2009 Issue 1 - Sabre Airline Solutions

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industry 32 Maintain — High yield and market share, offering the potential to improve yield and defend share. Opportunistic — Low market share and low yield, but opportunities exist to develop traffic and yield. Yield — High market share but low yield, presenting the potential to improve the traffic mix. Does this strategy still hold true given the reduced capacity, or does it need redefining? How can pricing reach the latest strategic objective? Demand forecasting Typical revenue management systems forecast demand on an unconstrained basis, allowing the system to respond automatically to adjustments to capacity; however, where capacity is reduced across multiple airlines on a market or entire flights/routes are cancelled, passenger demand can be significantly affected. The prime concern for an inventory analyst in this situation is how the schedule offered to the passenger has changed. Is there less frequency? Has the capacity reduced to a level where flights are now expected to sell out? How can this demand be recaptured across other departures? And how can the inventory analyst determine what kind of demand adjustments need to be made in the revenue management system? An analyst needs to consider a number of possible scenarios and factors: Reduction in the aircraft size but maintenance of the same schedule — Here, the analyst needs to consider whether there is now more opportunity for up sell on this market. If capacity is significantly cut across the operating carriers, assuming there is not still surplus capacity and demand remains stable, the yields could be expected to increase. Cancelling a flight but continuing to operate the route — In this scenario, the analyst needs to review the competitions’ schedule offering to estimate how much demand will move to the competitors’ flights and how much will move to other departures on that day. Factors to be considered include the historical passenger mix on the cancelled flight. If the passengers were primarily price-sensitive leisure passengers, they can be retained by ensuring availability of competitive fares on the remaining schedule. Cancelling a route — The key consideration here is the impact on other markets. Cancelling a route may result in: Redirection of connecting traffic through an alternative hub, A significant reduction in connecting traffic formerly travelling on that leg, which may no longer be served, An increase in traffic to a nearby airport. Various data sources can assist the inventory analyst in determining how capacity changes may impact the market demand. MIDT data can provide guidance to market size and share, along- In times of reduced demand, there are several factors an airline must consider such as reducing aircraft size, cancelling a flight or cancelling a route. ascend Photo by shutterstock.com side capacity and traffic-trend statistics. The airline’s historical data may provide insight from periods where different frequencies or capacities were operated. Competitor fare data can give valuable guidance to competitor strategies following the capacity changes and, with the right tools, the analyst could choose to automatically remain in line with the competitions’ fares until the new demand levels have become apparent and the situation has stabilized. overbooking strategy When overbooking far in advance to compensate for cancellations and no shows, discounted fare classes are usually made available. When significantly decreasing capacity, there is a risk of insufficient seats remaining for higher yielding passengers booking later. Typically, overbooking on lower-capacity aircraft or lower-frequency routes, even as a percentage value, will decrease because there is less room for error. Following a capacity reduction, overbooking strategies and levels must be reviewed. The revenue management system will automatically adjust the overbooking levels, but the analyst needs to be aware of flights with potential for high-yield spill, look for up-sell opportunities and adjust the strategies (including maximum permissible levels) accordingly. group Management In times of capacity reductions, it becomes ever more critical to maximize the profitability of group traffic. When capacity is at a surplus, group demand is often a way of filling empty seats, but in times of reduced availability, group traffic competes for space against individual passengers often contributing higher revenue. Recommending alternate routings at a competitive price to a destination city that is in close proximity to the requested destination city can retain group demand in the airline network and prevent loss of market share. Decision support to recommend a group fare can ensure each group accept/reject decision is based on an accurate demand forecast for individual passengers. While capacity cuts are inevitable and quite necessary for many carriers around the world, those implementing strategic revenue management and pricing practices are in a stronger position to make up revenue from the lost seats and come away with a much healthier bottom line. a Lindsay Millward is a revenue management product marketing lead for Sabre Airline Solutions ® . She can be contacted at lindsay.millward@sabre.com.
