This post is sponsored by Sabre.
The airline industry is experiencing a shift in how customers purchase flights, and carriers need to understand individuals’ preferences and experiences to reach them. This idea of total revenue optimization (TRO) will help airlines capture greater share of wallet and understand where they’re generating income.
In this first of two parts, we talk with Pramod Jain, vice president of marketing and solution management for Sabre AirVision, about TRO and how the industry is adapting to changes.
Can you explain total revenue optimization?
Total revenue optimization, or TRO, within the airline industry means being able to identify and understand the profiles of the individuals traveling, the different types of customers who want to travel, and which products and experiences these travelers are seeking. This reverts to the motivation of why people are actually traveling. It is about an airline understanding how it is able to get more share of wallet, knowing what types of customers are traveling on its network, and being able to identify customer buying patterns to follow and produce relevant offerings to generate the highest revenue returns. TRO is also about airlines having a more holistic perspective of the revenue picture, including codeshare agreements, and what implications these partners have on their networks as well as their overall revenue pictures.
In summary, total revenue optimization offers a comprehensive, 360-degree approach to managing all sources of airline revenue by incorporating new data into the traditional revenue-management process to maximize revenue generation from all possible sources.
How has revenue management evolved for airlines over the past 20 years?
Revenue management has gone through several changes since American Airlines launched the first revenue-management system in the 1980s. First, airlines realized they needed to maximize network revenue management instead of doing it per flight. Then, with increased distribution channels and fare restrictions removed, demand became much more fluid. By coupling an inventory-management approach with an innovative variable-based pricing strategy centered on understanding, anticipating and influencing customer behavior, airlines were able to maximize revenue and profits from a perishable resource and compete directly with low-cost carriers (LCCs).
Now revenue management is going through another transformation, and airlines must be focused on three things:
- Becoming better retailers and no longer focusing only on revenue per seat.
- Becoming more customer-centric. A plethora of data is available to help airlines learn more about their customers and prepare personalized offers.
- Becoming more dynamic to react to real-time information about their customers, enabling airlines to present the right offer, at the right price, to the right person at the right time.
What factors brought about this shift?
The past decade bore witness to many changes in the airline business, such as restriction-free pricing, fare families, increased ancillary revenue and growth of connecting traffic flows with network alliances/codeshares and low-cost competitors. These changes affected the way airlines practice revenue management and the traditional revenue-management technology that supports this evolving environment.
In addition, customer demands and expectations for lower fares have largely resulted in a commoditization of base fares, leaving airlines to focus on identifying and managing new opportunities to increase revenue, profit and productivity, and to further differentiate their brands in the marketplace. Through their efforts, they have identified new opportunities to increase employee productivity and revenue expansion.
What are some of the major challenges airlines face today when it comes to maximizing revenue?
Airlines are constantly burdened with concerns about how to increase revenue, productivity and responsiveness to market changes. These factors, coupled with deregulated competition and the need to meet heightened customer expectations, create a cycle of overcoming current challenges but also staying ahead to mitigate future ones.
Additionally, revenue sources are increasing, distribution channels continue to expand, more data are available, and the gadgets of today continue to offer more capabilities and accessibility to information. All of these are great and create revenue opportunities, but keeping up with these trends without the proper systems in place is close to impossible.
The key to creating a competitive advantage for airlines in the 21st century will be their ability to consolidate data and insights about revenue potential and performance. Airlines need to shift from being merchandisers to being retailers and figure out how they can make decisions and distribute offers based on what, when, where and how customers want them. It’s becoming more apparent that airlines need technology partners to stay ahead of future challenges and to provide solutions that support airlines’ revenue goals.
Pramod Jain is vice president of marketing and solution management for Sabre AirVision. In his current role, Pramod leads an organization responsible for a portfolio composed of products and consulting services involving our planning and scheduling, pricing and revenue management, revenue accounting, cargo revenue management and in-flight solutions. In addition, Pramod manages Sabre’s newly acquired Airpas organization, including the industry’s leading solutions for cost management and route profitability. Over the past 10 years, Pramod has held several leadership positions in solution design, development and delivery for various airline business functions.
Want to learn more about next-generation revenue management and Sabre’s approach? Click here to register for Sabre’s Live Streaming Launch Event, where we’ll talk to airline executives and industry experts and showcase Sabre’s next-generation revenue-management solution, Sabre Revenue Optimizer.