Tuesday, August 20, 2013


Being a business discipline, Revenue Management is an implement once, seldom change approach, right? But then a blog post of a colleague referencing his childhood got me casting my mind back over my time in the airline industry in general, and RM in particular, and thinking about how things have changed.

Yes, the basic principles remain, that of trying to extract the highest price that we can from a particular passenger without scaring them away. However, how this is done has changed significantly. In the old days we had limited competition, very well fenced fares, and in some instances operating subsidies and a booming economy. We were allowed to overbook (within reason) with only limited penalties for getting it wrong. Travel was fairly predictable, the businessman didn’t mind paying for convenience, and all was well in our world.

Enter low cost competitors, multitudes of startup carriers, economic downturns followed by true blue recession, withdrawal of subsidies and government imposed performance penalties.

Over the years the landscape has changed dramatically. Systems have evolved to take advantage of newer technologies and calculations. The internet has raised passenger’s understanding of pricing mechanisms and given them the opportunity to comparison shop from their living room. Booking habits have become less predictable and passengers seem to be leaving it until later to book.

Thus the reflection. All these things happened over time. We meet each challenge, identifying changes and solutions, and add them to our toolkit. If I had to walk in somewhere now knowing only what I did in the early 90’s, I could not expect anyone to take me seriously. However, as with most things, experience counts. Between me and my colleagues we have all seen these changes, lived through these changes, and found competitive solutions over the years.

So remember this when it comes to addressing the business issue: while the basic concepts may seldom change, the people (and the experience of those people) whom you choose to assist in addressing your challenges can make all the difference between success and failure.

Jason Codd
VP, Services

Tuesday, August 13, 2013

Overbooking - Friend or Foe?

What is overbooking? Although the term sometimes evokes a negative emotion, it is a core component of effective revenue management whereby the bottom line is enhanced through maximizing utilization of available space. It is a practice that is widely prevalent in everyday life. For e.g.: Doctors sometimes overbook appointments to accommodate the possibility of some patients not showing up. Restaurants do the same for reserving tables and so on. In the transportation space, overbooking is the practice of selling more seats than capacity in order to compensate for no-shows and cancellations. Airlines typically indulge in this practice in order to minimize lost opportunity by selling seats that would have otherwise gone empty owing to passenger no show rates.

Overbooking practices are typically implemented only in economy cabins as denying boarding to a premium first or business cabin passenger who happen to be their most profitable customers is a risk that most airlines are not willing to take. Given the sensitive nature of overbooking and the prospect of dealing with potential denied boardings, overbooking levels are not set randomly by airlines and involves the usage of historical showup patterns along with sophisticated modeling techniques. These models have the objective of not only maximizing utilization and hence the load factor, but also minimizing the  risk of a denied boarding. Getting the overbooking number wrong typically results in potential revenue downside to airlines in the form of vouchers along with the intangible effect of creating passenger ill-will. In spite of these models, depending on the market and scheduling criteria, passengers denied boardings are not as rare as they should be.

Overbooking, when done the right way can boost airline revenues upto 2%. However, if mismanaged, it can lead to severe negative repercussions including one scene I witnessed at an airport where the overbooked passenger (who happened to be a police inspector) threatened to arrest the check-in agent for not letting him board the aircraft. When a flight is overbooked, airlines typically have voluntary oversales mechanisms which are set in motion where passengers are incentivized to give up their seat and be reaccommodated on alternate itineraries in exchange for a travel voucher.

Overbooking in the cruise ferry space is not as prevalent as in the airline space.  The concept of leaving passengers in the port due to lack of space on the cruise ferry is quite alien and rightfully so, given that the schedules and frequency of sailings tend to be relatively limited. Having said that, cruise ferries are realizing that there is significant revenue being left on the table by not overbooking to compensate for cancellations and no-shows. Even though overbooking at the ship level is a no-no, cruise ferries are considering overbooking certain types of cabins with the understanding that if everybody shows up for that cabin, then some may be upgraded/moved to similar cabin types.

