Most major airlines that do not have a so-called origin and destination revenue management system are either installing one or thinking about it. After all, these systems are supposed to add at least 1 per cent to an airline's revenue, and that ought to be worth having for any carrier.
However, the concepts involved are complex, the benefits are difficult to appreciate until you have seen the system working, and the system poses significant managerial challenges. In short, it demands a complete change of thinking which extends well beyond the revenue management department. Successful implementation is unlikely to be achieved without the close involvement of the airline's chief executive.
One early player in the ODRMS business is SAS, which has had a system in place since 1993 and earlier this year sold the rights to sell its systems to Unisys. SAS serves as the demonstration site and takes a commission on sales, while California-based Decision Focus International, which helped develop the SAS system, will customise it for other carriers. The answers to the questions posed in this article are based on a live demonstration of the SAS system in Copenhagen.
The OD fare depends on the origin and destination of the SAS portion of travel, and is affected by the fare, booking class and point of sale. The latter allows effects like commission rates and exchange rates to be taken into account.
The prorate factor is an estimate of the loss of revenue due to interlining with other carriers.
Carrying cost is the incremental cost of carrying one extra passenger on a particular flight, including meals, drinks, fuel and handling fees - less profits from on-board purchases.
Recapture rate is the likelihood of a rejected passenger rebooking with SAS on other legs of the itinerary, based on market share data. Recapture rates are generally higher in less competitive markets. They could be affected by frequent flyer programme membership, but FFP data are not included at present.
Displacement cost is the net revenue SAS can expect to lose by accepting this passenger and thus displacing a future booking. It considers all flights, whether OD controlled or not. As well as historical data, the displacement cost takes into account current inventory, so it becomes more accurate closer to the departure date.
1 Consider two agents in London and Copenhagen, both of whom are trying to book a passenger in the same class, paying the same fare, on the same intra-European flight. The London agent has no seats available, whereas the Copenhagen agent has five. This will be due to different market conditions, such as higher commissions in London or exchange rate effects. In this particular example, the net leg revenue is SKr2111 when booked from Copenhagen but only SKr1795 when booked from London.
2 Passenger Andreas is flying from Newark to Stockholm via Copenhagen, in M class (economy). The Amadeus screen shows no M seats left on the Newark-Copenhagen leg, because allowing Andreas on the flight is likely to displace a higher-yield passenger on the popular 08H45 Copenhagen-Stockholm flight. However, there is another connection further down the screen involving the same flight to Copenhagen and a longer stopover, before catching the 10H20 flight to Stockholm. Here, there are nine M class seats available on the same transatlantic sector because the connecting flight is a less popular mid-morning flight.
Even though the 0845 Copenhagen-Stockholm flight is not itself controlled by the ODRMS, its well known popularity means a higher displacement cost on the Newark-Copenhagen leg. As a result, the net leg revenue on Newark-Copenhagen is an unacceptable SKr1490 if the 08h45 connection were taken. This rises to SKr2049 if the passenger waits for the 10H20 flight.
3 Passenger Brigitte wants to fly M class from London to Vasteras in central Sweden. Taking a BA/SAS connection via Copenhagen, the SAS leg from Copenhagen to Vasteras shows zero availability in M class. However there are plenty of M class seats on the same aircraft to Vasteras if the passenger takes an earlier SAS flight out of London to Copenhagen.
The ODRMS only works when you have control of the inventory, so it's fine with block space agreements but inappropriate for standard codeshare deals where each carrier controls its own inventory.
Source: Airline Business
