What does a new airline customer-centric revenue accounting system look like? IATA’s New Distribution Capability (NDC) offers an industry protocol for ancillary fees. IATA also has proposed replacing airlines’ current parallel, but separate, airline booking/payment systems with an integrated one built around the customer; this is their new proposed “One Order” initiative. Combining these two initiatives can offercustomer-centric revenue accounting that facilitates personalized offer management and customer profitability tracking. What would such a new system entail?
Firstly, every transaction would be tracked by the customer. Just as Amazon monitors every item each customer purchases, the new system would be organized around all transactions by customer. Airlines have extensive records for their frequent flyers but often have little information about other customers. Whereas now, the system would be customer-focused, for all flyers.
Second, the system would be transaction oriented. When it comes to flights, a transaction could be a multi-flight itinerary or a single one-way flight segment. Non-flight transactions include everything on IATA’s NDC menu, including the checked bag and the on-board video. Such ancillary tracking will become more and more granular as airlines strive to better understand individual product demand; not just reserved seats, for example, but “big seats”, “aisle seats,” “exit row seats,” and “adjacent seats.” Items may also be packaged or bundled; a vacation package or a new branded fare. They will include third-party offerings such as hotels and car rentals. Finally, products can be modifications to an original flight - changes, cancellations, and refunds are all potential revenue-producing transactions now. Products that relate directly to a flight - the bag or the video, for example - would include a cross-reference that would allow both the customer and the airline to call up the entire collection of linked products, when appropriate.
Airline flight pricing is already quite complicated. Pricing may become more complex as airlines adopt more personalized offers or apply dynamic pricing to various ancillary services. Thus, the pricing for each transaction needs to be recorded, and potentially, pricing will require a code to identify the promotion or the customer status that drove the specific price for that customer.
Order dates would be compiled by product transaction. The flight could be ordered a month before the departure while other related products are ordered at various times up through flight time. It is important from a finance standpoint (cash flow) and from a marketing/merchandising standpoint (offer management) to understand when individual customers are most prone to order different ancillary products. Order profiles can be compiled on an individual basis, or on the basis of specified market segments.
Likewise, the channel needs to be compiled by product transaction. With different channel costs, airlines need to know which customers order which products across which channels and their associated variable cost. Again, airline marketing can use customer/product/channel information to design personalized offers or to develop targeted tools for moving individual passengers to lower cost channels.
One Order proposes integrating the order system (bookings) and payments, so that every billable transaction/order will involve a payment type. Credit card fees vary by bank and co-branded cards involve frequent flyer points so it is important to track payments by type. Each transaction should include the payment type or types (multiple payment methods should be permitted - a new flight could be paid with the balance from a changed flight plus a credit card, for example).
|CUSTOMER: JONATHAN Q. SMITH, firstname.lastname@example.org, 100 Ivy Lane, New Rochelle, New York, USA|
|Flight #100, June 12, 2016||YMAOQ $536||1-Jan-16||expedia.com; $15 fee||AMEX; 2%|
|Checked Bag for Flt #100||CHKBAG $25||1-Jun-16||airline.com||AMEX; 2%|
|Hotel Stay June 12 - 15, 2016||HOTEL $720; 10% commission||1-Jun-16||airline.com||AMEX, 2%|
|Flight Change to June 15, 2016||FLTCHGE $200 fee
$54 additional fare
|Hotel Change to June 15-18||No Charge||8-Jun-16||airline.com||N/A|
|Upgrade for June 15 Flight||15,000 miles||10-Jun-16||airline.com||FreqFlyer|
Marketing’s goal is to design, by customer, the right product at the right time in the right place (channel). Airline revenue accounting must facilitate this with an integrated system that tracks these fields - customer, product, price, order date, channel, and payment. Marketing, of course, will want to supplement this with other customer-specific marketing information, for example: What offers have been made to a customer? What searches has a customer performed? Although such customer-specific merchandising data needs to be maintained by an airline's marketing department, having corresponding revenue accounting designed around the customer will enable marketing to better match up offers with orders.
These can form the basis for a new airline customer-centric revenue accounting system that improves both the financial and marketing functions for the industry.