AIR CARGO QUARTERLY - Revenue management system helps Continental manage revenues, bookings

By: | at 08:00 PM | Channel(s): Air Cargo News  

By Karen E. ThuermerCarriers are focusing on how to generate more revenue from existing assets and cargo is emerging as a star of the show. Continental Airlines Cargo, a division of Continental Airlines, recently raised its annual revenue 2.5% by applying revenue management technology that has proven its value in the hotel, retail and passenger industries. But this is just the beginning. By using advanced demand forecast modeling from JDA Software Group, Continental Cargo now expects to generate more than a million dollars in additional revenue annually.
The company began using an earlier version of JDA Software Group’s Cargo Revenue Optimizer (CRO) system in 1999 to maximize revenue from its airline cargo shipping business in 1999.
“JDA did not offer Continental a standard off-the-shelf revenue management (RM) system. The JDA team studied our operation closely and adapted its CRO upgrade to deliver optimum performance for Continental Cargo’s unique business strategy – and the results speak for themselves,” says Ed O’Meara, director—cargo revenue management for Continental Airlines Cargo.
JDA’s aviation team, lead by Dr. Jamison Graff, worked closely with Ed O’Meara and his staff to adapt proven dynamic forecasting methods learned from JDA clients – including UPS, Wal-Mart and DHL – to Continental’s cargo operation.
Unlike passenger airline ticketing, cargo booking systems typically have a short booking window between two to four weeks out. Air cargo shippers may not know the exact particulars of non-recurring shipments until relatively close to departure date. Within the narrow cargo booking windows, carriers have the need to calculate each shipment’s volume, weight and destination demand to set expected shipment contribution. If cargo demand is under-forecasted, air carriers will accept bookings of lower contribution value. Over-forecasting causes carriers to turn away business on flights that do not fill up. Both of those scenarios mean lower revenue.
Before deploying their 1999 system, Continental Cargo sold ad hoc capacity as ‘first-come-first-served.’
“At first we were concerned with the original system implementation because for the first time we might be telling a freight forwarder, no we cannot take that freight booking,” O’Meara recalls. “But what we gained was an ability to tell customers right away whether or not we could handle their entire itinerary. This made shipments more predictable for shippers.”
“We thought we were doing extremely well with the initial system,” O’Meara says. “Then JDA came in and said let’s do some back casting and show you what the new demand forecasting can do to get you better results.”
In 2006, JDA offered to conduct a pilot study of their newest CRO upgrade, Version 7.2, at Continental to evaluate its impact on revenue. During the pilot, Version 7.2 delivered an impressive improvement in demand forecasting results.
“Although we evaluated other systems, our decision to upgrade with JDA was a slam dunk because of the pilot’s success, and we began installing the new version six months ago,” comments O’Meara.
Better Revenue Forecasts Continental Airlines uses the software to forecast its capacity every night so that the carrier knows how to adjust the amount of weight and volume it is selling on every flight in its network.
“The RM system supports all of our network flights in terms of capacity forecasting and shipment profitability checks,” states O’Meara. “We use it to measure bookings we are going to take to make certain they are net positive in terms of revenue.”
Only Continental’s wide-body flights are strictly “revenue managed” by the system.
“Our wide-body aircraft, which encompasses approximately 80 departures per day, realize 85% of our freight revenues,” he explains. “We use the system to better set the marginal conditions on which we base our bookings. We then decide whether we want to take certain bookings or not or if we expect something better to come along later in the booking

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American Journal of Transportation