Japan Block Management Challenges and Solutions Chris Amenechi & Charles Duncan March 22, 2000 New...

Japan Block Management

Challenges and Solutions

Chris Amenechi & Charles Duncan

March 22, 2000New York, NY

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The Japan Environment

Japan’s air travel market is the 2nd largest in the world

Distribution system is controlled / driven by wholesalers

Fares are regulated

Both airline and travel agency are penalized for oversales (!)

Airlines resort to block seats to capture demand

Consumer travel is largely driven by “inclusive tour” package sales

GDSs from US and Europe are just now addressing Asian needs.

CONTINENTAL AIRLINESJAPAN REVENUE MANAGEMENT

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The Japan Environment

Wholesalers and consumers are slow to change

– Behavior modification becomes a full-time job

Transition toward limited use of published fares.

– Japan international fares partially liberalized April 1999

– Japan domestic fares completely liberalized April 2000

– New start-up carriers

Question

– How does CO gain control of its inventory and influence consumer choice?


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Tokyo

Yap

Sapporo

Sendai

Denpasar(Bali)

Manila

Taipei

Koror

Osaka

HongKong

Fukuoka

Cairns(Australia)

Niigata

Okayama

Nagoya

Johnston Island

Honolulu

Houston

Newark

Los Angeles

Truk

KosraeMajuro

KwajaleinSaipan

PohnpeiGUAM

CO’s Pacific Routes

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D irec tC on su m er

S a les B ran ch

N ewsp ap er

M ed iaD ivis ion

R eta ile rs(M id C lass )

P ackag eW h o lesa le r

R eta ile rsA B R oad

A ir O n lyW h o lesa le r

D irec tC on su m er

D iscou n tS h op

A ir C on tro lle r

A ir P u rch as in g D ep t Tou r P lan n in g

G enera l Agents

Th ird R eta il

S econ d R eta il

F irs t R e ta il

A ir O n ly

A B R oad

R eta il A g en ts

A ir + H o te l (U n it)

W holesa lers


Japan Distribution Flow

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Where Do Bookings Come From?

Retail agents book directly into wholesalers’ private CRSs

These systems are then linked to a GDS or directly into CO’s host

Block requests appear at predetermined dates in the booking cycle

Waitlisting / Name Change are primary functional tools to claim the blocks.

Block processing poses challenges for GDSs and CO’s headcount budget.

True booking curves can be found in an agency’s host system


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Wholesaler

CO Agency Desk

Block Management

CO Sales

CO Revenue Management

Analysts

In-house CRS

System

TA Purchasing Group

TA Revenue Group

CO Pricing

Process Flow

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Wholesaler to Airline Relationship

Regressive wholesaler contracts determine CO’s LF and revenue

Contracts are based on a 6 month volume-incentive driven agreement

Market Prices are based on net-net fares inclusive of incentives

– Price fluctuations drive commission expenses and admin costs

The exposure Dilemma: – How do we go after “good” revenue when LFs are leveraged?

– High volume, high incentive vs. low volume, low incentive

– How do we allocate for the little published fare business out there?

– How do we introduce overbooking tactics to an apprehensive Japan org.?


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What Are the Management Challenges?

Eliminating manual processes that are non-value added

– Communicating blocks 6-8 months in advance

– Distributing pricing on paper

– Confirming allocated block space manually

Managing blocks based on marginal contract fares on an OD basis

– Optimizing agency booking demand mix based on marginal fares

– Demand forecasts depend on different variables: Agency auctioning of pax volume, final tour package price, schedule, etc

– OD control when free sale and block allotment legs are combined

– Managing mix of published and unpublished traffic

– Point of Sale control in RM decisions


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Segmenting the published and unpublished travel markets

– Enforcing fare rules (AP, TTL, changes) in both markets.

– Enforcing block utilization policies

– Block cancellation / no-show penalties

Eliminating corporate / group PNR’s

– Use POS information for tracking purposes

Winning the Sales team over to champion overbooking, pricing fences,

and lower incentives to the distribution system while maintaining volume.


