Managing The Challenges of Airline Revenue Accounting

White Paper Managing The Challenges of Airline Revenue Accounting Introduction This paper presents an outsourced approach towards managing the crit...
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Managing The Challenges of Airline Revenue Accounting

Introduction This paper presents an outsourced approach towards managing the critical function of airline Revenue Accounting. The document provides information on why outsourcing of Revenue Accounting operations is becoming a practical and viable option for Airlines. It also highlights the factors for successful outsourcing engagement and provides details on some of the typical revenue accounting processes that are outsourced.

Business Drivers The airline industry is witnessing significant challenges with profitability being directly impacted by the emergence of successful low-cost carriers coupled with alliances, market transition and other environmental factors. Given the increasingly competitive market scenario, it becomes imperative for airlines to streamline those areas that can positively influence their business models. Revenue Accounting is one such function that can have a major impact on an airline‘s profitability.

Revenue Accounting A Critical Function Revenue Accounting is a critical function that involves sharing of revenue on a prorate basis between interline carriers. A typical airline Revenue Accounting process is characterized by: • Critical impact on financial performance of an airline • High level of complexity requiring specialized handling • Demand for specialized trained professionals - having intimate knowledge of business and airline accounting practices • Highly people-intensive • Time consuming operations

Challenges for Airlines With global air passenger traffic slated for positive growth averaging more than 5.0% per year (as per Global Market Forecast by Airbus), airlines are expected to face an increasing load on ticket processing œ and thereby increased need for revenue data. Besides resulting in higher operational costs, this can lead to difficulties in verification of interline billings and increased gaps in revenue collection. Given the dynamic market environment, greater need for timely revenue information and limited specialized human resource œ it is becoming increasingly challenging for airlines to maintain revenue accuracy and reporting schedules. In this context, many airlines are incorporating outsourcing as a strategy to efficiently manage their Revenue Accounting function while focusing on their core competencies.

© InterGlobe Technologies Ltd. 2011: www.igt.in

Revenue Accounting Outsourcing Outsourcing of Revenue Accounting operations can be a practical and viable option to cut down on operating costs, improve process efficiency and enhance profitability. Though outsourcing can bring important benefits to airlines œ but realizing these benefits, demands careful ongoing planning and diligent oversight.

Key Success Factors for Outsourcing There are several elements that go into making a successful Revenue Accounting outsourcing engagement. Some of the key factors that an airline should consider in relation to the outsourcing partner include: • • • • • •

Excellent revenue accounting process expertise First-hand airline domain knowledge Smooth Transition Plan (Stabilize & Improvise Theory) World class BPO delivery centre Ability to quickly ramp-up operations Well defined Service Level Agreement (SLA) to ensure continuous improvement service offerings • Right Outsourcing Partner To be successful, an airline needs to select the right partner capable of forming the desired type of relationship it needs to accomplish its business objectives. The outsourcing partner should not only manage the processes efficiently, but also improve productivity levels once processes are stabilized after migration. InterGlobe Technologies (IGT), with its pool of talented revenue accounting experts, solid airline domain knowledge and proven outsourcing capabilities can provide highly efficient and costeffective Revenue Accounting services tailored to the needs of the client. IGT‘s world-class infrastructure and state-of-the art international data centre, backed up by experienced professionals, ensure consistency of quality and service. The BPO delivery centre is well equipped with systems, links and security measures allowing airlines to reap the rewards regardless of their geographical location.

Revenue Accounting Services The right outsourcing partner can facilitate airlines‘ in streamlining their revenue accounting functions and effectively support their business strategy by offering value-added services that increase the airline‘s ability to process Ticketing data efficiently with maximum billing accuracy. IGT‘s Revenue Accounting services can assist airlines effectively manage the control, reporting and use of accountable documents. These include Tickets, Miscellaneous Charge Orders (MCO), Prepaid Ticket Advice (PTA), Excess Baggage Tickets (EBT), Flight Interruption Manifest (FIM), Rejection Memos, etc. The services offered include: • • • • •

