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ATC 2019 Beijing

ATC 2019 Beijing. How to Unite Revenue, Personalization and Happy Customers in Harmony Gert Hartmans. CARNOC Aviation Trends Conference 2019 B eijing. ATC 2019 Beijing. Background Gert Hartmans. 20+ years revenue management systems experience Team lead KLM O&D RM system

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ATC 2019 Beijing

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  1. ATC 2019 Beijing How to Unite Revenue, Personalization and Happy Customers in HarmonyGert Hartmans CARNOC Aviation Trends Conference 2019 Beijing

  2. ATC 2019 Beijing Background Gert Hartmans • 20+ years revenue management systems experience • Team lead KLM O&D RM system • System implementation & continuous improvement • Designing new AF/KL O&D RM system • Project initiation & design of demand functionality for an unique O&D system • Supported KLM partners Alitalia, Kenya Airways • Developed new O&D/seasonality forecast • Replaced O&D optimization process functions, added USD 50 million/year

  3. ATC 2019 Beijing KLM focus and developments Net Promoter Score from 42% to 46% * Customer Centric, Product Investments Load Factor 89 % * Profit/employee 16K ** *) Annual report 2018 **) Derived from Annual report 2018

  4. ATC 2019 Beijing Revenue supported by system investments • 2000: implemented O&D system developed by KLM • added class closure controls per O&D/POS • added exchange bidprice to support JV O&D control • 2014: implemented O&D system by Air France/KLM O&D system improvesload factor by balancing access via bidprice controls O&D class closure controls support higher yields *) Annual report 2018 **) Derived from Annual report 2018

  5. ATC 2019 Beijing Revenue supported by system ownership OK Class closure controlsimplementedin less than 4 months Too little closure sell-up potential Too much closure, reject too much • Using only bidprice, low load flights sell at lowest fare • Potential exists for sell-up which requires controls on O&D detail level & matching CRS functionality • Ownership of system enables customization

  6. ATC 2019 Beijing System can not be a black box on autopilot • Requirements for system supporting improved revenues • Full understanding of design, data and functioning • Dedicated team monitoring and developing to improve • Tools providing full visibility of inputs/outputs • Certified analysts managing with clear strategies (& pricing) *) Annual report 2018 **) Derived from Annual report 2018

  7. ATC 2019 Beijing System can not be a black box on autopilot Example: Autopilot issue from other industry

  8. ATC 2019 Beijing System issues • Will share some examples of system issues to avoid

  9. ATC 2019 Beijing O&D Forecast: Data volumes & testing • Testing new O&D forecast during development, it kept rising • As new O&Ds not previously booked were added in full • Solved by dividing by days possible to book • Extensive testing required for development and implementation

  10. ATC 2019 Beijing O&D Forecast: Seasonality • When airline management pushes new system while analysts rejected it as: ‘the forecast is completely flat’ • Seasonality is key to revenue management • Clustering provides aggregation for improved forecast Example real seasonality

  11. ATC 2019 Beijing O&D Forecast: Schedule changes Schedule changes in O&D affect network demand • Schedules will change, and change again • Leaving it to analysts to solve is not an option • Correct processing schedule changes is critical

  12. ATC 2019 Beijing O&D Forecast: Correcting based on actuals Common solution to forecast error; correct future forecast based on difference with recent actuals • Leads to loss of seasonality, and/or propagating past errors, loss of un-constraining • Forecast should not be a black-box, but results traceable to inputs with tools to visualize

  13. ATC 2019 Beijing Sell-up/Overbooking: Results in lower RASK $ Case of analysts aiming to correct the system • Increasing demand in high yield classes with high cancellation rates, leads to adding seats for overbooking, ... demand books lower classes only • System needs head-up display & certified staff Bidprice vector Seats Overbooking

  14. ATC 2019 Beijing O&D Optimization: Incorrect Inputs Case system design hidden error in optimization inputs • Design used network value corrected with factor as input for bidprice • Factor was based on sum of leg network values leading to both legs have same value • Long haul value too low, short haul value to high • Corrected by prorating led to RASK improvement +6%

  15. ATC 2019 Beijing Revenue supported by system investments • A lot can go wrong assuming RMS autopilot • But to achieve possible benefits need: • Correct O&D RMS supports evaluating Network value • Class closure controls on O&D support sell-up • Keep the hands on the wheel and knowledge of processes

  16. ATC 2019 Beijing Importance people • Developing staff with knowledge of • Revenue management and • System development and • Forecasting and • Optimization takes time, so need to keep them A dedicated team is required and needs to be closely aligned with RM business and IT

  17. ATC 2019 Beijing 7 October 2019 KLM 100 Years gert.hartmans@klm.com

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