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

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 3^rd 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

Higher yields are good, but higher margins are even better

IATA’s most recent Cargo Tracker indicates air cargo business experiencing better operating conditions over recent months, leading to an increase in air freight volumes, stabilization in yields, and a more optimistic outlook for 2013. This is good news for most carriers, but how do you turn this into GREAT news for your organization. The question is as yields stabilize, how can a carrier improve margins? The general answer lies in three key areas: enhancing revenues, preventing revenue leakages, and reducing costs.

Specifically, revenue enhancement comes from rationalizing and streamlining schedule, products, and prices and managing available capacity and controlling access to capacity. Preventing revenue leakage has several dimensions to it, including but not limited to accurate dimensioning (while tendering of shipments), better asset management (ULD tracking), and accurate rating and billing/invoicing. Route optimization, efficiencies in unitizing, staffing, processes and contracts, and reducing service failures can lead to reduction in costs.

While focusing on all of the above areas at the same time may appear to be an insurmountable task, there are some quick hits and low hanging fruits that will have immediate impact to the bottom line. Identifying these areas and addressing some of the inconsistencies and challenges can result in up to 10% increase in margins.

We, at RTS, use our industry recognized Airline BPM 2000 methodology to help carriers realize the financial benefits in terms of margin improvement that involves the following:

• Envision – Establishing management commitment and vision
• Initiate – Communicating to the stakeholders
• Diagnose – Documenting existing processes
• Redesign – Define and analyze new process concepts and design measurable KPIs
• Reconstruct – Reorganize processes, communications and data
• Evaluate – Evaluate process performance

Time is of essence here. Capacity is perishable, so is time…let us talk. Leave me your thoughts and comments below.

Raja Kasilingam

President

Competitive Insight

Historically, cruise ferries have just relied on their own booking data to generate forecasts and subsequent optimization controls without taking into account competitor actions. However there is a growing realization in the industry that passenger booking behavior is influenced by competitor actions in markets where there is a choice. Getting visibility into competitor actions on a regular basis and factoring that in setting inventory levels is imperative for a cruise ferry to retain passengers as well as positively impact the bottom line.

Though most cruise ferries employ some form of competitive insight through manual processes, automated processes to monitor competitor activity and influence inventory decisions have been the exception rather than the rule. Studies have also revealed that using competitor price as the sole criteria in making inventory decisions  typically results in revenue reduction in the long run and so inventory levels need to be adjusted not just based on competitor fares but also characteristics associated with the cruise ferry including seasonal loads, customer loyalty, sailing times, etc.

Automated revenue management systems that can consume competitor data from third party vendors on a regular basis, identify the optimal competitor based on user and system based matching logic and present the results to analysts so as to enable them to make informed decisions can greatly reduce analyst workload while eliminating human error. As awareness increases in the cruise ferry industry about the importance of factoring in real time competitor actions in the decision making process, the need for automated revenue management systems that take into account market conditions and enable analysts make informed decisions is on the rise.

 Would be interested in hearing your thoughts on if and how your companies take into account competitor influences and if you want to learn more about how the ProfitOpt system takes these into account, please feel free to contact me.

Pradeep Bandla

VP Product Management and Marketing