Disruption is the new normal for businesses in every industry. In the travel and transportation space, airlines are applying new levels of technology in order to deliver value on faster cycle times. Meanwhile, they are experiencing an increasing churn of talent, plus added restrictions and industry mandates. To survive in today’s volatile environment, airlines must enable real-time situational awareness to combat operational threats. Managing their cargo below the wing as they revenue manage their seats and ancillaries above the wing will help them achieve their goals.
According to the International Air Trade Association (IATA), worldwide demand for export and import orders continues to fluctuate, while cargo capacity restraints tighten. IATA reported that both cargo demand and capacity were down in April 2022 compared to the previous year, with global demand down 11.2% and demand for international operations down 10.6%. Global cargo capacity was reportedly down 2% versus April 2021 (although international operations were up 1.2%), and both were down slightly from March of this year.
IATA also reported that total demand for air travel was up 78.7% year-over-year in April 2021 and up 2.7% over March 2022, with several international routes trending above pre-pandemic levels. So while it appears that wildly fluctuating cargo capacity and demand are here for the long haul, air travel for commercial passengers continues to increase, despite fuel costs, political challenges, and pandemic complications.
Meanwhile, airlines struggle to effectively price cargo capacity in an increasingly dynamic environment. In a time when year-over-year and historical data leave gaps in future demand and pricing, traditional methods are unable to help airlines convert their unique offering into long-term revenue. Beyond that, cargo revenue management isn’t typically considered in legacy revenue management systems. Instead, carriers rely only on ad-hoc processes, infrequent heuristics, and effort spent exclusively on managing near departures. In a nutshell, airline analysts rely on guesswork to make cargo revenue management-related decisions. This is not the best way to maximize the usage and profitability of airlines’ most profit-turning assets.
FLYR Labs utilizes artificial intelligence, deep learning, and neural networks to solve the industry’s cargo model complexities. The Revenue Operating System® harnesses this cutting edge form of AI technology to provide the context behind airline data, helping analysts make better informed decisions.
The Revenue Operating System does not rely on outdated predictive equations, but rather infers complex relationships in high-dimensional space. The deep learning models provide meaningful, organization-wide applicable outputs – driving capacity planning, B2B negotiation, and automated request evaluations to support sustainable cargo revenue. For airlines, The Revenue Operating System also informs the price of passenger fares and ancillary products like neighbor-free seat offerings for true total flight revenue optimization.
For cargo revenue management analysts, this means they can now focus their attention on strategic activities – deepening their understanding of the network, evaluating complex opportunities alongside customers, and leading the cargo organization as a true commercial center. This is enabled through The Revenue Operating System’s outputs removing the need for manual oversight of standard requests, dynamically reacting to changing market conditions, and identifying where human attention is required. Models and frameworks that have been price-focused since day one ensure that carriers will no longer have to resort to rigid pricing and simplified frameworks while enabling increased organization, agility, and speed of collaboration with customers.
The result is a robust, sustainable, unified cargo management plan that minimizes waste, maximizes revenue, and streamlines operations across the entire airline.
Retooling revenue management for the entire organization
Over the past two years, uncertainty has become the new normal for airlines. This has made the lives of revenue management analysts and their commercial partners especially hard as the majority of pricing decisions and forecasts are based on historical purchasing patterns.
So how can airlines move forward and focus on driving revenue to pull themselves out of the effects of the pandemic?
The obvious answer is by pursuing anything that can restore top-line growth. One of the smartest ways for airlines to do this is by investing in their products and operations to help them be more competitive in the marketplace. Revenue management (RM) systems, such as the one developed by FLYR Labs, help airlines maximize revenue opportunities and support their business growth.
Business areas that can benefit from retooling revenue management
Network, channel sales strategy, and marketing are among the top three business areas that can also benefit from retooling revenue management.
The network planning and scheduling group builds an airline’s product. Revenue management is the gatekeeper to this network, setting the market fare for access onto flights. They are also one of the first teams to see where a network strategy is succeeding or falling apart and can relay insights back to the network team in order to make the airline’s product stronger.
This insight into forward-looking revenue trends can also be used by marketing and sales strategy teams to influence the right moments to move inventory and volume or when to hold back during times of organic demand.
Do your current RM tools need an upgrade?
Many airlines invest in revenue management as a core competency and see it as key to their success. However, the range of tools available at present depends on the resources of the airline. For example, smaller airlines tend to buy an off-the-shelf product, while larger operators build their own tools and systems. Within these tools, the Revenue Management System (RMS) creates demand forecasts and price optimizations, and the analysts interact with demand and post-processing to arrive at the optimal price for their network.
As the pandemic has shown, there are weaknesses in the majority of existing revenue management solutions. Many have been built so that operators are steering their airlines using strictly historical data. Similarly, other airline groups remain heavily dependent on historical data such as the network planning teams who typically look at last year’s profitability to create next year’s schedule. Although
helpful to look at historical bookings and pricing to predict future pricing, this methodology leads to a lack of reactivity. It only works well when the coming year looks similar to the last 12 months.
In the brave new world in which we now live, predictability is no longer the norm. There is now a growing appetite for change, spurred on by the recent volatility in the market and an eagerness to look at other possible ways to approach the revenue maximization problem.
Improving reaction speeds with the latest RM solutions
The Revenue Operating System® by FLYR applies the latest AI innovations to maximize revenue, deliver measurable results, and add clarity to revenue decisions. Importantly, it differs from traditional revenue management tools in that it delivers much-improved reactivity to the volatility found in today’s marketplace. It can capture the sparks of demand that pop up but aren’t always obvious, applying analyst-grade intuition and decision making and applying it to every flight, every day, throughout the entirety of the network.
The Cirrus platform is built to serve airlines of all sizes and operating models and does not limit startup, low-cost, or network carriers from enjoying the benefits of solution capabilities, as they currently reside with other legacy systems. In fact, The Revenue Operating System offers a configuration specifically designed for the smaller or startup segment of the airline industry.
In addition to revenue maximizing pricing strategies, Cirrus also natively produces load factor and revenue predictions (both common KPIs across commercial airline functions). These metrics can be easily and quickly understood and communicated in order to bolster collaboration and empower data-driving decision making across the organization. This is an improvement compared to most native revenue management solutions whose primary model outputs are only abstract metrics or concepts such as unconstrained demand.
In recent years there have been many buzzwords thrown around between revenue management practitioners in this industry, such as NDC, total revenue optimization, and continuous pricing. However, the market is beginning to see airlines test cases that adopt these advancements in technology. With the introduction of The Revenue Operating System, airlines not only have a solution that offers backwards compatibility into their current legacy processes, but also one that has been built to optimize future technological opportunities – a world where airlines can create more personalized, real-time offers that provide the right product and right price to each customer.
If the past two years have taught the industry anything, it is that flexibility and reacting to change is essential to returning to top-line growth. Revenue management will continue to play an important part in creating competitive advantage, and, as can be seen with Cirrus, the future of revenue management is already here.
Kyle Holden, Head of User/Flight Analytics at FLYR
For more information about FLYR Labs and how we use advanced and intuitive technology to understand context and help airlines achieve their ultimate revenue potential, contact us today