Does your company overbook? If yes, what kind of challenges do you face? If not, is it something you are considering and trying to figure out how this could potentially improve the bottom line. If you need to discuss more about how overbooking could help your company, please don’t hesitate to contact me at Pradeep.bandla@rtscorp.com.

Pradeep Bandla
VP, Product Management and Marketing

Business Analytics.....Old wine in a new bottle?

I still remember the first day of my undergraduate class in ‘Introduction to Industrial Engineering’ back in 1975. As a young boy growing up in a town with open coal mine fields, power plants, and fertilizer plants, I was always fascinated by heavy machinery and wanted to be a mechanical engineer. All that changed completely right after I sat through my first lecture in Industrial Engineering. I was hooked on to it… forever. It was very simple—it just seemed to fit my personality. Industrial Engineering is about constantly finding ways to improve processes and systems. It is about optimizing the performance of people, processes, and systems.

As I continued to pursue my newly found interest, advanced courses and research on quantitative methods seemed to be the logical choice to get me prepared for the real world.  It is not surprising that I passionately love “Business Analytics” and its application to transportation and logistics. Business Analytics is no different than a combination of Industrial Engineering concepts and methods coupled with quantitative methods such as operations research and statistics. It is simply old wine in a new, attractive bottle: the best combination - looks pretty and tastes great.

Business Analytics (BA) refers to the skills, technologies, applications and practices for continuous iterative exploration and investigation of past business performance to gain insight and drive business planning (Beller, M.J.; Alan Barnett (2009-06-18). "Next Generation Business Analytics". Lightship Partners LLC). BA focuses on developing new insights and understanding business performance based on data and analytical methods and helps in better decision-making.

At Revenue Technology Services (RTS), we have the expertise, experience, and knowledge in Business Analytics for the Travel and Transportation industry. Business Analytics is at the core of everything we do at RTS. Our revenue management, pricing, and scheduling software solutions incorporate industry leading statistical forecasting models and network optimization models. We have successfully developed several advanced planning and operational systems using operations research based methodologies that have enabled our customers to make better decisions. Our people bring together a vast amount of expertise and experience in Business Analytics in terms of business knowledge, industry expertise, and IT which are the key components of our and our customers’ success.

Send us a note or give us a call. We will help you look for symptoms that need to be further researched in terms of causes and challenges and turn them into opportunities by analyzing your data, identifying your constraints, and recommending options.

Raja Kasilingam, Ph.D.


The words “Social Media” conjure a collage of the most popular outlets available:  Facebook, Twitter, LinkedIn, Tumblr, Instagram, and Wordpress.  Companies in almost any industry cannot but maintain a presence on at least one of these sites for the endless benefits that have been proclaimed by many a social media expert. Ranging from social branding, to creating a global network, to generating leads, there is no doubt that social media is here to stay.

The question that arises to my mind is what would be an ideal tool from the social media treasure box? To make a case in point, let us take a look at a company like Revenue Technology Services that is very unique in its products and has a niche clientele.

“Revenue Technology Services (RTS) is a worldwide provider of profit enhancing revenue management and pricing software solutions for passenger and cargo transportation industries. Our offerings, aimed at the Airline, Cruise Ferry, Rail and Coach verticals include software solutions, consulting and education services, operations research capabilities, technology services and IT development support.”

The uniqueness of RTS’s products and clientele makes a case in point that companies such as these need to maintain an even more active presence to create an awareness of their business so that even if a follower on LinkedIn or Twitter may not necessarily fit the company’s description of an ideal client, they can tap into their network to help RTS reach its goal of lead generation. Most of RTS’s effective social media marketing has occurred through the professional network LinkedIn. Through this professional network, RTS has managed to grow its connections and reach potential clients all over the world by leveraging LinkedIn’s vast array of professionals.

