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The Journey From Simple Availability to Dynamic Offers

In some senses, the days of leg-based, capacity-control Yield Management were not that long ago. The advent of network optimization and O&D Revenue Management was a major, new-millennium milestone for many. The landscape changed further when industry focus turned to ancillaries and fare families, and then Merchandising, in turn, has paved the way for the continuous pricing and personalized bundles we see in Dynamic Offers. In this session, Emirates’ Amit Khandelwal invokes recent history to examine current best practices and to forecast coming developments.

About the Speakers

Amit Khandelwal is a Senior Executive at Emirates with international experience in Network Planning, Revenue Management, Commercial Strategy, Distribution Channels, Program Management and Consulting in the Travel & Hospitality industry. Throughout his 25+ years of experience, he has held leadership positions with businesses across North America, Asia, Europe and the Middle East, and possesses an extensive professional network of Industry executives around the globe.

Surain Adyanthaya is responsible for the strategy of PROS airline software products. He has worked closely with various clients in multiple industries developing revenue management solutions that address their business needs. Since joining PROS in April 1993, Adyanthaya has served in numerous positions in product development and strategic business planning, including Senior Vice President Strategic Business Development, where he was responsible for pursuing business opportunities in new industries and fostering strategic alliances. He has also served as Senior Vice President Software Development, responsible for the development of all software products at PROS. He has presented revenue management concepts and strategies at global industry conferences and has published revenue management articles in widely distributed trade journals. Adyanthaya received a B.S. in Mechanical Engineering (highest honors) from the University of Houston and a M.S. in Operations Research from Stanford University.

Full Transcript

Surain Adyanthaya: We're joined by Ahmit Khandelwal, Divisional Vice President of Revenue Optimization and Distribution at Emirates. It's an honor and a pleasure to have you today Ahmit, to join us and talk about a very important topic in the airline industry. Has dynamic pricing arrived and what is this journey from simple availability to dynamic offers? It's something we've heard about for quite some time, and we're excited to delve into that with you today. So in some senses, leg based capacity management has been around for a while, and with the advent of network optimization and O&D Revenue Management, a new Millennium of revenue optimization has occurred, but it's been about 15 years plus since that happened, and the landscape further changed when industry focus turned to ancillaries, where families merchandising and it's paved the way for a new world of continuous pricing and personalized bundles. And we've heard a lot of talk about dynamic offers and orders. So in this session, Ahmit, we'd like to invoke recent history and examine current best practices to really forecast what's going to happen and predict what the coming developments will be. I'm excited for it. So with that, the first question I'd like to ask you, Ahmit, is looking back, when did airlines first start considering dynamic pricing and applying it?...

