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4 ways to rethink airline RM in a personalised world
Travel suppliers were early adopters of analytical tools for demand forecasting and pricing, but the drive to personalisation is making RM work harder. Tom Bacon explains
Revenue management (RM) has certainly always been highly quantitative – requiring unique statistical and business-analytical skills to optimise use of sophisticated systems. Today, however, personalisation drives RM to ever-higher levels of analytical sophistication. Indeed, the very nature of analytics in the travel industry changes dramatically in a world of dynamic pricing and personalisation.
In retail analysis typically moves along a maturity curve that goes from being ‘descriptive’ (what was purchased) to ‘diagnostic’ (why) to ‘predictive’ (forecasting) and finally to ‘prescriptive’ (how to influence). Travel suppliers were early in the use of sophisticated analytical tools for demand forecasting for the purposes of pricing optimisation. Arguably, however, revenue management has primarily focused on the first and third types - descriptive and predictive analytics. New personalisation demands much more in those analytical arenas but also requires adoption of new diagnostic and prescriptive analytics.
A bumpy ride
Analytics is changing the face of airline RM but the change will not be easy. Rather than an extension of existing methodology or a module that can be tacked onto existing practices, these new analytical requirements represent a wholesale rethinking of RM – more micro, more customer-centric, more cross functional, and more dynamic.
Let’s consider what is needed in more detail.
- A micro focus: Airline RM prides itself on the hierarchy of fare levels and discrete forecasting for each origin-destination combination – potentially every passenger on a 100-seat airplane pays a different amount. But personalisation requires new micro-segmentation: not an anonymous $79-$99 fare range but ‘families with young children’ and even potentially ‘families traveling to DisneyWorld’ versus ‘families traveling to visit relatives’. Besides new demographic groupings, there will be segmentation within the groupings that is destination-specific, channel-specific, and even weather-specific!
- Customer-centricity: All segmentation will be built around the customer – what are his unique needs? RM has never worried much about different needs – the seat, the experience, the features used to be the same for all. New ancillary options mean airlines – and RM – can design different experiences for different passengers. This offers a new win-win opportunity as travellers can more easily purchase what they value and airlines can gain even more ancillary revenue.
- Cross-functionality: Often RM has been a silo in the airline organisation staffed with uniquely quantitative analysts but new personalisation will overlap more with marketing, ancillary, e-commerce, loyalty, and customer experience. Personalisation is likely to be the responsibility of cross-functional teams representing a variety of commercial and operations functions as well as new data scientists.
- Dynamism: As if RM isn’t dynamic enough already, personalisation will mean constant learning, more granular pricing, and potentially changing segmentation based on machine learning. Managing the model – ensuring it is effective in meeting customer needs – will require wholly new processes.
Tom Bacon has been in the business for 25 years. When he isn’t penning his regular column for EyeforTravel, he is an industry consultant in revenue optimisation, and leads audit teams for airline commercial activities including revenue management, scheduling and fleet planning. Want to find out more? Email Tom or visit his website