The weekly blogs posted on LinkedIn are another effective tool to create a readership. RTS aims at establishing credibility as an informative contributor to social media world. They provide an effective outlet to talk about the company’s experience, opinions and ideas relating to the Travel & Transportation industry. The weekly blogs that are posted on LinkedIn, Twitter and Facebook have helped create a buzz around the company. While companies such as RTS need to work harder at maintaining their presence due to the sheer nature of its business, there is no denying that consistency will lead to brand awareness and eventually to lead generation. RTS highly values its followers comments with much respect and makes every attempt to provide timely feedback from their resident SME’s – our ultimate goal being improved products and services.

Is your company in a niche industry like RTS? What are your effective social media tools? Drop us a line in the comments section and connect with us on LinkedIn or follow us @RTSProfitOpt. 

Charmi Ramchandani
Account Manager

Trust your Klout

Travel and Transportation Industries are undergoing dynamic changes with respect to scalability, information accessibility and customer knowledge. To be competitive these players will have to continuously innovate ways to ensure better customer service as well as reduce operational costs through effective use of information technology. The huge effect of social media in the Travel Transportation and Logistics industry, just like the recent Klout score giving you access to the Admirals Club at American Airlines, makes you wonder how legit and authentic the data is. Shouts out for all the more reason for perfect analysis and testing of data (Big data) and other influential scores. The algorithms comb through social media data within the airlines systems to ensure the passenger's authentic travel. Klout is starting to infiltrate more and more of our everyday transactions and specially in this domain.

At RTS, we bring over our vast experience of supporting various mission critical applications of leading travel and transportation providers. We help them achieve their goals of quality customer experience with clear cost merits and continual process improvement. With a large resource pool of technical and functional consultants, we support this practice around the clock which makes us unique in the travel and transportation vertical.

Our domain knowledge coupled with technological proficiency has helped our customers address operational, quality, and cost challenges. We bridge the gap between business and technology, with intent to optimize costs and improve customer experience given the advent of social media in our everyday lives.

Give us a shout... network with us.. so we can help you reach your objectives.

Deeshi Gandhi
Technical Manager

Price Sensitive Revenue Management (Stretching the Benefits of Price Elasticity)

A couple of years ago I was asked what would be the most significant changes for our passenger product for Cruise Ferry clients over the next few years. With an ever more competitive market place, the need to better understand the customer’s willingness to pay, and a desire to simplify the pricing structure and booking process, I’d answered Price Sensitive Revenue Management (PSRM).

As usual there may be resistance to adopting such a change. So what are some of the additional benefits of Price Sensitive RM other than the potential revenue gains and a better understanding of the price elasticity of your customers?

The simplification of the fare class structure by moving to a more ‘transparent’ single fare should provide benefits in a range of areas and business processes.  It will reduce the number of brochure fares/tariffs significantly, immediately improving the workload for those responsible for their administration and maintenance in systems support. This in turn should improve the booking process and ideally provide a quicker website response for online purchases, which of course is an ever growing and seemingly unstoppable portion of the business.

With a single price point, the individual departure review and decision making times for Revenue Analysts should be reduced, increasing their productivity. It will be much easier for agents and customers to compare a single price offering on a range of sailings and make bookings at a price and time to meet their travel requirements. Comparison with competitors will be more straight-forward making commercial pricing decisions easier at the wider market level.  From a marketing perspective, this can now really be seen as ‘From Pricing’ without those hidden conditions, again improving the customer booking process and experience.

A common concern within management is that the removal of the discounted period fares is not seen as preventing the possibility of lower fares and that the price sensitive customers are still given an option.  This is of course a main objective of adopting PE, with, where price elasticity dictates, even greater protection for the most popular departures, whilst giving the price sensitive customer an increased number of viable alternative sailings to choose from. In addition the option to have a non-decreasing fare policy exists, so that for certain sailings, markets, or periods, a system setting will prevent the current price from ever going back down. A hybrid PSRM model can be used so that certain classes/products (such as tour operator allocations) or markets could be simultaneously managed by traditional demand and optimisation.

