Getting personal – how airlines evolve pricing strategies to emulate the e‐commerce world

So much can be learned by looking beyond your own industry.

Many of the most important developments in travel industry strategy, technology and distribution have been inspired by pioneering work in the world of e-commerce.

Pricing intelligence, for example – the art of tracking, monitoring and analysing pricing data to understand the market and make educated pricing changes at speed – is a key strategy in modern retail. And smart airline revenue management teams are increasingly realising, and exploiting, the value of pricing intelligence too.

As competitor airfares change often, airlines need to constantly monitor those fluctuations and quickly adjust their own relative price positions accordingly. We’ll take a closer look at the real-world use of pricing intelligence in the airline industry later in this article.

Analysing customer activities…and responding

Personalization is another case in point.

We’re all familiar with visiting e-commerce websites, perhaps most notably the iconic pioneer Amazon, and instantly being presented with recommendations based on our previous purchases or reminders of products we have “clicked on” with interest before, but not yet bought.

By understanding their customers and what products will and will not spark their interest, e-commerce players create a strong personalized value proposition.

It doesn’t stop with e-commerce either; content providers such as Netflix know their customers well enough to suggest films or TV shows. This level of personalization ensures loyalty and a positive user experience.

Learning from e-commerce and media service providers such as Netflix, airlines successful in their market, such as EasyJet, carefully analyse the data they hold on the activity of customers and potential customers visiting their websites, monitoring every online choice and booking.

Armed with these insights, airlines can use as many marketing touchpoints as possible to ensure individual customers are targeted with relevant, personalized offers.

The frequent flyer that regularly travels from London to Paris therefore enjoys a very different marketing experience from the passenger who flies from New York to Los Angeles once a year.

Today’s customers expect the travel industry’s marketing activities to be engaging and appropriate to their unique needs and preferences,which is something that airlines are able to provide using the abundance of data at their fingertips.

In short, having revolutionized the user experience within e-commerce, personalization is now giving travel consumers the power to curate their ideal trip, benefiting both traveler and airline.

The NDC perspective

One response to the need for personalization is the International Air Transport Association (IATA) New Distribution Capability (NDC) technology standard.

As a data transmission standard, NDC aims to improve the capability of communications between airlines and travel agents.

Airlines understandably want to sell their differentiated products as effectively through business-to-business (B2B) channels as they do through business-to-consumer (B2C) channels. IATA proposes an alternative to the current distribution model, taking into account the complex distribution channels now available.

Through NDC, IATA aims to deliver travel agents (and by extension passengers) a more transparent shopping experience, with access to fuller and richer content (including ancillary products and services) than ever before.

Airlines can offer product descriptions, beyond the capability of traditional GDS displays, to help customers select the experience that best matches their needs.

The goal is for everyone to win, not least passengers being presented with an unprecedented range of choices when booking air travel and, by extension, unprecedented opportunities to select the best “unbundled” value for their specific needs. We’re back to that word again –personalization.

Is NDC perfect?Perhaps not yet. If one airline delivers seat pitch details, and another carrier does not, no comparison can be made. And speed and simplicity are highly desirable in retail and e-commerce.

Many people love making purchases quickly (with one “click”) and therefore find seemingly endless and unimportant choices time-consuming and frustrating.

We’ve all experienced the annoyance of being asked 20 questions about milk when we just want to buy a coffee in a hurry. Content differentiation is undoubtedly valuable but when does more choice than before become too much choice?

NDC must find the right balance for long-term success.

Evolving the way travelers book

NDC matters because booking channels are critical. Customers must not only like an airline’s services, but also like the way those services are booked.

Not only should it consider all channels, but also make the purchasing process simple and instant.

There is a constant stream of new customers entering the market, for example, Generation Z – people born between the early 1990s and the late 2000s – expect to do everything in their lives online and, more specifically, expect to do everything on their smartphones.

Furthermore, these digital natives expect to do everything on their smartphones easily. Booking air travel must become as quick and simple as shopping on Amazon.

Exploiting pricing intelligence

Personalisation in e-commerce shows us that you not only need information to be successful, you need to be able to use that information productively.

At Infare, as the leading data and technology company, providing global airlines and other travel industry players with meaningful competitive information converted into real-time pricing intelligence, we truly believe airfare benchmarking data empowers pricing intelligence.

And we know the quality, format and frequency of relevant data is vital, so do our 300+ customers worldwide.

Airlines and other travel industry players simply cannot compete effectively without sophisticated pricing intelligence data and information to drive decision making on pricing. And the need for accurate and complete data is set to grow exponentially as global passenger numbers increase and airlines offer their customers ever richer and individualized products and services.

Ryanair’s real-world success

One carrier taking a smart approach to airfare pricing intelligence is Ryanair. The airline aims to consistently offer the lowest fares on the market, compared to competitors serving the same route within a two-hour window.

Ryanair is an Infare customer and receives Infare’s competitive data feeds directly into its revenue management system every day.

The carrier is particularly interested in data to support “exception-based” decisions, such as identifying any flights offered by the airline which are not the least expensive option on the market.

