The varying costs of airfare have confused both customers and travel management companies. Fare pricing is complex and many factors contribute to change in seat prices. To ensure sustainability, it is crucial that airlines use effective pricing strategies to make the most revenue for their services along with maintaining affordability for their customers.
With airfares becoming more precise because of advanced technology, here are some trends that are revolutionizing revenue management today:
Knowing the Passenger
Airlines characterize their customers to help them adjust prices. For instance, grouping passengers as either leisure or business and setting up different pricing structures for each group.
On the one hand, business passengers book when the need arises and they don’t give much importance to cost. While on the other hand, leisure travelers book their tickets several months before the said date of travelling, just to book their tickets at a low cost. Depending on the timeframe, the airline adjusts the fare accordingly. An airline easily identifies which routes are popular with their travelers. On these routes, prices usually start low to help fill the seats to minimum capacity, the fares then rise steadily as the date of departure comes closer.
Pricing Based On Demand
Airlines have typically priced their fares based on historical data (the information which they have collected for the past few years around a particular route). But, this information is limited, as there is insufficient information about specific routes.
Nowadays, various revenue management tools can forecast demand for particular routes by taking into account external factors as well. Traditionally, adjustments were made for days of the week, public holidays, weather, and political situations. But now, more complex data is used to forecast demand for a particular route, such as tools that take into account upcoming special events (for instance, conferences, music concerts and sporting events) and their impact on demand for a specific flight.
Based On Competition
Airlines have to consider their competitor’s pricing as well while setting up the fares. Various companies have introduced specific solutions (revenue management software) to help the travel industry. These solutions help the airlines by providing an intuitive UI and provide market performance insights with in-depth fare tracking across meta-sites, OTAs, mobiles, to give airlines the real picture of their competitors.
In addition to that, there are various solutions in the market, such as ‘Rate Parity for Airlines’ introduced by RateGain (one of the leaders in providing travel software and hospitality software !products for the travel and hospitality industry). ‘Rate Parity for Airlines’ helps to maintain the right price across all channels by detecting the violations and validating it. Moreover, this solution aids in developing airline pricing strategies to minimize revenue loss and enhance profits. These revenue management solutions help retain customers whilst sustaining or increasing revenue.
Dynamic pricing and fare optimization
Airlines use many algorithms to adjust fares based on real-time data and optimize the price paid per ticket. These algorithms keep into account factors such as competitor prices changes, unfolding events, and customer segmentation, among many others and recommends pricing structures based on each customer’s potential willingness to pay. For instance, a customer that has previously taken a business class ticket or is about to achieve a loyalty status may be offered a higher price than a customer that has usually taken an economy class ticket on leisure routes for the same seat.
Keeping in mind the technology advancement and the growth of competition, airlines that keep their operations innovative, embracing a science-driven business will be able to survive in this market and capture opportunities that otherwise would be lost.