What is dynamic pricing? What are the risks? What are the rewards?
The recent research paper commissioned by ATPCO, Advances in Airline Pricing, Revenue Management, and Distribution, defined dynamic pricing creating three classifications:
- Assortment Optimization: selecting prices for a given product from a relatively small and finite assortment of pre-defined price points.
- Dynamic Price Adjustment: applying increments or decrements in certain situations relative to a pre-defined price point.
- Continuous Pricing: Selecting prices from a continuous range of possible values instead of from a small set of previously-defined options.
The paper also identifies some of the potential risks:
- Significant changes to existing systems
- Disruption of status quo with unpredictable results
- Negative consumer reaction to already complex airline pricing practices
- Regulatory scrutiny with uncertain outcomes
Despite the risks, the buzz surrounding dynamic pricing and the need for airlines to remain competitive hints that the time has come for new practices.
Recent trends in technology, retail, and consumer expectations point to a future that embraces personalization and the recognition of customer value—which is at the core of dynamic pricing. But building that framework won’t be easy and it certainly won’t be predictable.
Airlines will need to consider how to implement dynamic pricing alongside existing processes like interlining, corporate contracts, and group sales. Each airline will have to figure out how to incorporate current pricing, revenue management, and distribution practices. That is why ATPCO is leading several pilots targeted at solving some of the technical issues of dynamic pricing and evaluating the interoperability impact of several approaches. This is one example of many that illustrates the years of successful collaboration between the airline thought leaders and ATPCO to tackle issues facing the industry.
ATPCO is leading the conversation.
This week, the ATPCO Dynamic Pricing Working Group will convene the 2018 meeting in Tysons Corner, VA, to discuss existing dynamic pricing solutions and challenges as well as determine the viability of proposed dynamic pricing concepts and pilot solutions.
This working group will finalize the Implementation Guide describing how individual airlines and systems to utilize reservation booking designator (RBD) capabilities to improve assortment optimization, as well to incorporate the pilot findings on dynamic pricing adjustments. The working group also will begin gathering information about the requirements for achieving continuous pricing.
By working with the industry at all levels of distribution, ATPCO has established practical steps for how each airline can create its own customized offers in both traditional and new distribution capability environments. Over the last two years, we have engaged more than 70 organizations and over 200 people across the ecosystem, from airlines, GDSs, travel agencies, academia, and more to help us get us to the point where we can turn the concepts into reality with the publication of the Implementation Guide.
Contact us to learn more about Dynamic Pricing, participate in the Working Group, or get involved in a pilot program.