On the rare occasion when such flights are found, highlighted and verified by Infare’s data, Ryanair can act fast to fix the situation and regain its position as the low-cost leader.

Managing dynamic prices

With such a vast amount of real-time data now available, dynamic pricing is unsurprisingly an increasingly critical tactic in the modern airline industry. As all our clients know, delivering fantastic airfares to passengers is highly rewarding. But setting the perfect price every time can be difficult.

A balance must be found between the airline’s realistic bottom-line requirements and the need to offer consumers attractive fares.

What are the challenges with dynamic pricing? The process needs to be managed carefully. For decades, pioneering yield management practices in the airline industry have shown the power of flexible pricing.

Dynamic fares, responding to changing market conditions, are an established fact of the industry. But no one wants to hear frustrated passengers complaining about travel companies, feeling exploited when journey costs seem to rise dramatically without reason at very short notice.

The travel industry must take a transparent and consumer-centric approach, ensuring passengers feel prices are at least “fair” in current market conditions, particularly bearing in mind the ease of online price comparisons.

Integration critical to perfect pricing

In the modern airline industry, no department stands alone. Plans and initiatives do not stand alone either and pricing strategies are no exception. Dynamic pricing needs the support of real-world, real-time data and pricing intelligence.

As we aim to optimize pricing strategy as much as possible, we should include differential pricing in the package too.

In fact, differential pricing – selling the same service to different customers for different prices, with broad market conditions less important than factors such as how much individual people are willing and able to pay – is essential to the future of personalization in the airline industry.

From pricing intelligence to differential pricing, airlines should explore combining multiple strategies to their best advantage. Only through such integration can airlines deliver personalized pricing offers as quickly, automatically and seamlessly as possible.

Revenue management programs will be able to offer price changes from base fares depending on the airline’s knowledge of the party making the enquiry.

An interface, for example, might allow the shopping engine of a GDS or OTA to communicate with an airline’s pricing engine, which would then carry out any desired fare adjustment.

Artificial intelligence, real-world benefits

Are there any other tactics and technologies airlines can use to maximize the benefits of the data they collect? Absolutely.

Artificial intelligence and machine learning – essentially a form of AI whereby computers learn without being explicitly programmed with new information – are exciting developments. The potential of AI (including chatbots) and machine learning has not yet been fulfilled in either e-commerce or the airline industry.

Through machine learning, complex algorithms being executed at incredible speed can identify subtle but important data patterns human beings could never have spotted.

Learning from that information, the machine can predict patterns ahead and the airline can exploit that knowledge in the creation o powerful, productive and lucrative business plans.

Machine learning is not, however, only valuable when analysing vast amounts of data.Individual customer interactions can be studied too, which brings us back to personalization and the targeted marketing we looked at earlier.

The machine that monitors every one of a customer’s interactions on an airline’s website, recording the details of each booking and every selected and rejected option, can soon learn to understand that customer’s needs and preferences.

So, when the customer next interacts with the airline, he or she can be presented with attractive, detailed flight offers that already reflect the customer’s preferences in areas such as class of travel and ancillary services. The chance of a sale is maximized.

And let’s not forget the value of personalisation in ensuring customer loyalty. If an airline consistently and proactively presents a customer with perfect, personalized flight options, why would that customer ever need to consider a rival carrier?

And soaring forward?

Predictions are notoriously difficult but we like rising to a challenge at Infare. Here are just a few observations on the years ahead:

• The airline industry’s appetite for data will become even more voracious, and rightly so – data is fundamental to progress.
• More airlines build and expand data science teams to unlock the commercial potential of the huge amounts of industry information available. In fact, most airlines should be vastly increasing the size of their current teams right now, because data science is already critical for any travel business. And we act on our own advice at Infare. We’re investing heavily in employing data scientists.
• Aside from the day-to-day logistical and operational challenges, airlines need to ensure that they maintain and improve yields to achieve profitability and long-term financial sustainability to secure free cash flow. Hence why pricing intelligence is and will continue to be crucial not only for airline revenue managers, but for the C-level themselves.
• NDC will be established as the technical backbone for new channels of offer management.
• Travelers will be booking flights and ancillary services from anywhere, at any time and in any way they feel comfortable. OTAs, voice technologies/virtual assistants such as Amazon’s Alexa, texts and chatbots will be just a few of the options available, with AI often supporting the process.
• Pricing intelligence will increasingly reflect the rise of ancillary revenues, becoming more capable of collecting and analysing data from these vital sources of income.Ancillary revenues, already prospering, will become even more important to the airline industry and particularly to many low-cost carriers.
• Real-time data, dynamic pricing, differential pricing, machine learning, AI and pricing intelligence will work seamlessly together to deliver a personalized airline service with individualized, flexible pricing.
• Airlines must and will continue to monitor the online marketing tactics of companies such as Amazon and Netflix, adapting successful strategies to each carrier’s particular needs.

Airlines must think and act like leading e-commerce players, using data and technology to offer as much choice and personalization as possible, and delivering prices on fares and ancillary services that respond dynamically to customer demand.

There are so many exciting ways in which the travel industry can continue to learn from e-commerce. At Infare, we can’t wait to play our part.