Challenges for Airline Revenue Managers Beyond 2020

This year marks the end of a landmark decade for digitization and technological adoption.

NB: This is an article from RateGain

Path breaking technologies like artificial intelligence and personalization have been incorporated into business functions to facilitate strategy execution. The fact that 72% of business leaders[1] believe that AI is synonymous with ‘business advantage’ attests this growing shift.

This year has manifested numerous ups and downs for the airline industry. Some of the disruptions include the Boeing Saga, rise in Google flights and airspace limitations between countries leading to further challenges in airline revenue management. Considering the complexity of the situation and its recurring nature, AI and technological support are seen as critical drivers for improving efficiency of the ecosystem in this testing time.

The airline industry has focused on NPS and customer issues for product/service improvement with as many as two-third[2] of the companies using NPS to track customer experience. However, this method is not applicable for identification of present and probable challenges faced by revenue managers. Over the last few months we interviewed more than 45 senior managers from different airline providers to gain insights on their anticipations for the future of airline industry and the role of data in compelling a positive change; in response of which four trends were identified.

Lesson 1: NDC will lead to Disparity

One of the biggest challenges faced by airline industry today stems from the fact that NDC generates NPC. A growing trend can be seen in favor of NDC and personalization. According to latest IATA update, the number of carriers with certified deployments has increased from 50 in 2017 to 65 in 2019[3]. This gives undue leverage to a single channel. On the contrary, major focus of the strategy should be to talk to sales channels and understand how they would ensure that all ancillary components are displayed across all channels.

Lesson 2: Growing Need for Insights in Real-time

Today, airlines face several static and dynamic challenges because of which revenue managers are required to recalibrate their strategy in real-time. This brings in a growing need for fresh data that can to be delivered quickly.

The next generation of revenue management solutions requires a holistic view of network partner data as well as total passenger value. Therefore, real time insight into total revenue for every date of departure for every flight in each market is required, emphasizing on the need for live data.

In addition, time is most crucial. Airlines that lack access to real-time data and insights, experience delayed and inaccurate decision-making, which in turn has a direct impact on market share, revenue and structure of their product offerings in comparison to that of their competitors.

Lesson 3: Persona-Based Pricing

Dynamic pricing has hit almost every ecommerce ensemble, with the airline industry adopting it like no other. Persona-based pricing promises to take dynamic pricing to another level with price update based of customer information and demand.

There are legal issues involved because while some customers are expected to benefit, others may feel trapped because of the non-transparent system. However, the next 5-10 years[4] is not expected to see any new booking classes and as a result, personalized pricing is expected to stay and grow.

Lesson 4: Price Elasticity

Price elasticity, in simple terms, is a measure of the percentage of more passengers who are expected to choose a provider if the price drops by a certain percentage. The aviation industry has for long debated on effective measurement of this metric.
However, it continues to be a valuable measure in comprehending scope for commercial opportunities particularly with lowering down of fares. The importance of this metric has particularly increased in view of the growing number of carriers in the transatlantic region, preparing to expand by providing low cost long haul offerings.

Looking at the Future

As we approach the end of 2019, there are some major takeaways for revenue management companies; the most profound of which stresses on the fact that it is time to not just focus on pricing, but also see look beyond daily challenges to be ready to solve for challenges beyond 2020.

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Sources:

1. https://cmo.adobe.com/articles/2017/5/15-mind-blowing-stats-about-emerging-technology-tlp-ptr.html#gs.217l2a
2. https://lumoa.me/blog/net-promoter-score-statistics
3. https://www.altexsoft.com/blog/travel/new-distribution-capability-ndc-in-air-travel-airlines-gdss-and-the-impact-on-the-industry/
4. https://blog.blackcurve.com/personalised-airline-pricing-is-here-to-stay

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