Insights into Airline Revenue Management: 5 Key Pricing Trends

Marketing Team

June 11, 2019

Airline pricing advancements

As airfare prices fluctuate, travel management companies and corporate customers find themselves navigating through an increasingly complex landscape. Amidst this challenge, airlines are harnessing sophisticated strategies to optimize their revenue streams while ensuring affordability for passengers. With an average airline operating profit of merely 3%*, effective pricing strategies have become paramount.

Below are five trends that are revolutionizing revenue management for airlines.

Passenger Profiling

Airlines employ customer profiling to tailor pricing strategies. This involves categorizing passengers into business or leisure groups, each with distinct pricing structures. Leisure travelers often book months in advance, prompting airlines to set higher initial fares, which are adjusted based on demand. In contrast, business passengers prioritize convenience over cost, leading airlines to identify popular business routes where prices start low and gradually increase closer to the travel date.

Demand Forecasting

Airlines have typically priced fares based on historical data and previous information or trends around a particular route. This information is limited, as there are not enough or insufficient details on specific routes.

Today, some tools can forecast demand for particular routes based on various external factors. Traditionally, adjustments have been made for days of the week, weather, public holidays, and political situations. Now, more complex data are used to forecast demand for a particular route, such as tools specializing in upcoming special events (e.g., sporting events) and their impact on demand for a specific flight.

Artificial intelligence and machine learning

Traditionally, airlines have relied on historical data to price fares, but this approach has limitations, especially for specific routes. Today, advanced tools utilize various external factors to forecast demand more accurately. These include upcoming events like sporting events, which can significantly impact flight demand. Airlines are increasingly leveraging artificial intelligence (AI) and machine learning to predict demand patterns and optimize pricing strategies accordingly.

Artificial Intelligence And Machine Learning

Artificial intelligence (AI) and machine learning play a pivotal role in airline forecasting processes, extending beyond predicting events’ effects on pricing to understanding their impact on demand. While current demand forecasting primarily focuses on seat occupancy, predicting demand for ancillary products like extra baggage or priority boarding poses additional challenges. However, some airlines, such as Easyjet, have already leveraged AI to forecast passenger food preferences on specific routes. With access to vast amounts of passenger data, AI has the potential to transform this data into actionable insights, aiding airlines in optimizing pricing strategies and meeting customer demands effectively.

Dynamic Pricing And Fare Optimization

Airlines employ AI and algorithms to dynamically adjust fares in real-time, optimizing ticket prices based on factors such as competitor pricing and customer segmentation. For instance, loyal customers or those likely to upgrade may be offered higher prices for the same seat than occasional travelers. This approach maximizes revenue while ensuring competitiveness in the market.

Total Offer Optimization

Taking dynamic pricing further, airlines are focusing on optimizing entire product bundles, including fares and ancillary services. Total offer optimization enables airlines to personalize packages for each customer, enhancing the travel experience and mirroring the retail practices of online platforms. By deploying this strategy effectively, airlines can deliver the right offerings to travelers at the right time, driving customer satisfaction and loyalty.

Conclusion

These advancements signify a broader evolution in revenue management within the airline industry, enabling airlines to strike a balance between profitability and customer satisfaction, ultimately driving long-term success in a fiercely competitive market.

For companies utilising business travel, embracing solutions such as Oversee FareSaver is crucial for navigating the challenges of fluctuating airfare prices while optimizing their corporate travel budgets. With FareSaver, businesses can effortlessly leverage rate fluctuations and tap into savings across their air travel spend. By automating the process of monitoring for price drops and reissuing cheaper flight tickets, FareSaver ensures a seamless journey for travelers while maximizing cost savings.

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