According to a variety of industry sources, dynamic pricing has begun to impact the airline industry. More and more airlines are using dynamic pricing strategies to create additional revenue, while many other are seriously looking into exploring this option. But what does this trend mean? And why is it so effective?
The Dynamic Airline DNA
Airlines are no strangers to quick, on-the-fly pricing changes. They’ve been doing it for decades. Traditional revenue management systems have been controlling the availability of fares on specific flights based on history and performance. When they need to fill upcoming flights becomes apparent, availability is automatically adjusted. The same goes for flights that fill up quicker than expected – the lower price levels are quickly gone from the market.
Taking Off with Advanced Dynamics
Pricing adjustments – via deals, bargains, miles and bundles – focus on increasing sales. Yet dynamic pricing is different. It focuses on selling at the right sale price.
In a nutshell, dynamic pricing offers the best possible price for specific products, at any given time. Currently, price levels are fixed – they are filed for every season, and have significant gaps between them. When implemented accurately, dynamic pricing does more than sell seats and fill flights. It extracts additional revenue from the products it sells, by creating the ideal price for interested consumers.
To successfully perform its designated tasks, dynamic pricing engines must be able to analyze vast amounts of data, which has not been previously taken into account – user behavior, competitor data, supply and demand and much more – in a matter of seconds. The travel industry offers a host of additional parameters that must be considered at any given time, including day of purchase, hour of purchase, class type, destination type and more.
In order to be effective, dynamic pricing requires boundaries. It must operate within the strict confines of a pricing strategy clearly defined by airline management. This strategy may also be affected by industry standards, from traditional ticket sale systems to travel regulations.
Today’s airline sector is extremely competitive. Charter flights have been around for decades, and low-cost airlines are eating up larger portions of the “sky-pie”. High-quality airliners can’t always compete with low-cost prices, and they shouldn’t have to. They offer their customers more than just a seat from one destination to another. In order to extract the maximal value by creating the optimal pricing for what they’re offering – a seat, a service, a supreme flight experience, additional on-ground products – these airlines require vast and accurate data analysis. This analysis will help airlines create ideal prices that target individuals and not only collectives. It can also generate a wide range of profitable cross-industry products, thus greatly enhancing business partnerships with other travel companies.
To sum up, the dynamic price calculated at every given moment is not only intended to sell. It’s an exact reflection of airlines’ product offering, to whoever’s looking to buy, at the exact moment they’re looking to buy it. It’s also the ultimate revenue accelerator.