The Journey to Airline Offer Optimization

The airline industry has long discussed the capabilities needed to enable International Air Transport Association's (IATA) New Distribution Capability (NDC) to run efficiently.  The NDC program was created to help develop a new, “XML-based data transmission standard,” which enhances the communication between airlines and travel agents.

 

The benefits of NDC include:

 

• Streamlined, comprehensive customer shopping experience
• Modernized access to airline products for travel agents
• Increase airline ancillary revenue opportunities and cost savings


Essentially, NDC is an opportunity to revolutionize airline retail and bring it into the modern age, breaking from global distribution system (GDS) constraints, which hasn’t kept pace with the technology currently being used by airlines.


How does this impact airline offer optimization? Read on to learn more.

 

Customer Buying Experience

Buying airline tickets with mobile phone


Today’s retail airline offers are constrained by limited price points and inadequate ancillary bundling options. While ancillary bundles used to encompass the ticket price, baggage, and other fees, airlines have drifted from that structure over the past decade, leading to massive ancillary revenue for airlines, but frustrating experiences for customers.

In recent years, though, airlines have rejuvenated the ancillary bundles to simplify the buying process. What does this look like?

Take for example, a customer who is purchasing a plane ticket to Spain. They may opt to buy just the ticket, the ticket plus a la carte services (like insurance and baggage fees), or bundle it all for one set price.

This simplifies the process for buyers but can also provide airline’s ancillary revenue. Many customers who purchase the bundles may not have purchased each item a la carte–but by purchasing the bundle, they are spending more than they would on just the ticket, benefitting the airlines and providing the customer necessary services.


Benefits of Optimized Offers


Retailers are actively encouraging mobile shopping over desktop usage, with US mobile commerce sales reaching over $208 billion in 2018 and accounting for nearly 40% of total eCommerce sales. With the increase in mobile usage and purchases, and customer demand for instantaneous results, airline offer optimization is more important than ever.


Personalized Offers Help Customers and Airlines


The first three to five offers presented to a customer are the most likely ones they will purchase, making it all the more important that airlines generate competitive offers quickly. One way this is being done is through science-based offer optimization. Assisted by AI technology, prices for each product are calculated and intelligently bundled with ancillary products to build personalized offers. Personalized bundles are a sure way to increase ancillary revenue.

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 customer relationship management (CRM) data to construct offers based on customer segmentation and historical purchasing behavior. In a digital world, where countless airline products are available, personalization allows airlines to customize product offers to the individual needs of shoppers.


Dynamic Pricing Software Gives Airlines Control


The journey to deliver a modern airline eCommerce experience with offer optimization is not only simple, but highly effective, giving airlines more control over their pricing strategy. Of course, decisions aren’t arbitrary, but supported by dynamic software that automates information into a central location.

For many airlines, one of the challenges to generating more ancillary revenue are pricing inconsistencies. This may occur because of unidentified revenue leaks, inefficient pricing strategies, or reactive discounting.

Since the pace of pricing moves so quickly, it’s vital that airlines have access to real-time data that automatically generates pricing strategies that work. Essentially, without automated pricing data, airlines may be in the dark.

To gain control and increase airline ancillary revenue, it helps to have all information conveniently located in a central location. The benefits are:

• Easy access to price approval workflows and history
• Ability to manage and enforce pricing policies in one place
• Quickly evaluate and deploy pricing strategies
• Identify and prevent revenue and margin leaks

All of this is done with the market in mind, so airlines remain competitive while meeting the customer’s needs.


Revenue Management Made Simple with AI-Powered Pricing Tools


Airline revenue management (RM) has seen dramatic changes with the introduction of AI tools, which have also been shown to boost airline favorability on Wall Street. A sophisticated integration between shopping, revenue management, real-time availability, and merchandising systems enables airlines to maximize both overall and ancillary revenue.

Revenue managers and departments can address pricing concerns with AI and data science. Some of the primary benefits include:

• Demand forecast and optimization with decision support
• Network optimization
• Bid price control
• Class-based ancillary revenue handling and O&D forecasting

One area of opportunity that has grown in recent years is forecasting for airline ancillary revenue. Part of successful revenue management is understanding which customers need ancillary services, when, and which services. Data science and AI offer revenue managers the tools they need to understand how to craft the most successful ancillary bundles so that customers feel like they’re receiving the most value.


Humanize the Buying Experience


Artificial intelligence does more than simply help to increase revenue–it humanizes the buying experience. While it may seem counter-intuitive, AI supports the personalization of airline eCommerce, so that consumers feel like their needs are attended to.

An Accenture survey found that 58 percent of consumers are more likely to make a purchase when a retailer personalizes options for them based on past buying behavior. By leveraging the power of AI tools like PROS, airlines can provide the most appropriate options based on the individual customer, including destinations, ancillary options, and special deals.

To learn more about PROS suite of airline revenue management software and how it can help increase ancillary revenue, build customer loyalty, and put your organization on the cutting edge of dynamic pricing, contact a representative and receive a free demo today!

 

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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