By Manish Nagpal and Amanda Campbell
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Farelogix first began talking about the airline offer in 2016. Today, it's a concept that has found a firm foothold in the airline commerce vocabulary. So, what exactly is it? An offer is a proposal to sell a product or service under specific conditions. Another term we often use and hear today is dynamic offer. In a nutshell, when one or more elements of the offer can continuously change, we consider the offer to be dynamic. Dynamic offers are better than static offers because they can come closer to meeting the customer need. By more completely servicing the customer need, dynamic offers lead to happier customers and enable airlines to drive more revenue. As such, we see growing interest in dynamic offers from our customers and our industry colleagues.
Without a doubt, the dynamic offer landscape is complex. Airlines can employ any number of methods to make an offer more dynamic. To gain a better understanding of where the industry is headed, to help airlines to plot current capabilities, and map where future opportunities lie, a maturity model is helpful. A maturity model is a simple tool that outlines evolutionary stages of capability. The further you are along the path, the more ‘mature’ you are.
Mapping dynamic offer maturity is not for the faint-hearted. As we have previously noted, the dynamic offer landscape is complicated. For a start, the offer is not an indivisible unit; it comprises different elements, notably product (air and ancillaries) and price. Also, airlines have varying degrees of control over each element, so maturity in one area such as dynamic bundles may not reflect a similar maturity in another, such as pricing. What’s more, airlines can make offers dynamic by using a wide variety of tools and techniques. In our view, the less reliant a method is on legacy processes and technology, the more efficient and effective it is, therefore, the more mature.
At Farelogix, we are not of the faint-of-heart, so we have taken a stab at mapping the Path to Dynamic Offers. It is a maturity model that begins with static offers and journeys to the end-state where the offer, as we now know it, is utterly transformed. At each of the five steps along the route, our model illustrates a logical advancement in airline offer control and ownership, the ability to meet the desired traveler experience, an evolution in technical capabilities, and ultimately, increased revenue generation.
So, what are we waiting for? Let's dive in and explore!
At the first stage of our journey, we see airlines engaging in static offers, where flights, ancillaries, and bundles/brands are filed in ATPCO, locally or in a static catalogue. Embracing the status quo, this approach uses traditional systems and processes to successfully transact with customers.
Often, we see airline executives eager to make the most of what they have by enhancing the static offer to increase conversion and provide more flexibility. From a product perspective, some look to innovative tools that showcase their product investment. By using text, images, video, and 360-degree views they entice customers to buy. From a price perspective, savvy airline commerce executives find ingenious ways of adding flexibility to static offer pricing, e.g. multiple fare filings per brand or the use of dual-inventory fares (DIF).
In recent times, airlines eager to have greater control over the offer have been investing in new generation offer engines. This technology enables all elements of the offer to be created or adjusted in real-time. These engines begin with a traditional starting point, such as a filed fare. They then use unlimited data inputs to act on retailing rules for dynamic results. The objective is to align the offer with the customer need to grow both customer satisfaction and revenue. We call this the Adaptive phase.
From a product standpoint, airlines achieve a lot in this stage. For example:
• Custom bundles offered only to XYZ Corp execs
• Couples bundles offered based on shopping context
• In-cabin ‘Alcohol-Free Zones’ offered based on route e.g. flights in Middle East
• Best connections offered to high-value partner channels
• Affinity / attribute shopping
When it comes to pricing, we find that the early majority prefer to start with a filed fare or filed product and use retailing rules to discount or mark up this starting point based on load factor, time to departure, demand, trip purpose, market segment, etc.
This approach also provides extensive flexibility when it comes to pricing flights, ancillary products, brands/bundles. For example:
• Premium seat price discounted by x% based on load factor
• ATPCO-filed fare price discounted granularly by X% based on days/hours to departure
• Premium fare brand sold at incremental price based on high demand
• Granular discount based on seat index and trip purpose
Whether quantified or not, working with legacy comes with an overhead that may include unnecessary processes and technology reliance, or stifling of future innovation. Airline commerce front-runners are already exploring how to do things differently by rethinking how dynamic offers are made. They are helped by the advanced capabilities provided by market-leading offer engines.
These early adopters are bringing retailing concepts – such as total basket value and recommendation engines – into the airline commerce fold for increased uptake. For example:
• Offer recommendations based on contextual data, WTP/propensity
• Inspirational leisure bundles created by recommendation engine based on total basket value
• Offers recommendations in conversational commerce channels (i.e. digital assistants, voice search)
Early adopters are also advancing offer transformation by beginning their efforts at non-traditional starting points, such as bid price or market price, to break free from legacy and unlock fine-grained possibilities.
• Continuous pricing without fare-filing
• Real-time price adjustment using completive Infare data
• Continuous pricing using bid price and seat Index
In any model, there is always a look at where the innovators are focusing their moonshot. Our model is no exception. The final phase of the Path to Dynamic Offers model sees the complete transformation of the airline offer as we know it. We see innovators creating and pricing offers with Machine Learning(ML)/Artificial Intelligence(AI) techniques, and using algorithms and data science for precise delivery of desired traveler experience, while achieving maximum yields. Think total offer control.
• Oﬀer product mix determined by prescriptive analytics in real-time based on trip purpose, collaborative ﬁltering, social interests, current context etc.
• Algorithmic price computation based on Total Oﬀer (fare and ancillaries), trip purpose, real-time competitive data, Lifetime Customer Value, etc.
Where are You on the Path to Dynamic Offers?
Every airline has a path to dynamic offer maturity that is unique. To find out where your airline is currently positioned on the Path to Dynamic Offers, please click here to take our short, interactive survey.
This survey will:
- Provide you with a recommendation about how to move up the ladder to Dynamic Offer maturity
- Rank your airline against other airlines on the path to Dynamic Offers.*
*We will publish the aggregated results on the Farelogix Blog.