In addition to a successful launch of PSRM in our ProfitOpt solution at Brittany Ferries, RTS has been conducting a Price Elasticity simulation study for a client interested in understanding the potential revenue improvements associated with PE in a restriction free pricing structure, compared to the current traditional period return/length of stay restrictions. With these initial results looking positive I believe that Price Elasticity will continue to play an increasingly important role with our current and future client base.

Patrick Allen
Project Manager and Consultant

Who is Your Competition?

In a previous blog posted by Pradeep Bandla he discussed how a passengers booking behavior can be influenced by the competitor actions in markets where there is choice of providers and how getting visibility in your competitor’s actions can influence your bottom line.  This got me to thinking who or what is the competition.

In today’s transportation marketplace there are many entities that are going after the same passenger.  For example, in the airline industry your competition is usually one or more other airlines especially at large regional airports and international airports.  Competition can be limited from a geographical perspective – islands, remote areas, small regional access. In this case, you might be the only travel option for the passenger. But most prospective passengers have other choices depending on where they are going, time that it takes to travel to their destination, reason for travel, etc.  Passengers traveling regionally will also have more travel options than those traveling a long distance. This means that your competition could be from an airline, bus, train, personal vehicle, passenger ferry, or any other form of transportation.

In the cargo transportation industry customers usually have a wide range of options depending on the marketplace, shipment priority, destinations, weight/size, perishable/non-perishable, etc. These options could include airline cargo, ocean shipping via container cargo, road transport, rail transport, and inter-land waterway.

In some cases your biggest competitor could also be your own company.  A good example is the rail industry.  You are competing many times for the same passenger on routes which support both intercity and rapid transit (direct) and high-speed trains.  In the cruise ferry industry it could be standard ferry versus fast craft (hydro foils).

In today’s transportation marketplace there are many entities that are going after the same passenger and in order to be in the front of the pack we need to understand who, and in some cases -  what, is our competitor and how do we better compete against them and impact the bottom line.

As always we would be interested in hearing your thoughts on this topic or any other topic in our blog.

 Robert Harris
Sr. Solutions Consultant

For the price of a cup of coffee

IATA recently revealed their forecast for the coming year for airline revenues and traffic, and included in that was the 2012 revenue versus cost data. The figures revealed that the average revenue per passenger worldwide exceed the cost of carrying that passenger by $2.56. That’s right, a shade over 2 and a half bucks! That is less than a cup of coffee in most places, and that profit includes a significant portion from ancillary revenues, without which there would be a shortfall per passenger carried.

In this same climate, passengers still feel they are being forced to pay way over the odds for travel. Perhaps this is as a result of the Low Cost concept penetrating people’s minds, or maybe a lack of understanding of the costs involved.

Equate this with running a car. Typically when discussing “your” vehicle, you end up with a couple of distinct groups. On one hand you have those who discuss what a bargain they got on the vehicle cost regardless of maintenance and running costs. On the other hand, those who debate endlessly the low fuel consumption, yet disregard the asset cost, and sometimes other running costs.

Those organisations involved in the mass transportation of passengers do not have the luxury of looking at one or the other of these aspects. Asset costs and financing, operating costs, maintenance costs and insurance all come into play. However, in addition to this there are costs associated with landing/docking/parking/navigation/piloting to be considered. Motor vehicle owners actually have similar issues on occasion, without realising it. There are road taxes to cover road maintenance, parking costs in many areas and traffic fines (yes, you know who you are!). There is stress about accident damage, theft, traffic jams, all contributing to the total investment.

Now on top of all this, imagine you have to transport people in your vehicle for reward, and actually make enough to turn a profit. This is exactly what the transportation organisations need to do, often in a particularly cutthroat marketplace. Do yourself a favour, and work out what you might have to charge someone for a trip in order to cover costs plus that $2.56 cup of coffee and you would be surprised.

Did I have a point to all this? Why compare my car to a ship or aircraft, they are in a different league?
Take the analogy a step further. You shop around for insurance deals. You shop around for the best asset cost. These are the bigger things. But on the smaller things, and those which may make more subtle differences with a better financial reward, we have a variety of tricks. Most of us try to optimise our vehicle running costs. We look for cheaper fuel, and evaluate the distance to that fuel station versus the cost saved. We perform basic maintenance checks. Something as small as incorrect tire pressures can increase running costs by a few percent.

