The fourth industrial revolution is well underway. It’s fueled by the digitalization of everything. Now, the airline industry is catching this revolutionary wave. This revolution is characterized by a shift from just selling the customer a ‘seat’ on a flight to selling a set of customized products selected for them. With this shift, the way airlines approach pricing, personalization, and revenue management has to change. This is the focus for our new research paper, A spotlight on Total Offer Optimization: Fast forward to customer-centric revenue management, which I had the pleasure of launching at the Amadeus Airline Revenue Optimization Forum 2017 in Monaco.
This paper is the second in a series where we look at the transformation of airlines for the digital world. In our first paper, Embracing Airline Digital Transformation: a spotlight on what travelers value, we introduced how to better understand what customers value and how to present them with an offer that is of value to them, right at that very moment, highlighting areas where we can help airlines optimize the end-to-end passenger experience. This paper dives deeper into the construction and optimization of customer offers and:
- Looks at the substantial changes coming in revenue management
- Explores the creation of the offer and a dynamic price
- Considers the ramifications of moving to a total offer optimization approach
- Introduces Amadeus’ vision of Total Offer Optimization
In a nutshell, Total Offer Optimization embodies the shift from fixed fare classes and static fares to personalized product mixes and dynamically generated prices. Its goal is to offer the right mix of products at the right price to each customer individually. And to do it in a way that optimizes revenue for the airline, and optimizes the price and product offering for the customer.
To address the complexity of this new offer, new technologies and methodologies must be introduced. Changes in fare filing, shopping, distribution, and ticketing are predicted as the industry moves from rigid to flexible and from static to dynamic. To better forecast future demand, approaches such as customer choice modeling and machine learning are also fundamental to the new generation of revenue management systems.
These may look like big challenges ahead, and they are. But the cost to airlines that do not address this change in our industry could be substantial. Airlines utilizing personalized offers with dynamic pricing will be in a position to gain market share and revenue. In an industry where most players have roughly equivalent revenue management technology, the first mover advantage will be significant. It is an exciting time for the airline industry.
I am convinced that this paper will be useful in helping airlines to think about revenue management strategy and direction, and how we can work together to realize it. I invite you to download a copy of A spotlight on Total Offer Optimization: Fast forward to customer-centric revenue management here.
Originally published on the Amadeus Corporate blog.