Airlines have always been challenged with finding a viable way to measure contracted market share expectations in such a way that is fair to both the airline and the corporation. As data consolidation continues to become more refined the use of QSI (Quality Service Index) as a measurement tool has become an industry norm.
This article is not intended to knock QSI (as for the most part it works very well), but instead is meant to help corporate travel managers navigate their way through QSI and how certain common data scenarios can create unintended results. Not unlike the cult-classic movie Zombieland, there are a few rules that are good to abide by when dealing with contract terms and QSI measurements: [more]Rule #1: Remove all strength/monopoly markets from “QSI plus large amount” goals (i.e. QSI plus 20%, etc)
On the surface, this is counterintuitive. After all, wouldn’t you want your best performing markets in the measurement set? Let’s take a look at a small example to show you the effect of having those markets in the mix (See Exhibit 1)
In this example, the client met the QSI plus 20% goal in Market 2 & 3 and gave the vendor 100% in market 1. Why did they then fall 3% short of meeting QSI plus 20%? The reason that they are falling short is that they were only able to give QSI plus 10% in one market (90% to 100%) whereas the other two they were able to give QSI plus 20%. When the airline looks only at the subtotal and says you should be giving me my fair share at 58% (average of 90+30+55) and then adds another 20% onto it, it comes out as 78%.
Why is this important: It forces excess pressure on your competitive markets to make up the difference. This is definitely to a carrier’s advantage. The minute this market is removed, the QSI plus 20% goal is met (See Exhibit 2):
Rule #2: Remove all markets under 20% QSI from QSI plus large amount goals (i.e. QSI plus 20%, etc)
This rule is a bit more intuitive but the same phenomenon occurs. Let’s say a carrier has a 5% fair share in a market. In the real world that would likely be an occasional connection flight versus a major carrier’s steady nonstop service. Do you, as a travel manager, think that you’d have the ability to drive a connection carrier another 20% versus the schedule and convenience of a nonstop? In practice I’ve seldom seen the small percentage QSI carriers in a market make a dramatic leap – they just don’t have the lift and schedule.
Therefore, in the example below, you might be able to move Market 1 from 5% to 10%, but again, the majority of the lift is going to have to come from those prized competitive markets (See Exhibit 3).
Rule #3: Ensure that the carrier is only measuring markets where they have service
Within QSI carrier measurement systems that the carriers employ, there definitely is a variation in how carriers administer QSI. For example:
• Carrier X may measure only markets where they have 4% QSI for example while Carrier Y includes all markets.
• Carrier Z might only measure markets where they have at least 1 segment for the quarter.
(See Exhibit 4)
If these markets are in your measurement dataset, they can really be a drag on the need to overperform in competitive market situations. They most often show up in these two types of goals:
• Systemwide goals (i.e. All Domestic System Share)
• Goals in and out of a certain market (i.e. all domestic travel to and from NY)
In the second example, you may be measuring a carrier who only has US flights in and out of NYC but there were also 20 flights last quarter from Canada to NYC that would be counting against you.
Rule #4: Read the detail
Usually, the carrier will provide you with detailed market reports. It is important that you or any consulting partner that you employ reads these details to fully understand why you may be missing market share. Insist that reports be sent to you a few days ahead of time so that you can have productive discussions rather than be surprised.
It is important to look at two things:
1. Are you missing market share because of QSI anomalies? Look at the detail behind each term and check out if the carrier has a legitimate beef behind the term being missed or if it was a case of anomalies like I described above causing the underperformance.
2. Are you missing market share because the other carrier’s average flight price is significantly less than this carrier? This prompts discussion about the structure of the discount, how well the carrier might be holding their inventory in certain classes, etc.
Rule #5: When low-cost carriers are using QSI, take a look at the schedule in key markets in addition to the share
Another anomaly of QSI is that it often tends to be more “seat-driven” than “schedule-driven.” Where this may surface is when a carrier is expecting a share of markets but their schedule isn’t geared as much toward the business traveler. I have seen this situation manifest itself in reports before (See Exhibit 5):
Even if, after all daily flights are considered, the low cost carrier has 40% of the possible seats in this market, their QSI should be well below 40%. I would assert that it probably should be closer to 10% when you’re considering it from the business traveler vantage point. However, the QSI measurement formula seems to tilt heavily toward amount of available seats so the low cost carrier is still expecting 40%.
Rule #6: Keep goals simple – and then hit them!
As a consultant, it is often my job to put the travel manager in the best possible position of leverage for the carrier meetings. However, simply providing a good argument is not the best way to a good airline partnership. Setting realistic, straightforward goals and then achieving them is the key to partnership success and ultimately future negotiation strength.
That is one reason I suggest taking the time on the front end to ensure that the goals truly reflect the spirit of the contract (i.e. usually how often am I taking your carrier in situations where I have a viable choice) and are manageable. I cringe when I see an airline come in with a contract that has 42 different terms. When that happens, the contract will quickly become unmanageable and even more susceptible to the data anomalies.
1. If your carrier is using QSI, take some time to understand exactly how it is being administered within your contracts.
2. Before your next carrier meeting, take a look not only at page 1 of the carrier market share reports they provide, but also the additional detail pages to see how legitimate a carrier’s concerns about market share may be.
3. If carrier meetings are not as productive as you’d like them to be or if you are feeling pressure from the carriers about missing airline goals, it is probably time to revisit your vendor monitoring strategy. Consider the option of vendor monitoring tools or outsourcing:
• From a tool perspective, make sure that any tool you use helps you get at why market share is being missed and not just the fact that it is being missed.
• If you don’t have time to adequately prepare for vendor meetings, outsourcing that role may be well worth it.
Tom Ruesink is president of Ruesink Consulting Group, Inc. Before founding this company 4 years ago, he was a director for the consulting division of a major TMC and designed much of their analytic deliverable package. He describes himself as a “communicator who got hooked on data”. If you have comments or questions about this topic, feel free to contact Tom at [email protected] or 952-223-6382. Their website is www.ruesinkgroup.com.