In my discussion with various people in the industry, I have come across several who are new to the concept of flown revenue or as is referred to interchangeably - availed revenue. Most experienced industry folk know about this – so for those folks - you can easily skip this blog and catch up on your emails. :-)

For those who are not sure about the concept please read on. I hope this helps when it next comes up in your next discussion about airline revenue, targets and contracts.

What is Flown Revenue and why is it relevant?

The airline industry measures a travel agents or a corporate client’s worth based on flown revenue. There is a clear distinction in the industry between sales and revenue.

Let me explain with an example.

Say a passenger purchased a ticket from Sydney to Frankfurt on 15 February for $2000 on Singapore Airlines (SQ) with the following routing:

Sector 1: SQ SYD (Sydney) to SIN (Singapore) – 28 March

Sector 2: SQ SIN (Singapore) to FRA (Frankfurt) – 03 April

Sector 3: SQ FRA (Frankfurt) to SIN (Singapore) – 05 May

Sector 4: SQ SIN (Singapore) to SYD (Sydney) – 06 May

So whilst the sales in the above scenario of $2000 occurred in February the revenue is not recognised in the month of February.

Why so? Well, it could be that the passenger changed their mind and applied for a refund of the ticket before departure. Or for some reason, could not travel and exchanged the ticket for a different routing at a later date. In those cases, the airline has not actually earned the $2000 as revenue.

In the above example Singapore Airlines will only recognise revenue when the actual contract of carriage is undertaken i.e. when the passenger flies out on the carrier on each sector.

So if we simplify the above example and assume each sector is worth $500 then we can recreate the value of the ticket by sector.

Sector 1: SQ SYD SIN 28 March $500

Sector 2: SQ SIN FRA 03 April $500

Sector 3: SQ FRA SIN 05 May $500

Sector 4: SQ SIN SYD 06 May $500

So the revenue that will be recognised by SQ will be $500 in March, another $500 in April and $1000 in May. So even though the sale occurred in February, revenue for the entire ticket was accounted for over the next three months.

This is relevant not just for SQ for it’s internal revenue recognition but they also use the same concept to recognise revenue from clients. This is where the IATA Number of the travel agent plays a part. Each ticket number is issued against an agent’s IATA Number and the revenue credits are allocated against such IATA numbers.

Advanced Flown Revenue Concepts

Let us use the above example and change that slightly. In this case let us consider if the Asia to Europe sector and vice versa were on Lufthansa (LH).

Sector 1: SQ SYD SIN 28 March $500

Sector 2: LH SIN FRA 03 April $500

Sector 3: LH FRA SIN 05 May $500

Sector 4: SQ SIN SYD 06 May $500

What happens in the above scenario? If the ticket is issued on SQ for $2000, even though SQ has $2000 in cash when the ticket is issued, LH will be invoicing SQ for it’s share of $1000 through the IATA clearing house when it picks up the passenger from SIN to FRA in April and then again for the return sector in May.

In this case just looking at ticketed or in industry jargon “plated” revenue is quite misleading. The agent or client may feel that it has provided $2000 worth of revenue to SQ however the reality is that $1000 has been flown out on LH.

Is this relevant? Absolutely!

If you have revenue and income contracts with SQ and LH then it is critical that you track your performance against each target using flown revenue with the right value in the right month. So no surprises need arise when SQ only recognises $1000 for the above ticket over different months.

If there is no contract with say LH, then you probably need to approach them for a contract based on volumes and productivity. Obviously, you need facts here to firstly prove the value you generate and also use the correct set of data that is relevant in your discussions.

So the next time you are looking at airline reports, check to see if they are ticketed or flown revenue reports. You should notice a big difference in the monthly numbers based on the two different concepts.