Now put this into the context of this article. Operators have similar behaviour. Assets are researched for the best cost options, as are many of the running costs. Schedules are planned both to serve the market as well as optimise utilisation of the asset. At the end of the day, there is only so much that may be done on the cost side of the equation, which is where Revenue Management/Profit Optimisation comes into play. Think of it as your tire pressure gauge. It is there to assist in tweaking that last couple of cents for the coffee out of the market demand.  Undoubtedly we are trying to get the passengers paying a little more. Perhaps a little more than they would like, but at no point more than they are prepared to pay. We are not in an auction frenzy here where people may be carried away by bidding, and we cannot force passengers to buy a ticket. It is basic supply and demand, albeit with a lot of math behind the scenes. If the price is too high at that time, the passenger will either look for a different time, or pay the price. But basically the passenger needs to understand that Revenue management is setting the number of prices on offer based on the expected number of passengers who may be prepared to pay, so if they do not take the space at that price, there are others who will.

Over time, those cups of coffee add up to a bigger pot, which may mean the difference between being in the red or in the black at the end of the financial year.

And that means the difference between having the coffee shop around to offer you coffee in the future!
As always, we want to hear your thoughts. Leave us a comment below.

Jason Codd
VP, Services

Monday, August 12, 2013

The Mystique of pricing in the Air Cargo industry

What does the term pricing mean to you, I asked a few guys that I know of who work in the airline cargo departments? Here is a sample of the answers that I got:
“Picking up the appropriate rate for a shipment at the time of booking? she said, to which I responded, “Isn’t that online rating?” She rolled her eyes and quipped back, “We don’t have data in the cargo industry like the MIDT in the passenger side to really talk about pricing."

A few of the revenue accounting experts enthusiastically responded the rating functionality within the revenue accounting system is what is defined as pricing in the air cargo world. "Hmmm…isn’t rating nothing but application of rates from the rating engine that comes with the revenue accounting system or a Res/Ops system? In other words, rating is a function of maintenance and application of rates and prorates. Would you agree? And plus how do you come with those rates? ”, I asked. “We never looked at it that way. We always thought the act of rating is pricing as opposed to focusing on what should be the basis of coming up with those rates. You may have a point!”, the revenue accounting manager retorted grudgingly giving me some credit.

A long term veteran in the revenue management department from my alma mater quipped, “Pricing means hurdle prices or bid prices generated by revenue management systems”. Bid prices or hurdle prices are guidelines using which you reject, accept or reroute shipments. The basis of these bid prices are still demand driven by rate and density.

Unlike our passenger counterparts where pricing directly refers to fares and a lot more transparent, the air cargo world struggles to define this and cannot even talk amongst themselves, wary of the recent price-fixing allegations and associated fines.

Pricing in air cargo world in my humble opinion is the determination of what prices to put in the rate sheet. It could be tariff rates, contract rates or spot rates. How do you determine this number? Is there any method to this madness? Most airlines solely depend on hearsay and experience of the sales teams in combination with some 3rd party data to come up with the prices.

There was one air cargo pricing head and sales head who were brave enough to admit to me that they go into meetings with forwarders where the forwarders let them know how much business they give to the airline and how much should the airline price their space. I was shocked but at the same time I understood his plight.
Can there be any intelligence and decision support built into a model to recommend a consistent way of producing these prices? Should airlines consider various pricing drivers like customer value, competition and maybe even price elasticity to come up with prices?

As a first step, an airline needs to understand and comprehend the effect of customer value, competition, costs and price elasticity. Once you model these, suggested prices need to be converted into average prices by different weight breaks as well as container/pallet types.

I have some answers on the above topic and I look forward to hearing from you on your thoughts in the comments section below.

-Mukundh Parthasarathy
VP, Cargo Product Management & Marketing