Yield Management: What we can learn from Airlines

Blog | April 11, 2018

Author: Scot Eisenfelder

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If you have flown recently there are two unescapable and related facts: (1) nearly every seat is full and (2) nearly every seat is priced differently. This is because airlines realize that planes taking off with empty seats represents lost revenue that will never come back. Our service bays and technician time are pretty much the same – idle time is revenue lost forever.

So, what can we learn from the airlines?

First, airlines focus on revenue yield, not average price (aka “effective labor rate” in our lingo). Airlines are keenly aware of how many seats are unfilled at any time and understand the general relationship between unfilled seats, time until departure and price.

Similarly, service departments need to predict excess capacity far enough in advance to take action. To accomplish this, an appointment culture is needed with consistent reminders to reduce unscheduled downtime. For each appointment, be sure to load advisor and technician capacity, so you can understand potential leakage. This allows you to analyze the relationship between scheduled visits and actual work performed a week or more in advance.  Over time you will learn which leakage points are chronic, happen nearly every week, or episodic, unique to a particular week.

When airlines forecast unsold seats their first effort is to expand reach by advertising in more channels bringing on distributors with lower net revenue yield or higher cost per impression. Dealers should do the same.

You can redouble efforts to reach inactive customers or missed appointments or use more expensive, higher response rate channels such as phone calls to chase non-respondents to fill specific open slots. Be willing to spend a little more to fill forecasted unused capacity because the cost is small compared to an unutilized technician hour.  Expanding reach should be used for chronic and episodic unused capacity.

As the departure times approach, airlines start discounting more aggressively and very selectively.  In general, I am not a proponent of heavily discounting service, because for most new vehicle owners, convenience trumps price. Therefore, I would recommend offering loaners, Uber vouchers or concierge service to entice consumers to service at less convenient times.

Discounting may be more effective to fill chronic unused capacity, for example late midweek afternoons; thereby creating a “blue plate special” for consumers with more flexible hours. Discounting can also be effective to drive new behaviors, such as supporting expanded weekend or evening service, until new habits are formed.

Maximizing revenue from your UIO, also means maximizing revenue from your available capacity.  With regard to yield management we all have some opportunities to learn from airlines.

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