A 100 billion dollars market
Back in our old days of revenue managers in airlines, we were fighting to maximize unit revenue, made of the combination of both load factor and yield.
In an industry weighing more than 500 billion dollars in annual revenue, with an average load factor of 80% according to IATA, the potential market of airlines empty seats is way above 100 billion dollars in revenue. Of course, this value cannot be fully captured, as planes will never depart all full. But grabbing only a few percentage points of it already accounts for billions of revenue, which directly translates in margins as the incremental revenue comes at little cost.
As such, it is easy to measure how much Revenue Management is critical to the airlines industry – and more broadly, to all industries with constrained capacity.
Creating a second chance
As revenue managers, we were facing the issue of spilled flights – the specialists buzzword for too full too soon flights. Spilled flights are a pain point, both for the airlines as they represent an opportunity cost – seats could have been sold at a higher price – and for last minute customers who cannot book since flights are full.
Spilled flights can be avoided by standard Revenue Management, managing carefully inventory to follow an “ideal” booking curve based on average historical data per route and period – but only to a certain extent. Demand forecast can only be what it is: a forecast that can be overpassed by real bookings when demand is stronger than expected.
Fig. 1 – Booking curve of a spilled flight vs. “ideal” booking curve
Note: Booked Load Factor (BLF) = bookings / sellable capacity (ie. including over-offer)
The idea that naturally comes to mind of revenue managers is: what if we could move some customers to alternative less constrained flights? The called-back seat could then be re-sold at a much higher price. To do so, we just need some flexible customers ready to change their flights again a voucher, an upgrade, some miles or cash.
Basically, we were creating a second chance.
Fig. 2 – Un-spilling of a spilled flight bysmooss
A user and customer friendly platform
This is how we came up to develop smooss first product, dedicated to Revenue Management. Our platform enables Revenue Managers to identify spilled flights and un-spill them seamlessly.
How? The platform automatically contacts flexible customers, offering them alternative flights against a compensation, and then rebooking those who accepted the offer. The airline gets back the seat, which is re-sold at a much higher price to last minute high-yielding customers.
Our first Proof-of-Concept has overcome our expectations, both in terms of metrics and feedback from users and customers. We call it the triple win:
- The flexible customer is happy to be rewarded
- The last minute customer is happy to travel, while he could not have otherwise
- The airline makes a profit of it
What’s more, smooss computes with the utmost accuracy the incremental revenue generated for the airline by the re-sold seats. We will explain how in a future post!
Capture post-booking potential
Standard Revenue Management systems maximize revenue at the time of booking and do not look after-booking. Our platform is doing a first step further, being as such perfectly complementary to existing systems by filling the gap between inventory and customer data.
It makes us confident that there is still a lot to capture from the post-booking potential!