TARGET IN SIGHT Seabury Group by alicejenny



                                                                        SEPTEMBER 2010

Cargo traffic is returning, but not all airlines will settle for
average growth. Seabury’s Matthew Harris and Niall van
de Wouw explain why a clear view of the target and how
to get there is key for those aiming to beat the market
strategy cargo

matthew harris and
niall van de wouw
seabuRy GRoup

              o far, 2010 has been a relatively    team will not be charmed by head office staff                      characterised by drilling down to the deepest
              good year for air cargo. Airlines    calling them on how they have been progress-                       level of detail available, using all internal and
              have been reporting a surge in       ing on their search for additional revenue                         market data to develop a complete assessment
              volumes and revenues compared        streams.                                                           of opportunities that exist.
              with the same period last year.                                                                            The strength of data in this process is its
Some of them however do not settle for “rid-       micro-manage local markets                                         ability to influence discussions and support
ing the wave”; they have the ambition to beat      Cargo departments can spend significant time                       better informed decisions. A complexity when
the market on revenue and or yield.                looking for silver bullet solutions, but in                        micro-managing an individual market is the
   Common to these airlines is the implemen-       nearly all cases this search is in vain. “Beating                  need to leverage a multitude of data sources to
tation of an improvement programme to boost        the market” requires diligently working on                         create a comprehensive picture of these mar-
their cargo revenues. Recent results show that     numerous smaller initiatives that in aggregate                     kets. The combination of internal financial
improvements of 5-10% are no exception.            result in dramatic improvements. One airline                       and operational data with external market
The question is how did they do it? There are      recently, through a well-executed revenue                          data creates a set of data points that can be
four fundamentals for successfully imple-          improvement plan, identified no less than 183                      unwieldy to manage, even for the most profi-
menting a cargo revenue improvement pro-           of these initiatives with a target improvement                     cient analysts.
gramme: set clear and realistic targets; micro-    potential of more than $35 million (see chart                         There are further challenges associated
manage local markets; track progress               below). For this airline, no single centrally                      with getting information out of databases and
diligently and celebrate success; and support      executed opportunity could approach the                            merging multiple data sets into usable tools to
change by having the right processes.              value created from the collection of these ini-                    support decisions. Endless flows of uncatego-
                                                   tiatives. Before running this exercise it had not                  rised tables and “loose” data can create more
clear and realistic targets                        been possible to estimate under-realised                           confusion than solutions. The required quali-
The first question to address when assessing       potential at the individual stations. The deep                     ties and interests to deal with these matters
improvement potential is to examine how            local knowledge did not exist centrally.                           may not be found among sales staff. A talented
well the cargo unit is performing. Defining           The large number of initiatives requires                        sales force is strong because of its understand-
performance should be done through com-            effort to execute and manage, but in holding                       ing of the market and ability to sell, not
parison with current market developments           local managers accountable for the commit-                         because of its ability to develop Excel models
and competitor performance rather than             ments made by their sales staff, the number of                     that import multiple data sources. These tasks
through a retrospective lens. No one source of     staff being empowered to participate in con-                       should be prepared by central analytical
cargo data will supply a direct answer to this     tributing to revenue enhancement increases                         resources. Combining these strengths with the
question. Only by combining all internal data      dramatically. The local focus spreads risk                         central team’s global market understanding
with external sources on volume, capacity          more diffusely, increasing the likelihood of                       and analytical skills works well. Over and
and yield developments can an accurate pic-        achieving projected benefits.                                      over again it has proved successful to discuss
ture of performance be drawn. This is often a         Identifying such a large number of granular                     new market opportunities.
time-consuming process, but it is essential in     initiatives is contingent upon micro-managing                         This process is time consuming. However,
reaching realistic targets.                        the markets. One proven approach is to                             the success of the sales sessions speaks to the
   A direct result of this relative performance    conduct interactive sessions with sales teams                      value that such an exercise can drive. Only by
is the potential upside on volumes and yields      to find opportunities. These sessions are                          having the trends in hand can solutions be
or both. Once these targets are set, they need                                                                        discussed and developed locally. Although
to become common knowledge throughout              revenue improvement results                                        the development of ad-hoc novel IT tools and
the global organisation. It is not uncommon                                                                           solutions may be inaccessible, careful review
for senior management to conduct a global          Number of initiatives                                              of the data in the cargo operator’s IT systems
road show to insure that everybody is on the       200                                                                can uncover a goldmine of information. For
same page. One managing director poignantly                                                    75   183               example, sales staff at one airline recently
addressed this by communicating to staff that                                                                         gained a clear wake-up call as these analyses
“participation is not an option!”. In preparing    150                                                                highlighted dynamics in their local market
the organisation for the improvement pro-                                                                             that had previously been hidden in the raw
gramme it is strongly recommended to avoid                                                                            data. Simple and intuitive charts shed light on
the P-word (P= project). Staff often associate a   100                                    30                  10%
                                                                                                                      markets where the operator is losing out (see
project with work they have to do on top of                                                                  upside   chart overleaf).
their normal line of duty. The goal of such                                          12                                  While not always providing a direct answer
programmes is the opposite; the change will                                7
                                                                                                                      – local conditions might apply so opportuni-
be the new normal line of duty.                                   23                                                  ties on paper are not there in practice – but
   This means the implementation plan needs                  23
                                                                                                                      they do provide trends that stimulate discus-
to follow and respect as much as possible                                                                             sion. Many graphical trends lead to the devel-
existing hierarchy lines within the organisa-                A    B        C     D    E   F    G    Total             opment of concrete tactical responses from
tion. Station managers and their cargo sales                                                                          the staff to capture market share and lift load

