The airline industry may have given birth to the revenue management revolution, but it should not take its lead for granted. The demand for skilled revenue managers far outstrips supply, and the pressure to hold on to them is growing as new industries adopt yield management discipline. Perhaps the greater challenge is for airlines to start nurturing new talent, not just capable of managing revenues but of taking on leadership roles in revenue management.
Airlines long ago realised the critical importance of revenue management to the bottom line. Investment markets too have begun to appreciate the enormous importance of the phenomenon. The recently announced acquisition of Talus Solutions - a leading supplier of revenue management systems - by Manugistics for $366 million, reflects the value such technology can bring.
Not surprisingly, the need for top quality revenue management talent is spreading fiercely across other industry sectors too. It is already well entrenched elsewhere within the travel business, from hotels and car rental to cruise ships. Moreover, aided by the advent of the Internet, entire firms have been created and are prospering with revenue management at their core. The Priceline.com auction site is perhaps the most prominent example. In 1999 it named Trey Urbahn, an airline revenue management executive, as president-airlines.
Striving to compete in this area, numerous airlines have taken steps to buy in expert talent to build and oversee the function. Swissair, for example, introduced Ray Lyons from British Airways in 1998 to oversee revenue management and related functions.
Even US carriers, the traditional hotbeds of revenue management talent, have begun raiding each other for their best, causing churn in the sector. As far back as the early 1990s, the wholesale move of several top-flight revenue management professionals from American to Delta led to a high profile lawsuit between the carriers.
Scarce talent
Against this backdrop are some fundamental issues that must be addressed - sooner rather than later. The first is that airlines increasingly find themselves challenged to fill the top revenue management role. The natural demand-supply imbalance has been precipitated by a number of factors including:
movement to other travel sectors; departures to potentially more lucrative Internet ventures; the emerging split between what airlines really want and need in the top revenue management position, and what the in-house functions are producing up-the-ranks.The revenue management function at a major US carrier today can employ anywhere from 75 to 200 professional staff. When the disciplines of pricing and revenue management are crossed with the various geographic markets served, the sheer number of staff at the analyst, manager, and director levels multiplies significantly. Once a department reaches over 100 in number, the focus of its leader rapidly shifts from technical competence to staff leadership.
Unfortunately, that is not what has emerged in the industry today. Whereas revenue management clearly does have some true leaders among its ranks, many of its managers are highly technical in nature, schooled in optimisation and the subtleties of pricing dynamics rather than in how to motivate other professionals.
What is more, there is reason to believe that many revenue management professionals are underpaid. Compared with their colleagues in finance and marketing, many are still treated as "back room analysts" with insufficient appreciation for the importance to shareholder value of the levers they control. Faced with the option of moving slowly up the career ladder at carriers whose stock prices float with the price of jet fuel, certain revenue management professionals are beginning to look elsewhere - seeking a more appropriate reward for their expertise.
So, how should the airline industry respond? The starting point is recognition. Airlines must stop and take stock of the value delivered by their revenue management functions and, in the process, recognise the efforts of these professionals. This scrutiny should reveal the leverage their function provides as compared to other - often higher profile - departments which often get more kudos. From here, carriers must take a serious look at the human resource policies and programmes they institute for the revenue management professional, from recruitment to career planning and recompense.
Airlines should take steps to ensure that revenue management professionals see opportunity within their companies beyond pricing and yield management. In so doing, they can prepare such individuals for broader roles and, it is hoped, position them to return, better equipped, to lead the function in the future. Through this, airlines can manufacture their own revenue management leadership solutions, with the appropriate blend of technical mastery and leadership profile, as opposed to counting on an increasingly less reliable and more competitive external marketplace for such talent.
The mindset shift is simple - airlines should stop thinking about revenue management and shift their focus to revenue leadership. That would be the ultimate marriage of talent and commerce.
Source: Airline Business
