The Market for Airline Revenue Management Systems 2021 - February 2021
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The Market for Airline
Revenue Management
Systems - 2021
February 20212 EXECUTIVE SUMMARY ..................................................................................................................................................3 INTRODUCTION AND BACKGROUND ....................................................................................................................3 VENDOR UPDATE............................................................................................................................................................7 PROS ....................................................................................................................................................................................7 In House IT Department ...............................................................................................................................................8 Accelya ................................................................................................................................................................................8 Sabre ....................................................................................................................................................................................9 Amadeus.............................................................................................................................................................................9 Amadeus Navitaire ...................................................................................................................................................... 10 None ................................................................................................................................................................................. 10 Maxamation ................................................................................................................................................................... 11 Sirena-Travel .................................................................................................................................................................. 11 Kambr ............................................................................................................................................................................... 12 NEWCOMERS................................................................................................................................................................. 12 Flyr ..................................................................................................................................................................................... 12 GLOBAL AIRLINE REVENUE MANAGEMENT MARKET SHARES .................................................................. 13 Segment (leg-based) Revenue Management Market Share* ...................................................................... 14 O&D Revenue Management Market Share* ..................................................................................................... 14 Group Revenue Management Market Share* ................................................................................................... 15 The Market for Airline Revenue Management Systems: February 2021 © 2021 T2RL | Contains confidential information proprietary to T2RL | www.t2rl.com All rights reserved | Reproduction or redistribution in any form without the prior permission of T2RL is prohibited.
3 EXECUTIVE SUMMARY This is the second edition of T2RL’s report on the market for airline revenue management systems. This edition, published in February 2021, gives an insight into the current challenges and opportunities faced by airlines and vendors within the realm of revenue management. Market share information is based on 2020 projected annual passenger volumes adjusted to include current migrations and implementations as at 19th January 2021. In 2020, due to the global pandemic, the market for airline Revenue Management (RM) shrank by nearly 60%. T2RL estimates that the current number of passengers boarded processed by RM systems is now in the region of 1.7 billion as opposed to over 4 billion in 2019. Such an enormous and sudden change in market size and behaviour presents a unique challenge to revenue management providers and users. Most of the decisions taken by revenue managers about future prices and availability have been based on analysis of historical behaviours. In the world of the pandemic such historical analysis is of little value and revenue managers are actively seeking new data sources on which to build their optimisations. The pandemic has not been uniform in its effects across the globe. Some regions have been hit harder than others and in particular airlines with large domestic markets have had a marginally easier time of it than those dependent entirely on international business. This disparity reads through into the fortunes of companies supplying those airlines as we describe in the vendor update section below. INTRODUCTION AND BACKGROUND Revenue Management systems are used by airlines to maximise the revenue opportunity from their available inventory. The output of RM systems is the setting of prices and/or availability of seats according to forecast demand. Demand forecasting is usually based on a combination of historical sales and current booking levels. T2RL tracks both Leg/Segment and O&D (origin and destination) systems within the market share figures. The majority of airlines use a segment/leg-based system in which optimisation is done at the level of individual flights while just over 20% of carriers have some form of O&D system in place. O&D systems optimise at the level of the whole network. With complex set up and operational requirements and long migration periods, adoption of O&D RM is a costly exercise. Airlines need to make a critical assessment of cost versus value before committing to it. The Market for Airline Revenue Management Systems: February 2021 © 2021 T2RL | Contains confidential information proprietary to T2RL | www.t2rl.com All rights reserved | Reproduction or redistribution in any form without the prior permission of T2RL is prohibited.
