Yield Management For Travel Buyers

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Yield ManagementFor Travel Buyers

• Ed Tobin
• Global Consultant
• eCLIPSE Advisors

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Yield Management

Task Discuss tools and techniques including
modeling forecasting in 45 minutes with time
for Q A at the end! Potential Presentation
Strategies
3
Yield Management

• Task Discuss tools and techniques including
  modeling forecasting in 45 minutes with time
  for Q A at the end!
• Potential Presentation Strategies
• Speak very quickly

4
Yield Management

• Task Discuss tools and techniques including
  modeling forecasting in 45 minutes with time
  for Q A at the end!
• Potential Presentation Strategies
• Speak very quickly
• Cover a few topics and ignore the rest

5
Yield Management

• Task Discuss tools and techniques including
  modeling forecasting in 45 minutes with time
  for Q A at the end!
• Potential Presentation Strategies
• Speak very quickly
• Cover a few topics and ignore the rest
• Show lots of graphs and use industry jargon

6
Yield Management

• Task Discuss tools and techniques including
  modeling forecasting in 45 minutes with time
  for Q A at the end!
• Potential Presentation Strategies
• Speak very quickly
• Cover a few topics and ignore the rest
• Show lots of graphs and use industry jargon
• All of the Above

7
Yield Management

• Task Discuss tools and techniques including
  modeling forecasting in 45 minutes with time
  for Q A at the end!
• Potential Presentation Strategies
• Speak very quickly
• Cover a few topics and ignore the rest
• Show lots of graphs and use industry jargon
• All of the Above

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Agenda

• What is Yield Management
• Yield Management Corporate Contracts
• Optimization vs. Market Coverage
• Modeling
• Reporting
• Q A

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EARLIEST RECORDED REFERENCE TO YIELD MANAGEMENT
It is not because of the few thousand francs
which would have been spent to put a roof over
the third-class carriages or to upholster the
third-class seats that the company has open
carriages with wooden benches What the company
is trying to do is prevent the passengers who can
pay the second-class fare from traveling
third-class it hits the poor, not because we
want to hurt them, we do it to frighten the
rich. Jules Dupuit (1849) Discussion on
passenger railroad tariffs
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What is Yield Management

• We estimate that yield management has
  generated 1.4 billion in incremental revenue in
  the last three years alone. This is not a
  one-time benefit. We expect yield management to
  generate 500 million annually for the
  foreseeable future.
• - Robert Crandall
• Yield Management is a system, often associated
  with airlines, to maximize revenues or limit
  costs by ensuring that each passenger pays the
  most/least that they are willing to pay

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What is Yield Management

• Two fare classes aimed at business and leisure
• Generates 40 passengers 22,000 in revenues

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What is Yield Management

• 50 Passengers generating 28,000 in revenue

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Yield Management Corporate Contracts THEN

• Flat discounts regardless of markets and class of
  service
• 25 discount equated to a 25 discount
• 2.5 Million in Savings on 10 million Gross Spend

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Yield Management Meets Corporate Contracts

• Our Ugliest Contract
• 21 Different Groups/Terms
• Each group had several discounts by fare basis
  code
• Performance in key groups triggers tiered
  discounts in other groups
• Plus Lane Fares

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Yield Management New Model

• Different discounts based on market, class of
  service and performance
• 25 discount equals 17.5 in savings

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Yield Management THEN NOW

• THEN Simple discounting
• Clear Strategy
• Maximize Yield
• Get the highest discount possible
• Cover the highest percentage of your Markets
• NOW Variable discounts
• Discounts and Yields are secondary
• Lowest Cost of Travel
• Optimizing your travel spend is key

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Modeling Tools Techniques

• Determining a Market by Market Strategy
• Optimization Models - DACODA
• Low Fare Carrier Analysis, Market Conditions
• Directing Traffic
• Point of Sale Tools Rapid, Deal Power
• Online Off-line
• Service Measurements
• Non-Compliance Reporting
• Airline Purchasing Index

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The Modeling Process
INPUTS Current Fares
Schedules Airline
Capacity Travel Policy
Airline Contracts Historical Data
OUTPUTS What If Scenarios
Optimal Solution Buying Strategy
At Point of Sale Performance
Reports Contract Savings
Patented Algorithms Analytical
Support Consulting Support
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Modeling Process - Inputs

• INPUTS
• Current Fares
• Schedules
• Airline Capacity
• Travel Policy
• Airline Contracts
• Historical Data

Fair Market Share

• Discounts
• Hurdles

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Modeling Process

• Patented Algorithms
• Analytical Support
• Consulting Support

• Alternative Airports
• Market Conditions
• Schedule Analysis

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Modeling Process - Outputs

• OUTPUTS
• What If Scenarios
• Optimal Solution
• Buying Strategy
• At Point of Sale
• Performance Reports
• Contract Savings

Weighs a Variety of Carrier Mixes

• Market by Market
• Online Off-line

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How Modeling Applies

• Airline fares are NOT always matched

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Strategy - Before
SFO
UA 100 segs, 200 ASC
ORD
UA 100 segs, 400 ASC
IAD

• UA deal
• 10 discount
• 80 share
• Non-stop policy

Total spend 60,000 UA share 100
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Optimal Strategy - After
ORD
SFO
UA 60 segs, 200 ASC AA 40 segs, 150 ASC

UA 100 segs, 400 ASC
IAD

• UA deal
• 10 discount
• 80 share
• Non-stop policy

Total spend 58,000 UA share 80 3 savings
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All Markets, All Goals
UA
LF
CO
US
US
NW
CO
DL
DL
US
CO
AA
F9
AA
AA
DL
DL
US
UA
US
US
NW
DL
DL

• Billions of Solutions
• Patented Linear Programming Model Finds Optimal
  Mix
• Point of Sale Tools Brings Solution to the
  Traveler
• ..NOW WHAT?

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Modeling Benefits

• Average Incremental Savings 4-6
• Mitigates Contract Risk
• Generates Actionable Sourcing Strategy

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Actual Savings
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How you are Performing
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How Suppliers are Performing
SFO - JFK
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How You Suppliers are Performing
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In Summary

• Market Coverage is no longer enough
• Optimizing your spend is the key
• Optimization results in 4 - 6 incremental
  savings

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Powering Travel Procurement