Ahmit Khandelwal: Hi Surain, it's a pleasure talking to you on this very topical subject for the industry as a whole for Emirates, and I'm sure at your end as well at PROS, so delighted to be here, thanks for the opportunity. Coming to the question you have asked. I guess in order to forecast where we are headed, it's always important to look back in history and see where we came from. And so dynamic pricing as a subject in the airline industry has been around since the 1980s, in my view, even though some people think it's new, when American Airlines first decided to offer multiple price points and get into the basics of yield management is when dynamic pricing was introduced to the airline. We have to be very customer centric in our entire view of this world. And so if you go ask any customer today, can they do they expect prices to change from one day to the next? Do they think the same price will remain and all of them will say yes. So dynamic pricing in the airline context has been there since the 80s. In the nineties, we took it to another level with sort of leg Revenue Management systems based on MSP and so forth, where availabilities could change, which is all internal again to airline Revenue Management. In the eye of the customer, prices were too dynamic and dropped or rules almost illogically from their perspective, so dynamic pricing got more dynamic. With the advent of leg-based yield management systems. And so that I would define as phase one of dynamic pricing for the industry. Phase two of dynamic pricing was when we went in and started applying O&D based Revenue Management where real time availability, instant polling or direct polling, where the GDS and other distribution partners are asking the airline for the response and every shopping request took it to the next level. At the time as the airlines move to O&D system and real time availability. The concept of RTDP came up right and it worked that process with other airlines on that RTDP, which stands for real time dynamic pricing. I think as both you and I have said several times over the intervening decades was an idea ahead of its time. So the intent should have been at the time to not have published prices coming where atypical and availability were RTDP, but a single customized price come availability offer to make it simple for the customers. However, the underlying legacy of the distribution infrastructure prevented us from getting to that vision of real time dynamic pricing or RTDP, you know, for the last decade or decade and a half that it's been in play. And so we've lived with this sort of disjointed world of pricing coming from one source, availability from another combined together and then throwing a couple of numbers by our on the screen. And that's sort of been, I think, phase three of dynamic pricing, I believe has arrived now. And the difference between phase 3 and phase is 2, and 1 is a dynamic pricing today requires all four dimensions to be taken into account. I call it the four C’s of dynamic pricing, so competition, capacity, customer and context. Again, for the benefit of the audience, that's four C’s are competition, capacity, customer, and context. I think for the last two decades, the airlines largely have done an excellent job of keeping track of their competitors in different markets and based on their product preference, their strengths in the market, you know, matched or higher or lower prices. They've done it across, you know, 20 or 30 years. They've been able to dynamically update these prices. They can be updated via typical, often an hourly transmission basis across the globe. And the most large carriers today update millions of prices via atypical. And so that has been in place for a long time. The second dimension, which is the capacity dimension, was first addressed by the lake-based yield management systems and subsequently by O&D Revenue Management combined with real time availability where again, you know, platforms like RTDP could bias real time availability for a specific agent or specific customer, but primarily focused on capacity optimization or revenue optimization across the network based on remaining capacity. So those are the two C dimensions that the airline industry as well. Established for two decades or so, the customer dimension has been around for a while. Airlines have acted on the fringes of it, so not for every customer, but for their frequent fliers and preferred customers where they are able to offer them something different a little more in terms of bundles or different cash plus mile schemes that they're able to offer via the retail channels as well. So the customer context has been there for a few years, but not being used across every sort of customer profile of every customer segment that you would like to. So historically, again, customer segments have been treated to different price points for, you know, channels like door operators or backpackers or marine traffic or school traffic or cruise lines, et cetera but on a real time basis, knowing your customer what is purpose of travel is his or her purpose of travel is what his history of the airline is in terms of frequent flyer history, as well as in now, where we want to get to is understanding their shopping request and the purpose of travel in real time. And that's the third dimension, we need to address, not in order to extort more money out of them or try to sell them, you know, other things that may not be relevant to, but to understand their primary purpose so we can go to a modern world of digital retailing. What is the modern world of digital retailing? Instead of offering them five or seven fare brands or showing them 10 to 15 RBDs on a screen? We need to start offering them a package which suits their needs an airline offer which suits their needs, understanding who they are, what they're looking for. They're traveling for corporate reasons or family purposes, et cetera. And so that's where the fourth C comes in the context, right? So the same customer, Surain Adyanthaya, may be once be looking for a corporate trip across the pond, which, you know, leaves on a Monday morning and returns him back to Houston on Wednesday and other times. Surain Adyanthaya would be shopping for a weekend trip for a party of two or three or four, leaving out in a Friday out of Houston going domestically or internationally to leave their destination. And those two profiles because of the context, not because of who the customer is required. Different offers, right? The leisure product for the weekend trip and a corporate product for the other trip. So instead of putting the onus on the agent or the customer and customer themselves trying to choose the right fare brand or the right RBD, we need to get to a world where we are able to offer them the most relevant offer based on the context and based on the customer combined. And so those are the two Cs that most of the work needs to be done or is being done by most leading carriers in the industry.

Surain Adyanthaya: I like it, the four C’s, that really makes sense, it really encapsulates captures what we've been talking about for quite some time. Now when I think about those four C’s, do you think the most potential and most focus will be on those last two C’s in the coming years, which is, you know, the customer and the context? Where do you see the energy of the airline world going among those four C’s?

Ahmit Khandelwal: I would say absolutely the focus and energy should largely be on the last two C’s because this time around really solving the problem from a customer centric viewpoint, we're not solving it from an airline revenue maximization standpoint. It's very hard for us, our RM practitioners to make that leap of faith, which is where if you see the most recent and the most obvious development have been around continuous pricing. Continuous pricing to me is more solving for the first two C’s for competition and for capacity, and less so for putting the customer in the center and saying, who is she or he and where are they headed and what is the context of their search and therefore only offer them a product that suits their need. So even if you book two days in advance, but it's a weekend trip, really, do we want to offer you a know, walk up corporate type fare? Or do we offer you a leisure fair with the sort of lower baggage allowance or less frills, et cetera? And I think we, as our practitioners will sort of lose the opportunity if we do not focus on the remaining two C’s. Focusing on the remaining two C’s is harder because now it's no longer about the mathematical linear programming or dynamic programming optimization. However, we have enough tools with machine learning and AI to be able to find the best suited offer for every customer and in a win-win situation where you get much higher conversion, much higher share of wallet and you're able to satisfy the customer better. Versus, you know, leaving them with anxiety even after finishing a purchase of an airline ticket, as is the case today.

Surain Adyanthaya: Yeah, Yeah. Totally makes sense now. Now that we're talking about those four C’s, how do they really fit in with some of these initiatives we've seen in the airline world? It's been for a few years now, primarily driven by IATA in a very important way. Like what role NDC, one order new distribution arrangements play in dynamic offers.

Ahmit Khandelwal: Yeah, so I think again, to say, if we go back all the way to where it is, the distribution infrastructure we put in place was way ahead of its time. eCommerce, big data ,dynamic pricing for the airline industry existed long before other industries knew these terms. And so they've done as well. But I think where we've sort of fallen behind is the whole potential of digital retailing has been hamstrung due to the same infrastructure that kept us ahead of the rest of the industries. So today, retailing as is defined by Amazon and Apple and Google and eBay seems much better than what it is for the airlines. But if we went back 20 years, we were far ahead of our time in these things, and therefore NDC is a means to an end. It's actually enabled the airline to see the art of the possible for modern retailing. It enabled the distribution partners. It's unleashed a whole set of new aggregators and other players to start tapping into this opportunity. And all of this with sort of new distribution agreements with the GDS is also overhauling their distribution infrastructure. To meet these needs will are all very critical to enable this. It cannot be done by an airline stand alone. I mean, the low cost carriers have a definite advantage having a single unified platform where they can do these things with customers booking directly. But for network carriers, it is important that the whole NDC and one other infrastructure comes into play.

