Airlines can add up to 5% additional net revenues to the bottom line if they improve their pricing processes, access real-time data to calculate fares, and rely on cloud-based technology to uncover hidden revenue opportunities, according to "The High Cost of Doing Nothing," our recently published infographic.
Shortly after unveiling our pricing intelligence platform at the Aviation Festival in Miami last month, my colleague and Airnguru co-founder Javier Jimenez and I were interviewed by Airline Profits. And when it comes to airline profits, we quickly formed a consensus - there aren't enough of them.
CEO Sergio Mendoza explained how Big Data and Artificial Intelligence (AI) are changing our lives, our jobs and airline pricing, as Airnguru participated as an exhibitor at Aviation Festival Europe 2016, held in London on 7-9 September.
Earlier, we looked at some airline industry trends, wondering whether airline pricing optimization would evolve by 2020, as digital developments in areas such as Big Data, the Internet of Things (IoT) and Artificial Intelligence are reshaping the way airline pricing analytics works.
A couple of weeks ago, Richard Branson, the founder of Virgin Airlines, called for an exciting challenge on LinkedIn. He asked people how they think air travel will have changed in 10 years’ time.
Internet, the enabler; Low Cost Carriers, the flagships
We (the elder) remember those obscure times when legacy carriers were trapped by the oligopoly of the Global Distribution Systems (GDS's) outspread through their exclusive brick & mortar travel agency partners, and had no control of their ever growing distribution costs ("the distribution cost trap"). I remember those times when total distribution costs (including travel agent commissions, booking costs, sales office costs, etc) represented around 20%-25% of legacy airlines' revenues.
Unexpected time zone changes are common around the world. Authorities, when deciding on changing a time zone, don't seem to understand the holistic and negative impacts they cause. They disrupt our agendas at work, generating confusion and lost productivity for weeks and sometimes for months. Computer operating systems, smartphones, productivity software, etc, loose synchronization. Time zone changes also represent a challenge in the management of risk. In the airline indusrty, time zone changes have logistical, financial and commercial consequences, affecting airport operations, flight itineraries, distribution and, of course, passenger service and airlines' costs.
In a previous post we spoke about fuel, exchange rates and other variables influencing pricing strategies. Today we will focus on a single, external variable, that affects the potential benefit of pricing strategies.
One of the most relevant tasks for an airline is making sure that the investment they made in fleet and itinerary gets the maximum possible return. This task is in the hands of several "post itinerary" functions within the airline, involving at least pricing, revenue management, sales and marketing teams, which, empowered by sophisticated analytics, make their best efforts to maximize the expected net revenues.
However, there are external barriers that constrain the growth potential of the airline and limit the power of the airline's pricing strategies. Some of these constraints may produce a relevant social detriment, because they limit the service quality and growth potential of the airline business as a whole and thus, they damage the economy. It may be the case, for example, of airport taxes and fees.
Pricing and revenue management teams aim at maximizing the expected net revenues produced from a given itinerary. Their fundamental levers are the price structures (demand segmentation rules and price levels) and the inventory allocation (demand forecasts and inventory optimization and allocation). Robust airline pricing and revenue management strategies involve the analysis and visualization of some critical variables and their long term behavior. These variables affect the optimum prices and inventory allocation directly or indirectly, in sometimes complex ways and substantial amounts.
Cloud-based applications are quickly spreading across many areas. The Cloud combines networks, servers and applications in a shared pool, generating huge efficiencies of scale. Companies and people can rent services hosted on the Cloud, that are customized to their particular needs. Software as a Service (SaaS) is a term specifically used for business solutions which are provided on a subscription-based model, accessed through a web browser and maintained and stored at the service provider data center or on the Cloud.