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A quality service from civil air navigation services organisation THE SIX HIDDEN COSTS OF ANSP
A quality service from civil air navigation services organisation THE SIX HIDDEN COSTS OF ANSP

A quality service from

A quality service from civil air navigation services organisation THE SIX HIDDEN COSTS OF ANSP REVENUE

civil air navigation services organisation

THE SIX HIDDEN COSTS OF ANSP REVENUE MANAGEMENT

A platform for transforming an ANSP’s revenue generation model

MANAGEMENT A platform for transforming an ANSP’s revenue generation model White Paper February 2013 In association

White Paper February 2013

MANAGEMENT A platform for transforming an ANSP’s revenue generation model White Paper February 2013 In association

In association with

MANAGEMENT A platform for transforming an ANSP’s revenue generation model White Paper February 2013 In association

Contents

Contents Summary 3 The revenue challenge 4 The six hidden costs of inefficient revenue management 5

Summary

3

The revenue challenge

4

The six hidden costs of inefficient revenue management

5

How significant are these hidden costs?

6

A new approach to revenue management

7

Making efficient revenue management a reality

9

Fresh thinking on next generation systems

9

FlightYield Architecture

9

Benefits of the FlightYield service

10

About the FlightYield Partners

12

Contact FlightYield

12

Summary The revenue management approaches of many ANSPs are not keeping pace with the transformation

Summary

The revenue management approaches of many ANSPs are not keeping pace with the transformation of commercial aviation.

A new way of managing revenue is critical to the future growth of ANSPs, but the first step for many is to improve the fundamentals of the way they collect their income.

ANSPs must be able to address to The Six Hidden Costs of revenue management:

1. Inflexible policies and subsequent pricing models

2. Incomplete data instead of real-time data

3. Data entry errors caused by large-scale manual processing

4. Invoice delays and the resultant cash flow impacts

5. Invoice disputes and the resolution process

6. Payment delays

Addressing these costs can deliver significant operational and financial benefits.

It

charging is more granular and transparent, is more efficient and new methods like performance-based pricing can be introduced.

FlightYield is a revenue management service that is being used by ANSPs to address the Six Hidden Costs and build a platform for improving revenue management.

Costs and build a platform for improving revenue management. also means ANSPs can develop new revenue

also means ANSPs can develop new revenue collection approaches: where

improving revenue management. also means ANSPs can develop new revenue collection approaches: where flightyield.aero 3
The revenue challenge For any Air Navigation Service Provider (ANSP), the management of their revenues

The revenue challenge

For any Air Navigation Service Provider (ANSP), the management of their revenues is a growing and increasingly complex challenge.

Demands are many, varied, and often loudly expressed by a range of stakeholders including airlines, airports, regulators, governments and the public.

Safety can never be compromised, but ANSPs are expected to increase capacity, reduce delays, address environmental impacts, and adhere to changing global standards, all while delays, address environmental impacts, and adhere to changing global standards, all while meeting demands for lower costs.

The last 30 years has seen low cost airlines, global privatisation of airports, increasing commercialisation of ANSPs, and significant changes in technology. However, the pricing mechanisms and systems used to provide revenue for ANSPs has not kept pace with these important developments. As a result, ANSPs are poorly equipped to balance demands from airspace users with the investments required to meet those demands.

ANSP charging schedules are typically ‘one-size-fits-all’, established every three to five years in a contested dialogue between stakeholders. This approach constrains ANSP financial sustainability, with limited opportunity for win-win outcomes or the ability to fund investments that could be of financial or operational benefit to all airspace users.

Also, limited development of charging mechanisms and systems has commonly resulted in charging processes which are not fully integrated or transparent as well as being inefficient and error-prone.

Improved and integrated airspace usage charging mechanisms, processes and systems need to be introduced by those who understand the complexities and relative demands of the industry.

