The programs that served most of the airlines for years are in need of an overhaul. Travel dynamics have changed and the assumptions that have been the basis for revenue management and pricing systems in the airline space are rapidly becoming invalid.
Low cost carriers are dictating the attributes of the emerging models and this has created a significant change in travel buying behavior.
At one time, conventional thinking that drove yield management was that passengers that could not get the fare they wanted on their preferred airline would go elsewhere or not travel at all. What we’re seeing now is shifts in buying behavior and that requires new tools to assess and respond to those shifts. Forecasting demand based upon historical patterns is no longer enough – competitive actions need to be considered.
Now, leisure travelers are taking shorter and more frequent trips, booking with shorter lead times and combining pleasure trips with business travel. Low fares rule. Business travel is taking on a new look as companies are pressuring employees to be more schedule flexible and more price sensitive. If that’s not enough to drive change, perhaps the LCCs move toward more unrestricted fare offers or greater awareness on low-cost online channels will.
So, what’s next for the legacy airlines? I’d submit its price elasticity – both for demand and cross-competitor. When the price is right, a passenger will buy. What about between competitors and perhaps different channels. Same thing, when the product is priced correctly, passengers will buy. Price differences across channels and between competitors will cause passengers to buy alternate products and make value judgments based upon what’s available and/or schedule convenience.
The time is long gone where one could count on the customer to do what they’re supposed to do. LCCs have seen to that. Airlines need to invest time to understand how the market responds to fares they offer and how it responds to fares offered by competitors.
