Continuous Pricing for Airlines: Leveraging Customer Data for Real-Time Optimization

Traditionally, airlines have employed dynamic pricing techniques based on some predefined fare classes. These prescribe pricing tiers, often leading to sudden price jumps as demand fluctuates. For example, passengers may be offered fixed fares of $200, $225, or $250, depending on availability and booking timing. Although helpful in managing yield, this approach often causes airlines to lose potential revenue and leads to customer dissatisfaction.

But with the arrival of the New Distribution Capability (NDC) standard, airlines can now move into continuous pricing—a more fluid type of pricing. This innovation opens up limitless possibilities for airlines to offer any price between traditional fare buckets, allowing for real-time adjustments based on market conditions and customer behavior.

What is Continuous Pricing?

Continuous pricing, unlike predefined fare buckets, frees airlines to set their fares at any point within the range. For example, instead of offering $200 or $250, they could offer $210 or $245. This flexibility allows airlines to optimize their pricing strategies, capturing demand and maximizing revenue potential. It can also be explained as not losing a sale potential because of a small amount of discount or not getting down-paid by a high willingness to pay consumers.

Attractive continuous pricing combines customer data. Airlines can make more tailored offers and develop competitive pricing strategies informed by real-time insights into passenger behavior and preferences.

Harnessing Customer Data for Continuous Pricing

Customer data is the backbone of continuous pricing, providing invaluable insights that allow airlines to refine their pricing strategies. Here are several ways airlines can leverage customer data to optimize continuous pricing:

1. Personalized Pricing and Offers: By analyzing past booking behavior and preferences, airlines can tailor their offers to individual passengers on their direct channels. For instance, frequent flyers may receive customized pricing that reflects their loyalty and booking habits. This approach not only enhances the customer experience but also encourages repeat business.
2. Search Behavior and Look-to-Book Ratios: Airlines can track the look-to-book ratio—the number of searches compared to actual bookings—for specific routes. By understanding which flights are highly searched but not booked, airlines can dynamically adjust prices to incentivize bookings, effectively converting interest into sales. Searches need to be classified on the maturity of intentions. Fake and robotic searches can misguide your strategy.
3. Segmented Offers: Customer segmentation is another powerful tool. By categorizing travelers based on demographics, travel patterns, or booking history, airlines can create targeted pricing strategies. For example, business travelers may be more willing to pay a premium for last-minute bookings, while leisure travelers may prioritize cost-effectiveness. This allows airlines to align their pricing strategies with customer needs. This is a low-hanging and delicious fruit. You can balance your passenger persona distribution or prioritize the right segment for the competition. And that could work on all NDC channels.
4. Upselling Ancillary Products: Continuous pricing can extend beyond ticket sales to ancillary products, such as seat upgrades or baggage fees. By analyzing customer data with the help of machine learning and AI, airlines can predict which passengers are likely to purchase these extras and offer them at optimized prices, increasing the chances of successful upsells.

Advantages of Continuous Pricing

1. Smoother Price Transitions: Continuous pricing reduces sudden fare increases, providing a more consistent and predictable pricing experience for customers. By analyzing customer data, airlines can further stabilize prices, resulting in higher customer satisfaction.
2. Optimized Revenue Management: With the ability to adjust fares in real-time, airlines can more effectively capture demand fluctuations. By integrating customer insights, they can anticipate behavior and set optimal prices to ensure maximum profitability.
3. Enhanced Customer Experience: Continuous pricing enables personalized offers, enhancing satisfaction and building loyalty for stronger customer relationships and increased lifetime value.

Continuous pricing represents a significant evolution in airline pricing strategies, enabling real-time adjustments based on demand, booking behavior and market conditions. By unlocking the power of customer data, airlines can create more competitive and personalized pricing options that not only optimize revenue but also improve the overall customer experience.

As the airline industry continues to adapt to a data-driven landscape, continuous pricing will play a pivotal role in shaping the future of airline pricing strategies, enabling carriers to meet the evolving needs of travelers while maximizing their profitability.