2020 Edelman Finalist: Carnival Corporation & plc

Joint revenue and inventory optimization for multiple heterogeneous brands in the world’s largest cruise company

In 2020, more than 32 million people will cruise on over 278 ships, with 14 million guests from North America, 6.7 million from Europe, 4.2 million from Asia, and 1.5 million from Australasia. Of those guests, nearly 50% sail on Carnival Corporation & plc brands. As the world’s largest leisure travel company, Carnival Corporation & plc provides guests around the world with extraordinary holiday experiences and exceptional value.

Carnival Corporation & plc is comprised of Carnival Cruise Line, Princess Cruises, Holland America Line, Seabourn, P&O Cruises (Australia), Costa Cruises, AIDA, P&O Cruises (U.K.), and Cunard Line, with operations in North America, Australia, Europe, and Asia, and together serve tens of millions of guests on cruises every year.

Carnival Corporation & plc undertook a cross-brand revenue management diagnostic that revealed opportunities to strengthen the use of operations research, innovation, and automation. A cutting-edge revenue management system was needed, however, existing solutions from the airline and hospitality industries were not compatible with the idiosyncrasies of the cruise domain. As such, the company partnered with Revenue Analytics to build a complete revenue and inventory system from scratch.

Business leaders, operations researchers, and software engineers came together from around the world to build YODA (Yield Optimization and Demand Analytics). Over four years, they built a system founded on advanced analytics to forecast demand, measure price sensitivity, and ultimately recommend pricing and inventory controls.

Prior to YODA, each of the Carnival brands was managing revenue and making decisions using its own tools and processes. Tools that existed across the brands varied significantly from simplified forecasting and cancellation predictions, to analysts making decisions in Excel tools by comparing to a similar cruise from history. These tools were capable of detecting large, sudden deviances from expected behavior, but were less adept at detecting slowly-developing patterns or handling quicker incremental adjustments needed to maximize revenue.

One of the initial barriers to overcome was that of geographical diversity; organizational structures and time zones are real barriers to working across brands within the corporation. The YODA project was one cross-brand team, with defined roles and responsibilities for members based across Europe, Australia, and the U.S. In order to leverage the scale by combining efforts across brands, the team first needed alignment. Overall, the team identified 80 different categories and questions to resolve and align on an approach before designing and building a single system that could be consistently used by all brands, which were consolidated into a “Brand Alignment Matrix.” The process took almost three months, but once complete, set up the remainder of the project for success.

YODA is a system that leverages a unique quadratic programming optimization formulation (jointly optimizing both price and inventory allocations across multiple time periods). The inputs come from several machine learning algorithms to predict demand combined with an elasticity model derived from an exponential curve fit to represent the unique price-sensitivity behavior observed in the cruise industry. These models generate millions of price recommendations a day to price 65 ships.

Not only does Carnival generate 1.5% to 2.5% uplift in net ticket revenue as a result of YODA, according to pilot testing, but it also elevates the role of the pricing analyst in making strategic decisions, facilitating cross-brand coordination, and quickly reacting to a dynamic industry. As an additional measure of success, since initial deployment YODA has been adopted by an additional brand indicating it continues to be viewed very favorably internally.

In addition to the revenue benefits, YODA has driven renewed strategic conversations around the revenue management teams in each of the brands, by giving the science teams and analysts the ability to challenge long-standing principles of cruise revenue management using YODA outputs and associated models.

YODA has also set the new standard for cross-brand projects in Carnival Corporation. Not only did the project complete on time and under budget, it also fostered a level of collaboration never before seen between the Carnival brands.