4 Most airlines are currently under extreme financial pressure and need to review their operations. T2RL expects many to scale back large connecting networks as customer demand sways toward shorter, direct flights and the costs of supporting a large network outweigh the gain. It will therefore be interesting to see whether the demand for O&D systems continues at the same rate as we have seen over the last few years. The industry has also seen a shift in the regional strength of markets with carriers operating in large domestic markets such as China and Russia recovering better than their European counterparts. This is also reflected in the vendors which serve airlines based in these markets. PROS has seen almost a 5% jump in market share since our last report, mainly due to its strong presence with Chinese carriers such as Air China, China Eastern and China Southern, whereas other vendors with a stronger European foothold have been negatively impacted. The COVID-19 pandemic has brought many changes for the airline industry and these are far from done. Suppliers have been scrambling to adapt and remain relevant. Some of the key areas of interest in revenue management are: • Forecasting The fallout from the pandemic has meant that the majority of airline forecasting, which generally uses historical data to calculate future demand and prices, is no longer reliable. Most RM systems need to provide the means for airlines to forecast or predict future demand to enable the correct price for purchase and stimulate customer propensity to purchase. However, given current unpredictable travel bans, quarantine and testing restrictions, demand for travel is notably challenging to predict even from week to week. Although no vendor has a crystal ball to foresee how demand will look in the near future, some have put in place task forces within their research departments to integrate additional data sources into their forecasting algorithms. These include tracking of border closures, quarantine regulations, and epidemic data to act as extra inputs to modify demand forecasts. • Intent Data The most concrete demand data are bookings actually made. However earlier indications may come from tracking shopping behaviour on airline web sites, online travel agents and metasearchers. Where available this has already been explored by many vendors as a data source to support forecasting. Shopping data is less precise than booking data but is available in far greater quantities. The next step in this progression would be the use of intent data which is yet more diffuse but available in yet higher quantity. Huge volumes of data indicating search terms that The Market for Airline Revenue Management Systems: February 2021 © 2021 T2RL | Contains confidential information proprietary to T2RL | www.t2rl.com All rights reserved | Reproduction or redistribution in any form without the prior permission of T2RL is prohibited.
5
have been used or page views of destination and event information may be sifted to
extract information on the propensity to travel even before a conscious decision to do so
has been made. Early pilot studies indicate that there is some correlation between intent
data and eventual bookings but many questions remain about how to obtain and manage
the huge volumes of data and how to incorporate that correlation into real world RM
processes. This is certainly an area for further investigation.
• Further alignment of network and scheduling with RM
Many RM specialists have stated in the past that more needs to be done in the area of
merging network and scheduling with revenue management practices. The benefits are
clear as both departments need to be able to use the same demand curves, albeit usually
at different points in the timeline.
Easyjet is one airline that has stated that it will be working on such developments, “With
the arrival of Covid we rebuilt our schedules from scratch... networking and RM are
working to forecast demand." Robert Carey CCO, Easyjet.
Amadeus is one vendor that as a result of COVID is now integrating its research processes
for network, scheduling and RM.
• Dynamic Pricing
Dynamic Pricing has become one of the key ideas in the airline industry of late and
generally means moving from more traditional ‘batch’ inventory processing to more
dynamic changes to inventory and pricing. There are noticeably different ‘levels’ of
dynamic pricing and definitions differ depending on the vendor or airline. One airline
which has recently rolled out a step in its dynamic pricing strategy is The Lufthansa Group
which has created a ‘Continuous Price Curve’ for its European flights. This gives it the
possibility of offering tariffs between the limited 26 price points which are usually offered
through indirect channels.
It will be interesting to see if the interest in dynamic pricing remains as high in the near
future. There are three key reasons why it may not;
- As we foresee more direct bookings than indirect in the near future there is less immediate
need to invest in indirect distribution channel developments.
- We expect low-cost strategies to become more prevalent and will ultimately lead to airlines
demanding more pricing flexibility built directly in the PSS. Most LCCs are already using
more flexible pricing practices with a lot more elasticity than the usual 26 price brackets
traditional carriers are tied into.
The Market for Airline Revenue Management Systems: February 2021
© 2021 T2RL | Contains confidential information proprietary to T2RL | www.t2rl.com
All rights reserved | Reproduction or redistribution in any form without the prior permission of T2RL is prohibited.6
- It will be inevitably costly to develop and implement, at least initially. Airlines certainly do not
have any extra cash to invest in technology that does not give immediate or near to
immediate return on investment.
Being able to integrate ancillary sales and revenue into an airline’s revenue management
strategy may be more of a priority in the short-term. For more information on Dynamic
Pricing please see our white paper published in October 2019.
For further information and to purchase the full report, visit our website.
Travel Technology Research Ltd, trading as T2RL is an independent research and consulting
company that specialises in the market place for airline IT systems. Based on data gathered
and analysed since the year 2000 it has defined and tracked classifications of airlines and
their IT providers. Its research is used by airlines to enable them to make informed choices of
systems and vendors and by the vendors to help them develop products that best meet the
current and future needs of the airline industry. For further information, visit our website at
www.t2rl.com.
The Market for Airline Revenue Management Systems: February 2021
© 2021 T2RL | Contains confidential information proprietary to T2RL | www.t2rl.com
All rights reserved | Reproduction or redistribution in any form without the prior permission of T2RL is prohibited.You can also read