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Reinventing CO Sales’ Revenue Objectives and Focus

– Reducing the reliance on the major wholesalers

– Unleashing the power of smaller producers and underdeveloped markets

Agency Purchasing Group

– Negotiate contract terms and block seats with escalating AP fares

– Negotiate a new no-risk strategy for published fare customers

Agency Booking / Ticketing Group

– Encourage use of RM strategies--especially “smart” overbooking

– Introduce multiple fare classes and manage “bid up / bid down” as needed

– Engage stricter booking restrictions and ticketing guidelines over time


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What is the Holy Grail for Managing Block Bookings?

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What is the Holy Grail to Manage Bookings?

Answer - The Group Booking System

What is it?

A system that will optimize block allocations based on the following :

Decrement Profile by Agency by DOW

Show Factor by Agency by DOW

Contract Marginal Fares by channel, OD, DOW, Season, etc

Historical Agency demand by channel, OD, DOW, Season, etc

Why does this make sense?


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CO Inventory

A ClassB ClassJ Class

Wholesaler Bucket

M ClassF ClassT ClassG Class

CRS/GDS

Booking from Japan

wholesaler

Agency 1

Agency 3

Agency 2

Current Manual Booking Process

CO Block Control Agents

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CO Inventory

Y ClassH ClassK Class

Wholesaler Bucket

V ClassQ ClassT Class

M/G Class

CRS/GDS

Booking from Japan

wholesaler

Group System

Agency 1

Agency 2

Agency 3

Agency 4

Agency 5

Agency 6

etc.

Agency 1

Agency 3

Agency 2

Group Booking System

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A Real Life Example

Goal: 100% LF on a 100 seat JFKNRT cabin

Agencies X , Y, and Z negotiate blocks at 75% utilization for 180 days

– This is the equivalent of 133 seats / flight – Incentives trigger at 80% and max out at 120%

X, the market leader, gets $500 net fare, $100 incentive, and 50 seats

Y, an average player, gets $500 net fare, $75 incentive, and 50 seats

Z, a large retailer, gets $500 net price, $50 incentive, and 33 seats

150 Days Later…

Agency X: 100% block utilization and 133% of pax target

Agency Y: 50% block utilization and 67% of pax target

Agency Z: 70% block utilization and 83% of pax target


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A Real Life Example

From which Agency would you take the next incremental booking?

Agency X (assume its run-rate incentive at 120% + is $120) options:– May stop selling you given its commitments to other carriers

– May still have more demand it cannibalized from Y

– Negotiates for more incentives (assume $133 back to pax 1)

– Marginal revenue is negative for CO

Agency Y (no incentives at 66% achievement) options: – Will stop selling because market price is below its $500 net

– Will sell only peak days where it can get a premium to recoup losses

– Will re-negotiate contract terms


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A Real Life Example

Agency Z (assume its incentive at 83% is $41.50) options: – Will continue to book you so they can hit a higher incentive level

– May be satisfied with current position but cherry pick peak days

Answer:

We need the support of all three

We would cherry pick the peak dates with Y and Z and open all others to X

Re-negotiate with all to get volume but discount manage X on the peak days

Overbook the blocks based on decrement and no-show history


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A Real Life Example

The operative equations for the system are as follows:

Total Block AUL = Agency (X…Z) AUL

Agency AUL = (volume target/utilization) + decrement + no-show

Total Block Revenue = ƒ(marginal fare, volume achievement, block util.)

Marginal fare = ƒ(net fare, incentive, volume achievement, agency strength)

Agency Strength = ƒ(market share, brand, brochure position, distribution)

Volume Achievement = ƒ(technology, agency strength/focus, sales, schedule)


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Where We Are

Developing a system to adjust allocations in response to the Market

Integrating block allocation data into RM systems

Displaying OD availability to each agency host system

Generating non-group PNR’s for agency bookings less than 10 pax

Integrating E-commerce into pricing and RM processes

Working with GDSs to address technical difficulties

Aggressively pursuing all fare segments

Managing schedule to demand within 30 days of departure


Japan Block Management Challenges and Solutions Chris Amenechi & Charles Duncan March 22, 2000 New...

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