                                                                           AB GRAPH2 Xa
                                                                                                                                     strategy cargo

factors. This approach enables the sales force       potential new revenue streams
to do what it does best: sell. And they can be
fun too, allowing colleagues to discuss in an          Total revenue                                                                                        Share in cargo
                                                       (US$ x 1,000)                                                                                          revenues %
open setting their market tactics and learn
                                                       250                                                                                                            High
from each other (see feedback quote below).

track progress and successes                           200

Identifying new opportunities in the volatile
cargo market is difficult enough, but capturing        150
their potential value can be even harder. Cre-
ating a tracking mechanism and discussion              100
forum to monitor status, and boisterous com-
munication of “wins” across the organisation            50
are key in capturing this value.
   A tiered tracking and reporting system can
                                                         0                                                                                                            Low
be a positive approach to monitoring progress















across regions. When committing to an initia-










tive, sales staffs need to be assigned owner-                    Cargo market size            Airline share in %

ship and made responsible for tracking
                                                                        AB GRAPH1 Xa
progress and reporting weekly to their regional     through a strong communications plan. Suc-                          central organisation is set up with sound fun-
managers. This allows regional management           cess breeds success and quick hits should be                        damentals and accountability.
to track results with forwarders that operate       implemented as early as possible. Effectively                          IT investment in decision support tools is
throughout their area. In turn, regional man-       communicating and celebrating success cre-                          often viewed as a “turnkey” solution to mak-
agement then reports back on a monthly basis        ates momentum. These wins can be cascaded                           ing the right commercial decisions. Too often,
to the managing director.                           through the organisation via email blasts and                       however, it is favoured over investment in
   This style of reporting overcomes two            “toolbox talks” with operational staff. Releas-                     people and processes. The reality of any IT
obstacles faced when implementing such pro-         ing announcements over several weeks creates                        system is that it can be used to enable more
                                                    a continuous message of success. The behav-                         efficient execution of work. But it is not
                                                    ioural change this can have, particularly in a                      uncommon that around 80% of revenue man-
      “everything was eye                           decline when standard market indicators                             agement benefits can be achieved with the
                                                    show continued market erosions, is huge. The                        right processes and low-technology solutions.
    opening. i’ve never seen                        messages breed sentiments that “we’re all in                        Sophisticated IT systems still require users to
     customers this way. it                         this together”. When trying to create momen-                        have a mastery of the underlying fundamen-
    was tough but fun. what                         tum, no success is too small to celebrate.                          tals to be effectively leveraged. And as many
    i have learned from this                                                                                            former passenger revenue staff, now active in
                                                    support with the right processes                                    cargo, have experienced, the dynamics of the
     will aid me to conduct                         Local cargo sales managers require steering                         air cargo industry differ to such an extent from
       business in future”                          from central revenue management. Not to tell                        the passenger domain that copying practises
            sales manager – japan                   them how to do their job, but on which com-                         from one area to the next require careful
      Feedback on improvement programme             mercial opportunities they should focus. Only                       thought. Strong IT platforms are essential tools
                                                    revenue management can have the total over-                         to unlock the full potential, but they do not
grammes. By pushing day-to-day tracking into        view of which opportunities have the highest                        replace having the right processes in place.
the local business, the pitfalls of a centrally     margin for the global network.                                         In periods of market volatility, agility is of
driven project are avoided. Ownership of the           An endemic characteristic legacy of organi-                      utmost importance. Focusing on contestable
process moves out of headquarters, where            sations, however, is the emergence of mixed                         processes, staff training and targeted analysis
management of such a number of initiatives          and unclear roles and responsibilities that                         is generally more effective than a complete
would be cumbersome, and placed at regional         have grown as a heritage from the past. The                         network solution. Rolling processes and pro-
and airport level. Reporting on regional            split of roles and responsibilities between rev-                    cedures out to the rest of the network when
progress in the company of all regional man-        enue management and the sales departments                           time is once again afforded allows for the long-
agers also creates healthy competition and an       is often ambiguous. Although some overlap                           term benefits to be realised without jeopardis-
urgency to deliver. Accountability is driven        exists (such as setting allotment rules), the                       ing the banking of short term gains. ■
downwards, increasing the chance that the           creep of central sales support tasks into reve-
new approach to finding additional cargo rev-       nue management, and vice versa, creates an
                                                                                                                        Matthew Harris is a senior associate in seabury
enues becomes embedded.                             unsustainable division of work catering for                         Group’s London office and Niall van de Wouw is
   Another important driver of success is the       suboptimal results. Decoupling revenue                              vice-president in the amsterdam office
ability to overcome organisational inertia          management and sales functions ensures the                

                                                  Reprinted from | Airline Business | september 2010

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