Ready for Recovery: Key Strategies for Airline Revenue Managers
By Justin Jander
At the end of March, I hosted a webinar called Dealing with Demand Fluctuations. The goal of the session was to discuss how revenue management leaders can address the dramatic impacts of COVID-19 and how to begin planning for a recovery period. There were several questions we addressed including: how to set up the system for masking irregular data and how to create influences and availability adjustments. There were several questions, understandably, around when bookings will be back to normal. I wish I had a crystal ball to predict the answer, but the PROS team is hard at work to help our customers respond to the uncertainty. In the meantime, I’d like to share some of the key revenue management learnings since my webinar and what we are doing at PROS to support our airline customers.
During the webinar, I recommended revenue managers separate the timing of the pandemic into two main sections: during the crisis and after, or the recovery period. Let’s deep dive into the recovery period specifically. For it, I suggest three key areas to understand and plan around:
- First, a review of your pricing strategy
- Second, setting availability according to your corporate strategy
- Third, preserving data quality for forecasting and continue to monitor and adjust the forecast for long-range periods
As the situation for airlines continues to evolve, these three steps remain critical. Your airline likely continues to evaluate strategy for near, medium, and long-term pricing and revenue management. Regardless of what forecasts and optimization results suggest, you must continue to make sure that the availability and pricing approach achieves those strategic goals.
The first two actions are generally the most obvious and easiest to achieve, if anything is really “easy” during these challenging times. However, the third item, preserving data quality for forecasting, is certainly the most discussed and most difficult to execute. PROS has spent the majority of our COVID-19 discussions, both internally and with our customers, in this area. Here are a few things we’ve learned and even changed in the product to address this topic.
Greater Data Censorship Control
The key to preserving data quality centers around identifying the periods where there are bookings that are representative of the new normal or “good” patterns in the data and using those in forecasting while masking the “bad” periods. In the PROS RM Editions, this is done through the process of censoring. In the PROS Bayesian forecasting methodology, the pre-departure booked on hand figures are used in the forecast. Thus, this censoring function can be applied and removed as bookings are coming in. This gives more control to the airline for the censoring period. To further help revenue managers, PROS is releasing a new feature to censor by both departure date and days prior range (DCP). This wasn’t previously needed in the types of scenarios where censoring was required, but with this unprecedented scenario, we quickly identified the need and added it to revenue management solutions. With this feature, you can censor only the early DCPs for a departure date in January, for example, while continuing to use the data for the later DCPs. This is a great addition to the product that airlines finer control over the censoring process.
Handling the Unknowns
The preservation of the input data ties directly into monitoring and adjusting those long-range forecasts. This is where the challenge really comes in because it combines the subjective nature of the unknown and the many different data points that can point to what recovery will look like. Since the webinar, PROS has continued to research options for handling these unknowns and we have spoken to many different airlines to gain as many perspectives on the situation as possible. In general, we’re seeing a few key questions that PROS RM Editions customers are asking:
- What shape will the recovery look like?
- What are the signs that recovery is happening?
- What should I do to my forecast to address the first two questions?
For the first two questions, PROS has formed the COVID-19 Taskforce consisting of Data Science and Business experts to help identify what recovery looks like and what the signs of recovery are. To learn more about what we’re doing in this area, check out PROS Chief Scientist Michael Wu’s recent blog post on this topic.
For the last question surrounding how to treat forecasts, we have heard from airlines with many different perspectives. With the PROS environment, we have worked to showcase the learning capabilities in the algorithm. We have created visualizations (see chart below) on these that can illustrate how fast or slow the system can learn from the new bookings. These charts have been provided to analysts to help them understand what type of changes they can expect to see from the forecasts as bookings come in, based on their specific settings. This can then be used to help the analysts decide on how much to influence the forecast. Further, these charts help the airline decide if they want to be more aggressive with the learning to try to capture new patterns in the data faster. The goal from all of this to allow the airline to have as much information as possible to drive the decision-making process.
During these unprecedented times, a lot is being written around how to address this. We’ve seen articles written on both ends of the spectrum, from throwing away forecasting entirely to needing a forecast that reacts quickly, and everything in between. While forecasting is certainly going to be a challenge during this time, there is still value in preserving your data quality and closely monitoring the data coming in and the forecaster’s projection of what is to come. The tactics mentioned above are just one perspective, but the most important thing is to monitor and adjust as you, and the system, learn more. Taking advantage of the tools in the system is a great way to assist in that monitoring. The Forecast Workflows in the system include charts, alerts, and influences all in a streamlined workflow.
The intricacies of how an airline should handle the recovery period certainly goes beyond what one blog post can address. Because of this, the PROS Professional Services team has put together several services that assist airlines with various stages of this recovery process. Our goal is to roll up our sleeves and work alongside you to solve these problems in real, tangible ways. And should you want to deep dive into any of the topics covered above, you can reach out to me directly.