Airline Dynamic Pricing: Using Advanced Data Science for Optimum Pricing Strategies
As we look at the major trends in the travel industry, one thing is clear – the future of travel retail will become more and more personalized. Airlines want to leverage the rich customer data they hold. The emergence of new AI technologies combined with new industry distribution standards will allow them to achieve this. AI algorithms and technology platforms mean that more data can be processed in real-time than ever before, generating valuable retailing insights.
New travel industry initiatives such as IATA’s NDC will enable airlines to leverage AI-based insights to deliver real-time personalized offers across all digital channels. Pricing these offers will also become more and more personalized as airlines focus more on the individual’s ‘willingness to pay’ rather than the market’s average demand at a particular price point. These developments in personalized pricing and offers will be key to driving future revenues for airlines.
In travel, as in many other industry verticals, AI is emerging as a game changer. For airlines, AI-driven commerce is opening up new opportunities as to how they can price and offer their ever-growing range of products. This will allow them to transition from transportation providers with digital sales channels, to true travel retailers selling a range of travel products from a range of travel suppliers. The successful airlines in this new travel retail world will need to be proficient in digital retailing strategies and will need to invest in systems and platforms to execute these strategies in an increasingly competitive marketplace.
So what exactly is dynamic pricing?
Airlines are often acknowledged as the trailblazers of dynamic pricing, since they started to offer the same product at multiple different price points back in the 80s and 90s. However over the last decade other online retailers have taken dynamic pricing to a new level, leveraging new technologies and defining new strategies.
While dynamic pricing is often thought of as the ability to offer a product at different price points, it is really a set of evolving pricing strategies that enable the price to be dynamically determined in real-time based on various criteria.
Airlines have a high level of maturity in how they price their tickets. But their level of pricing maturity in some new product offerings is much less sophisticated.
This is primarily due to a lack of capabilities in their current systems, which were primarily designed for airline ticket sales and do not typically lend themselves to the pricing of other digital products.
Even on the airline ticket side, airlines are beginning to explore ways to leverage new technologies to enhance current demand-based pricing and experiment with personalized pricing techniques.