The speed at which revenue is processed and understood together with the level of accuracy that results from certain accounting methods has been a growing concern in the airline industry for some time now. Greater processing complexity tends to drive cost up, and these days cost is a factor that most airlines can't afford to be complacent about.

Processes and activities such as ticketless travel, pricing and proration, revenue recovery and protection, interline billing and refund management call for technology that can track and balance data reliably and with real-time intelligence. The in-house back office operations that traditionally have supported revenue accounting have been challenged over the years to reconcile performance expectations with outmoded management and IT infrastructure. That's why many airlines have decided to outsource their revenue accounting operations.

About 10 years ago, Transavia (an Air France KLM subsidiary) sought to solve a number of inefficiencies related to its revenue accounting activities. The low-cost carrier had to input data manually from numerous systems and map the information to its general ledger accounts. This labor-intensive process made it difficult to expedite month-end closings and generate timely snapshots of company performance. Transavia wanted a consolidated reporting tool that would make it easy to analyze trends, research activities and effectively bolster the integrity of its financial reporting.

A few years later the airline outsourced its revenue accounting operations to Navitaire, a subsidiary of Accenture that offers information technology and business process solutions to various carriers worldwide. "We have improved their capabilities significantly," says Navitaire Sales and Marketing Senior Director Susan Adelman. Since Transavia now spends less time entering data, it can focus on analyzing information for its month-end close more quickly than before. Adelman points out that the LCC "has more confidence in the underlying data since it is tied directly to the reservations activity, not simply a ticketing record which may be out-of-sync with the associated reservation in other nonticketless systems."

E-TICKETING VERSUS TICKETLESS TRAVEL

While electronic ticketing has reduced paper output and accelerated check-in procedures at airports, it has done little to change the way revenue accounting processes are carried out behind the scenes. "An e-ticket is part of the same old process we've always had," adds Adelman. "It's just that [airlines] don't print the piece of paper at the end; but all of the back office functions pretty much are happening the same way they've happened for many years in the paper world." Although e-tickets have helped airlines reduce some costs, they haven't altered underlying business processes and the associated technology infrastructure. They still require multiple systems and databases to process ticket information for each airline service area.

Ticketless travel, however, is a bird of another feather. Information about ticket payments, purchasing patterns, flight preferences, recent and past bookings and credits earned are tracked and culled from various systems and integrated into a single record. "There are no ticket numbers in the system," explains Navitaire Director-Product Management-Revenue Accounting Jillian Carpenter. "We interrogate all of the transactions that are made and do the accounting based on what is happening right there with the booking." Funds are associated with a customer account rather than an individual ticket and settlement is done directly with the customer, bypassing the industry settlement plans.

Under Navitaire's ticketless revenue accounting system, SkyLedger, the accounting structure is established once and then the financial events resulting from reservation activity data are mapped automatically to business information and general ledger accounts. Carpenter explains, "If someone is paying for a particular seat or excess baggage and there's a fee that's been added to the booking, we'll get notification that the reservation has been updated and interrogate that data, find the relevant information, process it and then do the subsequent accounting."

The technology eliminates manual data entry, reduces the potential for errors and enables airlines to evaluate daily transactions and instantaneously review financial data at month end. "The SkyLedger system is integrated with our reservation system so it keeps current with bookings and flights that are occurring," says Carpenter. "If a flight is closed, we can withdraw that information from the reservation system to drive the revenue accounting itself." The system's integrated reporting tool allows airlines to identify issues early, synthesize complex data and swiftly execute research commands.

SkyLedger also supports regulatory and corporate reporting on key metrics including load factors, payments, revenue, credit card reconciliation, taxes and unearned revenue reporting. "It's almost like a bank account," Adelman says. "If you log on as a customer, you can see all of your activity at once and determine whether or not you've got some credits on file. You can make a cancellation or apply a new booking right away."

REDUCING COST AND COMPLEXITY

When an airline decides to outsource its revenue accounting operations, it usually ends up trimming the size of its workforce, effectively reducing labor costs and other administrative and training expenses associated with the overhead of those specific back office responsibilities. "Being leaner, meaner and more cost-efficient is really the game today in the aviation industry," says Vipul Jain, CEO and MD of Kale Consultants, a business technology firm headquartered in Mumbai. "But the value proposition needs to go beyond just labor savings. The other part of the story is efficiency. You want to align your underlying technology to your business strategy."

