage” demand.  Certainly, I addressed the larger macro issues – aircraft cleanliness for example – but like many airline managers, I viewed overall performance as basically a given in a much-maligned industry and did not envision net promoter scoring as an opportunity for a step-change in customer experience that might, indeed, drive higher demand for services in competitive markets. 

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Pricing itself, of course, impacts traveler’s evaluation of their experience. With the growth in ancillary fees, some passengers complain of being “nickled and dimed.” Instead, ancillary should be the opportunity to personalize the flight experience, for travelers to choose elements of the trip that they value uniquely, and for airlines to make a traveler’s experience better, more individualized. Revenue management needs to understand how customers perceive an airline’s assortment of ancillary services.

Similarly, the booking process is part of the customer experience. In many cases, the new fees have made airline booking more complicated. Do customers perceive the process as too complex? Do they opt for third party distributors for a simpler process? Or do they book on the airline website to insure greater ancillary transparency? How does booking impact the overall customer experience?

Finally, overall demand is driven by the overall satisfaction of customers. Can the legacy airline sustain a fare premium versus the ultra-low cost carriers? How do customers perceive the new basic economy package? When I reviewed the satisfaction of customers with their experience, I did not have a large enough, or frequent enough survey to utilize on a more micro basis – satisfaction in certain markets or against individual competitors. But certainly demand, and therefore optimized pricing, is driven by such micro-elements. Revenue management is increasingly being asked to help assess and improve the customer experience, managing demand in a much broader way than ever before.


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