Coupon Matching Inward Interline billings Outward Interline billings Rejection and Correspondence handling Maintaining and filing of Special Prorate Agreements (SPA) & Multilateral Prorate Agreements • Packing and dispatching of invoices • Providing Management Reports

© InterGlobe Technologies Ltd. 2011: www.igt.in

Benefits of Outsourcing • • • • • • • • •

Airlines can reap several benefits by outsourcing the Revenue Accounting service: Enhanced revenue through accurate billing and verification Reduced costs by employing outsourced workforce at competitive price Increased focus on core business œ by freeing up internal resources Savings on manpower and training costs Reduced accounting costs Maximized return on internal resources Decreased risk and cycle times Increased flexibility to scale and de-scale

Outsourced Revenue Accounting Process One of the most important characteristics of successful outsourced process is the service provider‘s flexibility to adapt to varied processes and tune them to match the client‘s requirements. This ensures accurate validation of transactions and speedy initiation of the recoveries process in case of errors of under-collection. Process Highlights • The billings raised by other airlines are scrutinized in detail and checks are made to ensure accuracy while applying specific prorate and revenue accounting rules. • The scrutiny is conducted considering the Revenue Accounting Manual (RAM), Multi-lateral • Prorate agreement (MPA) and Special Prorate Agreement (SPA) by one of the following methods: • Sampling œ A pre-determined percentage of the total interline billing is evaluated, and then scaled up to a value that represents the total volume of the interline coupons. • Non-sampling œ 100 % of the actual flown coupons are evaluated Process Work Flow The following schematic depicts a typical workflow for proration

© InterGlobe Technologies Ltd. 2011: www.igt.in

Key Revenue Accounting Processes Some of the important Revenue Prorating services offered for outsourcing include: • Coupon Matching This involves auditing the actual flight coupons for fares and taxes against DS/System booking to check for accuracy for coupons that are flown, billed, refunded or exchanged. • Inward Billing The incoming interline billings are factually evaluated with a high degree of accuracy for correct fares and taxes. • Outward Billing An invoice is raised on behalf of the transporting carrier to the ticket-issuing carrier for claim of revenue share for the flown sector(s). • Flight Interruptions Manifest When a flight is interrupted due to technical or other reasons, the flying carrier issues a Flight Interruption Manifest (FIM) to the transporting carrier. The sharing of revenue is done on the basis of this manifest. • Rejection & Correspondence If the billed values are outside the pre-determined tolerance levels, a rejection is made. Rejection of billing is done keeping in mind the applicable rules and regulations mentioned in Revenue Accounting Manual (RAM). IGT can facilitate correspondence in case an agreement is not reached during the rejection processes. • Reporting Accurate passenger revenue and segment reports are made available to the airline management routinely to aid quick decision-making.

Conclusion Airlines can derive significant business value by outsourcing their Revenue Accounting operations a critical function that can directly impact profitability. The success of an outsourcing engagement depends largely on the capabilities of the service partner as well as the quality of long-term relationship it can offer. Given the complexities of the Revenue Accounting process, airlines should be extremely careful while considering the process and delivery capabilities of the outsourcing partner. An ideal outsourcing partner should have an intimate understanding of the airline domain, a pool of talented resource-base with extensive fares expertise, world-class infrastructure and proven process methodologies that can be easily aligned to the specific requirements of the airline.

© InterGlobe Technologies Ltd. 2011: www.igt.in

InterGlobe Technologies (IGT) is a leading BPO & IT Services provider committed to delivering innovation and business excellence across the entire spectrum of the travel, transportation and hospitality domain. Ranked amongst the World’s Top 3 Travel Technology Solutions providers, the company offers integrated Application Development and Maintenance, Call Center Services, Back Office Services, Consulting Services and Solution Frameworks to the travel industry worldwide.

InterGlobe Technologies Pvt. Ltd. InfoTech Centre, 2nd Floor 14/2, Old Delhi-Gurgaon Road Dundahera, Gurgaon – 122016 Haryana, India T +91 (0)124 458 7000 F +91 (0)124 458 7198 www.igt.in

© InterGlobe Technologies Ltd. 2011: www.igt.in

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