Creating, Communicating and Connecting
Strategic Planning For Pricing And Revenue Management
An airline’s pricing and revenue management strategy is dependent on a plan that enables the department’s leaders to consistently focus on daily operations while also focusing on long-term objectives. There is a formula to building and executing the plan that ensures optimal results.
Ask any leader within a pricing and revenue management department about strategic planning and you’ll quickly hear things like, “achieving if not exceeding plan,” or more succinctly, “consistently improving financial results with the tools available — that’s what matters around here.” Yet, best-practice strategic planning in the pricing and revenue management context is much more than simply exceeding financial results for a given period.
Ask these same leaders how much time in a given week is dedicated to the critical task of strategic planning. If the answer is “never enough” or perhaps “none at all,” he or she is not alone as the typically hectic daily pace of pricing and revenue management creates an environment where simply getting the core job done takes precedence.
Most airlines communicate boldly about annual (and beyond) strategic plans. The plans generally emanate from a series of annual meetings with senior leadership, and then they often get put into presentations where they are quickly broadcast through the ranks and quickly supplanted by the “crisis of the day.”
Aside from the daily business conflicts that often tend to act against successfully executing on strategic plans, modern-day pricing and revenue management leadership faces practical issues that can be placed into three categories:
- The staffing or people element of the equation in generating upward confidence that they have the skillsets and active thinking required to meet the plan,
- General business volatility scaled against the network size and geography and can be both internally and externally driven,
- The ever-increasing trend within the revenue management space to perform “over-the-shoulder” post-performance scoping reviews that validate performance in a near-term framework, hence causing more reactionary approaches.
How is a pricing and revenue management leader to transcend this cycle and create more meaningful and pertinent strategic plans such that leaders and their teams demonstrate full buy-in and the department collectively marches toward targets?
Against the likely scenario that disconnects occur between managerial outputs from strategic planning and frontline employees, airlines may reach out to pricing and revenue management consultants who offer broad experience to remedy this situation. Consultants should support airline leaders in effectively translating strategic plans into daily, weekly, monthly and quarterly tasks and processes to help ensure the plan is adopted throughout the pricing and revenue management organization.
Six-step Planning Framework
Building an effective pricing and revenue management plan requires a six-step framework that includes proposing a mission, defining goals, examining internal issues, examining external issues, creating SWOT analysis and formulating a strategy. Once these steps have been taken, an airline is ready to implement the plan.
Key Plan Aspects
What do airlines consider in terms of strategic planning idea creation and ensuring they are being complete in the process?
Corporate goals naturally set the pace in terms of topline financial objectives where pricing and revenue management get assigned performance expectations. Given the operating characteristics and that the core functionality of this group is to enhance revenues, it is imperative that the department come away from the strategic planning exercise with a clear understanding of how the daily actions are going to drive the corporate goals.
The operating environment faced by carriers varies significantly across the globe and, depending on network size, can truly be multi-faceted in nature. From monitoring explosive growth of low-cost carriers (LCCs) in Asia to effectively considering ancillary strategy changes from traditional network carriers in Europe, the industry is replete with change and often implies that outside support from consulting guarantees a more exhaustive consideration when planning.
Economic environments can change quickly, and for a pricing and revenue management operation that is global in nature, it is vital to consistently remain aware of and continually hedge risk around an airline’s network. From addressing directional travel imbalances to understanding currency fluctuations, full consideration of the economic environments faced in the near future is required.
Understanding the socio-political environment in which an airline operates drives another key facet as part of planning. While topics such as civil unrest are a less savory point of discussion, politics aside, they are part of the uniqueness of the airline industry and must be actively considered and effectively planned for as best possible.
Market dynamics and their changing nature largely drive what airlines do in the pricing and revenue management space. As such, having input from key stakeholders at levels within the organization that can effectively distill onward expectations at the regional level are often the lynchpin to “connecting the dots” of high-level strategic plans to frontline employees.
Internal needs must be considered as it relates to high-performance pricing and revenue management teams. Pricing is the “fuel” to an effective revenue management operation across both technology systems and business processes. Neither can be successful long term by operating in silos or a vacuum and, as such, integrated discussions, activities and commitments must be well aligned as part of the planning process.
Building The Plan
Various frameworks for strategic planning permeate the industry and are effective for creating and maintaining — if not growing — a pricing and revenue management department. The following six-step framework can be used to build an effective plan.
Step 1: Propose A Mission
The mission of the strategic plan should include a penetrating, relevant and purpose-driven set of statements easily relatable to the daily activities performed within the department, such as:
- Driving consistent quarterly revenue improvements by offering creative and impactful generative thought leadership in conjunction with all commercial areas,
- Championing both the proactive and reactive activities necessary to run a best-of-breed pricing and revenue management team.
