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Proactive Pricing for Airlines

Competitive pricing does not necessarily require always having the lowest fare in each market.  Rather it means maximizing every possible dollar from every seat sold. The challenge is to maintain the desired perception of your corporate value as compared to your competitors’ while working in a constantly changing environment. 

So how do you accomplish that and achieve a proactive pricing strategy? You become a market leader, in the appropriate markets, and set pricing trends instead of follow them. You keep down variable costs (for example, advertising, GDS fees, and commissions) and use scheduled adjustments rather than continuous ones (regular assessments made per market). And you become a power user of private fares, which typically have lower distribution costs, require less advertising, and offer low or no commission payouts.

Airplane seats are viewed as a commodity: they might look the same, but the perceived value each customer attaches to a seat is very different.  Your goal is to put your airline in the best position to be competitive yet profitable.  

Building a proactive pricing structure is a multi-faceted process: 

  1. Identify opportunities through research and monitor critical elements that will affect you and your targeted objectives. 
    1. Examine fare rules and flight/route performance
      1. Review your market share in relation to the financial opportunity
      2. Work to your strengths
    2. Know your competitors but focus on your customers
    3. Understand what your customers want and need
    4. Be consistent in how you deliver your message to customers and deliver it in a way that relates to their needs
    5. Determine the right offerings for the right customer segments at the right time by understanding how to best allocate the value you provide
  2. Focus on your strategy
    1. Determine appropriate fare levels based on market, seasons, fare type, passenger types, and promotions, among other differentiators
    2. Assess potential demand and revenue generation
    3. Segment demand to minimize spoilage and dilution
    4. Know how corporate objectives are measured and ensure pricing works toward those goals
    5. Be consistent in delivering value every day at every customer touchpoint
  3. Know your customers’ buying behaviors
    1. Ensure your strategy is relevant to the opportunity
      1. Focus on the most profitable sectors first
      2. Find ways to increase opportunity and growth sectors
    2. Understand what influences buying decisions in each of your regions
    3. Identify what distribution methods are the most effective by market
    4. Remain aware of influences on customer buying decisions (for example, regional holidays or events)
    5. Determine whether customers buy more public or private fares
    6. Research their preferred form of payment
    7. Consider whether you’re operating in primarily a leisure or a business market
  4. Communicate clearly, concisely, and consistently
    1. Align your messages with your internal sales and marketing teams
    2. Coordinate fare releases with advertising campaigns
    3. Work together to create effective promotions that deliver targeted results. Avoid the significant negative effects a poorly designed and executed promotion can cause.
  5. Monitor performance
    1. Review bookings for oversales and seat spoilage rates
    2. Validate your RASM (Revenue per Available Seat Mile) and determine if it’s acceptable
    3. Check competitive responses

Every decision a pricing team makes should be based on the value customers place on your products and services.  Pricing is arguably the single largest influencer of customer decision making, but it is not the only influence.  Therefore, the price a passenger is willing to pay is based on your ability as a company to deliver a product deemed to be worth more value than others.

A simple 1 percent increase in prices has the potential to improve overall operating profits by 12.3 percent. This makes pricing the single most powerful profit tool an airline has, even more than increasing sales or slashing costs.  Maximizing your per seat value is the key to your success. 

Taking the First Steps Toward Maximizing Your Potential

Sales opportunities expire quickly, so your focus must be on profitable pricing and building a pricing structure that is easily maintained.  Using data tools readily available to you today, such as ATPCO’s FareMaster fare monitoring and analysis tool, can help you to understand if your new customers are contributing to your growth or if they are simply replacing customers lost to competitors.

FareMaster, for example,is a unique, state of the art software package that gives you complete functional control over your fares database. With this tool, you can take your first steps into the complex world of proactive pricing, moving from merely implementing fares to establishing a position of leadership where you can directly influence demand and profitability.

Supported by the Sabre® AirVision™ fares management solution, FareMaster provides carriers the capability to effortlessly update published, negotiated, and add-on fares online. A single sign-on enables analysts to navigate easily between ATPCO’s FareManager and the AirPrice™ system to access current and historical fare information for both their carrier and their competitors. Dynamic reports rapidly alert you to market moves and trends, thus allowing you to change a single fare, an individual market, or a group of markets quickly and accurately. All data is quickly and easily uploaded for distribution by ATPCO to all subscribing global distribution systems. The completely integrated functions of ATPCO FareMastercan improve your productivity, helping you remain competitive in a rapidly changing marketplace.

For more information on how you can build a more effective pricing solution, contact ATPCO Consulting Manager David Julias at +1-703-661-7496, or djulias@atpco.net.