Surain Adyanthaya: Yeah, makes sense. So I guess continuing that line of thought. Do airlines view NDC new distribution, new distribution capability and dynamic offers one or two et cetera as more of a cost saving opportunity or as more of a revenue generating opportunity, with all the potential for bundling continuous pricing, et cetera.

Ahmit Khandelwal: Yeah, I think, as I said, NDC is only a means to an end of getting to modern retailing, and therefore, anyone who sees the whole cake and not just one buyer of it would see that it's a revenue generating opportunity. There is some distribution costs that can be achieved, right, out of either selling directly or redoing your distribution contracts. But the focus has to be at the end goal, which is the modern retailing. And so there may be cost savings along the way, but I'm sure those cost savings would be invested back into building a modern retailing infrastructure and more out of it. So that should be the end goal. And some of the studies by IATA have previously stated that out of the whole move to NDC in modern retailing, 70% is a revenue generating opportunity and 30% is a cost saving opportunity. But that number again would be different for each airline. We are different in different phases of the journey to full modern retail.

Surain Adyanthaya: Completely agree, I think that the huge opportunity is in this amazing capability to segment the customer and give them a really relevant offer that they can transact upon and have a richer and better customer experience. So we've talked about this for a while, but can you envision an airline world without RBDs? And is it a step function of going from where we are to that? Or is there a hybrid world which will have to live in the journey if we can get there? And how in that world, how do we forecast demand? How do you see us servicing the customer journey and other such things?

Ahmit Khandelwal: So I think different airlines would take different parts on this journey, right, and it would be different branches. You can do it as a step function where you first go from sort of step RBD pricing to continuous pricing. And then you go to sort of RBD list again for the underlying legacy infrastructure. And we just need to have a proxy RBD in place, but not as good as not having an RBD, just a cabin indicator, if you will, but you can also go to the hybrid routes. Some airlines, based again on their legacy infrastructure, their ability to invest in modern infrastructure might take the hybrid approach where they leave some channels on the old legacy approach with RBD, and then maybe some of the new direct modern channels on RBD less. One order type capability. And that's in hybrid. Then obviously your fulfillment, your accounting, your refund capability or customer service systems at the back end need to be able to deal with it. So definitely a hybrid model requires all of that to be covered. If you can move to a world where you can move through this sort of cabin indicator and then put the one order system in place, and then you don't need to have this sort of hybrid existence.

Surain Adyanthaya: Yep. So we often talk about these big goals and the technology and tools to help us get there. But behind the scenes managing all of this at airlines are people who are very sophisticated and skilled and knowledgeable. What organizational implications within the airline do these new approaches have?

Ahmit Khandelwal: Yeah, I think that from my understanding, from hearing all the other experts, at the different conferences, the organization challenge is a big one. I think change the changing the mindsets internally to move to modern retailing to an RBDless world. Just the ability to forecast demand by customer segments and putting customer data at the center of everything, moving away from BNR is moving away from inventory records. But you know, counting passengers based on customer records and customer profiles and customer segments, and forecasting demand by the same requires a huge mindset change. But I think we can achieve it. You know it, and I know it. When airlines first moved from leg-based Revenue Management to O&D based revenue management, the resistance within Revenue Management organizations, the resistance with the sales teams who had sales quota and targets based on legs and their country and how much they carry on a flight rather than no O&D based targets was a huge mindset change for them. This is a slightly different one because you're going sort of customer centric and but it also requires a lot more alignment. So, you know, the digital teams, the marketing teams, the website, operating teams, the Revenue Management teams, the accounting teams all need to be brought along for this change together. And so there's definite need for a sort of an articulation and a common vision across all the commercial entities and even the airport management, our organization units within my vision that need to come along on this journey so that I think is a key piece, right? And obviously for a new start up carrier like flyer out of Scandinavia, it's easy to say if we just start this way for legacy airlines networks to serve with the customer with very different shopping capabilities across the globe. And, you know, with all the interline and partnerships in place, they need to take sort of a more measured and meaningful approach with sort of an invasion, but also logical milestones on the way.

Surain Adyanthaya: Yeah, it makes sense. I think the technology, the tools are coming of age and thinking through the organization and making those right choices to get the most of the technology will be very important in the coming weeks and months, for sure. Well, Ahmit, thank you so much for joining us. We appreciate you sharing your thoughts and experiences as you deal with these topics day to day at Emirates, and we look forward to talking to you again in the near future to see how all of these things have evolved in the real world. Thank you.

Ahmit Khandelwal: Thanks Surain. My pleasure to share my thoughts with you and the audience.