Steering Airlines Toward TRO
Implementing Total Revenue Optimization For Superior Retailing And Results
To enable a true retailing approach and, in that process, to genuinely succeed in driving total revenue optimization (TRO), the first step for every airline is to more thoroughly analyze and understand the full revenue picture through intelligent and comprehensive analytical technology.
Change is rampant and inevitable in the airline space. As airlines focus on transitioning to a more customer-centric model, many of them are also identifying the need to reorient their business to capitalize on a full range of retailing opportunities while delivering total revenue optimization, or TRO.
TRO is a comprehensive approach to managing all sources of airline revenue by incorporating customer behavior into the revenue-management discipline to maximize revenue. It’s about expanding from revenue per seat to revenue per passenger. Fundamentally, an airline must establish procedures based on the fullest understanding and adoption of TRO, thus acting to optimize all revenue streams while delivering a customer-centric solution.
Integrated Market Metrics
Integrated market metrics deliver accurate visibility of an airline’s business in real time, allowing the airline to draw insights from the information to see forward.
Opportunities Exist To Further Boost Revenue Production
Revenue generation within an airline is the product of many interconnected and sequential activities. The sequential activities occur within various commercial-planning segments, including network planning, pricing and revenue management, e-commerce, sales and distribution, loyalty, and countless others.
Research shows that enormous amounts of missed opportunities or revenue leakages occur due to weak or missing coordination between and among departmental silos.
In an airline’s big-picture economic outlook, both strategic and tactical commercial planning are critically important. In fact, they reflect heavily on a carrier’s brand and represent key differentiators in its ability to maximize revenues and profitability, while at the same time being alert and agile in sensing and responding to ever-changing market conditions.
Furthermore, research has shown conclusively that massive revenue opportunities have been lost or simply ignored by airlines due to either very weak or nonexistent business coordination across and through functional silos.
When commercial executives do not align on a set of figures to manage their various markets, it leads to inefficient decisions across their network. Today, airlines are also hampered by a lack of information such as forward-looking ancillary-revenue buildup. Without visibility into such aspects and real understanding of trends, carriers make decisions that can only be short-term-focused, risking serious revenue dilution and inability to drive TRO.
But, then the million dollar questions are: What do airlines do? Where do airlines start? They start by identifying and solving the pervasive problems they face daily, most notably:
- A missing or inconsistent macro view across commercial departments;
- The lack of accurate, comprehensive and real-time information (KPI’s);
- The inability to access robust actionable intelligence;
- Insufficient focus on maximizing revenue per customer.
Maximizing Revenue By Customers
Total revenue optimization empowers the strategic switch from maximizing revenue per seat to maximizing revenue per customer.
Realizing The TRO Vision
These market-wide problems result in many challenges. And while having the full revenue picture is the ideal scenario to realizing the TRO vision, many airlines struggle with this today.
For example, when alliance departments establish interline and codeshare agreements without having clear visibility into the actual revenue impact until post-flight revenue audits (which is the case today), the potential for maximizing revenue is automatically and substantially lessened.
In other cases, an airline’s strategy may be to focus on customer preferences and deliver specific offerings such as tickets, bundles and pricing to the carrier’s premium passengers. However, poorly designed fare families and uncompetitive schedules will not attract premium passengers. Therefore, every department must be intrinsically involved if proper customer parameters are to be set, and revenue potential maximized.
Once airlines and their technology partners begin to solve these problems, improved alignment, more favorable results and a greater potential of an integrated TRO approach will be possible.
How can airlines leverage analytical technology solutions to overcome the challenges?
Airlines start by using analytical solutions to gain insights from transactional data. These insights not only enable smarter decisions but allow airlines to fully visualize the big picture, which depicts the data-driven view of their forward-looking revenue streams and represents the first critical step toward TRO.
These insights also provide one version of the truth, which can be leveraged across existing departmental silos (revenue management, sales, and marketing and sales management) to drive aligned goals and objectives. The ability to have access to a common set of real-time data creates empowered and informed decision makers and opens the door for better revenue forecasts, sales targets, pricing and inventory decisions and marketing campaigns — further maximizing revenue across an airline.
Additionally, commercial departments have a keen need to align on the broader goal of maximizing revenue. This drives a vital requirement to sift through vast amounts of customer transactions (e.g., booking, tickets and ancillary purchases) to categorize passengers by customer segment and analyze their trip spending and booking behaviors.
The information is then taken a few steps further, as the analytical approach utilizing technology yields recommendations to pull the right lever to maximize revenue across the various avenues (including adjustment of capacity, schedule, inventory allocation, fares, sales incentives and other factors). Additionally, a very high percentage of the retail procedure should be automated — an actionable asset, yielding high-speed responses based on real-time data.
Customer Segmentation Visibility
Customer segmentation visibility enables airlines to create offers that yield maximum revenue, increase customer loyalty and minimize revenue leakage in overlapping markets and codeshare partnerships.
In fact, for airlines that recognize the vital importance of performance excellence in the era of real-time data-driven decision making and customer centricity, a sophisticated and powerful analytical approach to automate decisions is essential.
Fortunately, today there’s a better way through the implementation of advanced capabilities that are enabled through newly developed analytical technology solutions and business procedures.
Advanced Analytics En Route To TRO
It’s not really a question of “if,” it’s a matter of necessity that airlines quickly adopt an advanced analytic approach, on the way to fully effective total revenue optimization.
As more airlines understand the imperative to compete through TRO, carriers that are quickest to discern how they can maximize the opportunity will oversee comprehensive adoption of these trends across their commercial departments.
Similarly to the manner in which retail establishments have had to optimize their merchandising strategies, including how they would place and promote their merchandise, airlines need to become smarter in how they are going to counter competition through better adoption of retailing trends.
Results at the bottom line will be dramatic. And dramatic differences among airlines in overall effectiveness of the TRO equation will ultimately separate strong performers from the rest.
Do you have enough insight into your revenue data to drive more intelligent business decisions across your commercial departments?