Commercial Effectiveness

The Right People, Processes And Tools To Get The Job Done

To reach peak profitability, airlines must have the right people, processes and tools across their commercial organization.

Imagine you are the airline’s chief commercial officer, and you are briefing your new chief executive. You explain that revenue will close the year ahead of plan. Yield is down, but you’re holding your own on market share with your largest low-cost competitor. On balance, you’re feeling pretty good.

However, when the CEO asks about the process for setting next year’s plan, you explain, “It’s pretty standard. We take a look at last year, adjust for changes in capacity, incorporate a macroeconomic-outlook adjustment, and then add the value of corporate initiatives we’ve undertaken. And, of course, you and the chief financial officer will get together and add a stretch goal.”

For a moment, your CEO looks thoughtful, then asks, “How do we know that last year’s performance was the right baseline? If we could have done better last year, aren’t we just building in a structural level of underperformance? What should our target have been if we were doing everything right?”

The answer to that question has two parts.

Answer: Part 1

First is the crucial matter of assessing the airline’s network for revenue-planning purposes. Many revenue plans are “top-down,” taking a macro target and dividing it among accountable business units at a region level.

Increasingly, airlines observing best practices are employing a “bottom-up” approach, in which individual route-level targets are created and summed to reach a corporate target.

This approach offers, at a minimum, a useful double-check on the traditional top-down method. It also offers useful insight into where the strengths and weaknesses of the network are, and a powerful tool for analysis and accountability when performance exceeds or falls short of expectations.

People: Key To Commercial Effectiveness

People represent one of three components that must be considered when performing a comprehensive assessment of commercial effectiveness. As such, it is essential to determine how well staff members work together, if they have the right data at the right time being used in the right way, and if they share that data with the right people.

Answer: Part 2

The second part of the answer is what senior commercial leaders often call “commercial effectiveness,” meaning the practices and measures that ensure the full potential value of an airline’s network is realized through the everyday activities of pricing, inventory management, sales, distribution, marketing and brand building.

Each of these factors plays out over different time horizons, and using different tools and mechanisms.

However, in a business that typically operates on narrow margins, and in which an entire year’s profit can be wiped out via a small swing in the price of jet fuel, it is vital for an airline to address each of these sources of value, and make the most it possibly can out of its network’s potential.

People, Processes And Tools

In performing a comprehensive assessment of commercial effectiveness, three components must be addressed — people, processes and tools.

People

Senior leaders often focus on whether they have the right team in place: co-leaders with the attitude, skills and drive to exceed their organization’s goals.

While this is vital, an equally important aspect in evaluating an organization’s people addresses the question of how the organization’s personnel work together.

Do they have access to the right data? Is that data turned into the right information (that is, data with meaning, extracted and communicated clearly and succinctly) at the right time and shared with the right people? Are the standing meetings throughout the organization effective?

To answer properly, first think about each meeting in relation to the following questions:

  • Is there a clear purpose for the meeting, truly understood by all participants?
  • Are the right people in the room for the purpose of the meeting (all the people who are needed and absolutely no one else)?
  • Are the behaviors of meeting participants supportive of effective cross-functional communication? Or are there examples of “data hoarding” or managers acting on the basis of beliefs rather than facts? Conversely, is there an overreliance on collecting facts, slowing decision-making and the implementation of actions that could make a difference in the market?
  • Are there clear key performance indicators (KPIs) for decision-making that are understood by all? Are the behaviors of commercial staff in concert with these KPIs?
  • Are meetings held frequently enough to allow for timely exchange of information and decision-making? Or are meetings too frequent, resulting in the same issues arising week after week, without resolution?
  • Is the information presented in meetings appropriate? In managerial meetings, is the information clear and concise, and does it tell a story? Is the information “decision-ready,” or does it require leadership to choose between making partially informed decisions or deferring decisions while more information is gathered?

Answering these questions honestly can go a long way toward making meetings meaningful for participants and valuable to the organization.

Processes

When it comes to processes, there are additional questions to consider. A few key questions include:

  • Is a documented process in place for performing all the key recurring commercial processes?
  • Are the “owners” of these processes clear and undisputed?
  • Is the timeline for execution of these processes documented, communicated and adhered to by all participants?
  • Is the quality of these processes appropriate to their importance in the organization? In other words, are sufficient resources and decision-making authority available to the business areas with the most leverage to influence revenue and profit performance?
  • Is a constructive process in place for disagreements to be resolved, in which the legitimate concerns of affected business areas can articulate the impact of other departments’ decisions? Is a fact-based process for decision-making in place, or does the organization rely on the position power of a few individuals to resolve disputes according to their preferences and experience? Clearly, there are times when a need for immediate action requires senior leaders to make decisions based on their experience, but optimal processes should allow for the expertise of the entire organization to provide informed decision-making.
  • Are processes in place for addressing both forward-looking performance indicators such as advance bookings, Marketing Information Data Tapes (MIDT) share and competitor capacity, as well as ex-post indicators including profit-and-loss statements (P&Ls) and year-over-year trends?
  • Are the processes for planning sufficient to provide meaningful measures of actual results versus plan throughout the year? Is plan data available at the same level of detail by which ongoing management is performed, and around which accountability is designed?
Tools And Data

The final leg of the commercial-effectiveness tripod to consider is the adequacy and utilization of tools and data throughout the organization.

The fundamental question here is whether a tool is present that performs the support of critical commercial-planning functions. The question of whether that tool is optimal is really a secondary consideration because organizations of different sizes and competitive contexts do not all require the same level of sophistication in their planning.

Nonetheless, many commercial-planning functions (fleet, network and schedule planning, inventory management, pricing, sales planning) require tool support to handle tasks that are too time consuming to be performed manually.

With respect to data, a commercially effective organization must ensure, at a minimum, that its internally generated data are sufficiently accurate for decision-making and, for the majority of airlines, must be supplemented with external data that allow for more accurate planning and analysis, including market size and growth for network, inventory and sales planning, as well as market-share performance measurement.

Unfortunately, the presence of a tool or dataset does not always indicate that it is being used to its full capability in an organization. Commercial effectiveness must therefore also assess whether existing tools and data are being used to their full capabilities.

Finally, as an airline grows in size and sophistication, the question of whether investment in more sophisticated tools or data is justified should be periodically evaluated.

A Complete Organization

Realizing optimal value from the tenets of commercial effectiveness requires a hierarchical commitment to thorough, meaningful data and management that wants truthful answers.

Nothing less will suffice.

Commercial effectiveness isn’t an exercise, it is the difference between accepting the status quo and acting in the marketplace to realize the full value of an airline’s commercial resources.