Revenue Management Performance Measures - Dieter Westermann Senior Vice President Revenue Management, Qatar Airways 08th December 2010, Istanbul ...
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Revenue Management
Performance Measures
Dieter Westermann
Senior Vice President Revenue Management, Qatar Airways
IATA Commercial Conference 2010
08th December 2010, Istanbul, Turkey
Agenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• Summary
Agenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• Summary
TRULY GLOBAL AIRLINE Where Do We Fly? • 92 destinations worldwide • Network spans six continents What Do We Operate? • Modern fleet of 88 aircraft • Average aircraft age less than 3 years
QATAR AIRWAYS’ 2010
EXPANSION PROGRAMME
• New destinations
• More frequencies and extra capacity
• Expansion of fleet
• More than one new aircraft a month
• Double digit growth
• 2009 /10 passenger numbers
exceeded 14 millionQATAR AIRWAYS GOING FORWARD • Targeting 120 destinations in under 3 years • Fleet size to grow to more than 120 aircraft by 2013 • Over 200 new aircraft pending delivery worth over US$ 40 billion
Agenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• SummaryWhy measuring?
Executive Management and other departments
– Revenue management is an important commercial function,
however often perceived as a “black box”
– Does revenue management earn the money back they cost?
Management of the department
– Are we doing our job right?
– Are there any shortfalls?
- In specific parts of the organization
- Related to specifics teams or staff members
– Performance review and bonus for staff
Revenue management staff
– Am I doing it right?
– What can I learn and how can I improve?What to measure?
Measurement can be implemented at various levels and stages
along the work process
– Impact of the “system as a whole” versus individual parts
– Analyst against System
We can decide to measure
– Quality (e.g. accuracy of demand forecast)
– Quantity (e.g. number of flight/dates reviewed)
– Time-to-market (e.g. response to group requests)
Measurement should focus on the final objective of increasing
revenues
– Some measures however can only be used to conclude that
the particular topic helped to achieve this objectiveGeneric Revenue Management Business Process
Pricing
Forecasting Optimization Reservations Distribution
Scheduling
RM Analyst
Revenue Management Business Inventory Control
Process
Pricing and scheduling provide the basic inputs
Revenue management uses forecasting and optimization
method with the objective of maximizing revenues
Parameters calculated are used to control the selling of the
inventory
This presentation focuses primarily the core revenue
management processAgenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• SummaryPerformance of the entire Organization
Does revenue management increase the overall revenue of the
airline?
Forecasting Optimization Reservations
RM Analyst
Revenue Management Business Inventory Control
Process
Answers question of Executive Management whether revenue
management is adding to the bottom line of the company
May also help in the discussion with other related departments
Doesn’t help steering the revenue management organization
– This requires a more detailed view at the specific functionsExample: Revenue Opportunity Calculations
Post-mortem optimization gives us an idea about how much additional
money revenue management generated for the airline
– Linear Program (LP) can be used to calculate optimal solution
– Requires capacity, fares and unconstrained demand as input
No RM Actual Optimal
“first-come-first-serve”
It is important to manage expectation as the optimal solution assumes
perfect knowledge of future demandPerformance of a specific function: Forecasting
Revenue management predicts various figures, e.g.
– Passenger demand (Unconstrained and constrained)
– Cancellation rates
– No-show rates
– Utilization of groups
– Future average (net-net) fares
Each of those numbers impacts a decision taken by revenue
management
The accuracy of those predictions impact the revenue resultsExample: Demand Forecast Accuracy
How accurate is the forecast compared to actual?
80.0%
75.0%
70.0%
65.0%
60.0%
55.0%
1 2 3 4 5 6 7 8 9 10 11 12 13 14 15 16 17 18 19 20 21 22 23 24 25 26 27 28 29 30
Flown Forecast
How large is the forecast error?
– Mean absolute deviation (MAD) and mean absolute
percentage error (MAPE)
Is the forecast biased (over-/underforecasting)?Performance of a specific function: Optimization
Various aspects of optimization can also be measured
– Class mix
– Over- and under-protection
– Pre-departure upgrades
– Overbooking due to cancelation and no-shows
– Revenue opportunity captured
– Seat factor on closed flights
– Denied boardings / passengers flownExample: Overbooking Performance
Based on actual No-Show rates, excess demand and class
closure information an overbooking potential can be calculated
Optimal OB level defines the potential
Flown OB passenger defines the capture opportunity
Denied boarding cost needs to be deductedPerformance of a specific function: Groups
Group Business
– Accuracy of materialization rate
– Displacement cost
– Speed of decision for ad-hoc requestsAgenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• SummaryRevenue Management Organization at Qatar Airways
2008 Qatar Airways implemented O&D Revenue Management
– Market teams organized by regional POS with Pricing integrated
as part of those teams
– Group desk manages group requests from all POS
– Flight analyst groups manage regional groups of flights
Group Mgmt
(O&D/Request)
Group Analysts
Market Teams Inventory Control
(O&D/POS) Group (Flight Leg)
Pricing/Demand Analysts Flight Analysts
Management
Sales Region 1 Flight Analyst
Group 1
.. Network ..
