'Continuous pricing' has been popping up as the latest strategy in
airline revenue management, and although several large airline groups
are employing it on a small scale, the concept still faces technical and
regulatory challenges before it becomes widely used.
Air France-KLM, for example, has introduced continuous pricing in
selected markets, and Pieter Bootsma, the group's chief revenue officer,
last month told sister publication The Beat that it plans to expand that "progressively through all countries."
The Lufthansa Group also launched a continuous pricing offering last autumn on most European continental routes via its New Distribution Capability (NDC) application programme interface.
With 'continuous pricing', airlines offer options beyond the
traditional 26 alphabet-based fare buckets. Pricing via these buckets
generally creates a scenario analogous to stair steps, as revenue
managers open and close various buckets based on demand.
For example, a revenue manager might be able to adjust a fare from
$199 to $249 to $299, but because of the limitations of the traditional
system, they would be unable to hit price points in between.
With continuous pricing, revenue managers can adjust fares however
they like based on demand, even just a few dollars up or down, says
Chris Anthony, co-founder and managing director of Kambr Advisory, which
is helping airlines set up continuous pricing solutions. As such, those
stair steps become a slope.
"It's breaking down barriers, where airlines are now able to hit any
point on the demand curve and capture more incremental revenue," Anthony
says.
One of Kambr's clients is Norwegian start-up airline Flyr, which
plans to operate its first flight, between Oslo and Tromsø, on June 30,
followed by expansion to other Norwegian domestic markets as well as
other European destinations.
The carrier plans to start selling tickets in May and is currently in
the planning and implementation stages with Kambr to incorporate
continuous pricing, says Henning den Ouden, Flyr SVP of revenue
management.
Though air traffic volume in Norway remains low at the moment, den
Ouden said it is likely to pick up in the summer given the rollout of
Covid-19 vaccines and the expected lifting of travel restrictions.
Continuous pricing ability would be a key component for a new carrier
in the increasingly competitive Norwegian market, he says. "It gives us
the ability to have a wider range of fare levels, not being constrained
by the buckets of the legacy system," den Ouden says. "We will be able
to act and respond quicker in adjusting our fares to the market
response."
While continuous pricing might give pause to corporate travel buyers
beholden to budgets – "corporates like to have certainty, and this
almost removes certainty," Anthony says – it could also offer advantages
on the consumer side, he says.
It could ultimately make major price fluctuations in airfares less
frequent, as well as limit some current peculiarities, such as when the
price of business class fares on certain flights drift below those of
economy-class fares. Still, there are challenges in implementing
continuous pricing with legacy systems.
"We're at the starting point of the journey," Anthony says. "Most
reservation systems and distribution channels don't support it. It's
going to be an evolution as vendors roll out new technology, but for
now, not many airlines are doing it."
Upon its launch, Lufthansa, for example, made its continuous pricing
fare offers available only through direct channels and its NDC API, not
through global distribution systems.
Flyr, meanwhile, is not including GDSs as part of its initial
distribution strategy, instead focusing on its own website and app as
well as select partnerships with online travel agencies and "other
travel trade partners," which could include corporate travel management
companies using NDC standards, den Ouden says.
In the long term, however, continuous pricing and the GDSs are not
mutually exclusive, as they can use NDC interfaces to access offers.
There will be regulatory challenges to overcome as well, Anthony
explains. Some jurisdictions, for example, require fare filings, which
raises the question of how an airline that planned to offer a wide fare
range would handle it. "If your lowest fare in a market is $29 and the
highest is $1,000, would you have to file a fare for every dollar in
between?" he says.
Kambr also is working with Turkish leisure carrier Corendon Airlines
on a continuous pricing strategy. It is working on a capability that
would connect a continuous pricing module to other reservations systems,
potentially available later in the year, which would open up the
capability to more airlines.
For now, many of the experiments will start in smaller carriers
versus the large, legacy carriers, according to Anthony. "It's easier to
trial and evolve new technology on point-to-point airlines, even large
airlines like Air Asia that still follow that true low-cost-carrier
model," he says.