SAFETY • Capacity • Flexibility • Efficiency • Environment • Regulation
SAFETY
• Capacity
• Flexibility
• Efficiency
• Environment
• Regulation
LOWER COSTS
LOWER
COSTS

This will achieve a balance between the demands on ANSPs and the investments needed to meet those demands. This should be achieved while reducing revenue collection costs, eliminating errors, providing increased transparency and customer service, and reducing the time taken between infrastructure use and related revenue receipt.

Just as airlines and telecommunication providers have developed sophisticated yield management systems to provide user choice and optimise return on investments, ANSPs need a modern, sophisticated, and purpose built solution to optimise yield on ATC investments and on the airspace asset being managed by them.

For many ANSPs however, the first priority must be to get their revenue management operating effectively, avoiding what we have identified as the “Six Hidden Costs” of inefficient revenue management.

The six hidden costs of inefficient revenue management Many ANSPs are not equipped to manage

The six hidden costs of inefficient revenue management

Many ANSPs are not equipped to manage their existing revenue effectively. Systems are often based on spread sheets, using static flight plan/schedule data, and involving significant manual data entry and processing.

Many of these systems are not only incapable of supporting more complex charging models; they are not fully integrated and are inefficient and error-prone, helping generate what we call the Six Hidden Costs of inefficient revenue management.

1. Inflexible policies may prevent the ANSP from raising a charge for a service element, even though this element has required significant investment or has resulted in considerable benefit to airspace users e.g. PBN. This restriction may continue until the next pricing round, or could be permanent, if the pricing discussion does not allow for investment or performance based outcomes.

2. Incomplete data such as the use of flight schedules instead of actual flight records, missing information on aircraft configuration and ownership, and application of nominal routes instead of actual routes flown, result in charges being missed or being incorrectly processed.

3. Data entry errors are introduced when large amounts of data are being processed manually, especially where data is being transcribed from hand-written records such tower flight strips. It often seems that air traffic controllers are second only to doctors in their ability to produce indecipherable hand-writing

4. Invoice delays such as introduced by manual processing and chasing missing data, result in invoices being produced days, weeks, or even months after the flight even though the flight charges are usually payable shortly after the operation. The resulting impact on cash flows, especially for increasingly commercialised ANSPs who are expected to produce a fair return on capital employed, is a significant and real cost.

return on capital employed, is a significant and real cost. 5. Invoice disputes are inevitable when

5. Invoice disputes are inevitable when processing millions of charge record items for dozens, hundreds or thousands of airspace users. Changes to establish user pays and granular charging, while supportive of yield management objectives, are likely to increase the time and resource invested in processing these disputes unless this is addressed with improved information flow.

6. Payment delays result not only from the time taken by airspace users to process invoices and raise disputes and enquiries, but from the fact that many systems are based on paper invoices and statements, sent through the post and subject to monthly cheque runs.

How significant are these hidden costs? In working with ANSPs to optimise revenue management processes,

How significant are these hidden costs?

In working with ANSPs to optimise revenue management processes, FlightYield has experienced examples of the six hidden costs:

An ANSP reduced working capital costs by about 1% (US$1m) of total turnover by moving from traditional processing to an integrated, electronic processing system with its major customers.has experienced examples of the six hidden costs: During audit and parallel processing of sample data,

During audit and parallel processing of sample data, ANSPs often discover that revenue was missed or overlooked as a result of missing data and processing errors. In most cases this amounts to at least 6% of total revenue and, in some cases, significantly more.electronic processing system with its major customers. Significant resources are deployed in processing charges,

Significant resources are deployed in processing charges, both in the ANSP and in the airspace users. The cost of staff involved can be up to 2% of the total revenue of the ANSP and the processing costs borne by the airlines may be similar.6% of total revenue and, in some cases, significantly more. In response, some ANSPs have undertaken

In response, some ANSPs have undertaken major systems development projects to create new systems to automate the process, eliminate errors, and reduce the impact of the Six Hidden Costs.

Some of these projects have been successful, however the time, costs and risks associated with such system development projects are significant and may be beyond the capacity of some ANSPs. Others choose not to apply specialised resources to this task.

