Airline Staff Travel is no Longer Non-Rev !

Staﬀ travel is no longer non-rev! White Paper by: Dileep Choyappally, Senior Consultant, iFly Sta Travel Services, IBS Software Services

It’s no longer non-rev! In airline parlance, the term ‘non-rev’ refers to the non-revenue passengers who come on board an aircraft. These are typically airline sta , who serve the airline and make use of their bene t/courtesy/discount/rebate passes to travel on airlines. The essence of the terminology comes from the fact that these travelers don't bring in any money to the airline. This paper attempts to view this scenario from a di erent perspective. Why is sta travel still classi ed as ‘non-rev’? Why have airlines not really taken a leap to analyze the revenue angle in it? IBS Software Services Pvt Ltd Sta travel is no longer non-rev! 02

The revenue management concerns! The airline industry is known for its unique characteristics. The inventory is of a xed capacity and is highly perishable and a precise forecasting of demand is extremely di cult. The industry is also known for the high costs involved in changing the capacity. What leaves the revenue management to play with is a relatively low marginal sales cost. In other words, airlines don’t spend much for adding/carrying an additional passenger on an airplane. This is where the discussion about load factor assumes relevance. The airline’s revenue management team always comes across the paradox that the combination of seats and fares that makes them the most money is not necessarily the one that gives them the highest average yield or the highest load factor. It is a known fact that from an operational and sustenance perspective, yield and load factor gains more traction as compared to revenues. The IATA fact sheet shows that the passenger load factor is only 72.3% for YTD 2009[1]. This gure is much lower as compared to year 2008 and predictions are that it is expected to come down further. Typically, an airline uses all techniques including overbooking, mix of fares, origin-destination control and more attempting to improve its load factor and revenues. However, at the end of the day, each empty seat on a plane raises a question and the quest to ll the seats in the aircraft, never ends! Making use of non-rev tra c Have you airlines ever thought of utilizing your ‘non-revs’ to contribute to your load factor? There are examples in the industry where leading airlines have moved the sta travel (pass bureau) from HR or customer relations to revenue management. Those carriers improved their load factors and made additional revenues, by promoting sta travel on their otherwise empty seats. This may be hard to believe, but statistics show that through promotion of sta travel, there are airlines who improved their sta travel own revenues upto 30% over a year and the total revenues by 0.1%. This gure might look insigni cant until you know that the airline’s revenue had been $ 15,000 Million in the previous year! Under the circumstances, the 0.1%in revenue is not a gure to be sco ed at [2]. The key factor that led to this change was that, the airline promoted sta travel and added convenience to the use of sta travel privileges. There is a school of thought that such revenue opportunities holds only for certain geographies or regions, where all sta travel is just discounted and not free. In other regions, 90% of the sta travel runs absolutely free and hence the potential for additional revenues is minimal. The reasoning against this argument is that – in such regions, the percentage of sta travel is very high, even the balance 10% of paid sta travel by itself could contribute to signi cant numbers in terms of revenue. Turning around non-rev travel to generate revenues is not a simple task. The situation at many traditional carriers that their employees are not even aware of the sta travel privileges on o er. This would mean that an airline that is planning to bring in additional revenue from ‘non-rev’ travel would have to run it as a change management process, with the rst step being to improve the awareness of the sta travel program among their employees. 03 Sta travel is no longer non-rev! IBS Software Services Pvt Ltd

The convenience element In almost all carriers, non-rev travel is seen as a cost center. Airlines nd it di cult to justify the costs incurred by them to run the sta travel function. Converting the sta travel function to a revenue center will be a lucrative proposal for the executive management to attend to. The best thing an airline can do is to provide its employees with an element of convenience. Automate the sta travel process and add the costs as a convenience fee charged to the employee. When a traveler purchases travel insurance online, or books a rail ticket to extend the travel, the entire travel becomes more convenient at the cost of a small fee charged to the traveler. In other words, a convenience fee is not new to the industry. So long as the airlines provide the level of convenience, there is no reason for people not to pay a fee for it. A complete automation of the process will guarantee a number of bene ts to employees in terms of greatly reduced cycle time in arranging travel, improved predictability and 24 X 7 access to sta travel facilities in a self-serviced environment. The improved service levels that result would justify the convenience fee that the airline charges its employees. There are hosted solutions for airline sta travel provided by di erent IT vendors, which you can adopt at very low initial investment. In fact, the convenience fee that you charge to the employee, can bring in additional revenues even after it pays back for the IT investment involved. Other non-rev travel The foregoing is just one part of the airline sta travel story. We have so far talked about adding convenience to an airline’s employees only. How about employees from other carriers who may like to y in the subject airline for want of a better connection or to a speci c destination? The airline travelers right now don’t have a portal where they can log in and search for their preferred itinerary. Why not make the holiday planning convenient for them? Let them log on to a sta travel portal and arrange their travel on their own. This can improve the load factor of the transporting carrier and at the same time, add more revenues to them. This will reduce the number of empty seats and at the same time, get more traction from employees of the partner carriers. Inbound interline travel works best if an airline has a location advantage. The locations where the transporting airline operates could be exotic destinations or popular travel hubs. Own airline travel may not be much signi cant here, but there could be employees of other airlines around the world, who would like to use their sta travel privileges to book online on the transporting carrier to make the trip. Why not lessen their problem and in the process, enhance revenues? Yet another category of non-revs include two other sets of travelers - The business travelers and the executive travelers whom each airline would want to treat specially. In their case, the problems don’t surface up too much, because most of them are of a “must- y” category. This category really doesn’t fall into the no-rev bucket, largely because of the fact that at the end of the day, a business travel ends up against a cost center and someone still pays you on that account. Similarly, executive travel builds relationships which are going to add more value to business. IBS Software Services Pvt Ltd Sta travel is no longer non-rev! 04

Conclusion Next time you think about the reduced load factor on your aircraft and possible solutions, focus on those special revenue passengers over who you have absolute control and predictability on. Make use of your own employees to add more value to your ights. The airline world has started seeing sta travelers di erently. Many sta travel teams have already moved under revenue management – Do you think you should wait? Need more help on this topic? Write to iflystaff@ibsplc.com. About the author Dileep Choyappally is a Senior Consultant for the sta travel line of business at IBS Software Services (P) Ltd. The IBS group provides IT solutions to the travel, transportation and logistics industry verticals. The author has worked with di erent airline customers across the world as part of their sta travel automation projects. For more details visit: www.ibsplc.com/iflystaff [1] Reference: IATA - Industry Statistics - Fact Sheet http://iata.org/NR/rdonlyres/8BDAFB17-EED8-45D3-92E2-590CD87A3144/0/industry_stats_june_2009.pdf [2] Statistics based on a study conducted by IBS on one of the carriers where iFlyStaff was implemented. For confidentiality reasons, the name of the carrier cannot be disclosed. 05 Sta travel is no longer non-rev! IBS Software Services Pvt Ltd

Airline Staff Travel is no Longer Non-Rev !

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Airline Staff Travel is no Longer Non-Rev ! Document Transcript