AeroTime columnist Ann Cederhall is an instructor with IATA on Airline Distribution Strategy and with Aeroclass on Airline Retailing, Ann is a frequent speaker and panelist at industry events. She has authored numerous highly regarded articles and white papers in the travel industry press. As one of the owners of the consulting firm LeapShift, Ann brings an extensive track record of delivering business value in project and product management roles worldwide.
The views and opinions expressed in this column are solely those of the author and do not necessarily reflect the official policy or position of AeroTime.
Do you truly have the heartbeat of your distribution contracts at your fingertips? Or are you operating on a “best guess” wrapped in a spreadsheet?
In the aviation world, we live and die by RASK (Revenue per Available Seat Kilometer) and CASK (Cost per Available Seat Kilometer). They are our North Stars. But there is a third, more elusive metric that often carries more weight than both combined: Revenue Effectiveness.
Revenue Effectiveness isn’t just a buzzword; it is the strategic glue that aligns sales, marketing, and customer success. It’s the difference between “generating growth” and “generating high-quality, sustainable profit.”
The questions we’re afraid to ask
Take a hard look at your current portfolio. Are your New Distribution Capability (NDC) contracts profitable, or just a checkbox on a digital transformation roadmap? What about your Special Prorate Agreements (SPA), your codeshare agreements, and those too long to read Global Distribution Systems (GDS) contracts?
The most haunting question in any airline boardroom should be this: “If our forecast predicts $10 billion in revenue, what could that number be if we eliminated the slack?” Is there $2 billion left on the table simply because we can’t see where the leaks are? If you don’t know where the improvement areas are, you aren’t just missing targets; you’re subsidizing inefficiency.
A legacy of silos and secrets
I remember starting at an airline back in 2005. I was floored by the fragmentation. When I’d ask a simple question like, “Is this codeshare profitable?” Revenue management would essentially pat me on the head and say, “It’s profitable—now stop asking questions.” We were trained not to peek behind the curtain. The data wasn’t synchronized, the math required to calculate discounts and credits was a Herculean feat, and we used to joke that you needed a three-week PhD course just to decipher a Passenger Service System (PSS) contract and its accompanying invoices.
Years later, at another airline, I pushed for the truth. I reviewed a list of over 30 codeshare deals. The result? Only three were profitable. The rest were “strategic”, a polite airline term for “losing money quietly.” And you need to start asking the question, what can be done to improve this relationship?
The ‘can of worms’ nobody wants to open
Why are we so reluctant to talk about these gaps? In my experience, the following critical areas are almost never measured with the precision they deserve.
- The forecasting gap: Network planning and RM forecasting live in separate universes. Sales forecasting rarely talks to RM. When point of sale actions don’t align with RM strategies, money evaporates. Point of Sale efforts are often not modelled in demand forecasting. These may be sales contracts, promotions, events, loyalty efforts, etc.
- SPA agreements and codeshares: Do these contracts improve revenue growth, or do they impact yield dilution?
- Airline alliances: Which alliance members contribute to the growth of airline revenue?
- Contractual blindness: GDS performance is rarely managed; it’s merely endured.
- The weight tradeoff: We fail to model the cargo-pax-fuel weight tradeoffs effectively, leaving revenue on the tarmac.
- Incentive waste: The overlap between agency sales and direct corporate sales is a black hole. We waste commissions because we can’t quantify the loss of demand from misplaced incentives.
- The personalization myth: We talk about Customer Lifetime Value (CLV), but few can model exactly how much value to give a specific pax segment to ensure a profitable return.
The holistic revolution
The “Commercial levers” of an airline should work like a symphony, yet most carriers operate like a dozen soloists playing different songs in different rooms. You can’t isolate the impact of a single action, so you can’t optimize the whole.
But here is the good news. The era of AI has blown this can of worms wide open. We finally have the processing power and algorithmic sophistication to achieve a truly holistic view. These topics might not be as “sexy” as a new cabin interior or a viral marketing campaign, but they are the bedrock of the bottom line.
This isn’t just an airline problem. Whether you are a Travel Management Company (TMC), an Online Travel Agent (OTA), or a travel seller, the question remains: Which of your contracts are actually making you money, and which are just taking up space?
It’s time to stop fearing the data and start fixing the slack.
I recently reached out to Gopal Ranganathan, founder at CEO of QuadOptima, knowing the company has been exploring many of the same ideas, to hear how far its thinking has progressed. QuadOptima even landed on the same name I use and developed, a metric it refers to as ‘revenue effectiveness’. This is the ratio of revenue forecast to optimal revenue, and shows an airline where incremental revenue is hiding and how to unlock it. With microsegments, QuadOptima can predict Revenue Effectiveness at the tiniest granularity of the revenue footprint, giving visibility and actionable insight down to the last booking on every departure, and the company argues this can translate into billions in additional revenue for medium and large airlines.
Which leads me to an open question: where is this going? Are you taking a genuinely holistic view across RM, sales, network planning, marketing and the rest of the commercial organization, or are you still constrained by functional silos?
My sense is that the era of working in isolation really should be behind us. There is huge potential in using revenue effectiveness to gain clearer visibility, run experiments and A/B tests, and make the impact of any change transparent. Many of you know I have a soft spot for the “unsexy” topics, but I’m increasingly convinced this is actually one of the most exciting conversations on the table.