Share this article
s the relentless pace of COVID-19 drags on, month after month, a narrative has been taking shape that the pandemic upended airlines' commercial model.
Commentators from The Wall Street Journal to industry analysts have cited the unpredictability of much diminished demand as a leading factor, and moves like United Airlines abolition of change fees seem to validate the pressure for change.
Yet, this analysis misses the mark. SARS-Cov-2 is a catalyst - or the event that comes along to reveal that the emperor has no clothes - but the dysfunction and stagnation present in airline commercial processes existed long before coronavirus became a household name.
So Many Customer Journey Blind Spots
Onboard a newbie to airline revenue management/pricing and you are bound to sow disappointment.
- Technology is antiquated.
- Methodologies are stale.
For decades, airlines have made their inventory decisions based on historical bookings - i.e. the passengers who completed a reservation in the past.
- How many times did that passenger search before booking?
- What routes, what dates?
- How many people were looking for flights out in the world of the internet or global distribution systems?
Most have no idea. No clue.
In essence, decision-making boils down to what happened, not the potential - the optimal - of what could have happened.
And remember, this is all historical. What about the present? Very few airline systems present data in real-time. Even fewer are capturing what is happening on their website or within meta searches, right now.
The percentage of airlines where the number one commercial strategy is 'follow competitor x's pricing' is much higher than you think.
With such hazy visibility, easy-to-do but rarely the most effective processes take hold. The percentage of airlines where the number one commercial strategy is 'follow competitor x's pricing' is much higher than you think.
Even revenue itself is a tricky matter. Decisions are typically made using fare estimates - approximations of revenue value. A whole slew of circumstances can alter these amounts leading to junk data and inaccurate outputs.
COVID-19 did not make this world; it did, however, expose just how far behind other online and retail businesses airlines have fallen. Historical data is meaningless when nothing in history is comparable.
Real revenue, offer based, is essential to squeeze out any extra value. When bookings are down by 80%, you better be managing your entire demand funnel, not just what falls out the bottom.
Airlines Must Capture True Demand
Airlines should - and can - get a clearer picture of true demand. The collection of search data, from airline.com, third-party sites, booking systems allows for the dynamic capturing of market conditions, and not confined to the traditional route-based box.
People, after all, might search for flights to a dozen airports when pondering a holiday to the Greek Islands. Overlaid with passenger characteristics (size of party, length of stay, etc.), a system can also apply a micro-segmentation analysis.
The added benefit? The offer presented to those shoppers dreaming of Greek beaches will differ based on customer traits. The family of five with little kids needs more baggage. The couple wants a row with a blocked, empty seat. Matching the right product with the right profile will drive up probability of purchase and total revenues.
Not only do we reveal the real extent of the demand pool, but the journey through the funnel of different micro-segments.
But data only goes so far. What airlines do with it leads to revenue, for recovery and beyond. Airlines' commercial activity is plagued by disjointed decision-making.
In a world where the top priority is where to return capacity - which routes, how much, when and for what price - it behooves airlines to stop making these decisions piecemeal.
A marketing campaign may target routes for which revenue management thinks boosting awareness is unnecessary.
Loyalty is hoping to keep the most valued customers happy, but revenue management refuses to release inventory. Scheduling focuses on operational factors alone.
In a world where the top priority is where to return capacity - which routes, how much, when and for what price - it behooves airlines to stop making these decisions piecemeal.
Utilize true demand to influence capacity.
Low interest? Trigger marketing activities. High intent? Increase prices. Underlying it all: reset the rules, terms and conditions to correlate to passenger value and expectations.
Let's start with just thinking about commercial as commercial. Conversion rates, load factor, sales - these are incomplete metrics, applicable to only one lever. Everyone should be unified around a passenger revenue maximization index.
Once airlines start down this path, they will never want to go back.
