Pricing & Revenue Management Blog

Will airline pricing optimization evolve by 2020?

Jul 26, 2016 9:00:00 AM
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Revenue Management vs. Price Optimization

Pricing optimization and revenue management will have a very different face by 2020. Digital developments in areas such as Big Data, the Internet of Things (IoT) and Artificial Intelligence will ultimately reshape the way airline pricing analytics works.

The aviation industry will face a substantial disruption in predictive analytics with the use of:

1. Big Data Analytics

Experts estimate that up to 85% of data spread out in social media information, competitive actions, web files, presentations, and marketing information are unstructured. According to Rajendra Akerkar, M Sc. in applied mathematics and a Ph.D. in computer science, the analysis is no longer a silo for database administrators and developers, but open to management positions. Big Data is providing informed confidence in competitive analysis, pooling large amounts of disseminated information and turning them into trends, projections and competitive insight for strategic, technical and operational decisions.

According to an IBM report, customer analytics will be used by revenue managers to:

  • Improve yield management and pricing.
  • Determine which customer segments are price sensitive and which ones are not.

In fact, airlines such as EasyJet are already disrupting the industry. According to its first head of data science, Alberto Rey-Villaverde:

“Technology and data are not something that falls either on the customer’s side or the business side (...) Those 95% of price adjustments that we make every day, they’re coming from what is happening every time, at every minute.”

2. The Internet of Things (IoT) 

According to a GE report, by 2020 the use of interconnected applications will be widespread. It quotes  IT research consultant Gartner, projecting that up to 25 billion connected things will be in use by 2020. "Devices will be mostly communicating with each other to negotiate and organize themselves, communicating with people only to take instructions or report back.”

"The volumetric will grow exponentially as sensors, beacons, wearables all start beaming information, connecting to each other as well as enterprise applications. In addition, IoT environments work in real time," says Neetan Chopra, Senior Vice President of IT Strategic Services for Emirates Airlines.

For the airline industry, the IoT can provide opportunities to improve operational efficiency and offer personalization to passengers. Hence, airlines are experimenting to improve the passenger experience, handle baggage, monitor equipment and getting more fuel efficiency. 

“We can expect that people will no longer negotiate their lives through a passive environment; instead, their surroundings will be quietly orchestrated by myriad automated processes," the GE report concludes. 

What’s in it for revenue? Everything. In one hand, records from Internet-based passenger interactions in daily life will provide valuable data for revenue managers to study trends, behaviors, and competitive moves; on the other hand, it can importantly reduce operating costs, and improve logistical and operational planning.

GE projects that “IoT applications could look at network optimization, in particular, the irregular operations recovery options as they continue to try to maximize the utilization of their fleet while keeping a robust schedule."

3. Multiplatform analytics

In the back office, a pricing platform connected to the IoT will help increase the capacity to input data and analyze trends from outside people's desktops.

In the 2015 Airline IT Trends Survey, SITA recalls that “airlines around the world are investing heavily in their mobile strategy, but it is not just for passengers. Employees are also being empowered with mobile devices."

According to Forbes, “the inclusion of mobile versions of statistical or data mining models for the execution of all sorts of algorithms will enable better planning and what-if scenarios directly on the tablet, without any connection to a server."

4. Integrated Customer Relationship Management (CRM) applications

Passengers’ travel preferences are ever-changing. The way the airline business engages with them and collects their information -to improve their service and anticipate to their choices- will be a crucial asset for pricing intelligence. Today, according to the book Customer Relationship Management: Modern Trends and Perspectives, “few airlines truly exploit analytics to segment customers on the basis of value rather than miles flown, and just make segmentation models. CRM execution is inefficient, as companies have separate goals.”

Transactional data has evolved, according to Nawal K. Taneja -author of Designing Future-Oriented Airline Businesses-  from booking data to integrating surveys and loyalty programs. Airlines will expand to an in-depth interaction with customers' trends and preferences. These will help gather income from other sales areas through ancillary revenuesand provide incentives for customers to choose one airline over another one.

5. Cloud-based software as a service (SaaS)

Cloud-based Devices and applications will deliver economies of scale and lower total costs of ownership, fast and lean innovations, accountability and low exit barriers and, most importantly, free resources to focus on their core business, mainly through:

  • Elasticity.
  • Scalability.
  • Accessibility.
  • Redundancy.

This will improve the capacity to respond and help revenue managers deal with software or hardware malfunctions in any premises, and access information from any device.

6. Artificial Intelligence (AI)

Artificial intelligence is going to be a trend in the airline business, and will revolutionize aviation analytics -especially in pricing and revenue management. According to EasyJet's Alberto Rey-Villaverde, whereas analytics focuses on historical diagnostic capability, AI is focused on "predictive capability, which can help organizations better understand and plan for the future." In other words, the software will learn from revenue manager's input and history, and will be able to make its decisions, reducing pricing analytics workload and increasing responsiveness." 

How do you see airline pricing technologies develop by the year 2020?

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Tags: Airline Pricing
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