Hybrid Forecasting for Revenue Management in Action

SUMMARY

A top-tier, Middle East-based airline increased revenue 4.7% in three test markets, and generated an additional US $1.5 million in revenue with a hybrid pricing solution that successfully countered business traveler buy-down.

CHALLENGE

Low-cost competition, restriction-free fares and pricing transparency induced higher-fare passengers to buy at lower-cost fares – a significant threat to revenue performance.
With new competitors disrupting the industry with reduced fares and restriction-free purchase options, high-yield business travelers have virtually disappeared – and those that remain are increasingly “buying down.” Customers have been trained to wait for deals, and easy access to fare information allows price-sensitive fliers to buy when seats are cheapest. Traditional solutions do not counter “buy-down” behavior effectively, and can cause over-allocation of low-fare seats and under-allocation of high-fare seats.  Breaking this cycle requires a sophisticated hybrid forecast model.

SOLUTION

An advanced approach to forecasting and revenue management is required to future-proof the airline in a rapidly changing travel landscape.

The airline chose PROS to extend its O&D III solution to include Hybrid Forecasting. The hybrid module encompasses both yieldable demand (late-booking, schedulesensitive, brand-loyal) and airline-priceable demand (price-sensitive). Up-to-the-minute data, rich historical data, comprehensive competitive information, sophisticated customer segmentation, seasonality variations and other factors are incorporated as well. With the PROS Hybrid Solution, this airline is now able to accurately forecast demand, anticipate buy-down, determine willingness-to-pay, employ real-time dynamic pricing and, as a result, maximize its revenue.

RESULTS

The airline increased revenue by 4.7% in three test markets – and generated an additional US $1.5 million in revenue on six targeted routes.


PROS O&D with hybrid capabilities improved revenue by enabling the airline to accept more high-yield bookings and move lower-yield bookings to more profitable options. Analysis shows that the solution increased revenue 4.7% in three test markets (which serve predominantly business travelers), and generated an additional US $1.5 million in revenue on six targeted routes to/from those markets. These studies showed that a hybrid solution can be expected to produce a 1% to 4% revenue increase in predominantly business travel markets, and a 7% to 10% lift in predominantly leisure travel markets.

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