7 Myths of AI-Powered Pricing Demystified

7 Myths of AI-Powered Pricing Demystified

Airlines have concerns and incorrect assumptions about the role of AI in powering the future of pricing. In this blog, we share insights from airline questions to Datalex regarding the role of AI in transforming airline pricing for the better, and for better revenues.

True AI-powered pricing, that eliminates rules and automated tasks, is a relatively new concept and is not fully understood industry-wide. Conor O’Sullivan, Chief Product Officer at Datalex and Navin Gupta, Product Manager for Pricing AI were on hand to answer burning questions, demystify some of the myths and addressing concerns that airlines have about AI-powered pricing.

 

Myth #1 – AI-powered pricing will replace my revenue management team

While some industry providers claim they will replace revenue management functions entirely, Datalex knows this is not what the industry needs. With Datalex Pricing AI, instead of replacing, we work collaboratively with airline revenue management teams to enhance what they do today, except in real-time and at scale.

 

Myth #2 – The airline will lose all control of its pricing strategy

We know from Datalex’s own research with airline executives that 93% of airlines say it is important to retain an element of control with AI-powered pricing so that the pricing strategy supports strategic objectives such as those to enter new markets, remain competitive, ensure customer loyalty, gain new customers, and maintain brand reputation. It’s important that an AI-pricing product is transparent the airline is satisfied that a degree of control is retained through supervising and monitoring techniques that give airlines peace of mind that they are very much still in control of their pricing strategy.

 

Myth #3 – Our airline will run into privacy / consumer rights issues with personalised pricing

This is a common misconception with AI-powered pricing and this concern is assuaged by the fact that we do not incorporate customer willingness to pay in order to sell the same product at different prices. The aim should be not be ‘personalised pricing’ in the strictest meaning of this; this aim should be ‘optimal pricing’ for optimal conversion dependent on demand and other inputs. This is the approach we have taken with Datalex Pricing AI, which is based on the concept of efficiency, in that the customer benefits from the optimal price based on market conditions at any given moment and this is beneficial to the airline because it is the most efficient price. For this reason, instead of mistakenly believing that AI-powered pricing is a customer-specific endeavour, it should be thought of as customer-centric as it is the most efficient price for any customer at any given moment. AI-powered pricing should be customer-centric, not customer specific.

 

Myth #4 – Our airline can make the best pricing decisions quick enough because we know our business and our customers

What your airline does today is most likely a limiting price decision-making process that tracks demand and does not take real-time competitor pricing and customer segmentation into account. Once revenue management teams consider and deal with each input and constraint, they must immediately start all over again. Thus, creating a trade-off between accuracy and speed which is a vicious circle with current revenue management processes, and a significant hindrance to an airline’s ability to react. A revenue management team cannot process all relevant demand factors, competitive insights and suggest the most optimal price at every given moment. Some products, like Datalex’s Pricing AI product, can process all inputs at any moment – within 200 to 500 milliseconds to be exact.

 

Myth #5 – Our airline data is exposed, we will be exposing our data to other airlines

It’s a common misconception that AI is a generic tool used across customers, but powerful, intelligent AI tools are uniquely trained and completely bespoke to each airline because it leverages an airline’s proprietary data and no other.

 

Myth #6 – We don’t have the internal resources needed to integrate with our revenue management system / We don’t know or have the right AI expertise

Internal resources and a lack of AI expertise are cited by airlines as obstacles to overcome in implementing AI-powered pricing. What is different about AI is that it is built on scalable, easy-to-integrate technology that is a huge change from existing legacy systems. Despite the technology being SaaS based, AI-powered pricing products still integrate seamlessly with existing legacy systems and an airline’s existing Revenue Management tools and processes.

AI education and awareness must not be underestimated. It’s important for airlines to trust technology and experienced technology providers like Datalex to fully embrace the potential of AI and lean on AI experts in the process to bring them along on this journey.

 

Myth #7 – Our revenue management team will not learn anything if they hand all the data over

It is important for Revenue Management to feel close to and involved in the AI process. To this end, we at Datalex work closely an airline’s revenue management team directly when models are trained initially. Decisions made by models which are reviewed with Revenue Management teams to assure them that it works as expected. We do not take a “big bang” approach and we always advise deploying the product initially into a small number of markets. AI adoption is a journey.

 

Summary

Beyond the obvious revenue tailwind that AI-powered pricing represents (which has been proven to increase revenue by 2% – 3.82% in Datalex production trials), there are many more opportunities for airlines to stay competitive in-market.

With demand patterns ebbing and flowing, customer confidence changing like the wind, geo-political issues and staff shortages – all industry-wide problems – airlines must have a dynamic, fast acting product that they trust is ready to react at any given moment to such a an ever-changing travel landscape. environment.