. Optimization .
by O&D Flight Analyst
Sales Region n System Group nResponsibility has been clearly assigned in the leg-based
environment
Flight Analyst works on most/all aspects of the assigned flight
Forecasting and optimization is done for each flight leg independently
Analyst A works Analyst B works
on all aspects for on all aspects for
Flight 1 Flight 2
AAA BBB CCC
• Forecast • Forecast
• Overbooking • Overbooking
• Upgrade • Upgrade
• Class Mix • Class Mix
Reward analyst if Provide training
results are to analyst if
outstanding underperformingIn an O&D Environment World becomes more complicated
O&Ds often span multiple flights
Results in responsibility conflicts when measuring at flight leg level
Analyst B
works Flight 2
O&D 1 O&D 2
and O&D 2
Flight 1 Flight 2
AAA BBB CCC
Analyst A
works Flight 1
and O&D 1
O&D 3
Assignment of O&D 3 to
Analyst A interferes with
Analyst B
Same problem happens for different POSResponsibilities separated between O&D/POS and Flight Legs
Pricing
Forecasting Optimization
(O&D) Demand Analyst Flight Analyst role has Flight Analyst
been broken into two
O&D 1
more specialized roles
O&D 2
AAA BBB CCC Leg 1 Leg 2
AAA BBB CCC
O&D 3
Pricing Analyst
Pricing Analyst works closely with
Demand Analyst at the O&D/POS levelMeasure Performance along the Business Process
according to assigned Objectives
Pricing Analyst (O&D)
– Besides regular pricing tasks responsible for fare input to
optimization
– Objective : Ensure good data quality and closure of data
gaps
– Measured against fare accuracy and completeness
Flight Analyst (Flight/Leg)
– Responsible for capacity
Pricing
optimization, e.g.
Fore Optimi- Overbooking
casting zation
– Objective : Reduce seat
spoilage while respecting
Demand Analyst (O&D)
company DB policy
– Responsible for forecast quality at O&D (point-of-
– Measured against achieved
sale) level
additional overbooking
– Objective : Improve forecast results over and revenue reduced by denied
above system forecast boarding costs
– Measured against system forecast and forecast
improvement over timeAgenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• SummaryChallenges of Measuring Forecast Error in an O&D Environment
Unconstrained demand can not be known
(applies to leg-based forecasting as well)
– How many potential customers did you have?
– History is constrained but forecasts unconstrained
Understanding forecast error requires a high level view
– There are million and million of tiny forecasts to measure
Standard measures become difficult to be used
– Percentage error gets very large
- e.g. demand forecast of 0.01
- Most observations are 0 (zero)
- Smallest observed number above zero is 1 (one)Aggregation and Smoothing
First forecast and actual
are aggregated to a pre-
defined “significant” level Forecast versus Underlying Signal and Signal with Random Error
in order to avoid too small 150
140
numbers 130
120
The actual data is then 110
ACTUAL
100
being smoothed creating a 90
SIGNAL
FORECAST
curve in order to remove 80
70
“noise” in the data 60
50
0 4 8 12 16 20 24 28 32 36 40 44 48 52
Standard forecast Time in Weeks
accuracy measures are
being applied against the
smoothed curveMeasuring Demand Analyst Performance
Demand Analysts have two jobs
– Diagnosis poor system forecasts
– Take action to fix poor forecasts
Measure effectiveness as a combination of these two activity
Develop separate metrics
Combine metrics into a single scoreMeasuring Demand Analyst Performance (II)
Diagnostic power & effectiveness
– Diagnostic power measures how well they found poor forecasts
– Effectiveness in forecast improvement measures how well they
corrected the poor forecasts they found
Combine metrics into a single score
– Perfect score vector, e.g. (100%,
100%)
– Perfect score vector can be
weighted by rotating away from
the 45° line if diagnosis or
effectiveness is judged more
importantAgenda
• A few Words about Qatar Airways
• Introduction
• Performance Measurement Options
• Performance Measurement in an O&D Organization
• O&D Forecast Measurement
• SummaryImportance of measuring the Performance
Performance Measurement is of vital importance
– Internally Monitor and improve
- Trace that work is on track
- Learning by doing
- Feedback loop to allow continuous improvement
– Externally Gain support by other departments and management
- Explain work process and decisions
- Prove success
Success is irrelevant as long as nobody knows about itSummary and Conclusions
There are plenty of ways to measure the performance of revenue
management
– Measurement can be done overall or by dedicated function
– Most of the methods are public knowledge
– Data is usually available in revenue management
In an O&D environment measurement becomes more complex
– It has to be done at the functional level in order to avoid overlaps
– Number of forecast entities becomes very large
– It becomes much less obvious that revenue management is on track
– Other departments often continue reviewing results at the leg level
Implementation and continuous enhancement of Performance
Measurement is a high priority at Qatar Airways
But…we still have a long way to goThank You for your Attention!
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