Total Revenue Management (TRM)

Integrating core services pricing with ancillary revenue streams

For decades, industries like airlines, hotels, cruises, trains, buses, and ferries have used Revenue Management to optimize pricing and maximize revenue from core services. But as customer expectations evolve, so must revenue strategies. Total Revenue Management takes a more advanced approach by integrating core services with ancillary revenue streams, allowing businesses to optimize total profitability rather than just maximizing individual transaction values.

TRM extends beyond traditional pricing models by recognizing that revenue is not solely generated from selling core services, such as flight tickets, hotel stays, or cruise packages. Instead, significant revenue contributions come from ancillary services—baggage fees, seat upgrades, onboard dining, entertainment, Wi-Fi, and premium experiences.

A key differentiator of TRM is its focus on interdependencies. Instead of treating each booking as a single revenue event, revenue managers evaluate the total revenue potential of a customer. Advanced analytics help predict ancillary purchases based on customer profiles and past behavior.

This shift leads to smarter decision-making. For instance, a revenue manager might accept a booking at a lower ticket price, knowing the customer is likely to spend more on ancillaries. Instead of focusing on short-term gains, the goal is to maximize overall profitability.

At the heart of TRM lies the concept of trade-offs. Revenue managers must navigate complex decisions that balance short-term profits with long-term strategic goals. Traditional revenue management often asks:

Should I accept lower-priced reservations made well in advance to secure load factor, or should I hold inventory for potentially higher-paying customers closer to the travel date?
Should I prioritize groups booking at a lower rate during peak season, knowing they help fill low-demand periods later?
Should I accept a high-volume, low-revenue point-to-point traffic, or prioritize a lower-yielding connecting traffic who contributes more in revenue to the overall network?

TRM introduces new layers of decision-making:

Should I sell discounted tickets to the Visiting Friends and Relatives segment? While they pay less for fares, they generate substantial ancillary revenue through baggage fees.
Should I push direct sales instead of travel agency bookings? Direct sales allow for high-margin upsells like travel insurance.
Should I prioritize cruise bookings from North American guests, who statistically spend 25% more onboard?

These trade-offs require a deep understanding of both core and ancillary revenue streams.

The Displacement Cost in TRM

Another key concept in revenue management is displacement cost—the opportunity cost of choosing one booking over another. Traditionally, this is calculated based on expected ticket revenue. But in a TRM framework, displacement cost extends beyond ticket price to include ancillary spend potential.

For instance, accepting a lower base fare may seem counterintuitive, but if the customer is expected to spend significantly on baggage, meals, and onboard purchases, their total revenue contribution could surpass that of a higher-paying but low-spending traveler for ancillaries.

Despite its importance, displacement cost is rarely calculated outside sophisticated Revenue Management Systems. However, even without advanced technology, businesses can extract meaningful insights by segmenting customers based on ancillary spending trends.

The strength of TRM lies in its ability to integrate pricing strategies with ancillary revenue streams. This means optimizing:

Bundle upgrades at the time of purchase
Post-purchase upsells, such as premium seating or room upgrades.
Onboard or onsite sales
and post-journey sales, including loyalty program incentives.

By analyzing historical data, businesses can predict which customer segments will generate the highest total revenue. For example, a passenger from California may statistically generate $300 in ancillary revenue, while another segment may only contribute $50.

Although TRM might seem complex, it doesn’t always require a complete system overhaul. Some organizations have successfully optimized their revenue by simply adjusting how they input historical data into their RMS—sometimes even without informing their technology vendor. For those without an RMS, manually tracking ancillary consumption by customer segment or distribution channel can still yield valuable insights.

Data for TRM

The real power of TRM comes from having the right data infrastructure. Historically, businesses have stored ticket sales and ancillary revenue data separately, making it difficult to get a full revenue picture. Manual reconciliation is time-consuming and inefficient.

If you can’t easily extract average ancillary spend by customer segment, or analyze sales by distribution channel, it may be time to rethink your infrastructure.

With ancillary revenue playing an increasingly crucial role in overall profitability, businesses must be able to forecast total revenue—not just ticket revenue.