While a proliferation of point solutions may improve the outcome for individual ANSPs, it will not be optimal for the industry as a whole and especially for major airlines, who have to interface and interact with many new ANSP-developed solutions.

Some independent services have emerged to address the inefficiencies, and have achieved some success, however these “generation one” services tend to be limited in scope, use subsets of available data and technologies, and operate under ownership and governance models which don’t provide the best long term outcome for ANSPs.

A new approach to revenue management Putting in place an effective revenue management system enables

A new approach to revenue management

Putting in place an effective revenue management system enables ANSPs to address the Six Hidden Costs, and prepare for a future where more sophisticated and sustainable pricing approaches are possible.

Most ANSPs operate, at least for the en-route element of their service provision, in a natural monopoly, and charges are usually set on a regular (three-to-five year) cycle. This follows a dialogue and negotiation between the ANSP and airspace users, often overseen by the regulator or other Government body. The language is usually directed to recovering ANSP costs on an equitable basis and according to the general policies and principles outlined in ICAO Document 9082 (ICAO’s Policies on Charges for Airports and Air Navigation Services).

The ICAO policies (ICAO Document 9082 -ICAO’s Policies on Charges for Airports and Air Navigation Services) encourage a charging regime based on user-pays and specifically provide for charges based on distance flown, aircraft weight, and on the different elements of a flight. The reality is that a simple construct is usually agreed because most ANSPs do not have the systems to differentially charge millions of aircraft movements based on individual flight profiles. Detailed “user-pays” principles are often absorbed into a simple cost-allocation model and any variations are absorbed by the ANSP. This leads to under investment, as there are few financial incentives for increased investment or performance.

For example, two of the significant new technologies available to ANSPs are PBN and Air Traffic Flow Management (ATFM). Both of these, especially ATFM, require considerable investment from the ANSP. However the majority of the economic benefits of the investment, in terms of reduced flight time and fuel usage, will accrue to the airline and not to the ANSP. This approach will not be financially sustainable for ANSPs unless a user-pays or pay-for-performance element is introduced.

Likewise, if traffic volumes demand alternate or parallel routes between destinations, such as across the Atlantic, is the central/optimal route of more value to an airline than the alternates and, if so, will some airlines be willing to pay more to use the “premium” lane.

Operating within the framework of ICAO policies, ANSPs can move away from a gross cost allocation framework and more towards a new pricing approach, which incorporates:

Increased granularity of charging so that individual flights and phases of each flight can be accurately granularity of charging so that individual flights and phases of each flight can be accurately priced in terms not the services and assets actually utilised.

Introduction of performance elements which reward the ANSP for improved service delivery especially where it results in performance elements which reward the ANSP for improved service delivery especially where it results in direct and measurable cost savings for airspace users.

Enhanced transparency of charging so that airspace users can understand and navigate the resulting charges and transparency of charging so that airspace users can understand and navigate the resulting charges and be satisfied that services are being delivered and charged accordingly.

Improved efficiency of charging systems and processes so that the new principles do not result in efficiency of charging systems and processes so that the new principles do not result in additional costs for both ANSP and airspace users in processing the more complex charging regime.

The transformation of ANSPs from government department to service provider, separate from regulator and airport operator, is well advanced in much of the world. Furthermore, many of the newly focussed ANSPs are undergoing a commercialisation process to develop as an independent player in the aviation community.

Next generation approaches to charging and revenue management, such as described above, are an important requirement for both transitions and allow the ANSP maximum capability and flexibility in managing the yield from the assets under its control.

The above diagram highlights the three key pillars required for a next generation revenue management system. This approach delivers fully integrated, end-to-end systems and processes that provide ANSPs with greater financial sustainability and deliver full transparency during pricing reviews.

Revenue collection & debt management

Fully integrated & transparent end to end process
Fully integrated
& transparent
end to end process

Configurable & efficient processing

Automated data collection & processing

to end process Configurable & efficient processing Automated data collection & processing flightyield.aero 8
Making efficient revenue management a reality As previously noted a number of the larger ANSPs

Making efficient revenue management a reality

As previously noted a number of the larger ANSPs have undertaken major systems development projects to create new systems to automate processes, eliminate errors, and reduce the impact of the Six Hidden Costs.