The KISS Principle Low-cost carriers from all corners of the world are incorporating characteristics from the traditional airline model, such as codeshare agreements and frequent flyer programs, to more effectively compete. And at the same time, established network carriers are stripping away some of their conventional attributes and implementing low-cost carrier strategies for the same reason. By Lynne Clark | Ascend Staff KISS — or “Keep it simple, stupid”— is the empirical principle that most systems will work best if they are kept simple rather than made complex. It’s also the principle behind a business strategy that has made low-cost carriers pose a serious threat to traditional full-service airlines. But in today’s economic environment of over capacity, fluctuating fuel prices and growing worldwide economic recession, even the most dedicated KISS advocates are acquiescing to a 21st-century spin on KISS — “Keep It Simple And Smart.” Smart meaning that many of today’s LCCs are straying from their no-frills roots by adopting some strategies typical of network carriers such as offering frequent flyer programs and entering into codeshare and interline agreements as well as joining other types of alliances. These alliances are possible, in part, to nimble new technologies that accommodate changing business models. love And KIss After nearly 40 years of uninterrupted profit making, Southwest Airlines, the world’s most successful proponent of KISS, introduced complexity into its business model when it announced last year two new codeshare agreements. In June, the Dallas Love Field-based carrier announced an agreement with Canadian low-cost carrier WestJet to codeshare on cross-border flights beginning late this year. In November, it announced plans to enter a codeshare agreement with Mexican airline Volaris. Under both new agreements, Southwest’s Web site will become a distribution channel for existing WestJet and Volaris flights. In addition, the carriers most likely will cooperate on frequent flyer programs, ground handling and cargo. Analysts say the moves make sense. While Southwest Airlines has long dominated the low-cost field, economic pressure is forcing changes previously not considered including wide-ranging cuts to its workforce and expansion beyond its tried-and-true formula of point-to-point service and simple fare structures. “We are continuing to look for ways to expand our network through international codeshare partnerships, and we are excited to team up with Volaris to offer our customers access to attractive Mexican destinations,” Bob Jordan, Southwest Airlines executive vice president of strategy and planning, said in a November press release. “Volaris has a stellar reputation for being a highly efficient airline with a dedication to customer service, which makes it a natural fit for Southwest Airlines. “We recently announced our decision to enter the international market with Canadian carrier WestJet, and we will continue to work diligently to broaden our international codeshare service even further,” Jordan said. Commenting on the WestJet agreement, one industry blogger said, “This little agreement with an almost-unknown (outside of Canada) airline and Southwest could be the beginning of a worldwide network of budget flights, which the flying public has overwhelmingly decided is the future of commercial aviation.” Hybrids emerging to Keep It simple And smart The drastic change in attitude toward codeshares at Southwest Airlines has captured the attention of low-cost carriers worldwide, many of which have modeled themselves after Southwest Airlines, result- ing in a new breed of hybrid carriers. These hybrids, according to a 2007 study by Sabre Airline Solutions ® , are more numerous than traditional LCCs (see related article on page 23 of Ascend 2008 Issue No. 1 via www. sabreairlinesolutions.com). Of the 123 budget carriers the study examined, 59 percent offered products and services that strayed beyond the sphere of a pure lowcost model. Adopted practices include international routes, using the global distribution system, codeshare agreements, connecting services, multiple fares available at any time, advanced ticketing procedures, multiple aircraft types, multiple classes of service, interline agreements and long-haul destinations. Only 41 percent of the airlines studied remained pure LCCs, selling point-to-point routes on one-class travel, using simple fares, with no codeshare, on the same aircraft type. The hybrid carriers are profitable and popular. In 2007, these airlines flew 64 percent of passengers looking for budget air travel. The research identified easyJet, Germanwings, Norwegian Air Shuttle, bmibaby, KD Avia, Centralwings, Blue Panorama Airlines and Flybaboo as hybrid airlines now along with Southwest Airlines, jetBlue Airways, WestJet, AirTran Airways, Virgin Blue and GOL Linhas Aéreas Inteligentes. The LCC segment is one of the most competitive in the airline industry, and this has spurred many pure LCCs to explore new ways of evolving their businesses to remain competitive and sustainable. For many, this has meant adopting some full-service carrier business practices to help grow their ascend 33
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