Many airlines are keen to start their AI-powered pricing initiatives, but it must be seen as a journey that is taken in steps, with existing revenue management teams in control every step of the way.


Conor O’Sullivan, Chief Product Officer at Datalex
Navin Gupta, Product Manager for Pricing AI

Retooling revenue management for the entire organization

Retooling revenue management for the entire organization

Retooling revenue management for the entire organization

Over the past two years, uncertainty has become the new normal for airlines. This has made the lives of revenue management analysts and their commercial partners especially hard as the majority of pricing decisions and forecasts are based on historical purchasing patterns.

So how can airlines move forward and focus on driving revenue to pull themselves out of the effects of the pandemic?

The obvious answer is by pursuing anything that can restore top-line growth. One of the smartest ways for airlines to do this is by investing in their products and operations to help them be more competitive in the marketplace. Revenue management (RM) systems, such as the one developed by FLYR Labs, help airlines maximize revenue opportunities and support their business growth.

Business areas that can benefit from retooling revenue management

Network, channel sales strategy, and marketing are among the top three business areas that can also benefit from retooling revenue management.

The network planning and scheduling group builds an airline’s product. Revenue management is the gatekeeper to this network, setting the market fare for access onto flights. They are also one of the first teams to see where a network strategy is succeeding or falling apart and can relay insights back to the network team in order to make the airline’s product stronger.

This insight into forward-looking revenue trends can also be used by marketing and sales strategy teams to influence the right moments to move inventory and volume or when to hold back during times of organic demand.

Do your current RM tools need an upgrade?

Many airlines invest in revenue management as a core competency and see it as key to their success. However, the range of tools available at present depends on the resources of the airline. For example, smaller airlines tend to buy an off-the-shelf product, while larger operators build their own tools and systems. Within these tools, the Revenue Management System (RMS) creates demand forecasts and price optimizations, and the analysts interact with demand and post-processing to arrive at the optimal price for their network.

As the pandemic has shown, there are weaknesses in the majority of existing revenue management solutions. Many have been built so that operators are steering their airlines using strictly historical data. Similarly, other airline groups remain heavily dependent on historical data such as the network planning teams who typically look at last year’s profitability to create next year’s schedule. Although

helpful to look at historical bookings and pricing to predict future pricing, this methodology leads to a lack of reactivity. It only works well when the coming year looks similar to the last 12 months.

In the brave new world in which we now live, predictability is no longer the norm. There is now a growing appetite for change, spurred on by the recent volatility in the market and an eagerness to look at other possible ways to approach the revenue maximization problem.

Improving reaction speeds with the latest RM solutions

The Revenue Operating System® by FLYR applies the latest AI innovations to maximize revenue, deliver measurable results, and add clarity to revenue decisions. Importantly, it differs from traditional revenue management tools in that it delivers much-improved reactivity to the volatility found in today’s marketplace. It can capture the sparks of demand that pop up but aren’t always obvious, applying analyst-grade intuition and decision making and applying it to every flight, every day, throughout the entirety of the network.

The Cirrus platform is built to serve airlines of all sizes and operating models and does not limit startup, low-cost, or network carriers from enjoying the benefits of solution capabilities, as they currently reside with other legacy systems. In fact, The Revenue Operating System offers a configuration specifically designed for the smaller or startup segment of the airline industry.

In addition to revenue maximizing pricing strategies, Cirrus also natively produces load factor and revenue predictions (both common KPIs across commercial airline functions). These metrics can be easily and quickly understood and communicated in order to bolster collaboration and empower data-driving decision making across the organization. This is an improvement compared to most native revenue management solutions whose primary model outputs are only abstract metrics or concepts such as unconstrained demand.

In recent years there have been many buzzwords thrown around between revenue management practitioners in this industry, such as NDC, total revenue optimization, and continuous pricing. However, the market is beginning to see airlines test cases that adopt these advancements in technology. With the introduction of The Revenue Operating System, airlines not only have a solution that offers backwards compatibility into their current legacy processes, but also one that has been built to optimize future technological opportunities – a world where airlines can create more personalized, real-time offers that provide the right product and right price to each customer.

If the past two years have taught the industry anything, it is that flexibility and reacting to change is essential to returning to top-line growth. Revenue management will continue to play an important part in creating competitive advantage, and, as can be seen with Cirrus, the future of revenue management is already here.


Kyle Holden, Head of User/Flight Analytics at FLYR

For more information about FLYR Labs and how we use advanced and intuitive technology to understand context and help airlines achieve their ultimate revenue potential, contact us today