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Revenue Management: Determining Airline Route Profitability with Automation

As the global travel routes multiply, the need for airlines to simultaneously grow while keeping operating costs to a minimum is immediate. In fact, one of the most defining factors for airlines is route profitability amounting upto 30-35% of overall revenue for major routes.  Integrated airline technology solutions that give a consolidated view in real-time of the variable costs and revenues can help implement the right profitability tactics for the long run.

“Acc. to insiders, “few airlines are able to generate profits that are greater than their cost of capital at a margin between 3-5%.”

Costs are not one-dimensional.  Certain operating costs are easy to ascertain such as fuel, taxes, fleet maintenance, surcharges and more, but others such passenger revenue, connections, hourly costs are also affecting margins. In “open skies”, Airlines need to move away from the manual process of uploading documents and managing route costs as this system often questionable and questioned by airline executives. To maintain a clear and standardized view of all flight routes, at all times; to see what’s working and where the real value lies, requires business Intelligence and Analytics – i.e. automation of data, processes and transparency for all company decision makers.

The key objectives for airline cost management:

Enhancing customer expectations: Customers grow increasing connected and mobile, pushing airlines to focus efforts and costs in enhancing customer expectation. But marking these services at the right price point, to trigger sales and repeat purchases while managing service cost efficiencies is important.

Cutting down costs: God is in the details. Simply put, to calculate day-to-day revenue and cost efficiencies can be a big game changer for airlines. Understanding, for example, why a Monday and Tuesday afternoon flight more costly than the remaining days of the week for Route A to Route B? What can be controlled or managed better to improve the revenues and reduce costs of those two days?
Some routes are active because of their contribution to the network. Often the case of a lot of the short haul flight routes in Europe. Airline executives need to therefore be attentive to the small costs that add up to the big revenue, and getting real-time insights can highlight the pressure points for quicker resolutions.

Fuel Prices: The dynamic global economy and fluctuating fuel costs impact the bottom line significantly. Fuel cost can be optimized by knowing the flight route profitability (FRP).

Key components of Flight Route profitability:

  • Flight leg or route profitability can adjudge the Aircraft Round Trips (ART) contribution which is a significant role in calculating route profitability.
  • Schedule and crew costs: On a given route, cost of flights will vary significantly. For example, aircraft route costs are subject to layovers, parking charges and landing charges which can differ by as much as time and day in busy airports. Any decision on cost management or profitability or crew costs will only be strategic if ‘ground zero’ numbers add up.
  • Passenger Contribution: One of the most important and direct factors for route or network profitability is based on Passenger contribution. Based on a passenger’s buying persona and total sale, a flight can be significantly profitable or not.
  • Scope of Automation and Technology with real-time reports: There are two key elements to Flight Route Profitability (FRP) – data and time. Large data volumes from multiple sources and stakeholders are required to calculate FRP. Data Automation and seamless representation of the leg-wise analysis in real-time for quick, and accurate cost management is required. Executives should be able to see quick route data and calculate in real time to make decisions that will impact the bottom line.

Solution Scenario: Manual standardization of navigation charges and fuel costs, direct operating cost and reports are the least productive as its time consuming, creating missed opportunities and compromised decision making capability. Currently, many airlines follow siloed solutions requiring manual standardization and updation and this prevents airlines from having a holistic and real-time view of all the different operating costs and revenues. Strategic decisions that tie in with cost management need day-in-day-out numbers and analysis, per leg, per flight and region. IGT Cost Monitoring Framework calculates the value of services according to IATA Regulations which is not possible in standard ERP where calculation/ postings are done manually. A Cost Management solution is critical “must-have” for a network airline, and a top C-level agenda.

IGT has extensive competence and experience in the Travel industry working with leading airlines, airports, and travel providers to build the right airline IT solutions. Under IGT’s Cost Monitoring Framework (CMF) airlines can consolidates all direct operating costs such as navigation, fuel, catering charges and contract management, across routes, leg and currencies to give a single, accurate & real-time view of global routes revenue enabling data-driven decisions.

Airlines need smart tools and processes that can analyze and pinpoint real-time value or cost deficiencies, to determine the impact of any cost-management decisions. It’s time for airlines to get a leg up on FRP with automation so revenue is always at cruising altitudes.


About the Author:

Renee Kishore is a digital marketing specialist, and a published author. A researcher and writer of change tactics and technologies in travel and other verticals, she frequently posts across the digital ecosystem. With 8-yrs of experience in communications and marketing, Renee has a passion for discussions and can be reached at: renee.kishore@igt.in

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