At year end Kale will have processed about 30 million end-to-end revenue accounting transactions, Jain estimates. "We'll probably save airlines close to $50 million this year from revenue leakages," he says. "I would think we'll also save them around $10-$12 million in interline transactions that we'll process through a neutral fare operation engine." Designed to streamline interline billing, Kale's proration engine, APEX, can be integrated with most passenger revenue accounting systems. "APEX is flexible enough and clever enough to accommodate nearly every type of special, prorated agreement and process it automatically," Jain adds.

Kale's revenue recovery and protection technology employs various tools to help airlines recover lost revenue, discover erring agents and support numerous business processes. The technology targets individual aspects of the airline business that tend to be most susceptible to revenue leakage and fraud.

Navitaire's revenue protection service also has helped carriers, especially in regard to leakages associated with nondirect passenger sales, refunds and exchanges and incorrect ticketing. A few years ago, Air Canada commissioned the IT provider to revamp its revenue accounting group into a profit center focused on value-creation opportunities. AC wanted to streamline its accounting system, replace its manual in-house processes and enable more efficient analysis and strategic decision-making. Through Navitaire's Host Revenue Accounting Services and Revenue Protection Services, AC was able to audit agency sales, capture relevant revenue information and identify other opportunities for increasing revenue protection. In 2004 Navitaire helped it achieve net recoveries of more than $14 million, resulting in total sales audit benefits in excess of $43 million.

"Processing costs are about 13 times higher for the network airline than for the ticketless airline," points out Navitaire Product Management Head John Edmondson. "That means from a distribution perspective the ticketing and back office functions and all the systems associated with the processing are that much more expensive than a seat sold on a low-cost airline."

Say a certain network carrier and a certain LCC each serves more than 10 million passengers per year and each has more than $1 billion in revenues, wouldn't the revenue accounting staff tend to be about the same size? Not likely, explains Adelman: "The network airline might have over 200 revenue accountants while the low-cost airline has only three. Clearly this is tied to the business model of each airline; it certainly illustrates how complexity drives cost as well as the 80/20 rule that says 20% of the business drives 80% of the cost."

TECHNOLOGIES AND TRENDS

Investing in new technology usually means accepting a certain level of risk. But smart risk often can lead to big returns. For Kale, the challenge is to strike the right balance between simplifying proprietary processes and taking advantage of opportunities that might present themselves on the technological front. "We're happy with our IT services, but we still invest each and every year in research and development," says Jain.

Kale's business intelligence tool, PRISM, plays a key role in the revenue management infrastructure for strategic decision-making. The technology enables airlines to generate ad hoc accounting reports designed to support complex choices. "PRISM takes the data generated from the revenue accounting process at the lowest level, the ticket level, and it allows you to use that data for decisions," explains Jain. The system also enables the user to obtain useful data for revenue management, sales and marketing, audits and other finance activities. "I don't think this is necessarily revolutionary technology but it is evolutionary technology," he adds. Primed with about 1,500 employees, Kale has developed the majority of its business software in-house, and over the last five years Jain estimates the company has grown at a rate of 40% each year.

Navitaire, which has eight offices and more than 800 employees, has enjoyed double-digit growth since 2002, introducing new products and services across a wide spectrum of the airline revenue life cycle. "From an outsourcing standpoint, especially on the technical side of the application running, I think there has been a steady increase across the market," says Carpenter. "But there's also some nervousness from traditional network carriers about the possibility of losing control, perhaps in terms of ordering capabilities."

Although airlines participating in the International Air Transport Association's Billing and Settlement Plan will have to introduce e-tickets by May 31, 2008, Carpenter maintains that there are still a considerable number of network carriers that rely on paper tickets. "Maybe not in the US, but certainly in other regions," she says. "So I think the acceleration point for outsourcing is to help more network airlines understand the advantages of moving data rather that pieces of paper at the back end."

Given the many customer-service features of the ticketless model, the outlook for more conversions looks good. Airlines might even become a storefront for travel commerce, says Edmondson. "There's been a lot of talk about ancillary revenue," he explains. "Soon airlines will be selling more than just a seat, they'll be selling hotels and rental cars and hats and T-shirts and lots of other things." These new travel commerce storefronts will account for the entire transaction versus just the single component of the airline seat. "And this will bring a whole new set of challenges to the revenue accounting and management equation," he promises.