Revenue management, more recently known as margin/profit management, has played a vital role in the travel and transportation industry since the beginning of early 1980. It is a crucial business discipline, and although it may be referenced by a variety of names, most airlines and hotels, and many cruise ferries, car rental and rail operators have a form of revenue or yield management department.
Chances are that you are already exercising Revenue Management in an informal way. You are prepared to offer discounts on departures you consider will not be full to capacity. However, you hold out for the standard fares on those that will. In essence, this is Revenue Management.
Through the gathering and analysis of historic booking data coupled with well-defined techniques, you can formalize this activity into a management discipline that will consistently return substantial, predictable, increased revenues and profits from the sale of your inventory.
Every day that goes by with a departure that leaves with empty space when it was booked full, every space that is sold for less than it could have been, and every customer turned away because of no available space regardless of how much they were prepared to pay, is a lost opportunity for additional revenue and net profitability! Worse still, it is lost forever.
Additionally, you may have non-standard operational requirements which may impact on your ability to easily manage inventory:
- Flexible capacities or crewing levels impacting on Safety Capacity.
- The ability to substitute different gauge equipment based on demand
- Constraints on a resource type which is not directly related to your managed inventory
- Inconsistent occupancy ratios of cabins to passengers, or passengers to vehicles.
Cargo Revenue Management
In the early 1980s, revenue management techniques were first applied in the airline industry as a method to increase revenues resulting from passenger sales. With the success of revenue management to improve passenger revenues, these techniques were applied to other business areas, such as hotel, railroad, car rental, and cargo. World’s first revenue management (RM) system for cargo was developed and installed in early 1990s. Today, there are about twenty carriers in the world that use a cargo revenue management system and there are about three major vendors that provide full-fledged cargo revenue management software. Airlines use a Cargo RM solution in one or more of the following ways to generate additional revenue and profitability:
Capacity Planning - Knowing the capacity available for sale accurately at the very beginning of the booking period is very important so that demand is not spilled or turned away which in turn increases revenue. Benchmarking and post-implementation measurement of benefits from capacity planning shows revenue improvement of up to 5%.
Allotment Management – How much space should be allocated to a station or customer based on revenue, cost, usage, type of cargo, etc.? Allocating space to the right station or customer and considering the possibilities of satisfying allocations among multiple routes considering network effects helps to increase revenue from allotment sales by up to 4%.
Hurdle Pricing Guidelines - Determining minimum acceptable prices (or hurdle prices) to sell cargo based on flight capacity, demand, and rate and density of cargo. Carrying the right freight mix in terms of rate and density maximizes the revenue and contribution from the 3-dimensional cargo capacity. Benchmarking measurement of revenue benefits from using hurdle pricing is up to 6%.
RM Solution Overview
An overview of the Cargo RM system from business, process, and technical perspectives is presented in this section. The business aspect provides a discussion of the functional requirements of the solution. The process description addresses the User Interface aspects of the solution. The technical part discusses the architecture, data and data sources, interfaces, and integration with other cargo and external systems. The system has the following features:
Automatically process key revenue management modules at night for up-to-date flight capacities, overbooking levels, demand forecasts, allocations and bid prices.
Interactively run revenue management modules and options to review and modify model outputs as well as change model inputs. Ability to create weekly, monthly and yearly management reports on service failures, load factors, and revenues.
Pro-actively manage flights by alerting users when certain conditions are met or not met in terms of potential service failures or revenue opportunities.
Manage flights in a simple and more efficient way with user-friendly interactive screens.