The transition of the industry toward modern airline retailing continues to be a recurring theme. While heavily underway at leading airlines like some of the IATA’s Airline Retailing Consortium carriers, the digital retailing transformation is not self-explanatory, nor is the path to achieve it in the next decade or so.
What is clear, however, is that pace and journeys differ from airline to airline. First movers benefit from the advantages of being such, taking higher risks and paving the way forward for their followers. Whatever the path may be for your airline, value generation should be incremental every step of the transition.
In this blog post we will look at the value of airline offer management.
What is airline offer management?
In its 2023 whitepaper “Modern Airline Retailing – IT Provider readiness and airline transition pathways” IATA outlines the move to offer management as phase one of the industry’s transformation. After reevaluating the role of the GDS in their distribution strategy and preparing the pipes for modern NDC selling, this is the next critical step for carriers to undertake with the goal of “building, implementing, and releasing modern Offer capabilities”. What this means for carriers is rethinking bottom-up product and pricing construction, moving away from filed fares, PSS inventory and availability and adopting new products, dynamic pricing, and dynamic packaging and bundling. Read more about the benefits of GDS-free distribution here.
Building the business case for offer management
“NDC provides on average 5.3 USD per PB value creation annually, reflecting extra revenues from new offers (2.2 USD), benefits of dynamic offering (1.9 USD) and lower GDS costs (1.2 USD).“
— Modern Airline Retailing — A Business Case, IATA 2023
Defining your business strategy and objectives, related to offers
Adopting offer management should not be perceived as a purely technological change. No offer management technology can drive organizational change unless there are clear business goals and desired outcomes to target, related to how an airline positions itself and its product portfolio on the market.
To identify the revenue drivers for your offer strategy, first ask yourself what is currently and what do you want to be driving your business forward in the future. Is it your product or is it pricing? How are you looking to build your brand and market reach long-term – directly or through 3rd party channels for customer acquisition? How are you looking to grow your network – through more partners and connectivity or by expanding to brand new direct routes? These and many more questions should be answered first, so you can define a clear strategy related to the Offer and its dependencies.
The value drivers of offer management
There are two core pillars that lie at the heart of airline offer management – offer optimization and offer creation and retailing. Offer optimization is the recommendation engine that helps airlines predict the right product at the right price and is the natural evolution of revenue management. Offer creation and retailing is the construction engine that allow airlines to put together the recommended dynamic offer and distribute it “on the shelf,” regardless the channel.
These key pillars define airline offer management and can drive incremental revenues for the airline in many ways. Although conceptually no different than what airlines have been doing across RM, pricing, shopping and distribution, modern offer management is an evolution of the methodology and practices for putting the offer together that reflect today’s modern capabilities in eCommerce and digital retailing. Today, this process must be dynamic, real-time, leveraging the data around the traveler and their purchase request and the latest advancements in AI to result in an optimal for the airline and the customer offer. Learn about airline offer optimization here.
Optimizing the offer: the right products and price for the customer and their context
- Dynamic pricing: For the past few years airline dynamic pricing has been gaining wider adoption in the industry. Those of us close to RM and pricing are well aware of the universe of approaches to making a price dynamic during or post the RM decision. Traditional RM, as we know it, relies on 26 predefined price points and dynamic availability management —whereby airlines close classes to help prevent revenue leakage.
Where we are headed as an industry is moving away from RBD-based availability toward entirely class-free pricing. In between these two lies an enormous amount of revenue opportunity and at PROS, we are supporting airlines on both ends of the spectrum, helping them build their own roadmaps to dynamic pricing and capture up to +4% of revenue uplift.
There is hidden value in simply launching dynamic availability strategies that are tailored for each channel. But there is even greater value opportunity in forecasting based on customers’ willingness-to-pay, instead of class availability and deploying pricing levels in between filed fares. These all are areas airlines should be exploring and actively experimenting with based on their business objectives and the specifics of the markets they operate in to capture hidden demand. Learn what exactly is dynamic pricing in the airline industry here.
