Connect with us google icon FB icon  twittericon
air cargo banner
Exhibitions & Conferences   Trade Associations/Organizations   Contributors   Newsletters Industry Verticals  

Business Intelligence banner
Revenue Management and Air Cargo
-Raja Kasilingam, Senior Vice President, Revenue Technology Services, USA

Air Cargo is the second largest mode of transportation in terms of traffic and value of goods transported. Air Cargo Revenue Management (ACRM) is concerned with the integrated management of cargo rates and available inventory in terms of belly space, payload, and containers. It focuses on two main aspects: determining available capacity for sale and controlling inventory. Determining available capacity for sale is driven by knowing the physical capacity and understanding the show up behavior. Controlling inventory can be accomplished using allocation of space to different products and/or customers and/or hurdle prices or bid prices.

The extent of revenue benefits from using a RM solution depends on a number of key factors such as the level of sophistication of current revenue management method, business process alignment with revenue management, data quality and availability, revenue management solution acceptance at all levels within the cargo organization, and users believing and using the solution. In addition to the financial benefits from using a RM solution, airlines have realized additional benefits such as increase in productivity, up-to-date availability of data, consistency in decision making, and improved response time.

Raja Kasilingam pic

ACRM Solution Overview
An ACRM solution should ideally have the following high level features:

• Automatically process key revenue management modules at night for up-to-date flight capacities, overbooking levels, demand forecasts,   allocations and bid prices.
• Interactively run revenue management modules and options to review and modify model outputs as well as change model inputs.
• Ability to create weekly, monthly and yearly management reports on service failures, load factors, and revenues.
• Pro-actively manage flights by alerting users when certain conditions are met or not met in terms of potential service failures or revenue    opportunities.
• Manage flights in a simple and more efficient way with user-friendly interactive screens.

A revenue management solution for air cargo will have the following major components:

Capacity Management
This includes forecasting physical capacity available for cargo after accounting everything that has a higher boarding priority than cargo, estimating the show up behavior, and combining the two to optimally set overbooking levels. The overbooking levels or percentages when multiplied by the physical capacity provide the capacity available for sale or authorized capacities.

Allotment Management
Allotment management focuses on two main aspects. It optimally determines the split between allotment and free sale space on flights based on allotment requests, free sale demand forecasts, flight capacities, and routing options and costs. It also determines the allotment requests to be accepted and the amount to be granted.

Network Management
This determines the allocations for different categories of free sale demand based on free sale demand forecasts, free capacity forecasts, and routing options and costs. This also optimally determines the weight and volume hurdle prices for the flight departures.

In air cargo revenue management, there are two general planning horizons. The first one is known as ‘flight period’ and this is typically associated with seasonal schedule. Allotment management is performed at the flight period level; however, there may be ad hoc allotment requests during the flight period. The second planning horizon is known as ‘booking period’ and is typically associated with the period when flights are open for booking. Most airlines open the flights for booking about 30 days before departure and some open only 14 days before departure. In general, a significant percentage of cargo bookings occur within two to five days of departure. Capacity and network management are performed during the booking period.

In summary, an ACRM solution addresses the following business functions:

CAPACITY FORECASTING - determine available cargo space by flight for future departures.
SHOW-UP RATE FORECASTING - predict flight leg-level booking behavior in terms of no-shows, cancellations, and over/under tendering.
OVERBOOKING - determine the amount of additional capacity to be made available for booking, to offset the impact of no-shows,    cancellations, and over/under-tendering.
ALLOTMENT MANAGEMENT - determine the mix between permanent bookings and free sale as well as the allocations among various stations    and customers.
DEMAND FORECASTING - project origin/destination demand based on historical data and current bookings.
BID PRICING - determine minimum acceptable price (‘bid price’) for a shipment considering network demand and capacity.
COST MODEL – calculate route costs considering handling, fuel, trucking, interline, etc.
ROUTER - generate operationally feasible routes considering shipment, aircraft, and network characteristics
CUSTOMER VALUE DETERMINATION – ability to assign values to customers based on certain criteria such as volume of business, revenue,    type of cargo, and usage

Data Requirements
There are about five major categories of data required to support a cargo revenue management solution.

