The industry’s retailing transformation is a shared destination, and some airlines are already on their way towards dynamic offers, a significant staging post on the journey.
Airlines are taking the route that best suits their business needs, supported by an ecosystem of technology providers developing solutions based on their airline partners’ specific roadmaps.
One thing my team and I are often asked by airline leaders when the retailing transformation with dynamic offers comes up in conversation is, where is the technology to make this happen, and what proof points do we already have? It’s clear to us that what the airlines want is the confidence to invest in the future and move on from the past.
What I always answer is that traditional standards are gradually being phased outas per IATA’s vision for offers and orders . The future lies in new systems suitable for modern retailing, with artificial intelligence (AI) and data science applied as standard. This will allow airlines to combine dynamic content and the price of air fares and ancillaries, and progressively move towards dynamic offers.
Let’s have a look together at the most important elements to lead towards this transformation.
Air fares
The retailing zeitgeist has evolved since IATA noted that “there are multiple interpretations of what actually constitutes customer-centric retailing with dynamic pricing/offering ”. Dynamic pricing for air fares is live today for some airlines, generating results confirming the benefits of moving away from legacy fare filing and booking class inventory control, leading to incremental revenues, operational efficiencies, and a more contextualized experience for the traveler.
Initially, dynamic pricing was used to describe a combination of forward-looking dynamic availability and classic fare filing. This notion has evolved, and, these days, dynamic pricing is often used as an umbrella term that includes continuous and contextual pricing.
Continuous pricing allows airlines to enable unlimited price points and implement revenue management policies without filed fare restrictions.
Contextual pricing defines offers that can be priced based on contextual information available at the time of shopping. This includes length of stay, time to departure, travel day, revenue management inputs, competitive context, traveler’s predicted choice, and willingness to pay. AI uses the context to adjust prices up or down, finding the best balance between purchase probability and the airline’s margin.
Dynamic pricing for air fares is the bedrock for the future of customer-centric retailing; solutions exist and are in use and already generating positive outcomes.
Finnair has been an early adopter of many Amadeus technologies. Antti Tolvanen, the airline’s SVP Network and Revenue Management, gives us his insights into how the technology has allowed Finnair to increase its revenue.
“Amadeus Air Dynamic Pricing, driven by artificial intelligence, allowed us to test continuous pricing considering contextual insights on 70-or-so O&Ds. We saw a revenue increase of 3% on average, ahead of expectations. Our focus now is to deploy the solution at scale to unlock the full revenue potential, extend functionality and logic to ancillary services and pave the way to total offer optimization.’’
Ancillaries
Today, airlines want to propose customized offers to travelers at a particular step of their journey. At the same time, travelers are becoming more willing to pay for relevant offers, including ancillary services. This ongoing shift in the market is one of the forces driving airlines towards truly dynamic offers.
According to IdeaWorks' estimates, ancillary revenue accounted for 15% of global airline revenues in 2022. The percentage and volumes have been gradually increasing over the years, and if we look back to 2013, ancillaries accounted for only 6%.
In this context, airlines using dynamic pricing for ancillaries have the potential to optimize an already strong revenue stream. Like with air fares, airlines are starting to apply context-based and continuous pricing capabilities to a range of flight-related ancillary services. When AI is applied to the contextual data, airlines can propose ancillaries appropriate to the traveler segment. And this is just the beginning. AI is continually improving, and the industry’s objective is to go beyond this into more customer-centric retailing.
Dynamic offers
Dynamic offers are the next logical step toward the industry’s retailing transformation.
The offers can be crafted dynamically incorporating ancillary services, or bundles of air fares with ancillaries. New types of content can also be considered, including third-party services and even other means of transportation such as trains, ferries, and airport shuttles. When all these elements are priced dynamically in synch with the air fare, matching customer needs and willingness to pay, potential revenue hikes become even more significant.
Amadeus is on the wayto making it possible by exploring cutting-edge data science to work on models that determine what products to put together and how to price these offers.
Today, conversations around the retailing transformation with dynamic offers have moved away from the theoretical to the practical. With advancements in research and AI, results prove that systems in use today are already increasing revenues for early-adopter airlines. The same technology is also capable of benefitting any airline, even those at the very outset of the journey towards truly dynamic offers.
IATA’s vision for offers and orders is coming closer to reality thanks to ongoing technology innovation and the evolution of airlines’ business practices. Amadeus is working with airlines across the industry, regardless of how advanced they are in their transformation. Whether the airline is a flag carrier looking to accelerate its move to modern retailing with dynamic offers, or indeed any airline ready to take its first steps, modern retailing is on its way.
It’s time.
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