Integrated Revenue Management: From Prediction to Reality

This idea was predicted by a current RTS leader over two decades ago, and now it is one of the trending topics in the airline industry. The impact of the pandemic on airline passenger demand and willingness to pay have made airline thought leaders to think out of the box and look for alternatives to increase airline profitability.

The Airline Industry is one of the true demonstrators of Revenue management. Overbooking and selling seats at different prices (Dynamic Pricing) have come a long way in the industry. They have resulted from the right leverage of revenue management and profit optimization software solutions. However, Airline revenue management is now rapidly turning to a more advanced practice which promises to size up the revenue further through a Joint Revenue Management or Integrated Revenue Management. The traces of this new system were evidently predicted a long time ago. We take pride in highlighting that we were the prime thought leaders in this sphere.

One of our leaders published a research paper back in 1996, titled – Maximizing Total Airplane Profitability Through Joint Yield Management, had introduced the concept of joint yield management for the airline industry. He had emphasized the importance and the need for an integrated system. He had also shared some alternative methodologies for developing and implementing such a system.

What is Joint Revenue Management or Integrated Revenue Management

Revenue management can be defined as the integrated management of price and inventory to maximize the profitability of a company. For combination air carriers, revenue management is concerned with managing passenger fares and seats together with cargo rates and belly space. In practice, the concepts of airline revenue management are applied in a hierarchical manner. The hierarchical practice of revenue management assumes that passenger profitability is higher than cargo profitability for the equivalent weight, which may not be true in certain segments of a carrier’s route network.

A joint revenue management system seeks a trade-off between the profitability of passengers and cargo in order to maximize the total airplane profitability subject to a given payload and belly volume. This may result in higher overall airplane profitability than the combined profitability resulting from separate revenue management systems for passengers and cargo.

The above idea is directly applicable to other industries we serve as well such as the cruise ferry industry. Some of our customers have already been thinking along these lines as part of their 5-year plan.

Airline Revenue Management at RTS

In the end, every industry seeks to increase revenue while simultaneously being influenced by factors such as demand, desire, price elasticity, and a plethora of other factors that make profit margins tough to achieve at times. The airline industry probably leads the way in this area. It is part of normal business for airlines to leverage these concepts and establish pricing strategies that help them stay afloat during extremely difficult times and maximize profits during normal times.

Summing Up

The integrated management of price and inventory for cargo and passenger segments can help maximize the overall profitability of the airline. This challenges the prevalent assumptions that passenger profitability is often higher than cargo profitability for the equivalent weight. While the concept of integrated revenue management appears very attractive and the models to support the concepts are not difficult to implement, the main challenges are business process alignment and political and cultural resistance from both passenger and cargo business units.

If you are looking for more information on the subject, or have questions, this is an area we would love to help with. Reach us here: RTS.Information@RTSCorp.Com.