Gaining Insights Into Revenue Opportunities
A Conversation With Theodoros Efstathopoulos, Commercial Route Analyst, Aegean Airlines
In keeping with Aegean’s innovation-driven culture and readiness to try new technology, it comes as no surprise that Aegean elected to be the launch airline for Sabre’s Revenue Opportunity Model (ROM). Sabre AirVision Revenue Manager customers on version 7.3 or higher have the option to activate ROM. A Sabre project team worked closely with Aegean’s Theodoros Efstathopoulos, previously a revenue management analyst and ROM project manager, to activate ROM for the airline last September.
Commercial Route Analyst
ROM is a post-departure analysis tool that quantifies the effectiveness of an airline’s revenue-management systems and strategies in capturing available revenue. (“Untapped Revenue Opportunities” in Ascend 2013 Issue No. 4 provides a detailed description of ROM.) ROM’s choice-based model considers a wide range of factors such as:
- Same-flight up-sell and cross-flight recapture;
- Competition by market;
- Planned cabin upgrades;
- O&D demands.
How does ROM work in production? ROM reports are generated as soon as post-departure data is available on recently departed flights, providing regular feedback to managers and analysts on spill, recapture, spoilage and revenue metrics based on actual controls and ROM perfect-hindsight optimal controls. Analysts can drill down to detailed reports to identify opportunities to reduce spill, spoilage and dilution on future flights. Airline executives can focus on more aggregate views for tracking general trends in revenue performance over time.
In a recent interview with Ascend, Mr. Efstathopoulos discussed Aegean’s reasons for implementing the Revenue Opportunity Model, its expectations of the new technology and lessons other airlines can gain to successfully implement and adopt ROM.
Question: Why should an airline implement ROM as a performance-measurement tool? What were the key factors behind your decision to adopt the model?
Answer: A performance-measurement system is of paramount importance for an airline’s revenue-management department. However, revenue-performance evaluation is substantially difficult due to demand uncertainty and the infinite number of decisions revenue-management analysts have to make in the booking process of a flight. Also, revenue may be a single measure, but it is a multi-faceted one, whose components interrelate and trade off with each other. Thus, it is better to develop a composite indicator that embodies the most important indicators out of a plethora of information.
To that end, the Revenue Opportunity Model employs gap analysis to compare actual with optimal results, and then one can identify performance gaps and investigate the underlying issues. ROM also gives us a better understanding of the demand level and the potential of our markets. Therefore, apart from monitoring the effectiveness and efficiency of our processes and strategies, ROM helps us take corrective actions.
At Aegean, we use an extensive reporting system that captures lots of indicators both at pre- and post-departure levels. Using ROM, we expect to gain visibility into these four crucial questions:
- What was suboptimal?
- When was it suboptimal?
- Why was it suboptimal?
- How can we capture more revenue in the future?
Acknowledging that there is always room for revenue improvement, even in profitable fiscal years, makes us in Aegean eager to explore and capture the revenue potential of our network.
Q: Aegean is the first airline in the Sabre community to incorporate ROM into its regular operation. What challenges did you encounter, and what were the main lessons learned that would help improve efficiency and adoption of this model in the future?
A: To prepare for ROM activation, we had to define parameters for demand, spill and recapture estimation: reading day-time bucket mappings, product groups and product-group mappings. Since these fundamental parameters are set at system level, airlines should be careful and define them in a way that represents their demand patterns and nesting structure at a network level as much as possible.
Moving to production and using ROM in real life, we encountered three challenges from a business-process point of view. First, we had to decide how to introduce ROM reports into the analysts’ workload. We are now using ROM as a monthly consulting tool, not as a daily revenue-management tool. This may change in the future, when analysts will have accumulated more knowledge and experience to interpret ROM results and transform them into actions.
The second is related to Aegean’s recent transition to Revenue Manager 7.3, which includes an O&D Advantage capability. We are using the leg-segment version of ROM, which generates statistics at leg level and does not capture the O&D effect in our flights. Therefore, we worked internally to extract supporting information to evaluate the impact of connecting traffic on ROM results and get a better view of our performance. This, of course, is not relevant for Sabre customers using leg-segment or O&D versions of Revenue Manager.
The last challenge is people related. We had to make sure that our analysts were properly trained in the business process of using ROM; our clear aim is to take advantage of ROM’s recommendations, not to see it as an evaluation tool that points out mistakes. So, we found it crucial to shape the team’s mindset with the following guidelines:
- Abide by the traditional revenue-management practices we have been using successfully for years;
- Consult ROM reports, question yourself and proceed to necessary changes;
- Do not rely solely on ROM because some external factors are not taken into consideration by any revenue-management model.
Q: Given your deep understanding of ROM, in which area(s) would Aegean expect to get the most useful insights?
A: We continually strive to extinguish spilled demand, spoiled seats and revenue dilution, but demand uncertainty inevitably leads to turning away too much demand or accepting too many low-fare passengers. Now with ROM, we expect to have more tangible signs of how many passengers were spilled, how many days before departure, what this means in terms of revenue, how many seats were spoiled because of our overbooking practices, to name a few.
Furthermore, we expect to gain insights in metrics we have not had in the past, such as first-choice demand, recaptured demand, demand-weighted open percentage and PARO (percent achieved revenue opportunity).
Consequently, we obtain visibility into the full picture of revenue performance, and this helps us create tailor-made strategies and rules that can potentially tackle factors of revenue sub-optimality.
Q: If there is one enhancement you would like to see in the next version of ROM, which would it be, and why?
A: We would certainly like to see an enhanced version of the existing dashboard, and we have many ideas on how this would look. Ideally, we consider a dashboard a comprehensive set of indicators that help managers or analysts get a grasp of revenue performance in all aspects of revenue management. Having selected a specific route per se, all metrics are updated simultaneously, and professionals can read a complete top-down story that describes how various measures accounted for the actual revenue performance, and areas that could have been better.
We would like to have two separate dashboards for managers and analysts and, depending on role, a ROM user should see a different set of KPIs and have different aggregation or drill down-options. Moreover, we would like additional views and prioritization selections that are relevant to our business environment, such as a “top-10” list per metric of interest, results per analyst, a world map, etc.
We are working with Sabre to define requirements for more capabilities and to enhance the list of available criteria to flow from aggregate to detailed levels. I am confident that our input can help make ROM the best possible post-departure reporting tool.
Q: What advice would you give an airline that is considering adopting ROM?
A: Undoubtedly, ROM can prove to be a very useful tool that can supplement our existing reports and business processes. It offers visibility to metrics that were previously not available, and based on this, we can proceed to minor or major modifications in our strategies toward revenue maximization.
However, its successful implementation is subject to some prerequisites. First, we believe that revenue-management analysts must go through comprehensive training in which theory, terminology and examples will be presented and made clear.
Only if an analyst understands in depth how the model works will he or she be able to make meaningful conclusions and take corrective actions. Every performance-measurement system needs users’ buy-in to be successfully adopted.
Analysts should not be disheartened when seeing deviations from the optimal results. What is important is to look for upward trends over time, as this will be an indication that ROM results are correctly interpreted and turned into actions.
Finally, ROM results can be a source of extremely important data that can be used by airlines to create tailored views/reports, such as spreadsheets and pivots at various levels of aggregation (such as day-of-week, cabin, time bucket). Therefore, these reports may be incorporated into existing reporting systems and broaden the spectrum of data available to revenue-management teams.
Collecting and analysing ROM data is expected to facilitate year-over-year planning and strategy implementation, as well as generate better results in the long run in terms of dilution, spill and spoilage.