Pioneering airlines like Air Canada launched branded fares in the mid-2000s to overcome the challenges of fare transparency enabled by the Internet. While hugely successful, branded fares still reflect the old ways of forcing customers into segments, one trip at the time, and airline revenue management (RM) essentially assumes requests are made. RM then recommends how to respond. That sounds very 2019.
Customer segments behind branded fares are used to control the distribution of seats. The perks (like seat selection & FFP points) or penalties (like no points & luggage fees) are not personalized or priced based on individual customer willingness to pay. Is that 2022? I believe it is certainly not the future.
Most innovations in commercial airline management and technology at some point become obstacles to the next required transition. We are now at such a point. What will happen to branded fares? Do they need simplifying to move to more sophisticated retailing?
Everything now is about enhancing passenger experience across the whole journey from shopping to post-flight services. I do not believe pricing and RM systems enhance the passenger experience and improvements will likely come from outside RM’s box.
Modernising RM outside RM systems
I see two main streams of practices in airline RM. The first will be working on patches to update deficiencies exposed during Covid19, the other creating modern customer retailing optimization through artificial intelligence (AI). Legacy RM systems will be used until older reservation system interdependencies can be retired and ticket auto-pricing has evolved.
The second new stream will be optimizing revenue including new content sourced from experience aggregators through application programming interfaces (API) and IATA’s New Distribution Capability (NDC), a communications standard. It will support customer-centric retail bundling and better pricing and customers will see higher-value product bundles in their baskets.
Both these streams use AI, but in very different ways. Updating current RM systems involves patches to system components (such as demand forecasting) using intent-to-purchase analysis through online search. But only as it relates to selling seats. I call this a “local” application of AI.
There is also a second stream of initiatives around what I call holistic ‘enterprise’ RM. This where RM philosophies can contribute to all commercial aspects.
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“Revenue Management was (arguably) always about controlling distribution [of seats]. It was also about responding to booking requests. But the modern Internet of Things context is not necessarily about customer-triggered requests, but about data-driven offer management even when there is no request, or when the seat is the last item sought”
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In my work I see readiness to redesign RM from the customer’s perspective, not from the flight or seat distribution perspective.
The starting point is the customer and their identity, past experiences, interests, and future desires. The discovery of what they want is as much the task of the travel provider and of the customer. Both sides will analyse whatever content they can find.
RM needs to mature to drive offer management through conversational AI by asking questions like:
Should the airline not have the advantage so they can add value?
How do you determine what to present to the customer?
Who says the flight is the starting point?
Maybe that turns pricing and RM into contributors to passenger experience.
Enhancing passenger experience
Giving customers more control over what they value contextually is key. That means pushing the à-la-cart notion to it’s extreme, where the customer picks and chooses items, amenities and activities, with the value and willingness to pay going up as they choose more because they keep getting a more attractive deal.
That is linking dynamic offering to in-process order management; linking order management to real-time procurement (aggregators), and re-pricing the bundle during the digital conversation with the customer. A win-win. It creates stickiness.
It also means treating the seat not just as a commodity within the passenger journey but as a value proposition for in-flight experience. How digital selling is executed depends on the stage of discovery and order cycle. This requires a complete overhaul in modern offer management systems.
It is not inconceivable that we will start unbundling what business class is based on passenger rather than airline perspectives. On a short flight from New York to London, some people only want the bed. In terms of value perception a lot of work is needed in these cabins and even more so in first class. As premium leisure travel becomes even more prominent, airlines will need to rethink the “all-inclusive” model at the pointy end.
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