The Journey to Airline Offer Optimization

The airline industry has long discussed the capabilities needed to enable IATA’s New Distribution Capability (NDC). The NDC standard will allow airlines to take back control of how products are distributed and presented to the market. It’s also an opportunity to revolutionize airline retail and bring it into the modern age, breaking free of archaic GDS constraints. Today’s retail offers are constrained by limited price points and inadequate ancillary bundling capabilities, preventing airlines from leveraging innovative technology like dynamic pricing and personalized ancillary bundling to drive additional revenue. In the age of modern commerce, where 85% of households shop using a mobile device, presenting the right offer to the customer, with offer optimization, is essential to meeting the needs of today’s travelers.

Since the first three to five offers presented to a customer are the most likely to be purchased, it’s important to be fast with a smart offer. Scientific offer optimization dynamically calculates a price for each product and intelligently bundles the right ancillary products to construct personalized offers that are appealing to individual shoppers. While rule-based airline dynamic pricing is prevalent, it is a far step behind scientifically calculated dynamic prices. Proper airline dynamic pricing leverages sophisticated revenue management systems to construct continuous price curves that estimate a shopper’s willingness-to-pay. Personalization allows airlines to leverage invaluable CRM data to construct offers based on customer segmentation and historical purchasing behavior. In a digital world, where countless airline products are available, and differentiating one from another is increasingly difficult, personalization allows airlines to customize product offers to the individual needs of shoppers.

The journey to deliver a modern eCommerce experience with offer optimization may appear long and complex. But there are steps you can take to bridge the gap between the world of today and the world of tomorrow with a solution that scientifically calculates a dynamic price, while working with today’s fare class constraints. In fact, several airlines have already taken vital steps toward offer optimization by enabling dynamic pricing for groups and individuals, paving the way to the inevitable classless world. For many airlines, the biggest challenge is offloading costly pricing and availability transaction from the host, making it nearly impossible to achieve pricing independence. Airlines must gain complete control, across all channels, of the offer creation with accurately priced itineraries that contain optional ancillary products and services.

Emerging amongst the disarray of NDC is the harmonization between revenue management (RM) and eCommerce. A sophisticated integration between shopping, revenue management, real-time availability and merchandising systems enables airlines to leverage NDC to maximize revenue through offer optimization. RM accounts for network displacement with forecasting and optimization science that generates the price elasticity parameters needed to scientifically calculate a dynamic price. eCommerce manages shopping and merchandising tools to price and bundle ancillary products that construct the optimal personalized offers for the shopper—all fully capable of supporting inspirational, affinity and calendar shopping. When artificial intelligence (AI) is added to the mix, airlines get invaluable insight, and cutting-edge capabilities, such as price guidance recommendations, automatic price adjustments according to competition and ancillary bundling incentives for passengers.

Offer optimization goes well beyond NDC and into the heart of scientific revenue optimization and airline distribution. These offers must be distributed with industry-leading technology, capable of sub-second response times and across an infinitely scalable platform to achieve the required precision and value airlines are seeking. The integration of RM and eCommerce provides airlines with unrivaled personalization and control of offers and unleashes the power of offer optimization.

About the Author

Alberto Carlos Hinke

Alberto Carlos Hinke is the director of Strategic Consulting for PROS Travel business. He works with airlines around the world, helping them shape their modern commerce strategies.

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