- Ancillary bundling: Fortunately, an offer is much more than just a price point. To resemble customer buying patterns across other digital retail industries, airlines must be considering the offer in its entirety. Depending on your carrier’s business model this may or may not include flight-related optional services or 3rd party products, all bundled in an optimized offer.
Ancillary and dynamic bundling techniques, whether deployed through robust merchandising engines or AI-based algorithms, are becoming central to capturing customer’s willingness-to-pay and driving value through contextualized comprehensive offerings. Diversified seat assignments pricing strategies have the potential to turn into a significant contributor to your airline’s bottom line, while driving more choice and satisfaction for travelers. The same goes for optional services like baggage charges, priority boarding, and more. Learn more about AI for ancillary optimization here.
Learn about the roadmap to offer optimization and legacy-free retailing at Outperform with PROS this May in Orlando. Register here.
Getting the offer on the shelf: omni-channel shopping, distribution, and marketing
Pricing the offer in an optimal for the customer and the airline way is only half of the equation. There is still heavy-lifting to be done to get this offer on the shelf across all sales channels – airline direct and indirect. Your airline should be actively focusing on the building blocks for a successful NDC distribution strategy. At the same time focusing solely on distribution does not suffice. Marketing is what will get travelers thinking of your brand and keeping it top of mind during the travel research and inspiration phase.
- Offer creation and retailing: The “shopping and pricing” engine, as we know it today, lies at the heart of airline offer management. It packages together any smart price decision from your RM system, all the other offer components (schedules, taxes, ancillaries) and prepares it in real-time for retail and distribution across other platforms. Carriers need full control over these critical capabilities outside their PSS to deliver their offers with speed, choice, and accuracy to customers, regardless of the shopping channel. All offer optimization and NDC distribution strategies are set up for failure should offer creation remain outside the airline’s control. It is the vehicle for any innovation your airline is considering today or in the future.
- Dynamic offer broadcasting: The final piece to successful offer management is often overlooked , as it is not directly connected to product and pricing. However, what it is connected to is not less important – the customer. Offer marketing is the key enabler for any airline to broadcast dynamic offers to travelers using the reach and scale of modern digital marketing channels. Whether through email, google ads, social media, or 3rd party partner channels you advertise on, your airline needs robust capabilities to stay ahead of the competition and top of mind for travelers. Broadcasting dynamic offers that are always available for purchase helps airlines acquire customers directly and drives higher conversion. Learn more about successful airline offer marketing techniques here.
Redistributing the IT investments to gain commercial autonomy
The Passenger Service System (PSS) has been at the center of airline commercial operations for the past decades. However, as the digital retail landscape evolves, PSS workarounds are becoming the norm, leading to innovation barriers, inefficient processes, and slow time-to-value.
A path forward for airlines to effectively manage the Offer is the gradual decoupling of commercial capabilities from operational ones. This strategic shift is the foundation for achieving commercial autonomy with low technological dependence on legacy systems, not fit for the pace and interactions in the digital environment. Commercial autonomy from the PSS is the key to retail freedom and revenue generation.
- Inventory management: The new world of offers and orders calls for strong and agnostic product management capabilities – it cannot rely on the product definition practices of the past. Offer optimization, offer creation and order management, they must all live under airline’s control through a real-time agnostic product catalog and its stock keeper. In the future world of Offers and Orders “inventory” no longer refers to a flight selling decision. In modern airline retailing “inventory” is the critical enabler for retail freedom: the single source of truth for all products and services an airline offers, their definition, attributes and the terms and conditions, as well their stock count. As a result, airlines gain full ownership of their product portfolio, with flexibility to define any transportation product, ancillary, bundle, and so much more, and are finally able to start selling as retailers first, carriers second.
No matter how diverse the retail transformation roadmap might be, for airlines offer management is the critical starting point. At PROS we’ve identified four core areas around the Offer that drive value: offer optimization, offer creation and retailing, offer marketing and inventory management. With full control over these key areas carriers can better focus on the customer and create more meaningful retailing opportunities that generate revenue.
Join us at Outperform with PROS this May in Orlando and learn first-hand from the leaders in Offer and Order Management.
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