Reference data
This includes information on aircraft, ULD, cities served, products, costs, etc. For example, aircraft reference data will include all the aircraft types operated by the airline and basic information on each aircraft type such as default payload, belly volume, and configuration. ULD reference data may contain volume, weight, and dimension for each ULD type.

Passenger flight schedule data includes three basic types. The first one is seasonal schedule which is available at the beginning of each season. This provides information on all flights that operate during the season. Flight information includes flight number, leg origin, leg destination, equipment, days of operations, etc. The second one is changes to seasonal schedule and this may be available on a weekly or monthly basis and it overrides the existing seasonal schedule. The third one is operational schedule changes that usually occur within the last 48 to 24 hours. Schedule and schedule changes are the primary data as all the revenue management controls are calculated or forecasted for the flights that are in the current active schedule. Seasonal schedule and changes to seasonal schedule are generally available from the flight scheduling system. Operational schedule changes are available from flight operations system. In addition to flight schedule, freighter and truck schedule is also needed. Freighter and truck schedule are generally obtained from the cargo reservations system.

Post departure flight data
Post departure flight information is actual data for a flight when it departed and it includes data such as payload, underload, cargo, mail, bag, passenger, etc. This information is required to forecast payload, mail and other components that are required for calculating cargo capacities. Post departure flight data is generally available from departure control system or load planning system.

Passenger forecast
This is required in the case of passenger airlines for determining capacity consumed by passenger related aspects. This includes passenger forecasts by cabin class for future flight departures. Passenger forecasts are used in calculating expected passenger weight and bag weight on board, bag volume occupied in belly, and bag containers at departure. This is then used in cargo capacity calculations. Passenger forecasts are provided by the passenger revenue management system.

Air waybill data
This includes three categories of air waybill data; booked, tendered, and flown. Booked and tender data are used for calculating the show up behavior. Booked information is also used for demand forecasting purposes. Flown air waybill data is used for reporting purposes. Air waybill data includes shipment data such as origin, destination, commodity, weight, volume, and pieces, customer data such as customer ID, flight data such as flight number, departure date, and flight origin and destination, and other information such as product and rate.

Implementation Approach

Implementing air cargo revenue management is quite challenging and it typically takes anywhere from nine months to two years for a full solution. The duration for implementation is primarily driven by four key aspects: integration/interfaces with other air line systems, data collection, business process alignment/changes, and customization requirements. The recommended approach is to implement the solution in three phases: capacity management first, followed by allotment management, and finally bid price management. The reasons for implementing the revenue management solution in this order are as follows:

• This approach ensures that simple and easy to understand modules are implemented first to increase the level of comfort and confidence in    revenue management among the users.
• The effort and duration required for the first phase or capacity management is relatively short and the benefits are typically significant
• The extent of business process changes required is relatively small or almost nothing.
• Data required for the first phase is generally available without much of a challenge and the interfaces to other systems are in a batch mode

The above four aspects become more challenging as implementation proceeds from first to second and third phases.

Air cargo revenue management is a relatively new field and is still evolving in terms of concepts, models, and implementation aspects. Only a handful of airlines have actually implemented air cargo revenue management solutions and one of the main reasons is the lack of awareness of the impact of revenue management to the air cargo business. This is partly due to the fact that air cargo business units in most airlines are still not viewed as separate business units with their own profit and loss structure. However, more and more airlines are now feeling the pressure to get the most out of their cargo operations. This is creating the need and awareness and has been pushing the adoption rate of air cargo revenue management. The solutions available in the market place have also reached a level of maturity to address the unique revenue management business needs of the air cargo industry. Airlines that have implemented air cargo revenue management have actually realized significant revenue benefits. We will certainly see more and more airlines starting to use cargo revenue management solutions over the next decade.

RTS logo
© 2011 American Friendship World Air Cargo Corporation. All Rights Reserved.