Step 2: Define Goals
Defining goals comprises a well-thought-out series of achievable tenets best created with significant involvement of frontline managers to affirm precision and applicability to the current operating framework, including:
- Achieving and maintaining a daily standard of completing a network review of competitor fares, rules and footnotes on a daily basis (pricing),
- Reaching a seasonally adjusted ~10 percent revenue improvement in a given originating region (revenue management).
Step 3: Examine Internal Issues
Identify and examine an exhaustive culling of known challenges within the respective pricing and revenue management areas that merit focus in the coming year, such as:
- Staffing challenges at the analyst level have led to less-than-desired consistency and reliability in performance, requiring more hands-on managerial time to rectify,
- Group-related traffic permeates significant portions of the network and the sales team is incessant regarding inventory obligations during peak seasons, threatening overall yield,
- Scheduling and network restrictions dictate from an operational perspective flying aircraft on a given route that has too many seats versus typical market demand, driving poor load factors and financial performance.
Step 4: Examine External Issues
Examining external issues requires a broad review of the operating environment(s) faced that portrays clear points of focus that not only should be addressed, but that likely permeate much of the decision-making within pricing and revenue management, including:
- How to manage fares and demand optimization when operating from a high-volume region with a cut-throat competitor that perennially under-cuts the market,
- Slot restrictions at a preferred but alternate airport lead the airline to have a less-than desirable schedule to suit business-oriented, high-yield day trips.
Step 5: Create A SWOT Analysis
The SWOT analysis encompasses a long-valued framework within consulting focused on identifying strengths, weaknesses, opportunities and threats but one especially customizable to the particular problems typically faced in pricing and revenue management. It enables the creation of a most direct portrayal of the various pluses and minuses in a commercial context, and it is used to:
- Highlight business challenges from top to bottom in pricing and revenue management context at the network, regional, country and market levels,
- Pinpoint direct, effective ties to frontline employees in terms of both the typical daily activities as well as recommended onward ad hoc analyses and actions.
Step 6: Formulate Strategy
At the high level, the strategy is a roadmap upon which to execute the content that bears a directly relatable path from top to bottom within the department, which should be:
- The most effective tool used by director- and manager-level staff in cementing the corporate strategic plan to a daily action plan for analysts while also representing the general level of expectation within the department,
- Viewed as a changeable at the micro-level against the ever-present likelihood of change.
A pricing and revenue management leader’s team is likely well experienced in completing the annual planning cycle. But how successful is the leader at influencing his or her organization to achieve the desired results?
Executing The Plan
To properly execute on the six-step strategic planning cycle, effective channeling is required to assimilate the strategic plan throughout the pricing and revenue management organization.
Creating an environment of accountability, consistency and rigor is an activity often fortified by outside consulting as it can represent significant cultural shift in an organization. If the recommended approach is used to synthesize and build the plan properly, the outcome is more efficiently and broadly used, making execution a natural consequence.
Adherence: Walk The Talk
An inherent part of leadership is engaging subordinates and validating through daily activities and interactions that the goals and activities are directly relatable to theirs. In the context of strategic planning for pricing, active leadership participation and visibility in activities (such as daily pricing briefings) validates the process, sets expectations and inspires the organization while enabling mutually assured confidence that the relevant elements from the strategic plan are “in action.”
From a revenue management perspective, consistent regional reviews of overbooking levels and yields pinpoint shortfalls and successes and set the overall theme of “find, synthesize, act” that summarizes sound revenue management practices.
Prioritization Of Review
Leaders should acknowledge industry volatility and commitment to the strategic plan by consistently abiding by monthly and quarterly reviews within the department. They should determine if their directors and managers are conversant to the agreed contents of the strategic plan, how it directly ties to their job function and if their people are doing the same. Not intended to be a time-consuming effort once underway, proper prioritization makes a bold commitment statement to the team while enabling the occasional course correction.
Given the key intersection that pricing and revenue management occupies in the commercial organization of an airline, it’s important to remember that the secret to revenue successes often lies in establishing and maintaining active and honest dialogue across key departments including but not limited to sales, marketing, operations, network, scheduling and distribution. Though it is often said in jest that the job of revenue management is to say “no” — a reference to the core function of setting inventory availability — in actuality, this could be restated such that the desired function of revenue management is to give a “qualified yes” to any given seat request.
The bottom line is that any goal within an airline’s annual strategic plan is subject to myriad impacts — many unanticipated — and this is especially true in the pricing and revenue management context. Being able to effectively lean on minor scheduling tweaks, equipment swaps, partner relationship changes or distribution adjustments can, in the end, make or break a given pricing or revenue management initiative, goal or the overall plan.
Confidence from leadership in the strategic planning context becomes contagious to the masses when properly executed. This affirmed sense of buy-in to a strategic planning process gives everyone a crystal clear, daily framework under which to complete tasks, yet still have time to think big and aggressively experiment in their daily work. In this way, the strategic is closely bonded to the practical, and best efforts ensue on agreed upon paths to revenue growth within the pricing and revenue management area.