Some of these projects have been successful, however the time, costs and risks associated with such system development projects are significant and generally beyond the capacity of some ANSPs. Others choose not to apply specialised resources to this task, focussing on technology, systems and processes associated with being an ANSP.

While a proliferation of point solutions may improve the outcome for individual ANSPs, it will not be optimal for the industry as a whole and especially for major airlines, who have to interface and interact with many new ANSP-developed solutions.

Some independent services have emerged to address the inefficiencies, and have achieved some success, however these “generation one” services tend to be limited in scope, use subsets of available data and technologies, and operate under ownership and governance models which don’t provide the best long term outcome for ANSPs.

Fresh thinking on next generation systems

FlightYield is a fully-outsourced modern revenue management service purpose built for ANSPs and operated in partnership by CANSO, the Global Voice of ATM, SITA, the world’s leading specialist in air transport communications and information technology, and Airways, New Zealand’s ANSP with 10 years’ experience in developing next generation billing solutions.

Based on patented systems technology developed by Airways, FlightYield is proven in current operation in both complex airspace such as China and Saudi Arabia, and less complex

airspace such as Fiji and Papua New Guinea.

FlightYield provides technology in a cloud-based model, supported by a dedicated invoice processing team and financial services resources provided by SITA. FlightYield will not only provide the systems to support next generation airspace yield management, but will process invoices, manage enquiries, accept payments and remit cleared and validated funds to the ANSP.

FlightYield Architecture

FlightYield is a fully managed, cloud-based service, designed for ANSPs in partnership with CANSO, using technology developed and managed by Airways, which is hosted on SITA’s secure cloud network, and operated by SITA’s revenue management team based in Europe.

FlightYield installs a Secure FlightYield Gateway (SFG) within each customer network to collect, filter, and buffer source data from the surveillance, airport and flight planning systems. It processes financial transactions into the customer financial systems. Each SFG is configured with drivers from existing radar and other standard interfaces, or a custom driver will be developed for each new system. The SFG is provided with a range of monitoring, filtering and buffering options to enable the ultimate control of data to remain with the customer ANSP.Data is securely transmitted to the FlightYield servers located in secure and redundant SITA data

Data is securely transmitted to the FlightYield servers located in secure and redundant SITA data processing centres. Servers are configured for the charging rule sets by FlightYield technical operations personnel in collaboration with the ANSP.ultimate control of data to remain with the customer ANSP. Charges are processed on an agreed

Charges are processed on an agreed schedule and reviewed and approved by FlightYield Revenue Operations staff, prior to sending the transactions electronically (and/ or using other means) to airspace users.operations personnel in collaboration with the ANSP. FlightYield Operations staff manage enquiries from airspace

FlightYield Operations staff manage enquiries from airspace users and pursue outstanding payments. Funds are remitted to the customer ANSP as they are received and validated.(and/ or using other means) to airspace users. ANSP staff have real-time access to the system

to the customer ANSP as they are received and validated. ANSP staff have real-time access to

ANSP staff have real-time access to the system to view status and to drill-down into invoices, transaction and charge elements. They can review and edit charging rules, or can use the services of the FlightYield operations teams to assist with those processes.to the customer ANSP as they are received and validated. ANSPs can provide secure access to

ANSPs can provide secure access to the system to airspace users so that airlines, airports and others can receive detailed and real-time access to the details underneath invoices and statements.FlightYield operations teams to assist with those processes. Benefits of the FlightYield service FlightYield uses modern

Benefits of the FlightYield service

FlightYield uses modern systems technology, is fully integrated with data sources and with financial systems, incorporates a sophisticated and granular charging rule engine, includes comprehensive reporting and drill-down facilities for airspace users, and uses real-time electronic processing to significantly reduce the six hidden costs. FlightYield is delivered on a pre-agreed fee basis, with cost savings and increased revenue flowing directly to the ANSP.

