By
Rebecca Gibson |
Exciting new capabilities such as Price Sensitive Revenue Management and Competitive Insight can significantly improve the bottom line for cruise ferries. Traditional revenue management (RM) principles that came into existence decades ago rely on the premise that fare products are differentiated by restrictions including advance purchase, roundtrip, cancellation penalties, minimum or maximum stay and that demand for each fare product is typically independent of other fare products owing to the price fences.
However a growing number of companies, primarily airlines, but more recently in the cruise ferry industry, have adopted a simplified fare structure – Price Sensitive RM – in which all fare products have either similar or no fare restrictions. Employing traditional revenue management methodologies in a price sensitive environment will lead to significant revenue dilution due to the ‘spiral’ downward effect as passengers naturally gravitate to the lowest available fare, without restriction-based incentives to force upselling. In order to effectively handle this challenge, sophisticated price sensitive models that forecast demand as a function of price have been developed. By using the concept of price elasticity and determining the likelihood of passengers’ willingness to upsell to the next higher fare, these models recommend optimal allocations to eliminate dilution. Even in a predominantly restriction-free environment, it is quite likely that some product types have restrictions and these models are designed to handle the hybrid scenarios that include product and price sensitive products. As simplified fares become more prevalent in the cruise ferry industry, the need for automated RM systems to support these capabilities will also increase. Studies have shown that using Price Sensitive RM can result in revenue improvements of up to two per cent.
Getting visibility into competitor actions on a regular basis is also imperative for cruise ferry operators to improve their bottom line and an increasing number are capitalising on the advantages offered by ‘Competitive Insight.’ Historically, cruise ferries have relied on their own booking data to generate forecasts and subsequent optimisation controls, without taking into account competitor actions. But there is a growing realisation that passenger booking behavior is influenced by competitor actions in markets where there is a choice. Getting visibility into competitor actions on a regular basis and factoring that in setting inventory levels is imperative for a cruise ferry to retain passengers, as well as positively impact the bottom line. Though most cruise ferries employ some form of competitive insight through manual processes, automated options to monitor competitor activity and influence inventory decisions have been the exception rather than the rule. Studies have revealed that using competitor price as the sole criteria in making inventory decisions typically results in revenue reduction in the long run. Therefore, inventory levels need to be adjusted purely on the basis of competitor fares, but also the characteristics associated with the cruise ferry including seasonal loads, customer loyalty and sailing times. Automated revenue management systems that can consume competitor data from third party vendors on a regular basis, identify the optimal competitor based on user and system based matching logic and present the results to analysts so they can make informed decisions can greatly reduce analyst workload while eliminating human error. As awareness increases in the cruise ferry industry about the importance of factoring in real time competitor actions in the decision making process, the need for automated revenue management systems that take into account market conditions and enable analysts make informed decisions is on the rise.