1. Multi-Channel Revenue Management Shankar Mishra & Vish Viswanathan AGIFORS RYM Study Group Berlin, 16-19 April 2002

2. 2 Outline  Distribution Channels  Channel Characteristics  Demand Patterns  Channel Profitability  A Single Channel View  Is Price the only Differentiator?  How the solution might look like?  Why a Bid Price based system is the first step?  Convergence of Pricing, RM & Distribution!!  Moving towards Customer-Centric Revenue Management

3. 3 Introduction  The Proliferation and Diversification of Distribution Channels appear Irreversible Online Travel Sites in U.S. January 2002 Sales: $2.3B Visitors: 47.5M In 2001 Travelocity & Expedia sold $3B worth of Travel Products

4. 4 Online Channel Growth $31B $50B 20022005 29% Increase over 2001  50% of all travel sales will be from supplier’s own website  13% of all U.S. travel in 2002 will be booked online

5. 5 CRS/GDS Different Distribution Channels Airline Inventory Airline Websit e Online Travel Sites Airline Sales Online Corporat e Bookings Email Campaign s Allotment s Others

6. 6 Channel Characteristics  Emerged as most popular online travel channel  Least Cost, High Visibility  Majority of Demand (not all) coming through may be “Price Sensitive”  Detailed Customer Information Available  Reliable Customer Segmentation  Targeted Campaigns in Practice Airline Website

7. 7 Channel Characteristics  Market Converging to few Dominant Players  Travelocity, Expedia, Orbitz  Includes Opaque Sites  Priceline, Hotwire  Published & Opaque Fares  Price Sensitive Demand Online Travel Sites

8. 8 Channel Characteristics  Includes Special Negotiated Price  Low Fare Search Engines  May Include Last Seat Availability Online Corporate Others  Auction, Reverse Auction Sites  Negotiated Availability & Price  Effective Demand Stimulation  Low Cost Medium Email Campaigns

9. 9 Channel Characteristics  Dominance of this channel varies by region  At times ‘Inventory Controls’ are at odds with ‘Sales Allocations’  Depending upon volume/quality, other channels may be preferred over sales allocations  If Airline Sales is the only channel  Maximizing revenue translates to inventory control of sales allocations  If not  Common view of inventory Airline Sales

10. 10 Is Fare the Only Differentiator? Airline Inventor y Email Campaigns Airline Sales Online Corporate Online Travel Agencies Airline Website Group Demand by Fare Fare-Class

11. 11 Common Inventory View  Common Inventory with Price as only differentiator among channels  Current O&D Revenue Management Model should suffice  Availability Decision will be independent of Channel  Based on Bid Prices  An extension would be to define product at ODF & Channel level  Still Current O&D Revenue Management Models should suffice  Problem size increases due to added dimension A Bid Price based O&D RM is the First Step

12. 12 And the Solution… O&D Revenue Management System Fare Management System Demand Aggregation Fare Analysis Email Campaigns Airline Sales Online Corporate Online Travel Agencies Airline Website Physical & Financial Inventory Controls  Data Interface between distribution channels & RM system  Demand & Value aggregation to appropriate level

13. 13 Common Inventory View Demand Stimulation Response to pricing changes differ by distribution channel Differentiation beyond Price Sell-up within & across channel Effect of sell-up strategies vary by distribution channel

14. 14 Growing Complexity Channel Analytics Dynamic Pricing Module  Ability to create fare promotions dynamically at the point of sale  Minimize spoilage without diluting revenue  Gain/Protect Market Share  Personalized Product Definition  Promotions & related Strategic Initiatives by Channel  Channel importance for distressed inventory  Using strategic data in forecasting  Better passenger segmentation

15. 15 And the Solution… O&D Revenue Management System Demand Aggregation Fare Analysis Email Campaigns Airline Sales Online Corporate Online Travel Agencies Airline Website Physical & Financial Inventory Controls Dynamic Pricing Module Fare Management System Channel Analytics

16. 16 Implications of “Airline Sales” Channel  Initial Sales Allocations are set early in the booking process  Closing availability with “open allocation”  Not necessarily the preferred option for sales  If Sales Allocation were to be protected?  Only option may be to refine “Allocation Mix” on a periodic basis Needed Info… Pax Valuation thru this channel Channel Performance

17. 17 Value of Growing Complexity Valuation Module Performance Measures  Valuation of a passenger thru a particular channel  Channel profitability taken into account  Availability Bias can be incorporated  Protection for special offers, sales allocations etc.  A Feedback Loop to Revenue Management System & Processes (Channel Analytics)  Performance of promotional campaigns by channel  Value creation linked to strategic initiatives  Performance of “Sales” channel – Observed Vs. Allocation

18. 18 And the Solution… O&D Revenue Management System Demand Aggregation Fare Analysis Email Campaigns Airline Sales Online Corporate Online Travel Agencies Airline Website Dynamic Pricing Module Fare Management System Channel Analytics Performance Measures Valuatio n Module Physical & Financial Inventory Controls

19. 19 So what’re we saying?  At a macro level airlines should maintain a single view of supply and demand  Forecast free value of inventory  Financial Inventory Control, preferably at ODF level is the first step  Exploiting channel characteristics further  Maintain market response & product control in each channel  Linking Pricing & Inventory to channel characteristics  Merging Pricing, Revenue Management & Distribution?

20. 20 The Other Viewpoint  All the channels will have extensive overlap in terms of “Passenger Value”  Let us consider distribution channel as merely “Inventory Access Medium” for Passengers…  Understanding passengers with a preferred channel becomes important  Passenger Value remains the most important decision criteria  Importance of channels is limited to the related cost  Promotions, Strategic Initiatives can be directly linked to passenger segment (broader definition than grouped by distribution channels)

21. 21 Promotions & Strategic Initiatives based on “Passenger Segmentation” Inventory Controls based on “Passenger Value” Continuous Tracking of Passenger Profile & Behavior The Other Viewpoint Customer-Centric Revenue Management

22. 22 Demand Aggregation By Pax segment Fare Analysis Same Solution? O&D Revenue Management System Dynamic Pricing Module Fare Management System Pax Segmen t Analytics Performance Measures Valuatio n Module Physical & Financial Inventory Controls Distribution thru Preferred channels

23. 23 System View RM System must support “Common View of Supply & Demand” “Financial Inventory Controls” should be the base to build upon Integration of Pricing, Revenue Management & Distribution Bound by limitations of CRS/GDS – Airline.com may be first step Fare Management System is no less important than RM System

24. 24 Common Process View Planning  Strategic Initiatives  Campaigns & Promotions  Customer Segmentation Valuation  Passenger Valuation  Market/Flight Valuation  Control over all Variables Affecting Valuation Operation  Critical Flight Handling  Tactical Planning  Day of Departure Support Distribution  Link between Passenger & CCRM  Communication Channel for other departments (Pricing, Scheduling, etc.)  Migration of revenue management analysts  Route Controllers  Market Analysts  Strategic/Tactical Analysts

25. 25 Conclusion  The Proliferation and Diversification of Distribution Channels appear Irreversible  Can we afford to ignore alternate distribution channels in our RM perspective?  A common look at all channels together may bring us closer to Utopia  Integrated Pricing, RM, Distribution  This common look must see both Supply & Demand side  Convergence of Systems & Processes towards customer-centric environment seems to be the next step You don’t have to beat the bear!!!

26. Questions?