Mar 21, 2018,  by Allianz Partners Business Insights

Airlines: Dynamic pricing according to the passenger’s profile

According to a recent survey by magazine Travel Weekly, airlines are starting to tailor their prices according to the profile and travel habits of their clients.

The price of a plane ticket may no longer be decided by search criteria, but rather by the passenger’s identity and travel habits, according to an investigation by American magazine Travel Weekly. A dozen or so global airlines have already adopted this “dynamic pricing” strategy instead of the traditional “yield management” method (price/occupancy rate), if we are to believe management software provider PROS, which works with 80 of the world’s major airlines.

Simply put, the airline identifies the user who is searching on their website, stores their data thanks to cookies then utilises this data, possibly using their flight history as well, explains website Tourmag. This process is incredibly straightforward when the person has a client account or, even better, a frequent flyer account. The airline can then vary the ticket price according to the passenger’s profile and travel habits.

 

Higher turnover but less transparency

 

The prices offered do not depend on the search criteria, but rather the client’s profile: frequent flyers might be sent advantages such as well-timed promotional offers, while new clients would get cheaper prices. Conversely, “business” travellers would be offered more expensive tickets because they are less likely to be put off by the higher prices.

With this system – which poses a problem regarding transparency and the respect of personal data – airlines hope to increase conversion rates (nearly 50% increase according to the first figures released by PROS), as well as profits (7% increase).

 

A pricing system inspired by Amazon

 

Though Amazon and other large companies have been using this technology for a while now, air carriers were slower to catch on due to the strict rules of the GDS (Global Distribution System). Tom Gregorson, vice-president of ATPCO, a company specialising in technological solutions for the travel industry, explains, “To move into a world of dynamic price offerings, the airline distribution industry will have to get away from the legacy fare-filing system or institute a hybrid solution.”

According to John Mc Bride, director of product management for PROS, several large carriers will adopt the “dynamic pricing science” this year, due to the NDC (New Distribution Capability) standard.

 

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