The role of revenue management in modern airline retailing
For many years, the airline industry has been paving the road in revenue management by providing scientific systems to resolve inventory capacity constraints.
These systems optimize the balance between traveler demand, pricing, and product value based on the customer’s price sensitivity.
With the industry moving towards modern retailing, airline and traveler needs are shifting.
Revenue management is undergoing its own evolution, and - significant changes are expected to arise from the adoption of the cloud, and the deeper integration of artificial intelligence (AI) and machine learning (ML). It will also result in more flexibility, enabled by a platform-based approach.
The importance of the evolution in revenue management is highlighted by the recent Amadeus Travel Technology Investment Trends report. In this report, 34% of the airlines surveyed identified the modernization of their revenue management strategies as a top five technological priority for the coming 12 months.
Within Amadeus Nevio, revenue management is going to play a fundamental role in modern offer management, aiming at maximizing traveler revenue contribution. It will enable the foundation of offer optimization by providing accurate demand forecasts and leveraging on the predicted customer’s price sensitivity, ensuring an effective airline pricing strategy.
How can airlines embrace modern retailing?
Established practices that have served the industry well over the decades are evolving to take full advantage of the new retailing possibilities for airlines, while delivering a personalized and great experience for travelers.
The introduction of Amadeus Nevio represents a paradigm shift in modern retailing, moving away from flight-centric systems towards traveler-centricity.
In the revenue management world, this means a move to Offer and Order with a switch from static booking classes and filed fares to the optimized and continuously created and priced offers.
Airlines willing to embrace modern retailing should consider evolving from their existing architecture to a more flexible approach. This will enable them to better meet the dynamic needs of the market and sell their offerings at desired prices. This is one of the essential steps that airlines need to take before moving to modern retailing.
Revenue management embarks airlines on a transformational journey
Already today, airlines can unlock additional revenues through the earliest iterations of next-generation revenue management techniques. In 2021, Amadeus introduced active forecast adjustment (AFA) to allow airlines to quickly adapt to changes in market demand. Results showed that a 10% increase in forecast accuracy can generate a 1% increase in revenue.
SAS piloted this approach during its pandemic recovery phase. The airline found that using AFA across 92 origins and destinations, resulted in a 30% improvement in SAS’ forecast accuracy compared to its pre-pandemic baseline.
Nowadays, such a capability remains relevant as booking behaviors have evolved, and more seasonal and spontaneous demand means that airlines need better adaptability to develop their pricing strategies and forecasts.
The outlook of current revenue management possibilities
The airline industry’s future lies in evolved systems suitable for modern retailing, with AI and data science applied as standard.
Revenue management systems need to be prepared, as the change won’t be an overnight switchover, nor should it be. It’ll be gradual and phased in according to each airline’s specific business needs, readiness, and pace to transition.
As the industry steers away from the traditional analytical models used for static content towards more advanced knowledge-aware AI systems, airlines can combine tailored content with optimized price computations and move progressively towards dynamic offers.
AI is crucial to interpreting large amounts of data and supporting airline business decisions to increase their revenue.
At the same time, airlines need to be in control to make the right decisions for their business. Amadeus research highlighted the benefit of a hybrid approach (combining a machine learning model with human domain knowledge with data-driven approaches) for the best airline revenue management and price optimization. By integrating human expertise with machine learning, airline systems can improve data efficiency, reliability, and transparency in AI models.
Price optimization complements revenue management by leveraging contextual data of each shopping session using AI models across various data sources. This provides airlines with the opportunity to shift toward offer optimization and unlock commercial benefits of total offer optimization, with more tailored and relevant offers for each traveler.
Revenue management continues to play an important role, executing the strategical pricing policy while price optimization defines the tactical pricing on top. By strengthening the integration of those capabilities, we aim for consistency in the overall optimization chain.
British Airways recently chose Amadeus Network Revenue Management for the Offer and Order world to help the airline take full advantage of the changing retailing landscape.
As a key part of British Airway’s wider transformation journey, the airline will use the solution to manage the relationship between price, demand, and capacity, through pricing and inventory control.
Paul Shade, Head of Product Optimisation at British Airways, explains how Amadeus Revenue Management solution will power modern retailing for the airline:
“By combining competencies, experts are able to drive excellence across the revenue management, data science, and pricing areas to ensure we reach our commercial potential. Together, we will accelerate the transition to the new revenue management systems, build a new culture, and prepare our teams for commercial success as a true retailer.”
Paul Shade Head of Product Optimisation, British Airways
What's on the horizon for revenue management?
We expect to see further advancements in offer optimization as the industry continues to embrace new technologies and generate increasing volumes of data. New techniques, such as dynamic content, or an ML hybrid approach to forecasting using either historical or live data that also allows for the easy integration of external data, are under development.
Amadeus has also started to look at other potential techniques like quantum computing as a way to supercharge the development and deployment of next generation revenue management systems.
Furthermore, the open nature of cloud-based systems supports platformization, allowing airlines to enrich their ecosystem with best-of-breed partners from within the industry and beyond. This open and modular approach allows airlines to transition to offers and orders at their own pace, on their own terms, and in synch with their business objectives.
Amadeus is heavily invested in the move to Offers and Orders and is at the vanguard of many of the technological and business process changes that will become part of this new era of opportunity for airlines.
In the revenue management arena, our end goal is to support the industry with total offer optimization. Our work so far has delivered concrete proof points to validate our approach. Advanced revenue management system models complemented with price optimization are confirmed prerequisites of modern retailing. Amadeus’ priority remains to align our proven leadership in the science of revenue management with our deep knowledge of the travel ecosystem for the benefit of all our airline partners and their travelers.
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