Sit through any Airline Revenue Management 101 class, and you are bound to hear the fundamental question: “Who gets the last seat?”
This seemingly simple question is the reason for decades of research, mathematics, science and technology. To answer that very question, major airlines have set up departments of hundreds of analysts and data scientists and invested significant resources. And what many non-industry people may think is an easy answer actually involves complex concepts like “dynamic programming” and “demand forecasting”.
Revenue management (RM) was born when airlines began to experiment with differentiated fare products to stimulate demand for seats that would otherwise fly empty. It then evolved into yield management, which focused on maximizing revenue with analytics-based inventory control. Today, airline revenue management continues to evolve to drive incremental revenue through powerful AI-backed forecasting and optimization methods.
First, What Is Revenue Management?
The crux of revenue management is the ability to determine the right price, at the right time, for the right passenger. With so many moving parts and complications like capacity, scheduling, and competitor movements in the industry, a robust and powerful revenue management (RM) system is essential. Revenue Management tools like PROS provide AI-powered forecasting and optimization features that offer conclusions in real-time, workflows so analysts can drill down into the data and make decisions, and a phased approach to dynamic pricing.
The sophistication and evolution of airline revenue management software solutions is driven by the increasing complexity of the travel landscape. According to IATA figures, airlines are now flying to over 20,000 unique city pairs. Not only are airlines flying to more locations, through even more complex itinerary options, but the number of passengers is expected to double by 2036. This complexity combined with special events, seasonality, shifting demands and increased competition all weigh in on the answer to the simple question “who gets the last seat?” This is a question that a revenue management system can answer.
Let's explore what great airline revenue management looks like.
1. It makes the analyst’s life easier.
Automation and ease of workflows are a key part of a good revenue management system. This means working closely with the end user to understand their day to day processes and decision making needs. Then automating processes, like drilling down on market behavior and quickly adding influences, can free up analyst’s time to focus on activities that add greater value to the airline’s bottom line instead.
2. It leaves you confident in what the system is telling you.
The system is there for a reason and managers shouldn’t have to adjust off what it recommends. But for revenue management departments to trust their systems, it has to be built on sound, proven science. For good revenue management systems, words like “AI” or “Machine Learning” aren’t just buzzwords, but they are researched, tested, and proven parts of forecasting and optimization methodology.
3. It has a history and a future.
This is where the rubber meets the road. As the complexity of markets increase, airlines need a solution that they can trust and with a deep history in solving the day to day challenges of airline revenue management departments. But it’s not just about experience. It’s about investing in research and development and bringing to market real innovation that pushes the boundaries of revenue management as the industry evolves. As airlines transform into retailers, revenue management solutions need to also be lockstep with the strategies across the airline including ecommerce and distribution.
Learn more about how PROS Airline Revenue Management Software can help you maximize revenue across every site, every flight, every day.