Strategic Relationships with Airline Partners

In an article by Gillian Jenner, titled “Airlines deepen ties with outsourcing partners”, which was published in Airline Business, she states: “Today’s strategic partnerships are about achieving ongoing efficiencies, innovation and improvement to the mutual profit of both partners.”

Airlines of all shapes and sizes are seeking strategic relationships with partners who really understand their business, and who can work closely with them to solve the challenges of a fast-changing marketplace.

Some newer or smaller carriers – which cannot afford legacy technology and expensive expertise – are looking at co-sourcing to help their growth ambitions.  In many respects today’s leading outsourcers are also similar to business advisers.

A strategic outsourcing partnership can give carriers a jump start. The pay-as-you-go approach is particularly attractive for airlines where technology is costly to run, and who do not want to make huge upfront investments. What rmservicegroup is offering is, we will host and all you buy from us is the service.

 

The Benefits of Revenue Management

When airlines are shopping for revenue management solutions, I often hear about budget constraints being the cause of delay or cancellation of the project.

For those of you considering a revenue management solution, I feel I should highlight the benefits of revenue management in relation to the costs.

One of the first steps in the business case process is to justify the investment by determining the incremental revenues and costs over some time horizon. Proponents of RM will point to success stories where companies achieve 3–10 per cent net revenue increases.

Whether or not a company is likely to achieve this level of benefits depends on the specific details of the business — markets, custo­mers, capacity and competition. Revenue management works by recommending prices and controlling access to capacity to achieve maximum revenue.

The two key decisions that revenue management will focus on are:

1. Booking management. Is capacity on the high demand flights being reserved for the highest value customer?
2. Flight management. Is capacity being managed to achieve maximum utilisation (given a forecast of demand at different rates)?

In the following simple scenario, we will calculate the annual potential benefits of revenue management (conservative).

Aircraft capacity: 120 seats
Flight legs: 10,000
Passengers: 1,000,000
Revenue: $300,000,000
Average fare per passenger: $300

Passenger stimulation of 1% = 10,000 additional passengers

Average yield or fare increase of 3% = $9 per passenger increase

New passenger total: 1,010,000 at average fare of $309 = $312,090,000 or $12,090,000 additional revenue. A 4.03% increase in revenue.

If the cost to co-source revenue management services in this scenario was $250,000 per year, or 2% of the $12 million additional revenue, wouldn’t you consider this to be a bargain?

Co-sourcing your revenue management

Outsourcing is often viewed as involving the contracting out of a business function – commonly one previously performed in-house – to an external provider. What we are offering is an affordable alternative to organizations who are exploring the initial formation of a revenue management focus.

One of the biggest changes of recent years has come from the growth of organisations using online technologies to build a viable service delivery business that can be run from virtually anywhere in the world.

Revenue management services lend themselves to this business model. All elements can be done remotely and delivered online and service providers can leverage the scale and economy to deliver high value services at vastly reduced end customer prices.

Organizations that outsource are typically seeking to realize benefits or address the following issues:

• Cost savings — The lowering of the overall cost of the service to the business.
• Focus on Core Business — Resources (for example investment, people, infrastructure) are focused on developing the core business. For example often organizations outsource their IT support to specialised IT services companies.
• Cost restructuring — Operating leveage is a measure that compares fixed costs to variable costs. Outsourcing changes the balance of this ratio by offering a move from fixed to variable cost and also by making variable costs more predictable.
• Improve quality — Achieve a steep change in quality through contracting out the service with a new service level agreement.
• Knowledge — Access to intellectual property and wider experience and knowledge.
• Contract — Services will be provided to a legally binding contract with financial penalties and legal redress. This is not the case with internal services.
• Expertise — Access to best practices that would be too difficult or time consuming to develop in-house.
• Access to talent — Access to a global talent pool and a sustainable source of skills.
• Reduce time to market — The acceleration of the analysis, evaluation and action plan through the additional capability brought by the supplier.
• Commodification — The trend of standardizing business processes, services which enable to buy at the right price, allows businesses access to services which were once only available to large corporations.
• Risk management — An approach to risk management for some types of risks is to partner with an outsourcer who is better able to provide the mitigation.
• Scalability — The outsourced company will usually be prepared to manage a temporary or permanent increase or decrease in demand or capacity.

Our solution, “co-sourcing” is a flexible and collaborative approach to support organizations. We can help build on existing strengths while seeking to improve overall value. You maintain control and responsibility for the function while we provide advice, leading practices, and experienced professionals with industry and specialized capabilities.

Travel Industry Challenges

The Challenge

The travel industry is under pressure and the small- to medium-sized providers face a lot of unique challenges. Some of the main challenges are:

• Pressure on their revenue streams due to:

• Over supply of capacity in the market
• Markets that remain price-sensitive
• Low yields
• Competing against dominant providers with vast networks and prominent alliance partners
• Revenue opportunities not captured

• Lack of expertise in revenue management and strategic pricing

• In-house expertise can be expensive
• Providers resort to expensive consulting and training solutions
• There is limited continuity after the consultants leave
• Risks are not minimized

• Limited access to market data

• Pricing and market share are not optimized

The Solution

Would airlines consider revenue management and its benefits, if they didn’t have to incur the costs and staffing to support it within their company? If your answer is “YES”, then
we have the solution: co-sourced revenue management provided by rmservicegroup’s own team of experts.

Whenever we use the word revenue management outsourcing in the airline industry we are used to getting hesitant reactions initially. For many airlines there is also a kind of negative feeling towards this word, and we understand the fear of some that such a core task could not be given to “an outsider”. The reality is however that we will be working so closely with you, we prefer to call it “co-sourcing”.

Advantages of co-sourced revenue management:

• Increased flight revenue across the network
• Crucial yield, load factor, revenue and marketing data provided regularly to airline managers
• Service level agreements to guarantee optimal revenue performance
• Increased competitiveness without yield sacrifices
• Access to expert advice
• Daily flight analysis performed by industry experts. Nothing left to chance when maximising flight revenue.
• Co-sourcing ensures systems and processes remain cutting edge and relevant.
• Complete revenue management benefits combined with excellent value.

The Business Model

The business model is structured to allow easy management for maximum benefits. Airlines sign one agreement with rmservicegroup which provides:

• Daily RM services by industry experts, using leading revenue management software tools
• Expert analysis of flight and booking data
• Continuous reporting on key performance indicators
• Access to market analysis and evaluation

Your Co-Sourcing Team

rmservicegroup is a company dedicated to revenue management and pricing and is giving airlines, irrespective of size, the opportunity to benefit from revenue management without having to employ anyone, purchase any system or analyse any data. Our expertise comes from the practical experience gained in the daily application of revenue management and pricing principles, faced with the challenges and opportunities of companies operating on the many levels of service from global to regional, from traditional to low-price, and also value-based product offerings. Our own staff includes technology support analysts, data experts, market, pricing and revenue analysts. We have chosen people who have an innate systematic approach and who are highly skilled in mining data for revenue opportunity and cost saving opportunities. These experts will increase your flight revenue on an ongoing basis.

There’s gold in that service inventory

What is revenue management, and why is it such a great thing?

It has long been recognised that success in revenue management takes more than just the technology. The reality is that business processes and best practices are the key success factors that are often overlooked or ignored by many companies.

A closer look at the success criteria will give many practitioners ideas on how to increase the success of their service related revenues.

Key elements of successful revenue management programmes include:

1. measuring performance;
2. developing robust business processes and policies
3. adopting a revenue management philosophy throughout the organisation