Facing a persistent, long-term excess of capacity, airlines are always under pressure to fill their planes with any freight that will fly. But is this the best strategy for a sector where margins are thin even during the best of times? Many industries rely on revenue management to limit cannibalization and help them avoid a race to the bottom. Leading carriers have shown that these techniques work in air cargo as well — yet the adoption rate for this technology remains surprisingly low. In this presentation by Anand Medepalli, Vice President of Industry Strategy for Freight Transportation at JDA Software, you will learn about the latest innovations in revenue management and how air carriers can overcome technical as well as organizational obstacles to successfully deploy automated decision support for their cargo business.

1. Entering the Next Dimension:
Cargo Revenue Management
Anand Medepalli
VP, Freight Transportation

2. The Market is Poised for Growth
“The air cargo freighter fleet alone will
double in the next 20 years. Meanwhile shippers moving
freight on passenger aircraft will drive even more growth. Our global market
forecast foresees investment
in freight-bearing aircraft exceeding $3.5 trillion in that
time frame.”
John Leahy, COO for Airbus
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

3. But IATA Says 2012 Looks Tough…
Capacity Growth + Yield Pressures =
Perfect Case for Revenue Management!
Source: http://www.iata.org/pressroom/pr/pages/2011-09-20-01.aspx
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

4. Yet Cargo RMS Adoption is Low...
Only 21 out of 70 carriers listed in Air Cargo World’s “Top
50 Carriers in 2010” list* have invested in RMS
2
3 7 Capacity Management Only
Using Short-term RMS
Using Allotment Planning
Using Both
2
Abandoned RMS
Unhappy with RMS
4 3
Only 16 of them use their RMS in some form!
* http://www.aircargoworld.com/Air-Cargo-News/wp-content/uploads/2011/09/Top-50.jpg
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

5. Origins of Cargo RM
Passenger RM provided a guideline…
A sophisticated shiny solution
was the answer…
Errr... what was the question again?
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

6. Question: “Can the RMS Cope with
These Issues?”
 Cargo businesses: B2B is
relationship-driven and
decentralised
 Multi-dimensional capacity &
Multiple timeframes
 Few customers have
negotiated rates & allocations
 Multiple decision making
points
 Decision making times are
really short
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

7. Cargo RM Set About Answering that
Question by Enabling These Processes...
Capacity Forecasting
Overbooking
Demand Forecasting
Customer “Tendering” Behaviour
Allotment Planning
Routing & Costs
Hurdle Rates
Booking Control
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

8. It Made Sense...
DEMAND SUPPLY
Target Network &
Markets Equipment
Product &
STRATEGIC Strategic Targeting Network
Marketing Relationships Development
Products Value of
Network
Changes
Contracts & Supply
Sales Targets Calendar
Customer
TACTICAL Relationship Allotment Capacity
Management Planning Planning
Contract Value of
Performance Capacity
Changes
Bookings & Available
Forecasts Capacity
Routing &
OPERATIONAL Sales & Booking Capacity
Promotions Acceptance Forecasting
Contribution Value of
Guidelines Ad Hoc
Capacity
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

9. What has Worked Thus Far?
Capacity Forecasting & Allotment Planning =
Have Worked Reliably and There Has Been
Acceptance!
Demand Forecasting & Optimal Hurdle Rates =
Proved Hard to Get it Right. But Math was
Great!
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

10. Let us Break this Down...
 As long as RM supported natural business processes,
there were no arguments
 But when RM forced some business processes, the
fighting started
 And not enough attention was paid to demand
forecasting – it was seen more as a means to an end; not
as a fundamental business process
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

11. The Next Dimension of Cargo
Revenue Management
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL 11

12. Natural Business Processes
The attitude that “Forecasting is a Means to an End” must change
Collaboration within stakeholders
and customers is key
Forecasts are what they are; Adopt forecasting as a core
as long as Hurdle Rates are good competency
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

13. Natural Business Processes
Rate Optimisation
The natural thing to do is to set prices
rather than control availability
Advent of 3rd party data sources &
recent advances in price optimisation
technology will allow you to:
• relate changes in price position to
changes in demand
• increase awareness of how pricing
affects forwarder behaviour
• recover some of the advantage that
a well informed forwarder has over
you!
“lift the profits, or someone else will”
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

14. Natural Business Processes
Allotment Planning
Use demand forecasts! If your
optimisation solution doesn’t know all
the alternatives, it cannot optimise
future allotments
• Just re-evaluating your old
allotments is not enough
No cherry picking! Customer
allotments can be all-or-nothing, no
partial acceptance. Model linked
traffic flows.
Remember risk! We offer allotments
to make our revenues more
predictable – unreliable traffic flows
belong in the spot market.
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

15. Natural Business Processes
Overbooking
Move away from the traditional
capacity-orientated focus on
overbooking to what it really is: a
function of customer tendering
behaviour
Unlike passenger RM, there is no
reliable metrics associated with
“denied boarding”
Use acceptable offload risk
models to estimate service level
failure “costs”
Explicitly model under-booking as
well
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

16. And, Trust the System
Automated Booking Control
Ensure the routes you sell are
reflected accurately in the optimisation
engine
Capture costs accurately
Ensure unbiased forecasts and
incorporate all available information
• If demand forecasts are “accurate” or
acceptable, hurdle rates will be
“correct” and “acceptable”
While setting the right rates is the
natural thing to do, controlling
availability on a given day is a
significant lever to improve profitability
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

17. Don’t let Perfect be the Enemy
of Good
Focus on natural business processes
“Race” through the implementation of
basic end-to-end solution: Use the
80/20 rule; Stop spending “years”
perfecting one module
Focus on low hanging fruit; avoid the
complicated bits (as a first step)
Measure benefits, spot opportunities,
and improve the most promising areas
Automate prioritisation of the request
queue; Get to automated booking
control “fast”
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

18. For the Benefits are Tremendous
“Companies using revenue and profit optimization modules for revenue management reported
net revenue increases of 2.5 to 7.5 percent”
- Nucleus Research; http://www.nucleusresearch.com
“The Capacity Forecasting module has improved our accuracy by over 15% resulting in Millions
of dollars in benefits – and this is just Phase 1 of the project!.”
- Vice President, Revenue Management
“Our demand forecasting accuracy improved by over 10% with a longer horizon that allows us
to plan budgets, forecast revenue and optimize prices with better information.”
- Managing Director, Revenue Management
“Our revenue management solution has delivered 2.5% revenue improvements year on year.”
- Managing Director, Revenue Management
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL

19. Finally, Shift to a RM Principles-
Centric Organisation
 Carriers have a done a good job of focusing on business processes;
change management and training
– But focus was primarily around RMS
– There is a need to move to being RM principles-centric
 This means:
– The organisation is “militant” about “one number truth”
– CEO demands a budget that is based on consensus-based demand and sales
forecasting
– Sales forecasts are based on rigorous and collaborative demand planning
– Rates are set based on system profit and are not seen as one-offs
– When sales demand an allocation or a rate for a transaction, they mean to say
“profitable” allocation or “profitable” rate
– Sales incentives are aligned with RM principles
– Operations are working with RM to understand preliminary loading plans
– RM-based metrics and reports drive decision making
– Etc. etc.
Copyright 2012 JDA Software Group, Inc. - CONFIDENTIAL 19

20. Entering the Next Dimension:
Cargo Revenue Management
Anand Medepalli
VP, Freight Transportation