Hurrah! Bookings are ‘strong’ but should airlines really be celebrating?

Most executives who hear that bookings are strong will see this as good news but it’s a bit more complex than that, writes Tom Bacon

When bookings are deemed ‘strong’, shouldn’t we celebrate? We all like simple conclusions – bookings are either strong or weak, we made money or we didn’t, the experiment worked or it failed.

Often, revenue management charts are color-coded with, at the most, three colors:  ‘Green’ means good performance; ‘red’ means poor performance; and ‘yellow’ is in-between.

Unfortunately, most results don’t fit so neatly into one of two, or even three, discrete categories. We all appreciate simple, binary decision tools. But ‘strong’ bookings could actually have a multitude of meanings – and we must often dig deeper to truly understand such an apparently positive result.

Simplistic performance charts can help a department focus on the problematic areas – but they can also mislead executives, diverting attention from lessons based on more complex performance issues.

Bookings are ‘strong’ probably means that they are above forecast, that we will beat the forecast for the period, that demand is thus considered relative to this one benchmark - the forecast (other possible benchmarks, of course, include a prior period or a target). Hurrah! Can’t we celebrate this?

On the other hand, alternative framings of above-forecast performance include:

  • The forecast was wrong. Our forecast methodology didn’t work. Without credibility in the forecast, the entire outlook comes into question.  Should we now rely on the forecast going forward?
     
  • We purposefully sandbagged the forecast and actuals came out exactly as expected. In many companies, to miss a forecast on the downside has more severe implications than beating a forecast. Forecast departments, including revenue management, will be biased toward somewhat more conservative outlooks.
  • We have accelerated bookings from future periods. Perhaps the booking curve has changed. In this case, the ‘strong’ bookings may simply be offset by fewer bookings in future periods. Rather than good news, the overall outlook hasn’t changed at all.
  • We improperly opened up our allocations too much, accepting too many low fare bookings. Obviously, this is not at all good news.  This implies that the strong bookings will be accompanied by a low yield and that revenue may in fact suffer.
  • A group or event that was not anticipated booked in a ‘lump’. A group booking can be good news – but is not likely sustainable. The observed strength could be a one-time occurrence. Of course, group bookings too may come with higher cancellation rates, meaning even the one-time good news may be overstated.

Obviously, the more complete explanation has implications for whether ‘strong’ bookings really is good news and how much to celebrate. The higher-than-forecast bookings could actually translate into good news - or bad news - or neutral performance results. The ‘strong’ performance may indicate the excellence of RM, or it could reveal some of its weaknesses.

Executives need to regularly move beyond the simplistic performance charts and insist upon more fulsome explanations for both above and below-forecast performance. This may not make sense in the daily management of a large department but should take place at least monthly.

In general, we shouldn’t settle for binary performance metrics. We should appreciate that there are many dimensions to performance and that causal explanations lead to greater understanding – and consequently improved ability to take appropriate actions in the future.

Guest columnist Tom Bacon is 25-year airline veteran and industry consultant in revenue optimisation. 

Questions? Contact Tom at tom.bacon@yahoo.com or visit his website http://makeairlineprofitssoar.wordpress.com/

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