Innovation in Airline Revenue Management: Are You a Dinosaur or Change Master?

     

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Innovation. New Science. Improved Algorithms. Airline revenue management has evolved, and each year there are new developments, improved systems, and new features. It’s happening quickly. And it’s creating opportunity, if you can keep up and even get ahead. Some airlines are set up to exploit these innovations – and some are not.

Yet a fundamental question remains: “What does it take for an airline revenue management department to keep up with the data scientists? There are four key characteristics that define a change-oriented revenue management strategy.

When you think about implementing “the latest and greatest”, consider these four prerequisites. When you strive to be at the forefront of airline revenue management, ensure that your airline is properly positioned in each of these. Ask yourself if your organization is poised for change – or are you more like a dinosaur ?

For each of the four elements, I spell out both “the model” (what you should aspire to), and “the dinosaur,” which is what defines an organization not poised for change.

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Leveraging Transformational Leaders as Change Agents

The Model

Revenue management leadership starts at the top, and since the function often touches every aspect of the airline – the product, positioning, sales and marketing, distribution, customer service, and delivery – a change-oriented revenue management organization needs a leader who see the big picture and appreciate the value of pricing science. Although they do not need to understand all of the technical aspects, they should have a clear understanding of the relationship of pricing in relation to other aspects of the business, in order to champion the science within the broader organization. Essentially, airline revenue management needs to be considered a strategic element of the business, not a technical silo.

The Dinosaur

If the organizational leader is more oriented toward other specialized functions – marketing, sales, or distribution – revenue management will likely suffer. Revenue management frequently has conflicts with the other airline functions as it seeks to allocate capacity, sell-up, and maximize RASM. As changes in revenue management are sometimes highly technical and therefore more difficult to understand, a weak revenue management leader will be held back from change as the impacts on the rest of the organization present political hurdles.

Creating a Culture of Innovation

The Model

Airline revenue management departments that are prepared for change, are open to learning more and capitalizing on scientific developments. The best revenue management departments “know what they don’t know.” They recognize that, despite all their successes, they still need to continually adapt to a changing marketplace and to stay ahead of competitors – who also are likely not staying still.

The Dinosaur

Some revenue management departments discount new discoveries by suppliers. Often, their departments are positioned to be more market-oriented than science-oriented. They overvalue their individual airline’s experience and too frequently override what the revenue management system advises anyway. They are siloed as highly technical groups who are managing revenue in a “black box”. They can’t afford to admit to the rest of the organization (the people in sales, marketing, operations) that they don’t know it all. They don’t tend to be oriented toward industry analysis or broader experience since their airline situation is “unique.”

Solving Problems Effectively

The Model

Obviously, it’s easier to adopt change, if it responds directly to a challenge the airline faces.  Legacy airlines sometimes find they experience a downward spiral of fares when they face competition with low cost airlines - less and less high-fare demand is observed as they drop certain fares to compete more effectively on the low end. In these circumstances, adjusting demand forecasts for latent high-fare demand makes sense. Similarly, monitoring other competitor prices via ql2 or InFare help travel companies better understand when and if matching fares are revenue-positive. The unique revenue management of group travel is now standard procedure for most airlines. Leaders in revenue management, of course, are problem-solvers; they push for solutions that address their specific issues, and when a possible solution is ready, they are positioned to implement quickly.

The Dinosaur

On the other hand, many airlines don’t necessarily recognize that a problem exists. They are content with the status quo, or perhaps they have their hands full just managing what they’ve got. They tend to think of the enhancements as more sophisticated than they need.

Taking Smart Risks

The Model

Any airline, even leaders in revenue management technology and sophistication, need to understand the risk involved in managing change. They should formulate project plans around any enhancement, including proper testing, clear goals and ongoing metrics. While open to the opportunities presented by innovation and advancement, they need to also be cognizant of the limitations of revenue management science and the sometimes high sensitivity of sophisticated modeling to small errors. Leaders in revenue management approach change prudently.

The Dinosaur

Many airlines believe they can be prudent about risk by minimizing change. Of course, this is sometimes actually the most risky position – to not change when the marketplace demands it. Naturally, they would rather retain the “status quo” (the devil they know).

Conclusion

For an airline revenue management department to be change-oriented means much more than having the budget to purchase the latest revenue management technology. As they innovate new approaches for a changing market, airlines might want to keep in mind the four characteristics highlighted above and analyze how their organization matches up against each one.


Learn more about the characteristics that every airline revenue management leader should possess.

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