on a pre-agreed fee basis, with cost savings and increased revenue flowing directly to the ANSP.
As a service available to all ANSPs, FlightYield offers a common system and interface for
As a service available to all ANSPs, FlightYield offers a common system and interface for

As a service available to all ANSPs, FlightYield offers a common system and interface for ANSPs and their airline customers, with the potential to massively reduce the number of point-to-point connections between them. For example, if there are 200 ANSPs reduce the number of point-to-point connections between them. For example, if there are 200 ANSPs and 400 airlines and each ANSP engages with 100 airlines, there will be 20,000 point-to-point connections. If all connections were through the FlightYield service, only 600 connections would be required.

FlightYield’s ability to create charge records from operational data and provide supporting information for each invoice line item allows ANSP customers to drill right down to the individual elements of each operation which makes up the amount invoiced. This reduces the time taken to process invoices, establishes an environment of collaboration and transparency, and improves customer satisfaction with the process. improves customer satisfaction with the process.

FlightYield’s comprehensive, proven rules engine allows and supports the introduction of sophisticated charging regimes , without a resulting increase in cost and complexity. ANSPs can offer sophisticated charging regimes, without a resulting increase in cost and complexity. ANSPs can offer premium and performance based services and increasingly granular “user-pays” pricing.

FlightYield allows multiple rule scenarios to be established to allow source data to be recalculated under a multiple rule scenarios to be established to allow source data to be recalculated under a new/planned set of charging rules. This allows new charging propositions to be modelled and the results analysed and discussed with stakeholders well in advance of introduction.

FlightYield core business is the end-to-end process of revenue management that leverages the relative strengths of the parties to provide an industry standard service. leverages the relative strengths of the parties to provide an industry standard service.

FlightYield improves the confidence of the stakeholders including Boards, Ministers and Shareholders. improves the confidence of the stakeholders including Boards, Ministers and Shareholders.

About the Flightyield Partners

Flightyield is a collaboration between three leading players in the aviation industry, each bringing core skills and experience to the Flightyield revenue management service.

experience to the Flightyield revenue management service. civil air navigation services organisation The Global Voice

civil air navigation services organisation

The Global Voice of Air Traffic Management

CANSO is the global voice of ANSPs worldwide. Its members support over 85% of world air traffic, and share information and develop new policies, with the ultimate aim of improving air navigation services on the ground and in the air. CANSO represents its members’ views in major regulatory and industry forums, including at ICAO, where it has official Observer status.

CANSO represents the needs and strategies of the global ANSP community in the overall design and architecture of Flightyield and provides the contractual framework for Flightyield services.

Contact Flightyield

framework for Flightyield services. Contact Flightyield The world’s leading specialist in air transport

The world’s leading specialist in air transport communications and IT

SITA is the world’s leading specialist in air transport communications and information technology. SITA works closely with every sector of the air transport community, innovating, developing and managing business solutions over the world’s most extensive network – one that forms the “communication backbone” of the global air transport industry.

SITA’s secure network and cloud infrastructure hosts the Flightyield technology. SITA Bureau Services, which is owned by SITA, integrates IT and financial services to provide business processing and management. It manages the business processing for Flightyield including billing, collection and revenue management.

Contact us to explore how Flightyield can help you improve your revenue management and improve your cash flow.

Further details can be found at flightyield.aero Sales@flightyield.com

can be found at flightyield.aero Sales@flightyield.com Making Your World Possible Airways is New Zealand’s ANSP,

Making Your World Possible

Airways is New Zealand’s ANSP, managing around 30 million km 2 of controlled airspace and over 1 million movements per year. For more than 20 years, Airways has also provided a range of products, services and training to ANSPs around the world.

Airways has extensive experience in developing and deploying the technology behind Flightyield both in New Zealand and internationally and is responsible for deploying and operating the technology for the Flightyield service.

New Zealand and internationally and is responsible for deploying and operating the technology for the Flightyield