Wall Street has been famous for paying highly-analytical “rocket scientists” millions in annual compensation to identify lucrative trades and to place high value financial bets. Arguably, airlines have an equivalent function in revenue management where complex algorithms are used to maximize revenue need to be managed, adjusted, and continually refined; this analytical function is worth more than $10 million a day at the largest airlines.
However, the leaders in airline revenue management do not tend to be highly paid, super analytical rocket scientists. First, they are not normally compensated anywhere near their value to the airline. But also, rather than hiring such mathematically-oriented “rocket scientists,” airlines more often appoint managers with proven business management skills to the vice president or director of revenue management position. Revenue management leaders are practitioners, not theorists; integrators, not lone wolves; business/commercial oriented, neither creative marketers nor mathematical whiz-kids; strong recruiters/team builders, not individual fame-seekers.
Let’s look at the profile of the VP of revenue management position at a major airline during its decades-long leadership in the evolution of revenue management.
The Beginning: Change Agent
The new VP of revenue management, is an executive from the finance department, where he was responsible for budgets and financial analyses of initiatives in all commercial and operational functions. He had an established relationship with executives across the airline, in commercial, finance, and operational functions. He was charged with bringing new analytical capability to a staff with largely operational reservations experience – analytically-based RM was new to the airline. Rather than implementation of the most sophisticated analytics, focus was more on low hanging fruit: what are the most basic steps toward inventory management and overbooking? Still, change was tough on the existing employees; people and processes were changed dramatically. The VP was not well-liked and once the hardest work was over, he moved on to another function needing a major overhaul.
Early Stage: Team Builder
His successor, the new VP, was a people person with strong general management skills. She was able to continue to recruit the highly creative technical and analytical people into revenue management while training the operational staff to the new standards. Her team implemented dramatic improvements in the system. The mix of analytical and operational people worked well under her leadership.
Maturity: Corporate Integrator
Her replacement was again from finance but had proven himself a strong integrator across functions. With the industry experiencing significant financial losses, there were many distractions from RM improvements. Nevertheless, his role as an integrator was critical during a period of capacity cut-backs and industry consolidation. Working with outside partners – alliances, joint ventures – became a major focus for revenue management.
[Note: Each of these revenue management VPs went on to larger commercial positions. Their successful experience in revenue management proved to be a stepping stone to positions of greater scope and responsibility.]
At this leading airline, none of the revenue management leaders over decades of evolution were revenue management academics; none were experts in the sophisticated forecast techniques or optimization algorithms normally associated with modern revenue management. Instead, the emphasis of revenue management leadership has been on collaboration: both internal team-building and strong relationships with other departments. Internally, recruiting and training are critical to the success of revenue management at an airline; managing a department comprised of both highly analytical statisticians and more operations-oriented staff is a challenge. Externally, revenue management needs strong functional relationships with many other departments, including finance, operations, network management, alliances and other marketing functions. More recently, the success of revenue management has also required working well with partner airlines.
Despite the sophistication and complexity of many revenue management systems, effective leadership typically calls on different skills than quantitative acumen. Reviewing the leadership of revenue management at this airline over time highlights how the function is not a silo but a critical piece in a larger airline commercial strategy. Although revenue management is a highly sophisticated application of big data analytics and modelling, in the end, success is more determined by strong teamwork, both internally and externally.